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Washington, D.C. 20549
Federally chartered corporation | 52-0883107 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
3900 Wisconsin Avenue, NW Washington, DC (Address of principal executive offices) | 20016 (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, without par value | New York Stock Exchange Chicago Stock Exchange | |
8.25% Non-Cumulative Preferred Stock, Series T, stated value $25 per share | New York Stock Exchange | |
8.75% Non-Cumulative Mandatory Convertible Preferred Stock,Series 2008-1, stated value $50 per share | New York Stock Exchange | |
Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S, stated value $25 per share | New York Stock Exchange | |
7.625% Non-Cumulative Preferred Stock, Series R, stated value $25 per share | New York Stock Exchange | |
6.75% Non-Cumulative Preferred Stock, Series Q, stated value $25 per share | New York Stock Exchange | |
Variable Rate Non-Cumulative Preferred Stock, Series P, stated value $25 per share | New York Stock Exchange | |
5.50% Non-Cumulative Preferred Stock, Series N, stated value $50 per share | New York Stock Exchange | |
4.75% Non-Cumulative Preferred Stock, Series M, stated value $50 per share | New York Stock Exchange | |
5.125% Non-Cumulative Preferred Stock, Series L, stated value $50 per share | New York Stock Exchange | |
5.375% Non-Cumulative Preferred Stock, Series I, stated value $50 per share | New York Stock Exchange | |
5.81% Non-Cumulative Preferred Stock, Series H, stated value $50 per share | New York Stock Exchange | |
Variable Rate Non-Cumulative Preferred Stock, Series G, stated value $50 per share | New York Stock Exchange | |
Variable Rate Non-Cumulative Preferred Stock, Series F, stated value $50 per share | New York Stock Exchange |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
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224 | ||||
Directors, Executive Officers and Corporate Governance | 224 | |||
Directors | 224 | |||
Corporate Governance | 225 | |||
Executive Officers | 229 | |||
Executive Compensation | 230 | |||
Compensation Discussion And Analysis | 230 | |||
Report Of The Compensation Committee Of The Board Of Directors | 238 | |||
Compensation Tables | 238 | |||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 257 | |||
Certain Relationships and Related Transactions, and Director Independence | 259 | |||
Principal Accountant Fees and Services | 265 | |||
267 | ||||
Exhibits and Financial Statement Schedules | 267 | |||
E-1 | ||||
F-1 |
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Item 1. | Business |
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• | On July 30, 2008, Congress passed the Housing and Economic Recovery Act of 2008 (“HERA”) which, among other things, authorized the Secretary of the Treasury to purchase GSE debt, equity and other securities. | |
• | On September 7, 2008, the Treasury Secretary announced a program to purchase GSE mortgage-backed securities in the open market pursuant to its authority under HERA. Treasury began purchasing Fannie Mae MBS under this program in September 2008. This authority expires on December 31, 2009. | |
• | On September 19, 2008, the Federal Reserve Board announced enhancements to its existing liquidity facilities, including plans to purchase from primary dealers short-term debt obligations issued by us, Freddie Mac and the 12 Federal Home Loan Banks (“FHLBs”). | |
• | On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008, or Stabilization Act, which authorized the Secretary of the Treasury to establish a Troubled Assets Relief Program, or TARP, to purchase up to $700 billion in troubled assets (including mortgage loans and mortgage-backed securities) from financial institutions. As of February 13, 2009, Treasury had committed a total of $305.8 billion under TARP, including $276.0 billion in capital investments in U.S. financial institutions. | |
• | On October 7, 2008, the Federal Reserve Board announced the creation of a commercial paper funding facility that would fund purchases of commercial paper of three-month maturity from eligible issuers in an effort to provide additional liquidity to the short-term debt markets. |
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• | On October 14, 2008, the Federal Deposit Insurance Corporation (“FDIC”) announced a temporary liquidity guarantee program pursuant to which it would guarantee, until June 30, 2012, the senior debt issued on or before June 30, 2009 by all FDIC-insured institutions and their holding companies, as well as deposits in non-interest-bearing accounts held in FDIC-insured institutions. | |
• | On November 25, 2008, the Federal Reserve announced a new program to purchase up to $100 billion in direct obligations of us, Freddie Mac, and the FHLBs, along with up to $500 billion in mortgage-backed securities guaranteed by us, Freddie Mac and the Government National Mortgage Association (“Ginnie Mae”). The Federal Reserve began purchasing our debt and MBS under this program in January 2009. | |
• | On February 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (“2009 Stimulus Act”), a $787 billion economic stimulus package aimed at lifting the economy out of recession. | |
• | On February 18, 2009, the Obama Administration announced the Homeowner Affordability and Stability Plan (“HASP”) as part of the administration’s strategy to get the economy back on track. The Administration announced that key components of the plan are (1) providing access to low-cost refinancing for responsible homeowners suffering from falling home prices, (2) creating a $75 billion homeowner stability initiative to reach up to three to four million at-risk homeowners and (3) supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac. |
• | our business objectives and strategy, including the decision to make providing liquidity, stability and affordability in the mortgage market the highest priority and, in particular, our focused efforts on foreclosure prevention and helping homeowners; | |
• | our 2008 results of operations, including our $58.7 billion loss for 2008 and our net worth deficit of approximately $15.2 billion at year-end, resulting in a request from our conservator to Treasury for an investment of this amount under the senior preferred stock purchase agreement; | |
• | the recently announced Homeowner Affordability and Stability Plan, our role in that plan, and its anticipated impact on us; | |
• | the continuing deterioration of the performance of our mortgage credit book of business and the potential additional pressure placed on that performance by our foreclosure prevention efforts; | |
• | the funding challenges we experienced in 2008, the impact of debt market events on our debt maturity profile and the resulting increase in our refinancing risk; and | |
• | the likelihood that, in the future, we will need Treasury to make additional investments in the company under the senior preferred stock purchase agreement. |
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• | providing liquidity, stability and affordability in the mortgage market; | |
• | immediately providing additional assistance to this market and to the struggling housing market; | |
• | limiting the amount of the investment Treasury must make under the senior preferred stock purchase agreement in order to eliminate a net worth deficit; | |
• | returning to long-term profitability; and | |
• | protecting the interests of the taxpayers. |
• | providing liquidity, stability and affordability in the mortgage market; and | |
• | immediately providing additional assistance to this market and to the struggling housing market. |
• | Loan Modification Program. Under HASP, we will offer to financially struggling homeowners loan modifications that reduce their monthly principal and interest payments on their mortgages. This program will be conducted in accordance with HASP requirements for borrower eligibility. The program seeks to provide a uniform, consistent regime that servicers would use in modifying loans to prevent foreclosures. |
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Under the program, servicers that service loans held in Fannie Mae MBS trusts or in our portfolio will be incented to reduce at-risk borrowers’ monthly mortgage payments to as little as 31% of monthly income, which may be achieved through a variety of methods, including interest rate reductions, principal forbearance and term extensions. Although HASP contemplates that some servicers will also make use of principal reduction to achieve reduced payments for borrowers, we do not currently anticipate that principal reduction will be used in modifying our loans. We will bear the full cost of these modifications and will not receive a reimbursement from Treasury. Servicers will be paid incentive fees both when they originally modify a loan, and over time, if the modified loan remains current. Borrowers whose loans are modified through this program will also accrue monthly incentive payments that will be applied to reduce their principal as they successfully make timely payments over a period of five years. Fannie Mae, rather than Treasury, will bear the costs of these servicer and borrower incentive fees. As the details of this program continue to develop, there may be additional incentive fees and other costs that we will bear. |
• | Program Administrator. We will play a role in administering HASP on behalf of Treasury. This will include implementing the guidelines and policies within which the loan modification program will operate, both for our own servicers and for servicers of non-agency loans that participate in the program. We will also maintain records and track the performance of modified loans, both for our own loans, as well as for loans of non-agency issuers that will participate in this program. Lastly, we will calculate and remit the subsidies and incentive payments to non-agency borrowers, servicers and investors who participate in the program. Treasury will reimburse us for the expenses we incur in connection with providing these services. | |
• | Streamlined Refinancing Initiative. Under HASP, we will help borrowers who have mortgages with current loan-to-value ratios up to 105% to refinance their mortgages without obtaining new mortgage insurance in excess of what was already in place. We have worked with our conservator and regulator, FHFA, to provide us the flexibility to implement this element of HASP. Through the initiative, we will offer this refinancing option only for qualifying mortgage loans we hold in our portfolio or that we guarantee. We will continue to hold the portion of the credit risk not covered by mortgage insurance for refinanced loans under this initiative. By March 4, 2009 we expect to release guidelines describing the details of this initiative and we expect to implement this initiative in the second quarter of 2009 which will bring efficiencies to the refinance process for lenders and borrowers. |
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Initiative | Description | Objective | ||||
Suspension of Foreclosures(effective 11/26/08—1/31/09, 2/17/09—3/6/09)and Suspension of Evictions(effective 11/26/08—3/6/09) | Suspension of foreclosure sales and of evictions of occupants (renters or owners) of single-family homes we own | To aid borrowers facing foreclosure (or tenants of properties subject to foreclosure). During the suspension period, we engaged in a concentrated effort to implement foreclosure prevention measures. We have now extended these periods through March 6, 2009 to allow us to implement the recently announced HASP | ||||
New and Amended Single-Family Trust Documents (announced 12/8/08) | Trust documents govern how and when a loan can be purchased out of an MBS trust. New and revised trust documents provide greater flexibility to help borrowers with loans securitized into our MBS trusts by extending permitted forbearance and repayment plan periods for loans in most trusts and permitting earlier removal of delinquent loans from trusts created on or after January 1, 2009 | To provide servicers with added flexibility in designing workouts, and to help delinquent borrowers stay in homes | ||||
HomeSaver Advance(announced 6/16/08) | Provides an unsecured loan to qualified borrowers to cure the payment defaults on a first mortgage loan. Originally available only to borrowers who had missed three or more payments; now available for any qualified borrower regardless of number of payments missed | To help delinquent borrowers bring mortgages current (without requiring the purchase of a loan out of an MBS trust). Removing the requirement for three missed payments permits servicers to assist qualified borrowers earlier in the process | ||||
National REO Rental Program(announced 1/13/09) | Permits existing, qualified renters to lease the property at market rate while the property is marketed for sale or provides financial assistance for the tenant’s transition to new housing should they choose to vacate the property | To provide continued housing opportunity for qualified renters in Fannie Mae-owned foreclosed properties to stay in their homes, while the property is marketed, and to promote neighborhood stabilization | ||||
“Second Look” Program(initiated 10/08) | Review of seriously delinquent loans by our personnel to confirm that the borrower has been contacted and that workout options have been offered before a foreclosure sale is completed | To confirm that all workout options are explored for seriously delinquent borrowers and limit foreclosures | ||||
Reminder to servicers of availability of pre-foreclosure sales and deeds-in-lieu of foreclosure as a foreclosure alternative(preexisting) | Permits the sale (pre-foreclosure or “short” sale) or transfer (deed-in-lieu) of the home without completing a foreclosure sale | To permit earlier sales of the home in order to avoid potential adverse impact of further declines in home value and terminate further mortgage costs | ||||
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• | Ongoing provision of liquidity to the mortgage markets. During the fourth quarter of 2008, we purchased or guaranteed an estimated $113.3 billion in new business, measured by unpaid principal balance, consisting primarily of single-family mortgages and provided financing for approximately 468,000 conventional single-family loans. Our purchase of approximately $35.0 billion of new and existing multifamily loans during 2008 helped to finance approximately 577,000 multifamily units. | |
• | Cancellation of planned delivery fee increase. In October 2008, we canceled a planned 25 basis point increase in our adverse market delivery charge on mortgage loans. | |
• | 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 efforts 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 (“REMICs”). In September 2008, we reduced the fees for our REMICs by 15%. | |
• | Relaxing restrictions on institutions holding principal and interest payments on our behalf in response to an FDIC rule change. In October 2008, the FDIC announced a rule change that lowered our risk of loss if a party holding principal and interest payments on our behalf in custodial depository accounts failed. In response to this rule change, we curtailed or reversed actions we had been taking for several months prior to October to reduce our risk. These prior actions included 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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2008 | 2007 | |||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Total | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
As of the end of each period: | ||||||||||||||||||||||||
Serious delinquency rate(2) | 2.42 | % | 1.72 | % | 1.36 | % | 1.15 | % | 2.42 | % | 0.98 | % | ||||||||||||
On-balance sheet nonperforming loans(3) | $ | 20,484 | $ | 14,148 | $ | 11,275 | $ | 10,947 | $ | 20,484 | $ | 10,067 | ||||||||||||
Off-balance sheet nonperforming loans(4) | $ | 98,428 | $ | 49,318 | $ | 34,765 | $ | 23,983 | $ | 98,428 | $ | 17,041 | ||||||||||||
Foreclosed property inventory (number of properties)(5)(6) | 63,538 | 67,519 | 54,173 | 43,167 | 63,538 | 33,729 | ||||||||||||||||||
During the period: | ||||||||||||||||||||||||
Loan modifications (number of properties)(7) | 6,276 | 5,262 | 10,190 | 11,521 | 33,249 | 26,421 | ||||||||||||||||||
HomeSaver Advance problem loan workouts (number of properties)(8) | 25,783 | 27,267 | 16,742 | 1,151 | 70,943 | — | ||||||||||||||||||
Foreclosed property acquisitions (number of properties)(6) | 20,998 | 29,583 | 23,963 | 20,108 | 94,652 | 49,121 | ||||||||||||||||||
Single-family credit-related expenses(9) | $ | 11,917 | $ | 9,215 | $ | 5,339 | $ | 3,254 | $ | 29,725 | $ | 5,003 | ||||||||||||
Single-family credit losses(10) | $ | 2,197 | $ | 2,164 | $ | 1,249 | $ | 857 | $ | 6,467 | $ | 1,331 |
(1) | 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, |
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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 guarantee. | ||
(2) | Calculated based on number of loans. 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. | |
(3) | Represents the total amount of nonaccrual loans, troubled debt restructurings, and first-lien loans associated with unsecured HomeSaver Advance loans inclusive of troubled debt restructurings and HomeSaver Advance first-lien loans on accrual status. A troubled debt restructuring is a modification to the contractual terms of a loan that results in a concession to a borrower experiencing financial difficulty. | |
(4) | Represents unpaid principal balance of nonperforming loans in our outstanding and unconsolidated Fannie Mae MBS held by third parties, including first-lien loans associated with unsecured HomeSaver Advance loans that are not seriously delinquent. | |
(5) | Reflects the number of single-family foreclosed properties we held in inventory as of the end of each period. | |
(6) | Includes deeds in lieu of foreclosure. | |
(7) | Modifications include troubled debt restructurings and other modifications to the contractual terms of the loan that do not result in concessions to the borrower. A troubled debt restructuring involves some economic concession to the borrower, and is the only form of modification in which we do not expect to collect the full original contractual principal and interest amount due under the loan, although other resolutions and modifications may result in our receiving the full amount due, or certain installments due, under the loan over a period of time that is longer than the period of time originally provided for under the loans. | |
(8) | Represents number of first-lien loans associated with unsecured HomeSaver Advance loans. | |
(9) | Consists of the provision for credit losses and foreclosed property expense. | |
(10) | Consists of (a) charge-offs, net of recoveries and (b) foreclosed property expense for the reporting period. Interest forgone on single-family nonperforming loans in our mortgage portfolio 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 single-family loans subject toSOP 03-3 are excluded from credit losses. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Net revenues:(1) | ||||||||||||
Single-Family Credit Guaranty | $ | 9,434 | $ | 7,062 | $ | 6,079 | ||||||
Housing and Community Development | 476 | 425 | 510 | |||||||||
Capital Markets | 7,526 | 3,718 | 5,432 | |||||||||
Total | $ | 17,436 | $ | 11,205 | $ | 12,021 | ||||||
Net income (loss): | ||||||||||||
Single-Family Credit Guaranty | $ | (27,101 | ) | $ | (858 | ) | $ | 2,044 | ||||
Housing and Community Development | (2,189 | ) | 157 | 338 | ||||||||
Capital Markets | (29,417 | ) | (1,349 | ) | 1,677 | |||||||
Total | $ | (58,707 | ) | $ | (2,050 | ) | $ | 4,059 | ||||
As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Total assets: | ||||||||||||
Single-Family Credit Guaranty | $ | 24,115 | $ | 23,356 | $ | 15,777 | ||||||
Housing and Community Development | 10,994 | 15,094 | 14,100 | |||||||||
Capital Markets | 877,295 | 840,939 | 814,059 | |||||||||
Total | $ | 912,404 | $ | 879,389 | $ | 843,936 | ||||||
(1) | Includes net interest income, guaranty fee income, trust management income, and fee and other income. |
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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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Topic | Before Conservatorship | As of February 26, 2009 | ||||
Authority of Board of Directors, management and shareholders | • 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 shareholders or as the Board chooses to delegate to management • Directors with duties to shareholders • Board of Directors delegated significant authority to management • Shareholders with specified voting rights | • FHFA, as conservator, succeeded to all of the power and authority of the Board of Directors, management and the shareholders • The conservator has delegated authority to a newly constituted Board of Directors. The Board is required to consult with and obtain the consent of the conservator before taking action in specified areas. The conservator may modify or rescind this delegation at any time • Directors do not have any duties to any person or entity except to the conservator. • 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 • Shareholders have no voting rights | ||||
Structure of Board of Directors | • 13 directors: 12 independent plus President and Chief Executive Officer; independent, non-executive Chairman of the Board • Seven standing Board committees, including Audit Committee of which four of the five independent members were “audit committee financial experts” | • 10 directors: 9 independent plus President and Chief Executive Officer; independent, non-executive Chairman of the Board. Up to three additional Board members may be added by the Board subject to approval of the conservator • Four standing Board committees, including Audit Committee of which three of the four independent members are “audit committee financial experts” | ||||
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 | ||||
Net Worth(1) | • Receivership mandatory under Regulatory Reform Act if FHFA makes a written determination that we have net worth deficit for 60 days | • Conservator has directed management to focus, to the extent it does not conflict with our mission, on maintaining positive net worth • Receivership mandatory if FHFA makes a written determination that we have net worth deficit for 60 days(2) | ||||
Management Strategy | • Maximize shareholder value over the long-term • Fulfill our mission of providing liquidity, stability and affordability to the mortgage market | • Directed to provide liquidity, stability and affordability in the mortgage market and immediately provide additional assistance to this market and the struggling housing market, and to the extent not in conflict with our mission, to maintain positive net worth • No longer managed with a strategy to maximize common shareholder returns • Focus on foreclosure prevention | ||||
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(1) | Our “net worth” refers to the amount by which our total assets exceed our total liabilities, as reflected on our consolidated balance sheet. “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 $157 million as of December 31, 2008), which is excluded from stockholders’ equity. | |
(2) | If FHFA makes a written determination that we have a net worth deficit, then, if requested by FHFA (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. Treasury’s funding commitment under that agreement is expected to enable us to maintain a positive net worth as long as Treasury has not yet invested the full amount provided for in that agreement. The Director of FHFA submitted a request on February 25, 2009 to Treasury for funds to eliminate our net worth deficit as of December 31, 2008. See “Treasury Agreements—Senior Preferred Stock Purchase Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant” below. |
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• | the rights of the shareholders are suspended during the conservatorship. Accordingly, our common shareholders 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 issued to Treasury) during the conservatorship; and | |
• | according to a statement made by the then 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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• | 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); |
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• | 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; | |
• | 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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• | 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 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. |
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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 shareholders 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 conservatorship ends. |
• | 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 |
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• | 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. |
• | Principal Balance Limitations. Our charter permits us to purchase and securitize conventional mortgage loans secured by either a single-family or multifamily property. Single-family conventional mortgage loans are generally subject to maximum original principal balance limits. The principal balance limits are often referred to as “conforming loan limits” and are established each year based on the national average price of a one-family residence. The conforming loan limit for a one-family residence was $417,000 for 2008. |
The Economic Stimulus Act of 2008 temporarily increased our conforming loan limits in high-cost areas for loans originated between July 1, 2007 and December 31, 2008, which we refer to as jumbo-conforming loans. For a one-family residence, the loan limit increased to 125% of the area’s median house price, up to a maximum of $729,750. Higher original principal balance limits apply to mortgage loans secured by two- to four-family residences and also to loans in Alaska, Hawaii, Guam and the Virgin Islands. In July 2008, HERA was signed into law. This legislation provided permanent authority for the GSEs to use higher loan limits in high-cost areas effective January 1, 2009. These limits will be set annually by FHFA. | ||
In November 2008, FHFA announced that the conforming loan limit for aone-unit property would remain $417,000 for 2009 for most areas in the United States, but specified higher limits in certain cities and counties. Loan limits for two-, three-, andfour-unit properties in 2009 also remain at 2008 levels. Following the provisions of HERA, FHFA has set loan limits for high-cost areas in 2009. These limits are set equal to 115% of local median house prices and cannot exceed 150% of the standard limit, which is $625,500 forone-unit homes in the contiguous United States. The 2009 maximum conforming limits remain higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. No statutory limits apply to the maximum original principal balance of multifamily mortgage loans that we purchase or securitize. In addition, the Charter Act imposes no maximum original principal balance limits on loans we purchase or securitize that are insured by the FHA or guaranteed by the VA, home improvement loans, and loans secured by manufactured housing. | ||
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, which included a provision that returns the conforming loan limits for loans originated in 2009 to those limits established in the Economic Stimulus Act of 2008 (except in a limited number of areas where the limits established by HERA were greater). |
• | Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit enhancement on any conventional single-family mortgage loan that we purchase or securitize if it has a loan-to-value ratio over 80% at the time of purchase. We also do not purchase or securitize second lien single-family mortgage loans when the combined loan-to-value ratio exceeds 80%, unless the second lien mortgage loan has credit enhancement in accordance with the requirements of the Charter Act. The credit enhancement required by our charter may take the form of one or more of the following: (i) insurance or a guaranty by a qualified insurer; (ii) a seller’s agreement to repurchase or replace any mortgage loan in default (for such period and under such circumstances as we may require); or (iii) retention by the seller of at least a 10% participation interest in the mortgage loans. We do not adjust the loan-to-value ratio of loans bearing credit enhancement to reflect that credit enhancement. On February 19, 2009, in conjunction with the announcement of HASP, FHFA determined that, until June 10, 2010, we may |
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refinance borrowers with mortgages that we hold or guarantee into new mortgages, without the need for these borrowers to obtain additional credit enhancement (such as private mortgage insurance) on their refinanced loans in excess of what was already in place. The credit enhancement requirement under the Charter Act may hinder our ability to refinance mortgage loans that we do not already own or guarantee where mortgage insurance or other credit enhancement is not available. Regardless of loan-to-value ratio, the Charter Act does not require us to obtain credit enhancement to purchase or securitize loans insured by the FHA or guaranteed by the VA, home improvement loans or loans secured by manufactured housing. |
• | Issuances of Our Securities. The Charter Act authorizes us, upon approval of the Secretary of the Treasury, to issue debt obligations and mortgage-related securities. Neither the U.S. government nor any of its agencies guarantees, directly or indirectly, our debt or mortgage-related securities. At the discretion of the Secretary of Treasury, Treasury may purchase our obligations up to a maximum of $2.25 billion outstanding at any one time. In addition, the Charter Act, as amended by the Regulatory Reform Act, provides Treasury with expanded temporary authority to purchase our obligations and securities in unlimited amounts (up to the national debt limit) until December 31, 2009. We describe Treasury’s investment in our securities pursuant to this authority above under “Treasury Agreements.” | |
• | Exemptions for Our Securities. Securities we issue are exempted securities under laws administered by the SEC, except that as a result of the Regulatory Reform Act, our equity securities are not treated as exempted securities for purposes of Sections 12, 13, 14 or 16 of the Securities Exchange Act of 1934, or the Exchange Act. Consequently, we are required to file periodic and current reports with the SEC, including annual reports onForm 10-K, quarterly reports onForm 10-Q and current reports onForm 8-K. However, we are not required to file registration statements with the SEC with respect to offerings of our securities pursuant to this exemption. | |
• | Exemption from Specified Taxes. Pursuant to the Charter Act, we are exempt from taxation by states, counties, municipalities or local taxing authorities, except for taxation by those authorities on our real property. However, we are not exempt from the payment of federal corporate income taxes. | |
• | Other Limitations and Requirements. Under the Charter Act, we may not originate mortgage loans or advance funds to a mortgage seller on an interim basis, using mortgage loans as collateral, pending the sale of the mortgages in the secondary market. In addition, we may only purchase or securitize mortgages on properties located in the United States, including the District of Columbia, the Commonwealth of Puerto Rico, and the territories and possessions of the United States. |
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2008 | 2007 | 2006 | ||||||||||||||||||||||
Result(1) | Goal | Result(1) | Goal | Result(1) | Goal | |||||||||||||||||||
Housing goals:(2) | ||||||||||||||||||||||||
Low- and moderate-income housing | 53.6 | % | 56.0 | % | 55.5 | % | 55.0 | % | 56.9 | % | 53.0 | % | ||||||||||||
Underserved areas | 39.4 | 39.0 | 43.4 | 38.0 | 43.6 | 38.0 | ||||||||||||||||||
Special affordable housing | 26.0 | 27.0 | 26.8 | 25.0 | 27.8 | 23.0 | ||||||||||||||||||
Housing subgoals: | ||||||||||||||||||||||||
Home purchase subgoals:(3) | ||||||||||||||||||||||||
Low- and moderate-income housing | 38.9 | % | 47.0 | % | 42.1 | % | 47.0 | % | 46.9 | % | 46.0 | % | ||||||||||||
Underserved areas | 30.4 | 34.0 | 33.4 | 33.0 | 34.5 | 33.0 | ||||||||||||||||||
Special affordable housing | 13.6 | 18.0 | 15.5 | 18.0 | 18.0 | 17.0 | ||||||||||||||||||
Multifamily special affordable housing subgoal ($ in billions)(4) | $ | 13.42 | $ | 5.49 | $ | 19.84 | $ | 5.49 | $ | 13.31 | $ | 5.49 |
(1) | Results presented for 2008 are preliminary and reflect our best estimates as of the date of this report. These results may differ from the results we report in our Annual Housing Activities Report for 2008. Some results differ from the results we reported in our Annual Housing Activities Reports for 2007 and 2006. | |
(2) | Goals are expressed as a percentage of the total number of dwelling units financed by eligible mortgage loan purchases during the period. |
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(3) | Home purchase subgoals measure our performance by the number of loans (not dwelling units) providing purchase money for owner-occupied single-family housing in metropolitan areas. | |
(4) | The multifamily subgoal is measured by loan amount and expressed as a dollar amount. |
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• | 2.50% of on-balance sheet assets; | |
• | 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and | |
• | up to 0.45% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under certain circumstances. |
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• | 1.25% of on-balance sheet assets; | |
• | 0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and | |
• | up to 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under certain circumstances. |
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• | Our expectation that the current crisis in the U.S. and global financial markets will continue, which will continue to adversely affect our financial results throughout 2009; | |
• | Our expectation that the unemployment rate will continue to increase; | |
• | Our expectation of the continued deterioration of the U.S. housing market, continued home price declines and rising delinquency, default and severity rates; | |
• | Our expectation that mortgage debt outstanding will shrink by approximately 0.2% in 2009; | |
• | Our expectation that the level of foreclosures and single-family delinquency rates will continue to increase in 2009; | |
• | Our expectation that home prices will decline 7% to 12% on a national basis in 2009, and that there will be a peak-to-trough decline in home prices of 20% to 30%; | |
• | Our expectation that there will be significant regional variation in national home price decline percentages, with steeper declines in certain areas such as Florida, California, Nevada and Arizona; | |
• | Our expectation that economic conditions and falling home prices will continue to negatively affect our credit performance in 2009, which will cause our credit losses to increase; | |
• | Our expectation that our credit loss ratio in 2009 will exceed our credit loss ratio in 2008; | |
• | Our expectation of a significant increase in ourSOP 03-3 fair value losses as we increase the number of loans we repurchase from MBS trusts in order to modify them; | |
• | Our expectation of significant continued increases in our combined loss reserves through 2009; | |
• | Our expectation of continued pressure on our access to the debt markets throughout 2009 at economically attractive rates, which we believe will become increasingly great as we approach the expiration of the Treasury credit facility at the end of 2009; | |
• | Our expectation that the “roll over,” or refinancing, risk on our unsecured debt is likely to increase substantially as we approach year-end 2009 and the expiration of the Treasury credit facility; | |
• | Our expectation that we will continue to experience adverse financial effects because of our strategy of concentrating our efforts on keeping people in their homes and preventing foreclosures, including our efforts under HASP, while remaining active in the secondary mortgage market; | |
• | Our expectation that future activities that our regulators, other U.S. government agencies or Congress may request or require us to take to support the mortgage market and help borrowers may contribute to further deterioration in our results of operations and financial condition; | |
• | Our expectation that the Federal Reserve will continue to purchase our long-term debt and MBS in the secondary market; | |
• | Our expectations with respect to our role in HASP, the elements of the HASP programs, the timing of our implementation of HASP programs, and the impact of these programs on our business, results of operations, financial condition and net worth; |
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• | Our expectation that we also will have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement; | |
• | Our intention to use the funds we receive from Treasury under the senior preferred stock purchase agreement to repay our debt obligations; | |
• | Our belief that we will not be required to make a minimum contribution to our qualified pension plan in 2009; | |
• | Our belief that measures we have taken in 2008 and 2009 will significantly improve the credit profile of our single-family acquisitions; | |
• | Our belief that our problem loan management strategies may help in reducing our long-term credit losses; | |
• | Our expectation that our acquisitions of Alt-A mortgage loans will continue to be minimal in future periods; | |
• | Our expectation that we will substantially increase our loan workout activity in 2009 relative to 2008; | |
• | Our plan to continue to increase staffing levels in divisions of the company that focus on our foreclosure prevention efforts; | |
• | Our belief that the early re-performance statistics related to loans modified during 2008 are likely to change, perhaps materially; | |
• | Our belief that our liquidity contingency plan is unlikely to be sufficient to provide us with alternative sources of liquidity for 90 days; | |
• | Our belief that the requirement under the senior preferred stock purchase agreement that we reduce our mortgage portfolio by 10% per year beginning in 2010 may have an adverse impact on our future net interest income; | |
• | 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 during the second 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 amount provided for in that agreement; | |
• | Our expectation that the loans we are now acquiring will generally have a lower credit risk, notwithstanding economic conditions, 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 may help to improve the financial condition and liquidity position of a number of our institutional counterparties; | |
• | Our belief that announced mergers of a number of our institutional counterparties, if completed, will improve the financial condition of these institutional counterparties and help to reduce our counterparty risk; | |
• | Our belief that we are likely to incur further losses on our investments in Alt-A and subprime private-label mortgage-related securities, including on those that are currently rated AAA; |
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• | Our intention to continue to sell non-mortgage-related securities in our cash and other investments portfolio from time to time as market conditions permit; | |
• | Our intention to hold the majority of our mortgage assets to maturity to realize the contractual cash flows; | |
• | Our intention to complete the remediation of the weakness in our internal control over financial reporting relating to our other-than-temporary-impairment assessment process for private-label mortgage-related securities by September 30, 2009; | |
• | Our belief that it is likely we will not remediate the material weakness in our disclosure controls and procedures while we are under conservatorship; and | |
• | Our belief that our deferred tax assets related to unrealized losses recorded in AOCI on our available-for-sale securities are recoverable. |
Item 1A. | Risk Factors |
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• | the public’s perception of the risks to and financial prospects of our business, industry or the markets in general; | |
• | 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 and the Federal Reserve’s program to purchase GSE debt and MBS; | |
• | 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 preferences of debt investors; | |
• | the breadth of our investor base; | |
• | prevailing conditions in the capital markets; | |
• | foreign exchange rates; | |
• | interest rate fluctuations; | |
• | the rate of inflation; | |
• | competition from other debt issuers; | |
• | 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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• | the economic recession 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 and 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. |
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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 1B. | Unresolved Staff Comments |
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Item 2. | Properties |
Item 3. | Legal Proceedings |
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Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Quarter | High | Low | Dividend | |||||||||
2007 | ||||||||||||
First quarter | $ | 60.44 | $ | 51.88 | $ | 0.40 | ||||||
Second quarter | 69.94 | 53.30 | 0.50 | |||||||||
Third quarter | 70.57 | 56.19 | 0.50 | |||||||||
Fourth quarter | 68.60 | 26.38 | 0.50 | |||||||||
2008 | ||||||||||||
First quarter | $ | 40.20 | $ | 18.25 | $ | 0.35 | ||||||
Second quarter | 32.31 | 19.23 | 0.35 | |||||||||
Third quarter | 19.96 | 0.35 | 0.05 | |||||||||
Fourth quarter | 1.83 | 0.30 | — |
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Total Number of | Maximum Number of | |||||||||||||||
Total | Shares Purchased as | Shares that | ||||||||||||||
Number of | Average | Part of Publicly | May Yet be | |||||||||||||
Shares | Price Paid | Announced | Purchased Under | |||||||||||||
Purchased(1) | per Share | Program(2) | the Program(3) | |||||||||||||
(Shares in thousands) | ||||||||||||||||
2008 | ||||||||||||||||
October 1-31 | 12 | $ | 1.43 | — | 55,785 | |||||||||||
November 1-30 | 8 | 0.62 | — | 54,117 | ||||||||||||
December 1-31 | 12 | 0.70 | — | 52,949 | ||||||||||||
Total | 32 | — | — | — | ||||||||||||
(1) | Consists of shares of common stock reacquired from employees to pay an aggregate of approximately $30,000 in withholding taxes due upon the vesting of previously issued restricted stock. Does not include 10,053,599 shares of Mandatory Convertible Preferred Stock,Series 2008-1 received from holders upon conversion of the preferred shares. |
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(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 fourth quarter of 2008 pursuant to the General Repurchase Authority. The General Repurchase Authority has no specified expiration date. Under the terms of the senior preferred stock purchase agreement, 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 14, Stock-Based Compensation Plans,” 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 6. | Selected Financial Data |
For the Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||||||||
Statement of operations data:(1) | ||||||||||||||||||||
Net interest income | $ | 8,782 | $ | 4,581 | $ | 6,752 | $ | 11,505 | $ | 18,081 | ||||||||||
Guaranty fee income | 7,621 | 5,071 | 4,250 | 4,006 | 3,715 | |||||||||||||||
Losses on certain guaranty contracts | — | (1,424 | ) | (439 | ) | (146 | ) | (111 | ) | |||||||||||
Investment losses, net | (7,220 | ) | (867 | ) | (691 | ) | (892 | ) | (390 | ) | ||||||||||
Trust management income(2) | 261 | 588 | 111 | — | — | |||||||||||||||
Fair value losses, net(3) | (20,129 | ) | (4,668 | ) | (1,744 | ) | (4,013 | ) | (12,532 | ) | ||||||||||
Administrative expenses | (1,979 | ) | (2,669 | ) | (3,076 | ) | (2,115 | ) | (1,656 | ) | ||||||||||
Credit-related expenses(4) | (29,809 | ) | (5,012 | ) | (783 | ) | (428 | ) | (363 | ) | ||||||||||
Other income (expenses), net(5) | (1,004 | ) | (87 | ) | 244 | (98 | ) | (157 | ) | |||||||||||
(Provision) benefit for federal income taxes | (13,749 | ) | 3,091 | (166 | ) | (1,277 | ) | (1,024 | ) | |||||||||||
Net (loss) income | (58,707 | ) | (2,050 | ) | 4,059 | 6,347 | 4,967 | |||||||||||||
Preferred stock dividends and issuance costs at redemption | (1,069 | ) | (513 | ) | (511 | ) | (486 | ) | (165 | ) | ||||||||||
Net (loss) income available to common stockholders | (59,776 | ) | (2,563 | ) | 3,548 | 5,861 | 4,802 | |||||||||||||
Per common share data: | ||||||||||||||||||||
Earnings (loss) per share: | ||||||||||||||||||||
Basic | $ | (24.04 | ) | $ | (2.63 | ) | $ | 3.65 | $ | 6.04 | $ | 4.95 | ||||||||
Diluted | (24.04 | ) | (2.63 | ) | 3.65 | 6.01 | 4.94 | |||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||||||||
Basic(6) | 2,487 | 973 | 971 | 970 | 970 | |||||||||||||||
Diluted | 2,487 | 973 | 972 | 998 | 973 | |||||||||||||||
Cash dividends declared per share | $ | 0.75 | $ | 1.90 | $ | 1.18 | $ | 1.04 | $ | 2.08 | ||||||||||
New business acquisition data: | ||||||||||||||||||||
Fannie Mae MBS issues acquired by third parties(7) | $ | 434,711 | $ | 563,648 | $ | 417,471 | $ | 465,632 | $ | 462,542 | ||||||||||
Mortgage portfolio purchases(8) | 196,645 | 182,471 | 185,507 | 146,640 | 262,647 | |||||||||||||||
New business acquisitions | $ | 631,356 | $ | 746,119 | $ | 602,978 | $ | 612,272 | $ | 725,189 | ||||||||||
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As of December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Investments in securities: | ||||||||||||||||||||
Trading | $ | 90,806 | $ | 63,956 | $ | 11,514 | $ | 15,110 | $ | 35,287 | ||||||||||
Available-for-sale | 266,488 | 293,557 | 378,598 | 390,964 | 532,095 | |||||||||||||||
Mortgage loans: | ||||||||||||||||||||
Loans held for sale | 13,270 | 7,008 | 4,868 | 5,064 | 11,721 | |||||||||||||||
Loans held for investment, net of allowance | 412,142 | 396,516 | 378,687 | 362,479 | 389,651 | |||||||||||||||
Total assets | 912,404 | 879,389 | 841,469 | 831,686 | 1,018,188 | |||||||||||||||
Short-term debt | 330,991 | 234,160 | 165,810 | 173,186 | 320,280 | |||||||||||||||
Long-term debt | 539,402 | 562,139 | 601,236 | 590,824 | 632,831 | |||||||||||||||
Total liabilities | 927,561 | 835,271 | 799,827 | 792,263 | 979,210 | |||||||||||||||
Senior preferred stock | 1,000 | — | — | — | — | |||||||||||||||
Preferred stock | 21,222 | 16,913 | 9,108 | 9,108 | 9,108 | |||||||||||||||
Total stockholders’ equity (deficit) | (15,314 | ) | 44,011 | 41,506 | 39,302 | 38,902 | ||||||||||||||
Regulatory capital data: | ||||||||||||||||||||
Net worth surplus (deficit)(9) | $ | (15,157 | ) | $ | 44,118 | $ | 41,642 | $ | 39,423 | $ | 38,978 | |||||||||
Book of business data: | ||||||||||||||||||||
Mortgage portfolio(10) | $ | 792,196 | $ | 727,903 | $ | 728,932 | $ | 737,889 | $ | 917,209 | ||||||||||
Fannie Mae MBS held by third parties(11) | 2,289,459 | 2,118,909 | 1,777,550 | 1,598,918 | 1,408,047 | |||||||||||||||
Other guarantees(12) | 27,809 | 41,588 | 19,747 | 19,152 | 14,825 | |||||||||||||||
Mortgage credit book of business(13) | $ | 3,109,464 | $ | 2,888,400 | $ | 2,526,229 | $ | 2,355,959 | $ | 2,340,081 | ||||||||||
Guaranty book of business(14) | $ | 2,975,710 | $ | 2,744,237 | $ | 2,379,986 | $ | 2,219,201 | $ | 2,167,433 | ||||||||||
Credit quality: | ||||||||||||||||||||
Nonperforming loans(15) | $ | 119,232 | $ | 27,156 | $ | 13,846 | $ | 14,194 | $ | 11,734 | ||||||||||
Combined loss reserves | 24,753 | 3,391 | 859 | 724 | 745 | |||||||||||||||
Combined loss reserves as a percentage of total guaranty book of business | 0.83 | % | 0.12 | % | 0.04 | % | 0.03 | % | 0.03 | % | ||||||||||
Combined loss reserves as a percentage of total nonperforming loans | 20.76 | 12.49 | 6.20 | 5.10 | 6.35 |
For the Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Performance ratios: | ||||||||||||||||||||
Net interest yield(16) | 1.03 | % | 0.57 | % | 0.85 | % | 1.31 | % | 1.86 | % | ||||||||||
Average effective guaranty fee rate (in basis points)(17) | 31.0 | bp | 23.7 | bp | 22.2 | bp | 22.3 | bp | 21.8 | bp | ||||||||||
Credit loss ratio (in basis points)(18) | 22.7 | bp | 5.3 | bp | 2.2 | bp | 1.1 | bp | 1.0 | bp | ||||||||||
Return on assets(19)* | (6.77 | )% | (0.30 | ) | 0.42 | % | 0.63 | % | 0.47 | % | ||||||||||
Return on equity(20)* | (1,704.3 | ) | (8.3 | ) | 11.3 | 19.5 | 16.6 | |||||||||||||
Equity to assets(21)* | 2.7 | 4.9 | 4.8 | 4.2 | 3.5 | |||||||||||||||
Dividend payout(22) | N/A | N/A | 32.4 | 17.2 | 42.1 | |||||||||||||||
Earnings to combined fixed charges and preferred stock dividends and issuance costs at redemption | N/A | 0.89:1 | 1.12:1 | 1.23:1 | 1.22:1 |
(1) | Certain prior periods amounts have been reclassified to conform to current period presentation. | |
(2) | We began separately reporting the revenues from trust management fees in our consolidated statements of operations effective November 2006. We previously included these revenues as a component of interest income. We have not reclassified prior period amounts to conform to the current period presentation. |
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(3) | 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. | |
(4) | Consists of provision for credit losses and foreclosed property expense. | |
(5) | Consists of the following: (a) debt extinguishment gains (losses), net; (b) losses from partnership investments; and (c) fee and other income. | |
(6) | Includes for 2008 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 year. 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) | Reflects 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 mortgage portfolio during the reporting period and (b) Fannie Mae MBS purchased for our mortgage portfolio during the reporting period. | |
(8) | Reflects 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 consolidated balance sheet. Includes capitalized interest beginning in 2006. | |
(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) | Reflects 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) | Primarily includes long-term standby commitments we have issued and single-family and multifamily credit enhancements we have provided and that are not otherwise reflected in the table. | |
(13) | Reflects unpaid principal balance of the following: (a) mortgage loans held in our mortgage portfolio; (b) Fannie Mae MBS held in our mortgage portfolio; (c) non-Fannie Mae mortgage-related securities held in our investment portfolio; (d) Fannie Mae MBS held by third parties; and (e) 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) | Reflects unpaid principal balance of the following: (a) mortgage loans held in our mortgage portfolio; (b) Fannie Mae MBS held in our mortgage portfolio; (c) Fannie Mae MBS held by third parties; and (d) 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) | Consists of on-balance sheet nonperforming loans held in our mortgage portfolio and off-balance sheet nonperforming loans in Fannie Mae MBS held by third parties. Prior to 2008, the nonperforming loans that we reported consisted of on-balance sheet nonperforming loans and did not include off-balance nonperforming loans in Fannie Mae MBS held by third parties. We have revised previously reported amounts to reflect the current period presentation. | |
(16) | Calculated based on net interest income for the reporting period divided by the average balance of total interest-earning assets during the period, expressed as a percentage. | |
(17) | Calculated based on guaranty fee income for the reporting period divided by average outstanding Fannie Mae MBS and other guarantees during the period, expressed in basis points. | |
(18) | Consists of (a) charge-offs, net of recoveries and (b) foreclosed property expense for the reporting period divided by the average guaranty book of business during the period, expressed in basis points. Refer to “Item 7—MD&A—Consolidated Results of Operations—Credit-Related Expenses—Credit Loss Performance Metrics” for information on the change we made in calculating our credit loss ratio effective January 1, 2007. Our credit loss ratios for periods prior to 2007 have been revised to reflect this change. | |
(19) | Calculated based on net income (loss) available to common stockholders for the reporting period divided by average total assets during the period, expressed as a percentage. This ratio is a measure that is generally used to evaluate how effectively a company deploys assets. | |
(20) | Calculated based on net income (loss) available to common stockholders for the reporting period divided by average outstanding common equity during the period, expressed as a percentage. This ratio is a measure that is generally used to evaluate a company’s efficiency in generating profit from equity. | |
(21) | Calculated based on average stockholders’ equity divided by average total assets during the reporting period, expressed as a percentage. This ratio is a measure that is generally used to evaluate the extent to which a company is using long-term funding to finance its assets and its longer term solvency. | |
(22) | Calculated based on common dividends declared during the reporting period divided by net income available to common stockholders for the reporting period, expressed as a percentage. |
