

			Financial Statements \| Condensed Consolidated Balance Sheets

Item 1. Financial Statements

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets — (Unaudited)

(Dollars in millions)

As of
June 30, 2019 December 31, 2018

ASSETS
Cash and cash equivalents $ 30,791
$ 25,557

Restricted cash (includes $24,765 and $17,849, respectively, related to consolidated trusts) 30,179
23,866

Federal funds sold and securities purchased under agreements to resell or similar arrangements 19,562
32,938

Investments in securities:
Trading, at fair value (includes $2,775 and $3,061, respectively, pledged as collateral) 42,866
41,867

Available-for-sale, at fair value 2,761
3,429

Total investments in securities 45,627
45,296

Mortgage loans:
Loans held for sale, at lower of cost or fair value 11,220
7,701

Loans held for investment, at amortized cost:
Of Fannie Mae 105,580
113,039

Of consolidated trusts 3,167,914
3,142,858

Total loans held for investment (includes $8,479 and $8,922, respectively, at fair value) 3,273,494
3,255,897

Allowance for loan losses (11,482 ) (14,203 )
Total loans held for investment, net of allowance 3,262,012
3,241,694

Total mortgage loans 3,273,232
3,249,395

Deferred tax assets, net 12,521
13,188

Accrued interest receivable, net (includes $8,543 and $7,928, respectively, related to consolidated trusts) 9,089
8,490

Acquired property, net 2,398
2,584

Other assets 19,888
17,004

Total assets $ 3,443,287
$ 3,418,318

LIABILITIES AND EQUITY
Liabilities:
Accrued interest payable (includes $9,277 and $9,133, respectively, related to consolidated trusts) $ 10,342
$ 10,211

Debt:
Of Fannie Mae (includes $6,370 and $6,826, respectively, at fair value) 216,814
232,074

Of consolidated trusts (includes $22,771 and $23,753, respectively, at fair value) 3,199,765
3,159,846

Other liabilities (includes $369 and $356, respectively, related to consolidated trusts) 10,001
9,947

Total liabilities 3,436,922
3,412,078

Commitments and contingencies (Note 13) —
—

Fannie Mae stockholders’ equity:
Senior preferred stock, 1,000,000 shares issued and outstanding 120,836
120,836

Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding 19,130
19,130

Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding 687
687

Accumulated deficit (127,104 ) (127,335 )
Accumulated other comprehensive income 216
322

Treasury stock, at cost, 150,675,136 shares (7,400 ) (7,400 )
Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on our dividend obligation to Treasury) 6,365
6,240

Total liabilities and equity $ 3,443,287
$ 3,418,318


	As of
	March 31, 2020					December 31, 2019

ASSETS
Cash and cash equivalents		$	80,463	$	21,184
Restricted cash (includes $41,331 and $33,294, respectively, related to consolidated trusts)		48,245		40,223
Federal funds sold and securities purchased under agreements to resell or similar arrangements		7,775		13,578
Investments in securities:
Trading, at fair value (includes $5,562 and $3,037, respectively, pledged as collateral)		52,941		48,123
Available-for-sale, at fair value (with an amortized cost of $2,147, net of allowance for credit losses of $3 as of March 31, 2020)		2,289		2,404
Total investments in securities		55,230		50,527
Mortgage loans:
Loans held for sale, at lower of cost or fair value		8,103		6,773
Loans held for investment, at amortized cost:
Of Fannie Mae		98,585		94,911
Of consolidated trusts		3,269,331		3,241,494
Total loans held for investment (includes $7,701 and $7,825, respectively, at fair value)		3,367,916		3,336,405
Allowance for loan losses		(13,209)		(9,016)
Total loans held for investment, net of allowance		3,354,707		3,327,389
Total mortgage loans		3,362,810		3,334,162
Advances to lenders		8,971		6,453
Deferred tax assets, net		12,831		11,910
Accrued interest receivable, net (includes $8,417 and $8,172, respectively, related to consolidated trusts)		8,808		8,604
Acquired property, net		2,224		2,366
Other assets		13,999		14,312
Total assets		$	3,601,356	$	3,503,319
LIABILITIES AND EQUITY
Liabilities:
Accrued interest payable (includes $9,386 and $9,361, respectively, related to consolidated trusts)		$	10,246	$	10,228
Debt:
Of Fannie Mae (includes $4,752 and $5,687, respectively, at fair value)		228,458		182,247
Of consolidated trusts (includes $22,855 and $21,880, respectively, at fair value)		3,334,098		3,285,139
Other liabilities (includes $355 and $376, respectively, related to consolidated trusts)		14,609		11,097
Total liabilities		3,587,411		3,488,711
Commitments and contingencies (Note 13)		—		—
Fannie Mae stockholders’ equity:
Senior preferred stock (liquidation preference of $135,444 and $131,178, respectively)		120,836		120,836
Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding		19,130		19,130
Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding		687		687
Accumulated deficit		(119,454)		(118,776)
Accumulated other comprehensive income		146		131
Treasury stock, at cost, 150,675,136 shares		(7,400)		(7,400)
Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference)		13,945		14,608
Total liabilities and equity		$	3,601,356	$	3,503,319

See Notes to Condensed Consolidated Financial Statements



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	53	60



			Financial Statements \| Condensed Consolidated Statements of Operations and Comprehensive Income

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)

(Dollars and shares in millions, except per share amounts)

For the Three Months Ended June 30, For the Six Months Ended June 30,

2019 2018 2019 2018
Interest income:
Trading securities $ 432
$ 318
$ 859
$ 554

Available-for-sale securities 45
50
98
121

Mortgage loans (includes $28,102 and $26,521, respectively, for the three months ended and $56,547 and $52,819, respectively, for the six months ended related to consolidated trusts) 29,379
28,307
59,147
56,341

Federal funds sold and securities purchased under agreements to resell or similar arrangements
257
149
520
291

Other 41
33
73
64

Total interest income 30,154
28,857
60,697
57,371

Interest expense:
Short-term debt (119 ) (110 ) (244 ) (217 )
Long-term debt (includes $23,407 and $21,896, respectively, for the three months ended and $47,596 and $43,611, respectively, for the six months ended related to consolidated trusts) (24,885 ) (23,370 ) (50,570 ) (46,545 )
Total interest expense (25,004 ) (23,480 ) (50,814 ) (46,762 )
Net interest income 5,150
5,377
9,883
10,609

Benefit for credit losses 1,225
1,296
1,875
1,513

Net interest income after benefit for credit losses 6,375
6,673
11,758
12,122

Investment gains, net 461
277
594
527

Fair value gains (losses), net (754 ) 229
(1,585 ) 1,274

Fee and other income 246
239
473
559

Non-interest income (loss) (47 ) 745
(518 ) 2,360

Administrative expenses:
Salaries and employee benefits (376 ) (365 ) (762 ) (746 )
Professional services (233 ) (254 ) (458 ) (497 )
Other administrative expenses (135 ) (136 ) (268 ) (262 )
Total administrative expenses (744 ) (755 ) (1,488 ) (1,505 )
Foreclosed property expense (128 ) (139 ) (268 ) (301 )
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees (600 ) (565 ) (1,193 ) (1,122 )
Other expenses, net (535 ) (366 ) (943 ) (569 )
Total expenses (2,007 ) (1,825 ) (3,892 ) (3,497 )
Income before federal income taxes 4,321
5,593
7,348
10,985

Provision for federal income taxes (889 ) (1,136 ) (1,516 ) (2,267 )
Net income 3,432
4,457
5,832
8,718

Other comprehensive income (loss):
Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes (65 ) 4
(101 ) (316 )
Other, net of taxes (2 ) (2 ) (5 ) (5 )
Total other comprehensive income (loss) (67 ) 2
(106 ) (321 )
Total comprehensive income $ 3,365
$ 4,459
$ 5,726
$ 8,397

Net income $ 3,432
$ 4,457
$ 5,832
$ 8,718

Dividends distributed or available for distribution to senior preferred stockholder (3,365 ) (4,459 ) (5,726 ) (5,397 )
Net income (loss) attributable to common stockholders $ 67
$ (2 ) $ 106
$ 3,321

Earnings per share:
Basic $ 0.01
$ 0.00
$ 0.02
$ 0.58

Diluted 0.01
0.00
0.02
0.56

Weighted-average common shares outstanding:
Basic 5,762
5,762
5,762
5,762

Diluted 5,893
5,762
5,893
5,893


	For the Three Months Ended March 31,

	2020					2019
Interest income:
Trading securities		$	316	$	427
Available-for-sale securities		31		53
Mortgage loans		28,938		29,862
Federal funds sold and securities purchased under agreements to resell or similar arrangements		107		263
Other		34		32
Total interest income		29,426		30,637
Interest expense:
Short-term debt		(102)		(125)
Long-term debt		(23,977)		(25,716)
Total interest expense		(24,079)		(25,841)
Net interest income		5,347		4,796
Benefit (provision) for credit losses		(2,583)		650
Net interest income after benefit (provision) for credit losses		2,764		5,446
Investment gains (losses), net		(158)		133
Fair value losses, net		(276)		(831)
Fee and other income		308		134
Non-interest loss		(126)		(564)
Administrative expenses:
Salaries and employee benefits		(393)		(386)
Professional services		(212)		(225)

Other administrative expenses		(144)		(133)
Total administrative expenses		(749)		(744)
Foreclosed property expense		(80)		(140)
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees		(637)		(593)
Credit enhancement expense		(331)		(171)
Other expenses, net		(263)		(207)
Total expenses		(2,060)		(1,855)
Income before federal income taxes		578		3,027
Provision for federal income taxes		(117)		(627)
Net income		461		2,400
Other comprehensive income (loss):
Changes in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustments and taxes		18		(36)
Other, net of taxes		(3)		(3)
Total other comprehensive income (loss)		15		(39)
Total comprehensive income		$	476	$	2,361
Net income		$	461	$	2,400
Dividends distributed or amounts attributable to senior preferred stock		(476)		(2,361)

Net income (loss) attributable to common stockholders		$	(15)	$	39
Earnings per share:
Basic		$	0.00	$	0.01
Diluted		0.00		0.01
Weighted-average common shares outstanding:
Basic		5,867		5,762
Diluted		5,867		5,893

See Notes to Condensed Consolidated Financial Statements



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	54	61



			Financial Statements \| Condensed Consolidated Statements of Cash Flows

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)


	For the Three Months Ended March 31,
	2020					2019
Net cash provided by operating activities		$	2,174	$	1,816
Cash flows provided by investing activities:
Proceeds from maturities and paydowns of trading securities held for investment		13		15
Proceeds from sales of trading securities held for investment		—		49
Proceeds from maturities and paydowns of available-for-sale securities		96		113
Proceeds from sales of available-for-sale securities		50		131
Purchases of loans held for investment		(86,307)		(33,631)
Proceeds from repayments of loans acquired as held for investment of Fannie Mae		2,308		2,786
Proceeds from sales of loans acquired as held for investment of Fannie Mae		—		26
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts		169,656		88,419
Advances to lenders		(45,248)		(22,991)
Proceeds from disposition of acquired property and preforeclosure sales		1,832		1,965
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements		5,803		10,688
Other, net		(539)		(124)
Net cash provided by investing activities		47,664		47,446
Cash flows used in financing activities:
Proceeds from issuance of debt of Fannie Mae		254,559		173,122
Payments to redeem debt of Fannie Mae		(207,818)		(184,222)
Proceeds from issuance of debt of consolidated trusts		135,918		64,821
Payments to redeem debt of consolidated trusts		(164,726)		(96,925)
Payments of cash dividends on senior preferred stock to Treasury		—		(3,240)

Other, net		(470)		—
Net cash provided by (used in) financing activities		17,463		(46,444)
Net increase in cash, cash equivalents and restricted cash		67,301		2,818
Cash, cash equivalents and restricted cash at beginning of period		61,407		49,423
Cash, cash equivalents and restricted cash at end of period		$	128,708	$	52,241
Cash paid during the period for:
Interest		$	28,867	$	28,650
Income taxes		—		—

For the Six Months Ended June 30,
2019 2018
Net cash provided by (used in) operating activities $ 2,180
$ (1,675 )
Cash flows provided by investing activities:
Proceeds from maturities and paydowns of trading securities held for investment 28
141

Proceeds from sales of trading securities held for investment 49
96

Proceeds from maturities and paydowns of available-for-sale securities 268
417

Proceeds from sales of available-for-sale securities 376
672

Purchases of loans held for investment (90,612 ) (86,615 )
Proceeds from repayments of loans acquired as held for investment of Fannie Mae 5,557
7,945

Proceeds from sales of loans acquired as held for investment of Fannie Mae 5,821
2,555

Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts 211,956
202,923

Advances to lenders (54,440 ) (55,151 )
Proceeds from disposition of acquired property and preforeclosure sales 3,870
4,848

Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements 13,376
3,170

Other, net (743 ) (495 )
Net cash provided by investing activities 95,506
80,506

Cash flows used in financing activities:
Proceeds from issuance of debt of Fannie Mae 374,284
473,373

Payments to redeem debt of Fannie Mae (389,779 ) (499,674 )
Proceeds from issuance of debt of consolidated trusts 158,970
172,507

Payments to redeem debt of consolidated trusts (224,145 ) (239,297 )
Payments of cash dividends on senior preferred stock to Treasury (5,601 ) (938 )
Proceeds from senior preferred stock purchase agreement with Treasury —
3,687

Other, net 132
(20 )
Net cash used in financing activities (86,139 ) (90,362 )
Net increase (decrease) in cash, cash equivalents and restricted cash 11,547
(11,531 )
Cash, cash equivalents and restricted cash at beginning of period 49,423
60,260

Cash, cash equivalents and restricted cash at end of period $ 60,970
$ 48,729

Cash paid during the period for:
Interest $ 57,637
$ 54,408

Income taxes 700
460

See Notes to Condensed Consolidated Financial Statements



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	55	62



			Financial Statements \| Condensed Consolidated Statements of Changes in Equity (Deficit)

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Changes in

Equity (Deficit) — (Unaudited)

(Dollars and shares in ~~millions, except per share amounts)~~millions)


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding										Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income	Treasury Stock		Total Equity
		Senior Preferred		Preferred		Common
Balance as of December 31, 2019	1		556		1,158		$	120,836	$	19,130	$	687	$	(118,776)	$	131	$	(7,400)		$	14,608
Transition impact, net of tax, from the adoption of the current expected credit loss standard	—		—		—		—		—		—		(1,139)		—		—			(1,139)
Balance as of January 1, 2020, adjusted	1		556		1,158		120,836		19,130		687		(119,915)		131		(7,400)			13,469
Senior preferred stock dividends paid	—		—		—		—		—		—		—		—		—			—
Comprehensive income:
Net income	—		—		—		—		—		—		461		—		—			461
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $5)	—		—		—		—		—		—		—		18		—			18
Reclassification adjustment for gains included in net income (net of taxes of $—)	—		—		—		—		—		—		—		—		—			—
Other (net of taxes of $1)	—		—		—		—		—		—		—		(3)		—			(3)
Total comprehensive income																				476
Balance as of March 31, 2020	1		556		1,158		$	120,836	$	19,130	$	687	$	(119,454)	$	146	$	(7,400)		$	13,945

Fannie Mae Stockholders’ Equity (Deficit)
Shares Outstanding Senior
Preferred Stock Preferred
Stock Common
Stock
Accumulated
Deficit Accumulated
Other
Comprehensive
Income Treasury
Stock Total
Equity
Senior
Preferred Preferred Common
Balance as of March 31, 2019 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (128,175 ) $ 283
$ (7,400 ) $ 5,361
Senior preferred stock dividends paid —
—
—
—
—
—
(2,361 ) —
—
(2,361 )
Comprehensive income:
Net income —
—
—
—
—
—
3,432
—
—
3,432
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $3) —
—
—
—
—
—
—
9
—
9
Reclassification adjustment for gains included in net income (net of taxes of $19) —
—
—
—
—
—
—
(74 ) —
(74 )
Other (net of taxes of $0) —
—
—
—
—
—
—
(2 ) —
(2 )
Total comprehensive income 3,365
Balance as of June 30, 2019 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (127,104 ) $ 216
$ (7,400 ) $ 6,365


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding							Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income	Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of December 31, 2018	1	556	1,158	$	120,836	$	19,130	$	687	$	(127,335)	$	322	$	(7,400)		$	6,240
Senior preferred stock dividends paid	—	—	—	—		—		—		(3,240)		—		—			(3,240)
Comprehensive income:
Net income	—	—	—	—		—		—		2,400		—		—			2,400
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $2)	—	—	—	—		—		—		—		8		—			8
Reclassification adjustment for gains included in net income (net of taxes of $12)	—	—	—	—		—		—		—		(44)		—			(44)
Other (net of taxes of $1)	—	—	—	—		—		—		—		(3)		—			(3)
Total comprehensive income																	2,361
Balance as of March 31, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(128,175)	$	283	$	(7,400)		$	5,361

Fannie Mae Stockholders’ Equity (Deficit)
Shares Outstanding Senior
Preferred Stock Preferred
Stock Common
Stock
Accumulated
Deficit Accumulated
Other
Comprehensive
Income Treasury
Stock Total
Equity
Senior
Preferred Preferred Common
Balance as of December 31, 2018 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (127,335 ) $ 322
$ (7,400 ) $ 6,240
Senior preferred stock dividends paid —
—
—
—
—
—
(5,601 ) —
—
(5,601 )
Comprehensive income:
Net income —
—
—
—
—
—
5,832
—
—
5,832
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $5) —
—
—
—
—
—
—
17
—
17
Reclassification adjustment for gains included in net income (net of taxes of $31) —
—
—
—
—
—
—
(118 ) —
(118 )
Other (net of taxes of $1) —
—
—
—
—
—
—
(5 ) —
(5 )
Total comprehensive income 5,726
Balance as of June 30, 2019 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (127,104 ) $ 216
$ (7,400 ) $ 6,365

See Notes to Condensed Consolidated Financial Statements



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	56	63



			~~Financial Statements \| Condensed Consolidated Statements of Changes in Equity (Deficit)~~

~~FANNIE MAE~~

~~(In conservatorship)~~

~~CondensedConsolidated Statements of Changes in Equity (Deficit)~~—~~(Unaudited)~~

~~(Dollars and shares in millions, except per share amounts)~~

Fannie Mae Stockholders’ Equity (Deficit)
Shares Outstanding Senior
Preferred Stock Preferred
Stock Common
Stock
Accumulated
Deficit Accumulated
Other
Comprehensive
Income Treasury
Stock Total
Equity
(Deficit)
Senior
Preferred Preferred Common
Balance as of March 31, 2018 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (129,662 ) $ 347
$ (7,400 ) $ 3,938
Senior preferred stock dividends paid —
—
—
—
—
—
(938 ) —
—
(938 )
Increase to senior preferred stock —
—
—
—
—
—
—
—
—
—
Comprehensive income:
Net income —
—
—
—
—
—
4,457
—
—
4,457
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $1) —
—
—
—
—
—
—
4
—
4
Reclassification adjustment for gains included in net income (net of taxes of $0) —
—
—
—
—
—
—
—
—
—
Other —
—
—
—
—
—
—
(2 ) —
(2 )
Total comprehensive income 4,459
Reclassification related to Tax Cuts
and Jobs Act —
—
—
—
—
—
—
—
—
—
Other —
—
—
—
—
—
—
—
—
—
Balance as of June 30, 2018 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (126,143 ) $ 349
$ (7,400 ) $ 7,459

Fannie Mae Stockholders’ Equity (Deficit)
Shares Outstanding Senior
Preferred Stock Preferred
Stock Common
Stock
Accumulated
Deficit Accumulated
Other
Comprehensive
Income Treasury
Stock
Total
Equity
(Deficit)
Senior
Preferred Preferred Common
Balance as of December 31, 2017 1
556
1,158
$ 117,149
$ 19,130
$ 687
$ (133,805 ) $ 553
$ (7,400 ) $ (3,686 )
Senior preferred stock dividends paid —
—
—
—
—
—
(938 ) —
—
(938 )
Increase to senior preferred stock —
—
—
3,687
—
—
—
—
—
3,687
Comprehensive income:

Net income —
—
—
—
—
—
8,718
—
—
8,718
Other comprehensive income, net of tax effect:

Changes in net unrealized gains on available-for-sale securities (net of taxes of $14) —
—
—
—
—
—
—
(53 ) —
(53 )
Reclassification adjustment for gains included in net income (net of taxes of $70) —
—
—
—
—
—
—
(263 ) —
(263 )
Other —
—
—
—
—
—
—
(5 ) —
(5 )
Total comprehensive income

8,397
Reclassification related to Tax Cuts
and Jobs Act —
—
—
—
—
—
(117 ) 117
—
—
Other —
—
—
—
—
—
(1 ) —
—
(1 )
Balance as of June 30, 2018 1
556
1,158
$ 120,836
$ 19,130
$ 687
$ (126,143 ) $ 349
$ (7,400 ) $ 7,459

~~See Notes to Condensed Consolidated Financial Statements~~



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		57



	Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

FANNIE MAE

(In conservatorship)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act (the “Charter Act” or our “charter”). We are a government-sponsored enterprise (“GSE”), and we are subject to government oversight and regulation. Our regulators include the Federal Housing Finance Agency (“FHFA”), the U.S. Department of Housing and Urban Development (“HUD”), the U.S. Securities and Exchange Commission (“SEC”), and the U.S. Department of the Treasury (“Treasury”). The U.S. government does not guarantee our securities or other obligations.

We have been under conservatorship, with FHFA acting as conservator, since September 6, 2008. See below and “Note 1, Summary of Significant Accounting Policies” in our annual report on Form 10-K for the year ended December 31, ~~2018~~2019 (“~~2018~~2019 Form 10-K”) for additional information on our conservatorship and the impact of U.S. government support of our business.

The unaudited interim condensed consolidated financial statements as of and for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and related notes, should be read in conjunction with our audited consolidated financial statements and related notes included in our ~~2018~~2019 Form 10-K.

~~Basis of Presentation~~Regulatory Capital

The ~~accompanying unaudited interim~~deficit of our core capital over statutory minimum capital was $131.3 billion as of March 31, 2020 and $128.8 billion as of December 31, 2019. For information on our current and proposed capital requirements, see “Business—Charter Act and Regulation—GSE Act and Other Regulation” and “Note 12, Regulatory Capital Requirements” in our 2019 Form 10-K.

Capital Activity

Under the terms governing the senior preferred stock, effective with the third quarter 2019 dividend period, we will not owe dividends to Treasury until we have accumulated over $25 billion in net worth; and the aggregate liquidation preference of the senior preferred stock increases at the end of each quarter by the increase, if any, in our net worth during the immediately prior fiscal quarter, until the liquidation preference has increased by $22 billion pursuant to this provision. Accordingly, no dividends were payable to Treasury for the first quarter of 2020 and none are payable for the second quarter of 2020. Also, the aggregate liquidation preference of the senior preferred stock increased to $135.4 billion as of March 31, 2020. Because our net worth did not increase during the first quarter of 2020, the aggregate liquidation preference of the senior preferred stock will remain at $135.4 billion as of June 30, 2020. As of March 31, 2020, our net worth was $13.9 billion.

See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in our 2019 Form 10-K for more information on the terms of our senior preferred stock and our senior preferred stock purchase agreement with Treasury. See “Risk Factors—GSE and Conservatorship Risk” in our 2019 Form 10-K for a discussion of the risks associated with the limit on our capital reserves.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements result primarily from the following:

•our guaranty of mortgage loan securitization and resecuritization transactions, and other guaranty commitments, over which we do not have control;

•liquidity support transactions; and

•partnership interests.

Since we began issuing UMBS in June 2019, some of the securities we issue are structured securities backed, in whole or in part, by Freddie Mac securities. When we issue a structured security, we provide a guaranty that we will supplement amounts received from the underlying mortgage-related security as required to permit timely payment of principal and interest on the certificates related to the resecuritization trust. Accordingly, when we issue structured securities backed in whole or in part by Freddie Mac securities, we extend our guaranty to the underlying Freddie Mac security included in the structured security. Our issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet exposure as we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which constitute control of these securitization trusts, we do not consolidate these trusts in our condensed consolidated balance sheet, giving rise to off-balance sheet exposure.


Fannie Mae First Quarter 2020 Form 10-Q									53


			MD&A \| Off-Balance Sheet Arrangements

The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest that we retain, and other financial ~~statements have been prepared~~guarantees was $90.5 billion as of March 31, 2020. Approximately $55.3 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers. Additionally, off-balance sheet exposure includes approximately $17.3 billion of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs; however, a portion of these Freddie Mac securities may be backed in ~~accordance with generally accepted accounting principles~~whole or in part by Fannie Mae MBS. Therefore, our total exposure to Freddie Mac securities included in Fannie Mae REMIC collateral is likely lower. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured securities backed by Freddie Mac securities in the ~~United States~~future. The total amount of ~~America (“GAAP”) for interim~~our off-balance sheet exposure related to unconsolidated Fannie Mae MBS and other financial ~~information and with the SEC’s instructions to Form 10-Q and Article 10~~guarantees was $68.6 billion as of ~~Regulation S-X. Accordingly, they do not include all~~December 31, 2019. Approximately $37.8 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers and $12.3 billion of this amount consisted of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs. See “Note 6, Financial Guarantees” for more information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and ~~note disclosures required~~Freddie Mac securities.

We also have off-balance sheet exposure to losses from liquidity support transactions and partnership interests.

•Our total outstanding liquidity commitments to advance funds for securities backed by ~~GAAP for complete consolidated financial statements. In the opinion~~multifamily housing revenue bonds totaled $7.0 billion as of ~~management, all adjustments~~March 31, 2020 and $7.2 billion as of ~~a normal recurring nature considered necessary for a fair presentation have been included. The accompanying condensed consolidated financial statements include~~December 31, 2019. These commitments require us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are unable to be remarketed. We hold cash and cash equivalents in our ~~accounts as well as the accounts~~other investments portfolio in excess of these commitments to advance funds.

•We make investments in various limited partnerships and similar legal entities, which consist of low-income housing tax credit investments, community investments and other ~~entities in which~~entities. When we do not have a controlling financial ~~interest. All intercompany accounts~~interest in those entities, our condensed consolidated balance sheets reflect only our investment rather than the full amount of the partnership’s assets and ~~transactions have been eliminated. To conform~~liabilities. See “Note 2, Consolidations and Transfers of Financial Assets— Unconsolidated VIEs” for information regarding our limited partnerships and similar legal entities.

Risk Management

Our business activities expose us to ~~our current period presentation, we have reclassified certain amounts reported~~the following major categories of risk: credit risk (including mortgage credit risk and institutional counterparty credit risk), market risk (including interest-rate risk), liquidity and funding risk, and operational risk (including cyber/information security risk, third-party risk and model risk), as well as strategic risk, compliance risk and reputational risk. See “MD&A—Risk Management” in our ~~prior~~2019 Form 10-K for a discussion of our management of these risks. This section supplements and updates that discussion but does not repeat all of the risk management categories described in our 2019 Form 10-K.

Institutional Counterparty Credit Risk Management

See “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Risk Factors—Credit Risk” in our 2019 Form 10-K for a discussion of our exposure to institutional counterparty credit risk and our strategy for managing this risk. As described in “Risk Factors” in this report, the COVID-19 outbreak has increased our counterparty credit risk. Also see “Note 10, Concentrations of Credit Risk” in this report for an update on our counterparty credit risk exposure.

Market Risk Management, Including Interest-Rate Risk Management

This section supplements and updates information regarding market risk management in our 2019 Form 10-K. See “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management” and “Risk Factors” in our 2019 Form 10-K for additional information, including our sources of interest-rate risk exposure, business risks posed by changes in interest rates, and our strategy for managing interest-rate risk. As described in “Risk Factors” in this report, the COVID-19 outbreak has increased our market risk.

Measurement of Interest-Rate Risk

The table below displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the slope of the yield curve as measured on the last day of each period ~~condensed consolidated financial statements. Results~~presented. The table below also provides the daily average, minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on the net portfolio to changes in the level of interest rates and the slope of the yield curve for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019.


Fannie Mae First Quarter 2020 Form 10-Q									54


			MD&A \| Risk Management

The significant volatility in the financial markets makes it more challenging to manage our interest-rate risk. The volatile market conditions in recent weeks have affected our ability to rely on our models for managing interest-rate risk. The rapid changes in market conditions occurring in the current environment also requires more active interest-rate risk management to maintain our desired interest rate-risk profile, which may result in additional hedging costs.

For information on how we measure our interest-rate risk, see our 2019 ~~may not necessarily be indicative~~Form 10-K in “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management.”


Interest-Rate Sensitivity of Net Portfolio to Changes in Interest-Rate Level and Slope of Yield Curve
	As of ⁽¹⁾⁽²⁾
	March 31, 2020					December 31, 2019
	(Dollars in millions)
Rate level shock:
-100 basis points		$	(185)	$	57
-50 basis points		(54)		11
+50 basis points		32		51
+100 basis points		88		160
Rate slope shock:
-25 basis points (flattening)		(7)		(20)
+25 basis points (steepening)		4		22


	For the Three Months Ended March 31,⁽¹⁾⁽³⁾
	2020														2019
	Duration Gap	Rate Slope Shock 25 bps					Rate Level Shock 50 bps				Duration Gap	Rate Slope Shock 25 bps				Rate Level Shock 50 bps
		Market Value Sensitivity													Market Value Sensitivity
	(In years)	(Dollars in millions)										(In years)			(Dollars in millions)
Average	(0.02)		$	(20)	$	(32)		(0.02)	$	(6)			$	(48)
Minimum	(0.10)		(33)		(144)			(0.07)	(11)				(116)
Maximum	0.12		(7)		20			0.02	(1)				(11)
Standard deviation	0.04		6		31			0.02	3				22

⁽¹⁾Computed based on changes in U.S. LIBOR interest-rates swap curve. Changes in the level of interest-rates assume a parallel shift in all maturities of the ~~results~~U.S. LIBOR interest-rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of 16.7 basis points for the ~~year ending December 31, 2019.~~1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for remaining maturity points are interpolated.

~~Use~~⁽²⁾Measured on the last business day of each period presented.

⁽³⁾Computed based on daily values during the period presented.

The market value sensitivity of our net portfolio varies across a range of interest-rate shocks depending upon the duration and convexity profile of our net portfolio.

We use derivatives to help manage the residual interest-rate risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest-rate risk exposure at consistently low levels in a wide range of interest-rate environments. The table below displays an example of how derivatives impacted the net market value exposure for a 50 basis point parallel interest-rate shock.


Derivative Impact on Interest-Rate Risk (50 Basis Points)
	As of ⁽¹⁾
	March 31, 2020					December 31, 2019
	(Dollars in millions)
Before derivatives		$	(177)	$	(197)
After derivatives		32		51
Effect of derivatives		209		248

⁽¹⁾Measured on the last business day of each period presented.


Fannie Mae First Quarter 2020 Form 10-Q									55


			MD&A \| Critical Accounting Policies and Estimates

Critical Accounting Policies and Estimates

~~Preparing condensed consolidated~~

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 our 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 2019 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. We have identified one of our accounting policies, allowance for loan losses, as critical because it involves significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported ~~amounts~~results of operations or financial condition.

Allowance for Loan Losses and Adoption of the CECL Standard

The CECL standard is effective for our fiscal year beginning January 1, 2020 and impacts the measurement of our allowance for loan losses. The CECL standard reflects lifetime expected credit losses on the loans in our book of business and requires consideration of a range of reasonable and supportable forecast information to develop that estimate. We have changed our accounting policies and implemented system, model and process changes to adopt the standard.

Our allowance for loan losses is a valuation account that is deducted from the amortized cost basis of HFI loans to present the net amount expected to be collected on the loans. The allowance for loan losses reflects an estimate of expected credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts. Upon adoption, we used a discounted cash flow method to measure expected credit losses on our single-family mortgage loans and an undiscounted loss method to measure expected credit losses on our multifamily mortgage loans. The models used reasonable and supportable forecasts for key economic drivers, such as home prices (single-family), rental income (multifamily) and capitalization rates (multifamily). Our modeled loan performance is based on our historical experience of loans with similar risk characteristics adjusted to reflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our credit loss estimates capture the possibility of remote events that could result in credit losses on loans that are considered low risk. Our credit loss models, including the forecast data used as key inputs, are subject to our model oversight and review processes as well as other established governance and controls.

Changes to our estimate of expected credit losses, including changes due to the passage of time, are recorded through the benefit (provision) for credit losses. When calculating our allowance for loan losses, we consider only our amortized cost in the loans at the balance sheet date. We record write-offs as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in satisfaction of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. Additionally, we record write-offs as a reduction to our allowance for loan losses when a loan is determined to be uncollectible and ~~liabilities, disclosure~~upon the redesignation of ~~contingent assets~~a seriously delinquent loan from HFI to HFS. We include expected recoveries of amounts previously written off and ~~liabilities~~expected to be written off in determining our allowance for loan losses.

Our process for determining the impact of the adoption as well as the measurement of expected credit losses for the period under the new standard is complex and involves significant management judgment, including a reliance on historical loss information and current economic forecasts that may not be representative of credit losses we ultimately realize. For example, uncertainty regarding the expected impacts of the COVID-19 outbreak required significant management judgment in assessing our allowance for loan losses as of March 31, 2020.

We provide more detailed information on our accounting for the ~~dates~~allowance for loan losses and impact of adopting the CECL standard in “Note 1, Summary of Significant Accounting Policies.” See “Risk Factors” in our 2019 Form 10-K and in this report for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods.

Impact of Future Adoption of New Accounting Guidance

We identify and discuss the expected impact on our condensed consolidated financial statements of recently issued accounting guidance in “Note 1, Summary of Significant Accounting Policies.”


Fannie Mae First Quarter 2020 Form 10-Q									56


			MD&A \| Forward-Looking Statements

Forward-Looking Statements

This report includes statements that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, we and our senior management may from time to time make forward-looking statements in our other filings with the SEC, our other publicly available written statements, and orally to analysts, investors, the news media and others. Forward-looking statements often include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “forecast,” “project,” “would,” “should,” “could,” “likely,” “may,” “will” or similar words. Examples of forward-looking statements in this report include, among others, statements relating to our expectations regarding the following matters:

•our future financial performance, financial condition and net worth, and the factors that will affect them;

•the impact of the COVID-19 outbreak on our business, financial results, financial condition, business plans and strategies, and on mortgage market and economic conditions, and the factors that will affect the outbreak’s impact;

•expectations for, and the impact of fluctuations in our acquisition volumes, market share, guaranty fees, or acquisition credit characteristics;

•our business plans and strategies and the impact of such plans and strategies;

•our dividend payments to Treasury and the liquidation preference of the senior preferred stock;

•volatility in our future financial results and efforts we may make to address volatility, including our expectations relating to our implementation of a hedge accounting program and its impact on the volatility of our financial results;

•the size and composition of our retained mortgage portfolio;

•the amount of our purchases of loans from MBS trusts;

•the volume of whole loan conduit activity;

•the impact of legislation and regulation on our business or financial results;

•our payments to HUD and Treasury funds under the GSE Act;

•our plans relating to and the effects of our credit risk transfer transactions;

•factors that could affect or mitigate our credit risk exposure;

•mortgage market and economic conditions (including U.S. GDP, unemployment rates, home price growth, multifamily property valuation growth, housing activity, housing starts, home sales, rent growth, multifamily vacancy rates, and the future volume of and characteristics of mortgage originations) and the impact of mortgage market and economic conditions on our business and financial results;

•our future off-balance sheet exposure to Freddie Mac securities;

•the risks to our business;

•future delinquency rates, default rates, forbearances and other loss mitigation activity, substandard loan amounts and credit losses relating to the loans in our guaranty book of business and the factors that will affect them, including the impact of the COVID-19 outbreak;

•our expectations relating to our TDRs;

•the performance of the loans in our book of business and the factors that will affect such performance;

•our loan acquisitions, the credit risk profile of such acquisitions, and the factors that will affect them;

•our future debt funding needs and factors that will affect our ability to meet our debt obligations; and

•our response to legal and regulatory proceedings and their impact on our business or financial condition.

Forward-looking statements reflect our management’s current expectations, forecasts or predictions of future conditions, events or results based on various assumptions and management’s estimates of trends and economic factors in the markets in which we are active and that otherwise impact our business plans. Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to significant risks and uncertainties and changes in circumstances. Our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

There are a number of factors that could cause actual conditions, events or results to differ materially from those described in our forward-looking statements, including, among others, the following:

•the uncertainty of our future and our exit from conservatorship;

•the duration, spread and severity of the COVID-19 outbreak; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the outbreak; the nature and extent of the forbearance and modification options we offer borrowers affected by the outbreak; accounting elections and estimates


Fannie Mae First Quarter 2020 Form 10-Q									57


			MD&A \| Forward-Looking Statements

relating to the impact of the COVID-19 outbreak; borrower and renter behavior in response to the outbreak and its economic impact; how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks interrupt economic recovery; and how quickly and to what extent affected borrowers, renters and counterparties can recover from the negative economic impact of the outbreak;

•the market and regulatory changes we anticipate and our readiness for them, including changes relating to an eventual exit from conservatorship, the competitive landscape, and the need to attract private investment;

•future legislative and regulatory requirements or changes affecting us, such as the enactment of housing finance reform legislation (including all or any portion of the Treasury plan), including changes that limit our business activities or our footprint;

•actions by FHFA, Treasury, HUD, the Consumer Financial Protection Bureau or other regulators, Congress, or state or local governments that affect our business, including new capital requirements that become applicable to us or changes in the ability-to-repay rule to replace the qualified mortgage patch for government-sponsored enterprise-eligible loans;

•changes in the structure and regulation of the financial services industry;

•the timing and level of, as well as regional variation in, home price changes;

•changes in interest rates and credit spreads;

•developments that may be difficult to predict, including: market conditions that result in changes in our ~~reported amounts~~net amortization income from our guaranty book of ~~revenues~~business, fluctuations in the estimated fair value of our derivatives and ~~expenses during~~other financial instruments that we mark to market through our earnings; and developments that affect our loss reserves, such as changes in interest rates, home prices or accounting standards, or events such as natural disasters or the ~~reporting periods. Management has made significant estimates in a variety~~emergence of ~~areas including, but not limited~~widespread health emergencies or pandemics;

•uncertainties relating to the ~~allowance for loan losses. Actual results~~discontinuance of LIBOR, or other market changes that could ~~be different from these estimates.~~impact the loans we own or guarantee or our MBS;

~~Conservatorship~~•credit availability;

~~On September 7, 2008,~~•disruptions or instability in the ~~Secretary~~housing and credit markets;

•the size and our share of the ~~Treasury~~U.S. mortgage market and the ~~Director~~factors that affect them, including population growth and household formation;

•growth, deterioration and the overall health and stability of ~~FHFA announced several actions taken~~the U.S. economy, including U.S. GDP, unemployment rates, personal income and other indicators thereof;

•changes in the fiscal and monetary policies of the Federal Reserve;

•our and our competitors’ future guaranty fee pricing and the impact of that pricing on our competitive environment and guaranty fee revenues;

•the volume of mortgage originations;

•the size, composition, quality and performance of our guaranty book of business and retained mortgage portfolio;

•the competitive environment in which we operate, including the impact of legislative, regulatory or other developments on levels of competition in our industry and other factors affecting our market share;

•how long loans in our guaranty book of business remain outstanding;

•challenges we face in retaining and hiring qualified executives and other employees;

•the effectiveness of our business resiliency plans and systems;

•changes in the demand for Fannie Mae MBS, in general or from one or more major groups of investors;

•our conservatorship, including any changes to or termination (by receivership or otherwise) of the conservatorship and its effect on our business;

•the investment by Treasury, ~~and FHFA regarding Fannie Mae, which included: (1) placing us in conservatorship and (2)~~including potential changes to the ~~execution~~terms of ~~a senior preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock.~~

There continues to be significant uncertainty regarding our future, including how long we will continue to exist in our current form, the extent of our role in the market, how long we will be in conservatorship, what 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 and whether we will continue to exist following conservatorship. Treasury has made a commitment under the senior preferred stock purchase agreement ~~to provide funding to us under certain circumstances if we have a net worth deficit. We are not aware of any plans of FHFA to fundamentally change~~or senior preferred stock, and its effect on our business, ~~model or reduce the aggregate amount available to or held~~including restrictions imposed on us by the ~~company under our capital structure, which includes~~terms of the senior preferred stock purchase agreement, ~~in the near term.~~

~~Senior Preferred Stock Purchase Agreement and Senior Preferred Stock~~

~~Treasury has made a commitment under~~ the senior preferred stock, ~~purchase agreement to provide funding~~and Treasury’s warrant, as well as the possibility that these or other restrictions on our business and activities may be applied to us ~~under certain circumstances~~through other mechanisms even if we ~~have a net worth deficit. Pursuant~~cease to be subject to these agreements and instruments;

•adverse effects from activities we undertake to support the mortgage market and help borrowers, renters, lenders and servicers;

•actions we may be required to take by FHFA, in its role as our conservator or as our regulator, such as actions in response to the ~~senior preferred stock purchase agreement,~~COVID-19 outbreak, changes in the type of business we ~~have received a~~

do, or actions relating to UMBS or our resecuritization of Freddie Mac-issued securities;



Fannie Mae ~~(In conservatorship) Second~~First Quarter ~~2019~~2020 Form 10-Q									58



			MD&A \| Forward-Looking Statements

•limitations on our business imposed by FHFA, in its role as our conservator or as our regulator;

•our future objectives and activities in support of those objectives, including actions we may take to reach additional underserved creditworthy borrowers;

•the possibility that future changes in leadership at FHFA or the Administration may result in changes in FHFA’s or Treasury’s willingness to pursue the administrative reform recommendations in the Treasury plan;

•our reliance on Common Securitization Solutions, LLC (“CSS”) and the common securitization platform for a majority of our single-family securitization activities, our reduced influence over CSS as a result of recent changes to the CSS limited liability company agreement, and any additional changes FHFA may require in our relationship with or in our support of CSS;

•a decrease in our credit ratings;

•limitations on our ability to access the debt capital markets;

•continued limitations on our ability to enter into credit risk transfer transactions;

•significant changes in forbearance, modification and foreclosure activity;

•the volume and pace of future nonperforming and reperforming loan sales and their impact on our results and serious delinquency rates;

•changes in borrower behavior;

•actions we may take to mitigate losses, and the effectiveness of our loss mitigation strategies, management of our REO inventory and pursuit of contractual remedies;

•defaults by one or more institutional counterparties;

•resolution or settlement agreements we may enter into with our counterparties;

•our need to rely on third parties to fully achieve some of our corporate objectives;

•our reliance on mortgage servicers;

•changes in GAAP, guidance by the Financial Accounting Standards Board and changes to our accounting policies;

•changes in the fair value of our assets and liabilities;

•the stability and adequacy of the systems and infrastructure that impact our operations, including ours and those of CSS, our other counterparties and other third parties;

•the impact of increasing interdependence between the single-family mortgage securitization programs of Fannie Mae and Freddie Mac in connection with UMBS;

•operational control weaknesses;

•our reliance on models and future updates we make to our models, including the assumptions used by these models;

•domestic and global political risks and uncertainties;

•natural disasters, environmental disasters, terrorist attacks, widespread health emergencies or pandemics, or other major disruptive events;

•cyber attacks or other information security breaches or threats; and

•the other factors described in “Risk Factors” in this report and in our 2019 Form 10-K.

Readers are cautioned not to unduly rely on the forward-looking statements we make and to place these forward-looking statements into proper context by carefully considering the factors discussed in “Risk Factors” in our 2019 Form 10-K and in this report. These forward-looking statements are representative only as of the date they are made, and we undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under the federal securities laws.


