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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 05/07/2015
Entire Document
 





FANNIE MAE
(In conservatorship)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(UNAUDITED)


Fair Value Option
We elected the fair value option for our credit risk sharing debt securities issued under our CAS series and certain loans of consolidated trusts that contain embedded derivatives that would otherwise require bifurcation. Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from such instruments.
We elected the fair value option for all long-term structured debt instruments that are issued in response to specific investor demand and have interest rates that are based on a calculated index or formula and are economically hedged with derivatives at the time of issuance. By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from the accounting asymmetry created by recording these structured debt instruments at cost while recording the related derivatives at fair value.
We elected the fair value option for the financial assets and liabilities of the consolidated senior-subordinate trust structures. By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from different accounting treatment between loans at cost and debt at cost.
Interest income for the mortgage loans is recorded in “Interest income—Mortgage loans” and interest expense for the debt instruments is recorded in “Interest expense—Long-term debt” in our condensed consolidated statements of operations and comprehensive income.
The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made fair value elections as of March 31, 2015 and December 31, 2014.
 
 
As of
 
 
 
March 31, 2015
 
 
 
December 31, 2014
 
 
Loans of Consolidated Trusts(1)
 
Long-Term Debt of Fannie Mae
 
Long-Term Debt of Consolidated Trusts
 
Loans of Consolidated Trusts(1)
 
Long-Term Debt of Fannie Mae
 
Long-Term Debt of Consolidated Trusts
 
 
(Dollars in millions)
 
Fair value
 
$
15,570

 
 
 
$
7,920

 
 
 
$
21,373

 
 
 
$
15,629

 
 
 
$
6,403

 
 
 
$
19,483

 
Unpaid principal balance
 
14,817

 
 
 
7,803

 
 
 
19,364

 
 
 
15,001

 
 
 
6,512

 
 
 
17,810

 
__________
(1) 
Includes nonaccrual loans with a fair value of $235 million and $240 million as of March 31, 2015 and December 31, 2014, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of March 31, 2015 and December 31, 2014 was $68 million and $75 million, respectively. Includes loans that are 90 days or more past due with a fair value of $261 million and $271 million as of March 31, 2015 and December 31, 2014, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of March 31, 2015 and December 31, 2014 was $74 million and $78 million, respectively.
Changes in Fair Value under the Fair Value Option Election
The following table displays fair value gains and losses, net, including changes attributable to instrument-specific credit risk, for loans and debt for which the fair value election was made. Amounts are recorded as a component of “Fair value losses, net” in our condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2015 and 2014.
 
For the Three Months Ended March 31,
 
2015
 
2014
 
Loans
 
Long-Term Debt
 
Total Losses
 
Loans
 
Long-Term Debt
 
Total (Losses)Gains
 
(Dollars in millions)
Changes in instrument-specific credit risk
$
(12
)
 
 
$
(193
)
 
 
 
$
(205
)
 
 
$
9

 
 
$
(51
)
 
 
 
$
(42
)
Other changes in fair value
167

 
 
(188
)
 
 
 
(21
)
 
 
123

 
 
(116
)
 
 
 
7

Fair value gains (losses), net
$
155

 
 
$
(381
)
 
 
 
$
(226
)
 
 
$
132

 
 
$
(167
)
 
 
 
$
(35
)

131