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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 26, 2009
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
         
Federally chartered corporation   000-50231   52-0883107
(State or other jurisdiction   (Commission   (IRS Employer
of incorporation)   File Number)   Identification Number)
     
3900 Wisconsin Avenue, NW   20016
Washington, DC   (Zip Code)
(Address of principal executive offices)    
Registrant’s telephone number, including area code: 202-752-7000
(Former Name or Former Address, if Changed Since Last Report):                     
     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 

 

     The information in this report, including information in the exhibits submitted herewith, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure document relating to Fannie Mae, except to the extent, if any, expressly incorporated by specific reference in that document.
Item 2.02   Results of Operations and Financial Condition
     On February 26, 2009, Fannie Mae (formally known as the Federal National Mortgage Association) filed its annual report on Form 10-K for the year ended December 31, 2008 and issued a news release reporting its financial results for the periods covered by the Form 10-K. The news release, a copy of which is furnished as Exhibit 99.1 to this report, is incorporated herein by reference.
Item 7.01   Regulation FD Disclosure
     On February 26, 2009, Fannie Mae posted to its Web site a 2008 Credit Supplement presentation consisting primarily of information about Fannie Mae’s mortgage credit book of business. The presentation, a copy of which is furnished as Exhibit 99.2 to this report, is incorporated herein by reference. Fannie Mae’s Web site address is www.fanniemae.com. Information appearing on the company’s Web site is not incorporated into this report.
Item 9.01   Financial Statements and Exhibits.
     (d) Exhibits. The exhibit index filed herewith is incorporated herein by reference.

2

 

SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
         
  FEDERAL NATIONAL MORTGAGE ASSOCIATION
 		  
  By   /s/ David C. Hisey    
    David C. Hisey   
    Executive Vice President and
Deputy Chief Financial Officer 		  
 
Date: February 26, 2009

3

 

EXHIBIT INDEX
The following exhibits are submitted herewith:
     
Exhibit Number   Description of Exhibit
99.1
  News release, dated February 26, 2009
 
    
99.2
  2008 Credit Supplement presentation, dated February 26, 2009

4

exv99w1
Exhibit 99.1
 
(LOGO)   (LOGO)
Resource Center: 1-800-732-6643
Contact:   Brian Faith
202-752-6720
Number: 4624a
Date: February 26, 2009
Fannie Mae Reports Fourth-Quarter and Full-Year 2008 Results
Fourth-Quarter Loss of $25.2 Billion Driven by Fair Value Losses, Credit-Related Expenses,
and Securities Impairments
WASHINGTON, DC — Fannie Mae (FNM/NYSE) reported a loss of $25.2 billion, or ($4.47) per diluted share, in the fourth quarter of 2008, compared with a third-quarter 2008 loss of $29.0 billion, or ($13.00) per diluted share. Fourth-quarter results were driven primarily by $12.3 billion in net fair value losses, credit-related expenses of $12.0 billion, and securities impairments of $4.6 billion, as deterioration in mortgage performance, home prices, and in the credit markets continued to adversely affect our financial results.
For the full year of 2008, Fannie Mae reported a loss of $58.7 billion, or ($24.04) per diluted share, compared with a loss of $2.1 billion, or ($2.63) per diluted share, for 2007. Since September 6, 2008, the company has been operating under the conservatorship of the Federal Housing Finance Agency (FHFA). On February 25, 2009, the Director of FHFA submitted a request for $15.2 billion from the U.S. Department of the Treasury on our behalf under the terms of the Senior Preferred Stock Purchase Agreement in order to eliminate our net worth deficit as of December 31, 2008. FHFA has requested that Treasury provide the funds on or prior to March 31, 2009.
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Fourth-Quarter and Full-Year Results
Page Two
Summary of Fourth-Quarter and Full-Year 2008 Financial Results
                                                 
(dollars in millions)   4Q08     3Q08     Variance     2008     2007(1)     Variance  
 
                                                
Net interest income
   $ 2,680     $ 2,355     $ 325     $ 8,782     $ 4,581     $ 4,201  
Guaranty fee income
     2,786       1,475       1,311       7,621       5,071       2,550  
Trust management income
     14       65       (51 )     261       588       (327 )
Fee and other income
     156       164       (8 )     772       965       (193 )
 