Fannie Mae First Quarter 2020 Form 10-Q									59


			Financial Statements \| Condensed Consolidated Balance Sheets

Item 1. Financial Statements

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets — (Unaudited)

(Dollars in millions)


	As of
	March 31, 2020					December 31, 2019

ASSETS
Cash and cash equivalents		$	80,463	$	21,184
Restricted cash (includes $41,331 and $33,294, respectively, related to consolidated trusts)		48,245		40,223
Federal funds sold and securities purchased under agreements to resell or similar arrangements		7,775		13,578
Investments in securities:
Trading, at fair value (includes $5,562 and $3,037, respectively, pledged as collateral)		52,941		48,123
Available-for-sale, at fair value (with an amortized cost of $2,147, net of allowance for credit losses of $3 as of March 31, 2020)		2,289		2,404
Total investments in securities		55,230		50,527
Mortgage loans:
Loans held for sale, at lower of cost or fair value		8,103		6,773
Loans held for investment, at amortized cost:
Of Fannie Mae		98,585		94,911
Of consolidated trusts		3,269,331		3,241,494
Total loans held for investment (includes $7,701 and $7,825, respectively, at fair value)		3,367,916		3,336,405
Allowance for loan losses		(13,209)		(9,016)
Total loans held for investment, net of allowance		3,354,707		3,327,389
Total mortgage loans		3,362,810		3,334,162
Advances to lenders		8,971		6,453
Deferred tax assets, net		12,831		11,910
Accrued interest receivable, net (includes $8,417 and $8,172, respectively, related to consolidated trusts)		8,808		8,604
Acquired property, net		2,224		2,366
Other assets		13,999		14,312
Total assets		$	3,601,356	$	3,503,319
LIABILITIES AND EQUITY
Liabilities:
Accrued interest payable (includes $9,386 and $9,361, respectively, related to consolidated trusts)		$	10,246	$	10,228
Debt:
Of Fannie Mae (includes $4,752 and $5,687, respectively, at fair value)		228,458		182,247
Of consolidated trusts (includes $22,855 and $21,880, respectively, at fair value)		3,334,098		3,285,139
Other liabilities (includes $355 and $376, respectively, related to consolidated trusts)		14,609		11,097
Total liabilities		3,587,411		3,488,711
Commitments and contingencies (Note 13)		—		—
Fannie Mae stockholders’ equity:
Senior preferred stock (liquidation preference of $135,444 and $131,178, respectively)		120,836		120,836
Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding		19,130		19,130
Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding		687		687
Accumulated deficit		(119,454)		(118,776)
Accumulated other comprehensive income		146		131
Treasury stock, at cost, 150,675,136 shares		(7,400)		(7,400)
Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference)		13,945		14,608
Total liabilities and equity		$	3,601,356	$	3,503,319

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									60


			Financial Statements \| Condensed Consolidated Statements of Operations and Comprehensive Income

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)

(Dollars and shares in millions, except per share amounts)


	For the Three Months Ended March 31,

	2020					2019
Interest income:
Trading securities		$	316	$	427
Available-for-sale securities		31		53
Mortgage loans		28,938		29,862
Federal funds sold and securities purchased under agreements to resell or similar arrangements		107		263
Other		34		32
Total interest income		29,426		30,637
Interest expense:
Short-term debt		(102)		(125)
Long-term debt		(23,977)		(25,716)
Total interest expense		(24,079)		(25,841)
Net interest income		5,347		4,796
Benefit (provision) for credit losses		(2,583)		650
Net interest income after benefit (provision) for credit losses		2,764		5,446
Investment gains (losses), net		(158)		133
Fair value losses, net		(276)		(831)
Fee and other income		308		134
Non-interest loss		(126)		(564)
Administrative expenses:
Salaries and employee benefits		(393)		(386)
Professional services		(212)		(225)

Other administrative expenses		(144)		(133)
Total administrative expenses		(749)		(744)
Foreclosed property expense		(80)		(140)
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees		(637)		(593)
Credit enhancement expense		(331)		(171)
Other expenses, net		(263)		(207)
Total expenses		(2,060)		(1,855)
Income before federal income taxes		578		3,027
Provision for federal income taxes		(117)		(627)
Net income		461		2,400
Other comprehensive income (loss):
Changes in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustments and taxes		18		(36)
Other, net of taxes		(3)		(3)
Total other comprehensive income (loss)		15		(39)
Total comprehensive income		$	476	$	2,361
Net income		$	461	$	2,400
Dividends distributed or amounts attributable to senior preferred stock		(476)		(2,361)

Net income (loss) attributable to common stockholders		$	(15)	$	39
Earnings per share:
Basic		$	0.00	$	0.01
Diluted		0.00		0.01
Weighted-average common shares outstanding:
Basic		5,867		5,762
Diluted		5,867		5,893

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									61


			Financial Statements \| Condensed Consolidated Statements of Cash Flows

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)


	For the Three Months Ended March 31,
	2020					2019
Net cash provided by operating activities		$	2,174	$	1,816
Cash flows provided by investing activities:
Proceeds from maturities and paydowns of trading securities held for investment		13		15
Proceeds from sales of trading securities held for investment		—		49
Proceeds from maturities and paydowns of available-for-sale securities		96		113
Proceeds from sales of available-for-sale securities		50		131
Purchases of loans held for investment		(86,307)		(33,631)
Proceeds from repayments of loans acquired as held for investment of Fannie Mae		2,308		2,786
Proceeds from sales of loans acquired as held for investment of Fannie Mae		—		26
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts		169,656		88,419
Advances to lenders		(45,248)		(22,991)
Proceeds from disposition of acquired property and preforeclosure sales		1,832		1,965
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements		5,803		10,688
Other, net		(539)		(124)
Net cash provided by investing activities		47,664		47,446
Cash flows used in financing activities:
Proceeds from issuance of debt of Fannie Mae		254,559		173,122
Payments to redeem debt of Fannie Mae		(207,818)		(184,222)
Proceeds from issuance of debt of consolidated trusts		135,918		64,821
Payments to redeem debt of consolidated trusts		(164,726)		(96,925)
Payments of cash dividends on senior preferred stock to Treasury		—		(3,240)

Other, net		(470)		—
Net cash provided by (used in) financing activities		17,463		(46,444)
Net increase in cash, cash equivalents and restricted cash		67,301		2,818
Cash, cash equivalents and restricted cash at beginning of period		61,407		49,423
Cash, cash equivalents and restricted cash at end of period		$	128,708	$	52,241
Cash paid during the period for:
Interest		$	28,867	$	28,650
Income taxes		—		—

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									62


			Financial Statements \| Condensed Consolidated Statements of Changes in Equity (Deficit)

FANNIE MAE

(In conservatorship)

CondensedConsolidated Statements of Changes in

Equity (Deficit) —(Unaudited)

(Dollars and shares in millions)


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding										Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income	Treasury Stock		Total Equity
		Senior Preferred		Preferred		Common
Balance as of December 31, 2019	1		556		1,158		$	120,836	$	19,130	$	687	$	(118,776)	$	131	$	(7,400)		$	14,608
Transition impact, net of tax, from the adoption of the current expected credit loss standard	—		—		—		—		—		—		(1,139)		—		—			(1,139)
Balance as of January 1, 2020, adjusted	1		556		1,158		120,836		19,130		687		(119,915)		131		(7,400)			13,469
Senior preferred stock dividends paid	—		—		—		—		—		—		—		—		—			—
Comprehensive income:
Net income	—		—		—		—		—		—		461		—		—			461
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $5)	—		—		—		—		—		—		—		18		—			18
Reclassification adjustment for gains included in net income (net of taxes of $—)	—		—		—		—		—		—		—		—		—			—
Other (net of taxes of $1)	—		—		—		—		—		—		—		(3)		—			(3)
Total comprehensive income																				476
Balance as of March 31, 2020	1		556		1,158		$	120,836	$	19,130	$	687	$	(119,454)	$	146	$	(7,400)		$	13,945


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding							Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income	Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of December 31, 2018	1	556	1,158	$	120,836	$	19,130	$	687	$	(127,335)	$	322	$	(7,400)		$	6,240
Senior preferred stock dividends paid	—	—	—	—		—		—		(3,240)		—		—			(3,240)
Comprehensive income:
Net income	—	—	—	—		—		—		2,400		—		—			2,400
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $2)	—	—	—	—		—		—		—		8		—			8
Reclassification adjustment for gains included in net income (net of taxes of $12)	—	—	—	—		—		—		—		(44)		—			(44)
Other (net of taxes of $1)	—	—	—	—		—		—		—		(3)		—			(3)
Total comprehensive income																	2,361
Balance as of March 31, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(128,175)	$	283	$	(7,400)		$	5,361

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									63


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

FANNIE MAE

(In conservatorship)

Notes to Condensed Consolidated Financial Statements

~~total~~(Unaudited)

1. Summary of ~~$119.8 billion from Treasury as~~Significant Accounting Policies

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act (the “Charter Act” or our “charter”). We are a government-sponsored enterprise (“GSE”), and we are subject to government oversight and regulation. Our regulators include the Federal Housing Finance Agency (“FHFA”), the U.S. Department of ~~June 30, 2019,~~Housing and Urban Development (“HUD”), the U.S. Securities and Exchange Commission (“SEC”), and the ~~amount of remaining funding available to us under the agreement was $113.9 billion.~~

~~Pursuant to the senior preferred stock purchase agreement, we issued shares of senior preferred stock to Treasury in 2008. Acting as successor to the rights, titles, powers and privileges~~U.S. Department of the ~~Board,~~Treasury (“Treasury”). The U.S. government does not guarantee our securities or other obligations.

We have been under conservatorship, with FHFA acting as conservator, ~~has declared~~since September 6, 2008. See below and directed us to pay dividends to Treasury on the senior preferred stock on a quarterly basis for every dividend period for which dividends were payable since we entered conservatorship in 2008. The current dividend provisions“Note 1, Summary of the senior preferred stock provide for quarterly dividends consisting of the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds a $3.0 billion capital reserve amount. We refer to this as a “net worth sweep” dividend. On June 28, 2019, we paid Treasury a dividend of $2.4 billion based on our net worth of $5.4 billion as of ~~March 31, 2019~~, less the applicable capital reserve amount of $3.0 billion. Because we had a net worth of $6.4 billion as of June 30, 2019, we expect to pay Treasury a dividend of $3.4 billion for the third quarter of 2019 by September 30, 2019.

~~The liquidation preference of the senior preferred stock is subject to adjustment. The aggregate liquidation preference of the senior preferred stock was $123.8 billion as of June 30, 2019.~~

~~See “Note 11, Equity (Deficit)”~~Significant Accounting Policies” in our ~~2018~~annual report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”) for additional information ~~about the senior preferred stock purchase agreement~~on our conservatorship and the ~~senior preferred stock.~~impact of U.S. government support of our business.

~~Principles of Consolidation~~

~~Our~~The unaudited interim condensed consolidated financial statements ~~include our accounts~~ as ~~well as the accounts~~ of ~~the other entities in which we have a controlling financial interest. All intercompany balances~~ and transactions have been eliminated. The typical condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. A controlling financial interest may also exist in entities through arrangements that do not involve voting interests, such as a variable interest entity (“VIE”).

~~Single Security Initiative~~

The Single Security Initiative is a joint initiative among Fannie Mae, Freddie Mac, and our jointly owned limited liability company, Common Securitization Solutions, LLC (“CSS”), under the direction of FHFA, to develop a single common mortgage-backed security issued by both Fannie Mae and Freddie Mac to finance fixed-rate mortgage loans backed by one- to four-unit single-family properties. The objective of the Single Security Initiative is to enhance the overall liquidity of Fannie Mae and Freddie Mac mortgage-backed securities eligible for trading in the to-be-announced (“TBA”) market by supporting their fungibility without regard to which company is the issuer. We and Freddie Mac began issuing uniform mortgage-backed securities (“UMBS”) pursuant to the Single Security Initiative in June 2019. We and Freddie Mac also began resecuritizing UMBS certificates into structured securities in June 2019. The structured securities backed by UMBS that we may issue include Supers, which are single-class resecuritization transactions, and Real Estate Mortgage Investment Conduit securities (“REMICs”) and interest-only and principal-only strip securities (“SMBS”), which are multi-class resecuritization transactions.

Beginning in June 2019 and going forward, we may include UMBS, Supers and other structured securities issued by Freddie Mac in our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued UMBS are not held in trusts that are consolidated by Fannie Mae. When we include Freddie Mac securities in our structured securities we are subject to additional credit risk because we guarantee securities that were not previously guaranteed by Fannie Mae. However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. As such, we have concluded that this additional credit risk is negligible because of the funding commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury. Prior to the implementation of the Single Security Initiative, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts.

~~Single-Class Resecuritization Trusts~~

~~Fannie Mae single-class resecuritization trusts are created by depositing mortgage-backed securities (“MBS”) into a new securitization trust~~ for the purpose of aggregating multiple mortgage-related securities into a single security. Single-class resecuritization securities pass through directly to the holders of the securities all of the cash flows of the underlying mortgage-backed securities heldthree months ended March 31, 2020 and related notes, should be read in the resecuritization trust. As a result of the Single Security Initiative, these securities can now be collateralized directly or indirectly by cash flows from underlying securities issued by Fannie Mae, Freddie Mac, or a combination of both. Resecuritization trusts backed directly or indirectly only by Fannie Mae MBS are non-commingled resecuritization trusts. Resecuritization trusts collateralized directly or indirectly by cash flows either in part or in whole from Freddie Mac securities are commingled resecuritization trusts.

~~Securities issued by~~conjunction with our non-commingled single-class resecuritization trusts are backed solely by Fannie Mae MBS and the guarantee we provide on the trust does not subject us to additional credit risk because we have already provided a guarantee on the underlying securities. Further, the securities issued by our non-commingled single-class resecuritization trusts pass through all of the cash flows of the underlying Fannie Mae MBS directly to the holders of the securities. Accordingly, these securities are deemed to be substantially the same as the underlying Fannie Mae MBS collateral. Additionally, our involvement



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		59



	~~Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies~~

with these trusts does not provide us with any incremental rights or powers that would enable us to direct any activities of the trusts. As a result, we have concluded that we are not the primary beneficiaries of, and as a result, we do not consolidate, our non-commingled single-class resecuritization trusts. Therefore, we account for purchases and sales of securities issued by non-commingled single-class resecuritization trusts as extinguishments and issuances of the underlying MBS debt, respectively.

Securities issued by our commingled single-class resecuritization trusts are backed in whole or in part by Freddie Mac securities. The guaranty we provide to the commingled single-class resecuritization trust subjects us to additional credit risk because we are providing a guaranty for the timely payment of principal and interest on the underlying Freddie Mac securities that we have not previously guaranteed. Accordingly, securities issued by our commingled resecuritization trusts are not deemed to be substantially the same as the underlying collateral. We do not have any incremental rights or powers related to commingled single-class resecuritization trusts that would enable us to direct any activities of the underlying trusts. As a result, we have concluded that we are not the primary beneficiary of, and therefore do not consolidate, our commingled single-class resecuritization trusts unless we have the unilateral right to dissolve the trust. We have this right when we hold 100% of the beneficial interests issued by the resecuritization trust. Therefore, we account for purchases and sales of these securities as purchases and sales of investment securities.

~~Multi-Class Resecuritization Trusts~~

Multi-class resecuritization trusts are trusts we create to issue multi-class Fannie Mae structured securities, including REMICs and SMBS, in which the cash flows of the underlying mortgage assets are divided, creating several classes of securities, each of which represents a beneficial ownership interest in a separate portion of cash flows. We guarantee to each multi-class resecuritization trust that we will supplement amounts received by the trusts as required to permit timely payments of principal and interest, as applicable, on the related Fannie Mae structured securities. As a result of the Single Security Initiative, these multi-class structured securities can now be collateralized, directly or indirectly, by securities issued by Fannie Mae, Freddie Mac, or a combination of both.

~~The guaranty we provide to our non-commingled multi-class resecuritization trusts does not subject us to additional credit risk~~, because the underlying assets are Fannie Mae-issued securities for which we have already provided a guaranty. However, for commingled multi-class structured securities, we are subject to additional credit risk because we are providing a guaranty for the timely payment of principal and interest on the underlying Freddie Mac securities that we have not previously guaranteed. For both commingled and non-commingled multi-class resecuritization trusts, we may also be exposed to prepayment risk via our ownership of securities issued by these trusts. We do not have the ability via our involvement with a multi-class resecuritization trust to impact either the credit risk or prepayment risk to which we are exposed. Therefore, we have concluded that we do not have the characteristics of a controlling financial interest and do not consolidate multi-class resecuritization trusts unless we have the unilateral right to dissolve the trust as noted below.

Securities issued by multi-class resecuritization trusts do not directly pass through all of the cash flows of the underlying securities and therefore the issued and underlying securities are not considered substantially the same. Accordingly, if a multi-class resecuritization trust is not consolidated, we account for purchases and sales of securities issued by the trust as purchases and sales of investment securities.

Beginning June 2019, in connection with the Single Security Initiative, we may now include UMBS, Supers and other structured securities backed by securities issued by Freddie Mac in our resecuritization trusts. As a result, we adopted a consolidation threshold for multi-class resecuritization trusts that is based on our ability to unilaterally dissolve the resecuritization trust. This ability exists only when we hold 100% of the outstanding beneficial interests issued by the resecuritization trust. This new consolidation threshold was applied prospectively upon implementation of the Single Security Initiative in the second quarter of 2019 and prior period amounts were not recast. Prior to the implementation of the Single Security Initiative, we consolidated multi-class resecuritization trusts when we held a substantial portion of the outstanding beneficial interests issued by the trust. Our adoption of the new consolidation threshold did not have a material impact on our condensedaudited consolidated financial statements ~~for the second quarter or first half of 2019.~~and related notes included in our 2019 Form 10-K.

Regulatory Capital

The deficit of our core capital over statutory minimum capital was $131.3 billion as of March 31, 2020 and $128.8 billion as of December 31, 2019. For information on our current and proposed capital requirements, see “Business—Charter Act and Regulation—GSE Act and Other Regulation” and “Note 12, Regulatory Capital Requirements” in our 2019 Form 10-K.

Capital Activity

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements result primarily from the following:

•our guaranty of mortgage loan securitization and resecuritization transactions, and other guaranty commitments, over which we do not have control;

•liquidity support transactions; and

•partnership interests.


Fannie Mae First Quarter 2020 Form 10-Q									53


			MD&A \| Off-Balance Sheet Arrangements

The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest that we retain, and other financial guarantees was $90.5 billion as of March 31, 2020. Approximately $55.3 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers. Additionally, off-balance sheet exposure includes approximately $17.3 billion of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs; however, a portion of these Freddie Mac securities may be backed in whole or in part by Fannie Mae MBS. Therefore, our total exposure to Freddie Mac securities included in Fannie Mae REMIC collateral is likely lower. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured securities backed by Freddie Mac securities in the future. The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS and other financial guarantees was $68.6 billion as of December 31, 2019. Approximately $37.8 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers and $12.3 billion of this amount consisted of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs. See “Note 6, Financial Guarantees” for more information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie Mac securities.

We also have off-balance sheet exposure to losses from liquidity support transactions and partnership interests.

•Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing revenue bonds totaled $7.0 billion as of March 31, 2020 and $7.2 billion as of December 31, 2019. These commitments require us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are unable to be remarketed. We hold cash and cash equivalents in our other investments portfolio in excess of these commitments to advance funds.

•We make investments in various limited partnerships and similar legal entities, which consist of low-income housing tax credit investments, community investments and other entities. When we do not have a controlling financial interest in those entities, our condensed consolidated balance sheets reflect only our investment rather than the full amount of the partnership’s assets and liabilities. See “Note 2, Consolidations and Transfers of Financial Assets— Unconsolidated VIEs” for information regarding our limited partnerships and similar legal entities.

Risk Management

Our business activities expose us to the following major categories of risk: credit risk (including mortgage credit risk and institutional counterparty credit risk), market risk (including interest-rate risk), liquidity and funding risk, and operational risk (including cyber/information security risk, third-party risk and model risk), as well as strategic risk, compliance risk and reputational risk. See “MD&A—Risk Management” in our 2019 Form 10-K for a discussion of our management of these risks. This section supplements and updates that discussion but does not repeat all of the risk management categories described in our 2019 Form 10-K.

Institutional Counterparty Credit Risk Management

Market Risk Management, Including Interest-Rate Risk Management

Measurement of Interest-Rate Risk

The table below displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the slope of the yield curve as measured on the last day of each period presented. The table below also provides the daily average, minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on the net portfolio to changes in the level of interest rates and the slope of the yield curve for the three months ended March 31, 2020 and 2019.


Fannie Mae First Quarter 2020 Form 10-Q									54


			MD&A \| Risk Management

For information on how we measure our interest-rate risk, see our 2019 Form 10-K in “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management.”


Interest-Rate Sensitivity of Net Portfolio to Changes in Interest-Rate Level and Slope of Yield Curve
	As of ⁽¹⁾⁽²⁾
	March 31, 2020					December 31, 2019
	(Dollars in millions)
Rate level shock:
-100 basis points		$	(185)	$	57
-50 basis points		(54)		11
+50 basis points		32		51
+100 basis points		88		160
Rate slope shock:
-25 basis points (flattening)		(7)		(20)
+25 basis points (steepening)		4		22


	For the Three Months Ended March 31,⁽¹⁾⁽³⁾
	2020														2019
	Duration Gap	Rate Slope Shock 25 bps					Rate Level Shock 50 bps				Duration Gap	Rate Slope Shock 25 bps				Rate Level Shock 50 bps
		Market Value Sensitivity													Market Value Sensitivity
	(In years)	(Dollars in millions)										(In years)			(Dollars in millions)
Average	(0.02)		$	(20)	$	(32)		(0.02)	$	(6)			$	(48)
Minimum	(0.10)		(33)		(144)			(0.07)	(11)				(116)
Maximum	0.12		(7)		20			0.02	(1)				(11)
Standard deviation	0.04		6		31			0.02	3				22

⁽¹⁾Computed based on changes in U.S. LIBOR interest-rates swap curve. Changes in the level of interest-rates assume a parallel shift in all maturities of the U.S. LIBOR interest-rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of 16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for remaining maturity points are interpolated.

⁽²⁾Measured on the last business day of each period presented.

⁽³⁾Computed based on daily values during the period presented.

The market value sensitivity of our net portfolio varies across a range of interest-rate shocks depending upon the duration and convexity profile of our net portfolio.


Derivative Impact on Interest-Rate Risk (50 Basis Points)
	As of ⁽¹⁾
	March 31, 2020					December 31, 2019
	(Dollars in millions)
Before derivatives		$	(177)	$	(197)
After derivatives		32		51
Effect of derivatives		209		248

⁽¹⁾Measured on the last business day of each period presented.


Fannie Mae First Quarter 2020 Form 10-Q									55


			MD&A \| Critical Accounting Policies and Estimates

Critical Accounting Policies and Estimates

Allowance for Loan Losses and Adoption of the CECL Standard

Changes to our estimate of expected credit losses, including changes due to the passage of time, are recorded through the benefit (provision) for credit losses. When calculating our allowance for loan losses, we consider only our amortized cost in the loans at the balance sheet date. We record write-offs as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in satisfaction of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. Additionally, we record write-offs as a reduction to our allowance for loan losses when a loan is determined to be uncollectible and upon the redesignation of a seriously delinquent loan from HFI to HFS. We include expected recoveries of amounts previously written off and expected to be written off in determining our allowance for loan losses.

We provide more detailed information on our accounting for the allowance for loan losses and impact of adopting the CECL standard in “Note 1, Summary of Significant Accounting Policies.” See “Risk Factors” in our 2019 Form 10-K and in this report for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods.

Impact of Future Adoption of New Accounting Guidance

We identify and discuss the expected impact on our condensed consolidated financial statements of recently issued accounting guidance in “Note 1, Summary of Significant Accounting Policies.”


Fannie Mae First Quarter 2020 Form 10-Q									56


			MD&A \| Forward-Looking Statements

Forward-Looking Statements

•our future financial performance, financial condition and net worth, and the factors that will affect them;

•expectations for, and the impact of fluctuations in our acquisition volumes, market share, guaranty fees, or acquisition credit characteristics;

•our business plans and strategies and the impact of such plans and strategies;

•our dividend payments to Treasury and the liquidation preference of the senior preferred stock;

•the size and composition of our retained mortgage portfolio;

•the amount of our purchases of loans from MBS trusts;

•the volume of whole loan conduit activity;

•the impact of legislation and regulation on our business or financial results;

•our payments to HUD and Treasury funds under the GSE Act;

•our plans relating to and the effects of our credit risk transfer transactions;

•factors that could affect or mitigate our credit risk exposure;

•our future off-balance sheet exposure to Freddie Mac securities;

•the risks to our business;

•our expectations relating to our TDRs;

•the performance of the loans in our book of business and the factors that will affect such performance;

•our loan acquisitions, the credit risk profile of such acquisitions, and the factors that will affect them;

•our future debt funding needs and factors that will affect our ability to meet our debt obligations; and

•our response to legal and regulatory proceedings and their impact on our business or financial condition.

•the uncertainty of our future and our exit from conservatorship;


Fannie Mae First Quarter 2020 Form 10-Q									57


			MD&A \| Forward-Looking Statements

•changes in the structure and regulation of the financial services industry;

•the timing and level of, as well as regional variation in, home price changes;

•changes in interest rates and credit spreads;

•developments that may be difficult to predict, including: market conditions that result in changes in our net amortization income from our guaranty book of business, fluctuations in the estimated fair value of our derivatives and other financial instruments that we mark to market through our earnings; and developments that affect our loss reserves, such as changes in interest rates, home prices or accounting standards, or events such as natural disasters or the emergence of widespread health emergencies or pandemics;

•uncertainties relating to the discontinuance of LIBOR, or other market changes that could impact the loans we own or guarantee or our MBS;

•credit availability;

•disruptions or instability in the housing and credit markets;

•the size and our share of the U.S. mortgage market and the factors that affect them, including population growth and household formation;

•growth, deterioration and the overall health and stability of the U.S. economy, including U.S. GDP, unemployment rates, personal income and other indicators thereof;

•changes in the fiscal and monetary policies of the Federal Reserve;

•our and our competitors’ future guaranty fee pricing and the impact of that pricing on our competitive environment and guaranty fee revenues;

•the volume of mortgage originations;

•the size, composition, quality and performance of our guaranty book of business and retained mortgage portfolio;

•how long loans in our guaranty book of business remain outstanding;

•challenges we face in retaining and hiring qualified executives and other employees;

•the effectiveness of our business resiliency plans and systems;

•changes in the demand for Fannie Mae MBS, in general or from one or more major groups of investors;

•our conservatorship, including any changes to or termination (by receivership or otherwise) of the conservatorship and its effect on our business;

•the investment by Treasury, including potential changes to the terms of the senior preferred stock purchase agreement or senior preferred stock, and its effect on our business, including restrictions imposed on us by the terms of the senior preferred stock purchase agreement, the senior preferred stock, and Treasury’s warrant, as well as the possibility that these or other restrictions on our business and activities may be applied to us through other mechanisms even if we cease to be subject to these agreements and instruments;

•adverse effects from activities we undertake to support the mortgage market and help borrowers, renters, lenders and servicers;

•actions we may be required to take by FHFA, in its role as our conservator or as our regulator, such as actions in response to the COVID-19 outbreak, changes in the type of business we do, or actions relating to UMBS or our resecuritization of Freddie Mac-issued securities;


Fannie Mae First Quarter 2020 Form 10-Q									58


			MD&A \| Forward-Looking Statements

•limitations on our business imposed by FHFA, in its role as our conservator or as our regulator;

•our future objectives and activities in support of those objectives, including actions we may take to reach additional underserved creditworthy borrowers;

•a decrease in our credit ratings;

•limitations on our ability to access the debt capital markets;

•continued limitations on our ability to enter into credit risk transfer transactions;

•significant changes in forbearance, modification and foreclosure activity;

•the volume and pace of future nonperforming and reperforming loan sales and their impact on our results and serious delinquency rates;

•changes in borrower behavior;

•actions we may take to mitigate losses, and the effectiveness of our loss mitigation strategies, management of our REO inventory and pursuit of contractual remedies;

•defaults by one or more institutional counterparties;

•resolution or settlement agreements we may enter into with our counterparties;

•our need to rely on third parties to fully achieve some of our corporate objectives;

•our reliance on mortgage servicers;

•changes in GAAP, guidance by the Financial Accounting Standards Board and changes to our accounting policies;

•changes in the fair value of our assets and liabilities;

•the stability and adequacy of the systems and infrastructure that impact our operations, including ours and those of CSS, our other counterparties and other third parties;

•the impact of increasing interdependence between the single-family mortgage securitization programs of Fannie Mae and Freddie Mac in connection with UMBS;

•operational control weaknesses;

•our reliance on models and future updates we make to our models, including the assumptions used by these models;

•domestic and global political risks and uncertainties;

•natural disasters, environmental disasters, terrorist attacks, widespread health emergencies or pandemics, or other major disruptive events;

•cyber attacks or other information security breaches or threats; and

•the other factors described in “Risk Factors” in this report and in our 2019 Form 10-K.


Fannie Mae First Quarter 2020 Form 10-Q									59


			Financial Statements \| Condensed Consolidated Balance Sheets

Item 1. Financial Statements

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets — (Unaudited)

(Dollars in millions)


	As of
	March 31, 2020					December 31, 2019

ASSETS
Cash and cash equivalents		$	80,463	$	21,184
Restricted cash (includes $41,331 and $33,294, respectively, related to consolidated trusts)		48,245		40,223
Federal funds sold and securities purchased under agreements to resell or similar arrangements		7,775		13,578
Investments in securities:
Trading, at fair value (includes $5,562 and $3,037, respectively, pledged as collateral)		52,941		48,123
Available-for-sale, at fair value (with an amortized cost of $2,147, net of allowance for credit losses of $3 as of March 31, 2020)		2,289		2,404
Total investments in securities		55,230		50,527
Mortgage loans:
Loans held for sale, at lower of cost or fair value		8,103		6,773
Loans held for investment, at amortized cost:
Of Fannie Mae		98,585		94,911
Of consolidated trusts		3,269,331		3,241,494
Total loans held for investment (includes $7,701 and $7,825, respectively, at fair value)		3,367,916		3,336,405
Allowance for loan losses		(13,209)		(9,016)
Total loans held for investment, net of allowance		3,354,707		3,327,389
Total mortgage loans		3,362,810		3,334,162
Advances to lenders		8,971		6,453
Deferred tax assets, net		12,831		11,910
Accrued interest receivable, net (includes $8,417 and $8,172, respectively, related to consolidated trusts)		8,808		8,604
Acquired property, net		2,224		2,366
Other assets		13,999		14,312
Total assets		$	3,601,356	$	3,503,319
LIABILITIES AND EQUITY
Liabilities:
Accrued interest payable (includes $9,386 and $9,361, respectively, related to consolidated trusts)		$	10,246	$	10,228
Debt:
Of Fannie Mae (includes $4,752 and $5,687, respectively, at fair value)		228,458		182,247
Of consolidated trusts (includes $22,855 and $21,880, respectively, at fair value)		3,334,098		3,285,139
Other liabilities (includes $355 and $376, respectively, related to consolidated trusts)		14,609		11,097
Total liabilities		3,587,411		3,488,711
Commitments and contingencies (Note 13)		—		—
Fannie Mae stockholders’ equity:
Senior preferred stock (liquidation preference of $135,444 and $131,178, respectively)		120,836		120,836
Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding		19,130		19,130
Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding		687		687
Accumulated deficit		(119,454)		(118,776)
Accumulated other comprehensive income		146		131
Treasury stock, at cost, 150,675,136 shares		(7,400)		(7,400)
Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference)		13,945		14,608
Total liabilities and equity		$	3,601,356	$	3,503,319

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									60


			Financial Statements \| Condensed Consolidated Statements of Operations and Comprehensive Income

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)

(Dollars and shares in millions, except per share amounts)


	For the Three Months Ended March 31,

	2020					2019
Interest income:
Trading securities		$	316	$	427
Available-for-sale securities		31		53
Mortgage loans		28,938		29,862
Federal funds sold and securities purchased under agreements to resell or similar arrangements		107		263
Other		34		32
Total interest income		29,426		30,637
Interest expense:
Short-term debt		(102)		(125)
Long-term debt		(23,977)		(25,716)
Total interest expense		(24,079)		(25,841)
Net interest income		5,347		4,796
Benefit (provision) for credit losses		(2,583)		650
Net interest income after benefit (provision) for credit losses		2,764		5,446
Investment gains (losses), net		(158)		133
Fair value losses, net		(276)		(831)
Fee and other income		308		134
Non-interest loss		(126)		(564)
Administrative expenses:
Salaries and employee benefits		(393)		(386)
Professional services		(212)		(225)

Other administrative expenses		(144)		(133)
Total administrative expenses		(749)		(744)
Foreclosed property expense		(80)		(140)
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees		(637)		(593)
Credit enhancement expense		(331)		(171)
Other expenses, net		(263)		(207)
Total expenses		(2,060)		(1,855)
Income before federal income taxes		578		3,027
Provision for federal income taxes		(117)		(627)
Net income		461		2,400
Other comprehensive income (loss):
Changes in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustments and taxes		18		(36)
Other, net of taxes		(3)		(3)
Total other comprehensive income (loss)		15		(39)
Total comprehensive income		$	476	$	2,361
Net income		$	461	$	2,400
Dividends distributed or amounts attributable to senior preferred stock		(476)		(2,361)

Net income (loss) attributable to common stockholders		$	(15)	$	39
Earnings per share:
Basic		$	0.00	$	0.01
Diluted		0.00		0.01
Weighted-average common shares outstanding:
Basic		5,867		5,762
Diluted		5,867		5,893

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									61


			Financial Statements \| Condensed Consolidated Statements of Cash Flows

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)


	For the Three Months Ended March 31,
	2020					2019
Net cash provided by operating activities		$	2,174	$	1,816
Cash flows provided by investing activities:
Proceeds from maturities and paydowns of trading securities held for investment		13		15
Proceeds from sales of trading securities held for investment		—		49
Proceeds from maturities and paydowns of available-for-sale securities		96		113
Proceeds from sales of available-for-sale securities		50		131
Purchases of loans held for investment		(86,307)		(33,631)
Proceeds from repayments of loans acquired as held for investment of Fannie Mae		2,308		2,786
Proceeds from sales of loans acquired as held for investment of Fannie Mae		—		26
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts		169,656		88,419
Advances to lenders		(45,248)		(22,991)
Proceeds from disposition of acquired property and preforeclosure sales		1,832		1,965
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements		5,803		10,688
Other, net		(539)		(124)
Net cash provided by investing activities		47,664		47,446
Cash flows used in financing activities:
Proceeds from issuance of debt of Fannie Mae		254,559		173,122
Payments to redeem debt of Fannie Mae		(207,818)		(184,222)
Proceeds from issuance of debt of consolidated trusts		135,918		64,821
Payments to redeem debt of consolidated trusts		(164,726)		(96,925)
Payments of cash dividends on senior preferred stock to Treasury		—		(3,240)

Other, net		(470)		—
Net cash provided by (used in) financing activities		17,463		(46,444)
Net increase in cash, cash equivalents and restricted cash		67,301		2,818
Cash, cash equivalents and restricted cash at beginning of period		61,407		49,423
Cash, cash equivalents and restricted cash at end of period		$	128,708	$	52,241
Cash paid during the period for:
Interest		$	28,867	$	28,650
Income taxes		—		—

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									62


			Financial Statements \| Condensed Consolidated Statements of Changes in Equity (Deficit)

FANNIE MAE

(In conservatorship)

CondensedConsolidated Statements of Changes in

Equity (Deficit) —(Unaudited)

(Dollars and shares in millions)


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding										Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income	Treasury Stock		Total Equity
		Senior Preferred		Preferred		Common
Balance as of December 31, 2019	1		556		1,158		$	120,836	$	19,130	$	687	$	(118,776)	$	131	$	(7,400)		$	14,608
Transition impact, net of tax, from the adoption of the current expected credit loss standard	—		—		—		—		—		—		(1,139)		—		—			(1,139)
Balance as of January 1, 2020, adjusted	1		556		1,158		120,836		19,130		687		(119,915)		131		(7,400)			13,469
Senior preferred stock dividends paid	—		—		—		—		—		—		—		—		—			—
Comprehensive income:
Net income	—		—		—		—		—		—		461		—		—			461
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $5)	—		—		—		—		—		—		—		18		—			18
Reclassification adjustment for gains included in net income (net of taxes of $—)	—		—		—		—		—		—		—		—		—			—
Other (net of taxes of $1)	—		—		—		—		—		—		—		(3)		—			(3)
Total comprehensive income																				476
Balance as of March 31, 2020	1		556		1,158		$	120,836	$	19,130	$	687	$	(119,454)	$	146	$	(7,400)		$	13,945


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding							Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income	Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of December 31, 2018	1	556	1,158	$	120,836	$	19,130	$	687	$	(127,335)	$	322	$	(7,400)		$	6,240
Senior preferred stock dividends paid	—	—	—	—		—		—		(3,240)		—		—			(3,240)
Comprehensive income:
Net income	—	—	—	—		—		—		2,400		—		—			2,400
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $2)	—	—	—	—		—		—		—		8		—			8
Reclassification adjustment for gains included in net income (net of taxes of $12)	—	—	—	—		—		—		—		(44)		—			(44)
Other (net of taxes of $1)	—	—	—	—		—		—		—		(3)		—			(3)
Total comprehensive income																	2,361
Balance as of March 31, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(128,175)	$	283	$	(7,400)		$	5,361

See Notes to Condensed Consolidated Financial Statements


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									63


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

FANNIE MAE

(In conservatorship)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

We have been under conservatorship, with FHFA acting as conservator, since September 6, 2008. See below and “Note 1, Summary of Significant Accounting Policies” in our annual report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”) for additional information on our conservatorship and the impact of U.S. government support of our business.

The unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2020 and related notes, should be read in conjunction with our audited consolidated financial statements and related notes included in our 2019 Form 10-K.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The accompanying condensed consolidated financial statements include our accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany accounts and transactions have been eliminated. To conform to our current period presentation, we have reclassified certain amounts reported in our prior period condensed consolidated financial statements. Results for the three months ended March 31, 2020 may not necessarily be indicative of the results for the year ending December 31, 2020.

Presentation of Advances to Lenders

Advances to lenders represent our 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. These transfers primarily occur when we provide early funding to

lenders for loans that they will subsequently either sell to us or securitize into a Fannie Mae MBS that they will deliver to us.

Early lender funding advances have terms up to 60 days and earn a short-term market rate of interest. Advances to lenders has been presented as a separate line item for all periods presented as increased mortgage refinance activity resulted in a higher balance at period end. In prior periods, advances to lenders were recorded in “Other assets.”

Presentation of Credit Enhancement Expense

Credit enhancement expense primarily consists of costs associated with our Connecticut Avenue Securities^®(“CAS”) and Credit Insurance Risk Transfer^TM (“CIRT^TM”) programs as well as enterprise-paid mortgage insurance (“EPMI”). We exclude from this expense costs related to our CAS transactions accounted for as debt instruments and credit risk transfer programs accounted for as derivative instruments. Credit enhancement expense has been presented as a separate line item for all periods presented as the percentage of our book of business covered by freestanding credit enhancements has increased and become a more significant driver of our results of operations. In prior periods, credit enhancement expenses were recorded in “Other expenses, net.”

Presentation of Yield Maintenance Fees

Prior period multifamily yield maintenance fees have been reclassified to conform to the current period presentation. Multifamily yield maintenance fees, or prepayment premiums, are fees that a borrower pays when they prepay their loan. For multifamily loans held in consolidated trust, a portion of the yield maintenance fee is typically passed through to the holders of the trust certificate. As of January 1, 2020, we classify all yield maintenance fees as interest income. For consolidated loans, the portion of the fee passed through to the certificate holders of the trust is classified as interest expense. Previously, we classified multifamily yield maintenance fees as interest income when the fee was associated with a loan refinancing, otherwise the fee was classified as fee and other income. The portion of the fees passed through to the certificate holders of the trust were previously classified as interest expense when the fee was associated with a loan refinancing, otherwise the fee was classified as other expense. The changes in presentation have been applied retrospectively to all periods presented, which have been immaterial historically.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									64


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

Use of Estimates

Preparing condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect our reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of our condensed consolidated financial statements, as well as our reported amounts of revenues and expenses during the reporting periods. Management has made significant estimates in a variety of areas including, but not limited to, the allowance for loan losses. For example, significant uncertainty regarding the expected impacts of the COVID-19 outbreak required substantial management judgment in assessing our allowance for loan losses as of March 31, 2020. Actual results could differ from these estimates.

Conservatorship

On September 7, 2008, the Secretary of the Treasury and the Director of FHFA announced several actions taken by Treasury and FHFA regarding Fannie Mae, which included: (1) placing us in conservatorship and (2) the execution of a senior preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock.

Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by the Federal Housing Finance Regulatory Reform Act of 2008 (together, the “GSE Act”), the conservator immediately succeeded to (1) all rights, titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae with respect to Fannie Mae and its assets, and (2) title to the books, records and assets of any other legal custodian of Fannie Mae. The conservator subsequently issued an order that provided for our Board of Directors to exercise specified authorities. The conservator also provided instructions regarding matters for which conservator decision or notification is required. The conservator retains the authority to amend or withdraw its order and instructions at any time.

The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any party. However, mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the general creditors of Fannie Mae. Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments on our debt securities or perform under our mortgage guaranty obligations.

On September 5, 2019, Treasury released a plan to reform the housing finance system. The Treasury Housing Reform Plan (the “Treasury plan”) is far-reaching in scope and could have a significant impact on our structure, our role in the secondary mortgage market, our capitalization, our business and our competitive environment. The Treasury plan includes recommendations relating to ending our conservatorship, amending our senior preferred stock purchase agreement with Treasury, considering additional restrictions and requirements on our business, and many other matters. The Treasury plan recommends that Treasury’s commitment to provide funding under the senior preferred stock purchase agreement should be replaced with legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government that is limited to the timely payment of principal and interest on qualifying MBS. The Treasury plan further recommends that, pending legislation, even after conservatorship Treasury should maintain its ongoing commitment to support our single-family and multifamily mortgage-backed securities through the senior preferred stock purchase agreement, as amended as contemplated by the plan.

The conservatorship has no specified termination date and there continues to be significant uncertainty regarding our future, including how long we will continue to exist in our current form, the extent of our role in the market, the level of government support of our business, how long we will be in conservatorship, what 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 and whether we will continue to exist following conservatorship. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written determination that our assets are less than our obligations or if we have not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place us into receivership at his discretion at any time for other reasons set forth in the GSE Act, including if we are critically undercapitalized or if we are undercapitalized and have no reasonable prospect of becoming adequately capitalized. Should we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which could lead to substantially different financial results. Treasury has made a commitment under the senior preferred stock purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. We are not aware of any plans of FHFA (1) to fundamentally change our business model, other than changes that might result from recommendations in the Treasury plan, if implemented, or (2) to reduce the aggregate amount available to or held by the company under our capital structure, which includes the senior preferred stock purchase agreement.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									65


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

Senior Preferred Stock Purchase Agreement and Senior Preferred Stock

Treasury has made a commitment under the senior preferred stock purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. Pursuant to the senior preferred stock purchase agreement, we have received a total of $119.8 billion from Treasury as of March 31, 2020, and the amount of remaining funding available to us under the agreement was $113.9 billion.

Pursuant to the senior preferred stock purchase agreement, we issued shares of senior preferred stock in 2008. The current dividend provisions of the senior preferred stock provide for quarterly dividends consisting of the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds a $25 billion capital reserve amount. We refer to this as a “net worth sweep” dividend. Because we had a net worth of $14.6 billion as of December 31, 2019, no dividends were payable for the first quarter of 2020. And because we had a net worth of $13.9 billion as of March 31, 2020, no dividends are payable for the second quarter of 2020.

The liquidation preference of the senior preferred stock is subject to adjustment. The aggregate liquidation preference of the senior preferred stock increased from $131.2 billion as of December 31, 2019 to $135.4 billion as of March 31, 2020 due to the increase in our net worth during the fourth quarter of 2019. Because our net worth did not increase during the first quarter of 2020, the aggregate liquidation preference of the senior preferred stock will remain at $135.4 billion as of June 30, 2020.

See “Note 11, Equity” in our 2019 Form 10-K for additional information about the senior preferred stock purchase agreement and the senior preferred stock.

Regulatory Capital

We submit capital reports to FHFA, which monitors our capital levels. The deficit of core capital over statutory minimum capital was ~~$137.0~~$131.3 billion as of ~~June 30, 2019~~March 31, 2020 and ~~$137.1~~$128.8 billion as of December 31, ~~2018. Due to the terms of our senior preferred stock, we do not expect to eliminate our deficit of core capital over statutory minimum capital.~~2019.

Related Parties

Because Treasury holds a warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the total number of shares of Fannie Mae common stock, we and Treasury are deemed related parties. As of ~~June 30, 2019,~~March 31, 2020, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of ~~$123.8~~$135.4 billion. See “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock” above for additional information on transactions under this agreement.



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		60



	~~Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies~~

FHFA’s control of both Fannie Mae and Freddie Mac has caused Fannie Mae, FHFA and Freddie Mac to be deemed related parties. Additionally, Fannie Mae and Freddie Mac jointly own ~~CSS,~~Common Securitization Solutions, LLC (“CSS”), a limited liability company created to operate a common securitization platform; as such, CSS is deemed a related party. As a part of our joint ownership, Fannie Mae, Freddie Mac and CSS are parties to a limited liability company agreement that sets forth the overall framework for the joint venture, including Fannie Mae’s and Freddie Mac’s rights and responsibilities as members of CSS. Fannie Mae, Freddie Mac and CSS are also parties to a customer services agreement that sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac, including the operation of the common securitization platform as well as an administrative services agreement. CSS operates as a separate company from us and Freddie Mac, with all funding and limited administrative support services and other resources provided to it by us and Freddie Mac through our capital contributions.

In the ordinary course of business, Fannie Mae may purchase and sell securities issued by Treasury and Freddie Mac. These transactions occur on the same terms as those prevailing at the time for comparable transactions with unrelated parties. With our implementation of the Single Security Initiative in June 2019, some of the structured securities we issue are backed in whole or in part by Freddie Mac securities. Additionally, we make regular income tax payments to and receive tax refunds from the Internal Revenue Service (“IRS”), a bureau of Treasury.

Transactions with Treasury

Our administrative expenses were reduced by $5 million ~~and $6 million~~ for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $10 million and $13 million for the six months ended June 30, 2019 and 2018, respectively,~~ due to reimbursements from Treasury and Freddie Mac for expenses incurred as program administrator for Treasury’s Home Affordable Modification Program and other initiatives under Treasury’s Making Home Affordable Program.

In December 2011, Congress enacted the Temporary Payroll Cut Continuation Act of 2011 (“TCCA”) which, among other provisions, required that we increase our single-family guaranty fees by at least 10 basis points and remit this increase to Treasury. Effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages delivered to us by 10 basis points. FHFA and Treasury advised us to remit this fee increase to Treasury with respect to all loans acquired by us on or after April 1, 2012 and before January 1, 2022, and to continue to remit these amounts to Treasury on and after January 1, 2022 with respect to loans we acquired before this date until those loans are paid off or otherwise liquidated. The resulting fee revenue and expense are recorded in “Mortgage loans interest income” and “TCCA fees,” respectively, in our condensed consolidated statements of operations and comprehensive income. We recognized ~~$600~~$637 million and ~~$565~~$593 million in TCCA fees during the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $1.2 billion and $1.1 billion for the six months ended June 30, 2019 and 2018,~~ respectively, of which ~~$600~~$637 million had not been remitted to Treasury as of ~~June 30, 2019.~~March 31, 2020.

~~Under the Federal Housing Enterprises Financial Safety and Soundness~~


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									66


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

The GSE Act ~~of 1992, as amended, including by the Federal Housing Finance Regulatory Reform Act of 2008 (together, the “GSE Act”), we are required~~requires us to set aside certain funding obligations, a portion of which is attributable to Treasury’s Capital Magnet Fund. These funding obligations, recognized in “Other expenses, net” in our condensed consolidated statements of operations and comprehensive income, are measured as the product of 4.2 basis points and the unpaid principal balance of our total new business purchases for the respective period, and 35% of this amount is payable to Treasury’s Capital Magnet Fund. We recognized a total of ~~$21~~$30 million and ~~$19~~$15 million in “Other expenses, net” in connection with Treasury’s Capital Magnet Fund for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, ~~and $36~~of which $30 million and $37 million for the six months ended June 30, 2019 and 2018, respectively, relating to amounts payable to Treasury’s Capital Magnet Fund. In 2020, we expect to pay the $36 million recognized for the six months ended June 30, 2019 to Treasury’s Capital Magnet Fund, along with additional amounts based on our new business purchases in the second halfhad not been remitted as of ~~2019. In April 2019, we paid $75 million to Treasury’s Capital Magnet Fund based on our new business purchases in 2018.~~March 31, 2020.

Transactions with FHFA

The GSE Act authorizes FHFA to establish an annual assessment for regulated entities, including Fannie Mae, which is payable on a semi-annual basis (April and October), for FHFA’s costs and expenses, as well as to maintain FHFA’s working capital. We recognized FHFA assessment fees, which are recorded in “Administrative expenses” in our condensed consolidated statements of operations and comprehensive income, of ~~$29~~$32 million and ~~$26~~$30 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $59 million and $55 million for the six months ended June 30, 2019 and 2018,~~ respectively.

Transactions with CSS and Freddie Mac

We contributed capital to CSS, the company we jointly own with Freddie Mac, of ~~$26~~$29 million and ~~$35~~$36 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $62 million and $76 million for the six months ended June 30, 2019 and 2018,~~ respectively.

In the second quarter of 2019, Fannie Mae, Freddie Mac and CSS entered into an amendment to the customer services agreement that sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac. In June 2019,January 2020, at FHFA’s direction we entered into an ~~indemnification~~amended limited liability company agreement for CSS expanding the CSS Board of Managers from two members designated by each GSE to include (1) the CSS Chief Executive Officer; (2) a Board Chair not affiliated with ~~Freddie Mac relating~~either GSE or CSS (who was designated by FHFA in January 2020); and (3) up to ~~the commingled structured securities that~~three additional Board members not affiliated with either GSE or CSS who may be designated by FHFA while we and Freddie Mac ~~issue. Under~~both remain in conservatorship. As a result of the ~~indemnification agreement, Fannie Mae~~amendment, if FHFA were to designate three additional Board members, the four managers designated by us and Freddie Mac ~~each~~would constitute a minority of the CSS Board, and the Board could take actions without the approval of any of the managers we have ~~agreed to indemnify~~designated on any matter during conservatorship and on a number of significant matters following either our or Freddie Mac’s exit from conservatorship.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts as well as the accounts of the other ~~party~~entities in which we have a controlling financial interest. All intercompany balances and transactions have been eliminated. The typical condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. A controlling financial interest may also exist in entities through arrangements that do not involve voting interests, such as a variable interest entity (“VIE”).

