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Washington, D.C. 20549
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2008 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Federally chartered corporation (State or other jurisdiction of incorporation or organization) | 52-0883107 (I.R.S. Employer Identification No.) | |
3900 Wisconsin Avenue, NW Washington, DC (Address of principal executive offices) | 20016 (Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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• | placing us in conservatorship; | |
• | the execution of a senior preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock; and | |
• | the agreement to establish a temporary secured lending credit facility that is available to us. |
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Topic | Before Conservatorship | During Conservatorship | ||||
Authority of Board of Directors, management and stockholders | • Board of Directors with right to determine the general policies governing the operations of the corporation and exercise all power and authority of the company, except as vested in stockholders or as the Board chooses to delegate to management • Board of Directors delegated significant authority to management • Stockholders with specified voting rights | • FHFA, as conservator, has all of the power and authority of the Board of Directors, management and the shareholders • The conservator has delegated authority to management to conduct day-to-day operations so that the company can continue to operate in the ordinary course of business. The conservator retains overall management authority, including the authority to withdraw its delegations to management at any time. • Stockholders have no voting rights | ||||
Regulatory Supervision | • Regulated by FHFA, our new regulator created by the Regulatory Reform Act • Regulatory Reform Act gave regulator significant additional safety and soundness supervisory powers | • Regulated by FHFA, with powers as provided by Regulatory Reform Act • Additional management authority by FHFA, which is serving as our conservator | ||||
Structure of Board of Directors | • 13 directors: 12 independent plus President and Chief Executive Officer; independent, non-executive Chairman of the Board • Eight separate Board committees, including Audit Committee in which four of the five independent members were “audit committee financial experts” | • Currently four directors, consisting of a non-executive Chairman of the Board and three independent directors (who were also directors of Fannie Mae immediately prior to conservatorship), with neither the power nor the duty to manage, direct or oversee our business and affairs • No Board committees have members or authority to act • Conservator has indicated its intent to appoint a full Board of Directors to which it will delegate specified roles and responsibilities | ||||
Management | • Daniel H. Mudd served as President and Chief Executive Officer from June 2005 to September 6, 2008 | • Herbert M. Allison, Jr. began serving as President and Chief Executive Officer on September 7, 2008 | ||||
Capital | • Statutory and regulatory capital requirements • Capital classifications as to adequacy of capital issued by FHFA on quarterly basis | • Capital requirements not binding • Quarterly capital classifications by FHFA suspended | ||||
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Topic | Before Conservatorship | During Conservatorship | ||||
Net Worth1 | • Receivership mandatory if we have negative net worth for 60 days | • Conservator has directed management to focus on maintaining positive stockholders’ equity1in order to avoid both the need to request funds under the senior preferred stock purchase agreement and our mandatory receivership • Receivership mandatory if we have negative net worth for 60 days2 | ||||
Managing for the Benefit of Shareholders | • Maximize shareholder value over the long term • Fulfill our mission of providing liquidity, stability and affordability to the mortgage market | • No longer managed with a strategy to maximize common shareholder returns • Maintain positive net worth and fulfill our mission of providing liquidity, stability and affordability to the mortgage market • Focus on returning to long-term profitability if it does not adversely affect our ability to maintain positive net worth or fulfill our mission | ||||
1 | Our “net worth” refers to our assets less our liabilities, as reflected on our GAAP balance sheet. If we have a negative net worth, then, if requested by the conservator (or by our Chief Financial Officer if we are not under conservatorship), Treasury is required to provide funds to us pursuant to the senior preferred stock purchase agreement. In addition, if we have a negative net worth for a period of 60 days, the Director of FHFA is required by the Regulatory Reform Act to place us in receivership. “Net worth” is substantially the same as “stockholders equity;” however, “net worth” also includes the minority interests that third parties own in our consolidated subsidiaries (which was $159 million as of September 30, 2008), which is excluded from stockholders’ equity. | |
2 | Treasury’s funding commitment under the senior preferred stock purchase agreement is expected to enable us to maintain a positive net worth as long as Treasury has not yet invested the full $100 billion provided for in that agreement. |
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• | providing liquidity, stability and affordability in the mortgage market; | |
• | immediately providing additional assistance to the struggling housing and mortgage markets; | |
• | maintaining a positive net worth and avoiding the need to draw funds from Treasury pursuant to the senior preferred stock purchase agreement; | |
• | returning to long-term profitability; and | |
• | protecting the interests of the taxpayers. |
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• | Workouts of Delinquent Loans. We increased our foreclosure prevention workouts from an average of approximately 7,000 per month during the period from January through May 2008, to an average of approximately 14,000 per month during the period from June to September 2008. We are using a variety of tools to address the need for more workouts as the number of our delinquent loans rises. During the period from January 2007 through September 2008, we helped nearly 300,000 homeowners avoid foreclosure through workouts and refinancing. We helped approximately 131,000 of these homeowners avoid foreclosure through workouts by, among other means, creating repayment plans, providing HomeSaver Advance bridge loans, reducing interest rates, extending loan terms or other workouts to assist struggling borrowers. Information about our refinancing assistance is discussed below under “Supporting Borrowers and Mortgage Market Liquidity.” |
— | HomeSaver Advancetm. One of the workout tools we implemented in 2008 is HomeSaver Advance, an unsecured, personal loan designed to help a borrower after a temporary financial difficulty to bring a delinquent mortgage loan current. We began purchasing HomeSaver Advance loans in the first quarter of 2008 and have since purchased more than 45,000 of these loans. | |
— | Outreach to Delinquent Borrowers. We have expanded our use of techniques to contact borrowers who have missed payments, even as early as after one missed payment. These techniques include |
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targeted mass mailings to borrowers with loans considered high risk and the use of specialty servicers with experience in contacting and working with high-risk borrowers. |
— | Review of Foreclosure Referrals. We recently began an initiative in which we review loans headed on a path to foreclosure in an effort to keep borrowers in their homes and to help us avoid the increased credit losses associated with foreclosures. Our objective is to provide this review, which we call a “Second Look,” to every owner-occupied property prior to foreclosure. |
• | Servicer Management. We have made changes to how we oversee mortgage servicers to streamline the workout process and provide additional incentives for workout performance. We delegate many loss mitigation decisions to our servicers so that they are able to react more quickly to the needs of delinquent borrowers, and we have implemented a number of operational changes requested by servicers to help them work more effectively with borrowers. We have increased the incentive fees we pay to servicers to conduct workouts, and expanded the deployment of our personnel and contractors inside the offices of our largest mortgage servicers to make sure our workout guidelines are followed. We continue working with our servicers to find ways to enhance our workout protocols and our servicers’ work flow processes. | |
• | Review of Defaulted Loans. In 2008, we continued performing loan reviews in cases where we believe we have incurred a loss or could incur a loss due to fraud or improper lending practices and we have increased our efforts to pursue recoveries from mortgage lenders related to these loans, including demanding that lenders repurchase the loans from us pursuant to their contractual obligations. | |
• | REO Inventory Management. As our foreclosure rates have increased and home sales have declined, our inventory of foreclosed properties we own has increased. We refer to these properties as real estate owned, or REO, properties. We have expanded both our internal REO inventory management capabilities and the network of firms that assist us with property dispositions. | |
• | Underwriting Changes. We have continued to review and revise our underwriting and eligibility standards, including changes implemented through our most recent release of DesktopUnderwriter® , our proprietary underwriting system, to reduce our exposure to the current risks in the housing market. The revisions we have implemented have resulted in a significant reduction in our acquisition of loan types that currently represent a majority of our credit losses, especially Alt-A loans. Additional revisions become effective in December 2008 and January 2009. Effective January 1, 2009, we are discontinuing the purchase of newly originated Alt-A loans; we are currently purchasing only a very small number of these loans in order to allow our lenders to deliver loans already in the pipeline when we announced our decision to terminate Alt-A purchases. We may continue to purchase Alt-A loans that are not newly originated and that meet acceptable eligibility and underwriting guidelines. We and the conservator continue to review our underwriting and eligibility standards and may in the future make additional changes as necessary to reflect future changes in the market and to fulfill our mission to expand the availability and affordability of mortgage credit. |
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• | Refinancing Assistance. Since 2007, we have been focusing on helping homeowners refinance into loans designed to help them keep their homes in the long term, such as loans with fixed rates and loans with lower monthly payments due to lower interest ratesand/or longer terms. Part of this effort includes helping borrowers with subprime loans refinance with fixed-rate prime mortgages. Since January 2007, we have refinanced nearly 169,000 subprime loans. | |
• | Support for Borrower Counseling Efforts. We contribute to programs, such as the Hope Hotline, that offer counseling to borrowers to help them develop a plan that will enable them to remain in their homes. During the period from January 2007 through September 2008, we committed nearly $12 million in grants to support borrower counseling efforts, including mailings, telethons, foreclosure prevention workshops and housing fairs. | |
• | Cancellation of Planned Delivery Fee Increase. As discussed above, in October 2008, we canceled a planned 25 basis point increase in our adverse market delivery charge on mortgage loans. | |
• | Increased financing of jumbo-conforming loans. We increased our financing of jumbo-conforming loans by nearly 40%, from $2.3 billion to $3.2 billion, between August and September 2008. These are loans for homes in high-cost metropolitan areas, and they have higher principal balances than we would be permitted to purchase or guarantee if the homes were not in those areas. |
• | Ongoing provision of liquidity to the mortgage markets. In September, we purchased or guaranteed an estimated $44.1 billion in new business, measured by unpaid principal balance, consisting primarily of single-family mortgages, compared with $40.5 billion in August. We helped to finance 200,000 single-family homes in September. During the first nine months of 2008, we purchased approximately $28.6 billion of new and existing multifamily loans, helping to finance 480,000 units of rental housing. | |
• | Partnership with Federal Home Loan Bank of Chicago. On October 7, 2008, we announced that we had entered into an agreement with the Federal Home Loan Bank of Chicago under which we have committed to purchase15-year and30-year fixed-rate mortgage loans that the bank has acquired from its member institutions through its Mortgage Partnership Finance® (MPF®) program, which helps make affordable mortgages available to working families across the country. This arrangement is designed to allow us to expand our service to a broader market and provide additional liquidity to the mortgage market while prudently managing risk. | |
• | Reduced fees for our real estate mortgage investment conduits, or REMICs. In September 2008, we reduced the fees for our real estate mortgage investment conduits, or REMICs, by 15%. | |
• | Multifamily rate lock commitment. In the last six months, we introduced a streamlined rate lock commitment for multifamily lenders that allows them to lock in the rate that they will charge a borrower for a loan at any point during the underwriting process. | |
• | Relaxing restrictions on institutions holding principal and interest payments on our behalf in response to FDIC rule change. In October 2008, the FDIC announced a rule change that lowered our risk of suffering losses if a party holding principal and interest payments on our behalf in custodial depository accounts failed. In response to this rule change, we have reviewed and curtailed or reversed certain actions we had taken in recent months to reduce our risk, including reducing the amount of our funds permitted to be held with mortgage servicers, requiring more frequent remittances of funds and moving funds held with our largest counterparties from custodial accounts to trust accounts. |
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For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007(1) | 2008 | 2007(1) | |||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
Statement of operations data: | ||||||||||||||||
Net interest income | $ | 2,355 | $ | 1,058 | $ | 6,102 | $ | 3,445 | ||||||||
Guaranty fee income | 1,475 | 1,232 | 4,835 | 3,450 | ||||||||||||
Losses on certain guaranty contracts | — | (294 | ) | — | (1,038 | ) | ||||||||||
Trust management income | 65 | 146 | 247 | 460 | ||||||||||||
Fair value losses, net(2) | (3,947 | ) | (2,082 | ) | (7,807 | ) | (1,224 | ) | ||||||||
Other income (expenses), net(3) | (2,024 | ) | (58 | ) | (3,083 | ) | 339 | |||||||||
Credit-related expenses(4) | (9,241 | ) | (1,200 | ) | (17,833 | ) | (2,039 | ) | ||||||||
(Provision) benefit for federal income taxes | (17,011 | ) | 582 | (13,607 | ) | 468 | ||||||||||
Net income (loss) | (28,994 | ) | (1,399 | ) | (33,480 | ) | 1,509 | |||||||||
Preferred stock dividends and issuance costs at redemption(5) | (419 | ) | (119 | ) | (1,044 | ) | (372 | ) | ||||||||
Net income (loss) available to common stockholders(5) | (29,413 | ) | (1,518 | ) | (34,524 | ) | 1,137 | |||||||||
Per common share data: | ||||||||||||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | (13.00 | ) | $ | (1.56 | ) | $ | (24.24 | ) | $ | 1.17 | |||||
Diluted | (13.00 | ) | (1.56 | ) | (24.24 | ) | 1.17 | |||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic(6) | 2,262 | 974 | 1,424 | 973 | ||||||||||||
Diluted | 2,262 | 974 | 1,424 | 975 | ||||||||||||
Cash dividends declared per common share | $ | 0.05 | $ | 0.50 | $ | 0.75 | $ | 1.40 | ||||||||
New business acquisition data: | ||||||||||||||||
Fannie Mae MBS issues acquired by third parties(7) | $ | 80,547 | $ | 148,320 | $ | 373,980 | $ | 407,962 | ||||||||
Mortgage portfolio purchases(8) | 46,400 | 49,574 | 144,070 | 134,407 | ||||||||||||
New business acquisitions | $ | 126,947 | $ | 197,894 | $ | 518,050 | $ | 542,369 | ||||||||
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As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007(1) | |||||||
(Dollars in millions) | ||||||||
Balance sheet data: | ||||||||
Investments in securities: | ||||||||
Trading | $ | 98,671 | $ | 63,956 | ||||
Available-for-sale | 262,054 | 293,557 | ||||||
Mortgage loans: | ||||||||
Loans held for sale | 7,908 | 7,008 | ||||||
Loans held for investment, net of allowance | 397,834 | 396,516 | ||||||
Total assets | 896,615 | 879,389 | ||||||
Short-term debt | 280,382 | 234,160 | ||||||
Long-term debt | 550,928 | 562,139 | ||||||
Total liabilities | 887,180 | 835,271 | ||||||
Senior preferred stock | 1,000 | — | ||||||
Preferred stock | 21,725 | 16,913 | ||||||
Total stockholders’ equity | 9,276 | 44,011 | ||||||
Regulatory data: | ||||||||
Net worth(9) | 9,435 | 44,118 | ||||||
Book of business data: | ||||||||
Mortgage portfolio(10) | $ | 767,166 | $ | 727,903 | ||||
Fannie Mae MBS held by third parties(11) | 2,278,170 | 2,118,909 | ||||||
Other guarantees(12) | 32,190 | 41,588 | ||||||
Mortgage credit book of business(13) | $ | 3,077,526 | $ | 2,888,400 | ||||
Guaranty book of business(14) | $ | 2,941,116 | $ | 2,744,237 | ||||
Credit quality: | ||||||||
Nonperforming loans | $ | 63,648 | $ | 35,808 | ||||
Combined loss reserves | 15,605 | 3,391 | ||||||
Combined loss reserves as a percentage of total guaranty book of business | 0.53 | % | 0.12 | % | ||||
Combined loss reserves as a percentage of total nonperforming loans | 24.52 | 9.47 |
For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007(1) | 2008 | 2007(1) | |||||||||||||
Performance ratios: | ||||||||||||||||
Net interest yield(16) | 1 | .10% | 0 | .52% | 0 | .98% | 0 | .57% | ||||||||
Average effective guaranty fee rate (in basis points)(17) | 23 | .6 bp | 22 | .8 bp | 26 | .4 bp | 22 | .0 bp | ||||||||
Credit loss ratio (in basis points)(18) | 29 | .7 bp | 5 | .3 bp | 20 | .1 bp | 4 | .3 bp | ||||||||
Return on assets(15)(19) | (13 | .20)% | (0 | .72)% | (5 | .18)% | 0 | .18% | ||||||||
Return on equity(15)(20) | N/A | (1 | 9.4) | N/A | 4 | .8 | ||||||||||
Equity to assets(15)(21) | 2 | .8 | 4 | .7 | 3 | .0 | 4 | .8 |
(1) | Certain prior period amounts have been reclassified to conform to the current period presentation. | |
(2) | Consists of the following: (a) derivatives fair value gains (losses), net; (b) trading securities gains (losses), net; (c) hedged mortgage assets gains (losses), net; (d) debt foreign exchange gains (losses), net; and (e) debt fair value gains (losses), net. | |
(3) | Consists of the following: (a) investment gains (losses), net; (b) debt extinguishment gains (losses), net; (c) losses from partnership investments; and (d) fee and other income. | |
(4) | Consists of provision for credit losses and foreclosed property expense. |
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(5) | Amounts for the three and nine months ended September 30, 2008 include approximately $6 million of dividends accumulated, but undeclared, for the reporting period on our outstanding cumulative senior preferred stock. | |
(6) | Amounts for the three and nine months ended September 30, 2008 include the weighted-average shares of common stock that would be issuable upon the full exercise of the warrant issued to Treasury from the date of conservatorship through the end of the reporting period. Because the warrant’s exercise price of $0.00001 per share is considered non-substantive (compared to the market price of our common stock), the warrant was evaluated based on its substance over form. It was determined to have characteristics of non-voting common stock, and thus included in the computation of basic earnings (loss) per share. | |
(7) | Unpaid principal balance of Fannie Mae MBS issued and guaranteed by us during the reporting period less: (a) securitizations of mortgage loans held in our portfolio during the reporting period and (b) Fannie Mae MBS purchased for our investment portfolio during the reporting period. | |
(8) | Unpaid principal balance of mortgage loans and mortgage-related securities we purchased for our investment portfolio during the reporting period. Includes acquisition of mortgage-related securities accounted for as the extinguishment of debt because the entity underlying the mortgage-related securities has been consolidated in our condensed consolidated balance sheet and includes capitalized interest. | |
(9) | Total assets less total liabilities. | |
(10) | Unpaid principal balance of mortgage loans and mortgage-related securities (including Fannie Mae MBS) held in our portfolio. | |
(11) | Unpaid principal balance of Fannie Mae MBS held by third-party investors. The principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount. | |
(12) | Includes primarily long-term standby commitments we have issued and single-family and multifamily credit enhancements that we have provided and that are not otherwise reflected in the table. | |
(13) | Unpaid principal balance of: (1) mortgage loans held in our mortgage portfolio; (2) Fannie Mae MBS held in our mortgage portfolio; (3) non-Fannie Mae mortgage-related securities held in our investment portfolio; (4) Fannie Mae MBS held by third parties; and (5) other credit enhancements that we provide on mortgage assets. The principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount. | |
(14) | Unpaid principal balance of: (1) mortgage loans held in our mortgage portfolio; (2) Fannie Mae MBS held in our mortgage portfolio; (3) Fannie Mae MBS held by third parties; and (4) other credit enhancements that we provide on mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in our investment portfolio for which we do not provide a guaranty. The principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount. | |
(15) | Average balances for purposes of the ratio calculations are based on beginning and end of period balances. | |
(16) | Annualized net interest income for the period divided by the average balance of total interest-earning assets during the period. | |
(17) | Annualized guaranty fee income as a percentage of average outstanding Fannie Mae MBS and other guarantees during the period. | |
(18) | Annualized (a) charge-offs, net of recoveries and (b) foreclosed property expense, as a percentage of the average guaranty book of business during the period. We exclude from our credit loss ratio any initial losses recorded on delinquent loans purchased from MBS trusts pursuant to Statement of PositionNo. 03-3,Accounting for Certain Loans or Debt Securities Acquired in a Transfer(“SOP 03-3”), when the purchase price of seriously delinquent loans that we purchase from Fannie Mae MBS trusts exceeds the fair value of the loans at the time of purchase. Also excludes the difference between the unpaid principal balance of HomeSaver Advance loans at origination and the estimated fair value of these loans. Our credit loss ratio including the effect of these initial losses recorded pursuant toSOP 03-3 and related to HomeSaver Advance loans was 35.1 basis points and 14.9 basis points for the three months ended months September 30, 2008 and 2007, respectively, and 26.3 basis points and 8.0 basis points for the nine months ended September 30, 2008 and 2007, respectively. We previously calculated our credit loss ratio based on credit losses as a percentage of our mortgage credit book of business, which includes non-Fannie Mae mortgage-related securities held in our mortgage investment portfolio that we do not guarantee. Because losses related to non-Fannie Mae mortgage-related securities are not reflected in our credit losses, we revised the calculation of our credit loss ratio to reflect credit losses as a percentage of our guaranty book of business. Our credit loss ratio calculated based on our mortgage credit book of business would have been 28.4 basis points and 5.0 basis points for the three months ended September 30, 2008 and 2007, respectively, and 19.1 basis points and 4.0 basis points for the nine months ended September 30, 2008 and 2007, respectively. |
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(19) | Annualized net income (loss) available to common stockholders divided by average total assets during the period, expressed as a percentage. This ratio, which is considered a profitability measure, is a measure of how effectively we deploy our assets. | |
(20) | Annualized net income (loss) available to common stockholders divided by average outstanding common equity during the period, expressed as a percentage. This ratio, which is considered a profitability measure, is a measure of our efficiency in generating profit from our equity. | |
(21) | Average stockholders’ equity divided by average total assets during the period, expressed as a percentage. This ratio, which is considered a longer term solvency measure, is a measure of the extent to which we are using long-term funding to finance our assets. |
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• | provide stability in the secondary market for residential mortgages; | |
• | respond appropriately to the private capital market; | |
• | provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and | |
• | promote access to mortgage credit throughout the nation (including central cities, rural areas and underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing. |
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• | creating and issuing Fannie Mae MBS from our mortgage portfolio assets, either for sale into the secondary market or to retain in our portfolio; and | |
• | issuing structured Fannie Mae MBS for customers in exchange for a transaction fee. |
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• | Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Fannie Mae equity securities (other than with respect to the senior preferred stock or warrant); | |
• | Redeem, purchase, retire or otherwise acquire any Fannie Mae equity securities (other than the senior preferred stock or warrant); | |
• | Sell or issue any Fannie Mae equity securities (other than the senior preferred stock, the warrant and the common stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement); | |
• | Terminate the conservatorship (other than in connection with a receivership); | |
• | Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business, consistent with past practice; (c) in connection with our liquidation by a receiver; (d) of cash or cash equivalents for cash or cash equivalents; or (e) to the extent necessary to comply with the covenant described below relating to the reduction of our mortgage assets beginning in 2010; |
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• | Incur indebtedness that would result in our aggregate indebtedness exceeding 110% of our aggregate indebtedness as of June 30, 2008; | |
• | Issue any subordinated debt; | |
• | Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or | |
• | Engage in transactions with affiliates unless the transaction is (a) pursuant to the senior preferred stock purchase agreement, the senior preferred stock or the warrant, (b) upon arm’s length terms or (c) a transaction undertaken in the ordinary course or pursuant to a contractual obligation or customary employment arrangement in existence on the date of the senior preferred stock purchase agreement. |
• | Our SEC filings under the Exchange Act will comply in all material respects as to form with the Exchange Act and the rules and regulations thereunder; | |
• | We may not permit any of our significant subsidiaries to issue capital stock or equity securities, or securities convertible into or exchangeable for such securities, or any stock appreciation rights or other profit participation rights; | |
• | We may not take any action that will result in an increase in the par value of our common stock; | |
• | We may not take any action to avoid the observance or performance of the terms of the warrant and we must take all actions necessary or appropriate to protect Treasury’s rights against impairment or dilution; and | |
• | We must provide Treasury with prior notice of specified actions relating to our common stock, including setting a record date for a dividend payment, granting subscription or purchase rights, authorizing a |
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recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the company or any other action that would trigger an adjustment in the exercise price or number or amount of shares subject to the warrant. |
• | to maintain Treasury’s security interest in the collateral, including the priority of the security interest, and take actions to defend against adverse claims; | |
• | not to sell or otherwise dispose of, pledge or mortgage the collateral (other than Treasury’s security interest); | |
• | not to act in any way to impair, or to fail to act in a way to prevent the impairment of, Treasury’s rights or interests in the collateral; | |
• | promptly to notify Treasury of any failure or impending failure to meet our regulatory capital requirements; | |
• | to provide for periodic audits of collateral held underborrower-in-custody arrangements, and to comply with certain notice and certification requirements; | |
• | promptly to notify Treasury of the occurrence or impending occurrence of an event of default under the terms of the lending agreement; and | |
• | to notify Treasury of any change in applicable law or regulations, or in our charter or bylaws, or certain other events, that may materially affect our ability to perform our obligations under the lending agreement. |
• | the powers of the stockholders are suspended during the conservatorship. Accordingly, our common stockholders do not have the ability to elect directors or to vote on other matters during the conservatorship unless the conservator delegates this authority to them; | |
• | the conservator has eliminated common and preferred stock dividends (other than dividends on the senior preferred stock) during the conservatorship; and | |
• | according to a statement made by the Treasury Secretary on September 7, 2008, because we are in conservatorship, we “will no longer be managed with a strategy to maximize common shareholder returns.” |
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• | the senior preferred stock ranks senior to the common stock and all other series of preferred stock as to both dividends and distributions upon dissolution, liquidation or winding up of the company; | |
• | the senior preferred stock purchase agreement prohibits the payment of dividends on common or preferred stock (other than the senior preferred stock) without the prior written consent of Treasury; and | |
• | the warrant provides Treasury with the right to purchase shares of our common stock equal to up to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis on the date of exercise for a nominal price, thereby substantially diluting the ownership in Fannie Mae of our common stockholders at the time of exercise. Until Treasury exercises its rights under the warrant or its right to exercise the warrant expires on September 7, 2028 without having been exercised, the holders of our common stock continue to have the risk that, as a group, they will own no more than 20.1% of the total voting power of the company. Under our Charter, bylaws and applicable law, 20.1% is insufficient to control the outcome of any vote that is presented to the common shareholders. Accordingly, existing common shareholders have no assurance that, as a group, they will be able to control the election of our directors or the outcome of any other vote after the time, if any, that the conservatorship ends. |
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• | Fair Value of Financial Instruments | |
• | Other-than-temporary Impairment of Investment Securities | |
• | Allowance for Loan Losses and Reserve for Guaranty Losses | |
• | Deferred Tax Assets |
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Level 2: | Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities. |
• | Trading and Available-for-Sale Investment Securities. Our financial instruments within these asset categories that are classified as level 3 primarily consist of mortgage-related securities backed by Alt-A and subprime loans and mortgage revenue bonds. We generally have estimated the fair value of these securities at an individual security level, using non-binding prices obtained from at least four independent pricing services. Our fair value estimate is based on the average of these prices, which we regard as level 2. In the absence of such information or if we are not able to corroborate these prices by other available, relevant market information, we estimate their fair values based on single source quotations from brokers or dealers or by using internal calculations or discounted cash flow techniques that incorporate inputs, such as prepayment rates, discount rates and delinquency, default and cumulative loss expectations, that are implied by market prices for similar securities and collateral structure types. Because this valuation technique involves some level 3 inputs, we classify securities that are valued in this manner as level 3. | |
• | Derivatives. Our derivative financial instruments that are classified as level 3 primarily consist of a limited population of certain highly structured, complex interest rate risk management derivatives. |
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Examples include certain swaps with embedded caps and floors that reference non-standard indices. We determine the fair value of these derivative instruments using indicative market prices obtained from independent third parties. If we obtain a price from a single source and we are not able to corroborate that price, the fair value measurement is classified as level 3. |
• | Guaranty Assets andBuy-ups. We determine the fair value of our guaranty assets andbuy-ups based on the present value of the estimated compensation we expect to receive for providing our guaranty. We generally estimate the fair value using proprietary internal models that calculate the present value of expected cash flows. Key model inputs and assumptions include prepayment speeds, forward yield curves and discount rates that are commensurate with the level of estimated risk. |
As of | ||||||||
September 30, | June 30, | |||||||
Balance Sheet Category | 2008 | 2008 | ||||||
(Dollars in millions) | ||||||||
Trading securities | $ | 14,173 | $ | 14,325 | ||||
Available-for-sale securities | 53,323 | 40,033 | ||||||
Derivatives assets | 280 | 270 | ||||||
Guaranty assets andbuy-ups | 1,866 | �� | 1,947 | |||||
Level 3 recurring assets | $ | 69,642 | $ | 56,575 | ||||
Total assets | $ | 896,615 | $ | 885,918 | ||||
Total recurring assets measured at fair value | $ | 363,689 | $ | 347,748 | ||||
Level 3 recurring assets as a percentage of total assets | 8 | % | 6 | % | ||||
Level 3 recurring assets as a percentage of total recurring assets measured at fair value | 19 | % | 16 | % | ||||
Total recurring assets measured at fair value as a percentage of total assets | 41 | % | 39 | % |
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42
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For the | For the | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Quarterly | Year-to-Date | |||||||||||||||||||||||||||||
September 30, | September 30, | Variance | Variance | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||||||||||||||||||||
Net interest income | $ | 2,355 | $ | 1,058 | $ | 6,102 | $ | 3,445 | $ | 1,297 | 123 | % | $ | 2,657 | 77 | % | ||||||||||||||||
Guaranty fee income | 1,475 | 1,232 | 4,835 | 3,450 | 243 | 20 | 1,385 | 40 | ||||||||||||||||||||||||
Trust management income | 65 | 146 | 247 | 460 | (81 | ) | (55 | ) | (213 | ) | (46 | ) | ||||||||||||||||||||
Fee and other income(1) | 164 | 217 | 616 | 751 | (53 | ) | (24 | ) | (135 | ) | (18 | ) | ||||||||||||||||||||