* | Average balances for purposes of ratio calculations are based on balances at the beginning of the year and at the end of each respective quarter for 2008 and 2007. Average balances for purposes of ratio calculations for all other years are based on beginning and end of year balances. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | 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 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. |
• | 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 loans, subprime loans and manufactured housing loans and mortgage revenue bonds. We have relied on external pricing services to estimate the fair value of these securities and validated those results with our internally-derived prices, which may incorporate spread, yield, or vintage and product matrices, and |
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standard cash flow discounting techniques. The inputs we use in estimating these values are based on multiple factors, including market observations, relative value to other securities, and non-binding dealer quotations. When we are not able to corroborate vendor-based prices, we rely on management’s best estimate of fair value. |
• | 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. 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 | ||||||||
December 31, | September 30, | |||||||
Balance Sheet Category | 2008 | 2008 | ||||||
(Dollars in millions) | ||||||||
Trading securities | $ | 12,765 | $ | 14,173 | ||||
Available-for-sale securities | 47,837 | 53,323 | ||||||
Derivatives assets | 362 | 280 | ||||||
Guaranty assets andbuy-ups | 1,083 | 1,866 | ||||||
Level 3 recurring assets | $ | 62,047 | $ | 69,642 | ||||
Total assets | $ | 912,404 | $ | 896,615 | ||||
Total recurring assets measured at fair value | $ | 359,246 | $ | 363,689 | ||||
Level 3 recurring assets as a percentage of total assets | 7 | % | 8 | % | ||||
Level 3 recurring assets as a percentage of total recurring assets measured at fair value | 17 | % | 19 | % | ||||
Total recurring assets measured at fair value as a percentage of total assets | 39 | % | 41 | % |
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• | We record a guaranty asset of $100, which represents the present value of the guaranty fees we expect to receive over time. | |
• | We record a guaranty obligation of $120, which represents the estimated amount that a market participant would require to assume this obligation. | |
• | We record the difference of $20, or the amount by which the guaranty obligation exceeds the guaranty asset, in our consolidated statements of operations as losses on certain guaranty contracts. |
• | We collect $20 in guaranty fees per year, which represents one-fifth of the outstanding receivable amount, and record this amount as a reduction in the guaranty asset. | |
• | We reduce the guaranty obligation by a proportionate amount, or one-fifth, and record this amount, which totals $24, in our consolidated statements of operations as guaranty fee income. |
For the Years Ended | Cumulative | |||||||||||||||||||||||||||
0 | 1 | 2 | 3 | 4 | 5 | Effect | ||||||||||||||||||||||
Losses on certain guaranty contracts | $ | (20 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (20 | ) | ||||||||||||
Guaranty fee income | — | 24 | 24 | 24 | 24 | 24 | 120 | |||||||||||||||||||||
Pre-tax income | $ | (20 | ) | $ | 24 | $ | 24 | $ | 24 | $ | 24 | $ | 24 | $ | 100 | |||||||||||||
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• | We purchase from an MBS trust a seriously delinquent loan that has an unpaid principal balance and accrued interest of $100 at a cost of $100. The estimated fair value at the date of purchase is $70. | |
• | We foreclose upon the mortgage loan and record the acquired REO property at the appraised fair value, net of estimated selling costs, which is $80. | |
• | We sell the REO property for $85. |
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Accounting Impact of Assumptions | ||||||||||||||||
Initial | ||||||||||||||||
Purchase | Sale of | Cumulative | ||||||||||||||
of Loan | Subsequent | Foreclosed | Earnings | |||||||||||||
from Trust(a) | Foreclosure(b) | Property(c) | Impact | |||||||||||||
Consolidated Balance Sheet: | ||||||||||||||||
Assets: | ||||||||||||||||
Mortgage loans | $ | 70 | $ | (70 | ) | $ | — | |||||||||
Acquired property, net | — | 80 | (80 | ) | ||||||||||||
Liabilities: | ||||||||||||||||
Reserve for guaranty losses—beginning balance(1) | $ | — | $ | — | $ | — | ||||||||||
Plus: Provision for credit losses attributable toSOP 03-3 fair value losses | 30 | |||||||||||||||
Less: Charge-offs related to initial purchase discount onSOP 03-3 loans | (30 | ) | — | — | ||||||||||||
Plus: Recoveries | — | — | — | |||||||||||||
Reserve for guaranty losses—ending balance(1) | $ | — | $ | — | $ | — | ||||||||||
Consolidated Statement of Operations: | ||||||||||||||||
Provision for credit losses attributable toSOP 03-3 fair value losses | $ | (30 | ) | $ | — | $ | — | $ | (30 | ) | ||||||
Foreclosed property income (expense) | — | 10 | 5 | 15 | ||||||||||||
Net pre-tax income (loss) effect | $ | (30 | ) | $ | 10 | $ | 5 | $ | (15 | ) | ||||||
(1) | The adjustment to the “Provision for credit losses” is presented for illustrative purposes only. We actually determine our “Reserve for guaranty losses” by aggregating homogeneous loans into pools based on similar underlying risk characteristics in accordance with SFAS 5. Accordingly, we do not have a specific reserve or provision attributable to each delinquent loan purchased from an MBS trust. |
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• | We generally view changes in the fair value of our available-for-sale securities caused by movements in interest rates to be temporary and do not recognize other-than-temporary impairment on these securities. | |
• | If we either decide to sell a security in an unrealized loss position or determine that a security in an unrealized loss position may be sold in future periods prior to recovery of the impairment, we identify the security as other-than-temporarily impaired in the period that we make the decision to sell or determine that the security may be sold. | |
• | For securities in an unrealized loss position resulting primarily from movements in interest rates, we generally do not recognize other-than-temporary impairment if we have the intent and ability to hold such securities until the earlier of recovery of the unrealized loss amounts or maturity. | |
• | For securities in an unrealized loss position due to factors other than movements in interest rates, such as the widening of credit spreads, we consider whether it is probable that we will not collect all of the contractual cash flows. If we determine that it is probable that we will not collect all of the contractual |
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cash flows or we do not have the ability or the intent to hold the security until recovery, we consider the impairment to be other-than-temporary. For all other securities in an unrealized loss position, we have the ability and positive intent to hold the securities until the earlier of full recovery or maturity. |
• | loss severity trends; | |
• | default experience; | |
• | expected proceeds from credit enhancements, such as primary mortgage insurance; | |
• | collateral valuation; and | |
• | identification and assessment of the impact of current economic factors. |
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Variance | ||||||||||||||||||||||||||||
For the Year Ended December 31, | 2008 vs. 2007 | 2007 vs. 2006 | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | $ | % | $ | % | ||||||||||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||||||||||||||||
Net interest income | $ | 8,782 | $ | 4,581 | $ | 6,752 | $ | 4,201 | 92 | % | $ | (2,171 | ) | (32 | )% | |||||||||||||
Guaranty fee income | 7,621 | 5,071 | 4,250 | 2,550 | 50 | 821 | 19 | |||||||||||||||||||||
Trust management income(2) | 261 | 588 | 111 | (327 | ) | (56 | ) | 477 | 430 | |||||||||||||||||||
Fee and other income | 772 | 965 | 908 | (193 | ) | (20 | ) | 57 | 6 | |||||||||||||||||||
Net revenues | $ | 17,436 | $ | 11,205 | $ | 12,021 | $ | 6,231 | 56 | % | $ | (816 | ) | (7 | )% | |||||||||||||
Losses on certain guaranty contracts | — | (1,424 | ) | (439 | ) | 1,424 | 100 | (985 | ) | (224 | ) | |||||||||||||||||
Investment losses, net | (7,220 | ) | (867 | ) | (691 | ) | (6,353 | ) | (733 | ) | (176 | ) | (25 | ) | ||||||||||||||
Fair value losses, net(3) | (20,129 | ) | (4,668 | ) | (1,744 | ) | (15,461 | ) | (331 | ) | (2,924 | ) | (168 | ) | ||||||||||||||
Losses from partnership investments | (1,554 | ) | (1,005 | ) | (865 | ) | (549 | ) | (55 | ) | (140 | ) | (16 | ) | ||||||||||||||
Administrative expenses | (1,979 | ) | (2,669 | ) | (3,076 | ) | 690 | 26 | 407 | 13 | ||||||||||||||||||
Credit-related expenses(4) | (29,809 | ) | (5,012 | ) | (783 | ) | (24,797 | ) | (495 | ) | (4,229 | ) | (540 | ) | ||||||||||||||
Other non-interest expenses(5) | (1,294 | ) | (686 | ) | (210 | ) | (608 | ) | (89 | ) | (476 | ) | (227 | ) | ||||||||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | (44,549 | ) | (5,126 | ) | 4,213 | (39,423 | ) | (769 | ) | (9,339 | ) | (222 | ) | |||||||||||||||
(Provision) benefit for federal income taxes | (13,749 | ) | 3,091 | (166 | ) | (16,840 | ) | (545 | ) | 3,257 | 1,962 | |||||||||||||||||
Extraordinary (losses) gains, net of tax effect | (409 | ) | (15 | ) | 12 | (394 | ) | (2,627 | ) | (27 | ) | (225 | ) | |||||||||||||||
Net (loss) income | $ | (58,707 | ) | $ | (2,050 | ) | $ | 4,059 | $ | (56,657 | ) | (2,764 | )% | $ | (6,109 | ) | (151 | )% | ||||||||||
Diluted earnings (loss) per common share | $ | (24.04 | ) | $ | (2.63 | ) | $ | 3.65 | $ | (21.41 | ) | (814 | )% | $ | (6.28 | ) | (172 | )% | ||||||||||
(1) | Certain prior period amounts have been reclassified to conform with the current period presentation in our consolidated statements of operations. | |
(2) | We began separately reporting the revenues from trust management fees in our consolidated statements of operations effective November 2006. We previously included these revenues as a component of interest income. | |
(3) | 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. | |
(4) | Consists of provision for credit losses and foreclosed property expense. | |
(5) | Consists of the following: (a) debt extinguishment gains (losses), net; (b) minority interest in earnings (losses) of consolidated subsidiaries and (c) other expenses. |
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For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
Interest | Average | Interest | Average | Interest | Average | |||||||||||||||||||||||||||||||
Average | Income/ | Rates | Average | Income/ | Rates | Average | Income/ | Rates | ||||||||||||||||||||||||||||
Balance(1) | Expense | Earned/Paid | Balance(1) | Expense | Earned/Paid | Balance(1) | Expense | Earned/Paid | ||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Mortgage loans(2) | $ | 416,616 | $ | 22,692 | 5.45 | % | $ | 393,827 | $ | 22,218 | 5.64 | % | $ | 376,016 | $ | 20,804 | 5.53 | % | ||||||||||||||||||
Mortgage securities | 332,442 | 17,344 | 5.22 | 328,769 | 18,052 | 5.49 | 356,872 | 19,313 | 5.41 | |||||||||||||||||||||||||||
Non-mortgage securities(3) | 60,230 | 1,748 | 2.90 | 64,204 | 3,441 | 5.36 | 45,138 | 2,734 | 6.06 | |||||||||||||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 41,991 | 1,158 | 2.76 | 15,405 | 828 | 5.37 | 13,376 | 641 | 4.79 | |||||||||||||||||||||||||||
Advances to lenders | 3,521 | 181 | 5.14 | 6,633 | 227 | 3.42 | 5,365 | 135 | 2.52 | |||||||||||||||||||||||||||
Total interest-earning assets | $ | 854,800 | $ | 43,123 | 5.04 | % | $ | 808,838 | $ | 44,766 | 5.53 | % | $ | 796,767 | $ | 43,627 | 5.48 | % | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Short-term debt | $ | 277,503 | $ | 7,806 | 2.81 | % | $ | 176,071 | $ | 8,992 | 5.11 | % | $ | 164,566 | $ | 7,724 | 4.69 | % | ||||||||||||||||||
Long-term debt | 549,833 | 26,526 | 4.82 | 605,498 | 31,186 | 5.15 | 604,555 | 29,139 | 4.82 | |||||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 428 | 9 | 2.10 | 161 | 7 | 4.35 | 320 | 12 | 3.75 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | $ | 827,764 | $ | 34,341 | 4.15 | % | $ | 781,730 | $ | 40,185 | 5.14 | % | $ | 769,441 | $ | 36,875 | 4.79 | % | ||||||||||||||||||
Impact of net non-interest bearing funding | $ | 27,036 | 0.14 | % | $ | 27,108 | 0.18 | % | $ | 27,326 | 0.16 | % | ||||||||||||||||||||||||
Net interest income/net interest yield(4) | $ | 8,782 | 1.03 | % | $ | 4,581 | 0.57 | % | $ | 6,752 | 0.85 | % | ||||||||||||||||||||||||
Selected benchmark interest rates at end of year:(5) | ||||||||||||||||||||||||||||||||||||
3-month LIBOR | 1.43 | % | 4.70 | % | 5.36 | % | ||||||||||||||||||||||||||||||
2-year swap interest rate | 1.47 | 3.82 | 5.17 | |||||||||||||||||||||||||||||||||
5-year swap interest rate | 2.13 | 4.19 | 5.10 | |||||||||||||||||||||||||||||||||
30-year Fannie Mae MBS par coupon rate | 3.89 | 5.51 | 5.79 |
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(1) | Average balances were 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 year for mortgage loans, advances to lenders, and short- and long-term debt for 2008 and 2007. Average balances for all other categories have been calculated based on a daily average for 2008 and 2007. Average balances were calculated based on the average of the amortized cost amounts at the beginning of the year and at the end of each quarter in the year for 2006. | |
(2) | Average balance amounts include nonaccrual loans with an average balance totaling $10.3 billion, $6.5 billion and $6.7 billion for the years ended December 31, 2008, 2007 and 2006, respectively. Interest income includes interest income on loans purchased from MBS trusts subject toSOP 03-3, which totaled $634 million, $496 million and $361 million for 2008, 2007 and 2006, respectively. These interest income amounts included accretion of $158 million, $80 million and $43 million for 2008, 2007 and 2006 relating to a portion of the fair value losses recorded upon the purchase ofSOP 03-3 loans. | |
(3) | Includes cash equivalents. | |
(4) | We compute net interest yield by dividing net interest income for the period by the average balance of our total interest-earning assets during the period. | |
(5) | Data obtained from British Bankers’ Association, Thomson Reuters Indices and Bloomberg. |
2008 vs. 2007 | 2007 vs. 2006 | |||||||||||||||||||||||
Total | Variance Due to:(1) | Total | Variance Due to:(1) | |||||||||||||||||||||
Variance | Volume | Rate | Variance | Volume | Rate | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Mortgage loans(2) | $ | 474 | $ | 1,258 | $ | (784 | ) | $ | 1,414 | $ | 999 | $ | 415 | |||||||||||
Mortgage securities | (708 | ) | 200 | (908 | ) | (1,261 | ) | (1,540 | ) | 279 | ||||||||||||||
Non-mortgage securities(3) | (1,693 | ) | (201 | ) | (1,492 | ) | 707 | 1,050 | (343 | ) | ||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 330 | 886 | (556 | ) | 187 | 104 | 83 | |||||||||||||||||
Advances to lenders | (46 | ) | (132 | ) | 86 | 92 | 36 | 56 | ||||||||||||||||
Total interest income | (1,643 | ) | 2,011 | (3,654 | ) | 1,139 | 649 | 490 | ||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Short-term debt | (1,186 | ) | 3,873 | (5,059 | ) | 1,268 | 561 | 707 | ||||||||||||||||
Long-term debt | (4,660 | ) | (2,760 | ) | (1,900 | ) | 2,047 | 46 | 2,001 | |||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 2 | 7 | (5 | ) | (5 | ) | (7 | ) | 2 | |||||||||||||||
Total interest expense | (5,844 | ) | 1,120 | (6,964 | ) | 3,310 | 600 | 2,710 | ||||||||||||||||
Net interest income | $ | 4,201 | $ | 891 | $ | 3,310 | $ | (2,171 | ) | $ | 49 | $ | (2,220 | ) | ||||||||||
(1) | Combined rate/volume variances are allocated to both rate and volume based on the relative size of each variance. | |
(2) | Refer to footnote 2 in Table 4. | |
(3) | Includes cash equivalents. |
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For the Year Ended December 31, | % Change | |||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 vs. | 2007 vs. | ||||||||||||||||||||||||||||
Amount | Rate(2) | Amount | Rate(2) | 2006 | Rate(2) | 2007 | 2006 | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Guaranty fee income/average effective guaranty fee rate, excluding certain fair value adjustments andbuy-up impairment(3) | $ | 7,913 | 32.2 | bp | $ | 5,063 | 23.7 | bp | $ | 4,288 | 22.4 | bp | 56 | % | 18 | % | ||||||||||||||||
Net change in fair value ofbuy-ups and guaranty assets(4) | (18 | ) | (0.1 | ) | 24 | 0.1 | — | — | (175 | ) | — | |||||||||||||||||||||
Buy-up impairment | (274 | ) | (1.1 | ) | (16 | ) | (0.1 | ) | (38 | ) | (0.2 | ) | 1,613 | (58 | ) | |||||||||||||||||
Guaranty fee income/average effective guaranty fee rate(5) | $ | 7,621 | 31.0 | bp | $ | 5,071 | 23.7 | bp | $ | 4,250 | 22.2 | bp | 50 | % | 19 | % | ||||||||||||||||
Average outstanding Fannie Mae MBS and other guarantees(6) | $ | 2,459,383 | $ | 2,139,481 | $ | 1,915,457 | 15 | % | 12 | % | ||||||||||||||||||||||
Fannie Mae MBS issues(7) | 542,813 | 629,607 | 481,704 | (14 | ) | 31 |
(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 5 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 guaranty fee income components divided by average outstanding Fannie Mae MBS and other guarantees for each respective period. |
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(3) | Certain prior period amounts that previously were included as a component of “Fee and other income” have been reclassified to “Guaranty fee income” to conform to the current period presentation, which resulted in a change in the previously reported effective guaranty fee rates for 2006. | |
(4) | Consists of the effect of the net change in fair value ofbuy-ups and guaranty assets from portfolio securitization transactions subsequent to January 1, 2007. We include the net change in fair value ofbuy-ups and guaranty assets from portfolio securitization transactions in “Guaranty fee income” in our consolidated statements of operations pursuant to our adoption of SFAS No. 155,Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS 133 and SFAS 140(“SFAS 155”). We prospectively adopted SFAS 155 effective January 1, 2007. Accordingly, we did not record a fair value adjustment in earnings during 2006. | |
(5) | 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 no longer recognize losses at inception of our guaranty contracts, we continue to accrete previously recognized losses into our guaranty fee income over the remaining life of the mortgage loans underlying the Fannie Mae MBS. | |
(6) | Other guarantees includes $27.8 billion, $41.6 billion and $19.7 billion as of December 31, 2008, 2007 and 2006, respectively, related to long-term standby commitments we have issued and credit enhancements we have provided. | |
(7) | 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 Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Other-than-temporary impairment on available-for-sale securities(1) | $ | (6,974 | ) | $ | (814 | ) | $ | (853 | ) | |||
Lower of cost or fair value adjustments on held for sale loans | (430 | ) | (103 | ) | (47 | ) | ||||||
Gains (losses) on Fannie Mae portfolio securitizations, net | 49 | (403 | ) | 152 | ||||||||
Gains on sale of available-for-sale securities, net | 387 | 703 | 106 | |||||||||
Other investment losses, net | (252 | ) | (250 | ) | (49 | ) | ||||||
Investment losses, net | $ | (7,220 | ) | $ | (867 | ) | $ | (691 | ) | |||
(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 6: Analysis of Guaranty Fee Income and Average Effective Guaranty Fee Rate. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Derivatives fair value losses, net(1) | $ | (15,416 | ) | $ | (4,113 | ) | $ | (1,522 | ) | |||
Trading securities gains (losses) net(2) | (7,040 | ) | (365 | ) | 8 | |||||||
Hedged mortgage assets gains, net(3) | 2,154 | — | — | |||||||||
Fair value losses on derivatives, trading securities and hedged mortgage assets, net | (20,302 | ) | (4,478 | ) | (1,514 | ) | ||||||
Debt foreign exchange gains (losses), net | 230 | (190 | ) | (230 | ) | |||||||
Debt fair value losses, net | (57 | ) | — | — | ||||||||
Fair value losses, net | $ | (20,129 | ) | $ | (4,668 | ) | $ | (1,744 | ) | |||
(1) | Includes losses of approximately $104 million in 2008 that resulted from the termination of our derivative contracts with a subsidiary of Lehman Brothers. | |
(2) | Includes trading losses of $608 million in 2008 that 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 Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Risk management derivatives: | ||||||||||||
Swaps: | ||||||||||||
Pay-fixed | $ | (64,764 | ) | $ | (12,065 | ) | $ | 2,181 | ||||
Receive-fixed | 44,553 | 5,928 | (390 | ) | ||||||||
Basis | (102 | ) | 91 | 26 | ||||||||
Foreign currency(1) | (130 | ) | 111 | 105 | ||||||||
Swaptions: | ||||||||||||
Pay-fixed | (666 | ) | (196 | ) | (1,148 | ) | ||||||
Receive-fixed | 6,153 | 1,956 | (2,480 | ) | ||||||||
Interest rate caps | (1 | ) | 5 | 100 | ||||||||
Other(2)(3) | (6 | ) | 12 | 6 | ||||||||
Total risk management derivatives fair value losses, net | (14,963 | ) | (4,158 | ) | (1,600 | ) | ||||||
Mortgage commitment derivatives fair value gains (losses), net | (453 | ) | 45 | 78 | ||||||||
Total derivatives fair value losses, net | $ | (15,416 | ) | $ | (4,113 | ) | $ | (1,522 | ) | |||
Risk management derivatives fair value gains (losses) attributable to: | ||||||||||||
Net contractual interest income (expense) on interest rate swaps | $ | (1,576 | ) | $ | 261 | $ | (111 | ) | ||||
Net change in fair value of terminated derivative contracts from end of prior period to date of termination(3) | (309 | ) | (264 | ) | (176 | ) | ||||||
Net change in fair value of outstanding derivative contracts, including derivative contracts entered into during the period | (13,078 | ) | (4,155 | ) | (1,313 | ) | ||||||
Total risk management derivatives fair value losses, net(4) | $ | (14,963 | ) | $ | (4,158 | ) | $ | (1,600 | ) | |||
2008 | 2007 | 2006 | ||||||||||
5-year swap rate: | ||||||||||||
Quarter ended March 31 | 3.31 | % | 4.99 | % | 5.31 | % | ||||||
Quarter ended June 30 | 4.26 | 5.50 | 5.65 | |||||||||
Quarter ended September 30 | 4.11 | 4.87 | 5.08 | |||||||||
Quarter ended December 31 | 2.13 | 4.19 | 5.10 |
(1) | Includes the effect of net contractual interest income of approximately $9 million for 2008, and net contractual interest expense of approximately $59 million and $71 million for 2007 and 2006, respectively. The change in fair value of foreign currency swaps excluding this item resulted in a net loss of $139 million for 2008 and a net gain of $170 million and $176 million for 2007 and 2006, respectively. | |
(2) | Includes MBS options, swap credit enhancements and mortgage insurance contracts. | |
(3) | Includes losses of approximately $104 million for 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 consolidated statements of operations. |
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• | Changes in interest rates: Our derivatives, in combination with our debt issuances, are intended to offset changes in the fair value of our mortgage assets, which tend to increase in value when interest rates decrease and, conversely, decrease in value when interest rates rise. Because our derivatives portfolio predominately consists of pay-fixed swaps, we typically report declines in fair value as swap interest rates decrease and increases in fair value as swap interest rates increase. | |
• | Implied interest rate volatility: Our derivatives portfolio includes option-based derivatives, which we use to economically hedge the embedded prepayment option in our mortgage investments. A key variable in estimating the fair value of option-based derivatives is implied volatility, which reflects the market’s expectation about the future volatility of interest rates. Assuming all other factors are held equal, including interest rates, a decrease in implied volatility would reduce the fair value of our derivatives and an increase in implied volatility would increase the fair value. | |
• | Changes in our derivative activity: As interest rates change, we are likely to take actions to rebalance our portfolio to manage our interest rate exposure. As interest rates decrease, expected mortgage prepayments are likely to increase, which reduces the duration of our mortgage investments. In this scenario, we generally will rebalance our existing portfolio to manage this risk by terminating pay-fixed swaps or adding receive-fixed swaps, which shortens the duration of our liabilities. Conversely, when interest rates increase and the duration of our mortgage assets increases, we are likely to rebalance our existing portfolio by adding pay-fixed swaps that have the effect of extending the duration of our liabilities. We also add derivatives in various interest rate environments to hedge the risk of incremental mortgage purchases that we are not able to accomplish solely through our issuance of debt securities. | |
• | Time value of purchased options: Intrinsic value and time value are the two primary components of an option’s price. The intrinsic value is the amount that can be immediately realized by exercising the option—the amount by which the market rate exceeds or is below the exercise, or strike rate, such that the option is in-the-money. The time value of an option is the amount by which the price of an option exceeds its intrinsic value. Time decay refers to the diminishing value of an option over time as less time remains to exercise the option. We have a significant amount of purchased options where the time value of the upfront premium we pay for these options decreases due to the passage of time relative to the expiration date of these options. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Provision for credit losses attributable to guaranty book of business | $ | 25,522 | $ | 3,200 | $ | 385 | ||||||
Provision for credit losses attributable toSOP 03-3 and HomeSaver Advance fair value losses | 2,429 | 1,364 | 204 | |||||||||
Total provision for credit losses(1) | 27,951 | 4,564 | 589 | |||||||||
Foreclosed property expense | 1,858 | 448 | 194 | |||||||||
Credit-related expenses | $ | 29,809 | $ | 5,012 | $ | 783 | ||||||
(1) | Reflects total provision for credit losses reported in our consolidated statements of operations and in Table 11 below. |
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As of December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Changes in combined loss reserves: | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Beginning balance | $ | 698 | $ | 340 | $ | 302 | $ | 349 | $ | 290 | ||||||||||
Provision for credit losses(1) | 4,022 | 658 | 174 | 124 | 174 | |||||||||||||||
Charge-offs(2) | (1,987 | ) | (407 | ) | (206 | ) | (267 | ) | (321 | ) | ||||||||||
Recoveries | 190 | 107 | 70 | 96 | 131 | |||||||||||||||
Increase from the reserve for guaranty losses(4) | — | — | — | — | 75 | |||||||||||||||
Ending balance(5) | $ | 2,923 | $ | 698 | $ | 340 | $ | 302 | $ | 349 | ||||||||||
Reserve for guaranty losses: | ||||||||||||||||||||
Beginning balance | $ | 2,693 | $ | 519 | $ | 422 | $ | 396 | $ | 313 | ||||||||||
Provision for credit losses | 23,929 | 3,906 | 415 | 317 | 178 | |||||||||||||||
Charge-offs(3)(6) | (4,986 | ) | (1,782 | ) | (336 | ) | (302 | ) | (24 | ) | ||||||||||
Recoveries | 194 | 50 | 18 | 11 | 4 | |||||||||||||||
Decrease to the allowance for loan losses(4) | — | — | — | — | (75 | ) | ||||||||||||||
Ending balance | $ | 21,830 | $ | 2,693 | $ | 519 | $ | 422 | $ | 396 | ||||||||||
Combined loss reserves: | ||||||||||||||||||||
Beginning balance | $ | 3,391 | $ | 859 | $ | 724 | $ | 745 | $ | 603 | ||||||||||
Total provision for credit losses(1) | 27,951 | 4,564 | 589 | 441 | 352 | |||||||||||||||
Charge-offs(2)(3)(6) | (6,973 | ) | (2,189 | ) | (542 | ) | (569 | ) | (345 | ) | ||||||||||
Recoveries | 384 | 157 | 88 | 107 | 135 | |||||||||||||||
Ending balance(5) | $ | 24,753 | $ | 3,391 | $ | 859 | $ | 724 | $ | 745 | ||||||||||
Allocation of combined loss reserves: | ||||||||||||||||||||
Balance at end of each period attributable to: | ||||||||||||||||||||
Single-family | $ | 24,649 | $ | 3,318 | $ | 785 | $ | 647 | $ | 644 | ||||||||||
Multifamily | 104 | 73 | 74 | 77 | 101 | |||||||||||||||
Total | $ | 24,753 | $ | 3,391 | $ | 859 | $ | 724 | $ | 745 | ||||||||||
Single-family and multifamily loss reserve ratios:(7) | ||||||||||||||||||||
Single-family loss reserves as a percentage of single-family guaranty book of business | 0.88 | % | 0.13 | % | 0.03 | % | 0.03 | % | 0.03 | % | ||||||||||
Multifamily loss reserves as a percentage of multifamily guaranty book of business | 0.06 | 0.05 | 0.06 | 0.06 | 0.09 | |||||||||||||||
Combined loss reserves as a percentage of: | ||||||||||||||||||||
Total guaranty book of business | 0.83 | 0.12 | 0.04 | 0.03 | 0.03 | |||||||||||||||
Total nonperforming loans(8) | 20.76 | 12.49 | 6.20 | 5.10 | 6.35 |
(1) | Includes an increase in the allowance for loan losses for first-lien loans associated with unsecured HomeSaver Advance loans that are held in MBS trusts that are consolidated on our balance sheets. | |
(2) | Includes accrued interest of $642 million, $128 million, $39 million, $24 million and $29 million for 2008, 2007, 2006, 2005, and 2004, respectively. | |
(3) | Includes charges of $333 million in 2008 related to unsecured HomeSaver Advance loans. | |
(4) | Includes decrease in reserve for guaranty losses and increase in allowance for loan losses due to the purchase of delinquent loans from MBS trusts. Effective with our adoption ofSOP 03-3 on January 1, 2005, we record seriously delinquent loans purchased from Fannie Mae MBS trusts at the lower of acquisition cost or fair value at the date of purchase. We no longer record an increase in the allowance for loan losses and reduction in the reserve for guaranty losses when we purchase these loans. |
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(5) | Includes $150 million, $39 million, $28 million and $22 million as of December 31, 2008, 2007, 2006 and 2005, respectively, for acquired loans subject to the application ofSOP 03-3. | |
(6) | Includes charges recorded at the date of acquisition of $2.1 billion, $1.4 billion, $204 million and $251 million in 2008, 2007, 2006 and 2005, respectively, for acquired loans subject to the application ofSOP 03-3 where the acquisition cost exceeded the fair value of the acquired loan. Excludes delinquent loans totaling $56 million that are subject toSOP 03-3 but are held in MBS trusts consolidated on our balance sheets. | |
(7) | Represents loss reserves amount attributable to each loan type as a percentage of the guaranty book of business for each loan type. | |
(8) | Loans are classified as nonperforming when we believe collectability of interest or principal on the loan is not reasonably assured. Additionally, troubled debt restructurings and HomeSaver Advance first-lien loans are classified as nonperforming loans. See Table 48: Nonperforming Single-Family and Multifamily Loans for detail on nonperforming loans. |
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2008 | 2007 | |||||||||||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
Average market price(2) | 44 | % | 49 | % | 53 | % | 60 | % | 70 | % | 72 | % | 93 | % | 94 | % | ||||||||||||||||
Unpaid principal balance and accrued interest of loans purchased (dollars in millions) | $ | 1,286 | $ | 744 | $ | 807 | $ | 1,704 | $ | 1,832 | $ | 2,349 | $ | 881 | $ | 1,057 | ||||||||||||||||
Number of delinquent loans purchased | 6,124 | 3,678 | 4,618 | 10,586 | 11,997 | 15,924 | 6,396 | 8,009 |
(1) | Excludes delinquent loans held in MBS trusts that have been consolidated on our balance sheet and first lien loans associated with HomeSaver Advance loans. | |
(2) | The value of primary mortgage insurance is included as a component of the average market price. |
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Allowance | ||||||||||||||||
Contractual | Market | for Loan | Net | |||||||||||||
Amount(1) | Discount | Losses | Investment | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Balance as of December 31, 2006 | $ | 5,949 | $ | (237 | ) | $ | (28 | ) | $ | 5,684 | ||||||
Purchases of delinquent loans | 6,119 | (1,364 | ) | — | 4,755 | |||||||||||
Provision for credit losses | — | — | (76 | ) | (76 | ) | ||||||||||
Principal repayments | (1,041 | ) | 71 | 16 | (954 | ) | ||||||||||
Modifications and troubled debt restructurings | (1,386 | ) | 316 | 10 | (1,060 | ) | ||||||||||
Foreclosures, transferred to REO | (1,545 | ) | 223 | 39 | (1,283 | ) | ||||||||||
Balance as of December 31, 2007 | $ | 8,096 | $ | (991 | ) | $ | (39 | ) | $ | 7,066 | ||||||
Purchases of delinquent loans | 4,542 | (2,096 | ) | — | 2,446 | |||||||||||
Provision for credit losses | — | — | (184 | ) | (184 | ) | ||||||||||
Principal repayments | (648 | ) | 114 | 5 | (529 | ) | ||||||||||
Modifications and troubled debt restructurings | (3,255 | ) | 1,247 | 37 | (1,971 | ) | ||||||||||
Foreclosures, transferred to REO | (1,710 | ) | 460 | 32 | (1,218 | ) | ||||||||||
Balance as of December 31, 2008 | $ | 7,025 | $ | (1,266 | ) | $ | (149 | ) | $ | 5,610 | ||||||
(1) | Reflects contractually required principal and accrued interest payments that we believe are probable of collection. |
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For the Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Amount | Ratio(1) | Amount | Ratio(1) | Amount | Ratio(1) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Charge-offs, net of recoveries | $ | 6,589 | 22.9 | bp | $ | 2,032 | 8.0 | bp | $ | 454 | 2.0 | bp | ||||||||||||
Foreclosed property expense | 1,858 | 6.5 | 448 | 1.8 | 194 | 0.8 | ||||||||||||||||||
Less:SOP 03-3 and HomeSaver Advance fair value losses(2) | (2,429 | ) | (8.4 | ) | (1,364 | ) | (5.4 | ) | (204 | ) | (0.9 | ) | ||||||||||||
Plus: Impact ofSOP 03-3 on charge-offs and foreclosed property expense(3) | 501 | 1.7 | 223 | 0.9 | 73 | 0.3 | ||||||||||||||||||
Credit losses(4) | $ | 6,519 | 22.7 | bp | $ | 1,339 | 5.3 | bp | $ | 517 | 2.2 | 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. In 2007, we revised the calculation of our credit loss ratio to reflect credit losses as a percentage of our guaranty book of business. We made this revision because losses related to non-Fannie Mae mortgage-related securities are not reflected in our credit losses. We revised the presentation of our credit loss ratio for 2006 to conform to our current presentation. | |
(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 unsecured HomeSaver Advance loans at origination and the estimated fair value of these loans that we record in our 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 48, 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. |
• | Certain higher risk loan types, including Alt-A loans, interest-only loans, loans to borrowers with low credit scores and loans with high loan-to-value ratios, many of which were originated in 2006 and 2007, represented approximately 28% and 29% of our single-family conventional mortgage credit book of |
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business as of December 31, 2008 and 2007, respectively, but accounted for approximately 71% and 56% of our single-family credit losses for 2008 and 2007, respectively, compared with 46% for 2006. |
• | California, Florida, Arizona and Nevada, which represented approximately 28% and 27% of our single-family conventional mortgage credit book of business as of December 31, 2008 and 2007, respectively, accounted for 49% and 15% of our single-family credit losses for 2008 and 2007, respectively, compared with 0% for 2006. | |
• | Michigan and Ohio, two key states driving credit losses in the Midwest, represented approximately 6% of our single-family conventional mortgage credit book of business as of December 31, 2008 and 2007, but accounted for 16% and 39% of our single-family credit losses for 2008 and 2007, respectively, compared with 50% for 2006. |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Gross single-family credit loss sensitivity | $ | 13,232 | $ | 9,644 | ||||
Less: Projected credit risk sharing proceeds | (3,478 | ) | (5,102 | ) | ||||
Net single-family credit loss sensitivity | $ | 9,754 | $ | 4,542 | ||||
Outstanding single-family whole loans and Fannie Mae MBS | $ | 2,724,253 | $ | 2,523,440 | ||||
Single-family net credit loss sensitivity as a percentage of outstanding single-family whole loans and Fannie Mae MBS | 0.36 | % | 0.18 | % |
(1) | 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 December 31, 2008 and 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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Variance | ||||||||||||||||||||||||||||
For the Year Ended December 31, | 2008 vs. 2007 | 2007 vs. 2006 | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | $ | % | $ | % | ||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
Statement of operations data:(1) | ||||||||||||||||||||||||||||
Guaranty fee income | $ | 8,390 | $ | 5,816 | $ | 4,785 | $ | 2,574 | 44 | % | $ | 1,031 | 22 | % | ||||||||||||||
Trust management income(2) | 256 | 553 | 109 | (297 | ) | (54 | ) | 444 | 407 | |||||||||||||||||||
Other income(3) | 716 | 629 | 1,282 | 87 | 14 | (653 | ) | (51 | ) | |||||||||||||||||||
Losses on certain guaranty contracts | — | (1,387 | ) | (431 | ) | 1,387 | 100 | (956 | ) | (222 | ) | |||||||||||||||||
Credit-related expenses(4) | (29,725 | ) | (5,003 | ) | (778 | ) | (24,722 | ) | (494 | ) | (4,225 | ) | (543 | ) | ||||||||||||||
Other expenses(5) | (1,950 | ) | (1,928 | ) | (1,834 | ) | (22 | ) | (1 | ) | (94 | ) | (5 | ) | ||||||||||||||
Income (loss) before federal income taxes | (22,313 | ) | (1,320 | ) | 3,133 | (20,993 | ) | (1,590 | ) | (4,453 | ) | (142 | ) | |||||||||||||||
(Provision) benefit provision for federal income taxes | (4,788 | ) | 462 | (1,089 | ) | (5,250 | ) | (1,136 | ) | 1,551 | 142 | |||||||||||||||||
Net (loss) income | $ | (27,101 | ) | $ | (858 | ) | $ | 2,044 | $ | (26,243 | ) | (3,059 | )% | $ | (2,902 | ) | (142 | )% | ||||||||||
Other key performance data: | ||||||||||||||||||||||||||||
Average single-family guaranty book of business(6) | $ | 2,715,606 | $ | 2,406,422 | $ | 2,178,478 | $ | 309,184 | 13 | % | $ | 227,944 | 10 | % |
(1) | Certain prior period amounts have been reclassified to conform with the current period presentation in our consolidated statements of operations. | |
(2) | We began separately reporting the revenues from trust management fees in our consolidated statements of operations effective November 2006. We previously included these revenues as a component of interest income. We have not reclassified prior period amounts to conform to the current period presentation. | |
(3) | Consists of net interest income, investment gains and losses, and fee and other income. | |
(4) | Consists of the provision for credit losses and foreclosed property expense. | |
(5) | Consists of administrative expenses and other expenses. | |
(6) | 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 guarantee. |
• | Increased guaranty fee income, primarily attributable to an increase in the average effective single-family guaranty fee rate, coupled with growth in the average single-family guaranty book of business. |
• | The average effective single-family guaranty fee rate increased by 28% to 30.9 basis points in 2008, from 24.2 basis points in 2007. The growth in our average effective single-family guaranty fee rate during 2008 was primarily driven by the accelerated recognition of deferred amounts into income, as interest rates fell significantly during 2008, resulting in higher expected prepayment rates. Our average |
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effective guaranty fee rate for 2008 also reflected the impact of guaranty fee pricing changes we implemented to address the current risks in the housing market and a shift in the composition of our new business to a greater proportion of higher-quality, lower risk and lower guaranty fee mortgages. The combined effect of these changes resulted in a reduction in the average charged guaranty fee on new single-family business to 28.0 basis points in 2008, from 28.6 basis points for 2007. |
• | Our average single-family guaranty book of business increased by 13% to $2.7 trillion in 2008, from $2.4 trillion in 2007, reflecting the significant increase in our market share since the end of the second quarter of 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 45.4% for 2008, from approximately 33.9% for 2007. However, we began to experience a decrease in market share during the second half of 2008. |
• | A substantial increase in credit-related expenses, reflecting a significantly higher incremental provision for credit losses as well as higher charge-offs due to worsening credit performance trends, including significant increases in delinquencies, defaults and loss severities, particularly in certain higher risk loan categories and vintages and certain states. We also experienced an increase inSOP 03-3 fair value losses in 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 a result of the partial deferred tax valuation allowance, we did not record tax benefits for the majority of the losses we incurred during 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 $4.8 billion for 2008, compared with a tax benefit of $462 million for 2007. |
• | Increased guaranty fee income in 2007, 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. |
• | Our average single-family guaranty book of business increased by 10% to $2.4 trillion in 2007, from $2.2 trillion in 2006, due to strong growth in single-family Fannie Mae MBS issuances. This growth reflected the shift in the product mix of mortgage originations in the primary mortgage market back to more traditional conforming products, such as30-year fixed-rate loans, and a significant reduction in competition from private-label issuers of mortgage-related securities. | |
• | The growth in our average effective single-family guaranty fee rate resulted from targeted pricing increases on new business due to the increase in the market pricing of mortgage credit risk and an increase in the accretion of our guaranty obligation and deferred profit into income in 2007 as compared with 2006, due in part to accretion related to losses on certain guaranty contracts. |
• | Significantly higher losses on certain guaranty contracts in 2007, primarily due to the deterioration in home prices and overall housing market conditions, which led to an increase in mortgage credit risk pricing that resulted in an increase in the estimated fair value of our guaranty obligations. As a result, we recorded increased losses on certain guaranty contracts associated with our MBS issuances during 2007. | |
• | A substantial increase in credit-related expenses in 2007, reflecting an increase in both the provision for credit losses and foreclosed property expenses resulting principally from the continued impact of weak economic conditions in the Midwest and the effect of the national decline in home prices. We also experienced a significant increase in market-based valuation adjustments on delinquent loans purchased from MBS trusts, which are presented as part of our provision for credit losses. | |
• | A relatively stable effective tax rate of 35.0% for 2007, compared with 34.8% for 2006. |
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Variance | ||||||||||||||||||||||||||||
For the Year Ended December 31, | 2008 vs. 2007 | 2007 vs. 2006 | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | $ | % | $ | % | ||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||
Guaranty fee income | $ | 633 | $ | 470 | $ | 562 | $ | 163 | 35 | % | $ | (92 | ) | (16 | )% | |||||||||||||
Other income(1)(2) | 186 | 359 | 279 | (173 | ) | (48 | ) | 80 | 29 | |||||||||||||||||||
Losses on partnership investments | (1,554 | ) | (1,005 | ) | (865 | ) | (549 | ) | (55 | ) | (140 | ) | (16 | ) | ||||||||||||||
Credit-related expenses(3) | (84 | ) | (9 | ) | (5 | ) | (75 | ) | (833 | ) | (4 | ) | (80 | ) | ||||||||||||||
Other expenses(1)(4) | (859 | ) | (1,167 | ) | (1,076 | ) | 308 | 26 | (91 | ) | (8 | ) | ||||||||||||||||
Income (loss) before federal income taxes | (1,678 | ) | (1,352 | ) | (1,105 | ) | (326 | ) | (24 | ) | (247 | ) | (22 | ) | ||||||||||||||
(Provision) benefit for federal income taxes | (511 | ) | 1,509 | 1,443 | (2,020 | ) | (134 | ) | 66 | 5 | ||||||||||||||||||
Net (loss) income | $ | (2,189 | ) | $ | 157 | $ | 338 | $ | (2,346 | ) | (1,494 | )% | $ | (181 | ) | (54 | )% | |||||||||||
Other key performance data: | ||||||||||||||||||||||||||||
Average multifamily guaranty book of business(5) | $ | 161,722 | $ | 131,375 | $ | 118,537 | $ | 30,347 | 23 | % | $ | 12,838 | 11 | % |
(1) | Certain prior period amounts have been reclassified to conform to the current period presentation. | |
(2) | Consists of trust management income and fee and other income. | |
(3) | Consists of the provision for credit losses and foreclosed property (expense) income. | |
(4) | Consists of net interest expense, losses on certain guaranty contracts, administrative expenses, minority interest in earnings of consolidated subsidiaries and other expenses. | |
(5) | 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 guarantee. |
• | Increased guaranty fee income, attributable to growth in the average multifamily guaranty book of business, an increase in the average effective multifamily guaranty fee rate and the accelerated amortization of our deferred guaranty obligation due to the decline in interest rates. The increases in our book of business and guaranty fee rate reflected the increased investment and liquidity that we provided to the multifamily mortgage market in 2008. | |
• | A decrease in other income, primarily attributable to lower multifamily fees due to a reduction in multifamily loan prepayments during 2008. | |
• | An increase in losses on partnership investments, primarily due to other-than-temporary impairment of $531 million recorded on our LIHTC partnership investments in 2008 because we may be unable to realize the future tax benefits generated by these investments. In addition, we experienced an increase in net operating losses and recorded other-than-temporary impairment on our investments in rental and for-sale affordable housing, attributable to the deepening economic downturn. | |
• | 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 a result of the partial deferred tax valuation allowance, we did not record tax benefits for the majority of the losses we incurred during 2008. The allocation of this charge to our HCD business largely resulted in a provision for federal income taxes of $511 million for 2008. In comparison, we recorded a tax benefit of $1.5 billion for 2007, driven by tax credits of $1.0 billion. |
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• | Decreased guaranty fee income resulting from a decline in the average effective multifamily guaranty fee rate, which was partially offset by growth in the average multifamily guaranty book of business. The decline in our average effective multifamily guaranty fee rate was due in part to the recognition of deferred profits in 2006 related to a large multifamily transaction that was terminated in December 2006. Our HCD business continued to experience competitive fee pressure from private-label issuers of commercial mortgage-backed securities during the first six months of 2007. In the third quarter of 2007, this trend began to reverse as a result of the growing need for credit and liquidity in the multifamily mortgage market. These market factors contributed to a higher guaranty fee rate on new multifamily business and to faster growth in our multifamily guaranty book of business during the second half of 2007. The growth in the multifamily guaranty book of business was largely attributable to an increase in multifamily loan acquisitions by our Capital Markets group. | |
• | An increase in losses on partnership investments related to our for-sale housing partnership investments due to the deterioration in the housing market. In addition, we increased our investment in affordable rental housing partnership investments, which resulted in an increase in the net operating losses related to these investments. These losses more than offset gains on the sales of investments in LIHTC partnerships in 2007. | |
• | An increase in other income due to an increase in loan prepayment and yield maintenance fees resulting from higher multifamily loan prepayments during 2007. | |
• | An increase in other expenses primarily resulting from higher net interest expense associated with an increase in segment assets. | |
• | A tax benefit of $1.5 billion in 2007 driven primarily by tax credits of $1.0 billion, compared with a tax benefit of $1.4 billion in 2006 driven by tax credits of $1.1 billion. |
Variance | ||||||||||||||||||||||||||||
For the Year Ended December 31, | 2008 vs. 2007 | 2007 vs. 2006 | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | $ | % | $ | % | ||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||
Net interest income | $ | 8,664 | $ | 4,620 | $ | 6,157 | $ | 4,044 | 88 | % | $ | (1,537 | ) | (25 | )% | |||||||||||||
Investment losses, net(1) | (7,148 | ) | (803 | ) | (788 | ) | (6,345 | ) | (790 | ) | (15 | ) | (2 | ) | ||||||||||||||
Fair value gains (losses), net(1) | (20,129 | ) | (4,668 | ) | (1,744 | ) | (15,461 | ) | (331 | ) | (2,924 | ) | (168 | ) | ||||||||||||||
Fee and other income(1) | 264 | 313 | 372 | (49 | ) | (16 | ) | (59 | ) | (16 | ) | |||||||||||||||||
Other expenses(1)(2) | (2,209 | ) | (1,916 | ) | (1,812 | ) | (293 | ) | (15 | ) | (104 | ) | (6 | ) | ||||||||||||||
Income (loss) before federal income taxes | (20,558 | ) | (2,454 | ) | 2,185 | (18,104 | ) | (738 | ) | (4,639 | ) | (212 | ) | |||||||||||||||
(Provision) benefit for federal income taxes | (8,450 | ) | 1,120 | (520 | ) | (9,570 | ) | (854 | ) | 1,640 | 315 | |||||||||||||||||
Extraordinary gains (losses), net of tax effect | (409 | ) | (15 | ) | 12 | (394 | ) | (2,627 | ) | (27 | ) | (225 | ) | |||||||||||||||
Net (loss) income | $ | (29,417 | ) | $ | (1,349 | ) | $ | 1,677 | $ | (28,068 | ) | (2,081 | )% | $ | (3,026 | ) | (180 | )% | ||||||||||
(1) | Certain prior period amounts have been reclassified to conform with the current period presentation in our consolidated statements of operations. | |
(2) | Consists of debt extinguishment losses, allocated guaranty fee expense, administrative expenses and other expenses. |
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• | An increase in net interest income, primarily attributable to an expansion of our net interest yield driven by a reduction in the average cost of our debt that more than offset a decline in the average yield on our interest-earning assets. The decrease in the average cost of our debt was due to the decline in short-term interest rates during 2008 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. | |
• | A substantial increase in fair value losses, primarily attributable to significantly higher fair value losses on our derivatives as a result of the considerable decline in swap interest rates during 2008. We also experienced significant losses on our trading securities, primarily due to the continued widening of spreads during the year, particularly on private-label mortgage-related securities backed by Alt-A and subprime loans and CMBS. In addition, we recorded losses on some of the investments in corporate debt securities in our cash and other investments portfolio due to the default or distressed financial condition of the issuers of these securities. | |
• | A significant increase in investment losses, attributable to other-than-temporary impairment on available-for-sale securities totaling $7.0 billion in 2008, compared with $814 million in 2007. The impairment losses were primarily associated with our investments in Alt-A and subprime private-label securities, which have experienced extreme price declines and a significant reduction in the expected cash flows due to markedly 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 a result of the partial deferred tax valuation allowance, we did not record tax benefits for the majority of the losses we incurred during 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 $8.5 billion for 2008, compared with a tax benefit of $1.1 billion for 2007. |
• | A significant reduction in net interest income during 2007, due to continued compression in our net interest yield, largely attributable to the increase in our short-term and long-term debt costs as we continued to replace, at higher interest rates, maturing debt that we had issued at lower interest rates during the past few years. | |
• | An increase in investment losses primarily due to increased losses on trading securities in 2007, reflecting the decrease in the fair value of these securities due to wider credit spreads that more than offset the favorable impact of a decrease in interest rates during the fourth quarter of 2007. | |
• | An increase in derivatives fair value losses due to the significant decline in swap interest rates during the second half of 2007. The5-year swap interest rate fell by 131 basis points to 4.19% as of December 31, 2007 from 5.50% as of June 30, 2007. | |
• | An effective tax rate of 45.6% for 2007, compared with an effective tax rate of 23.8% for 2006. The variance in the effective tax rate and statutory rate was primarily due to fluctuations in our pre-tax income and the relative benefit of tax-exempt income generated from our investments in mortgage revenue bonds. |
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• | 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, 2008, 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%. In October 2008, FHFA announced that our capital requirements would not be binding during the conservatorship. | |
