Federal National Mortgage Association · OTC:FNMA
Federal National Mortgage Association — Federal National Mortgage Association Fannie MAE — FY2007 Earnings Presentation
39 slides from Federal National Mortgage Association's earnings presentation, Feb 27, 2008
Slide 1: Fannie Mae 2007 10-K Investor Summary
February 27, 2008 Fannie Mae 2007 10-K Investor Summary Exhibit 99.2
Slide 2: Presentation of materials and reference to 2007 10-K
These materials present tables and other information about Fannie Mae, including information contained in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2007. These materials should be reviewed together with the 2007 10-K, copies of which are available on the company's Web s
Slide 3: Disclaimer/Safe Harbor
Disclaimer/Safe Harbor This presentation includes forward-looking statements, including statements relating to our future capital position, financial performance and condition, ability to take advantage of business opportunities, market share and credit losses; our strategy; the fair value of our ne
Slide 4: 2007 results reflect the most severe housing dislocation in decades
2007 results accurately reflect the most severe housing dislocation in decades. The market did provide opportunities for Fannie Mae, particularly in our guaranty business. Our primary focus is protecting our capital, mitigating losses and taking steps to emerge from the crisis on solid footing. We a
Slide 5: Consolidated Financial Results
Consolidated Financial Results 2
Slide 6: Net Interest Income/Yield
Net Interest Income/Yield Net interest income significantly lower as net interest yield declines. Net interest yield increased modestly in Q4 2007 due to lower debt costs. Reclassification of float income to trust management income beginning in November 2006, reduced net interest yield by 7 bps in 2
Slide 7: Guaranty Fee Income
Guaranty Fee Income Certain prior period amounts previously included as a component of "fee and other income" have been reclassified to "guaranty fee income" to conform to the current period presentation Accretion of previously recognized losses on certain guaranty contracts increased guaranty fee i
Slide 8: Losses on Certain Guaranty Contracts
Net impact of losses on certain guaranty contracts increased to $821 million from $110 million, due to wider market credit spreads. In Q4, 2007, accretion of prior losses on certain guaranty contracts increased, substantially offsetting the impact of new losses on certain guaranty contracts. We expe
Slide 9: Investment Gains/(Losses), Net
Investment Gains/(Losses), Net 6 Transaction related gains/losses effectively offset in 2007. Increase in losses on trading securities driven by credit spread widening, more than offsetting the positive effects of declining yields. Investment losses, net, increased in 2007. Key drivers included:
Slide 10: Security Impairments
Security Impairments At December 31, 2007, the company changed its intent to hold LIP and certain agency securities until they recovered, and accordingly recognized impairment of $620 million. These securities were transferred from available for sale (AFS) to trading on January 1, 2008 with our adop
Slide 11: Effect on Earnings of Significant Market-Based Valuation Adjustments
Effect on Earnings of Significant Market-Based Valuation Adjustments Declines in interest rates Credit spreads widening and reduced levels of liquidity in the mortgage and credit markets, causing significant losses Developed work-out option not requiring the purchase of loans from trusts and working
Slide 12: Credit-Related Expenses/Credit Loss Performance Metrics
Credit-Related Expenses/Credit Loss Performance Metrics Credit loss ratio (excluding the impact of SOP 03-3) increased to 5.3 bps from 2.2 bps A key driver of the increase in credit losses and expenses was weakness in the housing markets The company now expects a credit loss ratio in 2008 of 11 to 1
Slide 13: Losses on Loans Purchased from Trusts/Cure Rates
Losses on Loans Purchased from Trusts/Cure Rates Losses on loans purchased from trusts driven by an increase in number of loans purchased and a decrease in the fair value of loans. Cure rates may decline compared with 2006 rates. Re-performance Rates of Delinquent Single- Family Loans Purchased from
Slide 14: Management Actions on Credit
Management Actions on Credit 11 Tightening underwriting standards / reduced participation in riskier segments Tightened eligibility requirements on riskier business Increasing FICOs, lowering LTVs and increasing documentation requirements Limiting maximum financing available in declining markets Sig
Slide 15: Change in Estimated Fair Value of Net Assets (Non-GAAP)
Change in Estimated Fair Value of Net Assets (Non-GAAP) 12 Fair value of net assets, excluding capital transactions, declined by $13.4 billion. Key drivers included: $6.5 billion decline in fair value of net guaranty assets, including tax-related assets, driven primarily by the market's anticipation
Slide 16: 2007 Q4 Capital Surplus - Sources and Uses of Excess Capital
2007 Q4 Capital Surplus - Sources and Uses of Excess Capital 13 At year-end 2007, Fannie Mae had a $3.9 billion capital surplus relative to the OFHEO-directed minimum capital requirement. Fannie Mae increased investment in our liquid investments and mortgage portfolio in Q4, consuming some of our ca
Slide 17: Capital Position
Capital Position 14 Note: YE 2007 core capital is a Fannie Mae estimate, and has not been certified by OFHEO
Slide 18: Appendix I - Credit
®R FannieMae APPENDIX | - Credit
Slide 19: Home Price Growth Rate in the U.S.