Investments in Securities

Impairment of Available-for-Sale Debt Securities

An available-for-sale (“AFS”) debt security is impaired if the fair value of the investment is less than its amortized cost basis. Credit losses ~~caused by: its failure to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying resecuritized~~(benefits) on impaired AFS debt securities were issued; its failure to meet its obligations under the customer services agreement; its violations of laws; or with respect to material misstatements or omissions in offering documents, ongoing disclosuresare recognized through an allowance for credit losses. Credit losses are evaluated on an individual security basis and ~~related materials relating~~are limited to the ~~underlying resecuritized securities.~~difference between the fair value of the debt security and its amortized cost basis. If we intend to sell a debt security or it is more likely than not that we will be required to sell the debt security before recovery, any allowance for credit losses on the debt security is reversed and the amortized cost basis of the debt security is written down to its fair value.

Mortgage Loans

Loans Held for Sale

When we acquire mortgage loans that we intend to sell or securitize via trusts that will not be consolidated, we classify the loans as held for sale (“HFS”). We report the carrying value of HFS loans at the lower of cost or fair value. Any excess of an HFS loan’s cost over its fair value is recognized as a valuation allowance, with changes in the valuation allowance recognized as “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income. We recognize interest income on HFS loans on an accrual basis, unless we determine that the ultimate collection of contractual principal or interest payments in full is not reasonably assured. Purchased premiums, discounts and other cost basis adjustments on HFS loans are deferred upon loan acquisition, included in the cost basis of the loan, and not amortized. We determine any lower of cost or fair value adjustment on HFS loans at an individual loan level.

For nonperforming loans transferred from held for investment (“HFI”) to HFS, based upon a change in our intent, we record the loans at the lower of cost or fair value on the date of transfer. When the fair value of the nonperforming loan is less than its amortized cost, we record a write-off against the allowance for loan losses in an amount equal to the difference between the amortized cost basis and the fair value of the loan. If the amount written off upon transfer exceeds the allowance related to the



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	61	67



			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

transferred loan, we record the excess in provision for credit losses. If the amounts written off are less than the allowance related to the loans, we recognize a benefit for credit losses.

Nonperforming loans include both seriously delinquent and reperforming loans, which are loans that were previously delinquent but are performing again because payments on the mortgage loan have become current with or without the use of a loan modification plan. Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are loans that are 60 days or more past due.

In the event that we reclassify a performing loan from HFI to HFS, based upon a change in our intent, the allowance for loan losses previously recorded on the HFI mortgage loan is reversed through earnings at the time of reclassification. The mortgage loan is reclassified into HFS at its amortized cost basis and a valuation allowance is established to the extent that the amortized cost basis of the loan exceeds its fair value. The initial recognition of the valuation allowance and any subsequent changes are recorded as a gain or loss in “Investment gains (losses), net.”

Loans Held for Investment

When we acquire mortgage loans that we have the ability and the intent to hold for the foreseeable future or until maturity, we classify the loans as HFI. When we consolidate a securitization trust, we recognize the loans underlying the trust in our condensed consolidated balance sheets. The trusts do not have the ability to sell mortgage loans and the use of such loans is limited exclusively to the settlement of obligations of the trusts. Therefore, mortgage loans acquired when we have the intent to securitize via consolidated trusts are generally classified as HFI in our condensed consolidated balance sheets both prior to and subsequent to their securitization.

We report the carrying value of HFI loans at the unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and allowance for loan losses. We define the amortized cost of HFI loans as unpaid principal balance and accrued interest receivable, net of unamortized premiums, discounts, and other cost basis adjustments. For purposes of our condensed consolidated balance sheets, we present accrued interest receivable separately from the amortized cost of our loans held for investment. We recognize interest income on HFI loans on an accrual basis using the effective yield method over the contractual life of the loan, including the amortization of any deferred cost basis adjustments, such as the premium or discount at acquisition, unless we determine that the ultimate collection of contractual principal or interest payments in full is not reasonably assured.

Nonaccrual Loans

We discontinue accruing interest on loans when we believe collectability of principal or interest is not reasonably assured, which for a single-family loan we have determined, based on our historical experience, to be when the loan becomes two months or more past due according to its contractual terms. Interest previously accrued but not collected on loans is reversed through interest income at the date a loan is placed on nonaccrual status. For single-family loans on nonaccrual status, we recognize income when cash payments are received. We return a non-modified single-family loan to accrual status at the point that the borrower brings the loan current. We return a modified single-family loan to accrual status at the point that the borrower successfully makes all required payments during the trial period (generally three to four months) and the modification is made permanent. As of January 1, 2020, we place a multifamily loan on nonaccrual status when the loan becomes two months or more past due according to its contractual terms unless the loan is well secured such that collectability of principal and accrued interest is reasonably assured. For multifamily loans on nonaccrual status, we apply any payment received on a cost recovery basis to reduce principal on the mortgage loan. We return a multifamily loan to accrual status when the borrower cures the delinquency of the loan. Transactions related to the multifamily nonaccrual policy have been immaterial historically.

Allowance for Loan Losses

Our allowance for loan losses is a valuation account that is deducted from the amortized cost basis of HFI loans to present the net amount expected to be collected on the loans. The allowance for loan losses reflects an estimate of expected credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts. Estimates of credit losses are based on expected cash flows derived from internal models that estimate loan performance under simulated ranges of economic environments. Our modeled loan performance is based on our historical experience of loans with similar risk characteristics adjusted to reflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our credit loss estimates capture the possibility of remote events that could result in credit losses on loans that are considered low risk. The allowance for loans losses does not consider benefits from freestanding credit enhancements, such as our CAS and CIRT programs and multifamily Delegated Underwriting and Servicing (“DUS^®”) lender risk-sharing arrangements, which are recorded in “Other assets” in our condensed consolidated balance sheets. We have elected not to measure an allowance for credit losses on accrued interest receivable balances as we have a nonaccrual policy to ensure the timely reversal of unpaid accrued interest. See “Note 4, Allowance for Loan Losses” for additional information about our current period provision for loan losses, including a discussion of the estimates used in measuring the impact of the COVID-19 outbreak on our allowance.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									68


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

confirmed through the receipt of assets in satisfaction of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. Additionally, we record write-offs as a reduction to our allowance for loan losses when a loan is determined to be uncollectible and upon the transfer of a nonperforming loan from HFI to HFS. We include expected recoveries of amounts previously written off and expected to be written off in determining our allowance for loan losses.

Single-Family Loans

We estimate the amount expected to be collected on our single-family loans using a discounted cash flow approach. Our allowance for loan losses is calculated as the difference between the amortized cost basis of the loan and the present value of expected cash flows on the loan. Expected cash flows include payments from the borrower, net of servicing fees, contractually attached credit enhancements and proceeds from the sale of the underlying collateral, net of selling costs.

When foreclosure of a single-family loan is probable, the allowance for loan losses is calculated as the difference between the amortized cost basis of the loan and the fair value of the collateral as of the reporting date, adjusted for the estimated costs to sell the property and the amount of expected recoveries from contractually attached credit enhancements or other proceeds we expect to receive.

Expected cash flows are developed using internal models that capture market and loan characteristic inputs. Market inputs include information such as actual and forecasted home prices, interest rates, volatility, and spreads, while loan characteristic inputs include information such as mark-to-market loan-to-value (“LTV”) ratios, delinquency status, geography, and borrower FICO credit scores. The model assigns a probability to borrower events including contractual payment, loan payoff and default under various economic environments based on historical data, current conditions, and reasonable and supportable forecasts.

The two primary drivers of our forecasted economic environments are interest rates and home prices. Our model projects the range of possible interest rate scenarios over the life of the loan based on actual interest rates and observed option pricing volatility in the capital markets. We develop regional forecasts based on Metropolitan Statistical Area data for single-family home prices using a multi-path simulation that captures home price projections over a five-year period, the period for which we can develop reasonable and supportable forecasts. After the five-year period, the home price forecast immediately reverts to a historical long-term growth rate.

Expected cash flows on the loan are discounted at the effective interest rate on the loan, adjusted for expected prepayments. For single-family loans that have not been modified in a troubled debt restructuring (“TDR”), the discount rate is updated each reporting period to reflect changes in expected prepayments. Expected cash flows do not include expected extensions of the contractual term unless such extension is the result of a reasonably expected TDR.

We consider the effects of actual and reasonably expected TDRs in our estimate of credit losses. These effects include any economic concession provided or expected to be provided to a borrower experiencing financial difficulty. We consider our current servicing practices and our historical experience to estimate reasonably expected TDRs. When a loan is contractually modified in a TDR, to capture the concession, the discount rate on the loan is locked to the rate in effect just prior to the modification and is no longer updated for changes in expected prepayments.

Multifamily Loans

Our allowance for loan losses on multifamily loans is calculated based on estimated probabilities of default and loss severities to derive expected loss ratios, which are then applied to the amortized cost basis of the loans. Our probabilities of default and severity are estimated using internal models based on historical loss experience of loans with similar risk characteristics that affect credit performance, such as debt service coverage ratio (“DSCR”), mark-to-market LTV ratio, collateral type, age, loan size, geography, prepayment penalty term, and note type. Our models simulate a range of possible future economic scenarios, which are used to estimate probabilities of default and loss severities. Key inputs to our models include rental income, which drives expected DSCRs for our loans, and capitalization rates, which project future property values. Our reasonable and supportable forecasts for multifamily rental income and capitalization rates, which are projected based on Metropolitan Statistical Area data, extend through the contractual maturity of the loans. For TDRs, we use a discounted cash flow approach to estimate expected credit losses.

When foreclosure of a multifamily loan is probable, the allowance for loan losses is calculated as the difference between the amortized cost basis of the loan and the fair value of the collateral as of the reporting date, adjusted for the estimated costs to sell the property and the amount of expected recoveries from contractually attached credit enhancements or other proceeds we expect to receive.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									69


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

Earnings per Share

Earnings per share (“EPS”) is presented for basic and diluted EPS. We compute basic EPS by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. However, as a result of our conservatorship status and the terms of the senior preferred stock, no amounts would be available to distribute as dividends to common or preferred stockholders (other than to Treasury as the holder of the senior preferred stock). Net income (loss) attributable to common stockholders excludes amounts attributable to the senior preferred stock. Weighted average common shares ~~includes~~include 4.7 billion and 4.6 billion shares for the periods ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018~~respectively, that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through ~~June 30,~~March 31, 2020 and 2019, ~~and 2018.~~respectively.

The calculation of diluted EPS includes all the components of basic earnings per share, plus the dilutive effect of common stock equivalents such as convertible securities and stock options. Weighted average shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. For the three months ended ~~June 30,~~March 31, 2020, convertible preferred stock is not included in the calculation because a net loss attributable to common shareholders was incurred and it would have an anti-dilutive effect. For the three months ended March 31, 2019, ~~and~~ ~~six months~~ ~~ended June 30, 2019 and 2018,~~ our diluted EPS weighted average shares outstanding includes shares of common stock that would be issuable upon the conversion of 131 million shares of convertible preferred stock. For the three months ended June 30, 2018, convertible preferred stock is not included in the calculation because a net loss attributable to common shareholders was incurred and it would have an anti-dilutive effect.

New Accounting Guidance

T~~he following updates information about our significant~~The CARES Act and Interagency Regulatory Guidance

Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act, referred to as the CARES Act, which was enacted in March 2020, provides temporary relief from the accounting ~~policies~~and reporting requirements for TDRs regarding certain loan modifications related to COVID-19. The CARES Act provides that a financial institution may elect to suspend the TDR requirements under GAAP for loan modifications related to the COVID-19 pandemic that occur between March 1, 2020 through the earlier of December 31, 2020 or 60 days after the date on which the COVID-19 outbreak national emergency terminates (the “Applicable Period”), as long as the loan was not more than 30 days delinquent as of December 31, 2019. Loan modifications are defined in this section of the CARES Act to include forbearance arrangements, repayment plans, interest rate modifications, and any similar arrangement that defer or delay the payment of principal or interest.

We have elected to account for eligible loan modifications under Section 4013 of the CARES Act. Therefore, the initial relief (i.e., the forbearance arrangement) and the subsequent agreements (i.e., repayment plans and loan modifications) that are necessary to allow the borrower to repay the past due amounts (collectively, the “COVID-19 Relief”), will not be subject to the specialized accounting or disclosures that are required for TDRs if the initial relief related to COVID-19 is granted during the Applicable Period and the borrower was no more than 30 days past due as of December 31, 2019.

In addition to the CARES Act, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and the State Banking Regulators (collectively, the “Banking Agencies”) issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Interagency Statement”) in April 2020. The Interagency Statement primarily provides incremental guidance related to the nonaccrual of interest income. It indicates that financial institutions may continue to accrue interest income on loans that are granted short-term (e.g., six months) payment delays, such as forbearance, if the delay is in response to COVID-19 and the borrower was less than 30 days past due at the time the delay was granted. We are still evaluating this option provided under the Interagency Statement for loans that have ~~recently been adopted or yet~~received short-term payment deferrals related to the COVID-19 pandemic. Our election on this matter will be ~~adopted from~~finalized during the ~~information included in “Note 1, Summary~~second quarter of ~~Significant Accounting Policies” in~~2020 as this guidance did not affect our ~~2018 Form 10-K.~~first quarter financial statements.

TheThe Current Expected Credit Loss Standard

The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ~~(“CECL”)~~ in June ~~2016. It~~2016, which was later amended by ASU 2019-04, ~~Codification Improvements (to Topic 326), Financial Instruments—Credit Losses in April 2019. The standard replaces~~ASU 2019-05 and ASU 2019-11. These ASUs (the “CECL standard”) replaced the existing incurred loss impairment methodology ~~in current GAAP~~for loans that are collectively evaluated for impairment with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable forecast information to ~~inform~~develop a lifetime credit loss ~~estimates.~~estimate. The ~~amendments in this~~CECL standard also ~~require~~requires credit losses related to ~~available-for-sale~~AFS debt securities to be recorded through an allowance for credit losses. ~~We do~~Our adoption of this standard on January 1, 2020 did not ~~expect~~have a material impact ~~for establishing an allowance for credit losses related to~~on our ~~available-for-sale~~portfolio of AFS debt securities.

The CECL ~~will become~~standard became effective for our fiscal year beginning January 1, 2020. We ~~are continuing to update the allowance models~~have changed our accounting policies as described above and accounting systems that will be used to estimate credit losses and record accounting impacts under CECL, and we are in the process of validating their results. All updates to our allowance models are subject to our model oversight and review governance process. We expectimplemented system, model and ~~system testing~~process changes to ~~continue in 2019, followed by full integrated testing across all affected systems and processes. We are managing~~adopt the implementation of this guidance in accordance with our change management governance standards, which are designed to ensure compliance with GAAP as well as operational readiness at adoption. Senior management and the Audit Committee receive regular updates regarding the status of our implementation plan, results of modeled impacts and any identified key risks.

~~We will use~~standard. Upon adoption, we used a discounted cash flow method to measure expected credit ~~impairment~~losses on our single-family mortgage loans and an undiscounted loss method to measure expected credit ~~impairment~~losses on our multifamily mortgage loans. The models ~~we will use~~used to estimate credit losses ~~will incorporate~~incorporated our historical credit loss experience, adjusted for current economic forecasts and the current credit profile of our


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									70


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

loan book of business. The models ~~will use~~used reasonable and supportable forecasts for key economic drivers, such as home prices ~~(Single-Family)~~(single-family), rental income ~~(Multifamily)~~(multifamily) and capitalization rates ~~(Multifamily)~~(multifamily).

~~Based on the composition~~The adoption of the ~~loans in our book of business as of June 30, 2019 and our current expectations of future economic conditions, we estimate that our adoption of~~ CECL ~~will result in a reduction in~~standard on January 1, 2020 reduced our retained earnings ~~of up to $4~~by $1.1 billion on an after-tax basis. The adoption of this guidance increased our overall credit loss reserves primarily as the result of an increase in our single-family loan loss reserves that were previously evaluated on a collective basis for impairment. This increase was partially offset by a decrease in estimated credit losses on loans that were previously considered individually impaired (our TDRs).

The increase in our single-family loan loss reserves that were previously evaluated on a collective basis was primarily driven by the ~~first quarter~~migration from an incurred-loss approach, which allowed us to consider only default events and economic conditions that already existed as of ~~2020. We~~each financial reporting date, to an estimate that incorporates both expected default events over the expected life of each mortgage loan and a forecast of home prices in different economic environments over a reasonable and supportable period. The increase in loss reserves for this portion of our book was low relative to its size due to the credit quality of these loans and because as of the date of adoption our current model forecasted home price growth.

The allowance for loan losses on the TDR book was already measured using an expected lifetime credit loss estimate. The credit losses on this portion of our single-family book decreased upon the adoption of the CECL standard because the new guidance required us to exclude from our estimate of credit losses all pre-foreclosure and post-foreclosure costs that are ~~still assessing~~expected to be advanced after the balance sheet date. Prior to the adoption of the CECL standard, we incorporated these costs in our estimate of credit losses for this book.

Impacts on Key Balance Sheet Line Items upon Implementation of the CECL Standard

The following table discloses the impact of ~~various implementation issues as well as~~adopting the ~~FASB’s recently proposed guidance relating~~CECL standard on key balance sheet line items.


	Balance as of December 31, 2019		Transition Impact from Adoption of the CECL Standard		Balance as of January 1, 2020
	(Dollars in millions)
Mortgage loans held for sale	$	6,773	$	50	$	6,823
Allowance for loan losses	(9,016)		(1,722)		(10,738)
Other assets⁽¹⁾	14,312		230		14,542
Deferred tax assets, net	11,910		303		12,213
Accumulated deficit (beginning retained earnings)	(118,776)		(1,139)		(119,915)

⁽¹⁾Transition adjustment primarily represents the reclassification and recognition of freestanding credit enhancements not contractually attached to the ~~standard. The resolution~~loan.

For a discussion of ~~these items may reduce CECL’s~~the current period measurement of our allowance for loan losses under the CECL standard, including the expected impact of the COVID-19 outbreak, see “Note 4, Allowance for Loan Losses.”

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on ~~our retained earnings upon adoption. In addition, we~~Financial Reporting (“ASU 2020-04”), which provides optional temporary relief to ease the potential burden of transitioning away from LIBOR and other discontinued interest rates. Specifically, ASU 2020-04 provides optional practical expedients and exceptions under GAAP related to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued. Qualifying for the accounting relief provided by ASU 2020-04 is subject to meeting certain criteria and is generally only available to contract modifications made and hedging relationships entered into or evaluated prospectively from March 12, 2020 through December 31, 2022.

We did not enter into any contract modifications between March 12, 2020 and March 31, 2020 that would be eligible for the accounting relief provided by ASU 2020-04. We also had no hedge accounting relationships during that period. We will continue to evaluate ASU 2020-04 to determine the ~~results of our modeled loss estimates~~timing and ~~may make refinements~~extent to ~~our approach and assumptions. The impact of our adoption of CECL on our retained earnings~~which we will ~~be further influenced by~~apply the ~~credit risk profile of the loans in our book of business as of the January 1, 2020 adoption date, as well as economic conditions and forecasts of future economic conditions at that time.~~

provided accounting relief.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	62	71



			Notes to Condensed Consolidated Financial Statements \| Consolidations and Transfers of Financial Assets

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities are securitization and resecuritization trusts, limited partnerships and special purpose vehicles (“SPVs”). These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct these ~~activities.~~activities unless we have the unilateral ability to dissolve the trust. We also do not consolidate our resecuritization trusts unless we have the unilateral ability to dissolve the trust. Historically, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts. However, ~~beginning~~ with ~~the implementation~~our issuance of ~~the Single Security Initiative~~UMBS beginning in June 2019, we include securities issued by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued ~~UMBS~~securities are not held in trusts that are consolidated by Fannie Mae.

Unconsolidated VIEs

We do not consolidate VIEs when we are not deemed to be the primary beneficiary. Our unconsolidated VIEs include securitization and resecuritization trusts, limited partnerships, and certain SPVs designed to transfer credit risk. The following table displays the carrying amount and classification of our assets and liabilities that relate to our involvement with unconsolidated securitization and resecuritization trusts.

As of
June 30, 2019 December 31, 2018
Assets and liabilities recorded in our condensed consolidated balance sheets related to mortgage-backed trusts:

(Dollars in millions)
Assets:
Trading securities:
Fannie Mae $ 2,173
$ 1,422

Non-Fannie Mae 4,352
4,809

Total trading securities 6,525
6,231

Available-for-sale securities:
Fannie Mae 1,615
1,704

Non-Fannie Mae 791
1,207

Total available-for-sale securities 2,406
2,911

Other assets 60
66

Other liabilities (90 ) (101 )
Net carrying amount $ 8,901
$ 9,107


		As of
		March 31, 2020		December 31, 2019
Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts:	(Dollars in millions)
Assets:
Trading securities:
Fannie Mae		$	2,666	$	2,543
Non-Fannie Mae		4,610		5,100
Total trading securities		7,276		7,643
Available-for-sale securities:
Fannie Mae		1,505		1,524
Non-Fannie Mae		493		574
Total available-for-sale securities		1,998		2,098
Other assets		45		56
Other liabilities		(71)		(78)
Net carrying amount		$	9,248	$	9,719

Our maximum exposure to loss generally represents the greater of our ~~recorded investment~~carrying value in the entity or the unpaid principal balance of the assets covered by our guaranty. Our involvement in unconsolidated resecuritization trusts may give rise to additional exposure to loss depending on the type of resecuritization trust. Fannie Mae non-commingled resecuritization trusts ~~refers to our resecuritization trusts that~~ are backed entirely by Fannie Mae MBS. These non-commingled single-class and multi-class resecuritization trusts ~~that~~ are not consolidated and do not give rise to any additional exposure to loss as we already consolidate the underlying collateral.

Fannie Mae commingled resecuritization trusts ~~refers to our resecuritization trusts that~~ are backed in whole or in part by Freddie Mac securities. The guaranty that we provide to these commingled resecuritization trusts ~~increases~~may increase our exposure to loss ~~relating~~ to the extent that we are providing a guaranty for the timely payment and interest on the underlying Freddie Mac securities that ~~serve as the underlying collateral.~~we have not previously guaranteed. Our maximum exposure to loss for these unconsolidated trusts is measured by the amount of Freddie Mac securities that ~~back~~are held in these resecuritization trusts. However, a portion of these Freddie Mac securities may be backed in whole or in part by Fannie Mae MBS. ~~Therefore, to~~To the extent that these Freddie Mac securities are backed by Fannie Mae MBS, ~~it would~~our guarantee to the resecuritization trust does not ~~give rise~~subject us to any additional exposure ~~and~~to credit risk. Thus, our ~~total~~actual exposure to ~~collateral that is ultimately guaranteed by~~credit risk from Freddie Mac ~~may be~~securities held in our resecuritization trusts is likely lower than the disclosed maximum exposure to loss. Our maximum exposure to loss related to unconsolidated securitization and resecuritization trusts was approximately ~~$20~~$84 billion and ~~$14~~$62 billion as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The total assets of our unconsolidated securitization and resecuritization trusts were approximately ~~$110~~$170 billion and ~~$80~~$130 billion as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

The maximum exposure to loss for our unconsolidated limited partnerships and similar legal entities, which consist of low-income housing tax credit investments (“LIHTC”), community investments and other entities, was ~~$96~~$93 million and the related ~~carrying value was $75 million as of June 30, 2019. As of December 31, 2018, the maximum exposure to loss was $111 million~~



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	63	72



			Notes to Condensed Consolidated Financial Statements \| Consolidations and Transfers of Financial Assets

carrying value was $75 million as of March 31, 2020. As of December 31, 2019, the maximum exposure to loss was $98 million and the related carrying value was ~~$89~~$79 million. The total assets of these limited partnership investments were ~~$2.1 billion and $2.3~~$1.7 billion as of ~~June 30, 2019~~March 31, 2020 and $2.0 billion as of December 31, ~~2018, respectively.~~2019.

The maximum exposure to loss related to our involvement with unconsolidated SPVs that transfer credit risk represents the unpaid principal balance and accrued interest payable of obligations issued by the Connecticut Avenue Securities (“CAS”) and Multifamily Connecticut Avenue Securities (“MCAS”) SPVs. The maximum exposure to loss related to these unconsolidated SPVs was ~~$4.6~~$12.3 billion and ~~$920 million~~$9.5 billion as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The total assets related to these unconsolidated SPVs were ~~$4.7~~$12.4 billion and ~~$931 million~~$9.5 billion as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

The unpaid principal balance of our multifamily loan portfolio was ~~$310.9~~$334.4 billion as of ~~June 30, 2019.~~March 31, 2020. As our lending relationship does not provide us with a controlling financial interest in the borrower entity, we do not consolidate these borrowers regardless of their status as either a VIE or a voting interest entity. We have excluded these entities from our VIE disclosures. However, the disclosures we have provided in “Note 3, Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respect to this population are consistent with the FASB’s stated objectives for the disclosures related to unconsolidated VIEs.

~~Transfers of Financial Assets~~Nonaccrual Loans

We ~~issue~~discontinue accruing interest on loans when we believe collectability of principal or interest is not reasonably assured, which for a single-family loan we have determined, based on our historical experience, to be when the loan becomes two months or more past due according to its contractual terms. Interest previously accrued but not collected on loans is reversed through interest income at the date a loan is placed on nonaccrual status. For single-family loans on nonaccrual status, we recognize income when cash payments are received. We return a non-modified single-family loan to accrual status at the point that the borrower brings the loan current. We return a modified single-family loan to accrual status at the point that the borrower successfully makes all required payments during the trial period (generally three to four months) and the modification is made permanent. As of January 1, 2020, we place a multifamily loan on nonaccrual status when the loan becomes two months or more past due according to its contractual terms unless the loan is well secured such that collectability of principal and accrued interest is reasonably assured. For multifamily loans on nonaccrual status, we apply any payment received on a cost recovery basis to reduce principal on the mortgage loan. We return a multifamily loan to accrual status when the borrower cures the delinquency of the loan. Transactions related to the multifamily nonaccrual policy have been immaterial historically.

Allowance for Loan Losses

Our allowance for loan losses is a valuation account that is deducted from the amortized cost basis of HFI loans to present the net amount expected to be collected on the loans. The allowance for loan losses reflects an estimate of expected credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS ~~through portfolio securitization transactions by transferring pools~~trusts. Estimates of ~~mortgage~~credit losses are based on expected cash flows derived from internal models that estimate loan performance under simulated ranges of economic environments. Our modeled loan performance is based on our historical experience of loans ~~or mortgage-related securities~~with similar risk characteristics adjusted to ~~one or more trusts or special purpose entities. We are considered to be~~reflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our credit loss estimates capture the ~~transferor when we transfer assets from our own retained mortgage portfolio~~possibility of remote events that could result in a portfolio securitization transaction. For the three months ended June 30, 2019 and 2018, the unpaid principal balance of portfolio securitizations was $57.3 billion and $51.6 billion, respectively. For the six months ended June 30, 2019 and 2018, the unpaid principal balance of portfolio securitizations was $98.7 billion and $115.9 billion, respectively.

We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and multi-class portfolio securitization trusts. As of June 30, 2019, the unpaid principal balance of retained interests was $2.7 billion and its related fair value was $3.7 billion. As of December 31, 2018, the unpaid principal balance of retained interests was $1.5 billion and its related fair value was $2.2 billion. For the three months ended June 30, 2019 and 2018, the principal, interest and other fees receivedcredit losses on retained interests was $122 million and $128 million, respectively. For the six months ended June 30, 2019 and 2018, the principal, interest and other fees received on retained interests was $238 million and $354 million, respectively.

~~Managed Loans~~

~~Managed loans include primarily~~ loans that are ~~guaranteed or insured,~~considered low risk. The allowance for loans losses does not consider benefits from freestanding credit enhancements, such as our CAS and CIRT programs and multifamily Delegated Underwriting and Servicing (“DUS^®”) lender risk-sharing arrangements, which are recorded in ~~whole or~~“Other assets” in ~~part, by the U.S. government. For those loans that~~our condensed consolidated balance sheets. We have elected not to measure an allowance for credit losses on accrued interest receivable balances as we have ~~securitized~~a nonaccrual policy to ensure the timely reversal of unpaid accrued interest. See “Note 4, Allowance for Loan Losses” for additional information about our current period provision for loan losses, including a discussion of the estimates used in ~~unconsolidated portfolio securitization trusts,~~measuring the ~~outstanding unpaid principal~~impact of the COVID-19 outbreak on our allowance.

a reduction to the allowance for loan losses when losses are



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	64	68



			Notes to Condensed Consolidated Financial Statements \| ~~Mortgage Loans~~Summary of Significant Accounting Policies

~~3. Mortgage~~Single-Family Loans

We ~~own~~estimate the amount expected to be collected on our single-family loans using a discounted cash flow approach. Our allowance for loan losses is calculated as the difference between the amortized cost basis of the loan and the present value of expected cash flows on the loan. Expected cash flows include payments from the borrower, net of servicing fees, contractually attached credit enhancements and proceeds from the sale of the underlying collateral, net of selling costs.

Multifamily Loans


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									69


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

Earnings per Share

Earnings per share (“EPS”) is presented for basic and diluted EPS. We compute basic EPS by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. However, as a result of our conservatorship status and the terms of the senior preferred stock, no amounts would be available to distribute as dividends to common or preferred stockholders (other than to Treasury as the holder of the senior preferred stock). Net income (loss) attributable to common stockholders excludes amounts attributable to the senior preferred stock. Weighted average common shares include 4.7 billion and 4.6 billion shares for the periods ended March 31, 2020 and 2019, respectively, that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through March 31, 2020 and 2019, respectively.

The calculation of diluted EPS includes all the components of basic earnings per share, plus the dilutive effect of common stock equivalents such as convertible securities and stock options. Weighted average shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. For the three months ended March 31, 2020, convertible preferred stock is not included in the calculation because a net loss attributable to common shareholders was incurred and it would have an anti-dilutive effect. For the three months ended March 31, 2019, our diluted EPS weighted average shares outstanding includes shares of common stock that would be issuable upon the conversion of 131 million shares of convertible preferred stock.

New Accounting Guidance

The CARES Act and Interagency Regulatory Guidance

Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act, referred to as the CARES Act, which was enacted in March 2020, provides temporary relief from the accounting and reporting requirements for TDRs regarding certain loan modifications related to COVID-19. The CARES Act provides that a financial institution may elect to suspend the TDR requirements under GAAP for loan modifications related to the COVID-19 pandemic that occur between March 1, 2020 through the earlier of December 31, 2020 or 60 days after the date on which the COVID-19 outbreak national emergency terminates (the “Applicable Period”), as long as the loan was not more than 30 days delinquent as of December 31, 2019. Loan modifications are defined in this section of the CARES Act to include forbearance arrangements, repayment plans, interest rate modifications, and any similar arrangement that defer or delay the payment of principal or interest.

In addition to the CARES Act, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and the State Banking Regulators (collectively, the “Banking Agencies”) issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Interagency Statement”) in April 2020. The Interagency Statement primarily provides incremental guidance related to the nonaccrual of interest income. It indicates that financial institutions may continue to accrue interest income on loans that are granted short-term (e.g., six months) payment delays, such as forbearance, if the delay is in response to COVID-19 and the borrower was less than 30 days past due at the time the delay was granted. We are still evaluating this option provided under the Interagency Statement for loans that have received short-term payment deferrals related to the COVID-19 pandemic. Our election on this matter will be finalized during the second quarter of 2020 as this guidance did not affect our first quarter financial statements.

The Current Expected Credit Loss Standard

The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments in June 2016, which was later amended by ASU 2019-04, ASU 2019-05 and ASU 2019-11. These ASUs (the “CECL standard”) replaced the existing incurred loss impairment methodology for loans that are collectively evaluated for impairment with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable forecast information to develop a lifetime credit loss estimate. The CECL standard also requires credit losses related to AFS debt securities to be recorded through an allowance for credit losses. Our adoption of this standard on January 1, 2020 did not have a material impact on our portfolio of AFS debt securities.

The CECL standard became effective for our fiscal year beginning January 1, 2020. We have changed our accounting policies as described above and implemented system, model and process changes to adopt the standard. Upon adoption, we used a discounted cash flow method to measure expected credit losses on our single-family mortgage loans ~~which are secured by four or fewer residential dwelling units,~~ and an undiscounted loss method to measure expected credit losses on our multifamily mortgage loans. The models used to estimate credit losses incorporated our historical credit loss experience, adjusted for current economic forecasts and the current credit profile of our


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									70


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

loan book of business. The models used reasonable and supportable forecasts for key economic drivers, such as home prices (single-family), rental income (multifamily) and capitalization rates (multifamily).

The adoption of the CECL standard on January 1, 2020 reduced our retained earnings by $1.1 billion on an after-tax basis. The adoption of this guidance increased our overall credit loss reserves primarily as the result of an increase in our single-family loan loss reserves that were previously evaluated on a collective basis for impairment. This increase was partially offset by a decrease in estimated credit losses on loans that were previously considered individually impaired (our TDRs).

The increase in our single-family loan loss reserves that were previously evaluated on a collective basis was primarily driven by the migration from an incurred-loss approach, which ~~are secured by five or more residential dwelling units. We classify~~allowed us to consider only default events and economic conditions that already existed as of each financial reporting date, to an estimate that incorporates both expected default events over the expected life of each mortgage loan and a forecast of home prices in different economic environments over a reasonable and supportable period. The increase in loss reserves for this portion of our book was low relative to its size due to the credit quality of these loans and because as ~~either held~~of the date of adoption our current model forecasted home price growth.

The allowance for ~~investment~~loan losses on the TDR book was already measured using an expected lifetime credit loss estimate. The credit losses on this portion of our single-family book decreased upon the adoption of the CECL standard because the new guidance required us to exclude from our estimate of credit losses all pre-foreclosure and post-foreclosure costs that are expected to be advanced after the balance sheet date. Prior to the adoption of the CECL standard, we incorporated these costs in our estimate of credit losses for this book.

Impacts on Key Balance Sheet Line Items upon Implementation of the CECL Standard

The following table discloses the impact of adopting the CECL standard on key balance sheet line items.


	Balance as of December 31, 2019		Transition Impact from Adoption of the CECL Standard		Balance as of January 1, 2020
	(Dollars in millions)
Mortgage loans held for sale	$	6,773	$	50	$	6,823
Allowance for loan losses	(9,016)		(1,722)		(10,738)
Other assets⁽¹⁾	14,312		230		14,542
Deferred tax assets, net	11,910		303		12,213
Accumulated deficit (beginning retained earnings)	(118,776)		(1,139)		(119,915)

⁽¹⁾Transition adjustment primarily represents the reclassification and recognition of freestanding credit enhancements not contractually attached to the loan.

For a discussion of the current period measurement of our allowance for loan losses under the CECL standard, including the expected impact of the COVID-19 outbreak, see “Note 4, Allowance for Loan Losses.”

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“~~HFI”~~ASU 2020-04”), which provides optional temporary relief to ease the potential burden of transitioning away from LIBOR and other discontinued interest rates. Specifically, ASU 2020-04 provides optional practical expedients and exceptions under GAAP related to contract modifications and hedging relationships that reference LIBOR or ~~held~~another reference rate expected to be discontinued. Qualifying for ~~sale~~the accounting relief provided by ASU 2020-04 is subject to meeting certain criteria and is generally only available to contract modifications made and hedging relationships entered into or evaluated prospectively from March 12, 2020 through December 31, 2022.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									71


			Notes to Condensed Consolidated Financial Statements \| Consolidations and Transfers of Financial Assets

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be variable interest entities (“~~HFS”~~VIEs”). The primary types of entities are securitization and resecuritization trusts, limited partnerships and special purpose vehicles (“SPVs”). These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We ~~report~~consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct these activities unless we have the unilateral ability to dissolve the trust. We also do not consolidate our resecuritization trusts unless we have the unilateral ability to dissolve the trust. Historically, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts. However, with our issuance of UMBS beginning in June 2019, we include securities issued by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued securities are not held in trusts that are consolidated by Fannie Mae.

Unconsolidated VIEs


		As of
		March 31, 2020		December 31, 2019
Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts:	(Dollars in millions)
Assets:
Trading securities:
Fannie Mae		$	2,666	$	2,543
Non-Fannie Mae		4,610		5,100
Total trading securities		7,276		7,643
Available-for-sale securities:
Fannie Mae		1,505		1,524
Non-Fannie Mae		493		574
Total available-for-sale securities		1,998		2,098
Other assets		45		56
Other liabilities		(71)		(78)
Net carrying amount		$	9,248	$	9,719

Our maximum exposure to loss generally represents the greater of our carrying value ~~of HFI loans at~~in the entity or the unpaid principal balance net of unamortized premiums and discounts, other cost basis adjustments, and an allowance for loan losses. We report the carrying value of HFS loans at the lower of cost or fair value and record valuation changes in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income. We define the recorded investment of HFI loans as unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and accrued interest receivable.

~~For purposes~~ of the ~~single-family mortgage loan disclosures below, we define “primary” class as mortgage loans that~~assets covered by our guaranty. Our involvement in unconsolidated resecuritization trusts may give rise to additional exposure to loss depending on the type of resecuritization trust. Fannie Mae non-commingled resecuritization trusts are backed entirely by Fannie Mae MBS. These non-commingled single-class and multi-class resecuritization trusts are not ~~included in other loan classes; “government” class~~consolidated and do not give rise to any additional exposure to loss as ~~mortgage loans that~~we already consolidate the underlying collateral.

Fannie Mae commingled resecuritization trusts are ~~guaranteed or insured,~~backed in whole or in part by Freddie Mac securities. The guaranty that we provide to these commingled resecuritization trusts may increase our exposure to loss to the ~~U.S. government,~~extent that we are providing a guaranty for the timely payment and interest on the underlying Freddie Mac securities that we have not previously guaranteed. Our maximum exposure to loss for these unconsolidated trusts is measured by the amount of Freddie Mac securities that are held in these resecuritization trusts. However, a portion of these Freddie Mac securities may be backed in whole or in part by Fannie Mae MBS. To the extent that these Freddie Mac securities are backed by Fannie Mae MBS, our guarantee to the resecuritization trust does not ~~Alt-A;~~subject us to any additional exposure to credit risk. Thus, our actual exposure to credit risk from Freddie Mac securities held in our resecuritization trusts is likely lower than the disclosed maximum exposure to loss. Our maximum exposure to loss related to unconsolidated securitization and ~~“other” class~~resecuritization trusts was approximately $84 billion and $62 billion as ~~loans with certain higher-risk characteristics, such~~of March 31, 2020 and December 31, 2019, respectively. The total assets of our unconsolidated securitization and resecuritization trusts were approximately $170 billion and $130 billion as ~~interest-only loans~~of March 31, 2020 and ~~negative-amortizing loans, that are neither government nor Alt-A.~~December 31, 2019, respectively.

The ~~following table displays~~maximum exposure to loss for our unconsolidated limited partnerships and similar legal entities, which consist of low-income housing tax credit investments (“LIHTC”), community investments and other entities, was $93 million and the ~~carrying value of our mortgage loans.~~related

As of
June 30, 2019 December 31, 2018
(Dollars in millions)
Single-family $ 2,932,553
$ 2,929,925
Multifamily 310,899
293,858
Total unpaid principal balance of mortgage loans 3,243,452
3,223,783
Cost basis and fair value adjustments, net 41,262
39,815
Allowance for loan losses for loans held for investment (11,482 ) (14,203 )
Total mortgage loans $ 3,273,232
$ 3,249,395

~~The following table displays information about our redesignated mortgage loans.~~

For the Three Months Ended June 30, For the Six Months Ended June 30,

2019 2018 2019 2018
(Dollars in millions)
Carrying value of loans redesignated from HFI to HFS⁽¹⁾
$ 6,759
$ 6,235
$ 9,370
$ 13,602
Carrying value of loans redesignated from HFS to HFI⁽¹⁾
3
12
12
30
Loans sold - unpaid principal balance 6,498
3,710
6,556
4,458
Realized gains on sale of mortgage loans 284
210
320
208


⁽¹⁾Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q						~~Represents the carrying value of the loans after redesignation, excluding allowance.~~			72


			Notes to Condensed Consolidated Financial Statements \| Consolidations and Transfers of Financial Assets

carrying value was $75 million as of March 31, 2020. As of December 31, 2019, the maximum exposure to loss was $98 million and the related carrying value was $79 million. The ~~recorded investment~~total assets of ~~single-family mortgage loans for which formal foreclosure proceedings are in process was $9.0 billion and $10.1~~these limited partnership investments were $1.7 billion as of ~~June 30, 2019~~March 31, 2020 and $2.0 billion as of December 31, 2019.

The maximum exposure to loss related to our involvement with unconsolidated SPVs that transfer credit risk represents the unpaid principal balance and accrued interest payable of obligations issued by the Connecticut Avenue Securities (“CAS”) and Multifamily Connecticut Avenue Securities (“MCAS”) SPVs. The maximum exposure to loss related to these unconsolidated SPVs was $12.3 billion and $9.5 billion as of March 31, 2020 and December 31, ~~2018,~~2019, respectively. ~~As a result~~The total assets related to these unconsolidated SPVs were $12.4 billion and $9.5 billion as of March 31, 2020 and December 31, 2019, respectively.

The unpaid principal balance of our ~~various loss mitigation and foreclosure prevention efforts, we expect that~~multifamily loan portfolio was $334.4 billion as of March 31, 2020. As our lending relationship does not provide us with a ~~portion of the loans~~controlling financial interest in the ~~process~~borrower entity, we do not consolidate these borrowers regardless of ~~formal foreclosure proceedings will not ultimately foreclose.~~their status as either a VIE or a voting interest entity. We have excluded these entities from our VIE disclosures. However, the disclosures we have provided in “Note 3, Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respect to this population are consistent with the FASB’s stated objectives for the disclosures related to unconsolidated VIEs.

Nonaccrual Loans

We discontinue accruing interest on loans when we believe ~~collectibility~~collectability of principal or interest is not reasonably assured, which for a single-family loan we have determined, based on our historical experience, to be when the loan becomes two months or more past due according to its contractual terms. Interest previously accrued but not collected on loans is reversed through interest income at the date a loan is placed on nonaccrual status. For single-family loans on nonaccrual status, we recognize income when cash payments are received. We return a non-modified single-family loan to accrual status at the point that the borrower brings the loan current. We return a modified single-family loan to accrual status at the point that the borrower successfully makes all required payments during the trial period (generally three to four months) and the modification is made permanent. WeAs of January 1, 2020, we place a multifamily loan on nonaccrual status when the loan becomes ~~three~~two months or more past due according to its contractual terms ~~or is deemed to be individually impaired,~~ unless the loan is well secured such that ~~collectibility~~collectability of principal and accrued interest is reasonably assured. For multifamily loans on nonaccrual status, we apply any payment received on a cost recovery basis to reduce principal on the mortgage loan. We return a multifamily loan to accrual status when the borrower cures the delinquency of the loan. Transactions related to the multifamily nonaccrual policy have been immaterial historically.

Allowance for Loan Losses

Our allowance for loan orlosses is a valuation account that is deducted from the amortized cost basis of HFI loans to present the net amount expected to be collected on the loans. The allowance for loan losses reflects an estimate of expected credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts. Estimates of credit losses are based on expected cash flows derived from internal models that estimate loan performance under simulated ranges of economic environments. Our modeled loan performance is based on our historical experience of loans with similar risk characteristics adjusted to reflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our credit loss estimates capture the possibility of remote events that could result in credit losses on loans that are considered low risk. The allowance for loans losses does not consider benefits from freestanding credit enhancements, such as our CAS and CIRT programs and multifamily Delegated Underwriting and Servicing (“DUS^®”) lender risk-sharing arrangements, which are recorded in “Other assets” in our condensed consolidated balance sheets. We have elected not to measure an allowance for credit losses on accrued interest receivable balances as we ~~otherwise determine that~~have a nonaccrual policy to ensure the timely reversal of unpaid accrued interest. See “Note 4, Allowance for Loan Losses” for additional information about our current period provision for loan ~~is well secured such that collectibility is reasonably assured.~~losses, including a discussion of the estimates used in measuring the impact of the COVID-19 outbreak on our allowance.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	65	68



			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

Single-Family Loans

Multifamily Loans


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									69


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

Earnings per Share

Earnings per share (“EPS”) is presented for basic and diluted EPS. We compute basic EPS by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. However, as a result of our conservatorship status and the terms of the senior preferred stock, no amounts would be available to distribute as dividends to common or preferred stockholders (other than to Treasury as the holder of the senior preferred stock). Net income (loss) attributable to common stockholders excludes amounts attributable to the senior preferred stock. Weighted average common shares include 4.7 billion and 4.6 billion shares for the periods ended March 31, 2020 and 2019, respectively, that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through March 31, 2020 and 2019, respectively.

The calculation of diluted EPS includes all the components of basic earnings per share, plus the dilutive effect of common stock equivalents such as convertible securities and stock options. Weighted average shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. For the three months ended March 31, 2020, convertible preferred stock is not included in the calculation because a net loss attributable to common shareholders was incurred and it would have an anti-dilutive effect. For the three months ended March 31, 2019, our diluted EPS weighted average shares outstanding includes shares of common stock that would be issuable upon the conversion of 131 million shares of convertible preferred stock.

New Accounting Guidance

The CARES Act and Interagency Regulatory Guidance

Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act, referred to as the CARES Act, which was enacted in March 2020, provides temporary relief from the accounting and reporting requirements for TDRs regarding certain loan modifications related to COVID-19. The CARES Act provides that a financial institution may elect to suspend the TDR requirements under GAAP for loan modifications related to the COVID-19 pandemic that occur between March 1, 2020 through the earlier of December 31, 2020 or 60 days after the date on which the COVID-19 outbreak national emergency terminates (the “Applicable Period”), as long as the loan was not more than 30 days delinquent as of December 31, 2019. Loan modifications are defined in this section of the CARES Act to include forbearance arrangements, repayment plans, interest rate modifications, and any similar arrangement that defer or delay the payment of principal or interest.

In addition to the CARES Act, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and the State Banking Regulators (collectively, the “Banking Agencies”) issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Interagency Statement”) in April 2020. The Interagency Statement primarily provides incremental guidance related to the nonaccrual of interest income. It indicates that financial institutions may continue to accrue interest income on loans that are granted short-term (e.g., six months) payment delays, such as forbearance, if the delay is in response to COVID-19 and the borrower was less than 30 days past due at the time the delay was granted. We are still evaluating this option provided under the Interagency Statement for loans that have received short-term payment deferrals related to the COVID-19 pandemic. Our election on this matter will be finalized during the second quarter of 2020 as this guidance did not affect our first quarter financial statements.

The Current Expected Credit Loss Standard

The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments in June 2016, which was later amended by ASU 2019-04, ASU 2019-05 and ASU 2019-11. These ASUs (the “CECL standard”) replaced the existing incurred loss impairment methodology for loans that are collectively evaluated for impairment with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable forecast information to develop a lifetime credit loss estimate. The CECL standard also requires credit losses related to AFS debt securities to be recorded through an allowance for credit losses. Our adoption of this standard on January 1, 2020 did not have a material impact on our portfolio of AFS debt securities.