                                    
Net revenues
     5,636       4,059       1,577       17,436       11,205       6,231  
Fair value losses, net
     (12,322 )     (3,947 )     (8,375 )     (20,129 )     (4,668 )     (15,461 )
Investment losses, net
     (4,602 )     (1,624 )     (2,978 )     (7,220 )     (867 )     (6,353 )
Losses from partnership investments
     (631 )     (587 )     (44 )     (1,554 )     (1,005 )     (549 )
Losses on certain guaranty contracts (2)
     —       —       —       —       (1,424 )     1,424  
Credit-related expenses (3)
     (11,976 )     (9,241 )     (2,735 )     (29,809 )     (5,012 )     (24,797 )
Administrative expenses
     (554 )     (401 )     (153 )     (1,979 )     (2,669 )     690  
Other non-interest expenses (4)
     (356 )     (147 )     (209 )     (1,294 )     (686 )     (608 )
 
                                    
Net losses and expenses
     (30,441 )     (15,947 )     (14,494 )     (61,985 )     (16,331 )     (45,654 )
Loss before federal income taxes and extraordinary
losses
     (24,805 )     (11,888 )     (12,917 )     (44,549 )     (5,126 )     (39,423 )
(Provision) benefit for federal income taxes
     (142 )     (17,011 )     16,869       (13,749 )     3,091       (16,840 )
Extraordinary losses, net of tax effect
     (280 )     (95 )     (185 )     (409 )     (15 )     (394 )
 
                                    
Net loss
   $ (25,227 )   $ (28,994 )   $ 3,767     $ (58,707 )   $ (2,050 )   $ (56,657 )
 
                                    
 
                                                
Diluted loss per common share
   $ (4.47 )   $ (13.00 )   $ 8.53     $ (24.04 )   $ (2.63 )   $ (21.41 )
 
                                    
 
(1)   Certain amounts have been reclassified to conform to the current presentation.
 
(2)   Reflects a change in valuation methodology in conjunction with the adoption of SFAS 157 on January 1, 2008.
 
(3)   Consists of provision for credit losses and foreclosed property expense.
 
