Fannie Mae 2007 Annual Report Download - page 234

The following table displays the key assumptions used in measuring the fair value of our retained interests,
excluding our MSA, which is not material, related to portfolio securitization transactions as of December 31,
2007 and 2006, and a sensitivity analysis showing the impact of changes in both prepayment speed
assumptions and discount rates.
Fannie Mae
Single-Class
MBS & Fannie
Mae Megas
REMICs &
SMBS
Guaranty
Assets
(Dollars in millions)
As of December 31, 2007
Retained interest valuation at period end:
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,553 $ 33,465 $ 624
Weighted-average life
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 years 5.8 years 6.3 years
Prepayment speed assumptions:
Average 12-month CPR prepayment speed assumption
(2)
. . . . . 28.8% 11.4% 16.1%
Impact on value from a 10% adverse change . . . . . . . . . . . . . . $ (15) $ (30) $ (34)
Impact on value from a 20% adverse change . . . . . . . . . . . . . . (27) (60) (61)
Discount rate assumptions:
Average discount rate assumption
(3)
. . . . . . . . . . . . . . . . . . . . 4.53% 5.51% 7.83%
Impact on value from a 10% adverse change . . . . . . . . . . . . . . $ (123) $ (828) $ (20)
Impact on value from a 20% adverse change . . . . . . . . . . . . . . (244) (1,615) (39)
As of December 31, 2006
Retained interest valuation at period end:
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,743 $ 27,087 $ 498
Weighted-average life
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 years 5.9 years 6.7 years
Prepayment speed assumptions:
Average 12-month CPR prepayment speed assumption
(2)
. . . . . 12.7% 10.5% 10.8%
Impact on value from a 10% adverse change . . . . . . . . . . . . . . $ (9) $ (7) $ (20)
Impact on value from a 20% adverse change . . . . . . . . . . . . . . (18) (13) (38)
Discount rate assumptions:
Average discount rate assumption
(3)
. . . . . . . . . . . . . . . . . . . . 5.49% 5.54% 9.30%
Impact on value from a 10% adverse change . . . . . . . . . . . . . . $ (247) $ (660) $ (18)
Impact on value from a 20% adverse change . . . . . . . . . . . . . . (480) (1,291) (35)
(1)
The average number of years for which each dollar of unpaid principal on a loan or mortgage-related security remains
outstanding.
(2)
Represents the expected lifetime average payment rate, which is based on the constant annualized prepayment rate for
mortgage loans.
(3)
The interest rate used in determining the present value of future cash flows.
The preceding sensitivity analysis is hypothetical and may not be indicative of actual results. The effect of a
variation in a particular assumption on the fair value of the retained interest is calculated independently of
changes in any other assumption. Changes in one factor may result in changes in another, which might
magnify or counteract the impact of the change. Further, changes in fair value based on a 10% or 20%
variation in an assumption or parameter generally cannot be extrapolated because the relationship of the
change in the assumption to the change in fair value may not be linear.
The gain or loss on a portfolio securitization that qualifies as a sale depends, in part, on the carrying amount
of the financial assets sold. The carrying amount of the financial assets sold is allocated between the assets
sold and the retained interests, if any, based on their relative fair value at the date of sale. Further, our
recourse obligations are recognized at their full fair value at the date of sale, which serves as a reduction of
sale proceeds in the gain or loss calculation. We recorded a net loss on portfolio securitizations of $403 million
for the year ended December 31, 2007, primarily as a result of resecuritizing $9.2 billion of subprime private-
label securities in the fourth quarter of 2007. The loss recorded from this portfolio securitization was partially
F-46
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)