Fannie Mae 2001 Annual Report Download - page 43

Table 15 summarizes the notional balances of Fannie Mae’s
derivatives for the years ended December 31, 2001 and 2000
by derivative category, along with the fair values of its
derivatives at year-end 2001.
{ 41 } Fannie Mae 2001 Annual Report
TABLE 15: DERIVATIVE ACTIVITY AND MATURITY DATA
Generic-Pay Fixed/Receive Variable Swaps2
Pay Variable/
Pay Receive Receive Fixed Basis Caps and
Dollars in millions Amount Rate3Rate3Swaps Swaps Swaptions Other4Total
Notional Amounts1
Notional balance on January 1, 2000 . . . . . . . . . $139,404 6.55% 6.03% $31,622 $19,544 $ 48,115 $12,219 $250,904
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,170 6.83 6.74 48,482 14,600 42,163 4,550 146,965
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,837 5.75 6.63 20,930 19,585 7,750 2,027 73,129
Notional balance on December 31, 2000 . . . . . . 153,737 6.74 6.79 59,174 14,559 82,528 14,742 324,740
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,787 5.39 3.95 33,230 46,150 168,350 100 338,617
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,844 6.41 4.20 53,335 13,655 30,935 1,449 130,218
Notional balance on December 31, 2001 . . . . . $213,680 6.21% 2.47% $39,069 $47,054 $219,943 $13,393 $533,139
Fair Value on December 31, 20015 . . . . . . . . . . . $ (9,792) $ 899 $ 1 $ 6,267 $ (1,490) $ (4,115)
Future Maturities of Notional Amounts6
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,545 5.54% 2.70% $16,118 $33,704 $ 45,600 $ 4,705 $126,672
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,730 5.07 2.46 7,389 13,050 43,643 458 90,270
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,470 6.02 2.37 2,755 150 8,200 1,200 31,775
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,675 6.52 2.44 1,225 — 4,900 594 22,394
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,975 6.21 2.31 3,635 100 4,750 — 30,460
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,285 6.66 2.47 7,947 50 112,850 6,436 231,568
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $213,680 6.21% 2.47% $39,069 $47,054 $219,943 $13,393 $533,139
1Dollars represent notional amounts that indicate only the amount on which payments are being calculated and do not represent the amount at risk of loss.
2Included in the notional amounts are callable swaps of $32 billion and $35 billion with weighted-average pay rates of 6.72 percent and 6.67 percent and weighted-average receive rates of 2.54 percent and 6.83 percent
at December 31, 2001 and December 31, 2000, respectively.
3The weighted-average interest rate payable and receivable is as of the date indicated. The interest rates of the swaps may be variable-rate, so these rates may change as prevailing interest rates change.
4Includes foreign currency swaps, futures contracts, and derivative instruments that provide a hedge against interest rate fluctuations.
5Based on fair value at December 31, 2001, estimated by calculating the cost, on a net present value basis, to settle at current market rates all outstanding derivative contracts.
6Based on stated maturities. Assumes that variable interest rates remain constant at December 31, 2001 levels.
Over 99 percent of the notional amount of Fannie Mae’s
outstanding derivative transactions were with counterparties
rated A or better by Standard & Poor’s at December 31, 2001
(one counterparty was downgraded below an A rating after
the contract was entered into). Fannie Mae’s derivative
instruments were diversified among 23 counterparties at
year-end 2001 to lower credit risk concentrations. At year-
end 2001, eight counterparties represented approximately
78 percent of the total notional amount of outstanding
derivatives transactions, and each had a credit rating of A
or better.
Fannie Mae’s primary credit exposure on a derivative
transaction is that a counterparty might default on payments
due, which could result in Fannie Mae having to replace the
derivative with a different counterparty at a higher cost.
The exposure to counterparty default after offsetting
arrangements, such as master netting agreements and the
value of related collateral, is thus the appropriate measure
of the actual credit risk of derivative contracts.
The risk of loss to Fannie Mae on its derivatives book is extremely low
for two primary reasons:
1) Fannie Mae’s counterparties are of very high credit quality.
2) Fannie Mae has a conservative collateral management policy with
provisions for requiring collateral on its derivative contracts
in gain positions.
Fannie Mae has never experienced a loss on a derivative
transaction due to credit default by a counterparty.
Fannie Mae’s credit risk on derivative transactions is
extremely low because Fannie Mae’s counterparties are of
very high credit quality. These counterparties consist of large
banks, broker-dealers, and other financial institutions that
have a significant presence in the derivatives market, most of
whom are based in the United States. Fannie Mae manages
derivative counterparty credit risk by contracting only with
experienced counterparties that have high credit ratings.
Fannie Mae initiates derivative contracts only with
counterparties rated A or higher. As an additional
precaution, Fannie Mae has a conservative collateral
management policy with provisions for requiring collateral
on its derivative contracts in gain positions.