Fannie Mae 2011 Annual Report Download

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission File No.: 0-50231
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Fannie Mae
Federally chartered corporation 52-0883107
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3900 Wisconsin Avenue, 20016
NW Washington, DC
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
(202) 752-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
8.25% Non-Cumulative Preferred Stock, Series T, stated value $25 per share
(Title of class)
8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series 2008-1 stated value $50 per share
(Title of class)
Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S, stated value $25 per share
(Title of class)
7.625% Non-Cumulative Preferred Stock, Series R, stated value $25 per share
(Title of class)
6.75% Non-Cumulative Preferred Stock, Series Q, stated value $25 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series P, stated value $25 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series O, stated value $50 per share
(Title of class)
5.375% Non-Cumulative Convertible Series 2004-1 Preferred Stock, stated value $100,000 per share
(Title of class)
5.50% Non-Cumulative Preferred Stock, Series N, stated value $50 per share
(Title of class)
4.75% Non-Cumulative Preferred Stock, Series M, stated value $50 per share
(Title of class)
5.125% Non-Cumulative Preferred Stock, Series L, stated value $50 per share
(Title of class)
5.375% Non-Cumulative Preferred Stock, Series I, stated value $50 per share
(Title of class)
5.81% Non-Cumulative Preferred Stock, Series H, stated value $50 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series G, stated value $50 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series F, stated value $50 per share
(Title of class)
5.10% Non-Cumulative Preferred Stock, Series E, stated value $50 per share
(Title of class)
5.25% Non-Cumulative Preferred Stock, Series D, stated value $50 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Í
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ÍNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes ÍNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer ÍNon-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No Í
The aggregate market value of the common stock held by non-affiliates of the registrant computed by reference to the last reported sale price of the common stock quoted on the
OTC Bulletin Board on June 30, 2011 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $383 million.
As of January 31, 2012, there were 1,158,072,058 shares of common stock of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Item 11 in Part III will be included in an amendment to this annual report on
Form 10-K filed on or before April 30, 2012.

Table of contents

  • Page 1
    ... Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 Commission File No.: 0-50231 Federal National Mortgage Association (Exact name of registrant as specified in its charter) Fannie Mae...

  • Page 2
    ... of Financial Condition and Results of Operations ...Critical Accounting Policies and Estimates ...Consolidated Results of Operations ...Business Segment Results ...Consolidated Balance Sheet Analysis ...Supplemental Non-GAAP Information-Fair Value Balance Sheets ...Liquidity and Capital Management...

  • Page 3
    ...and Related Transactions, and Director Independence ...Policies and Procedures Relating to Transactions with Related Persons ...Transactions with Related Persons ...Director Independence ...Item 14. Principal Accounting Fees and Services ...PART IV ...Item 15. Exhibits, Financial Statement Schedules...

  • Page 4
    ... of Single-Family Conventional Loans Held, by Acquisition Period ...Credit Statistics, Single-Family Guaranty Book of Business ...Level 3 Recurring Financial Assets at Fair Value ...Summary of Consolidated Results of Operations ...Analysis of Net Interest Income and Yield ...Rate/Volume Analysis of...

  • Page 5
    ... Analysis ...Multifamily Foreclosed Properties ...Outstanding Repurchase Requests ...Mortgage Insurance Coverage ...Rescission Rates of Mortgage Insurance Claims ...Estimated Mortgage Insurance Benefit ...Unpaid Principal Balance of Financial Guarantees ...Interest Rate Sensitivity of Net...

  • Page 6
    ... this report. Please review "Forward-Looking Statements" for more information on the forward-looking statements in this report. You can find a "Glossary of Terms Used in This Report" in "Management's Discussion and Analysis of Financial Condition and Results of Operations ('MD&A')." Item 1. Business...

  • Page 7
    ... second quarter of 2008, single-family mortgage debt outstanding has been steadily declining since then. We owned or guaranteed mortgage assets representing approximately 28.0% of total U.S. residential mortgage debt outstanding as of September 30, 2011. We operate our business solely in the United...

  • Page 8
    .... Housing and Mortgage Market Indicators(1) 2011 2010 2009 % Change 2011 2010 Home sales (units in thousands) ...New home sales ...Existing home sales ...Home price depreciation based on Fannie Mae Home Price Index ("HPI")(2) ...Annual average fixed-rate mortgage interest Type of single-family...

  • Page 9
    ... levels by 20% to $1.4 trillion, with a purchase share of 34% and a refinance share of 66%. Since the second quarter of 2008, single-family mortgage debt outstanding has been steadily declining due to a number of factors including declining home sales and prices, rising foreclosures, increased cash...

  • Page 10
    ... the Temporary Payroll Tax Cut Continuation Act of 2011 which, among other provisions, requires that we increase our single-family guaranty fees by at least 10 basis points and remit this increase to Treasury to fund extensions of employment tax reductions and unemployment benefits, rather than...

  • Page 11
    ...operating model, and reducing our costs. To provide context for analyzing our consolidated financial statements and understanding our MD&A, we discuss the following topics in this executive summary: • Our provision of liquidity and support to the mortgage market; • Our 2011 financial performance...

  • Page 12
    estimate Fannie Mae, Freddie Mac and Ginnie Mae collectively guaranteed more than 99% of new singlefamily mortgage-related securities issuances in 2009 through 2011, which accounted for more than 85% of the single-family first-lien mortgages we currently estimate were originated in the United States...

  • Page 13
    ... in home prices, borrower payment behavior, the types and volumes of loss mitigation activities completed, and actual and estimated recoveries from our lender and mortgage insurer counterparties. In addition, the decline in interest rates during 2011 resulted in significant fair value losses on...

  • Page 14
    ... loans we have acquired, our single-family credit losses and credit-related expenses, and our draws from and dividends to be paid to Treasury. These estimates and expectations are forward-looking statements based on our current assumptions regarding numerous factors, including future home prices...

  • Page 15
    ... market. As a result of these changes and other market dynamics, we reduced our acquisitions of loans with higher-risk attributes. Compared with the loans we acquired in 2005 through 2008, the loans in our new single-family book of business have had better overall credit risk profiles at the time...

  • Page 16
    ... Loans Held, by Acquisition Period As of December 31, 2011 % of SingleFamily Conventional Guaranty Book of Business(1) Current Estimated Mark-to-Market LTV Ratio(1) Current Mark-to-Market LTV Ratio >100%(1)(2) Serious Delinquency Rate(3) Year of Acquisition: New Single-Family Book of Business...

  • Page 17
    ... believe the strong early performance of loans in our new singlefamily book of business despite the home price declines and high unemployment of the last few years is attributable to their strong credit risk profile. The credit risk profile of loans in our new single-family book of business has been...

  • Page 18
    ... our allowance for preforeclosure property taxes and insurance receivables, and (4) our reserve for guaranty losses (collectively, our "total loss reserves"), plus the portion of fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets that...

  • Page 19
    ... on Single-Family Loan Workouts" and the accompanying discussion for additional information on our home retention efforts, as well as our foreclosure alternatives. For a description of the impact of modifications on our credit-related expenses, see "Consolidated Results of Operations-CreditRelated...

  • Page 20
    ... foreclosures are required than in states where non-judicial foreclosures are permitted. For foreclosures completed in 2011, measuring from the last monthly period for which the borrowers fully paid their mortgages to when we added the related properties to our REO inventory, the average number...

  • Page 21
    ... more marketable. Our goal is to obtain the highest price possible for the properties we sell. In 2011, we completed repairs to approximately 89,800 properties sold from our single-family REO inventory, at an average cost of approximately $6,200 per property. Repairing REO properties increases sales...

  • Page 22
    ... REO properties. Given the large number of seriously delinquent loans in our single-family guaranty book of business and the large existing and anticipated supply of single-family homes in the market, we expect it will take years before our REO inventory approaches pre-2008 levels. In February 2012...

  • Page 23
    ...Credit Statistics, Single-Family Guaranty Book of Business(1) 2011 Full Year Q4 Q3 Q2 (Dollars in millions) Q1 2010 Full Year As of the end of each period: Serious delinquency rate(2) ...Seriously delinquent loan count ...Nonperforming loans(3) ...Foreclosed property inventory: Number of properties...

  • Page 24
    ... timely payments. We provide additional information on our credit-related expenses in "Consolidated Results of Operations- Credit-Related Expenses" and on the credit performance of mortgage loans in our single-family book of business and our loan workouts in "Risk Management-Credit Risk Management...

  • Page 25
    ... and may take with respect to tax policies, mortgage finance programs and policies and housing finance reform; the management of the Federal Reserve's MBS holdings; and the impact of those actions on home prices, unemployment and the general economic and interest rate environment. Because of these...

  • Page 26
    ... in actual and expected home prices, borrower payment behavior, the types and volumes of loss mitigation activities and foreclosures we complete, and estimated recoveries from our lender and mortgage insurer counterparties. Our credit losses, which include our charge-offs, net of recoveries, reflect...

  • Page 27
    ...; (2) features of our MBS trusts; (3) circumstances under which we purchase loans from MBS trusts; and (4) single-class and multi-class Fannie Mae MBS. Lender Swaps and Portfolio Securitizations We currently securitize a majority of the single-family and multifamily mortgage loans we acquire. Our...

  • Page 28
    ...mission and public policy; our loss mitigation strategies and the exposure to credit losses we face under our guaranty; our cost of funds; the impact on our results of operations; relevant market yields; the accounting impact; the administrative costs associated with purchasing and holding the loans...

  • Page 29
    ...our lender customers to securitize single-family mortgage loans delivered to us by lenders into Fannie Mae MBS in lender swap transactions • Mortgage acquisitions: Works with our Capital Markets group to facilitate the purchase of single-family mortgage loans • Credit risk management: Prices and...

  • Page 30
    ... and the financial results and performance of each of our segments, please see "MD&A-Business Segment Results" and "Note 14, Segment Reporting." Business Segment Revenues(1) For the Year Ended December 31, 2011(2) 2010(2) 2009 Single-Family Credit Guaranty ...Multifamily(3) ...Capital Markets...

  • Page 31
    ...single-family fixed-rate or adjustable-rate, first-lien mortgage loans, or mortgage-related securities backed by these types of loans. We also securitize or purchase loans insured by FHA, loans guaranteed by the Department of Veterans Affairs ("VA"), loans guaranteed by the Rural Development Housing...

  • Page 32
    ...time period. Our bulk business generally consists of transactions in which a set of loans is delivered to us in bulk, typically with guaranty fees and other contract terms negotiated individually for each transaction. Single-Family Mortgage Servicing, REO Management, and Lender Repurchases Servicing...

  • Page 33
    ... and rates, the multifamily market is made up of a wide variety of lending sources, including commercial banks, life insurance companies, investment banks, small community banks, FHA, state and local housing finance agencies and the GSEs. • Number of lenders; lender relationships: In 2011, we...

  • Page 34
    ...our DUS model aligns the interests of the borrower, lender and Fannie Mae. Our current 25-member DUS lender network, which is comprised of large financial institutions and independent mortgage lenders, continues to be our principal source of multifamily loan deliveries. Fannie Mae MBS secured by DUS...

  • Page 35
    ... in mortgage assets. The business model for our Capital Markets group has evolved in recent years. Our business activity is now focused on making short-term use of our balance sheet rather than long-term investments. As a result, our Capital Markets group works with lender customers to provide funds...

  • Page 36
    ...Mae MBS, please see "Mortgage Securitizations-Single-Class and Multi-Class Fannie Mae MBS." Other Customer Services Our Capital Markets group provides our lender customers with services that include offering to purchase a wide variety of mortgage assets, including non-standard mortgage loan products...

  • Page 37
    ... types of Fannie Mae debt securities may differ by funding program. See "MD&A-Liquidity and Capital Management-Liquidity Management" for information on the composition of our outstanding debt and a discussion of our liquidity and debt activity. Our Capital Markets group's investment and financing...

