Fannie Mae 2008 Annual Report Download - page 133

reduce the exposure to losses. The credit enhancements on our private-label security investments generally are
in the form of initial subordination provided by lower level tranches of these securities and prepayment
proceeds within the trust. In addition, monoline financial guarantors have provided secondary guarantees that
are based on specific performance triggers. The characteristics of the subprime securities that we hold are
different than the securities underlying the ABX indices, which is a widely used performance-tracking index
for the U.S. structured finance market. For example, the pass-through securities in our portfolio reflect the
entirety of the underlying AAA cash flows, while only a portion of the underlying AAA cash flows backs the
securities in the ABX indices.
The unpaid principal balance of private-label mortgage-related securities backed by Alt-A, subprime,
multifamily, manufactured housing and other mortgage loans and mortgage revenue bonds held in our
mortgage portfolio was $98.9 billion as of December 31, 2008, down from $111.1 billion as of December 31,
2007, reflecting a reduction of $12.2 billion primarily due to principal payments, as well as the sale of some
of these securities. Table 23 summarizes, by loan type, the composition of our investments in private-label
securities and mortgage revenue bonds as of December 31, 2008 and the average credit enhancement. The
average credit enhancement generally reflects the level of cumulative losses that must be incurred before we
experience a loss of principal on the tranche of securities that we own. Table 23 also provides information on
the credit ratings of our private-label securities as of February 20, 2009. The credit rating reflects the lowest
rating as reported by Standard & Poor’s (“Standard & Poor’s”), Moody’s Investors Service (“Moody’s”), Fitch
Ratings (“Fitch”) or Dominion Bond Rating Service Limited (“DBRS, Limited”), each of which is a nationally
recognized statistical rating organization.
Table 23: Investments in Private-Label Mortgage-Related Securities and Mortgage Revenue Bonds
Unpaid
Principal
Balance
Average
Credit
Enhancement
(1)
% AAA
(2)
%AA
to BBB-
(2)
% Below
Investment
Grade
(2)
Current%
Watchlist
(3)
As of December 31, 2008 As of February 20, 2009
(Dollars in millions)
Private-label mortgage-related
securities backed by:
Alt-A mortgage loans:
Option ARM Alt-A mortgage
loans................... $ 6,711 53% 5% 25% 70% —%
Other Alt-A mortgage loans . . . . . 21,147 14 42 16 42 1
Total Alt-A mortgage loans . . . . . . . 27,858 23 33 18 49 1
Subprime mortgage loans . . . . . . . . 24,551 36 26 23 51 3
Multifamily mortgage loans
(CMBS). . . . . . . . . . . . . . . . . . . 25,825 30 100 — — —
Manufactured housing loans . . . . . . 2,840 36 3 33 64 1
Other mortgage loans . . . . . . . . . . . 2,332 6 93 4 3 —
Total private-label mortgage-related
securities . . . . . . . . . . . . . . . . . . . . 83,406
Mortgage revenue bonds
(4)
. . . . . . . . . 15,447 35 39 59 2 17
Total ........................ $98,853
(1)
Average credit enhancement percentage reflects both subordination and financial guarantees. Reflects the ratio of the
current amount of the securities that will incur losses in a securitization structure before any losses are allocated to
securities that we own. Percentage calculated based on the quotient of the total unpaid principal balance of all credit
enhancement in the form of subordination or financial guarantee of the security divided by the total unpaid principal
balance of all of the tranches of collateral pools from which credit support is drawn for the security that we own.
(2)
Reflects credit ratings as of February 20, 2009, calculated based on unpaid principal balance as of December 31, 2008.
Investment securities that have a credit rating below BBB- or its equivalent or that have not been rated are classified
as below investment grade.
128