Fannie Mae 2014 Annual Report Download - page 83

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amortized within net interest income. This deferred revenue primarily relates to upfront fees we receive from lenders for
loans with greater credit risk and upfront payments we receive from lenders to adjust the monthly contractual guaranty fee
rate on Fannie Mae MBS so that the pass-through coupon rate on the MBS is in a tradable increment of a whole or half
percent.
We had $13.0 billion in net unamortized discounts and other cost basis adjustments on mortgage loans of Fannie Mae
included in our consolidated balance sheets as of December 31, 2014, compared with $14.3 billion as of December 31, 2013.
These discounts and other cost basis adjustments were primarily recorded upon the acquisition of credit-impaired loans and
the extent to which we may record them as income in future periods will be based on the actual performance of the loans.
For a discussion of the interest income from the assets we have purchased and the interest expense from the debt we have
issued, see the discussion of our net interest income in “Business Segment Results—Capital Markets Group Results.”
Fee and Other Income
Fee and other income includes transaction fees, technology fees, multifamily fees and other miscellaneous income. Fee and
other income increased in 2014 compared with 2013 primarily due to an increase in income recognized as a result of
settlement agreements resolving certain lawsuits relating to PLS sold to us from $2.2 billion in 2013 to $4.8 billion in 2014.
Investment Gains (Losses), Net
Investment gains (losses), net include gains and losses recognized from the sale of available-for-sale (“AFS”) securities,
gains and losses recognized on the securitization of loans and securities from our retained mortgage portfolio, and net other-
than-temporary impairments recognized on our investments. Investment gains decreased in 2014 compared with 2013
primarily due to a significantly lower volume of sales of non-agency mortgage-related securities in 2014 as compared with
2013. See “Business Segment Results—The Capital Markets Group’s Mortgage Portfolio” and “Consolidated Balance Sheet
Analysis—Investments in Securities” for additional information on our mortgage-related securities portfolio.
Fair Value (Losses) Gains, Net
Table 10 displays the components of our fair value gains and losses.
Table 10: Fair Value (Losses) Gains, Net
For the Year Ended December 31,
2014 2013 2012
(Dollars in millions)
Risk management derivatives fair value (losses) gains attributable to:
Net contractual interest expense accruals on interest rate swaps . . . . . . . . . . . . . . . . . . . $(1,062) $ (767) $(1,430)
Net change in fair value during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,562) 3,546 (508)
Total risk management derivatives fair value (losses) gains, net. . . . . . . . . . . . . . . . (4,624) 2,779 (1,938)
Mortgage commitment derivatives fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . (1,140) 501 (1,688)
Total derivatives fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,764) 3,280 (3,626)
Trading securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 260 1,004
Other, net(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 (581)(355)
Fair value (losses) gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,833) $ 2,959 $(2,977)
As of December 31,
2014 2013 2012
5-year swap rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.77%1.79%0.86%
10-year swap rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.28%3.09%1.84%
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(1) Consists of debt fair value gains (losses), net; debt foreign exchange gains (losses), net; and mortgage loans fair value gains (losses),
net.
We expect volatility from period to period in our financial results from a number of factors, particularly changes in market
conditions that result in fluctuations in the estimated fair value of the financial instruments that we mark to market through
our earnings. These instruments include derivatives and certain securities. The estimated fair value of our derivatives and
securities may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage