Fannie Mae 2009 Annual Report Download - page 312

Other-Than-Temporary Impairments
We adopted the provisions of the FASB modified guidance on the model for assessing other-than-temporary
impairments as of April 1, 2009. As prescribed by this new guidance, we recognize the credit component of
other-than-temporary impairments of our debt securities in our consolidated statement of operations and the
noncredit component in “Other comprehensive loss” for those securities that we do not intend to sell and for
which it is not more likely than not that we will be required to sell before recovery.
The fair value of our securities varies from period to period due to changes in interest rates, changes in
performance of the underlying collateral and changes in credit performance of the underlying issuer, among
other factors. $6.9 billion of the $10.5 billion of gross unrealized losses on AFS securities of December 31,
2009 have existed for a period of 12 consecutive months or longer. Gross unrealized losses on AFS securities
as of December 31, 2009 includes unrealized losses on securities with other-than-temporary impairment in
which a portion of the impairment remains in AOCI. The securities with unrealized losses for 12 consecutive
months or longer, on average, had a market value as of December 31, 2009 that was 84% of their amortized
cost basis. Based on our review for impairments of AFS securities, which includes an evaluation of the
collectability of cash flows and any intent or requirement to sell the securities, we have concluded that we do
not have an intent to sell and we believe it is not more likely than not we will be required to sell the
securities. Additionally, our projections of cash flows indicate that we will recover these unrealized losses over
the lives of the securities.
The following table displays our net other-than-temporary impairments by major security type for the years
ended December 31, 2009, 2008 and 2007.
2009 2008 2007
For the Year Ended
December 31,
(Dollars in millions)
Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (117) $ (7) $(203)
FreddieMac.................................................. (1) — —
Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,956) (4,820) —
Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,660) (1,932) (160)
Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (21) (4)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105) (194) (447)
Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(9,861) $(6,974) $(814)
For the year ended December 31, 2009, we recorded net other-than-temporary impairment of $9.9 billion. This
other-than-temporary impairment reflects current market conditions and was primarily driven by an increase in
our loss projections on securities due to:
• model refinements;
• interest rates; and
• net projected home price impact.
Model refinements were made to the collateral default and severity models for Alt-A and subprime securities
to more closely align with the observed deterioration of the loans underlying the securities. While expectations
for collateral default declined from prior expectations, there was an increase in severity expectations that drove
the increased loss. Since cash flow expectations are very sensitive to these model assumptions, these
refinements were estimated to account for approximately 40% of the increase in projected losses. Higher
expectations for interest rates were estimated to account for approximately 20% of the increase in projected
F-54
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)