Fannie Mae 2010 Annual Report Download - page 324

Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate
Alt-A
As of December 31, 2010
(Dollars in millions)
2007 & After:
Unpaid principal balance . . . . . . . . . . . . . . . . $ 656 $ — $ — $ — $ 129
Weighted average collateral default
(1)
. . . . . . . 72.8% N/A N/A N/A 43.7%
Weighted average collateral severities
(2)
. . . . . . 70.2% N/A N/A N/A 54.8%
Weighted average voluntary prepayment
rates
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6% N/A N/A N/A 6.7%
Average credit enhancement
(4)
. . . . . . . . . . . . 34.5% N/A N/A N/A 25.3%
Total
Unpaid principal balance . . . . . . . . . . . . . . . . $15,643 $3,301 $5,785 $2,922 $7,193
Weighted average collateral default
(1)
. . . . . . . 73.2% 62.4% 21.9% 56.0% 32.1%
Weighted average collateral severities
(2)
. . . . . . 72.2% 56.8% 49.2% 60.1% 46.7%
Weighted average voluntary prepayment
rates
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 3.9% 7.7% 6.8% 9.2%
Average credit enhancement
(4)
. . . . . . . . . . . . 25.9% 25.3% 8.9% 9.3% 7.4%
(1)
The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the
current collateral unpaid principal balance, weighted by security unpaid principal balance.
(2)
The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of
remaining cumulative loss divided by cumulative defaults, weighted by security unpaid principal balance.
(3)
The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.
(4)
The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest
projections and monoline bond insurance.
For mortgage revenue bonds, where we cannot utilize credit-sensitized cash flows, we perform a qualitative
and quantitative analysis to assess whether a bond is other-than-temporarily impaired. If a bond is deemed to
be other-than-temporarily impaired, the projected contractual cash flows of the security are reduced by a
default loss amount based on the security’s lowest credit rating as provided by the major nationally recognized
statistical rating organizations. The lower the security’s credit rating, the larger the amount by which the
contractual cash flows are reduced. These adjusted cash flows are then used in the present value calculation to
determine the credit portion of the other-than-temporary impairment. While we have recognized
other-than-temporary impairment on these bonds, we expect to realize no credit losses on the vast majority of
our holdings due to the inherent financial strength of the issuers, or in some cases, the amount of external
credit support from mortgage collateral or financial guarantees. The fair values of these bonds are likewise
impacted by the low levels of market liquidity and greater expected yield, which has led to unrealized losses
in the portfolio that we deem to be temporary.
Other mortgage-related securities include manufactured housing securities, some of which have been
other-than-temporarily impaired in 2010. For manufactured housing securities, we utilize models that
incorporate recent historical performance information and other relevant public data to run cash flows and
assess for other-than-temporary impairment. Given the significant seasoning of these securities we expect that
the future performance will be in line with how the securities are currently performing. We model securities
assuming the benefit of those external financial guarantees that are deemed creditworthy. If we determined
that securities were not other-than-temporarily impaired, we concluded that either the bond had no projected
credit loss or, if a loss was projected, that present value of expected cash flows was greater than the security’s
cost basis.
F-66
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)