0000310522 us-gaap:AvailableforsaleSecuritiesMember us-gaap:MortgageBackedSecuritiesOtherMember 2018-07-01 2018-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
10-Q

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019March 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to   
Commission file number: 0-50231
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Fannie Mae
Federally chartered corporation52-0883107
1100 15th Street, NW


800800232-6643
Washington,DC20005
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
(Address of principal executive offices, including zip code)(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑     No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑     No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of September 30, 2019,March 31, 2020, there were 1,158,087,567 shares of common stock of the registrant outstanding.



TABLE OF CONTENTS
Page
TABLE OF CONTENTS
Page
PART I—Financial Information
1
Item 1.
5260
5361
5462
5563
Note 1—Summary of Significant Accounting Policies
5764
Note 2—Consolidations and Transfers of Financial Assets
6372
Note 3—Mortgage Loans
6573
Note 4—Allowance for Loan Losses
7282
Note 5—Investments in Securities
7484
Note 6—Financial Guarantees
7787
Note 7—Short-Term and Long-Term Debt
7888
Note 8—Derivative Instruments
7989
Note 9—Segment Reporting
8292
Note 10—Concentrations of Credit Risk
8493
Note 11—Netting Arrangements
8897
Note 12—Fair Value
8998
Note 13—Commitments and Contingencies
103108
Item 2.
1
1
2
45
Uniform Mortgage-Backed Securities
Key Market Economic Indicators
97
1211
19
20
2322
2423
2423
3941
4449
4653
4754
4956
4956
4957
Item 3.
104110
Item 4.
104110
PART II—Other Information
105112
Item 1.
105112
Item 1A.
106113
Item 2.
113117
Item 3.
114118
Item 4.
114118
Item 5.
114118
Item 6.
115118

Fannie Mae First Quarter 2020 Form 10-Qi
Fannie Mae Third Quarter 2019 Form 10-Qi

MD&A | Introduction



PART I—FINANCIAL INFORMATION
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 $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” and “Business—Charter Act and Regulation” in our Form 10-K for the year ended December 31, 20182019 (“20182019 Form 10-K”), “Legislation and Regulation” in this report, and “Risk Factors” in bothour 2019 Form 10-K and in this report and our 2018 Form 10-K.report.
You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more detailed information in our 20182019 Form 10-K. You can find a “Glossary of Terms Used in This Report” in the MD&A of our 20182019 Form 10-K.
Forward-looking statements in this report are based on management’s current expectations and are subject to significant uncertainties and changes in circumstances, as we describe in “Forward-Looking Statements.” Future events and our future results may differ materially from those reflected in our forward-looking statements due to a variety of factors, including those discussed in “Risk Factors” and elsewhere in this report and in our 20182019 Form 10-K.
Introduction
Fannie Mae’sMae is a leading source of financing for mortgages in the United States. Our revenues are primarily driven by guaranty fees we receive for managing the credit risk on loans underlying the mortgage-backed securities we issue. Our mission is to provide a stable source of liquidity to support housing in the U.S. for low- and moderate-income Americans.borrowers and renters. We operate in the secondary mortgage market, primarily working with lenders, who originate loans to borrowers. We do not originate loans or lend money directly to borrowers in the primary mortgage market. Instead, we securitize mortgage loans originated by lenders into Fannie Mae mortgage-backed securities that we guarantee (which we refer to as Fannie Mae MBS or our MBS); purchase mortgage loans and mortgage-related securities, primarily for securitization and sale at a later date; manage mortgage credit risk; and engage in other activities that support access to credit and the supply of affordable housing. 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.”
Through our single-family and multifamily business segments, we provided $460$204.6 billion in liquidity to the mortgage market in the first nine monthsquarter of 2019,2020, which enabled the financing of approximately 2.1 million854,000 home purchases, refinancings or rental units.
Fannie Mae Provided $460$204.6 Billion in Liquidity in the First Nine MonthsQuarter of 2019
2020
Unpaid Principal BalanceUnits
$240.1B942K
Single-Family Home Purchases
$167.3B649K
Single-Family Refinancings
$52.1B548K
Multifamily Rental Units

Units
Fannie Mae Third Quarter 2019 Form 10-Q1

MD&A | Executive Summary


Executive Summary
$68.8B256K
Single-Family Home Purchases
$121.7B439K
Single-Family Refinancings
$14.1B159K
Multifamily Rental Units
Fannie Mae First Quarter 2020 Form 10-Q1
MD&A | Executive Summary
Executive Summary
Summary of Our Financial Performance
fnm-20200331_g1.jpg
Quarterly Condensed Consolidated Results
chart-ac90d63b643f5fd09a8.jpg
Our net income in the third quarter of 2019 remained flat compared with the third quarter of 2018 primarily due to:
•
an increase in our credit-related income;
•
offset by a shift from fair value gains to fair value losses.
The decrease in our net income in the first quarter of 2020, compared with the first quarter of 2019, was primarily driven by a shift from credit-related income to credit-related expense driven by the economic dislocation caused by the COVID-19 outbreak, partially offset by an increase in net interest income and a decrease in fair value losses. See “Consolidated Results of Operations” for more information on our financial results.

Year-to-Date Condensed Consolidated Results

chart-31fd90da633255fd9d6.jpg
The decrease in our net income in the first nine months of 2019, compared with the first nine months of 2018, was primarily driven by:
•
a shift from fair value gains to fair value losses; and
•
a decrease in net interest income;
•
partially offset by an increase in our credit-related income.
See “Consolidated Results of Operations” for more information on our financial results.

Net worth. Our net worth was $10.3declined from $14.6 billion as of September 30, 2019. This amount reflects:
December 31, 2019 to $13.9 billion as of March 31, 2020. Although we had comprehensive income of $476 million for the first quarter of 2020, we had a charge of $1.1 billion to retained earnings due to our implementation of Accounting Standards Update 2016-13, Financial Instruments—Credit Losses, Measurement of Credit Losses on Financial Instruments and related amendments (the “CECL standard”) on January 1, 2020, resulting in a $663 million decline in our net worth during the period. See “Note 1, Summary of $6.4 billion as of June 30, 2019, of which we previously expected to pay Treasury $3.4 billion as a third-quarter 2019 dividend; andSignificant Accounting Policies—New Accounting Guidance—The Current Expected Credit Loss Standard” for further details.
our comprehensive income of $4.0 billion for the third quarter of 2019.
As we describeChanges in “Legislation and Regulation—Letter Agreement with Treasury,” the dividend provisions of our senior preferred stock were modified on September 27, 2019. As a result, no dividends were payable on the senior preferred stock for the third quarter of 2019, as our net worth can be significantly impacted by market conditions that affect our net interest income; fluctuations in the estimated fair value of $6.4 billionour derivatives and other financial instruments that we mark to market through our earnings; developments that affect our loss reserves, such as changes in interest rates, home prices or accounting standards, or events such as natural disasters or pandemics; and other factors, as we discuss in “Risk Factors” and “Consolidated Results of June 30,Operations” in our 2019 was lower than Form 10-K and in this report.
Financial performance. Our long-term financial performance will depend on many factors, including:
•the $25 billionsize of and our share of the U.S. mortgage market, which in turn will depend upon macroeconomic factors such as population growth, household formation and housing supply;
•borrower performance and changes in macroeconomic factors, including home prices and interest rates; and
•actions by FHFA, the Administration and Congress relating to our business and housing finance reform, including the capital reserve amount. Additionally, no dividendsrequirements that will be payableapplicable to us, our ongoing financial obligations to Treasury, potential restrictions on our activities and our business footprint, our competitive environment, and actions we are required to take to support borrowers or the mortgage market.
Quarterly fluctuations in acquisition volumes, market share, guaranty fees, or acquisition credit characteristics in any one period typically have limited impact on the senior preferred stock forsize and stability of our conventional guaranty book of business and the fourth quarterassociated revenue, profitability, and credit quality.
As described further in “COVID-19 Impact” and “Risk Factors,” the COVID-19 outbreak has significantly affected our financial performance and we expect that it will continue to do so. Given the unprecedented nature of 2019, asthe COVID-19 outbreak and the fast pace at which new developments relating to the outbreak are occurring, it is difficult to assess or predict the short-term or long-term effects of the outbreak on our net worth of $10.3 billion as of September 30, 2019 was lower than $25 billion.

financial performance.
Fannie Mae First Quarter 2020 Form 10-Q2
Fannie Mae Third Quarter 2019 Form 10-Q2

MD&A | Executive Summary


Net Worth, Treasury Funding and Senior Preferred Stock Dividends
Treasury has made a commitment under a 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 issued shares of senior preferred stock to Treasury in 2008. We have paid 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.
Under the modified dividend provisionsterms of the senior preferred stock, described in “Legislation and Regulation—Letter Agreement with Treasury,” effective with the third quarter 2019 dividend period, we arewill not required to pay furtherowe senior preferred stock dividends to Treasury until we have accumulated over $25 billion in net worth.worth as of the end of a quarter. Accordingly, no dividends were payable to Treasury for the thirdfirst quarter of 2019,2020, and none will beare payable for the fourthsecond quarter of 2019. Changes in our net worth can be significantly impacted by market conditions that affect our net interest income, fluctuations in the estimated fair value of our derivatives and other financial instruments that we mark to market through our earnings, developments that affect our loss reserves such as changes in interest rates, home prices or accounting standards, or events such as natural disasters, and other factors, as we discuss in “Risk Factors” and “Consolidated Results of Operations” in our 2018 Form 10-K and in this report.2020.
The charts below show information about our net worth, the remaining amount of Treasury’s funding commitment to us, senior preferred stock dividends we have paid Treasury and funds we have drawn from Treasury pursuant to its funding commitment.
chart-d77b9e1a660b6e1f0da.jpgchart-d91710163e0258a9ae1.jpgfnm-20200331_g2.jpgfnm-20200331_g3.jpg
(1)
Aggregate amount of dividends we have paid to Treasury on the senior preferred stock from 2008 through September 30, 2019.
(1)Aggregate amount of dividends we have paid to Treasury on the senior preferred stock from 2008 through March 31, 2020. Under the terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset our draws of funds from Treasury.
(2)
Aggregate amount of funds we have drawn from Treasury pursuant to the senior preferred stock purchase agreement from 2008 through September 30, 2019.
Under the modified liquidation preference provisions of the senior preferred stock described in “Legislation and Regulation—Letter Agreement withpurchase agreement, dividend payments we make to Treasury” do not offset our draws of funds from Treasury.
(2)Aggregate amount of funds we have drawn from Treasury pursuant to the senior preferred stock purchase agreement from 2008 through March 31, 2020.
The aggregate liquidation preference of the senior preferred stock increased from $123.8$131.2 billion as of June 30,December 31, 2019 to $127.2$135.4 billion as of September 30, 2019March 31, 2020 due to the $3.4 billion increase in our net worth during the secondfourth quarter of 2019. TheBecause our net worth did not increase during the first quarter of 2020, the aggregate liquidation preference of the senior preferred stock will further increase to $131.2remain at $135.4 billion as of December 31, 2019 dueJune 30, 2020.
If we were to draw additional funds from Treasury under the $4.0 billionsenior preferred stock purchase agreement with respect to a future period, the amount of remaining funding under the agreement would be reduced by the amount of our draw, and the aggregate liquidation preference of the senior preferred stock would increase inby the amount of our net worth during the third quarter of 2019.
draw. For a description of the terms of the senior preferred stock purchase agreement and the senior preferred stock, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 20182019 Form 10-K and “Legislation and Regulation—Letter Agreement with Treasury” in this report.10-K.
Although Treasury owns our senior preferred stock and a warrant to purchase 79.9% of our common stock andstock. Treasury has also made a commitment under the senior preferred stock purchase agreement to provide us with funds to maintain a positive net worth under specified conditions,conditions. However, the U.S. government does not guarantee our securities or other obligations.

Fannie Mae First Quarter 2020 Form 10-Q3
MD&A | Executive Summary
COVID-19 Impact
On March 11, 2020, the World Health Organization characterized COVID-19, a new respiratory disease caused by a novel coronavirus, 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. The COVID-19 outbreak had a significant impact on our business and financial results in the first quarter of 2020, and we expect that it will continue to do so. We provide a brief overview below of the economic impact of the outbreak, our response to the outbreak, and the outbreak's impact on our business and financial results, with references to where these items are discussed in more detail in this report. We also highlight below the many uncertainties relating to the impact of the COVID-19 outbreak.
Economic Impact
The COVID-19 outbreak has caused substantial financial market volatility in recent weeks and has significantly adversely affected both the U.S. and the global economy. The extensive shutdowns and other reductions in business activity across the country and globally have substantially increased unemployment levels. The federal government is taking many actions to reduce the negative economic impact of the COVID-19 outbreak. For example, the Federal Reserve has lowered the federal funds rate and is increasing its purchases of Treasury and mortgage-backed securities, purchasing corporate debt securities, and establishing and expanding liquidity facilities to support the flow of credit to consumers and businesses. In addition, the federal government has passed legislation increasing and expanding unemployment benefits, providing direct cash payments to eligible taxpayers, and allocating funds to assist businesses, states, and municipalities. However, 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 business is unclear. The outbreak has already resulted in a contraction in U.S. gross domestic product (“GDP”) for the first quarter of 2020, and could result in a sustained drop in the level of U.S. economic activity.
We expect the COVID-19 outbreak to significantly negatively impact GDP, unemployment rates, and home price growth in 2020. See “Key Market Economic Indicators” for information on macroeconomic conditions during the first quarter of 2020 and our current forecasts regarding future macroeconomic conditions.
Fannie Mae Response
We are taking a number of actions to help borrowers, renters, lenders and servicers manage the negative impact of the COVID-19 outbreak, including providing forbearance to single-family and multifamily borrowers with COVID-19-related financial hardships, suspending foreclosure-related activities, providing lenders and servicers temporary flexibilities for certain of our Selling Guide and Servicing Guide requirements, and providing liquidity to lenders by purchasing loans through our whole loan conduit. See “Single-Family Business—Single-Family Mortgage Credit Risk Management” and “Multifamily Business—Multifamily Mortgage Credit Risk Management” for more information on the actions we are taking to help borrowers, renters, lenders and servicers in response to the COVID-19 outbreak. Also see “Legislation and Regulation” for a discussion of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains a number of provisions aimed at providing relief for borrowers and renters experiencing financial hardship caused by the COVID-19 outbreak that apply to the loans we guarantee, and for a discussion of a change to our Single-Family Servicing Guide to provide stability and clarity to mortgage servicers regarding their obligations to advance missed borrower payments.
We have also taken steps to protect the safety and resiliency of our workforce. We have required nearly all of our workforce to work remotely since mid-March and continue to assess when it will be safe for employees to return to the office. To date, our business resiliency plans and technology systems have effectively supported this company-wide telework arrangement.
Impact on our Business and Financial Results
The economic dislocation caused by the COVID-19 outbreak was the primary driver of the decline in our net income in the first quarter of 2020, as compared with the first quarter of 2019. We significantly increased our allowance for loan losses to reflect the loan losses we currently expect as a result of the outbreak, which resulted in substantial credit-related expenses for the quarter. We expect the impact of the outbreak to continue to negatively affect our financial results and contribute to lower net income in 2020 than in 2019. We could have a net loss in one or more future periods or possibly could have a net worth deficit that requires a draw from Treasury under the senior preferred stock purchase agreement. See “Consolidated Results of Operations,” “Single-Family Business” and “Multifamily Business” for more information on our financial results for the first quarter of 2020.
The volatile market conditions in recent weeks have also adversely affected our ability to issue credit risk transfer securities, as described in “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Transfer of Multifamily Mortgage Credit Risk.”
Also see “Retained Mortgage Portfolio,” “Liquidity and Capital Management” and “Risk Management” for discussions of the impact of the COVID-19 outbreak on our business.
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q34

MD&A | Legislation and RegulationExecutive Summary
Risks and Uncertainties

Our current forecasts and expectations relating to the impact of the COVID-19 outbreak are subject to many uncertainties and may change, perhaps substantially. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the 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 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 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. See “Risk Factors” for a discussion of the risks to our business, financial results and financial condition relating to the COVID-19 outbreak. See “Forward-Looking Statements” for a discussion of factors that could cause actual conditions, events or results to differ materially from those described in our forecasts, expectations and other forward-looking statements in this report.

Legislation and Regulation
The information in this section updates and supplements information regarding legislative and regulatory developments affecting our business set forth in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Business—Charter Act and Regulation” in our 2018 Form 10-K, as well as in “MD&A—Legislation and Regulation” in our Form 10-Q for the quarter ended March 31, 2019 (“First Quarter 2019 Form 10-Q”) and our Form 10-Q for the quarter ended June 30, 2019 (“Second Quarter 2019 Form 10-Q”).10-K. Also see “Risk Factors” in this report and in our 20182019 Form 10-K for discussions of risks relating to legislative and regulatory matters.
Housing Finance ReformCARES Act
InOn March 2019, President Trump issued a memorandum directing27, 2020, the Secretary of the Treasury to develop a plan for administrativeCoronavirus Aid, Relief, and legislative reforms relating to Fannie Mae and Freddie Mac (collectivelyEconomic Security Act, referred to as the “government-sponsored enterprises” or the “GSEs”), as described in our First Quarter 2019 Form 10-Q.
On September 5, 2019, Treasury released its plan to reform the housing finance system.CARES Act, was enacted. The Treasury Housing Reform Plan (the “Treasury plan”)CARES Act is far-reaching in scopean economic stimulus bill that provides relief for individuals 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 49 recommended reforms—31 proposed administrative reforms and 18 proposed legislative reforms—to define a limited role for the federal government in the housing finance system, enhance taxpayer protections against future bailouts, and promote competition in the housing finance system. 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. While the Treasury plan states that it is Treasury’s preference and recommendation that Congress enact comprehensive housing finance reform legislation, the plan also states that “reform should not and need not wait on Congress. . . . Pending legislation, Treasury will continue to support FHFA’s administrative actions to enhance regulation of the GSEs, promote private sector competition, and satisfy the preconditions set forth in this plan for ending the GSEs’ conservatorships.”
The Treasury plan contemplates FHFA ending the conservatorships of each of Fannie Mae and Freddie Mac when the GSE has met specified preconditions, which the plan recommends should include, at a minimum, that:
FHFA has prescribed regulatory capital requirements for both GSEs;
FHFA has approved the GSE’s capital restoration plan, and the GSE has retained or raised sufficient capital and other loss-absorbing capacity to operate in a safe and sound manner;
the senior preferred stock purchase agreement between Treasury and the GSE has been amended to:
◦require the GSE to fully compensate the federal government in the form of an ongoing payment for the ongoing support provided to the GSE under the senior preferred stock purchase agreement;
◦focus the GSE’s activities on its core statutory mission and otherwise tailor government support to the underlying rationale for that support;
◦further limit the size of the GSE’s retained mortgage portfolio;
◦subject the GSE 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; and
◦ensure that the risk posed by the GSE’s activities is calibrated to the amount of the remaining commitment under the senior preferred stock purchase agreement;
appropriate provision has been made to ensure there is no disruption to the market for the GSE’s MBS, including its previously-issued MBS;
FHFA, after consulting with the Financial Stability Oversight Council, has determined that the heightened prudential requirements incorporated into the amended senior preferred stock purchase agreements are, together with the requirements and restrictions imposed by FHFA in its capacity as regulator, appropriate to minimize risks to financial stability; and
any other conditions that FHFA, in its discretion, determines are necessary to ensure that the GSE would operate in a safe and sound manner after the conservatorship, including as to the GSE’s compliance with FHFA’s directives or other requirements and also as to the build out of FHFA’s supervisory function.

Fannie Mae Third Quarter 2019 Form 10-Q4

MD&A | Legislation and Regulation


The Treasury plan also contemplates Treasury and FHFA adjusting Fannie Mae’s and Freddie Mac’s senior preferred stock purchase agreements with Treasury to allow each company to retain and raise capital. The Treasury plan does not specify how Fannie Mae or Freddie Mac would recapitalize but states that potential approaches to recapitalization could include one or more of the following, among other options:
eliminating all or a portion of the liquidation preference of Treasury’s senior preferred stock or exchanging all or a portion of that interest for common stock or other interests in the GSE;
adjusting the net worth sweep dividend on the senior preferred stock to allow the GSE to retain earnings in excess of the $3 billion capital reserve in effect when the Treasury plan was released, with appropriate compensation to Treasury for any deferred or forgone dividends;
issuing shares of common or preferred stock, and perhaps also convertible debt or other loss-absorbing instruments, through private or public offerings, perhaps in connection with the exercise of Treasury’s warrants for 79.9% of the GSE’s common stock;
negotiating exchange offers for one or more classes of the GSE’s existing junior preferred stock; and
placing the GSE in receivership to facilitate a restructuring of the capital structure.
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 backedbusinesses negatively affected by the full faith and credit of the Federal Government that is limited to the timely payment of principal and interest on qualifying MBS.COVID-19 outbreak. The Treasury plan further recommends that, pending legislation, even after conservatorship Treasury should maintain its ongoing commitment to support each GSE’s single-family and multifamily mortgage-backed securities through the senior preferred stock purchase agreements, as amended as contemplated by the plan.
The Treasury plan contains recommendations for legislative and administrative reforms to limit our single-family activities and restrict our multifamily footprint. For example, the plan recommends that FHFA assess whether each of our current single-family products, services and other activities, including our support for cash-out refinancings, investor loans, and higher principal balance loans, should continue to benefit from support under our senior preferred stock purchase agreement. It also recommends that FHFA and Treasury consider amendments to the senior preferred stock purchase agreement to further limit the type and volume of multifamily loans we guarantee. The Treasury plan also containsCARES Act includes a number of other recommendationsprovisions that could significantly affectapply to the loans we guarantee, including provisions requiring that our business and competitive environment if implemented. For example, the Treasury plan recommends that: FHFA conduct assessments of our single-family and multifamily underwriting criteria; FHFA and the U.S. Department of Housing and Urban Development (“HUD”) coordinate to identify and mitigate areas of duplication in government support for affordable housing; and the Consumer Financial Protection Bureau (the “CFPB”) amend its ability-to-repay rule to establishservicers:
•provide forbearance (that is, a bright-line safe harbor that replaces the “qualified mortgage” patch for GSE-eligible loans.
There continues to be significant uncertainty regarding the timing, content and impact of future legislative and regulatory actions affecting us, including the enactment of housing finance reform legislation and the implementation of all or any portiontemporary suspension of the Treasury plan. See “Risk Factors” in this report and in our 2018 Form 10-Kborrower’s monthly mortgage payments) for up to 360 days upon the request of any single-family borrower experiencing a descriptionfinancial hardship caused by the COVID-19 outbreak, regardless of the risks associatedborrower’s delinquency status and with our uncertain futureno additional documentation required other than the borrower’s attestation to a financial hardship caused by the COVID-19 outbreak;
•provide forbearance for up to 90 days upon the request of any multifamily borrower experiencing a documented financial hardship due to the COVID-19 outbreak that was current on its payments as of February 1, 2020; during the forbearance period, multifamily borrowers may not evict tenants for nonpayment, issue notices to vacate, or charge fees for late payment of rent; and potential housing finance reform.
Letter Agreement with Treasury•suspend foreclosures and foreclosure-related evictions for single-family properties through May 17, 2020, other than for vacant or abandoned properties.
On September 27, 2019,The 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 throughown or guarantee.
See “Single-Family Business—Single-Family Mortgage Credit Risk Management” and “Multifamily Business—Multifamily Mortgage Credit Risk Management” for more information on the actions we are taking to provide forbearance and suspend foreclosures and evictions pursuant to the CARES Act, FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into a letter agreement modifying the dividend and liquidation preference provisions of the senior preferred stock held by Treasury. These modificationsdirectives, and other specified provisions of the letter agreement are described below.legal requirements.
•
Modification to Dividend Provisions—Increase in Applicable Capital Reserve Amount. The terms of the senior preferred stock provide for dividends each quarter in the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds the applicable capital reserve amount. The letter agreement modified the dividend provisions of the senior preferred stock to increase the applicable capital reserve amount from $3 billion to $25 billion, effective for dividend periods beginning July 1, 2019.
As a result of this changeThe CARES Act also allows financial institutions to elect temporary relief relating to the senior preferred stock dividend provisions:
◦No dividends were payable on the senior preferred stock for the third quarter of 2019, as our net worth of $6.4 billion as of June 30, 2019 was lower than the $25 billion capital reserve amount.
◦No dividends will be payable on the senior preferred stock for the fourth quarter of 2019, as our net worth of $10.3 billion as of September 30, 2019 is lower than the $25 billion capital reserve amount.
•
Modification to Liquidation Preference Provisions—Increase in Liquidation Preference. The letter agreementaccounting for troubled debt restructurings (“TDRs”). The CARES Act provides that on September 30, 2019, and at the end of each fiscal quarter thereafter, the liquidation preference of the senior preferred stock will increase by an amount equal to the increase in our net worth, if any, during the immediately prior fiscal quarter, until such time as the liquidation preference has increased by $22 billion.

Fannie Mae Third Quarter 2019 Form 10-Q5

MD&A | Legislation and Regulation


As a result of this changefinancial institution may elect to suspend the TDR requirements under U.S. generally accepted accounting principles (“GAAP”) for certain loss mitigation activities, including forbearance and loan modifications, related to the senior preferred stock liquidation preference provisions:
◦
The aggregate liquidation preference of the senior preferred stock increased from $123.8 billion as of June 30, 2019 to $127.2 billion as of September 30, 2019, due to the $3.4 billion increase in our net worth during the second quarter of 2019.
◦The aggregate liquidation preference of the senior preferred stock will increase from $127.2 billion as of September 30, 2019 to $131.2 billionCOVID-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, as long as the loan was not more than 30 days delinquent as of December 31, 2019, due to the $4.0 billion increase in our net worth during the third quarter of 2019.
•
New Certificate of Designation. Pursuant to the letter agreement, Fannie Mae replaced the Certificate of Designation for the senior preferred stock to reflect the revised dividend provisions, effective September 30, 2019. The new Certificate of Designation is filed as Exhibit 4.1 to this report.
•
Agreement to Amend Senior Preferred Stock Purchase Agreement to Enhance Taxpayer Protections. The letter agreement provides that we and Treasury agree to negotiate and execute an additional amendment to the senior preferred stock purchase agreement that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for administrative reform contained in the Treasury plan.
As described in “Housing Finance Reform,“Note 1, Summary of Significant Accounting Policies,” the Treasury plan recommends that the GSEswe have a capital restoration plan that provideselected this option for sufficient capital and other loss-absorbing capacity to operate in a safe and sound manner. temporary TDR relief for COVID-19-related loss mitigation activities.
In announcing the letter agreement, Treasury noted that subsequent amendmentsaddition to the senior preferred stock purchase agreement may be appropriaterequirements applicable to facilitateus, the implementation of any eventual recapitalization plan.
We describeCARES Act also contains many provisions designed to mitigate the termsnegative economic impact of the senior preferred stockCOVID-19 outbreak. Some of these provisions may improve the ability of impacted borrowers to pay their mortgage loans and the related senior preferred stock purchase agreement with Treasury, priorrenters to the modifications described above, in our 2018 Form 10-K under the heading “Business—Conservatorship, Treasury Agreementspay their rent, including direct cash payments to eligible taxpayers below specified income limits, expanded unemployment insurance benefits and Housing Finance Reform—Treasury Agreements.”
New FHFA Strategic Plan for Conservatorshipseligibility, and 2020 Scorecard
On October 28, 2019, FHFA released its 2019 Strategic Plan for the Conservatorships of Fannie Maerelief designed to prevent layoffs and Freddie Mac (the “2019 strategic plan”), along with its 2020 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions (the “2020 scorecard”), which is a set of corporate performance objectives that define our key priorities for 2020 and align with the 2019 strategic plan. According to the plan, “[FHFA’s] end-state vision is for the [GSEs] to return to operating as fully-private companies within a competitive, liquid, efficient, and resilient housing finance system, while a strengthened and independent FHFA ensures they have the capital reserves, risk management capabilities, corporate governance, and regulatory oversight that are appropriate for their size, risk, and systemic importance outside of conservatorship.” FHFA indicated that implementing the 2019 strategic plan and 2020 scorecard, combined with the framework for reform put forward in the Treasury plan, will “reduce the role of government in the mortgage market, protect taxpayers, support sustainable homeownership and affordable rental housing, and foster a mortgage finance market that is stable and liquid through the cycle.”
The new strategic plan, which replaces FHFA’s 2014 strategic plan, and the 2020 scorecard identify three broad objectives to ensure that Fannie Mae and Freddie Mac:
1.Focus on their core mission responsibilities to foster competitive, liquid, efficient, and resilient (“CLEAR”) national housing finance markets that support sustainable homeownership and affordable rental housing;
2.Operate in a safe and sound manner appropriate for entities in conservatorship; and
3.Prepare for their eventual exits from conservatorship.
See “Risk Factors” in this report and in our 2018 Form 10-K for a description of the risks associated with our uncertain future and potential housing finance reform. For information on the objectives in the 2020 scorecard, see our Current Report on Form 8-K filed with the Securities and Exchange Commission (‘‘SEC’’) on October 29, 2019.
Revised Multifamily Business Volume Cap
On September 13, 2019, FHFA announced revisions to the structure of the loan acquisition volume caps applicable to Fannie Mae’s and Freddie Mac’s multifamily loan purchases. Previously, FHFA’s 2019 conservatorship scorecard included an objective to maintain the dollar volume of new multifamily business for each companyclosures at or below $35 billion for the year, excluding certain targeted affordable and underserved market business segments such as loans financing energy or water efficiency improvements. The new multifamily loan purchase caps, which replaced the prior caps effective October 1, 2019, are $100 billion for all new multifamily business, with no exclusions, for each of Fannie Mae and Freddie Mac for the five-quarter period beginning in the fourth quarter of 2019 through the fourth quarter of 2020. In addition, FHFA directed that at least 37.5% of each company’s multifamily business during that period must be mission-driven, affordable housing, pursuant to FHFA’s guidelines for mission-driven loans.

Fannie Mae Third Quarter 2019 Form 10-Q6

MD&A | Legislation and Regulation


2018 Housing Goals Performance
We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to affordability or location. In September 2019, FHFA notified us that it had preliminarily determined that we met all of our single-family and multifamily housing goals for 2018. See “Business—Charter Act and Regulation—GSE Act and Other Regulation—Housing Goals” in our 2018 Form 10-K and “MD&A—Legislation and Regulation—2018 Housing Goals Performance” in our First Quarter 2019 Form 10-Q for more information regarding our housing goals.
Final Rule on Credit Score Models
The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Economic Growth Act”) provides that, if we condition the purchase of a mortgage loan on a borrower's credit score, that credit score must be produced by a model that has been validated and approved by us based on the standards and criteria in the Economic Growth Act and FHFA regulations.On August 16, 2019, FHFA published a final rule on the validation and approval of credit score models, which became effective in October 2019. The final rule establishes standards and criteria, and outlines a four-phase process by which we and Freddie Mac should validate and approve third-party credit score models. The credit score models will be evaluated for factors such as accuracy, reliability and integrity, as well as impacts on fair lending and the mortgage industry. Once our evaluation is complete, we must submit the proposed third-party credit score models to FHFA for a final decision. The final rule does not address the time frame for industry adoption and implementation of the new credit score models.

Fannie Mae Third Quarter 2019 Form 10-Q7

small businesses.
Fannie Mae First Quarter 2020 Form 10-QMD&A | Uniform Mortgage-Backed Securities5

Uniform Mortgage-Backed Securities
MD&A | Legislation and Regulation
State and Local Government Responses to COVID-19
To slow the spread of the COVID-19 outbreak, many states and localities have issued stay-at-home orders requiring non-essential businesses to close. Across the nation, states are following different practices in determining which mortgage-related businesses, title companies, courts, county recording offices, and other such operations are essential and should remain open, which is contributing to uncertainty and delays in some mortgage refinances and originations.
Many states and localities are continuing to issue executive orders and propose legislation requiring mortgage forbearance, foreclosure and eviction moratoriums, and rent flexibilities. These executive orders and proposals vary significantly in duration and scope. Some of these orders and proposals provide borrower or renter relief that goes beyond the scope of the CARES Act. In addition, due to growing concern that renters will not be able to meet their monthly rental payments as the COVID-19 emergency continues, some states and localities are considering rent freezes or rent forgiveness during the emergency’s duration. Actions taken by federal, state or local lawmakers to provide additional relief to borrowers and renters during the COVID-19 outbreak, depending on their scope and whether and to what extent they apply to our business, could negatively affect our business and financial results.
FHFA Instructions on Servicer Advance Requirement and Loan Removal Policy
In April 2020, FHFA instructed us to reduce our single-family servicers’ current obligations to advance missed borrower payments to MBS trusts. Currently, 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 until the loans are purchased from the MBS trusts. Since we typically do not purchase loans from MBS trusts while they are in forbearance, this servicer payment obligation could continue for an extended period of time. To provide servicers with stability and clarity regarding their payment obligations and to align our servicer advance requirement with Freddie Mac, FHFA’s instructions require that, effective August 2020, we cease requiring servicers to advance missed scheduled principal and interest payments after four months of missed borrower payments on a loan. After this time, we will make the missed scheduled principal and interest payments to the MBS trust for payment to MBS holders so long as the loan remains in the MBS trust.
FHFA also issued an instruction in April 2020 requiring that loans subject to forbearance plans must remain in MBS trusts to the extent permitted by the trust documents. Our current policies already provide that we generally do not purchase loans in forbearance plans from MBS trusts, so this did not require a change to our current policies.
Stress Testing
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires certain financial companies to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of adverse economic conditions. In March 2020, FHFA amended its regulation relating to this requirement. Under the previous version of FHFA’s stress testing regulation, each year we were required to conduct a stress test using three different scenarios of financial conditions provided by FHFA: baseline, adverse and severely adverse. Consistent with actions taken by other U.S. financial services regulators, FHFA’s amended stress testing regulation eliminated the adverse scenario from the list of required scenarios.
Duty to Serve Plan Extension
In March 2020, in light of COVID-19, FHFA notified us that it has extended until September 1, 2020 the deadline for the submission of our draft duty to serve underserved markets plan for 2021-2023.
Fannie Mae First Quarter 2020 Form 10-Q6
MD&A | Key Market Economic Indicators

Key Market Economic Indicators
OverviewBelow we discuss how varying macroeconomic conditions can significantly influence our financial results across different business and economic environments.
Selected Benchmark Interest Rates
fnm-20200331_g4.jpg
(1)On June 3, 2019, we andAccording to Bloomberg.
(2)Secured Overnight Financing Rate (“SOFR”) began April 2018.
(3)Refers to the U.S. weekly average fixed-rate mortgage rate according to Freddie Mac began issuing single-family uniform mortgage-backed securities, or “UMBSMac's Primary Mortgage Market SurveyTM®.” We also began These rates are reported using the common securitization platform operated by Common Securitization Solutions, LLC (“CSS”),latest available data for a limited liability company we own jointly with Freddie Mac, to perform certain aspects of the securitization process forgiven period.
How interest rates can affect our single-family Fannie Mae MBS issuances beginning in May 2019. This represented the final implementation of the Single Security Initiative that we, Freddie Mac and FHFA began working on in 2014 to developfinancial results
•Net interest income. In a single common mortgage-backed security issued by both Fannie Mae and Freddie Mac to finance fixed-raterising interest-rate environment, our mortgage loans backed by single-family properties. The issuance of UMBS and use of the common securitization platform represent significant changes for the mortgage market and for our securitization operations and business.
UMBS and Structured Securities
Each of Fannie Mae and Freddie Mac issues and guarantees UMBS and structured securities backed by UMBS and other securities, as described below.
•
UMBS. Each of Fannie Mae and Freddie Mac issues and guarantees UMBS that are directly backed by the mortgage loans it has acquired, referred to as “first-level securities.” UMBS issued by Fannie Mae are backed only by mortgage loans that Fannie Mae has acquired, and similarly UMBS issued by Freddie Mac are backed only by mortgage loans that Freddie Mac has acquired. There is no commingling of Fannie Mae- and Freddie Mac-acquired loans within UMBS.
Mortgage loans backing UMBS are limitedtend to fixed-rate mortgage loans eligible for financing through the to-be-announced (“TBA”) market. We continue to issue some types of Fannie Mae MBS that are not TBA-eligible and therefore are not issued as UMBS, such as single-family Fannie Mae MBS backed by adjustable-rate mortgages and all multifamily Fannie Mae MBS.
•
Structured Securities. Each of Fannie Mae and Freddie Mac also issues and guarantees structured mortgage-backed securities, referred to as “second-level securities,” that are resecuritizations of UMBS or previously-issued structured securities. In contrast to UMBS, second-level securities can be commingled—that is, they can include both Fannie Mae securities and Freddie Mac securities as the underlying collateral for the security. These structured securities include SupersTM, which are single-class resecuritizations, and real estate mortgage investment conduit securities (“REMICs”), which are multi-class resecuritizations. While Supers are backed only by TBA-eligible securities, REMICs can be backed by TBA-eligible or non-TBA-eligible securities.
The key features of UMBS are the same as those of legacy single-family Fannie Mae MBS. Accordingly, all single-family Fannie Mae MBS that are directly backed by fixed-rate loans and generally eligible for tradingprepay more slowly, which typically results in the TBA market are UMBS, whether issued before or after the June 3, 2019 Single Security Initiative implementation date. In this report, we use the term “Fannie Mae-issued UMBS” to refer to single-family Fannie Mae MBS that are directly backed by fixed-ratelower net amortization income from cost basis adjustments on mortgage loans and generally eligible for tradingrelated debt. Conversely, in the TBA market. We use the term “Fannie Mae MBS” or “a declining interest-rate environment, our MBS” to refer to any type of mortgage-backed security that we issue, including UMBS, Supers, REMICs and other types of single-family or multifamily mortgage-backed securities. References to our single-family guaranty book of business in this report exclude Freddie Mac-acquired mortgage loans underlying Freddie Mac mortgage-related securities thattend to prepay faster, typically resulting in higher net amortization income from cost basis adjustments on mortgage loans and related debt.
•Fair value gains (losses). We have exposure to fair value gains and losses resulting from changes in interest rates, primarily through our risk management derivatives and mortgage commitment derivatives, which we have resecuritized.
Whenmark to market. Generally, we issue a structured security backed in wholeexperience fair value losses when swap rates decrease and fair value gains when swap rates increase; however, because the composition of our derivative position varies across the yield curve, different yield curve changes (e.g., parallel, steepening or part by Freddie Mac securities, we provide a newflattening) will generate different gains and separate guarantylosses. We are preparing to implement hedge accounting to reduce the impact of principal and interestinterest-rate volatility on our financial results. For additional information on the newly-formed structured security. If Freddie Mac wereexpected impact of hedge accounting, see “Consolidated Results of Operations—Fair Value Losses, Net.”
•Credit-related income (expense). Increases in mortgage interest rates tend to faillengthen the expected lives of our loans, which generally increases the impairment and provision for credit losses on such loans. Decreases in mortgage interest rates tend to make a payment dueshorten the expected lives of our loans, which reduces the impairment and provision for credit losses on its securities underlying a Fannie Mae-issued structured security, we would be obligated under our guaranty to fund any shortfall.
See “Risk Factors” in this report and in our 2018 Form 10-K, “MD&A—Single Security Initiative & Common Securitization Platform” in our Second Quarter 2019 Form 10-Q, and “Risk Management—Institutional Counterparty Credit Risk Management—Counterparty Credit Risk Exposure arising from the Resecuritization of Freddie Mac-issued securities” in this report for a discussion of the risks to our business associated with the Single Security Initiative, the resecuritization of Freddie Mac-issued securities, and the common securitization platform.


such loans.
Fannie Mae Third Quarter 2019 Form 10-Q8

MD&A | Key Market Economic Indicators


Key Market Economic Indicators
Fannie Mae First Quarter 2020 Form 10-Q7
The graphs below display certain macroeconomic indicators that can significantly influence our business and financial results.
Selected Benchmark Interest Rates
chart-c3880befe5315300bf1.jpg
———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)

(1)
According to Bloomberg.
(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.
How Interest Rates Can Affect Our Financial Results
•
Net interest income. In a rising interest rate environment, our mortgage loans tend to prepay more slowly, which typically results in lower net amortization income from cost basis adjustments on mortgage loans and related debt. Conversely, in a declining interest rate environment, our mortgage loans tend to prepay faster, typically resulting in higher net amortization income from cost basis adjustments on mortgage loans and related debt.
•
Fair value gains (losses). We have exposure to fair value gains and losses resulting from changes in interest rates, primarily through our risk management derivatives and mortgage commitment derivatives, which we mark to market. Generally, we experience fair value losses when swap rates decrease and fair value gains when swap rates increase; however, because the composition of our derivative position varies across the yield curve, different yield curve changes (for example, parallel, steepening or flattening) will generate different gains and losses.
•
Credit-related income (expense). Increases in mortgage interest rates tend to lengthen the expected lives of our modified loans, which generally increases the impairment and provision for credit losses on such loans. Decreases in mortgage interest rates tend to shorten the expected lives of our modified loans, which reduces the impairment and provision for credit losses on such loans.

Fannie Mae Third Quarter 2019 Form 10-Q9

MD&A | Key Market Economic Indicators


Single-Family Quarterly Home Price Growth Rate(1)
chart-1792fd6f082a57e490c.jpgfnm-20200331_g5.jpg
(1)Calculated internally using property data on loans purchased by Fannie Mae, Freddie Mac, and other third-party home sales data. Fannie Mae’s home price index is a weighted repeat transactions index, measuring average price changes in repeat sales on the same properties. Fannie Mae’s home price index excludes prices on properties sold in foreclosure. Fannie Mae’s home price estimates are based on preliminary data and are subject to change as additional data become available.
How home prices can affect our financial results
•Actual and forecasted home prices impact our provision or benefit for credit losses.
•Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency and default rates.
•As home prices increase, the severity of losses we incur on defaulted loans that we hold or guarantee decreases because the amount we can recover from the properties securing the loans increases. Decreases in home prices increase the losses we incur on defaulted loans.
•We currently expect home prices on a national basis will be flat in 2020. While we previously expected home price appreciation on a national basis to moderate slightly in 2020, compared with the 5.1% home price growth rate in 2019, we revised our prior expectation downward due to the impact of the COVID-19 outbreak. We also expect significant regional variation in the timing and rate of home price growth. Our forecasts and expectations relating to the impact of the COVID-19 outbreak are subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations. For example, if GDP declines more than we currently expect or the housing market is more sensitive to economic and labor market weakness than we expect, home price growth could contract further with potential declines in annual nominal home prices for 2020. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”
New Housing Starts(1)

fnm-20200331_g6.jpg
(1)According to U.S. Census Bureau and subject to revision.
Home prices and how they can affect our financial results
•
We expect home price appreciation on a national basis to moderate in the remainder of this year and 2020, as compared with 2018. We also expect significant regional variation in the timing and rate of home price growth. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”
•
Actual and forecasted home prices impact our provision or benefit for credit losses.
•
Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency and default rates.
•
As home prices increase, the severity of losses we incur on defaulted loans that we hold or guarantee decreases because the amount we can recover from the properties securing the loans increases. Decreases in home prices increase the losses we incur on defaulted loans.

(1)
Calculated internally using property data on loans purchased by Fannie Mae, Freddie Mac, and other third-party home sales data. Fannie Mae’s home price index is a weighted repeat transactions index, measuring average price changes in repeat sales on the same properties. Fannie Mae’s home price index excludes prices on properties sold in foreclosure. Fannie Mae’s home price estimates are based on preliminary data and are subject to change as additional data become available.
chart-a60a9da7a1205a36a31.jpg
How housing activity can affect our financial results
•
Homebuilding has typically been a leading indicator of broader economic indicators, such as the U.S. Gross Domestic Product, or GDP, and the unemployment rate. Residential construction activity tends to soften prior to a weakness in the economy and can improve prior to a recovery in economic activity. Broader economic indicators can affect several mortgage market factors including the demand for both single-family and multifamily housing and the level of loan delinquencies.
•
Fewer housing starts results in fewer properties being available for purchase, which can lower the volume of originations in the mortgage market.
•
Construction activity can also affect credit losses. When the pace of construction does not meet demand, the resulting growth in home prices can increase the risk profile of newly acquired home purchase loans and increase the risk of default if home prices subsequently decline. Reduced construction may also coincide with a broader deterioration in housing conditions, which may result in higher levels of delinquencies and greater losses on defaulted loans.
(2)
According to U.S. Census Bureau and subject to revision.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q108

MD&A | Key Market Economic Indicators


How housing activity can affect our financial results
•Two key aspects of economic activity that can impact supply and demand for housing and thus mortgage lending are the rate of household formation and new housing construction.
•Household formation is a key driver of demand for both single-family and multifamily housing. A newly formed household will either rent or purchase a home. Thus, changes in the pace of household formation can affect prices and credit performance as well as the degree of loss on defaulted loans.
•Growth of household formation stimulates homebuilding. Homebuilding has typically been a cyclical leader of broader economic activity contributing to the growth of GDP and to employment. Residential construction activity has historically been a leading indicator, weakening prior to a slowdown in U.S. economic activity and accelerating prior to a recovery. However, the 2008-2009 recession was significantly impacted by real estate and real estate finance. Therefore, various policy responses were targeted to real estate and real estate finance, potentially altering the cyclical performance of the real estate sector. Due to the adverse nature of the current economic situation, the housing sector’s performance may vary from its historical precedent.
•In light of the uncertainties surrounding the effects of the COVID-19 outbreak and its impact on the economy, purchase demand is likely to decline as people delay buying homes, which we expect will contribute to a decrease in home construction. We expect single-family housing starts to fall sharply in the second quarter, and we expect full-year 2020 single-family housing starts to decline as well.
•A decline in housing starts results in fewer new homes being available for purchase and potentially a lower volume of mortgage originations. Construction activity can also affect credit losses. If the growth of demand exceeds the growth of supply, prices will appreciate and impact the risk profile of newly originated home purchase mortgages, depending on where in the housing cycle the market is. A reduced pace of construction often leads to a broader economic slowdown and signals expected increases in delinquency and losses on defaulted loans.
GDP, Unemployment Rate and Personal IncomeConsumption
chart-ee663a6d9d175244a71.jpgfnm-20200331_g7.jpg
(1)GDP growth (decline) and personal consumption growth (decline) are the quarterly series calculated by the Bureau of Economic Analysis and subject to revision.
(2)According to the U.S. Bureau of Labor Statistics 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 ofMD&A | Key Market Economic Analysis, calculated by the Federal Reserve Bank of St. Louis and subject to revision.
Indicators
(3)

GDP growth for periods prior to the third quarter of 2019 is based on the quarterly series calculated by the Bureau of Economic Analysis and is subject to revision. GDP growth for the third quarter of 2019 is based on Fannie Mae’s forecast.
How GDP, the unemployment rate and personal incomeconsumption can affect our financial results
•Changes in GDP, the unemployment rate and personal incomeconsumption can affect several mortgage market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies.
Decreases•Economic growth is a key factor for the performance of mortgage-related assets. In a growing economy, employment and income are rising thus allowing existing borrowers to meet payment requirements, existing homeowners to consider purchasing another home, and renters to consider becoming homeowners. Homebuilding typically increases to meet the rise in demand. Mortgage delinquencies typically fall in an expanding economy, thereby decreasing credit losses.
•In a slowing economy, employment and income growth slow and housing activity slows as an early indicator of reduced economic activity. As the slowdown intensifies, households become more conservative and debt repayment takes precedence over consumption, which then falls and accelerates the slowdown. If the slowdown of economic growth turns to recession, employment losses occur impairing the ability of borrowers and renters to meet mortgage and rental payments, and loan delinquencies rise. Home sales and mortgage originations also typically fall in a slowing economy.
•Due to the impact of the COVID-19 outbreak, the unemployment rate typically resultrose significantly in lower levels of delinquencies, which often correlateMarch and unemployment claims increased sharply in April. We expect this trend to a decreasecontinue for the near term. Additionally, we expect GDP to decline in credit losses.
Slower growth or outright declines in personal income heightens the risk of delinquency by reducing homeowners’ ability to pay their mortgages. Slower income growth could also negatively impact affordability, constraining home sales and mortgage originations.2020.
See “Risk Factors”Factors—Market and Industry Risk” in our 20182019 Form 10-K and “Risk Factors” in this report for further discussion of risks to our business and financial results associated with interest rates, home prices, housing activity and economic conditions.


Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q1110

MD&A | Consolidated Results of Operations


Consolidated Results of Operations
This section provides a discussion ofdiscusses our condensed consolidated results of operations and should be read together with our condensed consolidated financial statements includingand the accompanying notes.
Our long-term financial performance will depend on many factors, including:
Summary of Condensed Consolidated Results of Operations
For the Three Months Ended March 31,
20202019Variance
(Dollars in millions)
Net interest income(1)
$5,347  $4,796  $551  
Fee and other income308  134  174  
Net revenues5,655  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 taxes578  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)Prior period amounts have been adjusted to reflect the sizecurrent year change in presentation related to our yield maintenance fees. See “Note 1, Summary of Significant Accounting Policies” for more information about our change in presentation.
(2)Previously included in Other expenses, net. Primarily consists of costs associated with our Credit Insurance Risk TransferTM (“CIRTTM”) and Connecticut Avenue Securities® (“CAS”) programs as well as enterprise-paid mortgage insurance (“EPMI”). See “Note 1, Summary of Significant Accounting Policies” for more information about our sharechange in presentation.
(3)Consists of the U.S. mortgage market, which in turn will depend upon such factors as population growth, household formationfollowing: (a) debt extinguishment losses, net; (b) gains (losses) from partnership investments; and home price appreciation;(c) losses on certain guaranty contracts.
borrower performance and interest rate movements; and
actions by FHFA, the Administration and Congress relating to our business and housing finance reform, including the capital requirements that will be applicable to us, our ongoing financial obligations to Treasury and our competitive environment.
Quarterly fluctuations in acquisition volumes, market share, guaranty fees, or acquisition credit characteristics in any one period have limited impact on the size and stability of our conventional guaranty book of business and the associated revenue, profitability, and credit quality.
Summary of Condensed Consolidated Results of Operations
  For the Three Months Ended September 30,   For the Nine Months Ended September 30,  
       
  2019 2018 Variance 2019 2018 Variance
  (Dollars in millions)
Net interest income $5,229
 $5,369
 $(140) $15,112
 $15,978
 $(866)
Fee and other income 402
 271
 131
 875
 830
 45
Net revenues 5,631
 5,640
 (9) 15,987
 16,808
 (821)
Investment gains, net 253
 166
 87
 847
 693
 154
Fair value gains (losses), net (713) 386
 (1,099) (2,298) 1,660
 (3,958)
Administrative expenses (749) (740) (9) (2,237) (2,245) 8
Credit-related income:            
Benefit for credit losses 1,857
 716
 1,141
 3,732
 2,229
 1,503
Foreclosed property expense (96) (159) 63
 (364) (460) 96
Total credit-related income 1,761
 557
 1,204
 3,368
 1,769
 1,599
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees (613) (576) (37) (1,806) (1,698) (108)
Other expenses, net (571) (377) (194) (1,514) (946) (568)
Income before federal income taxes 4,999
 5,056
 (57) 12,347
 16,041
 (3,694)
Provision for federal income taxes (1,036) (1,045) 9
 (2,552) (3,312) 760
Net income $3,963
 $4,011
 $(48) $9,795
 $12,729
 $(2,934)
Total comprehensive income $3,977
 $3,975
 $2
 $9,703
 $12,372
 $(2,669)
Net Interest Income
We have twoOur primary sourcessource of net interest income:
income is guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties;parties.
Guaranty fees consist of two primary components:
•base guaranty fees that we receive over the life of the loan; and
•upfront fees that we receive at the time of loan acquisition primarily related to single-family loan-level pricing adjustments and other fees we receive from lenders, which are amortized into net interest income as cost basis adjustments over the contractual life of the loan. We refer to this as amortization income.
We recognize almost all of our guaranty fee revenue in net interest income because we consolidate the substantial majority of loans underlying our Fannie Mae MBS in consolidated trusts in our condensed consolidated balance sheets. Those guaranty fees are the primary component of the difference between the interest income on loans in consolidated trusts and the interest expense on the debt of consolidated trusts.
The timing of when we recognize amortization income can vary based on a number of factors, the most significant of which is a change in mortgage interest rates. In a rising interest-rate environment, our mortgage loans tend to prepay more slowly, which typically results in lower net amortization income. Conversely, in a declining interest-rate environment, our mortgage loans tend to prepay faster, typically resulting in higher net amortization income.
We also recognize net interest income on the difference between interest income earned on the assets in our retained mortgage portfolio and our other investments portfolio (collectively, our “portfolios”) and the interest expense associated with the debt that funds those assets. See “Retained Mortgage Portfolio” and “Liquidity and Capital Management—Liquidity Management—Other Investments Portfolio” for more information about our portfolios.
Guaranty fees consist of two primary components:
base guaranty fees that we receive over the life of the loan; and
upfront fees that we receive at the time of loan acquisition primarily related to single-family loan-level pricing adjustments and other fees we receive from lenders, which are amortized into net interest income as cost basis adjustments over the contractual life of the loan. We refer to this as amortization income.
We recognize almost all of our guaranty fee revenue in net interest income because we consolidate the substantial majority of our loans underlying our Fannie Mae MBS in consolidated trusts on our consolidated balance sheets. Those guaranty fees are

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q1211

MD&A | Consolidated Results of Operations


the primary component of the difference between the interest income on loans in consolidated trusts and the interest expense on the debt of consolidated trusts.
The table below displays the components of our net interest income from our guaranty book of business, which we discuss in “Guaranty Book of Business,” and from our portfolios. Prior period amounts have been adjusted to reflect the current year change in presentation related to our yield maintenance fees. See “Note 1, Summary of Significant Accounting Policies” for more information about our change in presentation.
Components of Net Interest Income
For the Three Months Ended March 31,
 20202019Variance
(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income, net of TCCA$2,600  $2,318  $282  
Base guaranty fee income related to TCCA(1)
637  593  44  
Net amortization income1,506  986  520  
Total net interest income from guaranty book of business4,743  3,897  846  
Net interest income from portfolios604  899  (295) 
Total net interest income$5,347  $4,796  $551  
Components of Net Interest Income
  For the Three Months Ended September 30,   For the Nine Months Ended September 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 $2,371
 $2,153
 $218
 $6,942
 $6,352
 $590
 
Base guaranty fee income related to TCCA(1)
 613
 576
 37
 1,806
 1,698
 108
 
Net amortization income 1,475
 1,508
 (33) 3,828
 4,503
 (675) 
Total net interest income from guaranty book of business 4,459
 4,237
 222
 12,576
 12,553
 23
 
Net interest income from portfolios(2)
 770
 1,132
 (362) 2,536
 3,425
 (889) 
Total net interest income $5,229
 $5,369
 $(140) $15,112
 $15,978
 $(866) 
(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.
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)
Includes interest income from assets held in our retained mortgage portfolio and our other investments portfolio, as well as other assets used to generate lender liquidity. Also includes interest expense on our outstanding Connecticut Avenue Securities® of $356 million and $366 million for the three months ended September 30, 2019 and 2018, respectively, and $1.1 billion and $1.0 billion for the first nine months of 2019 and 2018, respectively.
Net interest income declinedincreased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter and first nine months of 2018,2019, driven by lowerhigher net interestamortization income from portfolios and a decline in net amortizationhigher base guaranty fee income, partially offset by higher base guaranty fee income.
Net interestlower income from portfolios decreasedportfolios.
•Net amortization income increased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter of 2019 as a lower interest-rate environment in the first quarter of 2020 led to increased prepayments on mortgage loans, which accelerated the amortization of cost basis adjustments on mortgage loans of consolidated trusts and first nine months of 2018 primarily due to sales of reperforming loans in our loss mitigation portfolio as well as liquidations, which reduced the average balance of our retained mortgage portfolio. This was partially offset by increased interest income on our other investments portfolio due to higher short-term interest rates on our federal funds sold and securities purchased under agreements to resell or similar arrangements, and a higher average balance of non-mortgage securities. See “Retained Mortgage Portfolio” for more information on our loss mitigation portfolio.related debt.
•Net interest income from base guaranty fees increased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter and first nine months of 20182019 due to an increase in the size of our guaranty book of business and loans with higher base guaranty fees comprising a larger part of our guaranty book of business.
•Net amortizationinterest income from portfolios decreased in the first nine months of 2019 compared with the first nine months of 2018 primarily due to a sharp decline in prepayment volumes in the first quarter of 2020 compared with the first quarter of 2019 primarily due to sales of reperforming loans as well as liquidations, which resultedhave reduced the average balance of our retained mortgage portfolio over time. This was partially offset by a decrease in lower amortizationinterest expense on long-term funding debt as the decline in our retained mortgage portfolio reduced our funding needs over the past twelve months. For a discussion of cost basis adjustmentsthe impact of the COVID-19 outbreak on mortgage loans of consolidated trustsour funding needs and the related debt.funding activity, see “Liquidity and Capital Management—Liquidity Management—Debt Funding.”
Analysis of Deferred Amortization Income
We initially recognize mortgage loans and debt of consolidated trusts in our condensed consolidated balance sheet at fair value. The difference between the initial fair value and the carrying value of these instruments is recorded as cost basis adjustments, either as premiums or discounts. Thesediscounts, in our condensed consolidated balance sheets. We amortize these cost basis adjustments are amortized as yield adjustments over the contractual lives of the loans or debt.debt. On a net basis, for mortgage loans and debt of consolidated trusts, we are in a premium position with respect to debt of consolidated trusts, which represents deferred income we will recognize in our condensed consolidated statements of operations and comprehensive income as amortization income in future periods.

Fannie Mae Third Quarter 2019 Form 10-Q13

MD&A | Consolidated Results of Operations


Deferred Income Represented by Net Premium Position on
on Debt of Consolidated Trusts
(Dollars in billions)
chart-91adac219cfc5523ac7.jpgfnm-20200331_g8.jpg
The timing of when we recognize amortization income can vary based on a number of factors, the most significant of which is interest rates. In a rising interest rate environment, our mortgage loans tend to prepay more slowly, which typically results in lower net amortization income. Conversely, in a declining interest rate environment, our mortgage loans tend to prepay faster, typically resulting in higher net amortization income.
Fannie Mae First Quarter 2020 Form 10-Q12
MD&A | Consolidated Results of Operations
Analysis of Net Interest Income
The table below displays an analysis of our net interest income, average balances, and related yields earned on assets and incurred on liabilities. For most components of the average balances, we use a daily weighted average of amortized cost.unpaid principal balance net of unamortized cost basis adjustments. When daily average balance information is not available, such as for mortgage loans, we use monthly averages. Prior-period amounts have been adjusted to reflect the current-year change in presentation related to our yield maintenance fees. See “Note 1, Summary of Significant Accounting Policies” for more information about our change in presentation.
Analysis of Net Interest Income and Yield(1)
For the Three Months Ended March 31,
20202019
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 trusts3,259,557  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 securities10,875  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 arrangements29,335  107  1.44  41,533  263  2.53  
Advances to lenders6,416  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 debt135,415  (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 Mae187,793  (1,178) 2.51  224,748  (1,621) 2.89  
Debt securities of consolidated trusts held by third parties3,281,716  (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 September 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 $119,887
 $1,248
 4.16% $149,859
 $1,665
 4.44%
Mortgage loans of consolidated trusts 3,185,389
 27,610
 3.47
 3,090,212
 27,058
 3.50
Total mortgage loans(1)
 3,305,276
 28,858
 3.49
 3,240,071
 28,723
 3.55
Mortgage-related securities 10,859
 111
 4.09
 10,513
 115
 4.38
Non-mortgage-related securities(2)
 62,294
 347
 2.18
 57,271
 302
 2.06
Federal funds sold and securities purchased under agreements to resell or similar arrangements 29,792
 178
 2.34
 32,208
 166
 2.02
Advances to lenders 6,287
 47
 2.93
 4,459
 38
 3.34
Total interest-earning assets $3,414,508
 $29,541
 3.46% $3,344,522
 $29,344
 3.51%
Interest-bearing liabilities:            
Short-term funding debt $23,064
 $(125) 2.12% $22,837
 $(114) 1.95%
Long-term funding debt 163,996
 (1,056) 2.58
 196,266
 (1,133) 2.31
Connecticut Avenue Securities® (“CAS”)
 23,364
 (356) 6.09
 25,100
 (366) 5.83
Total debt of Fannie Mae 210,424
 (1,537) 2.92
 244,203
 (1,613) 2.64
Debt securities of consolidated trusts held by third parties 3,196,503
 (22,775) 2.85
 3,090,509
 (22,362) 2.89
Total interest-bearing liabilities $3,406,927
 $(24,312) 2.85% $3,334,712
 $(23,975) 2.88%
Net interest income/net interest yield   $5,229
 0.61%   $5,369
 0.64%

Fannie Mae Third Quarter 2019 Form 10-Q14

MD&A | Consolidated Results of Operations



 For the Nine Months Ended September 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 $119,180

$3,848

4.30%
$156,168
 $5,187
 4.43%
Mortgage loans of consolidated trusts 3,167,172

84,157

3.54

3,068,521
 79,877
 3.47
Total mortgage loans(1)
 3,286,352

88,005

3.57

3,224,689
 85,064
 3.52
Mortgage-related securities 9,904

320

4.31

10,670
 321
 4.01
Non-mortgage-related securities(2)
 61,109

1,095

2.36

54,572
 771
 1.86
Federal funds sold and securities purchased under agreements to resell or similar arrangements 37,349

698

2.46

33,826
 457
 1.78
Advances to lenders 4,975

120

3.18

4,171
 102
 3.22
Total interest-earning assets $3,399,689

$90,238

3.54%
$3,327,928
 $86,715
 3.47%
Interest-bearing liabilities: 





     
Short-term funding debt $21,138

$(369)
2.30%
$26,395
 $(328) 1.64%
Long-term funding debt 172,284

(3,272)
2.53

204,543
 (3,426) 2.23
Connecticut Avenue Securities 24,170

(1,114)
6.15

23,830
 (1,007) 5.63
Total debt of Fannie Mae 217,592

(4,755)
2.91

254,768
 (4,761) 2.49
Debt securities of consolidated trusts held by third parties 3,173,700

(70,371)
2.96

3,068,839
 (65,976) 2.87
Total interest-bearing liabilities $3,391,292

$(75,126)
2.95%
$3,323,607
 $(70,737) 2.84%
Net interest income/net interest yield 

$15,112

0.59%
  $15,978
 0.64%
(1)
Average balance includes mortgage loans on nonaccrual status. A single-family loan is placed on nonaccrual status when the payment of principal or interest on the loan is 60 days or more past due. A multifamily loan is placed on nonaccrual status when the loan becomes 90 days or more past due according to its contractual terms or is deemed individually impaired. Typically, interest income on nonaccrual mortgage loans is recognized when cash is received. Interest income not recognized for loans on nonaccrual status was $110 million and $301 million, respectively, for the third quarter and first nine months of 2019, compared with $86 million and $351 million, respectively, for the third quarter and first nine months of 2018.
(2)
Consists of cash, cash equivalents and U.S Treasury securities.
Fee and Other Income
Fee(1)Includes the effects of discounts, premiums and other cost basis adjustments.
(2)Average balance includes mortgage loans on nonaccrual status. Typically, interest income includes transactionon nonaccrual mortgage loans is recognized when cash is received. Interest income from the amortization of loan fees, multifamilyprimarily consisting of upfront cash fees and other miscellaneous income. Fee and other income increased in the third quarter of 2019 compared with the third quarter of 2018, primarily due to an increase in yield maintenance fees, due to increased prepayments on multifamily loans as interest rates decreased.was $1.6 billion and $1.1 billion for the first quarter of 2020 and 2019, respectively.
(3)Consists of cash, cash equivalents and U.S Treasury securities.
Investment Gains (Losses), Net
Investment gains (losses), net primarily includes gains and losses recognized from the sale of loans and available-for-sale (“AFS”) securities, the sale of loans, gains and losses recognized on the consolidation and deconsolidation of securities, net of other-than-temporary impairments recognized on our investments, and the lower of cost or fair value adjustments on held for salesingle-family held-for-sale (“HFS”) loans. We recognized investment losses, net in the first quarter of 2020 as a result of the decrease in the fair value of HFS loans and net other-than-temporary impairmentsdriven by price decreases during the quarter. We recognized on our investments. Investmentinvestment gains, net increased in the thirdfirst quarter and the first nine months of 2019 compared with the third quarter and first nine monthsprimarily as a result of 2018, primarily driven by an increase in gains on salesthe sale of single-family loans.AFS securities.
Fannie Mae First Quarter 2020 Form 10-Q13
MD&A | Consolidated Results of Operations
Fair Value Gains (Losses),Losses, Net
The estimated fair value of our derivatives, trading securities and other financial instruments carried at fair value may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads and implied volatility, as well as activity related to these financial instruments. While the estimated fair value of our derivatives that serve to mitigate certain risk exposures may fluctuate, some of the financial instruments that generate these exposures are not recorded at fair value in our condensed consolidated financial statements.
We are developing capabilitiespreparing to implement fair value hedge accounting to reduce the impact of interest-rate volatility on our financial results. Once implemented, for derivatives in designated hedges, fair value gains and losses attributable to changes in certain benchmark interest raterates, such as the London Inter-bank Offered Rate (“LIBOR”) or the Secured Overnight Financing Rate (“SOFR”), may be reduced by offsetting gains and losses in the fair value of designated hedged mortgage loans or debt. Therefore, we expect the volatility of our financial results associated with changes in our consolidated statements of operationsinterest rates will be reduced substantially while fair value gains and comprehensive income.

Fannie Mae Third Quarter 2019 Form 10-Q15

MD&A | Consolidated Results of Operations


losses driven by other factors, such as credit spreads, will remain.
The table below displays the components of our fair value gains and losses.
Fair Value Losses, Net
For the Three Months Ended March 31,
20202019
(Dollars in millions)
Risk management derivatives fair value losses attributable to:
Net contractual interest expense on interest-rate swaps$(106) $(266) 
Net change in fair value during the period(255) (122) 
Total risk management derivatives fair value losses, net(361) (388) 
Mortgage commitment derivatives fair value losses, net(993) (300) 
Credit enhancement derivatives fair value losses, net(11) (7) 
Total derivatives fair value losses, net(1,365) (695) 
Trading securities gains, net647  92  
CAS debt fair value gains (losses), net637  (22) 
Other, net(1)
(195) (206) 
Fair value losses, net$(276) $(831) 
Fair Value Gains (Losses), Net
  For the Three Months Ended September 30, For the Nine Months Ended September 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 $(190) $(285) $(698) $(786)
Net change in fair value during the period (294) 528
 (541) 1,367
Total risk management derivatives fair value gains (losses), net (484) 243
 (1,239) 581
Mortgage commitment derivatives fair value gains (losses), net (177) 118
 (946) 606
Credit enhancement derivatives fair value losses, net (7) (1) (31) (2)
Total derivatives fair value gains (losses), net (668) 360
 (2,216) 1,185
Trading securities gains (losses), net 95
 (40) 370
 79
CAS debt fair value gains, net 59
 16
 156
 35
Other, net(1)
 (199) 50
 (608) 361
Fair value gains (losses), net $(713) $386
 $(2,298) $1,660
(1)Consists of fair value gains and losses on non-CAS debt and mortgage loans held at fair value.
(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.
Fair value losses in the thirdfirst quarter and first nine months of 20192020 were primarily driven by:
•decreases in the fair value of mortgage commitment derivatives due to losses on commitments to sell mortgage-related securities as prices increased during the commitment period as interest rates declined, which were partially offset by gains on commitments to buy mortgage-related securities;
•net interest expense accruals on risk management derivatives combined with decreases in the fair value of pay-fixed risk management derivatives due to declines in medium- to longer-term swap rates, which were partially offset by increases in the fair value of receive-fixed risk management derivatives; and
decreases in the fair value of mortgage commitment derivatives due to losses on commitments to sell mortgage-related securities as a result of increases in the prices of securities as interest rates declined during the commitment periods, partially offset by gains on commitments to buy mortgage-related securities; and
•increases in the fair value of long-term debt of consolidated trusts held at fair value, which are included in “Other, net,” due to declines in interest rates.
FairThese losses were partially offset by fair value gains in the thirdfirst quarter of 2020 on trading securities and CAS debt, primarily driven by declines in U.S. Treasury yields and widened spreads between debt yields and U.S. Treasury yields, which resulted in gains on fixed-rate securities held in our other investments portfolio and our CAS debt held at fair value.
Fair value losses in the first nine monthsquarter of 20182019 were primarily driven by:
•net interest expense on our risk management derivatives combined with decreases in the fair value of our
pay-fixed risk management derivatives due to declines in longer-term swap rates during the quarter, which were
partially offset by increases in the fair value of our receive-fixed risk management derivatives;
Fannie Mae First Quarter 2020 Form 10-Q14
MD&A | Consolidated Results of Operations
•decreases in the fair value of our mortgage commitment derivatives due to gainslosses on commitments to sell mortgage-related securities as a result of decreasesincreases in the prices of securities as interest rates rosedecreased during the
commitment periods; and
•losses driven by increases in the fair value of pay-fixed risk management derivatives due to an increase in longer-term swap rates during the periods.long-term debt of consolidated trusts held at fair value.
Credit-Related Income (Expense)
Our credit-related income or expense can vary substantially from period to period based on a number of factors, such as changes in actual and expectedforecasted 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 volume of our loss mitigation activities, including forbearance and loan modifications, the volume of foreclosures completed, and the redesignation of loans from held for investment (“HFI”) to HFS. In addition, ourheld for sale (“HFS”). While the redesignation of certain reperforming and nonperforming single-family loans has been a significant driver of credit-related income in recent periods, we expect to see a significantly reduced impact from this activity in 2020 as market disruptions due to the COVID-19 outbreak have decreased investor interest in reperforming and nonperforming loans.
Our credit-related income or expense and our loss reserves can also be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses.
While the redesignation of certain reperforming and nonperforming single-family loans from HFI to HFS has been a significant driver of credit-related income in recent periods, we may see a reduced impact from this activity in the future to the extent the population of loans we are considering for redesignation declines. Further, our implementation of Accounting Standards Update 2016-13, Financial Instruments—Credit Losses, Measurement of Credit Losses on Financial Instruments and related amendments (the “CECL standard”) on The January 1, 2020 will likely introduceCECL standard implementation introduces additional volatility in our financial results as credit-related income or expense will includenow includes expected lifetime losses on our loans and other financial instruments subject to the standard and thus become moreare sensitive to fluctuations in the factors detailed above.

The primary driver of credit-related expense for the first quarter of 2020 was an increase in our allowance for loan losses due to losses we expect to incur as a result of the COVID-19 outbreak, using an expected lifetime loss methodology. Estimating the impact of the COVID-19 outbreak on our expected credit 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 vary. In determining our allowance for loan losses as of March 31, 2020, we estimated that 15% of our single-family borrowers and 20% of our multifamily borrowers would ultimately receive forbearance due to a COVID-19-related financial hardship. Given the short-term nature of the forbearance period for multifamily borrowers (up to 3 months), the impact of forbearance did not have a material impact on our multifamily allowance as of March 31, 2020. Although we believe our estimates underlying our allowance determination are reasonable, we may observe future volatility in these estimates as we continue to observe actual loan performance data and update our models and assumptions surrounding this unprecedented event.
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q1615

MD&A | Consolidated Results of Operations


Benefit (Provision) for Credit Losses
The table below displays componentsprovides a quantitative analysis of the drivers for the first quarter of 2020 of our single-family benefitand multifamily provision for credit losses and the increase in expected benefit from freestanding credit enhancements. The provision for credit losses includes our provision for loan losses on our loan book of business as well as our provision for our guaranty loss reserves. It excludes the periods presented.transition impact of adopting the CECL standard, which was recorded as an adjustment to beginning retained earnings. Many of the drivers that contribute to our provision for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates.
Expected benefits from credit enhancements that are contractually attached to the loan, which largely consist of primary mortgage insurance, are included as a reduction of estimated credit losses in our allowance for loan losses. Expected benefits from freestanding credit enhancements are not considered in our allowance for loan losses and are recognized separately in “Fee and other income.” Freestanding credit enhancements relate to our credit risk transfers, including but not limited to, Credit Insurance Risk TransferTM (“CIRTTM”) transactions, Connecticut Avenue Securities® (“CAS”) credit risk transfer programs, and multifamily Delegated Underwriting and Servicing (“DUS®”) lender risk-sharing. Benefits from these programs are modeled based on estimated losses and the contractual terms of the credit risk transfer arrangements.
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 HFS175 
Actual and forecasted home prices(921)
Actual and projected interest rates1,257 
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 rates216 
Estimated impact of the COVID-19 outbreak(636)
Other32 
Multifamily provision for credit losses(410)
Total provision for credit losses(2)
$(2,580)
Increase in expected benefit from freestanding credit enhancements:
Single-family$58 
Multifamily127 
Total increase in expected benefit from freestanding credit enhancements$185 
(1)Primarily consists of changes in the allowance due to loan delinquency, loan liquidations, new TDRs, amortization of concessions granted to borrowers and the impact of FHFA’s Advisory Bulletin 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”). For multifamily, it also includes the impact of changes in debt service coverage ratios (“DSCRs”) based on updated property financial information.
(2)The table does not include credit losses of $3 million on our AFS securities.
The primary factors that impacted our single-family provision for credit losses in the first quarter of 2020 were:
•Expected credit losses as a result of the COVID-19 outbreak, which was included as an adjustment to modeled results. 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 single-family credit losses as of March 31, 2020 does not capture the 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
Fannie Mae First Quarter 2020 Form 10-Q16
MD&A | Consolidated Results of Operations
prepayment volumes given the sharp rise in unemployment rates that are expected to stay elevated over the near term. In developing the model adjustment shown in the table above, 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.
•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. The actual and forecasted home price impact shown in the table above reflects our revised forecast. 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, 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 benefit for credit losses. The actual and forecasted interest rate impact shown in the table above reflects our modeled results. As noted above, we adjusted downward our modeled expectation of prepayment volumes due to the COVID-19 outbreak, which reduced this modeled benefit from interest rates.
Our multifamily provision for credit losses in the first quarter of 2020 was primarily driven by:
•Expected credit losses as a result of the COVID-19 outbreak. Similar to the single-family provision for credit losses discussed above, we believe our model used to estimate multifamily credit losses as of March 31, 2020 does not capture the 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. Accordingly, our current multifamily provision for credit losses was primarily driven by higher expected unemployment rates, which we expect will increase the number of loans in forbearance and reduce property net operating income in the near term, thereby decreasing forecasted property values and increasing the probability of loan default. In developing these adjustments, management considered the current credit risk profile of our multifamily loan book of business, as well as relevant historical credit loss experience during rare or provisionstressful economic environments.
The table below provides quantitative analysis of the drivers for the first quarter of 2019 of our single-family benefit for credit losses. The presentation of our components represents amounts recognized prior to our transition to the lifetime loss model prescribed by the CECL standard. Many of the drivers that contribute to our benefit for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates. The table does not displayinclude our multifamily benefit or provision(provision) for credit losses as the amounts for all periods presented2019 were less than $50 million.
Components of Benefit for Credit Losses  
  For the Three Months Ended September 30,  For the Nine Months Ended September 30,
  2019 2018  2019 2018
  (Dollars in billions)
Single-family benefit for credit losses:         
Changes in loan activity(1)
 $0.2
 $0.4
  $0.4
 $0.7
Redesignation of loans from HFI to HFS 0.5
 0.4
  1.2
 1.4
Actual and forecasted home prices 0.2
 0.2
  0.7
 0.9
Actual and projected interest rates 0.1
 (0.3)  0.5
 (1.0)
Other(2)
 0.9
 *
  1.0
 0.2
Total single-family benefit for credit losses $1.9
 $0.7
  $3.8
 $2.2
*Components of Benefit for Credit LossesRepresents less than $50 million.
For the Three Months Ended March 31,
2019
(Dollars in millions)
Single-family benefit for credit losses:
Changes in loan activity(1)
Primarily consists$24 
Redesignation of changes in the allowance dueloans from HFI to loan delinquency, loan liquidations, new troubled debt restructurings, amortization of concessions granted to borrowersHFS227 
Actual and the impact of FHFA’s Advisory Bulletin 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned,forecasted home prices228 
Actual and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”).projected interest rates
165 
Other(2)
Primarily consists of the impact of model and assumption changes and changes in the reserve17 
Total single-family benefit for guarantycredit losses that are not separately included in the other components.$661 
(1)Primarily consists of changes in the allowance due to loan delinquency, loan liquidations, new TDRs, amortization of concessions granted to borrowers and the impact of FHFA’s Advisory Bulletin.
(2)Primarily consists of the impact of model and assumption changes and changes in the reserve for guaranty losses that are not separately included in the other components.
The primary factors that contributed to our benefit for credit losses in the thirdfirst quarter and first nine months of 2019 were:
•The redesignation of certain reperforming single-family loans from HFI to HFS as we no longer intend to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or fair value with a charge-offwrite-off to the allowance for loan losses. Amounts recorded in the allowance related to these loans exceeded the amounts charged off, which contributed to the benefit for credit losses.
In the third quarter of 2019, we enhanced the model used to estimate cash flows for individually impaired single-family loans within our allowance for loan losses. This enhancement was performed as a part of management’s routine model performance review process. In addition to incorporating recent loan performance data, this model enhancement better captures recent prepayment activity, default rates, and loss severity in the event of default. The enhancement resulted in a decrease to our allowance for loan losses and an incremental benefit for credit losses of approximately $850 million and is included in “Other” in the table above.
Fannie Mae First Quarter 2020 Form 10-Q17
MD&A | Consolidated Results of Operations
•An increase in actual and forecasted home prices. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for credit losses.
•Lower actual and projected mortgage interest rates. As mortgage interest rates decline, we expect an increase in future prepayments on single-family individually impaired loans, including modified loans. Higher expected prepayments shorten the expected lives of modified loans, which decreases the impairment relating to term and interest rate concessions provided on these loans and results in a decrease in the provision for credit losses.
Changes in loan activity. Higher loan liquidation activity generally occurs during a lower interest rate environment as loans prepay, and during the peak home buying season of the second and third quarters of each year. When mortgage loans prepay, we reverse any remaining allowance related to these loans, which contributed to the benefit for credit losses.
The primary factors that impacted our benefit for credit losses in the third quarter and first nine months of 2018 were:
We recognized a benefit from the redesignation of certain reperforming and nonperforming single-family loans from HFI to HFS during the periods.
An increase in actual home prices, which contributed to the benefit for credit losses.
These factors were partially offset by the impact of higher actual and projected mortgage interest rates. As mortgage interest rates rise, we expect a decrease in future prepayments on single-family individually impaired loans, including modified loans. Lower expected prepayments lengthen the expected lives of modified loans, which increases the

Fannie Mae Third Quarter 2019 Form 10-Q17

MD&A | Consolidated Results of Operations


impairment relating to term and interest rate concessions provided on these loans and results in an increase in the provision for credit losses.
TCCA Fees
Pursuant to the TCCA, in 2012, FHFA directed us to increase our single-family guaranty fees by 10 basis points and remit this increase to Treasury. This TCCA-related revenue is included in “Net interest income” and the expense is recognized as “TCCA fees” in our condensed consolidated financial statements. TCCA fees increased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter and first nine months of 20182019 as our book of business subject to the TCCA continued to grow. See “Business—Charter Act and Regulation—GSE Act and Other Legislation—Guaranty Fees and Pricing” in our 2019 Form 10-K for further discussion of the TCCA.
Credit Enhancement Expense
Credit enhancement expense primarily consists of costs associated with our CIRT and CAS programs as well as enterprise-paid mortgage insurance (“EPMI”). We expectexclude 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 guaranty fees collectedpercentage of our book of business covered by freestanding credit enhancements has increased and expenses incurred under the TCCA to continue to increase.
Other Expenses, Net
Other expenses, net primarily consistbecome a more significant driver of our results of operations. In prior periods, credit enhancement and mortgage insurance expenses debt extinguishment gains and losses, housing trust fundwere recorded in “Other expenses, loan subservicing costs and multifamily fees. Other expenses, netnet.”
Credit enhancement expense increased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter and first nine months of 20182019 primarily due to an increase in credit enhancement costs resulting from higher outstanding volumes of loans covered by credit risk transfer transactions. We expect our credit enhancement expenses to continue to rise asdiscuss the percentage of our guaranty book of business on which we have transferred a portion of credit risk continues to increase. We discuss transfer of mortgage credit risk in “MD&A—Single-Family“Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” and “MD&A—Multifamily“Multifamily Business—Multifamily Mortgage Credit Risk Management—Transfer of Multifamily Mortgage Credit Risk.”

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q18

MD&A | Consolidated Balance Sheet Analysis



Consolidated Balance Sheet Analysis
This section provides a discussion ofdiscusses our condensed consolidated balance sheets and should be read together with our condensed consolidated financial statements includingand the accompanying notes.
Summary of Condensed Consolidated Balance Sheets
As of
March 31, 2020December 31, 2019Variance
(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 cash48,245  40,223  8,022  
Investments in securities55,230  50,527  4,703  
Mortgage loans:
Of Fannie Mae106,674  101,668  5,006  
Of consolidated trusts3,269,345  3,241,510  27,835  
Allowance for loan losses(13,209) (9,016) (4,193) 
Mortgage loans, net of allowance for loan losses3,362,810  3,334,162  28,648  
Deferred tax assets, net12,831  11,910  921  
Other assets34,002  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 trusts3,334,098  3,285,139  48,959  
Other liabilities24,855  21,325  3,530  
Total liabilities3,587,411  3,488,711  98,700  
Fannie Mae stockholders’ equity:
Senior preferred stock120,836  120,836  —  
Other net deficit(106,891) (106,228) (663) 
Total equity13,945  14,608  (663) 
Total liabilities and equity$3,601,356  $3,503,319  $98,037  
Cash and Cash Equivalents and Federal Funds Sold and Securities Purchased Under Agreements to Resell or Similar Arrangements
Summary of Condensed Consolidated Balance Sheets
  As of  
  September 30, 2019 December 31, 2018 Variance
  (Dollars in millions)
Assets 
      
Cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements $45,768
 $58,495
 $(12,727)
Restricted cash 41,906
 23,866
 18,040
Investments in securities 46,896
 45,296
 1,600
Mortgage loans:      
Of Fannie Mae 116,639
 120,717
 (4,078)
Of consolidated trusts 3,206,873
 3,142,881
 63,992
Allowance for loan losses (9,376) (14,203) 4,827
Mortgage loans, net of allowance for loan losses 3,314,136
 3,249,395
 64,741
Deferred tax assets, net 11,994
 13,188
 (1,194)
Other assets 33,736
 28,078
 5,658
Total assets $3,494,436
 $3,418,318
 $76,118
Liabilities and equity      
Debt:      
Of Fannie Mae $213,522
 $232,074
 $(18,552)
Of consolidated trusts 3,248,336
 3,159,846
 88,490
Other liabilities 22,236
 20,158
 2,078
Total liabilities 3,484,094
 3,412,078
 72,016
Fannie Mae stockholders’ equity:      
Senior preferred stock 120,836
 120,836
 —
Other net deficit (110,494) (114,596) 4,102
Total equity 10,342
 6,240
 4,102
Total liabilities and equity $3,494,436
 $3,418,318
 $76,118
The increase in cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements from December 31, 2019 to March 31, 2020 was primarily driven by proceeds from new debt issuances to support refinancing activity and in anticipation of future potential liquidity needs as a result of the COVID-19 outbreak, as well as proceeds from loan payoffs. See “Liquidity and Capital Management—Debt Funding—Debt Funding Activity" for a discussion of our funding needs related to the COVID-19 outbreak.
Mortgage Loans, Net of Allowance for Loan Losses
The mortgage loans reported in our condensed consolidated balance sheets are classified as either HFS or HFI and include loans owned by Fannie Mae and loans held in consolidated trusts.
Mortgage loans, net of allowance for loan losses increased as of September 30, 2019March 31, 2020 compared with December 31, 20182019, primarily driven by:
•an increase in mortgage loans due to acquisitions outpacing liquidations and sales; and
a decrease•partially offset by an increase in our allowance for loan losses primarily driven by the redesignation of certain nonperforming and reperforming single-family loans from HFIdue to HFS andlosses we expect to incur as a result of an enhancement to the model, includingCOVID-19 outbreak and the incorporationimpact of recent loan performance data, used to estimate cash flows for individually impaired single-family loans.our adoption of the CECL standard on January 1, 2020.
For additional information on our mortgage loans, see “Note 3, Mortgage Loans,” and for additional information on changes in our allowance for loan losses, see “Note 4, Allowance for Loan Losses.”

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q19

MD&A | Consolidated Balance Sheet Analysis


Other Assets Debt
The increase in other assets from December 31, 2018 to September 30, 2019 was primarily driven by an increase in advances to lenders. As interest rates declined during the first nine months of 2019, mortgage origination activity increased, resulting in higher funding needs by lenders. For information on our accounting policy for advances to lenders, refer to “Note 1, Summary of Significant Accounting Policies” in our 2018 Form 10-K.
Debt
The decrease in debt of Fannie Mae from December 31, 20182019 to September 30, 2019March 31, 2020 was primarily driven by new short- and long-term debt issuances to support refinancing activity and in anticipation of future potential liquidity needs as a result of the decline in the size of our retained mortgage portfolio. We did not issue new debt to replace all of our debt of Fannie Mae that paid off during the first nine months of 2019.COVID-19 outbreak. The increase in debt of consolidated trusts from December 31, 20182019 to September 30, 2019March 31, 2020 was primarily driven by sales of Fannie Mae MBS, which are accounted for as issuances of debt of consolidated trusts in our condensed consolidated balance sheets, since the MBS certificate ownership is transferred from us to a third party. See “MD&A—Liquidity“Liquidity and Capital Management—Liquidity Management—Debt Funding” for a summary of the activity of the debt of Fannie Mae and a comparison of the mix between our outstanding short-term and long-term debt. Also see “Note 7, Short-Term and Long-Term Debt” for additional information on our total outstanding debt.
Stockholders’ Equity
Our net equity increaseddecreased as of September 30, 2019March 31, 2020 compared with December 31, 2018 by2019 due to a charge of $1.1 billion to retained earnings due to our implementation of the amountCECL standard on January 1, 2020. See “Note 1, Summary of our comprehensive income recognized during the first nine months of 2019, partially offset by our payments of senior preferred stock dividends to Treasury during the first two quarters of 2019.Significant Accounting Policies—New Accounting Guidance—The Current Expected Credit Loss Standard” for further details.
Under the modified liquidation preference provisions of the senior preferred stock described in “Legislation“Business—Conservatorship, Treasury Agreements and Regulation—Letter Agreement with Housing Finance Reform—Treasury” Agreements” in our 2019 Form 10-K, the aggregate liquidation preference of the senior preferred stock increased from $123.8 billion as of June 30, 2019 to $127.2 billion as of September 30, 2019, and will further increase to $131.2 billion as of December 31, 2019.2019 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.
Retained Mortgage Portfolio
Our retained mortgage portfolio consists of mortgage loans and mortgage-related securities that we own, including Fannie Mae MBS and non-Fannie Mae mortgage-related securities. Assets held by consolidated MBS trusts that back mortgage-related securities owned by third parties are not included in our retained mortgage portfolio.
We use our retained mortgage portfolio primarily to provide liquidity to the mortgage market and support our loss mitigation activities. Previously, we also used our retained mortgage portfolio for investment purposes.
The chart below separates the instruments within our retained mortgage portfolio, measured by unpaid principal balance, into three categories based on each instrument’s use:
•
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.
•
Other represents assets that were previously purchased for investment purposes. More than half of the balance of “Other” as of September 30, 2019
•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.
•Other represents assets that were previously purchased for investment purposes. More than half of the balance of “Other” as of March 31, 2020 consisted of Fannie Mae reverse mortgage securities and reverse mortgage loans. We expect the amount of assets in “Other” will continue to decline over time as they liquidate, mature or are sold.

Fannie Mae Third Quarter 2019 Form 10-Q20

MD&A | Retained Mortgage Portfolio


Retained Mortgage Portfolio
(Dollars in billions)
chart-8195e62c242b51619a8.jpgfnm-20200331_g9.jpg
The decrease in our retained mortgage portfolio as of March 31, 2020 compared with December 31, 2019 was primarily due to sales of Fannie Mae securities and continued liquidations of loans. This decrease was partially offset by an increase in our acquisitions of loans through our whole loan conduit in the first quarter of 2020 driven by higher mortgage refinance activity.
Fannie Mae First Quarter 2020 Form 10-Q20
MD&A | Retained Mortgage Portfolio
The table below displays the components of our retained mortgage portfolio, measured by unpaid principal balance.
Retained Mortgage Portfolio
As of
March 31, 2020December 31, 2019
(Dollars in millions)
Lender liquidity:
Agency securities(1)
$32,316  $38,375  
Mortgage loans26,744  21,152  
Total lender liquidity59,060  59,527  
Loss mitigation mortgage loans(2)
60,477  60,731  
Other:
Reverse mortgage loans16,397  17,129  
Mortgage loans

6,474  6,546  
Reverse mortgage securities(3)
7,233  7,575  
Private-label and other securities974  1,250  
Fannie Mae-wrapped private-label securities555  581  
Mortgage revenue bonds257  272  
Total other31,890  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  
Retained Mortgage Portfolio
 As of
 September 30, 2019 December 31, 2018
 (Dollars in millions)
Lender liquidity:       
Agency securities(1)
 $45,178
   $40,528
 
Mortgage loans 24,808
   8,640
 
Total lender liquidity 69,986
   49,168
 
Loss mitigation mortgage loans(2)
 70,729
   87,220
 
Other:       
Reverse mortgage loans 18,488
   21,856
 
Mortgage loans

 7,495
   8,959
 
Reverse mortgage securities(3)
 7,723
   7,883
 
Private-label and other securities 1,679
   3,042
 
Fannie Mae-wrapped private-label securities 595
   650
 
Mortgage revenue bonds 294
   375
 
Total other 36,274
   42,765
 
Total retained mortgage portfolio $176,989
   $179,153
 
        
Retained mortgage portfolio by segment:

       
Single-family mortgage loans and mortgage-related securities $167,305
   $168,338
 
Multifamily mortgage loans and mortgage-related securities $9,684
   $10,815
 
(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.
(2)
Includes single-family loans classified as troubled debt restructurings (“TDRs”) that were on accrual status of $46.2 billion and $58.5 billion as of September 30, 2019 and December 31, 2018, respectively, and single-family loans on nonaccrual status of $21.0 billion and $24.4 billion as of September 30, 2019 and December 31, 2018, respectively. Includes multifamily loans classified as TDRs that were on accrual status of $35 million and $57 million as of September 30, 2019 and December 31, 2018, respectively, and multifamily loans on nonaccrual status of $260 million and $150 million as of September 30, 2019 and December 31, 2018, respectively.
(3)
Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.

Fannie Mae Third Quarter 2019 Form 10-Q21
(2)Includes single-family loans classified as TDRs that were on accrual status of $37.9 billion and $38.2 billion as of March 31, 2020 and December 31, 2019, respectively, and single-family loans on nonaccrual status of $19.6 billion as of March 31, 2020 and December 31, 2019. Includes multifamily loans classified as TDRs that were on accrual status of $40 million and $51 million as of March 31, 2020 and December 31, 2019, respectively, and multifamily loans on nonaccrual status of $95 million and $132 million as of March 31, 2020 and December 31, 2019, respectively.

MD&A | Retained Mortgage Portfolio
(3)Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.


The amount of mortgage assets that we may own is capped at $250$250 billion by our senior preferred stock purchase agreement with Treasury, and FHFA has directed that we further cap our mortgage assets at $225 billion, as described in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in our 2018 Form 10-K. We expect our retained mortgage portfolio to remain below the current $225 billion cap directed by FHFA.billion. The September 2019 Treasury plan includes a recommendation that Treasury and FHFA amend our senior preferred stock purchase agreement to further reduce the cap on our investments in mortgage-related assets, and also to restrict our retained mortgage portfolio to solely supporting the business of securitizing MBS. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2019 Form 10-K for additional information on our portfolio cap and the Treasury plan.
Effective January 31, 2020, FHFA directed us to include 10% of the notional value of interest-only securities in calculating the size of the retained portfolio for the purpose of determining compliance with the senior preferred stock purchase agreement retained portfolio limits and associated FHFA guidance. As of March 31, 2020, 10% of the notional value of our interest-only securities was $2.1 billion, which is not included in the table above.
We have the option or, in some instances, the obligation, to purchase mortgage loans that meet specific criteria from an MBS trust. In support of our loss mitigation strategy, we purchased $7.8$3.0 billion of loans from our single-family MBS trusts in the first nine monthsquarter of 2019,2020, the substantial majority of which were delinquent. In deciding whether and when to exercise our option to purchase a loan from a single-family MBS trust, we consider a variety of factors, including, but not limited to, the cost of funds, general market conditions, and relevant market yields. The weight we give to these factors, among others, changes depending on market circumstances and other factors. See “MD&A—Retained Mortgage Portfolio—Purchases of Loans from Our MBS Trusts” in our 20182019 Form 10-K for more information relating to our purchases of loans from MBS trusts.

As a result of the COVID-19 outbreak, we have made a number of changes to our single-family and multifamily loss mitigation strategies. This includes providing single-family borrowers experiencing COVID-19-related financial hardship with forbearance for up to 12 months, as well as repayment plan and loan modification options once the forbearance period ends. Typically, we do not buy loans out of our MBS trusts while they are in forbearance or when they are granted certain other loss mitigation options, such as a repayment plan or certain types of loan modifications. Given the significant uncertainty associated with the
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q2221

MD&A | Guaranty Book of BusinessRetained Mortgage Portfolio
COVID-19 outbreak, the amount of loans we may buy out of trusts over the long term as a result of loan delinquencies or loss mitigation strategies could substantially increase the size of our retained mortgage portfolio. As described in “MD&A—Liquidity and Capital Management—Debt Funding Activity,” depending on the extent of our funding needs and the amount of mortgage loans we purchase from MBS trusts, we may be required to obtain FHFA’s and Treasury’s prior written consent to increase our current debt limit and mortgage asset limit.