The CECL standard became effective for our fiscal year beginning January 1, 2020. We have changed our accounting policies as described above and implemented system, model and process changes to adopt the standard. Upon adoption, we used a discounted cash flow method to measure expected credit losses on our single-family mortgage loans and an undiscounted loss method to measure expected credit losses on our multifamily mortgage loans. The models used to estimate credit losses incorporated our historical credit loss experience, adjusted for current economic forecasts and the current credit profile of our


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									70


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies

The increase in our single-family loan loss reserves that were previously evaluated on a collective basis was primarily driven by the migration from an incurred-loss approach, which allowed us to consider only default events and economic conditions that already existed as of each financial reporting date, to an estimate that incorporates both expected default events over the expected life of each mortgage loan and a forecast of home prices in different economic environments over a reasonable and supportable period. The increase in loss reserves for this portion of our book was low relative to its size due to the credit quality of these loans and because as of the date of adoption our current model forecasted home price growth.

The allowance for loan losses on the TDR book was already measured using an expected lifetime credit loss estimate. The credit losses on this portion of our single-family book decreased upon the adoption of the CECL standard because the new guidance required us to exclude from our estimate of credit losses all pre-foreclosure and post-foreclosure costs that are expected to be advanced after the balance sheet date. Prior to the adoption of the CECL standard, we incorporated these costs in our estimate of credit losses for this book.

Impacts on Key Balance Sheet Line Items upon Implementation of the CECL Standard

The following table discloses the impact of adopting the CECL standard on key balance sheet line items.


	Balance as of December 31, 2019		Transition Impact from Adoption of the CECL Standard		Balance as of January 1, 2020
	(Dollars in millions)
Mortgage loans held for sale	$	6,773	$	50	$	6,823
Allowance for loan losses	(9,016)		(1,722)		(10,738)
Other assets⁽¹⁾	14,312		230		14,542
Deferred tax assets, net	11,910		303		12,213
Accumulated deficit (beginning retained earnings)	(118,776)		(1,139)		(119,915)

⁽¹⁾Transition adjustment primarily represents the reclassification and recognition of freestanding credit enhancements not contractually attached to the loan.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional temporary relief to ease the potential burden of transitioning away from LIBOR and other discontinued interest rates. Specifically, ASU 2020-04 provides optional practical expedients and exceptions under GAAP related to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued. Qualifying for the accounting relief provided by ASU 2020-04 is subject to meeting certain criteria and is generally only available to contract modifications made and hedging relationships entered into or evaluated prospectively from March 12, 2020 through December 31, 2022.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									71


			Notes to Condensed Consolidated Financial Statements \| Consolidations and Transfers of Financial Assets

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities are securitization and resecuritization trusts, limited partnerships and special purpose vehicles (“SPVs”). These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct these activities unless we have the unilateral ability to dissolve the trust. We also do not consolidate our resecuritization trusts unless we have the unilateral ability to dissolve the trust. Historically, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts. However, with our issuance of UMBS beginning in June 2019, we include securities issued by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued securities are not held in trusts that are consolidated by Fannie Mae.

Unconsolidated VIEs


		As of
		March 31, 2020		December 31, 2019
Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts:	(Dollars in millions)
Assets:
Trading securities:
Fannie Mae		$	2,666	$	2,543
Non-Fannie Mae		4,610		5,100
Total trading securities		7,276		7,643
Available-for-sale securities:
Fannie Mae		1,505		1,524
Non-Fannie Mae		493		574
Total available-for-sale securities		1,998		2,098
Other assets		45		56
Other liabilities		(71)		(78)
Net carrying amount		$	9,248	$	9,719

Our maximum exposure to loss generally represents the greater of our carrying value in the entity or the unpaid principal balance of the assets covered by our guaranty. Our involvement in unconsolidated resecuritization trusts may give rise to additional exposure to loss depending on the type of resecuritization trust. Fannie Mae non-commingled resecuritization trusts are backed entirely by Fannie Mae MBS. These non-commingled single-class and multi-class resecuritization trusts are not consolidated and do not give rise to any additional exposure to loss as we already consolidate the underlying collateral.

Fannie Mae commingled resecuritization trusts are backed in whole or in part by Freddie Mac securities. The guaranty that we provide to these commingled resecuritization trusts may increase our exposure to loss to the extent that we are providing a guaranty for the timely payment and interest on the underlying Freddie Mac securities that we have not previously guaranteed. Our maximum exposure to loss for these unconsolidated trusts is measured by the amount of Freddie Mac securities that are held in these resecuritization trusts. However, a portion of these Freddie Mac securities may be backed in whole or in part by Fannie Mae MBS. To the extent that these Freddie Mac securities are backed by Fannie Mae MBS, our guarantee to the resecuritization trust does not subject us to any additional exposure to credit risk. Thus, our actual exposure to credit risk from Freddie Mac securities held in our resecuritization trusts is likely lower than the disclosed maximum exposure to loss. Our maximum exposure to loss related to unconsolidated securitization and resecuritization trusts was approximately $84 billion and $62 billion as of March 31, 2020 and December 31, 2019, respectively. The total assets of our unconsolidated securitization and resecuritization trusts were approximately $170 billion and $130 billion as of March 31, 2020 and December 31, 2019, respectively.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									72


			Notes to Condensed Consolidated Financial Statements \| Consolidations and Transfers of Financial Assets

carrying value was $75 million as of March 31, 2020. As of December 31, 2019, the maximum exposure to loss was $98 million and the related carrying value was $79 million. The total assets of these limited partnership investments were $1.7 billion as of March 31, 2020 and $2.0 billion as of December 31, 2019.

The maximum exposure to loss related to our involvement with unconsolidated SPVs that transfer credit risk represents the unpaid principal balance and accrued interest payable of obligations issued by the Connecticut Avenue Securities (“CAS”) and Multifamily Connecticut Avenue Securities (“MCAS”) SPVs. The maximum exposure to loss related to these unconsolidated SPVs was $12.3 billion and $9.5 billion as of March 31, 2020 and December 31, 2019, respectively. The total assets related to these unconsolidated SPVs were $12.4 billion and $9.5 billion as of March 31, 2020 and December 31, 2019, respectively.

The unpaid principal balance of our multifamily loan portfolio was $334.4 billion as of March 31, 2020. As our lending relationship does not provide us with a controlling financial interest in the borrower entity, we do not consolidate these borrowers regardless of their status as either a VIE or a voting interest entity. We have excluded these entities from our VIE disclosures. However, the disclosures we have provided in “Note 3, Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respect to this population are consistent with the FASB’s stated objectives for the disclosures related to unconsolidated VIEs.

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgage-related securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer assets from our own retained mortgage portfolio in a portfolio securitization transaction. For the three months ended March 31, 2020 and 2019, the unpaid principal balance of portfolio securitizations was $89.0 billion and $41.4 billion, respectively. The substantial majority of these portfolio securitization transactions generally do not qualify for sale treatment. Portfolio securitization trusts that do qualify for sale treatment primarily consist of loans that are guaranteed or insured, in whole or in part, by the U.S. government.

We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and multi-class portfolio securitization trusts. As of March 31, 2020, the unpaid principal balance of retained interests was $2.9 billion and its related fair value was $4.1 billion. As of December 31, 2019, the unpaid principal balance of retained interests was $2.9 billion and its related fair value was $4.0 billion. For the three months ended March 31, 2020 and 2019, the principal, interest and other fees received on retained interests was $181 million and $116 million, respectively.

3. Mortgage Loans

We own single-family mortgage loans, which are secured by four or fewer residential dwelling units, and multifamily mortgage loans, which are secured by five or more residential dwelling units. We classify these loans as either HFI or HFS. We report the amortized cost of HFI loans for which we have not elected the fair value option at the unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and accrued interest receivable. For purposes of our condensed consolidated balance sheet, we present accrued interest receivable separately from the amortized cost of our loans held for investment. We report the carrying value of HFS loans at the lower of cost or fair value and record valuation changes in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.

For purposes of the single-family mortgage loan disclosures below, we display loans by class of financing receivable type. In the current period, we revised the financing receivable classes used for disclosure to consist of: “20- and 30-year or more, amortizing fixed-rate,” “15-year or less, amortizing fixed-rate,” “Adjustable-rate,” and “Other.” The “Other” class primarily consists of reverse mortgage loans, interest-only loans, negative-amortizing loans and second liens. We believe the revised classifications are more aligned with how we assess and manage the credit risk of our loans. We have revised the presentation of certain loan disclosures for prior periods to conform with the revised current period classes of financing receivables.

The following table displays the carrying value of mortgage loans and our allowance for loan losses.


	As of
	March 31, 2020		December 31, 2019
	(Dollars in millions)
Single-family	$	2,996,281	$	2,972,361
Multifamily	334,397		327,593
Total unpaid principal balance of mortgage loans	3,330,678		3,299,954
Cost basis and fair value adjustments, net	45,341		43,224
Allowance for loan losses	(13,209)		(9,016)
Total mortgage loans	$	3,362,810	$	3,334,162


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									73


			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans

The following tables display information about our sales of mortgage loans during the period along with our redesignations of loans at the time of redesignation.


		For the Three Months Ended March 31,

		2020		2019
	(Dollars in millions)
Single family loans redesignated from HFI to HFS:
Amortized cost		$	1,637	$	2,945
Lower of cost or fair value adjustment at time of redesignation⁽¹⁾		(9)		(240)
Allowance reversed at time of redesignation		184		467

Single-family loans sold:

Unpaid principal balance		$	—	$	58
Realized gains (losses)		—		36

⁽¹⁾Consists of the write-off against the allowance at the time of redesignation.

The amortized cost of single-family mortgage loans for which formal foreclosure proceedings were in process was $7.9 billion and $7.6 billion as of March 31, 2020 and December 31, 2019, respectively. As a result of our various loss mitigation and foreclosure prevention efforts, we expect that a portion of the loans in the process of formal foreclosure proceedings will not ultimately foreclose.

Aging Analysis

The following tables display an aging analysis of the total ~~recorded investment in~~amortized cost of our HFI mortgage loans by portfolio segment and class, excluding loans for which we have elected the fair value option.

As of June 30, 2019

30 - 59 Days
Delinquent
60 - 89 Days Delinquent
Seriously Delinquent⁽¹⁾
Total Delinquent Current Total Recorded Investment in Loans 90 Days or More Delinquent and Accruing Interest Recorded Investment in Nonaccrual Loans
(Dollars in millions)
Single-family:
Primary $ 33,030
$ 7,308
$ 13,547
$ 53,885
$ 2,827,424
$ 2,881,309
$ 22
$ 24,035
Government⁽²⁾
46
18
152
216
18,691
18,907
152
—
Alt-A 2,228
645
1,533
4,406
43,083
47,489
1
2,528
Other 733
236
590
1,559
10,986
12,545
2
944
Total single-family 36,037
8,207
15,822
60,066
2,900,184
2,960,250
177
27,507
Multifamily⁽³⁾
24
N/A
187
211
313,334
313,545
—
513
Total $ 36,061
$ 8,207
$ 16,009
$ 60,277
$ 3,213,518
$ 3,273,795
$ 177
$ 28,020

As of December 31, 2018

30 - 59 Days
Delinquent
60 - 89 Days Delinquent
Seriously Delinquent⁽¹⁾
Total Delinquent Current Total Recorded Investment in Loans 90 Days or More Delinquent and Accruing Interest
Recorded Investment in Nonaccrual Loans
(Dollars in millions)
Single-family:
Primary $ 30,471
$ 7,881
$ 14,866
$ 53,218
$ 2,816,047
$ 2,869,265
$ 22
$ 26,170
Government⁽²⁾
57
17
169
243
21,887
22,130
169
—
Alt-A 2,332
821
1,844
4,997
48,274
53,271
2
3,082
Other 804
283
713
1,800
13,038
14,838
2
1,128
Total single-family 33,664
9,002
17,592
60,258
2,899,246
2,959,504
195
30,380
Multifamily⁽³⁾
56
N/A
171
227
295,437
295,664
—
492
Total $ 33,720
$ 9,002
$ 17,763
$ 60,485
$ 3,194,683
$ 3,255,168
$ 195
$ 30,872


⁽¹⁾	~~Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are loans that are 60 days or more past due.~~


⁽²⁾	~~Primarily consists of reverse mortgages, which due to their nature, are not aged and are included in the current column.~~


⁽³⁾	~~Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.~~


	As of March 31, 2020
	30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽¹⁾		Total Delinquent		Current		Total		Loans 90 Days or More Delinquent and Accruing Interest		Nonaccrual Loans with No Allowance
	(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate	$	29,663	$	6,665	$	13,323	$	49,651	$	2,497,239	$	2,546,890	$	23	$	6,653
15-year or less, amortizing fixed-rate	1,803		280		450		2,533		373,012		375,545		—		542
Adjustable-rate	383		76		165		624		41,864		42,488		—		150
Other⁽²⁾	2,302		756		1,847		4,905		61,288		66,193		132		710
Total single-family	34,151		7,777		15,785		57,713		2,973,403		3,031,116		155		8,055
Multifamily⁽³⁾	37		N/A		158		195		337,499		337,694		—		33
Total	$	34,188	$	7,777	$	15,943	$	57,908	$	3,310,902	$	3,368,810	$	155	$	8,088



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	66	74



			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans


	As of December 31, 2019
	30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽¹⁾		Total Delinquent		Current		Total		Loans 90 Days or More Delinquent and Accruing Interest
	(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate	$	26,882	$	7,126	$	13,082	$	47,090	$	2,470,457	$	2,517,547	$	28
15-year or less, amortizing fixed-rate	1,616		286		445		2,347		371,740		374,087		—
Adjustable-rate	412		85		167		664		44,244		44,908		—
Other⁽²⁾	2,323		829		1,891		5,043		64,726		69,769		136
Total single-family	31,233		8,326		15,585		55,144		2,951,167		3,006,311		164
Multifamily⁽³⁾	7		N/A		115		122		330,496		330,618		—
Total	$	31,240	$	8,326	$	15,700	$	55,266	$	3,281,663	$	3,336,929	$	164

⁽¹⁾Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are loans that are 60 days or more past due.

⁽²⁾Reverse mortgage loans included in "Other" are not aged due to their nature and are included in the current column.

⁽³⁾Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									75


			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans

Credit Quality Indicators

The following table displays the total ~~recorded investment in~~amortized cost of our single-family HFI loans by class, year of origination and credit quality indicator, excluding loans for which we have elected the fair value option. The estimated mark-to-market LTV ratio is a primary factor we consider when estimating our allowance for loan losses for single-family loans. As LTV ratios increase, the borrower's equity in the home decreases, which may negatively affect the borrower's ability to refinance or to sell the property for an amount at or above the outstanding balance of the loan.


	As of March 31, 2020, by Year of Origination⁽¹⁾
	2020		2019		2018		2017		2016		Prior		Total
	(Dollars in millions)
Estimated mark-to-market LTV ratio:⁽²⁾
20- and 30-year or more, amortizing fixed-rate:
Less than or equal to 80%	$	76,429	$	307,581	$	177,622	$	252,599	$	312,333	$	1,034,737	$	2,161,301
Greater than 80% and less than or equal to 90%	16,159		93,510		72,787		40,029		10,145		14,220		246,850
Greater than 90% and less than or equal to 100%	17,666		92,907		16,344		2,080		503		4,715		134,215
Greater than 100%	—		443		143		167		170		3,601		4,524
Total 20 and 30-year or more, amortizing fixed-rate	110,254		494,441		266,896		294,875		323,151		1,057,273		2,546,890
15-year or less, amortizing fixed-rate:
Less than or equal to 80%	15,233		56,811		23,322		42,251		58,651		172,743		369,011
Greater than 80% and less than or equal to 90%	795		3,502		668		97		23		46		5,131
Greater than 90% and less than or equal to 100%	322		967		22		10		8		23		1,352
Greater than 100%	—		2		7		9		7		26		51
Total 15-year or less, amortizing fixed-rate	16,350		61,282		24,019		42,367		58,689		172,838		375,545
Adjustable-rate:
Less than or equal to 80%	433		2,551		3,917		7,631		4,116		22,449		41,097
Greater than 80% and less than or equal to 90%	38		360		501		208		21		54		1,182
Greater than 90% and less than or equal to 100%	17		125		49		7		1		8		207
Greater than 100%	—		—		—		—		—		2		2
Total adjustable-rate	488		3,036		4,467		7,846		4,138		22,513		42,488
Other:
Less than or equal to 80%	—		42		348		871		1,134		42,367		44,762
Greater than 80% and less than or equal to 90%	—		4		33		73		60		2,470		2,640
Greater than 90% and less than or equal to 100%	—		1		17		37		26		1,193		1,274
Greater than 100%	—		2		11		18		19		1,198		1,248
Total other	—		49		409		999		1,239		47,228		49,924
Total	$	127,092	$	558,808	$	295,791	$	346,087	$	387,217	$	1,299,852	$	3,014,847

Total for all classes by LTV ratio⁽²⁾
Less than or equal to 80%	$	92,095	$	366,985	$	205,209	$	303,352	$	376,234	$	1,272,296	$	2,616,171
Greater than 80% and less than or equal to 90%	16,992		97,376		73,989		40,407		10,249		16,790		255,803
Greater than 90% and less than or equal to 100%	18,005		94,000		16,432		2,134		538		5,939		137,048
Greater than 100%	—		447		161		194		196		4,827		5,825
Total	$	127,092	$	558,808	$	295,791	$	346,087	$	387,217	$	1,299,852	$	3,014,847

As of

June 30, 2019⁽¹⁾

December 31, 2018⁽¹⁾
Primary Alt-A Other Primary Alt-A Other
(Dollars in millions)
Estimated mark-to-market loan-to-value (“LTV”) ratio:⁽²⁾

Less than or equal to 80% $ 2,551,443
$ 41,960
$ 10,773
$ 2,521,766
$ 45,476
$ 12,291
Greater than 80%and less than or equal to 90%
221,190
2,819
874
228,614
3,804
1,195
Greater than 90%and less than or equal to 100%
102,585
1,383
435
109,548
1,997
645
Greater than 100% 6,091
1,327
463
9,337
1,994
707
Total $ 2,881,309
$ 47,489
$ 12,545
$ 2,869,265
$ 53,271
$ 14,838


⁽¹⁾Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q						Excludes $18.9 billion and $22.1 billion as of June 30, 2019 and December 31, 2018, respectively, of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies, that are not Alt-A loans. The class is primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV ratio.			76


⁽²⁾			The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current value of the property as of the end of each reported period, which we calculate using an internal valuation model that estimates periodic changes in home value.Notes to Condensed Consolidated Financial Statements \| Mortgage Loans


	As of December 31, 2019⁽¹⁾
	20- and 30-Year or More, Amortizing Fixed-Rate		15-Year or less, Amortizing Fixed-Rate		Adjustable-Rate		Other		Total
	(Dollars in millions)
Estimated mark-to-market LTV ratio:⁽²⁾
Less than or equal to 80%	$	2,145,018	$	368,181	$	43,415	$	47,005	$	2,603,619
Greater than 80% and less than or equal to 90%	237,623		4,556		1,275		2,872		246,326
Greater than 90% and less than or equal to 100%	130,152		1,284		215		1,398		133,049
Greater than 100%	4,754		66		3		1,365		6,188
Total	$	2,517,547	$	374,087	$	44,908	$	52,640	$	2,989,182

⁽¹⁾Excludes $16.3 billion and $17.1 billion as of March 31, 2020 and December 31, 2019, respectively, of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies. The class is primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV ratio.

⁽²⁾The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current value of the property as of the end of each reported period, which we calculate using an internal valuation model that estimates periodic changes in home value.

The following table displays the total ~~recorded investment in~~amortized cost of our multifamily HFI loans by ~~credit quality indicator,~~year of origination and credit-risk rating, excluding loans for which we have elected the fair value option. Property rental income and property valuations are key inputs to our internally assigned credit risk ratings.


	As of March 31, 2020, by Year of Origination
	2020		2019		2018		2017		2016			Prior		Total
	(Dollars in millions)
Internally assigned credit risk rating:
Non-classified⁽¹⁾	$	9,858	$	69,507	$	63,830	$	53,715	$	46,030	��	$	87,262	$	330,202



Classified⁽²⁾	—		347		910		1,655		1,458			3,122		7,492
Total	$	9,858	$	69,854	$	64,740	$	55,370	$	47,488		$	90,384	$	337,694

As of
June 30, December 31,
2019 2018
(Dollars in millions)
Credit risk profile by internally assigned grade:
Non-classified $ 306,257
$ 289,231

Classified⁽¹⁾
7,288
6,433

Total $ 313,545
$ 295,664


		As of December 31, 2019
		(Dollars in millions)
Internally assigned credit risk rating:
Non-classified⁽¹⁾	Includes loans classified as “Substandard” or “Doubtful.” Loans classified as “Substandard” have a well-defined weakness that jeopardizes the timely full repayment. Loans classified as “Doubtful” have weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions and values. As of June 30, 2019, we had loans with recorded investment of less than $0.5 million classified as doubtful, compared with $1 million as of December 31, 2018.

$	323,773
Classified⁽²⁾			6,845
~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~Total		67	$	330,618

⁽¹⁾A loan categorized as “Non-classified” is current or adequately protected by the current financial strength and debt service capability of the borrower.



	~~Notes to Condensed Consolidated Financial Statements \| Mortgage Loans~~

~~Individually Impaired Loans~~

Individually impaired loans include troubled debt restructurings (“TDRs”), acquired credit-impaired loans and multifamily loans that we have assessed as probable that we will not collect all contractual amounts due, regardless of whether we are currently accruing interest, excluding⁽²⁾Represents loans classified as ~~HFS~~“Substandard” or “Doubtful.” Loans classified as “Substandard” have a well-defined weakness that jeopardizes the timely full repayment. “Doubtful” refers to a loan with a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions and values. As of March 31, 2020 and December 31, 2019, we had loans ~~for which we have elected the fair value option. The following tables display the total unpaid principal balance, recorded investment, related allowance, average recorded investment~~with amortized cost of $39 million and ~~interest income recognized for individually impaired loans.~~$5 million, respectively, classified as doubtful.

As of
June 30, 2019 December 31, 2018
Unpaid Principal Balance Total Recorded Investment Related Allowance for Loan Losses Unpaid Principal Balance Total Recorded Investment Related Allowance for Loan Losses
(Dollars in millions)
Individually impaired loans:

With related allowance recorded:

Single-family:

Primary $ 74,143
$ 71,549
$ (7,615 ) $ 81,791
$ 78,688
$ (9,406 )
Government 261
267
(54 ) 264
270
(55 )
Alt-A 13,703
12,554
(2,129 ) 16,576
15,158
(2,793 )
Other 4,520
4,268
(774 ) 5,482
5,169
(1,001 )
Total single-family 92,627
88,638
(10,572 ) 104,113
99,285
(13,255 )
Multifamily 340
343
(55 ) 197
196
(40 )
Total individually impaired loans with related allowance recorded 92,967
88,981
(10,627 ) 104,310
99,481
(13,295 )
With no related allowance recorded:⁽¹⁾

Single-family:
Primary 16,638
15,866
—
15,939
15,191
—

Government 59
55
—
61
56
—

Alt-A 2,445
2,193
—
2,628
2,363
—

Other 654
602
—
718
666
—

Total single-family 19,796
18,716
—
19,346
18,276
—

Multifamily 431
433
—
343
346
—

Total individually impaired loans with no related allowance recorded 20,227
19,149
—
19,689
18,622
—

Total individually impaired loans⁽²⁾
$ 113,194
$ 108,130
$ (10,627 ) $ 123,999
$ 118,103
$ (13,295 )


⁽¹⁾	~~The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.~~


⁽²⁾	Includes single-family loans restructured in a TDR with a recorded investment of $107.0 billion and $117.2 billion as of June 30, 2019 and December 31, 2018, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $188 million and $187 million as of June 30, 2019 and December 31, 2018, respectively.



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		68



	~~Notes to Condensed Consolidated Financial Statements \| Mortgage Loans~~

For the Three Months Ended June 30,
2019 2018
Average Recorded Investment Total Interest Income Recognized Interest Income Recognized on a Cash Basis Average Recorded Investment Total Interest Income Recognized Interest Income Recognized on a Cash Basis
(Dollars in millions)
Individually impaired loans:
With related allowance recorded:

Single-family:

Primary $ 74,162
$ 774
$ 72
$ 88,526
$ 915
$ 109

Government 269
3
—
279
9
—

Alt-A 13,399
145
11
19,349
219
16

Other 4,471
41
3
7,265
73
6

Total single-family 92,301
963
86
115,419
1,216
131

Multifamily 321
3
—
232
1
—

Total individually impaired loans with related allowance recorded 92,622
966
86
115,651
1,217
131

With no related allowance recorded:⁽¹⁾

Single-family:

Primary 15,474
249
36
14,942
243
32

Government 55
1
—
57
2
—

Alt-A 2,196
44
5
2,723
61
5

Other 615
10
1
857
15
1

Total single-family 18,340
304
42
18,579
321
38

Multifamily 397
6
—
355
1
—

Total individually impaired loans with no related allowance recorded 18,737
310
42
18,934
322
38

Total individually impaired loans $ 111,359
$ 1,276
$ 128
$ 134,585
$ 1,539
$ 169



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		69



	~~Notes to Condensed Consolidated Financial Statements \| Mortgage Loans~~

For the Six Months Ended June 30,
2019 2018
Average Recorded Investment Total Interest Income Recognized Interest Income Recognized on a Cash Basis Average Recorded Investment Total Interest Income Recognized Interest Income Recognized on a Cash Basis
(Dollars in millions)
Individually impaired loans:
With related allowance recorded:

Single-family:

Primary $ 75,888
$ 1,591
$ 152
$ 88,342
$ 1,826
$ 216

Government 270
6
—
278
12
—

Alt-A 14,023
301
22
20,020
431
32

Other 4,706
86
7
7,556
144
11

Total single-family 94,887
1,984
181
116,196
2,413
259

Multifamily 279
5
—
248
1
—

Total individually impaired loans with related allowance recorded 95,166
1,989
181
116,444
2,414
259

With no related allowance recorded:⁽¹⁾

Single-family:
Primary 15,336
469
64
14,988
486
58

Government 55
2
—
58
2
—

Alt-A 2,244
83
7
2,781
119
9

Other 631
18
2
878
31
2

Total single-family 18,266
572
73
18,705
638
69

Multifamily 380
8
—
340
3
—

Total individually impaired loans with no related allowance recorded 18,646
580
73
19,045
641
69

Total individually impaired loans $ 113,812
$ 2,569
$ 254
$ 135,489
$ 3,055
$ 328


⁽¹⁾	~~The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.~~

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a TDR. In addition to formal loan modifications, ~~including those modifications in a trial period,~~ we also engage in other loss mitigation activities with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal agreements with the borrower that do not result in the legal modification of the loan’s contractual terms. We account for these

informal restructurings as a TDR if we defer more than three missed payments. We also classify loans to certain borrowers who have received bankruptcy relief as TDRs. Our current TDR accounting described herein will be temporarily impacted by our election to account for certain eligible loan modifications under the COVID-19 Relief granted pursuant to the CARES Act. See “Note 1, Summary of Significant Accounting Policies” for more information on the impact of the CARES Act.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									77


			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans

The substantial majority of the loan modifications we complete result in term extensions, interest rate reductions or a combination of both. ~~The average term extension of a single-family modified loan was 160 months and 128 months for~~During the three months ended ~~June 30,~~March 31, 2020 and 2019, and 2018, respectively. The average interest rate reduction was 0.10 and 0.13 percentage points, for the three months ended June 30, 2019 and 2018, respectively. During the six months ended June 30, 2019 and 2018, the average term extension of a single-family modified loan was ~~158~~168 months and ~~133~~157 months, respectively, and the average interest rate reduction was ~~0.10~~0.32 and ~~0.18~~0.10 percentage points, respectively.



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		70



	~~Notes to Condensed Consolidated Financial Statements \| Mortgage Loans~~

The following ~~tables display~~table displays the number of loans and ~~recorded investment~~amortized cost in loans classified as a TDR.

For the Three Months Ended June 30,
2019 2018
Number of Loans
RecordedInvestment⁽¹⁾
Number of Loans
Recorded Investment⁽¹⁾
(Dollars in millions)
Single-family:
Primary 11,796
$ 1,844
21,820
$ 3,148

Government 22
2
26
2

Alt-A 639
81
1,538
200

Other 138
25
285
52

Total single-family 12,595
1,952
23,669
3,402

Multifamily 3
20
2
19

Total TDRs 12,598
$ 1,972
23,671
$ 3,421

For the Six Months Ended June 30,
2019 2018
Number of Loans
RecordedInvestment⁽¹⁾
Number of Loans
Recorded Investment⁽¹⁾
(Dollars in millions)
Single-family:
Primary 24,753
$ 3,815
63,499
$ 9,672

Government 45
6
74
6

Alt-A 1,405
178
3,720
483

Other 285
52
730
136

Total single-family 26,488
4,051
68,023
10,297

Multifamily 6
33
10
61

Total TDRs 26,494
$ 4,084
68,033
$ 10,358


⁽¹⁾	Based on the nature of our modification programs, which do not include principal or past-due interest forgiveness, there is not a material difference between the recorded investment in our loans pre- and post- modification. Therefore, these amounts represent recorded investment post-modification.

The decrease in loans classified as a TDR for the three and six months ended June 30, 2019 compared with the three and six months ended June 30, 2018 was primarily attributable to a significantly higher number of single-family loan modifications and other forms of loss mitigation in the areas affected by Hurricanes Harvey, Irma and Maria that resulted in a restructuring of the terms of those loans during the first half of 2018.



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		71



	~~Notes to Condensed Consolidated Financial Statements \| Mortgage Loans~~


	For the Three Months Ended March 31,
	2020									2019
	Number of Loans				Amortized Cost		Number of Loans				Amortized Cost
	(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate		10,856	$	1,909		11,445		$	1,826
15-year or less, amortizing fixed-rate		1,073	98			1,295		114
Adjustable-rate		144	24			217		32
Other		537	68			936		127
Total single-family		12,610	2,099			13,893		2,099
Multifamily		—	—			3		13
Total TDRs		12,610	$	2,099		13,896		$	2,112

For loans that ~~had a payment default~~defaulted in the period presented and that were classified as a TDR in the twelve months prior to the ~~payment~~ default, the following ~~tables display~~table displays the number of loans and ~~our recorded investment in~~the amortized cost of these loans at the time of payment default. For ~~the~~ purposes of this disclosure, we define loans that had a payment default as: single-family and multifamily loans with completed TDRs that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure, or a short sale; single-family loans with completed modifications that are two or more months delinquent during the period; or multifamily loans with completed modifications that are one or more months delinquent during the period.


	For the Three Months Ended March 31,
	2020									2019
	Number of Loans				Amortized Cost		Number of Loans				Amortized Cost
	(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate		3,175	$	521		4,376		$	664
15-year or less, amortizing fixed-rate		50	3			132		8
Adjustable-rate		7	1			8		1
Other		327	51			643		104
Total single-family		3,559	576			5,159		777
Multifamily		2	2			—		—
Total TDRs that subsequently defaulted		3,561	$	578		5,159		$	777

For the Three Months Ended June 30,
2019 2018
Number of Loans
RecordedInvestment
Number of Loans
RecordedInvestment
(Dollars in millions)
Single-family:
Primary 4,047
$ 606
3,834
$ 554

Government 10
2
15
2

Alt-A 379
58
588
92

Other 110
21
131
26

Total single-family 4,546
687
4,568
674

Multifamily 1
6
—
—

Total TDRs that subsequently defaulted 4,547
$ 693
4,568
$ 674


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									78


			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans

Nonaccrual Loans

The table below displays the amortized cost of and interest income on our HFI single-family and multifamily loans on nonaccrual status by class, excluding loans for which we have elected the fair value option. For the three months ended March 31, 2020, the total amount of foregone interest income for single-family nonaccrual loans was $182 million, of which $87 million was accrued interest receivable written off through the reversal of interest income for nonaccrual loans held at period end. For the three months ended March 31, 2020, the total amount of foregone interest income for multifamily nonaccrual loans held as of period end was $1 million.


		As of						For the Three Months Ended March 31, 2020
		March 31, 2020		December 31, 2019
		Amortized Cost						Total Interest Income Recognized ⁽¹⁾
	(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate		$	23,212	$	23,427	$	101
15-year or less, amortized fixed-rate		856		858		2
Adjustable-rate		279		288		1
Other		2,827		2,973		13
Total single-family		27,174		27,546		117
Multifamily		91		435		—
Total		$	27,265	$	27,981	$	117

⁽¹⁾Represents the amount of cash payments received for nonaccrual loans held as of period end.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									79


			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans

Individually Impaired Loans

Prior to the adoption of the CECL standard, we recorded a specific loss reserve for individually impaired loans and a collective loss reserve for all other loans. Individually impaired loans include TDRs, acquired credit-impaired loans and multifamily loans that we have assessed as probable that we will not collect all contractual amounts due, regardless of whether we are currently accruing interest, excluding loans classified as HFS and loans for which we have elected the fair value option. The following tables display the unpaid principal balance, total amortized cost, related allowance as of December 31, 2019 and average amortized cost, total interest income recognized, and interest income recognized on a cash basis for individually impaired loans for the three months ended March 31, 2019.


	As of December 31, 2019
	Unpaid Principal Balance					Total Amortized Cost			Related Allowance for Loan Losses
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
20- and 30-year or more, amortizing fixed-rate		$	63,091	$	61,033		$	(5,851)
15-year or less, amortizing fixed-rate		954		960			(24)
Adjustable-rate		156		157			(9)
Other		15,181		14,078			(2,291)
Total single-family		79,382		76,228			(8,175)
Multifamily		314		315			(45)
Total individually impaired loans with related allowance recorded		79,696		76,543			(8,220)
With no related allowance recorded:⁽¹⁾
Single-family:
20- and 30-year or more, amortizing fixed-rate		18,372		17,578			—
15-year or less, amortizing fixed-rate		410		407			—
Adjustable-rate		265		265			—
Other		3,014		2,718			—
Total single-family		22,061		20,968			—
Multifamily		363		365			—
Total individually impaired loans with no related allowance recorded		22,424		21,333			—
Total individually impaired loans⁽²⁾		$	102,120	$	97,876		$	(8,220)

⁽¹⁾The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.

⁽²⁾ Includes single-family loans restructured in a TDR with an amortized cost of $96.9 billion as of December 31, 2019. Includes multifamily loans restructured in a TDR with an amortized cost of $102 million as of December 31, 2019.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									80


			Notes to Condensed Consolidated Financial Statements \| Mortgage Loans



	For the Three Months Ended March 31, 2019
	Average Amortized Cost					Total Interest Income Recognized			Interest Income Recognized on a Cash Basis
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
20- and 30-year or more, amortizing fixed-rate		$	76,400	$	804		$	79
15-year or less, amortizing fixed-rate		1,323		12			1
Adjustable-rate		120		1			—
Other		19,898		204			15
Total single-family		97,741		1,021			95
Multifamily		247		2			—
Total individually impaired loans with related allowance recorded		97,988		1,023			95
With no related allowance recorded:⁽¹⁾
Single-family:
20- and 30-year or more, amortizing fixed-rate		14,474		212			26
15-year or less, amortizing fixed-rate		318		4			1
Adjustable-rate		400		4			1
Other		3,000		48			3
Total single-family		18,192		268			31
Multifamily		353		2			—
Total individually impaired loans with no related allowance recorded		18,545		270			31
Total individually impaired loans		$	116,533	$	1,293		$	126

For the Six Months Ended June 30,
2019 2018
Number of Loans
RecordedInvestment
Number of Loans
RecordedInvestment
(Dollars in millions)
Single-family:
Primary 8,563
$ 1,279
8,652
$ 1,255

Government 28
5
29
4

Alt-A 850
131
1,265
201

Other 264
49
326
64

Total single-family 9,705
1,464
10,272
1,524

Multifamily 1
6
1
2

Total TDRs that subsequently defaulted 9,706
$ 1,470
10,273
$ 1,526

⁽¹⁾The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									81


			Notes to Condensed Consolidated Financial Statements \| Allowance for Loan Losses

4. Allowance for Loan Losses

We maintain an allowance for loan losses for HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts, excluding loans for which we have elected the fair value option. When calculating our allowance for loan losses, we consider the unpaid principal balance, net of ~~amortized~~unamortized premiums and discounts, and other cost basis adjustments of HFI loans at the balance sheet date. We record ~~charge-offs~~write-offs as a reduction to our allowance for loan losses at the point of foreclosure, completion of a short sale, upon the redesignation of nonperforming loans from HFI to HFS or when a loan is determined to be uncollectible. See “Note 1, Summary of Significant Accounting Policies” for additional information and accounting policy changes resulting from our adoption of the CECL standard.

~~We aggregate~~The following table displays changes in our allowance for single-family ~~HFI~~ loans, ~~that are not individually impaired~~multifamily loans and total allowance for loan losses, including the transition impact of adopting the CECL standard.


	For the Three Months Ended March 31, 2020
	Balance December 31, 2019		Transition Impact from the Adoption of the CECL Standard		Balance January 1, 2020		Provision for Loan Losses		Write-offs		Recoveries		Other		Balance March 31, 2020
	(Dollars in millions)
Single-family	$	(8,759)	$	(1,229)	$	(9,988)	$	(2,177)	$	70	$	(3)	$	28	$	(12,070)
Multifamily	(257)		(493)		(750)		(407)		19		(1)		—		(1,139)
Total allowance for loan losses	$	(9,016)	$	(1,722)	$	(10,738)	$	(2,584)	$	89	$	(4)	$	28	$	(13,209)

Our provision for loan losses can vary substantially from period to period based on ~~similar risk characteristics, for purposes~~a number of estimating incurred credit losses and establishing a collective single-family loss reserve using an econometric model that derives an overall loss reserve estimate. We base our allowance methodology on historical events and trends,factors, such as ~~loss severity (in event of default), default~~changes in actual and forecasted home prices or property valuations, fluctuations in actual and forecasted interest rates, borrower payment behavior, events such as natural disasters or pandemics, the types and recoveries from mortgage insurance contracts and other credit enhancements that provide loan-level loss coverage and are either contractually attached to a loan or that were entered into contemporaneously with and in contemplation of a guaranty or loan purchase transaction. We use recent regional historical sales and appraisal information, including the salesvolume of our ~~own foreclosed properties,~~loss mitigation activities, including forbearance and loan modifications, the volume of foreclosures completed, and the redesignation of loans from HFI to ~~develop~~HFS. Estimating the impact of the COVID-19 outbreak on our expected loan loss reserves required significant management judgment, including estimates of the number of single-family borrowers who will receive forbearance and any resulting loan modifications that will be provided once the forbearance period ends. Under our CECL methodology, depending on the type of loan modification granted, loss severity estimates ~~for all loan categories.~~vary. Our ~~allowance calculation~~provision can also ~~incorporates a loss confirmation period (the anticipated time lag between a credit loss event~~be impacted by updates to the models, assumptions, and the confirmation of the credit loss resulting from that event) to ensure our allowance estimate captures credit losses that have been incurred as of the balance sheet date but have not been confirmed. In addition, management performs a review of the observable data used in ~~its~~determining our allowance for loan losses.

The primary factors that impacted our single-family provision for loan losses in the first quarter of 2020 were:

•Expected loan losses as a result of the COVID-19 outbreak. Given the rapidly changing and deteriorating market conditions in recent weeks as a result of the unprecedented COVID-19 outbreak, we believe our model used to estimate ~~to ensure it is representative of prevailing economic conditions and other events existing~~single-family credit losses as of March 31, 2020 does not capture the ~~balance sheet date.~~entirety of losses we expect to incur relating to COVID-19. As such, management used its judgment to increase the loss projections developed by our credit loss model to reflect our current expectations relating to COVID-19’s impact. These judgments included adjusting our modeled results for (1) the expected impact of widespread forbearance programs, including the rate of borrower participation, and the volume and type of loan modifications as a result thereof, (2) the effect of TDR accounting relief from the CARES Act, and (3) lower expected prepayment volumes given the sharp rise in unemployment rates that are expected to stay elevated over the near term. In developing this model adjustment, management considered the current credit risk profile of our single-family loan book of business, as well as relevant historical credit loss experience during rare or stressful economic environments.

~~Individually impaired~~•A decrease in our expectations for home price growth. We revised our forecast to reflect near zero home price appreciation on a national basis for 2020 due to COVID-19 market disruptions. Lower home prices increase the likelihood that loans will default and increase the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately increases our loss reserves and provision for credit losses.

•These factors were partially offset by lower actual and projected mortgage interest rates. As mortgage interest rates decline, we expect an increase in future prepayments on single-family loans, ~~currently include those classified as~~including modified loans. Higher expected prepayments shorten the expected lives of modified loans, which decreases the expected impairment relating to term and interest-rate concessions provided on these loans and results in a ~~TDR and acquired credit-impaired loans. We consider a loan~~benefit for credit losses. As noted above, we adjusted downward our modeled expectation of prepayment volumes due to ~~be impaired when, based on current information, it is probable that we will not receive all amounts due,~~

the COVID-19 outbreak, which reduced the modeled benefit from interest rates.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	72	82



			Notes to Condensed Consolidated Financial Statements \| Allowance for Loan Losses

The primary factor that contributed to a decrease in single-family write-offs in the first quarter of 2020 compared to the first quarter of 2019 was a reduction in the number of reperforming loans redesignated from HFI to HFS, resulting in lower write-offs.

~~including interest,~~Our multifamily provision for loan losses in ~~accordance with~~ the ~~contractual terms~~first quarter of 2020 was primarily driven by expected loan losses as a result of the COVID-19 outbreak. Similar to the single-family provision for loan ~~agreement. When a loan has been restructured,~~losses discussed above, we ~~measure impairment using a cash flow analysis discounted at~~believe our model used to estimate multifamily credit losses as of March 31, 2020 does not capture the ~~loan’s original effective interest rate. If~~entirety of losses we expect to ~~recover~~incur relating to COVID-19. As such, management used its judgment to increase the loss projections developed by our ~~recorded investment~~credit loss model to reflect our current expectations relating to COVID-19’s impact. Accordingly, our current multifamily provision for loan losses was primarily driven by higher expected unemployment rates, which we expect will increase the number of loans in ~~an individually impaired loan through probable foreclosure of the underlying collateral, we measure impairment based on the difference between our recorded investment~~forbearance and reduce property net operating income in the near term, thereby decreasing forecasted property values and increasing the probability of loan ~~and~~default. In developing these adjustments, management considered the ~~fair value~~current credit risk profile of ~~the underlying property, adjusted for the estimated costs to sell the property and estimated insurance or other proceeds we expect to receive.~~

~~We establish a collective allowance for all loans in~~ our multifamily ~~guaranty~~loan book of business, ~~that are not individually measured for impairment using an internal model that applies~~as well as relevant historical credit loss ~~factors~~experience during rare or stressful economic environments.

For the three months ended March 31, 2020, we recorded a benefit of $58 million related to ~~loans~~changes in ~~similar risk categories. Our loss factors are developed based~~the expected benefit of freestanding credit enhancements on our ~~historical default~~single-family loans. Additionally, we recorded a benefit of $127 million related to freestanding credit enhancements on our multifamily loans. Freestanding credit enhancements primarily consist of transactions under our CAS program, our CIRT program, and ~~loss severity experience. We identify~~certain lender risk-sharing programs, including our multifamily ~~loans for evaluation for impairment through a~~DUS program. The impact from these credit ~~risk assessment process. If we determine that a multifamily loan~~enhancements is ~~individually impaired, we generally measure impairment on that loan based on the fair value~~recorded in “Fee and other income” in our condensed consolidated statements of the underlying collateral less estimated costs to sell the property, as we have concluded that such loans are collateral dependent. We evaluate collectively for impairment smaller-balance homogeneous multifamily loans.operations and comprehensive income.

The following ~~table displays~~tables display prior period changes in single-family ~~multifamily~~ and ~~total allowance for loan losses.~~

For the Three Months Ended June 30, For the Six Months Ended June 30,
2019 2018 2019 2018
(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance $ (12,985 ) $ (18,523 ) $ (13,969 ) $ (18,849 )
Benefit (provision) for loan losses⁽¹⁾
1,239
1,270
1,886
1,192
Charge-offs 558
731
939
1,196
Recoveries (15 ) (64 ) (60 ) (124 )
Other (7 ) (16 ) (6 ) (17 )
Ending balance $ (11,210 ) $ (16,602 ) $ (11,210 ) $ (16,602 )
Multifamily allowance for loan losses:
Beginning balance $ (247 ) $ (211 ) $ (234 ) $ (235 )
Benefit (provision) for loan losses⁽¹⁾
(27 ) —
(40 ) 20
Charge-offs 4
1
4
5
Recoveries (2 ) —
(2 ) —
Ending balance $ (272 ) $ (210 ) $ (272 ) $ (210 )
Total allowance for loan losses:
Beginning balance $ (13,232 ) $ (18,734 ) $ (14,203 ) $ (19,084 )
Benefit (provision) for loan losses⁽¹⁾
1,212
1,270
1,846
1,212
Charge-offs 562
732
943
1,201
Recoveries (17 ) (64 ) (62 ) (124 )
Other (7 ) (16 ) (6 ) (17 )
Ending balance $ (11,482 ) $ (16,812 ) $ (11,482 ) $ (16,812 )


⁽¹⁾	~~Benefit (provision) for loan losses is included in “Benefit for credit losses” in our condensed consolidated statements of operations and comprehensive income.~~



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		73



	~~Notes to Condensed Consolidated Financial Statements \| Allowance for Loan Losses~~

~~The following table displays the~~multifamily allowance for loan losses and ~~recorded investment~~the prior period amortized cost in our HFI loans by impairment or allowance methodology and portfolio segment ~~excluding loans for which we have elected~~prior to the ~~fair value option.~~adoption of the CECL standard. For a description of our previous allowance and impairment methodology refer to “Note 1, Summary of Significant Accounting Policies” in our 2019 Form 10-K.


	For the Three Months Ended March 31, 2019
	Balance December 31, 2018		Benefit (Provision) for Loan Losses		Write-offs		Recoveries		Other		Balance March 31, 2019
	(Dollars in millions)
Single-family	$	(13,969)	$	647	$	381	$	(45)	$	1	$	(12,985)
Multifamily	(234)		(13)		—		—		—		(247)
Total allowance for loan losses	$	(14,203)	$	634	$	381	$	(45)	$	1	$	(13,232)


	As of December 31, 2019
	Single-Family		Multifamily					Total
	(Dollars in millions)
Allowance for loan losses by segment:
Individually impaired loans	$	(8,175)		$	(45)	$	(8,220)
Collectively reserved loans	(584)			(212)		(796)
Total allowance for loan losses	$	(8,759)		$	(257)	$	(9,016)
Amortized cost in loans by segment:
Individually impaired loans	$	97,196		$	680	$	97,876
Collectively reserved loans	2,909,115			329,938		3,239,053
Total amortized cost in loans	$	3,006,311		$	330,618	$	3,336,929

As of
June 30, 2019 December 31, 2018
Single-Family Multifamily Total Single-Family Multifamily Total
(Dollars in millions)
Allowance for loan losses by segment:
Individually impaired loans⁽¹⁾
$ (10,572 ) $ (55 ) $ (10,627 ) $ (13,255 ) $ (40 ) $ (13,295 )
Collectively reserved loans (638 ) (217 ) (855 ) (714 ) (194 ) (908 )
Total allowance for loan losses $ (11,210 ) $ (272 ) $ (11,482 ) $ (13,969 ) $ (234 ) $ (14,203 )

Recorded investment in loans by segment:
Individually impaired loans⁽¹⁾
$ 107,354
$ 776
$ 108,130
$ 117,561
$ 542
$ 118,103
Collectively reserved loans 2,852,896
312,769
3,165,665
2,841,943
295,122
3,137,065
Total recorded investment in loans $ 2,960,250
$ 313,545
$ 3,273,795
$ 2,959,504
$ 295,664
$ 3,255,168


⁽¹⁾Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q						~~Includes acquired credit-impaired loans.~~			83


			Notes to Condensed Consolidated Financial Statements \| Investments in Securities

5. Investments in Securities

Trading Securities

Trading securities are recorded at fair value with subsequent changes in fair value recorded as “Fair value ~~gains (losses),~~losses, net” in our condensed consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities.


