Fannie Mae 2005 Annual Report Download - page 260

2. Consolidations
We have interests in various entities that are considered to be VIEs, as defined by FIN 46R. These interests
include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our
securitization transactions, mortgage- and asset-backed trusts that were not created by us, limited partnership
interests in LIHTC partnerships that are established to finance the construction or development of low-income
affordable multifamily housing and other limited partnerships. These interests may also include our guaranty
to the entity.
Types of VIEs
Securitization Trusts
Under our lender swap and portfolio securitization transactions, mortgage loans are transferred to a trust
specifically for the purpose of issuing a single class of guaranteed securities that are collateralized by the
underlying mortgage loans. The trust’s permitted activities include receiving the transferred assets, issuing
beneficial interests, establishing the guaranty, and servicing the underlying mortgage loans. In our capacity as
issuer, master servicer, trustee and guarantor, we earn fees for our obligations to each trust. Additionally, we
may retain or purchase a portion of the securities issued by each trust. However, the substantial majority of
outstanding Fannie Mae MBS is held by third parties and therefore is generally not reflected in the
consolidated balance sheets. We have securitized mortgage loans since 1981. Refer to “Note 6, Portfolio
Securitizations” for additional information regarding the securitizations for which we are the transferor.
In our structured securitization transactions, we earn transaction fees for assisting lenders and dealers with the
design and issuance of structured mortgage-related securities. The trusts created pursuant to these transactions
have permitted activities that are similar to those for our lender swap and portfolio securitization transactions.
The assets of these trusts may include mortgage-related securities and/or mortgage loans as collateral. The
trusts created for Fannie Mega securities issue single-class securities while the trusts created for REMIC,
grantor trust and SMBS securities issue single-class as well as multi-class securities, the latter of which
separate the cash flows from underlying assets into separately tradable interests. Our obligations and continued
involvement in these trusts are similar to that described for lender swap and portfolio securitization
transactions. We have securitized mortgage assets in structured transactions since 1986.
We also invest in highly rated mortgage-backed and asset-backed securities that have been issued via private-
label trusts. These trusts are structured to provide the investor with a beneficial interest in a pool of receivables
or other financial assets, typically mortgage loans, credit card receivables, auto loans or student loans. The
trusts act as vehicles to allow loan originators to securitize assets. The originators of the financial assets or the
underwriters of the transaction create the trusts and typically own the residual interest in the trusts’ assets. Our
involvement in these entities is typically limited to our recorded investment in the beneficial interests that we
have purchased. Securities are structured from the underlying pool of assets to provide for varying degrees of
risk. We have made investments in these vehicles since 1987.
Limited Partnerships
We make equity investments in various limited partnerships that sponsor affordable housing projects utilizing
the low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these
investments is to increase the supply of affordable housing in the United States and to serve communities in
need. In addition, our investments in LIHTC partnerships generate both tax credits and net operating losses
that reduce our federal income tax liability. Our LIHTC investments primarily represent limited partnership
interests in entities that have been organized by a fund manager who acts as the general partner. These fund
investments seek out equity investments in LIHTC operating partnerships that have been established to
identify, develop and operate multifamily housing that is leased to qualifying residential tenants.
F-31
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)