Fannie Mae 2007 Annual Report Download - page 261

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 primarily by issuing debt in the global capital markets. The Capital
Markets segment also has responsibility for managing our interest rate risk. The Capital Markets segment
generates income primarily from the difference, or spread, between the yield on the mortgage assets we own
and the cost of the debt we issue to fund these assets.
Segment Allocations and Results
Our segment financial results include directly attributable revenues and expenses. Additionally, we allocate to
each of our segments: (i) capital using OFHEO minimum capital requirements adjusted for over- or
under-capitalization; (ii) indirect administrative costs; and (iii) a provision for federal income taxes. We also
allocate intercompany guaranty fee income as a charge to Capital Markets from both the Single-Family and
HCD segments for managing the credit risk on mortgage loans held by the Capital Markets segment.
The following table displays our segment results for the years ended December 31, 2007, 2006 and 2005.
Single-Family HCD
Capital
Markets Total
For the Year Ended December 31, 2007
(Dollars in millions)
Net interest income (expense)
(1)
. . . . . . . . . . . . . . . . . . . . . . . $ 365 $ (404) $ 4,620 $ 4,581
Guaranty fee income (expense)
(2)
. . . . . . . . . . . . . . . . . . . . . . 5,816 470 (1,215) 5,071
Losses on certain guaranty contracts . . . . . . . . . . . . . . . . . . . . (1,387) (37) — (1,424)
Trust management income . . . . . . . . . . . . . . . . . . . . . . . . . . . 553 35 — 588
Investment losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) — (1,168) (1,232)
Derivatives fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . — — (4,113) (4,113)
Debt extinguishment losses, net . . . . . . . . . . . . . . . . . . . . . . . — — (47) (47)
Losses from partnership investments . . . . . . . . . . . . . . . . . . . . — (1,005) — (1,005)
Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 323 123 751
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,478) (548) (643) (2,669)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,559) (5) — (4,564)
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (871) (181) (11) (1,063)
Loss before federal income taxes and extraordinary losses . . . . . (1,320) (1,352) (2,454) (5,126)
Benefit for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . (462) (1,509) (1,120) (3,091)
Income (loss) before extraordinary losses. . . . . . . . . . . . . . . . . (858) 157 (1,334) (2,035)
Extraordinary losses, net of tax effect . . . . . . . . . . . . . . . . . . . — — (15) (15)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (858) $ 157 $(1,349) $(2,050)
(1)
Includes cost of capital charge.
(2)
Includes intercompany guaranty fee income (expense) allocated to Single-Family and HCD from Capital Markets for
absorbing the credit risk on mortgage loans held in our portfolio.
F-73
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)