  • Page 38
    ...to limitations and post-transfer notice provisions for transfers of certain types of financial contracts), without any approval, assignment of rights or consent of any party. The GSE Act provides, however, that mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS...

  • Page 39
    ... agreement with Freddie Mac, Treasury noted that the amendments "should leave no uncertainty about the Treasury's commitment to support [Fannie Mae and Freddie Mac] as they continue to play a vital role in the housing market during this current crisis." The senior preferred stock purchase agreement...

  • Page 40
    ... if declared by our Board of Directors, out of legally available funds, cumulative quarterly cash dividends at the annual rate of 10% per year on the then-current liquidation preference of the senior preferred stock. If at any time we fail to pay cash dividends in a timely manner, then immediately...

  • Page 41
    ... the termination of Treasury's funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any time, in whole or in part. Common Stock Warrant Pursuant to the senior preferred stock purchase agreement, on September 7, 2008, we, through FHFA...

  • Page 42
    ...be used to wind down Fannie Mae and Freddie Mac, reduce the government's role in housing finance and help bring private capital back to the mortgage market. These steps include (1) increasing guaranty fees, (2) gradually increasing the level of required down payments so that any mortgages insured by...

  • Page 43
    ... GSE products during conservatorship or receivership, with certain exceptions; • prevent Treasury from amending the senior preferred stock purchase agreement to reduce the current dividend rate on our senior preferred stock; • abolish the Affordable Housing Trust Fund that the GSEs are required...

  • Page 44
    ... in 2011 the House Financial Services Committee passed a bill that would place all GSE employees on a pay scale similar to that provided for federal government employees. In addition, in 2012 the House and Senate passed separate versions of the STOCK Act to ban insider trading by members of Congress...

  • Page 45
    ..., 2011, the Board of Governors of the Federal Reserve System issued proposed rules addressing a number of these enhanced prudential standards. The Federal Reserve may also impose other standards related to contingent capital, enhanced public disclosure, short-term debt limits and other requirements...

  • Page 46
    ... has announced that, effective April 1, 2012, the guaranty fee on all single-family residential mortgages delivered to Fannie Mae and Freddie Mac on or after that date for securitization will increase by 10 basis points. FHFA is analyzing whether additional guaranty fee increases may be necessary to...

  • Page 47
    ... original principal balance limits on loans we purchase or securitize that are insured by FHA or guaranteed by the VA. • Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit enhancement on any single-family conventional mortgage loan that we purchase or...

  • Page 48
    ... by the seller of at least a 10% participation interest in the mortgage. Regardless of loan-to-value ratio, the Charter Act does not require us to obtain credit enhancement to purchase or securitize loans insured by FHA or guaranteed by the VA. Authority of U.S. Treasury to Purchase GSE Securities...

  • Page 49
    ...may be amended from time to time. The rule is effective for as long as we remain subject to the terms and obligations of the senior preferred stock purchase agreement. New Products. The GSE Act requires us to obtain FHFA's approval before initially offering any product, subject to certain exceptions...

  • Page 50
    ... litigation claims. Prudential Management and Operational Standards. As required by the GSE Act, in June 2011, FHFA issued a proposed rule establishing prudential standards relating to the management and operations of Fannie Mae, Freddie Mac and the FHLBs in the following ten areas: (1) internal...

  • Page 51
    ... Fannie Mae and Freddie Mac, to ensure that we operate in a safe and sound manner. Existing risk-based capital regulation ties our capital requirements to the risk in our book of business, as measured by a stress test model. The stress test simulates our financial performance over a ten-year period...

  • Page 52
    ... a result of the 2008 Reform Act. The 2008 Reform Act also created a new duty for us to serve three underserved markets, which we discuss below. Housing Goals FHFA established the following single-family home purchase and refinance housing goal benchmarks for 2011 and 2010. A home purchase mortgage...

  • Page 53
    ...other regulatory requirements could adversely affect our business, results of operations and financial condition. The following table presents our performance against our single-family housing benchmarks and multifamily housing goals for 2011 and 2010, as well as our performance against market share...

  • Page 54
    ... market. With some exceptions, the counting rules and other requirements would be similar to those established for the housing goals. For the loan purchase assessment factor, FHFA proposes to measure performance in terms of units rather than mortgages or unpaid principal balance. All single-family...

  • Page 55
    ... payment that is more affordable now and into the future or to obtain a more stable loan product, such as a fixed-rate mortgage loan in lieu of an adjustable-rate mortgage loan. We participate in the Making Home Affordable Program, and our sellers and servicers offer HARP and HAMP to Fannie Mae...

  • Page 56
    ... banks, commercial banks, credit unions, community banks, insurance companies, and state and local housing finance agencies. Lenders originating mortgages in the primary mortgage market often sell them in the secondary mortgage market in the form of whole loans or in the form of mortgage-related...

  • Page 57
    ...-related securities were Ginnie Mae and Freddie Mac. We currently estimate that our single-family market share was 41% in 2011, compared with 36% in 2010. These amounts represent our single-family mortgage acquisitions for each year, excluding delinquent loans we purchased from our MBS trusts...

  • Page 58
    .... Among the forward-looking statements in this report are statements relating to: • Our expectation that housing will start to recover if the employment market continues to improve; • Our anticipation of an approximately 1.1% decline in single-family mortgage debt outstanding in 2012; • Our...

  • Page 59
    ... it will take years before our REO inventory approaches pre-2008 levels; • Our estimate that we will realize as credit losses over two-thirds of the fair value losses on loans purchased out of unconsolidated MBS trusts that are reflected in our consolidated balance sheets, and eventually recover...

  • Page 60
    ... size loan we may acquire in specified high-cost areas; • Our expectation that our future revenues will be negatively impacted to the extent our acquisitions decline; • Our estimation that total originations in the U.S. single-family mortgage market in 2012 will decrease from 2011 levels by...

  • Page 61
    ... in the credit performance of mortgage loans that we own or that back Fannie Mae MBS will continue and result in additional credit-related expenses; • Our expectation that we will experience additional other-than-temporary impairment write-downs of our investments in private-label mortgage-related...

  • Page 62
    ... depending on market conditions, our debt funding needs will decline in future periods as we reduce the size of our mortgage portfolio in compliance with the requirement of the senior preferred stock purchase agreement; • Our intention to repay our short-term and long-term debt obligations as...

  • Page 63
    ... Fannie Mae and Freddie Mac's dominant presence in the marketplace while simplifying and shrinking their operations. The Subcommittee on Capital Markets and Government Sponsored Enterprises of the House Financial Services Committee has approved numerous bills that could constrain the current...

  • Page 64
    ... secondary mortgage market activities to entities in the private sector. We expect that Congress will continue to hold hearings and consider legislation in 2012 on the future status of Fannie Mae and Freddie Mac, including proposals that would result in a substantial change to our business structure...

  • Page 65
    ... January 2012, our current Chief Executive Officer announced that he will step down from his position when our Board of Directors names a successor. Further turnover in key management positions and challenges in integrating new management could harm our ability to manage our business effectively and...

  • Page 66
    ... default rates and average loan loss severity on the mortgage loans we hold or that back our guaranteed Fannie Mae MBS. Increases in delinquencies, default rates and loss severity cause us to experience higher credit-related expenses. The credit performance of our single-family book of business has...

  • Page 67
    ... in low-income housing tax credit ("LIHTC") investments, eliminating our ability to transfer the assets for value and resulting in our recognizing a $5 billion loss in that quarter. Pursuant to the senior preferred stock purchase agreement, the maximum allowable amount of mortgage assets we were...

  • Page 68
    ... activities may have short- and long-term adverse effects on our business, results of operations, financial condition, liquidity and net worth. Other agencies of the U.S. government or Congress also may ask us to undertake significant efforts to support the housing and mortgage markets, as well as...

  • Page 69
    ... 2011 and 2010 housing goals performance, please see "Business-Our Charter and Regulation of Our Activities-Housing Goals and Duty to Serve Underserved Markets." Limitations on our ability to access the debt capital markets could have a material adverse effect on our ability to fund our operations...

  • Page 70
    ...access the unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could be eliminated or significantly impaired. In this event, our alternative sources of liquidity- consisting of our cash and other investments portfolio and the unencumbered mortgage assets in our...

  • Page 71
    ... Fannie Mae MBS; seller/servicers that are obligated to repurchase loans from us or reimburse us for losses in certain circumstances; third-party providers of credit enhancement on the mortgage assets that we hold in our mortgage portfolio or that back our Fannie Mae MBS, including mortgage insurers...

  • Page 72
    ... our ability to manage these risks, which could have a material adverse effect on our business, results of operations, financial condition, liquidity and net worth. Given the deteriorated credit quality of many of our mortgage insurer counterparties, we may incur losses as a result of claims under...

  • Page 73
    ...our credit losses. Many mortgage insurers stopped insuring new mortgages with higher loan-to-value ratios or with lower borrower credit scores or on select property types, which contributed to the reduction in our business volumes for high loan-to-value ratio loans. As our charter generally requires...

  • Page 74
    ...in the foreclosure process poses operational, reputational and legal risks for us. In addition, FHFA directed us in October 2011 to phase out the practice of requiring mortgage servicers to use our network of retained attorneys to perform default- and foreclosure-related legal services for our loans...

  • Page 75
    ... servicers from initiating foreclosures on Fannie Mae loans in MERS's name. Approximately half of the loans we own or guarantee are registered in MERS's name and the related servicing rights are tracked in the MERS System. The MERS System is widely used by participants in the mortgage finance...

  • Page 76
    ... results of operations; disrupt our business; and result in legislative or regulatory intervention, liability to customers, financial losses and damage to our reputation. For example, our business is highly dependent on our ability to manage and process, on a daily basis, an extremely large number...

  • Page 77
    ... to financial losses, business disruptions, legal and regulatory sanctions and reputational damage. In many cases, our accounting policies and methods, which are fundamental to how we report our financial condition and results of operations, require management to make judgments and estimates about...

  • Page 78
    ... issuance of debt and invest our funds primarily in mortgage-related assets that permit mortgage borrowers to prepay their mortgages at any time. These business activities expose us to market risk, which is the risk of adverse changes in the fair value of financial instruments resulting from changes...

  • Page 79
    ... and credit-related expenses, and lower business volumes. We expect weakness in the real estate financial markets to continue in 2012. The deterioration in the credit condition of outstanding mortgages will result in the foreclosure of some troubled loans, which is likely to add to excess inventory...

  • Page 80
    ... regulatory capital requirements, which may reduce the economic value of mortgage servicing rights. As a result, a number of our customers and counterparties may change their business practices. In addition, the actions of Treasury, the CFTC, the SEC, the Federal Deposit Insurance Corporation, the...

  • Page 81
    ... rates and average loan loss severity of our book of business in the affected region or regions, which could have a material adverse effect on our business, results of operations, financial condition, liquidity and net worth. While we attempt to create a geographically diverse mortgage credit book...

  • Page 82
    ... of 2011, FHFA, as conservator for us and for Freddie Mac, filed 16 lawsuits on behalf of us and Freddie Mac against various financial institutions, their officers and affiliated and unaffiliated underwriters who were responsible for marketing and selling private-label mortgage-related securities...

  • Page 83
    ...Nomura Holding America Inc.; SG Americas, Inc.; and UBS Americas Inc. ("UBS") and against certain related entities and individuals. Two lawsuits-against Countrywide Financial Corporation ("Countrywide") and Morgan Stanley-were filed in the Supreme Court of the State of New York for the County of New...

  • Page 84
    ..., the high and low prices per share of our common stock as reported in the Bloomberg Financial Markets service. For periods prior to our stock's delisting from the NYSE on July 8, 2010, these are high and low sales prices reported in the consolidated transaction reporting system. For periods on or...

