Fannie Mae 2005 Annual Report Download - page 253

securities sold under agreements to repurchase and therefore, we did not pledge any securities. As of
December 31, 2005 and 2004, we pledged $686 million and $242 million, respectively, of cash equivalents.
The fair value of non-cash collateral accepted that we were permitted to sell or repledge was $2.2 billion and
$3.5 billion as of December 31, 2005 and 2004, respectively, of which none was sold or repledged. The fair
value of collateral accepted that we were not permitted to sell or repledge was $246 million and $393 million
as of December 31, 2005 and 2004, respectively.
Our liability to third-party holders of Fannie Mae MBS that arises as the result of a consolidation of a
securitization trust is fully collateralized by underlying loans and/or mortgage-related securities.
When securities sold under agreements to repurchase meet all of the conditions of a secured financing, the
collateral of the transferred securities are reported at the amounts at which the securities will be reacquired
including accrued interest.
Debt
Our outstanding debt is classified as either short-term or long-term based on the initial contractual maturity.
Deferred items, including premiums, discounts and other cost basis adjustments are reported as basis
adjustments to “Short-term debt” or “Long-term debt” in the consolidated balance sheets. The carrying
amount, accrued interest and basis adjustments of debt denominated in a foreign currency are re-measured into
U.S. dollars using foreign exchange spot rates at the balance sheet date and any associated gains or losses are
reported in “Fee and other income” in the consolidated statements of income. Foreign currency gains and
losses included in “Fee and other income” for the years ended December 31, 2005, 2004 and 2003, were gains
of $625 million and losses of $304 million and $707 million, respectively.
The classification of interest expense as either short-term or long-term is based on the contractual maturity of
the related debt. Premiums, discounts and other cost basis adjustments are amortized and reported through
interest expense using the effective interest method over the contractual term of the debt. Amortization of
premiums, discounts and other cost basis adjustments begins at the time of debt issuance. Interest expense for
debt denominated in a foreign currency is re-measured into U.S. dollars using the monthly weighted average
spot rate since the interest expense is incurred over the reporting period. The difference in rates arising from
the month-end spot exchange rate used to calculate the interest accruals and the weighted-average exchange
rate used to record the interest expense is a foreign currency transaction gain or loss for the period and is
included as either “Short-term interest expense” or “Long-term interest expense” in the consolidated statements
of income.
Fees Received on the Structuring of Transactions
We offer certain re-securitization services to customers in exchange for fees. Such services include, but are not
limited to, the issuance, guarantee and administration of Fannie Mae REMIC, stripped mortgage-backed
securities (“SMBS”), grantor trust, and Fannie Mae Mega»securities (collectively, the “Structured Securities”).
We receive a one-time conversion fee upon issuance of a Structured Security that varies based on the value of
securities issued and the transaction structure. The conversion fee compensates us for all services we provide
in connection with the Structured Security, including services provided at and prior to security issuance and
over the life of the Structured Securities. Except for Structured Securities where the underlying collateral is
whole loans or private-label securities, we generally do not receive a guaranty fee as compensation in
connection with the issuance of a Structured Security because the transferred mortgage-related securities have
previously been guaranteed by us or another party.
We defer a portion of the fee received upon issuance of a Structured Security based on our estimate of the fair
value of our future administration services in accordance with EITF No. 00-21, Revenue Arrangements with
Multiple Deliverables. The deferred revenue is amortized on a straight-line basis over the expected life of the
Structured Security. The excess of the total fee over the fair value of the future services is recognized in the
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)