Fannie Mae 2004 Annual Report Download - page 305

For the years ended December 31, 2004 and 2003, we redesignated $15.5 billion and $51.9 billion,
respectively, of HFS loans to HFI. We did not redesignate any HFI loans to HFS during the two-year period
ended December 31, 2004.
Interest income is recognized on an accrual basis. Included in our portfolio as of December 31, 2004 and 2003
were 76,310 and 74,092 of nonaccrual loans respectively, which totaled $8.0 billion and $7.7 billion as of
December 31, 2004 and 2003, respectively. Accrued interest relating to these loans that we recorded prior to
their placement on nonaccrual status totaled $192 million and $199 million as of December 31, 2004 and
2003, respectively. Forgone interest on nonaccrual loans, which represents the amount of income contractually
due that we would have reported had the loans performed according to their contractual terms, was
$178 million, $183 million and $141 million for the years ended December 31, 2004, 2003 and 2002,
respectively. Accruing loans 90 days or more past due totaled $187 million and $225 million as of
December 31, 2004 and 2003, respectively.
If a borrower of a loan underlying a Fannie Mae MBS is three or more months past due, we have the right to
purchase the loan out of the related Fannie Mae MBS trust. Typically, we purchase these loans when the cost
of advancing interest to the MBS trust at the security coupon rate exceeds the cost of holding the
nonperforming loan in our mortgage portfolio. We purchased $9.4 billion, $10.1 billion and $8.4 billion of
delinquent loans out of MBS pools for the years ended December 31, 2004, 2003 and 2002, respectively.
At times, we modify loans and categorize the modification either as minor, more than minor, or as a TDR.
Single-family and multifamily loans that have not been modified as a TDR are collectively evaluated for
incurred losses in accordance with our allowance for loan losses policy. Refer to “Note 5, Allowance for Loan
Losses and Reserve for Guaranty Losses” for additional information. Loans restructured in a TDR are
individually evaluated for impairment.
Our impaired loans include single-family and multifamily TDRs, as well as multifamily individually impaired
loans. The amount of interest income recognized on impaired loans was $47 million, $44 million and
$37 million for the years ended December 31, 2004, 2003 and 2002, respectively. Our average recorded
investment in all of these loans throughout the year was $1.0 billion, $812 million and $560 million for the
years ended December 31, 2004, 2003 and 2002, respectively.
The following table displays the total recorded investment in impaired loans and the corresponding specific
loss allowances as of December 31, 2004 and 2003.
2004 2003
As of December 31,
(Restated)
(Dollars in millions)
Impaired loans with an allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 826 $ 720
Impaired loans without an allowance
(1)
..................................... 225 317
Total impaired loans
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,051 $1,037
Allowance for impaired loans
(3)
.......................................... $ 63 $ 68
(1)
The discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, and as
such, no allowance is required.
(2)
Amount includes single-family and multifamily loans restructured in a TDR of $833 million and $697 million and mul-
tifamily loans individually impaired of $218 million and $340 million as of December 31, 2004 and 2003, respectively.
(3)
Amount is included in the “Allowance for loan losses.”
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)