Fannie Mae 2011 Annual Report Download - page 113

Table 17: Single-Family Credit Loss Sensitivity(1)
As of December 31,
2011 2010
(Dollars in millions)
Gross single-family credit loss sensitivity ............................................. $ 21,922 $ 25,937
Less: Projected credit risk sharing proceeds ............................................ (1,690) (2,771)
Net single-family credit loss sensitivity ............................................... $ 20,232 $ 23,166
Outstanding single-family whole loans and loans underlying Fannie Mae MBS ............... $2,769,454 $2,782,512
Single-family net credit loss sensitivity as a percentage of outstanding single-family whole loans
and Fannie Mae MBS ........................................................... 0.73% 0.83%
(1) Represents total economic credit losses, which consist of credit losses and forgone interest. Calculations are based on
97% of our total single-family guaranty book of business as of December 31, 2011 and December 31, 2010, respectively.
The mortgage loans and mortgage-related securities that are included in these estimates consist of: (a) single-family
Fannie Mae MBS (whether held in our mortgage portfolio or held by third parties), excluding certain whole loan REMICs
and private-label wraps; (b) single-family mortgage loans, excluding mortgages secured only by second liens, subprime
mortgages, manufactured housing chattel loans and reverse mortgages; and (c) long-term standby commitments. We
expect the inclusion in our estimates of the excluded products may impact the estimated sensitivities set forth in this table.
Single-family mortgage loans as of December 31, 2010 exclude subprime mortgages.
Because these sensitivities represent hypothetical scenarios, they should be used with caution. Our regulatory
stress test scenario is limited in that it assumes an instantaneous uniform 5% nationwide decline in home prices,
which is not representative of the historical pattern of changes in home prices. Changes in home prices generally
vary on a regional, as well as a local, basis. In addition, these stress test scenarios are calculated independently
without considering changes in other interrelated assumptions, such as unemployment rates or other economic
factors, which are likely to have a significant impact on our future expected credit losses.
Other Non-Interest Expenses
Other non-interest expenses consist of credit enhancement expenses, which reflect the amortization of the credit
enhancement asset we record at the inception of guaranty contracts; costs associated with the purchase of
additional mortgage insurance to protect against credit losses; net gains and losses on the extinguishment of debt;
servicer incentive fees in connection with loans modified under HAMP; and other miscellaneous expenses.
Other non-interest expenses also include losses from partnership investments. We are a limited liability investor
in LIHTC and non-LIHTC investments formed for 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 is unlikely that we will be able to use the tax benefits that we expect to receive this year
and in the future from these LIHTC investments. In 2009, we reduced the carrying value of our LIHTC
investments to zero because we no longer had the intent and ability to sell or otherwise transfer our LIHTC
investments for value. As a result, we no longer recognize net operating losses or other-than-temporary
impairment on our LIHTC investments.
Other non-interest expenses decreased in 2011 compared with 2010 primarily due to a decrease in net losses
recorded on the extinguishment of debt as a result of lower funding needs in 2011 compared with higher call
activity due to low interest rates in 2010. Other non-interest expenses decreased in 2010 compared with 2009 due
primarily to: (1) the recognition of a $5.0 billion loss during the fourth quarter of 2009 to reduce the carrying
value of our LIHTC partnership investments to zero in our consolidated financial statements; (2) a decrease
in master servicing costs related to our master servicing assets and liabilities as a result of derecognizing the
portion of our master servicing asset and liability relating to consolidated trusts upon adoption of the
consolidation accounting guidance; (3) lower expenses for legal claim reserves; and (4) lower interest expense
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