Fannie Mae 2008 Annual Report Download - page 388

financial guaranty contracts assure the collectability of timely interest and ultimate principal payments on the
guaranteed securities if the cash flows generated by the underlying collateral are not sufficient to fully support
these payments.
If a financial guarantor fails to meet its obligations to us with respect to the securities for which we have
obtained financial guarantees, it could reduce the fair value of our mortgage-related securities and result in
financial losses to us, which could have a material adverse effect on our earnings, liquidity, financial condition
and net worth.
Parties Associated with Our Off-Balance Sheet Transactions. We enter into financial instrument transactions
that create Off-balance sheet credit risk in the normal course of our business. These transactions are designed
to meet the financial needs of our customers, and manage our credit, market or liquidity risks.
We have entered into guaranties for which a guaranty obligation has not been recognized in our consolidated
balance sheets relating to periods prior to our adoption of FIN 45. Our maximum potential exposure under
these guaranties is $172.2 billion and $206.5 billion as of December 31, 2008 and 2007, respectively. If we
were required to make payments under these guaranties, we would pursue recovery through our right to the
collateral backing the underlying loans, available credit enhancements and recourse with third parties that
provide a maximum coverage of $17.6 billion and $22.7 billion as of December 31, 2008 and 2007,
respectively.
The following table displays the contractual amount of off-balance sheet financial instruments as of
December 31, 2008 and 2007. Contractual or notional amounts do not necessarily represent the credit risk of
the positions.
2008 2007
As of December 31,
(Dollars in millions)
Fannie Mae MBS and other guarantees
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $172,188 $206,519
Loan purchase commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,951 4,998
(1)
Represents maximum exposure on guarantees not reflected in our consolidated balance sheets. Refer to “Note 8,
Financial Guaranties and Master Servicing” for maximum exposure associated with guarantees reflected in our
consolidated balance sheets.
We do not require collateral from our counterparties to secure their obligations to us for loan purchase
commitments.
20. Fair Value of Financial Instruments
The fair value of financial instruments disclosure required by SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, includes commitments to purchase multifamily mortgage loans and single-family
reverse mortgage loans, which are off-balance sheet financial instruments that are not recorded in our
consolidated balance sheets. The fair value of these commitments are included as “Mortgage loans held for
investment, net of allowance for loan losses.” The disclosure excludes certain financial instruments, such as
plan obligations for pension and other postretirement benefits, employee stock option and stock purchase
plans, and also excludes all non-financial instruments. As a result, the fair value of our financial assets and
liabilities does not represent the underlying fair value of our total consolidated assets and liabilities.
F-110
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)