Net revenues | 4,059 | 2,653 | 11,800 | 8,106 | 1,406 | 53 | 3,694 | 46 | ||||||||||||||||||||||||
Losses on certain guaranty contracts | — | (294 | ) | — | (1,038 | ) | 294 | 100 | 1,038 | 100 | ||||||||||||||||||||||
Investment gains (losses), net(1) | (1,624 | ) | (159 | ) | (2,618 | ) | 43 | (1,465 | ) | (921 | ) | (2,661 | ) | (6,188 | ) | |||||||||||||||||
Fair value losses, net(1) | (3,947 | ) | (2,082 | ) | (7,807 | ) | (1,224 | ) | (1,865 | ) | (90 | ) | (6,583 | ) | (538 | ) | ||||||||||||||||
Losses from partnership investments | (587 | ) | (147 | ) | (923 | ) | (527 | ) | (440 | ) | (299 | ) | (396 | ) | (75 | ) | ||||||||||||||||
Administrative expenses | (401 | ) | (660 | ) | (1,425 | ) | (2,018 | ) | 259 | 39 | 593 | 29 | ||||||||||||||||||||
Credit-related expenses(2) | (9,241 | ) | (1,200 | ) | (17,833 | ) | (2,039 | ) | (8,041 | ) | (670 | ) | (15,794 | ) | (775 | ) | ||||||||||||||||
Other non-interest expenses(1)(3) | (147 | ) | (95 | ) | (938 | ) | (259 | ) | (52 | ) | (55 | ) | (679 | ) | (262 | ) | ||||||||||||||||
Income (loss) before federal income taxes and extraordinary losses | (11,888 | ) | (1,984 | ) | (19,744 | ) | 1,044 | (9,904 | ) | (499 | ) | (20,788 | ) | (1,991 | ) | |||||||||||||||||
Benefit (provision) for federal income taxes | (17,011 | ) | 582 | (13,607 | ) | 468 | (17,593 | ) | (3,023 | ) | (14,075 | ) | (3,007 | ) | ||||||||||||||||||
Extraordinary gains (losses), net of tax effect | (95 | ) | 3 | (129 | ) | (3 | ) | (98 | ) | (3,267 | ) | (126 | ) | (4,200 | ) | |||||||||||||||||
Net income (loss) | $ | (28,994 | ) | $ | (1,399 | ) | $ | (33,480 | ) | $ | 1,509 | $ | (27,595 | ) | (1,972 | )% | $ | (34,989 | ) | (2,319 | )% | |||||||||||
Diluted earnings (loss) per common share | $ | (13.00 | ) | $ | (1.56 | ) | $ | (24.24 | ) | $ | 1.17 | $ | (11.44 | ) | (733 | )% | $ | (25.41 | ) | (2,172 | )% | |||||||||||
(1) | Certain prior period amounts have been reclassified to conform with the current period presentation in our condensed consolidated statements of operations. | |
(2) | Consists of provision for credit losses and foreclosed property expense. | |
(3) | Consists of debt extinguishment gains (losses), net, minority interest in (earnings) losses of consolidated subsidiaries and other expenses. |
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For the Three Months Ended September 30, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Interest | Average | Interest | Average | |||||||||||||||||||||
Average | Income/ | Rates | Average | Income/ | Rates | |||||||||||||||||||
Balance(1) | Expense | Earned/Paid | Balance(1) | Expense | Earned/Paid | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Mortgage loans(2) | $ | 424,609 | $ | 5,742 | 5.41 | % | $ | 397,349 | $ | 5,572 | 5.61 | % | ||||||||||||
Mortgage securities | 335,739 | 4,330 | 5.16 | 330,872 | 4,579 | 5.54 | ||||||||||||||||||
Non-mortgage securities(3) | 58,208 | 381 | 2.56 | 72,075 | 999 | 5.43 | ||||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 42,037 | 274 | 2.55 | 17,994 | 246 | 5.35 | ||||||||||||||||||
Advances to lenders | 3,226 | 36 | 4.37 | 8,561 | 76 | 3.45 | ||||||||||||||||||
Total interest-earning assets | $ | 863,819 | $ | 10,763 | 4.98 | % | $ | 826,851 | $ | 11,472 | 5.54 | % | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Short-term debt | $ | 271,007 | $ | 1,677 | 2.42 | % | $ | 166,832 | $ | 2,400 | 5.63 | % | ||||||||||||
Long-term debt | 560,540 | 6,728 | 4.80 | 613,801 | 8,013 | 5.22 | ||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 526 | 3 | 2.23 | 161 | 1 | 4.46 | ||||||||||||||||||
Total interest-bearing liabilities | $ | 832,073 | $ | 8,408 | 4.02 | % | $ | 780,794 | $ | 10,414 | 5.31 | % | ||||||||||||
Impact of net non-interest bearing funding | $ | 31,746 | 0.14 | % | $ | 46,057 | 0.29 | % | ||||||||||||||||
Net interest income/net interest yield(4) | $ | 2,355 | 1.10 | % | $ | 1,058 | 0.52 | % | ||||||||||||||||
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For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Interest | Average | Interest | Average | |||||||||||||||||||||
Average | Income/ | Rates | Average | Income/ | Rates | |||||||||||||||||||
Balance(1) | Expense | Earned/Paid | Balance(1) | Expense | Earned/Paid | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Mortgage loans(2) | $ | 417,764 | $ | 17,173 | 5.48 | % | $ | 391,318 | $ | 16,582 | 5.65 | % | ||||||||||||
Mortgage securities | 323,334 | 12,537 | 5.17 | 329,126 | 13,606 | 5.51 | ||||||||||||||||||
Non-mortgage securities(3) | 60,771 | 1,459 | 3.15 | 67,595 | 2,763 | 5.39 | ||||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 35,072 | 853 | 3.20 | 15,654 | 633 | 5.33 | ||||||||||||||||||
Advances to lenders | 3,594 | 147 | 5.37 | 6,097 | 160 | 3.45 | ||||||||||||||||||
Total interest-earning assets | $ | 840,535 | $ | 32,169 | 5.10 | % | $ | 809,790 | $ | 33,744 | 5.55 | % | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Short-term debt | $ | 257,020 | $ | 5,920 | 3.03 | % | $ | 163,062 | $ | 6,806 | 5.50 | % | ||||||||||||
Long-term debt | 552,343 | 20,139 | 4.86 | 609,018 | 23,488 | 5.14 | ||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 422 | 8 | 2.49 | 136 | 5 | 4.91 | ||||||||||||||||||
Total interest-bearing liabilities | $ | 809,785 | $ | 26,067 | 4.28 | % | $ | 772,216 | $ | 30,299 | 5.22 | % | ||||||||||||
Impact of net non-interest bearing funding | $ | 30,750 | 0.16 | % | $ | 37,574 | 0.24 | % | ||||||||||||||||
Net interest income/net interest yield(4) | $ | 6,102 | 0.98 | % | $ | 3,445 | 0.57 | % | ||||||||||||||||
(1) | For mortgage loans, average balances have been calculated based on the average of the amortized cost amounts at the beginning of the year and at the end of each month in the period. For all other categories, average balances have been calculated based on a daily average. The average balance for the three and nine months ended September 30, 2008 for advances to lenders also has been calculated based on a daily average. | |
(2) | Average balance amounts include nonaccrual loans with an average balance totaling $9.2 billion and $6.2 billion for the three months ended September 30, 2008 and 2007, respectively, and $8.7 billion and $6.0 billion for the nine months ended September 30, 2008 and 2007, respectively. Interest income includes interest income on delinquentSOP 03-3 loans purchased from MBS trusts, which totaled $166 million and $127 million for the three months ended September 30, 2008 and 2007, respectively, and $479 million and $346 million for the nine months ended September 30, 2008 and 2007, respectively. These interest income amounts include the accretion of the fair value loss recorded upon purchase ofSOP 03-3 loans, which totaled $37 million and $20 million for the three months ended September 30, 2008 and 2007, respectively, and $125 million and $42 million for the nine months ended September 30, 2008 and 2007. | |
(3) | Includes cash equivalents. | |
(4) | We compute net interest yield by dividing annualized net interest income for the period by the average balance of total interest-earning assets during the period. |
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For the Three Months | For the Nine Months | |||||||||||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||||||||||
2008 vs. 2007 | 2008 vs. 2007 | |||||||||||||||||||||||
Total | Variance Due to:(1) | Total | Variance Due to:(1) | |||||||||||||||||||||
Variance | Volume | Rate | Variance | Volume | Rate | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Mortgage loans(2) | $ | 170 | $ | 373 | $ | (203 | ) | $ | 591 | $ | 1,097 | $ | (506 | ) | ||||||||||
Mortgage securities | (249 | ) | 67 | (316 | ) | (1,069 | ) | (236 | ) | (833 | ) | |||||||||||||
Non-mortgage securities(3) | (618 | ) | (165 | ) | (453 | ) | (1,304 | ) | (256 | ) | (1,048 | ) | ||||||||||||
Federal funds sold and securities purchased under agreements to resell | 28 | 205 | (177 | ) | 220 | 548 | (328 | ) | ||||||||||||||||
Advances to lenders | (40 | ) | (56 | ) | 16 | (13 | ) | (81 | ) | 68 | ||||||||||||||
Total interest income | (709 | ) | 424 | (1,133 | ) | (1,575 | ) | 1,072 | (2,647 | ) | ||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Short-term debt | (723 | ) | 1,052 | (1,775 | ) | (886 | ) | 2,933 | (3,819 | ) | ||||||||||||||
Long-term debt | (1,285 | ) | (666 | ) | (619 | ) | (3,349 | ) | (2,111 | ) | (1,238 | ) | ||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 2 | 2 | — | 3 | 6 | (3 | ) | |||||||||||||||||
Total interest expense | (2,006 | ) | 388 | (2,394 | ) | (4,232 | ) | 828 | (5,060 | ) | ||||||||||||||
Net interest income | $ | 1,297 | $ | 36 | $ | 1,261 | $ | 2,657 | $ | 244 | $ | 2,413 | ||||||||||||
(1) | Combined rate/volume variances are allocated to both rate and volume based on the relative size of each variance. | |
(2) | Please see footnote 2 in Table 3. | |
(3) | Includes cash equivalents. |
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For the Three Months Ended September 30, | ||||||||||||||||||||
2008 | 2007 | Amount | ||||||||||||||||||
Amount | Rate(2) | Amount | Rate(2) | Variance | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Guaranty fee income/average effective guaranty fee rate, excluding certain fair value adjustments andbuy-up impairment | $ | 1,546 | 24.7 | bp | $ | 1,235 | 22.8 | bp | 25 | % | ||||||||||
Net change in fair value ofbuy-ups and guaranty assets | (63 | ) | (1.0 | ) | — | — | 100 | |||||||||||||
Buy-up impairment | (8 | ) | (0.1 | ) | (3 | ) | — | 167 | ||||||||||||
Guaranty fee income/average effective guaranty fee rate(3) | $ | 1,475 | 23.6 | bp | $ | 1,232 | 22.8 | bp | 20 | % | ||||||||||
Average outstanding Fannie Mae MBS and other guarantees(4) | $ | 2,502,254 | $ | 2,163,173 | 16 | % | ||||||||||||||
Fannie Mae MBS issues(5) | 106,991 | 171,204 | (38 | ) |
For the Nine Months Ended September 30, | ||||||||||||||||||||
2008 | 2007 | Amount | ||||||||||||||||||
Amount | Rate(2) | Amount | Rate(2) | Variance | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Guaranty fee income/average effective guaranty fee rate, excluding certain fair value adjustments andbuy-up impairment | $ | 4,723 | 25.8 | bp | $ | 3,439 | 21.9 | bp | 37 | % | ||||||||||
Net change in fair value ofbuy-ups and guaranty assets | 151 | 0.8 | 19 | 0.1 | 695 | |||||||||||||||
Buy-up impairment | (39 | ) | (0.2 | ) | (8 | ) | — | 388 | ||||||||||||
Guaranty fee income/average effective guaranty fee rate(3) | $ | 4,835 | 26.4 | bp | $ | 3,450 | 22.0 | bp | 40 | % | ||||||||||
Average outstanding Fannie Mae MBS and other guarantees(4) | $ | 2,438,143 | $ | 2,090,322 | 17 | % | ||||||||||||||
Fannie Mae MBS issues(5) | 453,346 | 453,506 | — |
(1) | Losses recognized at inception on certain guaranty contracts for periods prior to January 1, 2008 are excluded from guaranty fee income and the average effective guaranty fee rate; however, as described in footnote 3 below, the accretion of these losses into income over time is included in our guaranty fee income and average effective guaranty fee rate. | |
(2) | Presented in basis points and calculated based on annualized amounts of our guaranty fee income components divided by average outstanding Fannie Mae MBS and other guarantees for each respective period. | |
(3) | Losses recognized at inception on certain guaranty contracts for periods prior to January 1, 2008, which are excluded from guaranty fee income, are recorded as a component of our guaranty obligation. We accrete a portion of our guaranty obligation, which includes these losses, into income each period in proportion to the reduction in the guaranty asset for payments received. This accretion increases our guaranty fee income and reduces the related guaranty obligation. Effective January 1, 2008, we no longer recognize losses at inception of our guaranty contracts due to a change in our method for measuring the fair value of our guaranty obligations. Although we will no longer recognize losses at inception of our guaranty contracts, we will continue to accrete previously recognized losses into our guaranty fee income over the remaining life of the mortgage loans underlying the Fannie Mae MBS. | |
(4) | Other guarantees includes $32.2 billion and $41.6 billion as of September 30, 2008 and December 31, 2007, respectively, and $35.5 billion and $19.7 billion as of September 30, 2007 and December 31, 2006, respectively, related to long-term standby commitments we have issued and credit enhancements we have provided. | |
(5) | Reflects unpaid principal balance of Fannie Mae MBS issued and guaranteed by us, including mortgage loans held in our portfolio that we securitized during the period and Fannie Mae MBS issued during the period that we acquired for our portfolio. |
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For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Other-than-temporary impairment on available-for-sale securities(1) | $ | (1,843 | ) | $ | (75 | ) | $ | (2,405 | ) | $ | (78 | ) | ||||
Lower-of-cost-or-market adjustments on held for sale loans | 5 | 3 | (306 | ) | (115 | ) | ||||||||||
Gains (losses) on Fannie Mae portfolio securitizations, net | 17 | (65 | ) | (8 | ) | (27 | ) | |||||||||
Gains on sale of available-for-sale securities, net | 293 | 47 | 306 | 373 | ||||||||||||
Other investment losses, net | (96 | ) | (69 | ) | (205 | ) | (110 | ) | ||||||||
Investment gains (losses), net | $ | (1,624 | ) | $ | (159 | ) | $ | (2,618 | ) | $ | 43 | |||||
(1) | Excludes other-than-temporary impairment on guaranty assets andbuy-ups as these amounts are recognized as a component of guaranty fee income. Refer to Table 5: Guaranty Fee Income and Average Effective Guaranty Fee Rate. |
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For the | For the | |||||||||||||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Derivatives fair value losses, net(1) | $ | (3,302 | ) | $ | (2,244 | ) | $ | (4,012 | ) | $ | (891 | ) | ||||
Trading securities gains (losses) net(2) | (2,934 | ) | 295 | (5,126 | ) | (145 | ) | |||||||||
Hedged mortgage assets gains, net(3) | 2,028 | — | 1,225 | — | ||||||||||||
Fair value losses on derivatives, trading securities and hedged mortgage assets, net | (4,208 | ) | (1,949 | ) | (7,913 | ) | (1,036 | ) | ||||||||
Debt foreign exchange gains (losses), net | 227 | (133 | ) | 58 | (188 | ) | ||||||||||
Debt fair value gains, net | 34 | — | 48 | — | ||||||||||||
Fair value losses, net | $ | (3,947 | ) | $ | (2,082 | ) | $ | (7,807 | ) | $ | (1,224 | ) | ||||
(1) | Includes losses of approximately $104 million for the three and nine months ended September 30, 2008, which resulted from the termination of our derivative contracts with a subsidiary of Lehman Brothers. | |
(2) | Includes trading losses of $559 million recorded during the third quarter of 2008, which resulted from the write-down to fair value of our investment in corporate debt securities issued by Lehman Brothers. | |
(3) | Represents adjustments to the carrying value of mortgage assets designated for hedge accounting that are attributable to changes in interest rates. |
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For the | For the | |||||||||||||||
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Risk management derivatives: | ||||||||||||||||
Swaps: | ||||||||||||||||
Pay-fixed | $ | (9,492 | ) | $ | (7,500 | ) | $ | (9,605 | ) | $ | (1,780 | ) | ||||
Receive-fixed | 5,417 | 3,834 | 7,117 | 956 | ||||||||||||
Basis | (145 | ) | 90 | (213 | ) | (35 | ) | |||||||||
Foreign currency(1) | (145 | ) | 140 | (19 | ) | 97 | ||||||||||
Swaptions: | ||||||||||||||||
Pay-fixed | (159 | ) | (237 | ) | (78 | ) | 32 | |||||||||
Receive-fixed | 1,218 | 1,460 | (1,008 | ) | (199 | ) | ||||||||||
Interest rate caps | (1 | ) | (3 | ) | 2 | 5 | ||||||||||
Other(2)(3) | (61 | ) | 3 | (10 | ) | 4 | ||||||||||
Total risk management derivatives fair value losses, net | (3,368 | ) | (2,213 | ) | (3,814 | ) | (920 | ) | ||||||||
Mortgage commitment derivatives fair value gains (losses), net | 66 | (31 | ) | (198 | ) | 29 | ||||||||||
Total derivatives fair value losses, net | $ | (3,302 | ) | $ | (2,244 | ) | $ | (4,012 | ) | $ | (891 | ) | ||||
Risk management derivatives fair value gains (losses) attributable to: | ||||||||||||||||
Net contractual interest income (expense) on interest rate swaps | $ | (681 | ) | $ | 95 | $ | (1,011 | ) | $ | 193 | ||||||
Net change in fair value of terminated derivative contracts from end of prior period to date of termination(3) | (310 | ) | (50 | ) | (275 | ) | (187 | ) | ||||||||
Net change in fair value of outstanding derivative contracts, including derivative contracts entered into during the period | (2,377 | ) | (2,258 | ) | (2,528 | ) | (926 | ) | ||||||||
Risk management derivatives fair value losses, net(4) | $ | (3,368 | ) | $ | (2,213 | ) | $ | (3,814 | ) | $ | (920 | ) | ||||
2008 | 2007 | |||||||
5-year swap interest rate: | ||||||||
As of January 1 | 4.19 | % | 5.10 | % | ||||
As of March 31 | 3.31 | 4.99 | ||||||
As of June 30 | 4.26 | 5.50 | ||||||
As of September 30 | 4.11 | 4.87 |
(1) | Includes the effect of net contractual interest income of approximately $6 million and interest expense of $16 million for the three months ended September 30, 2008 and 2007, respectively, and interest income of $9 million and interest expense of $50 million for the nine months ended September 30, 2008 and 2007, respectively. The change in fair value of foreign currency swaps excluding this item resulted in a net loss of $151 million and a net gain of $156 million for the three months ended September 30, 2008 and 2007, respectively, and a net loss of $28 million and a net gain of $147 million for the nine months ended September 30, 2008 and 2007, respectively. | |
(2) | Includes MBS options, swap credit enhancements and mortgage insurance contracts. | |
(3) | Includes losses of approximately $104 million for the three and nine months ended September 30, 2008, which resulted from the termination of our derivative contracts with a subsidiary of Lehman Brothers. | |
(4) | Reflects net derivatives fair value losses, excluding mortgage commitments, recognized in the condensed consolidated statements of operations. |
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For the | ||||||||||||||||
For the | Nine Months | |||||||||||||||
Three Months Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Provision for credit losses attributable to guaranty book of business | $ | 8,244 | $ | 417 | $ | 15,171 | $ | 965 | ||||||||
Provision for credit losses attributable toSOP 03-3 and HomeSaver Advance fair value losses | 519 | 670 | 1,750 | 805 | ||||||||||||
Total provision for credit losses(1) | 8,763 | 1,087 | 16,921 | 1,770 | ||||||||||||
Foreclosed property expense | 478 | 113 | 912 | 269 | ||||||||||||
Credit-related expenses | $ | 9,241 | $ | 1,200 | $ | 17,833 | $ | 2,039 | ||||||||
(1) | Reflects total provision for credit losses reported in Table 10 below under “Combined loss reserves.” |
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For the | For the | |||||||||||||||
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Changes in loss reserves: | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||
Beginning balance | $ | 1,476 | $ | 337 | $ | 698 | $ | 340 | ||||||||
Provision for credit losses | 1,120 | 148 | 2,544 | 238 | ||||||||||||
Charge-offs(1)(2) | (829 | ) | (115 | ) | (1,603 | ) | (241 | ) | ||||||||
Recoveries | 36 | 25 | 164 | 58 | ||||||||||||
Ending balance(3) | $ | 1,803 | $ | 395 | $ | 1,803 | $ | 395 | ||||||||
Reserve for guaranty losses: | ||||||||||||||||
Beginning balance | $ | 7,450 | $ | 821 | $ | 2,693 | $ | 519 | ||||||||
Provision for credit losses | 7,643 | 939 | 14,377 | 1,532 | ||||||||||||
Charge-offs(2)(4) | (1,369 | ) | (757 | ) | (3,395 | ) | (1,078 | ) | ||||||||
Recoveries | 78 | 9 | 127 | 39 | ||||||||||||
Ending balance | $ | 13,802 | $ | 1,012 | $ | 13,802 | $ | 1,012 | ||||||||
Combined loss reserves: | ||||||||||||||||
Beginning balance | $ | 8,926 | $ | 1,158 | $ | 3,391 | $ | 859 | ||||||||
Provision for credit losses | 8,763 | 1,087 | 16,921 | 1,770 | ||||||||||||
Charge-offs(1)(2)(4) | (2,198 | ) | (872 | ) | (4,998 | ) | (1,319 | ) | ||||||||
Recoveries | 114 | 34 | 291 | 97 | ||||||||||||
Ending balance(3) | $ | 15,605 | $ | 1,407 | $ | 15,605 | $ | 1,407 | ||||||||
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
Allocation of combined loss reserves: | ||||||||
Balance at end of each period attributable to: | ||||||||
Single-family | $ | 15,528 | $ | 3,318 | ||||
Multifamily | 77 | 73 | ||||||
Total | $ | 15,605 | $ | 3,391 | ||||
Single-family and multifamily loss reserve ratios:(5) | ||||||||
Single-family loss reserves as % of single-family guaranty book of business | 0.56 | % | 0.13 | % | ||||
Multifamily loss reserves as % of multifamily guaranty book of business | 0.05 | 0.05 | ||||||
Combined loss reserves as a percentage of: | ||||||||
Total guaranty book of business | 0.53 | 0.12 | ||||||
Total nonperforming loans(6) | 24.52 | 9.47 |
(1) | Includes accrued interest of $229 million and $32 million for the three months ended September 30, 2008 and 2007, respectively, and $468 million and $84 million for the nine months ended September 30, 2008 and 2007, respectively. | |
(2) | Includes charges recorded for our HomeSaver Advance initiative of $171 million and $294 million for the three and nine months ended September 30, 2008, respectively. | |
(3) | Includes $108 million and $35 million as of September 30, 2008 and 2007, respectively, for acquired loans subject to the application ofSOP 03-3. | |
(4) | Includes charges recorded at the date of acquisition of $348 million and $670 million for the three months ended September 30, 2008 and 2007, respectively, and $1.5 billion and $805 million for the nine months ended |
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September 30, 2008 and 2007, respectively, for acquired loans subject to the application ofSOP 03-3 where the acquisition cost exceeded the fair value of the acquired loan. | ||
(5) | Represents loss reserves amount attributable to each loan type as a percentage of the guaranty book of business for each loan type. | |
(6) | Loans are classified as nonperforming at the earlier of when payment of principal and interest is three months or more past due according to the loan’s contractual terms (unless we have recourse against the seller of the loan in the event of default) or when, in our opinion, collectability of interest or principal on the loan is not reasonably assured. See Table 44: Nonperforming Single-Family and Multifamily Loans for detail on nonperforming loans as of September 30, 2008 and December 31, 2007. |
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2008 | 2007 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Average market price(1) | 49 | % | 53 | % | 60 | % | 70 | % | 72 | % | 93 | % | 94 | % | ||||||||||||||
Unpaid principal balance and accrued interest of loans purchased (dollars in millions) | $ | 744 | $ | 807 | $ | 1,704 | $ | 1,832 | $ | 2,349 | $ | 881 | $ | 1,057 | ||||||||||||||
Number of delinquent loans purchased | 3,678 | 4,618 | 10,586 | 11,997 | 15,924 | 6,396 | 8,009 |
(1) | The value of primary mortgage insurance is included as a component of the average market price. |
Allowance | ||||||||||||||||
Contractual | Market | for Loan | Net | |||||||||||||
Amount(1) | Discount | Losses | Investment | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Balance as of December 31, 2007 | $ | 8,096 | $ | (991 | ) | $ | (39 | ) | $ | 7,066 | ||||||
Purchases of delinquent loans | 1,704 | (728 | ) | — | 976 | |||||||||||
Provision for credit losses | — | — | (35 | ) | (35 | ) | ||||||||||
Principal repayments | (180 | ) | 46 | 1 | (133 | ) | ||||||||||
Modifications and troubled debt restructurings | (915 | ) | 331 | 5 | (579 | ) | ||||||||||
Foreclosures, transferred to REO | (619 | ) | 169 | 18 | (432 | ) | ||||||||||
Balance as of March 31, 2008 | $ | 8,086 | $ | (1,173 | ) | $ | (50 | ) | $ | 6,863 | ||||||
Purchases of delinquent loans | 807 | (380 | ) | — | 427 | |||||||||||
Provision for credit losses | — | — | (86 | ) | (86 | ) | ||||||||||
Principal repayments | (192 | ) | 28 | 2 | (162 | ) | ||||||||||
Modifications and troubled debt restructurings | (582 | ) | 240 | 5 | (337 | ) | ||||||||||
Foreclosures, transferred to REO | (471 | ) | 129 | 15 | (327 | ) | ||||||||||
Balance as of June 30, 2008 | $ | 7,648 | $ | (1,156 | ) | $ | (114 | ) | $ | 6,378 | ||||||
Purchases of delinquent loans | 744 | (348 | ) | — | 396 | |||||||||||
Provision for credit losses | — | — | 12 | 12 | ||||||||||||
Principal repayments | (148 | ) | 23 | 2 | (123 | ) | ||||||||||
Modifications and troubled debt restructurings | (472 | ) | 198 | 9 | (265 | ) | ||||||||||
Foreclosures, transferred to REO | (406 | ) | 128 | (17 | ) | (295 | ) | |||||||||
Balance as of September 30, 2008 | $ | 7,366 | $ | (1,155 | ) | $ | (108 | ) | $ | 6,103 | ||||||
(1) | Reflects contractually required principal and accrued interest payments that we believe are probable of collection. |
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Table 13: | Re-performance Rates of Seriously Delinquent Single-Family Loans Purchased from MBS Trusts(1) |
Status as of September 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||
Cured without modification(2) | 6 | % | 15 | % | 15 | % | 16 | % | 19 | % | 18 | % | 25 | % | 19 | % | 37 | % | 44 | % | 43 | % | ||||||||||||||||||||||
Cured with modification(3) | 32 | 41 | 39 | 27 | 16 | 32 | 28 | 24 | 28 | 16 | 15 | |||||||||||||||||||||||||||||||||
Total cured | 38 | 56 | 54 | 43 | 35 | 50 | 53 | 43 | 65 | 60 | 58 | |||||||||||||||||||||||||||||||||
Defaults(4) | 4 | 6 | 9 | 21 | 36 | 24 | 27 | 28 | 24 | 33 | 37 | |||||||||||||||||||||||||||||||||
90 days or more delinquent | 58 | 38 | 37 | 36 | 29 | 26 | 20 | 29 | 11 | 7 | 5 | |||||||||||||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||
Status as of the End of Each Respective Period | ||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||
Cured without modification(2) | 6 | % | 10 | % | 7 | % | 11 | % | 10 | % | 11 | % | 17 | % | 16 | % | 32 | % | 31 | % | 33 | % | ||||||||||||||||||||||
Cured with modification(3) | 32 | 35 | 37 | 26 | 12 | 31 | 26 | 26 | 29 | 12 | 12 | |||||||||||||||||||||||||||||||||
Total cured | 38 | 45 | 44 | 37 | 22 | 42 | 43 | 42 | 61 | 43 | 45 | |||||||||||||||||||||||||||||||||
Defaults(4) | 4 | 2 | 2 | 4 | 6 | 3 | 3 | 13 | 9 | 12 | 14 | |||||||||||||||||||||||||||||||||
90 days or more delinquent | 58 | 53 | 54 | 59 | 72 | 55 | 54 | 45 | 30 | 45 | 41 | |||||||||||||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||
(1) | Re-performance rates calculated based on number of loans. | |
(2) | Loans classified as cured without modification consist of the following: (1) loans that are brought current without modification; (2) loans that are paid in full; (3) loans that are repurchased by lenders; (4) loans that have not been modified but are returned to accrual status because they are less than 90 days delinquent; (5) loans for which the default is resolved through long-term forbearance; and (6) loans for which the default is resolved through a repayment plan. We do not extend the maturity date, change the interest rate or otherwise modify the principal amount of any loan that we resolve through long-term forbearance or a repayment plan unless we first purchase the loan from the MBS trust. | |
(3) | Loans classified as cured with modification consist of loans that are brought current or are less than 90 days delinquent as a result of resolution of the default under the loan through the following: (1) a modification that does not result in a concession to the borrower; or (2) a modification that results in a concession to a borrower, which is referred to as a troubled debt restructuring. Concessions may include an extension of the time to repay the loan beyond its original maturity date or a temporary or permanent reduction in the loan’s interest rate. | |
(4) | Consists of foreclosures, preforeclosure sales, sales to third parties and deeds in lieu of foreclosure. |
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Table 14: | Re-performance Rates of Seriously Delinquent Single-Family Loans Purchased from MBS Trusts and Modified(1) |
Status as of September 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||
Cured | 98 | % | 85 | % | 74 | % | 65 | % | 61 | % | 64 | % | 68 | % | 64 | % | 77 | % | 74 | % | 71 | % | ||||||||||||||||||||||
Defaults(2) | — | — | 1 | 2 | 5 | 7 | 8 | 5 | 9 | 13 | 18 | |||||||||||||||||||||||||||||||||
90 days or more delinquent | 2 | 15 | 25 | 33 | 34 | 29 | 24 | 31 | 14 | 13 | 11 | |||||||||||||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||
Status as of the End of Each Respective Period | ||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||
Cured | 98 | % | 99 | % | 99 | % | 100 | % | 100 | % | 99 | % | 99 | % | 85 | % | 91 | % | 87 | % | 88 | % | ||||||||||||||||||||||
Defaults(2) | — | — | — | — | — | — | — | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||
90 days or more delinquent | 2 | 1 | 1 | — | — | 1 | 1 | 14 | 8 | 12 | 11 | |||||||||||||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||
(1) | Re-performance rates calculated based on number of loans. | |
(2) | Consists of foreclosures, preforeclosure sales, sales to third parties and deeds in lieu of foreclosure. |
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Table 15: | Required and Optional Purchases of Single-Family Loans from MBS Trusts |
Approximate | Aggregate | |||||||||||||||||||
Serious | Number of | Unpaid | ||||||||||||||||||
Delinquency | Loans | Principal | Required | Optional | ||||||||||||||||
Rate(1) | Purchased | Balance(2) | Purchases(3)(4) | Purchases(4)(5) | ||||||||||||||||
(Dollars in billions) | ||||||||||||||||||||
For the quarter ended: | ||||||||||||||||||||
December 31, 2007 | 0.67 | % | 13,200 | $ | 2.0 | 74 | % | 26 | % | |||||||||||
March 31, 2008 | 0.85 | 11,400 | 1.8 | 97 | 3 | |||||||||||||||
June 30, 2008 | 1.10 | 5,000 | 0.9 | 91 | 9 | |||||||||||||||
September 30, 2008 | 1.46 | 3,900 | 0.7 | 76 | 24 |
(1) | Represents serious delinquency rates for conventional single-family loans in Fannie Mae MBS trusts. | |
(2) | Represents unpaid principal balance and accrued interest for single-family loans purchased from MBS trusts during the quarter. | |
(3) | Calculated based on the number of loans purchased that we have classified as “required purchases,” divided by the total number of loans we purchased from MBS trusts, during the quarter. Under the applicable trust agreements governing the MBS trusts, we are required to purchase loans from MBS trusts in specific circumstances and have the option to purchase loans from MBS trusts under other conditions. | |
(4) | Beginning with the quarter ended September 30, 2008, we re-examined and enhanced our system for classifying purchases from MBS trusts as required or optional. If we had we applied the same classifications in prior quarters, our required purchases for the quarters ended December 31, 2007, March 31, 2008, and June 30, 2008, would have been 47%, 80% and 91%, respectively, and our optional purchases for each of those quarters would have been 53%, 20%, and 9%, respectively. | |
(5) | Calculated based on the number of loans purchased on an optional basis divided by the total number of loans we purchased from MBS trusts during the quarter. |
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Table 16: | Credit Loss Performance Metrics |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||||||
Amount | Ratio(1) | Amount | Ratio(1) | Amount | Ratio(1) | Amount | Ratio(1) | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Charge-offs, net of recoveries | $ | 2,084 | 28.6 | bp | $ | 838 | 13.1 | bp | $ | 4,707 | 22.0 | bp | $ | 1,222 | 6.6 | bp | ||||||||||||||||
Foreclosed property expense | 478 | 6.5 | 113 | 1.8 | 912 | 4.3 | 269 | 1.4 | ||||||||||||||||||||||||
Less:SOP 03-3 and HomeSaver Advance fair value losses(2) | (519 | ) | (7.2 | ) | (670 | ) | (10.6 | ) | (1,750 | ) | (8.2 | ) | (805 | ) | (4.3 | ) | ||||||||||||||||
Plus: Impact ofSOP 03-3 on charge-offs and foreclosed property expense(3) | 128 | 1.8 | 62 | 1.0 | 426 | 2.0 | 113 | 0.6 | ||||||||||||||||||||||||
Credit losses(4) | $ | 2,171 | 29.7 | bp | $ | 343 | 5.3 | bp | $ | 4,295 | 20.1 | bp | $ | 799 | 4.3 | bp | ||||||||||||||||
(1) | Based on the annualized amount for each line item presented divided by the average guaranty book of business during the period. We previously calculated our credit loss ratio based on annualized credit losses as a percentage of our mortgage credit book of business, which includes non-Fannie Mae mortgage-related securities held in our mortgage investment portfolio that we do not guarantee. Because losses related to non-Fannie Mae mortgage-related securities are not reflected in our credit losses, we revised the calculation of our credit loss ratio to reflect credit losses as a percentage of our guaranty book of business. Our credit loss ratio calculated based on our mortgage credit book of business would have been 28.4 basis points and 5.0 basis points for the three months ended September 30, 2008 and 2007, respectively. Our charge-off ratio calculated based on our mortgage credit book of business would have been 27.3 basis points and 12.3 basis points for the three months ended September 30, 2008 and 2007, respectively. Our credit loss ratio calculated based on our mortgage credit book of business would have been 19.1 basis points and 4.0 basis points for the nine months ended September 30, 2008 and 2007, respectively. Our charge-off ratio calculated based on our mortgage credit book of business would have been 21.0 basis points and 6.2 basis points for the nine months ended September 30, 2008 and 2007, respectively. |
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(2) | Represents the amount recorded as a loss when the acquisition cost of a delinquent loan purchased from an MBS trust that is subject toSOP 03-3 exceeds the fair value of the loan at acquisition. Also includes the difference between the unpaid principal balance of HomeSaver Advance loans at origination and the estimated fair value of these loans that we record in our condensed consolidated balance sheets. | |
(3) | For seriously delinquent loans purchased from MBS trusts that are recorded at a fair value amount at acquisition that is lower than the acquisition cost, any loss recorded at foreclosure would be less than it would have been if we had recorded the loan at its acquisition cost instead of at fair value. Accordingly, we have added back to our credit losses the amount of charge-offs and foreclosed property expense that we would have recorded if we had calculated these amounts based on the purchase price. | |
(4) | Interest forgone on nonperforming loans in our mortgage portfolio, which is presented in Table 44, reduces our net interest income but is not reflected in our credit losses total. In addition, other-than-temporary impairment losses resulting from deterioration in the credit quality of our mortgage-related securities and accretion of interest income on loans subject toSOP 03-3 are excluded from credit losses. |
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Table 17: | Single-Family Credit Loss Sensitivity(1) |
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Gross single-family credit loss sensitivity(2) | $ | 12,766 | $ | 9,644 | ||||
Less: Projected credit risk sharing proceeds | (3,898 | ) | (5,102 | ) | ||||
Net single-family credit loss sensitivity(2) | $ | 8,868 | $ | 4,542 | ||||
Outstanding single-family whole loans and Fannie Mae MBS | $ | 2,693,735 | $ | 2,523,440 | ||||
Single-family net credit loss sensitivity as a percentage of outstanding single-family whole loans and Fannie Mae MBS | 0.33 | % | 0.18 | % |
(1) | For purposes of this calculation, we assume that, after the initial 5% shock, home price growth rates return to the average of the possible growth rate paths used in our internal credit pricing models. The present value change reflects the increase in future expected credit losses under this shock scenario. | |
(2) | Represents total economic credit losses, which consist of credit losses and forgone interest. Calculations are based on approximately 97% of our total single-family guaranty book of business as of both September 30, 2008 and December 31, 2007. The mortgage loans and mortgage-related securities that are included in these estimates consist of: (i) single-family Fannie Mae MBS (whether held in our mortgage portfolio or held by third parties), excluding certain whole loan REMICs and private-label wraps; (ii) single-family mortgage loans, excluding mortgages secured only by second liens, subprime mortgages, manufactured housing chattel loans and reverse mortgages; and (iii) long-term standby commitments. We expect the inclusion in our estimates of the excluded products may impact the estimated sensitivities set forth in this table. |
