Fannie Mae 2013 Annual Report Download - page 264

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-40
For the Year Ended
December 31,
2013 2012 2011
(Dollars in millions)
Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34 $ 365 $ 563
Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 329 (303)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 19 48
Net other-than-temporary impairments(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64 $ 713 $ 308
__________
(1) Includes $34 million of other-than-temporary impairments recognized in earnings for the year ended December 31, 2013, related to our
intent to sell the related securities before recovery of their amortized cost basis.
Net other-than-temporary impairments recognized for the year ended December 31, 2013 decreased compared with the year
ended December 31, 2012. In 2013, net other-than-temporary impairments were primarily driven by a change in our intent to
sell certain securities. As a result, we recognized the entire difference between the amortized cost basis of these securities and
their fair value as net other-than-temporary impairments.
In 2012, net other-than-temporary impairments were primarily driven by an update to the assumptions used to project cash
flow estimates on our Alt-A and subprime private-label securities, which resulted in a significant decrease in the net present
value of projected cash flows on these securities.
The following table displays activity related to the unrealized credit loss component on debt securities held by us and
recognized in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31,
2013 and 2012. A related unrealized noncredit loss component of $118 million for the year ended December 31, 2013, related
unrealized noncredit gain component of $402 million for the year ended December 31, 2012 and a related unrealized
noncredit loss component of $306 million for the year ended December 31, 2011, was recognized in “Other comprehensive
income.”
For the Year Ended
December 31,
2013 2012
(Dollars in millions)
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,214 $ 8,915
Additions for the credit component on debt securities for which OTTI was not previously recognized . 20 15
Additions for the credit component on debt securities for which OTTI was previously recognized . . . . 10 698
Reductions for securities no longer in portfolio at period end. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (543)(5)
Reductions for securities which we intend to sell or it is more likely than not that we will be required
to sell before recovery of amortized cost basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (399) —
Reductions for amortization resulting from changes in cash flows expected to be collected over the
remaining life of the securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (398)(409)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,904 $ 9,214
As of December 31, 2013, those debt securities with other-than-temporary impairment that we recognized in our consolidated
statements of operations and comprehensive income (loss) consisted predominantly of Alt-A and subprime private-label
securities. We evaluate Alt-A (including option adjustable rate mortgage (“Option ARM”)) and subprime private-label
securities for other-than-temporary impairment by discounting the projected cash flows from econometric models to estimate
the portion of loss in value attributable to credit. Separate components of a third-party model project regional home prices,
unemployment and interest rates. The model combines these factors with available current information regarding attributes of
loans in pools backing the private-label mortgage-related securities to project prepayment speeds, conditional default rates,
loss severities and delinquency rates. It incorporates detailed information on security-level subordination levels and cash flow
priority of payments to project security-level cash flows. We have recorded other-than-temporary impairments for the year
ended December 31, 2013 based on this analysis. For securities that we determined were not other-than-temporarily impaired,
we concluded that either the security had no projected credit loss or, if we projected a loss, that the present value of expected
cash flows was greater than the security’s cost basis.