Fannie Mae 2004 Annual Report Download - page 302

Portfolio Securitizations” for additional information regarding the securitizations for which we are the
transferor.
In our structured securitization transactions, we earn transaction fees for assisting lenders and dealers with the
design and issuance of structured mortgage-related securities. The trusts created pursuant to these transactions
have permitted activities that are similar to those for our lender swap and portfolio securitization transactions.
The assets of these trusts may include mortgage-related securities and/or mortgage loans as collateral. The
trusts created for Mega securities issue single-class securities while the trusts created for REMIC, Grantor
Trust and SMBS securities issue single-class as well as multi-class securities, the latter of which separate the
cash flows from underlying assets into separately tradable interests. Our obligations and continued involvement
in these trusts are similar to that described for lender swap and portfolio securitization transactions. We have
securitized mortgage assets in structured transactions since 1986.
We also invest in highly rated mortgage-backed and asset-backed securities that have been issued via private-
label trusts. These trusts are structured to provide the investor with a beneficial interest in a pool of receivables
or other financial assets, typically mortgage loans, credit card receivables, auto loans or student loans. The
trusts act as vehicles to allow loan originators to securitize assets. The originators of the financial assets or the
underwriters of the transaction create the trusts and typically own the residual interest in the trusts’ assets. Our
involvement in these entities is typically limited to our recorded investment in the beneficial interests that we
have purchased. Securities are structured from the underlying pool of assets to provide for varying degrees of
risk. We have made investments in these vehicles since 1987.
Limited Partnerships
We make equity investments in various limited partnerships that sponsor affordable housing projects utilizing
the low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these
investments is to increase the supply of affordable housing in the United States and to serve communities in
need. In addition, our investments in LIHTC partnerships generate both tax credits and net operating losses
that reduce our federal income tax liability. Our LIHTC investments primarily represent limited partnership
interests in entities that have been organized by a fund manager who acts as the general partner. These fund
investments seek out equity investments in LIHTC operating partnerships that have been established to
identify, develop and operate multifamily housing that is leased to qualifying residential tenants.
We also invest in other limited partnerships designed to acquire, develop and hold for sale or lease single-
family (includes townhomes and condominiums), multifamily, retail or commercial real estate, as well as, in
some cases, generate a combination of historic restoration, new markets, or low-income housing tax credits.
We invest in these partnerships in order to increase the supply of affordable housing in the United States and
to serve communities in need. We also earn a return on these investments, which in certain cases is generated
through reductions in our federal income tax liability as a result of the use of tax credits for which the
partnerships qualify, as well as the deductibility of the partnerships, net operating losses.
Additionally, we have five investments in limited partnerships relating to alternative energy sources. The
purpose of these investments is to facilitate the development of alternative domestic energy sources and to
achieve a satisfactory return on capital via a reduction in our federal income tax liability as a result of the use
of the tax credits for which the partnerships qualify, as well as the deductibility of the partnerships’ net
operating losses.
Other VIEs
The management and marketing of our foreclosed multifamily properties is performed by an independent
third-party. To facilitate this arrangement, we transfer foreclosed properties to a VIE that is established by the
counterparty responsible for managing and marketing the properties. We are the primary beneficiary of the
entity. However, the only assets of the VIE are those foreclosed properties transferred by us. Because our
transfer of the foreclosed properties does not qualify as a sale, the foreclosed properties are recorded in
“Acquired property, net” in the consolidated balance sheets.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)