Fannie Mae 2009 Annual Report Download - page 94

investments. See “Risk Factors” for a discussion of the risks associated with possible future write-downs of
our investment securities.
The increase in net other-than-temporary impairment in 2008 over 2007 was principally related to Alt-A and
subprime private-label securities, reflecting a reduction in expected cash flows due to an increase in expected
defaults and loss severities on the mortgage loans underlying these securities.
Fair Value Gains (Losses), Net
Table 7 presents the components of fair value gains (losses) for the periods indicated.
Table 7: Fair Value Gains (Losses), Net
2009 2008 2007
For the Year Ended December 31,
(Dollars in millions)
Risk management derivatives fair value gains (losses) attributable to:
Net contractual interest income (expense) accruals on interest rate swaps . . . . . . . . $(3,359) $ (1,576) $ 261
Net change in fair value during the period
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,337) (13,387) (4,419)
Total risk management derivatives fair value losses, net . . . . . . . . . . . . . . . . . . (4,696) (14,963) (4,158)
Mortgage commitment derivatives fair value gains (losses), net . . . . . . . . . . . . . . . . (1,654) (453) 45
Total derivatives fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,350) (15,416) (4,113)
Trading securities gains (losses), net
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,744 (7,040) (365)
Hedged mortgage assets gains, net
(3)
................................... — 2,154 —
Debt foreign exchange gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (173) 230 (190)
Debt fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) (57) —
Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,811) $(20,129) $(4,668)
2009 2008 2007
5-year swap interest rate:
As of March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.22% 3.31% 4.99%
As of June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.97 4.26 5.50
As of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.65 4.11 4.87
As of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.98 2.13 4.19
(1)
Includes losses of approximately $104 million in 2008 that resulted from the termination of our derivative contracts
with a subsidiary of Lehman Brothers.
(2)
Includes trading losses of $608 million in 2008 that resulted from the write-down to fair value of our investment in
corporate debt securities issued by Lehman Brothers.
(3)
Represents adjustments to the carrying value of mortgage assets designated for hedge accounting that are attributable
to changes in interest rates.
Risk Management Derivatives Fair Value Gains (Losses), Net
Risk management derivative instruments are an integral part of our management of interest rate risk. We
supplement our issuance of debt securities with derivative instruments to further reduce duration and
prepayment risks. We generally are an end user of derivatives. Our principal purpose in using derivatives is to
manage our aggregate interest rate risk profile within prescribed risk parameters. We generally use only
derivatives that are relatively liquid and straightforward to value. We consider the cost of derivatives used in
our management of interest rate risk to be an inherent part of the cost of funding and hedging our mortgage
investments and to be economically similar to the interest expense that we recognize on the debt we issue to
fund our mortgage investments.
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