Fannie Mae 2007 Annual Report Download - page 221

Limited Partnerships
We make equity investments in various limited partnerships that sponsor affordable housing projects utilizing
the low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these
investments is to increase the supply of affordable housing in the United States and to serve communities in
need. In addition, our investments in LIHTC partnerships generate both tax credits and net operating losses
that reduce our federal income tax liability. Our LIHTC investments primarily represent limited partnership
interests in entities that have been organized by a fund manager who acts as the general partner. These fund
investments seek out equity investments in LIHTC operating partnerships that have been established to
identify, develop and operate multifamily housing that is leased to qualifying residential tenants.
In 2007, we sold for cash two portfolios of investments in LIHTC partnerships reflecting approximately
$930 million in future LIHTC tax credits and the release of future capital obligations relating to the
investments.
We also invest in other limited partnerships designed to acquire, develop and hold for sale or lease single-
family (includes townhomes and condominiums) and multifamily real estate, as well as, in some cases,
generate a combination of historic restoration, new markets or low-income housing tax credits. We invest in
these partnerships in order to increase the supply of affordable housing in the United States and to serve
communities in need. We earn a return on these investments, which in certain cases is generated through
reductions in our federal income tax liability as a result of the use of tax credits for which the partnerships
qualify, as well as the deductibility of the partnerships’ net operating losses. In 2007, we recorded $120 million
of impairment in these limited partnerships in “Losses from partnership investments” in our consolidated
statements of operations.
As of December 31, 2007 and 2006, we had three and five investments, respectively, in limited partnerships
relating to alternative energy sources. The purpose of these investments is to facilitate the development of
alternative domestic energy sources and to achieve a satisfactory return on capital via a reduction in our
federal income tax liability as a result of the use of the tax credits for which the partnerships qualify, as well
as the deductibility of the partnerships’ net operating losses. In 2007, we sold two of these investments in
limited partnerships for $16 million.
Other VIEs
The management and marketing of our foreclosed multifamily properties is performed by an independent third
party. To facilitate this arrangement, we transfer foreclosed properties to a VIE that is established by the
counterparty responsible for managing and marketing the properties. We are the primary beneficiary of the
entity. However, the only assets of the VIE are those foreclosed properties transferred by us. Because our
transfer of the foreclosed properties does not qualify as a sale, the foreclosed properties are recorded in
“Acquired property, net” in the consolidated balance sheets.
Consolidated VIEs
We consolidate in our financial statements Fannie Mae MBS trusts when we own 100% of the trust, which
gives us the unilateral ability to liquidate the trust. We also consolidate MBS trusts that do not meet the
definition of a QSPE when we are deemed to be the primary beneficiary. This includes certain private-label
and Fannie Mae securitization trusts that meet the VIE criteria. As an active participant in the secondary
mortgage market, our ownership percentage in any given mortgage-related security will vary over time. Third-
party 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 partnerships that are VIEs if we are deemed to be the primary beneficiary. Third-party
ownership in these consolidated limited partnerships is recorded in “Minority interests in consolidated
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)