Fannie Mae 2010 Annual Report Download - page 147

(1)
Includes $4.0 billion of U.S. Treasury securities and $2.3 billion of money market fund as of December 31, 2010, with
a maturity at the date of acquisition of three months or less.
(2)
Includes securities primarily backed by credit cards loans, student loans and automobile loans.
Our total cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and
securities purchased under agreements to resell or similar arrangements and non-mortgage investment
securities. Our cash and other investments portfolio decreased in 2010 compared with 2009 primarily due to
the reduction in our short-term debt balances, which reduced the amount of cash we needed on hand as of
December 31, 2010.
See “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management—
Issuers of Investments Held in our Cash and Other Investments Portfolio” for additional information on the
risks associated with the assets in our cash and other investments portfolio.
Unencumbered Mortgage Portfolio
Another source of liquidity in the event our access to the unsecured debt market becomes impaired is the
unencumbered mortgage assets in our mortgage portfolio, which could be sold or used as collateral for secured
borrowing.
We continue to make enhancements to our systems to facilitate the securitization of a significant portion of the
performing whole loans in our mortgage portfolio into Fannie Mae MBS. We have securitized the majority of
the performing single-family whole loans in our retained portfolio and, in October 2010, we developed the
capability to securitize the multifamily loans in our mortgage portfolio. These mortgage-related securities
could be used as collateral in repurchase agreements or other lending arrangements to the extent they have not
been sold or encumbered. Despite these enhancements to our systems, we do not have the capability to
securitize all of the whole loans in our unencumbered mortgage portfolio.
We believe that the amount of mortgage-related securities that we could successfully sell or borrow against in
the event of a liquidity crisis or significant market disruption is substantially lower than the amount of
mortgage-related securities we hold. Due to the large size of our portfolio of mortgage-related assets, current
market conditions, and the significant amount of distressed assets in our mortgage portfolio, it is unlikely that
there would be sufficient market demand for large amounts of these assets over a prolonged period of time,
particularly during a liquidity crisis, which could limit our ability to sell or borrow against these assets. To the
extent that we would be able to obtain funding by selling or pledging mortgage-related securities as collateral,
we anticipate that a discount would be applied that would reduce the value assigned to those securities.
Depending on market conditions at the time, this discount would result in proceeds significantly lower than
the current market value of these assets and would thereby reduce the amount of financing we could obtain. In
addition, our primary source of collateral is Fannie Mae MBS that we own. In the event of a liquidity crisis in
which the future of our company is uncertain, counterparties may be unwilling to accept Fannie Mae MBS as
collateral. As a result, we may not be able to sell or borrow against these securities in sufficient amounts to
meet our liquidity needs.
While our liquidity contingency planning attempts to address stressed market conditions and our status under
conservatorship and Treasury arrangements, we believe that our liquidity contingency plans may be difficult or
impossible to execute for a company of our size in our circumstances. See “Risk Factors” for a description of
the risks associated with our liquidity contingency planning.
Credit Ratings
Our ability to access the capital markets and other sources of funding, as well as our cost of funds, are highly
dependent on our credit ratings from the major ratings organizations. In addition, our credit ratings are
important when we seek to engage in certain long-term transactions, such as derivative transactions. Factors
that may influence our credit ratings include our status as a GSE, Treasury’s funding commitment under the
senior preferred stock purchase agreement, the rating agencies’ assessment of the general operating and
regulatory environment, the credit ratings of the U.S. government, our relative position in the market, our
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