• | The senior preferred stock purchase agreement with Treasury permits us to increase our mortgage portfolio temporarily up to a cap of $850 billion through December 31, 2009. We then, however, are required to reduce our mortgage portfolio by 10% per year beginning in 2010. We also are required to limit the amount of indebtedness we can incur to 110% of our aggregate indebtedness as of June 30, 2008. | |
• | FHFA has encouraged 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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Purchases(2) | Sales | Liquidations(3) | ||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||||||||||||||
Fixed-rate: | ||||||||||||||||||||||||||||||||||||
Long-term | $ | 72,956 | $ | 62,738 | $ | 65,680 | $ | — | $ | — | $ | — | $ | 22,913 | $ | 30,656 | $ | 35,336 | ||||||||||||||||||
Intermediate-term(4) | 30,004 | 32,080 | 16,044 | — | — | — | 10,797 | 18,937 | 28,009 | |||||||||||||||||||||||||||
Total fixed-rate loans | 102,960 | 94,818 | 81,724 | — | — | — | 33,710 | 49,593 | 63,345 | |||||||||||||||||||||||||||
Adjustable-rate loans | 14,313 | 16,535 | 9,431 | — | — | — | 9,447 | 10,402 | 10,003 | |||||||||||||||||||||||||||
Total mortgage loans | 117,273 | 111,353 | 91,155 | — | — | — | 43,157 | 59,995 | 73,348 | |||||||||||||||||||||||||||
Mortgage securities: | ||||||||||||||||||||||||||||||||||||
Fixed-rate: | ||||||||||||||||||||||||||||||||||||
Long-term | 50,509 | 16,141 | 18,948 | 33,595 | 59,617 | 42,538 | 21,137 | 25,060 | 37,254 | |||||||||||||||||||||||||||
Intermediate-term(5) | 11,970 | 14,429 | 6,945 | 6,734 | 4,012 | 4,977 | 4,716 | 4,258 | 4,354 | |||||||||||||||||||||||||||
Total fixed-rate securities | 62,479 | 30,570 | 25,893 | 40,329 | 63,629 | 47,515 | 25,853 | 29,318 | 41,608 | |||||||||||||||||||||||||||
Adjustable-rate securities | 14,794 | 38,686 | 64,718 | 2,711 | 5,349 | 5,160 | 17,091 | 28,273 | 38,442 | |||||||||||||||||||||||||||
Total mortgage securities | 77,273 | 69,256 | 90,611 | 43,040 | 68,978 | 52,675 | 42,944 | 57,591 | 80,050 | |||||||||||||||||||||||||||
Total mortgage portfolio | $ | 194,546 | $ | 180,609 | $ | 181,766 | $ | 43,040 | $ | 68,978 | $ | 52,675 | $ | 86,101 | $ | 117,586 | $ | 153,398 | ||||||||||||||||||
Annual liquidation rate | 11.5 | % | 16.2 | % | 21.0 | % |
(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, foreclosures and lender repurchases. | |
(4) | Consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years. | |
(5) | Consists of mortgage securities with maturities at issue date equal to or less than 15 years. |
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As of December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Mortgage loans:(2) | ||||||||||||||||||||
Single-family: | ||||||||||||||||||||
Government insured or guaranteed(3) | $ | 43,799 | $ | 28,202 | $ | 20,106 | $ | 15,036 | $ | 10,112 | ||||||||||
Conventional: | ||||||||||||||||||||
Long-term, fixed-rate | 186,550 | 193,607 | 202,339 | 199,917 | 230,585 | |||||||||||||||
Intermediate-term, fixed-rate(4) | 37,546 | 46,744 | 53,438 | 61,517 | 76,640 | |||||||||||||||
Adjustable-rate | 44,157 | 43,278 | 46,820 | 38,331 | 38,350 | |||||||||||||||
Total conventional single-family | 268,253 | 283,629 | 302,597 | 299,765 | 345,575 | |||||||||||||||
Total single-family | 312,052 | 311,831 | 322,703 | 314,801 | 355,687 | |||||||||||||||
Multifamily: | ||||||||||||||||||||
Government insured or guaranteed(3) | 699 | 815 | 968 | 1,148 | 1,074 | |||||||||||||||
Conventional: | ||||||||||||||||||||
Long-term, fixed-rate | 5,636 | 5,615 | 5,098 | 3,619 | 3,133 | |||||||||||||||
Intermediate-term, fixed-rate(4) | 90,837 | 73,609 | 50,847 | 45,961 | 39,009 | |||||||||||||||
Adjustable-rate | 20,269 | 11,707 | 3,429 | 1,151 | 1,254 | |||||||||||||||
Total conventional multifamily | 116,742 | 90,931 | 59,374 | 50,731 | 43,396 | |||||||||||||||
Total multifamily | 117,441 | 91,746 | 60,342 | 51,879 | 44,470 | |||||||||||||||
Total mortgage loans | 429,493 | 403,577 | 383,045 | 366,680 | 400,157 | |||||||||||||||
Unamortized premiums (discounts) and other cost basis adjustments, net | (894 | ) | 726 | 943 | 1,254 | 1,647 | ||||||||||||||
Lower of cost or fair value adjustments on loans held for sale | (264 | ) | (81 | ) | (93 | ) | (89 | ) | (83 | ) | ||||||||||
Allowance for loan losses for loans held for investment | (2,923 | ) | (698 | ) | (340 | ) | (302 | ) | (349 | ) | ||||||||||
Total mortgage loans, net | 425,412 | 403,524 | 383,555 | 367,543 | 401,372 | |||||||||||||||
Mortgage-related securities: | ||||||||||||||||||||
Fannie Mae single-class MBS | 159,712 | 102,258 | 124,383 | 160,322 | 272,665 | |||||||||||||||
Fannie Mae structured MBS | 69,238 | 77,905 | 75,261 | 74,129 | 71,739 | |||||||||||||||
Non-Fannie Mae single-class mortgage securities | 26,976 | 28,129 | 27,980 | 27,162 | 35,656 | |||||||||||||||
Non-Fannie Mae structured mortgage securities(5) | 88,467 | 96,373 | 97,399 | 86,129 | 109,455 | |||||||||||||||
Mortgage revenue bonds | 15,447 | 16,315 | 16,924 | 18,802 | 22,076 | |||||||||||||||
Other mortgage-related securities | 2,863 | 3,346 | 3,940 | 4,665 | 5,461 | |||||||||||||||
Total mortgage-related securities | 362,703 | 324,326 | 345,887 | 371,209 | 517,052 | |||||||||||||||
Market value adjustments(6) | (15,996 | ) | (3,249 | ) | (1,261 | ) | (789 | ) | 6,680 | |||||||||||
Other-than-temporary impairments | (7,349 | ) | (603 | ) | (1,004 | ) | (553 | ) | (432 | ) | ||||||||||
Unamortized premiums (discounts) and other cost basis adjustments, net(7) | 296 | (1,076 | ) | (1,083 | ) | (909 | ) | 173 | ||||||||||||
Total mortgage-related securities, net | 339,654 | 319,398 | 342,539 | 368,958 | 523,473 | |||||||||||||||
Mortgage portfolio, net(8) | $ | 765,066 | $ | 722,922 | $ | 726,094 | $ | 736,501 | $ | 924,845 | ||||||||||
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(1) | Mortgage loans and mortgage-related securities are reported at unpaid principal balance. | |
(2) | Mortgage loans include unpaid principal balances totaling $65.8 billion, $81.8 billion, $105.5 billion, $113.3 billion and $152.7 billion as of December 31, 2008, 2007, 2006, 2005 and 2004 , respectively, related to mortgage-related securities that were consolidated under FASB 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. | |
(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 subprime or Alt-A mortgage loans totaling $52.4 billion as of December 31, 2008. Refer to “Available-for-Sale and Trading Securities—Investments in Alt-A and Subprime Mortgage-Related Securities” for a description of our investments in subprime and Alt-A 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 $720 million and $538 million as of December 31, 2008 and 2007, respectively, of mortgage loans and mortgage-related securities that we have pledged as collateral and that counterparties have the right to sell or repledge. |
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||
After One Year | After Five Years | |||||||||||||||||||||||||||||||||||||||
Total | Total | One Year or Less | Through Five Years | Through Ten Years | After Ten Years | |||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||
Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS(2) | $ | 112,943 | $ | 116,107 | $ | 3 | $ | 3 | $ | 705 | $ | 723 | $ | 19,783 | $ | 20,356 | $ | 92,452 | $ | 95,025 | ||||||||||||||||||||
Fannie Mae structured MBS(2) | 59,002 | 60,137 | — | — | 4 | 4 | 6,456 | 6,578 | 52,542 | 53,555 | ||||||||||||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities(2) | 63,008 | 49,406 | 202 | 134 | 395 | 332 | 16,591 | 12,243 | 45,820 | 36,697 | ||||||||||||||||||||||||||||||
Non-Fannie Mae single-class mortgage securities(2) | 25,798 | 26,436 | — | — | 121 | 123 | 945 | 976 | 24,732 | 25,337 | ||||||||||||||||||||||||||||||
Mortgage revenue bonds | 14,636 | 12,488 | 20 | 20 | 314 | 312 | 825 | 809 | 13,477 | 11,347 | ||||||||||||||||||||||||||||||
Other mortgage-related securities | 2,319 | 1,914 | — | — | — | — | — | 26 | 2,319 | 1,888 | ||||||||||||||||||||||||||||||
Total | $ | 277,706 | $ | 266,488 | $ | 225 | $ | 157 | $ | 1,539 | $ | 1,494 | $ | 44,600 | $ | 40,988 | $ | 231,342 | $ | 223,849 | ||||||||||||||||||||
Yield(3) | 4.76 | % | 3.38 | % | 4.72 | % | 3.47 | % | 5.01 | % |
(1) | Amortized cost includes unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary impairment write downs. | |
(2) | Maturities are based on contractual maturities assuming no prepayments. The contractual maturity of mortgage-backed securities generally is not a reliable indicator of the expected life because borrowers typically have the right to repay these obligations at any time. | |
(3) | Yields are determined by dividing interest income (including the amortization and accretion of premiums, discounts and other cost basis adjustments) by amortized cost balances as of year-end. |
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As of December 31, 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 | $ | 46,309 | $ | — | $ | — | $ | 48,134 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Fannie Mae structured MBS | 10,011 | — | — | 9,872 | — | — | — | — | ||||||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 1,030 | — | — | 1,061 | — | — | — | — | ||||||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 19,799 | — | — | 13,404 | — | — | — | — | ||||||||||||||||||||||||
Mortgage revenue bonds | 796 | — | — | 695 | — | — | — | — | ||||||||||||||||||||||||
Asset-backed securities | 11,959 | — | — | 10,598 | — | — | — | — | ||||||||||||||||||||||||
Corporate debt securities | 7,092 | — | — | 6,037 | — | — | — | — | ||||||||||||||||||||||||
Other non-mortgage-related securities | 1,005 | — | — | 1,005 | — | — | — | — | ||||||||||||||||||||||||
Total trading | $ | 98,001 | $ | — | $ | — | $ | 90,806 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Available for sale: | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 112,943 | $ | 3,231 | $ | (67 | ) | $ | 116,107 | $ | (64 | ) | $ | 4,842 | $ | (3 | ) | $ | 330 | |||||||||||||
Fannie Mae structured MBS | 59,002 | 1,333 | (198 | ) | 60,137 | (105 | ) | 2,471 | (93 | ) | 2,514 | |||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 25,798 | 665 | (27 | ) | 26,436 | (23 | ) | 1,775 | (4 | ) | 643 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 63,008 | 195 | (13,797 | ) | 49,406 | (3,792 | ) | 11,388 | (10,005 | ) | 22,836 | |||||||||||||||||||||
Mortgage revenue bonds | 14,636 | 29 | (2,177 | ) | 12,488 | (854 | ) | 6,230 | (1,323 | ) | 4,890 | |||||||||||||||||||||
Other mortgage-related securities | 2,319 | 29 | (434 | ) | 1,914 | (388 | ) | 1,313 | (46 | ) | 77 | |||||||||||||||||||||
Total available for sale | $ | 277,706 | $ | 5,482 | $ | (16,700 | ) | $ | 266,488 | $ | (5,226 | ) | $ | 28,019 | $ | (11,474 | ) | $ | 31,290 | |||||||||||||
Total investments in securities | $ | 375,707 | $ | 5,482 | $ | (16,700 | ) | $ | 357,294 | $ | (5,226 | ) | $ | 28,019 | $ | (11,474 | ) | $ | 31,290 | |||||||||||||
(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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As of December 31, 2008 | As of February 20, 2009 | |||||||||||||||||||||||
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 | $ | 6,711 | 53 | % | 5 | % | 25 | % | 70 | % | — | % | ||||||||||||
Other Alt-A mortgage loans | 21,147 | 14 | 42 | 16 | 42 | 1 | ||||||||||||||||||
Total Alt-A mortgage loans | 27,858 | 23 | 33 | 18 | 49 | 1 | ||||||||||||||||||
Subprime mortgage loans | 24,551 | 36 | 26 | 23 | 51 | 3 | ||||||||||||||||||
Multifamily mortgage loans (CMBS) | 25,825 | 30 | 100 | — | — | — | ||||||||||||||||||
Manufactured housing loans | 2,840 | 36 | 3 | 33 | 64 | 1 | ||||||||||||||||||
Other mortgage loans | 2,332 | 6 | 93 | 4 | 3 | — | ||||||||||||||||||
Total private-label mortgage-related securities | 83,406 | |||||||||||||||||||||||
Mortgage revenue bonds(4) | 15,447 | 35 | 39 | 59 | 2 | 17 | ||||||||||||||||||
Total | $ | 98,853 | ||||||||||||||||||||||
(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 February 20, 2009, calculated based on unpaid principal balance as of December 31, 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. |
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(3) | Reflects percentage of investment securities, calculated based on unpaid principal balance as of December 31, 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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³ 60 Days Delinquent(1) | ||||||||||||
December 31, | September 30, | June 30, | ||||||||||
Loan Categories: | 2008 | 2008 | 2008 | |||||||||
Option ARM Alt-A loans: | ||||||||||||
2004 and prior | 22.97 | % | 18.88 | % | 15.95 | % | ||||||
2005 | 26.48 | 21.65 | 17.35 | |||||||||
2006 | 32.84 | 27.97 | 21.44 | |||||||||
2007 | 24.16 | 17.17 | 10.79 | |||||||||
Other Alt-A loans: | ||||||||||||
2004 and prior | 4.75 | 3.87 | 3.36 | |||||||||
2005 | 12.18 | 10.27 | 8.78 | |||||||||
2006 | 19.70 | 16.99 | 15.40 | |||||||||
2007 | 26.05 | 21.55 | 17.55 | |||||||||
Subprime loans: | ||||||||||||
2004 and prior | 21.09 | 20.71 | 21.51 | |||||||||
2005 | 39.86 | 38.58 | 36.51 | |||||||||
2006 | 44.60 | 40.19 | 36.13 | |||||||||
2007 | 35.37 | 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. |
As of December 31, | ||||||||||||||||
Q4 | For the Year Ended December 31, | 2008 | ||||||||||||||
2008 | 2008 | 2007 | Cumulative | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Other-than-temporary impairment on private-label mortgage-related securities backed by: | ||||||||||||||||
Alt-A mortgage loans | $ | 3,406 | $ | 4,820 | $ | — | $ | 4,820 | ||||||||
Subprime mortgage loans | 967 | 1,932 | 160 | 2,092 | ||||||||||||
Total | $ | 4,373 | $ | 6,752 | $ | 160 | $ | 6,912 | ||||||||
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | ||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid Principal Balance | Monoline | |||||||||||||||||||||||||||||||||||||||||||||||
Available- | Financial | Hypothetical Scenarios(6) | ||||||||||||||||||||||||||||||||||||||||||||||
Trading | for-Sale | Average | Fair | Average | Minimum | Guaranteed | 40d/60s | 50d/50s | 70d/60s | 70d/70s | ||||||||||||||||||||||||||||||||||||||
Vintage and 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 | $ | — | $ | 650 | $ | 46.56 | $ | 302 | 23 | % | 10 | % | 15 | % | $ | — | $ | 21 | $ | 27 | $ | 148 | $ | 201 | ||||||||||||||||||||||||
2005-1(1) | — | 101 | 45.59 | 46 | 20 | 7 | 20 | — | 2 | 3 | 22 | 31 | ||||||||||||||||||||||||||||||||||||
2005-1(2) | — | 155 | 43.19 | 67 | 23 | 12 | 23 | — | 3 | 5 | 32 | 44 | ||||||||||||||||||||||||||||||||||||
2005-1(3) | — | 131 | 42.50 | 56 | 27 | 16 | 24 | — | 2 | 4 | 27 | 38 | ||||||||||||||||||||||||||||||||||||
2005-1(4) | — | 151 | 43.29 | 65 | 43 | 33 | 34 | — | — | — | 22 | 33 | ||||||||||||||||||||||||||||||||||||
2005-1 subtotal | — | 538 | 43.50 | 234 | 29 | 18 | 20 | — | 7 | 12 | 103 | 146 | ||||||||||||||||||||||||||||||||||||
2005-2(1) | — | 233 | 45.26 | 106 | 34 | 28 | 33 | — | 2 | 4 | 45 | 64 | ||||||||||||||||||||||||||||||||||||
2005-2(2) | — | 233 | 42.96 | 100 | 37 | 32 | 37 | — | 4 | 6 | 46 | 65 | ||||||||||||||||||||||||||||||||||||
2005-2(3) | — | 352 | 47.14 | 166 | 48 | 42 | 44 | — | — | 1 | 44 | 70 | ||||||||||||||||||||||||||||||||||||
2005-2(4) | — | 321 | 42.40 | 136 | 100 | 100 | 100 | 321 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2 subtotal | — | 1,139 | 44.56 | 508 | 57 | 53 | 33 | 321 | 6 | 11 | 135 | 199 | ||||||||||||||||||||||||||||||||||||
2006-1(1) | — | 131 | 20.62 | 27 | 21 | 19 | 10 | — | 26 | 30 | 72 | 83 | ||||||||||||||||||||||||||||||||||||
2006-1(2) | — | 402 | 44.91 | 181 | 40 | 38 | 39 | — | — | 4 | 65 | 95 | ||||||||||||||||||||||||||||||||||||
2006-1(3) | — | 363 | 41.28 | 150 | 44 | 43 | 44 | — | — | — | 45 | 71 | ||||||||||||||||||||||||||||||||||||
2006-1(4) | — | 411 | 28.04 | 115 | 88 | 88 | 48 | 317 | — | — | 13 | 20 | ||||||||||||||||||||||||||||||||||||
2006-1 subtotal | — | 1,307 | 36.16 | 473 | 54 | 53 | 10 | 317 | 26 | 34 | 195 | 269 | ||||||||||||||||||||||||||||||||||||
2006-2(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2006-2(2) | — | 208 | 44.26 | 92 | 37 | 35 | 37 | — | — | — | 33 | 48 | ||||||||||||||||||||||||||||||||||||
2006-2(3) | — | 95 | 42.07 | 40 | 41 | 40 | 41 | — | — | — | 13 | 20 | ||||||||||||||||||||||||||||||||||||
2006-2(4) | — | 219 | 35.79 | 78 | 68 | 68 | 47 | 89 | — | — | 17 | 27 | ||||||||||||||||||||||||||||||||||||
2006-2 subtotal | — | 522 | 40.31 | 210 | 51 | 50 | 37 | 89 | — | — | 63 | 95 | ||||||||||||||||||||||||||||||||||||
2007-1(1) | 200 | — | 43.29 | 86 | 25 | 24 | 24 | — | 2 | 8 | 53 | 69 | ||||||||||||||||||||||||||||||||||||
2007-1(2) | 362 | — | 44.12 | 160 | 46 | 45 | 45 | — | — | — | 46 | 72 | ||||||||||||||||||||||||||||||||||||
2007-1(3) | 258 | — | 40.34 | 104 | 48 | 47 | 48 | — | — | — | 37 | 57 | ||||||||||||||||||||||||||||||||||||
2007-1(4) | 516 | — | 19.88 | 103 | 100 | 100 | 100 | 516 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-1 subtotal | 1,336 | — | 33.91 | 453 | 64 | 64 | 24 | 516 | 2 | 8 | 136 | 198 | ||||||||||||||||||||||||||||||||||||
2007-2(1) | 290 | — | 42.54 | 123 | 33 | 32 | 25 | — | 4 | 9 | 63 | 85 | ||||||||||||||||||||||||||||||||||||
2007-2(2) | 213 | — | 45.33 | 97 | 47 | 47 | 47 | — | — | — | 33 | 51 | ||||||||||||||||||||||||||||||||||||
2007-2(3) | 303 | — | 48.47 | 147 | 48 | 47 | 48 | — | — | — | 44 | 67 | ||||||||||||||||||||||||||||||||||||
2007-2(4) | 413 | — | 20.72 | 86 | 100 | 100 | 100 | 413 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2 subtotal | 1,219 | — | 37.10 | 453 | 62 | 62 | 25 | 413 | 4 | 9 | 140 | 203 | ||||||||||||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total option ARM Alt-A securities | $ | 2,555 | $ | 4,156 | $ | 39.23 | $ | 2,633 | 53 | % | 50 | % | 10 | % | $ | 1.656 | $ | 66 | $ | 101 | $ | 920 | $ | 1,311 | ||||||||||||||||||||||||
Trading securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 308 | $ | 308 | $ | 717 | $ | 717 | ||||||||||||||||||||||||||||||||||||||||
UPB | 740 | 740 | 1,626 | 1,626 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (432 | ) | $ | (432 | ) | $ | (909 | ) | $ | (909 | ) | ||||||||||||||||||||||||||||||||||||
Available-for-sale securities with hypothetical NPV losses:(9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 831 | $ | 901 | $ | 1,499 | $ | 1,499 | ||||||||||||||||||||||||||||||||||||||||
UPB | 1,913 | 2,062 | 3,429 | 3,429 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (1,082 | ) | $ | (1,161 | ) | $ | (1,930 | ) | $ | (1,930 | ) | ||||||||||||||||||||||||||||||||||||
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | ||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid Principal Balance | Monoline | |||||||||||||||||||||||||||||||||||||||||||||||
Available- | Financial | Hypothetical Scenarios(6) | ||||||||||||||||||||||||||||||||||||||||||||||
Vintage and | Trading | for-Sale | Average | Fair | Average | Minimum | Guaranteed | 40d/40s | 50d/50s | 50d/60s | 70d/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) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other Alt-A securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
2004 and prior | $ | — | $ | 8,633 | $ | 73.73 | $ | 6,366 | 12 | % | 6 | % | 5 | % | $ | 25 | $ | 501 | $ | 1,261 | $ | 1,702 | $ | 2,848 | ||||||||||||||||||||||||
2005-1(1) | — | 362 | 67.28 | 244 | 9 | 5 | 6 | — | 24 | 58 | 77 | 125 | ||||||||||||||||||||||||||||||||||||
2005-1(2) | — | 441 | 69.40 | 306 | 13 | 7 | 12 | — | 15 | 62 | 88 | 157 | ||||||||||||||||||||||||||||||||||||
2005-1(3) | — | 372 | 72.83 | 271 | 15 | 11 | 14 | — | 14 | 47 | 66 | 116 | ||||||||||||||||||||||||||||||||||||
2005-1(4) | — | 435 | 66.13 | 287 | 18 | 12 | 15 | — | 11 | 46 | 67 | 126 | ||||||||||||||||||||||||||||||||||||
2005-1 subtotal | — | 1,610 | 68.83 | 1,108 | 14 | 9 | 6 | — | 64 | 213 | 298 | 524 | ||||||||||||||||||||||||||||||||||||
2005-2(1) | — | 955 | 72.26 | 690 | 6 | 5 | 4 | — | 96 | 183 | 231 | 351 | ||||||||||||||||||||||||||||||||||||
2005-2(2) | — | 999 | 67.91 | 678 | 10 | 8 | 8 | — | 69 | 162 | 214 | 345 | ||||||||||||||||||||||||||||||||||||
2005-2(3) | — | 1,002 | 58.78 | 589 | 16 | 14 | 14 | — | 27 | 106 | 156 | 299 | ||||||||||||||||||||||||||||||||||||
2005-2(4) | — | 1,005 | 64.36 | 647 | 20 | 17 | 18 | — | 16 | 74 | 118 | 264 | ||||||||||||||||||||||||||||||||||||
2005-2 subtotal | — | 3,961 | 65.75 | 2,604 | 13 | 11 | 4 | — | 208 | 525 | 719 | 1,259 | ||||||||||||||||||||||||||||||||||||
2006-1(1) | 33 | 1,069 | 67.78 | 747 | 5 | 4 | 5 | — | 117 | 216 | 271 | 410 | ||||||||||||||||||||||||||||||||||||
2006-1(2) | — | 1,062 | 61.41 | 652 | 9 | 8 | 9 | — | 61 | 161 | 218 | 368 | ||||||||||||||||||||||||||||||||||||
2006-1(3) | — | 1,312 | 65.27 | 856 | 14 | 12 | 11 | — | 57 | 228 | 322 | 562 | ||||||||||||||||||||||||||||||||||||
2006-1(4) | 48 | 1,170 | 51.19 | 624 | 19 | 17 | 17 | 8 | 52 | 102 | 301 | |||||||||||||||||||||||||||||||||||||
2006-1 subtotal | 81 | 4,613 | 61.33 | 2,879 | 12 | 11 | 5 | — | 243 | 657 | 913 | 1,641 | ||||||||||||||||||||||||||||||||||||
2006-2(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2006-2(2) | — | 487 | 47.11 | 229 | 10 | 10 | 7 | — | 10 | 54 | 77 | 152 | ||||||||||||||||||||||||||||||||||||
2006-2(3) | — | 269 | 51.23 | 138 | 16 | 16 | 16 | — | — | 20 | 33 | 76 | ||||||||||||||||||||||||||||||||||||
2006-2(4) | — | 323 | 48.68 | 158 | 16 | 16 | 16 | — | — | 14 | 26 | 79 | ||||||||||||||||||||||||||||||||||||
2006-2 subtotal | — | 1,079 | 48.61 | 525 | 13 | 13 | 7 | — | 10 | 88 | 136 | 307 | ||||||||||||||||||||||||||||||||||||
2007-1(1) | 129 | — | 48.39 | 62 | 6 | 6 | 6 | — | — | 14 | 21 | 41 | ||||||||||||||||||||||||||||||||||||
2007-1(2) | 106 | — | 46.79 | 50 | 7 | 7 | 7 | — | — | 12 | 18 | 36 | ||||||||||||||||||||||||||||||||||||
2007-1(3) | 75 | — | 54.93 | 41 | 7 | 7 | 7 | — | 7 | 14 | 18 | 27 | ||||||||||||||||||||||||||||||||||||
2007-1(4) | 274 | — | 49.28 | 135 | 16 | 16 | 15 | — | — | 15 | 28 | 74 | ||||||||||||||||||||||||||||||||||||
2007-1 subtotal | 584 | — | 49.36 | 288 | 11 | 11 | 6 | — | 7 | 55 | 85 | 178 | ||||||||||||||||||||||||||||||||||||
2007-2(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2(4) | 420 | — | 55.47 | 233 | 100 | 100 | 100 | 420 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2007-2 subtotal | 420 | — | 55.47 | 233 | 100 | 100 | �� | 100 | 420 | — | — | — | — | |||||||||||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(4) | — | 166 | 70.27 | 116 | 21 | 20 | 21 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1 subtotal(9) | — | 166 | 70.27 | 116 | 21 | 20 | 21 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total other Alt-A securities | $ | 1,085 | $ | 20,062 | $ | 66.77 | $ | 14,119 | 14 | % | 11 | % | 4 | % | $ | 445 | $ | 1,033 | $ | 2,799 | $ | 3,853 | $ | 6,757 | ||||||||||||||||||||||||
Trading securities with hypothetical NPV losses:(10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 151 | $ | 338 | $ | 338 | $ | 338 | ||||||||||||||||||||||||||||||||||||||||
UPB | 280 | 665 | 665 | 665 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (129 | ) | $ | (327 | ) | $ | (327 | ) | $ | (327 | ) | ||||||||||||||||||||||||||||||||||||
Available-for-sale securities with hypothetical NPV losses:(10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 11,173 | $ | 13,116 | $ | 13,247 | $ | 13,398 | ||||||||||||||||||||||||||||||||||||||||
UPB | 16,088 | 19,401 | 19,593 | 19,842 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (4,915 | ) | $ | (6,285 | ) | $ | (6,346 | ) | $ | (6,444 | ) | ||||||||||||||||||||||||||||||||||||
(1) | The footnotes to this table are presented following Table 27. |
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | ||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid Principal Balance | Monoline | |||||||||||||||||||||||||||||||||||||||||||||||
Available- | Financial | Hypothetical Scenarios(6) | ||||||||||||||||||||||||||||||||||||||||||||||
Vintage and | Trading | for-Sale | Average | Fair | Average | Minimum | Guaranteed | 60d/70s | 70d/60s | 70d/70s | 80d/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 | $ | — | $ | 2,938 | $ | 79,63 | $ | 2,340 | 72 | % | 53 | % | 13 | % | $ | 1,295 | $ | 49 | $ | 60 | $ | 116 | $ | 269 | ||||||||||||||||||||||||
2005-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1(2) | — | 21 | 88.39 | 19 | 73 | 36 | 73 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1(4) | — | 31 | 81.09 | 25 | 83 | 29 | 83 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-1 subtotal | — | 52 | 84.11 | 44 | 79 | 32 | 73 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2(1) | — | 77 | 85.01 | 65 | 41 | 23 | 38 | — | — | — | — | 3 | ||||||||||||||||||||||||||||||||||||
2005-2(2) | — | 32 | 85.58 | 28 | 56 | 38 | 56 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2(3) | — | 98 | 85.39 | 84 | 61 | 30 | 61 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2(4) | — | 118 | 83.25 | 98 | 88 | 75 | 70 | 69 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2005-2 subtotal | — | 325 | 84.54 | 275 | 65 | 45 | 38 | 69 | — | — | — | 3 | ||||||||||||||||||||||||||||||||||||
2006-1(1) | — | 1,195 | 61.59 | 736 | 23 | 19 | 20 | — | 94 | 133 | 240 | 397 | ||||||||||||||||||||||||||||||||||||
2006-1(2) | — | 1,617 | 67.38 | 1,089 | 29 | 22 | 26 | — | 30 | 75 | 225 | 458 | ||||||||||||||||||||||||||||||||||||
2006-1(3) | — | 1,519 | 69.18 | 1,051 | 35 | 24 | 32 | — | 3 | 9 | 64 | 277 | ||||||||||||||||||||||||||||||||||||
2006-1(4) | — | 1,473 | 73.43 | 1,082 | 49 | 31 | 40 | 52 | — | — | 11 | 116 | ||||||||||||||||||||||||||||||||||||
2006-1 subtotal | — | 5,804 | 68.19 | 3,958 | 34 | 24 | 20 | 52 | 127 | 217 | 540 | 1,248 | ||||||||||||||||||||||||||||||||||||
2006-2(1) | — | 2,560 | 61.98 | 1,586 | 21 | 19 | 14 | — | 236 | 337 | 591 | 956 | ||||||||||||||||||||||||||||||||||||
2006-2(2) | — | 2,512 | 66.56 | 1,672 | 25 | 21 | 24 | — | 123 | 210 | 452 | 808 | ||||||||||||||||||||||||||||||||||||
2006-2(3) | — | 2,748 | 69.47 | 1,909 | 28 | 21 | 27 | — | 67 | 137 | 400 | 802 | ||||||||||||||||||||||||||||||||||||
2006-2(4) | — | 2,887 | 66.92 | 1,932 | 36 | 28 | 31 | — | 3 | 23 | 207 | 610 | ||||||||||||||||||||||||||||||||||||
2006-2 subtotal | — | 10,707 | 66.31 | 7,099 | 28 | 22 | 14 | — | 429 | 707 | 1,650 | 3,176 | ||||||||||||||||||||||||||||||||||||
2007-1(1) | 586 | — | 31.70 | 186 | 15 | 16 | 8 | — | 331 | 346 | 372 | 413 | ||||||||||||||||||||||||||||||||||||
2007-1(2) | 478 | — | 68.66 | 328 | 26 | 24 | 26 | — | 24 | 42 | 89 | 158 | ||||||||||||||||||||||||||||||||||||
2007-1(3) | 702 | — | 66.94 | 470 | 28 | 24 | 27 | — | 20 | 38 | 106 | 210 | ||||||||||||||||||||||||||||||||||||
2007-1(4) | 779 | — | 66.70 | 519 | 51 | 47 | 29 | �� | 215 | 14 | 35 | 107 | 208 | |||||||||||||||||||||||||||||||||||
2007-1 subtotal | 2,545 | — | 59.07 | 1,503 | 32 | 29 | 8 | 215 | 389 | 461 | 674 | 989 | ||||||||||||||||||||||||||||||||||||
2007-2(1) | 518 | — | 47.52 | 246 | 27 | 24 | 14 | — | 175 | 203 | 241 | 285 | ||||||||||||||||||||||||||||||||||||
2007-2(2) | 302 | 183 | 70.31 | 341 | 33 | 29 | 30 | — | 14 | 28 | 88 | 168 | ||||||||||||||||||||||||||||||||||||
2007-2(3) | — | 482 | 71.74 | 346 | 36 | 32 | 35 | — | — | — | 21 | 68 | ||||||||||||||||||||||||||||||||||||
2007-2(4) | 522 | 173 | 69.52 | 483 | 43 | 38 | 38 | — | — | — | 11 | 102 | ||||||||||||||||||||||||||||||||||||
2007-2 subtotal | 1,342 | 838 | 64.95 | 1,416 | 35 | 31 | 14 | — | 189 | 231 | 361 | 623 | ||||||||||||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total subprime securities | $ | 3,887 | $ | 20,664 | $ | 67.76 | $ | 16,635 | 36 | % | 28 | % | 8 | % | $ | 1.631 | $ | 1,183 | $ | 1,676 | $ | 3,341 | $ | 6,308 | ||||||||||||||||||||||||
Trading securities with hypothetical NPV losses:(10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 1,569 | $ | 1,784 | $ | 1,784 | $ | 2,156 | ||||||||||||||||||||||||||||||||||||||||
UPB | 2,813 | 3,134 | 3,134 | 3,671 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (1,244 | ) | $ | (1,350 | ) | $ | (1,350 | ) | $ | (1,515 | ) | ||||||||||||||||||||||||||||||||||||
Available-for-sale securities with hypothetical NPV losses:(10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 6,524 | $ | 8,615 | $ | 10,853 | $ | 12,213 | ||||||||||||||||||||||||||||||||||||||||
UPB | 9,926 | 12,931 | 16,114 | 17,978 | ||||||||||||||||||||||||||||||||||||||||||||
Difference | $ | (3,402 | ) | $ | (4,316 | ) | $ | (5,261 | ) | $ | (5,765 | ) | ||||||||||||||||||||||||||||||||||||
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(1) | Reported based on half-year vintages for 2005, 2006, 2007 and 2008, with securities that we hold within each half-year vintage stratified based on credit enhancement quartiles. We did not have any exposure to investments in Alt-A or subprime private-label securities issued in the second half of 2008. | |
(2) | We recognized net fair value losses of $2.9 billion and $895 million in 2008 and 2007, respectively, on our investments in private-label Alt-A securities and subprime securities classified as trading. | |
(3) | Gross unrealized losses as of December 31, 2008 related to our investments in private-label Alt-A securities and subprime securities classified as available for sale totaled $4.3 billion and $4.4 billion, respectively. Gross unrealized losses as of December 31, 2007 related to our investments in private-label Alt-A securities and subprime securities classified as available for sale totaled $931 million and $2.3 billion, respectively. | |
(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 $7.3 billion as of December 31, 2008, which are presented in Table 28 — Alt-A and Subprime Private-Label Wraps. | |
(9) | 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 5.02% as of December 31, 2008 and an original weighted average credit enhancement of 4.67%. | |
(10) | 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 December 31, 2008. |
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | ||||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||
Unpaid | Financial | Hypothetical Scenarios(5) | ||||||||||||||||||||||||||||||||||
Principal | Average | Minimum | Guaranteed | 20d/50s | 30d/40s | 30d/50s | 50d/50s | |||||||||||||||||||||||||||||
Vintage and 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) | 223 | 6 | 4 | 6 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1 subtotal | 223 | 6 | 4 | 6 | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1(4) | 289 | 8 | 8 | 8 | — | — | — | — | — | |||||||||||||||||||||||||||
2007-1 subtotal | 289 | 8 | 8 | 8 | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total Alt-A wraps | $ | 512 | 7 | % | 7 | % | 6 | % | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||
Credit Enhancement Statistics | ||||||||||||||||||||||||||||||||||||
Monoline | ||||||||||||||||||||||||||||||||||||
Unpaid | Financial | Hypothetical Scenarios(5) | ||||||||||||||||||||||||||||||||||
Principal | Average | Minimum | Guaranteed | 50d/60s | 60d/50s | 60d/60s | 70d/70s | |||||||||||||||||||||||||||||
Vintage and 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 | $ | 761 | 35 | % | 14 | % | 19 | % | $ | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
2005-1(1) | 86 | 12 | 3 | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(3) | 239 | 62 | 20 | 61 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1(4) | 123 | 74 | 21 | 68 | — | — | — | — | — | |||||||||||||||||||||||||||
2005-1 subtotal | 448 | 56 | 17 | — | — | — | — | — | — | |||||||||||||||||||||||||||
2005-2(1) | 232 | 36 | 25 | 23 | — | 14 | 17 | 25 | 54 | |||||||||||||||||||||||||||
2005-2(2) | 744 | 46 | 31 | 45 | — | — | — | — | 59 | |||||||||||||||||||||||||||
2005-2(3) | 440 | 53 | 25 | 48 | — | — | — | — | 8 | |||||||||||||||||||||||||||
2005-2(4) | 558 | 79 | 56 | 57 | 186 | — | — | — | — | |||||||||||||||||||||||||||
2005-2 subtotal | 1,974 | 55 | 36 | 23 | 186 | 14 | 17 | 25 | 121 | |||||||||||||||||||||||||||
2007-1(1) | 1,354 | 18 | 17 | 17 | — | 215 | 263 | 381 | 557 | |||||||||||||||||||||||||||
2007-1(2) | 1,552 | 23 | 20 | 22 | — | 159 | 223 | 366 | 577 | |||||||||||||||||||||||||||
2007-1(3) | 1,815 | 26 | 22 | 24 | — | 113 | 190 | 362 | 619 | |||||||||||||||||||||||||||
2007-1(4) | 1,648 | 33 | 29 | 28 | — | 84 | 126 | 262 | 463 | |||||||||||||||||||||||||||
2007-1 subtotal | 6,369 | 25 | 22 | 17 | — | 571 | 802 | 1,371 | 2,216 | |||||||||||||||||||||||||||
2007-2(1) | 269 | 29 | 24 | 26 | — | 14 | 24 | 53 | 92 | |||||||||||||||||||||||||||
2007-2(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2007-2(3) | 404 | 33 | 30 | 33 | — | 26 | 40 | 73 | 123 | |||||||||||||||||||||||||||
2007-2(4) | 446 | 34 | 30 | 34 | — | — | — | 38 | 114 | |||||||||||||||||||||||||||
2007-2 subtotal | 1,119 | 33 | 29 | 26 | — | 40 | 64 | 164 | 329 | |||||||||||||||||||||||||||
2008-1(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(3) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1(4) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
2008-1 subtotal | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total subprime wraps | $ | 10,671 | 34 | % | 25 | % | — | % | $ | 186 | $ | 625 | $ | 883 | $ | 1,560 | $ | 2,666 | ||||||||||||||||||
Total Alt-A and subprime wraps | $ | 11,183 | 32 | % | 24 | % | — | % | $ | 186 | $ | 625 | $ | 883 | $ | 1,560 | $ | 2,666 | ||||||||||||||||||
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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. We did not have any exposure as of December 31, 2008 to Alt-A private-label wraps issued in the second half of 2005, in 2006 or in the second half of 2008. We did not have any exposure as of December 31, 2008 to subprime private wraps issued in 2006 or in the second half of 2008. |
(2) | We recognized net fair value gains of $234 million in 2008 and net fair value losses of $570 million in 2007 on our investments in subprime private-label wraps that were classified as trading and held in our portfolio as of the end of each respective year. We recognized net fair value gains of $257 million in 2008 and net fair value losses of $570 million in 2007 on our investments in subprime private-label wraps that were classified as trading during each year. We did not recognize any fair value gains or losses on our investments in Alt-A private-label wraps that were classified as trading during 2008 or during 2007. Gross unrealized losses as of December 31, 2008 related to our investments in subprime private-label wraps classified as available for sale totaled $18 million. We did not have any gross unrealized losses as of December 31, 2008 or December 31, 2007 on our investments in Alt-A private-label wraps classified as available for sale. | |
(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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As of December 31, | ||||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
Notional | Estimated | Notional | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Risk management derivatives: | ||||||||||||||||
Swaps: | ||||||||||||||||
Pay-fixed | $ | 546,916 | $ | (68,379 | ) | $ | 377,738 | $ | (14,357 | ) | ||||||
Receive-fixed | 451,081 | 42,246 | 285,885 | 6,390 | ||||||||||||
Basis | 24,560 | (57 | ) | 7,001 | (21 | ) | ||||||||||
Foreign currency | 1,652 | (12 | ) | 2,559 | 353 | |||||||||||
Swaptions: | ||||||||||||||||
Pay-fixed | 79,500 | 506 | 85,730 | 849 | ||||||||||||
Receive-fixed | 93,560 | 13,039 | 124,651 | 5,877 | ||||||||||||
Interest rate caps | 500 | 1 | 2,250 | 8 | ||||||||||||
Other(1) | 827 | 100 | 650 | 71 | ||||||||||||
Net collateral payable | — | 11,286 | — | (712 | ) | |||||||||||
Accrued interest receivable (payable), net | — | (491 | ) | — | 221 | |||||||||||
Total risk management derivatives | $ | 1,198,596 | $ | (1,761 | ) | $ | 886,464 | $ | (1,321 | ) | ||||||
Mortgage commitment derivatives: | ||||||||||||||||
Mortgage commitments to purchase whole loans | $ | 9,256 | $ | 27 | $ | 1,895 | $ | 6 | ||||||||
Forward contracts to purchase mortgage-related securities | 25,748 | 239 | 25,728 | 91 | ||||||||||||
Forward contracts to sell mortgage-related securities | 36,232 | (351 | ) | 27,743 | (108 | ) | ||||||||||
Total mortgage commitment derivatives | $ | 71,236 | $ | (85 | ) | $ | 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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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) | 3,137 | |||
Fair value at date of termination of contracts settled during the period(4) | (1,248 | ) | ||
Net collateral posted | 12,002 | |||
Periodic net cash contractual interest payments (receipts)(5) | 632 | |||
Total cash payments (receipts) | 14,523 | |||
Income statement impact of recognized amounts: | ||||
Periodic net contractual interest income (expense) accruals on interest rate swaps | (1,576 | ) | ||
Net change in fair value of terminated derivative contracts from end of prior year to date of termination(6) | (309 | ) | ||
Net change in fair value of outstanding derivative contracts, including derivative contracts entered into during the period | (13,078 | ) | ||
Derivatives fair value losses, net(7) | (14,963 | ) | ||
Net derivative liability as of December 31, 2008(2) | $ | (1,761 | ) | |
(1) | Excludes mortgage commitments. | |
(2) | Reflects the net amount of “Derivative assets at fair value” and “Derivative liabilities at fair value” recorded in our 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 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 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 consolidated balance sheets. The corresponding offsetting amount is recorded as an expense and included as a component of derivatives fair value losses in the 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 consolidated statements of operations, excluding mortgage commitments. |
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2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
GAAP consolidated balance sheets: | ||||||||
Stockholders’ equity as of January 1 | $ | 44,011 | $ | 41,510 | ||||
(Decrease) increase in stockholders’ equity | (59,325 | ) | 2,501 | |||||
Stockholders’ (deficit) equity as of December 31 | $ | (15,314 | ) | $ | 44,011 | |||
Non-GAAP fair value balance sheets: | ||||||||
Estimated fair value of net assets as of January 1, as reported | $ | 35,799 | $ | 43,699 | ||||
Effect of change in measuring fair value of guaranty obligations(1) | 1,558 | — | ||||||
Estimated fair value of net assets as of January 1, as adjusted to include effect of change in measuring fair value of guaranty obligations | 37,357 | 43,699 | ||||||
Decrease in estimated fair value of net assets | (142,507 | ) | (7,900 | ) | ||||
Estimated fair value of net assets as of December 31 | $ | (105,150 | ) | $ | 35,799 | |||
(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. See “Critical Accounting Policies and Estimates—Fair Value of Financial Instruments—Fair Value of Guaranty Obligations” for additional information. |
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• | Credit Losses under GAAP: In our GAAP financial statements, we are required to recognize only those credit losses that we believe have been incurred as of the date of the financial statements. That is, GAAP requires losses be recognized when the event that caused the loss has already happened, while losses that may arise in future periods, such as may result from further declines in home prices, are only to be recognized when the event triggering that loss has occurred. See “Critical Accounting Policies and Estimates—Allowance for Loan Losses and Reserve for Guaranty Losses,” “Consolidated Results of Operations—Credit-Related Expenses” and “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies” for additional information. | |
• | Credit Losses in Fair Value Balance Sheet: The credit losses incorporated into the estimated fair values in our fair value balance sheet reflect future expected credit losses plus a current market-based risk premium, or profit amount. |
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• | A decrease of approximately $80.3 billion, or $60.6 billion net of related tax, in the fair value of our net guaranty assets, driven by a substantial increase in the estimated fair value of our guaranty obligations, largely attributable to an increase in expected credit losses as a result of the significant worsening of housing, credit and economic conditions. | |
• | A substantial decrease in the fair value of the net portfolio for our Capital Markets group, largely attributable to a decline of approximately $52.3 billion, or $41.0 billion net of related tax, attributable to wider spreads on our mortgage investments, particularly for our private-label securities backed by Alt-A and subprime loans and CMBS. These wider spreads and the associated decrease in fair value largely reflect the market expectation of higher future expected credit losses on these securities. | |
• | A decrease due to the non-cash charge of $21.4 billion recorded during the third quarter of 2008 in our consolidated results of operations to establish a partial deferred tax asset valuation allowance and an additional decrease of approximately $19.5 billion related to the reversal of net deferred tax assets associated with the fair value adjustments on our net assets, excluding our available-for sale securities. |
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As of December 31, 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 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 18,462 | $ | — | $ | 18,462 | (2) | $ | 4,502 | $ | — | $ | 4,502 | (2) | ||||||||||
Federal funds sold and securities purchased under agreements to resell | 57,418 | 2 | 57,420 | (2) | 49,041 | — | 49,041 | (2) | ||||||||||||||||
Trading securities | 90,806 | — | 90,806 | (2) | 63,956 | — | 63,956 | (2) | ||||||||||||||||
Available-for-sale securities | 266,488 | — | 266,488 | (2) | 293,557 | — | 293,557 | (2) | ||||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||
Mortgage loans held for sale | 13,270 | 351 | 13,621 | (3) | 7,008 | 75 | 7,083 | (3) | ||||||||||||||||
Mortgage loans held for investment, net of allowance for loan losses | 412,142 | 3,069 | 415,211 | (3) | 396,516 | 70 | 396,586 | (3) | ||||||||||||||||
Guaranty assets of mortgage loans held in portfolio | — | 2,255 | 2,255 | (3)(4) | — | 3,983 | 3,983 | (3)(4) | ||||||||||||||||
Guaranty obligations of mortgage loans held in portfolio | — | (11,396 | ) | (11,396 | )(3)(4) | — | (4,747 | ) | (4,747 | )(3)(4) | ||||||||||||||
Total mortgage loans | 425,412 | (5,721 | ) | 419,691 | (2)(3) | 403,524 | (619 | ) | 402,905 | (2)(3) | ||||||||||||||
Advances to lenders | 5,766 | (354 | ) | 5,412 | (2) | 12,377 | (328 | ) | 12,049 | (2) | ||||||||||||||
Derivative assets at fair value | 869 | — | 869 | (2) | 885 | — | 885 | (2) | ||||||||||||||||
Guaranty assets andbuy-ups, net | 7,688 | 1,336 | 9,024 | (2)(4) | 10,610 | 3,648 | 14,258 | (2)(4) | ||||||||||||||||
Total financial assets | 872,909 | (4,737 | ) | 868,172 | (2) | 838,452 | 2,701 | 841,153 | (2) | |||||||||||||||
Master servicing assets and credit enhancements | 1,232 | 7,035 | 8,267 | (4)(5) | 1,783 | 2,844 | 4,627 | (4)(5) | ||||||||||||||||
Other assets | 38,263 | (2 | ) | 38,261 | (5)(6) | 39,154 | 5,418 | 44,572 | (5)(6) | |||||||||||||||
Total assets | $ | 912,404 | $ | 2,296 | $ | 914,700 | $ | 879,389 | $ | 10,963 | $ | 890,352 | ||||||||||||
Liabilities: | ||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 77 | $ | — | $ | 77 | (2) | $ | 869 | $ | — | $ | 869 | (2) | ||||||||||
Short-term debt | 330,991 | (8) | 1,299 | 332,290 | (2) | 234,160 | 208 | 234,368 | (2) | |||||||||||||||
Long-term debt | 539,402 | (8) | 34,879 | 574,281 | (2) | 562,139 | 18,194 | 580,333 | (2) | |||||||||||||||
Derivative liabilities at fair value | 2,715 | — | 2,715 | (2) | 2,217 | — | 2,217 | (2) | ||||||||||||||||
Guaranty obligations | 12,147 | 78,728 | 90,875 | (2) | 15,393 | 5,156 | 20,549 | (2) | ||||||||||||||||
Total financial liabilities | 885,332 | 114,906 | 1,000,238 | (2) | 814,778 | 23,558 | 838,336 | (2) | ||||||||||||||||
Other liabilities | 42,229 | (22,774 | ) | 19,455 | (8) | 20,493 | (4,383 | ) | 16,110 | (8) | ||||||||||||||
Total liabilities | 927,561 | 92,132 | 1,019,693 | 835,271 | 19,175 | 854,446 | ||||||||||||||||||
Minority interests in consolidated subsidiaries | 157 | — | 157 | 107 | — | 107 | ||||||||||||||||||
Stockholders’ Equity (Deficit): | ||||||||||||||||||||||||
Senior preferred | 1,000 | — | 1,000 | — | — | — | ||||||||||||||||||
Preferred | 21,222 | (20,674 | ) | 548 | 16,913 | (1,565 | ) | 15,348 | ||||||||||||||||
Common | (37,536 | ) | (69,162 | ) | (106,698 | ) | 27,098 | (6,647 | ) | 20,451 | ||||||||||||||
Total stockholders’ equity (deficit)/non-GAAP fair value of net assets | $ | (15,314 | ) | $ | (89,836 | ) | $ | (105,150 | ) | $ | 44,011 | $ | (8,212 | ) | $ | 35,799 | ||||||||
Total liabilities and stockholders’ equity | $ | 912,404 | $ | 2,296 | $ | 914,700 | $ | 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 consolidated balance sheets and our best judgment of the estimated fair value of the listed item. |
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(2) | 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 Consolidated Financial Statements—Note 20, Fair Value of Financial Instruments.” | |
(3) | 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 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 group. 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 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 group, 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 20 of the consolidated financial statements, the combined amounts together equal the carrying value and estimated fair value amounts of total mortgage loans in Note 20. | |
(4) | In our GAAP 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 $7.0 billion and $9.7 billion as of December 31, 2008 and 2007, respectively. The associatedbuy-ups totaled $645 million and $944 million as of December 31, 2008 and 2007, respectively. In our non-GAAP 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 $8.2 billion and $18.1 billion as of December 31, 2008 and 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—Fair Value of Guaranty Obligations.” | |
(5) | 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 consolidated balance sheets: (i) Accrued interest receivable; (ii) Acquired property, net; (iii) Deferred tax assets; (iv) Partnership investments; and (v) Other assets. The carrying value of these items in our GAAP consolidated balance sheets together totaled $40.1 billion and $41.9 billion as of December 31, 2008 and 2007, respectively. We deduct the carrying value of thebuy-ups associated with our guaranty obligation, which totaled $645 million and $944 million as of December 31, 2008 and 2007, respectively, from “Other assets” reported in our GAAP consolidated balance sheets becausebuy-ups are a financial instrument that we combine with guaranty assets in our disclosure in Note 20. We have estimated the fair value of master servicing assets and credit enhancements based on our fair value methodologies discussed in Note 20. | |
(6) | With the exception of LIHTC 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 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 $6.3 billion and $8.1 billion and an estimated fair value of $6.5 billion and $9.3 billion as of December 31, 2008 and 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 Consolidated Financial Statements—Note 12, Income Taxes.” In addition to the GAAP-basis deferred income tax amounts included in “Other assets,” we include in our non-GAAP 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 12, we recorded a non-cash charge of $21.4 billion in the third quarter of 2008 to establish a partial deferred tax asset valuation allowance. We recorded an additional valuation allowance of $9.4 billion in the fourth quarter of 2008, resulting in a total deferred asset valuation allowance of $30.8 billion as of December 31, 2008. As a result, in calculating the fair value of our net assets as of December 31, 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. |
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(7) | Includes certain short-term debt and long-term debt instruments reported in our GAAP consolidated balance sheet at fair value as of December 31, 2008 of $4.5 billion and $21.6 billion, respectively. | |
(8) | The line item “Other liabilities” consists of the liabilities presented on the following four line items in our GAAP consolidated balance sheets: (i) Accrued interest payable; (ii) Reserve for guaranty losses; (iii) Partnership liabilities; and (iv) Other liabilities. The carrying value of these items in our GAAP consolidated balance sheets together totaled $42.2 billion and $20.5 billion as of December 31, 2008 and 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 consolidated balance sheets, it is incorporated into and reported as part of the fair value of our guaranty obligations in our non-GAAP supplemental consolidated fair value balance sheets. |
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Balance as of January 1, as reported | $ | 35,799 | $ | 43,699 | ||||
Effect of change in measuring fair value of guaranty obligations(1) | 1,558 | — | ||||||
Balance as of January 1, as adjusted to include effect of change in measuring fair value of guaranty obligations | 37,357 | 43,699 | ||||||
Capital transactions:(2) | ||||||||
Common dividends, common stock repurchases and issuances, net | 1,929 | (1,740 | ) | |||||
Preferred dividends and issuances, net | 3,616 | 7,208 | ||||||
Capital transactions, net | 5,545 | 5,468 | ||||||
Change in estimated fair value of net assets, excluding effect of capital transactions | (148,052 | ) | (13,368 | ) | ||||
Decrease in estimated fair value of net assets, net | (142,507 | ) | (7,900 | ) | ||||
Balance as of December 31(3) | $ | (105,150 | ) | $ | 35,799 | |||
(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. See “Critical Accounting Policies and Estimates—Fair Value of Financial Instruments—Fair Value of Guaranty Obligations” for additional information. | |
(2) | Represents net capital transactions, which are reflected in the consolidated statements of changes in stockholders’ equity. The issuance of senior preferred stock and warrant to purchase common stock to Treasury in 2008 did not have an impact to stockholders’ equity as displayed in our consolidated statement of changes in stockholders’ equity. | |
(3) | Represents estimated fair value of net assets (net of tax effect) presented in Table 32: Supplemental Non-GAAP Consolidated Fair Value Balance Sheets. |
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• | 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; | |
• | proceeds from the sale of mortgage loans, mortgage-related securities and non-mortgage assets; | |
• | borrowings against mortgage-related securities and other investment securities we hold pursuant to repurchase agreements and loan agreements; | |
• | guaranty fees received on Fannie Mae MBS; | |
• | payments received from mortgage insurance counterparties; 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; |
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• | 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. |
• | 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, or 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 voluntary initiatives with Treasury in October 2000, which were subsequently replaced by the September 2005 agreement with OFHEO that we discuss in more detail below, 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. In addition, FHFA has directed us not to issue subordinated debt during the conservatorship and thereafter until directed otherwise. |
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For the Year Ended December 31, | ||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||
(Dollars in millions) | ||||||||||||||||
Issued during the year:(1) | ||||||||||||||||
Short-term:(2) | ||||||||||||||||
Amount(3) | $ | 1,624,868 | $ | 1,543,387 | $ | 2,107,737 | ||||||||||
Weighted average interest rate | 2.11 | % | 4.87 | % | 4.85 | % | ||||||||||
Long-term:(4) | ||||||||||||||||
Amount(3) | $ | 248,168 | $ | 193,910 | $ | 181,427 | ||||||||||
Weighted average interest rate | 3.76 | % | 5.45 | % | 5.49 | % | ||||||||||
Total issued: | ||||||||||||||||
Amount(3) | $ | 1,873,036 | $ | 1,737,297 | $ | 2,289,164 | ||||||||||
Weighted average interest rate | 2.33 | % | 4.93 | % | 4.90 | % | ||||||||||
Paid off during the year(1)(5) | ||||||||||||||||
Short-term:(2) | ||||||||||||||||
Amount(3) | $ | 1,529,368 | $ | 1,473,283 | $ | 2,112,364 | ||||||||||
Weighted average interest rate | 2.54 | % | 4.96 | % | 4.44 | % | ||||||||||
Long-term:(4) | ||||||||||||||||
Amount(3) | $ | 266,764 | $ | 233,393 | $ | 169,397 | ||||||||||
Weighted average interest rate | 4.89 | % | 4.79 | % | 3.97 | % | ||||||||||
Total paid off: | ||||||||||||||||
Amount(3) | $ | 1,796,132 | $ | 1,706,676 | $ | 2,281,761 | ||||||||||
Weighted average interest rate | 2.89 | % | 4.94 | % | 4.41 | % |
(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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December 31, 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 | — | $ | 77 | 0.01 | % | — | $ | 869 | 3.48 | % | ||||||||||||||
Short-term debt:(2) | ||||||||||||||||||||||||
Fixed rate short-term debt: | ||||||||||||||||||||||||
Discount notes | — | $ | 322,932 | 1.75 | % | — | $ | 233,258 | 4.45 | % | ||||||||||||||
Foreign exchange discount notes | — | 141 | 2.50 | — | 301 | 4.28 | ||||||||||||||||||
Other short-term debt | — | 333 | 2.80 | — | 601 | 4.37 | ||||||||||||||||||
Total fixed rate short-term debt | 323,406 | 1.75 | 234,160 | 4.45 | ||||||||||||||||||||
Floating-rate short-term debt(4) | — | 7,585 | 1.66 | — | — | — | ||||||||||||||||||
