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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 05/06/2011
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reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. These critical accounting policies and estimates are as follows:
 
  •  Fair Value Measurement
 
  •  Total Loss Reserves
 
  •  Other-Than-Temporary Impairment of Investment Securities
 
See “MD&A—Critical Accounting Policies and Estimates” in our 2010 Form 10-K for a detailed discussion of these critical accounting policies and estimates. We provide below information about our Level 3 assets and liabilities as of March 31, 2011 as compared with December 31, 2010.
 
Fair Value Measurement
 
The use of fair value to measure our assets and liabilities is fundamental to our financial statements and is a critical accounting estimate because we account for and record a portion of our assets and liabilities at fair value. In determining fair value, we use various valuation techniques. We describe the valuation techniques and inputs used to determine the fair value of our assets and liabilities and disclose their carrying value and fair value in “Note 13, Fair Value.”
 
Fair Value Hierarchy—Level 3 Assets and Liabilities
 
The assets and liabilities that we have classified as Level 3 consist primarily of financial instruments for which there is limited market activity and therefore little or no price transparency. As a result, the valuation techniques that we use to estimate the fair value of Level 3 instruments involve significant unobservable inputs, which generally are more subjective and involve a high degree of management judgment and assumptions. Our Level 3 assets and liabilities consist of certain mortgage- and asset-backed securities and residual interests, certain mortgage loans, certain acquired property, certain long-term debt arrangements and certain highly structured, complex derivative instruments.
 
Table 5 presents a comparison, by balance sheet category, of the amount of financial assets carried in our condensed consolidated balance sheets at fair value on a recurring basis (“recurring asset”) that were classified as Level 3 as of March 31, 2011 and December 31, 2010. The availability of observable market inputs to measure fair value varies based on changes in market conditions, such as liquidity. As a result, we expect the amount of financial instruments carried at fair value on a recurring basis and classified as Level 3 to vary each period.
 
Table 5:  Level 3 Recurring Financial Assets at Fair Value
 
                 
    As of  
    March 31,
    December 31,
 
Balance Sheet Category
  2011     2010  
    (Dollars in millions)  
 
Trading securities
  $ 3,981     $ 4,576  
Available-for-sale securities
    31,762       31,934  
Mortgage loans
    2,221       2,207  
Other assets
    239       247  
                 
Level 3 recurring assets
  $ 38,203     $ 38,964  
                 
Total assets
  $ 3,227,042     $ 3,221,972  
Total recurring assets measured at fair value
  $ 155,996     $ 161,696  
Level 3 recurring assets as a percentage of total assets
    1 %     1 %
Level 3 recurring assets as a percentage of total recurring assets measured at fair value
    24 %     24 %
Total recurring assets measured at fair value as a percentage of total assets
    5 %     5 %
 
Assets measured at fair value on a nonrecurring basis and classified as Level 3, which are not presented in the table above, primarily include mortgage loans and acquired property. The fair value of Level 3 nonrecurring


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