Fannie Mae 2009 Annual Report Download - page 289

We periodically review our investments to determine if an other-than-temporary loss in value has occurred. In
these reviews, we consider all relevant information, including the recoverability of our investment, the
earnings and near-term prospects of the entity, factors related to the industry, financial and operating
conditions of the entity and our ability, if any, to influence the management of the entity.
Commitments to Purchase and Sell Mortgage Loans and Securities
We enter into commitments to purchase and sell mortgage-backed securities and to purchase single-family and
multifamily mortgage loans. Commitments to purchase or sell some mortgage-backed securities and to
purchase single-family mortgage loans generally are derivatives. Our commitments to purchase multifamily
loans are not derivatives because they do not meet the criteria for net settlement.
For those commitments that we account for as derivatives, we report them in our consolidated balance sheets
at fair value in “Derivative assets, at fair value” or “Derivative liabilities, at fair value” and include changes in
their fair value in “Fair value losses, net” in our consolidated statements of operations. When derivative
purchase commitments settle, we include their fair value on the settlement date in the cost basis of the security
or loan that we purchase.
Regular-way securities trades provide for delivery of securities within the time generally established by
regulations or conventions in the market in which the trade occurs and are exempt from application of the
derivative accounting literature. Commitments to purchase or sell securities that we account for on a trade-date
basis are also exempt from the derivative accounting requirements. We record the purchase and sale of an
existing security on its trade date when the commitment to purchase or sell the existing security settles within
the period of time that is customary in the market in which those trades take place.
Additionally, contracts for the forward purchase or sale of when-issued and to-be-announced (“TBA”)
securities are exempt from the derivative accounting requirements if there is no other way to purchase or sell
that security, delivery of that security and settlement will occur within the shortest period possible for that
type of security, and it is probable at inception and throughout the term of the individual contract that physical
delivery of the security will occur. Since our commitments for the purchase of when-issued and TBA
securities can be net settled and we do not document that physical settlement is probable, we account for all
such commitments as derivatives.
Commitments to purchase securities that we do not account for as derivatives and do not require trade-date
accounting are accounted for as forward contracts to purchase securities. We designate these commitments as
AFS or trading at inception and account for them in a manner consistent with that category of securities.
Derivative Instruments
We recognize all derivatives as either assets or liabilities in our consolidated balance sheets at their fair value
on a trade date basis. We report derivatives in a gain position after offsetting by counterparty in “Derivative
assets, at fair value” and derivatives in a loss position after offsetting by counterparty in “Derivative liabilities,
at fair value” in our consolidated balance sheets.
We offset the carrying amounts of derivatives (other than commitments) that are in gain positions and loss
positions with the same counterparty, as well as cash collateral receivables and payables associated with
derivative positions in master netting arrangements. We offset these amounts because the derivative contracts
have determinable amounts, we have the legal right to offset amounts with each counterparty, that right is
enforceable by law, and we intend to offset the amounts to settle the contracts.
We determine fair value using quoted market prices in active markets when available. If quoted market prices
are not available for particular derivatives, we use quoted market prices for similar derivatives that we adjust
F-31
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)