Total short-term debt | $ | 330,991 | 1.75 | % | $ | 234,160 | 4.45 | % | ||||||||||||||||
Long-term debt:(3) | ||||||||||||||||||||||||
Senior fixed rate long-term debt: | ||||||||||||||||||||||||
Benchmark notes and bonds | 2009-2030 | $ | 251,063 | 4.92 | % | 2008-2030 | $ | 256,538 | 5.12 | % | ||||||||||||||
Medium-term notes | 2009-2018 | 151,277 | 4.20 | 2008-2017 | 202,315 | 5.06 | ||||||||||||||||||
Foreign exchange notes and bonds | 2009-2028 | 1,513 | 4.70 | 2008-2028 | 2,259 | 3.30 | ||||||||||||||||||
Other long-term debt(4) | 2009-2038 | 73,061 | 5.95 | 2008-2038 | 69,717 | 6.01 | ||||||||||||||||||
Total senior fixed rate debt | 476,914 | 4.85 | 530,829 | 5.20 | ||||||||||||||||||||
Senior floating rate long-term debt: | ||||||||||||||||||||||||
Medium-term notes | 2009-2017 | 45,737 | 2.21 | 2008-2017 | 12,676 | 5.87 | ||||||||||||||||||
Other long-term debt(4) | 2020-2037 | 874 | 7.22 | 2017-2037 | 1,024 | 7.76 | ||||||||||||||||||
Total senior floating rate debt | 46,611 | 2.30 | 13,700 | 6.01 | ||||||||||||||||||||
Subordinated fixed rate long-term debt: | ||||||||||||||||||||||||
Medium-term notes | 2011-2011 | 2,500 | 6.24 | 2008-2011 | 3,500 | 5.62 | ||||||||||||||||||
Other subordinated debt | 2012-2019 | 7,116 | 6.58 | 2012-2019 | 7,524 | 6.39 | ||||||||||||||||||
Total subordinated fixed rate long-term debt | 9,616 | 6.50 | 11,024 | 6.14 | ||||||||||||||||||||
Debt from consolidations | 2009-2039 | 6,261 | 5.87 | 2008-2039 | 6,586 | 5.95 | ||||||||||||||||||
Total long-term debt | $ | 539,402 | 4.67 | % | $ | 562,139 | 5.25 | % | ||||||||||||||||
Outstanding callable debt(5) | $ | 192,480 | 4.71 | % | $ | 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 December 31, 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 $881.2 billion and $804.3 billion as December 31, 2008 and 2007, respectively. | |
(2) | Short-term debt consists of borrowings with an original contractual maturity of one year or less, therefore it does not include the current portion of long-term debt. | |
(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 due within one year, which totaled $86.5 billion and $99.5 billion as of December 31, 2008 and 2007, respectively. Reported amounts include net discount and other cost basis adjustments of $15.5 billion and $11.6 billion as of December 31, 2008 and 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 $548.6 billion and $567.2 billion as December 31, 2008 and 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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2008 | ||||||||||||||||||||
As of December 31, | Average During the Year | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Average | Average | |||||||||||||||||||
Interest | Interest | Maximum | ||||||||||||||||||
Outstanding | Rate | Outstanding(2) | Rate | Outstanding(3) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 77 | 0.01 | % | $ | 294 | 1.93 | % | $ | 725 | ||||||||||
Fixed-rate short-term debt: | ||||||||||||||||||||
Discount notes | $ | 322,932 | 1.75 | % | $ | 257,845 | 2.51 | % | $ | 326,374 | ||||||||||
Foreign exchange discount notes | 141 | 2.50 | 276 | 3.73 | 363 | |||||||||||||||
Other fixed-rate short-term debt | 333 | 2.80 | 714 | 2.83 | 1,886 | |||||||||||||||
Floating rate short-term debt(4) | 7,585 | 1.66 | 4,858 | 2.26 | 7,586 | |||||||||||||||
Total short-term debt | $ | 330,991 | 1.75 | % | ||||||||||||||||
2007 | ||||||||||||||||||||
As of December 31, | Average During the Year | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Average | Average | |||||||||||||||||||
Interest | Interest | Maximum | ||||||||||||||||||
Outstanding | Rate | Outstanding(2) | Rate | Outstanding(3) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 869 | 3.48 | % | $ | 932 | 5.09 | % | $ | 3,840 | ||||||||||
Fixed-rate short-term debt: | ||||||||||||||||||||
Discount notes | $ | 233,258 | 4.45 | % | $ | 162,952 | 5.01 | % | $ | 233,258 | ||||||||||
Foreign exchange discount notes | 301 | 4.28 | 341 | 2.88 | 654 | |||||||||||||||
Other fixed-rate short-term debt | 601 | 4.37 | 2,690 | 5.17 | 4,959 | |||||||||||||||
Debt from consolidations | — | — | 826 | 5.34 | 1,176 | |||||||||||||||
Total short-term debt | $ | 234,160 | 4.45 | % | ||||||||||||||||
2006 | ||||||||||||||||||||
As of December 31, | Average During the Year | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Average | Average | |||||||||||||||||||
Interest | Interest | Maximum | ||||||||||||||||||
Outstanding | Rate | Outstanding(2) | Rate | Outstanding(3) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 700 | 5.36 | % | $ | 485 | 2.00 | % | $ | 2,096 | ||||||||||
Fixed-rate short-term debt: | ||||||||||||||||||||
Discount notes | $ | 158,785 | 5.16 | % | $ | 155,548 | 4.86 | % | $ | 170,268 | ||||||||||
Foreign exchange discount notes | 194 | 4.09 | 959 | 3.50 | 2,009 | |||||||||||||||
Other fixed-rate short-term debt | 5,707 | 5.24 | 1,236 | 4.57 | 5,704 | |||||||||||||||
Floating-rate short-term debt | — | — | 220 | 1.95 | 645 | |||||||||||||||
Debt from consolidations | 1,124 | 5.32 | 2,483 | 4.73 | 3,485 | |||||||||||||||
Total short-term debt | $ | 165,810 | 5.16 | % | ||||||||||||||||
(1) | Includes unamortized discounts, premiums and other cost basis adjustments. | |
(2) | Average amount outstanding during the year has been calculated using month-end balances. | |
(3) | Maximum outstanding represents the highest month-end outstanding balance during the year. | |
(4) | Includes a portion of structured debt instruments that are reported at fair value. |
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![](https://capedge.com/proxy/10-K/0000950133-09-000487/w72716w7271601.gif)
(1) | Includes unamortized discounts, premiums and other cost basis adjustments of $1.6 billion as of December 31, 2008. Excludes Federal funds purchased and securities sold under agreements to repurchase. |
![](https://capedge.com/proxy/10-K/0000950133-09-000487/w72716w7271602.gif)
(1) | Includes unamortized discounts, premiums and other cost basis adjustments of $15.5 billion as of December 31, 2008. Excludes debt from consolidations of $6.3 billion as of December 31, 2008. |
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Payments Due by Period as of December 31, 2008 | ||||||||||||||||||||
Less than | 1 to < 3 | 3 to 5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Long-term debt obligations(1) | $ | 533,141 | $ | 91,880 | $ | 185,253 | $ | 89,857 | $ | 166,151 | ||||||||||
Contractual interest on long-term debt obligations(2) | 145,846 | 22,679 | 33,160 | 22,396 | 67,611 | |||||||||||||||
Operating lease obligations(3) | 213 | 40 | 74 | 52 | 47 | |||||||||||||||
Purchase obligations: | ||||||||||||||||||||
Mortgage commitments(4) | 39,955 | 39,820 | 135 | — | — | |||||||||||||||
Other purchase obligations(5) | 953 | 385 | 568 | — | — | |||||||||||||||
Other long-term liabilities reflected in the consolidated balance sheet(6) | 6,361 | 5,822 | 361 | 178 | — | |||||||||||||||
Total contractual obligations | $ | 726,469 | $ | 160,626 | $ | 219,551 | $ | 112,483 | $ | 233,809 | ||||||||||
(1) | Represents the carrying amount of our long-term debt assuming payments are made in full at maturity. Amounts exclude approximately $6.3 billion in long-term debt from consolidations. Amounts include an unamortized net discount and other cost basis adjustments of approximately $15.5 billion. | |
(2) | Excludes contractual interest on long-term debt from consolidations. | |
(3) | Includes certain premises and equipment leases. | |
(4) | Includes on- and off-balance sheet commitments to purchase loans and mortgage-related securities. | |
(5) | Includes only unconditional purchase obligations that are subject to a cancellation penalty for certain telecom services, software and computer services, and other agreements. Excludes arrangements that may be cancelled without penalty. Amounts also include off-balance sheet commitments for debt financing activities. | |
(6) | Excludes risk management derivative transactions that may require cash settlement in future periods and our obligations to stand ready to perform under our guarantees relating to Fannie Mae MBS and other financial guarantees, because the amount and timing of payments under these arrangements are generally contingent upon the occurrence of future events. For a description of the amount of our on- and off-balance sheet Fannie Mae MBS and other financial guarantees as of December 31, 2008, see “Off-Balance Sheet Arrangements and Variable Interest Entities.” Includes future cash payments due under our contractual obligations to fund LIHTC and other partnerships that are unconditional and legally binding and cash received as collateral from derivative counterparties, which are included in the consolidated balance sheets under “Partnership liabilities” and “Other liabilities,” respectively. Amounts also include our obligation to fund partnerships that have been consolidated. |
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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 December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Cash and cash equivalents | $ | 17,933 | $ | 3,941 | $ | 3,239 | ||||||
Federal funds sold and securities purchased under agreements to resell | 57,418 | 49,041 | 12,681 | |||||||||
Non-mortgage-related securities: | ||||||||||||
Asset-backed securities | 10,598 | 15,511 | 18,914 | |||||||||
Corporate debt securities | 6,037 | 13,515 | 17,594 | |||||||||
Commercial paper | — | — | 10,010 | |||||||||
Other | 1,005 | 9,089 | 1,055 | |||||||||
Total | $ | 92,991 | $ | 91,097 | $ | 63,493 | ||||||
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As of February 19, 2009 | As of December 31, 2007 | |||||||||||||||||||||||
Standard & | Standard & | |||||||||||||||||||||||
Poor’s | Moody’s | Fitch | Poor’s | Moody’s | Fitch | |||||||||||||||||||
Long-term senior debt | AAA | Aaa | AAA | AAA | Aaa | AAA | ||||||||||||||||||
Short-term senior debt | A-1+ | P-1 | F1+ | A-1+ | P-1 | F1+ | ||||||||||||||||||
Subordinated debt | A | Aa2 | AA- | AA- | Aa2 | AA- | ||||||||||||||||||
Preferred stock | C | Ca | C/RR6 | AA- | Aa3 | AA- | ||||||||||||||||||
Bank financial strength rating(1) | — | E+ | — | — | B+ | — |
(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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As of December 31, | ||||||||
2008(1) | 2007(1) | |||||||
(Dollars in millions) | ||||||||
Core capital(2) | $ | (8,641 | ) | $ | 45,373 | |||
Statutory minimum capital requirement(3) | 33,552 | 31,927 | ||||||
Surplus (deficit) of core capital over statutory minimum capital requirement | $ | (42,193 | ) | $ | 13,446 | |||
Surplus (deficit) of core capital percentage over statutory minimum capital requirement | (125.8 | )% | 42.1 | % |
(1) | Amounts as of December 31, 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 (accumulated deficit). 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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• | Accelerating safety and soundness weaknesses, especially with regard to credit risk, earnings outlook and capitalization; | |
• | 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. |
• | 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 to purchase fewer mortgage assets; | |
• | slowing the growth of our guaranty business; | |
• | increasing our guaranty fee pricing on new acquisitions; | |
• | reducing our 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 December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Fannie Mae MBS and other guarantees outstanding(1) | $ | 2,546,217 | $ | 2,340,660 | ||||
Less: Fannie Mae MBS held in portfolio(2) | (228,949 | ) | (180,163 | ) | ||||
Fannie Mae MBS held by third parties and other guarantees | $ | 2,317,268 | $ | 2,160,497 | ||||
(1) | Includes $27.8 billion and $41.6 billion in unpaid principal balance of other guarantees as of December 31, 2008 and 2007, respectively. Excludes $65.3 billion and $80.9 billion in unpaid principal balance of consolidated Fannie Mae MBS as of December 31, 2008 and 2007, respectively. | |
(2) | Amounts represent unpaid principal balance and are recorded in “Investments in Securities” in the consolidated balance sheets. |
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2008 | 2007 | |||||||||||||||
Consolidated | Unconsolidated | Consolidated | Unconsolidated | |||||||||||||
(Dollars in millions) | ||||||||||||||||
As of December 31: | ||||||||||||||||
Obligation to fund LIHTC partnerships | $ | 612 | $ | 545 | $ | 1,001 | $ | 1,096 | ||||||||
For the year ended December 31: | ||||||||||||||||
Tax credits from investments in LIHTC partnerships | $ | 423 | $ | 546 | $ | 385 | $ | 606 | ||||||||
Losses from investments in LIHTC partnerships | 554 | 597 | 203 | 592 | ||||||||||||
Tax benefits on credits and losses from investments in LIHTC partnerships | 616 | 755 | 456 | 813 | ||||||||||||
Contributions to LIHTC partnerships | 656 | 602 | 685 | 781 | ||||||||||||
Distributions from LIHTC partnerships | 13 | 15 | 7 | 9 |
• | Credit Risk. Credit risk is the risk of financial loss resulting from the failure of a borrower or institutional counterparty to honor its contractual obligations to us. Credit risk exists primarily in our mortgage credit book of business, derivatives portfolio and cash and other investments portfolio. | |
• | Market Risk. Market risk is the risk that a change in one or more market prices, interest rates, spreads, or other market factors will result in adverse changes in the fair value of our net assets or our long-term earnings. We actively manage the market risk associated with changes in interest rates. | |
• | Operational Risk. Operational risk relates to the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. | |
• | Liquidity Risk. Liquidity risk is the risk to our earnings and capital arising from an inability to meet our cash obligations in a timely manner. |
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• | single-family and multifamily mortgage loans held in our portfolio; | |
• | Fannie Mae MBS and non-Fannie Mae mortgage-related securities held in our portfolio; | |
• | Fannie Mae MBS held by third-party investors; and | |
• | credit enhancements that we provide on mortgage assets. |
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• | Established a national down payment policy; | |
• | Established a minimum credit score and maximum debt-to-income ratio for all loans; | |
• | Limited or eliminated certain loan products; | |
• | Implemented a more comprehensive risk assessment model in Desktop Underwriter 7.0®, and a comprehensive risk assessment worksheet that will assist lenders in the manual underwriting of loans; | |
• | Implemented an adverse market delivery fee of 25 basis points for all loans delivered to us; and | |
• | Discontinued the purchase of newly originated Alt-A loans (we may continue to selectively acquire seasoned Alt-A loans that meet acceptable eligibility and underwriting criteria; however, we expect our acquisitions of Alt-A mortgage loans to continue to be minimal in future periods). |
• | HomeSaver Advance, an unsecured, personal loan designed to help a borrower bring a delinquent mortgage loan current without having to modify the loan; | |
• | A significant increase in our REO sales and servicing staff; | |
• | A suspension of foreclosures for single-family properties between the periods November 26, 2008 through January 31, 2009 and February 17, 2009 through March 6, 2009, and a suspension of evictions between November 26, 2008 through March 6, 2009; and | |
• | The National REO Rental Policy, which allows qualified renters in Fannie Mae-owned foreclosed properties to stay in their homes on a month-to-month lease at market rates. |
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• | Loan Modification Program. Under HASP, we will offer to financially struggling homeowners loan modifications that reduce their monthly principal and interest payments on their mortgages. This program will be conducted in accordance with HASP requirements for borrower eligibility. The program seeks to provide a uniform, consistent regime that servicers would use in modifying loans to prevent foreclosures. Under the program, servicers that service loans held in Fannie Mae MBS trusts or in our portfolio will be incented to reduce at-risk borrowers’ monthly mortgage payments to as little as 31% of monthly income, which may be achieved through a variety of methods, including interest rate reductions, principal forbearance and term extensions. Although HASP contemplates that some servicers will also make use of principal reduction to achieve reduced payments for borrowers, we do not currently anticipate that principal reduction will be used in modifying Fannie Mae loans. We will bear the full cost of these modifications and will not receive a reimbursement from Treasury. Servicers will be paid incentive fees both when they originally modify a loan, and over time, if the modified loan remains current. Borrowers whose loans are modified through this program will also accrue monthly incentive payments that will be applied to reduce their principal as they successfully make timely payments over a period of five years. Fannie Mae, rather than Treasury, will bear the costs of these servicer and borrower incentive fees. As the details of this program continue to develop, there may be additional incentive fees and other costs that we will bear. | |
• | Program Administrator. We will play a role in administering HASP on behalf of Treasury. This will include implementing the guidelines and policies within which the loan modification program will operate, both for our own servicers and for servicers of non-agency loans that participate in the program. We will also maintain records and track the performance of modified loans both for our own loans, as well as for loans of non-agency issuers that will participate in this program. Lastly, we will calculate and remit the subsidies and incentive payments to non-agency borrowers, servicers and investors who participate in the program. Treasury will reimburse us for the expenses we incur in connection with providing these services. | |
• | Streamlined Refinancing Initiative. Under HASP, we will help borrowers who have mortgages with current LTV ratios up to 105% to refinance their mortgages without obtaining new mortgage insurance in excess of what was already in place. We have worked with our conservator and regulator, FHFA, to provide us the flexibility to implement this element of HASP. Through the initiative, we will offer this refinancing option only for qualifying mortgage loans we hold in our portfolio or that we guarantee. We will continue to hold the portion of the credit risk not covered by mortgage insurance for refinanced loans under this initiative. We expect to implement this streamlined refinancing initiative in two phases which will bring efficiencies to the refinance process for lenders and borrowers. By March 4, 2009, we expect to release guidelines describing the details of this initiative and we expect to implement this initiative in the second quarter of 2009. |
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As of December 31, 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) | $ | 268,253 | $ | 43,799 | $ | 116,742 | $ | 699 | $ | 384,995 | $ | 44,498 | ||||||||||||
Fannie Mae MBS(6) | 226,654 | 1,850 | 376 | 69 | 227,030 | 1,919 | ||||||||||||||||||
Agency mortgage-related securities(6)(7) | 33,320 | 1,559 | — | 22 | 33,320 | 1,581 | ||||||||||||||||||
Mortgage revenue bonds | 2,951 | 2,480 | 7,938 | 2,078 | 10,889 | 4,558 | ||||||||||||||||||
Other mortgage-related securities(8) | 55,597 | 1,960 | 25,825 | 24 | 81,422 | 1,984 | ||||||||||||||||||
Total mortgage portfolio | 586,775 | 51,648 | 150,881 | 2,892 | 737,656 | 54,540 | ||||||||||||||||||
Fannie Mae MBS held by third parties(9) | 2,238,257 | 13,117 | 37,298 | 787 | 2,275,555 | 13,904 | ||||||||||||||||||
Other credit guarantees(10) | 10,464 | — | 17,311 | 34 | 27,775 | 34 | ||||||||||||||||||
Mortgage credit book of business | $ | 2,835,496 | $ | 64,765 | $ | 205,490 | $ | 3,713 | $ | 3,040,986 | $ | 68,478 | ||||||||||||
Guaranty book of business | $ | 2,743,628 | $ | 58,766 | $ | 171,727 | $ | 1,589 | $ | 2,915,355 | $ | 60,355 | ||||||||||||
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 | ||||||||||||
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As of December 31, 2006 | ||||||||||||||||||||||||
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) | $ | 302,597 | $ | 20,106 | $ | 59,374 | $ | 968 | $ | 361,971 | $ | 21,074 | ||||||||||||
Fannie Mae MBS(6) | 198,335 | 709 | 277 | 323 | 198,612 | 1,032 | ||||||||||||||||||
Agency mortgage-related securities(6)(7) | 29,987 | 1,995 | — | 56 | 29,987 | 2,051 | ||||||||||||||||||
Mortgage revenue bonds | 3,394 | 3,284 | 7,897 | 2,349 | 11,291 | 5,633 | ||||||||||||||||||
Other mortgage-related securities(8) | 85,339 | 2,084 | 9,681 | 177 | 95,020 | 2,261 | ||||||||||||||||||
Total mortgage portfolio | 619,652 | 28,178 | 77,229 | 3,873 | 696,881 | 32,051 | ||||||||||||||||||
Fannie Mae MBS held by third parties(9) | 1,714,815 | 19,069 | 42,184 | 1,482 | 1,756,999 | 20,551 | ||||||||||||||||||
Other credit guarantees(10) | 3,049 | — | 16,602 | 96 | 19,651 | 96 | ||||||||||||||||||
Mortgage credit book of business | $ | 2,337,516 | $ | 47,247 | $ | 136,015 | $ | 5,451 | $ | 2,473,531 | $ | 52,698 | ||||||||||||
Guaranty book of business | $ | 2,218,796 | $ | 39,884 | $ | 118,437 | $ | 2,869 | $ | 2,337,233 | $ | 42,753 | ||||||||||||
(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%, 95% and 95% of our total conventional single-family mortgage credit book of business as of December 31, 2008, 2007, and 2006, 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%, 80% and 84% of our total multifamily mortgage credit book of business as of December 31, 2008, 2007 and 2006, 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 $65.8 billion, $81.8 billion and $105.5 billion as of December 31, 2008, 2007 and 2006, 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. As of December 31, 2008, we held mortgage-related securities issued by Freddie Mac with both a carrying value and fair value of $33.9 billion, which exceeded 10% of our stockholders’ equity as of December 31, 2008. | |
(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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— | LTV ratio. LTV ratio is a strong predictor of credit performance. The likelihood of default and the gross severity of a loss in the event of default are typically lower as the LTV ratio decreases. | |
— | Product type. Certain loan product types have features that may result in increased risk. Intermediate-term, fixed-rate mortgages generally exhibit the lowest default rates, followed by long-term, fixed-rate mortgages. ARMs and balloon/reset mortgages typically exhibit higher default rates than fixed-rate mortgages, partly because the borrower’s future payments may rise, within limits, as interest rates change.Negative-amortizing and interest-only loans also default more often than traditional fixed-rate mortgage loans. | |
— | Number of units. Mortgages onone-unit properties tend to have lower credit risk than mortgages onmultiple-unit properties. | |
— | Property type. Certain property types have a higher risk of default. For example, condominiums generally are considered to have higher credit risk than single-family detached properties. |
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— | Occupancy type. Mortgages on properties occupied by the borrower as a primary or secondary residence tend to have lower credit risk than mortgages on investment properties. | |
— | Credit score. Credit score is a measure often used by the financial services industry, including our company, to assess borrower credit quality and the likelihood that a borrower will repay future obligations as expected. A higher credit score typically indicates a lower degree of credit risk. | |
— | Loan purpose. Loan purpose indicates how the borrower intends to use the funds from a mortgage loan. Cash-out refinancings have a higher risk of default than either mortgage loans used for the purchase of a property or other refinancings that restrict the amount of cash back to the borrower. | |
— | Geographic concentration. Local economic conditions affect borrowers’ ability to repay loans and the value of collateral underlying loans. Geographic diversification reduces mortgage credit risk. | |
— | Loan age. We monitor year of origination and loan age, which is defined as the number of years since origination. Statistically, the peak ages for default are currently from two to six years after origination. However, we have seen higher early default rates for loans originated in 2006 and 2007, due to a higher number of loans originated during these years with risk layering, which refers to loans with several features that compound risk, such as loans with reduced documentation and higher risk loan product types. |
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Table 46: | Risk Characteristics of Conventional Single-Family Business Volume and Mortgage Credit Book of Business(1) |
Percent of Conventional | Percent of Conventional | |||||||||||||||||||||||
Single-Family | Single-Family | |||||||||||||||||||||||
Business Volume(2) | Book of Business(3) | |||||||||||||||||||||||
For the Year Ended December 31, | As of December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Original loan-to-value ratio:(4) | ||||||||||||||||||||||||
<= 60% | 23 | % | 17 | % | 18 | % | 22 | % | 23 | % | 25 | % | ||||||||||||
60.01% to 70% | 16 | 13 | 15 | 16 | 16 | 17 | ||||||||||||||||||
70.01% to 80% | 39 | 45 | 50 | 43 | 43 | 43 | ||||||||||||||||||
80.01% to 90%(5) | 12 | 9 | 7 | 9 | 8 | 7 | ||||||||||||||||||
90.01% to 100%(5) | 10 | 16 | 10 | 10 | 10 | 8 | ||||||||||||||||||
Greater than 100%(5) | — | — | — | — | — | — | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Weighted average | 72 | % | 75 | % | 73 | % | 72 | % | 72 | % | 70 | % | ||||||||||||
Average loan amount | $ | 208,652 | $ | 195,427 | $ | 184,411 | $ | 148,824 | $ | 142,747 | $ | 135,379 | ||||||||||||
Estimated mark-to-market loan-to-value ratio:(6) | ||||||||||||||||||||||||
<= 60% | 36 | % | 46 | % | 55 | % | ||||||||||||||||||
60.01% to 70% | 13 | 15 | 17 | |||||||||||||||||||||
70.01% to 80% | 17 | 19 | 18 | |||||||||||||||||||||
80.01% to 90% | 14 | 12 | 7 | |||||||||||||||||||||
90.01% to 100% | 8 | 6 | 3 | |||||||||||||||||||||
Greater than 100% | 12 | 2 | — | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
Weighted average | 70 | % | 61 | % | 55 | % | ||||||||||||||||||
Product type:(7) | ||||||||||||||||||||||||
Fixed-rate:(8) | ||||||||||||||||||||||||
Long-term | 78 | % | 76 | % | 71 | % | 74 | % | 71 | % | 68 | % | ||||||||||||
Intermediate-term | 12 | 5 | 6 | 13 | 15 | 18 | ||||||||||||||||||
Interest-only | 2 | 9 | 6 | 3 | 3 | 1 | ||||||||||||||||||
Total fixed-rate | 92 | 90 | 83 | 90 | 89 | 87 | ||||||||||||||||||
Adjustable-rate: | ||||||||||||||||||||||||
Interest-only | 4 | 7 | 9 | 5 | 5 | 4 | ||||||||||||||||||
Negative-amortizing | — | — | 3 | 1 | 1 | 2 | ||||||||||||||||||
Other ARMs | 4 | 3 | 5 | 4 | 5 | 7 | ||||||||||||||||||
Total adjustable-rate | 8 | 10 | 17 | 10 | 11 | 13 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Number of property units: | ||||||||||||||||||||||||
1 unit | 97 | % | 96 | % | 96 | % | 96 | % | 96 | % | 96 | % | ||||||||||||
2-4 units | 3 | 4 | 4 | 4 | 4 | 4 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Property type: | ||||||||||||||||||||||||
Single-family homes | 89 | % | 89 | % | 89 | % | 91 | % | 91 | % | 92 | % | ||||||||||||
Condo/Co-op | 11 | 11 | 11 | 9 | 9 | 8 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | �� | 100 | % | 100 | % | |||||||||||
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Percent of Conventional | Percent of Conventional | |||||||||||||||||||||||
Single-Family | Single-Family | |||||||||||||||||||||||
Business Volume(2) | Book of Business(3) | |||||||||||||||||||||||
For the Year Ended December 31, | As of December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Occupancy type: | ||||||||||||||||||||||||
Primary residence | 89 | % | 89 | % | 87 | % | 90 | % | 90 | % | 90 | % | ||||||||||||
Second/vacation home | 5 | 5 | 6 | 4 | 4 | 4 | ||||||||||||||||||
Investor | 6 | 6 | 7 | 6 | 6 | 6 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
FICO credit score: | ||||||||||||||||||||||||
< 620 | 3 | % | 6 | % | 6 | % | 5 | % | 5 | % | 5 | % | ||||||||||||
620 to < 660 | 6 | 12 | 11 | 9 | 10 | 10 | ||||||||||||||||||
660 to < 700 | 14 | 19 | 20 | 17 | 18 | 18 | ||||||||||||||||||
700 to < 740 | 22 | 23 | 23 | 23 | 23 | 23 | ||||||||||||||||||
>= 740 | 55 | 40 | 40 | 45 | 43 | 43 | ||||||||||||||||||
Not available | — | — | — | 1 | 1 | 1 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Weighted average | 738 | 716 | 716 | 724 | 721 | 721 | ||||||||||||||||||
Loan purpose: | ||||||||||||||||||||||||
Purchase | 41 | % | 50 | % | 52 | % | 41 | % | 41 | % | 38 | % | ||||||||||||
Cash-out refinance | 31 | 32 | 34 | 32 | 32 | 32 | ||||||||||||||||||
Other refinance | 28 | 18 | 14 | 27 | 27 | 30 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Geographic concentration:(9) | ||||||||||||||||||||||||
Midwest | 15 | % | 15 | % | 15 | % | 16 | % | 17 | % | 17 | % | ||||||||||||
Northeast | 18 | 18 | 17 | 19 | 19 | 19 | ||||||||||||||||||
Southeast | 23 | 26 | 27 | 25 | 25 | 24 | ||||||||||||||||||
Southwest | 16 | 18 | 17 | 16 | 16 | 16 | ||||||||||||||||||
West | 28 | 23 | 24 | 24 | 23 | 24 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Origination year: | ||||||||||||||||||||||||
<=1998 | 2 | % | 2 | % | 3 | % | ||||||||||||||||||
1999 | — | 1 | 1 | |||||||||||||||||||||
2000 | — | — | — | |||||||||||||||||||||
2001 | 2 | 2 | 3 | |||||||||||||||||||||
2002 | 5 | 7 | 9 | |||||||||||||||||||||
2003 | 18 | 22 | 29 | |||||||||||||||||||||
2004 | 10 | 12 | 16 | |||||||||||||||||||||
2005 | 13 | 16 | 20 | |||||||||||||||||||||
2006 | 14 | 17 | 19 | |||||||||||||||||||||
2007 | 20 | 21 | — | |||||||||||||||||||||
2008 | 16 | — | — | |||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
(1) | As noted in Table 45 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). We typically obtain the data for the statistics presented in this table from the sellers or servicers of the mortgage loans and receive representations and warranties from them as to the accuracy of the information. While we perform various quality assurance checks by sampling loans to assess compliance with our underwriting and eligibility criteria, we do not independently verify all reported information. Second lien loans are included in the original LTV ratio calculation when we own both the first and second mortgage liens or we only own the second mortgage lien. Second lien mortgage loans represented less than 0.5% of our conventional single-family business volume in each of 2008, 2007 and 2006, and less than 0.5% of our single-family mortgage credit book of business as of December 31, |
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2008, 2007 and 2006. Second lien loans held by third parties are not reflected in the original LTV or mark-to-market LTV ratios in Table 46. | ||
(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. | |
(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 primary 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) | Our single-family acquisitions consist primarily of conventional single-family fixed-rate or adjustable-rate, first lien mortgage loans, or mortgage-related securities backed by these types of loans. | |
(8) | 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. | |
(9) | 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. |
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— | Alt-A Loans: Alt-A mortgage loans, whether held in our portfolio or backing Fannie Mae MBS, declined significantly to approximately 3% of our single-family business volume in 2008, compared with approximately 16% in 2007. This decline in Alt-A mortgage loan volume was due to our tightening of eligibility standards and price increases, as well as the overall decline in the Alt-A market. As a result of these changes and the decision to discontinue the purchase of newly originated Alt-A loans effective January 1, 2009, we expect our acquisitions of Alt-A mortgage loans to continue to be minimal in future periods. |
— | Subprime Loans: Subprime mortgage loans held in our portfolio or backing Fannie Mae MBS represented less than 1% of our single-family business volume in 2008 and in 2007. We estimate that subprime mortgage loans held in our portfolio or subprime mortgage loans backing Fannie Mae MBS, excluding resecuritized private-label mortgage-related securities backed by subprime mortgage loans, represented approximately 0.3% of our total single-family mortgage credit book of business as of both December 31, 2008 and 2007. We currently are not purchasing mortgages that are classified as subprime. |
— | 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”). However, the 2009 Stimulus Act extended the origination date to December 31, 2009. In response to the 2008 legislation, we announced our jumbo-conforming mortgage product and began acquiring these jumbo-conforming loans in April 2008. We had approximately 34,300 outstanding jumbo-conforming loans with an unpaid principal balance of $19.9 billion as of December 31, 2008. | |
— | High-balance Loans: HERA, which was signed into law in July 2008, provides a permanent authority for the GSEs to use higher loan limits in high-cost areas, effective January 1, 2009. These limits will be set annually by FHFA. Accordingly, we announced our approach to implement the permanent ability to purchase high-balance loans, as authorized in HERA, effective January 1, 2009. These high-balance loans generally will meet our eligibility requirements with several restrictions related to LTV ratios, refinances and FICO credit scores. |
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— | Reverse Mortgages: Our mortgage portfolio included approximately $41.6 billion of outstanding unpaid principal related to reverse mortgages as of December 31, 2008. The majority of reverse mortgages that we hold are Home Equity Conversion Mortgages (“HECM”), which is a reverse mortgage product that has been in existence since 1989 and accounts for approximately 90% of the total market share of reverse mortgages. Our market share was approximately 90% of the total market of reverse mortgages as of December 31, 2008. Because HECMs are insured by the federal government through FHA, we have limited exposure to losses on these loans. |
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As of December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
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 | % | 2.44 | % | 17 | % | 1.35 | % | 17 | % | 1.01 | % | ||||||||||||
Northeast | 19 | 1.97 | 19 | 0.94 | 19 | 0.67 | ||||||||||||||||||
Southeast | 25 | 3.27 | 25 | 1.18 | 24 | 0.68 | ||||||||||||||||||
Southwest | 16 | 1.98 | 16 | 0.86 | 16 | 0.69 | ||||||||||||||||||
West | 24 | 2.10 | 23 | 0.50 | 24 | 0.20 | ||||||||||||||||||
Total conventional single-family loans | 100 | % | 2.42 | % | 100 | % | 0.98 | % | 100 | % | 0.65 | % | ||||||||||||
Conventional single-family loans: | ||||||||||||||||||||||||
Credit enhanced | 21 | % | 6.42 | % | 21 | % | 2.75 | % | 19 | % | 1.81 | % | ||||||||||||
Non-credit enhanced | 79 | 1.40 | 79 | 0.53 | 81 | 0.37 | ||||||||||||||||||
Total conventional single-family loans | 100 | % | 2.42 | % | 100 | % | 0.98 | % | 100 | % | 0.65 | % | ||||||||||||
Multifamily loans: | ||||||||||||||||||||||||
Credit enhanced | 86 | % | 0.26 | % | 88 | % | 0.06 | % | 96 | % | 0.07 | % | ||||||||||||
Non-credit enhanced | 14 | 0.54 | 12 | 0.22 | 4 | 0.35 | ||||||||||||||||||
Total multifamily loans | 100 | % | 0.30 | % | 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 9 to Table 46 for states included in each geographic region. |
• | The conventional single-family serious delinquency rates for California and Florida, which represent the two largest states in our conventional single-family mortgage credit book of business in terms of unpaid principal balance, climbed to 2.30% and 6.14%, respectively, as of December 31, 2008, from 0.50% and 1.59%, respectively, as of December 31, 2007, and 0.15% and 0.43% as of December 31, 2006. There has been a lengthening of the foreclosure process in many states over the past year; however, Florida’s |
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foreclosure process has lengthened considerably more than any of the other states noted above, which has contributed to its much higher serious delinquency rate. |
• | The serious delinquency rates for Alt-A and subprime loans were 7.03% and 14.29%, respectively, as of December 31, 2008, compared with 2.15% and 5.76%, respectively, as of December 31, 2007 and 0.92% and 4.72% as of December 31, 2006. |
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As of December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
On-balance sheet nonperforming loans: | ||||||||||||||||||||
Nonaccrual loans(2) | $ | 17,634 | $ | 8,343 | $ | 5,961 | $ | 8,356 | $ | 7,987 | ||||||||||
Troubled debt restructurings(3) | 1,931 | 1,765 | 1,086 | 661 | 816 | |||||||||||||||
HomeSaver Advance first-lien loans(4) | 1,121 | — | — | — | — | |||||||||||||||
Total on-balance sheet nonperforming loans | 20,686 | 10,108 | 7,047 | 9,017 | 8,803 | |||||||||||||||
Off-balance sheet nonperforming loans:(5) | ||||||||||||||||||||
Off-balance sheet nonperforming loans, excluding HomeSaver Advance first-lien loans(6) | 89,617 | 17,048 | 6,799 | 5,177 | 2,931 | |||||||||||||||
HomeSaver Advance first-lien loans(7) | 8,929 | — | — | — | — | |||||||||||||||
Total off-balance sheet nonperforming loans | 98,546 | 17,048 | 6,799 | 5,177 | 2,931 | |||||||||||||||
Total nonperforming loans | $ | 119,232 | $ | 27,156 | $ | 13,846 | $ | 14,194 | $ | 11,734 | ||||||||||
Accruing on-balance sheet loans past due 90 days or more(8) | $ | 317 | $ | 204 | $ | 147 | $ | 185 | $ | 187 | ||||||||||
Interest related to on-balance sheet nonperforming loans: | ||||||||||||||||||||
Interest income forgone(9) | $ | 401 | $ | 215 | $ | 163 | $ | 184 | $ | 188 | ||||||||||
Interest income recognized for the period(10) | 771 | 328 | 295 | 405 | 381 |
(1) | Prior to 2008, the nonperforming loans that we reported consisted of on-balance sheet nonperforming loans held in our mortgage portfolio and did not include off-balance nonperforming loans in Fannie Mae MBS held by third parties. We have revised previously reported amounts to reflect the current period presentation. | |
(2) | Includes all nonaccrual loans inclusive of troubled debt restructurings and on-balance sheet HomeSaver Advance first-lien loans on nonaccrual status. | |
(3) | A troubled debt restructuring is a modification to the contractual terms of a loan that results in a concession to a borrower experiencing financing difficulty. The reported amounts represent troubled debt restructurings that are on accrual status. | |
(4) | Represents the amount of on-balance sheet HomeSaver Advance first-lien loans on accrual status. | |
(5) | Represents unpaid principal balance of nonperforming loans in our outstanding and unconsolidated Fannie Mae MBS trusts held by third parties. | |
(6) | Represents loans that would meet our criteria for nonaccrual status if the loans had been on-balance sheet. | |
(7) | Represents all off-balance sheet first-lien loans associated with unsecured HomeSaver Advance loans, including first-lien loans that are not seriously delinquent. | |
(8) | 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. | |
(9) | 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. | |
(10) | Represents interest income recognized during the period for on-balance sheet loans classified as nonperforming as of the end of each period. |
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• | repayment plans in which borrowers repay past due principal and interest over a reasonable period of time through a temporarily higher monthly payment; | |
• | HomeSaver Advance, which is an unsecured personal loan provided to qualified borrowers to cure a payment default on a mortgage loan that we own or guarantee. Borrowers must demonstrate the ability to resume regular monthly payments on their mortgage; | |
• | loan modifications, which involve changes to the original mortgage terms that may include a change in the product type, interest rate, amortization term, maturity date,and/or unpaid principal balance; and | |
• | forbearances, whereby the lender agrees to suspend or reduce borrower payments for a period of time. |
• | preforeclosure sales in which borrowers, working with servicers, sell their homes prior to foreclosure and pay off all or part of the outstanding loan, accrued interest and other expenses from the sale proceeds; and | |
• | acceptance of deeds in lieu of foreclosure, whereby borrowers voluntarily sign over title of their property to servicers to satisfy the first lien mortgage obligation and avoid foreclosure. |
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For the Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||
Principal | Number | Principal | Number | Principal | Number | |||||||||||||||||||
Balance | of Loans | Balance | of Loans | Balance | of Loans | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Home retention strategies: | ||||||||||||||||||||||||
Modifications(1) | $ | 5,108 | 33,249 | $ | 3,339 | 26,421 | $ | 3,173 | 27,607 | |||||||||||||||
Repayment plans and forbearances completed(2) | 947 | 7,875 | 898 | 7,871 | 1,908 | 17,324 | ||||||||||||||||||
HomeSaver Advance first-lien loans(3) | 11,194 | 70,943 | — | — | — | — | ||||||||||||||||||
$ | 17,249 | 112,067 | $ | 4,237 | 34,292 | $ | 5,081 | 44,931 | ||||||||||||||||
Foreclosure alternatives: | ||||||||||||||||||||||||
Preforeclosure sales | 2,210 | 10,349 | 415 | 2,718 | 238 | 1,960 | ||||||||||||||||||
Deeds in lieu of foreclosure | 251 | 1,333 | 97 | 663 | 52 | 496 | ||||||||||||||||||
$ | 2,461 | 11,682 | $ | 512 | 3,381 | $ | 290 | 2,456 | ||||||||||||||||
Total problem loan workouts | $ | 19,710 | 123,749 | $ | 4,749 | 37,673 | $ | 5,371 | 47,387 | |||||||||||||||
Problem loan workouts as a percent of single-family guaranty book of business(4) | 0.72 | % | 0.67 | % | 0.19 | % | 0.21 | % | 0.24 | % | 0.29 | % | ||||||||||||
(1) | Modifications include troubled debt restructurings and other modifications to the contractual terms of the loan that do not result in concessions to the borrower. A troubled debt restructuring involves some economic concession to the borrower, and is the only form of modification in which we do not expect to collect the full original contractual principal and interest due under the loan. Other resolutions and modifications may result in our receiving the full amount due, or certain installments due, under the loan over a period of time that is longer than the period of time originally provided for under the loan. | |
(2) | Repayment plans reflect only those plans associated with loans that were 90 days or more delinquent. Repayment plans related to loans less than 90 days delinquent are not presented in this table. | |
(3) | Reflects unpaid principal balance and the number of first-lien loans associated with unsecured HomeSaver Advance loans. | |
(4) | Represents total problem loan workouts during the period as a percent of our conventional single-family guaranty book of business as of the end of each year. |
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Status as of December 31, 2008 | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Current to < 60 days delinquent | 57 | % | 41 | % | 46 | % | 32 | % | 22 | % | ||||||||||
61 to < 90 days delinquent | 11 | 9 | 6 | 5 | 3 | |||||||||||||||
90 days or more delinquent | 29 | 36 | 16 | 11 | 7 | |||||||||||||||
Foreclosure | 1 | 9 | 12 | 18 | 21 | |||||||||||||||
Payoffs | 2 | 5 | 20 | 34 | 47 | |||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||
(1) | Excludes first-lien loans associated with unsecured HomeSaver Advance loans. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Single-family foreclosed properties (number of properties): | ||||||||||||
Beginning of year inventory of single-family foreclosed properties (REO)(1) | 33,729 | 25,125 | 20,943 | |||||||||
Acquisitions by geographic area:(2) | ||||||||||||
Midwest | 30,026 | 20,303 | 16,128 | |||||||||
Northeast | 5,984 | 3,811 | 2,638 | |||||||||
Southeast | 24,925 | 12,352 | 9,280 | |||||||||
Southwest | 18,340 | 9,942 | 7,958 | |||||||||
West | 15,377 | 2,713 | 576 | |||||||||
Total properties acquired through foreclosure | 94,652 | 49,121 | 36,580 | |||||||||
Dispositions of REO | (64,843 | ) | (40,517 | ) | (32,398 | ) | ||||||
End of year inventory of single-family foreclosed properties (REO)(1) | 63,538 | 33,729 | 25,125 | |||||||||
Carrying value of single-family foreclosed properties (dollars in millions)(3) | $ | 6,531 | $ | 3,440 | $ | 1,999 | ||||||
Single-family foreclosure rate(4) | 0.52 | % | 0.28 | % | 0.20 | % | ||||||
Multifamily foreclosed properties (number of properties): | ||||||||||||
Ending inventory of multifamily foreclosed properties (REO) | 29 | 9 | 8 | |||||||||
Carrying value of multifamily foreclosed properties (dollars in millions)(3) | $ | 105 | $ | 43 | $ | 49 | ||||||
(1) | Includes deeds in lieu of foreclosure. | |
(2) | See footnote 9 to Table 46 for states included in each geographic region. | |
(3) | Excludes foreclosed property claims receivables, which are reported in our 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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• | California, Florida, Arizona and Nevada, which represented approximately 23% of the loans in our conventional single-family mortgage credit book of business as of December 31, 2008, accounted for 27% of single-family properties acquired through foreclosure in 2008, reflecting the sharp declines in home prices that these states have experienced. | |
• | The Midwest, which represented approximately 19% of the loans in our conventional single-family mortgage credit book of business as of December 31, 2008, accounted for approximately 32% of the single-family properties acquired through foreclosure in 2008, reflecting the continued impact of weak economic conditions in this region. | |
• | Alt-A mortgage loans held in our portfolio or backing Fannie Mae MBS, excluding resecuritized private-label mortgage-related securities backed by Alt-A mortgage loans, represented approximately 10% of our total single-family mortgage credit book of business as of December 31, 2008, but accounted for 31% of single-family properties acquired through foreclosure in 2008. |
• | 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; | |
• | custodial depository institutions that hold principal and interest payments for Fannie Mae portfolio loans and MBS certificateholders; | |
• | issuers of securities held in our cash and other investments portfolio; | |
• | derivatives counterparties; | |
• | mortgage originators and investors; | |
• | debt security and mortgage dealers; and |
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• | document custodians. |
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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 December 31, 2008 | As of February 19, 2009 | |||||||||||||||||||||||||||
Maximum Coverage(2) | Internal Financial Strength Ratings | |||||||||||||||||||||||||||
Counterparty:(1) | Primary | Pool | Total | Moody’s | S&P | Fitch | ||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
Mortgage Guaranty Insurance Corporation | $ | 25,874 | $ | 2,510 | $ | 28,384 | Ba2 | A- | A- | |||||||||||||||||||
Genworth Mortgage Insurance Corporation | 17,784 | 430 | 18,214 | Baa2 | A+ | NR | ||||||||||||||||||||||
PMI Mortgage Insurance Co. | 15,074 | 2,509 | 17,583 | Ba3 | A- | BBB+ | ||||||||||||||||||||||
Radian Guaranty, Inc. | 16,158 | 894 | 17,052 | Ba3 | BBB+ | NR | ||||||||||||||||||||||
United Guaranty Residential Insurance Company | 15,832 | 286 | 16,118 | A3 | A- | AA- | ||||||||||||||||||||||
Republic Mortgage Insurance Company | 11,969 | 1,662 | 13,631 | Baa2 | A | A+ | ||||||||||||||||||||||
Triad Guaranty Insurance Corporation(3) | 4,191 | 1,391 | 5,582 | NR | NR | NR | ||||||||||||||||||||||
CMG Mortgage Insurance Company(4) | 2,016 | — | 2,016 | NR | AA- | AA |
(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 December 31, 2008 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA+/AA/AA- | A+/A/A- | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | — | $ | 3,044 | $ | 686 | $ | 3,730 | $ | 101 | $ | 3,831 | ||||||||||||
Less: Collateral held(4) | — | 2,951 | 673 | 3,624 | — | 3,624 | ||||||||||||||||||
Exposure net of collateral | $ | — | $ | 93 | $ | 13 | $ | 106 | $ | 101 | $ | 207 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount(6) | $ | 250 | $ | 533,317 | $ | 664,155 | $ | 1,197,722 | $ | 874 | $ | 1,198,596 | ||||||||||||
Number of counterparties(6) | 1 | 8 | 10 | 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(6) | $ | 1,050 | $ | 637,847 | $ | 246,860 | $ | 885,757 | $ | 707 | $ | 886,464 | ||||||||||||
Number of counterparties(6) | 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 where the right of legal offset does not exist. | |
(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 $15.0 billion related to our counterparties’ credit exposure to us as of December 31, 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. | |
(6) | Interest rate and foreign currency derivatives in a net gain position had a total notional amount of $103.1 billion and $525.7 billion as of December 31, 2008 and December 31, 2007 respectively. Total number of interest rate and foreign currency counterparties in a net gain position was 2 and 11 as of December 31, 2008 and December 31, 2007 respectively. |
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• | Debt Instruments. We issue a broad range of both callable and non-callable debt instruments to manage the duration and prepayment risk of expected cash flows of the mortgage assets we own. | |
• | Derivative Instruments. We supplement our issuance of debt with derivative instruments to further reduce duration and prepayment risks. | |
• | Monitoring and Active Portfolio Rebalancing. We continually monitor our risk positions and actively rebalance our portfolio of interest rate-sensitive financial instruments to maintain a close match between the duration of our assets and liabilities. |
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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 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 | |||||||||||||||||||||||||||||||||||
Receive- | Foreign | Receive- | Interest | |||||||||||||||||||||||||||||||||
Pay-Fixed(2) | Fixed(3) | Basis(4) | Currency | Pay-Fixed | Fixed | Rate Caps | Other(5) | Total | ||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Notional balance as of December 31, 2006 | $ | 268,068 | $ | 247,084 | $ | 950 | $ | 4,551 | $ | 95,350 | $ | 114,921 | $ | 14,000 | $ | 469 | $ | 745,393 | ||||||||||||||||||
Additions | 212,798 | 175,358 | 7,951 | 980 | 4,328 | 27,416 | 100 | 401 | 429,332 | |||||||||||||||||||||||||||
Terminations(6) | (103,128 | ) | (136,557 | ) | (1,900 | ) | (2,972 | ) | (13,948 | ) | (17,686 | ) | (11,850 | ) | (220 | ) | (288,261 | ) | ||||||||||||||||||
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 | 277,735 | 318,698 | 24,335 | 1,141 | 21,272 | 98,061 | 200 | 269 | 741,711 | |||||||||||||||||||||||||||
Terminations(6) | (108,557 | ) | (153,502 | ) | (6,776 | ) | (2,048 | ) | (27,502 | ) | (129,152 | ) | (1,950 | ) | (92 | ) | (429,579 | ) | ||||||||||||||||||
Notional balance as of December 31, 2008 | $ | 546,916 | $ | 451,081 | $ | 24,560 | $ | 1,652 | $ | 79,500 | $ | 93,560 | $ | 500 | $ | 827 | $ | 1,198,596 | ||||||||||||||||||
Future maturities of notional amounts:(7) Less than 1 year | $ | 46,276 | $ | 31,490 | $ | 23,200 | $ | 576 | $ | 12,950 | $ | 33,030 | $ | — | $ | 92 | $ | 147,614 | ||||||||||||||||||
1 year to 5 years | 261,180 | 249,457 | 85 | 104 | 41,150 | 36,435 | 500 | 466 | 589,377 | |||||||||||||||||||||||||||
5 years to 10 years | 203,594 | 157,869 | 100 | 352 | 21,900 | 13,345 | — | 269 | 397,429 | |||||||||||||||||||||||||||
Over 10 years | 35,866 | 12,265 | 1,175 | 620 | 3,500 | 10,750 | — | — | 64,176 | |||||||||||||||||||||||||||
Total | $ | 546,916 | $ | 451,081 | $ | 24,560 | $ | 1,652 | $ | 79,500 | $ | 93,560 | $ | 500 | $ | 827 | $ | 1,198,596 | ||||||||||||||||||
Weighted-average interest rate as of December 31, 2008: | ||||||||||||||||||||||||||||||||||||
Pay rate | 4.66 | % | 2.54 | % | 2.68 | % | — | 5.88 | % | — | — | — | ||||||||||||||||||||||||
Receive rate | 2.79 | % | 4.24 | % | 0.77 | % | — | — | 4.38 | % | — | — | ||||||||||||||||||||||||
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 $1.7 billion, $8.2 billion and $10.8 billion as of December 31, 2008, 2007 and 2006, respectively. | |
(3) | Notional amounts include swaps callable by derivatives counterparties of $10.4 billion, $7.8 billion and $6.7 billion as of December 31, 2008, 2007 and 2006, respectively. | |
(4) | Notional amounts include swaps callable by derivatives counterparties of $925 million, $6.6 billion and $600 million as of December 31, 2008, 2007 and 2006, respectively. | |
(5) | Includes MBS options and swap credit enhancements. | |
(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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As of December 31, | ||||||||||||
2008 | ||||||||||||
Without PLS(2) | With PLS(3) | 2007(3)(4) | ||||||||||
(Dollars in billions) | ||||||||||||
Rate level shock: | ||||||||||||
-100 basis points | $ | (2.8 | ) | $ | (0.4 | ) | $ | (2.5 | ) | |||
- 50 basis points | (1.0 | ) | 0.1 | (0.7 | ) | |||||||
+50 basis points | (0.7 | ) | (1.6 | ) | 0.0 | |||||||
