Fannie Mae 2009 Annual Report Download - page 331

•Foreign currency swaps. These swaps convert debt that we issue in foreign-denominated currencies into
U.S. dollars. We enter into foreign currency swaps only to the extent that we issue foreign currency debt.
We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and
mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and
purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional
amount of our mortgage commitments that are accounted for as derivatives.
We account for our derivatives pursuant to the FASB standard on derivative instruments and hedging activities,
and recognize all derivatives as either assets or liabilities in our consolidated balance sheets at their fair value
on a trade date basis. Fair value amounts, which are netted at the counterparty level and are inclusive of cash
collateral posted or received, are recorded in “Derivative assets, at fair value” or “Derivative liabilities, at fair
value” in our consolidated balance sheets. We record all derivative gains and losses, including accrued interest,
in “Fair value losses, net” in our consolidated statements of operations.
Hedging Activities
In 2008, we began to employ fair value hedge accounting for some of our interest rate risk management
activities by designating hedging relationships between certain of our interest rate derivatives and mortgage
assets. We achieved hedge accounting by designating all or a fixed percentage of a pay-fixed receive variable
interest rate swap as a hedge of the changes in the fair value attributable to the changes in LIBOR for a
specific mortgage asset. Because we discontinued hedge accounting during 2008, as of December 31, 2009
and 2008, we had no derivatives in hedging relationships.
For the year ended December 31, 2008, we recorded a $2.2 billion increase in the carrying value of the
hedged assets before related amortization due to hedge accounting. This gain on the hedged assets was offset
by fair value losses of $2.2 billion, which excluded valuation changes due to the passage of time, on the pay-
fixed swaps designated as hedging instruments.
In addition, we recorded a loss for the ineffective portion of our hedged assets of $94 million, which excluded
a loss of $81 million that was not related to changes in the benchmark interest rate.
F-73
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)