Netting Arrangements

We use master netting arrangements, which allow us to offset certain financial instruments and collateral with the same counterparty, to minimize counterparty credit exposure. The tables below display information related to derivatives, securities purchased under agreements to resell or similar arrangements, and securities sold under agreements to repurchase or similar arrangements, which are subject to an enforceable master netting arrangement or similar agreement that are either offset or not offset in our condensed consolidated balance sheets.



	As of March 31, 2016
									Net Amount Presented in our Condensed Consolidated Balance Sheets					Amounts Not Offset in our Condensed Consolidated Balance Sheets
	Gross Amount				Gross Amount Offset⁽¹⁾									Financial Instruments⁽²⁾				Collateral⁽³⁾				Net Amount
		(Dollars in millions)
Assets:
OTC risk management derivatives		$	5,032			$	(4,874	)		$	158				$	—			$	—			$	158
Cleared risk management derivatives		1,855				(1,850		)		5					—				—				5
Mortgage commitment derivatives		510				—				510					(334		)		(1		)		175
Total derivative assets		7,397				(6,724		)		673			⁽⁴⁾		(334		)		(1		)		338
Securities purchased under agreements to resell or similar arrangements⁽⁵⁾		32,450				—				32,450					—				(32,450		)		—
Total assets		$	39,847			$	(6,724	)		$	33,123				$	(334	)		$	(32,451	)		$	338
Liabilities:
OTC risk management derivatives		$	(7,895	)		$	7,622			$	(273	)			$	—			$	—			$	(273	)
Cleared risk management derivatives		(5,213		)		4,976				(237		)			—				237				—
Mortgage commitment derivatives		(605		)		—				(605		)			334				—				(271		)
Total derivative liabilities		(13,713		)		12,598				(1,115		)	⁽⁴⁾		334				237				(544		)
Securities sold under agreements to repurchase or similar arrangements		(26		)		—				(26		)			—				26				—
Total liabilities		$	(13,739	)		$	12,598			$	(1,141	)			$	334			$	263			$	(544	)



	As of December 31, 2015
									Net Amount Presented in our Condensed Consolidated Balance Sheets					Amounts Not Offset in our Condensed Consolidated Balance Sheets
	Gross Amount				Gross Amount Offset⁽¹⁾									Financial Instruments⁽²⁾				Collateral⁽³⁾				Net Amount
		(Dollars in millions)
Assets:
OTC risk management derivatives		$	4,042			$	(4,021	)		$	21				$	—			$	(18	)		$	3
Cleared risk management derivatives		708				(3		)		705					—				—				705
Mortgage commitment derivatives		140				—				140					(119		)		(3		)		18
Total derivative assets		4,890				(4,024		)		866			⁽⁴⁾		(119		)		(21		)		726
Securities purchased under agreements to resell or similar arrangements⁽⁵⁾		37,950				—				37,950					—				(37,950		)		—
Total assets		$	42,840			$	(4,024	)		$	38,816				$	(119	)		$	(37,971	)		$	726
Liabilities:
OTC risk management derivatives		$	(6,118	)		$	5,861			$	(257	)			$	—			$	—			$	(257	)
Cleared risk management derivatives		(2,796		)		2,789				(7		)			—				—				(7		)
Mortgage commitment derivatives		(158		)		—				(158		)			119				(1		)		(40		)
Total derivative liabilities		(9,072		)		8,650				(422		)	⁽⁴⁾		119				(1		)		(304		)
Securities sold under agreements to repurchase or similar arrangements		(62		)		—				(62		)			—				62				—
Total liabilities		$	(9,134	)		$	8,650			$	(484	)			$	119			$	61			$	(304	)

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⁽¹⁾	Represents the effect of the 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 and accrued interest.


⁽²⁾	Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty under an enforceable master netting arrangement but we have not elected to offset the related amounts in our condensed consolidated balance sheets.

⁽³⁾

Represents non-cash collateral received that has not been recognized and not offset in our condensed consolidated balance sheets as well as non-cash collateral posted which has been recognized but not offset in our condensed consolidated balance sheets. Does not include collateral held or posted in excess of our exposure. The fair value of non-cash collateral we pledged was $1.2 billion and $197 million as of March 31, 2016 and December 31, 2015, respectively, which the counterparty was permitted to sell or repledge. The fair value of non-cash collateral received was $32.5 billion and $38.0 billion, of which billion $29.2 billion and $36.2 billion could be sold or repledged as of March 31, 2016 and December 31, 2015, respectively. None of the underlying collateral was sold or repledged as of March 31, 2016 and December 31, 2015.


⁽⁴⁾	Excludes derivative assets of $27 million and $28 million as of March 31, 2016 and December 31, 2015, and derivative liabilities of $1 million and $2 million recognized in our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively, that are not subject to enforceable master netting arrangements.


⁽⁵⁾	Includes $14.9 billion and $10.6 billion of securities purchased under agreements to resell classified as “Cash and cash equivalents” in our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively.

Derivative instruments are recorded at fair value and securities purchased under agreements to resell or similar arrangements are recorded at amortized cost in our condensed consolidated balance sheets.

We determine our rights to offset the assets and liabilities presented above with the same counterparty, including collateral posted or received, based on the contractual arrangements entered into with our individual counterparties and various rules and regulations that would govern the insolvency of a derivative counterparty. The following is a description, under various agreements, of the nature of those rights and their effect or potential effect on our financial position.

The terms of the majority of our contracts for OTC risk management derivatives are governed under master agreements of the International Swaps and Derivatives Association Inc. (“ISDA”). These agreements provide that all transactions entered into under the agreement with the counterparty constitute a single contractual relationship. An event of default by the counterparty allows the early termination of all outstanding transactions under the same ISDA agreement and we may offset all outstanding amounts related to the terminated transactions including collateral posted or received.

The terms of our contracts for cleared derivatives are governed under the rules of the clearing organization and the agreement between us and the clearing member of that clearing organization. In the event of a clearing organization default, all open positions at the clearing organization are closed and a net position (on a clearing member by clearing member basis) is calculated. Unless otherwise transferred, in the event of a clearing member default, all open positions cleared through that clearing member are closed and a net position is calculated.

The terms of our contracts for mortgage commitment derivatives are primarily governed by the Fannie Mae Single-Family Selling Guide (“Guide”), for Fannie Mae-approved lenders, or Master Securities Forward Transaction Agreements (“MSFTA”), for counterparties that are not Fannie Mae-approved lenders. In the event of default by the counterparty, both the Guide and the MSFTA allow us to terminate all outstanding transactions under the applicable agreement and offset all outstanding amounts related to the terminated transactions including collateral posted or received. Under the Guide, upon a lender event of default, we generally may offset any amounts owed to a lender against any amounts a lender may owe us under any other existing agreement, regardless of whether or not such other agreements are in default or payments are immediately due.

The terms of our contracts for securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by Master Repurchase Agreements, which are based on the guidelines prescribed by the Securities Industry and Financial Markets Association. Master Repurchase Agreements provide that all transactions under the agreement constitute a single contractual relationship. An event of default by the counterparty allows the early termination of all outstanding transactions under the same agreement and we may offset all outstanding amounts related to the terminated transactions including collateral posted or received.

We also have securities purchased under agreements to resell which we transact through the Fixed Income Clearing Corporation (“FICC”). Under the rules of the FICC, all agreements for securities purchased under agreements to resell that are submitted to the FICC for clearing become transactions with the FICC that are subject to FICC clearing rules. In the event of a FICC default, all open positions at the FICC are closed and a net position is calculated.