Fannie Mae 2009 Annual Report Download - page 107

Table 15: Single-Family Credit Loss Sensitivity
(1)
2009 2008
As of December 31,
(Dollars in millions)
Gross single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,311 $ 13,232
Less: Projected credit risk sharing proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,533) (3,478)
Net single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,778 $ 9,754
Outstanding single-family whole loans and Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . $2,830,004 $2,724,253
Single-family net credit loss sensitivity as a percentage of outstanding single-family whole
loans and Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.56% 0.36%
(1)
Represents total economic credit losses, which consist of credit losses and forgone interest. Calculations are based on
approximately 97% of our total single-family guaranty book of business as of both December 31, 2009 and 2008. The
mortgage loans and mortgage-related securities that are included in these estimates consist of: (a) single-family Fannie
Mae MBS (whether held in our mortgage portfolio or held by third parties), excluding certain whole loan REMICs and
private-label wraps; (b) single-family mortgage loans, excluding mortgages secured only by second liens, subprime
mortgages, manufactured housing chattel loans and reverse mortgages; and (c) long-term standby commitments. We
expect the inclusion in our estimates of the excluded products may impact the estimated sensitivities set forth in this
table.
The increase in the projected credit loss sensitivities during 2009 reflected the decline in home prices and the
ongoing negative outlook for the housing and credit markets. Because these sensitivities represent hypothetical
scenarios, they should be used with caution. Our regulatory stress test scenario is limited in that it assumes an
instantaneous uniform 5% nationwide decline in home prices, which is not representative of the historical
pattern of changes in home prices. Changes in home prices generally vary on a regional, as well as a local,
basis. In addition, these stress test scenarios are calculated independently without considering changes in other
interrelated assumptions, such as unemployment rates or other economic factors, which are likely to have a
significant impact on our future expected credit losses.
Other Non-Interest Expenses
Other non-interest expenses consist of credit enhancement expenses, which reflect the amortization of the
credit enhancement asset we record at the inception of guaranty contracts, costs associated with the purchase
of additional mortgage insurance to protect against credit losses, net gains and losses on the extinguishment of
debt, and other miscellaneous expenses. Other non-interest expenses increased in 2009 compared with 2008
primarily due to an increase in our master servicing costs, recording reserves for legal claims, and an increase
in net losses recorded on the extinguishment of debt. The increased expenses were partially offset by a
reduction in interest expense associated with unrecognized tax benefits related to certain unresolved tax
positions. The increase in expenses for 2008 compared with 2007 was attributable to interest expense
associated with the increase in our unrecognized tax benefit, an increase in amortization expense related to our
master servicing assets and an increase in the net losses recorded on the extinguishment of debt.
Federal Income Taxes
We recorded a tax benefit for federal income taxes of $985 million for 2009, resulting in an effective income
tax rate for the year of 1%, which represents the benefit of carrying back a portion of our expected current
year tax loss, net of the reversal of the use of certain tax credits, to prior years. We were not able to recognize
a net tax benefit on all of our 2009 pre-tax loss as there has been no change in our 2008 conclusion that it
was more likely than not that we would not generate sufficient taxable income in the foreseeable future to
realize all of our net deferred tax assets. As a result, we recorded an increase in our valuation allowance of
$25.7 billion in 2009 in our consolidated statement of operations, which represented the tax effect associated
with a portion of the pre-tax loss. The valuation allowance recorded against our deferred tax assets totaled
$52.7 billion as of December 31, 2009, resulting in a net deferred tax asset of $909 million. In comparison,
we recorded a provision for federal income taxes of $13.7 billion in 2008, due primarily to the valuation
allowance recorded against our deferred tax assets that totaled $30.8 billion as of December 31, 2008,
102