Fannie Mae 2013 Annual Report Download - page 333

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-109
Fair Value Option
We elected the fair value option for loans that contain embedded derivatives that would otherwise require bifurcation. Under
the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from
the respective loan.
We elected the fair value option for all long-term structured debt instruments that are issued in response to specific investor
demand and have interest rates that are based on a calculated index or formula and are economically hedged with derivatives
at the time of issuance. By electing the fair value option for these instruments, we are able to eliminate the volatility in our
results of operations that would otherwise result from the accounting asymmetry created by recording these structured debt
instruments at cost while recording the related derivatives at fair value.
We elected the fair value option for the financial assets and liabilities of the consolidated senior-subordinate trust structures.
By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that
would otherwise result from different accounting treatment between loans at cost and debt at cost.
Interest income for the mortgage loans is recorded in “Mortgage loans interest income” and interest expense for the debt
instruments is recorded in “Long-term debt interest expense” in our consolidated statements of operations and comprehensive
income (loss).
The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made
fair value elections as of December 31, 2013 and 2012.
As of
December 31, 2013 December 31, 2012
Loans of
Consolidated
Trusts(1)
Long-Term
Debt of
Fannie Mae
Long-Term
Debt of
Consolidated
Trusts(2)
Loans of
Consolidated
Trusts(1)
Long-Term
Debt of
Fannie Mae
Long-Term
Debt of
Consolidated
Trusts(2)
(Dollars in millions)
Fair value . . . . . . . . . . . . . . . . . . . . . . . . $ 14,268 $ 1,308 $ 14,976 $ 10,800 $ 793 $ 11,647
Unpaid principal balance . . . . . . . . . . . . 14,440 1,290 13,988 10,657 674 10,803
__________
(1) Includes nonaccrual loans with a fair value of $196 million and $273 million as of December 31, 2013 and 2012, respectively. The
difference between unpaid principal balance and the fair value of these nonaccrual loans as of December 31, 2013 and 2012 is $74
million and $189 million, respectively. Includes loans that are 90 days or more past due with a fair value of $288 million and $386
million as of December 31, 2013 and 2012, respectively. The difference between unpaid principal balance and the fair value of these 90
or more days past due loans as of December 31, 2013 and 2012 is $75 million and $201 million, respectively.
(2) Includes interest-only debt instruments with no unpaid principal balance and a fair value of $85 million and $100 million as of
December 31, 2013 and 2012, respectively.