	As of
	March 31, 2020					December 31, 2019
	(Dollars in millions)
Mortgage-related securities:
Fannie Mae		$	3,530	$	3,424
Other agency⁽¹⁾		4,167		4,490
Private-label and other mortgage securities		444		629
Total mortgage-related securities (includes $863 million and $896 million, respectively, related to consolidated trusts)		8,141		8,543
Non-mortgage-related securities:
U.S. Treasury securities		44,727		39,501
Other securities		73		79
Total non-mortgage-related securities		44,800		39,580
Total trading securities		$	52,941	$	48,123

As of
June 30, 2019 December 31, 2018
(Dollars in millions)
Mortgage-related securities:
Fannie Mae⁽¹⁾
$ 3,151
$ 1,467

Other agency⁽²⁾
3,629
3,503

Private-label and other mortgage securities 736
1,306

Total mortgage-related securities (includes $983 and $32, respectively, related to consolidated trusts) 7,516
6,276

Non-mortgage-related securities:
U.S. Treasury securities 35,266
35,502

Other securities 84
89

Total non-mortgage-related securities 35,350
35,591

Total trading securities $ 42,866
$ 41,867


⁽¹⁾⁽¹⁾	~~In connection with the implementation of the Single Security Initiative in the second quarter of 2019, we recognized $1.4 billion in mortgage-related securities that had previously been consolidated.~~

⁽²⁾Consists of Freddie Mac and Ginnie Mae mortgage-related securities.

The following table displays information about our net trading gains.

For the Three Months Ended June 30, For the Six Months Ended June 30,

2019 2018 2019 2018
(Dollars in millions)
Net trading gains $ 183
$ 21
$ 275
$ 119
Net trading gains recognized in the period related to securities still held at period end 147
1
227
48


		For the Three Months Ended March 31,

		2020		2019
	(Dollars in millions)
Net trading gains		$	647	$	92
Net trading gains recognized in the period related to securities still held at period end		591		89



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		74



	~~Notes to Condensed Consolidated Financial Statements \| Investments in Securities~~

Available-for-Sale Securities

We record AFS securities at fair value with unrealized gains and losses, recorded net of tax, as a component of “Other comprehensive income (loss)” and we recognize realized gains and losses from the sale of AFS securities in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income. We define the amortized cost basis of our AFS securities as unpaid principal balance, net of unamortized premiums and discounts, and other cost basis adjustments.

~~The following table displays~~Pursuant to the ~~gross realized gains~~CECL standard, we record an allowance for credit losses for AFS securities that reflects the impairment for credit losses, limited by the amount that fair value is less than the amortized cost. Credit-related losses are written off when deemed uncollectible. Recoveries of credit losses are recorded as a reversal of the allowance for credit losses and ~~proceeds on sales~~benefit for credit losses only prior to the write-down or write-off of ~~AFS securities.~~a security’s amortized cost basis. Impairment due to non-credit losses are recorded as unrealized losses within other comprehensive income.

For the Three Months Ended June 30, For the Six Months Ended June 30,

2019 2018 2019 2018
(Dollars in millions)
Gross realized gains $ 110
$ —
$ 171
$ 363
Total proceeds (excludes initial sale of securities from new portfolio securitizations) 245
6
376
641


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									84


			Notes to Condensed Consolidated Financial Statements \| Investments in Securities

The following tables display the amortized cost, allowance for credit losses, gross unrealized gains and losses in accumulated other comprehensive income (loss) (“AOCI”), and fair value by major security type for AFS securities.


	As of March 31, 2020
	Total Amortized Cost⁽¹⁾					Allowance for Credit Losses			Gross Unrealized Gains in AOCI	Gross Unrealized Losses in AOCI				Total Fair Value⁽¹⁾
	(Dollars in millions)
Fannie Mae		$	1,393	$	—		$	123		$	(11)	$	1,505
Other agency⁽²⁾		171		—			19			—		190
Alt-A and subprime private-label securities		4		—			3			—		7

Mortgage revenue bonds		291		(3)			9			(1)		296
Other mortgage-related securities		288		—			3			—		291
Total		$	2,147	$	(3)		$	157		$	(12)	$	2,289


	As of June 30, 2019													As of December 31, 2019
	Total Amortized Cost⁽¹⁾			Gross Unrealized Gains			Gross Unrealized Losses⁽²⁾				Total Fair Value			Total Amortized Cost⁽¹⁾⁽³⁾					Gross Unrealized Gains			Gross Unrealized Losses			Total Fair Value⁽¹⁾
	(Dollars in millions)													(Dollars in millions)
Fannie Mae		$	1,536		$	90		$	(11	)	$	1,615	Fannie Mae		$	1,445	$	85		$	(10)		$	1,520
Other agency		209			19			—			228
Other agency⁽²⁾													Other agency⁽²⁾		183		15			—			198
Alt-A and subprime private-label securities		109			111			—			220		Alt-A and subprime private-label securities		34		23			—			57
Mortgage revenue bonds		356			11			(3		)	364		Mortgage revenue bonds		309		9			(3)			315
Other mortgage-related securities		329			5			—			334		Other mortgage-related securities		310		5			(1)			314
Total		$	2,539		$	236		$	(14	)	$	2,761	Total		$	2,281	$	137		$	(14)		$	2,404

⁽¹⁾We exclude from amortized cost and fair value accrued interest of $8 million and $10 million as of March 31, 2020 and December 31, 2019, respectively, which we record in “Other assets” in our condensed consolidated balance sheets.

As of December 31, 2018

Total Amortized Cost⁽¹⁾
Gross Unrealized Gains
Gross Unrealized Losses⁽²⁾
Total Fair Value
(Dollars in millions)
Fannie Mae $ 1,754
$ 69
$ (26 ) $ 1,797
Other agency 239
17
—
256
Alt-A and subprime private-label securities 325
267
—
592
Mortgage revenue bonds 425
13
(4 ) 434
Other mortgage-related securities 336
14
—
350
Total $ 3,079
$ 380
$ (30 ) $ 3,429
⁽²⁾Other agency securities consist of securities issued by Freddie Mac and Ginnie Mae.


⁽¹⁾	Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, as well as net other-than-temporary impairments (“OTTI”) recognized in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income.


⁽²⁾	Represents the gross unrealized losses on securities for which we have not recognized OTTI, as well as the noncredit component of OTTI and cumulative changes in fair value of securities for which we previously recognized the credit component of OTTI in “Accumulated other comprehensive income” in our condensed consolidated balance sheets.

⁽³⁾Prior to our adoption of the CECL standard, total amortized cost represented the unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, as well as temporary impairments recognized in “Investment gains, net” in our consolidated statements of operations and comprehensive income.

Fannie Mae and Other Agency Securities

Our Fannie Mae and other agency AFS securities consist of securities issued by us, Freddie Mac, or Ginnie Mae. The principal and interest on these securities are guaranteed by the issuing agency. We believe that the guaranty provided by the issuing agency, the support provided to the agencies by the U.S. government, the importance of the agencies to the liquidity and stability in the secondary mortgage market, and the long history of zero credit losses on agency mortgage-related securities are all indicators that there are not currently credit losses on these securities, even if the security is in an unrealized loss position. In addition, we generally hold these securities that are in an unrealized loss position to recovery. As a result, unless we intend to sell the security, we do not recognize an allowance for credit losses on agency mortgage-related securities.

Non-Agency Mortgage-Related Securities

As of March 31, 2020, substantially all of our non-agency mortgage-related securities were in an unrealized gain position. As a result, we have not recognized an allowance for credit losses on these securities.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	75	85



			Notes to Condensed Consolidated Financial Statements \| Investments in Securities

The following tables display additional information regarding gross unrealized losses and fair value by major security type for AFS securities in an unrealized loss ~~position.~~position, excluding allowance for credit losses.

As of June 30, 2019
Less Than 12 Consecutive Months 12 Consecutive Months or Longer
Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value
(Dollars in millions)
Fannie Mae $ —
$ —
$ (11 ) $ 366
Mortgage revenue bonds —
—
(3 ) 5
Total $ —
$ —
$ (14 ) $ 371

As of December 31, 2018
Less Than 12 Consecutive Months 12 Consecutive Months or Longer
Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value
(Dollars in millions)
Fannie Mae $ —
$ —
$ (26 ) $ 487
Mortgage revenue bonds (1 ) 24
(3 ) 19
Total $ (1 ) $ 24
$ (29 ) $ 506


	As of March 31, 2020
	Less Than 12 Consecutive Months									12 Consecutive Months or Longer
	Gross Unrealized Losses in AOCI					Fair Value			Gross Unrealized Losses in AOCI			Fair Value
	(Dollars in millions)
Fannie Mae		$	(1)	$	66		$	(10)		$	105
Mortgage revenue bonds		(1)		22			—			—

Total		$	(2)	$	88		$	(10)		$	105

	As of December 31, 2019
	Less Than 12 Consecutive Months									12 Consecutive Months or Longer
	Gross Unrealized Losses					Fair Value			Gross Unrealized Losses			Fair Value
	(Dollars in millions)
Fannie Mae		$	—	$	—		$	(10)		$	337
Mortgage revenue bonds		—		—			(3)			3
Other mortgage-related securities		(1)		130			—			—
Total		$	(1)	$	130		$	(13)		$	340

~~Other-Than-Temporary Impairments~~

The cumulative outstanding balance related to other-than-temporary-impairment (OTTI) credit loss amounts previously recognized in our condensed consolidated statements of operations and comprehensive income throughout the life of AFS debt securities held in portfolio were $57 million and $635 million as of June 30, 2019 and December 31, 2018, respectively. Those amounts were $733 million and $1.1 billion as of June 30, 2018 and December 31, 2017, respectively. The decrease in the cumulative outstanding balance in the first six months of 2019 and 2018 was primarily driven by securities that we no longer hold in portfolio.

The following table displays the gross realized gains and proceeds on sales of AFS securities.


		For the Three Months Ended March 31,

		2020		2019
	(Dollars in millions)
Gross realized gains		$	21	$	61

Total proceeds (excludes initial sale of securities from new portfolio securitizations)		50		131

The following tables display net unrealized gains on AFS securities and other amounts accumulated within our accumulated other comprehensive income, ~~(“AOCI”),~~ net of ~~tax, by major categories.~~

As of
June 30, December 31,
2019 2018
(Dollars in millions)
Net unrealized gains on AFS securities for which we have not recorded OTTI $ 80
$ 52

Net unrealized gains on AFS securities for which we have recorded OTTI 95
224

Other 41
46

Accumulated other comprehensive income $ 216
$ 322

tax.


		As of
		March 31, 2020
		(Dollars in millions)
Net unrealized gains on AFS securities for which we have not recorded an allowance for credit losses		$	115

~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~Other	76	31
Accumulated other comprehensive income		$	146


	As of
	December 31, 2019
	(Dollars in millions)
Net unrealized gains on AFS securities for which we have not recorded OTTI	$	97

Other	34
Accumulated other comprehensive income	$	131

Prior to our adoption of the CECL standard on January 1, 2020, we evaluated AFS securities for other-than-temporary impairment. The balance of the unrealized credit-loss component of AFS securities held by us and recognized in our consolidated statements of operations and comprehensive income was $36 million as of December 31, 2019.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									86


			Notes to Condensed Consolidated Financial Statements \| Investments in Securities

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining contractual maturity, assuming no principal prepayments. The contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any time.


	As of March 31, 2020
	Total Carrying Amount ⁽¹⁾					Total Fair Value			One Year or Less							After One Year Through Five Years									After Five Years Through Ten Years				After Ten Years
										Net Carrying Amount ⁽¹⁾				Fair Value		Net Carrying Amount ⁽¹⁾					Fair Value			Net Carrying Amount ⁽¹⁾			Fair Value	Net Carrying Amount ⁽¹⁾		Fair Value
	(Dollars in millions)
Fannie Mae		$	1,393	$	1,505		$	—		$	—	$	14	$	14		$	96	$	109		$	1,283		$	1,382
Other agency		171		190			—			—		16		17			23		25			132			148
Alt-A and subprime private-label securities		4		7			—			—		—		—			2		3			2			4

Mortgage revenue bonds		288		296			2			2		30		32			27		28			229			234
Other mortgage-related securities		288		291			—			—		—		—			23		24			265			267
Total		$	2,144	$	2,289		$	2		$	2	$	60	$	63		$	171	$	189		$	1,911		$	2,035

As of June 30, 2019
Total Amortized Cost
Total
Fair
Value
One Year or Less After One Year Through Five Years After Five Years Through Ten Years After Ten Years
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
(Dollars in millions)
Fannie Mae $ 1,536
$ 1,615
$ —
$ —
$ 15
$ 15
$ 104
$ 115
$ 1,417
$ 1,485
Other agency 209
228
—
—
22
24
25
28
162
176
Alt-A and subprime private-label securities 109
220
—
—
—
—
1
1
108
219
Mortgage revenue bonds 356
364
2
2
24
24
43
45
287
293
Other mortgage-related securities 329
334
—
—
—
—
26
28
303
306
Total $ 2,539
$ 2,761
$ 2
$ 2
$ 61
$ 63
$ 199
$ 217
$ 2,277
$ 2,479

⁽¹⁾
Net carrying amount consists of book value, net of allowance for credit losses on AFS debt securities.

6. Financial Guarantees

We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily relating to the unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees. The maximum remaining contractual ~~terms~~term of our guarantees ~~range from 1 day to~~is 33 years; however, the actual term of each guaranty may be significantly less than the contractual term based on the prepayment characteristics of the related mortgage loans. With our adoption of the CECL standard on January 1, 2020, we measure our guaranty reserve for estimated credit losses for off-balance sheet exposures over the contractual period for which they are exposed to the credit risk, unless that obligation is unconditionally cancellable by the issuer.

As the guarantor of ~~commingled~~ structured securities ~~issued pursuant to the Single Security Initiative,~~backed in whole or in part by Freddie Mac-issued securities, we extend our guaranty to the underlying Freddie Mac securities in our resecuritization trusts. However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. ~~Due~~When we began issuing UMBS in June 2019, we entered into an indemnification agreement under which Freddie Mac agreed to indemnify us for losses caused by its failure to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying resecuritized securities were issued. As a result, and due to the funding commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury, we have concluded that the associated credit risk is negligible. As such, we exclude from the following table ~~approximately $7.7 billion of~~ Freddie Mac securities backing unconsolidated Fannie Mae-issued structured securities of approximately $72.7 billion and $50.1 billion as of ~~June 30, 2019.~~March 31, 2020 and December 31, 2019, respectively.

The following table displays our off-balance sheet maximum exposure, guaranty obligation recognized in our condensed consolidated balance sheets and the potential maximum recovery from third parties through available credit enhancements and recourse related to our financial guarantees.


	As of
	March 31, 2020										December 31, 2019
	Maximum Exposure		Guaranty Obligation		Maximum Recovery⁽¹⁾		Maximum Exposure		Guaranty Obligation		Maximum Recovery⁽¹⁾
	(Dollars in millions)
Unconsolidated Fannie Mae MBS	$	5,487	$	18	$	5,244	$	5,801	$	26	$	5,545
Other guaranty arrangements⁽²⁾	12,399		123		2,495		12,670		128		2,553
Total	$	17,886	$	141	$	7,739	$	18,471	$	154	$	8,098

As of
June 30, 2019 December 31, 2018
Maximum Exposure Guaranty Obligation
Maximum Recovery⁽¹⁾
Maximum Exposure Guaranty Obligation
Maximum Recovery⁽¹⁾
(Dollars in millions)
Unconsolidated Fannie Mae MBS $ 6,761
$ 26
$ 6,440
$ 7,278
$ 30
$ 6,811
Other guaranty arrangements⁽²⁾
13,420
140
2,645
13,847
130
2,711
Total $ 20,181
$ 166
$ 9,085
$ 21,125
$ 160
$ 9,522
⁽¹⁾Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurers’ and financial guarantors’ ability to meet their obligations to us. For information on our mortgage insurers, see “Note 10, Concentrations of Credit Risk.”


⁽¹⁾ ⁽²⁾Primarily consists of credit enhancements and long-term standby commitments.	Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurers’ and financial guarantors’ ability to meet their obligations to us. For information on our mortgage insurers and financial guarantors, see “Note 13, Concentrations of Credit Risk” in our 2018 Form 10-K and “Note 10, Concentrations of Credit Risk” in this report.


⁽²⁾	~~Primarily consists of credit enhancements and long-term standby commitments.~~



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	77	87



			Notes to Condensed Consolidated Financial Statements \| Short-Term and Long-Term Debt

7. Short-Term and Long-Term Debt

Short-Term Debt

The following table displays our outstanding short-term debt (debt with an original contractual maturity of one year or less) and weighted-average interest rates of this debt.


	As of
	March 31, 2020						December 31, 2019
	Outstanding		Weighted- Average Interest Rate⁽¹⁾		Outstanding		Weighted- Average Interest Rate⁽¹⁾
	(Dollars in millions)
Federal funds purchased and securities sold under agreements to repurchase⁽²⁾	$	—	—	%	$	478	1.67	%
Short-term debt of Fannie Mae	58,337		0.71		26,662		1.56

As of
June 30, 2019 December 31, 2018
Outstanding
Weighted- Average Interest Rate⁽¹⁾
Outstanding
Weighted- Average Interest Rate⁽¹⁾

(Dollars in millions)
Federal funds purchased and securities sold under agreements to repurchase⁽²⁾
$ 131
2.25 % $ —
— %

Short-term debt of Fannie Mae $ 22,901
2.39 % $ 24,896
2.29 %
⁽¹⁾Includes the effects of discounts, premiums and other cost basis adjustments.


⁽¹⁾ ⁽²⁾Represents agreements to repurchase securities for a specified price, with repayment generally occurring on the following day, reported as “Other liabilities” in our condensed consolidated balance sheets.	~~Includes the effects of discounts, premiums and other cost basis adjustments.~~


⁽²⁾	~~Represents agreements to repurchase securities for a specified price, with repayment generally occurring on the following~~

~~day.~~

Intraday Line of Credit

We use a secured intraday funding line of credit provided by a large financial institution. We post collateral which, in some circumstances, the secured party has the right to repledge to third parties. As this line of credit is an uncommitted intraday loan facility, we may be unable to draw on it if and when needed. The line of credit under this facility was up to $15.0 billion as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Long-Term Debt

Long-term debt represents debt with an original contractual maturity of greater than one year. The following table displays our outstanding long-term debt.


	As of
	March 31, 2020								December 31, 2019
	Maturities	Outstanding		Weighted- Average Interest Rate⁽¹⁾		Maturities	Outstanding		Weighted- Average Interest Rate⁽¹⁾
	(Dollars in millions)
Senior fixed:
Benchmark notes and bonds	2020 - 2030	$	83,115	2.70	%	2020 - 2030	$	86,114	2.66	%
Medium-term notes⁽²⁾	2020 - 2026	22,919		1.59		2020 - 2026	32,590		1.57
Other⁽³⁾	2020 - 2038	4,080		5.47		2020 - 2038	5,254		5.01
Total senior fixed		110,114		2.57			123,958		2.47
Senior floating:
Medium-term notes⁽²⁾	2020 - 2022	40,078		0.54		2020 - 2021	9,774		1.66
Connecticut Avenue Securities⁽⁴⁾	2023 - 2031	19,470		5.42		2023 - 2031	21,424		5.61
Other⁽⁵⁾	2020 - 2037	432		7.37		2020 - 2037	398		6.27
Total senior floating		59,980		2.17			31,596		4.40

Secured borrowings⁽⁶⁾	2021 - 2022	27		2.60		2021 - 2022	31		2.31
Total long-term debt of Fannie Mae⁽⁷⁾		170,121		2.43			155,585		2.86
Debt of consolidated trusts	2020 - 2059	3,334,098		2.78		2020 - 2059	3,285,139		2.78
Total long-term debt		$	3,504,219	2.76	%		$	3,440,724	2.78	%

As of
June 30, 2019 December 31, 2018
Maturities Outstanding
Weighted- Average Interest Rate⁽¹⁾
Maturities Outstanding
Weighted- Average Interest Rate⁽¹⁾
(Dollars in millions)
Senior fixed:
Benchmark notes and bonds 2019 - 2030 $ 97,884
2.56 % 2019 - 2030 $ 103,206
2.36 %
Medium-term notes⁽²⁾
2019 - 2026 51,345
1.53
2019 - 2026 61,455
1.48
Other⁽³⁾
2019 - 2038 6,621
4.80
2019 - 2038 6,683
4.62
Total senior fixed 155,850
2.31
171,344
2.13
Senior floating:
Medium-term notes⁽²⁾
2020 7,773
2.50
2019 - 2020 4,174
2.36
Connecticut Avenue Securities⁽⁴⁾
2023 - 2031 24,210
6.12
2023 - 2031 25,641
5.97
Other⁽⁵⁾
2020 - 2037 398
6.37
2020 - 2037 351
10.19
Total senior floating 32,381
5.25
30,166
5.52
Subordinated debentures 2019 5,641
9.99
2019 5,617
9.64
Secured borrowings⁽⁶⁾
2021 - 2022 41
2.06
2021 - 2022 51
1.96
Total long-term debt of Fannie Mae⁽⁷⁾
193,913
3.03
207,178
2.83
Debt of consolidated trusts 2019 - 2058 3,199,765
2.90
2019 - 2058 3,159,846
3.03
Total long-term debt $ 3,393,678
2.91 % $ 3,367,024
3.02 %
⁽¹⁾Includes the effects of discounts, premiums and other cost basis adjustments.

⁽²⁾Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.

⁽³⁾Includes other long-term debt with an original contractual maturity of greater than 10 years and foreign exchange bonds.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	78	88



			Notes to Condensed Consolidated Financial Statements \| Short-Term and Long-Term Debt

⁽¹⁾⁽⁴⁾Credit risk-sharing securities that transfer a portion of the credit risk on specified pools of single-family mortgage loans to the investors in these securities, a portion of which is reported at fair value. Represents CAS issued prior to November 2018. See “Note 2, Consolidations and Transfers of Financial Assets” in our 2019 Form 10-K for more information about our CAS structures issued beginning November 2018.

~~Includes the effects of discounts, premiums and other cost basis adjustments.~~


⁽²⁾	~~Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.~~


⁽³⁾	~~Includes other long-term debt with an original contractual maturity of greater than 10 years and foreign exchange bonds.~~

⁽⁴⁾

Credit risk-sharing securities that transfer a portion of the credit risk on specified pools of single-family mortgage loans to the investors in these securities, a portion of which is reported at fair value. Represents Connecticut Avenue Securities issued prior to the implementation of our CAS REMIC structure in November 2018. See “Note 2, Consolidations and Transfers of Financial Assets” in our 2018 Form 10-K for more information about our CAS REMIC structure.


⁽⁵⁾	~~Consists of structured debt instruments that are reported at fair value.~~


⁽⁶⁾	Represents our remaining liability resulting from the transfer of financial assets from our condensed consolidated balance sheets that did not qualify as a sale under the accounting guidance for the transfer of financial instruments.


⁽⁷⁾	~~Includes unamortized discounts and premiums, other cost basis adjustments and fair value adjustments of $151 million and $413 million as of June 30, 2019 and December 31, 2018, respectively.~~

⁽⁵⁾Consists of structured debt instruments that are reported at fair value.

⁽⁶⁾Represents our remaining liability resulting from the transfer of financial assets from our condensed consolidated balance sheets that did not qualify as a sale under the accounting guidance for the transfer of financial instruments.

⁽⁷⁾Includes unamortized discounts and premiums, other cost basis adjustments and fair value adjustments of $586 million and $2 million as of March 31, 2020 and December 31, 2019, respectively.

8. Derivative Instruments

Derivative instruments are an integral part of our strategy in managing ~~interest rate~~interest-rate risk. Derivative instruments may be privately-negotiated, bilateral contracts, or they may be listed and traded on an exchange. We refer to our derivative transactions made pursuant to bilateral contracts as our over-the-counter (“OTC”) derivative transactions and our derivative transactions accepted for clearing by a derivatives clearing organization as our cleared derivative transactions. We typically do not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for calculating actual payments or settlement amounts. The derivative contracts we use for ~~interest rate~~interest-rate risk management purposes consist primarily of ~~interest rate~~interest-rate swaps and ~~interest rate~~interest-rate options. See “Note 8, Derivative Instruments” in our 2019 Form 10-K for additional information on interest-rate risk management.

We ~~enter into various~~account for certain forms of credit ~~risk-sharing agreements that we account for~~risk transfer transactions as ~~derivatives, including some of~~derivatives. In our credit risk transfer transactions, ~~and swap credit enhancements. The majority of our credit-related derivatives are credit risk transfer transactions, whereby~~ a portion of the credit risk associated with losses on a reference pool of mortgage loans is transferred to a third party. ~~Additionally, we~~We enter into derivative transactions that are associated with some of our ~~other~~ credit risk transfer transactions, whereby we manage investment risk to guarantee that certain unconsolidated VIEs have sufficient cash flows to pay their contractual obligations.

We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional amount of our mortgage commitments that are accounted for as derivatives.

We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a trade date basis. Fair value amounts, which are (1) netted to the extent a legal right of offset exists and is enforceable by law at the counterparty level and ~~are~~(2) inclusive of the right or obligation associated with the cash collateral posted or received, are recorded in “Other assets” or “Other liabilities” in our condensed consolidated balance sheets. See “Note 12, Fair Value” for additional information on derivatives recorded at fair value. We present cash flows from derivatives as operating activities in our condensed consolidated statements of cash flows.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	79	89



			Notes to Condensed Consolidated Financial Statements \| Derivative Instruments

Notional and Fair Value Position of our Derivatives

The following table displays the notional amount and estimated fair value of our asset and liability derivative instruments.


	As of March 31, 2020														As of December 31, 2019
	Asset Derivatives						Liability Derivatives						Asset Derivatives				Liability Derivatives
	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
	(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed	$	50,946	$	—	$	29,603	$	(1,930)	$	41,052	$	—	$	29,178	$	(970)
Receive-fixed	94,704		1,151		9,854		(2)		73,579		816		26,382		(62)
Basis	273		205		—		—		273		149		—		—
Foreign currency	215		29		217		(93)		229		39		232		(65)
Swaptions:
Pay-fixed	4,600		7		5,875		(328)		4,600		18		6,375		(219)
Receive-fixed	6,625		619		350		(130)		2,875		106		4,600		(232)
Futures⁽¹⁾	53,742		—		—		—		20,507		—		—		—
Total gross risk management derivatives	211,105		2,011		45,899		(2,483)		143,115		1,128		66,767		(1,548)
Accrued interest receivable (payable)	—		195		—		(310)		—		226		—		(250)
Netting adjustment⁽²⁾	—		(2,137)		—		2,607		—		(1,288)		—		1,694
Total net risk management derivatives	$	211,105	$	69	$	45,899	$	(186)	$	143,115	$	66	$	66,767	$	(104)
Mortgage commitment derivatives:
Mortgage commitments to purchase whole loans	$	31,152	$	413	$	10,452	$	(56)	$	7,115	$	15	$	1,787	$	(1)
Forward contracts to purchase mortgage-related securities	103,770		2,153		10,936		(36)		55,531		137		9,560		(28)
Forward contracts to sell mortgage-related securities	20,070		99		177,213		(3,502)		9,282		13		109,066		(277)
Total mortgage commitment derivatives	154,992		2,665		198,601		(3,594)		71,928		165		120,413		(306)
Credit enhancement derivatives	26,897		37		12,312		(29)		28,432		40		9,486		(25)
Derivatives at fair value	$	392,994	$	2,771	$	256,812	$	(3,809)	$	243,475	$	271	$	196,666	$	(435)

As of June 30, 2019 As of December 31, 2018
Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives
Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value
(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed $ 58,357
$ 4
$ 31,468
$ (1,327 ) $ 71,416
$ 438
$ 21,253
$ (740 )
Receive-fixed 91,919
1,096
47,254
(210 ) 88,799
1,113
58,399
(860 )
Basis 273
155
—
—
250
104
624
—
Foreign currency 220
30
222
(77 ) 221
22
223
(72 )
Swaptions:
Pay-fixed 4,600
29
6,375
(172 ) 10,375
191
1,000
(4 )
Receive-fixed 2,125
90
5,350
(232 ) 500
20
7,375
(338 )
Futures⁽¹⁾
19,537
—
—
—
16,631
—
—
—
Total gross risk management derivatives 177,031
1,404
90,669
(2,018 ) 188,192
1,888
88,874
(2,014 )
Accrued interest receivable (payable) —
360
—
(359 ) —
400
—
(419 )
Netting adjustment⁽²⁾
—
(1,709 ) —
2,297
—
(2,266 ) —
2,315
Total net risk management derivatives $ 177,031
$ 55
$ 90,669
$ (80 ) $ 188,192
$ 22
$ 88,874
$ (118 )
Mortgage commitment derivatives:
Mortgage commitments to purchase whole loans $ 9,767
$ 54
$ 2,417
$ (2 ) $ 4,370
$ 29
$ 57
$ —
Forward contracts to purchase mortgage-related securities 78,510
389
10,000
(11 ) 40,650
349
1,045
(3 )
Forward contracts to sell mortgage-related securities 10,230
12
131,017
(675 ) 292
1
70,593
(645 )
Total mortgage commitment derivatives 98,507
455
143,434
(688 ) 45,312
379
71,695
(648 )
Credit enhancement derivatives 31,809
51
4,647
(31 ) 33,431
57
919
(11 )
Derivatives at fair value $ 307,347
$ 561
$ 238,750
$ (799 ) $ 266,935
$ 458
$ 161,488
$ (777 )
⁽¹⁾Futures have no ascribable fair value because the positions are settled daily.

⁽¹⁾

⁽²⁾The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $1.4 billion and $1.0 billion as of March 31, 2020 and December 31, 2019, respectively. Cash collateral received was $896 million and $635 million as of March 31, 2020 and December 31, 2019, respectively.

~~Futures have no ascribable fair value because the positions are settled daily.~~

⁽²⁾

The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $1.2 billion and $713 million as of June 30, 2019 and December 31, 2018, respectively. Cash collateral received was $573 million and $664 million as of June 30, 2019 and December 31, 2018, respectively.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	80	90



			Notes to Condensed Consolidated Financial Statements \| Derivative Instruments

We record all derivative gains and losses, including accrued interest, in “Fair value ~~gains (losses),~~losses, net” in our condensed consolidated statements of operations and comprehensive income. The following table displays, by type of derivative instrument, the fair value gains and losses, net on our derivatives.

For the Three Months Ended June 30, For the Six Months Ended June 30,

2019 2018 2019 2018
(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed $ (2,164 ) $ 967
$ (3,499 ) $ 3,750
Receive-fixed 1,884
(597 ) 3,165
(2,984 )
Basis 27
(3 ) 51
(26 )
Foreign currency (17 ) (41 ) 2
(25 )
Swaptions:
Pay-fixed (143 ) 36
(320 ) 165
Receive-fixed 93
(22 ) 100
(38 )
Futures 195
(11 ) 254
(3 )
Net accrual of periodic settlements (242 ) (286 ) (508 ) (501 )
Total risk management derivatives fair value gains (losses), net (367 ) 43
(755 ) 338
Mortgage commitment derivatives fair value gains (losses), net (469 ) (76 ) (769 ) 488
Credit enhancement derivatives fair value losses, net (17 ) (5 ) (24 ) (1 )
Total derivatives fair value gains (losses), net $ (853 ) $ (38 ) $ (1,548 ) $ 825


	For the Three Months Ended March 31,

	2020		2019
	(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed	$	(4,029)	$	(1,335)
Receive-fixed	3,343		1,281
Basis	56		24
Foreign currency	(38)		19
Swaptions:
Pay-fixed	(148)		(177)
Receive-fixed	632		7
Futures	(71)		59
Net contractual interest expense on interest-rate swaps	(106)		(266)
Total risk management derivatives fair value losses, net	(361)		(388)
Mortgage commitment derivatives fair value losses, net	(993)		(300)
Credit enhancement derivatives fair value losses, net	(11)		(7)
Total derivatives fair value losses, net	$	(1,365)	$	(695)

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to ~~interest rate~~interest-rate derivative contracts. We are exposed to the risk that a counterparty in a derivative transaction will default on payments due to us, which may require us to seek a replacement derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable replacement. We manage our derivative counterparty credit exposure relating to our risk management derivative transactions mainly through enforceable master netting arrangements, which allow us to net derivative assets and liabilities with the same counterparty or clearing organization and clearing member. For our OTC derivative transactions, we require counterparties to post collateral, which may include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.

See “Note 11, Netting Arrangements” for information on our rights to offset assets and ~~liabilities.~~liabilities as of March 31, 2020 and December 31, 2019.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									91


			Notes to Condensed Consolidated Financial Statements \| Segment Reporting

9. Segment Reporting

We have two reportable business segments: Single-Family and Multifamily. Results of our two business segments are intended to reflect each segment as if it were a stand-alone business. The sum of the results for our two business segments equals our condensed consolidated results of operations.

Segment Allocations and Results

The majority of our revenues and expenses are directly associated with ~~either our single-family or our multifamily~~each respective business segment and are included in determining ~~that segment’s~~its operating results. ~~Other~~Those revenues and ~~expenses, including administrative~~ expenses that are not directly attributable to a particular business segment are allocated based on the size of each segment’s guaranty book of business. The substantial majority of the gains and losses associated with our risk management derivatives are allocated to our ~~single-family~~Single-Family business segment.



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		81



	~~Notes to Condensed Consolidated Financial Statements \| Segment Reporting~~

The following table displays our segment results.


	For the Three Months Ended March 31,
	2020										2019
	Single-Family		Multifamily		Total		Single-Family		Multifamily		Total
	(Dollars in millions)
Net interest income⁽¹⁾	$	4,541	$	806	$	5,347	$	4,039	$	757	$	4,796
Fee and other income⁽²⁾	152		156		308		106		28		134
Net revenues	4,693		962		5,655		4,145		785		4,930
Investment gains (losses), net⁽³⁾	(152)		(6)		(158)		94		39		133
Fair value gains (losses), net⁽⁴⁾	(460)		184		(276)		(887)		56		(831)
Administrative expenses	(629)		(120)		(749)		(631)		(113)		(744)
Credit-related income (expense)⁽⁵⁾
Benefit (provision) for credit losses	(2,172)		(411)		(2,583)		661		(11)		650
Foreclosed property income (expense)	(78)		(2)		(80)		(143)		3		(140)
Total credit-related income (expense)	(2,250)		(413)		(2,663)		518		(8)		510
TCCA fees⁽⁶⁾	(637)		—		(637)		(593)		—		(593)
Credit enhancement expense⁽⁷⁾	(312)		(19)		(331)		(167)		(4)		(171)
Other expenses, net	(167)		(96)		(263)		(170)		(37)		(207)
Income before federal income taxes	86		492		578		2,309		718		3,027
Provision for federal income taxes	(18)		(99)		(117)		(484)		(143)		(627)
Net income	$	68	$	393	$	461	$	1,825	$	575	$	2,400

For the Three Months Ended June 30,
2019 2018
Single-Family Multifamily Total Single-Family Multifamily Total
(Dollars in millions)
Net interest income⁽¹⁾
$ 4,419
$ 731
$ 5,150
$ 4,723
$ 654
$ 5,377
Fee and other income⁽²⁾
88
158
246
69
170
239
Net revenues 4,507
889
5,396
4,792
824
5,616
Investment gains, net⁽³⁾
417
44
461
252
25
277
Fair value gains (losses), net⁽⁴⁾
(758 ) 4
(754 ) 278
(49 ) 229
Administrative expenses (634 ) (110 ) (744 ) (649 ) (106 ) (755 )
Credit-related income (expense)⁽⁵⁾

Benefit (provision) for credit losses 1,252
(27 ) 1,225
1,295
1
1,296
Foreclosed property expense (126 ) (2 ) (128 ) (136 ) (3 ) (139 )
Total credit-related income (expense) 1,126
(29 ) 1,097
1,159
(2 ) 1,157
TCCA fees⁽⁶⁾
(600 ) —
(600 ) (565 ) —
(565 )
Other expenses, net (418 ) (117 ) (535 ) (270 ) (96 ) (366 )
Income before federal income taxes 3,640
681
4,321
4,997
596
5,593
Provision for federal income taxes (769 ) (120 ) (889 ) (1,044 ) (92 ) (1,136 )
Net income $ 2,871
$ 561
$ 3,432
$ 3,953
$ 504
$ 4,457
⁽¹⁾Net interest income primarily consists of guaranty fees received as compensation for assuming and managing the credit risk on loans underlying Fannie Mae MBS held by third parties for the respective business segment, and the difference between the interest income earned on the respective business segment’s mortgage assets in our retained mortgage portfolio and the interest expense associated with the debt funding those assets. Revenues from single-family guaranty fees include revenues generated by the 10 basis point increase in guaranty fees pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.

For the Six Months Ended June 30,
2019 2018
Single-Family Multifamily Total Single-Family Multifamily Total
(Dollars in millions)
Net interest income⁽¹⁾
$ 8,458
$ 1,425
$ 9,883
$ 9,284
$ 1,325
$ 10,609
Fee and other income⁽²⁾
194
279
473
227
332
559
Net revenues 8,652
1,704
10,356
9,511
1,657
11,168
Investment gains, net⁽³⁾
511
83
594
494
33
527
Fair value gains (losses), net⁽⁴⁾
(1,645 ) 60
(1,585 ) 1,312
(38 ) 1,274
Administrative expenses (1,265 ) (223 ) (1,488 ) (1,292 ) (213 ) (1,505 )
Credit-related income (expense)⁽⁵⁾

Benefit (provision) for credit losses 1,913
(38 ) 1,875
1,491
22
1,513
Foreclosed property income (expense) (269 ) 1
(268 ) (298 ) (3 ) (301 )
Total credit-related income (expense) 1,644
(37 ) 1,607
1,193
19
1,212
TCCA fees⁽⁶⁾
(1,193 ) —
(1,193 ) (1,122 ) —
(1,122 )
Other expenses, net (755 ) (188 ) (943 ) (402 ) (167 ) (569 )
Income before federal income taxes 5,949
1,399
7,348
9,694
1,291
10,985
Provision for federal income taxes (1,253 ) (263 ) (1,516 ) (2,060 ) (207 ) (2,267 )
Net income $ 4,696
$ 1,136
$ 5,832
$ 7,634
$ 1,084
$ 8,718

⁽²⁾
Single-Family fee and other income primarily consists of compensation for engaging in structured transactions and providing other lender services. Multifamily fee and other income consists of the benefit or costs associated with freestanding credit enhancements and fees associated with Multifamily business activities.

⁽¹⁾

⁽³⁾Investment gains and losses primarily consist of gains and losses on the sale of mortgage assets for the respective business segment.

⁽⁴⁾Single-Family fair value gains and losses primarily consist of fair value gains and losses on risk management and mortgage commitment derivatives, trading securities, fair value option debt, and other financial instruments associated with our single-family guaranty book of business. Multifamily fair value gains and losses primarily consist of fair value gains and losses on MBS commitment derivatives, trading securities and other financial instruments associated with our multifamily guaranty book of business.

⁽⁵⁾Credit-related income or expense is based on the guaranty book of business of the respective business segment and consists of the applicable segment’s benefit or provision for credit losses and foreclosed property income or expense on loans underlying the segment’s guaranty book of business. The presentation of our credit-related income or expense for the three months ended March 31, 2019 represents amounts recognized prior to our transition to the lifetime loss model prescribed by the CECL standard.

⁽⁶⁾Consists of the portion of our single-family guaranty fees that is remitted to Treasury pursuant to the TCCA.

⁽⁷⁾Single-family credit enhancement expense primarily consists of costs associated with our CIRT, CAS and EPMI programs. Multifamily credit enhancement expense primarily consists of costs associated with our MCIRT and MCAS programs.

Net interest income primarily consists of guaranty fees received as compensation for assuming and managing the credit risk on loans underlying Fannie Mae MBS held by third parties for the respective business segment, and the difference between the interest income earned on the respective business segment’s mortgage assets in our retained mortgage portfolio and the interest expense associated with the debt funding those assets. Revenues from single-family guaranty fees include revenues generated by the 10 basis point increase in guaranty fees pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	82	92



			~~Notes to Condensed Consolidated Financial Statements \| Segment Reporting~~

⁽²⁾

Single-Family fee and other income primarily consists of compensation for engaging in structured transactions and providing other lender services, and income resulting from settlement agreements resolving certain claims relating to private-label securities we purchased or that we have guaranteed. Multifamily fee and other income consists of fees associated with Multifamily business activities, including yield maintenance income.


⁽³⁾	~~Investment gains and losses primarily consist of gains and losses on the sale of mortgage assets for the respective business segment.~~

⁽⁴⁾

Single-Family fair value gains and losses primarily consist of fair value gains and losses on risk management and mortgage commitment derivatives, trading securities and other financial instruments associated with our single-family guaranty book of business. Multifamily fair value gains and losses primarily consist of fair value gains and losses on MBS commitment derivatives, trading securities and other financial instruments associated with our multifamily guaranty book of business.


⁽⁵⁾	Credit-related income or expense is based on the guaranty book of business of the respective business segment and consists of the applicable segment’s benefit or provision for credit losses and foreclosed property income or expense on loans underlying the segment’s guaranty book of business.


⁽⁶⁾	~~Consists of the portion of our single-family guaranty fees that is remitted to Treasury pursuant to the TCCA.~~



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		83



	Notes to Condensed Consolidated Financial Statements \| Concentrations of Credit Risk

10. Concentrations of Credit Risk

Risk Characteristics of our Guaranty Book of Business

One of the ~~key~~ measures by which we gauge our performance risk is the delinquency status of the mortgage loans in our guaranty book of business.

For single-family and multifamily loans, we use this information, in conjunction with housing market and economic conditions, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with ~~these~~ higher-risk characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product categories. Management also uses this data together with other credit risk measures to identify key trends that guide the development of our loss mitigation strategies.

Single-Family ~~credit risk characteristics~~Credit Risk Characteristics

For single-family loans, management monitors the serious delinquency rate, which is the percentage of single-family loans, based on the number of loans that are 90 days or more past due or in the foreclosure process, and loans that have higher risk characteristics, such as high mark-to-market LTV ratios.

The following tables display the delinquency status and serious delinquency rates for specified loan categories of our single-family conventional guaranty book of business.

As of

June 30, 2019⁽¹⁾

December 31, 2018⁽¹⁾
30 Days Delinquent 60 Days Delinquent
Seriously Delinquent⁽²⁾
30 Days Delinquent 60 Days Delinquent
Seriously Delinquent⁽²⁾
Percentage of single-family conventional guaranty book of business⁽³⁾
1.27 % 0.30 % 0.64 % 1.17 % 0.32 % 0.69 %
Percentage of single-family conventional loans⁽⁴⁾
1.47
0.35
0.70
1.37
0.38
0.76


	As of
	March 31, 2020										December 31, 2019
	30 Days Delinquent		60 Days Delinquent		Seriously Delinquent⁽¹⁾		30 Days Delinquent		60 Days Delinquent		Seriously Delinquent⁽¹⁾
Percentage of single-family conventional guaranty book of business based on UPB	1.16	%	0.27	%	0.59	%	1.07	%	0.29	%	0.59	%
Percentage of single-family conventional loans based on loan count	1.31		0.32		0.66		1.27		0.35		0.66


	As of
	March 31, 2020				December 31, 2019
	Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB	Seriously Delinquent Rate⁽¹⁾		Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB	Seriously Delinquent Rate⁽¹⁾
Estimated mark-to-market LTV ratio:
Greater than 100%	*	10.06	%	*	10.14	%
Geographical distribution:
California	19	0.33		19	0.32
Florida	6	0.83		6	0.84
Illinois	4	0.91		4	0.91
New Jersey	3	1.13		3	1.13
New York	5	1.19		5	1.18
All other states	63	0.64		63	0.64
Product distribution:
Alt-A	1	2.95		2	2.95
Vintages:
2004 and prior	2	2.48		2	2.48
2005-2008	3	4.11		4	4.11
2009-2020	95	0.35		94	0.35

As of

June 30, 2019⁽¹⁾

December 31, 2018⁽¹⁾

Percentage of
Single-Family
Conventional
Guaranty Book of Business⁽³⁾

Seriously Delinquent Rate⁽²⁾

Percentage of
Single-Family
Conventional
Guaranty Book of Business⁽³⁾

Seriously Delinquent Rate⁽²⁾
Estimated mark-to-market LTV ratio:
Greater than 100% * 10.63 % * 9.85 %
Geographical distribution:
California 19 0.33
19 0.34
Florida 6 0.94
6 1.16
New Jersey 4 1.28
4 1.38
New York 5 1.32
5 1.40
All other states 66 0.69
66 0.75
Product distribution:
Alt-A 2 3.25
2 3.35
Vintages:
2004 and prior 3 2.61
3 2.69
2005-2008 4 4.45
5 4.61
2009-2019 93 0.32
92 0.34
* Represents less than 0.5% of single-family conventional guaranty book of business.


*	~~Represents less than 0.5% of single-family conventional business volume or book of business.~~


⁽¹⁾ ⁽¹⁾Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of March 31, 2020 or December 31, 2019.	Consists of the portion of our single-family conventional guaranty book of business for which we have detailed loan-level information, which constituted approximately 99% of our single-family conventional guaranty book of business as of June 30, 2019 and December 31, 2018.


⁽²⁾	~~Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of June 30, 2019 or December 31, 2018.~~



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	84	93



			Notes to Condensed Consolidated Financial Statements \| Concentrations of Credit Risk


⁽³⁾	Calculated based on the aggregate unpaid principal balance of single-family conventional loans for each category divided by the aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business.


⁽⁴⁾	~~Calculated based on the number of single-family conventional loans that were delinquent divided by the total number of loans in our single-family conventional guaranty book of business.~~

Multifamily ~~credit risk characteristics~~Credit Risk Characteristics

For multifamily loans, management monitors the serious delinquency rate, which is the percentage of multifamily loans, based on unpaid principal balance, that are 60 days or more past due, and other loans that have higher risk characteristics, to ~~determine our~~assess the overall credit quality ~~indicator.~~of our multifamily book of business. Higher risk characteristics include, but are not limited to, current ~~debt service coverage ratio (“DSCR”)~~DSCR below 1.0 and ~~high~~ original LTV ~~ratios.~~ratios greater than 80%. We stratify multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan.

The following tables display the delinquency status and serious delinquency rates for specified loan categories of our multifamily guaranty book of business.


