Fannie Mae 2010 Annual Report Download - page 93

The decrease in fee and other income in 2009 as compared with 2008 was primarily attributable to lower trust
management income due to a significant decline in short-term interest rates.
Investment Gains (Losses), Net
Investment gains and losses, net consist of: gains and losses recognized on the securitization of loans and
securities from our portfolio; gains and losses recognized from the sale of available-for-sale securities; gains
and losses on the consolidation and deconsolidation of securities; lower of cost or fair value adjustments on
held-for-sale loans; and other investment gains and losses. Investment gains and losses may fluctuate
significantly from period to period depending upon our portfolio investment and securitization activities.
Investment gains declined in 2010 compared with 2009 due to a decline in gains from securitizations and in
gains from sales of available-for-sale securities as a result of adopting the new accounting standards. Under
these standards, our portfolio securitization transactions that reflect transfers of assets to consolidated trusts no
longer qualify for sale treatment, which reduced our portfolio securitization gains and losses. We no longer
record gains and losses on the sale from our portfolio of the substantial majority of available-for-sale Fannie
Mae MBS because these securities were eliminated in consolidation. The decline in investment gains in 2010
was partially offset by a decrease in lower of cost or fair value adjustments on held-for-sale loans due to the
reclassification of most of our held-for-sale loans to held for investment upon adoption of the new accounting
standards.
The shift to gains in 2009 compared with losses in 2008 was primarily attributable to increased securitization
gains due to MBS issuances and sales related to whole loan conduit activity and increased gains on
available-for-sale securities due to tightening of investment spreads on agency MBS, which led to higher sale
prices. These gains were partially offset by an increase in lower of cost or fair value adjustments on loans
primarily driven by a decline in the credit quality of these loans and an increase in interest rates.
Net Other-Than-Temporary Impairment
The net other-than-temporary impairment charges recorded in 2010 were primarily driven by a net decline in
forecasted home prices for certain geographic regions, which resulted in a decrease in the present value of our
cash flow projections on Alt-A and subprime securities. Net other-than-temporary impairment decreased in
2010 compared with 2009 due to slower deterioration of the estimated credit component of the fair value
losses of these securities. In addition, net other-than-temporary impairment decreased in 2010 compared with
2009 because, effective beginning in the second quarter of 2009, we recognize only the credit portion of
other-than-temporary impairment in our consolidated statements of operations due to the adoption of a new
other-than-temporary impairment accounting standard. The net other-than-temporary impairment charge
recorded prior to April 1, 2009 included both the credit and non-credit components of the loss in fair value.
Approximately 57% of the impairment recorded in 2009 was recorded in the first quarter of 2009 prior to the
change in accounting standards. See “Note 6, Investments in Securities” for additional information regarding
the net other-than-temporary impairment recognized in 2010. The increase in net other-than-temporary
impairment in 2009 compared with 2008 was principally related to an increase in the expected losses on our
private-label securities.
Fair Value Losses, Net
Table 9 presents the components of fair value gains and losses.
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