UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

We have been under conservatorship, with the Federal Housing Finance Agency (“FHFA”) acting as conservator, since September 6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and privileges of the company, and of any shareholder, officer or director of the company with respect to the company and its assets. The conservator has since delegated specified authorities to our Board of Directors and has delegated to management the authority to conduct our day-to-day operations. Our directors do not have any fiduciary duties to any person or entity except to the conservator and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities or the holders of Fannie Mae MBS unless specifically directed to do so by the conservator. We describe the rights and powers of the conservator, key provisions of our agreements with the U.S. Department of the Treasury (“Treasury”), and their impact on shareholders in our Annual Report on Form 10-K for the year ended December 31, 20142015 (“20142015 Form 10-K”) in “Business—Conservatorship and Treasury Agreements.”

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes and the more detailed information in our 20142015 Form 10-K.

This report contains forward-looking statements that are based on management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “Forward-Looking Statements” for more information on the forward-looking statements in this report. Our actual results may differ materially from those reflected in our forward-looking statements due to a variety of factors including, but not limited to, those discussed in “Risk Factors” and elsewhere in this report and in our 20142015 Form 10-K.

You can find a “Glossary of Terms Used in This Report” in the “MD&A” of our 20142015 Form 10-K.

Fannie Mae is a government-sponsored enterprise (“GSE”) that was chartered by Congress in 1938. We serve an essential role in the functioning of the U.S. housing market and are investing in improvements to the U.S. housing finance system. Our public mission is to support liquidity and stability in the secondary mortgage market, where existing mortgage-related assets are purchased and sold, and to increase the supply of affordable housing. Our charter does not permit us to originate loans or lend money directly to consumers in the primary mortgage market.

Fannie Mae provides reliable, large-scale access to affordable mortgage credit and indirectly enables families to buy, refinance or rent homes. We securitize mortgage loans originated by lenders into Fannie Mae mortgage-backed securities that we guarantee, which we refer to as Fannie Mae MBS. One of our key functions is to evaluate, price and manage the credit risk on the loans and securities that we guarantee. We also purchase mortgage loans and mortgage-related securities, primarily for securitization and sale at a later date. We use the term “acquire” in this report to refer to both our securitizations and our purchases of mortgage-related assets. We obtain funds to support our business activities by issuing a variety of debt securities in the domestic and international capital markets, which attracts global capital to the United States housing market.

OurWe remain in conservatorship and our conservatorship has no specified termination date, and wedate. We do not know when or how the conservatorship will terminate, whether we will continue to exist following conservatorship, what further changes to our business structure will be made during or following the conservatorship, orwhat form we will have and what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated.terminated or whether we will continue to exist following conservatorship. In addition, as a result of our agreements with Treasury and dividend directives from our conservator, we are not permitted to retain our net worth (other than a limited amount that provide for financial support includewill decrease to zero by 2018), rebuild our capital position or pay dividends or other distributions to stockholders other than Treasury. Our senior preferred stock purchase agreement with Treasury also includes covenants that significantly restrict our business activitiesactivities. Congress and providethe Obama Administration continue to consider options for dividendsreform of the housing finance system, including the GSEs. We cannot predict the prospects for the enactment, timing or final content of housing finance reform legislation or actions the Administration or FHFA may take with respect to accrue at a rate equalhousing finance reform. The conservatorship, the uncertainty of our future, limitations on executive and employee compensation, and negative publicity concerning the GSEs have had and are likely to continue to have an adverse effect on our net worth less a capital reserve amount, which continues to decrease annually until it reaches zero, allowing usability to retain only a limited and decreasing amount of our net worth.recruit well-qualified executives and other employees. We provide additional information on the conservatorship, the provisions of our agreements with Treasury, and their impact on our business in our 20142015 Form 10-K in “Business—Conservatorship and Treasury Agreements” and “Risk Factors.” We discuss the uncertainty of our future in “Executive

“Executive Summary—Outlook” and “Risk Factors” in this report. We discuss proposals for housing finance reform that could materially affect our business in “Legislative and Regulatory Developments—Housing Finance Reform” in this report and in our quarterly report on Form 10‑Q for the quarter ended June 30, 2015 (“Second Quarter 2015 Form 10-Q”), as well as10-K in “Business—Housing Finance Reform” in our 2014 Form 10-K.Reform.”

Although Treasury owns our senior preferred stock and a warrant to purchase 79.9% of our common stock, and has made a commitment under a senior preferred stock purchase agreement to provide us with funds to maintain a positive net worth under specified conditions, the U.S. government does not guarantee our securities or other obligations.