	As of
	March 31, 2020⁽¹⁾						December 31, 2019⁽¹⁾
	30 Days Delinquent		Seriously Delinquent⁽²⁾		30 Days Delinquent		Seriously Delinquent⁽²⁾
Percentage of multifamily guaranty book of business	0.03	%	0.05	%	0.02	%	0.04	%

As of

June 30, 2019⁽¹⁾

December 31, 2018⁽¹⁾
30 Days Delinquent
Seriously Delinquent⁽²⁾
30 Days Delinquent
Seriously Delinquent⁽²⁾
Percentage of multifamily guaranty book of business 0.04 % 0.05 % 0.02 % 0.06 %


	As of
	March 31, 2020						December 31, 2019
	Percentage of Multifamily Guaranty Book of Business⁽¹⁾		Percentage Seriously Delinquent⁽²⁾⁽³⁾		Percentage of Multifamily Guaranty Book of Business⁽¹⁾		Percentage Seriously Delinquent⁽²⁾⁽³⁾
Original LTV ratio:
Greater than 80%	1	%	—	%	1	%	—	%
Less than or equal to 80%	99		0.05		99		0.04
Current DSCR below 1.0⁽⁴⁾	2		0.68		2		0.48

⁽¹⁾
Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid principal balance of loans in our multifamily guaranty book of business.

⁽²⁾Consists of multifamily loans that were 60 days or more past due as of the dates indicated.

As of
June 30, 2019 December 31, 2018

Percentage of Multifamily Guaranty Book of Business⁽¹⁾

Percentage Seriously Delinquent⁽²⁾⁽³⁾

Percentage of Multifamily Guaranty Book of Business⁽¹⁾

Percentage Seriously Delinquent⁽²⁾⁽³⁾
Original LTV ratio:
Greater than 80% 1 % — % 1 % — %
Less than or equal to 80% 99
0.05
99
0.06
Current DSCR below 1.0⁽⁴⁾
2
1.11
2
1.38
⁽³⁾Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid principal balance of multifamily loans for each category included in our multifamily guaranty book of business.


⁽⁴⁾Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range from 3 to 6 months but in some cases may be longer. For certain properties, we do not receive updated financial information. ⁽¹⁾	Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid principal balance of loans in our multifamily guaranty book of business.


⁽²⁾	~~Consists of multifamily loans that were 60 days or more past due as of the dates indicated.~~


⁽³⁾	Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid principal balance of multifamily loans for each category included in our multifamily guaranty book of business.


⁽⁴⁾	Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range from 3 to 6 months but in some cases may be longer.

Other Concentrations

Mortgage Insurers. Mortgage insurance “risk in force” refers to our maximum potential loss recovery under the applicable mortgage insurance policies in force and is generally based on the loan-level insurance coverage percentage and, if applicable, any aggregate pool loss limit, as specified in the policy.

The following table displays our total mortgage insurance risk in force by primary and pool insurance, as well as the total ~~risk in force~~risk-in-force mortgage insurance coverage as a percentage of the single-family conventional guaranty book of business.

As of
June 30, 2019 December 31, 2018
Risk in Force Percentage of Single-Family Guaranty Book of Business Risk in Force Percentage of Single-Family Guaranty Book of Business
(Dollars in millions)
Mortgage insurance risk in force:
Primary mortgage insurance $ 158,191
$ 152,379

Pool mortgage insurance 391
409

Total mortgage insurance risk in force $ 158,582
5% $ 152,788
5%


	As of
	March 31, 2020					December 31, 2019
	Risk in Force		Percentage of Single-Family Guaranty Book of Business	Risk in Force		Percentage of Single-Family Guaranty Book of Business
	(Dollars in millions)
Mortgage insurance risk in force:
Primary mortgage insurance	$	164,218		$	162,855
Pool mortgage insurance	306			339
Total mortgage insurance risk in force	$	164,524	6%	$	163,194	6%

Mortgage insurance does not protect us from all losses on covered loans. For example, mortgage insurance does not cover us from default risk for properties that suffered damages that were not covered by the hazard insurance we require. Specifically, a property damaged by a flood that was outside a Federal Emergency Management Agency (“FEMA”)-identified Special Flood Hazard Area, where we require coverage, or a property damaged by an earthquake are the most likely scenarios where property damage may result in a default not covered by hazard insurance.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	85	94



			Notes to Condensed Consolidated Financial Statements \| Concentrations of Credit Risk

The table below displays our mortgage insurer counterparties that provided approximately 10% or more of the ~~risk in force~~risk-in-force mortgage insurance coverage on mortgage loans in our single-family conventional guaranty book of business.


	Percentage of Risk-in-Force Coverage by Mortgage Insurer
	As of
	March 31, 2020		December 31, 2019
Counterparty:⁽¹⁾
Arch Capital Group Ltd.	23	%	23	%
Radian Guaranty, Inc.	20		20
Mortgage Guaranty Insurance Corp.	18		18
Genworth Mortgage Insurance Corp.⁽²⁾	16		15
Essent Guaranty, Inc.	13		14
Others	10		10
Total	100	%	100	%

Percentage of Risk in Force Coverage
by Mortgage Insurer
As of
June 30, 2019 December 31, 2018
Counterparty:⁽¹⁾

Arch Capital Group Ltd. 24 % 25 %
Radian Guaranty, Inc. 20
21
Mortgage Guaranty Insurance Corp. 18
18
Genworth Mortgage Insurance Corp.⁽²⁾
15
15
Essent Guaranty, Inc. 13
12
Others 10
9
Total 100 % 100 %
⁽¹⁾Insurance coverage amounts provided for each counterparty may include coverage provided by affiliates and subsidiaries of the counterparty.


⁽¹⁾ ⁽²⁾Genworth Financial, Inc., the ultimate parent company of Genworth Mortgage Insurance Corp., is in the process of being acquired by China Oceanwide Holdings Group Co., Ltd. Upon acquisition, Genworth Mortgage Insurance Corp. will continue to be subject to our ongoing review of financial and operational eligibility requirements.	~~Insurance coverage amounts provided for each counterparty may include coverage provided by affiliates and subsidiaries of the counterparty.~~

⁽²⁾

Genworth Financial, Inc., the ultimate parent company of Genworth Mortgage Insurance Corp., is in the process of being acquired by China Oceanwide Holdings Group Co., Ltd. We have approved the acquisition subject to specified conditions, including Genworth Financial, Inc. receiving all required and outstanding regulatory approvals. Upon acquisition, Genworth Mortgage Insurance Corp. will continue to be subject to our ongoing review of financial and operational eligibility requirements.

Three of our mortgage insurer counterparties that are currently not approved to write new business are in run-off: PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation (“Triad”) and Republic Mortgage Insurance Company (”RMIC”). Entering run-off may close off a source of profits and liquidity that may have otherwise assisted a mortgage insurer in paying claims under insurance policies, and could also cause the quality and speed of its claims processing to deteriorate. These three mortgage insurers provided a combined ~~$4.0~~$3.1 billion, or 3%2%, of our ~~risk in force~~risk-in-force mortgage insurance coverage of our single-family conventional guaranty book of business as of ~~June 30, 2019.~~March 31, 2020.

PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion. PMI is currently paying ~~74.5%~~76.5% of claims under its mortgage insurance policies in cash and is deferring the remaining ~~25.5%~~23.5%, and Triad is currently paying 75% of claims in cash and deferring the remaining 25%. It is uncertain whether PMI or Triad will be permitted in the future to pay any remaining deferred policyholder claims and/or increase or decrease the amount of cash they pay on claims. RMIC is no longer deferring payments on policyholder claims and has paid us its previously outstanding deferred payment obligations as well as interest on those obligations; however, RMIC remains in run-off.

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that insure single-family loans we purchase or guarantee. There is risk that these counterparties may fail to fulfill their obligations to pay our claims under insurance policies. On at least a quarterly basis, we assess our mortgage insurer counterparties’ respective abilities to fulfill their obligations to us. Our assessment includes financial reviews and analyses of the insurers’ portfolios and capital adequacy. If we determine that it is probable that we will not collect all of our claims from one or more of our mortgage insurer counterparties, it could increase our loss reserves, which could adversely affect our results of operations, liquidity, financial condition and net worth.

When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty obligations, we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance recoveries would reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our mortgage insurer counterparties and adjust the contractually due recovery amounts to ensure that ~~only probable~~expected credit losses as of the balance sheet date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage insurer counterparties’ ability to fulfill their respective obligations to us worsens, it could increase our loss reserves. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, our estimated benefit from mortgage insurance, which is based on estimated credit losses as of period end, reduced our loss reserves by ~~$563 million~~$1.4 billion and ~~$691~~$410 million, respectively.

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had outstanding receivables of ~~$685~~$607 million and ~~$745~~$654 million, respectively, recorded in “Other assets” in our condensed consolidated balance sheets related to amounts claimed on insured, defaulted loans excluding government-insured loans. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we assessed these outstanding receivables for ~~collectibility,~~collectability, and established a valuation allowance of ~~$546~~$502 million and ~~$564~~$541 million, respectively, which ~~reduces~~reduced our claim receivable to the amount considered probable of collection.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									95


			Notes to Condensed Consolidated Financial Statements \| Concentrations of Credit Risk

Mortgage Servicers and Sellers. Mortgage servicers collect mortgage and escrow payments from borrowers, pay taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required activities on our behalf. Our mortgage servicers and sellers may also be obligated to repurchase loans or foreclosed properties, reimburse us for losses or provide other remedies under certain circumstances, such as if it is determined that the mortgage loan did not meet our underwriting or eligibility requirements, if certain loan representations and warranties are violated or if mortgage insurers



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		86



	~~Notes to Condensed Consolidated Financial Statements \| Concentrations of Credit Risk~~

rescind coverage. Our representation and warranty framework does not require repurchase for loans that have breaches of certain selling representations and warranties if they have met specified criteria for relief.

Our business with mortgage servicers is concentrated. The table below displays the percentage of our single-family guaranty book of business serviced by our top five depository single-family mortgage servicers and top five non-depository single-family mortgage servicers (i.e., servicers that are not insured depository institutions), and identifies one servicer that serviced more than 10% of our single-family guaranty book of business based on unpaid principal balance.

Percentage of Single-Family
Guaranty Book of Business
As of
June 30, 2019 December 31, 2018
Wells Fargo Bank, N.A. (together with its affiliates) 18 % 18 %
Remaining top five depository servicers 15
16
Top five non-depository servicers 25
22
Total 58 % 56 %


	Percentage of Single-Family Guaranty Book of Business
	As of
	March 31, 2020		December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)	17	%	17	%
Remaining top five depository servicers	14		15
Top five non-depository servicers	28		27
Total	59	%	59	%

~~There was an increase in the portion of our single-family guaranty book serviced by our top five non-depository servicers, particularly for our delinquent single-family loans.~~ Compared with depository financial institutions, ~~these institutions~~our non-depository servicers pose additional risks ~~to us~~ because they may not have the same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as our largest mortgage servicer counterparties, which are mostly depository institutions.

The table below displays the percentage of our multifamily guaranty book of business serviced by our top five multifamily mortgage servicers, and identifies two servicers that serviced 10% or more of our multifamily guaranty book of business based on unpaid principal balance.


	Percentage of Multifamily Guaranty Book of Business					Percentage of Multifamily Guaranty Book of Business
	As of					As of
	June 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)	13	%	14	%	Wells Fargo Bank, N.A. (together with its affiliates)	13	%	13	%
Walker & Dunlop, Inc.	12		12		Walker & Dunlop, Inc.	12		12
Remaining top five servicers	23		22		Remaining top five servicers	23		23
Total	48	%	48	%	Total	48	%	48	%

If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet their obligations to us, it could adversely affect our results of operations and financial condition. We mitigate these risks in several ways, including:

•establishing minimum standards and financial requirements for our servicers;

•monitoring financial and portfolio performance as compared with peers and internal benchmarks; and

•for our largest mortgage servicers, conducting periodic on-site and financial reviews to confirm compliance with servicing guidelines and servicing performance expectations.

We may take one or more of the following actions to mitigate our credit exposure to mortgage servicers that present a higher risk:

•require a guaranty of obligations by higher-rated entities;

•transfer exposure to third parties;

•require collateral;

•establish more stringent financial requirements;

•work ~~on-site~~ with underperforming major servicers to improve operational processes; and

•suspend or terminate the selling and servicing relationship if deemed necessary.

Derivative Counterparties. For information on credit risk associated with our derivative transactions and repurchase agreements see “Note 8, Derivative Instruments” and “Note 11, Netting Arrangements.”



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	87	96



			Notes to Condensed Consolidated Financial Statements \| Netting Arrangements

11. Netting Arrangements

We use master netting arrangements, which allow us to offset certain financial instruments and collateral with the same counterparty, to minimize counterparty credit exposure. The tables below display information related to derivatives, securities purchased under agreements to resell or similar arrangements, and securities sold under agreements to repurchase or similar arrangements, which are subject to an enforceable master netting arrangement or similar agreement that are either offset or not offset in our condensed consolidated balance sheets.


	As of March 31, 2020
			Gross Amount Offset⁽¹⁾		Net Amount Presented in our Condensed Consolidated Balance Sheets						Amounts Not Offset in our Condensed Consolidated Balance Sheets
	Gross Amount											Financial Instruments⁽²⁾					Collateral⁽³⁾	Net Amount
	(Dollars in millions)
Assets:
OTC risk management derivatives	$	2,206	$	(2,202)		$	4		$	—			$	—	$	4
Cleared risk management derivatives	—		65			65			—				—		65
Mortgage commitment derivatives	2,665		—			2,665			(1,228)				(499)		938
Total derivative assets	4,871		(2,137)			2,734		⁽⁴⁾	(1,228)				(499)		1,007
Securities purchased under agreements to resell or similar arrangements⁽⁵⁾	20,175		—			20,175			—				(20,175)		—
Total assets	$	25,046	$	(2,137)		$	22,909		$	(1,228)			$	(20,674)	$	1,007
Liabilities:
OTC risk management derivatives	$	(2,793)	$	2,643		$	(150)		$	—			$	—	$	(150)
Cleared risk management derivatives	—		(36)			(36)			—				36		—
Mortgage commitment derivatives	(3,594)		—			(3,594)			1,228				2,349		(17)
Total derivative liabilities	(6,387)		2,607			(3,780)		⁽⁴⁾	1,228				2,385		(167)

Total liabilities	$	(6,387)	$	2,607		$	(3,780)		$	1,228			$	2,385	$	(167)

As of June 30, 2019

Gross Amount Offset⁽¹⁾
Net Amount Presented in our Condensed Consolidated Balance Sheets Amounts Not Offset in our Condensed Consolidated Balance Sheets
Gross Amount
Financial Instruments⁽²⁾

Collateral⁽³⁾
Net Amount
(Dollars in millions)
Assets:
OTC risk management derivatives $ 1,764
$ (1,716 ) $ 48
$ —
$ —
$ 48
Cleared risk management derivatives —
7
7
—
—
7
Mortgage commitment derivatives 455
—
455
(159 ) (22 ) 274
Total derivative assets 2,219
(1,709 ) 510
⁽⁴⁾
(159 ) (22 ) 329
Securities purchased under agreements to resell or similar arrangements⁽⁵⁾
40,362
—
40,362
—
(40,362 ) —
Total assets $ 42,581
$ (1,709 ) $ 40,872
$ (159 ) $ (40,384 ) $ 329
Liabilities:
OTC risk management derivatives $ (2,377 ) $ 2,301
$ (76 ) $ —
$ —
$ (76 )
Cleared risk management derivatives —
(4 ) (4 ) —
2
(2 )
Mortgage commitment derivatives (688 ) —
(688 ) 159
510
(19 )
Total derivative liabilities (3,065 ) 2,297
(768 )
⁽⁴⁾
159
512
(97 )
Securities sold under agreements to repurchase or similar arrangements (131 ) —
(131 ) —
130
(1 )
Total liabilities $ (3,196 ) $ 2,297
$ (899 ) $ 159
$ 642
$ (98 )

As of December 31, 2018

Gross Amount Offset⁽¹⁾
Net Amount Presented in our Condensed Consolidated Balance Sheets Amounts Not Offset in our Condensed Consolidated Balance Sheets
Gross Amount
Financial Instruments⁽²⁾

Collateral⁽³⁾
Net Amount
(Dollars in millions)
Assets:
OTC risk management derivatives $ 2,288
$ (2,273 ) $ 15
$ —
$ —
$ 15
Cleared risk management derivatives —
7
7
—
—
7
Mortgage commitment derivatives 379
—
379
(153 ) (7 ) 219
Total derivative assets 2,667
(2,266 ) 401
⁽⁴⁾
(153 ) (7 ) 241
Securities purchased under agreements to resell or similar arrangements⁽⁵⁾
48,288
—
48,288
—
(48,288 ) —
Total assets $ 50,955
$ (2,266 ) $ 48,689
$ (153 ) $ (48,295 ) $ 241
Liabilities:
OTC risk management derivatives $ (2,433 ) $ 2,342
$ (91 ) $ —
$ —
$ (91 )
Cleared risk management derivatives —
(27 ) (27 ) —
23
(4 )
Mortgage commitment derivatives (648 ) —
(648 ) 153
466
(29 )
Total derivative liabilities (3,081 ) 2,315
(766 )
⁽⁴⁾
153
489
(124 )
Total liabilities $ (3,081 ) $ 2,315
$ (766 ) $ 153
$ 489
$ (124 )


	As of December 31, 2019
			Gross Amount Offset⁽¹⁾		Net Amount Presented in our Condensed Consolidated Balance Sheets						Amounts Not Offset in our Condensed Consolidated Balance Sheets
	Gross Amount											Financial Instruments⁽²⁾					Collateral⁽³⁾	Net Amount
	(Dollars in millions)
Assets:
OTC risk management derivatives	$	1,354	$	(1,334)		$	20		$	—			$	—	$	20
Cleared risk management derivatives	—		46			46			—				—		46
Mortgage commitment derivatives	165		—			165			(101)				(1)		63
Total derivative assets	1,519		(1,288)			231		⁽⁴⁾	(101)				(1)		129
Securities purchased under agreements to resell or similar arrangements⁽⁵⁾	24,928		—			24,928			—				(24,928)		—
Total assets	$	26,447	$	(1,288)		$	25,159		$	(101)			$	(24,929)	$	129
Liabilities:
OTC risk management derivatives	$	(1,798)	$	1,695		$	(103)		$	—			$	—	$	(103)
Cleared risk management derivatives	—		(1)			(1)			—				1		—
Mortgage commitment derivatives	(306)		—			(306)			101				181		(24)
Total derivative liabilities	(2,104)		1,694			(410)		⁽⁴⁾	101				182		(127)
Securities sold under agreements to repurchase or similar arrangements	(478)		—			(478)			—				475		(3)
Total liabilities	$	(2,582)	$	1,694		$	(888)		$	101			$	657	$	(130)



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	88	97



			Notes to Condensed Consolidated Financial Statements \| Netting Arrangements

⁽¹⁾Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received and accrued interest.

⁽¹⁾

⁽²⁾Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty under an enforceable master netting arrangement but we have not elected to offset the related amounts in our condensed consolidated balance sheets.

⁽³⁾Represents collateral received that has not been recognized and not offset in our condensed consolidated balance sheets as well as collateral posted which has been recognized but not offset in our condensed consolidated balance sheets. Does not include collateral held or posted in excess of our exposure. The fair value of non-cash collateral we pledged which the counterparty was permitted to sell or repledge was $4.2 billion and $2.3 billion as of March 31, 2020 and December 31, 2019, respectively. The fair value of non-cash collateral received was $20.1 billion and $24.7 billion, of which $20.1 billion and $23.8 billion could be sold or repledged as of March 31, 2020 and December 31, 2019, respectively. NaN of the underlying collateral was sold or repledged as of March 31, 2020 or December 31, 2019.

⁽⁴⁾Excludes derivative assets of $37 million and $40 million as of March 31, 2020 and December 31, 2019, respectively, and derivative liabilities of $29 million and $25 million recognized in our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively, that are not subject to enforceable master netting arrangements.

⁽⁵⁾Includes $12.4 billion and $11.4 billion in securities purchased under agreements to resell classified as “Cash and cash equivalents” in our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.

Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received and accrued interest.


⁽²⁾	Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty under an enforceable master netting arrangement but we have not elected to offset the related amounts in our condensed consolidated balance sheets.

⁽³⁾

Represents collateral received that has not been recognized and is not offset in our condensed consolidated balance sheets as well as collateral posted which has been recognized but not offset in our condensed consolidated balance sheets. The fair value of non-cash collateral we pledged was $1.6 billion and $1.9 billion as of June 30, 2019 and December 31, 2018, respectively, which the counterparty was permitted to sell or repledge. The fair value of non-cash collateral received was $40.4 billion and $48.4 billion, of which $37.9 billion and $45.7 billion could be sold or repledged as of June 30, 2019 and December 31, 2018, respectively. None of the underlying collateral was sold or repledged as of June 30, 2019 or December 31, 2018.


⁽⁴⁾	Excludes derivative assets of $51 million and $57 million as of June 30, 2019 and December 31, 2018, respectively, and derivative liabilities of $31 million and $11 million recognized in our condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively, that are not subject to enforceable master netting arrangements.


⁽⁵⁾	Includes $20.8 billion and $15.4 billion in securities purchased under agreements to resell classified as “Cash and cash equivalents” in our condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively.

Derivative instruments are recorded at fair value and securities purchased under agreements to resell or similar arrangements are recorded at amortized cost in our condensed consolidated balance sheets. For how we determine our rights to offset the assets and liabilities presented above with the same counterparty, including collateral posted or received, see “Note 14, Netting Arrangements” in our ~~2018~~2019 Form 10-K.



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		89



	~~Notes to Condensed Consolidated Financial Statements \| Fair Value~~

12. Fair Value

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain assets and liabilities on a recurring or nonrecurring basis.

Fair Value Measurement

Fair value measurement guidance defines fair value, establishes a framework for measuring fair value, and sets forth disclosures around fair value measurements. This guidance applies whenever other accounting guidance requires or permits assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The ~~fair value~~ hierarchy gives the highest priority, Level 1, to measurements based on unadjusted quoted prices in active markets for identical assets or liabilities. The next highest priority, Level 2, is given to measurements of assets and liabilities based on limited observable inputs or observable inputs for similar assets and liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									98


			Notes to Condensed Consolidated Financial Statements \| Fair Value

Recurring Changes in Fair Value

The following tables display our assets and liabilities measured in our condensed consolidated balance sheets at fair value on a recurring basis subsequent to initial recognition, including instruments for which we have elected the fair value option.

Fair Value Measurements as of June 30, 2019
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Netting Adjustment⁽¹⁾
Estimated Fair Value
(Dollars in millions)
Recurring fair value measurements:
Assets:
Cash equivalents⁽²⁾
$ —
$ —
$ —
$ —
$ —

Trading securities:
Mortgage-related securities:
Fannie Mae —
3,077
74
—
3,151

Other agency —
3,629
—
—
3,629

Private-label and other mortgage securities —
736
—
—
736

Non-mortgage-related securities:
U.S. Treasury securities 35,266
—
—
—
35,266

Other securities —
84
—
—
84

Total trading securities 35,266
7,526
74
—
42,866

Available-for-sale securities:
Mortgage-related securities:
Fannie Mae —
1,483
132
—
1,615

Other agency —
228
—
—
228

Alt-A and subprime private-label securities —
220
—
—
220

Mortgage revenue bonds —
—
364
—
364

Other —
8
326
—
334

Total available-for-sale securities —
1,939
822
—
2,761

Mortgage loans —
7,709
770
—
8,479

Other assets:
Risk management derivatives:
Swaps —
1,480
165
—
1,645

Swaptions —
119
—
—
119

Netting adjustment —
—
—
(1,709 ) (1,709 )
Mortgage commitment derivatives —
455
—
—
455

Credit enhancement derivatives —
—
51
—
51

Total other assets —
2,054
216
(1,709 ) 561

Total assets at fair value $ 35,266
$ 19,228
$ 1,882
$ (1,709 ) $ 54,667


	Fair Value Measurements as of March 31, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)					Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)					Netting Adjustment⁽¹⁾	Estimated Fair Value
	(Dollars in millions)
Recurring fair value measurements:
Assets:

Trading securities:
Mortgage-related securities:
Fannie Mae		$	—	$	3,462		$	68		$	—	$	3,530
Other agency		—		4,167			—			—		4,167
Private-label and other mortgage securities		—		350			94			—		444
Non-mortgage-related securities:
U.S. Treasury securities		44,727		—			—			—		44,727
Other securities		—		73			—			—		73
Total trading securities		44,727		8,052			162			—		52,941
Available-for-sale securities:
Mortgage-related securities:
Fannie Mae		—		1,317			188			—		1,505
Other agency		—		190			—			—		190
Alt-A and subprime private-label securities		—		7			—			—		7
Mortgage revenue bonds		—		—			296			—		296
Other		—		7			284			—		291
Total available-for-sale securities		—		1,521			768			—		2,289
Mortgage loans		—		7,063			638			—		7,701
Other assets:
Risk management derivatives:
Swaps		—		1,370			210			—		1,580
Swaptions		—		626			—			—		626
Netting adjustment		—		—			—			(2,137)		(2,137)
Mortgage commitment derivatives		—		2,665			—			—		2,665
Credit enhancement derivatives		—		—			37			—		37
Total other assets		—		4,661			247			(2,137)		2,771
Total assets at fair value		$	44,727	$	21,297		$	1,815		$	(2,137)	$	65,702

Liabilities:
Long-term debt:
Of Fannie Mae:

Senior floating		$	—	$	4,320		$	432		$	—	$	4,752
Total of Fannie Mae		—		4,320			432			—		4,752
Of consolidated trusts		—		22,772			83			—		22,855
Total long-term debt		—		27,092			515			—		27,607
Other liabilities:
Risk management derivatives:
Swaps		—		2,334			1			—		2,335
Swaptions		—		458			—			—		458
Netting adjustment		—		—			—			(2,607)		(2,607)
Mortgage commitment derivatives		—		3,594			—			—		3,594
Credit enhancement derivatives		—		—			29			—		29
Total other liabilities		—		6,386			30			(2,607)		3,809
Total liabilities at fair value		$	—	$	33,478		$	545		$	(2,607)	$	31,416



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	90	99



			Notes to Condensed Consolidated Financial Statements \| Fair Value


	Fair Value Measurements as of December 31, 2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)					Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)					Netting Adjustment⁽¹⁾	Estimated Fair Value
		(Dollars in millions)
Recurring fair value measurements:
Assets:

Trading securities:
Mortgage-related securities:
Fannie Mae		$	—	$	3,379		$	45		$	—	$	3,424
Other agency		—		4,489			1			—		4,490
Private-label and other mortgage securities		—		629			—			—		629
Non-mortgage-related securities:
U.S. Treasury securities		39,501		—			—			—		39,501
Other securities		—		79			—			—		79
Total trading securities		39,501		8,576			46			—		48,123
Available-for-sale securities:
Mortgage-related securities:
Fannie Mae		—		1,349			171			—		1,520
Other agency		—		198			—			—		198
Alt-A and subprime private-label securities		—		57			—			—		57
Mortgage revenue bonds		—		—			315			—		315
Other		—		8			306			—		314
Total available-for-sale securities		—		1,612			792			—		2,404
Mortgage loans		—		7,137			688			—		7,825
Other assets:
Risk management derivatives:
Swaps		—		1,071			159			—		1,230
Swaptions		—		124			—			—		124
Netting adjustment		—		—			—			(1,288)		(1,288)
Mortgage commitment derivatives		—		165			—			—		165
Credit enhancement derivatives		—		—			40			—		40
Total other assets		—		1,360			199			(1,288)		271
Total assets at fair value		$	39,501	$	18,685		$	1,725		$	(1,288)	$	58,623

Liabilities:
Long-term debt:
Of Fannie Mae:

Senior floating		$	—	$	5,289		$	398		$	—	$	5,687
Total of Fannie Mae		—		5,289			398			—		5,687
Of consolidated trusts		—		21,805			75			—		21,880
Total long-term debt		—		27,094			473			—		27,567
Other liabilities:
Risk management derivatives:
Swaps		—		1,346			1			—		1,347
Swaptions		—		440			11			—		451
Netting adjustment		—		—			—			(1,694)		(1,694)
Mortgage commitment derivatives		—		306			—			—		306
Credit enhancement derivatives		—		—			25			—		25
Total other liabilities		—		2,092			37			(1,694)		435
Total liabilities at fair value		$	—	$	29,186		$	510		$	(1,694)	$	28,002

⁽¹⁾ Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	91	100



			Notes to Condensed Consolidated Financial Statements \| Fair Value

Fair Value Measurements as of December 31, 2018
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Netting Adjustment⁽¹⁾
Estimated Fair Value
(Dollars in millions)
Recurring fair value measurements:
Assets:
Cash equivalents⁽²⁾
$ 748
$ —
$ —
$ —
$ 748

Trading securities:
Mortgage-related securities:
Fannie Mae —
1,435
32
—
1,467

Other agency —
3,503
—
—
3,503

Private-label and other mortgage securities —
1,305
1
—
1,306

Non-mortgage-related securities:
U.S. Treasury securities 35,502
—
—
—
35,502

Other Securities —
89
—
—
89

Total trading securities 35,502
6,332
33
—
41,867

Available-for-sale securities:
Mortgage-related securities:
Fannie Mae —
1,645
152
—
1,797

Other agency —
256
—
—
256

Alt-A and subprime private-label securities —
568
24
—
592

Mortgage revenue bonds —
—
434
—
434

Other —
8
342
—
350

Total available-for-sale securities —
2,477
952
—
3,429

Mortgage loans —
7,985
937
—
8,922

Other assets:
Risk management derivatives:
Swaps —
1,962
115
—
2,077

Swaptions —
211
—
—
211

Netting adjustment —
—
—
(2,266 ) (2,266 )
Mortgage commitment derivatives —
342
37
—
379

Credit enhancement derivatives —
—
57
—
57

Total other assets —
2,515
209
(2,266 ) 458

Total assets at fair value $ 36,250
$ 19,309
$ 2,131
$ (2,266 ) $ 55,424



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		92



	~~Notes to Condensed Consolidated Financial Statements \| Fair Value~~


⁽¹⁾	Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received.


⁽²⁾	~~Cash equivalents are comprised of U.S. Treasuries that have a maturity at the date of acquisition of three months or less.~~



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		93



	~~Notes to Condensed Consolidated Financial Statements \| Fair Value~~

The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The tables also display gains and losses due to changes in fair value, including realized and unrealized gains and losses, recognized in our condensed consolidated statements of operations and comprehensive income for Level 3 assets and liabilities.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the Three Months Ended June 30, 2019

Total Gains (Losses)
(Realized/Unrealized)

Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30,
2019⁽⁴⁾⁽⁵⁾

Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of June 30,
2019⁽¹⁾
Balance, March 31, 2019 Included in Net Income
Included in Total OCI Gain/(Loss)⁽¹⁾

Purchases⁽²⁾

Sales⁽²⁾

Issues⁽³⁾

Settlements⁽³⁾
Transfers out of Level 3
Transfers into
Level 3
Balance, June 30, 2019
(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae $ 67
$ 1
$ —
$ —
$ (14 ) $ —
$ (16 ) $ —
$ 36
$ 74
$ 2
$ —
Total trading securities $ 67
$ 1
⁽⁵⁾⁽⁶⁾
$ —
$ —
$ (14 ) $ —
$ (16 ) $ —
$ 36
$ 74
$ 2
$ —

Available-for-sale securities:
Mortgage-related:
Fannie Mae $ 199
$ —
$ 2
$ —
$ —
$ —
$ (7 ) $ (62 ) $ —
$ 132
$ —
$ 3
Alt-A and subprime private-label securities 23
5
(5 ) —
(23 ) —
—
—
—
—
—
—
Mortgage revenue bonds 425
—
(1 ) —
(4 ) —
(56 ) —
—
364
—
—
Other 337
5
(5 ) —
—
—
(9 ) (2 ) —
326
—
(3 )
Total available-for-sale securities $ 984
$ 10
⁽⁶⁾⁽⁷⁾
$ (9 ) $ —
$ (27 ) $ —
$ (72 ) $ (64 ) $ —
$ 822
$ —
$ —

Mortgage loans $ 934
$ 17
⁽⁵⁾⁽⁶⁾
$ —
$ —
$ (13 ) $ —
$ (36 ) $ (159 ) $ 27
$ 770
$ 14
$ —
Net derivatives 203
20
⁽⁵⁾
—
—
—
—
(31 ) (9 ) —
183
18
—
Long-term debt:
Of Fannie Mae:
Senior floating (376 ) (22 ) —
—
—
—
—
—
—
(398 ) (22 ) —
Of consolidated trusts (224 ) (1 ) —
—
—
—
5
120
(2 ) (102 ) (1 ) —
Total long-term debt $ (600 ) $ (23 )
⁽⁵⁾
$ —
$ —
$ —
$ —
$ 5
$ 120
$ (2 ) $ (500 ) $ (23 ) $ —


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Three Months Ended March 31, 2020
			Total Gains (Losses) (Realized/Unrealized)																														Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2020⁽⁴⁾⁽⁵⁾	Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2020⁽¹⁾
	Balance, December 31, 2019		Included in Net Income			Included in Total OCI Gain/(Loss)⁽¹⁾				Purchases⁽²⁾			Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3			Transfers into Level 3			Balance, March 31, 2020
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	45	$	(9)		$	—	$	—		$	—		$	—		$	—		$	(11)		$	43		$	68		$	(10)	$	—
Other agency	1		—			—		—			—			—			—			(1)			—			—			—		—
Private-label and other mortgage securities	—		—			—		—			—			—			—			—			94			94			—		—
Total trading securities	$	46	$	(9)	⁽⁵⁾⁽⁶⁾	$	—	$	—		$	—		$	—		$	—		$	(12)		$	137		$	162		$	(10)	$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	171	$	—		$	4	$	—		$	—		$	—		$	(1)		$	—		$	14		$	188		$	—	$	3

Mortgage revenue bonds	315		(3)			2		74			(74)			—			(18)			—			—			296			—		4
Other	306		(11)			(1)		268			(268)			—			(10)			—			—			284			—		(1)
Total available-for-sale securities	$	792	$	(14)	⁽⁶⁾⁽⁷⁾	$	5	$	342		$	(342)		$	—		$	(29)		$	—		$	14		$	768		$	—	$	6

Mortgage loans	$	688	$	(24)	⁽⁵⁾⁽⁶⁾	$	—	$	—		$	—		$	—		$	(29)		$	(23)		$	26		$	638		$	(26)	$	—
Net derivatives	162		41		⁽⁵⁾	—		—			—			—			(4)			18			—			217			44		—
Long-term debt:
Of Fannie Mae:
Senior floating	(398)		(34)		⁽⁵⁾	—		—			—			—			—			—			—			(432)			(34)		—
Of consolidated trusts	(75)		4		⁽⁵⁾⁽⁶⁾	—		—			—			—			3			—			(15)			(83)			4		—
Total long-term debt	$	(473)	$	(30)		$	—	$	—		$	—		$	—		$	3		$	—		$	(15)		$	(515)		$	(30)	$	—



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	94	101



			Notes to Condensed Consolidated Financial Statements \| Fair Value


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Three Months Ended March 31, 2019
			Total Gains (Losses) (Realized/Unrealized)																												Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2019⁽⁴⁾⁽⁵⁾		Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2019⁽¹⁾
	Balance, December 31, 2018		Included in Net Income			Included in Total OCI Gain/(Loss)⁽¹⁾				Purchases⁽²⁾			Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3			Transfers into Level 3			Balance, March 31, 2019
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	32	$	2		$	—	$	—		$	—		$	—		$	—		$	—		$	33		$	67		$	2	$	—

Private-label and other mortgage securities	1		—			—		—			—			—			(1)			—			—			—			—		—
Total trading securities	$	33	$	2	⁽⁵⁾⁽⁶⁾	$	—	$	—		$	—		$	—		$	(1)		$	—		$	33		$	67		$	2	$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	152	$	—		$	4	$	—		$	—		$	—		$	—		$	(41)		$	84		$	199		$	—	$	2
Alt-A and subprime private-label securities	24		—			—		—			—			—			(1)			—			—			23			—		—
Mortgage revenue bonds	434		—			—		—			—			—			(9)			—			—			425			—		—
Other	342		7			(5)		—			—			—			(8)			—			1			337			—		(4)
Total available-for-sale securities	$	952	$	7	⁽⁶⁾⁽⁷⁾	$	(1)	$	—		$	—		$	—		$	(18)		$	(41)		$	85		$	984		$	—	$	(2)


Mortgage loans	$	937	$	14	⁽⁵⁾⁽⁶⁾	$	—	$	—		$	—		$	—		$	(34)		$	(28)		$	45		$	934		$	11	$	—
Net derivatives	194		98		⁽⁵⁾	—		—			—			—			(89)			—			—			203			44		—
Long-term debt:
Of Fannie Mae:
Senior floating	(351)		(25)		⁽⁵⁾	—		—			—			—			—			—			—			(376)			(25)		—
Of consolidated trusts	(201)		(3)		⁽⁵⁾⁽⁶⁾	—		—			—			—			5			49			(74)			(224)			(1)		—
Total long-term debt	$	(552)	$	(28)		$	—	$	—		$	—		$	—		$	5		$	49		$	(74)		$	(600)		$	(26)	$	—

⁽¹⁾Gains (losses) included in other comprehensive loss are included in “Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes” in our condensed consolidated statements of operations and comprehensive income.

⁽²⁾Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts.

⁽³⁾Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the Six Months Ended June 30, 2019

Total Gains (Losses)
(Realized/Unrealized)

Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30,
2019⁽⁴⁾⁽⁵⁾

Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of June 30,
2019⁽¹⁾
Balance, December 31, 2018 Included in Net Income
Included in Total OCI Gain/(Loss)⁽¹⁾

Purchases⁽²⁾

Sales⁽²⁾

Issues⁽³⁾

Settlements⁽³⁾
Transfers out of Level 3
Transfers into
Level 3
Balance, June 30, 2019
(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae $ 32
$ 3
$ —
$ —
$ (14 ) $ —
$ (16 ) $ —
$ 69
$ 74
$ 3
$ —
Private-label and other mortgage securities 1
—
—
—
—
—
(1 ) —
—
—
—
—
Total trading securities $ 33
$ 3
⁽⁵⁾⁽⁶⁾
$ —
$ —
$ (14 ) $ —
$ (17 ) $ —
$ 69
$ 74
$ 3
$ —

Available-for-sale securities:
Mortgage-related:
Fannie Mae $ 152
$ —
$ 6
$ —
$ —
$ —
$ (7 ) $ (103 ) $ 84
$ 132
$ —
$ 5
Alt-A and subprime private-label securities 24
5
(5 ) —
(23 ) —
(1 ) —
—
—
—
—
Mortgage revenue bonds 434
—
(1 ) —
(4 ) —
(65 ) —
—
364
—
(1 )
Other 342
12
(10 ) —
—
—
(17 ) (2 ) 1
326
—
(7 )
Total available-for-sale securities $ 952
$ 17
⁽⁶⁾⁽⁷⁾
$ (10 ) $ —
$ (27 ) $ —
$ (90 ) $ (105 ) $ 85
$ 822
$ —
$ (3 )

Mortgage loans $ 937
$ 31
⁽⁵⁾⁽⁶⁾
$ —
$ —
$ (13 ) $ —
$ (70 ) $ (187 ) $ 72
$ 770
$ 22
$ —
Net derivatives 194
118
⁽⁵⁾
—
—
—
—
(120 ) (9 ) —
183
24
—
Long-term debt:
Of Fannie Mae:
Senior floating (351 ) (47 ) —
—
—
—
—
—
—
(398 ) (47 ) —
Of consolidated trusts (201 ) (4 ) —
—
—
—
10
169
(76 ) (102 ) (2 ) —
Total long-term debt $ (552 ) $ (51 )
⁽⁵⁾
$ —
$ —
$ —
$ —
$ 10
$ 169
$ (76 ) $ (500 ) $ (49 ) $ —
⁽⁴⁾Amount represents temporary changes in fair value. Amortization, accretion and the impairment of credit losses are not considered unrealized and are not included in this amount.

⁽⁵⁾Gains (losses) are included in “Fair value losses, net” in our condensed consolidated statements of operations and comprehensive income.

⁽⁶⁾Gains (losses) are included in “Net interest income” in our condensed consolidated statements of operations and comprehensive income.

⁽⁷⁾Gains (losses) are included in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	95	102



			Notes to Condensed Consolidated Financial Statements \| Fair Value

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the Three Months Ended June 30, 2018

Total Gains (Losses)
(Realized/Unrealized)

Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30,
2018⁽⁴⁾⁽⁵⁾

Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of June 30,
2018⁽¹⁾
Balance, March 31, 2018 Included in Net Income
Included in Total OCI (Loss)⁽¹⁾

Purchases⁽²⁾

Sales⁽²⁾

Issues⁽³⁾

Settlements⁽³⁾
Transfers out of Level 3
Transfers into
Level 3
Balance, June 30, 2018
(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae $ 83
$ (5 ) $ —
$ —
$ —
$ —
$ —
$ —
$ 1
$ 79
$ 3
$ —
Private-label and other mortgage securities 1
—
—
—
—
—
—
—
—
1
—
—
Total trading securities $ 84
$ (5 )
⁽⁵⁾⁽⁶⁾

$ —
$ —
$ —
$ —
$ —
$ —
$ 1
$ 80
$ 3
$ —

Available-for-sale securities:
Mortgage-related:
Fannie Mae $ 202
$ 1
$ 4
$ —
$ —
$ —
$ (3 ) $ —
$ —
$ 204
$ —
$ 3
Alt-A and subprime private-label securities

27
—
—
—
—
—
(1 ) —
—
26
—
—
Mortgage revenue bonds 539
(11 ) 10
—
(7 ) —
(25 ) —
—
506
—
8
Other 351
7
10
—
—
—
(11 ) —
—
357
—
8
Total available-for-sale securities $ 1,119
$ (3 )
⁽⁶⁾⁽⁷⁾
$ 24
$ —
$ (7 ) $ —
$ (40 ) $ —
$ —
$ 1,093
$ —
$ 19

Mortgage loans $ 1,102
$ 11
⁽⁵⁾⁽⁶⁾
$ —
$ —
$ —
$ —
$ (79 ) $ (51 ) $ 35
$ 1,018
$ 8
$ —
Net derivatives 133
(28 )
⁽⁵⁾
—
—
—
—
12
—
—
117
(14 ) —
Long-term debt:
Of Fannie Mae:
Senior floating (357 ) 3
—
—
—
—
—
—
—
(354 ) 3
—
Of consolidated trusts (462 ) 4
—
—
—
—
21
177
(59 ) (319 ) (1 ) —
Total long-term debt $ (819 ) $ 7
⁽⁵⁾
$ —
$ —
$ —
$ —
$ 21
$ 177
$ (59 ) $ (673 ) $ 2
$ —



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		96



	~~Notes to Condensed Consolidated Financial Statements \| Fair Value~~

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the Six Months Ended June 30, 2018

Total Gains (Losses)
(Realized/Unrealized)

Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30,
2018⁽⁴⁾⁽⁵⁾

Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of June 30,
2018⁽¹⁾
Balance, December 31, 2017 Included in Net Income
Included in Total OCI (Loss)⁽¹⁾

Purchases⁽²⁾

Sales⁽²⁾

Issues⁽³⁾

Settlements⁽³⁾
Transfers out of Level 3
Transfers into
Level 3
Balance, June 30, 2018
(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae $ 971
$ 166
$ —
$ 1
$ (1,060 ) $ —
$ —
$ —
$ 1
$ 79
$ 3
$ —
Other agency 35
(1 ) —
—
—
—
(1 ) (33 ) —
—
—
—
Private-label and other mortgage securities 195
(85 ) —
—
—
—
(5 ) (104 ) —
1
—
—
Total trading securities $ 1,201
$ 80
⁽⁵⁾⁽⁶⁾

$ —
$ 1
$ (1,060 ) $ —
$ (6 ) $ (137 ) $ 1
$ 80
$ 3
$ —

Available-for-sale securities:
Mortgage-related:
Fannie Mae $ 208
$ 1
$ —
$ —
$ —
$ —
$ (5 ) $ —
$ —
$ 204
$ —
$ —
Alt-A and subprime private-label securities

77
—
(45 ) —
—
—
(2 ) (4 ) —
26
—
1
Mortgage revenue bonds 671
—
(3 ) —
(18 ) —
(144 ) —
—
506
—
—
Other 357
14
8
—
—
—
(22 ) —
—
357
—
8
Total available-for-sale securities $ 1,313
$ 15
⁽⁶⁾⁽⁷⁾
$ (40 ) $ —
$ (18 ) $ —
$ (173 ) $ (4 ) $ —
$ 1,093
$ —
$ 9

Mortgage loans $ 1,116
$ 28
⁽⁵⁾⁽⁶⁾
$ —
$ —
$ —
$ —
$ (127 ) $ (87 ) $ 88
$ 1,018
$ 16
$ —
Net derivatives 134
(86 )
⁽⁵⁾
—
—
—
—
16
53
—
117
(37 ) —
Long-term debt:
Of Fannie Mae:
Senior floating (376 ) 22
—
—
—
—
—
—
—
(354 ) 22
—
Of consolidated trusts (582 ) 7
—
—
—
1
31
331
(107 ) (319 ) (1 ) —
Total long-term debt $ (958 ) $ 29
⁽⁵⁾
$ —
$ —
$ —
$ 1
$ 31
$ 331
$ (107 ) $ (673 ) $ 21
$ —


⁽¹⁾	Gains (losses) included in other comprehensive loss are included in “Changes in unrealized gains on AFS securities, net of reclassification adjustments and taxes” in our condensed consolidated statements of operations and comprehensive income.


⁽²⁾	Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts. For the first half of 2018, includes the dissolution of a Fannie Mae-wrapped private-label securities trust.


⁽³⁾	~~Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.~~


⁽⁴⁾	~~Amount represents temporary changes in fair value. Amortization, accretion and OTTI are not considered unrealized and are not included in this amount.~~


⁽⁵⁾	~~Gains (losses) are included in “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.~~


⁽⁶⁾	~~Gains (losses) are included in “Net interest income” in our condensed consolidated statements of operations and comprehensive income.~~


⁽⁷⁾	~~Gains (losses) are included in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income.~~



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		97



	~~Notes to Condensed Consolidated Financial Statements \| Fair Value~~

The following tables display valuation techniques and the range and the weighted average of significant unobservable inputs for our Level 3 assets and liabilities measured at fair value on a recurring basis, excluding instruments for which we have elected the fair value option. Changes in these unobservable inputs can result in significantly higher or lower fair value measurements of these assets and liabilities as of the reporting date.

Fair Value Measurements as of June 30, 2019
Fair Value Significant Valuation Techniques
Significant Unobservable
Inputs⁽¹⁾

Range⁽¹⁾

Weighted - Average⁽¹⁾
(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽²⁾
$ 74
Various

Available-for-sale securities:
Mortgage-related securities:
Agency⁽²⁾
$ 106
Consensus
26
Various
Total agency 132

Mortgage revenue bonds 250
Single Vendor Spreads(bps) 16.5
- 193.3 66.1
114
Various
Total mortgage revenue bonds 364

Other 283
Discounted Cash Flow Default Rate(%) 5.5 5.5
Prepayment Speed(%) 5.5 5.5
Severity(%) 95.0 95.0
Spreads(bps) 59.3
- 294.0 292.4
43
Various
Total other 326

Total available-for-sale securities $ 822

Net derivatives $ 163
Dealer Mark
20
Various
Total net derivatives $ 183


	Fair Value Measurements as of March 31, 2020
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾				Weighted - Average⁽¹⁾⁽²⁾
	(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽³⁾	$	68	Various
Private-label securities and other mortgage securities	94		Various
Total trading securities	$	162

Available-for-sale securities:
Mortgage-related securities:
Agency⁽³⁾	$	113	Consensus
	75		Various
Total agency	188

Mortgage revenue bonds	211		Single Vendor	Spreads (bps)	32.5	-	376.0	97.5
	85		Various
Total mortgage revenue bonds	296
Other	248		Discounted Cash Flow	Spreads (bps)	620.0				620.0



	36		Various
Total other	284
Total available-for-sale securities	$	768
Net derivatives	$	209	Dealer Mark
	8		Various
Total net derivatives	$	217



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	98	103



			Notes to Condensed Consolidated Financial Statements \| Fair Value


	Fair Value Measurements as of December 31, 2019
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾				Weighted - Average⁽¹⁾⁽²⁾
	(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽³⁾	$	46	Various
Available-for-sale securities:
Mortgage-related securities:
Agency⁽³⁾	$	107	Consensus
	64		Various
Total agency	171






Mortgage revenue bonds	222		Single Vendor	Spreads(bps)	23.0	-	205.1	76.1
	93		Various
Total mortgage revenue bonds	315
Other	267		Discounted Cash Flow	Spreads(bps)	300.0				300.0



	39		Various
Total other	306
Total available-for-sale securities	$	792
Net derivatives	$	147	Dealer Mark
	15		Various
Total net derivatives	$	162

⁽¹⁾Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services or dealers, and the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably estimated. Where we have disclosed unobservable inputs for consensus and single vendor techniques, those inputs are based on our validations performed at the security level using discounted cash flows.

