Fannie Mae 2006 Annual Report Download - page 275

7. Acquired Property, Net
Acquired property, net includes foreclosed property received in full satisfaction of a loan net of a valuation
allowance for subsequent fair value declines. The following table displays the activity in acquired property and
the related valuation allowance for the years ended December 31, 2006, 2005 and 2004.
Acquired
Property
Valuation
Allowance
Acquired
Property, Net
(Dollars in millions)
Balance, January 1, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,367 $ (47) $ 1,320
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,035 (155) 2,880
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,624) 133 (2,491)
Write-downs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (5) (5)
Balance, December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,778 (74) 1,704
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,953 (118) 2,835
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,880) 117 (2,763)
Write-downs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (5) (5)
Balance, December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,851 (80) 1,771
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,255 (159) 3,096
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,849) 140 (2,709)
Write-down, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (17) (17)
Balance, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,257 $(116) $ 2,141
During 2005, we began providing some of our properties in the Gulf Coast region to families impacted by
Hurricane Katrina. As such, we reclassified these properties from held for sale to held for use. Upon vacancy,
such property is reclassified to held for sale. The following table displays the carrying amount of properties
held for use as of December 31, 2006 and 2005.
2006 2005
As of December 31,
(Dollars in millions)
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118 $ —
Transfers in from held for sale, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 163
Transfers to held for sale, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76) (39)
Depreciation and asset write-downs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (6)
Balance, December 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $224 $118
8. Financial Guaranties and Master Servicing
Financial Guaranties
We generate revenue by absorbing the credit risk of mortgage loans and mortgage-related securities backing
our Fannie Mae MBS in exchange for a guaranty fee. We primarily issue single-class and multi-class Fannie
Mae MBS and guarantee to the respective MBS trusts that we will supplement amounts received by the MBS
trust as required to permit timely payment of principal and interest on the related Fannie Mae MBS,
irrespective of the cash flows received from borrowers. We also provide credit enhancements on taxable or
tax-exempt mortgage revenue bonds issued by state and local governmental entities to finance multifamily
housing for low- and moderate-income families. Additionally, we issue long-term standby commitments that
require us to purchase loans from lenders if the loans meet certain delinquency criteria.
F-44
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)