Fannie Mae 2007 Annual Report Download

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2007
Annual Report
Serving
America’s
Housing Market

Table of contents

  • Page 1
    Serving America's Housing Market 2007 Annual Report

  • Page 2
    ... Highlights ...1 From our Chairman ...2 Letter to Shareholders ...3 Board of Directors ...11 Senior Management ...12 Form 10-K ...13 Shareholder Information ...Inside Back Cover Our job is to help those who house America FRONT COVER: MERCY JIMÉNEZ, SENIOR VICE PRESIDENT, BUSINESS STRATEGY

  • Page 3
    ... preferred stock; (c) paid-in-capital; and (d) retained earnings. Core capital excludes accumulated other comprehensive income (loss). 4 Unpaid principal balance of mortgage loans and mortgage-related securities held in our portfolio. 5 Unpaid principal balance of Fannie Mae MBS held by third-party...

  • Page 4
    ...10 percent - Fannie Mae grew our total mortgage credit book of business by 14 percent and our guaranty fee income by 19 percent. At the same time, in our Capital Markets business, the size of our mortgage portfolio held steady. In a sense, this current period has brought the company squarely back to...

  • Page 5
    ...adding well-priced, high-quality assets, with higher down payments, higher credit scores and more documentation from the borrowers. Therefore, going forward, I believe the long-term gain will outweigh the short-term pain, and the book we are building now will serve our business and shareholders well...

  • Page 6
    ... debt to manage the interest rate prepayment risk in our mortgage assets. As interest rates fell in the second half of the year, the derivatives we use to hedge against rate increases lost value. Other items in market-based valuation losses include "losses on certain guaranty contracts" and "losses...

  • Page 7
    ... in affordable housing. We receive a guaranty fee for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae mortgagebacked securities, while many of our investments in affordable housing projects generate tax benefits. In 2007, the multifamily guaranty book of business...

  • Page 8
    ... stock issuances in the second half of 2007 helped us fuel the growth of our guaranty business and helped us manage the drain on capital from rising credit-related expenses and derivatives losses. We completed our internal controls and regulatory remediation and issued current financial statements...

  • Page 9
    ... home prices are falling, we're requiring lower loan-to-value ratios so that new homeowners don't start their first year "upside down" - owing more than the house is worth. Better guidelines protect both us and the homeowner. Protect Working through a credit downturn begins and ends with "loss...

  • Page 10
    ... losses and pursue growth opportunities. We will allocate our capital available for business growth where it will yield the best results - for the market and for our shareholders. Our guaranty business is highly capital-efficient and offers attractive long-term risk-adjusted returns on that capital...

  • Page 11
    ... all of our businesses, particularly in our loan servicing and MBS investor reporting systems. A new, enhanced version of our ï¬,agship lender platform Desktop Underwriter® will be rolled out this year. And overlaying all of our technology and operations is an advanced risk management and controls...

  • Page 12
    ... working families, even those without perfect or traditional credit histories. The mortgage and housing industry's future, including Fannie Mae's future, will depend on giving people a fair chance at owning a home. If it is good for borrowers in the long term, it is good for Fannie Mae in the long...

  • Page 13
    Board of Directors Stephen B. Ashley Chairman of the Board Fannie Mae Chairman and Chief Executive Officer The Ashley Group A group of commercial and multifamily real estate companies Rochester, New York Daniel H. Mudd President and Chief Executive Officer Fannie Mae Washington, DC Dennis R. ...

  • Page 14
    ... Equity Zach Oppenheimer Senior Vice President Single-Family Mortgage Business - EBC Karen R. Pallotta Senior Vice President Product Acquisition Strategy and Support Michael A. Quinn Senior Vice President Single-Family Credit Risk Management William F. Quinn Senior Vice President Capital Markets...

  • Page 15
    2007 Form 10-K

  • Page 16

  • Page 17
    ...10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 Commission File No.: 0-50231 Federal National Mortgage Association (Exact name of registrant as specified in its charter) Fannie Mae Federally chartered corporation...

  • Page 18

  • Page 19
    ...-GAAP Information-Fair Value Balance Sheets ...100 Liquidity and Capital Management ...108 Off-Balance Sheet Arrangements and Variable Interest Entities ...116 Risk Management ...119 Impact of Future Adoption of New Accounting Pronouncements ...150 Glossary of Terms Used in This Report...151 Item 7A...

  • Page 20
    ... Officers and Corporate Governance ...160 Executive Compensation...160 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...160 Certain Relationships and Related Transactions, and Director Independence ...160 Principal Accountant Fees and Services...

  • Page 21
    ... Debt ...Outstanding Short-Term Borrowings ...Notional and Fair Value of Derivatives ...Changes in Risk Management Derivative Assets (Liabilities) at Fair Value, Net ...Purchased Options Premiums ...Non-GAAP Supplemental Consolidated Fair Value Balance Sheets ...Selected Market Information...

  • Page 22
    ... Single-Family Problem Loan Workouts ...Serious Delinquency Rates ...Nonperforming Single-Family and Multifamily Loans ...Single-Family and Multifamily Foreclosed Properties ...Mortgage Insurance Coverage ...Credit Loss Exposure of Risk Management Derivative Instruments ...Activity and Maturity Data...

  • Page 23
    ... of Operations ("MD&A")-Glossary of Terms Used in This Report." Item 1. Business OVERVIEW Fannie Mae's activities enhance the liquidity and stability of the mortgage market and contribute to making housing in the United States more affordable and more available to low-, moderate- and middle-income...

  • Page 24
    ... are based on February 2008 estimates from Fannie Mae's Economics & Mortgage Market Analysis Group. Certain previously reported data may have been changed to reflect revised historical data from any or all of these organizations. Fannie Mae calculates a House Price Index ("HPI") quarterly using data...

  • Page 25
    ... secondary mortgage market. For a description of the securitization process, refer to "Business Segments-Single-Family Credit Guaranty Business-Mortgage Securitizations" below. By delivering loans to us in exchange for Fannie Mae MBS, lenders gain the advantage of holding a highly liquid instrument...

  • Page 26
    ... Single-Family Credit Guaranty, Housing and Community Development, and Capital Markets. The table below displays net revenues, net income (loss) and total assets for each of our business segments for the years ended December 31, 2007, 2006 and 2005. Business Segment Summary Financial Information For...

  • Page 27
    ...." Mortgage lenders that operate in the primary mortgage market generally deliver pools of mortgage loans to us in exchange for Fannie Mae MBS backed by these loans. After receiving the loans in a lender swap transaction, we place them in a trust that is established for the sole purpose of holding...

  • Page 28
    ... to purchase a loan from an MBS trust, we consider a variety of factors. In general, these factors include: our loss mitigation strategies and the exposure to credit losses we face under our guaranty; our cost of funds; the effect that a purchase will have on our capital; relevant market yields; the...

  • Page 29
    ... of time, we may be limited in our ability to renegotiate the pricing on our flow transactions with individual lenders to reflect changes in market conditions and the credit risk of mortgage loans that meet our eligibility standards. These agreements permit us, however, to charge risk-based price...

  • Page 30
    ... federal income tax liability. Other investments in rental and for-sale housing generate revenue and losses from operations and the eventual sale of the assets. Mortgage Securitizations Our HCD business securitizes multifamily mortgage loans into Fannie Mae MBS. Multifamily mortgage loans relate to...

  • Page 31
    ...monthly payments. After we purchase the loan, we generally work with the borrower to modify the loan. Under our multifamily trust documents, we also are required to purchase loans from a multifamily MBS trust typically under the same conditions described under "Single-Family Credit Guaranty Business...

  • Page 32
    ... by product type, refer to "Part II-Item 7-MD&A-Consolidated Balance Sheet Analysis." Investment Activities Our Capital Markets group seeks to maximize long-term total returns while fulfilling our chartered liquidity function. Our Capital Markets group increases the liquidity of the mortgage market...

  • Page 33
    ... structured Fannie Mae MBS for customers in exchange for a transaction fee. Our Capital Markets group creates Fannie Mae MBS using mortgage loans and mortgage-related securities that we hold in our investment portfolio, referred to as "portfolio securitizations." We currently securitize a majority...

  • Page 34
    ... Mac, the Federal Home Loan Banks, the FHA, financial institutions, securities dealers, insurance companies, pension funds, investment funds and other investors. We compete to acquire mortgage assets in the secondary market both for our investment portfolio and for securitization into Fannie Mae MBS...

  • Page 35
    ...business." Loan Standards Mortgage loans we purchase or securitize must meet the following standards required by the Charter Act. • Principal Balance Limitations. Our charter permits us to purchase and securitize conventional mortgage loans secured by either a single-family or multifamily property...

  • Page 36
    ..., our directors and certain officers are required to file reports with the SEC relating to their ownership of Fannie Mae equity securities. The voluntary registration of our common stock under Section 12(g) of the Exchange Act does not affect the exempt status of the debt, equity and mortgage-backed...

  • Page 37
    ... low-income families, which is referred to as "special affordable housing." In addition, HUD has established three home purchase subgoals that are expressed as percentages of the total number of mortgages we purchase that finance the purchase of single-family, owner-occupied properties located in...