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Table 18: | Single-Family Business Results |
For the | For the | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Quarterly | Year-to-Date | |||||||||||||||||||||||||||||
September 30, | September 30, | Variance | Variance | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||||||
Guaranty fee income | $ | 1,674 | $ | 1,424 | $ | 5,435 | $ | 4,015 | $ | 250 | 18 | % | $ | 1,420 | 35 | % | ||||||||||||||||
Trust management income | 63 | 138 | 242 | 433 | (75 | ) | (54 | ) | (191 | ) | (44 | ) | ||||||||||||||||||||
Other income(1)(2) | 184 | 133 | 569 | 493 | 51 | 38 | 76 | 15 | ||||||||||||||||||||||||
Losses on certain guaranty contracts | — | (292 | ) | — | (1,023 | ) | 292 | 100 | 1,023 | 100 | ||||||||||||||||||||||
Credit-related expenses(3) | (9,215 | ) | (1,195 | ) | (17,808 | ) | (2,040 | ) | (8,020 | ) | (671 | ) | (15,768 | ) | (773 | ) | ||||||||||||||||
Other expenses(1)(4) | (383 | ) | (492 | ) | (1,377 | ) | (1,414 | ) | 109 | 22 | 37 | 3 | ||||||||||||||||||||
Income (loss) before federal income taxes | (7,677 | ) | (284 | ) | (12,939 | ) | 464 | (7,393 | ) | (2,603 | ) | (13,403 | ) | (2,889 | ) | |||||||||||||||||
Benefit (provision) for federal income taxes | (6,550 | ) | 98 | (4,702 | ) | (159 | ) | (6,648 | ) | (6,784 | ) | (4,543 | ) | (2,857 | ) | |||||||||||||||||
Net income (loss) | $ | (14,227 | ) | $ | (186 | ) | $ | (17,641 | ) | $ | 305 | $ | (14,041 | ) | (7,549 | )% | $ | (17,946 | ) | (5,884 | )% | |||||||||||
Other key performance data: | ||||||||||||||||||||||||||||||||
Average single-family guaranty book of business(5) | $ | 2,753,293 | $ | 2,432,904 | $ | 2,693,909 | $ | 2,359,126 | $ | 320,389 | 13 | % | $ | 334,783 | 14 | % |
(1) | Certain prior period amounts have been reclassified to conform with the current period presentation in our condensed consolidated statements of operations. | |
(2) | Consists of net interest income, investment gains and losses, and fee and other income. | |
(3) | Consists of the provision for credit losses and foreclosed property expense. | |
(4) | Consists of administrative expenses and other expenses. | |
(5) | The single-family guaranty book of business consists of single-family mortgage loans held in our mortgage portfolio, single-family Fannie Mae MBS held in our mortgage portfolio, single-family Fannie Mae MBS held by third parties, and other credit enhancements that we provide on single-family mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in our investment portfolio for which we do not provide a guaranty. |
• | Increased guaranty fee income, attributable to growth in the average single-family guaranty book of business, coupled with an increase in the average effective single-family guaranty fee rate. |
— | We experienced an increase of 13% and 14% in our average single-family guaranty book of business for the third quarter and first nine months of 2008 over the third quarter and first nine months of 2007, respectively, reflecting the significant increase in our market share since the end of the second quarter of 2007. Our single-family guaranty book of business increased to $2.8 trillion as of September 30, 2008, from, $2.4 trillion as of June 30, 2007. Our estimated market share of new single-family mortgage-related securities issuances, which is based on publicly available data and excludes previously securitized mortgages, increased to approximately 46% for the first nine months of 2008, from approximately 31% for the first nine months of 2007. | |
— | Our average effective single-family guaranty fee rate increased to 24.3 basis points and 26.9 basis points for the third quarter and first nine months of 2008, respectively, from 23.4 basis points and 22.7 basis points for the third quarter and first nine months of 2007, respectively. The growth in our average effective single-family guaranty fee rate for the third quarter and first nine months of 2008 reflected the impact of guaranty fee pricing changes and a shift in the composition of our guaranty book of business to a greater proportion of higher-quality, lower risk and lower guaranty fee mortgages, as we reduced our acquisitions of higher risk, higher fee product categories, such as Alt-A |
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loans. Our average effective single-family guaranty fee rate for the first nine months of 2008 also reflected the accelerated recognition of deferred amounts into income as interest rates were generally lower in the first nine months of 2008 than in the first nine months of 2007. |
• | A substantial increase in credit-related expenses, primarily due to an increase in the provision for credit losses due to higher charge-offs, as well as a higher incremental provision to build our loss reserves, reflecting worsening credit performance trends, including significant increases in delinquencies, default rates and average loan loss severities, particularly in certain states and higher risk loan categories. We also experienced an increase inSOP 03-3 fair value losses for the first nine months of 2008. | |
• | A non-cash charge during the third quarter of 2008 to establish a partial deferred tax asset valuation allowance against our net deferred tax assets as of September 30, 2008. As a result of the partial deferred tax valuation allowance, we did not record tax benefits for the majority of the losses we incurred during the third quarter and first nine months of 2008. The allocation of this charge, which totaled $21.4 billion, to our Single-Family business resulted in a provision for federal income taxes of $6.6 billion and $4.7 billion for the third quarter and first nine months of 2008, respectively. |
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Table 19: | HCD Business Results |
For the | For the | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Quarterly | Year-to-Date | |||||||||||||||||||||||||||||
September 30, | September 30, | Variance | Variance | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||||||
Guaranty fee income | $ | 161 | $ | 115 | $ | 443 | $ | 326 | $ | 46 | 40 | % | $ | 117 | 36 | % | ||||||||||||||||
Other income(1) | 45 | 78 | 161 | 278 | (33 | ) | (42 | ) | (117 | ) | (42 | ) | ||||||||||||||||||||
Losses on partnership investments | (587 | ) | (147 | ) | (923 | ) | (527 | ) | (440 | ) | (299 | ) | (396 | ) | (75 | ) | ||||||||||||||||
Credit-related income (expenses)(2) | (26 | ) | (5 | ) | (25 | ) | 1 | (21 | ) | (420 | ) | (26 | ) | (2,600 | ) | |||||||||||||||||
Other expenses(3) | (167 | ) | (245 | ) | (646 | ) | (755 | ) | 78 | 32 | 109 | 14 | ||||||||||||||||||||
Loss before federal income taxes | (574 | ) | (204 | ) | (990 | ) | (677 | ) | (370 | ) | (181 | ) | (313 | ) | (46 | ) | ||||||||||||||||
Benefit (provision) for federal income taxes | (2,025 | ) | 301 | (1,387 | ) | 1,047 | (2,326 | ) | (773 | ) | (2,434 | ) | (232 | ) | ||||||||||||||||||
Net income (loss) | $ | (2,599 | ) | $ | 97 | $ | (2,377 | ) | $ | 370 | $ | (2,696 | ) | (2,779 | )% | $ | (2,747 | ) | (742 | )% | ||||||||||||
Other key performance data: | ||||||||||||||||||||||||||||||||
Average multifamily guaranty book of business(4) | $ | 166,369 | $ | 131,643 | $ | 158,824 | $ | 127,061 | $ | 34,726 | 26 | % | $ | 31,763 | 25 | % |
(1) | Consists of trust management income and fee and other income (expense). | |
(2) | Consists of provision for credit losses and foreclosed property income (expense). | |
(3) | Consists of net interest expense, losses on certain guaranty contracts, administrative expenses, minority interest in (earnings) losses of consolidated subsidiaries and other expenses. | |
(4) | The multifamily guaranty book of business consists of multifamily mortgage loans held in our mortgage portfolio, multifamily Fannie Mae MBS held in our mortgage portfolio, multifamily Fannie Mae MBS held by third parties and other credit enhancements that we provide on multifamily mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in our investment portfolio for which we do not provide a guaranty. |
• | Increased guaranty fee income, attributable to growth in the average multifamily guaranty book of business and an increase in the average effective multifamily guaranty fee rate. These increases reflect the increased investment and liquidity that we are providing to the multifamily mortgage market. | |
• | A decrease in other income, attributable to lower multifamily fees due to a reduction in multifamily loan liquidations for the first nine months of 2008. | |
• | An increase in losses on partnership investments, primarily due to other-than-temporary impairment of $245 million that we recorded in the third quarter of 2008 on our LIHTC partnership investments due to our potential inability to realize the future tax benefits generated by these investments. In addition, we experienced an increase in losses on our investments in rental and for-sale affordable housing | |
• | A non-cash charge during the third quarter of 2008 to establish a partial deferred tax asset valuation allowance against our net deferred tax assets as of September 30, 2008. As a result of the partial deferred tax valuation allowance, we did not record tax benefits for the majority of the losses we incurred during the third quarter and first nine months of 2008. The allocation of this charge, which totaled $21.4 billion, to our HCD business resulted in a provision for federal income taxes of $2.0 and $1.4 billion for the third quarter and first nine months of 2008, respectively. In comparison, we recorded a tax benefit of $301 million and $1.0 billion for the third quarter and first nine months of 2007, respectively, driven by tax credits of $231 million and $735 million, respectively. |
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Table 20: | Capital Markets Group Results |
For the | ||||||||||||||||||||||||||||||||
For the | Nine Months | |||||||||||||||||||||||||||||||
Three Months Ended | Ended | Quarterly | Year-to-Date | |||||||||||||||||||||||||||||
September 30, | September 30, | Variance | Variance | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||||||
Net interest income | $ | 2,308 | $ | 1,064 | $ | 5,970 | $ | 3,455 | $ | 1,244 | 117 | % | $ | 2,515 | 73 | % | ||||||||||||||||
Investment losses, net(1) | (1,607 | ) | (112 | ) | (2,516 | ) | 89 | (1,495 | ) | (1,335 | ) | (2,605 | ) | (2,927 | ) | |||||||||||||||||
Fair value gains (losses), net(1) | (3,947 | ) | (2,082 | ) | (7,807 | ) | (1,224 | ) | (1,865 | ) | (90 | ) | (6,583 | ) | (538 | ) | ||||||||||||||||
Fee and other income(1) | 53 | 67 | 198 | 254 | (14 | ) | (21 | ) | (56 | ) | (22 | ) | ||||||||||||||||||||
Other expenses(2) | (444 | ) | (433 | ) | (1,660 | ) | (1,317 | ) | (11 | ) | (3 | ) | (343 | ) | (26 | ) | ||||||||||||||||
Income (loss) before federal income taxes and extraordinary losses, net of tax effect | (3,637 | ) | (1,496 | ) | (5,815 | ) | 1,257 | (2,141 | ) | (143 | ) | (7,072 | ) | (563 | ) | |||||||||||||||||
Benefit (provision) for federal income taxes | (8,436 | ) | 183 | (7,518 | ) | (420 | ) | (8,619 | ) | (4,710 | ) | (7,098 | ) | (1,690 | ) | |||||||||||||||||
Extraordinary gains (losses), net of tax effect | (95 | ) | 3 | (129 | ) | (3 | ) | (98 | ) | (3,267 | ) | (126 | ) | (4,200 | ) | |||||||||||||||||
Net income (loss) | $ | (12,168 | ) | $ | (1,310 | ) | $ | (13,462 | ) | $ | 834 | $ | (10,858 | ) | (829 | )% | $ | (14,296 | ) | (1,714 | )% | |||||||||||
(1) | Certain prior period amounts have been reclassified to conform with the current period presentation in our condensed consolidated statements of operations. | |
(2) | Includes debt extinguishment losses, allocated guaranty fee expense, administrative expenses and other expenses. |
• | An increase in net interest income, primarily attributable to an expansion of our net interest yield driven by the reduction in short-term interest rates, which reduced the average cost of our debt, and a shift in our funding mix to more short-term debt. The reversal of accrued interest expense on step-rate debt that we paid off during the first quarter of 2008 also reduced the average cost of our debt. The increase in our net interest income does not reflect the impact of a significant increase in the net contractual interest expense on our interest rate swaps. | |
• | An increase in fair value losses, primarily attributable to losses on our trading securities and derivatives. The losses on our trading securities resulted from the significant widening of spreads, particularly onAlt-A and CMBS private-label securities and losses on some of our non-mortgage investments in corporate debt securities due to the default or distressed financial condition of the issuers of these securities. The losses on our derivatives resulted from a decrease in swap interest rates, which caused a significant increase in the net contractual interest expense on our interest rate swaps, and time decay associated with our purchased options, which was partially offset by an increase in value due to an increase in implied volatility during the quarter. | |
• | A significant increase in investment losses due to other-than-temporary impairment on available-for-sale securities, principally for Alt-A and subprime private-label securities, reflecting a reduction in expected cash flows due to higher expected defaults and loss severities on the underlying mortgages. | |
• | A non-cash charge during the third quarter of 2008 to establish a partial deferred tax asset valuation allowance against our net deferred tax assets as of September 30, 2008. As a result of the partial deferred |
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tax valuation allowance, we did not record tax benefits for the majority of the losses we incurred during the third quarter and first nine months of 2008. The allocation of this charge, which totaled $21.4 billion, to our Capital Markets group resulted in a provision for federal income taxes of $8.4 and $7.5 billion for the third quarter and first nine months of 2008, respectively. |
Table 21: | Mortgage Portfolio Activity(1) |
For the | For the | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | Variance | September 30, | Variance | |||||||||||||||||||||||||||||
2008 | 2007 | $ | % | 2008 | 2007 | $ | % | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Purchases(2) | $ | 45,391 | $ | 48,901 | $ | (3,510 | ) | (7 | )% | $ | 141,206 | $ | 132,905 | $ | 8,301 | 6 | % | |||||||||||||||
Sales | 13,038 | 20,190 | (7,152 | ) | (35 | ) | 35,618 | 45,229 | (9,611 | ) | (21 | ) | ||||||||||||||||||||
Liquidations(3) | 21,174 | 28,869 | (7,695 | ) | (27 | ) | 69,765 | 93,777 | (24,012 | ) | (26 | ) |
(1) | Excludes unamortized premiums, discounts and other cost basis adjustments. | |
(2) | Excludes advances to lenders and mortgage-related securities acquired through the extinguishment of debt. | |
(3) | Includes scheduled repayments, prepayments and foreclosures. |
• | For the first two months of 2008, we were subject to an OFHEO-directed limitation on the size of our mortgage portfolio, which is described in our 2007Form 10-K. Effective March 1, 2008, OFHEO removed the limitation on the size of our mortgage portfolio. | |
• | On March 19, 2006, OFHEO reduced the 30% capital surplus requirement, which was part of our May 2006 consent order with OFHEO, to 20%. In May 2008, OFHEO further reduced our capital surplus requirement to 15%. | |
• | As discussed in “Executive Summary—Managing Our Business During Conservatorship,” the senior preferred stock purchase agreement requires us to decrease our mortgage portfolio by 10% per year beginning in 2010; however, we are permitted under that agreement to increase our mortgage portfolio temporarily to up to $850 billion and to maintain our mortgage portfolio at that level through December 31, 2009. In addition, FHFA has directed us to acquire and hold increased amounts of mortgage loans and mortgage-related securities in our mortgage portfolio to provide additional liquidity to the mortgage market. |
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Table 22: | Mortgage Portfolio Composition(1) |
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Mortgage loans:(2) | ||||||||
Single-family: | ||||||||
Government insured or guaranteed(3) | $ | 40,082 | $ | 28,202 | ||||
Conventional: | ||||||||
Long-term, fixed-rate | 170,870 | 193,607 | ||||||
Intermediate-term, fixed-rate(4) | 39,022 | 46,744 | ||||||
Adjustable-rate | 44,873 | 43,278 | ||||||
Total conventional single-family | 254,765 | 283,629 | ||||||
Total single-family | 294,847 | 311,831 | ||||||
Multifamily: | ||||||||
Government insured or guaranteed(3) | 731 | 815 | ||||||
Conventional: | ||||||||
Long-term, fixed-rate | 5,589 | 5,615 | ||||||
Intermediate-term, fixed-rate(4) | 87,886 | 73,609 | ||||||
Adjustable-rate | 18,618 | 11,707 | ||||||
Total conventional multifamily | 112,093 | 90,931 | ||||||
Total multifamily | 112,824 | 91,746 | ||||||
Total mortgage loans | 407,671 | 403,577 | ||||||
Unamortized premiums and other cost basis adjustments, net | 82 | 726 | ||||||
Lower of cost or market adjustments on loans held for sale | (208 | ) | (81 | ) | ||||
Allowance for loan losses for loans held for investment | (1,803 | ) | (698 | ) | ||||
Total mortgage loans, net | 405,742 | 403,524 | ||||||
Mortgage-related securities: | ||||||||
Fannie Mae single-class MBS | 152,255 | 102,258 | ||||||
Fannie Mae structured MBS | 70,830 | 77,905 | ||||||
Non-Fannie Mae single-class mortgage securities | 27,907 | 28,129 | ||||||
Non-Fannie Mae structured mortgage securities(5) | 89,907 | 96,373 | ||||||
Mortgage revenue bonds | 15,623 | 16,315 | ||||||
Other mortgage-related securities | 2,973 | 3,346 | ||||||
Total mortgage-related securities | 359,495 | 324,326 | ||||||
Market value adjustments(6) | (16,820 | ) | (3,249 | ) | ||||
Other-than-temporary impairments | (2,952 | ) | (603 | ) | ||||
Unamortized discounts and other cost basis adjustments, net(7) | (772 | ) | (1,076 | ) | ||||
Total mortgage-related securities, net | 338,951 | 319,398 | ||||||
Mortgage portfolio, net(8) | $ | 744,693 | $ | 722,922 | ||||
(1) | Mortgage loans and mortgage-related securities are reported at unpaid principal balance. | |
(2) | Mortgage loans include unpaid principal balance totaling $59.0 billion and $81.8 billion as of September 30, 2008 and December 31, 2007, respectively, related to mortgage-related securities that were consolidated under Financial Accounting Standards Board Interpretation (“FIN”) No. 46R (revised December 2003),Consolidation of Variable Interest Entities (an interpretation of ARB No. 51)(“FIN 46R”), and mortgage-related securities created from securitization transactions that did not meet the sales criteria under SFAS No. 140,Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125)(“SFAS 140”), which effectively resulted in mortgage-related securities being accounted for as loans. |
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(3) | Refers to mortgage loans that are guaranteed or insured by the U.S. government or its agencies, such as the Department of Veterans Affairs, Federal Housing Administration or the Rural Development Housing and Community Facilities Program of the Department of Agriculture. | |
(4) | Intermediate-term, fixed-rate consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years. | |
(5) | Includes private-label mortgage-related securities backed by Alt-A or subprime mortgage loans totaling $54.6 billion and $64.5 billion as of September 30, 2008 and December 31, 2007, respectively. Refer to “Trading and Available-for-Sale Investment Securities—Investments in Private-Label Mortgage-Related Securities” for a description of our investments in Alt-A and subprime securities. | |
(6) | Includes unrealized gains and losses on mortgage-related securities and securities commitments classified as trading and available-for-sale. | |
(7) | Includes the impact of other-than-temporary impairments of cost basis adjustments. | |
(8) | Includes consolidated mortgage-related assets acquired through the assumption of debt. Also includes $1.1 billion and $538 million as of September 30, 2008 and December 31, 2007, respectively, of mortgage loans and mortgage-related securities that we have pledged as collateral and which counterparties have the right to sell or repledge. |
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Table 23: | Trading and Available-for-Sale Investment Securities |
As of September 30, 2008 | ||||||||||||||||||||||||||||||||
Less Than 12 | 12 Consecutive | |||||||||||||||||||||||||||||||
Consecutive Months | Months or Longer | |||||||||||||||||||||||||||||||
Gross | Gross | Total | Gross | Total | Gross | Total | ||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||||||||
Cost(1) | Gains | Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Trading: | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 48,031 | $ | — | $ | — | $ | 48,576 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Fannie Mae structured MBS | 10,579 | — | — | 10,471 | — | — | — | — | ||||||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 1,080 | — | — | 1,084 | — | — | — | — | ||||||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 20,080 | — | — | 16,106 | — | — | — | — | ||||||||||||||||||||||||
Mortgage revenue bonds | 799 | — | — | 660 | — | — | — | — | ||||||||||||||||||||||||
Asset-backed securities | 12,494 | — | — | 11,929 | — | — | — | — | ||||||||||||||||||||||||
Corporate debt securities | 8,916 | — | — | 7,657 | — | — | — | — | ||||||||||||||||||||||||
Other non-mortgage-related securities | 2,188 | — | — | 2,188 | — | — | — | — | ||||||||||||||||||||||||
Total trading | $ | 104,167 | $ | — | $ | — | $ | 98,671 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Available for sale: | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 103,669 | $ | 665 | $ | (1,183 | ) | $ | 103,151 | $ | (974 | ) | $ | 60,991 | $ | (209 | ) | $ | 6,949 | |||||||||||||
Fannie Mae structured MBS | 59,989 | 489 | (773 | ) | 59,705 | (447 | ) | 27,410 | (326 | ) | 7,532 | |||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 26,634 | 261 | (127 | ) | 26,768 | (104 | ) | 10,427 | (23 | ) | 1,132 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 67,493 | 70 | (10,903 | ) | 56,660 | (3,267 | ) | 20,817 | (7,636 | ) | 27,823 | |||||||||||||||||||||
Mortgage revenue bonds | 14,817 | 28 | (1,682 | ) | 13,163 | (800 | ) | 7,554 | (882 | ) | 3,900 | |||||||||||||||||||||
Other mortgage-related securities | 2,600 | 114 | (107 | ) | 2,607 | (85 | ) | 1,102 | (22 | ) | 132 | |||||||||||||||||||||
Total available for sale | $ | 275,202 | $ | 1,627 | $ | (14,775 | ) | $ | 262,054 | $ | (5,677 | ) | $ | 128,301 | $ | (9,098 | ) | $ | 47,468 | |||||||||||||
Total investments in securities | $ | 379,369 | $ | 1,627 | $ | (14,775 | ) | $ | 360,725 | $ | (5,677 | ) | $ | 128,301 | $ | (9,098 | ) | $ | 47,468 | |||||||||||||
(1) | Amortized cost includes unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary impairment write downs. |
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Table 24: | Investments in Private-Label Mortgage-Related Securities and Mortgage Revenue Bonds |
As of September 30, 2008 | As of October 31, 2008 | |||||||||||||||||||||||
Unpaid | Average | % Below | ||||||||||||||||||||||
Principal | Credit | % AA | Investment | Current % | ||||||||||||||||||||
Balance | Enhancement(1) | % AAA(2) | to BBB-(2) | Grade(2) | Watchlist(3) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Private-label mortgage-related securities backed by: | ||||||||||||||||||||||||
Alt-A mortgage loans: | ||||||||||||||||||||||||
Option ARM Alt-A mortgage loans | $ | 6,858 | 53 | % | 89 | % | 10 | % | 1 | % | 16 | % | ||||||||||||
Other Alt-A mortgage loans | 21,749 | 14 | 66 | 28 | 6 | 11 | ||||||||||||||||||
Total Alt-A mortgage loans | 28,607 | 24 | 71 | 24 | 5 | 12 | ||||||||||||||||||
Subprime mortgage loans | 25,959 | 37 | 30 | 38 | 32 | 13 | ||||||||||||||||||
Multifamily mortgage loans (CMBS) | 25,851 | 30 | 100 | — | — | — | ||||||||||||||||||
Manufactured housing loans | 2,947 | 37 | 4 | 33 | 63 | 13 | ||||||||||||||||||
Other mortgage loans | 2,368 | 6 | 96 | 1 | 3 | 1 | ||||||||||||||||||
Total private-label mortgage-related securities | 85,732 | |||||||||||||||||||||||
Mortgage revenue bonds(4) | 15,623 | 35 | 46 | 52 | 2 | 24 | ||||||||||||||||||
Total | $ | 101,355 | ||||||||||||||||||||||
(1) | Average credit enhancement percentage reflects both subordination and financial guarantees. Reflects the ratio of the current amount of the securities that will incur losses in a securitization structure before any losses are allocated to securities that we own. Percentage calculated based on the quotient of the total unpaid principal balance of all credit enhancement in the form of subordination or financial guarantee of the security divided by the total unpaid principal balance of all of the tranches of collateral pools from which credit support is drawn for the security that we own. | |
(2) | Reflects credit ratings as of October 31, 2008, calculated based on unpaid principal balance as of September 30, 2008. Investment securities that have a credit rating below BBB- or its equivalent or that have not been rated are classified as below investment grade. | |
(3) | Reflects percentage of investment securities, calculated based on unpaid principal balance as of September 30, 2008, that have been placed under review by either Standard & Poor’s, Moody’s, Fitch or DBRS, Limited. | |
(4) | Reflects that 35% of the outstanding unpaid principal balance of our mortgage revenue bonds are guaranteed by third parties. |
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Table 25: | Delinquency Status of Loans Underlying Alt-A and Subprime Private-Label Securities |
> 60 Days Delinquent(1) | ||||||||
September 30, | June 30, | |||||||
Loan Categories: | 2008 | 2008 | ||||||
Option ARM Alt-A loans: | ||||||||
2004 and prior | 18.88 | % | 15.95 | % | ||||
2005 | 21.65 | 17.35 | ||||||
2006 | 27.97 | 21.44 | ||||||
2007 | 17.17 | 10.79 | ||||||
Other Alt-A loans: | ||||||||
2004 and prior | 3.87 | 3.36 | ||||||
2005 | 10.27 | 8.78 | ||||||
2006 | 16.99 | 15.40 | ||||||
2007 | 21.55 | 17.55 | ||||||
Subprime loans: | ||||||||
2004 and prior | 20.71 | 21.51 | ||||||
2005 | 38.58 | 36.51 | ||||||
2006 | 40.19 | 36.13 | ||||||
2007 | 29.62 | 23.87 |
(1) | Delinquency data provided by Intex for Alt-A and subprime loans backing private-label securities that we own or guarantee. However, we have adjusted the Intex delinquency data for consistency purposes, where appropriate, to include in the delinquency rates all bankruptcies, foreclosures and real estate owned. |
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Table 26: | Investments in Alt-A Private-Label Mortgage-Related Securities, Excluding Wraps* |
As of September 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid Principal | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance | Credit Enhancement Statistics | Hypothetical Scenarios(6) | ||||||||||||||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||||||||||||||
Available- | Financial | |||||||||||||||||||||||||||||||||||||||||||||||
Vintage and | Trading | for-Sale | Average | Fair | Average | Minimum | Guaranteed | 20d/50s | 30d/40s | 50d/50s | 60d/60s | |||||||||||||||||||||||||||||||||||||
CE Quartile(1) | Securities(2) | Securities(3) | Price | Value | Current(4) | Original(4) | Current(4) | Amount(5) | NPV | NPV | NPV | NPV | ||||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Alt-A securities:(7) | ||||||||||||||||||||||||||||||||||||||||||||||||
Option ARM Alt-A securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
2004 and prior | $ | — | $ | 669 | $ | 64.80 | $ | 433 | 22 | % | 9 | % | 15 | % | $ | — | $ | — | $ | — | $ | 27 | $ | 102 | ||||||||||||||||||||||||
2005-1(1) | — | 136 | 64.22 | 87 | 20 | 7 | 19 | — | — | — | 4 | 18 | ||||||||||||||||||||||||||||||||||||
2005-1(2) | — | 70 | 59.70 | 42 | 23 | 12 | 23 | — | — | — | 3 | 10 | ||||||||||||||||||||||||||||||||||||
2005-1(3) | — | 191 | 61.36 | 118 | 26 | 15 | 24 | — | — | — | 5 | 25 | ||||||||||||||||||||||||||||||||||||
2005-1(4) | — | 156 | 64.84 | 101 | 43 | 33 | 34 | — | — | — | — | 12 | ||||||||||||||||||||||||||||||||||||
2005-1 subtotal | — | 553 | 62.83 | 348 | 29 | 18 | 19 | — | — | — | 12 | 65 | ||||||||||||||||||||||||||||||||||||
2005-2(1) | — | 242 | 65.41 | 158 | 34 | 28 | 34 | — | — | — | 4 | 28 | ||||||||||||||||||||||||||||||||||||
2005-2(2) | — | 243 | 59.54 | 145 | 38 | 33 | 38 | — | — | — | 4 | 25 | ||||||||||||||||||||||||||||||||||||
2005-2(3) | — | 361 | 63.32 | 228 | 48 | 42 | 45 | — | — | — | 1 | 21 | ||||||||||||||||||||||||||||||||||||
2005-2(4) | — | 328 | 62.98 | 207 | 100 | 100 | 100 | 329 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2 subtotal | — | 1,174 | 62.87 | 738 | 58 | 53 | 34 | 329 | — | — | 9 | 74 | ||||||||||||||||||||||||||||||||||||
2006-1(1) | — | 134 | 60.32 | 81 | 21 | 19 | 11 | — | — | — | 32 | 61 | ||||||||||||||||||||||||||||||||||||
2006-1(2) | — | 411 | 63.07 | 259 | 41 | 38 | 40 | — | — | — | 3 | 34 | ||||||||||||||||||||||||||||||||||||
2006-1(3) | — | 377 | 62.43 | 235 | 45 | 42 | 45 | — | — | — | — | 18 | ||||||||||||||||||||||||||||||||||||
2006-1(4) | — | 423 | 61.67 | 261 | 88 | 88 | 49 | 327 | — | — | — | 6 | ||||||||||||||||||||||||||||||||||||
2006-1 subtotal | — | 1,345 | 62.18 | 836 | 55 | 53 | 11 | 327 | — | — | 35 | 119 | ||||||||||||||||||||||||||||||||||||
2006-2(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2006-2(2) | — | 210 | 64.20 | 136 | 37 | 35 | 37 | — | — | — | — | 17 | ||||||||||||||||||||||||||||||||||||
2006-2(3) | — | 98 | 62.56 | 61 | 41 | 40 | 41 | — | — | — | — | 5 | ||||||||||||||||||||||||||||||||||||
2006-2(4) | — | 221 | 63.88 | 141 | 69 | 68 | 47 | 90 | — | — | — | 7 | ||||||||||||||||||||||||||||||||||||
2006-2 subtotal | — | 529 | 63.76 | 338 | 51 | 50 | 37 | 90 | — | — | — | 29 | ||||||||||||||||||||||||||||||||||||
2007-1(1) | 204 | — | 62.11 | 127 | 25 | 24 | 24 | — | — | — | 10 | 34 | ||||||||||||||||||||||||||||||||||||
2007-1(2) | 368 | — | 60.90 | 224 | 46 | 45 | 45 | — | — | — | — | 19 | ||||||||||||||||||||||||||||||||||||
2007-1(3) | 262 | — | 59.12 | 155 | 48 | 47 | 48 | — | — | — | — | 17 | ||||||||||||||||||||||||||||||||||||
2007-1(4) | 524 | — | 55.83 | 292 | 100 | 100 | 100 | 524 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-1 subtotal | 1,358 | — | 58.78 | 798 | 64 | 64 | 24 | 524 | — | — | 10 | 70 | ||||||||||||||||||||||||||||||||||||
2007-2(1) | 293 | — | 63.16 | 185 | 33 | 32 | 25 | — | — | — | 9 | 38 | ||||||||||||||||||||||||||||||||||||
2007-2(2) | 214 | — | 60.19 | 129 | 47 | 47 | 47 | — | — | — | — | 16 | ||||||||||||||||||||||||||||||||||||
2007-2(3) | 306 | — | 61.54 | 188 | 48 | 47 | 48 | — | — | — | — | 22 | ||||||||||||||||||||||||||||||||||||
2007-2(4) | 417 | — | 60.67 | 253 | 100 | 100 | 100 | 417 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2 subtotal | 1,230 | — | 61.39 | 755 | 62 | 62 | 25 | 417 | — | — | 9 | 76 | ||||||||||||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total option ARM Alt-A securities | $ | 2,588 | $ | 4,270 | $ | 61.91 | $ | 4,246 | 53 | % | 49 | % | 11 | % | $ | 1,687 | $ | — | $ | — | $ | 102 | $ | 535 | ||||||||||||||||||||||||
Trading securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | — | $ | — | $ | 244 | $ | 1,008 | ||||||||||||||||||||||||||||||||||||||||
UPB | — | — | 392 | 1,647 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | — | $ | — | $ | (148 | ) | $ | (639 | ) | ||||||||||||||||||||||||||||||||||||||
Available-for-sale securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | — | $ | — | $ | 1,295 | $ | 2,230 | ||||||||||||||||||||||||||||||||||||||||
UPB | — | — | 2,074 | 3,524 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | — | $ | — | $ | (779 | ) | $ | (1,294 | ) | ||||||||||||||||||||||||||||||||||||||
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As of September 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid Principal | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance | Credit Enhancement Statistics | Hypothetical Scenarios(6) | ||||||||||||||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||||||||||||||
Available- | Financial | |||||||||||||||||||||||||||||||||||||||||||||||
Vintage and | Trading | for-Sale | Average | Fair | Average | Minimum | Guaranteed | 20d/50s | 30d/40s | 30d/50s | 50d/50s | |||||||||||||||||||||||||||||||||||||
CE Quartile(1) | Securities(2) | Securities(3) | Price | Value | Current(4) | Original(4) | Current(4) | Amount(5) | NPV | NPV | NPV | NPV | ||||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Alt-A securities:(7) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other Alt-A securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
2004 and prior | $ | — | $ | 8,896 | $ | 78.75 | $ | 7,005 | 12 | % | 6 | % | 5 | % | $ | 27 | $ | 75 | $ | 120 | $ | 412 | $ | 2,253 | ||||||||||||||||||||||||
2005-1(1) | — | 374 | 75.40 | 282 | 9 | 5 | 6 | — | 3 | 6 | 20 | 100 | ||||||||||||||||||||||||||||||||||||
2005-1(2) | — | 454 | 76.48 | 347 | 13 | 7 | 12 | — | 1 | 2 | 9 | 113 | ||||||||||||||||||||||||||||||||||||
2005-1(3) | — | 387 | 82.94 | 321 | 15 | 11 | 14 | — | 1 | 3 | 10 | 90 | ||||||||||||||||||||||||||||||||||||
2005-1(4) | — | 453 | 76.15 | 345 | 18 | 12 | 15 | — | — | 1 | 7 | 95 | ||||||||||||||||||||||||||||||||||||
2005-1 subtotal | — | 1,668 | 77.64 | 1,295 | 14 | 9 | 6 | — | 5 | 12 | 46 | 398 | ||||||||||||||||||||||||||||||||||||
2005-2(1) | — | 1,000 | 74.60 | 746 | 6 | 5 | 5 | — | 35 | 45 | 81 | 289 | ||||||||||||||||||||||||||||||||||||
2005-2(2) | — | 992 | 71.98 | 714 | 10 | 8 | 8 | — | 8 | 15 | 49 | 261 | ||||||||||||||||||||||||||||||||||||
2005-2(3) | — | 1,025 | 69.52 | 712 | 17 | 14 | 14 | — | — | 1 | 16 | 220 | ||||||||||||||||||||||||||||||||||||
2005-2(4) | — | 1,035 | 71.54 | 741 | 21 | 17 | 18 | — | — | — | 5 | 183 | ||||||||||||||||||||||||||||||||||||
2005-2 subtotal | — | 4,052 | 71.89 | 2,913 | 14 | 11 | 5 | — | 43 | 61 | 151 | 953 | ||||||||||||||||||||||||||||||||||||
2006-1(1) | 34 | 1,088 | 76.52 | 858 | 5 | 4 | 5 | — | 48 | 60 | 101 | 334 | ||||||||||||||||||||||||||||||||||||
2006-1(2) | — | 1,069 | 71.50 | 765 | 10 | 8 | 9 | — | 16 | 23 | 50 | 279 | ||||||||||||||||||||||||||||||||||||
2006-1(3) | — | 1,285 | 74.17 | 953 | 14 | 12 | 11 | — | — | — | 21 | 353 | ||||||||||||||||||||||||||||||||||||
2006-1(4) | 49 | 1,295 | 69.99 | 941 | 20 | 17 | 18 | — | — | — | 6 | 217 | ||||||||||||||||||||||||||||||||||||
2006-1 subtotal | 83 | 4,737 | 72.96 | 3,517 | 13 | 11 | 5 | — | 64 | 83 | 178 | 1,183 | ||||||||||||||||||||||||||||||||||||
2006-2(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2006-2(2) | — | 502 | 66.00 | 331 | 11 | 10 | 6 | — | — | — | 9 | 115 | ||||||||||||||||||||||||||||||||||||
2006-2(3) | — | 276 | 67.34 | 186 | 17 | 16 | 17 | — | — | — | — | 53 | ||||||||||||||||||||||||||||||||||||
2006-2(4) | — | 333 | 53.40 | 178 | 17 | 16 | 17 | — | — | — | — | 48 | ||||||||||||||||||||||||||||||||||||
2006-2 subtotal | — | 1,111 | 62.56 | 695 | 14 | 13 | 6 | — | — | — | 9 | 216 | ||||||||||||||||||||||||||||||||||||
2007-1(1) | 132 | — | 60.77 | 80 | 7 | 6 | 7 | — | — | — | 1 | 32 | ||||||||||||||||||||||||||||||||||||
2007-1(2) | 76 | — | 72.24 | 55 | 7 | 7 | 7 | — | 3 | 3 | 6 | 22 | ||||||||||||||||||||||||||||||||||||
2007-1(3) | 158 | — | 58.19 | 92 | 10 | 9 | 8 | — | — | — | — | 37 | ||||||||||||||||||||||||||||||||||||
2007-1(4) | 231 | — | 61.10 | 141 | 17 | 16 | 16 | — | — | — | — | 44 | ||||||||||||||||||||||||||||||||||||
2007-1 subtotal | 597 | — | 61.67 | 368 | 12 | 11 | 7 | — | 3 | 3 | 7 | 135 | ||||||||||||||||||||||||||||||||||||
2007-2(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2(4) | 436 | — | 67.80 | 296 | 100 | 100 | 100 | 436 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2 subtotal | 436 | — | 67.80 | 296 | 100 | 100 | 100 | 436 | — | — | — | |||||||||||||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(4) | — | 169 | 85.50 | 145 | 21 | 20 | 21 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1 subtotal(10) | — | 169 | 85.50 | 145 | 21 | 20 | 21 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total other Alt-A securities | $ | 1,116 | $ | 20,633 | $ | 74.64 | $ | 16,234 | 14 | % | 11 | % | 5 | % | $ | 463 | $ | 190 | $ | 279 | $ | 803 | $ | 5,138 | ||||||||||||||||||||||||
