Fannie Mae 2004 Annual Report Download - page 333

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. The primary source of profits (losses) for the
Single-Family Credit Guaranty segment is the difference between the guaranty fees earned and the costs of
providing this service, including credit-related losses.
Housing and Community Development. Our HCD segment helps to expand the supply of affordable and
market-rate rental housing in the United States primarily by: (i) 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; and (ii) 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
segment 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. While the Multifamily Credit Guaranty
business is similar to our Single-Family Credit Guaranty business, neither the economic return nor the nature
of the credit risk are similar to those of Single-Family Credit Guaranty.
Capital Markets. Our Capital Markets segment 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. We fund mortgage loan and mortgage-related securities purchases by issuing debt in the
global capital markets. The Capital Markets segment also has responsibility for managing our interest rate risk.
The Capital Markets segment 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.
Our segment financials include directly attributable revenues and expenses and estimations of apportioned
overhead. We allocate capital to our segments using OFHEO minimum capital requirements for each segment
adjusted for over- or under-capitalization. The Single-Family Credit Guaranty and HCD segments charge the
Capital Markets segment a guaranty fee for managing the credit risk on most mortgage assets held by the
Capital Markets segment. All inter-segment revenue and expense items are eliminated and, therefore,
reconciling adjustments to the consolidated results are not required.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)