  • Page 38
    ...-income housing" and "special affordable housing" home purchase subgoals. We expect to submit our 2007 Annual Housing Activities Report to HUD in March 2008, and HUD will make the final determination regarding our housing goals performance for 2007. Declining market conditions and the increased...

  • Page 39
    ... recorded on our purchases of seriously delinquent loans from MBS trusts pursuant to Statement of Position No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. For purposes of this calculation, OFHEO's interpretation sets the July 2007 month-end portfolio balance at $725...

  • Page 40
    ... cover unspecified management and operations risks. Our total capital base is used to meet our risk-based capital requirement. Total capital is defined by statute as the sum of our core capital plus the total allowance for loan losses and reserve for guaranty losses in connection with Fannie Mae MBS...

  • Page 41
    ...-family mortgage loans issued by us and other agency issuers. Most of our single-class, single-family Fannie Mae MBS are sold by lenders in the TBA market. Accordingly, the inability of mortgage-related securities backed by jumbo conforming mortgages to trade in this market may limit the liquidity...

  • Page 42
    ...joining Fannie Mae, Mr. Dallavecchia was with JP Morgan Chase, where he served as Head of Market Risk for Retail Financial Services, Chief Investment Office and Asset Wealth Management from April 2005 to May 2006 and as Market Risk Officer for Global Treasury, Retail Financial Services, Credit Cards...

  • Page 43
    ... in KPMG's national office and as the Deputy Chief Accountant at the U.S. Securities and Exchange Commission. Beth A. Wilkinson, 45, has been Executive Vice President-General Counsel and Corporate Secretary since February 2006. Prior to joining Fannie Mae, Ms. Wilkinson was a partner and Co-Chair...

  • Page 44
    ...-exempt securities offering would be required to be filed with the SEC. The Web site address for disclosure about our debt securities is www.fanniemae.com/debtsearch. From this address, investors can access the offering circular and related supplements for debt securities offerings under Fannie Mae...

  • Page 45
    ... stock dividend; forgoing purchase and guaranty opportunities; and changing our current business practices to reduce our losses and expenses; • our belief that we would be able to issue preferred securities in the future if necessary; • our estimate of the effect of hypothetical declines in home...

  • Page 46
    ... primary risks to our business and how we seek to manage those risks. COMPANY RISKS Increased delinquencies and credit losses relating to the mortgage assets that we own or that back our guaranteed Fannie Mae MBS continue to adversely affect our earnings, financial condition and capital position. We...

  • Page 47
    ...Item 7-MD&A-Consolidated Balance Sheet Analysis-Investments in Alt-A and Subprime Mortgage-Related Securities" for more detailed information on our investments in private-label securities backed by subprime and Alt-A loans. The significant widening of credit spreads that has occurred since July 2007...

  • Page 48
    ..., Countrywide Financial Corporation and its affiliates, our largest single-family mortgage servicer, serviced 23% of our single-family mortgage credit book of business as of December 31, 2007. Also, seven mortgage insurance companies provided over 99% of our total mortgage insurance coverage of...

  • Page 49
    ..., liquidity, capital position and financial condition. We fund our operations primarily through the issuance of debt and invest our funds primarily in mortgagerelated assets that permit the mortgage borrowers to prepay the mortgages at any time. These business activities expose us to market risk...

  • Page 50
    ... short-term and long-term debt securities in the domestic and international capital markets is our primary source of funding for our purchases of assets for our mortgage portfolio and for repaying or refinancing our existing debt. Moreover, a primary source of our revenue is the net interest income...

  • Page 51
    ... regulate our operations and management in order to ensure our financial safety and soundness. For example, pursuant to our consent order with OFHEO, we currently may not increase our net mortgage portfolio assets above a specified amount that is adjusted on a quarterly basis, and we are required to...

  • Page 52
    ... financial condition. HUD has established housing goals and subgoals for our business. HUD's housing goals require that a specified portion of our mortgage purchases during each calendar year relate to the purchase or securitization of mortgage loans that finance housing for low- and moderate-income...

  • Page 53
    ... and capital position. As of December 31, 2007, we had approximately $13.0 billion in net deferred tax assets on our consolidated balance sheet that we must evaluate for realization on a quarterly basis under Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes...

  • Page 54
    ... of this type would likely have a material adverse effect on our earnings, financial condition and capital position. Refer to "Notes to Consolidated Financial Statements-Note 11, Income Taxes" for a description of our deferred tax assets. Our business faces significant operational risks and an...

  • Page 55
    ... financial condition. The continued deterioration of the U.S. housing market and national decline in home prices in 2007, along with the expected continued decline in 2008, are likely to result in increased delinquencies or defaults on the mortgage assets we own and that back our guaranteed Fannie...

  • Page 56
    ... the following: • fluctuations in the global debt and equity capital markets, including sudden and unexpected changes in short-term or long-term interest rates, could decrease the fair value of our mortgage assets, derivatives positions and other investments, negatively affect our ability to issue...

  • Page 57
    ... effect on our earnings, liquidity and financial condition. Securities Class Action Lawsuits In re Fannie Mae Securities Litigation Beginning on September 23, 2004, 13 separate complaints were filed by holders of our securities against us, as well as certain of our former officers, in three federal...

  • Page 58
    ...' fees, and other fees and costs. On January 7, 2008, the court issued an order that certified the action as a class action, and appointed the lead plaintiffs as class representatives and their counsel as lead counsel. The court defined the class as all purchasers of Fannie Mae common stock and...

  • Page 59
    ... on September 24, 2004, and that this new action should now be allowed to proceed. On December 18, 2007, Mr. Kellmer filed an amended complaint that narrowed the list of named defendants to certain of our current and former directors, Goldman Sachs Group, Inc. and us, as a nominal defendant. The...

  • Page 60
    ... class action complaints were filed by other plaintiffs on May 6, 2005 and May 10, 2005. These cases are based on the Employee Retirement Income Security Act of 1974 ("ERISA") and name us, our Board of Directors' Compensation Committee and certain of our former and current officers and directors...

  • Page 61
    ... to represent a class of multifamily borrowers whose mortgages are insured under Sections 221(d)(3), 236 and other sections of the National Housing Act and are held or serviced by us. The complaint identified as a proposed class low- and moderate-income apartment building developers who maintained...

  • Page 62
    ... Mae Stock Compensation Plan of 2003; 4. A shareholder proposal to require a shareholder advisory vote on executive compensation; and 5. A shareholder proposal to authorize cumulative voting for directors. The following individuals were elected as directors for a term expiring at the next annual...

  • Page 63
    ... proposal to require a shareholder advisory vote on executive compensation was not approved as follows: Votes FOR:...Votes AGAINST: Abstentions: ...Broker non-votes: ...229,905,051 . 449,980,640 . 44,997,811 . 109,009,795 A shareholder proposal to authorize cumulative voting for directors was not...

  • Page 64
    ... of our common stock, including holders of our restricted stock. Recent Sales of Unregistered Securities First Quarter 2007 Information about sales and issuances of our unregistered securities during the quarter ended March 31, 2007 was provided in a current report on Form 8-K filed with the SEC...

  • Page 65
    ... granted to persons who were employees or members of the Board of Directors of Fannie Mae. As reported in a current report on Form 8-K filed with the SEC on November 21, 2007, we issued 20 million shares of 7.625% Rate Non-Cumulative Preferred Stock, Series R, with an aggregate stated value of $500...

  • Page 66
    ... under our employee benefit plans, the number of shares that may be purchased under the General Repurchase Authority fluctuates from month to month. See "Notes to Consolidated Financial Statements-Note 13, Stock-Based Compensation Plans," for information about shares issued, shares expected to be...

  • Page 67
    ... amounts) Statement of Operations Data: Net interest income(1) ...$ 4,581 5,071 Guaranty fee income(2) ...Losses on certain guaranty contracts ...(1,424) Trust management income(1) ...588 Derivatives fair value losses, net ...(4,113) Other income (loss), net(2)(3) ...(1,533) Credit-related expenses...

  • Page 68
    ...) 2004 2003 Balance Sheet Data: Investments in securities: Trading ...Available-for-sale ...Mortgage loans: Loans held for sale ...Loans held for investment, net of allowance . Total assets ...Short-term debt ...Long-term debt ...Total liabilities ...Preferred stock ...Total stockholders' equity...

  • Page 69
    ... for more information regarding this change in presentation. In addition, we previously calculated our credit loss ratio based on credit losses as a percentage of our mortgage credit book of business, which includes non-Fannie Mae mortgage-related securities held in our mortgage investment portfolio...

  • Page 70
    ...continuing in 2008, with significant declines in new and existing home sales, housing starts, mortgage originations and home prices, as well as significant increases in inventories of unsold homes, mortgage delinquencies and foreclosures. During the second half of 2007, the capital markets also were...

  • Page 71
    ... account for these contracts, we recognize an immediate loss in earnings at the time we issue a guaranteed Fannie Mae MBS if our guaranty obligation exceeds the fair value of our guaranty asset. We expect to recover that loss over time as the loans underlying the associated Fannie Mae MBS liquidate...

  • Page 72
    ... securitization of mortgage loans. These actions had the following positive effects on our business in 2007: • our guaranty fee income increased by $821 million to $5.1 billion during 2007, and we expect it will continue to increase during 2008; • both our single-family and multifamily guaranty...

