Fannie Mae 2012 Annual Report Download - page 247

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-13
and accrued interest, as it was not practicable to determine the carrying amount of such assets and liabilities. The
securitization assets and liabilities that did not qualify for the use of this practical expedient were initially measured at fair
value. As such, we recognized in our consolidated balance sheets the mortgage loans underlying our consolidated trusts as
“Mortgage loans held for investment of consolidated trusts.” We also recognized securities issued by these trusts that are held
by third parties in our consolidated balance sheets as “Debt of consolidated trusts.”
Subsequent to the transition date, when we are the transferor of assets into a VIE that we consolidate at the time of the
transfer, we continue to recognize the assets and liabilities of the VIE at the amounts that they would have been recognized if
we had not transferred them, and no gain or loss is recognized. For all other VIEs that we consolidate subsequent to transition
(that is, those for which we are not the transferor), we recognize the assets and liabilities of the VIE in our consolidated
financial statements at fair value, and we recognize a gain or loss for the difference between (1) the fair value of the
consideration paid, fair value of noncontrolling interests and the reported amount of any previously held interests, and (2) the
net amount of the fair value of the assets and liabilities consolidated. However, for the securitization trusts established under
our lender swap program, no gain or loss is recognized if the trust is consolidated at formation as there is no difference in the
respective fair value of (1) and (2) above. We record gains or losses that are associated with the consolidation of VIEs as
“Investment gains, net” in our consolidated statements of operations and comprehensive income (loss).
If we cease to be deemed the primary beneficiary of a VIE, we deconsolidate the VIE. We use fair value to measure the initial
cost basis for any retained interests that are recorded upon the deconsolidation of a VIE. Any difference between the fair
value and the previous carrying amount of our investment in the VIE is recorded as “Investment gains, net” in our
consolidated statements of operations and comprehensive income (loss).
Purchase/Sale of Fannie Mae Securities
We actively purchase and may subsequently sell guaranteed MBS that have been issued through our lender swap and
portfolio securitization transaction programs. The accounting for the purchase and sale of our guaranteed MBS issued by the
trusts differs based on the characteristics of the securitization trusts and whether the trusts are consolidated.
Single-Class Securitization Trusts
We create single-class securitization trusts to issue single-class Fannie Mae MBS that evidence an undivided interest in the
mortgage loans held in the trust. Investors in single-class Fannie Mae MBS receive principal and interest payments in
proportion to their percentage ownership of the MBS issuance. We guarantee to each single-class securitization trust that we
will supplement amounts received by the single-class securitization trust as required to permit timely payments of principal
and interest on the related Fannie Mae MBS. This guaranty 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, which we
immediately deposit into an MBS trust. The MBS are then issued to the lender in exchange for the mortgage loans. A
portfolio securitization transaction occurs when we purchase mortgage loans from third-party sellers for cash and later
deposit these loans into an MBS trust. The securities issued through a portfolio securitization are then sold to investors for
cash. We consolidate single-class securitization trusts that are issued under these programs when our role as guarantor and
master servicer provides us with the power to direct matters, such as the servicing of the mortgage loans, that impact the
credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other
organizations have the power to direct these activities (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 a gain or loss on the extinguishment of
such debt to the extent that the purchase price of the MBS does not equal the carrying value of the related consolidated debt
reported in our consolidated balance sheets (including unamortized premiums, discounts or the other cost basis adjustments)
at the time of purchase. We account for the sale of an MBS from Fannie Mae’s portfolio that was issued from a consolidated
trust as the issuance of debt in our consolidated financial statements. We amortize the related premiums, discounts and other
cost basis adjustments into income over time.
To determine the order in which consolidated debt is extinguished, we have elected to use a daily convention in the
application of the last-issued first-extinguished method. Under this method, we record the net daily change in each MBS
holding as either the issuance of debt if there has been an increase in the position that is held by third parties, or the