e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
quarterly period ended June 30,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File No.: 0-50231
Federal National Mortgage
Association
(Exact name of registrant as
specified in its charter)
Fannie Mae
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Federally chartered corporation
(State or other jurisdiction
of
incorporation or organization)
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52-0883107
(I.R.S. Employer
Identification No.)
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3900 Wisconsin Avenue, NW
Washington, DC
(Address of principal
executive offices)
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20016
(Zip
Code)
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Registrants telephone number, including area code:
(202) 752-7000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2010, there were 1,117,616,288 shares
of common stock of the registrant outstanding.
PART IFINANCIAL
INFORMATION
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Item 2.
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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We have been under conservatorship, with the Federal
Housing Finance Agency (FHFA) acting as conservator,
since September 6, 2008. As conservator, FHFA succeeded to
all rights, titles, powers and privileges of the company, and of
any shareholder, officer or director of the company with respect
to the company and its assets. The conservator has since
delegated specified authorities to our Board of Directors and
has delegated to management the authority to conduct our
day-to-day
operations. Our directors do not have any duties to any person
or entity except to the conservator and, accordingly, are not
obligated to consider the interests of the company, the holders
of our equity or debt securities or the holders of Fannie Mae
MBS unless specifically directed to do so by the conservator. We
describe the rights and powers of the conservator, key
provisions of our agreements with the U.S. Department of
the Treasury (Treasury), and their impact on
shareholders in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (2009
Form 10-K)
in BusinessConservatorship and Treasury
Agreements.
You should read this Managements Discussion and
Analysis of Financial Condition and Results of Operations
(MD&A) in conjunction with our unaudited
condensed consolidated financial statements and related notes,
and the more detailed information contained in our 2009
Form 10-K.
This report contains forward-looking statements that are
based upon managements current expectations and are
subject to significant uncertainties and changes in
circumstances. Our actual results may differ materially from
those reflected in these forward-looking statements due to a
variety of factors including, but not limited to, those
described in Risk Factors and elsewhere in this
report and in Risk Factors in our 2009
Form 10-K.
Please review Forward-Looking Statements for more
information on the forward-looking statements in this report.
You can find a Glossary of Terms Used in This
Report in the MD&A of our 2009
Form 10-K.
INTRODUCTION
Fannie Mae is a government-sponsored enterprise that was
chartered by Congress in 1938 to support liquidity, stability
and affordability in the secondary mortgage market, where
existing mortgage-related assets are purchased and sold. Our
most significant activities include providing market liquidity
by securitizing mortgage loans originated by lenders in the
primary mortgage market into Fannie Mae mortgage-backed
securities, which we refer to as Fannie Mae MBS, and purchasing
mortgage loans and mortgage-related securities in the secondary
market for our mortgage portfolio. We acquire funds to purchase
mortgage-related assets for our mortgage portfolio by issuing a
variety of debt securities in the domestic and international
capital markets. We also make other investments that increase
the supply of affordable housing. Our charter does not permit us
to originate loans and lend money directly to consumers in the
primary mortgage market.
Although we are a corporation chartered by the
U.S. Congress, our conservator is a U.S. government
agency, Treasury owns our senior preferred stock and a warrant
to purchase 79.9% of our common stock, and Treasury has made a
commitment under a senior preferred stock purchase agreement to
provide us with funds under specified conditions to maintain a
positive net worth, the U.S. government does not guarantee
our securities or other obligations.
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EXECUTIVE
SUMMARY
Our
Mission, Objectives and Strategy
Our public mission is to support liquidity and stability in the
secondary mortgage market and increase the supply of affordable
housing. We are concentrating our efforts on two of our
objectives: supporting liquidity, stability and affordability in
the mortgage market and minimizing our credit losses from
delinquent loans. Below we discuss our contributions to the
liquidity of the mortgage market, the performance of the
single-family loans we have acquired since January 2009, our
future single-family credit losses, and our strategies and
actions to reduce credit losses on our single-family loans.
Please see BusinessExecutive SummaryOur
Business Objectives and Strategy in our 2009
Form 10-K
for more information on our business objectives, which have been
approved by FHFA.
Providing
Mortgage Market Liquidity
We support liquidity and stability in the secondary mortgage
market, serving as a stable source of funds for purchases of
homes and multifamily housing and for refinancing existing
mortgages. We provide this financing through the activities of
our three complementary businesses: Single-Family Credit
Guaranty (Single-Family), Housing and Community
Development (HCD) and Capital Markets. Our
Single-Family and HCD businesses work with our lender customers
to purchase and securitize mortgage loans they deliver to us
into Fannie Mae MBS. Our Capital Markets group manages our
investment activity in mortgage-related assets, funding
investments primarily through proceeds we receive from the
issuance of debt securities in the domestic and international
capital markets. The Capital Markets group is increasingly
focused on making short-term use of our balance sheet rather
than on long-term buy and hold strategies and, in this role, the
group works with lender customers to provide funds to the
mortgage market through short-term financing, investing and
other activities. These include whole loan conduit activities,
early funding activities, dollar roll transactions, and Real
Estate Mortgage Investment Conduit (REMIC) and other
structured securitization activities, which we describe in more
detail in our 2009
Form 10-K
in BusinessBusiness SegmentsCapital Markets
Group.
During the first half of 2010, we purchased or guaranteed
approximately $423 billion in loans, measured by unpaid
principal balance, which includes approximately
$170 billion in delinquent loans we purchased from our
single-family MBS trusts. Our purchases and guarantees financed
approximately 1,026,000 conventional single-family loans,
excluding delinquent loans purchased from our MBS trusts, and
approximately 115,000 multifamily units. From January 2009
through the first half of 2010, we purchased or guaranteed an
estimated $1.2 trillion in loans, measured by unpaid principal
balance, which includes approximately $205 billion in
delinquent loans we purchased from our single-family MBS trusts,
financing approximately 4,151,000 conventional single-family
loans and approximately 487,000 multifamily units.
We remained the largest single issuer of mortgage-related
securities in the secondary market during the second quarter of
2010, with an estimated market share of new single-family
mortgage-related securities of 39.1%, compared with 40.7% in the
first quarter of 2010. If the Federal Housing Administration
(FHA) continues to be the lower-cost option for some
consumers, and in some cases the only option, for loans with
higher
loan-to-value
(LTV) ratios, our market share could be adversely
impacted if the market shifts away from refinance activity,
which is likely to occur when interest rates rise. In the
multifamily market, we remain a constant source of liquidity and
have been successful with our goal of expanding our multifamily
MBS business and broadening our multifamily investor base.
2
The
Performance of Single-Family Loans Acquired Beginning in 2009
and Our Expectations Regarding Future Credit
Losses
In this section we discuss our expectations regarding the
performance of the single-family loans we have purchased or
guaranteed since the beginning of 2009, shortly after entering
into conservatorship in late 2008, and our single-family credit
losses. We refer to loans we have purchased or guaranteed as
loans that we have acquired.
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Since the beginning of 2009, we have acquired single-family
loans that have a strong overall credit profile and are
performing well. We expect these loans will be profitable, by
which we mean they will generate more fee income than credit
losses and administrative costs, as we discuss in Expected
profitability of our single-family acquisitions, below.
For further information, see Table 2: Serious Delinquency
Rates by Year of Acquisition and Table 3: Credit
Profile of Conventional Single-Family Loans Acquired.
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Almost all of our realized credit losses in 2009 and 2010 on
single-family loans are attributable to single-family loans that
we purchased or guaranteed from 2005 through 2008. While these
loans will give rise to additional credit losses that we have
not yet realized, we estimate that we have reserved for the
substantial majority of these losses.
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Factors
that Could Cause Actual Results to be Materially Different from
Our Estimates and Expectations
In this discussion, we present a number of estimates and
expectations regarding the profitability of our loans, our
future single-family credit losses, and our draws from and
dividends to be paid to Treasury. These estimates and
expectations are forward-looking statements based on our current
assumptions regarding numerous factors, including assumptions
about future home prices and the future performance of our
loans. Our future estimates of these amounts, as well as the
actual amounts, may differ materially from our current estimates
as a result of home price changes, changes in interest rates,
unemployment, government policy matters, changes in generally
accepted accounting principles (GAAP), credit
availability, social behaviors, other macro-economic variables,
the volume of loans we modify, the effectiveness of our loss
mitigation strategies, management of our real estate owned
(REO) inventory and pursuit of contractual remedies,
changes in the fair value of our assets and liabilities,
impairments of our assets, or many other factors. Changes in our
underlying assumptions and actual outcomes, which could be
affected by the economic environment, government policy, and
many other factors, including those discussed in Risk
Factors and elsewhere in this report, could result in
actual results being materially different from our expectations
and estimates.
Expected
Profitability of Our Single-Family Acquisitions
While it is too early to know how loans we have acquired since
January 1, 2009 will ultimately perform, given their strong
credit risk profile, low levels of payment delinquencies shortly
after their acquisition, and low serious delinquency rate, we
expect that, over their lifecycle, these loans will be
profitable. Table 1 provides information about whether we expect
loans we acquired in years 1991 through 2010 to be profitable.
The expectations reflected in Table 1 are based on the credit
risk profile of the loans we have acquired, which we discuss in
more detail in Table 3: Credit Profile of Conventional
Single-Family Loans Acquired and in Table 37: Risk
Characteristics of Conventional Single-Family Business Volume
and Guaranty Book of Business. These expectations are also
based on numerous other assumptions, including our expectations
regarding home price declines set forth below in
Outlook. As shown in Table 1, we expect loans we
have acquired in 2009 and 2010 to be profitable. If home prices
were to decline significantly, these loans could become
unprofitable. We believe that these loans would become
unprofitable if home prices declined more than 20% from their
June 2010 levels over the next five years based on our home
price index, which would be an approximately 34% decline from
their peak in the third quarter of 2006.
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Table
1:
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Expected
Lifetime Profitability of Single-Family Loans Acquired in 1991
through the First Half of 2010
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As Table 1 shows, the key years in which we acquired loans that
we expect will be unprofitable are 2005 through 2008. Loans we
acquired in 2004 were originated under more conservative
acquisition policies than loans we acquired from 2005 through
2008; however, we expect them to perform close to break-even
because those loans were made as home prices were rapidly
increasing and therefore suffered from the subsequent decline in
home prices.
Loans we have acquired since the beginning of 2009 comprised
over 30% of our single-family guaranty book of business as of
June 30, 2010, and we expect that these loans will
generally remain in our guaranty book of business for a
relatively extended period of time due to their historically low
interest rates. The loans we acquired in the first half of 2010,
like those we acquired in 2009, have a weighted average interest
rate at origination of 4.9%. Our 2005 to 2008 acquisitions are
becoming a smaller percentage of our guaranty book of business,
having decreased from 63% of our guaranty book of business as of
December 31, 2008 to 45% as of June 30, 2010.
Performance
of Our Single-Family Acquisitions
In our experience, an early predictor of the ultimate
performance of loans is the rate at which the loans become
seriously delinquent within a short period of time after
acquisition. Loans we acquired in 2009 have experienced
historically low levels of delinquencies shortly after their
acquisition. Table 2 shows, for loans we acquired in each year
since 2001, the percentage that was seriously delinquent (three
or more months past due or in the foreclosure process) as of the
end of the second quarter following the acquisition year. As
Table 2 shows, the percentage of our 2009 acquisitions that was
seriously delinquent as of the end of the second quarter
following their acquisition year was more than eight times lower
than the average comparable serious delinquency rate for loans
acquired in 2005 through 2008. Table 2 also shows serious
delinquency rates for
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each years acquisitions as of June 30, 2010. Except
for the most recent acquisition years, whose serious delinquency
rates are likely lower than they will be after the loans have
aged, Table 2 shows that the June 30, 2010 serious
delinquency rate generally tracks the trend of the serious
delinquency rate as of the end of the second quarter following
the year of acquisition. Below the table we provide information
about the economic environment in which the loans were acquired,
specifically home price appreciation and unemployment levels.
Table
2: Serious Delinquency Rates by Year of
Acquisition
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For 2009, the serious delinquency
rate as of June 30, 2010 is the same as the serious
delinquency rate as of the end of the second quarter following
the acquisition year.
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(1) |
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Based on Fannie Maes House
Price Index (HPI), which measures average price
changes based on repeat sales on the same properties. For the
second quarter of 2010, the data show an initial estimate based
on purchase transactions in Fannie-Freddie acquisition and
public deed data available through the end of June 2010,
supplemented by preliminary data that became available in July
2010. Including subsequently available data may lead to
materially different results.
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Credit
Profile of Our Single-Family Acquisitions
Single-family loans we purchased or guaranteed from 2005 through
2008 were acquired during a period when home prices were rising
rapidly, peaked, and then started to decline sharply, and
underwriting and eligibility standards were more relaxed than
they are now. These loans were characterized, on average and as
discussed below, by higher LTV ratios and lower FICO credit
scores than loans we have acquired since January 1, 2009,
as well as by other higher-risk loan attributes such as low or
no documentation and interest-only payment features. As a result
of the sharp declines in home prices, 24% of the loans that we
acquired from 2005 through 2008 had
mark-to-market
LTV ratios that were greater than 100% as of June 30, 2010,
which means the principal balance of the borrowers primary
mortgage exceeded the current market value of the
borrowers home. This percentage is higher when second lien
loans secured by the same properties that secure our loans are
considered. This sharp decline in home prices and the severe
economic recession that began in December 2007 significantly and
adversely impacted the performance of loans we acquired from
2005 through 2008. We are taking a number of actions to reduce
our credit losses, and we describe these actions and our
strategy below in Our Strategies and Actions to Reduce
Credit Losses on Loans in our Single-Family Guaranty Book of
Business.
In 2009, we began to see the effect of actions we took,
beginning in 2008, to significantly tighten our underwriting and
eligibility standards and change our pricing to promote and
provide prudent sustainable homeownership options and stability
in the housing market. As a result of these changes and other
market conditions, we reduced our acquisitions of loans with
higher-risk loan attributes. The loans we have purchased or
guaranteed since January 1, 2009 have had a better credit
risk profile overall than loans we acquired in 2005 through
2008, and their early performance has been strong. Our
experience has been that loans with stronger credit risk
profiles perform better than other loans. For example, we
believe a strong predictor of loan performance is LTV ratio,
which indicates the amount of equity a borrower has in the
underlying property. As Table 3 demonstrates, the loans we have
acquired since January 1, 2009 have a strong credit risk
profile, with lower original LTV ratios, higher FICO credit
scores, and a product mix with a greater percentage of fully
amortizing fixed-rate mortgage loans than loans we acquired from
2005 through 2008.
Table
3: Credit Profile of Conventional Single-Family Loans
Acquired(1)
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Acquisitions from
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2009 through the First
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Acquisitions from
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Half of 2010
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2005 through 2008
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Weighted average
loan-to-value
ratio at origination
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67
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%
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73
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%
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Weighted average FICO credit score at origination
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760
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722
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Fully amortizing, fixed-rate loans
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96
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%
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86
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%
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Alt-A loans
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14
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%
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Subprime
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%
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Interest-only
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1
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%
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12
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%
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Original
loan-to-value
ratio > 90
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5
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%
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11
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%
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FICO credit score < 620
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5
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%
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Represent less than 0.5% of the
total acquisitions.
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(1) |
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Loans that meet more than one
category are included in each applicable category.
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Improvements in the credit risk profile of our 2009 and 2010
acquisitions over prior years reflect changes that we made to
our pricing and eligibility standards, as well as changes
mortgage insurers made to their eligibility standards. In
addition, FHAs role as the lower-cost option for some
consumers for loans with higher LTV ratios has also reduced our
acquisitions of this type of loan. The credit risk profile of
our 2009 and 2010 acquisitions has been influenced further by a
significant percentage of refinanced loans, which generally
perform well as they demonstrate a borrowers desire to
maintain homeownership. In the first half of 2010 our
acquisitions of refinanced loans included a significant number
of loans under the Home Affordable Refinance Program
(HARP), which involves refinancing existing
performing Fannie Mae loans with current LTV ratios
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between 80% and 125% and possibly lower FICO credit scores into
loans that reduce the borrowers monthly payments or are
otherwise more sustainable, such as fixed-rate loans. If the
volume of HARP loans continues at the current pace, the LTV
ratios at origination for our 2010 acquisitions will be higher
than for our 2009 acquisitions. However, the overall credit
profile of our 2010 acquisitions is expected to remain
significantly stronger than the credit profile of our 2005
through 2008 acquisitions. Whether the loans we acquire in the
future exhibit an overall credit profile similar to our
acquisitions since January 1, 2009 will also depend on a
number of factors, including our future eligibility standards
and those of mortgage insurers, the percentage of loan
originations representing refinancings, our future objectives
and market conditions.
The changes we made to our pricing and eligibility standards and
underwriting beginning in 2008 were intended to more accurately
reflect the risk in the housing market and to significantly
reduce our acquisitions of loans with higher-risk attributes.
These changes included the following:
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Established a minimum FICO credit score and reduced maximum
debt-to-income
ratio for most loans;
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Limited or eliminated certain loan products with higher-risk
characteristics, including discontinuing the acquisition of
newly originated Alt-A loans (we may continue to selectively
acquire seasoned Alt-A loans that meet acceptable eligibility
and underwriting criteria; however, we expect our acquisitions
of Alt-A mortgage loans to continue to be minimal in future
periods);
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Implemented a more comprehensive risk assessment model in
Desktop
Underwriter®,
our proprietary automated underwriting system, and a
comprehensive risk assessment worksheet to assist lenders in the
manual underwriting of loans;
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Increased our guaranty fee pricing to better align risk and
pricing;
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Updated our policies regarding appraisals of properties backing
loans; and
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Established a national down payment policy requiring borrowers
to have a minimum down payment (or minimum equity, for
refinances) of 3% or 5%, in most cases.
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If we had applied our current pricing and eligibility standards
and underwriting to loans we acquired in 2005 through 2008, our
losses on those loans would be lower, although we would still
have experienced losses due to the rise and subsequent sharp
decline in home prices and increased unemployment.
Expectations
Regarding Credit Losses
Since the beginning of 2009, we have reserved for or realized
approximately $100 billion of credit losses on
single-family loans, almost all of which are attributable to
single-family loans that we purchased or guaranteed from 2005
through 2008. While loans we acquired in 2005 through 2008 will
give rise to additional credit losses that we have not yet
realized, we estimate that we have reserved for the substantial
majority of these losses. Our reserves for credit losses consist
of our allowance for loan losses, our allowance for accrued
interest receivable, our allowance for property taxes and
insurance receivables, our reserve for guaranty losses, and the
portion of fair value losses on loans purchased out of MBS
trusts reflected in our condensed consolidated balance sheets
that we estimate represents accelerated credit losses we expect
to realize. We show how we calculate our realized credit losses
in Table 13: Credit Loss Performance Metrics.
As a result of the substantial reserving for and realizing of
our credit losses to date, we have drawn a significant amount of
funds from Treasury through June 30, 2010. As our draws
from Treasury for credit losses abate, we expect our draws
instead to be driven increasingly by dividend payments. We
believe that the losses we ultimately will realize on certain
loans may be less than what we will have provided for in our
reserves due to accounting requirements. If this occurs, we will
adjust our reserves over time as losses are realized, including
recapturing reserves.
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Our
Strategies and Actions to Reduce Credit Losses on Loans in our
Single-Family Guaranty Book of Business
To reduce the credit losses we ultimately incur on our book of
business, we are focusing our efforts on the following
strategies:
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Reducing defaults to avoid losses that would otherwise occur;
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Pursuing foreclosure alternatives to reduce the severity of the
losses we incur;
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Managing foreclosure timelines efficiently to reduce our
foreclosed property expenses;
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Managing our REO inventory to reduce costs and maximize sales
proceeds; and
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Pursuing contractual remedies from lenders and providers of
credit enhancement, including mortgage insurers.
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Reducing defaults. We are working to reduce
defaults through improved servicing, refinancing initiatives and
solutions that help borrowers retain their homes, such as
modifications. We refer to actions taken by our servicers with
borrowers to resolve the problem of existing or potential
delinquent loan payments as workouts, which include
the home retention solutions and the foreclosure alternatives
discussed below.
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Improved Servicing. Our mortgage
servicers are the primary point of contact for borrowers and
perform a key role in our efforts to reduce defaults and pursue
foreclosure alternatives. We seek to improve the servicing of
delinquent loans through a variety of means, including improving
our communications with and training of our servicers,
increasing the number of our personnel who manage our servicers,
directing servicers to contact borrowers at an earlier stage of
delinquency and improve telephone communications with borrowers,
and working with some of our servicers to establish
high-touch servicing protocols designed for managing
higher-risk loans.
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Refinancing Initiatives. Our
refinancing initiatives help borrowers obtain a monthly payment
that is more affordable now and into the future
and/or a
more stable loan product, such as a fixed-rate mortgage loan in
lieu of an adjustable-rate mortgage loan, which may help prevent
delinquencies and defaults. In the second quarter of 2010, we
acquired or guaranteed approximately 126,000 loans through our
Refi
PlusTM
initiative, which provides expanded refinance opportunities for
eligible Fannie Mae borrowers. On average, borrowers who
refinanced during the second quarter of 2010 through our Refi
Plus initiative reduced their monthly mortgage payments by $127.
Of the loans refinanced through our Refi Plus initiative,
approximately 47,000 loans were refinanced under HARP, which
permits borrowers to benefit from lower levels of mortgage
insurance and higher LTV ratios than those that would be allowed
under our traditional standards. Overall, in the second quarter
of 2010, we acquired or guaranteed approximately 354,000 loans
that were refinancings, compared to 417,000 loans in the first
quarter of 2010, as mortgage rates remained at historically low
levels.
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Home Retention Solutions. Our home
retention solutions are intended to help borrowers stay in their
homes and include loan modifications, repayment plans and
forbearances. In the second quarter of 2010, we completed home
retention workouts for over 132,000 loans with an aggregate
unpaid principal balance of $27 billion. On a loan count
basis, this represented a 26% increase over home retention
workouts completed in the first quarter of 2010. In the second
quarter of 2010, we completed approximately 122,000 loan
modifications, compared to approximately 94,000 loan
modifications in the first quarter of 2010. Our modification
statistics do not include trial modifications under the Home
Affordable Modification Program (HAMP), but do
include conversions of trial HAMP modifications to permanent
modifications.
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It is too early to determine the ultimate success of the loan
modifications we completed during the second quarter of 2010.
Approximately 58% of loans we modified during 2009 were current
or had paid off as of six months following the loan modification
date, compared to approximately 37% of loans we modified during
2008. Please see Risk ManagementSingle-Family
Mortgage Credit Risk ManagementManagement of Problem Loans
and Loan Workout Metrics for a discussion of the
significant uncertainty regarding the ultimate long term success
of our modification efforts.
As Table 4 illustrates, our single-family serious delinquency
rate decreased during the second quarter of 2010, but remains
high. This decrease in our serious delinquency rate is partly
the result of the home retention workouts we completed during
the quarter, as well as the foreclosure alternative workouts we
discuss below.
During the second quarter, we announced enhancements to improve
the effectiveness of our home retention solutions. These changes
become effective in the coming months and include:
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Enhancements to our loss-mitigation options to provide payment
relief for homeowners who have lost their jobs by offering
eligible unemployed borrowers a forbearance plan to temporarily
reduce or suspend their mortgage payments;
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New servicer requirements for staffing, training and performance
monitoring of default-related activities as well as enhanced
guidance for call coverage and borrower contact; and
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New requirements for financial information verification before
borrowers can be offered a loan modification outside of HAMP.
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Discouraging Strategic Defaults. During
the second quarter of 2010, we announced an adjustment to the
minimum waiting period that must elapse after a foreclosure
before a borrower without extenuating circumstances is eligible
for a new mortgage loan. The adjustment is designed to increase
disincentives for borrowers to walk away from their mortgages
without working with servicers to pursue alternatives to
foreclosure. Borrowers with extenuating circumstances or those
who agree to foreclosure alternatives may qualify for new
mortgage loans eligible for sale to Fannie Mae in as little as
two to three years.
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Pursuing Foreclosure Alternatives. If we are
unable to provide a viable home retention solution for a problem
loan, we seek to offer foreclosure alternatives and complete
them in a timely manner. These foreclosure alternatives are
primarily preforeclosure sales, which are sometimes referred to
as short sales, as well as
deeds-in-lieu
of foreclosure. These alternatives reduce the severity of our
loss resulting from a borrowers default while permitting
the borrower to avoid going through a foreclosure. In the second
quarter of 2010, we completed approximately 21,500
preforeclosure sales and
deeds-in-lieu
of foreclosures, compared with approximately 17,300 in the first
quarter of 2010. We have increasingly relied on foreclosure
alternatives as a growing number of borrowers have faced
longer-term economic hardships that cannot be solved through a
home retention solution, and we expect the volume of our
foreclosure alternatives to remain high throughout 2010.
Managing Foreclosure Timelines Efficiently. We
are working to manage our foreclosure timelines efficiently to
reduce our foreclosed property expenses. As of June 30,
2010, 38% of the loans in our conventional single-family
guaranty book of business that were seriously delinquent were in
the process of foreclosure.
Managing Our REO Inventory. Since January
2009, we have strengthened our REO sales capabilities by
significantly increasing the number of resources in this area,
and we are working to manage our REO inventory to reduce costs
and maximize sales proceeds. During the second quarter of 2010,
we acquired approximately 69,000 foreclosed single-family
properties, up from approximately 62,000 during the first
quarter of 2010, and we disposed of approximately 50,000
single-family properties. The carrying value of the
single-family REO we held as of June 30, 2010 was
$13.0 billion, and we expect our REO inventory to continue
to increase significantly throughout 2010.
9
Pursuing Contractual Remedies. We conduct
reviews of delinquent loans and, when we discover loans that do
not meet our underwriting and eligibility requirements, we make
demands for lenders to repurchase these loans or compensate us
for losses sustained on the loans. We also make demands for
lenders to repurchase or compensate us for loans for which the
mortgage insurer rescinds coverage. In 2009 and during the first
half of 2010, the number of repurchase and reimbursement
requests remained high. During the second quarter of 2010,
lenders repurchased approximately $1.5 billion in loans
from us, measured by unpaid principal balance, pursuant to their
contractual obligations. We are also pursuing contractual
remedies from providers of credit enhancement on our loans,
including mortgage insurers. We received proceeds under our
mortgage insurance policies for single-family loans of
$1.2 billion for the second quarter of 2010. Please see
Risk ManagementInstitutional Counterparty Credit
Risk Management for a discussion of our high balance of
outstanding repurchase and reimbursement requests and
outstanding receivables from mortgage insurers, as well as the
risk that one or more of these counterparties fails to fulfill
its obligations to us.
A key theme underlying our strategies for reducing our credit
losses is minimizing delays. We believe that repayment plans,
short-term forbearances and loan modifications can be most
effective in preventing defaults when completed at an early
stage of delinquency. Similarly, we believe that our foreclosure
alternatives are more likely to be successful in reducing our
loss severity if they are executed expeditiously. Accordingly,
it is important to work with delinquent borrowers early in the
delinquency to determine whether a home retention or foreclosure
alternative will be viable and, where no alternative is viable,
to reduce delays in proceeding to foreclosure and obtaining
recoveries. Minimizing delays prior to foreclosure and focusing
on maximizing sales proceeds and recoveries from lenders and
credit enhancers also accelerate our receipt of recoveries.
The actions we have taken to stabilize the housing market and
minimize our credit losses have had and may continue to have, at
least in the short term, a material adverse effect on our
results of operations and financial condition, including our net
worth. See Consolidated Results of
OperationsFinancial Impact of the Making Home Affordable
Program on Fannie Mae for information on HAMPs
financial impact on us during the second quarter of 2010 and the
$2.2 billion we incurred in loan impairments in connection
with HAMP during the quarter. These actions have been undertaken
with the goal of reducing our future credit losses below what
they otherwise would have been. It is difficult to predict how
effective these actions ultimately will be in reducing our
credit losses and, in the future, it may be difficult to measure
the impact our actions ultimately have on our credit losses.
Credit
Performance
Table 4 presents information for the first and second quarters
of 2010 and for each quarter of 2009 about the credit
performance of mortgage loans in our single-family guaranty book
of business and our loan workouts. The workout information in
Table 4 does not reflect repayment plans and forbearances that
have been initiated but not completed, nor does it reflect trial
modifications under HAMP that have not become permanent.
10
Table
4: Credit Statistics, Single-Family Guaranty Book of
Business(1)
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2010
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2009
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Full
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Q2 YTD
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Q2
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Q1
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Year
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Q4
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Q3
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Q2
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Q1
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(Dollars in millions)
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As of the end of each period:
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Serious delinquency
rate(2)
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4.99
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%
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4.99
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%
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5.47
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%
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5.38
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%
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5.38
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%
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4.72
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%
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3.94
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%
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3.15
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%
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Nonperforming
loans(3)
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$
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217,216
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$
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217,216
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$
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222,892
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$
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215,505
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$
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215,505
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$
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197,415
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$
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170,483
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$
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144,523
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Foreclosed property inventory:
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Number of properties
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129,310
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129,310
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109,989
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86,155
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86,155
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72,275
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62,615
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62,371
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Carrying value
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$
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13,043
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$
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13,043
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$
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11,423
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$
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8,466
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$
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8,466
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$
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7,005
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$
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6,002
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$
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6,215
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Combined loss
reserves(4)
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$
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59,087
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$
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59,087
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$
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58,900
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$
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62,312
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$
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62,312
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$
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64,200
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$
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53,844
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$
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40,882
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During the period:
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Foreclosed property (number of properties):
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Acquisitions(5)
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130,767
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68,838
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61,929
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145,617
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47,189
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40,959
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32,095
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25,374
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Dispositions
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(87,612
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)
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(49,517
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)
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(38,095
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)
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(123,000
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)
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(33,309
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)
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(31,299
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)
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(31,851
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)
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(26,541
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)
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Credit-related
expenses(6)
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$
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16,797
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$
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4,871
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$
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11,926
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$
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71,320
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$
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10,943
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$
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21,656
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$
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18,391
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$
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20,330
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Credit
losses(7)
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$
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11,985
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$
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6,923
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$
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5,062
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$
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13,362
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$
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3,976
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$
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3,620
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$
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3,301
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$
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2,465
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Loan workout activity
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(number of loans):
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Home retention loan
workouts(8)
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237,218
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132,192
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105,026
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160,722
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49,871
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37,431
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33,098
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40,322
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Preforeclosure sales and
deeds-in-lieu
of foreclosure
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38,841
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21,515
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17,326
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39,617
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13,459
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11,827
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8,360
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5,971
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Total loan workouts
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276,059
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153,707
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122,352
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200,339
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63,330
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49,258
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41,458
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46,293
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Loan workouts as a percentage of our delinquent loans in our
guaranty book of
business(9)
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36.98
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%
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41.18
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%
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|
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31.59
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%
|
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12.24
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%
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15.48
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%
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12.98
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%
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12.42
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%
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16.12
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%
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(1) |
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Our single-family guaranty book of
business consists of (a) single-family mortgage loans held
in our mortgage portfolio, (b) single-family Fannie Mae MBS
held in our mortgage portfolio, (c) single-family Fannie
Mae MBS from unconsolidated trusts, and (d) other credit
enhancements that we provide on single-family mortgage assets,
such as long-term standby commitments. It excludes non-Fannie
Mae mortgage-related securities held in our mortgage portfolio
for which we do not provide a guaranty.
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(2) |
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Calculated based on the number of
conventional single-family loans that are three or more months
past due and loans that have been referred to foreclosure but
not yet foreclosed upon, divided by the number of loans in our
conventional single-family guaranty book of business. We include
all of the conventional single-family loans that we own and
those that back Fannie Mae MBS in the calculation of the
single-family serious delinquency rate.
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(3) |
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Represents the total amount of
nonperforming loans, including troubled debt restructurings and
HomeSaver Advance first-lien loans, which are unsecured personal
loans in the amount of past due payments used to bring mortgage
loans current, that are on accrual status. A troubled debt
restructuring is a restructuring of a mortgage loan in which a
concession is granted to a borrower experiencing financial
difficulty. We generally classify loans as nonperforming when
the payment of principal or interest on the loan is two months
or more past due.
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(4) |
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Consists of the allowance for loan
losses for loans recognized in our condensed consolidated
balance sheets and the reserve for guaranty losses related to
both single-family loans backing Fannie Mae MBS that we do not
consolidate in our condensed consolidated balance sheets and
single-family loans that we have guaranteed under long-term
standby commitments. Prior period amounts have been restated to
conform to the current period presentation. The
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11
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amounts shown as of March 31,
2010 and June 30, 2010 reflect a decrease from the amount
shown as of December 31, 2009 as a result of the adoption
of the new accounting standards.
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(5) |
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Includes acquisitions through
deeds-in-lieu
of foreclosure.
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(6) |
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Consists of the provision for loan
losses, the provision (benefit) for guaranty losses and
foreclosed property expense.
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(7) |
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Consists of (a) charge-offs,
net of recoveries and (b) foreclosed property expense;
adjusted to exclude the impact of fair value losses resulting
from credit-impaired loans acquired from MBS trusts and
HomeSaver Advance loans.
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(8) |
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Consists of (a) modifications,
which do not include trial modifications under HAMP or repayment
plans or forbearances that have been initiated but not
completed; (b) repayment plans and forbearances completed
and (c) HomeSaver Advance first-lien loans. See Table
41: Statistics on Single-Family Loan Workouts in
Risk ManagementCredit Risk Management for
additional information on our various types of loan workouts.
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(9) |
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Calculated based on annualized
problem loan workouts during the period as a percentage of
delinquent loans in our single-family guaranty book of business
as of the end of the period.
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New
Accounting Standards and Consolidation of a Substantial Majority
of our MBS Trusts
Effective January 1, 2010, we prospectively adopted new
accounting standards on the transfers of financial assets and
the consolidation of variable interest entities. We refer to
these accounting standards together as the new accounting
standards. In this report, we also refer to
January 1, 2010 as the transition date.
Impact
on our Condensed Consolidated Financial Statements
Our adoption of the new accounting standards had a major impact
on the presentation of our condensed consolidated financial
statements. The new standards require that we consolidate the
substantial majority of Fannie Mae MBS trusts we guarantee and
recognize the underlying assets (typically mortgage loans) and
debt (typically bonds issued by the trusts in the form of Fannie
Mae MBS certificates) of these trusts as assets and liabilities
in our condensed consolidated balance sheets.
Although the new accounting standards did not change the
economic risk to our business, we recorded a decrease of
$3.3 billion in our total deficit as of January 1,
2010 to reflect the cumulative effect of adopting these new
standards. We provide a detailed discussion of the impact of the
new accounting standards on our accounting and financial
statements in Note 2, Adoption of the New Accounting
Standards on the Transfers of Financial Assets and Consolidation
of Variable Interest Entities. Upon adopting the new
accounting standards, we changed the presentation of segment
financial information that is currently evaluated by management,
as we discuss in Business Segment ResultsChanges to
Segment Reporting.
Purchases
from our Single-Family MBS Trusts
With our adoption of the new accounting standards, we no longer
recognize the acquisition of a credit-impaired loan from the
majority of our MBS trusts as a purchase with an associated fair
value loss for the difference between the fair value of the
acquired loan and its acquisition cost, as they are now
consolidated and the loan is already reflected in our condensed
consolidated balance sheets at the time of acquisition. Without
these fair value losses, the cost of purchasing most delinquent
loans from Fannie Mae MBS trusts and holding them in our
portfolio is less than the cost of advancing delinquent payments
to holders of the Fannie Mae MBS. As a result, in the first
quarter of 2010 we began to significantly increase our purchases
of delinquent loans from single-family MBS trusts to reduce our
costs associated with these loans. Under our single-family MBS
trust documents, we have the option to purchase from our MBS
trusts loans that are delinquent as to four or more consecutive
monthly payments. Through June 30, 2010, we had purchased
the substantial majority of our delinquent loan population,
which resulted in an increase in our Capital Markets
mortgage portfolio. We purchased approximately 858,000
delinquent loans with an unpaid principal balance of
approximately $170 billion from single-family MBS trusts in
the first half of 2010, including the purchase of approximately
570,000 delinquent loans with an unpaid principal balance of
approximately $114 billion in the second quarter of 2010.
12
We expect to continue to purchase loans from our single-family
MBS trusts as they become four or more consecutive monthly
payments delinquent subject to market conditions, servicer
capacity, and other constraints including the limit on the
mortgage assets that we may own pursuant to the senior preferred
stock purchase agreement. As of June 30, 2010, the total
unpaid principal balance of all loans in single-family MBS
trusts that were delinquent four or more months was
approximately $9 billion. In July 2010, we purchased
approximately 50,000 delinquent loans with an unpaid principal
balance of approximately $9 billion from our MBS trusts.
Summary
of Our Financial Performance for the Second Quarter and First
Half of 2010
Our financial results for the second quarter and first half of
2010 reflect the continued weakness in the housing and mortgage
markets, which remain under pressure from high levels of
unemployment and underemployment.
Quarterly
Results
Net loss. We recognized a net loss of
$1.2 billion for the second quarter of 2010, driven
primarily by credit-related expenses of $4.9 billion, which
were partially offset by net interest income of
$4.2 billion. Our net loss for the second quarter of 2010
included an
out-of-period
adjustment of $1.1 billion related to an additional
provision for losses on preforeclosure property taxes and
insurance receivables. Including dividends on senior preferred
stock, the net loss attributable to common stockholders we
recognized for the second quarter of 2010 was $3.1 billion
and our diluted loss per share was $0.55. In comparison, we
recognized a net loss of $11.5 billion, a net loss
attributable to common stockholders of $13.1 billion and a
diluted loss per share of $2.29 for the first quarter of 2010.
We recognized a net loss of $14.8 billion, a net loss
attributable to common stockholders of $15.2 billion and a
diluted loss per share of $2.67 for the second quarter of 2009.
The $10.3 billion decrease in our net loss in the second
quarter of 2010 compared with the first quarter of 2010 was
primarily due to:
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a $7.0 billion decrease in credit-related expenses
resulting from a decrease in the rate of seriously delinquent
single-family loans as well as a decrease in average loss
severities due in part to a model change that resulted in a
change in estimate of $1.6 billion, which was partially
offset by an
out-of-period
adjustment of $1.1 billion related to an additional
provision for losses on preforeclosure property taxes and
insurance receivables;
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net fair value gains of $303 million in the second quarter
of 2010 compared with net fair value losses of $1.7 billion
in the first quarter of 2010 due primarily to lower fair value
losses on our derivatives, which were partially offset by lower
fair value gains on our trading securities; and
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a $1.4 billion increase in net interest income resulting
from the purchase from MBS trusts of the substantial majority of
the single-family loans that are four or more monthly payments
delinquent, as the cost of purchasing these delinquent loans and
holding them in our portfolio is less than the cost of advancing
delinquent payments to security holders.
|
The $13.6 billion decrease in our net loss in the second
quarter of 2010 compared with the second quarter of 2009 was
primarily due to a $13.9 billion decrease in credit-related
expenses, a $616 million decrease in net
other-than-temporary
impairments and a $545 million decrease in losses from
partnership investments. These improvements in our financial
results were offset in part by a $1.6 billion decrease in
guaranty fee income due to our adoption of the new accounting
standards effective January 1, 2010. Upon adoption of these
new accounting standards, we eliminated substantially all of our
guaranty-related assets and liabilities in our condensed
consolidated balance sheet, and therefore we no longer recognize
income or loss for consolidated trusts from amortizing these
assets and liabilities or from changes in their fair value.
13
Our credit-related expenses, which consist of the provision for
loan losses and the provision for guaranty losses (collectively
referred to as the provision for credit losses) plus
foreclosed property expense, were $4.9 billion for the
second quarter of 2010 compared with $18.8 billion for the
second quarter of 2009. The reduction in credit-related expenses
was due largely to a decline in the rate of seriously delinquent
single-family loans in the second quarter of 2010, due partly to
the home retention and foreclosure alternative workouts that we
have completed and a higher volume of foreclosures, as compared
with an increase in the rate in the second quarter of 2009. In
addition, although we acquired significantly more
credit-impaired loans in the second quarter of 2010 as compared
with the second quarter of 2009, fair value losses recognized on
acquired credit-impaired loans were substantially lower due to
our adoption of the new accounting standards. Effective
January 1, 2010, only purchases of credit-deteriorated
loans from unconsolidated MBS trusts or as a result of other
credit guarantees result in the recognition of fair value losses
upon acquisition. These decreases in our credit-related expenses
for the second quarter of 2010 as compared with the second
quarter of 2009 were partially offset by an
out-of-period
adjustment of $1.1 billion related to an additional
provision for losses on preforeclosure property taxes and
insurance receivables. See Note 5Allowance for
Loan Losses and Reserve for Guaranty Losses.
Year-to-Date
Results
Net loss. We recognized a net loss of
$12.8 billion for the first half of 2010, driven primarily
by credit-related expenses of $16.7 billion and fair value
losses of $1.4 billion, which were offset in part by net
interest income of $7.0 billion. Our net loss for the first
half of 2010 included an
out-of-period
adjustment of $1.1 billion related to an additional
provision for losses on preforeclosure property taxes and
insurance receivables. Including dividends on senior preferred
stock, the net loss attributable to common stockholders we
recognized for the first half of 2010 was $16.2 billion and
our diluted loss per share was $2.84. In comparison, we
recognized a net loss of $38.0 billion, a net loss
attributable to common stockholders of $38.4 billion and a
diluted loss per share of $6.76 for the first half of 2009.
The $25.2 billion decrease in our net loss for the first
half of 2010 compared with the first half of 2009 was due
primarily to a $22.9 billion decrease in credit-related
expenses and a $6.0 billion decrease in net
other-than-temporary
impairments as a result of the adoption of a new
other-than-temporary impairment accounting standard in the
second quarter of 2009. As a result of this new standard, we
only recognize the credit portion of an
other-than-temporary
impairment in our condensed consolidated statements of
operations. These decreases were partially offset by lower
guaranty fee income of $3.3 billion due to our adoption of
the new accounting standards effective January 1, 2010.
Our credit-related expenses were $16.7 billion for the
first half of 2010 compared with $39.7 billion for the
first half of 2009. The reduction in credit-related expenses was
due largely to a decrease in the rate of seriously delinquent
single-family loans in the first half of 2010, due partly to the
home retention and foreclosure alternative workouts that we have
completed and a higher volume of foreclosures, as compared with
an increase in the rate in the first half of 2009. In addition,
although we acquired significantly more credit-impaired loans in
the first half of 2010 as compared with the first half of 2009,
fair value losses recognized on acquired credit-impaired loans
were substantially lower due to our adoption of the new
accounting standards.
Net Worth. We had a net worth deficit of
$1.4 billion as of June 30, 2010, compared with a net
worth deficit of $8.4 billion as of March 31, 2010 and
$15.3 billion as of December 31, 2009. Our net worth
as of June 30, 2010 was negatively impacted by the
recognition of our net loss of $1.2 billion and senior
preferred stock dividends of $1.9 billion during the second
quarter. These reductions in our net worth were offset by our
receipt of $8.4 billion in funds from Treasury on
June 30, 2010 under our senior preferred stock purchase
agreement with Treasury as well as by a reduction in unrealized
losses in our holdings of
available-for-sale
securities of $1.5 billion for the second quarter. Our net
worth, which is the basis for determining the amount that
Treasury has committed to provide us under the senior preferred
stock purchase agreement, equals the Total deficit
reported in our condensed consolidated balance sheet. In August
2010, the Acting Director of
14
FHFA submitted a request to Treasury on our behalf for
$1.5 billion to eliminate our net worth deficit as of
June 30, 2010. When Treasury provides the requested funds,
the aggregate liquidation preference on the senior preferred
stock will be $86.1 billion, which will require an
annualized dividend of $8.6 billion. This amount exceeds
our reported annual net income for each of the last eight fiscal
years, in most cases by a significant margin.
Loss Reserves. Our combined loss reserves,
which reflect our estimate of the probable losses we have
incurred in our guaranty book of business, remained at the same
level as of June 30, 2010 as compared with March 31,
2010. Our combined loss reserves were $60.8 billion as of
June 30, 2010 and March 31, 2010, compared with
$53.8 billion as of January 1, 2010 and
$64.4 billion as of December 31, 2009. Our combined
loss reserves decreased as of January 1, 2010 compared with
December 31, 2009 as a result of our adoption of the new
accounting standards. Our loss reserve coverage to total
nonperforming loans was 27.87% as of June 30, 2010 compared
with 27.15% as of March 31, 2010 and 29.73% as of
December 31, 2009.
Housing
and Mortgage Market and Economic Conditions
During the second quarter of 2010, concern grew that the
European crisis and concern over sovereign debt could slow the
economic recovery in the United States. The pace of economic
recovery in the U.S. slowed, with the U.S. gross
domestic product, or GDP, rising by 2.4% on an annualized basis
during the quarter, according to the Bureau of Economic Analysis
advance estimate.
The housing market remains under pressure due in part to the
weak labor market. The slowdown in job growth in the latter part
of the second quarter, after solid increases in March and April,
occurred across industries. Unemployment was 9.5% in June 2010,
a decrease from 9.7% in March 2010, based on data from the
U.S. Bureau of Labor Statistics. This decrease however,
resulted from individuals leaving the labor force (and therefore
no longer counted as unemployed) in numbers
substantially greater than the decrease in household employment.
The Mortgage Bankers Association National Delinquency Survey
reported that, as of March 31, 2010, the most recent date
for which information is available, 9.54% of borrowers were
seriously delinquent (90 days or more past due or in the
foreclosure process), which we estimate represents approximately
five million mortgages. In June, the supply of single-family
homes as measured by the inventory/sales ratio remained above
long-term average levels. Properties that are vacant and held
off the market, combined with the portion of the estimated five
million seriously delinquent mortgages not currently listed for
sale, represent a shadow inventory putting downward pressure on
both home prices and rents.
We estimate that home prices on a national basis improved by
2.2% in the second quarter of 2010 and have declined by 16.9%
from their peak in the third quarter of 2006. Our home price
estimates are based on preliminary data and are subject to
change as additional data become available. As we have
previously disclosed, the decline in home prices has left many
homeowners with negative equity in their mortgages,
which means their principal mortgage balance exceeds the current
market value of their home. This creates a risk that borrowers
might walk away from their mortgage obligations and for the
loans to become delinquent and proceed to foreclosure.
Unemployment, the slow economic recovery, and below average
household formations continue to impact the multifamily sector,
with apartment property sales, occupancy levels, and asking
rents remaining at depressed levels. However, the preliminary
data for the second quarter of 2010 indicate that multifamily
housing fundamentals continue to show signs of improvement,
which is evidenced by a decrease in the national vacancy rate.
In addition, national asking rents appear to have held steady,
based on preliminary third-party data, and apartment property
sales increased slightly during the quarter. The anticipated
volume of new multifamily loans remains uncertain. Although the
number of distressed multifamily properties remains elevated,
properties are not showing up on the sales market as lenders and
servicers appear to be entering into workouts and extensions,
instead of pursuing foreclosures. This could result in fewer
multifamily properties
15
being offered for sale or refinanced and may constrain the
amount of new multifamily loan origination volume in 2010.
See Risk Factors in our 2009
Form 10-K
for a description of risks to our business associated with the
weak economy and housing market.
Outlook
Overall Market Conditions. We expect weakness
in the housing and mortgage markets to continue throughout 2010.
Home sales increased during the second quarter of 2010, but we
expect the pace to slow substantially in the third quarter, and
be basically flat for all of 2010. In addition, the continued
deterioration in the performance of outstanding mortgages will
result in the foreclosure of troubled loans, which is likely to
add to the excess housing inventory.
We expect that during 2010: (1) default and severity rates
will remain high, (2) home prices will decline slightly on
a national basis, more so in some geographic areas than in
others, and (3) the level of foreclosures will increase. We
also expect the level of multifamily defaults and serious
delinquencies to increase further during 2010. All of these
conditions, including the level of single-family delinquencies,
may worsen if the unemployment rate increases on either a
national or regional basis. We expect the decline in residential
mortgage debt outstanding to continue through 2010, which would
mark three consecutive annual declines. Approximately 69% of our
single-family business in the second quarter of 2010 consisted
of refinancings. We expect these trends, combined with an
expected decline in total originations in 2010, will have an
adverse impact on our business volumes during the remainder of
2010.
Home Price Declines: We expect that home
prices on a national basis will decline slightly in 2010 and
into 2011 before stabilizing, and that the
peak-to-trough
home price decline on a national basis will range between 18%
and 25%. These estimates are based on our home price index,
which is calculated differently from the S&P/Case-Shiller
U.S. National Home Price Index and therefore results in
different percentages for comparable declines. These estimates
also contain significant inherent uncertainty in the current
market environment regarding a variety of critical assumptions
we make when formulating these estimates, including: the effect
of actions the federal government has taken and may take with
respect to the national economic recovery; the impact of the end
of the Federal Reserves MBS purchase program; and the
impact of those actions on home prices, unemployment and the
general economic and interest rate environment. Because of these
uncertainties, the actual home price decline we experience may
differ significantly from these estimates. We also expect
significant regional variation in home price declines and
stabilization.
Our 18% to 25%
peak-to-trough
home price decline estimate corresponds to an approximate 32% to
40%
peak-to-trough
decline using the S&P/Case-Shiller index method. Our
estimates differ from the S&P/Case-Shiller index in two
principal ways: (1) our estimates weight expectations by
number of properties, whereas the S&P/Case-Shiller index
weights expectations based on property value, causing home price
declines on higher priced homes to have a greater effect on the
overall result; and (2) contrary to the
S&P/Case-Shiller index, our estimates do not include known
sales of foreclosed homes because we believe that differing
maintenance practices and the forced nature of the sales make
foreclosed home prices less representative of market values. The
S&P/Case-Shiller comparison numbers are calculated using
our models and assumptions, but modified to use these two
factors (weighting of expectations based on property value and
the inclusion of foreclosed property sales). In addition to
these differences, our estimates are based on our own internally
available data combined with publicly available data, and are
therefore based on data collected nationwide, whereas the
S&P/Case-Shiller index is based only on publicly available
data, which may be limited in certain geographic areas of the
country. Our comparative calculations to the
S&P/Case-Shiller index provided above are not modified to
account for this data pool difference.
Credit-Related Expenses and Credit Losses. As
described above, we expect our financial results will continue
to be negatively affected by losses primarily on a subset of
loans we acquired between 2005 through
16
2008. We expect that our credit-related expenses will remain
high in 2010. However we expect that, if current trends
continue, our credit-related expenses will be lower in 2010 than
in 2009. We describe our credit loss outlook above under
The performance of single-family loans acquired beginning
in 2009 and our expectation regarding future credit losses.
Uncertainty Regarding our Long-Term Financial Sustainability
and Future Status. We expect that the actions we
take to stabilize the housing market and minimize our credit
losses will continue to have, in the short term at least, a
material adverse effect on our results of operations and
financial condition, including our net worth. There is
significant uncertainty in the current market environment, and
any changes in the trends in macroeconomic factors that we
currently anticipate, such as home prices and unemployment, may
cause our future credit-related expenses and credit losses to
vary significantly from our current expectations. Although
Treasurys funds under the senior preferred stock purchase
agreement permit us to remain solvent and avoid receivership,
the resulting dividend payments are substantial. Given our
expectations regarding future losses, which we describe above
under The performance of single-family loans acquired
beginning in 2009 and our expectation regarding future credit
losses, we do not expect to earn profits in excess of our
annual dividend obligation to Treasury for the indefinite
future. As a result of these factors, there is significant
uncertainty as to our long-term financial sustainability.
In addition, there is significant debate regarding the future of
Fannie Mae, Freddie Mac and the Federal Home Loan Banks (the
GSEs), and proposals to reform them. We cannot
predict the prospects for the enactment, timing or content of
legislative proposals regarding longer-term reform of the GSEs.
Please see Legislation for a discussion of recent
legislative reform of the financial services industry, and
proposals for GSE reform, that could affect our business.
REGULATORY
ACTION
Delisting
of our Common and Preferred Stock
We were directed by FHFA to delist our common stock and each
listed series of our preferred stock from the New York Stock
Exchange and the Chicago Stock Exchange. The last trading day
for our listed securities on these exchanges was July 7,
2010, and since July 8, 2010, these securities have been
quoted on the
over-the-counter
market.
Determination
by FHFA Regarding 2009 Housing Goals Compliance
The Federal Housing Finance Regulatory Reform Act of 2008
(2008 Reform Act) provided that the housing goals
established for 2008 would remain in effect for 2009, except
that FHFA was required to review the 2009 goals to determine
their feasibility given market conditions and, after seeking
public comment, to make appropriate adjustments to the 2009
goals. The final 2009 housing goals FHFA adopted in August 2009
lowered our 2009 base goals and home purchase subgoals from 2008
levels, and increased our multifamily special affordable housing
subgoal. Our 2009 housing goals were at approximately the levels
that existed in 2004 through 2006.
In December 2009, FHFA notified us that we were likely to fail
to meet the underserved areas goal. At that time, FHFA made no
determination as to the underserved areas subgoal or the
multifamily special affordable housing subgoal. We requested
that FHFA determine, based on economic and market conditions and
our financial condition, that the underserved areas goal and the
increased multifamily special affordable housing subgoal were
not feasible for 2009. In June 2010, FHFA notified us of its
determination that achievement of this goal and subgoal was not
feasible, primarily due to housing market and economic
conditions in 2009. In July 2010, FHFA notified us that we had
met all of the goals and subgoals except for the underserved
areas goal and the multifamily special affordable housing
subgoal. Because FHFA found these goals to be infeasible, we
will not be required to submit a housing plan for failure to
meet this goal and subgoal pursuant to the Federal Housing
Enterprises Safety and Soundness Act of 1992.
17
For additional background information on our housing goals and
subgoals, refer to BusinessOur Charter and
Regulation of Our ActivitiesHousing Goals and Subgoals and
Duty to Serve Underserved Markets of our 2009
Form 10-K.
Proposed
Rule Regarding Duty to Serve Underserved Markets
The 2008 Reform Act created the duty to serve underserved
markets in order for us and Freddie Mac to provide
leadership to the market in developing loan products and
flexible underwriting guidelines to facilitate a secondary
market for very low-, low-, and moderate-income families
with respect to three underserved markets: manufactured housing,
affordable housing preservation, and rural areas.
The duty to serve is a new oversight responsibility for FHFA
beginning in 2010. The Director of FHFA is required to establish
by regulation a method for evaluating and rating the performance
by us and Freddie Mac of the duty to serve underserved markets.
On June 7, 2010, FHFA published its proposed rule to
implement this new duty.
The 2008 Reform Act requires FHFA to separately evaluate the
following four assessment factors:
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The loan product assessment factor requires evaluation of our
development of loan products, more flexible underwriting
guidelines, and other innovative approaches to providing
financing to each underserved market.
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The outreach assessment factor requires evaluation of the
extent of outreach to qualified loan sellers and other market
participants. We are expected to engage market
participants and pursue relationships that result in enhanced
service to each underserved market.
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The loan purchase assessment factor requires FHFA to consider
the volume of loans purchased in each underserved market
relative to the market opportunities available to us. The 2008
Reform Act prohibits the establishment of specific quantitative
targets. However, under the proposed rule, FHFA would consider
the volume of loans purchased in past years.
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The investment and grants assessment factor requires evaluation
of the amount of investment and grants in projects that assist
in meeting the needs of underserved markets.
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Under the proposed rule, FHFA would give the loan purchase and
outreach assessment factors significant weight, while the
investment and grants assessment factor would receive little or
no weight. In addition, FHFA would consider the loan product
assessment factor, even though we are not required to, and in
fact are prohibited from, entering into new lines of business
and developing new products. The proposed rule states that
purchases and activities pursuant to the duty to serve should be
profitable, even if less profitable than other activities.
Under the proposed rule, we would be required to submit an
underserved markets plan at least 90 days before the
plans effective date of January 1st of a
particular year establishing benchmarks and objectives against
which FHFA would evaluate and rate our performance. The plan
term is two years. For the 2010 year, we must submit a plan
as soon as practicable after the publication of the final rule,
with the earliest feasible effective date.
FHFA would evaluate our performance on each assessment factor
annually, and assign a rating of satisfactory or
unsatisfactory to each factor and in each
underserved market. Each factor would be evaluated and weighted
based on the needs of the particular underserved market, overall
market conditions and our financial condition. Based on the
assessment factor findings, FHFA would assign a rating of
in compliance or noncompliance with the
duty to serve each underserved market.
18
With some exceptions, the counting rules and other requirements
would be similar to those established for the housing goals. For
the loan purchase assessment factor, FHFA proposes to measure
performance in terms of units rather than mortgages or unpaid
principal balance. All single-family loans we purchase must meet
the standards in the Interagency Statement on Subprime Mortgage
Lending and the Interagency Guidance on Nontraditional Mortgage
Product Risks. We are expected to review the operations of loan
sellers to ensure compliance with these standards.
If we fail to comply with, or there is a substantial probability
that we will not comply with, our duty to serve a particular
underserved market in a given year, FHFA would determine whether
the benchmarks and objectives in our underserved markets plan
are or were feasible. If we fail to meet our duty to serve, and
FHFA determines that the benchmarks and objectives in our
underserved markets plan are or were feasible, then, in the
Directors discretion, we may be required to submit a
housing plan. Under the proposed rule, the housing plan must
describe the activities that we will take to comply with the
duty to serve a particular underserved market for the next
calendar year, or improvements and changes in operations that we
will make during the remainder of the current year.
Under the proposed rule, we would be required to provide
quarterly and annual reports on our performance and progress
towards meeting our duty to serve.
See Risk Factors for a description of how changes we
may make in our business strategies in order to meet our duty to
serve requirement may increase our credit losses and adversely
affect our results of operations.
Proposed
Rule Regarding Conservatorship/Receivership
Operations
On July 9, 2010, FHFA published a proposed rule to
establish a framework for conservatorship and receivership
operations for the GSEs, as contemplated by the 2008 Reform Act.
The proposed rule clarifies (i) that all claims arising
from an equity interest in a regulated entity in receivership
would be given the same treatment as the interests of
shareholders; (ii) that claims by shareholders would
receive the lowest priority in a receivership, behind
administrative expenses of the receiver, general liabilities of
the regulated entity and liabilities subordinated to those of
general creditors; (iii) that the ability of a regulated
entity to make capital distributions during a conservatorship
would be restricted; (iv) that the powers of the
conservator or receiver include continuing the missions of a
regulated entity and ensuring that the operations of the
regulated entity foster liquid, efficient, competitive and
resilient national housing finance markets; and (v) the
status of claims against the conservator or receiver for breach
of contract. The proposed rule would also provide that payment
of certain securities litigation claims would be held in
abeyance during conservatorship, except as otherwise ordered by
FHFA.
The proposed rule is part of FHFAs implementation of the
powers provided by the 2008 Reform Act, and does not seek to
anticipate or predict future conservatorships or receiverships.
In announcing the publication of this proposed rule for comment,
the Acting Director of FHFA said it had no impact on
current conservatorship operations.
LEGISLATION
Financial
Regulatory Reform Legislation
On July 21, 2010, President Obama signed into law financial
regulatory reform legislation known as the
Dodd-Frank
Wall Street Reform and Consumer Protection Act (the Wall
Street Reform Act). Some key provisions of the
legislation, include: (i) more stringent regulation of
financial institutions deemed systemically important, and an
orderly liquidation mechanism for these institutions;
(ii) creation of a bureau of consumer financial protection
with broad rulemaking and enforcement authority;
(iii) greater oversight of derivatives; (iv) mortgage
underwriting standards and liability for failure to meet them;
(v) credit risk retention
19
requirements for certain asset-backed securities, including
certain mortgage-backed securities; and (vi) independent
appraisal standards for residential properties securing loans.
The Wall Street Reform Act establishes an interagency council
chaired by the Secretary of the Treasury to identify
systemically important institutions. These institutions will be
subject to stricter prudential standards to be established by
the Federal Reserve, including standards related to risk-based
capital, leverage limits, liquidity, credit concentrations,
resolution plans, reporting credit exposures, and other risk
management measures. Institutions will also be subject to stress
tests on a regular basis. The Federal Reserve may impose other
standards related to contingent capital, enhanced public
disclosure, short term debt limits and other requirements as
appropriate.
The Wall Street Reform Act creates a resolution regime for the
orderly dissolution of financial companies whose failure may
jeopardize U.S. financial stability. Fannie Mae is
expressly exempted from this resolution regime.
The Wall Street Reform Act establishes the independent Bureau of
Consumer Financial Protection as a part of the Federal Reserve
System, with responsibility for enforcing most existing federal
financial consumer protection laws and authority to adopt new
regulations.
The Wall Street Reform Act requires that most swap transactions
be submitted for clearing with a clearing organization, with
some exceptions (for example, if one of the parties is a
commercial end user). It also requires certain institutions
meeting the definition of a major swap participant
to register with the Commodity Futures Trading Commission (the
CFTC). The Wall Street Reform Act defines
major swap participant broadly enough to include
Fannie Mae.
If Fannie Mae is determined to be a major swap participant,
minimum capital and margin requirements would apply to our swap
transactions, including transactions that are not subject to
clearing. Under the Wall Street Reform Act, FHFA, in
consultation with the CFTC and SEC, would establish those
requirements. Registrants with the CFTC are also subject to the
CFTCs reporting, record keeping, daily trading and
business conduct regulations for swaps transactions.
The Wall Street Reform Act requires creditors to determine that
borrowers have a reasonable ability to repay
mortgage loans prior to making such loans. If a creditor fails
to comply, borrowers can offset amounts they owe as part of a
foreclosure or recoup monetary damages. The Wall Street Reform
Act provides a presumption of compliance for mortgage loans that
meet certain terms and characteristics; however, the presumption
is rebuttable by a borrower bringing a claim.
The Wall Street Reform Act requires financial regulators to
jointly prescribe regulations requiring securitizers
and/or
originators to maintain a portion of the credit risk in assets
transferred, sold or conveyed through the issuance of
asset-backed securities, with certain exceptions. This risk
retention requirement would not appear to apply to Fannie Mae
and, in any event, Fannie Mae already retains the credit risk on
mortgages it owns or guarantees. How this requirement will
affect our customers and counterparties on loans sold to and
guaranteed by Fannie Mae will depend on how the regulations are
implemented.
Within 90 days of enactment of the Wall Street Reform Act,
the Federal Reserve must issue interim final regulations
governing appraisal independence in the provision of mortgage
lending and brokerage services. Upon issuance of the
regulations, Fannie Maes Home Valuation Code of Conduct
will expire.
Because extensive regulatory guidance is needed to clarify and
implement many of the provisions of this legislation, we cannot
predict its potential impact on our company or our industry.
20
GSE
Reform
The Wall Street Reform Act contains two provisions related to
secondary mortgage market reforms. The first requires the
Treasury Secretary to submit a report to Congress by
January 31, 2011, with recommendations for ending the
conservatorships of Fannie Mae and Freddie Mac. The second is a
sense or opinion of Congress that efforts to
regulate the terms and practices related to residential mortgage
credit are incomplete without enactment of meaningful structural
reforms of Fannie Mae and Freddie Mac. This nonbinding
sense of the Congress has no legal effect.
We expect hearings on GSE reform to continue and additional
proposals to be discussed. We cannot predict the prospects for
the enactment, timing or content of legislative proposals
regarding the future status of the GSEs.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP
requires management to make a number of judgments, estimates and
assumptions that affect the reported amount of assets,
liabilities, income and expenses in the condensed consolidated
financial statements. Understanding our accounting policies and
the extent to which we use management judgment and estimates in
applying these policies is integral to understanding our
financial statements. We describe our most significant
accounting policies in Note 1, Summary of Significant
Accounting Policies of this report and in our 2009
Form 10-K.
We evaluate our critical accounting estimates and judgments
required by our policies on an ongoing basis and update them as
necessary based on changing conditions. Management has discussed
any significant changes in judgments and assumptions in applying
our critical accounting policies with the Audit Committee of our
Board of Directors. See Risk Factors and
MD&ARisk ManagementModel Risk
Management for a discussion of the risk associated with
the use of models and MD&ACritical Accounting
Policies and Estimates in our 2009
Form 10-K
for additional information about our accounting policies we have
identified as critical because they involve significant
judgments and assumptions about highly complex and inherently
uncertain matters, and the use of reasonably different estimates
and assumptions could have a material impact on our reported
results of operations or financial condition. These critical
accounting policies and estimates are as follows:
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Fair Value Measurement
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Allowance for Loan Losses and Reserve for Guaranty Losses
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Other-Than-Temporary
Impairment of Investment Securities
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Effective January 1, 2010, we adopted the new accounting
standards on the transfers of financial assets and the
consolidation of variable interest entities. Refer to
Note 1, Summary of Significant Accounting
Policies and Note 2, Adoption of the New
Accounting Standards on the Transfers of Financial Assets and
Consolidation of Variable Interest Entities for additional
information.
We provide below information about our Level 3 assets and
liabilities as of June 30, 2010 compared to
December 31, 2009 and describe any significant changes in
the judgments and assumptions we made during the first half of
2010 in applying our critical accounting policies and
significant changes to critical estimates as well as the impact
of the new accounting standards on our allowance for loan losses
and reserve for guaranty losses.
21
Fair
Value Measurement
The use of fair value to measure our assets and liabilities is
fundamental to our financial statements and is a critical
accounting estimate because we account for and record a portion
of our assets and liabilities at fair value. In determining fair
value, we use various valuation techniques. We describe the
valuation techniques and inputs used to determine the fair value
of our assets and liabilities and disclose their carrying value
and fair value in Note 16, Fair Value.
Fair
Value HierarchyLevel 3 Assets and
Liabilities
The assets and liabilities that we have classified as
Level 3 in the fair value hierarchy consist primarily of
financial instruments for which there is limited market activity
and therefore little or no price transparency. As a result, the
valuation techniques that we use to estimate the fair value of
Level 3 instruments involve significant unobservable
inputs, which generally are more subjective and involve a high
degree of management judgment and assumptions. Our Level 3
assets and liabilities consist of certain mortgage- and
asset-backed securities and residual interests, certain mortgage
loans, acquired property, partnership investments, our guaranty
assets and
buy-ups, our
master servicing assets and certain highly structured, complex
derivative instruments.
Table 5 presents a comparison, by balance sheet category, of the
amount of financial assets carried in our condensed consolidated
balance sheets at fair value on a recurring basis and classified
as Level 3 as of June 30, 2010 and December 31,
2009. The availability of observable market inputs to measure
fair value varies based on changes in market conditions, such as
liquidity. As a result, we expect the amount of financial
instruments carried at fair value on a recurring basis and
classified as Level 3 to vary each period.
Table
5: Level 3 Recurring Financial Assets at Fair
Value
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As of
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June 30,
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December 31,
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Balance Sheet Category
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2010
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2009
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(Dollars in millions)
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Trading securities
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$
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2,660
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$
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8,861
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Available-for-sale
securities
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34,549
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36,154
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Derivatives assets
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337
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150
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Guaranty assets and
buy-ups
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15
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2,577
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Level 3 recurring assets
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$
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37,561
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$
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47,742
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Total assets
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$
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3,256,267
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$
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869,141
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Total recurring assets measured at fair value
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$
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200,650
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$
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353,718
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Level 3 recurring assets as a percentage of total assets
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1
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%
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5
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%
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Level 3 recurring assets as a percentage of total recurring
assets measured at fair value
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19
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%
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13
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%
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Total recurring assets measured at fair value as a percentage of
total assets
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|
6
|
%
|
|
|
41
|
%
|
The decrease in assets classified as Level 3 during the
first half of 2010 includes a $2.6 billion decrease due to
derecognition of guaranty assets and
buy-ups at
the transition date as well as net transfers of approximately
$7.4 billion in assets to Level 2 from Level 3.
The assets transferred from Level 3 consist primarily of
Fannie Mae guaranteed mortgage-related securities and
private-label mortgage-related securities.
Assets measured at fair value on a nonrecurring basis and
classified as Level 3, which are not presented in the table
above, primarily include
held-for-sale
loans,
held-for-investment
loans, acquired property and partnership investments. The fair
value of Level 3 nonrecurring financial assets totaled
$27.6 billion during the first half of 2010, and
$21.2 billion during the year ended December 31, 2009.
22
Financial liabilities measured at fair value on a recurring
basis and classified as Level 3 consisted of long-term debt
with a fair value of $690 million as of June 30, 2010
and $601 million as of December 31, 2009, and
derivatives liabilities with a fair value of $111 million
as of June 30, 2010 and $27 million as of
December 31, 2009.
Allowance
for Loan Losses and Reserve for Guaranty Losses
We maintain an allowance for loan losses for loans classified as
held for investment, including both loans held by us and by
consolidated Fannie Mae MBS trusts. We maintain a reserve for
guaranty losses for loans held in unconsolidated Fannie Mae MBS
trusts we guarantee and loans that we have guaranteed under
long-term standby commitments. We report the allowance for loan
losses and reserve for guaranty losses as separate line items in
our condensed consolidated balance sheets. These amounts, which
we collectively refer to as our combined loss reserves,
represent probable losses incurred in our guaranty book of
business as of the balance sheet date. The allowance for loan
losses is a valuation allowance that reflects an estimate of
incurred credit losses related to our recorded investment in
loans held for investment. The reserve for guaranty losses is a
liability account in our condensed consolidated balance sheets
that reflects an estimate of incurred credit losses related to
our guaranty to each unconsolidated Fannie Mae MBS trust that we
will supplement amounts received by the Fannie Mae MBS trust as
required to permit timely payments of principal and interest on
the related Fannie Mae MBS. As a result, the guaranty reserve
considers not only the principal and interest due on the loan at
the current balance sheet date, but also an estimate of any
additional interest payments due to the trust from the current
balance sheet date until the point of loan acquisition or
foreclosure. We maintain separate loss reserves for
single-family and multifamily loans. Our single-family and
multifamily loss reserves consist of a specific loss reserve for
individually impaired loans and a collective loss reserve for
all other loans.
We have an established process, using analytical tools,
benchmarks and management judgment, to determine our loss
reserves. Although our loss reserve process benefits from
extensive historical loan performance data, this process is
subject to risks and uncertainties, including a reliance on
historical loss information that may not be representative of
current conditions. We continually monitor delinquency and
default trends and make changes in our historically developed
assumptions and estimates as necessary to better reflect present
conditions, including current trends in borrower risk
and/or
general economic trends, changes in risk management practices,
and changes in public policy and the regulatory environment. We
also consider the recoveries that we will receive on mortgage
insurance and other credit enhancements entered into
contemporaneously with and in contemplation of a guaranty or
loan purchase transaction, as such recoveries reduce the
severity of the loss associated with defaulted loans. Due to the
stress in the housing and credit markets, and the speed and
extent of deterioration in these markets, our process for
determining our loss reserves has become significantly more
complex and involves a greater degree of management judgment
than prior to this period of economic stress.
Single-Family
Loss Reserves
We establish a specific single-family loss reserve for
individually impaired loans, which includes loans we restructure
in troubled debt restructurings, certain nonperforming loans in
MBS trusts and acquired credit-impaired loans that have been
further impaired subsequent to acquisition. The single-family
loss reserve for individually impaired loans is a growing
portion of the total single-family reserve and will continue to
grow in conjunction with our modification efforts. We typically
measure impairment based on the difference between our recorded
investment in the loan and the present value of the estimated
cash flows we expect to receive, which we calculate using the
effective interest rate of the original loan or the effective
interest rate at acquisition for a credit-impaired loan.
However, when foreclosure is probable, we measure impairment
based on the difference between our recorded investment in the
loan and the fair value of the underlying property, adjusted for
the estimated discounted costs to sell the property and
estimated insurance or other proceeds we expect to receive.
23
We establish a collective single-family loss reserve for all
other single-family loans in our single-family guaranty book of
business using an econometric model that estimates the
probability of default of loans to derive an overall loss
reserve estimate given multiple factors such as: origination
year,
mark-to-market
LTV ratio, delinquency status and loan product type. We believe
that the loss severity estimates used in determining our loss
reserves reflect current available information on actual events
and conditions as of each balance sheet date, including current
home prices. Our loss severity estimates do not incorporate
assumptions about future changes in home prices. We do, however,
use a one-quarter look back period to develop our loss severity
estimates for all loan categories.
In the second quarter of 2010, we updated our allowance for loan
loss model to reflect a change in our cohort structure for our
severity calculations to use
mark-to-market
LTV ratios rather than LTV ratios at origination, which we
believe better reflects the current values of the loans. This
model change resulted in a change in estimate and a decrease to
our allowance for loan losses of approximately $1.6 billion.
Combined
Loss Reserves
Upon recognition of the mortgage loans held by newly
consolidated trusts at the transition date of our adoption of
the new accounting standards, we increased our Allowance
for loan losses by $43.6 billion and decreased our
Reserve for guaranty losses by $54.1 billion.
The decrease in our combined loss reserves of $10.5 billion
reflects the difference in the methodology used to estimate
incurred losses under our allowance for loan losses versus our
reserve for guaranty losses and recording the portion of the
reserve related to accrued interest to Allowance for
accrued interest receivable in our condensed consolidated
balance sheets. Our guaranty reserve considers not only the
principal and interest due on a loan at the current balance
sheet date, but also any interest payments expected to be missed
from the balance sheet date until the point of loan acquisition
or foreclosure. However, our loan loss allowance is an asset
valuation allowance, and thus we consider only our net recorded
investment in the loan at the balance sheet date, which includes
only interest income accrued while the loan was on accrual
status.
Upon adoption of the new accounting standards, we derecognized
the substantial majority of the Reserve for guaranty
losses relating to loans in previously unconsolidated
trusts that were consolidated in our condensed consolidated
balance sheet. We continue to record a reserve for guaranty
losses related to loans in unconsolidated trusts and to loans
that we have guaranteed under long-term standby commitments.
In addition to recognizing mortgage loans held by newly
consolidated trusts at the transition date, we also recognized
the associated accrued interest receivable from the mortgage
loans held by the newly consolidated trusts. The accrued
interest included delinquent interest on such loans which was
previously considered in estimating our Reserve for
guaranty losses. As a result, at transition, we
reclassified $7.0 billion from our Reserve for
guaranty losses to a valuation allowance within
Accrued interest receivable, net in our condensed
consolidated balance sheet.
CONSOLIDATED
RESULTS OF OPERATIONS
The section below provides a discussion of our condensed
consolidated results of operations for the periods indicated.
You should read this section together with our condensed
consolidated financial statements including the accompanying
notes.
As discussed in Executive Summary, prospectively
adopting the new accounting standards had a significant impact
on the presentation and comparability of our condensed
consolidated financial statements due to the consolidation of
the substantial majority of our single-class securitization
trusts and the elimination of previously recorded deferred
revenue from our guaranty arrangements. While some line items in
our condensed consolidated statements of operations were not
impacted, others were impacted significantly, which reduces the
comparability of our results for the second quarter and first
half of 2010 with the results of these
24
periods in prior years. The following table describes the impact
to our second quarter and first half of 2010 results for those
line items that were impacted significantly as a result of our
adoption of the new accounting standards.
|
|
|
|
|
|
Item
|
|
|
Consolidation Impact
|
Net interest income
|
|
|
|
|
We now recognize the underlying assets and liabilities of the
substantial majority of our MBS trusts in our condensed
consolidated balance sheets, which increases both our
interest-earning assets and interest-bearing liabilities and
related interest income and interest expense.
|
|
|
|
|
|
Contractual guaranty fees and the amortization of deferred cash
fees received after December 31, 2009 are recognized into
interest income.
|
|
|
|
|
|
We now include nonperforming loans from the majority of our MBS
trusts in our consolidated financial statements, which decreases
our net interest income as we do not recognize interest income
on these loans while we continue to recognize interest expense
for amounts owed to MBS certificateholders.
|
|
|
|
|
|
Trust management income and certain fee income from consolidated
trusts are now recognized as interest income.
|
|
|
|
|
|
|
Guaranty fee income
|
|
|
|
|
Upon adoption of the new accounting standards, we eliminated
substantially all of our guaranty-related assets and liabilities
in our condensed consolidated balance sheets. As a result,
consolidated trusts deferred cash fees and non-cash fees
through December 31, 2009 were recognized into our total deficit
through the transition adjustment effective January 1, 2010, and
we no longer recognize income or loss from amortizing these
assets and liabilities nor do we recognize changes in their fair
value. As noted above, we now recognize both contractual
guaranty fees and the amortization of deferred cash fees
received after December 31, 2009 through interest income,
thereby reducing guaranty fee income to only those amounts
related to unconsolidated trusts and other credit enhancements
arrangements, such as our long-term standby commitments.
|
|
|
|
|
|
|
Credit-related expenses
|
|
|
|
|
As the majority of our trusts are consolidated, we no longer
record fair value losses on credit-impaired loans acquired from
the substantial majority of our trusts.
|
|
|
|
|
|
The substantial majority of our combined loss reserves are now
recognized in our allowance for loan losses to reflect the loss
allowance against the consolidated mortgage loans. We use a
different methodology to estimate incurred losses for our
allowance for loan losses as compared with our reserve for
guaranty losses which will reduce our credit-related expenses.
|
|
|
|
|
|
|
Investment gains (losses), net
|
|
|
|
|
Our portfolio securitization transactions that reflect transfers
of assets to consolidated trusts do not qualify as sales,
thereby reducing the amount we recognize as portfolio
securitization gains and losses.
|
|
|
|
|
|
We no longer designate the substantial majority of our loans
held for securitization as held-for-sale as the substantial
majority of related MBS trusts will be consolidated, thereby
reducing lower of cost or fair value adjustments.
|
|
|
|
|
|
We no longer record gains or losses on the sale from our
portfolio of the substantial majority of our available-for-sale
MBS because these securities were eliminated in consolidation.
|
|
|
|
|
|
|
Fair value gains (losses), net
|
|
|
|
|
We no longer record fair value gains or losses on the majority
of our trading MBS, thereby reducing the amount of securities
subject to recognition of changes in fair value in our condensed
consolidated statement of operations.
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
Upon purchase of MBS securities issued by consolidated trusts
where the purchase price of the MBS does not equal the carrying
value of the related consolidated debt, we recognize a gain or
loss on debt extinguishment.
|
|
|
|
|
|
|
See Note 2, Adoption of the New Accounting Standards
on the Transfers of Financial Assets and Consolidation of
Variable Interest Entities for a further discussion of the
impacts of the new accounting standards on our condensed
consolidated financial statements.
25
Table 6 summarizes our condensed consolidated results of
operations for the periods indicated.
Table
6: Summary of Condensed Consolidated Results of
Operations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Net interest income
|
|
$
|
4,207
|
|
|
$
|
3,735
|
|
|
$
|
472
|
|
|
$
|
6,996
|
|
|
$
|
6,983
|
|
|
$
|
13
|
|
Guaranty fee income
|
|
|
52
|
|
|
|
1,659
|
|
|
|
(1,607
|
)
|
|
|
106
|
|
|
|
3,411
|
|
|
|
(3,305
|
)
|
Fee and other income
|
|
|
242
|
|
|
|
197
|
|
|
|
45
|
|
|
|
421
|
|
|
|
389
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,501
|
|
|
$
|
5,591
|
|
|
$
|
(1,090
|
)
|
|
$
|
7,523
|
|
|
$
|
10,783
|
|
|
$
|
(3,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment gains (losses), net
|
|
|
23
|
|
|
|
(45
|
)
|
|
|
68
|
|
|
|
189
|
|
|
|
178
|
|
|
|
11
|
|
Net
other-than-temporary
impairments
|
|
|
(137
|
)
|
|
|
(753
|
)
|
|
|
616
|
|
|
|
(373
|
)
|
|
|
(6,406
|
)
|
|
|
6,033
|
|
Fair value gains (losses), net
|
|
|
303
|
|
|
|
823
|
|
|
|
(520
|
)
|
|
|
(1,402
|
)
|
|
|
(637
|
)
|
|
|
(765
|
)
|
Losses from partnership investments
|
|
|
(26
|
)
|
|
|
(571
|
)
|
|
|
545
|
|
|
|
(84
|
)
|
|
|
(928
|
)
|
|
|
844
|
|
Administrative expenses
|
|
|
(670
|
)
|
|
|
(510
|
)
|
|
|
(160
|
)
|
|
|
(1,275
|
)
|
|
|
(1,033
|
)
|
|
|
(242
|
)
|
Credit-related
expenses(2)
|
|
|
(4,851
|
)
|
|
|
(18,784
|
)
|
|
|
13,933
|
|
|
|
(16,735
|
)
|
|
|
(39,656
|
)
|
|
|
22,921
|
|
Other non-interest expenses
|
|
|
(357
|
)
|
|
|
(508
|
)
|
|
|
151
|
|
|
|
(653
|
)
|
|
|
(866
|
)
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income taxes
|
|
|
(1,214
|
)
|
|
|
(14,757
|
)
|
|
|
13,543
|
|
|
|
(12,810
|
)
|
|
|
(38,565
|
)
|
|
|
25,755
|
|
Benefit (provision) for federal income taxes
|
|
|
(9
|
)
|
|
|
(23
|
)
|
|
|
14
|
|
|
|
58
|
|
|
|
600
|
|
|
|
(542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,223
|
)
|
|
|
(14,780
|
)
|
|
|
13,557
|
|
|
|
(12,752
|
)
|
|
|
(37,965
|
)
|
|
|
25,213
|
|
Less: Net loss attributable to the noncontrolling interest
|
|
|
5
|
|
|
|
26
|
|
|
|
(21
|
)
|
|
|
4
|
|
|
|
43
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Fannie Mae
|
|
$
|
(1,218
|
)
|
|
$
|
(14,754
|
)
|
|
$
|
13,536
|
|
|
$
|
(12,748
|
)
|
|
$
|
(37,922
|
)
|
|
$
|
25,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(0.55
|
)
|
|
$
|
(2.67
|
)
|
|
$
|
2.12
|
|
|
$
|
(2.84
|
)
|
|
$
|
(6.76
|
)
|
|
$
|
3.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain prior period amounts have
been reclassified to conform to the current period presentation.
|
|
(2) |
|
Consists of provision for loan
losses, provision for guaranty losses and foreclosed property
expense.
|
26
Net
Interest Income
Table 7 presents an analysis of our net interest income, average
balances, and related yields earned on assets and incurred on
liabilities for the periods indicated. For most components of
the average balances, we used a daily weighted average of
amortized cost. When daily average balance information was not
available, such as for mortgage loans, we used monthly averages.
Table 8 presents the change in our net interest income between
periods and the extent to which that variance is attributable
to: (1) changes in the volume of our interest-earning
assets and interest-bearing liabilities; or (2) changes in
the interest rates of these assets and liabilities.
