Fannie Mae 2013 Annual Report Download - page 107

102
purchase agreement, starting January 1, 2013, we are required to pay Treasury each quarter a dividend, when, as and if declared, equal
to the excess of our net worth as of the end of the immediately preceding fiscal quarter over an applicable capital reserve amount. The
capital reserve amount was $3.0 billion for all quarterly dividend periods in 2013, decreased to $2.4 billion for quarterly dividend
periods in 2014 and will continue to be reduced by $600 million each year until it reaches zero on January 1, 2018.
(3) Represents an increase in the carrying value of our deferred tax assets, net as of December 31, 2013 compared with December 31, 2012,
as we released the substantial majority of our valuation allowance against our deferred tax assets in the first quarter of 2013.
During 2013, the estimated fair value of our net assets, (excluding senior preferred stock dividends paid, senior preferred
stock dividends payable, and the increase in net deferred tax assets) increased by approximately $75 billion. This increase
was primarily driven by an improvement in credit-related items which related to performing and nonperforming loans. The
improvement in credit-related items was primarily due to overall improved housing market and economic conditions,
including higher actual and expected home prices experienced during 2013. We estimate that home prices increased by 8.8%
in 2013. Changes in single-family home prices, regardless of magnitude, may cause volatility in our fair value measurements
due to our $2.9 trillion single-family guaranty book of business.
The income from the interest spread between our mortgage assets and associated debt and derivatives as well as the revenue
we received from single-family guaranty fees during 2013 contributed to the increase in the estimated fair value of our net
assets. In addition, the tightening of option-adjusted spreads during 2013 increased the estimated fair value of our retained
mortgage portfolio, resulting in an increase in our net assets.
The increase in the estimated fair value of our net assets was partially offset by a decrease in the estimated fair value of our
mortgage loans. This reflects the change in the fair value of our loan portfolio that is associated with recent increases in the
guaranty fees that we charge in the GSE securitization market. As the guaranty fees we charged in the GSE securitization
market increased, the fair value of our mortgage loans decreased because the current market rate of compensation for
exposure to credit risk is now higher than the compensation that we are receiving for exposure to credit risk on these
mortgage loans.
Cautionary Language Relating to Supplemental Non-GAAP Financial Measures
In reviewing our non-GAAP consolidated fair value balance sheets, there are a number of important factors and limitations to
consider. The estimated fair value of our net assets is calculated as of a particular point in time based on our existing assets
and liabilities. It does not incorporate other factors that may have a significant impact on our long-term fair value, including
revenues generated from future business activities in which we expect to engage, the value from our foreclosure and loss
mitigation efforts or the impact that legislation or potential regulatory actions may have on us. As a result, the estimated fair
value of our net assets presented in our non-GAAP consolidated fair value balance sheets does not represent an estimate of
our net realizable value, liquidation value or our market value as a whole. Amounts we ultimately realize from the disposition
of assets or settlement of liabilities may vary materially from the estimated fair values presented in our non-GAAP
consolidated fair value balance sheets.
In addition, the fair value of our net assets presented in our fair value balance sheet does not represent an estimate of the
value we expect to realize from operating the company, primarily because:
• The estimated fair value of our guaranty obligations on mortgage loans significantly exceeds the projected credit
losses we would expect to incur, as fair value takes into account certain assumptions about liquidity and required
rates of return that a market participant may demand in assuming a credit obligation, 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 with new business that may be added in the future.
The fair value of our net assets is not a measure defined within GAAP and may not be comparable to similarly titled measures
reported by other companies.
Supplemental Non-GAAP Consolidated Fair Value Balance Sheets
We display our non-GAAP fair value balance sheets as of the dates indicated in Table 28.