Fannie Mae 2006 Annual Report Download - page 106

(4)
We have separately presented the estimated fair value of “Mortgage loans held for sale,” “Mortgage loans held for
investment, net of allowance for loan losses,” “Guaranty assets of mortgage loans held in portfolio,” and “Guaranty
obligations of mortgage loans held in portfolio.” These combined line items together represent total mortgage loans
reported in our GAAP consolidated balance sheets. This presentation provides transparency into the components of
the fair value of our mortgage loans associated with our guaranty business activities and the components of our
capital markets business activities, which is consistent with the way we manage risks and allocate revenues and
expenses for segment reporting purposes. While the carrying values and estimated fair values of the individual line
items may differ from the amounts presented in Note 19, the combined amounts together equal the carrying value
and estimated fair value amounts of total mortgage loans in Note 19.
(5)
In our GAAP consolidated balance sheets, we report the guaranty assets associated with our outstanding Fannie Mae
MBS and other guaranties as a separate line item and include buy-ups, master servicing assets and credit
enhancements associated with our guaranty assets in “Other assets.” The GAAP carrying value of our guaranty assets
reflects only those guaranty arrangements entered into subsequent to our adoption of FIN 45 on January 1, 2003. On
a GAAP basis, our guaranty assets totaled $7.7 billion and $6.8 billion as of December 31, 2006 and 2005,
respectively. The associated buy-ups totaled $831 million and $781 million as of December 31, 2006 and 2005,
respectively. In our non-GAAP consolidated fair value balance sheets, we also disclose the estimated guaranty assets
and obligations related to mortgage loans held in our portfolio. The sum of “Guaranty assets of mortgage loans held
in portfolio,” “Guaranty obligations of mortgage loans held in portfolio,” “Guaranty assets and buy-ups,” and “Master
servicing assets and credit enhancements” together represent the guaranty asset-related components associated with
our total mortgage credit book of business for which our Single-Family and HCD guaranty businesses assume the
credit risk. The aggregate carrying value and estimated fair value of the guaranty asset-related components associated
with our total mortgage credit book of business totaled $10.1 billion and $15.8 billion, respectively, as of
December 31, 2006 and $9.1 billion and $14.2 billion, respectively, as of December 31, 2005.
(6)
We previously included “Advances to lenders” in “Other assets.” In 2006, we have disclosed advances to lenders as a
separate line item in our GAAP consolidated balance sheets and as a SFAS 107 financial asset. We have reclassified
the prior year to conform with the current year presentation.
(7)
The line items “Master servicing assets and credit enhancements” and “Other assets” together consist of the assets
presented on the following five line items in our GAAP consolidated balance sheets: (i) accrued interest receivable;
(ii) acquired property, net; (iii) deferred tax assets; (iv) partnership investments; and (v) other assets. The carrying
value of these items in our GAAP consolidated balance sheets together totaled $34.8 billion and $31.3 billion as of
December 31, 2006 and 2005, respectively. We deduct the carrying value of the buy-ups associated with our guaranty
obligation, which totaled $831 million and $781 million as of December 31, 2006 and 2005, respectively, from
“Other assets” reported in our GAAP consolidated balance sheets because buy-ups are a financial instrument that we
combine with guaranty assets in our SFAS 107 disclosure in Note 19. We have estimated the fair value of master
servicing assets and credit enhancements based on our fair value methodologies discussed in Note 19. With the
exception of partnership investments and deferred tax assets, the GAAP carrying values of other assets generally
approximate fair value. While we have included partnership investments at their carrying value in each of the non-
GAAP fair value balance sheets, the fair values of these items are generally different from their GAAP carrying
values, potentially materially. For example, our LIHTC partnership investments had a carrying value of $8.8 billion
and an estimated fair value of $10.0 billion as of December 31, 2006. We assume that other deferred assets,
consisting primarily of prepaid expenses, have no fair value. We adjust the GAAP-basis deferred income taxes for
purposes of each of our non-GAAP supplemental consolidated fair value balance sheets to include estimated income
taxes on the difference between our non-GAAP supplemental consolidated fair value balance sheets net assets,
including deferred taxes from the GAAP consolidated balance sheets, and our GAAP consolidated balance sheets
stockholders’ equity. Because our adjusted deferred income taxes are a net asset in each year, the amounts are
included in our non-GAAP fair value balance sheets as a component of other assets.
(8)
The line item “Other liabilities” consists of the liabilities presented on the following four line items in our GAAP
consolidated balance sheets: (i) accrued interest payable; (ii) reserve for guaranty losses; (iii) partnership liabilities;
and (iv) other liabilities. The carrying value of these items in our GAAP consolidated balance sheets together totaled
$22.2 billion and $18.6 billion as of December 31, 2006 and 2005, respectively. With the exception of partnership
liabilities, the GAAP carrying values of these other liabilities generally approximate fair value. We assume that
deferred liabilities, such as deferred debt issuance costs, have no fair value.
(9)
“Preferred stockholders’ equity” is reflected in our non-GAAP fair value balance sheets at the estimated fair value
amount.
(10)
The line item “Common stockholders’ equity” consists of the stockholders’ equity components presented on the
following five line items in our GAAP consolidated balance sheets: (i) “Common stock;” (ii) “Additional paid-in
capital;” (iii) “Retained earnings;” (iv) Accumulated other comprehensive loss and (v) “Treasury stock, at cost.”
“Common stockholders’ equity” is reflected in our non-GAAP fair value balance sheets at the estimated fair value
amount.
Key Drivers of Changes in the Estimated Fair Value of Net Assets (Non-GAAP)
We expect periodic fluctuations in the estimated fair value of our net assets due to our business activities, as
well as due to changes in market conditions, including changes in interest rates, changes in relative spreads
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