⁽²⁾Unobservable inputs were weighted by the relative fair value of the instruments.

⁽³⁾Includes Fannie Mae and Freddie Mac securities.

Fair Value Measurements as of December 31, 2018
Fair Value Significant Valuation Techniques
Significant Unobservable
Inputs⁽¹⁾

Range⁽¹⁾

Weighted - Average⁽¹⁾⁽²⁾
(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽²⁾
$ 32
Various
Private-label securities and other mortgage securities

1
Various
Total trading securities $ 33

Available-for-sale securities:
Mortgage-related securities:
Agency⁽²⁾
$ 152
Various

Alt-A and subprime private-label securities 24
Various
Mortgage revenue bonds 349
Single Vendor Spreads(bps) (0.5 ) - 332.8 59.0
85
Various
Total mortgage revenue bonds 434

Other 294
Discounted Cash Flow Default Rate(%) 4.7 4.7
Prepayment Speed(%) 8.2 8.2
Severity(%) 70.0 70.0
Spreads(bps) 75.4
- 390.0 389.1
48
Various
Total other 342

Total available-for-sale securities $ 952

Net derivatives $ 113
Dealers Mark
81
Various
Total net derivatives $ 194


⁽¹⁾Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q						Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services or dealers, and the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably estimated. Where we have disclosed unobservable inputs for consensus and single vendor techniques, those inputs are based on our validations performed at the security level using discounted cash flows.			104


⁽²⁾			~~Unobservable inputs were weighted by the relative fair value of the instruments.~~Notes to Condensed Consolidated Financial Statements \| Fair Value

In our condensed consolidated balance sheets, certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when we evaluate loans for impairment). We had no0 Level 1 assets or liabilities held as of ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018~~2019 that were measured at fair value on a nonrecurring basis. We held ~~$247~~$4 million and ~~$91~~$274 million in Level 2 assets as of March 31, 2020 and December 31, 2019, respectively, comprised of mortgage loans held for sale and nomortgage loans held for investment that were impaired. We had 0 Level 2 liabilities that were measured at fair value on a nonrecurring basis as of ~~June 30, 2019 and~~March 31, 2020 or December 31, ~~2018, respectively.~~



~~Fannie Mae (In conservatorship) Second Quarter 2019 Form 10-Q~~		99



	~~Notes to Condensed Consolidated Financial Statements \| Fair Value~~

2019.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis. The significant unobservable inputs related to these techniques primarily relate to collateral dependent valuations. The related ranges and weighted averages are not meaningful when aggregated as they vary significantly from property to property.


		Fair Value Measurements as of
	Valuation Techniques	March 31, 2020		December 31, 2019
	(Dollars in millions)
Nonrecurring fair value measurements:
Mortgage loans held for sale, at lower of cost or fair value	Consensus	$	1,767	$	471
	Single Vendor	1,886		605

Total mortgage loans held for sale, at lower of cost or fair value		3,653		1,076

Single-family mortgage loans held for investment, at amortized cost	Internal Model	1,491		555


Multifamily mortgage loans held for investment, at amortized cost	Asset Manager Estimate	—		24
	Various	52		16
Total multifamily mortgage loans held for investment, at amortized cost		52		40
Acquired property, net:⁽¹⁾
Single-family	Accepted Offers	106		101
	Appraisals	356		362
	Walk Forwards	189		240
	Internal Model	113		164
	Various	52		51
Total single-family		816		918
Multifamily	Various	7		9

Total nonrecurring assets at fair value		$	6,019	$	2,598

Fair Value Measurements
as of
Valuation Techniques June 30, 2019 December 31, 2018

(Dollars in millions)

Nonrecurring fair value measurements:
Mortgage loans held for sale, at lower of cost or fair value Consensus $ 1,772
$ 631
Single Vendor 1,448
1,119
Total mortgage loans held for sale, at lower of cost or fair value 3,220
1,750

Single-family mortgage loans held for investment, at amortized cost Internal Model 571
818
Multifamily mortgage loans held for investment, at amortized cost Asset Manager Estimate 218
102
Various 13
40
Total multifamily mortgage loans held for investment, at amortized cost 231
142
Acquired property, net:⁽¹⁾

Single-family Accepted Offers 118
151
Appraisals 337
419
Walk Forwards 198
181
Internal Model 150
219
Various 33
41
Total single-family 836
1,011
Multifamily Various —
50
Total nonrecurring assets at fair value $ 4,858
$ 3,771

⁽¹⁾
The most commonly used techniques in our valuation of acquired property are a proprietary home price model and third-party valuations (both current and walk forward). Based on the number of properties measured as of March 31, 2020, these methodologies comprised approximately 81% of our valuations, while accepted offers comprised approximately 14% of our valuations. Based on the number of properties measured as of December 31, 2019, these methodologies comprised approximately 85% of our valuations, while accepted offers comprised approximately 12% of our valuations.


⁽¹⁾	The most commonly used techniques in our valuation of acquired property are proprietary home price model and third-party valuations (both current and walk forward). Based on the number of properties measured as of June 30, 2019 and December 31, 2018, these methodologies comprised approximately 82% of our valuations, while accepted offers comprised approximately 15% of our valuations.

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. See “Note 15, Fair Value” in our ~~2018~~2019 Form 10-K for information on the valuation control processes and the valuation techniques we use for fair value measurement and disclosure as well as our basis for classifying these measurements as Level 1, Level 2 or Level 3 of the valuation hierarchy in more specific situations. We made no material changes to the valuation control processes or the valuation techniques for the ~~six~~three months ended ~~June 30, 2019.~~

March 31, 2020.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	~~100~~	105



			Notes to Condensed Consolidated Financial Statements \| Fair Value

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments. The fair value of financial instruments we disclose includes commitments to purchase multifamily and single-family mortgage loans that we do not record in our condensed consolidated balance sheets. The fair values of these commitments are included as “Mortgage loans held for investment, net of allowance for loan losses.” The disclosure excludes all non-financial instruments; therefore, the fair value of our financial assets and liabilities does not represent the underlying fair value of our total consolidated assets and liabilities.

As of June 30, 2019
Carrying
Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Netting Adjustment Estimated
Fair Value
(Dollars in millions)
Financial assets:
Cash and cash equivalents and restricted cash $ 60,970
$ 40,170
$ 20,800
$ —
$ —
$ 60,970
Federal funds sold and securities purchased under agreements to resell or similar arrangements 19,562
—
19,562
—
—
19,562
Trading securities 42,866
35,266
7,526
74
—
42,866
Available-for-sale securities 2,761
—
1,939
822
—
2,761
Mortgage loans held for sale 11,220
—
826
11,112
—
11,938
Mortgage loans held for investment, net of allowance for loan losses 3,262,012
—
3,175,207
142,889
—
3,318,096
Advances to lenders 5,395
—
5,393
2
—
5,395
Derivative assets at fair value 561
—
2,054
216
(1,709 ) 561
Guaranty assets and buy-ups 152
—
—
352
—
352
Total financial assets $ 3,405,499
$ 75,436
$ 3,233,307
$ 155,467
$ (1,709 ) $ 3,462,501

Financial liabilities:
Federal funds purchased and securities sold under agreements to repurchase $ 131
$ —
$ 131
$ —
$ —
$ 131
Short-term debt:
Of Fannie Mae 22,901
—
22,907
—
—
22,907
Long-term debt:
Of Fannie Mae 193,913
—
201,775
826
—
202,601
Of consolidated trusts 3,199,765
—
3,195,793
36,368
—
3,232,161
Derivative liabilities at fair value 799
—
3,063
33
(2,297 ) 799
Guaranty obligations 166
—
—
109
—
109
Total financial liabilities $ 3,417,675
$ —
$ 3,423,669
$ 37,336
$ (2,297 ) $ 3,458,708


	As of March 31, 2020
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustment		Estimated Fair Value
	(Dollars in millions)
Financial assets:
Cash and cash equivalents and restricted cash	$	128,708	$	116,308	$	12,400	$	—	$	—	$	128,708
Federal funds sold and securities purchased under agreements to resell or similar arrangements	7,775		—		7,775		—		—		7,775
Trading securities	52,941		44,727		8,052		162		—		52,941
Available-for-sale securities	2,289		—		1,521		768		—		2,289
Mortgage loans held for sale	8,103		—		86		8,402		—		8,488



Mortgage loans held for investment, net of allowance for loan losses	3,354,707		—		3,395,898		118,612		—		3,514,510
Advances to lenders	8,971		—		8,969		2		—		8,971
Derivative assets at fair value	2,771		—		4,661		247		(2,137)		2,771
Guaranty assets and buy-ups	127		—		—		271		—		271
Total financial assets	$	3,566,392	$	161,035	$	3,439,362	$	128,464	$	(2,137)	$	3,726,724

Financial liabilities:

Short-term debt:
Of Fannie Mae	$	58,337	$	—	$	58,388	$	—	$	—	$	58,388

Long-term debt:
Of Fannie Mae	170,121		—		176,634		2,215		—		178,849
Of consolidated trusts	3,334,098		—		3,440,638		31,767		—		3,472,405
Derivative liabilities at fair value	3,809		—		6,386		30		(2,607)		3,809
Guaranty obligations	141		—		—		99		—		99
Total financial liabilities	$	3,566,506	$	—	$	3,682,046	$	34,111	$	(2,607)	$	3,713,550



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	~~101~~	106



			Notes to Condensed Consolidated Financial Statements \| Fair Value

As of December 31, 2018
Carrying
Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Netting Adjustment Estimated
Fair Value
(Dollars in millions)
Financial assets:
Cash and cash equivalents and restricted cash $ 49,423
$ 34,073
$ 15,350
$ —
$ —
$ 49,423
Federal funds sold and securities purchased under agreements to resell or similar arrangements 32,938
—
32,938
—
—
32,938
Trading securities 41,867
35,502
6,332
33
—
41,867
Available-for-sale securities 3,429
—
2,477
952
—
3,429
Mortgage loans held for sale 7,701
—
238
7,856
—
8,094
Mortgage loans held for investment, net of allowance for loan losses 3,241,694
—
2,990,104
216,404
—
3,206,508
Advances to lenders 3,356
—
3,354
2
—
3,356
Derivative assets at fair value 458
—
2,515
209
(2,266 ) 458
Guaranty assets and buy-ups 147
—
—
356
—
356
Total financial assets $ 3,381,013
$ 69,575
$ 3,053,308
$ 225,812
$ (2,266 ) $ 3,346,429

Financial liabilities:
Short-term debt:
Of Fannie Mae $ 24,896
$ —
$ 24,901
$ —
$ —
$ 24,901
Long-term debt:
Of Fannie Mae 207,178
—
211,403
771
—
212,174
Of consolidated trusts 3,159,846
—
3,064,239
39,043
—
3,103,282
Derivative liabilities at fair value 777
—
3,077
15
(2,315 ) 777
Guaranty obligations 160
—
—
121
—
121
Total financial liabilities $ 3,392,857
$ —
$ 3,303,620
$ 39,950
$ (2,315 ) $ 3,341,255


	As of December 31, 2019
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustment		Estimated Fair Value
	(Dollars in millions)
Financial assets:
Cash and cash equivalents and restricted cash	$	61,407	$	50,057	$	11,350	$	—	$	—	$	61,407
Federal funds sold and securities purchased under agreements to resell or similar arrangements	13,578		—		13,578		—		—		13,578
Trading securities	48,123		39,501		8,576		46		—		48,123
Available-for-sale securities	2,404		—		1,612		792		—		2,404
Mortgage loans held for sale	6,773		—		229		7,054		—		7,283



Mortgage loans held for investment, net of allowance for loan losses	3,327,389		—		3,270,535		127,650		—		3,398,185
Advances to lenders	6,453		—		6,451		2		—		6,453
Derivative assets at fair value	271		—		1,360		199		(1,288)		271
Guaranty assets and buy-ups	142		—		—		305		—		305
Total financial assets	$	3,466,540	$	89,558	$	3,313,691	$	136,048	$	(1,288)	$	3,538,009

Financial liabilities:
Federal funds purchased and securities sold under agreements to repurchase	$	478	$	—	$	478	$	—	$	—	$	478
Short-term debt:
Of Fannie Mae	26,662		—		26,667		—		—		26,667

Long-term debt:
Of Fannie Mae	155,585		—		164,144		401		—		164,545
Of consolidated trusts	3,285,139		—		3,312,763		31,827		—		3,344,590
Derivative liabilities at fair value	435		—		2,092		37		(1,694)		435
Guaranty obligations	154		—		—		97		—		97
Total financial liabilities	$	3,468,453	$	—	$	3,506,144	$	32,362	$	(1,694)	$	3,536,812

For a detailed description and classification of our financial instruments, see “Note 15, Fair Value” in our ~~2018~~2019 Form 10-K.

Fair Value Option

We elected the fair value option for loans and debt that contain embedded derivatives that would otherwise require bifurcation. Additionally, we elected the fair value option for our credit risk-sharing securities accounted for as debt of Fannie Mae issued under our CAS series prior to January 1, 2016. Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from such instruments.

Interest income for the mortgage loans is recorded in “Interest income—Mortgage loans” and interest expense for the debt instruments is recorded in “Interest expense—Long-term debt” in our condensed consolidated statements of operations and comprehensive income.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	~~102~~	107



			Notes to Condensed Consolidated Financial Statements \| Fair Value

The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made fair value elections.


	As of
	March 31, 2020																December 31, 2019
	Loans⁽¹⁾					Long-Term Debt of Fannie Mae			Long-Term Debt of Consolidated Trusts					Loans⁽¹⁾				Long-Term Debt of Fannie Mae	Long-Term Debt of Consolidated Trusts
	(Dollars in millions)
Fair value		$	7,701	$	4,752		$	22,855		$	7,825	$	5,687		$	21,880
Unpaid principal balance		7,261		4,860			20,219			7,514		5,200			19,653

As of
June 30, 2019 December 31, 2018

Loans⁽¹⁾
Long-Term Debt of Fannie Mae Long-Term Debt of Consolidated Trusts
Loans⁽¹⁾
Long-Term Debt of Fannie Mae Long-Term Debt of Consolidated Trusts
(Dollars in millions)
Fair value $ 8,479
$ 6,370
$ 22,771
$ 8,922
$ 6,826
$ 23,753

Unpaid principal balance 8,221
5,835
20,687
8,832
6,241
22,080

⁽¹⁾⁽¹⁾Includes nonaccrual loans with a fair value of $121 million and $129 million as of March 31, 2020 and December 31, 2019, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of March 31, 2020 and December 31, 2019 was $20 million and $11 million, respectively. Includes loans that are 90 days or more past due with a fair value of $73 million and $80 million as of March 31, 2020 and December 31, 2019, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of March 31, 2020 and December 31, 2019 was $16 million and $10 million, respectively.

Includes nonaccrual loans with a fair value of $141 million and $161 million as of June 30, 2019 and December 31, 2018, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of June 30, 2019 and December 31, 2018 was $13 million and $19 million, respectively. Includes loans that are 90 days or more past due with a fair value of $87 million and $102 million as of June 30, 2019 and December 31, 2018, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of June 30, 2019 and December 31, 2018 was $10 million and $14 million, respectively.

Changes in Fair Value under the Fair Value Option Election

We recorded gains of ~~$126~~$151 million and ~~$239~~$113 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~respectively, and losses of $27 million and $176 million for the three and six months ended June 30, 2018,~~ respectively, from changes in the fair value of loans recorded at fair value in “Fair value ~~gains (losses),~~losses, net” in our condensed consolidated statements of operations and comprehensive income.

We recorded gains of $262 million and losses of ~~$222 million and $552~~$330 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~respectively, and gains of $247 million and $501 million for the three and six months ended June 30, 2018,~~ respectively, from changes in the fair value of long-term debt recorded at fair value in “Fair value ~~gains (losses),~~losses, net” in our condensed consolidated statements of operations and comprehensive income.

13. Commitments and Contingencies

We are party to various types of legal actions and proceedings, including actions brought on behalf of various classes of claimants. We also are subject to regulatory examinations, inquiries and investigations, and other information gathering requests. In some of the matters, indeterminate amounts are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. This variability in pleadings, together with our and our counsel’s actual experience in litigating or settling claims, leads us to conclude that the monetary relief that may be sought by plaintiffs bears little relevance to the merits or disposition value of claims.

We have substantial and valid defenses to the claims in the proceedings described below and intend to defend these matters vigorously. However, legal actions and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. Accordingly, the outcome of any given matter and the amount or range of potential loss at particular points in time is frequently difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how courts will apply the law. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel may view the evidence and applicable law.

On a quarterly basis, we review relevant information about all pending legal actions and proceedings for the purpose of evaluating and revising our contingencies, accruals and disclosures. We establish an accrual only for matters when a loss is probable and we can reasonably estimate the amount of such loss. We are often unable to estimate the possible losses or ranges of losses, particularly for proceedings that are in their early stages of development, where plaintiffs seek indeterminate or unspecified damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where settlement negotiations have not occurred or progressed. Given the uncertainties involved in any action or proceeding, regardless of whether we have established an accrual, the ultimate resolution of certain of these matters may be material to our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of our net income or loss for that period.

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. We have also advanced fees and expenses of certain current and former officers and directors in connection with various legal proceedings pursuant to our bylaws and indemnification agreements.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	~~103~~	108



			Notes to Condensed Consolidated Financial Statements \| Commitments and Contingencies

Senior Preferred Stock Purchase Agreements Litigation

A consolidated putative class action (“(“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action ~~Litigations~~Litigations””) and two non-class action lawsuits,Arrowood Indemnity Company v. Fannie Mae and Fairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the District of Columbia. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock purchase agreement with Treasury.

~~In the consolidated class action and two of the non-class action suits,~~ ~~Arrowood Indemnity Company v. Fannie Mae~~ ~~and~~ ~~Fairholme Funds v. FHFA,~~ ~~plaintiffs~~Plaintiffs filed amended complaints in all three lawsuits on November 1, 2017 alleging that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments nullified certain of the shareholders’ rights, particularly the right to receive dividends. Plaintiffs seek unspecified damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. Plaintiffs in the class action seek to represent several classes of preferred and/or common shareholders of Fannie Mae and/or Freddie Mac who held stock as of the public announcement of the August 2012 amendments. On September 28, 2018, the court dismissed all of the plaintiffs’ claims except for their claims for breach of an implied covenant of good faith and fair dealing. ~~On October 15, 2018, defendants filed a motion for partial reconsideration. On May 16, 2019, the court denied this motion.~~

On May 21, 2018, a ~~pro se~~ plaintiff in a non-class action case, Angel v. Federal Home Loan Mortgage Corporation, filed a complaint for declaratory relief and compensatory damages against Fannie Mae (including certain members of its Board of Directors), Freddie Mac (including certain members of its Board of Directors) and FHFA, as conservator, in the U.S. District Court for the District of Columbia. Plaintiff in that case asserts claims for breach of contract, breach of implied covenants of good faith and fair dealing, and aiding and abetting the federal government in avoiding an alleged implicit guarantee of dividend payments. On March 6, 2019, the court granted defendants’ motion to dismiss and on March 18, 2019, plaintiff moved to alter or amend the judgment and to file an amended complaint. On May 24, 2019, the court denied this motion. On ~~June 19, 2019, plaintiff filed a notice of appeal of the court’s dismissal and related orders with~~April 24, 2020, the U.S. Court of Appeals for the District of Columbia ~~Circuit.~~Circuit affirmed the lower court’s judgment.

Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial defenses, we are currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.



Fannie Mae (In conservatorship) ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	~~104~~	109



			Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, ~~including Interest Rate~~Including Interest-Rate Risk Management.”

Item 4. Controls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls and procedures as well as internal control over financial reporting, as further described below.

~~Evaluation of Disclosure Controls and Procedures~~

~~Disclosure Controls and Procedures~~

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

~~Evaluation~~Senior Preferred Stock Purchase Agreements Litigation

A consolidated putative class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations”) and two non-class action lawsuits, Arrowood Indemnity Company v. Fannie Mae and Fairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the District of ~~Disclosure~~Columbia. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock purchase agreement with Treasury.

Plaintiffs filed amended complaints in all three lawsuits on November 1, 2017 alleging that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments nullified certain of the shareholders’ rights, particularly the right to receive dividends. Plaintiffs seek unspecified damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. Plaintiffs in the class action seek to represent several classes of preferred and/or common shareholders of Fannie Mae and/or Freddie Mac who held stock as of the public announcement of the August 2012 amendments. On September 28, 2018, the court dismissed all of the plaintiffs’ claims except for their claims for breach of an implied covenant of good faith and fair dealing.

On May 21, 2018, a plaintiff in a non-class action case, Angel v. Federal Home Loan Mortgage Corporation, filed a complaint for declaratory relief and compensatory damages against Fannie Mae (including certain members of its Board of Directors), Freddie Mac (including certain members of its Board of Directors) and FHFA, as conservator, in the U.S. District Court for the District of Columbia. Plaintiff in that case asserts claims for breach of contract, breach of implied covenants of good faith and fair dealing, and aiding and abetting the federal government in avoiding an alleged implicit guarantee of dividend payments. On March 6, 2019, the court granted defendants’ motion to dismiss and on March 18, 2019, plaintiff moved to alter or amend the judgment and to file an amended complaint. On May 24, 2019, the court denied this motion. On April 24, 2020, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the lower court’s judgment.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									109


			Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management.”

Item 4. Controls and Procedures

AsOverview

We are required ~~by Rule 13a-15~~ under ~~the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer~~applicable laws and ~~Chief Financial Officer, the effectiveness of our~~regulations to maintain controls and procedures, which include disclosure controls and procedures as ~~in effect~~well as of June 30, 2019, the end of the period covered by this report. As a result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of June 30, 2019 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of June 30, 2019 or as of the date of filing this report because they did not adequately ensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of June 30, 2019 or as of the date of this filing, and we continue to have a material weakness in our internal control over financial reporting. This material weakness is described in more detail below under “Description of Material Weakness.” Based on discussions with FHFA and the structural nature of this material weakness, we do not expect to remediate this material weakness while we are under conservatorship.

~~Description of Material Weakness~~

~~The Public Company Accounting Oversight Board’s Auditing Standard 2201 defines a material weakness as a deficiency, or a combination of deficiencies, in~~ internal control over financial reporting, ~~such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.~~

~~Management has determined that we continued to have the following material weakness~~ as ~~of June 30, 2019 and as of the date of filing this report:~~

•

~~Disclosure Controls and Procedures.~~ We have been under the conservatorship of FHFA since September 6, 2008. Under the GSE Act, FHFA is an independent agency that currently functions as both our conservator and our regulator with respect to our safety, soundness and mission. Because of the nature of the conservatorship under the GSE Act, which places us under the “control” of FHFA (as that term is defined by securities laws), some of the information that we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions without our knowledge that could be material to our shareholders and other stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing business. Although we and FHFA attempted to design and implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~105~~



		~~Controls and Procedures~~

effective disclosure controls and procedures. As both our regulator and our conservator under the GSE Act, FHFA is limited in its ability to design and implement a complete set of disclosure controls and procedures relating to Fannie Mae, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity, we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is responsible.

Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our condensed consolidated financial statements. As a result, we did not maintain effective controls and procedures designed to ensure complete and accurate disclosure as required by GAAP as of June 30, 2019 or as of the date of filing this report. Based on discussions with FHFA and the structural nature of this weakness, we do not expect to remediate this material weakness while we are under conservatorship.

~~Mitigating Actions Related to Material Weakness~~

Asfurther described above under “Description of Material Weakness,” we continue to have a material weakness in our internal control over financial reporting relating to our disclosure controls and procedures. However, we and FHFA have engaged in the following practices intended to permit accumulation and communication to management of information needed to meet our disclosure obligations under the federal securities laws:below.

~~FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the company with the oversight of the conservator.~~

We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to release.

FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly report on Form 10-Q for the quarter ended June 30, 2019 (“Second Quarter 2019 Form 10-Q”), and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our Second Quarter 2019 Form 10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the Second Quarter 2019 Form 10-Q, and it was not aware of any material misstatements or omissions in the Second Quarter 2019 Form 10-Q and had no objection to our filing the Second Quarter 2019 Form 10-Q.

~~Our senior management meets regularly with senior leadership at FHFA, including, but not limited to, the Director.~~

FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and market risk management, external communications and legal matters.

~~Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance executives regarding our accounting policies, practices and procedures.~~

~~Changes in Internal Control Over Financial Reporting~~

~~Overview~~

Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Below we describe changes in our internal control over financial reporting since March 31, 2019 that management believes have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal controls. Changes may include implementing new, more efficient systems, automating manual processes and updating existing systems. For example, we are currently implementing changes to various financial system applications in stages across the company. As we continue to implement these changes, each implementation may become a significant component of our internal control over financial reporting.

~~Common Securitization Platform~~

In May 2019, we began using the common securitization platform operated by CSS to perform certain aspects of the securitization process for our single-family Fannie Mae MBS issuances. We began issuing UMBS using the common securitization platform in June 2019. Our use of the common securitization platform for single-family Fannie Mae MBS issuances represents a significant change to our control environment and requires us to rely on CSS for effective controls related to these securities issuances and related functions. In connection with this transition of activities to CSS, we modified our accounting and financial reporting processes, including replacing or redesigning existing internal controls over financial



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~106~~



		~~Controls and Procedures~~

reporting that were previously considered effective with new or modified controls. We will continue to monitor and test these new and modified controls for adequate design and operating effectiveness. Because our transition to using the common securitization platform for single-family Fannie Mae MBS issuances occurred during the second quarter, we used both our legacy securitization processes and related controls, as well as the new and modified controls, in preparing our second quarter 2019 condensed consolidated financial statements included in this report.

~~Treasury Cash Management System~~

In July 2019, we consolidated our treasury systems used for cash activities, liquidity management and bank account administration into a fully integrated new treasury cash management system. In connection with this implementation and related business process changes, we redesigned or replaced multiple existing controls that were previously considered effective with new or modified controls and, in some cases, removed controls that are no longer applicable. We will continue to monitor and test these new and modified controls for adequate design and operating effectiveness. Because this new system was not implemented until July 2019, we continued to use our legacy treasury cash management system controls in preparing our second quarter 2019 condensed consolidated financial statements included in this report.



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~107~~



		~~Other Information~~

~~PART II—OTHER INFORMATION~~

~~Item 1. Legal Proceedings~~

The information in this item supplements and updates information regarding certain legal proceedings set forth in “Legal Proceedings” in our 2018 Form 10-K and our First Quarter 2019 Form 10-Q. We also provide information regarding material legal proceedings in “Note 13, Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. However, litigation claims and proceedings of all types are subject to many factors and their outcome and effect on our business and financial condition generally cannot be predicted accurately.

We establish an accrual for legal claims only when a loss is probable and we can reasonably estimate the amount of such loss. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. If certain of these matters are determined against us, FHFA or Treasury, it could have a material adverse effect on our results of operations, liquidity and financial condition, including our net worth.

Senior Preferred Stock Purchase Agreements Litigation

A consolidated putative class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations”) and two non-class action lawsuits, Arrowood Indemnity Company v. Fannie Mae and Fairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the District of Columbia. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock purchase agreement with Treasury.


Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q									109


			Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management.”

Item 4. Controls and Procedures

Overview

Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as in effect as of March 31, 2020, the end of the period covered by this report. As a result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of March 31, 2020 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of March 31, 2020 or as of the date of filing this report because they did not adequately ensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of March 31, 2020 or as of the date of this filing, and we continue to have a material weakness in our internal control over financial reporting. This material weakness is described in more detail below under “Description of Material Weakness.” Based on discussions with FHFA and the structural nature of this material weakness, we do not expect to remediate this material weakness while we are under conservatorship.

Description of Material Weakness

The Public Company Accounting Oversight Board’s Auditing Standard 2201 defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management has determined that we continued to have the following material weakness as of March 31, 2020 and as of the date of filing this report:

•Disclosure Controls and Procedures. We have been under the conservatorship of FHFA since September 6, 2008. Under the GSE Act, FHFA is an independent agency that currently functions as both our conservator and our regulator with respect to our safety, soundness and mission. Because of the nature of the conservatorship under the GSE Act, which places us under the “control” of FHFA (as that term is defined by securities laws), some of the information that we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions without our knowledge that could be material to our shareholders and other stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing business. Although we and FHFA attempted to design and implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls and procedures. As both our regulator and our conservator under the GSE


Fannie Mae First Quarter 2020 Form 10-Q									110


						Controls and Procedures

Act, FHFA is limited in its ability to design and implement a complete set of disclosure controls and procedures relating to Fannie Mae, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity, we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is responsible.

Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our condensed consolidated financial statements. As a result, we did not maintain effective controls and procedures designed to ensure complete and accurate disclosure as required by GAAP as of March 31, 2020 or as of the date of filing this report. Based on discussions with FHFA and the structural nature of this weakness, we do not expect to remediate this material weakness while we are under conservatorship.

Mitigating Actions Related to Material Weakness

As described above under “Description of Material Weakness,” we continue to have a material weakness in our internal control over financial reporting relating to our disclosure controls and procedures. However, we and FHFA have engaged in the following practices intended to permit accumulation and communication to management of information needed to meet our disclosure obligations under the federal securities laws:

•FHFA has established the Division of Resolutions, which is intended to facilitate operation of the company with the oversight of the conservator.

•We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to release.

•FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly report on Form 10-Q for the quarter ended March 31, 2020 (“First Quarter 2020 Form 10-Q”), and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our First Quarter 2020 Form 10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the First Quarter 2020 Form 10-Q, and it was not aware of any material misstatements or omissions in the First Quarter 2020 Form 10-Q and had no objection to our filing the First Quarter 2020 Form 10-Q.

•Our senior management meets regularly with senior leadership at FHFA, including, but not limited to, the Director.

•FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and market risk management, external communications and legal matters.

•Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance executives regarding our accounting policies, practices and procedures.

Changes in Internal Control Over Financial Reporting

Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Below we describe changes in our internal control over financial reporting since December 31, 2019 that management believes have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

•Overview. In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal controls. Changes may include implementing new, more efficient systems, automating manual processes and updating existing systems. For example, we are currently implementing changes to various financial system applications in stages across the company. As we continue to implement these changes, each implementation may become a significant component of our internal control over financial reporting.

•Implementation of the CECL standard. We began using new and enhanced models, new systems and enhanced business processes related to our adoption of the CECL standard as of January 1, 2020. In connection with the adoption and related business process changes, we redesigned multiple existing controls that were previously considered effective with new or modified controls and, in some cases, removed controls that are no longer applicable. We will continue to monitor and test these new and modified controls for adequate design and operating effectiveness. These new and enhanced models, systems, business processes and controls were fully implemented in January 2020 and were used to prepare our first quarter 2020 condensed consolidated financial statements included in this report.


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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information in this item supplements and updates information regarding certain legal proceedings set forth in “Legal Proceedings” in our 2019 Form 10-K. We also provide information regarding material legal proceedings in “Note 13, Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. However, litigation claims and proceedings of all types are subject to many factors and their outcome and effect on our business and financial condition generally cannot be predicted accurately.

Senior Preferred Stock Purchase Agreements Litigation

Between June 2013 and August 2018, preferred and common stockholders of Fannie Mae and Freddie Mac filed lawsuits in multiple federal courts against one or more of the United States, Treasury and FHFA, challenging actions taken by the defendants relating to the Fannie Mae and Freddie Mac senior preferred stock purchase agreements and the conservatorships of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims against Fannie Mae and Freddie Mac. The legal claims being advanced by one or more of these lawsuits include challenges to the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to August 2012 amendments to the agreements, the payment of dividends to Treasury under the net worth sweep dividend provisions, and FHFA’s decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in order to pay dividends to Treasury prior to the August 2012 amendments. Some of the lawsuits also challenge the constitutionality of FHFA’s structure. The plaintiffs seek various forms of equitable and injunctive relief, including rescission of the August 2012 amendments, as well as damages. The cases that remain pending ~~or were terminated~~ after ~~March~~December 31, 2019 are as follows:

District of Columbia. Fannie Mae is a defendant in three cases pending in the U.S. District Court for the District of Columbia—a consolidated putative class action and two additional cases. In all three cases, Fannie Mae and Freddie Mac stockholders filed amended complaints on November 1, 2017 against us, FHFA as our conservator and Freddie Mac. On September 28, 2018, the court dismissed all of the plaintiffs’ claims in these cases, except for their claims for breach of an implied covenant of good faith and fair dealing. In a fourth case that was filed in the U.S. District Court for the District of Columbia on May 21, 2018, the court granted defendants’ motion to dismiss on March 6, 2019, and on March 18, 2019, plaintiff moved to alter or amend the judgment and to file an amended complaint. On May 24, 2019, the court denied this motion. On ~~June 19, 2019, plaintiff filed a notice of appeal of the court’s dismissal and related orders with~~April 24, 2020, the U.S. Court of Appeals for the District of Columbia ~~Circuit.~~Circuit affirmed the lower court’s judgment. All four cases are described in “Note 13, Commitments and Contingencies.”

Southern District of ~~Texas.~~Texas (Collins v. Mnuchin). On October 20, 2016, preferred and common stockholders filed a complaint against FHFA and Treasury in the U.S. District Court for the Southern District of Texas. On May 22, 2017, the court dismissed the case. On ~~July 16, 2018,~~September 6, 2019, the ~~U.S~~U.S. Court of Appeals for the Fifth Circuit, sitting en banc, affirmed the district court’s dismissal of claims against Treasury, but reversed the dismissal of claims against FHFA. The court held that plaintiffs could pursue their claim that FHFA exceeded its statutory powers as conservator when it implemented the net worth sweep provisions of the senior preferred stock purchase agreements in August 2012. The court also held that the provision of the Housing and ~~on November 15, 2018~~Economic Recovery Act that insulates the FHFA Director from removal without cause violates constitutional separation of powers principles and, thus, that the FHFA Director may be removed by the president for any reason. The court held that the appropriate remedy for this violation is to declare the provision severed from the statute. Plaintiffs have requested that the Supreme Court review the constitutional claim, arguing that the relief granted by Fifth Circuit ~~granted~~is insufficient, and the government has requested review of the decision to allow the plaintiffs’ ~~and FHFA’s petitions for rehearing en banc.~~statutory claims to go forward.

Western District of Michigan. On June 1, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Western District of Michigan. FHFA and Treasury moved to dismiss the case on September 8, 2017, and plaintiffs filed a motion for summary judgment on October 6, 2017.

District of Minnesota. On June 22, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the District of Minnesota. The court dismissed the case on July 6, 2018, and plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Eighth Circuit on July 10, 2018.

Eastern District of Pennsylvania. On August 16, 2018, common stockholders of Fannie Mae and Freddie Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Eastern District of


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Pennsylvania. FHFA and Treasury moved to dismiss the case on November 16, 2018, and plaintiffs filed a motion for summary judgment on December 21, 2018.

U.S. Court of Federal Claims. Numerous cases are pending against the United States in the U.S. Court of Federal Claims. Fannie Mae is a nominal defendant in ~~three~~four of these cases: Fisher v. United States of America, filed on December 2, 2013; Rafter v. United States of America, filed on August 14, 2014; ~~and~~ Perry Capital LLC v. United States of America, filed on August 15, 2018; and Fairholme Funds Inc. v. United States, which was originally filed on July 9, 2013, and amended publicly to include Fannie Mae as a nominal defendant on October 2, 2018. Plaintiffs in these cases allege that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendment constitute a taking of Fannie Mae’s property without just compensation in violation of the U.S. Constitution. The Fisher plaintiffs are pursuing this claim derivatively on behalf of Fannie



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Mae, while the Rafter, Perry Capital and ~~Perry Capital~~Fairholme Funds plaintiffs are pursing the claim both derivatively and directly against the United States. Plaintiffs in Rafter also allege direct and derivative breach of contract claims against the government. The Perry Capital and Fairholme Fundsplaintiffs allege similar breach of contract claims, as well as direct and derivative breach of fiduciary duty claims against the government. Plaintiffs in Fisher request just compensation to Fannie Mae in an unspecified amount. Plaintiffs in Rafter, Perry Capital and ~~Perry Capital~~Fairholme Funds seek just compensation for themselves on their direct claims and payment of damages to Fannie Mae on their derivative claims. The United States filed a motion to dismiss the Fisher, Rafter and ~~Rafter~~Fairholme Funds cases on August 1, 2018.

~~LIBOR Lawsuit~~

~~As described further in our 2018 Form 10-K, in October 2013, Fannie Mae filed a lawsuit~~ On December 6, 2019, the court entered an order in the Fairholme Funds case that granted the government’s motion to dismiss all the direct claims but denied the motion as to all of the derivative claims brought on behalf of Fannie Mae. On March 9, 2020, the court certified the case for appeal to the U.S. ~~District~~ Court of Appeals for the ~~Southern District~~Federal Circuit. Both the government and the Fairholme Funds plaintiffs filed petitions with the U.S. Court of ~~New York against a number of banks and other defendants alleging they manipulated LIBOR. On July 22, 2019, we entered into an agreement resolving our claims against two of~~Appeals for the ~~defendants in this lawsuit: Citigroup Inc. and Citibank, N.A. The financial impact of~~Federal Circuit on March 19, 2020 requesting that the ~~settlement was not material to our financial statements.~~court hear the appeal.

Item 1A. Risk Factors

In addition to the information in this report, you should carefully consider the risks relating to our business that we identify in “Risk Factors” in our ~~2018~~2019 Form 10-K. This section supplements and updates that discussion. Also refer to “MD&A—Risk Management,” “MD&A—Single-Family Business” and “MD&A—Multifamily Business” in our ~~2018~~2019 Form 10-K and in this report for more detailed descriptions of the primary risks to our business and how we seek to manage those risks.

The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity and net worth, and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make. We believe the risks described in the sections of this report and our ~~2018~~2019 Form 10-K identified above are the most significant we face; however, these are not the only risks we face. ~~In addition to the risks we discuss in this report and in our 2018 Form 10-K, we~~We face additional risks and uncertainties not currently known to us or that we currently believe are immaterial.

The ~~future of~~COVID-19 outbreak has adversely affected our ~~company is uncertain.~~

~~There continues to be significant uncertainty regarding the future of our company, including how long the company~~business, financial results and financial condition, and we expect that it will continue to ~~exist~~do so. The adverse impact of the COVID-19 outbreak on our business, financial results and financial condition could be materially greater than we currently anticipate.

The rapid global outbreak of COVID-19, a new respiratory disease caused by a novel coronavirus, has caused substantial financial market volatility in ~~its current form,~~recent weeks and has significantly adversely affected both the U.S. and the global economy. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic, and on March 13, 2020, President Trump declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 outbreak in the United States has expanded in recent weeks, and has resulted in stay-at-home orders, school closures and widespread business shutdowns across the country. These shutdowns and other reductions in business activity have substantially increased unemployment levels. While the federal government is taking many actions to reduce the negative economic impact of the COVID-19 outbreak, as described in “Executive Summary—COVID-19 Impact—Economic Impact,” the extent to which these actions will mitigate the short-term and long-term negative impacts of the COVID-19 outbreak on the U.S. economy and our ~~role~~business is unclear. The outbreak has already resulted in a contraction in U.S. GDP for the first quarter of 2020, and could result in a sustained drop in the ~~market, how long we will be in conservatorship, what form we will have and what ownership interest, if any, our current common and preferred stockholders will hold in us after~~level of U.S. economic activity.

We expect the ~~conservatorship is terminated, and whether we will~~impact of the COVID-19 outbreak to continue to ~~exist following conservatorship. The conservatorship is indefinite~~negatively affect our financial results and contribute to lower net income in duration and the timing, conditions and likelihood of our emerging from conservatorship are uncertain. Our conservatorship could terminate through a receivership. Termination of the conservatorship, other2020 than in ~~connection with~~2019. We could have a ~~receivership,~~net loss in one or more future periods or possibly could have a net worth deficit that requires ~~Treasury’s consent~~a draw from Treasury under the senior preferred stock purchase agreement.

~~In March 2019, President Trump issued a memorandum directing~~ Our forecasts and expectations relating to the ~~Secretary~~impact of the ~~Treasury~~COVID-19 outbreak are subject to ~~develop a Treasury Housing Reform Plan, which~~many uncertainties and may change, perhaps substantially, from our current forecasts and expectations. It is ~~described in “MD&A—Legislation and Regulation—Housing Finance Reform.” As of~~difficult to assess or predict the ~~time~~impact of this ~~filing, the Treasury Housing Reform Plan has not been published. The Senate Committee~~unprecedented event on Banking, Housing, and Urban Affairs held a hearing in June 2019 on whether we should be regulated as a systemically important financial institution, which would result in our becoming subject to additional regulation and oversight by the Federal Reserve Board if it occurred. We expect the Administration, FHFA and Congress to continue to consider housing finance reform, which could result in significant changes in our structure and role in the future, as well as other changes to our business, ~~and competitive environment.~~

Congress, FHFA or other agencies may also consider legislation, regulation or other administrative actions aimed at increasing the competition we face, reducing our market share, expanding our obligations to provide funds to Treasury, constraining our business operations, or subjecting us to new obligations that could impose substantial burdens or adversely affect ourfinancial results ~~of operations~~ or financial condition. ~~We cannot predict~~Factors that will impact the ~~timing~~extent to which the COVID-19 outbreak affects our business, financial results and financial condition include: the duration, spread and severity of the outbreak; the actions taken to contain the virus or ~~final content~~treat its impact, including government actions to mitigate the economic impact of ~~housing finance reform legislation, other legislation, regulations or administrative actions related~~the outbreak; the nature and extent of the forbearance and modification options we offer borrowers affected by the outbreak; accounting elections and estimates relating to ~~our activities, nor can we predict~~ the impact of the COVID-19 outbreak; borrower and renter behavior in response to the outbreak and its economic impact; how quickly and to what extent normal economic and operating conditions can resume, including whether any ~~such enacted legislation, regulations or administrative actions would have on our business~~future outbreaks interrupt economic recovery; and ~~financial condition.~~

~~Our business~~how quickly and ~~results~~to what extent affected borrowers, renters and counterparties can recover from the negative economic impact of ~~operations may be materially adversely affected if~~the outbreak. While we are unable to ~~retain~~predict the future course of these events or their longer-term effects on our business, key areas we have identified where the


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COVID-19 outbreak is negatively affecting or may negatively affect our business, financial results and ~~recruit well-qualified senior executives~~financial condition are described below:

•Increased borrower credit risk. Among other factors, income growth and unemployment levels affect borrowers’ ability to repay their mortgage loans. As a result, we expect that current and future declines in economic activity and resulting higher unemployment rates will likely lead to significantly higher rates of delinquencies and may ultimately lead to significantly higher defaults on the mortgage loans in our guaranty book of business. Because of this expectation, our credit-related expenses were substantially higher in the first quarter of 2020. As there is significant uncertainty associated with the impact of the COVID-19 outbreak, we may ultimately experience greater losses than we currently expect and also may have high credit-related expenses in future quarters. Moreover, at FHFA's direction and/or as required by the CARES Act, we are taking a number of actions to help borrowers affected by the COVID-19 outbreak that we expect will adversely affect our financial results and financial condition, including requiring that our servicers:

◦provide up to 12 months of forbearance to single-family borrowers impacted by COVID-19-related financial hardships who request forbearance;

◦provide up to 3 months of forbearance to eligible multifamily borrowers impacted by COVID-19-related financial hardships on the condition that such borrowers suspend evictions and other ~~employees.~~ penalties relating to late payments during the forbearance period; and

◦suspend foreclosures and foreclosure-related activities for single-family loans (other than for vacant or abandoned properties) through at least May 17, 2020.

The ~~conservatorship,~~CARES Act also instituted a temporary moratorium through July 25, 2020 on tenant evictions for nonpayment of rent that applies to any single-family or multifamily property that secures a mortgage loan we own or guarantee, which is likely to adversely affect the ~~uncertainty~~ability of some of our ~~future and limitations~~borrowers to make payments on ~~our executive and employee compensation put us~~their loans.

If a large number of borrowers cannot repay the amounts owed at ~~a disadvantage compared~~the end of their forbearance plans or over time, or fail to ~~many other companies~~qualify for modifications, this could result in ~~attracting and retaining these employees.~~

~~Our business processes are highly dependent~~significantly higher defaults on the ~~talents~~mortgage loans in our guaranty book of business. Some states and ~~efforts~~localities have also implemented or are considering borrower and renter protections that are more extensive than the CARES Act requirements and our requirements. These additional protections, depending on their scope and whether and to what extent they apply to our business, could contribute to a higher number of single-family and multifamily borrowers becoming delinquent on their loans or could limit our ability to complete foreclosures.

In addition, we expect the economic dislocation resulting from the COVID-19 outbreak will likely negatively affect housing activities, home price growth and multifamily property valuation growth, and could lead to declines in home prices and multifamily property valuations. If this occurs, it would increase the amount of our ~~senior executives~~loss in the event a borrower defaults on their loan. Lower home prices and ~~other employees.~~multifamily property valuations would likely also lead to deterioration in loan performance and changes in borrower behavior, and potentially prohibit some borrowers from being able to refinance their loan. The ~~conservatorship,~~magnitude of the ~~uncertainty~~impact would likely vary significantly across geographic regions and based on the credit characteristics of the loans.

The COVID-19 outbreak is also affecting the credit quality of our ~~future~~new loan acquisitions. Some of the new single-family loans we are acquiring beginning May 1, 2020 are already receiving payment forbearance. In addition, due to CARES Act provisions prohibiting lenders from reporting previously-current borrowers receiving COVID-19-related payment accommodations as delinquent to the credit bureaus, we may not have accurate data on a borrower’s credit history when we are determining the eligibility of the single-family loans we acquire.

