Guarantees and Other Off-Balance Sheet Credit Exposures

9 Months Ended

Sep. 30, 2020

Guarantees and Other Off-Balance Sheet Credit Exposures

We generate revenue through our guarantee activities by agreeing to absorb the credit risk associated with certain financial instruments that are owned or held by third parties. In exchange for providing this guarantee, we generally receive an ongoing guarantee fee that is commensurate with the risks assumed and that will, over the long-term, provide us with cash flows that are expected to exceed the credit-related and administrative expenses of the underlying financial instruments. The profitability of our guarantee activities may vary and will be dependent on our guarantee fee and the actual credit performance of the underlying financial instruments that we have guaranteed.

The table below shows our maximum exposure, recognized liability, and maximum remaining term of our guarantees to non-consolidated VIEs and other third parties. This table does not include certain of our unrecognized guarantees, such as guarantees to consolidated VIEs or to resecuritization trusts that do not expose us to incremental credit risk. The maximum exposure disclosed in the table is not representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of proceeds from related collateral liquidation, including possible recoveries under credit enhancements. See Note 6 for additional information on our credit enhancements.

Table 5.1 - Financial Guarantees



	September 30, 2020					December 31, 2019
(Dollars in millions, terms in years)	Maximum Exposure⁽¹⁾		Recognized Liability⁽²⁾		Maximum Remaining Term	Maximum Exposure⁽¹⁾		Recognized Liability⁽²⁾		Maximum Remaining Term
Single-family:
Securitization activity guarantees		$29,039		$395	39		$26,818		$361	40
Other mortgage-related guarantees	9,140		194		30	7,492		182		30
Total single-family		$38,179		$589			$34,310		$543
Multifamily:
Securitization activity guarantees		$273,246		$3,660	39		$252,167		$3,333	39
Other mortgage-related guarantees	11,037		446		34	9,989		416		34
Total multifamily		$284,283		$4,106			$262,156		$3,749
Other guarantees measured at fair value		$39,820		$669	30		$24,965		$253	30
Fannie Mae securities backing Freddie Mac resecuritization products	69,010		—		30	27,408		—		30

(1)

The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of proceeds from related collateral liquidation, including possible recoveries under credit enhancements. For other guarantees measured at fair value, this amount represents the notional value if it relates to our market value guarantees or guarantees of third-party derivative instruments or the UPB if it relates to a guarantee of a mortgage-related asset. For certain of our other guarantees measured at fair value, our exposure may be unlimited and, as a result, the notional value is included. We generally reduce our exposure to these guarantees with unlimited exposure through separate contracts with third parties.

(2)

For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our condensed consolidated balance sheets and excludes our allowance for credit losses on off-balance sheet credit exposures. For other guarantees measured at fair value, this amount represents the fair value of the contract.

The tables below show the payment status of the mortgage loans underlying our guarantees that are not measured at fair value.

Table 5.2 – UPB of Loans Underlying Our Guarantees by Payment Status



	September 30, 2020
(In millions)	Current		One Month Past Due		Two Months Past Due		Three Months or More Past Due, or in Foreclosure		Total⁽¹⁾
Single-family		$36,114		$1,830		$1,040		$4,011		$42,995
Multifamily⁽²⁾	325,102		45		21		384		325,552
Total		$361,216		$1,875		$1,061		$4,395		$368,547



	December 31, 2019
(In millions)	Current		One Month Past Due		Two Months Past Due		Three Months or More Past Due, or in Foreclosure		Total⁽¹⁾
Single-family		$33,855		$2,264		$760		$840		$37,719
Multifamily	301,428		13		76		198		301,715
Total		$335,283		$2,277		$836		$1,038		$339,434


(1)	Loan-level payment status is not available for certain guarantees totaling $1.0 billion and $1.6 billion as of September 30, 2020 and December 31, 2019, respectively, and therefore is not included in the tables above.


(2)	As of September 30, 2020, includes $7.1 billion of multifamily loans in forbearance that are reported as current.

Other Off-Balance Sheet Credit Exposures

In addition to our guarantees, we enter into other agreements that expose us to off-balance sheet credit risk, primarily related to our multifamily business, including certain purchase commitments that are not accounted for as derivative instruments, unfunded lending arrangements, and other commitments. These agreements may require us to transfer cash before or upon settlement of our contractual obligation. The total notional value of these other off-balance sheet credit exposures was $24.9 billion and $17.1 billion at September 30, 2020 and December 31, 2019, respectively.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Upon adoption of CECL on January 1, 2020, we began recognizing an allowance for credit losses on off-balance sheet credit exposures for our guarantees that are not measured at fair value and other off-balance sheet arrangements based on expected credit losses over the contractual period in which we are exposed to credit risk via a present contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. We include this allowance for credit losses on off-balance sheet credit exposures within other liabilities on our condensed consolidated balance sheets, with changes recognized through benefit (provision) for credit losses on our condensed consolidated statements of comprehensive income (loss).

Our methodologies for estimating the allowance for credit losses on off-balance sheet credit exposures for our single-family and multifamily guarantees are generally consistent with our methodologies for estimating the allowance for credit losses for single-family mortgage loans and multifamily mortgage loans, respectively. Many of our guarantees have credit enhancement provided by subordination that exceeds the amount of expected credit losses. See Note 4 for additional information on our allowance for credit losses methodologies and Note 6 for additional information on our guarantee credit enhancements. We have not recorded an allowance for credit losses on our guarantees of Fannie Mae securities due to the support provided to Fannie Mae by the U.S. government, the importance of Fannie Mae to the liquidity and stability of the U.S. housing market, and the long history of zero credit losses on Fannie Mae securities.

The table below summarizes changes in our allowance for credit losses on off-balance-sheet credit exposures.

Table 5.3 - Details of the Allowance for Credit Losses on Off-Balance Sheet Credit Exposures



(In millions)	3Q 2020			3Q 2019			YTD 2020			YTD 2019
Beginning balance⁽¹⁾		$147			$51			$81			$51
(Benefit) provision for credit losses	14			1			85			3
Charge-offs	(1		)	(1		)	(6		)	(3		)
Other	(6		)	—			(6		)	—
Ending balance		$154			$51			$154			$51

Components of ending balance of allowance for credit losses on off-balance sheet credit exposures:
Single-family		$57			$46
Multifamily	97			5
Total		$154			$51

(1)

Includes transition adjustments recognized due to the adoption of CECL on January 1, 2020. See Note 1 for more information on transition adjustments.