  • Page 73
    ... of Financial Instruments • Other-than-temporary Impairment of Investment Securities • Allowance for Loan Losses and Reserve for Guaranty Losses We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing...

  • Page 74
    ... value (not to exceed the cost basis of these loans) recognized in earnings. • Retained interests in securitizations and guaranty fee buy-ups on Fannie Mae MBS: Recorded in the consolidated balance sheets at fair value. Unrealized gains and losses on interest-only securities and buy-ups accounted...

  • Page 75
    ...detail on the estimated fair value and the related outstanding notional amount of our derivatives by derivative instrument type in "Consolidated Balance Sheet Analysis-Derivative Instruments." Table 2: Derivative Assets and Liabilities at Estimated Fair Value As of December 31, 2007 2006 (Dollars in...

  • Page 76
    ... Rate Risk." Fair Value of Guaranty Assets and Guaranty Obligations-Effect on Losses on Certain Guaranty Contracts When we issue Fannie Mae MBS, we record in our consolidated balance sheets a guaranty asset that represents the present value of cash flows expected to be received as compensation over...

  • Page 77
    ... future credit performance. When there is a market expectation of a decline in home prices, which currently exists, the level of perceived credit risk for a mortgage loan tends to increase because the market anticipates a likelihood of higher credit losses. Accordingly, the market requires a higher...

  • Page 78
    ... 03-3 fair value losses, credit-related expenses and credit losses related to loans underlying our guaranty contracts are recorded in our consolidated financial statements. This example shows the accounting and effect on our financial statements of the following events: (a) we purchase a seriously...

  • Page 79
    ... related to initial purchase discount on SOP 03-3 loans ...Plus: Recoveries ...Reserve for guaranty losses-ending balance(1) ...Consolidated Statement of Operations: Provision for credit losses attributable to SOP 03-3 fair value losses...Foreclosed property income (expense) ...Net pre-tax income...

  • Page 80
    .... We maintain a reserve for guaranty losses for loans that back Fannie Mae MBS we guarantee and loans that we have guaranteed under long-term standby commitments. We report the allowance for loan losses and reserve for guaranty losses as separate line items in the consolidated balance sheets. These...

  • Page 81
    ...requires judgment by management about the effect of matters that are inherently uncertain. The key estimates and assumptions that affect our loan loss reserves include: loss severity trends; historical default experience; expected proceeds from credit enhancements, such as primary mortgage insurance...

  • Page 82
    ...instruments. Based on the current composition of our derivatives, we generally expect to report decreases in the aggregate fair value of our derivatives as interest rates decrease. Our business generates revenues from four principal sources: net interest income, guaranty fee income, trust management...

  • Page 83
    ... of the year and at the end of each month in the year for mortgage loans, advances to lenders, and short- and long-term debt. Average balances for 2007 for all other categories have been calculated based on a daily average. Average balances for 2006 were calculated based on the average of the...

  • Page 84
    ... income: Mortgage loans(2) ...Mortgage securities ...Non-mortgage securities ...Federal funds sold and securities purchased under agreements to resell ...Advances to lenders ...Total interest income ...Interest expense: Short-term debt ...Long-term debt ...Federal funds purchased and securities sold...

  • Page 85
    ...of guaranty fee income over the expected life of the underlying assets of the related MBS trusts. We record buy-up payments we make to lenders as an asset and reduce the recorded asset as cash flows are received over the expected life of the underlying assets of the related MBS trusts. We assess buy...

  • Page 86
    which increases our guaranty fee income. Prepayment rates also affect the estimated fair value of buy-ups. Faster than expected prepayment rates shorten the average expected life of the underlying assets of the related MBS trusts, which reduces the value of our buy-up assets and may trigger the ...

  • Page 87
    ... 2007, the targeted guaranty pricing increases and the adverse market delivery charge of 25 basis points for all loans delivered to us, which is effective March 1, 2008. Trust Management Income Trust management income consists of the fees we earn as master servicer, issuer and trustee for Fannie Mae...

  • Page 88
    ...losses related to some of our lender flow transaction contracts because we had established our base guaranty fee pricing for a specified time period and could not increase our prices to reflect the increased market risk. To address this in part, we have expanded our use of standard riskbased pricing...

  • Page 89
    ... we expect our guaranty fees to exceed our incurred credit losses. Investment Losses, Net Investment losses, net includes other-than-temporary impairment on AFS securities, lower-of-cost-or-market adjustments on HFS loans, gains and losses recognized on the securitization of loans or securities from...

  • Page 90
    ... the recognition of the $15.4 billion of securities on our consolidated balance sheets, we also were required to record at fair value a related guaranty asset and guaranty obligation, which resulted in a loss. The $651 million decrease in investment losses, net in 2006 from 2005 was attributable to...

  • Page 91
    ... Total derivatives fair value losses, net ...$ (4,113) Risk management derivatives fair value gains (losses) attributable to: Net contractual interest income (expense) accruals on interest rate swaps ...$ 261 Net change in fair value of terminated derivative contracts from end of prior year to date...

  • Page 92
    ... reported declines in fair value as swap interest rates decreased and increases in fair value as swap interest rates increased. As part of our economic hedging strategy, these derivatives, in combination with our debt issuances, are intended to offset changes in the fair value of our mortgage assets...

  • Page 93
    ... information on our use of derivatives to manage interest rate risk, including changes in our derivatives activity and the outstanding notional amounts, and the effect on our consolidated financial statements in "Consolidated Balance Sheet Analysis-Derivative Instruments" and "Risk Management...

  • Page 94
    .... Table 11: Credit-Related Expenses For the Year Ended December 31, 2007 2006 2005 (Dollars in millions) Provision attributable to guaranty book of business ...Provision attributable to SOP 03-3 fair value losses ...Total provision for credit losses ...Foreclosed property expense (income) ...Credit...

  • Page 95
    ... Guaranty Book of Business Our loss reserves provide for probable credit losses inherent in our guaranty book of business as of each balance sheet date. As discussed in "Critical Accounting Policies and Estimates-Allowance for Loan Losses and Reserve for Guaranty Losses," we build our loss reserves...

  • Page 96
    ...of loss reserves: Balance at end of each period attributable to: Single-family ...Multifamily ...Total ...Loss reserve ratios: Percent of combined allowance and reserve for guaranty losses in each category to related guaranty book of business:(5) Single-family ...Multifamily ...Total ...(1) $ 3,391...

  • Page 97
    ... in the housing market, including weak economic conditions in the Midwest and home price declines on a national basis, particularly in Florida, California, Nevada and Arizona, has resulted in a significant increase in serious delinquency rates and contributed to higher default rates and loan loss...

  • Page 98
    ...(1) Allowance for Loan Market Losses Discount (Dollars in millions) Net Investment Balance as of December 31, 2005 ...Purchases of delinquent loans ...Provision for credit losses ...Principal repayments ...Modifications and troubled debt restructurings . Foreclosures, transferred to REO ...Balance...

  • Page 99
    ...modified but are returned to accrual status because they are less than 90 days delinquent; (5) loans for which the default is resolved through long-term forbearance; and (6) loans for which the default is resolved through a repayment plan. We do not extend the maturity date, change the interest rate...

  • Page 100
    ...and, based on current market conditions, is not expected to materially affect the "Reserve for guaranty losses." We continue to purchase delinquent loans from MBS trusts primarily to modify these loans as part of our strategy to mitigate credit losses and in circumstances in which we are required to...

  • Page 101
    ...excludes these securities. We previously calculated our credit loss ratio based on our mortgage credit book of business, which includes non-Fannie Mae mortgage-related securities that we hold in our mortgage portfolio but do not guarantee. We have revised prior years to conform to the current period...

  • Page 102
    ... loss severities and default rates and contributed to an increase in charge-offs. Credit Loss Sensitivity We use internally developed models to assess our sensitivity to credit losses based on current data on home values, borrower payment patterns, non-mortgage consumer credit history and management...

  • Page 103
    ...credit losses and forgone interest. Calculations are based on approximately 97% and 98% of our single-family guaranty book of business as of December 31, 2007 and 2006, respectively. The mortgage loans and mortgage-related securities that are included in these estimates consist of: (i) single-family...

  • Page 104
    ..., our ability to use tax credits in any given year may be limited by the corporate alternative minimum tax rules, which ensure that corporations pay at least a minimum amount of federal income tax annually. Because of the net loss we recorded in 2007, there is an increased risk that we may not...

  • Page 105
    ...-Family Business Results Variance For the Year Ended December 31, 2007 vs. 2006 2006 vs. 2005 2007 2006 2005 $ % $ % (Dollars in millions) Income statement data: Guaranty fee income ...Trust management income(1) ...Other income(2) ...Losses on certain guaranty contracts Credit-related expenses...

  • Page 106
    ... from these investments. Table 20: HCD Business Results Variance For the Year Ended December 31, 2007 vs. 2006 2006 vs. 2005 2007 2006 2005 $ % $ % (Dollars in millions) Income statement data: Guaranty fee income(1) ...Other income(1)(2) ...Losses on partnership investments. Credit-related expenses...

