Fannie Mae 2007 Annual Report Download - page 243

Unused Lines of Credit
We periodically use secured and unsecured intraday funding lines of credit provided by several large financial
institutions. We post collateral which, in some circumstances, the secured party has the right to repledge to
third parties. As these lines of credit are uncommitted intraday loan facilities, we may not be able to draw on
them if and when needed. As of December 31, 2007 and 2006, we had secured uncommitted lines of credit of
$28.0 billion and $31.0 billion, respectively, and unsecured uncommitted lines of credit of $2.5 billion. No
amounts were drawn on these lines of credit as of December 31, 2007 and 2006.
10. Derivative Instruments
We use derivative instruments, in combination with our debt issuances, to reduce the duration and prepayment
risk relating to the mortgage assets we own. We also enter into commitments to purchase and sell mortgage-
related securities and commitments to purchase mortgage loans. We account for some of these commitments
as derivatives. Typically, we settle the notional amount of our mortgage commitments; however, we do not
settle the notional amount of our derivative instruments. Notional amounts, therefore, simply provide the basis
for calculating actual payments or settlement amounts.
Although derivative instruments are critical to our interest rate risk management strategy, we did not apply
hedge accounting to instruments entered into during the three-year period ended December 31, 2007. As such,
all fair value changes and gains and losses on these derivatives, including accrued interest, were recognized as
“Derivatives fair value losses, net” in the consolidated statements of operations.
Prior to our adoption of SFAS 133, on January 1, 2001, certain of our derivative instruments met the criteria
for hedge accounting under the accounting standards at that time. Accordingly, effective with our adoption of
SFAS 133, we deferred gains of approximately $230 million from fair value-type hedges as basis adjustments
to the related debt and $75 million for cash flow-type hedges in AOCI. As of December 31, 2007, the
remaining amount of this initial deferral in AOCI and long-term debt is a loss of $10 million and a gain of
$29 million, respectively.
The following table displays the amount of amortization related to our fair value-type hedges and cash flow-
type hedges for the years ended 2007, 2006 and 2005.
2007 2006 2005
For the Year Ended
December 31,
(Dollars in millions)
Amortization of fair value-type hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13 $18 $22
Amortization of cash flow-type hedges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7 7
Risk Management Derivatives
We issue various types of debt to finance the acquisition of mortgages and mortgage-related securities. We use
interest rate swaps and interest rate options, in combination with our debt issuances, to better match both the
duration and prepayment risk of our mortgages and mortgage-related securities, which we would not be able
to accomplish solely through the issuance of debt. These instruments primarily include interest rate swaps,
swaptions and caps. Interest rate swaps provide for the exchange of fixed and variable interest payments based
on contractual notional principal amounts. These may include callable swaps, which give counterparties or us
the right to terminate interest rate swaps before their stated maturities. Swaptions provide us with an option to
enter into interest rate swaps at a future date. Caps provide ceilings on the interest rates of our variable-rate
debt. We also use basis swaps, which provide for the exchange of variable payments based on different
interest rate indices, such as the Treasury Bill rate, the Prime rate or the London Inter-Bank Offered Rate.
Although our foreign-denominated debt represents less than 1% of total debt outstanding as of both
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)