Fannie Mae 2005 Annual Report Download - page 272

The following table displays the key assumptions used in measuring the fair value of our retained interests
related to portfolio securitization transactions as of December 31, 2005 and 2004 and a sensitivity analysis
showing the impact of changes in both prepayment speed assumptions and discount rates.
Fannie Mae
Single-class
MBS & Fannie
Mae Megas
REMICs &
SMBS
Guaranty
Assets
As of December 31, 2005
Retained interest valuation at period end:
Fair value (dollars in millions) . . . . . . . . . . . . . . . . . . . . . . . $ 8,545 $ 22,909 $ 375
Weighted-average life
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 years 5.4 years 6.9 years
Prepayment speed assumptions:
Average 12-month CPR prepayment speed assumption
(2)
. . . . . 7.6% 6.7% 9.6%
Impact on value from a 10% adverse change. . . . . . . . . . . . . . $ (11) $ (5) $ (14)
Impact on value from a 20% adverse change. . . . . . . . . . . . . . $ (24) $ (10) $ (28)
Discount rate assumptions:
Average discount rate assumption
(3)
. . . . . . . . . . . . . . . . . . . . 5.41% 5.23% 9.18%
Impact on value from a 10% adverse change. . . . . . . . . . . . . . $ (262) $ (517) $ (13)
Impact on value from a 20% adverse change. . . . . . . . . . . . . . $ (509) $ (1,012) $ (26)
As of December 31, 2004
Retained interest valuation at period end:
Fair value (dollars in millions) . . . . . . . . . . . . . . . . . . . . . . . $ 5,215 $ 5,853 $ 182
Weighted-average life
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 years 4.5 years 7.3 years
Prepayment speed assumptions:
Average 12-month CPR prepayment speed assumption
(2)
. . . . . 27% 48% 12%
Impact on value from a 10% adverse change. . . . . . . . . . . . . . $ (6) $ (15) $ (7)
Impact on value from a 20% adverse change. . . . . . . . . . . . . . $ (13) $ (28) $ (14)
Discount rate assumptions:
Average discount rate assumption
(3)
. . . . . . . . . . . . . . . . . . . . 4.75% 4.64% 8.5%
Impact on value from a 10% adverse change. . . . . . . . . . . . . . $ (121) $ (92) $ (6)
Impact on value from a 20% adverse change. . . . . . . . . . . . . . $ (236) $ (181) $ (12)
(1)
The average number of years for which each dollar of unpaid principal on a loan or mortgage-related security remains
outstanding.
(2)
Represents the expected lifetime average payment rate, which is based on the constant annualized prepayment rate for
mortgage-related loans.
(3)
The interest rate used in determining the present value of future cash flows.
The preceding sensitivity analysis is hypothetical and may not be indicative of actual results. The effect of a
variation in a particular assumption on the fair value of the retained interest is calculated independent of
changes in any other assumption. Changes in one factor may result in changes in another, which might
magnify or counteract the sensitivities. Further, changes in fair value based on a 10% or 20% variation in an
assumption or parameter generally cannot be extrapolated because the relationship of the change in the
assumption to the change in fair value may not be linear.
The gain or loss on portfolio securitizations that qualify as sales depends, in part, on the carrying amount of
the financial assets sold. The carrying amount of the financial assets sold is allocated between the assets sold
and the retained interests, if any, based on their relative fair values at the date of sale. Further, our recourse
obligations are recognized at their full fair value at the date of sale, which serves as a reduction of sale
F-43
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)