Fannie Mae 2008 Annual Report Download - page 385

exposure, we have classified mortgage loans as subprime if the mortgage loans are originated by one of these
specialty lenders or a subprime division of a large lender. We have classified private-label mortgage-related
securities held in our investment portfolio as subprime if the securities were labeled as such when issued. We
reduce our risk associated with these loans through credit enhancements, as described below under
“Mortgage Insurers.”
The following table displays the percentage of our conventional single-family mortgage credit book of business that
consists of interest-only loans, negative-amortizing adjustable rate mortgages (“ARMs”) and loans with an
estimated mark-to-market loan to value (“LTV”) ratio of greater than 80% as of December 31, 2008 and 2007.
2008 2007
As of December 31,
Percentage of
Conventional Single-
Family Mortgage Credit
Book of Business
Interest-only loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 8%
Negative-amortizing ARMs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
80%+LTVloans.................................................. 34 20
The following table displays information regarding the Alt-A and subprime mortgage loans and mortgage-
related securities in our single-family conventional mortgage credit book of business as of December 31, 2008
and 2007.
Unpaid
Principal
Balance
Percent of
Book of
Business
(1)
Unpaid
Principal
Balance
Percent of
Book of
Business
(1)
2008 2007
As of December 31,
(Dollars in millions)
Loans and Fannie Mae MBS:
Alt-A
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $295,622 10% $318,121 12%
Subprime
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,086 1 22,126 1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $314,708 11% $340,247 13%
Private-label securities:
Alt-A
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,858 1% $ 32,475 1%
Subprime
(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,551 1 32,040 1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,409 2% $ 64,515 2%
(1)
Calculated based on total unpaid principal balance of the total single-family mortgage credit book of business.
(2)
Represents Alt-A mortgage loans held in our portfolio and Fannie Mae MBS backed by Alt-A mortgage loans.
(3)
Represents subprime mortgage loans held in our portfolio and Fannie Mae MBS backed by subprime mortgage loans.
(4)
Represents private-label mortgage-related securities backed by Alt-A mortgage loans.
(5)
Represents private-label mortgage-related securities backed by subprime mortgage loans.
Derivatives Counterparties. The risk associated with a derivative transaction is that a counterparty will
default on payments due to us. If there is a default, we may have to acquire a replacement derivative from a
different counterparty at a higher cost or may be unable to find a suitable replacement. Our derivative credit
exposure relates principally to interest rate and foreign currency derivative contracts. Typically, we seek to
manage these exposures by contracting with experienced counterparties that are rated A- (or its equivalent) or
better. These counterparties consist of large banks, broker-dealers and other financial institutions that have a
F-107
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)