  • Page 85
    ... of our common stock outstanding on a fully diluted basis on the date of exercise. Recent Sales of Unregistered Securities Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or issuing our equity interests, other than as required by (and...

  • Page 86
    ... Web site is not incorporated into this annual report on Form 10-K. Purchases of Equity Securities by the Issuer The following table displays shares of our common stock we repurchased during the fourth quarter of 2011. Total Number of Shares Purchased(1) Total Number of Shares Purchased as Average...

  • Page 87
    ... results for prior years. For the Year Ended December 31, 2011 2010 2009 2008 2007 (Dollars and shares in millions, except per share amounts) Statement of operations data: Net revenues(1) ...Net other-than-temporary impairments ...Investment gains (losses), net ...Fair value losses, Credit-related...

  • Page 88
    ... Balance sheet data: Investments in securities: Fannie Mae MBS ...Other agency MBS ...Mortgage revenue bonds ...Other mortgage-related securities ...Non-mortgage-related securities ...Mortgage loans:(8) Loans held for sale ...Loans held for investment, net of allowance ...Total assets ...Short-term...

  • Page 89
    ... of fair value losses resulting from credit-impaired loans acquired from MBS trusts and HomeSaver Advance loans) divided by the average guaranty book of business during the period, expressed in basis points. See "MD&A-Consolidated Results of Operations-Credit-Related Expenses-Credit Loss Performance...

  • Page 90
    ...our actual results to differ, perhaps materially, from our forward-looking statements. Please also see "Glossary of Terms Used in This Report." CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with GAAP requires management to make a number of judgments...

  • Page 91
    ...interests, certain mortgage loans, acquired property, partnership investments, our guaranty assets and buy-ups, our master servicing assets, certain long-term debt arrangements and certain highly structured, complex derivative instruments. Table 5 displays a comparison, by balance sheet category, of...

  • Page 92
    ..., is responsible for performing monthly independent price verification. The Price Verification Group also performs independent reviews of the assumptions used in determining the fair value of products we hold that have material estimation risk because observable market-based inputs do not exist...

  • Page 93
    ... guarantee and loans we have guaranteed under long-term standby commitments and other credit enhancements we have provided. We also maintain an allowance for preforeclosure property tax and insurance receivable on delinquent loans that is included in "Other assets" in our consolidated balance sheets...

  • Page 94
    ... year, mark-to-market LTV ratio, delinquency status and loan product type. We believe that the loss severity estimates we use in determining our loss reserves reflect current available information on actual events and conditions as of each balance sheet date, including current home prices. Our loss...

  • Page 95
    ... a multifamily property. We then allocate a portion of the reserve to interest accrued on the loans as of the balance sheet date. The collective multifamily loss reserve for all other loans in our multifamily guaranty book of business is established using an internal model that applies loss factors...

  • Page 96
    ... of changes in fair value in our consolidated statement of operations. Guaranty fee income (included in Fee and other income) Credit-related expenses Investment gains (losses), net Fair value gains (losses), net See "Note 1, Summary of Significant Accounting Policies" for a further discussion...

  • Page 97
    ...consolidated statements of operations and comprehensive loss is affected by our investment and debt activity, asset yields and our funding costs. Table 7 displays an analysis of our net interest income, average balances, and related yields earned on assets and incurred on liabilities for the periods...

  • Page 98
    ... Average Income/ Earned/ Average Income/ Earned/ Average Income/ Rates Expense Paid Balance Expense Paid Balance Expense Earned/Paid (Dollars in millions) 2011 Average Balance Interest-earning assets: Mortgage loans of Fannie Mae(1) ...$ 392,719 $ 14,829 Mortgage loans of consolidated trusts...

  • Page 99
    ... out-of-period adjustment of $727 million to reduce "Interest income: Available-for-sale securities" in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2011. Without this adjustment the average interest rate earned on total mortgage-related securities...

  • Page 100
    ...decline in the balance of nonaccrual loans in our consolidated balance sheets as we continue to complete a high number of loan modifications and foreclosures. In the three month period ended December 31, 2011, we identified an error in the rate used to calculate interest income on available-for-sale...

  • Page 101
    ... cash flow projections on Alt-A and subprime securities. The charges recorded in 2011 were partially offset by an out-of-period adjustment, which reduced "Other-than-temporary-impairments" in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2011. Net...

  • Page 102
    ... debt we issue to fund our mortgage investments. We present, by derivative instrument type, the fair value gains and losses on our derivatives for the years ended December 31, 2011, 2010 and 2009 in "Note 9, Derivative Instruments." The primary factors affecting the fair value of our risk management...

  • Page 103
    ... Sheet Analysis-Derivative Instruments" for a discussion of the effect of derivatives on our consolidated balance sheets. Mortgage Commitment Derivatives Fair Value Losses, Net Commitments to purchase or sell some mortgage-related securities and to purchase single-family mortgage loans are generally...

  • Page 104
    ... total fair value losses previously recognized on loans purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets. Because these fair value losses lowered our recorded loan balances, we have fewer inherent losses in our guaranty book of business and consequently require...

  • Page 105
    ... the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets. We refer to our allowance for loan losses and reserve for guaranty losses collectively as our combined loss reserves. We summarize the changes in our combined loss reserves in...

  • Page 106
    ... Guaranty Losses (Combined Loss Reserves) 2011 Of Of Fannie Consolidated Mae Trusts For the Year Ended December 31, 2010 Of Of Fannie Consolidated Total Mae Trusts Total (Dollars in millions) 2009 2008 2007 Changes in combined loss reserves: Allowance for loan losses: Beginning balance, January...

  • Page 107
    ... are used to calculate our loan loss reserves and the impact of specific changes in estimates during 2011 see "Critical Accounting Policies and Estimates." Our provision for credit losses increased in 2011 compared with 2010 primarily due to: (1) a decline in actual and projected home prices, which...

  • Page 108
    ...balance of nonperforming single-family loans remained high as of December 31, 2011 due to both high levels of delinquencies and an increase in TDRs. When a TDR occurs, the loan may return to a current status, but it will continue to be classified as a nonperforming loan as the loan is not performing...

  • Page 109
    ... allowance for loan losses, see "Note 3, Mortgage Loans." Table 14: Nonperforming Single-Family and Multifamily Loans (1) As of December 31, 2009 2008 (Dollars in millions) 2011 2010 2007 On-balance sheet nonperforming loans including loans in consolidated Fannie Mae MBS trusts: Nonaccrual loans...

  • Page 110
    ...book of business and have historically been used by analysts, investors and other companies within the financial services industry. They also provide a consistent treatment of credit losses for on- and off-balance sheet loans. Moreover, by presenting credit losses with and without the effect of fair...

  • Page 111
    ... in foreclosed property expense of $266 million or 0.9 basis points for the year ended December 31, 2010. Single-family and multifamily rates exclude fair value losses on credit-impaired loans acquired from MBS trusts and any costs, gains or losses associated with REO after initial acquisition...

  • Page 112
    ... in home prices. Table 17 displays a comparison of the credit loss sensitivities for the periods indicated for first-lien single-family whole loans we own or that back Fannie Mae MBS, before and after consideration of projected credit risk sharing proceeds, such as private mortgage insurance claims...

  • Page 113
    ... the purpose of providing equity funding for affordable multifamily rental properties. Historically, we generally received tax benefits (tax credits and tax deductions for net operating losses) on our LIHTC investments that we used to reduce our income tax expense. Given our current tax position, it...

  • Page 114
    ... declined and it became advantageous for us to redeem higher cost debt and replace it with lower cost debt. Federal Income Taxes We recorded a tax benefit for federal income taxes of $90 million for 2011 because we effectively settled our 2007 and 2008 tax years with the Internal Revenue Service...

  • Page 115
    ... results for our three business segments, Single-Family, Multifamily and Capital Markets, which have been revised due to our prospective adoption of the revised accounting guidance in 2010 on the consolidation of VIE's and transfers of financial assets. We then display our segment results for 2011...

  • Page 116
    ...: Business Segment Summary For the Year Ended December 31, 2011 2010 2009 (Dollars in millions) Net revenues:(1) Single-Family ...Multifamily ...Capital Markets ...Consolidated trusts ...Eliminations/adjustments ...Total ...Net (loss) income attributable to Fannie Mae: Single-Family ...Multifamily...

  • Page 117
    ...displays our segment results under our current segment reporting presentation for 2011. Table 19: Business Segment Results For the Year Ended December 31, 2011 Business Segments Other Activity/Reconciling Items SingleCapital Consolidated Eliminations/ Family Multifamily Markets Trusts(1) Adjustments...

  • Page 118
    ...taxes ...Benefit for federal income taxes ...Net loss attributable to Fannie Mae ...Other key performance data: Single-family effective guaranty fee rate (in basis points)(4) ...Single-family average charged guaranty fee on new acquisitions (in basis points)(5) ...Average single-family guaranty book...

  • Page 119
    ... vintages. Our average single-family guaranty book of business was relatively flat period over period despite our continued high market share because of the decline in U.S. residential mortgage debt outstanding. Our estimated market share of new single-family mortgage-related securities issuances...

  • Page 120
    ... market share because of the decline in U.S. residential mortgage debt outstanding. There were fewer new mortgage originations due to weakness in the housing market and an increase in liquidations due to the high level of foreclosures. Our estimated market share of new single-family mortgage-related...

  • Page 121
    ... data: Multifamily effective guaranty fee rate (in basis points)(5) ...Credit loss performance ratio (in basis points)(6) ...Average Multifamily guaranty book of business(7) ...Multifamily new business volumes(8) ...Multifamily units financed from new business volumes(9) Fannie Mae Multifamily MBS...

  • Page 122
    ... points. Calculated based on the annualized credit losses divided by the average multifamily guaranty book of business, expressed in basis points. Consists of multifamily mortgage loans held in our mortgage portfolio, multifamily mortgage loans held by consolidated trusts, multifamily Fannie Mae MBS...

  • Page 123
    ...the second quarter of 2011, we reached an effective settlement of issues with the Internal Revenue Service relating to tax years 2007 and 2008, which reduced our total corporate tax liability. However, the reduction in our tax liability also reduced the low-income housing tax credits we were able to...

  • Page 124
    ... fair value gains and losses, investment gains and losses, allocated guaranty fee expense, other-than-temporary impairment and administrative expenses. Table 22: Capital Markets Group Results For the Year Ended December 31, 2011 2010 2009 (Dollars in millions) Statement of operations data: Net...

  • Page 125
    is limited to our funding debt, which is reported as "Debt of Fannie Mae" in our consolidated balance sheets. Net interest expense also includes a cost of capital charge allocated among the three business segments. The Capital Markets group's net interest income decreased in 2011 compared with 2010 ...

  • Page 126
    ...sheets. Mortgage-related assets held by consolidated MBS trusts are not included in the Capital Markets group's mortgage portfolio. The amount of mortgage assets that we may own is restricted by our senior preferred stock purchase agreement with Treasury. By December 31 of each year, we are required...

  • Page 127
    ... monthly payments was $5.8 billion. In January 2012, we purchased approximately 27,000 delinquent loans with an unpaid principal balance of $4.5 billion from our single-family MBS trusts. Table 24 displays the composition of the Capital Markets group's mortgage portfolio as of December 31, 2011...

  • Page 128
    ...: Long-term, fixed-rate ...Intermediate-term, fixed-rate ...Adjustable-rate ...Total multifamily conventional ...Total multifamily loans ...Total Capital Markets group's mortgage loans ...Capital Markets group's mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private...

  • Page 129
    ... funds sold and securities purchased under agreements to resell or similar arrangements ...Restricted cash ...Investments in securities(1) ...Mortgage loans: Of Fannie Mae ...Of consolidated trusts ...Allowance for loan losses ...Mortgage loans, net of allowance for loan losses ...Other assets...

