Fannie Mae 2009 Annual Report Download - page 316

The following table displays our continuing involvement in the form of Fannie Mae MBS, guaranty asset,
guaranty obligation, MSA and MSL as of December 31, 2009 and 2008.
2009 2008
As of December 31,
(Dollars in millions)
Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,679 $45,705
Guaranty asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,412 438
MSA............................................................. 15 10
Guaranty obligation (excluding deferred profit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,222) (769)
MSL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37) (27)
We have recorded our exposure to credit losses on the loans underlying our Fannie Mae MBS resulting from
our guaranty in our consolidated balance sheets in “Guaranty obligations,” as it relates to our obligation to
stand ready to perform on our guaranty, and “Reserve for guaranty losses,” as it relates to incurred losses.
Since our guaranty asset and MSA or MSL do not trade in active financial markets, we estimate their fair
value by using internally developed models and market inputs for securities with similar characteristics. For
additional information surrounding the key assumptions utilized, refer to “Master Servicing” in “Note 1,
Summary of Significant Accounting Policies.”
The fair value of all guaranty obligations measured subsequent to their initial recognition is our estimate of a
hypothetical transaction price we would receive if we were to issue our guaranty to an unrelated party in a
stand-alone arm’s-length transaction at the measurement date. The key assumptions associated with the fair
value of the guaranty obligations are future home prices and current loan-to-value ratios.
Our investments in Fannie Mae single-class MBS, Fannie Mae Megas, REMICs and SMBS are interests in
securities with markets. We primarily rely on third-party prices to estimate the fair value of these interests. For
the purpose of this disclosure, we aggregate similar securities in order to measure the key assumptions
associated with the fair values of our interests. We approximate the fair value of our interests by solving for
the estimated discount rate, or yield, using a projected interest rate path consistent with the observed yield
curve at the valuation date (forward rates), and the prepayment speed based on either our proprietary models
that are consistent with the projected interest rate path, the pricing speed for newly issued REMICs, or lagging
12-month actual prepayment speed. We express all prepayment speeds as a 12-month CPR.
To determine the fair value of our securities created via portfolio securitizations, we utilize several
independent pricing services. The prices we receive from pricing services are typically based on information
they obtain on current trading activity, but may be based on models where trading activity is not observed. We
evaluate the reasonableness of fair value estimates obtained from pricing services through multiple means,
including our internal price verification group which uses alternate forms of pricing information to validate the
prices. Given that we do not base prices for the retained securities on internal models, but rather base them on
observable market inputs obtained by our pricing services, we believe it would not be meaningful to provide
sensitivities to changes in assumptions on the fair value of the retained securities.
F-58
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)