Our common stock is traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbol “FNMA.” Our debt securities are actively traded in the over-the-counter market.

“Outlook—Revenues” below, we receiveexpect that guaranty fees will continue to account for managingan increasing portion of our net interest income.

Our business also continues to evolve as a result of our many other efforts to build a safer and sustainable housing finance system and to pursue the strategic goals identified by our conservator. For example, we have transferred a portion of the existing credit risk on our single-family guaranty book of business in order to reduce the risk to taxpayers of future borrower defaults,conservator, and we expectcontinue to continue engaging in economically sensible ways to expand our offerings of credit risk transfer transactions in the future.invest significant resources towards these goals. See “Helping“Business—Executive Summary—Helping to Build a Sustainable Housing Finance System” below and in our 20142015 Form 10-K in “Business—Executive Summary” for a discussion of these efforts and FHFA’s strategic goals for our credit risk transfer transactions and other effortsconservatorship, including a description of some of the actions we are taking pursuant to the mandates of FHFA’s conservatorship scorecards in order to build the policies and infrastructure for a safer and sustainable housing finance system.

Supporting the housing recovery by providingProviding reliable, large-scale access to affordable mortgage credit for qualified borrowers and helping struggling homeowners

Serving customer needs and improving our business efficiency

Fair value losses increased to $2.6$2.8 billion in the thirdfirst quarter of 20152016 compared with $207 million$1.9 billion in the thirdfirst quarter of 2014.2015. Fair value losses in the thirdfirst quarter of 20152016 were primarily driven by decreasesdeclines in longer-term swap rates during the period.

We recognized credit-related expenseincome of $102$850 million in the first nine monthsquarter of 2015 comprised2016 compared with $60 million in the first quarter of foreclosed property expense partially offset by a benefit for credit losses. Foreclosed property expense2015. Credit-related income in the first quarter of 2016 was primarily driven by property preservation costs, which include property tax and insurance expenses relating to our single-family foreclosed properties. Thea $1.2 billion benefit for credit losses during the quarter, which was primarily driven byattributable to a decline in actual and projected mortgage interest rates. As

mortgage interest rates decline, we expect an increase in home prices. This was partially offset by the impact from the redesignation of certain nonperforming single-family loans from held for investment (“HFI”) to held for sale (“HFS”). These loans were adjusted to the lower of cost or fair value, which reduced our benefit for credit losses by approximately $600 million. Additionally, mortgage interest rates increased during the first nine months of 2015, which also partially offset our benefit for credit losses. As interest rates increase, we expect a decline in future prepayments on single-family individually impaired loans, including modified loans. LowerHigher expected prepayments lengthenshorten the expected lives of modified loans, which increasesdecreases the impairment relatedrelating to concessions provided on these loans and results in an increasea decrease in theour provision for credit losses. We recognized credit-related income of $3.7 billion in the first nine months of 2014 primarily due toIn addition, an increase in home prices, and income fromincluding distressed property valuations, also contributed to the resolutionbenefit for credit losses during the first quarter of compensatory fees and representation and warranty matters.2016.

We expect volatility from period to period in our financial results from a number of factors, particularly changes in market conditions that result in fluctuations in the estimated fair value of the financial instruments that we mark to market through our earnings. These instruments include derivatives and certain securities. The estimated fair value of our derivatives and securities may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads, and implied volatility, as well as activity related to these financial instruments. We use derivatives to manage the interest rate risk exposure of our net portfolio, which consists of our retained mortgage portfolio, cash and other investments portfolio, and outstanding debt of Fannie Mae. Some of these financial instruments in our net portfolio are not recorded at fair value in our condensed consolidated financial statements, and as a result we may experience accounting gains or losses due to changes in interest rates or other market conditions that may not be indicative of the economic interest rate risk exposure of our net portfolio. See “Risk Management—Market Risk Management, Including Interest Rate Risk Management” for more information. In addition, our credit-related income or expense can vary substantially from period to period primarily due tobased on factors such as changes in actual and expected home prices, borrower payment behavior, the types and economic conditions.volume of our loss mitigation activities, the volumes of foreclosures completed, redesignations of loans from held for investment (“HFI”) to held for sale (“HFS”), and fluctuations in mortgage interest rates.

See “Consolidated Results of Operations” for more information on our results.

Net Worth

Credit Performance

Table 1 presents information about the credit performance of mortgage loans in our single-family guaranty book of business and our workouts. The term “workouts” refers to both home retention solutions (loan modifications and other solutions that enable a borrower to stay in his or her home) and foreclosure alternatives (short sales and deeds-in-lieu of foreclosure). The workout information in Table 1 does not reflect repayment plans and forbearances that have been initiated but not completed, nor does it reflect trial modifications that have not become permanent.

