Fannie Mae 2009 Annual Report Download - page 273

Portfolio Securitizations
Portfolio securitizations involve the transfer of mortgage loans or mortgage-related securities from our
consolidated balance sheets to a trust to create Fannie Mae MBS, real estate mortgage investment conduits
(“REMICs”) or other types of beneficial interests. We evaluate a transfer of financial assets via portfolio
securitizations to determine whether the transfer qualifies as a sale. Transfers of financial assets for which we
surrender control and receive compensation other than beneficial interests in the transferred assets are recorded
as sales.
When a transfer that qualifies as a sale is completed, we derecognize all transferred assets. We allocate the
previous carrying amount of the transferred assets between the assets sold and the retained interests, if any, in
proportion to their relative fair values at the date of transfer. We record a gain or loss as a component of
“Investment gains (losses), net” in our consolidated statements of operations, which represents the difference
between the allocated carrying amount of the assets sold and the proceeds from the sale, net of any transaction
costs and liabilities incurred, which may include a recourse obligation for our financial guaranty. Retained
interests are primarily in the form of Fannie Mae MBS, REMIC certificates, guaranty assets and master
servicing assets (“MSAs”). We separately describe the subsequent accounting, as well as how we determine
fair value, for our retained interests in the “Investments in Securities,” “Guaranty Accounting,” and “Master
Servicing” sections of this note. If a portfolio securitization does not meet the criteria for sale treatment, the
transferred assets remain on our consolidated balance sheets and we record a liability to the extent of any
proceeds we received in connection with such transfer.
We also enter into repurchase agreements, including dollar roll repurchase agreements, which we account for
as secured borrowings. Refer to the “Securities Purchased under Agreements to Resell and Securities Sold
under Agreements to Repurchase” section of this note for discussion of our accounting policies related to
these transfers.
Cash and Cash Equivalents and Statements of Cash Flows
Short-term investments that have a maturity at the date of acquisition of three months or less and are readily
convertible to known amounts of cash are generally considered cash equivalents. We may pledge as collateral
certain short-term investments classified as cash equivalents.
We classify cash flows from trading securities based on their nature and purpose. Prior to 2008, we classified
cash flows of all trading securities as operating activities. Following the adoption of the updated accounting
standard on the fair value option for financial assets and financial liabilities in 2008, we began to classify cash
flows from trading securities that we intend to hold for investment (the majority of our mortgage-related
trading securities) as investing activities and cash flows from trading securities that we do not intend to hold
for investment (primarily our non-mortgage related securities) as operating activities. We reflect the creation of
Fannie Mae MBS through either securitization of loans held for sale or advances to lenders as a non-cash
activity in our consolidated statements of cash flows in the line items “Securitization-related transfers from
mortgage loans held for sale to investments in securities” or “Transfers from advances to lenders to
investments in securities,” respectively. Cash inflows from the sale of a Fannie Mae MBS created through the
securitization of loans held for sale are reflected in the statement of cash flows based on the balance sheet
classification of the associated Fannie Mae MBS as either “Net decrease in trading securities, excluding non-
cash transfers,” or “Proceeds from sales of available-for-sale securities.”
In the presentation of our consolidated statements of cash flows, we present cash flows from derivatives that
do not contain financing elements, mortgage loans held for sale, and guaranty fees, including buy-up and buy-
down payments, as operating activities. We present cash flows from federal funds sold and securities
purchased under agreements to resell as investing activities and cash flows from federal funds purchased and
F-15
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)