Fannie Mae 2004 Annual Report Download - page 295

consolidated balance sheets. Cash collateral accepted from a counterparty that we do not have the right to use
is restricted cash and is included as “Restricted cash” in the consolidated balance sheets. We accepted cash
collateral of $2.7 billion and $3.4 billion as of December 31, 2004 and 2003, respectively, of which
$601 million and $1.1 billion, respectively, was restricted.
Non-Cash Collateral
Securities pledged to counterparties are included as either “Investments in securities” or “Cash and cash
equivalents” in the consolidated balance sheets. As of December 31, 2004 and 2003, we pledged trading
securities of $187 million and $201 million, respectively and AFS securities of $1.5 billion and $4.6 billion,
respectively, which the counterparty does not have the right to sell or repledge. As of December 31, 2004 and
2003, we pledged $242 million and $487 million, respectively, of cash equivalents, and as of December 31,
2003, we pledged $265 million of AFS securities, which the counterparty had the right to sell or repledge.
The fair value of non-cash collateral accepted that we were permitted to sell or repledge was $3.5 billion and
$3.1 billion as of December 31, 2004 and 2003, respectively, of which none was sold or repledged. The fair
value of collateral accepted that we were not permitted to sell or repledge was $393 million and $42 million
as of December 31, 2004 and 2003, respectively.
Our liability to third party holders of Fannie Mae MBS that arises as the result of a consolidation of a
securitization trust is fully 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, the collateral
of the transferred securities are reported at the amounts at which the securities will be reacquired including
accrued interest.
Debt
Our outstanding debt is classified as either short-term or long-term based on the initial contractual maturity.
Deferred items, including premiums, discounts and other deferred price adjustments are reported as basis
adjustments to “Short-term debt” or “Long-term debt” in the consolidated balance sheets. The carrying
amount, accrued interest and basis adjustments of debt denominated in a foreign currency are re-measured into
U.S. dollars using foreign exchange spot rates at the balance sheet date and any associated gains or losses are
reported in “Fee and other income” in the consolidated statements of income.
The classification of interest expense as either short-term or long-term is based on the contractual maturity of
the related debt. Premiums, discounts and other deferred price adjustments are amortized and reported through
interest expense using the effective interest method over the contractual term of the debt. Amortization of
premiums, discounts and other deferred price adjustments begins at the time of debt issuance. Interest expense
for debt denominated in a foreign currency is re-measured into U.S. dollars using the weighted average spot
rate for the month 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 included in “Short-term and long-term debt interest expense” in the consolidated statements of income.
Fees Received on the Structuring of Transactions
We offer certain re-securitization services to customers in exchange for fees. Such services include, but are not
limited to, the issuance, guarantee and administration of Fannie Mae REMICs, Stripped Mortgage-Backed
Securities (“SMBS”), Grantor Trusts, and Mega Securities issued (collectively, the “Structured Securities”).
We receive a one-time conversion fee upon issuance of a Structured Security that varies based on the value of
securities issued and the transaction structure. The conversion fee compensates us for all services we provide
in connection with the Structured Security, including services provided at and prior to security issuance and
over the life of the Structured Securities. Except for Structured Securities where the underlying collateral is
whole loans or private-label securities, we generally do not receive a guaranty fee as compensation in
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)