Beginning in 2008, we took actions to significantly strengthen our underwriting and eligibility standards to promote sustainable homeownership and stability in the housing market. These actions have improved the credit quality of our book of

business and contributed to improvement in our credit performance. For information on the credit risk profile of our single-family guaranty book of business, see “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management,” including “Table 27: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business.”

Our single-family serious delinquency rate has decreased each quarter since the first quarter of 2010, and was 1.44% as of March 31, 2016, compared with 1.55% as of December 31, 2015. We continue to experience disproportionately higher credit losses and serious delinquency rates and credit losses from single-family loans originated in 2005 through 2008 than from loans originated in other years. Single-family loans originated in 2005 through 2008 constituted 11%10% of our single-family book of business as of September 30, 2015March 31, 2016, but constituted 58%55% of our seriously delinquent single-family loans as of September 30, 2015March 31, 2016 and drove 66%69% of our single-family credit losses in the thirdfirst quarter of 2015.2016. For information on the credit performance of our single-family book of business based on loan vintage, see “Table 11: Credit Loss Concentration Analysis” in “Consolidated Results of Operations—Credit-Related Income (Expense)—Income—Credit Loss Performance Metrics” and “Table 29: Single-Family Conventional Seriously Delinquent Loan Concentration Analysis” in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.” For information on certain credit characteristics of our single-family book of business based on the period in which we acquired the loans, see “Table 24: Selected Credit Characteristics of Single-Family Conventional Guaranty Book of Business, by Acquisition Period” in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”

We provide additional information on our credit-related expenseincome and credit losses in “Consolidated Results of Operations—Credit-Related Income (Expense)Income.” andWe provide more information on the credit performance of mortgage loans in our single-family book of business in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”

Recently Acquired Single-Family Loans

Table 2 below displays information regarding our average charged guaranty fee on and select risk characteristics of the single-family loans we acquired in each of the last sevenfive quarters, including HARP acquisitions. Table 2 also displays the volume of our single-family Fannie Mae MBS issuances for these periods, which is indicative of the volume of single-family loans we acquired in these periods.

The decrease in our average charged guaranty fee on newly-acquired single-family loans we acquired in the thirdfirst quarter of 2015 as compared2016 continued to have a strong credit profile, with the third quartera weighted average original LTV ratio of 2014 was driven by75% and a

Whether the loans we acquire in the future will exhibit an overall credit profile and performance similar to our more recent acquisitions will depend on a number of factors, including: our future guaranty fee pricing and any impact of that pricing on the volume and mix of loans we acquire; our future eligibility standards and those of mortgage insurers, the Federal Housing Administration (“FHA”) and the Department of Veterans Affairs (“VA”); the percentage of loan originations representing refinancings; changes in interest rates; our future objectives and activities in support of those objectives, including actions we may take to reach additional underserved creditworthy borrowers; government policy; market and competitive conditions; and the volume and characteristics of HARP loans we acquire in the future. In addition, if our lender customers retain more of the higher-quality loans they originate, it could negatively affect the credit risk profile of our new single-family acquisitions.

We continue to constitute only a small portion of our overall acquisitions. We requireseek new ways to responsibly expand access to mortgage insurance or other appropriatecredit. FHFA’s 2016 conservatorship scorecard specifies that in 2016 we should continue to assess impediments to credit enhancement for all acquisitions of non-HARP loans with LTV ratios greater than 80%.

Liquidity and Support Activities

We are undertakingengaged in various initiatives to better serve our customers’ needs and improve our business efficiency. We are committed to providing our lender partners with the products, services and tools they need to serve the market more effectively and efficiently. To further this commitment, we are focused on revisingcontinuing to revise and clarifyingclarify our representation and warranty framework, implementing innovative new and enhanced tools that deliver greater value and certainty to reduce lenders’ repurchase risk,lenders, and making our customers’ interactions with us simpler and more efficient.

The information in this section updates and supplements information regarding legislative and regulatory developments set forth in “Business—Housing Finance Reform” and “Business—Our Charter and Regulation of Our Activities” in our 2014 Form 10-K and in “MD&A—Legislative and Regulatory Developments” in our First Quarter 2015 Form 10-Q and in our Second Quarter 2015 Form 10-Q.10-K. Also see “Risk Factors” in this report and in our 20142015 Form 10-K for a discussion of risks relating to legislative and regulatory matters.

