Fannie Mae 2008 Annual Report Download - page 313

rate used to record the interest expense is a foreign currency transaction gain or loss for the period and is
included as either “Short-term debt interest expense” or “Long-term debt interest expense” in our consolidated
statements of operations.
Trust Management Income
As master servicer, issuer and trustee for Fannie Mae MBS, we earn a fee that reflects interest earned on cash
flows from the date of remittance of mortgage and other payments to us by servicers until the date of
distribution of these payments to MBS certificateholders. Beginning in November 2006, we included such
compensation as “Trust management income” in our consolidated statements of operations consistent with our
change in practice to segregate the funds. Prior to November 2006, funds received from servicers were
maintained with our corporate assets. As such, our compensation for these roles could not be segregated and,
therefore, was previously included as a component of “Interest income” in our consolidated statements of
operations.
Fees Received on the Structuring of Transactions
We offer certain re-securitization services to customers in exchange for fees. Such services include, but are not
limited to, the issuance, guarantee and administration of Fannie Mae REMIC, stripped mortgage-backed
securities (“SMBS”), grantor trust, and Fannie Mae Mega»securities (collectively, the “Structured
Securities”). We receive a one-time conversion fee upon issuance of a Structured Security that varies based on
the value of securities issued and the transaction structure. The conversion fee compensates us for all services
we provide in connection with the Structured Security, including services provided at and prior to security
issuance and over the life of the Structured Securities. Except for Structured Securities where the underlying
collateral is whole loans or private-label securities, we generally do not receive a guaranty fee as
compensation in connection with the issuance of a Structured Security, because the transferred mortgage-
related securities have previously been guaranteed by us or another party.
We defer a portion of the fee received upon issuance of a Structured Security based on our estimate of the fair
value of our future administration services in accordance with EITF No. 00-21, Revenue Arrangements with
Multiple Deliverables. The deferred revenue is amortized on a straight-line basis over the expected life of the
Structured Security. The excess of the total fee over the fair value of the future services is recognized in our
consolidated statements of operations upon issuance of a Structured Security. However, when we acquire a
portion of a Structured Security contemporaneous with our structuring of the transaction, we defer and
amortize a portion of this upfront fee as an adjustment to the yield of the purchased security pursuant to
SFAS 91. Fees received and costs incurred related to our structuring of securities are presented in “Fee and
other income” in our consolidated statements of operations.
Income Taxes
We recognize deferred income tax assets and liabilities for the difference in the basis of assets and liabilities
for financial accounting and tax purposes pursuant to SFAS No. 109, Accounting for Income Taxes
(“SFAS 109”). Deferred tax assets and liabilities are measured using enacted tax rates that are expected to be
applicable to the taxable income or deductions in the period(s) the assets are realized or the liabilities are
settled. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment. We recognize investment and other tax credits through our effective tax rate
calculation assuming that we will be able to realize the full benefit of the credits. SFAS 109 also requires that
a deferred tax asset be reduced by an allowance if, based on the weight of available positive and negative
evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.
F-35
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)