Fannie Mae 2010 Annual Report Download - page 340

AA+/AA/AA- A+/A Subtotal Other
(2)
Total
Credit Rating
(1)
As of December 31, 2009
(Dollars in millions)
Credit loss exposure
(3)
. . . . . . . . . . . . . . . . . . . . . $ 658 $ 583 $ 1,241 $ 84 $ 1,325
Less: Collateral held
(4)
. . . . . . . . . . . . . . . . . . . . 580 507 1,087 — 1,087
Exposure net of collateral . . . . . . . . . . . . . . . . . . $ 78 $ 76 $ 154 $ 84 $ 238
Additional information:
Notional amount
(5)
. . . . . . . . . . . . . . . . . . . . . $220,791 $623,668 $844,459 $748 $845,207
Number of counterparties
(5)
............... 7 9 16
(1)
We manage collateral requirements based on the lower credit rating of the legal entity, as issued by Standard & Poor’s
and Moody’s. The credit rating reflects the equivalent Standard & Poor’s rating for any ratings based on Moody’s
scale.
(2)
Includes defined benefit mortgage insurance contracts and swap credit enhancements accounted for as derivatives
where the right of legal offset does not exist. Also includes exchange-traded derivatives, such as futures and interest
rate swaps, which are settled daily through a clearinghouse.
(3)
Represents the exposure to credit loss on derivative instruments, which we estimate using the fair value of all
outstanding derivative contracts in a gain position. We net derivative gains and losses with the same counterparty
where a legal right of offset exists under an enforceable master netting agreement. This table excludes mortgage
commitments accounted for as derivatives.
(4)
Represents both cash and non-cash collateral posted by our counterparties to us. Does not include collateral held in
excess of exposure. We reduce the value of non-cash collateral in accordance with the counterparty agreements to help
ensure recovery of any loss through the disposition of the collateral. We posted cash collateral of $3.4 billion and
$5.4 billion related to our counterparties’ credit exposure to us as of December 31, 2010 and 2009, respectively.
(5)
We had exposure to 3 and 6 interest rate and foreign currency derivative counterparties in a net gain position as of
December 31, 2010 and 2009, respectively. Those interest rate and foreign currency derivatives had notional balances
of $106.5 billion and $310.0 billion as of December 31, 2010 and 2009, respectively.
Hedging Activities
In 2008, we began to employ fair value hedge accounting for some of our interest rate risk management
activities by designating hedging relationships between certain of our interest rate derivatives and mortgage
assets. We achieved hedge accounting by designating all or a fixed percentage of a pay-fixed receive variable
interest rate swap as a hedge of the changes in the fair value attributable to the changes in LIBOR for a
specific mortgage asset. Because we discontinued hedge accounting during 2008, we did not have any
derivatives designated as hedges during 2010 or 2009.
For the year ended December 31, 2008, we recorded a $2.2 billion increase in the carrying value of the
hedged assets before related amortization due to hedge accounting. This gain on the hedged assets was offset
by fair value losses of $2.2 billion, which excluded valuation changes due to the passage of time, on the pay-
fixed swaps designated as hedging instruments.
In addition, in 2008 we recorded a loss for the ineffective portion of our hedged assets of $94 million, which
excluded a loss of $81 million that was not related to changes in the benchmark interest rate.
F-82
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)