  • Page 107
    ... the second half of 2007. The growth in the multifamily guaranty book of business was attributable to an increase in multifamily loan acquisitions by our Capital Markets group. • An increase in losses on partnership investments related to our for-sale housing partnership investments due to the...

  • Page 108
    ... taxes ...Extraordinary gains (losses), net of tax effect ... Net income (loss) ...$(1,349) (1) (180)% $(1,544) Includes debt extinguishment gains (losses), guaranty fee expense, administrative expenses and other expenses. Key factors affecting the results of our Capital Markets group for 2007...

  • Page 109
    ...reflected a increase of $2.5 billion, or 6%, from December 31, 2006. The major asset components of our balance sheet include our mortgage-related assets and non-mortgage investments. We fund and manage the interest rate risk on these investments through the issuance of debt securities and the use of...

  • Page 110
    ... on managing the size of our balance sheet to achieve our capital plan objectives. We also experienced a considerable decline in the level of portfolio sales and liquidations for 2006 relative to 2005. Table 23 shows the composition of our mortgage portfolio by product type and the carrying value...

  • Page 111
    ... of cost or market adjustments on loans held for sale ...Allowance for loan losses for loans held for investment . . Total mortgage loans, net ...Mortgage-related securities: Fannie Mae single-class MBS ...Fannie Mae structured MBS ...Non-Fannie Mae single-class mortgage securities. Non-Fannie Mae...

  • Page 112
    ... Plan," we also purchase liquid investments. Our liquid assets consist of cash and cash equivalents, funding agreements with our lenders, including advances to lenders and repurchase agreements, and non-mortgage investments. Our liquid assets, net of cash equivalents pledged as collateral, totaled...

  • Page 113
    ... mortgage-backed securities, are reported based on contractual maturities assuming no prepayments. The contractual maturity of asset-backed securities generally is not a reliable indicator of the expected life because borrowers typically have the right to repay these obligations at any time. Yields...

  • Page 114
    ... Alt-A or subprime mortgage-related securities that we guarantee ("wraps"), which are reported as a component of Fannie Mae structured securities. To date, we generally have focused our purchases of private-label mortgage-related securities backed by subprime or Alt-A loans on the highest-rated...

  • Page 115
    Table 26: Investments in Alt-A and Subprime Mortgage-Related Securities As of December 31, 2007 Weighted Gross Average Unrealized Gross Credit AOCI Trading Losses(1) Losses(2) Enhancement(3) (Dollars in millions) Credit Rating(4) % AA % AAA or below Unpaid Principal Balance Estimated Fair Value ...

  • Page 116
    ... us, which in general does not include current borrower information necessary for a final determination of eligibility, we estimate that, as of December 31, 2007, loans with an unpaid principal balance of $803 million that back private-label mortgage-related securities we hold or Fannie Mae wraps of...

  • Page 117
    ... and intraday loans. Short-term debt consists of borrowings with an original contractual maturity of one year or less. Includes Federal funds purchased and securities sold under agreements to repurchase. Represents the face amount at issuance or redemption. Long-term debt consists of borrowings with...

  • Page 118
    ...Outstanding Rate(1) 2007 Average During the Year Weighted Average Interest Rate(1) Outstanding(2) (Dollars in millions) Maximum Outstanding(3) Federal funds purchased and securities sold under agreements to repurchase ...Fixed-rate short-term debt: Discount notes ...Foreign exchange discount notes...

  • Page 119
    ... month-end outstanding balance during the year. Derivative Instruments While we use debt instruments as the primary means to fund our mortgage investments and manage our interest rate risk exposure, we supplement our issuance of debt with interest rate-related derivatives to manage the prepayment...

  • Page 120
    ... balance sheets. Includes MBS options, swap credit enhancements and mortgage insurance contracts that are accounted for as derivatives. These mortgage insurance contracts have payment provisions that are not based on a notional amount. Table 31 provides an analysis of changes in the estimated...

  • Page 121
    ... amount of "Derivative assets at fair value" and "Derivative liabilities at fair value" recorded in our consolidated balance sheets, excluding mortgage commitments. Cash payments made to purchase derivative option contracts (purchased options premiums) increase the derivative asset recorded in the...

  • Page 122
    ...of purchases is included in Table 31 as a component of the line item "Fair value at inception of contracts entered into during the period." SUPPLEMENTAL NON-GAAP INFORMATION-FAIR VALUE BALANCE SHEETS Because our assets and liabilities consist predominately of financial instruments, we routinely use...

  • Page 123
    ... expected long-term fundamentals of our business. In addition, as discussed in "Critical Accounting Policies and Estimates-Fair Value of Financial Instruments," when quoted market prices or observable market data are not available, we rely on internally developed models that may require management...

  • Page 124
    ...,936 Total financial assets ...Master servicing assets and credit enhancements ...Other assets ...Liabilities: Federal funds purchased and securities sold under agreements to repurchase Short-term debt...Long-term debt ...Derivative liabilities at fair value ...Guaranty obligations ... Total assets...

  • Page 125
    ... of total mortgage loans in Note 19 of the Consolidated Financial Statements. In our GAAP consolidated balance sheets, we report the guaranty assets associated with our outstanding Fannie Mae MBS and other guaranties as a separate line item and include buy-ups, master servicing assets and credit...

  • Page 126
    ... limits. However, we do not actively manage certain other market risks. Specifically, we do not attempt to actively manage or hedge changes in mortgage-to-debt OAS after we purchase mortgage assets or the interest rate risk related to our guaranty business. • Mortgage-to-debt OAS. Funding mortgage...

  • Page 127
    ... in "Notes to Consolidated Financial Statements-Note 19, Fair Value of Financial Instruments," we calculate the estimated fair value of our existing guaranty business based on the difference between the estimated fair value of the guaranty fees we expect to receive and the estimated fair value of...

  • Page 128
    ... the fair value of our net guaranty assets related to changes in interest rates because we expect that the guaranty fee income generated from future business activity will largely replace any guaranty fee income lost as a result of mortgage prepayments. Table 34: Selected Market Information(1) As of...

  • Page 129
    ... guaranty assets, reflecting the significant increase in the market's required return to assume mortgage-related credit risk due to the decline in home prices and the mortgage and credit market disruption, and a decrease in the fair value of the net portfolio of our capital markets business, largely...

  • Page 130
    ... and long-term debt as of December 31, 2007 and 2006, refer to "Consolidated Balance Sheet Analysis-Debt Instruments." We require regular access to the debt capital markets because we rely primarily on the issuance of debt securities to fund our operations. Our sources of liquidity have historically...

  • Page 131
    ... Cash." We expect that, over the long term, our funding needs and sources of liquidity will remain relatively consistent with current needs and sources. We may increase our issuance of debt in future years if we decide to increase our purchase of mortgage assets. As described in "Capital Management...

  • Page 132
    ...our access to the unsecured debt funding market becomes impaired, our primary source of liquidity is the sale or pledge of mortgage assets in our unencumbered mortgage portfolio. Our unencumbered mortgage portfolio consists of unencumbered mortgage loans and mortgage-related securities that could be...

  • Page 133
    ... off-balance sheet commitments for debt financing activities. Excludes risk management derivative transactions that may require cash settlement in future periods and our obligations to stand ready to perform under our guaranties relating to Fannie Mae MBS and other financial guaranties, because...

  • Page 134
    ... debt. These cash flows were largely offset by net cash flows used in investing activities of $65.6 billion, attributable to significant increases in advances to lenders and federal funds sold and securities purchased under agreements to resell. Year Ended December 31, 2006. Our cash and cash...

  • Page 135
    ... preferred stock; (c) our paid-in capital; and (d) our retained earnings. Core capital excludes accumulated other comprehensive income (loss). Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties...

  • Page 136
    ... balance of outstanding Fannie Mae MBS held by third parties and (c) up to 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO under certain circumstances. The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses...

  • Page 137
    ... each quarter of 2006 and 2007, our current common stock dividend rate and the restrictions on our payment of common stock dividends, see "Item 5-Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities." Preferred Stock During 2007, we redeemed an...

  • Page 138
    ...outstanding Fannie Mae MBS held by third parties times 0.45% and (2) total on-balance sheet assets times 4%, which we refer to as our "subordinated debt requirement." We also agreed to take reasonable steps to maintain sufficient outstanding subordinated debt to promote liquidity and reliable market...

  • Page 139
    ... balance sheets a reserve for guaranty losses based on an estimate of our incurred credit losses on all of our guaranties. While our guaranties relating to Fannie Mae MBS represent the substantial majority of our guaranty activity, we also provide other financial guaranties. Our HCD business...

  • Page 140
    ... to "Business Segment Results." For information regarding the mortgage loans underlying both our on- and off-balance sheet Fannie Mae MBS, as well as whole mortgage loans that we own, refer to "Risk Management-Credit Risk Management-Mortgage Credit Risk Management." LIHTC Partnership Interests In...

  • Page 141
    ... place to better manage our risks and comply with legal and regulatory requirements. Senior managers of each business unit are responsible and accountable for identifying, measuring and managing key risks within their business consistent with corporate policies. Management-level credit, market, 119

  • Page 142
    ... credit risk on loans in our single-family mortgage credit book of business include the borrower's financial strength and credit profile; the type of mortgage; the value and characteristics of the property securing the mortgage; and economic conditions, such as changes in employment and home prices...