Table
7: Analysis of Net Interest Income and
Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Income/
|
|
|
Rates
|
|
|
Average
|
|
|
Income/
|
|
|
Rates
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Earned/Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Earned/Paid
|
|
|
|
(Dollars in millions)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans(1)
|
|
$
|
2,986,488
|
|
|
$
|
37,632
|
|
|
|
5.04
|
%
|
|
$
|
428,975
|
|
|
$
|
5,611
|
|
|
|
5.23
|
%
|
Mortgage securities
|
|
|
139,437
|
|
|
|
1,653
|
|
|
|
4.74
|
|
|
|
343,031
|
|
|
|
4,162
|
|
|
|
4.85
|
|
Non-mortgage
securities(2)
|
|
|
111,294
|
|
|
|
66
|
|
|
|
0.23
|
|
|
|
55,338
|
|
|
|
68
|
|
|
|
0.49
|
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
47,571
|
|
|
|
23
|
|
|
|
0.19
|
|
|
|
49,678
|
|
|
|
110
|
|
|
|
0.87
|
|
Advances to lenders
|
|
|
2,673
|
|
|
|
18
|
|
|
|
2.66
|
|
|
|
5,970
|
|
|
|
29
|
|
|
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
3,287,463
|
|
|
$
|
39,392
|
|
|
|
4.79
|
%
|
|
$
|
882,992
|
|
|
$
|
9,980
|
|
|
|
4.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
240,540
|
|
|
$
|
167
|
|
|
|
0.27
|
%
|
|
$
|
290,189
|
|
|
$
|
600
|
|
|
|
0.82
|
%
|
Long-term debt
|
|
|
3,010,485
|
|
|
|
35,018
|
|
|
|
4.65
|
|
|
|
576,008
|
|
|
|
5,645
|
|
|
|
3.92
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
14
|
|
|
|
|
|
|
|
0.03
|
|
|
|
3
|
|
|
|
|
|
|
|
4.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
3,251,039
|
|
|
$
|
35,185
|
|
|
|
4.33
|
%
|
|
$
|
866,200
|
|
|
$
|
6,245
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of net non-interest bearing funding
|
|
$
|
36,424
|
|
|
|
|
|
|
|
0.05
|
%
|
|
$
|
16,792
|
|
|
|
|
|
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest yield
|
|
|
|
|
|
$
|
4,207
|
|
|
|
0.51
|
%
|
|
|
|
|
|
$
|
3,735
|
|
|
|
1.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected benchmark interest rates at end of
period:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3-month LIBOR
|
|
|
|
|
|
|
|
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
|
0.60
|
%
|
2-year swap
interest rate
|
|
|
|
|
|
|
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
1.53
|
|
5-year swap
interest rate
|
|
|
|
|
|
|
|
|
|
|
2.06
|
|
|
|
|
|
|
|
|
|
|
|
2.97
|
|
30-year
Fannie Mae MBS par coupon rate
|
|
|
|
|
|
|
|
|
|
|
3.75
|
|
|
|
|
|
|
|
|
|
|
|
4.59
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Income/
|
|
|
Rates
|
|
|
Average
|
|
|
Income/
|
|
|
Rates
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Earned/Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Earned/Paid
|
|
|
|
(Dollars in millions)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans(1)
|
|
$
|
2,987,843
|
|
|
$
|
75,251
|
|
|
|
5.04
|
%
|
|
$
|
429,969
|
|
|
$
|
11,209
|
|
|
|
5.21
|
%
|
Mortgage securities
|
|
|
143,961
|
|
|
|
3,404
|
|
|
|
4.73
|
|
|
|
344,985
|
|
|
|
8,782
|
|
|
|
5.09
|
|
Non-mortgage
securities(2)
|
|
|
89,200
|
|
|
|
103
|
|
|
|
0.23
|
|
|
|
51,862
|
|
|
|
159
|
|
|
|
0.61
|
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
43,838
|
|
|
|
44
|
|
|
|
0.20
|
|
|
|
56,893
|
|
|
|
214
|
|
|
|
0.74
|
|
Advances to lenders
|
|
|
2,593
|
|
|
|
36
|
|
|
|
2.76
|
|
|
|
5,118
|
|
|
|
52
|
|
|
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
3,267,435
|
|
|
$
|
78,838
|
|
|
|
4.83
|
%
|
|
$
|
888,827
|
|
|
$
|
20,416
|
|
|
|
4.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
216,102
|
|
|
$
|
285
|
|
|
|
0.26
|
%
|
|
$
|
310,200
|
|
|
$
|
1,707
|
|
|
|
1.09
|
%
|
Long-term debt
|
|
|
3,019,551
|
|
|
|
71,557
|
|
|
|
4.74
|
|
|
|
565,407
|
|
|
|
11,726
|
|
|
|
4.15
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
19
|
|
|
|
|
|
|
|
0.06
|
|
|
|
41
|
|
|
|
|
|
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
3,235,672
|
|
|
$
|
71,842
|
|
|
|
4.44
|
%
|
|
$
|
875,648
|
|
|
$
|
13,433
|
|
|
|
3.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of net non-interest bearing funding
|
|
$
|
31,763
|
|
|
|
|
|
|
|
0.04
|
%
|
|
$
|
13,179
|
|
|
|
|
|
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest yield
|
|
|
|
|
|
$
|
6,996
|
|
|
|
0.43
|
%
|
|
|
|
|
|
$
|
6,983
|
|
|
|
1.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest income includes interest
income on acquired credit-impaired loans of $586 million
and $256 million for the three months ended June 30,
2010 and 2009, respectively and $1.2 billion and
$409 million for the six months ended June 30, 2010
and 2009, respectively, which included accretion income of
$288 million and $198 million for the three months
ended June 30, 2010 and 2009, respectively and
$554 million and $263 million for the six months ended
June 30, 2010 and 2009, respectively, relating to a portion
of the fair value losses recorded upon the acquisition of the
loans. Average balance includes loans on nonaccrual, for which
interest income is recognized when collected.
|
|
(2) |
|
Includes cash equivalents.
|
|
(3) |
|
Data from British Bankers
Association, Thomson Reuters Indices and Bloomberg.
|
28
Table
8: Rate/Volume Analysis of Changes in Net Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010 vs. 2009
|
|
|
2010 vs. 2009
|
|
|
|
Total
|
|
|
Variance Due
to:(1)
|
|
|
Total
|
|
|
Variance Due
to:(1)
|
|
|
|
Variance
|
|
|
Volume
|
|
|
Rate
|
|
|
Variance
|
|
|
Volume
|
|
|
Rate
|
|
|
|
(Dollars in millions)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$
|
32,021
|
|
|
$
|
32,234
|
|
|
$
|
(213
|
)
|
|
$
|
64,042
|
|
|
$
|
64,435
|
|
|
$
|
(393
|
)
|
Mortgage securities
|
|
|
(2,509
|
)
|
|
|
(2,416
|
)
|
|
|
(93
|
)
|
|
|
(5,378
|
)
|
|
|
(4,793
|
)
|
|
|
(585
|
)
|
Non-mortgage
securities(2)
|
|
|
(2
|
)
|
|
|
45
|
|
|
|
(47
|
)
|
|
|
(56
|
)
|
|
|
76
|
|
|
|
(132
|
)
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
(87
|
)
|
|
|
(4
|
)
|
|
|
(83
|
)
|
|
|
(170
|
)
|
|
|
(41
|
)
|
|
|
(129
|
)
|
Advances to lenders
|
|
|
(11
|
)
|
|
|
(20
|
)
|
|
|
9
|
|
|
|
(16
|
)
|
|
|
(31
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
29,412
|
|
|
|
29,839
|
|
|
|
(427
|
)
|
|
|
58,422
|
|
|
|
59,646
|
|
|
|
(1,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
(433
|
)
|
|
|
(89
|
)
|
|
|
(344
|
)
|
|
|
(1,422
|
)
|
|
|
(406
|
)
|
|
|
(1,016
|
)
|
Long-term debt
|
|
|
29,373
|
|
|
|
28,129
|
|
|
|
1,244
|
|
|
|
59,831
|
|
|
|
57,927
|
|
|
|
1,904
|
|
Total interest expense
|
|
|
28,940
|
|
|
|
28,040
|
|
|
|
900
|
|
|
|
58,409
|
|
|
|
57,521
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
472
|
|
|
$
|
1,799
|
|
|
$
|
(1,327
|
)
|
|
$
|
13
|
|
|
$
|
2,125
|
|
|
$
|
(2,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Combined rate/volume variances are
allocated to both rate and volume based on the relative size of
each variance.
|
|
(2) |
|
Includes cash equivalents.
|
Net interest income increased in the second quarter of 2010
compared with the second quarter of 2009 primarily as a result
of the recognition of contractual guaranty fees in interest
income upon adoption of the new accounting standards and a
reduction in interest expense related to debt that we have
issued as lower borrowing rates allowed us to replace
higher-cost debt with lower-cost debt. The increase in net
interest income was partially offset by a reduction in interest
income due to a significant increase of non-performing loans in
our condensed consolidated balance sheets. While we do not
recognize interest income on the mortgage loans of the
consolidated trusts that have been placed on nonaccrual status,
we continue to recognize interest expense for the amounts owed
to MBS certificateholders, which has decreased our net interest
income. Prior to the adoption of the new accounting standards,
interest income and expense on MBS trusts not owned by Fannie
Mae were not recorded as components of net interest income but
were considered in determining our provision for credit losses.
For the second quarter of 2010, interest income that we did not
recognize for nonaccrual mortgage loans, net of recoveries, was
$2.2 billion, which reduced our net interest yield by
27 basis points, compared with $245 million for the
second quarter of 2009, which reduced our net interest yield by
11 basis points. Of the $2.2 billion of interest
income that we did not recognize for nonaccrual mortgage loans
in the second quarter of 2010, $1.2 billion was related to
the unsecuritized mortgage loans that we own.
Net interest income in the second quarter of 2010 also benefited
from the recent purchase of the substantial majority of the
loans that are four or more consecutive monthly payments
delinquent from single-family MBS trusts as the cost of
purchasing these delinquent loans and holding them in our
portfolio is less than the cost of advancing delinquent payments
to security holders.
Net interest income slightly increased in the first half of 2010
compared with the first half of 2009 primarily due to the
recognition of contractual guaranty fees in interest income upon
adoption of the new accounting standards and a reduction in
interest expense related to debt that we have issued as we
replaced higher-cost debt with lower-cost debt. The increase was
partially offset by a reduction in net interest income due to
the increase of non-performing loans on our condensed
consolidated balance sheets and by lower interest income from
the interest-earning assets that we own due to lower yields on
our mortgage and non-mortgage assets. For the first half of
2010, the interest income that we did not recognize for
nonaccrual mortgage loans, net of
29
recoveries, was $4.9 billion, with a 30 basis point
reduction in net interest yield, compared with $468 million
for the first half of 2009, with an 11 basis point
reduction in net interest yield. Of the $4.9 billion of
interest income that we did not recognize for nonaccrual
mortgage loans in the first half of 2010, $1.8 billion was
related to the unsecuritized mortgage loans that we own.
Net interest yield significantly decreased in the second quarter
and first half of 2010 compared with the second quarter and
first half of 2009. We recognize the contractual guaranty fee
and the amortization of deferred cash fees received after
December 31, 2009 on the underlying mortgage loans of
consolidated trusts as interest income, which represents the
spread between the net interest yield on the underlying mortgage
assets and the rate on the debt of the consolidated trusts. Upon
adoption of the new accounting standards, our interest-earning
assets and interest-bearing liabilities both increased by
approximately $2.4 trillion. The lower spread on these
interest-earning assets and liabilities had the impact of
reducing our net interest yield for the second quarter and first
half of 2010 as compared to the second quarter and first half of
2009.
The net interest income for our Capital Markets group reflects
interest income from the assets that we have purchased and the
interest expense from the debt we have issued. See
Business Segment Results for a detailed discussion
of our Capital Markets groups net interest income.
Guaranty
Fee Income
Guaranty fee income decreased in the second quarter and first
half of 2010 compared with the second quarter and first half of
2009 because we consolidated the substantial majority of our MBS
trusts and we recognize interest income and expense, instead of
guaranty fee income, from consolidated trusts. At adoption of
the new accounting standards, our guaranty-related assets and
liabilities pertaining to previously unconsolidated trusts were
eliminated; therefore, we no longer recognize amortization of
previously recorded deferred cash and non-cash fees or fair
value adjustments related to our guaranty to these trusts.
Guaranty fee income for the second quarter and first half of
2010 reflects guaranty fees earned from unconsolidated trusts
and other credit enhancements arrangements, such as our
long-term standby commitments.
We continue to report guaranty fee income for our Single-Family
business and our HCD business as a separate line item in
Business Segment Results.
Net
Other-Than-Temporary
Impairment
For the second quarter of 2010, net
other-than-temporary
impairment decreased compared with the second quarter of 2009,
primarily as a result of lower impairment on Alt-A and subprime
securities. See Note 6, Investments in
Securities for additional information regarding the net
other-than-temporary
impairment recognized in the second quarter of 2010.
Net
other-than-temporary
impairment for the first half of 2010 significantly decreased
compared with the first half of 2009, driven primarily by the
adoption of a new accounting standard effective April 1,
2009. As a result of this accounting standard, beginning with
the second quarter of 2009, we recognize only the credit portion
of
other-than-temporary
impairment in our condensed consolidated statements of
operations. Approximately 88% of the impairment recorded in the
first half of 2009 was recorded in the first quarter of 2009
prior to the change in accounting standards. The net
other-than-temporary
impairment charge recorded in the first half of 2010 was driven
by a decrease in the present value of our cash flow projections
on Alt-A and subprime securities. The net
other-than-temporary
impairment charge recorded in the first half of 2009 before our
adoption of this accounting standard included both the credit
and non-credit components of the loss in fair value and was
driven primarily by additional impairment losses on some of our
Alt-A and subprime securities that we had previously impaired,
as well as impairment losses on other Alt-A and subprime
securities, due to continued deterioration in the credit quality
of the loans underlying these securities and further declines in
the expected cash flows.
30
Fair
Value Gains (Losses), Net
Table 9 presents the components of fair value gains and losses.
Table
9: Fair Value Gains (Losses), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Risk management derivatives fair value gains (losses)
attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net contractual interest expense accruals on interest rate swaps
|
|
$
|
(756
|
)
|
|
$
|
(779
|
)
|
|
$
|
(1,591
|
)
|
|
$
|
(1,719
|
)
|
Net change in fair value during the period
|
|
|
936
|
|
|
|
155
|
|
|
|
(390
|
)
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk management derivatives fair value gains (losses), net
|
|
|
180
|
|
|
|
(624
|
)
|
|
|
(1,981
|
)
|
|
|
(1,992
|
)
|
Mortgage commitment derivatives fair value gains (losses), net
|
|
|
(577
|
)
|
|
|
87
|
|
|
|
(1,178
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives fair value losses, net
|
|
|
(397
|
)
|
|
|
(537
|
)
|
|
|
(3,159
|
)
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities gains, net
|
|
|
640
|
|
|
|
1,561
|
|
|
|
1,698
|
|
|
|
1,728
|
|
Debt foreign exchange gains (losses), net
|
|
|
54
|
|
|
|
(169
|
)
|
|
|
77
|
|
|
|
(114
|
)
|
Debt fair value gains (losses), net
|
|
|
6
|
|
|
|
(32
|
)
|
|
|
(18
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value gains (losses), net
|
|
$
|
303
|
|
|
$
|
823
|
|
|
$
|
(1,402
|
)
|
|
$
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
5-year swap
interest rate:
|
|
|
|
|
|
|
|
|
As of January 1
|
|
|
2.98
|
%
|
|
|
2.13
|
%
|
As of March 31
|
|
|
2.73
|
|
|
|
2.22
|
|
As of June 30
|
|
|
2.06
|
|
|
|
2.97
|
|
Risk
Management Derivatives Fair Value Gains (Losses),
Net
We supplement our issuance of debt securities with derivative
instruments to further reduce duration and prepayment risks. We
recorded derivative gains in the second quarter of 2010
primarily as a result of changes in implied interest rate
volatility, partially offset by time decay on our purchased
options.
We recorded derivative losses in the first half of 2010
primarily as a result of: (1) time decay on our purchased
options; (2) a decrease in swap rates, which reduced the
fair value of our pay-fixed derivatives; and (3) a decrease
in implied interest rate volatility, which reduced the fair
value of our purchased options.
During the second quarter and first half of 2009, increases in
swap rates resulted in gains on our net pay-fixed swap position.
These gains were more than offset by losses on our option-based
derivatives as swap rate increases drove losses on our
receive-fixed swaptions.
For additional information on our risk management derivatives,
refer to Note 10, Derivative Instruments.
Mortgage
Commitment Derivatives Fair Value Gains (Losses),
Net
Commitments to purchase or sell some mortgage-related securities
and to purchase single-family mortgage loans generally are
derivatives and changes in their fair value are recognized in
our condensed consolidated statements of operations. We
recognized higher losses on our mortgage securities commitments
in the second quarter and first half of 2010 compared to gains
in the second quarter of 2009 and losses in the first half of
2009, due primarily to losses on commitments to sell as a result
of increased mortgage-related securities prices during the
commitment period.
31
Trading
Securities Gains, Net
Gains on trading securities in the second quarter and first half
of 2010 were primarily driven by a decrease in interest rates
and narrowing of credit spreads.
The gains on our trading securities during the second quarter
and first half of 2009 were attributable to the narrowing of
spreads on Commercial Mortgage-Backed Securities
(CMBS), asset-backed securities, and corporate debt
securities. Narrowing of spreads on agency MBS also contributed
to the gains in the first half of 2009.
Losses
from Partnership Investments
Losses from partnership investments decreased in the second
quarter and first half of 2010 compared with the second quarter
and first half of 2009 as we have not recognized net operating
losses or
other-than-temporary
impairment on our LIHTC investments in 2010. In the fourth
quarter of 2009, we reduced the carrying value of our LIHTC
investments to zero. As a result, we no longer recognize net
operating losses or
other-than-temporary
impairment on our LIHTC investments. Losses from partnership
investments recognized in the second quarter and first half of
2010 were due to
other-than-temporary
impairment on our other affordable housing investments.
Administrative
Expenses
Administrative expenses increased in the second quarter and
first half of 2010 compared with the second quarter and first
half of 2009 due to an increase in employees and third-party
services primarily related to our foreclosure prevention and
credit loss mitigation efforts.
Credit-Related
Expenses
Credit-related expenses consist of the provision for loan
losses, provision for guaranty losses and foreclosed property
expense. We detail the components of our credit-related expenses
in Table 10.
Table
10: Credit-Related Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Provision for loan losses
|
|
$
|
4,295
|
|
|
$
|
2,615
|
|
|
$
|
16,234
|
|
|
$
|
5,124
|
|
Provision for guaranty losses
|
|
|
69
|
|
|
|
15,610
|
|
|
|
33
|
|
|
|
33,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for credit
losses(1)
|
|
|
4,364
|
|
|
|
18,225
|
|
|
|
16,267
|
|
|
|
38,559
|
|
Foreclosed property expense
|
|
|
487
|
|
|
|
559
|
|
|
|
468
|
|
|
|
1,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related expenses
|
|
$
|
4,851
|
|
|
$
|
18,784
|
|
|
$
|
16,735
|
|
|
$
|
39,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes credit losses attributable
to acquired credit-impaired loans and HomeSaver Advance fair
value losses of $47 million and $2.2 billion for the
three months ended June 30, 2010 and 2009, respectively,
and $105 million and $3.7 billion for the six months
ended June 30, 2010 and 2009, respectively.
|
Provision
for Credit Losses
We summarize the changes in our combined loss reserves in Table
11. Upon recognition of the mortgage loans held by newly
consolidated trusts on January 1, 2010, we increased our
Allowance for loan losses and decreased our
Reserve for guaranty losses. The impact at
transition is reported as Adoption of new accounting
standards in the table. The decrease in the combined loss
reserves from transition represents a difference in the
methodology used to estimate incurred losses for our allowance
for loan losses as compared
32
with our reserve for guaranty losses and our separate
presentation of the portion of the allowance related to accrued
interest as our Allowance for accrued interest
receivable. These changes are discussed in
Note 2, Adoption of the New Accounting Standards on
the Transfers of Financial Assets and Consolidation of Variable
Interest Entities.
Table
11: Allowance for Loan Losses and Reserve for
Guaranty Losses (Combined Loss Reserves)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Of
|
|
|
Of
|
|
|
|
|
|
|
|
|
Of
|
|
|
Of
|
|
|
|
|
|
|
|
|
|
Fannie
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Fannie
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Mae
|
|
|
Trusts
|
|
|
Total
|
|
|
|
|
|
Mae
|
|
|
Trusts
|
|
|
Total
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Changes in combined loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance(1)
|
|
$
|
25,675
|
|
|
$
|
34,894
|
|
|
$
|
60,569
|
|
|
$
|
4,630
|
|
|
$
|
8,078
|
|
|
$
|
1,847
|
|
|
$
|
9,925
|
|
|
$
|
2,772
|
|
Adoption of new accounting standards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,576
|
|
|
|
43,576
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,593
|
|
|
|
1,702
|
|
|
|
4,295
|
|
|
|
2,615
|
|
|
|
8,864
|
|
|
|
7,370
|
|
|
|
16,234
|
|
|
|
5,124
|
|
Charge-offs(2)
|
|
|
(4,446
|
)
|
|
|
(1,947
|
)
|
|
|
(6,393
|
)
|
|
|
(672
|
)
|
|
|
(6,151
|
)
|
|
|
(5,402
|
)
|
|
|
(11,553
|
)
|
|
|
(1,309
|
)
|
Recoveries
|
|
|
65
|
|
|
|
291
|
|
|
|
356
|
|
|
|
68
|
|
|
|
162
|
|
|
|
568
|
|
|
|
730
|
|
|
|
103
|
|
Transfers(3)
|
|
|
22,620
|
|
|
|
(22,620
|
)
|
|
|
|
|
|
|
|
|
|
|
36,475
|
|
|
|
(36,475
|
)
|
|
|
|
|
|
|
|
|
Net
reclassifications(1)(4)
|
|
|
(3,663
|
)
|
|
|
5,418
|
|
|
|
1,755
|
|
|
|
(109
|
)
|
|
|
(4,584
|
)
|
|
|
6,254
|
|
|
|
1,670
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance(1)(5)
|
|
$
|
42,844
|
|
|
$
|
17,738
|
|
|
$
|
60,582
|
|
|
$
|
6,532
|
|
|
$
|
42,844
|
|
|
$
|
17,738
|
|
|
$
|
60,582
|
|
|
$
|
6,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for guaranty losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
233
|
|
|
$
|
|
|
|
$
|
233
|
|
|
$
|
36,876
|
|
|
$
|
54,430
|
|
|
$
|
|
|
|
$
|
54,430
|
|
|
$
|
21,830
|
|
Adoption of new accounting standards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,103
|
)
|
|
|
|
|
|
|
(54,103
|
)
|
|
|
|
|
Provision for guaranty losses
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
|
|
15,610
|
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
|
|
33,435
|
|
Charge-offs
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
|
|
(4,314
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
(117
|
)
|
|
|
(7,258
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
246
|
|
|
$
|
|
|
|
$
|
246
|
|
|
$
|
48,280
|
|
|
$
|
246
|
|
|
$
|
|
|
|
$
|
246
|
|
|
$
|
48,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined loss reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance(1)
|
|
$
|
25,908
|
|
|
$
|
34,894
|
|
|
$
|
60,802
|
|
|
$
|
41,506
|
|
|
$
|
62,508
|
|
|
$
|
1,847
|
|
|
$
|
64,355
|
|
|
$
|
24,602
|
|
Adoption of new accounting standards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,103
|
)
|
|
|
43,576
|
|
|
|
(10,527
|
)
|
|
|
|
|
Total provision for credit losses
|
|
|
2,662
|
|
|
|
1,702
|
|
|
|
4,364
|
|
|
|
18,225
|
|
|
|
8,897
|
|
|
|
7,370
|
|
|
|
16,267
|
|
|
|
38,559
|
|
Charge-offs(2)
|
|
|
(4,502
|
)
|
|
|
(1,947
|
)
|
|
|
(6,449
|
)
|
|
|
(4,986
|
)
|
|
|
(6,268
|
)
|
|
|
(5,402
|
)
|
|
|
(11,670
|
)
|
|
|
(8,567
|
)
|
Recoveries
|
|
|
65
|
|
|
|
291
|
|
|
|
356
|
|
|
|
176
|
|
|
|
165
|
|
|
|
568
|
|
|
|
733
|
|
|
|
376
|
|
Transfers(3)
|
|
|
22,620
|
|
|
|
(22,620
|
)
|
|
|
|
|
|
|
|
|
|
|
36,475
|
|
|
|
(36,475
|
)
|
|
|
|
|
|
|
|
|
Net
reclassifications(1)(4)
|
|
|
(3,663
|
)
|
|
|
5,418
|
|
|
|
1,755
|
|
|
|
(109
|
)
|
|
|
(4,584
|
)
|
|
|
6,254
|
|
|
|
1,670
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance(1)(5)
|
|
$
|
43,090
|
|
|
$
|
17,738
|
|
|
$
|
60,828
|
|
|
$
|
54,812
|
|
|
$
|
43,090
|
|
|
$
|
17,738
|
|
|
$
|
60,828
|
|
|
$
|
54,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attribution of charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs attributable to guaranty book of business
|
|
|
|
|
|
|
|
|
|
$
|
(6,402
|
)
|
|
$
|
(2,821
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(11,565
|
)
|
|
$
|
(4,877
|
)
|
Charge-offs attributable to fair value losses on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired credit-impaired loans
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
(2,092
|
)
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
(3,502
|
)
|
HomeSaver Advance loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
|
|
|
|
|
|
|
$
|
(6,449
|
)
|
|
$
|
(4,986
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(11,670
|
)
|
|
$
|
(8,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Allocation of combined loss reserves:
|
|
|
|
|
|
|
|
|
Balance at end of each period attributable to:
|
|
|
|
|
|
|
|
|
Single-family(1)
|
|
$
|
59,087
|
|
|
$
|
62,312
|
|
Multifamily
|
|
|
1,741
|
|
|
|
2,043
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60,828
|
|
|
$
|
64,355
|
|
|
|
|
|
|
|
|
|
|
Single-family and multifamily loss reserves as a percentage
of applicable guaranty book of business:
|
|
|
|
|
|
|
|
|
Single-family(1)
|
|
|
2.06
|
%
|
|
|
2.14
|
%
|
Multifamily
|
|
|
0.94
|
|
|
|
1.10
|
|
Combined loss reserves as a percentage of:
|
|
|
|
|
|
|
|
|
Total guaranty book of
business(1)
|
|
|
1.99
|
%
|
|
|
2.08
|
%
|
Total nonperforming
loans(1)
|
|
|
27.87
|
|
|
|
29.73
|
|
|
|
|
(1) |
|
Prior period amounts have been
reclassified and respective percentages have been recalculated
to conform to the current period presentation.
|
|
(2) |
|
Includes accrued interest of
$611 million and $328 million for the three months
ended June 30, 2010 and 2009, respectively and
$1.2 billion and $575 million for the six months ended
June 30, 2010 and 2009, respectively.
|
|
(3) |
|
Includes transfers from trusts for
delinquent loan purchases.
|
|
(4) |
|
Represents reclassification of
amounts recorded in provision for loan losses and charge-offs
that relate to allowance for accrued interest receivable and
preforeclosure property taxes and insurance due from borrowers.
|
|
(5) |
|
Includes $637 million and
$309 million as of June 30, 2010 and 2009,
respectively, for acquired credit-impaired loans.
|
Our provision for credit losses decreased, in both the second
quarter and first half of 2010 compared with the second quarter
and first half of 2009, primarily due to the moderate change in
our combined loss reserves during the second quarter and first
half of 2010 compared with the substantial increase in our
combined loss reserves during the second quarter and first half
of 2009. The substantial increase in our combined loss reserves
during the second quarter and first half of 2009 reflected the
significant growth in the number of loans that were seriously
delinquent during that period, which was partly the result of
the economic deterioration during 2009. Our provision for credit
losses was substantially lower in both the second quarter and
first half of 2010, because the percentage of our loans that
were seriously delinquent as of June 30, 2010 decreased
compared to March 31, 2010 and December 31, 2009,
which was partly the result of the home retention workouts and
the foreclosure alternatives that we have completed along with
the higher foreclosure volumes. However, our provision for
credit losses and level of delinquencies, although lower through
the second quarter and first half of 2010, remained high and our
combined loss reserves remained high due to:
|
|
|
|
|
A high level of nonperforming loans, delinquencies, and defaults
due to the general deterioration in our guaranty book of
business. Factors contributing to these conditions include the
following:
|
|
|
|
|
|
Continued stress on a broader segment of borrowers due to
continued high levels of unemployment and underemployment and
the prolonged decline in home prices has resulted in higher
delinquency rates on loans in our single-family guaranty book of
business that do not have characteristics typically associated
with higher-risk loans.
|
|
|
|
Certain loan categories continued to contribute
disproportionately to the increase in our nonperforming loans
and credit losses. These categories include: loans on properties
in certain Midwest states, California, Florida, Arizona and
Nevada; loans originated in 2006 and 2007; and loans related to
higher-risk product types, such as Alt-A loans. Although we have
identified each year of our 2005 through 2008 vintages as not
profitable, the largest and most disproportionate contributors
to credit losses are the 2006 and 2007 vintages. Accordingly,
our concentration statistics throughout the MD&A display
details for only these two vintages.
|
34
|
|
|
|
|
The prolonged decline in home prices has also resulted in
negative home equity for some borrowers, especially when the
impact of existing second mortgage liens is taken into account,
which has affected their ability to refinance or willingness to
make their mortgage payments, and caused higher delinquencies as
shown in Table 39: Serious Delinquency Rates.
|
|
|
|
The number of loans that are seriously delinquent remained high
due to delays in foreclosures because: (1) we require
servicers to exhaust foreclosure prevention alternatives as part
of our efforts to help borrowers stay in their homes;
(2) recent legislation or judicial changes in the
foreclosure process in a number of states have lengthened the
foreclosure timeline; and (3) some jurisdictions are
experiencing foreclosure processing backlogs due to high
foreclosure case volumes. However, during the second quarter of
2010, the number of loans that transitioned out of seriously
delinquent status exceeded the number of loans that became
seriously delinquent, primarily due to the increase in loan
modifications and foreclosure alternatives and higher volume of
foreclosures.
|
|
|
|
|
|
A greater proportion of our combined loss reserves are
attributable to individual impairment rather than the collective
reserve for loan losses. We consider a loan to be individually
impaired when, based on current information, it is probable that
we will not receive all amounts due, including interest, in
accordance with the contractual terms of the loan agreement.
Individually impaired loans currently include, among others,
those restructured in a troubled debt restructuring
(TDR), which is a form of restructuring a mortgage
loan in which a concession is granted to a borrower experiencing
financial difficulty. Any impairment recognized on these loans
is part of our provision for loan losses and allowance for loan
losses. The higher level of workouts initiated as a result of
our foreclosure prevention efforts through the first half of
2010, including HAMP, increased our total number of individually
impaired loans, especially those considered to be TDRs, compared
with the second quarter and first half of 2009. Frequently, the
allowance calculated for an individually impaired loan is
greater than the allowance which would be calculated under the
collective reserve. Individual impairment for TDRs is based on
the restructured loans expected cash flows over the life
of the loan, discounted at the loans original effective
interest rate. The model includes forward looking assumptions
using multiple scenarios of the future economic environment,
including interest rates and home prices.
|
|
|
|
We recorded an
out-of-period
adjustment of $1.1 billion to our provision for loan losses
in the second quarter and first half of 2010, related to an
additional provision for losses on preforeclosure property taxes
and insurance receivables. For additional information about this
adjustment, please see Note 5, Allowance for Loan
Losses and Reserve for Guaranty Losses.
|
While we acquired significantly more credit-impaired loans from
MBS trusts in the second quarter and first half of 2010 compared
with the second quarter and first half of 2009, we experienced a
significant decline in fair value losses on acquired
credit-impaired loans because of our adoption of the new
accounting standards. Only purchases of credit-deteriorated
loans from unconsolidated MBS trusts or as a result of other
credit guarantees generate fair value losses upon acquisition.
In the second quarter of 2010, we acquired approximately 570,000
loans from MBS trusts and during the first half of 2010, we
acquired approximately 858,000 loans from MBS trusts.
While loans in certain states, certain higher-risk categories
and our 2006 and 2007 vintages continue to contribute
disproportionately to our credit losses, as displayed in Table
14, the portion of our combined loss reserves attributable to
the Midwest remained flat, the portion attributable to our
mortgage loans in California, Florida, Arizona and Nevada
increased slightly, and the portion attributable to our Alt-A
loans and our 2006 and 2007 loan vintages declined slightly as
of June 30, 2010 compared with December 31, 2009, as
the other portions of our guaranty book of business have
generally deteriorated. The Midwest accounted for approximately
13% of our combined single-family loss reserves as of both
June 30, 2010 and December 31, 2009. Our mortgage
loans in California, Florida, Arizona and Nevada together
accounted for approximately 55% of our combined single-family
loss reserves as of June 30, 2010, compared with
approximately 53% as of December 31, 2009. Our Alt-A loans
represented approximately 32% of our combined single-family loss
35
reserves as of June 30, 2010, compared with approximately
35% as of December 31, 2009, and our 2006 and 2007 loan
vintages together accounted for approximately 68% of our
combined single-family loss reserves as of June 30, 2010,
compared with approximately 69% as of December 31, 2009.
For additional discussions on delinquent loans and
concentrations, see Risk ManagementMortgage Credit
Risk ManagementSingle-Family Mortgage Credit Risk
ManagementProblem Loan Management. For discussions
on our charge-offs, see Consolidated Results of
OperationsCredit-Related ExpensesCredit Loss
Performance Metrics.
Our balance of nonperforming single-family loans remained high
as of June 30, 2010 due to both high levels of
delinquencies and an increase in TDRs. The composition of our
nonperforming loans is shown in Table 12. For information on the
impact of TDRs and other individually impaired loans on our
allowance for loan losses, see Note 4, Mortgage
Loans.
Table
12: Nonperforming Single-Family and Multifamily
Loans
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
On-balance sheet nonperforming loans including loans in
consolidated Fannie Mae MBS trusts:
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
$
|
174,641
|
|
|
$
|
34,079
|
|
Troubled debt restructurings on accrual status
|
|
|
38,969
|
|
|
|
6,922
|
|
HomeSaver Advance first-lien loans on accrual status
|
|
|
4,426
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet nonperforming loans
|
|
|
218,036
|
|
|
|
41,867
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet nonperforming loans in unconsolidated Fannie
Mae MBS trusts:
|
|
|
|
|
|
|
|
|
Nonperforming loans, excluding HomeSaver Advance first-lien
loans(1)
|
|
|
201
|
|
|
|
161,406
|
|
HomeSaver Advance first-lien
loans(2)
|
|
|
1
|
|
|
|
13,182
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet nonperforming loans
|
|
|
202
|
|
|
|
174,588
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
218,238
|
|
|
$
|
216,455
|
|
|
|
|
|
|
|
|
|
|
Accruing on-balance sheet loans past due 90 days or
more(3)
|
|
$
|
833
|
|
|
$
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
For the
|
|
|
Six Months Ended
|
|
Year Ended
|
|
|
June 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
Interest related to on-balance sheet nonperforming loans:
|
|
|
|
|
|
|
|
|
Interest income
forgone(4)
|
|
$
|
4,756
|
|
|
$
|
1,341
|
|
Interest income recognized for the
period(5)
|
|
|
3,449
|
|
|
|
1,206
|
|
|
|
|
(1) |
|
Represents loans that would meet
our criteria for nonaccrual status if the loans had been
on-balance sheet.
|
|
(2) |
|
Represents all off-balance sheet
first-lien loans associated with unsecured HomeSaver Advance
loans, including first-lien loans that are not seriously
delinquent.
|
|
(3) |
|
Recorded investment of loans as of
the end of each period that are 90 days or more past due
and continuing to accrue interest, including loans insured or
guaranteed by the U.S. government and loans where we have
recourse against the seller in the event of a default.
|
|
(4) |
|
Represents the amount of interest
income that would have been recorded during the period for
on-balance sheet nonperforming loans as of the end of each
period had the loans performed according to their original
contractual terms.
|
|
(5) |
|
Represents interest income
recognized during the period based on stated coupon rate for
on-balance sheet loans classified as nonperforming as of the end
of each period.
|
36
Foreclosed
Property Expense
Foreclosed property expense decreased during the second quarter
and first half of 2010 compared with the second quarter and
first half of 2009. The decrease was due to the recognition of
$211 million in the second quarter of 2010 and
$773 million in the first half of 2010 from the
cancellation and restructuring of some of our mortgage insurance
coverage. These amounts represented an acceleration of, and
discount on, claims to be paid pursuant to the coverage in order
to reduce our future exposure to our mortgage insurers. In
addition, during the second quarter of 2010, we began recording
expenses related to preforeclosure property taxes and insurance
to the provision for loan losses. The decrease in foreclosed
property expense was partially offset by an increase in REO
holding costs due to the continued rise in foreclosure activity
which resulted in higher REO inventory and by an increase in
valuation adjustments that reduced the value of our REO
inventory.
Credit
Loss Performance Metrics
Our credit-related expenses should be considered in conjunction
with our credit loss performance. These credit loss performance
metrics, however, are not defined terms within GAAP and may not
be calculated in the same manner as similarly titled measures
reported by other companies. Because management does not view
changes in the fair value of our mortgage loans as credit
losses, we adjust our credit loss performance metrics for the
impact associated with HomeSaver Advance loans and the
acquisition of credit-impaired loans. We also exclude interest
forgone on nonperforming loans in our mortgage portfolio,
other-than-temporary
impairment losses resulting from deterioration in the credit
quality of our mortgage-related securities and accretion of
interest income on acquired credit-impaired loans from credit
losses.
Historically, management viewed our credit loss performance
metrics, which include our historical credit losses and our
credit loss ratio, as indicators of the effectiveness of our
credit risk management strategies. As our credit losses are now
at such high levels, management has shifted focus away from the
credit loss ratio to measure performance and has focused more on
our loss mitigation strategies and the reduction of our credit
losses on an absolute basis. However, we believe that credit
loss performance metrics may be useful to investors as the
losses are presented as a percentage of our book of business and
are widely used by analysts, investors and other companies
within the financial services industry. They also provide a
consistent treatment of credit losses for on- and off-balance
sheet loans. Moreover, by presenting credit losses with and
without the effect of fair value losses associated with the
acquisition of credit-impaired loans and HomeSaver Advance
loans, investors are able to evaluate our credit performance on
a more consistent basis among periods. Table 13 details the
components of our credit loss performance metrics as well as our
average default rate and loss severity.
37
Table
13: Credit Loss Performance Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amount
|
|
|
Ratio(1)
|
|
|
Amount
|
|
|
Ratio(1)
|
|
|
Amount
|
|
|
Ratio(1)
|
|
|
Amount
|
|
|
Ratio(1)
|
|
|
|
(Dollars in millions)
|
|
|
Charge-offs, net of
recoveries(2)
|
|
$
|
6,093
|
|
|
|
79.7
|
bp
|
|
$
|
4,810
|
|
|
|
63.4
|
bp
|
|
$
|
10,937
|
|
|
|
71.2
|
bp
|
|
$
|
8,191
|
|
|
|
54.3
|
bp
|
Foreclosed property
expense(2)
|
|
|
487
|
|
|
|
6.4
|
|
|
|
559
|
|
|
|
7.4
|
|
|
|
468
|
|
|
|
3.1
|
|
|
|
1,097
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit losses including the effect of fair value losses on
acquired credit-impaired loans and HomeSaver Advance loans
|
|
|
6,580
|
|
|
|
86.1
|
|
|
|
5,369
|
|
|
|
70.8
|
|
|
|
11,405
|
|
|
|
74.3
|
|
|
|
9,288
|
|
|
|
61.6
|
|
Less: Fair value losses resulting from acquired credit-impaired
loans and HomeSaver Advance loans
|
|
|
(47
|
)
|
|
|
(0.6
|
)
|
|
|
(2,165
|
)
|
|
|
(28.5
|
)
|
|
|
(105
|
)
|
|
|
(0.7
|
)
|
|
|
(3,690
|
)
|
|
|
(24.5
|
)
|
Plus: Impact of acquired credit-impaired loans on charge-offs
and foreclosed property expense
|
|
|
512
|
|
|
|
6.7
|
|
|
|
139
|
|
|
|
1.8
|
|
|
|
892
|
|
|
|
5.8
|
|
|
|
228
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit losses and credit loss ratio
|
|
$
|
7,045
|
|
|
|
92.2
|
bp
|
|
$
|
3,343
|
|
|
|
44.1
|
bp
|
|
$
|
12,192
|
|
|
|
79.4
|
bp
|
|
$
|
5,826
|
|
|
|
38.6
|
bp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit losses attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
$
|
6,923
|
|
|
|
|
|
|
$
|
3,301
|
|
|
|
|
|
|
$
|
11,985
|
|
|
|
|
|
|
$
|
5,766
|
|
|
|
|
|
Multifamily
|
|
|
122
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
207
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,045
|
|
|
|
|
|
|
$
|
3,343
|
|
|
|
|
|
|
$
|
12,192
|
|
|
|
|
|
|
$
|
5,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average default rate
|
|
|
|
|
|
|
0.53
|
%
|
|
|
|
|
|
|
0.24
|
%
|
|
|
|
|
|
|
0.99
|
%
|
|
|
|
|
|
|
0.42
|
%
|
Average loss severity
rate(3)
|
|
|
|
|
|
|
34.30
|
|
|
|
|
|
|
|
39.10
|
|
|
|
|
|
|
|
34.80
|
|
|
|
|
|
|
|
37.50
|
|
|
|
|
(1) |
|
Basis points are based on the
annualized amount for each line item presented divided by the
average guaranty book of business during the period.
|
|
(2) |
|
Beginning in the second quarter of
2010, expenses relating to preforeclosure taxes and insurance,
previously recorded as foreclosed property expense, were
recorded as charge-offs. The impact of including these costs was
6.0 and 3.0 basis points for the three and six months ended
June 30, 2010, respectively.
|
|
(3) |
|
Excludes fair value losses on
credit-impaired loans acquired from MBS trusts and HomeSaver
Advance loans and charge-offs from preforeclosure sales.
|
The increase in our credit losses reflects the increase in the
number of defaults, particularly due to the prolonged period of
high unemployment, decline in home prices and our prior
acquisition of loans with higher-risk attributes. However,
defaults in the second quarter and first half of 2009 were lower
than they could have been due to the foreclosure moratoria
during the end of 2008 and first quarter of 2009. The increase
in defaults during 2010 was partially offset by a slight
reduction in average loss severity as home prices have improved
in some geographic regions.
Table 14 provides an analysis of our credit losses in certain
higher-risk loan categories, loan vintages and loans within
certain states that continue to account for a disproportionate
share of our credit losses as compared with our other loans.
38
Table
14: Credit Loss Concentration Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-
|
|
|
|
|
|
|
|
|
|
|
|
|
Family
|
|
|
|
Percentage of
|
|
|
Credit Losses
|
|
|
|
Single-Family Conventional
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Guaranty Book
|
|
|
Months
|
|
|
Months
|
|
|
|
of Business Outstanding as
of(1)
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Geographical distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona, California, Florida and Nevada
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
56
|
%
|
|
|
57
|
%
|
|
|
57
|
%
|
|
|
57
|
%
|
Illinois, Indiana, Michigan and Ohio
|
|
|
11
|
|
|
|
11
|
|
|
|
11
|
|
|
|
14
|
|
|
|
16
|
|
|
|
14
|
|
|
|
15
|
|
All other states
|
|
|
61
|
|
|
|
61
|
|
|
|
61
|
|
|
|
30
|
|
|
|
27
|
|
|
|
29
|
|
|
|
28
|
|
Select higher-risk product
features(2)
|
|
|
23
|
|
|
|
24
|
|
|
|
26
|
|
|
|
64
|
|
|
|
70
|
|
|
|
64
|
|
|
|
71
|
|
Vintages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
9
|
|
|
|
11
|
|
|
|
12
|
|
|
|
30
|
|
|
|
32
|
|
|
|
30
|
|
|
|
32
|
|
2007
|
|
|
14
|
|
|
|
15
|
|
|
|
17
|
|
|
|
37
|
|
|
|
34
|
|
|
|
37
|
|
|
|
34
|
|
All other vintages
|
|
|
77
|
|
|
|
74
|
|
|
|
71
|
|
|
|
33
|
|
|
|
34
|
|
|
|
33
|
|
|
|
34
|
|
|
|
|
(1) |
|
Calculated based on the unpaid
principal balance of loans, where we have detailed loan-level
information, for each category divided by the unpaid principal
balance of our single-family conventional guaranty book of
business.
|
|
(2) |
|
Includes Alt-A loans, subprime
loans, interest-only loans, loans with original LTV ratios
greater than 90%, and loans with FICO credit scores less than
620.
|
Our 2009 and 2010 vintages accounted for less than 1% of our
single-family credit losses. Typically, credit losses on
mortgage loans do not peak until the third through fifth years
following origination. We provide more detailed credit
performance information, including serious delinquency rates by
geographic region, statistics on nonperforming loans and
foreclosure activity in Risk ManagementCredit Risk
ManagementMortgage Credit Risk Management.
Regulatory
Hypothetical Stress Test Scenario
Under a September 2005 agreement with the Office of Federal
Housing Enterprise Oversight, we are required to disclose on a
quarterly basis the present value of the change in future
expected credit losses from our existing single-family guaranty
book of business from an immediate 5% decline in single-family
home prices for the entire United States. Although other
provisions of the September 2005 agreement were suspended in
March 2009 by FHFA until further notice, this disclosure
requirement was not suspended. For purposes of this calculation,
we assume that, after the initial 5% shock, home price growth
rates return to the average of the possible growth rate paths
used in our internal credit pricing models. The sensitivity
results represent the difference between future expected credit
losses under our base case scenario, which is derived from our
internal home price path forecast, and a scenario that assumes
an instantaneous nationwide 5% decline in home prices.
Table 15 compares the credit loss sensitivities for the periods
indicated for first lien single-family whole loans we own or
that back Fannie Mae MBS, before and after consideration of
projected credit risk sharing proceeds, such as private mortgage
insurance claims and other credit enhancement.
39
Table
15: Single-Family Credit Loss
Sensitivity(1)
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Gross single-family credit loss sensitivity
|
|
$
|
23,786
|
|
|
$
|
18,311
|
|
Less: Projected credit risk sharing proceeds
|
|
|
(3,163
|
)
|
|
|
(2,533
|
)
|
|
|
|
|
|
|
|
|
|
Net single-family credit loss sensitivity
|
|
$
|
20,623
|
|
|
$
|
15,778
|
|
|
|
|
|
|
|
|
|
|
Outstanding single-family whole loans and Fannie Mae
MBS(2)
|
|
$
|
2,783,453
|
|
|
$
|
2,830,004
|
|
Single-family net credit loss sensitivity as a percentage of
outstanding single-family whole loans and Fannie Mae MBS
|
|
|
0.74
|
%
|
|
|
0.56
|
%
|
|
|
|
(1) |
|
Represents total economic credit
losses, which consist of credit losses and forgone interest.
Calculations are based on approximately 97% of our total
single-family guaranty book of business as of both June 30,
2010 and December 31, 2009. The mortgage loans and
mortgage-related securities that are included in these estimates
consist of: (a) single-family Fannie Mae MBS (whether held
in our mortgage portfolio or held by third parties), excluding
certain whole loan REMICs and private-label wraps;
(b) single-family mortgage loans, excluding mortgages
secured only by second liens, subprime mortgages, manufactured
housing chattel loans and reverse mortgages; and
(c) long-term standby commitments. We expect the inclusion
in our estimates of the excluded products may impact the
estimated sensitivities set forth in this table.
|
|
(2) |
|
As a result of our adoption of the
new accounting standards, the balance reflects a reduction as of
June 30, 2010 from December 31, 2009 due to
unscheduled principal payments.
|
Because these sensitivities represent hypothetical scenarios,
they should be used with caution. Our regulatory stress test
scenario is limited in that it assumes an instantaneous uniform
5% nationwide decline in home prices, which is not
representative of the historical pattern of changes in home
prices. Changes in home prices generally vary on a regional, as
well as a local, basis. In addition, these stress test scenarios
are calculated independently without considering changes in
other interrelated assumptions, such as unemployment rates or
other economic factors, which are likely to have a significant
impact on our future expected credit losses.
Federal
Income Taxes
We were not able to recognize an income tax benefit for our
pre-tax loss in the second quarter and first half of 2010 as it
is more likely than not that we will not generate sufficient
taxable income in the foreseeable future to realize our net
deferred tax assets. We recognized an income tax benefit in the
first half of 2010 primarily due to the reversal of a portion of
the valuation allowance for deferred tax assets resulting from a
settlement agreement reached with the IRS for our unrecognized
tax benefits for the tax years 1999 through 2004.
We recognized a provision for federal income taxes for the
second quarter of 2009, which reflected our estimate of our
annual effective tax rate. We recognized a tax benefit for the
first half of 2009 due primarily to the benefit of carrying back
a portion of our 2009 tax loss to prior years, net of the
reversal of the use of certain tax credits.
Financial
Impact of the Making Home Affordable Program on Fannie
Mae
Home
Affordable Refinance Program
Because we already own or guarantee the mortgage loans that we
refinance under HARP, our expenses under that program consist
mostly of limited administrative costs.
Home
Affordable Modification Program
We discuss below how modifying loans under HAMP that we own or
guarantee directly affects our financial results.
40
Impairments
and Fair Value Losses on Loans Under HAMP
Table 16 provides information about the impairments and fair
value losses associated with mortgage loans owned or guaranteed
by Fannie Mae entering trial modifications under HAMP. These
amounts have been included in the calculation of our
credit-related expenses in our condensed consolidated statements
of operations for 2009 and the second quarter and first half of
2010. Please see MD&AConsolidated Results of
OperationsFinancial Impact of the Making Home Affordable
Program on Fannie Mae in our 2009
Form 10-K
for a detailed discussion on these impairments and fair value
losses.
When we begin to individually assess a loan for impairment, we
exclude the loan from the population of loans on which we
calculate our collective loss reserves. Table 16 does not
reflect the potential reduction of our combined loss reserves
from excluding individually impaired loans from this calculation.
Table
16: Impairments and Fair Value Losses on Loans in
HAMP(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Impairments(2)
|
|
$
|
2,239
|
|
|
$
|
1,646
|
|
|
$
|
9,802
|
|
|
$
|
1,646
|
|
Fair value losses on credit-impaired loans acquired from MBS
trusts(3)
|
|
|
2
|
|
|
|
89
|
|
|
|
6
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,241
|
|
|
$
|
1,735
|
|
|
$
|
9,808
|
|
|
$
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans entered into a trial modification under the program
|
|
|
24,900
|
|
|
|
34,700
|
|
|
|
116,600
|
|
|
|
34,700
|
|
Credit-impaired loans acquired from MBS trusts in trial
modifications under the
program(4)
|
|
|
14
|
|
|
|
655
|
|
|
|
58
|
|
|
|
655
|
|
|
|
|
(1) |
|
Includes amounts for loans that
entered into a trial modification under the program but that
have not yet received, or that have been determined to be
ineligible for, a permanent modification under the program. Some
of these ineligible loans have since been modified outside of
the program. Also includes loans that entered into a trial
modification prior to the end of the periods presented, but were
reported from servicers to us subsequent to that date.
|
|
(2) |
|
Impairments consist of
(a) impairments recognized on loans accounted for as loans
restructured in a troubled debt restructuring and
(b) incurred credit losses on loans in MBS trusts that have
entered into a trial modification and been individually assessed
for incurred credit losses. Amount includes impairments
recognized subsequent to the date of loan acquisition.
|
|
(3) |
|
These fair value losses are
recorded as charge-offs against the Reserve for guaranty
losses and have the effect of increasing the provision for
guaranty losses in our condensed consolidated statements of
operations.
|
|
(4) |
|
Excludes loans purchased from
consolidated trusts for the three and six months ended
June 30, 2010 for which no fair value losses were
recognized.
|
Servicer
and Borrower Incentives
We incurred $143 million during the second quarter of 2010
and $238 million in the first half of 2010 in paid and
accrued incentive fees for servicers and borrowers in connection
with loans modified under HAMP, which we recorded as part of
Other expenses.
Overall
Impact of the Making Home Affordable Program
Because of the unprecedented nature of the circumstances that
led to the Making Home Affordable Program, we cannot quantify
what the impact would have been on Fannie Mae if the Making Home
Affordable Program had not been introduced. We do not know how
many loans we would have modified under alternative programs,
what the terms or costs of those modifications would have been,
how many foreclosures would have resulted nationwide, and at
what pace, or the impact on housing prices if the program had
not been put in place. As a result, the amounts we discuss above
are not intended to measure how much the program is costing us
in comparison to what it would have cost us if we did not have
the program at all.
41
BUSINESS
SEGMENT RESULTS
In this section, we discuss changes to our presentation for
reporting results for our three business segments,
Single-Family, HCD and Capital Markets, which have been revised
due to our prospective adoption of the new accounting standards.
We then discuss our business segment results. You should read
this section together with our condensed consolidated results of
operations in Consolidated Results of Operations.
Changes
to Segment Reporting
Our prospective adoption of the new accounting standards had a
significant impact on the presentation and comparability of our
condensed consolidated financial statements due to the
consolidation of the substantial majority of our single-class
securitization trusts and the elimination of previously recorded
deferred revenue from our guaranty arrangements. We continue to
manage Fannie Mae based on the same three business segments;
however, effective in 2010 we changed the presentation of
segment financial information that is currently evaluated by
management.
While some line items in our segment results were not impacted
by either the change from the new accounting standards or
changes to our segment presentation, others were impacted
materially, which reduces the comparability of our segment
results with prior years. We have not restated prior year
results nor have we presented current year results under the old
presentation as we determined that it was impracticable to do
so; therefore, our segment results reported in the current
period are not comparable with prior years. In the table below,
we compare our current segment reporting for our three business
segments with our segment reporting in the prior year.
Segment
Reporting in Current Periods Compared with Prior Year
|
|
|
|
|
|
|
|
|
|
|
Single-Family and HCD
|
Line Item
|
|
|
|
|
Current Segment
Reporting
|
|
|
|
|
Prior Year Segment
Reporting
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee income
|
|
|
|
|
At adoption of the new accounting standards, we eliminated a
substantial majority of our guaranty-related assets and
liabilities in our consolidated balance sheet. We
re-established an asset and a liability related to the deferred
cash fees on Single-Familys balance sheet and we amortize
these fees as guaranty fee income with our contractual guaranty
fees.
|
|
|
|
|
At the inception of a guaranty to an unconsolidated entity, we
established a guaranty asset and guaranty obligation, which
included deferred cash fees. These guaranty-related assets and
liabilities were then amortized and recognized in guaranty fee
income with our contractual guaranty fees over the life of the
guaranty.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We use a static yield method to amortize deferred cash fees to
better align with the recognition of contractual guaranty fee
income.
|
|
|
|
|
We used a prospective level yield method to amortize our
guaranty-related assets and liabilities, which created
significant fluctuations in our guaranty fee income as the
interest rate environment shifted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We eliminated substantially all of our guaranty assets that were
previously recorded at fair value upon adoption of the new
accounting standards. As such, the recognition of fair value
adjustments as a component of Single-Family guaranty fee income
has been essentially eliminated.
|
|
|
|
|
We recorded fair value adjustments on our buy-up assets and
certain guaranty assets as a component of Single-Family guaranty
fee income.
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
Single-Family and HCD
|
Line Item
|
|
|
|
|
Current Segment
Reporting
|
|
|
|
|
Prior Year Segment
Reporting
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
Because we now recognize loans underlying the substantial
majority of our MBS trusts in our condensed consolidated balance
sheets, the amount of interest expense Single-Family and HCD
recognize related to forgone interest on nonperforming loans
underlying MBS trusts has significantly increased.
|
|
|
|
|
Interest payments expected to be delinquent on off-balance sheet
nonperforming loans were considered in the reserve for guaranty
losses.
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related expenses
|
|
|
|
|
Because we now recognize loans underlying the substantial
majority of our MBS trusts in our condensed consolidated balance
sheets, we no longer recognize fair value losses upon acquiring
credit-impaired loans from these trusts.
|
|
|
|
|
We recorded a fair value loss on credit-impaired loans acquired
from MBS trusts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon recognition of mortgage loans held by newly consolidated
trusts, we increased our allowance for loan losses and decreased
our reserve for guaranty losses. We use a different methodology
in estimating incurred losses under our allowance for loan
losses versus under our reserve for guaranty losses which will
result in lower credit-related expenses.
|
|
|
|
|
The majority of our combined loss reserves were recorded in the
reserve for guaranty losses, which used a different methodology
for estimating incurred losses versus the methodology used for
the allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
HCD only
|
|
|
|
|
|
|
|
|
|
|
|
Line Item
|
|
|
|
|
Current Segment
Reporting
|
|
|
|
|
Prior Year Segment
Reporting
|
|
|
|
|
|
|
|
|
|
|
|
Losses from partnership investments
|
|
|
|
|
We report losses from partnership investments on an equity basis
in the HCD balance sheet. As a result, net income or loss
attributable to noncontrolling interests is not included in
losses from partnership investments.
|
|
|
|
|
Losses from partnership investments included net income or loss
attributable to noncontrolling interests for the HCD segment.
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets
|
|
|
|
|
|
|
|
|
|
|
|
Line Item
|
|
|
|
|
Current Segment
Reporting
|
|
|
|
|
Prior Year Segment
Reporting
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
We recognize interest income on interest-earning assets that we
own and interest expense on debt that we have issued.
|
|
|
|
|
In addition to the assets we own and the debt we issue, we also
included interest income on mortgage-related assets underlying
MBS trusts that we consolidated under the prior consolidation
accounting standards and the interest expense on the
corresponding debt of such trusts.
|
|
|
|
|
|
|
|
|
|
|
|
Investment gains and losses, net
|
|
|
|
|
We no longer designate the substantial majority of our loans
held for securitization as held for sale as the substantial
majority of related MBS trusts will be consolidated, thereby
reducing lower of cost or fair value adjustments.
|
|
|
|
|
We designated loans held for securitization as held for sale
resulting in recognition of lower of cost or fair value
adjustments on our held-for-sale loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We include the securities that we own, regardless of whether the
trust has been consolidated, in reporting gains and losses on
securitizations and sales of available-for-sale securities.
|
|
|
|
|
We excluded the securities of consolidated trusts that we owned
in reporting of gains and losses on securitizations and sales of
available-for-sale securities.
|
|
|
|
|
|
|
|
|
|
|
|
Fair value gains and losses, net
|
|
|
|
|
We include the trading securities that we own, regardless of
whether the trust has been consolidated, in recognizing fair
value gains and losses on trading securities.
|
|
|
|
|
MBS trusts that were consolidated were reported as loans and
thus any securities we owned issued by these trusts did not have
fair value adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
43
Under the current segment reporting structure, the sum of the
results for our three business segments does not equal our
condensed consolidated results of operations as we separate the
activity related to our consolidated trusts from the results
generated by our three segments. In addition, because we apply
accounting methods that differ from our consolidated results for
segment reporting purposes, we include an
eliminations/adjustments category to reconcile our business
segment results and the activity related to our consolidated
trusts to our condensed consolidated results of operations.
Segment
Results
Table 17 displays our segment results under our current segment
reporting presentation for the second quarter and the first half
of 2010.
Table
17: Business Segment Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
Business Segments
|
|
|
Other Activity/Reconciling Items
|
|
|
|
|
|
|
Single
|
|
|
|
|
|
Capital
|
|
|
Consolidated
|
|
|
Eliminations/
|
|
|
Total
|
|
|
|
Family
|
|
|
HCD
|
|
|
Markets
|
|
|
Trusts(1)
|
|
|
Adjustments(2)
|
|
|
Results
|
|
|
|
(Dollars in millions)
|
|
|
Net interest income (expense)
|
|
$
|
(1,385
|
)
|
|
$
|
5
|
|
|
$
|
3,549
|
|
|
$
|
1,282
|
|
|
$
|
756
|
(3)
|
|
$
|
4,207
|
|
Benefit (provision) for loan losses
|
|
|
(4,319
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after provision for loan losses
|
|
|
(5,704
|
)
|
|
|
29
|
|
|
|
3,549
|
|
|
|
1,282
|
|
|
|
756
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee income (expense)
|
|
|
1,795
|
|
|
|
195
|
|
|
|
(360
|
)
|
|
|
(1,130
|
)(4)
|
|
|
(448
|
)(4)
|
|
|
52
|
|
Investment gains (losses), net
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
779
|
|
|
|
(28
|
)
|
|
|
(729
|
)(5)
|
|
|
23
|
|
Net
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
Fair value gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
631
|
|
|
|
11
|
|
|
|
(339
|
)(6)
|
|
|
303
|
|
Debt extinguishment losses, net
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
(159
|
)
|
Losses from partnership investments
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(26
|
)
|
Fee and other income (expense)
|
|
|
85
|
|
|
|
28
|
|
|
|
136
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
242
|
|
Administrative expenses
|
|
|
(436
|
)
|
|
|
(93
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
(670
|
)
|
Benefit (provision) for guaranty losses
|
|
|
(73
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
Foreclosed property expense
|
|
|
(479
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
Other income (expenses)
|
|
|
(259
|
)
|
|
|
(11
|
)
|
|
|
91
|
|
|
|
|
|
|
|
(19
|
)(7)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(5,069
|
)
|
|
|
121
|
|
|
|
4,420
|
|
|
|
97
|
|
|
|
(783
|
)
|
|
|
(1,214
|
)
|
Provision (benefit) for federal income taxes
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,068
|
)
|
|
|
119
|
|
|
|
4,412
|
|
|
|
97
|
|
|
|
(783
|
)
|
|
|
(1,223
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
(8)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
(5,068
|
)
|
|
$
|
119
|
|
|
$
|
4,412
|
|
|
$
|
97
|
|
|
$
|
(778
|
)
|
|
$
|
(1,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
|
Business Segments
|
|
|
Other Activity/Reconciling Items
|
|
|
|
|
|
|
Single
|
|
|
|
|
|
Capital
|
|
|
Consolidated
|
|
|
Eliminations/
|
|
|
Total
|
|
|
|
Family
|
|
|
HCD
|
|
|
Markets
|
|
|
Trusts(1)
|
|
|
Adjustments(2)
|
|
|
Results
|
|
|
|
(Dollars in millions)
|
|
|
Net interest income (expense)
|
|
$
|
(3,330
|
)
|
|
$
|
9
|
|
|
$
|
6,606
|
|
|
$
|
2,521
|
|
|
$
|
1,190
|
(3)
|
|
$
|
6,996
|
|
Benefit (provision) for loan losses
|
|
|
(16,264
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after provision for loan losses
|
|
|
(19,594
|
)
|
|
|
39
|
|
|
|
6,606
|
|
|
|
2,521
|
|
|
|
1,190
|
|
|
|
(9,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee income (expense)
|
|
|
3,563
|
|
|
|
389
|
|
|
|
(639
|
)
|
|
|
(2,327
|
)(4)
|
|
|
(880
|
)(4)
|
|
|
106
|
|
Investment gains (losses), net
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
1,571
|
|
|
|
(183
|
)
|
|
|
(1,202
|
)(5)
|
|
|
189
|
|
Net
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
Fair value losses, net
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
|
|
(24
|
)
|
|
|
(823
|
)(6)
|
|
|
(1,402
|
)
|
Debt extinguishment losses, net
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
(283
|
)
|
Losses from partnership investments
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(84
|
)
|
Fee and other income (expense)
|
|
|
132
|
|
|
|
63
|
|
|
|
240
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
421
|
|
Administrative expenses
|
|
|
(826
|
)
|
|
|
(192
|
)
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,275
|
)
|
Benefit (provision) for guaranty losses
|
|
|
(84
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
Foreclosed property expense
|
|
|
(449
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
Other income (expenses)
|
|
|
(431
|
)
|
|
|
(17
|
)
|
|
|
118
|
|
|
|
|
|
|
|
(40
|
)(7)
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(17,685
|
)
|
|
|
233
|
|
|
|
6,528
|
|
|
|
(127
|
)
|
|
|
(1,759
|
)
|
|
|
(12,810
|
)
|
Provision (benefit) for federal income taxes
|
|
|
(52
|
)
|
|
|
15
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(17,633
|
)
|
|
|
218
|
|
|
|
6,549
|
|
|
|
(127
|
)
|
|
|
(1,759
|
)
|
|
|
(12,752
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
(8)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
(17,633
|
)
|
|
$
|
218
|
|
|
$
|
6,549
|
|
|
$
|
(127
|
)
|
|
$
|
(1,755
|
)
|
|
$
|
(12,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents activity related to the
assets and liabilities of consolidated trusts in our balance
sheet under the new accounting standard.
|
|
(2) |
|
Represents the elimination of
intercompany transactions occurring between the three business
segments and our consolidated trusts, as well as other
adjustments to reconcile to our condensed consolidated results.
|
|
(3) |
|
Represents the amortization expense
of cost basis adjustments on securities that we own in our
portfolio that on a GAAP basis are eliminated.
|
|
(4) |
|
Represents the guaranty fees paid
from consolidated trusts to the Single-Family and HCD segments.
The adjustment to guaranty fee income in the
Eliminations/Adjustments column represents the elimination of
the amortization of deferred cash fees related to consolidated
trusts that were re-established for segment reporting.
|
|
(5) |
|
Primarily represents the removal of
realized gains and losses on sales of Fannie Mae MBS classified
as
available-for-sale
securities that are issued by consolidated trusts and retained
in the Capital Markets portfolio. The adjustment also includes
the removal of securitization gains (losses) recognized in the
Capital Markets segment relating to portfolio securitization
transactions that do not qualify for sale accounting under GAAP.
|
|
(6) |
|
Represents the removal of fair
value adjustments on consolidated Fannie Mae MBS classified as
trading that are retained in the Capital Markets portfolio.
|
|
(7) |
|
Represents the removal of
amortization of deferred revenue on certain credit enhancements
from the Single-Family and HCD segment balance sheets that are
eliminated upon reconciliation to our condensed consolidated
balance sheets.
|
|
(8) |
|
Represents the adjustment from
equity method accounting to consolidation accounting for
partnership investments that are consolidated in our condensed
consolidated balance sheets.
|
45
Single-Family
Business Results
Table 18 summarizes the financial results of the Single-Family
business for the second quarter and the first half of 2010 under
the current segment reporting presentation and for the second
quarter and the first half of 2009 under the prior segment
reporting presentation. The primary sources of revenue for our
Single-Family business are guaranty fee income and fee and other
income. Expenses primarily include credit-related expenses and
administrative expenses.
Table
18: Single-Family Business Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
For the Three Months Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Statement of operations
data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(1,385
|
)
|
|
$
|
186
|
|
|
$
|
(3,330
|
)
|
|
$
|
201
|
|
Guaranty fee
income(2)
|
|
|
1,795
|
|
|
|
1,865
|
|
|
|
3,563
|
|
|
|
3,831
|
|
Credit-related
expenses(3)
|
|
|
(4,871
|
)
|
|
|
(18,391
|
)
|
|
|
(16,797
|
)
|
|
|
(38,721
|
)
|
Other
expenses(4)
|
|
|
(608
|
)
|
|
|
(438
|
)
|
|
|
(1,121
|
)
|
|
|
(792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income taxes
|
|
|
(5,069
|
)
|
|
|
(16,778
|
)
|
|
|
(17,685
|
)
|
|
|
(35,481
|
)
|
Benefit for federal income taxes
|
|
|
1
|
|
|
|
138
|
|
|
|
52
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Fannie Mae
|
|
$
|
(5,068
|
)
|
|
$
|
(16,640
|
)
|
|
$
|
(17,633
|
)
|
|
$
|
(34,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other key performance data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family effective guaranty fee rate (in basis
points)(1)(5)
|
|
|
25.0
|
|
|
|
26.1
|
|
|
|
24.7
|
|
|
|
27.0
|
|
Single-family average charged fee on new acquisitions (in basis
points)(6)
|
|
|
27.3
|
|
|
|
23.7
|
|
|
|
27.1
|
|
|
|
22.5
|
|
Average single-family guaranty book of
business(7)
|
|
$
|
2,871,208
|
|
|
$
|
2,855,504
|
|
|
$
|
2,884,767
|
|
|
$
|
2,837,800
|
|
Single-family Fannie Mae MBS
issues(8)
|
|
$
|
111,457
|
|
|
$
|
311,171
|
|
|
$
|
235,814
|
|
|
$
|
463,114
|
|
|
|
|
(1) |
|
Segment statement of operations
data reported under the current segment reporting basis is not
comparable to the segment statement of operations data reported
in prior periods.
|
|
(2) |
|
In 2010, guaranty fee income
related to consolidated MBS trusts consists of contractual
guaranty fees and the amortization of deferred cash fees using a
static effective yield method. In 2009, guaranty fee income
consisted of amortization of our guaranty-related assets and
liabilities using a prospective yield method and fair value
adjustments of
buys-ups and
certain guaranty assets.
|
|
(3) |
|
Consists of the provision for loan
losses, provision for guaranty losses and foreclosed property
income or expense.
|
|
(4) |
|
Consists of investment gains and
losses, fee and other income, other expenses, and administrative
expenses.
|
|
(5) |
|
Presented in basis points based on
annualized Single-Family segment guaranty fee income divided by
the average single-family guaranty book of business.
|
|
(6) |
|
Presented in basis points.
Represents the average contractual fee rate for our
single-family guarantee arrangements plus the recognition of any
upfront cash payments ratably over an estimated average life.
|
|
(7) |
|
Consists of single-family mortgage
loans held in our mortgage portfolio, single-family mortgage
loans held by consolidated trusts, single-family Fannie Mae MBS
issued from unconsolidated trusts held by either third parties
or within our retained portfolio, and other credit enhancements
that we provide on single-family mortgage assets. Excludes
non-Fannie Mae mortgage-related securities held in our
investment portfolio for which we do not provide a guaranty.
|
|
(8) |
|
Reflects unpaid principal balance
of Fannie Mae MBS issued and guaranteed by the Single-Family
segment. In 2009, we entered into a memorandum of understanding
with Treasury, FHFA and Freddie Mac in which we agreed to
provide assistance to state and local housing finance agencies
(HFAs) through three separate assistance programs: a
temporary credit and liquidity facilities (TCLF)
program, a new issue bond (NIB) program and a
multifamily credit enhancement program. Includes HFA new issue
bond program issuances of $3.1 billion for the first half
of 2010. We did not have any HFA new issue bond program
issuances in the second quarter of 2010.
|
46
Net
Interest Income (Expense)
Net interest income (expense) for the Single-Family business
segment includes forgone interest on nonperforming loans, loss
recoveries on performing loans, and an allocated cost of capital
charge between our three business segments. In the second
quarter and the first half of 2010, net interest expense was
primarily driven by an increase in forgone interest on
nonperforming loans, which increased to $2.2 billion in the
second quarter of 2010 from $240 million in the second
quarter of 2009 and to $4.8 billion in the first half of
2010 from $457 million in the first half of 2009. The
increase in forgone interest on nonperforming loans was due to
the increase in nonperforming loans in our condensed
consolidated balance sheets as a result of our adoption of the
new accounting standards.
Guaranty
Fee Income
Guaranty fee income decreased in the second quarter and the
first half of 2010 compared with the second quarter and the
first half of 2009, primarily because: (1) we now amortize
our single-family deferred cash fees under the static yield
method, which resulted in lower amortization income compared
with 2009 when we amortized these fees under the prospective
level yield method; (2) guaranty fee income in 2009
included the amortization of certain non-cash deferred items,
the balance of which was eliminated upon adoption of the new
accounting standards and was not re-established on
Single-Familys balance sheet at the transition date; and
(3) guaranty fee income in the second quarter and the first
half of 2009 reflected an increase in the fair value of
buy-ups and
certain guaranty assets which are no longer marked to fair value
under the new segment reporting.
The average single-family guaranty book of business increased by
0.5% for the second quarter of 2010 compared with the second
quarter of 2009 and 1.7% for the first half of 2010 compared
with the first half of 2009 due to increases in our average
outstanding Fannie Mae MBS and other guarantees throughout 2009
and the first half of 2010 as our market share of new
single-family mortgage securities issuances remained high and
new MBS issuances outpaced liquidations.
The average single-family charged guaranty fee on new
acquisitions increased in the second quarter and the first half
of 2010 compared with the second quarter and the first half of
2009 primarily due to an increase in acquisitions of loans with
characteristics that receive risk-based pricing adjustments.
Credit-Related
Expenses
Single-family credit-related expenses decreased, in both the
second quarter and the first half of 2010 compared with the
second quarter and the first half of 2009, primarily due to the
moderate change in our combined loss reserves during the second
quarter and first half of 2010 compared with the substantial
increase in our combined loss reserves during the second quarter
and first half of 2009. Additionally, because we now recognize
loans underlying the substantial majority of our MBS trusts in
our condensed consolidated balance sheets, we no longer
recognize fair value losses upon acquiring credit-impaired loans
from these trusts. Although our credit-related expenses declined
in the second quarter and the first half of 2010, our
charge-offs were higher in the second quarter and the first half
of 2010 compared with the second quarter and the first half of
2009 due to an increase in the number of defaults.
Credit-related expenses in the Single-Family business represent
the substantial majority of our total consolidated losses. We
provide additional information on our credit-related expenses in
Consolidated Results of OperationsCredit-Related
Expenses.
Federal
Income Taxes
We recognized an income tax benefit in the first half of 2010
due to the reversal of a portion of the valuation allowance for
deferred tax assets primarily due to a settlement agreement
reached with the IRS in 2010 for our
47
unrecognized tax benefits for the tax years 1999 through 2004.
The tax benefit recognized for the second quarter and the first
half of 2009 was primarily due to the benefit of carrying back
to prior years a portion of our 2009 tax loss, net of the
reversal of the use of certain tax credits.
HCD
Business Results
Table 19 summarizes the financial results for our HCD business
for the second quarter and the first half of 2010 under the
current segment reporting presentation and for the second
quarter and the first half of 2009 under the prior segment
reporting presentation. The primary sources of revenue for our
HCD business are guaranty fee income and fee and other income.
Expenses primarily include credit-related expenses, net
operating losses associated with our partnership investments,
and administrative expenses.
Table
19: HCD Business Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Statement of operations
data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee
income(2)
|
|
$
|
195
|
|
|
$
|
164
|
|
|
$
|
389
|
|
|
$
|
322
|
|
Fee and other income
|
|
|
28
|
|
|
|
20
|
|
|
|
63
|
|
|
|
47
|
|
Losses on partnership
investments(3)
|
|
|
(22
|
)
|
|
|
(571
|
)
|
|
|
(80
|
)
|
|
|
(928
|
)
|
Credit-related income
(expenses)(4)
|
|
|
20
|
|
|
|
(393
|
)
|
|
|
62
|
|
|
|
(935
|
)
|
Other
expenses(5)
|
|
|
(100
|
)
|
|
|
(133
|
)
|
|
|
(201
|
)
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
121
|
|
|
|
(913
|
)
|
|
|
233
|
|
|
|
(1,796
|
)
|
Provision for federal income taxes
|
|
|
(2
|
)
|
|
|
(43
|
)
|
|
|
(15
|
)
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
119
|
|
|
|
(956
|
)
|
|
|
218
|
|
|
|
(2,007
|
)
|
Less: Net loss attributable to the noncontrolling
interests(3)
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
119
|
|
|
$
|
(930
|
)
|
|
$
|
218
|
|
|
$
|
(1,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other key performance data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily effective guaranty fee rate (in basis
points)(1)(6)
|
|
|
41.9
|
|
|
|
37.0
|
|
|
|
41.9
|
|
|
|
36.6
|
|
Credit loss performance ratio (in basis
points)(7)
|
|
|
26.2
|
|
|
|
9.5
|
|
|
|
22.3
|
|
|
|
6.8
|
|
Average multifamily guaranty book of
business(8)
|
|
$
|
186,105
|
|
|
$
|
177,475
|
|
|
$
|
185,841
|
|
|
$
|
176,089
|
|
Multifamily Fannie Mae MBS
issues(9)
|
|
$
|
2,727
|
|
|
$
|
4,740
|
|
|
$
|
6,801
|
|
|
$
|
7,117
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
Multifamily Fannie Mae MBS
Outstanding(10)
|
|
$
|
61,972
|
|
|
$
|
59,852
|
|
|
|
|
(1) |
|
Segment statement of operations
data reported under the current segment reporting basis is not
comparable to the segment statement of operations data reported
in prior periods.
|
|
(2) |
|
In 2010, guaranty fee income
related to consolidated MBS trusts consists of contractual
guaranty fees. In 2009, guaranty fee income consisted of
amortization of our guaranty-related assets and liabilities
using a prospective yield method.
|
|
(3) |
|
In 2010, income or loss from
partnership investments is reported using the equity method of
accounting. As a result, net income or loss attributable to
noncontrolling interests from partnership investments is not
included in gains or losses for the HCD segment. In 2009, income
or loss from partnership investments is reported using either
the equity method or consolidation, in accordance with GAAP,
with net income or losses attributable to noncontrolling
interests included in partnership investments income or loss.
|
|
(4) |
|
Consists of the provision for loan
losses, provision for guaranty losses and foreclosed property
expense.
|
|
(5) |
|
Consists of net interest income,
investment losses, other expenses, and administrative expenses.
|
48
|
|
|
(6) |
|
Presented in basis points based on
annualized HCD segment guaranty fee income divided by the
average multifamily guaranty book of business.
|
|
(7) |
|
Basis points are based on the
annualized amount for credit losses divided by the average
multifamily guaranty book of business.
|
|
(8) |
|
Consists of multifamily mortgage
loans held in our mortgage portfolio, multifamily mortgage loans
held by consolidated trusts, multifamily Fannie Mae MBS issued
from unconsolidated trusts held by either third parties or
within our retained portfolio, and other credit enhancements
that we provide on multifamily mortgage assets. Excludes
non-Fannie Mae mortgage-related securities held in our
investment portfolio for which we do not provide a guaranty.
|
|
(9) |
|
Reflects unpaid principal balance
of Fannie Mae MBS issued and guaranteed by the HCD segment.
Includes HFA new issue bond program issuances of
$1.0 billion for the first half of 2010. We did not have
any HFA new issue bond program issuances in the second quarter
of 2010. Also includes $256 million of new MBS issuances as
a result of converting adjustable rate loans to fixed rate loans
in the second quarter and the first half of 2010.
|
|
(10) |
|
Includes $9.8 billion of
Fannie Mae multifamily MBS held in the mortgage portfolio and
$1.4 billion of bonds issued by HFAs as of June 30,
2010.
|
Guaranty
Fee Income
HCD guaranty fee income increased in the second quarter and
first half of 2010 compared with the second quarter and first
half of 2009 primarily attributable to higher fees charged on
new acquisitions in recent years, which have become an
increasingly larger part of our book of business.
Losses
from Partnership Investments
In the fourth quarter of 2009, we reduced the carrying value of
our LIHTC investments to zero. As a result, we no longer
recognize net operating losses or
other-than-temporary
impairment on our LIHTC investments, which resulted in lower
losses in the second quarter and the first half of 2010 compared
with the second quarter and the first half of 2009. Losses from
partnership investments recognized in the second quarter and the
first half of 2010 were due to
other-than-temporary
impairment on our other affordable housing investments.
Credit-Related
Income (Expenses)
The shift from credit-related expenses in the second quarter and
first half of 2009 to credit-related income in the second
quarter and first half of 2010 was a result of a slight decline
in multifamily combined loss reserve levels in the second
quarter and first half of 2010 compared to an increase in these
reserves in the second quarter and first half of 2009. We
recognized a significant increase in our combined multifamily
loss reserves in the second quarter and first half of 2009 as a
result of the economic downturn and lack of liquidity in the
market, which adversely affected multifamily property values,
vacancy rates and rent levels, the cash flows generated from
these investments and refinancing options. In the second quarter
and first half of 2010, the combined multifamily loss reserves
have decreased slightly as a result of stabilization in cap
rates, the use of more current property level financial data,
and an improvement in multifamily market fundamentals relative
to previously depressed levels.
Although the pace of decline in the multifamily housing market
has moderated, our multifamily net charge-offs and foreclosed
property expense increased from $42 million in the second
quarter of 2009 to $122 million in the second quarter of
2010 and from $60 million in the first half of 2009 to
$207 million in the first half of 2010. The increase in net
charge-offs and foreclosed property expense was driven by
sustained unfavorable economic conditions and the related
adverse impact on multifamily fundamentals, which led to
increased delinquencies and defaults over the past year.
49
Federal
Income Taxes
We recognized a provision for income taxes in the first half of
2010 resulting from a settlement agreement reached with the IRS
with respect to our unrecognized tax benefits for tax years 1999
through 2004. The tax provision recognized for the second
quarter and the first half of 2009 was attributable to the
reversal of previously utilized tax credits because of our
ability to carry back to prior years net operating losses.
Capital
Markets Group Results
Table 20 summarizes the financial results for our Capital
Markets group for the second quarter and the first half of 2010
under the current segment reporting presentation and for the
second quarter and the first half of 2009 under the prior
segment reporting presentation. Following the table we discuss
the Capital Markets groups financial results and describe
the Capital Markets groups mortgage portfolio. For a
discussion on the debt issued by the Capital Markets group to
fund its investment activities, see Liquidity and Capital
Management. For a discussion on the derivative instruments
that Capital Markets uses to manage interest rate risk, see
Consolidated Balance Sheet AnalysisDerivative
Instruments, Risk ManagementMarket Risk
Management, Including Interest Rate RiskDerivatives
Activity, and Note 10, Derivative
Instruments. The primary sources of revenue for our
Capital Markets group are net interest income and fee and other
income. Expenses and other items that impact income or loss
primarily include fair value gains and losses, investment gains
and losses,
other-than-temporary
impairment, and administrative expenses.
Table
20: Capital Markets Group Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Statement of operations
data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income(2)
|
|
$
|
3,549
|
|
|
$
|
3,600
|
|
|
$
|
6,606
|
|
|
$
|
6,895
|
|
Investment gains (losses),
net(3)(4)
|
|
|
779
|
|
|
|
(30
|
)
|
|
|
1,571
|
|
|
|
120
|
|
Net
other-than-temporary
impairments(3)
|
|
|
(137
|
)
|
|
|
(753
|
)
|
|
|
(373
|
)
|
|
|
(6,406
|
)
|
Fair value gains (losses),
net(5)
|
|
|
631
|
|
|
|
823
|
|
|
|
(555
|
)
|
|
|
(637
|
)
|
Fee and other income
|
|
|
136
|
|
|
|
71
|
|
|
|
240
|
|
|
|
140
|
|
Other
expenses(6)
|
|
|
(538
|
)
|
|
|
(777
|
)
|
|
|
(961
|
)
|
|
|
(1,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
4,420
|
|
|
|
2,934
|
|
|
|
6,528
|
|
|
|
(1,288
|
)
|
Benefit (provision) for federal income taxes
|
|
|
(8
|
)
|
|
|
(118
|
)
|
|
|
21
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
4,412
|
|
|
$
|
2,816
|
|
|
$
|
6,549
|
|
|
$
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Segment statement of operations
data reported under the current segment reporting basis is not
comparable to the segment statement of operations data reported
in prior periods.
|
|
(2) |
|
In 2010, Capital Markets net
interest income is reported based on the mortgage-related assets
held in the segments portfolio and excludes interest
income on mortgage-related assets held by consolidated MBS
trusts that are owned by third parties and the interest expense
on the corresponding debt of such trusts. In 2009, the Capital
Markets groups net interest income included interest
income on mortgage-related assets underlying MBS trusts that we
consolidated under the prior consolidation accounting standards
and the interest expense on the corresponding debt of such
trusts.
|
|
(3) |
|
Certain prior period amounts have
been reclassified to conform to our current period presentation.
|
|
(4) |
|
In 2010, we include the securities
that we own regardless of whether the trust has been
consolidated in reporting of gains and losses on securitizations
and sales of
available-for-sale
securities. In 2009, we excluded the securities of consolidated
trusts that we own in reporting of gains and losses on
securitizations and sales of
available-for-sale
securities.
|
|
(5) |
|
In 2010, fair value gains or losses
on trading securities include the trading securities that we
own, regardless of whether the trust has been consolidated. In
2009, MBS trusts that were consolidated were reported as loans
and thus any securities we owned issued by these trusts did not
have fair value adjustments.
|
50
|
|
|
(6) |
|
Includes allocated guaranty fee
expense, debt extinguishment losses, net, administrative
expenses, and other expenses. In 2010, gains or losses related
to the extinguishment of debt issued by consolidated trusts are
excluded from the Capital Markets group because purchases of
securities are recognized as such. In 2009, gains or losses
related to the extinguishment of debt issued by consolidated
trusts were included in the Capital Markets groups results
as debt extinguishment gain or loss.
|
Net
Interest Income
The Capital Markets groups interest income consists of
interest on the segments interest-earning assets, which
differs from interest-earning assets in our condensed
consolidated balance sheets. We exclude loans and securities
that underlie the consolidated trusts from our Capital Markets
group balance sheets. The net interest income reported by the
Capital Markets group excludes the interest income earned on
assets held by consolidated trusts. As a result, we report
interest income and amortization of cost basis adjustments only
on securities and loans that are held in our portfolio. For
mortgage loans held in our portfolio, after we stop recognizing
interest income in accordance with our nonaccrual accounting
policy, the Capital Markets group recognizes interest income for
reimbursement from Single-Family and HCD for the contractual
interest due under the terms of our intracompany guaranty
arrangement.
Capital Markets groups interest expense consists of
contractual interest on the Capital Markets groups
interest-bearing liabilities, including the accretion and
amortization of any cost basis adjustments. It excludes interest
expense on debt issued by consolidated trusts. Therefore, the
interest expense recognized on the Capital Markets group income
statement is limited to our funding debt, which is reported as
Debt of Fannie Mae in our condensed consolidated
balance sheets. Net interest expense also includes an allocated
cost of capital charge between the three business segments.
The Capital Markets groups net interest income decreased
in the second quarter and first half of 2010 compared with the
second quarter and first half of 2009 because the decline in the
interest yield on our average interest-earning assets more than
offset the decline in borrowing rates as we replaced higher-cost
debt with lower-cost debt. In addition, Capital Markets net
interest income and net interest yield benefited from funds we
received from Treasury under the senior preferred stock purchase
agreement as the cash received was used to reduce our debt and
the cost of these funds is included in dividends rather than
interest expense.
We supplement our issuance of debt with interest rate-related
derivatives to manage the prepayment and duration risk inherent
in our mortgage investments. The effect of these derivatives, in
particular the periodic net interest expense accruals on
interest rate swaps, is not reflected in Capital Markets
net interest income but is included in our results as a
component of Fair value gains (losses), net and is
shown in Table 9: Fair Value Gains (Losses), Net. If
we had included the economic impact of adding the net
contractual interest accruals on our interest rate swaps in our
Capital Markets interest expense, Capital Markets
net interest income would have decreased by $756 million in
the second quarter of 2010 compared with a $779 million
decrease in the second quarter of 2009 and a $1.6 billion
decrease in the first half of 2010 compared with a
$1.7 billion decrease in the first half of 2009.
Investment
Gain (Losses), Net
The shift from investment losses in the second quarter of 2009
to investment gains in the second quarter of 2010 and the
increase in investment gains in the first half of 2010 compared
with the first half of 2009 was primarily driven by an increase
in gains on sales of
available-for-sale
securities as well as from a significant decline in lower of
cost or fair value adjustments on
held-for-sale
loans as we reclassified almost all of these loans to
held-for-investment
upon adoption of the new accounting standards.
Fair
Value Gains (Losses), Net
The derivative gains and losses and foreign exchange gains and
losses that are reported for the Capital Markets group are
consistent with these same losses reported in our condensed
consolidated results of
51
operations. We discuss details of these components of fair value
gains and losses in Consolidated Results of
OperationsFair Value Gains (Losses), Net.
The gains on our trading securities for the segment during the
second quarter and first half of 2010 were driven by a decrease
in interest rates and narrowing of credit spreads.
The gains on our trading securities during the second quarter
and first half of 2009 were attributable to the narrowing of
spreads on CMBS, asset-backed securities, and corporate debt
securities. Narrowing of spreads on agency MBS also contributed
to the gains in the first half of 2009.
Net
Other-Than-Temporary
Impairment
The net
other-than-temporary
impairment recognized by the Capital Markets group is consistent
with the net other-than-temporary impairment reported in our
condensed consolidated results of operations. We discuss details
on net other-than-temporary impairment in Consolidated
Results of OperationsNet
Other-Than-Temporary
Impairment.
Federal
Income Taxes
We recognized an income tax benefit in the first half of 2010
primarily due to the reversal of a portion of the valuation
allowance for deferred tax assets resulting from a settlement
agreement reached with the IRS in the first quarter of 2010 for
our unrecognized tax benefits for the tax years 1999 through
2004. We recorded a tax provision for the second quarter of 2009
and a tax benefit for the first half of 2009. We recorded a
valuation allowance for the majority of the tax benefits
associated with the pre-tax income or losses recognized in the
second quarter and first half of 2009.
The
Capital Markets Groups Mortgage Portfolio
The Capital Markets groups mortgage portfolio consists of
mortgage-related securities and mortgage loans that we own.
Mortgage-related securities held by Capital Markets include
Fannie Mae MBS and non-Fannie Mae mortgage-related securities.
The Fannie Mae MBS that we own are maintained as securities on
the Capital Markets groups balance sheets.
Mortgage-related assets held by consolidated MBS trusts are not
included in the Capital Markets groups mortgage portfolio.
We are restricted by our senior preferred stock purchase
agreement with Treasury in the amount of mortgage assets that we
may own. Beginning on December 31, 2010 and each year
thereafter, we are required to reduce our Capital Markets
groups mortgage portfolio to no more than 90% of the
maximum allowable amount we were permitted to own as of December
31 of the immediately preceding calendar year, until the amount
of mortgage assets we own declines to no more than
$250 billion. The maximum allowable amount we may own prior
to December 31, 2010 is $900 billion and on
December 31, 2010 is $810 billion.
Table 21 summarizes our Capital Markets groups mortgage
portfolio activity based on unpaid principal balance for the
three and six months ended June 30, 2010.