(4)   Consists of the following: (a) debt extinguishment gains (losses), net; (b) minority interest in earnings (losses) of consolidated subsidiaries and (c) other expenses.
Net revenue rose 39 percent to $5.6 billion in the fourth quarter from $4.1 billion in the third quarter:
  •   Net interest income was $2.7 billion, up 14 percent from $2.4 billion in the third quarter, due to a continued shift to lower-cost, short-term funding, which reduced the average cost of our debt, and portfolio growth. For the year, net interest income was $8.8 billion, up 92 percent from $4.6 billion in 2007.
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Fourth-Quarter and Full-Year Results
Page Three
  •   Guaranty fee income was $2.8 billion, up 89 percent from $1.5 billion in the third quarter, due to accelerated amortization of upfront guaranty fees, as lower interest rates led to a faster rate of estimated prepayments. For the year, guaranty fee income was $7.6 billion, up 50 percent from $5.1 billion in 2007.
For the year, net revenue was $17.4 billion, up 56 percent from $11.2 billion in 2007.
Net fair value losses were $12.3 billion in the fourth quarter, compared with $3.9 billion in the third quarter. The primary drivers of the fourth-quarter loss were $11.4 billion of mark-to-market losses on our derivatives due to significant interest rate declines in the period, and $1.9 billion in trading securities losses due to widening credit spreads. For the year, net fair value losses were $20.1 billion, compared with net fair value losses of $4.7 billion in 2007.
Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $12.0 billion in the fourth quarter, up 30 percent from $9.2 billion in the third quarter. Credit-related expenses remained at a level higher than our charge-offs of $2.0 billion during the quarter, as we continued to build our combined loss reserves. For the year, credit-related expenses were $29.8 billion, up 495 percent from $5.0 billion in 2007. Charge-offs were $7.0 billion in 2008, up 219 percent from $2.2 billion in 2007.
Combined loss reserves were $24.8 billion on December 31, 2008, up from $15.6 billion on September 30, 2008, and $3.4 billion on December 31, 2007. The combined loss reserves were 0.83 percent of our guaranty book of business on December 31, 2008, compared with 0.53 percent on September 30, 2008, and 0.12 percent on December 31, 2007. We made a substantial addition to our combined loss reserves to reflect our current estimate of losses that had been incurred in our book of business as of December 31, 2008.
Net investment losses were $4.6 billion in the fourth quarter, compared with losses of $1.6 billion in the third quarter. The fourth-quarter loss was driven by other-than-temporary impairments of available-for-sale securities backed by Alt-A and subprime mortgages, as home values continued to decline and estimated loss severities for these loan types increased. For the year, net investment losses were $7.2 billion, compared with net investment losses of $867 million in 2007.
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Fourth-Quarter and Full-Year Results
Page Four
Total nonperforming loans were $119.2 billion on December 31, 2008, compared with $63.6 billion on September 30, 2008, and $27.2 billion on December 31, 2007. The carrying value of our foreclosed properties was $6.6 billion on December 31, 2008, compared with $7.3 billion on September 30, 2008, and $3.5 billion on December 31, 2007.
Diluted loss per share reflects the average weighted balance of our shares outstanding, assuming the full exercise of the common stock warrant issued to the Treasury. The warrant, which was issued to the Treasury on September 7, 2008, increased weighted-average shares outstanding to 5.652 billion for the fourth quarter and 2.487 billion for the full year.
Further information about our credit performance, the characteristics of our mortgage credit book of business, the drivers of our credit losses, our foreclosure prevention efforts, and other measures is contained in the “2008 Credit Supplement” on Fannie Mae’s Web site, www.fanniemae.com. We provide further discussion of our financial results and condition, credit performance, fair value balance sheets and other matters in our annual report on Form 10-K for the year ended December 31, 2008, which was filed today with the Securities and Exchange Commission.
Net Worth and U.S. Treasury Funding
We had a net worth deficit of $15.2 billion on December 31, 2008, compared with a positive net worth of $9.4 billion on September 30, 2008. “Net worth” refers to the amount by which our total assets exceed our total liabilities as reflected on our consolidated balance sheets prepared in accordance with generally accepted accounting principles (GAAP). As noted above, the Director of FHFA has requested $15.2 billion of funds from the Treasury on our behalf under the terms of the Senior Preferred Stock Purchase Agreement between Fannie Mae and the Treasury to eliminate our net worth deficit as of December 31, 2008, which would avoid a trigger of mandatory receivership under the Federal Housing Finance Regulatory Reform Act of 2008.