  • Page 143
    ... Project Lifeline program is aligned with our current servicing policies, which allow servicers to temporarily suspend foreclosure proceedings in two week increments, up to a total of six weeks, while working with borrowers to initiate a loss mitigation plan. Mortgage Credit Book of Business Table...

  • Page 144
    ... and securities, and credit enhancements that we provide on single-family mortgage assets. Our Capital Markets group prices and manages credit risk related to this specific portion of our conventional single-family mortgage credit book of business. We may not have access to detailed loan-level data...

  • Page 145
    ... Balance Sheet Analysis-Available-For-Sale and Trading Securities-Investments in Alt-A and Subprime Mortgage-Related Securities'' for a discussion of credit rating actions subsequent to December 31, 2007. The amounts reported above reflect our total multifamily mortgage credit book of business...

  • Page 146
    ...Our charter requires that conventional single-family mortgage loans that we purchase or that back Fannie Mae MBS with LTV ratios above 80% at acquisition be covered by one or more of the following: (i) insurance or a guaranty by a qualified insurer; (ii) a seller's agreement to repurchase or replace...

  • Page 147
    ... forms of credit enhancement on our single-family loans. Multifamily We use various types of credit enhancement arrangements for our multifamily loans, including lender risk sharing, lender repurchase agreements, pool insurance, subordinated participations in mortgage loans or structured pools, cash...

  • Page 148
    ...-family business volumes, based on the key risk characteristics above, for 2007, 2006 and 2005 and our conventional single-family mortgage credit book of business as of the end of each respective year. Table 41: Risk Characteristics of Conventional Single-Family Business Volume and Mortgage Credit...

  • Page 149
    ... less than 0.5% of our single-family mortgage credit book of business as of December 31, 2007, 2006 and 2005. Percentages calculated based on unpaid principal balance of loans at time of acquisition. Percentages calculated based on unpaid principal balance of loans as of the end of each period. 127

  • Page 150
    ...-to-market LTV ratio is based on the estimated current value of the property, calculated using an internal valuation model that estimates periodic changes in home value, and the unpaid principal balance of the loan as of the date of each reported period. Excludes loans for which this information is...

  • Page 151
    ... in 2007 from 2006. In order to manage our credit risk in the shifting market environment, we lowered maximum allowable LTV ratios and increased minimum allowable credit scores for most Alt-A loan categories. We also limited our acquisition of some documentation types and made other types ineligible...

  • Page 152
    ... Balance Sheet Analysis-Available-forSale and Trading Securities-Investments in Alt-A and Subprime Mortgage-Related Securities" for more information regarding these investments. Housing and Community Development Diversification within our multifamily mortgage credit book of business and equity...

  • Page 153
    ... guarantee provided that the borrower is able to resume regular monthly payments on his or her mortgage; • forbearances in which the lender agrees to suspend or reduce borrower payments for a period of time; • preforeclosure sales in which the borrower, working with the servicer, sells the home...

  • Page 154
    .... Home price appreciation decreases the risk of default because a borrower with enough equity in a home generally can sell the home or draw on equity in the home to avoid foreclosure. The presence of credit enhancements mitigates credit losses caused by defaults. We classify single-family loans as...

  • Page 155
    ......Non-credit enhanced ...Total conventional single-family loans ...Multifamily loans: Credit enhanced ...Non-credit enhanced ...Total multifamily loans ...(1) (2) Reported based on unpaid principal balance of loans, where we have detailed loan-level information. Calculated based on number of loans...

  • Page 156
    ... against the seller of the loan in the event of a default. Foreclosure and REO Activity Foreclosure and REO activity affect the level of credit losses. Table 45 below provides information, by region, on our foreclosure activity for the years ended December 31, 2007, 2006 and 2005. Regional REO...

  • Page 157
    ... are reported in our consolidated balance sheets as a component of "Acquired property, net." Estimated based on the total number of properties acquired through foreclosure as a percentage of the total number of loans in our conventional single-family mortgage credit book of business as of the end of...

  • Page 158
    ... servicers that service the loans we hold in our investment portfolio or that back our Fannie Mae MBS; • third-party providers of credit enhancement on the mortgage assets that we hold in our investment portfolio or that back our Fannie Mae MBS, including mortgage insurers, lenders with risk...

  • Page 159
    ... by the servicer on our behalf. Third-Party Providers of Credit Enhancement We use several types of credit enhancement to manage our mortgage credit risk, including primary and pool mortgage insurance, risk sharing agreements with lenders, and financial guaranty contracts. Our maximum potential loss...

  • Page 160
    ...fair value of our mortgage-related securities, which could have a material adverse effect on our earnings, liquidity, financial condition and capital position. Mortgage Insurers We had mortgage insurance coverage on single-family mortgage loans in our portfolio or backing our Fannie Mae MBS totaling...

  • Page 161
    ... earnings, financial condition and capital position. We believe the mortgage insurer ratings downgrades that have occurred to date have not materially affected the fair value of the mortgage securities we hold in our mortgage portfolio or the mortgage assets underlying our guaranteed Fannie Mae MBS...

  • Page 162
    ... and capital position. Issuers of Securities in our Liquid Investment Portfolio Our liquid investment portfolio consists of cash and cash equivalents, funding agreements with our lenders, including advances to lenders and repurchase agreements, asset-backed securities, corporate debt securities...

  • Page 163
    ... insurance contracts, guaranteed guarantor trust swaps and swap credit enhancements accounted for as derivatives. We did not have guaranteed guarantor trust swaps in 2006. Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a fair value...

  • Page 164
    ... management policy with provisions for requiring collateral on interest rate and foreign currency derivative contracts in net gain positions based upon the counterparty's credit rating. The collateral includes cash, U.S. Treasury securities, agency debt and agency mortgage-related securities...

  • Page 165
    ... investing in mortgage-related assets with prepayment options and from the changing supply and demand for mortgage assets. The majority of our mortgage investments are intermediate-term or long-term fixed-rate loans that borrowers have the option to pay at any time before the scheduled maturity date...

  • Page 166
    ... of cash flows between assets and liabilities in order to manage the duration risk associated with an investment in long-term fixed-rate assets. Callable debt helps us manage the prepayment risk associated with fixed-rate mortgage assets because the duration of callable debt changes when interest...

  • Page 167
    ..., fixed-term debt into shorter-duration, floating-rate debt or by terminating existing pay-fixed interest rate swaps. This use of derivatives helps increase our funding flexibility while helping us maintain our interest rate risk within policy limits. The types of derivative instruments we use most...

  • Page 168
    ..., forward starting debt and swap credit enhancements. Includes matured, called, exercised, assigned and terminated amounts. Also includes changes due to foreign exchange rate movements. Based on contractual maturities. The outstanding notional balance of our risk management derivatives increased by...

  • Page 169
    ... measures daily and report the monthly measures based on the daily average for the month. We estimate that the adverse impact on the fair value of our net portfolio to a 50 basis point shift in the level of interest rates and a 25 basis point change in the slope of the yield curve for December 2007...

  • Page 170
    ...line item "Advances to lenders" reported in our consolidated balance sheets. In addition, certain amounts have been reclassified from securities to "Guaranty assets and guaranty obligations, net" to reflect how the risk of these securities is managed by the business. Calculated based on the reported...

  • Page 171
    ... line item "Advances to lenders" reported in our consolidated balance sheets. In addition, certain amounts have been reclassified from securities to "Guaranty assets and guaranty obligations, net" to reflect how the risk of these securities is managed by the business. Includes net financial assets...

  • Page 172
    ... key operational risks, such as mortgage fraud, breaches in information security and external disruptions to business continuity. These risks are not unique to us and are inherent in the financial services industry. Liquidity Risk Management Liquidity risk is the risk to our earnings and capital...

  • Page 173
    ... "new business acquisitions" refers to the sum in any given period of the unpaid principal balance of: (1) the mortgage loans and mortgage-related securities we purchase for our investment portfolio; and (2) the mortgage loans we securitize into Fannie Mae MBS that are acquired by third parties. It...

  • Page 174
    ... tax credit limited partnerships or limited liability companies. For a description of these partnerships, refer to "Business Segments-Housing and Community Development Business-Affordable Housing Investments" above. "Liquid assets" refers to our holdings of non-mortgage investments, cash and cash...

  • Page 175
    ... of outstanding Fannie Mae MBS held by third parties; and (3) up to 0.45% of other off-balance sheet obligations. "Mortgage assets," when referring to our assets, refers to both mortgage loans and mortgage-related securities we hold in our investment portfolio. "Mortgage credit book of business...

  • Page 176
    ... over our statutory minimum capital requirement. "Option-adjusted spread" or "OAS" refers to the incremental expected return between a security, loan or derivative contract and a benchmark yield curve (typically, U.S. Treasury securities, LIBOR and swaps, or agency debt securities). The OAS provides...

  • Page 177
    ... an exchange. "Total capital" refers to a statutory measure of our capital that is the sum of core capital plus the total allowance for loan losses and reserve for guaranty losses in connection with Fannie Mae MBS, less the specific loss allowance (that is, the allowance required on individually...

  • Page 178
    ... reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our...