52
Table
21: Capital Markets Groups Mortgage Portfolio
Activity
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30, 2010
|
|
|
Ended June 30, 2010
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
330,277
|
|
|
$
|
281,162
|
|
Purchases
|
|
|
130,028
|
|
|
|
200,589
|
|
Securitizations(1)
|
|
|
(13,912
|
)
|
|
|
(28,166
|
)
|
Liquidations(2)
|
|
|
(20,208
|
)
|
|
|
(27,400
|
)
|
|
|
|
|
|
|
|
|
|
Mortgage loans, ending balance
|
|
|
426,185
|
|
|
|
426,185
|
|
|
|
|
|
|
|
|
|
|
Mortgage securities:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
434,532
|
|
|
$
|
491,566
|
|
Purchases(3)
|
|
|
4,678
|
|
|
|
33,864
|
|
Securitizations(1)
|
|
|
13,912
|
|
|
|
28,166
|
|
Sales
|
|
|
(35,604
|
)
|
|
|
(115,388
|
)
|
Liquidations(2)
|
|
|
(25,903
|
)
|
|
|
(46,593
|
)
|
|
|
|
|
|
|
|
|
|
Mortgage securities, ending balance
|
|
|
391,615
|
|
|
|
391,615
|
|
|
|
|
|
|
|
|
|
|
Total Capital Markets mortgage portfolio, ending balance
|
|
$
|
817,800
|
|
|
$
|
817,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes portfolio securitization
transactions that do not qualify for sale treatment under the
new accounting standards on the transfers of financial assets.
|
|
(2) |
|
Includes scheduled repayments,
prepayments, foreclosures and lender repurchases.
|
|
(3) |
|
Includes purchases of Fannie Mae
MBS issued by consolidated trusts.
|
In the first quarter of 2010, we began to significantly increase
our purchases of delinquent loans from single-family MBS trusts.
Under our single-family MBS trust documents, we have the option
to purchase from MBS trusts loans that are delinquent as to four
or more consecutive monthly payments. Through June 30,
2010, we had purchased the substantial majority of our
delinquent loan population which resulted in an increase in our
Capital Markets mortgage portfolio. We purchased
approximately 858,000 delinquent loans with an unpaid principal
balance of approximately $170 billion from single-family
MBS trusts in the first half of 2010 including the purchase of
approximately 570,000 delinquent loans with an unpaid principal
balance of approximately $114 billion in the second quarter
of 2010.
We expect to continue to purchase loans from our single-family
MBS trusts as they become four or more consecutive monthly
payments delinquent subject to market conditions, servicer
capacity, and other constraints including the limit on the
mortgage assets that we may own pursuant to the senior preferred
stock purchase agreement. As of June 30, 2010, the total
unpaid principal balance of all loans in single-family MBS
trusts that were delinquent as to four or more consecutive
monthly payments was approximately $9 billion. In July
2010, we purchased approximately 50,000 delinquent loans with an
unpaid principal balance of approximately $9 billion from
our single-family MBS trusts.
Table 22 shows the composition of the Capital Markets
groups mortgage portfolio based on unpaid principal
balance as of June 30, 2010 and as of January 1, 2010,
immediately after we adopted the new accounting standards.
53
Table
22: Capital Markets Groups Mortgage Portfolio
Composition
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
January 1,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Capital Markets Groups mortgage loans:
|
|
|
|
|
|
|
|
|
Single-family loans
|
|
|
|
|
|
|
|
|
Government insured or guaranteed
|
|
$
|
51,771
|
|
|
$
|
51,395
|
|
Conventional:
|
|
|
|
|
|
|
|
|
Long-term, fixed-rate
|
|
|
218,631
|
|
|
|
94,236
|
|
Intermediate-term, fixed-rate
|
|
|
10,631
|
|
|
|
8,418
|
|
Adjustable-rate
|
|
|
38,111
|
|
|
|
18,493
|
|
|
|
|
|
|
|
|
|
|
Total conventional single-family
|
|
|
267,373
|
|
|
|
121,147
|
|
|
|
|
|
|
|
|
|
|
Total single-family loans
|
|
|
319,144
|
|
|
|
172,542
|
|
|
|
|
|
|
|
|
|
|
Multifamily loans
|
|
|
|
|
|
|
|
|
Government insured or guaranteed
|
|
|
479
|
|
|
|
521
|
|
Conventional:
|
|
|
|
|
|
|
|
|
Long-term, fixed-rate
|
|
|
4,874
|
|
|
|
4,941
|
|
Intermediate-term, fixed-rate
|
|
|
80,335
|
|
|
|
81,610
|
|
Adjustable-rate
|
|
|
21,353
|
|
|
|
21,548
|
|
|
|
|
|
|
|
|
|
|
Total conventional multifamily
|
|
|
106,562
|
|
|
|
108,099
|
|
|
|
|
|
|
|
|
|
|
Total multifamily loans
|
|
|
107,041
|
|
|
|
108,620
|
|
|
|
|
|
|
|
|
|
|
Total Capital Markets Groups mortgage
loans(1)
|
|
|
426,185
|
|
|
|
281,162
|
|
|
|
|
|
|
|
|
|
|
Capital Markets Groups mortgage-related securities:
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
282,186
|
|
|
|
358,495
|
|
Freddie Mac
|
|
|
21,217
|
|
|
|
41,390
|
|
Ginnie Mae
|
|
|
1,633
|
|
|
|
1,255
|
|
Alt-A private-label securities
|
|
|
23,714
|
|
|
|
25,133
|
|
Subprime private-label securities
|
|
|
18,929
|
|
|
|
20,001
|
|
CMBS
|
|
|
25,577
|
|
|
|
25,703
|
|
Mortgage revenue bonds
|
|
|
13,504
|
|
|
|
14,448
|
|
Other mortgage-related securities
|
|
|
4,855
|
|
|
|
5,141
|
|
|
|
|
|
|
|
|
|
|
Total Capital Markets Groups mortgage-related
securities(2)
|
|
|
391,615
|
|
|
|
491,566
|
|
|
|
|
|
|
|
|
|
|
Total Capital Markets Groups mortgage portfolio
|
|
$
|
817,800
|
|
|
$
|
772,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total unpaid principal balance
of nonperforming loans in the Capital Markets Groups
mortgage loans was $216.2 billion as of June 30, 2010.
|
|
(2) |
|
The fair value of these
mortgage-related securities was $396.4 billion as of
June 30, 2010.
|
54
CONSOLIDATED
BALANCE SHEET ANALYSIS
As discussed in Executive Summary, effective
January 1, 2010, we prospectively adopted new accounting
standards which had a significant impact on the presentation of
our condensed consolidated financial statements due to the
consolidation of the substantial majority of our single-class
securitization trusts. In the table below, we summarize the
primary impacts of the new accounting standards to our condensed
consolidated balance sheet for 2010.
|
|
|
|
Item
|
|
|
Consolidation Impact
|
Restricted cash
|
|
|
We recognize unscheduled cash payments that have been either
received by the servicer or that are held by consolidated trusts
and have not yet been remitted to MBS certificateholders.
|
Investments in securities
|
|
|
Fannie Mae MBS that we own were consolidated resulting in a
decrease in our investments in securities.
|
Mortgage loans
Accrued interest receivable
|
|
|
We now record the underlying assets of the majority of our MBS
trusts in our condensed consolidated balance sheets which
significantly increases mortgage loans and related accrued
interest receivable.
|
Allowance for loan losses
Reserve for guaranty losses
|
|
|
The substantial majority of our combined loss reserves are now
recognized in our allowance for loan losses to reflect the loss
allowance against the consolidated mortgage loans. We use a
different methodology to estimate incurred losses for our
allowance for loan losses as compared with our reserve for
guaranty losses.
|
Guaranty assets
Guaranty obligations
|
|
|
We eliminated our guaranty accounting for the newly consolidated
trusts, which resulted in derecognizing previously recorded
guaranty-related assets and liabilities associated with the
newly consolidated trusts from our condensed consolidated
balance sheets. We continue to have guaranty assets and
obligations on unconsolidated trusts and other credit
enhancements arrangements, such as our long-term standby
commitments.
|
Debt
Accrued interest payable
|
|
|
We recognize the MBS certificates issued by the consolidated
trusts and that are held by third-party certificateholders as
debt, which significantly increases our debt outstanding and
related accrued interest payable.
|
|
|
|
|
We recognized a decrease of $3.3 billion in our
stockholders deficit to reflect the cumulative effect of
adopting the new accounting standards. See Note 2,
Adoption of the New Accounting Standards on the Transfers of
Financial Assets and Consolidation of Variable Interest
Entities for a further discussion of the impacts of the
new accounting standards on our condensed consolidated financial
statements.
Table 23 presents a summary of our condensed consolidated
balance sheets as of June 30, 2010 and December 31,
2009, as well as the impact of the transition to the new
accounting standards on January 1, 2010. Following the
table is a discussion of material changes in the major
components of our assets, liabilities and deficit from
January 1, 2010 through June 30, 2010.
55
|
|
Table
23:
|
Summary
of Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
Variance
|
|
|
|
June 30,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1 to
|
|
|
December 31, 2009 to
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
June 30, 2010
|
|
|
January 1, 2010
|
|
|
|
(Dollars in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and federal funds sold and securities
purchased under agreements to resell or similar arrangements
|
|
$
|
65,452
|
|
|
$
|
60,161
|
|
|
$
|
60,496
|
|
|
$
|
5,291
|
|
|
$
|
(335
|
)
|
Restricted cash
|
|
|
38,855
|
|
|
|
48,653
|
|
|
|
3,070
|
|
|
|
(9,798
|
)
|
|
|
45,583
|
|
Investments in
securities(1)
|
|
|
183,013
|
|
|
|
161,088
|
|
|
|
349,667
|
|
|
|
21,925
|
|
|
|
(188,579
|
)
|
Mortgage loans
|
|
|
2,981,041
|
|
|
|
2,985,445
|
|
|
|
404,486
|
|
|
|
(4,404
|
)
|
|
|
2,580,959
|
|
Allowance for loan losses
|
|
|
(60,582
|
)
|
|
|
(53,501
|
)
|
|
|
(9,925
|
)
|
|
|
(7,081
|
)
|
|
|
(43,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of allowance for loan losses
|
|
|
2,920,459
|
|
|
|
2,931,944
|
|
|
|
394,561
|
|
|
|
(11,485
|
)
|
|
|
2,537,383
|
|
Other
assets(2)
|
|
|
48,488
|
|
|
|
44,389
|
|
|
|
61,347
|
|
|
|
4,099
|
|
|
|
(16,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,256,267
|
|
|
$
|
3,246,235
|
|
|
$
|
869,141
|
|
|
$
|
10,032
|
|
|
$
|
2,377,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt(3)
|
|
$
|
3,225,406
|
|
|
$
|
3,223,054
|
|
|
$
|
774,554
|
|
|
$
|
2,352
|
|
|
$
|
2,448,500
|
|
Other
liabilities(4)
|
|
|
32,272
|
|
|
|
35,164
|
|
|
|
109,868
|
|
|
|
(2,892
|
)
|
|
|
(74,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,257,678
|
|
|
|
3,258,218
|
|
|
|
884,422
|
|
|
|
(540
|
)
|
|
|
2,373,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior preferred stock
|
|
|
84,600
|
|
|
|
60,900
|
|
|
|
60,900
|
|
|
|
23,700
|
|
|
|
|
|
Other equity
(deficit)(5)
|
|
|
(86,011
|
)
|
|
|
(72,883
|
)
|
|
|
(76,181
|
)
|
|
|
(13,128
|
)
|
|
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(1,411
|
)
|
|
|
(11,983
|
)
|
|
|
(15,281
|
)
|
|
|
10,572
|
|
|
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
3,256,267
|
|
|
$
|
3,246,235
|
|
|
$
|
869,141
|
|
|
$
|
10,032
|
|
|
$
|
2,377,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $52.8 billion as of
June 30, 2010 and $8.9 billion as of January 1,
2010 and December 31, 2009 of non-mortgage-related
securities that are included in our other investments portfolio
in Table 24: Cash and Other Investments Portfolio.
|
|
(2) |
|
Consists of: advances to lenders;
accrued interest receivable, net; acquired property, net;
derivative assets, at fair value; guaranty assets; deferred tax
assets, net; partnership investments; servicer and MBS trust
receivable and other assets.
|
|
(3) |
|
Consists of: federal funds
purchased and securities sold under agreements to repurchase;
short-term debt; and long-term debt.
|
|
(4) |
|
Consists of: accrued interest
payable; derivative liabilities; reserve for guaranty losses;
guaranty obligations; partnership liabilities; servicer and MBS
trust payable; and other liabilities.
|
|
(5) |
|
Consists of: preferred stock;
common stock; additional paid-in capital; retained earnings
(accumulated deficit); accumulated other comprehensive loss;
treasury stock; and noncontrolling interest.
|
56
Cash and
Other Investments Portfolio
Table 24 provides information on the composition of our cash and
other investments portfolio for the periods indicated.
|
|
Table
24:
|
Cash
and Other Investments Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
January 1,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Cash and cash
equivalents(1)
|
|
$
|
27,844
|
|
|
$
|
6,793
|
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
37,608
|
|
|
|
53,368
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
45,712
|
|
|
|
3
|
|
Asset-backed securities
|
|
|
7,103
|
|
|
|
8,515
|
|
Corporate debt securities
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
Total non-mortgage-related securities
|
|
|
52,815
|
|
|
|
8,882
|
|
|
|
|
|
|
|
|
|
|
Total cash and other investments
|
|
$
|
118,267
|
|
|
$
|
69,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $14.4 billion of U.S.
Treasury securities and $2.0 billion of certificates of
deposit as of June 30, 2010, with a maturity at the date of
acquisition of three months or less.
|
Our total cash and other investments portfolio consists of cash
and cash equivalents, federal funds sold and securities
purchased under agreements to resell or similar arrangements and
non-mortgage investment securities. Our cash and other
investments portfolio increased as of June 30, 2010
compared with January 1, 2010 primarily because of our
efforts to improve our liquidity position, including investing
in higher quality and more liquid investments. In addition,
under direction from FHFA, in the first quarter of 2010 we began
diversifying our cash and other investments portfolio to include
U.S. Treasury securities. Our policy mandates that
U.S. Treasury securities comprise an amount greater than or
equal to 50% of the average of the previous three month-end
balances of our cash and other investments portfolio (as
adjusted in agreement with FHFA). For additional information on
our liquidity management policies, see Liquidity and
Capital ManagementLiquidity ManagementLiquidity Risk
Management Practices.
Investments
in Mortgage-Related Securities
Our investments in mortgage-related securities are classified in
our condensed consolidated balance sheets as either trading or
available-for-sale
and are reported at fair value. See Note 6,
Investments in Securities for additional information on
our investments in mortgage-related securities, including the
composition of our trading and
available-for-sale
securities at amortized cost and fair value and the gross
unrealized gains and losses related to our
available-for-sale
securities as of June 30, 2010.
Investments
in Agency Mortgage-Related Securities
Our investments in agency mortgage-related securities consist of
securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.
Investments in agency mortgage securities declined to
$60.3 billion as of June 30, 2010 compared with
$83.7 billion as of January 1, 2010. The decline was
due to settlement of sales commitments related to dollar roll
transactions.
57
Investments
in Private-Label Mortgage-Related Securities
We classify private-label securities as Alt-A, subprime,
multifamily or manufactured housing if the securities were
labeled as such when issued. We have also invested in
private-label subprime mortgage-related securities that we have
resecuritized to include our guaranty (wraps).
The continued negative impact of the current economic
environment, such as sustained weakness in the housing market
and high unemployment, has adversely affected the performance of
our Alt-A and subprime securities. The unpaid principal balance
of our investments in Alt-A and subprime securities was
$43.0 billion as of June 30, 2010, of which
$31.9 billion was rated below investment grade. Table 25
presents the fair value of our investments in Alt-A and subprime
private-label securities and an analysis of the cumulative
losses on these investments as of June 30, 2010.
Table
25: Analysis of Losses on Alt-A and Subprime
Private-Label Mortgage-Related Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
Unpaid
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Fair
|
|
|
Cumulative
|
|
|
Noncredit
|
|
|
Credit
|
|
|
|
Balance
|
|
|
Value
|
|
|
Losses(3)
|
|
|
Component(4)
|
|
|
Component(5)
|
|
|
|
(Dollars in millions)
|
|
|
Trading
securities:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A private-label securities
|
|
$
|
3,249
|
|
|
$
|
1,409
|
|
|
$
|
(1,789
|
)
|
|
$
|
(631
|
)
|
|
$
|
(1,158
|
)
|
Subprime private-label securities
|
|
|
2,873
|
|
|
|
1,645
|
|
|
|
(1,227
|
)
|
|
|
(350
|
)
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,122
|
|
|
$
|
3,054
|
|
|
$
|
(3,016
|
)
|
|
$
|
(981
|
)
|
|
$
|
(2,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A private-label securities
|
|
$
|
20,465
|
|
|
$
|
14,481
|
|
|
$
|
(6,054
|
)
|
|
$
|
(2,613
|
)
|
|
$
|
(3,441
|
)
|
Subprime private-label securities
|
|
|
16,437
|
|
|
|
10,255
|
|
|
|
(6,226
|
)
|
|
|
(1,884
|
)
|
|
|
(4,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,902
|
|
|
$
|
24,736
|
|
|
$
|
(12,280
|
)
|
|
$
|
(4,497
|
)
|
|
$
|
(7,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes resecuritizations, or
wraps, of private-label securities backed by subprime loans that
we have guaranteed and hold in our mortgage portfolio as Fannie
Mae securities.
|
|
(2) |
|
Includes a wrap transaction that
has been partially consolidated on our balance sheet, which
effectively resulted in a portion of the underlying structure of
the transaction being accounted for and reported as
available-for-sale
securities. Although the wrap transaction is supported by
financial guarantees that cover all of our credit risk, we have
not included the benefit of these financial guarantees in
determining the credit component balance in this table.
|
|
(3) |
|
Amounts reflect the difference
between the amortized cost basis (unpaid principal balance net
of unamortized premiums, discounts and other cost basis
adjustments), excluding
other-than-temporary
impairment losses, net of accretion for
available-for-sale
securities, recorded in earnings, and the fair value.
|
|
(4) |
|
Represents the estimated portion of
the total cumulative losses that is noncredit-related. We have
calculated the credit component based on the difference between
the amortized cost basis of the securities and the present value
of expected future cash flows. The remaining difference between
the fair value and the present value of expected future cash
flows is classified as noncredit-related.
|
|
(5) |
|
For securities classified as
trading, amounts reflect the estimated portion of the total
cumulative losses that is credit-related. For securities
classified as
available-for-sale,
amounts reflect the portion of
other-than-temporary
impairment losses net of accretion that are recognized in
earnings in accordance with the accounting standards for
other-than-temporary
impairments.
|
Table 26 presents the 60 days or more delinquency rates and
average loss severities for the loans underlying our Alt-A and
subprime private-label mortgage-related securities for the most
recent remittance period of the current reporting quarter. The
delinquency rates and average loss severities are based on
available data provided by Intex Solutions, Inc.
(Intex) and First American CoreLogic,
LoanPerformance (First American CoreLogic). We also
present the average credit enhancement and monoline financial
guaranteed amount for these securities as of June 30, 2010.
Based on the stressed condition of some of our financial
guarantors, we believe some of these
58
counterparties will not fully meet their obligation to us in the
future. See Risk ManagementInstitutional
Counterparty Credit Risk ManagementFinancial
Guarantors for additional information on our financial
guarantor exposure and the counterparty risk associated with our
financial guarantors.
|
|
Table
26:
|
Credit
Statistics of Loans Underlying Alt-A and Subprime Private-Label
Mortgage-Related Securities (Including Wraps)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
Unpaid Principal Balance
|
|
|
|
|
|
|
|
|
|
|
|
Monoline
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Financial
|
|
|
|
|
|
|
for-
|
|
|
|
|
|
³
60 Days
|
|
|
Loss
|
|
|
Credit
|
|
|
Guaranteed
|
|
|
|
Trading
|
|
|
Sale
|
|
|
Wraps(1)
|
|
|
Delinquent(2)(3)
|
|
|
Severity(3)(4)
|
|
|
Enhancement(3)(5)
|
|
|
Amount(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Private-label mortgage-related securities backed
by:(7)
|
Alt-A mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM Alt-A mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
$
|
|
|
|
$
|
548
|
|
|
$
|
|
|
|
|
32.2
|
%
|
|
|
46.9
|
%
|
|
|
20.4
|
%
|
|
$
|
|
|
2005
|
|
|
|
|
|
|
1,462
|
|
|
|
|
|
|
|
43.2
|
|
|
|
52.2
|
|
|
|
45.3
|
|
|
|
284
|
|
2006
|
|
|
|
|
|
|
1,523
|
|
|
|
|
|
|
|
47.1
|
|
|
|
59.6
|
|
|
|
39.2
|
|
|
|
240
|
|
2007
|
|
|
2,259
|
|
|
|
|
|
|
|
|
|
|
|
46.1
|
|
|
|
59.9
|
|
|
|
61.1
|
|
|
|
822
|
|
Other Alt-A mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
|
|
|
|
|
7,414
|
|
|
|
|
|
|
|
9.3
|
|
|
|
50.8
|
|
|
|
12.2
|
|
|
|
16
|
|
2005
|
|
|
99
|
|
|
|
4,690
|
|
|
|
150
|
|
|
|
24.4
|
|
|
|
51.5
|
|
|
|
8.7
|
|
|
|
|
|
2006
|
|
|
71
|
|
|
|
4,692
|
|
|
|
|
|
|
|
31.9
|
|
|
|
55.9
|
|
|
|
4.2
|
|
|
|
|
|
2007
|
|
|
820
|
|
|
|
|
|
|
|
220
|
|
|
|
48.3
|
|
|
|
67.3
|
|
|
|
33.3
|
|
|
|
341
|
|
2008(8)
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A mortgage loans:
|
|
|
3,249
|
|
|
|
20,465
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and
prior(9)
|
|
|
|
|
|
|
2,315
|
|
|
|
728
|
|
|
|
24.2
|
|
|
|
70.3
|
|
|
|
59.5
|
|
|
|
716
|
|
2005(8)
|
|
|
|
|
|
|
230
|
|
|
|
1,664
|
|
|
|
44.4
|
|
|
|
71.0
|
|
|
|
58.1
|
|
|
|
230
|
|
2006
|
|
|
|
|
|
|
13,206
|
|
|
|
|
|
|
|
51.3
|
|
|
|
71.1
|
|
|
|
21.7
|
|
|
|
52
|
|
2007
|
|
|
2,873
|
|
|
|
686
|
|
|
|
6,091
|
|
|
|
49.7
|
|
|
|
68.5
|
|
|
|
24.9
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime mortgage loans:
|
|
|
2,873
|
|
|
|
16,437
|
|
|
|
8,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A and subprime mortgage loans:
|
|
$
|
6,122
|
|
|
$
|
36,902
|
|
|
$
|
8,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents our exposure to
private-label Alt-A and subprime mortgage-related securities
that have been resecuritized (or wrapped) to include our
guarantee.
|
|
(2) |
|
Delinquency data provided by Intex,
where available, for loans backing Alt-A and subprime
private-label mortgage-related securities that we own or
guarantee. The reported Intex delinquency data reflects
information from June 2010 remittances for May 2010 payments.
For consistency purposes, we have adjusted the Intex delinquency
data, where appropriate, to include all bankruptcies,
foreclosures and REO in the delinquency rates.
|
|
(3) |
|
The average delinquency, severity
and credit enhancement metrics are calculated for each loan pool
associated with securities where Fannie Mae has exposure and are
weighted based on the unpaid principal balance of those
securities.
|
|
(4) |
|
Severity data obtained from First
American CoreLogic, where available, for loans backing Alt-A and
subprime private-label mortgage-related securities that we own
or guarantee. The First American CoreLogic severity data
reflects information from June 2010 remittances for May 2010
payments. For consistency purposes, we have adjusted the
severity data, where appropriate.
|
|
(5) |
|
Average credit enhancement
percentage reflects both subordination and financial guarantees.
Reflects the ratio of the current amount of the securities that
will incur losses in the securitization structure before any
losses are allocated to securities that we own or guarantee.
Percentage generally calculated based on the quotient of the
total unpaid principal balance of all credit enhancements in the
form of subordination or financial guarantee of the security
divided by the
|
59
|
|
|
|
|
total unpaid principal balance of
all of the tranches of collateral pools from which credit
support is drawn for the security that we own or guarantee.
|
|
(6) |
|
Reflects amount of unpaid principal
balance supported by financial guarantees from monoline
financial guarantors.
|
|
(7) |
|
Vintages are based on series date
and not loan origination date.
|
|
(8) |
|
The unpaid principal balance
includes private-label REMIC securities that have been
resecuritized totaling $136 million for the 2008 vintage of
other Alt-A loans and $32 million for the 2005 vintage of
subprime loans. These securities are excluded from the
delinquency, severity and credit enhancement statistics reported
in this table.
|
|
(9) |
|
Includes a wrap transaction that
has been partially consolidated on our balance sheet, which
effectively resulted in a portion of the underlying structure of
the transaction being accounted for and reported as
available-for-sale
securities. Although the wrap transaction is supported by
financial guarantees that cover all of our credit risk, we have
not included the amount of these financial guarantees in the
consolidated securities in this table.
|
Mortgage
Loans
The mortgage loans reported in our condensed consolidated
balance sheets include loans owned by Fannie Mae and loans held
in consolidated trusts and are classified as either held for
sale or held for investment. Mortgage loans decreased from
January 1, 2010 to June 30, 2010 as scheduled
principal paydowns and prepayments were greater than the
principal balance of the loans securitized through our lender
swap and portfolio securitization programs. For additional
information on our mortgage loans, see Note 4,
Mortgage Loans. For additional information on the mortgage
loan purchase and sale activities reported by our Capital
Markets group, see Business Segment ResultsCapital
Markets Group Results.
Debt
Instruments
The debt reported in our condensed consolidated balance sheets
consists of two categories of debt, which we refer to as
debt of Fannie Mae and debt of consolidated
trusts. Debt of Fannie Mae, which consists of short-term
debt, long-term debt and federal funds purchased and securities
sold under agreements to repurchase, is the primary means of
funding our mortgage investments and managing interest rate risk
exposure. Debt of consolidated trusts represents our liability
to third-party beneficial interest holders when we have included
the assets of a corresponding trust in our condensed
consolidated balance sheets. We provide a summary of the
activity of the debt of Fannie Mae and a comparison of the mix
between our outstanding short-term and long-term debt as of
June 30, 2010 and December 31, 2009 in Liquidity
and Capital ManagementLiquidity ManagementDebt
Funding. Also see Note 9, Short-Term Borrowings
and Long-Term Debt for additional information on our
outstanding debt.
The decrease in debt of consolidated trusts from January 1,
2010 to June 30, 2010 was primarily driven by the purchase
of delinquent loans from MBS trusts as purchasing these loans
from MBS trusts for our portfolio results in the extinguishment
of consolidated trust debt.
Derivative
Instruments
We supplement our issuance of debt with interest rate-related
derivatives to manage the prepayment and duration risk inherent
in our mortgage investments. We aggregate, by derivative
counterparty, the net fair value gain or loss, less any cash
collateral paid or received, and report these amounts in our
condensed consolidated balance sheets as either assets or
liabilities.
Our derivative assets and liabilities consist of these risk
management derivatives and our mortgage commitments. We refer to
the difference between the derivative assets and derivative
liabilities recorded in our condensed consolidated balance
sheets as our net derivative asset or liability. We present, by
derivative instrument type, the estimated fair value of
derivatives recorded in our condensed consolidated balance
sheets and the related outstanding notional amounts as of
June 30, 2010 and December 31, 2009 in
Note 10, Derivative Instruments. Table 27
provides an analysis of the factors driving the change from
December 31, 2009 to June 30, 2010 in the estimated
fair value of our net derivative liability related to our risk
management derivatives recorded in our condensed consolidated
balance sheets.
60
Table
27: Changes in Risk Management Derivative Assets
(Liabilities) at Fair Value, Net
|
|
|
|
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
|
June 30, 2010
|
|
|
|
(Dollars in millions)
|
|
|
Net risk management derivative liability as of December 31,
2009
|
|
$
|
(340
|
)
|
Effect of cash payments:
|
|
|
|
|
Fair value at inception of contracts entered into during the
period(1)
|
|
|
(529
|
)
|
Fair value at date of termination of contracts settled during
the
period(2)
|
|
|
797
|
|
Net collateral posted
|
|
|
484
|
|
Periodic net cash contractual interest
payments(3)
|
|
|
1,246
|
|
|
|
|
|
|
Total cash payments
|
|
|
1,998
|
|
|
|
|
|
|
Statement of operations impact of recognized amounts:
|
|
|
|
|
Net contractual interest expense accruals on interest rate swaps
|
|
|
(1,591
|
)
|
Net change in fair value during the period
|
|
|
(390
|
)
|
|
|
|
|
|
Risk management derivatives fair value losses, net
|
|
|
(1,981
|
)
|
|
|
|
|
|
Net risk management derivative liability as of June 30, 2010
|
|
$
|
(323
|
)
|
|
|
|
|
|
|
|
|
(1) |
|
Cash receipts from sale of
derivative option contracts increase the derivative liability
recorded in our condensed consolidated balance sheets. Cash
payments made to purchase derivative option contracts (purchased
option premiums) increase the derivative asset recorded in our
condensed consolidated balance sheets.
|
|
(2) |
|
Cash payments made to terminate
derivative contracts reduce the derivative liability recorded in
our condensed consolidated balance sheets. Primarily represents
cash paid (received) upon termination of derivative contracts.
|
|
(3) |
|
Interest is accrued on interest
rate swap contracts based on the contractual terms. Accrued
interest income increases our derivative asset and accrued
interest expense increases our derivative liability. The
offsetting interest income and expense are included as
components of derivatives fair value gains (losses), net in our
condensed consolidated statements of operations. Net periodic
interest receipts reduce the derivative asset and net periodic
interest payments reduce the derivative liability.
|
For additional information on our derivative instruments see
Note 10, Derivative Instruments.
Stockholders
Deficit
Our net deficit decreased as of June 30, 2010 compared with
December 31, 2009. See Table 28 in Supplemental
Non-GAAP InformationFair Value Balance Sheets
for details of the change in our net deficit.
SUPPLEMENTAL
NON-GAAP INFORMATIONFAIR VALUE BALANCE
SHEETS
As part of our disclosure requirements with FHFA, we disclose on
a quarterly basis supplemental non-GAAP consolidated fair value
balance sheets, which reflect our assets and liabilities at
estimated fair value. Table 29: Supplemental
Non-GAAP Consolidated Fair Value Balance Sheets,
which we provide at the end of this section, presents our
non-GAAP consolidated fair value balance sheets as of
June 30, 2010 and December 31, 2009, and the non-GAAP
estimated fair value of our net assets.
As discussed more fully in Critical Accounting Policies
and EstimatesFair Value Measurement, we use various
valuation techniques to estimate fair value, some of which
incorporate internal assumptions that are subjective and involve
a high degree of management judgment. We describe the specific
valuation techniques used to determine fair value and disclose
the carrying value and fair value of our financial assets and
liabilities in Note 16, Fair Value.
61
The fair value of our net assets is not a measure defined within
GAAP and may not be comparable to similarly titled measures
reported by other companies. It is not intended as a substitute
for Fannie Maes stockholders deficit or for the
total deficit reported in our GAAP condensed consolidated
balance sheets, which represents the net worth measure that is
used to determine whether it is necessary to request additional
funds from Treasury under the senior preferred stock purchase
agreement.
The estimated fair value of our net assets, which is derived
from our non-GAAP consolidated fair value balance sheets, is
calculated based on the difference between the fair value of our
assets and the fair value of our liabilities, adjusted for
noncontrolling interests. The fair value of our net assets
attributable to common stockholders presented in our fair value
balance sheet does not represent an estimate of the value we
expect to realize from operating the company; what we expect to
draw from Treasury under the terms of our senior preferred stock
purchase agreement; nor does it reflect a liquidation or market
value of the company as a whole.
We believe that the amount we may draw from Treasury under our
senior preferred stock purchase agreement differs from the fair
value of our common equity reported in our supplemental non-GAAP
consolidated fair value balance sheet as of June 30, 2010
primarily because:
(1) the estimated fair value of our credit exposures
significantly exceeds our projected credit losses as fair value
takes into account certain assumptions about liquidity and
required rates of return that a market participant may demand in
assuming a credit obligation. Because we do not intend to have
another party assume the credit risk inherent in our book, and
therefore would not be obligated to pay a market premium for its
assumption, we do not expect the current market premium portion
of our current estimate of fair value to impact future Treasury
draws;
(2) the fair value balance sheet does not reflect amounts
we expect to draw in the future to pay dividends on the senior
preferred stock; and
(3) the fair value of our net assets reflects a point in
time estimate of the fair value of our existing assets and
liabilities, and does not incorporate the value associated with
new business that may be added in the future.
Table 28 summarizes changes in our stockholders deficit
reported in our GAAP condensed consolidated balance sheets and
in the fair value of our net assets in our non-GAAP consolidated
fair value balance sheets for the six months ended June 30,
2010.
62
|
|
Table
28:
|
Comparative
MeasuresGAAP Change in Stockholders Deficit and
Non-GAAP Change in Fair Value of Net Assets (Net of Tax
Effect)
|
|
|
|
|
|
|
|
For the
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
|
(Dollars in millions)
|
|
|
GAAP consolidated balance sheets:
|
|
|
|
|
Fannie Mae stockholders deficit as of December 31,
2009
|
|
$
|
(15,372
|
)
|
Impact of new accounting standards on Fannie Mae
stockholders deficit as of January 1,
2010(1)
|
|
|
3,312
|
|
|
|
|
|
|
Fannie Mae stockholders deficit as of January 1,
2010(2)
|
|
|
(12,060
|
)
|
Net loss attributable to Fannie Mae
|
|
|
(12,748
|
)
|
Changes in net unrealized losses on
available-for-sale
securities, net of tax
|
|
|
2,802
|
|
Reclassification adjustment for
other-than-temporary
impairments recognized in net loss, net of tax
|
|
|
247
|
|
Capital
transactions:(3)
|
|
|
|
|
Funds received from Treasury under the senior preferred stock
purchase agreement
|
|
|
23,700
|
|
Senior preferred stock dividends
|
|
|
(3,436
|
)
|
|
|
|
|
|
Capital transactions, net
|
|
|
20,264
|
|
Other equity transactions
|
|
|
13
|
|
|
|
|
|
|
Fannie Mae stockholders deficit as of June 30,
2010(2)
|
|
$
|
(1,482
|
)
|
|
|
|
|
|
Non-GAAP consolidated fair value balance sheets:
|
|
|
|
|
Estimated fair value of net assets as of December 31, 2009
|
|
$
|
(98,792
|
)
|
Impact of new accounting standards on Fannie Mae estimated fair
value of net assets as of
January 1,
2010(1)
|
|
|
(52,302
|
)
|
|
|
|
|
|
Estimated fair value of net assets as of January 1, 2010
|
|
|
(151,094
|
)
|
Capital transactions, net
|
|
|
20,264
|
|
Change in estimated fair value of net
assets(4)
|
|
|
(7,136
|
)
|
|
|
|
|
|
Increase in estimated fair value of net assets, net
|
|
|
13,128
|
|
|
|
|
|
|
Estimated fair value of net assets as of June 30, 2010
|
|
$
|
(137,966
|
)
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects our adoption of the new
accounting standards for transfers of financial assets and
consolidation of variable interest entities.
|
|
(2) |
|
Our net worth, as defined under the
senior preferred stock purchase agreement, is equivalent to the
Total deficit amount reported in our condensed
consolidated balance sheets. Our net worth, or total deficit, is
comprised of Total Fannie Maes stockholders
equity (deficit) and Noncontrolling interests
reported in our condensed consolidated balance sheets.
|
|
(3) |
|
Represents capital transactions,
which are reflected in our condensed consolidated statements of
changes in equity (deficit).
|
|
(4) |
|
Excludes cumulative effect of our
adoption of the new accounting standards and capital
transactions.
|
The fair value of our net assets, including the impact of
adopting the new accounting standards and capital transactions,
decreased by $39.2 billion from December 31, 2009,
which resulted in a fair value net deficit of
$138.0 billion as of June 30, 2010. Included in this
decrease was $52.3 billion primarily associated with
recording delinquent loans underlying consolidated MBS trusts
and eliminating our net guaranty obligations related to MBS
trusts that were consolidated on January 1, 2010 as a
result of adopting the new accounting standards. The fair value
of our guaranty obligations is a measure of the credit risk
related to mortgage loans underlying Fannie Mae MBS that we
assume through our guaranty. With consolidation of MBS trusts
and the elimination of our guaranty obligation, we ceased
valuing our credit risk associated with delinquent loans in
consolidated MBS trusts using our guaranty obligation models and
began valuing those delinquent loans based on nonperforming loan
prices.
63
Since market participant assumptions inherent in the pricing for
nonperforming loans differ from assumptions we use in estimating
the fair value of our guaranty obligations, most significantly
expected returns and liquidity discounts, consolidation of MBS
trusts directly impacted the fair value of our net assets.
Market prices for nonperforming loans are reflective of highly
negotiated transactions in a
principal-to-principal
market that often involve loan-level due diligence prior to
completion of a transaction. Many of these transactions involve
sellers who acquired the loans in distressed transactions and
buyers who demand significant return opportunities. As a result,
we believe that valuations in the nonperforming loan market
understate the value of the nonperforming loans we expect to
realize.
We intend to maximize the value of distressed loans over time,
utilizing loan modification, foreclosure, repurchases and other
preferable loss mitigation actions (for example, preforeclosure
sales) that to date have resulted in per loan net recoveries
materially higher than those that would have been available had
they been sold in the distressed loan market. By comparing the
expected losses of our nonperforming loans based on our
proprietary models versus the losses that would be incurred by
selling our nonperforming loans at the current estimated market
price, we could realize approximately $50 billion more than
the fair value of our nonperforming loans reported in our
non-GAAP consolidated fair value balance sheet as of
June 30, 2010.
Credit risk is managed by our guaranty business and is computed
for intracompany allocation purposes. By computing this
intracompany allocation, we reflect the value associated with
credit risk, which is managed by our guaranty business versus
the interest rate risk, which is measured by our Capital Markets
group. As a result of our adoption of the new accounting
standards, we shifted from presenting the fair value of mortgage
loans separately from the fair value of net guaranty obligations
of MBS trusts as of December 31, 2009 to presenting
consolidated mortgage loans, net of the fair value of guaranty
assets and obligations as of June 30, 2010. We have not
changed our fair value methodologies or our methodology of
computing our credit risk for intracompany allocation purposes.
Below we provide additional information that we believe may be
useful in understanding our fair value balance sheets, including
the primary factors driving the decline in the fair value of net
assets, excluding capital transactions, during the first half of
2010 and the limitations of our non-GAAP consolidated fair value
balance sheets and related measures.
Primary
Factors Driving Changes in the Non-GAAP Fair Value of Net
Assets Excluding the January 1, 2010 Impact of Adopting the
New Accounting Standards and Capital Transactions
The following reflects attribution of the primary factors
driving the $7.1 billion decrease in the fair value of our
net assets, excluding the cumulative effect of our
January 1, 2010 adoption of the new accounting standards
and capital transactions, during the first half of 2010.
|
|
|
|
|
A decrease in fair value due to credit-related items principally
related to a general increase in estimated severity rates based
on recent experience, particularly for loans with a high
mark-to-market
LTV ratio, as well as increased default estimates for loans with
higher risk profiles.
|
|
|
|
An increase in the fair value of the net portfolio attributable
to the positive impact of changes in the spread between mortgage
assets and associated debt and derivatives.
|
Cautionary
Language Relating to Supplemental Non-GAAP Financial
Measures
In reviewing our non-GAAP consolidated fair value balance
sheets, there are a number of important factors and limitations
to consider. The estimated fair value of our net assets is
calculated as of a particular point in time based on our
existing assets and liabilities. It does not incorporate other
factors that may have a
64
significant impact on our long-term fair value, including
revenues generated from future business activities in which we
expect to engage, the value from our foreclosure and loss
mitigation efforts or the impact that potential regulatory
actions may have on us. As a result, the estimated fair value of
our net assets presented in our non-GAAP consolidated fair value
balance sheets does not represent an estimate of our net
realizable value, liquidation value or our market value as a
whole; nor does it represent an estimate of the value we expect
to receive from operating the company or what we expect to draw
from Treasury under the terms of our senior preferred stock
purchase agreement. Amounts we ultimately realize from the
disposition of assets or settlement of liabilities may vary
materially from the estimated fair values presented in our
non-GAAP consolidated fair value balance sheets.
Supplemental
Non-GAAP Consolidated Fair Value Balance Sheets
We present our non-GAAP fair value balance sheets in Table 29.
65
Table
29: Supplemental Non-GAAP Consolidated Fair
Value Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
As of December 31,
2009(1)
|
|
|
|
GAAP
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Adjustment(2)
|
|
|
Fair Value
|
|
|
Value
|
|
|
Adjustment(2)
|
|
|
Fair Value
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,699
|
|
|
$
|
|
|
|
$
|
66,699
|
(3)
|
|
$
|
9,882
|
|
|
$
|
|
|
|
$
|
9,882
|
(3)
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
37,608
|
|
|
|
|
|
|
|
37,608
|
(3)
|
|
|
53,684
|
|
|
|
(28
|
)
|
|
|
53,656
|
(3)
|
Trading securities
|
|
|
77,353
|
|
|
|
|
|
|
|
77,353
|
(3)
|
|
|
111,939
|
|
|
|
|
|
|
|
111,939
|
(3)
|
Available-for-sale
securities
|
|
|
105,660
|
|
|
|
|
|
|
|
105,660
|
(3)
|
|
|
237,728
|
|
|
|
|
|
|
|
237,728
|
(3)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
1,025
|
|
|
|
23
|
|
|
|
1,048
|
(3)
|
|
|
18,462
|
|
|
|
153
|
|
|
|
18,615
|
(3)
|
Mortgage loans held for investment, net of allowance for loan
losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
363,154
|
|
|
|
(43,326
|
)
|
|
|
319,828
|
(3)
|
|
|
246,509
|
|
|
|
(5,209
|
)
|
|
|
241,300
|
(3)
|
Of consolidated trusts
|
|
|
2,556,280
|
|
|
|
74,609
|
(4)
|
|
|
2,630,889
|
(3)
|
|
|
129,590
|
|
|
|
(45
|
)
|
|
|
129,545
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
2,920,459
|
|
|
|
31,306
|
|
|
|
2,951,765
|
|
|
|
394,561
|
|
|
|
(5,101
|
)
|
|
|
389,460
|
|
Advances to lenders
|
|
|
4,849
|
|
|
|
(265
|
)
|
|
|
4,584
|
(3)
|
|
|
5,449
|
|
|
|
(305
|
)
|
|
|
5,144
|
(3)
|
Derivative assets at fair value
|
|
|
1,224
|
|
|
|
|
|
|
|
1,224
|
(3)
|
|
|
1,474
|
|
|
|
|
|
|
|
1,474
|
(3)
|
Guaranty assets and
buy-ups, net
|
|
|
428
|
|
|
|
382
|
|
|
|
810
|
(3)(5)
|
|
|
9,520
|
|
|
|
5,104
|
|
|
|
14,624
|
(3)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
|
3,214,280
|
|
|
|
31,423
|
|
|
|
3,245,703
|
(3)
|
|
|
824,237
|
|
|
|
(330
|
)
|
|
|
823,907
|
(3)
|
Master servicing assets and credit enhancements
|
|
|
505
|
|
|
|
3,881
|
|
|
|
4,386
|
(5)(6)
|
|
|
651
|
|
|
|
5,917
|
|
|
|
6,568
|
(5)(6)
|
Other assets
|
|
|
41,482
|
|
|
|
(254
|
)
|
|
|
41,228
|
(6)
|
|
|
44,253
|
|
|
|
373
|
|
|
|
44,626
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,256,267
|
|
|
$
|
35,050
|
|
|
$
|
3,291,317
|
|
|
$
|
869,141
|
|
|
$
|
5,960
|
|
|
$
|
875,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
$
|
142
|
|
|
$
|
|
|
|
$
|
142
|
(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
(3)
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
256,066
|
|
|
|
145
|
|
|
|
256,211
|
(3)
|
|
|
200,437
|
|
|
|
56
|
|
|
|
200,493
|
(3)
|
Of consolidated trusts
|
|
|
5,987
|
|
|
|
|
|
|
|
5,987
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
586,437
|
(7)
|
|
|
27,664
|
|
|
|
614,101
|
(3)
|
|
|
567,950
|
(7)
|
|
|
19,473
|
|
|
|
587,423
|
(3)
|
Of consolidated trusts
|
|
|
2,376,774
|
(7)
|
|
|
140,869
|
(4)
|
|
|
2,517,643
|
(3)
|
|
|
6,167
|
(7)
|
|
|
143
|
|
|
|
6,310
|
(3)
|
Derivative liabilities at fair value
|
|
|
1,693
|
|
|
|
|
|
|
|
1,693
|
(3)
|
|
|
1,029
|
|
|
|
|
|
|
|
1,029
|
(3)
|
Guaranty obligations
|
|
|
765
|
|
|
|
3,239
|
|
|
|
4,004
|
(3)
|
|
|
13,996
|
|
|
|
124,586
|
|
|
|
138,582
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
|
3,227,864
|
|
|
|
171,917
|
|
|
|
3,399,781
|
(3)
|
|
|
789,579
|
|
|
|
144,258
|
|
|
|
933,837
|
(3)
|
Other liabilities
|
|
|
29,814
|
|
|
|
(383
|
)
|
|
|
29,431
|
(8)
|
|
|
94,843
|
|
|
|
(54,878
|
)
|
|
|
39,965
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,257,678
|
|
|
|
171,534
|
|
|
|
3,429,212
|
|
|
|
884,422
|
|
|
|
89,380
|
|
|
|
973,802
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
preferred(9)
|
|
|
84,600
|
|
|
|
|
|
|
|
84,600
|
|
|
|
60,900
|
|
|
|
|
|
|
|
60,900
|
|
Preferred
|
|
|
20,280
|
|
|
|
(19,982
|
)
|
|
|
298
|
|
|
|
20,348
|
|
|
|
(19,629
|
)
|
|
|
719
|
|
Common
|
|
|
(106,362
|
)
|
|
|
(116,502
|
)
|
|
|
(222,864
|
)
|
|
|
(96,620
|
)
|
|
|
(63,791
|
)
|
|
|
(160,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fannie Mae stockholders deficit/non-GAAP fair
value of net assets
|
|
$
|
(1,482
|
)
|
|
$
|
(136,484
|
)
|
|
$
|
(137,966
|
)
|
|
$
|
(15,372
|
)
|
|
$
|
(83,420
|
)
|
|
$
|
(98,792
|
)
|
Noncontrolling interests
|
|
|
71
|
|
|
|
|
|
|
|
71
|
|
|
|
91
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deficit
|
|
|
(1,411
|
)
|
|
|
(136,484
|
)
|
|
|
(137,895
|
)
|
|
|
(15,281
|
)
|
|
|
(83,420
|
)
|
|
|
(98,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity (deficit)
|
|
$
|
3,256,267
|
|
|
$
|
35,050
|
|
|
$
|
3,291,317
|
|
|
$
|
869,141
|
|
|
$
|
5,960
|
|
|
$
|
875,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Explanation
and Reconciliation of Non-GAAP Measures to
GAAP Measures
|
|
|
(1) |
|
Certain prior period amounts have
been reclassified to conform to the current period presentation.
|
|
(2) |
|
Each of the amounts listed as a
fair value adjustment represents the difference
between the carrying value included in our GAAP condensed
consolidated balance sheets and our best judgment of the
estimated fair value of the listed item.
|
|
(3) |
|
We determined the estimated fair
value of these financial instruments in accordance with the fair
value accounting standard as described in Note 16,
Fair Value.
|
|
(4) |
|
Fair value exceeds the carrying
value of consolidated loans and debt of consolidated trusts due
to the fact that the loans and debt were consolidated in our
GAAP condensed consolidated balance sheet at unpaid principal
balance at transition. Also impacting the difference between
fair value and carrying value of the consolidated loans is the
credit component of the loan. This credit component is reflected
in the net guaranty obligation, which is included in the
consolidated loan fair value, but was presented as a separate
line item in our fair value balance sheet in prior periods.
|
|
(5) |
|
In our GAAP condensed consolidated
balance sheets, we report the guaranty assets as a separate line
item. Other guaranty related assets are within the Other
assets line items and they include
buy-ups,
master servicing assets and credit enhancements. On a GAAP
basis, our guaranty assets totaled $427 million and
$8.4 billion as of June 30, 2010 and December 31,
2009, respectively. The associated
buy-ups
totaled $0.6 million and $1.2 billion as of
June 30, 2010 and December 31, 2009, respectively.
|
|
(6) |
|
The line items Master
servicing assets and credit enhancements and Other
assets together consist of the assets presented on the
following six line items in our GAAP condensed consolidated
balance sheets: (a) Total accrued interest receivable, net
of allowance; (b) Acquired property, net; (c) Deferred
tax assets, net; (d) Partnership investments;
(e) Servicer and MBS trust receivable and (f) Other
assets. The carrying value of these items in our GAAP condensed
consolidated balance sheets together totaled $42.0 billion
and $46.1 billion as of June 30, 2010 and
December 31, 2009, respectively. We deduct the carrying
value of the
buy-ups
associated with our guaranty obligation, which totaled
$0.6 million and $1.2 billion as of June 30, 2010
and December 31, 2009, respectively, from Other
assets reported in our GAAP condensed consolidated balance
sheets because
buy-ups are
a financial instrument that we combine with guaranty assets in
our disclosure in Note 16, Fair Value. We have
estimated the fair value of master servicing assets and credit
enhancements based on our fair value methodologies described in
Note 16.
|
|
(7) |
|
Includes certain long-term debt
instruments that we elected to report at fair value in our GAAP
condensed consolidated balance sheets of $3.6 billion and
$3.3 billion as of June 30, 2010 and December 31,
2009, respectively.
|
|
(8) |
|
The line item Other
liabilities consists of the liabilities presented on the
following six line items in our GAAP condensed consolidated
balance sheets: (a) Accrued interest payable of Fannie Mae;
(b) Accrued interest payable of consolidated trusts;
(c) Reserve for guaranty losses; (d) Partnership
liabilities; (e) Servicer and MBS trust payable; and
(f) Other liabilities. The carrying value of these items in
our GAAP condensed consolidated balance sheets together totaled
$29.8 billion and $94.8 billion as of June 30,
2010 and December 31, 2009, respectively. The GAAP carrying
values of these other liabilities generally approximate fair
value. We assume that certain other liabilities, such as
deferred revenues, have no fair value. Although we report the
Reserve for guaranty losses as a separate line item
in our condensed consolidated balance sheets, it is incorporated
into and reported as part of the fair value of our guaranty
obligations in our non-GAAP supplemental consolidated fair value
balance sheets.
|
|
(9) |
|
The amount included in
estimated fair value of the senior preferred stock
is the liquidation preference, which is the same as the GAAP
carrying value, and does not reflect fair value.
|
LIQUIDITY
AND CAPITAL MANAGEMENT
Liquidity
Management
Our business activities require that we maintain adequate
liquidity to fund our operations. We have implemented a
liquidity policy which is designed to mitigate our liquidity
risk. Liquidity risk is the risk that we will not be able to
meet our funding obligations in a timely manner. Liquidity
management involves forecasting funding requirements and
maintaining sufficient capacity to meet these needs while
accommodating fluctuations in asset and liability levels due to
changes in our business operations or unanticipated events. Our
Treasury group is responsible for our liquidity and contingency
planning strategies. For additional information on our liquidity
management, including liquidity governance and contingency
planning, see MD&ALiquidity and Capital
Management in our 2009
Form 10-K.
67
Debt
Funding
Effective January 1, 2010, we adopted new accounting
standards that resulted in the consolidation of the substantial
majority of our MBS trusts and recognized the underlying assets
and debt of these trusts in our condensed consolidated balance
sheet. Debt from consolidations represents our liability to
third-party beneficial interest holders of MBS that we guarantee
when we have included the assets of a corresponding trust in our
condensed consolidated balance sheets. Despite the increase in
debt recognized in our condensed consolidated balance sheets due
to consolidations, the adoption of the new accounting standards
did not change our exposure to liquidity risk. We separately
present the debt from consolidations (debt of consolidated
trusts) and the debt issued by us (debt of Fannie
Mae) in our condensed consolidated balance sheets and in
the debt tables below. Our discussion regarding debt funding in
this section focuses on the debt of Fannie Mae.
In the first quarter of 2010, we began to significantly increase
our purchases of delinquent loans from single-family MBS trusts.
Under our single-family MBS trust documents, we have the option
to purchase from MBS trusts loans that are delinquent as to four
or more consecutive monthly payments. Through June 30,
2010, we had purchased the substantial majority of this
delinquent loan population which impacted our funding needs in
the first half of 2010. We purchased approximately 858,000
delinquent loans with an unpaid principal balance of
approximately $170 billion from single-family MBS trusts in
the first half of 2010 including the purchase of approximately
570,000 delinquent loans with an unpaid principal balance of
approximately $114 billion in the second quarter of 2010.
We expect to continue to purchase loans from MBS trusts as they
become four or more consecutive monthly payments delinquent
subject to market conditions, servicer capacity, and other
constraints including the limit on the mortgage assets that we
may own pursuant to the senior preferred stock purchase
agreement. As of June 30, 2010, the total unpaid principal
balance of all loans in single-family MBS trusts that were
delinquent as to four or more consecutive monthly payments was
approximately $9 billion. In July 2010, we purchased
approximately 50,000 delinquent loans with an unpaid principal
balance of approximately $9 billion from our MBS trusts.
We fund our business primarily through the issuance of
short-term and long-term debt securities in the domestic and
international capital markets. Because debt issuance is our
primary funding source, we are subject to roll-over,
or refinancing, risk on our outstanding debt. Our roll-over risk
increases when our outstanding short-term debt increases.
We have a diversified funding base of domestic and international
investors. Purchasers of our debt securities include fund
managers, commercial banks, pension funds, insurance companies,
foreign central banks, corporations, state and local
governments, and other municipal authorities. Purchasers of our
debt securities are also geographically diversified, with a
significant portion of our investors historically located in the
United States, Europe and Asia.
Fannie
Mae Debt Funding Activity
Table 30 summarizes the activity in the debt of Fannie Mae for
the periods indicated. This activity includes federal funds
purchased and securities sold under agreements to repurchase but
excludes the debt of consolidated trusts as well as intraday
loans. The reported amounts of debt issued and paid off during
the period represent the face amount of the debt at issuance and
redemption, respectively. Activity for short-term debt of Fannie
Mae relates to borrowings with an original contractual maturity
of one year or less while activity for long-term debt of Fannie
Mae relates to borrowings with an original contractual maturity
of greater than one year.
68
Table
30: Activity in Debt of Fannie Mae
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Issued during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
148,451
|
|
|
$
|
388,028
|
|
|
$
|
286,931
|
|
|
$
|
689,848
|
|
Weighted-average interest rate
|
|
|
0.31
|
%
|
|
|
0.37
|
%
|
|
|
0.29
|
%
|
|
|
0.33
|
%
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
100,890
|
|
|
$
|
83,982
|
|
|
$
|
202,854
|
|
|
$
|
192,483
|
|
Weighted-average interest rate
|
|
|
2.39
|
%
|
|
|
2.40
|
%
|
|
|
2.34
|
%
|
|
|
2.35
|
%
|
Total issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
249,341
|
|
|
$
|
472,010
|
|
|
$
|
489,785
|
|
|
$
|
882,331
|
|
Weighted-average interest rate
|
|
|
1.14
|
%
|
|
|
0.72
|
%
|
|
|
1.12
|
%
|
|
|
0.76
|
%
|
Paid off during the
period:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
100,141
|
|
|
$
|
403,310
|
|
|
$
|
231,007
|
|
|
$
|
762,200
|
|
Weighted-average interest rate
|
|
|
0.21
|
%
|
|
|
0.47
|
%
|
|
|
0.22
|
%
|
|
|
0.71
|
%
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
88,439
|
|
|
$
|
91,866
|
|
|
$
|
183,602
|
|
|
$
|
157,104
|
|
Weighted-average interest rate
|
|
|
3.33
|
%
|
|
|
4.76
|
%
|
|
|
3.32
|
%
|
|
|
4.54
|
%
|
Total paid off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
188,580
|
|
|
$
|
495,176
|
|
|
$
|
414,609
|
|
|
$
|
919,304
|
|
Weighted-average interest rate
|
|
|
1.68
|
%
|
|
|
1.26
|
%
|
|
|
1.59
|
%
|
|
|
1.37
|
%
|
|
|
|
(1) |
|
The amount of short-term debt
issued and paid off included $217.5 billion for the second
quarter of 2009 and $378.0 billion for the first six months
of 2009 of debt issued and repaid to Fannie Mae MBS trusts. Due
to the adoption of the new accounting standards on the
transition date, we no longer include debt issued and repaid to
Fannie Mae MBS trusts in the activity in debt of Fannie Mae as
the substantial majority of these trusts are consolidated.
|
|
(2) |
|
Consists of all payments on debt,
including regularly scheduled principal payments, payments at
maturity, payments resulting from calls and payments for any
other repurchases.
|
Due to the adoption of the new accounting standards, we no
longer include debt issued and repaid to Fannie Mae MBS trusts
in our short-term debt activity, as the substantial majority of
our MBS trusts were consolidated and the underlying assets and
debt of these trusts were recognized in our condensed
consolidated balance sheets. For the second quarter of 2009,
short-term debt activity of Fannie Mae, excluding debt issued
and repaid to Fannie Mae MBS trusts, consisted of issuances of
$170.6 billion with a weighted-average interest rate of
0.68% and repayments of $185.8 billion with a
weighted-average interest rate of 0.88%. For the first half of
2009, short-term debt activity of Fannie Mae, excluding debt
issued and repaid to Fannie Mae MBS trusts, consisted of
issuances of $311.9 billion with a weighted-average
interest rate of 0.58% and repayments of $384.2 billion
with a weighted-average interest rate of 1.30%.
Our ability to issue long-term debt has been strong in recent
quarters primarily due to actions taken by the federal
government to support us and the financial markets. Many of
these programs initiated by the federal government have expired.
The Treasury credit facility and Treasury MBS purchase program
terminated on December 31, 2009 and the Federal
Reserves agency debt and MBS purchase programs expired on
March 31, 2010. Despite the expiration of these programs,
demand for our long-term debt securities continues to be strong
as of the date of this filing.
We believe that continued federal government support of our
business and the financial markets, as well as our status as a
GSE, are essential to maintaining our access to debt funding.
Changes or perceived changes in the governments support
could increase our roll-over risk and materially adversely
affect our ability to refinance
69
our debt as it becomes due, which could have a material adverse
impact on our liquidity, financial condition and results of
operations. In addition, future changes or disruptions in the
financial markets could significantly change the amount, mix and
cost of funds we obtain, which also could increase our liquidity
and roll-over risk and have a material adverse impact on our
liquidity, financial condition and results of operations. See
Risk Factors in our 2009
Form 10-K
for a discussion of the risks to our business related to our
ability to obtain funds for our operations through the issuance
of debt securities, the relative cost at which we are able to
obtain these funds and our liquidity contingency plans.
Outstanding
Debt
Table 31 provides information as of June 30, 2010 and
December 31, 2009 on our outstanding short-term and
long-term debt based on its original contractual terms. Our
total outstanding debt of Fannie Mae, which consists of federal
funds purchased and securities sold under agreements to
repurchase and short-term and long-term debt, excluding debt of
consolidated trusts, increased to $842.6 billion as of
June 30, 2010, from $768.4 billion as of
December 31, 2009.
As of June 30, 2010, our outstanding short-term debt, based
on its original contractual maturity, increased as a percentage
of our total outstanding debt to 30% from 26% as of
December 31, 2009. For information on our outstanding debt
maturing within one year, including the current portion of our
long-term debt, as a percentage of our total debt, see
Maturity Profile of Outstanding Debt of Fannie Mae.
In addition, the weighted-average interest rate on our long-term
debt, based on its original contractual maturity, decreased to
3.40% as of June 30, 2010 from 3.71% as of
December 31, 2009.
Pursuant to the terms of the senior preferred stock purchase
agreement, we are prohibited from issuing debt without the prior
consent of Treasury if it would result in our aggregate
indebtedness exceeding 120% of the amount of mortgage assets we
are allowed to own. Through December 30, 2010, our debt cap
under the senior preferred stock purchase agreement is
$1,080 billion. Beginning on December 31, 2010, and
through December 30, 2011, and each year thereafter, our
debt cap will equal 120% of the amount of mortgage assets we are
allowed to own on December 31 of the immediately preceding
calendar year. As of June 30, 2010, our aggregate
indebtedness totaled $860.8 billion, which was
$219.2 billion below our debt limit. The calculation of our
indebtedness for purposes of complying with our debt cap
reflects the unpaid principal balance and excludes debt basis
adjustments and debt of consolidated trusts. Because of our debt
limit, we may be restricted in the amount of debt we issue to
fund our operations.
70
|
|
Table
31:
|
Outstanding
Short-Term Borrowings and Long-Term
Debt(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
Maturities
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Maturities
|
|
|
Outstanding
|
|
|
Rate
|
|
|
|
(Dollars in millions)
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
|
|
|
$
|
142
|
|
|
|
0.01
|
%
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes
|
|
|
|
|
|
$
|
255,863
|
|
|
|
0.30
|
%
|
|
|
|
|
|
$
|
199,987
|
|
|
|
0.27
|
%
|
Foreign exchange discount notes
|
|
|
|
|
|
|
203
|
|
|
|
1.73
|
|
|
|
|
|
|
|
300
|
|
|
|
1.50
|
|
Other short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-rate
|
|
|
|
|
|
|
256,066
|
|
|
|
0.30
|
|
|
|
|
|
|
|
200,387
|
|
|
|
0.27
|
|
Floating-rate(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt of Fannie
Mae(3)
|
|
|
|
|
|
|
256,066
|
|
|
|
0.30
|
|
|
|
|
|
|
|
200,437
|
|
|
|
0.27
|
|
Debt of consolidated trusts
|
|
|
|
|
|
|
5,987
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
|
|
|
$
|
262,053
|
|
|
|
0.30
|
%
|
|
|
|
|
|
$
|
200,437
|
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark notes and bonds
|
|
|
2010 - 2030
|
|
|
$
|
279,922
|
|
|
|
3.70
|
%
|
|
|
2010 - 2030
|
|
|
$
|
279,945
|
|
|
|
4.10
|
%
|
Medium-term notes
|
|
|
2010 - 2020
|
|
|
|
195,175
|
|
|
|
2.80
|
|
|
|
2010 - 2019
|
|
|
|
171,207
|
|
|
|
2.97
|
|
Foreign exchange notes and bonds
|
|
|
2017 - 2028
|
|
|
|
1,061
|
|
|
|
5.97
|
|
|
|
2010 - 2028
|
|
|
|
1,239
|
|
|
|
5.64
|
|
Other long-term
debt(2)
|
|
|
2010 - 2040
|
|
|
|
55,198
|
|
|
|
5.82
|
|
|
|
2010 - 2039
|
|
|
|
62,783
|
|
|
|
5.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior fixed
|
|
|
|
|
|
|
531,356
|
|
|
|
3.59
|
|
|
|
|
|
|
|
515,174
|
|
|
|
3.94
|
|
Senior floating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
|
2010 - 2015
|
|
|
|
44,392
|
|
|
|
0.35
|
|
|
|
2010 - 2014
|
|
|
|
41,911
|
|
|
|
0.26
|
|
Other long-term
debt(2)
|
|
|
2020 - 2037
|
|
|
|
752
|
|
|
|
5.33
|
|
|
|
2020 - 2037
|
|
|
|
1,041
|
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior floating
|
|
|
|
|
|
|
45,144
|
|
|
|
0.43
|
|
|
|
|
|
|
|
42,952
|
|
|
|
0.34
|
|
Subordinated fixed-rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying
subordinated(4)
|
|
|
2011 - 2014
|
|
|
|
7,392
|
|
|
|
5.47
|
|
|
|
2011 - 2014
|
|
|
|
7,391
|
|
|
|
5.47
|
|
Subordinated debentures
|
|
|
2019
|
|
|
|
2,545
|
|
|
|
9.90
|
|
|
|
2019
|
|
|
|
2,433
|
|
|
|
9.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subordinated fixed-rate
|
|
|
|
|
|
|
9,937
|
|
|
|
6.61
|
|
|
|
|
|
|
|
9,824
|
|
|
|
6.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt of Fannie
Mae(5)
|
|
|
|
|
|
|
586,437
|
|
|
|
3.40
|
|
|
|
|
|
|
|
567,950
|
|
|
|
3.71
|
|
Debt of consolidated trusts
|
|
|
2010 - 2050
|
|
|
|
2,376,774
|
|
|
|
4.91
|
|
|
|
2010 - 2039
|
|
|
|
6,167
|
|
|
|
5.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
$
|
2,963,211
|
|
|
|
4.61
|
%
|
|
|
|
|
|
$
|
574,117
|
|
|
|
3.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding callable debt of Fannie
Mae(6)
|
|
|
|
|
|
$
|
233,610
|
|
|
|
3.26
|
%
|
|
|
|
|
|
$
|
210,181
|
|
|
|
3.48
|
%
|
|
|
|
(1) |
|
Outstanding debt amounts and
weighted-average interest rates reported in this table include
the effect of unamortized discounts, premiums and other cost
basis adjustments. Reported amounts include fair value gains and
losses associated with debt that we elected to carry at fair
value. The unpaid principal balance of outstanding debt, which
excludes unamortized discounts, premiums and other cost basis
adjustments and debt of consolidated trusts, totaled
$859.3 billion as of June 30, 2010 and
$784.0 billion as of December 31, 2009.
|
|
(2) |
|
Includes a portion of structured
debt instruments that is reported at fair value.
|
|
(3) |
|
Short-term debt of Fannie Mae
consists of borrowings with an original contractual maturity of
one year or less and, therefore, does not include the current
portion of long-term debt. Reported amounts include a net
discount and other cost basis adjustments of $280 million
as of June 30, 2010 and $129 million as of
December 31, 2009.
|
|
(4) |
|
Consists of subordinated debt with
an interest deferral feature.
|
71
|
|
|
(5) |
|
Long-term debt of Fannie Mae
consists of borrowings with an original contractual maturity of
greater than one year. Reported amounts include the current
portion of long-term debt that is due within one year, which
totaled $107.2 billion as of June 30, 2010 and
$106.5 billion as of December 31, 2009. Reported
amounts also include unamortized discounts, premiums and other
cost basis adjustments of $16.4 billion as of June 30,
2010 and $15.6 billion as of December 31, 2009. The
unpaid principal balance of long-term debt of Fannie Mae, which
excludes unamortized discounts, premiums, fair value adjustments
and other cost basis adjustments and amounts related to debt of
consolidated trusts, totaled $602.8 billion as of
June 30, 2010 and $583.4 billion as of
December 31, 2009.
|
|
(6) |
|
Consists of long-term callable debt
of Fannie Mae that can be paid off in whole or in part at our
option at any time on or after a specified date. Includes the
unpaid principal balance, and excludes unamortized discounts,
premiums and other cost basis adjustments.
|
Maturity
Profile of Outstanding Debt of Fannie Mae
Table 32 presents the maturity profile, as of June 30,
2010, of our outstanding debt maturing within one year, by
month, including amounts we have announced that we are calling
for redemption. Our outstanding debt maturing within one year,
including the current portion of our long-term debt, increased
as a percentage of our total outstanding debt, excluding debt of
consolidated trusts and federal funds purchased and securities
sold under agreements to repurchase, to 44% as of June 30,
2010, compared with 41% as of December 31, 2009. The
weighted-average maturity of our outstanding debt that is
maturing within one year was 131 days as of June 30,
2010, compared with 103 days as of December 31, 2009.
|
|
Table
32:
|
Maturity
Profile of Outstanding Debt of Fannie Mae Maturing Within One
Year(1)
|
|
|
|
(1) |
|
Includes unamortized discounts,
premiums and other cost basis adjustments of $337 million
as of June 30, 2010. Excludes debt of consolidated trusts
of $10.3 billion and federal funds purchased and securities
sold under agreements to repurchase of $142 million as of
June 30, 2010.
|
Table 33 presents the maturity profile, as of June 30,
2010, of the portion of our long-term debt that matures in more
than one year, on a quarterly basis for one year and on an
annual basis thereafter, excluding amounts we have announced
that we are calling for redemption within one year. The
weighted-average maturity of our outstanding debt maturing in
more than one year was approximately 71 months as of
June 30, 2010, compared with approximately 72 months
as of December 31, 2009.
72
|
|
Table
33:
|
Maturity
Profile of Outstanding Debt of Fannie Mae Maturing in More Than
One
Year(1)
|
|
|
|
(1) |
|
Includes unamortized discounts,
premiums and other cost basis adjustments of $16.4 billion
as of June 30, 2010. Excludes debt of consolidated trusts
of $2.4 trillion as of June 30, 2010.
|
We intend to repay our short-term and long-term debt obligations
as they become due primarily through proceeds from the issuance
of additional debt securities. We also intend to use funds we
receive from Treasury under the senior preferred stock purchase
agreement to pay our debt obligations and to pay dividends on
the senior preferred stock.
Liquidity
Risk Management Practices
In 2010, under direction from FHFA, we have revised our
liquidity management policies and practices. FHFA requires that
we:
|
|
|
|
|
maintain a portfolio of highly liquid securities to cover 30
calendar days of net cash needs, assuming no access to the
short- and long-term unsecured debt markets and other
assumptions required by FHFA;
|
|
|
|
maintain within our cash and other investments portfolio a daily
balance of U.S. Treasury securities that has a redemption
amount greater than or equal to 50% of the average of the
previous three month-end balances of our cash and other
investments portfolio (as adjusted in agreement with
FHFA); and
|
|
|
|
maintain a portfolio of unencumbered agency mortgage securities
with a market value (less a discount and expected prepayments
during the year) that meets or exceeds our projected
365-day net
cash needs.
|
As of the date of this filing, we are in compliance with the 30
calendar day liquidity and U.S. Treasury securities
requirements but we are not in compliance with the 365 day
liquidity requirement, which was adopted as a management limit
on June 30, 2010. Management is in the process of
developing a remediation plan to address this requirement.
See Risk Factors in our 2009
Form 10-K
for a description of the risks associated with our liquidity
contingency planning. For a discussion of the composition and
recent changes in our cash and other investments portfolio, see
Consolidated Balance Sheet AnalysisCash and Other
Investments Portfolio.
Credit
Ratings
Our ability to access the capital markets and other sources of
funding, as well as our cost of funds, are highly dependent on
our credit ratings from the major ratings organizations. In
addition, our credit ratings are
73
important when we seek to engage in certain long-term
transactions, such as derivative transactions. There have been
no changes in our credit ratings from December 31, 2009 to
July 30, 2010. Table 34 presents the credit ratings issued
by each of these rating agencies as of July 30, 2010.
|
|
Table
34:
|
Fannie
Mae Credit Ratings
|
|
|
|
|
|
|
|
|
|
As of July 30, 2010
|
|
|
Standard & Poors
|
|
Moodys
|
|
Fitch
|
|
Long-term senior debt
|
|
AAA
|
|
Aaa
|
|
AAA
|
Short-term senior debt
|
|
A-1+
|
|
P-1
|
|
F1+
|
Qualifying subordinated debt
|
|
A
|
|
Aa2
|
|
AA-
|
Preferred stock
|
|
C
|
|
Ca
|
|
C/RR6
|
Bank financial strength rating
|
|
|
|
E+
|
|
|
Outlook
|
|
Stable
(for Long Term
Senior Debt and
Subordinated Debt)
|
|
Stable
(for all ratings)
|
|
Stable
(for AAA rated Long Term
Issue Default Rating)
|
Cash
Flows
Six Months Ended June 30,
2010. Cash and cash equivalents of
$27.8 billion as of June 30, 2010 increased by
$21.0 billion from December 31, 2009. Net cash
generated from investing activities totaled $255.6 billion,
resulting primarily from proceeds received from repayments of
loans held for investment. These net cash inflows were partially
offset by net cash outflows used in operating activities of
$49.6 billion resulting primarily from purchases of trading
securities. The net cash used in financing activities of
$184.9 billion was primarily attributable to a significant
amount of short-term and long-term debt redemptions in excess of
proceeds received from the issuances of short-term and long-term
debt.
Six Months Ended June 30,
2009. Cash and cash equivalents of
$28.2 billion as of June 30, 2009 increased by
$10.3 billion from December 31, 2008. Net cash
generated from investing activities totaled $84.0 billion,
resulting primarily from proceeds received from the sale of
available-for-sale
securities. These net cash inflows were partially offset by net
cash outflows used in operating activities of
$67.5 billion, largely attributable to our purchases of
loans
held-for-sale
due to a significant increase in whole loan conduit activity,
and net cash outflows used in financing activities of
$6.2 billion. The net cash used in financing activities was
attributable to the redemption of a significant amount of
short-term debt, which was partially offset by the issuance of
long-term debt in excess of amounts redeemed and by proceeds
received from Treasury under the senior preferred stock purchase
agreement.
Capital
Management
Regulatory
Capital
FHFA has announced that our existing statutory and FHFA-directed
regulatory capital requirements will not be binding during the
conservatorship, and that FHFA will not issue quarterly capital
classifications during the conservatorship. We continue to
submit capital reports to FHFA during the conservatorship and
FHFA continues to closely monitor our capital levels. We report
our minimum capital requirement, core capital and GAAP net worth
in our periodic reports on
Form 10-Q
and
Form 10-K,
and FHFA also reports them on its website. FHFA is not reporting
on our critical capital, risk-based capital or subordinated debt
levels during the conservatorship. For information on our
minimum capital requirements see Note 14, Regulatory
Capital Requirements.
74
Senior
Preferred Stock Purchase Agreement
As a result of the covenants under the senior preferred stock
purchase agreement and Treasurys ownership of a warrant to
purchase up to 79.9% of the total shares of our common stock
outstanding, we no longer have access to equity funding except
through draws under the senior preferred stock purchase
agreement.
We have received a total of $83.6 billion from Treasury
pursuant to the senior preferred stock purchase agreement as of
June 30, 2010. These funds allowed us to eliminate our net
worth deficits as of the end of each of the six prior quarters.
In August 2010, the Acting Director of FHFA submitted a request
for $1.5 billion from Treasury under the senior preferred
stock purchase agreement to eliminate our net worth deficit as
of June 30, 2010, and requested receipt of those funds on
or prior to September 30, 2010. Upon receipt of the
requested funds, the aggregate liquidation preference of the
senior preferred stock, including the initial aggregate
liquidation preference of $1.0 billion, will equal
$86.1 billion. Due to the continued weakness in the housing
and mortgage markets and our dividend obligation under the
senior preferred stock purchase agreement, we continue to expect
to have a net worth deficit in future periods, and therefore
will be required to obtain additional funding from Treasury
pursuant to the senior preferred stock purchase agreement.
Treasurys maximum funding commitment to us prior to a
December 2009 amendment of the senior preferred stock purchase
agreement was $200 billion. The amendment to the agreement
stipulates that the cap on Treasurys funding commitment to
us under the senior preferred stock purchase agreement will
increase as necessary to accommodate any net worth deficits for
calendar quarters in 2010 through 2012. For any net worth
deficits as of December 31, 2012, Treasurys remaining
funding commitment will be $124.8 billion
($200 billion less $75.2 billion cumulatively drawn
through March 31, 2010) less any positive net worth as
of December 31, 2012.
Dividends
Holders of the senior preferred stock are entitled to receive,
when, as and if declared by our Board of Directors, cumulative
quarterly cash dividends at the annual rate of 10% per year on
the then-current liquidation preference of the senior preferred
stock. As conservator and under our charter, FHFA has authority
to declare and approve dividends on the senior preferred stock.
If at any time we do not pay cash dividends on the senior
preferred stock when they are due, then immediately following
the period we did not pay dividends and for all dividend periods
thereafter until the dividend period following the date on which
we have paid in cash full cumulative dividends (including any
unpaid dividends added to the liquidation preference), the
dividend rate will be 12% per year. Dividends on the senior
preferred stock that are not paid in cash for any dividend
period will accrue and be added to the liquidation preference of
the senior preferred stock.
A dividend of $1.9 billion was declared by the conservator
and paid by us on June 30, 2010 for the period from
April 1, 2010 through and including June 30, 2010.
When Treasury provides the additional funds that FHFA requested
on our behalf in August 2010, the annualized dividend on the
senior preferred stock will be $8.6 billion based on the
10% dividend rate. The level of dividends on the senior
preferred stock will increase in future periods if, as we
expect, the conservator requests additional funds on our behalf
from Treasury under the senior preferred stock purchase
agreement.
OFF-BALANCE
SHEET ARRANGEMENTS
We enter into certain business arrangements to facilitate our
statutory purpose of providing liquidity to the secondary
mortgage market and to reduce our exposure to interest rate
fluctuations. Some of these arrangements are not recorded in our
consolidated balance sheets or may be recorded in amounts
different from the full contract or notional amount of the
transaction, depending on the nature or structure of, and
accounting required to be applied to, the arrangement. These
arrangements are commonly referred to as off-balance sheet
arrangements and expose us to potential losses in excess
of the amounts recorded in our condensed consolidated balance
sheets.
75
Our off-balance sheet arrangements result primarily from the
following:
|
|
|
|
|
our guaranty of mortgage loan securitization and
resecuritization transactions over which we do not have control;
|
|
|
|
other guaranty transactions;
|
|
|
|
liquidity support transactions; and
|
|
|
|
partnership interests.
|
In 2009 and prior, most MBS trusts created as part of our
guaranteed securitizations were not consolidated by the company
for financial reporting purposes because the trusts were
considered to be qualifying special purpose entities under the
accounting rules governing the transfer and servicing of
financial assets and the extinguishment of liabilities.
Effective January 1, 2010, we prospectively adopted the new
accounting standards, which resulted in the majority of our
single-class securitization trusts being consolidated by us upon
adoption.
Table 35 presents the amounts of both our on- and off-balance
sheet Fannie Mae MBS and other guaranty arrangements as of
June 30, 2010 and December 31, 2009.
|
|
Table
35:
|
On-
and Off-Balance Sheet MBS and Other Guaranty
Arrangements
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in millions)
|
|
|
Fannie Mae MBS and other guarantees
outstanding(1)
|
|
$
|
2,683,944
|
|
|
$
|
2,828,513
|
|
Less: Consolidated Fannie Mae
MBS(2)
|
|
|
(2,623,233
|
)
|
|
|
(147,855
|
)
|
Less: Fannie Mae MBS held in
portfolio(3)
|
|
|
(8,677
|
)
|
|
|
(220,245
|
)
|
|
|
|
|
|
|
|
|
|
Unconsolidated Fannie Mae MBS and other guarantees
|
|
$
|
52,034
|
|
|
$
|
2,460,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unpaid principal balance
of other guarantees of $30.5 billion as of June 30,
2010 and $27.6 billion as of December 31, 2009.
|
|
(2) |
|
Includes amounts held by third
parties and Fannie Mae.
|
|
(3) |
|
Amounts represent unpaid principal
balance and are recorded in Investments in
Securities in our condensed consolidated balance sheets.
|
Our maximum potential exposure to credit losses relating to our
outstanding and unconsolidated Fannie Mae MBS and other
financial guarantees is primarily represented by the unpaid
principal balance of the mortgage loans underlying outstanding
and unconsolidated Fannie Mae MBS and other financial guarantees
of $52.0 billion as of June 30, 2010 and $2.5 trillion
as of December 31, 2009.
For information on the mortgage loans underlying both our on-
and off-balance sheet Fannie Mae MBS, as well as whole mortgage
loans that we own, see Risk ManagementCredit Risk
Management.
Through assistance to state and local housing finance agencies
(HFAs) and pursuant to the temporary credit and
liquidity facilities programs that we describe in Related
Parties in Note 1, Summary of Significant
Accounting Policies, Treasury has purchased participation
interests in temporary credit and liquidity facilities provided
by us and Freddie Mac to the HFAs. These facilities create a
credit and liquidity backstop for the HFAs. Our outstanding
commitments under the temporary credit and liquidity facilities
program totaled $3.8 billion as of June 30, 2010 and
$870 million as of December 31, 2009.
76
Our total outstanding liquidity commitments to advance funds for
securities backed by multifamily housing revenue bonds totaled
$18.0 billion as of June 30, 2010 and
$15.5 billion as of December 31, 2009. These
commitments require us to advance funds to third parties that
enable them to repurchase tendered bonds or securities that are
unable to be remarketed. Any repurchased securities are pledged
to us to secure funding until the securities are remarketed. We
hold cash and cash equivalents in our cash and other investments
portfolio in excess of these commitments to advance funds
(exclusive of $3.8 billion as of June 30, 2010 and
$870 million as of December 31, 2009, of our
outstanding commitments under the HFA temporary credit and
liquidity facilities program, for which we are not required to
hold excess cash).
As of both June 30, 2010 and December 31, 2009, there
were no liquidity guarantee advances outstanding.
RISK
MANAGEMENT
Our business activities expose us to the following four, often
overlapping, major categories of risk: credit risk, market risk
(including interest rate and liquidity risk), operational risk
and model risk. We seek to manage these risks and mitigate our
losses by using an established risk management framework. Our
risk management framework is intended to provide the basis for
the principles that govern our risk management activities. We
are also subject to a number of other risks that could adversely
impact our business, financial condition, earnings and cash
flow, including legal and reputational risks that may arise due
to a failure to comply with laws, regulations or ethical
standards and codes of conduct applicable to our business
activities and functions. In this section we provide an update
on our management of our major risk categories. For a more
complete discussion of the risks we face and how we manage
credit risk, market risk, operational risk and model risk,
please see Risk Factors and
MD&ARisk Management in our 2009
Form 10-K.
Credit
Risk Management
We are generally subject to two types of credit risk: mortgage
credit risk and institutional counterparty credit risk.
Continuing adverse market conditions have resulted in
significant exposure to mortgage and institutional counterparty
credit risk.
Mortgage
Credit Risk Management
Mortgage credit risk is the risk that a borrower will fail to
make required mortgage payments. We are exposed to credit risk
on our mortgage credit book of business because we either hold
mortgage assets, have issued a guaranty in connection with the
creation of Fannie Mae MBS backed by mortgage assets or provided
other credit enhancements on mortgage assets. While our mortgage
credit book of business includes all of our mortgage-related
assets, both on- and off-balance sheet, our guaranty book of
business excludes non-Fannie Mae mortgage-related securities
held in our portfolio for which we do not provide a guaranty.
Mortgage
Credit Book of Business
Table 36 displays the composition of our entire mortgage credit
book of business as of the periods indicated. Our single-family
mortgage credit book of business accounted for 93% of our total
mortgage credit book of business as of June 30, 2010 and
December 31, 2009. As a result of our adoption of the new
accounting standards, we reflect a substantial majority of our
Fannie Mae MBS as mortgage loans, which are reported on an
actual unpaid principal balance basis and includes the
recognition of unscheduled payments made by borrowers in the
month received. Previously, we recorded these Fannie Mae MBS in
our mortgage credit book of business on a scheduled basis, which
recognized these payments when we remit payment to the MBS
trusts one month after the unscheduled payments were received.
As a result of this timing difference, we reduced our mortgage
credit book of business upon adoption of the new accounting
standards.
77
The total mortgage credit book of business is not impacted by
our repurchase of delinquent loans as this activity is a
reclassification from loans of consolidated trusts to loans of
Fannie Mae.
|
|
Table
36:
|
Composition
of Mortgage Credit Book of
Business(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
Single-Family
|
|
|
Multifamily
|
|
|
Total
|
|
|
|
Conventional(2)
|
|
|
Government(3)
|
|
|
Conventional(2)
|
|
|
Government(3)
|
|
|
Conventional(2)
|
|
|
Government(3)
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans(4)
|
|
$
|
2,772,067
|
|
|
$
|
52,669
|
|
|
$
|
166,464
|
|
|
$
|
534
|
|
|
$
|
2,938,531
|
|
|
$
|
53,203
|
|
Fannie Mae
MBS(5)(7)
|
|
|
6,979
|
|
|
|
1,696
|
|
|
|
|
|
|
|
2
|
|
|
|
6,979
|
|
|
|
1,698
|
|
Agency mortgage-related
securities(5)(6)
|
|
|
21,174
|
|
|
|
1,683
|
|
|
|
|
|
|
|
8
|
|
|
|
21,174
|
|
|
|
1,691
|
|
Mortgage revenue
bonds(5)
|
|
|
2,439
|
|
|
|
1,655
|
|
|
|
7,606
|
|
|
|
1,804
|
|
|
|
10,045
|
|
|
|
3,459
|
|
Other mortgage-related
securities(5)
|
|
|
46,134
|
|
|
|
1,729
|
|
|
|
25,577
|
|
|
|
17
|
|
|
|
71,711
|
|
|
|
1,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage assets
|
|
|
2,848,793
|
|
|
|
59,432
|
|
|
|
199,647
|
|
|
|
2,365
|
|
|
|
3,048,440
|
|
|
|
61,797
|
|
Unconsolidated Fannie Mae
MBS(5)(7)
|
|
|
1,692
|
|
|
|
17,858
|
|
|
|
41
|
|
|
|
1,902
|
|
|
|
1,733
|
|
|
|
19,760
|
|
Other credit
guarantees(8)
|
|
|
10,137
|
|
|
|
3,228
|
|
|
|
16,773
|
|
|
|
403
|
|
|
|
26,910
|
|
|
|
3,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage credit book of business
|
|
$
|
2,860,622
|
|
|
$
|
80,518
|
|
|
$
|
216,461
|
|
|
$
|
4,670
|
|
|
$
|
3,077,083
|
|
|
$
|
85,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty book of business
|
|
$
|
2,790,875
|
|
|
$
|
75,451
|
|
|
$
|
183,278
|
|
|
$
|
2,841
|
|
|
$
|
2,974,153
|
|
|
$
|
78,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Single-Family
|
|
|
Multifamily
|
|
|
Total
|
|
|
|
Conventional(2)
|
|
|
Government(3)
|
|
|
Conventional(2)
|
|
|
Government(3)
|
|
|
Conventional(2)
|
|
|
Government(3)
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans(4)
|
|
$
|
243,730
|
|
|
$
|
52,399
|
|
|
$
|
119,829
|
|
|
$
|
585
|
|
|
$
|
363,559
|
|
|
$
|
52,984
|
|
Fannie Mae
MBS(5)
|
|
|
218,033
|
|
|
|
1,816
|
|
|
|
314
|
|
|
|
82
|
|
|
|
218,347
|
|
|
|
1,898
|
|
Agency mortgage-related
securities(5)(6)
|
|
|
41,337
|
|
|
|
1,309
|
|
|
|
|
|
|
|
21
|
|
|
|
41,337
|
|
|
|
1,330
|
|
Mortgage revenue
bonds(5)
|
|
|
2,709
|
|
|
|
2,056
|
|
|
|
7,734
|
|
|
|
1,954
|
|
|
|
10,443
|
|
|
|
4,010
|
|
Other mortgage-related
securities(5)
|
|
|
47,825
|
|
|
|
1,796
|
|
|
|
25,703
|
|
|
|
20
|
|
|
|
73,528
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage portfolio
|
|
|
553,634
|
|
|
|
59,376
|
|
|
|
153,580
|
|
|
|
2,662
|
|
|
|
707,214
|
|
|
|
62,038
|
|
Fannie Mae MBS held by third
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
parties(5)(7)
|
|
|
2,370,037
|
|
|
|
15,197
|
|
|
|
46,628
|
|
|
|
927
|
|
|
|
2,416,665
|
|
|
|
16,124
|
|
Other credit
guarantees(8)
|
|
|
9,873
|
|
|
|
802
|
|
|
|
16,909
|
|
|
|
40
|
|
|
|
26,782
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage credit book of business
|
|
$
|
2,933,544
|
|
|
$
|
75,375
|
|
|
$
|
217,117
|
|
|
$
|
3,629
|
|
|
$
|
3,150,661
|
|
|
$
|
79,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty book of business
|
|
$
|
2,841,673
|
|
|
$
|
70,214
|
|
|
$
|
183,680
|
|
|
$
|
1,634
|
|
|
$
|
3,025,353
|
|
|
$
|
71,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on unpaid principal balance.
|
|
(2) |
|
Refers to mortgage loans and
mortgage-related securities that are not guaranteed or insured
by the U.S. government or any of its agencies.
|
|
(3) |
|
Refers to mortgage loans and
mortgage-related securities guaranteed or insured, in whole or
in part, by the U.S. government or one of its agencies.
|
|
(4) |
|
Includes unscheduled borrower
principal payments.
|
|
(5) |
|
Excludes unscheduled borrower
principal payments.
|
|
(6) |
|
Consists of mortgage-related
securities issued by Freddie Mac and Ginnie Mae.
|
|
(7) |
|
The principal balance of
resecuritized Fannie Mae MBS is included only once in the
reported amount.
|
|
(8) |
|
Includes single-family and
multifamily credit enhancements that we have provided and that
are not otherwise reflected in the table.
|
78
Single-Family
Mortgage Credit Risk Management
Our strategy in managing single-family mortgage credit risk
consists of four primary components: (1) our acquisition and
servicing policies and standards, including the use of credit
enhancements; (2) portfolio diversification and monitoring;
(3) management of problem loans; and (4) REO loss
management. These strategies, which we discuss in detail below,
may increase our expenses and may not be effective in reducing
our credit-related expenses or credit losses. We provide
information on our credit-related expenses and credit losses in
Consolidated Results of OperationsCredit-Related
Expenses.
