Fannie Mae 2005 Annual Report Download - page 91

• Changes in the estimated fair value of our derivatives that result in a loss are recorded as an increase to
the derivative liability or as a decrease to the derivative asset recorded in the consolidated balance sheets.
The corresponding offsetting amount is recorded as a component of derivatives fair value losses in the
consolidated statements of income.
• Changes in the estimated fair value of our derivatives that result in a gain are recorded as a decrease to
the derivative liability or as an increase to the derivative asset recorded in the consolidated balance sheets.
The corresponding offsetting amount is recorded as a component of derivatives fair value gains in the
consolidated statements of income.
The upfront premiums we pay to enter into option contracts primarily relate to swaption agreements, which
give us the right to enter into a specific swap for a defined period of time at a specified rate. We can exercise
the option up to the designated date. Table 9 below provides information on our option activity during 2005
and the amount of outstanding options as of December 31, 2005 based on the original premiums paid.
Table 9: Purchased Options Premiums
(1)
Original
Premium
Payments
Original
Weighted
Average Life
to Expiration
Remaining
Weighted
Average Life
(Dollars in millions)
Outstanding options as of December 31, 2004 . . . . . . . . . . . . . . . . . $13,230 5.6 years 4.0 years
Purchases
(2)
....................................... 853
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,027)
Expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,398)
Outstanding options as of December 31, 2005 . . . . . . . . . . . . . . . . . $11,658 6.5 years 4.3 years
(1)
As of December 31, 2003, the estimated amount of outstanding options based on the original premiums paid, the origi-
nal weighted average life to expiration and the remaining weighted average life were $12.5 billion, 4.8 years and 3.7
years, respectively. As of December 31, 2002, the estimated amount of outstanding options based on the original pre-
miums paid, the original weighted average life to expiration and the remaining weighted average life were $9.4 billion,
3.3 years and 2.8 years, respectively.
(2)
Amount of purchases is included in Table 8 as a component of the line item “Fair value at inception of contracts
entered into during the period.” Purchases for 2004 and 2003 are included in Footnote 3 of Table 8.
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