Fair Value

9 Months Ended

Sep. 30, 2015

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.

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, 2015
	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		$	—		$	5,097		$	—		$	—			$	5,097
Freddie Mac		—			1,474			—			—				1,474
Ginnie Mae		—			353			—			—				353
Alt-A private-label securities		—			136			315			—				451
Subprime private-label securities		—			—			696			—				696
CMBS		—			2,398			—			—				2,398
Mortgage revenue bonds		—			—			579			—				579
Non-mortgage-related securities:
U.S. Treasury securities		26,961			—			—			—				26,961
Total trading securities		26,961			9,458			1,590			—				38,009
Available-for-sale securities:
Mortgage-related securities:
Fannie Mae		—			4,282			—			—				4,282
Freddie Mac		—			4,595			4			—				4,599
Ginnie Mae		—			413			—			—				413
Alt-A private-label securities		—			1,855			1,494			—				3,349
Subprime private-label securities		—			—			3,677			—				3,677
CMBS		—			1,309			—			—				1,309
Mortgage revenue bonds		—			—			2,933			—				2,933
Other		—			1			1,444			—				1,445
Total available-for-sale securities		—			12,455			9,552			—				22,007
Mortgage loans		—			13,105			1,500			—				14,605
Other assets:
Risk management derivatives:
Swaps		—			5,417			158			—				5,575
Swaptions		—			39			4			—				43
Other		—			—			25			—				25
Netting adjustment		—			—			—			(4,417		)		(4,417		)
Mortgage commitment derivatives		—			374			10			—				384
Total other assets		—			5,830			197			(4,417		)		1,610
Total assets at fair value		$	26,961		$	40,848		$	12,839		$	(4,417	)		$	76,231



		Fair Value Measurements as of September 30, 2015
	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		$	—		$	9,606		$	369		$	—		$	9,975
Total of Fannie Mae		—			9,606			369			—			9,975
Of consolidated trusts		—			22,572			571			—			23,143
Total long-term debt		—			32,178			940			—			33,118
Other liabilities:
Risk management derivatives:
Swaps		—			10,531			133			—			10,664
Swaptions		—			307			—			—			307
Other		—			—			1			—			1
Netting adjustment		—			—			—			(10,635		)	(10,635		)
Mortgage commitment derivatives		—			564			3			—			567
Total other liabilities		—			11,402			137			(10,635		)	904
Total liabilities at fair value		$	—		$	43,580		$	1,077		$	(10,635	)	$	34,022



		Fair Value Measurements as of December 31, 2014
	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)
Assets:
Trading securities:
Mortgage-related securities:
Fannie Mae		$	—		$	4,635		$	305		$	—			$	4,940
Freddie Mac		—			1,369			—			—				1,369
Ginnie Mae		—			166			—			—				166
Alt-A private-label securities		—			323			597			—				920
Subprime private-label securities		—			—			1,307			—				1,307
CMBS		—			2,515			—			—				2,515
Mortgage revenue bonds		—			—			722			—				722
Other		—			—			99			—				99
Non-mortgage-related securities:
U.S. Treasury securities		19,466			—			—			—				19,466
Total trading securities		19,466			9,008			3,030			—				31,504
Available-for-sale securities:
Mortgage-related securities:
Fannie Mae		—			5,639			—			—				5,639
Freddie Mac		—			5,522			6			—				5,528
Ginnie Mae		—			476			—			—				476
Alt-A private-label securities		—			2,538			3,140			—				5,678
Subprime private-label securities		—			—			5,240			—				5,240
CMBS		—			1,397			—			—				1,397
Mortgage revenue bonds		—			—			4,023			—				4,023
Other		—			2			2,671			—				2,673
Total available-for-sale securities		—			15,574			15,080			—				30,654
Mortgage loans		—			13,796			1,833			—				15,629
Other assets:
Risk management derivatives:
Swaps		—			6,085			150			—				6,235
Swaptions		—			153			—			—				153
Other		—			—			28			—				28
Netting adjustment		—			—			—			(5,186		)		(5,186		)
Mortgage commitment derivatives		—			251			4			—				255
Total other assets		—			6,489			182			(5,186		)		1,485
Total assets at fair value		$	19,466		$	44,867		$	20,125		$	(5,186	)		$	79,272



		Fair Value Measurements as of December 31, 2014
	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		$	—		$	6,040		$	363		$	—			$	6,403
Total of Fannie Mae		—			6,040			363			—				6,403
Of consolidated trusts		—			18,956			527			—				19,483
Total long-term debt		—			24,996			890			—				25,886
Other liabilities:
Risk management derivatives:
Swaps		—			9,339			133			—				9,472
Swaptions		—			991			—			—				991
Other		—			—			1			—				1
Netting adjustment		—			—			—			(10,194		)		(10,194		)
Mortgage commitment derivatives		—			341			3			—				344
Total other liabilities		—			10,671			137			(10,194		)		614
Total liabilities at fair value		$	—		$	35,667		$	1,027		$	(10,194	)		$	26,500

__________


⁽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.

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 both realized and unrealized gains and losses, recognized in our condensed consolidated statements of operations and comprehensive income for Level 3 assets and liabilities. When assets and liabilities are transferred between levels, we recognize the transfer as of the end of the period.



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Three Months Ended September 30, 2015
				Total Gains or (Losses) (Realized/Unrealized)																												Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2015⁽⁵⁾⁽⁶⁾
	Balance, June 30, 2015			Included in Net Income				Included in Other Comprehensive Income⁽¹⁾				Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3⁽⁴⁾			Transfers into Level 3⁽⁴⁾			Balance, September 30, 2015
	(Dollars in millions)
Trading securities:
Mortgage-related:
Alt-A private-label securities	$	325		$	(3	)			$	—		$	—	$	—		$	—		$	(7	)	$	—		$	—		$	315			$	(3	)
Subprime private-label securities	718			(5		)			—			—		—			—			(17		)	—			—			696				(5		)
Mortgage revenue bonds	602			(19		)			—			—		—			—			(4		)	—			—			579				(19		)
Total trading securities	$	1,645		$	(27	)	(6)(7)		$	—		$	—	$	—		$	—		$	(28	)	$	—		$	—		$	1,590			$	(27	)

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	129		$	—				$	—		$	—	$	(122	)	$	—		$	(8	)	$	—		$	1		$	—			$	—
Freddie Mac	4			—					—			—		—			—			—			(1		)	1			4				—
Alt-A private-label securities	1,654			2					(8		)	—		—			—			(178		)	—			24			1,494				—
Subprime private-label securities	3,837			33					(45		)	—		—			—			(148		)	—			—			3,677				—
Mortgage revenue bonds	3,171			4					(29		)	—		(8		)	—			(205		)	—			—			2,933				—
Other	2,158			73					(95		)	—		(644		)	—			(48		)	—			—			1,444				—
Total available-for-sale securities	$	10,953		$	112		(7)(8)		$	(177	)	$	—	$	(774	)	$	—		$	(587	)	$	(1	)	$	26		$	9,552			$	—

Mortgage loans	$	1,595		$	9		(6)(7)		$	—		$	—	$	—		$	—		$	(97	)	$	(77	)	$	70		$	1,500			$	(24	)
Net derivatives	4			79			(6)		—			—		—			—			(32		)	—			9			60				28
Long-term debt:
Of Fannie Mae:
Senior floating	$	(346	)	$	(23	)			$	—		$	—	$	—		$	—		$	—		$	—		$	—		$	(369	)		$	(23	)
Of consolidated trusts	(493		)	—					—			—		—			(64		)	18			33			(65		)	(571		)		—
Total long-term debt	$	(839	)	$	(23	)	(6)		$	—		$	—	$	—		$	(64	)	$	18		$	33		$	(65	)	$	(940	)		$	(23	)



