Fannie Mae 2008 Annual Report Download - page 113

offset by gains from the sale of two portfolios of investments in LIHTC partnerships. We also experienced an
increase in operating losses and recorded other-than-temporary impairment on our investments in rental and
for-sale affordable housing, attributable to the deepening economic downturn.
The increase in losses in 2007 related primarily to higher losses on our for-sale housing investments due to the
deterioration in the housing market and higher net operating losses on our affordable rental housing
partnership investments due to an increase in investments. These losses were partially offset by gains from the
sale of two portfolios of investments in LIHTC partnerships.
Administrative Expenses
Administrative expenses include ongoing operating costs, such as salaries and employee benefits, professional
services, occupancy costs and technology expenses. Administrative expenses totaled $2.0 billion, $2.7 billion
and $3.1 billion for 2008, 2007 and 2006, respectively.
The $690 million decrease in administrative expenses in 2008 from 2007 reflected significant reductions in
restatement and related regulatory expenses and a reduction in our ongoing operating costs due to efforts we
undertook in 2007 to increase productivity and lower our administrative costs. In addition, we reversed
amounts that we had previously accrued for 2008 bonuses in the third quarter of 2008. We have taken recent
steps to realign our organization, personnel and resources to focus on our most critical priorities, which
include providing liquidity to the mortgage market and preventing foreclosures. As part of this realignment,
we reduced staffing levels in some areas of the company during early 2009; however, we plan to continue to
increase staffing levels in other areas, particularly those divisions of the company that focus on our
foreclosure-prevention efforts.
The $407 million decrease in administrative expenses in 2007 from 2006 also 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.
Pension and other postretirement benefit expenses included in our administrative expenses totaled $95 million,
$143 million and $137 million for 2008, 2007 and 2006, respectively. We disclose the key actuarial
assumptions for our principal employee retirement benefit plans in “Notes to Consolidated Financial
Statements—Note 15, Employee Retirement Benefits.” We made contributions of $12 million to fund our
nonqualified pension plans and other postretirement benefit plans during 2008. The funding status of our
qualified pension plan shifted to a funding deficit of $222 million as of December 31, 2008, from a funding
surplus of $44 million as of December 31, 2007. Based on the provisions of ERISA, we were not required to
make a contribution to our qualified pension plan in 2008. We elected, however, to make a voluntary
contribution to our qualified pension plan of $80 million in 2008 because of the significant reduction in the
value of our plan assets during the year due to the dramatic decline in the global equity markets. Prior to
enactment of the Pension Protection Act of 2006, the funding policy for our qualified pension plan was to
contribute an amount equal to the required minimum contribution under ERISA and to maintain a funded
status of 105% of the current liability as of January 1 of each year. We currently evaluate our funding policy
in light of the Pension Protection Act requirements and the amendments to our plan that our Board of
Directors approved in 2007, which were effective beginning with the 2008 plan year. We currently do not
believe that we will be required to make a minimum contribution to our qualified pension plan in 2009;
however, we will continue to monitor market conditions to determine whether we will make a voluntary
contribution to our plan in 2009.
Credit-Related Expenses
Credit-related expenses included in our consolidated statements of operations consist of the provision for
credit losses and foreclosed property expense. We detail the components of our credit-related expenses below
in Table 10. The substantial increase in our credit-related expenses in 2008 and 2007 was attributable to
significant increases in our provision for credit losses and foreclosed property expense, reflecting continued
building of our loss reserves and increases in the level of net charge-offs due to the severe downturn in the
housing market, coupled with broader economic weakness.
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