Guaranty Book of Business
Our “guaranty book of business” consists of:
•Fannie Mae MBS outstanding, excluding the portions of any structured securities we issue that are backed by Freddie Mac securities;
•mortgage loans of Fannie Mae held in our retained mortgage portfolio; and
•other credit enhancements that we provide on mortgage assets.
“Total Fannie Mae guarantees” consists of:
•our guaranty book of business; and
•the portions of any structured securities we issue that are backed by Freddie Mac securities.
We and Freddie Mac began issuing single-family uniform mortgage-backed securities, or “UMBS®”, in June 2019. In this report, we use the term “Fannie Mae-issued UMBS” to refer to single-family Fannie Mae MBS that are directly backed by fixed-rate mortgage loans and generally eligible for trading in the to-be-announced (“TBA”) market. We use the term “Fannie Mae MBS” or “our MBS” to refer to any type of mortgage-backed security that we issue, including UMBS, SupersTM, Real Estate Mortgage Investment Conduit securities (“REMICs”) and other types of single-family or multifamily mortgage-backed securities.
Some Fannie Mae MBS that we issue are backed in whole or in part by Freddie Mac securities. When we resecuritize Freddie Mac securities into Fannie Mae-issued structured securities, such as Supers and REMICs, our guaranty of principal and interest extends to the underlying Freddie Mac securities. However, Freddie Mac continues to guarantyguarantee 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. References to our single-family guaranty book of business in this report exclude Freddie Mac-acquired mortgage loans underlying Freddie Mac securities that we have resecuritized.
The table below displays the composition of our guaranty book of business based on unpaid principal balance. Our single-family guaranty book of business accounted for 90% of our guaranty book of business as of September 30,March 31, 2020 and December 31, 2019.
Composition of Fannie Mae Guaranty Book of Business(1)

As of
March 31, 2020December 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 business3,064,652  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  
(1)Includes other single-family Fannie Mae guaranty arrangements of $1.3 billion as of March 31, 2020 and December 31, 2019, and 91%other multifamily Fannie Mae guaranty arrangements of our guaranty book of business$11.1 billion and $11.3 billion as of March 31, 2020 and December 31, 2018.2019, respectively. The unpaid principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount.
(2)Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government.
Composition of Fannie Mae Guaranty Book of Business(1)

  As of
  September 30, 2019 December 31, 2018
  
Single-Family 
 
Multifamily 
 
Total 
 
Single-Family 
 
Multifamily 
 
Total 
  (Dollars in millions)
Conventional guaranty book of business(2)
 $2,989,312
 $333,030
 $3,322,342
 $2,925,246
 $308,543
 $3,233,789
Government guaranty book of business(3)
 29,311
 1,157
 30,468
 34,158
 1,205
 35,363
Guaranty book of business 3,018,623
 334,187
 3,352,810
 2,959,404
 309,748
 3,269,152
             
Freddie Mac securities guaranteed by Fannie Mae(4)
 28,942
 —
 28,942
 —
 —
 —
Total Fannie Mae guarantees $3,047,565
 $334,187
 $3,381,752
 $2,959,404
 $309,748
 $3,269,152
(3)Refers to mortgage loans and mortgage-related securities guaranteed or insured, in whole or in part, by the U.S. government.
(1)
(4)Consists of approximately (i) $55.3 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers; and (ii) $17.3 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs, a portion of which 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.
Includes other single-family Fannie Mae guaranty arrangements of $1.4 billion and $1.6 billion as of September 30, 2019 and December 31, 2018, respectively, and other multifamily Fannie Mae guaranty arrangements of $11.6 billion and $12.3 billion as of September 30, 2019 and December 31, 2018, respectively. The unpaid principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount.
(2)
Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government.
(3)
Refers to mortgage loans and mortgage-related securities guaranteed or insured, in whole or in part, by the U.S. government.
(4)
Consists of approximately (i) $23.0 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers; and (ii) $5.9 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs, a portion of which 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 may be lower.
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”) requires us to set aside each year an amount equal to 4.2
Fannie Mae First Quarter 2020 Form 10-Q22
MD&A | Guaranty Book of Business

basis points of the unpaid principal balance of our total new business purchases and to pay this amount to specified HUDU.S. Department of Housing and Urban Development (“HUD”) and Treasury funds.funds in support of affordable housing. In April 2019,March 2020, we paid $215$280 million to the funds based on our new business purchases in 2018.2019. For the first ninethree months of 2019,2020, we recognized an expense of $193$86 million related to this obligation based on our $460.0$204.9 billion in new business purchases during the period. We expect to pay this amount to the funds in 2020,2021, plus additional amounts to be accrued based on our new business purchases in the fourth quarterremaining nine months of 2019.2020. See “MD&A—Legislation“Business—Charter Act and Regulation—GSE Act and Other Legislation—Affordable Housing Allocations” in our First Quarter 2019 Form 10-Q10-K for more information regarding this obligation.

Business Segments
Fannie Mae Third Quarter 2019 Form 10-Q23

MD&A | Business Segments


Business Segments
We have two reportable business segments: Single-Family and Multifamily. The Single-Family business operates in the secondary mortgage market relating to single-family mortgage loans, which are secured by properties containing four or fewer residential dwelling units. The Multifamily business operates in the secondary mortgage market relating primarily to multifamily mortgage loans, which are secured by properties containing five or more residential units.
The chart below displays the net revenues and net income for each of our business segments for the first nine monthsquarter of 20182019 compared with the first nine monthsquarter of 2019.2020. Net revenues consist of net interest income and fee and other income.
Business Segment Net Revenues and Net Income
(Dollars in billions)
chart-91f399b4613f5b22a45.jpg
Segment Allocation Methodology
The majority of our revenues and expenses are directly associated with either our single-family or our multifamily business segment and are included in determining that segment’s operating results. Other 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 business segment.fnm-20200331_g10.jpgfnm-20200331_g11.jpg
In the following sections, we describe each segment’s business metrics, financial results and financial results. We also describe how each segment manages mortgage credit risk and its credit metrics.performance.
Single-Family Business
Working with our lender customers, our Single-Family business provides liquidity to the mortgage market primarily by acquiring single-family loans from lenders and securitizing those loans into Fannie Mae MBS, which are either delivered to the lenders or sold to investors or dealers. A single-family loan is secured by a property with four or fewer residential units.
This section supplements and updates information regarding our Single-Family business segment in our 20182019 Form 10-K. See “MD&A—Single-Family Business” in our 20182019 Form 10-K for additional information regarding the primary business activities, customers and competition of our Single-Family business.
Single-Family Market Share
Single-Family Mortgage Acquisition Market Share
Our share of the single-family mortgage acquisition market, including loans held on lenders’ books, may fluctuate from period to period. We currently estimate our single-family acquisition market share in the last three years remained within the range of 24% to 30%, supporting approximately one in four single-family mortgage loans. Our market share estimate is based on publicly available data regarding the amount of single-family first-lien mortgage loans originated and our competitors’ acquisitions.
Fannie Mae First Quarter 2020 Form 10-Q23
MD&A | Single-Family Business
Single-Family Mortgage-Related Securities Issuances Market Share
Our single-family Fannie Mae MBS issuances were $185.7 billion for the first quarter of 2020, compared with $88.4 billion for the first quarter of 2019. Based on the latest data available, the chart below displays our estimated market share of single-family mortgage-related securities issuances in the first quarter of 2020 as compared with that of our primary competitors for the issuance of single-family mortgage-related securities.
Single-Family Mortgage-Related Securities Issuances
First Quarter 2020 Market Share
fnm-20200331_g12.jpg
We estimate our market share of single-family mortgage-related securities issuances was 38% in the first quarter of 2020, compared with 37% in the fourth quarter of 2019 and 36% in the first quarter of 2019.
Single-Family Mortgage Market
We expect housing activity to slow significantly in the months ahead due to the COVID-19 outbreak despite a solid first quarter of 2020. We forecast a sharp decline in total home sales and housing starts in the second quarter of 2020 and, despite some modest recovery expected in the following quarters, declines for the full year of 2020. However, we expect the current low interest rate environment to support refinance activity throughout 2020.
Housing activity rose slightly in the first quarter of 2020 compared with the fourth quarter of 2019. Total existing home sales averaged 5.5 million units annualized in the first quarter of 2020, compared with 5.4 million units in the fourth quarter of 2019, according to data from the National Association of REALTORS®. According to the U.S. Census Bureau, new single-family home sales increased during the first quarter of 2020, averaging an annualized rate of 715,000 units, compared with 710,000 units in the fourth quarter of 2019.
The 30-year fixed mortgage rate averaged 3.51% in the first quarter of 2020, compared with 3.70% in the fourth quarter of 2019, according to Freddie Mac’s Primary Mortgage Market Survey®.
We forecast that total originations in the U.S. single-family mortgage market in 2020 will increase from 2019 levels by approximately 10%, from an estimated $2.30 trillion in 2019 to $2.52 trillion in 2020, and that the amount of originations in the U.S. single-family mortgage market that are refinances will increase from an estimated $1.01 trillion in 2019 to $1.41 trillion in 2020.
Presentation of our single-family guaranty bookOur Single-Family Guaranty Book of businessBusiness
For purposes of the information reported in this “Single-Family Business” section, we measure the single-family guaranty book of business by using the unpaid principal balance of our mortgage loans underlying Fannie Mae MBS outstanding. By contrast, the single-family guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information reported below, our single-family conventional guaranty book of business was $2,940$2,976.8 billion as of September 30, 2019March 31, 2020 and $2,903$2,951.9 billion as of December 31, 2018.

2019.
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q24

MD&A | Single-Family Business





Single-Family Market Share
Single-Family Mortgage Acquisition Market Share
Our share of the single-family acquisition market, including loans held on lenders’ books, may fluctuate from period to period. We currently estimate our single-family acquisition market share in the last three years remained within the range of 24% to 30%, supporting approximately one in four single-family mortgage loans. Our market share estimate is based on publicly available data regarding the amount of single-family first-lien mortgage loans originated and our competitors’ acquisitions. Our single-family acquisitions were $194.3 billion for the third quarter of 2019, compared with $122.3 billion for the third quarter of 2018.
Single-Family Mortgage-Related Securities Issuances Market Share
Our single-family Fannie Mae MBS issuances were $188.5 billion for the third quarter of 2019, compared with $129.9 billion for the third quarter of 2018. The chart below displays our market share, using data available as of publication, of single-family mortgage-related securities issuances in the third quarter of 2019 as compared with that of our primary competitors for the issuance of single-family mortgage-related securities.
New Single-Family Mortgage-Related Securities Issuances
Third Quarter 2019 Market Share
chart-4cae449d96e85e59ba6.jpg
We estimate our market share of single-family mortgage-related securities issuances was 39% in the third quarter of 2019, compared with 35% in the second quarter of 2019 and 40% in the third quarter of 2018.
Single-Family Mortgage Market
Housing activity rose slightly in the third quarter of 2019 compared with the second quarter of 2019. Total existing home sales averaged 5.4 million units annualized in the third quarter of 2019, compared with 5.3 million units in the second quarter of 2019, according to data from the National Association of REALTORS®. According to the U.S. Census Bureau, new single-family home sales increased during the third quarter of 2019, averaging an annualized rate of 691,000 units, compared with 661,000 units in the second quarter of 2019.
The 30-year fixed mortgage rate averaged 3.66% in the third quarter of 2019, compared with 4.01% in the second quarter of 2019, according to Freddie Mac’s Primary Mortgage Market Survey®.
We forecast that total originations in the U.S. single-family mortgage market in 2019 will increase from 2018 levels by approximately 15%, from an estimated $1.77 trillion in 2018 to $2.04 trillion in 2019, and that the amount of originations in the U.S. single-family mortgage market that are refinancings will increase from an estimated $532 billion in 2018 to $761 billion in 2019, as mortgage rates have declined in 2019.

Fannie Mae Third Quarter 2019 Form 10-Q25

MD&A | Single-Family Business





Single-Family Business Metrics
Net interest income from guaranty fees for our Single-Family business is driven by the guaranty fees we charge on our single-family conventional guaranty book of business and the size of our single-family conventional guaranty book of business. The guaranty fees we charge are based on the characteristics of the loans we acquire. We may adjust our guaranty fees in light of market conditions and to achieve return targets, which are based on FHFA’s proposedconservatorship capital framework. As a result, the average charged guaranty fee on new acquisitions may fluctuate based on the credit quality and product mix of loans acquired, as well as market conditions and other factors.
The charts below display our average charged guaranty fees, net of TCCA fees, on our single-family conventional guaranty book of business and on new single-family conventional acquisitions, along with our average single-family conventional guaranty book of business and our single-family conventional acquisitions for the periods presented.
Single-Family Guaranty Fee Fees, Acquisitions
and Book of Business Metrics
chart-afe9a4dd5b7a5602986.jpgchart-e690a0a1f7e2548fa5f.jpg(Dollars in billions)
fnm-20200331_g13.jpgfnm-20200331_g14.jpg
(1)
Represents the sum of the averageAverage charged guaranty fee rate for our single-family conventional guaranty arrangements during the period plus the recognition of any upfront cash payments relating to these guaranty arrangements over an estimated average life at the time of acquisition. For the prior period, the methodology used to estimate average life at the time of acquisition has been updated. Excludes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.
(2)
Ouron single-family conventional guaranty book of business, consists primarilynet of single-family conventional mortgage loans underlying Fannie Mae MBS outstanding. It also includes single-family conventional mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on single-family conventional mortgage assets. OurTCCA fees(1)
Average single-family conventional guaranty book of business does not include: (a) non-Fannie Mae(2)
Average charged guaranty fee on new single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty; (b) mortgage loans guaranteed or insured, in whole or in part, by the U.S. government; or (c) Freddie Mac-acquired mortgage loans underlying Freddie Mac-issued UMBS that we have resecuritized.conventional acquisitions, net of TCCA fees(1)
Single-family conventional acquisitions
(1)Excludes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.
(2) Our single-family conventional guaranty book of business primarily consists of single-family conventional mortgage loans underlying Fannie Mae MBS outstanding. It also includes single-family conventional mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on single-family conventional mortgage assets. Our single-family conventional guaranty book of business does not include: (a) non-Fannie Mae single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty; (b) mortgage loans guaranteed or insured, in whole or in part, by the U.S. government; or (c) Freddie Mac-acquired mortgage loans underlying Freddie Mac-issued UMBS that we have resecuritized.
Average charged guaranty fee represents, on an annualized basis, the sum of the average guaranty fee rate for our single-family conventional guaranty arrangements during the period plus the recognition of any upfront cash payments relating to these guaranty arrangements based on an estimated average life at the time of acquisition. Management uses average charged guaranty fee on new acquisitions as a metric to assess the reasonableness of our compensation for the credit risk we manage on newly acquired loans.
Our average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fees, decreased from 49.750.4 basis points in the thirdfirst quarter of 20182019 to 45.949.4 basis points in the thirdfirst quarter of 2019,2020, primarily driven by the stronger credit profile of our newly acquired single-family loans. Under FHFA’s proposed capital requirements, loans with stronger credit profiles typically require less capital.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q2625

MD&A | Single-Family Business





Single-Family Business Financial Results
For the Three Months Ended March 31,
20202019Variance
(Dollars in millions)
Net interest income(1)
$4,541  $4,039  $502  
Fee and other income152  106  46  
Net revenues4,693  4,145  548  
Investment gains (losses), net(152) 94  (246) 
Fair value losses, net(460) (887) 427  
Administrative expenses(629) (631) 2  
Credit-related income (expense)(2)
(2,250) 518  (2,768) 
TCCA fees(1)
(637) (593) (44) 
Credit enhancement expense(312) (167) (145) 
Other expenses, net(3)
(167) (170) 3  
Income before federal income taxes86  2,309  (2,223) 
Provision for federal income taxes(18) (484) 466  
Net income$68  $1,825  $(1,757) 
  For the Three Months Ended September 30,   For the Nine Months Ended September 30,  
  2019 2018 Variance 2019 2018 Variance
  (Dollars in millions)
Net interest income(1)
 $4,484
 $4,670
 $(186) $12,942
 $13,954
 $(1,012)
Fee and other income 156
 79
 77
 350
 306
 44
Net revenues 4,640
 4,749
 (109) 13,292
 14,260
 (968)
Investment gains, net 198
 146
 52
 709
 640
 69
Fair value gains (losses), net (719) 417
 (1,136) (2,364) 1,729
 (4,093)
Administrative expenses (634) (636) 2
 (1,899) (1,928) 29
Credit-related income(2)
 1,747
 582
 1,165
 3,391
 1,775
 1,616
TCCA fees(1)
 (613) (576) (37) (1,806) (1,698) (108)
Other expenses, net (424) (282) (142) (1,179) (684) (495)
Income before federal income taxes 4,195
 4,400
 (205) 10,144
 14,094
 (3,950)
Provision for federal income taxes (872) (938) 66
 (2,125) (2,998) 873
Net income $3,323
 $3,462
 $(139) $8,019
 $11,096
 $(3,077)
(1)Reflects the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury. The resulting revenue is included in net interest income and the expense is recognized as “TCCA fees.”
(1)
(2)Consists of the benefit or provision for credit losses and foreclosed property income or expense. The presentation of our credit-related income 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.
(3)Consists primarily of debt extinguishment gains and losses, housing trust fund expenses and loan subservicing costs.
Reflects the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury. The resulting revenue is included in net interest income and the expense is recognized as “TCCA fees.”
(2)
Consists of the benefit or provision for credit losses and foreclosed property income or expense.
Net interest incomeInterest Income
Single-family net interest income decreasedincreased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter and first nine months of 2018,2019, primarily due to a decline inhigher net interestamortization income from portfolios and a decline in net amortizationhigher base guaranty fee income, partially offset by an increasea decline in single-family base guaranty fee income.income from portfolios. The drivers of net interest income for the single-familySingle-Family segment for the thirdfirst quarter and first nine months of 20192020 are consistent with the drivers of net interest income in our condensed consolidated statements of operations and comprehensive income, which we discuss in “Consolidated Results of Operations—Net Interest Income.”
Fair value gains (losses)Investment Gains (Losses), netNet
Fair valueInvestment losses in the thirdfirst quarter and first nine months of 20192020 were primarily driven bythe result of decreases in the fair value of our pay-fixed risk management derivatives, partially offset by increases in the fair value of our receive-fixed risk management derivatives, and decreases in the fair value of our mortgage commitments. In addition, increases in the fair value of our debt also resulted in fair value losses for the third quarter and first nine months of 2019. Conversely, fair valueHFS loans. Investment gains in the thirdfirst quarter and first nine months of 20182019 were primarily driven by increases in the fair valueresult of our mortgage commitments derivatives and our pay-fixed risk management derivatives.
gains on sales of AFS securities. The drivers of our fair valueinvestment gains (losses), net for the single-familySingle-Family segment for all periods presented are consistent with the drivers of fair valueinvestment gains (losses), net in our condensed consolidated statements of operations and comprehensive income, which we discuss in “Consolidated Results of Operations—Fair ValueInvestment Gains (Losses), Net.”
Credit-related incomeFair Value Losses, Net
Credit-related incomeFair value losses, net in the thirdfirst quarter and first nine months of 2019 was2020 were primarily driven by the redesignation of certain single-family loans from HFI to HFS; the enhancement to the model, including the incorporation of recent loan performance data used to estimate cash flows for individually impaired single-family loans; an increase in actual and forecasted home prices; lower actual and projected mortgage interest rates; and changes in loan activity related to loan liquidations.
Credit-related incomedecreases in the thirdfair values of our mortgage commitments and risk management derivatives, partially offset by fair value gains on trading securities and CAS debt. Fair value losses, net in the first quarter and first nine months of 2018 was2019 were primarily driven by net interest expense on our risk management derivatives, and decreases in the redesignationfair value of certain reperformingour pay-fixed risk management derivatives and nonperforming single-family loans from HFI to HFS and anour mortgage commitments. In addition, the increase in actual home prices. These factors were partially offset by the impactfair value of higher actual and projected mortgage interest ratesour debt also resulted in fair value losses for the periods.
See “Consolidated Resultsfirst quarter of Operations—Credit-Related Income” in this report for more information on our credit-related income.

Fannie Mae Third Quarter 2019 Form 10-Q27

MD&A | Single-Family Business





Other expenses, net
Other expenses, net increased in the third quarter and first nine months of 2019 compared with the third quarter and first nine months of 2018, primarily due to an increase in credit enhancement costs resulting from higher outstanding volumes of loans covered by a credit risk transfer transaction.2019. The drivers of other expenses,fair value losses, net for the single-familySingle-Family segment for the third quarter and first nine months of 2019 are consistent with the drivers discussedof fair value losses, net in our condensed consolidated statements of operations and comprehensive income, which we discuss in “Consolidated Results of Operations—Other Expenses,Fair Value Losses, Net.”
As we discuss in “Consolidated Results of Operations—Fair Value Losses, Net,” we expect that implementing a hedge accounting program will reduce the volatility of our financial results associated with changes in interest rates, while fair value gains and losses driven by other factors such as credit spreads will remain.
Fannie Mae First Quarter 2020 Form 10-Q26
MD&A | Single-Family Business
Credit-Related Income (Expense)
Credit-related expense for the first quarter of 2020 was primarily driven by an increase in our allowance for loan losses due to losses we expect to incur as a result of the COVID-19 outbreak using an expected lifetime loss methodology consistent with our implementation of the CECL standard.
Credit-related income for the first quarter of 2019 was primarily driven by the redesignation of certain single-family loans from HFI to HFS; an increase in actual and forecasted home prices; and lower actual and projected mortgage interest rates.
See “Consolidated Results of Operations—Credit-Related Income (Expense)” in this report for more information on the primary factors that contributed to our single-family credit-related income (expense).
Single-Family Mortgage Credit Risk Management
This section updates our discussion of single-family mortgage credit risk management in our 20182019 Form 10-K. For additional information on our acquisition and servicing policies, underwriting and servicing standards, quality control process, repurchase requests, and representation and warranty framework, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management” in our 20182019 Form 10-K.
Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards
Single-Family Portfolio DiversificationCOVID-19 Temporary Selling Policies
We are working closely with Freddie Mac under the guidance and Monitoringat the direction of FHFA to offer temporary measures during the COVID-19 national emergency to help ensure lenders have the clarity and flexibility to continue to lend in a prudent and responsible manner. The temporary flexibilities to our Selling Guide requirements during the COVID-19 national emergency include:
The profile•purchasing certain loans that are subject to a COVID-19-related forbearance at the time of sale, subject to payment of a loan-level price adjustment;
•offering flexibilities related to the lender’s process for obtaining verbal verification of employment;
•allowing temporary flexibilities to our appraisal requirements; and
•providing flexibilities for use of a power of attorney and remote online notarization.
We have also temporarily updated some of our Selling Guide requirements to help ensure that the most up-to-date information is being considered to support the borrower’s ability to repay the loan, including:
•reducing our age-of-document requirements from four months to two months for most income and asset documentation;
•requiring lenders to confirm a self-employed borrower’s business is open and operating within 10 business days of the note date, or after closing but prior to delivery of the loan; and
•in light of current market volatility, updating our policies for use of stocks, stock options and mutual funds for down payment or closing costs to require documentation of the borrower’s actual receipt of funds realized from the sale, or when these assets are used for reserves, allowing the lender to consider only 70% of the value of the assets.
COVID-19 Temporary Servicing Policies
We are also working with Freddie Mac under the direction of FHFA to implement temporary policies to enable our single-family conventional guaranty bookloan servicers to better assist borrowers impacted by COVID-19. We issued initial requirements to servicers on temporary policies to assist borrowers impacted by COVID-19 in March 2020, and updated these requirements in April 2020 to align with the CARES Act. These temporary policies include requiring that our single-family loan servicers:
•provide forbearance upon the request of business includesany single-family borrower experiencing a financial hardship due to the following key risk characteristics:COVID-19 outbreak, regardless of the borrower’s delinquency status and with no additional documentation required other than the borrower’s attestation to a financial hardship caused by COVID-19. The borrower must be provided an initial forbearance plan for a period up to 180 days, and that forbearance period may be extended for up to an additional 180 days at the request of the borrower. If the borrower’s COVID-19-related hardship has not been resolved during an incremental forbearance period, the servicer must extend the borrower’s forbearance period at the borrower’s request, not to exceed 12 months total;
•suspend foreclosures and foreclosure-related activities for single-family properties through at least May 17, 2020, other than for vacant or abandoned properties; and
•report the status of the mortgage loan to the credit bureaus in accordance with the Fair Credit Reporting Act, as amended by the CARES Act, for borrowers who receive an accommodation, including a forbearance plan, loan
•
Loan-to-value ratio. Loan-to-value (“LTV”) ratio is a strong predictor of credit performance. The likelihood of default and the gross severity of a loss in the event of default are typically lower as the LTV ratio decreases. This also applies to the estimated mark-to-market LTV ratios, particularly those over 100%, as this indicates that the borrower’s mortgage balance exceeds the property value.
•
Product type. Certain loan product types have features that may result in increased risk. Generally, intermediate-term, fixed-rate mortgages exhibit the lowest default rates, followed by long-term, fixed-rate mortgages. Historically, adjustable-rate mortgages (“ARMs”), including negative-amortizing and interest-only loans, and balloon/reset mortgages have exhibited higher default rates than fixed-rate mortgages, partly because the borrower’s payments rose, within limits, as interest rates changed.
•
Number of units. Mortgages on one-unit properties tend to have lower credit risk than mortgages on two-, three- or four-unit properties.
•
Property type. Certain property types have a higher risk of default. For example, condominiums generally are considered to have higher credit risk than single-family detached properties.
•
Occupancy type. Mortgages on properties occupied by the borrower as a primary or secondary residence tend to have lower credit risk than mortgages on investment properties.
•
Credit score. Credit score is a measure often used by the financial services industry, including us, to assess borrower credit quality and the likelihood that a borrower will repay future obligations as expected. A higher credit score typically indicates lower credit risk.
•
Debt-to-income ratio. Debt-to-income (“DTI”) ratio refers to the ratio of a borrower’s outstanding debt obligations (including both mortgage debt and certain other long-term and significant short-term debts) to that borrower’s reported or calculated monthly income, to the extent the income is used to qualify for the mortgage. As a borrower’s DTI ratio increases, the associated risk of default on the loan generally increases, especially if other higher-risk factors are present. From time to time, we revise our guidelines for determining a borrower’s DTI ratio. The amount of income reported by a borrower and used to qualify for a mortgage may not represent the borrower’s total income; therefore, the DTI ratios we report may be higher than borrowers’ actual DTI ratios.
•
Loan purpose. Loan purpose refers to how the borrower intends to use the funds from a mortgage loan—either for a home purchase or refinancing of an existing mortgage. Cash-out refinancings have a higher risk of default than either mortgage loans used for the purchase of a property or other refinancings that restrict the amount of cash returned to the borrower.
•
Geographic concentration. Local economic conditions affect borrowers’ ability to repay loans and the value of collateral underlying loans. Geographic diversification reduces mortgage credit risk.
•
Loan age. We monitor year of origination and loan age, which is defined as the number of years since origination. Credit losses on mortgage loans typically do not peak until the third through sixth year following origination; however, this range can vary based on many factors, including changes in macroeconomic conditions and foreclosure timelines.
The table below displays our single-family conventional business volumes and our single-family conventional guaranty book of business, based on certain key risk characteristics that we use to evaluate the risk profile and credit quality of our single-family loans. We exclude from the single-family credit statistics reported below less than 1% of our single-family conventional guaranty book of business for which our loan-level information was incomplete as of September 30, 2019 and December 31, 2018.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q2827

MD&A | Single-Family Business





Wemodification or other form of assistance or relief, as a result of the COVID-19 outbreak. Specifically, the CARES Act requires that if a lender agrees to provide additional information ona payment accommodation to a consumer affected by the COVID-19 outbreak during the covered period, the lender must report the borrower’s obligation to the credit characteristicsbureaus as current if the borrower was current before the accommodation and makes payments as agreed under the accommodation (or is not required to make payments under the accommodation). If the borrower was delinquent before the accommodation, the lender must maintain the delinquency status while the accommodation is in effect, unless the borrower brings the account current during the accommodation.
A servicer is required to contact a borrower on a forbearance plan no later than 30 days before the end of the forbearance period to evaluate them for a workout option after the forbearance period. Those options include a reinstatement (where the borrower repays all of the missed payments at one time), a repayment plan (where the borrower repays the missed payments over time), a deferral of some missed payments to the end of the loan term, or a modification of the loan term so that the borrower may be brought current and either continues to make their original monthly contractual payment or makes reduced monthly contractual payments over a longer period of time.
In addition, some states and local governments are considering proposals that would assist borrowers and renters impacted by COVID-19 that are more extensive than the CARES Act or our Servicing Guide requirements. Servicers must comply with all applicable laws even where a provision of our single-family loans in quarterly financial supplements, which we submit to the SECServicing Guide conflicts with current reports on Form 8-K. Information in our quarterly financial supplements is not incorporated by reference into this report.
applicable law.
Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1)
  
Percent of Single-Family Conventional Business
Volume at Acquisition(2)
Percent of Single-Family Conventional
Guaranty Book of Business(3)
As of
  For the Three Months Ended September 30, For the Nine Months Ended September 30, 
  2019 2018 2019 2018  September 30, 2019  December 31, 2018 
Original LTV ratio:(4)
               
<= 60% 16
%14
%16
%16
% 19
% 19
%
60.01% to 70% 12
 11
 12
 12
  13
  13
 
70.01% to 80% 38
 37
 37
 37
  37
  38
 
80.01% to 90% 13
 14
 13
 13
  12
  12
 
90.01% to 95% 14
 16
 14
 15
  12
  11
 
95.01% to 100% 7
 8
 8
 7
  5
  4
 
Greater than 100% —
 *
 *
 *
  2
  3
 
Total 100
%100
%100
%100
% 100
% 100
%
Weighted average 77
%78
%77
%77
% 76
% 75
%
Average loan amount $269,204
 $235,125
 $255,909
 $233,027
  $172,566
  $170,076
 
Estimated mark-to-market LTV ratio:(5)
               
<= 60%          55
% 54
%
60.01% to 70%          17
  18
 
70.01% to 80%          16
  16
 
80.01% to 90%          8
  8
 
90.01% to 100%          4
  4
 
Greater than 100%          *
  *
 
Total          100
% 100
%
Weighted average          56
% 57
%
Product type:               
Fixed-rate:(6)
               
Long-term 90
%91
%90
%89
% 85
% 84
%
Intermediate-term 10
 7
 9
 9
  13
  14
 
Total fixed-rate 100
 98
 99
 98
  98
  98
 
Adjustable-rate *
 2
 1
 2
  2
  2
 
Total 100
%100
%100
%100
% 100
% 100
%
Number of property units:               
1 unit 98
%98
%98
%98
% 97
% 97
%
2 to 4 units 2
 2
 2
 2
  3
  3
 
Total 100
%100
%100
%100
% 100
% 100
%
Property type:               
Single-family homes 91
%90
%91
%90
% 91
% 91
%
Condo/Co-op 9
 10
 9
 10
  9
  9
 
Total 100
%100
%100
%100
% 100
% 100
%

Fannie Mae Third Quarter 2019 Form 10-Q29

MD&A | Single-Family Business





  
Percent of Single-Family Conventional Business
Volume at Acquisition(2)
Percent of Single-Family Conventional
Guaranty Book of Business(3)
As of
  For the Three Months Ended September 30, For the Nine Months Ended September 30, 
  2019 2018 2019 2018  September 30, 2019  December 31, 2018 
Occupancy type:               
Primary residence 93
%89
%91
%89
% 89
% 89
%
Second/vacation home 3
 4
 4
 4
  4
  4
 
Investor 4
 7
 5
 7
  7
  7
 
Total 100
%100
%100
%100
% 100
% 100
%
FICO credit score at origination:               
< 620 *
%*
%*
%*
% 1
% 2
%
620 to < 660 3
 6
 4
 6
  5
  5
 
660 to < 680 3
 5
 4
 5
  5
  5
 
680 to < 700 7
 9
 8
 9
  7
  7
 
700 to < 740 22
 23
 23
 23
  21
  20
 
>= 740 65
 57
 61
 57
  61
  61
 
Total 100
%100
%100
%100
% 100
% 100
%
Weighted average 751
 743
 747
 743
  746
  746
 
DTI ratio at origination:(7)
               
<= 43% 74
%66
%71
%66
% 76
% 77
%
43.01% to 45% 9
 9
 9
 9
  9
  9
 
Greater than 45% 17
 25
 20
 25
  15
  14
 
Total 100
%100
%100
%100
% 100
% 100
%
Weighted average 36
%38
%36
%37
% 35
% 35
%
Loan purpose: 
               
Purchase 54
%72
%59
%64
% 45
% 43
%
Cash-out refinance 18
 19
 19
 22
  19
  20
 
Other refinance 28
 9
 22
 14
  36
  37
 
Total 100
%100
%100
%100
% 100
% 100
%
Geographic concentration:(8)
               
Midwest 14
%15
%14
%14
% 15
% 15
%
Northeast 14
 14
 14
 13
  17
  17
 
Southeast 21
 23
 22
 23
  22
  22
 
Southwest 20
 21
 21
 21
  18
  18
 
West 31
 27
 29
 29
  28
  28
 
Total 100
%100
%100
%100
% 100
% 100
%
Origination year:               
2013 and prior          35
% 40
%
2014          5
  6
 
2015          9
  10
 
2016          14
  16
 
2017          13
  15
 
2018          12
  13
 
2019          12
  —
 
Total          100
% 100
%
*Represents less than 0.5% of single-family conventional business volume or book of business.

Fannie Mae Third Quarter 2019 Form 10-Q30

MD&A | Single-Family Business





(1)
Second-lien mortgage loans held by third parties are not reflected in the original LTV or the estimated mark-to-market LTV ratios in this table.
(2)
Calculated based on the unpaid principal balance of single-family loans for each category at time of acquisition.
(3)
Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business as of the end of each period.
(4)
The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.
(5)
The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available.
(6)
Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate loans have maturities equal to or less than 15 years.
(7)
Excludes loans for which this information is not readily available.
(8)
Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.
Characteristics of our New Single-Family Loan Acquisitions
The share of our single-family loan acquisitions consisting of refinance loans rather than home purchase loans increased in the third quarter of 2019 compared with the third quarter of 2018, primarily due to a lower interest rate environment, which encouraged refinance activity. Typically, refinance loans have lower LTV ratios than home purchase loans. This trend contributed to a decrease in the percentage of our single-family loan acquisitions with LTV ratios over 90%—from 24% in the third quarter of 2018 to 21% in the third quarter of 2019.
Our share of acquisitions of loans with DTI ratios above 45% decreased in the third quarter of 2019 compared with the third quarter of 2018. This decrease was driven in part by changes in our eligibility guidelines implemented in December 2018 and July 2019 to further limit risk layering, particularly with respect to loans with DTI ratios above 45%, as well as a higher volume of refinance loan acquisitions.
Desktop Underwriter Update
As part of our comprehensive risk management approach, we periodically update our proprietary automated underwriting system, Desktop Underwriter® (“DU®”), to reflect changes to our underwriting and eligibility guidelines. In July 2019,As part of normal business operations, we implementedregularly review DU to determine whether its risk analysis and eligibility assessment are appropriate based on the following changescurrent market environment and loan performance information. As a result of our most recent review, in April 2020 we enhanced the DU eligibility assessment to DU:help Fannie Mae and our customers better manage credit risk in the current market while providing sustainable options to borrowers. We expect this change will result in a modest reduction of loans with high-risk factors being eligible for acquisition through DU.
•
HomeReady® income limits. To better align with our housing goals, we changed the income limit requirement for HomeReady loans, our flagship affordable product, to set a maximum borrower income limit of 80% of area median income for the property’s location. Previously, a borrower could be eligible for a HomeReady loan if the borrower’s total annual income did not exceed 100% of area median income or if the property was located in a low-income census tract. We expect this change will reduce the proportion of our loan acquisitions consisting of HomeReady loans, which we also expect may reduce the proportion of our loan acquisitions with LTV ratios over 90%. Approximately 7% of our single-family conventional loan acquisitions in the third quarter of 2019 consisted of HomeReady loans, compared with approximately 9% in the second quarter of 2019.
•
DU eligibility assessment. As part of normal business operations, we regularly review DU to determine whether its risk analysis and eligibility assessment are appropriate based on the current market environment and loan performance information. As a result of our most recent review, we updated the DU eligibility assessment to better align the mix of business delivered to us with the composition of business in the overall market. We expect this change will result in fewer acquisitions of loans with multiple higher-risk characteristics.

We will continue to closely monitor loan acquisitions and market conditions and, as appropriate, seek to make changes in our eligibility criteria so that the loans we acquire are consistent with our risk appetite.
For further information regarding Desktop Underwriter, please see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards” in our 20182019 Form 10-K.
Fannie Mae First Quarter 2020 Form 10-Q28
MD&A | Single-Family Business
Single-Family Portfolio Diversification and Monitoring
The table below displays our single-family conventional business volumes and our single-family conventional guaranty book of business, based on certain key risk characteristics that we use to evaluate the risk profile and credit quality of our single-family loans. We provide additional information on the credit characteristics of our single-family loans in quarterly financial supplements, which we furnish to the U.S. Securities and Exchange Commission (“SEC”) with current reports on Form 8-K. Information in our quarterly financial supplements is not incorporated by reference into this report.
Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1)
Percent of Single-Family Conventional Business
Volume at Acquisition(2)
Percent of Single-Family Conventional
Guaranty Book of Business(3)
As of
For the Three Months Ended March 31,
20202019March 31, 2020December 31, 2019
Original loan-to-value (“LTV”) ratio:(4)
<= 60%21  %  15  %  19  %  19  %  
60.01% to 70%15  11  14  13  
70.01% to 80%36  35  37  37  
80.01% to 90%13  13  12  12  
90.01% to 95%12  16  11  12  
95.01% to 100%3  10  5  5  
Greater than 100%*  *  2  2  
Total100  %  100  %  100  %  100  %  
Weighted average74  %  78  %  75  %  76  %  
Average loan amount$274,345  $238,932  $175,026  $173,804  
Estimated mark-to-market LTV ratio:(5)
<= 60%53  %  54  %  
60.01% to 70%17  17  
70.01% to 80%17  16  
80.01% to 90%8  8  
90.01% to 100%5  5  
Greater than 100%*  *  
Total100  %  100  %  
Weighted average57  %  57  %  
Product type:
Fixed-rate:(6)
Long-term87  %  90  %  85  %  85  %  
Intermediate-term12  8  13  13  
Total fixed-rate99  98  98  98  
Adjustable-rate1  2  2  2  
Total100  %  100  %  100  %  100  %  
Number of property units:
1 unit98  %  98  %  97  %  97  %  
2 to 4 units2  2  3  3  
Total100  %  100  %  100  %  100  %  
Property type:
Single-family homes91  %  90  %  91  %  91  %  
Condo/Co-op9  10  9  9  
Total100  %  100  %  100  %  100  %  
Fannie Mae First Quarter 2020 Form 10-Q29
MD&A | Single-Family Business
Percent of Single-Family Conventional Business
Volume at Acquisition(2)
Percent of Single-Family Conventional
Guaranty Book of Business(3)
As of
For the Three Months Ended March 31,
20202019March 31, 2020December 31, 2019
Occupancy type:
Primary residence92  %  90  %  89  %  89  %  
Second/vacation home3  4  4  4  
Investor5  6  7  7  
Total100  %  100  %  100  %  100  %  
FICO credit score at origination:
< 620*  %  *  %  1  %  1  %  
620 to < 6603  6  5  5  
660 to < 6803  5  4  5  
680 to < 7006  9  7  7  
700 to < 74022  24  21  21  
>= 74066  56  62  61  
Total100  %  100  %  100  %  100  %  
Weighted average753  742  747  746  
Debt-to-income (“DTI”) ratio at origination:(7)
<= 43%75  %  65  %  76  %  76  %  
43.01% to 45%9  10  9  9  
Greater than 45%16  25  15  15  
Total100  %  100  %  100  %  100  %  
Weighted average35  %  38  %  35  %  35  %  
Loan purpose:
Purchase36  %  66  %  44  %  45  %  
Cash-out refinance24  20  20  19 ��
Other refinance40  14  36  36  
Total100  %  100  %  100  %  100  %  
Geographic concentration:(8)
Midwest13  %  13  %  15  %  15  %  
Northeast12  14  17  17  
Southeast21  24  22  22  
Southwest21  22  18  18  
West33  27  28  28  
Total100  %  100  %  100  %  100  %  
Origination year:
2014 and prior36  %  38  %  
20158  8  
201613  14  
201711  12  
201810  11  
201918  17  
20204  —  
Total100  %  100  %  
* Represents less than 0.5% of single-family conventional business volume or guaranty book of business.
Fannie Mae First Quarter 2020 Form 10-Q30
MD&A | Single-Family Business
(1)Second-lien mortgage loans held by third parties are not reflected in the original LTV or the estimated mark-to-market LTV ratios in this table.
(2)Calculated based on the unpaid principal balance of single-family loans for each category at time of acquisition.
(3)Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business as of the end of each period.
(4)The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.
(5)The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available.
(6)Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate loans have maturities equal to or less than 15 years.
(7)Excludes loans for which this information is not readily available.
(8)Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.
Characteristics of our New Single-Family Loan Acquisitions
The share of our single-family loan acquisitions consisting of refinance loans rather than home purchase loans increased in the first quarter of 2020 compared with the first quarter of 2019, primarily due to a lower interest-rate environment, which encouraged refinance activity. Typically, refinance loans have lower LTV ratios than home purchase loans. This trend contributed to a decrease in the percentage of our single-family loan acquisitions with LTV ratios over 90%—from 26% in the first quarter of 2019 to 15% in the first quarter of 2020.
Our share of acquisitions of loans with DTI ratios above 45% decreased in the first quarter of 2020 compared with the first quarter of 2019. This decrease was driven in part by changes in our eligibility guidelines implemented in 2019 to further limit risk layering, particularly with respect to loans with DTI ratios above 45%, as well as a higher volume of refinance loan acquisitions.
For a discussion of factors that may impact the credit characteristics of loans we acquire in the future, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Portfolio Diversification and Monitoring” in our 20182019 Form 10-K. In this section of our 20182019 Form 10-K, we also provide more information on the credit characteristics of loans in our single-family conventional guaranty book of business, including Home Affordable Refinance Program® (“HARP®”) and Refi PlusTM loans, jumbo-conforming and high-balance loans, reverse mortgages and mortgage products with rate resets.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q31

MD&A | Single-Family Business





Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk
Single-Family Credit Enhancement
Our charter generally requires credit enhancement on any single-family conventional mortgage loan that we purchase or securitize if it has an LTV ratio over 80% at the time of purchase. We generally achieve this charter requirement through primary mortgage insurance. We also enter into various other types of transactions in which we transfer mortgage credit risk to third parties.
The table below displays information about loans in our single-family conventional guaranty book of business covered by one or more forms of credit enhancement, including mortgage insurance or a credit risk transfer transaction. For a description of primary mortgage insurance and the other types of credit enhancements specified in the table, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” in our 20182019 Form 10-K. For a discussion of our exposure to and management of the institutional counterparty credit risk associated with the providers of these credit enhancements, see “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and "Note“Note 13, Concentrations of Credit Risk"Risk” in our 20182019 Form 10-K and “Note 10, Concentrations of Credit Risk” in this report. Also see “Risk Factors” in our 2019 Form 10-K and in this report.
Single-Family Loans with Credit EnhancementSingle-Family Loans with Credit EnhancementSingle-Family Loans with Credit Enhancement
As ofAs of
 September 30, 2019 December 31, 2018March 31, 2020December 31, 2019
 Unpaid Principal Balance Percentage of Single-Family Conventional Guaranty Book of Business Unpaid Principal Balance Percentage of Single-Family Conventional Guaranty Book of BusinessUnpaid Principal BalancePercentage of Single-Family Conventional Guaranty Book of BusinessUnpaid Principal BalancePercentage of Single-Family Conventional Guaranty Book of Business
(Dollars in billions)(Dollars in billions)
Primary mortgage insurance and other $644
 22 % $618
 21 %Primary mortgage insurance and other$658  22 %$653  22 %
Connecticut Avenue Securities 816
 28
 798
 27
Connecticut Avenue Securities916  31  919  31  
Credit Insurance Risk TransferTM (“CIRTTM”)
 263
 9
 243
 8
Lender risk sharing 135
 4
 102
 4
Credit Insurance Risk TransferCredit Insurance Risk Transfer307  10  275  10  
Lender risk-sharingLender risk-sharing148  5  147  5  
Less: Loans covered by multiple credit enhancements (413) (14) (394) (13)Less: Loans covered by multiple credit enhancements(456) (15) (438) (15) 
Total single-family loans with credit enhancement $1,445
 49 % $1,367
 47 %Total single-family loans with credit enhancement$1,573  53 %$1,556  53 %
Transfer of Mortgage Credit Risk
In addition to primary mortgage insurance, our Single-Family business has developed other risk-sharing capabilities to transfer portions of our single-family mortgage credit risk to the private market. Our credit risk transfer transactions are designed to transfer a portion of the losses we expect would be incurred in an economic downturn or a stressed credit environment, such as a severe or prolonged economic downturn.environment. As described in “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2019 Form 10-K, we have three primary single-family credit risk transfer programs: Connecticut Avenue Securities, Credit Insurance Risk Transfer, and lender risk-sharing. In March 2020, FHFA directed us to wind down our single-family lender risk-sharing transactions by the end of this year. We continually evaluate our credit risk transfer transactions which, in addition to managing our credit risk, also affect our returns on capital and may impact the amount of capital we would be required to hold under FHFA’s proposedconservatorship capital requirements. We discuss FHFA’s proposed capital rule in “Business—Charter Act and Regulation—GSE Act and Other Regulation”Legislation” in our 20182019 Form 10-K.
During the first nine monthsquarter of 2019,2020, pursuant to our credit risk transfer transactions, we transferred a portion of the mortgage credit risk on single-family mortgages with an unpaid principal balance of $223$118 billion at the time of the transactions. As of September 30, 2019,March 31, 2020, approximately 41%46% of the loans in our single-family conventional guaranty book of business, measured by unpaid principal balance, were included in a reference pool for a credit risk transfer transaction.

