Fannie Mae 2010 Annual Report Download - page 192

reflects the estimated pre-tax impact calculated based on the estimated financial position of our net portfolio
and the market environment as of the last business day of the quarter; and (3) the monthly disclosure shows
the most adverse pre-tax impact on the market value of our net portfolio from the hypothetical interest rate
shocks, while the quarterly disclosure includes the estimated pre-tax impact of both up and down interest rate
shocks.
In addition, Table 53 also provides the average, minimum, maximum and standard deviation for duration gap
and for the most adverse market value impact on the net portfolio for non-parallel and parallel interest rate
shocks for the three months ended December 31, 2010.
Table 53: Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve
(1)
2010 2009
As of December 31,
(Dollars in billions)
Rate level shock:
-100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.8) $(0.1)
-50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) 0.1
+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) (0.4)
+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.5) (0.9)
Rate slope shock:
-25 basis points (flattening). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) (0.2)
+25 basis points (steepening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.1
Duration
Gap
Rate Slope Shock
25 Bps
Rate Level Shock
50 Bps
For the Three Months Ended December 31, 2010
(In months)
Exposure
(Dollars in billions)
Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 $0.1 $0.3
Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) — —
Maximum................................... 0.9 0.1 0.4
Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 — 0.1
(1)
Computed based on changes in LIBOR swap rates.
A majority of the interest rate risk associated with our mortgage-related securities and loans is hedged with
our debt issuance, which includes callable debt. We use derivatives to help manage the residual interest rate
risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest-rate risk
exposure at consistently low levels in a wide range of interest-rate environments. Table 54 shows an example
of how derivatives impacted the net market value exposure for a 50 basis point parallel interest rate shock.
Table 54: Derivative Impact on Interest Rate Risk (50 Basis Points)
Before
Derivatives
After
Derivatives
Effect of
Derivatives
(Dollars in billions)
As of December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.9) $(0.2) $0.7
As of December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2.1) $(0.4) $1.7
Other Interest Rate Risk Information
The interest rate risk measures discussed above exclude the impact of changes in the fair value of our net
guaranty assets resulting from changes in interest rates. We exclude our guaranty business from these
sensitivity measures based on our current assumption that the guaranty fee income generated from future
business activity will largely replace guaranty fee income lost due to mortgage prepayments.
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