  • Page 130
    ... decline in the unpaid principal balance and fair value of our Alt-A and subprime private-label securities. Table 26: Summary of Mortgage-Related Securities at Fair Value As of December 31, 2011 2010 (Dollars in millions) Mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt...

  • Page 131
    ... in our consolidated financial statements. Table 27: Analysis of Losses on Alt-A and Subprime Private-Label Mortgage-Related Securities As of December 31, 2011 Total Cumulative Noncredit Losses(1) Component(2) (Dollars in millions) Unpaid Principal Balance Fair Value Credit Component(3) Trading...

  • Page 132
    ... November 2011 payments. For consistency purposes, we have adjusted the Intex delinquency data, where appropriate, to include all bankruptcies, foreclosures and REO in the delinquency rates. The average delinquency, severity and credit enhancement metrics are calculated for each loan pool associated...

  • Page 133
    ... long-term debt in "Liquidity and Capital Management-Liquidity Management-Debt Funding." Also see "Note 8, Short-Term Borrowings and Long-Term Debt" for additional information on our outstanding debt. The increase in debt of consolidated trusts in 2011 was primarily driven by sales of Fannie Mae MBS...

  • Page 134
    ... Assets (Liabilities) at Fair Value, Net For the Year Ended December 31, 2011 (Dollars in millions) Net risk management derivative liability as of December 31, 2010 ...Effect of cash payments: Fair value at inception of contracts entered into during the period, net(1) ...Fair value at date...

  • Page 135
    ... under the senior preferred stock purchase agreement ...Senior preferred stock dividends ...Capital transactions, net ...Other ...Fannie Mae stockholders' deficit as of December 31, 2011(1) ...Non-GAAP consolidated fair value balance sheets: Estimated fair value of net assets as of December 31...

  • Page 136
    ... balance sheet does not reflect amounts we expect to draw in the future to pay dividends on the senior preferred stock; and • The fair value of our net assets reflects a point in time estimate of the fair value of our existing assets and liabilities, and does not incorporate the value associated...

  • Page 137
    ...sale ...311 Mortgage loans held for investment, net of allowance for loan losses: Of Fannie Mae ...322,825 Of consolidated trusts ...2,575,485 Total mortgage loans ...2,898,621 Advances to lenders ...5,538 Derivative assets at fair value ...561 Guaranty assets and buy-ups, net ...503 Total financial...

  • Page 138
    ... to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; (d) Credit enhancements; and (e) Other assets, together consist of the following assets presented in our GAAP consolidated balance sheets: (a) Accrued interest receivable, net; (b) Acquired property, net; and...

  • Page 139
    ...including delinquent loans from MBS trusts), mortgage-related securities and other investments; • interest payments on outstanding debt; • dividend payments made to Treasury pursuant to the senior preferred stock purchase agreement; • net payments on derivative instruments; • the pledging of...

  • Page 140
    ... in our consolidated balance sheets and in the debt tables below. Our discussion regarding debt funding in this section focuses on the debt of Fannie Mae. We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and international capital markets...

  • Page 141
    ... of zero-coupon debt are reported at original face value, which does not equal the amount of actual cash payment. (2) Due to the adoption of the consolidation accounting guidance in 2010, we no longer include debt issued and repaid to Fannie Mae MBS trusts in our short-term debt activity, as...

  • Page 142
    ... contingency plans. Outstanding Debt Total outstanding debt of Fannie Mae includes federal funds purchased and securities sold under agreements to repurchase and short-term and long-term debt, excluding debt of consolidated trusts. As of December 31, 2011, our outstanding short-term debt, based on...

  • Page 143
    ... Long-Term Debt(1) As of December 31, 2011 WeightedAverage Interest Outstanding Rate Maturities (Dollars in millions) 2010 WeightedAverage Interest Outstanding Rate Maturities Federal funds purchased and securities sold under agreements to repurchase ...Short-term debt: Fixed-rate: Discount notes...

  • Page 144
    ... Outstanding Rate 2011 Average During the Year Weighted Average Interest (2) Outstanding Rate (Dollars in millions) Maximum Outstanding(3) Federal funds purchased and securities sold under agreements to repurchase ...Fixed-rate short-term debt: Discount notes ...Foreign exchange discount notes...

  • Page 145
    ... Year Weighted Average Interest (2) Outstanding Rate (Dollars in millions) Maximum Outstanding(3) Federal funds purchased and securities sold under agreements to repurchase ...Fixed-rate short-term debt: Discount notes ...Foreign exchange discount notes ...Other(4) ...Floating-rate short-term debt...

  • Page 146
    ... 2011. We intend to repay our short-term and long-term debt obligations as they become due primarily through proceeds from the issuance of additional debt securities. We also intend to use funds we receive from Treasury under the senior preferred stock purchase agreement to pay our debt obligations...

  • Page 147
    ... unamortized net discount and other cost basis adjustments of $9.2 billion. Excludes contractual interest on long-term debt from consolidations. Includes certain premises and equipment leases. Includes on- and off-balance sheet commitments to purchase mortgage loans and mortgage-related securities...

  • Page 148
    ...of mortgage-related assets we hold. Our ability to sell whole loans from our mortgage portfolio is limited due to the credit-related issues of these loans, as well as operational constraints. While our liquidity contingency planning attempts to address stressed market conditions and our status under...

  • Page 149
    ..., the market value of the exposure, or both. See "Note 9, Derivative Instruments" for additional information on collateral we are required to provide to our derivatives counterparties in the event of downgrades in our credit ratings. Cash Flows Year Ended December 31, 2011. Cash and cash equivalents...

  • Page 150
    ...item in our consolidated balance sheets. Our ability to manage our net worth continues to be very limited. We are effectively unable to raise equity capital from private sources at this time and, therefore, are reliant on the senior preferred stock purchase agreement to address any net worth deficit...

  • Page 151
    ... on the 10% dividend rate. The level of dividends on the senior preferred stock will increase in future periods if, as we expect, the conservator requests additional funds on our behalf from Treasury under the senior preferred stock purchase agreement. OFF-BALANCE SHEET ARRANGEMENTS We enter into...

  • Page 152
    ...any tax benefits in our consolidated statements of operations associated with the tax credits and net operating losses. For additional information regarding our holdings in off-balance sheet limited partnerships and other off-balance sheet transactions, refer to "Note 2, Consolidations and Transfers...

  • Page 153
    ... the HFA TCLFs program, for which we are not required to hold excess cash). As of December 31, 2011 and 2010, there were no liquidity guarantee advances outstanding. RISK MANAGEMENT Our business activities expose us to the following three major categories of financial risk: credit risk, market risk...

  • Page 154
    ... the management of credit, market and operational risk policies and limits. In addition, the Audit Committee reviews the system of internal controls that we rely upon to provide reasonable assurance of compliance with our enterprise risk management processes. Enterprise Risk Management Division...

  • Page 155
    ... to mortgage and institutional counterparty credit risk. The metrics used to measure credit risk are generated using internal models. Our internal models require numerous assumptions and there are inherent limitations in any methodology used to estimate macroeconomic factors such as home prices...

  • Page 156
    ... single-family and multifamily credit enhancements that we have provided and that are not otherwise reflected in the table. Consists of mortgage-related securities issued by Freddie Mac and Ginnie Mae. Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured...

  • Page 157
    ... total single-family guaranty book of business. We provide information on the performance of non-Fannie Mae mortgage-related securities held in our portfolio, including the impairment that we have recognized on these securities, in "Consolidated Balance Sheet Analysis-Investments in Mortgage-Related...

  • Page 158
    ...single-family mortgage credit book of business. Primary mortgage insurance transfers varying portions of the credit risk associated with a mortgage loan to a third-party insurer. In order for us to receive a payment in settlement of a claim under a primary mortgage insurance policy, the insured loan...

  • Page 159
    ...'s mortgage balance exceeds the property value. - Product type. Certain loan product types have features that may result in increased risk. Generally, intermediate-term, fixed-rate mortgages exhibit the lowest default rates, followed by long-term, fixed-rate mortgages. Historically, adjustable-rate...

  • Page 160
    ... average ...Average loan amount ...Estimated mark-to-market LTV ratio:(7)

  • Page 161
    ... of Single-Family Conventional Business Volume(2) For the Year Ended December 31, 2011 2010 2009 Percent of Single-Family Conventional Guaranty Book of Business(3)(4) As of December 31, 2011 2010 2009 Number of property units: 1 unit ...2-4 units ...Total ...Property type: Single-family homes...

  • Page 162
    ... end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available. Long-term fixed-rate consists of mortgage loans...

  • Page 163
    ... on fixed-rate mortgages with terms of 20 years or less, which may have an impact on the amount of intermediate-term loans we acquire in the future. The prolonged and severe decline in home prices has resulted in the overall estimated weighted average mark-to-market LTV ratio of our single-family...

  • Page 164
    ... time, as each month the scheduled and unscheduled payments, interest, mortgage insurance premium, servicing fee, and default-related costs accrue to increase the unpaid principal balance. The majority of these loans are home equity conversion mortgages insured by the federal government through FHA...

  • Page 165
    ... their telephone communications with borrowers, and holding our servicers accountable for following our requirements. In the second quarter of 2011, we issued new standards for mortgage servicers regarding the management of delinquent loans, default prevention and foreclosure time frames under...

  • Page 166
    ...single-family guaranty book of business, which represented approximately 11% of our servicing portfolio with Bank of America as of September 30, 2011. We believe retaining special servicers to service these loans using high-touch protocols will reduce our future credit losses on the transferred loan...

  • Page 167
    ... and from the elevated level of foreclosures resulting from the housing market downturn. Longer foreclosure timelines result in these loans remaining in our book of business for a longer time, which has caused our serious delinquency rate to decrease more slowly in the last year than it would have...

  • Page 168
    ... our 2006 and 2007 loan vintages continue to exhibit higher than average delinquency rates and/or account for a disproportionate share of our credit losses. California, Florida, Arizona and Nevada and some states in the Midwest have experienced more significant declines in home prices coupled with...

  • Page 169
    ... continue to work with our servicers to implement our home retention and foreclosure prevention initiatives. Loan modifications involve changes to the original mortgage terms such as product type, interest rate, amortization term, maturity date and/or unpaid principal balance. Modifications include...

  • Page 170
    ... make the required mortgage payments. Since the cost of foreclosure can be significant to both the borrower and Fannie Mae, to avoid foreclosure and satisfy the first-lien mortgage obligation, our servicers work with a borrower to sell their home prior to foreclosure in a short sale or accept a deed...

  • Page 171
    ... during the years indicated. Table 47: Single-Family Loan Modification Profile 2011 2010 2009 Term extension, interest rate reduction, or combination of both(1) ...Initial reduction in monthly Troubled debt (1) 99% 93% 96 62 100 91 53 94 93% 87 47 92 payment(2) ... Estimated mark-to-market LTV...

  • Page 172
    ...mortgage markets should our current modification efforts ultimately not perform in a manner that results in the stabilization of these markets. See "Risk Factors" for a discussion of efforts we may be required or asked to undertake and their potential affect on us. REO Management Foreclosure and REO...

  • Page 173
    ...total number of loans in our single-family guaranty book of business as of the end of each respective period. The ongoing weak economy, as well as high unemployment rates, continues to result in a high level of mortgage loans that transition from delinquent to REO status, either through foreclosure...

  • Page 174
    ... home price depreciation or weak economies and, in the case of California and Florida specifically, a significant number of Alt-A loans. Table 50: Single-Family Acquired Property Concentration Analysis As of For the Year Ended As of For the Year Ended As of For the Year Ended December 31, 2011...

  • Page 175
    ...sharing DUS ...Non-DUS negotiated ...No recourse to the lender ...68% 11 21 65% 13 22 At the time of our purchase or guarantee of multifamily mortgage loans, we and our lenders rely significantly on sound underwriting standards, which often include third party appraisals and cash flow analysis. Our...

