Fannie Mae 2010 Annual Report Download - page 87

difference in the methodology used to estimate incurred losses for our allowances for loans losses and accrued
interest receivable versus our reserve for guaranty losses.
Upon adoption of the new accounting standards, we derecognized the substantial majority of the “Reserve for
guaranty losses” relating to loans in previously unconsolidated trusts that were consolidated in our consolidated
balance sheet. We continue to record a reserve for guaranty losses related to loans in unconsolidated trusts and to
loans that we have guaranteed under long-term standby commitments.
CONSOLIDATED RESULTS OF OPERATIONS
The section below provides a discussion of our consolidated results of operations for the periods indicated. You
should read this section together with our consolidated financial statements including the accompanying notes.
As discussed in “Business—Executive Summary,” on January 1, 2010 we prospectively adopted new
accounting standards, which had a significant impact on the presentation and comparability of our
consolidated financial statements. The new standards resulted in the consolidation of the substantial majority
of our single-class securitization trusts and the elimination of previously recorded deferred revenue from our
guaranty arrangements. While some line items in our consolidated statements of operations were not impacted,
others were impacted significantly, which reduces the comparability of our results for 2010 with the results for
prior years. The following table describes the impact to our 2010 results for those line items that were
impacted significantly as a result of our adoption of the new accounting standards.
Item Consolidation Impact
Net interest
income
• We now recognize the underlying assets and liabilities of the substantial majority of our MBS trusts
in our consolidated balance sheets, which increases both our interest-earning assets and interest-
bearing liabilities and related interest income and interest expense.
• Contractual guaranty fees and the amortization of deferred cash fees received after December 31,
2009 are recognized into interest income.
• We now include nonaccrual loans from the majority of our MBS trusts in our consolidated financial
statements, which decreases our net interest income as we do not recognize interest income on these
loans while we continue to recognize interest expense for amounts owed to MBS certificateholders.
• Trust management income and certain fee income from consolidated trusts are now recognized as
interest income.
Guaranty fee
income
• Upon adoption of the new accounting standards, we eliminated substantially all of our guaranty-
related assets and liabilities in our consolidated balance sheets. As a result, consolidated trusts’
deferred cash fees and non-cash fees through December 31, 2009 were recognized into our total
deficit through the transition adjustment effective January 1, 2010, and we no longer recognize
income or loss from amortizing these assets and liabilities nor do we recognize changes in their fair
value. As noted above, we now recognize both contractual guaranty fees and the amortization of
deferred cash fees received after December 31, 2009 through interest income, thereby reducing
guaranty fee income to only those amounts related to unconsolidated trusts and other credit
enhancement arrangements, such as our long-term standby commitments.
Credit-related
expenses
• As the majority of our trusts are consolidated, we no longer record fair value losses on credit-
impaired loans acquired from the substantial majority of our trusts.
• The substantial majority of our combined loss reserves are now recognized in our allowance for loan
losses to reflect the loss allowance against the consolidated mortgage loans. We use a different
methodology to estimate incurred losses for our allowance for loan losses as compared with our
reserve for guaranty losses, which reduces our credit-related expenses.
Investment
gains (losses),
net
• Our portfolio securitization transactions that reflect transfers of assets to consolidated trusts do not
qualify as sales, thereby reducing the amount we recognize as portfolio securitization gains and
losses.
• We no longer designate the substantial majority of our loans held for securitization as held-for-sale
because the substantial majority of related MBS trusts will be consolidated, thereby reducing lower
of cost or fair value adjustments.
• We no longer record gains or losses on the sale from our portfolio of the substantial majority of our
available-for-sale MBS because these securities were eliminated in consolidation.
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