Fannie Mae 2008 Annual Report Download - page 107

Trust Management Income
Trust management income consists of the fees we earn as master servicer, issuer and trustee for Fannie Mae
MBS. We derive these fees from the interest earned on cash flows between the date of remittance of mortgage
and other payments to us by servicers and the date of distribution of these payments to MBS
certificateholders, which we refer to as float income. Prior to November 2006, funds received from servicers
were maintained with our corporate assets and reported as a component of “Interest income” in our
consolidated statements of operations. In November 2006, we made operational changes to segregate these
funds from our corporate assets and began separately reporting this compensation as “Trust management
income” in our consolidated statements of operations. Trust management income totaled $261 million,
$588 million and $111 million for 2008, 2007 and 2006, respectively. The decrease in trust management
income in 2008 was primarily attributable to the decline in short-term interest rates. The increase in trust
management income in 2007 reflected the reclassification of these amounts from interest income.
Fee and Other Income
Fee and other income consists of transaction fees, technology fees and multifamily fees. These fees are largely
driven by our business volume. Fee and other income totaled $772 million, $965 million and $908 million for
2008, 2007 and 2006, respectively.
The $193 million decrease in fee and other income in 2008 from 2007 was primarily attributable to lower
multifamily fees due to lower multifamily loan prepayments in 2008. The $57 million increase in fee and
other income in 2007 from 2006 was attributable to an increase in technology fees resulting from higher
business volume.
Losses on Certain Guaranty Contracts
Effective January 1, 2008 with our adoption of SFAS 157, we no longer recognize losses or record deferred
profit in our consolidated financial statements at inception of our guaranty contracts for MBS issued
subsequent to December 31, 2007 because the estimated fair value of the guaranty obligation at inception now
equals the estimated fair value of the total compensation received. For further discussion of this change, see
“Critical Accounting Policies and Estimates—Fair Value of Financial Instruments—Fair Value of Guaranty
Obligations” and “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting
Policies.”
We recorded losses at inception on certain guaranty contracts totaling $1.4 billion and $439 million in 2007
and 2006, respectively. These losses reflected the increase in the estimated market risk premium that a market
participant would require to assume our guaranty obligations due to the decline in home prices and
deterioration in credit conditions. We will continue to accrete these losses into income over time as part of the
accretion of the related guaranty obligation. This accretion is included as a component of our guaranty fee
income. See “Notes to Consolidated Financial Statements—Note 8, Financial Guarantees and Master
Servicing” for additional information.
Investment Gains (Losses), Net
Investment gains and losses, net includes other-than-temporary impairment on available-for-sale securities;
lower of cost or fair value adjustments on held-for-sale loans; gains and losses recognized on the securitization
of loans or securities from our portfolio and from the sale of available-for-sale securities; and other investment
losses. Investment gains and losses may fluctuate significantly from period to period depending upon our
portfolio investment and securitization activities and changes in market and credit conditions that may result in
other-than-temporary impairment. Table 7 details the components of investment gains and losses for 2008,
2007 and 2006.
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