Fannie Mae 2004 Annual Report Download - page 192

than the full amount of the partnership’s assets and liabilities. Our investments in LIHTC partnerships are
recorded in the consolidated balance sheets as “Partnership investments.”
In cases where we are not the primary beneficiary of these investments, we account for our investments in
LIHTC partnerships by using the equity method of accounting or the effective yield method of accounting, as
appropriate. In each case, we record in the consolidated financial statements our share of the income and
losses of the partnerships, as well as our share of the tax credits and tax benefits of the partnerships. Our share
of the operating losses generated by our LIHTC partnerships is recorded in the consolidated statements of
income under “Loss from partnership investments.” The tax credits and benefits associated with any operating
losses incurred by these LIHTC partnerships are recorded in the consolidated statements of income within our
“Provision for federal income taxes.”
As of December 31, 2004, we had a recorded investment in these LIHTC partnerships of $6.8 billion. Our risk
exposure relating to these LIHTC partnerships is limited to the amount of our investment and the possible
recapture of the tax benefits we have received from the partnership. Neither creditors of, nor equity investors
in, these partnerships have any recourse to our general credit. To manage the risks associated with a
partnership, we track compliance with the LIHTC requirements, as well as the property condition and financial
performance of the underlying investment throughout the life of the investment. In addition, we evaluate the
strength of the partnership’s sponsor through periodic financial and operating assessments. Further, in some of
our LIHTC partnership investments, our exposure to loss is further mitigated by our having a guaranteed
economic return from an investment grade counterparty.
The table below provides information regarding our LIHTC partnership investments as of and for the year
ended December 31, 2004:
Table 45: LIHTC Partnership Investments
Consolidated Non-Consolidated
2004
(Dollars in millions)
As of December 31:
Obligation to fund LIHTC partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . $562 $1,512
For the year ended December 31:
Tax credits from investments in LIHTC partnerships . . . . . . . . . . . . . . . . . $325 $ 386
Losses from investments in LIHTC partnerships . . . . . . . . . . . . . . . . . . . . 178 508
Tax benefits on credits and losses from investments in LIHTC
partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 563
Contributions to LIHTC partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600 791
Distributions from LIHTC partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . 1 —
For more information on our off-balance sheet transactions, see “Notes to Consolidated Financial State-
ments—Note 18, Concentrations of Credit Risk.”
IMPACT OF FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS
SOP 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer
In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants issued SOP 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer
(“SOP 03-3”). SOP 03-3 applies to acquired loans, debt securities and beneficial interests where there has been
evidence of deterioration in credit quality since origination and for which it is probable at the purchase date
that the investor will not be able to collect all contractually required payments receivable. It addresses the
accounting for differences between the contractual cash flows of acquired loans and the cash flows expected to
be collected from an investor’s initial investment in loans acquired in a transfer if those differences are
attributable, at least in part, to credit quality.
SOP 03-3 requires purchased loans, debt securities and beneficial interests within its scope to be initially
recorded at fair value and prohibits the creation or carry over of a valuation allowance at the date of purchase.
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