Fannie Mae 2004 Annual Report Download - page 293

and 2002, respectively. We recognize an impairment charge of these capitalized costs when, during the
development stage of the project, we determine that the project is no longer probable of completion. For the
years ended December 31, 2004 and 2002, we recognized impairment charges of $159 million and $3 million,
respectively. No impairment charge was deemed necessary for 2003. Capitalized costs are included as “Other
assets” in the consolidated balance sheets.
Commitments to Purchase and Sell Mortgage Loans and Securities
We enter into commitments to purchase and sell mortgage-related securities and to purchase single-family and
multifamily mortgage loans. Commitments to purchase or sell some mortgage-related securities and to
purchase single-family mortgage loans are derivatives under SFAS 133, as amended and interpreted. Our
commitments to purchase multifamily loans are not derivatives under SFAS 133 because they do not provide
for net settlement.
For those commitments that we account for as derivatives, we report them in the consolidated balance sheets
at fair value in “Derivative assets at fair value” or “Derivative liabilities at fair value” and include changes in
their fair value in “Derivatives fair value gains (losses), net” in the consolidated statements of income. When
these commitments settle, we include their fair value on the settlement date in the cost basis of the security or
loan that we purchase.
Regular-way securities trades provide for delivery of securities within the time generally established by
regulations or conventions in the market in which the trade occurs and are exempt from SFAS 133.
Commitments to purchase or sell To-Be-Announced (“TBA”) eligible Fannie Mae MBS that settle on the
earliest regularly-scheduled settlement date are regular-way securities trades; therefore, we did not account for
them as derivatives prior to July 1, 2003. Commitments to purchase securities that have not yet been issued,
such as REMICs, are regular-way securities trades if their settlement date is the date the securities are issued.
Each REMIC transaction is individually negotiated; therefore, the period between trade date and issuance date
is the shortest period possible for these commitments and they are regular-way securities trades. On July 1,
2003, SFAS 149 amended the regular-way securities trade exception for commitments for securities that have
not yet been issued and TBA-eligible mortgage-related securities. That amendment required companies to
provide documentation that they expected commitments to physically settle. We did not provide such
documentation; therefore, beginning July 1, 2003, we account for all commitments for securities not yet issued
or TBA securities as derivatives unless such securities are recorded on the trade date.
Commitments to purchase securities that we do not account for as derivatives, such as those that qualified as
regular-way securities trades, are accounted for as forward contracts to purchase securities under the guidance
of EITF 96-11. These commitments are designated as AFS or trading at inception and accounted for in a
manner consistent with SFAS 115 for that category of securities. For commitments to sell mortgage-related
securities in trading activities that we do not account for as derivatives, we account for them at fair value and
include them in “Other assets” or “Other Liabilities” in the consolidated balance sheets with unrealized gains
and losses included in “Investment losses, net” in the consolidated statements of income.
Beginning January 1, 2002, we applied trade date accounting to commitments to purchase or sell existing
securities when these commitments settle within the period of time that is customary in the market in which
those trades take place.
F-42
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)