Fannie Mae 2005 Annual Report Download - page 251

Instruments and Hedging Activities (“SFAS 133”), as amended and interpreted. Our commitments to purchase
multifamily loans are not derivatives under SFAS 133 because they do not provide for net settlement.
For those commitments that we account for as derivatives, we report them in the consolidated balance sheets
at fair value in “Derivative assets at fair value” or “Derivative liabilities at fair value” and include changes in
their fair value in “Derivatives fair value gains (losses), net” in the consolidated statements of income. When
these commitments settle, we include their fair value on the settlement date in the cost basis of the security or
loan that we purchase.
Regular-way securities trades provide for delivery of securities within the time generally established by
regulations or conventions in the market in which the trade occurs and are exempt from SFAS 133.
Commitments to purchase or sell To-Be-Announced (“TBA”) eligible Fannie Mae MBS that settle on the
earliest regularly-scheduled settlement date are regular-way securities trades; therefore, we did not account for
them as derivatives prior to July 1, 2003. Commitments to purchase securities that have not yet been issued,
such as REMICs, are regular-way securities trades if their settlement date is the date the securities are issued.
Each REMIC transaction is individually negotiated; therefore, the period between trade date and issuance date
is the shortest period possible for these commitments and they are regular-way securities trades. On July 1,
2003, SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities
(“SFAS 149”), amended the regular-way securities trade exception for commitments for securities that have
not yet been issued and TBA-eligible mortgage-related securities. That amendment required companies to
provide documentation that they expected commitments to physically settle. We did not provide such
documentation; therefore, beginning July 1, 2003, we account for all commitments for securities not yet issued
or TBA securities as derivatives unless such securities are recorded on the trade date.
Commitments to purchase securities that we do not account for as derivatives, such as those that qualified as
regular-way securities trades, are accounted for as forward contracts to purchase securities under the guidance
of EITF Issue No. 96-11, Accounting for Forward Contracts and Purchased Options to Acquire Securities
Covered by FASB Statement No. 115 (“EITF 96-11”). These commitments are designated as AFS or trading at
inception and accounted for in a manner consistent with SFAS 115 for that category of securities. For
commitments to sell mortgage-related securities in trading activities that we do not account for as derivatives,
we account for them at fair value and include them in “Other assets” or “Other liabilities” in the consolidated
balance sheets with unrealized gains and losses included in “Investment losses, net” in the consolidated
statements of income.
We apply trade date accounting to commitments to purchase or sell existing securities when these
commitments settle within the period of time that is customary in the market in which those trades take place.
The following table summarizes the accounting standards that apply to our mortgage loan and securities
commitments from January 1, 2003 through December 31, 2005.
Commitment Type
January 1, 2003
to June 30, 2003
July 1, 2003 to
December 31, 2005
MortgageLoans......................................... SFAS133 SFAS133
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SFAS 133 SFAS 133
EITF 96-11 SFAS 149
EITF 96-11
Derivative Instruments
We account for our derivatives pursuant to SFAS 133, as amended and interpreted, and recognize all
derivatives as either assets or liabilities in the consolidated balance sheets at their fair value on a trade date
basis. Derivatives in a gain position are reported in “Derivative assets at fair value” and derivatives in a loss
position are recorded in “Derivative liabilities at fair value” in the consolidated balance sheets. We do not
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)