Fannie Mae 2014 Annual Report Download - page 235

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-20
Advances to Lenders
Advances to lenders represent our payments of cash in exchange for the receipt of mortgage loans from lenders in a transfer
that is accounted for as a secured lending arrangement. These transfers primarily occur when we provide early funding to
lenders for loans that they will subsequently either sell to us or securitize into a Fannie Mae MBS that they will deliver to us.
We individually negotiate early lender funding advances with our lender customers. Early lender funding advances have
terms up to 60 days and earn a short-term market rate of interest.
We report cash outflows from advances to lenders as an investing activity in our consolidated statements of cash flows.
Settlements of the advances to lenders, other than through lender repurchases of loans, are not collected in cash, but rather in
the receipt of either loans or Fannie Mae MBS. Accordingly, this activity is reflected as a non-cash transfer in our
consolidated statements of cash flows in the line item entitled “Transfers from advances to lenders to loans held for
investment of consolidated trusts.”
Acquired Property, Net
We recognize foreclosed property (i.e., “Acquired property, net”) upon the earlier of the loan foreclosure event or when we
take physical possession of the property (i.e., through a deed-in-lieu of foreclosure transaction). We initially measure
foreclosed property at its fair value less its estimated costs to sell. We treat any excess of our recorded investment in the loan
over the fair value less estimated costs to sell the property as a charge-off to the “Allowance for loan losses.” Any excess of
the fair value less estimated costs to sell the property over our recorded investment in the loan is recognized first to recover
any forgone, contractually due interest, then to “Foreclosed property expense (income)” in our consolidated statements of
operations and comprehensive income.
We classify foreclosed properties as held for sale when we intend to sell the property and the following conditions are met at
either acquisition or within a relatively short period thereafter: we are actively marketing the property and it is available for
immediate sale in its current condition such that the sale is reasonably expected to take place within one year. We report these
properties at the lower of their carrying amount or fair value less estimated selling costs. We do not depreciate these
properties.
We recognize a loss for any subsequent write-down of the property to its fair value less its estimated costs to sell through a
valuation allowance with an offsetting charge to “Foreclosed property expense (income)” in our consolidated statements of
operations and comprehensive income. We recognize a recovery for any subsequent increase in fair value less estimated costs
to sell up to the cumulative loss previously recognized through the valuation allowance. We recognize gains or losses on sales
of foreclosed property through “Foreclosed property expense (income)” in our consolidated statements of operations and
comprehensive income.
Properties that do not meet the criteria to be classified as held for sale are classified as held for use and are recorded in “Other
assets” in our consolidated balance sheets. These properties are depreciated and are evaluated for impairment when
circumstances indicate that the carrying amount of the property is no longer recoverable.
Commitments to Purchase and Sell Mortgage Loans and Securities
We enter into commitments to purchase and sell mortgage-backed securities and to purchase single-family and multifamily
mortgage loans. Certain commitments to purchase or sell mortgage-backed securities and to purchase single-family mortgage
loans are generally accounted for as derivatives. Our commitments to purchase multifamily loans are not accounted for as
derivatives because they do not meet the criteria for net settlement.
When derivative purchase commitments settle, we include the fair value on the settlement date in the cost basis of the loan or
unconsolidated security we purchase. When derivative commitments to sell securities settle, we include the fair value of the
commitment on the settlement date in the cost basis of the security we sell. Purchases and sales of securities issued by our
consolidated MBS trusts are treated as extinguishment or issuance of debt, respectively. For commitments to purchase and
sell securities issued by our consolidated MBS trusts, we recognize the fair value of the commitment on the settlement date as
a component of debt extinguishment gains and losses or in the cost basis of the debt issued, respectively.
Regular-way securities trades provide for delivery of securities within the time generally established by regulations or
conventions in the market in which the trade occurs and are exempt from application of the derivative accounting literature.
Commitments to purchase or sell securities that we account for on a trade-date basis are also exempt from the derivative
accounting requirements. We record the purchase and sale of an existing security on its trade date when the commitment to