Home Price Growth Rate in the U.S. - Fannie Mae Index 15 - -5% to -7% Forecast Based upon the Fannie Mae home price index. Growth rates are from period-end to period-end. 2006 H1 and H2 growth rates are not annualized. Note: Using the Case Shiller weighting method, our forecasted home price decline
Slide 20: One-Year Home Price Growth as of December 31, 2007
®& FannieMae One-Year Home Price Growth as of December 31, 2007 United States 3.1% ‘West North Cartral 41% Paste e a om & West Sg cara fas South ata sah State Growth Rate (INE Setou-10% NN -10%- 5% T)-%- 0% fos. 5 NM toes The frst number under each state is the home price growth rete. The second num
Slide 21: Focus on Minimizing Credit Losses / Credit Risk Management
New Business - reduced eligibility and increased price Credit loss mitigation Increased focus on workouts Fannie Mae employees on site with most major servicers National REO Disposition Center in Dallas, built during California mid-90's housing recession, continues to use its experience to manage se
Slide 22: Counterparty Exposure
®R FannieMae Counterparty Exposure Counterparty Type Exposure (as of 12131107) Notes Mortgage Insurers Lenders with Rsk Sharing Singletary Landers with Rise Sharing- Mulifamily Financial Guarantors Custodial Depostoy Instiutons Derivative Courtarpartes {9104.1 billion of primary and poo! mortgage iu
Slide 23: Credit Loss Rate/Delinquency Rates
Credit Loss Rate/Delinquency Rates Higher credit loss ratio primarily due to worsening decline in home prices, particularly in the Midwest, California, Florida, Nevada, and Arizona, and economic weakness in the Midwest. Our credit loss ratio excludes the impact of SOP 03-3 Fannie Mae expects credit
Slide 24: Characteristics of Single-Family Conventional Mortgage Credit Book of Business
Characteristics of Fannie Mae Single-Family Conventional Mortgage Credit Book of Business Product Types* Occupancy* * Data as of December 31, 2007 December 31, 2007 December 31, 2007 Single-Family Conventional Mortgage Credit Book of Business $2.5 Trillion Weighted Average FICO 721 Weighted Average
Slide 25: Fannie Mae Subprime and Alt-A Exposure
Fannie Mae Subprime and Alt-A Exposure Total Exposure of $54.1 Billion Total Exposure of $350.6 Billion * Data as of December 31, 2007 Subprime $324.7B Alt-A 21 PLS Portfolio Investment $32.0 B PLS Wrap $13.8 B Purchased or Guaranteed Loans $8.3 B Purchased or Guaranteed Loans $317.5 B PLS Portfolio
Slide 26: Credit Profile by Key Product Features
Fannie Mae Credit Profile by Key Product Features Note: Categories are not mutually exclusive, so numbers are not additive across columns Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business 22 Certain data contained in this presentation are based upon information th
Slide 27: Single-Family delinquency rates by State and region
Single-Family delinquency rates by State and region 23
Slide 28: Credit Profile by Vintage and Key Product Features
Fannie Mae Credit Profile by Vintage and Key Product Features Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business by Vintage 24 Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie
Slide 29: Credit Profile by State
Fannie Mae Credit Profile by State Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business by State 25 Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie Mae generally considers this
Slide 30: Subprime and Alt-A Exposure - Securities/Wraps
Fannie Mae Subprime and Alt-A Exposure - Securities/Wraps As of February 22, 2008, all of our private-label mortgage-related securities backed by Alt-A mortgage loans were rated AAA and none had been downgraded. However, since the end of 2007 through February 22, 2008, approximately $1.3 billion of
Slide 31: Appendix II - Other
®R FannieMae APPENDIX Il - Other
Slide 32: 2007 Income Statement by Segment
2007 Income Statement by Segment 28 (Dollars in Millions) (Dollars in Millions)
Slide 33: 2007 Net Revenues/Income by Segment
2007 Net Revenues/Income by Segment 29 (Dollars in Millions)
Slide 34: Changes in Risk Management Derivative Assets (Liabilities)
Changes in Risk Management Derivative Assets (Liabilities) at Fair Value, Net 30 (2) Reflects net of derivatives assets at fair value and derivative liabilities at fair value, as recorded in our condensed consolidated statement of operations, excluding mortgage commitments. (1) The original fair val
Slide 35: Fee and Other Income
Fee and Other Income 31 Foreign currency translation losses are offset by corresponding net gains on foreign currency swaps, which are recognized in "Derivatives fair value gains (losses), net".
Slide 36: Selected Financial and Operating Statistics
Note: Credit loss ratio for all periods excludes the impact of SOP 03-3, which requires that loans purchased out of MBS trusts be marked to fair value at the time of acquisition. Selected Financial and Operating Statistics 32 Refer to 2007 10-K, Item 6 for definitions of ratios in above table
Slide 37: Mortgage Securities - Held For Trading
Mortgage Securities - Held For Trading *$ amounts in billions **gains/(losses) pre-tax Product UPB 12.31.2007 Fair Value Adoption 01.01.2008 Total Spread Sensitivity (OAS +1 bp) Rate Sensitivity (+ 1 bp) Fixed Rate MBS 21.5 18.3 39.8 (0.014) (0.012) ARM MBS 7.4 0.0 7.4 (0.002) (0.001) Agency CMO 14.
Slide 38: Option Adjusted Spreads (OAS) - Lehman
Option Adjusted Spreads (OAS) - Lehman 34 +260 bps YOY Change +82 bps +27 bps +26 bps Source: LehmanLive(r)
Slide 39: Reconciliation of Estimated Fair Value of Net Assets to Stockholders' Equity
35 The following sets forth a reconciliation of the estimated fair value of our net assets (non-GAAP) to total stockholders' equity (GAAP). A more detailed reconciliation is contained in Table 33 of the 2007 Form 10-K. (1) Represents fair value increase of $11.0 billion to total assets of $893.5 bil
Federal National Mortgage Association Fannie MAE — FY2007 Earnings Presentation on 6ix