Fannie Mae 2009 Annual Report Download - page 121

Moreover, we and the other entities involved often have competing financial interests. As a result, the
effectiveness of our efforts is difficult to determine and also may not be known for some time.
Investments in Alt-A and Subprime Private-Label Mortgage-Related Securities
The current market pricing of Alt-A and subprime securities has been adversely affected by the increasing
level of defaults on the mortgages underlying these securities and uncertainty as to the extent of further
deterioration in the housing market. In addition, market participants are requiring a significant risk premium,
which can be measured as a significant increase in the required yield on the investment, for taking on the
increased uncertainty related to cash flows. Further, there continues to be less liquidity for these securities than
was available prior to the onset of the housing and credit liquidity crises, which has also contributed to lower
prices. Although our portfolio of Alt-A and subprime private-label mortgage-related securities primarily
consists of senior level tranches, we have recorded significant fair value losses on these securities.
Table 25 presents the fair value of our investments in Alt-A and subprime private-label securities, excluding
wraps, and an analysis of the cumulative losses on these investments as of December 31, 2009. The total
cumulative losses presented for our Alt-A and subprime private-label securities classified as trading represent
the cumulative fair value losses recognized in our consolidated statements of operations, while the total
cumulative losses presented for our Alt-A and subprime private-label securities classified as available-for-sale
represent the total other-than-temporary impairment related to these securities. As discussed in “Critical
Accounting Policies and Estimates—Other-Than-Temporary Impairment of Investment Securities,” we adopted
new accounting rules for other-than-temporary impairment effective April 1, 2009, which changed our method
for assessing, measuring and recognizing other-than-temporary impairment. As a result of this change, we no
longer record in earnings the noncredit component of other-than-temporary impairment on our
available-for-sale securities that we do not intend to sell and will not be required to sell prior to recovery of
the amortized cost basis. Instead, we record this amount in AOCI. Table 25 displays the estimated noncredit
and credit-related components of the fair value losses on our trading securities and our available-for-sale
securities.
Table 25: Analysis of Losses on Alt-A and Subprime Private-Label Mortgage-Related Securities (Excluding
Wraps)
(1)
Unpaid
Principal
Balance
Fair
Value
Total
Cumulative
Losses
(2)
Noncredit
Component
(3)
Net
Losses
(4)
As of December 31, 2009
(Dollars in millions)
Trading securities:
Alt-A private-label securities . . . . . . . . . . . . . . . . . . . $ 3,303 $ 1,355 $ (1,938) $ (791) $(1,147)
Subprime private-label securities . . . . . . . . . . . . . . . . 3,007 1,780 (1,227) (371) (856)
Total Alt-A and subprime private-label securities
classified as trading. . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,310 $ 3,135 $ (3,165) $(1,162) $(2,003)
Available-for-sale securities:
Alt-A private-label securities . . . . . . . . . . . . . . . . . . . 21,202 14,150 (7,143) (3,686) (3,457)
Subprime private-label securities . . . . . . . . . . . . . . . . 17,520 10,746 (6,989) (2,486) (4,503)
Total Alt-A and subprime private-label securities
classified as available for sale . . . . . . . . . . . . . . . . . . $38,722 $24,896 $(14,132) $(6,172) $(7,960)
(1)
Excludes resecuritizations, or wraps, of private-label securities backed by subprime loans that we have guaranteed and
hold in our mortgage portfolio. These wraps totaled $5.9 billion as of December 31, 2009.
(2)
Amounts reflect the difference between the amortized cost basis (unpaid principal balance net of unamortized
premiums, discounts and cost basis adjustments), excluding other-than-temporary impairment losses recorded in
earnings, and the fair value.
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