  • Page 176
    ... rates for loans with and without credit enhancement in our multifamily guaranty book of business. We classify multifamily loans as seriously delinquent when payment is 60 days or more past due. We include the unpaid principal balance of multifamily loans that we own or that back Fannie Mae MBS...

  • Page 177
    ...for 39% of multifamily serious delinquencies but only 8% of the multifamily guaranty book of business as of December 31, 2011. REO Management Foreclosure and REO activity affect the level of credit losses. Table 54 displays our held for sale multifamily REO balances for the periods indicated. - 172...

  • Page 178
    ... seller/servicers that service the loans we hold in our investment portfolio or that back our Fannie Mae MBS; • third-party providers of credit enhancement on the mortgage assets that we hold in our investment portfolio or that back our Fannie Mae MBS, including mortgage insurers, financial...

  • Page 179
    ... loan repurchase obligations resulting from seller/servicers' breaches of contractual obligations. Mortgage seller/servicers collect mortgage and escrow payments from borrowers, pay taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required...

  • Page 180
    ..., but not limited to, loan pricing adjustments, indemnification or forward repurchase agreements, lender corrective action, or negotiated settlements. Similarly, during 2010, Fannie Mae issued repurchase requests to seller/servicers on $13.1 billion in loans, measured by unpaid principal balance. As...

  • Page 181
    ... from the lenders. In some cases, we allow lenders to remit payment equal to our loss, including imputed interest, on the loan after we have disposed of the REO, which is less than the unpaid principal balance of the loan. As a result, we expect our actual cash receipts relating to these outstanding...

  • Page 182
    ..., 2011, in estimating our allowance for loan loss we assumed no benefit from repurchase demands due to us from seller/servicers that lacked the financial capacity to honor their contractual obligations. Mortgage Insurers We use several types of credit enhancement to manage our single-family mortgage...

  • Page 183
    ...internal ratings, which reflect our views of a mortgage insurer's claims paying ability, are based primarily on an assessment of the mortgage insurer's capital adequacy and liquidity. These assessments involve in-depth credit reviews of each mortgage insurer, a comprehensive analysis of the mortgage...

  • Page 184
    ...; PMI's holding company has consented. As a result, we expect PMI to soon be placed in receivership. Pursuant to the order, effective October 24, 2011, the regulator instituted a partial claim payment plan whereby PMI pays 50% on all valid claims under PMI mortgage guaranty insurance policies and 50...

  • Page 185
    ... to remain high. In those cases where the mortgage insurer has rescinded coverage, we generally require the seller/servicer to repurchase the loan or indemnify us against loss. The table below displays cumulative rescission rates as of December 31, 2011, by the period in which the claim was filed...

  • Page 186
    ... net present value of the expected cash flows for each loan to determine the level of impairment, which is included in our allowance for loan losses or reserve for guaranty losses. These expected cash flow projections include proceeds from mortgage insurance, that are based, in part, on the internal...

  • Page 187
    ... are short-term in nature, having an average duration of approximately six months, and the valuation allowance reduces our claim receivable to the amount that we consider probable of collection. We received proceeds under our primary and pool mortgage insurance policies for single-family loans of...

  • Page 188
    ... investments in private-label mortgage-related securities. We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and its agencies that totaled $31.4 billion as of December 31, 2011 and $25.7 billion as of December 31, 2010. Lenders...

  • Page 189
    ...modeled loss projections. Lenders delivering loans through the DUS program are now required to maintain higher levels of capital. Custodial Depository Institutions A total of $66.4 billion in deposits for single-family payments were received and held by 284 institutions in the month of December 2011...

  • Page 190
    ... the right of legal offset does not exist, we calculate the replacement cost of the outstanding derivative contracts in a gain position at the transaction level. The fair value of derivatives in a gain position is included in our consolidated balance sheets in "Other assets." We manage our credit...

  • Page 191
    ... In many cases, our lender customers or their affiliates also serve as document custodians for us. Our ownership rights to the mortgage loans that we own or that back our Fannie Mae MBS could be challenged if a lender intentionally or negligently pledges or sells the loans that we purchased or fails...

  • Page 192
    ... cash flows, we accept period-to-period volatility in our financial performance attributable to changes in mortgage-to-debt spreads that occur after our purchase of mortgage assets. For more information on the impact that changes in spreads have on the value of the fair value of our net assets...

  • Page 193
    ... tool we have used to fund the purchase of mortgage assets and manage the interest rate risk implicit in our mortgage assets is the variety of debt instruments we issue. The debt we issue is a mix that typically consists of short- and long-term, non-callable and callable debt. The varied maturities...

  • Page 194
    ... exchange, or swap, interest payments. The interest payment amounts are tied to different interest rates or indices for a specified period of time and are generally based on a notional amount of principal. The types of interest rate swaps we use include pay-fixed swaps, receive-fixed swaps and basis...

  • Page 195
    ... of our mortgage assets. See "Liquidity and Capital Management-Liquidity Management-Debt Funding" for additional information on our debt activity. Interest rates also decreased significantly during 2011, which reduced the price sensitivity of our mortgage assets, resulting in a lower market value...

  • Page 196
    ... future business activity will largely replace guaranty fee income lost due to mortgage prepayments. We provide additional interest rate sensitivities below in Table 62, including separate disclosure of the potential impact on the fair value of our trading assets and our other financial instruments...

  • Page 197
    ... Consists of the net of "Guaranty assets" and "Guaranty obligations" reported in our consolidated balance sheets. Also consists of the net of all other financial instruments reported in "Note 18, Fair Value." Liquidity Risk Management See "Liquidity and Capital Management-Liquidity Management" for...

  • Page 198
    ..." for a discussion on our operational risk. IMPACT OF FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting pronouncements in "Note 1, Summary of Significant Accounting Policies." - 193 -

  • Page 199
    ... (3) credit enhancements that we provide on our mortgage assets. It excludes mortgage loans we securitize from our portfolio and the purchase of Fannie Mae MBS for our investment portfolio. "Buy-ups" refer to upfront payments we make to lenders to adjust the monthly contractual guaranty fee rate on...

  • Page 200
    ... both mortgage loans and mortgage-related securities we hold in our investment portfolio. "Mortgage credit book of business" refers to the sum of the unpaid principal balance of: (1) mortgage loans held in our mortgage portfolio; (2) Fannie Mae MBS held in our mortgage portfolio; (3) non-Fannie Mae...

  • Page 201
    ... period of time. These contracts generally increase in value as interest rates rise and decrease in value as interest rates fall. "Private-label securities" refers to mortgage-related securities issued by entities other than agency issuers Fannie Mae, Freddie Mac or Ginnie Mae. "Receive-fixed...

  • Page 202
    ... required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as in effect as of December 31, 2011, the end of the period covered by this report...

  • Page 203
    ... control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and...

  • Page 204
    ... within FHFA's Office of the Chief Accountant have met frequently with our senior finance executives regarding our accounting policies, practices and procedures. In view of these activities, we believe that our consolidated financial statements for the year ended December 31, 2011 have been prepared...

  • Page 205
    ... internal control over financial reporting. Changes in Management • In the first quarter of 2012, Michael J. Williams, our President and Chief Executive Officer, announced that he will step down from his position when our Board of Directors names a successor. • During the fourth quarter of 2011...

  • Page 206
    ... opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other...

  • Page 207
    ...was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2011, of the Company and this report does not affect our report on such financial statements. In our opinion, because of...

  • Page 208
    ... in the following subject areas: business; finance; capital markets; accounting; risk management; public policy; mortgage lending, real estate, low-income housing and/or homebuilding; and the regulation of financial institutions. See "Corporate Governance-Composition of Board of Directors" below for...

  • Page 209
    ... Ms. Gaines should continue to serve as a director due to her extensive experience in business, finance, accounting, risk management, public policy matters, mortgage lending, low-income housing, and the regulation of financial institutions, which she gained in the positions described above. - 204 -

  • Page 210
    ... in business, finance, capital markets, risk management, public policy matters, mortgage lending, low-income housing and homebuilding, which he gained in the positions described above. Robert H. Herz, 58, serves as President of Robert H. Herz LLC, providing consulting services on financial reporting...

  • Page 211
    ... and investing in mixed-income, mixed-use communities, affordable/work force housing and commercial real estate projects in markets across the country. Mr. Perry currently serves as Chair of the Board of Directors of Atlanta Life Financial Group, where he serves as a member of the Audit Committee...

  • Page 212
    ... business, finance, accounting, mortgage lending, real estate, low-income housing and the regulation of financial institutions, which he gained in the positions described above. CORPORATE GOVERNANCE Conservatorship and Delegation of Authority to Board of Directors On September 6, 2008, the Director...

  • Page 213
    ... our Corporate Governance guidelines provide that the Board, as a group, must be knowledgeable in business, finance, capital markets, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding, regulation of financial institutions, and any other areas...

  • Page 214
    ... maintain policies and procedures that, among other things, encourage the consideration of diversity in nominating or soliciting nominees for positions on our Board. The Nominating and Corporate Governance Committee evaluates the qualifications and performance of current directors on an annual basis...

  • Page 215
    ...of Interest Policy for Members of the Board of Directors. Our Code of Conduct also serves as the code of ethics for our Chief Executive Officer and senior financial officers required by the Sarbanes-Oxley Act of 2002 and implementing regulations of the SEC. We have posted these codes on our Web site...

  • Page 216
    ... Mae's Senior Vice President-Capital Markets from March 2006 to May 2011, and as Fannie Mae's Vice President-Portfolio Management from November 2000 to February 2006. Mr. Bon Salle held the positions of Director, Finance from December 1996 to November 2000 and of Manager, Early Funding Programs...

  • Page 217
    ... Counsel during the Whitewater investigation. Susan R. McFarland, 51, has served as Executive Vice President and Chief Financial Officer since July 2011. Prior to joining Fannie Mae, she served as Executive Vice President, Finance and Principal Accounting Officer of Capital One Financial Corporation...

  • Page 218
    ... 2008, he was Global Head, Capital Markets Operations and Institutional Clients Group Business Services. Before that, he served in a series of senior finance positions, including as Chief Financial Officer of Citigroup International, the European Investment Bank, and of Global Investment Management...

  • Page 219
    ... balances. Outstanding awards, options and rights include grants under the Fannie Mae Stock Compensation Plan of 1993, the Stock Compensation Plan of 2003 and the payout of shares deferred upon the settlement of awards made under the 1993 plan and a prior plan. The weighted average exercise price...

  • Page 220
    ..., Beneficially Stock Options 2012(2) Owned Name and Position David C. Benson ...Executive Vice President-Capital Markets Dennis R. Beresford ...Director Terence W. Edwards ...Executive Vice President-Credit Portfolio Management W. Thomas Forrester ...Director Brenda J. Gaines ...Director Charlynn...

  • Page 221
    ... Relationships and Related Transactions, and Director Independence POLICIES AND PROCEDURES RELATING TO TRANSACTIONS WITH RELATED PERSONS We review transactions in which Fannie Mae is a participant and in which any of our directors or executive officers or their immediate family members has an...

  • Page 222
    ....9% of our outstanding common stock on a fully diluted basis on the date of exercise, for an exercise price of $0.00001 per share, and is exercisable in whole or in part at any time on or before September 7, 2028. We describe below our current agreements with Treasury, as well as payments we will be...

  • Page 223
    ... program administrator for the Home Affordable Modification Program and other initiatives under the Making Home Affordable Program, and the housing finance agency transactions described below. Treasury Senior Preferred Stock Purchase Agreement We issued the warrant to Treasury pursuant to the terms...

  • Page 224
    ...to single-family bonds and $2.8 billion related to multifamily bonds). The amounts outstanding under these programs have been reduced since the programs were established and will continue to be reduced over time as principal payments are received on the mortgage loans financed by the NIB program and...

