Fannie Mae 2013 Annual Report Download - page 239

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-15
Cash and Cash Equivalents and Statements of Cash Flows
Short-term investments that have a maturity at the date of acquisition of three months or less and are readily convertible to
known amounts of cash are generally considered cash equivalents. We also include securities purchased under agreements to
resell on an overnight basis in cash and cash equivalents in our consolidated balance sheets. We may pledge as collateral
certain short-term investments classified as cash equivalents.
In the presentation of our consolidated statements of cash flows, we present cash flows from derivatives that do not contain
financing elements and mortgage loans held for sale as operating activities. We present cash flows from federal funds sold
and securities purchased under agreements to resell or similar arrangements as investing activities and cash flows from
federal funds purchased and securities sold under agreements to repurchase as financing activities. We classify cash flows
related to dollar roll transactions that do not meet the requirements to be accounted for as secured borrowings as purchases
and sales of securities in investing activities. We classify cash flows from trading securities based on their nature and
purpose. We classify cash flows from trading securities that we intend to hold for investment (the majority of our mortgage-
related trading securities) as investing activities and cash flows from trading securities that we do not intend to hold for
investment (primarily our non-mortgage-related securities) as operating activities.
For consolidated trusts, we classify cash flows related to mortgage loans held by our consolidated trusts as either investing
activities (for principal repayments) or operating activities (for interest received from borrowers included as a component of
our net income (loss)). Cash flows related to debt securities issued by consolidated trusts are classified as either financing
activities (for repayments of principal to certificateholders) or operating activities (for interest payments to certificateholders
included as a component of our net income (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.
Restricted Cash
We and our servicers advance payments on delinquent loans to consolidated Fannie Mae MBS trusts. We recognize the cash
advanced as “Restricted cash” in our consolidated balance sheets to the extent such amounts are due to, but have not yet been
remitted to, the MBS certificateholders. In addition, when we or our servicers collect and hold cash that is due to certain
Fannie Mae MBS trusts in advance of our requirement to remit these amounts to the trusts, we recognize the collected cash
amounts as “Restricted cash.”
We also recognize “Restricted cash” as a result of restrictions related to certain consolidated partnership funds as well as for
certain collateral arrangements for which we do not have the right to use the cash.
Investments in Securities
Securities Classified as Available-for-Sale or Trading
We classify and account for our securities as either available-for-sale (“AFS”) or trading. We measure AFS securities at fair
value in our consolidated balance sheets, with unrealized gains and losses included in “Accumulated other comprehensive
income” (“AOCI”), net of income taxes. We recognize realized gains and losses on AFS securities when securities are sold.
We calculate the gains and losses using the specific identification method and record them in “Investment gains, net” in our
consolidated statements of operations and comprehensive income (loss). We measure trading securities at fair value in our
consolidated balance sheets with unrealized and realized gains and losses included as a component of “Fair value gains
(losses), net” in our consolidated statements of operations and comprehensive income (loss). We include interest and
dividends on securities in our consolidated statements of operations and comprehensive income (loss). Interest income
includes the amortization of cost basis adjustments, including premiums and discounts, recognized as a yield adjustment
using the interest method over the contractual term of the security. When we receive multiple deliveries of securities on the
same day that are backed by the same pools of loans, we calculate the specific cost of each security as the average price of the
trades that delivered those securities. Currently, we do not have any securities classified as held-to-maturity, although we may
elect to do so in the future.
Fannie Mae MBS included in “Investments in securities”
When we own unconsolidated Fannie Mae MBS, we do not derecognize any components of the guaranty assets, guaranty
obligations, or any other outstanding recorded amounts associated with the guaranty transaction because our contractual
obligation to the MBS trust remains in force until the trust is liquidated. We determine the fair value of Fannie Mae MBS