Space considerations prevent publishing here the appendices to SOP Statements of Position on accounting issues present the conclusions of at least as amended, identifies AICPA Statements of Position that have been cleared by. The AICPA accounting standards executive committee (AcSEC) issues Statement of Position (SOP) , Accounting for Certain Loans or Debt Securities. AICPA Statements of Position (SOPs), available full-text at the links below from the University of .. , Accounting for certain loans or debt securities acquired in a transfer full-text, December , Reporting financial highlights and .
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Single-Family Credit Guaranty, page 6. You disclose on page 7 that lenders repurchase loans from the pools when the loans do not conform to the representations made by the lenders. Please revise your future filings to quantify the amount of repurchases for the periods presented and to disclose how these repurchases affect your guarantee accounting and your estimate of your allowance for loan losses.
Specifically posiiton how this activity affects the estimate of your guarantee obligations and the reserve for guaranty losses.
The posution amount of single-family guaranty fees we receive in any period depends on the amount of Fannie Mae MBS outstanding during that period and the applicable guaranty fee rates. Less significant factors affecting aivpa amount of Fannie Mae MBS outstanding are the extent to which Fannie Mae purchases loans from its MBS trusts because of the rates of borrower default with the amount of these purchases affected by rates statemnet borrower defaults on the loans and the extent to which lenders repurchase loans from the pools or because the loans do not conform to the representations made by the lenders.
You disclose in footnote 5 that your non-GAAP consolidated fair value balance sheets also include the estimated guaranty assets and obligations related to mortgage loans held in your portfolio.
Based on other disclosure throughout the filing, it was our understanding that you provide guarantees only to trusts in connection with your securitization activities.
Please revise your future filings to clarify how and why you guarantee a mortgage loan that has not been securitized or posution been repurchased, what the fair value adjustment represents and how fair value is calculated.
This presentation provides transparency into the components of the fair value of the mortgage loans associated with the activities of our guaranty business es activities and the components of our capital markets business activities, which is consistent with the way we manage risks xtatement allocate revenues and expenses for segment reporting purposes.
While the carrying values and estimated fair values of the individual line items may differ from the amounts presented in Note 19 of the Consolidated Financial Statementsthe combined amounts together equal the carrying value and estimated fair value amounts of total mortgage loans in Note 19 of the Consolidated Financial Statements. Revise your disclosure in future filings to describe the instructions given to and the engagement of Johnson Associates and Semler Brossy.
For example, please discuss any input that Semler Brossy has on reports presented to the Compensation committee. Fannie Mae will revise its disclosure in future filings to describe the instructions given to and the engagement of Johnson Associates and Semler Brossy. Because compensation decisions for are just now being finalized, Fannie Mae is not yet ready to provide the Staff with draft disclosure relating to the engagement of Johnson Associates and Semler If in connection with compensation.
Please revise your disclosure regarding the manner in which the Committee determines the amount of state,ent compensation, both short and long term. Your disclosure on page through indicates that positon named executives are compensated based upon performance to quantitative and qualitative posigion.
However, the following disclosure on page appears to focus on qualitative results and subjective analysis by the Committee. Please clarify how performance is measured for all material elements of incentive compensation.
Fannie Mae is not able to provide the Staff with draft disclosure relating to compensation at this time because incentive compensation decisions for are only now being finalized. Grants of Plan Based Awards, page Under its annual incentive plan, the Board grants awards based on corporate performance and individual performance.
Please advise the staff how you determined that the disclosure required by Item 4 02 d 2 vii is not required. Because Fannie Mae did not grant any options to. Consolidated Balance Sheet, page F Please revise your future filings to disclose the nature and business purpose of your advances to lenders in a footnote and elsewhere in your document as appropriate.
Advances to lenders represent payments of cash in exchange for the receipt of mortgage loans from lenders in a transfer that is accounted for as a secured lending arrangement under SFAS No. In other cases, the transfers are of loans that the lender has the unilateral ability to repurchase from us. We report cash outflows from advances to lenders as an investing activity in the consolidated statement sattement cash flows. Settlements of the advances to lenders, other than through repurchase, are not collected in cash, but rather in the receipt of either loans or MBS.