  • Page 225
    ... payment and the delivery of pools of mortgage loans in exchange for Fannie Mae MBS. We acquired most of these mortgage loans pursuant to our early funding programs. This represented approximately 4.1% of our single-family business volume in 2011 and made PHH our sixth-largest single-family customer...

  • Page 226
    ... lenders and servicers in New Jersey. PHSD has provided legal services to Fannie Mae for over 11 years, and is currently part of Fannie Mae's retained attorney network. PHSD invoiced approximately $0.8 million in legal fees in January and February 2011 relating to work performed for Fannie Mae...

  • Page 227
    ... purchase multifamily mortgage loans made to borrowing entities sponsored by Integral. DIRECTOR INDEPENDENCE Our Board of Directors, with the assistance of the Nominating and Corporate Governance Committee, has reviewed the independence of all current Board members under the requirements set forth...

  • Page 228
    ... auditor and personally worked on our audit within that time; or • an immediate family member of the director is a current partner of our external auditor, or is a current employee of our external auditor and personally works on Fannie Mae's audit, or, within the preceding five years, was (but...

  • Page 229
    ... One of these Board members and an immediate family member of another Board member serve as a director and employee, respectively, of companies that have been sued by FHFA, as conservator to Fannie Mae and Freddie Mac, for violations of laws in the sale of residential private-label mortgage-backed...

  • Page 230
    ... a Board member who is a current executive officer, employee, controlling shareholder or partner of a company that engages in business with Fannie Mae. In addition, as a limited partner or member in the LIHTC funds, which in turn are limited partners in the Integral Property Partnerships, Fannie Mae...

  • Page 231
    ... public accounting firm and management are required to present reports on the nature of the services provided by the independent registered public accounting firm for the past year and the fees for such services, categorized into audit services, auditrelated services, tax services and other services...

  • Page 232
    ... 15. (a) 1. Exhibits, Financial Statement Schedules Documents filed as part of this report Consolidated Financial Statements An index to financial statements has been filed as part of this report beginning on page F-1 and is incorporated herein by reference. 2. Financial Statement Schedules None...

  • Page 233
    ... the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do in person, and...

  • Page 234
    Signature Title Date /s/ Dennis R. ...Director February 29, 2012 Director February 29, 2012 Director February 29, 2012 Director February 29, 2012 Director February 29, 2012 Director February 29, 2012 Director February 29, 2012 Director February 29, 2012 Director February 29, 2012...

  • Page 235
    ... 4.11 to Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2009, filed February 26, 2010.) Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series P (Incorporated by reference to Exhibit 4.1 to Fannie Mae's Current Report on Form 8-K, filed September 28, 2007...

  • Page 236
    ... to Fannie Mae's Current Report on Form 8-K, filed September 11, 2008.) Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of September 26, 2008, between the United States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing...

  • Page 237
    ... 10.22 to Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2010, filed February 24, 2011.) Fannie Mae Annual Incentive Plan, as amended December 10, 2007†(Incorporated by reference to Exhibit 10.17 to Fannie Mae's Annual Report on Form 10-K for the year ended December 31...

  • Page 238
    ...to Fannie Mae's Current Report on Form 8-K, filed October 2, 2008.) Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009, between the United States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing...

  • Page 239
    ... Fannie Mae's Current Report on Form 8-K, filed October 23, 2009.) Omnibus Consent to HFA Initiative Program Modifications among the Department of Treasury, the Federal Housing Finance Agency, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation, dated November 23, 2011...

  • Page 240
    ... Consolidations and Transfers of Financial Assets ...Note 3- Mortgage Loans ...Note 4- Allowance for Loan Losses and Reserve for Guaranty Losses ...Note 5- Investments in Securities ...Note 6- Financial Guarantees ...Note 7- Acquired Property, Net ...Note 8- Short-Term Borrowings and Long-Term Debt...

  • Page 241
    ... 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, on January...

  • Page 242
    ... for investment ...Allowance for loan losses ...Total loans held for investment, net of allowance ...Total mortgage loans ...Accrued interest receivable, net (includes $8,466 and $8,910, respectively, related to consolidated trusts) ...Acquired property, net ...Other assets (includes cash pledged as...

  • Page 243
    FANNIE MAE (In conservatorship) Consolidated Statements of Operations and Comprehensive Loss (Dollars and shares in millions, except per share amounts) For the Year Ended December 31, 2011 2010 2009 Interest income: Trading securities ...Available-for-sale securities ...Mortgage loans (includes $123...

  • Page 244
    FANNIE MAE (In conservatorship) Consolidated Statements of Cash Flows (Dollars in millions) For the Year Ended December 31, 2011 2010 2009 Cash flows used in operating activities: Net loss ...$ (16,855) $ Reconciliation of net loss to net cash used in operating activities: Amortization of cost ...

  • Page 245
    ... in net loss (net of tax of $119) ...Unrealized gains on guaranty assets and guaranty fee buy-ups ...Amortization of net cash flow hedging gains ...Prior service cost and actuarial gains, net of amortization for defined benefit plans ...Total comprehensive loss ...Senior preferred stock dividends...

  • Page 246
    ... mortgage-related securities. We operate under three business segments: Single-Family Credit Guaranty ("Single-Family"), Multifamily and Capital Markets. Our Single-Family segment generates revenue primarily from the guaranty fees on the mortgage loans underlying guaranteed single-family Fannie Mae...

  • Page 247
    ... Fannie Mae MBS and cannot be used to satisfy the general creditors of Fannie Mae. As of February 29, 2012, FHFA has not exercised this power. Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments on our debt securities or perform...

  • Page 248
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) • If our positive net worth as of December 31, 2012 is greater than the cumulative draws for net worth deficiencies attributable to periods during 2010, 2011, and 2012, then the amount of available funding will ...

  • Page 249
    ... business primarily through the issuance of short-term and long-term debt securities in the domestic and international capital markets. Because debt issuance is our primary funding source, we are subject to "rollover," or refinancing, risk on our outstanding debt. Our ability to issue long-term debt...

  • Page 250
    ...'s Home Affordable Modification Program ("HAMP") and other initiatives under Treasury's Making Home Affordable Program. During 2011, we received a refund of $1.1 billion from the Internal Revenue Service ("IRS") related to the carryback of our 2009 operating loss to the 2008 and 2007 tax years...

  • Page 251
    ... value of cash flows on those loans. Also in the three months ended June 30, 2011, we updated our estimate of the reserve for guaranty losses related to private-label mortgage-related securities that we have guaranteed to increase our focus on earlier stage delinquency, rather than foreclosure...

  • Page 252
    ... investments in low-income housing tax credit ("LIHTC") and other housing partnerships, as well as mortgage and asset-backed trusts that were not created by us. In 2009, the Financial Accounting Standards Board ("FASB") concurrently revised the accounting guidance related to the consolidation...

  • Page 253
    ... exposes us to credit losses on the loans underlying Fannie Mae MBS. Single-class securitization trusts are used for both our lender swap and portfolio securitization transaction programs. A lender swap transaction occurs when a mortgage lender delivers a pool of single-family mortgage loans to us...

  • Page 254
    ... (e.g., when the loan collateral is subject to an FHA guarantee and related servicing guide). When we purchase single-class Fannie Mae MBS issued from a consolidated trust, we account for the transaction as an extinguishment of the related debt in our consolidated financial statements. We record...

  • Page 255
    ... the carrying basis of the assets transferred and the fair value of the proceeds from the sale is recorded as a component of "Investment gains, net" in our consolidated statements of operations and comprehensive loss. Retained interests are primarily in the form of Fannie Mae MBS, REMIC certificates...

  • Page 256
    ... as a component of our net loss). We distinguish between the payments and proceeds related to the debt of Fannie Mae and the debt of consolidated trusts, as applicable. We present our non-cash activities in the consolidated statements of cash flows at the associated unpaid principal balance. F-17

  • Page 257
    ... and servicer incentive fees ...Other, net ...Cash flows used in financing activities: Proceeds from issuance of short-term debt of Fannie Mae ...Proceeds from issuance of long-term debt of Fannie Mae ...Proceeds from issuance of debt of Fannie Mae ...Other, net ...Payments to redeem short-term debt...

  • Page 258
    ... secured financings or as purchases and sales of securities. When we enter into such agreements, we first account for our forward commitments to buy and sell the mortgage-related securities as derivatives in our financial statements at the trade date for both the purchase and sale trades. Subsequent...

  • Page 259
    ... impairments" in our consolidated statements of operations and comprehensive loss. The fair value of the investment then became its new cost basis. Mortgage Loans Loans Held for Investment When we acquire mortgage loans that we have the ability and the intent to hold for the foreseeable future...

  • Page 260
    ...interest income for loans on nonaccrual status when cash is received. For multifamily loans, we apply any payment received on a cost recovery basis to reduce principal on the mortgage loan unless the loan is determined to be well secured. We return a single-family loan to accrual status at the point...

  • Page 261
    ... recorded investment in the loan and the fair value of the underlying property, adjusted for the estimated costs to sell the property and estimated insurance or other proceeds we expect to receive. In April 2011, FASB issued new guidance effective for the three months ended September 30, 2011 that...

  • Page 262
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) months ended September 30, 2011. This amount reflects the net increase in our allowance for loan losses due to identifying these restructurings as TDRs and measuring their impairment on an individual basis offset by the elimination of...

  • Page 263
    ... Fannie Mae MBS trusts. When calculating our loan loss allowance, we consider only our net recorded investment in the loan at the balance sheet date, which includes the loan's unpaid principal balance and accrued interest recognized while the loan was on accrual status and any applicable cost basis...

  • Page 264
    ... hazard insurance or similar sources. For individually impaired loans that we believe are probable of foreclosure, we take into consideration the sales prices of foreclosed properties in determining the value of the underlying real estate collateral. We use internal models to project cash flows used...

  • Page 265
    ...available current borrower financial information, operating statements on the underlying collateral, current debt service coverage ratios, historical payment experience, estimates of the current collateral values and other related credit documentation. As a result of this analysis, multifamily loans...

  • Page 266
    ... in our consolidated balance sheets, and create guaranteed Fannie Mae MBS backed by those loans. As guarantor, we guaranty to each MBS trust that we will supplement amounts received by the MBS trust as required to permit timely payments of principal and interest on the related Fannie Mae MBS. This...

  • Page 267
    ... as "Investment gains, net" in our consolidated statements of operations and comprehensive loss. Subsequent to initial recognition, we account for the guaranty asset on lender swap transactions at amortized cost. As we collect monthly guaranty fees, we reduce guaranty assets to reflect cash payments...

  • Page 268
    ...our consolidated balance sheets as well as the amount of our "Reserve for guaranty losses" and "Other liabilities" that relates to Fannie Mae MBS held as "Investments in securities." Upon subsequent sale of a Fannie Mae MBS, we continue to account for any outstanding recorded amounts associated with...

  • Page 269
    .... Derivative Instruments We recognize all derivatives as either assets or liabilities in our consolidated balance sheets at their fair value on a trade date basis. We report derivatives in a gain position after offsetting by counterparty in "Other assets" and derivatives in a loss position after...

  • Page 270
    ... accepted from a counterparty that we do not have the right to use as "Restricted cash" in our consolidated balance sheets. We net our obligation to return cash collateral pledged to us against the fair value of derivatives in a gain position recorded in "Other assets" in our consolidated balance...

  • Page 271
    ...losses), net" which is a component of "Fair value losses, net" in our consolidated statements of operations and comprehensive loss. When we purchase a Fannie Mae MBS issued from a consolidated single-class securitization trust, we extinguish the related debt of the consolidated trust as the MBS debt...

  • Page 272
    ...discount rate as of each balance sheet date, we consider the current yields on high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected duration of our benefit obligations. Additionally, the net periodic benefit cost recognized in our consolidated financial...