  • Page 179
    ... effective internal control over financial reporting relating to designing our process and information technology applications to comply with GAAP as specified in SOP 03-3, which affects our accounting conclusions related to loans purchased from trusts under our default call option. Although we...

  • Page 180
    ... of 2007, we filed our quarterly report on Form 10-Q for the quarter ended September 30, 2007 with the SEC on a timely basis. In addition, as described above, we remediated our other remaining material weaknesses relating to our application of GAAP and our financial reporting process. These actions...

  • Page 181
    ... Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated February 26, 2008 expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP Washington, DC...

  • Page 182
    ... 120 days of the end of our fiscal year ended December 31, 2007 (the "2008 Proxy Statement") and to a current report on Form 8-K to be filed contemporaneously with our 2008 Proxy Statement. Item 11. Executive Compensation Information relating to our executive officer and director compensation and...

  • Page 183
    ... Securitizations ...Note 7- Acquired Property, Net ...Note 8- Financial Guaranties and Master Servicing ...Note 9- Short-term Borrowings and Long-term Debt ...Note 10- Derivative Instruments ...Note 11- Income Taxes ...Note 12- Earnings Per Share ...Note 13- Stock-Based Compensation Plans ...Note...

  • Page 184
    ...by virtue hereof. Federal National Mortgage Association /s/ DANIEL H. MUDD Daniel H. Mudd President and Chief Executive Officer Date: February 27, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 185
    Signature Title Date /s/ BRIDGET A. MACASKILL Bridget A. Macaskill /s/ LESLIE RAHL Leslie Rahl Director February 27, 2008 Director February 27, 2008 /s/ JOHN C. SITES, JR. John C. Sites, Jr. GREG C. SMITH Greg C. Smith Director February 27, 2008 /s/ Director February 27, 2008 /s/ H....

  • Page 186
    ...Current Report on Form 8-K, filed November 21, 2007.) Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series S (Incorporated by reference to Exhibit 4.1 to Fannie Mae's Current Report on Form 8-K, filed December 11, 2007.) Letter Agreement between Fannie Mae and Daniel Mudd, dated...

  • Page 187
    ... to information under the heading "Appointment of Robert T. Blakely as Chief Financial Officer" in Item 5.02 of Fannie Mae's Current Report on Form 8-K, filed November 15, 2005.) Description of compensation arrangements for Stephen M. Swad†(Incorporated by reference to "Employment Agreements and...

  • Page 188
    ... Mae's Current Report on Form 8-K, filed May 30, 2006.) Statement re: computation of ratios of earnings to fixed charges Statement re: computation of ratios of earnings to combined fixed charges and preferred stock dividends Certification of Chief Executive Officer pursuant to Securities Exchange...

  • Page 189
    ... Securitizations ...Note 7- Acquired Property, Net ...Note 8- Financial Guaranties and Master Servicing ...Note 9- Short-term Borrowings and Long-term Debt ...Note 10- Derivative Instruments ...Note 11- Income Taxes ...Note 12- Earnings Per Share ...Note 13- Stock-Based Compensation Plans ...Note...

  • Page 190
    ... balance sheets of Fannie Mae and consolidated entities (the "Company") as of December 31, 2007 and 2006, and the related consolidated statements of operations, cash flows, and changes in stockholders' equity for each of the three years in the period ended December 31, 2007. These financial...

  • Page 191
    ... funds purchased and securities sold under agreements to repurchase ...869 Short-term debt ...234,160 Long-term debt ...562,139 Derivative liabilities at fair value ...3,417 Reserve for guaranty losses (includes $211 and $46 as of December 31, 2007 and 2006, respectively, related to Fannie Mae...

  • Page 192
    ...-term debt ...8,999 Long-term debt ...31,186 Total interest expense ...40,185 Net interest income ...4,581 Guaranty fee income (includes imputed interest of $1,278, $1,081 and $803 for 2007, 2006 and 2005, respectively) ...5,071 Losses on certain guaranty contracts ...(1,424) Trust management income...

  • Page 193
    ... preferred stock...Payment of cash dividends on common and preferred stock ...Net change in federal funds purchased and securities sold under agreements to repurchase ...Excess tax benefits from stock-based compensation ...Net cash provided by (used in) financing activities ...Net increase in cash...

  • Page 194
    ...Unrealized gains on guaranty assets and guaranty fee buy-ups (net of tax of $23) ...Net cash flow hedging losses (net of tax of $2) ...Minimum pension liability (net of tax of $2) ...Total comprehensive income ...Adjustment to apply SFAS 158 (net of tax of $55) ...Common stock dividends ($1.18 per...

  • Page 195
    ... in housing projects eligible for the low-income housing tax credit and other investments generate both tax credits and net operating losses that reduce our federal income tax liability. Our Capital Markets segment invests in mortgage loans, mortgage-related securities and liquid investments, and...

  • Page 196
    ... loans or mortgage-related securities from the consolidated balance sheets to a trust (an SPE) to create Fannie Mae MBS, real estate mortgage investment conduits ("REMICs") or other types of beneficial interests. We account for portfolio securitizations in accordance with Statement of Financial...

  • Page 197
    ... loans held for sale, trading securities and guaranty fees, including buy-up and buy-down payments, are included as operating activities. Cash flows from federal funds sold and securities purchased under agreements to resell are presented as investing activities, while cash flows from federal funds...

  • Page 198
    ... statements of operations. A description of our amortization policy is included in the "Amortization of Cost Basis and Guaranty Price Adjustments" section of this note. When we receive multiple deliveries of securities on the same day that are backed by the same pools of loans, we calculate...

  • Page 199
    ... Guaranties, insurance contracts or other credit enhancements are considered contractually attached if they are part of and trade with the security upon transfer of the security to a third party. When we either decide to sell a security in an unrealized loss position and do not expect the fair value...

  • Page 200
    ...investment in HFI loans. The reserve for guaranty losses is a liability account in the consolidated balance sheets that reflects an estimate of incurred credit losses related to our guaranty to each Fannie Mae MBS trust that we will supplement amounts received by the Fannie Mae MBS trust as required...

  • Page 201
    ...SFAS 114, which are described below), based on similar risk characteristics for purposes of estimating incurred credit losses. Those characteristics include but are not limited to: origination year; loan product type; and loan-to-value ("LTV") ratio. Once loans are aggregated, there typically is not...

  • Page 202
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) historical payment experience, collateral values when appropriate, and other related credit documentation. Multifamily loans that are categorized into pools based on their relative credit risk ratings are assigned certain default and ...

  • Page 203
    ... reduced by estimated disposal costs, on a discounted basis, and estimated proceeds from mortgage, flood, or hazard insurance or similar sources. Impairment recognized on individually impaired loans is part of our allowance for loan losses. We use internal models to project cash flows used to assess...

  • Page 204
    ... initial fair value of these loans using internal prepayment, interest rate and credit risk models that incorporated management's best estimate of certain key assumptions, such as default rates, loss severity and prepayment speeds. Beginning in July 2007, the mortgage markets experienced a number of...

  • Page 205
    ... collect the fee on a monthly basis based on the contractual rate multiplied by the unpaid principal balance of loans underlying a Fannie Mae MBS issuance. The guaranty fee we receive varies depending on factors such as the risk profile of the securitized loans and the level of credit risk we assume...

  • Page 206
    ... statements of operations at inception of the guaranty fee contract. We recognize a liability for estimable and probable losses for the credit risk we assume on loans underlying Fannie Mae MBS based on management's estimate of probable losses incurred on those loans as of each balance sheet date...

  • Page 207
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The fair value of the guaranty asset at inception is based on the present value of expected cash flows using management's best estimates of certain key assumptions, which include prepayment speeds, forward yield curves and discount ...

  • Page 208
    ... account for cost basis adjustments, including premiums and discounts on mortgage loans and securities, in accordance with SFAS 91, which generally requires deferred fees and costs to be recognized as an adjustment to yield using the interest method over the contractual or estimated life of the loan...

  • Page 209
    ...risk-based price adjustments and buy-downs in connection with our Fannie Mae MBS issued prior to January 1, 2003. We calculated the constant effective yield for these deferred guaranty price adjustments based upon our estimate of the cash flows of the mortgage loans underlying the related Fannie Mae...

  • Page 210
    ... of gain or loss on the sale of assets. The fair values of the MSA and MSL are based on the present value of expected cash flows using management's best estimates of certain key assumptions, which include prepayment speeds, forward yield curves, adequate compensation, and discount rates commensurate...

  • Page 211
    ... "Other assets" in the consolidated balance sheets. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred. Commitments to Purchase and Sell Mortgage Loans and Securities We enter into commitments to purchase and sell mortgage-related...

  • Page 212
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Commitments to purchase securities that we do not account for as derivatives and do not require trade-date accounting are accounted for as forward contracts to purchase securities under the guidance of EITF Issue No. 96-11, Accounting...

  • Page 213
    ...received under early funding agreements with lenders, whereby we advance funds to lenders prior to the settlement of a security commitment, must meet our standard underwriting guidelines for the purchase or guarantee of mortgage loans. Cash Collateral To the extent that we pledge cash collateral and...

  • Page 214
    ... expense" or "Long-term interest expense" in the consolidated statements of operations. Trust Management Income As master servicer, issuer and trustee for Fannie Mae MBS, we earn a fee that represents interest earned on cash flows from the date of remittance of mortgage and other payments to us by...

