Fannie Mae 2009 Annual Report Download - page 291

Non-Cash Collateral
We classify securities pledged to counterparties as either “Investments in securities” or “Cash and cash
equivalents” in our consolidated balance sheets. Securities pledged to counterparties that have been
consolidated as loans are included as “Mortgage loans” in our consolidated balance sheets. As of
December 31, 2009, we had pledged $1.1 billion in available-for-sale (“AFS”) securities and $1.9 billion in
HFI loans which the counterparty had the right to sell or repledge. As of December 31, 2008, we had pledged
$720 million of AFS securities, which the counterparty had the right to sell or repledge. We did not pledge
any HFI loans to counterparties as of December 31, 2008.
The fair value of non-cash collateral accepted that we were permitted to sell or repledge was $67 million and
$141 million as of December 31, 2009 and 2008, respectively, none of which was sold or repledged. The fair
value of non-cash collateral accepted that we were not permitted to sell or repledge was $4.2 billion and
$13.3 billion as of December 31, 2009 and 2008, respectively. Additionally, we had accepted non-cash
collateral related to our HCD business of $2.1 billion and $10.6 billion as of and December 31, 2009 and
2008, respectively, that we were not permitted to sell or repledge.
Our liability to third-party holders of Fannie Mae MBS that arises as the result of a consolidation of a
securitization trust is fully collateralized by the underlying loans and/or mortgage-related securities.
When securities sold under agreements to repurchase meet all of the conditions of a secured financing, we
report the collateral of the transferred securities at fair value, excluding accrued interest. The fair value of
these securities is classified in “Investments in securities” in our consolidated balance sheets. We had no
repurchase agreements of this type outstanding as of December 31, 2009 and 2008.
Hedge Accounting
In 2008, we implemented fair value hedge accounting with respect to a portion of our derivatives to hedge, for
accounting purposes, changes in the fair value of some of our mortgage assets attributable to changes in
interest rates. Specifically, we designated certain of our interest rate swaps as hedges of the change in fair
value attributable to the change in the London Interbank Offered Rate (“LIBOR”) for certain multifamily
loans classified as HFI and commercial mortgage-backed securities (“CMBS”) classified as AFS.
We formally document at the inception of each hedging relationship the hedging instrument, the hedged item,
the risk management objective and strategy for undertaking each hedging relationship, and the method used to
assess hedge effectiveness. We use regression analysis to assess whether the derivative instrument has been
and is expected to be highly effective in offsetting changes in fair value of the hedged item attributable to the
change in the LIBOR.
When hedging relationships are highly effective, we record changes in the fair value of the hedged item
attributable to changes in the benchmark interest rate as an adjustment to the carrying amount of the hedged
item and include a corresponding amount in “fair value losses, net” in our consolidated statements of
operations. For commercial mortgage-backed securities classified as AFS, we record all other changes in fair
value as part of AOCI and not in earnings. For multi-family loans, all other changes in fair value are not
recorded. If a hedging relationship is not highly effective, we do not record an adjustment to earnings. We
amortize adjustments to the carrying amount of hedged items that result from hedge accounting through
interest income in the same manner as other components of the carrying amount of that asset.
We discontinue hedge accounting prospectively when (1) the hedging derivative is no longer effective in
offsetting changes in fair value of the hedged item attributable to the hedged risk, (2) we terminate or sell the
derivative or the hedged item, or (3) we voluntarily elect to remove the hedge accounting designation. When
we discontinue hedge accounting, we continue to carry the derivative instrument on our consolidated balance
F-33
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)