Fannie Mae 2009 Annual Report Download - page 285

Guaranties Issued in Connection with Portfolio Securitizations
In addition to retained interests in the form of Fannie Mae MBS, REMICs, and MSAs, we retain an interest in
securitized loans in a portfolio securitization, which represents our right to future cash flows associated
primarily with providing our guaranty. We record the retained guaranty interest in a portfolio securitization in
our consolidated balance sheets as a component of “Guaranty assets.” For a portfolio securitization entered
into prior to 2007, we account for the retained guaranty interests in the same manner as AFS securities. For a
portfolio securitization entered into on or after January 1, 2007, we account for the retained guaranty interests
in the same manner as trading securities. We determine the fair value of the guaranty asset in the same
manner as we do in a lender swap transaction. We assume a recourse obligation in connection with our
guaranty of the timely payment of principal and interest to the MBS trust that we measure and record in our
consolidated balance sheets under “Guaranty obligations” based on the fair value of the recourse obligation at
inception in a similar manner as our lender swap transactions. We recognize any difference between the
guaranty asset and the guaranty obligation in a portfolio securitization as a component of the gain or loss on
the sale of mortgage-related assets and record the difference as “Investment gains (losses), net” in our
consolidated statements of operations.
We evaluate the component of the “Guaranty assets” that represents the retained interest in securitized loans
for other-than-temporary impairment. We amortize and account for the guaranty obligations subsequent to the
initial recognition in the same manner that we account for the guaranty obligations that arise under lender
swap transactions and record a “Reserve for guaranty losses” for estimable and probable losses incurred on the
underlying loans as of each balance sheet date. When we recognize a guaranty obligation and do not receive
an associated guaranty fee, we amortize the guaranty obligation using a systematic and rational method,
dependent on the risk profile of our guaranty.
Fannie Mae MBS included in “Investments in securities”
When we own unconsolidated Fannie Mae MBS, we do not derecognize any components of the guaranty
assets, guaranty obligations, reserve for guaranty losses, or any other outstanding recorded amounts associated
with the guaranty transaction because our contractual obligation to the MBS trust remains in force until the
trust is liquidated. We value Fannie Mae MBS based on their legal terms, which includes the Fannie Mae
guaranty to the MBS trust, and continue to reflect the unamortized obligation to stand ready to perform over
the term of our guaranty and any incurred credit losses in our “Guaranty obligations” and “Reserve for
guaranty losses,” respectively. We disclose the aggregate amount of Fannie Mae MBS held as “Investments in
securities” in our consolidated balance sheets as well as the amount of our “Reserve for guaranty losses” and
“Guaranty obligations” that relates to Fannie Mae MBS held as “Investments in securities.” Upon subsequent
sale of a Fannie Mae MBS, we continue to account for any outstanding recorded amounts associated with the
guaranty transaction on the same basis of accounting as prior to the sale of Fannie Mae MBS, as no new
assets were retained and no new liabilities have been assumed upon the subsequent sale.
Credit Enhancements
Credit enhancements that we recognize separately as “Other assets” in our consolidated balance sheets are
amortized in our consolidated statements of operations as “Other expenses.” We amortize these assets over the
related contract terms at the greater of amounts calculated by amortizing recognized credit enhancements
(1) commensurate with the observed decline in the unpaid principal balance of covered mortgage loans or
(2) on a straight-line basis over a credit enhancement’s contract term. We record recurring insurance premiums
at the amount paid and amortize them over their contractual life, and, if provided quarterly, the amortization
period is three months.
F-27
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)