Fannie Mae 2007 Annual Report Download - page 94

Table 10: Administrative Expenses
2007 2006 2005
2007
vs. 2006
2006
vs. 2005
For the Year Ended
December 31,
% Change
(Dollars in millions)
Ongoing operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,029 $2,013 $1,546 1% 30%
Restatement and related regulatory expenses
(1)
. . . . . . . . . . . . . . . . . . 640 1,063 569 (40) 87
Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,669 $3,076 $2,115 (13)% 45%
(1)
Includes costs of restatement and related regulatory examinations, investigations and litigation. Also includes
remediation costs.
The decrease in administrative expenses in 2007 from 2006 was due to a significant reduction in restatement
and related regulatory expenses. This reduction was partially offset by an increase in our ongoing operating
costs, resulting from costs associated with an early retirement program and various involuntary severance
initiatives implemented in 2007, as well as costs associated with the significant investment we have made to
enhance our organizational structure and systems.
The increase in administrative expenses in 2006 from 2005 was primarily due to costs associated with our
efforts to return to timely financial reporting. In addition, we experienced an increase in our ongoing operating
costs during 2006 due to an increase in our hiring efforts and staffing levels, as we redesigned our
organizational structure to enhance our risk governance framework and strengthen our internal controls.
Beginning in January 2007, we undertook a thorough review of our costs as part of a broad reengineering
initiative to increase productivity and lower administrative costs. As a result of this effort, we estimate that we
will maintain our ongoing operating costs at the $2.0 billion level we achieved in 2007 for 2008. Our ongoing
operating costs, or “run rate,” excludes the costs associated with our efforts to return to current financial
reporting and also excludes various costs, such as litigation and remediation costs, that we do not expect to
incur on a regular basis. We therefore do not consider these expenses to be part of our run rate. Although we
are current in our financial reporting, we continue to expect to incur some level of restatement and related
regulatory expenses, such as costs related to regulatory examinations, investigations and litigation.
Credit-Related Expenses
This section discusses the credit-related expenses that are reflected in our consolidated statements of
operations, how the loss reserves recorded in our consolidated balance sheets affect our credit-related expenses
and the credit loss performance metrics we use to evaluate our historical credit loss performance.
The credit-related expenses included in our consolidated statements of operations consist of the provision for
credit losses and foreclosed property expense (income). Our credit-related expenses totaled $5.0 billion,
$783 million and $428 million in 2007, 2006 and 2005, respectively, reflecting an increase of $4.2 billion in
2007 and $355 million in 2006. Table 11 details the components of our credit-related expenses. We discuss
each of these components below.
Table 11: Credit-Related Expenses
2007 2006 2005
For the Year Ended
December 31,
(Dollars in millions)
Provision attributable to guaranty book of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200 $385 $190
Provision attributable to SOP 03-3 fair value losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,364 204 251
Total provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,564 589 441
Foreclosed property expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 194 (13)
Credit-related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,012 $783 $428
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