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Fourth-Quarter and Full-Year Results
Page Five
On February 18, 2009, the Treasury announced that it is amending the Senior Preferred Stock Purchase Agreement to increase its funding commitment to $200 billion from $100 billion. Treasury said it would provide a similar increase to Freddie Mac. Treasury also announced that it would increase the size of our mortgage portfolio allowed under the agreement by $50 billion to $900 billion, with a corresponding increase in our allowable debt outstanding. Treasury Secretary Timothy Geithner said in a statement that these measures would “provide forward-looking confidence in the mortgage market and enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners.”
We expect the market conditions that contributed to our net loss for each quarter of 2008 to continue and possibly worsen in 2009, which is likely to cause further reductions in our net worth. Our stockholders’ deficit, which differs from net worth because of minority interests that third parties own in our consolidated subsidiaries, was $15.3 billion on December 31, 2008.
Fair Value Update
The estimated fair value of our net assets declined from $35.8 billion on December 31, 2007, to negative $105.2 billion on December 31, 2008, reflecting the ongoing deterioration in the housing and credit markets and dislocation in the financial markets. The main drivers of this decline were:
  •   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, as well as our commercial mortgage-backed securities. These wider spreads and the associated decrease in fair value largely reflect the market expectation of higher future expected credit losses on these securities.
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Fourth-Quarter and Full-Year Results
Page Six
  •   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.
Fair value is intended to convey the current value of an asset or liability as of the measurement date, not the potential value of the asset or liability that may be realized from future cash flows associated with the asset or liability. For example, the dramatic decline in the fair value of our mortgage investments during 2008 was due in part to the significant widening of spreads during the year, which does not affect the cash flows to be received over the life of the mortgage investments. In general, fair value incorporates the market’s current view of the future, which is reflected in the current price of the asset or liability. However, future market conditions may be more severe than the market has currently estimated and priced into these fair value measures. Finally, the fair value balance sheet reflects only the value of the assets and liabilities of the enterprise as of a point in time (the balance sheet date) and does not reflect the value of new assets or liabilities the company may generate in the future. Because our intent generally has been to hold our mortgage investments, the amounts we ultimately realize from the maturity, settlement or disposition of these assets may vary significantly from the estimated fair values of these assets as of December 31, 2008.
Foreclosure Prevention Update
On February 18, 2009, the Obama Administration announced the Homeowner Affordability and Stability Plan, which includes several initiatives. Under the plan, Fannie Mae will offer to financially struggling homeowners loan modifications that reduce monthly principal and interest payments on their mortgages. We will also help existing Fannie Mae borrowers who have mortgages with current loan-to-value ratios up to 105 percent refinance their mortgages without obtaining new mortgage insurance in excess of what was already in place. Lastly, we will play a role in administering the plan on behalf of the Treasury.
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Fourth-Quarter and Full-Year Results
Page Seven
In the fourth quarter, Fannie Mae undertook a number of initiatives to slow the pace of foreclosures and encourage loan workouts. These included a foreclosure suspension on occupied properties and the implementation of the Streamlined Modification Program (SMP). We expect that the Homeowner Affordability and Stability Plan will replace the SMP. Fannie Mae also provided its mortgage-servicing partners new flexibilities, including allowing loan workout actions to begin as soon as a borrower demonstrates the need for help, regardless of delinquency status. In addition, Fannie Mae doubled the maximum repayment-plan and forbearance periods for borrowers in need of loan workouts.
Fannie Mae provided the following update to its foreclosure prevention efforts (including those undertaken in conjunction with its servicing partners) for the fourth quarter and full year:
  •   HomeSaver Advance™ loans of 25,783 in the fourth quarter, and 70,943 in 2008.
 