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 such transactions until market conditions improve. See “Risk Factors” in this report for additional information on the risks associated with the current limitations on our ability to enter into credit risk transfer transactions.
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q32

MD&A | Single-Family Business





The table below displays the mortgage credit risk transferred to third parties and retained by Fannie Mae pursuant to our single-family credit risk transfer transactions.
Single-Family Credit Risk Transfer Transactions
Issuances from Inception to March 31, 2020
(Dollars in billions)

fnm-20200331_g15.jpg
Senior
Fannie Mae(1)
Initial Reference Pool(5)
$2,079
Mezzanine
Fannie Mae(1)
CIRT(2)(3)
CAS(2)
Lender Risk-Sharing(2)(4)
$2$12$41$4$2,156
First Loss
Fannie Mae(1)
CAS(2)(6)
Lender Risk-Sharing(2)(4)
$9$6$3
Single-Family Credit Risk Transfer Transactions
Issuances from Inception to September 30, 2019
(Dollars in billions)

crtarrowsa03.jpg
Senior 
Fannie Mae(1)
 
Initial Reference Pool(5)
$1,744 
          
Mezzanine 
Fannie Mae(1)
 
CIRT(2)(3)
 
CAS(2)
 
Lender Risk-Sharing(2)(4)
 
$2 $10 $36 $3 $1,811
          
First Loss 
Fannie Mae(1)
 
CAS(2)(6)
 
Lender Risk-Sharing(2)(4)
 
$9 $4 $3 
Outstanding as of March 31, 2020
(Dollars in billions)

fnm-20200331_g16.jpg
Senior
Fannie Mae(1)
Outstanding Reference Pool(5)(7)
$1,361
Mezzanine
Fannie Mae(1)
CIRT(2)(3)
CAS(2)
Lender Risk-Sharing(2)(4)
$1$10$25$4$1,418
First Loss
Fannie Mae(1)
CAS(2)(6)
Lender Risk-Sharing(2)(4)
$9$6$2
(1)Credit risk retained by Fannie Mae in CAS, CIRT and lender risk-sharing transactions. Tranche sizes vary across programs.
(2)Credit risk transferred to third parties. Tranche sizes vary across programs.
(3)Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $7 billion at issuance and approximately $3 billion outstanding as of March 31, 2020.
(4)For some lender risk-sharing transactions, does not reflect completed transfers of risk prior to settlement.
(5)For CIRT and some lender risk-sharing transactions, “Reference Pool” reflects a pool of covered loans.
(6)For CAS transactions, “First Loss” represents all B tranche balances.
(7)For CAS and some lender risk-sharing transactions, represents outstanding reference pools, not the outstanding unpaid principal balance of the underlying loans. The outstanding unpaid principal balance for all loans covered by credit risk transfer programs, including all loans on which risk has been transferred in lender risk-sharing transactions, was $1,371 billion as of March 31, 2020.
Outstanding as of September 30, 2019
(Dollars in billions)

crtarrowsa02.jpg
Senior 
Fannie Mae(1)
 
Outstanding Reference Pool(5)(7)
$1,199 
          
Mezzanine 
Fannie Mae(1)
 
CIRT(2)(3)
 
CAS(2)
 
Lender Risk-Sharing(2)(4)
 
$2 $8 $24 $3 $1,252
          
First Loss 
Fannie Mae(1)
 
CAS(2)(6)
 
Lender Risk-Sharing(2)(4)
 
$9 $4 $3 
(1)
Credit risk retained by Fannie Mae in CAS, CIRT and lender risk-sharing transactions. Tranche sizes vary across programs.
(2)
Credit risk transferred to third parties. Tranche sizes vary across programs.
(3)
Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $7 billion at issuance and approximately $3 billion outstanding as of September 30, 2019.
(4)
For some lender risk-sharing transactions, does not reflect completed transfers of risk prior to settlement.
(5)
For CIRT and some lender risk-sharing transactions, “Reference Pool” reflects a pool of covered loans.
(6)
For CAS transactions, “First Loss” represents all B tranche balances.
(7)
For CAS and some lender risk-sharing transactions, represents outstanding reference pools, not the outstanding unpaid principal balance of the underlying loans. The outstanding unpaid principal balance for all loans covered by credit risk transfer programs, including all loans on which risk has been transferred in lender risk-sharing transactions, was $1,213 billion as of September 30, 2019.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q33

MD&A | Single-Family Business





The following table displays the approximate cash paid or transferred to investors for these credit risk transfer transactions. The cash represents the portion of the guaranty fee paid to investors as compensation for taking on a share of the credit risk. These expenses increased from
Credit Risk Transfer Transactions
For the Three Months Ended March 31,
20202019
Cash paid or transferred for:(Dollars in millions)
CAS transactions(1)
$261  $229  
CIRT transactions102  85  
Lender risk-sharing transactions81  48  
(1)Consists of cash paid for interest expense net of LIBOR on outstanding CAS debt and amounts paid for both CAS REMIC® and CAS credit-linked notes (“CLN”) transactions. CAS REMICs are Connecticut Avenue Securities that are structured as notes issued by trusts that qualify as REMICs. CAS CLNs are similar to CAS REMICs with the first nine monthsexception that loans underlying the transactions were not tagged for use in a REMIC transaction at the time of 2018acquisition.
Once we are able to resume credit risk transfer transactions, we will evaluate loans in our single-family guaranty book of business without credit enhancement to determine if it makes economic sense to include them in a future CAS or CIRT transaction. The following table displays the first nine monthsprimary characteristics of 2019. We expect these expenses will continue to increase as the percentage ofloans in our single-family conventional guaranty book of business currently without credit enhancement.
Single-Family Loans without Credit Enhancement
As of
March 31, 2020December 31, 2019
Unpaid Principal BalancePercentage of Single-Family Conventional Guaranty Book of BusinessUnpaid Principal BalancePercentage of Single-Family Conventional Guaranty Book of Business
(Dollars in billions)
Low LTV ratio or short-term(1)
$749  25 %$736  25 %
Pre-credit risk transfer program inception(2)
583  20  608  20  
Recently acquired(3)
335  11  287  10  
Other(4)
241  8  246  8  
Less: Loans in multiple categories(504) (17) (481) (16) 
Total single-family loans currently without credit
enhancement		$1,404  47 %$1,396  47 %
(1)Represents loans with an LTV ratio less than or equal to 60% or loans with an original maturity of 20 years or less.
(2)Represents loans that is covered bywere acquired before the inception of our credit risk transfer programs. Also includes Refi Plus loans.
(3)Represents loans that were recently acquired and have not been included in a reference pool.
(4)Includes adjustable-rate mortgage loans, loans with a combined LTV ratio greater than 97%, non-Refi Plus loans acquired after the inception of our credit risk transfer programs that became 30 or more days delinquent prior to inclusion in a credit risk transfer transaction, increases.and loans that were delinquent as of March 31, 2020 or December 31, 2019.
Credit Risk Transfer Transactions
  For the Nine Months Ended September 30,
  2019 2018
Cash paid or transferred for: (Dollars in millions)
CAS transactions(1)
 $724
 $655
CIRT transactions 264
 205
Lender risk-sharing transactions 207
 97
(1)
Consists of cash paid for interest expense net of LIBOR on outstanding CAS debt and amounts paid for CAS REMICTM transactions. “CAS REMICs” are Connecticut Avenue Securities that are structured as notes issued by trusts that qualify as REMICs.
With our July 2019 CAS REMICTM transaction, we updated the following terms of our CAS REMIC transactions compared with our prior CAS REMIC transactions: extended the term from 12.5 years to 20 years; shortened the call option from 10 years to 7 years; and retained a smaller first-loss position (that is, investors purchased a larger portion of the risk that we refer to as the first-loss tranche). These updates were primarily designed to further reduce the amount of capital we would be required to hold for the associated loans in the reference pool under FHFA’s proposed capital framework. Our subsequent CAS REMIC transactions included these updated terms, and we currently expect that our future CAS REMIC transactions will contain similar terms.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q34

MD&A | Single-Family Business





Single-Family Problem Loan Management
Our problem loan management strategies arefocus primarily focused on reducing defaults to avoid losses that would otherwise occur and pursuing foreclosure alternatives to mitigate the severity of the losses we incur. See “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Problem Loan Management” in our 20182019 Form 10-K for a discussion of delinquency statistics on our problem loans, efforts undertaken to manage our problem loans, metrics regarding our loan workout activities, real estate owned (“REO”) management and other single-family credit-related disclosures. The discussion below updates some of that information.
Delinquency
The table below displays the delinquency status of loans and changes in the balance of seriously delinquent loans in our single-family conventional guaranty book of business, based on the number of loans. Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process.
As described above in “Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards—COVID-19 Temporary Servicing Policies,” pursuant to the CARES Act, for purposes of reporting to the credit bureaus, servicers must report a borrower receiving a COVID-19-related payment accommodation, such as a forbearance plan or loan modification, as current if his or her loan was current prior to receiving the accommodation. For purposes of our Form 10-Q and related public disclosures regarding the delinquency status of the loans in our guaranty book of business, we will continue to report loans receiving COVID-19-related payment forbearance as delinquent according to the contractual terms of the loan.
Delinquency Status and Activity of Single-Family Conventional LoansDelinquency Status and Activity of Single-Family Conventional LoansDelinquency Status and Activity of Single-Family Conventional Loans
As ofAs of
September 30,
2019		 December 31, 2018 September 30,
2018		March 31, 2020December 31, 2019March 31, 2019
Delinquency status:     Delinquency status:
30 to 59 days delinquent1.28% 1.37% 1.52%30 to 59 days delinquent1.31 %1.27 %1.32 %
60 to 89 days delinquent0.35
 0.38
 0.37
60 to 89 days delinquent0.32  0.35  0.35  
Seriously delinquent (“SDQ”)0.68
 0.76
 0.82
Seriously delinquent (“SDQ”)0.66  0.66  0.74  
Percentage of SDQ loans that have been delinquent for more than 180 days50% 49% 53%Percentage of SDQ loans that have been delinquent for more than 180 days51 %49 %50 %
Percentage of SDQ loans that have been delinquent for more than two years11
 12
 13
Percentage of SDQ loans that have been delinquent for more than two years11  11  11  
For the Three Months Ended March 31,
20202019
Single-family SDQ loans (number of loans):
Beginning balance112,434  130,440  
Additions47,756  52,679  
Removals:
Modifications and other loan workouts(9,714) (12,527) 
Liquidations and sales(9,634) (11,830) 
Cured or less than 90 days delinquent(29,087) (32,746) 
Total removals(48,435) (57,103) 
Ending balance111,755  126,016  
  For the Nine Months Ended September 30,
  2019 2018
Single-family SDQ loans (number of loans):    
Beginning balance 130,440
 212,183
Additions 150,288
 171,516
Removals:    
Modifications and other loan workouts (35,242) (83,567)
Liquidations and sales (39,066) (58,912)
Cured or less than 90 days delinquent (91,255) (101,524)
Total removals (165,563) (244,003)
Ending balance 115,165
 139,696
Our single-family serious delinquency rate decreasedremained relatively flat as of September 30, 2019March 31, 2020 compared with December 31, 20182019 and September 30, 2018. The decrease inMarch 31, 2019.
While our single-family seriousdelinquency rate rates have been low in recent periods, we expect current and future declines in economic activity and resulting higher unemployment rates due to the first nine monthsCOVID-19 outbreak will likely lead to significantly higher rates of 2019 was primarily driven by improved loan payment performance and the sale of nonperforming loans. The decline through the first nine months of 2018 was driven primarily by delinquent borrowers in the regions affected by Hurricanes Harvey, Irma and Maria (collectively, the “2017 hurricanes”) continuing to resolve their loan delinquencies.
Certain higher-risk loan categories, such as Alt-A loans, loans with mark-to-market LTV ratios greater than 100%, and our 2005 through 2008 loan vintages, continue to exhibit higher-than-average delinquency rates and/or account for a higher share of our credit losses. Single-family loans originated in 2005 through 2008 constituted 4%3% of our single-family book of business as of September 30, 2019,March 31, 2020, but constituted 36%32% of our seriously delinquent single-family loans as of September 30, 2019March 31, 2020 and drove 64%26% of our single-family credit losses in the first nine monthsquarter of 2019.2020. In addition, loans in certain judicial foreclosure states such as
Fannie Mae First Quarter 2020 Form 10-Q35
MD&A | Single-Family Business
Florida, New Jersey and New York with historically long foreclosure timelines have exhibited higher-than-average delinquency rates and/or account for a higher share of our credit losses.

Fannie Mae Third Quarter 2019 Form 10-Q35

MD&A | Single-Family Business





The table below displays the serious delinquency rates for, and the percentage of our total seriously delinquent single-family conventional loans represented by, the specified loan categories. Percentage of book outstanding calculations are based onamounts present the unpaid principal balance of loans for each category divided by the unpaid principal balance of our total single-family conventional guaranty book of business for which we have detailed loan-level information.business. We also include information for our loans in California as thisbecause the state accounts for a large share of our single-family conventional guaranty book of business. The reported categories are not mutually exclusive.
Single-Family Conventional Seriously Delinquent Loan Concentration Analysis
As of
March 31, 2020December 31, 2019March 31, 2019
Percentage of Book Outstanding
Percentage of Seriously Delinquent Loans(1)
Serious Delinquency RatePercentage of Book Outstanding
Percentage of Seriously Delinquent Loans(1)
Serious Delinquency RatePercentage of Book Outstanding
Percentage of Seriously Delinquent Loans(1)
Serious Delinquency Rate
States:
California19 %7 %0.33 %19 %6 %0.32 %19 %6 %0.34 %
Florida6  8  0.83  6  8  0.84  6  9  1.03  
Illinois4  6  0.91  4  6  0.91  4  6  0.98  
New Jersey3  5  1.13  3  5  1.13  3  5  1.32  
New York5  8  1.19  5  8  1.18  5  8  1.38  
All other states63  66  0.64  63  67  0.64  63  66  0.71  
Product type:
Alt-A(2)
1  9  2.95  2  9  2.95  2  11  3.31  
Vintages:
2004 and prior2  20  2.48  2  20  2.48  3  23  2.68  
2005-20083  32  4.11  4  33  4.11  4  38  4.50  
2009-202095  48  0.35  94  47  0.35  93  39  0.33  
Estimated mark-to-market LTV ratio:
<= 60%53  52  0.53  54  52  0.53  54  48  0.56  
60.01% to 70%17  17  0.80  17  17  0.80  18  17  0.84  
70.01% to 80%17  14  0.74  16  14  0.75  16  14  0.87  
80.01% to 90%8  9  0.96  8  9  1.00  8  10  1.16  
90.01% to 100%5  4  0.85  5  4  0.86  4  5  1.21  
Greater than 100%*  4  10.06  *  4  10.14  *  6  9.35  
Credit enhanced:(3)
Primary MI & other(4)
22  26  0.95  22  26  0.96  21  26  1.07  
Credit risk transfer(5)
46  17  0.29  45  16  0.27  42  10  0.24  
Non-credit enhanced47  65  0.77  47  66  0.79  52  69  0.83  
*Represents less than 0.5% of single-family conventional guaranty book of business.
(1)Calculated based on the number of single-family loans that were seriously delinquent for each category divided by the total number of single-family conventional loans that were seriously delinquent.
(2)For a description of our Alt-A loan classification criteria, see “MD&A—Glossary of Terms Used in This Report” in our 2019 Form 10-K.
(3)The credit-enhanced categories are not mutually exclusive. A loan with primary mortgage insurance that is also covered by a credit risk transfer transaction will be included in both the “Primary MI & other” category and the “Credit risk transfer” category. As a result, the “Credit enhanced” and “Non-credit enhanced” categories do not sum to 100%. The total percentage of our single-family conventional guaranty book of business with some form of credit enhancement as of March 31, 2020 was 53%.
(4)Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit, corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to some degree in the event of a financial loss. Excludes loans covered by credit risk transfer transactions unless such loans are also covered by primary mortgage insurance.
Single-Family Conventional Seriously Delinquent Loan Concentration Analysis
 As of
 September 30, 2019December 31, 2018September 30, 2018
  Percentage of Book Outstanding 
Percentage of Seriously Delinquent Loans(1)
 Serious Delinquency Rate Percentage of Book Outstanding 
Percentage of Seriously Delinquent Loans(1)
 Serious Delinquency Rate Percentage of Book Outstanding 
Percentage of Seriously Delinquent Loans(1)
 Serious Delinquency Rate
States:                  
California 19% 7% 0.32% 19% 6% 0.34% 19% 6% 0.34%
Florida 6
 8
 0.87
 6
 10
 1.16
 6
 12
 1.51
New Jersey 3
 5
 1.21
 4
 5
 1.38
 4
 6
 1.51
New York 5
 8
 1.24
 5
 8
 1.40
 5
 8
 1.55
All other states 67
 72
 0.67
 66
 71
 0.75
 66
 68
 0.77
Product type:                  
Alt-A(2)
 2
 10
 3.09
 2
 11
 3.35
 2
 12
 3.68
Vintages:                  
2004 and prior 2
 21
 2.53
 3
 23
 2.69
 3
 23
 2.77
2005-2008 4
 36
 4.24
 5
 39
 4.61
 5
 41
 4.90
2009-2019 94
 43
 0.33
 92
 38
 0.34
 92
 36
 0.34
Estimated mark-to-market LTV ratio:                  
<= 60% 55
 52
 0.54
 54
 48
 0.58
 56
 47
 0.61
60.01% to 70% 17
 17
 0.81
 18
 17
 0.87
 18
 17
 0.91
70.01% to 80% 16
 14
 0.79
 16
 14
 0.90
 15
 15
 0.99
80.01% to 90% 8
 9
 1.04
 8
 10
 1.24
 7
 10
 1.38
90.01% to 100% 4
 4
 0.97
 4
 5
 1.33
 3
 5
 1.74
Greater than 100% *
 4
 10.62
 *
 6
 9.85
 1
 6
 10.65
Credit enhanced:(3)
                  
Primary MI & other(4)
 22
 26
 0.97
 21
 26
 1.11
 21
 25
 1.19
Credit risk transfer(5)
 41
 13
 0.27
 39
 10
 0.24
 38
 8
 0.23
Non-credit enhanced 51
 67
 0.75
 53
 69
 0.85
 55
 70
 0.90
*Represents less than 0.5% of single-family conventional business volume or book of business.
(1)
Calculated based on the number of single-family loans that were seriously delinquent for each category divided by the total number of single-family conventional loans that were seriously delinquent.
(2)
For a description of our Alt-A loan classification criteria, see “MD&A—Glossary of Terms Used in this Report” in our 2018 Form 10-K.
(3)
The credit-enhanced categories are not mutually exclusive. A loan with primary mortgage insurance that is also covered by a credit risk transfer transaction will be included in both the “Primary MI & other” category and the “Credit risk transfer” category. As a result, the “Credit enhanced” and “Non-credit enhanced” categories do not sum to 100%. The total percentage of our single-family conventional guaranty book of business with some form of credit enhancement as of September 30, 2019 was 49%.
(4)
Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit, corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to some degree in the event of a financial loss. Excludes loans covered by credit risk transfer transactions unless such loans are also covered by primary mortgage insurance.
(5)
Refers to loans included in reference pools for credit risk transfer transactions, including loans in these transactions that are also covered by primary mortgage insurance. For CAS and some lender risk-sharing transactions, this represents outstanding unpaid principal balance of the underlying loans on the single-family mortgage credit book, not the outstanding reference pool, as of the specified date. Loans included in our credit risk transfer transactions have all been acquired since 2012. Newer vintages typically have significantly lower delinquency rates than more seasoned loans.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q36

MD&A | Single-Family Business
(5)Refers to loans included in reference pools for credit risk transfer transactions, including loans in these transactions that are also covered by primary mortgage insurance. For CAS and some lender risk-sharing transactions, this represents outstanding unpaid principal balance of the underlying loans on the single-family mortgage credit book, not the outstanding reference pool, as of the specified date. Loans included in our credit risk transfer transactions have all been acquired since 2009.





Loan Workout Metrics
Our loan workouts reflect:
our •home retention solutions, including loan modifications, repayment plans and forbearances; and
•foreclosure alternatives, including short sales and deeds-in-lieu of foreclosure.
The chart below displays the unpaid principal balance of our completed single-family loan workouts by type for the first nine monthsquarter of 20182019 compared with the first nine monthsquarter of 2019,2020, as well as the number of loan workouts for each period.
Loan Workout Activityfnm-20200331_g17.jpg
(Dollars(1)Consists of loan modifications and completed repayment plans and forbearances. Repayment plans reflect only those plans associated with loans that were 60 days or more delinquent. Forbearances reflect loans that were 90 days or more delinquent. Excludes trial modifications, loans to certain borrowers who have received bankruptcy relief that are classified as troubled debt restructurings, and repayment and forbearance plans that have been initiated but not completed. There were approximately 18,100 loans in billions)a trial modification period as of March 31, 2020.
chart-1e8b1d27afba5cd4bcb.jpg
(1)(2)Consists of short sales and deeds-in-lieu of foreclosure.
Consists of loan modifications and completed repayment plans and forbearances. Repayment plans reflect only those plans associated with loans that were 60 days or more delinquent. Forbearances reflect loans that were 90 days or more delinquent. Excludes trial modifications, loans to certain borrowers who have received bankruptcy relief that are classified as troubled debt restructurings, and repayment and forbearance plans that have been initiated but not completed. There were approximately 13,200 loans in a trial modification period as of September 30, 2019.
(2)
Consists of short sales and deeds-in-lieu of foreclosure.
The decreasedecline in home retention solutions in the first nine monthsquarter of 20192020 compared with the first nine monthsquarter of 20182019 was primarily driven by improved loan performance and a decreaseperformance. We expect the amount of our home retention solutions to increase in the volume of modifications and forbearances granted, which was elevated in 2018future periods due to the number offorbearance programs we are offering borrowers affected byexperiencing financial hardship due to the 2017 hurricanes.

COVID-19 outbreak.
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q37

MD&A | Single-Family Business





REO Management
If a loan defaults, we acquire the home through foreclosure or a deed-in-lieu of foreclosure. The table below displays our foreclosure activity by region. Regional REO acquisition trends generally follow a pattern that is similar to, but lags, that of regional delinquency trends.
Single-Family REO Properties
 For the Three Months Ended March 31,
20202019
Single-family REO properties (number of properties):
Beginning of period inventory of single-family REO properties(1)
17,501  20,156  
Acquisitions by geographic area:(2)
Midwest944  1,261  
Northeast890  1,457  
Southeast1,148  1,746  
Southwest545  821  
West248  510  
Total REO acquisitions(1)
3,775  5,795  
Dispositions of REO(4,987) (6,953) 
End of period inventory of single-family REO properties(1)
16,289  18,998  
Carrying value of single-family REO properties (dollars in millions)$2,129  $2,404  
Single-family foreclosure rate(3)
0.09  %  0.14  %  
REO net sales price to unpaid principal balance(4)
82  %  77  %  
Short sales net sales price to unpaid principal balance(5)
79  %  75  %  
Single-Family REO Properties
  For the Nine Months Ended September 30,
  
  2019 2018
Single-family REO properties (number of properties):      
Beginning of period inventory of single-family REO properties(1)
 20,156
  26,311
 
Acquisitions by geographic area:(2)
      
Midwest 3,734
  4,675
 
Northeast 3,858
  5,023
 
Southeast 5,001
  6,190
 
Southwest 2,256
  2,864
 
West 1,334
  1,518
 
Total REO acquisitions(1)
 16,183
  20,270
 
Dispositions of REO (18,468)  (25,549) 
End of period inventory of single-family REO properties(1)
 17,871
  21,032
 
Carrying value of single-family REO properties (dollars in millions) $2,349
  $2,606
 
Single-family foreclosure rate(3)
 0.13
% 0.16
%
REO net sales price to unpaid principal balance(4)
 78
% 77
%
Short sales net sales price to unpaid principal balance(5)
 78
% 77
%
(1)Includes acquisitions through foreclosure and deeds-in-lieu of foreclosure. Also includes held-for-use properties, which are reported in our condensed consolidated balance sheets as a component of “Other assets.”
(2)See footnote 8 to the “Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” table for states included in each geographic region.
(3)Estimated based on the annualized total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage of the total number of loans in our single-family conventional guaranty book of business as of the end of each period.
(4)(1)
Includes acquisitions through foreclosure and deeds-in-lieu of foreclosure. Also includes held-for-use properties, which are reported in our condensed consolidated balance sheets as a component of “Other assets.”
(2)
See footnote 8 to the “Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” table for states included in each geographic region.
(3)
Estimated based on the annualized total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage of the total number of loans in our single-family conventional guaranty book of business as of the end of each period.
(4)
Calculated as the amount of sale proceeds received on disposition of REO properties during the respective periods, excluding those subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at the time of foreclosure. Net sales price represents the contract sales price less selling costs for the property and other charges paid by the seller at closing.
(5)Calculated as the amount of sale proceeds received on properties sold in short sale transactions during the respective periods divided by the aggregate unpaid principal balance of the related loans. Net sales price includes borrower relocation incentive payments and subordinate lien(s) negotiated payoffs.
The decline in single-family REO properties during the respective periods, excluding those subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at the time of foreclosure. Net sales price represents the contract sales price less selling costs for the property and other charges paid by the seller at closing.
(5)
Calculated as the amount of sale proceeds received on properties sold in short sale transactions during the respective periods divided by the aggregate unpaid principal balance of the related loans. Net sales price includes borrower relocation incentive payments and subordinate lien(s) negotiated payoffs.
Single-family REO properties declined in the first nine monthsquarter of 20192020 compared with the first nine monthsquarter of 20182019 was primarily due to a reduction in REO acquisitions from serious delinquencies aged greater than 180 days, driven by improved loan performance and the continued sale of nonperforming loan sales.loans.
Pursuant to the CARES Act, except in the case of vacant or abandoned properties, our servicers are currently prohibited from completing foreclosures on our single-family loans through at least May 17, 2020. In addition, many states have enacted foreclosure moratoriums that extend either beyond the CARES Act timeframe or until further notice.
Other Single-Family Credit Information
Single-Family Credit Loss Metrics and Loan Sale Performance Metrics
The amount of credit loss or income we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity, mortgage loan redesignations and charge-offs,write-offs, net of recoveries. The table below displays the components of our single-family credit loss performance metrics, as well as our single-family initial charge-off severity rate.
Our credit loss performance metrics are not defined terms within generally accepted accounting principles in the United States of America (“GAAP”)GAAP and may not be calculated in the same manner as similarly titled measures reported by other companies. We believe theseour credit loss performance metrics may be useful to investorsstakeholders because they are presented as a percentage of our conventional guaranty book of business and represent our incurred credit losses.
We have historicallyrevised the presentation of our single-family credit loss metrics in connection with our implementation of the CECL standard in January 2020, principally by separating the line item previously referred to as “Charge-offs, net of recoveries” into the following three line items: “Write-offs,” “Recoveries” and “Write-offs on the redesignation of mortgage loans from HFI to HFS.” Because sales of nonperforming and reperforming loans have been used by analysts, investors and other companies within the financial services industry.an important part of our credit loss mitigation
Single-Family Credit Loss Performance Metrics
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
 Amount 
Ratio(1)
 Amount 
Ratio(1)
 Amount 
Ratio(1)
 Amount 
Ratio(1)
 (Dollars in millions)
Charge-offs, net of recoveries $(255)  3.5
bps  $(430)  5.8
bps  $(1,115)  5.1
bps  $(1,473)  6.7
bps
Foreclosed property expense (93)  1.3
   (150)  2.1
   (362)  1.7
   (448)  2.0
 
Credit losses and credit loss ratio 
 $(348)  4.8
bps  $(580)  7.9
bps  $(1,477)  6.8
bps  $(1,921)  8.7
bps
Single-family initial charge-off severity rate(2)
    7.43%     10.34%     8.11
%     11.56%
(1)Fannie Mae First Quarter 2020 Form 10-Q
Basis points are calculated based on the amount of each line item divided by the average single-family conventional guaranty book of business during the period.38
(2)
Credit losses on single-family loans initially charged off during the period divided by the average defaulted unpaid principal balance of those loans. The initial charge-off event is defined as the earliest of (1) when the loan is charged off pursuant to the provisions of the Advisory Bulletin, or (2) when there is a short sale, deed-in-lieu of foreclosure, or foreclosure of the underlying collateral. This severity rate does not reflect any gains or losses associated with subsequent events, such as REO transactions that occur after we acquire the property.MD&A | Single-Family Business
strategy in recent periods, we also provide information on our loan sale performance in the table below through the “Gains (losses) on sales and other valuation adjustments” line item, which shows our gains and/or losses realized on the sale of nonperforming and reperforming loans during the period as well as any lower-of-cost-or-market adjustments (“LOCOM”) related to loans held for sale.
As a result of the COVID-19 outbreak, there has been insufficient investor interest in sales of our nonperforming and reperforming loans in recent weeks. As a result, we do not anticipate entering into any new contracts for sales of nonperforming or reperforming loans until market conditions improve.

The table below displays the components of our single-family credit loss metrics and loan sale performance.
Single-Family Credit Loss Metrics and Loan Sale Performance
For the Three Months Ended March 31,
20202019
Amount
Ratio(1)
Amount
Ratio(1)
(Dollars in millions)
Write-offs$(65) $(146) 
Recoveries14  60  
Foreclosed property expense(78) (143) 
Credit losses and credit loss ratio(129) 1.7bps  (229) 3.2  bps  
Write-offs on the redesignation of mortgage loans from HFI to HFS(9) (240) 
Gains (losses) on sales and other valuation adjustments(2)
(167) 23  
Total credit losses, write-offs on redesignations, and gains (losses) on sales and other valuation adjustments, and related ratio$(305) 4.1bps  $(446) 6.1  bps  
(1)Basis points are calculated based on the amount of each line item annualized divided by the average single-family conventional guaranty book of business during the period.
(2)Consists of the temporary LOCOM adjustments on HFS loans and gains (losses) realized on the sales of mortgage loans during the period, which are recognized in “Investment gains (losses), net” in our condensed consolidated financial statements.
Our single-family credit losses and credit loss ratio decreased in the thirdfirst quarter and first nine months of 20192020 compared with the thirdfirst quarter and first nine months of 20182019 primarily due to reduced foreclosures and foreclosure alternatives lower charge-off expenses on the loans we redesignated from HFI to HFS, and lower charge-offwrite-off severity rates due to continued home price appreciation.
Our single-family write-offs on redesignations, and gains (losses) on sales and other valuation adjustments decreased in the first quarter of 2020 compared with the first quarter of 2019 due to fewer redesignations of mortgage loans from HFI to HFS, which resulted in lower write-off activity, partially offset by LOCOM adjustments driven by price declines on our HFS loans.
We do not expect a substantial increase in our single-family credit losses in the near term as a result of the COVID-19 outbreak, as we are currently offering up to 12 months of forbearance to single-family borrowers suffering financial hardship relating to the COVID-19 outbreak and have suspended foreclosures and foreclosure-related activities for single-family properties through at least May 17, 2020; however, the COVID-19 outbreak is likely to result in higher single-family credit losses over the longer term. See “Risk Factors” for additional information.
For information on our credit-related income or expense, which includes changes in our allowance, see “Consolidated Results of Operations—Credit-Related Income (Expense)” and “Single-Family Business Financial Results.”
Fannie Mae First Quarter 2020 Form 10-Q39
MD&A | Single-Family Business
Single-Family Loss Reserves
Our single-family loss reserves, which include our allowance for loan losses and reserve for guaranty losses, provide for an estimate of credit losses incurred in our single-family guaranty book of business, including concessions we granted borrowers upon modificationbusiness. For periods beginning January 1, 2020, our measurement of their loans. loss reserves reflects a lifetime credit loss methodology pursuant to our adoption of the CECL standard and requires consideration of a broader range of reasonable and supportable forecast information to develop credit loss estimates. For the prior period, single-family loss reserves were measured using an incurred loss impairment methodology for loans that are collectively evaluated for impairment. For further details on our previous single-family loss reserves methodology, refer to “Note 1, Summary of Significant Accounting Policies” in our 2019 Form 10-K.
The table below summarizes the changes in our single-family loss reserves.reserves, excluding credit losses on our AFS securities. For a discussion of changes in our benefit (provision) for credit losses see “Consolidated Results of Operations—Credit-Related Income (Expense).”
Single-Family Loss Reserves
For the Three Months Ended March 31,
20202019
(Dollars in millions)
Changes in loss reserves:
Beginning balance$(8,779) $(14,007) 
Transition impact from the adoption of the CECL standard(1,231) —  
Benefit (provision) for credit losses(2,170) 661  
Write-offs74  386  
Recoveries(14) (60) 
Other28  1  
Ending balance$(12,092) $(13,019) 
Write-offs, net of recoveries as a percentage of the average single-family conventional guaranty book of business (in bps)0.8  4.5
As of
March 31, 2020December 31, 2019
Loss reserves as a percentage of single-family:
Conventional guaranty book of business0.41 %0.30 %
Nonaccrual loans at amortized cost42.68  30.58  
Single-Family Loss Reserves
  For the Three Months Ended September 30,  For the Nine Months Ended September 30,
  2019 2018  2019 2018
  (Dollars in millions)
Changes in loss reserves:         
Beginning balance $(11,239) $(16,638)  $(14,007) $(19,155)
Benefit for credit losses 1,840
 732
  3,753
 2,223
Charge-offs 274
 514
  1,221
 1,728
Recoveries (19) (84)  (106) (255)
Other (1) (2)  (6) (19)
Ending balance $(9,145) $(15,478)  $(9,145) $(15,478)
          
       As of
       September 30, 2019 December 31, 2018
Loss reserves as a percentage of:         
Single-family guaranty book of business      0.31% 0.49%
Recorded investment in nonaccrual loans      31.48
 44.24

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q3840

MD&A | Single-Family Business





Troubled Debt Restructurings and Nonaccrual Loans
The tabletables below displaysdisplay the single-family loans classified as TDRs that were on accrual status and single-family loans on nonaccrual status. The table includestables include our recorded investmentamortized cost in HFI and HFS single-family mortgage loans as well as interest income forgone and recognized for on-balance sheet TDRs on accrual status and nonaccrual loans. For information on the impact of TDRs and other individually impairednonaccrual loans on our allowance for loan losses, see “Note 3, Mortgage Loans.”
Pursuant to the CARES Act, we have elected to temporarily suspend the accounting for TDRs under GAAP for certain loss mitigation activities, including forbearance and 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, as long as the loan was not more than 30 days delinquent as of December 31, 2019. Accordingly, we do not expect an increase in our TDRs in 2020. See “Note 1, Summary of Significant Accounting Policies” for additional information on our accounting for TDRs.
Single-Family TDRs on Accrual Status and Nonaccrual LoansSingle-Family TDRs on Accrual Status and Nonaccrual Loans Single-Family TDRs on Accrual Status and Nonaccrual Loans
As ofAs of
September 30, 2019 December 31, 2018March 31, 2020December 31, 2019
(Dollars in millions)(Dollars in millions)
TDRs on accrual status $89,083
 $98,320
 TDRs on accrual status$80,952  $81,634  
Nonaccrual loans 29,051
 31,658
 Nonaccrual loans28,335  28,708  
Total TDRs on accrual status and nonaccrual loans $118,134
 $129,978
 Total TDRs on accrual status and nonaccrual loans$109,287  $110,342  
Accruing on-balance sheet loans past due 90 days or more(1)
 $198
 $228
 
Accruing on-balance sheet loans past due 90 days or more(1)
$178  $191  
For the Three Months Ended March 31,
20202019
(Dollars in millions)
Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:
Interest income forgone(2)
$406  $521  
Interest income recognized(3)
1,068  1,272  
  For the Nine Months Ended September 30, 
   
  2019   2018 
  (Dollars in millions) 
Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:       
Interest income forgone(2)
 $1,280
   $1,680
 
Interest income recognized(3)
 3,614
   4,141
 
(1)Includes loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. The majority of these amounts consist of loans insured or guaranteed by the U.S. government and loans for which we have recourse against the seller in the event of a default.
(2)Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.
(3)Primarily includes amounts accrued while the loans were performing and cash payments received on nonaccrual loans.
(1)
Includes loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. The majority of these amounts consist of loans insured or guaranteed by the U.S. government and loans for which we have recourse against the seller in the event of a default.
(2)
Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.
(3)
Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual loans.
Multifamily Business
Our Multifamily business provides mortgage market liquidity primarily for properties with five or more residential units, which may be apartment communities, cooperative properties, seniors housing, dedicated student housing or manufactured housing communities.
This section supplements and updates information regarding our Multifamily business segment in our 20182019 Form 10-K. See “MD&A—Multifamily Business” in our 20182019 Form 10-K for additional information regarding the primary business activities, customers, competition and market share of our Multifamily business.
Presentation of our multifamily guaranty book of business
For purposes of the information reported in this “Multifamily Business” section, we measure our multifamily guaranty book of business by using the unpaid principal balance of mortgage loans underlying Fannie Mae MBS. By contrast, the multifamily guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information reported below, the unpaid principal balance of our multifamily guaranty book of business was $329.6 billion as of September 30, 2019 and $305.9 billion as of December 31, 2018.
Multifamily Mortgage Market
National multifamily market fundamentals, which include factors such as vacancy rates and rents, remained steady duringrelatively stable throughout most of the thirdfirst quarter of 2020, since the onset of the COVID-19 outbreak did not begin impacting most local economies until mid- to late- March 2020.
•Vacancy rates. Based on preliminary third-party data, the estimated national multifamily vacancy rate for institutional investment-type apartment properties was 5.8% as of March 31, 2020, compared with 5.5% as of December 31, 2019 and March 31, 2019. The estimated national multifamily vacancy rate remains below its average rate of about 6.0% over the last 10 years.
•Rents. Effective rents are estimated to have increased by 0.5% in the first quarter of 2020, compared to an estimated 0.3% in the fourth quarter of 2019 most likely due to ongoing job growth, favorable demographic trends, and renter household formations.
•
Vacancy rates. Based on preliminary third-party data, the national multifamily vacancy rate for institutional investment-type apartment properties is estimated to have remained at 5.3% at September 30, 2019, which was the same as of June 30, 2019.
•
Rents. Effective rents are estimated to have increased during the third quarter of 2019, with national asking rents increasing by an estimated 0.8% in the third quarter of 2019, compared with 1.0% during the secondan estimated 0.5% in the first quarter of 2019.

Fannie Mae Third Quarter 2019 Form 10-Q39

Fannie Mae First Quarter 2020 Form 10-Q41
MD&A | Multifamily Business

Continued demand for multifamily rental units during the third quarter of 2019 was reflected in the estimated positive net absorption (that is, the net change in the number of occupied rental units during the time period) of approximately 33,000 units, according to data from Reis, Inc., compared with approximately 49,000 units during the second quarter of 2019.
Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from the cash flows generated by the underlying property. Several years of improvement in these fundamentals have helped to increase property values in most metropolitan areas. It is estimated thatAccording to the latest third-party estimate, approximately 424,000494,000 new multifamily units willare expected to be completed in 2019. The bulk2020; however, we believe the amount of new multifamily units in 2020 likely will be lower than this newestimate due to the ongoing supply is concentratedchain disruptions, coupled with the current social distancing restrictions and stay-at-home orders in a limited number of metropolitan areas. place across the country.
Although multifamily fundamentals remainremained positive in the first quarter of 2020, we expect the multifamily sector to be negatively impacted in 2020 from rising vacancy rates, as well as from declining or negative rent growth due to the economic dislocation resulting from the COVID-19 outbreak. While we expect vacancy rates to rise, we believe increasing supplythe increase is likely to be modest as tenants will resultbe less likely to move given the recent declines in a continuing slowdownemployment rates, the stay-at-home orders currently in national net absorption ratesplace across the country, and effective rents for the remainder of 2019 compared with recent years.eviction moratoriums in place in many localities.
Multifamily Business Metrics
Through the secondary mortgage market, we support rental housing for the workforce population, for senior citizens and students, and for families with the greatest economic need. Over 90% of the multifamily units we financed in the thirdfirst quarter of 20192020 were affordable to families earning at or below 120% of the median income in their area, providing support for both workforce housing and affordable housing.
Multifamily New Business Volume
(Dollars in billions)
chart-40cf322b933554cc8e2.jpgfnm-20200331_g18.jpg
(1)
(1)Reflects unpaid principal balance of multifamily Fannie Mae MBS issued, multifamily loans purchased, and credit enhancements provided on multifamily mortgage assets during the period.
Reflects unpaid principal balance of multifamily Fannie Mae MBS issued, multifamily loans purchased, and credit enhancements provided on multifamily mortgage assets during the period.
FHFA’s 20192020 conservatorship scorecard includedincludes an objective to maintain the dollar volume of new multifamily business at or below $35 billion for the year, excluding certain targeted affordable and underserved market business segments such as loans financing energy or water efficiency improvements. Approximately 44% of our multifamily new business volume of $52.1 billion for the first nine months of 2019 counted toward FHFA’s 2019 multifamily volume cap. On September 13, 2019, FHFA announced a revised multifamily business volume cap structure. The new multifamily volume cap, which replaced the prior cap effective October 1, 2019, is $100 billion for the five-quarter period endingfrom October 1, 2019 through December 31, 2020. The new cap applies with no exclusions. In addition, FHFA directed that at least 37.5% of our multifamily business during that time period must be mission-driven, affordable housing, pursuant to FHFA’s guidelines for mission-driven loans. Our multifamily new business volume was $18.1 billion for the fourth quarter of 2019 and $14.1 billion for the first quarter of 2020, leaving $67.8 billion of capacity remaining under our current multifamily volume cap for the remainder of 2020.

Presentation of Our Multifamily Guaranty Book of Business
Fannie Mae Third Quarter 2019 Form 10-Q40

For purposes of the information reported in this “Multifamily Business” section, we measure our multifamily guaranty book of business using the unpaid principal balance of mortgage loans underlying Fannie Mae MBS. By contrast, the multifamily guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information reported below, the following chart displays our multifamily guaranty book of business.
Fannie Mae First Quarter 2020 Form 10-Q42
MD&A | Multifamily Business

Multifamily Guaranty Book of Business
(Dollars in billions)
fnm-20200331_g19.jpg
Unpaid principal balance of multifamily guaranty book of business(1)
Average charged guaranty fee rate on multifamily guaranty book of business (in basis points), at end of period
(1)Our multifamily guaranty book of business primarily consists of multifamily mortgage loans underlying Fannie Mae MBS outstanding, multifamily mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on multifamily mortgage assets. It does not include non-Fannie Mae multifamily mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty.
Our average charged guaranty fee rate has trended downward from 2019 to 2020, driven by competitive market pressure on guaranty fees charged on newly acquired multifamily loans. Average charged guaranty fee represents our effective revenue rate relative to the size of our multifamily guaranty book of business. Management uses this metric to assess the reasonableness of our annual compensation rate for the multifamily credit risk we manage.
Multifamily Business Financial Results(1)
For the Three Months Ended March 31,
20202019Variance
(Dollars in millions)
Net interest income$806  $757  $49  
Fee and other income156  28  128  
Net revenues962  785  177  
Fair value gains, net184  56  128  
Administrative expenses(120) (113) (7) 
Credit-related expense(2)
(413) (8) (405) 
Credit enhancement expense(19) (4) (15) 
Other income (expenses), net(3)
(102) 2  (104) 
Income before federal income taxes492  718  (226) 
Provision for federal income taxes(99) (143) 44  
Net income$393  $575  $(182) 
(1)See “Note 1, Summary of Significant Accounting Policies” for more information about the change in presentation to our yield maintenance fees. Prior period amounts have been adjusted to reflect the current year change in presentation.
(2)Consists of the benefit or provision for credit losses and foreclosed property income or expense. The presentation of our credit-related 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.
(3)Consists of investment gains or losses, gains or losses from partnership investments, and other income or expenses.
  For the Three Months Ended September 30,   For the Nine Months Ended September 30,  
  2019 2018 Variance 2019 2018 Variance
  (Dollars in millions)
Net interest income $745
 $699
 $46
 $2,170
 $2,024
 $146
Fee and other income 246
 192
 54
 525
 524
 1
Net revenues 991
 891
 100
 2,695
 2,548
 147
Fair value gains (losses), net 6
 (31) 37
 66
 (69) 135
Administrative expenses (115) (104) (11) (338) (317) (21)
Credit-related income (expense)(1)
 14
 (25) 39
 (23) (6) (17)
Other expenses, net(2)
 (92) (75) (17) (197) (209) 12
Income before federal income taxes 804
 656
 148
 2,203
 1,947
 256
Provision for federal income taxes (164) (107) (57) (427) (314) (113)
Net income $640
 $549
 $91
 $1,776
 $1,633
 $143
(1)Fannie Mae First Quarter 2020 Form 10-Q
Consists of the benefit or provision for credit losses and foreclosed property income or expense.43
(2)
Consists of investment gains, gains or losses from partnership investments and other income or expenses.MD&A | Multifamily Business
Net interest incomeInterest Income
Multifamily net interest income is primarily driven by guaranty fee income. Guaranty fee income increased in the thirdfirst quarter and first nine months of 20192020 as compared with the thirdfirst quarter and first nine months of 20182019 as a result of growth in the size of our multifamily guaranty book of business, partially offset by a decrease in average charged guaranty fees on the multifamily guaranty book.
chart-0cc2f01f3ee75ea7a04.jpg
(1)
Our multifamily guaranty book of business consists of multifamily mortgage loans underlying Fannie Mae MBS outstanding, multifamily mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on multifamily mortgage assets. It excludes non-Fannie Mae multifamily mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty.
Our average charged guaranty fee has trended downward from 2018 to 2019, driven by competitive market pressure on guaranty fees charged on newly acquired multifamily loans and liquidations of loans with higher guaranty fees.
Fee and other incomeOther Income
Fee and other income increased in all periods presented wasthe first quarter of 2020 as compared with the first quarter of 2019, primarily as a result of an increase in our credit enhancement benefits from our multifamily DUS loss-sharing arrangements, which were driven by yield maintenance fees resulting from prepayment activity.

