Fannie Mae 2009 Annual Report Download - page 92

Table 6: Guaranty Fee Income and Average Effective Guaranty Fee Rate
(1)
Amount Rate Amount Rate Amount Rate
2009 vs.
2008
2008 vs.
2007
2009 2008 2007
For the Year Ended December 31, % Change
(Dollars in millions, rate in basis points)
Guaranty fee income/average
effective guaranty fee rate
excluding certain fair value
adjustments and buy-up
impairment . . . . . . . . . . . . . $ 6,449 24.7 bp $ 7,913 32.2 bp $ 5,063 23.7 bp (19)% 56%
Net change in fair value of
buy-ups and certain guaranty
assets . . . . . . . . . . . . . . . . . 787 3.0 (18) (0.1) 24 0.1 4,472 (175)
Buy-up impairment . . . . . . . . . (25) (0.1) (274) (1.1) (16) (0.1) 91 1,613
Guaranty fee income/average
effective guaranty fee rate . . . $ 7,211 27.6 bp $ 7,621 31.0 bp $ 5,071 23.7 bp (5)% 50%
Average outstanding Fannie
Mae MBS and other
guarantees . . . . . . . . . . . . . . $2,617,273 $2,459,383 $2,139,481 6% 15%
Fannie Mae MBS issues . . . . . . 807,853 542,813 629,607 49 (14)
(1)
Guaranty fee income includes $537 million, $1.1 billion, and $603 million for 2009, 2008 and 2007, respectively,
related to the accretion of deferred amounts on guarantee contracts where we recognized losses at the inception of the
contract.
The decrease in guaranty fee income for 2009 resulted from a decrease in the average effective guaranty fee
rate partially offset by an increase in average outstanding Fannie Mae MBS and other guarantees. The
decrease in our average effective guaranty fee rate for 2009 compared with 2008 was primarily attributable to
lower amortization of deferred revenue in 2009 as the sharp decline in interest rates generated an acceleration
of deferred amounts into income during the fourth quarter of 2008. In addition, the effective guaranty fee rate
declined due to a lower average charged guaranty fee on new acquisitions due to a reduction in our acquisition
of loans with higher risk, higher fee categories such as higher LTV and lower FICO credit scores. This decline
was partially offset by higher fair value adjustments on buy-ups and certain guaranty assets recorded during
2009 due to increased market prices on interest-only strips. We use interest-only strips pricing as a component
in estimating the fair value of our buy-ups and certain guaranty assets. The increase in our average outstanding
Fannie Mae MBS and other guarantees for 2009 was driven by continued high market share of new single-
family mortgage-related securities issuances and because new MBS issuances outpaced liquidations.
The increase in guaranty fee income in 2008 from 2007 was the result of an increase in average outstanding
Fannie Mae MBS and other guarantees, and an increase in our average effective guaranty fee. The increase in
average outstanding Fannie Mae MBS and other guarantees reflected our higher market share of mortgage-
related securities issuances during 2008, as compared with 2007. The increase in our average effective
guaranty fee rate for 2008 was primarily due to the accelerated recognition of deferred amounts into income,
as interest rates were generally lower in 2008 than in 2007. Our average effective guaranty fee rate for 2008
also was affected by guaranty fee pricing changes we implemented to address increased risk in the housing
market. These pricing changes included an adverse market delivery charge of 25 basis points for all loans
delivered to us, which became effective in early 2008.
Effective January 1, 2010, the vast majority of our guaranty fee income will be reflected in interest income on
a consolidated basis due to our adoption of new accounting standards that require us to consolidate the
substantial majority of our MBS trusts. We discuss the impact of the new accounting standards in “Off-
Balance Sheet Arrangements and Variable Interest Entities—Elimination of QSPEs and Changes in the
Consolidation Model for Variable Interest Entities.”
87