Fannie Mae 2006 Annual Report Download - page 297

Participants are 100% vested in their ESOP accounts either upon attainment of age 65 or five years of service.
Employees who are at least 55 years of age, and have at least 10 years of participation in the ESOP, may
qualify to diversify vested ESOP shares by rolling over all or a portion of the value of their ESOP account
into investment funds available under the Retirement Savings Plan without losing the tax-deferred status of the
value of the ESOP.
Participants are immediately vested in all dividends paid on the shares of Fannie Mae common stock allocated
to their account. Unless employees elect to receive the dividend in cash, ESOP dividends are automatically
reinvested in Fannie Mae common stock within the ESOP. If the employee does elect to receive the dividend
in cash, the dividends are accrued upon declaration and are distributed in February for the four previous
quarters pursuant to the employee’s election. Shares held but not allocated to participants who forfeited their
shares prior to vesting are used to reduce our future contributions. ESOP shares are a component of our basic
weighted-average shares outstanding for purposes of our EPS calculations, except unallocated shares which are
not treated as outstanding until they are committed to be released for allocation to employee accounts. All
cash contributions are held in a trust managed by the plan trustee and are invested in Fannie Mae common
stock.
The following table displays the ESOP activity for the years ended December 31, 2006 and 2005.
2006 2005
For the Year Ended
December 31,
Common shares allocated to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760,570 1,637,477
Common shares committed to be released to employees . . . . . . . . . . . . . . . . . . . . . . . 199,923 182,074
Unallocated common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029 763
15. Segment Reporting
Our three reportable segments are: Single-Family, HCD and Capital Markets. We use these three segments to
generate revenue and manage business risk, and each segment is based on the type of business activities it
performs. These activities are discussed below.
Description of Business Segments
Single-Family. Our Single-Family segment works with our lender customers to securitize single-family
mortgage loans into Fannie Mae MBS and to facilitate the purchase of single-family mortgage loans for our
mortgage portfolio. Our Single-Family segment has responsibility for managing our credit risk exposure
relating to the single-family Fannie Mae MBS held by third parties (such as lenders, depositories and global
investors), as well as the single-family mortgage loans and single-family Fannie Mae MBS held in our
mortgage portfolio. Our Single-Family segment also has responsibility for pricing the credit risk of the single-
family mortgage loans we purchase for our mortgage portfolio. Revenues in the segment are derived primarily
from (i) the guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage
loans underlying single-family Fannie Mae MBS and on the single-family mortgage loans held in our portfolio
and (ii) interest income earned on cash flows from the date of remittance by servicers until the date of
distribution to MBS certificate holders, commonly referred to as float income. The primary source of profit for
the Single-Family segment is the difference between the guaranty fees earned and the costs of providing this
service, including credit-related losses.
Housing and Community Development. Our HCD segment helps to expand the supply of affordable and
market-rate rental housing in the United States primarily by: (i) working with our lender customers to
securitize multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily
mortgage loans for our mortgage portfolio; and (ii) making investments in rental and for-sale housing projects,
including investments in rental housing that qualify for federal low-income housing tax credits. Our HCD
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)