+100 basis points | (1.6 | ) | (3.3 | ) | (0.3 | ) | ||||||
Rate slope shock: | ||||||||||||
-25 basis points | (0.5 | ) | (0.4 | ) | (0.3 | ) | ||||||
+25 basis points | 0.4 | 0.3 | 0.3 |
(1) | Computed based on changes in10-year swap interest rates. | |
(2) | Calculated excluding the sensitivities of our Alt-A and subprime private-label mortgage-related investment securities to changes in interest rates. | |
(3) | Calculated including the interest rate sensitivities for ourAlt-A and subprime private-label mortgage-related investment securities generated by our existing internal models. | |
(4) | 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 | ||||||||||||
Fannie Mae | 30-Year Fannie Mae | |||||||||||
Effective | Fannie Mae | Mortgage Index | ||||||||||
Duration Gap | Effective | Option-Adjusted | ||||||||||
Month | without PLS(1) | Duration Gap | Duration(2) | |||||||||
(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 | |||||||||
November 2008 | — | 0 | 44 | |||||||||
December 2008 | (1 | ) | 1 | 21 | ||||||||
January 2009 | 0 | 2 | 13 |
(1) | Calculated excluding the sensitivities of our Alt-A and subprime private-label mortgage-related investment securities to changes in interest rates. | |
(2) | 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 December 31, 2008 | ||||||||||||||||||||
Pre-tax Effect on Estimated Fair Value | ||||||||||||||||||||
Estimated | Change in Rates | |||||||||||||||||||
Fair Value | -100 | -50 | +50 | +100 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Trading financial instruments | $ | 90,806 | $ | 1,425 | $ | 758 | $ | (962 | ) | $ | (1,983 | ) | ||||||||
Guaranty assets and guaranty obligations, net(2) | (90,992 | ) | 11,934 | 5,620 | (6,739 | ) | (7,603 | ) | ||||||||||||
Other financial instruments, net(3) | (131,881 | ) | (1,589 | ) | (445 | ) | (893 | ) | (1,829 | ) |
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(2) | (7,055 | ) | (1,514 | ) | (1,290 | ) | (2,111 | ) | (1,135 | ) | ||||||||||
Other financial instruments, net(3) | (54,084 | ) | (3,313 | ) | (1,216 | ) | 676 | 1,065 |
(1) | Excludes some instruments that we believe have interest rate risk exposure, such as LIHTC partnership assets and preferred stock; however, we include the interest rate sensitivities of these instruments in both the duration and fair value sensitivities presented above. | |
(2) | Consists of the net of “Guaranty assets” and “Guaranty obligations” reported in our consolidated balance sheets. In addition, includes certain amounts that have been reclassified from “Mortgage loans” reported in our 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. | |
(3) | Consists of the net of all other financial instruments reported in “Notes to Consolidated Financial Statements—Note 20, Fair Value of Financial Instruments.” |
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Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Item 8. | Financial Statements and Supplementary Data |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
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• | our Board of Directors and its Audit Committee lacked oversight authority with respect to our disclosure controls and procedures; | |
• | our disclosure controls and procedures did not adequately ensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws; and | |
• | we had a material weakness in our internal control over financial reporting relating to the design of our controls over certain inputs to models used in measuring expected cash flows for the other-than-temporary impairment assessment process for private-label mortgage-related securities. |
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
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• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and | |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
• | 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, our Audit Committee, as it existed prior to conservatorship, consulted with management to address disclosure and accounting issues and reviewed drafts of periodic reports before we filed these reports with the SEC. |
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• | Disclosure Controls and Procedures. We have been under the conservatorship of FHFA since September 6, 2008. Under the Regulatory Reform Act, FHFA is an independent agency that currently functions as both our conservator and our regulator with respect to our safety, soundness and mission. Because we are under the control of FHFA, some of the information that we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions without our knowledge that could be material to our shareholders and other stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing business. Although we and FHFA attempted to design and implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls and procedures. As both our regulator and our conservator under the Regulatory Reform Act, FHFA is limited in its ability to design and implement a complete set of disclosure controls and procedures relating to Fannie Mae, particularly with respect to current reporting pursuant toForm 8-K. Similarly, as a regulated entity, we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is responsible. |
• | Model Inputs for Assessment of Other-than-temporary-Impairment for Private-label Mortgage-related Securities.We employ models to assess the expected performance of our securities under hypothetical scenarios. These models consider particular attributes of the loans underlying our securities and assumptions about changes in the economic environment, such as home prices and interest rates, to predict borrower behavior and the impact on default frequency, loss severity and remaining credit enhancement. These models were primarily implemented in the fourth quarter of 2007. We use these models in combination with our assessment of other relevant factors, including subordination level, security price, empirical severity and default, and external credit ratings, among others, to determine if a security is other-than-temporarily impaired. The models we use for assessing other-than-temporary impairment are not used by us for determining the fair value of private-label mortgage-related securities. |
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• | On November 24, 2008, FHFA, as conservator, reconstituted Fannie Mae’s Board of Directors and directed Fannie Mae regarding the function and authorities of the Board of Directors. FHFA’s delegation of authority to the Board became effective on December 19, 2008 when nine Board members were appointed by FHFA, in addition to the Board Chair who was appointed by FHFA on September 16, 2008. FHFA specified that Fannie Mae’s directors serve on behalf of the conservator and exercise their authority as directed by the conservator. In addition, FHFA instructed the Board to consult with and obtain the approval of the conservator before taking action in specified areas. For more information on FHFA’s delegation of authority to the Board, including the limitations of this delegation, and the current composition of the Board, refer to “Part III—Item 10—Directors, Executive Officers and Corporate Governance.” | |
• | On November 24, 2008, FHFA reconstituted four standing Board Committees, including the Audit Committee. Subject to consultation with and the approval of the conservator in specified areas (such as actions involving the retention and termination of external auditors and material changes in accounting policy), the Audit Committee has authority similar to its authority prior to conservatorship. | |
• | On December 19, 2008, FHFA issued an order appointing nine Board members (three of whom were Board members prior to the conservatorship). The Board Chair had previously been appointed by FHFA on September 16, 2008. For more information regarding these Board members, refer to “Part III—Item 10—Directors, Executive Officers and Corporate Governance—Directors.” | |
• | On December 24, 2008, the Board of Directors, by unanimous written consent and in consultation with FHFA, appointed four members of the Board to the Audit Committee and selected a chair of the Committee. For more information regarding the Audit Committee’s membership, refer to “Part III—Item 10—Directors, Executive Officers and Corporate Governance—Corporate Governance—Audit Committee Membership.” | |
• | On January 30, 2009, the Board held its first meeting, at which it approved and amended various governing documents to reflect the conservatorship, including our Bylaws, our Corporate Governance Guidelines and charters for the Audit, Compensation, Nominating and Corporate Governance, and Risk Policy and Capital Committees. |
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• | During February 2009, members of the Board and the Audit Committee reviewed and discussed with management the disclosures contained in our annual report onForm 10-K for the year ended December 31, 2008, including the audited financial statements contained therein. | |
• | The Audit Committee reviewed and oversaw the process by which Fannie Mae’s Chief Executive Officer and Chief Financial Officer certified the annual report onForm 10-K for the year ended December 31, 2008. Pursuant to this process, management reported to the Audit Committee in February 2009 on our material weaknesses in internal control over financial reporting as of December 31, 2008. | |
• | All members of the Board of Directors approved and signed the 2008 Form10-K prior to filing. |
• | FHFA has established the Office of Conservator Affairs, which is intended to facilitate operation of the company with the oversight of the conservator. | |
• | We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to release. | |
• | FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including our 2008Form 10-K, and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our 2008Form 10-K, FHFA provided Fannie Mae management with a written acknowledgement that it had reviewed the 2008Form 10-K, was not aware of any material misstatements or omissions in the 2008Form 10-K, and had no objection to our filing the 2008Form 10-K. | |
• | The Director of FHFA and our Chief Executive Officer have been in frequent communication, typically meeting (in person or by phone) on a weekly basis. | |
• | FHFA representatives have held frequent meetings, typically weekly, 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, external communications and legal matters. |
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• | Senior officials within FHFA’s accounting group have met frequently, typically weekly, with our senior financial executives regarding our accounting policies, practices and procedures. |
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• | Board of Directors and Audit Committee—The Company’s Board of Directors and its Audit Committee lacked oversight authority with respect to disclosure controls and procedures. | |
• | Disclosure Controls and Procedures—The Company’s disclosure controls and procedures did not adequately ensure the accumulation and communication to management of information known to the Federal Housing Finance Agency that is needed to meet the Company’s disclosure obligations under the federal securities laws. | |
• | Model Inputs for Assessment of Other-than-temporary-Impairment for Private-label Mortgage-related Securities—The Company did not maintain effective internal control over financial reporting with respect to the design of its controls over certain inputs to models used in measuring expected cash flows for the other-than-temporary-impairment assessment process for private-label mortgage-related securities. |
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Specifically, the design of the controls over these model inputs did not require full testing or proper validation for accuracy of modifications prior to use in the Company’s other-than-temporary impairment assessment. As a result, an incorrect modification to a model input was made in the fourth quarter of 2008 and initially used in the Company’s other-than-temporary impairment assessment. |
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Item 9B. | Other Information |
Item 10. | Directors, Executive Officers and Corporate Governance |
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(1) | actions involving capital stock, dividends, the senior preferred stock purchase agreement, increases in risk limits, material changes in accounting policy and reasonably foreseeable material increases in operational risk; |
(2) | the creation of any subsidiary or affiliate or any substantial non-ordinary course transactions with any subsidiary or affiliate; |
(3) | matters that relate to conservatorship; |
(4) | actions involving hiring, compensation and termination benefits of directors and officers at the executive vice president level and above and other specified executives; |
(5) | actions involving retention and termination of external auditors and law firms serving as consultants to the Board; |
(6) | settlements of litigation, claims, regulatory proceedings or tax-related matters in excess of a specified threshold; |
(7) | any merger with or acquisition of a business for consideration in excess of $50 million; and |
(8) | any action that in the reasonable business judgment of the Board at the time that the action is taken is likely to cause significant reputational risk. |
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Item 11. | Executive Compensation |
• | Herbert M. Allison, Jr.,President and Chief Executive Officer | |
• | David M. Johnson,Executive Vice President and Chief Financial Officer |
• | Kenneth J. Bacon,Executive Vice President—Housing and Community Development | |
• | David C. Hisey,Executive Vice President and Deputy Chief Financial Officer(served asChief Financial Officerfrom August 2008 to November 2008 and asControllerfrom January 2005 to August 2008) | |
• | Thomas A. Lund,Executive Vice President—Single-Family Mortgage Business | |
• | Michael J. Williams,Executive Vice President and Chief Operating Officer |
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• | Daniel H. Mudd,former President and Chief Executive Officer | |
• | Stephen M. Swad,former Executive Vice President and Chief Financial Officer | |
• | Enrico Dallavecchia,former Executive Vice President and Chief Risk Officer | |
• | Robert J. Levin,former Executive Vice President and Chief Business Officer |
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• | Retirement Benefits. We redesigned our retirement benefits program in late 2007. Changes made to the program included freezing participation in our tax-qualified defined benefit retirement plan, our Executive Pension Plan and our supplemental pension plans. As a result of these changes, our named executives are eligible to participate in one of two retirement benefit programs depending on their date of hire. More detail on our pension plans and retirement benefits is provided below under “Compensation Tables—Pension Benefits” and “Compensation Tables—Nonqualified Deferred Compensation.” |
• | Named executives other than Mr. Hisey who were hired prior to January 1, 2008 participate in our tax-qualified defined benefit pension plan, Executive Pension Plan and supplemental pension plans. Mr. Hisey, who was promoted to executive vice president after participation in the Executive Pension Plan was frozen in November 2007, participates in our supplemental pension plans and our tax-qualified defined benefit retirement plan, but not our Executive Pension Plan. | |
• | Named executives who were hired on or after January 1, 2008 participate in our Supplemental Retirement Savings Plan, an unfunded, non-tax-qualified defined contribution plan. Because these executives are not eligible for our tax-qualified defined benefit retirement plan, these executives also receive an enhanced matching contribution under our 401(k) plan. |
• | Other Employee Benefits and Plans. In general, named executives are eligible for employee benefits available to our employee population as a whole, including our medical insurance plans, 401(k) plan and matching gifts program. Named executives also are eligible to participate in programs we make available only to management employees at varying levels. These programs include our supplemental long-term disability insurance plan, our executive life insurance plan and, until recently, the opportunity to elect to defer compensation into our deferred compensation plan. |
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Portion of Cash | Portion of Cash | |||||||||||||||
Retention | Retention | |||||||||||||||
Base Salary as of | Award Granted in | Award Granted in | ||||||||||||||
Continuing | December 31, | 2008 and Paid in | 2008 and Payable | |||||||||||||
Named Executive | 2008(2) | Cash Bonus(3) | 2008(4) | in 2009(4) | ||||||||||||
Herbert Allison | — | — | — | — | ||||||||||||
David Johnson | $ | 625,000 | — | — | — | |||||||||||
Kenneth Bacon | 530,400 | — | $ | 200,000 | $ | 470,000 | ||||||||||
David Hisey | 385,017 | $ | 160,000 | 220,000 | 517,000 | |||||||||||
Thomas Lund | 543,920 | — | 200,000 | 470,000 | ||||||||||||
Michael Williams | 676,000 | — | 260,000 | 611,000 |
(1) | This table includes only some of the components of 2008 compensation that are reported in the Summary Compensation Table, below. Specifically, the following components of compensation reported in that table are not included in this table: amounts we recognized for financial statement reporting purposes during 2008 for the fair value of stock and option awards held by our named executives, changes in our executives’ pension values, the value of perquisites, company contributions to 401(k) plans, life insurance premiums, tax gross-ups, and charitable award program amounts. More information on these amounts appears in the summary compensation table below and its accompanying footnotes. | |
(2) | This amount represents annual base salary as of December 31, 2008, not amounts actually received by the named executives. Actual salary amounts received during 2008 are presented in our summary compensation table below under “Compensation Tables—Summary Compensation Table.” | |
(3) | No named executive received a cash bonus for 2008 under our Annual Incentive Plan. In 2008, Mr. Hisey received a cash bonus he was awarded in 2007 payable upon our timely filing in February 2008 of our 2007 Annual Report onForm 10-K with the SEC. | |
(4) | As discussed above in “Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program,” 20% of the retention awards made to our named executives under our 2008 Retention Program was paid to the executives in 2008. This portion of the retention awards is shown above in the “Portion of Cash Retention Award Granted in 2008 and Paid in 2008” column. Forty-seven percent of the awards, which is shown above in the “Portion of Cash Retention Award Granted in 2008 and Payable in 2009” column, is payable as follows: 20% in April 2009 and 27% in November 2009. The final 33% of each award, or $330,000 for Mr. Bacon, $363,000 for Mr. Hisey, $330,000 for Mr. Lund, and $429,000 for Mr. Williams, is “performance-based” and is payable, in whole or in part, in February 2010. The amount of the |
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February 2010 payment will be determined based on our performance against goals. Each future payment of these awards will become payable only if the named executive remains employed by us on the payment date or is involuntarily terminated for reasons other than unsatisfactory performance. | ||
Messrs. Allison and Johnson joined Fannie Mae in 2008 and therefore did not receive retention awards. |
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• | Our directors serve on behalf of FHFA and exercise their authority as directed by FHFA. More information about the role of our directors is described above in “Item 10—Directors, Executive Officers and Corporate Governance—Corporate Governance—Conservatorship and Delegation of Authority to Board of Directors.” | |
• | FHFA, as our conservator, has directed that our Board consult with and obtain FHFA’s consent before taking any action involving compensation or termination benefits of any officer at the executive vice president level and above and including, regardless of title, executives who hold positions with the functions of the chief operating officer, chief financial officer, general counsel, chief business officer, chief investment officer, treasurer, chief compliance officer, chief risk officer and chief/general/internal auditor. | |
• | Under the terms of the senior preferred stock purchase agreement, we may not enter into any new compensation arrangements or increase amounts or benefits payable under existing compensation arrangements of any named executive without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury. | |
• | Under the terms of the senior preferred stock purchase agreement, we may not sell or issue any equity securities without the prior written consent of Treasury, other than as required by the terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement. This restricts our ability to offer equity-based compensation. | |
• | While we are in conservatorship, FHFA, as our conservator, retains the authority not only to approve both the terms and amount of any compensation to any of our executive officers, but also to modify any such arrangements. | |
• | FHFA, as our regulator, must approve any termination benefits we offer to our named executives and certain other officers identified by FHFA. | |
• | Under the Housing and Economic Recovery Act and related regulations issued by FHFA in September 2008 and finalized in January 2009, the Director of FHFA has the authority to prohibit or limit us from making any “golden parachute payment” to specified categories of persons, including its named executive officers, by regulation or order using the factors in the regulations. A “golden parachute payment” is defined to include any payment that: (1) either is contingent on, or by its terms is payable on or after, the termination of a person’s primary employment or affiliation with us and (2) is received on or after the date on which a conservator was appointed for us. Under the regulations, the term “golden parachute payment” does not include certain payments including: (1) a payment made pursuant to a tax-qualified pension or retirement plan, (2) a payment pursuant to a bona fide deferred compensation plan or arrangement that the Director of FHFA determines, by regulation or order, to be permissible or (3) a payment made by reason of death or by reason of termination caused by disability. | |
• | Under the Housing and Economic Recovery Act, FHFA has the power to approve, disapprove or modify executive compensation until December 31, 2009 as our regulator, in addition to its authority as conservator. |
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Dennis R. Beresford
David H. Sidwell
Diana L. Taylor
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Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||||||||||
Non-Equity | Nonqualified | |||||||||||||||||||||||||||||||||||
Incentive | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||||
Principal Position | Year | ($) | ($)(2) | ($)(1)(3) | ($)(4) | ($)(5) | ($)(6) | ($)(10) | ($)(1) | |||||||||||||||||||||||||||
Herbert Allison(7) | 2008 | — | — | — | — | — | — | 58,260 | 58,260 | |||||||||||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
David Johnson(8) | 2008 | 48,077 | — | — | — | — | — | 962 | 49,039 | |||||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Kenneth Bacon | 2008 | 527,262 | 670,000 | 1,383,400 | 9,099 | — | 271,981 | 58,800 | 2,920,542 | |||||||||||||||||||||||||||
Executive Vice President—Housing and Community Development | ||||||||||||||||||||||||||||||||||||
David Hisey(8) | 2008 | 382,904 | 737,000 | 856,753 | 45,851 | 160,000 | 62,450 | 43,209 | 2,288,167 | |||||||||||||||||||||||||||
Executive Vice President and Deputy Chief Financial Officer and Former Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Thomas Lund | 2008 | 540,702 | 670,000 | 1,481,530 | 7,350 | — | 212,398 | 35,412 | 2,947,392 | |||||||||||||||||||||||||||
Executive Vice President—Single-Family Mortgage Business | ||||||||||||||||||||||||||||||||||||
Michael Williams | 2008 | 676,000 | 871,000 | 3,387,047 | 24,336 | — | 724,874 | 43,034 | 5,726,291 | |||||||||||||||||||||||||||
Executive Vice President | 2007 | 697,164 | — | 2,916,660 | 404,434 | 1,189,760 | 359,279 | 55,418 | 5,622,715 | |||||||||||||||||||||||||||
and Chief Operating Officer | 2006 | 650,000 | — | 1,808,182 | 701,446 | 1,630,200 | 371,753 | 69,482 | 5,231,063 | |||||||||||||||||||||||||||
Daniel Mudd(9) | 2008 | 951,923 | — | 1,549,444 | 34,835 | — | 1,807,016 | 211,454 | 4,554,672 | |||||||||||||||||||||||||||
Former President and Chief | 2007 | 986,923 | — | 6,840,214 | 576,492 | 2,227,500 | 863,749 | 154,251 | 11,649,129 | |||||||||||||||||||||||||||
Executive Officer | 2006 | 950,000 | — | 4,799,057 | 962,112 | 3,500,000 | 932,958 | 136,072 | 11,280,199 | |||||||||||||||||||||||||||
Stephen Swad(9) | 2008 | 442,500 | — | 2,120,057 | — | — | 171,643 | 683,441 | 3,417,641 | |||||||||||||||||||||||||||
Former Executive Vice President and Chief Financial Officer | 2007 | 420,000 | 500,000 | 920,741 | — | 955,500 | 190,915 | 37,747 | 3,024,903 | |||||||||||||||||||||||||||
Enrico Dallavecchia(9) | 2008 | 389,400 | — | 1,906,014 | — | — | 194,961 | 612,272 | 3,102,647 | |||||||||||||||||||||||||||
Former Executive Vice President and Chief Risk Officer | ||||||||||||||||||||||||||||||||||||
Robert Levin(9) | 2008 | 788,000 | — | 4,356,268 | 33,143 | — | 439,147 | 43,099 | 5,659,657 | |||||||||||||||||||||||||||
Former Executive Vice President | 2007 | 785,077 | — | 3,884,783 | 546,654 | 1,477,500 | 203,174 | 70,545 | 6,967,733 | |||||||||||||||||||||||||||
and Chief Business Officer | 2006 | 750,000 | — | 2,477,097 | 883,442 | 2,087,250 | 307,078 | 70,710 | 6,575,577 |
(1) | Because the amounts shown in the “Stock Awards” column are primarily based on the trading price of our common stock on the date of grant, the values shown are significantly higher than the value of these awards to our named executives, especially for 2008. The table below shows what the “Stock Awards” and “Total” compensation amounts for 2008 would be if (1) for the awards that remained unvested as of December 31, 2008, we recalculate these amounts using $0.76, the closing price of our common stock on December 31, 2008, and (2) for the awards that vested during 2008, we continue to calculate the amounts using the grant date fair value. If an executive had no unvested stock on December 31, 2008, the amount shown in the “Stock Awards, Adjusted” column is the same as the amount in the Summary Compensation Table above. | |
2008 stock award and total compensation amounts using $0.76 per share to value awards unvested at December 31, 2008 |
Stock Awards, | Stock Awards, | |||||||||||||||||
Executive | Adjusted ($) | Total ($) | Executive | Adjusted ($) | Total ($) | |||||||||||||
Herbert Allison | — | 58,260 | Michael Williams | 337,214 | 2,676,458 | |||||||||||||
David Johnson | — | 49,039 | Daniel Mudd | 1,549,444 | 4,554,672 | |||||||||||||
Kenneth Bacon | 130,845 | 1,667,987 | Stephen Swad | 488,199 | 1,785,783 | |||||||||||||
David Hisey | 148,434 | 1,579,848 | Enrico Dallavecchia | 354,964 | 1,551,597 | |||||||||||||
Thomas Lund | 139,010 | 1,604,872 | Robert Levin | 454,169 | 1,757,558 |
(2) | For 2008, amounts shown under the “Bonus” column reflect the entire service-based portion of awards made under our 2008 Retention Program, including amounts that will not be paid until April 2009 and November 2009 and that will become payable only if the named executive remains employed by us on the payment date or is involuntarily terminated prior to the payment date for reasons other than unsatisfactory performance. Of the amounts included in the table, only 30% was actually paid to the named executives in 2008. More information about the retention awards |
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made to our named executives is presented in “Compensation Discussion and Analysis—Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program” and “—How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Retention Award Determinations.” | ||
For 2007, the amount shown in the “Bonus” column for Mr. Swad represents a sign-on bonus he received in connection with his joining us in 2007. | ||
(3) | Amounts in the “Stock Awards” column represent the dollar amounts we recognized for financial statement reporting purposes in the year for the fair value of restricted stock, restricted stock units and performance shares granted during that year and in prior years in accordance with SFAS 123R. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amount shown for Mr. Mudd for 2008 is less than it would have otherwise been as a result of his forfeiture of 485,517 shares of restricted stock upon his departure from Fannie Mae in December 2008. The amount shown also reflects $801,762 in costs we recognized in accordance with SFAS 123R for dividends we paid Mr. Mudd on those forfeited shares in 2008 and prior years. | |
In January 2009, we reversed costs we recognized in prior years as a result of Mr. Swad’s forfeiture of 156,168 shares and Mr. Dallavecchia’s forfeiture of 139,437 shares. This reversal is not reflected in the amounts shown because it occurred in 2009, but it would have reduced the amounts shown in the “Stock Awards” column for 2008 if those reversals had taken place in 2008. Payouts under a performance share program in 2007 were at 40% for the2003-2005 performance cycle and 47.5% for the2004-2006 performance cycle. Thus, in 2007 we reversed expenses for 2006 that we previously recorded in our financial statements based on our estimate that awards would be paid out at 50%. To the extent expenses were recorded prior to 2006, the amounts above do not reflect the reversal of these expenses. | ||
The SFAS 123R grant date fair value of restricted stock and restricted stock units is calculated as the average of the high and low trading price of our common stock on the date of grant. Because performance shares do not participate in dividends during the three-year performance cycle and include a cap on the market value to be paid equal to three times the grant date market value, the SFAS 123R grant date fair value of performance shares is calculated as the market value on date of grant, less the present value of expected dividends over the three-year performance period discounted at the risk-free rate, less the value of the three-times cap based on a Black-Scholes option pricing model. As described above, the amounts shown for stock awards in 2008 represent costs we recognized in 2008 for awards of restricted stock or restricted stock units granted in 2008 and in prior years. These costs, which are calculated based on the trading price of the common stock on the grant date times the number of shares granted, are recognized ratably over the period from the grant date through the vesting date. | ||
(4) | The amounts reported in the “Option Awards” column represent the dollar amounts we recognized for financial statement reporting purposes in each year in accordance with SFAS 123R for the fair value of stock option awards, which were granted in January 2005 and in prior years. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For the assumptions used in calculating the value of these awards, see “Notes to Consolidated Financial Statements—Note 1, Summary of Significant Accounting Policies—Stock-Based Compensation,” of our Annual Report onForm 10-K for the year ended December 31, 2005 for awards granted in 2005, 2004 and 2003, and see “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies—Stock-Based Compensation,” of our Annual Report on Form10-K for the year ended December 31, 2004 for awards granted in 2002. No named executive, other than Mr. Hisey, has received a stock option award since January 2004. Mr. Hisey received a stock option award in January 2005 in connection with his joining us and prior to his becoming an executive officer. | |
(5) | The amount shown for Mr. Hisey for 2008 under the “Non-Equity Incentive Plan Compensation” column reflects a bonus Mr. Hisey earned in 2008 upon our timely filing with the SEC of our Annual Report onForm 10-K for the year ended December 31, 2007. The award was initially granted in 2007. No amounts are shown in the “Non-Equity Incentive Plan Compensation” for the performance-based portion of cash retention awards under our 2008 Retention Program because the amounts that will be paid for these awards will be based on our performance solely in periods after 2008. | |
Amounts shown for 2006 and 2007 in the “Non-Equity Incentive Plan Compensation” column represent amounts earned under our Annual Incentive Plan. Mr. Swad deferred $100,000 of his 2007 bonus under our Annual Incentive Plan to later years. Except for this deferred amount, amounts shown as earned under our Annual Incentive Plan were paid to our named executives in the fiscal year following the fiscal year in which they were earned. | ||
(6) | The reported amounts represent change in pension value. These amounts, which have been calculated using the same assumptions we use for financial reporting under GAAP, were significantly impacted by our use of a discount rate of 6.15% at December 31, 2008, compared to the discount rate of 6.4% we used at December 31, 2007. None of our named executives received above-market or preferential earnings on nonqualified deferred compensation. | |
(7) | At his request, Mr. Allison, who became our President and Chief Executive Officer on September 7, 2008, did not receive any salary or bonus for his 2008 service to Fannie Mae. | |
(8) | Mr. Johnson joined us in November 2008. Mr. Hisey began serving as an executive officer during 2008. | |
(9) | Mr. Mudd ceased serving as an executive officer of Fannie Mae in September 2008. Mr. Mudd’s 2008 salary includes salary we paid him during a90-day transition period from September 2008 until December 2008. Messrs. Swad, |
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Dallavecchia and Levin ceased serving as executive officers of Fannie Mae in late August 2008. Mr. Levin’s 2008 salary includes amounts received for his service as a senior advisor subsequent to that time. | ||
(10) | The table below shows more information about the amounts reported for 2008 in the “All Other Compensation” column. In accordance with SEC rules, amounts shown under “All Other Compensation” do not include perquisites or personal benefits for a named executive that, in the aggregate, amount to less than $10,000. In addition to the perquisites discussed below, our executives may have used company drivers and vehicles for personal purposes, in which case they reimbursed us our incremental cost. Until early September 2008, our executives also used tickets for sporting events and concerts for personal use, for which they reimbursed us our incremental cost. | |
In 2008, Mr. Allison used a company car and driver for commuting and certain other personal travel, and used our corporate dining services, for both of which he reimbursed us our incremental cost. Because he reimbursed our incremental costs, no amounts are shown in the “Perquisites” column for these items. Mr. Allison’s perquisites consist of $27,976 in travel and relocation costs Mr. Allison incurred during the first five weeks he worked at Fannie Mae for hotel costs and incidentals such as meals, laundry/valet service, telephone calls and internet access, our incremental cost of $1,517 for Mr. Allison’s use of a company car and driver for commuting during that time, and water and soda. Amounts shown in the “TaxGross-Ups” column below for Mr. Allison reflect amounts we paid to cover the withholding tax that resulted from our payment of Mr. Allison’s travel and relocation costs and Mr. Allison’s personal use of a company car and driver. | ||
Mr. Mudd’s perquisites for 2008 consist of $34,906 he has requested under the terms of his employment agreement for legal advice in connection with the agreement, costs for executive dining services, and $590 in costs associated with his spouse accompanying him to our 2008 annual meeting in New Orleans such as meals, entertainment, gifts and our incremental cost of her air travel using our fractional aircraft interest, which we sold in early 2009. Mr. Mudd’s “Charitable Award Program” amounts reflect our incremental cost relating to his participation in our charitable award program for directors. We describe how we calculate this amount in footnote 6 to the 2008 Non-Employee Director Compensation Table that appears below in “Director Compensation.” | ||
Amounts shown in the “TaxGross-Ups” column below for Mr. Bacon reflect amounts we paid to cover the withholding taxes that resulted from providing Mr. Bacon a corporate parking benefit. The “Charitable Award Program” amounts for named executives other than Mr. Mudd reflect (1) gifts we made under our matching gifts program, under which gifts made by our employees and directors to Section 501(c)(3) charities are matched, up to an aggregate total of $10,000 in any calendar year; and (2) a matching contribution program under which an employee who contributes at certain levels to the Fannie Mae Political Action Committee may direct that an equal amount, up to $5,000, be donated by us to charities chosen by the employee in the employee’s name. | ||
The amounts shown in the “Separation Benefits” column represent one year of the executive’s base salary at the rate in effect on August 27, 2008. More information on these benefits is provided in “Compensation Discussion and Analysis—How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Separation Benefit Determinations.” |
Perquisites | Universal Life | |||||||||||||||||||||||
and Other | Company | Insurance | Charitable | |||||||||||||||||||||
Personal | Contributions to | Coverage | Tax | Award | Separation | |||||||||||||||||||
Named Executive | Benefits | 401(k) Plan | Premiums | Gross-Ups | Programs | Benefits | ||||||||||||||||||
Herbert Allison | $29,576 | — | — | $28,684 | — | — | ||||||||||||||||||
David Johnson | — | $962 | — | — | — | — | ||||||||||||||||||
Kenneth Bacon | — | 6,900 | $49,646 | 295 | $1,959 | — | ||||||||||||||||||
David Hisey | — | 11,500 | 29,750 | — | 1,959 | — | ||||||||||||||||||
Thomas Lund | — | 6,900 | 26,553 | — | 1,959 | — | ||||||||||||||||||
Michael Williams | — | 6,900 | 23,304 | — | 12,830 | — | ||||||||||||||||||
Daniel Mudd | 36,143 | 6,900 | 58,650 | — | 109,761 | — | ||||||||||||||||||
Stephen Swad | — | 5,000 | 21,482 | — | 6,959 | $650,000 | ||||||||||||||||||
Enrico Dallavecchia | — | 6,900 | 23,372 | — | 10,000 | 572,000 | ||||||||||||||||||
Robert Levin | — | 6,900 | 31,715 | — | 4,484 | — |
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All Other | ||||||||||||||||||||||||||
Stock | ||||||||||||||||||||||||||
Awards: | Grant Date | |||||||||||||||||||||||||
Number of | Fair Value of | |||||||||||||||||||||||||
Estimated Future Payouts Under | Shares of | Stock and | ||||||||||||||||||||||||
Grant Date | Non-Equity Incentive Plan Awards(3) | Stock or | Option | |||||||||||||||||||||||
Award | for Equity | Threshold | Target | Maximum | Units | Awards | ||||||||||||||||||||
Named Executive | Type(1) | Awards(2) | ($) | ($) | ($) | (#)(4) | ($)(5) | |||||||||||||||||||
Herbert Allison | AIP | — | ||||||||||||||||||||||||
Retention | — | — | ||||||||||||||||||||||||
RS | — | — | ||||||||||||||||||||||||
David Johnson | AIP | — | ||||||||||||||||||||||||
Retention | — | — | ||||||||||||||||||||||||
RS | — | — | ||||||||||||||||||||||||
Kenneth Bacon | AIP | 981,240 | ||||||||||||||||||||||||
Retention | — | 330,000 | ||||||||||||||||||||||||
RS | 01/28/2008 | 62,189 | 1,999,998 | |||||||||||||||||||||||
David Hisey | AIP | 577,526 | ||||||||||||||||||||||||
Retention | — | 363,000 | ||||||||||||||||||||||||
RS | 01/28/2008 | 29,244 | 940,487 | |||||||||||||||||||||||
Thomas Lund | AIP | 1,006,252 | ||||||||||||||||||||||||
Retention | — | 330,000 | ||||||||||||||||||||||||
RS | 01/28/2008 | 65,298 | 2,099,984 | |||||||||||||||||||||||
Michael Williams | AIP | 1,487,200 | ||||||||||||||||||||||||
Retention | — | 429,000 | ||||||||||||||||||||||||
RS | 01/28/2008 | 148,756 | 4,783,993 | |||||||||||||||||||||||
Daniel Mudd | AIP | 2,970,000 | ||||||||||||||||||||||||
Retention | — | — | ||||||||||||||||||||||||
RS | 01/28/2008 | 279,850 | 8,999,976 | |||||||||||||||||||||||
Stephen Swad | AIP | 1,365,000 | ||||||||||||||||||||||||
Retention | — | — | ||||||||||||||||||||||||
RS | 01/28/2008 | 99,502 | 3,199,984 | |||||||||||||||||||||||
Enrico Dallavecchia | AIP | 1,086,800 | ||||||||||||||||||||||||
Retention | — | — | ||||||||||||||||||||||||
RS | 01/28/2008 | 78,358 | 2,519,993 | |||||||||||||||||||||||
Robert Levin | AIP | 1,970,000 | ||||||||||||||||||||||||
Retention | — | — | ||||||||||||||||||||||||
RS | 01/28/2008 | 192,786 | 6,199,998 |
(1) | AIP indicates an award under our Annual Incentive Plan. Retention indicates the portion of the total awards under our 2008 Retention Program that may become payable, in whole or in part depending on our performance against goals, in February 2010. RS indicates restricted stock awards granted under our Stock Compensation Plan of 2003. | |
(2) | The “Grant Date for Equity Awards” column shows the grant date for equity awards determined for financial statement reporting purposes pursuant to SFAS 123R and reflects the date our Board approved the equity award. | |
(3) | For awards under our Annual Incentive Plan, the amounts shown are the target amounts established by our Board in February 2008 for 2008 performance. The amount to be paid to a named executive was to be based on our 2008 performance against pre-established corporate performance goals. Our Board and Compensation Committee also retained discretion to pay bonuses in amounts below or above the amount derived from measuring performance against corporate performance goals. Although it was expected that performance against corporate performance goals in 2008 would be in the range of 50% to 150% of target, the determination of corporate performance, and the potential size of awards, was not restricted to this range. As discussed above in “Compensation Discussion and Analysis — Impact of the Conservatorship on Executive Compensation — Conservator’s determination relating to 2008 Incentive |
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Compensation and Establishment of 2008 Retention Program,” no bonuses were paid to our named executives under our Annual Incentive Plan for 2008 performance. | ||
For awards under our 2008 Retention Program, the maximum amounts shown represent the portion of the total awards approved by the conservator in October 2008 that may become payable, in whole or in part, in February 2010. The amount of the payment will be determined based on our performance against goals that we expect will be established in the next few months and that must be approved by the conservator. The actual amounts paid will be based on our future performance. These maximum amounts represent 33% of the total retention awards each named executive received under the 2008 Retention Program. Information about the balance of the awards, which are service-based, is provided above in “Compensation Discussion and Analysis — Impact of the Conservatorship on Executive Compensation — Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program.” | ||
(4) | Consists of restricted stock awarded in 2008 under the 2003 Plan. The awards vest in four equal annual installments beginning in January 2009. As the holder of restricted stock, the named executive has the rights and privileges of a shareholder as to the restricted stock, other than the ability to sell or otherwise transfer it, including the right to receive any dividends declared with respect to the stock and the right to provide instructions on how to vote. As discussed in “Part I — Item 1 — Business — Conservatorship, Treasury Agreements, Our Charter and Regulation of Our Activities — Conservatorship,” and in “Part II — Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividends,” our conservator has assumed all the powers of our stockholders, including power to vote the shares, and our conservator announced we would not pay any dividends on our common stock. | |
(5) | The grant date fair value of restricted stock awards is calculated under SFAS 123R as the average of the high and low trading price of our common stock on the date of grant, or $32.16 per share. The closing price of our common stock on December 31, 2008 was $0.76. |
Option Awards(2) | Stock Awards(2) | |||||||||||||||||||||||||||||
Number of | Number of | Number of | Market Value of | |||||||||||||||||||||||||||
Securities | Securities | Shares or | Shares or | |||||||||||||||||||||||||||
Underlying | Underlying | Units of | Units of | |||||||||||||||||||||||||||
Unexercised | Unexercised | Option | Option | Stock That | Stock That | |||||||||||||||||||||||||
Award | Grant | Options (#) | Options (#) | Exercise | Expiration | Have Not | Have Not | |||||||||||||||||||||||
Name | Type(1) | Date | Exercisable | Unexercisable | Price ($) | Date | Vested (#) | Vested ($) | ||||||||||||||||||||||
Herbert Allison | N/A | |||||||||||||||||||||||||||||
David Johnson | N/A | |||||||||||||||||||||||||||||
Kenneth Bacon | O | 11/16/1999 | 9,220 | 71.50 | 11/16/2009 | |||||||||||||||||||||||||
O | 1/18/2000 | 16,536 | (3) | 62.50 | 1/18/2010 | |||||||||||||||||||||||||
O | 11/21/2000 | 11,410 | 77.10 | 11/21/2010 | ||||||||||||||||||||||||||
O | 11/20/2001 | 13,080 | 80.95 | 11/20/2011 | ||||||||||||||||||||||||||
O | 1/21/2003 | 25,478 | 69.43 | 1/21/2013 | ||||||||||||||||||||||||||
O | 1/23/2004 | 27,622 | 78.32 | 1/23/2014 | ||||||||||||||||||||||||||
RS | 3/22/2006 | 12,380 | (4) | 9,409 | ||||||||||||||||||||||||||
RS | 1/25/2007 | 28,462 | 21,631 | |||||||||||||||||||||||||||
RS | 1/28/2008 | 62,189 | 47,264 |
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Option Awards(2) | Stock Awards(2) | |||||||||||||||||||||||||||||
Number of | Number of | Number of | Market Value of | |||||||||||||||||||||||||||
Securities | Securities | Shares or | Shares or | |||||||||||||||||||||||||||
Underlying | Underlying | Units of | Units of | |||||||||||||||||||||||||||
Unexercised | Unexercised | Option | Option | Stock That | Stock That | |||||||||||||||||||||||||
Award | Grant | Options (#) | Options (#) | Exercise | Expiration | Have Not | Have Not | |||||||||||||||||||||||
Name | Type(1) | Date | Exercisable | Unexercisable | Price ($) | Date | Vested (#) | Vested ($) | ||||||||||||||||||||||
David Hisey | O | 1/3/2005 | 7,500 | 2,500 | 71.31 | 1/3/2015 | ||||||||||||||||||||||||
RS | 3/22/2006 | 3,825 | (4) | 2,907 | ||||||||||||||||||||||||||
RS | 1/25/2007 | 12,066 | 9,170 | |||||||||||||||||||||||||||
RS | 4/13/2007 | 10,000 | (5) | 7,600 | ||||||||||||||||||||||||||
RS | 1/28/2008 | 29,244 | 22,225 | |||||||||||||||||||||||||||
Thomas Lund | O | 11/16/1999 | 8,190 | 71.50 | 11/16/2009 | |||||||||||||||||||||||||
O | 1/18/2000 | 14,331 | (3) | 62.50 | 1/18/2010 | |||||||||||||||||||||||||
O | 11/21/2000 | 10,340 | 77.10 | 11/21/2010 | ||||||||||||||||||||||||||
O | 11/20/2001 | 11,170 | 80.95 | 11/20/2011 | ||||||||||||||||||||||||||
O | 1/21/2003 | 18,217 | 69.43 | 1/21/2013 | ||||||||||||||||||||||||||
O | 1/23/2004 | 22,310 | 78.32 | 1/23/2014 | ||||||||||||||||||||||||||
RS | 3/22/2006 | 13,000 | (4) | 9,880 | ||||||||||||||||||||||||||
RS | 1/25/2007 | 31,459 | 23,909 | |||||||||||||||||||||||||||
RS | 1/28/2008 | 65,298 | 49,626 | |||||||||||||||||||||||||||
Michael Williams | O | 11/16/1999 | 12,290 | 71.50 | 11/16/2009 | |||||||||||||||||||||||||
O | 1/18/2000 | 20,027 | (3) | 62.50 | 1/18/2010 | |||||||||||||||||||||||||
O | 11/21/2000 | 35,610 | 77.10 | 11/21/2010 | ||||||||||||||||||||||||||
O | 1/16/2001 | 13,087 | (3) | 78.56 | 1/18/2010 | |||||||||||||||||||||||||
O | 11/20/2001 | 44,735 | 80.95 | 11/20/2011 | ||||||||||||||||||||||||||
O | 1/21/2003 | 63,836 | 69.43 | 1/21/2013 | ||||||||||||||||||||||||||
O | 1/23/2004 | 73,880 | 78.32 | 1/23/2014 | ||||||||||||||||||||||||||
RS | 3/22/2006 | 30,806 | (4) | 23,413 | ||||||||||||||||||||||||||
RS | 1/25/2007 | 69,466 | 52,794 | |||||||||||||||||||||||||||
RS | 1/28/2008 | 148,756 | 113,055 | |||||||||||||||||||||||||||
Daniel Mudd | O | 2/23/2000 | 114,855 | 52.78 | 3/5/2009 | |||||||||||||||||||||||||
O | 2/23/2000 | 116,710 | (3) | 52.78 | 3/5/2009 | |||||||||||||||||||||||||
O | 11/21/2000 | 89,730 | 77.10 | 3/5/2009 | ||||||||||||||||||||||||||
O | 11/20/2001 | 87,194 | 80.95 | 3/5/2009 | ||||||||||||||||||||||||||
O | 1/21/2003 | 82,918 | 69.43 | 3/5/2009 | ||||||||||||||||||||||||||
O | 1/23/2004 | 105,749 | 78.32 | 3/5/2009 | ||||||||||||||||||||||||||
Stephen Swad | RS | 5/2/2007 | 26,666 | (5)(6) | 20,266 | (6) | ||||||||||||||||||||||||
RS | 5/2/2007 | 30,000 | (6) | 22,800 | (6) | |||||||||||||||||||||||||
RS | 1/28/2008 | 99,502 | (6) | 75,622 | (6) | |||||||||||||||||||||||||
Enrico Dallavecchia | RS | 6/5/2006 | 26,000 | (6) | 19,760 | (6) | ||||||||||||||||||||||||
RS | 1/25/2007 | 35,079 | (6) | 26,660 | (6) | |||||||||||||||||||||||||
RS | 1/28/2008 | 78,358 | (6) | 59,552 | (6) | |||||||||||||||||||||||||
Robert Levin | O | 11/16/1999 | 47,300 | 71.50 | 11/16/2009 | |||||||||||||||||||||||||
O | 1/18/2000 | 56,572 | (3) | 62.50 | 1/18/2010 | |||||||||||||||||||||||||
O | 11/21/2000 | 43,430 | 77.10 | 11/21/2010 | ||||||||||||||||||||||||||
O | 11/20/2001 | 44,735 | 80.95 | 11/20/2011 | ||||||||||||||||||||||||||
O | 1/21/2003 | 72,445 | 69.43 | 1/21/2013 | ||||||||||||||||||||||||||
O | 1/23/2004 | 100,613 | 78.32 | 1/23/2014 | ||||||||||||||||||||||||||
RS | 3/22/2006 | 39,129 | (4) | 29,738 | ||||||||||||||||||||||||||
RS | 1/25/2007 | 88,260 | 67,078 | |||||||||||||||||||||||||||
RS | 1/28/2008 | 192,786 | 146,517 |
(1) | O indicates stock options and RS indicates restricted stock. |
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(2) | Except as otherwise indicated, all awards of options and restricted stock listed in this table vest in four equal annual installments beginning on the first anniversary of the date of grant. Amounts reported in this table for restricted stock represent only the unvested portion of awards. Amounts reported in this table for options represent only the unexercised portions of awards. | |
(3) | The stock options vested 100% on January 23, 2004. | |
(4) | The initial award amount vests in four equal annual installments beginning on January 24, 2007. In connection with the stock awards with a grant date of March 22, 2006, some of our named executives also received a cash award payable in four equal annual installments beginning on January 24, 2007. As of December 31, 2008, the unpaid portions of these cash awards were as follows: Mr. Bacon, $332,805; Mr. Hisey, $208,750; Mr. Lund, $349,470; Mr. Williams, $828,135; and Mr. Levin, $1,051,875. | |
(5) | The initial award amount was scheduled to vest in three equal annual installments beginning on the first anniversary of the date of grant. | |
(6) | After December 31, 2008, these shares were forfeited. |
Stock Awards | ||||||||
Number of Shares | Value Realized on | |||||||
Name | Acquired on Vesting (#) | Vesting ($) | ||||||
Herbert Allison | — | — | ||||||
David Johnson | — | — | ||||||
Kenneth Bacon | 22,315 | 693,190 | ||||||
David Hisey | 16,766 | 490,468 | ||||||
Thomas Lund | 23,573 | 734,526 | ||||||
Michael Williams | 56,804 | 1,750,609 | ||||||
Daniel Mudd | 131,242 | 3,868,694 | ||||||
Stephen Swad | 23,334 | 705,037 | ||||||
Enrico Dallavecchia | 24,693 | 738,485 | ||||||
Robert Levin | 75,355 | 2,304,931 |
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Number of | ||||||||||
Years | Present Value of | |||||||||
Credited | Accumulated | |||||||||
Name of Executive | Plan Name | Service (#)(1) | Benefit ($)(2) | |||||||
Herbert Allison | Not applicable | |||||||||
David Johnson | Not applicable | |||||||||
Kenneth Bacon | Retirement Plan | 16 | 342,011 | |||||||
Supplemental Pension Plan | 16 | 476,381 | ||||||||
2003 Supplemental Pension Plan | 16 | 425,955 | ||||||||
Executive Pension Plan | ||||||||||
David Hisey | Retirement Plan | 4 | 62,876 | |||||||
Supplemental Pension Plan | 4 | 45,303 | ||||||||
2003 Supplemental Pension Plan | 4 | 57,628 | ||||||||
Thomas Lund | Retirement Plan | 14 | 234,750 | |||||||
Supplemental Pension Plan | 14 | 341,335 | ||||||||
2003 Supplemental Pension Plan | 14 | 300,814 | ||||||||
Executive Pension Plan | ||||||||||
Michael Williams | Retirement Plan | 18 | 320,108 | |||||||
Supplemental Pension Plan 2003 Supplemental Pension Plan | ||||||||||
Executive Pension Plan | 8 | 2,160,564 | ||||||||
Daniel Mudd(3) | Retirement Plan | 9 | 150,910 | |||||||
Supplemental Pension Plan 2003 Supplemental Pension Plan Executive Pension Plan | 9 | 6,687,324 | ||||||||
Stephen Swad(4) | Retirement Plan | 2 | 25,155 | |||||||
Supplemental Pension Plan 2003 Supplemental Pension Plan | ||||||||||
Executive Pension Plan | 2 | 337,403 | ||||||||
Enrico Dallavecchia(4) | Retirement Plan | 3 | 37,544 | |||||||
Supplemental Pension Plan 2003 Supplemental Pension Plan | ||||||||||
Executive Pension Plan | 3 | 523,297 |
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Number of | ||||||||||
Years | Present Value of | |||||||||
Credited | Accumulated | |||||||||
Name of Executive | Plan Name | Service (#)(1) | Benefit ($)(2) | |||||||
Robert Levin | Retirement Plan | 28 | 574,485 | |||||||
Supplemental Pension Plan 2003 Supplemental Pension Plan Executive Pension Plan | 19 | 3,288,520 |