Fannie Mae Third Quarter 2019 Form 10-Q41

MD&A | Multifamily Business

an increase in our estimated credit losses due to the COVID-19 outbreak. Prior to the adoption of the CECL standard in January 2020, the mitigating impact of our DUS loss-sharing arrangements was a component of credit-related expense.
Fair value gains (losses), netValue Gains, Net
Depending on portfolio activity, our Multifamily businessmultifamily mortgage commitment derivatives may be in a net buynet-buy or net sellnet-sell position during any given period. Fair value gains in the first nine monthsquarter of 2020 and the first quarter of 2019 were primarily driven by gains on commitments to buy multifamily mortgage-related securities as a result of increases in prices as interest rates declined during the commitment periods.
Fair value losses inCredit-Related Expense
Credit-related expense for the thirdfirst quarter and first nine months of 2018 were2020 was primarily driven by an increase in our allowance for loan losses on commitmentsdue to buy multifamily mortgage-related securitieslosses we expect to incur as a result of decreasesthe COVID-19 outbreak using an expected lifetime loss methodology consistent with our implementation of the CECL standard.
See “Consolidated Results of Operations—Credit-Related Income (Expense)” in prices as interest rates rose during the commitment periods.this report for more information on our multifamily provision for credit losses.
Multifamily Mortgage Credit Risk Management
This section updates our discussion of multifamily mortgage credit risk management in our 20182019 Form 10-K in “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management.”
Multifamily Acquisition Policy and Underwriting Standards
Our standards for multifamily loans specify maximum original LTV ratio and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan characteristics. Our experience has been that original LTV ratio and DSCR values have been reliable indicators of future credit performance.
At underwriting, we evaluate the DSCR based on both actual and underwritten debt service payments. UnderwrittenThe original DSCR is calculated using the underwritten debt service payments are based on debt service calculations that includefor the loan, which assumes both principal and interest payments. The original DSCR for the loan is calculated using these underwritten debt service payments, rather than the actual debt service payments, which, dependingpayments. Depending on the loan’s interest rate ofand structure, using the loan and loan structure,underwritten debt service payments may result in a more conservative estimate of the debt service payments.payments (for example, loans with an interest-only period). This approach is used for all loans, including those with full and partial interest-only terms.
The following table displays key risk characteristicsTo address possible fluctuations in borrower income and expenses resulting from the COVID-19 outbreak, we may institute additional reserve requirements for new multifamily loan acquisitions depending on the product type, as well as LTV ratios and DSCRs.
Key Risk Characteristics of Multifamily Guaranty Book of Business
As of
March 31, 2020December 31, 2019March 31, 2019
Weighted average original LTV ratio66  %  66  %  66  %  
Original LTV ratio greater than 80%1  1  1  
Original DSCR less than or equal to 1.1011  11  12  
Full interest-only loans27  27  25  
Partial interest-only loans(1)
51  51  49  
(1)Consists of our multifamily guaranty bookmortgage loans that were underwritten with an interest-only term, regardless of business.
Key Risk Characteristics of Multifamily Guaranty Book of Business
 As of
 September 30,
2019		 December 31, 2018 September 30,
2018
Weighted average original LTV ratio 66%  66%  67%
Original LTV ratio greater than 80% 1   1   1 
Original DSCR less than or equal to 1.10 11


12


13 
Full interest-only loans 26   24   23 
Partial interest-only loans(1)
 50   49   48 
(1)whether the loan is currently in its interest-only period.
Consists of mortgage loans that were underwritten with an interest-only term, regardless of whether the loan is currently in its interest-only period.
We provide additional information on the credit characteristics of our multifamily loans in quarterly financial supplements, which we submitfurnish to the SEC with current reports on Form 8-K. Information in our quarterly financial supplements is not incorporated by reference into this report.
Fannie Mae First Quarter 2020 Form 10-Q44
MD&A | Multifamily Business
Transfer of Multifamily Mortgage Credit Risk
Lender risk-sharing is a cornerstone of our Multifamily business. We primarily transfer risk through our Delegated Underwriting and Servicing (“DUS®”) program, which delegates to DUS lenders the ability to underwrite and service multifamily loans, in accordance with our standards and requirements. DUS lenders receive credit risk-related revenues for their respective portion of credit risk retained, and, in turn, are required to fulfill any loss sharing obligation. This aligns the interests of the lender and Fannie Mae throughout the life of the loan.
Our DUS model typically results in our lenders sharing on a pro-rata or tiered basis approximately one-third of the credit risk on our multifamily loans. In the first nine months of 2019, nearly 100% of our new multifamily business volume had lender risk-sharing. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, 98% of the unpaid principal balance of loans in our multifamily guaranty book of business had front-end lender risk-sharing.
To complement our front-end lender risk-sharing, programwe also engage in back-end credit risk transfer transactions through our DUS model, we engage in multifamily CIRT (“MCIRT”) and Multifamily Connecticut Avenue Securities™ (“MCAS”) transactions. Through these transactions, pursuant to which we transfer a portion of the mortgage credit risk associated with Fannie Mae losses on a reference pool of multifamily mortgage loans.
While we were able to enter into both an MCIRT and MCAS transaction in the first quarter of 2020, due to the COVID-19 outbreak we may not be able to enter into additional transactions until market conditions improve. See “Risk Factors” in this report for additional information on the risks associated with the current limitations on our ability to enter into credit risk transfer transactions. We expect to continue entering into front-end lender risk-sharing arrangements, primarily through our DUS program.
The table below displays the number of transactions and unpaid principal balance of multifamily mortgage loans covered by a back-end credit risk transfer transaction at the time of issuance. The table also includes the total unpaid principal balance of multifamily loans inand percentage of our multifamily guaranty book of business to insurers or reinsurers. Asthat are covered by a back-end credit risk transfer transaction. The table does not reflect front-end lender risk-sharing arrangements, as only a small portion of September 30, 2019, we have completed six multifamily CIRT transactions since the inception of the program, which covered multifamily loans with an unpaid principal balance of approximately $62.0 billion at the time of the transactions. As of September 30, 2019, 18% of the loans in our multifamily guaranty book of business measured by unpaid principal balance, were covered by a CIRT transaction. We continue to support the growth of the credit risk transfer marketdoes not include these arrangements.
Multifamily Loans in Back-End Credit Risk Transfer Transactions
Year-to-date 2020Since Inception
Number of Back-End Credit Risk Transfer TransactionsUnpaid Principal Balance Covered at IssuanceNumber of Back-End Credit Risk Transfer TransactionsUnpaid Principal Balance Covered at issuance
(Dollars in millions)
MCIRT1  $8,720  8  $80,617  
MCAS1  12,212  2  29,293  
Total2  $20,932  10  $109,910  
As of
March 31, 2020December 31, 2019
Unpaid Principal BalancePercentage of Multifamily Guaranty Book of BusinessUnpaid Principal BalancePercentage of Multifamily Guaranty Book of Business
(Dollars in millions)
MCIRT$74,802  22 %$66,851  20 %
MCAS29,227  8  17,077  5  
Total unpaid principal balance of multifamily loans in back-end credit risk transfer transactions$104,029  30 %$83,928  25 %
For more information on our multifamily credit-risk sharing transactions and expand the types of loans coveredtheir impact on our conservatorship capital requirements, see “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management” in our credit risk transfer programs.

Fannie Mae Third Quarter 2019 Form 10-Q42

MD&A | Multifamily Business

2019 Form 10-K.
Multifamily Portfolio Diversification and Monitoring
Diversification within our multifamily book of business by geographic concentration, term to maturity, interest rate structure, borrower concentration, loan size and credit enhancement coverage, are important factors that influence credit performance and help reduce our credit risk.
As part of our ongoing credit risk management process, we and our lenders monitor the performance and risk characteristics of our multifamily loans and the underlying properties on an ongoing basis throughout the loan term at the asset and portfolio level. We require lenders to provide quarterly and annual financial updates for the loans for which we are contractually entitled to receive such information. We closely monitor loans with an estimated current DSCR below 1.0, as that is an indicator of
Fannie Mae First Quarter 2020 Form 10-Q45
MD&A | Multifamily Business
heightened default risk. The percentage of loans in our multifamily guaranty book of business, calculated based on unpaid principal balance, with a current DSCR less than 1.0 was approximately 2% as of September 30, 2019March 31, 2020, and December 31, 2018.2019. Our estimates of current DSCRs are based on the latest available income information for these properties and exclude co-op loans. Although we use the most recently available results from our multifamily borrowers, there is a lag in reporting, which typically can range from three to six months, but in some cases may be longer.
In addition to the factors discussed above, we track the following credit risk characteristics to determine loan credit quality indicators, which are the internal risk categories we use and which are further discussed in “Note 3, Mortgage Loans”:Loans:”
•the physical condition of the property;
•delinquency status;
•the relevant local market and economic conditions that may signal changing risk or return profiles; and
•other risk factors.
For example, we closely monitor the rental payment trends and vacancy levels in local markets, as well as capitalization rates, to identify loans that merit closer attention or loss mitigation actions. We manage our exposure to refinancing risk for multifamily loans maturing in the next several years. We have a team that proactively manages upcoming loan maturities to minimize losses on maturing loans. This team assists lenders and borrowers with timely and appropriate refinancing of maturing loans with the goal of reducing defaults and foreclosures related to these loans. The primary asset management responsibilities for our multifamily loans are performed by our DUS and other multifamily lenders. We periodically evaluate these lenders’ performance for compliance with our asset management criteria.
Multifamily Problem Loan Management and Foreclosure Prevention
COVID-19 Forbearance and Eviction Moratorium
We have delegated to our lenders the authority to execute a forbearance agreement with a multifamily borrower experiencing a documented financial hardship due to the COVID-19 outbreak for up to 3 monthly payments beginning with the first missed monthly payment occurring after February 1, 2020. Lenders may grant forbearances for any one or more monthly payments, but are only delegated to do so for up to 3 months. The borrower is required to bring the mortgage loan current within 12 months after the end of the forbearance period. The borrower is also required to suspend all tenant evictions for nonpayment of rent for any reason until the later of July 25, 2020 (120 days after the enactment of the CARES Act) or the months of actual payment forbearance, or as required by local law.
Delinquency Statistics on our Problem Loans
The percentage of our multifamily loans categorized as substandard based on thesethe characteristics increased throughout 2018, but decreased as of September 30, 2019 as compared with December 31, 2018 and remainsmentioned above remained at historically low levels.levels as of March 31, 2020 and December 31, 2019. Substandard loans are loans that have a well-defined weakness that could impact the timely full repayment. While the vast majority of the substandard loans in our multifamily guaranty book of business are currently making timely payments, we continue to monitor the performance of the full substandard loan population. For more information on our credit quality indicators, including our population of substandard loans, see “Note 3, Mortgage Loans.”
Multifamily Problem Loan Management and Foreclosure Prevention
The multifamily serious delinquency rate was 0.06%0.05% as of September 30, 2019 andMarch 31, 2020, compared with 0.04% as of December 31, 20182019 and 0.07% as of September 30, 2018. We classifyMarch 31, 2019. Our multifamily seriously delinquent rate consists of multifamily loans as seriously delinquent when payment isthat were 60 days or more past due.due based on unpaid principal balance expressed as a percentage of our multifamily guaranty book of business.
We expect our population of substandard loans and our multifamily serious delinquency rate to increase due to the COVID-19 outbreak as the majority of loans on forbearance will be considered substandard and seriously delinquent.
REO Management
The number of multifamily foreclosed properties held for sale was 12 properties with a carrying value of $84 million as of March 31, 2020, compared with 12 properties with a carrying value of $72 million as of December 31, 2019.
Fannie Mae First Quarter 2020 Form 10-Q46
MD&A | Multifamily Business

Other Multifamily Credit Information
Multifamily Credit Loss Performance Metrics
The amount of credit loss or income we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity and charge-offs,write-offs, net of recoveries. Our credit loss performance metrics are not defined terms within GAAP and may not be calculated in the same manner as similarly titled measures reported by other companies. We believe our credit loss performance metricslosses and our credit losses, net of loss-sharing benefit, may be useful to investorsstakeholders because they have historically been used by analysts, investorsdisplay our credit losses in the context of our guaranty book of business, including the benefit we receive from loss-sharing arrangements. Management views credit losses net of loss-sharing benefit as a key metric related to our business model and our strategy to share credit risk.
The table below displays the components of our multifamily credit loss performance metrics, as well as our multifamily initial write-off severity rate. Our multifamily guaranty book of business has experienced very low levels of write-offs in the past several years, which in some periods has resulted in credit income rather than losses, and drives variability in our write-off severity rate.
Multifamily Credit Loss Performance Metrics
For the Three Months Ended March 31,
20202019
(Dollars in millions)
Write-offs$(20) $—  
Recoveries1  —  
Foreclosed property income (expense)(2) 3  
Credit income (losses)(1)
(21) 3  
Freestanding loss-sharing benefit(2)
3  N/A  
Credit income (losses) net of freestanding loss-sharing benefit$(18) $3  
Credit (income) loss ratio(1)(3) (in bps)
2.5  (0.4) 
Credit (income) loss ratio, net of freestanding loss-sharing benefit(2)(3) (in bps)
2.1  N/A  
Multifamily initial write-off severity rate(4)
23.3  %—  %
Multifamily loan write-off count3  —  
(1)Credit income is the result of net gains on the sale of foreclosed properties.
(2)Includes expected benefit of freestanding credit enhancements, primarily multifamily DUS lender-risk sharing transactions, which are recorded in “Fee and other companies withinincome” in our condensed consolidated statements of operations. Prior to the financial services industry.adoption of the CECL standard, benefits from lender risk-sharing transactions were included in the benefit (provision) for credit losses in our condensed consolidated statements of operations and comprehensive income.
(3)Calculated based on the annualized amount of credit income (losses), and credit losses net of freestanding loss-sharing benefit, divided by the average multifamily guaranty book of business during the period.
(4)Rate is calculated as the initial write-off amount divided by the average defaulted unpaid principal balance. The rate includes write-offs pursuant to the provisions of the Advisory Bulletin and excludes any costs, gains or losses associated with REO after initial acquisition through final disposition. Write-offs are net of lender loss sharing agreements. Recoveries primarily include amounts accrued while the loans were performing and cash payments received on nonaccrual loans.
We had $5 milliondo not expect a significant increase in our multifamily credit losses in the third quarternext six months as a result of 2019 compared with $7 millionthe COVID-19 outbreak due to the forbearance we are currently offering described above; however, the COVID-19 outbreak will likely result in the third quarter of 2018. We had $6 million inhigher multifamily credit losses inover the first nine months of 2019 compared with $15 million in the first nine months of 2018.
Credit losses in the third quarter of 2019 were primarily driven by foreclosed property expenses. Credit losses in the first nine months of 2019 were primarily driven by charge-off activity in the second quarter.longer term. See “Risk Factors” for additional information.
Multifamily Loss Reserves
Our multifamily loss reserves, which include our allowance for loan losses and reserve for guaranty losses, provide for an estimate of credit losses in our multifamily guaranty book of business. For periods beginning January 1, 2020, our measurement of loss reserves reflects a lifetime credit loss methodology pursuant to our adoption of the CECL standard and requires consideration of a broader range of reasonable and supportable forecast information to develop credit loss estimates. For the prior period, multifamily loss reserves were measured using an incurred loss methodology. For further details on our previous multifamily loss reserves methodology, refer to “Note 1, Summary of Significant Accounting Policies” in our 2019 Form 10-K.
Fannie Mae First Quarter 2020 Form 10-Q47
MD&A | Multifamily Business

The table below summarizes the changes in our multifamily loss reserves, which includesexcluding credit losses on our allowanceAFS securities. For a discussion of changes in our provision for credit losses see “Consolidated Results of Operations—Credit-Related Income (Expense).”
Multifamily Loss Reserves
For the Three Months Ended March 31,
20202019
Changes in loss reserves:
Beginning balance$(268) $(245) 
Transition impact from the adoption of the CECL standard(1)
(490) —  
Provision for credit losses(410) (11) 
Write-offs20  —  
Recoveries(1) —  
Ending balance$(1,149) $(256) 
Expected benefit of freestanding credit enhancements on multifamily loans not netted against loss reserves as of the end of the period(2)
$347  N/A
As of
March 31, 2020December 31, 2019
Loss reserves as a percentage of multifamily guaranty book of business0.33 %0.08 %
(1)Includes the transition impact of $221 million for the reclassification of freestanding credit enhancements, such as DUS lender risk-sharing, to “Other assets” from “Allowance for loan losses andlosses” on our reservecondensed consolidated balance sheets.
(2)Prior to our adoption of the CECL standard, benefits for guaranty lossesfreestanding credit enhancements were netted against our multifamily loss reserves, which for multifamily loans.March 31, 2019 was $100 million. As of January 1, 2020 these credit enhancements are recorded in “Other assets” in our condensed consolidated balance sheets.
Multifamily Loss Reserves 
  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2019 2018  2019 2018 
  (Dollars in millions) 
Changes in loss reserves:          
Beginning balance $(281) $(218)  $(245) $(245) 
Benefit (provision) for credit losses 17
 (16)  (21) 6
 
Charge-offs 3
 1
  7
 6
 
Recoveries (1) (3)  (3) (3) 
Ending balance $(262) $(236)  $(262) $(236) 
           
     As of 
  September 30, 2019 December 31, 2018 
Loss reserves as a percentage of multifamily guaranty book of business  0.08% 0.08% 
Troubled Debt Restructurings and Nonaccrual Loans
The table below displays the multifamily loans classified as TDRs that were on accrual status and multifamily loans on nonaccrual status. The table includes our recorded investmentamortized cost in HFI mortgage loans, as well as interest income forgone and HFS multifamily mortgagerecognized for on-balance sheet TDRs on accrual status and nonaccrual loans. For more information on our accounting policies for nonaccrual loans and TDRs, as well as accounting relief for certain eligible TDRs pursuant to the impact of TDRs and other individually impaired loans on our allowance for loan losses,CARES Act, see “Note 3, Mortgage Loans.1, Summary of Significant Accounting Policies.”
Multifamily TDRs on Accrual Status and Nonaccrual Loans
As of
March 31, 2020December 31, 2019
(Dollars in millions)
TDRs on accrual status$58  $66  
Nonaccrual loans (1)
95  439  
Total TDRs on accrual status and nonaccrual loans$153  $505  
For the Three Months Ended March 31,
20202019
(Dollars in millions)
Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:
Interest income forgone(2)
$1  $7  
Interest income recognized(3)
1  —  
(1)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. As a result, the population of loans classified as nonaccrual declined as a substantial amount of these loans were current and had been
Multifamily TDRs on Accrual Status and Nonaccrual Loans
  As of
  September 30, 2019 December 31, 2018 
  (Dollars in millions)
TDRs on accrual status $33
 $55
 
Nonaccrual loans 608
 492
 
Total TDRs on accrual status and nonaccrual loans $641
 $547
 
  For the Nine Months Ended September 30, 
   
  2019 2018 
  (Dollars in millions) 
Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:     
Interest income forgone(1)
 $18
 $20
 
Interest income recognized(2)
 5
 2
 
(1)
Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.
(2)
Represents interest income recognized during the period, including the amortization of any deferred cost basis adjustments, for loans classified as either nonaccrual loans or TDRs on accrual status as of the end of each period. Primarily includes amounts accrued while the loans were performing.
REO Management
The number of multifamily foreclosed properties held for sale was 16 properties with a carrying value of $88 million as of September 30, 2019, compared with 16 properties with a carrying value of $81 million as of December 31, 2018.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q4348

MD&A | Liquidity and Capital ManagementMultifamily Business


previously individually impaired, but were not two months or more past due.
(2)Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.
(3)Represents interest income recognized during the period, including the amortization of any deferred cost basis adjustments, for loans classified as either nonaccrual loans or TDRs on accrual status as of the end of each period. Primarily includes amounts accrued while the loans were performing.
Liquidity and Capital Management
Liquidity Management
This section supplements and updates information regarding liquidity management in our 20182019 Form 10-K. See “MD&A—Liquidity and Capital Management—Liquidity Management” and “Risk Factors” in our 20182019 Form 10-K for additional information, including discussions of our primary sources and uses of funds, our liquidity and funding risk management practices and contingency planning, factors that influence our debt funding activity, factors that may impact our access to or the cost of our debt funding and factors that could adversely affect our liquidity and funding. Also see “Risk Factors—Liquidity and Funding Risk” in our 2019 Form 10-K and “Risk Factors” in this report for a discussion of liquidity and funding risks, including potential impacts of the COVID-19 outbreak.
Debt Funding
Outstanding Debt
Total outstanding debt of Fannie Mae includes short-term and long-term debt and excludes debt of consolidated trusts. Short-term debt of Fannie Mae consists of borrowings with an original contractual maturity of one year or less and, therefore, does not include the current portion of long-term debt. Long-term debt of Fannie Mae consists of borrowings with an original contractual maturity of greater than one year.
The following chart and table below display information on our outstanding short-term and long-term debt based on original contractual maturity. The increase in our short-term debt from December 31, 2018 to September 30, 2019 was primarily driven by an increase in our acquisition of mortgage loans through our whole loan conduit as mortgage refinance activity increased during the third quarter of 2019. The decrease in ourand long-term debt from December 31, 2018 to September 30, 2019 was primarily driven by the decline in the size of our retained mortgage portfolio. We did not issue new debt to replace all of our debt that paid off during the first nine monthsquarter of 2019.2020 was primarily to support refinancing activity and in anticipation of future potential liquidity needs as a result of market dislocations caused by the COVID-19 outbreak as discussed below.

Debt of Fannie Mae(1)
chart-668900c1c6195edb953.jpg(Dollars in billions)
fnm-20200331_g20.jpg
Selected Debt Information
  As of
  December 31, 2018 September 30, 2019
  (Dollars in billions)
Selected Weighted-Average Interest Rates(1)
    
Interest rate on short-term debt 2.29% 2.04%
Interest rate on long-term debt, including portion maturing within one year 2.83% 3.14%
Interest rate on callable long-term debt 2.95% 3.39%
Selected Maturity Data    
Weighted-average maturity of debt maturing within one year (in days) 163
 110
Weighted-average maturity of debt maturing in more than one year (in months) 63
 63
Other Data    
Outstanding callable long-term debt $64.3
 $45.7
Connecticut Avenue Securities debt(2)
 $25.6
 $23.0
     
     
     
(1)Fannie Mae First Quarter 2020 Form 10-Q
Outstanding debt amounts and weighted-average interest rates reported in this chart and table include the effects of discounts, premiums, other cost basis adjustments and fair value gains and losses associated with debt that we elected to carry at fair value. Reported amounts include unamortized cost basis adjustments and fair value adjustments of $74 million and $432 million as of September 30, 2019 and December 31, 2018, respectively.49
(2)
Represents CAS debt issued prior to the implementation of our CAS REMIC structure in November 2018. See “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit EnhancementMD&A | Liquidity and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2018 Form 10-K and in this report for information regarding our Connecticut Avenue Securities.Capital Management

Selected Debt Information
As of
March 31, 2020December 31, 2019
(Dollars in billions)
Selected Weighted-Average Interest Rates(1)
Interest rate on short-term debt0.71 %1.56 %
Interest rate on long-term debt, including portion maturing within one year2.43 %2.86 %
Interest rate on callable long-term debt3.55 %3.39 %
Selected Maturity Data
Weighted-average maturity of debt maturing within one year (in days)162  137  
Weighted-average maturity of debt maturing in more than one year (in months)54  66  
Other Data
Outstanding callable long-term debt$31.3  $38.5  
Connecticut Avenue Securities debt(2)
$19.5  $21.4  
(1)Outstanding debt amounts and weighted-average interest rates reported in this chart and table include the effects of discounts, premiums, other cost basis adjustments and fair value gains and losses associated with debt that we elected to carry at fair value. Reported amounts include unamortized cost basis adjustments and fair value adjustments of $647 million and $28 million as of March 31, 2020 and December 31, 2019, respectively.
(2)Represents CAS debt issued prior to November 2018. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2019 Form 10-K and in this report for information regarding our Connecticut Avenue Securities.
We intend to repay our short-term and long-term debt obligations as they become due primarily through proceeds from the issuance of additional debt securities. We also may use proceedssecurities and cash from our mortgage assets to pay our debt obligations.business operations.
For more information on the maturity profile of our outstanding long-term debt, see “Note 7, Short-Term and Long-Term Debt.”
Debt Funding Activity
The table below displays the activity in debt of Fannie Mae. This activity excludes the debt of consolidated trusts and intraday loans. Activity for short-term debt of Fannie Mae relates to borrowings with an original contractual maturity of one year or less while activity for long-term debt of Fannie Mae relates to borrowings with an original contractual maturity of greater than one year. The reported amounts of debt issued and paid off during each period represent the face amount of the debt at issuance and redemption.
The market dislocations relating to the COVID-19 outbreak have affected both our debt funding needs and debt funding activity. We significantly increased our debt issuances in the first quarter of 2020 due to increased volume in the whole loan conduit driven by a significant increase in refinance activity during the quarter, to pay off callable debt and in anticipation of potential future liquidity needs. Adverse market conditions in March limited our ability to issue debt with a maturity greater than two years. As a result, most of the debt we issued in the first quarter of 2020 had terms from three to twenty-four months. Market conditions improved in April, and we issued $3.5 billion in 5-year benchmark notes. 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. See “Risk Factors” for additional information on the impact of the COVID-19 outbreak on our liquidity risk.
We expect our debt issuedfunding needs to increase in future periods, as significantly higher rates of loan delinquencies and paid off during the third quarter of 2019 compared with the third quarter of 2018 was primarily driven by an increase in forbearances and other loss mitigation activity driven by the COVID-19 outbreak require us to fund greater amounts of principal, interest, tax and insurance payments on delinquent loans and to purchase a larger volume of delinquent loans from MBS trusts. We also may continue to fund a high volume of whole loan conduit activity.
Pursuant to the terms of our acquisitionsenior preferred stock purchase agreement with Treasury, our aggregate indebtedness may not exceed $300 billion and our mortgage assets may not exceed $250 billion without Treasury’s prior written consent. FHFA has directed that we further cap our mortgage assets at $225 billion, as described in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in our 2019 Form 10-K. As described above, we expect our debt funding needs to increase. Depending on the extent of these funding needs and the amount of mortgage loans throughwe purchase from MBS trusts, we may be required to obtain FHFA’s and Treasury’s prior written consent to increase our whole loan conduit ascurrent debt limit and mortgage refinance activity increased during the third quarter of 2019. The decrease in debt issued and paid off during the first nine months of 2019 compared with the first nine months of 2018 was primarily driven by the decline in the size of our retained mortgage portfolio. We did not issue new debt to replace all of our debt that paid off during the first nine months of 2019.asset limit.
Activity in Debt of Fannie Mae
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
 2019 2018 2019 2018
 (Dollars in millions)
Issued during the period:       
Short-term:       
Amount$161,434
 $106,520
 $418,202
 $446,914
Weighted-average interest rate2.13% 1.90% 2.27% 1.52%
Long-term:(1)
       
Amount$6,940
 $6,032
 $18,335
 $17,595
Weighted-average interest rate1.95% 3.26% 2.32% 3.08%
Total issued:       
Amount$168,374
 $112,552
 $436,537
 $464,509
Weighted-average interest rate2.12% 1.97% 2.27% 1.58%
Paid off during the period:(2)
       
Short-term:       
Amount$147,507
 $103,256
 $406,135
 $451,295
Weighted-average interest rate1.99% 1.82% 2.11% 1.42%
Long-term:(1)
       
Amount$23,246
 $12,668
 $48,156
 $42,854
Weighted-average interest rate1.55% 1.62% 1.67% 1.47%
Total paid off:       
Amount$170,753
 $115,924
 $454,291
 $494,149
Weighted-average interest rate1.93% 1.79% 2.06% 1.43%
(1)
Includes credit risk-sharing securities issued as CAS debt prior to the implementation of our CAS REMIC structure in November 2018. For information on our credit risk transfer transactions, see “MD&A—Single Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2018 Form 10-K and in this report.
(2)
Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments resulting from calls and payments for any other repurchases. Repurchases of debt and early retirements of zero-coupon debt are reported at original face value, which does not equal the amount of actual cash payment.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q4450

MD&A | Liquidity and Capital Management

Activity in Debt of Fannie Mae
For the Three Months Ended March 31,
20202019
(Dollars in millions)
Issued during the period:
Short-term:
Amount  $160,023  $121,910  
Weighted-average interest rate1.25 %2.35 %
Long-term:(1)
Amount$39,319  $6,595  
Weighted-average interest rate0.70 %2.63 %
Total issued:
Amount$199,342  $128,505  
Weighted-average interest rate1.14 %2.36 %
Paid off during the period:(2)
Short-term:
Amount$128,792  $123,726  
Weighted-average interest rate1.52 %2.10 %
Long-term:(1)
Amount$24,164  $15,810  
Weighted-average interest rate1.88 %1.75 %
Total paid off:
Amount$152,956  $139,536  
Weighted-average interest rate1.58 %2.06 %
(1)Includes credit risk-sharing securities issued as CAS debt prior to November 2018. For information on our credit risk transfer transactions, see “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2019 Form 10-K and in this report.
(2)Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments resulting from calls and payments for any other repurchases. Repurchases of debt and early retirements of zero-coupon debt are reported at original face value, which does not equal the amount of actual cash payment.
Fannie Mae First Quarter 2020 Form 10-Q51
MD&A | Liquidity and Capital Management

Other Investments Portfolio
The chart below displays information on the composition of our other investments portfolio. The balance of our other investments portfolio fluctuates as a result of changes in our cash flows, liquidity in the fixed-income markets, and our liquidity risk management framework and practices.

Our other investments portfolio increased significantly during the first quarter of 2020 due primarily to an increase in cash and cash equivalents driven by proceeds from increased debt issuances to support higher refinance activity in the whole loan conduit and potential future liquidity needs as described above, as well as proceeds from loan payoffs.
Other Investments Portfoliofnm-20200331_g21.jpg
(Dollars in billions)
Cash and cash equivalents(1)
Federal funds sold and securities purchased under agreements to resell or similar arrangements
U.S. Treasury securities
chart-0921c31ce88c5732948.jpg(1) Cash equivalents are comprised of overnight repurchase agreements and U.S. Treasuries that have a maturity at the date of acquisition of three months or less.
Cash Flows
NineThree Months EndedSeptember 30, 2019 March 31, 2020. Cash, cash equivalents and restricted cash increased from $49.4$61.4 billion as of December 31, 20182019 to $64.5$128.7 billion as of September 30, 2019.March 31, 2020. The increase was primarily driven by cash inflows from (1) proceeds from repayments and sales of loans, (2) the sale of Fannie Mae MBS to third parties, and (3) the issuance of funding debt, which outpaced redemptions, primarily for the reasons described above.
Partially offsetting these cash inflows were cash outflows primarily from (1) purchases of loans held for investment and (2) payments on outstanding debt of consolidated trusts.
Three Months Ended March 31, 2019. Cash, cash equivalents and restricted cash increased from $49.4 billion as of December 31, 2018 to $52.2 billion as of March 31, 2019. The increase was primarily driven by cash inflows from (1) the net decreasedecreases in federal funds sold and securities purchased under agreements to resell or similar agreements.agreements and (2) the sale of Fannie Mae MBS to third parties.
Partially offsetting these cash inflows were cash outflows primarily from, (1) payments on outstanding debt of consolidated trusts, (2) purchases of loans held for investment, and (3) the redemption of funding debt, which outpaced issuances, due to lower funding needs.
Nine Months EndedSeptember 30, 2018. Cash, cash equivalents and restricted cash decreased from $60.3 billion as of December 31, 2017 to $51.0 billion as of September 30, 2018. The decrease was primarily driven by cash outflows fromamong other things, (1) the redemption of funding debt, which outpaced issuances, due to lower funding needs, and (2) the purchase of Fannie Mae MBS from third parties, and (3) the acquisition of delinquent loans out of MBS trusts.parties.
Partially offsetting these cash outflows were cash inflows from, among other things, (1) the sale of Fannie Mae MBS to third parties and (2) proceeds from repayments and sales of loans of Fannie Mae.
Credit Ratings
AsOur credit ratings from the major credit ratings organizations, as well as the credit ratings of September 30, 2019,the U.S. government, are primary factors that could affect our ability to access the capital markets and our cost of funds. In addition, our credit ratings are important when we seek to engage in certain long-term transactions, such as derivative transactions. Standard & Poor’s Global Ratings (“S&P”), Moody’s Investors Services (“Moody’s”) and Fitch Ratings Limited (“Fitch”) have not changed since we filedall indicated that, if they were to lower the sovereign credit ratings on the U.S., they would likely lower their ratings on the debt of Fannie Mae and certain other government-related entities. In addition, actions by governmental entities impacting Treasury’s support for our 2018business or our debt securities could adversely affect the credit ratings of our senior unsecured debt. See “Risk Factors—Liquidity and Funding Risk” in our 2019 Form 1010-K for a discussion of the risks to our business relating to a decrease in our
Fannie Mae First Quarter 2020 Form 10-Q52
MD&A | Liquidity and Capital Management

-K. For information
credit ratings, which could include an increase in our borrowing costs, limits on our ability to issue debt, and additional collateral requirements under our derivatives contracts.
The table below displays the credit ratings see “MD&A—Liquidity and Capital Management—Liquidity Management—Credit Ratings”issued by the three major credit rating agencies.
Fannie Mae Credit Ratings
March 31, 2020
S&PMoody'sFitch
Long-term senior debtAA+AaaAAA
Short-term senior debtA-1+P-1F1+
Preferred stockDCaC/RR6
OutlookStableStableStable
(for Long-Term Senior Debt)(for AAA rated Long-Term Issuer Default Ratings)
We have no covenants in our 2018 Form 10-K.existing debt agreements that would be violated by a downgrade in our credit ratings. However, in connection with certain derivatives counterparties, we could be required to provide additional collateral to or terminate transactions with certain counterparties in the event that our senior unsecured debt ratings are downgraded.
Capital Management
Regulatory Capital
The deficit of our core capital over statutory minimum capital was $133.8$131.3 billion as of September 30, 2019March 31, 2020 and $137.1$128.8 billion as of December 31, 2018.2019. For information on our current and proposed capital requirements, see “Business—Charter Act and

Fannie Mae Third Quarter 2019 Form 10-Q45

MD&A | Liquidity and Capital Management


Regulation—GSE Act and Other Regulation” and “Note 12, Regulatory Capital Requirements” in our 20182019 Form 10-K and “Legislation and Regulation—Housing Finance Reform” in this report.10-K.
Capital Activity
Under the modified dividend provisions ofterms governing the senior preferred stock, described in “Legislation and Regulation—Letter Agreement with Treasury,” effective with the third quarter 2019 dividend period, we arewill not required to pay furtherowe dividends to Treasury until we have accumulated over $25 billion in net worth.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 thirdfirst quarter of 20192020 and none are payable for the fourthsecond quarter of 2019. As of September 30, 2019, our net worth was $10.3 billion.
Under the modified liquidation preference provisions of the senior preferred stock described in “Legislation and Regulation—Letter Agreement with Treasury,”2020. Also, the aggregate liquidation preference of the senior preferred stock increased from $123.8to $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 to $127.2 billion asForm 10-K for more information on the terms of September 30,our senior preferred stock and our senior preferred stock purchase agreement with Treasury. See “Risk Factors—GSE and Conservatorship Risk” in our 2019 and will further increase to $131.2 billion asForm 10-K for a discussion of December 31, 2019.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-Q53
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 $48.5$90.5 billion as of September 30, 2019.March 31, 2020. Approximately $23.0$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 $5.9$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 may beis 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 $21.1$68.6 billion as of December 31, 2018. We did not have any2019. 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 structured securities as of December 31, 2018.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 $7.4$7.0 billion as of September 30, 2019March 31, 2020 and $8.3$7.2 billion as of December 31, 2018.2019. 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
Fannie Mae Third Quarter 2019 Form 10-Q46

MD&A | Risk Management


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 rateinterest-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 20182019 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 20182019 Form 10-K.
Institutional Counterparty Credit Risk Management
This section supplements and updates our discussion of institutional counterparty credit risk management in our 2018 Form 10-K. See “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Risk Factors—Credit Risk” in our 20182019 Form 10-K for additional information, includinga discussion of our exposure to institutional counterparty credit risk and our strategy for managing this risk.
Counterparty Credit Risk Exposure arising from the Resecuritization of Freddie Mac-issued Securities
We began resecuritizing Freddie Mac-issued securities As described in connection with the implementation of the Single Security Initiative in June 2019, which has increased our credit risk exposure and operational risk exposure to Freddie Mac, and our risk exposure to Freddie Mac is expected to increase as we issue more structured securities backed by Freddie Mac securities going forward. Our inclusion of Freddie Mac securities as collateral for the structured securities that we issue increases our counterparty credit risk exposure to Freddie Mac. In the event Freddie Mac were to fail (for credit or operational reasons) to make a payment on a payment date on Freddie Mac securities that we had resecuritized in a Fannie Mae-issued structured security, we would be responsible for making the entire payment on the Freddie Mac securities included in that structured security in order to make payments on any of our outstanding single-family Fannie Mae MBS to be paid on that payment date. Accordingly, as the amount of structured securities we issue that are backed by Freddie Mac securities grows, if Freddie Mac were to fail to meet its obligations to us under the terms of these securities, it could have a material adverse effect on our earnings and financial condition. We believe the risk of default by Freddie Mac is negligible because of the funding commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury.
As of September 30, 2019, approximately $28.9 billion in Freddie Mac securities were backing Fannie Mae-issued structured securities. We had no such transactions or activity in 2018. See “Uniform Mortgage-Backed Securities” and “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 more informationan update on UMBS and the risks associated with the Single Security Initiative.our counterparty credit risk exposure.
Market Risk Management, Including Interest RateInterest-Rate Risk Management
This section supplements and updates information regarding market risk management in our 20182019 Form 10-K. See “MD&A—Risk Management—Market Risk Management, Including Interest RateInterest-Rate Risk Management” and “Risk Factors” in our 20182019 Form 10-K for additional information, including our sources of interest rateinterest-rate risk exposure, business risks posed by changes in interest rates, and our strategy for managing interest rateinterest-rate risk. As described in “Risk Factors” in this report, the COVID-19 outbreak has increased our market risk.
Measurement of Interest RateInterest-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 September 30, 2019March 31, 2020 and 2018.2019.
Fannie Mae First Quarter 2020 Form 10-Q54
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 rateinterest-rate risk, see our 20182019 Form 10-K in “MD&A—Risk Management—Market Risk Management, Including Interest RateInterest-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, 2020December 31, 2019
(Dollars in millions)
Rate level shock:
-100 basis points$(185) $57  
-50 basis points(54) 11  
+50 basis points32  51  
+100 basis points88  160  
Rate slope shock:
-25 basis points (flattening)(7) (20) 
+25 basis points (steepening)4  22  
Fannie Mae Third Quarter 2019 Form 10-Q47
For the Three Months Ended March 31,(1)(3)
20202019
Duration GapRate Slope Shock 25 bpsRate Level Shock 50 bpsDuration GapRate Slope Shock 25 bpsRate 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) 
Maximum0.12(7) 20  0.02(1) (11) 
Standard deviation0.046  31  0.023  22  

MD&A | Risk Management
(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.

Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve
 
As of (1)(2)
 September 30, 2019 December 31, 2018
 (Dollars in millions)
Rate level shock:       
-100 basis points $99
   $(286) 
-50 basis points 24
   (119) 
+50 basis points 38
   48
 
+100 basis points 124
   29
 
Rate slope shock:       
-25 basis points (flattening) (13)   (7) 
+25 basis points (steepening) 12
   6
 
  
For the Three Months Ended September 30,(1)(3)
  2019 2018
  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 0.01  $(8)   $(24)  0.01  $(13)   $(51) 
Minimum (0.09)  (21)   (100)  (0.01)  (22)   (119) 
Maximum 0.09  (2)   26
  0.07  (1)   (30) 
Standard deviation 0.04  6
   28
  0.02  6
   17
 
(1)(3)Computed based on daily values during the period presented.
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 rateinterest-rate shocks depending upon the duration and convexity profile of our net portfolio. Because the effective duration gap of our net portfolio was close to zero years in the periods presented, the convexity exposure was the primary driver of the market value sensitivity of our net portfolio as of September 30, 2019. In addition, the convexity exposure may result in similar market value sensitivities for positive and negative interest rate shocks of the same magnitude.
We use derivatives to help manage the residual interest rateinterest-rate risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest rateinterest-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 rateinterest-rate shock.
Derivative Impact on Interest-Rate Risk (50 Basis Points)
As of (1)
March 31, 2020December 31, 2019
(Dollars in millions)
Before derivatives$(177) $(197) 
After derivatives32  51  
Effect of derivatives209  248  
(1)Measured on the last business day of each period presented.
Derivative Impact on Interest Rate Risk (50 Basis Points)
 
As of (1)
 September 30, 2019 December 31, 2018
 (Dollars in millions)
Before derivatives $(201)   $(535) 
After derivatives 38
   48
 
Effect of derivatives 239
   583
 
(1)
Measured on the last business day of each period presented.

Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q4855

MD&A | Critical Accounting Policies and Estimates


Critical Accounting Policies and Estimates
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 20182019 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 previouslyhave identified one of our fair value measurement as a critical accounting estimate due to the subjectivity of the unobservable inputs used to measure Level 3 assets and liabilities recorded at fair value. However, because the amount of Level 3 assets and liabilities that we report at fair value has continued to decline, using reasonably different estimates and assumptions in valuing these assets and liabilities would not have a material impact on our reported results of operations or financial condition. Consequently, we no longer consider our fair value measurement a critical accounting estimate.
We continue to identify thepolicies, 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 results of operations or financial condition. See “MD&A—Critical Accounting Policies
Allowance for Loan Losses and Estimates” inAdoption of the CECL Standard
The CECL standard is effective for our 2018 Form 10-K for more discussionfiscal 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 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.
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 allowance for loan losses and impact of adopting the CECL standard in “Note 1, Summary of Significant Accounting Policies.” See “Risk Factors” in our 20182019 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-Q56
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:
factors that will affect our future net worth;
•our future financial performance, financial condition and results of operations,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 our long-term financial performance;the outbreak’s impact;
trends•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;
continued consideration of housing finance reform by the Administration, FHFA and Congress, including the recommended administrative and legislative reforms in the Treasury plan, efforts and plans to implement such reforms; and the impact of housing finance reform on our conservatorship, our structure, our role in the secondary mortgage market, our capitalization, our business and our competitive environment;
•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;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 orand 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;

Fannie Mae Third Quarter 2019 Form 10-Q49

MD&A | Forward-Looking Statements


•mortgage market and economic conditions (including U.S. GDP, unemployment rates, home price appreciation rates)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 suchmortgage market and economic conditions on our business orand financial results;
the effects on •our business, risk profile and financial condition of our issuance of UMBS and of structured securities backed by Freddie Mac-issued UMBS, including the level and impact of our credit and operational riskfuture off-balance sheet exposure to Freddie Mac;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; and
the impact of our adoption of the CECL standard on our financial condition and results of operations.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 guarantiesguarantees 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;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-Q57
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 CFPBConsumer Financial Protection Bureau or other regulators, Congress, or Congress,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 GSE-eligiblegovernment-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, includingincluding: 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,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;disasters or the emergence of widespread health emergencies or pandemics;
•uncertainties relating to the potential 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 the 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 qualityperformance 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;
the life of the•how long loans in our guaranty book of business;business remain outstanding;
•challenges we face in retaining and hiring qualified executives and other employees;
•the effectiveness of our future serious delinquency rates;business resiliency plans and systems;
the deteriorated credit performance of many loans in our guaranty book of business;

Fannie Mae Third Quarter 2019 Form 10-Q50

MD&A | Forward-Looking Statements


•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;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-Q58
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 uniform mortgage-backed securities;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 20182019 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 20182019 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 ThirdFirst Quarter 20192020 Form 10-Q5159

 Financial Statements | Condensed Consolidated Balance Sheets



Item 1.  Financial Statements
FANNIE MAE
(In conservatorship)
Condensed Consolidated Balance Sheets — (Unaudited)
(Dollars in millions)
 As of
 September 30, 2019 December 31, 2018
  
ASSETS
Cash and cash equivalents $22,592
   $25,557
 
Restricted cash (includes $35,496 and $17,849, respectively, related to consolidated trusts) 41,906
   23,866
 
Federal funds sold and securities purchased under agreements to resell or similar arrangements 23,176
   32,938
 
Investments in securities:       
Trading, at fair value (includes $4,304 and $3,061, respectively, pledged as collateral) 44,206
   41,867
 
Available-for-sale, at fair value 2,690
   3,429
 
Total investments in securities 46,896
   45,296
 
Mortgage loans:       
Loans held for sale, at lower of cost or fair value 12,289
   7,701
 
Loans held for investment, at amortized cost:       
Of Fannie Mae 104,367
   113,039
 
Of consolidated trusts 3,206,856
   3,142,858
 
Total loans held for investment (includes $8,183 and $8,922, respectively, at fair value) 3,311,223
   3,255,897
 
Allowance for loan losses (9,376)   (14,203) 
Total loans held for investment, net of allowance 3,301,847
   3,241,694
 
Total mortgage loans 3,314,136
   3,249,395
 
Deferred tax assets, net 11,994
   13,188
 
Accrued interest receivable, net (includes $8,450 and $7,928, respectively, related to consolidated trusts) 8,923
   8,490
 
Acquired property, net 2,452
   2,584
 
Other assets 22,361
   17,004
 
Total assets $3,494,436
   $3,418,318
 
LIABILITIES AND EQUITY
Liabilities:       
Accrued interest payable (includes $9,348 and $9,133, respectively, related to consolidated trusts) $10,400
   $10,211
 
Debt:       
Of Fannie Mae (includes $6,041 and $6,826, respectively, at fair value) 213,522
   232,074
 
Of consolidated trusts (includes $22,719 and $23,753, respectively, at fair value) 3,248,336
   3,159,846
 
Other liabilities (includes $359 and $356, respectively, related to consolidated trusts) 11,836
   9,947
 
Total liabilities 3,484,094
   3,412,078
 
Commitments and contingencies (Note 13) —
   —
 
Fannie Mae stockholders’ equity:       
Senior preferred stock (liquidation preference of $127,201 and $123,836, 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 (123,141)   (127,335) 
Accumulated other comprehensive income 230
   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 the related dividend obligation and liquidation preference) 10,342
   6,240
 
Total liabilities and equity $3,494,436
   $3,418,318
 


As of
March 31, 2020December 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 value8,103  6,773  
Loans held for investment, at amortized cost:  
Of Fannie Mae  98,585  94,911  
Of consolidated trusts3,269,331  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 outstanding19,130  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) ThirdFirst Quarter 20192020 Form 10-Q5260


 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 September 30, For the Nine Months Ended September 30,
  
 2019 2018 2019 2018
Interest income:               
Trading securities $418
   $363
   $1,277
   $917
 
Available-for-sale securities 40
   54
   138
   175
 
Mortgage loans (includes $27,610 and $27,058, respectively, for the three months ended and $84,157 and $79,877, respectively, for the nine months ended related to consolidated trusts) 28,858
   28,723
   88,005
   85,064
 
Federal funds sold and securities purchased under agreements to resell or similar arrangements 178
   166
   698
   457
 
Other 47
   38
   120
   102
 
Total interest income 29,541
   29,344
   90,238
   86,715
 
Interest expense:               
Short-term debt (125)   (114)   (369)   (331) 
Long-term debt (includes $22,775 and $22,361, respectively, for the three months ended and $70,371 and $65,972, respectively, for the nine months ended related to consolidated trusts) (24,187)   (23,861)   (74,757)   (70,406) 
Total interest expense (24,312)   (23,975)   (75,126)   (70,737) 
Net interest income 5,229
   5,369
   15,112
   15,978
 
Benefit for credit losses 1,857
   716
   3,732
   2,229
 
Net interest income after benefit for credit losses 7,086
   6,085
   18,844
   18,207
 
Investment gains, net 253
   166
   847
   693
 
Fair value gains (losses), net (713)   386
   (2,298)   1,660
 
Fee and other income 402
   271
   875
   830
 
Non-interest income (loss) (58)   823
   (576)   3,183
 
Administrative expenses:               
Salaries and employee benefits (361)   (355)   (1,123)   (1,101) 
Professional services (241)   (247)   (699)   (744) 
Other administrative expenses (147)   (138)   (415)   (400) 
Total administrative expenses (749)   (740)   (2,237)   (2,245) 
Foreclosed property expense (96)   (159)   (364)   (460) 
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees (613)   (576)   (1,806)   (1,698) 
Other expenses, net (571)   (377)   (1,514)   (946) 
Total expenses (2,029)   (1,852)   (5,921)   (5,349) 
Income before federal income taxes 4,999
   5,056
   12,347
   16,041
 
