Fannie Mae 2004 Annual Report Download - page 282

previous carrying amount of the transferred assets is allocated between the assets sold and the retained
interests, if any, in proportion to their relative fair values at the date of transfer. A gain or loss is recorded as a
component of “Investment losses, net” in the consolidated statements of income, which represents the
difference between the allocated carrying amount of the assets sold and the proceeds from the sale, net of any
liabilities incurred, which may include 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
(“MSA”).
Our retained interests in the form of Fannie Mae MBS, REMICs, or other types of beneficial interests are
included in “Investments in securities” in the consolidated balance sheets. Our retained interests related to our
guaranty are included in “Guaranty assets” in the consolidated balance sheets and a description of our
subsequent accounting for these retained interests, as well as how we determine fair value for the guaranty
assets, is included in the “Guaranty Accounting” section of this note. Our retained interests in the form of
MSA are included as a component of “Other assets” in the consolidated balance sheets and a description of
our subsequent accounting for these retained interests, as well as how we determine fair value for MSA, is
included in the “Master Servicing” section of this note.
If a portfolio securitization does not meet the criteria for sale treatment, the transferred assets remain on the
consolidated balance sheets and we record a liability to the extent of any proceeds we received in connection
with such transfer.
Cash and Cash Equivalents and Statements of Cash Flows
Short-term highly liquid instruments with a maturity of three months or less that are readily convertible to
cash are considered cash and cash equivalents. Cash and cash equivalents are carried at cost, which
approximates fair value.
Additionally, we may pledge cash equivalent securities as collateral as discussed below. We record items that
are specifically purchased as part of the liquid investment portfolio as “Investments in securities” in the
consolidated balance sheets in accordance with SFAS No. 95, Statement of Cash Flows (“SFAS 95”).
We classify short-term U.S. Treasury Bills as “Cash and cash equivalents” in the consolidated balance sheets.
The carrying value of these securities, which approximates fair value, was $507 million and $849 million as of
December 31, 2004 and 2003, respectively.
The consolidated statements of cash flows are prepared in accordance with SFAS 95. In the presentation of the
consolidated statements of cash flows, cash flows from derivatives that do not contain financing elements,
mortgage loans held for sale, trading securities and guaranty fees, including buy-up and buy-down payments,
are included as operating activities. Federal funds sold and securities purchased under agreements to resell are
presented as investing activities, while federal funds purchased and securities sold under agreements to
repurchase are presented as financing activities. Cash flows related to dollar roll repurchase transactions that
do not meet the SFAS 140 requirements to be classified as secured borrowings are recorded as purchases and
sales of securities in investing activities, whereas cash flows related to dollar roll repurchase transactions
qualifying as secured borrowings pursuant to SFAS 140 are considered proceeds and repayments of short-term
debt in financing activities.
Restricted Cash
When we collect cash that is due to certain MBS trusts in advance of our requirement to remit these amounts
to the trust, we record the collected cash amount as “Restricted cash” in the consolidated balance sheets. As of
December 31, 2004 and 2003, we had “Restricted cash” of $445 million and $284 million, respectively, related
to such activity. We also have restricted cash related to certain collateral arrangements as described in the
“Collateral” section of this note.
F-31
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)