Fannie Mae 2007 Annual Report Download - page 110

Our level of portfolio purchases decreased in 2007 as compared with 2006, due in part to lower market
volumes resulting from the reduction in mortgage origination activity and a more limited availability of
mortgage assets that met our targeted return thresholds during the first half of 2007. Beginning in the third
quarter of 2007, there was a significant widening of mortgage-to-debt spreads and a reduction in liquidity.
These market conditions presented more opportunities for us to purchase mortgage assets at attractive prices
and spreads. However, our ability to capitalize on these opportunities was limited by the OFHEO-directed
minimum capital requirement and mortgage portfolio cap. Our level of portfolio sales increased in 2007 as
compared with 2006, primarily due to an increase in portfolio sales during the second half of 2007 to manage
the size of our mortgage portfolio to comply with the mortgage portfolio cap and to enhance our capital
position. The decrease in mortgage liquidations during 2007 was largely attributable to the decline in home
prices, which reduced the level of refinancing activity relative to the prior year.
Our portfolio purchases increased in 2006 over 2005, reflecting a reduction in portfolio purchases in 2005 due
in part to more narrow mortgage-to-debt spreads as well as our focus 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, which
reflects the net impact of our purchases, sales and liquidations, as of the end of each year of the five-year
period ended December 31, 2007.
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