Fannie Mae 2009 Annual Report Download - page 324

Deferred profit is a component of “Guaranty obligations” in our consolidated balance sheets and is included in
the table above. We recorded deferred profit on guarantees issued or modified between 2003 (when we
adopted accounting guidance related to financial guarantees) and before 2008 (after which we adopted
accounting guidance on fair value measurement). We recorded deferred profit if the consideration we expected
to receive for our guaranty exceeded the estimated fair value of the guaranty obligation at issuance.
Deferred profit had a carrying amount of $1.6 billion and $2.5 billion as of December 31, 2009 and 2008,
respectively. We recognized deferred profit amortization of $830 million, $2.0 billion and $986 million for the
years ended December 31, 2009, 2008 and 2007.
Guaranty Assets
As guarantor at inception of a guaranty to an unconsolidated entity, we recognize a non-contingent liability for
the fair value of our obligation to stand ready to perform over the term of the guaranty in the event that
specified triggering events or conditions occur. We also record a guaranty asset that represents the present
value of cash flows expected to be received as compensation over the life of the guaranty.
The following table displays changes in “Guaranty assets” in our consolidated balance sheets for the years
ended December 31, 2009, 2008, and 2007.
2009 2008 2007
For the Year Ended
December 31,
(Dollars in millions)
Beginning balance, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,043 $ 9,666 $ 7,692
Fair Value of expected cash flows at issuance for new guaranteed Fannie Mae
MBS issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,135 3,938 4,658
Net change in fair value of guaranty assets from portfolio securitizations. . . . . 511 (136) 29
Impact of amortization on guaranty contracts . . . . . . . . . . . . . . . . . . . . . . . . (2,719) (2,767) (1,898)
Other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (347) (3,270) (425)
Impact of consolidation of MBS trusts
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . (267) (388) (390)
Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,356 $ 7,043 $ 9,666
(1)
When we consolidate Fannie Mae MBS trusts, we derecognize the guaranty assets and guaranty obligation associated
with the respective trust.
Fannie Mae MBS Included in Investments in Securities
For Fannie Mae MBS included in “Investments in securities” in our consolidated balance sheets, we do not
eliminate or extinguish the guaranty arrangement because it is a contractual arrangement with the
unconsolidated MBS trusts. We determine the fair value of Fannie Mae MBS based on observable market
prices because most Fannie Mae MBS are actively traded. Fannie Mae MBS receive high credit quality ratings
primarily because of our guaranty. Absent our guaranty, Fannie Mae MBS would be subject to the credit risk
on the underlying loans. We continue to recognize a guaranty obligation and a reserve for guaranty losses
associated with these securities because we carry these securities in our consolidated financial statements as
guaranteed Fannie Mae MBS. The fair value of the guaranty obligation, net of deferred profit, associated with
Fannie Mae MBS included in “Investments in securities” approximates the fair value of the credit risk that
exists on these Fannie Mae MBS absent our guaranty. The fair value of the guaranty obligation, net of
deferred profit, associated with the Fannie Mae MBS included in “Investments in securities” was $4.8 billion
and $3.8 billion as of December 31, 2009 and 2008, respectively.
F-66
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)