Fannie Mae 2010 Annual Report Download - page 120

foreclosed property expense was driven by increased volumes of multifamily REO acquisitions in 2010. Our
expectation is that multifamily charge-offs will remain commensurate with 2010 levels throughout 2011 as we
continue through the current economic cycle.
Federal Income Taxes
We recognized a provision for income taxes in 2010 resulting from a settlement agreement reached with the
IRS with respect to our unrecognized tax benefits for tax years 1999 through 2004. The tax provision
recognized in 2009 was attributable to the reversal of previously utilized tax credits because of our ability to
carry back net operating losses to recover taxes from prior years.
2009 compared with 2008
Key factors affecting the results of our Multifamily business for 2009 compared with 2008 included the
following:
Guaranty Fee Income
The increase in guaranty fee income in 2009 compared with 2008 was primarily attributable to growth in the
average multifamily guaranty book of business. The increase in the average multifamily guaranty book of
business reflected the investment and liquidity we have been providing to the multifamily mortgage market.
Compared with 2008, during 2009 there was also an increase in the average charged guaranty fee rate, which
was offset by lower guaranty-related amortization income.
Losses from Partnership Investments
We recorded $5.0 billion of other-than-temporary impairment on our LIHTC investments during the fourth
quarter of 2009. We provide further discussion of losses from partnership investments, including details
regarding other-than-temporary impairments of these assets, in “Consolidated Results of Operations—Losses
from Partnership Investments.”
Credit-Related Income (Expenses)
The increase in credit-related expenses in 2009 compared with 2008 largely reflected the increase in our
multifamily combined loss reserves to $2.0 billion, or 1.10% of our multifamily guaranty book of business, as
of December 31, 2009 from $104 million, or 0.06% of our multifamily guaranty book of business as of
December 31, 2008. The increase in the multifamily reserve was driven by several factors including higher
severity, deterioration in some large loans, lower property values, and weaker financial results from borrowers,
all of which are a reflection of the weak economy. Net charge-offs and foreclosed property expenses totaled
$220 million in 2009 compared with $52 million in 2008.
Federal Income Taxes
The net tax provision recognized in 2009 was attributable to the reversal of the use of certain tax credits, net
of our ability to carryback current tax losses. In addition, we recorded a valuation allowance for all of the tax
benefits associated with the tax credits generated by our partnership investments in 2009. We recorded a non-
cash charge in 2008 to establish a partial deferred tax asset valuation allowance against our net deferred tax
assets.
Capital Markets Group Results
Table 22 summarizes the financial results of our Capital Markets group for 2010 under the current segment
reporting presentation and for 2009 and 2008 under the prior segment reporting presentation. Following the
table we discuss the Capital Markets group’s financial results and describe the Capital Markets group’s
mortgage portfolio. For a discussion on the debt issued by the Capital Markets group to fund its investment
activities, see “Liquidity and Capital Management.” For a discussion on the derivative instruments that Capital
Markets uses to manage interest rate risk, see “Consolidated Balance Sheet Analysis—Derivative Instruments,”
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