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 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. Additionally, we record charge-offs as a reduction to our allowance for loan losses upon the redesignation of nonperforming loans from HFI to HFS.

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. We establish a collective loss reserve for all loans in our multifamily guaranty book of business that are not individually impaired 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.

The following tables display changes in single-family, multifamily and total allowance for loan losses.



	For the Three Months Ended June 30,
	2015										2014
	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	$	29,759			$	1,755		$	31,514		$	38,746			$	2,702		$	41,448
Provision (benefit) for loan losses⁽¹⁾	1,268				(227		)	1,041			(1,288		)		(240		)	(1,528		)
Charge-offs⁽²⁾	(2,032		)		(23		)	(2,055		)	(1,861		)		(42		)	(1,903		)
Recoveries	257				4			261			311				147			458
Transfers⁽³⁾	256				(256		)	—			337				(337		)	—
Other⁽⁴⁾	116				(1		)	115			155				13			168
Ending balance	$	29,624			$	1,252		$	30,876		$	36,400			$	2,243		$	38,643
Multifamily allowance for loan losses:
Beginning balance	$	114			$	192		$	306		$	258			$	205		$	463
Provision (benefit) for loan losses⁽¹⁾	6				(18		)	(12		)	(8		)		(22		)	(30		)
Charge-offs⁽²⁾	(19		)		—			(19		)	(8		)		—			(8		)
Transfers⁽³⁾	—				—			—			2				(2		)	—
Other⁽⁴⁾	(1		)		—			(1		)	(1		)		—			(1		)
Ending balance	$	100			$	174		$	274		$	243			$	181		$	424
Total allowance for loan losses:
Beginning balance	$	29,873			$	1,947		$	31,820		$	39,004			$	2,907		$	41,911
Provision (benefit) for loan losses⁽¹⁾	1,274				(245		)	1,029			(1,296		)		(262		)	(1,558		)
Charge-offs⁽²⁾	(2,051		)		(23		)	(2,074		)	(1,869		)		(42		)	(1,911		)
Recoveries	257				4			261			311				147			458
Transfers⁽³⁾	256				(256		)	—			339				(339		)	—
Other⁽⁴⁾	115				(1		)	114			154				13			167
Ending balance	$	29,724			$	1,426		$	31,150		$	36,643			$	2,424		$	39,067



	For the Six Months Ended June 30,
	2015										2014
	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	$	32,956			$	2,221		$	35,177		$	40,202			$	3,105		$	43,307
Provision (benefit) for loan losses⁽¹⁾	1,473				(374		)	1,099			(2,170		)		(202		)	(2,372		)
Charge-offs⁽²⁾⁽⁵⁾	(7,360		)		(42		)	(7,402		)	(3,308		)		(143		)	(3,451		)
Recoveries	871				12			883			631				218			849
Transfers⁽³⁾	615				(615		)	—			757				(757		)	—
Other⁽⁴⁾	1,069				50			1,119			288				22			310
Ending balance	$	29,624			$	1,252		$	30,876		$	36,400			$	2,243		$	38,643
Multifamily allowance for loan losses:
Beginning balance	$	161			$	203		$	364		$	319			$	220		$	539
Benefit for loan losses⁽¹⁾	(31		)		(31		)	(62		)	(20		)		(38		)	(58		)
Charge-offs⁽²⁾⁽⁵⁾	(34		)		—			(34		)	(59		)		—			(59		)
Transfers⁽³⁾	—				—			—			2				(2		)	—
Other⁽⁴⁾	4				2			6			1				1			2
Ending balance	$	100			$	174		$	274		$	243			$	181		$	424
Total allowance for loan losses:
Beginning balance	$	33,117			$	2,424		$	35,541		$	40,521			$	3,325		$	43,846
Provision (benefit) for loan losses⁽¹⁾	1,442				(405		)	1,037			(2,190		)		(240		)	(2,430		)
Charge-offs⁽²⁾⁽⁵⁾	(7,394		)		(42		)	(7,436		)	(3,367		)		(143		)	(3,510		)
Recoveries	871				12			883			631				218			849
Transfers⁽³⁾	615				(615		)	—			759				(759		)	—
Other⁽⁴⁾	1,073				52			1,125			289				23			312
Ending balance	$	29,724			$	1,426		$	31,150		$	36,643			$	2,424		$	39,067

__________


⁽¹⁾	Provision (benefit) for loan losses is included in “Provision (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 changes in other loss reserves which are offset by amounts reflected in provision (benefit) for credit losses, charge-offs and recoveries.

⁽⁵⁾

Includes for the six months ended June 30, 2015 charge-offs of (1) $1.8 billion in HFI loans and $724 million in preforeclosure property taxes and insurance receivable in connection with our adoption of the Advisory Bulletin on January 1, 2015 and (2) $1.1 billion in accrued interest receivable that were charged-off in connection with the our adoption of a change in accounting principle on January 1, 2015 related to the treatment of interest previously accrued, but not collected, at the date that loans are placed on nonaccrual status.