Fannie Mae 2008 Annual Report Download - page 386

significant presence in the derivatives market, most of which are based in the United States. For the year
ended December 31, 2008, we recognized a loss of $104 million in our consolidated statement of operations
as a component of “Fair value losses, net” resulting from the bankruptcy of one of our counterparties.
We also manage our exposure to derivatives counterparties by requiring collateral to limit our counterparty
credit risk exposure. We have a collateral management policy with provisions for requiring collateral on
interest rate and foreign currency derivative contracts in net gain positions based upon the counterparty’s credit
rating. The collateral includes cash, U.S. Treasury securities, agency debt and agency mortgage-related
securities. Collateral posted to us is held and monitored daily by a third-party custodian. We analyze credit
exposure on our derivative instruments daily and make collateral calls as appropriate based on the results of
internal pricing models and dealer quotes.
The table below displays the credit exposure on outstanding risk management derivative instruments by
counterparty credit ratings, as well as the notional amount outstanding and the number of counterparties as of
December 31, 2008 and 2007.
AAA AA+/AA/AA- A+/A/A- Subtotal Other
(2)
Total
Credit Rating
(1)
As of December 31, 2008
(Dollars in millions)
Credit loss exposure
(3)
. . . . . . . . . . . . . . . . . $ — $ 3,044 $ 686 $ 3,730 $101 $ 3,831
Less: Collateral held
(4)
. . . . . . . . . . . . . . . . . — 2,951 673 3,624 — 3,624
Exposure net of collateral . . . . . . . . . . . . . . . $ — $ 93 $ 13 $ 106 $101 $ 207
Additional information:
Notional amount
(6)
. . . . . . . . . . . . . . . . $250 $533,317 $664,155 $1,197,722 $874 $1,198,596
Number of counterparties
(6)
.......... 1 8 10 19
AAA AA+/AA/AA- A+/A/A- Subtotal Other
(2)
Total
Credit Rating
(1)
As of December 31, 2007
(Dollars in millions)
Credit loss exposure
(3)
. . . . . . . . . . . . . . . . . . $ 4 $ 1,578 $ 1,004 $ 2,586 $ 74 $ 2,660
Less: Collateral held
(5)
. . . . . . . . . . . . . . . . . . — 1,130 988 2,118 — 2,118
Exposure net of collateral . . . . . . . . . . . . . . . . $ 4 $ 448 $ 16 $ 468 $ 74 $ 542
Additional information:
Notional amount
(6)
. . . . . . . . . . . . . . . . . . $1,050 $637,847 $246,860 $885,757 $707 $886,464
Number of counterparties
(6)
........... 1 17 3 21
(1)
We manage collateral requirements based on the lower credit rating of the legal entity, as issued by Standard & Poor’s
and Moody’s. The credit rating reflects the equivalent Standard & Poor’s rating for any ratings based on Moody’s
scale.
(2)
Includes MBS options, defined benefit mortgage insurance contracts, guaranteed guarantor trust swaps and swap credit
enhancements accounted for as derivatives where the right of legal offset does not exist.
(3)
Represents the exposure to credit losses on derivative instruments, which is estimated by calculating the cost, on a
present value basis, to replace all outstanding contracts in a gain position. Derivative gains and losses with the same
counterparty are netted where a legal right of offset exists under an enforceable master netting agreement. This table
excludes mortgage commitments accounted for as derivatives.
(4)
Represents both cash and noncash collateral posted by our counterparties to us. The value of the non-cash collateral is
reduced in accordance with the counterparty agreements to help ensure recovery of any loss through the disposition of
the collateral. We posted cash collateral of $15.0 billion related to our counterparties’ credit exposure to us as of
December 31, 2008.
F-108
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)