Fannie Mae 2004 Annual Report Download - page 344

AAA AA A Subtotal Other
(2)
Total
Credit Rating
(1)
As of December 31, 2003
(Restated)
(Dollars in millions)
Credit loss exposure
(3)
. . . . . . . . . . . . . . . . . . $ 18 $ 3,422 $ 3,515 $ 6,955 $103 $ 7,058
Collateral held
(4)
. . . . . . . . . . . . . . . . . . . . . . — 3,126 3,437 6,563 — 6,563
Exposure net of collateral . . . . . . . . . . . . . . . . $ 18 $ 296 $ 78 $ 392 $103 $ 495
Additional information:
Notional amount . . . . . . . . . . . . . . . . . . . . . . $1,829 $489,714 $547,086 $1,038,629 $379 $1,039,008
Number of counterparties . . . . . . . . . . . . . . . . 3 12 8 23
(1)
We manage collateral requirements based on the lower credit rating of the legal entity as issued by Standard & Poor’s
(“S&P”) and Moody’s. The credit rating reflects the equivalent S&P rating for any ratings based on Moody’s scale.
(2)
Includes MBS options, mortgage insurance contracts and swap credit enhancements accounted for as derivatives.
(3)
Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a
present value basis, to replace all outstanding contracts in a gain position. Derivative gains and losses with the same
counterparty are presented net where a legal right of offset exists under an enforceable master netting agreement. This
table excludes mortgage commitments accounted for as derivatives.
(4)
Represents the collateral held as of December 31, 2004 and 2003 adjusted for the collateral transferred subsequent to
December 31 based on credit loss exposure limits on derivative instruments as of December 31, 2004 and 2003. Settle-
ment dates vary by counterparty and range from one to three business days following the credit loss exposure valuation
dates of December 31, 2004 and 2003. The value of the collateral is reduced in accordance with counterparty agree-
ments to help ensure recovery of any loss through the disposition of the collateral. We posted non-cash collateral of
$56 million and $301 million related to our counterparties credit exposure to us as of December 31, 2004 and 2003,
respectively.
As of December 31, 2004, all of our interest rate and foreign currency derivative transactions, consisting of
$454 million net collateral exposure and $689.4 billion notional amount, were with counterparties rated A or
better by S&P and Moody’s. To reduce our credit risk concentrations, our interest rate and foreign currency
derivative instruments were diversified among 23 counterparties as of December 31, 2004. Of the $88 million
in other derivatives as of December 31, 2004, approximately 98% of the net exposure consisted of mortgage
insurance contracts, which were all with counterparties rated better than A by any of S&P, Moody’s or Fitch.
As of December 31, 2004, the largest net exposure to a single interest rate and foreign currency counterparty
was with a counterparty rated AA, that represented approximately $70 million, or 13%, of our total net
exposure of $542 million.
As of December 31, 2003, all of our interest rate and foreign currency derivative transactions, consisting of
$392 million of our net collateral exposure and $1.0 trillion notional amount, were with counterparties rated A
or better by S&P and Moody’s. To reduce our credit risk concentrations, our interest rate and foreign currency
derivative instruments were diversified among 23 counterparties as of December 31, 2003. Of the $103 million
in other derivatives as of December 31, 2003, over 99% of the net exposure consisted of mortgage insurance
contracts, which were all with counterparties rated better than A by any of S&P, Moody’s or Fitch. As of
December 31, 2003, the largest net exposure to a single interest rate and foreign currency counterparty was
with a counterparty rated AA, that represented approximately $102 million, or 21%, of our total net exposure
of $495 million.
Parties Associated with our Off-Balance Sheet Transactions. We enter into financial instrument transactions
that create off-balance sheet credit risk in the normal course of our business. These transactions are designed
to meet the financial needs of our customers, and manage our credit, market or liquidity risks.
We have entered into guaranties that are not recognized in the consolidated balance sheets. Our maximum
potential exposure under these guaranties is $444.5 billion and $683.9 billion as of December 31, 2004 and
F-93
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)