Fannie Mae 2014 Annual Report Download - page 239

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-24
2. Consolidations and Transfers of Financial Assets
We have interests in various entities that are considered to be VIEs. The primary types of entities are securitization trusts
guaranteed by us via lender swap and portfolio securitization transactions and mortgage-backed trusts that were not created
by us, as well as housing partnerships that are established to finance the acquisition, construction, development or
rehabilitation of affordable multifamily and single-family housing. These interests include investments in securities issued by
VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We
consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer
provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which
we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power
to direct these activities.
Types of VIEs
Securitization Trusts
Under our lender swap and portfolio securitization transactions, mortgage loans are transferred to a trust specifically for the
purpose of issuing a single class of guaranteed securities that are collateralized by the underlying mortgage loans. The trust’s
permitted activities include receiving the transferred assets, issuing beneficial interests, establishing the guaranty and
servicing the underlying mortgage loans. In our capacity as issuer, master servicer, trustee and guarantor, we earn fees for our
obligations to each trust. Additionally, we may retain or purchase a portion of the securities issued by each trust. We have
securitized mortgage loans since 1981.
In our structured securitization transactions, we earn fees for assisting lenders and dealers with the design and issuance of
structured mortgage-related securities. The trusts created in these transactions have permitted activities that are similar to
those for our lender swap and portfolio securitization transactions. The assets of these trusts may include mortgage-related
securities and/or mortgage loans. The trusts created for Fannie Megas issue single-class securities while the trusts created for
REMIC, grantor trust and stripped mortgage-backed securities (“SMBS”) issue single-class and multi-class securities, the
latter of which separate the cash flows from underlying assets into separately tradable interests. Our obligations and
continued involvement in these trusts are similar to those described for lender swap and portfolio securitization transactions.
We have securitized mortgage assets in structured transactions since 1986.
We also invest in mortgage-backed securities that have been issued via private-label trusts. These trusts are structured to
provide investors with a beneficial interest in a pool of receivables or other financial assets, typically mortgage loans. The
trusts act as vehicles to allow loan originators to securitize assets. Securities are structured from the underlying pool of assets
to provide for varying degrees of risk. The originators of the financial assets or the underwriters of the transaction create the
trusts and typically own the residual interest in the trusts’ assets. Our involvement in these entities is typically limited to our
recorded investment in the beneficial interests that we have purchased. We have invested in these vehicles since 1987.
Limited Partnerships
We have historically made equity investments in various limited partnerships that sponsor affordable housing projects
utilizing the low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these
investments is to increase the supply of affordable housing in the United States and to serve communities in need. In addition,
our investments in LIHTC partnerships generate both tax credits and net operating losses that may reduce our federal income
tax liability. Our LIHTC investments primarily represent limited partnership interests in entities that have been organized by
a fund manager who acts as the general partner. These fund investments seek out equity investments in LIHTC operating
partnerships that have been established to identify, develop and operate multifamily housing that is leased to qualifying
residential tenants.
We no longer recognize net operating losses or impairment on our LIHTC partnership investments as the carrying value is
zero. We did not make any LIHTC investments in 2014, 2013 or 2012, other than pursuant to existing prior commitments.
Consolidated VIEs
If an entity is a VIE, we consider whether our variable interest in that entity causes us to be the primary beneficiary. The
primary beneficiary of the VIE is required to consolidate and account for the assets, liabilities and noncontrolling interests of
the VIE in its consolidated financial statements. An enterprise is deemed to be the primary beneficiary when the enterprise
has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and
exposure to benefits and/or losses could potentially be significant to the entity. In general, the investors in the obligations of