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Nine Months Ended September 30, 2015
				Total Gains or (Losses) (Realized/Unrealized)																												Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2015⁽⁵⁾⁽⁶⁾
	Balance, December 31, 2014			Included in Net Income				Included in Other Comprehensive Income⁽¹⁾				Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3⁽⁴⁾			Transfers into Level 3⁽⁴⁾			Balance, September 30, 2015
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	305		$	(27	)			$	—		$	—	$	(2	)	$	—		$	—		$	(278	)	$	2		$	—			$	—
Alt-A private-label securities	597			41					—			—		(267		)	—			(40		)	(44		)	28			315				(3		)
Subprime private-label securities	1,307			38					—			—		(580		)	—			(69		)	—			—			696				(2		)
Mortgage revenue bonds	722			(17		)			—			—		(118		)	—			(8		)	—			—			579				(17		)
Other	99			4					—			—		(100		)	—			(3		)	—			—			—				—
Total trading securities	$	3,030		$	39		(6)(7)		$	—		$	—	$	(1,067	)	$	—		$	(120	)	$	(322	)	$	30		$	1,590			$	(22	)

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	—		$	—				$	—		$	421	$	(425	)	$	—		$	(8	)	$	—		$	12		$	—			$	—
Freddie Mac	6			—					—			—		—			—			(1		)	(2		)	1			4				—
Alt-A private-label securities	3,140			174					(124		)	—		(1,108		)	—			(387		)	(538		)	337			1,494				—
Subprime private-label securities	5,240			478					(277		)	—		(1,325		)	—			(439		)	—			—			3,677				—
Mortgage revenue bonds	4,023			44					(56		)	—		(324		)	—			(754		)	—			—			2,933				—
Other	2,671			(20		)			(10		)	—		(1,012		)	—			(185		)	—			—			1,444				—
Total available-for-sale securities	$	15,080		$	676		(7)(8)		$	(467	)	$	421	$	(4,194	)	$	—		$	(1,774	)	$	(540	)	$	350		$	9,552			$	—

Mortgage loans	$	1,833		$	47		(6)(7)		$	—		$	5	$	—		$	—		$	(273	)	$	(331	)	$	219		$	1,500			$	(17	)
Net derivatives	45			(20		)	(6)		—			—		—			—			26			—			9			60				23
Long-term debt:
Of Fannie Mae:
Senior floating	$	(363	)	$	(6	)			$	—		$	—	$	—		$	—		$	—		$	—		$	—		$	(369	)		$	(6	)
Of consolidated trusts	(527		)	(8		)			—			—		—			(64		)	43			142			(157		)	(571		)		11
Total long-term debt	$	(890	)	$	(14	)	(6)		$	—		$	—	$	—		$	(64	)	$	43		$	142		$	(157	)	$	(940	)		$	5



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Three Months Ended September 30, 2014
				Total Gains or (Losses) (Realized/Unrealized)																										Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2014⁽⁵⁾⁽⁶⁾
	Balance, June 30, 2014			Included in Net Income				Included in Other Comprehensive Income⁽¹⁾			Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾		Settlements⁽³⁾			Transfers out of Level 3⁽⁴⁾			Transfers into Level 3⁽⁴⁾			Balance, September 30, 2014
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	—		$	—			$	—		$	—	$	—		$	—	$	—		$	—		$	325		$	325			$	—
Alt-A private-label securities	643			2				—			—		—			—		(21		)	(16		)	87			695				3
Subprime private-label securities	1,282			66				—			—		—			—		(32		)	—			—			1,316				66
Mortgage revenue bonds	643			53				—			—		—			—		(3		)	—			—			693				46
Other	101			1				—			—		—			—		(3		)	—			—			99				1
Total trading securities	$	2,669		$	122		(6)(7)	$	—		$	—	$	—		$	—	$	(59	)	$	(16	)	$	412		$	3,128			$	116

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	2		$	—			$	—		$	—	$	—		$	—	$	—		$	(2	)	$	—		$	—			$	—
Freddie Mac	9			—				—			—		—			—		(1		)	(2		)	—			6				—
Alt-A private-label securities	3,717			15				(60		)	—		—			—		(111		)	(333		)	268			3,496				—
Subprime private-label securities	5,705			87				89			—		(317		)	—		(178		)	—			—			5,386				—
Mortgage revenue bonds	4,560			(4		)		200			—		(12		)	—		(478		)	—			—			4,266				—
Other	2,817			11				(3		)	—		—			—		(82		)	—			—			2,743				—
Total available-for-sale securities	$	16,810		$	109		(7)(8)	$	226		$	—	$	(329	)	$	—	$	(850	)	$	(337	)	$	268		$	15,897			$	—

Mortgage loans	$	2,531		$	116		(6)(7)	$	—		$	3	$	—		$	—	$	(93	)	$	(750	)	$	64		$	1,871			$	(13	)
Net derivatives	20			(25		)	(6)	—			—		—			—		(9		)	—			5			(9		)	41	(9		)
Long-term debt:
Of Fannie Mae:
Senior floating	$	(325	)	$	(10	)		$	—		$	—	$	—		$	—	$	(1	)	$	—		$	—		$	(336	)		$	(11	)
Of consolidated trusts	(498		)	(14		)		—			—		—			—		16			34			(26		)	(488		)		(14		)
Total long-term debt	$	(823	)	$	(24	)	(6)	$	—		$	—	$	—		$	—	$	15		$	34		$	(26	)	$	(824	)		$	(25	)



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Nine Months Ended September 30, 2014
				Total Gains or (Losses) (Realized/Unrealized)																											Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2014⁽⁵⁾⁽⁶⁾
	Balance, December 31, 2013			Included in Net Income				Included in Other Comprehensive Income⁽¹⁾			Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3⁽⁴⁾			Transfers into Level 3⁽⁴⁾			Balance, September 30, 2014
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	42		$	(1	)		$	—		$	—	$	—		$	—		$	(2	)	$	(39	)	$	325		$	325			$	—
Freddie Mac	2			—				—			—		—			—			—			(2		)	—			—				—
Alt-A private-label securities	618			105				—			—		(23		)	—			(59		)	(159		)	213			695				100
Subprime private-label securities	1,448			245				—			—		(241		)	—			(136		)	—			—			1,316				209
Mortgage revenue bonds	565			137				—			—		—			—			(9		)	—			—			693				130
Other	99			10				—			—		—			—			(10		)	—			—			99				10
Total trading securities	$	2,774		$	496		(6)(7)	$	—		$	—	$	(264	)	$	—		$	(216	)	$	(200	)	$	538		$	3,128			$	449

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	7		$	—			$	—		$	—	$	—		$	—		$	(1	)	$	(8	)	$	2		$	—			$	—
Freddie Mac	8			—				—			—		—			—			(1		)	(2		)	1			6				—
Alt-A private-label securities	3,791			131				(11		)	—		(320		)	—			(310		)	(1,207		)	1,422			3,496				—
Subprime private-label securities	7,068			388				270			—		(1,666		)	—			(674		)	—			—			5,386				—
Mortgage revenue bonds	5,253			(31		)		480			—		(70		)	—			(1,366		)	—			—			4,266				—
Other	2,885			17				92			—		—			—			(251		)	—			—			2,743				—
Total available-for-sale securities	$	19,012		$	505		(7)(8)	$	831		$	—	$	(2,056	)	$	—		$	(2,603	)	$	(1,217	)	$	1,425		$	15,897			$	—

Mortgage loans	$	2,704		$	243		(6)(7)	$	—		$	34	$	—		$	—		$	(259	)	$	(1,063	)	$	212		$	1,871			$	49
Net derivatives	(40		)	52			(6)	—			—		—			—			(25		)	(1		)	5			(9		)		14
Long-term debt:
Of Fannie Mae:
Senior floating	$	(955	)	$	(115	)		$	—		$	—	$	—		$	(750	)	$	19		$	1,465		$	—		$	(336	)		$	(70	)
Of consolidated trusts	(518		)	(48		)		—			—		—			(1		)	51			100			(72		)	(488		)		(45		)
Total long-term debt	$	(1,473	)	$	(163	)	(6)	$	—		$	—	$	—		$	(751	)	$	70		$	1,565		$	(72	)	$	(824	)		$	(115	)

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⁽¹⁾	Gains (losses) included in other comprehensive income are included in “Changes in unrealized gains on AFS securities, net of reclassification adjustments and taxes” in the 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.

