Fannie Mae 2008 Annual Report Download - page 309

servicing rights (MSAs and MSLs) be initially recognized at fair value and provides two measurement options
for each class of MSAs and MSLs subsequent to initial recognition: (i) carry at fair value with changes in fair
value recognized in earnings or (ii) continue to recognize periodic amortization expense and assess MSAs and
MSLs for impairment or increased obligation as was originally required by SFAS 140. We identify classes of
MSAs and MSLs based on the availability of market inputs used in determining their fair value. The
availability of such market inputs is consistent across our MSAs and MSLs; therefore, we account for them as
one class. SFAS 156 also changes the calculation of the gain or loss from the sale of financial assets by
requiring that the fair value of servicing rights be considered part of the proceeds received in exchange for the
sale of the assets. The adoption of SFAS 156 did not materially impact our consolidated financial statements
because we did not elect to measure MSAs and MSLs at fair value subsequent to their initial recognition.
Other Investments
Unconsolidated investments in limited partnerships are primarily accounted for under the equity method of
accounting. These investments include our LIHTC and other partnership investments. Under the equity
method, our investment is increased or decreased for our share of the limited partnership’s net income or loss
reflected in “Losses from partnership investments” in our consolidated statements of operations, as well as
increased for contributions made to the partnerships and reduced by distributions received from the
partnerships.
For unconsolidated common and preferred stock investments that are not within the scope of SFAS 115, we
apply either the equity or the cost method of accounting. Investments in these entities where our ownership is
between 20% and 50%, or which provide us the ability to exercise significant influence over the entity’s
operations and management functions, are accounted for using the equity method. Investments in entities
where our ownership is less than 20% and we have no ability to exercise significant influence over an entity’s
operations are accounted for using the cost method. These investments are included as “Other assets” in our
consolidated balance sheets.
We periodically review our investments to determine if a loss in value that is other than temporary has
occurred. In these reviews, we consider all available information, including the recoverability of our
investment, the earnings and near-term prospects of the entity, factors related to the industry, financial and
operating conditions of the entity and our ability, if any, to influence the management of the entity.
Commitments to Purchase and Sell Mortgage Loans and Securities
We enter into commitments to purchase and sell mortgage-related securities and to purchase single-family and
multifamily mortgage loans. Commitments to purchase or sell some mortgage-related securities and to
purchase single-family mortgage loans generally are derivatives under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 133”), as amended and interpreted. Our commitments
to purchase multifamily loans are not derivatives under SFAS 133 because they do not meet the criteria for net
settlement.
For those commitments that we account for as derivatives, we report them in our consolidated balance sheets
at fair value in “Derivative assets at fair value” or “Derivative liabilities at fair value” and include changes in
their fair value in “Fair value losses, net” in our consolidated statements of operations. When derivative
purchase commitments settle, we include their fair value on the settlement date in the cost basis of the security
or loan that we purchase.
Regular-way securities trades provide for delivery of securities within the time generally established by
regulations or conventions in the market in which the trade occurs and are exempt from SFAS 133.
Commitments to purchase or sell securities that are accounted for on a trade-date basis are also exempt from
F-31
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)