Fannie Mae 2009 Annual Report Download - page 112

our guaranty. We estimate that approximately $200 million of the $1.7 billion would have been
recognized into our 2009 consolidated statement of operations.
• A substantial increase in credit-related expenses, reflecting a significantly higher incremental provision for
credit losses as well as higher charge-offs.
• The increase in credit-related expenses was due to worsening credit performance trends, including
significant increases in delinquencies, defaults and loss severities, throughout our guaranty book of
business, reflecting the adverse impact of the decline in home prices, the weak economy and high
unemployment. Certain higher risk loan categories, loan vintages and loans within certain states that
have had the greatest home price depreciation from their peaks continue to account for a
disproportionate share of our credit losses, but we are also experiencing deterioration in the credit
performance of loans with fewer risk layers. In addition, the increased level of troubled debt
restructurings, particularly through workouts initiated as part of our foreclosure prevention efforts,
increased the number of loans that were individually impaired, contributing to the increase in the
provision for credit losses.
• We also experienced a significant increase in fair value losses on credit-impaired loans acquired from
MBS trusts for the purpose of modifying them during 2009, reflecting the increase in the number of
delinquent loans acquired from MBS trusts, and the decrease in the estimated fair value of these loans
compared with 2008.
• Credit-related expenses in the Single-Family business represent the substantial majority of the
company’s total credit-related expenses. We provide additional information on total credit-related
expenses in “Consolidated Results of Operations—Credit-Related Expenses.”
• The net tax benefit recognized in 2009 was attributable to our ability to carry back current year tax losses
to previous tax years. We recorded a valuation allowance for the majority of the tax benefits associated
with the pre-tax losses recognized in 2009 that we were unable to carry back to previous tax years as
there has been no change in the conclusion we reached in 2008 that it was more likely than not that we
would not generate sufficient taxable income in the foreseeable future to realize all of the tax benefits
generated from these losses. We recorded a non-cash charge in 2008 to establish a partial deferred tax
asset valuation allowance against our net deferred tax assets.
Key factors affecting the results of our Single-Family business for 2008 compared with 2007 included the
following:
• Increased guaranty fee income, primarily attributable to an increase in the average effective guaranty fee
rate, coupled with growth in the average single-family guaranty book of business.
• The average effective single-family guaranty fee rate increased to 30.9 basis points in 2008, from
24.2 basis points in 2007. The growth in our average effective single-family guaranty fee rate during
2008 was primarily driven by the accelerated recognition of deferred amounts into income, as interest
rates fell significantly during 2008, resulting in higher expected prepayment rates. Our average effective
guaranty fee rate for 2008 also reflected the impact of guaranty fee pricing changes we implemented to
address the current risks in the housing market and a shift in the composition of our new business to a
greater proportion of higher-quality, lower risk and lower guaranty fee mortgages. The combined effect
of these changes resulted in a reduction in the average charged guaranty fee on new single-family
business to 28.0 basis points in 2008, from 28.6 basis points for 2007.
• Our average single-family guaranty book of business increased by 13% in 2008 reflecting a significant
increase in our market share. Our estimated market share of new single-family mortgage-related
securities issuances, which is based on publicly available data and excludes previously securitized
mortgages, increased to 45.4% for 2008, from 33.9% for 2007.
• A substantial increase in credit-related expenses, reflecting a significantly higher incremental provision for
credit losses as well as higher charge-offs due to worsening credit performance trends, including
significant increases in delinquencies, defaults and loss severities, particularly in certain higher risk loan
107