Trading securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 80 | $ | 80 | $ | 185 | $ | 425 | ||||||||||||||||||||||||||||||||||||||||
UPB | 110 | 110 | 284 | 680 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | �� | $ | (30 | ) | $ | (30 | ) | $ | (99 | ) | $ | (255 | ) | |||||||||||||||||||||||||||||||||||
Available-for-sale securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 7,088 | $ | 8,725 | $ | 12,200 | $ | 15,317 | ||||||||||||||||||||||||||||||||||||||||
UPB | 9,066 | 11,266 | 15,945 | 20,396 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (1,978 | ) | $ | (2,541 | ) | $ | (3,745 | ) | $ | (5,079 | ) | ||||||||||||||||||||||||||||||||||||
* | The footnotes to this table are presented following Table 27. |
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Table 27: | Investments in Subprime Private-Label Mortgage-Related Securities, Excluding Wraps |
As of September 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid Principal | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance | Credit Enhancement Statistics | Hypothetical Scenarios(6) | ||||||||||||||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial | ||||||||||||||||||||||||||||||||||||||||||||||||
Vintage and | Trading | AFS | Average | Fair | Average | Minimum | Guaranteed | 50d/60s | 60d/50s | 60d/60s | 70d/70s | |||||||||||||||||||||||||||||||||||||
CE Quartile(1) | Securities(2) | Securities(3) | Price | Value | Current(4) | Original(4) | Current(4) | Amount(5) | NPV | NPV | NPV | NPV | ||||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in subprime securities:(8) | ||||||||||||||||||||||||||||||||||||||||||||||||
2004 and prior | $ | — | $ | 3,006 | $ | 84.42 | $ | 2,538 | 73 | % | 53 | % | 13 | % | $ | 1,332 | $ | 4 | $ | 6 | $ | 23 | $ | 118 | ||||||||||||||||||||||||
2005-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1(2) | — | 23 | 96.17 | 22 | 71 | 36 | 71 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1(4) | — | 38 | 90.21 | 34 | 81 | 29 | 81 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1 subtotal | — | 61 | 92.48 | 56 | 77 | 31 | 71 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2(1) | — | 87 | 94.00 | 82 | 41 | 23 | 38 | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||
2005-2(2) | — | 36 | 94.83 | 34 | 55 | 38 | 55 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2(3) | — | 111 | 89.34 | 99 | 59 | 30 | 59 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2(4) | — | 126 | 87.12 | 109 | 86 | 73 | 68 | 69 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2 subtotal | — | 360 | 90.25 | 324 | 64 | 44 | 38 | 69 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||
2006-1(1) | — | 1,330 | 78.19 | 1,040 | 26 | 19 | 24 | — | — | — | 7 | 231 | ||||||||||||||||||||||||||||||||||||
2006-1(2) | — | 1,730 | 82.22 | 1,422 | 30 | 20 | 28 | — | — | — | — | 223 | ||||||||||||||||||||||||||||||||||||
2006-1(3) | — | 1,514 | 84.88 | 1,285 | 37 | 24 | 34 | — | — | — | — | 56 | ||||||||||||||||||||||||||||||||||||
2006-1(4) | — | 1,610 | 84.45 | 1,360 | 49 | 33 | 41 | 52 | — | — | — | 21 | ||||||||||||||||||||||||||||||||||||
2006-1 subtotal | — | 6,184 | 82.58 | 5,107 | 36 | 24 | 24 | 52 | — | — | 7 | 531 | ||||||||||||||||||||||||||||||||||||
2006-2(1) | — | 2,789 | 73.79 | 2,058 | 22 | 18 | 17 | — | — | 2 | 97 | 664 | ||||||||||||||||||||||||||||||||||||
2006-2(2) | — | 2,767 | 78.04 | 2,160 | 26 | 19 | 24 | — | — | — | 21 | 514 | ||||||||||||||||||||||||||||||||||||
2006-2(3) | — | 2,779 | 75.77 | 2,105 | 29 | 23 | 28 | — | — | — | — | 395 | ||||||||||||||||||||||||||||||||||||
2006-2(4) | — | 3,088 | 80.67 | 2,491 | 36 | 28 | 31 | — | — | — | — | 254 | ||||||||||||||||||||||||||||||||||||
2006-2 subtotal | — | 11,423 | 77.16 | 8,814 | 28 | 22 | 17 | — | — | 2 | 118 | 1,827 | ||||||||||||||||||||||||||||||||||||
2007-1(1) | 600 | — | 35.62 | 214 | 17 | 16 | 9 | — | 155 | 203 | 283 | 365 | ||||||||||||||||||||||||||||||||||||
2007-1(2) | 498 | — | 80.73 | 402 | 27 | 24 | 25 | — | — | — | 2 | 89 | ||||||||||||||||||||||||||||||||||||
2007-1(3) | 812 | — | 81.24 | 660 | 28 | 24 | 28 | — | — | — | — | 131 | ||||||||||||||||||||||||||||||||||||
2007-1(4) | 727 | — | 77.09 | 560 | 53 | 50 | 30 | 222 | — | — | — | 98 | ||||||||||||||||||||||||||||||||||||
2007-1 subtotal | 2,637 | — | 69.62 | 1,836 | 32 | 29 | 9 | 222 | 155 | 203 | 285 | 683 | ||||||||||||||||||||||||||||||||||||
2007-2(1) | 465 | — | 58.41 | 272 | 26 | 23 | 14 | — | 32 | 50 | 114 | 225 | ||||||||||||||||||||||||||||||||||||
2007-2(2) | 385 | 189 | 81.79 | 469 | 32 | 29 | 29 | — | — | — | 4 | 110 | ||||||||||||||||||||||||||||||||||||
2007-2(3) | — | 505 | 82.11 | 415 | 35 | 32 | 34 | — | — | — | — | 26 | ||||||||||||||||||||||||||||||||||||
2007-2(4) | 563 | 181 | 82.84 | 616 | 42 | 38 | 38 | — | — | — | — | 13 | ||||||||||||||||||||||||||||||||||||
2007-2 subtotal | 1,413 | 875 | 77.45 | 1,772 | 34 | 31 | 14 | — | 32 | 50 | 118 | 374 | ||||||||||||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total subprime securities | $ | 4,050 | $ | 21,909 | $ | 78.77 | $ | 20,447 | 37 | % | 28 | % | 9 | % | $ | 1,675 | $ | 191 | $ | 261 | $ | 551 | $ | 3,534 | ||||||||||||||||||||||||
Trading securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 124 | $ | 128 | $ | 604 | $ | 2,247 | ||||||||||||||||||||||||||||||||||||||||
UPB | 520 | 541 | 1,167 | 3,264 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (396 | ) | $ | (413 | ) | $ | (563 | ) | $ | (1,017 | ) | ||||||||||||||||||||||||||||||||||||
Available-for-sale securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 280 | $ | 844 | $ | 4,566 | $ | 14,034 | ||||||||||||||||||||||||||||||||||||||||
UPB | 324 | 1,106 | 5,939 | 17,779 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (44 | ) | $ | (262 | ) | $ | (1,373 | ) | $ | (3,745 | ) | ||||||||||||||||||||||||||||||||||||
(1) | Reported based on half-year vintages for 2005, 2006, 2007 and 2008, with each half-year vintage stratified based on credit enhancement quartiles. | |
(2) | For the third quarter 2008, we recognized net fair value losses on our investments in private-label Alt-A securities and subprime securities classified as trading of $555 million and $116 million, respectively. For the first nine months of 2008, we recognized net fair value losses on our investments in private-label Alt-A securities and subprime securities classified as trading of $1.1 billion and $630 million, respectively. | |
(3) | Gross unrealized losses as of September 30, 2008 related to our investments in private-label Alt-A securities and subprime securities classified as AFS totaled $5.4 billion and $3.3 billion, respectively. |
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(4) | Reflects the ratio of the current amount of the securities that will incur losses in the securitization structure before any losses are allocated to securities that we own, taking into consideration subordination and financial guarantees. Percentage calculated based on the quotient of the total unpaid principal balance of all credit enhancement in the form of subordination or financial guaranty of the security divided by the total unpaid principal balance of all of the tranches of collateral pools from which credit support is drawn for the security that we own. | |
(5) | Reflects amount of unpaid principal balance supported by financial guarantees from monoline financial guarantors. | |
(6) | Reflects the present value of projected losses based on the disclosed hypothetical cumulative default and loss severity rates against the outstanding collateral balance. | |
(7) | Consists of private-label securities backed by Alt-A mortgage loans that are reported in our mortgage portfolio as a component of non-Fannie Mae structured securities. | |
(8) | Consists of private-label securities backed by subprime loans that are reported in our mortgage portfolio as a component of non-Fannie Mae structured securities. Excludes guaranteed resecuritizations of private-label securities backed by subprime loans held in our mortgage portfolio totaling $7.7 billion as of September 30, 2008, which are presented in Table 28—Alt-A and Subprime Private-Label Wraps. | |
(9) | Reflects the unpaid principal balance and fair value amounts of all securities for which the expected cash flows of the security under the specified hypothetical scenario were less than the unpaid principal balance of the security as of September 30, 2008. | |
(10) | The2008-1 vintage for other Alt-A securities consists entirely of a security from a resecuritized REMIC transaction whose underlying bonds represent senior bonds from 2007 residential mortgage-backed securities transactions backed by Alt-A loans. These bonds have a weighted average credit enhancement of 5.06% as of September 30, 2008 and an original weighted average credit enhancement of 4.67%. |
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As of September 30, 2008 | ||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | Hypothetical Scenarios(5) | |||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||
Unpaid | Financial | |||||||||||||||||||||||||||||||||||
Vintage and | Principal | Average | Minimum | Guaranteed | 20d/50s | 30d/40s | 30d/50s | 50d/50s | ||||||||||||||||||||||||||||
CE Quartile(1) | Balance(2) | Current(3) | Original(3) | Current(3) | Amount(4) | NPV | NPV | NPV | NPV | |||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Alt-A wraps: | ||||||||||||||||||||||||||||||||||||
2005-1(1) | $ | — | — | % | — | % | — | % | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
2005-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(4) | 230 | 6 | 4 | 6 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1 subtotal | 230 | 6 | 4 | 6 | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(4) | 301 | 9 | 7 | 9 | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1 subtotal | 301 | 9 | 7 | 9 | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total Alt-A wraps | $ | 531 | 8 | % | 6 | % | 6 | % | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
As of September 30, 2008 | ||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | Hypothetical Scenarios(5) | |||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||
Unpaid | Financial | |||||||||||||||||||||||||||||||||||
Vintage and | Principal | Average | Minimum | Guaranteed | 50d/60s | 60d/50s | 60d/60s | 70d/70s | ||||||||||||||||||||||||||||
CE Quartile(1) | Balance(2) | Current(3) | Original(3) | Current(3) | Amount(4) | NPV | NPV | NPV | NPV | |||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Subprime wraps: | ||||||||||||||||||||||||||||||||||||
2004 and prior | $ | 796 | 32 | % | 13 | % | 11 | % | $ | 5 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
2005-1(1) | 107 | 10 | 3 | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(2) | 24 | 60 | 13 | 60 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(3) | 240 | 61 | 20 | 61 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(4) | 145 | 74 | 22 | 66 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1 subtotal | 516 | 54 | 17 | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-2(1) | 246 | 36 | 25 | 24 | — | 1 | 3 | 8 | 26 | |||||||||||||||||||||||||||
2005-2(2) | 800 | 46 | 31 | 46 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-2(3) | 554 | 52 | 26 | 47 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-2(4) | 553 | 81 | 58 | 56 | 195 | — | — | — | — | |||||||||||||||||||||||||||
2005-2 subtotal | 2,153 | 55 | 36 | 24 | 195 | 1 | 3 | 8 | 26 | |||||||||||||||||||||||||||
2007-1(1) | 1,465 | 19 | 17 | 19 | — | — | 25 | 130 | 406 | |||||||||||||||||||||||||||
2007-1(2) | 1,702 | 23 | 20 | 22 | — | — | — | 54 | 376 | |||||||||||||||||||||||||||
2007-1(3) | 1,772 | 26 | 22 | 24 | — | — | — | 14 | 343 | |||||||||||||||||||||||||||
2007-1(4) | 1,723 | 33 | 29 | 28 | — | — | — | 29 | 274 | |||||||||||||||||||||||||||
2007-1 subtotal | 6,662 | 25 | 22 | 19 | — | — | 25 | 227 | 1,399 | |||||||||||||||||||||||||||
2007-2(1) | 277 | 28 | 24 | 25 | — | — | — | 8 | 60 | |||||||||||||||||||||||||||
2007-2(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-2(3) | 419 | 33 | 30 | 33 | — | — | — | 10 | 75 | |||||||||||||||||||||||||||
2007-2(4) | 469 | 34 | 30 | 34 | — | — | — | — | 50 | |||||||||||||||||||||||||||
2007-2 subtotal | 1,165 | 32 | 29 | 25 | — | — | — | 18 | 185 | |||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total subprime wraps | $ | 11,292 | 34 | % | 25 | % | — | % | $ | 200 | $ | 1 | $ | 28 | $ | 253 | $ | 1,610 | ||||||||||||||||||
Total Alt-A and subprime wraps | $ | 11,823 | 32 | % | 24 | % | — | % | $ | 200 | $ | 1 | $ | 28 | $ | 253 | $ | 1,610 | ||||||||||||||||||
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(1) | Reported based on half-year vintages for 2005, 2006, 2007 and 2008, with each half-year vintage stratified based on credit enhancement quartiles. | |
(2) | For the third quarter and first nine months of 2008, we recognized net fair value losses of $60 million and net fair value gains of $316 million, respectively, on our investments in subprime private-label wraps classified as trading. We did not recognize any fair value gains or losses on our investments in Alt-A private-label wraps for the third quarter and first nine months of 2008. Gross unrealized losses related to our investments in subprime private-label wraps classified as AFS totaled $10 million as of September 30, 2008. We did not have any gross unrealized gains or losses on our investments in Alt-A private-label wraps as of September 30, 2008. | |
(3) | Reflects the percentage of the current amount of the securities that will incur losses in the securitization structure before any losses are allocated to securities that we own, taking into consideration subordination and financial guarantees. Percentage calculated based on the quotient of the total unpaid principal balance of all credit enhancement in the form of subordination or financial guaranty of the security divided by the total unpaid principal balance of all of the tranches of collateral pools from which credit support is drawn for the security that we own. | |
(4) | Reflects amount of unpaid principal balance supported by financial guarantees from monoline financial guarantors. | |
(5) | Reflects the present value of projected losses based on the disclosed hypothetical cumulative default and loss severity rates against the outstanding collateral balance. |
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For the | ||||
Nine Months | ||||
Ended | ||||
September 30, | ||||
2008 | ||||
(Dollars in millions) | ||||
Net derivative liability as of December 31, 2007(2) | $ | (1,321 | ) | |
Effect of cash payments: | ||||
Fair value at inception of contracts entered into during the period(3) | 1,824 | |||
Fair value at date of termination of contracts settled during the period(4) | (1,246 | ) | ||
Net collateral posted | 5,271 | |||
Periodic net cash contractual interest payments (receipts)(5) | (1,138 | ) | ||
Total cash payments (receipts) | 4,711 | |||
Income statement impact of recognized amounts: | ||||
Periodic net contractual interest income (expense) accruals on interest rate swaps | (1,011 | ) | ||
Net change in fair value of terminated derivative contracts from end of prior year to date of termination(6) | (275 | ) | ||
Net change in fair value of outstanding derivative contracts, including derivative contracts entered into during the period | (2,528 | ) | ||
Derivatives fair value losses, net(7) | (3,814 | ) | ||
Net derivative liability as of September 30, 2008(2) | $ | (424 | ) | |
(1) | Excludes mortgage commitments. | |
(2) | Reflects the net amount of “Derivative assets at fair value” and “Derivative liabilities at fair value” recorded in our condensed consolidated balance sheets, excluding mortgage commitments, and reflects our adoption of FASB Staff PositionNo. 39-1,Amendment of FASB Interpretation No. 39. | |
(3) | Cash payments made to purchase derivative option contracts (purchased options premiums) increase the derivative asset recorded in the condensed consolidated balance sheets. Primarily includes upfront premiums paid or received on option contracts. Also includes upfront cash paid or received on other derivative contracts. | |
(4) | Cash payments to terminate and/or sell derivative contracts reduce the derivative liability recorded in the condensed consolidated balance sheets. Primarily represents cash paid (received) upon termination of derivative contracts. | |
(5) | We accrue interest on our interest rate swap contracts based on the contractual terms and recognize the accrual as an increase to the net derivative liability recorded in the condensed consolidated balance sheets. The corresponding offsetting amount is recorded as an expense and included as a component of derivatives fair value losses in the condensed consolidated statements of operations. Periodic interest payments on our interest rate swap contracts reduce the derivative liability. | |
(6) | Includes a loss of approximately $104 million related to the termination of outstanding derivatives contracts with Lehman Brothers Special Financing Inc., as a result of the bankruptcy of its parent-guarantor, Lehman Brothers Holdings Inc. | |
(7) | Reflects net derivatives fair value losses recognized in the condensed consolidated statements of operations, excluding mortgage commitments. |
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As of September 30, 2008 | As of December 31, 2007 | |||||||||||||||||||||||
GAAP | GAAP | |||||||||||||||||||||||
Carrying | Fair Value | Estimated | Carrying | Fair Value | Estimated | |||||||||||||||||||
Value | Adjustment(1) | Fair Value | Value | Adjustment(1) | Fair Value(2) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 36,489 | $ | — | $ | 36,489 | (3) | $ | 4,502 | $ | — | $ | 4,502 | (3) | ||||||||||
Federal funds sold and securities purchased under agreements to resell | 33,420 | (31 | ) | 33,389 | (3) | 49,041 | — | 49,041 | (3) | |||||||||||||||
Trading securities | 98,671 | — | 98,671 | (3) | 63,956 | — | 63,956 | (3) | ||||||||||||||||
Available-for-sale securities | 262,054 | — | 262,054 | (3) | 293,557 | — | 293,557 | (3) | ||||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||
Mortgage loans held for sale | 7,908 | 116 | 8,024 | (4) | 7,008 | 75 | 7,083 | (4) | ||||||||||||||||
Mortgage loans held for investment, net of allowance for loan losses | 397,834 | (4,151 | ) | 393,683 | (4) | 396,516 | 70 | 396,586 | (4) | |||||||||||||||
Guaranty assets of mortgage loans held in portfolio | — | 3,487 | 3,487 | (4)(5) | — | 3,983 | 3,983 | (4)(5) | ||||||||||||||||
Guaranty obligations of mortgage loans held in portfolio | — | (10,001 | ) | (10,001 | )(4)(5) | — | (4,747 | ) | (4,747 | )(4)(5) | ||||||||||||||
Total mortgage loans | 405,742 | (10,549 | ) | 395,193 | (3)(4) | 403,524 | (619 | ) | 402,905 | (3)(4) | ||||||||||||||
Advances to lenders | 9,605 | (184 | ) | 9,421 | (3) | 12,377 | (328 | ) | 12,049 | (3) | ||||||||||||||
Derivative assets at fair value | 1,099 | — | 1,099 | (3) | 885 | — | 885 | (3) | ||||||||||||||||
Guaranty assets andbuy-ups, net | 11,318 | 3,843 | 15,161 | (3)(5) | 10,610 | 3,648 | 14,258 | (3)(5) | ||||||||||||||||
Total financial assets | 858,398 | (6,921 | ) | 851,477 | (3) | 838,452 | 2,701 | 841,153 | (3) | |||||||||||||||
Master servicing assets and credit enhancements | 1,582 | 5,957 | 7,539 | (5)(6) | 1,783 | 2,844 | 4,627 | (5)(6) | ||||||||||||||||
Other assets | 36,635 | 82 | 36,717 | (6)(7) | 39,154 | 5,418 | 44,572 | (6)(7) | ||||||||||||||||
Total assets | $ | 896,615 | $ | (882 | ) | $ | 895,733 | $ | 879,389 | $ | 10,963 | $ | 890,352 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 1,357 | $ | 20 | $ | 1,377 | (3) | $ | 869 | $ | — | $ | 869 | (3) | ||||||||||
Short-term debt | 280,382 | (8) | 31 | 280,413 | (3) | 234,160 | 208 | 234,368 | (3) | |||||||||||||||
Long-term debt | 550,928 | (8) | 11,701 | 562,629 | (3) | 562,139 | 18,194 | 580,333 | (3) | |||||||||||||||
Derivative liabilities at fair value | 1,305 | — | 1,305 | (3) | 2,217 | — | 2,217 | (3) | ||||||||||||||||
Guaranty obligations | 16,816 | 58,097 | 74,913 | (3) | 15,393 | 5,156 | 20,549 | (3) | ||||||||||||||||
Total financial liabilities | 850,788 | 69,849 | 920,637 | (3) | 814,778 | 23,558 | 838,336 | (3) | ||||||||||||||||
Other liabilities | 36,392 | (15,033 | ) | 21,359 | (9) | 20,493 | (4,383 | ) | 16,110 | (9) | ||||||||||||||
Total liabilities | 887,180 | 54,816 | 941,996 | 835,271 | 19,175 | 854,446 | ||||||||||||||||||
Minority interests in consolidated subsidiaries | 159 | — | 159 | 107 | — | 107 | ||||||||||||||||||
Stockholders’ Equity (Deficit): | ||||||||||||||||||||||||
Senior preferred | 1,000 | — | 1,000 | (10) | — | — | — | |||||||||||||||||
Preferred | 21,725 | (20,255 | ) | 1,470 | (11) | 16,913 | (1,565 | ) | 15,348 | (11) | ||||||||||||||
Common | (13,449 | ) | (35,443 | ) | (48,892 | )(12) | 27,098 | (6,647 | ) | 20,451 | (12) | |||||||||||||
Total stockholders’ equity (deficit)/non-GAAP fair value of net assets | $ | 9,276 | $ | (55,698 | ) | $ | (46,422 | ) | $ | 44,011 | $ | (8,212 | ) | $ | 35,799 | |||||||||
Total liabilities and stockholders’ equity | $ | 896,615 | $ | (882 | ) | $ | 895,733 | $ | 879,389 | $ | 10,963 | $ | 890,352 | |||||||||||
(1) | Each of the amounts listed as a “fair value adjustment” represents the difference between the carrying value included in our GAAP condensed consolidated balance sheets and our best judgment of the estimated fair value of the listed item. | |
(2) | Certain prior period amounts have been reclassified to conform to the current period presentation. | |
(3) | We determined the estimated fair value of these financial instruments in accordance with the fair value guidelines outlined in SFAS 157, as described in “Notes to Condensed Consolidated Financial Statements—Note 18, Fair Value of Financial Instruments.” In Note 18, we also disclose the carrying value and estimated fair value of our total financial assets and total financial liabilities as well as discuss the methodologies and assumptions we use in estimating the fair value of our financial instruments. |
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(4) | For business segment reporting purposes, we allocate intra-company guaranty fee income to our Single-Family and HCD businesses for managing the credit risk on mortgage loans held in portfolio by our Capital Markets group and charge a corresponding fee to our Capital Markets group. In computing this intra-company allocation, we disaggregate the total mortgage loans reported in our GAAP condensed consolidated balance sheets, which consists of “Mortgage loans held for sale” and “Mortgage loans held for investment, net of allowance for loan losses” into components that separately reflect the value associated with credit risk, which is managed by our guaranty businesses, and the interest rate risk, which is managed by our capital markets business. We report the estimated fair value of the credit risk components separately in our supplemental non-GAAP consolidated fair value balance sheets as “Guaranty assets of mortgage loans held in portfolio” and “Guaranty obligations of mortgage loans held in portfolio.” We report the estimated fair value of the interest rate risk components in our supplemental non-GAAP consolidated fair value balance sheets as “Mortgage loans held for sale” and “Mortgage loans held for investment, net of allowance for loan losses.” Taken together, these four components represent the estimated fair value of the total mortgage loans reported in our GAAP condensed consolidated balance sheets. We believe this presentation provides transparency into the components of the fair value of the mortgage loans associated with the activities of our guaranty businesses and the components of the activities of our capital markets business, which is consistent with the way we manage risks and allocate revenues and expenses for segment reporting purposes. While the carrying values and estimated fair values of the individual line items may differ from the amounts presented in Note 18 of the condensed consolidated financial statements, the combined amounts together equal the carrying value and estimated fair value amounts of total mortgage loans in Note 18. | |
(5) | In our GAAP condensed consolidated balance sheets, we report the guaranty assets associated with our outstanding Fannie Mae MBS and other guarantees as a separate line item and includebuy-ups, master servicing assets and credit enhancements associated with our guaranty assets in “Other assets.” The GAAP carrying value of our guaranty assets reflects only those guaranty arrangements entered into subsequent to our adoption of FIN No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FIN No. 34)(“FIN 45”), on January 1, 2003. On a GAAP basis, our guaranty assets totaled $10.2 billion and $9.7 billion as of September 30, 2008 and December 31, 2007, respectively. The associatedbuy-ups totaled $1.1 billion and $944 million as of September 30, 2008 and December 31, 2007, respectively. In our non-GAAP supplemental consolidated fair value balance sheets, we also disclose the estimated guaranty assets and obligations related to mortgage loans held in our portfolio. The aggregate estimated fair value of the guaranty asset-related components totaled $16.2 billion and $18.1 billion as of September 30, 2008 and December 31, 2007, respectively. These components represent the sum of the following line items in this table: (i) Guaranty assets of mortgage loans held in portfolio; (ii) Guaranty obligations of mortgage loans held in portfolio, (iii) Guaranty assets andbuy-ups; and (iv) Master servicing assets and credit enhancements. See “Critical Accounting Policies and Estimates—Fair Value of Financial Instruments—Change in Measuring the Fair Value of Guaranty Obligations.” | |
(6) | The line items “Master servicing assets and credit enhancements” and “Other assets” together consist of the assets presented on the following five line items in our GAAP condensed consolidated balance sheets: (i) Accrued interest receivable; (ii) Acquired property, net; (iii) Deferred tax assets, net of a valuation allowance; (iv) Partnership investments; and (v) Other assets. The carrying value of these items in our GAAP condensed consolidated balance sheets together totaled $39.3 billion and $41.9 billion as of September 30, 2008 and December 31, 2007, respectively. We deduct the carrying value of thebuy-ups associated with our guaranty obligation, which totaled $1.1 billion and $944 million as of September 30, 2008 and December 31, 2007, respectively, from “Other assets” reported in our GAAP condensed consolidated balance sheets becausebuy-ups are a financial instrument that we combine with guaranty assets in our disclosure in Note 18. We have estimated the fair value of master servicing assets and credit enhancements based on our fair value methodologies discussed in Note 18. | |
(7) | With the exception of partnership investments and deferred tax assets, the GAAP carrying values of other assets generally approximate fair value. While we have included partnership investments at their carrying value in each of the non-GAAP supplemental consolidated fair value balance sheets, the fair values of these items are generally different from their GAAP carrying values, potentially materially. Our LIHTC partnership investments had a carrying value of $6.7 billion and $8.1 billion and an estimated fair value of $7.2 billion and $9.3 billion as of September 30, 2008 and December 31, 2007, respectively. We assume that certain other assets, consisting primarily of prepaid expenses, have no fair value. Our GAAP-basis deferred tax assets are described in “Notes to Condensed Consolidated Financial Statements—Note 11, Income Taxes.” In addition to the GAAP-basis deferred income tax amounts, net of a valuation allowance, included in “Other assets,” we previously included in our non-GAAP supplemental consolidated fair value balance sheets the estimated income tax effect related to the fair value adjustments made to derive the fair value of our net assets. Because our adjusted deferred income taxes are a net asset in each year, the amounts are included in our non-GAAP fair value balance sheets as a component of other assets. As discussed in Note 11, we established a deferred tax asset valuation allowance of $21.4 billion in the third quarter of 2008. Therefore, in calculating the fair value of our net assets as of September 30, 2008, we eliminated the tax effect of deferred tax benefits we would have otherwise recorded had we not concluded that it was necessary to establish a valuation allowance. Any remaining deferred tax assets relate to amounts not subject to the deferred tax asset valuation allowance. | |
(8) | Includes certain short-term debt and long-term debt instruments reported in our GAAP condensed consolidated balance sheet at fair value as of September 30, 2008 of $4.5 billion and $21.7 billion, respectively. | |
(9) | The line item “Other liabilities” consists of the liabilities presented on the following four line items in our GAAP condensed consolidated balance sheets: (i) Accrued interest payable; (ii) Reserve for guaranty losses; (iii) Partnership |
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liabilities; and (iv) Other liabilities. The carrying value of these items in our GAAP condensed consolidated balance sheets together totaled $36.4 billion and $20.5 billion as of September 30, 2008 and December 31, 2007, respectively. The GAAP carrying values of these other liabilities generally approximate fair value. We assume that certain other liabilities, such as deferred revenues, have no fair value. Although we report the “Reserve for guaranty losses” as a separate line item on our condensed consolidated balance sheets, it is incorporated into and reported as part of the fair value of our guaranty obligations in our non-GAAP supplemental condensed consolidated fair value balance sheets. | ||
(10) | “Senior preferred stockholders’ equity” is reflected in our non-GAAP supplemental condensed consolidated fair value balance sheets at its aggregate liquidation preference, which is the estimated fair value. | |
(11) | “Preferred stockholders’ equity” is reflected in our non-GAAP supplemental condensed consolidated fair value balance sheets at the estimated fair value. | |
(12) | “Common stockholders’ equity (deficit)” consists of the stockholders’ equity components presented on the following five line items in our GAAP condensed consolidated balance sheets: (i) Common stock; (ii) Additional paid-in capital; (iii) Retained earnings; (iv) Accumulated other comprehensive loss; and (v) Treasury stock, at cost. “Common stockholders’ equity (deficit)” represents the residual of the excess (deficit) of the estimated fair value of total assets over the estimated fair value of total liabilities, after taking into consideration senior preferred and preferred stockholders’ equity and minority interest in consolidated subsidiaries. |
For the | ||||
Nine Months | ||||
Ended | ||||
September 30, | ||||
2008 | ||||
(Dollars in millions) | ||||
Balance as of December 31, 2007, as reported | $ | 35,799 | ||
Effect of change in measuring fair value of guaranty obligations(1) | 1,558 | |||
Balance as of December 31, 2007, as adjusted to include effect of change in measuring fair value of guaranty obligations | 37,357 | |||
Capital transactions:(2) | ||||
Common dividends, common stock repurchases and issuances, net | 1,957 | |||
Preferred dividends and issuances, net | 3,647 | |||
Capital transactions, net | 5,604 | |||
Change in estimated fair value of net assets, excluding effect of capital transactions | (89,383 | ) | ||
Decrease in estimated fair value of net assets, net | (83,779 | ) | ||
Balance as of September 30, 2008(3) | $ | (46,422 | ) | |
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(1) | Represents the estimated after-tax impact of the change in our approach to measuring the fair value of our guaranty obligations as part of our January 1, 2008 implementation of SFAS 157. Amount reflects the difference of $2.3 billion ($1.6 billion after-tax) between the estimated fair value of our guaranty obligations based on our current valuation approach of $18.2 billion as of December 31, 2007, and the previously reported fair value of our guaranty obligations of $20.5 billion as of December 31, 2007. | |
(2) | Represents net capital transactions, which are reflected in the condensed consolidated statements of changes in stockholders’ equity. The issuance of senior preferred stock and warrant to purchase common stock to Treasury did not have an impact to stockholders’ equity as displayed in our condensed consolidated statement of changes in stockholders’ equity. | |
(3) | Represents estimated fair value of net assets (net of tax effect) presented in Table 30: Supplemental Non-GAAP Consolidated Fair Value Balance Sheets. |
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As of | ||||||||||||
September 30, | December 31, | |||||||||||
2008 | 2007 | Change | ||||||||||
10-year U.S. Treasury note yield | 3.83 | % | 4.03 | % | (0.20 | )% | ||||||
Implied volatility(2) | 24.7 | % | 20.4 | % | 4.3 | % | ||||||
30-year Fannie Mae MBS par coupon rate | 5.65 | % | 5.51 | % | 0.14 | % | ||||||
Barclays Capital U.S. MBS Index OAS (in basis points) over LIBOR yield curve(3) | 53.2 | bp | 26.2 | bp | 27.0 | bp | ||||||
Barclays Capital U.S. Agency Debt Index OAS (in basis points) over LIBOR yield curve(3) | (5.2 | ) | (20.2 | ) | 15.0 |
(1) | Information obtained from Barclays Capital and Bloomberg. | |
(2) | Implied volatility for an interest rate swaption with a3-year option on a10-year final maturity. | |
(3) | Data previously obtained from Lehman Brothers indices, which were incorporated into the Barclays Capital indices effective October 31, 2008. |
• | principal and interest payments received on mortgage loans, mortgage-related securities and non-mortgage securities we own; | |
• | borrowings under secured and unsecured intraday funding lines of credit we have established with several large financial institutions; | |
• | sales of mortgage loans, mortgage-related securities and non-mortgage assets; |
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• | borrowings against mortgage-related securities and other investment securities we hold pursuant to repurchase agreements and loan agreements; | |
• | guaranty fees earned on Fannie Mae MBS; | |
• | mortgage insurance counterparty payments; and | |
• | net receipts on derivative instruments. |
• | the repayment of matured, paid off and repurchased debt; | |
• | the purchase of mortgage loans, mortgage-related securities and other investments; | |
• | interest payments on outstanding debt; | |
• | net payments on derivative instruments; | |
• | the pledging of collateral under derivative instruments; | |
• | administrative expenses; | |
• | the payment of federal income taxes; and | |
• | losses incurred in connection with our Fannie Mae MBS guaranty obligations. |
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• | Benchmark Securities® . Through our Benchmark Securities program, we sell large, regularly scheduled issues of unsecured debt. The Benchmark Securities program includes: |
— | Benchmark Billswhich have maturities of up to one year. On a weekly basis, we auction three-month and six-month Benchmark Bills with a minimum issue size of $1.0 billion. On a monthly basis, we auction one-year Benchmark Bills with a minimum issue size of $1.0 billion. | |
— | Benchmark Noteswhich have maturities ranging between two and ten years. We typically sell one or more new, fixed-rate issues of Benchmark Notes each month through dealer syndicates. Each issue has a minimum size of $3.0 billion. |
• | Discount Notes. We issue short-term debt securities called Discount Notes with maturities ranging from overnight to 360 days from the date of issuance. Investors purchase these notes at a discount to the principal amount and receive the principal amount when the notes mature. | |
• | Medium-Term Notes. We issue medium-term notes (“MTNs”) with a wide range of maturities, interest rates and call features. The specific terms of our MTN issuances are determined through individually-negotiated transactions with broker-dealers. Our MTNs are often callable prior to maturity. We issue both fixed-rate and floating-rate securities, as well as various types of structured notes that combine features of traditional debt with features of other capital market instruments. |
