Fannie Mae 2005 Annual Report Download - page 261

We also invest in other limited partnerships designed to acquire, develop and hold for sale or lease single-
family (includes townhomes and condominiums), multifamily, retail or commercial real estate, as well as, in
some cases, generate a combination of historic restoration, new markets or low-income housing tax credits.
We invest in these partnerships in order to increase the supply of affordable housing in the United States and
to serve communities in need. We also earn a return on these investments, which in certain cases is generated
through reductions in our federal income tax liability as a result of the use of tax credits for which the
partnerships qualify, as well as the deductibility of the partnerships’ net operating losses.
Additionally, we have five investments in limited partnerships relating to alternative energy sources. The
purpose of these investments is to facilitate the development of alternative domestic energy sources and to
achieve a satisfactory return on capital via a reduction in our federal income tax liability as a result of the use
of the tax credits for which the partnerships qualify, as well as the deductibility of the partnerships’ net
operating losses.
Other VIEs
The management and marketing of our foreclosed multifamily properties is performed by an independent third
party. To facilitate this arrangement, we transfer foreclosed properties to a VIE that is established by the
counterparty responsible for managing and marketing the properties. We are the primary beneficiary of the
entity. However, the only assets of the VIE are those foreclosed properties transferred by us. Because our
transfer of the foreclosed properties does not qualify as a sale, the foreclosed properties are recorded in
“Acquired property, net” in the consolidated balance sheets.
Consolidated VIEs
We consolidate in our financial statements Fannie Mae MBS trusts when we own 100% of the trust, which
gives us the unilateral ability to liquidate the trust. We also consolidate MBS trusts that do not meet the
definition of a QSPE when we are deemed to be the primary beneficiary. This includes certain private-label
and Fannie Mae securitization trusts that meet the VIE criteria. As an active participant in the secondary
mortgage market, our ownership percentage in any given mortgage-related security will vary over time. We
consolidated $113.1 billion and $147.8 billion of assets from MBS trusts in the consolidated balance sheets as
of December 31, 2005 and 2004, respectively. Third-party ownership in these consolidated MBS trusts was
$8.6 billion and $9.7 billion as of December 31, 2005 and 2004, respectively, and is recorded as a component
of either “Short-term debt” or “Long-term debt” in the consolidated balance sheets.
We consolidate in our financial statements the assets and liabilities of limited partnerships that are VIEs if we
are deemed to be the primary beneficiary. Accordingly, we have consolidated private-label funds and certain
investments in multi-investor funds that invest in LIHTC operating partnerships. As of December 31, 2005 and
2004, we consolidated $4.7 billion and $3.8 billion, respectively, of assets of limited partnerships recorded as
“Partnership investments,” “Cash and cash equivalents” and “Restricted cash” in the consolidated balance
sheets. Third-party ownership in these consolidated limited partnerships is recorded in “Minority interests in
consolidated subsidiaries” in the consolidated balance sheets.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)