  • Page 215
    ...Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. Accordingly, prior period amounts have not been restated. In accordance with this statement, we measure the cost of employee services received in exchange for stock-based awards using the fair value of those...

  • Page 216
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) "Salaries and employee benefits" expense in the 2006 consolidated statements of operations an immaterial cumulative effect of a change in accounting principle to estimate forfeitures at the grant date as required by SFAS 123R rather ...

  • Page 217
    ...-term historical return information and the estimated future long-term investment returns for each class of assets. We measure plan assets and obligations as of the date of the consolidated financial statements. Beginning December 31, 2006, with the adoption of SFAS No. 158, Employers' Accounting...

  • Page 218
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Reclassifications Certain prior year amounts previously recorded as a component of "Fee and other income" in the consolidated statements of operations have been reclassified as "Guaranty fee income" and "Trust management income" to ...

  • Page 219
    ... our mortgage-related and non-mortgage related investment portfolio previously classified as available-for-sale. These securities are presented in the consolidated balance sheet at fair value in accordance with SFAS 115 and the amount of transition gain was recognized in AOCI as of December 31, 2007...

  • Page 220
    ... as Fannie Mae MBS created pursuant to our securitization transactions, mortgage- and asset-backed trusts that were not created by us, limited partnership interests in LIHTC partnerships that are established to finance the construction or development of low-income affordable multifamily housing and...

  • Page 221
    ... given mortgage-related security will vary over time. Thirdparty ownership in these consolidated MBS trusts 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...

  • Page 222
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) subsidiaries" in the consolidated balance sheets. In general, the investors in the obligations of consolidated VIEs have recourse only to the assets of those VIEs and do not have recourse to us, except where we provide a guaranty to ...

  • Page 223
    ... principal amount outstanding, net of unamortized premiums and discounts, other cost basis adjustments, and an allowance for loan losses. We report HFS loans at the lower of cost or market determined on a pooled basis, and record valuation changes in the consolidated statements of operations. F-35

  • Page 224
    ... balance sheets. Refer to "Note 6, Portfolio Securitizations" for additional information on mortgage loans underlying our securities. As of December 31, 2007 2006 (Dollars in millions) Single-family:(1) Government insured or guaranteed . Conventional: Long-term fixed-rate(2) ...Intermediate-term...

  • Page 225
    ... are adjusted for the estimated timing and amount of prepayments. We estimate the cash flows expected to be collected at acquisition using internal prepayment, interest rate and credit risk models that incorporate management's best estimate of certain key assumptions, such as default rates, loss...

  • Page 226
    ... statements of operations for the years ended December 31, 2007, 2006 and 2005, respectively, resulting from subsequent decreases in expected cash flows for these acquired loans. Nonaccrual Loans We have single-family and multifamily loans in our mortgage portfolio, including those loans accounted...

  • Page 227
    ...portfolio and a reserve for guaranty losses related to loans backing Fannie Mae MBS. The allowance and reserve are calculated based on our estimate of incurred losses. Determining the adequacy of our allowance for loan losses and reserve for guaranty losses is complex and requires judgment about the...

  • Page 228
    ... MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table displays changes in the allowance for loan losses and reserve for guaranty losses for the years ended December 31, 2007, 2006 and 2005. For the Year Ended December 31, 2007 2006 2005 (Dollars in millions) Allowance...

  • Page 229
    ... our investments in trading securities and the amount of net losses recognized from holding these securities as of December 31, 2007 and 2006. As of December 31, 2007 2006 (Dollars in millions) Fannie Mae single-class MBS...Non-Fannie Mae structured mortgage-related securities . . Fannie Mae...

  • Page 230
    ... Value Losses Value Losses Value (Dollars in millions) Fannie Mae single-class MBS ...Non-Fannie Mae structured mortgagerelated securities ...Fannie Mae structured MBS ...Non-Fannie Mae single-class mortgagerelated securities ...Mortgage revenue bonds ...Other mortgage-related securities ...Asset...

  • Page 231
    ... Value Value Losses Cost Gains (Dollars in millions) Fannie Mae single-class MBS ...Non-Fannie Mae structured mortgagerelated securities ...Fannie Mae structured MBS ...Non-Fannie Mae single-class mortgagerelated securities ...Mortgage revenue bonds ...Other mortgage-related securities ...Asset...

  • Page 232
    .... Asset-backed securities and mortgage-backed securities are reported based on contractual maturities assuming no prepayments. 6. Portfolio Securitizations We issue Fannie Mae MBS through securitization transactions by transferring pools of mortgage loans or mortgage-related securities to...

  • Page 233
    ... of unpaid principal on a loan or mortgage-related security remains outstanding. Represents the expected lifetime average payment rate, which is based on the constant annualized prepayment rate for mortgage loans. The interest rate used in determining the present value of future cash flows. F-45

  • Page 234
    ... or mortgage-related security remains outstanding. Represents the expected lifetime average payment rate, which is based on the constant annualized prepayment rate for mortgage loans. The interest rate used in determining the present value of future cash flows. The preceding sensitivity analysis is...

  • Page 235
    .... These amounts are recognized as "Investment losses, net" in the consolidated statements of operations. The following table displays cash flows on our securitization trusts related to portfolio securitizations accounted for as sales for the years ended December 31, 2007, 2006 and 2005. For the...

  • Page 236
    ... 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...

  • Page 237
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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. We record a guaranty obligation for (i)...

  • Page 238
    ... Ended December 31, 2007 2006 (Dollars in millions) Beginning balance, January 1 ...Fair value of expected cash flows at issuance for new guaranteed Fannie Mae MBS issuances ...Net change in fair value of guaranty assets from portfolio securitizations ...Impact of amortization on guaranty contracts...

  • Page 239
    ... guaranty, Fannie Mae MBS would be subject to the credit risk on the underlying loans. We continue to recognize a guaranty obligation and a reserve for guaranty losses associated with these securities because we carry these securities in the consolidated financial statements as guaranteed Fannie Mae...

  • Page 240
    ... Policies," for information regarding our servicing income in the form of "Trust management income" beginning in November 2006. 9. Short-term Borrowings and Long-term Debt We obtain the funds to finance our mortgage purchases and other business activities primarily by selling debt securities...

  • Page 241
    ... provide increased efficiency, liquidity and tradability to the market. Our outstanding subordinated benchmark debt, net of discounts, premiums and other cost basis adjustments, was $11.0 billion and $12.9 billion as of December 31, 2007 and 2006, respectively. Additionally, we have issued notes and...

  • Page 242
    ... to manage the duration and prepayment risk of expected cash flows of the mortgage assets we own. Our outstanding debt as of December 31, 2007 and 2006 included $215.6 billion and $201.5 billion, respectively, of callable debt that could be redeemed in whole or in part at our option any time on...

  • Page 243
    ...Ended December 31, 2007 2006 2005 (Dollars in millions) Amortization of fair value-type hedges ...Amortization of cash flow-type hedges ... $13 5 $18 7 $22 7 Risk Management Derivatives We issue various types of debt to finance the acquisition of mortgages and mortgage-related securities. We use...

  • Page 244
    ...to purchase mortgage loans and purchase or sell mortgage-related securities meet the criteria of a derivative and these commitments are recorded in the consolidated balance sheets at fair value as either "Derivative assets at fair value" or "Derivative liabilities at fair value." The following table...

  • Page 245
    ... and losses on AFS securities and on our guaranty assets and buy-ups, as well as the actuarial gains, prior service cost and transition obligation for our defined benefit plans, since the tax effect of these items is recognized directly in "Stockholders' equity." Stockholders' equity increased by...

  • Page 246
    ... tax assets: Debt and derivative instruments ...Allowance for loan losses and basis in acquired property, net Partnership credits ...Net guaranty assets and obligations and related credits ...Mortgage and mortgage-related assets ...Cash fees and other upfront payments ...Employee compensation...

  • Page 247
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) significantly alter current forecasts of taxable income, a substantial valuation allowance for our net deferred tax assets may be required. As of December 31, 2007, we had tax credit carry forwards of $1.9 billion that expire starting...

  • Page 248
    ... Purchase Plan") provides employees an opportunity to purchase shares of Fannie Mae common stock at a discount to the fair market value of the stock during specified purchase periods. Our Board of Directors sets the terms and conditions of offerings under the 1985 Purchase Plan, including the number...

  • Page 249
    ...the Year Ended December 31: Cash proceeds from exercise of options ...$ 35 As of December 31: Unrecognized compensation cost related to unvested options ...$ - Expected weighed average life of unvested options ...0.1 years $ 22 $ 9 0.7 years The following table displays nonqualified stock option...

  • Page 250
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) certain corporate objectives for 2006 and 2005. Employees eligible for the 2006 and 2005 Performance-Based Stock Bonus Awards included certain regular and term employees scheduled to work more than 20 hours per week, who were employed...

  • Page 251
    ... MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Restricted Stock Program Under the 1993 and 2003 Plans, employees may be awarded grants as restricted stock awards ("RSA") and, under the 2003 Plan, also as restricted stock units ("RSU"), depending on years of service and age at the time...