• | Subordinated Debt. Pursuant to agreements with OFHEO, from time to time we have issued subordinated debt. Information relating to our subordinated debt is provided under “Capital Management—Capital Activity—Subordinated Debt.” Pursuant to the senior preferred stock purchase agreement, we are prohibited from issuing additional subordinated debt without the consent of Treasury. |
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September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Maturities | Outstanding | Rate | Maturities | Outstanding | Rate | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | — | $ | 1,357 | 2.04 | % | — | $ | 869 | 3.48 | % | ||||||||||||||
Short-term debt:(2) | ||||||||||||||||||||||||
Fixed rate short-term debt: | ||||||||||||||||||||||||
Discount notes | — | $ | 275,351 | 2.48 | % | — | $ | 233,258 | 4.45 | % | ||||||||||||||
Foreign exchange discount notes | — | 304 | 4.20 | — | 301 | 4.28 | ||||||||||||||||||
Other short-term debt | — | 232 | 2.74 | — | 601 | 4.37 | ||||||||||||||||||
Total fixed rate short-term debt | 275,887 | 2.48 | 234,160 | 4.45 | ||||||||||||||||||||
Floating-rate short-term debt(4) | — | 4,495 | 2.08 | — | — | — | ||||||||||||||||||
Total short-term debt | $ | 280,382 | 2.48 | % | $ | 234,160 | 4.45 | % | ||||||||||||||||
Long-term debt:(3) | ||||||||||||||||||||||||
Senior fixed rate long-term debt: | ||||||||||||||||||||||||
Benchmark notes and bonds | 2008-2030 | $ | 254,620 | 4.92 | % | 2008-2030 | $ | 256,538 | 5.12 | % | ||||||||||||||
Medium-term notes | 2008-2018 | 159,334 | 4.34 | 2008-2017 | 202,315 | 5.06 | ||||||||||||||||||
Foreign exchange notes and bonds | 2009-2028 | 1,678 | 4.83 | 2008-2028 | 2,259 | 3.30 | ||||||||||||||||||
Other long-term debt(4) | 2008-2038 | 72,146 | 5.97 | 2008-2038 | 69,717 | 6.01 | ||||||||||||||||||
Total senior fixed rate debt | 487,778 | 4.89 | 530,829 | 5.20 | ||||||||||||||||||||
Senior floating rate long-term debt: | ||||||||||||||||||||||||
Medium-term notes(4) | 2008-2017 | 45,997 | 2.43 | 2008-2017 | 12,676 | 5.87 | ||||||||||||||||||
Other long-term debt(4) | 2017-2037 | 1,090 | 6.50 | 2017-2037 | 1,024 | 7.76 | ||||||||||||||||||
Total senior floating rate debt | 47,087 | 2.53 | 13,700 | 6.01 | ||||||||||||||||||||
Subordinated fixed rate long-term debt: | ||||||||||||||||||||||||
Medium-term notes | 2011 | 2,500 | 6.24 | 2008-2011 | 3,500 | 5.62 | ||||||||||||||||||
Other subordinated debt | 2012-2019 | 7,067 | 6.56 | 2012-2019 | 7,524 | 6.39 | ||||||||||||||||||
Total subordinated fixed rate long-term debt | 9,567 | 6.48 | 11,024 | 6.14 | ||||||||||||||||||||
Debt from consolidations | 2008-2039 | 6,496 | 5.81 | 2008-2039 | 6,586 | 5.95 | ||||||||||||||||||
Total long-term debt | $ | 550,928 | 4.72 | % | $ | 562,139 | 5.25 | % | ||||||||||||||||
Outstanding callable debt(5) | $ | 198,828 | 4.81 | % | $ | 215,639 | 5.35 | % |
(1) | Outstanding debt amounts and weighted average interest rates reported in this table include the effect of unamortized discounts, premiums and other cost basis adjustments. Reported amounts as of September 30, 2008 include fair value gains and losses associated with debt that we elected to carry at fair value pursuant to our January 1, 2008 adoption of SFAS 159. The unpaid principal balance of outstanding debt, which excludes unamortized discounts, premiums and other cost basis adjustments and amounts related to debt from consolidation, totaled $841.7 billion and $804.3 billion as September 30, 2008 and December 31, 2007, respectively. | |
(2) | Short-term debt consists of borrowings with an original contractual maturity of one year or less. | |
(3) | Long-term debt consists of borrowings with an original contractual maturity of greater than one year. Included is the current portion of long-term debt (that is, the portion of our long-term debt that is due within one year), which totaled $82.8 billion as of September 30, 2008. Reported amounts include net discount and other cost basis adjustments of $14.6 billion and $11.6 billion as of September 30, 2008 and December 31, 2007, respectively. The unpaid principal balance of long-term debt, which excludes unamortized discounts, premiums and other cost basis adjustments and amounts related to debt from consolidation, totaled $559.1 billion and $567.2 billion as September 30, 2008 and December 31, 2007, respectively. | |
(4) | Includes a portion of structured debt instruments that are reported at fair value. | |
(5) | Consists of both short-term and long-term callable debt that can be paid off in whole or in part at our option at any time on or after a specified date. |
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(1) Includes discounts, premiums and other cost basis adjustments of $1.5 billion as of September 30, 2008. Excludes Federal funds purchased and securities sold under agreements to repurchase. |
(1) Includes discounts, premiums and other cost basis adjustments of $14.6 billion as of September 30, 2008. Excludes $6.5 billion in debt from consolidations. |
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For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Issued during the period:(1) | ||||||||||||||||
Short-term:(2) | ||||||||||||||||
Amount:(3) | $ | 382,460 | $ | 341,033 | $ | 1,223,344 | $ | 1,124,200 | ||||||||
Weighted average interest rate | 2.25 | % | 4.91 | % | 2.42 | % | 5.07 | % | ||||||||
Long-term:(4) | ||||||||||||||||
Amount:(3) | $ | 49,744 | $ | 37,462 | $ | 221,611 | $ | 150,753 | ||||||||
Weighted average interest rate | 3.51 | % | 5.58 | % | 3.79 | % | 5.57 | % | ||||||||
Total issued: | ||||||||||||||||
Amount:(3) | $ | 432,204 | $ | 378,495 | $ | 1,444,955 | $ | 1,274,953 | ||||||||
Weighted average interest rate | 2.40 | % | 4.98 | % | 2.63 | % | 5.13 | % | ||||||||
Paid off during the period:(1)(5) | ||||||||||||||||
Short-term:(2) | ||||||||||||||||
Amount:(3) | $ | 341,151 | $ | 351,130 | $ | 1,177,198 | $ | 1,135,352 | ||||||||
Weighted average interest rate | 2.19 | % | 4.97 | % | 2.81 | % | 5.07 | % | ||||||||
Long-term:(4) | ||||||||||||||||
Amount:(3) | $ | 57,911 | $ | 45,725 | $ | 229,780 | $ | 142,973 | ||||||||
Weighted average interest rate | 4.88 | % | 4.68 | % | 4.97 | % | 4.58 | % | ||||||||
Total paid off: | ||||||||||||||||
Amount:(3) | $ | 399,062 | $ | 396,855 | $ | 1,406,978 | $ | 1,278,325 | ||||||||
Weighted average interest rate | 2.58 | % | 4.93 | % | 3.16 | % | 5.02 | % |
(1) | Excludes debt activity resulting from consolidations and intraday loans. | |
(2) | Short-term debt consists of borrowings with an original contractual maturity of one year or less. Includes Federal funds purchased and securities sold under agreements to repurchase. |
(3) | Represents the face amount at issuance or redemption. | |
(4) | Long-term debt consists of borrowings with an original contractual maturity of greater than one year. | |
(5) | Represents all payments on debt, including regularly scheduled principal payments, payments at maturity, payments as the result of a call and payments for any other repurchases. |
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• | Standard & Poor’s. On August 26, 2008, Standard & Poor’s affirmed our senior debt ratings with stable outlooks. On August 11, 2008, Standard & Poor’s lowered our subordinated debt and preferred stock ratings from “AA-” to “A-”, and subsequently lowered these ratings to “BBB+” and “BBB-”, respectively, on August 26, 2008. On August 11, 2008, Standard & Poor’s lowered our risk to the government rating from “A+” to “A”, and subsequently lowered this rating to “A-” on August 26, 2008. All the ratings lowered on August 26 were also placed on CreditWatch Negative. |
• | Moody’s. On August 22, 2008, Moody’s affirmed our senior debt ratings with stable outlooks; downgraded our preferred stock rating from “A1” to “Baa3”; affirmed our subordinated debt rating but changed the outlook from stable to negative; and downgraded our bank financial strength rating from “B− ” to “D+”. Both the preferred stock rating and bank financial strength rating remained on review for further downgrade. |
• | Fitch. On September 2, 2008, Fitch downgraded our preferred stock rating from “A+” to “BBB-” and the rating remained on Rating Watch Negative. All other ratings were affirmed. |
• | Standard & Poor’s. On September 7, 2008, Standard & Poor’s affirmed our senior debt ratings with stable outlooks; lowered our preferred stock rating from “BBB-” to “C” and removed it from CreditWatch Negative; and revised the “BBB+” subordinated debt rating from CreditWatch Negative to CreditWatch Positive. On September 7, 2008, Standard & Poor’s also lowered our risk to the government rating from “A− ” to “R” and then withdrew the rating. On November 5, 2008, Standard & Poor’s raised our subordinated debt rating from “BBB+” to “A” with a stable outlook and removed the rating from Credit Watch Positive. |
• | Moody’s. On September 7, 2008, Moody’s affirmed our senior debt and subordinated debt ratings with stable outlooks; lowered the preferred stock rating from “Baa3” to “Ca” with stable outlook; and lowered the bank financial strength rating from “D+” to “E+” with stable outlook. |
• | Fitch. On September 7, 2008, Fitch affirmed our senior debt ratings; affirmed our long term Issuer Default Rating at “AAA” with a stable outlook; and downgraded our preferred stock rating from “BBB-” to “C/RR6” while removing it from Rating Watch Negative. Fitch initially placed our subordinated debt on Rating Watch Evolving, and on September 12, 2008 they affirmed the “AA-” rating and removed it from that designation. |
Senior | Senior | Benchmark | Bank | |||||||||||||||||
Long-Term | Short-Term | Subordinated | Preferred | Financial | ||||||||||||||||
Unsecured Debt | Unsecured Debt | Debt | Stock | Strength(1) | ||||||||||||||||
Standard & Poor’s | AAA | A-1+ | A | C | — | |||||||||||||||
Moody’s | Aaa | P-1 | Aa2 | Ca | E+ | |||||||||||||||
Fitch | AAA | F1+ | AA- | C/RR6 | — |
(1) | Pursuant to our September 2005 agreement with OFHEO, we agreed to seek to obtain a rating that assesses the independent financial strength or “risk to the government” of Fannie Mae operating under its authorizing legislation but without assuming a cash infusion or extraordinary support of the government in the event of a financial crisis. In September 2008, Standard & Poor’s withdrew our risk to the government rating and Moody’s downgraded our bank financial strength rating from “D+” to “E+”. |
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• | daily monitoring and reporting of our liquidity position; | |
• | daily monitoring of market and economic factors that may impact our liquidity; | |
• | daily forecasting of our ability to meet our liquidity needs over a90-day period without relying upon the issuance of long-term or short-term unsecured debt securities; | |
• | daily forecasting and statistical analysis of our daily cash needs over a 21 business day period; | |
• | routine operational testing of our ability to rely upon identified sources of liquidity, such as mortgage repurchase agreements; | |
• | periodic reporting to management and the conservator regarding our liquidity position; and | |
• | periodic review and testing of our liquidity management controls by our Internal Audit department. |
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• | Our cash and other investments portfolio; and | |
• | Our unencumbered mortgage portfolio. |
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Cash and cash equivalents | $ | 36,301 | $ | 3,941 | ||||
Federal funds sold and securities purchased under agreements to resell | 33,420 | 49,041 | ||||||
Non-mortgage-related securities: | ||||||||
Asset-backed securities | 11,929 | 15,511 | ||||||
Corporate debt securities | 7,657 | 13,515 | ||||||
Other | 2,188 | 9,089 | ||||||
Total | $ | 91,495 | $ | 91,097 | ||||
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• | Accelerating safety and soundness weaknesses, especially with regard to credit risk, earnings outlook and capitalization; |
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• | Continued and substantial deterioration in equity, debt and MBS market conditions; | |
• | Our current and projected financial performance and condition, as reflected in our second quarter financial report and our ongoing examination by FHFA; | |
• | Our inability to raise capital or to issue debt according to normal practices and prices; | |
• | Our critical importance in supporting the country’s residential mortgage market; and | |
• | Concerns that a growing proportion of our statutory core capital consisted of intangible assets. |
As of | ||||||||
September 30, | December 31, | |||||||
2008(1) | 2007 | |||||||
(Dollars in millions) | ||||||||
Core capital(2) | $ | 16,645 | $ | 45,373 | ||||
Statutory minimum capital(3) | 33,024 | 31,927 | ||||||
Surplus (deficit) of core capital over statutory minimum capital | $ | (16,379 | ) | $ | 13,446 | |||
Surplus (deficit) of core capital percentage over statutory minimum capital | (49.6 | )% | 42.1 | % |
(1) | Amounts as of September 30, 2008 represent estimates that have not been submitted to FHFA. Amounts as of December 31, 2007 represent FHFA’s announced capital classification measures. | |
(2) | The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings. Core capital excludes accumulated other comprehensive income (loss). | |
(3) | Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under certain circumstances (See 12 CFR 1750.4 for existing adjustments made by the Director). |
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• | issuing $7.4 billion in equity securities; | |
• | managing the size of our investment portfolio; | |
• | selling assets to reduce the amount of capital that we were required to hold and to realize investment gains; | |
• | reducing our common stock dividend; | |
• | electing not to purchase mortgage assets; | |
• | slowing the growth of our guaranty business; | |
• | increasing our guaranty fee pricing on new acquisitions; | |
• | evaluating our costs and expenses with the expectation to reduce administrative costs; and | |
• | applying other changes to our business practices to reduce our losses and expenses during the period. |
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As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Fannie Mae MBS and other guarantees outstanding(1) | $ | 2,533,445 | $ | 2,340,660 | ||||
Less: Fannie Mae MBS held in portfolio(2) | (223,085 | ) | (180,163 | ) | ||||
Fannie Mae MBS held by third parties and other guarantees | $ | 2,310,360 | $ | 2,160,497 | ||||
(1) | Includes $32.2 billion and $41.6 billion in unpaid principal balance of other guarantees as of September 30, 2008 and December 31, 2007, respectively. Excludes $58.3 billion and $80.9 billion in unpaid principal balance of consolidated Fannie Mae MBS as of September 30, 2008 and December 31, 2007, respectively. | |
(2) | Amounts represent unpaid principal balance and are recorded in “Investments in Securities” in the consolidated balance sheets. |
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As of September 30, 2008 | ||||||||||||||||||||||||
Single-Family(1) | Multifamily(2) | Total | ||||||||||||||||||||||
Conventional(3) | Government(4) | Conventional(3) | Government(4) | Conventional(3) | Government(4) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Mortgage portfolio:(5) | ||||||||||||||||||||||||
Mortgage loans(6) | $ | 254,765 | $ | 40,082 | $ | 112,093 | $ | 731 | $ | 366,858 | $ | 40,813 | ||||||||||||
Fannie Mae MBS(6) | 220,725 | 1,909 | 371 | 80 | 221,096 | 1,989 | ||||||||||||||||||
Agency mortgage-related securities(6)(7) | 33,419 | 1,608 | — | 28 | 33,419 | 1,636 | ||||||||||||||||||
Mortgage revenue bonds | 2,983 | 2,538 | 7,964 | 2,138 | 10,947 | 4,676 | ||||||||||||||||||
Other mortgage-related securities(8) | 57,872 | 1,984 | 25,851 | 25 | 83,723 | 2,009 | ||||||||||||||||||
Total mortgage portfolio | 569,764 | 48,121 | 146,279 | 3,002 | 716,043 | 51,123 | ||||||||||||||||||
Fannie Mae MBS held by third parties(9) | 2,225,223 | 13,570 | 38,524 | 853 | 2,263,747 | 14,423 | ||||||||||||||||||
Other credit guarantees(10) | 15,067 | — | 17,077 | 46 | 32,144 | 46 | ||||||||||||||||||
Mortgage credit book of business | $ | 2,810,054 | $ | 61,691 | $ | 201,880 | $ | 3,901 | $ | 3,011,934 | $ | 65,592 | ||||||||||||
Guaranty book of business | $ | 2,715,780 | $ | 55,561 | $ | 168,065 | $ | 1,710 | $ | 2,883,845 | $ | 57,271 | ||||||||||||
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As of December 31, 2007 | ||||||||||||||||||||||||
Single-Family(1) | Multifamily(2) | Total | ||||||||||||||||||||||
Conventional(3) | Government(4) | Conventional(3) | Government(4) | Conventional(3) | Government(4) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Mortgage portfolio:(5) | ||||||||||||||||||||||||
Mortgage loans(6) | $ | 283,629 | $ | 28,202 | $ | 90,931 | $ | 815 | $ | 374,560 | $ | 29,017 | ||||||||||||
Fannie Mae MBS(6) | 177,492 | 2,113 | 322 | 236 | 177,814 | 2,349 | ||||||||||||||||||
Agency mortgage-related securities(6)(7) | 31,305 | 1,682 | — | 50 | 31,305 | 1,732 | ||||||||||||||||||
Mortgage revenue bonds | 3,182 | 2,796 | 8,107 | 2,230 | 11,289 | 5,026 | ||||||||||||||||||
Other mortgage-related securities(8) | 68,240 | 1,097 | 25,444 | 30 | 93,684 | 1,127 | ||||||||||||||||||
Total mortgage portfolio | 563,848 | 35,890 | 124,804 | 3,361 | 688,652 | 39,251 | ||||||||||||||||||
Fannie Mae MBS held by third parties(9) | 2,064,395 | 15,257 | 38,218 | 1,039 | 2,102,613 | 16,296 | ||||||||||||||||||
Other credit guarantees(10) | 24,519 | — | 17,009 | 60 | 41,528 | 60 | ||||||||||||||||||
Mortgage credit book of business | $ | 2,652,762 | $ | 51,147 | $ | 180,031 | $ | 4,460 | $ | 2,832,793 | $ | 55,607 | ||||||||||||
Guaranty book of business | $ | 2,550,035 | $ | 45,572 | $ | 146,480 | $ | 2,150 | $ | 2,696,515 | $ | 47,722 | ||||||||||||
(1) | The amounts reported above reflect our total single-family mortgage credit book of business. Of these amounts, the portion of our single-family mortgage credit book of business for which we have access to detailed loan-level information represented approximately 96% and 95% of our total conventional single-family mortgage credit book of business as of September 30, 2008 and December 31, 2007, respectively. Unless otherwise noted, the credit statistics we provide in the discussion that follows relate only to this specific portion of our conventional single-family mortgage credit book of business. The remaining portion of our conventional single-family mortgage credit book of business consists of Freddie Mac securities, Ginnie Mae securities, private-label mortgage-related securities, Fannie Mae MBS backed by private-label mortgage-related securities, housing-related municipal revenue bonds, other single-family government related loans and securities, and credit enhancements that we provide on single-family mortgage assets. See “Consolidated Balance Sheet Analysis—Trading and Available-For-Sale Investment Securities—Investments in Private-Label Mortgage-Related Securities” for additional information on our private-label mortgage securities. | |
(2) | The amounts reported above reflect our total multifamily mortgage credit book of business. Of these amounts, the portion of our multifamily mortgage credit book of business for which we have access to detailed loan-level information represented approximately 82% and 80% of our total multifamily mortgage credit book of business as of September 30, 2008 and December 31, 2007, respectively. Unless otherwise noted, the credit statistics we provide in the discussion that follows relate only to this specific portion of our multifamily mortgage credit book of business. | |
(3) | Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured by the U.S. government or any of its agencies. | |
(4) | Refers to mortgage loans and mortgage-related securities guaranteed or insured by the U.S. government or one of its agencies. | |
(5) | Mortgage portfolio data is reported based on unpaid principal balance. | |
(6) | Includes unpaid principal balance totaling $59.0 billion and $81.8 billion as of September 30, 2008 and December 31, 2007, respectively, related to mortgage-related securities that were consolidated under FIN 46 and mortgage-related securities created from securitization transactions that did not meet the sales criteria under SFAS 140, which effectively resulted in these mortgage-related securities being accounted for as loans. | |
(7) | Includes mortgage-related securities issued by Freddie Mac and Ginnie Mae. We held mortgage-related securities issued by Freddie Mac with both a carrying value and fair value of $32.8 billion and $31.2 billion as of September 30, 2008 and December 31, 2007, respectively. | |
(8) | Includes mortgage-related securities issued by entities other than Fannie Mae, Freddie Mac or Ginnie Mae. | |
(9) | Includes Fannie Mae MBS held by third-party investors. The principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount. | |
(10) | Includes single-family and multifamily credit enhancements that we have provided and that are not otherwise reflected in the table. |
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Percent of Conventional Single-Family Business Volume(2) | Percent of Conventional | |||||||||||||||||||||||||||
For the | Single-Family Book of Business(3) As of | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Nine Months Ended September 30, | September 30, | December 31, | |||||||||||||||||||||||
2008 | 2008 | 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||
Original loan-to-value ratio:(4) | ||||||||||||||||||||||||||||
< = 60% | 21 | % | 24 | % | 21 | % | 22 | % | 17 | % | 23 | % | 23 | % | ||||||||||||||
60.01% to 70% | 14 | 17 | 16 | 16 | 13 | 16 | 16 | |||||||||||||||||||||
70.01% to 80% | 43 | 38 | 37 | 39 | 47 | 43 | 43 | |||||||||||||||||||||
80.01% to 90%(5) | 13 | 11 | 12 | 12 | 8 | 8 | 8 | |||||||||||||||||||||
90.01% to 100%(5) | 9 | 10 | 14 | 11 | 15 | 10 | 10 | |||||||||||||||||||||
Greater than 100%(5) | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Weighted average | 73 | % | 71 | % | 73 | % | 72 | % | 75 | % | 72 | % | 72 | % | ||||||||||||||
Average loan amount | $ | 205,795 | $ | 206,205 | $ | 209,086 | $ | 207,437 | $ | 194,257 | $ | 147,739 | $ | 142,747 | ||||||||||||||
Estimated mark-to-market loan-to-value ratio:(6) | ||||||||||||||||||||||||||||
< = 60% | 38 | % | 46 | % | ||||||||||||||||||||||||
60.01% to 70% | 14 | 15 | ||||||||||||||||||||||||||
70.01% to 80% | 17 | 19 | ||||||||||||||||||||||||||
80.01% to 90% | 13 | 12 | ||||||||||||||||||||||||||
90.01% to 100% | 9 | 6 | ||||||||||||||||||||||||||
Greater than 100% | 9 | 2 | ||||||||||||||||||||||||||
Total | 100 | % | 100 | % | ||||||||||||||||||||||||
Weighted average | 68 | % | 61 | % | ||||||||||||||||||||||||
Product type: | ||||||||||||||||||||||||||||
Fixed-rate:(7) | ||||||||||||||||||||||||||||
Long-term | 79 | % | 72 | % | 79 | % | 76 | % | 74 | % | 73 | % | 71 | % | ||||||||||||||
Intermediate-term | 10 | 15 | 11 | 12 | 6 | 14 | 15 | |||||||||||||||||||||
Interest-only | 1 | 1 | 3 | 2 | 9 | 3 | 3 | |||||||||||||||||||||
Total fixed-rate | 90 | 88 | 93 | 90 | 89 | 90 | 89 | |||||||||||||||||||||
Adjustable-rate: | ||||||||||||||||||||||||||||
Interest-only | 4 | 5 | 5 | 5 | 7 | 5 | 5 | |||||||||||||||||||||
Negative-amortizing | — | — | — | — | 1 | 1 | 1 | |||||||||||||||||||||
Other ARMs | 6 | 7 | 2 | 5 | 3 | 4 | 5 | |||||||||||||||||||||
Total adjustable-rate | 10 | 12 | 7 | 10 | 11 | 10 | 11 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Number of property units: | ||||||||||||||||||||||||||||
1 unit | 97 | % | 97 | % | 97 | % | 97 | % | 96 | % | 96 | % | 96 | % | ||||||||||||||
2-4 units | 3 | 3 | 3 | 3 | 4 | 4 | 4 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Property type: | ||||||||||||||||||||||||||||
Single-family homes | 88 | % | 90 | % | 90 | % | 89 | % | 89 | % | 91 | % | 91 | % | ||||||||||||||
Condo/Co-op | 12 | 10 | 10 | 11 | 11 | 9 | 9 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
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Percent of Conventional Single-Family Business Volume(2) | Percent of Conventional | |||||||||||||||||||||||||||
For the | Single-Family Book of Business(3) As of | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Nine Months Ended September 30, | September 30, | December 31, | |||||||||||||||||||||||
2008 | 2008 | 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||
Occupancy type: | ||||||||||||||||||||||||||||
Primary residence | 88 | % | 90 | % | 90 | % | 89 | % | 88 | % | 90 | % | 90 | % | ||||||||||||||
Second/vacation home | 6 | 5 | 4 | 5 | 5 | 4 | 4 | |||||||||||||||||||||
Investor | 6 | 5 | 6 | 6 | 7 | 6 | 6 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
FICO credit score: | ||||||||||||||||||||||||||||
< 620 | 2 | % | 3 | % | 5 | % | 3 | % | 6 | % | 5 | % | 5 | % | ||||||||||||||
620 to < 660 | 5 | 5 | 8 | 6 | 12 | 10 | 10 | |||||||||||||||||||||
660 to < 700 | 13 | 15 | 17 | 15 | 19 | 18 | 18 | |||||||||||||||||||||
700 to < 740 | 21 | 22 | 22 | 22 | 23 | 23 | 23 | |||||||||||||||||||||
> = 740 | 59 | 55 | 48 | 54 | 39 | 44 | 43 | |||||||||||||||||||||
Not available | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Weighted average | 742 | 738 | 728 | 736 | 716 | 723 | 721 | |||||||||||||||||||||
Loan purpose: | ||||||||||||||||||||||||||||
Purchase | 55 | % | 34 | % | 34 | % | 39 | % | 50 | % | 41 | % | 41 | % | ||||||||||||||
Cash-out refinance | 27 | 34 | 33 | 32 | 32 | 32 | 32 | |||||||||||||||||||||
Other refinance | 18 | 32 | 33 | 29 | 18 | 27 | 27 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Geographic concentration:(8) | ||||||||||||||||||||||||||||
Midwest | 14 | % | 16 | % | 16 | % | 15 | % | 15 | % | 16 | % | 17 | % | ||||||||||||||
Northeast | 19 | 18 | 17 | 18 | 18 | 19 | 19 | |||||||||||||||||||||
Southeast | 23 | 23 | 25 | 24 | 26 | 25 | 25 | |||||||||||||||||||||
Southwest | 17 | 16 | 16 | 16 | 18 | 16 | 16 | |||||||||||||||||||||
West | 27 | 27 | 26 | 27 | 23 | 24 | 23 | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Origination year: | ||||||||||||||||||||||||||||
< =1998 | 2 | % | 2 | % | ||||||||||||||||||||||||
1999 | 1 | 1 | ||||||||||||||||||||||||||
2000 | — | — | ||||||||||||||||||||||||||
2001 | 2 | 2 | ||||||||||||||||||||||||||
2002 | 6 | 7 | ||||||||||||||||||||||||||
2003 | 19 | 22 | ||||||||||||||||||||||||||
2004 | 10 | 12 | ||||||||||||||||||||||||||
2005 | 13 | 16 | ||||||||||||||||||||||||||
2006 | 14 | 17 | ||||||||||||||||||||||||||
2007 | 20 | 21 | ||||||||||||||||||||||||||
2008 | 13 | — | ||||||||||||||||||||||||||
Total | 100 | % | 100 | % | ||||||||||||||||||||||||
(1) | As noted in Table 41 above, we generally have access to detailed loan-level statistics only on conventional single-family mortgage loans held in our portfolio and backing Fannie Mae MBS (whether held in our portfolio or held by third parties). | |
(2) | Percentages calculated based on unpaid principal balance of loans at time of acquisition. Single-family business volume refers to both single-family mortgage loans we purchase for our mortgage portfolio and single-family mortgage loans we securitize into Fannie Mae MBS. | |
(3) | Percentages calculated based on unpaid principal balance of loans as of the end of each period. |
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(4) | The original loan-to-value ratio generally is based on the appraised property value reported to us at the time of acquisition of the loan and the original unpaid principal balance of the loan. Excludes loans for which this information is not readily available. | |
(5) | We continue to purchase loans with original loan-to-value ratios above 80% to fulfill our mission to serve the primary mortgage market and provide liquidity to the housing system. In accordance with our charter requirements, any loan purchased that has a loan-to-value ratio over 80% must have mortgage insurance or other credit enhancement. | |
(6) | The aggregate estimated mark-to-market loan-to-value ratio is based on the estimated current value of the property, calculated using an internal valuation model that estimates periodic changes in home value, and the unpaid principal balance of the loan as of the date of each reported period. Excludes loans for which this information is not readily available. | |
(7) | Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate have maturities equal to or less than 15 years. | |
(8) | Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast includes CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY. |
• | Alt-A and Subprime Loans. We provide information below on our exposure to Alt-A and subprime mortgage loans. We have classified mortgage loans as Alt-A if the lender that delivers the mortgage loan to us has classified the loan as Alt-A based on documentation or other features. We have classified mortgage loans as subprime if the mortgage loan is originated by a lender specializing in subprime business or by subprime divisions of large lenders. We apply these classification criteria in order to determine ourAlt-A and subprime loan exposures; however, we have other loans with some features that are similar to Alt-A and subprime loans that we have not classified as Alt-A or subprime because they do not meet our classification criteria. |
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• | Jumbo-Conforming Loans. The Economic Stimulus Act of 2008 temporarily increased our conforming loan limit in high-cost areas for loans originated between July 1, 2007 and December 31, 2008 (“jumbo-conforming loans”). In response to the Act, we launched our jumbo-conforming mortgage product and began acquiring these jumbo-conforming loans in April 2008. We believe we have priced these loans to compensate us for the related risk. As of September 30, 2008, we had 14,487 outstanding jumbo-conforming loans with an unpaid principal balance of $8.4 billion. |
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September 30, 2008 | December 31, 2007 | September 30, 2007 | ||||||||||||||||||||||||||
Serious | Serious | Serious | ||||||||||||||||||||||||||
Book | Delinquency | Book | Delinquency | Book | Delinquency | |||||||||||||||||||||||
Outstanding(1) | Rate(2) | Outstanding(1) | Rate(2) | Outstanding(1) | Rate(2) | |||||||||||||||||||||||
Conventional single-family delinquency rates by geographic region:(3) | ||||||||||||||||||||||||||||
Midwest | 16 | % | 1.86 | % | 17 | % | 1.35 | % | 17 | % | 1.14 | % | ||||||||||||||||
Northeast | 19 | 1.47 | 19 | 0.94 | 19 | 0.79 | ||||||||||||||||||||||
Southeast | 25 | 2.34 | 25 | 1.18 | 25 | 0.88 | ||||||||||||||||||||||
Southwest | 16 | 1.35 | 16 | 0.86 | 16 | 0.69 | ||||||||||||||||||||||
West | 24 | 1.33 | 23 | 0.50 | 23 | 0.33 | ||||||||||||||||||||||
Total conventional single-family loans | 100 | % | 1.72 | % | 100 | % | 0.98 | % | 100 | % | 0.78 | % | ||||||||||||||||
Conventional single-family loans: | ||||||||||||||||||||||||||||
Credit enhanced | 21 | % | 4.68 | % | 21 | % | 2.75 | % | 20 | % | 2.18 | % | ||||||||||||||||
Non-credit enhanced | 79 | 0.96 | 79 | 0.53 | 80 | 0.43 | ||||||||||||||||||||||
Total conventional single-family loans | 100 | % | 1.72 | % | 100 | % | 0.98 | % | 100 | % | 0.78 | % | ||||||||||||||||
Multifamily loans: | ||||||||||||||||||||||||||||
Credit enhanced | 87 | % | 0.11 | % | 88 | % | 0.06 | % | 89 | % | 0.08 | % | ||||||||||||||||
Non-credit enhanced | 13 | 0.50 | 12 | 0.22 | 11 | 0.11 | ||||||||||||||||||||||
Total multifamily loans | 100 | % | 0.16 | % | 100 | % | 0.08 | % | 100 | % | 0.08 | % | ||||||||||||||||
(1) | Reported based on unpaid principal balance of loans, where we have detailed loan-level information. | |
(2) | Calculated based on number of loans for single-family and unpaid principal balance for multifamily. We include all of the conventional single-family loans that we own and that back Fannie Mae MBS in the calculation of the single-family delinquency rate. We include the unpaid principal balance of all multifamily loans that we own or that back Fannie Mae MBS and any housing bonds for which we provide credit enhancement in the calculation of the multifamily serious delinquency rate. | |
(3) | See footnote 8 to Table 42 for states included in each geographic region. |
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As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
On-balance sheet nonperforming loans: | ||||||||
Nonaccrual loans | $ | 10,393 | $ | 8,343 | ||||
Troubled debt restructurings(1) | 2,530 | 1,765 | ||||||
HomeSaver Advance first-lien loans(2) | 1,338 | — | ||||||
Total on-balance sheet nonperforming loans | 14,261 | 10,108 | ||||||
Off-balance sheet nonperforming loans:(3) | ||||||||
Off-balance sheet nonperforming loans, excluding HomeSaver Advance first-lien loans(4) | 43,865 | 25,700 | ||||||
HomeSaver Advance first-lien loans(2) | 5,522 | — | ||||||
Total off-balance sheet nonperforming loans | 49,387 | 25,700 | ||||||
Total nonperforming loans | $ | 63,648 | $ | 35,808 | ||||
Accruing on-balance sheet loans past due 90 days or more(5) | $ | 224 | $ | 204 | ||||
Interest related to on-balance sheet nonperforming loans:(6) | ||||||||
Interest income forgone(7) | $ | 264 | $ | 215 | ||||
Interest income recognized for the period(8) | 418 | 328 |
(1) | Troubled debt restructurings include loans whereby the contractual terms have been modified that result in concessions to borrowers experiencing financial difficulties. | |
(2) | Represents total unpaid principal balance of first-lien loans associated with unsecured HomeSaver Advance loans, including first-lien loans that are not seriously delinquent. | |
(3) | Represents unpaid principal balance of nonperforming loans in our outstanding and unconsolidated Fannie Mae MBS held by third parties. |
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(4) | Represents total unpaid principal balance of loans that are seriously delinquent as of September 30, 2008. | |
(5) | Recorded investment of loans as of the end of each period that are 90 days or more past due and continuing to accrue interest, including loans insured or guaranteed by the U.S. government and loans where we have recourse against the seller of the loan in the event of a default. | |
(6) | Amounts reported for September 30, 2008 relate to the nine months ending September 30, 2008. Amounts reported for December 31, 2007 relate to the twelve months ended December 31, 2007. | |
(7) | Forgone interest income represents the amount of interest income that would have been recorded during the period for on-balance sheet nonperforming loans as of the end of each period had the loans performed according to their contractual terms. | |
(8) | Represents interest income recognized during the period for on-balance sheet loans classified as nonperforming as of the end of each period. |
For the | ||||||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Single-family foreclosed properties (number of properties): | ||||||||
Beginning of period inventory of single-family foreclosed properties (REO)(1) | 33,729 | 25,125 | ||||||
Acquisitions by geographic area:(2) | ||||||||
Midwest | 23,831 | 14,754 | ||||||
Northeast | 4,673 | 2,826 | ||||||
Southeast | 18,922 | 8,559 | ||||||
Southwest | 14,064 | 7,230 | ||||||
West | 12,164 | 1,586 | ||||||
Total properties acquired through foreclosure | 73,654 | 34,955 | ||||||
Dispositions of REO | (39,864 | ) | (30,456 | ) | ||||
End of period inventory of single-family foreclosed properties (REO)(1) | 67,519 | 29,624 | ||||||
Carrying value of single-family foreclosed properties (dollars in millions)(3) | $ | 7,237 | $ | 2,913 | ||||
Single-family foreclosure rate(4) | 0.40 | % | 0.20 | % | ||||
Multifamily foreclosed properties (number of properties): | ||||||||
Ending inventory of multifamily foreclosed properties (REO) | 25 | 12 | ||||||
Carrying value of multifamily foreclosed properties (dollars in millions)(3) | $ | 90 | $ | 63 | ||||
(1) | Includes deeds in lieu of foreclosure. | |
(2) | See footnote 8 to Table 42 for states included in each geographic region. | |
(3) | Excludes foreclosed property claims receivables, which are reported in our condensed consolidated balance sheets as a component of “Acquired property, net.” | |
(4) | Estimated based on the total number of properties acquired through foreclosure as a percentage of the total number of loans in our conventional single-family mortgage credit book of business as of the end of each respective period. |
