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Allowance for Loan Losses
6 Months Ended
Jun. 30, 2012
Loans and Leases Receivable, Allowance [Abstract]  
Allowance for Loan Losses
Allowance for Loan Losses
Our allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to our recorded investment in both single-family and multifamily HFI loans. This population includes both HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts. When calculating our loan loss allowance, we consider only our net recorded investment in the loan at the balance sheet date, which includes the loan’s unpaid principal balance and accrued interest recognized while the loan was on accrual status and any applicable cost basis adjustments. We record charge-offs as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in full satisfaction of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale.
We aggregate single-family HFI loans that are not individually impaired based on similar risk characteristics, for purposes of estimating incurred credit losses and establish a collective single-family loss reserve using an econometric model that derives an overall loss reserve estimate. We base our allowance and reserve methodology on historical events and trends, such as loss severity (in event of default), default rates, and recoveries from mortgage insurance contracts and other credit enhancements. In addition, management performs a review of the observable data used in its estimate to ensure it is representative of prevailing economic conditions and other events existing as of the balance sheet date.
Individually impaired single-family loans currently include those restructured in a TDR and acquired credit-impaired loans. When a loan has been restructured, we measure impairment using a cash flow analysis discounted at the loan’s original effective interest rate. However, if we expect to recover our recorded investment in an individually impaired loan through probable foreclosure of the underlying collateral, we measure impairment based on the fair value of the collateral, reduced by estimated disposal costs and adjusted for estimated proceeds from mortgage, flood, or hazard insurance or similar sources.
We identify multifamily loans for evaluation for impairment through a credit risk assessment process. Based on this evaluation, we determine for loans that are not in homogeneous pools whether or not a loan is individually impaired. 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. If we determine that an individual loan that was specifically evaluated for impairment is not individually impaired, we include the loan as part of a pool of loans with similar characteristics that are evaluated collectively for incurred losses.
The following table displays changes in single-family, multifamily and total allowance for loan losses for the three and six months ended June 30, 2012 and 2011.
  
For the Three Months Ended June 30,
  
2012
 
2011
  
Of Fannie Mae
 
Of Consolidated Trusts
 
Total
 
Of Fannie Mae
 
Of Consolidated Trusts
 
Total
  
(Dollars in millions)
Single-family allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance 
$
56,108

 
 
$
12,630

 
 
$
68,738

 
$
52,671

 
 
$
13,413

 
 
$
66,084

(Benefit) provision for loan losses(1)
(3,244
)
 
 
(70
)
 
 
(3,314
)
 
2,954

 
 
2,723

 
 
5,677

Charge-offs(2)(3)
(3,724
)
 
 
(208
)
 
 
(3,932
)
 
(5,341
)
 
 
(758
)
 
 
(6,099
)
Recoveries  
441

 
 
44

 
 
485

 
1,819

 
 
550

 
 
2,369

Transfers(4)
1,607

 
 
(1,607
)
 
 

 
2,750

 
 
(2,750
)
 
 

Other(5)
134

 
 
23

 
 
157

 
96

 
 
(100
)
 
 
(4
)
Ending balance 
$
51,322

 
 
$
10,812

 
 
$
62,134

 
$
54,949

 
 
$
13,078

 
 
$
68,027

Multifamily allowance for loan losses: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance 
$
893

 
 
$
478

 
 
$
1,371

 
$
1,037

 
 
$
436

 
 
$
1,473

(Benefit) provision for loan losses(1)
(85
)
 
 
12

 
 
(73
)
 
86

 
 
39

 
 
125

Charge-offs(2)(3)
(59
)
 
 

 
 
(59
)
 
(119
)
 
 

 
 
(119
)
Transfers(4)
9

 
 
(9
)
 
 

 
12

 
 
(12
)
 
 

Other(5)
2

 
 

 
 
2

 
1

 
 
(1
)
 
 

Ending balance 
$
760

 
 
$
481

 
 
$
1,241

 
$
1,017

 
 
$
462

 
 
$
1,479

Total allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance 
$
57,001

 
 
$
13,108

 
 
$
70,109

 
$
53,708

 
 
