Fannie Mae 2010 Annual Report Download - page 123

Federal Income Taxes
We recognized an income tax benefit in 2010 primarily due to the reversal of a portion of the valuation
allowance for deferred tax assets resulting from a settlement agreement reached with the IRS in the first
quarter of 2010 for our unrecognized tax benefits for the tax years 1999 through 2004. We recorded a
valuation allowance for the majority of the tax benefits associated with the pre-tax losses recognized in 2009.
2009 compared with 2008
Key factors affecting the results of our Capital Markets group for 2009 compared with 2008 included the
following:
Net Interest Income
The increase in net interest income in 2009 compared with 2008 was primarily attributable to an expansion of
our net interest yield driven by a reduction in the average cost of our debt that more than offset a decline in
the average yield on our interest-earning assets. The significant reduction in the average cost of our debt
during 2009 compared with 2008 was primarily attributable to a decline in borrowing rates as we replaced
higher cost debt with lower cost debt. Our net interest income does not include the effect of the periodic net
contractual interest accruals on our interest rate swaps which totaled $3.4 billion in 2009, compared with
$1.6 billion in 2008.
Investment Gains (Losses), Net
The shift to investment gains in 2009 compared with investment losses in 2008 was primarily attributable to:
(1) an increase in gains on portfolio securitizations as we increased our MBS issuance volumes and sales
related to whole loan conduit activity and (2) an increase in realized gains on sales of available-for-sale
securities as tightening of investment spreads on agency MBS led to higher sale prices. These gains were
partially offset by an increase in lower of cost or fair value adjustments on loans, primarily driven by a decline
in the credit quality of these loans and an increase in interest rates.
Net Other-Than-Temporary Impairment
Net other-than-temporary impairment increased during 2009. We discuss net-other-than-temporary impairment
in “Consolidated Results of Operations—Net Other-Than-Temporary Impairment.”
Fair Value Gains (Losses), Net
Fair value losses substantially decreased in 2009. We discuss our fair value losses in “Consolidated Results of
Operations—Fair Value Gains (Losses), Net.”
Federal Income Taxes
Federal income tax provision substantially declined in 2009 compared with 2008 as we recorded a non-cash
charge in 2008 to establish a partial deferred tax asset valuation allowance against our net deferred tax assets.
The Capital Markets Group’s Mortgage Portfolio
The Capital Markets group’s mortgage portfolio consists of mortgage-related securities and mortgage loans
that we own. Mortgage-related securities held by Capital Markets include Fannie Mae MBS and non-Fannie
Mae mortgage-related securities. The Fannie Mae MBS that we own are maintained as securities on the
Capital Markets group’s balance sheets. Mortgage-related assets held by consolidated MBS trusts are not
included in the Capital Markets group’s mortgage portfolio.
We are restricted in the amount of mortgage assets that we may own. Please see “Conservatorship and
Treasury Agreements—Treasury Agreements—Covenants under Treasury Agreement.”
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