Congress continues to consider housing finance reform that could result in significant changes in our structure and role in the future. InAs described in “Business—Housing Finance Reform—Legislative Developments” in our 2015 Form 10-K, in the first session of the 114th Congress, which convened in January 2015, a number ofseveral bills have beenwere introduced and considered in the Senate and the House of Representatives relating to Fannie Mae, Freddie Mac and the housing finance system.system, two of which were enacted into law.

We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to affordability or location. Our single-family performance is measured against the lower of benchmarks established by FHFA or goals-qualifying originations in the primary mortgage market. Multifamily goals are established as a number of units to be financed.

For 2015, we believe we met three of our five single-family benchmarks. The two single-family benchmarks we believe we did not meet were the low-income families home purchase benchmark and the very low-income families home purchase benchmark. In October 2015,addition, we believe we met our multifamily goal and subgoals for 2015. Final performance results will be calculated and published by FHFA after the release in the fall of 2016 of data reported by primary market originators under the Home Mortgage Disclosure Act (“HMDA”), FHFA notified us that it had preliminarily determined thatAct. To determine whether we met all of our single-familylow-income families home purchase goal and multifamily housing goals for 2014. For the single-familyour very low-income families home purchase goal, FHFA preliminarily determined thatwill compare our performance was 5.7%with that of our 2014 acquisitions of single-family owner-occupied purchase money mortgage loans, which failed tothe market. We will be in compliance with these goals if we meet the FHFA-established benchmark of 7%, but met the overallapplicable market levelshare measures for 2014 of 5.7%.these goals. See “Business—Our Charter and Regulation of Our Activities—The GSE Act—Housing Goals and Duty to Serve Undeserved Markets—Housing Goals for 20122015 to 2014”2017” in our 20142015 Form 10-K for a more detailed discussion of our housing goals.

In September 2015,On April 26, 2016, FHFA publishedreissued its portion of a finalproposed rule establishing single-family and multifamily housing goals for Fannie Mae and Freddie Mac for 2015 to 2017.

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the condensed consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in “Note 1, Summary of Significant Accounting Policies” in this report and in our 20142015 Form 10-K.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of Directors. See “Risk Factors” in our 20142015 Form 10-K for a discussion of the risks associated with the need for management to make judgments and estimates in

See “MD&A—Critical Accounting Policies and Estimates” in our 20142015 Form 10-K for a discussion of these critical accounting policies and estimates.

This section provides a discussion of our condensed consolidated results of operations and should be read together with our condensed consolidated financial statements, including the accompanying notes.

We currently have two primary sources of net interest income: (1) the guaranty fees we receive for managing the credit risk on loans in consolidated trusts underlying Fannie Mae MBS held by third parties; and (2) the difference between interest income earned on the assets in our retained mortgage portfolio and the interest expense associated with the debt that funds those assets. We recognize almost all of our guaranty fee revenue in net interest income due to the consolidation of the substantial majority of loans underlying our Fannie Mae MBS in consolidated trusts on our balance sheet. Those guaranty fees are the primary component of the difference between the interest income on loans in consolidated trusts and the interest expense on the debt of consolidated trusts.

Net interest income and net interest yield increaseddecreased in the thirdfirst quarter and first nine months of 20152016 compared with the thirdfirst quarter and first nine months of 20142015, primarily due to an increase in amortization income as increased prepayments on mortgage loans of consolidated trusts accelerated the amortization of cost basis adjustments. Higher guaranty fee income also contributed to an increase in net interest income as loans with higher guaranty fees have become a larger part of our guaranty book of business. We recognize almost all of our guaranty fee revenue in net interest income due to the consolidation of the substantial majority of loans underlying our MBS trusts on our balance sheet. The increase in net interest income was partially offset by 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. The average balance of our retained mortgage portfolio was 15% lower in the third quarter of 2015 than in the third quarter of 2014 and 14%18% lower in the first nine monthsquarter of 20152016 than in the first nine monthsquarter of 2014.2015. The decrease in net interest income was partially offset by increased guaranty fee revenue, as loans with higher guaranty fees became a larger part of our guaranty book of business in the first quarter of 2016. Net interest yield decreased in the first quarter of 2016 compared with the first quarter of 2015 due to the decline in the percentage of net interest income from our retained mortgage portfolio, which has a higher net interest yield than the net interest yield from guaranty fees. See “Business Segment Results—The Capital Markets Group’s Mortgage Portfolio” for more information about our retained mortgage portfolio.

Investment gains, net primarily includes gains and losses recognized from the sale of these fees resulted in lower technology feesavailable-for-sale securities, gains and losses recognized on the consolidation and deconsolidation of securities, and net other-than-temporary impairments recognized on our investments. Investment gains decreased in the thirdfirst quarter of 2016 compared with the first quarter of 2015 compared with the third quarter of 2014.