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Consolidations and Transfers of Financial Assets
12 Months Ended
Dec. 31, 2012
Consolidations and Transfers of Financial Assets [Abstract]  
Consolidations and Transfers of Financial Assets
Consolidations and Transfers of Financial Assets
We have interests in various entities that are considered to be VIEs. The primary types of entities are securitization trusts guaranteed by us via lender swap and portfolio securitization transactions, mortgage and asset-backed trusts that were not created by us, as well as housing partnerships that are established to finance the acquisition, construction, development or rehabilitation of affordable multifamily and single-family housing. These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct these activities.
Types of VIEs
Securitization Trusts
Under our lender swap and portfolio securitization transactions, mortgage loans are transferred to a trust specifically for the purpose of issuing a single class of guaranteed securities that are collateralized by the underlying mortgage loans. The trust’s permitted activities include receiving the transferred assets, issuing beneficial interests, establishing the guaranty and servicing the underlying mortgage loans. In our capacity as issuer, master servicer, trustee and guarantor, we earn fees for our obligations to each trust. Additionally, we may retain or purchase a portion of the securities issued by each trust. We have securitized mortgage loans since 1981.
In our structured securitization transactions, we earn fees for assisting lenders and dealers with the design and issuance of structured mortgage-related securities. The trusts created in these transactions have permitted activities that are similar to those for our lender swap and portfolio securitization transactions. The assets of these trusts may include mortgage-related securities and/or mortgage loans. The trusts created for Fannie Mae Mega securities issue single-class securities while the trusts created for REMIC, grantor trust and stripped mortgage-backed securities (“SMBS”) issue single-class and multi-class securities, the latter of which separate the cash flows from underlying assets into separately tradable interests. Our obligations and continued involvement in these trusts are similar to those described for lender swap and portfolio securitization transactions. We have securitized mortgage assets in structured transactions since 1986.
We also invest in mortgage-backed securities that have been issued via private-label trusts. These trusts are structured to provide investors with a beneficial interest in a pool of receivables or other financial assets, typically mortgage loans. The trusts act as vehicles to allow loan originators to securitize assets. Securities are structured from the underlying pool of assets to provide for varying degrees of risk. The originators of the financial assets or the underwriters of the transaction create the trusts and typically own the residual interest in the trusts’ assets. Our involvement in these entities is typically limited to our recorded investment in the beneficial interests that we have purchased. We have invested in these vehicles since 1987.
Limited Partnerships
We have historically made equity investments in various limited partnerships that sponsor affordable housing projects utilizing the low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to increase the supply of affordable housing in the United States and to serve communities in need. In addition, our investments in LIHTC partnerships generate both tax credits and net operating losses that may reduce our federal income tax liability. Our LIHTC investments primarily represent limited partnership interests in entities that have been organized by a fund manager who acts as the general partner. These fund investments seek out equity investments in LIHTC operating partnerships that have been established to identify, develop and operate multifamily housing that is leased to qualifying residential tenants.
We no longer recognize net operating losses or impairment on our LIHTC partnership investments as the carrying value was reduced to zero in the consolidated financial statements as of December 31, 2009. We did not make any LIHTC investments in 2012, other than pursuant to existing prior commitments.
Consolidated VIEs
If an entity is a VIE, we consider whether our variable interest in that entity causes us to be the primary beneficiary. The primary beneficiary of the VIE is required to consolidate and account for the assets, liabilities and noncontrolling interests of the VIE in its consolidated financial statements. An enterprise is deemed to be the primary beneficiary when the enterprise has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and exposure to benefits and/or losses could potentially be significant to the entity. In general, the investors in the obligations of consolidated VIEs have recourse only to the assets of those VIEs and do not have recourse to us, except where we provide a guaranty to the VIE.
As of December 31, 2012, we consolidated certain VIEs that were not consolidated as of December 31, 2011, generally due to increases in the amount of the certificates issued by the entity that are held in our portfolio (for example, when we hold a substantial portion of the securities issued by Fannie Mae multi-class resecuritization trusts). As a result of consolidating these entities, which had combined total assets of $3.5 billion in unpaid principal balance as of December 31, 2012, we derecognized our investment in these entities and recognized the assets and liabilities of the consolidated entities at fair value.
As of December 31, 2012, we also deconsolidated certain VIEs that were consolidated as of December 31, 2011, generally due to decreases in the amount of the certificates issued by the entity that are held in our portfolio. As a result of deconsolidating these entities, which had combined total assets of $102 million in unpaid principal balance as of December 31, 2011, we derecognized the assets and liabilities of the entities and recognized at fair value our retained interests as securities in our consolidated balance sheets.
Unconsolidated VIEs
We do not consolidate VIEs when we are not deemed to be the primary beneficiary. Our unconsolidated VIEs include securitization trusts, as well as other investment entities. The following table displays the carrying amount and classification of our assets and liabilities that relate to our involvement with unconsolidated VIEs as of December 31, 2012 and 2011, as well as our maximum exposure to loss and the total assets of those unconsolidated VIEs.
 
