Fannie Mae 2002 Annual Report Download - page 81

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79
FANNIE MAE 2002 ANNUAL REPORT
We generally stop accruing interest on multifamily loans that
we own when principal and interest on these loans is 90 days
past due and collection of principal and interest is doubtful.
Table 42 summarizes the amount of nonaccrual multifamily
loans at December 31, 1998 through December 31, 2002. In
addition, it identifies the amount of interest income that we
would have recorded during those periods if nonperforming
loans had performed according to contractual terms during
the year, the amount of interest income accrued on those
loans during the portion of the year when they were
performing, and the amount of any interest income
accrued on loans past 90 days due.
TABLE 42: NONPERFORMING MULTIFAMILY LOANS
Dollars in millions 2002 2001 2000 1999 1998
Nonaccrual loans at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14 $22 $— $4 $29
Interest income forgone1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1——— 2
Interest income recognized during year2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —1———
Accruing loans past due 90 days and greater at December 313
. . . . . . . . . . . . . . . . . . . . . . 10 53911
1Forgone interest income represents the amount of interest income that would have been recorded during the year on nonperforming loans at December 31 had the loans performed according to contractual terms.
2Represents estimated interest income recognized during the year on loans classified as nonperforming at December 31.
3Principal balance of loans at December 31 that are 90 days or greater past due and continuing to accrue interest because we believe collection of principal and interest is reasonably assured.
Equity Financing for Multifamily Properties
We also provide equity financing for multifamily properties.
Equity financing typically takes the form of limited
partnership investments in affordable housing projects that
produce low-income housing tax credits. The tax benefits
we receive from these properties represents our primary
economic return on our equity investments.
Because our equity financings have the same property-
related credit risks as other multifamily financings, we track
property condition and financial performance throughout
the life of these investments. We also evaluate the strength
of our investment sponsors and third party asset managers
through periodic financial and operational assessments.
Approximately 33 percent of our equity investments in
low-income housing tax credit properties have an economic
return guaranteed by an investment-grade counterparty.
Internal Revenue Service requirements govern the
recognition of tax credits. These requirements include
maintaining the properties with a specified level of affordable
housing units over a 15-year period. Failure to meet IRS
requirements can trigger a recapture of tax credits from the
IRS. For the years ended December 31, 2002, 2001, and
2000, the amounts of tax credit recapture were not significant.
Institutional Counterparty Credit Risk
A secondary credit risk is the possibility that institutional
counterparties may be unable to fulfill their contractual
obligations to us. For example, our credit losses would
increase if a credit enhancement counterparty were unable to
reimburse us in the event of loss on a covered mortgage loan.
Accepting a certain level of counterparty risk is integral to
our interest rate and credit risk management and liquidity
objectives.
We have a dedicated Counterparty Risk Management
team that quantifies aggregate counterparty risk exposures
across business activities, maintains a corporate credit
policy framework for managing counterparty risk, and
manages the counterparty risk associated with mortgage
insurance companies.