Fannie Mae 2008 Annual Report Download - page 311

We adopted SFAS 155 effective January 1, 2007 and elected fair value measurement for certain hybrid
financial instruments containing embedded derivatives that otherwise require bifurcation. We also elected to
classify some investment securities that may contain embedded derivatives as trading securities under
SFAS 115, which includes buy-ups and guaranty assets arising from portfolio securitization transactions.
SFAS 155 is a prospective standard and had no impact on our consolidated financial statements on the date of
adoption.
Collateral
We enter into various transactions where we pledge and accept collateral, the most common of which are our
derivative transactions. Required collateral levels vary depending on the credit rating and type of counterparty.
We also pledge and receive collateral under our repurchase and reverse repurchase agreements. The fair value
of the collateral received from our counterparties is monitored, and we may require additional collateral from
those counterparties, as deemed appropriate. Collateral received under early funding agreements with lenders,
whereby we advance funds to lenders prior to the settlement of a security commitment, must meet our
standard underwriting guidelines for the purchase or guarantee of mortgage loans.
Cash Collateral
For derivative positions with the same counterparty under master netting arrangements to the extent that we
pledge cash collateral and give up control to a counterparty, we remove it from “Cash and cash equivalents”
and reclassify it as part of “Derivative liabilities at fair value” in our consolidated balance sheets as a part of
our counterparty netting calculation under FSP FIN 39-1. We pledged $20.3 billion and $6.5 billion in cash
collateral as of December 31, 2008 and 2007, respectively. Cash collateral accepted from a counterparty that
we have the right to use is recorded as “Cash and cash equivalents” in our consolidated balance sheets. Cash
collateral accepted from a counterparty that we do not have the right to use is recorded as “Restricted cash” in
our consolidated balance sheets. Our obligation to return cash collateral pledged to us is recorded as part of
“Derivative assets at fair value” in our consolidated balance sheets as a part of our counterparty netting
calculation under FSP FIN 39-1. We accepted cash collateral of $4.0 billion and $2.0 billion as of
December 31, 2008 and 2007, respectively, of which $330 million and $38 million, respectively, was
restricted.
Pledged Non-Cash Collateral
Securities pledged to counterparties are classified as either “Investments in securities” or “Cash and cash
equivalents” in our consolidated balance sheets. Securities pledged to counterparties that have been
consolidated under FIN 46R as loans are included as “Mortgage loans” in our consolidated balance sheets. As
of December 31, 2008, we pledged $720 million of AFS securities, which the counterparty had the right to
sell or repledge. As of December 31, 2007, we pledged $531 million of AFS securities, $5 million of trading
securities, $2 million of HFI loans, which the counterparty had the right to sell or repledge.
The fair value of non-cash collateral accepted that we were permitted to sell or repledge was $141 million and
$238 million as of December 31, 2008 and 2007, respectively, of which none was sold or repledged. The fair
value of non-cash collateral accepted that we were not permitted to sell or repledge was $13.3 billion and
$5.4 billion as of December 31, 2008 and 2007, respectively.
Our liability to third-party holders of Fannie Mae MBS that arises as the result of a consolidation of a
securitization trust is fully collateralized by underlying loans and/or mortgage-related securities.
When securities sold under agreements to repurchase meet all of the conditions of a secured financing, the
collateral of the transferred securities are reported at fair value, excluding accrued interest. The fair value of
F-33
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)