Fannie Mae 2004 Annual Report Download - page 11

We operate in the secondary mortgage market where mortgages are bought and sold. We securitize mortgage
loans originated by lenders in the primary market into Fannie Mae MBS, which can then be readily bought
and sold in the secondary mortgage market. We also participate in the secondary mortgage market by
purchasing mortgage loans (often referred to as “whole loans”) and mortgage-related securities, including
Fannie Mae MBS, for our mortgage portfolio. By delivering loans to us in exchange for Fannie Mae MBS,
lenders gain the advantage of holding a highly liquid instrument and the flexibility to determine under what
conditions they will hold or sell the MBS. By selling loans to us, lenders replenish their funds and,
consequently, are able to make additional loans. Pursuant to our charter, we do not lend money directly to
consumers in the primary mortgage market.
BUSINESS SEGMENTS
We operate an integrated business that contributes to providing liquidity to the mortgage market and increasing
the availability and affordability of housing in the United States. We are organized in three complementary
business segments:
• Our Single-Family Credit Guaranty business (“Single-Family”) works with our lender customers to
securitize single-family mortgage loans into Fannie Mae MBS and to facilitate the purchase of single-
family mortgage loans for our mortgage portfolio. Our Single-Family business has responsibility for
managing our credit risk exposure relating to the single-family Fannie Mae MBS held by third parties
(such as lenders, depositories and global investors), as well as the single-family mortgage loans and
single-family Fannie Mae MBS held in our mortgage portfolio. Our Single-Family business also has
responsibility for pricing the credit risk of the single-family mortgage loans we purchase for our mortgage
portfolio. Revenues in the segment are derived primarily from the guaranty fees the segment receives as
compensation for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae
MBS and on the single-family mortgage loans held in our portfolio.
• Our Housing and Community Development business (“HCD”) helps to expand the supply of affordable
and market-rate rental housing in the United States by working with our lender customers to securitize
multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily mortgage
loans for our mortgage portfolio. Our HCD business also helps to expand the supply of affordable housing
by making investments in rental and for-sale housing projects, including investments in rental housing that
qualify for federal low-income housing tax credits. Our HCD business has responsibility for managing our
credit risk exposure relating to the multifamily Fannie Mae MBS held by third parties, as well as the
multifamily mortgage loans and multifamily Fannie Mae MBS held in our mortgage portfolio. Revenues
in the segment are derived from a variety of sources, including the guaranty fees the segment receives as
compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae
MBS and on the multifamily mortgage loans held in our portfolio, transaction fees associated with the
multifamily business and bond credit enhancement fees. In addition, HCD’s investments in housing
projects eligible for the low-income housing tax credit and other investments generate both tax credits and
net operating losses that reduce our federal income tax liability.
• Our Capital Markets group manages our investment activity in mortgage loans and mortgage-related
securities, and has responsibility for managing our assets and liabilities and our liquidity and capital
positions. Through the issuance of debt securities in the capital markets, our Capital Markets group
attracts capital from investors globally to finance housing in the United States. In addition, our Capital
Markets group increases the liquidity of the mortgage market by maintaining a constant, reliable presence
as an active investor in mortgage assets. Our Capital Markets group has responsibility for managing our
interest rate risk. Our Capital Markets group generates income primarily from the difference, or spread,
between the yield on the mortgage assets we own and the cost of the debt we issue in the global capital
markets to fund these assets.
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