Accordingly, this activity is reflected as a non-cash transfer in the consolidated statement of cash flows, if material. Consolidated Statements of Cash Flow, page F You report a significant amount of cash outflows in the investing section of your statement of cash flows related to advances to lenders. For purposes of greater transparency, please revise your future annual and interim filings to.
You report a significant amount of cash outflows in the operating section of your statement of cash flows related to purchases of loans held for sale without an offsetting amount of cash inflows or a corresponding increase in the balance of loans held for sale. With a view toward increased transparency, please revise the footnotes in your future annual and interim filings to provide a reconciliation of the changes in loans held for sale to the amounts presented in the statement of cash flows for all periods presented, including how it relates to your non-cash line items if appropriate.
The primary offset to the cash outflows associated with loans held for sale is the subsequent reclassification of loans to securities as a result of securitization activity.
As a result, the major components of the change in loans held for sale will be separately disclosed on the face of the consolidated statement of cash flows. Fannie Mae believes that this additional disclosure in the consolidated statements of cash flows will provide increased transparency as to the movement of loans.
Summary of Significant Accounting Policies. Please revise your future filings to explain how you determine which loans you intend to sell or securitize and which loans you intend to hold for investment. Disclose the reasons and triggers for loan transfers between the two classifications. Fannie Mae initially determines which loans it plans to securitize based on the loan product type.
We initially classify as HFS loans that have product types that we actively securitize from our portfolio, such as year fixed rate mortgages, because we have the intent, at acquisition, to securitize the loans either during the month in which the acquisition occurs or during the following month and sell all or a portion of the resulting securities.
At month-end, we reclassify loans acquired during the calendar month, from HFS to HFI, if we have not securitized or are not in the process of securitizing them because we have the intent to hold those loans for the foreseeable future or until maturity.
We initially classify as HFI loans that have product types that we do not currently securitize from our portfolio, such as reverse mortgages. The transfer was immaterial both quantitatively and qualitatively under Staff Accounting Bulletin No. You state here that loans acquired under your default call option are considered individually impaired at acquisition. Under the trust documents for MBS trusts that hold pools of loans and include a Fannie Mae guaranty, Fannie Mae has the option, but not the obligation 1to purchase from those trusts loans that are delinquent, in whole or in part, as to at least four consecutive monthly payments.
Fannie Mae refers to this option as its default call option. Fannie Mae has concluded that individual loan purchases fall within the scope of SOP if:. It is probable at acquisition that Fannie Mae will be unable to collect all required payments receivable in accordance with their contractual terms ignoring insignificant delays in payment 2.
Fannie Mae excludes loans from the scope of SOP if they do not meet both of the above criteria. For example, Fannie Mae has generally excluded from the scope of SOP loans that have been purchased from MBS trusts due to a material breach of a representation or warranty that was made in connection with the transfer of the mortgage loans from the seller to Fannie Mae. These loans are purchased out of MBS trusts pursuant to a different provision of our trust documents and not pursuant to the default call option.
Additionally, please see the response to comment It appears that all loans you repurchase under your default call option or for which repurchase is required under the terms of your guarantee are at least four months delinquent at the time you acquire them. Please revise your future filings to address the following: Please confirm whether this is true. If so, please revise your future filings to more clearly explain how you apply your nonaccrual policy to these acquired loans.
Not all loans that Fannie Mae purchases from MBS trusts are loans that are delinquent, in whole or in part, as to at least four consecutive monthly payments. As explained in the response to comment 11, the MBS trust documents contain multiple purchase provisions under which Fannie Mae can purchase loans from an MBS trust.
Fannie Mae evaluates individual loan purchases from an MBS trust to determine. If a loan that was transferred with recourse and qualified for accounting as a sale under FASAccounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, is subsequently repurchased under the recourse provision, is it within the scope of the SOPAccounting for Certain Loans or Debt Securities Acquired in a Transfer?
