Fannie Mae 2008 Annual Report Download - page 171

Further, in some of our LIHTC partnership investments, our exposure to loss is further mitigated by our
having a guaranteed economic return from an investment grade counterparty.
Table 44 below provides information regarding our LIHTC partnership investments as of and for the years
ended December 31, 2008 and 2007.
Table 44: LIHTC Partnership Investments
Consolidated Unconsolidated Consolidated Unconsolidated
2008 2007
(Dollars in millions)
As of December 31:
Obligation to fund LIHTC partnerships . . . . $612 $545 $1,001 $1,096
For the year ended December 31:
Tax credits from investments in LIHTC
partnerships. . . . . . . . . . . . . . . . . . . . . . $423 $546 $ 385 $ 606
Losses from investments in LIHTC
partnerships. . . . . . . . . . . . . . . . . . . . . . 554 597 203 592
Tax benefits on credits and losses from
investments in LIHTC partnerships . . . . . 616 755 456 813
Contributions to LIHTC partnerships . . . . . . 656 602 685 781
Distributions from LIHTC partnerships . . . . 13 15 7 9
For more information on our off-balance sheet transactions, see “Notes to Consolidated Financial
Statements—Note 19, Concentrations of Credit Risk.”
RISK MANAGEMENT
Our businesses expose us to the following four major categories of risks that often overlap:
•Credit Risk. Credit risk is the risk of financial loss resulting from the failure of a borrower or
institutional counterparty to honor its contractual obligations to us. Credit risk exists primarily in our
mortgage credit book of business, derivatives portfolio and cash and other investments portfolio.
•Market Risk. Market risk is the risk that a change in one or more market prices, interest rates, spreads,
or other market factors will result in adverse changes in the fair value of our net assets or our long-term
earnings. We actively manage the market risk associated with changes in interest rates.
•Operational Risk. Operational risk relates to the risk of loss resulting from inadequate or failed internal
processes, people or systems, or from external events.
•Liquidity Risk. Liquidity risk is the risk to our earnings and capital arising from an inability to meet our
cash obligations in a timely manner.
We also are subject to a number of other risks that could adversely impact our business, financial condition,
earnings and cash flows, including legal and reputational risks that may arise due to a failure to comply with
laws, regulations or ethical standards and codes of conduct applicable to our business activities and functions.
See “Part I—Item 1A—Risk Factors.”
Effective management of risks is an integral part of our business and critical to our safety and soundness. In
the following sections, we provide an overview of our risk governance framework and risk management
processes, which are intended to identify, measure, monitor and control the principal risks we assume in
conducting our business activities in accordance with defined policies and procedures. Following the risk
governance overview, we provide additional information on how we manage each of our four major categories
of risk.
Risk Governance Framework
Our risk governance framework is designed to balance strong corporate oversight with well-defined
independent risk management functions associated with each business unit. The objective of our corporate risk
framework is to ensure that people and processes are organized in a way that promotes a cross-functional
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