 
 
As of December 31, 2012
 
 
 
Mortgage-Backed Trusts
 
Limited Partnership Investments
 
 
 
(Dollars in millions)
Assets and liabilities recorded in our consolidated balance sheets:
 
 
 

 
Assets:
 
 
 

 
Available-for-sale securities(1)
$
57,004

 
 
$

 
Trading securities(1)
22,706

 
 

 
Other assets
145

 
 
120

 
Other liabilities
(1,449
)
 
 
(124
)
 
Net carrying amount
$
78,406

 
 
$
(4
)
 
Maximum exposure to loss(1)
$
87,397

 
 
$
118

 
Total assets of unconsolidated VIEs(1)
$
645,332

 
 
$
11,675

 
  
 
 
 
 
 
  
 
  
 
 
 
 
 
  
 

As of December 31, 2011

Mortgage-Backed Trusts
 
Asset-Backed Trusts
 
Limited Partnership Investments

(Dollars in millions)
 
Assets and liabilities recorded in our consolidated balance sheets:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities (1)
$
69,101

 
$

 
 
$

 
Trading securities (1)
24,292

 
2,111

 
 

 
Other assets
271

 

 
 
145

 
Other liabilities
(1,347
)
 

 
 
(153
)
 
Net carrying amount
$
92,317

 
$
2,111

 
 
$
(8
)
 
Maximum exposure to loss (1)
$
100,146

 
$
2,111

 
 
$
137

 
Total assets of unconsolidated VIEs (1)
$
641,346

 
$
256,845

 
 
$
12,256

 
__________
(1) 
Contains securities recognized in our consolidated balance sheets due to consolidation of certain multi-class resecuritization trusts.
Our maximum exposure to loss generally represents the greater of our recorded investment in the entity or the unpaid principal balance of the assets covered by our guaranty. However, our securities issued by Fannie Mae multi-class resecuritization trusts that are not consolidated do not give rise to any additional exposure to loss as we already consolidate the underlying collateral.
Transfers of Financial Assets
We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgage-related securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer assets from our own portfolio in a portfolio securitization transaction. For the years ended December 31, 2012, 2011 and 2010, the unpaid principal balance of portfolio securitizations was $225.1 billion, $118.5 billion and $120.0 billion, respectively.
The following table displays some key characteristics of the securities retained in unconsolidated portfolio securitization trusts as of December 31, 2012 and 2011.
 
Fannie Mae Single-class MBS & Fannie Mae Megas
 
REMICS & SMBS
 
(Dollars in millions)
As of December 31, 2012
 
 
 
 
 
Unpaid principal balance
$
456

 
 
$
8,667

 
Fair value
504

 
 
9,818

 
Weighted-average coupon
6.20

%
 
5.53

%
Weighted-average loan age
6.4

years
 
4.6

years
Weighted-average maturity
22.5

years
 
15.0

years
 
 
 
 
 
 
As of December 31, 2011
 
 
 
 
 
Unpaid principal balance
$
588

 
 
$
12,697

 
Fair value
654

 
 
14,043

 
Weighted-average coupon
6.21

%
 
5.86

%
Weighted-average loan age
5.4

years
 
4.5

years
Weighted-average maturity
23.5

years
 
18.6

years

For the years ended December 31, 2012, 2011 and 2010, the principal and interest received on retained interests was $2.4 billion, $3.0 billion and $3.5 billion, respectively.
Managed Loans
We define “managed loans” as on-balance sheet mortgage loans as well as mortgage loans that we have securitized in unconsolidated portfolio securitization trusts. The following table displays the unpaid principal balances of managed loans, including those managed loans that were delinquent as of December 31, 2012 and 2011.
 
As of December 31,
 
2012
 
2011
 
Unpaid Principal Balance
 
Principal Amount of Delinquent Loans(1)
 
Unpaid Principal Balance
 
Principal Amount of Delinquent Loans(1)
 
 
(Dollars in millions)
 
Loans held for investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
 
$
370,354

 
 
 
$
102,504

 
 
 
$
396,276

 
 
 
$
122,392

 
Of consolidated trusts
 
2,607,880

 
 
 
17,829

 
 
 
2,570,339

 
 
 
24,893

 
Loans held for sale
 
459

 
 
 
135

 
 
 
312

 
 
 
57

 
Securitized loans
 
2,272

 
 
 
4

 
 
 
2,273

 
 
 
71

 
Total loans managed
 
$
2,980,965

 
 
 
$
120,472

 
 
 
$
2,969,200

 
 
 
$
147,413

 
__________
(1) 
Represents the unpaid principal balance of loans held for investment, loans held for sale and securitized loans for which we are no longer accruing interest and loans 90 days or more delinquent which are continuing to accrue interest.
Qualifying Sales of Portfolio Securitizations
As we consolidate the substantial majority of our single-class MBS trusts, these portfolio securitization transactions do not qualify for sale treatment. Therefore, the assets and liabilities of consolidated trusts created via portfolio securitization transactions that do not qualify as sales are reported in our consolidated balance sheets.
We recognize assets obtained and liabilities incurred in qualifying sales of portfolio securitizations at fair value. We recognized net gains on portfolio securitizations of $34 million, $146 million and $26 million for the years ended December 31, 2012, 2011 and 2010, respectively. Proceeds from the initial sale of securities from portfolio securitizations were $672 million, $1.0 billion and $660 million for the years ended December 31, 2012, 2011 and 2010, respectively. Our continuing involvement in the form of guaranty assets and guaranty liabilities with assets that were transferred into unconsolidated trusts is not material to our consolidated financial statements.
Other Securitizations
We also completed other portfolio securitization transactions that did not qualify as sales during the year ended December 31, 2012 and were accounted for as secured borrowings. Proceeds from these transactions were $421 million and were recorded as long-term debt of Fannie Mae in our consolidated balance sheet. As of December 31, 2012, the fair value of trading securities underlying these transactions was $178 million, and the unpaid principal balance of mortgage loans of consolidated trusts underlying these transactions was $201 million. The related assets have been transferred to MBS trusts and are restricted solely for the purpose of servicing the related MBS. We did not complete any securitizations of this type during the years ended December 31, 2011 and 2010.