The credit statistics reported below, unless otherwise noted,
pertain generally to the portion of our single-family guaranty
book of business for which we have access to detailed loan-level
information, which constituted over 99% of our conventional
single-family guaranty book of business as of June 30, 2010
and 98% as of December 31, 2009. See Risk
Factors in our 2009
Form 10-K
for a discussion of the risk that one or more parties in a
mortgage transaction engages in fraud and our reliance on lender
representations regarding the accuracy of the characteristics of
loans in our guaranty book of business.
Because we believe we have limited credit exposure on our
government loans, the single-family credit statistics we focus
on and report in the sections below generally relate to our
conventional single-family guaranty book of business, which
represents the substantial majority of our total single-family
guaranty book of business.
We provide information on the performance of non-Fannie Mae
mortgage-related securities held in our portfolio, including the
impairment that we have recognized on these securities, in
Consolidated Balance Sheet AnalysisInvestments in
Mortgage-Related SecuritiesInvestments in Private-Label
Mortgage-Related Securities.
Single-Family
Acquisition and Servicing Policies and Underwriting
Standards
We monitor both housing and economic market conditions as well
as loan performance, to manage and evaluate our credit risks.
During the first quarter of 2010, we announced several changes
to our single-family acquisition policies and underwriting
standards that were intended to improve the credit quality of
mortgage loans delivered to us, continue our corporate focus on
sustainable homeownership and further reduce our acquisition of
higher-risk conventional loan categories including:
|
|
|
|
|
Implementation of a Loan Quality Initiative (LQI)
which is a longer term strategy that will help mortgage loans
meet our credit, eligibility, and pricing standards by capturing
critical loan data earlier in the loan delivery process. This
initiative is intended to reduce lender repurchase requests in
the future through improved data integrity and early feedback on
some aspects of policy compliance, thereby reducing investor and
lender risks. As part of the LQI, we plan to validate certain
borrower and property information and collect additional
property and appraisal data at the time of delivery of the
mortgage loan;
|
|
|
|
Updating our existing quality control standards to require that
lenders follow our revised requirements for their quality
control plans, reviews and processes, as well as updated
requirements for the approval and management of third-party
originators. We have also increased our enforcement and
monitoring resources to increase lender compliance with these
revised standards;
|
|
|
|
Changes to interest-only mortgage loans, including minimum
reserve and FICO credit score requirements, lower LTV ratios,
and the elimination of interest-only eligibility for certain
products, including cash-out refinances, 2- to 4-unit properties
and investment properties;
|
|
|
|
Adjustments to the qualifying interest rate requirements for
adjustable-rate mortgage loans with an initial term of five
years or less to help increase the probability that borrowers
are able to absorb future payment increases;
|
79
|
|
|
|
|
Elimination of balloon mortgage loans as an eligible product
under our standard business; and
|
|
|
|
Continuing to provide guidance to assist servicers in
implementing the eligibility, underwriting and servicing
requirements of HAMP. For example, we implemented changes to
require full verification of borrower eligibility prior to
offering a trial period plan and issued guidance around income
verification options.
|
During the second quarter of 2010, we announced enhancements to
further improve the quality of mortgage loans delivered to us,
strengthen our servicing policies, and continue our corporate
focus on sustainable homeownership. These changes become
effective in the coming months and include:
|
|
|
|
|
Implementation of FHFAs Uniform Mortgage Data Program that
provides a common approach to collection of the appraisal and
loan delivery data required on the loans that lenders sell to
Fannie Mae and Freddie Mac;
|
|
|
|
Enhancements to loss-mitigation options to provide payment
relief for homeowners who have lost their jobs by offering
eligible unemployed borrowers a forbearance plan to temporarily
reduce or suspend their mortgage payments;
|
|
|
|
Introduction of the Home Affordable Foreclosure Alternatives
program that is designed to mitigate the impact of foreclosures
on borrowers who were eligible for a loan modification under
HAMP but ultimately were unsuccessful in obtaining one;
|
|
|
|
Introduction of servicer requirements for staffing, training and
performance monitoring of default-related activities as well as
enhanced guidance for call coverage and borrower contact;
|
|
|
|
Adjustment to the minimum waiting period that must elapse after
a foreclosure before a borrower without extenuating
circumstances is eligible for a new mortgage loan. The
adjustment is designed to increase disincentives for borrowers
to walk away from their mortgages without working with servicers
to pursue alternatives to foreclosure. Borrowers with
extenuating circumstances or those who agree to foreclosure
alternatives may qualify for new mortgage loans eligible for
sale to Fannie Mae in as little as two to three years;
|
|
|
|
Addition of new requirements for financial information
verification before borrowers can be offered a loan modification
outside of HAMP; and
|
|
|
|
Introduction of a Unique Hardship policy to allow servicers to
grant forbearance, and a provision for credit bureau reporting
relief, to borrowers who face difficulty maintaining timely
payments due to an event or temporary financial hardship that
has been classified by us as a unique hardship.
|
Legislation has been enacted or is being considered in some
jurisdictions that would enable lending for residential energy
efficiency and renewable energy improvements, with loans repaid
via the homeowners real property tax bill. This structure,
denominated by the Property Assessed Clean Energy
(PACE) programs, is designed to grant lenders of
energy improvement loans the equivalent of a tax lien, giving
them priority over all other liens on the property, including
previously recorded first lien mortgage loans. Consequently,
such programs could increase our credit losses.
On May 5, 2010, we reminded our lenders that the terms of
the Uniform Security Instruments prohibit loans that have senior
lien status to a mortgage. On July 6, 2010, FHFA directed
the GSEs to (1) waive the prohibition against intervening
first liens for all homeowners who obtained these energy loans
prior to May 5, 2010 (approximately 2,800 loans
nationwide), and (2) undertake actions to protect our safe
and sound operations, which may include adjustment of LTV ratios
to reflect the maximum permissible energy loan amount available
to borrowers, alteration of loan covenants to require mortgagee
approval for such loans, adjustment of
debt-to-income
ratios to account for additional obligations, and review of
mortgages in
80
applicable jurisdictions to ensure compliance with all
applicable federal and state lending law. In response to the
FHFA directive, we are preparing guidance for our lenders.
Issues surrounding PACE programs have given rise to lawsuits
against FHFA, us and others, seeking declaratory and injunctive
relief. In addition, legislation has been introduced in Congress
that would prohibit us from adopting underwriting standards that
are more restrictive than guidelines for PACE programs published
by the Department of Energy.
We cannot predict to what extent other jurisdictions will adopt
PACE or PACE-like programs, the volume of such energy loans made
under such programs nationwide, or their impact on our business.
We also cannot predict the outcome of the litigation, or the
prospects for enactment, timing or content of federal or state
legislative proposals relating to PACE or PACE-like programs.
For additional discussion of our acquisition policy,
underwriting standards and use of mortgage insurance as a form
of credit enhancement see MD&ARisk
ManagementSingle-Family Mortgage Credit Risk
Management in our 2009
Form 10-K.
For a discussion of our aggregate mortgage insurance coverage as
of June 30, 2010 and December 31, 2009 and the
increase in mortgage insurance rescissions, see Risk
ManagementInstitutional Counterparty Credit
RiskMortgage Insurers.
Single-Family
Portfolio Diversification and Monitoring
Diversification within our single-family mortgage credit book of
business by product type, loan characteristics and geography is
an important factor that influences credit quality and
performance and helps reduce our credit risk. We monitor various
loan attributes, in conjunction with housing market and economic
conditions, to determine if our pricing and our eligibility and
underwriting criteria accurately reflect the risk associated
with loans we acquire or guarantee. In some cases we may decide
to significantly reduce our participation in riskier loan
product categories. We also review the payment performance of
loans in order to help identify potential problem loans early in
the delinquency cycle and to guide the development of our loss
mitigation strategies.
Table 37 presents our conventional single-family business
volumes and our conventional single-family guaranty book of
business for the periods indicated, based on certain key risk
characteristics that we use to evaluate the risk profile and
credit quality of our single-family loans.
|
|
Table
37:
|
Risk
Characteristics of Conventional Single-Family Business Volume
and Guaranty Book of
Business(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Conventional
|
|
|
|
|
|
|
|
|
|
Single-Family
|
|
|
Percent of Conventional
|
|
|
|
Business
Volume(2)
|
|
|
Single-Family
|
|
|
|
For the
|
|
|
For the
|
|
|
Guaranty
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Book of
Business(3)(4)
|
|
|
|
Ended
|
|
|
Ended
|
|
|
As of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Original LTV
ratio:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<= 60%
|
|
|
27
|
%
|
|
|
36
|
%
|
|
|
29
|
%
|
|
|
33
|
%
|
|
|
24
|
%
|
|
|
24
|
%
|
60.01% to 70%
|
|
|
15
|
|
|
|
18
|
|
|
|
15
|
|
|
|
18
|
|
|
|
16
|
|
|
|
16
|
|
70.01% to 80%
|
|
|
40
|
|
|
|
39
|
|
|
|
38
|
|
|
|
40
|
|
|
|
42
|
|
|
|
42
|
|
80.01% to
90%(6)
|
|
|
10
|
|
|
|
5
|
|
|
|
10
|
|
|
|
6
|
|
|
|
9
|
|
|
|
9
|
|
90.01% to
100%(6)
|
|
|
6
|
|
|
|
2
|
|
|
|
6
|
|
|
|
3
|
|
|
|
9
|
|
|
|
9
|
|
Greater than
100%(6)
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
70
|
%
|
|
|
65
|
%
|
|
|
69
|
%
|
|
|
66
|
%
|
|
|
71
|
%
|
|
|
71
|
%
|
Average loan amount
|
|
$
|
216,042
|
|
|
$
|
214,413
|
|
|
$
|
220,411
|
|
|
$
|
215,999
|
|
|
$
|
154,183
|
|
|
$
|
153,302
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Conventional
|
|
|
|
|
|
|
|
|
|
Single-Family
|
|
|
Percent of Conventional
|
|
|
|
Business
Volume(2)
|
|
|
Single-Family
|
|
|
|
For the
|
|
|
For the
|
|
|
Guaranty
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Book of
Business(3)(4)
|
|
|
|
Ended
|
|
|
Ended
|
|
|
As of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Estimated
mark-to-market
LTV
ratio:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<= 60%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
%
|
|
|
31
|
%
|
60.01% to 70%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
13
|
|
70.01% to 80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
19
|
|
80.01% to 90%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
14
|
|
90.01% to 100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
9
|
|
Greater than 100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
%
|
|
|
75
|
%
|
Product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
72
|
%
|
|
|
83
|
%
|
|
|
72
|
%
|
|
|
84
|
%
|
|
|
76
|
%
|
|
|
75
|
%
|
Intermediate-term
|
|
|
20
|
|
|
|
15
|
|
|
|
20
|
|
|
|
14
|
|
|
|
13
|
|
|
|
13
|
|
Interest-only
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-rate
|
|
|
92
|
|
|
|
98
|
|
|
|
92
|
|
|
|
98
|
|
|
|
91
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
4
|
|
Negative-amortizing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
1
|
|
Other ARMs
|
|
|
6
|
|
|
|
1
|
|
|
|
6
|
|
|
|
1
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustable-rate
|
|
|
8
|
|
|
|
2
|
|
|
|
8
|
|
|
|
2
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of property units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 unit
|
|
|
98
|
%
|
|
|
99
|
%
|
|
|
98
|
%
|
|
|
99
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
2-4 units
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family homes
|
|
|
90
|
%
|
|
|
93
|
%
|
|
|
90
|
%
|
|
|
93
|
%
|
|
|
91
|
%
|
|
|
91
|
%
|
Condo/Co-op
|
|
|
10
|
|
|
|
7
|
|
|
|
10
|
|
|
|
7
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residence
|
|
|
90
|
%
|
|
|
94
|
%
|
|
|
90
|
%
|
|
|
94
|
%
|
|
|
90
|
%
|
|
|
90
|
%
|
Second/vacation home
|
|
|
5
|
|
|
|
4
|
|
|
|
5
|
|
|
|
4
|
|
|
|
5
|
|
|
|
4
|
|
Investor
|
|
|
5
|
|
|
|
2
|
|
|
|
5
|
|
|
|
2
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Conventional
|
|
|
|
|
|
|
|
|
|
Single-Family
|
|
|
Percent of Conventional
|
|
|
|
Business
Volume(2)
|
|
|
Single-Family
|
|
|
|
For the
|
|
|
For the
|
|
|
Guaranty
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Book of
Business(3)(4)
|
|
|
|
Ended
|
|
|
Ended
|
|
|
As of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
FICO credit score:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< 620
|
|
|
1
|
%
|
|
|
|
%
|
|
|
1
|
%
|
|
|
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
620 to < 660
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
8
|
|
|
|
8
|
|
660 to < 700
|
|
|
8
|
|
|
|
6
|
|
|
|
8
|
|
|
|
6
|
|
|
|
15
|
|
|
|
16
|
|
700 to < 740
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
22
|
|
|
|
22
|
|
>= 740
|
|
|
72
|
|
|
|
76
|
|
|
|
72
|
|
|
|
75
|
|
|
|
51
|
|
|
|
50
|
|
Not available
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
758
|
|
|
|
763
|
|
|
|
758
|
|
|
|
762
|
|
|
|
732
|
|
|
|
730
|
|
Loan purpose:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
31
|
%
|
|
|
16
|
%
|
|
|
26
|
%
|
|
|
16
|
%
|
|
|
35
|
%
|
|
|
36
|
%
|
Cash-out refinance
|
|
|
19
|
|
|
|
30
|
|
|
|
20
|
|
|
|
30
|
|
|
|
30
|
|
|
|
31
|
|
Other refinance
|
|
|
50
|
|
|
|
54
|
|
|
|
54
|
|
|
|
54
|
|
|
|
35
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
concentration:(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest
|
|
|
14
|
%
|
|
|
17
|
%
|
|
|
15
|
%
|
|
|
18
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
Northeast
|
|
|
20
|
|
|
|
19
|
|
|
|
20
|
|
|
|
18
|
|
|
|
19
|
|
|
|
19
|
|
Southeast
|
|
|
19
|
|
|
|
20
|
|
|
|
19
|
|
|
|
20
|
|
|
|
24
|
|
|
|
24
|
|
Southwest
|
|
|
15
|
|
|
|
15
|
|
|
|
14
|
|
|
|
16
|
|
|
|
15
|
|
|
|
15
|
|
West
|
|
|
32
|
|
|
|
29
|
|
|
|
32
|
|
|
|
28
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<= 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
%
|
|
|
2
|
%
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
14
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
11
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
15
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
13
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
23
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Represents less than 0.5% of
conventional single-family business volume or book of business.
|
|
(1) |
|
We reflect second lien loans in the
original LTV ratio calculation only when we own both the first
and second mortgage liens or we own only the second mortgage
lien. Second lien mortgage loans represented less than 0.5% of
our conventional single-family guaranty book of business as of
both June 30, 2010 and December 31, 2009. Second lien
loans held by third parties are not reflected in the original
LTV or
mark-to-market
LTV ratios in this table.
|
83
|
|
|
(2) |
|
Percentages calculated based on
unpaid principal balance of loans at time of acquisition.
Single-family business volume refers to both single-family
mortgage loans we purchase for our mortgage portfolio and
single-family mortgage loans we securitize into Fannie Mae MBS.
|
|
(3) |
|
Percentages calculated based on
unpaid principal balance of loans as of the end of each period.
|
|
(4) |
|
Our conventional single-family
guaranty book of business includes jumbo-conforming and
high-balance loans that represented approximately 3.2% of our
conventional single-family guaranty book of business as of
June 30, 2010 and 2.4% as of December 31, 2009. See
BusinessOur Charter and Regulation of Our
ActivitiesCharter ActLoan Standards of our
2009
Form 10-K
for additional information on our loan limits.
|
|
(5) |
|
The original LTV ratio generally is
based on the original unpaid principal balance of the loan
divided by the appraised property value reported to us at the
time of acquisition of the loan. Excludes loans for which this
information is not readily available.
|
|
(6) |
|
We purchase loans with original LTV
ratios above 80% to fulfill our mission to serve the primary
mortgage market and provide liquidity to the housing system.
Except as permitted under HARP, our charter generally requires
primary mortgage insurance or other credit enhancement for loans
that we acquire that have a LTV ratio over 80%.
|
|
(7) |
|
The aggregate estimated
mark-to-market
LTV ratio is based on the unpaid principal balance of the loan
as of the end of each reported period divided by the estimated
current value of the property, which we calculate using an
internal valuation model that estimates periodic changes in home
value. Excludes loans for which this information is not readily
available.
|
|
(8) |
|
Long-term fixed-rate consists of
mortgage loans with maturities greater than 15 years, while
intermediate-term fixed-rate has maturities equal to or less
than 15 years. Loans with interest-only terms are included
in the interest-only category regardless of their maturities.
|
|
(9) |
|
Midwest consists of IL, IN, IA, MI,
MN, NE, ND, OH, SD and WI. Northeast includes CT, DE, ME, MA,
NH, NJ, NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC,
FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of
AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK,
CA, GU, HI, ID, MT, NV, OR, WA and WY.
|
Credit
Profile Summary
In 2009, we began to see the effect of actions we took,
beginning in 2008, to significantly tighten our underwriting and
eligibility standards and change our pricing to promote and
provide prudent sustainable homeownership options and stability
in the housing market. As a result of these changes and other
market conditions, we reduced our acquisitions of loans with
higher-risk loan attributes. The single-family loans we
purchased or guaranteed in the first half of 2010 have had a
strong credit profile with an average original LTV ratio of 69%,
an average FICO credit score of 758, and a product mix with a
significant percentage of fully amortizing fixed-rate mortgage
loans. We expect that these loans may have relatively slow
prepayment speeds, and if so, they would remain in our book of
business for an extended time, due to historically low interest
rates during the first half of 2010, which resulted in our
acquisitions for that period having a weighted average interest
rate of 4.9%. Our acquisition of investor loans increased
steadily through the first half of 2010 as investors have
returned to markets where they believe lower home prices and
interest rates present attractive opportunities. Improvements in
the credit profile of our acquisitions since January 1,
2009 reflect changes we made in our pricing and eligibility
standards, as well as changes in the eligibility standards of
mortgage insurers. Whether our acquisitions for all of 2010 will
exhibit the same credit profile as our recent acquisitions
depends on many factors, including our future pricing and
eligibility standards, our future objectives, mortgage
insurers eligibility standards, our future volume of Refi
Plus acquisitions, which typically include higher LTV ratios and
lower FICO credit scores, and future market conditions. In
addition, FHAs role as the lower-cost option for some
consumers, or in some cases the only option, for loans with
higher LTV ratios further reduced our acquisition of these types
of loans. We expect the ultimate performance of all our loans
will be affected by macroeconomic trends, including
unemployment, the economy, and home prices.
The credit profile of our acquisitions in the first half of 2010
was further influenced by a significant percentage of our
acquisitions representing refinanced loans, which generally have
a strong credit profile because refinancing indicates the
borrowers ability to make their mortgage payment and
desire to maintain homeownership. Refinancings represented 74%
of our acquisitions in the first half of 2010. We also saw
increases in our acquisition of adjustable-rate mortgage loans
with initial terms of five years or greater and
intermediate-term fixed-rate mortgage loans that were primarily
driven by borrowers refinancing into a lower
84
monthly payment or shorter term mortgage option. While
refinanced loans have historically tended to perform better than
loans used for initial home purchase, HARP loans may not
ultimately perform as strongly as traditional refinanced loans
because these loans, which relate to non-delinquent Fannie Mae
mortgages that were refinanced, may have original LTV ratios of
up to 125% and lower FICO credit scores than traditional
refinanced loans. Our regulator granted our request for an
extension of these flexibilities for loans originated through
June 2011.
The prolonged and severe decline in home prices has resulted in
the overall estimated weighted average
mark-to-market
LTV ratio of our conventional single-family guaranty book of
business to remain high, 74% as of June 30, 2010, and 75%
as of December 31, 2009. The portion of our conventional
single-family guaranty book of business with an estimated
mark-to-market
LTV ratio greater than 100% remained at 14% as of both
June 30, 2010 and December 31, 2009. If home prices
decline further, more loans will have
mark-to-market
LTV ratios greater than 100%, which increases the risk of
delinquency and default.
Our exposure, as discussed in this paragraph, to Alt-A and
subprime loans included in our single-family guaranty book of
business does not include (1) our investments in
private-label mortgage-related securities backed by Alt-A and
subprime loans or (2) resecuritizations, or wraps, of
private-label mortgage-related securities backed by Alt-A
mortgage loans that we have guaranteed. As a result of our
decision to discontinue the purchase of newly originated Alt-A
loans effective January 1, 2009, we expect our acquisitions
of Alt-A mortgage loans to continue to be minimal in future
periods and the percentage of the book of business attributable
to Alt-A to decrease over time. While we are not currently
acquiring newly originated loans classified as Alt-A or subprime
loans, we have classified loans as Alt-A if the lender that
delivered the mortgage loan to us classified the loan as Alt-A
based on documentation or other features, or as subprime if the
mortgage loan was originated by a lender specializing in
subprime business or by subprime divisions of large lenders. We
apply these classification criteria in order to determine our
Alt-A and subprime loan exposures; however, we have other loans
with some features that are similar to Alt-A and subprime loans
that we have not classified as Alt-A or subprime because they do
not meet our classification criteria. The unpaid principal
balance of Alt-A and subprime loans included in our
single-family guaranty book of business of $234.1 billion
as of June 30, 2010, represented approximately 8.4% of our
conventional single-family guaranty book of business.
The outstanding unpaid principal balance of reverse mortgage
whole loans included in our mortgage portfolio was
$50.7 billion as of June 30, 2010 and
$50.2 billion as of December 31, 2009. The majority of
these loans are home equity conversion mortgages insured by the
federal government through the FHA. Our market share of new
reverse mortgage acquisitions was approximately 2% in the second
quarter of 2010 and 68% in the second quarter of 2009. The
decrease in our market share was a result of changes in our
pricing strategy and market conditions. Because home equity
conversion mortgages are insured by the federal government, we
believe that we have limited exposure to losses on these loans,
although home price declines and a weak housing market have
affected the performance of these loans.
Problem
Loan Management
Our problem loan management strategies are primarily focused on
reducing defaults to avoid losses that would otherwise occur and
pursuing foreclosure alternatives to reduce the severity of the
losses we incur. We believe that reducing delays and
implementing solutions that can be executed in a timely manner
increase the likelihood that our problem loan management
strategies will be successful in avoiding a default or
minimizing severity. Our home retention solutions are intended
to help borrowers stay in their homes and include loan
modifications, repayment plans, HomeSaver Advance Loans and
forbearances. Because we believe our home retention solutions
can be most effective in preventing defaults when completed at
an early stage in delinquency, it is important for our servicers
to work with borrowers to complete these solutions as early in
their delinquency as feasible. If we are unable to provide a
viable home retention solution for a problem loan, we seek to
offer foreclosure alternatives, primarily preforeclosure sales
and
deeds-in-lieu
of foreclosure. These alternatives reduce the severity of our
loss resulting from a borrowers default while permitting
the borrower to
85
avoid going through a foreclosure. Our mortgage servicers are
the primary point of contact for borrowers and perform a key
role in our efforts to reduce defaults and pursue foreclosure
alternatives. We seek to improve the servicing of delinquent
loans through a variety of means, including improving our
communications with and training of our servicers, increasing
the number of our personnel who manage our servicers, directing
servicers to contact borrowers at an earlier stage of
delinquency and improve telephone communications with borrowers,
and working with some of our servicers to establish
high-touch servicing protocols designed for managing
higher-risk loans. Additionally, we are partnering with our
servicers, civic and community leaders, and housing industry
partners to launch a series of nationwide Mortgage Help Centers
that will accelerate the response time for struggling borrowers
with loans owned by us. The first Mortgage Help Center opened in
Miami, Florida earlier this year and has assisted over 700
homeowners seeking to avoid foreclosure in the Miami-Dade metro
area.
In the following section, we present statistics on our problem
loans, describe specific efforts undertaken to manage these
loans and prevent foreclosures and provide metrics regarding the
performance of our loan workout activities. We generally define
single-family problem loans as loans that have been identified
as being at imminent risk of payment default; early stage
delinquent loans that are either 30 days or 60 days
past due; and seriously delinquent loans, which are loans that
are three or more monthly payments past due or in the
foreclosure process. Unless otherwise noted, single-family
delinquency data is calculated based on number of loans. We
include conventional single-family loans that we own and that
back Fannie Mae MBS in the calculation of the single-family
delinquency rate. Percentage of book calculations are based on
the unpaid principal balance of loans for each category divided
by the unpaid principal balance of our total single-family
guaranty book of business for which we have detailed loan level
information.
Problem
Loan Statistics
The following table displays the delinquency status of loans in
our conventional single-family guaranty book of business (based
on number of loans) as of the periods indicated.
|
|
Table
38:
|
Delinquency
Status of Conventional Single-Family Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2009
|
|
Delinquency status:
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days delinquent
|
|
|
2.32
|
%
|
|
|
2.46
|
%
|
|
|
2.39
|
%
|
60 to 89 days delinquent
|
|
|
0.90
|
|
|
|
1.07
|
|
|
|
0.96
|
|
Seriously delinquent
|
|
|
4.99
|
|
|
|
5.38
|
|
|
|
3.94
|
|
Percentage of seriously delinquent loans that have been
delinquent for more than 180 days
|
|
|
65.77
|
%
|
|
|
57.22
|
%
|
|
|
52.71
|
%
|
As of June 30, 2010, while the number of early stage
delinquencies, loans that are less than three monthly payments
past due, continues to fluctuate between the 30 and 60 day
categories, their total decreased from December 31, 2009.
As a result, the potential number of loans at risk of becoming
seriously delinquent has diminished. As of June 30, 2010,
the percentage of our conventional single-family loans that were
seriously delinquent decreased, as compared to December 31,
2009, but remains high. This decrease in our serious delinquency
rate is partly the result of the home retention workouts and
foreclosure alternatives we completed during the first half of
2010, the higher volume of foreclosures and our work with our
servicers to reduce delays in determining and executing the
appropriate workout solution. The period of time that loans are
seriously delinquent continues to remain extended as the factors
present during 2009 were relatively unchanged during the first
half of 2010.
Table 39 provides a comparison, by geographic region and by
loans with and without credit enhancement, of the serious
delinquency rates as of the periods indicated for conventional
single-family loans in our single-family guaranty book of
business.
86
|
|
Table
39:
|
Serious
Delinquency Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
June 30, 2009
|
|
|
|
Percentage of
|
|
|
Serious
|
|
|
Percentage of
|
|
|
Serious
|
|
|
Percentage of
|
|
|
Serious
|
|
|
|
Book
|
|
|
Delinquency
|
|
|
Book
|
|
|
Delinquency
|
|
|
Book
|
|
|
Delinquency
|
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Conventional single-family delinquency rates by geographic
region:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest
|
|
|
16
|
%
|
|
|
4.52
|
%
|
|
|
16
|
%
|
|
|
4.97
|
%
|
|
|
16
|
%
|
|
|
3.71
|
%
|
Northeast
|
|
|
19
|
|
|
|
4.43
|
|
|
|
19
|
|
|
|
4.53
|
|
|
|
19
|
|
|
|
3.20
|
|
Southeast
|
|
|
24
|
|
|
|
6.67
|
|
|
|
24
|
|
|
|
7.06
|
|
|
|
24
|
|
|
|
5.21
|
|
Southwest
|
|
|
15
|
|
|
|
3.67
|
|
|
|
15
|
|
|
|
4.19
|
|
|
|
16
|
|
|
|
3.07
|
|
West
|
|
|
26
|
|
|
|
4.96
|
|
|
|
26
|
|
|
|
5.45
|
|
|
|
25
|
|
|
|
3.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total conventional single-family loans
|
|
|
100
|
%
|
|
|
4.99
|
%
|
|
|
100
|
%
|
|
|
5.38
|
%
|
|
|
100
|
%
|
|
|
3.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional single-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit enhanced
|
|
|
16
|
%
|
|
|
11.68
|
%
|
|
|
18
|
%
|
|
|
13.51
|
%
|
|
|
19
|
%
|
|
|
10.25
|
%
|
Non-credit enhanced
|
|
|
84
|
|
|
|
3.74
|
|
|
|
82
|
|
|
|
3.67
|
|
|
|
81
|
|
|
|
2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total conventional single-family loans
|
|
|
100
|
%
|
|
|
4.99
|
%
|
|
|
100
|
%
|
|
|
5.38
|
%
|
|
|
100
|
%
|
|
|
3.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See footnote 9 to Table 37:
Risk Characteristics of Conventional Single-Family
Business Volume and Guaranty Book of Business for states
included in each geographic region.
|
As we increased loan modifications, foreclosure alternatives and
the volume of foreclosures during the first half of 2010, the
percentage of loans that were seriously delinquent as of
June 30, 2010 decreased compared to December 31, 2009.
However, the continued negative trends in the current economic
environment, such as the sustained weakness in the housing
market and high unemployment, have adversely affected the
serious delinquency rates across our conventional single-family
guaranty book of business and the serious delinquency rates
remains high. In addition, certain states, certain higher-risk
loan categories, such as Alt-A loans, subprime loans, loans with
higher
mark-to-market
LTVs, and our 2006 and 2007 loan vintages continue to exhibit
higher than average delinquency rates and account for a
disproportionate share of our credit losses. States in the
Midwest have experienced prolonged economic weakness and
California, Florida, Arizona and Nevada have experienced the
most significant declines in home prices coupled with
unemployment rates that remain elevated.
Table 40 presents the conventional serious delinquency rates and
other financial information for our single-family loans with
some of these higher-risk characteristics as of the periods
indicated. The reported categories are not mutually exclusive.
See Consolidated Results of OperationsCredit-Related
ExpensesCredit Loss Performance Metrics for
information on the portion of our credit losses attributable to
Alt-A loans and certain other higher-risk loan categories.
87
|
|
Table
40:
|
Conventional
Single-Family Serious Delinquency Rate Concentration
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Mark-to-
|
|
|
|
|
|
|
|
Mark-to-
|
|
|
|
|
|
|
|
Mark-to-
|
|
|
Unpaid
|
|
Percentage
|
|
Serious
|
|
Market
|
|
Unpaid
|
|
Percentage
|
|
Serious
|
|
Market
|
|
Unpaid
|
|
Percentage
|
|
Serious
|
|
Market
|
|
|
Principal
|
|
of Book
|
|
Delinquency
|
|
LTV
|
|
Principal
|
|
of Book
|
|
Delinquency
|
|
LTV
|
|
Principal
|
|
of Book
|
|
Delinquency
|
|
LTV
|
|
|
Balance
|
|
Outstanding
|
|
Rate
|
|
Ratio(1)
|
|
Balance
|
|
Outstanding
|
|
Rate
|
|
Ratio(1)
|
|
Balance
|
|
Outstanding
|
|
Rate
|
|
Ratio
(1)
|
|
|
(Dollars in millions)
|
|
States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
|
|
$
|
73,402
|
|
|
|
3
|
%
|
|
|
7.48
|
%
|
|
|
100
|
%
|
|
$
|
76,073
|
|
|
|
3
|
%
|
|
|
8.80
|
%
|
|
|
100
|
%
|
|
$
|
77,051
|
|
|
|
3
|
%
|
|
|
6.54
|
%
|
|
|
99
|
%
|
California
|
|
|
496,731
|
|
|
|
17
|
|
|
|
4.99
|
|
|
|
75
|
|
|
|
484,923
|
|
|
|
17
|
|
|
|
5.73
|
|
|
|
77
|
|
|
|
456,927
|
|
|
|
17
|
|
|
|
4.23
|
|
|
|
77
|
|
Florida
|
|
|
189,569
|
|
|
|
7
|
|
|
|
12.60
|
|
|
|
102
|
|
|
|
195,309
|
|
|
|
7
|
|
|
|
12.82
|
|
|
|
100
|
|
|
|
198,060
|
|
|
|
7
|
|
|
|
9.71
|
|
|
|
98
|
|
Nevada
|
|
|
33,345
|
|
|
|
1
|
|
|
|
12.83
|
|
|
|
129
|
|
|
|
34,657
|
|
|
|
1
|
|
|
|
13.00
|
|
|
|
123
|
|
|
|
35,449
|
|
|
|
1
|
|
|
|
9.33
|
|
|
|
112
|
|
Select Midwest
States(2)
|
|
|
298,607
|
|
|
|
11
|
|
|
|
5.17
|
|
|
|
78
|
|
|
|
304,147
|
|
|
|
11
|
|
|
|
5.62
|
|
|
|
77
|
|
|
|
306,188
|
|
|
|
11
|
|
|
|
4.16
|
|
|
|
76
|
|
All other states
|
|
|
1,694,015
|
|
|
|
61
|
|
|
|
3.82
|
|
|
|
68
|
|
|
|
1,701,379
|
|
|
|
61
|
|
|
|
4.11
|
|
|
|
69
|
|
|
|
1,670,486
|
|
|
|
61
|
|
|
|
2.95
|
|
|
|
68
|
|
Product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
|
|
|
227,206
|
|
|
|
8
|
|
|
|
15.17
|
|
|
|
93
|
|
|
|
248,311
|
|
|
|
9
|
|
|
|
15.63
|
|
|
|
92
|
|
|
|
269,290
|
|
|
|
10
|
|
|
|
11.91
|
|
|
|
89
|
|
Subprime
|
|
|
6,922
|
|
|
|
*
|
|
|
|
29.96
|
|
|
|
99
|
|
|
|
7,364
|
|
|
|
*
|
|
|
|
30.68
|
|
|
|
97
|
|
|
|
7,918
|
|
|
|
|
|
|
|
21.75
|
|
|
|
94
|
|
Vintages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
262,925
|
|
|
|
9
|
|
|
|
12.52
|
|
|
|
99
|
|
|
|
292,184
|
|
|
|
11
|
|
|
|
12.87
|
|
|
|
97
|
|
|
|
324,714
|
|
|
|
12
|
|
|
|
9.05
|
|
|
|
94
|
|
2007
|
|
|
380,220
|
|
|
|
14
|
|
|
|
13.79
|
|
|
|
99
|
|
|
|
422,956
|
|
|
|
15
|
|
|
|
14.06
|
|
|
|
96
|
|
|
|
469,366
|
|
|
|
17
|
|
|
|
9.22
|
|
|
|
94
|
|
All other vintages
|
|
|
2,142,524
|
|
|
|
77
|
|
|
|
2.88
|
|
|
|
67
|
|
|
|
2,081,348
|
|
|
|
74
|
|
|
|
3.08
|
|
|
|
67
|
|
|
|
1,950,080
|
|
|
|
71
|
|
|
|
2.28
|
|
|
|
66
|
|
Estimated
mark-to-market
LTV ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 100%
|
|
|
399,133
|
|
|
|
14
|
|
|
|
20.57
|
|
|
|
130
|
|
|
|
403,443
|
|
|
|
14
|
|
|
|
22.09
|
|
|
|
128
|
|
|
|
392,901
|
|
|
|
14
|
|
|
|
16.63
|
|
|
|
125
|
|
Select combined risk characteristics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original LTV ratio > 90%
and FICO score < 620
|
|
|
22,655
|
|
|
|
1
|
|
|
|
24.28
|
|
|
|
105
|
|
|
|
23,966
|
|
|
|
1
|
|
|
|
27.96
|
|
|
|
104
|
|
|
|
25,441
|
|
|
|
1
|
|
|
|
21.37
|
|
|
|
102
|
|
|
|
|
*
|
|
Percentage is less than 0.5%.
|
|
(1) |
|
Second lien loans held by third
parties are not included in the calculation of the estimated
mark-to-market
LTV ratios.
|
|
(2) |
|
Consists of Illinois, Indiana,
Michigan and Ohio.
|
Management
of Problem Loans and Loan Workout Metrics
If a borrower does not make required payments, we work with the
servicers of our loans to offer workout solutions to minimize
the likelihood of foreclosure as well as the severity of loss.
We refer to actions taken by servicers with borrowers to resolve
the problem of existing or potential delinquent loan payments as
workouts. Our loan workouts reflect our various
types of home retention strategies. During 2009 and continuing
through the first half of 2010, the prolonged economic stress
and high levels of unemployment hindered the efforts of many
delinquent borrowers to bring their loans current. If the
servicer cannot provide a viable home retention solution, the
servicer will continue to work with the borrower to avoid
foreclosure. We require that our servicers evaluate all problem
loans under HAMP first before considering other workout
alternatives. If it is determined that a borrower is not
eligible for a modification under HAMP, our servicers are
required to exhaust all other workout alternatives before
proceeding to foreclosure. We require our single-family
servicers to pursue various resolutions of problem loans as an
alternative to foreclosure, and we continue to work with our
servicers to implement our foreclosure prevention initiatives
effectively and to find ways to enhance our workout protocols
and their workflow processes. However, the existence of a second
lien may limit our ability to provide borrowers with loan
workout options, including those as part of our foreclosure
prevention efforts. When appropriate, we seek to move to
foreclosure as expeditiously as possible.
Borrowers have become increasingly in need of a workout solution
prior to the resolution of the hardships that are causing their
mortgage delinquency. In response, we completed more loan
modifications during the first half of 2010 that are
concentrated on lowering or deferring the borrowers
monthly mortgage payments for a predetermined period of time to
allow borrowers to work through their hardships. Table 41
provides statistics
88
on our single-family loan workouts, by type, for the periods
indicated. These statistics include loan modifications completed
under HAMP but do not include trial modifications under HAMP or
repayment and forbearance plans that have been initiated but not
completed.
Table
41: Statistics on Single-Family Loan
Workouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
June 30, 2009
|
|
|
|
Unpaid
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
|
(Dollars in millions)
|
|
|
Home retention strategies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modifications
|
|
$
|
44,383
|
|
|
|
215,449
|
|
|
$
|
18,702
|
|
|
|
98,575
|
|
|
$
|
5,433
|
|
|
|
29,130
|
|
Repayment plans and forbearances completed
|
|
|
2,372
|
|
|
|
17,398
|
|
|
|
2,930
|
|
|
|
22,948
|
|
|
|
1,511
|
|
|
|
12,197
|
|
HomeSaver Advance first-lien loans
|
|
|
515
|
|
|
|
4,371
|
|
|
|
6,057
|
|
|
|
39,199
|
|
|
|
5,078
|
|
|
|
32,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,270
|
|
|
|
237,218
|
|
|
$
|
27,689
|
|
|
|
160,722
|
|
|
$
|
12,022
|
|
|
|
73,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosure alternatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preforeclosure sales
|
|
$
|
8,387
|
|
|
|
36,534
|
|
|
$
|
8,457
|
|
|
|
36,968
|
|
|
$
|
2,997
|
|
|
|
13,086
|
|
Deeds-in-lieu
of foreclosure
|
|
|
424
|
|
|
|
2,307
|
|
|
|
491
|
|
|
|
2,649
|
|
|
|
233
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,811
|
|
|
|
38,841
|
|
|
$
|
8,948
|
|
|
|
39,617
|
|
|
$
|
3,230
|
|
|
|
14,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan workouts
|
|
$
|
56,081
|
|
|
|
276,059
|
|
|
$
|
36,637
|
|
|
|
200,339
|
|
|
$
|
15,252
|
|
|
|
87,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan workouts as a percentage of single-family guaranty book of
business(1)
|
|
|
3.91
|
%
|
|
|
3.05
|
%
|
|
|
1.26
|
%
|
|
|
1.10
|
%
|
|
|
1.06
|
%
|
|
|
0.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated based on annualized loan
workouts during the period as a percentage of our single-family
guaranty book of business as of the end of the period.
|
We increased the level of workout volume during the first half
of 2010 compared with the first half of 2009, through workouts
initiated through our home retention and foreclosure prevention
efforts. Loan modifications were over seven times larger in the
first half of 2010 than the volumes in the first half of 2009
and more than double the volumes for the full year 2009, as the
number of borrowers who were experiencing financial difficulty
increased and a significant number of trial modifications were
completed and became permanent HAMP modifications. HomeSaver
Advance workout volume continues to decline in 2010 as a result
of more borrowers facing permanent hardships as well as our
requirement that all potential loan workouts first be evaluated
under HAMP before being considered for other alternatives.
However, we have continued to use this alternative in limited
situations when it is strategically favorable. We also agreed to
an increasing number of preforeclosure sales and accepted a
higher number of
deeds-in-lieu
of foreclosure during the first half of 2010 as these are
favorable solutions for a growing number of borrowers who were
adversely affected by the weak economy. We expect the volume of
our foreclosure alternatives to remain high throughout 2010.
Because we did not begin implementing HAMP until March 2009, the
vast majority of workouts and loan modifications performed
during the first six months of 2009 were not made under HAMP;
during the first half of 2010, slightly more than half of our
loan modifications were completed under HAMP. During the first
half of 2010, we initiated approximately 117,000 trial
modifications under HAMP, along with other types of loan
modifications, repayment plans and forbearance. It is difficult
to predict how many of these trial modifications and initiated
plans will be completed. We expect to increase the number of
loan workouts during 2010, including modifications both under
HAMP and outside the program. We also expect to increase
foreclosure alternatives in those instances where borrowers are
unable to stay in their homes.
We remain focused on our goals to minimize our credit losses and
help borrowers keep their homes and we expect to continue to
look for additional solutions to help borrowers stay in their
homes and avoid foreclosure.
89
As such, we began offering an Alternative
Modificationtm
option for Fannie Mae borrowers who were believed to be eligible
for and accepted a HAMP trial modification plan, made their
required payments during their trial period, but were
subsequently denied a permanent modification because they were
unable to demonstrate compliance with the eligibility
requirements for a permanent modification under HAMP. In many
cases, these borrowers initially qualified for a HAMP trial
modification based on verbal information and, upon verification
of their income, it was discovered that their income was either
too high or too low relative to their monthly mortgage payment
for them to meet the programs requirements. Alternative
Modifications are available only for borrowers who were in a
HAMP trial modification that was initiated by March 1, 2010.
Table 42 displays the profile of loan modifications (HAMP and
non-HAMP) provided to borrowers during the first half of 2010,
the first and second quarters of 2010 and during 2009.
Table
42: Loan Modification Profile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Full Year
|
|
|
|
Q2 YTD
|
|
|
Q2
|
|
|
Q1
|
|
|
2009
|
|
|
Term extension, interest rate reduction, or combination of
both(1)
|
|
|
93
|
%
|
|
|
95
|
%
|
|
|
90
|
%
|
|
|
93
|
%
|
Initial reduction in monthly
payment(2)
|
|
|
91
|
|
|
|
93
|
|
|
|
89
|
|
|
|
87
|
|
Estimated
mark-to-market
LTV ratio > 100%
|
|
|
54
|
|
|
|
53
|
|
|
|
54
|
|
|
|
47
|
|
Troubled debt restructurings
|
|
|
96
|
|
|
|
96
|
|
|
|
96
|
|
|
|
92
|
|
|
|
|
(1) |
|
Reported statistics for term
extension, interest rate reduction or the combination include
subprime adjustable-rate mortgage loans that have been modified
to a fixed-rate loan.
|
|
(2) |
|
These modification statistics do
not include subprime adjustable-rate mortgage loans that were
modified to a fixed-rate loan and were current at the time of
the modification.
|
The vast majority of our loan modifications during 2009 and the
first half of 2010 were designed to help distressed borrowers by
reducing the borrowers monthly principal and interest
payment through an extension of the loan term, a reduction in
the interest rate, or a combination of both.
A significant portion of our modifications pertain to loans with
a
mark-to-market
LTV ratio greater than 100% because these borrowers are
typically unable to sell their homes as their mortgage
obligation is greater than the value of their homes. As of
June 30, 2010, the serious delinquency rate for loans with
a
mark-to-market
LTV ratio greater than 100% was 21%, compared with our overall
average single-family serious delinquency rate of 4.99%.
Approximately 58% of loans modified during 2009 were current or
had paid off as of six months following the loan modification
date. In comparison, 37% of loans modified during 2008 were
current or had paid off as of six months following the loan
modification date. As we have focused our efforts on distressed
borrowers who are experiencing current economic hardship, the
short term performance of our workouts may not be indicative of
long term performance. We believe the performance of our
workouts will be highly dependent on economic factors, such as
unemployment rates and home prices.
There is significant uncertainty regarding the ultimate long
term success of our current modification efforts because of the
pressures on borrowers and household wealth and high
unemployment. Modifications, even those with reduced monthly
payments, may also not be sufficient to help borrowers with
second liens and other significant non-mortgage debt
obligations. If a borrower defaults on a loan modification, we
require our servicer to work again with the borrower to cure the
modified loan, or if that is not feasible, evaluate the borrower
for any other available foreclosure prevention alternatives
prior to commencing foreclosure proceedings. If a borrower
defaults on a loan modification under HAMP, they are not
eligible for another HAMP modification. FHFA, other agencies of
the U.S. government or Congress may ask us to undertake new
initiatives to support the housing and mortgage markets should
our current modification efforts ultimately not perform in a
manner that results in the stabilization of these markets.
90
REO
Management
Foreclosure and REO activity affect the level of credit losses.
Table 43 compares our foreclosure activity, by region, for the
periods indicated. Regional REO acquisition and charge-off
trends generally follow a pattern that is similar to, but lags,
that of regional delinquency trends.
Table
43: Single-Family Foreclosed Properties
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Single-family foreclosed properties (number of properties):
|
|
|
|
|
|
|
|
|
Beginning of period inventory of single-family foreclosed
properties
(REO)(1)
|
|
|
86,155
|
|
|
|
63,538
|
|
Acquisitions by geographic
area:(2)
|
|
|
|
|
|
|
|
|
Midwest
|
|
|
30,619
|
|
|
|
14,626
|
|
Northeast
|
|
|
7,497
|
|
|
|
2,948
|
|
Southeast
|
|
|
39,593
|
|
|
|
14,480
|
|
Southwest
|
|
|
26,660
|
|
|
|
12,711
|
|
West
|
|
|
26,398
|
|
|
|
12,704
|
|
|
|
|
|
|
|
|
|
|
Total properties acquired through foreclosure
|
|
|
130,767
|
|
|
|
57,469
|
|
Dispositions of REO
|
|
|
(87,612
|
)
|
|
|
(58,392
|
)
|
|
|
|
|
|
|
|
|
|
End of period inventory of single-family foreclosed properties
(REO)(1)
|
|
|
129,310
|
|
|
|
62,615
|
|
|
|
|
|
|
|
|
|
|
Carrying value of single-family foreclosed properties (dollars
in
millions)(3)
|
|
$
|
13,043
|
|
|
$
|
6,002
|
|
|
|
|
|
|
|
|
|
|
Single-family foreclosure
rate(4)
|
|
|
1.45
|
%
|
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes acquisitions through
deeds-in-lieu
of foreclosure.
|
|
(2) |
|
See footnote 9 to Table 37:
Risk Characteristics of Conventional Single-Family Business
Volume and Guaranty Book of Business for states included
in each geographic region.
|
|
(3) |
|
Excludes foreclosed property claims
receivables, which are reported in our condensed consolidated
balance sheets as a component of Acquired property,
net.
|
|
(4) |
|
Estimated based on annualized total
number of properties acquired through foreclosure as a
percentage of the total number of loans in our conventional
single-family guaranty book of business as of the end of each
respective period.
|
Despite the increase in our foreclosure rate during the first
half of 2010, foreclosure levels were lower than what they
otherwise would have been due to our directive to servicers to
delay foreclosure sales until the loan servicer verifies that
the borrower is ineligible for a HAMP modification and that all
other foreclosure prevention alternatives have been exhausted.
Additionally, foreclosure levels during the first half of 2009
were affected because of the foreclosure moratoria. The
continued weak economy and the prolonged decline in home prices
on a national basis, as well as high unemployment rates,
continue to result in an increase in the percentage of our
mortgage loans that transition from delinquent to foreclosure
status and significantly reduce the values of our foreclosed
single-family properties. Further, we have seen an increase in
the percentage of our properties that we are unable to market
for sale in the first half of 2010 compared with the first half
of 2009. The most common reasons for our inability to market
properties for sale are: (1) properties are within the
period during which state law allows the former mortgagor and
second lien holders to redeem the property (states which allow
this are known as redemption states);
(2) properties are still occupied by the person or personal
property and the eviction process is not yet complete
(occupied status); or (3) properties are being
repaired. As we are unable to market a higher portion of our
inventory, it slows the pace at which we can dispose of our
properties and increases our foreclosed property expense related
to costs associated with ensuring that the property is vacant
and maintaining the property. For example, as of June 30,
2010, approximately 36% of our properties that we are unable to
market for sale were in redemption status, which lengthens the
time a property is in our REO inventory by an average of four to
six months. Additionally, as of
91
June 30, 2010, approximately 36% of our properties that we
are unable to market for sale were in occupied status, which
lengthens the time a property is in our REO inventory by an
average of one to three months.
As shown in Table 44 we have experienced a disproportionate
share of defaults in certain states as compared to their share
of our guaranty book of business, particularly within a number
of states that have had significant home price depreciation.
Table
44: Single-Family Acquired Property Concentration
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Six Months Ended
|
|
|
As of
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
Percentage of
|
|
Percentage of
|
|
|
Percentage of
|
|
Percentage of
|
|
Properties
|
|
Properties
|
|
|
Book
|
|
Book
|
|
Acquired
|
|
Acquired
|
|
|
Outstanding(1)
|
|
Outstanding(1)
|
|
by
Foreclosure(2)
|
|
by
Foreclosure(2)
|
|
States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona, California, Florida and Nevada
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
36
|
%
|
|
|
36
|
%
|
Illinois, Indiana, Michigan and Ohio
|
|
|
11
|
|
|
|
11
|
|
|
|
19
|
|
|
|
20
|
|
|
|
|
(1) |
|
Calculated based on the unpaid
principal balance of loans, where we have detailed loan-level
information, for each category divided by the unpaid principal
balance of our single-family conventional guaranty book of
business.
|
|
(2) |
|
Calculated based on the number of
properties acquired through foreclosure during the period
divided by the total number of properties acquired through
foreclosure.
|
Although we have expanded our loan workout initiatives to help
borrowers stay in their homes, we expect our foreclosures to
increase during the remainder of 2010 as a result of the adverse
impact that the weak economy and high unemployment have had, and
are expected to have, on the financial condition of borrowers.
Multifamily
Mortgage Credit Risk Management
The credit risk profile of our multifamily mortgage credit book
of business is influenced by: the structure of the financing;
the type and location of the property; the condition and value
of the property; the financial strength of the borrower and
lender; market and
sub-market
trends and growth; and the current and anticipated cash flows
from the property. These and other factors affect both the
amount of expected credit loss on a given loan and the
sensitivity of that loss to changes in the economic environment.
We provide information on our credit-related expenses and credit
losses in Consolidated Results of
OperationsCredit-Related Expenses.
While our multifamily mortgage credit book of business includes
all of our multifamily mortgage-related assets, both on-and
off-balance sheet, our guaranty book of business excludes
non-Fannie Mae multifamily mortgage-related securities held in
our portfolio for which we do not provide a guaranty. Our
multifamily guaranty book of business consists of: multifamily
mortgage loans held in our mortgage portfolio; Fannie Mae MBS
held in our portfolio or by third parties; and other credit
enhancements that we provide on mortgage assets. The following
credit risk management discussion pertains to our multifamily
guaranty book of business.
The credit statistics reported below, unless otherwise noted,
pertain only to a specific portion of our multifamily guaranty
book of business for which we have access to detailed loan-level
information, which constituted 99% of our total multifamily
guaranty book as of both June 30, 2010 and
December 31, 2009.
See Risk Factors in our 2009
Form 10-K
for a discussion of the risk due to our reliance on lender
representations regarding the accuracy of the characteristics of
loans in our guaranty book of business.
92
Multifamily
Acquisition Policy and Underwriting Standards
Our HCD business, in conjunction with our Enterprise Risk
Management division, is responsible for pricing and managing the
credit risk on multifamily mortgage loans we purchase and on
Fannie Mae MBS backed by multifamily loans (whether held in our
portfolio or held by third parties). Our primary multifamily
delivery channel is the Delegated Underwriting and Servicing, or
DUS®,
program, which is comprised of multiple lenders that span the
spectrum from large sophisticated banks to smaller independent
multifamily lenders. Multifamily loans that we purchase or that
back Fannie Mae MBS are either underwritten by a Fannie
Mae-approved lender or subject to our underwriting review prior
to closing. Loans delivered to us by DUS lenders and their
affiliates represented approximately 83% of our multifamily
guaranty book of business as of June 30, 2010 compared with
81% as of December 31, 2009.
We use various types of credit enhancement arrangements for our
multifamily loans, including lender risk sharing, lender
repurchase agreements, pool insurance, subordinated
participations in mortgage loans or structured pools, cash and
letter of credit collateral agreements, and
cross-collateralization/cross-default provisions. The most
prevalent form of credit enhancement on multifamily loans is
lender risk sharing. Lenders in the DUS program typically share
in loan-level risk in the following ways: (1) they bear
losses up to the first 5% of unpaid principal balance of the
loan and share in remaining losses up to a prescribed limit; or
(2) they agree to share with us up to one-third of the
credit losses on an equal basis. Other lenders typically share
or absorb credit losses up to a negotiated percentage of the
loan or the pool balance.
Multifamily
Portfolio Diversification and Monitoring
Diversification within our multifamily mortgage credit book of
business by geographic concentration,
term-to-maturity,
interest rate structure, borrower concentration and credit
enhancement arrangements is an important factor that influences
credit quality and performance and helps reduce our credit risk.
The weighted average original LTV ratio for our multifamily
guaranty book of business was 67% as of both June 30, 2010
and December 31, 2009. The percentage of our multifamily
guaranty book of business with an original LTV ratio greater
than 80% was 5% as of both June 30, 2010 and
December 31, 2009. We present the current risk profile of
our multifamily guaranty book of business in Note 7,
Financial Guarantees.
We monitor the performance and risk concentrations of our
multifamily loans and the underlying properties on an ongoing
basis throughout the life of the investment at the loan,
property and portfolio level. We closely track the physical
condition of the property, the relevant local market and
economic conditions that may signal changing risk or return
profiles and other risk factors. For example, we closely monitor
the rental payment trends and vacancy levels in local markets to
identify loans that merit closer attention or loss mitigation
actions. For our investments in multifamily loans, the primary
asset management responsibilities are performed by our DUS and
other multifamily lenders. We periodically evaluate the
performance of our third-party service providers for compliance
with our asset management criteria.
Problem
Loan Management and Foreclosure Prevention
Unfavorable economic conditions have caused continued increases
in our multifamily serious delinquency rate and the level of
defaults. Since delinquency rates are a lagging indicator, even
if market fundamentals show some improvement, we expect to incur
additional credit losses. We periodically refine our
underwriting standards in response to market conditions and
enacted proactive portfolio management and monitoring to keep
credit losses to a low level relative to our multifamily
guaranty book of business.
Problem
Loan Statistics
Table 45 provides a comparison of our multifamily serious
delinquency rates for loans with and without credit enhancement.
We classify multifamily loans as seriously delinquent when
payment is 60 days or more past
93
due. We calculate multifamily serious delinquency rates based on
the unpaid principal balance of loans for each category divided
by the unpaid principal balance of our total multifamily
guaranty book of business. We include the unpaid principal
balance of all multifamily loans that we own or that back Fannie
Mae MBS and any housing bonds for which we provide credit
enhancement in the calculation of the multifamily serious
delinquency rate.
Table
45: Multifamily Serious Delinquency Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
June 30, 2009
|
|
|
|
Percentage of
|
|
|
Serious
|
|
|
Percentage of
|
|
|
Serious
|
|
|
Percentage of
|
|
|
Serious
|
|
|
|
Book
|
|
|
Delinquency
|
|
|
Book
|
|
|
Delinquency
|
|
|
Book
|
|
|
Delinquency
|
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Multifamily loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit enhanced
|
|
|
89
|
%
|
|
|
0.70
|
%
|
|
|
89
|
%
|
|
|
0.54
|
%
|
|
|
90
|
%
|
|
|
0.43
|
%
|
Non-credit enhanced
|
|
|
11
|
|
|
|
1.62
|
|
|
|
11
|
|
|
|
1.33
|
|
|
|
10
|
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily loans
|
|
|
100
|
%
|
|
|
0.80
|
%
|
|
|
100
|
%
|
|
|
0.63
|
%
|
|
|
100
|
%
|
|
|
0.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As stated previously, the weak economic environment has
negatively affected serious delinquency rates across our
multifamily guaranty book of business, with all loan sizes
experiencing higher delinquencies. The credit enhanced book is
exhibiting a lower rate of average delinquencies relative to the
overall book and the non-credit enhanced loans are experiencing
a higher rate of delinquencies. Relative to our overall
multifamily guaranty book, the 2007 acquisitions continue to
exhibit higher than average delinquency rates accounting for 35%
of our multifamily serious delinquency rate while representing
approximately 23% of our multifamily guaranty book as of
June 30, 2010. Although our 2007 acquisitions were
underwritten to our then-current credit standards and required
borrower cash equity, they were acquired near the peak of
multifamily housing values. In addition, certain states, such as
Arizona, Florida, Georgia, Ohio and Texas have a
disproportionate share of serious delinquent loans compared to
their share of the multifamily guaranty book of business as a
result of slow economic recovery within certain areas of
Arizona, Florida, Georgia and Ohio and the conditions of the
multifamily market in certain areas of Texas. These states
accounted for 52% of multifamily serious delinquencies but only
18% of the multifamily book.
REO
Management
Foreclosure and REO activity affect the level of credit losses.
Table 46 compares our multifamily REO balances for the periods
indicated.
Table
46: Multifamily Foreclosed Properties
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Number of multifamily foreclosed properties (REO)
|
|
|
153
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Carrying value of multifamily foreclosed properties (dollars in
millions)
|
|
$
|
436
|
|
|
$
|
192
|
|
|
|
|
|
|
|
|
|
|
The multifamily inventory of foreclosed properties increased as
of June 30, 2010 compared with June 30, 2009 as
unfavorable economic conditions have caused new foreclosures to
outpace dispositions.
Institutional
Counterparty Credit Risk Management
We rely on our institutional counterparties to provide services
and credit enhancements, including primary and pool mortgage
insurance coverage, risk sharing agreements with lenders and
financial guaranty contracts that are critical to our business.
Institutional counterparty risk is the risk that these
institutional counterparties may
94
fail to fulfill their contractual obligations to us. Defaults by
a counterparty with significant obligations to us could result
in significant financial losses to us.
Several of our institutional counterparties may now be subject
to the provisions of the Wall Street Reform Act, which was
signed into law in July 2010. However, we cannot predict its
potential impact on our company or our industry at this time.
For additional discussion on the key provisions and additional
information about this legislation please see
Legislation.
See MD&ARisk ManagementCredit Risk
ManagementInstitutional Counterparty Credit Risk
Management in our 2009
Form 10-K
for additional information about our institutional
counterparties including counterparty risk we face from mortgage
originators and investors, from debt security and mortgage
dealers and from document custodians.
Mortgage
Seller/Servicers
Our business with our mortgage servicers is concentrated. Our
ten largest single-family mortgage servicers, including their
affiliates, serviced 80% of our single-family guaranty book of
business as of June 30, 2010 and December 31, 2009.
Our largest mortgage servicer is Bank of America, which,
together with its affiliates, serviced approximately 27% of our
single-family guaranty book of business as of June 30, 2010
and December 31, 2009. In addition, we had two other
mortgage servicers, JP Morgan and Wells Fargo, that, with their
affiliates, each serviced over 10% of our single-family guaranty
book of business as of June 30, 2010. In addition, Wells
Fargo, with its affiliates, serviced over 10% of our multifamily
guaranty book of business as of June 30, 2010. Because we
delegate the servicing of our mortgage loans to mortgage
servicers and do not have our own servicing function, the loss
of business from a significant mortgage servicer counterparty
could pose significant risks to our ability to conduct our
business effectively.
During the second quarter of 2010, our primary mortgage servicer
counterparties have generally continued to meet their
obligations to us. The growth in the number of delinquent loans
on their books of business may negatively affect the ability of
these counterparties to continue to meet their obligations to us
in the future.
Our mortgage seller/servicers are obligated to repurchase loans
or foreclosed properties, or reimburse us for losses if the
foreclosed property has been sold, if it is determined that the
mortgage loan did not meet our underwriting or eligibility
requirements or if mortgage insurers rescind coverage. In 2009
and during the first half of 2010, the number of repurchase and
reimbursement requests remained high. Pursuant to our
seller/servicers contractual obligations, during the
second quarter of 2010, the aggregate unpaid principal balance
of loans repurchased by our seller/servicers was approximately
$1.5 billion compared with $964 million during the
second quarter of 2009. If a significant seller/servicer
counterparty, or a number of seller/servicer counterparties,
fails to fulfill its repurchase and reimbursement obligations to
us, it could result in a substantial increase in our credit
losses and have a material adverse effect on our results of
operations and financial condition. We expect the amount of our
outstanding repurchase and reimbursement requests to remain high
throughout 2010.
We are exposed to the risk that a mortgage seller/servicer or
another party involved in a mortgage loan transaction will
engage in mortgage fraud by misrepresenting the facts about the
loan. We have experienced financial losses in the past and may
experience significant financial losses and reputational damage
in the future as a result of mortgage fraud.
Mortgage
Insurers
We use several types of credit enhancement to manage our
single-family mortgage credit risk, including primary and pool
mortgage insurance coverage. Mortgage insurance risk in
force represents our maximum potential loss recovery under
the applicable mortgage insurance policies. We had total
mortgage insurance coverage risk in force of $100.4 billion
on the single-family mortgage loans in our guaranty book of
business
95
as of June 30, 2010, which represented approximately 4% of
our single-family guaranty book of business as of June 30,
2010. Primary mortgage insurance represented $95.1 billion
of this total, and pool mortgage insurance was
$5.3 billion. We had total mortgage insurance coverage risk
in force of $106.5 billion on the single-family mortgage
loans in our guaranty book of business as of December 31,
2009, which represented approximately 4% of our single-family
guaranty book of business as of December 31, 2009. Primary
mortgage insurance represented $99.6 billion of this total,
and pool mortgage insurance was $6.9 billion of this total.
Table 47 presents our maximum potential loss recovery for the
primary and pool mortgage insurance coverage on single-family
loans in our guaranty book of business by mortgage insurer for
our top eight mortgage insurer counterparties as of
June 30, 2010. These mortgage insurers provided over 99% of
our total mortgage insurance coverage on single-family loans in
our guaranty book of business as of June 30, 2010.
Table
47: Mortgage Insurance Coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
Maximum
Coverage(2)
|
|
Counterparty:(1)
|
|
Primary
|
|
|
Pool
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage Guaranty Insurance Corporation
|
|
$
|
22,422
|
|
|
$
|
2,051
|
|
|
$
|
24,473
|
|
Radian Guaranty, Inc.
|
|
|
15,330
|
|
|
|
389
|
|
|
|
15,719
|
|
Genworth Mortgage Insurance Corporation
|
|
|
14,886
|
|
|
|
95
|
|
|
|
14,981
|
|
United Guaranty Residential Insurance Company
|
|
|
14,187
|
|
|
|
235
|
|
|
|
14,422
|
|
PMI Mortgage Insurance Co.
|
|
|
12,640
|
|
|
|
552
|
|
|
|
13,192
|
|
Republic Mortgage Insurance Company
|
|
|
10,226
|
|
|
|
1,041
|
|
|
|
11,267
|
|
Triad Guaranty Insurance Corporation
|
|
|
3,266
|
|
|
|
954
|
|
|
|
4,220
|
|
CMG Mortgage Insurance
Company(3)
|
|
|
1,938
|
|
|
|
|
|
|
|
1,938
|
|
|
|
|
(1) |
|
Insurance coverage amounts provided
for each counterparty may include coverage provided by
consolidated affiliates and subsidiaries of the counterparty.
|
|
(2)
|
|
Maximum coverage refers to the
aggregate dollar amount of insurance coverage (i.e.,
risk in force) on single-family loans in our
guaranty book of business and represents our maximum potential
loss recovery under the applicable mortgage insurance policies.
|
|
(3) |
|
CMG Mortgage Insurance Company is a
joint venture owned by PMI Mortgage Insurance Co. and CUNA
Mutual Investment Corporation.
|
The current weakened financial condition of our mortgage insurer
counterparties creates an increased risk that these
counterparties will fail to fulfill their obligations to
reimburse us for claims under insurance policies. A number of
our mortgage insurers have received waivers from their
regulators regarding state-imposed
risk-to-capital
limits. Without these waivers, these mortgage insurers would not
be able to continue to write new business in accordance with
state regulatory requirements, should they fall below their
regulatory capital requirements. In the first half of 2010, the
parent companies of several of our largest mortgage insurer
counterparties raised capital, which may improve their ability
to meet state-imposed
risk-to-capital
limits and their ability to continue paying our claims in full
as they come due, to the extent that the capital raised by the
parent companies is contributed to their respective mortgage
insurance entities. It is uncertain as to how long our mortgage
insurer counterparties will remain below their state-imposed
risk-to-capital
limits. Additionally, mortgage insurers continue to approach us
with various proposed corporate restructurings that would
require our approval of affiliated mortgage insurance writing
entities. In the first half of 2010, we approved PMI Mortgage
Assurance Co., a wholly-owned subsidiary of PMI Mortgage
Insurance Co., to provide mortgage insurance in a limited number
of states, subject to certain conditions.
As of June 30, 2010, our allowance for loan losses of
$60.6 billion, allowance for accrued interest receivable of
$4.8 billion and reserve for guaranty losses of
$246 million incorporated an estimated recovery amount of
approximately $16.6 billion from mortgage insurance related
both to loans that are individually measured for impairment and
those that are measured collectively for impairment. This amount
is comprised of the
96
contractual recovery of approximately $18.3 billion as of
June 30, 2010 and an adjustment of approximately
$1.6 billion which reduces the contractual recovery for our
assessment of our mortgage insurer counterparties
inability to fully pay those claims.
When an insured loan held in our mortgage portfolio subsequently
goes into foreclosure, we charge off the loan, eliminating any
previously-recorded loss reserves, and record REO and a mortgage
insurance receivable for the claim proceeds deemed probable of
recovery, as appropriate. We had outstanding receivables from
mortgage insurers of $3.6 billion as of June 30, 2010
and $2.5 billion as of December 31, 2009, related to
amounts claimed on insured, defaulted loans that we have not yet
received. We assessed the receivables for collectibility, and
they are recorded net of a valuation allowance of
$105 million as of June 30, 2010 and $51 million
as of December 31, 2009 in Other assets. These
mortgage insurance receivables are short-term in nature, having
a duration of approximately three to six months, and the
valuation allowance reduces our claim receivable to the amount
that we consider probable of collection. We received proceeds
under our primary and pool mortgage insurance policies for
single-family loans of $1.5 billion for the second quarter
of 2010, $3.0 billion for the first half of 2010 and
$3.6 billion for the year ended December 31, 2009.
During the second quarter and first half of 2010, we negotiated
the cancellation and restructurings of some of our mortgage
insurance coverage in exchange for a fee. The cash fees received
of $335 million for the second quarter of 2010,
$773 million for the first half of 2010 and
$668 million for the year ended December 31, 2009 are
included in our total insurance proceeds amount.
Our mortgage insurer counterparties have generally continued to
pay claims owed to us, except where alternative payment terms
have been negotiated. Our mortgage insurer counterparties have
significantly increased the number of mortgage loans for which
they have rescinded coverage. In those cases where the mortgage
insurance was obtained to meet our charter requirements or where
we independently agree with the materiality of the finding that
was the basis for the rescission, we generally require the
seller/servicer to repurchase the loan or indemnify us against
loss. We also independently review the origination loan files
based upon internal protocols, and seek repurchase of those
loans where we discover material underwriting defects,
misrepresentation, or fraud. In the second quarter of 2010, some
mortgage insurers disclosed agreements with certain lenders
whereby they agree to waive certain rights to investigate claims
for significant product segments of the insured loans for that
particular lender, and in return receive some compensation. This
means that these mortgage insurers will require fewer mortgage
insurance rescissions for origination defects for the impacted
loans. For loans covered by these agreements and to the extent
we did not uncover loan defects independently for loans that
otherwise would have resulted in mortgage insurance rescission,
we may be at risk of additional loss. It is unclear how
prevalent this type of agreement between mortgage insurers and
lenders may become or how many loans it may impact.
Besides evaluating their condition to assess whether we have
incurred probable losses in connection with our coverage, we
also evaluate these counterparties individually to determine
whether or under what conditions they will remain eligible to
insure new mortgages sold to us. Except for Triad Guaranty
Insurance Corporation, as of August 5, 2010, our private
mortgage insurer counterparties remain qualified to conduct
business with us.
We generally are required pursuant to our charter to obtain
credit enhancement on conventional single-family mortgage loans
that we purchase or securitize with LTV ratios over 80% at the
time of purchase. In connection with HARP, we are generally able
to purchase an eligible loan if the loan has mortgage insurance
in an amount at least equal to the amount of mortgage insurance
that existed on the loan that was refinanced. As a result, these
refinanced loans with updated LTV ratios above 80% and up to
125% may have no mortgage insurance or less insurance than we
would otherwise require for a loan not originated under this
program. In the current environment, many mortgage insurers have
stopped insuring new mortgages with higher LTV ratios or with
lower borrower credit scores or on select property types, which
has contributed to the reduction in our business volumes for
high LTV ratio loans. In addition, FHAs role as the
lower-cost option for loans with higher LTV ratios has also
reduced our acquisitions of these types of loans. If our
mortgage insurer counterparties further restrict their
eligibility requirements or new business volumes for high
97
LTV ratio loans, or if we are no longer willing or able to
obtain mortgage insurance from these counterparties, and we are
not able to find suitable alternative methods of obtaining
credit enhancement for these loans, or if FHA continues to be
the lower-cost option for some consumers, and in some cases the
only option, for loans with higher LTV ratios, we may be further
restricted in our ability to purchase or securitize loans with
LTV ratios over 80% at the time of purchase. Approximately 10%
of our conventional single-family business volume for 2009
consisted of loans with a LTV ratio higher than 80% at the time
of purchase. For the first half of 2010, these loans accounted
for 18% of our single-family business volume.
Financial
Guarantors
We were the beneficiary of financial guarantees totaling
$9.2 billion as of June 30, 2010 and $9.6 billion
as of December 31, 2009 on securities held in our
investment portfolio or on securities that have been
resecuritized to include a Fannie Mae guaranty and sold to third
parties. The securities covered by these guarantees consist
primarily of private-label mortgage-related securities and
mortgage revenue bonds. We are also the beneficiary of financial
guarantees included in securities issued by Freddie Mac, the
federal government and its agencies that totaled
$30.6 billion as of June 30, 2010 and
$51.3 billion as of December 31, 2009.
Eight financial guarantors provided bond insurance coverage to
us as of June 30, 2010. Most of these financial guarantors
experienced material adverse changes to their investment grade
ratings and their financial condition during 2009 and the first
half of 2010 because of significantly higher claim losses that
have impaired their claims paying ability. Accordingly, we do
not rely on the external credit ratings of our financial
guarantor counterparties when estimating
other-than-temporary
impairment; we model all securities without assuming the benefit
of any external financial guarantees. With the exception of
Ambac Assurance Corporation (Ambac), as described
below, none of our other financial guarantor counterparties has
failed to repay us for claims under guaranty contracts. However,
based on the stressed financial condition of our financial
guarantor counterparties, we believe that one or more of our
financial guarantor counterparties may not be able to fully meet
their obligations to us in the future. For additional
discussions of our model methodology and key inputs used to
estimate
other-than-temporary
impairment see Note 6, Investments in
Securities.
In March 2010, Ambac and its insurance regulator, the Wisconsin
Office of the Commissioner of Insurance, imposed a court-ordered
moratorium on certain claim payments under Ambacs bond
insurance coverage, including claims arising under coverage on
$1.4 billion of our private-label securities insured by
Ambac as of June 30, 2010. The outcome of legal proceedings
regarding the moratorium and the proposed company rehabilitation
each remain uncertain at this time. In determining our
other-than-temporary
impairment on our private label securities insured by Ambac, we
have assumed that we will not receive any proceeds from Ambac.
See Consolidated Balance Sheet AnalysisInvestments
in Mortgage-Related Securities for more information on our
investments in private-label mortgage-related securities.
Lenders
with Risk Sharing
We enter into risk sharing agreements with lenders pursuant to
which the lenders agree to bear all or some portion of the
credit losses on the covered loans. Our maximum potential loss
recovery from lenders under these risk sharing agreements on
single-family loans was $17.0 billion as of June 30,
2010 and $18.3 billion as of December 31, 2009. As of
June 30, 2010, 56% of our maximum potential loss recovery
on single-family loans was from three lenders. As of
December 31, 2009, 53% of our maximum potential loss
recovery on single-family loans was from three lenders. Our
maximum potential loss recovery from lenders under these risk
sharing agreements on multifamily loans was $29.7 billion
as of June 30, 2010 and $28.7 billion as of
December 31, 2009. As of June 30, 2010, 42% of our
maximum potential loss recovery on multifamily loans was from
three lenders. As of December 31, 2009, 51% of our maximum
potential loss recovery on multifamily loans was from three
lenders.
Unfavorable market conditions have adversely affected, and are
expected to continue to adversely affect, the liquidity and
financial condition of our lender counterparties. The percentage
of single-family recourse
98
obligations to lenders with investment grade credit ratings
(based on the lower of Standard & Poors,
Moodys and Fitch ratings) was 48% as of June 30,
2010, compared with 45% as of December 31, 2009. The
percentage of these recourse obligations to lender
counterparties rated below investment grade was 22% as of both
June 30, 2010 and December 31, 2009. The remaining
percentage of these recourse obligations were to lender
counterparties that were not rated by rating agencies, which was
30% as of June 30, 2010, compared with 33% as of
December 31, 2009. Given the stressed financial condition
of many of our lenders, we expect in some cases we will recover
less, perhaps significantly less, than the amount the lender is
obligated to provide us under our risk sharing arrangement with
them. Depending on the financial strength of the counterparty,
we may require a lender to pledge collateral to secure its
recourse obligations.
As noted above in Multifamily Credit Risk
Management, our primary multifamily delivery channel is
our DUS program, which is comprised of multiple lenders that
span the spectrum from large sophisticated banks to smaller
independent multifamily lenders. Given the recourse nature of
the DUS program, these lenders are bound by higher eligibility
standards that dictate, among other items, minimum capital and
liquidity levels, and the posting of collateral with us to
support a portion of the lenders loss sharing obligations.
To help ensure the level of risk that is being taken with these
lenders remains appropriate, we actively monitor the financial
condition of these lenders.
Custodial
Depository Institutions
A total of $87.1 billion in deposits for single-family
payments were received and held by 288 institutions in the month
of June 2010 and a total of $51.0 billion in deposits for
single-family payments were received and held by 284
institutions in the month of December 2009. Of these total
deposits, 94% as of June 30, 2010 and 95% as of
December 31, 2009 were held by institutions rated as
investment grade by Standard & Poors,
Moodys and Fitch. Our ten largest custodial depository
institutions held 95% of these deposits as of June 30, 2010
and 93% of these deposits as of December 31, 2009.
The Wall Street Reform Act, signed into law July 21, 2010,
permanently increased the amount of federal deposit insurance
available to $250,000 per depositor. Prior to this legislation,
this increase was set to expire in December 2013.
Issuers
of Securities Held in our Cash and Other Investments
Portfolio
Our cash and other investments portfolio consists of cash and
cash equivalents, federal funds sold and securities purchased
under agreements to resell or similar arrangements,
U.S. Treasury securities and asset-backed securities. See
Consolidated Balance Sheet AnalysisCash and Other
Investments Portfolio for more detailed information on our
cash and other investments portfolio. Our counterparty risk is
primarily with financial institutions with short-term deposits.
Our cash and other investments portfolio which totaled
$118.3 billion as of June 30, 2010, included
$60.1 billion of U.S. Treasury securities and
$21.6 billion of unsecured positions all of which were
short-term deposits with financial institutions which had
short-term credit ratings of
A-1,
P-1, F1 (or
equivalent) or higher from Standard & Poors,
Moodys and Fitch ratings, respectively. As of
December 31, 2009, our cash and other investments portfolio
totaled $69.4 billion and included $45.8 billion of
unsecured positions with issuers of corporate debt securities or
short-term deposits with financial institutions, of which
approximately 92% were with issuers which had short-term credit
ratings of
A-1,
P-1, F1 (or
its equivalent) or higher from Standard & Poors,
Moodys and Fitch ratings, respectively.
During the first quarter of 2010, we evaluated the growing
uncertainty on the stability of various European economies and
financial institutions and as a result of this evaluation,
reduced the number of counterparties in our cash and other
investments portfolio in those markets.
99
Derivatives
Counterparties
Our derivative credit exposure relates principally to interest
rate and foreign currency derivatives contracts. We estimate our
exposure to credit loss on derivative instruments by calculating
the replacement cost, on a present value basis, to settle at
current market prices all outstanding derivative contracts in a
net gain position by counterparty where the right of legal
offset exists, such as master netting agreements, and by
transaction where the right of legal offset does not exist.
Derivatives in a gain position are reported in our condensed
consolidated balance sheets as Derivative assets, at fair
value.
We present our credit loss exposure for our outstanding risk
management derivative contracts, by counterparty credit rating,
as of June 30, 2010 and December 31, 2009 in
Note 10, Derivative Instruments. We expect our
credit exposure on derivative contracts to fluctuate with
changes in interest rates, implied volatility and the collateral
thresholds of the counterparties. Typically, we seek to manage
this exposure by contracting with experienced counterparties
that are rated A- (or its equivalent) or better. These
counterparties consist of large banks, broker-dealers and other
financial institutions that have a significant presence in the
derivatives market, most of which are based in the United States.
We also manage our exposure to derivatives counterparties by
requiring collateral in specified instances. We have a
collateral management policy with provisions for requiring
collateral on interest rate and foreign currency derivative
contracts in net gain positions based upon the
counterpartys credit rating. The collateral includes cash,
U.S. Treasury securities, agency debt and agency
mortgage-related securities. Our net credit exposure on
derivatives contracts increased to $441 million as of
June 30, 2010, from $238 million as of
December 31, 2009. We had outstanding interest rate and
foreign currency derivative transactions with
16 counterparties as of both June 30, 2010 and
December 31, 2009. Derivatives transactions with nine of
our counterparties accounted for approximately 89% of our total
outstanding notional amount as of June 30, 2010, with each
of these counterparties accounting for between approximately 4%
and 15% of the total outstanding notional amount. In addition to
the 16 counterparties with whom we had outstanding notional
amounts as of June 30, 2010, we had master netting
agreements with three counterparties with whom we may enter into
interest rate derivative or foreign currency derivative
transactions in the future.
The recently-enacted Wall Street Reform Act includes additional
regulation of the
over-the-counter
derivatives market that will likely directly and indirectly
affect many aspects of our business and our business partners.
It requires that most swap transactions be submitted for
clearing with a clearing organization, with some exceptions (for
example, if one of the parties is a commercial end user).
Currently, we do not centrally clear our derivatives trades. The
Wall Street Reform Act also requires certain institutions
meeting the definition of major swap participant to
register with the CFTC. The scope of the major swap participant
definition is broad enough to include Fannie Mae, though rules
to be issued by the CFTC should further refine and clarify the
entities that are included under that definition. See
LegislationFinancial Reform Legislation for
additional details regarding the Wall Street Reform Act.
See Note 10, Derivative Instruments for
information on the outstanding notional amount and additional
information on our risk management derivative contracts as of
June 30, 2010 and December 31, 2009. See Risk
Factors in our 2009
Form 10-K
for a discussion of the risks to our business posed by interest
rate risk and a discussion of the risks to our business as a
result of the increasing concentration of our derivatives
counterparties.
Market
Risk Management, Including Interest Rate Risk
Management
We are subject to market risk, which includes interest rate
risk, spread risk and liquidity risk. These risks arise from our
mortgage asset investments. Interest rate risk is the risk of
loss in value or expected future earnings that may result from
changes in interest rates. Spread risk is the resulting impact
of changes in the spread between our mortgage assets and our
debt and derivatives we use to hedge our position. Liquidity
risk is the risk that we will not be able to meet our funding
obligations in a timely manner. We describe our sources of
100
interest rate risk exposure and our strategy for managing
interest rate risk in MD&ARisk
ManagementMarket Risk Management, Including Interest Rate
Risk Management in our 2009
Form 10-K.
Derivatives
Activity
Table 48 presents, by derivative instrument type, our risk
management derivative activity, excluding mortgage commitments,
for the six months ended June 30, 2010 along with the
stated maturities of derivatives outstanding as of June 30,
2010.
|
|
Table
48:
|
Activity
and Maturity Data for Risk Management
Derivatives(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
|
|
|
Swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-
|
|
|
Receive-
|
|
|
|
|
|
Foreign
|
|
|
Pay-
|
|
|
Receive-
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Fixed(2)
|
|
|
Basis(3)
|
|
|
Currency(4)
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Rate Caps
|
|
|
Other(5)
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Notional balance as of
December 31, 2009
|
|
$
|
382,600
|
|
|
$
|
275,417
|
|
|
$
|
3,225
|
|
|
$
|
1,537
|
|
|
$
|
99,300
|
|
|
$
|
75,380
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
845,207
|
|
Additions
|
|
|
86,352
|
|
|
|
86,317
|
|
|
|
55
|
|
|
|
292
|
|
|
|
26,750
|
|
|
|
26,075
|
|
|
|
|
|
|
|
|
|
|
|
225,841
|
|
Terminations(6)
|
|
|
(151,693
|
)
|
|
|
(126,833
|
)
|
|
|
(260
|
)
|
|
|
(522
|
)
|
|
|
(22,750
|
)
|
|
|
(15,845
|
)
|
|
|
|
|
|
|
|
|
|
|
(317,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional balance as of
June 30, 2010
|
|
$
|
317,259
|
|
|
$
|
234,901
|
|
|
$
|
3,020
|
|
|
$
|
1,307
|
|
|
$
|
103,300
|
|
|
$
|
85,610
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
753,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future maturities of notional
amounts:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1 year
|
|
$
|
44,778
|
|
|
$
|
33,335
|
|
|
$
|
2,180
|
|
|
$
|
249
|
|
|
$
|
4,800
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
85,400
|
|
1 to less than 5 years
|
|
|
178,516
|
|
|
|
135,315
|
|
|
|
85
|
|
|
|
|
|
|
|
63,100
|
|
|
|
15,000
|
|
|
|
7,000
|
|
|
|
668
|
|
|
|
399,684
|
|
5 to less than 10 years
|
|
|
69,619
|
|
|
|
48,699
|
|
|
|
100
|
|
|
|
422
|
|
|
|
9,950
|
|
|
|
25,220
|
|
|
|
|
|
|
|
22
|
|
|
|
154,032
|
|
10 years and over
|
|
|
24,346
|
|
|
|
17,552
|
|
|
|
655
|
|
|
|
636
|
|
|
|
25,450
|
|
|
|
45,390
|
|
|
|
|
|
|
|
|
|
|
|
114,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
317,259
|
|
|
$
|
234,901
|
|
|
$
|
3,020
|
|
|
$
|
1,307
|
|
|
$
|
103,300
|
|
|
$
|
85,610
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
753,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate
as of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay rate
|
|
|
3.25
|
%
|
|
|
0.42
|
%
|
|
|
0.14
|
%
|
|
|
|
|
|
|
5.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
0.41
|
%
|
|
|
2.92
|
%
|
|
|
1.83
|
%
|
|
|
|
|
|
|
|
|
|
|
4.04
|
%
|
|
|
3.58
|
%
|
|
|
|
|
|
|
|
|
Weighted-average interest rate
as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay rate
|
|
|
3.46
|
%
|
|
|
0.26
|
%
|
|
|
0.05
|
%
|
|
|
|
|
|
|
5.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
0.26
|
%
|
|
|
3.47
|
%
|
|
|
1.59
|
%
|
|
|
|
|
|
|
|
|
|
|
4.45
|
%
|
|
|
3.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Dollars represent notional amounts
that indicate only the amount on which payments are being
calculated and do not represent the amount at risk of loss.
|
|
(2)
|
|
Notional amounts include swaps
callable by Fannie Mae of $406 million as of June 30,
2010 and December 31, 2009, respectively. The notional
amount of swaps callable by derivatives counterparties was
$4.4 billion as of June 30, 2010. There were no swaps
callable by derivatives counterparties as of December 31,
2009.
|
|
(3)
|
|
Notional amounts include swaps
callable by derivatives counterparties of $405 million and
$610 million as of June 30, 2010 and December 31,
2009, respectively.
|
|
(4)
|
|
Exchange rate adjustments to
foreign currency swaps existing at both the beginning and the
end of the period are included in terminations. Exchange rate
adjustments to foreign currency swaps that are added or
terminated during the period are reflected in the respective
categories.
|
|
(5) |
|
Includes swap credit enhancements
and mortgage insurance contracts.
|
|
(6)
|
|
Includes matured, called,
exercised, assigned and terminated amounts.
|
|
(7)
|
|
Amounts reported are based on
contractual maturities. Some of these amounts represent swaps
that are callable by Fannie Mae or by a derivative counterparty,
in which case the notional amount would cease to be outstanding
prior to maturity if the call option were exercised. See notes
(2) and (3) for information on notional amounts that
are callable.
|
101
The decline in the outstanding notional balance of our risk
management derivatives from December 31, 2009 to
June 30, 2010 primarily resulted from terminating a portion
of offsetting pay-fixed and receive-fixed swap positions.
