Fannie Mae 2008 Annual Report Download - page 326

We estimate the cash flows expected to be collected at acquisition using internal prepayment, interest rate and
credit risk models that incorporate management’s best estimate of certain key assumptions, such as default
rates, loss severity and prepayment speeds. The following table provides activity for the accretable yield of
these loans for the years ended December 31, 2008, 2007 and 2006.
2008 2007 2006
For the Year Ended
December 31,
(Dollars in millions)
Beginning balance, as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,252 $ 1,511 $1,112
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,805 1,772 887
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (279) (273) (235)
Reductions
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,294) (1,206) (770)
Change in estimated cash flows
(2)
.................................. 420 797 626
Reclassifications to nonaccretable difference
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . (345) (349) (109)
Ending balance, as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,559 $ 2,252 $1,511
(1)
Reductions are the result of liquidations and loan modifications due to TDRs.
(2)
Represents changes in expected cash flows due to changes in prepayment assumptions.
(3)
Represents changes in expected cash flows due to changes in credit quality or credit assumptions.
The table above only includes accreted effective interest for those loans which are still being accounted for
under SOP 03-3 and not SOP 03-3 loans that were modified as TDRs subsequent to their acquisition from
MBS trusts.
The following table displays interest income recognized and the increase in the “Provision for credit losses”
related to loans that are still being accounted for under SOP 03-3 as well as SOP 03-3 loans that have been
subsequently modified as a TDR for the years ended December 31, 2008, 2007 and 2006.
2008 2007 2006
For the Year Ended
December 31,
(Dollars in millions)
Accretion of SOP 03-3 fair value losses
(1)
................................. $158 $ 80 $ 43
Interest income on SOP 03-3 loans returned to accrual status or subsequently modified
as TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 416 318
Total interest income recognized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $634 $496 $361
Increase in “Provision for credit losses” subsequent to the acquisition of SOP 03-3
loans ......................................................... $185 $ 76 $ 58
(1)
Represents accretion of the fair value discount that was recorded upon acquisition of SOP 03-3 loans.
F-48
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)