⁽⁴⁾

Transfers out of Level 3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans and credit risk sharing securities issued under our CAS series. Prices for these securities were obtained from multiple third-party vendors or dealers. Transfers out of Level 3 also occurred for mortgage loans for which unobservable inputs used in valuations became less significant. Transfers into Level 3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans. Prices for these securities are based on inputs from a single source or inputs that were not readily observable.


⁽⁵⁾	Amount represents temporary changes in fair value. Amortization, accretion and OTTI are not considered unrealized and are not included in this amount.


⁽⁶⁾	Gains (losses) are included in “Fair value losses, net” in our condensed consolidated statements of operations and comprehensive income.


⁽⁷⁾	Gains (losses) are included in “Net interest income” in our condensed consolidated statements of operations and comprehensive income.


⁽⁸⁾	Gains (losses) are included in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income.

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.



	Fair Value Measurements as of September 30, 2015
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾			Weighted - Average⁽¹⁾
	(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Alt-A private-label securities⁽²⁾	$	64	Consensus	Default Rate (%)	1.6			1.6
				Prepayment Speed (%)	3.7			3.7
				Severity (%)	61.7			61.7
				Spreads (bps)	266.1			266.1
	251		Discounted Cash Flow	Default Rate (%)	1.5	-	3.0	2.7
				Prepayment Speed (%)	4.0			4.0
				Severity (%)	55.0	-	95.0	88.1
				Spreads (bps)	222.5	-	230.4	229.0
Total Alt-A private-label securities	315
Subprime private-label securities⁽²⁾	479		Consensus	Default Rate (%)	4.0	-	10.3	6.5
				Prepayment Speed (%)	1.0	-	4.6	2.3
				Severity (%)	41.8	-	95.0	75.5
				Spreads (bps)	275.0	-	280.0	275.4
	169		Discounted Cash Flow	Default Rate (%)	4.0	-	8.0	5.0
				Prepayment Speed (%)	2.0	-	3.3	2.4
				Severity (%)	60.0	-	78.0	65.2
				Spreads (bps)	203.0	-	300.0	225.7
	48		Other
Total subprime private-label securities	696
Mortgage revenue bonds	563		Discounted Cash Flow	Spreads (bps)	24.5	-	371.8	274.8
	16		Other
Total mortgage revenue bonds	579
Total trading securities	$	1,590



	Fair Value Measurements as of September 30, 2015
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾			Weighted - Average⁽¹⁾
	(Dollars in millions)
Available-for-sale securities:
Mortgage-related securities:
Agency⁽³⁾	$	4	Other
Alt-A private-label securities⁽²⁾	598		Consensus	Default Rate (%)	0.4	-	12.2	4.3
				Prepayment Speed (%)	0.2	-	31.8	14.5
				Severity (%)	6.8	-	95.0	66.5
				Spreads (bps)	197.0	-	245.0	242.7
	545		Consensus
	313		Discounted Cash Flow	Default Rate (%)	4.0	-	7.0	4.5
				Prepayment Speed (%)	3.0	-	10.0	5.0
				Severity (%)	50.0	-	85.0	63.5
				Spreads (bps)	201.6	-	481.0	289.2
	38		Other
Total Alt-A private-label securities	1,494
Subprime private-label securities ⁽²⁾	2,365		Consensus	Default Rate (%)	0.5	-	19.3	7.7
				Prepayment Speed (%)	0.3	-	13.2	3.4
				Severity (%)	14.5	-	95.0	78.5
				Spreads (bps)	245.0	-	280.0	273.7
	774		Consensus
	265		Discounted Cash Flow	Default Rate (%)	5.6	-	12.0	7.8
				Prepayment Speed (%)	1.0	-	4.0	1.9
				Severity (%)	59.0	-	95.0	80.4
				Spreads (bps)	169.4	-	315.0	225.4
	273		Other
Total subprime private-label securities	3,677
Mortgage revenue bonds	1,126		Single Vendor	Spreads (bps)	7.0	-	347.9	62.8
	1,607		Discounted Cash Flow	Spreads (bps)	7.0	-	407.9	275.5
	200		Other
Total mortgage revenue bonds	2,933
Other	737		Consensus	Default Rate (%)	0.0	-	4.6	3.4
				Prepayment Speed (%)	2.5	-	17.4	4.5
				Severity (%)	3.1	-	95.0	67.1
				Spreads (bps)	195.0	-	466.3	334.1
	550		Discounted Cash Flow	Default Rate (%)	0.0	-	4.9	0.2
				Prepayment Speed (%)	0.0	-	2.0	0.1
				Severity (%)	25.0	-	95.0	90.6
				Spreads (bps)	245.0	-	350.0	330.3
	157		Other
Total other	1,444
Total available-for-sale securities	$	9,552



	Fair Value Measurements as of September 30, 2015
	Fair Value			Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾			Weighted - Average⁽¹⁾
	(Dollars in millions)
Mortgage loans:
Single-family	$	107		Build-Up	Default Rate (%)	0.0	-	98.8	35.7
					Prepayment Speed (%)	3.0	-	100.0	10.4
					Severity (%)	0.0	-	100.0	38.5
	667			Build-Up
	236			Consensus
	258			Consensus	Default Rate (%)	0.0	-	7.6	3.3
					Prepayment Speed (%)	3.2	-	30.3	5.9
					Severity (%)	20.0	-	95.0	78.8
					Spreads (bps)	243.4	-	278.0	253.5
	71			Other
Total single-family	1,339
Multifamily	161			Build-Up	Spreads (bps)	61.0	-	334.2	161.1
Total mortgage loans	$	1,500
Net derivatives	$	(115	)	Internal Model
	162			Dealer Mark
	13			Other
Total net derivatives	$	60
Long-term debt:
Of Fannie Mae:
Senior floating	$	(369	)	Discounted Cash Flow
Of consolidated trusts⁽⁴⁾	(127		)	Consensus
	(194		)	Consensus	Default Rate (%)	0.0	-	4.0	3.1
					Prepayment Speed (%)	3.5	-	30.3	5.4
					Severity (%)	20.0	-	95.0	78.0
					Spreads (bps)	243.4	-	260.0	254.8
	(250		)	Other
Total of consolidated trusts	(571		)
Total long-term debt	$	(940	)