  • Page 273
    ... to: Assets: Servicer and MBS trust receivable ...Other assets ...Liabilities: Short-term debt: Of Fannie Mae ...Of consolidated trusts ...Long-term debt: Of Fannie Mae ...Of consolidated trusts ...Debt: Of Fannie Mae ...Of consolidated trusts ...Reserve for guaranty losses ...Servicer and MBS trust...

  • Page 274
    ... Fannie Mae ...Of consolidated trusts ...Short-term debt (includes $12 and $-, respectively, related to consolidated trusts) ...Long-term debt: Of Fannie Mae ...Of consolidated trusts ...Long-term debt (includes $118,373 and $344, respectively, related to consolidated trusts) ...Guaranty fee income...

  • Page 275
    ... 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...

  • Page 276
    ... trusts. The guaranty fee income that continues to be recognized in our consolidated statements of operations and comprehensive loss relates to guarantees to unconsolidated trusts and other credit enhancements that we have provided. Debt Extinguishment Gains (Losses) Upon purchase of Fannie Mae MBS...

  • Page 277
    ... for our lender swap and portfolio securitization transactions. The assets of these trusts may include mortgage-related securities and/or mortgage loans. The trusts created for Fannie Mae Mega securities issue single-class securities while the trusts created for REMIC, grantor trust and stripped...

  • Page 278
    ... balance sheets. As a result of our current tax position, we did not make any LIHTC investments in 2011 other than pursuant to existing prior commitments. We are not currently recognizing the tax benefits associated with the tax credits and net operating losses in our consolidated financial...

  • Page 279
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2011 MortgageAssetLimited Backed Backed Partnership Trusts Trusts Investments (Dollars in millions) Assets and liabilities recorded in our consolidated balance sheets: Assets: Available-for-sale securities(1) ...Trading...

  • Page 280
    ... trusts. Fannie Mae Single-class REMICS & MBS & Fannie SMBS Mae Megas (Dollars in millions) As of December 31, 2011 Unpaid principal balance ...Fair value ...Weighted-average coupon ...Weighted-average loan age ...Weighted-average maturity ...As of December 31, 2010 Unpaid principal balance ...Fair...

  • Page 281
    ... cost or fair value determined on a pooled basis, and record valuation changes in our consolidated statements of operations and comprehensive loss. The following table displays our mortgage loans as of December 31, 2011 and 2010. As of December 31, Of Fannie Mae 2011 Of Consolidated Trusts Of Fannie...

  • Page 282
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans, excluding loans for which we have elected the fair value option, by portfolio segment and class as of ...

  • Page 283
    ... balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. (5) The following table displays the total recorded investment in our multifamily...

  • Page 284
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and accrued interest receivable. Green (loan with acceptable risk); Yellow (loan ...

  • Page 285
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2010 For the Year Ended December 31, 2010 Related Allowance Related for Allowance Accrued Average Total Interest Interest Income for Loan Interest Recorded Income Recognized on a Losses Receivable Investment Recognized(2) Cash...

  • Page 286
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (7) Includes single-family loans restructured in a TDR with a recorded investment of $161.9 billion and $140.1 billion as of December 31, 2011 and 2010, respectively. Includes multifamily loans restructured in a ...

  • Page 287
    ...in-lieu of foreclosure or a short sale, single-family loans with completed modifications that are two or more months delinquent during the period or multifamily loans with completed modifications that are one or more months delinquent during the period. For the Year Ended December 31, 2011 Number of...

  • Page 288
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Loans Acquired in a Transfer We acquired delinquent loans from unconsolidated trusts and long-term standby commitments with an unpaid principal balance plus accrued interest of $192 million, $279 million and $36.4...

  • Page 289
    ... fair value discount that was recorded on acquired credit-impaired loans. 4. Allowance for Loan Losses and Reserve for Guaranty Losses We maintain an allowance for loan losses for loans held for investment in our mortgage portfolio and loans backing Fannie Mae MBS issued from consolidated trusts...

  • Page 290
    ...MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Determining the adequacy of our allowance for loan losses and reserve for guaranty losses is complex and requires judgment about the effect of matters that are inherently uncertain. Upon recognition of the mortgage loans...

  • Page 291
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Allowance for Loan Losses The following table displays changes in both single-family and multifamily allowance for loan losses for the years ended December 31, 2011 and 2010 and the total allowance for loan losses...

  • Page 292
    ... balance, unamortized premiums, discounts and other cost basis adjustments, and accrued interest receivable. On December 31, 2010, we entered into an agreement with Bank of America, N.A., and its affiliates, BAC Home Loans Servicing, LP, and Countrywide Home Loans, Inc., to address outstanding...

  • Page 293
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) and "Allowance for loan losses," $266 million as a reduction to "Foreclosed property expense" and $142 million as receipt of amounts receivable due to the rescission of mortgage insurance coverage included in "...

  • Page 294
    ... our investments in trading securities and the cumulative amount of net losses recognized from holding these securities as of December 31, 2011 and 2010. As of December 31, 2011 2010 (Dollars in millions) Mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label...

  • Page 295
    ... proceeds from the initial sale of securities from new portfolio securitizations included in "Note 2, Consolidations and Transfers of Financial Assets." The following tables display the amortized cost, gross unrealized gains and losses and fair value by major security type for AFS securities...

  • Page 296
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2010 Gross Gross Gross Unrealized Unrealized Unrealized Losses Losses Gains OTTI(2) Other(3) (Dollars in millions) Total Amortized Cost(1) Total Fair Value Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label...

  • Page 297
    ... we will be required to sell the securities. Additionally, our projections of cash flows indicate that we will recover these unrealized losses over the lives of the securities. In the three months ended December 31, 2011, we identified an error in the rate used to calculate interest income and other...

  • Page 298
    ... rate mortgage ("ARM")) and subprime private-label securities for other-than-temporary impairment by discounting the projected cash flows from econometric models to estimate the portion of loss in value attributable to credit. Separate components of a third-party model project regional home prices...

  • Page 299
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) model combines these factors with available current information regarding attributes of loans in pools backing the private-label mortgage-related securities to project prepayment speeds, conditional default rates,...

  • Page 300
    ... than the security's cost basis. We analyzed commercial mortgage-backed securities ("CMBS") using a CMBS loss forecast model that incorporates a loan level loss forecast. This forecast takes into account loan performance, loan status, loan attributes, structures, metropolitan area, property type and...

  • Page 301
    ... Amortized Cost Total Fair Value Fannie Mae ...$15,486 $16,850 Freddie Mac ...11,906 12,823 Ginnie Mae ...775 902 Alt-A private-label securities ...13,314 11,683 Subprime private-label securities ...9,556 7,586 CMBS ...13,949 14,026 Mortgage revenue bonds . . 10,172 10,254 Other mortgage-related...

  • Page 302
    ... taxable or tax-exempt mortgage revenue bonds issued by state and local governmental entities to finance multifamily housing for low- and moderate-income families. Additionally, we issue long-term standby commitments that generally require us to purchase loans from lenders if the loans meet certain...

  • Page 303
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables display the current delinquency status and certain higher risk characteristics of our singlefamily conventional and total multifamily guaranty book of business as of December 31, 2011 and 2010...

  • Page 304
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (2) Consists of single-family conventional loans that were three months or more past due or in the foreclosure process, as of the periods indicated. Calculated based on the aggregate unpaid principal balance of ...

  • Page 305
    ... the Year Ended December 31, 2011 2010 2009 (Dollars in millions) Beginning balance, January 1 ...Adoption of consolidation accounting guidance ...Fair value of expected cash flows at issuance for new guaranteed Fannie Mae MBS issuance ...Net change in fair value of guaranty assets from portfolio...

  • Page 306
    ... 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...

  • Page 307
    ... in millions) Outstanding Federal funds purchased and securities sold under agreements to repurchase(2) ...Fixed-rate short-term debt: Discount notes(3) ...Foreign exchange discount notes(4) ...Other(5) ...Total short-term debt of Fannie Mae ...Debt of consolidated trusts ...Total short-term debt...

  • Page 308
    ...Medium-term notes(2) ...Other(3)(4) ...Total senior floating ...Subordinated fixed: Qualifying subordinated(5) ...Subordinated debentures ...Total subordinated fixed ...Total long-term debt of Fannie Mae(6) ...Debt of consolidated trusts(4) ...Total long-term debt ...(1) (2) 2012 - 2030 2012 - 2021...

  • Page 309
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Our long-term debt includes a variety of debt types. We issue both fixed and floating-rate medium-term notes with maturities greater than one year that are issued through dealer banks. We also offer Benchmark ...

  • Page 310
    ... period of time, generally based on a notional amount of principal. The types of interest rate swaps we use include pay-fixed swaps, receive-fixed swaps and basis swaps. • Interest rate option contracts. These contracts primarily include pay-fixed swaptions, receive-fixed swaptions, cancelable...

  • Page 311
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Notional and Fair Value Position of our Derivatives The following table displays the notional amount and estimated fair value of our asset and liability derivative instruments as of December 31, 2011 and 2010. As ...

  • Page 312
    .... For the Year Ended December 31, 2011 2010 2009 (Dollars in millions) Risk management derivatives: Swaps: Pay-fixed ...Receive-fixed ...Basis ...Foreign currency ...Swaptions: Pay-fixed ...Receive-fixed ...Other(1) ...Total risk management derivatives fair value losses, net ...Mortgage commitment...

  • Page 313
    ...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...

  • Page 314
    ... 2007 and 2008 tax years with the IRS and as a result, we have recognized an income tax benefit of $90 million in our consolidated statements of operations and comprehensive loss for 2011. The following table displays the difference between our effective tax rates and the statutory federal tax rates...

  • Page 315
    ... and positive evidence, including our historical profitability and projections of future taxable income. We are required to establish a valuation allowance for deferred tax assets and record a charge in our consolidated statements of operations and comprehensive loss or in "Fannie Mae stockholders...

  • Page 316
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) allowance, we estimate future taxable income or loss based on management-approved business plans and ongoing tax planning strategies. This process involves significant management judgment about assumptions that ...

  • Page 317
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) related to fair market value losses and the settlement of tax years 2005 through 2006. It is reasonably possible that changes in our gross balance of unrecognized tax benefits may occur within the next 12 months. In connection with applications...

  • Page 318
    ... Purchase Plan") provided employees an opportunity to purchase shares of Fannie Mae common stock at a discount to the fair market value of the stock during specified purchase periods. Our Board of Directors sets the terms and conditions of offerings under the 1985 Purchase Plan, including the number...

  • Page 319
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table displays restricted stock activity for 2011, 2010 and 2009. For the Year Ended December 31, 2011 2010 2009 Weighted Weighted Weighted Average Fair Average Fair Average Fair Number of Value at ...

  • Page 320
    ...on an actuarial basis, and expenses for our defined contribution plans, are included in "Salaries and employee benefits expense" in our consolidated statements of operations and comprehensive loss. For the years ended December 31, 2011, 2010 and 2009, we recognized net periodic benefit costs for our...

  • Page 321
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table displays components of our net periodic benefit cost for our qualified and nonqualified pension plans and other postretirement plan for the years ended December 31, 2011, 2010 and 2009. The net...

  • Page 322
    ... pre-tax amounts in AOCI as of December 31, 2011 that are expected to be recognized as components of net periodic benefit cost in 2012. As of December 31, 2011 Other PostPension Retirement Plans Plan (Dollars in millions) Net actuarial loss ...Net prior service cost (credit) ...Net transition...

  • Page 323
    ... of year ...Service cost ...Interest cost ...Plan participants' contributions ...Net actuarial loss (gain) ...Curtailment gain ...Benefits paid ...Benefit obligation at end of year ...Change in Plan Assets Fair value of plan assets at beginning of year ...Actual return on plan assets ...Employer...

