Fannie Mae 2010 Annual Report Download - page 330

Fannie Mae MBS Included in Investments in Securities
For Fannie Mae MBS included in “Investments in securities” in our consolidated balance sheets, we do not
eliminate or extinguish the guaranty arrangement because it is a contractual arrangement with the
unconsolidated MBS trusts. We determine the fair value of Fannie Mae MBS based on observable market
prices because most Fannie Mae MBS are actively traded. Fannie Mae MBS receive high credit quality ratings
primarily because of our guaranty. Absent our guaranty, Fannie Mae MBS would be subject to the credit risk
on the underlying loans. We continue to recognize a guaranty obligation and a reserve for guaranty losses
associated with these securities because we carry these securities in our consolidated financial statements as
guaranteed Fannie Mae MBS. The fair value of the guaranty obligation, net of deferred profit, associated with
Fannie Mae MBS included in “Investments in securities” approximates the fair value of the credit risk that
exists on these Fannie Mae MBS absent our guaranty. The fair value of our guaranty obligations associated
with the Fannie Mae MBS included in “Investments in securities” was $2.0 billion and $4.8 billion as of
December 31, 2010 and 2009, respectively.
Master Servicing
We do not perform the day-to-day servicing of mortgage loans in a Fannie Mae MBS trust. We are
compensated, however, for carrying out administrative functions for the trust and overseeing the primary
servicer’s performance of the day-to-day servicing of the trust’s mortgage assets. For trusts that are not
consolidated by us, this arrangement gives rise to either an MSA or an MSL. However, upon consolidation of
the majority of our MBS trusts on January 1, 2010, we eliminated the majority of our MSA and MSL.
The following table displays the carrying value and fair value of our MSA for the years ended December 31,
2010, 2009 and 2008.
2010 2009 2008
For the Year Ended December 31,
(Dollars in millions)
Cost basis:
Beginning balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196 $ 764 $1,171
Adoption of new accounting standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (195) — —
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 56 302
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (44) (190)
Other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (579) (491)
Reductions for MBS trusts paid-off and impact of consolidation activity
(1)
. . . . . — (1) (28)
Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 196 764
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 40 73
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 156 $ 691
Fair value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179 $ 855 $1,808
Fair value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 179 $ 855
(1)
Excluding impact of adopting the new accounting standards.
The carrying value of our MSL, which approximates its fair value, was $25 million and $481 million as of
December 31, 2010 and 2009, respectively.
Prior to January 1, 2010, we recognized servicing income, referred to as “Trust management income,” in our
consolidated statements of operations. Upon implementation of the new accounting standards, we report the
F-72
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)