	Fair Value Measurements as of December 31, 2014
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾			Weighted - Average⁽¹⁾
	(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽³⁾⁽⁴⁾	$	153	Single Vendor	Prepayment Speed (%)	100.0			100.0
				Spreads (bps)	256.5	-	350.8	293.4
	130		Consensus	Prepayment Speed (%)	100.0			100.0
				Spreads (bps)	184.6	-	219.5	197.5
	22		Other
Total Agency	305
Alt-A private-label securities⁽²⁾	290		Single Vendor	Default Rate (%)	8.3	-	9.1	8.5
				Prepayment Speed (%)	2.9	-	3.2	3.1
				Severity (%)	79.5	-	95.0	90.4
				Spreads (bps)	267.2	-	308.2	279.4
	66		Consensus	Default Rate (%)	5.4			5.4
				Prepayment Speed (%)	7.0			7.0
				Severity (%)	48.8			48.8
				Spreads (bps)	264.8			264.8
	151		Consensus
	90		Other
Total Alt-A private-label securities	597
Subprime private-label securities⁽²⁾	422		Consensus	Default Rate (%)	3.5	-	11.8	7.2
				Prepayment Speed (%)	1.4	-	5.2	2.8
				Severity (%)	72.1	-	95.0	85.9
				Spreads (bps)	265.0			265.0
	549		Consensus
	290		Discounted Cash Flow	Default Rate (%)	4.3	-	6.2	5.2
				Prepayment Speed (%)	2.3	-	4.2	3.3
				Severity (%)	62.2	-	95.0	73.8
				Spreads (bps)	265.0	-	382.1	283.7
	46		Other
Total subprime private-label securities	1,307
Mortgage revenue bonds	161		Dealer Mark	Spreads (bps)	288.1			288.1
	540		Discounted Cash Flow	Spreads (bps)	6.0	-	318.0	263.0
	21		Other
Total mortgage revenue bonds	722
Other	99		Dealer Mark
Total trading securities	$	3,030



	Fair Value Measurements as of December 31, 2014
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾				Weighted - Average⁽¹⁾
	(Dollars in millions)
Available-for-sale securities:
Mortgage-related securities:
Agency⁽³⁾	$	6	Other
Alt-A private-label securities⁽²⁾	322		Single Vendor	Default Rate (%)	0.2		-	13.1	4.6
				Prepayment Speed (%)	0.2		-	20.5	8.2
				Severity (%)	27.8		-	89.7	61.0
				Spreads (bps)	190.0		-	315.0	264.9
	493		Single Vendor
	1,187		Consensus	Default Rate (%)	0.4		-	31.2	5.1
				Prepayment Speed (%)	0.1		-	48.9	11.0
				Severity (%)	0.2		-	95.0	59.6
				Spreads (bps)	183.8		-	240.0	236.7
	691		Consensus
	403		Discounted Cash Flow	Default Rate (%)	5.0		-	11.5	7.0
				Prepayment Speed (%)	0.5		-	8.4	3.4
				Severity (%)	35.1		-	92.4	54.2
				Spreads (bps)	188.0		-	340.0	243.4
	44		Other
Total Alt-A private-label securities	3,140
Subprime private-label securities⁽²⁾	383		Single Vendor	Default Rate (%)	2.1		-	8.3	5.5
				Prepayment Speed (%)	1.5		-	3.3	2.1
				Severity (%)	65.4		-	95.0	78.5
				Spreads (bps)	215.0		-	262.0	230.0
	2,722		Consensus	Default Rate (%)	1.5		-	37.4	6.3
				Prepayment Speed (%)	0.1		-	17.7	2.6
				Severity (%)	1.5		-	95.0	84.4
				Spreads (bps)	155.0		-	265.0	220.0
	1,755		Consensus
	317		Discounted Cash Flow	Default Rate (%)	3.0		-	12.3	7.0
				Prepayment Speed (%)	1.1		-	9.0	4.1
				Severity (%)	28.9		-	91.8	81.2
				Spreads (bps)	155.0		-	895.0	250.5
	63		Other
Total subprime private-label securities	5,240
Mortgage revenue bonds	1,504		Single Vendor	Spreads (bps)	(11.5	)	-	361.5	52.7
	418		Single Vendor
	510		Dealer Mark	Spreads (bps)	222.8		-	322.1	265.9
	1,581		Discounted Cash Flow	Spreads (bps)	(11.5	)	-	620.2	251.4
	10		Other
Total mortgage revenue bonds	4,023
Other	337		Single Vendor	Default Rate (%)	1.7		-	5.0	4.4
				Prepayment Speed (%)	3.0		-	9.3	3.8
				Severity (%)	4.0		-	94.6	69.6
				Spreads (bps)	263.1		-	427.2	291.5
	720		Consensus	Default Rate (%)	0.1		-	6.6	3.9
				Prepayment Speed (%)	3.0		-	30.4	4.8
				Severity (%)	0.4		-	95.0	62.4
				Spreads (bps)	215.0		-	481.4	320.6
	1,215		Dealer Mark
	399		Other
Total other	2,671
Total available-for-sale securities	$	15,080



	Fair Value Measurements as of December 31, 2014
	Fair Value			Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾			Weighted - Average⁽¹⁾
	(Dollars in millions)
Mortgage loans:
Single-family	$	934		Build-Up	Default Rate (%)	0.0	-	99.0	14.9
					Prepayment Speed (%)	3.6	-	99.8	16.3
					Severity (%)	3.4	-	100.0	23.7
	279			Consensus
	402			Discounted Cash Flow	Default Rate (%)	2.7	-	13.1	5.5
					Prepayment Speed (%)	0.1	-	13.5	7.5
					Severity (%)	35.5	-	95.0	61.3
					Spreads (bps)	155.0	-	665.0	227.4
	39			Other
Total single-family	1,654
Multifamily	179			Build-Up	Spreads (bps)	59.0	-	323.4	137.3
Total mortgage loans	$	1,833
Net derivatives	$	(107	)	Internal Model
	150			Dealer Mark
	2			Other
Total net derivatives	$	45
Long-term debt:
Of Fannie Mae:
Senior floating	$	(363	)	Discounted Cash Flow
Of consolidated trusts⁽⁴⁾	(219		)	Consensus
	(205		)	Discounted Cash Flow	Default Rate (%)	2.7	-	11.9	4.0
					Prepayment Speed (%)	0.1	-	100.0	33.4
					Severity (%)	35.5	-	95.0	54.6
					Spreads (bps)	88.0	-	665.0	249.4
	(103		)	Other
Total of consolidated trusts	(527		)
Total long-term debt	$	(890	)

_________

⁽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⁾	Default Rate as disclosed represents the estimated beginning annualized rate of default and is used as a basis to forecast the future default rates that serve as an input for valuation.


⁽³⁾	Includes Fannie Mae and Freddie Mac securities.


⁽⁴⁾	Includes instruments for which the prepayment speed as disclosed represents the estimated annualized rate of prepayment after all prepayment penalty provisions have expired and also instruments for which prepayment speed as disclosed represents the estimated rate of prepayment over the remaining life of the instrument.

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 did not have any Level 1 assets or liabilities that were measured at fair value on a nonrecurring basis as of September 30, 2015 or December 31, 2014. We held $21 million and $93 million in Level 2 assets, comprised of mortgage loans held for sale, and no Level 2 liabilities that were measured at fair value on a nonrecurring basis as of September 30, 2015 and December 31, 2014, respectively.

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 (Level 3) as of
	Valuation Techniques	September 30, 2015			December 31, 2014
			(Dollars in millions)
Nonrecurring fair value measurements:
Mortgage loans held for sale, at lower of cost or fair value	Consensus		$	2,251		$	110
	Single Vendor		431			—
	Other		2			—
Total mortgage loans held for sale, at lower of cost or fair value			2,684			110
Single-family mortgage loans held for investment, at amortized cost	Internal Model		8,585			16,654
	Other		—			60
Total single-family mortgage loans held for investment, at amortized cost			8,585			16,714
Multifamily mortgage loans held for investment, at amortized cost	Broker Price Opinions		90			45
	Asset Manager Estimate		289			580
	Other		7			—
Total multifamily mortgage loans held for investment, at amortized cost			386			625
Acquired property, net:
Single-family	Accepted Offers		620			864
	Appraisals		865			1,509
	Walk Forwards		637			1,173
	Internal Model		970			1,045
	Other		122			191
Total single-family			3,214			4,782
Multifamily	Broker Price Opinions		31			127
	Other		2			13
Total multifamily			33			140
Other assets	Other		27			45
Total nonrecurring assets at fair value			$	14,929		$	22,416

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of 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.