  • Page 324
    ... used to determine net periodic benefit costs: Discount rate ...Average rate of increase in future compensation ...Expected long-term weighted-average rate of return on plan assets ...Weighted-average assumptions used to determine benefit obligation at year-end: Discount rate ...Average rate...

  • Page 325
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We review our pension and other postretirement benefit plan assumptions on an annual basis. We calculate the net periodic benefit cost each year based on assumptions established at the end of the previous calendar...

  • Page 326
    ... consist of exchange-listed stocks, held in broadly diversified index funds. We also invest in a broadly diversified indexed fixed income account. In addition, the plan holds liquid shortterm investments that provide for monthly pension payments, plan expenses and, from time to time, may represent...

  • Page 327
    ... are: Single-Family, Multifamily, and Capital Markets. We use these three segments to generate revenue and manage business risk, and each segment is based on the type of business activities it performs. We are working on reorganizing our company by function rather than by business in order to...

  • Page 328
    ... income in the consolidated statement of operations and comprehensive loss. Multifamily The primary sources of revenue for our Multifamily business are (1) guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS...

  • Page 329
    ... 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 and comprehensive loss, we eliminate guaranty fees related...

  • Page 330
    ... or losses on Fannie Mae MBS that have been consolidated to loans. • Other expenses, net-Debt extinguishment gains or losses recorded on the segment statements of operations relate exclusively to our funding debt, which is reported as "Debt of Fannie Mae" in our consolidated balance sheets. To...

  • Page 331
    ... results under our current segment reporting presentation for the years ended December 31, 2011 and 2010. For the Year Ended December 31, 2011 Business Segments Other Activity/Reconciling Items SingleCapital Consolidated Eliminations/ Total Family Multifamily Markets Trusts(1) Adjustments(2) Results...

  • Page 332
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For the Year Ended December 31, 2010 Other Activity/Reconciling Business Segments Items SingleCapital Consolidated Eliminations/ Total Family Multifamily Markets Trusts(1) Adjustments(2) Results (Dollars in millions) Net interest (loss) income...

  • Page 333
    ... the credit risk on mortgage loans held in our portfolio. The following table displays total assets by segment as of December 31, 2011 and 2010. As of December 31, 2011 2010 (Dollars in millions) Single-Family ...Multifamily ...Capital Markets ...Consolidated trusts ...Eliminations/adjustments...

  • Page 334
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We operate our business solely in the United States and its territories, and accordingly, we generate no revenue from and have no assets in geographic locations other than the United States and its territories. 15...

  • Page 335
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Preferred Stock The following table displays our senior preferred stock and preferred stock outstanding as of December 31, 2011 and 2010. Issued and Outstanding as of Annual December 31, Dividend Stated Rate as of...

  • Page 336
    ... equal to the greater of 7.75% or 3-Month LIBOR plus 4.23%. As of December 31, 2011, the annual dividend rate was 7.75%. Represents initial call date. Redeemable every five years thereafter. On May 19, 2008, we issued 80 million shares of preferred stock in the amount of $2.0 billion. Subsequent to...

  • Page 337
    ... eliminate our net worth deficit as of December 31, 2011. Holders of the senior preferred stock are entitled to receive when, as and if declared by our Board of Directors, out of legally available funds, cumulative quarterly cash dividends at an annual rate of 10% per year based on the then-current...

  • Page 338
    ...other person. If the warrant is exercised, the stated value of the common stock issued will be reclassified as "Common stock" in our consolidated balance sheets. As of February 29, 2012, Treasury had not exercised the warrant. Senior Preferred Stock Purchase Agreement with Treasury Commitment Fee We...

  • Page 339
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) for each quarter of 2011 and the first quarter of 2012 due to the continued fragility of the U.S. mortgage market and Treasury's belief that imposing the commitment fee would not generate increased compensation ...

  • Page 340
    ... of changes in generally accepted accounting principles that occurred subsequent to the date of the agreement and that require us to recognize additional mortgage assets in our consolidated balance sheets were not considered for purposes of evaluating our compliance with the limitation on the amount...

  • Page 341
    ... Fannie Mae MBS held by third parties, to continue reporting our minimum capital requirements based on 0.45% of the unpaid principal balance and critical capital based on 0.25% of the unpaid principal balance, regardless of whether these loans have been consolidated pursuant to accounting rules...

  • Page 342
    ...Fannie Mae MBS held by third parties; and (3) 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under certain circumstances. Restrictions on Capital Distributions and Dividends Under the terms of the senior preferred stock purchase agreement, we are required...

  • Page 343
    ... manage credit risk and comply with legal requirements, we typically require primary mortgage insurance or other credit enhancements if the current LTV ratio (i.e., the ratio of the unpaid principal balance of a loan to the current value of the property that serves as collateral) of a single-family...

  • Page 344
    ..., 2011 and 2010, 26% and 13% of the gross unpaid principal balance of our portfolio of multifamily mortgage loans held by us or securitized in Fannie Mae MBS were located in California and New York, respectively. As part of our multifamily risk management activities, we perform detailed loan reviews...

  • Page 345
    ...taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required activities on our behalf. Our business with mortgage servicers is concentrated. Our ten largest single-family mortgage servicers, including their affiliates, serviced 75% of our single-family...

  • Page 346
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2011, compared with 77% as of December 31, 2010. Our ten largest multifamily mortgage servicers, including their affiliates, serviced 67% of our multifamily guaranty book of business as of December 31...

  • Page 347
    ...proceeds under our primary and pool mortgage insurance policies for single-family loans of $5.8 billion during 2011 and $6.4 billion during 2010. We negotiated the cancellation and restructurings of some of our mortgage insurance coverage in exchange for a fee. The cash fees received of $796 million...

  • Page 348
    ... Parties Associated with Our Off-Balance Sheet Transactions. We enter into financial instrument transactions that create off-balance sheet credit risk in the normal course of our business. These transactions are designed to meet the financial needs of our customers, and manage our credit, market or...

  • Page 349
    ...consolidated balance sheets relating to periods prior to 2003, the effective date of accounting pronouncements related to guaranty accounting. Our maximum potential exposure under these guarantees is $9.3 billion as of December 31, 2011, and $10.3 billion as of December 31, 2010. If we were required...

  • Page 350
    ...Inputs Inputs Netting Estimated (Level 1) (Level 2) (Level 3) Adjustment(1) Fair Value (Dollars in millions) Assets: Cash equivalents(2) ...Trading securities: Mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label securities ...Subprime private-label securities...

  • Page 351
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements as of December 31, 2011 Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Netting Estimated (Level 1) (Level 2) (Level...

  • Page 352
    ...Inputs Inputs Netting Estimated (Level 1) (Level 2) (Level 3) Adjustment(1) Fair Value (Dollars in millions) Assets: Cash equivalents(2) ...Trading securities: Mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label securities ...Subprime private-label securities...

  • Page 353
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements as of December 31, 2010 Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Netting Estimated (Level 1) (Level 2) (Level...

  • Page 354
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Year Ended December 31, 2011 Net Unrealized Gains (Losses) Included in Net Loss Related to Assets and Liabilities Still Held Balance,...

  • Page 355
    ...-related: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label securities ...Subprime private-label securities ...Mortgage revenue bonds ...Other ...Total available-for-sale securities ...Mortgage loans of consolidated trusts ...Guaranty assets and buy-ups ...Net derivatives ...Long-term...

  • Page 356
    ...-for-sale securities: Mortgage-related: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label securities ...Subprime private-label securities ...Mortgage revenue bonds ...Other ...Total available-for-sale securities ...Guaranty assets and buy-ups ...Net derivatives ...Long-term debt...

  • Page 357
    ... consolidated statements of operations and comprehensive loss for the years ended December 31, 2011, 2010 and 2009, for our Level 3 assets and liabilities measured in our consolidated balance sheets at fair value on a recurring basis. For the Year Ended December 31, 2011 Net Other-thanInterest Fair...

  • Page 358
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Mortgage Loans Held for Investment-The majority of HFI performing loans and nonperforming loans that are not individually impaired are reported in our consolidated balance sheets at the principal amount outstanding, net of cost basis...

  • Page 359
    ... sheets at fair value on a recurring basis. We use third-party pricing services that reference observable market data such as interest rates and spreads to measure the fair value of debt, and thus classify that debt as Level 2. When third-party pricing is not available, we use a discounted cash flow...

  • Page 360
    ... (Level 1) (Level 2) (Level 3) Value (Dollars in millions) For the Year Ended December 31, 2011 Total Gains (Losses) Assets: Mortgage loans held for sale, at lower of cost or fair value ...Single-family mortgage loans held for investment, at amortized cost: Of Fannie Mae ...Of consolidated trusts...

  • Page 361
    ...Inputs Fair (Level 1) (Level 2) (Level 3) Value (Dollars in millions) Total Losses Assets: Mortgage loans held for sale, at lower of cost or fair value ...Single-family mortgage loans held for investment, at amortized cost: Of Fannie Mae ...Of consolidated trusts ...Multifamily mortgage loans held...

  • Page 362
    ... Inputs Fair (Level 1) (Level 2) (Level 3) Value (Dollars in millions) Total Losses Assets: Mortgage loans held for sale, at lower of cost or fair value ...Mortgage loans held for investment, at amortized cost ...Acquired property, net ...Other assets: Guaranty assets ...Master servicing assets...

  • Page 363
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Mortgage Loans Held for Sale-Loans are reported at the lower of cost or fair value in our consolidated balance sheets. The valuation methodology and inputs used in estimating the fair value of HFS loans are ...

  • Page 364
    ... for investment, net of allowance for loan losses: Of Fannie Mae ...Of consolidated trusts ...Mortgage loans held for investment ...Advances to lenders ...Derivative assets at fair value ...Guaranty assets and buy-ups ...Total financial assets ...Financial liabilities: Federal funds purchased and...

  • Page 365
    ... the fair value of the GO using our internal GO valuation models, which calculate the present value of expected cash flows based on management's best estimate of certain key assumptions such as current mark-to-market LTV ratios, future house prices, default rates, severity rates and required rate of...

  • Page 366
    ... to instrument-specific credit risk, for loans and debt for which the fair value election was made. Amounts are recorded as a component of "Fair value losses, net" in our consolidated statements of operations and comprehensive loss for the years ended December 31, 2011, 2010 and 2009. 2011 Long-Term...

  • Page 367
    ... and the Director of FHFA's assertion that FHFA will not pay claims asserted in certain cases discussed below while we are in conservatorship creates additional uncertainty in those cases. We establish a reserve for those matters when a loss is probable and we can reasonably estimate the amount...

  • Page 368
    ...Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder. Plaintiffs contend that Fannie Mae's accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of premiums and discounts, and seek unspecified compensatory damages, attorneys' fees...

  • Page 369
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) certain of our former officers, and our outside auditor, violated Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934. Lead plaintiffs seek various forms of ...

  • Page 370
    ... Exchange Act of 1934; common law fraud and negligence claims; and California state law claims for misrepresentation in connection with Fannie Mae's December 2007 $7.0 billion offering of 7.75% fixed-to-floating rate non-cumulative preferred Series S stock. Plaintiff seeks relief in the form...

  • Page 371
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes by remaining maturity, non cancelable future commitments related to loan and mortgage purchases, unfunded lending, operating leases, and other agreements as of December 31, 2011. As ...

  • Page 372
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For the 2011 Quarter Ended March 31 June 30 September 30 December 31(1) (Dollars and shares in millions, except per share amounts) Interest income: Trading securities ...Available-for-sale securities ...Mortgage ...

  • Page 373
    ... MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For the 2010 Quarter Ended March 31 June 30(1) September 30 December 31(2) (Dollars and shares in millions, except per share amounts) Interest income: Trading securities ...Available-for-sale securities ...Mortgage...

  • Page 374
    FR009