Fannie Mae 2004 Annual Report Download - page 301

FIN 48 is effective for consolidated financial statements beginning in the first quarter of 2007. The cumulative
effect of applying the provisions of FIN 48 upon adoption will be reported as an adjustment to beginning
retained earnings. We are evaluating the impact of its adoption on the consolidated financial statements.
SFAS 157, Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (“SFAS 157”). SFAS 157
provides enhanced guidance for using fair value to measure assets and liabilities and requires companies to
provide expanded information about assets and liabilities measured at fair value, including the effect of fair
value measurements on earnings. This statement applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances.
Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants in the market in which the reporting entity
transacts. This statement clarifies the principle that fair value should be based on the assumptions market
participants would use when pricing the asset or liability. In support of this principle, this standard establishes
a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value
hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable
data (for example, a company’s own data). Under this statement, fair value measurements would be separately
disclosed by level within the fair value hierarchy.
SFAS 157 is effective for consolidated financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. We intend to adopt SFAS 157 effective January 1, 2008
and are evaluating the impact of its adoption on the consolidated financial statements.
SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS 158”).
SFAS 158 requires the recognition of a plan’s over-funded or under-funded status as an asset or liability and
an adjustment to AOCI. Additionally, it requires determination of benefit obligations and the fair values of a
plan’s assets at a company’s year-end and recognition of actuarial gains and losses, and prior service costs and
credits, as a component of AOCI. For employers with publicly traded securities, SFAS 158 is effective as of
the end of the fiscal year ending after December 15, 2006. We intend to adopt SFAS 158 effective
December 31, 2006 and are evaluating the impact of its adoption on the consolidated financial statements.
3. Consolidations
We have interests in various entities that are considered to be VIEs, as defined by FIN 46R. These interests
include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our
securitization transactions, mortgage- and asset-backed trusts that were not created by us, limited partnership
interests in LIHTC partnerships that are established to finance the construction or development of low-income
affordable multifamily housing and other limited partnerships. These interests may also include our guaranty
to the entity.
Types of VIEs
Securitization Trusts
Under our lender swap and portfolio securitization transactions, mortgage loans are transferred to a trust
specifically for the purpose of issuing a single class of guaranteed securities that are collateralized by the
underlying mortgage loans. The trust’s permitted activities include the receipt of the transferred assets,
issuance of beneficial interests, establishment of the guaranty, and the servicing of mortgage loans. In our
capacity as issuer, master servicer, trustee and guarantor, we earn fees for our obligations to each trust.
Additionally, we may retain or purchase a portion of the securities that have been issued by each trust.
However, the substantial majority of Fannie Mae MBS is held by third parties and therefore is generally not
reflected in the consolidated balance sheets. We have securitized mortgage loans since 1981. Refer to “Note 7,
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)