Fannie Mae 2009 Annual Report Download - page 104

Table 12: Activity of Credit-Impaired Loans Acquired from MBS Trusts
Contractual
Amount
(1)
Market
Discount
Allowance
for Loan
Losses
Net
Investment
(Dollars in millions)
Balance as of December 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,096 $ (991) $ (39) $ 7,066
Purchases of delinquent loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,542 (2,096) — 2,446
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (184) (184)
Principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (648) 114 5 (529)
Modifications and troubled debt restructurings . . . . . . . . . . . . . . . (3,255) 1,247 37 (1,971)
Foreclosures, transferred to REO . . . . . . . . . . . . . . . . . . . . . . . . . (1,710) 460 32 (1,218)
Balance as of December 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,025 $ (1,266) $(149) $ 5,610
Purchases of delinquent loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,530 (20,419) — 16,111
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (691) (691)
Principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68) 47 13 (8)
Modifications and troubled debt restructurings . . . . . . . . . . . . . . . (18,228) 9,539 74 (8,615)
Foreclosures, transferred to REO . . . . . . . . . . . . . . . . . . . . . . . . . (1,554) 632 27 (895)
Balance as of December 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,705 $(11,467) $(726) $11,512
(1)
Reflects contractually required principal and accrued interest payments that we believe are probable of collection.
With the adoption of new accounting standards on January 1, 2010, we will no longer recognize the
acquisition of loans from the MBS trusts that we have consolidated as a purchase with an associated fair value
loss for the difference between the fair value of the acquired loan and its acquisition cost, as these loans will
already be reflected on our consolidated balance sheet. We provide additional information on the impact of the
new accounting guidance in “Off-Balance Sheet Arrangements and Variable Interest Entities—Elimination of
QSPEs and Changes in the Consolidation Model for Variable Interest Entities.”
We provide additional information on our loan workout activities in “Risk Management—Credit Risk
Management—Mortgage Credit Risk Management—Problem Loan Management and Foreclosure Prevention”
and additional information on credit-impaired loans acquired from MBS trusts in “Note 3, Mortgage Loans.”
Foreclosed Property Expense
While we experienced an increase in foreclosure activity in 2009 compared with 2008 due to higher foreclosed
property acquisitions, foreclosed property expense decreased in 2009 compared with 2008 primarily driven by
$668 million in cash fees received from the cancellation and restructuring of some of our mortgage insurance
coverage. These fees represented an acceleration of, and discount on, claims to be paid pursuant to the
coverage in order to reduce our future exposure to our mortgage insurers. Foreclosed property expense
increased in 2008 compared with 2007 due to a rise in foreclosed property acquisitions reflecting the
deterioration in the credit performance of our book of business.
Credit Loss Performance Metrics
Our credit-related expenses should be considered in conjunction with our credit loss performance.
Management views our credit loss performance metrics, which include our historical credit losses and our
credit loss ratio, as significant indicators of the effectiveness of our credit risk management strategies.
Management uses these metrics together with other credit risk measures to: assess the credit quality of our
existing guaranty book of business; make determinations about our loss mitigation strategies; evaluate our
historical credit loss performance; and determine the level of our loss reserves. These metrics, however, are
not defined terms within GAAP and may not be calculated in the same manner as similarly titled measures
reported by other companies. Because management does not view changes in the fair value of our mortgage
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