Fannie Mae 2009 Annual Report Download - page 127

Primary Factors Driving Changes in Non-GAAP Fair Value of Net Assets
Changes in the fair value of our assets and liabilities are primarily attributable to our investment activities and
credit guaranty business activities. Some fair value changes of our assets and liabilities may be related to both
of these activities. Our attribution of changes in the fair value of net assets relies on models, assumptions, and
other measurement techniques that evolve over time. We expect periodic fluctuations in the fair value of our
net assets due to our business activities, as well as changes in market conditions, such as home prices,
unemployment rates, interest rates, spreads, and implied volatility. The decline in home prices and increase in
unemployment continued to have an adverse impact on the fair value of our net assets during 2009. The
following attribution of the primary factors driving the decrease of $51.1 billion in the fair value of our net
assets, excluding capital transactions, during 2009 reflects our current estimate of the items presented (on a
pre-tax basis).
• A pre-tax decrease of approximately $60 billion in the fair value of our net guaranty assets, driven by a
substantial increase in the estimated fair value of our guaranty obligations, largely attributable to an
increase in expected credit losses as a result of continued weakness in the housing market and general
economy. In addition, but to a smaller degree, the fair value of our net guaranty assets was affected by a
change we made in the first quarter of 2009 in how we estimate the fair value of certain of our guaranty
obligations, which is more fully described in “Critical Accounting Policies and Estimates.”
• In connection with our MBS guarantees, we acquired loans from MBS trusts at par plus accrued interest,
which substantially exceeded fair value. These purchases reduced the fair value of our net assets by
approximately $20 billion. As these loans are acquired and reflected at fair value on the Fair Value
Balance Sheet, any guaranty obligations previously associated with these loans are reversed. Hence, as
loans are acquired from Trust, the fair value of our guaranty obligations declines.
• A pre-tax increase of approximately $18 billion in the fair value of the net portfolio attributable to the
positive impact of changes in the spread between mortgage assets and associated debt and derivatives. We
provide additional information on the composition and estimated fair value of our mortgage investments
in “Consolidated Balance Sheet Analysis—Mortgage Investments.”
Cautionary Language Relating to Supplemental Non-GAAP Financial Measures
In reviewing our non-GAAP fair value balance sheets, there are a number of important factors and limitations
to consider. The estimated fair value of our net assets is calculated as of a particular point in time based on
our existing assets and liabilities. It does not incorporate other factors that may have a significant impact on
our long-term fair value, including revenues generated from future business activities in which we expect to
engage, the value from our foreclosure and loss mitigation efforts or the impact that potential regulatory
actions may have on us. As a result, the estimated fair value of our net assets presented in our non-GAAP fair
value balance sheets does not represent an estimate of our net realizable value, liquidation value or our market
value as a whole. Amounts we ultimately realize from the disposition of assets or settlement of liabilities may
vary significantly from the estimated fair values presented in our non-GAAP consolidated fair value balance
sheets.
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