|FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 05/07/2015|
Table 13: Capital Markets Group Results
Pre-tax income decreased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to lower fee and other income and net interest income, as well as higher fair value losses in the first quarter of 2015.
Fee and other income decreased in the first quarter of 2015 compared with the first quarter of 2014 due to revenue of $4.1 billion recognized in the first quarter of 2014 as a result of settlement agreements resolving certain lawsuits relating to PLS sold to us.
Investment gains increased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to an increase in the amount of non-agency mortgage-related securities sold in the first quarter of 2015 compared with the amount of such securities that were sold in the first quarter of 2014.
Fair value losses in the first quarter of 2015 were primarily due to fair value losses on our risk management derivatives. The derivatives fair value losses that are reported for the Capital Markets group are consistent with the losses reported in our condensed consolidated statements of operations and comprehensive income. We discuss our derivatives fair value losses in “Consolidated Results of Operations—Fair Value Losses, Net.”
The decrease in net interest income in the first quarter of 2015 compared with the first quarter of 2014 was primarily due to a decline in the average balance of our retained mortgage portfolio as we continued to reduce this portfolio pursuant to the requirements of our senior preferred stock purchase agreement with Treasury and FHFA’s additional portfolio cap.
We supplement our issuance of debt securities with derivative instruments to further reduce interest rate risk. The effect of these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, is not reflected in the Capital Markets group’s net interest income but is included in our results as a component of “Fair value losses, net” and is displayed in “Table 6: Fair Value Losses, Net.”
The Capital Markets Group’s Mortgage Portfolio
The Capital Markets group’s mortgage portfolio, which we also refer to as our retained mortgage portfolio, consists of mortgage loans and mortgage-related securities that we own. Mortgage-related securities held by the Capital Markets group include Fannie Mae MBS and non-Fannie Mae mortgage-related securities. The Fannie Mae MBS that we own are maintained as securities on the Capital Markets group’s balance sheets. The portion of assets held by consolidated MBS trusts