We generally are the purchaser of risk management derivatives.
In cases where options obtained through callable debt issuance
are not needed for risk management purposes, we may engage in
sales of options in the
over-the-counter
derivatives market in order to offset the options obtained in
the callable debt.
Measurement
of Interest Rate Risk
Below we present two quantitative metrics that provide estimates
of our interest rate exposure: (1) fair value sensitivity
of net portfolio to changes in interest rate levels and slope of
yield curve; and (2) duration gap. The metrics presented
are generated using internal models. On a continuous basis,
management makes judgments about the appropriateness of the risk
assessments of the model results and will make adjustments to
the results shown below as it sees fit to properly assess our
interest rate exposure and manage our interest rate risk.
Interest
Rate Sensitivity to Changes in Interest Rate Level and Slope of
Yield Curve
As part of our disclosure commitments with FHFA, we disclose on
a monthly basis the estimated adverse impact on the fair value
of our net portfolio that would result from the following
hypothetical situations:
|
|
|
|
|
A 50 basis point shift in interest rates.
|
|
|
|
A 25 basis point change in the slope of the yield curve.
|
In measuring the estimated impact of changes in the level of
interest rates, we assume a parallel shift in all maturities of
the U.S. LIBOR interest rate swap curve. In measuring the
estimated impact of changes in the slope of the yield curve, we
assume a constant
7-year rate
and a shift in the
1-year and
30-year
rates of 16.7 basis points and 8.3 basis points,
respectively. We believe the aforementioned interest rate shocks
for our monthly disclosures represent moderate movements in
interest rates over a one-month period.
The daily average adverse impact on the fair value of our net
portfolio from a 50 basis point change in interest rates
was a decrease of $0.4 billion for the month of June 2010,
compared with a decrease of $0.6 billion for the month of
December 2009. The daily average impact from a 25 basis
point change in the slope of the yield curve for the month of
June 2010 showed a flat exposure, compared with a decrease of
$0.1 billion for the month of December 2009.
The sensitivity measures presented in Table 49, which we
disclose on a quarterly basis as part of our disclosure
commitments with FHFA, are an extension of our monthly
sensitivity measures. There are three primary differences
between our monthly sensitivity disclosure and the quarterly
sensitivity disclosure presented below: (1) the quarterly
disclosure is expanded to include the sensitivity results for
larger rate level shocks of plus or minus 100 basis points;
(2) the monthly disclosure reflects the estimated pre-tax
impact on the market value of our net portfolio calculated based
on a daily average, while the quarterly disclosure reflects the
estimated pre-tax impact calculated based on the estimated
financial position of our net portfolio and the market
environment as of the last business day of the quarter; and
(3) the monthly disclosure shows the most adverse pre-tax
impact on the market value of our net portfolio from the
hypothetical interest rate shocks, while the quarterly
disclosure includes the estimated pre-tax impact of both up and
down interest rate shocks.
102
|
|
Table
49:
|
Interest
Rate Sensitivity of Net Portfolio to Changes in Interest Rate
Level and Slope of Yield
Curve(1)
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in billions)
|
|
|
Rate level shock:
|
|
|
|
|
|
|
|
|
-100 basis points
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
-50 basis points
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
+50 basis points
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
+100 basis points
|
|
|
(0.6
|
)
|
|
|
(0.9
|
)
|
Rate slope shock:
|
|
|
|
|
|
|
|
|
-25 basis points (flattening)
|
|
|
(0.0
|
)
|
|
|
(0.2
|
)
|
+25 basis points (steepening)
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
|
(1) |
|
Computed based on changes in LIBOR
swap rates.
|
The change in the sensitivities from December 31, 2009 to
June 30, 2010 reflects the decline in interest rates during
the first half of 2010 that reduced the sensitivity of
prepayable mortgage assets.
Duration
Gap
Duration measures the price sensitivity of our assets and
liabilities to changes in interest rates by quantifying the
difference between the estimated durations of our assets and
liabilities. Our duration gap analysis reflects the extent to
which the estimated maturity and repricing cash flows for our
assets are matched, on average, over time and across interest
rate scenarios to the estimated cash flows of our liabilities. A
positive duration indicates that the duration of our assets
exceeds the duration of our liabilities.
Table 50 presents our monthly effective duration gap from
December 2009 to June 2010. We also present the historical
average daily duration for the
30-year
Fannie Mae MBS component of the Barclays Capital
U.S. Aggregate index for the same months. As a result of
our rebalancing actions in response to movements in interest
rates, our duration gap is both lower than and less volatile
than the duration of the mortgage index as calculated by
Barclays Capital. We use duration hedges, including longer term
debt and interest rate swaps, to reduce the duration of our net
portfolio, and we use option-based hedges, including callable
debt and interest rate swaptions, to reduce the convexity, or
the duration changes, of our net portfolio as interest rates
move. Our duration gap also differs from the duration of the
mortgage index as calculated by Barclays Capital because
our mortgage portfolio includes mortgage assets that typically
have a duration shorter than 30 years, such as
adjustable-rate mortgage loans, as well as mortgage assets that
generally have a longer duration than the mortgage index, such
as multifamily loans and CMBS. In addition, the models we use to
estimate duration are different from those used by Barclays
Capital.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-Year Fannie Mae
|
|
|
|
Fannie Mae
|
|
|
Mortgage Index
|
|
|
|
Effective
|
|
|
Option Adjusted
|
|
Month
|
|
Duration Gap
|
|
|
Duration(1)
|
|
|
|
(In months)
|
|
|
December 2009
|
|
|
1
|
|
|
|
40
|
|
January 2010
|
|
|
1
|
|
|
|
43
|
|
February 2010
|
|
|
|
|
|
|
44
|
|
March 2010
|
|
|
(1
|
)
|
|
|
44
|
|
April 2010
|
|
|
(1
|
)
|
|
|
49
|
|
May 2010
|
|
|
(2
|
)
|
|
|
41
|
|
June 2010
|
|
|
|
|
|
|
35
|
|
|
|
|
(1) |
|
Reflects average daily
option-adjusted duration, expressed in months, based on the
30-year
Fannie Mae MBS component of the Barclays Capital U.S. Aggregate
index obtained from Barclays Capital Live.
|
103
Other
Interest Rate Risk Information
The interest rate risk measures discussed above exclude the
impact of changes in the fair value of our net guaranty assets
resulting from changes in interest rates. We exclude our
guaranty business from these sensitivity measures based on our
current assumption that the guaranty fee income generated from
future business activity will largely replace guaranty fee
income lost due to mortgage prepayments.
In MD&ARisk ManagementMarket Risk
Management, Including Interest Rate Risk
ManagementMeasurement of Interest Rate RiskOther
Interest Rate Risk Information in our 2009
Form 10-K,
we provided additional interest rate sensitivities including
separate disclosure of the potential impact on the fair value of
our trading assets, our net guaranty assets and obligations, and
our other financial instruments. As of June 30, 2010, these
sensitivities were relatively unchanged as compared with
December 31, 2009. Although fewer of our financial
instruments are designated as trading instruments as of
June 30, 2010 compared with December 31, 2009 due to
adopting the new accounting standards, there was no significant
change in our overall portfolio composition or risk profile and
the decrease in trading securities resulted in a decrease in the
interest rate sensitivity of those instruments. The fair value
of our trading financial instruments and our other financial
instruments as of June 30, 2010 and December 31, 2009
can be found in Note 16, Fair Value.
This report includes statements that constitute forward-looking
statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (Exchange Act). In
addition, our senior management may from time to time make
forward-looking statements orally to analysts, investors, the
news media and others. Forward-looking statements often include
words such as expect, anticipate,
intend, plan, believe,
seek, estimate, forecast,
project, would, should,
could, likely, may, or
similar words.
Among the forward-looking statements in this report are
statements relating to:
|
|
|
|
|
Our expectation that as our draws from Treasury for credit
losses abate, our draws instead will increasingly be driven by
dividend payments;
|
|
|
|
Our expectation that we have reserved for the substantial
majority of additional credit losses expected from loans we
purchased or guaranteed in 2005 through 2008 that we have not
yet realized;
|
|
|
|
Our belief that the losses we ultimately realize on certain
loans may be less than the losses we will have provided for in
our reserves due to accounting requirements;
|
|
|
|
Our expectation that the single-family loans we have purchased
or guaranteed in 2009 and 2010 will be profitable, and these
loans would become unprofitable if home prices declined more
than 20% from their June 2010 levels over the next five years
based on our home price index which would be an approximately
34% decline from their peak in the third quarter of 2006;
|
|
|
|
Our expectation that the loans we purchased or guaranteed from
2005 through 2008 will be unprofitable;
|
|
|
|
Our expectation that the loans we purchased or guaranteed in
2004 will perform close to break-even;
|
|
|
|
Our expectation that loans we have purchased or guaranteed since
the beginning of 2009 will generally remain in our guaranty book
of business for a relatively extended period of time;
|
104
|
|
|
|
|
Our belief that the LTV ratios at origination of loans we have
purchased or guaranteed in 2010 will be higher than in 2009 if
the volume of HARP loans continues at the current pace;
|
|
|
|
Our expectation that the overall credit profile of loans we
purchased or guaranteed in 2010 will remain significantly
stronger than the credit profile of loans from 2005 through 2008;
|
|
|
|
Our belief that our foreclosure alternatives are more likely to
be successful in reducing our loss severity if they are executed
expeditiously;
|
|
|
|
Our belief that valuations in the nonperforming loan market
understate the value of the nonperforming loans we expect to
realize;
|
|
|
|
Our belief that reducing delays and implementing workout
solutions that can be executed in a timely manner increase the
likelihood that our problem loan management strategies will be
successful in avoiding a default or minimizing severity;
|
|
|
|
Our expectation that we will continue to purchase loans from our
single-family MBS trusts as they become four or more consecutive
monthly payments delinquent;
|
|
|
|
Our expectation that home prices on a national basis will
decline slightly in 2010 before stabilizing, and that the
peak-to-trough
home price decline on a national basis will range between 18%
and 25%;
|
|
|
|
Our expectation that the weakness in the housing and mortgage
markets will continue throughout 2010;
|
|
|
|
Our expectation that the decline in residential mortgage debt
outstanding will continue through 2010;
|
|
|
|
Our expectation that the pace of home sales will slow
substantially in the third quarter and be relatively flat for
all of 2010;
|
|
|
|
Our expectation that the actions we take to stabilize the
housing market and minimize our credit losses will continue to
have, at least in the short term, a material adverse effect on
our results of operations and financial condition, including our
net worth;
|
|
|
|
Our expectation that our REO inventory will continue to increase
significantly throughout 2010;
|
|
|
|
Our expectation that during 2010 default and severity rates will
remain high;
|
|
|
|
Our expectation that home prices on a national basis will
decline slightly in 2010 and into 2011 before stabilizing;
|
|
|
|
Our expectation that the level of multifamily defaults and
serious delinquencies will increase further during 2010;
|
|
|
|
Our expectation that our credit-related expenses will remain
high in 2010, but that if current trends continue, our credit
related expenses in 2010 will be lower than in 2009;
|
|
|
|
Our expectation that we will not earn profits in excess of our
annual dividend obligation to Treasury for the indefinite future;
|
|
|
|
Our expectation that we will not generate sufficient taxable
income for the foreseeable future to realize our net deferred
tax assets;
|
105
|
|
|
|
|
Our expectation that our single-family loss reserve for
individually impaired loans will continue to grow in conjunction
with our loan modification efforts;
|
|
|
|
Our intention to maximize the value of distressed loans over
time, utilizing loan modification, foreclosure, repurchases and
other preferable loss mitigation actions that to date have
resulted in per loan net recoveries materially higher than those
that would have been available had they been sold in the
distressed loan market;
|
|
|
|
Our intention to repay our short-term and long-term debt
obligations as they become due primarily through proceeds from
the issuance of additional debt securities and through funds we
receive from Treasury;
|
|
|
|
Our expectation that our acquisitions of Alt-A mortgage loans
will be minimal in future periods, and that the percentage of
the book of business attributable to Alt-A mortgage loans will
decrease over time;
|
|
|
|
Our intention, as part of our Loan Quality Initiative, to
validate certain borrower and property information and collect
additional property and appraisal data at the time of delivery
of mortgage loans;
|
|
|
|
Our expectation that the volume of our foreclosure alternatives,
primarily preforeclosure sales and
deeds-in-lieu
of foreclosure, will remain high throughout 2010;
|
|
|
|
Our expectation of an increase in the number of loan workouts
during 2010, including modifications both under HAMP and outside
the program;
|
|
|
|
Our expectation that our foreclosures will increase during the
remainder of 2010;
|
|
|
|
Our expectation that the amount of our outstanding repurchase
and reimbursement requests will remain high throughout 2010;
|
|
|
|
Our expectation that, given the stressed financial condition of
many of our lenders, in some cases we will recover less, perhaps
significantly less, than the amount the lender is obligated to
provide us;
|
|
|
|
Our expectation that our credit exposure on derivative contracts
will fluctuate with changes in interest rates, implied
volatility and the collateral thresholds of counterparties;
|
|
|
|
Our expectation that we will not realize credit losses on the
vast majority of our mortgage revenue bonds due to the inherent
financial strength of the issuers, or in some cases, the amount
of external credit support from mortgage collateral or financial
guarantees;
|
|
|
|
Our expectation that we will continue to experience substantial
deterioration in the credit performance of mortgage loans that
we own or that back our guaranteed Fannie Mae MBS, which we
expect to result in additional credit-related expenses;
|
|
|
|
Our belief that we can reduce our credit losses by minimizing
delays through repayment plans, short-term forbearances and loan
modifications to prevent defaults when completed at an early
stage of delinquency;
|
|
|
|
Our belief that continued federal government support of our
business and the financial markets, as well as our status as a
GSE, are essential to maintaining our access to debt funding;
|
|
|
|
Our belief that we have limited credit exposure on our
government loans;
|
|
|
|
Our projection that we will not be required to sell AFS
securities and we will recover unrealized losses over the lives
of the security;
|
106
|
|
|
|
|
Our expectation that hearings on GSE reform will continue and
additional proposals will be discussed;
|
|
|
|
Our expectation that we will continue to have a net worth
deficit in future periods;
|
|
|
|
Our expectation that, given the significant seasoning of our
manufactured housing securities, their future performance will
be in line with how the securities are currently performing;
|
|
|
|
Our intention to complete implementation and remediation of our
material weakness in our change management process by
December 31, 2010;
|
|
|
|
Our belief that if FHA continues to be the lower-cost option for
loans with higher LTV ratios, our market share could be
adversely impacted if the market shifts away from refinance
activity, which is likely when interest rates rise; and
|
|
|
|
Our belief that one or more of our financial guarantor
counterparties may not be able to fully meet their obligations
to us in the future.
|
Forward-looking statements reflect our managements
expectations, forecasts or predictions of future conditions,
events or results based on various assumptions and
managements estimates of trends and economic factors in
the markets in which we are active, as well as our business
plans. They are not guarantees of future performance. By their
nature, forward-looking statements are subject to risks and
uncertainties. Our actual results and financial condition may
differ, possibly materially, from the anticipated results and
financial condition indicated in these forward-looking
statements. There are a number of factors that could cause
actual conditions, events or results to differ materially from
those described in the forward-looking statements contained in
this report, including, but not limited to the following: the
adequacy of credit reserves; our ability to maintain a positive
net worth; effects from activities we undertake to support the
mortgage market and help borrowers, and actions we take to
reduce credit losses; social behaviors; the conservatorship and
its effect on our business; the investment by Treasury and its
effect on our business; future accounting standards; changes in
the structure and regulation of the financial services industry;
our ability to access the debt capital markets; further
disruptions in the housing, credit and stock markets and other
macroeconomic conditions; the level and volatility of interest
rates and credit spreads; pending government investigations and
litigation; the accuracy of subjective estimates used in
critical accounting policies; and those factors described in
this report and in our 2009
Form 10-K,
including those factors described under the heading Risk
Factors, and in this report under Executive
SummaryOur Mission, Objectives and StrategyThe
performance of single-family loans acquired beginning in 2009
and our expectation regarding future credit lossesFactors
that could cause actual results to be materially different from
our estimates and expectations.
Readers are cautioned to place forward-looking statements in
this report or that we make from time to time into proper
context by carefully considering the factors described under the
heading Risk Factors in our 2009
Form 10-K
or in this report. Our forward-looking statements speak only as
of the date they are made, and we undertake no obligation to
update any forward-looking statement because of new information,
future events or otherwise, except as required under the federal
securities laws.
107
|
|
Item 1.
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and cash equivalents (includes cash of consolidated trusts
of $526 and $2,092, respectively)
|
|
$
|
27,844
|
|
|
$
|
6,812
|
|
Restricted cash (includes restricted cash of consolidated trusts
of $35,376 and $-, respectively)
|
|
|
38,855
|
|
|
|
3,070
|
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
37,608
|
|
|
|
53,684
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
Trading, at fair value (includes securities of consolidated
trusts of $23 and $5,599, respectively)
|
|
|
77,353
|
|
|
|
111,939
|
|
Available-for-sale,
at fair value (includes securities of consolidated trusts of
$611 and $10,513, respectively, and securities pledged as
collateral that may be sold or repledged of $- and $1,148,
respectively)
|
|
|
105,660
|
|
|
|
237,728
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
|
183,013
|
|
|
|
349,667
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of cost or fair value
|
|
|
1,025
|
|
|
|
18,462
|
|
Loans held for investment, at amortized cost
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
405,998
|
|
|
|
256,434
|
|
Of consolidated trusts (includes loans pledged as collateral
that may be sold or repledged of $2,846 and $1,947, respectively)
|
|
|
2,574,018
|
|
|
|
129,590
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
|
2,980,016
|
|
|
|
386,024
|
|
Allowance for loan losses
|
|
|
(60,582
|
)
|
|
|
(9,925
|
)
|
|
|
|
|
|
|
|
|
|
Total loans held for investment, net of allowance
|
|
|
2,919,434
|
|
|
|
376,099
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
2,920,459
|
|
|
|
394,561
|
|
Advances to lenders
|
|
|
4,849
|
|
|
|
5,449
|
|
Accrued interest receivable:
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
6,793
|
|
|
|
3,774
|
|
Of consolidated trusts
|
|
|
9,851
|
|
|
|
519
|
|
Allowance for accrued interest receivable
|
|
|
(4,784
|
)
|
|
|
(536
|
)
|
|
|
|
|
|
|
|
|
|
Total accrued interest receivable, net of allowance
|
|
|
11,860
|
|
|
|
3,757
|
|
|
|
|
|
|
|
|
|
|
Acquired property, net
|
|
|
14,021
|
|
|
|
9,142
|
|
Derivative assets, at fair value
|
|
|
1,224
|
|
|
|
1,474
|
|
Guaranty assets
|
|
|
427
|
|
|
|
8,356
|
|
Deferred tax assets, net
|
|
|
1,012
|
|
|
|
909
|
|
Partnership investments
|
|
|
1,820
|
|
|
|
2,372
|
|
Servicer and MBS trust receivable
|
|
|
991
|
|
|
|
18,329
|
|
Other assets
|
|
|
12,284
|
|
|
|
11,559
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,256,267
|
|
|
$
|
869,141
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest payable:
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
$
|
4,517
|
|
|
$
|
4,951
|
|
Of consolidated trusts
|
|
|
9,956
|
|
|
|
29
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
142
|
|
|
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
256,066
|
|
|
|
200,437
|
|
Of consolidated trusts
|
|
|
5,987
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Of Fannie Mae (includes debt at fair value of $3,264 and $3,274,
respectively)
|
|
|
586,437
|
|
|
|
567,950
|
|
Of consolidated trusts (includes debt at fair value of $311 and
$-, respectively)
|
|
|
2,376,774
|
|
|
|
6,167
|
|
Derivative liabilities, at fair value
|
|
|
1,693
|
|
|
|
1,029
|
|
Reserve for guaranty losses (includes $29 and $4,772,
respectively, related to Fannie Mae MBS included in Investments
in securities)
|
|
|
246
|
|
|
|
54,430
|
|
Guaranty obligations
|
|
|
765
|
|
|
|
13,996
|
|
Partnership liabilities
|
|
|
1,884
|
|
|
|
2,541
|
|
Servicer and MBS trust payable
|
|
|
4,420
|
|
|
|
25,872
|
|
Other liabilities
|
|
|
8,791
|
|
|
|
7,020
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,257,678
|
|
|
|
884,422
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Fannie Mae stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Senior preferred stock, 1,000,000 shares issued and
outstanding
|
|
|
84,600
|
|
|
|
60,900
|
|
Preferred stock, 700,000,000 shares are
authorized578,389,726 and 579,735,457 shares both
issued
|
|
|
|
|
|
|
|
|
and outstanding, respectively
|
|
|
20,280
|
|
|
|
20,348
|
|
Common stock, no par value, no maximum
authorization1,267,748,253 and 1,265,674,761 shares
|
|
|
|
|
|
|
|
|
issued, respectively; 1,116,149,329 and
1,113,358,051 shares outstanding, respectively
|
|
|
666
|
|
|
|
664
|
|
Additional paid-in capital
|
|
|
|
|
|
|
2,083
|
|
Accumulated deficit
|
|
|
(97,544
|
)
|
|
|
(90,237
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,084
|
)
|
|
|
(1,732
|
)
|
Treasury stock, at cost, 151,598,924 and
152,316,710 shares, respectively
|
|
|
(7,400
|
)
|
|
|
(7,398
|
)
|
|
|
|
|
|
|
|
|
|
Total Fannie Mae stockholders deficit
|
|
|
(1,482
|
)
|
|
|
(15,372
|
)
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
71
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Total deficit
|
|
|
(1,411
|
)
|
|
|
(15,281
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity (deficit)
|
|
$
|
3,256,267
|
|
|
$
|
869,141
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
330
|
|
|
$
|
923
|
|
|
$
|
645
|
|
|
$
|
1,913
|
|
Available-for-sale
securities
|
|
|
1,389
|
|
|
|
3,307
|
|
|
|
2,862
|
|
|
|
7,028
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
3,950
|
|
|
|
4,392
|
|
|
|
7,248
|
|
|
|
9,099
|
|
Of consolidated trusts
|
|
|
33,682
|
|
|
|
1,219
|
|
|
|
68,003
|
|
|
|
2,110
|
|
Other
|
|
|
41
|
|
|
|
139
|
|
|
|
80
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
39,392
|
|
|
|
9,980
|
|
|
|
78,838
|
|
|
|
20,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
164
|
|
|
|
600
|
|
|
|
280
|
|
|
|
1,707
|
|
Of consolidated trusts
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
4,975
|
|
|
|
5,560
|
|
|
|
10,056
|
|
|
|
11,552
|
|
Of consolidated trusts
|
|
|
30,043
|
|
|
|
85
|
|
|
|
61,501
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
35,185
|
|
|
|
6,245
|
|
|
|
71,842
|
|
|
|
13,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,207
|
|
|
|
3,735
|
|
|
|
6,996
|
|
|
|
6,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(4,295
|
)
|
|
|
(2,615
|
)
|
|
|
(16,234
|
)
|
|
|
(5,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(88
|
)
|
|
|
1,120
|
|
|
|
(9,238
|
)
|
|
|
1,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee income (includes imputed interest of $30 and $321
for the three months ended June 30, 2010 and 2009,
respectively, and $59 and $471 for the six months ended
June 30, 2010 and 2009, respectively)
|
|
|
52
|
|
|
|
1,659
|
|
|
|
106
|
|
|
|
3,411
|
|
Investment gains (losses), net
|
|
|
23
|
|
|
|
(45
|
)
|
|
|
189
|
|
|
|
178
|
|
Other-than-temporary
impairments
|
|
|
(48
|
)
|
|
|
(1,097
|
)
|
|
|
(234
|
)
|
|
|
(6,750
|
)
|
Noncredit portion of
other-than-temporary
impairments recognized in other comprehensive loss
|
|
|
(89
|
)
|
|
|
344
|
|
|
|
(139
|
)
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
other-than-temporary
impairments
|
|
|
(137
|
)
|
|
|
(753
|
)
|
|
|
(373
|
)
|
|
|
(6,406
|
)
|
Fair value gains (losses), net
|
|
|
303
|
|
|
|
823
|
|
|
|
(1,402
|
)
|
|
|
(637
|
)
|
Debt extinguishment losses, net (includes debt extinguishment
losses related to consolidated trusts of $31 and $100 for the
three months and six months ended June 30, 2010,
respectively)
|
|
|
(159
|
)
|
|
|
(190
|
)
|
|
|
(283
|
)
|
|
|
(269
|
)
|
Losses from partnership investments
|
|
|
(26
|
)
|
|
|
(571
|
)
|
|
|
(84
|
)
|
|
|
(928
|
)
|
Fee and other income
|
|
|
242
|
|
|
|
197
|
|
|
|
421
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss)
|
|
|
298
|
|
|
|
1,120
|
|
|
|
(1,426
|
)
|
|
|
(4,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
324
|
|
|
|
245
|
|
|
|
648
|
|
|
|
538
|
|
Professional services
|
|
|
260
|
|
|
|
180
|
|
|
|
454
|
|
|
|
323
|
|
Occupancy expenses
|
|
|
40
|
|
|
|
46
|
|
|
|
81
|
|
|
|
94
|
|
Other administrative expenses
|
|
|
46
|
|
|
|
39
|
|
|
|
92
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total administrative expenses
|
|
|
670
|
|
|
|
510
|
|
|
|
1,275
|
|
|
|
1,033
|
|
Provision for guaranty losses
|
|
|
69
|
|
|
|
15,610
|
|
|
|
33
|
|
|
|
33,435
|
|
Foreclosed property expense
|
|
|
487
|
|
|
|
559
|
|
|
|
468
|
|
|
|
1,097
|
|
Other expenses
|
|
|
198
|
|
|
|
318
|
|
|
|
370
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,424
|
|
|
|
16,997
|
|
|
|
2,146
|
|
|
|
36,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income taxes
|
|
|
(1,214
|
)
|
|
|
(14,757
|
)
|
|
|
(12,810
|
)
|
|
|
(38,565
|
)
|
Provision (benefit) for federal income taxes
|
|
|
9
|
|
|
|
23
|
|
|
|
(58
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,223
|
)
|
|
|
(14,780
|
)
|
|
|
(12,752
|
)
|
|
|
(37,965
|
)
|
Less: Net loss attributable to the noncontrolling interest
|
|
|
5
|
|
|
|
26
|
|
|
|
4
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Fannie Mae
|
|
|
(1,218
|
)
|
|
|
(14,754
|
)
|
|
|
(12,748
|
)
|
|
|
(37,922
|
)
|
Preferred stock dividends
|
|
|
(1,907
|
)
|
|
|
(411
|
)
|
|
|
(3,434
|
)
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,125
|
)
|
|
$
|
(15,165
|
)
|
|
$
|
(16,182
|
)
|
|
$
|
(38,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per shareBasic and Diluted
|
|
$
|
(0.55
|
)
|
|
$
|
(2.67
|
)
|
|
$
|
(2.84
|
)
|
|
$
|
(6.76
|
)
|
Weighted-average common shares outstandingBasic and Diluted
|
|
|
5,694
|
|
|
|
5,681
|
|
|
|
5,693
|
|
|
|
5,674
|
|
See Notes to Condensed Consolidated Financial Statements
109
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,752
|
)
|
|
$
|
(37,965
|
)
|
Reconciliation of net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Amortization of debt of Fannie Mae cost basis adjustments
|
|
|
776
|
|
|
|
2,176
|
|
Amortization of debt of consolidated trusts cost basis
adjustments
|
|
|
(277
|
)
|
|
|
(4
|
)
|
Provision for loan and guaranty losses
|
|
|
16,267
|
|
|
|
38,559
|
|
Valuation (gains) losses
|
|
|
(1,517
|
)
|
|
|
4,537
|
|
Current and deferred federal income taxes
|
|
|
282
|
|
|
|
(1,690
|
)
|
Derivatives fair value adjustments
|
|
|
1,003
|
|
|
|
(1,045
|
)
|
Purchases of loans held for sale
|
|
|
(38
|
)
|
|
|
(72,172
|
)
|
Proceeds from repayments of loans held for sale
|
|
|
29
|
|
|
|
1,204
|
|
Net change in trading securities, excluding non-cash transfers
|
|
|
(41,797
|
)
|
|
|
3,165
|
|
Other, net
|
|
|
(11,615
|
)
|
|
|
(4,302
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(49,639
|
)
|
|
|
(67,537
|
)
|
Cash flows provided by investing activities:
|
|
|
|
|
|
|
|
|
Purchases of trading securities held for investment
|
|
|
(7,887
|
)
|
|
|
|
|
Proceeds from maturities of trading securities held for
investment
|
|
|
1,398
|
|
|
|
6,076
|
|
Proceeds from sales of trading securities held for investment
|
|
|
20,442
|
|
|
|
1,313
|
|
Purchases of
available-for-sale
securities
|
|
|
(601
|
)
|
|
|
(108,105
|
)
|
Proceeds from maturities of
available-for-sale
securities
|
|
|
9,022
|
|
|
|
23,705
|
|
Proceeds from sales of
available-for-sale
securities
|
|
|
8,468
|
|
|
|
168,933
|
|
Purchases of loans held for investment
|
|
|
(32,769
|
)
|
|
|
(19,322
|
)
|
Proceeds from repayments of loans held for investment of Fannie
Mae
|
|
|
8,491
|
|
|
|
20,904
|
|
Proceeds from repayments of loans held for investment of
consolidated trusts
|
|
|
229,661
|
|
|
|
11,523
|
|
Net change in restricted cash
|
|
|
9,798
|
|
|
|
|
|
Advances to lenders
|
|
|
(23,131
|
)
|
|
|
(53,646
|
)
|
Proceeds from disposition of acquired property
|
|
|
17,693
|
|
|
|
9,873
|
|
Net change in federal funds sold and securities purchased under
agreements to resell or similar arrangements
|
|
|
15,618
|
|
|
|
32,147
|
|
Other, net
|
|
|
(627
|
)
|
|
|
(9,380
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
255,576
|
|
|
|
84,021
|
|
Cash flows used in financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of short-term debt of Fannie Mae
|
|
|
394,719
|
|
|
|
747,971
|
|
Proceeds from issuance of short-term debt of consolidated trusts
|
|
|
5,902
|
|
|
|
|
|
Payments to redeem short-term debt of Fannie Mae
|
|
|
(339,366
|
)
|
|
|
(820,868
|
)
|
Payments to redeem short-term debt of consolidated trusts
|
|
|
(18,121
|
)
|
|
|
|
|
Proceeds from issuance of long-term debt of Fannie Mae
|
|
|
197,771
|
|
|
|
187,269
|
|
Proceeds from issuance of long-term debt of consolidated trusts
|
|
|
128,067
|
|
|
|
8
|
|
Payments to redeem long-term debt of Fannie Mae
|
|
|
(180,058
|
)
|
|
|
(153,991
|
)
|
Payments to redeem long-term debt of consolidated trusts
|
|
|
(394,225
|
)
|
|
|
(273
|
)
|
Payments of cash dividends on senior preferred stock to Treasury
|
|
|
(3,436
|
)
|
|
|
(434
|
)
|
Proceeds from senior preferred stock purchase agreement with
Treasury
|
|
|
23,700
|
|
|
|
34,200
|
|
Net change in federal funds purchased and securities sold under
agreements to repurchase
|
|
|
142
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(184,905
|
)
|
|
|
(6,183
|
)
|
Net increase in cash and cash equivalents
|
|
|
21,032
|
|
|
|
10,301
|
|
Cash and cash equivalents at beginning of period
|
|
|
6,812
|
|
|
|
17,933
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
27,844
|
|
|
$
|
28,234
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
73,125
|
|
|
$
|
15,430
|
|
Income taxes
|
|
|
|
|
|
|
848
|
|
Non-cash activities (excluding transition-related
impactssee Note 2):
|
|
|
|
|
|
|
|
|
Mortgage loans acquired by assuming debt
|
|
$
|
199,498
|
|
|
$
|
13
|
|
Net transfers from mortgage loans held for investment of
consolidated trusts to mortgage loans held for investment of
Fannie Mae
|
|
|
142,034
|
|
|
|
|
|
Transfers from advances to lenders to investments in securities
|
|
|
|
|
|
|
38,943
|
|
Transfers from advances to lenders to loans held for investment
of consolidated trusts
|
|
|
22,441
|
|
|
|
|
|
Net transfers from mortgage loans to acquired property
|
|
|
32,391
|
|
|
|
2,211
|
|
See Notes to Condensed Consolidated Financial Statements
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
Non
|
|
|
Total
|
|
|
|
Senior
|
|
|
|
|
|
|
|
|
Senior
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Controlling
|
|
|
Equity
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Preferred
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Loss
|
|
|
Stock
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
Balance as of December 31, 2008
|
|
|
1
|
|
|
|
597
|
|
|
|
1,085
|
|
|
$
|
1,000
|
|
|
$
|
21,222
|
|
|
$
|
650
|
|
|
$
|
3,621
|
|
|
$
|
(26,790
|
)
|
|
$
|
(7,673
|
)
|
|
$
|
(7,344
|
)
|
|
$
|
157
|
|
|
$
|
(15,157
|
)
|
Cumulative effect from the adoption of a new accounting standard
on
other-than-temporary
impairments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,520
|
|
|
|
(5,556
|
)
|
|
|
|
|
|
|
|
|
|
|
2,964
|
|
Change in investment in noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,922
|
)
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
(37,965
|
)
|
Other comprehensive loss, net of tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized losses on
available-for-sale
securities (net of tax of $790)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,467
|
|
|
|
|
|
|
|
|
|
|
|
1,467
|
|
Reclassification adjustment for
other-than-temporary
impairments recognized in net loss (net of tax of $2,263)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,142
|
|
|
|
|
|
|
|
|
|
|
|
4,142
|
|
Reclassification adjustment for losses included in net loss (net
of tax of $46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
Unrealized gains on guaranty assets and guaranty fee
buy-ups
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Amortization of net cash flow hedging gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Prior service cost and actuarial gains, net of amortization for
defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,165
|
)
|
Senior preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
Increase to senior preferred liquidation preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,200
|
|
Conversion of convertible preferred stock into common stock
|
|
|
|
|
|
|
(15
|
)
|
|
|
23
|
|
|
|
|
|
|
|
(736
|
)
|
|
|
12
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
1
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009
|
|
|
1
|
|
|
|
582
|
|
|
|
1,109
|
|
|
$
|
35,200
|
|
|
$
|
20,486
|
|
|
$
|
662
|
|
|
$
|
3,947
|
|
|
$
|
(56,191
|
)
|
|
$
|
(7,429
|
)
|
|
$
|
(7,385
|
)
|
|
$
|
108
|
|
|
$
|
(10,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
1
|
|
|
|
580
|
|
|
|
1,113
|
|
|
$
|
60,900
|
|
|
$
|
20,348
|
|
|
$
|
664
|
|
|
$
|
2,083
|
|
|
$
|
(90,237
|
)
|
|
$
|
(1,732
|
)
|
|
$
|
(7,398
|
)
|
|
$
|
91
|
|
|
$
|
(15,281
|
)
|
Cumulative effect from the adoption of the accounting standards
on transfers of financial assets and consolidation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,706
|
|
|
|
(3,394
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2010, adjusted
|
|
|
1
|
|
|
|
580
|
|
|
|
1,113
|
|
|
|
60,900
|
|
|
|
20,348
|
|
|
|
664
|
|
|
|
2,083
|
|
|
|
(83,531
|
)
|
|
|
(5,126
|
)
|
|
|
(7,398
|
)
|
|
|
77
|
|
|
|
(11,983
|
)
|
Change in investment in noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,748
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(12,752
|
)
|
Other comprehensive loss, net of tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized losses on
available-for-sale
securities, (net of tax of $1,509)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,802
|
|
|
|
|
|
|
|
|
|
|
|
2,802
|
|
Reclassification adjustment for
other-than-temporary
impairments recognized in net loss (net of tax of $126)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
Reclassification adjustment for gains included in net loss (net
of tax of $6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Unrealized gains on guaranty assets and guaranty fee
buy-ups
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Prior service cost and actuarial gains, net of amortization for
defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,710
|
)
|
Senior preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,171
|
)
|
|
|
(1,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,436
|
)
|
Increase to senior preferred liquidation preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,700
|
|
Conversion of convertible preferred stock into common stock
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
2
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2010
|
|
|
1
|
|
|
|
578
|
|
|
|
1,116
|
|
|
$
|
84,600
|
|
|
$
|
20,280
|
|
|
$
|
666
|
|
|
$
|
|
|
|
$
|
(97,544
|
)
|
|
$
|
(2,084
|
)
|
|
$
|
(7,400
|
)
|
|
$
|
71
|
|
|
$
|
(1,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
111
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Organization
We are a stockholder-owned corporation organized and existing
under the Federal National Mortgage Association Charter Act (the
Charter Act or our charter). We are a
government-sponsored enterprise (GSE), and we are
subject to government oversight and regulation. Our regulators
include the Federal Housing Finance Agency (FHFA),
the U.S. Department of Housing and Urban Development
(HUD), the U.S. Securities and Exchange
Commission (SEC), and the U.S. Department of
the Treasury (Treasury). Through July 29, 2008,
we were regulated by the Office of Federal Housing Enterprise
Oversight (OFHEO), which was replaced on
July 30, 2008 with FHFA upon the enactment of the Federal
Housing Finance Regulatory Reform Act of 2008 (2008 Reform
Act). The U.S. government does not guarantee our
securities or other obligations.
Conservatorship
On September 7, 2008, the Secretary of the Treasury and the
Director of FHFA announced several actions taken by Treasury and
FHFA regarding Fannie Mae, which included: (1) placing us
in conservatorship; (2) the execution of a senior preferred
stock purchase agreement by our conservator, on our behalf, and
Treasury, pursuant to which we issued to Treasury both senior
preferred stock and a warrant to purchase common stock; and
(3) Treasurys agreement to establish a temporary
secured lending credit facility that was available to us and the
other GSEs regulated by FHFA under identical terms until
December 31, 2009.
Under the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended by the 2008 Reform Act,
(together, the GSE Act), the conservator immediately
succeeded to all rights, titles, powers and privileges of Fannie
Mae, and of any stockholder, officer or director of Fannie Mae
with respect to Fannie Mae and its assets, and succeeded to the
title to the books, records and assets of any other legal
custodian of Fannie Mae. FHFA, in its role as conservator, has
overall management authority over our business. The conservator
has since delegated specified authorities to our Board of
Directors and has delegated to management the authority to
conduct our
day-to-day
operations. The conservator retains the authority to withdraw
its delegations at any time.
We were directed by FHFA to voluntarily delist our common stock
and each listed series of our preferred stock from the New York
Stock Exchange and the Chicago Stock Exchange. The last trading
day for the listed securities on the New York Stock Exchange and
the Chicago Stock Exchange was July 7, 2010, and since
July 8, 2010, the securities have been quoted on the
over-the-counter
market.
As of August 5, 2010, the conservator has advised us that
it has not disaffirmed or repudiated any contracts we entered
into prior to its appointment as conservator. The GSE Act
requires FHFA to exercise its right to disaffirm or repudiate
most contracts within a reasonable period of time after its
appointment as conservator. FHFAs proposed rule on
conservatorship and receivership operations, published on
July 9, 2010, defines reasonable period as a
period of 18 months following the appointment of a
conservator or receiver.
The conservator has the power to transfer or sell any asset or
liability of Fannie Mae (subject to limitations and
post-transfer notice provisions for transfers of qualified
financial contracts) without any approval, assignment of rights
or consent of any party. The GSE Act, however, provides that
mortgage loans and mortgage-related assets that have been
transferred to a Fannie Mae MBS trust must be held by the
conservator
112
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
for the beneficial owners of the Fannie Mae MBS and cannot be
used to satisfy the general creditors of the company. As of
August 5, 2010, FHFA has not exercised this power.
Neither the conservatorship nor the terms of our agreements with
Treasury changes our obligation to make required payments on our
debt securities or perform under our mortgage guaranty
obligations.
The conservatorship has no specified termination date and the
future structure of our business following termination of the
conservatorship is uncertain. We do not know when or how the
conservatorship will be terminated or what changes to our
business structure will be made during or following the
termination of the conservatorship. We do not know whether we
will exist in the same or a similar form or continue to conduct
our business as we did before the conservatorship, or whether
the conservatorship will end in receivership. Under the GSE Act,
FHFA must place us into receivership if the Director of FHFA
makes a written determination that our assets are less than our
obligations (that is, we have a net worth deficit) or if we have
not been paying our debts, in either case, for a period of
60 days. In addition, the Director of FHFA may place us in
receivership at his discretion at any time for other reasons,
including conditions that FHFA has already asserted existed at
the time the Director of FHFA placed us into conservatorship.
Placement into receivership would have a material adverse effect
on holders of our common stock, preferred stock, debt securities
and Fannie Mae MBS. Should we be placed into receivership,
different assumptions would be required to determine the
carrying value of our assets, which could lead to substantially
different financial results.
Impact
of U.S. Government Support
We are dependent upon the continued support of Treasury to
eliminate our net worth deficit, which avoids our being placed
into receivership. Based on consideration of all the relevant
conditions and events affecting our operations, including our
dependence on the U.S. Government, we continue to operate
as a going concern and in accordance with our delegation of
authority from FHFA.
Pursuant to the amended senior preferred stock purchase
agreement, Treasury has committed to provide us with funding as
needed to help us maintain a positive net worth thereby avoiding
the mandatory receivership trigger described above. We have
received a total of $83.6 billion to date under
Treasurys funding commitment and the Acting Director of
FHFA has submitted a request for an additional $1.5 billion
from Treasury to eliminate our net worth deficit as of
June 30, 2010. The aggregate liquidation preference of the
senior preferred stock was $84.6 billion as of
June 30, 2010 and will increase to $86.1 billion as a
result of FHFAs request on our behalf for funds to
eliminate our net worth deficit as of June 30, 2010.
We fund our business primarily through the issuance of
short-term and long-term debt securities in the domestic and
international capital markets. Because debt issuance is our
primary funding source, we are subject to roll-over,
or refinancing, risk on our outstanding debt. Our roll-over risk
increases when our outstanding short-term debt increases as a
percentage of our total outstanding debt. Our ability to issue
long-term debt has been strong in recent quarters primarily due
to actions taken by the federal government, to support us and
the financial markets. Many of these programs initiated by the
federal government, however, have expired. The Treasury credit
facility and Treasury MBS purchase program terminated on
December 31, 2009. The Federal Reserves agency debt
and MBS purchase programs expired on March 31, 2010.
Despite the expiration of these programs, demand for our
long-term debt securities continues to be strong.
We believe that continued federal government support of our
business and the financial markets, as well as our status as a
GSE, are essential to maintaining our access to debt funding.
Changes or perceived changes in the
113
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
governments support could increase our roll-over risk and
materially adversely affect our ability to refinance our debt as
it becomes due, which could have a material adverse impact on
our liquidity, financial condition and results of operations. In
addition, future changes or disruptions in the financial markets
could significantly change the amount, mix and cost of funds we
obtain, which also could increase our liquidity and roll-over
risk and have a material adverse impact on our liquidity,
financial condition and results of operations.
In February 2010, the Obama Administration stated in its fiscal
year 2011 budget proposal that it was continuing to monitor the
situation of Fannie Mae, Freddie Mac and the Federal Home Loan
Bank System and would continue to provide updates on
considerations for longer-term reform of Fannie Mae and Freddie
Mac as appropriate. These considerations may have a material
impact on our ability to issue debt or refinance existing debt
as it becomes due and hinder our ability to continue as a going
concern. In April 2010, the Obama Administration released seven
broad questions for public comment on the future of the housing
finance system, including Fannie Mae and Freddie Mac; the
comment period ended on July 21, 2010. Under the
Wall Street Reform Act, Treasury is required to submit a
report to Congress by January 31, 2011, with
recommendations for ending the conservatorship of Fannie Mae and
Freddie Mac, while minimizing the cost to taxpayers.
Basis
of Presentation
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP) for interim financial information and
with the SECs instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and note
disclosures required by GAAP for complete consolidated financial
statements. In the opinion of management, all adjustments of a
normal recurring nature considered necessary for a fair
presentation have been included. Results for the three and six
months ended June 30, 2010 may not necessarily be
indicative of the results for the year ending December 31,
2010. The unaudited interim condensed consolidated financial
statements as of June 30, 2010 and our consolidated
financial statements as of December 31, 2009 should be read
in conjunction with our audited consolidated financial
statements and related notes included in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (2009
Form 10-K),
filed with the SEC on February 26, 2010.
Related
Parties
As a result of our issuance to Treasury of the warrant to
purchase shares of Fannie Mae common stock equal to 79.9% of the
total number of shares of Fannie Mae common stock, we and the
Treasury are deemed related parties. As of June 30, 2010,
Treasury held an investment in our senior preferred stock with a
liquidation preference of $84.6 billion. During 2009,
Treasury engaged us to serve as program administrator for the
Home Affordable Modification Program.
In addition, in 2009, we entered into a memorandum of
understanding with Treasury, FHFA and Freddie Mac in which we
agreed to provide assistance to state and local housing finance
agencies (HFAs) through three separate assistance
programs: a temporary credit and liquidity facilities
(TCLF) program, a new issue bond (NIB)
program and a multifamily credit enhancement program.
Under the TCLF program, we have $3.8 billion and
$870 million outstanding, which includes principal and
interest, of three-year standby credit and liquidity support as
of June 30, 2010 and December 31, 2009, respectively.
Treasury has purchased participating interests in these
temporary credit and liquidity facilities.
114
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Under the NIB program, we have $7.6 billion and
$3.5 billion outstanding of pass-through securities backed
by single-family and multifamily housing bonds issued by HFAs as
of June 30, 2010 and December 31, 2009, respectively.
Treasury bears the initial loss of principal under the TCLF
program and the NIB program up to 35% of the total principal on
a combined program-wide basis. We are not participating in the
multifamily credit enhancement program.
FHFAs control of both us and Freddie Mac has caused us and
Freddie Mac to be related parties. No transactions outside of
normal business activities have occurred between us and Freddie
Mac. As of June 30, 2010 and December 31, 2009, we
held Freddie Mac mortgage-related securities with a fair value
of $22.5 billion and $42.6 billion, respectively, and
accrued interest receivable of $121 million and
$230 million, respectively. We recognized interest income
on Freddie Mac mortgage-related securities held by us of
$277 million and $408 million for the three months
ended June 30, 2010 and 2009, respectively, and
$612 million and $815 million for the six months ended
June 30, 2010 and 2009, respectively.
Use of
Estimates
Preparing condensed consolidated financial statements in
accordance with GAAP requires management to make estimates and
assumptions that affect our reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities
as of the dates of our condensed consolidated financial
statements, as well as our reported amounts of revenues and
expenses during the reporting periods. Management has made
significant estimates in a variety of areas including, but not
limited to, valuation of certain financial instruments and other
assets and liabilities, the allowance for loan losses and
reserve for guaranty losses, and
other-than-temporary
impairment of investment securities. Actual results could be
different from these estimates. In the second quarter of 2010,
we updated our allowance for loan loss model to reflect a change
in our cohort structure for our severity calculations which
resulted in a change in estimate and a decrease in our allowance
for loan losses of approximately $1.6 billion.
Principles
of Consolidation
Our condensed consolidated financial statements include our
accounts as well as the accounts of other entities in which we
have a controlling financial interest. All significant
intercompany balances and transactions have been eliminated.
The typical condition for a controlling financial interest is
ownership of a majority of the voting interests of an entity. A
controlling financial interest may also exist in entities
through arrangements that do not involve voting interests, such
as a variable interest entity (VIE).
VIE
Assessment
A VIE is an entity (1) that has total equity at risk that
is not sufficient to finance its activities without additional
subordinated financial support from other entities,
(2) where the group of equity holders does not have the
power to direct the activities of the entity that most
significantly impact the entitys economic performance, or
the obligation to absorb the entitys expected losses or
the right to receive the entitys expected residual
returns, or both, or (3) where the voting rights of some
investors are not proportional to their obligations to absorb
the expected losses of the entity, their rights to receive the
expected residual returns of the entity, or both, and
substantially all of the entitys activities either involve
or are conducted on behalf of an investor that has
disproportionately few voting rights.
115
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
In order to determine if an entity is considered a VIE, we first
perform a qualitative analysis, which requires certain
subjective decisions regarding our assessments, including, but
not limited to, the design of the entity, the variability that
the entity was designed to create and pass along to its interest
holders, the rights of the parties, and the purpose of the
arrangement. If we cannot conclude after a qualitative analysis
whether an entity is a VIE, we perform a quantitative analysis.
We have interests in various entities that are considered VIEs.
The primary types of entities are securitization trusts
guaranteed by us via lender swap and portfolio securitization
transactions, limited partnership investments in low-income
housing tax credit (LIHTC) and other housing
partnerships, as well as mortgage and asset-backed trusts that
were not created by us.
In June 2009, the FASB revised the accounting standard on the
consolidation of VIEs (the new accounting standard),
which was effective for consolidated financial statements issued
for reporting periods beginning after November 15, 2009. We
adopted the new accounting standard prospectively for all
existing VIEs effective January 1, 2010.
Prior to the adoption of the new accounting standard on
January 1, 2010, we were exempt from evaluating certain
securitization entities for consolidation if the entities met
the criteria of a qualifying special purpose entity
(QSPE), and if we did not have the unilateral
ability to cause the entity to liquidate or change the
entitys QSPE status. The QSPE requirements significantly
limited the activities in which a QSPE could engage and the
types of assets and liabilities it could hold. To the extent any
entity failed to meet those criteria, we were required to
consolidate its assets and liabilities if we were determined to
be the primary beneficiary of the entity. The new accounting
standard removed the concept of a QSPE and replaced the previous
primarily quantitative consolidation model with a qualitative
model for determining the primary beneficiary of a VIE.
Primary
Beneficiary Determination
Upon the adoption of the new accounting standard on
January 1, 2010, if an entity is a VIE, we consider whether
our variable interest causes us to be the primary beneficiary.
Under the new accounting standard, an enterprise is deemed to be
the primary beneficiary of a VIE when the enterprise has both
(1) the power to direct the activities of the VIE that most
significantly impact the entitys economic performance, and
(2) exposure to benefits
and/or
losses that could potentially be significant to the entity. The
primary beneficiary of the VIE is required to consolidate and
account for the assets, liabilities, and noncontrolling
interests of the VIE in its consolidated financial statements.
The assessment of the party that has the power to direct the
activities of the VIE may require significant management
judgment when (1) more than one party has power or
(2) more than one party is involved in the design of the
VIE but no party has the power to direct the ongoing activities
that could be significant.
We are required to continually assess whether we are the primary
beneficiary and therefore may consolidate a VIE through the
duration of our involvement. Examples of certain events that may
change whether or not we consolidate the VIE include a change in
the design of the entity or a change in our ownership such that
we no longer hold substantially all of the certificates issued
by a multi-class resecuritization trust.
Prior to January 1, 2010, we determined whether our
variable interest caused us to be considered the primary
beneficiary through a combination of qualitative and
quantitative analyses. The qualitative analysis considered the
design of the entity, the risks that cause variability, the
purpose for which the entity was created, and the
116
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
variability that the entity was designed to pass along to its
variable interest holders. When the primary beneficiary could
not be identified through a qualitative analysis, we used
internal cash flow models, which in certain cases included Monte
Carlo simulations, to compute and allocate expected losses or
expected residual returns to each variable interest holder based
upon the relative contractual rights and preferences of each
interest holder in the VIEs capital structure. We were the
primary beneficiary and were required to consolidate the entity
if we absorbed the majority of expected losses or expected
residual returns, or both.
Measurement
of Consolidated Assets and Liabilities
In accordance with the new accounting standard, on the
transition date, January 1, 2010, we initially measured the
assets and liabilities of the newly consolidated securitization
trusts at their unpaid principal balances and established a
corresponding valuation allowance and accrued interest as it was
not practicable to determine the carrying amount of such assets
and liabilities. The securitization assets and liabilities that
did not qualify for the use of this practical expedient were
initially measured at fair value. As such, we recognized in our
condensed consolidated balance sheet the mortgage loans
underlying our consolidated trusts as Mortgage loans held
for investment of consolidated trusts. We also recognized
securities issued by these trusts that are held by third parties
in our condensed consolidated balance sheet as either
Short-term debt of consolidated trusts or
Long-term debt of consolidated trusts.
Except for securitization trusts consolidated on the transition
date, when we transfer assets into a VIE that we consolidate at
the time of transfer, we recognize the assets and liabilities of
the VIE at the amounts that they would have been recognized if
they had not been transferred, and no gain or loss is recognized
on the transfer. For all other VIEs that we consolidate, we
recognize the assets and liabilities of the VIE in our condensed
consolidated financial statements at fair value, and we
recognize a gain or loss for the difference between (1) the
fair value of the consideration paid, fair value of
noncontrolling interests and the reported amount of any
previously held interests, and (2) the net amount of the
fair value of the assets and liabilities consolidated. However,
for the securitization trusts established under our lender swap
program, no gain or loss is recognized if the trust is
consolidated at formation as there is no difference in the
respective fair value of (1) and (2) above.
If we cease to be deemed the primary beneficiary of a VIE then
we deconsolidate the VIE. We use fair value to measure the
initial cost basis for the retained interests that are recorded
upon the deconsolidation of a VIE. Any difference between the
fair value and the previous carrying amount of our investment in
the VIE is recorded as Investment gains (losses),
net in our condensed consolidated statements of
operations. We also record gains or losses that are associated
with the consolidation of a VIE as Investment gains
(losses), net in our condensed consolidated statements of
operations.
Purchase/Sale
of Fannie Mae Securities
We actively purchase and may subsequently sell guaranteed MBS
that have been issued through our lender swap and portfolio
securitization transaction programs. The accounting for the
purchase and sale of our guaranteed MBS issued by the trusts
differs based on the characteristics of the securitization
trusts and whether the trusts are consolidated.
117
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Single-Class Securitization
Trusts
Our single-class securitization trusts are trusts we create to
issue single-class Fannie Mae MBS that evidence an
undivided interest in the mortgage loans held in the trust. With
single-class Fannie Mae MBS, the investors receive
principal and interest payments in proportion to their
percentage ownership of the MBS issuance. We guarantee to each
single-class securitization trust that we will supplement
amounts received by the single-class securitization trust as
required to permit timely payments of principal and interest on
the related Fannie Mae MBS. This guaranty exposes us to credit
losses on the loans underlying Fannie Mae MBS.
We create single-class securitization trusts through our lender
swap and portfolio securitization transaction programs. A lender
swap transaction occurs when a mortgage lender delivers a pool
of single-family mortgage loans to us, which we immediately
deposit into an MBS trust. The MBS are then issued to the seller
in exchange for the mortgage loans. A portfolio securitization
transaction occurs when we purchase mortgage loans from
third-party sellers for cash and later deposit these loans into
an MBS trust. The securities issued through a portfolio
securitization are then sold to investors for cash. We
consolidate most of the single-class securitization trusts that
are issued under these programs because our role as guarantor
and master servicer provides us with the power to direct matters
that impact the credit risk to which we are exposed.
The purchase of an MBS from a third party that was issued from a
consolidated trust is accounted for as the extinguishment of
debt in our condensed consolidated financial statements. A gain
or loss on the extinguishment of such debt is recorded to the
extent that the purchase price of the MBS does not equal the
carrying value of the related consolidated debt reported in our
condensed consolidated balance sheet (including unamortized
premiums, discounts or the other cost basis adjustments), at the
time of purchase. The sale of an MBS from Fannie Maes
portfolio to a third party that was issued from a consolidated
trust is accounted for as the issuance of debt in our condensed
consolidated financial statements. Related premiums, discounts
and other cost basis adjustments are amortized into income over
time.
To determine the order in which consolidated debt is
extinguished, we have elected to use a daily convention in the
application of the last-issued first-extinguished method. Under
this method, we record the net daily change in each MBS holding
as either the issuance of debt if there has been an increase in
the position that is held by third parties, or the
extinguishment of the most recently issued related debt if there
has been a decrease in the position held by third parties. The
impact of this method is that we record the net daily activity
for an MBS as if it were a single buy or sell trade, which
results in a change in our beginning debt balance if the total
unpaid principal balance purchased does not match the total
unpaid principal balance sold.
If a single-class securitization trust is not consolidated, we
account for the purchase and subsequent sale of such securities
as the transfer of an investment security in accordance with the
new accounting standard for the transfers of financial assets.
Single-Class Resecuritization
Trusts
Single-class resecuritization trusts are created by depositing
Fannie Mae MBS into a new securitization trust for the purpose
of aggregating multiple MBS into a single larger security. The
cash flows from the new security represent an aggregation of the
cash flows from the underlying MBS. We guarantee to each
single-class resecuritization trust that we will supplement
amounts received by the trust as required to permit timely
payments of principal and interest on the related Fannie Mae
securities. However, there is no additional credit risk assumed
by us because the underlying assets are MBS for which we have
already provided a guaranty.
118
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Additionally, our involvement with these trusts does not provide
any incremental rights or power that would enable Fannie Mae to
direct any activities of the trusts. As a result, we are not the
primary beneficiaries of, and therefore do not consolidate our
single-class resecuritization trusts.
As our single-class resecuritization securities pass through all
of the cash flows of the underlying MBS directly to the holders
of the securities, they are deemed to be substantially the same
as the underlying MBS. Therefore, we account for purchases of
our single-class resecuritization securities as an
extinguishment of the underlying MBS debt and the sale of these
securities as an issuance of the underlying MBS debt.
Multi-Class Resecuritization
Trusts
Multi-class resecuritization trusts are trusts we create to
issue multi-class Fannie Mae securities, including Real
Estate Mortgage Investment Conduits (REMICs) and
strip securities, in which the cash flows of the underlying
mortgage assets are divided, creating several classes of
securities, each of which represents a beneficial ownership
interest in a separate portion of cash flows. We guarantee to
each multi-class resecuritization trust that we will supplement
amounts received by the trusts as required to permit timely
payments of principal and interest, as applicable, on the
related Fannie Mae securities. However, there is no credit risk
assumed by us because the underlying assets are Fannie Mae MBS
for which we have already provided a guaranty. Although we may
be exposed to prepayment risk via our ownership of the
securities issued by these trusts, we do not have the ability
via our involvement with a multi-class resecuritization trust to
impact the economic risk to which we are exposed. Therefore, we
do not consolidate such a multi-class resecuritization trust
until we hold a substantial portion of the outstanding
beneficial interests that have been issued by the trust and are
therefore considered the primary beneficiary of the trust.
We account for the purchase of the securities issued by
consolidated multi-class resecuritization trusts as an
extinguishment of the debt issued by these trusts and the
subsequent sale of such securities as the issuance of
multi-class debt. If a multi-class resecuritization trust is not
consolidated, we account for the purchase and subsequent sale of
such securities as the transfer of an investment security rather
than the issuance or extinguishment of debt in accordance with
the new accounting standard for the transfers of financial
assets. Additionally, the cash flows from the underlying
mortgage assets have been divided between the debt securities
issued by the multi-class resecuritization trust; therefore, the
debt issued by a multi-class resecuritization trust is not
substantially the same as the consolidated MBS debt.
When we do not consolidate a multi-class resecuritization trust,
we recognize both our investment in the trust and the mortgage
loans of the Fannie Mae MBS trusts that we consolidate that
underlie the multi-class resecuritization trust. Additionally,
we recognize the unsecured corporate debt issued to third
parties to fund the purchase of our investments in the
multi-class resecuritization trusts as well as the debt issued
to third parties of the MBS trusts we consolidate that underlie
the multi-class resecuritization trusts.
This results in the recognition of interest income from
investments in multi-class resecuritization trusts and interest
expense from the unsecured debt issued to third parties to fund
the purchase of the investments in multi-class resecuritization
trusts, as well as interest income from the mortgage loans and
interest expense from the debt issued to third parties from the
MBS trusts we consolidate that underlie the multi-class
resecuritization trusts.
See Note 2, Adoption of the New Accounting
Standards on the Transfers of Financial Assets and Consolidation
of Variable Interest Entities, for additional information
regarding the impact upon adoption.
119
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Portfolio
Securitizations
We evaluate a transfer of financial assets from a portfolio
securitization transaction to an entity that is not consolidated
to determine whether the transfer qualifies as a sale. Transfers
of financial assets for which we surrender control of the
transferred assets are recorded as sales.
When a transfer that qualifies as a sale is completed, we
derecognize all assets transferred and recognize all assets
obtained and liabilities incurred at fair value. Prior to the
adoption of the new accounting standard on the transfers of
financial assets, we allocated the previous carrying amount of
the transferred assets between the assets sold and the retained
interests, if any, in proportion to their relative fair values
at the date of transfer. We record a gain or loss as a component
of Investment gains (losses), net in our condensed
consolidated statements of operations, which now represents the
difference between the carrying basis of the assets transferred
and the fair value of the proceeds from the sale. Prior to the
adoption of the new accounting standard on the transfers of
financial assets, the gain or loss represented the difference
between the allocated carrying amount of the assets sold and the
proceeds from the sale, net of any transaction costs and
liabilities incurred, which may have included a recourse
obligation for our financial guaranty. Retained interests are
primarily in the form of Fannie Mae MBS, REMIC certificates,
guaranty assets and master servicing assets (MSAs).
If a portfolio securitization does not meet the criteria for
sale treatment, the transferred assets remain in our condensed
consolidated balance sheets and we record a liability to the
extent of any proceeds received in connection with such a
transfer.
Cash
and Cash Equivalents and Statements of Cash Flows
Short-term investments that have a maturity at the date of
acquisition of three months or less and are readily convertible
to known amounts of cash are generally considered cash
equivalents. We may pledge as collateral certain short-term
investments classified as cash equivalents.
In the presentation of our condensed consolidated statements of
cash flows, we present cash flows from mortgage loans held for
sale as operating activities. We present cash flows from federal
funds sold and securities purchased under agreements to resell
or similar arrangements as investing activities and cash flows
from federal funds purchased and securities sold under
agreements to repurchase as financing activities. We classify
cash flows related to dollar roll transactions that do not meet
the requirements to be accounted for as secured borrowings as
purchases and sales of securities in investing activities. We
classify cash flows from trading securities based on their
nature and purpose. We classify cash flows from trading
securities that we intend to hold for investment (the majority
of our mortgage-related trading securities) as investing
activities and cash flows from trading securities that we do not
intend to hold for investment (primarily our
non-mortgage-related securities) as operating activities.
Prior to the adoption of the new accounting standards on the
transfers of financial assets and the consolidation of VIEs, we
reflected the creation of Fannie Mae MBS through either the
securitization of loans held for sale or advances to lenders as
a non-cash activity in our condensed consolidated statements of
cash flows in the line items Securitization-related
transfers from mortgage loans held for sale to investments in
securities or Transfers from advances to lenders to
investments in securities, respectively. Cash inflows from
the sale of a Fannie Mae MBS created through the securitization
of loans held for sale were reflected in the condensed
consolidated statements of cash flows based on the balance sheet
classification of the associated Fannie Mae MBS as either
Net decrease in trading securities, excluding non-cash
transfers, or Proceeds from sales of
available-for-sale
securities. Subsequent to the adoption of these new
accounting standards, we continue to
120
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
apply this presentation to unconsolidated trusts. For
consolidated trusts, we classify cash flows related to mortgage
loans held by our consolidated trusts as either investing
activities (for principal repayments) or operating activities
(for interest received from borrowers included as a component of
our net loss). Cash flows related to debt securities issued by
consolidated trusts are classified as either financing
activities (for repayments of principal to certificateholders)
or operating activities (for interest payments to
certificateholders included as a component of our net loss). We
distinguish between the payments and proceeds related to the
debt of Fannie Mae and the debt of consolidated trusts, as
applicable.
Restricted
Cash
We and our servicers advance payments on delinquent loans to
consolidated Fannie Mae MBS trusts. We recognize the cash
advanced as Restricted cash in our condensed
consolidated balance sheets to the extent such amounts are due
to, but have not yet been remitted to, the MBS
certificateholders. In addition, when we or our servicers
collect and hold cash that is due to certain Fannie Mae MBS
trusts in advance of our requirement to remit these amounts to
the trusts, we recognize the collected cash amounts as
Restricted cash.
We also recognize Restricted cash as a result of
restrictions related to certain consolidated partnership funds
as well as for certain collateral arrangements.
Mortgage
Loans
Loans
Held for Investment
When we acquire mortgage loans that we have the ability and the
intent to hold for the foreseeable future or until maturity, we
classify the loans as held for investment (HFI).
When we consolidate a trust, we recognize the loans underlying
the trust in our condensed consolidated balance sheet. The
trusts do not have the ability to sell mortgage loans and the
use of such loans is limited exclusively to the settlement of
obligations of the trusts. Therefore, mortgages acquired when we
have the intent to securitize via trusts that are consolidated
will generally be classified as HFI in our condensed
consolidated balance sheets both prior to and subsequent to
their securitization. This is consistent with our intent and
ability to hold the loans for the foreseeable future or until
maturity.
We report HFI loans at their outstanding unpaid principal
balance adjusted for any deferred and unamortized cost basis
adjustments, including purchase premiums, discounts and other
cost basis adjustments. We recognize interest income on HFI
loans on an accrual basis using the interest method, unless we
determine that the ultimate collection of contractual principal
or interest payments in full is not reasonably assured. When the
collection of principal or interest payments in full is not
reasonably assured, we discontinue the accrual of interest
income.
Historically, mortgage loans held both by us and by consolidated
trusts were reported collectively as Mortgage loans held
for investment. We now report loans held by consolidated
trusts as Mortgage loans held for investment of
consolidated trusts and those held directly by us as
Mortgage loans held for investment of Fannie Mae in
our condensed consolidated balance sheets.
121
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Loans
Held for Sale
When we acquire mortgage loans that we intend to sell or
securitize via trusts that are not consolidated, we classify the
loans as held for sale (HFS). Prior to the adoption
of the new accounting standards, we initially classified loans
as HFS if they were product types that we actively securitized
from our portfolio because we had the intent, at acquisition, to
securitize the loans (either during the month in which the
acquisition occurred or during the following month) via a trust
that we did not consolidate and for which we sold all or a
portion of the resulting securities. At month-end, we
reclassified the loans acquired during the month from HFS to
HFI, if we had not securitized or were not in the process of
securitizing them because we had the intent to hold the loans
for the foreseeable future or until maturity.
We report HFS loans at the lower of cost or fair value. Any
excess of an HFS loans cost over its fair value is
recognized as a valuation allowance, with changes in the
valuation allowance recognized as Investment gains
(losses), net in our condensed consolidated statements of
operations. We recognize interest income on HFS loans on an
accrual basis, unless we determine that the ultimate collection
of contractual principal or interest payments in full is not
reasonably assured. When the collection of principal or interest
payments in full is not reasonably assured, we discontinue the
accrual of interest income. Purchase premiums, discounts and
other cost basis adjustments on HFS loans are deferred upon loan
acquisition, included in the cost basis of the loan, and not
amortized. We determine any lower of cost or fair value
adjustment on HFS loans on a pool basis by aggregating those
loans based on similar risks and characteristics, such as
product types and interest rates.
In the event that we reclassify HFS loans to HFI, we record the
loans at lower of cost or fair value on the date of
reclassification. We recognize any lower of cost or fair value
adjustment recognized upon reclassification as a basis
adjustment to the HFI loan.
Nonaccrual
Loans
We discontinue accruing interest on single-family and
multifamily loans when we believe collectibility of principal or
interest is not reasonably assured, unless the loan is well
secured and in the process of collection based upon an
individual loan assessment. When a loan is placed on nonaccrual
status, interest previously accrued but not collected becomes
part of our recorded investment in the loan and is collectively
reviewed for impairment. If cash is received while a loan is on
nonaccrual status, it is applied first towards the recovery of
accrued interest and related scheduled principal repayments.
Once these amounts are recovered, we recognize interest income
on a cash basis. If we have doubt regarding the ultimate
collectibility of the remaining recorded investment in a
nonaccrual loan, we apply any payment received to reduce
principal to the extent necessary to eliminate such doubt. We
return a loan to accrual status when we determine that the
collectibility of principal and interest is reasonably assured.
Restructured
Loans
A modification to the contractual terms of a loan that results
in granting a concession to a borrower experiencing financial
difficulties is considered a troubled debt restructuring
(TDR). A concession has been granted to a borrower
when we determine that the effective yield based on the
restructured loan term is less than the effective yield prior to
the modification. We measure impairment of a loan restructured
in a TDR individually based on the excess of the recorded
investment in the loan over the present value of the expected
future cash inflows discounted at the loans original
effective interest rate. Costs incurred to effect a TDR are
expensed as incurred.
122
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
A loan modification for reasons other than a borrower
experiencing financial difficulties or that results in terms at
least as favorable to us as the terms for comparable loans to
other customers with similar credit risks who are not
refinancing or restructuring a loan is not considered a TDR. We
further evaluate such a loan modification to determine whether
the modification is considered more than minor. If
the modification is considered more than minor and the modified
loan is not subject to the accounting requirements for acquired
credit-impaired loans, we treat the modification as an
extinguishment of the previously recorded loan and the
recognition of a new loan. We recognize any unamortized basis
adjustments on the previously recorded loan immediately in
Interest income in our condensed consolidated
statements of operations. We account for a minor modification as
a continuation of the previously recorded loan.
Loans
Purchased or Eligible to be Purchased from Trusts
For our single-class securitization trusts that include a Fannie
Mae guaranty, we have the option to purchase a loan from the
trust after four or more consecutive monthly payments due under
the loan are delinquent in whole, or in part. With respect to
single-family mortgage loans in trusts with issue dates on or
after January 1, 2009, we also have the option to purchase
a loan from the trust after the loan has been delinquent for at
least one monthly payment, if the delinquency has not been fully
cured on or before the next payment date (that is, 30 days
delinquent), and it is determined that it is appropriate to
execute loss mitigation activity that is not permissible while
the loan is held in a trust. Fannie Mae, as guarantor or as
issuer, may also purchase mortgage loans when other pre-defined
contingencies have been met, such as when there is a material
breach of a sellers representation and warranty. Under
long-term standby commitments, we purchase loans from lenders
when the loans subject to these commitments meet certain
delinquency criteria. Our acquisition cost for these loans is
the unpaid principal balance of the loans plus accrued interest.
Effective January 1, 2010, when we purchase mortgage loans
from consolidated trusts, we reclassify the loans from
Mortgage loans held for investment of consolidated
trusts to Mortgage loans held for investment by
Fannie Mae and, upon settlement, we record an
extinguishment of the corresponding portion of the debt of the
consolidated trusts.
For unconsolidated trusts, loans that are credit impaired at the
time of acquisition are recorded at the lower of their
acquisition cost or fair value. A loan is considered credit
impaired at acquisition when there is evidence of credit
deterioration subsequent to the loans origination and it
is probable, at acquisition, that we will be unable to collect
all contractually required payments receivable (ignoring
insignificant delays in contractual payments). We record each
acquired loan that does not meet these criteria at its
acquisition cost.
For unconsolidated trusts where we are considered the
transferor, we recognize the loan in our condensed consolidated
balance sheets at fair value and record a corresponding
liability to the unconsolidated trust when the contingency on
our option to purchase the loan from the trust has been met and
we regain effective control over the transferred loan.
We base our estimate of the fair value of delinquent loans
purchased from unconsolidated trusts upon an assessment of what
a market participant would pay for the loan at the date of
acquisition. We utilize indicative market prices from large,
experienced dealers to estimate the initial fair value of
delinquent loans purchased from unconsolidated trusts. We
consider acquired credit-impaired loans to be individually
impaired at acquisition, and no valuation allowance is
established or carried over. We record the excess of the
loans acquisition cost over its fair value as a charge-off
against our Reserve for guaranty losses at
acquisition. We
123
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
recognize any subsequent decreases in estimated future cash
flows to be collected subsequent to acquisition as impairment
losses through our Allowance for loan losses.
We place credit-impaired loans that we acquire from
unconsolidated trusts on nonaccrual status at acquisition in
accordance with our nonaccrual policy. If we subsequently
determine that the collectibility of principal and interest is
reasonably assured, we return the loan to accrual status. We
determine the initial accrual status of acquired loans that are
not credit impaired in accordance with our nonaccrual policy.
Accordingly, we place loans purchased from trusts under other
contingent call options on accrual status at acquisition if they
are current or if there has been only an insignificant delay in
payment and there are no other facts and circumstances that
would lead us to conclude that the collection of principal and
interest is not reasonably assured.
When an acquired credit-impaired loan is returned to accrual
status, the portion of the expected cash flows, which
incorporates changes in the timing and amount that are
associated with credit and prepayment events, that exceeds the
recorded investment in the loan is accreted into interest income
over the expected remaining life of the loan. We prospectively
recognize increases in future cash flows expected to be
collected as interest income over the remaining expected life of
the loan through a yield adjustment. If we subsequently
refinance or restructure an acquired credit-impaired loan, other
than through a TDR, the loan is not accounted for as a new loan
but continues to be accounted for under the accounting standard
for credit-impaired loans.
Allowance
for Loan Losses and Reserve for Guaranty Losses
The allowance for loan losses is a valuation allowance that
reflects an estimate of incurred credit losses related to our
recorded investment in HFI loans. This population includes both
HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS
trusts. The reserve for guaranty losses is a liability account
in our condensed consolidated balance sheets that reflects an
estimate of incurred credit losses related to our guaranty to
each unconsolidated Fannie Mae MBS trust that we will supplement
amounts received by the Fannie Mae MBS trust as required to
permit timely payments of principal and interest on the related
Fannie Mae MBS. As a result, the guaranty reserve considers not
only the principal and interest due on the loan at the current
balance sheet date, but also any additional interest payments
due to the trust from the current balance sheet date until the
point of loan acquisition or foreclosure. We recognize incurred
losses by recording a charge to the Provision for loan
losses or the Provision (benefit) for guaranty
losses in our condensed consolidated statements of
operations.
Credit losses related to groups of similar single-family and
multifamily HFI loans that are not individually impaired are
recognized when (1) available information as of each
balance sheet date indicates that it is probable a loss has
occurred and (2) the amount of the loss can be reasonably
estimated in accordance with the accounting standard for
contingencies. Single-family and multifamily loans that we
evaluate for individual impairment are measured in accordance
with the accounting standard on measuring individual impairment
of a loan. When making an assessment as to whether a loan is
individually impaired, we also consider whether a delay in
payment is insignificant. Determination of whether a delay in
payment or shortfall in amount is insignificant requires
managements judgment as to the facts and circumstances
surrounding the loan. We record charge-offs as a reduction to
the allowance for loan losses or reserve for guaranty losses
when losses are confirmed through the receipt of assets, such as
cash in a preforeclosure sale or the underlying collateral in
full satisfaction of the mortgage loan upon foreclosure.
124
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Single-Family
Loans
We aggregate single-family loans (except for those that are
deemed to be individually impaired), based on similar risk
characteristics for purposes of estimating incurred credit
losses and establish a collective single-family loss reserve
using an econometric model that derives an overall loss reserve
estimate given multiple factors which include but are not
limited to: origination year; loan product type;
mark-to-market
loan-to-value
(LTV) ratio; and delinquency status. Once loans are
aggregated, there typically is not a single, distinct event that
would result in an individual loan or pool of loans being
impaired. Accordingly, to determine an estimate of incurred
credit losses, we base our allowance and reserve methodology on
historical events and trends, such as loss severity, default
rates, and recoveries from mortgage insurance contracts and
other credit enhancements that are either contractually attached
to a loan or that were entered into contemporaneous with and in
contemplation of a guaranty or loan purchase transaction. Our
allowance calculation also incorporates a loss confirmation
period (the anticipated time lag between a credit loss event and
the confirmation of the credit loss resulting from that event)
to ensure our allowance estimate captures credit losses that
have been incurred as of the balance sheet date but have not
been confirmed. In addition, management performs a review of the
observable data used in its estimate to ensure it is
representative of prevailing economic conditions and other
events existing as of the balance sheet date.
The excess of a loans unpaid principal balance, accrued
interest, and any applicable cost basis adjustments (our
total exposure) over the fair value of the assets received
in full satisfaction of the loan is treated as a charge-off loss
that is deducted from the allowance for loan losses or reserve
for guaranty losses. Any excess of the fair value of the assets
received in full satisfaction over our total exposure at
charge-off is applied first to recover any forgone, yet
contractually past due interest (for mortgage loans recognized
in our condensed consolidated balance sheets), and then to
Foreclosed property expense in our condensed
consolidated statements of operations. We also apply estimated
proceeds from primary mortgage insurance or other credit
enhancements that are either contractually attached to a loan or
that were entered into contemporaneous with and in contemplation
of a guaranty or loan purchase transaction as a recovery of our
total exposure, up to the amount of loss recognized as a
charge-off. We record proceeds from credit enhancements in
excess of our total exposure in Foreclosed property
expense in our condensed consolidated statements of
operations when received.
Individually
Impaired Single-Family Loans
We consider a loan to be impaired when, based on current
information, it is probable that we will not receive all amounts
due, including interest, in accordance with the contractual
terms of the loan agreement. When making our assessment as to
whether a loan is impaired, we also take into account more than
insignificant delays in payment. Determination of whether a
delay in payment or shortfall in amount is more than
insignificant requires managements judgment as to the
facts and circumstances surrounding the loan.
Individually impaired single-family loans currently include
those restructured in a TDR and acquired credit-impaired loans.
Our measurement of impairment on an individually impaired loan
follows the method that is most consistent with our expectations
of recovery of our recorded investment in the loan. When a loan
has been restructured, we measure impairment using a cash flow
analysis discounted at the loans original effective
interest rate. If we expect to recover our recorded investment
in an individually impaired loan through probable foreclosure of
the underlying collateral, we measure impairment based on the
fair value of the collateral, reduced by estimated disposal
costs on a discounted basis and adjusted for estimated proceeds
125
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
from mortgage, flood, or hazard insurance or similar sources.
Impairment recognized on individually impaired loans is part of
our allowance for loan losses.
We use internal models to project cash flows used to assess
impairment of individually impaired loans, including acquired
credit-impaired loans. We generally update the market and loan
characteristic inputs we use in these models monthly, using
month-end data. Market inputs include information such as
interest rates, volatility and spreads, while loan
characteristic inputs include information such as
mark-to-market
LTV ratios and delinquency status. The loan characteristic
inputs are key factors that affect the predicted rate of default
for loans evaluated for impairment through our internal cash
flow models. We evaluate the reasonableness of our models by
comparing the results with actual performance and our assessment
of current market conditions. In addition, we review our models
at least annually for reasonableness and predictive ability in
accordance with our corporate model review policy. Accordingly,
we believe the projected cash flows generated by our models that
we use to assess impairment appropriately reflect the expected
future performance of the loans.
Multifamily
Loans
We identify multifamily loans for evaluation for impairment
through a credit risk classification process and individually
assign them a risk rating. Based on this evaluation, we
determine whether or not a loan is individually impaired. If we
deem a multifamily loan to be individually impaired, we
generally measure impairment on that loan based on the fair
value of the underlying collateral less estimated costs to sell
the property on a discounted basis, as we consider such loans to
be collateral dependent. If we determine that an individual loan
that was specifically evaluated for impairment is not
individually impaired, we include the loan as part of a pool of
loans with similar characteristics that are evaluated
collectively for incurred losses.
We stratify multifamily loans into different risk rating
categories based on the credit risk inherent in each individual
loan. We categorize credit risk based on relevant observable
data about a borrowers ability to pay, including reviews
of current borrower financial information, operating statements
on the underlying collateral, historical payment experience,
collateral values when appropriate, and other related credit
documentation. Multifamily loans that are categorized into pools
based on their relative credit risk ratings are assigned certain
default and severity factors representative of the credit risk
inherent in each risk category. We apply these factors against
our recorded investment in the loans, including recorded accrued
interest associated with such loans, to determine an appropriate
allowance. As part of our allowance process for multifamily
loans, we also consider other factors based on observable data
such as historical charge-off experience, loan size and trends
in delinquency. In addition, we consider any loss sharing
arrangements with our lenders.
Amortization
of Cost Basis Adjustments
We amortize cost basis adjustments, including premiums and
discounts on mortgage loans and securities, as a yield
adjustment using the interest method over the contractual or
estimated life of the loan or security. We amortize these cost
basis adjustments into interest income for mortgage securities
and for loans we classify as HFI. We do not amortize cost basis
adjustments for loans that we classify as HFS but include them
in the calculation of the gain or loss on the sale of those
loans.
We have elected to use the contractual payment terms to
determine the amortization of cost basis adjustments on mortgage
loans and mortgage securities initially recognized on or after
January 1, 2010 in our condensed consolidated balance
sheets.
126
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
For substantially all mortgage loans and mortgage securities
initially recorded on or before December 31, 2009, we use
prepayment estimates in determining the periodic amortization of
cost basis adjustments under the interest method using a
constant effective yield. For those mortgage loans and mortgage
securities for which we did not estimate prepayments, we used
the contractual payment terms of the loan or security to apply
the interest method. When we anticipate prepayments for the
application of the interest method to mortgage loans initially
recognized before January 1, 2010, we aggregate individual
mortgage loans based upon coupon rate, product type and
origination year and consider Fannie Mae MBS to be aggregations
of similar loans for the purpose of estimating prepayments. We
also recalculate the constant effective yield each reporting
period to reflect the actual payments and prepayments we have
received to date and our new estimate of future prepayments. We
then adjust our net investment in the mortgage loans and
mortgage securities to the amount the investment would have been
had we applied the recalculated constant effective yield since
their acquisition, with a corresponding charge or credit to
interest income.
We cease amortization of cost basis adjustments during periods
in which we are not recognizing interest income on a loan
because the collection of the principal and interest payments is
not reasonably assured (that is, when the loan is placed on
nonaccrual status).
Collateral
We enter into various transactions where we pledge and accept
collateral, the most common of which are our derivative
transactions. Required collateral levels vary depending on the
credit rating and type of counterparty. We also pledge and
receive collateral under our repurchase and reverse repurchase
agreements. In order to reduce potential exposure to repurchase
counterparties, a third-party custodian typically maintains the
collateral and any margin. We monitor the fair value of the
collateral received from our counterparties, and we may require
additional collateral from those counterparties, as we deem
appropriate. Collateral received under early funding agreements
with lenders, whereby we advance funds to lenders prior to the
settlement of a security commitment, must meet our standard
underwriting guidelines for the purchase or guarantee of
mortgage loans.
Cash
Collateral
We pledged $5.4 billion in cash collateral as of both
June 30, 2010 and December 31, 2009 related to our
derivative activities. For derivative positions with the same
counterparty under master netting arrangements where we pledge
cash collateral, we remove it from Cash and cash
equivalents and net the right to receive it against
Derivative liabilities at fair value in our
condensed consolidated balance sheets as a part of our
counterparty netting calculation. Additionally, we pledged
$5.7 billion and $5.4 billion in cash collateral as of
June 30, 2010 and December 31, 2009, respectively,
related to operating activities and recorded this amount as
Other assets or Federal funds sold and
securities purchased under agreements to resell or similar
arrangements in our condensed consolidated balance sheets.
We record cash collateral accepted from a counterparty that we
have the right to use as Cash and cash equivalents
and cash collateral accepted from a counterparty that we do not
have the right to use as Restricted cash in our
condensed consolidated balance sheets. We net our obligation to
return cash collateral pledged to us against Derivative
assets at fair value in our condensed consolidated balance
sheets as part of our counterparty netting calculation. We
accepted cash collateral of $3.1 billion and
$4.1 billion as of June 30, 2010 and December 31,
2009, respectively, of which $2.6 billion and
$3.0 billion, respectively, was restricted.
127
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Non-Cash
Collateral
We classify securities pledged to counterparties as either
Investments in securities or Cash and cash
equivalents in our condensed consolidated balance sheets.
Securities pledged to counterparties that have been consolidated
with the underlying assets recognized as loans are included as
Mortgage loans in our condensed consolidated balance
sheets. We pledged $1.1 billion of
available-for-sale
(AFS) securities that the counterparty had the right
to resell or repledge as of December 31, 2009. We did not
pledge any AFS securities as of June 30, 2010. We pledged
$2.8 billion and $1.9 billion in HFI loans that the
counterparty had the right to sell or repledge as of
June 30, 2010 and December 31, 2009, respectively.
The fair value of non-cash collateral accepted that we were
permitted to sell or repledge was $1.8 billion and
$67 million as of June 30, 2010 and December 31,
2009, respectively, none of which was sold or repledged. The
fair value of non-cash collateral accepted that we were not
permitted to sell or repledge was $29.0 billion and
$6.3 billion as of June 30, 2010 and December 31,
2009, respectively.
We provide early funding to lenders on a collateralized basis
and account for the advances as secured lending arrangements. We
recognize the amounts funded to lenders in Advances to
lenders in our condensed consolidated balance sheets.
Our liability to third-party holders of Fannie Mae MBS that
arises as the result of a consolidation of a securitization
trust is collateralized by the underlying loans
and/or
mortgage-related securities.
When securities sold under agreements to repurchase meet all of
the conditions of a secured financing, we report the collateral
of the transferred securities at fair value, excluding accrued
interest. The fair value of these securities is classified in
Investments in securities in our condensed
consolidated balance sheets. We had no such repurchase
agreements outstanding as of June 30, 2010 or
December 31, 2009.
Debt
Our condensed consolidated balance sheets contain debt of Fannie
Mae as well as debt of consolidated trusts. We classify our
outstanding debt as either short-term or long-term based on the
initial contractual maturity. Prior to January 1, 2010, we
reported debt issued both by us and by consolidated trusts
collectively as either Short-term debt or
Long-term debt in our condensed consolidated balance
sheets. Effective January 1, 2010, the debt of consolidated
trusts is reported as either Short-term debt of
consolidated trusts or Long-term debt of
consolidated trusts, and represents the amount of Fannie
Mae MBS issued from such trusts and held by third-party
certificateholders. Debt issued by us is reported as either
Short-term debt of Fannie Mae or Long-term
debt of Fannie Mae, and represents debt that we issue to
third parties to fund our general business activities. The debt
of consolidated trusts is prepayable without penalty at any
time. We report deferred items, including premiums, discounts
and other cost basis adjustments, as adjustments to the related
debt balances in our condensed consolidated balance sheets. We
remeasure the carrying amount, accrued interest and basis
adjustments of debt denominated in a foreign currency into
U.S. dollars using foreign exchange spot rates as of the
balance sheet dates and report any associated gains or losses as
a component of Fair value gains (losses), net in our
condensed consolidated statements of operations.