(1) | Messrs. Williams and Levin each have fewer years of credited service under the Executive Pension Plan than under the Retirement Plan because they worked at Fannie Mae prior to becoming participants in the Executive Pension Plan. |
(2) | With the exception of Mr. Mudd, the present value has been calculated for the Executive Pension Plan assuming the named executives will remain in service until age 60, the normal retirement age under the Executive Pension Plan, and for the Retirement Plan assuming the named executives will remain in service until age 65, the normal retirement age under the Retirement Plan. Due to the termination of Mr. Mudd’s employment, his present value has been calculated for the Executive Pension Plan and the Retirement Plan with his actual benefit commencing at age 55. The values also assume that benefits under the Executive Pension Plan will be paid in the form of a monthly annuity for the life of the named executive and the named executive’s surviving spouse and benefits under the Retirement Plan will be paid in the form of a single life monthly annuity for the life of the named executive. The post-retirement mortality assumption is based on the RP 2000 white collar mortality table projected to 2010. For additional information regarding the calculation of present value and the assumptions underlying these amounts, see “Notes to Consolidated Financial Statements — Note 15, Employee Retirement Benefits.” Consistent with the terms of our pension plans, the present value calculations include as 2008 compensation the portion of retention awards under our 2008 Retention Program that are scheduled to be paid in 2009. | |
(3) | Mr. Mudd’s employment agreement provides that if Mr. Mudd’s benefit payments are in the form of a joint and 100% survivor annuity, the payments will be actuarially reduced to reflect the joint life expectancy of Mr. Mudd and his spouse. | |
(4) | Because their employment terminated prior to vesting, Messrs. Swad and Dallavecchia will not receive any benefits under our pension plans. |
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Executive | Registrant | Aggregate | Aggregate | |||||||||||||||||
Contributions | Contributions in | Earnings in | Aggregate | Balance at | ||||||||||||||||
in Last | Last Fiscal | Last Fiscal | Withdrawals/ | Last Fiscal | ||||||||||||||||
Name of Executive | Fiscal Year ($) | Year ($) | Year ($)(1) | Distributions ($) | Year-End ($)(2) | |||||||||||||||
Herbert Allison | — | — | — | — | — | |||||||||||||||
David Johnson | — | — | — | — | — | |||||||||||||||
Kenneth Bacon Elective Deferred Compensation Plan I | — | — | 13,575 | — | 256,489 | |||||||||||||||
David Hisey | — | — | — | — | — | |||||||||||||||
Thomas Lund Elective Deferred Compensation Plan I | — | — | 142,955 | — | 2,701,102 | |||||||||||||||
Elective Deferred Compensation Plan II | 858,168 | — | 181,185 | — | 3,639,091 | |||||||||||||||
Michael Williams Elective Deferred Compensation Plan I | — | — | — | (534,042 | ) | — | ||||||||||||||
2001 Special Stock Award(3) | — | — | (52,110 | ) | — | 1,043 | ||||||||||||||
Daniel Mudd | — | — | — | — | — | |||||||||||||||
Stephen Swad Elective Deferred Compensation Plan II | 100,000 | — | (26,219 | ) | — | 73,781 | ||||||||||||||
Enrico Dallavecchia | — | — | — | — | — | |||||||||||||||
Robert Levin | ||||||||||||||||||||
Deferred Performance Share Program | — | — | (370,869 | ) | — | 3,289,293 |
(1) | None of the earnings reported in this column are reported as 2008 compensation in the “Summary Compensation Table” because the earnings are neither above-market nor preferential. |
(2) | Of the amounts reported in this column, $932,960 was reported in our Summary Compensation Table as compensation for Mr. Lund for 2005. | |
As permitted under a transition period for changes in the tax laws relating to deferred compensation, our conservator approved a change to our Elective Deferred Compensation Plan I and Elective Deferred Compensation Plan II to permit participants to make a one-time election to receive payment in early 2009 of amounts they deferred under those plans that otherwise may have been paid later. As a result, Messrs. Bacon, Lund and Swad each elected to receive |
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early payment of their balances under these plans. Mr. Bacon and Mr. Lund received distributions in January 2009, and Mr. Swad is scheduled to receive his distribution in March 2009. | ||
(3) | The Board previously approved a special stock award to officers for 2001 performance. On January 15, 2002, Mr. Williams deferred until retirement 1,142 shares he received in connection with this award. Aggregate earnings on these shares reflect dividends and changes in stock price. Mr. Williams’ number of shares has grown through the reinvestment of dividends to 1,373 shares as of December 31, 2008. |
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Restricted Stock | ||||||||
and Restricted | 2005 Performance | |||||||
Name of Executive | Stock Units(1) | Year Cash Award(2) | ||||||
Herbert Allison | — | — | ||||||
David Johnson | — | — | ||||||
Kenneth Bacon | $ | 78,304 | $ | 332,805 | ||||
David Hisey | 41,903 | 208,750 | ||||||
Thomas Lund | 83,415 | 349,470 | ||||||
Michael Williams | 189,261 | 828,135 |
(1) | These values are based on a per share price of $0.76, which was the closing price of our common stock on December 31, 2008. No amounts are shown in the table for stock options because the exercise prices for our options exceeded the closing price of our common stock on December 31, 2008. Only Mr. Hisey holds stock options that were unvested and therefore would have been subject to acceleration on December 31, 2008. Messrs. Allison and Johnson have never been awarded Fannie Mae stock options. |
(2) | The reported amounts represent accelerated payment of cash awards made in early 2006 in connection with long-term incentive stock awards for the 2005 performance year. |
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Fees Earned | ||||||||||||||||||||
or Paid | Stock | Option | All Other | |||||||||||||||||
in Cash | Awards | Awards | Compensation | Total | ||||||||||||||||
Name(2) | ($)(3) | ($)(1)(4) | ($)(5) | ($)(6) | ($)(1) | |||||||||||||||
Current Directors | ||||||||||||||||||||
Dennis R. Beresford | 156,129 | 83,344 | — | 29,619 | 269,092 | |||||||||||||||
William Thomas Forrester | 5,806 | — | — | — | 5,806 | |||||||||||||||
Brenda J. Gaines | 148,521 | 83,344 | — | 7,500 | 239,365 | |||||||||||||||
Charlynn Goins | 6,022 | — | — | — | 6,022 | |||||||||||||||
Frederick B. “Bart” Harvey III | 15,806 | 10,010 | — | — | 25,816 | |||||||||||||||
Philip A. Laskawy | 10,134 | — | — | — | 10,134 | |||||||||||||||
Egbert L. J. Perry | 5,591 | — | — | — | 5,591 | |||||||||||||||
David H. Sidwell | 5,591 | — | — | — | 5,591 | |||||||||||||||
Diana L. Taylor | 5,591 | — | — | — | 5,591 | |||||||||||||||
Former Directors | ||||||||||||||||||||
Stephen B. Ashley | 431,250 | 241 | 7,030 | 153,752 | 592,273 | |||||||||||||||
Louis J. Freeh | 129,861 | 241 | — | 13,202 | 143,304 | |||||||||||||||
Karen N. Horn | 127,917 | 241 | — | 29,636 | 157,794 | |||||||||||||||
Bridget A. Macaskill | 140,264 | 241 | — | 30,099 | 170,604 | |||||||||||||||
Leslie Rahl | 138,667 | 241 | 7,030 | 81,670 | 227,608 | |||||||||||||||
John C. Sites, Jr. | 129,861 | 241 | — | — | 130,102 | |||||||||||||||
Greg C. Smith | 138,667 | 241 | 3,243 | 60,842 | 202,993 | |||||||||||||||
H. Patrick Swygert | 141,222 | 241 | 7,030 | 147,147 | 295,640 | |||||||||||||||
John K. Wulff | 138,667 | 241 | 8,468 | 42,444 | 189,820 |
(1) | Because the amounts shown in the “Stock Awards” column for Mr. Beresford, Ms. Gaines and Mr. Harvey are based on trading price of our common stock on the date of grant, the values shown are significantly higher than the value of |
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these awards to our directors. If, for the awards that remained unvested as of December 31, 2008, we recalculate these amounts using $0.76, the closing price of our common stock on December 31, 2008, instead of the grant date fair value, the “Stock Awards” amounts for these directors would be $2,261 for Mr. Beresford, $2,261 for Ms. Gaines and $1,463 for Mr. Harvey, and the “Total” compensation amounts for these directors would be $188,009 for Mr. Beresford, $158,282 for Ms. Gaines and $17,269 for Mr. Harvey. |
(2) | Bart Harvey joined our Board in August 2008. The following members of our Board of Directors resigned in September 2008: Stephen Ashley, Louis Freeh, Karen Horn, Bridget Macaskill, Daniel Mudd, Leslie Rahl, John Sites, Jr., Greg Smith, Patrick Swygert and John Wulff. Philip Laskawy joined our Board in September 2008. In November 2008, FHFA reconstituted our Board of Directors. William Forrester, Charlynn Goins, Egbert Perry, David Sidwell and Diana Taylor joined our Board in December 2008. | |
(3) | Ms. Rahl and Mr. Swygert elected to defer all of their retainer and fees to later years. On September 30, 2008, Ms. Rahl deferred $24,917 and Mr. Swygert deferred $27,472 in retainers and fees in the form of cash. This amount was initially to be deferred in an account denominated in our stock but, at FHFA’s direction, the deferred payment was denominated in cash. As permitted under a transition period for changes in the tax laws relating to deferred compensation, our conservator approved a change to the deferral program to permit participants to make a one-time election to receive payment in January 2009 of amounts they deferred under the plan that otherwise may have been paid later. As a result, Ms. Rahl and Mr. Swygert received distributions in January 2009 of compensation which was previously deferred under this program, in the following amounts: Ms. Rahl: $24,917 and 5,003 shares, and Mr. Swygert: $27,472 and 5,003 shares. | |
(4) | These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2008 for the fair value of restricted stock units granted during 2008 in accordance with SFAS 123R or, in the case of directors who ceased serving as directors, for the dividend equivalents we paid them on shares they forfeited during 2008 upon cessation of service. The fair value of the restricted stock is calculated as the average of the high and low trading price of our common stock on the date of grant, which was significantly higher than $0.76, the closing price of our common stock on December 31, 2008. | |
As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Under the terms of our stock compensation plan, in May 2008 each of our non-employee directors at the time received an automatic grant of restricted stock units with a SFAS 123R grant date fair value of $134,972 immediately following the annual meeting of shareholders, and in August 2008 Mr. Harvey received an automatic grant of restricted stock units with a SFAS 123R grant date fair value of $20,873 upon joining our Board. Each non-employee director who resigned from our Board in September 2008 forfeited these restricted stock units, which had not yet vested. As of December 31, 2008, Ms. Gaines and Mr. Beresford each held 4,817 shares of restricted deferred stock, having elected to defer receipt of their annual award of restricted stock units until six months after ceasing to be a director. As of December 31, 2008, Mr. Harvey held 4,014 restricted stock units. No other directors held shares of restricted stock, restricted stock units or restricted deferred stock. | ||
(5) | No director has received a stock option award since 2005. These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2008 for the fair value of stock option awards granted during 2005 and in prior years in accordance with SFAS 123R. For the assumptions used in calculating the value of these awards, see “Notes to Consolidated Financial Statements — Note 1, Summary of Significant Accounting Policies — Stock-Based Compensation,” in our Annual Report onForm 10-K for the year ended December 31, 2005. As of December 31, 2008, the persons who served as our non-employee directors during 2008 held options to purchase the following number of shares of common stock, with exercise prices ranging from $54.37 to $79.2175 per share and expiration dates ranging from May 20, 2009 to September 30, 2009: Mr. Ashley, 24,000 shares; Ms. Rahl, 5,333 shares; Mr. Smith, 666 shares; Mr. Swygert, 4,000 shares; and Mr. Wulff, 2,000 shares. None of our other 2008 non-management directors have been awarded Fannie Mae stock options. | |
(6) | “All Other Compensation” consists of the following charitable programs, which are discussed in greater detail following this table: |
(i) | Our estimated incremental cost of providing Board members benefits under our Director’s Charitable Award Program in the following amounts: Stephen Ashley: $148,752; Dennis Beresford: $29,619; Louis Freeh: $13,202; Karen Horn: $29,136; Bridget Macaskill: $27,599; Leslie Rahl: $71,670; Greg Smith: $59,842; Patrick Swygert: $147,147; and John Wulff: $42,444. We estimate our incremental cost of providing this benefit for each director based on (1) the present value of our expected future payment of the benefit that became vested during 2008 and (2) the time value during 2008 of amounts vested for that director in prior years. We estimated the present values of our expected future payment based on the age and gender of our directors, the RP 2000 white collar mortality table projected to 2010 and a discount rate of approximately 3.8%. The costs shown also reflect an adjustment in the present value of vested benefits due to our lower cost of corporate debt during 2008. | |
(ii) | Gifts we made or will make under our matching gifts program, in the following amounts: Brenda Gaines: $7,500; Karen Horn: $500; Bridget Macaskill: $2,500; Leslie Rahl: $10,000; and Greg Smith: $1,000. | |
(iii) | For Mr. Ashley, $5,000 under a matching contribution program in connection with the Fannie Mae Political Action Committee. The Fannie Mae Political Action Committee has ceased accepting or making contributions, and this matching contribution program has been discontinued. |
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No amounts are included for a furnished apartment we leased near our corporate offices in Washington, DC for use by Mr. Ashley, the former non-executive Chairman of our Board, when he was in town on company business. Provided that he reimbursed us, Mr. Ashley was permitted to use the apartment up to twelve nights per year when he was in town but not on company business. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
As of December 31, 2008 | ||||||||||||
Number of | ||||||||||||
Securities | ||||||||||||
Remaining Available | ||||||||||||
Number of | for Future Issuance | |||||||||||
Securities to be | under Equity | |||||||||||
Issued upon | Weighted-Average | Compensation Plans | ||||||||||
Exercise of | Exercise Price of | (Excluding | ||||||||||
Outstanding | Outstanding | Securities | ||||||||||
Options, Warrants | Options, Warrants | Reflected in First | ||||||||||
Plan Category | and Rights (#) | and Rights | Column) (#) | |||||||||
Equity compensation plans approved by stockholders | 12,634,592 | (1) | $ | 72.12 | (2) | 39,144,553 | (3) | |||||
Equity compensation plans not approved by stockholders | N/A | N/A | N/A | |||||||||
Total | 12,634,592 | $ | 72.12 | 39,144,553 | ||||||||
(1) | This amount includes outstanding stock options; restricted stock units; and shares issuable upon the payout of deferred stock balances. Outstanding awards, options and rights include grants under the Fannie Mae Stock Compensation Plan of 1993, the Stock Compensation Plan of 2003 and the payout of shares deferred upon the settlement of awards made under the 1993 plan and a prior plan. | |
(2) | The weighted average exercise price is calculated for the outstanding options and does not take into account restricted stock units or deferred shares. | |
(3) | This number of shares consists of 11,960,258 shares available under the 1985 Employee Stock Purchase Plan and 27,184,295 shares available under the Stock Compensation Plan of 2003 that may be issued as restricted stock, stock bonuses, stock options or in settlement of restricted stock units, performance share program awards, stock appreciation rights or other stock-based awards. No more than 1,433,784 of the shares issuable under the Stock Compensation Plan of 2003 may be issued as restricted stock or restricted stock units vesting in full in fewer than three years, performance shares with a performance period of less than one year or bonus shares subject to similar vesting provisions or performance periods. |
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Amount and Nature of Beneficial Ownership(1) | ||||||||||||
Stock Options | ||||||||||||
Exercisable or | ||||||||||||
Other Shares | ||||||||||||
Common Stock | Obtainable | Total | ||||||||||
Beneficially | Within 60 Days of | Common Stock | ||||||||||
Owned Excluding | February 15, | Beneficially | ||||||||||
Name and Position | Stock Options | 2009(2) | Owned | |||||||||
Herbert M. Allison | 0 | 0 | 0 | |||||||||
President and Chief Executive Officer | ||||||||||||
Kenneth J. Bacon(3) | 105,582 | 103,346 | 208,928 | |||||||||
Executive Vice President, Housing and Community Development | ||||||||||||
Dennis R. Beresford | 4,719 | 0 | 4,719 | |||||||||
Director | ||||||||||||
Enrico Dallavecchia(4) | 24,830 | 0 | 24,830 | |||||||||
Former Executive Vice President and Chief Risk Officer | ||||||||||||
W. Thomas Forrester | 0 | 0 | 0 | |||||||||
Director | ||||||||||||
Brenda J. Gaines | 487 | 0 | 487 | |||||||||
Director | ||||||||||||
Charlynn Goins | 0 | 0 | 0 | |||||||||
Director | ||||||||||||
Frederick Barton Harvey, III(5) | 4,014 | 0 | 4,014 | |||||||||
Director | ||||||||||||
David C. Hisey(6) | 71,991 | 10,000 | 81,991 | |||||||||
Executive Vice President & Deputy Chief Financial Officer | ||||||||||||
David M. Johnson | 0 | 0 | 0 | |||||||||
Executive Vice President & Chief Financial Officer | ||||||||||||
Philip A. Laskawy | 0 | 0 | 0 | |||||||||
Chairman of the Board | ||||||||||||
Robert J. Levin(7) | 601,143 | 365,095 | 966,238 | |||||||||
Former Executive Vice President & Chief Business Officer | ||||||||||||
Thomas A. Lund(8) | 126,464 | 84,558 | 211,022 | |||||||||
Executive Vice President — Single Family Mortgage Business | ||||||||||||
Daniel H. Mudd | 0 | 597,156 | 597,156 | |||||||||
Former President and Chief Executive Officer | ||||||||||||
Egbert L. J. Perry | 0 | 0 | 0 | |||||||||
Director | ||||||||||||
David H. Sidwell | 0 | 0 | 0 | |||||||||
Director | ||||||||||||
Stephen M. Swad(9) | 16,068 | 0 | 16,068 | |||||||||
Former Executive Vice President and Chief Financial Officer | ||||||||||||
Diana L. Taylor | 0 | 0 | 0 | |||||||||
Director | ||||||||||||
Michael J. Williams(10) | 339,404 | 264,838 | 604,242 | |||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||
All directors and current executive officers as a group (19 persons)(11) | 799,163 | 657,573 | 1,456,736 |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC for computing the number of shares of common stock beneficially owned by each person and the percentage owned. Holders of restricted stock have no |
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investment power but have sole voting power over the shares and, accordingly, these shares are included in this table. Holders of shares through our Employee Stock Ownership Plan, or ESOP, have sole voting power over the shares so these shares are also included in this table. Holders of shares through our ESOP generally have no investment power unless they are at least 55 years of age and have at least 10 years of participation in the ESOP. Additionally, although holders of shares through our ESOP have sole voting power through the power to direct the trustee of the plan to vote their shares, to the extent some holders do not provide any direction as to how to vote their shares, the plan trustee may vote those shares in the same proportion as the trustee votes the shares for which the trustee has received direction. Holders of stock options have no investment or voting power over the shares issuable upon the exercise of the options until the options are exercised. Shares issuable upon the vesting of restricted stock units are not considered to be beneficially owned under applicable SEC rules and, accordingly, restricted stock units are not included in the amounts shown. | ||
(2) | These shares are issuable upon the exercise of outstanding stock options, except for 1,373 shares of deferred stock held by Mr. Williams, which he could obtain within 60 days in certain circumstances. | |
(3) | Mr. Bacon’s shares include 48 shares held as custodian for family members, 1,101 shares held through our ESOP and 71,807 shares of restricted stock. | |
(4) | Mr. Dallavecchia resigned as Executive Vice President and Chief Risk Officer in August 2008. Mr. Dallavecchia’s shares include 3,000 shares held by his spouse. | |
(5) | Mr. Harvey’s shares consist of restricted stock. | |
(6) | Mr. Hisey’s shares include 2,000 shares held jointly with his spouse, 610 shares held by his children, 308 shares held through our ESOP and 41,890 shares of restricted stock. | |
(7) | Mr. Levin resigned as Executive Vice President and Chief Business Officer in August 2008, and has served since then as a Senior Advisor to us. Mr. Levin’s shares consist of 378,148 shares held jointly with his spouse and 222,995 shares of restricted stock. | |
(8) | Mr. Lund’s shares include 708 shares held through our ESOP and 76,447 shares of restricted stock. | |
(9) | Mr. Swad’s shares include 3,000 shares held jointly with his spouse. | |
(10) | Mr. Williams’ shares include 164,345 shares held jointly with his spouse, 700 shares held by his daughter, 921 shares held through our ESOP and 173,281 shares of restricted stock. | |
(11) | The amount of shares held by all directors and current executive officers as a group includes 423,641 shares of restricted stock held by our directors and current executive officers, 5,630 held by them through our ESOP, 16,991 shares of stock held by their family members and 750 shares held through our ESOP by an executive officer’s spouse. The beneficially owned total includes 1,373 shares of deferred stock. The shares in this table do not include 84,530 shares of restricted stock units over which the holders will not obtain voting rights or investment power until the restrictions lapse. |
Common Stock | ||||||||
5% Holders | Beneficially Owned | Percent of Class | ||||||
Department of the Treasury | Variable(1 | ) | 79.9 | % | ||||
1500 Pennsylvania Avenue, NW., Room 3000 Washington, DC 20220 | ||||||||
Capital Research Global Investors(2) | 60,424,750 | 5.6 | % | |||||
333 South Hope Street Los Angeles, CA 90071 |
(1) | In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised. The information above assumes Treasury beneficially owns no other shares of our common stock. |
(2) | This information is based solely on information contained in a Schedule 13G/A filed with the SEC on February 13, 2009 by Capital Research Global Investors. According to the Schedule 13G/A, Capital Research Global Investors beneficially owned, as of December 31, 2008, 60,424,750 shares of our common stock, with sole voting power for 21,738,000 shares and sole dispositive power for 60,424,750 shares. Capital Research Global Investors’ shares include 8,756,306 shares issuable upon the conversion of shares of our convertible preferred stock. |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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• | Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors; | |
• | Board of Directors’ delegation of authorities and reservation of powers; | |
• | Code of Conduct for employees; | |
• | Conflict of Interest Policy and Conflict of Interest Procedure for employees; and | |
• | Employment of Relatives Practice. |
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• | A director will not be considered independent if, within the preceding five years: |
• | the director was our employee; or | |
• | an immediate family member of the director was employed by us as an executive officer. |
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• | A director will not be considered independent if: |
• | the director is a current partner or employee of our external auditor, or within the preceding five years, was (but is no longer) a partner or employee of our external auditor and personally worked on our audit within that time; or | |
• | an immediate family member of the director is a current partner of our external auditor, or is a current employee of our external auditor and personally worked on Fannie Mae’s audit, or, within the preceding five years, was (but is no longer) a partner or employee of our external auditor and personally worked on our audit within that time. |
• | A director will not be considered independent if, within the preceding five years: |
• | the director was employed by a company at a time when one of our current executive officers sat on that company’s compensation committee; or | |
• | an immediate family member of the director was employed as an officer by a company at a time when one of our current executive officers sat on that company’s compensation committee. |
• | A director will not be considered independent if, within the preceding five years: |
• | the director received any compensation from us, directly or indirectly, other than fees for service as a director; or | |
• | an immediate family member of the director received any compensation from us, directly or indirectly, other than compensation received for service as our employee (other than an executive officer). |
• | A director will not be considered independent if: |
• | the director is a current executive officer, employee, controlling stockholder or partner of a corporation or other entity that does or did business with us and to which we made, or from which we received, payments within the preceding five years that, in any single fiscal year, were in excess of $1 million or 2% of the entity’s consolidated gross annual revenues, whichever is greater; or | |
• | an immediate family member of the director is a current executive officer of a corporation or other entity that does or did business with us and to which we made, or from which we received, payments within the preceding five years that, in any single fiscal year, were in excess of $1 million or 2% of the entity’s consolidated gross annual revenues, whichever is greater. |
• | A director will not be considered independent if the director or the director’s spouse is an executive officer, employee, director or trustee of a nonprofit organization to which we make or have made contributions within the preceding three years (including contributions made by the Fannie Mae Foundation prior to December 31, 2008) that in any year were in excess of 5% of the organization’s consolidated gross annual revenues, or $120,000, whichever is less (amounts contributed under our Matching Gifts Program are not included in the contributions calculated for purposes of this standard). The Nominating and Corporate Governance Committee also will receive periodic reports regarding any charitable contribution to organizations otherwise associated with a director or any spouse of a director. |
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• | Certain of these Board members also serve as directors of other companies that engage in business with Fannie Mae. The payments made by or to Fannie Mae pursuant to these relationships during the past five years fell below our Guidelines’ thresholds of materiality for a Board member that is a current executive officer, employee, controlling shareholder or partner of a company engaged in business with Fannie Mae. In light of this, and the fact that these Board members are only directors of these other companies, the Board of Directors has concluded that these business relationships are not material to the independence of these Board members. | |
• | Certain of these Board members also serve as trustees or board members for charitable organizations that have received donations from Fannie Mae. The amounts of these charitable donations were determined to fall below our Guidelines’ thresholds of materiality for a Board member who is a current trustee or board member of a charitable organization that receives donations from Fannie Mae. In light of this fact, the Board of Directors has concluded that these relationships with charitable organizations are not material to the independence of these Board members. | |
• | Four of our Board members, Mr. Beresford, Ms. Goins, Mr. Sidwell and Ms. Taylor, serve as directors of other companies that hold Fannie Mae fixed income securities or control entities that direct investments in such securities. It is not possible for Fannie Mae to determine the extent of the holdings of these companies in Fannie Mae fixed income securities as all payments to holders are made through the Federal Reserve, and most of these securities are held in turn by financial intermediaries. The Board of Directors noted that transactions by these other companies in Fannie Mae fixed income securities are entered into in the ordinary course of business of these companies and are not entered into at the direction or with specific approval by the directors of these companies. In light of these facts, including that these Board members are directors at these other companies rather than current executive officers, employees, controlling shareholders or partners, the Board of Directors has concluded that these business relationships are not material to the independence of these Board members. | |
• | Mr. Perry is an executive officer and majority shareholder of The Integral Group LLC, which indirectly does business with Fannie Mae. This business includes the following: |
• | Fannie Mae purchased a 50% participation in a mortgage loan made in 2001 to a limited partnership sponsored by Integral. This mortgage loan was paid off in 2006. | |
• | Fannie Mae has invested as a limited partner in certain LIHTC Partnerships, that in turn have invested directly or indirectly as a limited partner in various lower-tier project partnerships (the “Integral Property Partnerships”). Integral participates indirectly as a member of the general partner of the Integral Property Partnerships (each a “Project General Partner”). The Integral Property Partnerships construct, develop, and manage affordable housing projects. Each Project General Partner and its affiliates earn certain fees each year in connection with those project activities, and such fees are paid from income generated by the project (other than certain developer fees paid from development sources). Fannie Mae’s indirect investments through the LIHTC Partnerships in the Integral Property Partnerships have not resulted in any direct payments by Fannie Mae to any Project General Partner or its affiliates, including Integral. Fannie Mae’s indirect equity investment in the Integral Property Partnerships is approximately $35 million, which represents less than 4% of the total capitalization and less than 12% of the total equity in all of Integral’s property partnerships. |
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• | Our payments of substantially less than $1,000,000, pursuant to our bylaws and indemnification obligations, of legal fees to a law firm with which Ms. Rahl’s husband is a partner, as a result of the law firm’s representation of Ms. Rahl in connection with various lawsuits and regulatory investigations arising from Ms. Rahl’s service on the Board; | |
• | Mr. Sites’ role as a partner of a financial institution that could in the future invest in mortgage businesses or mortgages; | |
• | Contributions totaling less than $100,000 in each of 2005, 2006 and 2007 by usand/or the Fannie Mae Foundation to Howard University, where Mr. Swygert served as President, and to the Smithsonian Institution, with which Mr. Swygert was affiliated; and | |
• | Mr. Wulff’s service as an independent director of Moody’s Corporation, which provides specific research and investor services to us, and for which we make payments of substantially less than 2% of Moody’s and our consolidated gross annual revenues. |
Item 14. | Principal Accountant Fees and Services |
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For the Year Ended | ||||||||
December 31, | ||||||||
Description of Fees | 2008 | 2007 | ||||||
Audit fees | $ | 39,000,000 | $ | 47,000,000 | ||||
Audit-related fees(1) | 2,800,000 | 2,300,000 | ||||||
Tax fees | — | — | ||||||
All other fees | — | — | ||||||
Total fees | $ | 41,800,000 | $ | 49,300,000 | ||||
(1) | For 2008 and 2007, consists of: (i) fees billed for attest-related services on securitization transactions and (ii) reimbursement of costs associated with responding to subpoenas relating to Fannie Mae’s securities litigation. |
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Item 15. | Exhibits and Financial Statement Schedules |
(a) | Documents filed as part of this report |
1. | Consolidated Financial Statements |
Report of Independent Registered Public Accounting Firm | F-2 | |||
Consolidated Balance Sheets as of December 31, 2008 and 2007 | F-3 | |||
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 | F-4 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 | F-5 | |||
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2008, 2007 and 2006 | F-6 | |||
Notes to Consolidated Financial Statements | F-8 | |||
Note 1— Organization and Conservatorship | F-8 | |||
Note 2— Summary of Significant Accounting Policies | F-11 | |||
Note 3— Consolidations | F-40 | |||
Note 4— Mortgage Loans | F-45 | |||
Note 5— Allowance for Loan Losses and Reserve for Guaranty Losses | F-50 | |||
Note 6— Investments in Securities | F-52 | |||
Note 7— Portfolio Securitizations | F-56 | |||
Note 8— Financial Guarantees and Master Servicing | F-62 | |||
Note 9— Acquired Property, Net | F-68 | |||
Note 10— Short-term Borrowings and Long-term Debt | F-68 | |||
Note 11— Derivative Instruments and Hedging Activities | F-72 | |||
Note 12— Income Taxes | F-75 | |||
Note 13— Earnings (Loss) Per Share | F-78 | |||
Note 14— Stock-Based Compensation Plans | F-79 | |||
Note 15— Employee Retirement Benefits | F-83 | |||
Note 16— Segment Reporting | F-92 | |||
Note 17— Stockholders’ Equity (Deficit) | F-95 | |||
Note 18— Regulatory Capital Requirements | F-102 | |||
Note 19— Concentrations of Credit Risk | F-105 | |||
Note 20— Fair Value of Financial Instruments | F-110 | |||
Note 21— Commitments and Contingencies | F-120 | |||
Note 22— Selected Quarterly Financial Information (Unaudited) | F-132 | |||
Note 23— Subsequent Events | F-135 |
2. | Financial Statement Schedules |
3. | Exhibits |
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Signature | Title | Date | ||||
/s/ Philip A. Laskawy Philip A. Laskawy | Chairman of the Board of Directors | February 25, 2009 | ||||
/s/ Herbert M. Allison, Jr. Herbert M. Allison, Jr. | President and Chief Executive Officer and Director | February 26, 2009 | ||||
/s/ David M. Johnson David M. Johnson | Executive Vice President and Chief Financial Officer | February 26, 2009 | ||||
/s/ David C. Hisey David C. Hisey | Executive Vice President and Deputy Chief Financial Officer | February 26, 2009 | ||||
/s/ Dennis R. Beresford Dennis R. Beresford | Director | February 26, 2009 | ||||
/s/ William Thomas Forrester William Thomas Forrester | Director | February 26, 2009 | ||||
/s/ Brenda J. Gaines Brenda J. Gaines | Director | February 26, 2009 | ||||
/s/ Charlynn Goins Charlynn Goins | Director | February 26, 2009 |
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Signature | Title | Date | ||||
/s/ Frederick B. Harvey III Frederick B. Harvey III | Director | February 26, 2009 | ||||
/s/ Egbert L. J. Perry Egbert L. J. Perry | Director | February 26, 2009 | ||||
/s/ David H. Sidwell David H. Sidwell | Director | February 26, 2009 | ||||
/s/ Diana L. Taylor Diana L. Taylor | Director | February 26, 2009 |
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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 on Form 10-Q, filed August 8, 2008.) | ||
3 | .2 | Fannie Mae Bylaws, as amended through January 30, 2009 | ||
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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 8-K, filed October 2, 2008.) |
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Item | Description | |||
10 | .1 | Employment Agreement dated November 15, 2005, between Fannie Mae and Daniel H. Mudd† (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report on Form 8-K, filed November 15, 2005.) | ||
10 | .2 | Letter Agreement between Fannie Mae and Daniel Mudd, dated March 13, 2007† (Incorporated by reference to Exhibit 99.5 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2005, filed May 2, 2007.) | ||
10 | .3 | Description of amendment to the employment agreement of Daniel H. Mudd† (Incorporated by reference to “Compensation Discussion and Analysis — What compensation arrangements do we have with Mr. Mudd, our former Chief Executive Officer” in Item 11 of Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2008.) | ||
10 | .4 | Letter Agreement between Fannie Mae and Robert J. Levin, dated June 19, 1990† (Incorporated by reference to Exhibit 10.5 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .5 | Description of compensation arrangements for Stephen M. Swad† (Incorporated by reference to “Employment Agreements and Other Arrangements with our Covered Executives—Compensation Arrangements for Stephen Swad, Executive Vice President and Chief Financial Officer Designate” in Item 11 of Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2005, filed May 2, 2007.) | ||
10 | .6 | Fannie Mae’s Elective Deferred Compensation Plan, as amended effective November 15, 2004† (Incorporated by reference to Exhibit 10.21 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .7 | Amendment to Fannie Mae Elective Deferred Compensation Plan I, effective October 27, 2008† | ||
10 | .8 | Fannie Mae Elective Deferred Compensation Plan II† (Incorporated by reference to Exhibit 10.7 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .9 | Amendment to Fannie Mae Elective Deferred Compensation Plan II, effective April 29, 2008† (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.) | ||
10 | .10 | Amendment to Fannie Mae Elective Deferred Compensation Plan II, effective October 27, 2008† | ||
10 | .11 | Fannie Mae Executive Life Insurance Program, as amended April 9, 2008† (Incorporated by reference Exhibit 10.3 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.) | ||
10 | .12 | Description of retention plan and 2009 annual compensation plan† (Incorporated by reference to “Compensation Discussion and Analysis—Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program” in Item 11 of Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2008.) | ||
10 | .13 | Description of Fannie Mae’s compensatory arrangements with its non-employee directors for the year ended December 31, 2008† (Incorporated by reference to information under the heading “Director Compensation” in Item 11 of Fannie Mae’s Annual Report on Form 10-K, for the year ended December 31, 2008.) | ||
10 | .14 | Pre-September 2008 Fannie Mae Form of Indemnification Agreement for directors and officers of Fannie Mae (Incorporated by reference to Exhibit 10.7 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .15 | Post-August 2008 Fannie Mae Form of Indemnification Agreement for directors and officers of Fannie Mae | ||
10 | .16 | Federal National Mortgage Association Supplemental Pension Plan, as amended November 20, 2007† (Incorporated by reference to Exhibit 10.10 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .17 | Amendment to Fannie Mae Supplemental Pension Plan for Internal Revenue Code Section 409A, effective January 1, 2009† (Incorporated by reference to Exhibit 10.11 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .18 | Amendment to Fannie Mae Supplemental Pension Plan, executed December 22, 2008† |
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Item | Description | |||
10 | .19 | Fannie Mae Supplemental Pension Plan of 2003, as amended November 20, 2007† (Incorporated by reference to Exhibit 10.12 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .20 | Amendment to Fannie Mae Supplemental Pension Plan of 2003 for Internal Revenue Code Section 409A, effective January 1, 2009† (Incorporated by reference to Exhibit 10.13 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .21 | Amendment to Fannie Mae Supplemental Pension Plan of 2003 for Internal Revenue Code Section 409A, adopted December 22, 2008† | ||
10 | .22 | Executive Pension Plan of the Federal National Mortgage Association as amended and restated† (Incorporated by reference to Exhibit 10.10 to Fannie Mae’s registration statement on form 10, filed March 31, 2003) | ||
10 | .23 | Amendment to the Executive Pension Plan of the Federal National Mortgage Association, as amended and restated, effective March 1, 2007† (Incorporated by reference to Exhibit 10.20 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2005, filed May 2, 2007.) | ||
10 | .24 | Amendment to Fannie Mae Executive Pension Plan, effective November 20, 2007† (Incorporated by reference to Exhibit 10.16 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .25 | Amendment to the Executive Pension Plan of the Federal National Mortgage Association, effective January 1, 2008† | ||
10 | .26 | Fannie Mae Annual Incentive Plan, as amended December 10, 2007† (Incorporated by reference to Exhibit 10.17 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .27 | Fannie Mae Stock Compensation Plan of 2003, as amended through December 14, 2007† (Incorporated by reference to Exhibit 10.18 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .28 | Amendment to Fannie Mae Stock Compensation Plan of 2003, as amended, for Internal Revenue Code Section 409A, adopted December 22, 2008† | ||
10 | .29 | Fannie Mae Stock Compensation Plan of 1993† (Incorporated by reference to Exhibit 10.18 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2004, filed December 6, 2006.) | ||
10 | .30 | Fannie Mae Procedures for Deferral and Diversification of Awards, as amended effective December 10, 2007† | ||
10 | .31 | Fannie Mae Supplemental Retirement Savings Plan, as amended through April 29, 2008† (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.) | ||
10 | .32 | Amendment to Fannie Mae Supplemental Retirement Savings Plan, effective October 8, 2008† | ||
10 | .33 | Director’s Charitable Award Program† (Incorporated by reference to Exhibit 10.17 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .34 | Form of Nonqualified Stock Option Grant Award Document† (Incorporated by reference to Exhibit 10.3 to Fannie Mae’s Current Report on Form 8-K, filed December 9, 2004.) | ||
10 | .35 | Form of Restricted Stock Award Document† (Incorporated by reference to Exhibit 99.1 to Fannie Mae’s Current Report on Form 8-K, filed January 26, 2007.) | ||
10 | .36 | Form of Restricted Stock Units Award Document adopted January 23, 2008† (Incorporated by reference to Exhibit 10.27 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) | ||
10 | .37 | Form of Restricted Stock Units Award Document† (Incorporated by reference to Exhibit 99.2 to Fannie Mae’s Current Report on Form 8-K, filed January 26, 2007.) | ||
10 | .38 | Form of Restricted Stock Units Award Document adopted January 23, 2008† (Incorporated by reference to Exhibit 10.27 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2007, filed February 27, 2008.) |
E-3
Table of Contents
Item | Description | |||
10 | .39 | Form of Nonqualified Stock Option Grant Award Document for Non-Management Directors† (Incorporated by reference to Exhibit 10.7 to Fannie Mae’s Current Report on Form 8-K, filed December 9, 2004.) | ||
10 | .40 | Lending Agreement, dated September 19, 2008, between the U.S. Treasury and Fannie Mae† (Incorporated by reference to Exhibit 10.4 to Fannie Mae’s Quarterly Report on Form 10-Q, filed November 10, 2008.) | ||
10 | .41 | Senior Preferred Stock Purchase Agreement dated as of September 7, 2008, as amended and restated on September 26, 2008, between the United States Department of the Treasury and Federal National Mortgage Association (Incorporated by reference Exhibit 4.20 to Fannie Mae’s Quarterly Report on Form 10-Q for the quarter ended September 30, 3008.) | ||
10 | .42 | Letters, dated September 1, 2005, setting forth an agreement between Fannie Mae and OFHEO (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report on Form 8-K, filed September 8, 2005.) | ||
10 | .43 | Consent of Defendant Fannie Mae with Securities and Exchange Commission (SEC), dated May 23, 2006 (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Current Report on Form 8-K, filed May 30, 2006.) | ||
10 | .44 | Agreement between Enrico Dallavecchia and Fannie Mae, dated February 13, 2009† | ||
10 | .45 | Agreement between Stephen M. Swad and Fannie Mae, dated February 19, 2009† | ||
12 | .1 | Statement re: computation of ratios to earnings to fixed charges | ||
12 | .2 | Statement re: computation of ratios of earnings to combined fixed charges and preferred stock dividends | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a) | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 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. |
E-4
Table of Contents
Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-8 | ||||
Note 1— Organization and Conservatorship | F-8 | |||
F-11 | ||||
F-40 | ||||
F-45 | ||||
F-50 | ||||
Note 6— Investments in Securities | F-52 | |||
F-56 | ||||
F-62 | ||||
F-68 | ||||
F-68 | ||||
F-72 | ||||
F-75 | ||||
F-78 | ||||
F-79 | ||||
F-83 | ||||
F-92 | ||||
F-95 | ||||
F-102 | ||||
F-105 | ||||
F-110 | ||||
F-120 | ||||
F-132 | ||||
Note 23— Subsequent Events | F-135 |
F-1
Table of Contents
F-2
Table of Contents
(Dollars in millions, except share amounts)
As of December 31, | ||||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 17,933 | $ | 3,941 | ||||
Restricted cash | 529 | 561 | ||||||
Federal funds sold and securities purchased under agreements to resell | 57,418 | 49,041 | ||||||
Investments in securities: | ||||||||
Trading, at fair value (includes Fannie Mae MBS of $58,006 and $40,458 as of December 31, 2008 and 2007, respectively) | 90,806 | 63,956 | ||||||
Available-for-sale, at fair value (includes Fannie Mae MBS of $176,244 and $138,943 as of December 31, 2008 and 2007, respectively) | 266,488 | 293,557 | ||||||
Total investments in securities | 357,294 | 357,513 | ||||||
Mortgage loans: | ||||||||
Loans held for sale, at lower of cost or fair value | 13,270 | 7,008 | ||||||
Loans held for investment, at amortized cost | 415,065 | 397,214 | ||||||
Allowance for loan losses | (2,923 | ) | (698 | ) | ||||
Total loans held for investment, net of allowance | 412,142 | 396,516 | ||||||
Total mortgage loans | 425,412 | 403,524 | ||||||
Advances to lenders | 5,766 | 12,377 | ||||||
Accrued interest receivable | 3,816 | 3,812 | ||||||
Acquired property, net | 6,918 | 3,602 | ||||||
Derivative assets at fair value | 869 | 885 | ||||||
Guaranty assets | 7,043 | 9,666 | ||||||
Deferred tax assets, net | 3,926 | 12,967 | ||||||
Partnership investments | 9,314 | 11,000 | ||||||
Other assets | 16,166 | 10,500 | ||||||
Total assets | $ | 912,404 | $ | 879,389 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Liabilities: | ||||||||
Accrued interest payable | $ | 5,947 | $ | 7,512 | ||||
Federal funds purchased and securities sold under agreements to repurchase | 77 | 869 | ||||||
Short-term debt (includes debt at fair value of $4,500 as of December 31, 2008) | 330,991 | 234,160 | ||||||
Long-term debt (includes debt at fair value of $21,565 as of December 31, 2008) | 539,402 | 562,139 | ||||||
Derivative liabilities at fair value | 2,715 | 2,217 | ||||||
Reserve for guaranty losses (includes $1,946 and $211 as of December 31, 2008 and 2007, respectively, related to Fannie Mae MBS included in Investments in securities) | 21,830 | 2,693 | ||||||
Guaranty obligations (includes $755 and $661 as of December 31, 2008 and 2007, respectively, related to Fannie Mae MBS included in Investments in securities) | 12,147 | 15,393 | ||||||
Partnership liabilities | 3,243 | 3,824 | ||||||
Other liabilities | 11,209 | 6,464 | ||||||
Total liabilities | 927,561 | 835,271 | ||||||
Minority interests in consolidated subsidiaries | 157 | 107 | ||||||
Commitments and contingencies (Note 21) | — | — | ||||||
Stockholders’ Equity (Deficit): | ||||||||
Senior preferred stock, 1,000,000 shares issued and outstanding as of December 31, 2008 | 1,000 | — | ||||||
Preferred stock, 700,000,000 shares are authorized—597,071,401 and 466,375,000 shares issued and outstanding as of December 31, 2008 and 2007, respectively | 21,222 | 16,913 | ||||||
Common stock, no par value, no maximum authorization—1,238,880,988 and 1,129,090,420 shares issued as of December 31, 2008 and 2007, respectively; 1,085,424,213 shares and 974,104,578 shares outstanding as of December 31, 2008 and 2007, respectively | 650 | 593 | ||||||
Additional paid-in capital | 3,621 | 1,831 | ||||||
Retained earnings (accumulated deficit) | (26,790 | ) | 33,548 | |||||
Accumulated other comprehensive loss | (7,673 | ) | (1,362 | ) | ||||
Treasury stock, at cost, 153,456,775 shares and 154,985,842 shares as of December 31, 2008 and 2007, respectively | (7,344 | ) | (7,512 | ) | ||||
Total stockholders’ equity (deficit) | (15,314 | ) | 44,011 | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 912,404 | $ | 879,389 | ||||
F-3
Table of Contents
(Dollars and shares in millions, except per share amounts)
For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Interest income: | ||||||||||||
Trading securities | $ | 5,878 | $ | 2,051 | $ | 688 | ||||||
Available-for-sale securities | 13,214 | 19,442 | 21,359 | |||||||||
Mortgage loans | 22,692 | 22,218 | 20,804 | |||||||||
Other | 1,339 | 1,055 | 776 | |||||||||
Total interest income | 43,123 | 44,766 | 43,627 | |||||||||
Interest expense: | ||||||||||||
Short-term debt | 7,815 | 8,999 | 7,736 | |||||||||
Long-term debt | 26,526 | 31,186 | 29,139 | |||||||||
Total interest expense | 34,341 | 40,185 | 36,875 | |||||||||
Net interest income | 8,782 | 4,581 | 6,752 | |||||||||
Guaranty fee income (includes imputed interest of $1,423, $1,278 and $1,081 for 2008, 2007 and 2006, respectively) | 7,621 | 5,071 | 4,250 | |||||||||
Losses on certain guaranty contracts | — | (1,424 | ) | (439 | ) | |||||||
Trust management income | 261 | 588 | 111 | |||||||||
Investment losses, net | (7,220 | ) | (867 | ) | (691 | ) | ||||||
Fair value losses, net | (20,129 | ) | (4,668 | ) | (1,744 | ) | ||||||
Debt extinguishment gains (losses), net | (222 | ) | (47 | ) | 201 | |||||||
Losses from partnership investments | (1,554 | ) | (1,005 | ) | (865 | ) | ||||||
Fee and other income | 772 | 965 | 908 | |||||||||
Non-interest income (loss) | (20,471 | ) | (1,387 | ) | 1,731 | |||||||
Administrative expenses: | ||||||||||||
Salaries and employee benefits | 1,032 | 1,370 | 1,219 | |||||||||
Professional services | 529 | 851 | 1,393 | |||||||||
Occupancy expenses | 227 | 263 | 263 | |||||||||
Other administrative expenses | 191 | 185 | 201 | |||||||||
Total administrative expenses | 1,979 | 2,669 | 3,076 | |||||||||
Minority interest in earnings (losses) of consolidated subsidiaries | (21 | ) | (21 | ) | 10 | |||||||
Provision for credit losses | 27,951 | 4,564 | 589 | |||||||||
Foreclosed property expense | 1,858 | 448 | 194 | |||||||||
Other expenses | 1,093 | 660 | 401 | |||||||||
Total expenses | 32,860 | 8,320 | 4,270 | |||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | (44,549 | ) | (5,126 | ) | 4,213 | |||||||
Provision (benefit) for federal income taxes | 13,749 | (3,091 | ) | 166 | ||||||||
Income (loss) before extraordinary gains (losses) | (58,298 | ) | (2,035 | ) | 4,047 | |||||||
Extraordinary gains (losses), net of tax effect | (409 | ) | (15 | ) | 12 | |||||||
Net income (loss) | (58,707 | ) | (2,050 | ) | 4,059 | |||||||
Preferred stock dividends and issuance costs at redemption | (1,069 | ) | (513 | ) | (511 | ) | ||||||
Net income (loss) available to common stockholders | $ | (59,776 | ) | $ | (2,563 | ) | $ | 3,548 | ||||
Basic earnings (loss) per share: | ||||||||||||
Earnings (loss) before extraordinary gains (losses) | $ | (23.88 | ) | $ | (2.62 | ) | $ | 3.64 | ||||
Extraordinary gains (losses), net of tax effect | (0.16 | ) | (0.01 | ) | 0.01 | |||||||
Basic earnings (loss) per share | $ | (24.04 | ) | $ | (2.63 | ) | $ | 3.65 | ||||
Diluted earnings (loss) per share: | ||||||||||||
Earnings (loss) before extraordinary gains (losses) | $ | (23.88 | ) | $ | (2.62 | ) | $ | 3.64 | ||||
Extraordinary gains (losses), net of tax effect | (0.16 | ) | (0.01 | ) | 0.01 | |||||||
Diluted earnings (loss) per share | $ | (24.04 | ) | $ | (2.63 | ) | $ | 3.65 | ||||
Cash dividends per common share | $ | 0.75 | $ | 1.90 | $ | 1.18 | ||||||
Weighted-average common shares outstanding: | ||||||||||||
Basic | 2,487 | 973 | 971 | |||||||||
Diluted | 2,487 | 973 | 972 |
F-4
Table of Contents
(Dollars in millions)
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Cash flows provided by operating activities: | ||||||||||||
Net income (loss) | $ | (58,707 | ) | $ | (2,050 | ) | $ | 4,059 | ||||
Reconciliation of net income (loss) to net cash provided by operating activities: | ||||||||||||
Amortization of investment cost basis adjustments | (400 | ) | (391 | ) | (324 | ) | ||||||
Amortization of debt cost basis adjustments | 8,589 | 9,775 | 8,587 | |||||||||
Provision for credit losses | 27,951 | 4,564 | 589 | |||||||||
Valuation losses | 13,964 | 612 | 707 | |||||||||
Debt extinguishment (gains) losses, net | 222 | 47 | (201 | ) | ||||||||
Debt foreign currency transaction (gains) losses, net | (230 | ) | 190 | 230 | ||||||||
Losses on certain guaranty contracts | — | 1,424 | 439 | |||||||||
Losses from partnership investments | 1,554 | 1,005 | 865 | |||||||||