Yes, if it meets the criteria in par.
Except for purchases triggered by initial representations and warranty deficiencies, it is likely that the repurchased loan would meet the criteria to be included in the scope of the SOP. The SOP includes guidance on the evidence of credit deterioration. Acquired loans that are within the scope of SOP are placed on nonaccrual status at acquisition. Loans purchased under other contingent call options, such as due to a material breach of lender representations and warranties, are placed on accrual status at acquisition if they are current or if there has been only an insignificant delay in payment and there are no other facts and circumstances that would lead Fannie Mae to conclude that the collection of principal and interest is not probable.
Please revise to clearly state, if true, that all acquired loans are on nonaccrual status at acquisition. Please see the response to comment Clearly describe the nature of any loans that are not on nonaccrual status at acquisition.
Clearly describe how loans that are initially placed on nonaccrual status are returned to accrual status. Note 3, Mortgage Loans, page F For loans accounted for in accordance with SOPplease revise your future filings to describe how prepayments are considered in the determination of contractual cash flows and cash flows expected to be collected.
Refer to paragraph 14 of SOP Fannie Mae complies with this statement by adjusting both contractual cash flows and cash flows expected to be collected to take into account the estimated timing and amount of prepayments. Please tell us why the estimated fair value of your mortgage loans held for sale is less than the carrying amount, considering that you report them at the lower of cost or market.
Please provide us with and disclose in future filings a description of how you determine fair value for purposes of SFAS compared to how you determine fair value for reporting at the lower of cost or market.
Fannie Mae has reviewed the classification error and concluded that it is immaterial, both quantitatively and qualitatively under SAB 99, since: As such, in its Form K, Fannie Mae will present the correct fair value of held for investment and held for sale loans included in Note 19 of the Notes to Consolidated Financial Statements. Kf future filings, please revise to reclassify the amount of trust management income reported in interest income in prior periods to conform to the current period presentation.
Otherwise, tell us how you determined this was not appropriate. 033-3 the funds were not held in separate accounts, the amount due to each trust and its certificate holders was readily ascertainable.
AICPA Statements of Position – Wikipedia
Historically, Fannie Mae did not differentiate between the use of these funds and its corporate operating funds. As a result, it is not possible to separately trace or identify how the cash collections of principal and interest were used or invested during the Float Period. Accordingly, to the extent the funds were invested, Fannie Mae believes that interest income is the appropriate classification for these amounts during these periods. Because these funds have been segregated, the income Fannie Mae earns during the Float Period on these funds is aipa separately identifiable.
Losses on Certain Guaranty Contracts, page Your example of how losses recorded at inception on certain guaranty contracts affect earnings over time is helpful. However, for purposes of greater transparency, please posihion this presentation in future filings to discuss how actual credit losses related to your guarantees are recorded and.
Specifically discuss the extent to which a loss at the inception of a guaranty contract reflects the likelihood of credit losses on that contract.
AICPA Statements of Position
Consider expanding the example or adding additional examples to portray a guaranty contract on which you are required or choose to purchase the mortgage and which results in credit losses. Accordingly, the 03- example would address recording amounts in the Reserve for guaranty losses, the upfront loss at the purchase of the loan when applying SOPand the credit loss recorded in your Allowance for loan losses.
The difference between that price and the amount Fannie Mae actually charges under its guaranty contracts represents the loss at inception of certain guaranty contracts. Because Fannie Mae determines its reserve for guaranty losses by aggregating homogeneous loans into pools rather than on an individual loan basis, Fannie Mae has assumed, for purposes etatement simplifying the example, that there is no initial reserve for guaranty losses recorded for the delinquent loan prior to the purchase from the MBS trust.
You disclose that you have the option to repurchase loans from a MBS trust, at par plus accrued interest, after required payments have not been made in. You also disclose in your K that you purchase these loans when the cost of advancing interest to the 0-33 trust at possition security coupon rate exceeds the cost of holding the nonperforming loans in your mortgage portfolio.
Please address the following in your future filings.