  •   Loan modifications of 6,276 in the fourth quarter, and 33,249 in 2008.
 
  •   Repayment plans/forbearances of 1,765 in the fourth quarter, and 7,875 in 2008.
 
  •   Preforeclosure sales and deeds-in-lieu of foreclosure of 4,668 in the fourth quarter, and 11,682 in 2008.
We acquired 20,998 single-family real estate-owned (REO) properties through foreclosure in the fourth quarter, compared with 29,583 in the third quarter. For the full year, single-family REO acquisitions were 94,652, compared with 49,121 in 2007. As of December 31, 2008, our inventory of single-family REO properties was 63,538, compared with 67,519 at the end of the third quarter and 33,729 on December 31, 2007. The decline in REO in the fourth quarter relative to the third quarter was due in part to a suspension of foreclosures on occupied single-family properties by Fannie Mae servicers and retained foreclosure attorneys that began on November 26, 2008. That program has been extended until March 6, 2009.
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Fourth-Quarter and Full-Year Results
Page Eight
Our single-family foreclosure rate, which reflects the number of single-family properties acquired through foreclosure as a percentage of the total number of loans in our conventional single-family mortgage credit book of business, was 0.46 percent on an annualized basis for the fourth quarter of 2008, compared with 0.65 percent on an annualized basis in the third quarter of 2008. The foreclosure rate was 0.52 percent for the year ended December 31, 2008, compared with 0.28 percent for 2007.
Business and Liquidity Update
Our mortgage credit book of business increased to $3.11 trillion on December 31, 2008, from $3.08 trillion on September 30, 2008, and $2.89 trillion on December 31, 2007. New business acquisitions — Fannie Mae MBS issuances acquired by others and our mortgage portfolio purchases — declined in the fourth quarter to $113.3 billion from $126.9 billion in the third quarter, and to $631.4 billion in 2008 from $746.1 billion in 2007. The decline reflected significantly lower levels of originations throughout the mortgage industry, as well as changes in our pricing and eligibility standards and those of mortgage insurance companies.
Our estimated market share of new, single-family mortgage-related securities issuances was 41.7 percent in the fourth quarter, down from 42.2 percent in the third quarter; and 45.4 percent for 2008, compared with 33.9 percent for 2007.
Our ability to issue debt at attractive terms, particularly long-term and callable debt, began to deteriorate significantly in July 2008, and these conditions became most pronounced in October and November 2008, when spreads between our debt and relevant benchmarks increased substantially and purchases of our debt by international investors fell. As a result, we relied increasingly on the issuance of short-term debt to pay off maturing debt and to fund our ongoing business activities. Short-term debt represented 38 percent of our total debt outstanding on December 31, 2008, compared with 29 percent on December 31, 2007. We have seen significant improvement in our access to the debt markets since late November 2008, continuing into the first two months of this year, but there can be no assurance that this improvement will continue.
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Fourth-Quarter and Full-Year Results
Page Nine
On February 5, 2009, we issued $7 billion of 5-year Benchmark Notes® at a spread of 93 basis points to comparable Treasury securities, a significant improvement in size and pricing from the fourth quarter. And on February 26, 2009, we priced $15 billion of 2-year Benchmark Notes at a spread of 68 basis points to comparable Treasury securities.
Fannie Mae conducts its activities through three complementary business segments: Single-Family Credit Guaranty, Housing and Community Development (HCD), and Capital Markets. Our Single-Family Credit Guaranty business works with our lender customers to securitize single-family mortgage loans into Fannie Mae mortgage-backed securities (MBS) and to facilitate the purchase of single-family mortgage loans for our mortgage portfolio. HCD works with our lender customers to securitize multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily mortgage loans for our mortgage portfolio. Our HCD business also makes debt and equity investments to increase the supply of affordable housing. Our Capital Markets group manages our investment activity in mortgage loans, mortgage-related securities and other investments, our debt financing activity, and our liquidity and capital positions.
Single-Family Credit Guaranty book of business was $2.80 trillion on December 31, 2008, up 1.1 percent from $2.77 trillion on September 30, 2008, and up 8.0 percent from $2.60 trillion on December 31, 2007. Single-family guaranty fee income in the fourth quarter was $3.0 billion, up from $1.7 billion in the third quarter. The Single-Family segment lost $9.5 billion in the quarter, driven largely by continued elevated credit-related expenses.
Housing and Community Development’s multifamily guaranty book of business grew by 2.1 percent in the fourth quarter to $173.3 billion on December 31, 2008. The segment’s guaranty fee income in the fourth quarter was $190 million, up from $161 million in the third quarter. Multifamily credit-related expenses were $59 million in the fourth quarter, compared with $26 million in the third quarter. The HCD segment earned $188 million in the quarter, driven primarily by tax-related benefits.
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Fourth-Quarter and Full-Year Results
Page Ten
Capital Markets’ net interest income in the fourth quarter was $2.7 billion, up from $2.3 billion in the third quarter. As described above, mark-to-market losses on interest rate derivatives were $11.4 billion, compared with losses of $3.3 billion in the third quarter. Net investment losses were $4.6 billion, compared with losses of $1.6 billion in the third quarter, and trading securities losses were $1.9 billion, compared with losses of $2.9 billion in the third quarter. The net mortgage investment portfolio balance rose to $765.1 billion on December 31, 2008, compared with $744.7 billion on September 30, 2008. The increase resulted from purchases of $53.3 billion, liquidations of $16.3 billion, and sales of $7.4 billion during the quarter. The Capital Markets segment lost $16.0 billion in the quarter, driven largely by mark-to-market losses on derivatives, as well as net investment losses and trading securities losses.
###
Certain statements in this news release, including those relating to future market conditions; our future performance and net worth; our receipt of funds from Treasury under the Senior Preferred Stock Purchase Agreement; our expected role in the Homeowner Affordability and Stability Plan and what we will offer to borrowers under the Plan; our future plans; and our future business activities, may be considered forward-looking statements within the meaning of the federal securities laws. Although Fannie Mae believes that the expectations set forth in these statements are based upon reasonable assumptions, future conditions and events may differ materially from what is indicated in any forward-looking statements. Factors that could cause actual conditions or events to differ materially from those described in these forward-looking statements include, but are not limited to, disruptions in the housing, credit and financial markets, the level and volatility of interest rates and credit spreads, the adequacy of our loss reserves, accounting pronouncements, regulatory or legislative action or litigation, the accuracy of subjective estimates used in critical accounting policies and those factors detailed in Fannie Mae’s annual report on Form 10-K for the year ended December 31, 2008, including the “Risk Factors” section of the report.
Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.
Benchmark Notes is a registered mark and HomeSaver Advance is a trademark of Fannie Mae. Unauthorized use of these marks is prohibited.

