Fannie Mae 2005 Annual Report Download - page 238

unilateral ability to liquidate. We consolidated the SPE by carrying over our basis in the investment in the SPE
to the consolidated assets and liabilities of the SPE. No gain or loss was recorded in connection with the
consolidation of SPEs prior to the effective date of FIN 46R.
Investments in LIHTC partnerships were evaluated for consolidation, prior to the adoption of FIN 46R, in
accordance with Statement of Position (“SOP”) No. 78-9, Accounting for Investments in Real Estate Ventures
(“SOP 78-9”). We generally were not required to consolidate these partnerships because our limited
partnership interest did not provide us with voting rights or control of the partnership.
Portfolio Securitizations
Portfolio securitizations involve the transfer of mortgage loans or mortgage-related securities from the
consolidated balance sheets to a trust (an SPE) to create Fannie Mae MBS, real estate mortgage investment
conduits (“REMICs”) or other types of beneficial interests. We account for portfolio securitizations in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement
No. 125) (“SFAS 140”), which requires that we evaluate a transfer of financial assets to determine if the
transfer qualifies as a sale. Transfers of financial assets for which we surrender control and receive
compensation other than beneficial interests are recorded as sales. When a transfer that qualifies as a sale is
completed, we derecognize all assets transferred. The previous carrying amount of the transferred assets is
allocated between the assets sold and the retained interests, if any, in proportion to their relative fair values at
the date of transfer. A gain or loss is recorded as a component of “Investment losses, net” in the consolidated
statements of income, which represents the difference between the allocated carrying amount of the assets sold
and the proceeds from the sale, net of any liabilities incurred, which may include a recourse obligation for our
financial guaranty. Retained interests are primarily in the form of Fannie Mae MBS, REMIC certificates,
guaranty assets and master servicing assets (“MSAs”).
Our retained interests in the form of Fannie Mae MBS, REMICs, or other types of beneficial interests are
included in “Investments in securities” in the consolidated balance sheets and a description of our subsequent
accounting for these retained interests, as well as how we determine fair value, is included in the “Investments
in Securities” section of this note. Our retained interests related to our guaranty are included in “Guaranty
assets” in the consolidated balance sheets and a description of our subsequent accounting for these retained
interests, as well as how we determine fair value for the guaranty assets, is included in the “Guaranty
Accounting” section of this note. Our retained interests in the form of MSAs are included as a component of
“Other assets” in the consolidated balance sheets and a description of our subsequent accounting for these
retained interests, as well as how we determine fair value for MSAs, is included in the “Master Servicing”
section of this note. If a portfolio securitization does not meet the criteria for sale treatment, the transferred
assets remain on the consolidated balance sheets and we record a liability to the extent of any proceeds we
received in connection with such transfer.
Cash and Cash Equivalents and Statements of Cash Flows
Short-term highly liquid instruments with a maturity at date of acquisition of three months or less that are
readily convertible to cash are considered cash and cash equivalents. Cash and cash equivalents are carried at
cost, which approximates fair value. Additionally, we may pledge cash equivalent securities as collateral as
discussed below. We record items that are specifically purchased as part of the liquid investment portfolio as
“Investments in securities” in the consolidated balance sheets in accordance with SFAS No. 95, Statement of
Cash Flows (“SFAS 95”).
We classify short-term U.S. Treasury Bills as “Cash and cash equivalents” in the consolidated balance sheets.
The carrying value of these securities, which approximates fair value, was $795 million and $507 million as of
December 31, 2005 and 2004, respectively.
F-9
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)