Fannie Mae 2010 Annual Report Download - page 295

expense on the trusts’ debt, resulting in an increase in the interest income and interest expense reported in our
consolidated statements of operations compared to prior periods.
Another significant impact was the elimination of our guaranty accounting for the newly consolidated trusts.
We derecognized the previously recorded guaranty-related assets and liabilities associated with the newly
consolidated trusts from our consolidated balance sheets. We also eliminated our reserve for guaranty losses
and recognized an allowance for loan losses for such trusts. In our consolidated statements of operations, we
no longer recognize guaranty fee income for the newly consolidated trusts, as the revenue is now recorded as a
component of loan interest income.
When we recognized the newly consolidated trusts’ assets and liabilities at the transition date, we also
derecognized our investments in these trusts, resulting in a decrease in our investments in MBS that are classified
as trading and AFS securities. Instead of being recorded as an asset, our investments in Fannie Mae MBS reduce
the debt reported in our consolidated balance sheets. Accordingly, the purchase and subsequent sale of MBS
issued by consolidated trusts are accounted for in our consolidated financial statements as the extinguishment and
issuance of the debt of consolidated trusts, respectively. Furthermore, under the new accounting standards, a
transfer of mortgage loans from our portfolio to a trust will generally not qualify for sale treatment.
The new accounting standards do not change the economic risk to our business, specifically our exposure to
liquidity, credit, and interest rate risks. We continue to securitize mortgage loans originated by lenders in the
primary mortgage market into Fannie Mae MBS.
Refer to the “Principles of Consolidation” section in “Note 1, Summary of Significant Accounting Policies”
for additional information.
Summary of Transition Adjustments
The cumulative impact of our adoption of the new accounting standards was a decrease to our total deficit of
$3.3 billion at the transition date. This amount includes:
• A net decrease in our accumulated deficit of $6.7 billion, primarily driven by the reversal of the guaranty
assets and guaranty obligations related to the newly consolidated trusts; and
• A net increase in our accumulated other comprehensive loss of $3.4 billion primarily driven by the
reversal of net unrealized gains related to our investments in Fannie Mae MBS classified as AFS.
Our transition adjustment is a result of the following changes to our accounting:
•Net recognition of assets and liabilities of newly consolidated entities. At the transition date, trust assets
and liabilities required to be consolidated were recognized in our consolidated balance sheet at their unpaid
principal balance plus any accrued interest. An allowance for loan losses was established for the newly
consolidated mortgage loans. The reserve for guaranty losses previously established for such loans was
eliminated. Our investments in Fannie Mae MBS issued by the newly consolidated trusts were eliminated
along with the related accrued interest receivable and unrealized gains or losses at the transition date.
•Accounting for portfolio securitizations. At the transition date, we reclassified the majority of our HFS
loans to HFI. Under the new accounting standards, the transfer of mortgage loans to a trust and the sale
of the related securities in a portfolio securitization transaction will generally not qualify for sale
treatment. As such, mortgage loans acquired with the intent to securitize will generally be classified as
held for investment in our consolidated balance sheets both prior to and subsequent to their securitization.
•Elimination of accounting for guarantees. At the transition date, a significant portion of our guaranty-
related assets and liabilities were derecognized from our consolidated balance sheet. Upon consolidation
F-37
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)