 

 

ANNEX I
FANNIE MAE
(In conservatorship)
 
Consolidated Balance Sheets
(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  
                 
 
See Notes to Consolidated Financial Statements


 

FANNIE MAE
(In conservatorship)
 
Consolidated Statements of Operations
(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  
 
See Notes to Consolidated Financial Statements


 

FANNIE MAE
(In conservatorship)
 
Consolidated Statements of Cash Flows
(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       —       —  
 
See Notes to Consolidated Financial Statements


 

FANNIE MAE
(In conservatorship)
 
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(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      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 fee buy-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 fee buy-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  
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 fee buy-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 
    —       —       —       —       —       —       (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 )
                                                                                         
See Notes to Consolidated Financial Statements


 

 
Supplemental Non-GAAP Consolidated Fair Value Balance Sheets
 
                                                 
    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 and buy-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  
                                                 
 
See Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures


 

Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures
 
(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.
 
(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 include buy-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 associated buy-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 and buy-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 the buy-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 because buy-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.


 

 
(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.


exv99w2
Exhibit 99.2
February 26, 2009 Fannie Mae 2008 Credit Supplement

 

These materials present tables and other information about Fannie Mae, including information contained in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2008, the "2008 Form 10-K." Some of the terms used in these materials are defined and discussed more fully in the 2008 Form 10-K. These materials should be reviewed together with the 2008 Form 10^K, a copy of which is available on Fannie Mae's website at www.fanniemae.com under the "Investor Relations" section of the Web site. This presentation includes forward-looking statements relating to future home price declines. These statements are based on our opinions, analyses, estimates, forecasts and other views on a variety of economic and other information, and changes in the assumptions and other information underlying these views could produce materially different results. The impact of future home price declines on our business, results or financial condition will depend on many other factors.

 

Table of Contents

 

Home Price Growth/Decline Rates in the U.S. We expect 2009 home price declines to be in the 7% to 12% range, based upon the Fannie Mae Home Price Index. This 7% to 12% range is comparable to a 12% to 18% range using the S&P/Case-Shiller index method. We expect peak-to-trough declines in home prices to be in the 20% to 30% range (33% to 46% using the S&P/Case-Shiller index method.) Note: Our estimates differ from the S&P/Case-Shiller index in two principal ways: (1) our estimates weight expectations for each individual property by number of properties, whereas the S&P/Case-Shiller index weights expectations of home price declines based on property value, such that declines in home prices on higher priced homes will have a greater effect on the overall result; and (2) our estimates do not include sales of foreclosed homes because we believe that differing maintenance practices and the forced nature of the sales make them less representative of market values, whereas the S&P/Case-Shiller index includes foreclosed property sales. The S&P/Case Shiller comparison numbers shown above are calculated using our models and assumptions, but modified to use these two factors (weighting of expectations based on property value and the inclusion of foreclosed property sales). In addition to these differences, our estimates are based on our own internally available data combined with publicly available data, and are therefore based on data collected nationwide, whereas the S&P/Case-Shiller index is based only on publicly available data, which may be limited in certain geographies. Our comparative calculations to the S&P/Case-Shiller index provided above are not modified to account for this data pool difference. S&P/Case-Shiller Index 9.8% 7.7% 10.6% 10.7% 14.6% 14.7% -0.3% -8.7% -18.2% Fannie Mae Home Price Index Growth rates are from period-end to period-end. *Initial estimate based on purchase transactions in Fannie-Freddie acquisition and public deed data available through the end of December 2008, supplemented by preliminary data available for January and February 2009. Including subsequent data may lead to materially different results.

 

Note: Regional home price growth percentages are a housing stock unit-weighted average of home price growth percentages of states within each region. Source: Fannie Mae. Initial estimate based on purchase transactions in Fannie-Freddie acquisition and public deed data available through the end of December 2008, supplemented by preliminary data available for January and February 2009. Including subsequent data may lead to materially different results. - - Top %: State/Region Home Price Decline Rate % from applicable peak in that state through December 31, 2008 - - Bottom %: % of Single-Family Conventional Mortgage Credit Book of Business by Unpaid Principal Balance as of December 31, 2008 Home Price Declines Peak-to-Current (by State) as of 2008 Q4 Percentage of Fannie Mae's Single-Family Conventional Mortgage Credit Book of Business United States -13.0% West North Central - -5.3% 5.3% Mountain - -19.6% 9.3% West South Central 1.7% 7.0% East South Central 2.7% 3.7% East North Central - -11.7% 13.0% New England - -13.6% 5.9% South Atlantic - -18.1% 21.4% Pacific - -29.2% 22.1% Middle Atlantic - -6.1% 11.9% State Home Price Decline Below -15% - -15% to -10% - -5% to 0% - -10% to -5%

