Fannie Mae 2011 Annual Report Download - page 100

• lower interest income on mortgage securities due to a decrease in the balance of our mortgage securities, as
we continue to manage our portfolio requirements; and
• lower yields on mortgage loans as new business acquisitions continue to replace higher-yielding loans with
loans issued at lower mortgage rates. The reduction in interest income on loans due to lower yields was
partially offset by a reduction in the amount of interest income not recognized for nonaccrual mortgage
loans, due to a 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 securities, which resulted in an overstatement of interest income. To correct the error,
we recorded an out-of-period adjustment of $727 million to reduce “Interest Income: Available-for-sale securities”
in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2011.
Net interest income increased during 2010 compared with 2009 primarily as a result of an increase in interest
income due to the recognition of contractual guaranty fees in interest income upon adoption of the consolidation
accounting guidance and a reduction in the interest expense on debt that we have issued as lower borrowing rates
allowed us to replace higher-cost debt with lower-cost debt. Partially offsetting these positive effects for 2010
was lower interest income from the interest-earning assets that we own due to lower yields on our mortgage and
non-mortgage assets. The increase in net interest income was further offset by a significant increase in the
number of loans on nonaccrual status in our consolidated balance sheets, because we do not recognize interest
income on loans that have been placed on nonaccrual status, except when cash payments are received. The
increase in loans on nonaccrual status in 2010 was due to our adoption of the consolidation accounting guidance.
Net interest yield significantly decreased for 2010 compared with 2009. We recognize the contractual guaranty
fee and the amortization of deferred cash fees received after December 31, 2009 on the underlying mortgage
loans of consolidated trusts as interest income, which represents the spread between the net interest yield on the
underlying mortgage assets and the rate on the debt of the consolidated trusts. Upon adoption of the consolidation
accounting guidance, our interest-earning assets and interest-bearing liabilities both increased by approximately
$2.4 trillion. The lower spread on these interest-earning assets and liabilities reduced our net interest yield for
2010 as compared with 2009.
Additionally, our net interest income and net interest yield were higher than they would have otherwise been in
2011 and 2010 because our debt funding needs were lower than they would otherwise have been required as a
result of funds we received from Treasury under the senior preferred stock purchase agreement. Further,
dividends paid to Treasury are not recognized in interest expense.
Table 9 displays the interest income not recognized for loans on nonaccrual status and the resulting reduction in
our net interest yield from mortgage loans.
Table 9: Impact of Nonaccrual Loans on Net Interest Income
For the Year Ended December 31,
2011 2010 2009
Interest
Income not
Recognized
for
Nonaccrual
Loans(1)
Reduction
in Net
Interest
Yield(2)
Interest
Income not
Recognized
for
Nonaccrual
Loans(1)
Reduction
in Net
Interest
Yield(2)
Interest
Income not
Recognized
for
Nonaccrual
Loans(1)
Reduction
in Net
Interest
Yield(2)
(Dollars in millions)
Mortgage loans of Fannie Mae ............. $(4,666) $(4,721)
Mortgage loans of consolidated trusts ........ (896) (3,692)
Total mortgage loans ..................... $(5,562) (18) bp $(8,413) (26) bp $(1,238) (14) bp
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