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Allowance for Loan Losses
6 Months Ended
Jun. 30, 2014
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 allowance for loan losses, 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 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, 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 and other credit enhancements.
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. 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, 2014 and 2013.
 
For the Three Months Ended June 30,
 
2014
 
2013
 
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
$
38,746

 
 
$
2,702

 
 
$
41,448

 
$
48,967

 
 
$
6,534

 
 
$
55,501

Benefit for loan losses(1)
(1,288
)
 
 
(240
)
 
 
(1,528
)
 
(4,098
)
 
 
(1,330
)
 
 
(5,428
)
Charge-offs(2)
(1,861
)
 
 
(42
)
 
 
(1,903
)
 
(2,015
)
 
 
(137
)
 
 
(2,152
)
Recoveries
311

 
 
147

 
 
458

 
466

 
 
106

 
 
572

Transfers(3)
337

 
 
(337
)
 
 

 
768

 
 
(768
)
 
 

Other(4)
155

 
 
13

 
 
168

 
244

 
 
33

 
 
277

Ending balance
$
36,400

 
 
$
2,243

 
 
$
38,643

 
$
44,332

 
 
$
4,438

 
 
$
48,770

Multifamily allowance for loan losses: 

 
 

 
 

 

 
 

 
 

Beginning balance
$
258

 
 
$
205

 
 
$
463

 
$
586

 
 
$
374

 
 
$
960

(Benefit) provision for loan losses(1)
(8
)
 
 
(22
)
 
 
(30
)
 
(36
)
 
 
15

 
 
(21
)
Charge-offs(2)
(8
)
 
 

 
 
(8
)
 
(66
)
 
 

 
 
(66
)
Transfers(3)
2

 
 
(2
)
 
 

 
8

 
 
(8
)
 
 

Other(4)
(1
)
 
 

 
 
(1
)
 
1

 
 
(1
)
 
 

Ending balance
$
243

 
 
$
181

 
 
$
424

 
$
493

 
 
$
380

 
 
$
873

Total allowance for loan losses:

 
 

 
 

 

 
 

 
 

Beginning balance
$
39,004

 
 
$
2,907

 
 
$
41,911

 
$
49,553

 
 
$
6,908

 
 
$
56,461

Benefit for loan losses(1)
(1,296
)
 
 
(262
)
 
 
(1,558
)
 
(4,134
)
 
 
(1,315
)
 
 
(5,449
)
Charge-offs(2)(5)
(1,869
)
 
 
(42
)
 
 
(1,911
)
 
(2,081
)
 
 
(137
)
 
 
(2,218
)
Recoveries
311

 
 
147

 
 
458

 
466

 
 
106

 
 
572

Transfers(3)
339

 
 
(339
)
 
 

 
776

 
 
(776
)
 
 

Other(4)
154

 
 
13

 
 
167

 
245

 
 
32

 
 
277

Ending balance
$
36,643

 
 
$
2,424

 
 
$
39,067

 
$
44,825

 
 
$
4,818

 
 
$
49,643


 
For the Six Months Ended June 30,
 
2014
 
2013
 
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
$
40,202

 
 
$
3,105

 
 
$
43,307

 
$
49,848

 
 
$
7,839

 
 
$
57,687

Benefit for loan losses(1)
(2,170
)
 
 
(202
)
 
 
(2,372
)
 
(4,534
)
 
 
(1,733
)
 
 
(6,267
)
Charge-offs(2)
(3,308
)
 
 
(143
)
 
 
(3,451
)
 
(4,685
)
 
 
(186
)
 
 
(4,871
)
Recoveries
631

 
 
218

 
 
849

 
1,493

 
 
351

 
 
1,844

Transfers(3)
757

 
 
(757
)
 
 

 
1,891

 
 
(1,891
)
 
 

Other(4)
288

 
 
22

 
 
310

 
319

 
 
58

 
 
377

Ending balance
$
36,400

 
 
$
2,243

 
 
$
38,643

 
$
44,332

 
 
$
4,438

 
 
$
48,770

Multifamily allowance for loan losses: 
 
 
 
 
 
 
 