Trading Securities and Available-for-Sale Securities

These securities are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. Fair value is measured using quoted market prices in active markets for identical assets, when available.

We classify securities whose values are based on quoted market prices in active markets for identical assets as Level 1 of the valuation hierarchy. We classify securities in active markets as Level 2 of the valuation hierarchy if quoted market prices in active markets for identical assets are not available. For all valuation techniques used for securities where there is limited activity or less transparency around these inputs to the valuation, these securities are classified as Level 3 of the valuation hierarchy.

A description of our securities valuation techniques is as follows:

Single Vendor: This valuation technique utilizes one vendor price to estimate fair value. We generally validate these observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, default rates) are disclosed in the table above.

Dealer Mark: This valuation technique utilizes one dealer price to estimate fair value. We generally validate these observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, default rates) are disclosed in the table above.

Consensus: This technique utilizes an average of two or more vendor prices for similar securities. We generally validate these observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, default rates) are disclosed in the table above.

Discounted Cash Flow: In the absence of prices provided by third-party pricing services supported by observable market data, we estimate the fair value of a portion of our securities using a discounted cash flow technique that uses inputs such as default rates, prepayment speeds, loss severity and spreads based on market assumptions where available.

For private-label securities, an increase in unobservable prepayment speeds in isolation would generally result in an increase in fair value, and an increase in unobservable spreads, severity rates or default rates in isolation would generally result in a decrease in fair value. For mortgage revenue bonds classified as Level 3 of the valuation hierarchy, an increase in unobservable spreads would result in a decrease in fair value. Although the sensitivities of the fair value of our recurring Level 3 securities of the valuation hierarchy to various unobservable inputs are discussed above in isolation, interrelationships exist among these inputs such that a change in one unobservable input typically results in a change to one or more of the other inputs.

Mortgage Loans Held for Investment

The majority of HFI loans are reported in our condensed consolidated balance sheets at the principal amount outstanding, net of cost basis adjustments and an allowance for loan losses. We estimate the fair value of HFI loans using the build-up and consensus valuation techniques, as discussed below, for periodic disclosure of financial instruments as required by GAAP. For our remaining loans, which include those containing embedded derivatives that would otherwise require bifurcation and consolidated loans of senior-subordinated trust structures, we elected the fair value option and therefore, we record these loans at fair value in our condensed consolidated balance sheets. We measure these loans on a recurring basis using the build-up, consensus, discounted cash flow and single vendor price techniques. Certain impaired loans are measured at fair value on a nonrecurring basis by using the fair value of their underlying collateral. Specific techniques used include internal models, broker price opinions and appraisals.

A description of our loan valuation techniques is as follows:

Build-up: We derive the fair value of mortgage loans using a build-up valuation technique. In the build-up valuation technique we start with the base value for our Fannie Mae MBS and then add or subtract the fair value of the associated guaranty asset, guaranty obligation (“GO”) and master servicing arrangement. We use observable market values of Fannie Mae MBS with similar characteristics, either on a pool or loan level, determined primarily from third party pricing services, quoted market prices in active markets for similar securities, and other observable market data as a base value. We set the GO equal to the estimated fair value we would receive if we were to issue our guaranty to an unrelated party in a stand-alone arm’s length transaction at the measurement date. We estimate the fair value of the GO using our internal valuation models, which calculate the present value of expected cash flows based on management’s best estimate of certain key assumptions such as current mark-to-market LTV ratios, future house prices, default rates, severity rates and required rate of return. We also estimate the fair value of the GO using our current guaranty pricing and adjust that pricing, as appropriate, for the seasoning of the collateral when such transactions reflect credit characteristics of loans held in our portfolio. As a result, the fair value of our mortgage loans will change when the pricing for our credit guaranty changes in the GSE securitization market.

Our performing loans are generally classified as Level 2 of the valuation hierarchy to the extent that significant inputs are observable. To the extent that unobservable inputs are significant, the loans are classified as Level 3 of the valuation hierarchy.

Consensus: The fair value of single-family nonperforming loans represents an estimate of the prices we would receive if we were to sell these loans in the whole-loan market. These nonperforming loans are either two or more months delinquent, in an open modification period, or in a closed modification state (both performing and nonperforming in accordance with the loan’s modified terms). We calculate the fair value of nonperforming loans based on certain key factors, including collateral value, cash flow characteristics and mortgage insurance repayment. Collateral value is derived from the current estimated mark-to-market LTV ratio of the individual loan and, where appropriate, a state-level distressed property sales discount. Cash flow characteristics include attributes such as the weighted average coupon rate and loan payment history. The fair value of mortgage insurance is estimated by taking the loan level coverage and adjusting it by the expected claims paying ability of the associated mortgage insurer. The expected claims paying abilities used for estimating the fair value of mortgage insurance are consistent with our credit loss forecast. Fair value is estimated from the extrapolation of indicative sample bids obtained from multiple active market participants plus the estimated value of any applicable mortgage insurance. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

We estimate the fair value for a portion of our senior-subordinated trust structures using the average of two or more vendor prices at the security level as a proxy for estimating loan fair value. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Discounted Cash Flow: We estimate the fair value of a portion of our senior-subordinated trust structures using discounted cash flow at the security level as a proxy for estimating loan fair value. This valuation technique uses unobservable inputs such as prepayment speeds, default rates, spreads, and loss severities to estimate the fair value of our securities. These inputs are weighted in a model that calculates the expected cash flow of the security which is used as the basis of fair value. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Single Vendor: We estimate the fair value of a portion of our senior-subordinated trust structures using the single vendor valuation technique at the security level as a proxy for estimating loan fair value. We also estimate the fair value of our reverse mortgages using the single vendor valuation technique. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Internal Model: For loans whose value it has been determined should be based on collateral value, we use an internal proprietary distressed home price model. The internal model used in this process takes one of two approaches when valuing the collateral.

The first approach relies on comparable foreclosed property sales to estimate the value of the target collateral. The comparable foreclosed property sales approach uses various factors such as geographic distance, transaction time and the value difference. The second approach referred to as the median Metropolitan Statistical Area (“MSA”) is based on the median of all the foreclosure sales of REOs in a specific MSA. Using this sales price, MSA level discount is computed and applied to the estimated non distressed value to derive an estimated fair value. If there are not enough REO sales in a specific MSA, a median state level foreclosure discount is used to estimate the fair value.

The majority of the internal model valuations come from the comparable sales approach. The determination of whether the internal model valuations in a particular geographic area should use the comparable sales approach or median MSA is based on historical accuracy. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Appraisals: For a portion of our multifamily loans, we use appraisals to estimate the fair value of the loan. There are three approaches used to estimate fair value of a specific property: (1) cost, (2) income capitalization and (3) sales comparison. The cost approach uses the insurable value as a basis. The unobservable inputs used in this model include the estimated cost to construct or replace multifamily properties in the closest localities available. The income capitalization approach estimates the fair value using the present value of the future cash flow expectations by applying an appropriate overall capitalization rate to the forecasted net operating income. The significant unobservable inputs used in this calculation include rental income, fees associated with rental income, expenses associated with the property including taxes, payroll, insurance and other items, and capitalization rates, which are determined through market extraction and the debt service coverage ratio. The sales comparison approach compares the prices paid for similar properties, the prices asked by owners and offers made. The unobservable inputs to this methodology include ratios of sales prices to annual gross income, price paid per unit and adjustments made based on financing, conditions of sale and physical characteristics of the property. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Broker Price Opinion (“BPO”): For a portion of our multifamily loans, we use BPO to estimate the fair value of the loan. This technique uses both current property value and the property value adjusted for stabilization and market conditions. These approaches compute net operating income based on current rents and expenses and use a range of market capitalization rates to estimate property value. The unobservable inputs used in this technique are property net operating income and market capitalization rates to estimate property value. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Asset Manager Estimate (“AME”): For a portion of our multifamily loans, AME is used to estimate the fair value of the loan. This technique uses the net operating income and tax assessments of the specific property as well as MSA-specific market capitalization rates and average per unit sales values to estimate property fair value. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

An increase in prepayment speeds in isolation would generally result in an increase in the fair value of our mortgage loans classified as Level 3 of the valuation hierarchy, and an increase in severity rates, default rates or spreads in isolation would generally result in a decrease in fair value. Although the sensitivities of the fair value of mortgage loans classified as Level 3 of the valuation hierarchy to various unobservable inputs are discussed above in isolation, interrelationships exist among these inputs such that a change in one unobservable input typically results in a change to one or more of the other inputs.