Current and deferred federal income taxes | 12,904 | (3,465 | ) | (609 | ) | |||||||
Extraordinary (gains) losses, net of tax effect | 409 | 15 | (12 | ) | ||||||||
Derivatives fair value adjustments | (1,239 | ) | 4,289 | 561 | ||||||||
Purchases of loans held for sale | (56,768 | ) | (34,047 | ) | (28,356 | ) | ||||||
Proceeds from repayments of loans held for sale | 617 | 594 | 606 | |||||||||
Net decrease in trading securities, excluding non-cash transfers | 72,689 | 62,699 | 47,343 | |||||||||
Net change in: | ||||||||||||
Guaranty assets | 2,089 | (5 | ) | (278 | ) | |||||||
Guaranty obligations | (5,312 | ) | (630 | ) | (857 | ) | ||||||
Other, net | (2,479 | ) | (1,677 | ) | (1,680 | ) | ||||||
Net cash provided by operating activities | 15,853 | 42,949 | 31,669 | |||||||||
Cash flows used in investing activities: | ||||||||||||
Purchases of trading securities held for investment | (7,635 | ) | — | — | ||||||||
Proceeds from maturities of trading securities held for investment | 9,530 | — | — | |||||||||
Proceeds from sales of trading securities held for investment | 2,823 | — | — | |||||||||
Purchases of available-for-sale securities | (147,337 | ) | (126,200 | ) | (218,620 | ) | ||||||
Proceeds from maturities of available-for-sale securities | 33,369 | 123,462 | 163,863 | |||||||||
Proceeds from sales of available-for-sale securities | 146,630 | 76,055 | 84,348 | |||||||||
Purchases of loans held for investment | (63,097 | ) | (76,549 | ) | (62,770 | ) | ||||||
Proceeds from repayments of loans held for investment | 49,328 | 56,617 | 70,548 | |||||||||
Advances to lenders | (81,483 | ) | (79,186 | ) | (47,957 | ) | ||||||
Proceeds from disposition of acquired property | 10,905 | 5,714 | 4,423 | |||||||||
Reimbursements to servicers for loan advances | (15,282 | ) | (4,585 | ) | (1,781 | ) | ||||||
Contributions to partnership investments | (1,507 | ) | (3,059 | ) | (2,341 | ) | ||||||
Proceeds from partnership investments | 1,042 | 1,043 | 295 | |||||||||
Net change in federal funds sold and securities purchased under agreements to resell | (9,793 | ) | (38,926 | ) | (3,781 | ) | ||||||
Net cash used in investing activities | (72,507 | ) | (65,614 | ) | (13,773 | ) | ||||||
Cash flows provided by (used in) financing activities: | ||||||||||||
Proceeds from issuance of short-term debt | 1,913,685 | 1,743,852 | 2,196,078 | |||||||||
Payments to redeem short-term debt | (1,824,511 | ) | (1,687,570 | ) | (2,221,719 | ) | ||||||
Proceeds from issuance of long-term debt | 243,557 | 193,238 | 179,371 | |||||||||
Payments to redeem long-term debt | (267,225 | ) | (232,978 | ) | (169,578 | ) | ||||||
Repurchase of common and preferred stock | — | (1,105 | ) | (3 | ) | |||||||
Proceeds from issuance of common and preferred stock | 7,211 | 8,846 | 22 | |||||||||
Payment of cash dividends on common and preferred stock | (1,805 | ) | (2,483 | ) | (1,650 | ) | ||||||
Net change in federal funds purchased and securities sold under agreements to repurchase | (266 | ) | 1,561 | (5 | ) | |||||||
Excess tax benefits from stock-based compensation | — | 6 | 7 | |||||||||
Net cash provided by (used in) financing activities | 70,646 | 23,367 | (17,477 | ) | ||||||||
Net increase in cash and cash equivalents | 13,992 | 702 | 419 | |||||||||
Cash and cash equivalents at beginning of period | 3,941 | 3,239 | 2,820 | |||||||||
Cash and cash equivalents at end of period | $ | 17,933 | $ | 3,941 | $ | 3,239 | ||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 35,959 | $ | 40,645 | $ | 34,488 | ||||||
Income taxes | 845 | 1,888 | 768 | |||||||||
Non-cash activities: | ||||||||||||
Securitization-related transfers from mortgage loans held for sale to investments in securities | $ | 40,079 | $ | 27,707 | $ | 25,924 | ||||||
Net transfers of loans held for sale to loans held for investment | 13,523 | 4,271 | 1,961 | |||||||||
Net deconsolidation transfers from mortgage loans held for sale to investments in securities | (1,429 | ) | (260 | ) | 79 | |||||||
Net transfers from available-for-sale securities to mortgage loans held for sale | 2,904 | 514 | 63 | |||||||||
Transfers from advances to lenders to investments in securities (including transfers to trading securities of $40,660, $70,156 and $44,969 for the years ended December 31, 2008, 2007 and 2006, respectively) | 83,534 | 71,801 | 45,216 | |||||||||
Net consolidation-related transfers from investments in securities to mortgage loans held for investment | (7,983 | ) | (7,365 | ) | 12,747 | |||||||
Net mortgage loans acquired by assuming debt | 167 | 2,756 | 9,810 | |||||||||
Transfers from mortgage loans to acquired property, net | 4,272 | 3,025 | 2,962 | |||||||||
Transfers to trading securities from the effect of adopting SFAS 159 | 56,217 | — | — | |||||||||
Issuance of senior preferred stock and warrant to purchase common stock to U.S. Treasury | 4,518 | — | — |
F-5
Table of Contents
(In conservatorship)
(Dollars and shares in millions, except per share amounts)
Retained | Accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||
Shares Outstanding | Additional | Earnings | Other | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Senior | Senior | Preferred | Common | Paid-In | (Accumulated | Comprehensive | Treasury | Equity | ||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Common | Preferred | Stock | Stock | Capital | Deficit) | Loss(1) | Stock | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance as of January 1, 2006 | — | 132 | 971 | $ | — | $ | 9,108 | $ | 593 | $ | 1,913 | $ | 35,555 | $ | (131 | ) | $ | (7,736 | ) | $ | 39,302 | |||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 4,059 | — | — | 4,059 | |||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on available-for-sale securities (net of tax of $73) | — | — | — | — | — | — | — | — | (135 | ) | — | (135 | ) | |||||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income (net of tax of $77) | — | — | — | — | — | — | — | — | (143 | ) | — | (143 | ) | |||||||||||||||||||||||||||||||
Unrealized gains on guaranty assets and guaranty feebuy-ups (net of tax of $23) | — | — | — | — | — | — | — | — | 43 | — | 43 | |||||||||||||||||||||||||||||||||
Net cash flow hedging losses (net of tax of $2) | — | — | — | — | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||||||||||||||
Minimum pension liability (net of tax of $2) | — | — | — | — | — | — | — | — | 4 | — | 4 | |||||||||||||||||||||||||||||||||
Total comprehensive income | 3,825 | |||||||||||||||||||||||||||||||||||||||||||
Adjustment to apply SFAS 158 (net of tax of $55) | — | — | — | — | — | — | — | — | (80 | ) | — | (80 | ) | |||||||||||||||||||||||||||||||
Common stock dividends ($1.18 per share) | — | — | — | — | — | — | — | (1,148 | ) | — | — | (1,148 | ) | |||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | — | (511 | ) | — | — | (511 | ) | |||||||||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | — | 1 | — | — | — | 29 | — | — | 89 | 118 | |||||||||||||||||||||||||||||||||
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 | — | — | — | — | — | — | — | (2,050 | ) | — | — | (2,050 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on available-for-sale securities (net of tax of $293) | — | — | — | — | — | — | — | — | (544 | ) | — | (544 | ) | |||||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income (net of tax of $282) | — | — | — | — | — | — | — | — | (523 | ) | — | (523 | ) | |||||||||||||||||||||||||||||||
Unrealized gains on guaranty assets and guaranty feebuy-ups (net of tax of $13) | — | — | — | — | — | — | — | — | 25 | — | 25 | |||||||||||||||||||||||||||||||||
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 $73) | — | — | — | — | — | — | — | — | 128 | — | 128 | |||||||||||||||||||||||||||||||||
Total comprehensive income | (2,967 | ) | ||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($1.90 per share) | — | — | — | — | — | — | — | (1,858 | ) | — | — | (1,858 | ) | |||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | — | (503 | ) | — | — | (503 | ) | |||||||||||||||||||||||||||||||
Preferred stock issued | — | 356 | — | — | 8,905 | — | (94 | ) | — | — | — | 8,811 | ||||||||||||||||||||||||||||||||
Preferred stock redeemed | — | (22 | ) | — | — | (1,100 | ) | — | — | — | — | — | (1,100 | ) | ||||||||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | — | 2 | — | — | — | (17 | ) | — | — | 135 | 118 | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2007 | — | 466 | 974 | — | 16,913 | 593 | 1,831 | 33,548 | (1,362 | ) | (7,512 | ) | 44,011 |
F-6
Table of Contents
Retained | Accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||
Shares Outstanding | Additional | Earnings | Other | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Senior | Senior | Preferred | Common | Paid-In | (Accumulated | Comprehensive | Treasury | Equity | ||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Common | Preferred | Stock | Stock | Capital | Deficit) | Loss(1) | Stock | (Deficit) | ||||||||||||||||||||||||||||||||||
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 | — | — | — | — | — | — | — | (58,707 | ) | — | — | (58,707 | ) | |||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax effect: | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on available-for-sale securities (net of tax of $2,954) | — | — | — | — | — | — | — | — | (5,487 | ) | — | (5,487 | ) | |||||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net loss (net of tax of $36) | — | — | — | — | — | — | — | — | (67 | ) | — | (67 | ) | |||||||||||||||||||||||||||||||
Unrealized losses on guaranty assets and guaranty feebuy-ups | — | — | — | — | — | — | — | — | (342 | ) | — | (342 | ) | |||||||||||||||||||||||||||||||
Net cash flow hedging losses | — | — | — | — | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||
Prior service cost and actuarial losses, net of amortization for defined benefit plans | — | — | — | — | — | — | — | — | (323 | ) | — | (323 | ) | |||||||||||||||||||||||||||||||
Total comprehensive loss | (64,925 | ) | ||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($0.75 per share) | — | — | — | — | — | — | — | (741 | ) | — | (741 | ) | ||||||||||||||||||||||||||||||||
Senior preferred stock dividends declared | — | — | — | — | — | — | (31 | ) | — | — | — | (31 | ) | |||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Conversion of convertible preferred stock into common stock | — | (10 | ) | 16 | — | (503 | ) | 8 | 495 | — | — | — | — | |||||||||||||||||||||||||||||||
Common stock issued | — | — | 94 | — | — | 49 | 2,477 | — | — | — | 2,526 | |||||||||||||||||||||||||||||||||
Common stock warrant issued | — | — | — | — | — | — | 3,518 | — | — | — | 3,518 | |||||||||||||||||||||||||||||||||
U.S. Treasury commitment(2) | — | — | — | — | — | — | (4,518 | ) | — | — | — | (4,518 | ) | |||||||||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | — | 1 | — | — | — | (24 | ) | — | — | 168 | 144 | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2008 | 1 | 597 | 1,085 | $ | 1,000 | $ | 21,222 | $ | 650 | $ | 3,621 | $ | (26,790 | ) | $ | (7,673 | ) | $ | (7,344 | ) | $ | (15,314 | ) | |||||||||||||||||||||
(1) | Accumulated other comprehensive loss is comprised of $7.3 billion, $1.6 billion and $577 million in net unrealized losses on available-for-sale securities, net of tax, and $(382) million, $282 million and $132 million in net unrealized gains (losses) on all other components, net of tax for 2007 and 2006, as of December 31, 2008, 2007 and 2006, respectively. | |
(2) | Amount represents the aggregate fair value of both the senior preferred stock and common stock warrant issued to the U.S. Treasury. |
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1. | Organization and Conservatorship |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2. | Summary of Significant Accounting Policies |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Investments in securities: | ||||||||
Unamortized premiums (discounts) and other cost basis adjustments, net(1) | $ | 290 | $ | (1,081 | ) | |||
Other-than-temporary impairments(2) | (6,457 | ) | (838 | ) | ||||
Mortgage loansheld-for-investment: | ||||||||
Unamortized premiums (discounts) and other cost basis adjustments of loans in portfolio, excludingSOP 03-3 loans and hedged mortgage assets(3) | (1,341 | ) | 736 | |||||
Unamortized discount onSOP 03-3 loans(4) | (1,320 | ) | (991 | ) | ||||
Unamortized premium on hedged mortgage assets | 921 | — | ||||||
Other assets(5) | (333 | ) | — | |||||
Total | $ | (8,240 | ) | $ | (2,174 | ) | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) | Includes the impact ofother-than-temporary impairment of cost basis adjustments. | |
(2) | Accretable portion of impairments recorded as a result of previousother-than-temporary impairments. | |
(3) | Includes the unamorized balance of the fair value discounts that were recorded upon acquisition of SOP 03-3 loans that have been subsequently modified as TDRs, which accretes into interest income for TDRs that are placed on accrual status. | |
(4) | Represents the unamortized balance for outstanding SOP 03-3 loans of the fair value discounts that were recorded upon acquisition and consolidation that may accrete into interest income for SOP 03-3 loans that are placed on accrual status. | |
(5) | Represents the fair value discount related to unsecured HomeSaver Advance loans that will accrete into interest income based on the contractual terms of the loans for loans on accrual status. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Derivatives fair value losses, net | $ | (15,416 | ) | $ | (4,113 | ) | $ | (1,522 | ) | |||
Trading securities gains (losses), net | (7,040 | ) | (365 | ) | 8 | |||||||
Hedged mortgage assets gains, net | 2,154 | — | — | |||||||||
Debt foreign exchange gains (losses), net | 230 | (190 | ) | (230 | ) | |||||||
Debt fair value losses, net | (57 | ) | — | — | ||||||||
Fair value losses, net | $ | (20,129 | ) | $ | (4,668 | ) | $ | (1,744 | ) | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-39
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3. | Consolidations |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-41
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Assets: | ||||||||
MBS trusts: | ||||||||
Loans held for investment | $ | 59,126 | $ | 78,309 | ||||
Available-for-sale securities(1) | 2,208 | 1,801 | ||||||
Loans held for sale | 1,429 | 703 | ||||||
Trading securities | 993 | 82 | ||||||
Total MBS trusts(2) | 63,756 | 80,895 | ||||||
Limited partnerships: | ||||||||
Partnership investments(3) | 5,697 | 6,170 | ||||||
Cash, cash equivalents and restricted cash | 146 | 164 | ||||||
Total limited partnership investments | 5,843 | 6,334 | ||||||
Total assets of consolidated VIEs | $ | 69,599 | $ | 87,229 | ||||
Liabilities: | ||||||||
Long-term debt | $ | 5,094 | $ | 5,340 | ||||
Partnership liabilities | 2,585 | 2,667 | ||||||
Total liabilities of consolidated VIEs | $ | 7,679 | $ | 8,007 | ||||
(1) | Includes assets of consolidated mortgage revenue bonds of $54 million and $62 million as of December 31, 2008 and 2007, respectively. | |
(2) | The assets of consolidated MBS trusts are restricted solely for the purpose of servicing the related MBS. | |
(3) | Includes LIHTC partnerships of $3.0 billion and $3.7 billion as of December 31, 2008 and 2007, respectively. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Assets of Non-consolidated VIEs and QSPEs(1): | ||||||||
Mortgage-backed trusts(2) | $ | 3,017,030 | $ | 2,857,634 | ||||
Asset-backed trusts | 563,633 | 593,875 | ||||||
Limited partnership investments | 12,884 | 11,319 | ||||||
Other(3) | 5,701 | 5,148 | ||||||
Total assets of non-consolidated VIEs and QSPEs | $ | 3,599,248 | $ | 3,467,976 | ||||
(1) | Amounts do not include QSPEs for which we are the transferor. Refer to “Note 7, Portfolio securitizations” for information regarding securitizations for which we are the transferor. | |
(2) | Includes $604.4 billion and $658.4 billion of assets of non-QSPE securitization trusts as of December 31, 2008 and 2007, respectively. | |
(3) | Includes mortgage revenue bonds of $5.7 billion and $5.1 billion and the unpaid principal balance of credit enhanced bonds of $19 million and $31 million as of December 31, 2008 and 2007, respectively. |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Assets: | ||||||||
Available-for-sale securities | $ | 180,694 | $ | 180,455 | ||||
Trading securities | 63,265 | 40,468 | ||||||
Guaranty assets | 6,431 | 8,707 | ||||||
Partnership investments | 3,405 | 4,419 | ||||||
Other assets(1) | 1,326 | 2,002 | ||||||
Total carrying amount of assets related to our interests in non-consolidated VIEs and QSPEs | $ | 255,121 | $ | 236,051 | ||||
Liabilities: | ||||||||
Reserve for guaranty losses | $ | 21,614 | $ | 2,667 | ||||
Guaranty obligations | 10,823 | 13,854 | ||||||
Partnership liabilities | 617 | 1,167 | ||||||
Other liabilities(2) | 8 | 5 | ||||||
Total carrying amount of liabilities related to our interests in non-consolidated VIEs and QSPEs | $ | 33,062 | $ | 17,693 | ||||
(1) | Other assets consist of master servicing assets and buy-ups. | |
(2) | Other liabilities consist of mastering servicing liabilities. |
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(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Maximum | ||||||||
Exposure | Recognized | |||||||
to Loss(1) | Liabilities(2) | |||||||
(Dollars in millions) | ||||||||
As of December 31, 2008 | $ | 2,530,358 | $ | 32,444 | ||||
As of December 31, 2007 | 2,349,774 | 16,526 |
(1) | Represents the greater of our recorded investment in the entity or the unpaid principal balance of the assets that are covered by our guaranty. Includes $95.9 billion and $123.0 billion related to non-QSPE securitization trusts as of December 31, 2008 and 2007, respectively. | |
(2) | Amounts consist of guaranty obligations and reserve for guaranty losses recognized for the respective periods. |
4. | Mortgage Loans |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Single-family:(1) | ||||||||
Government insured or guaranteed | $ | 43,799 | $ | 28,202 | ||||
Conventional: | ||||||||
Long-term fixed-rate(2) | 186,550 | 193,607 | ||||||
Intermediate-term fixed-rate(3) | 37,546 | 46,744 | ||||||
Adjustable-rate | 44,157 | 43,278 | ||||||
Total conventional single-family | 268,253 | 283,629 | ||||||
Total single-family | 312,052 | 311,831 | ||||||
Multifamily:(1) | ||||||||
Government insured or guaranteed | 699 | 815 | ||||||
Conventional: | ||||||||
Long-term fixed-rate | 5,636 | 5,615 | ||||||
Intermediate-term fixed-rate(3) | 90,837 | 73,609 | ||||||
Adjustable-rate | 20,269 | 11,707 | ||||||
Total conventional multifamily | 116,742 | 90,931 | ||||||
Total multifamily | 117,441 | 91,746 | ||||||
Unamortized premiums (discounts) and other cost basis adjustments, net(4) | (894 | ) | 726 | |||||
Lower of cost or fair value adjustments on loans held for sale | (264 | ) | (81 | ) | ||||
Allowance for loan losses for loans held for investment | (2,923 | ) | (698 | ) | ||||
Total mortgage loans | $ | 425,412 | $ | 403,524 | ||||
(1) | Includes unpaid principal totaling $65.8 billion and $81.8 billion as of December 31, 2008 and 2007, respectively, related to mortgage-related securities that have been 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. | |
(2) | Includes construction to permanent loans with an unpaid principal balance of $125 million and $149 million as of December 31, 2008 and 2007, respectively. | |
(3) | Intermediate-term fixed-rate consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years. | |
(4) | Includes a net premium of $921 million as of December 31, 2008 for hedged mortgage loans that will be amortized through interest income over the life of the loans. |
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Table of Contents
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Outstanding contractual balance | $ | 7,206 | $ | 8,223 | ||||
Carrying amount: | ||||||||
Loans on accrual status | 2,902 | 4,287 | ||||||
Loans on nonaccrual status | 2,708 | 2,779 | ||||||
Total carrying amount of loans | $ | 5,610 | $ | 7,066 | ||||
For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Contractually required principal and interest payments at acquisition(1) | $ | 5,034 | $ | 7,098 | $ | 5,312 | ||||||
Nonaccretable difference | 783 | 571 | 235 | |||||||||
Cash flows expected to be collected at acquisition(1) | 4,251 | 6,527 | 5,077 | |||||||||
Accretable yield | 1,805 | 1,772 | 887 | |||||||||
Initial investment in acquired loans at acquisition | $ | 2,446 | $ | 4,755 | $ | 4,190 | ||||||
(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. |
F-47
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(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Beginning balance, as of January 1 | $ | 2,252 | $ | 1,511 | $ | 1,112 | ||||||
Additions | 1,805 | 1,772 | 887 | |||||||||
Accretion | (279 | ) | (273 | ) | (235 | ) | ||||||
Reductions(1) | (2,294 | ) | (1,206 | ) | (770 | ) | ||||||
Change in estimated cash flows(2) | 420 | 797 | 626 | |||||||||
Reclassifications to nonaccretable difference(3) | (345 | ) | (349 | ) | (109 | ) | ||||||
Ending balance, as of December 31 | $ | 1,559 | $ | 2,252 | $ | 1,511 | ||||||
(1) | Reductions are the result of liquidations and loan modifications due to TDRs. | |
(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 Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Accretion ofSOP 03-3 fair value losses(1) | $ | 158 | $ | 80 | $ | 43 | ||||||
Interest income onSOP 03-3 loans returned to accrual status or subsequently modified as TDRs | 476 | 416 | 318 | |||||||||
Total interest income recognized | $ | 634 | $ | 496 | $ | 361 | ||||||
Increase in “Provision for credit losses” subsequent to the acquisition ofSOP 03-3 loans | $ | 185 | $ | 76 | $ | 58 |
(1) | Represents accretion of the fair value discount that was recorded upon acquisition ofSOP 03-3 loans. |
F-48
Table of Contents
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Nonaccrual loans(1) | $ | 17,634 | $ | 8,343 | ||||
Accrued interest recorded on nonaccrual loans(2) | 436 | 234 | ||||||
Accruing loans past due 90 days or more | 317 | 204 | ||||||
Nonaccrual loans in portfolio (number of loans) | 141,329 | 70,810 |
(1) | Includes all nonaccrual loans inclusive of TDRs and on-balance sheet HomeSaver Advance first-lien loans on nonaccrual status. Forgone interest on nonaccrual loans, which represents the amount of income contractually due that we would have reported had the loans performed according to their contractual terms, was $359 million, $200 million and $141 million for the years ended December 31, 2008, 2007 and 2006, respectively. | |
(2) | Reflects accrued interest on nonaccrual loans that was recorded prior to their placement on nonaccrual status. |
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Impaired loans without an allowance as of December 31(1) | $ | 1,074 | $ | 1,791 | ||||
Average recorded investment in nonaccrual loans | 1,378 | 1,396 |
(1) | The amount of interest income recognized on these impaired loans during the year was $5 million, $8 million and $5 million for the years ended December 31, 2008, 2007 and 2006, respectively. We do not recognize interest income when these loans are placed on nonaccrual status. |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Impaired loans with an allowance(1) | $ | 5,044 | $ | 2,746 | ||||
Impaired loans without an allowance(2) | 1,649 | 436 | ||||||
Total other impaired loans(3) | $ | 6,693 | $ | 3,182 | ||||
Allowance for other impaired loans(4) | $ | 878 | $ | 106 |
F-49
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) | Includes $1.1 billion and $989 million of mortgage loans accounted for in accordance withSOP 03-3 for which a loss allowance was recorded subsequent to acquisition as of December 31, 2008 and 2007, respectively. | |
(2) | The discounted cash flows, collateral value or fair value equals or exceeds the carrying value of the loan, and as such, no allowance is required. | |
(3) | Includes single-family loans individually impaired and restructured in a TDR of $5.2 billion and $2.1 billion as of December 31, 2008 and 2007, respectively. Includes multifamily loans that were both individually impaired and restructured in a TDR of $134 million as of December 31, 2007. There were no multifamily loans individually impaired and restructured in a TDR as of December 31, 2008. Includes a carrying value of $164 million for delinquent loans held in MBS trusts consolidated on our balance sheet related to our HomeSaver Advance initiative as of December 31, 2008. | |
(4) | Amount is included in the “Allowance for loan losses.” |
For The Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Interest income recognized | $ | 251 | $ | 92 | $ | 75 | ||||||
Average recorded investment | 4,782 | 2,635 | 2,111 |
5. | Allowance for Loan Losses and Reserve for Guaranty Losses |
F-50
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For The Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Allowance for loan losses: | ||||||||||||
Beginning balance, January 1 | $ | 698 | $ | 340 | $ | 302 | ||||||
Provision(5) | 4,022 | 658 | 174 | |||||||||
Charge-offs(1) | (1,987 | ) | (407 | ) | (206 | ) | ||||||
Recoveries | 190 | 107 | 70 | |||||||||
Ending balance, December 31(2) | $ | 2,923 | $ | 698 | $ | 340 | ||||||
Reserve for guaranty losses: | ||||||||||||
Beginning balance, January 1 | $ | 2,693 | $ | 519 | $ | 422 | ||||||
Provision | 23,929 | 3,906 | 415 | |||||||||
Charge-offs(3)(4) | (4,986 | ) | (1,782 | ) | (336 | ) | ||||||
Recoveries | 194 | 50 | 18 | |||||||||
Ending balance, December 31 | $ | 21,830 | $ | 2,693 | $ | 519 | ||||||
(1) | Includes accrued interest of $642 million, $128 million and $39 million for the years ended December 31, 2008, 2007 and 2006, respectively. | |
(2) | Includes $150 million, $39 million and $28 million as of December 31, 2008, 2007 and 2006, respectively, associated with acquired loans subject toSOP 03-3. | |
(3) | Includes charges recorded at the date of acquisition of $2.1 billion, $1.4 billion and $204 million as of December 31, 2008, 2007 and 2006, respectively, for acquired loans subject toSOP 03-3 where the acquisition cost exceeded the fair value of the acquired loan. | |
(4) | Includes charges of $333 million for year ended December 31, 2008 related to unsecured HomeSaver Advance loans. | |
(5) | Includes an increase in the “Allowance for loan losses” for first-lien loans associated with unsecured HomeSaver Advance loans that are held in MBS trusts consolidated on our balance sheets. |
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6. | Investments in Securities |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Mortgage-related securities: | ||||||||
Fannie Mae single-class MBS | $ | 164,241 | $ | 102,017 | ||||
Fannie Mae structured MBS | 70,009 | 77,384 | ||||||
Non-Fannie Mae structured | 62,810 | 92,467 | ||||||
Non-Fannie Mae single-class | 27,497 | 28,138 | ||||||
Mortgage revenue bonds | 13,183 | 16,213 | ||||||
Other | 1,914 | 3,179 | ||||||
Total | 339,654 | 319,398 | ||||||
Non-mortgage-related securities: | ||||||||
Asset-backed securities | 10,598 | 15,511 | ||||||
Corporate debt securities | 6,037 | 13,515 | ||||||
Other | 1,005 | 9,089 | ||||||
Total | 17,640 | 38,115 | ||||||
Total investments in securities | $ | 357,294 | $ | 357,513 | ||||
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As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Mortgage-related securities: | ||||||||
Fannie Mae single-class MBS | $ | 48,134 | $ | 28,394 | ||||
Fannie Mae structured MBS | 9,872 | 12,064 | ||||||
Non-Fannie Mae structured | 13,404 | 21,517 | ||||||
Non-Fannie Mae single-class | 1,061 | 1,199 | ||||||
Mortgage revenue bonds | 695 | 782 | ||||||
Total | $ | 73,166 | $ | 63,956 | ||||
Non-mortgage-related securities:(1) | ||||||||
Asset-backed securities | $ | 10,598 | $ | — | ||||
Corporate debt securities | 6,037 | — | ||||||
Other | 1,005 | — | ||||||
Total | $ | 17,640 | $ | — | ||||
Total trading securities | $ | 90,806 | $ | 63,956 | ||||
Losses in trading securities held in our portfolio, net | $ | 7,195 | $ | 633 | ||||
(1) | Reflects the election of all of our non-mortgage-related securities as trading effective January 1, 2008 with the adoption of SFAS 159. |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Net trading gains (losses): | ||||||||||||
Mortgage-related securities | $ | (4,297 | ) | $ | (365 | ) | $ | 8 | ||||
Non-mortgage-related securities(1) | (2,743 | ) | — | — | ||||||||
Total | $ | (7,040 | ) | $ | (365 | ) | $ | 8 | ||||
Net trading losses recorded in the year related to securities still held at year end: | ||||||||||||
Mortgage-related securities | $ | (4,464 | ) | $ | (536 | ) | $ | (24 | ) | |||
Non-mortgage-related securities | (2,418 | ) | — | — | ||||||||
Total | $ | (6,882 | ) | $ | (536 | ) | $ | (24 | ) | |||
(1) | Includes losses of $608 million related to one issuer that declared bankruptcy during 2008. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Gross realized gains | $ | 4,022 | $ | 1,929 | $ | 316 | ||||||
Gross realized losses | 3,635 | 1,226 | 210 | |||||||||
Total proceeds | 130,991 | 71,960 | 51,966 |
As of December 31, 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 | $ | 112,943 | $ | 3,231 | $ | (67 | ) | $ | 116,107 | $ | (64 | ) | $ | 4,842 | $ | (3 | ) | $ | 330 | |||||||||||||
Fannie Mae structured MBS | 59,002 | 1,333 | (198 | ) | 60,137 | (105 | ) | 2,471 | (93 | ) | 2,514 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 63,008 | 195 | (13,797 | ) | 49,406 | (3,792 | ) | 11,388 | (10,005 | ) | 22,836 | |||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 25,798 | 665 | (27 | ) | 26,436 | (23 | ) | 1,775 | (4 | ) | 643 | |||||||||||||||||||||
Mortgage revenue bonds | 14,636 | 29 | (2,177 | ) | 12,488 | (854 | ) | 6,230 | (1,323 | ) | 4,890 | |||||||||||||||||||||
Other mortgage-related securities | 2,319 | 29 | (434 | ) | 1,914 | (388 | ) | 1,313 | (46 | ) | 77 | |||||||||||||||||||||
Total | $ | 277,706 | $ | 5,482 | $ | (16,700 | ) | $ | 266,488 | $ | (5,226 | ) | $ | 28,019 | $ | (11,474 | ) | $ | 31,290 | |||||||||||||
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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 structured mortgage-related securities | 73,984 | 317 | (3,351 | ) | 70,950 | (1,389 | ) | 22,925 | (1,962 | ) | 30,145 | |||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 26,699 | 334 | (94 | ) | 26,939 | (12 | ) | 2,439 | (82 | ) | 7,328 | |||||||||||||||||||||
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 asother-than-temporary impairments. |
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||
After One Year | After Five Years | |||||||||||||||||||||||||||||||||||||||
Total | Total | One Year or Less | Through Five Years | Through Ten Years | After Ten Years | |||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||
Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS(2) | $ | 112,943 | $ | 116,107 | $ | 3 | $ | 3 | $ | 705 | $ | 723 | $ | 19,783 | $ | 20,356 | $ | 92,452 | $ | 95,025 | ||||||||||||||||||||
Fannie Mae structured MBS(2) | 59,002 | 60,137 | — | — | 4 | 4 | 6,456 | 6,578 | 52,542 | 53,555 | ||||||||||||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities(2) | 63,008 | 49,406 | 202 | 134 | 395 | 332 | 16,591 | 12,243 | 45,820 | 36,697 | ||||||||||||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities(2) | 25,798 | 26,436 | — | — | 121 | 123 | 945 | 976 | 24,732 | 25,337 | ||||||||||||||||||||||||||||||
Mortgage revenue bonds | 14,636 | 12.488 | 20 | 20 | 314 | 312 | 825 | 809 | 13,477 | 11,347 | ||||||||||||||||||||||||||||||
Other mortgage-related securities | 2,319 | 1,914 | — | — | — | — | — | 26 | 2,319 | 1,888 | ||||||||||||||||||||||||||||||
Total | $ | 277,706 | $ | 266,488 | $ | 225 | $ | 157 | $ | 1,539 | $ | 1,494 | $ | 44,600 | $ | 40,988 | $ | 231,342 | $ | 223,849 | ||||||||||||||||||||
(1) | Amortized cost includes unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary impairments. | |
(2) | Mortgage-backed securities are reported based on contractual maturities assuming no prepayments. |
7. | Portfolio Securitizations |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Fannie Mae MBS | $ | 45,705 | $ | 44,018 | ||||
Guaranty asset | 438 | 624 | ||||||
MSA | 10 | 102 | ||||||
Guaranty obligation | (769 | ) | (778 | ) | ||||
MSL | (27 | ) | (5 | ) |
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Fannie Mae | ||||||||
Single-class | ||||||||
MBS & Fannie | REMICS & | |||||||
Mae Megas | SMBS | |||||||
(Dollars in millions) | ||||||||
As of December 31, 2008 | ||||||||
Unpaid principal balance | $ | 17,872 | $ | 27,117 | ||||
Fair value | 18,360 | 27,345 | ||||||
Impact on value from a 10% adverse change | (1,836 | ) | (2,735 | ) | ||||
Impact on value from a 20% adverse change | (3,672 | ) | (5,469 | ) | ||||
Weighted-average coupon | 5.92 | % | 7.03 | % | ||||
Weighted-average loan age | 2.9 years | 4.2 years | ||||||
Weighted-average maturity | 24.5 years | 27.0 years | ||||||
As of December 31, 2007 | ||||||||
Unpaid principal balance | $ | 10,376 | $ | 33,789 | ||||
Fair value | 10,553 | 33,465 | ||||||
Impact on value from a 10% adverse change | (1,055 | ) | (3,347 | ) | ||||
Impact on value from a 20% adverse change | (2,111 | ) | (6,693 | ) | ||||
Weighted-average coupon | 5.93 | % | 7.21 | % | ||||
Weighted-average loan age | 2.5 years | 3.2 years | ||||||
Weighted-average maturity | 24.2 years | 28.2 years |
Guaranty | ||||
Assets(4) | ||||
For the year ended December 31, 2008 | ||||
Weighted-average life(1) | 7.5 years | |||
Average12-month CPR(2) | 11.48 | % | ||
Average discount rate assumption(3) | 6.66 | % | ||
For the year ended December 31, 2007 | ||||
Weighted-average life(1) | 6.9 years | |||
Average12-month CPR(2) | 10.55 | % | ||
Average discount rate assumption(3) | 8.86 | % |
(1) | The average number of years for which each dollar of unpaid principal on a loan or mortgage-related security remains outstanding. | |
(2) | Represents the expected 12-month average payment rate, which is based on the constant annualized prepayment rate for mortgage loans. | |
(3) | The interest rate used in determining the present value of future cash flows. | |
(4) | The weighted-average life and average12-month CPR assumptions for our guaranty asset approximate the assumptions used for our guaranty obligation at time of securitization. |
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Guaranty | Guaranty | |||||||
Assets | Obligations | |||||||
(Dollars in millions) | ||||||||
As of December 31, 2008 | ||||||||
Valuation at period end: | ||||||||
Fair value | $ | 440 | $ | 2,703 | ||||
Anticipated credit losses(1) | N/A | 2,246 | ||||||
Weighted-average life(2) | 2.2 years | 2.2 years | ||||||
Prepayment speed assumptions: | ||||||||
Average12-month CPR prepayment speed assumption(3) | 59.3 | % | N/A | |||||
Impact on value from a 10% adverse change | $ | (38 | ) | N/A | ||||
Impact on value from a 20% adverse change | (71 | ) | N/A | |||||
Discount rate assumptions: | ||||||||
Average discount rate assumption(4) | 5.69 | % | N/A | |||||
Impact on value from a 10% adverse change | $ | (10 | ) | N/A | ||||
Impact on value from a 20% adverse change | (19 | ) | N/A | |||||
Home price assumptions: | ||||||||
24 month average home price assumption | N/A | (5.0 | )% | |||||
Impact on credit losses due to a 2.5% decline in home prices | N/A | $ | 454 | |||||
Impact on credit losses due to a 5% decline in home prices | N/A | 723 | ||||||
Loan-to-value assumptions: | ||||||||
Average estimated currentLoan-to-value ratio | N/A | 72.3 | % | |||||
Impact on credit losses due to a 2.5% increase in loan-to value | N/A | $ | 585 | |||||
Impact on credit losses due to a 5% increase inloan-to-value | N/A | 905 | ||||||
As of December 31, 2007 | ||||||||
Valuation at period end: | ||||||||
Fair value | $ | 624 | N/A | |||||
Weighted-average life(2) | 6.3 years | N/A | ||||||
Prepayment speed assumptions: | ||||||||
Average12-month CPR prepayment speed assumption(3) | 16.1 | % | N/A | |||||
Impact on value from a 10% adverse change | $ | (34 | ) | N/A | ||||
Impact on value from a 20% adverse change | (61 | ) | N/A | |||||
Discount rate assumptions: | ||||||||
Average discount rate assumption(4) | 4.39 | % | N/A | |||||
Impact on value from a 10% adverse change | $ | (20 | ) | N/A | ||||
Impact on value from a 20% adverse change | (39 | ) | N/A |
(1) | The present value of anticipated credit losses are calculated as the average across a distribution of possible outcomes and may not be indicative of actual future losses such that actual results may vary materially. | |
(2) | The average number of years for which each dollar of unpaid principal on a loan or mortgage-related security remains outstanding. |
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(3) | Represents the 12-month average payment rate, which is based on the constant annualized prepayment rate for mortgage loans. | |
(4) | The interest rate used in determining the present value of future cash flows, derived from the forward curve based on interest rate swaps, excluding option adjusted spreads. |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Proceeds from new securitizations | $ | 30,084 | $ | 31,271 | $ | 32,078 | ||||||
Guaranty fees | 151 | 112 | 85 | |||||||||
Principal and interest received on retained interests | 7,898 | 6,859 | 6,186 | |||||||||
Purchases of previously transferred financial assets | (152 | ) | (292 | ) | (55 | ) |
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Unpaid Principal | Principal Amount of | |||||||
Balance | Delinquent Loans(1) | |||||||
(Dollars in millions) | ||||||||
As of December 31, 2008 | ||||||||
Loans held for investment | $ | 415,485 | $ | 19,363 | ||||
Loans held for sale | 14,008 | 79 | ||||||
Securitized loans | 114,163 | 2,560 | ||||||
Total loans managed | $ | 543,656 | $ | 22,002 | ||||
As of December 31, 2007 | ||||||||
Loans held for investment | $ | 396,478 | $ | 8,949 | ||||
Loans held for sale | 7,099 | 10 | ||||||
Securitized loans | 87,861 | 332 | ||||||
Total loans managed | $ | 491,438 | $ | 9,291 | ||||
(1) | Represents the unpaid principal balance of loans held for investment and loans held for sale for which interest is no longer being accrued. We discontinue accruing interest when payment of principal and interest in full is not reasonably assured. |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Assets:(1) | ||||||||
Available-for-sale securities | $ | 9,660 | $ | 10,584 | ||||
Loans held for sale | 2,383 | 2,395 | ||||||
Trading securities | 593 | 639 | ||||||
Loans held for investment | 83 | 103 | ||||||
Total | $ | 12,719 | $ | 13,721 | ||||
Liabilities: | ||||||||
Long-term debt | $ | 1,168 | $ | 1,247 | ||||
Total | $ | 1,168 | $ | 1,247 | ||||
(1) | These assets have been transferred to MBS trusts and are restricted solely for the purpose of servicing the related MBS. |
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8. | Financial Guarantees and Master Servicing |
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As of December 31, 2008(7) | ||||||||||||
30 days | 60 days | Seriously | ||||||||||
Delinquent | Delinquent | Delinquent(1) | ||||||||||
Percentage of total single-family conventional book of business(2) | 2.53 | % | 1.10 | % | 2.96 | % | ||||||
Percentage of total single-family conventional loans(3) | 2.52 | 1.00 | 2.42 |
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Percentage of | ||||||||
Single-family | Percentage | |||||||
Conventional Book | Seriously | |||||||
of Business(2) | Delinquent(1)(4) | |||||||
Estimatedmark-to-marketloan-to-value ratio: | ||||||||
Greater than 100% | 12 | % | 10.98 | % | ||||
95% to 100% | 4 | 5.47 | ||||||
Below 95% | 84 | 1.53 | ||||||
Geographical Distribution: | ||||||||
Arizona | 3 | 3.41 | ||||||
California | 16 | 2.30 | ||||||
Florida | 7 | 6.14 | ||||||
Nevada | 1 | 4.74 | ||||||
All other states | 73 | 2.01 | ||||||
Product Distribution:(5) | ||||||||
Alt-A | 11 | 7.03 | ||||||
Subprime | — | 14.29 | ||||||
Originalloan-to-value ratio > 90%(6) | 10 | 6.33 | ||||||
FICO score <620(6) | 5 | 9.03 | ||||||
Combined originalloan-to-value ratio >90% and FICO score <620(6) | 1 | 15.97 | ||||||
Interest only | 8 | 8.42 | ||||||
Investor property | 6 | 2.95 | ||||||
Vintages: | ||||||||
2005 | 13 | 2.99 | ||||||
2006 | 14 | 5.11 | ||||||
2007 | 20 | 4.70 | ||||||
All other vintages | 53 | 1.23 |
(1) | Includes single-family loans that are three months or more past due or in foreclosure. | |
(2) | Percentage based on unpaid principal balance. | |
(3) | Percentage based on loan amount. | |
(4) | Represents percentage of each respective category based on loan count of seriously delinquent loans divided by total loan count of respective category. | |
(5) | Categories are not mutually exclusive and as such, amounts are not additive. | |
(6) | Includes housing goals oriented products such as my community mortgage and expanded approval. | |
(7) | Includes the portion of our conventional single-family mortgage credit book for which we have more detailed loan level information, which constitutes approximately 96% of our total conventional single-family mortgage credit book of business as of December 31, 2008. |
As of December 31, 2008(3) | ||||||||
30 days | Seriously | |||||||
Delinquent(2) | Delinquent(1)(2) | |||||||
Percentage of total multifamily mortgage credit book of business | 0.12 | % | 0.30 | % |
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Percentage of | ||||||||
Multifamily | Percentage | |||||||
Mortgage Credit | Seriously | |||||||
Book of Business | Delinquent(1)(2) | |||||||
Originatingloan-to-value ratio: | ||||||||
Less than or equal to 80% | 95 | % | 0.27 | % | ||||
Greater than 80% | 5 | 0.92 | ||||||
Operating debt service coverage ratio: | ||||||||
Less than or equal to 1.10% | 11 | — | ||||||
Greater than 1.10% | 89 | 0.33 | ||||||
Origination loan size distribution: | ||||||||
Less than or equal to $750,000 | 3 | 0.55 | ||||||
Greater than $750,000 and less than or equal to $3 million | 13 | 0.52 | ||||||
Greater than $3 million and less than or equal to $5 million | 10 | 0.39 | ||||||
Greater than $5 million and less than or equal to $25 million | 41 | 0.43 | ||||||
Greater than $25 million | 33 | — | ||||||
Maturity dates: | ||||||||
Maturing in 2009 | 6 | 0.10 | ||||||
Maturing in 2010 | 3 | 0.32 | ||||||
Maturing in 2011 | 5 | 0.37 | ||||||
Maturing in 2012 | 10 | 0.16 | ||||||
Other attributes: | ||||||||
ARM | 16 | 0.35 | ||||||
Fixed | 84 | 0.29 |
(1) | Includes multifamily loans that are two months or more past due. | |
(2) | Percentage based on unpaid principal balance. | |
(3) | Includes portion of our multifamily mortgage credit book for which we have more detailed loan level information, which constitutes approximately 82% of our total multifamily mortgage credit book of business as of December 31, 2008. |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Beginning balance, January 1 | $ | 15,393 | $ | 11,145 | $ | 10,016 | ||||||
Additions to guaranty obligations(1) | 7,279 | 8,460 | 4,707 | |||||||||
Amortization of guaranty obligation into guaranty fee income | (9,585 | ) | (3,560 | ) | (3,217 | ) | ||||||
Impact of consolidation activity(2) | (940 | ) | (652 | ) | (361 | ) | ||||||
Ending balance, December 31 | $ | 12,147 | $ | 15,393 | $ | 11,145 | ||||||
(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 obligations to the respective trusts. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Beginning balance, January 1 | $ | 9,666 | $ | 7,692 | $ | 6,848 | ||||||
Fair value of expected cash flows at issuance for new guaranteed Fannie Mae MBS issuances | 3,938 | 4,658 | 3,186 | |||||||||
Net change in fair value of guaranty assets from portfolio securitizations | (136 | ) | 29 | 45 | ||||||||
Impact of amortization on guaranty contracts | (2,767 | ) | (1,898 | ) | (1,476 | ) | ||||||
Other-than-temporary impairments | (3,270 | ) | (425 | ) | (629 | ) | ||||||
Impact of consolidation of MBS trusts(1) | (388 | ) | (390 | ) | (282 | ) | ||||||
Ending balance, December 31 | $ | 7,043 | $ | 9,666 | $ | 7,692 | ||||||
(1) | When we consolidate Fannie Mae MBS trusts, we derecognize the guaranty asset and guaranty obligation associated with the respective trust. |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Cost basis: | ||||||||||||
Beginning balance | $ | 1,171 | $ | 1,017 | $ | 812 | ||||||
Additions | 302 | 459 | 371 | |||||||||
Amortization | (190 | ) | (267 | ) | (127 | ) | ||||||
Other-than-temporary impairments | (491 | ) | (4 | ) | (12 | ) | ||||||
Reductions for MBS trusts paid-off and impact of consolidation activity | (28 | ) | (34 | ) | (27 | ) | ||||||
Ending balance | 764 | 1,171 | 1,017 | |||||||||
Valuation allowance: | ||||||||||||
Beginning balance | 10 | 9 | 9 | |||||||||
LOCOM adjustments | 816 | 171 | 155 | |||||||||
LOCOM recoveries | (753 | ) | (170 | ) | (155 | ) | ||||||
Ending balance | 73 | 10 | 9 | |||||||||
Carrying value | $ | 691 | $ | 1,161 | $ | 1,008 | ||||||
Fair value, beginning of period | $ | 1,808 | $ | 1,690 | $ | 1,452 | ||||||
Fair value, end of period | $ | 855 | $ | 1,808 | $ | 1,690 | ||||||
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9. | Acquired Property, Net |
Acquired | Valuation | Acquired | ||||||||||
Property | Allowance(1) | Property, Net | ||||||||||
(Dollars in millions) | ||||||||||||
Balance, January 1, 2006 | $ | 1,851 | $ | (80 | ) | $ | 1,771 | |||||
Additions | 3,255 | (159 | ) | 3,096 | ||||||||
Disposals | (2,849 | ) | 140 | (2,709 | ) | |||||||
Write-downs, net of recoveries | — | (17 | ) | (17 | ) | |||||||
Balance, December 31, 2006 | 2,257 | (116 | ) | 2,141 | ||||||||
Additions | 5,131 | (18 | ) | 5,113 | ||||||||
Disposals | (3,535 | ) | 291 | (3,244 | ) | |||||||
Write-downs, net of recoveries | — | (408 | ) | (408 | ) | |||||||
Balance, December 31, 2007 | 3,853 | (251 | ) | 3,602 | ||||||||
Additions | 10,853 | (75 | ) | 10,778 | ||||||||
Disposals | (6,666 | ) | 664 | (6,002 | ) | |||||||
Write-downs, net of recoveries | — | (1,460 | ) | (1,460 | ) | |||||||
Balance, December 31, 2008 | $ | 8,040 | $ | (1,122 | ) | $ | 6,918 | |||||
(1) | Reflects activities in the valuation allowance for acquired properties held primarily by our Single-Family segment. |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Beginning balance, January 1 | $ | 107 | $ | 224 | $ | 118 | ||||||
Transfers in from held for sale, net | 1 | 4 | 193 | |||||||||
Transfers to held for sale, net | (93 | ) | (113 | ) | (76 | ) | ||||||
Depreciation and asset write-downs | (4 | ) | (8 | ) | (11 | ) | ||||||
Ending balance, December 31 | $ | 11 | $ | 107 | $ | 224 | ||||||
10. | Short-term Borrowings and Long-term Debt |
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As of December 31, | ||||||||||||||||
2008 | 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 | $ | 77 | 0.01 | % | $ | 869 | 3.48 | % | ||||||||
Fixed short-term debt: | ||||||||||||||||
Discount notes | 322,932 | 1.75 | % | $ | 233,258 | 4.45 | % | |||||||||
Foreign exchange discount notes | 141 | 2.50 | 301 | 4.28 | ||||||||||||
Other short-term debt | 333 | 2.80 | 601 | 4.37 | ||||||||||||
Total fixed short-term debt | 323,406 | 1.75 | 234,160 | 4.45 | ||||||||||||
Floating-rate short-term debt(2) | 7,585 | 1.66 | — | — | ||||||||||||
Total short-term debt | $ | 330,991 | 1.75 | % | $ | 234,160 | 4.45 | % | ||||||||
(1) | Includes discounts, premiums and other cost basis adjustments. | |
(2) | Includes a portion of structured debt instruments that is reported at fair value. |
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As of December 31, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Maturities | Outstanding | Rate(1) | Maturities | Outstanding | Rate(1) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Senior fixed: | ||||||||||||||||||||||||
Benchmark notes and bonds | 2009-2030 | $ | 251,063 | 4.92 | % | 2008-2030 | $ | 256,538 | 5.12 | % | ||||||||||||||
Medium-term notes | 2009-2018 | 151,277 | 4.20 | 2008-2017 | 202,315 | 5.06 | ||||||||||||||||||
Foreign exchange notes and bonds | 2009-2028 | 1,513 | 4.70 | 2008-2028 | 2,259 | 3.30 | ||||||||||||||||||
Other long-term debt(2) | 2009-2038 | 73,061 | 5.95 | 2008-2038 | 69,717 | 6.01 | ||||||||||||||||||
Total senior fixed | 476,914 | 4.85 | 530,829 | 5.20 | ||||||||||||||||||||
Senior floating: | ||||||||||||||||||||||||
Medium-term notes | 2009-2017 | 45,737 | 2.21 | 2008-2017 | 12,676 | 5.87 | ||||||||||||||||||
Other long-term debt(2) | 2020-2037 | 874 | 7.22 | 2017-2037 | 1,024 | 7.76 | ||||||||||||||||||
Total senior floating | 46,611 | 2.30 | 13,700 | 6.01 | ||||||||||||||||||||
Subordinated fixed: | ||||||||||||||||||||||||
Medium-term notes | 2011-2011 | 2,500 | 6.24 | 2008-2011 | 3,500 | 5.62 | ||||||||||||||||||
Other subordinated debt | 2012-2019 | 7,116 | 6.58 | 2012-2019 | 7,524 | 6.39 | ||||||||||||||||||
Total subordinated fixed | 9,616 | 6.50 | 11,024 | 6.14 | ||||||||||||||||||||
Debt from consolidations | 2009-2039 | 6,261 | 5.87 | 2008-2039 | 6,586 | 5.95 | ||||||||||||||||||
Total long-term debt(3) | $ | 539,402 | 4.67 | % | $ | 562,139 | 5.25 | % | ||||||||||||||||
(1) | Includes discounts, premiums and other cost basis adjustments. | |
(2) | Includes a portion of structured debt instruments that is reported at fair value. | |
(3) | Reported amounts include a net discount and other cost basis adjustments of $15.5 billion and $11.6 billion as of December 31, 2008 and 2007, respectively. |
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Assuming Callable Debt | ||||||||
Long-Term Debt by | Redeemed at Next | |||||||
Year of Maturity | Available Call Date | |||||||
(Dollars in millions) | ||||||||
2009 | $ | 91,880 | $ | 238,652 | ||||
2010 | 113,691 | 109,392 | ||||||
2011 | 71,562 | 48,477 | ||||||
2012 | 34,348 | 27,513 | ||||||
2013 | 55,509 | 34,392 | ||||||
Thereafter | 166,151 | 74,715 | ||||||
Debt from consolidations(1) | 6,261 | 6,261 | ||||||
Total(2)(3) | $ | 539,402 | $ | 539,402 | ||||
(1) | Contractual maturity of debt from consolidations is not a reliable indicator of expected maturity because borrowers of the underlying loans generally have the right to prepay their obligations at any time. | |
(2) | Reported amount includes a net discount and other cost basis adjustments of $15.5 billion. | |
(3) | Includes a portion of structured debt instruments that is reported at fair value. |
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For The Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Debt called | $ | 158,988 | $ | 86,321 | $ | 24,137 | ||||||
Weighted-average interest rate of debt called | 5.3 | % | 5.6 | % | 5.9 | % | ||||||
Debt repurchased | $ | 13,214 | $ | 15,217 | $ | 15,515 | ||||||
Weighted-average interest rate of debt repurchased | 4.8 | % | 5.6 | % | 4.7 | % |
11. | Derivative Instruments and Hedging Activities |
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• | 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. |
As of December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Notional | Estimated | Notional | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Risk management derivatives: | ||||||||||||||||
Swaps: | ||||||||||||||||
Pay-fixed | $ | 546,916 | $ | (68,379 | ) | $ | 377,738 | $ | (14,357 | ) | ||||||
Receive-fixed | 451,081 | 42,246 | 285,885 | 6,390 | ||||||||||||
Basis | 24,560 | (57 | ) | 7,001 | (21 | ) | ||||||||||
Foreign currency | 1,652 | (12 | ) | 2,559 | 353 | |||||||||||
Swaptions: | ||||||||||||||||
Pay-fixed | 79,500 | 506 | 85,730 | 849 | ||||||||||||
Receive-fixed | 93,560 | 13,039 | 124,651 | 5,877 | ||||||||||||
Interest rate caps | 500 | 1 | 2,250 | 8 | ||||||||||||
Other(1) | 827 | 100 | 650 | 71 | ||||||||||||
Net collateral receivable (payable) | — | 11,286 | — | (712 | ) | |||||||||||
Accrued interest receivable (payable), net | — | (491 | ) | — | 221 | |||||||||||
Total risk management derivatives | $ | 1,198,596 | $ | (1,761 | ) | $ | 886,464 | $ | (1,321 | ) | ||||||
Mortgage commitment derivatives: | ||||||||||||||||
Mortgage commitments to purchase whole loans | $ | 9,256 | $ | 27 | $ | 1,895 | $ | 6 | ||||||||
Forward contracts to purchase mortgage-related securities | 25,748 | 239 | 25,728 | 91 | ||||||||||||
Forward contracts to sell mortgage-related securities | 36,232 | (351 | ) | 27,743 | (108 | ) | ||||||||||
Total mortgage commitment derivatives | $ | 71,236 | $ | (85 | ) | $ | 55,366 | $ | (11 | ) | ||||||
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(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. |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Amortization income of fair value-type hedges | $ | 13 | $ | 13 | $ | 18 | ||||||
Amortization income (expense) of cash flow-type hedges | (1 | ) | 5 | 7 |
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12. | Income Taxes |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Current income tax expense(1) | $ | 403 | $ | 757 | $ | 745 | ||||||
Deferred income tax expense (benefit)(2) | 13,346 | (3,809 | ) | (579 | ) | |||||||
Other, non-current tax benefit | — | (39 | ) | — | ||||||||
Provision (benefit) for federal income taxes | $ | 13,749 | $ | (3,091 | ) | $ | 166 | |||||
(1) | Does not reflect the tax impact of extraordinary gains (losses) as this amount is recorded in our consolidated statements of operations, net of tax effect. We recorded a tax benefit of $8 million and a tax expense of $7 million related to extraordinary gains (losses) for the year ended December 31, 2007 and 2006, respectively. We recorded no tax benefit for extraordinary losses in 2008. | |
(2) | Amount excludes the income tax effect of items directly recognized in “Stockholders’ equity (deficit)” where we did not establish a valuation allowance. |
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Statutory corporate tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Tax-exempt interest and dividends-received deductions | 0.5 | 4.6 | (6.0 | ) | ||||||||
Equity investments in affordable housing projects | 2.1 | 20.1 | (25.0 | ) | ||||||||