 

 
 

 
 

Beginning balance
$
319

 
 
$
220

 
 
$
539

 
$
671

 
 
$
437

 
 
$
1,108

Benefit for loan losses(1)
(20
)
 
 
(38
)
 
 
(58
)
 
(127
)
 
 
(39
)
 
 
(166
)
Charge-offs(2)
(59
)
 
 

 
 
(59
)
 
(67
)
 
 

 
 
(67
)
Transfers(3)
2

 
 
(2
)
 
 

 
17

 
 
(17
)
 
 

Other(4)
1

 
 
1

 
 
2

 
(1
)
 
 
(1
)
 
 
(2
)
Ending balance
$
243

 
 
$
181

 
 
$
424

 
$
493

 
 
$
380

 
 
$
873

Total allowance for loan losses:
 
 
 
 
 
 
 
 

 
 

 
 

Beginning balance
$
40,521

 
 
$
3,325

 
 
$
43,846

 
$
50,519

 
 
$
8,276

 
 
$
58,795

Benefit for loan losses(1)
(2,190
)
 
 
(240
)
 
 
(2,430
)
 
(4,661
)
 
 
(1,772
)
 
 
(6,433
)
Charge-offs(2)(5)
(3,367
)
 
 
(143
)
 
 
(3,510
)
 
(4,752
)
 
 
(186
)
 
 
(4,938
)
Recoveries
631

 
 
218

 
 
849

 
1,493

 
 
351

 
 
1,844

Transfers(3)
759

 
 
(759
)
 
 

 
1,908

 
 
(1,908
)
 
 

Other(4)
289

 
 
23

 
 
312

 
318

 
 
57

 
 
375

Ending balance
$
36,643

 
 
$
2,424

 
 
$
39,067

 
$
44,825

 
 
$
4,818

 
 
$
49,643


__________
(1) 
(Benefit) provision for loan losses is included in “Benefit for credit losses” in our condensed consolidated statements of operations and comprehensive income.
(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. Charge-offs of consolidated trusts generally represent loans that remained in our consolidated trusts at the time of default.
(3) 
Includes transfers from trusts for delinquent loan purchases.
(4) 
Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and insurance receivable from borrowers. The (benefit) provision for loan losses, charge-offs, recoveries and transfer activity included in this table reflect 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.
(5) 
Total charge-offs include accrued interest of $75 million and $122 million for the three months ended June 30, 2014 and 2013, respectively, and $169 million and $237 million for the six months ended June 30, 2014 and 2013, respectively.
As of June 30, 2014, the allowance for accrued interest receivable for loans of Fannie Mae was $863 million and for loans of consolidated trusts was $81 million. As of December 31, 2013, the allowance for accrued interest receivable for loans of Fannie Mae was $1.1 billion and for loans of consolidated trusts was $104 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, 2014 and December 31, 2013.
 
As of
  
June 30, 2014
 
December 31, 2013
 
Single-Family
 
Multifamily
 
Total
 
Single-Family
 
Multifamily
 
Total
 
(Dollars in millions)
Allowance for loan losses by segment: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans(1)
$
34,624

 
 
$
249

 
 
$
34,873

 
$
37,423

 
 
$
306

 
 
$
37,729

Collectively reserved loans
4,019

 
 
175

 
 
4,194

 
5,884

 
 
233

 
 
6,117

Total allowance for loan losses
$
38,643

 
 
$
424

 
 
$
39,067

 
$
43,307

 
 
$
539

 
 
$
43,846

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans by segment:(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans(1)
$
188,395

 
 
$
3,351

 
 
$
191,746

 
$
189,064

 
 
$
4,215

 
 
$
193,279

Collectively reserved loans
2,665,958

 
 
179,595

 
 
2,845,553

 
2,689,627

 
 
181,763

 
 
2,871,390

Total recorded investment in loans
$
2,854,353

 
 
$
182,946

 
 
$
3,037,299

 
$
2,878,691

 
 
$
185,978

 
 
$
3,064,669

__________
(1) 
Includes acquired credit-impaired loans.
(2) 
Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and accrued interest receivable.