Provision for federal income taxes (1,036)   (1,045)   (2,552)   (3,312) 
Net income 3,963
   4,011
   9,795
   12,729
 
Other comprehensive income (loss):               
Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes 16
   (33)   (85)   (349) 
Other, net of taxes (2)   (3)   (7)   (8) 
Total other comprehensive income (loss) 14
   (36)   (92)   (357) 
Total comprehensive income $3,977
   $3,975
   $9,703
   $12,372
 
Net income $3,963
   $4,011
   $9,795
   $12,729
 
Dividends distributed or amounts attributable to senior preferred stock (3,977)   (3,975)   (9,703)   (9,372) 
Net income (loss) attributable to common stockholders $(14)   $36
   $92
   $3,357
 
Earnings per share:               
Basic $0.00
   $0.01
   $0.02
   $0.58
 
Diluted 0.00
   0.01
   0.02
   0.57
 
Weighted-average common shares outstanding:               
Basic 5,762
   5,762
   5,762
   5,762
 
Diluted 5,762
   5,893
   5,893
   5,893
 

For the Three Months Ended March 31,
20202019
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 arrangements107  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 taxes18  (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) ThirdFirst Quarter 20192020 Form 10-Q5361


 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,
20202019
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 trusts169,656  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 arrangements5,803  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 Nine Months Ended September 30,
 2019 2018
Net cash provided by (used in) operating activities $3,176
   $(1,796) 
Cash flows provided by investing activities:       
Proceeds from maturities and paydowns of trading securities held for investment 46
   163
 
Proceeds from sales of trading securities held for investment 49
   96
 
Proceeds from maturities and paydowns of available-for-sale securities 364
   564
 
Proceeds from sales of available-for-sale securities 376
   729
 
Purchases of loans held for investment (181,898)   (135,913) 
Proceeds from repayments of loans acquired as held for investment of Fannie Mae 9,338
   11,651
 
Proceeds from sales of loans acquired as held for investment of Fannie Mae 8,987
   10,637
 
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts 377,789
   306,374
 
Advances to lenders (95,636)   (83,643) 
Proceeds from disposition of acquired property and preforeclosure sales 5,644
   7,090
 
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements 9,762
   (7,128) 
Other, net (74)   (56) 
Net cash provided by investing activities 134,747
   110,564
 
Cash flows used in financing activities:       
Proceeds from issuance of debt of Fannie Mae 587,659
   636,466
 
Payments to redeem debt of Fannie Mae (606,665)   (666,888) 
Proceeds from issuance of debt of consolidated trusts 286,126
   278,357
 
Payments to redeem debt of consolidated trusts (385,496)   (364,942) 
Payments of cash dividends on senior preferred stock to Treasury (5,601)   (5,397) 
Proceeds from senior preferred stock purchase agreement with Treasury —
   3,687
 
Other, net 1,129
   720
 
Net cash used in financing activities (122,848)   (117,997) 
Net increase (decrease) in cash, cash equivalents and restricted cash 15,075
   (9,229) 
Cash, cash equivalents and restricted cash at beginning of period 49,423
   60,260
 
Cash, cash equivalents and restricted cash at end of period $64,498
   $51,031
 
Cash paid during the period for:       
Interest $86,699
   $82,010
 
Income taxes 1,250
   460
 
















See Notes to Condensed Consolidated Financial Statements

Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q5462


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)

Fannie Mae Stockholders’ Equity (Deficit)
 Fannie Mae Stockholders’ Equity (Deficit)Shares OutstandingSenior
Preferred Stock		Preferred
Stock		Common
Stock
Accumulated
Deficit		Accumulated
Other
Comprehensive
Income		Treasury
Stock		Total
Equity
 Shares Outstanding Senior
Preferred Stock		 Preferred
Stock		 Common
Stock		 
Accumulated
Deficit		 Accumulated
Other
Comprehensive
Income		 Treasury
Stock		 Total
Equity		Senior
Preferred		PreferredCommon
Senior
Preferred		 Preferred Common 
Balance as of June 30, 2019 1
 556
 1,158
 $120,836
 $19,130
 $687
 $(127,104) $216
 $(7,400) $6,365
Balance as of December 31, 2019Balance as of December 31, 20191  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 standardTransition impact, net of tax, from the adoption of the current expected credit loss standard—  —  —  —  —  —  (1,139) —  —  (1,139) 
Balance as of January 1, 2020, adjustedBalance as of January 1, 2020, adjusted1  556  1,158  120,836  19,130  687  (119,915) 131  (7,400) 13,469  
Senior preferred stock dividends paid —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Senior preferred stock dividends paid—  —  —  —  —  —  —  —  —  —  
Comprehensive income:                    Comprehensive income:
Net income —
 —
 —
 —
 —
 —
 3,963
 —
 —
 3,963
Net income—  —  —  —  —  —  461  —  —  461  
Other comprehensive income, net of tax effect:                    Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available-for-sale securities (net of taxes of $2) —
 —
 —
 —
 —
 —
 —
 10
 —
 10
Reclassification adjustment for gains included in net income (net of taxes of $1) —
 —
 —
 —
 —
 —
 —
 6
 —
 6
Changes in net unrealized gains on available-for-sale securities (net of taxes of $5)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 $—)Reclassification adjustment for gains included in net income (net of taxes of $—)—  —  —  —  —  —  —  —  —  —  
Other (net of taxes of $1) —
 —
 —
 —
 —
 —
 —
 (2) —
 (2)Other (net of taxes of $1)—  —  —  —  —  —  —  (3) —  (3) 
Total comprehensive income                   3,977
Total comprehensive income476  
Balance as of September 30, 2019 1
 556
 1,158
 $120,836
 $19,130
 $687
 $(123,141) $230
 $(7,400) $10,342
Balance as of March 31, 2020Balance as of March 31, 20201  556  1,158  $120,836  $19,130  $687  $(119,454) $146  $(7,400) $13,945  


Fannie Mae Stockholders’ Equity (Deficit)
Shares OutstandingSenior
Preferred Stock		Preferred
Stock		Common
Stock
Accumulated
Deficit		Accumulated
Other
Comprehensive
Income		Treasury
Stock		Total
Equity
Senior
Preferred		PreferredCommon
Balance as of December 31, 20181  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 income2,361  
Balance as of March 31, 20191  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 —
 —
 —
 —
 —
 —
 9,795
 —
 —
 9,795
Other comprehensive income, net of tax effect:                    
Changes in net unrealized gains on available-for-sale securities (net of taxes of $7) —
 —
 —
 —
 —
 —
 —
 27
 —
 27
Reclassification adjustment for gains included in net income (net of taxes of $30) —
 —
 —
 —
 —
 —
 —
 (112) —
 (112)
Other (net of taxes of $2) —
 —
 —
 —
 —
 —
 —
 (7) —
 (7)
Total comprehensive income                   9,703
Balance as of September 30, 2019 1
 556
 1,158
 $120,836
 $19,130
 $687
 $(123,141) $230
 $(7,400) $10,342

















See Notes to Condensed Consolidated Financial Statements

Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q5563


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
(Deficit)
  Senior
Preferred		 Preferred Common 
Balance as of June 30, 2018 1
 556
 1,158
 $120,836
 $19,130
 $687
 $(126,143) $349
 $(7,400) $7,459
Senior preferred stock dividends paid —
 —
 —
 —
 —
 —
 (4,459) —
 —
 (4,459)
Increase to senior preferred stock —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Comprehensive income:                    
Net income —
 —
 —
 —
 —
 —
 4,011
 —
 —
 4,011
Other comprehensive income, net of tax effect:                    
Changes in net unrealized gains on available-for-sale securities (net of taxes of $8) —
 —
 —
 —
 —
 —
 —
 (31) —
 (31)
Reclassification adjustment for gains included in net income (net of taxes of $1) —
 —
 —
 —
 —
 —
 —
 (2) —
 (2)
Other —
 —
 —
 —
 —
 —
 —
 (3) —
 (3)
Total comprehensive income                   3,975
Reclassification related to Tax Cuts
and Jobs Act		 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Other —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Balance as of September 30, 2018 1
 556
 1,158
 $120,836
 $19,130
 $687
 $(126,591) $313
 $(7,400) $6,975


  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 —
 —
 —
 —
 —
 —
 (5,397) —
 —
 (5,397)
Increase to senior preferred stock —
 —
 —
 3,687
 —
 —
 —
 —
 —
 3,687
Comprehensive income: 
 
 
             
Net income —
 —
 —
 —
 —
 —
 12,729
 —
 —
 12,729
Other comprehensive income, net of tax effect: 
 
 
 
 
 
 
 
 
 
Changes in net unrealized gains on available-for-sale securities (net of taxes of $22) —
 —
 —
 —
 —
 —
 —
 (84) —
 (84)
Reclassification adjustment for gains included in net income (net of taxes of $71) —
 —
 —
 —
 —
 —
 —
 (265) —
 (265)
Other —
 —
 —
 —
 —
 —
 —
 (8) —
 (8)
Total comprehensive income 
 
 
             12,372
Reclassification related to Tax Cuts
and Jobs Act		 —
 —
 —
 —
 —
 —
 (117) 117
 —
 —
Other —
 —
 —
 —
 —
 —
 (1) —
 —
 (1)
Balance as of September 30, 2018 1
 556
 1,158
 $120,836
 $19,130
 $687
 $(126,591) $313
 $(7,400) $6,975









See Notes to Condensed Consolidated Financial Statements

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q56

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, 20182019 (“20182019 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 nine months ended September 30, 2019March 31, 2020 and related notes, should be read in conjunction with our audited consolidated financial statements and related notes included in our 20182019 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 and nine months ended September 30, 2019March 31, 2020 may not necessarily be indicative of the results for the year ending December 31, 2019.2020.
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 TransferTM (“CIRTTM”) 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-Q64

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 be differentdiffer 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 itsa 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.
ThereThe 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

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q57

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


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-Q65

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 September 30, 2019,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. On September 27, 2019, we, through FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into a letter agreement modifying theThe current dividend and liquidation preference provisions of the senior preferred stock. These modifications and other specified provisions provide for quarterly dividends consisting of the letter agreementamount, 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 described below.
•
Modification to Dividend Provisions—Increase in Applicable Capital Reserve Amount. The terms of the senior preferred stock provide for dividends eachpayable for the second quarter in the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds the applicable capital reserve amount. The letter agreement modified the dividend provisions of the senior preferred stock to increase the applicable capital reserve amount from $3 billion to $25 billion, effective for dividend periods beginning July 1, 2019.
As a result of this change to2020.
The liquidation preference of the senior preferred stock dividend provisions:
◦No dividends were payable on the senior preferred stock for the third quarter of 2019, as our net worth of $6.4 billion as of June 30, 2019 was lower than the $25 billion capital reserve amount.
◦No dividends will be payable on the senior preferred stock for the fourth quarter of 2019, as our net worth of $10.3 billion as of September 30, 2019 is lower than the $25 billion capital reserve amount.
•
Modification to Liquidation Preference Provisions—Increase in Liquidation Preference. The letter agreement provides that, on September 30, 2019, and at the end of each fiscal quarter thereafter, theis subject to adjustment. The aggregate liquidation preference of the senior preferred stock will increase by an amount equal to the increase in our net worth, if any, during the immediately prior fiscal quarter, until such time as the liquidation preference has increased by $22 billion.
As a result of this change to 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 provisions:of the senior preferred stock will remain at $135.4 billion as of June 30, 2020.
◦The aggregate liquidation preference of the senior preferred stock increased from $123.8 billion as of June 30, 2019 to $127.2 billion as of September 30, 2019, due to the $3.4 billion increase in our net worth during the second quarter of 2019.
◦The aggregate liquidation preference of the senior preferred stock will increase from $127.2 billion as of September 30, 2019 to $131.2 billion as of December 31, 2019, due to the $4.0 billion increase in our net worth during the third quarter of 2019.
•
Agreement to Amend Senior Preferred Stock Purchase Agreement to Enhance Taxpayer Protections. The letter agreement provides that we and Treasury agree to negotiate and execute an additional amendment to the senior preferred stock purchase agreement that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for administrative reform contained in the Treasury plan.
See “Note 11, Equity (Deficit)”Equity” in our 20182019 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 $131.3 billion as of March 31, 2020 and $128.8 billion as of December 31, 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 March 31, 2020, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $135.4 billion. See “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock” above for additional information on transactions under this agreement.
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 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 for the three months ended March 31, 2020 and 2019, 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. 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 $637 million and $593 million in TCCA fees during the three months ended March 31, 2020 and 2019, respectively, of which $637 million had not been remitted to Treasury as of March 31, 2020.
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q66

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies
The GSE Act 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 $30 million and $15 million in “Other expenses, net” in connection with Treasury’s Capital Magnet Fund for the three months ended March 31, 2020 and 2019, respectively, of which $30 million had not been remitted as of 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 $32 million and $30 million for the three months ended March 31, 2020 and 2019, respectively.
Transactions with CSS and Freddie Mac
We contributed capital to CSS, the company we jointly own with Freddie Mac, of $29 million and $36 million for the three months ended March 31, 2020 and 2019, respectively.
In January 2020, at FHFA’s direction we entered into an 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 either GSE or CSS (who was designated by FHFA in January 2020); and (3) up to three additional Board members not affiliated with either GSE or CSS who may be designated by FHFA while we and Freddie Mac both remain in conservatorship. As a result of the amendment, if FHFA were to designate three additional Board members, the four managers designated by us and Freddie Mac would constitute a minority of the CSS Board, and the Board could take actions without the approval of any of the managers we have designated on any matter during conservatorship and on a number of significant matters following either our or Freddie Mac’s exit from conservatorship.
PrinciplesRegulatory Capital
The deficit of Consolidationour 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-Q53
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
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 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-Q54
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 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, 2020December 31, 2019
(Dollars in millions)
Rate level shock:
-100 basis points$(185) $57  
-50 basis points(54) 11  
+50 basis points32  51  
+100 basis points88  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)
20202019
Duration GapRate Slope Shock 25 bpsRate Level Shock 50 bpsDuration GapRate Slope Shock 25 bpsRate 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) $(48) 
Minimum(0.10)(33) (144) (0.07)(11) (116) 
Maximum0.12(7) 20  0.02(1) (11) 
Standard deviation0.046  31  0.023  22  
(1)Computed based on changes in U.S. LIBOR interest-rates swap curve. Changes in the level of interest-rates assume a parallel shift in all maturities of the U.S. LIBOR interest-rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of 16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for remaining maturity points are interpolated.
(2)Measured on the last business day of each period presented.
(3)Computed based on daily values during the period presented.
The market value sensitivity of our net portfolio varies across a range of interest-rate shocks depending upon the duration and convexity profile of our net portfolio.
We use derivatives to help manage the residual interest-rate risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest-rate risk exposure at consistently low levels in a wide range of interest-rate environments. The table below displays an example of how derivatives impacted the net market value exposure for a 50 basis point parallel interest-rate shock.
Derivative Impact on Interest-Rate Risk (50 Basis Points)
As of (1)
March 31, 2020December 31, 2019
(Dollars in millions)
Before derivatives$(177) $(197) 
After derivatives32  51  
Effect of derivatives209  248  
(1)Measured on the last business day of each period presented.
Fannie Mae First Quarter 2020 Form 10-Q55
MD&A | Critical Accounting Policies and Estimates

Critical Accounting Policies and Estimates
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 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 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.
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 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-Q56
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-Q57
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 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;
•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, 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-Q58
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-Q59
 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, 2020December 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 value8,103  6,773  
Loans held for investment, at amortized cost:  
Of Fannie Mae  98,585  94,911  
Of consolidated trusts3,269,331  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 outstanding19,130  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-Q60

 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,
20202019
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 arrangements107  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 taxes18  (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-Q61

 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,
20202019
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 trusts169,656  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 arrangements5,803  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-Q62

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 OutstandingSenior
Preferred Stock		Preferred
Stock		Common
Stock
Accumulated
Deficit		Accumulated
Other
Comprehensive
Income		Treasury
Stock		Total
Equity
Senior
Preferred		PreferredCommon
Balance as of December 31, 20191  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, adjusted1  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 income476  
Balance as of March 31, 20201  556  1,158  $120,836  $19,130  $687  $(119,454) $146  $(7,400) $13,945  

Fannie Mae Stockholders’ Equity (Deficit)
Shares OutstandingSenior
Preferred Stock		Preferred
Stock		Common
Stock
Accumulated
Deficit		Accumulated
Other
Comprehensive
Income		Treasury
Stock		Total
Equity
Senior
Preferred		PreferredCommon
Balance as of December 31, 20181  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 income2,361  
Balance as of March 31, 20191  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-Q63

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, 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 the other entities in which we have a controlling financial interest. All intercompany balancesaccounts and transactions have been eliminated. The typical conditionTo conform to our current period presentation, we have reclassified certain amounts reported in our prior period condensed consolidated financial statements. Results for a controlling financial interest is ownership of a majoritythe three months ended March 31, 2020 may not necessarily be indicative of the voting interestsresults for the year ending December 31, 2020.
Presentation of an entity. A controlling financial interest may also existAdvances to Lenders
Advances to lenders represent our payments of cash in entities through arrangements exchange for the receipt of mortgage loans from lenders in a transfer
that do not involve voting interests, suchis accounted for as a variablesecured 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 TransferTM (“CIRTTM”) 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 entity (“VIE”).

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) ThirdFirst Quarter 20192020 Form 10-Q5864


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
Single Security InitiativeOn September 7, 2008, the Secretary of the Treasury and UMBSthe 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 Single Security Initiative was a joint initiative amongconservator 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-Q65

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 $131.3 billion as of March 31, 2020 and $128.8 billion as of December 31, 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 March 31, 2020, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $135.4 billion. See “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock” above for additional information on transactions under this agreement.
FHFA’s control of both Fannie Mae and Freddie Mac has caused Fannie Mae, FHFA and ourFreddie Mac to be deemed related parties. Additionally, Fannie Mae and Freddie Mac jointly owned limited liability company,own Common Securitization Solutions, LLC (“CSS”), under the directiona limited liability company created to operate a common securitization platform; as such, CSS is deemed a related party. As a part of FHFA, to develop a single common mortgage-backed security issued by bothour 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, to finance fixed-rate mortgage loans backed by one- to four-unit single-family properties. Weincluding 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, began issuing uniform mortgage-backed securities (“UMBS”) pursuantwith all funding and limited administrative support services and other resources provided to the Single Security Initiative in June 2019. Weit by us and Freddie Mac also began resecuritizing UMBS certificates into structuredthrough our capital contributions.
In the ordinary course of business, Fannie Mae may purchase and sell securities in June 2019. The structured securities backedissued by UMBS that we may issue include Supers, which are single-class resecuritizationTreasury and Freddie Mac. These transactions and Real Estate Mortgage Investment Conduit securities (“REMICs”) and interest-only and principal-only strip securities (“SMBS”), which are multi-class resecuritization transactions.
Sinceoccur 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, we have been able to include UMBS, Supers and other structured securities issued by Freddie Mac in some of 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 ourthe 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. 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 held in the resecuritization trust. With the implementation 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 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 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 trustsissue are backed in whole or in part by Freddie Mac securities. The guarantyAdditionally, we providemake regular income tax payments to and receive tax refunds from the commingled single-class resecuritization trust subjects us to additional credit risk because we are providingInternal Revenue Service (“IRS”), a guarantybureau of Treasury.
Transactions with Treasury
Our administrative expenses were reduced by $5 million for the timely payment of principalthree months ended March 31, 2020 and interest on the underlying2019, due to reimbursements from Treasury and Freddie Mac securitiesfor 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 have not previously guaranteed. Accordingly, securities issuedincrease 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. The resulting fee revenue and expense are recorded in “Mortgage loans interest income” and “TCCA fees,” respectively, in our commingled resecuritization trusts are not deemed to be substantiallycondensed consolidated statements of operations and comprehensive income. We recognized $637 million and $593 million in TCCA fees during 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,three months ended March 31, 2020 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, each2019, respectively, of which represents a beneficial ownership interest in a separate portion$637 million had not been remitted to Treasury as 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. With the implementation 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.

March 31, 2020.
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q5966


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


The guaranty we provide to our non-commingled multi-class resecuritization trusts does not subjectGSE Act requires us to additional credit risk, becauseset 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 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 guarantyproduct of 4.2 basis points and the unpaid principal balance of our total new business purchases for the timely paymentrespective period, and 35% of principalthis amount is payable to Treasury’s Capital Magnet Fund. We recognized a total of $30 million and interest$15 million in “Other expenses, net” in connection with Treasury’s Capital Magnet Fund for the three months ended March 31, 2020 and 2019, respectively, of which $30 million had not been remitted as of 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 $32 million and $30 million for the underlyingthree months ended March 31, 2020 and 2019, respectively.
Transactions with CSS and Freddie Mac
We contributed capital to CSS, the company we jointly own with Freddie Mac, securities thatof $29 million and $36 million for the three months ended March 31, 2020 and 2019, respectively.
In January 2020, at FHFA’s direction we haveentered into an 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 previously guaranteed. For both commingledaffiliated with either GSE or CSS (who was designated by FHFA in January 2020); and non-commingled multi-class resecuritization trusts,(3) up to three additional Board members not affiliated with either GSE or CSS who may be designated by FHFA while 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.
Since the implementation of the Single Security Initiative in June 2019, we may now include UMBS, Supers and other structured securities backed by securities issued by Freddie Mac both remain in our resecuritization trusts.conservatorship. 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 issuedamendment, if FHFA were to designate three additional Board members, the four managers designated by the resecuritization trust. This new consolidation threshold was applied prospectively upon implementationus and Freddie Mac would constitute a minority of the Single Security Initiative inCSS Board, and the second quarterBoard could take actions without the approval of 2019 and prior period amounts were not recast. Prior to the implementationany of the Single Security Initiative,managers we consolidated multi-class resecuritization trusts when we heldhave designated on any matter during conservatorship and on a substantial portionnumber of the outstanding beneficial interests issued by the trust. Our adoption of the new consolidation threshold did not have a material impact onsignificant matters following either our condensed consolidated financial statements.or Freddie Mac’s exit from conservatorship.
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
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-Q53
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
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 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-Q54
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 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, 2020December 31, 2019
(Dollars in millions)
Rate level shock:
-100 basis points$(185) $57  
-50 basis points(54) 11  
+50 basis points32  51  
+100 basis points88  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)
20202019
Duration GapRate Slope Shock 25 bpsRate Level Shock 50 bpsDuration GapRate Slope Shock 25 bpsRate 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) $(48) 
Minimum(0.10)(33) (144) (0.07)(11) (116) 
Maximum0.12(7) 20  0.02(1) (11) 
Standard deviation0.046  31  0.023  22  
(1)Computed based on changes in U.S. LIBOR interest-rates swap curve. Changes in the level of interest-rates assume a parallel shift in all maturities of the U.S. LIBOR interest-rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of 16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for remaining maturity points are interpolated.
(2)Measured on the last business day of each period presented.
(3)Computed based on daily values during the period presented.
The market value sensitivity of our net portfolio varies across a range of interest-rate shocks depending upon the duration and convexity profile of our net portfolio.
We use derivatives to help manage the residual interest-rate risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest-rate risk exposure at consistently low levels in a wide range of interest-rate environments. The table below displays an example of how derivatives impacted the net market value exposure for a 50 basis point parallel interest-rate shock.
Derivative Impact on Interest-Rate Risk (50 Basis Points)
As of (1)
March 31, 2020December 31, 2019
(Dollars in millions)
Before derivatives$(177) $(197) 
After derivatives32  51  
Effect of derivatives209  248  
(1)Measured on the last business day of each period presented.
Fannie Mae First Quarter 2020 Form 10-Q55
MD&A | Critical Accounting Policies and Estimates

Critical Accounting Policies and Estimates
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 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 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.
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 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-Q56
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-Q57
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 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;
•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, 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-Q58
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-Q59
 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, 2020December 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 value8,103  6,773  
Loans held for investment, at amortized cost:  
Of Fannie Mae  98,585  94,911  
Of consolidated trusts3,269,331  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 outstanding19,130  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-Q60

 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,
20202019
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 arrangements107  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 taxes18  (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-Q61

 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,
20202019
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 trusts169,656  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 arrangements5,803  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-Q62

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 OutstandingSenior
Preferred Stock		Preferred
Stock		Common
Stock
Accumulated
Deficit		Accumulated
Other
Comprehensive
Income		Treasury
Stock		Total
Equity
Senior
Preferred		PreferredCommon
Balance as of December 31, 20191  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, adjusted1  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 income476  
Balance as of March 31, 20201  556  1,158  $120,836  $19,130  $687  $(119,454) $146  $(7,400) $13,945  

Fannie Mae Stockholders’ Equity (Deficit)
Shares OutstandingSenior
Preferred Stock		Preferred
Stock		Common
Stock
Accumulated
Deficit		Accumulated
Other
Comprehensive
Income		Treasury
Stock		Total
Equity
Senior
Preferred		PreferredCommon
Balance as of December 31, 20181  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 income2,361  
Balance as of March 31, 20191  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-Q63

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, 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 TransferTM (“CIRTTM”) 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-Q64

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-Q65

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 $133.8$131.3 billion as of September 30, 2019March 31, 2020 and $137.1$128.8 billion as of December 31, 2018.2019.
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 September 30, 2019,March 31, 2020, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $127.2$135.4 billion. See “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock” above for additional information on transactions under this agreement.
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 September 30,March 31, 2020 and 2019, and 2018, respectively, and $15 million and $19 million for the nine months ended September 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 $613$637 million and $576$593 million in TCCA fees during the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $1.8 billion and $1.7 billion for the nine months ended September 30, 2019 and 2018, respectively, of which $613$637 million had not been remitted to Treasury as of September 30, 2019.

March 31, 2020.
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q6066


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


Under the Federal Housing Enterprises Financial Safety and SoundnessThe GSE Act of 1992, as amended, including by the Federal Housing Finance Regulatory Reform Act of 2008 (together, the “GSE Act”), we are requiredrequires 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 $32$30 million and $20$15 million in “Other expenses, net” in connection with Treasury’s Capital Magnet Fund for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $68of which $30 million and $57 million for the nine months ended September 30, 2019 and 2018, respectively, relating to amounts payable to Treasury’s Capital Magnet Fund. In 2020, we expect to pay the $68 million recognized for the nine months ended September 30, 2019 to Treasury’s Capital Magnet Fund, along with additional amounts based on our new business purchases in the fourth quarterhad 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.
On September 27, 2019, we, through FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into a letter agreement modifying the dividend and liquidation preference provisions of the senior preferred stock held by Treasury. These modifications and other specified provisions of the letter agreement are described under “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock” above.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 $30$32 million and $26$30 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $89 million and $81 million for the nine months ended September 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 $22$29 million and $33$36 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $84 million and $109 million for the nine months ended September 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 indemnificationamended 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 relatingeither GSE or CSS (who was designated by FHFA in January 2020); and (3) up to the commingled structured securities thatthree additional Board members not affiliated with either GSE or CSS who may be designated by FHFA while we and Freddie Mac issue. Underboth remain in conservatorship. As a result of the indemnification agreement,amendment, if FHFA were to designate three additional Board members, the four managers designated by us and Freddie Mac would constitute a minority of the CSS Board, and the Board could take actions without the approval of any of the managers we have 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 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 (benefits) on impaired AFS debt securities are recognized through an allowance for credit losses. Credit losses are evaluated on an individual security basis and are limited to the 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) First Quarter 2020 Form 10-Q67

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 Freddie Mac eachby 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 agreedelected not to indemnifymeasure an allowance for credit losses on accrued interest receivable balances as we have a nonaccrual policy to ensure the other partytimely reversal of unpaid accrued interest. See “Note 4, Allowance for Loan Losses” for additional information about our current period provision for loan losses, caused by: its failureincluding a discussion of the estimates used in measuring the impact of the COVID-19 outbreak on our allowance.
Changes to meet its paymentour 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
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q68

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 specified obligationsproceeds 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 trust agreements pursuantrange 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 whicha historical long-term growth rate.
Expected cash flows on the underlying resecuritized securities were issued; its failureloan 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 meet its obligations underreflect changes in expected prepayments. Expected cash flows do not include expected extensions of the customer services agreement; its violationscontractual term unless such extension is the result of laws;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 with respectexpected to material misstatements or omissionsbe 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 offering documents, ongoing disclosures and related materials relatinga TDR, to capture the concession, the discount rate on the loan is locked to the underlying resecuritized securities.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-Q69

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, which increase the liquidation preference as described above in “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock.”stock. Weighted average common shares includesinclude 4.7 billion and 4.6 billion shares for the periods ended September 30,March 31, 2020 and 2019, and 2018respectively, that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through September 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 September 30, 2019March 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 nine months ended September 30, 2019 and 2018 and the three months ended September 30, 2018,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.

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q61

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


New Accounting Guidance
The following updates information about our significantThe 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 policiesand 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 are yetreceived short-term payment deferrals related to the COVID-19 pandemic. Our election on this matter will be adopted fromfinalized during the information included in “Note 1, Summarysecond quarter of Significant Accounting Policies” in2020 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 in June 2016. It2016, which was later amended by ASU 2019-04, Codification Improvements (to Topic 326), Financial Instruments—Credit Losses in April 2019.ASU 2019-05 and ASU 2019-11. These ASUs (the “CECL standard”) replacereplaced the existing incurred loss impairment methodology in current GAAPfor 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 estimates.estimate. The amendments in thisCECL standard also requirerequires credit losses related to available-for-sale (“AFS”)AFS debt securities to be recorded through an allowance for credit losses. We doOur adoption of this standard on January 1, 2020 did not expecthave a material impact for establishing an allowance for credit losses related toon our portfolio of AFS debt securities.
The CECL standard will becomebecame effective for our fiscal year beginning January 1, 2020. We are currently performing full integrated testing across all models,have changed our accounting systemspolicies as described above and processes that will beimplemented system, model and process changes to adopt the standard. Upon adoption, we used to estimate credit losses and record accounting impacts under the CECL standard. All updates to our credit loss models are subject to our model oversight and review governance process. We are managing 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 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 we will useused to estimate credit losses will incorporateincorporated 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-Q70

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies
loan book of business. The models will useused 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 of the loans in our book of business as of September 30, 2019 and our current expectations of future economic conditions, we estimate that our adoption of the CECL standard will result in a reduction in our retained earnings of up to $2 billion on an after-tax basis in the first quarter of 2020. Our estimated impact upon adoption has been
refined over the last quarter to incorporate updated economic conditions and the resolution of various implementation items, including the exclusion of certain pre-foreclosure costs from our estimated allowance for credit losses. We continue to monitor and will assess the impact of further implementation guidance that may be issued. In addition, we continue to evaluate our modeled loss estimates and may make refinements to our approach and assumptions as a part of our overall integrated testing efforts. The impact of our adoption of the CECL standard on January 1, 2020 reduced our retained earnings will be further influencedby $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 credit risk profilemigration 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 loansexpected 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 businessthese loans and because as of the January 1,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, 2019Transition Impact from Adoption of the CECL StandardBalance 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, net11,910  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, adoption date, as well as changes in economic conditionsthe 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 our forecasts of future economic conditions atother discontinued interest rates. Specifically, ASU 2020-04 provides optional practical expedients and exceptions under GAAP related to contract modifications and hedging relationships that time.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 timing and extent to which we will apply the provided accounting relief.
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q6271


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 implementationour issuance of the Single Security InitiativeUMBS 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 UMBSsecurities are not held in trusts that are consolidated by Fannie Mae.
Unconsolidated VIEsNonaccrual Loans
We do not consolidate VIEsdiscontinue accruing interest on loans when we arebelieve collectability of principal or interest is not deemedreasonably assured, which for a single-family loan we have determined, based on our historical experience, to be when the primary beneficiary. Our unconsolidated VIEs include securitization trusts, limited partnerships,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 certain SPVs designedthe 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 transfer credit risk. The following table displaysits contractual terms unless the carrying amountloan is well secured such that collectability of principal and classification of our assets and liabilities that relateaccrued interest is reasonably assured. For multifamily loans on nonaccrual status, we apply any payment received on a cost recovery basis to our involvement with unconsolidated securitization and resecuritization trusts.
 As of
 September 30, 2019 December 31, 2018
Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts:

(Dollars in millions)
Assets:       
Trading securities:       
Fannie Mae $2,733
   $1,422
 
Non-Fannie Mae 4,445
   4,809
 
Total trading securities 7,178
   6,231
 
Available-for-sale securities:       
Fannie Mae 1,581
   1,704
 
Non-Fannie Mae 771
   1,207
 
Total available-for-sale securities 2,352
   2,911
 
Other assets 57
   66
 
Other liabilities (82)   (101) 
Net carrying amount $9,505
   $9,107
 

Our maximum exposurereduce principal on the mortgage loan. We return a multifamily loan to loss generally representsaccrual status when the greater of our recorded investment inborrower cures the entity or the unpaid principal balancedelinquency of the assets covered by our guaranty. loan. Transactions related to the multifamily nonaccrual policy have been immaterial historically.
Allowance for Loan Losses
Our involvement in unconsolidated resecuritization trusts may give riseallowance for loan losses is a valuation account that is deducted from the amortized cost basis of HFI loans to additional exposurepresent the net amount expected to loss dependingbe collected on the typeloans. The allowance for loan losses reflects an estimate of resecuritization trust. Fannie Mae non-commingled resecuritization trusts refers to our resecuritization trusts that are backed entirelyexpected credit losses on single-family and multifamily HFI loans held by Fannie Mae MBS. These non-commingled single-class and multi-class resecuritization trusts that are notby consolidated 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 our exposure to loss relating to the Freddie Mac securities that serve as the underlying collateral. Our maximum exposure to loss for these unconsolidated trusts is measured by the amount of Freddie Mac securities that back 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 the extent that these Freddie Mac securities are backed by Fannie Mae MBS it would not give risetrusts. 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 any additional exposurereflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our total exposurecredit 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 collateral that is ultimately guaranteed by Freddie Mac may be lower thanmeasure an allowance for credit losses on accrued interest receivable balances as we have a nonaccrual policy to ensure the disclosed maximum exposuretimely 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.
Changes to loss. Our maximum exposureour estimate of expected credit losses, including changes due to loss relatedthe 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 unconsolidated securitization and resecuritization trusts was approximately $41 billion and $14 billion as of September 30, 2019 and December 31, 2018, respectively. The total assets of our unconsolidated securitization and resecuritization trusts were approximately $100 billion and $80 billion as of September 30, 2019 and December 31, 2018, respectively.
The maximum exposure to lossthe allowance 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 related carrying value was $70 million as of September 30, 2019. As of December 31, 2018, the maximum exposure to loss was $111

loan losses when losses are
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q6368


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-Q69

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.
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 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-Q70

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 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, 2019Transition Impact from Adoption of the CECL StandardBalance 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, net11,910  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 (“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 timing and extent to which we will apply the provided accounting relief.
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q71

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


2.  Consolidations and Transfers of Financial Assets
million
We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities are securitization and the related carrying value was $89 million. The total assets of theseresecuritization trusts, limited partnershippartnerships and special purpose vehicles (“SPVs”). These interests include investments were $2.3 billionin securities issued by VIEs, such as of September 30, 2019 and December 31, 2018.
The maximum exposure to loss relatedFannie Mae MBS created pursuant to our involvementsecuritization 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 unconsolidated SPVsthe power to direct matters (primarily the servicing of mortgage loans) that transferimpact the credit risk represents the unpaid principal balance and accrued interest payable of obligations issued by the Connecticut Avenue Securities (“CAS”) SPVs. The maximum exposure to loss related to these unconsolidated SPVs was $6.5 billion and $920 million as of September 30, 2019 and December 31, 2018, respectively. The total assets related to these unconsolidated SPVs were $6.5 billion and $931 million as of September 30, 2019 and December 31, 2018, respectively.
The unpaid principal balance of our multifamily loan portfolio was $318.1 billion as of September 30, 2019. As our lending relationship does not provide us with a controlling financial interest in the borrower entity,which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct 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 disclosuresactivities unless we have provided in “Note 3, Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respectthe unilateral ability to this population are consistent withdissolve the FASB’s stated objectives fortrust. We also do not consolidate our resecuritization trusts unless we have the disclosures relatedunilateral ability to unconsolidated VIEs.
Transfersdissolve the trust. Historically, the vast majority of Financial Assets
We issueunderlying assets of our resecuritization trusts were limited to Fannie Mae MBS through portfolio securitization transactionssecurities that were collateralized by transferring pools of mortgage loans or mortgage-relatedheld in consolidated trusts. However, with our issuance of UMBS beginning in June 2019, we include securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer assets fromissued by Freddie Mac in some of our own retained mortgage portfolio in a portfolio securitization transaction. For the three months ended September 30, 2019 and 2018, the unpaid principal balance of portfolio securitizations was $89.0 billion and $64.9 billion, respectively. For the nine months ended September 30, 2019 and 2018, the unpaid principal balance of portfolio securitizations was $187.7 billion and $180.8 billion, respectively.
We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and multi-class portfolio securitizationresecuritization trusts. As of September 30, 2019, the unpaid principal balance of retained interests was $3.1 billion and its related fair value was $4.2 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 September 30, 2019 and 2018, the principal, interest and other fees received on retained interests was $187 million and $114 million, respectively. For the nine months ended September 30, 2019 and 2018, the principal, interest and other fees received on retained interests was $425 million and $468 million, respectively.
Managed Loans
Managed loans primarily include loans that are guaranteed or insured, in whole or in part, by the U.S. government. For those loans that we have securitized in unconsolidated portfolio securitization trusts, the outstanding unpaid principal balance was $1.1 billion as of September 30, 2019 and $1.2 billion as of December 31, 2018. For information regarding on-balance sheet managed loans, see “Note 3, Mortgage Loans.”

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q64

Notes to Condensed Consolidated Financial Statements | Mortgage Loans


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 held for investment (“HFI”) or held for sale (“HFS”). We report the carrying value of HFI loans at 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 asThe mortgage loans that serve as collateral for Freddie Mac-issued securities are not includedheld in other loan classes; “government” class as mortgage loanstrusts that are guaranteed or insured, in whole or in part,consolidated by the U.S. government, and that are not Alt-A; and “other” class as loans with certain higher-risk characteristics, such as interest-only loans and negative-amortizing loans, that are neither government nor Alt-A.Fannie Mae.
The following table displays the carrying value of our mortgage loans.
  As of
  September 30, 2019 December 31, 2018
  (Dollars in millions)
Single-family $2,962,083
 $2,929,925
Multifamily 318,106
 293,858
Total unpaid principal balance of mortgage loans 3,280,189
 3,223,783
Cost basis and fair value adjustments, net 43,323
 39,815
Allowance for loan losses for loans held for investment (9,376) (14,203)
Total mortgage loans $3,314,136
 $3,249,395

The following table displays information about our redesignated mortgage loans.
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
 2019 2018 2019 2018
 (Dollars in millions)
Carrying value of loans redesignated from HFI to HFS(1)
$4,882
 $4,249
 $14,252
 $17,851
Carrying value of loans redesignated from HFS to HFI(1)
10
 6
 22
 36
Loans sold - unpaid principal balance3,941
 9,373
 10,497
 13,831
Realized gains on sale of mortgage loans184
 93
 504
 301

(1)
Represents the carrying value of the loans after redesignation, excluding allowance.
The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process was $8.2 billion and $10.1 billion as of September 30, 2019 and December 31, 2018, 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.
Nonaccrual Loans
We discontinue accruing interest on loans when we believe collectibilitycollectability 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 threetwo 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 collectibilitycollectability 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 thathave 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.

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
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q6568


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-Q69

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.
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 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-Q70

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 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, 2019Transition Impact from Adoption of the CECL StandardBalance 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, net11,910  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 (“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 timing and extent to which we will apply the provided accounting relief.
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q71

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
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
March 31, 2020December 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 Mae4,610  5,100  
Total trading securities7,276  7,643  
Available-for-sale securities:
Fannie Mae1,505  1,524  
Non-Fannie Mae493  574  
Total available-for-sale securities1,998  2,098  
Other assets45  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.
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 $93 million and the related
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q72

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, 2020December 31, 2019
(Dollars in millions)
Single-family$2,996,281  $2,972,361  
Multifamily334,397  327,593  
Total unpaid principal balance of mortgage loans3,330,678  3,299,954  
Cost basis and fair value adjustments, net45,341  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-Q73

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,
20202019
(Dollars in millions)
Single family loans redesignated from HFI to HFS:
Amortized cost$1,637  $2,945  
Lower of cost or fair value adjustment at time of redesignation(1)
(9) (240) 
Allowance reversed at time of redesignation184  467  
Single-family loans sold:  
Unpaid principal balance$—  $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 inamortized cost of our HFI mortgage loans by portfolio segment and class, excluding loans for which we have elected the fair value option.
  As of September 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 $29,211
 $7,188
 $13,291
 $49,690
 $2,867,330
 $2,917,020
 $26
 $23,840
Government(2)
 44
 20
 144
 208
 17,881
 18,089
 144
 —
Alt-A 1,717
 591
 1,316
 3,624
 40,663
 44,287
 1
 2,228
Other 572
 212
 485
 1,269
 9,836
 11,105
 2
 800
Total single-family 31,544
 8,011
 15,236
 54,791
 2,935,710
 2,990,501
 173
 26,868
Multifamily(3)
 32
 N/A
 181
 213
 320,984
 321,197
 —
 604
Total $31,576
 $8,011
 $15,417
 $55,004
 $3,256,694
 $3,311,698
 $173
 $27,472
  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 DelinquentCurrentTotalLoans 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-rate1,803  280  450  2,533  373,012  375,545  —  542  
Adjustable-rate383  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-family34,151  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) ThirdFirst Quarter 20192020 Form 10-Q6674


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 DelinquentCurrentTotalLoans 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-rate1,616  286  445  2,347  371,740  374,087  —  
Adjustable-rate412  85  167  664  44,244  44,908  —  
Other(2)
2,323  829  1,891  5,043  64,726  69,769  136  
Total single-family31,233  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-Q75


Notes to Condensed Consolidated Financial Statements | Mortgage Loans
Credit Quality Indicators
The following table displays the total recorded investment inamortized 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)
20202019201820172016PriorTotal
 (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-rate110,254  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-rate16,350  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-rate488  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
  
September 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% $2,569,771
 $39,710
 $9,694
 $2,521,766
 $45,476
 $12,291
Greater than 80% and less than or equal to 90%
 228,868
 2,365
 709
 228,614
 3,804
 1,195
Greater than 90% and less than or equal to 100%
 113,424
 1,131
 337
 109,548
 1,997
 645
Greater than 100% 4,957
 1,081
 365
 9,337
 1,994
 707
Total $2,917,020
 $44,287
 $11,105
 $2,869,265
 $53,271
 $14,838

(1)Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q
Excludes $18.1 billion and $22.1 billion as of September 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-Rate15-Year or less, Amortizing Fixed-RateAdjustable-RateOtherTotal
(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 inamortized 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
20202019201820172016PriorTotal
(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
 September 30, December 31,
 2019 2018
 (Dollars in millions)
Credit risk profile by internally assigned grade:       
Non-classified $314,458
   $289,231
 
Classified(1)
 6,739
   6,433
 
Total $321,197
   $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 September 30, 2019, we had loans with recorded investment of less than $0.1 million classified as doubtful, compared with $1 million as of December 31, 2018.


$323,773 
Classified(2)
6,845 
Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-QTotal67$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 investmentwith amortized cost of $39 million and interest income recognized for individually impaired loans.$5 million, respectively, classified as doubtful.
 As of
 September 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 $67,175
   $64,987
   $(6,141)  $81,791
   $78,688
   $(9,406) 
Government 250
   255
   (50)  264
   270
   (55) 
Alt-A 11,956
   11,008
   (1,726)  16,576
   15,158
   (2,793) 
Other 3,703
   3,505
   (590)  5,482
   5,169
   (1,001) 
Total single-family 83,084
   79,755
   (8,507)  104,113
   99,285
   (13,255) 
Multifamily 281
   283
   (45)  197
   196
   (40) 
Total individually impaired loans with related allowance recorded 83,365
   80,038
   (8,552)  104,310
   99,481
   (13,295) 
With no related allowance recorded:(1)
                      
Single-family:                      
Primary 19,326
   18,463
   —
  15,939
   15,191
   —
 
Government 65
   61
   —
  61
   56
   —
 
Alt-A 2,391
   2,141
   —
  2,628
   2,363
   —
 
Other 624
   571
   —
  718
   666
   —
 
Total single-family 22,406
   21,236
   —
  19,346
   18,276
   —
 
Multifamily 368
   369
   —
  343
   346
   —
 
Total individually impaired loans with no related allowance recorded 22,774
   21,605
   —
  19,689
   18,622
   —
 
Total individually impaired loans(2)
 $106,139
   $101,643
   $(8,552)  $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 $100.7 billion and $117.2 billion as of September 30, 2019 and December 31, 2018, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $126 million and $187 million as of September 30, 2019 and December 31, 2018, respectively.

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q68

Notes to Condensed Consolidated Financial Statements | Mortgage Loans


 For the Three Months Ended September 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 $69,084
   $713
   $62
   $84,043
   $871
   $86
 
Government 262
   2
   —
   276
   3
   —
 
Alt-A 11,845
   125
   8
   17,034
   179
   13
 
Other 3,904
   37
   4
   6,254
   57
   4
 
Total single-family 85,095
   877
   74
   107,607
   1,110
   103
 
Multifamily 313
   2
   —
   231
   1
   —
 
Total individually impaired loans with related allowance recorded 85,408
   879
   74
   107,838
   1,111
   103
 
With no related allowance recorded:(1)
     
   
             
Single-family:     
   
             
Primary 16,422
   262
   39
   15,140
   254
   30
 
Government 56
   1
   —
   57
   1
   —
 
Alt-A 2,130
   44
   4
   2,562
   54
   4
 
Other 575
   10
   1
   784
   13
   2
 
Total single-family 19,183
   317
   44
   18,543
   322
   36
 
Multifamily 401
   8
   —
   335
   8
   —
 
Total individually impaired loans with no related allowance recorded 19,584
   325
   44
   18,878
   330
   36
 
Total individually impaired loans $104,992
   $1,204
   $118
   $126,716
   $1,441
   $139
 

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q69

Notes to Condensed Consolidated Financial Statements | Mortgage Loans


 For the Nine Months Ended September 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 $73,601
   $2,304
   $214
   $86,842
   $2,697
   $302
 
Government 267
   8
   —
   277
   15
   —
 
Alt-A 13,299
   426
   30
   19,081
   610
   45
 
Other 4,429
   123
   11
   7,140
   201
   15
 
Total single-family 91,596
   2,861
   255
   113,340
   3,523
   362
 
Multifamily 280
   7
   —
   244
   2
   —
 
Total individually impaired loans with related allowance recorded 91,876
   2,868
   255
   113,584
   3,525
   362
 
With no related allowance recorded:(1)
                       
Single-family:                       
Primary 15,718
   731
   103
   15,039
   740
   88
 
Government 56
   3
   —
   58
   3
   —
 
Alt-A 2,203
   127
   11
   2,710
   173
   13
 
Other 611
   28
   3
   848
   44
   4
 
Total single-family 18,588
   889
   117
   18,655
   960
   105
 
Multifamily 377
   16
   —
   333
   11
   —
 
Total individually impaired loans with no related allowance recorded 18,965
   905
   117
   18,988
   971
   105
 
Total individually impaired loans $110,841
   $3,773
   $372
   $132,572
   $4,496
   $467
 

(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-Q77

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 164 months and 98 months forDuring the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. The average interest rate reduction was 0.15 and 0.14 percentage points, for the three months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, the average term extension of a single-family modified loan was 160168 months and 104157 months, respectively, and the average interest rate reduction was 0.110.32 and 0.230.10 percentage points, respectively.

