Fannie Mae 2010 Annual Report Download - page 286

The following table displays unamortized premiums, discounts, and other cost basis adjustments included in
our consolidated balances sheets as of December 31, 2010 and 2009, that may result in net interest income in
our consolidated statements of operations in future periods.
2010 2009
As of December 31,
(Dollars in millions)
Of Fannie Mae:
Investments in securities:
Unamortized premiums and other cost basis adjustments, net . . . . . . . . . . . . . . . . $ 938 $ 1,185
Other-than-temporary impairments
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,057) (821)
Mortgage loans held-for-investment:
Unamortized discounts and other cost basis adjustments of loans in portfolio, net,
excluding acquired credit-impaired loans and hedged mortgage assets
(2)
. . . . . . (17,056) (10,332)
Unamortized discount on acquired credit-impaired loans
(3)
. . . . . . . . . . . . . . . . . (3,240) (11,467)
Unamortized premium on hedged mortgage assets
(4)
...................... 598 806
Other assets
(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (88) (254)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(21,905) $(20,883)
Of consolidated trusts:
Unamortized premiums, net in loans of consolidated trusts . . . . . . . . . . . . . . . . . $ 11,785
Unamortized premiums, net in debt of consolidated trusts . . . . . . . . . . . . . . . . . . (16,803)
Net unamortized premiums from consolidations. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,018)
(1)
Represents the increase in expected cash flows since original impairment that we currently expect will be recorded as
interest income in future periods. This amount is calculated as the excess of expected cash flows, discounted at the
internal rate of return at acquisition, over the amortized cost basis of the security. To reduce costs associated with
maintaining our internal model and decrease the operational risk, in the fourth quarter of 2010, we ceased to use our
internally developed model and began using a third-party model as the source for cash flows used to assess
other-than-temporary impairments on Alt-A and subprime private-label securities. This model change resulted in more
favorable cash flow estimates that, based on estimates as of December 31, 2010, increased the amount that we will
recognize prospectively as interest income over the remaining life of the securities by $2.5 billion.
(2)
Includes the unamortized balance of the fair value discounts that were recorded upon acquisition of credit-impaired
loans that have been subsequently modified as TDRs, which accretes into interest income for TDRs that are placed on
accrual status.
(3)
Represents the unamortized balance of the fair value discounts that were recorded upon acquisition and consolidation
that may accrete into interest income for acquired credit-impaired loans that are placed on accrual status.
(4)
Represents the net premium on mortgage assets designated for hedge accounting that are attributable to changes in
interest rates and will be amortized through interest income over the life of the hedged assets.
(5)
Represents the fair value discount related to unsecured HomeSaver Advance loans that will accrete into interest
income based on the contractual terms of the loans for loans on accrual status.
We have elected to use the contractual payment terms to determine the amortization of cost basis adjustments
on mortgage loans and mortgage securities initially recognized on or after January 1, 2010 in our consolidated
balance sheets.
For substantially all mortgage loans and mortgage securities initially recorded on or before December 31,
2009, we use prepayment estimates in determining the periodic amortization of cost basis adjustments under
the interest method using a constant effective yield. For those mortgage loans and mortgage securities for
which we did not estimate prepayments, we used the contractual payment terms of the loan or security to
F-28
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)