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• | mortgage servicers that service the loans we hold in our investment portfolio or that back our Fannie Mae MBS; | |
• | third-party providers of credit enhancement on the mortgage assets that we hold in our investment portfolio or that back our Fannie Mae MBS, including mortgage insurers, lenders with risk sharing arrangements, and financial guarantors; | |
• | issuers of securities held in our cash and other investments portfolio; and | |
• | derivatives counterparties. |
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• | an increase in the minimum net worth requirement for approved lenders, effective December 31, 2008; | |
• | the establishment of several new requirements, including: |
• | a broader provision regarding a material adverse change in the lender’s financial or business condition or its operations; | |
• | provisions relating to a significant decline in the lender’s net worth; | |
• | minimum profitability standards, minimum capital requirements and a cap on the maximum amount of outstanding mortgage loan repurchase obligations; | |
• | cross-default provisions with other obligations; | |
• | a minimum servicer rating; and | |
• | tighter restrictions on lenders that are eligible to deliver recourse loans; |
• | a greater emphasis on the unified and interrelated nature of the lender’s selling and servicing obligations, specifically providing that when servicing is sold to another lender, both the transferee lender and the transferor servicer are obligated for all representations and warranties and recourse obligations, including loan repurchases; and | |
• | additional and more flexible remedies for lenders that cannot comply with some of our standards. |
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As of October 31, 2008 | As of September 30, 2008 | |||||||||||||||||
Insurer Financial Strength Ratings | Maximum Coverage(2) | |||||||||||||||||
Counterparty:(1) | Moody’s | S&P | Fitch | Primary | Pool | Total | ||||||||||||
(Dollars in millions) | ||||||||||||||||||
Mortgage Guaranty Insurance Corporation | A1 | A | A- | $ | 25,707 | $ | 2,545 | $ | 28,252 | |||||||||
Genworth Mortgage Insurance Corporation | Aa3 | AA- | A+ | 17,769 | 435 | 18,204 | ||||||||||||
PMI Mortgage Insurance Co. | A3 | A- | BBB+ | 14,616 | 2,506 | 17,122 | ||||||||||||
Radian Guaranty, Inc. | A2 | BBB+ | NR | 15,744 | 893 | 16,637 | ||||||||||||
United Guaranty Residential Insurance Company | Aa3 | A- | AA- | 16,109 | 287 | 16,396 | ||||||||||||
Republic Mortgage Insurance Company | A1 | A+ | A+ | 11,893 | 1,649 | 13,542 | ||||||||||||
Triad Guaranty Insurance Corporation(3) | NR | NR | NR | 4,291 | 1,386 | 5,677 | ||||||||||||
CMG Mortgage Insurance Company(4) | NR | AA- | AA | 1,975 | — | 1,975 |
(1) | Insurance coverage amounts provided for each counterparty may include coverage provided by consolidated subsidiaries of the counterparty. | |
(2) | Maximum coverage refers to the aggregate dollar amount of insurance coverage (i.e., “risk in force”) on single-family loans in our guaranty book of business and represents our maximum potential loss recovery under the applicable mortgage insurance policies. | |
(3) | In June 2008, we suspended Triad Guaranty Insurance Corporation as a qualified Fannie Mae mortgage insurer for loans not closed prior to July 15, 2008. | |
(4) | CMG Mortgage Insurance Company is a joint venture owned by PMI Mortgage Insurance Co. and CUNA Mutual Investment Corporation. |
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As of September 30, 2008 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA+/AA/AA- | A+/A/A- | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | — | $ | 1,536 | $ | 45 | $ | 1,581 | $ | 109 | $ | 1,690 | ||||||||||||
Less: Collateral held(4) | — | 1,085 | 45 | 1,130 | — | 1,130 | ||||||||||||||||||
Exposure net of collateral | $ | — | $ | 451 | $ | — | $ | 451 | $ | 109 | $ | 560 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 275 | $ | 828,599 | $ | 258,821 | $ | 1,087,695 | $ | 826 | $ | 1,088,521 | ||||||||||||
Number of counterparties | 1 | 15 | 3 | 19 |
As of December 31, 2007 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA+/AA/AA- | A+/A/A- | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | 4 | $ | 1,578 | $ | 1,004 | $ | 2,586 | $ | 74 | $ | 2,660 | ||||||||||||
Less: Collateral held(5) | — | 1,130 | 988 | 2,118 | — | 2,118 | ||||||||||||||||||
Exposure net of collateral | $ | 4 | $ | 448 | $ | 16 | $ | 468 | $ | 74 | $ | 542 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 1,050 | $ | 637,847 | $ | 246,860 | $ | 885,757 | $ | 707 | $ | 886,464 | ||||||||||||
Number of counterparties | 1 | 17 | 3 | 21 |
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(1) | We manage collateral requirements based on the lower credit rating, as issued by Standard & Poor’s and Moody’s, of the legal entity. The credit rating reflects the equivalent Standard & Poor’s rating for any ratings based on Moody’s scale. | |
(2) | Includes MBS options, defined benefit mortgage insurance contracts, guaranteed guarantor trust swaps and swap credit enhancements accounted for as derivatives. | |
(3) | Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a present value basis, to replace all outstanding contracts in a gain position. Derivative gains and losses with the same counterparty are netted where a legal right of offset exists under an enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives. | |
(4) | Represents both cash and non-cash collateral posted by our counterparties to us. The value of the non-cash collateral is reduced in accordance with the counterparty agreements to help ensure recovery of any loss through the disposition of the collateral. We posted cash collateral of $5.7 billion related to our counterparties’ credit exposure to us as of September 30, 2008. | |
(5) | Represents both cash and non-cash collateral posted by our counterparties to us. This amount is adjusted for the collateral transferred subsequent to month-end based on credit loss exposure limits on derivative instruments as of December 31, 2007. Settlement dates vary by counterparty and range from one to three business days following the credit loss exposure valuation date of December 31, 2007. The value of the non-cash collateral is reduced in accordance with counterparty agreements to help ensure recovery of any loss through the disposition of the collateral. We posted cash collateral of $1.2 billion related to our counterparties’ credit exposure to us as of December 31, 2007. |
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• | Interest rate swap contracts. An interest rate swap is a transaction between two parties in which each agrees to exchange, or swap, interest payments. The interest payment amounts are tied to different interest |
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rates or indices for a specified period of time and are generally based on a notional amount of principal. The types of interest rate swaps we use include pay-fixed swaps; receive-fixed swaps; and basis swaps. |
• | Interest rate option contracts. These contracts primarily include pay-fixed swaptions, receive-fixed swaptions, cancelable swaps and interest rate caps. A swaption is an option contract that allows us to enter into a pay-fixed or receive-fixed swap at some point in the future. | |
• | Foreign currency swaps. These swaps have the effect of converting debt that we issue in foreign-denominated currencies into U.S. dollars. We enter into foreign currency swaps only to the extent that we issue foreign currency debt. |
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Interest Rate | ||||||||||||||||||||||||||||||||||||
Interest Rate Swaps | Swaptions | |||||||||||||||||||||||||||||||||||
Pay- | Receive- | Foreign | Pay- | Receive- | Interest | |||||||||||||||||||||||||||||||
Fixed(2) | Fixed(3) | Basis(4) | Currency | Fixed | Fixed | Rate Caps | Other(5) | Total | ||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Notional balance as of December 31, 2007 | $ | 377,738 | $ | 285,885 | $ | 7,001 | $ | 2,559 | $ | 85,730 | $ | 124,651 | $ | 2,250 | $ | 650 | $ | 886,464 | ||||||||||||||||||
Additions | 242,321 | 229,511 | 24,335 | 1,064 | 12,622 | 75,531 | 200 | 219 | 585,803 | |||||||||||||||||||||||||||
Terminations(6) | (104,206 | ) | (142,841 | ) | (6,575 | ) | (1,643 | ) | (26,742 | ) | (99,697 | ) | (1,950 | ) | (92 | ) | (383,746 | ) | ||||||||||||||||||
Notional balance as of September 30, 2008 | $ | 515,853 | $ | 372,555 | $ | 24,761 | $ | 1,980 | $ | 71,610 | $ | 100,485 | $ | 500 | $ | 777 | $ | 1,088,521 | ||||||||||||||||||
Future maturities of notional amounts:(7) | ||||||||||||||||||||||||||||||||||||
Less than 1 year | $ | 43,226 | $ | 29,920 | $ | 15,500 | $ | 741 | $ | 7,110 | $ | 22,080 | $ | — | $ | 92 | $ | 118,669 | ||||||||||||||||||
1 year to 5 years | 245,215 | 216,985 | 7,750 | 88 | 39,100 | 40,260 | 500 | 466 | 550,364 | |||||||||||||||||||||||||||
5 years to 10 years | 190,594 | 115,826 | 135 | 396 | 21,150 | 25,595 | — | 219 | 353,915 | |||||||||||||||||||||||||||
Over 10 years | 36,818 | 9,824 | 1,376 | 755 | 4,250 | 12,550 | — | — | 65,573 | |||||||||||||||||||||||||||
Total | $ | 515,853 | $ | 372,555 | $ | 24,761 | $ | 1,980 | $ | 71,610 | $ | 100,485 | $ | 500 | $ | 777 | $ | 1,088,521 | ||||||||||||||||||
Weighted-average interest rate as of September 30, 2008: | ||||||||||||||||||||||||||||||||||||
Pay rate | 4.71 | % | 2.83 | % | 2.81 | % | — | 6.18 | % | — | — | — | ||||||||||||||||||||||||
Receive rate | 2.94 | % | 4.46 | % | 1.77 | % | — | — | 4.55 | % | — | — | ||||||||||||||||||||||||
Other | — | — | — | — | — | — | 5.84 | % | — | |||||||||||||||||||||||||||
Weighted-average interest rate as of December 31, 2007: | ||||||||||||||||||||||||||||||||||||
Pay rate | 5.10 | % | 5.04 | % | 4.92 | % | — | 6.25 | % | — | — | — | ||||||||||||||||||||||||
Receive rate | 5.03 | % | 5.08 | % | 6.84 | % | — | — | 4.84 | % | — | — | ||||||||||||||||||||||||
Other | — | — | — | — | — | — | 4.35 | % | — |
(1) | Excludes mortgage commitments accounted for as derivatives. Dollars represent notional amounts that indicate only the amount on which payments are being calculated and do not represent the amount at risk of loss. | |
(2) | Notional amounts include swaps callable by Fannie Mae of $2.8 billion and $8.2 billion as of September 30, 2008 and December 31, 2007, respectively. | |
(3) | Notional amounts include swaps callable by derivatives counterparties of $16.9 billion and $7.8 billion as of September 30, 2008 and December 31, 2007, respectively. | |
(4) | Notional amounts include swaps callable by derivatives counterparties of $675 million and $6.6 billion as of September 30, 2008 and December 31, 2007, respectively. | |
(5) | Includes MBS options, swap credit enhancements and mortgage insurance contracts. | |
(6) | Includes matured, called, exercised, assigned and terminated amounts. Also includes changes due to foreign exchange rate movements. | |
(7) | Based on contractual maturities. |
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September 30, | December 31, | |||||||
2008 | 2007(2) | |||||||
(Dollars in billions) | ||||||||
Rate level shock: | ||||||||
− 100 basis points | $ | (0.3 | ) | $ | (2.5 | ) | ||
− 50 basis points | 0.6 | (0.7 | ) | |||||
+50 basis points | (0.9 | ) | 0.0 | |||||
+100 basis points | (2.3 | ) | (0.3 | ) | ||||
Rate slope shock: | ||||||||
− 25 basis points | (0.2 | ) | (0.3 | ) | ||||
+25 basis points | 0.1 | 0.3 |
(1) | Computed based on changes in10-year swap interest rates. | |
(2) | Amounts have been revised from the previously reported sensitivities as of December 31, 2007 to include the sensitivities of our LIHTC partnership investment assets and preferred stock (excluding senior preferred stock). |
(1) | We use duration hedges, including longer term debt and interest rate swaps, to reduce the duration of our net portfolio. | |
(2) | We use option-based hedges, including callable debt and interest rate swaptions, to reduce the convexity or the duration changes of our net portfolio as interest rates move. | |
(3) | We take rebalancing actions to adjust our net portfolio position in response to movements in interest rates. | |
(4) | Our mortgage portfolio includes not only30-year fixed rate mortgage assets, but also other mortgage assets that typically have a shorter duration, such as adjustable-rate mortgage loans, and mortgage assets that generally have a somewhat longer duration, such as multifamily loans and CMBS. | |
(5) | The models used by Barclays Capital and Fannie Mae to estimate durations are different. |
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Barclays Capital | ||||||||
30-Year Fannie Mae | ||||||||
Fannie Mae | Mortgage Index | |||||||
Effective | Option Adjusted | |||||||
Month | Duration Gap | Duration(1) | ||||||
(In months) | ||||||||
December 2007 | 2 | 43 | ||||||
January 2008 | 1 | 31 | ||||||
February 2008 | 2 | 41 | ||||||
March 2008 | 3 | 42 | ||||||
April 2008 | 2 | 41 | ||||||
May 2008 | 1 | 42 | ||||||
June 2008 | 2 | 51 | ||||||
July 2008 | 1 | 54 | ||||||
August 2008 | 2 | 55 | ||||||
September 2008 | 1 | 40 | ||||||
October 2008 | 2 | 48 |
(1) | Reflects option adjusted duration based on Barclays Capital (formerly Lehman Brothers)30-Year Fannie Mae Mortgage Index obtained from LehmanLive and Lehman POINT. |
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As of September 30, 2008 | ||||||||||||||||||||
Pre-tax Effect on Estimated Fair Value | ||||||||||||||||||||
Estimated | Change in Rates | |||||||||||||||||||
Fair Value | − 100 | − 50 | +50 | +100 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Trading financial instruments | $ | 98,671 | $ | 2,252 | $ | 1,247 | $ | (1,372 | ) | $ | (2,853 | ) | ||||||||
Guaranty assets and guaranty obligations, net(1) | (66,266 | ) | 1,301 | 361 | 505 | 807 | ||||||||||||||
Other financial instruments, net(2) | (101,565 | ) | (2,712 | ) | (750 | ) | 590 | 855 |
As of December 31, 2007 | ||||||||||||||||||||
Pre-tax Effect on Estimated Fair Value | ||||||||||||||||||||
Estimated | Change in Rates | |||||||||||||||||||
Fair Value | − 100 | − 50 | +50 | +100 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Trading financial instruments | $ | 63,956 | $ | 1,595 | $ | 829 | (877 | ) | $ | (1,796 | ) | |||||||||
Guaranty assets and guaranty obligations, net(1) | (7,055 | ) | (1,514 | ) | (1,290 | ) | (2,111 | ) | (1,135 | ) | ||||||||||
Other financial instruments, net(2) | (54,084 | ) | (3,313 | ) | (1,216 | ) | 676 | 1,065 |
(1) | Consists of the net of “Guaranty assets” and Guaranty obligations” reported in our condensed consolidated balance sheets. In addition, includes certain amounts that have been reclassified from “Mortgage loans” reported in our condensed consolidated balance sheets to reflect how the risk of the interest rate and credit risk components of these loans is managed by our business segments. | |
(2) | Consists of the net of all other financial instruments reported in “Notes to Condensed Consolidated Financial Statements—Note 18, Fair Value of Financial Instruments.” |
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• | Our expectation that the current crisis in the U.S. and global financial markets will continue to adversely affect our financial results through the remainder of 2008 and 2009; | |
• | Our expectation that we will continue to experience home price declines and rising default and severity rates, all of which may worsen if unemployment rates continue to increase or the U.S. experiences a broad-based recession; | |
• | Our expectation that the level of foreclosures and single-family delinquency rates will continue to increase further through the end of 2008, and still further in 2009; | |
• | Our expectation that home prices will decline at the top end of our estimated range of 7% to 9% on a national basis in 2008, and that there will be a peak-to-trough decline in home prices at the top end of our estimated range of 15% to 19% on a national basis; |
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• | Our expectation that there will be significant regional variation in these national home price decline percentages, with steeper declines in certain areas such as Florida, California, Nevada and Arizona; | |
• | Our expectation that our credit loss ratio will be between 23 and 26 basis points in 2008 and increase further in 2009 compared to 2008; | |
• | Our expectation for significant continued increase in our combined loss reserves through the remainder of 2008 and additional increases in 2009; | |
• | Our expectation that growth in mortgage debt outstanding will decline to a growth rate of 0% in 2009; | |
• | Our expectation that the unemployment rate will continue to increase as the economic slowdown continues; | |
• | Our expectation that we will continue to experience increased delinquencies, defaults, credit-related expenses and credit losses for the remainder of 2008 and 2009; | |
• | Our expectation that our nonperforming assets will increase in 2008 and 2009; | |
• | Our expectation that we will continue to face pressure, and experience adverse economic effects, from the strategic and day-to-day conflicts among our competing objectives under conservatorship, and from the activities we may take to help the mortgage market; | |
• | Our expectation for continued significant pressure on our access to the short-term debt markets and an extremely limited ability to access the long-term debt markets at economically reasonable rates, in the absence of action by Treasury to increase the level of support Treasury provides for our debt; | |
• | Our expectation that the trend toward dependence on short-term debt and increased roll over risk will continue; | |
• | Our belief that our liquidity contingency plan is unlikely to be sufficient to provide us with alternative sources of liquidity for 90 days; | |
• | Our expectation that we will have the necessary technology and operational capabilities in place to support the securitization of a portion of our whole loans by the end of the first quarter of 2009; | |
• | Our expectation that Treasury’s funding commitment under the senior preferred stock purchase agreement will enable us to maintain a positive net worth as long as Treasury has not yet invested the full $100 billion provided for in that agreement; | |
• | Our expectation that HomeSaver Advance will continue to reduce the number of delinquent loans that we otherwise would have purchased from our MBS trusts for the remainder of 2008; | |
• | Our expectation that ourSOP 03-3 fair value losses for 2008 will be higher than the losses recorded for 2007; | |
• | Our expectation that our acquisitions of Alt-A mortgage loans will be minimal in future periods; | |
• | Our expectation that the loans we are now acquiring will have a lower credit risk relative to the loans we acquired in 2006, 2007 and early 2008; | |
• | Our belief that the market crisis will continue to adversely affect the liquidity and financial condition of our institutional counterparties and our lender counterparties; | |
• | Our belief that recent government actions to provide liquidity and other support to specified financial market participants and recently announced mergers will help to improve the financial condition and liquidity position of a number of our institutional counterparties; | |
• | Our expectation that the guaranty fee income generated from future business activity will largely replace any guaranty fee income lost as a result of mortgage prepayments; | |
• | Our expectation that we will contribute additional amounts to our nonqualified pension plans and other postretirement benefit plans in the fourth quarter of 2008 to fund these plans; |
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• | Our belief that we will recover some of the other-than-temporary impairment amounts on our Alt-A and subprime securities; | |
• | Our belief that we are likely to incur losses on some Alt-A and subprime private-label mortgage-related securities that are currently rated AAA; | |
• | Our belief that measures we have taken will significantly improve the credit profile of our single-family acquisitions that are underwritten manually or processed through Desktop Underwriter; | |
• | Our belief that we have priced jumbo-conforming loans to compensate us for the related risk; | |
• | Our belief that the selected interest rate shocks presented in our monthly disclosures represent moderate movements in interest rates over a one-month period and that the interest rate sensitivities presented represent reasonably possible near-term changes in interest rates over the next twelve months; | |
• | Our belief that we will complete the remediation of our disclosure controls and procedures by the end of the first quarter of 2009; | |
• | Our expectation that we will continue to face substantial uncertainty as to our future business strategy, business purpose and fundamental business structure; | |
• | Our belief that our deferred tax assets related to unrealized losses recorded in AOCI on our available-for-sale securities are recoverable; and | |
• | Our expectation that we will complete the implementation of our new operational risk management framework in November 2009. |
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Item 1. | Financial Statements |
(In conservatorship)
Condensed Consolidated Balance Sheets
(Dollars in millions, except share amounts)
(Unaudited)
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 36,301 | $ | 3,941 | ||||
Restricted cash | 188 | 561 | ||||||
Federal funds sold and securities purchased under agreements to resell | 33,420 | 49,041 | ||||||
Investments in securities: | ||||||||
Trading, at fair value (includes Fannie Mae MBS of $59,047 and $40,458 as of September 30, 2008 and December 31, 2007, respectively) | 98,671 | 63,956 | ||||||
Available-for-sale, at fair value (includes Fannie Mae MBS of $162,856 and $138,943 as of September 30, 2008 and December 31, 2007, respectively) | 262,054 | 293,557 | ||||||
Total investments in securities | 360,725 | 357,513 | ||||||
Mortgage loans: | ||||||||
Loans held for sale, at lower of cost or market | 7,908 | 7,008 | ||||||
Loans held for investment, at amortized cost | 399,637 | 397,214 | ||||||
Allowance for loan losses | (1,803 | ) | (698 | ) | ||||
Total loans held for investment, net of allowance | 397,834 | 396,516 | ||||||
Total mortgage loans | 405,742 | 403,524 | ||||||
Advances to lenders | 9,605 | 12,377 | ||||||
Accrued interest receivable | 3,711 | 3,812 | ||||||
Acquired property, net | 7,493 | 3,602 | ||||||
Derivative assets at fair value | 1,099 | 885 | ||||||
Guaranty assets | 10,240 | 9,666 | ||||||
Deferred tax assets | 4,600 | 12,967 | ||||||
Partnership investments | 9,825 | 11,000 | ||||||
Other assets | 13,666 | 10,500 | ||||||
Total assets | $ | 896,615 | $ | 879,389 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Accrued interest payable | $ | 6,264 | $ | 7,512 | ||||
Federal funds purchased and securities sold under agreements to repurchase | 1,357 | 869 | ||||||
Short-term debt (includes debt at fair value of $4,495 as of September 30, 2008) | 280,382 | 234,160 | ||||||
Long-term debt (includes debt at fair value of $21,711 as of September 30, 2008) | 550,928 | 562,139 | ||||||
Derivative liabilities at fair value | 1,305 | 2,217 | ||||||
Reserve for guaranty losses (includes $1,275 and $211 as of September 30, 2008 and December 31, 2007, respectively, related to Fannie Mae MBS included in Investments in securities) | 13,802 | 2,693 | ||||||
Guaranty obligations (includes $1,006 and $661 as of September 30, 2008 and December 31, 2007, respectively, related to Fannie Mae MBS included in Investments in securities) | 16,816 | 15,393 | ||||||
Partnership liabilities | 3,442 | 3,824 | ||||||
Other liabilities | 12,884 | 6,464 | ||||||
Total liabilities | 887,180 | 835,271 | ||||||
Minority interests in consolidated subsidiaries | 159 | 107 | ||||||
Commitments and contingencies (Note 19) | — | — | ||||||
Stockholders’ Equity: | ||||||||
Senior preferred stock, 1,000,000 shares issued and outstanding as of September 30, 2008 | 1,000 | — | ||||||
Preferred stock, 700,000,000 shares are authorized—607,125,000 and 466,375,000 shares issued and outstanding as of September 30, 2008 and December 31, 2007, respectively | 21,725 | 16,913 | ||||||
Common stock, no par value, no maximum authorization—1,223,390,420 and 1,129,090,420 shares issued as of September 30, 2008 and December 31, 2007, respectively; 1,069,859,674 shares and 974,104,578 shares outstanding as of September 30, 2008 and December 31, 2007, respectively | 642 | 593 | ||||||
Additional paid-in capital | 3,153 | 1,831 | ||||||
Retained earnings (accumulated deficit) | (1,563 | ) | 33,548 | |||||
Accumulated other comprehensive loss | (8,369 | ) | (1,362 | ) | ||||
Treasury stock, at cost, 153,530,746 shares and 154,985,842 shares as of September 30, 2008 and December 31, 2007, respectively | (7,312 | ) | (7,512 | ) | ||||
Total stockholders’ equity | 9,276 | 44,011 | ||||||
Total liabilities and stockholders’ equity | $ | 896,615 | $ | 879,389 | ||||
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(In conservatorship)
Condensed Consolidated Statements of Operations
(Dollars and shares in millions, except per share amounts)
(Unaudited)
For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Interest income: | ||||||||||||||||
Trading securities | $ | 1,416 | $ | 649 | $ | 4,529 | $ | 1,227 | ||||||||
Available-for-sale securities | 3,295 | 4,929 | 9,467 | 15,142 | ||||||||||||
Mortgage loans | 5,742 | 5,572 | 17,173 | 16,582 | ||||||||||||
Other | 310 | 322 | 1,000 | 793 | ||||||||||||
Total interest income | 10,763 | 11,472 | 32,169 | 33,744 | ||||||||||||
Interest expense: | ||||||||||||||||
Short-term debt | 1,680 | 2,401 | 5,928 | 6,811 | ||||||||||||
Long-term debt | 6,728 | 8,013 | 20,139 | 23,488 | ||||||||||||
Total interest expense | 8,408 | 10,414 | 26,067 | 30,299 | ||||||||||||
Net interest income | 2,355 | 1,058 | 6,102 | 3,445 | ||||||||||||
Guaranty fee income (includes imputed interest of $481 and $380 for the three months ended September 30, 2008 and 2007, respectively and $1,035 and $963 for the nine months ended September 30, 2008 and 2007, respectively) | 1,475 | 1,232 | 4,835 | 3,450 | ||||||||||||
Losses on certain guaranty contracts | — | (294 | ) | — | (1,038 | ) | ||||||||||
Trust management income | 65 | 146 | 247 | 460 | ||||||||||||
Investment gains (losses), net | (1,624 | ) | (159 | ) | (2,618 | ) | 43 | |||||||||
Fair value losses, net | (3,947 | ) | (2,082 | ) | (7,807 | ) | (1,224 | ) | ||||||||
Debt extinguishment gains (losses), net | 23 | 31 | (158 | ) | 72 | |||||||||||
Losses from partnership investments | (587 | ) | (147 | ) | (923 | ) | (527 | ) | ||||||||
Fee and other income | 164 | 217 | 616 | 751 | ||||||||||||
Non-interest income (loss) | (4,431 | ) | (1,056 | ) | (5,808 | ) | 1,987 | |||||||||
Administrative expenses: | ||||||||||||||||
Salaries and employee benefits | 167 | 362 | 757 | 1,067 | ||||||||||||
Professional services | 139 | 192 | 389 | 654 | ||||||||||||
Occupancy expenses | 52 | 64 | 161 | 180 | ||||||||||||
Other administrative expenses | 43 | 42 | 118 | 117 | ||||||||||||
Total administrative expenses | 401 | 660 | 1,425 | 2,018 | ||||||||||||
Minority interest in losses of consolidated subsidiaries | (25 | ) | (4 | ) | (22 | ) | (3 | ) | ||||||||
Provision for credit losses | 8,763 | 1,087 | 16,921 | 1,770 | ||||||||||||
Foreclosed property expense | 478 | 113 | 912 | 269 | ||||||||||||
Other expenses | 195 | 130 | 802 | 334 | ||||||||||||
Total expenses | 9,812 | 1,986 | 20,038 | 4,388 | ||||||||||||
Income (loss) before federal income taxes and extraordinary losses | (11,888 | ) | (1,984 | ) | (19,744 | ) | 1,044 | |||||||||
Provision (benefit) for federal income taxes | 17,011 | (582 | ) | 13,607 | (468 | ) | ||||||||||
Income (loss) before extraordinary losses | (28,899 | ) | (1,402 | ) | (33,351 | ) | 1,512 | |||||||||
Extraordinary gains (losses), net of tax effect | (95 | ) | 3 | (129 | ) | (3 | ) | |||||||||
Net income (loss) | $ | (28,994 | ) | $ | (1,399 | ) | $ | (33,480 | ) | $ | 1,509 | |||||
Preferred stock dividends and issuance costs at redemption | (419 | ) | (119 | ) | (1,044 | ) | (372 | ) | ||||||||
Net income (loss) available to common stockholders | $ | (29,413 | ) | $ | (1,518 | ) | $ | (34,524 | ) | $ | 1,137 | |||||
Basic earnings (loss) per share: | ||||||||||||||||
Earnings (loss) before extraordinary losses | $ | (12.96 | ) | $ | (1.56 | ) | $ | (24.15 | ) | $ | 1.17 | |||||
Extraordinary losses, net of tax effect | (0.04 | ) | — | (0.09 | ) | — | ||||||||||
Basic earnings (loss) per share | $ | (13.00 | ) | $ | (1.56 | ) | $ | (24.24 | ) | $ | 1.17 | |||||
Diluted earnings (loss) per share: | ||||||||||||||||
Earnings (loss) before extraordinary losses | $ | (12.96 | ) | $ | (1.56 | ) | $ | (24.15 | ) | $ | 1.17 | |||||
Extraordinary losses, net of tax effect | (0.04 | ) | — | (0.09 | ) | — | ||||||||||
Diluted earnings (loss) per share | $ | (13.00 | ) | $ | (1.56 | ) | $ | (24.24 | ) | $ | 1.17 | |||||
Cash dividends per common share | $ | 0.05 | $ | 0.50 | $ | 0.75 | $ | 1.40 | ||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 2,262 | 974 | 1,424 | 973 | ||||||||||||
Diluted | 2,262 | 974 | 1,424 | 975 |
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(In conservatorship)
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)
For the | ||||||||
Nine Months | ||||||||
Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Cash flows provided by operating activities: | ||||||||
Net income (loss) | $ | (33,480 | ) | $ | 1,509 | |||
Amortization of debt cost basis adjustments | 6,497 | 7,372 | ||||||
Provision for credit losses | 16,921 | 1,770 | ||||||
Valuation losses | 7,303 | 96 | ||||||
Derivatives fair value adjustments | (1,952 | ) | 1,884 | |||||
Current and deferred federal income taxes | 12,762 | (1,407 | ) | |||||
Purchases of loans held for sale | (38,351 | ) | (23,326 | ) | ||||
Proceeds from repayments of loans held for sale | 443 | 455 | ||||||
Net change in trading securities | 71,193 | 27,206 | ||||||
Other, net | (1,206 | ) | 1,387 | |||||
Net cash provided by operating activities | 40,130 | 16,946 | ||||||
Cash flows (used in) provided by investing activities: | ||||||||
Purchases of trading securities held for investment | (7,625 | ) | — | |||||
Proceeds from maturities of trading securities held for investment | 7,318 | — | ||||||
Proceeds from sales of trading securities held for investment | 2,824 | — | ||||||
Purchases of available-for-sale securities | (102,761 | ) | (110,472 | ) | ||||
Proceeds from maturities of available-for-sale securities | 25,799 | 112,299 | ||||||
Proceeds from sales of available-for-sale securities | 102,044 | 49,108 | ||||||
Purchases of loans held for investment | (48,874 | ) | (48,448 | ) | ||||
Proceeds from repayments of loans held for investment | 37,169 | 45,202 | ||||||
Advances to lenders | (69,541 | ) | (50,067 | ) | ||||
Net proceeds from disposition of acquired property | (3,376 | ) | 1,049 | |||||
Net change in federal funds sold and securities purchased under agreements to resell | 15,135 | 2,767 | ||||||
Other, net | (107 | ) | (692 | ) | ||||
Net cash (used in) provided by investing activities | (41,995 | ) | 746 | |||||
Cash flows provided by (used in) financing activities: | ||||||||
Proceeds from issuance of short-term debt | 1,439,170 | 1,284,191 | ||||||
Payments to redeem short-term debt | (1,398,756 | ) | (1,306,772 | ) | ||||
Proceeds from issuance of long-term debt | 218,052 | 149,577 | ||||||
Payments to redeem long-term debt | (230,081 | ) | (143,149 | ) | ||||
Proceeds from issuance of common and preferred stock | 7,211 | 1,019 | ||||||
Net change in federal funds purchased and securities sold under agreements to repurchase | 403 | 1,525 | ||||||
Other, net | (1,774 | ) | (2,842 | ) | ||||
Net cash provided by (used in) financing activities | 34,225 | (16,451 | ) | |||||
Net increase in cash and cash equivalents | 32,360 | 1,241 | ||||||
Cash and cash equivalents at beginning of period | 3,941 | 3,239 | ||||||
Cash and cash equivalents at end of period | $ | 36,301 | $ | 4,480 | ||||
Cash paid during the period for: | ||||||||
Interest | $ | 27,464 | $ | 29,269 | ||||
Income taxes | 845 | 1,888 | ||||||
Non-cash activities: | ||||||||
Securitization-related transfers from mortgage loans held for sale to investments in securities | $ | 32,609 | $ | 20,479 | ||||
Net transfers of loans held for sale to loans held for investment | 5,819 | 2,180 | ||||||
Net deconsolidation transfers from mortgage loans held for sale to investments in securities | (850 | ) | (82 | ) | ||||
Net transfers from available-for-sale securities to mortgage loans held for sale | 1,073 | 12 | ||||||
Transfers from advances to lenders to investments in securities (including transfers to trading securities of $40,660 and $42,331 for the nine months ended September 30, 2008 and 2007, respectively) | 68,909 | 43,520 | ||||||
Net consolidation-related transfers from investments in securities to mortgage loans held for investment | (16,210 | ) | 7,471 | |||||
Transfers to trading securities from the effect of adopting SFAS 159 | 56,217 | — |
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(In conservatorship)
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars and shares in millions, except per share amounts)
(Unaudited)
Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
Shares Outstanding | Additional | Earnings | Other | Total | ||||||||||||||||||||||||||||||||||||||||
Senior | Senior | Preferred | Common | Paid-In | (Accumulated | Comprehensive | Treasury | Stockholders’ | ||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Common | Preferred | Stock | Stock | Capital | Deficit) | Income (Loss) | Stock | Equity | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2006 | — | 132 | 972 | $ | — | $ | 9,108 | $ | 593 | $ | 1,942 | $ | 37,955 | $ | (445 | ) | $ | (7,647 | ) | $ | 41,506 | |||||||||||||||||||||||
Cumulative effect from the adoption of FIN 48, net of tax | — | — | — | — | — | — | — | 4 | — | — | 4 | |||||||||||||||||||||||||||||||||
Balance as of January 1, 2007, adjusted | — | 132 | 972 | — | 9,108 | 593 | 1,942 | 37,959 | (445 | ) | (7,647 | ) | 41,510 | |||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 1,509 | — | — | 1,509 | |||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on available-for-sale securities (net of tax of $634) | — | — | — | — | — | — | — | — | (1,177 | ) | — | (1,177 | ) | |||||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income (net of tax of $154) | — | — | — | — | — | — | — | — | (286 | ) | — | (286 | ) | |||||||||||||||||||||||||||||||
Unrealized gains on guaranty assets and guaranty feebuy-ups (net of tax of $40) | — | — | — | — | — | — | — | — | 74 | — | 74 | |||||||||||||||||||||||||||||||||
Net cash flow hedging losses (net of tax of $2) | — | — | — | — | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||||||||||||||
Prior service cost and actuarial gains, net of amortization for defined benefit plans (net of tax of $25) | — | — | — | — | — | — | — | — | 46 | — | 46 | |||||||||||||||||||||||||||||||||
Total comprehensive income | 163 | |||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($1.40 per share) | — | — | — | — | — | — | — | (1,369 | ) | — | — | (1,369 | ) | |||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | — | (362 | ) | — | — | (362 | ) | |||||||||||||||||||||||||||||||
Preferred stock issued | — | 40 | — | — | 1,000 | — | (10 | ) | — | — | — | 990 | ||||||||||||||||||||||||||||||||
Preferred stock redeemed | — | (22 | ) | — | — | (1,100 | ) | — | — | — | — | — | (1,100 | ) | ||||||||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | — | 2 | — | — | — | (44 | ) | — | — | 134 | 90 | ||||||||||||||||||||||||||||||||
Balance as of September 30, 2007 | — | 150 | 974 | — | $ | 9,008 | $ | 593 | $ | 1,888 | $ | 37,737 | $ | (1,791 | ) | $ | (7,513 | ) | $ | 39,922 | ||||||||||||||||||||||||
Balance as of December 31, 2007 | — | 466 | 974 | $ | — | $ | 16,913 | $ | 593 | $ | 1,831 | $ | 33,548 | $ | (1,362 | ) | $ | (7,512 | ) | $ | 44,011 | |||||||||||||||||||||||
Cumulative effect from the adoption of SFAS 157 and SFAS 159, net of tax | — | — | — | — | — | — | — | 148 | (93 | ) | — | 55 | ||||||||||||||||||||||||||||||||