We classify interest expense as either short-term or long-term
based on the contractual maturity of the related debt. We
recognize the amortization of premiums, discounts and other cost
basis adjustments through interest expense using the effective
interest method usually over the contractual term of the debt.
Amortization of
128
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
premiums, discounts and other cost basis adjustments begins at
the time of debt issuance. We remeasure interest expense for
debt denominated in a foreign currency into U.S. dollars
using the monthly weighted-average spot rate since the interest
expense is incurred over the reporting period. The difference in
rates arising from the month-end spot exchange rate used to
calculate the interest accruals and the weighted-average
exchange rate used to record the interest expense is a foreign
currency transaction gain or loss for the period and is
recognized as either Short-term debt interest
expense or Long-term debt interest expense in
our condensed consolidated statements of operations.
When we purchase a Fannie Mae MBS issued from a consolidated
single-class securitization trust, we extinguish the related
debt of the consolidated trust as the MBS debt is no longer owed
to a third party. We record debt extinguishment gains or losses
related to debt of consolidated trusts to the extent that the
purchase price of the MBS does not equal the carrying value of
the related consolidated MBS debt reported on our balance sheets
(including unamortized premiums, discounts and other cost basis
adjustments) at the time of purchase.
Servicer
and MBS Trust Receivable and Payable
When a servicer advances payments to a consolidated MBS trust
for delinquent loans, we record restricted cash and a
corresponding liability to reimburse the servicer. When a
delinquency advance is made to an unconsolidated trust, we
record a receivable from the MBS trust, net of a valuation
allowance, and a corresponding liability to reimburse the
servicer. Servicers are reimbursed for amounts that they do not
collect from the borrower at the earlier of the exercise of our
default call option or foreclosure.
For unconsolidated MBS trusts where we are considered the
transferor, when the contingency on our option to purchase loans
from the trust has been met and we regain effective control over
the transferred loan, we recognize the loan in our condensed
consolidated balance sheets at fair value and record a
corresponding liability to the unconsolidated MBS trust.
Fair
Value Gains (Losses), Net
Fair value gains (losses), net, consists of fair value gains and
losses on derivatives, trading securities, debt carried at fair
value and foreign currency debt. The following table displays
the composition of Fair value gains (losses), net
for the three and six months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Derivatives fair value losses, net
|
|
$
|
(397
|
)
|
|
$
|
(537
|
)
|
|
$
|
(3,159
|
)
|
|
$
|
(2,243
|
)
|
Trading securities gains, net
|
|
|
640
|
|
|
|
1,561
|
|
|
|
1,698
|
|
|
|
1,728
|
|
Debt foreign exchange gains (losses), net
|
|
|
54
|
|
|
|
(169
|
)
|
|
|
77
|
|
|
|
(114
|
)
|
Debt fair value gains (losses), net
|
|
|
6
|
|
|
|
(32
|
)
|
|
|
(18
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value gains (losses), net
|
|
$
|
303
|
|
|
$
|
823
|
|
|
$
|
(1,402
|
)
|
|
$
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Reclassifications
To conform to our current period presentation, we have
reclassified amounts reported in our condensed consolidated
financial statements. In our condensed consolidated balance
sheet as of December 31, 2009, we reclassified
$536 million from Allowance for loan losses to
Allowance for accrued interest receivable. In our
condensed consolidated statement of operations, we reclassified
$15.6 billion and $2.6 billion for the three months
ended June 30, 2009 and $33.4 billion and
$5.1 billion for the six months ended June 30, 2009
from Provision for credit losses, which is no longer
presented, to Provision for guaranty losses and
Provision for loan losses, respectively.
In our condensed consolidated statement of cash flows for the
six months ended June 30, 2009, we reclassified
$9.0 billion from Reimbursements to servicers for
loan advances to Other, net. In our condensed
consolidated statement of changes in equity (deficit) for the
six months ended June 30, 2009, we reclassified
$4.1 billion, net of tax of $2.3 billion, from
Changes in net unrealized losses on
available-for-sale
securities to Reclassification adjustment for
other-than-temporary
impairments recognized in our net loss.
|
|
2.
|
Adoption
of the New Accounting Standards on the Transfers of Financial
Assets and Consolidation of Variable Interest Entities
|
Effective January 1, 2010, we prospectively adopted the new
accounting standards on the transfer of financial assets and the
consolidation of VIEs (the new accounting standards)
for all VIEs existing as of January 1, 2010
(transition date). The new accounting standards
removed the scope exception for QSPEs and replaced the previous
consolidation model with a qualitative model for determining the
primary beneficiary of a VIE. Upon adoption of the new
accounting standards, we consolidated the substantial majority
of our single-class securitization trusts, which had significant
impacts on our condensed consolidated financial statements. The
key financial statement impacts are summarized below.
The mortgage loans and debt reported in our condensed
consolidated balance sheet increased significantly at the
transition date because we recognized the underlying assets and
liabilities of the newly consolidated trusts. We recorded the
trusts mortgage loans and the debt held by third parties
at their unpaid principal balance at the transition date.
Prospectively, we recognized the interest income on the
trusts mortgage loans and interest expense on the
trusts debt, resulting in an increase in the interest
income and interest expense reported in our condensed
consolidated statements of operations compared to prior periods.
Another significant impact was the elimination of our guaranty
accounting for the newly consolidated trusts. We derecognized
the previously recorded guaranty-related assets and liabilities
associated with the newly consolidated trusts from our condensed
consolidated balance sheets. We also eliminated our reserve for
guaranty losses and recognized an allowance for loan losses for
such trusts. In our condensed consolidated statements of
operations, we no longer recognize guaranty fee income for the
newly consolidated trusts, as the revenue is now recorded as a
component of loan interest income.
When we recognized the newly consolidated trusts assets
and liabilities at the transition date, we also derecognized our
investments in these trusts, resulting in a decrease in our
investments in MBS that are classified as trading and AFS
securities. Instead of being recorded as an asset, our
investments in Fannie Mae MBS reduce the debt reported in our
condensed consolidated balance sheets. Accordingly, the purchase
and subsequent sale of MBS issued by consolidated trusts are
accounted for in our condensed consolidated financial statements
as the extinguishment and issuance of the debt of consolidated
trusts, respectively. Furthermore, under the new accounting
standards, a transfer of mortgage loans from our portfolio to a
trust will generally not qualify for sale treatment.
130
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The new accounting standards do not change the economic risk to
our business, specifically our exposure to liquidity, credit,
and interest rate risks. We continue to securitize mortgage
loans originated by lenders in the primary mortgage market into
Fannie Mae MBS.
Refer to the Principles of Consolidation section in
Note 1, Summary of Significant Accounting
Policies for additional information.
Summary
of Transition Adjustments
The cumulative impact of our adoption of the new accounting
standards was a decrease to our total deficit of
$3.3 billion at the transition date. This amount includes:
|
|
|
|
|
A net decrease in our accumulated deficit of $6.7 billion,
primarily driven by the reversal of the guaranty assets and
guaranty obligations related to the newly consolidated
trusts; and
|
|
|
|
A net increase in our accumulated other comprehensive loss of
$3.4 billion primarily driven by the reversal of net
unrealized gains related to our investments in Fannie Mae MBS
classified as AFS.
|
Our transition adjustment is a result of the following changes
to our accounting:
|
|
|
|
|
Net recognition of assets and liabilities of newly
consolidated entities. At the transition date,
trust assets and liabilities required to be consolidated were
recognized in our condensed consolidated balance sheet at their
unpaid principal balance plus any accrued interest. An allowance
for loan losses was established for the newly consolidated
mortgage loans. The reserve for guaranty losses previously
established for such loans was eliminated. Our investments in
Fannie Mae MBS issued by the newly consolidated trusts were
eliminated along with the related accrued interest receivable
and unrealized gains or losses at the transition date.
|
|
|
|
Accounting for portfolio securitizations. At
the transition date, we reclassified the majority of our HFS
loans to HFI. Under the new accounting standards, the transfer
of mortgage loans to a trust and the sale of the related
securities in a portfolio securitization transaction will
generally not qualify for sale treatment. As such, mortgage
loans acquired with the intent to securitize will generally be
classified as held for investment in our condensed consolidated
balance sheets both prior to and subsequent to their
securitization.
|
|
|
|
Elimination of accounting for guarantees. At
the transition date, a significant portion of our
guaranty-related assets and liabilities were derecognized from
our condensed consolidated balance sheet. Upon consolidation of
a trust, our guaranty activities represent intercompany
activities that must be eliminated for purposes of our condensed
consolidated financial statements.
|
We also describe in this note the ongoing impacts of the new
accounting standards on our condensed consolidated statements of
operations, as well as the changes we have made to our segment
reporting as a result of our adoption of the new accounting
standards. The substantial majority of the transition impact
related to non-cash activity, which has not been included in our
condensed consolidated statement of cash flows.
131
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Balance
Sheet Impact
In accordance with the new accounting standards, effective on
the transition date, we report the assets and liabilities of
consolidated trusts separately from the assets and liabilities
of Fannie Mae in our condensed consolidated balance sheets. As
such, we have reclassified prior period amounts to conform to
our current period presentation. The following table presents
the impact to our condensed consolidated balance sheet at the
transition date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
Transition
|
|
|
January 1,
|
|
|
|
2009
|
|
|
Impact
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
6,812
|
|
|
$
|
(19
|
)
|
|
$
|
6,793
|
|
Restricted cash
|
|
|
3,070
|
|
|
|
45,583
|
|
|
|
48,653
|
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
53,684
|
|
|
|
(316
|
)
|
|
|
53,368
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
111,939
|
|
|
|
(66,251
|
)
|
|
|
45,688
|
|
Available-for-sale,
at fair value
|
|
|
237,728
|
|
|
|
(122,328
|
)
|
|
|
115,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
|
349,667
|
|
|
|
(188,579
|
)
|
|
|
161,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of cost or fair value
|
|
|
18,462
|
|
|
|
(18,115
|
)
|
|
|
347
|
|
Loans held for investment, at amortized cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
256,434
|
|
|
|
3,753
|
|
|
|
260,187
|
|
Of consolidated trusts
|
|
|
129,590
|
|
|
|
2,595,321
|
|
|
|
2,724,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
|
386,024
|
|
|
|
2,599,074
|
|
|
|
2,985,098
|
|
Allowance for loan losses
|
|
|
(9,925
|
)
|
|
|
(43,576
|
)
|
|
|
(53,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment, net of allowance
|
|
|
376,099
|
|
|
|
2,555,498
|
|
|
|
2,931,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
394,561
|
|
|
|
2,537,383
|
|
|
|
2,931,944
|
|
Advances to lenders
|
|
|
5,449
|
|
|
|
|
|
|
|
5,449
|
|
Accrued interest receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
3,774
|
|
|
|
(659
|
)
|
|
|
3,115
|
|
Of consolidated trusts
|
|
|
519
|
|
|
|
16,329
|
|
|
|
16,848
|
|
Allowance for accrued interest receivable
|
|
|
(536
|
)
|
|
|
(6,989
|
)
|
|
|
(7,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued interest receivable, net of allowance
|
|
|
3,757
|
|
|
|
8,681
|
|
|
|
12,438
|
|
Acquired property, net
|
|
|
9,142
|
|
|
|
|
|
|
|
9,142
|
|
Derivative assets, at fair value
|
|
|
1,474
|
|
|
|
|
|
|
|
1,474
|
|
Guaranty assets
|
|
|
8,356
|
|
|
|
(8,014
|
)
|
|
|
342
|
|
Deferred tax assets, net
|
|
|
909
|
|
|
|
1,731
|
|
|
|
2,640
|
|
Partnership investments
|
|
|
2,372
|
|
|
|
(456
|
)
|
|
|
1,916
|
|
Servicer and MBS trust receivable
|
|
|
18,329
|
|
|
|
(17,143
|
)
|
|
|
1,186
|
|
Other assets
|
|
|
11,559
|
|
|
|
(1,757
|
)
|
|
|
9,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
869,141
|
|
|
$
|
2,377,094
|
|
|
$
|
3,246,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
Transition
|
|
|
January 1,
|
|
|
|
2009
|
|
|
Impact
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
$
|
4,951
|
|
|
$
|
8
|
|
|
$
|
4,959
|
|
Of consolidated trusts
|
|
|
29
|
|
|
|
10,564
|
|
|
|
10,593
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
200,437
|
|
|
|
|
|
|
|
200,437
|
|
Of consolidated trusts
|
|
|
|
|
|
|
6,425
|
|
|
|
6,425
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
567,950
|
|
|
|
(205
|
)
|
|
|
567,745
|
|
Of consolidated trusts
|
|
|
6,167
|
|
|
|
2,442,280
|
|
|
|
2,448,447
|
|
Derivative liabilities, at fair value
|
|
|
1,029
|
|
|
|
|
|
|
|
1,029
|
|
Reserve for guaranty losses
|
|
|
54,430
|
|
|
|
(54,103
|
)
|
|
|
327
|
|
Guaranty obligations
|
|
|
13,996
|
|
|
|
(13,321
|
)
|
|
|
675
|
|
Partnership liabilities
|
|
|
2,541
|
|
|
|
(456
|
)
|
|
|
2,085
|
|
Servicer and MBS trust payable
|
|
|
25,872
|
|
|
|
(16,600
|
)
|
|
|
9,272
|
|
Other liabilities
|
|
|
7,020
|
|
|
|
(796
|
)
|
|
|
6,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
884,422
|
|
|
|
2,373,796
|
|
|
|
3,258,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Maes stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior preferred stock
|
|
|
60,900
|
|
|
|
|
|
|
|
60,900
|
|
Preferred stock
|
|
|
20,348
|
|
|
|
|
|
|
|
20,348
|
|
Common stock
|
|
|
664
|
|
|
|
|
|
|
|
664
|
|
Additional paid-in capital
|
|
|
2,083
|
|
|
|
|
|
|
|
2,083
|
|
Accumulated deficit
|
|
|
(90,237
|
)
|
|
|
6,706
|
|
|
|
(83,531
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,732
|
)
|
|
|
(3,394
|
)
|
|
|
(5,126
|
)
|
Treasury stock
|
|
|
(7,398
|
)
|
|
|
|
|
|
|
(7,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fannie Mae stockholders deficit
|
|
|
(15,372
|
)
|
|
|
3,312
|
|
|
|
(12,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
91
|
|
|
|
(14
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
|
(15,281
|
)
|
|
|
3,298
|
|
|
|
(11,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity (deficit)
|
|
$
|
869,141
|
|
|
$
|
2,377,094
|
|
|
$
|
3,246,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the following sections, we describe the impacts to our
condensed consolidated balance sheet at the transition date in
the context of the three categories of transition adjustments
noted above.
Net
Recognition of the Assets and Liabilities of Newly Consolidated
Entities
At the transition date, the majority of the net increase to both
total assets and total liabilities resulted from the recognition
of the assets and liabilities of newly consolidated trusts. This
includes the impact of derecognizing
133
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
our investments in Fannie Mae MBS issued from newly consolidated
trusts. We describe the impacts to our condensed consolidated
balance sheet resulting from the recognition of the assets and
liabilities of newly consolidated trusts below.
Investments
in Securities
At the transition date, we derecognized $66.3 billion and
$122.3 billion in investments in securities classified as
trading and AFS, respectively. The net transition impact to our
investments in securities was driven both by the derecognition
of investments in Fannie Mae MBS issued by the newly
consolidated trusts and the recognition of mortgage-related
securities held by the newly consolidated trusts. We
derecognized from our condensed consolidated balance sheet
investments in the Fannie Mae MBS issued by the newly
consolidated trusts as these investments represent debt
securities that are both debt of the consolidated trusts and
investments in our portfolio and therefore represent
intercompany activity. Such investments act to reduce the debt
held by third parties in our condensed consolidated balance
sheets. We also derecognized the accrued interest receivable and
net unrealized gains related to securities that we derecognized
at transition.
Additionally, we recognized mortgage-related securities at
transition in situations where trusts that were previously
consolidated in our condensed consolidated balance sheets
deconsolidated under the new accounting standards. Upon
deconsolidation of these trusts, we derecognized the collateral
of the trusts (that is, mortgage loans) and recognized our
investment in securities issued from the trusts in our condensed
consolidated balance sheet.
The table below presents the impact at the transition date to
our investments in securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
December 31, 2009
|
|
|
Transition Impact
|
|
|
January 1, 2010
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
229,169
|
|
|
$
|
(189,360
|
)
|
|
$
|
39,809
|
|
Freddie Mac
|
|
|
42,551
|
|
|
|
|
|
|
|
42,551
|
|
Ginnie Mae
|
|
|
1,354
|
|
|
|
(21
|
)
|
|
|
1,333
|
|
Alt-A private-label securities
|
|
|
15,505
|
|
|
|
533
|
|
|
|
16,038
|
|
Subprime private-label securities
|
|
|
12,526
|
|
|
|
(118
|
)
|
|
|
12,408
|
|
CMBS
|
|
|
22,528
|
|
|
|
|
|
|
|
22,528
|
|
Mortgage revenue bonds
|
|
|
13,446
|
|
|
|
21
|
|
|
|
13,467
|
|
Other mortgage-related securities
|
|
|
3,706
|
|
|
|
366
|
|
|
|
4,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities
|
|
|
340,785
|
|
|
|
(188,579
|
)
|
|
|
152,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-mortgage-related securities
|
|
|
8,882
|
|
|
|
|
|
|
|
8,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
349,667
|
|
|
$
|
(188,579
|
)
|
|
$
|
161,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Loans
At the transition date, the recognition of loans held by the
newly consolidated trusts resulted in an increase in
Mortgage loans held for investment of consolidated
trusts. Loans held by consolidated trusts are generally
classified as HFI in our condensed consolidated balance sheets.
Prior to the transition date, we reported mortgage loans held
both by us in our mortgage portfolio and those held by
consolidated trusts collectively as
134
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Mortgage loans held for investment in our condensed
consolidated balance sheets. Effective at the transition date,
we report loans held by us as Mortgage loans held for
investment of Fannie Mae and loans held by consolidated
trusts as Mortgage loans held for investment of
consolidated trusts. Prior period amounts have been
reclassified to conform to our current period presentation.
The recognition of the mortgage loans held by newly consolidated
trusts also resulted in an increase in Accrued interest
receivable of consolidated trusts. This increase was
offset in part by an increase to Allowance for accrued
interest receivable, which represents estimated incurred
losses on our accrued interest. Prior to the transition date,
incurred losses on interest of unconsolidated trusts were
reported as a portion of our Reserve for guaranty
losses. Prior to the transition date, we reported the
accrued interest receivable relating to loans held by
consolidated trusts as a component of Accrued interest
receivable. Prior period amounts have been reclassified to
conform to our current period presentation.
The table below presents the impact to the unpaid principal
balance of our mortgage loans at the transition date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
Transition Impact
|
|
|
As of January 1, 2010
|
|
|
|
Of Fannie
|
|
|
Of Consolidated
|
|
|
Of Fannie
|
|
|
Of Consolidated
|
|
|
Of Fannie
|
|
|
Of Consolidated
|
|
|
|
Mae
|
|
|
Trusts
|
|
|
Mae
|
|
|
Trusts
|
|
|
Mae
|
|
|
Trusts
|
|
|
|
(Dollars in millions)
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government insured or guaranteed
|
|
$
|
51,454
|
|
|
$
|
945
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
51,454
|
|
|
$
|
946
|
|
Conventional:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed-rate
|
|
|
90,245
|
|
|
|
89,409
|
|
|
|
(5,272
|
)
|
|
|
2,029,932
|
|
|
|
84,973
|
|
|
|
2,119,341
|
|
Intermediate-term fixed-rate
|
|
|
8,069
|
|
|
|
21,405
|
|
|
|
(178
|
)
|
|
|
318,329
|
|
|
|
7,891
|
|
|
|
339,734
|
|
Adjustable-rate
|
|
|
16,889
|
|
|
|
17,713
|
|
|
|
(2
|
)
|
|
|
190,706
|
|
|
|
16,887
|
|
|
|
208,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total conventional single-family
|
|
|
115,203
|
|
|
|
128,527
|
|
|
|
(5,452
|
)
|
|
|
2,538,967
|
|
|
|
109,751
|
|
|
|
2,667,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
$
|
166,657
|
|
|
$
|
129,472
|
|
|
$
|
(5,452
|
)
|
|
$
|
2,538,968
|
|
|
$
|
161,205
|
|
|
$
|
2,668,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government insured or guaranteed
|
|
$
|
585
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
585
|
|
|
$
|
|
|
Conventional:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed-rate
|
|
|
4,937
|
|
|
|
790
|
|
|
|
|
|
|
|
3,752
|
|
|
|
4,937
|
|
|
|
4,542
|
|
Intermediate-term fixed-rate
|
|
|
81,456
|
|
|
|
10,304
|
|
|
|
|
|
|
|
35,672
|
|
|
|
81,456
|
|
|
|
45,976
|
|
Adjustable-rate
|
|
|
21,535
|
|
|
|
807
|
|
|
|
|
|
|
|
5,603
|
|
|
|
21,535
|
|
|
|
6,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total conventional multifamily
|
|
|
107,928
|
|
|
|
11,901
|
|
|
|
|
|
|
|
45,027
|
|
|
|
107,928
|
|
|
|
56,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily
|
|
$
|
108,513
|
|
|
$
|
11,901
|
|
|
$
|
|
|
|
$
|
45,027
|
|
|
$
|
108,513
|
|
|
$
|
56,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses and Reserve for Guaranty Losses
We maintain an allowance for loan losses related to HFI loans
reported in our condensed consolidated balance sheets and a
reserve for guaranty losses related to loans held by
unconsolidated trusts. Upon recognition of the mortgage loans
held by newly consolidated trusts at the transition date, we
increased our Allowance for loan losses and
decreased our Reserve for guaranty losses. The
overall decrease in the combined reserves represents a
difference in the methodology used to estimate incurred losses
for our allowance for loan losses
135
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
versus our reserve for guaranty losses. Our guaranty reserve
considers all contractually past due interest income including
payments expected to be missed between the balance sheet date
and the point of loan acquisition or foreclosure, however, for
our loan loss allowance, we consider only our net recorded
investment in the loan at the balance sheet date, which only
includes interest income accrued while the loan was on accrual
status. We recognize the portion of the allowance related to
principal as our Allowance for loan losses and the
portion of the allowance related to accrued interest as our
Allowance for accrued interest receivable. We
continue to record a reserve for guaranty losses related to
loans in unconsolidated trusts and loans that we have guaranteed
under long-term standby commitments, which require us to
purchase loans from lenders if the loans meet certain
delinquency criteria. See Note 5, Allowance for Loan
Losses and Reserve for Guaranty Losses for additional
information.
Short-Term
Debt and Long-Term Debt
At the transition date, we recognized an increase of
$6.4 billion in Short-term debt of consolidated
trusts and $2.4 trillion in Long-term debt of
consolidated trusts. The debt of consolidated trusts
represents the amount of Fannie Mae debt securities issued by
such trusts and held by third-party certificateholders. We
recognized an increase of $10.6 billion in Accrued
interest payable of consolidated trusts, which represents
the interest expense accrued as of the transition date on the
long-term debt of the newly consolidated trusts.
Prior to the transition date, we reported debt issued both by us
and by consolidated trusts collectively as either
Short-term debt or Long-term debt.
Effective at the transition date, we report debt issued by us as
either Short-term debt of Fannie Mae or
Long-term debt of Fannie Mae. We report the debt of
consolidated trusts as either Short-term debt of
consolidated trusts or Long-term debt of
consolidated trusts. Prior period amounts have been
reclassified to conform to our current period presentation.
Servicer
and MBS Trust Receivable and Payable
At the transition date we recognized a net decrease of
$17.1 billion in Servicer and MBS trust
receivable. Prior to our adoption of the new accounting
standards, we recorded a receivable from unconsolidated trusts,
net of a valuation allowance, when a delinquency advance was
made to the trust. This receivable now represents intercompany
activity that we eliminate for the purpose of our condensed
consolidated financial statements.
We also recognized a decrease of $16.6 billion in
Servicer and MBS trust payable, which consisted of
two components. First, we have the option to purchase loans and
foreclosed properties from the trust when certain contingencies
have been met. At December 31, 2009, we recorded a payable
to the trust for loans and foreclosed properties that had been
purchased during the month of December. Second, prior to the
consolidation of certain out of portfolio trusts, we recognized
a loan in our condensed consolidated balance sheets at fair
value and recorded a corresponding liability to the
unconsolidated trust when the contingency on our option to
purchase loans from the trust had been met. These payables now
represent intercompany activity that we eliminate for the
purpose of our condensed consolidated financial statements.
Restricted
Cash
At the transition date, Restricted cash increased by
$45.6 billion to record cash payments received by the
servicer or consolidated trusts due to be remitted to the MBS
certificateholders that have been determined to be restricted
for use.
136
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Federal
Funds Sold and Securities Purchased Under Agreements to Resell
or Similar Arrangements
At the transition date, we recognized a decrease of
$316 million in Federal funds sold and securities
purchased under agreements to resell or similar
arrangements relating to dollar roll transactions that
utilized Fannie Mae MBS. As a result of the dollar roll
transactions, we held investments in Fannie Mae MBS in our
condensed consolidated balance sheet as of December 31,
2009 that were issued from trusts that subsequently consolidated
at the transition date. Similar to our treatment of Fannie Mae
MBS classified as trading or AFS, we eliminated our secured
financing receivable related to these dollar roll transactions
and recharacterized the transfer of the Fannie Mae MBS as debt
extinguishment in our condensed consolidated financial
statements.
Accounting
for Portfolio Securitizations
At the transition date, we reclassified the majority of our HFS
mortgage loans to HFI due to the change in our accounting for
portfolio securitizations. Prior to our adoption of the new
accounting standards, we classified mortgage loans acquired with
the intent to securitize as HFS in our condensed consolidated
balance sheets as the majority of the transfers of mortgage
loans under portfolio securitization transactions qualified as
sales under the previous accounting standards. Under the new
accounting standards, the transfer of mortgage loans through
portfolio securitization transactions will generally not result
in the derecognition of mortgage loans, thus we have classified
the loans as HFI.
Certain mortgage loans continue to be classified as HFS in our
condensed consolidated balance sheets, consistent with our
intent to securitize and transfer the mortgage loans to an MBS
trust that we will not consolidate.
Elimination
of Accounting for Guarantees
At the transition date, we made adjustments relating to our
accounting for guarantees and master servicing. We describe the
impact of the new accounting standards on our accounting for
guarantees and master servicing below.
Guaranty
Accounting
We continue to guarantee to our MBS trusts that we will
supplement amounts received by the trust as required to permit
timely payments of principal and interest on the related Fannie
Mae MBS, regardless of their consolidation status. However, for
consolidated trusts, our guarantee to the trust represents an
intercompany activity that must be eliminated for purposes of
our condensed consolidated financial statements. Thus, upon
consolidation of the trusts, we eliminated the related guaranty
asset, guaranty obligation,
buy-up,
buy-down and risk-based price adjustments from our condensed
consolidated balance sheet. We continue to record guaranty
assets and guaranty obligations in our condensed consolidated
balance sheets relating to unconsolidated trusts.
Master
Servicing
The transition adjustment to our Other assets and
Other liabilities includes the derecognition of the
portion of our master servicing asset and master servicing
liability relating to newly consolidated trusts, which
represents intercompany activity.
137
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Impact
on Statements of Operations
Our adoption of the new accounting standards affects how certain
income and expense items are reported in our condensed
consolidated statements of operations on an ongoing basis. We
explain the key impacts below.
Interest
Income on Mortgage Loans
The interest income earned on mortgage loans held by the newly
consolidated trusts is recorded in our condensed consolidated
statements of operations as loan interest income. This interest
income was not recorded in our condensed consolidated statements
of operations prior to the transition date as the trusts were
not consolidated.
Prior to our adoption of the new accounting standards, we
reported interest income on mortgage loans held both by us and
by consolidated trusts collectively as Interest income on
mortgage loans. Effective at the transition date, we
report interest income on loans held by us as Interest
income on mortgage loans of Fannie Mae and interest income
on loans held by consolidated trusts as Interest income on
mortgage loans of consolidated trusts. Prior period
amounts have been reclassified to conform to our current period
presentation. Interest income on mortgage loans of Fannie
Mae is not impacted by our adoption of the new accounting
standards.
Interest
Expense on Short-Term and Long-Term Debt
The interest expense incurred on debt of newly consolidated
trusts is recorded in our condensed consolidated statements of
operations as interest expense on short-term and long-term debt.
This interest expense was not recorded in our condensed
consolidated statements of operations prior to the transition
date as the trusts were not consolidated.
Prior to our adoption of the new accounting standards, we
reported interest expense on debt issued both by us and by
consolidated trusts as either Interest expense on
short-term debt or Interest expense on long-term
debt. Effective at the transition date, we report interest
expense as either Interest expense on debt of Fannie
Mae or Interest expense on debt of consolidated
trusts. Prior period amounts have been reclassified to
conform to our current period presentation. Interest
expense on debt of Fannie Mae is not impacted by our
adoption of the new accounting standards.
Provision
for Loan Losses and Provision for Guaranty Losses
Since the majority of our MBS trusts were consolidated at the
transition date, the provision for loan losses recorded in
periods after the transition date reflects the increase in the
mortgage loans reported in our condensed consolidated balance
sheets. The provision for guaranty losses recorded in periods
after the transition date reflects the subsequent decrease in
unconsolidated trusts. The portion of the reserve for guaranty
losses relating to loans in previously unconsolidated MBS trusts
that were consolidated at the transition date was derecognized
and we recognized an allowance for loan losses as the loans are
now reflected in our condensed consolidated balance sheet.
138
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Guaranty
Fee Income
We do not recognize the guaranty fee income earned from
consolidated trusts. Guaranty fees from consolidated trusts are
reported as a component of interest income on mortgage loans. As
our guaranty-related assets and liabilities pertaining to
consolidated trusts were also eliminated, we no longer record
amortization income or fair value adjustments related to these
trusts. The guaranty fee income that continues to be recognized
in our condensed consolidated statements of operations relates
to guarantees to unconsolidated trusts and other credit
enhancements that we have provided.
Debt
Extinguishment Gains (Losses)
Upon purchase of Fannie Mae MBS debt securities issued from a
consolidated trust for our mortgage portfolio, we extinguish the
related debt issued by the consolidated trust as we now own the
debt securities instead of a third party. We record debt
extinguishment gains or losses related to debt of consolidated
trusts to the extent that the purchase price of the debt
security does not equal the carrying value of the related
consolidated debt reported in our condensed consolidated balance
sheet at the time of purchase.
Trust Management
Income
As master servicer, issuer, and trustee for Fannie Mae MBS, we
earn a fee that reflects interest earned on cash flows from the
date of remittance of mortgage and other payments to us by the
servicers until the date of distribution of these payments to
the MBS certificateholders. Previously, we reported this
compensation as Trust management income in our
condensed consolidated statements of operations. Upon adoption
of the new accounting standards, we report the trust management
income earned by consolidated trusts as a component of net
interest income in our condensed consolidated statements of
operations. Trust management income earned by us relating to
unconsolidated trusts is now reported as a component of
Fee and other income. Prior period amounts have been
reclassified to conform to our current period presentation.
Impact
on Segment Reporting
As a result of our adoption of the new accounting standards, we
changed the presentation of segment financial information that
is currently evaluated by management. With this change, the sum
of the results for our three segments does not equal our
condensed consolidated results of operations as we separate the
activity related to our consolidated trusts from the results
generated by our three segments.
Our three reportable segments continue to be: Single-Family,
HCD, and Capital Markets. We use these three segments to
generate revenue and manage business risk, and each segment is
measured based on the type of business activities it performs.
We have not restated prior period results nor have we presented
current year results under the old presentation as we determined
that it was impracticable to do so; therefore, our segment
results reported in the current period are not comparable with
prior periods.
We present our segment results in Note 13, Segment
Reporting.
139
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
3.
|
Consolidations
and Transfers of Financial Assets
|
We have interests in various entities that are considered to be
VIEs. The primary types of entities are securitization trusts
guaranteed by us via lender swap and portfolio securitization
transactions, mortgage and asset-backed trusts that were not
created by us, as well as housing partnerships that are
established to finance the acquisition, construction,
development or rehabilitation of affordable multifamily and
single-family housing. These interests also include investments
in securities issued by VIEs, such as Fannie Mae MBS created
pursuant to our securitization transactions and our guaranty to
the entity. Our adoption of the new accounting standards on the
transfers of financial assets and consolidation of VIEs resulted
in the majority of our single-class securitization trusts being
consolidated by us.
Consolidated
VIEs
The following table displays the assets and liabilities of
consolidated VIEs in our condensed consolidated balance sheets
as of June 30, 2010 and December 31, 2009. The
difference between total assets of consolidated VIEs and total
liabilities of consolidated VIEs is primarily due to our
investment in the debt securities of consolidated VIEs. In
general, the investors in the obligations of consolidated VIEs
have recourse only to the assets of those VIEs and do not have
recourse to us, except where we provide a guaranty to the VIE.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010(1)
|
|
|
2009(1)
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
526
|
|
|
$
|
2,092
|
|
Restricted cash
|
|
|
35,376
|
|
|
|
|
|
Trading securities
|
|
|
23
|
|
|
|
5,599
|
|
Available-for-sale
securities
|
|
|
611
|
|
|
|
10,513
|
|
Loans held for sale
|
|
|
807
|
|
|
|
11,646
|
|
Loans held for investment
|
|
|
2,574,018
|
|
|
|
129,590
|
|
Accrued interest receivable
|
|
|
9,851
|
|
|
|
519
|
|
Servicer and MBS trust receivable
|
|
|
640
|
|
|
|
466
|
|
Other
assets(2)
|
|
|
20
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
Total assets of consolidated VIEs
|
|
$
|
2,621,872
|
|
|
$
|
160,876
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
$
|
9,956
|
|
|
$
|
29
|
|
Short-term debt
|
|
|
5,987
|
|
|
|
|
|
Long-term debt
|
|
|
2,376,774
|
|
|
|
6,167
|
|
Servicer and MBS trust payable
|
|
|
1,143
|
|
|
|
850
|
|
Other
liabilities(3)
|
|
|
19
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of consolidated VIEs
|
|
$
|
2,393,879
|
|
|
$
|
7,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes VIEs created through
lender swaps, private label wraps and portfolio securitization
transactions.
|
|
(2) |
|
Includes partnership investments of
$430 million and cash, cash equivalents and restricted cash
of $21 million in limited partnerships as of
December 31, 2009.
|
|
(3) |
|
Includes partnership liabilities of
$385 million as of December 31, 2009.
|
140
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The adoption of the new accounting standards resulted in
significant changes in the consolidation status of VIEs. Refer
to Note 2, Adoption of the New Accounting Standards
on the Transfers of Financial Assets and Consolidation of
Variable Interest Entities for additional information
regarding the impact of transition.
In addition to the VIEs consolidated as a result of adopting the
new accounting standards, we consolidated VIEs as of
June 30, 2010 that were not consolidated as of
December 31, 2009. These VIEs are Fannie Mae multi-class
resecuritization trusts and were consolidated because we now
hold in our portfolio a substantial portion of the certificates.
As a result of consolidating these multi-class resecuritization
trusts, which have combined total assets of $519 million,
we derecognized our investment in these trusts and recognized
the assets and liabilities of the consolidated trusts at their
fair value.
As of December 31, 2009, we consolidated VIEs that were no
longer consolidated as of June 30, 2010, excluding the
impact of adopting the new accounting standards. These VIEs were
Fannie Mae multi-class resecuritization trusts and were
deconsolidated because we no longer hold in our portfolio a
substantial portion of the certificates. As a result of
deconsolidating these multi-class resecuritization trusts, which
had combined total assets of $488 million, we derecognized
the assets and liabilities of the trusts and recognized at fair
value our retained interests as securities in our condensed
consolidated balance sheets.
Unconsolidated
VIEs
We also have investments in VIEs that we do not consolidate
because we are not deemed to be the primary beneficiary. These
unconsolidated VIEs include securitization trusts, as well as
other equity investments. The following table displays the total
assets as of June 30, 2010 and December 31, 2009 of
unconsolidated VIEs with which we are involved.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage-backed trusts
|
|
$
|
754,252
|
|
|
$
|
3,044,516
|
|
Asset-backed trusts
|
|
|
395,785
|
|
|
|
484,703
|
|
Limited partnership investments
|
|
|
14,114
|
|
|
|
13,085
|
|
Mortgage revenue bonds and other credit-enhanced bonds
|
|
|
8,034
|
|
|
|
8,061
|
|
|
|
|
|
|
|
|
|
|
Total assets of unconsolidated VIEs
|
|
$
|
1,172,185
|
|
|
$
|
3,550,365
|
|
|
|
|
|
|
|
|
|
|
141
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays the carrying amount and
classification of the assets and liabilities as of June 30,
2010 and December 31, 2009 and the maximum exposure to loss
as of June 30, 2010 related to our variable interests in
unconsolidated VIEs with which we are involved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Carrying Amount
|
|
|
Exposure to Loss
|
|
|
Carrying
Amount(1)
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities(2)
|
|
$
|
94,110
|
|
|
$
|
84,947
|
|
|
$
|
190,135
|
|
Trading
securities(2)
|
|
|
31,526
|
|
|
|
31,359
|
|
|
|
91,222
|
|
Guaranty assets
|
|
|
249
|
|
|
|
|
|
|
|
8,195
|
|
Partnership investments
|
|
|
150
|
|
|
|
414
|
|
|
|
144
|
|
Servicer and MBS trust receivable
|
|
|
10
|
|
|
|
10
|
|
|
|
15,903
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets related to our interests in unconsolidated VIEs
|
|
$
|
126,045
|
|
|
$
|
116,730
|
|
|
$
|
306,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for guaranty losses
|
|
$
|
212
|
|
|
$
|
212
|
|
|
$
|
52,703
|
|
Guaranty obligations
|
|
|
486
|
|
|
|
22,101
|
|
|
|
13,504
|
|
Partnership liabilities
|
|
|
243
|
|
|
|
55
|
|
|
|
325
|
|
Servicer and MBS trust payable
|
|
|
52
|
|
|
|
52
|
|
|
|
20,371
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities related to our interest in unconsolidated VIEs
|
|
$
|
993
|
|
|
$
|
22,420
|
|
|
$
|
87,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes VIEs created through
lender swaps and portfolio securitization transactions. Our
total maximum exposure to loss relating to unconsolidated VIEs
was $2.6 trillion as of December 31, 2009.
|
|
(2) |
|
Contains securities exposed through
consolidation which may also represent an interest in other
unconsolidated VIEs.
|
Our maximum exposure to loss generally represents the greater of
our recorded investment in the entity or the unpaid principal
balance of the assets covered by our guaranty. However, our
securities issued by Fannie Mae multi-class resecuritization
trusts that are not consolidated do not give rise to any
additional exposure to loss as we already consolidate the
underlying collateral.
Transfers
of Financial Assets
We issue Fannie Mae MBS through portfolio securitization
transactions by transferring pools of mortgage loans or
mortgage-related securities to one or more trusts or special
purpose entities. We are considered to be the transferor when we
transfer assets from our own portfolio in a portfolio
securitization transaction. For the three months ended
June 30, 2010 and 2009, the unpaid principal balance of
portfolio securitizations was $15.1 billion and
$135.5 billion, respectively. For the six months ended
June 30, 2010 and 2009, the unpaid principal balance of
portfolio securitizations was $32.9 billion and
$158.4 billion, respectively.
Upon adoption of the new accounting standards, the majority of
our portfolio securitization transactions do not qualify for
sale treatment. As a result, our continuing involvement in the
form of guaranty assets and guaranty
142
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
liabilities with assets that were transferred into
unconsolidated trusts has been greatly reduced and are no longer
material. We report the assets and liabilities of consolidated
trusts created via portfolio securitization transactions that do
not qualify as sales in our condensed consolidated balance
sheets and in the consolidated VIEs table above.
The following table displays some key characteristics of the
securities retained in portfolio securitizations accounted for
as sales.
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
|
|
|
|
Single-class
|
|
|
|
|
|
|
MBS & Fannie
|
|
|
REMICS &
|
|
|
|
Mae Megas
|
|
|
SMBS
|
|
|
|
(Dollars in millions)
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
70
|
|
|
$
|
18,538
|
|
Fair value
|
|
|
75
|
|
|
|
19,730
|
|
Impact on value from a 10% adverse change
|
|
|
(8
|
)
|
|
|
(1,973
|
)
|
Impact on value from a 20% adverse change
|
|
|
(15
|
)
|
|
|
(3,946
|
)
|
Weighted-average coupon
|
|
|
6.57
|
%
|
|
|
6.55
|
%
|
Weighted-average loan age
|
|
|
3.6 years
|
|
|
|
4.7 years
|
|
Weighted-average maturity
|
|
|
26.3 years
|
|
|
|
24.0 years
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
34,260
|
|
|
$
|
19,472
|
|
Fair value
|
|
|
35,455
|
|
|
|
20,224
|
|
Impact on value from a 10% adverse change
|
|
|
(3,546
|
)
|
|
|
(2,022
|
)
|
Impact on value from a 20% adverse change
|
|
|
(7,091
|
)
|
|
|
(4,045
|
)
|
Weighted-average coupon
|
|
|
5.62
|
%
|
|
|
6.82
|
%
|
Weighted-average loan age
|
|
|
2.9 years
|
|
|
|
4.6 years
|
|
Weighted-average maturity
|
|
|
24.2 years
|
|
|
|
26.1 years
|
|
The gain or loss on a portfolio securitization transaction that
qualifies as a sale depends, in part, on the carrying amount of
the financial assets sold. Prior to January 1, 2010, we
allocated the carrying amount of the financial assets sold
between the assets sold and the interests retained, if any,
based on their relative fair value at the date of sale. Further,
we recognized our recourse obligations at their full fair value
at the date of sale, which serves as a reduction of sale
proceeds in the gain or loss calculation. Beginning
January 1, 2010, we recognize all assets obtained and all
liabilities incurred at fair value. We recorded a net gain on
portfolio securitizations of $29 million and
$310 million for the three months ended June 30, 2010
and 2009, respectively. We recorded a net gain on portfolio
securitizations of $109 million and $630 million for
the six months ended June 30, 2010 and 2009, respectively.
We recognize these amounts as a component of Investment
gains (losses), net in our condensed consolidated
statements of operations.
143
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays cash flows from our securitization
trusts related to portfolio securitizations accounted for as
sales for the three and six months ended June 30, 2010 and
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
For the
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
Proceeds from the initial sale of securities (new
securitizations)
|
|
$
|
464
|
|
|
$
|
39,276
|
|
|
$
|
2,020
|
|
|
$
|
61,339
|
|
Principal and interest received on retained interests
|
|
|
887
|
|
|
|
2,543
|
|
|
|
1,723
|
|
|
|
4,836
|
|
We define managed loans as on-balance sheet mortgage
loans as well as mortgage loans that we have securitized in
portfolio securitizations that have qualified as sales pursuant
to the accounting standards for transfers of financial assets.
As noted above, our adoption of the new accounting standards
resulted in a significant increase in mortgage loans held for
investment and a decrease in loans held for sale in our
condensed consolidated balance sheets, as well as a decrease in
the amount of loans securitized in portfolio securitizations
that qualify as sales. The following table displays the unpaid
principal balances of managed loans, including those managed
loans that are delinquent as of June 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
Principal Amount of
|
|
|
|
Principal Balance
|
|
|
Delinquent
Loans(1)
|
|
|
|
(Dollars in millions)
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
$
|
2,990,664
|
|
|
$
|
199,186
|
|
Loans held for sale
|
|
|
1,070
|
|
|
|
42
|
|
Securitized loans
|
|
|
2,061
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Total loans managed
|
|
$
|
2,993,795
|
|
|
$
|
199,292
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
$
|
395,551
|
|
|
$
|
51,051
|
|
Loans held for sale
|
|
|
20,992
|
|
|
|
140
|
|
Securitized loans
|
|
|
187,922
|
|
|
|
5,161
|
|
|
|
|
|
|
|
|
|
|
Total loans managed
|
|
$
|
604,465
|
|
|
$
|
56,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the unpaid principal
balance of loans held for investment and loans held for sale for
which we are no longer accruing interest. We discontinue
accruing interest when payment of principal and interest in full
is not reasonably assured.
|
144
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays loans in our mortgage portfolio as
of June 30, 2010 and December 31, 2009 and reflects
the adoption of the new accounting standards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31,
2009(1)
|
|
|
|
Of
|
|
|
Of
|
|
|
|
|
|
Of
|
|
|
Of
|
|
|
|
|
|
|
Fannie
|
|
|
Consolidated
|
|
|
|
|
|
Fannie
|
|
|
Consolidated
|
|
|
|
|
|
|
Mae
|
|
|
Trusts
|
|
|
Total
|
|
|
Mae
|
|
|
Trusts
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Single-family(2)
|
|
$
|
313,663
|
|
|
$
|
2,511,073
|
|
|
$
|
2,824,736
|
|
|
$
|
166,657
|
|
|
$
|
129,472
|
|
|
$
|
296,129
|
|
Multifamily
|
|
|
106,971
|
|
|
|
60,027
|
|
|
|
166,998
|
|
|
|
108,513
|
|
|
|
11,901
|
|
|
|
120,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unpaid principal balance of mortgage loans
|
|
|
420,634
|
|
|
|
2,571,100
|
|
|
|
2,991,734
|
|
|
|
275,170
|
|
|
|
141,373
|
|
|
|
416,543
|
|
Unamortized premiums (discounts) and other cost basis
adjustments, net
|
|
|
(14,398
|
)
|
|
|
3,743
|
|
|
|
(10,655
|
)
|
|
|
(11,196
|
)
|
|
|
28
|
|
|
|
(11,168
|
)
|
Lower of cost or fair value adjustments on loans held for sale
|
|
|
(19
|
)
|
|
|
(19
|
)
|
|
|
(38
|
)
|
|
|
(729
|
)
|
|
|
(160
|
)
|
|
|
(889
|
)
|
Allowance for loan losses for loans held for investment
|
|
|
(42,844
|
)
|
|
|
(17,738
|
)
|
|
|
(60,582
|
)
|
|
|
(8,078
|
)
|
|
|
(1,847
|
)
|
|
|
(9,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
$
|
363,373
|
|
|
$
|
2,557,086
|
|
|
$
|
2,920,459
|
|
|
$
|
255,167
|
|
|
$
|
139,394
|
|
|
$
|
394,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain prior period amounts have
been reclassified to conform to the current period presentation.
|
|
|
|
|
|
(2) |
|
As of June 30, 2010, our
single-family of Fannie Mae amount of $313.7 billion
includes unpaid principal balance of $169.9 billion related
to credit-impaired loans that were acquired from MBS trusts for
the six months ended June 30, 2010. Fannie Mae acquired
credit-impaired loans from MBS trusts with an unpaid principal
balance totaling $18.9 billion in June 2010 and paid this
amount, along with accrued interest of $710 million, in
July 2010.
|
|
|
|
|
Impaired
Loans
Impaired loans include performing and nonperforming
single-family and multifamily TDRs, acquired credit-impaired
loans, and other multifamily loans. The following table displays
the recorded investment and corresponding specific loss
allowance as of June 30, 2010 and December 31, 2009
for all impaired loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Recorded
|
|
|
|
|
|
Net
|
|
|
Recorded
|
|
|
|
|
|
Net
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
|
(Dollars in millions)
|
|
|
Impaired
loans:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With valuation allowance
|
|
$
|
126,339
|
|
|
$
|
33,614
|
|
|
$
|
92,725
|
|
|
$
|
27,050
|
|
|
$
|
5,995
|
|
|
$
|
21,055
|
|
Without valuation
allowance(2)
|
|
|
11,800
|
|
|
|
|
|
|
|
11,800
|
|
|
|
8,420
|
|
|
|
|
|
|
|
8,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,139
|
|
|
$
|
33,614
|
|
|
$
|
104,525
|
|
|
$
|
35,470
|
|
|
$
|
5,995
|
|
|
$
|
29,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes single-family loans
restructured in a TDR with a recorded investment of
$128.9 billion and $23.9 billion as of June 30,
2010 and December 31, 2009, respectively. Includes
multifamily loans restructured in a TDR with a recorded
investment of $56 million and $51 million as of
June 30, 2010 and December 31, 2009, respectively.
|
|
(2) |
|
The discounted cash flows,
collateral value or fair value equals or exceeds the carrying
value of the loan, and as such, no valuation allowance is
required.
|
145
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The average recorded investment in impaired loans was
$134.1 billion and $16.2 billion for the three months
ended June 30, 2010 and 2009, respectively, and
$123.8 billion and $14.7 billion for the six months
ended June 30, 2010 and 2009, respectively. Interest income
recognized on impaired loans was $1.5 billion and
$265 million for the three months ended June 30, 2010
and 2009, respectively, and $3.0 billion and
$495 million for the six months ended June 30, 2010
and 2009, respectively.
Loans
Acquired in a Transfer
We acquired delinquent unconsolidated loans with an unpaid
principal balance plus accrued interest of $75 million and
$3.7 billion for the three months ended June 30, 2010
and 2009, respectively, and $160 million and
$6.3 billion for the six months ended June 30, 2010
and 2009, respectively. The following table displays the
outstanding balance and carrying amount of acquired
credit-impaired loans as of June 30, 2010 and
December 31, 2009, excluding loans that were modified as
TDRs subsequent to their acquisition from MBS trusts.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in millions)
|
|
|
Outstanding contractual balance
|
|
$
|
13,586
|
|
|
$
|
24,106
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
Loans on accrual status
|
|
|
2,234
|
|
|
|
2,560
|
|
Loans on nonaccrual status
|
|
|
4,357
|
|
|
|
8,952
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount of loans
|
|
$
|
6,591
|
|
|
$
|
11,512
|
|
|
|
|
|
|
|
|
|
|
The following table displays details on activity for acquired
credit-impaired loans at their acquisition dates for the three
and six months ended June 30, 2010 and 2009, excluding
loans that were modified as TDRs subsequent to their acquisition
from MBS trusts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Contractually required principal and interest payments at
acquisition(1)
|
|
$
|
72
|
|
|
$
|
3,938
|
|
|
$
|
160
|
|
|
$
|
6,798
|
|
Nonaccretable difference
|
|
|
27
|
|
|
|
1,038
|
|
|
|
59
|
|
|
|
1,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows expected to be collected at
acquisition(1)
|
|
|
45
|
|
|
|
2,900
|
|
|
|
101
|
|
|
|
5,079
|
|
Accretable yield
|
|
|
20
|
|
|
|
1,288
|
|
|
|
49
|
|
|
|
2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial investment in acquired credit-impaired loans at
acquisition
|
|
$
|
25
|
|
|
$
|
1,612
|
|
|
$
|
52
|
|
|
$
|
2,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Contractually required principal
and interest payments at acquisition and cash flows expected to
be collected at acquisition are adjusted for the estimated
timing and amount of prepayments.
|
146
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays activity for the accretable yield
of all outstanding acquired credit-impaired loans for the three
and six months ended June 30, 2010 and 2009. Accreted
effective interest is shown for only those loans that we were
still accounting for as acquired credit-impaired loans for the
respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
For the
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
6,835
|
|
|
$
|
1,799
|
|
|
$
|
10,117
|
|
|
$
|
1,559
|
|
Additions
|
|
|
20
|
|
|
|
1,288
|
|
|
|
49
|
|
|
|
2,241
|
|
Accretion
|
|
|
(81
|
)
|
|
|
(50
|
)
|
|
|
(157
|
)
|
|
|
(106
|
)
|
Reductions(1)
|
|
|
(1,556
|
)
|
|
|
(1,461
|
)
|
|
|
(4,299
|
)
|
|
|
(2,484
|
)
|
Changes in estimated cash
flows(2)
|
|
|
(188
|
)
|
|
|
907
|
|
|
|
(528
|
)
|
|
|
1,214
|
|
Reclassifications to nonaccretable
difference(3)
|
|
|
(50
|
)
|
|
|
(187
|
)
|
|
|
(202
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,980
|
|
|
$
|
2,296
|
|
|
$
|
4,980
|
|
|
$
|
2,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reductions are the result of
liquidations and loan modifications due to TDRs.
|
|
(2) |
|
Represents changes in expected cash
flows due to changes in prepayment and other assumptions.
|
|
(3) |
|
Represents changes in expected cash
flows due to changes in credit quality or credit assumptions.
|
The following table displays interest income recognized and the
increase in the Provision for loan losses related to
loans that are still being accounted for as acquired
credit-impaired loans, as well as loans that have been
subsequently modified as a TDR, for the three and six months
ended June 30, 2010 and 2009. The accretion of fair value
losses reported in the table below relates primarily to
credit-impaired loans that were acquired prior to the transition
date. Subsequent to the transition date, our condensed
consolidated statements of operations no longer reflect the
recognition of fair value losses on the majority of acquisitions
of
credit-impaired
loans because the loans are already recorded in our condensed
consolidated balance sheets at the time of purchase.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Accretion of fair value
discount(1)
|
|
$
|
288
|
|
|
$
|
198
|
|
|
$
|
554
|
|
|
$
|
263
|
|
Interest income on loans returned to accrual status or
subsequently modified as TDRs
|
|
|
298
|
|
|
|
58
|
|
|
|
619
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income recognized on acquired credit-impaired
loans
|
|
$
|
586
|
|
|
$
|
256
|
|
|
$
|
1,173
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in Provision for loan losses
subsequent to the acquisition of credit-impaired loans
|
|
$
|
(120
|
)
|
|
$
|
137
|
|
|
$
|
444
|
|
|
$
|
200
|
|
|
|
|
(1) |
|
Represents accretion of the fair
value discount that was recorded on acquired credit-impaired
loans.
|
|
|
5.
|
Allowance
for Loan Losses and Reserve for Guaranty Losses
|
We maintain an allowance for loan losses for loans held for
investment in our mortgage portfolio and loans backing Fannie
Mae MBS issued from consolidated trusts and a reserve for
guaranty losses related to loans
147
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
backing Fannie Mae MBS issued from unconsolidated trusts and
loans that we have guaranteed under
long-term
standby commitments. We refer to our allowance for loan losses
and reserve for guaranty losses collectively as our combined
loss reserves. When calculating our guaranty reserve, we
consider all contractually past due interest income including
payments expected to be missed between the balance sheet date
and the point of loan acquisition or foreclosure. When
calculating our loan loss allowance, we consider only our net
recorded investment in the loan at the balance sheet date, which
includes interest income only while the loan was on accrual
status. Determining the adequacy of our allowance for loan
losses and reserve for guaranty losses is complex and requires
judgment about the effect of matters that are inherently
uncertain.
Upon recognition of the mortgage loans held by newly
consolidated trusts at the transition date, we increased our
allowance for loan losses and decreased our reserve for guaranty
losses. The decrease in our combined loss reserves of
$10.5 billion reflects the difference in the methodology
used to estimate incurred losses under our allowance for loan
losses versus our reserve for guaranty losses and recording the
portion of the reserve related to accrued interest to
Allowance for accrued interest receivable in our
condensed consolidated balance sheets. See Note 2,
Adoption of the New Accounting Standards on the Transfers of
Financial Assets and Consolidation of Variable Interest
Entities for additional information.
Although our loss models include extensive historical loan
performance data, our loss reserve process is subject to risks
and uncertainties particularly in the rapidly changing credit
environment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Of
|
|
|
Of
|
|
|
|
|
|
|
|
|
Of
|
|
|
Of
|
|
|
|
|
|
|
|
|
|
Fannie
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Fannie
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Mae
|
|
|
Trusts
|
|
|
Total
|
|
|
|
|
|
Mae
|
|
|
Trusts
|
|
|
Total
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance(1)
|
|
$
|
25,675
|
|
|
$
|
34,894
|
|
|
$
|
60,569
|
|
|
$
|
4,630
|
|
|
$
|
8,078
|
|
|
$
|
1,847
|
|
|
$
|
9,925
|
|
|
$
|
2,772
|
|
Adoption of new accounting standards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,576
|
|
|
|
43,576
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,593
|
|
|
|
1,702
|
|
|
|
4,295
|
|
|
|
2,615
|
|
|
|
8,864
|
|
|
|
7,370
|
|
|
|
16,234
|
|
|
|
5,124
|
|
Charge-offs(2)
|
|
|
(4,446
|
)
|
|
|
(1,947
|
)
|
|
|
(6,393
|
)
|
|
|
(672
|
)
|
|
|
(6,151
|
)
|
|
|
(5,402
|
)
|
|
|
(11,553
|
)
|
|
|
(1,309
|
)
|
Recoveries
|
|
|
65
|
|
|
|
291
|
|
|
|
356
|
|
|
|
68
|
|
|
|
162
|
|
|
|
568
|
|
|
|
730
|
|
|
|
103
|
|
Transfers(3)
|
|
|
22,620
|
|
|
|
(22,620
|
)
|
|
|
|
|
|
|
|
|
|
|
36,475
|
|
|
|
(36,475
|
)
|
|
|
|
|
|
|
|
|
Net
reclassifications(1)(4)
|
|
|
(3,663
|
)
|
|
|
5,418
|
|
|
|
1,755
|
|
|
|
(109
|
)
|
|
|
(4,584
|
)
|
|
|
6,254
|
|
|
|
1,670
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance(1)(5)
|
|
$
|
42,844
|
|
|
$
|
17,738
|
|
|
$
|
60,582
|
|
|
$
|
6,532
|
|
|
$
|
42,844
|
|
|
$
|
17,738
|
|
|
$
|
60,582
|
|
|
$
|
6,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for guaranty losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
233
|
|
|
$
|
|
|
|
$
|
233
|
|
|
$
|
36,876
|
|
|
$
|
54,430
|
|
|
$
|
|
|
|
$
|
54,430
|
|
|
$
|
21,830
|
|
Adoption of new accounting standards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,103
|
)
|
|
|
|
|
|
|
(54,103
|
)
|
|
|
|
|
Provision for guaranty losses
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
|
|
15,610
|
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
|
|
33,435
|
|
Charge-offs(6)(7)
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
|
|
(4,314
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
(117
|
)
|
|
|
(7,258
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
246
|
|
|
$
|
|
|
|
$
|
246
|
|
|
$
|
48,280
|
|
|
$
|
246
|
|
|
$
|
|
|
|
$
|
246
|
|
|
$
|
48,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
(1) |
|
Prior period amounts have been
reclassified to conform to current year presentation.
|
|
|
|
|
|
(2) |
|
Includes accrued interest of
$611 million and $328 million for the three months
ended June 30, 2010 and 2009, respectively and
$1.2 billion and $575 million for the six months ended
June 30, 2010 and 2009, respectively.
|
|
(3) |
|
Includes transfers from trusts for
delinquent loan purchases.
|
|
(4) |
|
Represents reclassification of
amounts recorded in provision for loan losses and charge-offs
that relate to allowance for accrued interest receivable and
preforeclosure property taxes and insurance due from borrowers.
|
|
(5) |
|
Includes $637 million and
$309 million as of June 30, 2010 and 2009,
respectively, for acquired credit-impaired loans.
|
|
(6) |
|
Includes charges of
$73 million and $188 million for the three and six
months ended June 30, 2009, respectively, related to
unsecured HomeSaver Advance loans. There were no charges related
to unsecured HomeSaver Advance loans for the three and six
months ended June 30, 2010.
|
|
(7) |
|
Includes charges recorded at the
date of acquisition of $47 million and $2.1 billion
for the three months ended June 30, 2010 and 2009,
respectively, and $105 million and $3.5 billion for
the six months ended June 30, 2010 and 2009, respectively,
for acquired credit-impaired loans where the acquisition cost
exceeded the fair value of the acquired loan.
|
In the three month period ended June 30, 2010, we
identified that for a portion of our delinquent loans we had not
estimated and recorded our obligation to reimburse servicers for
advances they made on our behalf for preforeclosure property
taxes and insurance. We previously recognized these expenses
when we reimbursed servicers. We also did not record a
receivable from borrowers for these payments or assess the
collectibility of the receivable. As such, we did not record an
allowance for estimated uncollectable amounts. We have evaluated
the effects of this misstatement, both quantitatively and
qualitatively, on our three month period ended March 31,
2010 and our 2009 and prior consolidated financial statements
and concluded that no prior periods are materially misstated. We
have also concluded that the misstatement is not material to our
projected annual 2010 loss.
To correct the above misstatement, we have recorded a
$2.2 billion receivable from borrowers to Other
assets and a corresponding Servicer and MBS trust
payable in our condensed consolidated balance sheet as of
June 30, 2010. Additionally, we recorded an
out-of-period
adjustment of $1.1 billion to Provision for loan
losses in our condensed consolidated statements of
operations for the three and six month periods ended
June 30, 2010, reflecting our assessment of the
collectibility of the receivable from the borrowers.
|
|
6.
|
Investments
in Securities
|
Trading
Securities
Trading securities are recorded at fair value with subsequent
changes in fair value recorded as Fair value gains
(losses), net in our condensed consolidated statements of
operations. The following table displays our
149
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
investments in trading securities and the cumulative amount of
net losses recognized from holding these securities as of
June 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in millions)
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
7,737
|
|
|
$
|
74,750
|
|
Freddie Mac
|
|
|
1,988
|
|
|
|
15,082
|
|
Ginnie Mae
|
|
|
521
|
|
|
|
1
|
|
Alt-A private-label securities
|
|
|
1,409
|
|
|
|
1,355
|
|
Subprime private-label securities
|
|
|
1,645
|
|
|
|
1,780
|
|
CMBS
|
|
|
10,428
|
|
|
|
9,335
|
|
Mortgage revenue bonds
|
|
|
650
|
|
|
|
600
|
|
Other mortgage-related securities
|
|
|
160
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,538
|
|
|
|
103,057
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
45,712
|
|
|
|
3
|
|
Asset-backed securities
|
|
|
7,103
|
|
|
|
8,515
|
|
Corporate debt securities
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
52,815
|
|
|
|
8,882
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
$
|
77,353
|
|
|
$
|
111,939
|
|
|
|
|
|
|
|
|
|
|
Losses in trading securities held in our portfolio, net
|
|
$
|
3,142
|
|
|
$
|
2,685
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010, we held U.S. Treasury securities
and certificates of deposit with fair values of
$14.4 billion and $2.0 billion, respectively, which we
elected to classify as Cash and cash equivalents in
our condensed consolidated balance sheets.
The following table displays information about our net trading
gains and losses for the three and six months ended
June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Net trading gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities
|
|
$
|
612
|
|
|
$
|
811
|
|
|
$
|
1,618
|
|
|
$
|
690
|
|
Non-mortgage-related securities
|
|
|
28
|
|
|
|
750
|
|
|
|
80
|
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
640
|
|
|
$
|
1,561
|
|
|
$
|
1,698
|
|
|
$
|
1,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading gains recorded in the period related to securities
still held at period end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities
|
|
$
|
567
|
|
|
$
|
787
|
|
|
$
|
1,499
|
|
|
$
|
655
|
|
Non-mortgage-related securities
|
|
|
24
|
|
|
|
694
|
|
|
|
70
|
|
|
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
591
|
|
|
$
|
1,481
|
|
|
$
|
1,569
|
|
|
$
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Available-for-Sale
Securities
We measure AFS securities at fair value with unrealized gains
and losses recorded as a component of Accumulated other
comprehensive loss (AOCI), net of tax, in our
condensed consolidated balance sheets. We record realized gains
and losses from the sale of AFS securities in Investment
gains (losses), net in our condensed consolidated
statements of operations.
The following table displays the gross realized gains, losses
and proceeds on sales of AFS securities for the three and six
months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Gross realized gains
|
|
$
|
83
|
|
|
$
|
1,370
|
|
|
$
|
348
|
|
|
$
|
2,169
|
|
Gross realized losses
|
|
|
59
|
|
|
|
1,283
|
|
|
|
179
|
|
|
|
1,946
|
|
Total
proceeds(1)
|
|
|
1,850
|
|
|
|
75,821
|
|
|
|
6,448
|
|
|
|
107,731
|
|
|
|
|
(1) |
|
Excludes proceeds from the initial
sale of securities from new portfolio securitizations included
in Note 3, Consolidations and Transfers of Financial
Assets.
|
The following tables display the amortized cost, gross
unrealized gains and losses and fair value by major security
type for AFS securities we held as of June 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Total
|
|
|
Gross
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Losses -
|
|
|
Losses -
|
|
|
Fair
|
|
|
|
Cost(1)
|
|
|
Gains
|
|
|
OTTI(2)
|
|
|
Other(3)
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
|
Fannie Mae
|
|
$
|
26,265
|
|
|
$
|
2,080
|
|
|
$
|
(18
|
)
|
|
$
|
(13
|
)
|
|
$
|
28,314
|
|
Freddie Mac
|
|
|
19,237
|
|
|
|
1,255
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
20,490
|
|
Ginnie Mae
|
|
|
1,127
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
1,255
|
|
Alt-A private-label securities
|
|
|
17,094
|
|
|
|
84
|
|
|
|
(2,090
|
)
|
|
|
(607
|
)
|
|
|
14,481
|
|
Subprime private-label securities
|
|
|
12,139
|
|
|
|
23
|
|
|
|
(1,370
|
)
|
|
|
(537
|
)
|
|
|
10,255
|
|
CMBS(4)
|
|
|
15,627
|
|
|
|
|
|
|
|
|
|
|
|
(1,113
|
)
|
|
|
14,514
|
|
Mortgage revenue bonds
|
|
|
12,771
|
|
|
|
114
|
|
|
|
(38
|
)
|
|
|
(405
|
)
|
|
|
12,442
|
|
Other mortgage-related securities
|
|
|
4,331
|
|
|
|
90
|
|
|
|
(88
|
)
|
|
|
(424
|
)
|
|
|
3,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108,591
|
|
|
$
|
3,774
|
|
|
$
|
(3,604
|
)
|
|
$
|
(3,101
|
)
|
|
$
|
105,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Total
|
|
|
Gross
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Losses -
|
|
|
Losses -
|
|
|
Fair
|
|
|
|
Cost(1)
|
|
|
Gains
|
|
|
OTTI(2)
|
|
|
Other(3)
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
|
Fannie Mae
|
|
$
|
148,074
|
|
|
$
|
6,413
|
|
|
$
|
(23
|
)
|
|
$
|
(45
|
)
|
|
$
|
154,419
|
|
Freddie Mac
|
|
|
26,281
|
|
|
|
1,192
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
27,469
|
|
Ginnie Mae
|
|
|
1,253
|
|
|
|
102
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
1,353
|
|
Alt-A private-label securities
|
|
|
17,836
|
|
|
|
41
|
|
|
|
(2,738
|
)
|
|
|
(989
|
)
|
|
|
14,150
|
|
Subprime private-label securities
|
|
|
13,232
|
|
|
|
33
|
|
|
|
(1,774
|
)
|
|
|
(745
|
)
|
|
|
10,746
|
|
CMBS(4)
|
|
|
15,797
|
|
|
|
|
|
|
|
|
|
|
|
(2,604
|
)
|
|
|
13,193
|
|
Mortgage revenue bonds
|
|
|
13,679
|
|
|
|
71
|
|
|
|
(44
|
)
|
|
|
(860
|
)
|
|
|
12,846
|
|
Other mortgage-related securities
|
|
|
4,225
|
|
|
|
29
|
|
|
|
(235
|
)
|
|
|
(467
|
)
|
|
|
3,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
240,377
|
|
|
$
|
7,881
|
|
|
$
|
(4,814
|
)
|
|
$
|
(5,716
|
)
|
|
$
|
237,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortized cost includes unamortized
premiums, discounts and other cost basis adjustments as well as
the credit component of
other-than-temporary
impairments recognized in our condensed consolidated statements
of operations.
|
|
(2) |
|
Represents the noncredit component
of
other-than-temporary
impairment losses recorded in other comprehensive loss as well
as cumulative changes in fair value for securities for which we
previously recognized the credit component of an
other-than-temporary
impairment.
|
|
(3) |
|
Represents the gross unrealized
losses on securities for which we have not recognized an
other-than-temporary
impairment.
|
|
(4) |
|
Amortized cost includes
$934 million and $1.0 billion as of June 30, 2010
and December 31, 2009, respectively, of increase to the
carrying amount from fair value hedge accounting in 2008.
|
The following tables display additional information regarding
gross unrealized losses and fair value by major security type
for AFS securities in an unrealized loss position that we held
as of June 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
Less Than 12
|
|
|
12 Consecutive
|
|
|
|
Consecutive Months
|
|
|
Months or Longer
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
|
Fannie Mae
|
|
$
|
(22
|
)
|
|
$
|
232
|
|
|
$
|
(9
|
)
|
|
$
|
215
|
|
Freddie Mac
|
|
|
(1
|
)
|
|
|
52
|
|
|
|
(1
|
)
|
|
|
13
|
|
Ginnie Mae
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Alt-A private-label securities
|
|
|
(32
|
)
|
|
|
760
|
|
|
|
(2,665
|
)
|
|
|
12,509
|
|
Subprime private-label securities
|
|
|
(49
|
)
|
|
|
498
|
|
|
|
(1,858
|
)
|
|
|
9,183
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
(1,113
|
)
|
|
|
14,204
|
|
Mortgage revenue bonds
|
|
|
(6
|
)
|
|
|
730
|
|
|
|
(437
|
)
|
|
|
4,996
|
|
Other mortgage-related securities
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
(511
|
)
|
|
|
2,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(111
|
)
|
|
$
|
2,287
|
|
|
$
|
(6,594
|
)
|
|
$
|
43,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Less Than 12
|
|
|
12 Consecutive
|
|
|
|
Consecutive Months
|
|
|
Months or Longer
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Fannie Mae
|
|
$
|
(36
|
)
|
|
$
|
1,461
|
|
|
$
|
(32
|
)
|
|
$
|
544
|
|
Freddie Mac
|
|
|
(2
|
)
|
|
|
85
|
|
|
|
(2
|
)
|
|
|
164
|
|
Ginnie Mae
|
|
|
(2
|
)
|
|
|
139
|
|
|
|
|
|
|
|
26
|
|
Alt-A private-label securities
|
|
|
(2,439
|
)
|
|
|
7,018
|
|
|
|
(1,288
|
)
|
|
|
6,929
|
|
Subprime private-label securities
|
|
|
(998
|
)
|
|
|
4,595
|
|
|
|
(1,521
|
)
|
|
|
5,860
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
(2,604
|
)
|
|
|
13,193
|
|
Mortgage revenue bonds
|
|
|
(54
|
)
|
|
|
2,392
|
|
|
|
(850
|
)
|
|
|
5,664
|
|
Other mortgage-related securities
|
|
|
(96
|
)
|
|
|
536
|
|
|
|
(606
|
)
|
|
|
2,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,627
|
)
|
|
$
|
16,226
|
|
|
$
|
(6,903
|
)
|
|
$
|
35,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary
Impairments
We recognize the credit component of
other-than-temporary
impairments of our debt securities in our condensed consolidated
statements of operations and the noncredit component in
Other comprehensive loss for those securities that
we do not intend to sell and for which it is not more likely
than not that we will be required to sell before recovery.
The fair value of our securities varies from period to period
due to changes in interest rates, in the performance of the
underlying collateral and in the credit performance of the
underlying issuer, among other factors. $6.6 billion of the
$6.7 billion of gross unrealized losses on AFS securities
as of June 30, 2010 have existed for a period of 12
consecutive months or longer. Gross unrealized losses on AFS
securities as of June 30, 2010 include unrealized losses on
securities with
other-than-temporary
impairment in which a portion of the impairment remains in AOCI.
The securities with unrealized losses for 12 consecutive months
or longer, on average, had a fair value as of June 30, 2010
that was 87% of their amortized cost basis. Based on our review
for impairments of AFS securities, which includes an evaluation
of the collectibility of cash flows and any intent or
requirement to sell the securities, we have concluded that we do
not have an intent to sell and we believe it is not more likely
than not that we will be required to sell the securities.
Additionally, our projections of cash flows indicate that we
will recover these unrealized losses over the lives of the
securities.
153
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays our net
other-than-temporary
impairments by major security type recognized in our condensed
consolidated statements of operations for the three and six
months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Fannie Mae
|
|
$
|
|
|
|
$
|
70
|
|
|
$
|
|
|
|
$
|
108
|
|
Alt-A private-label securities
|
|
|
120
|
|
|
|
161
|
|
|
|
157
|
|
|
|
3,089
|
|
Subprime private-label securities
|
|
|
10
|
|
|
|
498
|
|
|
|
194
|
|
|
|
3,104
|
|
Mortgage revenue bonds
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
18
|
|
Other
|
|
|
5
|
|
|
|
23
|
|
|
|
20
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
other-than-temporary
impairments
|
|
$
|
137
|
|
|
$
|
753
|
|
|
$
|
373
|
|
|
$
|
6,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2010, we
recorded net
other-than-temporary
impairment of $137 million and $373 million,
respectively. The net
other-than-temporary
impairment for the three months ended June 30, 2010
reflects current market conditions and was primarily driven by a
decrease in the present value of our cash flow projections on
Alt-A and subprime securities due to the net projected home
price impact.
The net home price impact includes both the projected home price
forecast and the actual home price performance for the three
months ended June 30, 2010. The forecast for home prices in
geographies where we have private-label securities exposure
worsened compared to previous forecasts while actual home price
performance was slightly better than previously projected. Lower
expectations for interest rates offset a portion of the decrease
from the home price forecast changes in the present value of
cash flows in certain securities. Our projections for interest
rates are generally based on the implied forward curve for
interest rates in the market as of the last day of each
respective reporting period. We consider lower interest rates to
be favorable in the context of estimated credit losses on
subprime securities because the subprime securities held by us
are typically floating rate instruments. In lower interest rate
environments, the cash flows provided by the underlying subprime
mortgage loans are typically greater than the floating rate
liabilities of the bonds and therefore more cash flow is
available to protect against credit losses than in a higher rate
interest environment where the difference between the rate on
the subprime mortgage loans and the coupon on the bonds is
smaller.
154
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays activity for the three and six
months ended June 30, 2010 and 2009 related to the credit
component recognized in earnings on debt securities held by us
for which we recognized a portion of
other-than-temporary
impairment in AOCI.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Balance, beginning of period
|
|
$
|
8,209
|
|
|
$
|
|
|
|
$
|
8,191
|
|
|
$
|
|
|
Credit component of
other-than-temporary
impairment not reclassified to AOCI in conjunction with the
cumulative effect transition adjustment
|
|
|
|
|
|
|
4,265
|
|
|
|
|
|
|
|
4,265
|
|
Additions for the credit component on debt securities for which
OTTI was not previously recognized
|
|
|
9
|
|
|
|
222
|
|
|
|
15
|
|
|
|
222
|
|
Additions for credit losses on debt securities for which OTTI
was previously recognized
|
|
|
128
|
|
|
|
531
|
|
|
|
358
|
|
|
|
531
|
|
Reductions for securities no longer in portfolio at period
end(1)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
Reductions for increases in cash flows expected to be collected
over the remaining life of the security
|
|
|
(164
|
)
|
|
|
(64
|
)
|
|
|
(331
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
8,181
|
|
|
$
|
4,954
|
|
|
$
|
8,181
|
|
|
$
|
4,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes securities sold, matured, called and consolidated to
loans. |
As of June 30, 2010, those debt securities with
other-than-temporary
impairment in which we recognized in our condensed consolidated
statement of operations only the amount of loss related to
credit consisted predominantly of Alt-A and subprime securities.
For these residential mortgage-backed securities, we estimate
the portion of loss attributable to credit using discounted cash
flow models. We create the models based on the performance of
first-lien loans in a loan performance asset-backed securities
database, which reflect the average performance of all
private-label mortgage-related securities. We employ separate
models to project regional home prices, interest rates,
prepayment speeds, conditional default rates, severity,
delinquency rates and early payment defaults on a loan-level
basis by product type. We first aggregate loan-level performance
projections by pool. We then input the prepayment, default,
severity and delinquency vectors for these pools in cash flow
modeling software which projects our bond cash flows, including
projections of bond principal losses and interest shortfalls.
The software contains detailed information on security-level
subordination levels and cash flow priority of payments. We
model all securities without assuming the benefit of any
external financial guarantees; we then perform a separate
assessment to assess whether we can rely upon the guaranty. We
have recorded
other-than-temporary
impairments for the three and six months ended June 30,
2010 based on this analysis, with amounts related to credit loss
recognized in our condensed consolidated statement of
operations. For securities we determined were not
other-than-temporarily
impaired, we concluded that either the bond did not project any
credit loss or if we projected a loss, that the present value of
expected cash flows was greater than the securitys cost
basis.
We analyze commercial mortgage-backed securities
(CMBS) using a third party loan level model that
incorporates such factors as debt service coverage,
loan-to-value
ratio, geographic location, property type, and amortization type
to determine the level of projected losses. We then compare the
projected loss to the amount of subordination in the bonds that
we hold to determine whether we expect any loss on those bonds.
As of June 30, 2010, we have no
other-than-temporary
impairments in our holdings of CMBS as we project the
155
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
remaining subordination to be more than sufficient to absorb the
level of projected losses. While downgrades have occurred in
this sector, all of our holdings remain investment grade.
For mortgage revenue bonds, where we cannot utilize
credit-sensitized cash flows, we perform a qualitative and
quantitative analysis to assess whether a bond is
other-than-temporarily
impaired. If a bond is deemed to be
other-than-temporarily
impaired, the projected contractual cash flows of the security
are reduced by a default loss amount based on the
securitys lowest credit rating as provided by the major
nationally recognized statistical rating organizations. The
lower the securitys credit rating, the larger the amount
by which the contractual cash flows are reduced. These adjusted
cash flows are then used in the present value calculation to
determine the credit portion of the
other-than-temporary
impairment. While we have recognized
other-than-temporary
impairment on these bonds, we expect to realize no credit losses
on the vast majority of our holdings due to the inherent
financial strength of the issuers, or in some cases, the amount
of external credit support from mortgage collateral or financial
guarantees. The fair values of these bonds are likewise impacted
by the low levels of market liquidity and greater expected
yield, which has led to unrealized losses in the portfolio that
we deem to be temporary.
Other mortgage-related securities include manufactured housing
securities, which have been
other-than-temporarily
impaired in 2010. For manufactured housing securities, we
utilize models that incorporate recent historical performance
information and other relevant public data to run cash flows and
assess for
other-than-temporary
impairment. Given the significant seasoning of these securities
we expect that the future performance will be in line with how
the securities are currently performing. We model all of these
securities assuming no benefit of any external financial
guarantees and then separately assess whether we can rely on the
guaranty. If we determined that securities were not
other-than-temporarily
impaired, we concluded that either the bond did not project any
credit loss or, if a loss was projected, that present value of
expected cash flows was greater than the securitys cost
basis.
The following table displays the modeled attributes for Alt-A,
subprime and manufactured housing securities that were
other-than-temporarily
impaired for the three months ended June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
Prepayment Rates
|
|
|
Default Rates
|
|
|
Loss Severity
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Range
|
|
|
Average
|
|
|
Range
|
|
|
Average
|
|
|
Range
|
|
|
Alt-A private-label securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
|
10.3
|
%
|
|
|
9.5 - 11.3
|
%
|
|
|
18.5
|
%
|
|
|
17.6 - 19.7
|
%
|
|
|
47.4
|
%
|
|
|
40.0 - 61.5
|
%
|
2005
|
|
|
8.9
|
|
|
|
4.9 - 21.6
|
|
|
|
35.2
|
|
|
|
16.3 - 71.6
|
|
|
|
64.2
|
|
|
|
38.7 - 71.0
|
|
2006
|
|
|
9.9
|
|
|
|
7.7 - 15.8
|
|
|
|
28.9
|
|
|
|
15.1 - 48.8
|
|
|
|
49.1
|
|
|
|
36.7 - 73.2
|
|
Subprime private-label securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
|
6.8
|
|
|
|
6.8
|
|
|
|
29.7
|
|
|
|
29.7
|
|
|
|
75.3
|
|
|
|
75.3
|
|
2006
|
|
|
2.0
|
|
|
|
1.4 - 3.1
|
|
|
|
84.8
|
|
|
|
77.2 - 89.8
|
|
|
|
78.7
|
|
|
|
77.8 - 80.9
|
|
Manufactured Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
|
2.0
|
|
|
|
0.0 - 3.5
|
|
|
|
33.8
|
|
|
|
12.1 - 40.3
|
|
|
|
86.2
|
|
|
|
78.8 - 93.7
|
|
Maturity
Information
The following table displays the amortized cost and fair value
of our AFS securities by major security type and remaining
maturity, assuming no principal prepayments, as of June 30,
2010. Contractual maturity of
156
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
mortgage-backed securities is not a reliable indicator of their
expected life because borrowers generally have the right to
prepay their obligations at any time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One Year
|
|
|
After Five Years
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
One Year or Less
|
|
|
Through Five Years
|
|
|
Through Ten Years
|
|
|
After Ten Years
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
|
Fannie Mae
|
|
$
|
26,265
|
|
|
$
|
28,314
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
4,625
|
|
|
$
|
4,940
|
|
|
$
|
21,638
|
|
|
$
|
23,371
|
|
Freddie Mac
|
|
|
19,237
|
|
|
|
20,490
|
|
|
|
18
|
|
|
|
19
|
|
|
|
50
|
|
|
|
52
|
|
|
|
1,706
|
|
|
|
1,839
|
|
|
|
17,463
|
|
|
|
18,580
|
|
Ginnie Mae
|
|
|
1,127
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
6
|
|
|
|
1,122
|
|
|
|
1,249
|
|
Alt-A private-label securities
|
|
|
17,094
|
|
|
|
14,481
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
326
|
|
|
|
323
|
|
|
|
16,767
|
|
|
|
14,157
|
|
Subprime private-label securities
|
|
|
12,139
|
|
|
|
10,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,139
|
|
|
|
10,255
|
|
CMBS
|
|
|
15,627
|
|
|
|
14,514
|
|
|
|
309
|
|
|
|
309
|
|
|
|
63
|
|
|
|
61
|
|
|
|
14,902
|
|
|
|
13,881
|
|
|
|
353
|
|
|
|
263
|
|
Mortgage revenue bonds
|
|
|
12,771
|
|
|
|
12,442
|
|
|
|
37
|
|
|
|
38
|
|
|
|
370
|
|
|
|
383
|
|
|
|
818
|
|
|
|
834
|
|
|
|
11,546
|
|
|
|
11,187
|
|
Other mortgage-related securities
|
|
|
4,331
|
|
|
|
3,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
4,331
|
|
|
|
3,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108,591
|
|
|
$
|
105,660
|
|
|
$
|
364
|
|
|
$
|
366
|
|
|
$
|
486
|
|
|
$
|
500
|
|
|
$
|
22,382
|
|
|
$
|
21,842
|
|
|
$
|
85,359
|
|
|
$
|
82,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Loss
The following table displays our accumulated other comprehensive
loss by major categories as of June 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010(1)
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Net unrealized gains on
available-for-sale
securities
|
|
$
|
351
|
|
|
$
|
1,337
|
|
Net unrealized losses on
available-for-sale
securities for which we have recorded
other-than-temporary
impairment
|
|
|
(2,255
|
)
|
|
|
(3,059
|
)
|
Other
|
|
|
(180
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(2,084
|
)
|
|
$
|
(1,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a net increase of $3.4 billion from the adoption
of the new accounting standards. |
As a result of adopting the new accounting standards, we
derecognized the previously recognized guaranty assets, guaranty
obligations, master servicing assets, and master servicing
liabilities associated with the newly consolidated trusts from
our condensed consolidated balance sheets.
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 sheet, our maximum potential exposure under these
guarantees is primarily comprised of the unpaid principal
balance of the underlying mortgage loans, which totaled
157
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
$48.0 billion as of June 30, 2010. The maximum amount
we could recover through available credit enhancements and
recourse with third parties on guarantees recognized in our
condensed consolidated balance sheet was $13.4 billion as
of June 30, 2010. In addition, we had exposure of
$10.6 billion for other guarantees not recognized in our
condensed consolidated balance sheet as of June 30, 2010,
which primarily represents the unpaid principal balance of loans
underlying guarantees issued prior to the effective date of the
current accounting standards on guaranty accounting. The maximum
amount we could recover through available credit enhancements
and recourse with third parties on guarantees not recognized in
our condensed consolidated balance sheet was $4.1 billion
as of June 30, 2010. 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.
As of December 31, 2009, our maximum potential exposure for
guarantees recognized in our condensed consolidated balance
sheet was primarily comprised of the unpaid principal balance of
the underlying mortgage loans, which totaled $2.5 trillion. The
maximum amount we could recover through available credit
enhancements and recourse with third parties for these
guarantees was $113.4 billion. In addition, we had exposure
of $135.7 billion for other guarantees not recognized in
our condensed consolidated balance sheet as of December 31,
2009. The maximum amount we could recover through available
credit enhancements and recourse with third parties on
guarantees not recognized in our condensed consolidated balance
sheet was $13.6 billion as of December 31, 2009.