 

Fannie Mae Credit Profile by Key Product Features Note: Categories are not mutually exclusive; numbers are not additive across columns. FICO scores reflected in the table are those provided by the Sellers of the mortgage loans at time of delivery. Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business * Excludes non-Fannie Mae securities held in portfolio and Alt-A and subprime wraps, for which Fannie Mae does not have loan-level information. Fannie Mae has access to detailed loan-level information on approximately 96% of our conventional single-family mortgage credit book of business. Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie Mae generally considers this information reliable, it does not guarantee that it is accurate or suitable for any particular purpose.

 

Fannie Mae Credit Profile by Vintage and Key Product Features Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business by Vintage * Excludes non-Fannie Mae securities held in portfolio and Alt-A and subprime wraps, for which Fannie Mae does not have loan-level information. Fannie Mae has access to detailed loan-level information on approximately 96% of our conventional single-family mortgage credit book of business. Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie Mae generally considers this information reliable, it does not guarantee that it is accurate or suitable for any particular purpose. Note: FICO scores reflected in the table are those provided by the Sellers of the mortgage loans at time of delivery.

 

Data as of December 31, 2008 is not necessarily indicative of the ultimate performance and are likely to change, perhaps materially, in future periods. Note: Cumulative default rates include loans that have been liquidated other than through voluntary pay-off or repurchase by lenders and include loan foreclosures, pre-foreclosure sales, sales to third parties and deeds in lieu of foreclosure.

 

Fannie Mae Credit Profile by State Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business by State * Excludes non-Fannie Mae securities held in portfolio and Alt-A and subprime wraps, for which Fannie Mae does not have loan-level information. Fannie Mae has access to detailed loan-level information on approximately 96% of our conventional single-family mortgage credit book of business. Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie Mae generally considers this information reliable, it does not guarantee that it is accurate or suitable for any particular purpose. Note: FICO scores reflected in the table are those provided by the Sellers of the mortgage loans at time of delivery.

 

Single-Family Serious Delinquency Rates by State and Region

 

Home Price Growth/Decline and Fannie Mae Single-Family Real Estate Owned (REO) in Selected States On a national basis, REO net sales prices compared with unpaid principal balances of mortgage loans have decreased as follows, driving increases in loss severities: 93% in 2005 89% in 2006 78% in 2007 74% in 2008 Q1 74% in 2008 Q2 70% in 2008 Q3 61% in 2008 Q4

 

Fannie Mae Alt-A Credit Profile by Key Product Features Credit Characteristics of Alt-A Loans in Single-Family Mortgage Credit Book of Business by Vintage * Excludes non-Fannie Mae securities held in portfolio and Alt-A and subprime wraps, for which Fannie Mae does not have loan-level information. Fannie Mae has access to detailed loan-level information on approximately 96% of our conventional single-family mortgage credit book of business. Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie Mae generally considers this information reliable, it does not guarantee that it is accurate or suitable for any particular purpose. Note: FICO scores reflected in the table are those provided by the Sellers of the mortgage loans at time of delivery.

 

Fannie Mae Alt-A Loans Versus Loans Underlying Private-Label Alt-A Securities Private-label securities data source are from First American CoreLogic, LoanPerformance data, which estimates it captures 97 percent of Alt-A private- label securities. The private-label securities data include some loans that Fannie Mae holds in its Alt-A securities portfolio.

 

Workouts by Type Modifications: involve changes to the original mortgage terms, that may include a change to the product type, interest rate, amortization term, maturity date and/or unpaid principal balance. Includes modifications of conventional and government (FHA/VA) loans. HomeSaver AdvanceTM: 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. Repayment plans: borrowers repay past due principal and interest over a reasonable period of time through temporarily higher monthly payments. Loans with repayment plans are included for loans that were at least 60 days delinquent. Our 2008 Form 10-K reports loans with repayment plans only for loans that were at least 90 days delinquent. Forbearances: lender agrees to suspend or reduce borrower payments for a period of time. Preforeclosure sales: 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. Deeds in lieu of foreclosure: borrowers voluntarily sign over title of their property to servicers to satisfy the first lien mortgage obligation and avoid foreclosure.

 

Loan Modifications by Type