Acquired Property, Net and Other Assets

Acquired property, net represents foreclosed property received in full satisfaction of a loan net of a valuation allowance. Acquired property is initially recorded in our condensed consolidated balance sheets at its fair value less its estimated cost to sell. The initial fair value of foreclosed properties is determined using a hierarchy based on the reliability of available information. The hierarchy for single-family acquired property includes accepted offers, appraisals, broker price opinions and proprietary home price model values. The hierarchy for multifamily acquired property includes accepted offers, appraisals and broker price opinions. We consider an accepted offer on a specific foreclosed property to be the best estimate of its fair value. If we have not accepted an offer on the property we use the next highest priority valuation methodology available, as described in our valuation hierarchy to determine fair value. While accepted offers represent an agreement in principle to transact, a significant portion of these agreements do not get executed for various reasons, and are therefore classified as Level 3 of the valuation hierarchy.

Third-party valuations can be obtained from either an appraisal or a broker price opinion. These valuations are kept current using a monthly walk forward process that updates them for any change in the value of the property. When accepted offers or third-party valuations are not available, we generally utilize the home price values determined using an internal model.

Subsequent to initial measurement, the foreclosed properties that we intend to sell are reported at the lower of the carrying amount or fair value less estimated costs to sell. Foreclosed properties classified as held for use, included in “Other assets” in our condensed consolidated balance sheets, are depreciated and impaired when circumstances indicate that the carrying amount of the property is no longer recoverable. The fair values of our single-family foreclosed properties subsequent to initial measurement are determined using the same information hierarchy used for the initial fair value measurement.

The most commonly used techniques in our valuation of acquired property are proprietary home price model and third-party valuations (both current and walk forward). Based on the number of properties measured as of September 30, 2015, these methodologies comprised approximately 75% of our valuations, while accepted offers comprised approximately 20% of our valuations. Based on the number of properties measured as of December 31, 2014, these methodologies comprised approximately 77% of our valuations, while accepted offers comprised approximately 19% of our valuations.

Acquired property is classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

A description of our acquired property significant valuation techniques is as follows:

Single-family acquired property valuation techniques

Appraisal: An appraisal is an estimate of the value of a specific property by a certified or licensed appraiser, in accordance with the Uniform Standards of Professional Appraisal Practice. Data most commonly used is from the local Multiple Listing Service and includes properties currently listed for sale, properties under contract, and closed transactions. The appraiser performs an analysis that starts with these data points and then adjusts for differences between the comparable properties and the property being appraised, to arrive at an estimated value for the specific property. Adjustments are made for differences between comparable properties for unobservable inputs such as square footage, location, and condition of the property. The appraiser typically uses recent historical data for the estimate of value.

Broker Price Opinion: This technique provides an estimate of what the property is worth based upon a real estate broker’s knowledge. The broker uses research of pertinent data in the appropriate market, and a sales comparison approach that is similar to the appraisal process. The broker typically has insight into local market trends, such as the number of and terms of offers, lack of offers, increasing supply, shortage of inventory and overall interest in buying a home. This information, all of which is unobservable, is used along with recent and pending sales and current listings of similar properties to arrive at an estimate of value.

We review the appraisals and broker price opinions received to determine if they have been performed in accordance with applicable standards and if the results are consistent with our observed transactions on similar properties. We make necessary adjustments as required.

Appraisal and Broker Price Opinion Walk Forwards (“Walk Forwards”): We use these techniques to adjust appraisal and broker price opinion valuations for changing market conditions by applying a walk forward factor based on local price movements since the time the third-party value was obtained. The majority of third-party values are updated by comparing the difference in our internal home price model from the month of the original appraisal/broker price opinion to the current period and by applying the resulting percentage change to the original value. If a price is not determinable through our internal home price model, we use our zip code level home price index to update the valuations.

Internal Model: We use an internal model to estimate fair value for distressed properties. The valuation methodology and inputs used are described under “Mortgage Loans Held for Investment.”

Multifamily acquired property valuation techniques

Appraisals: We use this method to estimate property values for distressed properties. The valuation methodology and inputs used are described under “Mortgage Loans Held for Investment.”

Broker Price Opinions: We use this method to estimate property values for distressed properties. The valuation methodology and inputs used are described under “Mortgage Loans Held for Investment.”

Derivatives Assets and Liabilities (collectively “Derivatives”)

Derivatives are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. The valuation process for the majority of our risk management derivatives uses observable market data provided by third-party sources, resulting in Level 2 classification of the valuation hierarchy.

A description of our derivatives valuation techniques is as follows:

Internal Model: We use internal models to value interest rate swaps which are valued by referencing yield curves derived from observable interest rates and spreads to project and discount swap cash flows to present value. Option-based derivatives use an internal model that projects the probability of various levels of interest rates by referencing swaption volatilities provided by market makers/dealers. The projected cash flows of the underlying swaps of these option-based derivatives are discounted to present value using yield curves derived from observable interest rates and spreads.

Dealer Mark: Certain highly complex structured swaps primarily use a single dealer mark due to lack of transparency in the market and may be modeled using observable interest rates and volatility levels as well as significant unobservable assumptions, resulting in Level 3 classification of the valuation hierarchy. Mortgage commitment derivatives that use observable market data, quotes and actual transaction price levels adjusted for market movement are typically classified as Level 2 of the valuation hierarchy. To the extent mortgage commitment derivatives include adjustments for market movement that cannot be corroborated by observable market data, we classify them as Level 3 of the valuation hierarchy.

Debt

The majority of debt of Fannie Mae is recorded in our condensed consolidated balance sheets at the principal amount outstanding, net of cost basis adjustments. We elected the fair value option for certain structured Fannie Mae debt instruments and debt of consolidated trusts with embedded derivatives, which are recorded in our condensed consolidated balance sheets at fair value on a recurring basis.

We classify debt instruments that have quoted market prices in active markets for similar liabilities when traded as assets as Level 2 of the valuation hierarchy. For all valuation techniques used for debts instruments where there is limited activity or less transparency around these inputs to the valuation, these debt instruments are classified as Level 3 of the valuation hierarchy.

A description of our debt valuation techniques is as follows:

Consensus: We estimate the fair value of debt of Fannie Mae and our debt of consolidated trusts using an average of two or more vendor prices or dealer marks that represents estimated fair value for similar liabilities when traded as assets.

Single Vendor: We estimate the fair value of debt of Fannie Mae and our debt of consolidated trusts using a single vendor price that represents estimated fair value for these liabilities when traded as assets.

Discounted Cash Flow: In the absence of prices provided by third-party pricing services supported by observable market data, we estimate the fair value of a portion of the debt of Fannie Mae and our debt of consolidated trusts using a discounted cash flow technique that uses spreads based on market assumptions where available.

The valuation methodology and inputs used in estimating the fair value of MBS assets are described under “Trading Securities and Available-for-Sale Securities.”