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 underlying
mortgage loans of the related securities. Management also
monitors the serious delinquency rate, which is the percentage
of single-family loans three or more months past due and the
percentage of multifamily loans 60 days or more past due,
of loans with certain risk characteristics, such as
mark-to-market
loan-to-value
and operating debt service coverage ratios. We use this
information, in conjunction with housing market and economic
conditions, to structure our pricing and our eligibility and
underwriting criteria to accurately 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 risk characteristics of our conventional single-family
and total multifamily guaranty book of business as of
June 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
2010(1)
|
|
As of December 31,
2009(1)
|
|
|
30 Days
|
|
60 Days
|
|
Seriously
|
|
30 Days
|
|
60 Days
|
|
Seriously
|
|
|
Delinquent
|
|
Delinquent
|
|
Delinquent(2)
|
|
Delinquent
|
|
Delinquent
|
|
Delinquent(2)
|
|
Percentage of conventional single-family guaranty book of
business(3)
|
|
|
2.24
|
%
|
|
|
0.96
|
%
|
|
|
6.17
|
%
|
|
|
2.38
|
%
|
|
|
1.15
|
%
|
|
|
6.68
|
%
|
Percentage of conventional single-family
loans(4)
|
|
|
2.32
|
|
|
|
0.90
|
|
|
|
4.99
|
|
|
|
2.46
|
|
|
|
1.07
|
|
|
|
5.38
|
|
158
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
2010(1)
|
|
|
As of December 31, 2009
(1)
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
Conventional
|
|
|
|
|
|
Conventional
|
|
|
|
|
|
|
Single-Family
|
|
|
Percentage
|
|
|
Single-Family
|
|
|
Percentage
|
|
|
|
Guaranty Book
|
|
|
Seriously
|
|
|
Guaranty Book
|
|
|
Seriously
|
|
|
|
of Business
|
|
|
Delinquent(2)(4)
|
|
|
of Business
|
|
|
Delinquent(2)(4)
|
|
|
Estimated
mark-to-market
loan-to-value
ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.01% to 110%
|
|
|
4
|
%
|
|
|
13.94
|
%
|
|
|
5
|
%
|
|
|
14.79
|
%
|
110.01% to 120%
|
|
|
3
|
|
|
|
17.18
|
|
|
|
3
|
|
|
|
18.55
|
|
120.01% to 125%
|
|
|
1
|
|
|
|
19.09
|
|
|
|
1
|
|
|
|
21.39
|
|
Greater than 125%
|
|
|
6
|
|
|
|
28.07
|
|
|
|
5
|
|
|
|
31.05
|
|
Geographical distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
|
|
|
3
|
|
|
|
7.48
|
|
|
|
3
|
|
|
|
8.80
|
|
California
|
|
|
17
|
|
|
|
4.99
|
|
|
|
17
|
|
|
|
5.73
|
|
Florida
|
|
|
7
|
|
|
|
12.60
|
|
|
|
7
|
|
|
|
12.82
|
|
Nevada
|
|
|
1
|
|
|
|
12.83
|
|
|
|
1
|
|
|
|
13.00
|
|
Select Midwest
states(5)
|
|
|
11
|
|
|
|
5.17
|
|
|
|
11
|
|
|
|
5.62
|
|
All other states
|
|
|
61
|
|
|
|
3.82
|
|
|
|
61
|
|
|
|
4.11
|
|
Product distribution (not mutually exclusive):
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
|
|
|
8
|
|
|
|
15.17
|
|
|
|
9
|
|
|
|
15.63
|
|
Subprime
|
|
|
*
|
|
|
|
29.96
|
|
|
|
*
|
|
|
|
30.68
|
|
Negatively amortizing adjustable rate
|
|
|
*
|
|
|
|
9.91
|
|
|
|
1
|
|
|
|
10.29
|
|
Interest only
|
|
|
6
|
|
|
|
19.43
|
|
|
|
7
|
|
|
|
20.17
|
|
Investor property
|
|
|
5
|
|
|
|
5.08
|
|
|
|
6
|
|
|
|
5.54
|
|
Condo/Coop
|
|
|
9
|
|
|
|
5.75
|
|
|
|
9
|
|
|
|
5.99
|
|
Original
loan-to-value
ratio >90%
|
|
|
9
|
|
|
|
11.55
|
|
|
|
9
|
|
|
|
13.05
|
|
FICO credit score <620
|
|
|
4
|
|
|
|
16.12
|
|
|
|
4
|
|
|
|
18.20
|
|
Original
loan-to-value
ratio >90% and FICO credit score <620
|
|
|
1
|
|
|
|
24.28
|
|
|
|
1
|
|
|
|
27.96
|
|
Vintages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
10
|
|
|
|
7.20
|
|
|
|
10
|
|
|
|
7.27
|
|
2006
|
|
|
9
|
|
|
|
12.52
|
|
|
|
11
|
|
|
|
12.87
|
|
2007
|
|
|
14
|
|
|
|
13.79
|
|
|
|
15
|
|
|
|
14.06
|
|
2008
|
|
|
11
|
|
|
|
4.41
|
|
|
|
13
|
|
|
|
3.98
|
|
All other vintages
|
|
|
56
|
|
|
|
1.98
|
|
|
|
51
|
|
|
|
2.19
|
|
|
|
|
*
|
|
Represents less than 0.5% of the
conventional single-family guaranty book of business.
|
|
(1) |
|
Consists of the portion of our
conventional single-family guaranty book of business for which
we have detailed loan level information, which constituted over
99% and 98% of our total conventional single-family guaranty
book of business as of June 30, 2010 and December 31,
2009, respectively.
|
|
(2) |
|
Includes conventional single-family
loans that were three months or more past due or in foreclosure
as of June 30, 2010 and December 31, 2009.
|
|
(3) |
|
Calculated based on the aggregate
unpaid principal balance of delinquent conventional
single-family loans divided by the aggregate unpaid principal
balance of loans in our conventional single-family guaranty book
of business.
|
159
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
(4) |
|
Calculated based on the number of
conventional single-family loans that were delinquent divided by
the total number of loans in our conventional single-family
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
2010(1)(2)
|
|
As of December 31,
2009(1)(2)
|
|
|
30 Days
|
|
Seriously
|
|
30 Days
|
|
Seriously
|
|
|
Delinquent
|
|
Delinquent(3)
|
|
Delinquent
|
|
Delinquent(3)
|
|
Percentage of multifamily guaranty book of business
|
|
|
0.27
|
%
|
|
|
0.80
|
%
|
|
|
0.28
|
%
|
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
2010(1)
|
|
|
As of December 31,
2009(1)
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
Percentage
|
|
|
Multifamily
|
|
|
Percentage
|
|
|
|
|
|
|
Guaranty
|
|
|
Seriously
|
|
|
Guaranty
|
|
|
Seriously
|
|
|
|
|
|
|
Book of Business
|
|
|
Delinquent
|
|
|
Book of Business
|
|
|
Delinquent
|
|
|
|
|
|
Originating
loan-to-value
ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 80%
|
|
|
5
|
%
|
|
|
0.61
|
%
|
|
|
5
|
%
|
|
|
0.50
|
%
|
|
|
|
|
Less than or equal to 80%
|
|
|
95
|
|
|
|
0.81
|
|
|
|
95
|
|
|
|
0.63
|
|
|
|
|
|
Originating debt service coverage ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 1.10
|
|
|
10
|
|
|
|
0.52
|
|
|
|
10
|
|
|
|
0.17
|
|
|
|
|
|
Greater than 1.10
|
|
|
90
|
|
|
|
0.83
|
|
|
|
90
|
|
|
|
0.68
|
|
|
|
|
|
Acquisition loan size distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to $750,000
|
|
|
2
|
|
|
|
1.68
|
|
|
|
3
|
|
|
|
1.27
|
|
|
|
|
|
Greater than $750,000 and less than or equal to $3 million
|
|
|
13
|
|
|
|
1.06
|
|
|
|
13
|
|
|
|
1.01
|
|
|
|
|
|
Greater than $3 million and less than or equal to
$5 million
|
|
|
10
|
|
|
|
1.14
|
|
|
|
9
|
|
|
|
1.08
|
|
|
|
|
|
Greater than $5 million and less than or equal to
$25 million
|
|
|
41
|
|
|
|
0.93
|
|
|
|
41
|
|
|
|
0.60
|
|
|
|
|
|
Greater than $25 million
|
|
|
34
|
|
|
|
0.40
|
|
|
|
34
|
|
|
|
0.34
|
|
|
|
|
|
Maturing dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in 2010
|
|
|
1
|
|
|
|
4.10
|
|
|
|
2
|
|
|
|
1.55
|
|
|
|
|
|
Maturing in 2011
|
|
|
5
|
|
|
|
0.63
|
|
|
|
5
|
|
|
|
0.64
|
|
|
|
|
|
Maturing in 2012
|
|
|
8
|
|
|
|
1.53
|
|
|
|
10
|
|
|
|
1.13
|
|
|
|
|
|
Maturing in 2013
|
|
|
11
|
|
|
|
0.73
|
|
|
|
12
|
|
|
|
0.22
|
|
|
|
|
|
Maturing in 2014
|
|
|
9
|
|
|
|
0.58
|
|
|
|
9
|
|
|
|
0.62
|
|
|
|
|
|
|
|
|
(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 June 30,
2010 and December 31, 2009, excluding loans that have been
defeased. Defeasance is a pre-payment of a loan through
substitution of collateral, such as Treasury Securities.
|
|
(2) |
|
Calculated based on the aggregate
unpaid principal balance of delinquent multifamily loans divided
by the aggregate unpaid principal balance of loans in our
multifamily guaranty book of business.
|
|
(3) |
|
Includes multifamily loans that
were 60 days or more past due as of June 30, 2010 and
December 31, 2009.
|
160
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Guaranty
Obligations
The following table displays changes in our Guaranty
obligations recognized in our condensed consolidated
balance sheets for the three and six months ended June 30,
2010 and 2009. We derecognized the majority of our guaranty
obligations and deferred profit from our condensed consolidated
balance sheet upon adoption of the new accounting standards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Balance as of beginning of period
|
|
$
|
827
|
|
|
$
|
11,673
|
|
|
$
|
13,996
|
|
|
$
|
12,147
|
|
Adoption of new accounting standards
|
|
|
|
|
|
|
|
|
|
|
(13,320
|
)
|
|
|
|
|
Additions to guaranty
obligations(1)
|
|
|
(35
|
)
|
|
|
2,079
|
|
|
|
148
|
|
|
|
3,414
|
|
Amortization of guaranty obligations into guaranty fee income
|
|
|
(27
|
)
|
|
|
(1,265
|
)
|
|
|
(59
|
)
|
|
|
(3,028
|
)
|
Impact of consolidation
activity(2)
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of period
|
|
$
|
765
|
|
|
$
|
12,358
|
|
|
$
|
765
|
|
|
$
|
12,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred profit amortization
|
|
$
|
1
|
|
|
$
|
226
|
|
|
$
|
2
|
|
|
$
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the fair value and
adjustments to our contractual obligation at issuance of new
guarantees.
|
|
(2)
|
|
Represents the derecognition of
guaranty obligations during the period due to consolidations
excluding the
|
|
|
|
impact of adopting the new
accounting standards.
|
The fair value of our guaranty obligations associated with the
Fannie Mae MBS included in Investments in securities
was $2.2 billion and $4.8 billion as of June 30,
2010 and December 31, 2009, respectively.
|
|
8.
|
Acquired
Property, Net
|
Acquired property, net consists of
held-for-sale
foreclosed property received in full satisfaction of a loan net
of a valuation allowance for declines in the fair value of
foreclosed properties after initial acquisition. We classify as
held for sale those properties that we intend to sell and are
actively marketed for sale. The following table displays the
activity in acquired property and the related valuation
allowance for the three months and six months ended
June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
Acquired
|
|
|
Valuation
|
|
|
Acquired
|
|
|
Acquired
|
|
|
Valuation
|
|
|
Acquired
|
|
|
|
Property
|
|
|
Allowance(1)
|
|
|
Property, Net
|
|
|
Property
|
|
|
Allowance(1)
|
|
|
Property, Net
|
|
|
|
(Dollars in millions)
|
|
|
Balance as of beginning of period
|
|
$
|
13,053
|
|
|
$
|
(684
|
)
|
|
$
|
12,369
|
|
|
$
|
9,716
|
|
|
$
|
(574
|
)
|
|
$
|
9,142
|
|
Additions
|
|
|
6,828
|
|
|
|
(238
|
)
|
|
|
6,590
|
|
|
|
13,590
|
|
|
|
(290
|
)
|
|
|
13,300
|
|
Disposals
|
|
|
(4,740
|
)
|
|
|
319
|
|
|
|
(4,421
|
)
|
|
|
(8,165
|
)
|
|
|
525
|
|
|
|
(7,640
|
)
|
Write-downs, net of recoveries
|
|
|
|
|
|
|
(517
|
)
|
|
|
(517
|
)
|
|
|
|
|
|
|
(781
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of period
|
|
$
|
15,141
|
|
|
$
|
(1,120
|
)
|
|
$
|
14,021
|
|
|
$
|
15,141
|
|
|
$
|
(1,120
|
)
|
|
$
|
14,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
Acquired
|
|
|
Valuation
|
|
|
Acquired
|
|
|
Acquired
|
|
|
Valuation
|
|
|
Acquired
|
|
|
|
Property
|
|
|
Allowance(1)
|
|
|
Property, Net
|
|
|
Property
|
|
|
Allowance(1)
|
|
|
Property, Net
|
|
|
|
(Dollars in millions)
|
|
|
Balance as of beginning of period
|
|
$
|
7,759
|
|
|
$
|
(1,129
|
)
|
|
$
|
6,630
|
|
|
$
|
8,040
|
|
|
$
|
(1,122
|
)
|
|
$
|
6,918
|
|
Additions
|
|
|
3,009
|
|
|
|
(15
|
)
|
|
|
2,994
|
|
|
|
5,551
|
|
|
|
(31
|
)
|
|
|
5,520
|
|
Disposals
|
|
|
(3,388
|
)
|
|
|
479
|
|
|
|
(2,909
|
)
|
|
|
(6,211
|
)
|
|
|
852
|
|
|
|
(5,359
|
)
|
Write-downs, net of recoveries
|
|
|
|
|
|
|
(107
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
(471
|
)
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of period
|
|
$
|
7,380
|
|
|
$
|
(772
|
)
|
|
$
|
6,608
|
|
|
$
|
7,380
|
|
|
$
|
(772
|
)
|
|
$
|
6,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects activities in the
valuation allowance for acquired properties held primarily by
our single-family segment.
|
|
|
9.
|
Short-Term
Borrowings and Long-Term Debt
|
Our short-term borrowings and long-term debt increased
significantly due to our adoption of the new accounting
standards on the transfers of financial assets and the
consolidation of VIEs.
Short-Term
Borrowings
Our short-term borrowings (borrowings with an original
contractual maturity of one year or less) consist of both
Federal funds purchased and securities sold under
agreements to repurchase and Short-term debt
in our condensed consolidated balance sheets. The following
table displays our outstanding short-term borrowings and
weighted-average interest rates as of June 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
Outstanding
|
|
|
Rate(1)
|
|
|
Outstanding
|
|
|
Rate(1)
|
|
|
|
(Dollars in millions)
|
|
|
Federal funds purchased and securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements to repurchase
|
|
$
|
142
|
|
|
|
0.01
|
%
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes
|
|
$
|
255,863
|
|
|
|
0.30
|
%
|
|
$
|
199,987
|
|
|
|
0.27
|
%
|
Foreign exchange discount notes
|
|
|
203
|
|
|
|
1.73
|
|
|
|
300
|
|
|
|
1.50
|
|
Other short-term debt
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-rate short-term debt
|
|
|
256,066
|
|
|
|
0.30
|
|
|
|
200,387
|
|
|
|
0.27
|
|
Floating-rate short-term
debt(2)
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt of Fannie Mae
|
|
|
256,066
|
|
|
|
0.30
|
%
|
|
|
200,437
|
|
|
|
0.27
|
%
|
Debt of consolidated trusts
|
|
|
5,987
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
$
|
262,053
|
|
|
|
0.30
|
%
|
|
$
|
200,437
|
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the effects of discounts,
premiums, and other cost basis adjustments.
|
|
(2)
|
|
Includes a portion of structured
debt instruments that is reported at fair value.
|
162
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Our federal funds purchased and securities sold under agreements
to repurchase represent agreements to repurchase securities from
banks with excess reserves on a particular day for a specified
price, with repayment generally occurring on the following day.
Our short-term debt includes discount notes and foreign exchange
discount notes, as well as other short-term debt. Our discount
notes are unsecured general obligations and have maturities
ranging from overnight to 360 days from the date of
issuance.
Additionally, we issue foreign exchange discount notes in the
Euro money market enabling investors to hold short-term
investments in different currencies. We have the ability to
issue foreign exchange discount notes in maturities ranging from
5 to 360 days.
Long-Term
Debt
Long-term debt represents borrowings with an original
contractual maturity of greater than one year. The following
table displays our outstanding long-term debt as of
June 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
Maturities
|
|
|
Outstanding
|
|
|
Rate(1)
|
|
|
Maturities
|
|
|
Outstanding
|
|
|
Rate(1)
|
|
|
|
(Dollars in millions)
|
|
|
Senior fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark notes and bonds
|
|
|
2010-2030
|
|
|
$
|
279,922
|
|
|
|
3.70
|
%
|
|
|
2010-2030
|
|
|
$
|
279,945
|
|
|
|
4.10
|
%
|
Medium-term notes
|
|
|
2010-2020
|
|
|
|
195,175
|
|
|
|
2.80
|
|
|
|
2010-2019
|
|
|
|
171,207
|
|
|
|
2.97
|
|
Foreign exchange notes and bonds
|
|
|
2017-2028
|
|
|
|
1,061
|
|
|
|
5.97
|
|
|
|
2010-2028
|
|
|
|
1,239
|
|
|
|
5.64
|
|
Other long-term
debt(2)
|
|
|
2010-2040
|
|
|
|
55,198
|
|
|
|
5.82
|
|
|
|
2010-2039
|
|
|
|
62,783
|
|
|
|
5.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior fixed
|
|
|
|
|
|
|
531,356
|
|
|
|
3.59
|
|
|
|
|
|
|
|
515,174
|
|
|
|
3.94
|
|
Senior floating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
|
2010-2015
|
|
|
|
44,392
|
|
|
|
0.35
|
|
|
|
2010-2014
|
|
|
|
41,911
|
|
|
|
0.26
|
|
Other long-term
debt(2)
|
|
|
2020-2037
|
|
|
|
752
|
|
|
|
5.33
|
|
|
|
2020-2037
|
|
|
|
1,041
|
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior floating
|
|
|
|
|
|
|
45,144
|
|
|
|
0.43
|
|
|
|
|
|
|
|
42,952
|
|
|
|
0.34
|
|
Subordinated fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying
subordinated(3)
|
|
|
2011-2014
|
|
|
|
7,392
|
|
|
|
5.47
|
|
|
|
2011-2014
|
|
|
|
7,391
|
|
|
|
5.47
|
|
Subordinated debentures
|
|
|
2019
|
|
|
|
2,545
|
|
|
|
9.90
|
|
|
|
2019
|
|
|
|
2,433
|
|
|
|
9.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subordinated fixed
|
|
|
|
|
|
|
9,937
|
|
|
|
6.61
|
|
|
|
|
|
|
|
9,824
|
|
|
|
6.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt of Fannie
Mae(4)
|
|
|
|
|
|
|
586,437
|
|
|
|
3.40
|
|
|
|
|
|
|
|
567,950
|
|
|
|
3.71
|
|
Debt of consolidated trusts
|
|
|
2010-2050
|
|
|
|
2,376,774
|
|
|
|
4.91
|
|
|
|
2010-2039
|
|
|
|
6,167
|
|
|
|
5.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
$
|
2,963,211
|
|
|
|
4.61
|
%
|
|
|
|
|
|
$
|
574,117
|
|
|
|
3.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the effects of discounts,
premiums and other cost basis adjustments.
|
|
(2) |
|
Includes a portion of structured
debt instruments that is reported at fair value.
|
|
(3) |
|
Consists of subordinated debt
issued with an interest deferral feature.
|
|
(4) |
|
Reported amounts include a net
discount and other cost basis adjustments of $16.4 billion
and $15.6 billion as of June 30, 2010 and
December 31, 2009, respectively.
|
163
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Intraday
Lines of Credit
We periodically use secured and unsecured intraday funding lines
of credit provided by several large financial institutions. We
post collateral which, in some circumstances, the secured party
has the right to repledge to third parties. As these lines of
credit are uncommitted intraday loan facilities, we may be
unable to draw on them if and when needed. We had secured
uncommitted lines of credit of $25.0 billion and unsecured
uncommitted lines of credit of $500 million as of both
June 30, 2010 and December 31, 2009. We had no
borrowings outstanding from these lines of credit as of
June 30, 2010.
|
|
10.
|
Derivative
Instruments
|
Derivative instruments are an integral part of our strategy in
managing interest rate risk. Derivative instruments may be
privately negotiated contracts, which are often referred to as
over-the-counter
(OTC) derivatives, or they may be listed and traded
on an exchange. When deciding whether to use derivatives, we
consider a number of factors, such as cost, efficiency, the
effect on our liquidity, results of operations, and our overall
interest rate risk management strategy. We choose to use
derivatives when we believe they will provide greater relative
value or more efficient execution of our strategy than debt
securities. We typically do not settle the notional amount of
our risk management derivatives; rather, notional amounts
provide the basis for calculating actual payments or settlement
amounts. The derivatives we use for interest rate risk
management purposes consist primarily of OTC contracts that fall
into three broad categories:
|
|
|
Interest rate swap contracts. An interest rate
swap is a transaction between two parties in which each party
agrees to exchange payments tied to different interest rates or
indices for a specified period of time, generally based on a
notional amount of principal. The types of interest rate swaps
we use include pay-fixed swaps, receive-fixed swaps and basis
swaps.
|
|
|
Interest rate option contracts. These
contracts primarily include pay-fixed swaptions, receive-fixed
swaptions, cancelable swaps and interest rate caps. A swaption
is an option contract that allows us or a counterparty to enter
into a pay-fixed or receive-fixed swap at some point in the
future.
|
|
|
Foreign currency swaps. These swaps convert
debt that we issue in foreign-denominated currencies into
U.S. dollars. We enter into foreign currency swaps only to
the extent that we issue foreign currency debt.
|
We enter into forward purchase and sale commitments that lock in
the future delivery of mortgage loans and mortgage-related
securities at a fixed price or yield. Certain commitments to
purchase mortgage loans and purchase or sell mortgage-related
securities meet the criteria of a derivative. We typically
settle the notional amount of our mortgage commitments that are
accounted for as derivatives.
We account for our derivatives pursuant to the accounting
standards on derivative instruments, and recognize all
derivatives as either assets or liabilities in our condensed
consolidated balance sheets at their fair value on a trade date
basis. Fair value amounts, which are netted at the counterparty
level and are inclusive of cash collateral posted or received,
are recorded in Derivative assets, at fair value or
Derivative liabilities, at fair value in our
condensed consolidated balance sheets. We record all derivative
gains and losses, including accrued interest, in Fair
value gains (losses), net in our condensed consolidated
statements of operations.
164
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Notional
and Fair Value Position of our Derivatives
The following table displays the notional amount and estimated
fair value of our asset and liability derivative instruments on
a gross basis, before the application of master netting
agreements, as of June 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
Notional
|
|
|
Estimated
|
|
|
Notional
|
|
|
Estimated
|
|
|
Notional
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(Dollars in millions)
|
|
|
Risk management derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$
|
2,250
|
|
|
$
|
95
|
|
|
$
|
315,009
|
|
|
$
|
(23,213
|
)
|
|
$
|
68,099
|
|
|
$
|
1,422
|
|
|
$
|
314,501
|
|
|
$
|
(17,758
|
)
|
Receive-fixed
|
|
|
231,473
|
|
|
|
11,193
|
|
|
|
3,428
|
|
|
|
(24
|
)
|
|
|
160,384
|
|
|
|
8,250
|
|
|
|
115,033
|
|
|
|
(2,832
|
)
|
Basis
|
|
|
2,970
|
|
|
|
58
|
|
|
|
50
|
|
|
|
|
|
|
|
2,715
|
|
|
|
61
|
|
|
|
510
|
|
|
|
(4
|
)
|
Foreign currency
|
|
|
465
|
|
|
|
79
|
|
|
|
842
|
|
|
|
(94
|
)
|
|
|
727
|
|
|
|
107
|
|
|
|
810
|
|
|
|
(49
|
)
|
Swaptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
|
82,300
|
|
|
|
445
|
|
|
|
21,000
|
|
|
|
(281
|
)
|
|
|
97,100
|
|
|
|
2,012
|
|
|
|
2,200
|
|
|
|
(1
|
)
|
Receive-fixed
|
|
|
65,285
|
|
|
|
7,482
|
|
|
|
20,325
|
|
|
|
(543
|
)
|
|
|
75,380
|
|
|
|
4,043
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
7,000
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
Other(1)
|
|
|
731
|
|
|
|
111
|
|
|
|
17
|
|
|
|
|
|
|
|
740
|
|
|
|
84
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross risk management derivatives
|
|
|
392,474
|
|
|
|
19,493
|
|
|
|
360,671
|
|
|
|
(24,155
|
)
|
|
|
412,145
|
|
|
|
16,107
|
|
|
|
433,062
|
|
|
|
(20,644
|
)
|
Collateral receivable
(payable)(2)
|
|
|
|
|
|
|
5,419
|
|
|
|
|
|
|
|
(513
|
)
|
|
|
|
|
|
|
5,437
|
|
|
|
|
|
|
|
(1,023
|
)
|
Accrued interest receivable (payable)
|
|
|
|
|
|
|
1,796
|
|
|
|
|
|
|
|
(2,363
|
)
|
|
|
|
|
|
|
2,596
|
|
|
|
|
|
|
|
(2,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net risk management derivatives
|
|
$
|
392,474
|
|
|
$
|
26,708
|
|
|
$
|
360,671
|
|
|
$
|
(27,031
|
)
|
|
$
|
412,145
|
|
|
$
|
24,140
|
|
|
$
|
433,062
|
|
|
$
|
(24,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage commitment derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage commitments to purchase whole loans
|
|
$
|
6,379
|
|
|
$
|
76
|
|
|
$
|
744
|
|
|
$
|
(1
|
)
|
|
$
|
273
|
|
|
$
|
|
|
|
$
|
4,453
|
|
|
$
|
(66
|
)
|
Forward contracts to purchase mortgage-related securities
|
|
|
34,316
|
|
|
|
432
|
|
|
|
4,078
|
|
|
|
(5
|
)
|
|
|
3,403
|
|
|
|
7
|
|
|
|
23,287
|
|
|
|
(283
|
)
|
Forward contracts to sell mortgage-related securities
|
|
|
5,216
|
|
|
|
6
|
|
|
|
47,069
|
|
|
|
(654
|
)
|
|
|
83,299
|
|
|
|
1,141
|
|
|
|
7,232
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage commitment derivatives
|
|
$
|
45,911
|
|
|
$
|
514
|
|
|
$
|
51,891
|
|
|
$
|
(660
|
)
|
|
$
|
86,975
|
|
|
$
|
1,148
|
|
|
$
|
34,972
|
|
|
$
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives at fair value
|
|
$
|
438,385
|
|
|
$
|
27,222
|
|
|
$
|
412,562
|
|
|
$
|
(27,691
|
)
|
|
$
|
499,120
|
|
|
$
|
25,288
|
|
|
$
|
468,034
|
|
|
$
|
(24,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes swap credit enhancements
and mortgage insurance contracts that we account for as
derivatives. The mortgage insurance contracts have payment
provisions that are not based on a notional amount.
|
|
(2) |
|
Collateral receivable represents
cash collateral posted by us for derivatives in a loss position.
Collateral payable represents cash collateral posted by
counterparties to reduce our exposure for derivatives in a gain
position.
|
165
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
A majority of our derivative instruments contain provisions that
require our senior unsecured debt to maintain a minimum credit
rating from each of the major credit rating agencies. If our
senior unsecured debt were to fall below established thresholds
in our governing agreements, which range from A- to BBB+, we
would be in violation of these provisions, and the
counterparties to the derivative instruments could request
immediate payment or demand immediate collateralization on
derivative instruments in net liability positions. The aggregate
fair value of all derivatives with credit-risk-related
contingent features that were in a net liability position as of
June 30, 2010 was $6.4 billion for which we posted
collateral of $5.6 billion in the normal course of
business. If the credit-risk-related contingency features
underlying these agreements were triggered as of June 30,
2010, we would be required to post an additional
$865 million of collateral to our counterparties.
The following table displays, by type of derivative instrument,
the fair value gains and losses, net on our derivatives for the
three and six months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months
|
|
|
Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Risk management derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$
|
(10,898
|
)
|
|
$
|
19,430
|
|
|
$
|
(16,777
|
)
|
|
$
|
22,744
|
|
Receive-fixed
|
|
|
7,847
|
|
|
|
(16,877
|
)
|
|
|
12,516
|
|
|
|
(18,239
|
)
|
Basis
|
|
|
21
|
|
|
|
45
|
|
|
|
30
|
|
|
|
22
|
|
Foreign currency
|
|
|
(8
|
)
|
|
|
159
|
|
|
|
(11
|
)
|
|
|
86
|
|
Swaptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
|
(425
|
)
|
|
|
900
|
|
|
|
(1,359
|
)
|
|
|
885
|
|
Receive-fixed
|
|
|
3,655
|
|
|
|
(4,250
|
)
|
|
|
3,682
|
|
|
|
(7,488
|
)
|
Interest rate caps
|
|
|
(43
|
)
|
|
|
21
|
|
|
|
(99
|
)
|
|
|
21
|
|
Other
|
|
|
31
|
|
|
|
(52
|
)
|
|
|
37
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk management derivatives fair value gains (losses), net
|
|
|
180
|
|
|
|
(624
|
)
|
|
|
(1,981
|
)
|
|
|
(1,992
|
)
|
Mortgage commitment derivatives fair value gains (losses), net
|
|
|
(577
|
)
|
|
|
87
|
|
|
|
(1,178
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives fair value losses, net
|
|
$
|
(397
|
)
|
|
$
|
(537
|
)
|
|
$
|
(3,159
|
)
|
|
$
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Volume
and Activity of our Derivatives
Risk
Management Derivatives
The following table displays, by derivative instrument type, our
risk management derivative activity for the three and six months
ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
Interest Rate Swaps
|
|
|
Interest Rate Swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-
|
|
|
Receive-
|
|
|
|
|
|
Foreign
|
|
|
Pay-
|
|
|
Receive-
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Basis
|
|
|
Currency(1)
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Rate Caps
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning notional balance
|
|
$
|
315,857
|
|
|
$
|
229,293
|
|
|
$
|
3,220
|
|
|
$
|
1,409
|
|
|
$
|
94,725
|
|
|
$
|
73,430
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
725,682
|
|
Additions
|
|
|
43,212
|
|
|
|
50,741
|
|
|
|
|
|
|
|
141
|
|
|
|
20,325
|
|
|
|
20,325
|
|
|
|
|
|
|
|
|
|
|
|
134,744
|
|
Terminations(3)
|
|
|
(41,810
|
)
|
|
|
(45,133
|
)
|
|
|
(200
|
)
|
|
|
(243
|
)
|
|
|
(11,750
|
)
|
|
|
(8,145
|
)
|
|
|
|
|
|
|
|
|
|
|
(107,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending notional balance
|
|
$
|
317,259
|
|
|
$
|
234,901
|
|
|
$
|
3,020
|
|
|
$
|
1,307
|
|
|
$
|
103,300
|
|
|
$
|
85,610
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
753,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
|
Interest Rate Swaps
|
|
|
Interest Rate Swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-
|
|
|
Receive-
|
|
|
|
|
|
Foreign
|
|
|
Pay-
|
|
|
Receive-
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Basis
|
|
|
Currency(1)
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Rate Caps
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning notional balance
|
|
$
|
382,600
|
|
|
$
|
275,417
|
|
|
$
|
3,225
|
|
|
$
|
1,537
|
|
|
$
|
99,300
|
|
|
$
|
75,380
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
845,207
|
|
Additions
|
|
|
86,352
|
|
|
|
86,317
|
|
|
|
55
|
|
|
|
292
|
|
|
|
26,750
|
|
|
|
26,075
|
|
|
|
|
|
|
|
|
|
|
|
225,841
|
|
Terminations(3)
|
|
|
(151,693
|
)
|
|
|
(126,833
|
)
|
|
|
(260
|
)
|
|
|
(522
|
)
|
|
|
(22,750
|
)
|
|
|
(15,845
|
)
|
|
|
|
|
|
|
|
|
|
|
(317,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending notional balance
|
|
$
|
317,259
|
|
|
$
|
234,901
|
|
|
$
|
3,020
|
|
|
$
|
1,307
|
|
|
$
|
103,300
|
|
|
$
|
85,610
|
|
|
$
|
7,000
|
|
|
$
|
748
|
|
|
$
|
753,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009
|
|
|
|
Interest Rate Swaps
|
|
|
Interest Rate Swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-
|
|
|
Receive-
|
|
|
|
|
|
Foreign
|
|
|
Pay-
|
|
|
Receive-
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Basis
|
|
|
Currency(1)
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Rate Caps
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning notional balance
|
|
$
|
620,850
|
|
|
$
|
549,823
|
|
|
$
|
19,815
|
|
|
$
|
1,222
|
|
|
$
|
85,150
|
|
|
$
|
89,630
|
|
|
$
|
500
|
|
|
$
|
748
|
|
|
$
|
1,367,738
|
|
Additions
|
|
|
78,509
|
|
|
|
56,680
|
|
|
|
2,385
|
|
|
|
126
|
|
|
|
8,200
|
|
|
|
4,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
152,900
|
|
Terminations(3)
|
|
|
(48,912
|
)
|
|
|
(34,701
|
)
|
|
|
|
|
|
|
82
|
|
|
|
(7,000
|
)
|
|
|
(9,450
|
)
|
|
|
|
|
|
|
|
|
|
|
(99,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending notional balance
|
|
$
|
650,447
|
|
|
$
|
571,802
|
|
|
$
|
22,200
|
|
|
$
|
1,430
|
|
|
$
|
86,350
|
|
|
$
|
84,680
|
|
|
$
|
3,000
|
|
|
$
|
748
|
|
|
$
|
1,420,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009
|
|
|
|
Interest Rate Swaps
|
|
|
Interest Rate Swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-
|
|
|
Receive-
|
|
|
|
|
|
Foreign
|
|
|
Pay-
|
|
|
Receive-
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Basis
|
|
|
Currency(1)
|
|
|
Fixed
|
|
|
Fixed
|
|
|
Rate Caps
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning notional balance
|
|
$
|
546,916
|
|
|
$
|
451,081
|
|
|
$
|
24,560
|
|
|
$
|
1,652
|
|
|
$
|
79,500
|
|
|
$
|
93,560
|
|
|
$
|
500
|
|
|
$
|
827
|
|
|
$
|
1,198,596
|
|
Additions
|
|
|
177,444
|
|
|
|
184,638
|
|
|
|
2,565
|
|
|
|
324
|
|
|
|
13,850
|
|
|
|
6,700
|
|
|
|
2,500
|
|
|
|
13
|
|
|
|
388,034
|
|
Terminations(3)
|
|
|
(73,913
|
)
|
|
|
(63,917
|
)
|
|
|
(4,925
|
)
|
|
|
(546
|
)
|
|
|
(7,000
|
)
|
|
|
(15,580
|
)
|
|
|
|
|
|
|
(92
|
)
|
|
|
(165,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending notional balance
|
|
$
|
650,447
|
|
|
$
|
571,802
|
|
|
$
|
22,200
|
|
|
$
|
1,430
|
|
|
$
|
86,350
|
|
|
$
|
84,680
|
|
|
$
|
3,000
|
|
|
$
|
748
|
|
|
$
|
1,420,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
(1) |
|
Exchange rate adjustments to
foreign currency swaps existing at both the beginning and the
end of the period are included in terminations. Exchange rate
adjustments to foreign currency swaps that are added or
terminated during the period are reflected in the respective
categories.
|
|
(2) |
|
Includes swap credit enhancements
and mortgage insurance contracts.
|
|
(3) |
|
Includes matured, called,
exercised, assigned and terminated amounts.
|
Mortgage
Commitment Derivatives
The following table displays, by commitment type, our mortgage
commitment derivative activity for the three and six months
ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Purchase
|
|
|
Sale
|
|
|
Purchase
|
|
|
Sale
|
|
|
|
Commitments
|
|
|
Commitments
|
|
|
Commitments
|
|
|
Commitments
|
|
|
|
(Dollars in millions)
|
|
|
Beginning of period notional
balance(1)
|
|
$
|
30,554
|
|
|
$
|
56,716
|
|
|
$
|
55,922
|
|
|
$
|
71,984
|
|
Mortgage related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open
commitments(2)
|
|
|
131,611
|
|
|
|
167,075
|
|
|
|
268,085
|
|
|
|
296,829
|
|
Settled
commitments(3)
|
|
|
(120,108
|
)
|
|
|
(171,506
|
)
|
|
|
(254,654
|
)
|
|
|
(258,094
|
)
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open
commitments(2)
|
|
|
16,344
|
|
|
|
|
|
|
|
35,669
|
|
|
|
|
|
Settled
commitments(3)
|
|
|
(12,884
|
)
|
|
|
|
|
|
|
(41,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period notional
balance(1)
|
|
$
|
45,517
|
|
|
$
|
52,285
|
|
|
$
|
63,464
|
|
|
$
|
110,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Purchase
|
|
|
Sale
|
|
|
Purchase
|
|
|
Sale
|
|
|
|
Commitments
|
|
|
Commitments
|
|
|
Commitments
|
|
|
Commitments
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Beginning of period notional
balance(1)
|
|
$
|
31,416
|
|
|
$
|
90,531
|
|
|
$
|
35,004
|
|
|
$
|
36,232
|
|
Mortgage related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open
commitments(2)
|
|
|
287,760
|
|
|
|
401,743
|
|
|
|
392,519
|
|
|
|
462,414
|
|
Settled
commitments(3)
|
|
|
(276,056
|
)
|
|
|
(439,989
|
)
|
|
|
(362,662
|
)
|
|
|
(387,927
|
)
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open
commitments(2)
|
|
|
28,215
|
|
|
|
|
|
|
|
76,435
|
|
|
|
|
|
Settled
commitments(3)
|
|
|
(25,818
|
)
|
|
|
|
|
|
|
(77,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period notional
balance(1)
|
|
$
|
45,517
|
|
|
$
|
52,285
|
|
|
$
|
63,464
|
|
|
$
|
110,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the balance of open
mortgage commitment derivatives.
|
|
(2) |
|
Represents open mortgage commitment
derivatives traded during the three and six months ended
June 30, 2010 and 2009.
|
|
(3) |
|
Represents mortgage commitment
derivatives settled during the three and six months ended
June 30, 2010 and 2009.
|
168
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Derivative
Counterparty Credit Exposure
Our derivative counterparty credit exposure relates principally
to interest rate and foreign currency derivative contracts. We
are exposed to the risk that a counterparty in a derivative
transaction will default on payments due to us. If there is a
default, we may need to acquire a replacement derivative from a
different counterparty at a higher cost or may be unable to find
a suitable replacement. Typically, we seek to manage credit
exposure by contracting with experienced counterparties that are
rated A- (or its equivalent) or better. We also manage our
exposure by requiring counterparties to post collateral. The
collateral includes cash, U.S. Treasury securities, agency
debt and agency mortgage-related securities.
The table below displays our credit exposure on outstanding risk
management derivative instruments in a gain position by
counterparty credit ratings, as well as the notional amount
outstanding and the number of counterparties for all risk
management derivatives as of June 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
Credit
Rating(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
|
AA+/AA/AA-
|
|
|
A+/A/A-
|
|
|
Subtotal
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Credit loss
exposure(3)
|
|
$
|
|
|
|
$
|
528
|
|
|
$
|
570
|
|
|
$
|
1,098
|
|
|
$
|
111
|
|
|
$
|
1,209
|
|
Less: Collateral
held(4)
|
|
|
|
|
|
|
294
|
|
|
|
474
|
|
|
|
768
|
|
|
|
|
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure net of collateral
|
|
$
|
|
|
|
$
|
234
|
|
|
$
|
96
|
|
|
$
|
330
|
|
|
$
|
111
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount(5)
|
|
$
|
|
|
|
$
|
227,543
|
|
|
$
|
524,854
|
|
|
$
|
752,397
|
|
|
$
|
748
|
|
|
$
|
753,145
|
|
Number of
counterparties(5)
|
|
|
|
|
|
|
7
|
|
|
|
9
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Credit
Rating(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
|
AA+/AA/AA-
|
|
|
A+/A/A-
|
|
|
Subtotal
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Credit loss
exposure(3)
|
|
$
|
|
|
|
$
|
658
|
|
|
$
|
583
|
|
|
$
|
1,241
|
|
|
$
|
84
|
|
|
$
|
1,325
|
|
Less: Collateral
held(4)
|
|
|
|
|
|
|
580
|
|
|
|
507
|
|
|
|
1,087
|
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure net of collateral
|
|
$
|
|
|
|
$
|
78
|
|
|
$
|
76
|
|
|
$
|
154
|
|
|
$
|
84
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount(5)
|
|
$
|
|
|
|
$
|
220,791
|
|
|
$
|
623,668
|
|
|
$
|
844,459
|
|
|
$
|
748
|
|
|
$
|
845,207
|
|
Number of
counterparties(5)
|
|
|
|
|
|
|
7
|
|
|
|
9
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We manage collateral requirements
based on the lower credit rating of the legal entity, as issued
by Standard & Poors and Moodys. The credit
rating reflects the equivalent Standard & Poors
rating for any ratings based on Moodys scale.
|
|
(2) |
|
Includes defined benefit mortgage
insurance contracts and swap credit enhancements accounted for
as derivatives where the right of legal offset does not exist.
|
|
(3) |
|
Represents the exposure to credit
loss on derivative instruments, which we estimate using the fair
value of all outstanding derivative contracts in a gain
position. We net derivative gains and losses with the same
counterparty where a legal right of offset exists under an
enforceable master netting agreement. This table excludes
mortgage commitments accounted for as derivatives.
|
|
(4) |
|
Represents both cash and non-cash
collateral posted by our counterparties to us. Does not include
collateral held in excess of exposure. We reduce the value of
non-cash collateral in accordance with the counterparty
agreements to help ensure recovery of any loss through the
disposition of the collateral. We posted cash collateral of
$5.4 billion related to our counterparties credit
exposure to us as of both June 30, 2010 and
December 31, 2009.
|
169
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
(5) |
|
We had exposure to 4 and 6 interest
rate and foreign currency derivative counterparties in a net
gain position as of June 30, 2010 and December 31,
2009, respectively. Those interest rate and foreign currency
derivatives had notional balances of $351.1 billion and
$310.0 billion as of June 30, 2010 and
December 31, 2009, respectively.
|
As of June 30, 2010, there has been no change to our
conclusion that it is more likely than not that we will not
generate sufficient taxable income in the foreseeable future to
realize our net deferred tax assets. For the three and six
months ended June 30, 2010, we recognized a tax provision
of $9 million and a tax benefit of $58 million,
respectively. Our effective tax rates for the three and six
months ended June 30, 2010 were less than 1%. Our effective
tax rates were different from the statutory rate of 35%
primarily due to an increase in our valuation allowance for our
net deferred tax assets. The difference in rates was also due to
the reversal of a portion of the valuation allowance for
deferred tax assets resulting from a settlement agreement
reached with the IRS for our unrecognized tax benefits for the
tax years 1999 through 2004. In 2010, our tax benefit does not
include a carryback of our net operating loss to prior years as
we are now in a net operating loss carryforward position.
Our effective tax rates for the three and six months ended
June 30, 2009 were less than 1% and 2%, respectively, and
were different from the federal statutory rate of 35% due to the
benefits of our holdings of tax-exempt investments, an increase
to our valuation allowance for our net deferred tax assets as
well as the recognition of a tax benefit for our ability to
carryback net operating losses generated in 2009 to prior years.
|
|
12.
|
Employee
Retirement Benefits
|
The following table displays the components of our net periodic
benefit cost for our pension plans and other postretirement
benefit plan for the three and six months ended June 30,
2010 and 2009. The net periodic benefit cost for each period is
calculated based on assumptions at the end of the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Other Post-
|
|
|
|
|
|
Other Post-
|
|
|
|
Pension
|
|
|
Retirement
|
|
|
Pension
|
|
|
Retirement
|
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
Plan
|
|
|
|
(Dollars in millions)
|
|
|
Service cost
|
|
$
|
11
|
|
|
$
|
2
|
|
|
$
|
9
|
|
|
$
|
2
|
|
Interest cost
|
|
|
17
|
|
|
|
2
|
|
|
|
16
|
|
|
|
3
|
|
Other
|
|
|
(13
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
15
|
|
|
$
|
4
|
|
|
$
|
16
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions during period
|
|
$
|
12
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Other Post-
|
|
|
|
|
|
Other Post-
|
|
|
|
Pension
|
|
|
Retirement
|
|
|
Pension
|
|
|
Retirement
|
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
Plan
|
|
|
|
(Dollars in millions)
|
|
|
Service cost
|
|
$
|
20
|
|
|
$
|
3
|
|
|
$
|
19
|
|
|
$
|
3
|
|
Interest cost
|
|
|
33
|
|
|
|
5
|
|
|
|
31
|
|
|
|
5
|
|
Other
|
|
|
(25
|
)
|
|
|
(1
|
)
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
28
|
|
|
$
|
7
|
|
|
$
|
38
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions during period
|
|
$
|
24
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the remaining period of 2010, we anticipate contributing
$25 million to our pension plans and $4 million to our
other postretirement benefit plan.
Our three reportable segments are: Single-Family,
HCD, and Capital Markets. We use these three segments to
generate revenue and manage business risk, and each segment is
based on the type of business activities it performs.
Segment
Reporting for 2010
Our prospective adoption of the new accounting standards had a
significant impact on the presentation and comparability of our
condensed consolidated financial statements due to the
consolidation of the substantial majority of our single-class
securitization trusts and the elimination of previously recorded
deferred revenue from our guaranty arrangements. We continue to
manage Fannie Mae based on the same three business segments.
However, effective in 2010, we changed the presentation of
segment financial information that is currently evaluated by
management.
Under the current segment reporting, the sum of the results for
our three business segments does not equal our condensed
consolidated statements of operations, as we separate the
activity related to our consolidated trusts from the results
generated by our three segments. In addition, we include an
eliminations/adjustments category to reconcile our business
segment results and the activity related to our consolidated
trusts to our condensed consolidated statements of operations.
While some line items in our segment results were not impacted
by either the change from the new accounting standards or
changes to our segment presentation, others were impacted
significantly, which reduces the comparability of our segment
results with prior years. We have neither restated prior year
results nor presented current year results under the old
presentation as we determined that it was impracticable to do
so; therefore, our segment results reported in the current
period are not comparable with prior years.
The section below provides a discussion of the three business
segments and how each segments financial information
reconciles to our condensed consolidated financial statements
for those line items that were impacted significantly as a
result of changes to our segment presentation.
171
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Single-Family
Revenue drivers for Single-Family did not change under our
current method of segment reporting. Revenue for our
Single-Family business is from the guaranty fees the segment
receives as compensation for assuming the credit risk on the
mortgage loans underlying single-family Fannie Mae MBS, most of
which are held within consolidated trusts, and on the
single-family mortgage loans held in our mortgage portfolio. The
primary source of profit for the Single-Family segment is the
difference between the guaranty fees earned and the costs of
providing the guaranty, including credit-related losses.
Our current segment reporting presentation differs from our
condensed consolidated balance sheets and statements of
operations in order to reflect the activities and results of the
Single-Family segment. The significant differences from the
condensed consolidated statements of operations are as follows:
|
|
|
|
|
Guaranty fee incomeGuaranty fee income reflects
(1) the cash guaranty fees paid by MBS trusts to
Single-Family, (2) the amortization of deferred cash fees
(both the previously recorded deferred cash fees that were
eliminated from our condensed consolidated balance sheets at
transition and deferred guaranty fees received subsequent to
transition that are currently recognized in our condensed
consolidated financial statements through interest income), such
as buy-ups,
buy-downs, and risk-based pricing adjustments, and (3) the
guaranty fees from the Capital Markets group on single-family
loans in our mortgage portfolio. To reconcile to our condensed
consolidated statements of operations, we eliminate guaranty
fees and the amortization of deferred cash fees related to
consolidated trusts as they are now reflected as a component of
interest income. However, such accounting continues to be
reflected for the segment reporting presentation.
|
|
|
|
Net interest income (expense)Net interest expense
within the Single-Family segment reflects interest expense to
reimburse Capital Markets and consolidated trusts for
contractual interest not received on mortgage loans, after we
stop recognizing interest income in accordance with our
nonaccrual accounting policy in our condensed consolidated
statements of operations. Net interest income (expense), also
includes an allocated cost of capital charge between the three
segments that is not included in net interest income in the
condensed consolidated statement of operations.
|
Housing
and Community Development
Revenue drivers for HCD did not change under our current method
of segment reporting. The primary sources of revenue for our HCD
business are (1) guaranty fees the segment receives as
compensation for assuming the credit risk on the mortgage loans
underlying multifamily Fannie Mae MBS, most of which are held
within consolidated trusts, (2) guaranty fees on the
multifamily mortgage loans held in our mortgage portfolio,
(3) transaction fees associated with the multifamily
business and (4) bond credit enhancement fees. Investments
in rental and for-sale housing generate revenue and losses from
operations and the eventual sale of the assets. In the fourth
quarter of 2009, we reduced the carrying value of our LIHTC
investments to zero. As a result, we no longer recognize net
operating losses or
other-than-temporary
impairment on our LIHTC investments. While the HCD guaranty
business is similar to our Single-Family business, neither the
economic return nor the nature of the credit risk is similar to
that of Single-Family.
172
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Our current segment reporting presentation differs from our
condensed consolidated balance sheets and statements of
operations in order to reflect the activities and results of the
HCD segment. The significant differences from the condensed
consolidated statements of operations are as follows:
|
|
|
|
|
Guaranty fee incomeGuaranty fee income reflects the
cash guaranty fees paid by MBS trusts to HCD and the guaranty
fees from the Capital Markets group on multifamily loans in
Fannie Maes portfolio. To reconcile to our condensed
consolidated statements of operations, we eliminate guaranty
fees related to consolidated trusts.
|
|
|
|
Losses from partnership investmentsLosses from
partnership investments primarily reflect losses on investments
in affordable rental and for-sale housing partnerships measured
under the equity method of accounting. To reconcile to our
condensed consolidated statements of operations, we adjust the
losses to reflect the consolidation of certain partnership
investments.
|
Capital
Markets Group
Revenue drivers for Capital Markets did not change under our
current method of segment reporting. Our Capital Markets group
generates most of its revenue from the difference, or spread,
between the interest we earn on our mortgage assets and the
interest we pay on the debt we issue to fund these assets. We
refer to this spread as our net interest yield. Changes in the
fair value of the derivative instruments and trading securities
we hold impact the net income or loss reported by the Capital
Markets group. The net income or loss reported by our Capital
Markets group is also affected by the impairment of AFS
securities.
Our current segment reporting presentation differs from our
condensed consolidated balance sheets and statements of
operations in order to reflect the activities and results of the
Capital Markets group. The significant differences from the
condensed consolidated statements of operations are as follows:
|
|
|
|
|
Net interest incomeNet interest income reflects the
interest income on mortgage loans and securities owned by Fannie
Mae and interest expense on funding debt issued by Fannie Mae,
including accretion and amortization of any cost basis
adjustments. To reconcile to our condensed consolidated
statements of operations, we adjust for the impact of
consolidated trusts and intercompany eliminations as follows:
|
|
|
|
|
|
Interest income: Interest income consists of interest on the
segments interest-earning assets, which differs from
interest-earning assets in our condensed consolidated balance
sheets. We exclude loans and securities that underlie the
consolidated trusts from our Capital Markets group balance
sheets. The net interest income reported by the Capital Markets
group excludes the interest income earned on assets held by
consolidated trusts. As a result, we report interest income and
amortization of cost basis adjustments only on securities and
loans that are held in our portfolio. For mortgage loans held in
our portfolio, after we stop recognizing interest income in
accordance with our nonaccrual accounting policy, the Capital
Markets group recognizes interest income for reimbursement from
Single-Family and HCD for the contractual interest due under the
terms of our intracompany guaranty arrangement.
|
|
|
|
Interest expense: Interest expense consists of contractual
interest on the Capital Markets groups interest-bearing
liabilities, including the accretion and amortization of any
cost basis adjustments. It excludes interest expense on debt
issued by consolidated trusts. Therefore, the interest expense
recognized on the Capital Markets group income statement is
limited to our funding debt, which is reported as Debt of
Fannie Mae in our condensed consolidated balance sheets.
Net interest expense
|
173
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
also includes an allocated cost of capital charge between the
three business segments that is not included in net interest
income in our condensed consolidated statements of operations.
|
|
|
|
|
|
Investment gains or losses, netInvestment gains or
losses, net reflects the gains and losses on securitizations and
sales of
available-for-sale
securities from our portfolio. To reconcile to our condensed
consolidated statements of operations, we eliminate gains and
losses on securities that have been consolidated to loans.
|
|
|
|
Fair value gains or losses, netFair value gains or
losses, net for the Capital Markets group includes derivative
gains and losses, foreign exchange gains and losses, and the
fair value gains and losses on certain debt securities in our
portfolio. To reconcile to our condensed consolidated statements
of operations, we eliminate fair value gains or losses on Fannie
Mae MBS that have been consolidated to loans.
|
|
|
|
Other expenses, net Debt extinguishment gains or
losses recorded on the segment statements of operations relate
exclusively to our funding debt, which is reported as Debt
of Fannie Mae on our condensed consolidated balance
sheets. To reconcile to our condensed consolidated statements of
operations, we include debt extinguishment gains or losses
related to consolidated trusts to arrive at our total recognized
debt extinguishment gains or losses.
|
Segment
Allocations and Results
Our segment financial results include directly attributable
revenues and expenses. Additionally, we allocate to each of our
segments: (1) capital using FHFA minimum capital
requirements adjusted for over- or under-capitalization;
(2) indirect administrative costs; and (3) a provision
or benefit for federal income taxes. In addition, we allocate
intracompany guaranty fee income as a charge from the
Single-Family and HCD segments to Capital Markets for managing
the credit risk on mortgage loans held by the Capital Markets
group.
With the adoption of the new accounting standards, we have
prospectively revised the presentation of our results for these
segments to better reflect how we operate and oversee these
businesses.
174
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays our segment results under our
current segment reporting presentation for the three and six
months ended June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
|
|
|
Other Activity/Reconciling
|
|
|
|
|
|
|
Business Segments
|
|
|
Items
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Consolidated
|
|
|
Eliminations/
|
|
|
Total
|
|
|
|
Single-Family
|
|
|
HCD
|
|
|
Markets
|
|
|
Trusts(1)
|
|
|
Adjustments(2)
|
|
|
Results
|
|
|
|
(Dollars in millions)
|
|
|
Net interest income
(expense)(3)
|
|
$
|
(1,385
|
)
|
|
$
|
5
|
|
|
$
|
3,549
|
|
|
$
|
1,282
|
|
|
$
|
756
|
|
|
$
|
4,207
|
|
Benefit (provision) for loan losses
|
|
|
(4,319
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after provision for loan losses
|
|
|
(5,704
|
)
|
|
|
29
|
|
|
|
3,549
|
|
|
|
1,282
|
|
|
|
756
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee income
(expense)(4)
|
|
|
1,795
|
|
|
|
195
|
|
|
|
(360
|
)
|
|
|
(1,130
|
)
|
|
|
(448
|
)
|
|
|
52
|
|
Investment gains (losses), net
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
779
|
|
|
|
(28
|
)
|
|
|
(729
|
)
|
|
|
23
|
|
Net
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
Fair value gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
631
|
|
|
|
11
|
|
|
|
(339
|
)
|
|
|
303
|
|
Debt extinguishment losses, net
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
(159
|
)
|
Losses from partnership investments
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(26
|
)
|
Fee and other income
(expense)(5)
|
|
|
85
|
|
|
|
28
|
|
|
|
136
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
242
|
|
Administrative expenses
|
|
|
(436
|
)
|
|
|
(93
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
(670
|
)
|
Benefit (provision) for guaranty losses
|
|
|
(73
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
Foreclosed property expense
|
|
|
(479
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
Other income (expenses)
|
|
|
(259
|
)
|
|
|
(11
|
)
|
|
|
91
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(5,069
|
)
|
|
|
121
|
|
|
|
4,420
|
|
|
|
97
|
|
|
|
(783
|
)
|
|
|
(1,214
|
)
|
Provision (benefit) for federal income taxes
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,068
|
)
|
|
|
119
|
|
|
|
4,412
|
|
|
|
97
|
|
|
|
(783
|
)
|
|
|
(1,223
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
(5,068
|
)
|
|
$
|
119
|
|
|
$
|
4,412
|
|
|
$
|
97
|
|
|
$
|
(778
|
)
|
|
$
|
(1,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
|
Business Segments
|
|
|
Other Activity/Reconciling Items
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Consolidated
|
|
|
Eliminations/
|
|
|
Total
|
|
|
|
Single-Family
|
|
|
HCD
|
|
|
Markets
|
|
|
Trusts(1)
|
|
|
Adjustments(2)
|
|
|
Results
|
|
|
|
(Dollars in millions)
|
|
|
Net interest income
(expense)(3)
|
|
$
|
(3,330
|
)
|
|
$
|
9
|
|
|
$
|
6,606
|
|
|
$
|
2,521
|
|
|
$
|
1,190
|
|
|
$
|
6,996
|
|
Benefit (provision) for loan losses
|
|
|
(16,264
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after provision for loan losses
|
|
|
(19,594
|
)
|
|
|
39
|
|
|
|
6,606
|
|
|
|
2,521
|
|
|
|
1,190
|
|
|
|
(9,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty fee income
(expense)(4)
|
|
|
3,563
|
|
|
|
389
|
|
|
|
(639
|
)
|
|
|
(2,327
|
)
|
|
|
(880
|
)
|
|
|
106
|
|
Investment gains (losses), net
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
1,571
|
|
|
|
(183
|
)
|
|
|
(1,202
|
)
|
|
|
189
|
|
Net
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
Fair value losses, net
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
|
|
(24
|
)
|
|
|
(823
|
)
|
|
|
(1,402
|
)
|
Debt extinguishment losses, net
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
(283
|
)
|
Losses from partnership investments
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(84
|
)
|
Fee and other income
(expense)(5)
|
|
|
132
|
|
|
|
63
|
|
|
|
240
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
421
|
|
Administrative expenses
|
|
|
(826
|
)
|
|
|
(192
|
)
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,275
|
)
|
Benefit (provision) for guaranty losses
|
|
|
(84
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
Foreclosed property expense
|
|
|
(449
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
Other income (expenses)
|
|
|
(431
|
)
|
|
|
(17
|
)
|
|
|
118
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(17,685
|
)
|
|
|
233
|
|
|
|
6,528
|
|
|
|
(127
|
)
|
|
|
(1,759
|
)
|
|
|
(12,810
|
)
|
Provision (benefit) for federal income taxes
|
|
|
(52
|
)
|
|
|
15
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(17,633
|
)
|
|
|
218
|
|
|
|
6,549
|
|
|
|
(127
|
)
|
|
|
(1,759
|
)
|
|
|
(12,752
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
(17,633
|
)
|
|
$
|
218
|
|
|
$
|
6,549
|
|
|
$
|
(127
|
)
|
|
$
|
(1,755
|
)
|
|
$
|
(12,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Column represents activity of
consolidated trusts and it also includes the issuances and
extinguishment of debt due to sales and purchases of our MBS.
|
|
(2) |
|
Column represents adjustments
during the period used to reconcile segment results to
consolidated results which include the elimination of
intersegment transactions occurring between the three operating
segments and our consolidated trusts.
|
|
(3) |
|
Includes cost of capital charge
among our three business segments.
|
|
(4) |
|
The charge to Capital Markets
represents an intracompany guaranty fee expense allocated to
Capital Markets from Single-Family and HCD for absorbing the
credit risk on mortgage loans held in our portfolio.
|
|
(5) |
|
Fee and other income for
Single-Family and HCD segments include trust management income.
|
176
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following table displays our segment results under our
previous segment reporting presentation for the three and six
months ended June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
Single-Family
|
|
|
HCD
|
|
|
Markets
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Net interest income
(expense)(1)
|
|
$
|
186
|
|
|
$
|
(51
|
)
|
|
$
|
3,600
|
|
|
$
|
3,735
|
|
Guaranty fee income
(expense)(2)
|
|
|
1,865
|
|
|
|
164
|
|
|
|
(370
|
)
|
|
|
1,659
|
|
Trust management income
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Investment losses, net
|
|
|
(15
|
)
|
|
|
|
|
|
|
(30
|
)
|
|
|
(45
|
)
|
Net
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
(753
|
)
|
|
|
(753
|
)
|
Fair value gains, net
|
|
|
|
|
|
|
|
|
|
|
823
|
|
|
|
823
|
|
Debt extinguishment losses, net
|
|
|
|
|
|
|
|
|
|
|
(190
|
)
|
|
|
(190
|
)
|
Losses from partnership investments
|
|
|
|
|
|
|
(571
|
)
|
|
|
|
|
|
|
(571
|
)
|
Fee and other income
|
|
|
93
|
|
|
|
20
|
|
|
|
71
|
|
|
|
184
|
|
Administrative expenses
|
|
|
(338
|
)
|
|
|
(80
|
)
|
|
|
(92
|
)
|
|
|
(510
|
)
|
Provision for credit losses
|
|
|
(17,844
|
)
|
|
|
(381
|
)
|
|
|
|
|
|
|
(18,225
|
)
|
Other expenses
|
|
|
(738
|
)
|
|
|
(14
|
)
|
|
|
(125
|
)
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(16,778
|
)
|
|
|
(913
|
)
|
|
|
2,934
|
|
|
|
(14,757
|
)
|
Provision (benefit) for federal income taxes
|
|
|
(138
|
)
|
|
|
43
|
|
|
|
118
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(16,640
|
)
|
|
|
(956
|
)
|
|
|
2,816
|
|
|
|
(14,780
|
)
|
Less: Net loss attributable to the noncontrolling interests
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fannie Mae
|
|
$
|
(16,640
|
)
|
|
$
|
(930
|
)
|
|
$
|
2,816
|
|
|
$
|
(14,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
Single-Family
|
|
|
HCD
|
|
|
Markets
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Net interest income
(expense)(1)
|
|
$
|
201
|
|
|
$
|
(113
|
)
|
|
$
|
6,895
|
|
|
$
|
6,983
|
|
Guaranty fee income
(expense)(2)
|
|
|
3,831
|
|
|
|
322
|
|
|
|
(742
|
)
|
|
|
3,411
|
|
Trust management income
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Investment gains, net
|
|
|
58
|
|
|
|
|
|
|
|
120
|
|
|
|
178
|
|
Net
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
(6,406
|
)
|
|
|
(6,406
|
)
|
Fair value losses, net
|
|
|
|
|
|
|
|
|
|
|
(637
|
)
|
|
|
(637
|
)
|
Debt extinguishment losses, net
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
(269
|
)
|
Losses from partnership investments
|
|
|
|
|
|
|
(928
|
)
|
|
|
|
|
|
|
(928
|
)
|
Fee and other income
|
|
|
178
|
|
|
|
47
|
|
|
|
140
|
|
|
|
365
|
|
Administrative expenses
|
|
|
(658
|
)
|
|
|
(171
|
)
|
|
|
(204
|
)
|
|
|
(1,033
|
)
|
Provision for credit losses
|
|
|
(37,635
|
)
|
|
|
(924
|
)
|
|
|
|
|
|
|
(38,559
|
)
|
Other expenses
|
|
|
(1,480
|
)
|
|
|
(29
|
)
|
|
|
(185
|
)
|
|
|
(1,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income taxes
|
|
|
(35,481
|
)
|
|
|
(1,796
|
)
|
|
|
(1,288
|
)
|
|
|
(38,565
|
)
|
Provision (benefit) for federal income taxes
|
|
|
(783
|
)
|
|
|
211
|
|
|
|
(28
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(34,698
|
)
|
|
|
(2,007
|
)
|
|
|
(1,260
|
)
|
|
|
(37,965
|
)
|
Less: Net loss attributable to the noncontrolling interests
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Fannie Mae
|
|
$
|
(34,698
|
)
|
|
$
|
(1,964
|
)
|
|
$
|
(1,260
|
)
|
|
$
|
(37,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
(1)
|
|
Includes cost of capital charge.
|
|
(2) |
|
The charge to Capital Markets
represents an intracompany guaranty fee expense allocated to
Capital Markets from Single-Family and HCD for absorbing the
credit risk on mortgage loans held in our portfolio and
consolidated loans.
|
|
|
14.
|
Regulatory
Capital Requirements
|
In 2008, FHFA announced that our existing statutory and
FHFA-directed regulatory capital requirements will not be
binding during the conservatorship, and that FHFA will not issue
quarterly capital classifications during the conservatorship. We
continue to submit capital reports to FHFA during the
conservatorship and FHFA continues to closely monitor our
capital levels. FHFA has stated that it does not intend to
report our critical capital, risk-based capital or subordinated
debt levels during the conservatorship. As of June 30, 2010
and December 31, 2009, we had a minimum capital deficiency
of $119.0 billion and $107.6 billion, respectively.
Our minimum capital deficiency as of June 30, 2010 was
determined based on guidance from FHFA, in which FHFA
(1) directed us, for loans backing Fannie Mae MBS held by
third parties, to continue reporting our minimum capital
requirements based on 0.45% of the unpaid principal balance and
critical capital based on 0.25% of the unpaid principal balance,
notwithstanding our transition date adoption of the new
accounting standards, and (2) issued a regulatory
interpretation stating that our minimum capital requirements are
not automatically affected by the new accounting standards.
Additionally, our minimum capital deficiency excludes the funds
provided to us by Treasury pursuant to the senior preferred
stock purchase agreement, as the senior preferred stock does not
qualify as core capital due to its cumulative dividend
provisions.
Pursuant to the GSE Act, if our total assets are less than our
total obligations (a net worth deficit) for a period of
60 days, FHFA is mandated by law to appoint a receiver for
Fannie Mae. Treasurys funding commitment under the senior
preferred stock purchase agreement is intended to ensure that we
avoid a net worth deficit, in order to avoid this mandatory
trigger of receivership. In order to avoid a net worth deficit,
our conservator may request funds on our behalf from Treasury
under the senior preferred stock purchase agreement.
FHFA has directed us, during the time we are under
conservatorship, to focus on managing to a positive net worth.
As of June 30, 2010 and December 31, 2009, we had a
net worth deficit of $1.4 billion and $15.3 billion,
respectively.
The following table displays our regulatory capital
classification measures as of June 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010(1)
|
|
|
2009(1)
|
|
|
|
(Dollars in millions)
|
|
|
Core
capital(2)
|
|
$
|
(83,997
|
)
|
|
$
|
(74,540
|
)
|
Statutory minimum capital
requirement(3)
|
|
|
34,967
|
|
|
|
33,057
|
|
|
|
|
|
|
|
|
|
|
Deficit of core capital over statutory minimum capital
requirement
|
|
$
|
(118,964
|
)
|
|
$
|
(107,597
|
)
|
|
|
|
|
|
|
|
|
|
Deficit of core capital percentage over statutory minimum
capital requirement
|
|
|
(340.2
|
)%
|
|
|
(325.5
|
)%
|
|
|
|
(1) |
|
Amounts as of June 30, 2010
and December 31, 2009 represent estimates that have been
submitted to FHFA. As noted above, FHFA is not issuing capital
classifications during conservatorship.
|
|
(2) |
|
The sum of (a) the stated
value of our outstanding common stock (common stock less
treasury stock); (b) the stated value of our outstanding
non-cumulative perpetual preferred stock; (c) our paid-in
capital; and (d) our retained
|
178
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
earnings (accumulated deficit).
Core capital does not include: (a) accumulated other
comprehensive income (loss) or (b) senior preferred stock.
|
|
(3) |
|
Generally, the sum of
(a) 2.50% of on-balance sheet assets, except those
underlying Fannie Mae MBS held by third parties; (b) 0.45%
of the unpaid principal balance of outstanding Fannie Mae MBS
held by third parties; and (c) up to 0.45% of other
off-balance sheet obligations, which may be adjusted by the
Director of FHFA under certain circumstances (See 12 CFR
1750.4 for existing adjustments made by the Director).
|
|
|
15.
|
Concentration
of Credit Risk
|
Mortgage Seller/Servicers. Mortgage servicers
collect mortgage and escrow payments from borrowers, pay taxes
and insurance costs from escrow accounts, monitor and report
delinquencies, and perform other required activities on our
behalf. Our business with mortgage servicers is concentrated.
Our ten largest single-family mortgage servicers, including
their affiliates, serviced 80% of our single-family guaranty
book of business as of June 30, 2010 and December 31,
2009. Our ten largest multifamily mortgage servicers including
their affiliates serviced 71% of our multifamily guaranty book
of business as of June 30, 2010, compared with 75% as of
December 31, 2009.
If one of our principal mortgage seller/servicers fails to meet
its obligations to us, it could increase our
credit-related
expenses and credit losses, result in financial losses to us and
have a material adverse effect on our earnings, liquidity,
financial condition and net worth.
Mortgage Insurers. Mortgage insurance
risk in force represents our maximum potential loss
recovery under the applicable mortgage insurance policies. We
had total mortgage insurance coverage risk in force of
$100.4 billion on the single-family mortgage loans in our
guaranty book of business as of June 30, 2010, which
represented approximately 4% of our single-family guaranty book
of business. Our primary and pool mortgage insurance coverage
risk in force on single-family mortgage loans in our guaranty
book of business represented $95.1 billion and
$5.3 billion, respectively, as of June 30, 2010,
compared with $99.6 billion and $6.9 billion,
respectively, as of December 31, 2009. Eight mortgage
insurance companies provided over 99% of our mortgage insurance
as of June 30, 2010 and December 31, 2009.
Increases in mortgage insurance claims due to higher defaults
and credit losses in recent periods have adversely affected the
financial results and financial condition of many mortgage
insurers. The current weakened financial condition of our
mortgage insurer counterparties creates an increased risk that
these counterparties will fail to fulfill their obligations to
reimburse us for claims under insurance policies. If we
determine that it is probable that we will not collect all of
our claims from one or more of these mortgage insurer
counterparties, it could result in an increase in our loss
reserves, which could adversely affect our earnings, liquidity,
financial condition and net worth.
As of June 30, 2010, our allowance for loan losses of
$60.6 billion, allowance for accrued interest receivable of
$4.8 billion and reserve for guaranty losses of
$246 million incorporated an estimated recovery amount of
approximately $16.6 billion from mortgage insurance related
both to loans that are individually measured for impairment and
those that are measured collectively for impairment. This amount
is comprised of the contractual recovery of approximately
$18.3 billion as of June 30, 2010 and an adjustment of
$1.6 billion which reduces the contractual recovery for our
assessment of our mortgage insurer counterparties
inability to fully pay those claims.
We had outstanding receivables from mortgage insurers of
$3.6 billion in Other assets in our condensed
consolidated balance sheet as of June 30, 2010 and
$2.5 billion as of December 31, 2009, related to
amounts
179
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
claimed on insured, defaulted loans that we have not yet
received. We assessed the receivables for collectibility, and
they are recorded net of a valuation allowance of
$105 million as of June 30, 2010 and $51 million
as of December 31, 2009 in Other assets. These
mortgage insurance receivables are short-term in nature, having
a duration of approximately three to six months, and the
valuation allowance reduces our claim receivable to the amount
which is considered probable of collection as of June 30,
2010 and December 31, 2009. We received proceeds under our
primary and pool mortgage insurance policies for
single-family
loans of $1.5 billion and $3.0 billion for the three
and six months of June 30, 2010, respectively, and
$3.6 billion for the year ended December 31, 2009. We
negotiated the cancellation and restructurings of some of our
mortgage insurance coverage in exchange for a fee. The cash fees
received of $335 million and $773 million for the
three and six months ended June 30, 2010, respectively, and
$668 million as of December 31, 2009 are included in
our total insurance proceeds amount.
Financial Guarantors. We were the beneficiary
of financial guarantees totaling $9.2 billion and
$9.6 billion as of June 30, 2010 and December 31,
2009, respectively, on securities held in our investment
portfolio or on securities that have been resecuritized to
include a Fannie Mae guaranty and sold to third parties. The
securities covered by these guarantees consist primarily of
private-label mortgage-related securities and mortgage revenue
bonds. We obtained these guarantees from eight financial
guaranty insurance companies as of June 30, 2010. In
addition, we are the beneficiary of financial guarantees
totaling $30.6 billion and $51.3 billion as of
June 30, 2010 and December 31, 2009, respectively,
obtained from Freddie Mac, the federal government, and its
agencies. These financial guaranty contracts assure the
collectibility of timely interest and ultimate principal
payments on the guaranteed securities if the cash flows
generated by the underlying collateral are not sufficient to
fully support these payments.
If a financial guarantor fails to meet its obligations to us
with respect to the securities for which we have obtained
financial guarantees, it could reduce the fair value of our
mortgage-related securities and result in financial losses to
us, which could have a material adverse effect on our earnings,
liquidity, financial condition and net worth. We considered the
financial strength of our financial guarantors in assessing our
securities for
other-than-temporary
impairment.
Lenders with Risk Sharing. We enter into risk
sharing agreements with lenders pursuant to which the lenders
agree to bear all or some portion of the credit losses on the
covered loans. Our maximum potential loss recovery from lenders
under these risk sharing agreements on single-family loans was
$17.0 billion as of June 30, 2010 and
$18.3 billion as of December 31, 2009. As of
June 30, 2010, 56% of our maximum potential loss recovery
on single-family loans was from three lenders. As of
December 31, 2009, 53% of our maximum potential loss
recovery on single-family loans was from three lenders. Our
maximum potential loss recovery from lenders under these risk
sharing agreements on multifamily loans was $29.7 billion
as of June 30, 2010 and $28.7 billion as of
December 31, 2009. As of June 30, 2010, 42% of our
maximum potential loss recovery on multifamily loans was from
three lenders. As of December 31, 2009, 51% of our maximum
potential loss recovery on multifamily loans was from three
lenders.
Derivatives Counterparties. For information on
credit risk associated with our derivatives transactions refer
to Note 10, Derivative Instruments.
We use fair value measurements for the initial recording of
certain assets and liabilities and periodic remeasurement of
certain assets and liabilities on a recurring or nonrecurring
basis.
180
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Fair
Value Measurement
Fair value measurement guidance defines fair value, establishes
a framework for measuring fair value and expands disclosures
around fair value measurements. This guidance applies whenever
other accounting standards require or permit assets or
liabilities to be measured at fair value. The guidance
establishes a three level fair value hierarchy that prioritizes
the inputs into the valuation techniques used to measure fair
value. The fair value hierarchy gives the highest priority,
Level 1, to measurements based on unadjusted quoted prices
in active markets for identical assets or liabilities. The next
highest priority, Level 2, is given to measurements of
assets and liabilities based on limited observable inputs or
observable inputs for similar assets and liabilities. The lowest
priority, Level 3, is given to measurements based on
unobservable inputs. For the three months ended March 31,
2010, we adopted the new accounting standard that requires
enhanced disclosures about fair value measurements.
Recurring
Changes in Fair Value
The following tables display our assets and liabilities measured
in our condensed consolidated balance sheets at fair value on a
recurring basis subsequent to initial recognition, including
instruments for which we have elected the fair value option as
of June 30, 2010 and December 31, 2009. Specifically,
total assets measured at fair value on a recurring basis and
classified as Level 3 were $37.6 billion, or 1% of
Total assets, and $47.7 billion, or 5% of
Total assets, in our condensed consolidated balance
sheets as of June 30, 2010 and December 31, 2009,
respectively.
181
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2010
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Netting
|
|
|
Estimated
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Adjustment(1)
|
|
|
Fair Value
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
14,398
|
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,398
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
|
|
|
|
7,679
|
|
|
|
58
|
|
|
|
|
|
|
|
7,737
|
|
Freddie Mac
|
|
|
|
|
|
|
1,984
|
|
|
|
4
|
|
|
|
|
|
|
|
1,988
|
|
Ginnie Mae
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
521
|
|
Alt-A private-label securities
|
|
|
|
|
|
|
1,290
|
|
|
|
119
|
|
|
|
|
|
|
|
1,409
|
|
Subprime private-label securities
|
|
|
|
|
|
|
|
|
|
|
1,645
|
|
|
|
|
|
|
|
1,645
|
|
CMBS
|
|
|
|
|
|
|
10,428
|
|
|
|
|
|
|
|
|
|
|
|
10,428
|
|
Mortgage revenue bonds
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
|
|
|
|
|
650
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
160
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
45,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,712
|
|
Asset-backed securities
|
|
|
|
|
|
|
7,079
|
|
|
|
24
|
|
|
|
|
|
|
|
7,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
45,712
|
|
|
|
28,981
|
|
|
|
2,660
|
|
|
|
|
|
|
|
77,353
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
|
|
|
|
28,261
|
|
|
|
53
|
|
|
|
|
|
|
|
28,314
|
|
Freddie Mac
|
|
|
|
|
|
|
20,469
|
|
|
|
21
|
|
|
|
|
|
|
|
20,490
|
|
Ginnie Mae
|
|
|
|
|
|
|
1,130
|
|
|
|
125
|
|
|
|
|
|
|
|
1,255
|
|
Alt-A private-label securities
|
|
|
|
|
|
|
6,704
|
|
|
|
7,777
|
|
|
|
|
|
|
|
14,481
|
|
Subprime private-label securities
|
|
|
|
|
|
|
|
|
|
|
10,255
|
|
|
|
|
|
|
|
10,255
|
|
CMBS
|
|
|
|
|
|
|
14,514
|
|
|
|
|
|
|
|
|
|
|
|
14,514
|
|
Mortgage revenue bonds
|
|
|
|
|
|
|
14
|
|
|
|
12,428
|
|
|
|
|
|
|
|
12,442
|
|
Other
|
|
|
|
|
|
|
19
|
|
|
|
3,890
|
|
|
|
|
|
|
|
3,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
|
|
|
|
71,111
|
|
|
|
34,549
|
|
|
|
|
|
|
|
105,660
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
|
|
|
|
13,020
|
|
|
|
201
|
|
|
|
|
|
|
|
13,221
|
|
Swaptions
|
|
|
|
|
|
|
7,927
|
|
|
|
|
|
|
|
|
|
|
|
7,927
|
|
Interest rate caps
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
111
|
|
Netting adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,579
|
)
|
|
|
(20,579
|
)
|
Mortgage commitment derivatives
|
|
|
|
|
|
|
489
|
|
|
|
25
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
|
|
|
|
21,466
|
|
|
|
337
|
|
|
|
(20,579
|
)
|
|
|
1,224
|
|
Guaranty assets and
buy-ups
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
60,110
|
|
|
$
|
123,558
|
|
|
$
|
37,561
|
|
|
$
|
(20,579
|
)
|
|
$
|
200,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2010
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Netting
|
|
|
Estimated
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Adjustment(1)
|
|
|
Fair Value
|
|
|
|
(Dollars in millions)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior fixed
|
|
$
|
|
|
|
$
|
497
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
497
|
|
Senior floating
|
|
|
|
|
|
|
2,182
|
|
|
|
585
|
|
|
|
|
|
|
|
2,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fannie Mae
|
|
|
|
|
|
|
2,679
|
|
|
|
585
|
|
|
|
|
|
|
|
3,264
|
|
Of consolidated trusts
|
|
|
|
|
|
|
206
|
|
|
|
105
|
|
|
|
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
2,885
|
|
|
|
690
|
|
|
|
|
|
|
|
3,575
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
|
|
|
|
25,584
|
|
|
|
110
|
|
|
|
|
|
|
|
25,694
|
|
Swaptions
|
|
|
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
824
|
|
Netting adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,485
|
)
|
|
|
(25,485
|
)
|
Mortgage commitment derivatives
|
|
|
|
|
|
|
659
|
|
|
|
1
|
|
|
|
|
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
|
|
|
|
27,067
|
|
|
|
111
|
|
|
|
(25,485
|
)
|
|
|
1,693
|
|
Other liabilities
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
29,960
|
|
|
$
|
801
|
|
|
$
|
(25,485
|
)
|
|
$
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2009
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Netting
|
|
|
Estimated
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Adjustment(1)
|
|
|
Fair Value
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
|
|
|
$
|
69,094
|
|
|
$
|
5,656
|
|
|
$
|
|
|
|
$
|
74,750
|
|
Freddie Mac
|
|
|
|
|
|
|
15,082
|
|
|
|
|
|
|
|
|
|
|
|
15,082
|
|
Ginnie Mae
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Alt-A private-label securities
|
|
|
|
|
|
|
791
|
|
|
|
564
|
|
|
|
|
|
|
|
1,355
|
|
Subprime private-label securities
|
|
|
|
|
|
|
|
|
|
|
1,780
|
|
|
|
|
|
|
|
1,780
|
|
CMBS
|
|
|
|
|
|
|
9,335
|
|
|
|
|
|
|
|
|
|
|
|
9,335
|
|
Mortgage revenue bonds
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
600
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
154
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
8,408
|
|
|
|
107
|
|
|
|
|
|
|
|
8,515
|
|
Corporate debt securities
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
364
|
|
U.S. Treasury securities
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
3
|
|
|
|
103,075
|
|
|
|
8,861
|
|
|
|
|
|
|
|
111,939
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
|
|
|
|
153,823
|
|
|
|
596
|
|
|
|
|
|
|
|
154,419
|
|
Freddie Mac
|
|
|
|
|
|
|
27,442
|
|
|
|
27
|
|
|
|
|
|
|
|
27,469
|
|
Ginnie Mae
|
|
|
|
|
|
|
1,230
|
|
|
|
123
|
|
|
|
|
|
|
|
1,353
|
|
Alt-A private-label securities
|
|
|
|
|
|
|
5,838
|
|
|
|
8,312
|
|
|
|
|
|
|
|
14,150
|
|
Subprime private-label securities
|
|
|
|
|
|
|
|
|
|
|
10,746
|
|
|
|
|
|
|
|
10,746
|
|
CMBS
|
|
|
|
|
|
|
13,193
|
|
|
|
|
|
|
|
|
|
|
|
13,193
|
|
Mortgage revenue bonds
|
|
|
|
|
|
|
26
|
|
|
|
12,820
|
|
|
|
|
|
|
|
12,846
|
|
Other
|
|
|
|
|
|
|
22
|
|
|
|
3,530
|
|
|
|
|
|
|
|
3,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
|
|
|
|
201,574
|
|
|
|
36,154
|
|
|
|
|
|
|
|
237,728
|
|
Derivative assets
|
|
|
|
|
|
|
19,724
|
|
|
|
150
|
|
|
|
(18,400
|
)
|
|
|
1,474
|
|
Guaranty assets and
buy-ups
|
|
|
|
|
|
|
|
|
|
|
2,577
|
|
|
|
|
|
|
|
2,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
3
|
|
|
$
|
324,373
|
|
|
$
|
47,742
|
|
|
$
|
(18,400
|
)
|
|
$
|
353,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
2,673
|
|
|
$
|
601
|
|
|
$
|
|
|
|
$
|
3,274
|
|
Derivative liabilities
|
|
|
|
|
|
|
23,815
|
|
|
|
27
|
|
|
|
(22,813
|
)
|
|
|
1,029
|
|
Other liabilities
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
26,758
|
|
|
$
|
628
|
|
|
$
|
(22,813
|
)
|
|
$
|
4,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
(1) |
|
Derivative contracts are reported
on a gross basis by level. The netting adjustment represents the
effect of the legal right to offset under legally enforceable
master netting agreements to settle with the same counterparty
on a net basis, as well as cash collateral.
|
The following tables display a reconciliation of all assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the
three and six months ended June 30, 2010 and 2009. The
tables also display gains and losses due to changes in fair
value, including both realized and unrealized gains and losses,
recognized in our condensed consolidated statements of
operations for Level 3 assets and liabilities for the three
and six months ended June 30, 2010 and 2009. When assets
and liabilities are transferred between levels, we recognize the
transfer at the end of each quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
|
|
|
Total Gains or (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Realized/Unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
Included in Net Loss
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
Issuances,
|
|
|
|
|
|
|
|
|
|
|
|
Related to Assets
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
and
|
|
|
Transfers
|
|
|
Transfers
|
|
|
Balance,
|
|
|
and Liabilities Still
|
|
|
|
April 1,
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Settlements,
|
|
|
out of
|
|
|
into
|
|
|
June 30,
|
|
|
Held as of
|
|
|
|
2010
|
|
|
in Net Loss
|
|
|
Loss
|
|
|
Net
|
|
|
Level
3(1)
|
|
|
Level
3(1)
|
|
|
2010
|
|
|
June 30,
2010(2)
|
|
|
|
(Dollars in millions)
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
4,076
|
|
|
$
|
(34
|
)
|
|
$
|
|
|
|
$
|
(111
|
)
|
|
$
|
(3,873
|
)
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
(2
|
)
|
Freddie Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
Alt-A private-label securities
|
|
|
153
|
|
|
|
9
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(99
|
)
|
|
|
68
|
|
|
|
119
|
|
|
|
4
|
|
Subprime private-label securities
|
|
|
1,683
|
|
|
|
26
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
1,645
|
|
|
|
25
|
|
Mortgage revenue bonds
|
|
|
611
|
|
|
|
49
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
|
49
|
|
Other
|
|
|
158
|
|
|
|
3
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
3
|
|
Non-mortgage-related:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
43
|
|
|
|
1
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
6,724
|
|
|
|
54
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
(3,979
|
)
|
|
|
72
|
|
|
|
2,660
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
217
|
|
|
|
1
|
|
|
|
3
|
|
|
|
(85
|
)
|
|
|
(119
|
)
|
|
|
36
|
|
|
|
53
|
|
|
|
|
|
Freddie Mac
|
|
|
30
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
Ginnie Mae
|
|
|
123
|
|
|
|
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
Alt-A private-label securities
|
|
|
8,517
|
|
|
|
23
|
|
|
|
467
|
|
|
|
(363
|
)
|
|
|
(1,245
|
)
|
|
|
378
|
|
|
|
7,777
|
|
|
|
|
|
Subprime private-label securities
|
|
|
10,511
|
|
|
|
78
|
|
|
|
122
|
|
|
|
(456
|
)
|
|
|
|
|
|
|
|
|
|
|
10,255
|
|
|
|
|
|
Mortgage revenue bonds
|
|
|
12,559
|
|
|
|
|
|
|
|
270
|
|
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
|
12,428
|
|
|
|
|
|
Other
|
|
|
3,873
|
|
|
|
(1
|
)
|
|
|
144
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
3,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
35,830
|
|
|
|
101
|
|
|
|
1,008
|
|
|
|
(1,440
|
)
|
|
|
(1,364
|
)
|
|
|
414
|
|
|
|
34,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
|
140
|
|
|
|
132
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
226
|
|
|
|
97
|
|
Guaranty assets and
buy-ups
|
|
|
11
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
2
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior floating
|
|
|
(582
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(585
|
)
|
|
|
(3
|
)
|
Of consolidated trusts
|
|
|
(71
|
)
|
|
|
8
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
2
|
|
|
|
(6
|
)
|
|
|
(105
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
(653
|
)
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
$
|
2
|
|
|
$
|
(6
|
)
|
|
$
|
(690
|
)
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
Total Gains or (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Realized/Unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
Included in Net Loss
|
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
Included in
|
|
|
Issuances,
|
|
|
|
|
|
|
|
|
|
|
|
Related to Assets
|
|
|
|
Balance,
|
|
|
New
|
|
|
|
|
|
Other
|
|
|
and
|
|
|
Transfers
|
|
|
Transfers
|
|
|
Balance,
|
|
|
and Liabilities Still
|
|
|
|
December 31,
|
|
|
Accounting
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Settlements,
|
|
|
out of
|
|
|
into
|
|
|
June 30,
|
|
|
Held as of
|
|
|
|
2009
|
|
|
Standards
|
|
|
in Net Loss
|
|
|
Loss
|
|
|
Net
|
|
|
Level
3(1)
|
|
|
Level
3(1)
|
|
|
2010
|
|
|
June 30,
2010(2)
|
|
|
|
(Dollars in millions)
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
5,656
|
|
|
$
|
(2
|
)
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
(242
|
)
|
|
$
|
(5,363
|
)
|
|
$
|
5
|
|
|
$
|
58
|
|
|
$
|
(2
|
)
|
Freddie Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
Alt-A private-label securities
|
|
|
564
|
|
|
|
62
|
|
|
|
32
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
(589
|
)
|
|
|
98
|
|
|
|
119
|
|
|
|
10
|
|
Subprime private-label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
1,645
|
|
|
|
|
|
Mortgage revenue bonds
|
|
|
600
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
|
96
|
|
Other
|
|
|
154
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
8
|
|
Non-mortgage-related:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
(47
|
)
|
|
|
13
|
|
|
|
24
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
8,861
|
|
|
|
60
|
|
|
|
143
|
|
|
|
|
|
|
|
(525
|
)
|
|
|
(5,999
|
)
|
|
|
120
|
|
|
|
2,660
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
596
|
|
|
|
(203
|
)
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
82
|
|
|
|
(463
|
)
|
|
|
38
|
|
|
|
53
|
|
|
|
|
|
Freddie Mac
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
6
|
|
|
|
21
|
|
|
|
|
|
Ginnie Mae
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
Alt-A private-label securities
|
|
|
8,312
|
|
|
|
471
|
|
|
|
19
|
|
|
|
734
|
|
|
|
(675
|
)
|
|
|
(2,256
|
)
|
|
|
1,172
|
|
|
|
7,777
|
|
|
|
|
|
Subprime private-label securities
|
|
|
10,746
|
|
|
|
(118
|
)
|
|
|
(10
|
)
|
|
|
585
|
|
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
|
|
10,255
|
|
|
|
|
|
Mortgage revenue bonds
|
|
|
12,820
|
|
|
|
21
|
|
|
|
(1
|
)
|
|
|
503
|
|
|
|
(915
|
)
|
|
|
|
|
|
|
|
|
|
|
12,428
|
|
|
|
|
|
Other
|
|
|
3,530
|
|
|
|
366
|
|
|
|
(6
|
)
|
|
|
254
|
|
|
|
(254
|
)
|
|
|
|
|
|
|
|
|
|
|
3,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
36,154
|
|
|
|
537
|
|
|
|
1
|
|
|
|
2,082
|
|
|
|
(2,722
|
)
|
|
|
(2,719
|
)
|
|
|
1,216
|
|
|
|
34,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
|
123
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
226
|
|
|
|
89
|
|
Guaranty assets and
buy-ups
|
|
|
2,577
|
|
|
|
(2,568
|
)
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
4
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior floating
|
|
|
(601
|
)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
(585
|
)
|
|
|
12
|
|
Of consolidated trusts
|
|
|
|
|
|
|
(77
|
)
|
|
|
7
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
11
|
|
|
|
(8
|
)
|
|
|
(105
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
(601
|
)
|
|
$
|
(77
|
)
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
(33
|
)
|
|
$
|
11
|
|
|
$
|
(8
|
)
|
|
$
|
(690
|
)
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
For the Three Months Ended June 30, 2009
|
|
|
|
|
|
|
Total Gains or (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Realized/Unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
Included in Net Loss
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
Issuances,
|
|
|
Transfers
|
|
|
|
|
|
Related to Assets
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
and
|
|
|
in/out of
|
|
|
Balance,
|
|
|
and Liabilities Still
|
|
|
|
April 1,
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Settlements,
|
|
|
Level 3,
|
|
|
June 30,
|
|
|
Held as of
|
|
|
|
2009
|
|
|
in Net Loss
|
|
|
Loss
|
|
|
Net
|
|
|
Net(3)
|
|
|
2009
|
|
|
June 30,
2009(2)
|
|
|
|
(Dollars in millions)
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae single-class MBS
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Fannie Mae structured MBS
|
|
|
6,558
|
|
|
|
77
|
|
|
|
|
|
|
|
(310
|
)
|
|
|
73
|
|
|
|
6,398
|
|
|
|
95
|
|
Non-Fannie Mae structured
|
|
|
2,887
|
|
|
|
169
|
|
|
|
|
|
|
|
(164
|
)
|
|
|
(200
|
)
|
|
|
2,692
|
|
|
|
124
|
|
Mortgage revenue bonds
|
|
|
653
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
617
|
|
|
|
(29
|
)
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(64
|
)
|
|
|
19
|
|
|
|
1
|
|
Corporate debt securities
|
|
|
116
|
|
|
|
1
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
10,308
|
|
|
|
218
|
|
|
|
|
|
|
|
(547
|
)
|
|
|
(251
|
)
|
|
|
9,728
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae single-class MBS
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(3
|
)
|
|
|
154
|
|
|
|
|
|
Fannie Mae structured MBS
|
|
|
3,410
|
|
|
|
(38
|
)
|
|
|
6
|
|
|
|
(111
|
)
|
|
|
232
|
|
|
|
3,499
|
|
|
|
|
|
Non-Fannie Mae single-class
|
|
|
161
|
|
|
|
1
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
155
|
|
|
|
|
|
Non-Fannie Mae structured
|
|
|
21,647
|
|
|
|
(485
|
)
|
|
|
1,037
|
|
|
|
(1,233
|
)
|
|
|
257
|
|
|
|
21,223
|
|
|
|
|
|
Mortgage revenue bonds
|
|
|
13,185
|
|
|
|
(2
|
)
|
|
|
84
|
|
|
|
(252
|
)
|
|
|
|
|
|
|
13,015
|
|
|
|
|
|
Other
|
|
|
1,843
|
|
|
|
(24
|
)
|
|
|
148
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
1,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
40,412
|
|
|
|
(548
|
)
|
|
|
1,275
|
|
|
|
(1,710
|
)
|
|
|
486
|
|
|
|
39,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
|
308
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
25
|
|
|
|
2
|
|
|
|
232
|
|
|
|
(23
|
)
|
Guaranty assets and
buy-ups
|
|
|
1,179
|
|
|
|
(90
|
)
|
|
|
49
|
|
|
|
345
|
|
|
|
|
|
|
|
1,483
|
|
|
|
115
|
|
Long-term debt
|
|
|
(867
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
(1,024
|
)
|
|
|
(22
|
)
|
187
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
For the Six Months Ended June 30, 2009
|
|
|
|
|
|
|
Total Gains or (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Realized/Unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
Included in Net Loss
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
Issuances,
|
|
|
Transfers
|
|
|
|
|
|
Related to Assets
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
and
|
|
|
in/out of
|
|
|
Balance,
|
|
|
and Liabilities Still
|
|
|
|
January 1,
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Settlements,
|
|
|
Level 3,
|
|
|
June 30,
|
|
|
Held as of
|
|
|
|
2009
|
|
|
in Net Loss
|
|
|
Loss
|
|
|
Net
|
|
|
Net(3)
|
|
|
2009
|
|
|
June 30,
2009(2)
|
|
|
|
(Dollars in millions)
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae single-class MBS
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Fannie Mae structured MBS
|
|
|
6,933
|
|
|
|
230
|
|
|
|
|
|
|
|
(709
|
)
|
|
|
(56
|
)
|
|
|
6,398
|
|
|
|
248
|
|
Non-Fannie Mae single-class
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Fannie Mae structured
|
|
|
3,602
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
(330
|
)
|
|
|
(516
|
)
|
|
|
2,692
|
|
|
|
(37
|
)
|
Mortgage revenue bonds
|
|
|
695
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
617
|
|
|
|
(71
|
)
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
1,475
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
(1,369
|
)
|
|
|
19
|
|
|
|
1
|
|
Corporate debt securities
|
|
|
57
|
|
|
|
3
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
12,765
|
|
|
|
53
|
|
|
|
|
|
|
|
(1,205
|
)
|
|
|
(1,885
|
)
|
|
|
9,728
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae single-class MBS
|
|
|
2,355
|
|
|
|
|
|
|
|
60
|
|
|
|
(229
|
)
|
|
|
(2,032
|
)
|
|
|
154
|
|
|
|
|
|
Fannie Mae structured MBS
|
|
|
3,254
|
|
|
|
(37
|
)
|
|
|
60
|
|
|
|
(216
|
)
|
|
|
438
|
|
|
|
3,499
|
|
|
|
|
|
Non-Fannie Mae single-class
|
|
|
178
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(11
|
)
|
|
|
(6
|
)
|
|
|
155
|
|
|
|
|
|
Non-Fannie Mae structured
|
|
|
27,707
|
|
|
|
(4,386
|
)
|
|
|
3,383
|
|
|
|
(2,704
|
)
|
|
|
(2,777
|
)
|
|
|
21,223
|
|
|
|
|
|
Mortgage revenue bonds
|
|
|
12,456
|
|
|
|
(7
|
)
|
|
|
981
|
|
|
|
(415
|
)
|
|
|
|
|
|
|
13,015
|
|
|
|
|
|
Other
|
|
|
1,887
|
|
|
|
(62
|
)
|
|
|
236
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
1,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
|
47,837
|
|
|
|
(4,492
|
)
|
|
|
4,714
|
|
|
|
(3,767
|
)
|
|
|
(4,377
|
)
|
|
|
39,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
|
310
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
28
|
|
|
|
1
|
|
|
|
232
|
|
|
|
(43
|
)
|
Guaranty assets and
buy-ups
|
|
|
1,083
|
|
|
|
(51
|
)
|
|
|
78
|
|
|
|
373
|
|
|
|
|
|
|
|
1,483
|
|
|
|
159
|
|
Long-term debt
|
|
|
(2,898
|
)
|
|
|
36
|
|
|
|
|
|
|
|
1,315
|
|
|
|
523
|
|
|
|
(1,024
|
)
|
|
|
23
|
|
|
|
|
(1) |
|
The transfers out of Level 3
consisted primarily of Fannie Mae guaranteed mortgage-related
securities and private-label mortgage-related securities backed
by Alt-A loans. Prices for these securities were obtained from
multiple third-party vendors supported by market observable
inputs. The transfers into Level 3 consisted primarily of
private-label mortgage-related securities backed by Alt-A loans.