$
13,849

 
 
$
67,557

(Benefit) provision for loan losses(1)
(3,329
)
 
 
(58
)
 
 
(3,387
)
 
3,040

 
 
2,762

 
 
5,802

Charge-offs(2)(3)
(3,783
)
 
 
(208
)
 
 
(3,991
)
 
(5,460
)
 
 
(758
)
 
 
(6,218
)
Recoveries  
441

 
 
44

 
 
485

 
1,819

 
 
550

 
 
2,369

Transfers(4)
1,616

 
 
(1,616
)
 
 

 
2,762

 
 
(2,762
)
 
 

Other(5)
136

 
 
23

 
 
159

 
97

 
 
(101
)
 
 
(4
)
Ending balance(6)
$
52,082

 
 
$
11,293

 
 
$
63,375

 
$
55,966

 
 
$
13,540

 
 
$
69,506



  
For the Six Months Ended June 30,
  
2012
 
2011
  
Of Fannie Mae
 
Of Consolidated Trusts
 
Total
 
Of Fannie Mae
 
Of Consolidated Trusts
 
Total
  
 
(Dollars in millions)
 
Single-family allowance for loan losses: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance 
 
$
56,294

 
 
 
$
14,339

 
 
 
$
70,633

 
 
 
$
47,377

 
 
 
$
12,603

 
 
 
$
59,980

 
(Benefit) provision for loan losses(1)
 
(1,844
)
 
 
 
550

 
 
 
(1,294
)
 
 
 
10,197

 
 
 
6,092

 
 
 
16,289

 
Charge-offs(2)(3)
 
(8,128
)
 
 
 
(471
)
 
 
 
(8,599
)
 
 
 
(10,964
)
 
 
 
(1,206
)
 
 
 
(12,170
)
 
Recoveries  
 
862

 
 
 
109

 
 
 
971

 
 
 
2,349

 
 
 
1,502

 
 
 
3,851

 
Transfers(4)
 
3,800

 
 
 
(3,800
)
 
 
 

 
 
 
5,912

 
 
 
(5,912
)
 
 
 

 
Other(5)
 
338

 
 
 
85

 
 
 
423

 
 
 
78

 
 
 
(1
)
 
 
 
77

 
Ending balance 
 
$
51,322

 
 
 
$
10,812

 
 
 
$
62,134

 
 
 
$
54,949

 
 
 
$
13,078

 
 
 
$
68,027

 
Multifamily allowance for loan losses: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance 
 
$
1,015

 
 
 
$
508

 
 
 
$
1,523

 
 
 
$
1,153

 
 
 
$
423

 
 
 
$
1,576

 
(Benefit) provision for loan losses(1)
 
(102
)
 
 
 
(11
)
 
 
 
(113
)
 
 
 
2

 
 
 
98

 
 
 
100

 
Charge-offs(2)(3)
 
(188
)
 
 
 

 
 
 
(188
)
 
 
 
(201
)
 
 
 

 
 
 
(201
)
 
Transfers(4)
 
17

 
 
 
(17
)
 
 
 

 
 
 
57

 
 
 
(57
)
 
 
 

 
Other(5)
 
18

 
 
 
1

 
 
 
19

 
 
 
6

 
 
 
(2
)
 
 
 
4

 
Ending balance 
 
$
760

 
 
 
$
481

 
 
 
$
1,241

 
 
 
$
1,017

 
 
 
$
462

 
 
 
$
1,479

 
Total allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance 
 
$
57,309

 
 
 
$
14,847

 
 
 
$
72,156

 
 
 
$
48,530

 
 
 
$
13,026

 
 
 
$
61,556

 
(Benefit) provision for loan losses(1)
 
(1,946
)
 
 
 
539

 
 
 
(1,407
)
 
 
 
10,199

 
 
 
6,190

 
 
 
16,389

 
Charge-offs(2)(3)
 
(8,316
)
 
 
 
(471
)
 
 
 
(8,787
)
 
 
 
(11,165
)
 
 
 
(1,206
)
 
 
 
(12,371
)
 
Recoveries  
 
862

 
 
