Fannie Mae 2004 Annual Report Download - page 119

Table 19 provides additional detail on the estimated fair value of derivatives recorded in our consolidated
balance sheets and the related outstanding notional amount by derivative instrument type as of December 31,
2004 and 2003. We describe our risk management derivative activity in “Risk Management—Interest Rate
Risk Management and Other Market Risks.” We describe our credit exposure on our risk management
derivatives in “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk
Management.”
Table 19: Notional and Fair Value of Derivatives
Notional
Amount
Estimated
Fair
Value
(1)
Notional
Amount
Estimated
Fair
Value
(1)
2004 2003
As of December 31,
(Restated)
(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $142,017 $(6,687) $ 364,377 $(12,197)
Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,193 479 201,229 3,393
Basis swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,273 7 32,303 (8)
Foreign currency swaps . . . . . . . . . . . . . . . . . . . . . . . 11,453 686 5,195 335
Swaptions:
Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,705 3,370 163,980 5,693
Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,570 7,711 141,195 8,468
Interest rate caps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,150 638 130,350 607
Other
(2)
.................................... 733 84 379 98
690,094 6,288 1,039,008 6,389
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (856) — (2,401)
Total risk management derivatives . . . . . . . . . . . . . . . . . . . $690,094 $ 5,432 $1,039,008 $ 3,988
Mortgage commitment derivatives:
Mortgage commitments to purchase whole loans . . . . . . . $ 2,118 $ 4 $ 2,709 $ 10
Forward contracts to purchase mortgage-related
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,059 43 19,882 142
Forward contracts to sell mortgage-related securities . . . . . 18,423 (35) 20,969 (147)
Total mortgage commitment derivatives . . . . . . . . . . . . . . . $ 40,600 $ 12 $ 43,560 $ 5
(1)
Represents the net amount of “Derivative assets at fair value” and “Derivative liabilities at fair value” in the
consolidated balance sheets.
(2)
Includes MBS options, swap credit enhancements, and the fair value of mortgage insurance contracts that are accounted
for as derivatives. These mortgage insurance contracts have payment provisions that are not based on a notional
amount.
As discussed above, because a significant portion of our derivatives consists of pay-fixed swaps, we expect the
aggregate estimated fair value of our derivatives to decline and result in derivative losses when long-term
interest rates decline because we are paying a higher fixed rate of interest relative to the current interest rate
environment. For the years ended December 31, 2004, 2003 and 2002, we recorded net periodic contractual
interest expense accruals on our interest rate swaps totaling $5.0 billion, $6.4 billion and $7.6 billion,
respectively, which are shown above in Table 17 and included in the derivatives fair value losses recognized in
the consolidated statements of income. Had we elected to fund our mortgage investments with long-term fixed-
rate debt instead of a combination of short-term variable-rate debt and interest rate swaps, the expense related
to our interest rate swap accruals would have been reflected as interest expense instead of as a component of
our derivatives fair value losses.
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