Prices for these securities are based on inputs from a single
source or inputs that were not readily observable.
|
|
(2) |
|
Amount represents temporary changes
in fair value. Amortization, accretion and
other-than-temporary
impairments are not considered unrealized and are not included
in this amount.
|
|
(3) |
|
The net transfers to level 2
from level 3 are due to improvements in pricing
transparency from recent transactions, which provided some
convergence in prices obtained by third party vendors for
certain products, including private-label securities backed by
non-fixed rate Alt-A securities.
|
188
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following tables display realized and unrealized gains and
losses recorded in our condensed consolidated statements of
operations for the three and six months ended June 30, 2010
and 2009, for assets and liabilities transferred into
Level 3 and measured in our condensed consolidated balance
sheets at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
|
Unobservable Inputs (Level 3)
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
Trading
|
|
|
Available-For-Sale
|
|
|
Net
|
|
|
Long-Term
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Derivatives
|
|
|
Debt
|
|
|
|
(Dollars in millions)
|
|
|
Realized and unrealized gains (losses) included in net loss
|
|
$
|
10
|
|
|
$
|
3
|
|
|
$
|
(32
|
)
|
|
$
|
(1
|
)
|
Unrealized gains included in other comprehensive loss
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses)
|
|
$
|
10
|
|
|
$
|
22
|
|
|
$
|
(32
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Level 3 transfers in
|
|
$
|
72
|
|
|
$
|
414
|
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
|
Unobservable Inputs (Level 3)
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
|
Trading
|
|
|
Available-For-Sale
|
|
|
Net
|
|
|
Long-Term
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Derivatives
|
|
|
Debt
|
|
|
|
(Dollars in millions)
|
|
|
Realized and unrealized gains (losses) included in net loss
|
|
$
|
11
|
|
|
$
|
14
|
|
|
$
|
(32
|
)
|
|
$
|
(1
|
)
|
Unrealized losses included in other comprehensive loss
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses)
|
|
$
|
11
|
|
|
$
|
24
|
|
|
$
|
(32
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Level 3 transfers in
|
|
$
|
120
|
|
|
$
|
1,216
|
|
|
$
|
(5
|
)
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
|
Unobservable Inputs (Level 3)
|
|
|
|
For the Three Months Ended June 30, 2009
|
|
|
For the Six Months Ended June 30, 2009
|
|
|
|
Trading
|
|
|
Available-For-Sale
|
|
|
Trading
|
|
|
Available-For-Sale
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Realized and unrealized gains (losses) included in net loss
|
|
$
|
6
|
|
|
$
|
328
|
|
|
$
|
(2
|
)
|
|
$
|
131
|
|
Unrealized losses included in other comprehensive loss
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses)
|
|
$
|
6
|
|
|
$
|
93
|
|
|
$
|
(2
|
)
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Level 3 transfers in
|
|
$
|
129
|
|
|
$
|
3,260
|
|
|
$
|
365
|
|
|
$
|
4,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The following tables display realized and unrealized gains and
losses included in our condensed consolidated statements of
operations for the three and six months ended June 30, 2010
and 2009, for our Level 3 assets and liabilities measured
in our condensed consolidated balance sheets at fair value on a
recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Income
|
|
|
Guaranty
|
|
|
Investment
|
|
|
Fair Value
|
|
|
Other-than-
|
|
|
Expense
|
|
|
|
|
|
|
Investments in
|
|
|
Fee
|
|
|
Gains
|
|
|
Gains
|
|
|
Temporary-
|
|
|
Long-Term
|
|
|
|
|
|
|
Securities
|
|
|
Income
|
|
|
(Losses), net
|
|
|
(Losses), net
|
|
|
Impairments
|
|
|
Debt
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Total realized and unrealized gains (losses) included in net loss
|
|
$
|
101
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
192
|
|
|
$
|
(7
|
)
|
|
$
|
3
|
|
|
$
|
295
|
|
Net unrealized gains related to Level 3 assets and
liabilities still held as of June 30, 2010
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
182
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Income
|
|
|
Guaranty
|
|
|
Investment
|
|
|
Fair Value
|
|
|
Other-than-
|
|
|
Expense
|
|
|
|
|
|
|
Investments in
|
|
|
Fee
|
|
|
Gains
|
|
|
Gains
|
|
|
Temporary-
|
|
|
Long-Term
|
|
|
|
|
|
|
Securities
|
|
|
Income
|
|
|
(Losses), net
|
|
|
(Losses), net
|
|
|
Impairments
|
|
|
Debt
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Total realized and unrealized gains (losses) included in net loss
|
|
$
|
212
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
325
|
|
|
$
|
(219
|
)
|
|
$
|
7
|
|
|
$
|
332
|
|
Net unrealized gains related to Level 3 assets and
liabilities still held as of June 30, 2010
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
221
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Guaranty
|
|
|
Investment
|
|
|
Fair Value
|
|
|
Other-than-
|
|
|
|
|
|
|
Investments in
|
|
|
Fee
|
|
|
Gains
|
|
|
Gain
|
|
|
Temporary-
|
|
|
|
|
|
|
Securities
|
|
|
Income
|
|
|
(Losses), net
|
|
|
(Losses), net
|
|
|
Impairment
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Total realized and unrealized gains (losses) included in net loss
|
|
$
|
55
|
|
|
$
|
157
|
|
|
$
|
(249
|
)
|
|
$
|
97
|
|
|
$
|
(605
|
)
|
|
$
|
(545
|
)
|
Net unrealized gains related to Level 3 assets and
liabilities still held as of June 30, 2009
|
|
$
|
|
|
|
$
|
115
|
|
|
$
|
|
|
|
$
|
146
|
|
|
$
|
|
|
|
$
|
261
|
|
190
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Guaranty
|
|
|
Investment
|
|
|
Fair Value
|
|
|
Other-than-
|
|
|
|
|
|
|
Investments in
|
|
|
Fee
|
|
|
Gains
|
|
|
Gain
|
|
|
Temporary-
|
|
|
|
|
|
|
Securities
|
|
|
Income
|
|
|
(Losses), net
|
|
|
(Losses), net
|
|
|
Impairments
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Total realized and unrealized gains (losses) included in net loss
|
|
$
|
390
|
|
|
$
|
(51
|
)
|
|
$
|
(1
|
)
|
|
$
|
(12
|
)
|
|
$
|
(4,887
|
)
|
|
$
|
(4,561
|
)
|
Net unrealized gains related to Level 3 assets and
liabilities still held as of June 30, 2009
|
|
$
|
|
|
|
$
|
159
|
|
|
$
|
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
280
|
|
We use valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. The
following is a description of the valuation techniques used for
assets and liabilities measured at fair value on a recurring
basis, as well as the basis for classification of such
instruments pursuant to the valuation hierarchy established
under fair value measurement guidance. These valuation
techniques are also used to estimate the fair value of financial
instruments not carried at fair value but disclosed as part of
the fair value of financial instruments.
Cash Equivalents, Trading Securities and
Available-for-Sale
SecuritiesThese securities are recorded in our
condensed consolidated balance sheets at fair value on a
recurring basis. Fair value is measured using quoted market
prices in active markets for identical assets, when available.
Securities, such as U.S. Treasuries, whose value is based
on quoted market prices in active markets for identical assets
are classified as Level 1. If quoted market prices in
active markets for identical assets are not available, we use
prices provided by up to four third-party pricing services that
are calibrated to the quoted market prices in active markets for
similar securities, and thus are generally classified as
Level 2 of the valuation hierarchy. In the absence of
prices provided by third-party pricing services supported by
observable market data, fair values are estimated using quoted
prices of securities with similar characteristics or discounted
cash flow models that use inputs such as spread, prepayment
speed, yield, and loss severity based on market assumptions
where available. Such instruments are generally classified as
Level 2 of the valuation hierarchy. Where there is limited
activity or less transparency around inputs to the valuation,
securities are classified as Level 3.
Derivatives Assets and Liabilities (collectively
derivatives)Derivatives are recorded in
our condensed consolidated balance sheets at fair value on a
recurring basis. The valuation process for the majority of our
risk management derivatives uses observable market data provided
by third-party sources, resulting in Level 2
classification. Interest rate swaps are valued by referencing
yield curves derived from observable interest rates and spreads
to project and discount swap cash flows to present value.
Option-based derivatives use a model that projects the
probability of various levels of interest rates by referencing
swaption and caplet volatilities provided by market
makers/dealers. The projected cash flows of the underlying swaps
of these option-based derivatives are discounted to present
value using yield curves derived from observable interest rates
and spreads. Certain highly complex structured derivatives use
only a single external source of price information due to lack
of transparency in the market and may be modeled using
observable interest rates and volatility levels as well as
significant assumptions, resulting in Level 3
classification. Mortgage commitment derivatives use observable
market data, quotes and actual transaction price levels adjusted
for market movement, and are typically classified as
Level 2. Adjustments for market movement based on internal
model results that cannot be corroborated by observable market
data are classified as Level 3.
Guaranty Assets and
Buy-upsGuaranty
assets related to our portfolio securitizations are recorded in
our condensed consolidated balance sheets at fair value on a
recurring basis and are classified within Level 3 of the
valuation hierarchy. Guaranty assets in lender swap transactions
are recorded in our condensed
191
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
consolidated balance sheets at the lower of cost or fair value.
These assets, which are measured at fair value on a nonrecurring
basis, are classified within Level 3 of the fair value
hierarchy.
We estimate the fair value of guaranty assets based on the
present value of expected future cash flows of the underlying
mortgage assets using managements best estimate of certain
key assumptions, which include prepayment speeds, forward yield
curves, and discount rates commensurate with the risks involved.
These cash flows are projected using proprietary prepayment,
interest rate and credit risk models. Because guaranty assets
are like an interest-only income stream, the projected cash
flows from our guaranty assets are discounted using one-month
LIBOR plus the option-adjusted spread (OAS) for
interest-only trust securities. The interest-only OAS is
calibrated using prices of a representative sample of
interest-only trust securities. We believe the remitted fee
income is less liquid than interest-only trust securities and
more like an excess servicing strip. We take a further haircut
of the present value for liquidity considerations. The haircut
is based on market quotes from dealers.
The fair value of the guaranty assets include the fair value of
any associated
buy-ups,
which is estimated in the same manner as guaranty assets but is
recorded separately as a component of Other assets
in our condensed consolidated balance sheets. While the fair
value of the guaranty assets reflect all guaranty arrangements,
the carrying value primarily reflects only those arrangements
entered into subsequent to our adoption of the accounting
standard on guarantors accounting and disclosure
requirements for guarantees.
Short-Term Debt and Long-Term Debt (collectively
debt)The majority of debt of Fannie Mae is
recorded in our condensed consolidated balance sheets at the
principal amount outstanding, net of cost basis adjustments. We
elected the fair value option for certain structured debt
instruments, which are recorded in our condensed consolidated
balance sheets at fair value on a recurring basis.
We use third-party pricing services that reference observable
market data such as interest rates and spreads to measure the
fair value of debt, and thus classify those valuations within
Level 2 of the valuation hierarchy. When third-party
pricing is not available, we use a discounted cash flow approach
based on a yield curve derived from market prices observed for
Fannie Mae Benchmark Notes and adjusted to reflect fair values
at the offer side of the market.
For structured debt instruments that are not valued by
third-party pricing services, cash flows are evaluated taking
into consideration any structured derivatives through which we
have swapped out of the structured features of the notes. The
resulting cash flows are discounted to present value using a
yield curve derived from market prices observed for Fannie Mae
Benchmark Notes and adjusted to reflect fair values at the offer
side of the market. Market swaption volatilities are also
referenced for the valuation of callable structured debt
instruments. Given that the derivatives considered in the
valuations of these structured debt instruments are classified
as Level 3, the valuations of the structured debt
instruments result in a Level 3 classification.
At the transition date, we recognized consolidated trusts
debt held by third parties at their unpaid principal balance in
our condensed consolidated balance sheets. Consolidated MBS debt
is traded in the market as MBS assets. Accordingly, we estimate
the fair value of our consolidated MBS debt using quoted market
prices in active markets for similar liabilities when traded as
assets. The valuation methodology and inputs used in estimating
the fair value of MBS assets are described under Cash
Equivalents, Trading Securities and
Available-for-Sale
Securities. Certain consolidated MBS debt with embedded
derivatives is recorded in our condensed consolidated balance
sheets at fair value on a recurring basis.
Other LiabilitiesRepresents dollar roll repurchase
transactions that reflect prices for similar securities in the
market. They are recorded in our condensed consolidated balance
sheets at fair value on a recurring basis. Fair value is based
on observable market-based inputs, quoted market prices and
actual transaction price levels
192
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
adjusted for market movement and are typically classified as
Level 2. Adjustments for market movement that require
internal model results that cannot be corroborated by observable
market data are classified as Level 3.
Nonrecurring
Changes in Fair Value
The following tables display assets and liabilities measured in
our condensed consolidated balance sheets at fair value on a
nonrecurring basis; that is, the instruments are not measured at
fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when we
evaluate for impairment), and the gains or losses recognized for
these assets and liabilities for the three and six months ended
June 30, 2010 and 2009, as a result of fair value
measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Fair Value Measurements
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
For the Six Months Ended June 30, 2010
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
Total Gains
|
|
|
Total Gains
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale, at lower of cost or fair value
|
|
$
|
|
|
|
$
|
6,869
|
|
|
$
|
540
|
|
|
$
|
7,409
|
(1)(5)
|
|
$
|
(21
|
)
|
|
$
|
(90
|
)(5)
|
Single-family mortgage loans held for investment, at amortized
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
|
|
|
|
|
|
|
|
14,733
|
|
|
|
14,733
|
(2)
|
|
|
(917
|
)
|
|
|
(808
|
)
|
Of consolidated trusts
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
348
|
(2)
|
|
|
(103
|
)
|
|
|
(103
|
)
|
Multifamily mortgage loans held for investment, at amortized
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
|
|
|
|
|
|
|
|
1,730
|
|
|
|
1,730
|
(2)
|
|
|
(146
|
)
|
|
|
(237
|
)
|
Acquired property, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
|
|
|
|
|
|
|
|
9,995
|
|
|
|
9,995
|
(3)
|
|
|
(672
|
)
|
|
|
(1,004
|
)
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
133
|
(3)
|
|
|
(17
|
)
|
|
|
(32
|
)
|
Guaranty assets
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
Partnership investments
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
85
|
|
|
|
(26
|
)
|
|
|
(89
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
6,869
|
|
|
$
|
27,588
|
|
|
$
|
34,457
|
|
|
$
|
(1,903
|
)
|
|
$
|
(2,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Fair Value Measurements
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
For the Six Months Ended June 30, 2009
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
Total Gains
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
(Losses)
|
|
|
Total Losses
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale, at lower of cost or fair value
|
|
$
|
|
|
|
$
|
14,828
|
|
|
$
|
2,409
|
|
|
$
|
17,237
|
(1)
|
|
$
|
(359
|
)
|
|
$
|
(564
|
)
|
Mortgage loans held for investment, at amortized cost
|
|
|
|
|
|
|
330
|
|
|
|
2,364
|
|
|
|
2,694
|
(2)
|
|
|
(478
|
)
|
|
|
(534
|
)
|
Acquired property, net
|
|
|
|
|
|
|
|
|
|
|
8,769
|
|
|
|
8,769
|
(3)
|
|
|
49
|
|
|
|
(289
|
)
|
Guaranty assets
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
1,882
|
|
|
|
(47
|
)
|
|
|
(183
|
)
|
Master servicing assets
|
|
|
|
|
|
|
|
|
|
|
280
|
|
|
|
280
|
|
|
|
(256
|
)
|
|
|
(395
|
)
|
Partnership investments
|
|
|
|
|
|
|
|
|
|
|
4,808
|
|
|
|
4,808
|
|
|
|
(302
|
)
|
|
|
(449
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
15,158
|
|
|
$
|
20,512
|
|
|
$
|
35,670
|
|
|
$
|
(1,393
|
)
|
|
$
|
(2,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master servicing liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
49
|
|
|
$
|
2
|
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
49
|
|
|
$
|
2
|
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $7.1 billion and
$14.2 billion of mortgage loans held for sale that were
sold, retained as a mortgage-related security or redesignated to
mortgage loans held for investment as of June 30, 2010 and
2009, respectively.
|
|
(2) |
|
Includes $508 million and
$465 million of mortgage loans held for investment that
were redesignated to mortgage loans held for sale, liquidated or
transferred to foreclosed properties as of June 30, 2010
and 2009, respectively.
|
|
(3) |
|
Includes $4.0 billion and
$4.1 billion of acquired properties that were sold as of
June 30, 2010 and 2009, respectively.
|
|
(4) |
|
Represents impairment charges
related to LIHTC partnerships and other equity investments in
multifamily properties.
|
|
(5) |
|
Includes $7.1 billion of
estimated fair value and $68 million in losses due to the
adoption of the new accounting standards.
|
The following is a description of the fair valuation techniques
used for assets and liabilities measured at fair value on a
nonrecurring basis under the accounting standard for fair value
measurements as well as the basis for classification of such
instruments pursuant to the valuation hierarchy established
under this guidance. We also use these valuation techniques to
estimate the fair value of financial instruments not carried at
fair value but disclosed as part of the fair value of financial
instruments.
Mortgage Loans Held for SaleHFS loans are reported
at the lower of cost or fair value in our condensed consolidated
balance sheets. At the transition date, we reclassified the
majority of HFS loans to HFI, as the trusts do not have the
ability to sell mortgage loans and use of such loans is limited
exclusively to the settlement of obligations of the trust. The
valuation methodology and inputs used in estimating the fair
value of HFS loans are described below under Mortgage Loans Held
for Investment and are generally classified as
194
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Level 2. To the extent that significant inputs are not
observable or determined by extrapolation of observable points,
the fair values are classified within Level 3 of the
valuation hierarchy.
Mortgage Loans Held for InvestmentHFI performing
loans and nonperforming loans that are not individually impaired
are reported in our condensed consolidated balance sheets at the
principal amount outstanding, net of cost basis adjustments and
an allowance for loan losses. A portion of the nonperforming
loans that are impaired are measured at fair value in our
condensed consolidated balance sheets on a nonrecurring basis.
These loans are classified within Level 3 of the valuation
hierarchy because significant inputs are unobservable. At the
transition date, we recorded consolidated trusts loans as
HFI at their unpaid principal balance net of an allowance for
loan losses.
Fair value of performing loans represents an estimate of the
prices we would receive if we were to securitize those loans and
is determined based on comparisons to Fannie Mae MBS with
similar characteristics, either on a pool or loan level. We use
the observable market values of our Fannie Mae MBS determined
from third-party pricing services and other observable
market-data as a base value, from which we add or subtract the
fair value of the associated guaranty asset, guaranty obligation
and master servicing arrangement. Certain loans that do not
qualify for Fannie Mae MBS securitization are valued using
market based data including for example credit spreads,
severities, pre-payment speeds for similar loans or through a
model approach incorporating both interest rate and credit risk
simulating a loan sale via a synthetic structure.
Fair value of single family nonperforming loans represents an
estimate of the prices we would receive if we were to sell those
loans in the nonperforming whole-loan market. We calculate the
fair value of nonperforming loans based on assumptions about key
factors, including loan performance, delinquency transition
rates, collateral value, foreclosure timeline, and mortgage
insurance repayment. Using these assumptions, along with
indicative bids for a representative sample of nonperforming
loans, we compute a market calibrated fair value. The bids on
sample loans are obtained from multiple active market
participants. Generally, fair value for loans that are four or
more months delinquent is estimated directly from a model
calibrated to these indicative bids. Fair value for loans that
are one to three months delinquent is estimated by an
interpolation method using three inputs: (1) the fair value
estimate as a performing loan; (2) the fair value estimate
as a nonperforming loan; and (3) the delinquency transition
rate corresponding to the loans current delinquency status.
Fair value of a portion of our single family nonperforming loans
is measured using the value of the underlying collateral. These
valuations leverage our proprietary distressed home price model.
The model assigns a value using comparable transaction data. In
determining what comparables to use in its calculations, the
model measures three key characteristics relative to the target
property: (1) distance from target property, (2) time
of the transaction and (3) comparability of the
nondistressed value.
Fair value of multifamily nonperforming loans is determined by
external third-party valuations when available. If third-party
valuations are unavailable, we determine the value of the
collateral based on a derived property value estimation method
using current net operating income of the property and
capitalization rates.
Acquired Property, NetAcquired Property, Net mainly
represents foreclosed property received in full satisfaction of
a loan net of a valuation allowance. Acquired property is
initially recorded in our condensed consolidated balance sheets
at its fair value less its estimated cost to sell. The initial
fair value of foreclosed properties is determined by third-party
interior appraisals or independent broker opinions, when
available. When third-party interior appraisals or broker
opinions are not available, we estimate the majority of fair
values based on factors such as prices for similar properties in
similar geographical areas
and/or
assessment through observation of such properties performed at a
geographic level. Estimated cost to sell is based upon
historical sales cost at a geographic level.
195
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Subsequent to initial measurement, the foreclosed properties
that we intend to sell are reported at the lower of the carrying
amount or fair value less estimated cost to sell. Foreclosed
properties classified as held for use are depreciated and are
impaired when circumstances indicate that the carrying amount of
the property is no longer recoverable. The fair value of our
single family foreclosed properties on an ongoing basis is
determined using inputs similar to those used at the point of
initial fair value measurement and also includes inputs for
sales price of offers accepted and listed price of the
foreclosed property, when available. The fair value of our
multifamily properties is derived using third-party valuations.
When third-party valuations are not available, we estimate the
fair value using current net operating income of the property
and capitalization rates.
Acquired property is classified within Level 3 of the
valuation hierarchy because significant inputs are unobservable.
Master Servicing Assets and LiabilitiesMaster
Servicing Assets and Liabilities are reported at the lower of
cost or fair value in our condensed consolidated balance sheets.
We measure the fair value of master servicing assets and
liabilities based on the present value of expected cash flows of
the underlying mortgage assets using managements best
estimates of certain key assumptions, which include prepayment
speeds, forward yield curves, adequate compensation, and
discount rates commensurate with the risks involved. Changes in
anticipated prepayment speeds, in particular, result in
fluctuations in the estimated fair values of our master
servicing assets and liabilities. If actual prepayment
experience differs from the anticipated rates used in our model,
this may result in a material change in the fair value. Master
servicing assets and liabilities are classified within
Level 3 of the valuation hierarchy.
Partnership InvestmentsUnconsolidated investments
in limited partnerships are primarily accounted for under the
equity method of accounting. During 2009, we reduced the
carrying value of our LIHTC investments to zero. We determined
the fair value of our LIHTC investments using internal models
that estimated the present value of the expected future tax
benefits (tax credits and tax deductions for net operating
losses) expected to be generated from the properties underlying
these investments. Our estimates were based on assumptions that
other market participants would use in valuing these
investments. The key assumptions used in our models, which
required significant management judgment, included discount
rates and projections related to the amount and timing of tax
benefits. We compared our model results to independent
third-party valuations to validate the reasonableness of our
assumptions and valuation results. We also compared our model
results to the limited number of observed market transactions
and made adjustments to reflect differences between the risk
profile of the observed market transactions and our LIHTC
investments.
For our other equity method investments, we use a net present
value approach to estimate the fair value. The key assumptions
used in our approach, which require significant management
judgment, include discount rates and projections related to the
amount and timing of cash flows. Our equity investments in LIHTC
limited partnerships and other equity investments are classified
within the Level 3 hierarchy of fair value measurement
because they trade in a market with limited observable
transactions.
Fair
Value of Financial Instruments
The following table displays the carrying value and estimated
fair value of our financial instruments as of June 30, 2010
and December 31, 2009. Our disclosures of the fair value of
financial instruments include commitments to purchase
multifamily mortgage and single-family mortgage loans, which are
off-balance sheet financial instruments that we do not record in
our consolidated balance sheets. The fair values of these
commitments are included as Mortgage loans held for
investment, net of allowance for loan losses. The
disclosure excludes certain financial instruments, such as plan
obligations for pension and postretirement health care benefits,
employee stock option and stock purchase plans, and also
excludes all non-financial
196
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
instruments. As a result, the fair value of our financial assets
and liabilities does not represent the underlying fair value of
our total consolidated assets and liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2010
|
|
|
December 31,
2009(2)
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents(1)
|
|
$
|
66,699
|
|
|
$
|
66,699
|
|
|
$
|
9,882
|
|
|
$
|
9,882
|
|
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
|
|
37,608
|
|
|
|
37,608
|
|
|
|
53,684
|
|
|
|
53,656
|
|
Trading securities
|
|
|
77,353
|
|
|
|
77,353
|
|
|
|
111,939
|
|
|
|
111,939
|
|
Available-for-sale
securities
|
|
|
105,660
|
|
|
|
105,660
|
|
|
|
237,728
|
|
|
|
237,728
|
|
Mortgage loans held for sale
|
|
|
1,025
|
|
|
|
1,048
|
|
|
|
18,462
|
|
|
|
18,615
|
|
Mortgage loans held for investment, net of allowance for loan
losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
363,154
|
|
|
|
319,828
|
|
|
|
246,509
|
|
|
|
241,300
|
|
Of consolidated trusts
|
|
|
2,556,280
|
|
|
|
2,630,889
|
|
|
|
129,590
|
|
|
|
129,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for investment
|
|
|
2,919,434
|
|
|
|
2,950,717
|
|
|
|
376,099
|
|
|
|
370,845
|
|
Advances to lenders
|
|
|
4,849
|
|
|
|
4,584
|
|
|
|
5,449
|
|
|
|
5,144
|
|
Derivative assets at fair value
|
|
|
1,224
|
|
|
|
1,224
|
|
|
|
1,474
|
|
|
|
1,474
|
|
Guaranty assets and
buy-ups
|
|
|
428
|
|
|
|
810
|
|
|
|
9,520
|
|
|
|
14,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
3,214,280
|
|
|
$
|
3,245,703
|
|
|
$
|
824,237
|
|
|
$
|
823,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
$
|
142
|
|
|
$
|
142
|
|
|
$
|
|
|
|
$
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
256,066
|
|
|
|
256,211
|
|
|
|
200,437
|
|
|
|
200,493
|
|
Of consolidated trusts
|
|
|
5,987
|
|
|
|
5,987
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Fannie Mae
|
|
|
586,437
|
|
|
|
614,101
|
|
|
|
567,950
|
|
|
|
587,423
|
|
Of consolidated trusts
|
|
|
2,376,774
|
|
|
|
2,517,643
|
|
|
|
6,167
|
|
|
|
6,310
|
|
Derivative liabilities at fair value
|
|
|
1,693
|
|
|
|
1,693
|
|
|
|
1,029
|
|
|
|
1,029
|
|
Guaranty obligations
|
|
|
765
|
|
|
|
4,004
|
|
|
|
13,996
|
|
|
|
138,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
3,227,864
|
|
|
$
|
3,399,781
|
|
|
$
|
789,579
|
|
|
$
|
933,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes restricted cash of $38.9 billion and
$3.1 billion as of June 30, 2010 and December 31,
2009, respectively. |
|
(2) |
|
Certain prior period amounts have been reclassified to conform
to the current period presentation. |
The following are valuation techniques for items not subject to
the fair value hierarchy either because they are not measured at
fair value other than for the purpose of the above table or are
only measured at fair value at inception.
Financial Instruments for which fair value approximates
carrying valueWe hold certain financial instruments
which are not carried at fair value but the carrying value
approximates fair value due to the short-term nature and
negligible credit risk inherent in them. These financial
instruments include cash and cash equivalents, federal funds and
securities sold/purchased under agreements to repurchase/resell
(exclusive of dollar roll repurchase transactions) and the
majority of advances to lenders.
Advances to LendersThe carrying value for the
majority of the advances to lenders approximates the fair value
due to the short-term nature of the specific instruments. Other
instruments include loans for which the carrying value does not
approximate fair value. These loans are valued using collateral
values of similar loans as a proxy.
197
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Guaranty ObligationsThe fair value of all guaranty
obligations (GO), measured subsequent to their
initial recognition, is our estimate of a hypothetical
transaction price we would receive if we were to issue our
guaranty to an unrelated party in a standalone arms-length
transaction at the measurement date. We estimate the fair value
of the GO using our internal GO valuation models which calculate
the present value of expected cash flows based on
managements best estimate of certain key assumptions such
as current
mark-to-market
LTV ratios, future house prices, default rates, severity
rates and required rate of return. We further adjust the model
values based on our current market pricing when such
transactions reflect credit characteristics that are similar to
our outstanding GO. While the fair value of the GO reflects all
guaranty arrangements, the carrying value primarily reflects
only those arrangements entered into subsequent to our adoption
of the current FASB guidance on guarantors accounting and
disclosure requirements for guarantees.
Fair
Value Option
The following are the primary financial instruments for which we
made fair value elections and the basis for those elections.
Interest expense for these instruments is recorded in
Long-term debt interest expense in our condensed
consolidated statements of operations.
Long-term
debt of Fannie Mae
We elected the fair value option for all long-term structured
debt instruments that are issued in response to specific
investor demand and have interest rates that are based on a
calculated index or formula and are economically hedged with
derivatives at the time of issuance. By electing the fair value
option for these instruments, we are able to eliminate the
volatility in our results of operations that would otherwise
result from the accounting asymmetry created by recording these
structured debt instruments at cost while recording the related
derivatives at fair value.
As of both June 30, 2010 and December 31, 2009, these
instruments had an aggregate fair value of $3.3 billion and
an unpaid principal balance of $3.2 billion recorded in
Long-term debt, in our condensed consolidated
balance sheets.
Long-term
debt of consolidated trusts
We elected the fair value option for certain consolidated debt
instruments recorded in our condensed consolidated balance
sheets as a result of consolidating VIEs. These instruments
contain embedded derivatives that would otherwise require
bifurcation. Under the fair value option, we elected to carry
these instruments at fair value instead of bifurcating the
embedded derivative from the debt instrument.
As of June 30, 2010, these instruments had an aggregate
fair value and unpaid principal balance of $311 million and
$99 million, respectively, recorded in Long-term debt
of consolidated trusts, in our condensed consolidated
balance sheet. Included in this amount are interest-only debt
instruments with no unpaid principal balance and fair value of
$182 million as of June 30, 2010.
|
|
17.
|
Commitments
and Contingencies
|
We are party to various types of legal actions and proceedings,
including actions brought on behalf of various classes of
claimants. We also are subject to regulatory examinations,
inquiries and investigations and other information gathering
requests. Litigation claims and proceedings of all types are
subject to many uncertain factors that generally cannot be
predicted with assurance. The following describes our material
legal proceedings, investigations and other matters.
198
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
In view of the inherent difficulty of predicting the outcome of
these proceedings, we cannot determine the ultimate resolution
of the matters described below. We establish reserves for
litigation and regulatory matters when losses associated with
the claims become probable and the amounts can reasonably be
estimated. The actual costs of resolving legal matters may be
substantially higher or lower than the amounts reserved for
those matters. For matters where the likelihood or extent of a
loss is not probable or cannot be reasonably estimated, we have
not recorded a loss reserve. If certain of these matters are
determined against us, it could have a material adverse effect
on our earnings, liquidity and financial condition, including
our net worth. Based on our current knowledge with respect to
the lawsuits described below, we believe we have valid defenses
to the claims in these lawsuits and intend to defend these
lawsuits vigorously regardless of whether or not we have
recorded a loss reserve.
In addition to the matters specifically described below, we are
involved in a number of legal and regulatory proceedings that
arise in the ordinary course of business that we do not expect
will have a material impact on our business. We have advanced
fees and expenses of certain current and former officers and
directors in connection with various legal proceedings pursuant
to indemnification agreements.
2004
Class Action Lawsuits
Fannie Mae is a defendant in two consolidated class action suits
filed in 2004 and currently pending in the U.S. District
Court for the District of ColumbiaIn re Fannie Mae
Securities Litigation and In re Fannie Mae ERISA
Litigation. Both cases rely on factual allegations that
Fannie Maes accounting statements were inconsistent with
the GAAP requirements relating to hedge accounting and the
amortization of premiums and discounts. Based largely on the
overlapping factual allegations, the Judicial Panel on
Multidistrict Litigation ordered that the cases be coordinated
for pretrial proceedings on May 17, 2005. On
October 17, 2008, FHFA, as conservator for Fannie Mae,
intervened in both of these cases.
In re
Fannie Mae Securities Litigation
In a consolidated complaint filed on March 4, 2005, lead
plaintiffs Ohio Public Employees Retirement System and the State
Teachers Retirement System of Ohio allege that we and certain
former officers, as well as our former outside auditor, made
materially false and misleading statements in violation of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and SEC
Rule 10b-5
promulgated thereunder, and contend that the alleged fraud
resulted in artificially inflated prices for our common stock
and seek unspecified compensatory damages, attorneys fees,
and other fees and costs. On January 7, 2008, the court
defined the class as all purchasers of Fannie Mae common stock
and call options and all sellers of publicly traded Fannie Mae
put options during the period from April 17, 2001 through
December 22, 2004.
In re
Fannie Mae ERISA Litigation
In a consolidated complaint filed on June 15, 2005,
plaintiffs David Gwyer, Gloria Sheppard, and Terry Gagliolo
allege that we and certain former officers and directors, as
well as the Compensation Committee of our Board of Directors,
violated the Employee Retirement Income Security Act of 1974
(ERISA) based on alleged breaches of fiduciary duty
relating to accounting matters. The plaintiffs seek unspecified
damages, attorneys fees, and other fees and costs, and
other injunctive and equitable relief.
On December 18, 2009, the parties reached an agreement in
principle to settle the suit. The amount of the settlement is
not material. On April 30, 2010, the parties filed a
stipulation of settlement with the court and on August 2,
2010, the court approved the settlement.
199
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
2008
Class Action Lawsuits
Fannie Mae is a defendant in two consolidated class actions
filed in 2008 and currently pending in the U.S. District
Court for the Southern District of New YorkIn re Fannie
Mae 2008 Securities Litigation and In re 2008 Fannie Mae
ERISA Litigation. On February 11, 2009, the Judicial
Panel on Multidistrict Litigation ordered that the cases be
coordinated for pretrial proceedings. On October 13, 2009,
the Court entered an order allowing FHFA to intervene in this
case.
In re
Fannie Mae 2008 Securities Litigation
In a consolidated complaint filed on June 22, 2009, lead
plaintiffs Massachusetts Pension Reserves Investment Management
Board and Boston Retirement Board (for common shareholders) and
Tennessee Consolidated Retirement System (for preferred
shareholders) allege that we, certain of our former officers,
and certain of our underwriters violated of
Sections 12(a)(2) and 15 of the Securities Act of 1933.
Lead plaintiffs also allege that we, certain of our former
officers, and our outside auditor, violated Sections 10(b)
(and
Rule 10b-5
promulgated thereunder) and 20(a) of the Securities Exchange Act
of 1934. Lead plaintiffs purport to represent a class of persons
who, between November 8, 2006 and September 5, 2008,
inclusive, purchased or acquired (a) Fannie Mae common
stock and options or (b) Fannie Mae preferred stock. Lead
plaintiffs seek various forms of relief, including rescission,
damages, interest, costs, attorneys and experts
fees, and other equitable and injunctive relief.
On July 13, 2009, we and the other defendants against whom
the Securities Act claims were asserted filed a motion to
dismiss those claims. The Court granted this motion on
November 24, 2009. On September 18, 2009, we and the
remaining defendants filed motions to dismiss the Securities
Exchange Act claims. Those motions are fully briefed and argued
and remain pending.
An individual plaintiff, Daniel Kramer, is seeking to have his
Securities Act case heard in state court. Although the Court
denied his motion to remand his case to state court, Kramer
moved for the court to certify its ruling to the court of
appeals for review. Kramers motion is fully briefed and
remains pending.
In re
2008 Fannie Mae ERISA Litigation
In a consolidated complaint filed on September 11, 2009,
plaintiffs allege that certain of our current and former
officers and directors, including former members of Fannie
Maes Benefit Plans Committee and the Compensation
Committee of Fannie Maes Board of Directors, as
fiduciaries of Fannie Maes Employee Stock Ownership Plan
(ESOP), breached their duties to ESOP participants
and beneficiaries by investing ESOP funds in Fannie Mae common
stock when it was no longer prudent to continue to do so.
Plaintiffs purport to represent a class of participants and
beneficiaries of the ESOP whose accounts invested in Fannie Mae
common stock beginning April 17, 2007. The plaintiffs seek
unspecified damages, attorneys fees and other fees and
costs and injunctive and other equitable relief. On
November 2, 2009, defendants filed motions to dismiss these
claims, which are now fully briefed and remain pending.
Comprehensive
Investment Services v. Mudd, et al.
On May 13, 2009, Comprehensive Investment Services, Inc.
filed an individual securities action against certain of our
former officers and directors, and certain of our underwriters
in the Southern District of Texas. Plaintiff alleges violations
of Section 12(a)(2) of the Securities Act of 1933;
violation of § 10(b) of the Securities Exchange Act of
1934 and
Rule 10b-5
promulgated thereunder; violation of § 20(a) of the
Securities
200
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
Exchange Act of 1934; and violations of the Texas Business and
Commerce Code, common law fraud, and negligent misrepresentation
in connection with Fannie Maes May 2008 $2 billion
offering of 8.25% non-cumulative preferred Series T stock.
The complaint seeks various forms of relief, including
rescission, damages, interest, costs, attorneys and
experts fees, and other equitable and injunctive relief.
On July 7, 2009, the Judicial Panel on Multidistrict
Litigation transferred the case to the Southern District of New
York, where it is currently coordinated with In re Fannie Mae
2008 Securities Litigation and In re 2008 Fannie Mae
ERISA Litigation for pretrial purposes.
Smith v.
Fannie Mae, et al.
On February 25, 2010, plaintiff Edward Smith filed an
individual complaint against Fannie Mae and certain of its
former officers as well as several underwriters in the
U.S. District Court for the Southern District of
California. Plaintiff alleges violation of § 10(b) of
the Securities Exchange Act of 1934 and
Rule 10b-5
promulgated thereunder; violation of § 20(a) of the
Securities Exchange Act of 1934; common law fraud and negligence
claims in connection with Fannie Maes December 2007
$7 billion offering of 7.75%
fixed-to-floating
rate non-cumulative preferred Series S stock. Plaintiff
seeks relief in the form of rescission, actual damages
(including interest), and exemplary and punitive damages. On
March 12, 2010, the Judicial Panel on Multidistrict
Litigation issued a conditional order transferring the case to
the Southern District of New York for coordination with the 2008
class action lawsuits pending there. That order became effective
on March 26, 2010. The Smith case is currently coordinated
with In re Fannie Mae 2008 Securities Litigation.
Investigation
by the Securities and Exchange Commission
On September 26, 2008, we received notice of an ongoing
investigation into Fannie Mae by the SEC regarding certain
accounting and disclosure matters. On January 8, 2009, the
SEC issued a formal order of investigation. We are cooperating
with this investigation.
Investigation
by the Department of Justice
On September 26, 2008, we received notice of an ongoing
federal investigation by the U.S. Attorney for the Southern
District of New York into certain accounting, disclosure and
corporate governance matters. In connection with that
investigation, Fannie Mae received a Grand Jury subpoena for
documents. That subpoena was subsequently withdrawn. However, we
were informed that the Department of Justice was continuing an
investigation and on March 15, 2010, we received another
Grand Jury subpoena for documents. We are cooperating with this
investigation.
Escrow
Litigation
Casa Orlando Apartments, Ltd., et al. v. Federal
National Mortgage Association (formerly known as Medlock
Southwest Management Corp., et al. v. Federal National
Mortgage Association)
A complaint was filed against us in the U.S. District Court
for the Eastern District of Texas (Texarkana Division) on
June 2, 2004, in which plaintiffs purport to represent a
class of multifamily borrowers whose mortgages are insured under
Sections 221(d)(3), 236 and other sections of the National
Housing Act and are held or serviced by us. The complaint
identified as a proposed class low- and moderate-income
apartment building developers who maintained uninvested escrow
accounts with us or our servicer. Plaintiffs Casa Orlando
Apartments, Ltd., Jasper Housing Development Company and the
Porkolab Family Trust No. 1 allege that we violated
fiduciary obligations that they contend we owed to borrowers
with respect to certain escrow
201
FANNIE
MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
accounts and that we were unjustly enriched. In particular,
plaintiffs contend that, starting in 1969, we misused these
escrow funds and are therefore liable for any economic benefit
we received from the use of these funds. The plaintiffs seek a
return of any profits, with accrued interest, earned by us
related to the escrow accounts at issue, as well as
attorneys fees and costs. Our motions to dismiss and for
summary judgment with respect to the statute of limitations were
denied. Plaintiffs filed an amended complaint on
December 16, 2005. On July 13, 2009, the Court denied
plaintiffs motion for class certification. Plaintiffs have
appealed the Courts denial to the U.S. Court of
Appeals for the Fifth Circuit. That appeal was argued on
August 3, 2010, and remains pending.
202
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Item 3.
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Quantitative
and Qualitative Disclosures about Market Risk
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Information about market risk is set forth in
MD&ARisk ManagementMarket Risk
Management, Including Interest Rate Risk Management.
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Item 4.
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Controls
and Procedures
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Overview
We are required under applicable laws and regulations to
maintain controls and procedures, which include disclosure
controls and procedures as well as internal control over
financial reporting, as further described below.
Evaluation
of Disclosure Controls and Procedures
Disclosure
Controls and Procedures
Disclosure controls and procedures refer to controls and other
procedures designed to provide reasonable assurance that
information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and
forms of the SEC. Disclosure controls and procedures include,
without limitation, controls and procedures designed to provide
reasonable assurance that information required to be disclosed
by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding our required
disclosure. In designing and evaluating our disclosure controls
and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management was required to apply its
judgment in evaluating and implementing possible controls and
procedures.
Evaluation
of Disclosure Controls and Procedures
As required by
Rule 13a-15
under the Exchange Act, management has evaluated, with the
participation of our Chief Executive Officer and Chief Financial
Officer, the effectiveness of our disclosure controls and
procedures as in effect as of June 30, 2010, the end of the
period covered by this report. As a result of managements
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were not effective at a reasonable assurance level as of
June 30, 2010 or as of the date of filing this report.
Our disclosure controls and procedures were not effective as of
June 30, 2010 or as of the date of filing this report for
two reasons:
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Our disclosure controls and procedures did not adequately ensure
the accumulation and communication to management of information
known to FHFA that is needed to meet our disclosure obligations
under the federal securities laws; and
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We had a material weakness in our internal control over
financial reporting with respect to our controls over the change
management process we apply to applications and models we use in
accounting for (1) our provision for credit losses and
(2) other-than-temporary
impairment on our private-label
mortgage-related
securities.
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As a result, we were not able to rely upon the disclosure
controls and procedures that were in place as of June 30,
2010 or as of the date of this filing, and we continue to have
two material weaknesses in our internal control over financial
reporting. These material weaknesses are described in more
detail below under Description of Material
Weaknesses.
203
We intend to design, implement and test new controls to
remediate the material weakness in the design of our controls
over the change management process we apply to applications and
models we use in accounting for (1) our provision for
credit losses and
(2) other-than-temporary
impairment on our private-label mortgage-related securities by
December 31, 2010. However, based on discussions with FHFA
and the structural nature of the weakness in our disclosure
controls and procedures, it is likely that we will not remediate
the weakness in our disclosure controls and procedures relating
to information known to FHFA while we are under conservatorship.
Description
of Material Weaknesses
The Public Company Accounting Oversight Boards Auditing
Standard No. 5 defines a material weakness as a deficiency
or a combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility
that a material misstatement of the companys annual or
interim financial statements will not be prevented or detected
on a timely basis.
Management has determined that we continued to have the
following material weaknesses as of June 30, 2010 and as of
the date of filing this report:
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Disclosure Controls and Procedures. We have
been under the conservatorship of FHFA since September 6,
2008. Under the Federal Housing Finance Regulatory Reform Act of
2008 (2008 Reform Act), FHFA is an independent
agency that currently functions as both our conservator and our
regulator with respect to our safety, soundness and mission.
Because of the nature of the conservatorship under the 2008
Reform Act, which places us under the control of
FHFA (as that term is defined by securities laws), some of the
information that we may need to meet our disclosure obligations
may be solely within the knowledge of FHFA. As our conservator,
FHFA has the power to take actions without our knowledge that
could be material to our shareholders and other stakeholders,
and could significantly affect our financial performance or our
continued existence as an ongoing business. Although we and FHFA
attempted to design and implement disclosure policies and
procedures that would account for the conservatorship and
accomplish the same objectives as a disclosure controls and
procedures policy of a typical reporting company, there are
inherent structural limitations on our ability to design,
implement, test or operate effective disclosure controls and
procedures. As both our regulator and our conservator under the
2008 Reform Act, FHFA is limited in its ability to design and
implement a complete set of disclosure controls and procedures
relating to Fannie Mae, particularly with respect to current
reporting pursuant to
Form 8-K.
Similarly, as a regulated entity, we are limited in our ability
to design, implement, operate and test the controls and
procedures for which FHFA is responsible.
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Due to these circumstances, we have not been able to update our
disclosure controls and procedures in a manner that adequately
ensures the accumulation and communication to management of
information known to FHFA that is needed to meet our disclosure
obligations under the federal securities laws, including
disclosures affecting our consolidated financial statements. As
a result, we did not maintain effective controls and procedures
designed to ensure complete and accurate disclosure as required
by GAAP as of June 30, 2010 or as of the date of filing
this report. Based on discussions with FHFA and the structural
nature of this weakness, it is likely that we will not remediate
this material weakness while we are under conservatorship.
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Change Management for Applications and Models used in
Accounting for Our Provision for Credit Losses and for
Other-than-temporary
Impairment on Our Private-label Mortgage-related
Securities. We did not maintain effective
internal control over financial reporting with respect to our
controls over the change management process we apply to
applications and models we use in accounting for (1) our
provision for credit losses and
(2) other-than-temporary
impairment on our private-label mortgage-related securities.
Specifically, requirements definition, and systems and
user-acceptance testing were not adequate to prevent or identify
errors that affected (a) the identification of loan
populations and (b) the estimation of cash flows. As a
result, incorrect data and assumptions were discovered during
the preparation of our
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204
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financial statements for the year ended December 31, 2009
for our provision for credit losses and for
other-than-temporary
impairment on our private-label mortgage-related securities.
Although management reviewed and corrected the applications,
models, and accounting for the affected areas, we have not
remediated the design of the controls over change management
that constitute this material weakness as of June 30, 2010.
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Changes
in Internal Control over Financial Reporting
Overview
Management is required to evaluate, with the participation of
our Chief Executive Officer and Chief Financial Officer, whether
any changes in our internal control over financial reporting
that occurred during our last fiscal quarter have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Below we describe
changes in our internal control over financial reporting since
March 31, 2010 that management believes have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Remediation
Activities Relating to Material Weakness
As we reported in our 2009
Form 10-K,
during the first quarter of 2010, management identified a
material weakness in our internal control over financial
reporting as of December 31, 2009 with respect to our
controls over the change management process we apply to
applications and models we use in accounting for (1) our
provision for credit losses and
(2) other-than-temporary
impairment on our private-label mortgage-related securities.
This material weakness is described above under
Description of Material Weaknesses.
Although we have not yet remediated this material weakness,
during the second quarter of 2010, we continued implementation
of the re-designed change management processes we apply to these
applications and models, developed and implemented additional
technology and business process controls, and began initial
testing of these updated processes and controls. We intend to
complete this implementation and the remediation of this
material weakness by December 31, 2010. Below we describe
mitigating actions we have taken relating to this material
weakness.
Mitigating
Actions Relating to Material Weaknesses
Disclosure
Controls and Procedures
As described above under Description of Material
Weaknesses, we continue to have a material weakness in our
internal control over financial reporting relating to our
disclosure controls and procedures. However, we and FHFA have
engaged in the following practices intended to permit
accumulation and communication to management of information
needed to meet our disclosure obligations under the federal
securities laws:
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FHFA has established the Office of Conservatorship Operations,
which is intended to facilitate operation of the company with
the oversight of the conservator.
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We have provided drafts of our SEC filings to FHFA personnel for
their review and comment prior to filing. We also have provided
drafts of external press releases, statements and speeches to
FHFA personnel for their review and comment prior to release.
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FHFA personnel, including senior officials, have reviewed our
SEC filings prior to filing, including this quarterly report on
Form 10-Q
for the quarter ended June 30, 2010 (Second Quarter
2010
Form 10-Q),
and engaged in discussions regarding issues associated with the
information contained in those filings. Prior to filing our
Second Quarter 2010
Form 10-Q,
FHFA provided Fannie Mae management with a written
acknowledgement that it had reviewed the Second Quarter 2010
Form 10-Q,
and it was not aware
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205
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of any material misstatements or omissions in the Second Quarter
2010
Form 10-Q
and had no objection to our filing the Second Quarter 2010
Form 10-Q.
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The Acting Director of FHFA and our Chief Executive Officer have
been in frequent communication, typically meeting on a weekly
basis.
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FHFA representatives attend meetings frequently with various
groups within the company to enhance the flow of information and
to provide oversight on a variety of matters, including
accounting, credit and market risk management, liquidity,
external communications and legal matters.
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Senior officials within FHFAs Office of the Chief
Accountant have met frequently with our senior finance
executives regarding our accounting policies, practices and
procedures.
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Change
Management for Applications and Models used in Accounting for
Our Provision for Credit Losses and for
Other-than-temporary
Impairment on Our Private-label Mortgage-related
Securities
As described above under Description of Material
Weaknesses, we have a material weakness in our internal
control over financial reporting with respect to our controls
over the change management process we apply to applications and
models we use in accounting for (1) our provision for
credit losses and
(2) other-than-temporary
impairment on our private-label mortgage-related securities. As
a result, incorrect data and assumptions were used in our
accounting for our provision for credit losses and for
other-than-temporary
impairment on our private-label mortgage-related securities in
the preparation of our financial statements for the year ended
December 31, 2009.
Management identified these weaknesses in the course of
preparing our financial statements for the year ended
December 31, 2009. As soon as the weaknesses were
identified, management reviewed and corrected the applications,
the models and our accounting for the affected areas. Because of
the additional procedures management has conducted to date, even
though we have not yet remediated the design of the controls
over change management that constitute this material weakness,
we have recorded the appropriate provision for credit losses and
the appropriate amount of
other-than-temporary
impairment on our private-label
mortgage-related
securities in our financial statements for the quarter ended
June 30, 2010 that are included in this report. We are
currently taking steps to remediate this material weakness and
we intend to complete remediation by December 31, 2010.
206
PART IIOTHER
INFORMATION
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Item 1.
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Legal
Proceedings
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The following information supplements information regarding
certain legal proceedings set forth in Legal
Proceedings in our 2009
Form 10-K
and our First Quarter 2010
Form 10-Q.
We also provide information regarding material legal proceedings
in Note 17, Commitments and Contingencies,
which is incorporated herein by reference. In addition to the
matters specifically described or incorporated by reference in
this item, we are involved in a number of legal and regulatory
proceedings that arise in the ordinary course of business that
do not have a material impact on our business. Litigation claims
and proceedings of all types are subject to many factors that
generally cannot be predicted accurately.
We record reserves for legal claims when losses associated with
the claims become probable and the amounts can reasonably be
estimated. The actual costs of resolving legal claims may be
substantially higher or lower than the amounts reserved for
those claims. For matters where the likelihood or extent of a
loss is not probable or cannot be reasonably estimated, we have
not recognized in our condensed consolidated financial
statements the potential liability that may result from these
matters. We presently cannot determine the ultimate resolution
of the matters described or incorporated by reference in this
item or in our 2009
Form 10-K
or First Quarter 2010
Form 10-Q.
We have recorded a reserve for legal claims related to those
matters for which we were able to determine a loss was both
probable and reasonably estimable. If certain of these matters
are determined against us, it could have a material adverse
effect on our results of operations, liquidity and financial
condition, including our net worth.
Shareholder
Derivative Litigation
On July 27, 2010, the U.S. District Court for the
District of Columbia dismissed four shareholder derivative cases
filed at various times between June 2007 and June 2008 against
Fannie Mae as a nominal defendant and certain of our current and
former directors and officers. Two of those cases,
Kellmer v. Raines, et al. (filed June 29,
2007) and Middleton v. Raines, et al. (filed
July 6, 2007), were dismissed with prejudice and two of the
cases, Arthur v. Mudd, et al. (filed
November 26, 2007); and Agnes v. Raines, et al.
(filed June 25, 2008), were dismissed without prejudice.
FHFA, as our conservator, had previously substituted itself for
shareholder plaintiffs in all of these actions and moved for
voluntary dismissal without prejudice of all four cases. These
motions were granted in Arthur and Agnes, but
denied as moot in Kellmer and Middleton.
Plaintiffs Kellmer and Agnes are in the process of appealing the
substitution and the dismissal orders.
In addition to the information in this report, you should
carefully consider the risks relating to our business that we
identify in Risk Factors in our 2009
Form 10-K
and our First Quarter 2010
Form 10-Q.
This section supplements and updates that discussion and, for a
complete understanding of the subject, you should read both
together. Please also refer to MD&ARisk
Management in this report and in our 2009
Form 10-K
for more detailed descriptions of the primary risks to our
business and how we seek to manage those risks.
The risks we face could materially adversely affect our
business, results of operations, financial condition, liquidity
and net worth, and could cause our actual results to differ
materially from our past results or the results contemplated by
forward-looking statements contained in this report. However,
these are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently
believe are immaterial also may materially adversely affect our
business, results of operations, financial condition, liquidity
or net worth, or our investors or cause our actual results to
differ materially from our past results or the results
contemplated by forward-looking statements in this report.
207
The
future of our company following termination of the
conservatorship and the timing of the conservatorships end
are uncertain.
We do not know when or how the conservatorship will be
terminated or what changes to our business structure will be
made during or following the termination of the conservatorship.
We do not know whether we will continue to exist in the same or
a similar form after conservatorship is terminated or whether
the conservatorship will end in receivership or in some other
manner.
Since June 2009, Congressional committees and subcommittees have
held hearings to discuss the present condition and future status
of Fannie Mae and Freddie Mac, and on July 16, 2010, the
Chairman of the House Financial Services Committee said that he
intends to begin work on GSE legislation in the fall. In
addition, under the recently-enacted Wall Street Reform Act, by
January 31, 2011, Treasury is required to prepare and
submit a report to Congress with recommendations for ending the
conservatorships of Fannie Mae and Freddie Mac.
A number of legislative proposals have been introduced that
would substantially change our business structure and the
operation of our business. We cannot predict the prospects for
the enactment, timing or content of legislative proposals
regarding the future status of the GSEs. Accordingly, there
continues to be uncertainty regarding the future of Fannie Mae,
including whether we will continue to exist in our current form
after conservatorship is terminated. The options for reform of
the GSEs include options that would result in a substantial
change to our business structure or in Fannie Maes
liquidation or dissolution.
We
have experienced substantial deterioration in the credit
performance of mortgage loans that we own or that back our
guaranteed Fannie Mae MBS, which we expect to continue and
result in additional
credit-related
expenses.
We are exposed to mortgage credit risk relating to the mortgage
loans that we hold in our investment portfolio and the mortgage
loans that back our guaranteed Fannie Mae MBS. When borrowers
fail to make required payments of principal and interest on
their mortgage loans, we are exposed to the risk of credit
losses and credit-related expenses.
Conditions in the housing and financial markets worsened
dramatically during 2008 and remained stressed in 2009 and 2010,
contributing to a deterioration in the credit performance of our
book of business, negatively impacting the serious delinquency
rates, default rates and average loan loss severity on the
mortgage loans we hold or that back our guaranteed Fannie Mae
MBS, as well as increasing our inventory of foreclosed
properties. Increases in delinquencies, default rates and loss
severity cause us to experience higher
credit-related
expenses. The credit performance of our book of business has
also been negatively affected by the extent and duration of the
decline in home prices and high unemployment. These
deteriorating credit performance trends have been notable in
certain of our higher risk loan categories, states and vintages.
In addition, home price declines, adverse market conditions, and
continuing high levels of unemployment also have increasingly
affected the credit performance of our broader book of business.
Further, as social acceptability of defaulting on a mortgage
increases, more borrowers may default on their mortgages because
they owe more than their houses are worth. We present detailed
information about the risk characteristics of our conventional
single-family guaranty book of business in
MD&ARisk ManagementSingle-Family Mortgage
Credit Risk Management and we present detailed information
on our second quarter credit-related expenses, credit losses and
results of operations in MD&AConsolidated
Results of Operations.
Adverse credit performance trends may continue, particularly if
we experience further national and regional declines in home
prices, weak economic conditions and high unemployment.
208
Operational
control weaknesses could materially adversely affect our
business, cause financial losses and harm our
reputation.
Shortcomings or failures in our internal processes, people or
systems could have a material adverse effect on our risk
management, liquidity, financial statement reliability,
financial condition and results of operations; disrupt our
business; and result in legislative or regulatory intervention,
liability to customers, and financial losses or damage to our
reputation, including as a result of our inadvertent
dissemination of confidential or inaccurate information. For
example, our business is dependent on our ability to manage and
process, on a daily basis, an extremely large number of
transactions across numerous and diverse markets and in an
environment in which we must make frequent changes to our core
processes in response to changing external conditions. These
transactions are subject to various legal and regulatory
standards. We rely upon business processes that are highly
dependent on people, technology and the use of numerous complex
systems and models to manage our business and produce books and
records upon which our financial statements are prepared. We
experienced a number of operational incidents in 2010 related to
inadequately designed or failed execution of internal processes
or systems.
We are implementing our operational risk management framework,
which consists of a set of integrated processes, tools, and
strategies designed to support the identification, assessment,
mitigation and control, and reporting and monitoring of
operational risk. We also have made a number of changes in our
structure, business focus and operations, as well as changes to
our risk management processes, to keep pace with changing
external conditions. These changes, in turn, have necessitated
modifications to or development of new business models,
processes, systems, policies, standards and controls. While we
believe that the steps we have taken and are taking to enhance
our technology and operational controls and organizational
structure will help identify, assess, mitigate, control, and
monitor operational risk, our implementation of our operational
risk management framework may not be effective to manage or
prevent these risks and may create additional operational risk
as we execute these enhancements.
In addition, we have experienced substantial changes in
management, employees and our business structure and practices
since the conservatorship began. These changes could increase
our operational risk and result in business interruptions and
financial losses. In addition, due to events that are wholly or
partially beyond our control, employees or third parties could
engage in improper or unauthorized actions, or these systems
could fail to operate properly, which could lead to financial
losses, business disruptions, legal and regulatory sanctions,
and reputational damage.
Efforts
we are required or asked to take by FHFA in pursuit of providing
liquidity, stability and affordability to the mortgage market
and providing assistance to struggling homeowners, or in pursuit
of other goals, may adversely affect our business, results of
operations, financial condition, liquidity and net
worth.
During 2009, we were subject to housing goals requiring a
specified portion of our mortgage purchases related to the
purchase or securitization of mortgage loans to finance housing
for low- and moderate-income households, housing in underserved
areas, and qualified housing under the definition of special
affordable housing. Market conditions during 2009 resulted in
the origination of fewer goals-qualifying mortgages, which
negatively affected our ability to meet our goals. In June 2010,
FHFA determined that our underserved areas goal and
our multifamily special affordable housing subgoal
were not feasible, primarily due to housing market and economic
conditions in 2009. Many of these conditions have continued in
2010. In February 2010, FHFA published a proposed rule
implementing the new housing goals structure for 2010 and 2011
as required by the 2008 Reform Act. We cannot predict the impact
that market conditions during 2010 will have on our ability to
meet the new goals. In June 2010, FHFA published its proposed
rule to implement oversight of our new duty to serve underserved
markets.
If we do not meet our housing goals or duty to serve
requirements, and FHFA finds that the goals or requirements were
feasible, we may become subject to a housing plan that could
require us to take additional
209
steps that could have an adverse effect on our financial
condition. With respect to our housing goals in particular, the
potential penalties for failure to comply with housing plan
requirements are a
cease-and-desist
order and civil money penalties. In addition, to the extent that
we purchase higher risk loans in order to meet our housing goals
or our duty to serve requirements, these purchases could
contribute to further increases in our credit losses and
credit-related expenses.
The
Wall Street Reform Act will significantly alter the financial
services industry and may negatively impact our
business.
The Wall Street Reform Act, among other things, establishes a
new interagency council responsible for identifying systemically
important companies and imposes more stringent regulation of
such companies, including a process for liquidating such
companies as they fail; establishes a new consumer bureau for
enforcing consumer protection laws; provides for greater
oversight of
over-the-counter
derivatives and hedge funds; establishes federal standards for
origination of mortgage loans, with potential for assignee
liability; requires credit risk retention in connection with the
sale or transfer of certain asset-backed securities; and
provides for federal independent appraisal standards. This
legislation will directly and indirectly affect many aspects of
our business. Additionally, implementation of this legislation
will result in increased supervision and more comprehensive
regulation of our counterparties in the financial services
industry, which may have a significant impact on our
counterparty credit risk.
We are unable to predict how this legislation will be
implemented, or whether any additional or similar changes to
statutes or regulations (and their interpretation or
implementation) will occur in the future. Actions by regulators
of the financial services industry, including actions related to
limits on executive compensation, impact the recruitment and
retention of management. In addition, the actions of Treasury,
the CFTC, the FDIC, the Federal Reserve and international
central banking authorities directly impact financial
institutions cost of funds for lending, capital raising
and investment activities, which could increase our borrowing
costs or make borrowing more difficult for us. Changes in
monetary policy are beyond our control and difficult to
anticipate.
The financial market crisis has also resulted in mergers of some
of our most significant institutional counterparties.
Consolidation of the financial services industry has increased
and may continue to increase our concentration risk to
counterparties in this industry, and we are and may become more
reliant on a smaller number of institutional counterparties.
This both increases our risk exposure to any individual
counterparty and decreases our negotiating leverage with these
counterparties.
The structural changes in the financial services industry and
legislative or regulatory changes could affect us in substantial
and unforeseeable ways and could have a material adverse effect
on our business, results of operations, financial condition,
liquidity and net worth. In particular, these changes could
affect our ability to issue debt and may reduce our customer
base.
Our
common and preferred stock have been delisted from the New York
Stock Exchange and the Chicago Stock Exchange, which could
adversely affect the market price and liquidity of the delisted
securities.
We announced on June 16, 2010 that we had been directed by
FHFA to voluntarily delist our common stock and each listed
series of our preferred stock from the New York Stock Exchange
and the Chicago Stock Exchange. The last trading day for the
listed securities on the New York Stock Exchange and the Chicago
Stock Exchange was July 7, 2010. Since July 8, 2010,
the securities have been quoted on the
over-the-counter
market.
There can be no assurance that an active trading market in our
securities will continue to exist. Our quoted securities are
likely to experience price and volume fluctuations which may be
more significant than when our securities were listed on a
national securities exchange, which could adversely affect the
market price of these securities. We cannot predict the actions
of market makers, investors, or other market participants, and
can
210
offer no assurances that the market for our securities will be
stable or that the price per share of our securities will
appreciate over time.
The
occurrence of a major natural or other disaster in the United
States could negatively impact our credit losses and
credit-related expenses in the affected geographic
area.
We conduct our business in the residential mortgage market and
own or guarantee the performance of mortgage loans throughout
the United States. The occurrence of a major natural or
environmental disaster, terrorist attack, pandemic, or similar
event (a major disruptive event) in a regional
geographic area of the United States could negatively impact our
credit losses and credit-related expenses in the affected area.
The occurrence of a major disruptive event could negatively
impact a geographic area in a number of different ways,
depending on the nature of the event. A major disruptive event
that either damaged or destroyed residential real estate
underlying mortgage loans in our book of business or negatively
impacted the ability of homeowners to continue to make principal
and interest payments on mortgage loans in our book of business
could increase the delinquency rates, default rates, and average
loan loss severity of our book of business in the affected area.
While we attempt to create a geographically diverse single
family and multifamily mortgage credit book of business, there
can be no assurance that a major disruptive event, depending on
its magnitude, scope, and nature, will not generate significant
credit losses and credit-related expenses.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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Recent
Sales of Unregistered Securities
Under the terms of our senior preferred stock purchase agreement
with Treasury, we are prohibited from selling or issuing our
equity interests, other than as required by (and pursuant to)
the terms of a binding agreement in effect on September 7,
2008, without the prior written consent of Treasury.
During the quarter ended June 30, 2010, 321,876 shares
of common stock were issued upon conversion of
208,905 shares of 8.75% Non-Cumulative Mandatory
Convertible Preferred Stock,
Series 2008-1,
at the option of the holders pursuant to the terms of the
preferred stock. All series of preferred stock, other than the
senior preferred stock, were issued prior to September 7,
2008.
The securities we issue are exempted securities
under laws administered by the SEC to the same extent as
securities that are obligations of, or are guaranteed as to
principal and interest by, the United States, except that,
under the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended by the 2008 Reform Act
(together, the GSE Act), our equity securities are
not treated as exempted securities for purposes of
Section 12, 13, 14 or 16 of the Exchange Act. As a result,
our securities offerings are exempt from SEC registration
requirements and we do not file registration statements or
prospectuses with the SEC under the Securities Act with respect
to our securities offerings.
Information
about Certain Securities Issuances by Fannie Mae
Pursuant to SEC regulations, public companies are required to
disclose certain information when they incur a material direct
financial obligation or become directly or contingently liable
for a material obligation under an off-balance sheet
arrangement. The disclosure must be made in a current report on
Form 8-K
under Item 2.03 or, if the obligation is incurred in
connection with certain types of securities offerings, in
prospectuses for that offering that are filed with the SEC.
To comply with the disclosure requirements of
Form 8-K
relating to the incurrence of material financial obligations, we
report our incurrence of these types of obligations either in
offering circulars or prospectuses
211
(or supplements thereto) that we post on our Web site or in a
current report on
Form 8-K,
in accordance with a no-action letter we received
from the SEC staff in 2004. In cases where the information is
disclosed in a prospectus or offering circular posted on our Web
site, the document will be posted on our Web site within the
same time period that a prospectus for a non-exempt securities
offering would be required to be filed with the SEC.
The Web site address for disclosure about our debt securities is
www.fanniemae.com/debtsearch. From this address, investors can
access the offering circular and related supplements for debt
securities offerings under Fannie Maes universal debt
facility, including pricing supplements for individual issuances
of debt securities.
Disclosure about our obligations pursuant to some of the MBS we
issue, some of which may be off-balance sheet obligations, can
be found at www.fanniemae.com/mbsdisclosure. From this address,
investors can access information and documents about our MBS,
including prospectuses and related prospectus supplements.
We are providing our Web site address solely for your
information. Information appearing on our Web site is not
incorporated into this report.
Our
Purchases of Equity Securities
The following table shows shares of our common stock we
repurchased during the second quarter of 2010.
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Total Number of
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Maximum Number of
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Total
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Shares Purchased as
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Shares that
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Number of
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Average
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Part of Publicly
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May Yet be
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Shares
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Price Paid
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Announced
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Purchased Under
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Period
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Purchased(1)
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per Share
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Program(2)
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the
Program(3)
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(Shares in thousands)
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2010
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April 1-30
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5
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$
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1.22
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42,454
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May 1-31
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2
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1.00
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42,414
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June 1-30
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2
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0.93
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42,347
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Total
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9
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(1)
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Consists of shares of common stock
reacquired from employees to pay an aggregate of approximately
$9,542 in withholding taxes due upon the vesting of previously
issued restricted stock. Does not include 208,905 shares of
8.75% Non-Cumulative Mandatory Convertible
Series 2008-1
Preferred Stock received from holders upon conversion of those
shares into 321,876 shares of common stock.
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(2)
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On January 21, 2003, we
publicly announced that the Board of Directors had approved a
share repurchase program (the General Repurchase
Authority) under which we could purchase in open market
transactions the sum of (a) up to 5% of the shares of
common stock outstanding as of December 31, 2002
(49.4 million shares) and (b) additional shares to
offset stock issued or expected to be issued under our employee
benefit plans. Since August 2004, no shares have been
repurchased pursuant to the General Repurchase Authority. The
General Repurchase Authority has no specified expiration date.
Under the terms of the senior preferred stock purchase
agreement, we are prohibited from purchasing Fannie Mae common
stock without the prior written consent of Treasury. As a result
of this prohibition, we do not intend to make further purchases
under the General Repurchase Authority at this time.
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(3)
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Consists of the total number of
shares that may yet be purchased under the General Repurchase
Authority as of the end of the month, including the number of
shares that may be repurchased to offset stock that may be
issued pursuant to awards outstanding under our employee benefit
plans. Repurchased shares are first offset against any issuances
of stock under our employee benefit plans. To the extent that we
repurchase more shares in a given month than have been issued
under our plans, the excess number of shares is deducted from
the 49.4 million shares approved for repurchase under the
General Repurchase Authority. Please see Note 13,
Stock-Based Compensation of our 2009
Form 10-K
for information about shares issued, shares expected to be
issued, and shares remaining available for grant under our
employee benefit plans. Shares that remain available for grant
under our employee benefit plans are not included in the amount
of shares that may yet be purchased reflected in the table.
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212
Dividend
Restrictions
Our payment of dividends is subject to the following
restrictions:
Restrictions Relating to Conservatorship. Our
conservator announced on September 7, 2008 that we would
not pay any dividends on the common stock or on any series of
preferred stock, other than the senior preferred stock.
Restrictions under Senior Preferred Stock Purchase
Agreement. The senior preferred stock purchase
agreement prohibits us from declaring or paying any dividends on
Fannie Mae equity securities without the prior written consent
of Treasury.
Statutory Restrictions. Under the GSE Act,
FHFA has authority to prohibit capital distributions, including
payment of dividends, if we fail to meet our capital
requirements. If FHFA classifies us as significantly
undercapitalized, approval of the Director of FHFA is required
for any dividend payment. Under the GSE Act, we are not
permitted to make a capital distribution if, after making the
distribution, we would be undercapitalized, except the Director
of FHFA may permit us to repurchase shares if the repurchase is
made in connection with the issuance of additional shares or
obligations in at least an equivalent amount and will reduce our
financial obligations or otherwise improve our financial
condition.
Restrictions Relating to Qualifying Subordinated
Debt. During any period in which we defer payment
of interest on qualifying subordinated debt, we may not declare
or pay dividends on, or redeem, purchase or acquire, our common
stock or preferred stock.
Restrictions Relating to Preferred
Stock. Payment of dividends on our common stock
is also subject to the prior payment of dividends on our
preferred stock and our senior preferred stock. Payment of
dividends on all outstanding preferred stock, other than the
senior preferred stock, is also subject to the prior payment of
dividends on the senior preferred stock.
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Item 3.
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Defaults
Upon Senior Securities
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None.
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Item 4.
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[Removed
and reserved]
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Item 5.
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Other
Information
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None.
An index to exhibits has been filed as part of this report
beginning on
page E-1
and is incorporated herein by reference.
213
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Federal National Mortgage Association
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By:
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/s/ Michael
J. Williams
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Michael J. Williams
President and Chief Executive Officer
Date: August 5, 2010
David M. Johnson
Executive Vice President and
Chief Financial Officer
Date: August 5, 2010
214
INDEX TO
EXHIBITS
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Item
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|
Description
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3
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.1
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Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as
amended through July 30, 2008 (Incorporated by reference to
Exhibit 3.1 to Fannie Maes Quarterly Report on
Form 10-Q,
filed August 8, 2008.)
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3
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.2
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Fannie Mae Bylaws, as amended through January 30, 2009
(Incorporated by reference to Exhibit 3.2 to Fannie
Maes Annual Report on
Form 10-K
for the year ended December 31, 2008, filed
February 26, 2009.)
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4
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.1
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series D (Incorporated by reference to
Exhibit 4.1 to Fannie Maes registration statement on
Form 10, filed March 31, 2003.)
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4
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.2
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series E (Incorporated by reference to
Exhibit 4.2 to Fannie Maes registration statement on
Form 10, filed March 31, 2003.)
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4
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.3
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series F (Incorporated by reference to
Exhibit 4.3 to Fannie Maes registration statement on
Form 10, filed March 31, 2003.)
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4
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.4
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series G (Incorporated by reference to
Exhibit 4.4 to Fannie Maes registration statement on
Form 10, filed March 31, 2003.)
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4
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.5
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series H (Incorporated by reference to
Exhibit 4.5 to Fannie Maes registration statement on
Form 10, filed March 31, 2003.)
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4
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.6
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series I (Incorporated by reference to
Exhibit 4.6 to Fannie Maes registration statement on
Form 10, filed March 31, 2003.)
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4
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.7
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series L (Incorporated by reference to
Exhibit 4.7 to Fannie Maes Quarterly Report on
Form 10-Q,
filed August 8, 2008.)
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4
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.8
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series M (Incorporated by reference to
Exhibit 4.8 to Fannie Maes Quarterly Report on
Form 10-Q,
filed August 8, 2008.)
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4
|
.9
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series N (Incorporated by reference to
Exhibit 4.9 to Fannie Maes Quarterly Report on
Form 10-Q,
filed August 8, 2008.)
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4
|
.10
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Certificate of Designation of Terms of Fannie Mae Non-Cumulative
Convertible Preferred Stock,
Series 2004-1
(Incorporated by reference to Exhibit 4.10 to Fannie
Maes Annual Report on
Form 10-K
for the year ended December 31, 2009, filed
February 26, 2010.)
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4
|
.11
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series O (Incorporated by reference to
Exhibit 4.11 to Fannie Maes Annual Report on
Form 10-K
for the year ended December 31, 2009, filed
February 26, 2010.)
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4
|
.12
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series P (Incorporated by reference to
Exhibit 4.1 to Fannie Maes Current Report on
Form 8-K,
filed September 28, 2007.)
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4
|
.13
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series Q (Incorporated by reference to
Exhibit 4.1 to Fannie Maes Current Report on
Form 8-K,
filed October 5, 2007.)
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4
|
.14
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series R (Incorporated by reference to
Exhibit 4.1 to Fannie Maes Current Report on
Form 8-K,
filed November 21, 2007.)
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4
|
.15
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series S (Incorporated by reference to
Exhibit 4.1 to Fannie Maes Current Report on
Form 8-K,
filed December 11, 2007.)
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4
|
.16
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Certificate of Designation of Terms of Fannie Mae Non-Cumulative
Mandatory Convertible Preferred Stock,
Series 2008-1
(Incorporated by reference to Exhibit 4.1 to Fannie
Maes Current Report on
Form 8-K,
filed May 14, 2008.)
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4
|
.17
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Certificate of Designation of Terms of Fannie Mae Preferred
Stock, Series T (Incorporated by reference to
Exhibit 4.1 to Fannie Maes Current Report on
Form 8-K,
filed May 19, 2008.)
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4
|
.18
|
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Certificate of Designation of Terms of Variable Liquidation
Preference Senior Preferred Stock,
Series 2008-2
(Incorporated by reference to Exhibit 4.2 to Fannie
Maes Current Report on
Form 8-K,
filed September 11, 2008.)
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4
|
.19
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Warrant to Purchase Common Stock, dated September 7, 2008
conservator (Incorporated by reference to Exhibit 4.3 to
Fannie Maes Current Report on
Form 8-K,
filed September 11, 2008.)
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E-1
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Item
|
|
Description
|
|
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4
|
.20
|
|
Amended and Restated Senior Preferred Stock Purchase Agreement,
dated as of September 26, 2008, between the United States
Department of the Treasury and Federal National Mortgage
Association, acting through the Federal Housing Finance Agency
as its duly appointed conservator (Incorporated by reference to
Exhibit 4.1 to Fannie Maes Current Report on
Form 8-K,
filed October 2, 2008.)
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4
|
.21
|
|
Amendment to Amended and Restated Senior Preferred Stock
Purchase Agreement, dated as of May 6, 2009, between the
United States Department of the Treasury and Federal National
Mortgage Association, acting through the Federal Housing Finance
Agency as its duly appointed conservator (Incorporated by
reference to Exhibit 4.21 to Fannie Maes Quarterly
Report on
Form 10-Q,
filed May 8, 2009.)
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4
|
.22
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Second Amendment to Amended and Restated Senior Preferred Stock
Purchase Agreement, dated as of December 24, 2009, between
the United States Department of the Treasury and Federal
National Mortgage Association, acting through the Federal
Housing Finance Agency as its duly appointed conservator
(Incorporated by reference to Exhibit 4.1 to Fannie
Maes Current Report on
Form 8-K,
filed December 30, 2009.)
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10
|
.1
|
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Amendment to Fannie Mae Supplemental Pension Plan of 2003,
effective May 14, 2010
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10
|
.2
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Amendment to Fannie Mae Supplemental Retirement Savings Plan,
effective May 14, 2010
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31
|
.1
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Certification of Chief Executive Officer pursuant to Securities
Exchange Act
Rule 13a-14(a)
|
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31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Securities
Exchange Act
Rule 13a-14(a)
|
|
32
|
.1
|
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Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
|
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32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350
|
|
101
|
.INS
|
|
XBRL Instance Document*
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema*
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation*
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Labels*
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation*
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition*
|
|
|
|
* |
|
The financial information contained in these XBRL documents is
unaudited. The information in these exhibits shall not be deemed
filed for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the
liabilities of Section 18, nor shall they be deemed
incorporated by reference into any disclosure document relating
to Fannie Mae, except to the extent, if any, expressly set forth
by specific reference in such filing. |
E-2