Fannie Mae 2010 Annual Report Download - page 356

Our current segment reporting presentation differs from our consolidated balance sheets and statements of
operations in order to reflect the activities and results of the Multifamily segment. The significant differences
from the consolidated statements of operations are as follows:
•Guaranty fee income—Guaranty fee income reflects the cash guaranty fees paid by MBS trusts to
Multifamily and the guaranty fees from the Capital Markets group on multifamily loans in Fannie Mae’s
portfolio. To reconcile to our consolidated statements of operations, we eliminate guaranty fees related to
consolidated trusts.
•Income (losses) from partnership investments—Income (losses) from partnership investments primarily
reflect losses on investments in affordable rental and for-sale housing partnerships measured under the
equity method of accounting. To reconcile to our consolidated statements of operations, we adjust the
losses to reflect the consolidation of certain partnership investments.
Capital Markets Group
Revenue drivers for Capital Markets did not change under our current method of segment reporting. Our
Capital Markets group generates most of its revenue from the difference, or spread, between the interest we
earn on our mortgage assets and the interest we pay on the debt we issue to fund these assets. We refer to this
spread as our net interest yield. Changes in the fair value of the derivative instruments and trading securities
we hold impact the net income or loss reported by the Capital Markets group. The net income or loss reported
by our Capital Markets group is also affected by the impairment of AFS securities.
Our current segment reporting presentation differs from our consolidated balance sheets and statements of
operations in order to reflect the activities and results of the Capital Markets group. The significant differences
from the consolidated statements of operations are as follows:
•Net interest income—Net interest income reflects the interest income on mortgage loans and securities
owned by Fannie Mae and interest expense on funding debt issued by Fannie Mae, including accretion
and amortization of any cost basis adjustments. To reconcile to our consolidated statements of operations,
we adjust for the impact of consolidated trusts and intercompany eliminations as follows:
•Interest income: Interest income consists of interest on the segment’s interest-earning assets, which
differs from interest-earning assets in our consolidated balance sheets. We exclude loans and securities
that underlie the consolidated trusts from our Capital Markets group balance sheets. The net interest
income reported by the Capital Markets group excludes the interest income earned on assets held by
consolidated trusts. As a result, we report interest income and amortization of cost basis adjustments
only on securities and loans that are held in our portfolio. For mortgage loans held in our portfolio,
when interest income is no longer recognized in accordance with our nonaccrual accounting policy, the
Capital Markets group recognizes interest income for reimbursement from Single-Family and
Multifamily for the contractual interest due under the terms of our intracompany guaranty arrangement.
•Interest expense: Interest expense consists of contractual interest on the Capital Markets group’s
interest-bearing liabilities, including the accretion and amortization of any cost basis adjustments. It
excludes interest expense on debt issued by consolidated trusts. Therefore, the interest expense
recognized on the Capital Markets group income statement is limited to our funding debt, which is
reported as “Debt of Fannie Mae” in our consolidated balance sheets. Net interest expense also includes
an allocated cost of capital charge among the three business segments that is not included in net
interest income in our consolidated statements of operations.
•Investment gains or losses, net—Investment gains or losses, net reflects the gains and losses on
securitizations and sales of available-for-sale securities from our portfolio. To reconcile to our
F-98
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)