  • Page 252
    ...that is maintained for the sole benefit of plan participants and their beneficiaries. Contributions to our qualified pension plan are subject to a minimum funding requirement and a maximum funding limit under the Employee Retirement Income Security Act of 1974 ("ERISA") and IRS regulations. Although...

  • Page 253
    ... For the Years Ended December 31, 2007 2006 Pension Plans Pension Plans Other PostRetirement NonNonPlan Qualified Qualified Qualified Qualified (Dollars in millions) Other PostRetirement Plan Net actuarial (gain) loss ...Net prior service cost (credit) ...Net transition obligation...Pre-tax amount...

  • Page 254
    ... of 2008. Contributions to the qualified pension plan increase the plan assets while contributions to the unfunded plans are made to fund current period benefit payments or to fulfill annual funding requirements. We were not required to make minimum contributions to our qualified pension plan for...

  • Page 255
    ... MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) $4 million, respectively, for the year ended December 31, 2007. During 2008, we expect to contribute $5 million to our nonqualified pension plans and $7 million to our postretirement benefit plan. The following table displays the status...

  • Page 256
    ...) Projected benefit obligation ...Accumulated benefit obligation ...Fair value of plan assets ... $744 604 788 $148 127 - $770 564 769 $161 121 - Our current funding policy for the qualified pension plan is to contribute an amount at least equal to the minimum required contribution under...

  • Page 257
    ...postretirement benefit obligations at year-end. We consider the current yields on high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected duration of our benefit obligations and supported by cash flow matching analysis based on expected cash flows specific...

  • Page 258
    ...MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) which are restricted from investing in shares of our common or preferred stock, and in an indexed intermediate duration fixed income account. In addition, the plan holds liquid short-term investments that provide for monthly pension payments...

  • Page 259
    ...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. Participation in this plan was frozen effective December 31, 2007. Refer to "Changes to Benefit...

  • Page 260
    ... 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) trust management income, which is a fee we earn derived from interest earned on cash flows between the date of...

  • Page 261
    ... MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Capital Markets. Our Capital Markets segment manages our investment activity in mortgage loans, mortgage-related securities and other investments, our debt financing activity, and our liquidity and capital positions. We fund our investments...

  • Page 262
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For the Year Ended December 31, 2006 Capital Single-Family HCD Markets Total (Dollars in millions) Net interest income (expense)(1) ...Guaranty fee income (expense)(2)(3) . . Losses on certain guaranty contracts . Trust management ...

  • Page 263
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For the Year Ended December 31, 2005 Capital Single-Family HCD Markets Total (Dollars in millions) Net interest income (expense)(1) ...Guaranty fee income (expense)(2)(3) . Losses on certain guaranty contracts . Investment gains (...

  • Page 264
    ... minimum capital requirement is generally equal to the sum of: (i) 2.50% of on-balance sheet assets; (ii) 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (iii) up to 0.45% of other off- balance sheet obligations, which may be adjusted by the Director...

  • Page 265
    ... balance of outstanding Fannie Mae MBS held by third parties and (c) up to 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO under certain circumstances. The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses...

  • Page 266
    ...reported to OFHEO for purposes of computing the portfolio limit through June 30, 2007 were defined as the unpaid principal balance of our mortgage loans and mortgage-related securities, net of market valuation adjustments, allowance for loan losses, impairments and unamortized premiums and discounts...

  • Page 267
    ... mortgage-related assets acquired through the assumption of debt and the impact on the unpaid principal balances recorded on our purchases of delinquent loans from MBS trusts pursuant to SOP 03-3. For purposes of this calculation, OFHEO's interpretation sets the July 2007 month-end portfolio balance...

  • Page 268
    ... a change in conversion price would be required. Holders of preferred stock are entitled to receive non-cumulative, quarterly dividends when, and if, declared by our Board of Directors, but have no right to require redemption of any shares of preferred stock. Payment of dividends on preferred stock...

  • Page 269
    ... single-family mortgage loans held or securitized in Fannie Mae MBS as of December 31, 2007 and 2006, respectively, were located, no other significant concentrations existed in any state. To manage credit risk and comply with legal requirements, we typically require primary mortgage insurance or...

  • Page 270
    ... portfolio, credit enhancements and outstanding Fannie Mae MBS (excluding Fannie Mae MBS backed by non-Fannie Mae mortgage-related securities) where we have more detailed loan-level information, which constituted approximately 80% and 84% of our total multifamily mortgage credit book of business as...

  • Page 271
    ...-related securities backed by subprime mortgage loans. Mortgage Servicers. Mortgage servicers collect mortgage and escrow payments from borrowers, pay taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required activities on our behalf. Our business...

  • Page 272
    ... management policy with provisions for requiring collateral on interest rate and foreign currency derivative contracts in net gain positions based upon the counterparty's credit rating. The collateral includes cash, U.S. Treasury securities, agency debt and agency mortgage-related securities...

  • Page 273
    ... insurance contracts, guaranteed guarantor trust swaps and swap credit enhancements accounted for as derivatives. We did not have guaranteed guarantor trust swaps in 2006. Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a fair value...

  • Page 274
    ...of off-balance sheet financial instruments as of December 31, 2007 and 2006. Contractual or notional amounts do not necessarily represent the credit risk of the positions. As of December 31, 2007 2006 (Dollars in millions) Fannie Mae MBS and other guaranties(1) ...$206,519 Loan purchase commitments...

  • Page 275
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) curves, measures of volatility and prepayment rates. If market data needed to estimate fair value is not available, we estimate fair value using internally-developed models that employ a discounted cash flow approach. These estimates ...

  • Page 276
    ... Value Assets: Cash and cash equivalents(1) ...Federal funds sold and securities purchased under agreements to resell ...Trading securities ...Available-for-sale securities ...Mortgage loans held for sale ...Mortgage loans held for investment, net of allowance for loan losses...Advances to lenders...

  • Page 277
    ...." Guaranty Assets and Buy-ups-We estimate the fair value of guaranty assets based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount...

  • Page 278
    ... officers and directors in connection with various legal proceedings pursuant to indemnification agreements. None of these amounts were material. Securities Class Action Lawsuits In re Fannie Mae Securities Litigation Beginning on September 23, 2004, 13 separate complaints were filed by holders...

  • Page 279
    ... of Franklin Templeton Investments against us, KPMG LLP, and certain current and former officers and directors. On April 27, 2007, KPMG also filed cross-claims against us in this action that are essentially identical to those it alleges in the consolidated shareholder class action case. On June...

  • Page 280
    ... on September 24, 2004, and that this new action should now be allowed to proceed. On December 18, 2007, Mr. Kellmer filed an amended complaint that narrowed the list of named defendants to certain of our current and former directors, Goldman Sachs Group, Inc. and us, as a nominal defendant. The...

  • Page 281
    ... class action complaints were filed by other plaintiffs on May 6, 2005 and May 10, 2005. These cases are based on the Employee Retirement Income Security Act of 1974 ("ERISA") and name us, our Board of Directors' Compensation Committee and certain of our former and current officers and directors...

  • Page 282
    ... to represent a class of multifamily borrowers whose mortgages are insured under Sections 221(d)(3), 236 and other sections of the National Housing Act and are held or serviced by us. The complaint identified as a proposed class low- and moderate-income apartment building developers who maintained...

  • Page 283
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table displays the future minimum rental commitments as of December 31, 2007 for all noncancelable operating leases. As of December 31, 2007 (Dollars in millions) 2008 ...2009 ...2010 ...2011 ...2012 ...Thereafter ... ...

  • Page 284
    ... income: Investments in securities ...Mortgage loans ...Total interest income...Interest expense: Short-term debt ...Long-term debt ...Total interest expense ...Net interest income ...Guaranty fee income ...Losses on certain guaranty contracts ...Trust management income ...Investment gains (losses...

  • Page 285
    ... income: Investments in securities ...Mortgage loans ...Total interest income ...Interest expense: Short-term debt ...Long-term debt ...Total interest expense ...Net interest income ...Guaranty fee income ...Losses on certain guaranty contracts ...Trust management income ...Investment gains (losses...

  • Page 286
    FANNIE MAE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 22. Subsequent Events Decrease in Common Stock Dividend On January 18, 2008, the Board of Directors decreased the common stock dividend from $0.50 per share in the fourth quarter of 2007 to $0.35 per share beginning in the first ...

  • Page 287
    ... Daniel H. Mudd, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2007 of Fannie Mae (formally, the Federal National Mortgage Association); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state...

  • Page 288
    ... Stephen M. Swad, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2007 of Fannie Mae (formally, the Federal National Mortgage Association); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state...

  • Page 289
    ...In connection with the Annual Report on Form 10-K of Fannie Mae (formally, the Federal National Mortgage Association) for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel H. Mudd, President and Chief Executive Officer...

  • Page 290
    ...Report on Form 10-K of Fannie Mae (formally, the Federal National Mortgage Association) for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen M. Swad, Executive Vice President and Chief Financial Officer of Fannie Mae...

  • Page 291
    .... Quarter High Low Dividend Direct Stock Purchase Program The DirectSERVICE Investment Program, offered and administered by Computershare Trust Company N.A., provides an easy and affordable alternative for current shareholders and first-time investors to invest in Fannie Mae stock. To request...

  • Page 292
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