 
109

 
 
 
971

 
 
 
2,349

 
 
 
1,502

 
 
 
3,851

 
Transfers(4)
 
3,817

 
 
 
(3,817
)
 
 
 

 
 
 
5,969

 
 
 
(5,969
)
 
 
 

 
Other(5)
 
356

 
 
 
86

 
 
 
442

 
 
 
84

 
 
 
(3
)
 
 
 
81

 
Ending balance(6)
 
$
52,082

 
 
 
$
11,293

 
 
 
$
63,375

 
 
 
$
55,966

 
 
 
$
13,540

 
 
 
$
69,506

 

__________
(1) 
(Benefit) provision for loan losses is included in benefit (provision) for credit losses in our condensed consolidated statements of operations and comprehensive income (loss).
(2) 
While we purchase the substantial majority of loans that are four or more months delinquent from our MBS trusts, we do not exercise this option to purchase loans during a forbearance period. Accordingly, charge-offs of consolidated trusts generally represent loans that remained in our consolidated trusts at the time of default.
(3) 
Total charge-offs include accrued interest of $238 million and $438 million for the three months ended June 30, 2012 and 2011, respectively and $511 million and $824 million for the six months ended June 30, 2012 and 2011, respectively. Single-family charge-offs include accrued interest of $228 million and $423 million for the three months ended June 30, 2012 and 2011, respectively and $486 million and $800 million for the six months ended June 30, 2012 and 2011, respectively. Multifamily charge-offs include accrued interest of $10 million and $15 million for the three months ended June 30, 2012 and 2011, respectively and $25 million and $24 million for the six months ended June 30, 2012 and 2011, respectively.
(4) 
Includes transfers from trusts for delinquent loan purchases.
(5) 
Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and insurance receivable from borrowers. The provision for credit losses, charge-offs, recoveries and transfer activity included in this table reflects all changes for both the allowance for loan losses and the valuation allowances for accrued interest and preforeclosure property taxes and insurance receivable that relate to the mortgage loans.
(6) 
Total allowance for loan losses includes $293 million and $414 million as of June 30, 2012 and 2011, respectively, for acquired credit-impaired loans.

As of June 30, 2012, the allowance for accrued interest receivable for loans of Fannie Mae was $1.8 billion and for loans of consolidated trusts was $251 million. As of December 31, 2011, the allowance for accrued interest receivable for loans of Fannie Mae was $2.2 billion and for loans of consolidated trusts was $336 million.
The following table displays the allowance for loan losses and total recorded investment in our HFI loans, excluding loans for which we have elected the fair value option, by impairment or reserve methodology and portfolio segment as of June 30, 2012 and December 31, 2011.
  
As of
  
June 30, 2012
 
December 31, 2011
  
Single-Family
 
Multifamily
 
Total
 
Single-Family
 
Multifamily
 
Total
  
(Dollars in millions)
Allowance for loan losses by segment: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans 
$
42,115

 
 
$
507

 
 
$
42,622

 
$
45,765

 
 
$
717

 
 
$
46,482

Collectively reserved loans 
19,727

 
 
733

 
 
20,460

 
24,494

 
 
805

 
 
25,299

Acquired credit-impaired loans 
292

 
 
1

 
 
293

 
374

 
 
1

 
 
375

Total allowance for loan losses 
$
62,134

 
 
$
1,241

 
 
$
63,375

 
$
70,633

 
 
$
1,523

 
 
$
72,156

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans by segment: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans 
$
165,938

 
 
$
4,221

 
 
$
170,159

 
$
161,942

 
 
$
4,579

 
 
$
166,521

Collectively reserved loans 
2,640,139

 
 
179,087

 
 
2,819,226

 
2,634,456

 
 
174,595

 
 
2,809,051

Acquired credit-impaired loans 
2,821

 
 
41

 
 
2,862

 
3,272

 
 
47

 
 
3,319

Total recorded investment in loans 
$
2,808,898

 
 
$
183,349

 
 
$
2,992,247

 
$
2,799,670

 
 
$
179,221

 
 
$
2,978,891

__________
(1) 
Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and accrued interest receivable.