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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 08/05/2011
Entire Document
 
Table of Contents

Investments in Private-Label Mortgage-Related Securities
 
We classify private-label securities as Alt-A, subprime, multifamily or manufactured housing if the securities were labeled as such when issued. We have also invested in private-label subprime mortgage-related securities that we have resecuritized to include our guaranty (“wraps”).
 
The continued negative impact of the current economic environment, including sustained weakness in the housing market and high unemployment, has adversely affected the performance of our Alt-A and subprime private-label securities. The unpaid principal balance of our investments in Alt-A and subprime securities was $38.6 billion as of June 30, 2011, of which $31.8 billion was rated below investment grade. Table 23 presents the fair value of our investments in Alt-A and subprime private-label securities and an analysis of the cumulative losses on these investments as of June 30, 2011. As of June 30, 2011, we had realized actual cumulative principal shortfalls of approximately 4% of the total cumulative credit losses reported in this table and reflected in our condensed consolidated financial statements.
 
Table 23:  Analysis of Losses on Alt-A and Subprime Private-Label Mortgage-Related Securities
 
                                         
    As of June 30, 2011  
    Unpaid
          Total
             
    Principal
    Fair
    Cumulative
    Noncredit
    Credit
 
    Balance     Value     Losses(1)     Component(2)     Component(3)  
    (Dollars in millions)  
 
Trading securities:(4)
                                       
Alt-A private-label securities
  $ 2,891     $ 1,568     $ (1,278 )   $ (115 )   $ (1,163 )
Subprime private-label securities
    2,675       1,459       (1,216 )     (308 )     (908 )
                                         
Total
  $ 5,566     $ 3,027     $ (2,494 )   $ (423 )   $ (2,071 )
                                         
Available-for-sale securities:
                                       
Alt-A private-label securities
  $ 18,045     $ 13,102     $ (5,234 )   $ (1,811 )   $ (3,423 )
Subprime private-label securities(5)
    14,965       8,909       (6,095 )     (1,996 )     (4,099 )
                                         
Total
  $ 33,010     $ 22,011     $ (11,329 )   $ (3,807 )   $ (7,522 )
                                         
Grand Total
  $ 38,576     $ 25,038     $ (13,823 )   $ (4,230 )   $ (9,593 )
                                         
 
 
(1) Amounts reflect the difference between the fair value and unpaid principal balance net of unamortized premiums, discounts and certain other cost basis adjustments.
 
(2) Represents the estimated portion of the total cumulative losses that is noncredit-related. We have calculated the credit component based on the difference between the amortized cost basis of the securities and the present value of expected future cash flows. The remaining difference between the fair value and the present value of expected future cash flows is classified as noncredit-related.
 
(3) For securities classified as trading, amounts reflect the estimated portion of the total cumulative losses that is credit-related. For securities classified as available-for-sale, amounts reflect the estimated portion of total cumulative other-than-temporary credit impairment losses, net of accretion, that are recognized in earnings.
 
(4) Excludes resecuritizations, or wraps, of private-label securities backed by subprime loans that we have guaranteed and hold in our mortgage portfolio as Fannie Mae securities.
 
(5) Includes a wrap transaction that has been partially consolidated on our balance sheet, which effectively resulted in a portion of the underlying structure of the transaction being accounted for and reported as available-for-sale securities.
 
Table 24 presents the 60 days or more delinquency rates and average loss severities for the loans underlying our Alt-A and subprime private-label mortgage-related securities for the most recent remittance period of the current reporting quarter. The delinquency rates and average loss severities are based on available data provided by Intex Solutions, Inc. (“Intex”) and CoreLogic, LoanPerformance (“CoreLogic”). We also present the average credit enhancement and monoline financial guaranteed amount for these securities as of June 30, 2011. Based on the stressed condition of some of our financial guarantors, we believe some of these counterparties will not fully meet their obligation to us in the future. See “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management—Financial Guarantors” for additional


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