Valuation Control Processes

We have control processes that are designed to ensure that our fair value measurements are appropriate and reliable, that they are based on observable inputs wherever possible and that our valuation approaches are consistently applied and the assumptions used are reasonable. Our control processes consist of a framework that provides for a segregation of duties and oversight of our fair value methodologies and valuations, as well as validation procedures.

The Pricing and Verification Group is responsible for the estimation and verification of the fair value for the majority of our financial assets and financial liabilities, including review of material assumptions used when market-based inputs do not exist. The Pricing and Verification Group also provides a quarterly update to the Valuation Oversight Committee (“VOC”) on relevant market information, pricing trends, significant valuation challenges and the resolution of those challenges. The Pricing and Verification Group resides within our Finance Division and is independent of any trading or market related activities. Fair value measurements for acquired property and collateral dependent loans are determined by other valuation groups in the Finance Division.

Our VOC includes senior representation from our Capital Markets segment, our Enterprise Risk Office and our Finance division, and is responsible for providing overall governance for our valuation processes, models and results. The composition of the VOC is determined by the VOC chair, our Chief Financial Officer, with the objective of obtaining appropriate representation from Finance, Enterprise Risk Management and select business units within Fannie Mae. Based on its review of valuation methodologies and fair value results for various financial instruments used for financial reporting, the VOC is responsible for advising the VOC chair, who has the ultimate responsibility over all valuation processes and results. The VOC also reviews trend analysis for various financial assets and liabilities on a quarterly basis.

We use third-party vendor prices and dealer quotes to estimate fair value of some of our financial assets and liabilities. Third-party vendor prices are primarily used to estimate fair value for trading securities, available-for-sale securities, debt of Fannie Mae and consolidated MBS debt. Our Pricing and Verification Group performs various review and validation procedures prior to utilizing these prices in our fair value estimation process. We verify selected prices, using a variety of methods, including corroborating the prices by reference to other independent market data, such as non-binding broker or dealer quotations, relevant benchmark indices and prices of similar instruments. We also review prices for reasonableness based on variations from prices provided in previous periods, comparing prices to internally estimated prices, using primarily a discounted cash flow approach, and conducting relative value comparisons based on specific characteristics of securities.

We have discussions with the pricing vendors as part of our due diligence process in order to maintain a current understanding of the valuation processes and related assumptions and inputs that these vendors use in developing prices. The prices provided to us by third-party pricing services reflect the existence of market reliance upon credit enhancements, if any, and the current levels of liquidity in the marketplace. If we determine that a price provided to us is outside established parameters, we will further examine the price, including having follow-up discussions with the pricing service or dealer. If we conclude that a price is not valid, we will adjust the price for various factors, such as liquidity, bid-ask spreads and credit considerations. All of these procedures are executed before we use the prices in preparing our financial statements.

We have an internal property valuation function that utilizes an internal model to compare the values received on a property and assign a risk rating based on several factors including the deviation between the various values. Property valuations with risk ratings above a specified threshold are reviewed for reasonableness by a team of property valuation experts. The internal model that is used to assign a risk rating and the threshold specified is subject to oversight from the Model Risk Management Group, which is responsible for establishing risk management controls and for reviewing models used in the determination of fair value measurements for financial reporting. In addition, our Quality Control Group reviews the overall work performed and inspects a portion of the properties in major markets, for which the third-party valuations are obtained, in order to assess the quality of the valuations.

We calibrate the performance of our proprietary distressed home price model using actual offers in recently observed transactions. The model’s performance is reviewed on a monthly basis by the REO valuation team and compared quarterly to specific model performance thresholds. The results of the validation are regularly reviewed with the VOC.

Our Property Valuation Review Group reviews appraisals and broker price opinions to determine the most appropriate value by comparing data within these products with current comparable properties and market data. We conduct regular performance reviews of the counterparties that provide products and services for this process. In addition, valuation results and trend analyses are reviewed regularly by management responsible for valuing and disposing of real estate.

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 certain financial instruments, such as plan obligations for pension and postretirement health care benefits, employee stock option and stock purchase plans, and also excludes all non-financial instruments. As a result, 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, 2015
	Carrying Value		Quoted Price 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	$	50,196	$	34,696	$	15,500	$	—	$	—		$	50,196
Federal funds sold and securities purchased under agreements to resell or similar arrangements	26,600		—		26,600		—		—			26,600
Trading securities	38,009		26,961		9,458		1,590		—			38,009
Available-for-sale securities	22,007		—		12,455		9,552		—			22,007
Mortgage loans held for sale	3,716		—		178		3,796					3,974
Mortgage loans held for investment, net of allowance for loan losses:
Of Fannie Mae	213,639		—		26,358		201,369		—			227,727
Of consolidated trusts	2,803,101		—		2,675,444		184,922		—			2,860,366
Mortgage loans held for investment	3,016,740		—		2,701,802		386,291		—			3,088,093
Advances to lenders	5,253		—		4,829		412		—			5,241
Derivative assets at fair value	1,610		—		5,830		197		(4,417		)	1,610
Guaranty assets and buy-ups	189		—		—		527		—			527
Total financial assets	$	3,164,320	$	61,657	$	2,776,652	$	402,365	$	(4,417	)	$	3,236,257

Financial liabilities:
Federal funds purchased and securities sold under agreements to repurchase	$	118	$	—	$	118	$	—	$	—		$	118
Short-term debt:
Of Fannie Mae	95,427		—		95,458		—		—			95,458
Of consolidated trusts	1,391		—		—		1,391		—			1,391
Long-term debt:
Of Fannie Mae	322,031		—		334,007		931		—			334,938
Of consolidated trusts	2,787,396		—		2,827,733		26,613		—			2,854,346
Derivative liabilities at fair value	904		—		11,402		137		(10,635		)	904
Guaranty obligations	338		—		—		1,342		—			1,342
Total financial liabilities	$	3,207,605	$	—	$	3,268,718	$	30,414	$	(10,635	)	$	3,288,497



	As of December 31, 2014
	Carrying Value		Quoted Price 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	$	54,565	$	37,965	$	16,600	$	—	$	—		$	54,565
Federal funds sold and securities purchased under agreements to resell or similar arrangements	30,950		—		30,950		—		—			30,950
Trading securities	31,504		19,466		9,008		3,030		—			31,504
Available-for-sale securities	30,654		—		15,574		15,080		—			30,654
Mortgage loans held for sale	331		—		169		169		—			338
Mortgage loans held for investment, net of allowance for loan losses:
Of Fannie Mae	239,243		—		29,896		217,064		—			246,960
Of consolidated trusts	2,779,920		—		2,657,863		183,263		—			2,841,126
Mortgage loans held for investment	3,019,163		—		2,687,759		400,327		—			3,088,086
Advances to lenders	5,559		—		5,079		470		—			5,549
Derivative assets at fair value	1,485		—		6,489		182		(5,186		)	1,485
Guaranty assets and buy-ups	210		—		—		616		—			616
Total financial assets	$	3,174,421	$	57,431	$	2,771,628	$	419,874	$	(5,186	)	$	3,243,747

Financial liabilities:
Federal funds purchased and securities sold under agreements to repurchase	$	50	$	—	$	50	$	—	$	—		$	50
Short-term debt:
Of Fannie Mae	105,012		—		105,022		—		—			105,022
Of consolidated trusts	1,560		—		—		1,560		—			1,560
Long-term debt:
Of Fannie Mae	355,431		—		367,703		982		—			368,685
Of consolidated trusts	2,760,152		—		2,815,843		19,334		—			2,835,177
Derivative liabilities at fair value	614		—		10,671		137		(10,194		)	614
Guaranty obligations	382		—		—		1,579		—			1,579
Total financial liabilities	$	3,223,201	$	—	$	3,299,289	$	23,592	$	(10,194	)	$	3,312,687

Financial Instruments for which fair value approximates carrying value—We hold certain financial instruments that are not carried at fair value but for which the carrying value approximates fair value due to the short-term nature and negligible credit risk inherent in them. These financial instruments include cash and cash equivalents, the majority of advances to lenders, and federal funds and securities sold/purchased under agreements to repurchase/resell.