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q70

Notes to Condensed Consolidated Financial Statements | Mortgage Loans


The following tables displaytable displays the number of loans and recorded investmentamortized cost in loans classified as a TDR.
 For the Three Months Ended September 30,
 2019 2018
 Number of Loans 
Recorded Investment(1)
 Number of Loans 
Recorded Investment(1)
 (Dollars in millions)
Single-family:               
Primary 11,373
   $1,819
   12,291
   $1,797
 
Government 16
   1
   21
   3
 
Alt-A 543
   70
   779
   100
 
Other 89
   16
   207
   37
 
Total single-family 12,021
   1,906
   13,298
   1,937
 
Multifamily 3
   4
   2
   7
 
Total TDRs 12,024
   $1,910
   13,300
   $1,944
 

 For the Nine Months Ended September 30,
 2019 2018
 Number of Loans 
Recorded Investment(1)
 Number of Loans 
Recorded Investment(1)
 (Dollars in millions)
Single-family:               
Primary 36,126
   $5,634
   75,790
   $11,469
 
Government 61
   7
   95
   9
 
Alt-A 1,948
   248
   4,499
   583
 
Other 374
   68
   937
   173
 
Total single-family 38,509
   5,957
   81,321
   12,234
 
Multifamily 9
   37
   12
   68
 
Total TDRs 38,518
   $5,994
   81,333
   $12,302
 

(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 nine months ended September 30, 2019 compared with the three and nine months ended September 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 nine months of 2018.

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q71

Notes to Condensed Consolidated Financial Statements | Mortgage Loans


For the Three Months Ended March 31,
20202019
Number of LoansAmortized CostNumber of LoansAmortized Cost
(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate10,856  $1,909  11,445  $1,826  
15-year or less, amortizing fixed-rate1,073  98  1,295  114  
Adjustable-rate144  24  217  32  
Other537  68  936  127  
Total single-family12,610  2,099  13,893  2,099  
Multifamily—  —  3  13  
Total TDRs12,610  $2,099  13,896  $2,112  
For loans that had a payment defaultdefaulted in the period presented and that were classified as a TDR in the twelve months prior to the payment default, the following tables displaytable displays the number of loans and our recorded investment inthe 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,
20202019
Number of LoansAmortized CostNumber of LoansAmortized Cost
(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate3,175  $521  4,376  $664  
15-year or less, amortizing fixed-rate50  3  132  8  
Adjustable-rate7  1  8  1  
Other327  51  643  104  
Total single-family3,559  576  5,159  777  
Multifamily2  2  —  —  
Total TDRs that subsequently defaulted3,561  $578  5,159  $777  
 For the Three Months Ended September 30,
 2019 2018
 Number of Loans 
Recorded Investment
 Number of Loans 
Recorded Investment
 (Dollars in millions)
Single-family:               
Primary 3,780
   $585
   3,720
   $519
 
Government 28
   2
   8
   —
 
Alt-A 307
   43
   438
   74
 
Other 87
   16
   143
   29
 
Total single-family 4,202
   646
   4,309
   622
 
Multifamily 1
   13
   1
   2
 
Total TDRs that subsequently defaulted 4,203
   $659
   4,310
   $624
 
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q78

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 ofFor the Three Months Ended March 31, 2020
March 31, 2020December 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-rate856  858  2  
Adjustable-rate279  288  1  
Other2,827  2,973  13  
Total single-family27,174  27,546  117  
Multifamily91  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-Q79

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 BalanceTotal Amortized CostRelated 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-rate954  960  (24) 
Adjustable-rate156  157  (9) 
Other15,181  14,078  (2,291) 
Total single-family79,382  76,228  (8,175) 
Multifamily314  315  (45) 
Total individually impaired loans with related allowance recorded79,696  76,543  (8,220) 
With no related allowance recorded:(1)
Single-family:
20- and 30-year or more, amortizing fixed-rate18,372  17,578  —  
15-year or less, amortizing fixed-rate410  407  —  
Adjustable-rate265  265  —  
Other3,014  2,718  —  
Total single-family22,061  20,968  —  
Multifamily363  365  —  
Total individually impaired loans with no related allowance recorded22,424  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-Q80

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

For the Three Months Ended March 31, 2019
Average Amortized CostTotal Interest Income RecognizedInterest 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-rate1,323  12  1  
Adjustable-rate120  1  —  
Other19,898  204  15  
Total single-family97,741  1,021  95  
Multifamily247  2  —  
Total individually impaired loans with related allowance recorded97,988  1,023  95  
With no related allowance recorded:(1)
Single-family:
20- and 30-year or more, amortizing fixed-rate14,474  212  26  
15-year or less, amortizing fixed-rate318  4  1  
Adjustable-rate400  4  1  
Other3,000  48  3  
Total single-family18,192  268  31  
Multifamily353  2  —  
Total individually impaired loans with no related allowance recorded18,545  270  31  
Total individually impaired loans$116,533  $1,293  $126  
 For the Nine Months Ended September 30,
 2019 2018
 Number of Loans 
Recorded Investment
 Number of Loans 
Recorded Investment
 (Dollars in millions)
Single-family:               
Primary 12,343
   $1,864
   12,372
   $1,774
 
Government 56
   7
   37
   4
 
Alt-A 1,157
   174
   1,703
   275
 
Other 351
   65
   469
   93
 
Total single-family 13,907
   2,110
   14,581
   2,146
 
Multifamily 2
   19
   2
   4
 
Total TDRs that subsequently defaulted 13,909
   $2,129
   14,583
   $2,150
 
(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-Q81

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 amortizedunamortized premiums and discounts, and other cost basis adjustments of HFI loans at the balance sheet date. We record charge-offswrite-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 aggregateThe following table displays changes in our allowance for single-family HFI loans, that are not individually impairedmultifamily 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, 2019Transition Impact from the Adoption of the CECL StandardBalance January 1, 2020Provision for Loan LossesWrite-offsRecoveriesOtherBalance 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 purposesa 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), defaultchanges 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 developHFS. 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 calculationprovision can also incorporates a loss confirmation period (the anticipated time lag between a credit loss eventbe 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 itsdetermining 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 existingsingle-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 asincluding 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 loanbenefit 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) ThirdFirst Quarter 20192020 Form 10-Q7282


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 termsfirst 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 atbelieve our model used to estimate multifamily credit losses as of March 31, 2020 does not capture the loan’s original effective interest rate. Ifentirety of losses we expect to recoverincur relating to COVID-19. As such, management used its judgment to increase the loss projections developed by our recorded investmentcredit 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 investmentforbearance and reduce property net operating income in the near term, thereby decreasing forecasted property values and increasing the probability of loan anddefault. In developing these adjustments, management considered the fair valuecurrent credit risk profile of the underlying property, adjusted for the estimated costs to sell the property and estimated insuranceour multifamily loan book of business, as well as relevant historical credit loss experience during rare or other proceeds we expect to receive. Duringstressful economic environments.
For the three months ended September 30, 2019,March 31, 2020, we enhanced the model usedrecorded a benefit of $58 million related to estimate cash flows for individually impaired single-family loans within our allowance for loan losses. This enhancement was performed as a part of management’s routine model performance review process. In addition to incorporating recent loan performance data, this model enhancement better captures recent prepayment activity, default rates, and loss severitychanges in the eventexpected benefit of default.freestanding credit enhancements on our 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 certain lender risk-sharing programs, including our multifamily DUS program. The enhancement resultedimpact from these credit enhancements is recorded in a decrease to“Fee and other income” in our condensed consolidated statements of operations and comprehensive income.
The following tables display prior period changes in single-family and multifamily allowance for loan losses and an incremental benefit for credit losses of approximately $850 million and is included in “Benefit (provision) for loan losses” in the table below.
We establish a collective allowance for all loans in our multifamily guaranty book of business that are not individually measured for impairment using an internal model that applies loss factors to loans in similar risk categories. Our loss factors are developed based on our historical default and loss severity experience. We identify multifamily loans for evaluation for impairment through a credit risk assessment process. If we determine that a multifamily loan is individually impaired, we generally measure impairment on that loan based on the fair value 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.
The following table displays changes in single-family, multifamily and total allowance for loan losses.
  For the Three Months Ended September 30,  For the Nine Months Ended September 30,
  2019 2018  2019 2018
  (Dollars in millions)
Single-family allowance for loan losses:         
Beginning balance $(11,210) $(16,602)  $(13,969) $(18,849)
Benefit (provision) for loan losses(1)
 1,826
 724
  3,712
 1,916
Charge-offs 270
 509
  1,209
 1,705
Recoveries (8) (65)  (68) (189)
Other —
 (2)  (6) (19)
Ending balance $(9,122) $(15,436)  $(9,122) $(15,436)
Multifamily allowance for loan losses:         
Beginning balance $(272) $(210)  $(234) $(235)
Benefit (provision) for loan losses(1)
 17
 (14)  (23) 6
Charge-offs 2
 —
  6
 5
Recoveries (1) (3)  (3) (3)
Ending balance $(254) $(227)  $(254) $(227)
Total allowance for loan losses:         
Beginning balance $(11,482) $(16,812)  $(14,203) $(19,084)
Benefit (provision) for loan losses(1)
 1,843
 710
  3,689
 1,922
Charge-offs 272
 509
  1,215
 1,710
Recoveries (9) (68)  (71) (192)
Other —
 (2)  (6) (19)
Ending balance $(9,376) $(15,663)  $(9,376) $(15,663)

(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) Third Quarter 2019 Form 10-Q73

Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses


The following table displays the allowance for loan losses and recorded investmentprior period amortized cost in our HFI loans by impairment or allowance methodology and portfolio segment excluding loans for which we have electedprior 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, 2018Benefit (Provision) for Loan LossesWrite-offsRecoveriesOtherBalance 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  $(13,232) 
As of December 31, 2019
Single-FamilyMultifamilyTotal
(Dollars in millions)
Allowance for loan losses by segment:
Individually impaired loans$(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 loans2,909,115  329,938  3,239,053  
Total amortized cost in loans$3,006,311  $330,618  $3,336,929  
  As of
  September 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)
 $(8,507) $(45) $(8,552) $(13,255) $(40) $(13,295)
Collectively reserved loans (615) (209) (824) (714) (194) (908)
Total allowance for loan losses $(9,122) $(254) $(9,376) $(13,969) $(234) $(14,203)
             
Recorded investment in loans by segment:            
Individually impaired loans(1)
 $100,991
 $652
 $101,643
 $117,561
 $542
 $118,103
Collectively reserved loans 2,889,510
 320,545
 3,210,055
 2,841,943
 295,122
 3,137,065
Total recorded investment in loans $2,990,501
 $321,197
 $3,311,698
 $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, 2020December 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 securities444  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 securities44,727  39,501  
Other securities73  79  
Total non-mortgage-related securities44,800  39,580  
Total trading securities$52,941  $48,123  
(1)Consists of Freddie Mac and Ginnie Mae mortgage-related securities.
 As of
 September 30, 2019 December 31, 2018
 (Dollars in millions) 
Mortgage-related securities:       
Fannie Mae(1)
 $3,661
   $1,467
 
Other agency(2)
 3,704
   3,503
 
Private-label and other mortgage securities 741
   1,306
 
Total mortgage-related securities (includes $922 and $32, respectively, related to consolidated trusts) 8,106
   6,276
 
Non-mortgage-related securities:       
U.S. Treasury securities 36,016
   35,502
 
Other securities 84
   89
 
Total non-mortgage-related securities 36,100
   35,591
 
Total trading securities $44,206
   $41,867
 
(1)
In the second quarter of 2019, we implemented the Single Security Initiative and 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 (losses).gains.
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
 2019 2018 2019 2018
 (Dollars in millions)
Net trading gains (losses)$95
 $(40) $370
 $79
Net trading gains (losses) recognized in the period related to securities still held at period end82
 (27) 298
 20

For the Three Months Ended March 31,
20202019
(Dollars in millions)
Net trading gains$647  $92  
Net trading gains recognized in the period related to securities still held at period end591  89  

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q74

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 displaysPursuant to the gross realized gainsCECL 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 salesbenefit 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 September 30, For the Nine Months Ended September 30,
  
 2019 2018 2019 2018
 (Dollars in millions)
Gross realized gains$—
 $12
 $171
 $375
Total proceeds (excludes initial sale of securities from new portfolio securitizations)—
 21
 376
 662
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q84

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 LossesGross Unrealized Gains in AOCIGross 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 securities4  —  3  —  7  
Mortgage revenue bonds291  (3) 9  (1) 296  
Other mortgage-related securities288  —  3  —  291  
Total$2,147  $(3) $157  $(12) $2,289  
As of September 30, 2019As 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 GainsGross Unrealized Losses
Total Fair Value(1)
(Dollars in millions)(Dollars in millions)
Fannie Mae $1,492
 $98
 $(8) $1,582
Fannie Mae$1,445  $85  $(10) $1,520  
Other agency 195
 18
 —
 213
Other agency(2)
Other agency(2)
183  15  —  198  
Alt-A and subprime private-label securities 102
 124
 —
 226
Alt-A and subprime private-label securities34  23  —  57  
Mortgage revenue bonds 339
 10
 (3) 346
Mortgage revenue bonds309  9  (3) 315  
Other mortgage-related securities 320
 5
 (2) 323
Other mortgage-related securities310  5  (1) 314  
Total $2,448
 $255
 $(13) $2,690
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) ThirdFirst Quarter 20192020 Form 10-Q7585


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 September 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 $—
  $—
  $(8)  $348
Mortgage revenue bonds —
  —
  (3)  5
Other mortgage-related securities (2)  273
  —
  —
Total $(2)  $273
  $(11)  $353
            
 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 Months12 Consecutive Months or Longer
Gross Unrealized Losses in AOCIFair ValueGross Unrealized Losses in AOCIFair Value
(Dollars in millions)
Fannie Mae$(1) $66  $(10) $105  
Mortgage revenue bonds(1) 22  —  —  
Total$(2) $88  $(10) $105  
As of December 31, 2019
Less Than 12 Consecutive Months12 Consecutive Months or Longer
Gross Unrealized LossesFair ValueGross Unrealized LossesFair Value
(Dollars in millions)
Fannie Mae$—  $—  $(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 $37 million and $635 million as of September 30, 2019 and December 31, 2018, respectively. Those amounts were $718 million and $1.1 billion as of September 30, 2018 and December 31, 2017, respectively. The decrease in the cumulative outstanding balance in the first nine 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,
20202019
(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
 September 30, December 31,
 2019 2018
 (Dollars in millions)
Net unrealized gains on AFS securities for which we have not recorded OTTI $191
   $52
 
Net unrealized gains on AFS securities for which we have recorded OTTI —
   224
 
Other 39
   46
 
Accumulated other comprehensive income $230
   $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) Third Quarter 2019 Form 10-QOther7631 
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 
Other34 
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-Q86

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 LessAfter One Year Through Five YearsAfter Five Years Through Ten YearsAfter 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 agency171  190  —  —  16  17  23  25  132  148  
Alt-A and subprime private-label securities4  7  —  —  —  —  2  3  2  4  
Mortgage revenue bonds288  296  2  2  30  32  27  28  229  234  
Other mortgage-related securities288  291  —  —  —  —  23  24  265  267  
Total$2,144  $2,289  $2  $2  $60  $63  $171  $189  $1,911  $2,035  
 As of September 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 $1,492
  $1,582
  $—
  $—
  $14
  $15
  $101
  $111
  $1,377
  $1,456
Other agency 195
  213
  —
  —
  20
  21
  26
  29
  149
  163
Alt-A and subprime private-label securities 102
  226
  —
  —
  —
  —
  1
  1
  101
  225
Mortgage revenue bonds 339
  346
  2
  2
  26
  27
  36
  37
  275
  280
Other mortgage-related securities 320
  323
  —
  —
  2
  1
  24
  27
  294
  295
Total $2,448
  $2,690
  $2
  $2
  $62
  $64
  $188
  $205
  $2,196
  $2,419
(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 termsterm of our guarantees range from 1 day tois 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 structured securities 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. DueWhen 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 $28.9 billion of Freddie Mac securities backing unconsolidated Fannie Mae-issued structured securities of approximately $72.7 billion and $50.1 billion as of September 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, 2020December 31, 2019
Maximum ExposureGuaranty Obligation
Maximum Recovery(1)
Maximum ExposureGuaranty 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
  September 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 $6,603
 $26
 $6,354
 $7,278
 $30
 $6,811
Other guaranty arrangements(2)
 12,981
 135
 2,609
 13,847
 130
 2,711
Total $19,584
 $161
 $8,963
 $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) ThirdFirst Quarter 20192020 Form 10-Q7787


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, 2020December 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 Mae58,337  0.71  26,662  1.56  
  As of
  September 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) 
 $1,125
 2.15% $—
 —%
         
Short-term debt of Fannie Mae $35,812
 2.04% $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 September 30, 2019March 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, 2020December 31, 2019
MaturitiesOutstanding
Weighted- Average Interest Rate(1)
MaturitiesOutstanding
Weighted- Average Interest Rate(1)
(Dollars in millions)
Senior fixed:
Benchmark notes and bonds2020 - 2030$83,115  2.70 %2020 - 2030$86,114  2.66 %
Medium-term notes(2)
2020 - 202622,919  1.59  2020 - 202632,590  1.57  
Other(3)
2020 - 20384,080  5.47  2020 - 20385,254  5.01  
Total senior fixed110,114  2.57  123,958  2.47  
Senior floating:
Medium-term notes(2)
2020 - 202240,078  0.54  2020 - 20219,774  1.66  
Connecticut Avenue Securities(4)
2023 - 203119,470  5.42  2023 - 203121,424  5.61  
Other(5)
2020 - 2037432  7.37  2020 - 2037398  6.27  
Total senior floating59,980  2.17  31,596  4.40  
Secured borrowings(6)
2021 - 202227  2.60  2021 - 202231  2.31  
Total long-term debt of Fannie Mae(7)
170,121  2.43  155,585  2.86  
Debt of consolidated trusts2020 - 20593,334,098  2.78  2020 - 20593,285,139  2.78  
Total long-term debt$3,504,219  2.76 %$3,440,724  2.78 %
 As of
 September 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 bonds2019 - 2030 $91,603
 2.66% 2019 - 2030 $103,206
 2.36%
Medium-term notes(2)
2019 - 2026 40,973
 1.60
 2019 - 2026 61,455
 1.48
Other(3)
2019 - 2038 6,142
 4.84
 2019 - 2038 6,683
 4.62
Total senior fixed  138,718
 2.44
   171,344
 2.13
Senior floating:          ��
Medium-term notes(2)
2020 - 2021 9,773
 2.28
 2019 - 2020 4,174
 2.36
Connecticut Avenue Securities(4)
2023 - 2031 22,977
 5.90
 2023 - 2031 25,641
 5.97
Other(5)
2020 - 2037 422
 7.79
 2020 - 2037 351
 10.19
Total senior floating  33,172
 4.86
   30,166
 5.52
Subordinated debentures2019 5,783
 9.99
 2019 5,617
 9.64
Secured borrowings(6)
2021 - 2022 37
 2.24
 2021 - 2022 51
 1.96
Total long-term debt of Fannie Mae(7)
  177,710
 3.14
   207,178
 2.83
Debt of consolidated trusts2019 - 2058 3,248,336
 2.79
 2019 - 2058 3,159,846
 3.03
Total long-term debt  $3,426,046
 2.81%   $3,367,024
 3.02%
(1)Includes the effects of discounts, premiums and other cost basis adjustments.
(1)
(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.
Includes the effects of discounts, premiums and other cost basis adjustments.

Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q7888


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


(2)(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 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 $30 million and $413 million as of September 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 rateinterest-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 rateinterest-rate risk management purposes consist primarily of interest rateinterest-rate swaps and interest rateinterest-rate options. See “Note 8, Derivative Instruments” in our 20182019 Form 10-K for additional information on interest rateinterest-rate risk management.
We enter into variousaccount for certain forms of credit risk-sharing agreements that we account forrisk transfer transactions as derivatives, including some ofderivatives. 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, weWe 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) ThirdFirst Quarter 20192020 Form 10-Q7989


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, 2020As of December 31, 2019
Asset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
Notional AmountEstimated Fair ValueNotional AmountEstimated Fair ValueNotional AmountEstimated Fair ValueNotional AmountEstimated Fair Value
(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed$50,946  $—  $29,603  $(1,930) $41,052  $—  $29,178  $(970) 
Receive-fixed94,704  1,151  9,854  (2) 73,579  816  26,382  (62) 
Basis273  205  —  —  273  149  —  —  
Foreign currency215  29  217  (93) 229  39  232  (65) 
Swaptions:
Pay-fixed4,600  7  5,875  (328) 4,600  18  6,375  (219) 
Receive-fixed6,625  619  350  (130) 2,875  106  4,600  (232) 
Futures(1)
53,742  —  —  —  20,507  —  —  —  
Total gross risk management derivatives211,105  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 securities103,770  2,153  10,936  (36) 55,531  137  9,560  (28) 
Forward contracts to sell mortgage-related securities20,070  99  177,213  (3,502) 9,282  13  109,066  (277) 
Total mortgage commitment derivatives154,992  2,665  198,601  (3,594) 71,928  165  120,413  (306) 
Credit enhancement derivatives26,897  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 September 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 $35,550
 $—
 $32,893
 $(1,481) $71,416
 $438
 $21,253
 $(740)
Receive-fixed 71,372
 958
 34,986
 (103) 88,799
 1,113
 58,399
 (860)
Basis 273
 179
 —
 —
 250
 104
 624
 —
Foreign currency 213
 27
 215
 (86) 221
 22
 223
 (72)
Swaptions:                
Pay-fixed 4,600
 18
 6,375
 (270) 10,375
 191
 1,000
 (4)
Receive-fixed 2,875
 203
 4,600
 (137) 500
 20
 7,375
 (338)
Futures(1)
 47,069
 —
 —
 —
 16,631
 —
 —
 —
Total gross risk management derivatives 161,952
 1,385
 79,069
 (2,077) 188,192
 1,888
 88,874
 (2,014)
Accrued interest receivable (payable) —
 287
 —
 (374) —
 400
 —
 (419)
Netting adjustment(2)
 —
 (1,663) —
 2,299
 —
 (2,266) —
 2,315
Total net risk management derivatives $161,952
 $9
 $79,069
 $(152) $188,192
 $22
 $88,874
 $(118)
Mortgage commitment derivatives:                
Mortgage commitments to purchase whole loans $7,812
 $20
 $6,258
 $(26) $4,370
 $29
 $57
 $—
Forward contracts to purchase mortgage-related securities 70,120
 231
 28,853
 (85) 40,650
 349
 1,045
 (3)
Forward contracts to sell mortgage-related securities 57,048
 170
 109,229
 (305) 292
 1
 70,593
 (645)
Total mortgage commitment derivatives 134,980
 421
 144,340
 (416) 45,312
 379
 71,695
 (648)
Credit enhancement derivatives 30,407
 42
 6,509
 (27) 33,431
 57
 919
 (11)
Derivatives at fair value $327,339
 $472
 $229,918
 $(595) $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 $1.3 billion and $713 million as of September 30, 2019 and December 31, 2018, respectively. Cash collateral received was $684 million and $664 million as of September 30, 2019 and December 31, 2018, respectively.

Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q8090


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 September 30, For the Nine Months Ended September 30,
   
  2019 2018 2019 2018
  (Dollars in millions)
Risk management derivatives:        
Swaps:        
Pay-fixed $(1,414) $1,034
 $(4,913) $4,784
Receive-fixed 966
 (524) 4,131
 (3,508)
Basis 24
 (5) 75
 (31)
Foreign currency (11) (10) (9) (35)
Swaptions:        
Pay-fixed (110) 67
 (430) 232
Receive-fixed 209
 (34) 309
 (72)
Futures 42
 —
 296
 (3)
Net accrual of periodic settlements (190) (285) (698) (786)
Total risk management derivatives fair value gains (losses), net (484) 243
 (1,239) 581
Mortgage commitment derivatives fair value gains (losses), net (177) 118
 (946) 606
Credit enhancement derivatives fair value losses, net (7) (1) (31) (2)
Total derivatives fair value gains (losses), net $(668) $360
 $(2,216) $1,185

For the Three Months Ended March 31,
20202019
(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed$(4,029) $(1,335) 
Receive-fixed3,343  1,281  
Basis56  24  
Foreign currency(38) 19  
Swaptions:
Pay-fixed(148) (177) 
Receive-fixed632  7  
Futures(71) 59  
Net contractual interest expense on interest-rate swaps(106) (266) 
 Total risk management derivatives fair value losses, net(361) (388) 
Mortgage commitment derivatives fair value losses, net(993) (300) 
Credit enhancement derivatives fair value losses, net(11) (7) 
Total derivatives fair value losses, net$(1,365) $(695) 
Derivative Counterparty Credit Exposure
Our derivative counterparty credit exposure relates principally to interest rateinterest-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) ThirdFirst Quarter 20192020 Form 10-Q8191


Notes to Condensed Consolidated Financial Statements | Segment Reporting


9.  Segment Reporting
We have 2two reportable business segments: Single-Family and Multifamily. Results of our 2two business segments are intended to reflect each segment as if it were a stand-alone business. The sum of the results for our 2two 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 multifamilyeach respective business segment and are included in determining that segment’sits operating results. OtherThose 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-familySingle-Family business segment.
The following table displays our segment results.
For the Three Months Ended March 31,
20202019
Single-FamilyMultifamilyTotalSingle-FamilyMultifamilyTotal
(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 revenues4,693  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 taxes86  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 September 30,
  2019 2018
  Single-Family Multifamily Total Single-Family Multifamily Total
  (Dollars in millions)
Net interest income(1)
 $4,484
 $745
 $5,229
 $4,670
 $699
 $5,369
Fee and other income(2)
 156
 246
 402
 79
 192
 271
Net revenues 4,640
 991
 5,631
 4,749
 891
 5,640
Investment gains, net(3)
 198
 55
 253
 146
 20
 166
Fair value gains (losses), net(4)
 (719) 6
 (713) 417
 (31) 386
Administrative expenses (634) (115) (749) (636) (104) (740)
Credit-related income (expense)(5)
            
Benefit (provision) for credit losses 1,840
 17
 1,857
 732
 (16) 716
Foreclosed property expense (93) (3) (96) (150) (9) (159)
Total credit-related income (expense) 1,747
 14
 1,761
 582
 (25) 557
TCCA fees(6)
 (613) —
 (613) (576) —
 (576)
Other expenses, net (424) (147) (571) (282) (95) (377)
Income before federal income taxes 4,195
 804
 4,999
 4,400
 656
 5,056
Provision for federal income taxes (872) (164) (1,036) (938) (107) (1,045)
Net income $3,323
 $640
 $3,963
 $3,462
 $549
 $4,011
(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.

(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.
(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.
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q8292


Notes to Condensed Consolidated Financial Statements | Segment Reporting


  For the Nine Months Ended September 30,
  2019 2018
  Single-Family Multifamily Total Single-Family Multifamily Total
  (Dollars in millions)
Net interest income(1)
 $12,942
 $2,170
 $15,112
 $13,954
 $2,024
 $15,978
Fee and other income(2)
 350
 525
 875
 306
 524
 830
Net revenues 13,292
 2,695
 15,987
 14,260
 2,548
 16,808
Investment gains, net(3)
 709
 138
 847
 640
 53
 693
Fair value gains (losses), net(4)
 (2,364) 66
 (2,298) 1,729
 (69) 1,660
Administrative expenses (1,899) (338) (2,237) (1,928) (317) (2,245)
Credit-related income (expense)(5)
            
Benefit (provision) for credit losses 3,753
 (21) 3,732
 2,223
 6
 2,229
Foreclosed property expense (362) (2) (364) (448) (12) (460)
Total credit-related income (expense) 3,391
 (23) 3,368
 1,775
 (6) 1,769
TCCA fees(6)
 (1,806) —
 (1,806) (1,698) —
 (1,698)
Other expenses, net (1,179) (335) (1,514) (684) (262) (946)
Income before federal income taxes 10,144
 2,203
 12,347
 14,094
 1,947
 16,041
Provision for federal income taxes (2,125) (427) (2,552) (2,998) (314) (3,312)
Net income $8,019
 $1,776
 $9,795
 $11,096
 $1,633
 $12,729

(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.
(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) Third Quarter 2019 Form 10-Q83

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 characteristicsCredit 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
 
September 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)
1.11% 0.29% 0.61% 1.17% 0.32% 0.69%
Percentage of single-family conventional loans(4)
1.28
 0.35
 0.68
 1.37
 0.38
 0.76

As of
March 31, 2020December 31, 2019
30 Days Delinquent60 Days Delinquent
Seriously Delinquent(1)
30 Days Delinquent60 Days Delinquent
Seriously Delinquent(1)
Percentage of single-family conventional guaranty book of business based on UPB1.16 %0.27 %0.59 %1.07 %0.29 %0.59 %
Percentage of single-family conventional loans based on loan count1.31  0.32  0.66  1.27  0.35  0.66  
As of
March 31, 2020December 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:
California19  0.33  19  0.32  
Florida6  0.83  6  0.84  
Illinois4  0.91  4  0.91  
New Jersey3  1.13  3  1.13  
New York5  1.19  5  1.18  
All other states63  0.64  63  0.64  
Product distribution:
Alt-A1  2.95  2  2.95  
Vintages:
2004 and prior2  2.48  2  2.48  
2005-20083  4.11  4  4.11  
2009-202095  0.35  94  0.35  
 As of
 
September 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%* 10.62% * 9.85%
Geographical distribution:       
California19 0.32
 19 0.34
Florida6 0.87
 6 1.16
New Jersey3 1.21
 4 1.38
New York5 1.24
 5 1.40
All other states67 0.67
 66 0.75
Product distribution:       
Alt-A2 3.09
 2 3.35
Vintages:       
2004 and prior2 2.53
 3 2.69
2005-20084 4.24
 5 4.61
2009-201994 0.33
 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 more than 99% of our single-family conventional guaranty book of business as of September 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 September 30, 2019 or December 31, 2018.

Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q8493


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 characteristicsCredit 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 ourassess 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 original LTV 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 business0.03 %0.05 %0.02 %0.04 %
 As of
 
September 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* 0.06% 0.02% 0.06%
As of
March 31, 2020December 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
 September 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
 0.06
 99
 0.06
Current DSCR below 1.0(4)
2
 0.44
 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.
*Represents less than 0.01% of multifamily business volume or 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 forcerisk-in-force mortgage insurance coverage as a percentage of the single-family conventional guaranty book of business.
  As of
  September 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 $162,339
   $152,379
  
Pool mortgage insurance 379
   409
  
Total mortgage insurance risk in force $162,718
 6% $152,788
 5%

As of
March 31, 2020December 31, 2019
Risk in ForcePercentage of Single-Family Guaranty Book of BusinessRisk in ForcePercentage of Single-Family Guaranty Book of Business
(Dollars in millions)
Mortgage insurance risk in force:
Primary mortgage insurance$164,218  $162,855  
Pool mortgage insurance306  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) ThirdFirst Quarter 20192020 Form 10-Q8594


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 forcerisk-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, 2020December 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  
Others10  10  
Total100 %100 %
  
Percentage of Risk in Force Coverage
by Mortgage Insurer
  As of
  September 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 $3.7$3.1 billion, or 2%, of our risk in forcerisk-in-force mortgage insurance coverage of our single-family conventional guaranty book of business as of September 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 probableexpected 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 September 30, 2019March 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 $398 million$1.4 billion and $691$410 million, respectively.
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, we had outstanding receivables of $669$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 September 30, 2019March 31, 2020 and December 31, 2018,2019, we assessed these outstanding receivables for collectibility,collectability, and established a valuation allowance of $545$502 million and $564$541 million, respectively, which reducesreduced our claim receivable to the amount considered probable of collection.
Fannie Mae (In conservatorship) First Quarter 2020 Form 10-Q95

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

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q86

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk


our underwriting or eligibility requirements, if certain loan representations and warranties are violated or if mortgage insurers 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
  September 30, 2019 December 31, 2018
Wells Fargo Bank, N.A. (together with its affiliates) 17% 18%
Remaining top five depository servicers 15
 16
Top five non-depository servicers 25
 22
Total 57% 56%

Percentage of Single-Family
Guaranty Book of Business
As of
March 31, 2020December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)17 %17 %
Remaining top five depository servicers14  15  
Top five non-depository servicers28  27  
Total59 %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 institutionsour 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 ofAs of
 September 30, 2019 December 31, 2018March 31, 2020December 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 servicers23  23  
Total 48% 48%Total48 %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) ThirdFirst Quarter 20192020 Form 10-Q8796


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 SheetsAmounts 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 derivatives2,665  —  2,665  (1,228) (499) 938  
Total derivative assets4,871  (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 September 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 $1,672
 $(1,667)  $5
   $—
   $—
  $5
Cleared risk management derivatives —
 4
  4
   —
   —
  4
Mortgage commitment derivatives 421
 —
  421
   (368)   (7)  46
Total derivative assets 2,093
 (1,663)  430
(4) 
  (368)   (7)  55
Securities purchased under agreements to resell or similar arrangements(5)
 36,051
 —
  36,051
   —
   (36,051)  —
Total assets $38,144
 $(1,663)  $36,481
   $(368)   $(36,058)  $55
Liabilities:                  
OTC risk management derivatives $(2,451) $2,332
  $(119)   $—
   $—
  $(119)
Cleared risk management derivatives —
 (33)  (33)   —
   33
  —
Mortgage commitment derivatives (416) —
  (416)   368
   4
  (44)
Total derivative liabilities (2,867) 2,299
  (568)
(4) 
  368
   37
  (163)
Securities sold under agreements to repurchase or similar arrangements (1,125) —
  (1,125)   —
   1,123
  (2)
Total liabilities $(3,992) $2,299
  $(1,693)   $368
   $1,160
  $(165)
  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 SheetsAmounts 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 derivatives165  —  165  (101) (1) 63  
Total derivative assets1,519  (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) ThirdFirst Quarter 20192020 Form 10-Q8897


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 $3.1 billion and $1.9 billion as of September 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 $36.1 billion and $48.4 billion, of which $34.3 billion and $45.7 billion could be sold or repledged as of September 30, 2019 and December 31, 2018, respectively. NaN of the underlying collateral was sold or repledged as of September 30, 2019 or December 31, 2018.
(4)
Excludes derivative assets of $42 million and $57 million as of September 30, 2019 and December 31, 2018, respectively, and derivative liabilities of $27 million and $11 million recognized in our condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively, that are not subject to enforceable master netting arrangements.
(5)
Includes $12.9 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 September 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 20182019 Form 10-K.
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-Q98

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 September 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:                   
Trading securities:                   
Mortgage-related securities:                   
Fannie Mae $—
   $3,539
   $122
   $—
   $3,661
 
Other agency —
   3,702
   2
   —
   3,704
 
Private-label and other mortgage securities —
   741
   —
   —
   741
 
Non-mortgage-related securities:                   
U.S. Treasury securities 36,016
   —
   —
   —
   36,016
 
Other securities —
   84
   —
   —
   84
 
Total trading securities 36,016
   8,066
   124
   —
   44,206
 
Available-for-sale securities:                   
Mortgage-related securities:                   
Fannie Mae —
   1,408
   174
   —
   1,582
 
Other agency —
   213
   —
   —
   213
 
Alt-A and subprime private-label securities —
   226
   —
   —
   226
 
Mortgage revenue bonds —
   —
   346
   —
   346
 
Other —
   8
   315
   —
   323
 
Total available-for-sale securities —
   1,855
   835
   —
   2,690
 
Mortgage loans —
   7,457
   726
   —
   8,183
 
Other assets:                   
Risk management derivatives:                   
Swaps —
   1,267
   184
   —
   1,451
 
Swaptions —
   221
   —
   —
   221
 
Netting adjustment —
   —
   —
   (1,663)   (1,663) 
Mortgage commitment derivatives —
   421
   —
   —
   421
 
Credit enhancement derivatives —
   —
   42
   —
   42
 
Total other assets —
   1,909
   226
   (1,663)   472
 
Total assets at fair value $36,016
   $19,287
   $1,911
   $(1,663)   $55,551
 

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 securities44,727  —  —  —  44,727  
Other securities—  73  —  —  73  
Total trading securities44,727  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) ThirdFirst Quarter 20192020 Form 10-Q8999


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 securities39,501  —  —  —  39,501  
Other securities—  79  —  —  79  
Total trading securities39,501  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.

 Fair Value Measurements as of September 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) 
Liabilities:                   
Long-term debt:                   
Of Fannie Mae:                   
Senior floating $—
   $5,619
   $422
   $—
   $6,041
 
Total of Fannie Mae —
   5,619
   422
   —
   6,041
 
Of consolidated trusts —
   22,631
   88
   —
   22,719
 
Total long-term debt —
   28,250
   510
   —
   28,760
 
Other liabilities:                   
Risk management derivatives:                   
Swaps —
   2,043
   1
   —
   2,044
 
Swaptions —
   407
   —
   —
   407
 
Netting adjustment —
   —
   —
   (2,299)   (2,299) 
Mortgage commitment derivatives —
   416
   —
   —
   416
 
Credit enhancement derivatives —
   —
   27
   —
   27
 
Total other liabilities —
   2,866
   28
   (2,299)   595
 
Total liabilities at fair value $—
   $31,116
   $538
   $(2,299)   $29,355
 


Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q90100


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) Third Quarter 2019 Form 10-Q91

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) 
Liabilities:                   
Long-term debt:                   
Of Fannie Mae:                   
Senior floating $—
   $6,475
   $351
   $—
   $6,826
 
Total of Fannie Mae —
   6,475
   351
   —
   6,826
 
Of consolidated trusts —
   23,552
   201
   —
   23,753
 
Total long-term debt —
   30,027
   552
   —
   30,579
 
Other liabilities:                   
Risk management derivatives:                   
Swaps —
   2,089
   2
   —
   2,091
 
Swaptions —
   342
   —
   —
   342
 
Netting adjustment —
   —
   —
   (2,315)   (2,315) 
Mortgage commitment derivatives —
   646
   2
   —
   648
 
Credit enhancement derivatives —
   —
   11
   —
   11
 
Total other liabilities —
   3,077
   15
   (2,315)   777
 
Total liabilities at fair value $—
   $33,104
   $567
   $(2,315)   $31,356
 
(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) Third Quarter 2019 Form 10-Q92

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 September 30, 2019
    
Total Gains (Losses)
(Realized/Unrealized)
               
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30,
2019(4)(5)
 
Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30,
2019(1)
  Balance, June 30, 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, September 30, 2019 
  (Dollars in millions)
Trading securities:                         
Mortgage-related:                         
Fannie Mae $74
 $2
 $—
  $77
 $—
 $—
 $—
 $(31) $—
 $122
 $1
 $—
Other agency —
 —
 —
  —
 —
 —
 —
 —
 2
 2
 —
 —
Total trading securities $74
 $2
(5)(6) 
$—
  $77
 $—
 $—
 $—
 $(31) $2
 $124
 $1
 $—
                          
Available-for-sale securities:                         
Mortgage-related:                         
Fannie Mae $132
 $—
 $3
  $—
 $—
 $—
 $(1) $—
 $40
 $174
 $—
 $3
Mortgage revenue bonds 364
 1
 (1)  —
 —
 —
 (18) —
 —
 346
 —
 —
Other 326
 (1) (1)  —
 —
 —
 (9) —
 —
 315
 —
 (2)
Total available-for-sale securities $822
 $—
(6)(7) 
$1
  $—
 $—
 $—
 $(28) $—
 $40
 $835
 $—
 $1
                          
Mortgage loans $770
 $14
(5)(6) 
$—
  $—
 $(27) $—
 $(35) $(41) $45
 $726
 $10
 $—
Net derivatives 183
 21
(5) 
—
  —
 —
 —
 (6) —
 —
 198
 15
 —
Long-term debt:                         
Of Fannie Mae:                         
Senior floating (398) (24) —
  —
 —
 —
 —
 —
 —
 (422) (24) —
Of consolidated trusts (102) (3) —
  —
 —
 (2) 6
 20
 (7) (88) (1) —
Total long-term debt $(500) $(27)
(5) 
$—
  $—
 $—
 $(2) $6
 $20
 $(7) $(510) $(25) $—


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, 2019Included 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 agency1  —  —  —  —  —  —  (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 bonds315  (3) 2  74  (74) —  (18) —  —  296  —  4  
Other306  (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) $—  
Net derivatives162  41  
(5)
—  —  —  —  (4) 18  —  217  44  —  
Long-term debt:
Of Fannie Mae:
Senior floating(398) (34) 
(5)
—  —  —  —  —  —  —  (432) (34) —  
Of consolidated trusts(75) 4  
(5)(6)
—  —  —  —  3  —  (15) (83) 4  —  
Total long-term debt$(473) $(30) $—  $—  $—  $—  $3  $—  $(15) $(515) $(30) $—  
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q93101


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, 2018Included 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 securities1  —  —  —  —  —  (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 bonds434  —  —  —  —  —  (9) —  —  425  —  —  
Other342  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  $—  
Net derivatives194  98  
(5)
—  —  —  —  (89) —  —  203  44  —  
Long-term debt:
Of Fannie Mae:
Senior floating(351) (25) 
(5)
—  —  —  —  —  —  —  (376) (25) —  
Of consolidated trusts(201) (3) 
(5)(6)
—  —  —  —  5  49  (74) (224) (1) —  
Total long-term debt$(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 Nine Months Ended September 30, 2019
    
Total Gains (Losses)
(Realized/Unrealized)
               
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30,
2019(4)(5)
 
Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 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, September 30, 2019 
  (Dollars in millions)
Trading securities:                         
Mortgage-related:                         
Fannie Mae $32
 $5
 $—
  $77
 $(14) $—
 $(16) $(31) $69
 $122
 $4
 $—
Other agency —
 —
 —
  —
 —
 —
 —
 —
 2
 2
 —
 —
Private-label and other mortgage securities 1
 —
 —
  —
 —
 —
 (1) —
 —
 —
 —
 —
Total trading securities $33
 $5
(5)(6) 
$—
  $77
 $(14) $—
 $(17) $(31) $71
 $124
 $4
 $—
                          
Available-for-sale securities:                         
Mortgage-related:                         
Fannie Mae $152
 $—
 $9
  $—
 $—
 $—
 $(8) $(103) $124
 $174
 $—
 $8
Alt-A and subprime private-label securities 24
 5
 (5)  —
 (23) —
 (1) —
 —
 —
 —
 —
Mortgage revenue bonds 434
 1
 (2)  —
 (4) —
 (83) —
 —
 346
 —
 (1)
Other 342
 11
 (11)  —
 —
 —
 (26) (2) 1
 315
 —
 (9)
Total available-for-sale securities $952
 $17
(6)(7) 
$(9)  $—
 $(27) $—
 $(118) $(105) $125
 $835
 $—
 $(2)
                          
Mortgage loans $937
 $45
(5)(6) 
$—
  $—
 $(40) $—
 $(105) $(228) $117
 $726
 $28
 $—
Net derivatives 194
 139
(5) 
—
  —
 —
 —
 (126) (9) —
 198
 39
 —
Long-term debt:                         
Of Fannie Mae:                         
Senior floating (351) (71) —
  —
 —
 —
 —
 —
 —
 (422) (71) —
Of consolidated trusts (201) (7) —
  —
 —
 (2) 16
 189
 (83) (88) (3) —
Total long-term debt $(552) $(78)
(5) 
$—
  $—
 $—
 $(2) $16
 $189
 $(83) $(510) $(74) $—
(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) ThirdFirst Quarter 20192020 Form 10-Q94102


Notes to Condensed Consolidated Financial Statements | Fair Value


  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
  For the Three Months Ended September 30, 2018
    
Total Gains (Losses)
(Realized/Unrealized)
               
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30,
2018(4)(5)
 
Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30,
2018(1)
  Balance, June 30, 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, September 30, 2018 
  (Dollars in millions)
Trading securities:                        
Mortgage-related:                        
Fannie Mae $79
 $(3) $—
 $—
 $—
 $—
 $—
 $—
 $—
 $76
 $2
 $—
Private-label and other mortgage securities 1
 —
 —
 —
 —
 —
 —
 —
 —
 1
 —
 —
Total trading securities $80
 $(3)
(5)(6) 

$—
 $—
 $—
 $—
 $—
 $—
 $—
 $77
 $2
 $—
                         
Available-for-sale securities:                        
Mortgage-related:                        
Fannie Mae $204
 $—
 $(1) $—
 $—
 $—
 $(3) $—
 $—
 $200
 $—
 $(1)
Alt-A and subprime private-label securities

 26
 —
 —
 —
 —
 —
 (2) —
 —
 24
 —
 —
Mortgage revenue bonds 506
 1
 (3) —
 (4) —
 (36) —
 —
 464
 —
 (2)
Other 357
 7
 (7) —
 —
 —
 (9) —
 —
 348
 —
 (6)
Total available-for-sale securities $1,093
 $8
(6)(7) 
$(11) $—
 $(4) $—
 $(50) $—
 $—
 $1,036
 $—
 $(9)
                         
Mortgage loans $1,018
 $7
(5)(6) 
$—
 $—
 $—
 $—
 $(47) $(44) $31
 $965
 $2
 $—
Net derivatives 117
 (18)
(5) 
—
 —
 —
 —
 (1) —
 —
 98
 (27) —
Long-term debt:                        
Of Fannie Mae:                        
Senior floating (354) 7
 —
 —
 —
 —
 —
 —
 —
 (347) 7
 —
Of consolidated trusts (319) 2
 —
 —
 —
 —
 4
 172
 (22) (163) —
 —
Total long-term debt $(673) $9
(5) 
$—
 $—
 $—
 $—
 $4
 $172
 $(22) $(510) $7
 $—

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q95

Notes to Condensed Consolidated Financial Statements | Fair Value


  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
  For the Nine Months Ended September 30, 2018
    
Total Gains (Losses)
(Realized/Unrealized)
               
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30,
2018(4)(5)
 
Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 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, September 30, 2018 
  (Dollars in millions)
Trading securities:                        
Mortgage-related:                        
Fannie Mae $971
 $163
 $—
 $1
 $(1,060) $—
 $—
 $—
 $1
 $76
 $2
 $—
Other agency 35
 (1) —
 —
 —
 —
 (1) (33) —
 —
 —
 —
Private-label and other mortgage securities 195
 (85) —
 —
 —
 —
 (5) (104) —
 1
 —
 —
Total trading securities $1,201
 $77
(5)(6) 

$—
 $1
 $(1,060) $—
 $(6) $(137) $1
 $77
 $2
 $—
                         
Available-for-sale securities:                        
Mortgage-related:                        
Fannie Mae $208
 $1
 $(1) $—
 $—
 $—
 $(8) $—
 $—
 $200
 $—
 $(1)
Alt-A and subprime private-label securities

 77
 —
 (45) —
 —
 —
 (4) (4) —
 24
 —
 1
Mortgage revenue bonds 671
 1
 (6) —
 (22) —
 (180) —
 —
 464
 —
 (3)
Other 357
 21
 1
 —
 —
 —
 (31) —
 —
 348
 —
 3
Total available-for-sale securities $1,313
 $23
(6)(7) 
$(51) $—
 $(22) $—
 $(223) $(4) $—
 $1,036
 $—
 $—
                         
Mortgage loans $1,116
 $35
(5)(6) 
$—
 $—
 $—
 $—
 $(174) $(131) $119
 $965
 $17
 $—
Net derivatives 134
 (104)
(5) 
—
 —
 —
 —
 15
 53
 —
 98
 (56) —
Long-term debt:                        
Of Fannie Mae:                        
Senior floating (376) 29
 —
 —
 —
 —
 —
 —
 —
 (347) 29
 —
Of consolidated trusts (582) 9
 —
 —
 —
 1
 35
 503
 (129) (163) (3) —
Total long-term debt $(958) $38
(5) 
$—
 $—
 $—
 $1
 $35
 $503
 $(129) $(510) $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. For the nine months ended September 30, 2018, this 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) Third Quarter 2019 Form 10-Q96

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 September 30, 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)
 $124
 Various        
             
Available-for-sale securities:            
Mortgage-related securities:            
Agency(3)
 $118
 Consensus        
  56
 Various        
Total agency 174
          
Mortgage revenue bonds 232
 Single Vendor Spreads(bps) 22.5
-204.5 70.3
  114
 Various        
Total mortgage revenue bonds 346
          
Other 274
 Discounted Cash Flow Default Rate(%) 0.8 0.8
      Prepayment Speed(%) 8.7 8.7
      Severity(%) 84.0 84.0
      Spreads(bps) 77.5
-300.0 299.4
  41
 Various        
Total other 315
          
Total available-for-sale securities $835
          
Net derivatives $183
 Dealer Mark        
  15
 Various        
Total net derivatives $198
          

Fair Value Measurements as of March 31, 2020
Fair ValueSignificant 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 securities94  Various
Total trading securities$162  
Available-for-sale securities:
Mortgage-related securities:
Agency(3)
$113  Consensus
75  Various
Total agency188  
Mortgage revenue bonds211  Single VendorSpreads (bps)32.5  -376.0  97.5
85  Various
Total mortgage revenue bonds296  
Other248  Discounted Cash FlowSpreads (bps)620.0620.0
36  Various
Total other284  
Total available-for-sale securities$768  
Net derivatives$209  Dealer Mark  
8  Various  
Total net derivatives$217  
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q97103


Notes to Condensed Consolidated Financial Statements | Fair Value
Fair Value Measurements as of December 31, 2019
Fair ValueSignificant 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 agency171  
Mortgage revenue bonds222  Single VendorSpreads(bps)23.0  -205.1  76.1
93  Various
Total mortgage revenue bonds315  
Other267  Discounted Cash FlowSpreads(bps)300.0300.0
39  Various
Total other306  
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.
  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(3)
 $32
 Various        
Private-label securities and other mortgage securities

 1
 Various        
Total trading securities $33
          
             
Available-for-sale securities:            
Mortgage-related securities:            
Agency(3)
 $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)(3)Includes Fannie Mae and Freddie Mac securities.
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.



Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q98104


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 0 Level 1 assets or liabilities held as of September 30, 2019March 31, 2020 or December 31, 20182019 that were measured at fair value on a nonrecurring basis. We held $620$4 million and $91$274 million in Level 2 assets as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, comprised of mortgage loans held for sale and mortgage loans held for investment that were individually impaired. We had 0 Level 2 liabilities that were measured at fair value on a nonrecurring basis as of September 30, 2019 andMarch 31, 2020 or December 31, 2018.2019.
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 TechniquesMarch 31, 2020December 31, 2019
(Dollars in millions)

Nonrecurring fair value measurements:
Mortgage loans held for sale, at lower of cost or fair valueConsensus$1,767  $471  
Single Vendor1,886  605  
Total mortgage loans held for sale, at lower of cost or fair value3,653  1,076  
 Single-family mortgage loans held for investment, at amortized costInternal Model1,491  555  
 Multifamily mortgage loans held for investment, at amortized costAsset Manager Estimate—  24  
Various52  16  
Total multifamily mortgage loans held for investment, at amortized cost52  40  
Acquired property, net:(1)
Single-familyAccepted Offers106  101  
Appraisals356  362  
Walk Forwards189  240  
Internal Model113  164  
Various52  51  
Total single-family816  918  
MultifamilyVarious7  9  
Total nonrecurring assets at fair value$6,019  $2,598  
    
Fair Value Measurements
as of
  Valuation Techniques September 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 $2,067
 $631
  Single Vendor 780
 1,119
  Various 1
 —
Total mortgage loans held for sale, at lower of cost or fair value   2,848
 1,750
       
Single-family mortgage loans held for investment, at amortized cost Internal Model 543
 818
Multifamily mortgage loans held for investment, at amortized cost Asset Manager Estimate 70
 102
  Various 13
 40
Total multifamily mortgage loans held for investment, at amortized cost   83
 142
Acquired property, net:(1)
      
Single-family Accepted Offers 100
 151
  Appraisals 386
 419
  Walk Forwards 190
 181
  Internal Model 152
 219
  Various 32
 41
Total single-family   860
 1,011
Multifamily Various —
 50
Total nonrecurring assets at fair value   $4,334
 $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 a proprietary home price model and third-party valuations (both current and walk forward). Based on the number of properties measured as of September 30, 2019, these methodologies comprised approximately 83% of our valuations, while accepted offers comprised approximately 13% of our valuations. Based on the number of properties measured as of 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 20182019 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 ninethree months ended September 30, 2019.

March 31, 2020.
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q99105


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 September 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 $64,498
 $51,623
 $12,875
 $—
 $—
 $64,498
Federal funds sold and securities purchased under agreements to resell or similar arrangements 23,176
 —
 23,176
 —
 —
 23,176
Trading securities 44,206
 36,016
 8,066
 124
 —
 44,206
Available-for-sale securities 2,690
 —
 1,855
 835
 —
 2,690
Mortgage loans held for sale 12,289
 —
 4,783
 8,672
 —
 13,455
Mortgage loans held for investment, net of allowance for loan losses 3,301,847
 —
 3,241,129
 134,732
 —
 3,375,861
Advances to lenders 6,937
 —
 6,935
 2
 —
 6,937
Derivative assets at fair value 472
 —
 1,909
 226
 (1,663) 472
Guaranty assets and buy-ups 149
 —
 —
 319
 —
 319
Total financial assets $3,456,264
 $87,639
 $3,300,728
 $144,910
 $(1,663) $3,531,614
             
Financial liabilities:            
Federal funds purchased and securities sold under agreements to repurchase $1,125
 $—
 $1,125
 $—
 $—
 $1,125
Short-term debt:            
Of Fannie Mae 35,812
 —
 35,818
 —
 —
 35,818
Long-term debt:            
Of Fannie Mae 177,710
 —
 186,489
 847
 —
 187,336
Of consolidated trusts 3,248,336
 —
 3,273,846
 33,667
 —
 3,307,513
Derivative liabilities at fair value 595
 —
 2,866
 28
 (2,299) 595
Guaranty obligations 161
 —
 —
 102
 —
 102
Total financial liabilities $3,463,739
 $—
 $3,500,144
 $34,644
 $(2,299) $3,532,489


As of March 31, 2020
Carrying ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs
(Level 3)		Netting AdjustmentEstimated 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 arrangements7,775  —  7,775  —  —  7,775  
Trading securities52,941  44,727  8,052  162  —  52,941  
Available-for-sale securities2,289  —  1,521  768  —  2,289  
Mortgage loans held for sale8,103  —  86  8,402  —  8,488  
Mortgage loans held for investment, net of allowance for loan losses3,354,707  —  3,395,898  118,612  —  3,514,510  
Advances to lenders8,971  —  8,969  2  —  8,971  
Derivative assets at fair value2,771  —  4,661  247  (2,137) 2,771  
Guaranty assets and buy-ups127  —  —  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 Mae170,121  —  176,634  2,215  —  178,849  
Of consolidated trusts3,334,098  —  3,440,638  31,767  —  3,472,405  
Derivative liabilities at fair value3,809  —  6,386  30  (2,607) 3,809  
Guaranty obligations141  —  —  99  —  99  
Total financial liabilities$3,566,506  $—  $3,682,046  $34,111  $(2,607) $3,713,550  
Fannie Mae (In conservatorship) ThirdFirst Quarter 20192020 Form 10-Q100106


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 ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs
(Level 3)		Netting AdjustmentEstimated 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 arrangements13,578  —  13,578  —  —  13,578  
Trading securities48,123  39,501  8,576  46  —  48,123  
Available-for-sale securities2,404  —  1,612  792  —  2,404  
Mortgage loans held for sale6,773  —  229  7,054  —  7,283  
Mortgage loans held for investment, net of allowance for loan losses3,327,389  —  3,270,535  127,650  —  3,398,185  
Advances to lenders6,453  —  6,451  2  —  6,453  
Derivative assets at fair value271  —  1,360  199  (1,288) 271  
Guaranty assets and buy-ups142  —  —  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 Mae26,662  —  26,667  —  —  26,667  
Long-term debt:
Of Fannie Mae155,585  —  164,144  401  —  164,545  
Of consolidated trusts3,285,139  —  3,312,763  31,827  —  3,344,590  
Derivative liabilities at fair value435  —  2,092  37  (1,694) 435  
Guaranty obligations154  —  —  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 20182019 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) ThirdFirst Quarter 20192020 Form 10-Q101107


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, 2020December 31, 2019
Loans(1)
Long-Term Debt of Fannie MaeLong-Term Debt of Consolidated Trusts
Loans(1)
Long-Term Debt of Fannie MaeLong-Term Debt of Consolidated Trusts
(Dollars in millions)
Fair value$7,701  $4,752  $22,855  $7,825  $5,687  $21,880  
Unpaid principal balance7,261  4,860  20,219  7,514  5,200  19,653  
 As of
 September 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 $8,183
   $6,041
   $22,719
   $8,922
   $6,826
   $23,753
 
Unpaid principal balance 7,866
   5,541
   20,380
   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 $127 million and $161 million as of September 30, 2019 and December 31, 2018, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2019 and December 31, 2018 was $11 million and $19 million, respectively. Includes loans that are 90 days or more past due with a fair value of $76 million and $102 million as of September 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 September 30, 2019 and December 31, 2018 was $9 million and $14 million, respectively.
Changes in Fair Value under the Fair Value Option Election
We recorded gains of $95$151 million and $334$113 million for the three and nine months ended September 30,March 31, 2020 and March 31, 2019, respectively, and losses of $63 million and $239 million for the three and nine months ended September 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 $245 million and $797$330 million for the three and nine months ended September 30,March 31, 2020 and March 31, 2019, respectively, and gains of $128 million and $629 million for the three and nine months ended September 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.

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q102

Notes to Condensed Consolidated Financial Statements | Commitments and Contingencies


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) First Quarter 2020 Form 10-Q108

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 LitigationsLitigations””) 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, plaintiffsPlaintiffs 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, aplaintiff 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 withApril 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) ThirdFirst Quarter 20192020 Form 10-Q103109


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 RateIncluding 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.
EvaluationSenior 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 DisclosureColumbia. 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.
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) First Quarter 2020 Form 10-Q109

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 Officerapplicable laws and Chief Financial Officer, the effectiveness of ourregulations to maintain controls and procedures, which include disclosure controls and procedures as in effectwell as of September 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 September 30, 2019 or as of the date of filing this report.
Our disclosure controls and procedures were not effective as of September 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 September 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 September 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
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 September 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 September 30, 2019 (“Third Quarter 2019 Form 10-Q”), and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our Third Quarter 2019 Form 10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the Third Quarter 2019 Form 10-Q, and it was not aware of any material misstatements or omissions in the Third Quarter 2019 Form 10-Q and had no objection to our filing the Third 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 June 30, 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.
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. This new system was

Fannie Mae Third Quarter 2019 Form 10-Q104

Controls and Procedures


operating during the third quarter of 2019 and was used to prepare our third quarter 2019 condensed consolidated financial statements included in this report.
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, our First Quarter 2019 Form 10-Q and our Second 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.
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.
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) First Quarter 2020 Form 10-Q109

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
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 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-Q110
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.

Fannie Mae First Quarter 2020 Form 10-Q111
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 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.
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
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 June 30,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, and on May 16, 2019, the court denied defendants’ motion for partial reconsideration.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 withApril 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 September 6, 2019, the 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 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 is insufficient, and the government has requested review of the decision to allow the plaintiffs’ 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.

Fannie Mae Third Quarter 2019 Form 10-Q105

Other Information


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
Fannie Mae First Quarter 2020 Form 10-Q112
Other Information

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 threefour 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 Mae, while the Rafter, Perry Capital and Perry CapitalFairholme 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 CapitalFairholme 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 RafterFairholme 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 DistrictFederal 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 ofAppeals for the defendants in this lawsuit: Citigroup Inc. and Citibank, N.A. The financial impact ofFederal 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 20182019 Form 10-K. This section supplements and updates that discussion but does not repeat all of the risk factors described in our 2018 Form 10-K.discussion. Also refer to “MD&A—Risk Management,” “MD&A—Single-Family Business” and “MD&A—Multifamily Business” in our 20182019 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 20182019 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, weWe face additional risks and uncertainties not currently known to us or that we currently believe are immaterial.
GSEThe COVID-19 outbreak has adversely affected our business, financial results and Conservatorship Risk
The future of our company is uncertain.
There continues to be significant uncertainty regarding the future of our company, including how long the companyfinancial condition, and we expect that it will continue to exist in its current form, the extent of our role in the market, how long we will be in conservatorship, what form we will have, 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.do so. The conservatorship is indefinite in duration and the timing, conditions and likelihood of our emerging from conservatorship are uncertain. Our conservatorship could terminate through a receivership. Terminationadverse impact of the conservatorship, other than in connection with a receivership, requires Treasury’s consent under the senior preferred stock purchase agreement.
On September 5, 2019, Treasury released its plan to reform the housing finance system. The Treasury plan, which is described in “MD&A—Legislation and Regulation—Housing Finance Reform,” 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. For example:
Some of the recommendations in the Treasury plan, if implemented, could significantly restrict our business activities, increase the competition we face, affect the credit risk of our mortgage acquisitions, affect our pricing, impose additional requirementsCOVID-19 outbreak on our business, increasefinancial 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 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 costs or have other impacts thatbusiness 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 level of U.S. economic activity.
We expect the impact of the COVID-19 outbreak to continue to negatively affect our financial results and condition. For example, the plan includes recommendations that we and Freddie Mac should each be requiredcontribute to operate a cash window for smaller lenders, should be prohibited from offering volume-based pricing discounts or similar incentives, and should be required to maintain a nationwide presence.
The Treasury plan also contains recommendations for administrative and legislative reforms to limit our single-family activities and restrict our multifamily footprint. The plan recommends that FHFA assess whether each of our current single-family products, services and other activities, including our support for cash-out refinancings, investor loans,
and higher principal balance loans, should continue to benefit from support under our senior preferred stock purchase agreement. It also recommends that FHFA and Treasury consider amendments to the senior preferred stock purchase agreement to further limit the type and volume of multifamily loans we guarantee.
Regulatory capital requirements that become applicable to us as contemplated by the Treasury plan, depending on their terms, may substantially constrain our business and activities or adversely affect our financial results. For example, if the final capital rule requires us to hold more capitallower net income in 2020 than FHFA’s proposed capital framework, we may be required to increase our pricing or take other actions to maintain appropriate risk-adjusted returns, which may in turn adversely affect our competitive position and financial results. This effect may be more pronounced in a stressed economic environment.
While the Treasury plan contemplates FHFA ending our conservatorship, implementing the plan will take time and a great deal of effort, and a number of factors may keep us from meeting the preconditions for exiting conservatorship, otherwise prevent our exiting conservatorship, or delay any exit from conservatorship as contemplated under the plan, including the following:
◦we may be unable to retain or raise sufficient capital;
◦we may be unable to meet additional requirements FHFA determines are necessary for us to operate in a safe and sound manner;
◦possible 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;
◦legislation may pass that prevents the Treasury plan from being implemented;
◦our exit from conservatorship may be delayed because we need to address operational challenges or the loss of regulatory exemptions or protections resulting from an exit from conservatorship.
The Treasury plan indicates one potential approach to recapitalizing us would be to place us in receivership to facilitate a restructuring of our capital structure. In the event of such a receivership, existing holders of our preferred and common stock would2019. We could have no further ownership interest in us.
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.
In addition to or in connection with the recommendations set forth in the Treasury plan, Congress, FHFA or other agencies may consider legislation, regulation or 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 our results of operations or financial condition. We cannot predict the timing or final content of housing finance reform legislation or other legislation, regulations or administrative actions related to our activities, nor can we predict the impact any such enacted legislation, regulations or administrative actions would have on our business and financial condition.
We may not have sufficient capital reserves to avoid a net worth deficit if we experience comprehensive lossesloss in the future. If weone or more future periods or possibly could have a net worth deficit inthat requires a future quarter, we will be required to draw funds from Treasury to avoid being placed into receivership.
The recently amended dividend provisions of the senior preferred stock permit us to retain only up to $25 billion as capital reserves, provided our conservator directs us to declare and pay senior preferred stock dividends that become payable in the future. As of September 30, 2019, our net worth was only $10.3 billion. As a result, we may not have sufficient capital reserves to avoid a net worth deficit if we have comprehensive losses in the future.
For any quarter for which we have a net worth deficit, we would need to draw funds from Treasury under the senior preferred stock purchase agreementagreement. Our forecasts and expectations relating to avoid being placed into receivership. Asthe impact of the dateCOVID-19 outbreak are subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations. It is difficult to assess or predict the impact of this filing,unprecedented event on our business, financial results or financial condition. Factors that will impact the maximum amountextent to which the COVID-19 outbreak affects our business, financial results and financial condition include: the duration, spread and severity of remaining funding under the agreementoutbreak; 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 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. While we are unable to predict the future course of these events or their longer-term effects on our business, key areas we have identified where the
Fannie Mae First Quarter 2020 Form 10-Q113
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COVID-19 outbreak is $113.9 billion. negatively affecting or may negatively affect our business, financial results and 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 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 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 ability of some of our borrowers to make payments on their loans.
If we werea large number of borrowers cannot repay the amounts owed at the end of their forbearance plans or over time, or fail to drawqualify for modifications, this could result in significantly higher defaults on the mortgage loans in our guaranty book of business. Some states and 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 funds from Treasury under the agreement with respectprotections, depending on their scope and whether and to what extent they apply to our business, could contribute to a future period,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 amount of remaining funding undereconomic dislocation resulting from the agreementCOVID-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 be reduced byincrease the amount of our draw. Dividend payments we makeloss in the event a borrower defaults on their loan. Lower home prices and multifamily property valuations would likely also lead to Treasury do not restore or increasedeterioration in loan performance and changes in borrower behavior, and potentially prohibit some borrowers from being able to refinance their loan. The magnitude of the amountimpact would likely vary significantly across geographic regions and based on the credit characteristics of funding available to us under the agreement. Accordingly, if we experience multiple quartersloans.
The COVID-19 outbreak is also affecting the credit quality of net worth deficits,our new loan acquisitions. Some of the amount of remaining funding available under the senior preferred stock purchase agreement could be significantly reduced from its current level.
Our business and results of operations may be materially adversely affected ifnew single-family loans we are unableacquiring beginning May 1, 2020 are already receiving payment forbearance. In addition, due to retainCARES 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 recruit well-qualified senior executivesbusiness resiliency risk. As of April 29, 2020, according to the U.S. Centers for Disease Control and other employees. The conservatorship,Prevention, there were more than 1 million reported cases of COVID-19 in the uncertainty of our futureUnited States, and limitations on our executive and employee compensation put us at a disadvantage compared to many other companies in attracting and retaining these employees.
Our business processes are highly dependent on the talents and efforts of our senior executives and other employees. The conservatorship, the uncertainty of our future and limitations on executive and employee compensation have had, and are likelypublic health experts expect this number to continue to increase. While we have an adverse effect onsuccession plans in place, they may not be effective. If a significant number of our ability to retain and recruit well-qualified executives andor other employees. Turnover in key management positions and challenges in integrating new managementemployees, or their family members for whom they provide care, contract COVID-19 during the same time period, it could harmmaterially 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

Fannie Mae Third Quarter 2019 Form 10-Q106

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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, and may require us to make changes to our executive compensation program. For example:
◦In August 2019, FHFA directed us, for so long as we are in conservatorship, to:
▪increase the mandatory deferral period for at-risk deferred salary received by senior vice presidents and above from one year to two years, effective January 1, 2022 for executives hired before January 1, 2020 and effective January 1, 2020 for executives hired on or after January 1, 2020; and
▪limit base salaries for all of our employees to $600,000. (We do not currently pay any of our employees, including our named executive officers, a base salary of more than $600,000.)
◦In September 2019, FHFA directed us to submit for conservator decision any compensation arrangement for a newly hired employee where the proposed total target direct compensation is $600,000 or above, or any increase in total target direct compensation for an existing employee where the proposed total target direct compensation is $600,000 or above. This directive became effective in October 2019 and continues for so long as we are in conservatorship.
The terms of our senior preferred stock purchase agreement with Treasury contain specified restrictions relating to compensation, including a prohibition on selling or issuing equity securities without Treasury’s prior written consent, which effectively eliminates our ability to offer equity-based compensation to our employees.
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.
Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase agreement and could be significantly impacted by Treasury’s September 2019 Housing Reform Plan.
We are currently under the controlSince mid-March, we have required nearly all of our conservator, FHFA,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 we do not know whenclosures may be extended in whole or how the conservatorship will terminate. As conservator, FHFA can direct us to enter into contractsin part for several weeks or enter into contractsmonths. The strain on our behalf,workforce and generally hasour business operations caused by this shift in the power to transfer or sell any of our assets or liabilities. In addition, our directors have no fiduciary duties to any person or entity except to the conservator. Accordingly, our directors are not obligated to consider the interests of the company, the holders of our equity or debt securities, or the holders of Fannie Mae MBSwork and home environment may result in making or approving a decision unless specifically directed to do so by the conservator.
We are subject to significant restrictionsbusiness interruptions, significantly reduced productivity and other adverse impacts on our business activities during conservatorship. We may be prevented byoperations. While our conservator from engaging in business activitiestechnological systems to date have continued to function with our workforce working remotely, this telework arrangement increases the risk of technological or transactionscybersecurity incidents that we believe would benefitnegatively affect our business operations. This telework arrangement, as well as the risk that a significant number of employees or their family members could contract COVID-19 and financial results. For example, because FHFA must approve changes to the national loan level price adjustments we charge and can direct us to make other changes to our guaranty fee pricing, our ability to address changing market conditions, pursue certain strategic objectives, or manage the mix of loans lenders choose to deliver to us is constrained. We publish national risk-based loan level price adjustment grids that specify the additional cash fees we charge at the time we acquire a loan basedreliance on the credit characteristics of the loan. These fees allow us to price appropriatelythird parties for the credit risk we assume in providing our guaranty on the loans. We do not have the ability to implement changes to these pricing grids without the approval of FHFA. If

Fannie Mae Third Quarter 2019 Form 10-Q107

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the mix of our single-family loan acquisitions changes, and FHFA does not approve requested changes to our pricing grids in response to these changes, itsome functions, also could adversely affect our financial results and condition. In addition, if FHFA directs us to change our pricing in any manner—including increases or decreases in our base guaranty fees or our loan level price adjustments—it could result in a decrease in our guaranty fee revenues in future periods, a decrease in our single-family business volume or a negative impact on the credit risk profile of our new single-family acquisitions, any of which could adversely affect our financial results and condition.
Because we are under the control of our conservator, our business objectives may not be consistent with the investment objectives of our investors. We are devoting significant resources to meeting FHFA’s goals for our conservatorship and expect to continue to do so. We may be required by our conservator to engage in activities that are operationally difficult, costly to implement or unprofitable, or that may adversely affect our financial results or the credit risk profile of our book of business. In addition, actions we take to meet FHFA’s strategic goals and objectives for our conservatorship could adversely affect our financial results. FHFA has changed our business objectives significantly since we entered conservatorship and could make additional changes at any time, any of which could materially affect our results of operations and financial condition.
Even if we are released from conservatorship, we remain subject to the terms of the senior preferred stock purchase agreement, senior preferred stock and warrant, which can only be canceled or modified with the consent of Treasury. Moreover, restrictions on our business and activities imposed by the terms of the senior preferred stock and the senior preferred stock purchase agreement may be applied to us through regulation or legislation even if we cease to be subject to these agreements and instruments. The senior preferred stock purchase agreement with Treasury includes a number of covenants that significantly restrict our business activities. We cannot, without the prior written consent of Treasury: pay dividends (except on the senior preferred stock); sell, issue, purchase or redeem Fannie Mae equity securities; sell, transfer, lease or otherwise dispose of assets except in specified situations; engage in transactions with affiliates other than on arm’s-length terms or in the ordinary course of business; issue subordinated debt; incur indebtedness that would result in our aggregate indebtedness exceeding $300 billion; or seek or permit the termination of our conservatorship (other than in connection with receivership). In deciding whether to consent to any request for approval it receives from us under the agreement, Treasury has the right to withhold its consent for any reason and is not required by the agreement to consider any particular factors, including whether or not management believes that the transaction would benefit the company. Pursuant to the senior preferred stock purchase agreement, the amount of mortgage assets that we may own is limited to $250 billion. In addition, FHFA has directed that we further cap our mortgage assets at $225 billion.
Given FHFA’s control over Fannie Mae as our conservator and its authority as our regulator, and given the restrictions and obligations that apply to Fannie Mae as a result of our senior preferred stock purchase agreement with Treasury, the senior preferred stock and the warrant, possible future changes in leadership at FHFA or the Administration could result in significant changes in our goals, our business and our financial results.
As described in “MD&A—Legislation and Regulation” in this report, Treasury recently released its plan to reform the housing finance system. The Treasury plan includes recommendations for administrative reforms that would impose additional restrictions on our business activities, including further limits on the size of our retained mortgage portfolio and potential ​limits on our current products, services, and other single-family activities and on our multifamily footprint. Our letter agreement with Treasury of September 27, 2019, contemplates the negotiation and execution of an amendment to the senior preferred stock purchase agreement to adopt covenants broadly consistent with these recommendations. Limitations on our business activities could restrict our potential sources of revenue, impose additional costs on us, negatively impact our ability to compete, or otherwise negatively affect our business, results and financial condition.
Actions taken by the conservator, the restrictions set forth in the senior preferred stock purchase agreement, including those contemplated by the letter agreement with Treasury, and some of the recommendations in the Treasury plan, if implemented, could adversely affect our business, results of operations, financial condition, liquidity and net worth.
A number of lawsuits have been filed against the U.S. government relating to the senior preferred stock purchase agreement and the conservatorship. See “Note 13, Commitments and Contingencies” and “Legal Proceedings” for a description of these lawsuits. These lawsuits, and actions Treasury or FHFA may take in response to these lawsuits, could have a material impact on our business.
We may undertake efforts that adversely affect our business, results of operations, financial condition, liquidity and net worth.
In conservatorship our business has not been managed with a strategy to maximize shareholder returns while fulfilling our mission. In pursuit of FHFA’s previous strategic goals for our conservatorship, which are described in our 2018 Form 10-K in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Housing Finance Reform—Conservator Developments and Strategic Goals,” we have been taking a variety of actions that could adversely affect our economic returns, possibly significantly, such as modifying loans to help struggling borrowers; expanding our underwriting and eligibility requirements to increase access to mortgage credit; increasing our use of credit risk transfer transactions, which effectively reduces the guaranty fee income we retain on the covered loans; and issuing structured securities backed by Freddie Mac-issued securities. On October 28, 2019, FHFA released new strategic goals and key priorities for our conservatorship, which are discussed in “MD&A—Legislation and Regulation—New FHFA Strategic Plan for Conservatorships and 2020 Scorecard.” Efforts we take in support of our conservator’s new or future goals may have short- and long-term adverse effects on our business and competitive position, results of operations, financial condition, liquidity and net worth.

Fannie Mae Third Quarter 2019 Form 10-Q108

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Other agencies of the U.S. government or Congress also may ask us to take actions to support the housing and mortgage markets or in support of other goals. These actions may adversely affect our financial results and condition. For example, in December 2011 Congress enacted the TCCA under which, at the direction of FHFA, we increased the guaranty fee on all single-family residential mortgages delivered to us by 10 basis points effective April 1, 2012. The revenue generated by this fee increase is paid to Treasury and helps offset the cost of a two-month extension of the payroll tax cut in 2012.
We are also required by the GSE Act to undertake efforts in support of the housing market that could adversely affect our financial results and condition. For example, we are subject to housing goals under the GSE Act that require that a portion of the mortgage loans we acquire must be for low- and very low-income families, families in low-income census tracts and moderate-income families in minority census tracts or designated disaster areas. In addition, in December 2016, FHFA issued a final rule to implement our new duty to serve very low-, low- and moderate-income families in three underserved markets: manufactured housing, affordable housing preservation and rural areas. We may take actions to meet our housing goals and duty to serve obligations that could adversely affect our profitability. For example, we may acquire loans that offer lower expected returns on our investment than our other loan acquisitions and that may potentially increase our credit losses and credit-related expenses. If we do not meet our housing goals or duty to serve requirements, and FHFA finds that the goals or requirements were feasible, we may become subject to a housing plan that could require us to take additional steps that could have an adverse effect on our results of operations and financial condition. The potential penalties for failure to comply with housing plan requirements include a cease-and-desist order and civil money penalties. See “Business—Charter Act and Regulation—GSE Act and Other Regulation” in our 2018 Form 10-K for more information on our housing goals and duty to serve underserved markets.
The conservatorship and agreements with Treasury have had, and will continue to have, a material adverse effect on our common and preferred shareholders.
The material adverse effects of the conservatorship and our agreements with Treasury include the following:
No voting rights during conservatorship. The rights and powers of our shareholders are suspended during conservatorship. During conservatorship, our common shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates this authority to them.
No dividends to common or preferred shareholders, other than to Treasury. Our conservator announced in September 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, while we are in conservatorship. In addition, under the terms of the senior preferred stock purchase agreement, dividends may not be paid to common or preferred shareholders (other than on the senior preferred stock) without the prior written consent of Treasury, regardless of whether we are in conservatorship.
Our profits directly increase the liquidation preference on Treasury’s senior preferred stock and, once they exceed our capital reserve amount, will be payable to Treasury as dividends. The senior preferred stock ranks senior to our common stock and all other series of our preferred stock, as well as any capital stock we issue in the future, as to both dividends and distributions upon liquidation. Accordingly, if we are liquidated, the senior preferred stock is entitled to its then-current liquidation preference (which includes any accumulated but unpaid dividends), before any distribution is made to the holders of our common stock or other preferred stock. The liquidation preference on the senior preferred stock was $127.2 billion as of September 30, 2019. Effective September 30, 2019, the liquidation preference of the senior preferred stock increases at the end of each quarter by an amount equal to the increase in our net worth, if any, during the immediately prior fiscal quarter, until such time as the liquidation preference has increased by $22 billion. The liquidation preference would increase further if we draw on Treasury’s funding commitment with respect to any future quarters or if we do not pay dividends owed on the senior preferred stock. If we are liquidated, it is uncertain that there would be sufficient funds remaining after payment of amounts to our creditors and to Treasury as holder of the senior preferred stock to make any distribution to holders of our common stock and other preferred stock.
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 the $25 billion capital reserve amount.
As a result, our net income is not available to common shareholders or preferred shareholders other than Treasury as holder of the senior preferred stock.
Exercise of the Treasury warrant would substantially dilute the investment of current shareholders. If Treasury exercises its warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis, the ownership interest in the company of our then-existing common shareholders will be substantially diluted, and we would thereafter have a controlling shareholder.
No longer managed for the benefit of shareholders. Because we are in conservatorship, we are no longer managed with a strategy to maximize shareholder returns.
The senior preferred stock purchase agreement, senior preferred stock and warrant can only be canceled or modified with the consent of Treasury. For additional description of the conservatorship and our agreements with Treasury, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2018 Form 10-K and “MD&A—Legislation and Regulation—Housing Finance Reform” in this report.

Fannie Mae Third Quarter 2019 Form 10-Q109

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The issuance of UMBS and structured securities backed by Freddie Mac-issued securities may have an adverse effect on the liquidity or market value of our MBS. The issuance of UMBS and our reliance on the common securitization platform also increase 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. The issuance of UMBS and use of 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 pressure on our single-family guaranty fee pricing.
Uncertainty in connection with UMBS could contribute to declines in the liquidity or market value of Fannie Mae MBS or otherwise adversely affect our financial condition or results of operations. FHFA 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 stop accepting 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 any of these entities were to cease its 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 UMBS and resecuritizations of each other’s securities would be sustained.
The Single Security Initiative has also resulted in increased credit risk exposure and operational risk exposure to Freddie Mac. 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 securities 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, any failure by Freddie Mac to meet its obligations under the terms of its securities that back structured securities we issue could have a material adverse effect on our earnings and financial condition, and 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 implementation of the Single Security Initiative 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 affect 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 CSS to maintain effective controls and procedures, which could result in material errors in our reported results or disclosures that are not complete or accurate. See “Risk Factors” in our 2018 Form 10-K for a discussion of other operational risks associated with our implementation of the Single Security Initiative and related internal infrastructure upgrades.

Fannie Mae First Quarter 2020 Form 10-Q114
Fannie Mae Third Quarter 2019 Form 10-Q110Other Information

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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.

Credit Risk
We may suffer losses ifFor 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 unablealso required to obtainadvance 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 flood insurance, ifmultifamily borrowers do not pay their claims under insurance policies are not paid, or if they suffer property damagemortgages as a result of a hazard for which we do not require insurance.
In general, we require borrowers to obtain property insurance to cover the risk of damage to their homes resulting from hazards such as fire, wind and, for properties in a Special Flood Hazard Area, flooding. For flood insurance, borrowers generally rely oneconomic dislocation caused by the National Flood Insurance Program (“NFIP”), which is due to expire on November 21, 2019. While Congress has passed a series of short-term extensions of NFIP since late 2017, if Congress does not extend or re-authorize the program again, the Federal Emergency Management AgencyCOVID-19 outbreak, our servicers may not have sufficient fundsliquidity to pay claimsadvance 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 below for flood damage,a description of 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 borrowersthe mortgage industry. We may not be able to renewtransfer 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 non-depository servicers are higher than the risks associated with our depository servicers, as our non-depository servicers typically have lower financial strength, liquidity and operational capacity than our depository servicers, which may negatively affect their flood insurance coverageability to fully satisfy their financial obligations or obtain new policies throughto properly service the NFIP. In addition, the maximum limit of coverage available under NFIP for a single-family residential property is limitedloans on our behalf. The actions we have taken to $250,000, whichmitigate our credit risk exposure to mortgage servicers may not be sufficient to cover all losses. If borrowers are unableprevent us from experiencing significant financial losses or business interruptions in the event they cannot fulfill their obligations to obtain property or flood insurance and suffer property damage, if their claims under insurance policies are not paid, or if they suffer property damage as a result of a hazard for which we do not require insurance, such as earthquake damage or flood damage on a property located outside a special flood hazard area, they may not pay their mortgage loans, which would negatively impact our credit losses and credit-related expenses.us.
Market and Industry Risk
Uncertainty relating toAs noted above, 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,economic dislocation caused by 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.
Efforts are underway to identify and transition to a set of alternative reference rates. The transition mayCOVID-19 outbreak could lead to disruption, including yield volatilitysignificantly higher defaults on LIBOR-based securities. The Federal Reserve convened a group of private-market participants, known as the Alternative Reference Rate Committee (the “ARRC”), to identify a set of alternative U.S. dollar reference interest rates and an adoption plan for those alternative rates. We are a voting member of the ARRC and participate in its working groups. In 2017, the ARRC recommended an alternative reference rate referred to as the Secured Overnight Financing 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, and SOFR may be subject to direct influence by activities of the Federal Reserve and the Federal Reserve Bank of New York in ways that other rates may not be. For example, at the direction of the Federal Reserve, in late September 2019, the Federal Reserve Bank of New York began conducting a series of overnight and term repurchase agreement (“repo”) operations to help maintain the federal funds rate within a target range. In October 2019, the Federal Reserve Bank of New York announced that this activity would continue at least through January 2020. These activities directly impact prevailing SOFR rates.
We continue to analyze potential risks associated with the LIBOR transition, including financial, operational, legal, reputational and compliance risks. We have created an enterprise program office focused on this transition, including identifying and monitoring our exposure to LIBOR, updating our infrastructure (including models and systems) to prepare for the transition, and monitoring the market adoption of alternative reference rates and industry-standard contractual fallback provisions.
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 howmortgage loans. Although we strengthened the financial services industry will address the discontinuanceand 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 LIBOR in financial instruments. This uncertaintymortgage defaults 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,affect these counterparties' ability to amend those terms,fully meet their payment obligations to us.
•Increased liquidity risk. As described in “MD&A—Liquidity and Capital Management,” while 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 betweenconditions improved in April, adverse 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 resultconditions 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 guarantee that reference LIBOR, and increase the costs of or affectMarch limited our ability to effectively use derivative instrumentsissue debt with a maturity greater than two years. If market conditions limit our ability to manage interest rate risk.
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 cannot anticipate how long it will takeexpect our debt funding needs to develop the systemsincrease in future periods, as significantly higher rates of loan delinquencies and processes necessary to adopt SOFR oran increase in forbearances and other benchmark replacements, which may delay and contribute to uncertainty and volatility surrounding the LIBOR transition.

Fannie Mae Third Quarter 2019 Form 10-Q111

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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.
Our business and financial results are affected by general economic conditions, particularly home prices and employment trends, and a deterioration of economic conditions or the financial markets may materially adversely affect our results of operations, net worth and financial condition.
Our business is significantly affectedloss mitigation activity driven by the statusCOVID-19 outbreak require us to fund greater amounts of the U.S. economy, particularly home pricesprincipal, interest, tax and employment trends. A prolonged periodinsurance 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 resultsdelinquent 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 orIf 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 changeadversely 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 loweramounts sufficient to operate our business volumes or otherwise adversely affectand meet our resultsobligations, it likely would interfere with the operation of operations, net worth and financial condition.
Our business volume is affected by the rate 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 reduce our net interest income. Even if we were able to increase our share of the secondary mortgage market, it may not be sufficient to make up for a decline in the rate of growth in mortgage originations.
Mortgage interest rates also affect our business volume. Rising interest rates generally result in fewer mortgage originations, particularly for refinances. An increase in interest rates, particularly if the increase is sudden and steep, could significantly reduce our business volume. Significant reductions in our business volume could adversely affect our results of operations and financial condition.
The cap on mortgage interest deductions, the increase in the amount of the standard deduction and other changes in tax laws may also adversely affect housing demand, home prices or other housing 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 the Federal Reserve’s portfolio could adversely affect our business, results of operations, financial condition, liquidity and net worth.
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 to reduce its holdings of Treasury securities and mortgage-backed securities. While the Federal Reserve stopped the run-off of U.S. Treasury securities from its portfolio in September 2019, it continued to allow its mortgage-backed securities to run-off, replacing the principal balance with U.S. Treasuries and thus holding the portfolio constant. 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.
Legal, Regulatory and Other Risks
Regulatory changes in the financial services industry may negatively impact our business.
Changes in the regulation of the financial services industry are affecting and are expected to continue to affect many aspects of our business. Examples of regulatory changes that have affected us or may affect us in the future include: rules requiring the clearing of certain derivatives transactions and margin and capital rules for uncleared derivative trades, which impose additional costs on us; and the development of single-counterparty credit limit regulations, which could cause our customers to change their business practices.

Fannie Mae Third Quarter 2019 Form 10-Q112

Other Information


Our business and results may be adversely affected by changes in the CFPB’s “ability-to-repay” rule to replace the “qualified mortgage patch,” pursuant to which a special class of conventional mortgage loans are considered “qualified mortgages” under the Truth in Lending Act if they (1) meet certain qualified mortgage requirements generally and (2) are eligible for sale to Fannie Mae or Freddie Mac. The qualified mortgage patch is scheduled to expire on the earlier of January 10, 2021 or when Fannie Mae and Freddie Mac cease to be in conservatorship or receivership. In July 2019, the CFPB issued an advance notice of proposed rulemaking relating to the expiration of the qualified mortgage patch, and in September 2019, in the Treasury plan, Treasury recommended that the CFPB establish a bright-line safe harbor to replace the qualified mortgage patch. Although the ability-to-repay rule does not apply directly to us, the rule applies to the lenders from which we acquire single-family mortgage loans. And because FHFA has directed that Fannie Mae and Freddie Mac shall only acquire loans that are qualified mortgages under the ability-to-repay rule, changes in the rule may reduce the number of loans that are eligible for delivery to us, and may increase the competition we face for the acquisition and guaranty of such loans.
Changes to financial regulations could affect our business directly or indirectly if they affect our customers and counterparties. Changes in regulations applicable to U.S. banks could also affect our business, as U.S. banks purchase a large amount of our debt securities and MBS. New or revised liquidity or capital requirements applicable to U.S. banks could materially affect demand by those banks for our debt securities and MBS in the future.
The actions of Treasury, the Commodity Futures Trading Commission, the SEC, the Federal Deposit Insurance Corporation, the Federal Reserve and international central banking authorities directly or indirectly impact financial institutions’ cost of funds for lending, capital-raising and investment activities, which could increase our borrowing costs or make borrowing more difficult for us. Changes in monetary policy are beyond our control and difficult to anticipate.
Overall, these legislative and regulatory changes could affect us in substantial and unforeseeable ways and could have a material adverse effect on our business,liquidity, results of operations, financial condition liquidity and net 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 fund our operations could be eliminated or significantly impaired. In this event, our alternative source of liquidity, our other investments portfolio, may not be sufficient to meet our liquidity needs.
Legislative, regulatory•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 first quarter of 2020 resulted in 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 judicial actionsintensifies, 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-Q115
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.
•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 financial results or require that we reduce the amount or type of loans we acquire, and also could result in 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 portfolio, which has been a way for 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 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. Federal, state and local governments have taken many actions that have or that we expect will adversely affect our financial results, such as the stay-at-home orders currently in place across the country and the loan forbearance requirements of operations, financial conditionthe CARES Act. The U.S. Congress, Treasury, the Federal Reserve, FHFA or net worth.
Legislative, regulatory or judicial actions at the federal,other national, state or local level could negatively impact our business, results of operations, financial condition, liquiditygovernment agencies or net worth. Legislative, regulatory or judicial actions could affect us in a number of ways, including by imposing significantlegislatures may take 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 limiting our ability to determine the roles and responsibilities of our executivessteps in response to evolving business needs.
Designation as a systemically important financial institution. The Senate Committee 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.
Legislative or regulatory changesCOVID-19 outbreak that expand our, or our servicers’, responsibility and liability for securing, maintaining or otherwise overseeing vacant properties prior to foreclosure, which could increase our costs.
State laws and court decisions granting new or expanded priority rights over our mortgages 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 business, financial results and financial condition, such as expanding or extending our obligations to help borrowers, renters or counterparties affected by the outbreak or expanding the amounts and types of businesses that are shut down.
•Increased uncertainty relating to our exit from conservatorship. The COVID-19 outbreak could delay or prevent our exit from conservatorship, particularly as it may delay our ability to recoverbuild and raise sufficient capital to exit conservatorship. In addition, as we, FHFA and Treasury focus on responding to the COVID-19 outbreak, it may reduce our losses on affected loans.and their capacity to work toward meeting other preconditions for exiting conservatorship.
State and local laws and regulations expanding rent control and other tenant protections, such as New York’s Housing Stability and Tenant Protection Act•Increased risk of 2019, whichmortgage fraud. In response to the COVID-19 outbreak, we are offering certain temporary flexibilities relating to our Single-Family Selling Guide requirements. This could negatively affectincrease the housing market in the applicable areas and increase our credit risk onof mortgage fraud relating to the loans we guarantee in those areas.
acquire during the COVID-19 outbreak. In addition, the 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 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. We describe manyborrower credit risk, counterparty credit risk, economic conditions, market risk, liquidity risk, operational risk, model risk and other types of these actions and proceedings in these risk factors and inrisks described above, see “Risk Factors” in our 20182019 Form 10-K.
Fannie Mae First Quarter 2020 Form 10-Q116
Other Information

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 September 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 thirdfirst quarter of 2019.2020.
Dividend Restrictions
Our payment of dividends is subject to the following restrictions:
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

Fannie Mae Third Quarter 2019 Form 10-Q113

Other Information


quarter exceeds $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 20182019 Form 10-K and “MD&A—Legislation and Regulation—Letter Agreement with Treasury” in this report.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-Q117
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 Third Quarter 2019 Form 10-Q114

Other Information


Item 6.  Exhibits
The exhibits listed below are being filed or furnished with or incorporated by reference into this report.
ItemDescription
3.1
3.2
4.131.1
4.2
Letter Agreement between the United States Department of the Treasury and the Federal National Mortgage Association, acting through the Federal Housing Finance Agency as its duly appointed conservator, dated September 27, 2019 (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report on Form 8-K, filed October 1, 2019)
10.1
Letter Agreement between the United States Department of the Treasury and the Federal National Mortgage Association, acting through the Federal Housing Finance Agency as its duly appointed conservator, dated September 27, 2019 (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report on Form 8-K, filed October 1, 2019)

31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)
31.2
32.1
32.2
101. INSInline 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. SCHInline XBRL Taxonomy Extension Schema*
101. CALInline XBRL Taxonomy Extension Calculation*
101. DEFInline XBRL Taxonomy Extension Definition*
101. LABInline XBRL Taxonomy Extension Label*
101. PREInline XBRL Taxonomy Extension Presentation*
104Cover 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-QThe financial information contained in these XBRL documents is unaudited.118


Fannie Mae Third Quarter 2019 Form 10-Q115Signatures


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: October 31, 2019

May 1, 2020
By:
/s/ Celeste M. Brown

Celeste M. Brown
Executive Vice President and
Chief Financial Officer

Date: October 31, 2019

May 1, 2020
Fannie Mae ThirdFirst Quarter 20192020 Form 10-Q116119


























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