•Increased human capital and ~~limitations on executive~~business resiliency risk. As of April 29, 2020, according to the U.S. Centers for Disease Control and ~~employee compensation have had,~~Prevention, there were more than 1 million reported cases of COVID-19 in the United States, and ~~are likely~~many public health experts expect this number to continue to increase. While we have ~~an adverse effect on~~succession plans in place, they may not be effective. If a significant number of our ~~ability to retain and recruit well-qualified~~ executives ~~and~~or other ~~employees. Turnover in key management positions and challenges in integrating new management~~employees, or their family members for whom they provide care, contract COVID-19 during the same time period, it could ~~harm~~materially adversely affect our ability to manage our business, ~~effectively and successfully implement our and FHFA’s current strategic initiatives, and ultimately could adversely affect our financial performance.~~

Actions taken by Congress, FHFA and Treasury to date, or that may be taken by them or other government agencies in the future, have had, and may continue to have, an adverse effect on our retention and recruitment of senior executives and other



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~~employees. We are subject to significant restrictions on the amount and type of compensation we may pay our executives and other employees while under conservatorship. For example:~~

~~The Equity in Government Compensation Act of 2015 caps the annual direct compensation payable to our chief executive officer to no more than $600,000 while we are in conservatorship or receivership.~~

~~The STOCK Act prohibits our senior executives from receiving bonuses during any period of conservatorship.~~

In April 2019, legislation was introduced in the U.S. Senate that would prohibit either Fannie Mae or Freddie Mac from transferring or delegating any duty or responsibility, as of November 25, 2015, of its chief executive officer to any other position. The legislation would also provide that the Director of FHFA may be removed for cause for approving the compensation of any chief executive officer of Fannie Mae or Freddie Mac at a level greater than that permitted under the Equity in Government Compensation Act of 2015.

As our conservator, FHFA has the authority to approve the terms and amount of our executive compensation. The Director of FHFA has recently stated that FHFA is reviewing the compensation of Fannie Mae’s and Freddie Mac’s executive officers.

~~The terms of our senior preferred stock purchase agreement with Treasury contain specified restrictions relating to compensation.~~

As a result of the restrictions on our compensation practices, we have not been able to incent and reward excellent performance with compensation structures that provide upside potential to our executives, which places us at a disadvantage compared to many other companies in attracting and retaining executives. In addition, the uncertainty of potential action by Congress or the Administration with respect to housing finance reform, which may result in the wind-down or significant restructuring of the company, and with respect to the compensation and role of our executives, also negatively affects our ability to retain and recruit executives and other employees.

Our inability to offer market-based compensation to our chief executive officer also makes retention and succession planning for this position difficult. We believe the limit applicable to our chief executive officer compensation negatively affected our ability to retain our former Chief Executive Officer, who left the company in October 2018.

We face competition from the financial services and technology industries, and from businesses outside of these industries, for qualified executives and other employees. If we are unable to retain, promote and attract executives and other employees with the necessary skills and talent, we would face increased risks for operational failures. If there were several high-level departures at approximately the same time, our ability to conduct our business would likely be materially adversely affected, which could have a material adverse effect on our results of operations and financial condition.

~~The Single Security Initiative may~~Since mid-March, we have ~~an adverse effect on the liquidity or market value~~required nearly all of our ~~MBS.~~workforce to work remotely, which we refer to as telework. In addition, nearly all of our workforce is located in a geographic region where the state or local government has issued a stay-at-home order and/or closed schools; these orders and closures may be extended in whole or in part for several weeks or months. The ~~Single Security Initiative also increases our counterparty credit risk and operational risk.~~

On June 3, 2019, we and Freddie Mac began issuing UMBS. We also began using the common securitization platform operated by CSS to perform certain aspects of the securitization process for our single-family Fannie Mae MBS issuances beginning in May 2019. This represents the final implementation of FHFA’s Single Security Initiative that we, Freddie Mac and FHFA have been working on since 2014. The Single Security Initiative and the common securitization platform represent significant changes for the mortgage market and for our securitization operations and business.

Historically, single-family Fannie Mae MBS had a trading advantage over comparable Freddie Mac single-family mortgage-backed securities. The Single Security Initiative has eliminated this trading advantage. We believe this has contributed, and will continue to contribute, to competitive pressurestrain on our ~~single-family guaranty fee pricing.~~

~~Uncertainty in connection with the Single Security Initiative could contribute to declines~~workforce and our business operations caused by this shift in the ~~liquidity~~work and home environment may result in business interruptions, significantly reduced productivity and other adverse impacts on our operations. While our technological systems to date have continued to function with our workforce working remotely, this telework arrangement increases the risk of technological or ~~market value~~cybersecurity incidents that negatively affect our business operations. This telework arrangement, as well as the risk that a significant number of ~~Fannie Mae MBS~~employees or ~~otherwise~~their family members could contract COVID-19 and our reliance on third parties for some functions, also could adversely affect our financial condition or results of operations. The industry has expressed concerns that Fannie Mae-issued UMBS and Freddie Mac-issued UMBS may not be truly fungible. FHFA, as conservator, has previously responded to industry input by imposing alignment mandates on Fannie Mae and Freddie Mac, and adopted a rule to align Fannie Mae and Freddie Mac programs, policies and practices that affect the prepayment rates of TBA-eligible mortgage-backed securities. However, these alignment efforts may not be successful and the prepayment rates on Fannie Mae-issued UMBS and Freddie Mac-issued UMBS could diverge. If investors do not accept the fungibility of Fannie Mae-issued UMBS and Freddie Mac-issued UMBS, or if investors prefer Freddie Mac-issued UMBS over Fannie Mae-issued UMBS, it could adversely affect the volume of our UMBS issuances and the liquidity and market value of Fannie Mae MBS, which could have a significant adverse impact on our business, liquidity, financial condition, net worth and results of operations.

The continued support of FHFA, Treasury, the Securities Industry and Financial Markets Association, and certain other regulatory bodies is critical to the success of the Single Security Initiative. If these entities were to cease their support, the liquidity and market value of Fannie Mae-issued UMBS could be adversely affected. Furthermore, if either we or Freddie Mac exit conservatorship in the future, it is unclear whether our and Freddie Mac’s programs, policies and practices in support of the Single Security Initiative would be sustained.

The Single Security Initiative has also resulted in increased credit risk exposure and operational risk exposure to Freddie Mac. We and Freddie Mac can now commingle Fannie Mae-issued UMBS and Freddie Mac-issued UMBS in resecuritizations.



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When we resecuritize Freddie Mac-issued UMBS or other Freddie Mac securities, our guaranty of principal and interest extends to the underlying Freddie Mac security. Our risk exposure to Freddie Mac is expected to increase as we issue more structured securities backed directly or indirectly by Freddie Mac-issued UMBS going forward. In the event Freddie Mac were to fail (for credit or operational reasons) to make a payment due on its securities underlying a Fannie Mae-issued structured security, we would be obligated under our guaranty to fund any shortfall and make the entire payment on the related Fannie Mae-issued structured security on that payment date. Our pricing does not currently reflect any incremental credit, liquidity or operational risk associated with our guaranty of resecuritized Freddie Mac securities. As a result, we could be dependent on Freddie Mac and on the senior preferred stock purchase agreements that we and Freddie Mac each have with Treasury to avoid a liquidity event or a default under our guaranty.

The Single Security Initiative has created significant interdependence between the single-family mortgage securitization programs of Fannie Mae and Freddie Mac. Accordingly, the market value of single-family Fannie Mae MBS could be affected by events relating to Freddie Mac, even if those events do not directly relate to Fannie Mae or Fannie Mae MBS. For example, any actual or perceived change in Freddie Mac’s financial performance or condition, mortgage credit quality, or systems and data reliability could adversely affect the market value of single-family Fannie Mae MBS. Similarly, any disruption in Freddie Mac’s securitization activities or any adverse events affecting Freddie Mac’s significant mortgage sellers and servicers also could adversely the market value of single-family Fannie Mae MBS.

We no longer use our individual proprietary securitization function for our single-family MBS issuances. In addition to using the common securitization platform for our newly issued UMBS issuances, we are also now using the common securitization platform for certain ongoing administrative functions for our previously issued and outstanding single-family Fannie Mae MBS. Accordingly, we are reliant on the common securitization platform and CSS for the operation of several of our single-family securitization activities. These activities are complex and present significant operational and technological challenges and risks. Any measures we take to mitigate these challenges and risks might not be sufficient to prevent a disruption to our securitization activities. Our business activities could be adversely affected and the market for single-family Fannie Mae MBS could be disrupted if the common securitization platform were to fail or otherwise become unavailable to us or if CSS were unable to perform its obligations to us. Any such failure or unavailability could have a significant adverse impact on our business, liquidity, financial condition, net worth and results of operations, and could adversely affect the liquidity or market value of our single-family MBS. In addition, a failure by CSSability to maintain effective controls and procedures, which could result in material errors in our reported results or disclosures that are not complete or accurate.


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•Increased counterparty credit and operational risk. The economic dislocation caused by the COVID-19 outbreak could lead to default by one or more of our institutional counterparties on their obligations to us. If a counterparty were to default on its obligations to us, it could result in significant financial losses. Counterparty defaults could also negatively impact our ability to operate our business, as we outsource some of our critical functions to third parties, such as mortgage servicing, single-family Fannie Mae MBS issuance and administration, and certain technology functions.

For the majority of our single-family guaranty book of business, when borrowers do not pay their mortgages, our Single-Family Servicing Guide generally requires servicers to advance the missed scheduled principal and interest payments to MBS trusts for payment to MBS holders. As described in “MD&A—Legislation and Regulation,” currently this obligation continues until we purchase the loan from the MBS trust, but effective in August 2020, our servicers’ obligations to advance these payments will end after four months of missed borrower payments. Single-family servicers are also required to advance property tax and insurance payments to taxing authorities, hazard insurers and mortgage insurers. For nearly all of our multifamily guaranty book of business, when borrowers do not pay their mortgages, our Multifamily Selling and Servicing Guide requires lenders to advance the missed scheduled principal and interest payments to MBS trusts for payment to MBS holders for up to four months before they are eligible for reimbursement. If a large number of single-family or multifamily borrowers do not pay their mortgages as a result of the economic dislocation caused by the COVID-19 outbreak, our servicers may not have sufficient liquidity to advance the missed payments to MBS trusts. In such case, we would be required to make the payments, which could require us to obtain substantial additional funding. See ~~“Risk Factors” in our 2018 Form 10-K~~below for a ~~discussion~~description of ~~other~~our increased liquidity risk.

In addition, if multiple single-family or multifamily servicers were to fail to meet their obligations to us, it could cause substantial disruption to our business, borrowers and the mortgage industry. We may not be able to transfer the servicing of loans to new servicers without significant operational disruptions and financial losses, and there may not be sufficient industry capacity to take on large servicing transfers. A large portion of our single-family and multifamily guaranty books of business are serviced by non-depository servicers. We believe the counterparty risks associated with our ~~implementation of~~non-depository servicers are higher than the ~~Single Security Initiative~~risks associated with our depository servicers, as our non-depository servicers typically have lower financial strength, liquidity and ~~related internal infrastructure upgrades.~~operational capacity than our depository servicers, which may negatively affect their ability to fully satisfy their financial obligations or to properly service the loans on our behalf. The actions we have taken to mitigate our credit risk exposure to mortgage servicers may not be sufficient to prevent us from experiencing significant financial losses or business interruptions in the event they cannot fulfill their obligations to us.

~~Our business and financial results are affected~~As noted above, the economic dislocation caused by ~~general economic conditions, particularly home prices and employment trends, and a deterioration of economic conditions or~~the COVID-19 outbreak could lead to significantly higher defaults on mortgage loans. Although we strengthened the financial ~~markets may materially adversely~~and operational requirements for our mortgage insurer counterparties in 2019 and our primary mortgage insurer counterparties approved to write new business for us currently meet these requirements, a substantially higher level of mortgage defaults could affect these counterparties' ability to fully meet their payment obligations to us.

•Increased liquidity risk. As described in “MD&A—Liquidity and Capital Management,” while market conditions improved in April, adverse market conditions in March limited our ~~results~~ability to issue debt with a maturity greater than two years. If market conditions limit our ability to issue longer-term debt, it could require that we fund longer-term assets with short-term debt, which would increase the roll-over risk on our outstanding debt. In addition, we expect our debt funding needs to increase in future periods, as significantly higher rates of ~~operations, net worth~~loan delinquencies and ~~financial condition.~~

~~Our business is significantly affected~~an increase in forbearances and other loss mitigation activity driven by the ~~status~~COVID-19 outbreak require us to fund greater amounts of ~~the U.S. economy, particularly home prices~~principal, interest, tax and ~~employment trends. A prolonged period~~insurance payments on delinquent loans and to purchase a larger volume of ~~slow growth in the U.S. economy or any deterioration in general economic conditions or the financial markets could materially adversely affect our results~~delinquent loans from MBS trusts. We also may continue to fund a high volume of operations, net worth and financial condition. In general, if home prices decrease, or the unemployment rate increases, it could result in significantly higher levels of credit losses and credit-related expense.whole loan conduit activity.

~~Global economic conditions can also adversely affect our business and financial results. Changes or~~If substantial volatility in market conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of our assets, which could materially adversely affect our results of operations, net worth and financial condition. A slowdown in economic growth around the world remains a concern for policy makers and financial markets. To the extent global economic conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our book of business.

Volatility or uncertainty in global political conditions also can significantly affect U.S. economic conditions and financial markets. Currently, there is elevated uncertainty around several unresolved global political events, including the United Kingdom’s exit from the European Union and ongoing international trade negotiations, that could impact global growth and financial markets. See “Risk Factors” in our 2018 Form 10-K for a description of the risks to our business posed by changes in interest rates and changes in spreads. In addition, as described in “Risk Factors” in our 2018 Form 10-K, future changes or disruptions in the financial markets continues or intensifies it could significantly ~~change~~adversely affect the amount, mix and cost of funds we obtain, as well as our liquidity position.

~~A decline~~ If we are unable to issue both short- and long-term debt securities at attractive rates and in ~~activity in the U.S. housing market, increasing interest rates, or longer-term effects of tax law changes could lower~~amounts sufficient to operate our business ~~volumes or otherwise adversely affect~~and meet our obligations, it likely would interfere with the operation of our business and have a material adverse effect on our liquidity, results of operations, financial condition and net ~~worth~~worth. If the COVID-19 outbreak results in a sustained market liquidity crisis, our liquidity contingency plans may be difficult or impossible to execute. If we cannot access the unsecured debt markets, our ability to repay maturing indebtedness and ~~financial condition.~~

~~Our business volume is affected by the rate~~fund our operations could be eliminated or significantly impaired. In this event, our alternative source of growth in total U.S. residential mortgage debt outstanding and the size of the U.S. residential mortgage market. A decline in mortgage debt outstanding reduces the unpaid principal balance of mortgage loans available for us to acquire, which in turn could reduceliquidity, our ~~net interest income. Even if we were able to increase our share of the secondary mortgage market, it~~other investments portfolio, may not be sufficient to ~~make up for a~~meet our liquidity needs.

•Increased market risk. As described in “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management,” the significant volatility in the financial markets makes it more challenging to manage our interest-rate risk. In addition, the overall decline in rates during the ~~rate~~first quarter of ~~growth~~2020 resulted in ~~mortgage originations.~~

declines in the fair value of some of the financial instruments that we mark to market through our earnings, which contributed to our fair value losses for the quarter. If this volatility continues or intensifies, it could further negatively affect our ability to manage our interest-rate risk and result in additional fair value losses. Furthermore, with the anticipated decline in borrower performance due to impact of the COVID-19 outbreak and increased uncertainty regarding the value of


Fannie Mae First Quarter 2020 Form 10-Q									115



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~111~~Other Information



		~~Other Information~~

mortgage-related assets in the current environment, we may have higher investment losses in future periods relating to decreases in the fair value of our loans that are held for sale.

~~Mortgage interest rates also~~•Limitations on ability to engage in new credit risk transfer transactions. In recent weeks, we have been significantly restricted in our ability to enter into credit risk transfer transactions due to detrimental market conditions as a result of the COVID-19 outbreak. We do not anticipate being able to enter into new credit risk transfer transactions until market conditions improve. Credit risk transfer transactions are an important tool that we use to manage the credit risk of our loan acquisitions, as well as to reduce our overall conservatorship capital requirements. If we continue to be unable to enter into new credit risk transfer transactions, it would impact our ability to reduce our credit risk exposure to the loans we acquire, which could negatively affect our ~~business volume. Rising interest rates generally~~financial results or require that we reduce the amount or type of loans we acquire, and also could result in ~~fewer~~higher conservatorship capital requirements.

•Suspension of nonperforming and reperforming loan sales. We do not anticipate entering into any new contracts for sales of nonperforming or reperforming loans in the near future because in recent weeks there has been insufficient investor interest in these transactions as a result of the COVID-19 outbreak. Our suspension of these transactions limits our ability to reduce the amount of nonperforming and reperforming loans in our retained mortgage ~~originations, particularly~~portfolio, which has been a way for ~~refinances. An increase in interest rates, particularly if the increase is sudden and steep, could significantly~~us to reduce our credit risk and conservatorship capital requirements.

•Increased model and accounting estimate risk. Given the unprecedented nature and timing of the COVID-19 outbreak and its uncertain impact, we believe our model results relating to our allowance for loan losses currently cannot accurately capture the loan losses we will ultimately incur relating to COVID-19. For the first quarter of 2020, management used its judgment to increase our loss projections to reflect our current expectations relating to COVID-19’s impact on our loan losses, but this judgment may be inaccurate and we may ultimately experience greater losses, perhaps substantially, than we currently expect. The unprecedented nature of the COVID-19 outbreak may also negatively affect our ability to rely on models to effectively manage the risks to our business.

•Potential reduced demand for mortgages. The COVID-19 outbreak may reduce demand for both single-family and multifamily mortgage loans, which could reduce our future loan acquisitions and guaranty fee income. In addition, government and business ~~volume. Significant reductions in~~closures relating to COVID-19 are likely to delay or prevent some closings on both new purchase loans and refinances.

•Increased risk of additional government action affecting our ~~business volume could~~business. Federal, state and local governments have taken many actions that have or that we expect will adversely affect our financial results, ~~of operations~~such as the stay-at-home orders currently in place across the country and ~~financial condition.~~

~~The cap on mortgage interest deductions,~~ the ~~increase in the amount~~loan forbearance requirements of the ~~standard deduction and other changes in tax laws may also adversely affect housing demand, home prices~~CARES Act. The U.S. Congress, Treasury, the Federal Reserve, FHFA or other ~~housing~~national, state or ~~mortgage market conditions, which could impact our business volumes and adversely affect our results of operations, net worth and financial condition.~~

~~The continued run-off of mortgage-backed securities from~~local government agencies or legislatures may take additional steps in response to the ~~Federal Reserve’s portfolio~~COVID-19 outbreak that could adversely affect our business, financial results ~~of operations,~~and financial condition, ~~liquidity~~such as expanding or extending our obligations to help borrowers, renters or counterparties affected by the outbreak or expanding the amounts and ~~net worth.~~types of businesses that are shut down.

In recent years, the Federal Reserve has purchased a significant amount of mortgage-backed securities issued by us, Freddie Mac and Ginnie Mae. In October 2017, the Federal Reserve initiated a balance sheet normalization program•Increased uncertainty relating to ~~reduce its holdings of Treasury securities and mortgage-backed securities. In March 2019, the Federal Reserve announced a plan to end the runoff of its portfolio.~~our exit from conservatorship. The ~~Federal Reserve has indicated~~COVID-19 outbreak could delay or prevent our exit from conservatorship, particularly as it ~~will reduce its holdings of mortgage-backed securities and increase its holdings of Treasury securities. This~~ may create upward pressure on mortgage interest rates and reduce demand for mortgage-backed securities, which could adversely affect our business, results of operations, financial condition, liquidity and net worth.

~~Legislative, regulatory or judicial actions could negatively impact our business, results of operations, financial condition or net worth.~~

Legislative, regulatory or judicial actions at the federal, state or local level could negatively impact our business, results of operations, financial condition, liquidity or net worth. Legislative, regulatory or judicial actions could affect us in a number of ways, including by imposing significant additional costs on us and diverting management attention or other resources. For example, we could be affected by:

Legislation designed to affect how we and Freddie Mac manage our business. For example, legislation introduced in the U.S. Senate in April 2019 would prohibit either Fannie Mae or Freddie Mac from transferring or delegating any duty or responsibility, as of November 25, 2015, of its chief executive officer to any other position. If enacted, this legislation could negatively impact our business by requiring us to change our current management structure and limitingdelay our ability to ~~determine~~build and raise sufficient capital to exit conservatorship. In addition, as we, FHFA and Treasury focus on responding to the ~~roles~~COVID-19 outbreak, it may reduce our and ~~responsibilities~~their capacity to work toward meeting other preconditions for exiting conservatorship.

•Increased risk of ~~our executives in~~mortgage fraud. In response to ~~evolving business needs.~~

~~Legislative or regulatory changes that expand~~the COVID-19 outbreak, we are offering certain temporary flexibilities relating to our ~~or our servicers’, responsibility and liability for securing, maintaining or otherwise overseeing vacant properties prior to foreclosure, which~~Single-Family Selling Guide requirements. This could increase ~~our costs.~~

~~State laws and court decisions granting new or expanded priority rights over our mortgages~~the risk of mortgage fraud relating to homeowners associations or through initiatives that provide a lien priority to loans used to finance energy efficiency or similar improvements, which could adversely affect our ability to recover our losses on affected loans.

State and local laws and regulations expanding rent control and other tenant protections, such as New York’s Housing Stability and Tenant Protection Act of 2019, which could negatively affect the housing market in the applicable areas and increase our credit risk on the loans we ~~guarantee in those areas.~~

acquire during the COVID-19 outbreak. In addition, asthe CARES Act provides that a single-family borrower may obtain mortgage payment forbearance with no additional documentation required other than the borrower's attestation to a financial hardship caused by COVID-19, which creates the risk that borrowers who are not experiencing financial hardship may request a forbearance.

For more information on the risks to our business relating to borrower credit risk, counterparty credit risk, economic conditions, market risk, liquidity risk, operational risk, model risk and other types of risks described inabove, see “Risk Factors” in ~~this report and in~~ our ~~2018~~2019 Form 10-K, our business could be materially adversely affected by legislative and regulatory actions relating to housing finance reform or the financial services industry, or by legal or regulatory proceedings.

~~Uncertainty relating to the potential discontinuance of LIBOR after 2021 may adversely affect our results of operations, financial condition, liquidity and net worth.~~

We routinely engage in transactions involving financial instruments that reference LIBOR, including acquiring loans and securities, selling securities and entering into derivative transactions that reference LIBOR. In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling the group of major banks that sustain LIBOR to submit rate quotations after 2021. As a result, it is uncertain whether LIBOR will continue to be quoted after 2021. We continue to analyze potential risks associated with the LIBOR transition, including financial, operational, legal, reputational and compliance risks.

Efforts are underway to identify and transition to a set of alternative reference rates. The transition may lead to disruption, including yield volatility on LIBOR-based securities. In 2017, the ARRC recommended the alternative reference rate SOFR and the Federal Reserve Bank of New York began publishing SOFR in 2018. However, SOFR is calculated based on different criteria than LIBOR. Accordingly, SOFR and LIBOR may diverge, particularly in times of macroeconomic stress. Since the initial publication of SOFR in 2018, daily changes in SOFR have at times been more volatile than daily changes in comparable benchmark or market rates. Additionally, we cannot anticipate how long it will take to develop the systems and processes necessary to adopt SOFR or other benchmark replacements, which may delay and contribute to uncertainty and volatility surrounding the LIBOR transition.

10-K.


Fannie Mae First Quarter 2020 Form 10-Q									116



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~112~~Other Information



		~~Other Information~~

While many of our LIBOR-indexed financial instruments allow us to take discretionary action to select an alternative reference rate if LIBOR is discontinued, our use of an alternative reference rate may be subject to legal challenges. There is considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial instruments. This uncertainty could result in disputes and litigation with counterparties and borrowers surrounding the implementation of alternative reference rates in our financial instruments that reference LIBOR. If LIBOR ceases or changes in a manner that causes regulators or market participants to question its viability, financial instruments indexed to LIBOR could experience disparate outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or regulatory jurisdiction, and a host of other factors. There can be no assurance that legislative or regulatory actions will dictate what happens if LIBOR ceases or is no longer viable, or what those actions might be. In addition, while the ARRC was created to ensure a successful transition from LIBOR, there can be no assurance that the ARRC will endorse practices that create a smooth transition and minimize value transfers between market participants, or that its endorsed practices will be broadly adopted by market participants. Divergent industry or market participant actions could result after LIBOR is no longer available or viable. It is uncertain what effect any divergent industry practices will have on the performance of financial instruments, including those that we own or have issued. Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of the financial instruments, which could adversely affect the value of and return on these instruments. The LIBOR transition could result in our paying higher interest rates on our current LIBOR-indexed obligations, adversely affect the yield on and fair value of the loans and securities we hold or guaranty that reference LIBOR, and increase the costs of or affect our ability to effectively use derivative instruments to manage interest rate risk.

These developments could have a material impact on us, adjustable-rate mortgage borrowers, investors, and our customers and counterparties. This could result in losses, reputational damage, litigation or costs, or otherwise adversely affect our business, financial condition, liquidity, net worth or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Common Stock

Our common stock is traded in the over-the-counter market and quoted on the OTCQB, operated by OTC Markets Group, Inc., under the ticker symbol “FNMA.”

Recent Sales of Unregistered Equity Securities

Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or issuing our equity interests, other than as required by (and pursuant to) the terms of a binding agreement in effect on September 7, 2008, without the prior written consent of Treasury. During the quarter ended ~~June 30, 2019,~~March 31, 2020, we did not sell any equity securities.

Information about Certain Securities Issuances by Fannie Mae

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in connection with certain types of securities offerings, in prospectuses for that offering that are filed with the SEC.

Because the securities we issue are exempted securities under the Securities Act of 1933, we do not file registration statements or prospectuses with the SEC with respect to our securities offerings. To comply with the disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence of these types of obligations either in offering circulars or prospectuses (or supplements thereto) that we post on our website or in a current report on Form 8-K that we file with the SEC, in accordance with a “no-action” letter we received from the SEC staff in 2004. In cases where the information is disclosed in a prospectus or offering circular posted on our website, the document will be posted on our website within the same time period that a prospectus for a non-exempt securities offering would be required to be filed with the SEC.

The website address for disclosure about our debt securities is www.fanniemae.com/debtsearch. From this address, investors can access the offering circular and related supplements for debt securities offerings under Fannie Mae’s universal debt facility, including pricing supplements for individual issuances of debt securities.

Disclosure about our obligations pursuant to the MBS we issue, some of which may be off-balance sheet obligations, can be found at www.fanniemae.com/mbsdisclosure. From this address, investors can access information and documents about our MBS, including prospectuses and related prospectus supplements.

We are providing our website address solely for your information. Information appearing on our website is not incorporated into this report.

Our Purchases of Equity Securities

We did not repurchase any of our equity securities during the ~~second~~first quarter of ~~2019.~~2020.

Dividend Restrictions

Our payment of dividends is subject to the following restrictions:



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~113~~



		~~Other Information~~

Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not pay any dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. In addition, FHFA’s regulations relating to conservatorship and receivership operations prohibit us from paying any dividends while in conservatorship unless authorized by the Director of FHFA. The Director of FHFA has directed us to make dividend payments on the senior preferred stock on a quarterly basis for every dividend period for which dividends were payable.

Restrictions Under Senior Preferred Stock Purchase Agreement and Senior Preferred Stock. The senior preferred stock purchase agreement prohibits us from declaring or paying any dividends on Fannie Mae equity securities (other than the senior preferred stock) without the prior written consent of Treasury. In addition, pursuant to the dividend provisions of the senior preferred stock and ~~quarterly~~ directives from our conservator, we are obligated to pay Treasury each quarter any dividends declared consisting of the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds ~~$3.0~~$25 billion. As a result, our net income is not available to common stockholders. For more information on the terms of the senior preferred stock purchase agreement and senior preferred stock, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our ~~2018~~2019 Form 10-K.

Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to the prior payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all outstanding preferred stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred stock.


Fannie Mae First Quarter 2020 Form 10-Q									117


						Other Information

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of the Director of FHFA is required for any dividend payment. Under the Charter Act and the GSE Act, we are not permitted to make a capital distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may permit us to repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at least an equivalent amount and will reduce our financial obligations or otherwise improve our financial condition.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~114~~



		~~Other Information~~

Item 6. Exhibits

The exhibits listed below are being filed or furnished with or incorporated by reference into this report.



Item						Description
3.1						Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through ~~May 24, 2018~~July 25, 2019 (Incorporated by reference to Exhibit 3.1 to Fannie Mae’s Quarterly Report on Form 10-Q ~~(Commission file number 000-50231)~~ for the quarter ended ~~June~~September 30, ~~2018,~~2019, filed ~~August 2, 2018.~~October 31, 2019.)
3.2						Fannie Mae Bylaws, as amended through January 29, 2019 (Incorporated by reference to Exhibit 3.2 to Fannie Mae’s Annual Report on Form 10-K ~~(Commission file number 000-50231)~~ for the year ended December 31, 2018, filed February 14, 2019.)
31.1						Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)
31.2						Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)
32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101. INS						Inline XBRL Instance Document* - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101. SCH						Inline XBRL Taxonomy Extension Schema*
101. CAL						Inline XBRL Taxonomy Extension Calculation*
101. DEF						Inline XBRL Taxonomy Extension Definition*
101. LAB						Inline XBRL Taxonomy Extension Label*
101. PRE						Inline XBRL Taxonomy Extension Presentation*
104						Cover Page Interactive Data File* - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document included as Exhibit 101

* The financial information contained in these XBRL documents is unaudited.


*Fannie Mae First Quarter 2020 Form 10-Q						~~The financial information contained in these XBRL documents is unaudited.~~			118



~~Fannie Mae Second Quarter 2019 Form 10-Q~~		~~115~~Signatures



		~~Signatures~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Federal National Mortgage Association

~~Federal National Mortgage Association~~

By:

~~By:~~

/s/ Hugh R. Frater

Hugh R. Frater
Chief Executive Officer

Date: ~~August~~May 1, ~~2019~~

2020



			By:			/s/ Celeste M. Brown
						Celeste M. Brown Executive Vice President and Chief Financial Officer

Date: ~~August~~May 1, ~~2019~~

2020



Fannie Mae ~~Second~~First Quarter ~~2019~~2020 Form 10-Q	~~116~~	119



~~———3-month LIBOR~~⁽¹⁾			~~———2-year swap rate~~⁽¹⁾	~~———10-year swap rate~~⁽¹⁾
~~———10-year Treasury rate~~⁽¹⁾	~~———30-year Fannie Mae MBS par coupon rate~~⁽¹⁾	~~———30-year FRM rate~~⁽²⁾



Components of Net Interest Income
	For the Three Months Ended June 30,							For the Six Months Ended June 30,
	2019		2018		Variance			2019		2018		Variance
	(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income, net of TCCA	$	2,312	$	2,110	$	202		$	4,571	$	4,199	$	372
Base guaranty fee income related to TCCA⁽¹⁾	600		565		35			1,193		1,122		71
Net amortization income	1,371		1,487		(116		)	2,353		2,995		(642		)
Total net interest income from guaranty book of business	4,283		4,162		121			8,117		8,316		(199		)
Net interest income from portfolios⁽²⁾	867		1,215		(348		)	1,766		2,293		(527		)
Total net interest income	$	5,150	$	5,377	$	(227	)	$	9,883	$	10,609	$	(726	)


Analysis of Net Interest Income and Yield⁽¹⁾
	For the Three Months Ended March 31,
	2020										2019
	Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Mortgage loans of Fannie Mae	$	101,765	$	1,016	3.99	%	$	119,495	$	1,323	4.43	%
Mortgage loans of consolidated trusts	3,259,557		27,922		3.43		3,153,383		28,539		3.62
Total mortgage loans⁽²⁾	3,361,322		28,938		3.44		3,272,878		29,862		3.65
Mortgage-related securities	10,875		99		3.64		9,044		102		4.51
Non-mortgage-related securities⁽³⁾	64,806		248		1.51		60,833		378		2.49
Federal funds sold and securities purchased under agreements to resell or similar arrangements	29,335		107		1.44		41,533		263		2.53
Advances to lenders	6,416		34		2.10		3,703		32		3.46
Total interest-earning assets	$	3,472,754	$	29,426	3.39	%	$	3,387,991	$	30,637	3.62	%
Interest-bearing liabilities:
Short-term funding debt	$	31,842	$	(102)	1.27	%	$	20,712	$	(125)	2.41	%
Long-term funding debt	135,415		(787)		2.32		179,152		(1,114)		2.49
Connecticut Avenue Securities^®(“CAS”)	20,536		(289)		5.63		24,884		(382)		6.14
Total debt of Fannie Mae	187,793		(1,178)		2.51		224,748		(1,621)		2.89
Debt securities of consolidated trusts held by third parties	3,281,716		(22,901)		2.79		3,156,398		(24,220)		3.07
Total interest-bearing liabilities	$	3,469,509	$	(24,079)	2.78	%	$	3,381,146	$	(25,841)	3.06	%
Net interest income/net interest yield			$	5,347	0.62	%			$	4,796	0.57	%



Analysis of Net Interest Income and Yield
	For the Three Months Ended June 30,
	2019							2018
	Average Balance		Interest Income/ (Expense)			Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)			Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Mortgage loans of Fannie Mae	$	117,235	$	1,277		4.36	%	$	156,392	$	1,786		4.57	%
Mortgage loans of consolidated trusts	3,160,712		28,102			3.56		3,065,008		26,521			3.46
Total mortgage loans⁽¹⁾	3,277,947		29,379			3.59		3,221,400		28,307			3.51
Mortgage-related securities	9,794		107			4.37		10,964		106			3.87
Non-mortgage-related securities⁽²⁾	60,184		370			2.43		54,678		262			1.89
Federal funds sold and securities purchased under agreements to resell or similar arrangements	40,851		257			2.49		31,939		149			1.84
Advances to lenders	4,936		41			3.28		4,202		33			3.12
Total interest-earning assets	$	3,393,712	$	30,154		3.55	%	$	3,323,183	$	28,857		3.47	%
Interest-bearing liabilities:
Short-term funding debt	$	19,613	$	(119	)	2.40	%	$	25,204	$	(108	)	1.69	%
Long-term funding debt	173,871		(1,102		)	2.54		203,165		(1,135		)	2.23
Connecticut Avenue Securities^®(“CAS”)	24,277		(376		)	6.20		23,887		(339		)	5.68
Total debt of Fannie Mae	217,761		(1,597		)	2.93		252,256		(1,582		)	2.51
Debt securities of consolidated trusts held by third parties	3,167,754		(23,407		)	2.96		3,065,489		(21,898		)	2.86
Total interest-bearing liabilities	$	3,385,515	$	(25,004	)	2.95	%	$	3,317,745	$	(23,480	)	2.83	%
Net interest income/net interest yield			$	5,150		0.61	%			$	5,377		0.65	%



	For the Six Months Ended June 30,
	2019							2018
	Average Balance		Interest Income/ (Expense)			Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)			Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Mortgage loans of Fannie Mae	$	118,567	$	2,600		4.39	%	$	159,721	$	3,522		4.41	%
Mortgage loans of consolidated trusts	3,156,951		56,547			3.58		3,056,594		52,819			3.46
Total mortgage loans⁽¹⁾	3,275,518		59,147			3.61		3,216,315		56,341			3.50
Mortgage-related securities	9,420		209			4.44		10,750		206			3.83
Non-mortgage-related securities⁽²⁾	60,507		748			2.46		53,200		469			1.75
Federal funds sold and securities purchased under agreements to resell or similar arrangements	41,190		520			2.51		34,649		291			1.67
Advances to lenders	4,320		73			3.36		4,024		64			3.16
Total interest-earning assets	$	3,390,955	$	60,697		3.58	%	$	3,318,938	$	57,371		3.46	%
Interest-bearing liabilities:
Short-term funding debt	$	20,160	$	(244	)	2.41	%	$	28,204	$	(214	)	1.51	%
Long-term funding debt	176,497		(2,216		)	2.51		208,751		(2,293		)	2.20
Connecticut Avenue Securities	24,579		(758		)	6.17		23,184		(641		)	5.53
Total debt of Fannie Mae	221,236		(3,218		)	2.91		260,139		(3,148		)	2.42
Debt securities of consolidated trusts held by third parties	3,162,108		(47,596		)	3.01		3,057,812		(43,614		)	2.85
Total interest-bearing liabilities	$	3,383,344	$	(50,814	)	3.00	%	$	3,317,951	$	(46,762	)	2.82	%
Net interest income/net interest yield			$	9,883		0.58	%			$	10,609		0.64	%



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A




	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 provided for the exercise of certain authorities by our Board of Directors. 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 do not know when or how the conservatorship will terminate, what further changes to our business will be made during or following conservatorship, what 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 or whether we will continue to exist following conservatorship. The U.S. Department of the Treasury (“Treasury”) released a plan in September 2019 for housing finance reform (the “Treasury plan”) that includes recommendations related to ending our conservatorship. Congress and the Administration continue to consider options for reform of the housing finance system, including Fannie Mae. We are not permitted to retain more than ~~$3.0~~$25 billion in capital reserves or to pay dividends or other distributions to stockholders other than ~~the U.S. Department of the Treasury (“Treasury”).~~Treasury. Our agreements with Treasury include covenants that significantly restrict our business activities. For additional information on the conservatorship, the uncertainty of our future, our agreements with Treasury, and recent developments relating to housing finance reform, see “Business—Conservatorship, Treasury Agreements and Housing Finance ~~Reform,” “Business—Charter Act and Regulation” and “Risk Factors”~~Reform” in our Form 10-K for the year ended December 31, ~~2018~~2019 (“~~2018~~2019 Form 10-K”)~~, and “Legislation and Regulation”~~ and “Risk Factors” in our 2019 Form 10-K and in this report.


⁽¹⁾	~~Under the terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset our prior draws of funds from Treasury. Amounts may not sum due to rounding.~~


⁽²⁾	~~Treasury draws are shown in the period for which requested, not when the funds were received by us. Draw requests have been funded in the quarter following a net worth deficit.~~


◦	~~the federal government is fully compensated for the explicit and implicit guarantees provided by it to the GSEs or any successor entities in the form of an ongoing payment to the United States;~~


◦	~~the GSEs’ activities are restricted to their core statutory mission and the size of investment and retained mortgage portfolios is appropriately limited; and~~


◦	the GSEs are subjected to heightened prudential requirements and safety and soundness standards, including increased capital requirements, designed to prevent a future taxpayer bailout and minimize risks to financial stability.



			MD&A \| ~~Legislation and Regulation~~Key Market Economic Indicators



	~~MD&A \| Single Security Initiative & Common Securitization Platform~~


•	~~Administrative Services Agreement.~~ Each of Fannie Mae and Freddie Mac is party to a separate administrative services agreement with CSS that sets forth the support services each company provides to CSS. We provide procurement services to CSS. Freddie Mac provides tax-related services to CSS.



		MD&A \| Introduction


⁽²⁾	~~Refers to the U.S. weekly average fixed-rate mortgage rate according to Freddie Mac's Primary Mortgage Market Survey®. These rates are reported using the latest available data for a given period.~~


⁽²⁾	~~According to U.S. Census Bureau and subject to revision.~~


⁽¹⁾Fannie Mae First Quarter 2020 Form 10-Q						~~According to the U.S. Bureau of Labor Statistics and subject to revision.~~			9


⁽²⁾			~~According to the U.S. Bureau of~~MD&A \| Key Market Economic ~~Analysis, calculated by the Federal Reserve Bank of St. Louis and subject to revision.~~


Summary of Condensed Consolidated Results of Operations
		For the Three Months Ended March 31,

		2020		2019		Variance
	(Dollars in millions)
Net interest income⁽¹⁾		$	5,347	$	4,796	$	551
Fee and other income		308		134		174
Net revenues		5,655		4,930		725
Investment gains (losses), net		(158)		133		(291)
Fair value losses, net		(276)		(831)		555
Administrative expenses		(749)		(744)		(5)
Credit-related income (expenses):
Benefit (provision) for credit losses		(2,583)		650		(3,233)
Foreclosed property expense		(80)		(140)		60
Total credit-related income (expenses)		(2,663)		510		(3,173)
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees		(637)		(593)		(44)
Credit enhancement expense⁽²⁾		(331)		(171)		(160)
Other expenses, net⁽³⁾		(263)		(207)		(56)
Income before federal income taxes		578		3,027		(2,449)
Provision for federal income taxes		(117)		(627)		510
Net income		$	461	$	2,400	$	(1,939)
Total comprehensive income		$	476	$	2,361	$	(1,885)


⁽¹⁾⁽¹⁾	Revenues generated by the 10 basis point ~~guaranty fee increase we implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.~~


⁽²⁾	~~Consists of cash, cash equivalents and U.S Treasury securities.~~



Fair Value Gains (Losses), Net
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
	(Dollars in millions)
Risk management derivatives fair value gains (losses) attributable to:
Net contractual interest expense accruals on interest rate swaps	$	(242	)	$	(286	)	$	(508	)	$	(501	)
Net change in fair value during the period	(125		)	329			(247		)	839
Total risk management derivatives fair value gains (losses), net	(367		)	43			(755		)	338
Mortgage commitment derivatives fair value gains (losses), net	(469		)	(76		)	(769		)	488
Credit enhancement derivatives fair value losses, net	(17		)	(5		)	(24		)	(1		)
Total derivatives fair value gains (losses), net	(853		)	(38		)	(1,548		)	825
Trading securities gains, net	183			21			275			119
CAS debt fair value gains, net	119			27			97			19
Other, net⁽¹⁾	(203		)	219			(409		)	311
Fair value gains (losses), net	$	(754	)	$	229		$	(1,585	)	$	1,274


⁽¹⁾ Fair value losses, net decreased in the first quarter of 2020 compared with the first quarter of 2019, due to gains on our trading securities and CAS debt. Our fair value gains and losses in the first quarter of 2020 were impacted by market disruptions due to the COVID-19 outbreak that resulted in lower interest rates and widened spreads between debt and U.S. Treasury yields.	~~Consists of fair value gains and losses on non-CAS debt and mortgage loans held at fair value.~~


Components of Provision for Credit Losses and Benefit from Freestanding Credit Enhancements
		For the Three Months Ended March 31, 2020
		(Dollars in millions)
Single-family provision for credit losses:
Changes in loan activity⁽¹⁾		$	(84)
Redesignation of loans from HFI to HFS		175
Actual and forecasted home prices		(921)
Actual and projected interest rates		1,257
Adjustment to model results for estimated impact of the COVID-19 outbreak		(2,500)
Other		(97)
Single-family provision for credit losses		(2,170)
Multifamily provision for credit losses:
Changes in loan activity⁽¹⁾		(22)
Actual and projected interest rates		216
Estimated impact of the COVID-19 outbreak		(636)
Other		32
Multifamily provision for credit losses		(410)
Total provision for credit losses⁽²⁾		$	(2,580)

~~Fannie Mae Second Quarter 2019 Form 10-Q~~Increase in expected benefit from freestanding credit enhancements:	16

Single-family	$	58
Multifamily	127
Total increase in expected benefit from freestanding credit enhancements	$	185



Components of Benefit for Credit Losses
	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019		2018			2019		2018
	(Dollars in billions)
Single-family benefit for credit losses:
Changes in loan activity⁽¹⁾	$	0.2	$	0.5		$	0.2	$	0.3
Redesignation of loans from HFI to HFS	0.4		0.8			0.7		1.0
Actual and forecasted home prices	0.3		0.4			0.5		0.7
Actual and projected interest rates	0.2		(0.3		)	0.4		(0.7		)
Other⁽²⁾	0.1		(0.1		)	0.1		0.2
Total single-family benefit for credit losses	$	1.2	$	1.3		$	1.9	$	1.5

		165
Other⁽²⁾	~~Primarily consists of the impact of model and assumption changes and changes in the reserve~~		17
Total single-family benefit for ~~guaranty~~credit losses ~~that are not separately included in the other components.~~			$	661


Summary of Condensed Consolidated Balance Sheets
	As of
	March 31, 2020		December 31, 2019		Variance
	(Dollars in millions)
Assets
Cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements	$	88,238	$	34,762	$	53,476
Restricted cash	48,245		40,223		8,022
Investments in securities	55,230		50,527		4,703
Mortgage loans:
Of Fannie Mae	106,674		101,668		5,006
Of consolidated trusts	3,269,345		3,241,510		27,835
Allowance for loan losses	(13,209)		(9,016)		(4,193)
Mortgage loans, net of allowance for loan losses	3,362,810		3,334,162		28,648
Deferred tax assets, net	12,831		11,910		921
Other assets	34,002		31,735		2,267
Total assets	$	3,601,356	$	3,503,319	$	98,037
Liabilities and equity
Debt:
Of Fannie Mae	$	228,458	$	182,247	$	46,211
Of consolidated trusts	3,334,098		3,285,139		48,959
Other liabilities	24,855		21,325		3,530
Total liabilities	3,587,411		3,488,711		98,700
Fannie Mae stockholders’ equity:
Senior preferred stock	120,836		120,836		—
Other net deficit	(106,891)		(106,228)		(663)
Total equity	13,945		14,608		(663)
Total liabilities and equity	$	3,601,356	$	3,503,319	$	98,037


•	~~Lender liquidity, which includes balances related to our whole loan conduit activity, supports our efforts to provide liquidity to the single-family and multifamily mortgage markets.~~


•	~~Loss mitigation~~ ~~supports our loss mitigation efforts through the purchase of delinquent loans from our MBS trusts.~~


Retained Mortgage Portfolio
	As of
	March 31, 2020					December 31, 2019
	(Dollars in millions)
Lender liquidity:
Agency securities⁽¹⁾		$	32,316	$	38,375
Mortgage loans		26,744		21,152
Total lender liquidity		59,060		59,527
Loss mitigation mortgage loans⁽²⁾		60,477		60,731
Other:
Reverse mortgage loans		16,397		17,129
Mortgage loans		6,474		6,546
Reverse mortgage securities⁽³⁾		7,233		7,575
Private-label and other securities		974		1,250
Fannie Mae-wrapped private-label securities		555		581
Mortgage revenue bonds		257		272
Total other		31,890		33,353
Total retained mortgage portfolio		$	151,427	$	153,611

Retained mortgage portfolio by segment:
Single-family mortgage loans and mortgage-related securities		$	144,040	$	145,179
Multifamily mortgage loans and mortgage-related securities		$	7,387	$	8,432


⁽¹⁾⁽¹⁾Consists of Fannie Mae, Freddie Mac, and Ginnie Mae mortgage-related securities, including Freddie Mac securities guaranteed by Fannie Mae. Excludes Fannie Mae and Ginnie Mae reverse mortgage securities and Fannie Mae-wrapped private-label securities.	Consists of Fannie Mae, Freddie Mac, and Ginnie Mae mortgage-related securities, including Freddie Mac securities guaranteed by Fannie Mae. Excludes Fannie Mae and Ginnie Mae reverse mortgage securities and Fannie Mae-wrapped private-label securities.


⁽³⁾	~~Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.~~


Composition of Fannie Mae Guaranty Book of Business⁽¹⁾
	As of
	March 31, 2020										December 31, 2019
	Single-Family		Multifamily		Total		Single-Family		Multifamily		Total
	(Dollars in millions)
Conventional guaranty book of business⁽²⁾	$	3,038,517	$	347,381	$	3,385,898	$	2,997,475	$	341,522	$	3,338,997
Government guaranty book of business⁽³⁾	26,135		1,060		27,195		27,422		1,079		28,501
Guaranty book of business	3,064,652		348,441		3,413,093		3,024,897		342,601		3,367,498
Freddie Mac securities guaranteed by Fannie Mae⁽⁴⁾	72,660		—		72,660		50,100		—		50,100
Total Fannie Mae guarantees	$	3,137,312	$	348,441	$	3,485,753	$	3,074,997	$	342,601	$	3,417,598