Balance as of January 1, 2008, adjusted | — | 466 | 974 | — | 16,913 | 593 | 1,831 | 33,696 | (1,455 | ) | (7,512 | ) | 44,066 | |||||||||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (33,480 | ) | — | — | (33,480 | ) | |||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax effect: | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on available-for-sale securities (net of tax of $3,629) | — | — | — | — | — | — | — | — | (6,740 | ) | — | (6,740 | ) | |||||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net loss (net of tax of $35) | — | — | — | — | — | — | — | — | (65 | ) | — | (65 | ) | |||||||||||||||||||||||||||||||
Unrealized losses on guaranty assets and guaranty feebuy-ups | — | — | — | — | — | — | — | — | (113 | ) | — | (113 | ) | |||||||||||||||||||||||||||||||
Net cash flow hedging losses | — | — | — | — | — | — | — | — | (5 | ) | — | (5 | ) | |||||||||||||||||||||||||||||||
Prior service cost and actuarial gains, net of amortization for defined benefit plans | — | — | — | — | — | — | — | — | 9 | — | 9 | |||||||||||||||||||||||||||||||||
Total comprehensive loss | (40,394 | ) | ||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($0.75 per share) | — | — | — | — | — | — | — | (741 | ) | — | — | (741 | ) | |||||||||||||||||||||||||||||||
Preferred stock dividends declared | — | — | — | — | — | — | — | (1,038 | ) | — | — | (1,038 | ) | |||||||||||||||||||||||||||||||
Senior preferred stock issued | 1 | — | — | 1,000 | — | — | — | — | — | — | 1,000 | |||||||||||||||||||||||||||||||||
Preferred stock issued | — | 141 | — | — | 4,812 | — | (127 | ) | — | — | — | 4,685 | ||||||||||||||||||||||||||||||||
Common stock issued | — | — | 94 | — | — | 49 | 2,477 | — | — | — | 2,526 | |||||||||||||||||||||||||||||||||
Common stock warrant issued | — | — | — | — | — | — | 3,518 | — | — | — | 3,518 | |||||||||||||||||||||||||||||||||
Treasury commitment | — | — | — | — | — | — | (4,518 | ) | — | — | — | (4,518 | ) | |||||||||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | — | 2 | — | — | — | (28 | ) | — | — | 200 | 172 | ||||||||||||||||||||||||||||||||
Balance as of September 30, 2008 | 1 | 607 | 1,070 | $ | 1,000 | $ | 21,725 | $ | 642 | $ | 3,153 | $ | (1,563 | ) | $ | (8,369 | ) | $ | (7,312 | ) | $ | 9,276 | ||||||||||||||||||||||
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(UNAUDITED)
1. | Organization and Conservatorship |
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2. | Summary of Significant Accounting Policies |
148
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149
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For the | For the | |||||||||||||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Derivatives fair value losses, net | $ | (3,302 | ) | $ | (2,244 | ) | $ | (4,012 | ) | $ | (891 | ) | ||||
Trading securities gains (losses), net | (2,934 | ) | 295 | (5,126 | ) | (145 | ) | |||||||||
Hedged mortgage assets gains, net(1) | 2,028 | — | 1,225 | — | ||||||||||||
Debt foreign exchange gains (losses) net | 227 | (133 | ) | 58 | (188 | ) | ||||||||||
Debt fair value gains, net | 34 | — | 48 | — | ||||||||||||
Fair value losses, net | $ | (3,947 | ) | $ | (2,082 | ) | $ | (7,807 | ) | $ | (1,224 | ) | ||||
(1) | Represents fair value gains, net on mortgage assets designated for hedge accounting that are attributable to changes in interest rates and will be accreted through interest income over the remaining life of the hedged assets. |
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3. | Consolidations |
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4. | Mortgage Loans |
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Single-family | $ | 294,847 | $ | 311,831 | ||||
Multifamily | 112,824 | 91,746 | ||||||
Total unpaid principal balance of mortgage loans(1)(2) | 407,671 | 403,577 | ||||||
Unamortized premiums, discounts and other cost basis adjustments, net(3) | 82 | 726 | ||||||
Lower of cost or market adjustments on loans held for sale | (208 | ) | (81 | ) | ||||
Allowance for loan losses for loans held for investment | (1,803 | ) | (698 | ) | ||||
Total mortgage loans | $ | 405,742 | $ | 403,524 | ||||
(1) | Includes construction to permanent loans with an unpaid principal balance of $122 million and $149 million as of September 30, 2008 and December 31, 2007, respectively. | |
(2) | Includes unpaid principal balance totaling $59.0 billion and $81.8 billion as of September 30, 2008 and December 31, 2007, respectively, related to mortgage-related securities that were consolidated under FIN 46R and mortgage-related securities created from securitization transactions that did not meet the sales criteria under SFAS 140, which effectively resulted in mortgage-related securities being accounted for as loans. | |
(3) | Includes a net premium of $950 million as of September 30, 2008 for hedged mortgage assets that will be amortized through interest income over the life of the loans. |
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As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Outstanding contractual balance | $ | 7,531 | $ | 8,223 | ||||
Carrying amount: | ||||||||
Loans on accrual status | 4,074 | 4,287 | ||||||
Loans on nonaccrual status | 2,029 | 2,779 | ||||||
Total carrying amount of loans | $ | 6,103 | $ | 7,066 | ||||
For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Contractually required principal and interest payments at acquisition(1) | $ | 871 | $ | 2,719 | $ | 3,657 | $ | 5,024 | ||||||||
Nonaccretable difference | 219 | 173 | 495 | 326 | ||||||||||||
Cash flows expected to be collected at acquisition(1) | 652 | 2,546 | 3,162 | 4,698 | ||||||||||||
Accretable yield | 256 | 895 | 1,363 | 1,245 | ||||||||||||
Initial investment in acquired loans at acquisition | $ | 396 | $ | 1,651 | $ | 1,799 | $ | 3,453 | ||||||||
(1) | Contractually required principal and interest payments at acquisition and cash flows expected to be collected at acquisition are adjusted for the estimated timing and amount of prepayments. |
For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Beginning balance | $ | 2,325 | $ | 1,761 | $ | 2,252 | $ | 1,511 | ||||||||
Additions | 256 | 895 | 1,363 | 1,245 | ||||||||||||
Accretion | (73 | ) | (69 | ) | (218 | ) | (202 | ) | ||||||||
Reductions(1) | (505 | ) | (393 | ) | (1,664 | ) | (852 | ) | ||||||||
Change in estimated cash flows(2) | 213 | 120 | 724 | 901 | ||||||||||||
Reclassifications to nonaccretable difference(3) | (44 | ) | 37 | (285 | ) | (252 | ) | |||||||||
Ending balance | $ | 2,172 | $ | 2,351 | $ | 2,172 | $ | 2,351 | ||||||||
(1) | Reductions are the result of liquidations and loan modifications due to troubled debt restructurings (“TDRs”). |
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(2) | Represents changes in expected cash flows due to changes in prepayment assumptions. | |
(3) | Represents changes in expected cash flows due to changes in credit quality or credit assumptions. |
For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Accretion ofSOP 03-3 fair value losses(1) | $ | 37 | $ | 20 | $ | 125 | $ | 42 | ||||||||
Interest income onSOP 03-3 loans returned to accrual status or subsequently modified as TDRs | 129 | 107 | 354 | 304 | ||||||||||||
TotalSOP 03-3 interest income recognized | $ | 166 | $ | 127 | $ | 479 | $ | 346 | ||||||||
Increase in “Provision for credit losses” subsequent to the acquisition ofSOP 03-3 loans | $ | 12 | $ | 20 | $ | 133 | $ | 52 | ||||||||
(1) | Represents accretion of the fair value discount that was recorded upon acquisition ofSOP 03-3 loans. |
5. | Allowance for Loan Losses and Reserve for Guaranty Losses |
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For the | ||||||||||||||||
For the | Nine Months | |||||||||||||||
Three Months Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||
Beginning balance | $ | 1,476 | $ | 337 | $ | 698 | $ | 340 | ||||||||
Provision | 1,120 | 148 | 2,544 | 238 | ||||||||||||
Charge-offs(1)(4) | (829 | ) | (115 | ) | (1,603 | ) | (241 | ) | ||||||||
Recoveries | 36 | 25 | 164 | 58 | ||||||||||||
Ending balance(2) | $ | 1,803 | $ | 395 | $ | 1,803 | $ | 395 | ||||||||
Reserve for guaranty losses: | ||||||||||||||||
Beginning balance | $ | 7,450 | $ | 821 | $ | 2,693 | $ | 519 | ||||||||
Provision | 7,643 | 939 | 14,377 | 1,532 | ||||||||||||
Charge-offs(3)(4) | (1,369 | ) | (757 | ) | (3,395 | ) | (1,078 | ) | ||||||||
Recoveries | 78 | 9 | 127 | 39 | ||||||||||||
Ending balance | $ | 13,802 | $ | 1,012 | $ | 13,802 | $ | 1,012 | ||||||||
(1) | Includes accrued interest of $229 million and $32 million for the three months ended September 30, 2008 and 2007, respectively, and $468 million and $84 million for the nine months ended September 30, 2008 and 2007, respectively. | |
(2) | Includes $108 million and $35 million as of September 30, 2008 and 2007, respectively, associated with acquired loans subject toSOP 03-3. | |
(3) | Includes charges recorded at the date of acquisition of $348 million and $670 million for the three months ended September 30, 2008 and 2007, respectively, and $1.5 billion and $805 million for the nine months ended September 30, 2008 and 2007, respectively, for acquired loans subject toSOP 03-3 where the acquisition cost exceeded the fair value of the acquired loan. | |
(4) | Also includes charges recorded for our HomeSaver Advance initiative of $171 million and $294 million for the three and nine months ended September 30, 2008, respectively. |
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6. | Investments in Securities |
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Mortgage-related securities: | ||||||||
Fannie Mae single-class MBS | $ | 151,727 | $ | 102,017 | ||||
Fannie Mae structured MBS | 70,176 | 77,384 | ||||||
Non-Fannie Mae structured | 72,766 | 92,467 | ||||||
Non-Fannie Mae single-class | 27,852 | 28,138 | ||||||
Mortgage revenue bonds | 13,823 | 16,213 | ||||||
Other | 2,607 | 3,179 | ||||||
Total | 338,951 | 319,398 | ||||||
Non-mortgage-related securities: | ||||||||
Asset-backed securities | 11,929 | 15,511 | ||||||
Corporate debt securities | 7,657 | 13,515 | ||||||
Other | 2,188 | 9,089 | ||||||
Total | 21,774 | 38,115 | ||||||
Total investments in securities | $ | 360,725 | $ | 357,513 | ||||
As of | ||||||||
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Mortgage-related securities: | ||||||||
Fannie Mae single-class MBS | $ | 48,576 | $ | 28,394 | ||||
Fannie Mae structured MBS | 10,471 | 12,064 | ||||||
Non-Fannie Mae structured mortgage-related securities | 16,106 | 21,517 | ||||||
Non-Fannie Mae single-class mortgage-related securities | 1,084 | 1,199 | ||||||
Mortgage revenue bonds | 660 | 782 | ||||||
Total | $ | 76,897 | $ | 63,956 | ||||
Non-mortgage-related securities:(1) | ||||||||
Asset-backed securities | $ | 11,929 | $ | — | ||||
Corporate debt securities | 7,657 | — | ||||||
Other | 2,188 | — | ||||||
Total | $ | 21,774 | $ | — | ||||
Losses in trading securities held in our portfolio, net | $ | 5,496 | $ | 633 | ||||
(1) | Reflects the election of all of our non-mortgage securities as trading securities effective January 1, 2008 with the adoption of SFAS 159. |
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For the | For the | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net trading gains (losses) | $ | (2,934 | ) | $ | 295 | $ | (5,126 | ) | $ | (145 | ) | |||||
Net trading gains (losses) recorded in the period related to securities still held at period end | $ | (2,950 | ) | $ | 52 | $ | (5,173 | ) | $ | (287 | ) |
For the | For the | |||||||||||||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Gross realized gains | $ | 1,081 | $ | 74 | $ | 2,554 | $ | 557 | ||||||||
Gross realized losses | (788 | ) | (27 | ) | (2,248 | ) | (184 | ) | ||||||||
Total proceeds | 22,462 | 16,209 | 92,062 | 46,225 |
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As of September 30, 2008 | ||||||||||||||||||||||||||||||||
Less Than 12 | 12 Consecutive | |||||||||||||||||||||||||||||||
Consecutive Months | Months or Longer | |||||||||||||||||||||||||||||||
Total | Gross | Gross | Total | Gross | Total | Gross | Total | |||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||||||||
Cost(1) | Gains | Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 103,669 | $ | 665 | $ | (1,183 | ) | $ | 103,151 | $ | (974 | ) | $ | 60,991 | $ | (209 | ) | $ | 6,949 | |||||||||||||
Fannie Mae structured MBS | 59,989 | 489 | (773 | ) | 59,705 | (447 | ) | 27,410 | (326 | ) | 7,532 | |||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 26,634 | 261 | (127 | ) | 26,768 | (104 | ) | 10,427 | (23 | ) | 1,132 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 67,493 | 70 | (10,903 | ) | 56,660 | (3,267 | ) | 20,817 | (7,636 | ) | 27,823 | |||||||||||||||||||||
Mortgage revenue bonds | 14,817 | 28 | (1,682 | ) | 13,163 | (800 | ) | 7,554 | (882 | ) | 3,900 | |||||||||||||||||||||
Other mortgage-related securities | 2,600 | 114 | (107 | ) | 2,607 | (85 | ) | 1,102 | (22 | ) | 132 | |||||||||||||||||||||
Total | $ | 275,202 | $ | 1,627 | $ | (14,775 | ) | $ | 262,054 | $ | (5,677 | ) | $ | 128,301 | $ | (9,098 | ) | $ | 47,468 | |||||||||||||
As of December 31, 2007 | ||||||||||||||||||||||||||||||||
Less Than 12 | 12 Consecutive | |||||||||||||||||||||||||||||||
Consecutive Months | Months or Longer | |||||||||||||||||||||||||||||||
Total | Gross | Gross | Total | Gross | Total | Gross | Total | |||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||||||||
Cost(1) | Gains | Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 73,560 | $ | 627 | $ | (564 | ) | $ | 73,623 | $ | (39 | ) | $ | 6,155 | $ | (525 | ) | $ | 44,110 | |||||||||||||
Fannie Mae structured MBS | 65,225 | 639 | (544 | ) | 65,320 | (32 | ) | 4,792 | (512 | ) | 29,897 | |||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 26,699 | 334 | (94 | ) | 26,939 | (12 | ) | 2,439 | (82 | ) | 7,328 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 73,984 | 317 | (3,351 | ) | 70,950 | (1,389 | ) | 22,925 | (1,962 | ) | 30,145 | |||||||||||||||||||||
Mortgage revenue bonds | 15,564 | 146 | (279 | ) | 15,431 | (130 | ) | 4,210 | (149 | ) | 2,686 | |||||||||||||||||||||
Other mortgage-related securities | 2,949 | 233 | (3 | ) | 3,179 | (2 | ) | 114 | (1 | ) | 67 | |||||||||||||||||||||
Asset-backed securities | 15,510 | 1 | — | 15,511 | — | — | — | — | ||||||||||||||||||||||||
Corporate debt securities | 13,506 | 9 | — | 13,515 | — | — | — | — | ||||||||||||||||||||||||
Other non-mortgage-related securities | 9,089 | — | — | 9,089 | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 296,086 | $ | 2,306 | $ | (4,835 | ) | $ | 293,557 | $ | (1,604 | ) | $ | 40,635 | $ | (3,231 | ) | $ | 114,233 | |||||||||||||
(1) | Amortized cost includes unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary impairment. |
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7. | Financial Guarantees |
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For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Balance as of beginning of period | $ | 16,441 | $ | 12,954 | $ | 15,393 | $ | 11,145 | ||||||||
Additions to guaranty obligations(1) | 1,769 | 2,383 | 6,239 | 5,857 | ||||||||||||
Amortization of guaranty obligations into guaranty fee income | (1,155 | ) | (777 | ) | (4,134 | ) | (2,248 | ) | ||||||||
Impact of consolidation activity(2) | (239 | ) | (238 | ) | (682 | ) | (432 | ) | ||||||||
Balance as of end of period | $ | 16,816 | $ | 14,322 | $ | 16,816 | $ | 14,322 | ||||||||
(1) | Represents the fair value of the contractual obligation and deferred profit at issuance of new guarantees. | |
(2) | Upon consolidation of MBS trusts, we derecognize our guaranty obligation to the respective trust. |
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8. | Acquired Property, Net |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
September 30, 2008 | September 30, 2008 | |||||||||||||||||||||||
Acquired | Valuation | Acquired | Acquired | Valuation | Acquired | |||||||||||||||||||
Property | Allowance(1) | Property, Net | Property | Allowance(1) | Property, Net | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Balance as of beginning of period | $ | 6,453 | $ | (458 | ) | $ | 5,995 | $ | 3,853 | $ | (251 | ) | $ | 3,602 | ||||||||||
Additions | 3,468 | (22 | ) | 3,446 | 8,494 | (38 | ) | 8,456 | ||||||||||||||||
Disposals | (1,765 | ) | 164 | (1,601 | ) | (4,191 | ) | 395 | (3,796 | ) | ||||||||||||||
Write-downs, net of recoveries | — | (347 | ) | (347 | ) | — | (769 | ) | (769 | ) | ||||||||||||||
Balance as of end of period | $ | 8,156 | $ | (663 | ) | $ | 7,493 | $ | 8,156 | $ | (663 | ) | $ | 7,493 | ||||||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
September 30, 2007 | September 30, 2007 | |||||||||||||||||||||||
Acquired | Valuation | Acquired | Acquired | Valuation | Acquired | |||||||||||||||||||
Property | Allowance(1) | Property, Net | Property | Allowance(1) | Property, Net | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Balance as of beginning of period | $ | 2,810 | $ | (135 | ) | $ | 2,675 | $ | 2,257 | $ | (116 | ) | $ | 2,141 | ||||||||||
Additions | 1,449 | (78 | ) | 1,371 | 3,794 | (88 | ) | 3,706 | ||||||||||||||||
Disposals | (986 | ) | 83 | (903 | ) | (2,778 | ) | 224 | (2,554 | ) | ||||||||||||||
Write-downs, net of recoveries | — | (36 | ) | (36 | ) | — | (186 | ) | (186 | ) | ||||||||||||||
Balance as of end of period | $ | 3,273 | $ | (166 | ) | $ | 3,107 | $ | 3,273 | $ | (166 | ) | $ | 3,107 | ||||||||||
(1) | Reflects activities in the valuation allowance for acquired properties held primarily by our Single-Family segment. |
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9. | Short-term Borrowings and Long-term Debt |
As of | ||||||||||||||||
September 30, 2008 | December 31, 2007 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Interest | Interest | |||||||||||||||
Outstanding | Rate(1) | Outstanding | Rate(1) | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 1,357 | 2.04 | % | $ | 869 | 3.48 | % | ||||||||
Fixed short-term debt: | ||||||||||||||||
Discount notes | $ | 275,351 | 2.48 | % | $ | 233,258 | 4.45 | % | ||||||||
Foreign exchange discount notes | 304 | 4.20 | 301 | 4.28 | ||||||||||||
Other short-term debt | 232 | 2.74 | 601 | 4.37 | ||||||||||||
Total fixed short-term debt | 275,887 | 2.48 | 234,160 | 4.45 | ||||||||||||
Floating-rate short-term debt | 4,495 | 2.08 | — | — | ||||||||||||
Total short-term debt | $ | 280,382 | 2.48 | % | $ | 234,160 | 4.45 | % | ||||||||
(1) | Includes discounts, premiums and other cost basis adjustments. |
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As of | ||||||||||||||||||||||||
September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Maturities | Outstanding | Rate(1) | Maturities | Outstanding | Rate(1) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Senior fixed: | ||||||||||||||||||||||||
Benchmark notes and bonds | 2008-2030 | $ | 254,620 | 4.92 | % | 2008-2030 | $ | 256,538 | 5.12 | % | ||||||||||||||
Medium-term notes | 2008-2018 | 159,334 | 4.34 | 2008-2017 | 202,315 | 5.06 | ||||||||||||||||||
Foreign exchange notes and bonds | 2009-2028 | 1,678 | 4.83 | 2008-2028 | 2,259 | 3.30 | ||||||||||||||||||
Other long-term debt(2) | 2008-2038 | 72,146 | 5.97 | 2008-2038 | 69,717 | 6.01 | ||||||||||||||||||
Total senior fixed | 487,778 | 4.89 | 530,829 | 5.20 | ||||||||||||||||||||
Senior floating: | ||||||||||||||||||||||||
Medium-term notes(2) | 2008-2017 | 45,997 | 2.43 | 2008-2017 | 12,676 | 5.87 | ||||||||||||||||||
Other long-term debt(2) | 2017-2037 | 1,090 | 6.50 | 2017-2037 | 1,024 | 7.76 | ||||||||||||||||||
Total senior floating | 47,087 | 2.53 | 13,700 | 6.01 | ||||||||||||||||||||
Subordinated fixed: | ||||||||||||||||||||||||
Medium-term notes | 2011 | 2,500 | 6.24 | 2008-2011 | 3,500 | 5.62 | ||||||||||||||||||
Other subordinated debt | 2012-2019 | 7,067 | 6.56 | 2012-2019 | 7,524 | 6.39 | ||||||||||||||||||
Total subordinated fixed | 9,567 | 6.48 | 11,024 | 6.14 | ||||||||||||||||||||
Debt from consolidations | 2008-2039 | 6,496 | 5.81 | 2008-2039 | 6,586 | 5.95 | ||||||||||||||||||
Total long-term debt(3) | $ | 550,928 | 4.72 | % | $ | 562,139 | 5.25 | % | ||||||||||||||||
(1) | Includes discounts, premiums and other cost basis adjustments. | |
(2) | Includes a portion of structured debt instruments at fair value. | |
(3) | Reported amounts include a net discount and other cost basis adjustments of $14.6 billion and $11.6 billion as of September 30, 2008 and December 31, 2007, respectively. |
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10. | Derivative Instruments and Hedging Activities |
• | Interest rate swap contracts. An interest rate swap is a transaction between two parties in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional amount of principal. The types of interest rate swaps we use include pay-fixed swaps; receive-fixed swaps; and basis swaps. | |
• | Interest rate option contracts. These contracts primarily include pay-fixed swaptions, receive-fixed swaptions, cancelable swaps and interest rate caps. | |
• | Foreign currency swaps. These swaps convert debt that we issue in foreign-denominated currencies into U.S. dollars. We enter into foreign currency swaps only to the extent that we issue foreign currency debt. |
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As of | ||||||||||||||||
September 30, 2008 | December 31, 2007 | |||||||||||||||
Notional | Estimated | Notional | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Risk management derivatives: | ||||||||||||||||
Swaps: | ||||||||||||||||
Pay-fixed | $ | 515,853 | $ | (15,044 | ) | $ | 377,738 | $ | (14,357 | ) | ||||||
Receive-fixed | 372,555 | 6,176 | 285,885 | 6,390 | ||||||||||||
Basis | 24,761 | (257 | ) | 7,001 | (21 | ) | ||||||||||
Foreign currency | 1,980 | 72 | 2,559 | 353 | ||||||||||||
Swaptions: | ||||||||||||||||
Pay-fixed | 71,610 | 660 | 85,730 | 849 | ||||||||||||
Receive-fixed | 100,485 | 4,998 | 124,651 | 5,877 | ||||||||||||
Interest rate caps | 500 | 3 | 2,250 | 8 | ||||||||||||
Other(1) | 777 | 109 | 650 | 71 | ||||||||||||
Net collateral payable | — | 4,554 | — | (712 | ) | |||||||||||
Accrued interest receivable (payable), net | — | (1,695 | ) | — | 221 | |||||||||||
Total risk management derivatives | $ | 1,088,521 | $ | (424 | ) | $ | 886,464 | $ | (1,321 | ) | ||||||
Mortgage commitment derivatives: | ||||||||||||||||
Mortgage commitments to purchase whole loans | $ | 2,274 | $ | (14 | ) | $ | 1,895 | $ | 6 | |||||||
Forward contracts to purchase mortgage-related securities | 45,590 | 148 | 25,728 | 91 | ||||||||||||
Forward contracts to sell mortgage-related securities | 35,243 | 84 | 27,743 | (108 | ) | |||||||||||
Total mortgage commitment derivatives | $ | 83,107 | $ | 218 | $ | 55,366 | $ | (11 | ) | |||||||
(1) | Includes MBS options, swap credit enhancements and mortgage insurance contracts that are accounted for as derivatives. The mortgage insurance contracts have payment provisions that are not based on a notional amount. |
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11. | Income Taxes |
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For the Three Months | For the Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Beginning balance | $ | 1,428 | $ | 163 | $ | 124 | $ | 163 | ||||||||
Additions (reductions) based on tax positions related to prior years, net of related tax credits | (104 | ) | — | 1,200 | — | |||||||||||
Ending balance as of September 30 | $ | 1,324 | $ | 163 | $ | 1,324 | $ | 163 | ||||||||
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12. | Earnings (Loss) Per Share |
For the Three Months | ||||||||||||||||
Ended | ||||||||||||||||
September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars and shares in millions, except per share amounts) | ||||||||||||||||
Income (loss) before extraordinary losses | $ | (28,899 | ) | $ | (1,402 | ) | $ | (33,351 | ) | $ | 1,512 | |||||
Extraordinary gains (losses), net of tax effect | (95 | ) | 3 | (129 | ) | (3 | ) | |||||||||
Net income (loss) | (28,994 | ) | (1,399 | ) | (33,480 | ) | 1,509 | |||||||||
Preferred stock dividends and issuance costs at redemption(1) | (419 | ) | (119 | ) | (1,044 | ) | (372 | ) | ||||||||
Net income (loss) available to common stockholders—basic | (29,413 | ) | (1,518 | ) | (34,524 | ) | 1,137 | |||||||||
Convertible preferred stock dividends(2) | — | — | — | — | ||||||||||||
Net income (loss) available to common stockholders—diluted | $ | (29,413 | ) | $ | (1,518 | ) | $ | (34,524 | ) | $ | 1,137 | |||||
Weighted-average common shares outstanding—basic(3) | 2,262 | 974 | 1,424 | 973 | ||||||||||||
Dilutive potential common shares: | ||||||||||||||||
Stock-based awards(4) | — | — | — | 2 | ||||||||||||
Convertible preferred stock(5) | — | — | — | — | ||||||||||||
Weighted-average common shares outstanding—diluted | 2,262 | 974 | 1,424 | 975 | ||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||
Earnings (loss) before extraordinary losses(6) | $ | (12.96 | ) | $ | (1.56 | ) | $ | (24.15 | ) | $ | 1.17 | |||||
Extraordinary losses, net of tax effect | (0.04 | ) | — | (0.09 | ) | — | ||||||||||
Basic earnings (loss) per share | $ | (13.00 | ) | $ | (1.56 | ) | $ | (24.24 | ) | $ | 1.17 | |||||
Diluted earnings (loss) per share: | ||||||||||||||||
Earnings (loss) before extraordinary losses(6) | $ | (12.96 | ) | $ | (1.56 | ) | $ | (24.15 | ) | $ | 1.17 | |||||
Extraordinary losses, net of tax effect | (0.04 | ) | — | (0.09 | ) | — | ||||||||||
Diluted earnings (loss) per share | $ | (13.00 | ) | $ | (1.56 | ) | $ | (24.24 | ) | $ | 1.17 | |||||
(1) | Amounts for the three and nine months ended September 30, 2008 include approximately $6 million of dividends accumulated, but undeclared, for the reporting period on our outstanding cumulative senior preferred stock. | |
(2) | In the computation of diluted EPS, convertible preferred stock dividends are added back to net income (loss) available to common stockholders when the assumed conversion of the preferred shares is dilutive and is assumed to be converted from the beginning of the period. For the three and nine months ended September 30, 2008 and 2007, the assumed conversion of the preferred shares had an anti-dilutive effect. | |
(3) | Amounts for the three and nine months ended September 30, 2008 include 1.2 billion and 400 million weighted-average shares of common stock, respectively, that would be issuable upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through September 30, 2008. | |
(4) | Represents incremental shares from in-the-money nonqualified stock options and other performance awards. Weighted-average options and performance awards to purchase approximately 22 million and 14 million shares of common stock for the three months ended September 30, 2008 and 2007, respectively, and 23 million and 17 million shares of common stock for the nine months ended September 30, 2008 and 2007, respectively, were outstanding in each period, but were excluded from the computation of diluted EPS since they would have been anti-dilutive. |
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(5) | Represents incremental shares from the assumed conversion of outstanding convertible preferred stock when the assumed conversion of the preferred shares is dilutive and is assumed to be converted from the beginning of the period. | |
(6) | Amount is net of preferred stock dividends and issuance costs at redemption. |
13. | Employee Retirement Benefits |
For the Three Months Ended September 30, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Pension Plans | Other Post- | Pension Plans | Other Post- | |||||||||||||||||||||
Non- | Retirement | Non- | Retirement | |||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Service cost | $ | 7 | $ | 2 | $ | 1 | $ | 17 | $ | 3 | $ | 5 | ||||||||||||
Interest cost | 12 | 3 | 3 | 12 | 2 | 4 | ||||||||||||||||||
Expected return on plan assets | (15 | ) | — | — | (14 | ) | — | — | ||||||||||||||||
Amortization of net actuarial (gain) loss | — | (1 | ) | — | (1 | ) | 1 | — | ||||||||||||||||
Amortization of net prior service cost (credit) | — | — | (1 | ) | 1 | (1 | ) | (1 | ) | |||||||||||||||
Amortization of initial transition obligation | — | — | — | — | — | 1 | ||||||||||||||||||
Curtailment (gain) loss | — | (1 | ) | — | 1 | — | 9 | |||||||||||||||||
Net periodic benefit cost | $ | 4 | $ | 3 | $ | 3 | $ | 16 | $ | 5 | $ | 18 | ||||||||||||
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Pension Plans | Other Post- | Pension Plans | Other Post- | |||||||||||||||||||||
Non- | Retirement | Non- | Retirement | |||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Service cost | $ | 29 | $ | 6 | $ | 4 | $ | 45 | $ | 9 | $ | 11 | ||||||||||||
Interest cost | 37 | 8 | 7 | 36 | 7 | 9 | ||||||||||||||||||
Expected return on plan assets | (44 | ) | — | — | (42 | ) | — | — | ||||||||||||||||
Amortization of net actuarial (gain) loss | — | (1 | ) | 1 | — | 2 | 1 | |||||||||||||||||
Amortization of net prior service cost (credit) | — | 1 | (4 | ) | 1 | 1 | (1 | ) | ||||||||||||||||
Amortization of initial transition obligation | — | — | 1 | — | — | 2 | ||||||||||||||||||
Curtailment (gain) loss | — | (1 | ) | — | 1 | — | 9 | |||||||||||||||||
Special termination benefit charge | — | — | 3 | — | — | — | ||||||||||||||||||
Net periodic benefit cost | $ | 22 | $ | 13 | $ | 12 | $ | 41 | $ | 19 | $ | 31 | ||||||||||||
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14. | Segment Reporting |
For the Three Months Ended September 30, 2008 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 133 | $ | (86 | ) | $ | 2,308 | $ | 2,355 | |||||||
Guaranty fee income (expense)(2) | 1,674 | 161 | (360 | ) | 1,475 | |||||||||||
Trust management income | 63 | 2 | — | 65 | ||||||||||||
Investment losses, net | (17 | ) | — | (1,607 | ) | (1,624 | ) | |||||||||
Fair value losses, net | — | — | (3,947 | ) | (3,947 | ) | ||||||||||
Debt extinguishment gains, net | — | — | 23 | 23 | ||||||||||||
Losses from partnership investments | — | (587 | ) | — | (587 | ) | ||||||||||
Fee and other income | 68 | 43 | 53 | 164 | ||||||||||||
Administrative expenses | (235 | ) | (77 | ) | (89 | ) | (401 | ) | ||||||||
Provision for credit losses | (8,740 | ) | (23 | ) | — | (8,763 | ) | |||||||||
Other expenses | (623 | ) | (7 | ) | (18 | ) | (648 | ) | ||||||||
Loss before federal income taxes and extraordinary losses | (7,677 | ) | (574 | ) | (3,637 | ) | (11,888 | ) | ||||||||
Provision for federal income taxes | 6,550 | 2,025 | 8,436 | 17,011 | ||||||||||||
Loss before extraordinary losses | (14,227 | ) | (2,599 | ) | (12,073 | ) | (28,899 | ) | ||||||||
Extraordinary losses | — | — | (95 | ) | (95 | ) | ||||||||||
Net loss | $ | (14,227 | ) | $ | (2,599 | ) | $ | (12,168 | ) | $ | (28,994 | ) | ||||
(1) | Includes cost of capital charge. |
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(2) | Includes intercompany guaranty fee income (expense) allocated to Single-Family and HCD from Capital Markets for absorbing the credit risk on mortgage loans held in our portfolio. |
For the Three Months Ended September 30, 2007 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 100 | $ | (106 | ) | $ | 1,064 | $ | 1,058 | |||||||
Guaranty fee income (expense)(2) | 1,424 | 115 | (307 | ) | 1,232 | |||||||||||
Losses on certain guaranty contracts | (292 | ) | (2 | ) | — | (294 | ) | |||||||||
Trust management income | 138 | 8 | — | 146 | ||||||||||||
Investment losses, net(3) | (47 | ) | — | (112 | ) | (159 | ) | |||||||||
Fair value losses, net(3) | — | — | (2,082 | ) | (2,082 | ) | ||||||||||
Debt extinguishment gains, net | — | — | 31 | 31 | ||||||||||||
Losses from partnership investments | — | (147 | ) | — | (147 | ) | ||||||||||
Fee and other income(3) | 80 | 70 | 67 | 217 | ||||||||||||
Administrative expenses | (370 | ) | (134 | ) | (156 | ) | (660 | ) | ||||||||
Provision for credit losses | (1,084 | ) | (3 | ) | — | (1,087 | ) | |||||||||
Other expenses(3) | (233 | ) | (5 | ) | (1 | ) | (239 | ) | ||||||||
Loss before federal income taxes and extraordinary losses | (284 | ) | (204 | ) | (1,496 | ) | (1,984 | ) | ||||||||
Benefit for federal income taxes | (98 | ) | (301 | ) | (183 | ) | (582 | ) | ||||||||
Income (loss) before extraordinary losses | (186 | ) | 97 | (1,313 | ) | (1,402 | ) | |||||||||
Extraordinary gains, net of tax effect | — | — | 3 | 3 | ||||||||||||
Net income (loss) | $ | (186 | ) | $ | 97 | $ | (1,310 | ) | $ | (1,399 | ) | |||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) allocated to Single-Family and HCD from Capital Markets for absorbing the credit risk on mortgage loans held in our portfolio. | |
(3) | Certain prior period amounts have been reclassified to conform with the current period presentation in our condensed consolidated statements of operations. |
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For the Nine Months Ended September 30, 2008 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 409 | $ | (277 | ) | $ | 5,970 | $ | 6,102 | |||||||
Guaranty fee income (expense)(2) | 5,435 | 443 | (1,043 | ) | 4,835 | |||||||||||
Trust management income | 242 | 5 | — | 247 | ||||||||||||
Investment losses, net | (102 | ) | — | (2,516 | ) | (2,618 | ) | |||||||||
Fair value losses, net | — | — | (7,807 | ) | (7,807 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (158 | ) | (158 | ) | ||||||||||
Losses from partnership investments | — | (923 | ) | — | (923 | ) | ||||||||||
Fee and other income | 262 | 156 | 198 | 616 | ||||||||||||
Administrative expenses | (809 | ) | (289 | ) | (327 | ) | (1,425 | ) | ||||||||
Provision for credit losses | (16,898 | ) | (23 | ) | — | (16,921 | ) | |||||||||
Other expenses | (1,478 | ) | (82 | ) | (132 | ) | (1,692 | ) | ||||||||
Loss before federal income taxes and extraordinary losses | (12,939 | ) | (990 | ) | (5,815 | ) | (19,744 | ) | ||||||||
Provision for federal income taxes | 4,702 | 1,387 | 7,518 | 13,607 | ||||||||||||
Loss before extraordinary losses | (17,641 | ) | (2,377 | ) | (13,333 | ) | (33,351 | ) | ||||||||
Extraordinary losses | — | — | (129 | ) | (129 | ) | ||||||||||
Net loss | $ | (17,641 | ) | $ | (2,377 | ) | $ | (13,462 | ) | $ | (33,480 | ) | ||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) allocated to Single-Family and HCD from Capital Markets for absorbing the credit risk on mortgage loans held in our portfolio. |
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For the Nine Months Ended September 30, 2007 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 293 | $ | (303 | ) | $ | 3,455 | $ | 3,445 | |||||||
Guaranty fee income (expense)(2) | 4,015 | 326 | (891 | ) | 3,450 | |||||||||||
Losses on certain guaranty contracts | (1,023 | ) | (15 | ) | — | (1,038 | ) | |||||||||
Trust management income | 433 | 27 | — | 460 | ||||||||||||
Investment gains (losses), net(3) | (46 | ) | — | 89 | 43 | |||||||||||
Fair value losses, net(3) | — | — | (1,224 | ) | (1,224 | ) | ||||||||||
Debt extinguishment gains, net | — | — | 72 | 72 | ||||||||||||
Losses from partnership investments | — | (527 | ) | — | (527 | ) | ||||||||||
Fee and other income(3) | 246 | 251 | 254 | 751 | ||||||||||||
Administrative expenses | (1,108 | ) | (420 | ) | (490 | ) | (2,018 | ) | ||||||||
Benefit (provision) for credit losses | (1,771 | ) | 1 | — | (1,770 | ) | ||||||||||
Other expenses(3) | (575 | ) | (17 | ) | (8 | ) | (600 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary losses | 464 | (677 | ) | 1,257 | 1,044 | |||||||||||
Provision (benefit) for federal income taxes | 159 | (1,047 | ) | 420 | (468 | ) | ||||||||||
Income before extraordinary losses | 305 | 370 | 837 | 1,512 | ||||||||||||
Extraordinary losses, net of tax effect | — | — | (3 | ) | (3 | ) | ||||||||||
Net income | $ | 305 | $ | 370 | $ | 834 | $ | 1,509 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) allocated to Single-Family and HCD from Capital Markets for absorbing the credit risk on mortgage loans held in our portfolio. | |
(3) | Certain prior period amounts have been reclassified to conform with the current period presentation in our condensed consolidated statements of operations. |
15. | Stockholders’ Equity |
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• | Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Fannie Mae equity securities (other than with respect to the senior preferred stock or warrant); | |
• | Redeem, purchase, retire or otherwise acquire any Fannie Mae equity securities (other than the senior preferred stock or warrant); | |
• | Sell or issue any Fannie Mae equity securities (other than the senior preferred stock, the warrant and the common stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement); | |
• | Terminate the conservatorship (other than in connection with a receivership); | |
• | Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life regulated entity (in the context of receivership); (b) of assets and properties in the ordinary course of business, consistent with past practice; (c) in connection with a liquidation of Fannie Mae by a receiver; (d) of cash or cash equivalents for cash or cash equivalents; or (e) to the extent necessary to comply with the covenant described below relating to the reduction of our mortgage assets beginning in 2010; | |
• | Incur indebtedness that would result in our aggregate indebtedness exceeding 110% of our aggregate indebtedness as of June 30, 2008; | |
• | Issue any subordinated debt; | |
• | Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or | |
• | Engage in transactions with affiliates unless the transaction is (a) pursuant to the senior preferred stock purchase agreement, the senior preferred stock or the warrant, (b) upon arm’s length terms or (c) a transaction undertaken in the ordinary course or pursuant to a contractual obligation or customary employment arrangement in existence on the date of the senior preferred stock purchase agreement. |
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16. | Regulatory Capital Requirements |
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17. | Concentrations of Credit Risk |
Non-traditional Loans; Alt-A and Subprime Loans and Securities |
Percentage of Conventional | ||||||||
Single-Family Mortgage Credit | ||||||||
Book of Business | ||||||||
As of | ||||||||
September 30, 2008 | December 31, 2007 | |||||||
Interest-only loans | 8 | % | 8 | % | ||||
Negative-amortizing ARMs | 1 | 1 | ||||||
80%+ LTV loans | 31 | 20 |
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As of | ||||||||||||||||
September 30, | December 31, | |||||||||||||||
2008 | 2007 | |||||||||||||||
Unpaid | Percent of | Unpaid | Percent of | |||||||||||||
Principal | Book of | Principal | Book of | |||||||||||||
Balance | Business(1) | Balance | Business(1) | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Loans and Fannie Mae MBS: | ||||||||||||||||
Alt-A(2) | $ | 302,183 | 10 | % | $ | 318,121 | 12 | % | ||||||||
Subprime(3) | 20,020 | 1 | 22,126 | 1 | ||||||||||||
Total | $ | 322,203 | 11 | % | $ | 340,247 | 13 | % | ||||||||
Private-label securities: | ||||||||||||||||
Alt-A(4) | $ | 28,607 | 1 | % | $ | 32,475 | 1 | % | ||||||||
Subprime(5) | 25,959 | 1 | 32,040 | 1 | ||||||||||||
Total | $ | 54,566 | 2 | % | $ | 64,515 | 2 | % | ||||||||
(1) | Calculated based on total unpaid principal balance of the total single-family mortgage credit book of business. | |
(2) | Represents Alt-A mortgage loans held in our portfolio and Fannie Mae MBS backed by Alt-A mortgage loans. | |
(3) | Represents subprime mortgage loans held in our portfolio and Fannie Mae MBS backed by subprime mortgage loans. | |
(4) | Represents private-label mortgage-related securities backed by Alt-A mortgage loans. | |
(5) | Represents private-label mortgage-related securities backed by subprime mortgage loans. |
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As of September 30, 2008 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA+/AA/AA- | A+/A/A- | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | — | $ | 1,536 | $ | 45 | $ | 1,581 | $ | 109 | $ | 1,690 | ||||||||||||
Less: Collateral held(4) | — | 1,085 | 45 | 1,130 | — | 1,130 | ||||||||||||||||||
Exposure net of collateral | $ | — | $ | 451 | $ | — | $ | 451 | $ | 109 | $ | 560 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 275 | $ | 828,599 | $ | 258,821 | $ | 1,087,695 | $ | 826 | $ | 1,088,521 | ||||||||||||
Number of counterparties | 1 | 15 | 3 | 19 |
As of December 31, 2007 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA+/AA/AA- | A+/A/A- | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | 4 | $ | 1,578 | $ | 1,004 | $ | 2,586 | $ | 74 | $ | 2,660 | ||||||||||||
Less: Collateral held(5) | — | 1,130 | 988 | 2,118 | — | 2,118 | ||||||||||||||||||
Exposure net of collateral | $ | 4 | $ | 448 | $ | 16 | $ | 468 | $ | 74 | $ | 542 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 1,050 | $ | 637,847 | $ | 246,860 | $ | 885,757 | $ | 707 | $ | 886,464 | ||||||||||||
Number of counterparties | 1 | 17 | 3 | 21 |
(1) | We manage collateral requirements based on the lower credit rating, as issued by Standard & Poor’s and Moody’s, of the legal entity. The credit rating reflects the equivalent Standard & Poor’s rating for any ratings based on Moody’s scale. | |
(2) | Includes MBS options, defined benefit mortgage insurance contracts, guaranteed guarantor trust swaps and swap credit enhancements accounted for as derivatives. | |
(3) | Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a present value basis, to replace all outstanding contracts in a gain position. Derivative gains and losses with the same counterparty are netted where a legal right of offset exists under an enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives. | |
(4) | Represents both cash and noncash collateral posted by our counterparties to us. The value of the non-cash collateral is reduced in accordance with the counterparty agreements to help ensure recovery of any loss through the disposition of the collateral. We posted cash collateral of $5.7 billion related to our counterparties’ credit exposure to us as of September 30, 2008. | |
(5) | Represents both cash and noncash collateral posted by our counterparties to us, adjusted for the collateral transferred subsequent to month-end, based on credit loss exposure limits on derivative instruments as of December 31, 2007. Settlement dates which vary by counterparty and ranged from one to three business days following the credit loss exposure valuation dates of December 31, 2007. The value of the non-cash collateral is reduced in accordance with counterparty agreements to help ensure recovery of any loss through the disposition of the collateral. We posted cash collateral of $1.2 billion related to our counterparties’ credit exposure to us as of December 31, 2007. |
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18. | Fair Value of Financial Instruments |
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As of | ||||||||||||||||
December 31, 2007 | ||||||||||||||||
September 30, 2008 | Estimated | |||||||||||||||
Carrying | Estimated | Carrying | Fair | |||||||||||||
Value | Fair Value | Value(1) | Value(1) | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents(2) | $ | 36,489 | $ | 36,489 | $ | 4,502 | $ | 4,502 | ||||||||
Federal funds sold and securities purchased under agreements to resell | 33,420 | 33,389 | 49,041 | 49,041 | ||||||||||||
Trading securities | 98,671 | 98,671 | 63,956 | 63,956 | ||||||||||||
Available-for-sale securities | 262,054 | 262,054 | 293,557 | 293,557 | ||||||||||||
Mortgage loans held for sale | 7,908 | 7,938 | 7,008 | 7,083 | ||||||||||||
Mortgage loans held for investment, net of allowance for loan losses | 397,834 | 387,255 | 396,516 | 395,822 | ||||||||||||
Advances to lenders | 9,605 | 9,421 | 12,377 | 12,049 | ||||||||||||
Derivative assets | 1,099 | 1,099 | 885 | 885 | ||||||||||||
Guaranty assets andbuy-ups | 11,318 | 15,161 | 10,610 | 14,258 | ||||||||||||
Total financial assets | $ | 858,398 | $ | 851,477 | $ | 838,452 | $ | 841,153 | ||||||||
Financial liabilities: | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 1,357 | $ | 1,377 | $ | 869 | $ | 869 | ||||||||
Short-term debt | 280,382 | 280,413 | 234,160 | 234,368 | ||||||||||||
Long-term debt | 550,928 | 562,629 | 562,139 | 580,333 | ||||||||||||
Derivative liabilities | 1,305 | 1,305 | 2,217 | 2,217 | ||||||||||||
Guaranty obligations | 16,816 | 74,913 | 15,393 | 20,549 | ||||||||||||
Total financial liabilities | $ | 850,788 | $ | 920,637 | $ | 814,778 | $ | 838,336 | ||||||||
(1) | Pursuant to our adoption of FSPFIN 39-1, we have reduced “Derivative assets at fair value” and “Derivative liabilities at fair value” in our condensed consolidated balance sheet as of December 31, 2007. | |
(2) | Includes restricted cash of $188 million and $561 million as of September 30, 2008 and December 31, 2007. |
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Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
Level 2: | Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities. | |
Level 3: | Unobservable inputs. |
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Fair Value Measurements as of September 30, 2008 | ||||||||||||||||||||
Quoted | ||||||||||||||||||||
Prices in | ||||||||||||||||||||
Active | Significant | |||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Netting | Estimated | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Adjustment(1) | Fair Value | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Trading securities | $ | 6 | $ | 84,492 | $ | 14,173 | $ | — | $ | 98,671 | ||||||||||
Available-for-sale securities | — | 208,731 | 53,323 | — | 262,054 | |||||||||||||||
Derivative assets(2) | — | 20,808 | 280 | (19,990 | ) | 1,098 | ||||||||||||||
Guaranty assets andbuy-ups | — | — | 1,866 | — | 1,866 | |||||||||||||||
Total assets at fair value | $ | 6 | $ | 314,031 | $ | 69,642 | $ | (19,990 | ) | $ | 363,689 | |||||||||
Liabilities: | ||||||||||||||||||||
Short-term debt | $ | — | $ | 4,495 | $ | — | $ | — | $ | 4,495 | ||||||||||
Long-term debt | — | 19,200 | 2,511 | — | 21,711 | |||||||||||||||
Derivative liabilities(2) | — | 25,648 | 209 | (24,553 | ) | 1,304 | ||||||||||||||
Other liabilities | — | 1,923 | — | — | 1,923 | |||||||||||||||
Total liabilities at fair value | $ | — | $ | 51,266 | $ | 2,720 | $ | (24,553 | ) | $ | 29,433 | |||||||||
(1) | Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting agreements to settle with the same counterparty on a net basis, as well as cash collateral. | |
(2) | Excludes accrued fees related to the termination of derivative contracts. |
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
For the Three Months Ended September 30, 2008 | ||||||||||||||||||||
Guaranty | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Trading | Available-for-sale | Net | and | Long-Term | ||||||||||||||||
Securities | Securities | Derivatives | Buy-ups | Debt | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Beginning balance as of July 1, 2008 | $ | 14,325 | $ | 40,033 | $ | 163 | $ | 1,947 | $ | (3,309 | ) | |||||||||
Realized/unrealized gains (losses) included in net loss | (631 | ) | (890 | ) | 49 | (44 | ) | 23 | ||||||||||||
Unrealized losses included in other comprehensive loss | — | (1,574 | ) | — | (123 | ) | — | |||||||||||||
Purchases, sales, issuances, and settlements, net | (948 | ) | 2,440 | (57 | ) | 86 | 775 | |||||||||||||
Transfers in/out of Level 3, net(1) | 1,427 | 13,314 | (84 | ) | — | — | ||||||||||||||
Ending balance as of September 30, 2008 | $ | 14,173 | $ | 53,323 | $ | 71 | $ | 1,866 | $ | (2,511 | ) | |||||||||
Net unrealized losses included in net loss related to assets and liabilities still held at period end(2) | $ | (513 | ) | $ | — | $ | (4 | ) | $ | (63 | ) | $ | 31 | |||||||
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
For the Nine Months Ended September 30, 2008 | ||||||||||||||||||||
Guaranty | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Trading | Available-for-sale | Net | and | Long-Term | ||||||||||||||||
Securities | Securities | Derivatives | Buy-ups | Debt | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Beginning balance as of January 1, 2008 | $ | 18,508 | $ | 20,920 | $ | 161 | $ | 1,568 | $ | (7,888 | ) | |||||||||
Realized/unrealized gains (losses) included in net loss | (1,074 | ) | (987 | ) | 41 | 157 | 29 | |||||||||||||
Unrealized losses included in other comprehensive loss | — | (2,655 | ) | — | (113 | ) | — | |||||||||||||
Purchases, sales, issuances, and settlements, net | (3,348 | ) | 611 | (149 | ) | 254 | 5,150 | |||||||||||||
Transfers in/out of Level 3, net(1) | 87 | 35,434 | 18 | — | 198 | |||||||||||||||
Ending balance as of September 30, 2008 | $ | 14,173 | $ | 53,323 | $ | 71 | $ | 1,866 | $ | (2,511 | ) | |||||||||
Net unrealized gains (losses) included in net loss related to assets and liabilities still held at period end(2) | $ | (460 | ) | $ | — | $ | (49 | ) | $ | 145 | $ | 76 | ||||||||
(1) | When pricing service quotes are not available or differ from additional market information, we may use alternate techniques based upon multiple data sources which can result in level 3 prices. The increase in level 3 balances during the three months ended September 30, 2008 resulted from the transfer from level 2 to level 3 of primarily private-label mortgage-related securities backed by Alt-A loans or subprime loans, partially offset by liquidations. This transfer reflects the ongoing effects of the extreme disruption in the mortgage market and severe reduction in market liquidity for certain mortgage products, such as private-label mortgage-related securities backed by Alt-A loans or subprime |
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loans. Due to the reduction in recently executed transactions and market price quotations for these instruments, the market inputs for these instruments are less observable. | ||
(2) | Amount represents temporary changes in fair value. Amortization, accretion and other-than-temporary impairments are not considered unrealized and not included in this amount. |
Fair Value Measurements Using Significant | ||||||||||||
Unobservable Inputs (Level 3) | ||||||||||||
For the Three Months Ended | ||||||||||||
September 30, 2008 | ||||||||||||
Trading | Available-for-sale | Net | ||||||||||
Securities | Securities | Derivatives | ||||||||||
(Dollars in millions) | ||||||||||||
Realized/unrealized losses included in net loss | $ | (203 | ) | $ | (442 | ) | $ | (84 | ) | |||
Unrealized losses included in other comprehensive loss | — | (78 | ) | — | ||||||||
Total losses | $ | (203 | ) | $ | (520 | ) | $ | (84 | ) | |||
Amount of Level 3 Transfers in | $ | 2,807 | $ | 18,295 | $ | (84 | ) | |||||
Fair Value Measurements Using Significant | ||||||||||||
Unobservable Inputs (Level 3) | ||||||||||||
For the Nine Months Ended | ||||||||||||
September 30, 2008 | ||||||||||||
Trading | Available-for-sale | Net | ||||||||||
Securities | Securities | Derivatives | ||||||||||
(Dollars in millions) | ||||||||||||
Realized/unrealized gains (losses) included in net loss | $ | (382 | ) | $ | (662 | ) | $ | 18 | ||||
Unrealized losses included in other comprehensive loss | — | (2,326 | ) | — | ||||||||
Total gains (losses) | $ | (382 | ) | $ | (2,988 | ) | $ | 18 | ||||
Amount of Level 3 Transfers in | $ | 8,467 | $ | 48,346 | $ | 18 | ||||||
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For the Three Months Ended September 30, 2008 | ||||||||||||||||||||
Fair | ||||||||||||||||||||
Interest | Value | |||||||||||||||||||
Income | Guaranty | Gains | ||||||||||||||||||
Investment in | Fee | Investment | (Losses), | |||||||||||||||||
Securities | Income | Gains (Losses), net | net | Total | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Total realized/unrealized gains (losses) included in net loss as of September 30, 2008 | $ | 10 | $ | (149 | ) | $ | (807 | ) | $ | (547 | ) | $ | (1,493 | ) | ||||||
Net unrealized gains (losses) related to the assets and liabilities still held as of September 30, 2008 | $ | — | $ | (63 | ) | $ | — | $ | (486 | ) | $ | (549 | ) |
For the Nine Months Ended September 30, 2008 | ||||||||||||||||||||
Fair | ||||||||||||||||||||
Interest | Value | |||||||||||||||||||
Income | Guaranty | Gains | ||||||||||||||||||
Investment in | Fee | Investment | (Losses), | |||||||||||||||||
Securities | Income | Gains (Losses), net | net | Total | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Total realized/unrealized gains (losses) included in net loss as of September 30, 2008 | $ | 5 | $ | (137 | ) | $ | (719 | ) | $ | (983 | ) | $ | (1,834 | ) | ||||||
Net unrealized gains (losses) related to the assets and liabilities still held as of September 30, 2008 | $ | — | $ | 145 | $ | — | $ | (433 | ) | $ | (288 | ) |
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For the | For the | |||||||||||||||||||||||
Three Months | Nine Months | |||||||||||||||||||||||
Fair Value Measurements | Ended | Ended | ||||||||||||||||||||||
For the Nine Months Ended of September 30, 2008 | September 30, 2008 | September 30, 2008 | ||||||||||||||||||||||
Quoted | ||||||||||||||||||||||||
Prices in | ||||||||||||||||||||||||
Active | Significant | |||||||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||||||
Assets | Inputs | Inputs | Estimated | Total | Total | |||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Fair Value | Gains (Losses) | Gains (Losses) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Mortgage loans held for sale, at lower of cost or market | $ | — | $ | 19,032 | $ | 1,130 | $ | 20,162 | (1) | $ | 5 | $ | (310 | ) | ||||||||||
Mortgage loans held for investment, at amortized cost | — | — | 1,180 | 1,180 | (2) | (26 | ) | (61 | ) | |||||||||||||||
Acquired property, net | — | — | 5,989 | 5,989 | (3) | (349 | ) | (828 | ) | |||||||||||||||
Guaranty assets | — | — | 4,191 | 4,191 | (4) | (145 | ) | (445 | ) | |||||||||||||||
Master servicing assets | — | — | 620 | 620 | 20 | (242 | ) | |||||||||||||||||
Total assets at fair value | $ | — | $ | 19,032 | $ | 13,110 | $ | 32,142 | $ | (495 | ) | $ | (1,886 | ) | ||||||||||
Liabilities: | ||||||||||||||||||||||||
Master servicing liabilities | $ | — | $ | — | $ | 9 | $ | 9 | $ | (1 | ) | $ | (1 | ) | ||||||||||
Total liabilities at fair value | $ | — | $ | — | $ | 9 | $ | 9 | $ | (1 | ) | $ | (1 | ) | ||||||||||
(1) | Includes $13.6 billion of mortgage loans held for sale that were sold, retained as a mortgage-related security or redesignated to mortgage loans held for investment as of September 30, 2008. | |
(2) | Includes $99 million of mortgage loans held for investment liquidated or transferred to foreclosed properties as of September 30, 2008. | |
(3) | Includes $2.5 billion of foreclosed properties that were sold as of September 30, 2008. | |
(4) | Includes $19 million of guaranty assets extinguished as of September 30, 2008. |
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Carrying Value | Fair Value as of | |||||||||||
as of January 1, 2008 | January 1, 2008 | |||||||||||
Prior to Adoption of | Transition | After Adoption of | ||||||||||
Fair Value Option | Gain (Loss) | Fair Value Option | ||||||||||
(Dollars in millions) | ||||||||||||
Investments in securities | $ | 56,217 | $ | 143 | (1) | $ | 56,217 | |||||
Long-term debt | 9,809 | (10 | ) | 9,819 | ||||||||
Pre-tax cumulative effective of adoption | 133 | |||||||||||
Increase in deferred taxes | (47 | ) | ||||||||||
Cumulative effect of adoption to beginning retained earnings | $ | 86 | ||||||||||
(1) | We adopted the fair value option for certain securities classified within our mortgage-related and non-mortgage-related investment portfolio previously classified as available-for-sale. These securities are presented in our condensed consolidated balance sheet at fair value in accordance with SFAS 115 and the amount of transition gain was recognized in AOCI as of December 31, 2007 prior to adoption of SFAS 159. |
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For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
September 30, 2008 | September 30, 2008 | |||||||||||||||||||||||
Short-Term | Long-Term | Total Gains | Short-Term | Long-Term | Total Gains | |||||||||||||||||||
Debt | Debt | (Losses) | Debt | Debt | (Losses) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Changes in instrument-specific risk | $ | (10 | ) | $ | (113 | ) | $ | (123 | ) | $ | (5 | ) | $ | (50 | ) | $ | (55 | ) | ||||||
Other changes in fair value | 16 | 141 | 157 | 10 | 93 | 103 | ||||||||||||||||||
Debt fair value gains, net | $ | 6 | $ | 28 | $ | 34 | $ | 5 | $ | 43 | $ | 48 | ||||||||||||
19. | Commitments and Contingencies |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
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• | Board of Directors and Audit Committee. Upon the appointment of FHFA as the conservator on September 6, 2008, the Board of Directors and its committees, including the Audit Committee, ceased to have any authority. The Audit Committee, in accordance with its charter, is responsible for reviewing and discussing with management and others the adequacy and effectiveness of our disclosure controls and procedures and management reports thereon, as well as the annual audited and quarterly unaudited financial statements and certain disclosures required to be contained in our periodic reports. In addition, the Audit Committee previously consulted with management to address disclosure and accounting issues and reviewed drafts of periodic reports before we filed such reports with the SEC. As of September 30, 2008 and the date of this filing, neither a Board of Directors nor an Audit Committee has been reconstituted. As a result, we lacked the appropriate governance structure to provide oversight of our financial and accounting matters. | |
• | Policy Updates. We have not yet updated the design of our disclosure controls and procedures to account for the conservatorship. As a result, we have not been able to implement, test or operate newly designed policies and procedures, nor have we been able to provide appropriate communications and training regarding such newly designed policies and procedures. Therefore, our disclosure controls and procedures have not provided adequate mechanisms for information to be communicated. Accordingly, we did not maintain effective controls and procedures designed to ensure complete and accurate disclosure as required by GAAP. |
• | Board of Directors and Board Committees. The conservator has indicated that it intends to appoint a full Board of Directors to which it will delegate specified roles and responsibilities. It is expected that many of the activities we describe below under “Mitigating Actions During Conservatorship” will no longer be necessary once a Board of Directors and committees with powers similar to those possessed by the Board of Directors and its committees prior to conservatorship are reconstituted. | |
• | Updated Policies. We are working with our conservator to design, implement, test, and operate updated policies and procedures intended to ensure that adequate communication will occur under these unique circumstances, and to provide communication and training regarding those policies and procedures. |
• | Beginning on September 8, 2008, FHFA examiners established a presence on site at our headquarters and at locations of other key operations, in part to enhance good communication with management and employees. | |
• | Each department, as well as each executive officer of the company who remained after the conservatorship, was assigned a designated FHFA liaison who monitored activities within that department, |
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provided direction and advice, and made themselves available to answer questions for that officer or department and raise issues with others at FHFA for prompt resolution. |
• | FHFA representatives established weekly meetings with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, capital markets management, fulfillment of mission, external communications and legal matters. | |
• | The Director of FHFA is in frequent communication with our President and Chief Executive Officer. | |
• | Various officials within FHFA, including a number of senior officials, have participated in review of our various SEC filings and have engaged in discussions regarding issues associated with the information contained in those filings. | |
• | Senior officials within FHFA’s accounting group have met weekly with our senior financial executives regarding our accounting policies, practices and procedures. | |
• | As part of the process for filing this Quarterly Report onForm 10-Q, senior members of management met with representatives of the conservator. At that meeting, the representatives of the conservator in attendance discussed and reviewed with various members of senior management: the final draft of this report; management’s representation letter to our independent registered public accounting firm; and significant accounting decisions. In addition, during that meeting, the representatives of the conservator asked questions and discussed issues in a manner similar to that previously employed by our Audit Committee. |
• | Conservatorship. On September 6, 2008, FHFA was appointed conservator of Fannie Mae. By operation of law, the conservator succeeded to the powers of our shareholders, management and Board of Directors. As a result, we ceased to have functioning committees of the Board of Directors, including the Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee. | |
• | Changes in Management. During the third quarter of 2008, we appointed a new Chief Executive Officer and announced several management changes, including the appointment of a new Chief Financial Officer, Chief Risk Officer, head of Capital Markets & Treasury, and interim General Counsel. We also announced the resignations of our Chief Business Officer and Chief Information Officer. |
Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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• | our corporate and regulatory structure, including our status as a GSE under conservatorship; | |
• | the commitment of Treasury to provide funding to us; | |
• | legislative or regulatory actions relating to our business, including any actions that would affect our GSE status or add additional requirements that would restrict or reduce our ability to issue debt; | |
• | other actions by the U.S. Government, such as the FDIC’s guarantee of corporate debt instruments; | |
• | our credit ratings, including rating agency actions relating to our credit ratings; | |
• | our financial results and changes in our financial condition; | |
• | significant events relating to our business or industry; | |
• | the public’s perception of the risks to and financial prospects of our business, industry or the markets in general; | |
• | the preferences of debt investors; | |
• | the breadth of our investor base; | |
• | prevailing conditions in the capital markets; |
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• | foreign exchange rates; | |
• | interest rate fluctuations; | |
• | the rate of inflation; | |
• | competition from other issuers of agency debt; | |
• | general economic conditions in the U.S. and abroad; and | |
• | broader trade and political considerations among the U.S. and other countries. |
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• | slow or negative economic growth and rising unemployment in the United States, either as a whole or in specific regions of the country, has decreased homeowner demand for mortgage loans and increased the number of homeowners who become delinquent or default on their mortgage loans. The increase in delinquencies or defaults has resulted in a higher level of credit losses and credit-related expenses and reduced our earnings. In addition, the credit crisis has reduced the amount of mortgage loans being originated. Decreased homeowner demand for mortgage loans and reduced mortgage originations could reduce our guaranty fee income, net interest income and the fair value of our mortgage assets; | |
• | the credit crisis has increased the risk that our counterparties will default on their obligations to us or become insolvent, resulting in a reduction in our earnings and thereby adversely affecting our net worth and financial condition; | |
• | the credit crisis has reduced international demand for debt securities issued by U.S. financial institutions; and | |
• | fluctuations in the global debt and equity capital markets, including sudden changes in short-term or long-term interest rates, could decrease the fair value of our mortgage assets, derivatives positions and other investments, negatively affect our ability to issue debt at reasonable rates, and reduce our net interest income. |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Maximum Number | ||||||||||||||||
Total Number of | of Shares that | |||||||||||||||
Total Number | Average | Shares Purchased | May Yet be | |||||||||||||
of Shares | Price Paid | as Part of Publicly | Purchased Under | |||||||||||||
Period | Purchased(1) | per Share | Announced Program(2) | the Program(3) | ||||||||||||
(Shares in thousands) | ||||||||||||||||
2008 | ||||||||||||||||
July 1-31 | 2,738 | $ | 12.11 | — | 56,807 | |||||||||||
August 1-31 | 10,662 | 8.11 | — | 56,717 | ||||||||||||
September 1-30 | 9,023 | 2.64 | — | 56,027 | ||||||||||||
Total | 22,423 |
(1) | Consists of shares of common stock reacquired from employees to pay an aggregate of approximately $0.1 million in withholding taxes due upon the vesting of previously issued restricted stock. | |
(2) | On January 21, 2003, we publicly announced that the Board of Directors had approved a share repurchase program (the “General Repurchase Authority”) under which we could purchase in open market transactions the sum of (a) up to 5% of the shares of common stock outstanding as of December 31, 2002 (49.4 million shares) and (b) additional shares to offset stock issued or expected to be issued under our employee benefit plans. No shares were repurchased during the third quarter of 2008 pursuant to the General |
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Repurchase Authority. The General Repurchase Authority has no specified expiration date. Under the terms of the senior preferred stock purchase agreement we entered into with Treasury on September 7, 2008, we are prohibited from purchasing Fannie Mae common stock without the prior written consent of Treasury. As a result of this prohibition, we do not intend to make further purchases under the General Repurchase Authority at this time. | ||
(3) | Consists of the total number of shares that may yet be purchased under the General Repurchase Authority as of the end of the month, including the number of shares that may be repurchased to offset stock that may be issued pursuant to awards outstanding under our employee benefit plans. Repurchased shares are first offset against any issuances of stock under our employee benefit plans. To the extent that we repurchase more shares in a given month than have been issued under our plans, the excess number of shares is deducted from the 49.4 million shares approved for repurchase under the General Repurchase Authority. See “Notes to Consolidated Financial Statements—Note 13, Stock-Based Compensation Plans” in our 2007Form 10-K, for information about shares issued, shares expected to be issued, and shares remaining available for grant under our employee benefit plans. Shares that remain available for grant under our employee benefit plans are not included in the amount of shares that may yet be purchased reflected in the table above. |
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Item 3. | Defaults Upon Senior Securities |
Item 4. | Submission of Matters to a Vote of Security Holders |
Item 5. | Other Information |
Item 6. | Exhibits |
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By: | /s/ Herbert M. Allison, Jr. |
By: | /s/ David C. Hisey |
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Item | Description | |||
3 | .1 | Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through July 30, 2008 (Incorporated by reference to Exhibit 3.1 to Fannie Mae’s Quarterly Report onForm 10-Q, filed August 8, 2008.) | ||
3 | .2 | Fannie Mae Bylaws, as amended through February 29, 2008 (Incorporated by reference to Exhibit 3.1 to Fannie Mae’s Quarterly Report onForm 10-Q, filed March 6, 2008.) | ||
4 | .1 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series D (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .2 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series E (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .3 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series F (Incorporated by reference to Exhibit 4.3 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .4 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series G (Incorporated by reference to Exhibit 4.4 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .5 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series H (Incorporated by reference to Exhibit 4.5 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .6 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series I (Incorporated by reference to Exhibit 4.6 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .7 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series L (Incorporated by reference to Exhibit 4.7 to Fannie Mae’s Quarterly Report onForm 10-Q dated August 8, 2008.) | ||
4 | .8 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series M (Incorporated by reference to Exhibit 4.8 to Fannie Mae’s Quarterly Report onForm 10-Q dated August 8, 2008.) | ||
4 | .9 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series N (Incorporated by reference to Exhibit 4.9 to Fannie Mae’s Quarterly Report onForm 10-Q dated August 8, 2008.) | ||
4 | .10 | Certificate of Designation of Terms of Fannie Mae Non-Cumulative Convertible Preferred Stock,Series 2004-1 (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed January 4, 2005.) | ||
4 | .11 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series O (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s Current Report onForm 8-K, filed January 4, 2005.) | ||
4 | .12 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series P (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed September 28, 2007.) | ||
4 | .13 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series Q (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed October 5, 2007.) | ||
4 | .14 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series R (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed November 21, 2007.) | ||
4 | .15 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series S (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed December 11, 2007.) | ||
4 | .16 | Certificate of Designation of Terms of Fannie Mae Non-Cumulative Mandatory Convertible Preferred Stock,Series 2008-1 (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed May 14, 2008.) | ||
4 | .17 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series T (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed May 19, 2008.) | ||
4 | .18 | Certificate of Designation of Terms of Variable Liquidation Preference Senior Preferred Stock,Series 2008-2 (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s Current Report onForm 8-K, filed September 11, 2008.) | ||
4 | .19 | Warrant to Purchase Common Stock, dated September 7, 2008 conservator (Incorporated by reference to Exhibit 4.3 to Fannie Mae’s Current Report onForm 8-K, filed September 11, 2008.) | ||
4 | .20 | Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of September 26, 2008, between the United States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing Finance Agency as its duly appointed conservator (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed October 2, 2008.) |
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Item | Description | |||
10 | .1 | Senior Preferred Stock Purchase Agreement, dated as of September 7, 2008, between the United States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing Finance Agency as its duly appointed conservator (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed September 11, 2008. This agreement was amended and restated on September 26, 2008 and, as so amended and restated, is filed as Exhibit 4.20 to this Quarterly Report onForm 10-Q.) | ||
10 | .2 | Description of amendment to the employment agreement of Daniel H. Mudd (Incorporated by reference to information under the heading “Conservator’s Amendment of Employment Agreement of Former President and Chief Executive Officer” in Item 5.02 of Fannie Mae’s Current Report onForm 8-K, filed September 18, 2008.)† | ||
10 | .3 | Description of retention plan and 2009 annual compensation plan (Incorporated by reference to “Conservator’s Determination Relating to Retention Plan and 2009 Annual Compensation Plan” in Item 5.02 of Fannie Mae’s Current Report onForm 8-K, filed September 19, 2008.)† | ||
10 | .4 | Lending Agreement, dated September 19, 2008, between the U.S. Treasury and Fannie Mae | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Securities Exchange ActRule 13a-14(a) | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Securities Exchange ActRule 13a-14(a) | ||
32 | .1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | ||
32 | .2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
† | This exhibit is a management contract or compensatory plan or arrangement. |
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