Other | — | 0.6 | (0.1 | ) | ||||||||
Valuation allowance | (68.2 | ) | — | — | ||||||||
Effective tax rate | (30.6 | )% | 60.3 | % | 3.9 | % | ||||||
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As of December 31, | ||||||||
2008 | 2007(1) | |||||||
(Dollars in millions) | ||||||||
Deferred tax assets: | ||||||||
Allowance for loan losses and basis in acquired property, net | $ | 10,561 | $ | 2,070 | ||||
Debt and derivative instruments | 8,604 | 5,644 | ||||||
Mortgage and mortgage-related assets | 6,566 | — | ||||||
Unrealized losses on AFS securities | 3,926 | 885 | ||||||
Partnership credits | 2,157 | 1,883 | ||||||
Net guaranty assets and obligations and related credits | 858 | 1,752 | ||||||
Cash fees and other upfront payments | 1,540 | 669 | ||||||
Employee compensation and benefits | 289 | 208 | ||||||
Partnership and equity investments | 257 | — | ||||||
Total deferred tax assets | 34,758 | 13,111 | ||||||
Deferred tax liabilities: | ||||||||
Partnership and equity investments | — | 39 | ||||||
Mortgage and mortgage-related assets | — | 31 | ||||||
Other, net | 7 | 74 | ||||||
Total deferred tax liabilities | 7 | 144 | ||||||
Valuation allowance | (30,825 | ) | — | |||||
Net deferred tax assets | $ | 3,926 | $ | 12,967 | ||||
(1) | Certain prior period amounts have been reclassified to conform to the current period presentation. |
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For the Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Unrecognized tax benefit as of January 1 | $ | 124 | $ | 163 | ||||
Gross increases—tax positions in prior years | 49 | — | ||||||
Gross decreases—tax positions in prior years | (6 | ) | (48 | ) | ||||
Gross increases—tax positions in current year | 1,578 | 9 | ||||||
Unrecognized tax benefit as of December 31 | $ | 1,745 | $ | 124 | ||||
13. | Earnings (Loss) Per Share |
For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars and shares in millions, except per share amounts) | ||||||||||||
Income (loss) before extraordinary gains (losses) | $ | (58,298 | ) | $ | (2,035 | ) | $ | 4,047 | ||||
Extraordinary gains (losses), net of tax effect | (409 | ) | (15 | ) | 12 | |||||||
Net income (loss) | (58,707 | ) | (2,050 | ) | 4,059 | |||||||
Preferred stock dividends and issuance costs at redemption(1) | (1,069 | ) | (513 | ) | (511 | ) | ||||||
Net income (loss) available to common stockholders—basic | (59,776 | ) | (2,563 | ) | 3,548 | |||||||
Convertible preferred stock dividends(2) | — | — | — | |||||||||
Net income (loss) available to common stockholders—diluted | $ | (59,776 | ) | $ | (2,563 | ) | $ | 3,548 | ||||
Weighted-average common shares outstanding—basic(3) | 2,487 | 973 | 971 | |||||||||
Dilutive potential common shares: | ||||||||||||
Stock-based awards(4) | — | — | 1 | |||||||||
Convertible preferred stock(5) | — | — | — | |||||||||
Weighted-average common shares outstanding—diluted | 2,487 | 973 | 972 | |||||||||
Basic earnings (loss) per share: | ||||||||||||
Earnings (loss) before extraordinary gains (losses)(6) | $ | (23.88 | ) | $ | (2.62 | ) | $ | 3.64 | ||||
Extraordinary gains (losses), net of tax effect | (0.16 | ) | (0.01 | ) | 0.01 | |||||||
Basic earnings (loss) per share | $ | (24.04 | ) | $ | (2.63 | ) | $ | 3.65 | ||||
Diluted earnings (loss) per share: | ||||||||||||
Earnings (loss) before extraordinary gains (losses)(6) | $ | (23.88 | ) | $ | (2.62 | ) | $ | 3.64 | ||||
Extraordinary gains (losses), net of tax effect | (0.16 | ) | (0.01 | ) | 0.01 | |||||||
Diluted earnings (loss) per share | $ | (24.04 | ) | $ | (2.63 | ) | $ | 3.65 | ||||
(1) | Amount for the year ended December 31, 2008 include approximately $31 million of dividends declared and paid on December 31, 2008 our outstanding cumulative senior preferred stock. |
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(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 years ended December 31, 2008, 2007 and 2006, the assumed conversion of the preferred shares had an anti-dilutive effect. | |
(3) | Amount for the year ended December 31, 2008 includes 1.4 billion weighted-average shares of common stock that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through December 31, 2008. | |
(4) | In 2006, amount 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, 23 million and 20 million shares of common stock for the years ended December 31, 2008, 2007 and 2006, respectively, were outstanding in each period, but were excluded from the computation of diluted EPS since they would have been anti-dilutive. | |
(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 year. | |
(6) | Amount is net of preferred stock dividends and issuance costs at redemption. |
14. | Stock-Based Compensation Plans |
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For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Cash proceeds from exercise of options | $ | — | $ | 35 | $ | 22 | ||||||
Compensation expense | 1 | 9 | 21 |
As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Unrecognized compensation cost related to unvested options | $ | — | $ | — | $ | 9 | ||||||
Expected weighed average life of unvested options | — | 0.1 years | 0.7 years |
For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||||||||||||||
Weighted- | Average | Weighted- | Average | Weighted- | Average | |||||||||||||||||||||||||||||||
Average | Fair | Average | Fair | Average | Fair | |||||||||||||||||||||||||||||||
Exercise | Value at | Exercise | Value at | Exercise | Value at | |||||||||||||||||||||||||||||||
Options | Price | Grant Date | Options | Price | Grant Date | Options | Price | Grant Date | ||||||||||||||||||||||||||||
(Shares in thousands) | ||||||||||||||||||||||||||||||||||||
Beginning balance, January 1 | 17,031 | $ | 71.90 | $ | 23.49 | 19,749 | $ | 70.44 | $ | 22.97 | 21,964 | $ | 68.93 | $ | 22.39 | |||||||||||||||||||||
Granted | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Exercised | — | — | — | (999 | ) | 51.17 | 15.95 | (1,172 | ) | 39.71 | 11.68 | |||||||||||||||||||||||||
Forfeited and/or expired | (4,738 | ) | 71.19 | 23.13 | (1,719 | ) | 67.27 | 21.79 | (1,043 | ) | 73.10 | 23.58 | ||||||||||||||||||||||||
Ending balance, December 31 | 12,293 | $ | 72.12 | $ | 23.62 | 17,031 | $ | 71.90 | $ | 23.49 | 19,749 | $ | 70.44 | $ | 22.97 | |||||||||||||||||||||
Options exercisable, December 31 | 12,291 | $ | 72.12 | $ | 23.62 | 16,726 | $ | 71.79 | $ | 23.54 | 18,305 | $ | 70.18 | $ | 23.19 | |||||||||||||||||||||
Options vested or expected to vest as of December 31(1) | 12,293 | $ | 72.12 | $ | 23.62 | 17,030 | $ | 71.90 | $ | 23.50 | 19,720 | $ | 70.44 | $ | 22.98 | |||||||||||||||||||||
(1) | Includes vested shares and nonvested shares after an estimated forfeiture rate is applied. |
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For the Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Intrinsic value for options exercised | $ | — | $ | 13 | ||||
Total fair value of options vested | 6 | 19 |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Intrinsic value of in-the-money options outstanding | $ | — | $ | — | ||||
Weighted-average remaining contractual term on options outstanding | 2.4 years | 2.9 years | ||||||
Weighted-average remaining contractual term on options exercisable | 2.4 years | 2.9 years |
2008 | 2007 | 2006 | ||||||||||||||||||||||
Shares | Outstanding | Shares | Outstanding | Shares | Outstanding | |||||||||||||||||||
Issued | Contingent | Issued | Contingent | Issued | Contingent | |||||||||||||||||||
During the | Grants as of | During the | Grants as of | During the | Grants as of | |||||||||||||||||||
Three Year Performance Period | Year | December 31 | Year | December 31 | Year | December 31 | ||||||||||||||||||
(Shares in thousands) | ||||||||||||||||||||||||
2004-2006 | 82 | — | 59 | 82 | — | 141 | ||||||||||||||||||
2003-2005 | 43 | — | 102 | 43 | — | 145 | ||||||||||||||||||
Total | 125 | — | 161 | 125 | — | 286 | ||||||||||||||||||
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For the Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average Fair | Number | Average Fair | Average Fair | |||||||||||||||||||||
Number of | Value at | of | Value at | Number | Value at | |||||||||||||||||||
Shares | Grant Date | Shares | Grant Date | of Shares | Grant Date | |||||||||||||||||||
(Shares in thousands) | ||||||||||||||||||||||||
Nonvested as of January 1 | 4,375 | $ | 57.67 | 3,399 | $ | 60.15 | 3,025 | $ | 66.35 | |||||||||||||||
Granted(1) | 4,518 | 31.96 | 2,886 | 56.95 | 1,694 | 53.57 | ||||||||||||||||||
Vested | (1,768 | ) | 58.25 | (1,457 | ) | 62.25 | (1,030 | ) | 65.81 | |||||||||||||||
Forfeited | (1,191 | ) | 41.58 | (453 | ) | 57.84 | (290 | ) | 66.36 | |||||||||||||||
Nonvested as of December 31 | 5,934 | $ | 41.19 | 4,375 | $ | 57.67 | 3,399 | $ | 60.15 | |||||||||||||||
(1) | For the years ended December 31, 2008 and 2007, no shares were granted under the 1993 plan. For the year ended December 31, 2006, total number of shares includes 15 shares under the 1993 plan. |
As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Unrecognized compensation cost | $ | 148 | $ | 148 | $ | 122 | ||||||
Expected weighted-average life of unvested restricted stock | 2.4 years | 2.4 years | 2.3 years |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. | Employee Retirement Benefits |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
Pension Plans | Other Post- | Pension Plans | Other Post- | Pension Plans | Other Post- | |||||||||||||||||||||||||||||||
Non- | Retirement | Non- | Retirement | Non- | Retirement | |||||||||||||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | Qualified | Qualified | Plan | ||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 38 | $ | 8 | $ | 5 | $ | 58 | $ | 11 | $ | 14 | $ | 53 | $ | 10 | $ | 12 | ||||||||||||||||||
Interest cost | 48 | 10 | 9 | 48 | 10 | 11 | 44 | 9 | 10 | |||||||||||||||||||||||||||
Expected return on plan assets | (58 | ) | — | — | (57 | ) | — | — | (44 | ) | — | — | ||||||||||||||||||||||||
Amortization of net actuarial (gain) loss | — | (1 | ) | 1 | — | 2 | 1 | 7 | 3 | 2 | ||||||||||||||||||||||||||
Amortization of net prior service cost (credit) | 1 | 2 | (5 | ) | 1 | 2 | (1 | ) | — | 3 | (1 | ) | ||||||||||||||||||||||||
Amortization of initial transition obligation | — | — | 2 | — | — | 2 | — | — | 2 | |||||||||||||||||||||||||||
Curtailment (gain) loss | — | (3 | ) | — | 5 | (3 | ) | 9 | — | — | — | |||||||||||||||||||||||||
Special termination benefit charge | — | — | 3 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Net periodic benefit cost | $ | 29 | $ | 16 | $ | 15 | $ | 55 | $ | 22 | $ | 36 | $ | 60 | $ | 25 | $ | 25 | ||||||||||||||||||
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As of December 31, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Pension Plans | Other Post- | Pension Plans | Other Post- | |||||||||||||||||||||
Non- | Retirement | Non- | Retirement | |||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net actuarial (gain) loss | $ | 279 | $ | (3 | ) | $ | 32 | $ | (38 | ) | $ | (5 | ) | $ | 28 | |||||||||
Net prior service cost (credit) | 6 | 4 | (66 | ) | 7 | 7 | (71 | ) | ||||||||||||||||
Net transition obligation | — | — | 7 | — | — | 9 | ||||||||||||||||||
Pre-tax amount recorded in AOCI | $ | 285 | $ | 1 | $ | (27 | ) | $ | (31 | ) | $ | 2 | $ | (34 | ) | |||||||||
After-tax amount recorded in AOCI(1) | $ | 285 | $ | 1 | $ | (27 | ) | $ | (21 | ) | $ | 1 | $ | (28 | ) | |||||||||
(1) | During 2008, we established a valuation allowance for our deferred tax assets, which has resulted in the reversal of the tax benefit amounts recorded in AOCI for our pension and other postretirement plans. Refer to “Note 12, Income Taxes” for additional information. |
For the Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Pension Plans | Other Post- | Pension Plans | Other Post- | |||||||||||||||||||||
Non- | Retirement | Non- | Retirement | |||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Actuarial (Gain) Loss | ||||||||||||||||||||||||
Beginning balance, January 1 | $ | (38 | ) | $ | (5 | ) | $ | 28 | $ | 59 | $ | 25 | $ | 32 | ||||||||||
Current year actuarial (gain) loss | 317 | 1 | 5 | (53 | ) | (21 | ) | (3 | ) | |||||||||||||||
Actuarial gain due to curtailments | — | — | — | (44 | ) | (7 | ) | — | ||||||||||||||||
Amortization | — | 1 | (1 | ) | — | (2 | ) | (1 | ) | |||||||||||||||
Ending balance, December 31 | $ | 279 | $ | (3 | ) | $ | 32 | $ | (38 | ) | $ | (5 | ) | $ | 28 | |||||||||
Prior Service Cost (Credit) | ||||||||||||||||||||||||
Beginning balance, January 1 | $ | 7 | $ | 7 | $ | (71 | ) | $ | 10 | $ | 7 | $ | (7 | ) | ||||||||||
Current year prior service cost (credit) | — | — | — | 2 | — | (66 | ) | |||||||||||||||||
Prior service cost (credit) due to curtailments | — | (1 | ) | — | (4 | ) | 2 | 1 | ||||||||||||||||
Amortization | (1 | ) | (2 | ) | 5 | (1 | ) | (2 | ) | 1 | ||||||||||||||
Ending balance, December 31 | $ | 6 | $ | 4 | $ | (66 | ) | $ | 7 | $ | 7 | $ | (71 | ) | ||||||||||
Transition Obligation | ||||||||||||||||||||||||
Beginning balance, January 1 | $ | — | $ | — | $ | 9 | $ | — | $ | — | $ | 12 | ||||||||||||
Adjustment recognized due to curtailments | — | — | — | — | — | (1 | ) | |||||||||||||||||
Amortization | — | — | (2 | ) | — | — | (2 | ) | ||||||||||||||||
Ending balance, December 31 | $ | — | $ | — | $ | 7 | $ | — | $ | — | $ | 9 | ||||||||||||
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As of December 31, 2008 | ||||||||||||
Other Post- | ||||||||||||
Pension Plans | Retirement | |||||||||||
Qualified | Non-Qualified | Plan | ||||||||||
(Dollars in millions) | ||||||||||||
Net actuarial (gain) loss | $ | 37 | $ | (1 | ) | $ | 1 | |||||
Net prior service cost (credit) | 1 | 1 | (5 | ) | ||||||||
Net transition obligation | — | — | 2 | |||||||||
Total | $ | 38 | $ | — | $ | (2 | ) | |||||
As of December 31, | ||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Pension Plans | Other Post- | Pension Plans | Other Post- | |||||||||||||||||||||
Non- | Retirement | Non- | Retirement | |||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 744 | $ | 148 | $ | 134 | $ | 770 | $ | 161 | $ | 174 | ||||||||||||
Service cost | 38 | 8 | 5 | 58 | 11 | 14 | ||||||||||||||||||
Interest cost | 48 | 10 | 9 | 48 | 10 | 11 | ||||||||||||||||||
Plan participants’ contributions | — | — | 2 | — | — | 1 | ||||||||||||||||||
Plan amendments | — | — | — | — | — | (66 | ) | |||||||||||||||||
Net actuarial (gain) loss | (10 | ) | 1 | 5 | (76 | ) | (21 | ) | (3 | ) | ||||||||||||||
Curtailment (gain) loss | — | (3 | ) | — | (44 | ) | (8 | ) | 2 | |||||||||||||||
Special termination benefits | — | — | 3 | — | — | 6 | ||||||||||||||||||
Benefits paid | (19 | ) | (6 | ) | (7 | ) | (12 | ) | (5 | ) | (5 | ) | ||||||||||||
Benefit obligation at end of year | $ | 801 | $ | 158 | $ | 151 | $ | 744 | $ | 148 | $ | 134 | ||||||||||||
Change in Plan Assets | ||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 788 | $ | — | $ | — | $ | 769 | $ | — | $ | — | ||||||||||||
Actual return on plan assets | (270 | ) | — | — | 31 | — | — | |||||||||||||||||
Employer contributions | 80 | 6 | 6 | — | 5 | 4 | ||||||||||||||||||
Plan participants’ contributions | — | — | 2 | — | — | 1 | ||||||||||||||||||
Benefits paid | (19 | ) | (6 | ) | (8 | ) | (12 | ) | (5 | ) | (5 | ) | ||||||||||||
Fair value of plan assets at end of year | $ | 579 | $ | — | $ | — | $ | 788 | $ | — | $ | — | ||||||||||||
Amounts Recognized in our Consolidated Balance Sheets | ||||||||||||||||||||||||
Deferred tax assets(1) | $ | — | $ | — | $ | — | $ | (11 | ) | $ | 1 | $ | (6 | ) | ||||||||||
Prepaid benefit cost | — | — | — | 44 | — | — | ||||||||||||||||||
Accrued benefit cost | (222 | ) | (158 | ) | (151 | ) | — | (148 | ) | (134 | ) | |||||||||||||
Accumulated other comprehensive (income) loss(1) | 285 | 1 | (27 | ) | (21 | ) | 1 | (28 | ) | |||||||||||||||
Net amount recognized | $ | 63 | $ | (157 | ) | $ | (178 | ) | $ | 12 | $ | (146 | ) | $ | (168 | ) | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) | During 2008, we established a valuation allowance for the deferred tax assets recognized for our pension and other postretirement plans. As a result, the tax benefit amounts previously recorded in AOCI have been reversed. Refer to “Note 12, Income Taxes” for additional information. |
As of December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Pension Plans | Pension Plans | |||||||||||||||
Non- | Non- | |||||||||||||||
Qualified | Qualified | Qualified | Qualified | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Projected benefit obligation | $ | 801 | $ | 158 | $ | 744 | $ | 148 | ||||||||
Accumulated benefit obligation | 695 | 141 | 604 | 127 | ||||||||||||
Fair value of plan assets | 579 | — | 788 | — |
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As of December 31, | ||||||||||||||||||||||||
Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Weighted-average assumptions used to determine net periodic benefit costs: | ||||||||||||||||||||||||
Discount rate | 6.40 | % | 6.20 | %(1) | 5.75 | % | 6.40 | % | 6.20 | %(1) | 5.75 | % | ||||||||||||
Average rate of increase in future compensation | 5.00 | 5.75 | 5.75 | |||||||||||||||||||||
Expected long-term weighted-average rate of return on plan assets | 7.50 | 7.50 | 7.50 | |||||||||||||||||||||
Weighted-average assumptions used to determine benefit obligation at year-end: | ||||||||||||||||||||||||
Discount rate | 6.15 | % | 6.40 | % | 6.00 | % | 6.15 | % | 6.40 | % | 6.00 | % | ||||||||||||
Average rate of increase in future compensation | 4.00 | 5.00 | 5.75 | |||||||||||||||||||||
Health care cost trend rate assumed for next year: | ||||||||||||||||||||||||
Pre-65 | 8.00 | % | 8.00 | % | 9.00 | % | ||||||||||||||||||
Post-65 | 8.00 | 8.00 | 9.00 | |||||||||||||||||||||
Rate that cost trend rate gradually declines to and remains at: | 5.00 | 5.00 | 5.00 | |||||||||||||||||||||
Year that rate reaches the ultimate trend rate | 2015 | 2014 | 2011 |
(1) | The pension and other postretirement benefit plans were remeasured as of August 31, 2007 and November 30, 2007. As a result, a discount rate of 6.00% was used for the period January 1 through August 31, a discount rate of 6.35% was used for the period September 1 through November 30, and a discount rate of 6.20% was used for the period December 1 through December 31. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Asset | ||||||||||||
Allocation | ||||||||||||
as of | ||||||||||||
Target | December 31, | |||||||||||
Investment Type | Allocation | 2008 | 2007 | |||||||||
Equity securities | 75-85 | % | 75 | % | 84 | % | ||||||
Fixed income securities | 12-20 | % | 19 | 14 | ||||||||
Other(1) | 0-2 | % | 6 | 2 | ||||||||
Total | 100 | % | 100 | % | ||||||||
(1) | Actual asset allocation of 6% as of December 31, 2008 reflects the fact that the contribution to the qualified pension plan made in November 2008 was invested over a three-month period of time, whereby the last portion was not invested until January 2009. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Expected Retirement Plan Benefit Payments | ||||||||||||||||
Other Post Retirement Benefits | ||||||||||||||||
Pension Benefits | Before Medicare | Medicare | ||||||||||||||
Qualified | Nonqualified | Part D Subsidy | Part D Subsidy | |||||||||||||
(Dollars in millions) | ||||||||||||||||
2009 | $ | 18 | $ | 6 | $ | 8 | $ | — | ||||||||
2010 | 20 | 6 | 9 | — | ||||||||||||
2011 | 22 | 7 | 10 | 1 | ||||||||||||
2012 | 24 | 7 | 10 | 1 | ||||||||||||
2013 | 28 | 8 | 11 | 1 | ||||||||||||
2014—2018 | 210 | 57 | 68 | 6 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Shares in thousands) | ||||||||||||
Common shares allocated to employees | 1,702 | 1,840 | 1,761 | |||||||||
Common shares committed to be released to employees | — | 349 | 200 | |||||||||
Unallocated common shares | — | 11 | 1 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16. | Segment Reporting |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Year Ended December 31, 2008 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 461 | $ | (343 | ) | $ | 8,664 | $ | 8,782 | |||||||
Guaranty fee income (expense)(2) | 8,390 | 633 | (1,402 | ) | 7,621 | |||||||||||
Trust management income | 256 | 5 | — | 261 | ||||||||||||
Investment losses, net | (72 | ) | — | (7,148 | ) | (7,220 | ) | |||||||||
Fair value losses, net | — | — | (20,129 | ) | (20,129 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (222 | ) | (222 | ) | ||||||||||
Losses from partnership investments | — | (1,554 | ) | — | (1,554 | ) | ||||||||||
Fee and other income | 327 | 181 | 264 | 772 | ||||||||||||
Administrative expenses | (1,127 | ) | (404 | ) | (448 | ) | (1,979 | ) | ||||||||
Provision for credit losses | (27,881 | ) | (70 | ) | — | (27,951 | ) | |||||||||
Other expenses | (2,667 | ) | (126 | ) | (137 | ) | (2,930 | ) | ||||||||
Loss before federal income taxes and extraordinary losses | (22,313 | ) | (1,678 | ) | (20,558 | ) | (44,549 | ) | ||||||||
Provision for federal income taxes | 4,788 | 511 | 8,450 | 13,749 | ||||||||||||
Loss before extraordinary losses | (27,101 | ) | (2,189 | ) | (29,008 | ) | (58,298 | ) | ||||||||
Extraordinary losses, net of tax effect | — | — | (409 | ) | (409 | ) | ||||||||||
Net loss | $ | (27,101 | ) | $ | (2,189 | ) | $ | (29,417 | ) | $ | (58,707 | ) | ||||
(1) | Includes cost of capital charge. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(2) | The charge to Capital Markets represents an intercompany guaranty fee expense allocated to Capital Markets from Single-Family and HCD for absorbing the credit risk on mortgage loans held in our portfolio. |
For the Year Ended December 31, 2007 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 365 | $ | (404 | ) | $ | 4,620 | $ | 4,581 | |||||||
Guaranty fee income (expense)(2) | 5,816 | 470 | (1,215 | ) | 5,071 | |||||||||||
Losses on certain guaranty contracts | (1,387 | ) | (37 | ) | — | (1,424 | ) | |||||||||
Trust management income | 553 | 35 | — | 588 | ||||||||||||
Investment losses, net(3) | (64 | ) | — | (803 | ) | (867 | ) | |||||||||
Fair value losses, net(3) | — | — | (4,668 | ) | (4,668 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (47 | ) | (47 | ) | ||||||||||
Losses from partnership investments | — | (1,005 | ) | — | (1,005 | ) | ||||||||||
Fee and other income(3) | 328 | 324 | 313 | 965 | ||||||||||||
Administrative expenses | (1,478 | ) | (548 | ) | (643 | ) | (2,669 | ) | ||||||||
Provision for credit losses | (4,559 | ) | (5 | ) | — | (4,564 | ) | |||||||||
Other expenses(3) | (894 | ) | (182 | ) | (11 | ) | (1,087 | ) | ||||||||
Loss before federal income taxes and extraordinary losses | (1,320 | ) | (1,352 | ) | (2,454 | ) | (5,126 | ) | ||||||||
Benefit for federal income taxes | (462 | ) | (1,509 | ) | (1,120 | ) | (3,091 | ) | ||||||||
Income (loss) before extraordinary losses | (858 | ) | 157 | (1,334 | ) | (2,035 | ) | |||||||||
Extraordinary losses, net of tax effect | — | — | (15 | ) | (15 | ) | ||||||||||
Net income (loss) | $ | (858 | ) | $ | 157 | $ | (1,349 | ) | $ | (2,050 | ) | |||||
(1) | Includes cost of capital charge. | |
(2) | The charge to Capital Markets represents an intercompany guaranty fee expense allocated to Capital Markets from Single-Family and HCD for absorbing the credit risk on mortgage loans held in our portfolio. | |
(3) | Certain prior period amounts have been reclassified to conform to the current period presentation in our consolidated statements of operations. |
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For the Year Ended December 31, 2006 | ||||||||||||||||
Capital | ||||||||||||||||
Single-Family | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 926 | $ | (331 | ) | $ | 6,157 | $ | 6,752 | |||||||
Guaranty fee income (expense)(2) | 4,785 | 562 | (1,097 | ) | 4,250 | |||||||||||
Losses on certain guaranty contracts | (431 | ) | (8 | ) | — | (439 | ) | |||||||||
Trust management income | 109 | 2 | — | 111 | ||||||||||||
Investment gains (losses), net(3) | 97 | — | (788 | ) | (691 | ) | ||||||||||
Fair value losses, net(3) | — | — | (1,744 | ) | (1,744 | ) | ||||||||||
Debt extinguishment gains, net | — | — | 201 | 201 | ||||||||||||
Losses from partnership investments | — | (865 | ) | — | (865 | ) | ||||||||||
Fee and other income(3) | 259 | 277 | 372 | 908 | ||||||||||||
Administrative expenses | (1,566 | ) | (596 | ) | (914 | ) | (3,076 | ) | ||||||||
Provision for credit losses | (577 | ) | (12 | ) | — | (589 | ) | |||||||||
Other expenses(3) | (469 | ) | (134 | ) | (2 | ) | (605 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains | 3,133 | (1,105 | ) | 2,185 | 4,213 | |||||||||||
Provision (benefit) for federal income taxes | 1,089 | (1,443 | ) | 520 | 166 | |||||||||||
Income before extraordinary gains | 2,044 | 338 | 1,665 | 4,047 | ||||||||||||
Extraordinary gains, net of tax effect | — | — | 12 | 12 | ||||||||||||
Net income | $ | 2,044 | $ | 338 | $ | 1,677 | $ | 4,059 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | The charge to Capital Markets represent an intercompany guaranty fee expense allocated to Capital Markets from Single-Family and HCD for absorbing the credit risk on mortgage loans held in our portfolio. | |
(3) | Certain prior period amounts have been reclassified to conform to the current period presentation in our consolidated statements of operations. |
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Single-Family | $ | 24,115 | $ | 23,356 | ||||
HCD | 10,994 | 15,094 | ||||||
Capital Markets | 877,295 | 840,939 | ||||||
Total assets | $ | 912,404 | $ | 879,389 | ||||
17. | Stockholders’ Equity (Deficit) |
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Annual | ||||||||||||||||||||||||||||||||
Dividend Rate | ||||||||||||||||||||||||||||||||
Issued and Outstanding as of December 31, | Stated | as of | ||||||||||||||||||||||||||||||
Issue | 2008 | 2007 | Value | December 31, | Redeemable on | |||||||||||||||||||||||||||
Title | Date | Shares | Amount | Shares | Amount | per Share | 2008 | or After | ||||||||||||||||||||||||
Senior Preferred Stock | ||||||||||||||||||||||||||||||||
Series 2008-2 | September 8, 2008 | 1,000,000 | $ | 1,000,000,000 | — | $ | — | $ | 1,000 | 10.000 | %(2) | (1) | ||||||||||||||||||||
Total | 1,000,000 | $ | 1,000,000,000 | — | $ | — | ||||||||||||||||||||||||||
Preferred Stock | ||||||||||||||||||||||||||||||||
Series D | September 30, 1998 | 3,000,000 | $ | 150,000,000 | 3,000,000 | $ | 150,000,000 | $ | 50 | 5.250 | % | September 30, 1999 | ||||||||||||||||||||
Series E | April 15, 1999 | 3,000,000 | 150,000,000 | 3,000,000 | 150,000,000 | 50 | 5.100 | April 15, 2004 | ||||||||||||||||||||||||
Series F | March 20, 2000 | 13,800,000 | 690,000,000 | 13,800,000 | 690,000,000 | 50 | 1.360 | (3) | March 31, 2002 | (8) | ||||||||||||||||||||||
Series G | August 8, 2000 | 5,750,000 | 287,500,000 | 5,750,000 | 287,500,000 | 50 | 1.670 | (4) | September 30, 2002 | (8) | ||||||||||||||||||||||
Series H | April 6, 2001 | 8,000,000 | 400,000,000 | 8,000,000 | 400,000,000 | 50 | 5.810 | April 6, 2006 | ||||||||||||||||||||||||
Series I | October 28, 2002 | 6,000,000 | 300,000,000 | 6,000,000 | 300,000,000 | 50 | 5.375 | October 28, 2007 | ||||||||||||||||||||||||
Series L | April 29, 2003 | 6,900,000 | 345,000,000 | 6,900,000 | 345,000,000 | 50 | 5.125 | April 29, 2008 | ||||||||||||||||||||||||
Series M | June 10, 2003 | 9,200,000 | 460,000,000 | 9,200,000 | 460,000,000 | 50 | 4.750 | June 10, 2008 | ||||||||||||||||||||||||
Series N | September 25, 2003 | 4,500,000 | 225,000,000 | 4,500,000 | 225,000,000 | 50 | 5.500 | September 25, 2008 | ||||||||||||||||||||||||
Series O | December 30, 2004 | 50,000,000 | 2,500,000,000 | 50,000,000 | 2,500,000,000 | 50 | 7.000 | (5) | December 31, 2007 | |||||||||||||||||||||||
ConvertibleSeries 2004-1 | December 30, 2004 | 25,000 | 2,500,000,000 | 25,000 | 2,500,000,000 | 100,000 | 5.375 | January 5, 2008 | ||||||||||||||||||||||||
Series P | September 28, 2007 | 40,000,000 | 1,000,000,000 | 40,000,000 | 1,000,000,000 | 25 | 4.500(6 | ) | September 30, 2012 | |||||||||||||||||||||||
Series Q | October 4, 2007 | 15,000,000 | 375,000,000 | 15,000,000 | 375,000,000 | 25 | 6.750 | September 30, 2010 | ||||||||||||||||||||||||
Series R(10) | November 21, 2007 | 21,200,000 | 530,000,000 | 21,200,000 | 530,000,000 | 25 | 7.625 | November 21, 2012 | ||||||||||||||||||||||||
Series S | December 11, 2007 | 280,000,000 | 7,000,000,000 | 280,000,000 | 7,000,000,000 | 25 | 8.250(7 | ) | December 31, 2010(9 | ) | ||||||||||||||||||||||
Mandatory ConvertibleSeries 2008-1 | May 14, 2008 | 41,696,401 | 2,084,820,050 | — | — | 50 | 8.750 | N/A | ||||||||||||||||||||||||
Series T(11) | May 19, 2008 | 89,000,000 | 2,225,000,000 | — | — | 25 | 8.250 | May 20, 2013 | ||||||||||||||||||||||||
Total | 597,071,401 | $ | 21,222,320,050 | 466,375,000 | $ | 16,912,500,000 | ||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) | Any liquidation preference of our senior preferred stock in excess of $1.0 billion can be repaid through an issuance of common or preferred stock. The initial $1.0 billion investment can only be repaid through termination of the senior preferred stock purchase agreement; the provisions for termination are very restrictive and cannot occur while we are in conservatorship. | |
(2) | Rate effective September 9, 2008. If at any time we fail to pay cash dividends in a timely manner, then immediately following such failure and for all dividend periods thereafter until the dividend period following the date on which we have paid in cash full cumulative dividends (including any unpaid dividends added to the liquidation preference), the dividend rate will be 12% per year. | |
(3) | Rate effective March 31, 2008. Variable dividend rate resets every two years at a per annum rate equal to the two-year Maturity U.S. Treasury Rate (“CMT”) minus 0.16% with a cap of 11% per year. As of December 31, 2007, the annual dividend rate was 4.56%. | |
(4) | Rate effective September 30, 2008. Variable dividend rate resets every two years at a per annum rate equal to the two-year CMT rate minus 0.18% with a cap of 11% per year. As of December 31, 2007, the annual dividend rate was 4.59%. | |
(5) | Rate effective December 31, 2008. Variable dividend rate resets quarterly thereafter at a per annum rate equal to the greater of 7.00% and10-year CMT rate plus 2.375%. As of December 31, 2007, the annual dividend rate was 7.00%. | |
(6) | Rate effective December 31, 2008. Variable dividend rate resets quarterly thereafter at a per annum rate equal to the greater of 4.50% and3-Month LIBOR plus 0.75%. As of December 31, 2007, the annual dividend rate was 5.58%. | |
(7) | Rate effective December 11, 2007 to but excluding December 31, 2010. Variable dividend rate resets quarterly thereafter at a per annum rate equal to at the greater of 7.75% and3-Month LIBOR plus 4.23%. As of December 31, 2007, the annual dividend rate was 8.25%. | |
(8) | Represents initial call date. Redeemable every two years thereafter. | |
(9) | Represents initial call date. Redeemable every five years thereafter. | |
(10) | On November 21, 2007, we issued 20 million shares of preferred stock in the amount of $500 million. Subsequent to the initial issuance, we issued an additional 1.2 million shares in the amount of $30 million on December 14, 2007 under the same terms as the initial issuance. | |
(11) | On May 19, 2008, we issued 80 million shares of preferred stock in the amount of $2.0 billion. Subsequent to the initial issuance, we issued an additional 8 million shares in the amount of $200 million on May 22, 2008 and 1 million shares in the amount of $25 million on June 4, 2008 under the same terms as the initial issuance. |
F-97
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-98
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-99
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-100
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
• | 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. |
F-101
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. | Regulatory Capital Requirements |
F-102
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008(1) | 2007(1) | |||||||
(Dollars in millions) | ||||||||
Core capital(2) | $ | (8,641 | ) | $ | 45,373 | |||
Statutory minimum capital requirement(3) | 33,552 | 31,927 | ||||||
Surplus (deficit) of core capital over statutory minimum capital requirement | $ | (42,193 | ) | $ | 13,446 | |||
Surplus (deficit) of core capital percentage over statutory minimum capital requirement | (125.8 | )% | 42.1 | % |
(1) | Amounts as of December 31, 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 (accumulated deficit). 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). |
F-103
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-104
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
19. | Concentrations of Credit Risk |
F-105
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Geographic Concentration(1) | ||||||||||||||||
Single-family | ||||||||||||||||
Conventional Mortgage | Multifamily Mortgage | |||||||||||||||
Credit Book(2) | Credit Book(3) | |||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Midwest | 16 | % | 17 | % | 9 | % | 9 | % | ||||||||
Northeast | 19 | 19 | 23 | 24 | ||||||||||||
Southeast | 25 | 25 | 19 | 18 | ||||||||||||
Southwest | 16 | 16 | 15 | 14 | ||||||||||||
West | 24 | 23 | 34 | 35 | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
(1) | Midwest includes 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 includes AL, DC, FL, GA, KY, MD, NC, MS, SC, TN, VA and WV. Southwest includes AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West includes AK, CA, GU, HI, ID, MT, NV, OR, WA and WY. | |
(2) | Includes the portion of our conventional single-family mortgage credit book for which we have more detailed loan-level information, which constituted approximately 96% and 95% of our total conventional single-family mortgage credit book of business as of December 31, 2008 and 2007, respectively. Excludes non-Fannie Mae mortgage-related securities backed by single-family mortgage loans and credit enhancements that we provide on single-family mortgage assets. | |
(3) | Includes mortgage loans in our portfolio, credit enhancements and outstanding Fannie Mae MBS (excluding Fannie Mae MBS backed by non-Fannie Mae mortgage-related securities) where we have more detailed loan-level information, which constituted approximately 82% and 80% of our total multifamily mortgage credit book of business as of December 31, 2008 and 2007, respectively. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Percentage of | ||||||||
Conventional Single- | ||||||||
Family Mortgage Credit | ||||||||
Book of Business | ||||||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Interest-only loans | 8 | % | 8 | % | ||||
Negative-amortizing ARMs | 1 | 1 | ||||||
80%+ LTV loans | 34 | 20 |
As of 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) | $ | 295,622 | 10 | % | $ | 318,121 | 12 | % | ||||||||
Subprime(3) | 19,086 | 1 | 22,126 | 1 | ||||||||||||
Total | $ | 314,708 | 11 | % | $ | 340,247 | 13 | % | ||||||||
Private-label securities: | ||||||||||||||||
Alt-A(4) | $ | 27,858 | 1 | % | $ | 32,475 | 1 | % | ||||||||
Subprime(5) | 24,551 | 1 | 32,040 | 1 | ||||||||||||
Total | $ | 52,409 | 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. |
F-107
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2008 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA+/AA/AA- | A+/A/A- | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | — | $ | 3,044 | $ | 686 | $ | 3,730 | $ | 101 | $ | 3,831 | ||||||||||||
Less: Collateral held(4) | — | 2,951 | 673 | 3,624 | — | 3,624 | ||||||||||||||||||
Exposure net of collateral | $ | — | $ | 93 | $ | 13 | $ | 106 | $ | 101 | $ | 207 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount(6) | $ | 250 | $ | 533,317 | $ | 664,155 | $ | 1,197,722 | $ | 874 | $ | 1,198,596 | ||||||||||||
Number of counterparties(6) | 1 | 8 | 10 | 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(6) | $ | 1,050 | $ | 637,847 | $ | 246,860 | $ | 885,757 | $ | 707 | $ | 886,464 | ||||||||||||
Number of counterparties(6) | 1 | 17 | 3 | 21 |
(1) | We manage collateral requirements based on the lower credit rating of the legal entity, as issued by Standard & Poor’s and Moody’s. 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 where the right of legal offset does not exist. | |
(3) | Represents the exposure to credit losses 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 $15.0 billion related to our counterparties’ credit exposure to us as of December 31, 2008. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(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 ranged from one to three business days following the credit loss exposure valuation dates as 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. | |
(6) | Interest rate and foreign currency derivatives in a net gain position had a total notional amount of $103.1 billion and $525.7 billion as of December 31, 2008 and December 31, 2007 respectively. Total number of interest rate and foreign currency counterparties in a net gain position was 2 and 11 as of December 31, 2008 and December 31, 2007 respectively. |
F-109
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(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Fannie Mae MBS and other guarantees(1) | $ | 172,188 | $ | 206,519 | ||||
Loan purchase commitments | 4,951 | 4,998 |
(1) | Represents maximum exposure on guarantees not reflected in our consolidated balance sheets. Refer to “Note 8, Financial Guaranties and Master Servicing” for maximum exposure associated with guarantees reflected in our consolidated balance sheets. |
20. | Fair Value of Financial Instruments |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Value | Fair Value | Value(1) | Fair Value(1) | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents(2) | $ | 18,462 | $ | 18,462 | $ | 4,502 | $ | 4,502 | ||||||||
Federal funds sold and securities purchased under agreements to resell | 57,418 | 57,420 | 49,041 | 49,041 | ||||||||||||
Trading securities | 90,806 | 90,806 | 63,956 | 63,956 | ||||||||||||
Available-for-sale securities | 266,488 | 266,488 | 293,557 | 293,557 | ||||||||||||
Mortgage loans held for sale | 13,270 | 13,458 | 7,008 | 7,083 | ||||||||||||
Mortgage loans held for investment, net of allowance for loan losses | 412,142 | 406,233 | 396,516 | 395,822 | ||||||||||||
Advances to lenders | 5,766 | 5,412 | 12,377 | 12,049 | ||||||||||||
Derivative assets | 869 | 869 | 885 | 885 | ||||||||||||
Guaranty assets andbuy-ups | 7,688 | 9,024 | 10,610 | 14,258 | ||||||||||||
Total financial assets | $ | 872,909 | $ | 868,172 | $ | 838,452 | $ | 841,153 | ||||||||
Financial liabilities: | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 77 | $ | 77 | $ | 869 | $ | 869 | ||||||||
Short-term debt | 330,991 | 332,290 | 234,160 | 234,368 | ||||||||||||
Long-term debt | 539,402 | 574,281 | 562,139 | 580,333 | ||||||||||||
Derivative liabilities | 2,715 | 2,715 | 2,217 | 2,217 | ||||||||||||
Guaranty obligations | 12,147 | 90,875 | 15,393 | 20,549 | ||||||||||||
Total financial liabilities | $ | 885,332 | $ | 1,000,238 | $ | 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 consolidated balance sheet as of December 31, 2007. | |
(2) | Includes restricted cash of $529 million and $561 million as of December 31, 2008 and 2007, respectively. |
F-111
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-112
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(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-113
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements as of December 31, 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 | $ | 78,035 | $ | 12,765 | $ | — | $ | 90,806 | ||||||||||
Available-for-sale securities | — | 218,651 | 47,837 | — | 266,488 | |||||||||||||||
Derivative assets(2) | — | 62,969 | 362 | (62,462 | ) | 869 | ||||||||||||||
Guaranty assets andbuy-ups | — | — | 1,083 | — | 1,083 | |||||||||||||||
Total assets at fair value | $ | 6 | $ | 359,655 | $ | 62,047 | $ | (62,462 | ) | $ | 359,246 | |||||||||
Liabilities: | ||||||||||||||||||||
Short-term debt | $ | — | $ | 4,500 | $ | — | $ | — | $ | 4,500 | ||||||||||
Long-term debt | — | 18,667 | 2,898 | — | 21,565 | |||||||||||||||
Derivative liabilities(2) | — | 76,412 | 52 | (73,749 | ) | 2,715 | ||||||||||||||
Other liabilities | — | 62 | — | — | 62 | |||||||||||||||
Total liabilities at fair value | $ | — | $ | 99,641 | $ | 2,950 | $ | (73,749 | ) | $ | 28,842 | |||||||||
(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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
For the Year Ended December 31, 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 | (1,881 | ) | (3,152 | ) | 282 | (512 | ) | (73 | ) | |||||||||||
Unrealized losses included in other comprehensive loss | — | (4,136 | ) | — | (342 | ) | — | |||||||||||||
Purchases, sales, issuances, and settlements, net | (4,337 | ) | (3,640 | ) | (227 | ) | 369 | 5,396 | ||||||||||||
Transfers in/out of level 3, net(1) | 475 | 37,845 | 94 | — | (333 | ) | ||||||||||||||
Ending balance as of December 31, 2008 | $ | 12,765 | $ | 47,837 | $ | 310 | $ | 1,083 | $ | (2,898 | ) | |||||||||
Net unrealized gains (losses) included in net loss related to assets and liabilities still held at year end(2) | $ | (1,293 | ) | $ | — | $ | 159 | $ | (26 | ) | $ | (18 | ) | |||||||
(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 year ended December 31, 2008 resulted from the transfer from level 2 to level 3 of primarily private-label mortgage-related securities backed by Alt-A or subprime loans, or loans backed by manufactured housing, 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, subprime loans and loans backed by manufactured housing. 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 are not included in this amount. |
Fair Value Measurements Using Significant | ||||||||||||||||
Unobservable Inputs (Level 3) | ||||||||||||||||
For the Year Ended | ||||||||||||||||
December 31, 2008 | ||||||||||||||||
Trading | Available-for-Sale | Net | Long-term | |||||||||||||
Securities | Securities | Derivatives | Debt | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Realized and unrealized gains (losses) included in net loss | $ | (679 | ) | $ | (2,014 | ) | $ | 18 | $ | (35 | ) | |||||
Unrealized losses included in other comprehensive loss | — | (2,261 | ) | — | — | |||||||||||
Total gains (losses) | $ | (679 | ) | $ | (4,275 | ) | $ | 18 | $ | (35 | ) | |||||
Amount of level 3 transfers in | $ | 10,189 | $ | 55,621 | $ | 18 | $ | (531 | ) | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Year Ended December 31, 2008 | ||||||||||||||||||||||||
Interest | Fair | |||||||||||||||||||||||
Income | Guaranty | Value | ||||||||||||||||||||||
Investment in | Fee | Investment | Losses, | Extraordinary | ||||||||||||||||||||
Securities | Income | Losses, Net | Net | Losses | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Total realized and unrealized gains (losses) included in net loss as of December 31, 2008 | $ | 90 | $ | (915 | ) | $ | (2,812 | ) | $ | (1,640 | ) | $ | (59 | ) | $ | (5,336 | ) | |||||||
Net unrealized losses related to level 3 assets and liabilities still held as of December 31, 2008 | — | (26 | ) | — | (1,152 | ) | — | (1,178 | ) |
For the Year | ||||||||||||||||||||
Fair Value Measurements | Ended | |||||||||||||||||||
For the Year Ended December 31, 2008 | December 31, 2008 | |||||||||||||||||||
Quoted | ||||||||||||||||||||
Prices in | ||||||||||||||||||||
Active | Significant | |||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Estimated | Total | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Fair Value | Gains (Losses) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Mortgage loans held for sale, at lower of cost or fair value | $ | — | $ | 26,303 | $ | 1,294 | $ | 27,597 | (1) | $ | (433 | ) | ||||||||
Mortgage loans held for investment, at amortized cost | 1,838 | 1,838 | (2) | (107 | ) | |||||||||||||||
Acquired property, net | — | — | 9,624 | 9,624 | (3) | (1,533 | ) | |||||||||||||
Guaranty assets | — | — | 5,473 | 5,473 | (2,967 | ) | ||||||||||||||
Master servicing assets | — | — | 547 | 547 | (553 | ) | ||||||||||||||
Partnership investments | — | — | 4,877 | 4,877 | (764 | )(4) | ||||||||||||||
Total assets at fair value | $ | — | $ | 26,303 | $ | 23,653 | $ | 49,956 | $ | (6,357 | ) | |||||||||
Liabilities: | ||||||||||||||||||||
Master servicing liabilities | $ | — | $ | — | $ | 22 | $ | 22 | $ | (12 | ) | |||||||||
Total liabilities at fair value | $ | — | $ | — | $ | 22 | $ | 22 | $ | (12 | ) | |||||||||
(1) | Includes $25.2 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 December 31, 2008. | |
(2) | Includes $157 million of mortgage loans held for investment that were liquidated or transferred to foreclosed properties as of December 31, 2008. | |
(3) | Includes $4.0 billion of foreclosed properties that were sold as of December 31, 2008. | |
(4) | Represents impairment charge related to LIHTC partnerships and other equity investments in multifamily properties. |
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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 in our mortgage-related and non-mortgage-related investment portfolio previously classified as available-for-sale. These securities are presented in our 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 Year Ended December 31, 2008 | ||||||||||||||||
Short-Term | Long-Term | Total Gains | ||||||||||||||
Debt | Debt | (Losses) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||
Changes in instrument-specific credit risk | $ | 6 | $ | 94 | $ | 100 | ||||||||||
Other changes in fair value | (6 | ) | (151 | ) | (157 | ) | ||||||||||
Debt fair value losses, net | $ | — | $ | (57 | ) | $ | (57 | ) | ||||||||
21. | Commitments and Contingencies |
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As of December 31, | ||||
2008 | ||||
(Dollars in millions) | ||||
2009 | $ | 40 | ||
2010 | 37 | |||
2011 | 37 | |||
2012 | 32 | |||
2013 | 20 | |||
Thereafter | 47 | |||
Total | $ | 213 | ||
22. | Selected Quarterly Financial Information (Unaudited) |
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For the 2008 Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(Dollars and shares in millions, | ||||||||||||||||
except per share amounts) | ||||||||||||||||
Interest income: | ||||||||||||||||
Trading securities | $ | 1,737 | $ | 1,376 | $ | 1,416 | $ | 1,349 | ||||||||
Available-for-sale securities | 3,085 | 3,087 | 3,295 | 3,747 | ||||||||||||
Mortgage loans | 5,662 | 5,769 | 5,742 | 5,519 | ||||||||||||
Other | 458 | 232 | 310 | 339 | ||||||||||||
Total interest income | 10,942 | 10,464 | 10,763 | 10,954 | ||||||||||||
Interest expense: | ||||||||||||||||
Short-term debt | 2,561 | 1,687 | 1,680 | 1,887 | ||||||||||||
Long-term debt | 6,691 | 6,720 | 6,728 | 6,387 | ||||||||||||
Total interest expense | 9,252 | 8,407 | 8,408 | 8,274 | ||||||||||||
Net interest income | 1,690 | 2,057 | 2,355 | 2,680 | ||||||||||||
Guaranty fee income | 1,752 | 1,608 | 1,475 | 2,786 | ||||||||||||
Trust management income | 107 | 75 | 65 | 14 | ||||||||||||
Investment losses, net | (111 | ) | (883 | ) | (1,624 | ) | (4,602 | ) | ||||||||
Fair value gains (losses), net | (4,377 | ) | 517 | (3,947 | ) | (12,322 | ) | |||||||||
Debt extinguishment gains (losses), net | (145 | ) | (36 | ) | 23 | (64 | ) | |||||||||
Losses from partnership investments | (141 | ) | (195 | ) | (587 | ) | (631 | ) | ||||||||
Fee and other income | 227 | 225 | 164 | 156 | ||||||||||||
Non-interest income (loss) | (2,688 | ) | 1,311 | (4,431 | ) | (14,663 | ) | |||||||||
Administrative expenses: | ||||||||||||||||
Salaries and employee benefits | 286 | 304 | 167 | 275 | ||||||||||||
Professional services | 136 | 114 | 139 | 140 | ||||||||||||
Occupancy expenses | 54 | 55 | 52 | 66 | ||||||||||||
Other administrative expenses | 36 | 39 | 43 | 73 | ||||||||||||
Total administrative expenses | 512 | 512 | 401 | 554 | ||||||||||||
Minority interest in earnings (losses) of consolidated subsidiaries | — | 3 | (25 | ) | 1 | |||||||||||
Provision for credit losses | 3,073 | 5,085 | 8,763 | 11,030 | ||||||||||||
Foreclosed property expense | 170 | 264 | 478 | 946 | ||||||||||||
Other expenses | 360 | 247 | 195 | 291 | ||||||||||||
Total expenses | 4,115 | 6,111 | 9,812 | 12,822 | ||||||||||||
Loss before federal income taxes and extraordinary losses | (5,113 | ) | (2,743 | ) | (11,888 | ) | (24,805 | ) | ||||||||
Provision (benefit) for federal income taxes | (2,928 | ) | (476 | ) | 17,011 | 142 | ||||||||||
Loss before extraordinary losses | (2,185 | ) | (2,267 | ) | (28,899 | ) | (24,947 | ) | ||||||||
Extraordinary losses, net of tax effect | (1 | ) | (33 | ) | (95 | ) | (280 | ) | ||||||||
Net loss | $ | (2,186 | ) | $ | (2,300 | ) | $ | (28,994 | ) | $ | (25,227 | ) | ||||
Preferred stock dividends and issuance costs at redemption | (322 | ) | (303 | ) | (419 | ) | (25 | ) | ||||||||
Net loss available to common stockholders | $ | (2,508 | ) | $ | (2,603 | ) | $ | (29,413 | ) | $ | (25,252 | ) | ||||
Basic loss per share: | ||||||||||||||||
Loss before extraordinary losses | $ | (2.57 | ) | $ | (2.51 | ) | $ | (12.96 | ) | $ | (4.42 | ) | ||||
Extraordinary loss, net of tax effect | — | (0.03 | ) | (0.04 | ) | (0.05 | ) | |||||||||
Basic loss per share | $ | (2.57 | ) | $ | (2.54 | ) | $ | (13.00 | ) | $ | (4.47 | ) | ||||
Diluted loss per share: | ||||||||||||||||
Loss before extraordinary losses | $ | (2.57 | ) | $ | (2.51 | ) | $ | (12.96 | ) | $ | (4.42 | ) | ||||
Extraordinary losses, net of tax effect | — | (0.03 | ) | (0.04 | ) | (0.05 | ) | |||||||||
Diluted loss per share | $ | (2.57 | ) | $ | (2.54 | ) | $ | (13.00 | ) | $ | (4.47 | ) | ||||
Cash dividends per common share | $ | 0.35 | $ | 0.35 | $ | 0.05 | $ | — | ||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 975 | 1,025 | 2,262 | 5,652 | ||||||||||||
Diluted | 975 | 1,025 | 2,262 | 5,652 |
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For the 2007 Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(Dollars and shares in millions, | ||||||||||||||||
except per share amounts) | ||||||||||||||||
Interest income: | ||||||||||||||||
Trading securities | $ | 191 | $ | 387 | $ | 649 | $ | 824 | ||||||||
Available-for-sale securities | 5,212 | 5,001 | 4,929 | 4,300 | ||||||||||||
Mortgage loans | 5,385 | 5,625 | 5,572 | 5,636 | ||||||||||||
Other | 218 | 253 | 322 | 262 | ||||||||||||
Total interest income | 11,006 | 11,266 | 11,472 | 11,022 | ||||||||||||
Interest expense: | ||||||||||||||||
Short-term debt | 2,216 | 2,194 | 2,401 | 2,188 | ||||||||||||
Long-term debt | 7,596 | 7,879 | 8,013 | 7,698 | ||||||||||||
Total interest expense | 9,812 | 10,073 | 10,414 | 9,886 | ||||||||||||
Net interest income | 1,194 | 1,193 | 1,058 | 1,136 | ||||||||||||
Guaranty fee income | 1,098 | 1,120 | 1,232 | 1,621 | ||||||||||||
Losses on certain guaranty contracts | (283 | ) | (461 | ) | (294 | ) | (386 | ) | ||||||||
Trust management income | 164 | 150 | 146 | 128 | ||||||||||||
Investment gains (losses), net | 295 | (93 | ) | (159 | ) | (910 | ) | |||||||||
Fair value gains (losses), net | (566 | ) | 1,424 | (2,082 | ) | (3,444 | ) | |||||||||
Debt extinguishment gains (losses), net | (7 | ) | 48 | 31 | (119 | ) | ||||||||||
Losses from partnership investments | (165 | ) | (215 | ) | (147 | ) | (478 | ) | ||||||||
Fee and other income | 277 | 257 | 217 | 214 | ||||||||||||
Non-interest income (loss) | 813 | 2,230 | (1,056 | ) | (3,374 | ) | ||||||||||
Administrative expenses: | ||||||||||||||||
Salaries and employee benefits | 356 | 349 | 362 | 303 | ||||||||||||
Professional services | 246 | 216 | 192 | 197 | ||||||||||||
Occupancy expenses | 59 | 57 | 64 | 83 | ||||||||||||
Other administrative expenses | 37 | 38 | 42 | 68 | ||||||||||||
Total administrative expenses | 698 | 660 | 660 | 651 | ||||||||||||
Minority interest in earnings (losses) of consolidated subsidiaries | 1 | — | (4 | ) | (18 | ) | ||||||||||
Provision for credit losses | 249 | 434 | 1,087 | 2,794 | ||||||||||||
Foreclosed property expense | 72 | 84 | 113 | 179 | ||||||||||||
Other expenses | 96 | 108 | 130 | 326 | ||||||||||||
Total expenses | 1,116 | 1,286 | 1,986 | 3,932 | ||||||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 891 | 2,137 | (1,984 | ) | (6,170 | ) | ||||||||||
Provision (benefit) for federal income tax | (73 | ) | 187 | (582 | ) | (2,623 | ) | |||||||||
Income (loss) before extraordinary gains (losses) | 964 | 1,950 | (1,402 | ) | (3,547 | ) | ||||||||||
Extraordinary gains (losses), net of tax effect | (3 | ) | (3 | ) | 3 | (12 | ) | |||||||||
Net income (loss) | $ | 961 | $ | 1,947 | $ | (1,399 | ) | $ | (3,559 | ) | ||||||
Preferred stock dividends and issuance costs at redemption | (135 | ) | (118 | ) | (119 | ) | (141 | ) | ||||||||
Net income (loss) available to common stockholders | $ | 826 | $ | 1,829 | $ | (1,518 | ) | $ | (3,700 | ) | ||||||
Basic earnings (loss) per share: | ||||||||||||||||
Earnings (loss) before extraordinary gains (losses) | $ | 0.85 | $ | 1.88 | $ | (1.56 | ) | $ | (3.79 | ) | ||||||
Extraordinary gains (losses), net of tax effect | — | — | — | (0.01 | ) | |||||||||||
Basic earnings (loss) per share | $ | 0.85 | $ | 1.88 | $ | (1.56 | ) | $ | (3.80 | ) | ||||||
Diluted earnings (loss) per share: | ||||||||||||||||
Earnings (loss) before extraordinary gains (losses) | $ | 0.85 | $ | 1.86 | $ | (1.56 | ) | $ | (3.79 | ) | ||||||
Extraordinary gains (losses), net of tax effect | — | — | — | (0.01 | ) | |||||||||||
Diluted earnings (loss) per share | $ | 0.85 | $ | 1.86 | $ | (1.56 | ) | $ | (3.80 | ) | ||||||
Cash dividends per common share | $ | 0.40 | $ | 0.50 | $ | 0.50 | $ | 0.50 | ||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 973 | 973 | 974 | 974 | ||||||||||||
Diluted | 974 | 1,001 | 974 | 974 |
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23. | Subsequent Events |
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