Federal funds and securities sold/purchased under agreements to repurchase/resell—The carrying value for the majority of these specific instruments approximates the fair value due to the short-term nature and the negligible inherent credit risk, as they involve the exchange of collateral that is easily traded. Were we to calculate the fair value of these instruments we would use observable inputs resulting in Level 2 classification.

Mortgage Loans Held for Sale—Loans are reported at the lower of cost or fair value in our condensed consolidated balance sheets. The valuation methodology and inputs used in estimating the fair value of HFS loans are the same as for our HFI loans and are described under “Fair Value Measurement—Mortgage Loans Held for Investment.” These loans are classified as Level 2 of the valuation hierarchy to the extent that significant inputs are observable. To the extent that significant inputs are unobservable, the loans are classified within Level 3 of the valuation hierarchy.

HARP Loans—We measure the fair value of loans that are delivered under the Home Affordable Refinance Program (“HARP”) using a modified build-up approach while the loan is performing. Under this modified approach, we set the credit component of the consolidated loans (that is, the guaranty obligation) equal to the compensation we would currently receive for a loan delivered to us under the program because the total compensation for these loans is equal to their current exit price in the GSE securitization market. For a description of the build-up valuation methodology, refer to “Fair Value Measurement—Mortgage Loans Held for Investment.” We will continue to use this pricing methodology as long as the HARP program is available to market participants. If, subsequent to delivery, the refinanced loan becomes past due or is modified as a part of a troubled debt restructuring, the fair value of the guaranty obligation is then measured consistent with other loans that have similar characteristics.

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are willing to offer because HARP is a part of a broader government program intended to provide assistance to homeowners and prevent foreclosures. If these benefits were not reflected in the pricing for these loans (that is, if the loans were valued using our standard build-up approach), the fair value disclosed in the table above would be lower by $1.4 billion as of September 30, 2015 and $3.3 billion as of December 31, 2014. The total fair value of our mortgage loans that have been refinanced under HARP as presented in the table above was $292.0 billion as of September 30, 2015 and $314.0 billion as of December 31, 2014.

Advances to Lenders—The carrying value for the majority of our advances to lenders approximates fair value due to the short-term nature and the negligible inherent credit risk. If we were to calculate the fair value of these instruments we would use discounted cash flow models that use observable inputs such as spreads based on market assumptions, resulting in Level 2 classification.

Advances to lenders also include loans for which the carrying value does not approximate fair value. These loans do not qualify for Fannie Mae MBS securitization and are valued using market-based techniques including credit spreads, severities and prepayment speeds for similar loans, through third-party pricing services or through a model approach incorporating both interest rate and credit risk simulating a loan sale via a synthetic structure. We classify these valuations as Level 3 given that significant inputs are not observable or are determined by extrapolation of observable inputs.

Guaranty Assets and Buy-ups—Guaranty assets related to our portfolio securitizations are recorded in our condensed consolidated balance sheets at fair value on a recurring basis and are classified as Level 3. Guaranty assets in lender swap transactions are recorded in our condensed consolidated balance sheets at the lower of cost or fair value. These assets, which are measured at fair value on a nonrecurring basis, are also classified as Level 3.

We estimate the fair value of guaranty assets based on the present value of expected future cash flows of the underlying mortgage assets using management’s best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. These cash flows are projected using proprietary prepayment, interest rate and credit risk models. Because guaranty assets are like an interest-only income stream, the projected cash flows from our guaranty assets are discounted using one-month LIBOR plus an option-adjusted spread that is calibrated using a representative sample of interest-only swaps that reference Fannie Mae MBS. We believe the remitted fee income is less liquid than interest-only swaps and more like an excess servicing strip. Therefore, we take a further discount of the present value for these liquidity considerations. This discount is based on market quotes from third-party pricing services.

The fair value of the guaranty assets includes the fair value of any associated buy-ups.

Guaranty Obligations—The fair value of all guaranty obligations, measured subsequent to their initial recognition, is our estimate of a hypothetical transaction price we would receive if we were to issue our guaranty to an unrelated party in a standalone arm’s-length transaction at the measurement date. These obligations are classified as Level 3. The valuation methodology and inputs used in estimating the fair value of the guaranty obligations are described under “Fair Value Measurement—Mortgage Loans Held for Investment—Build-up.”

Fair Value Option

We elected the fair value option for our credit risk sharing debt securities issued under our CAS series and certain loans that contain embedded derivatives that would otherwise require bifurcation. Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from such instruments.

We elected the fair value option for all long-term structured debt instruments that are issued in response to specific investor demand and have interest rates that are based on a calculated index or formula and are economically hedged with derivatives at the time of issuance. By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from the accounting asymmetry created by recording these structured debt instruments at cost while recording the related derivatives at fair value.

We elected the fair value option for the financial assets and liabilities of the consolidated senior-subordinate trust structures. By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from different accounting treatment between loans at cost and debt at cost.

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.

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
		September 30, 2015									December 31, 2014
	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		$	14,605		$	9,975		$	23,143		$	15,629		$	6,403		$	19,483
Unpaid principal balance		14,019			10,104			21,038			15,001			6,512			17,810

__________

⁽¹⁾

Includes nonaccrual loans with a fair value of $241 million and $240 million as of September 30, 2015 and December 31, 2014, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2015 and December 31, 2014 was $60 million and $75 million, respectively. Includes loans that are 90 days or more past due with a fair value of $269 million and $271 million as of September 30, 2015 and December 31, 2014, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of September 30, 2015 and December 31, 2014 was $52 million and $78 million, respectively.

Changes in Fair Value under the Fair Value Option Election

The following tables display fair value gains and losses, net, including changes attributable to instrument-specific credit risk, for loans and debt for which the fair value election was made. Amounts are recorded as a component of “Fair value losses, net” in our condensed consolidated statements of operations and comprehensive income.



	For the Three Months Ended September 30,
	2015											2014
	Loans			Long-Term Debt				Total Gains (Losses)				Loans			Long-Term Debt				Total Gains (Losses)
	(Dollars in millions)
Changes in instrument-specific credit risk	$	73			$	150			$	223		$	67			$	187			$	254
Other changes in fair value	(15		)		(81		)		(96		)	(33		)		(27		)		(60		)
Fair value gains, net	$	58			$	69			$	127		$	34			$	160			$	194



	For the Nine Months Ended September 30,
	2015											2014
	Loans			Long-Term Debt				Total Gains (Losses)				Loans		Long-Term Debt				Total Gains (Losses)
	(Dollars in millions)
Changes in instrument-specific credit risk	$	110			$	45			$	155		$	92		$	60			$	152
Other changes in fair value	(65		)		(42		)		(107		)	461			(364		)		97
Fair value gains (losses), net	$	45			$	3			$	48		$	553		$	(304	)		$	249

In determining the changes in the instrument-specific credit risk for loans, the changes in the associated credit-related components of these loans, primarily the guaranty obligation, were taken into consideration with the overall change in the fair value of the loans for which we elected the fair value option for financial instruments. In determining the changes in the instrument-specific credit risk for debt, the changes in Fannie Mae debt spreads to LIBOR that occurred during the period were taken into consideration with the overall change in the fair value of the debt for which we elected the fair value option for financial instruments. Specifically, cash flows are evaluated taking into consideration any derivatives through which Fannie Mae has swapped out of the structured features of the notes and thus created a floating-rate LIBOR-based debt instrument. The change in value of these LIBOR-based cash flows based on the Fannie Mae yield curve at the beginning and end of the period represents the instrument-specific credit risk.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details