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Allowance for Loan Losses
9 Months Ended
Sep. 30, 2016
Receivables [Abstract]  
Allowance for Loan Losses
Allowance for Loan Losses
We maintain an allowance for loan losses for HFI loans held by Fannie Mae and loans backing Fannie Mae MBS issued from consolidated trusts. When calculating our allowance for loan losses, we consider our net recorded investment in the loan at the balance sheet date, which includes unpaid principal balance, net of amortized premiums and discounts, and other 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 when a loan is determined to be uncollectible or 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 September 30,
 
2016
 
2015
 
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
$
22,736

 
 
$
848

 
 
$
23,584

 
$
29,624

 
 
$
1,252

 
 
$
30,876

Provision (benefit) for loan losses(1)
(561
)
 
 
(48
)
 
 
(609
)
 
(1,722
)
 
 
330

 
 
(1,392
)
Charge-offs(2)(3)
(587
)
 
 
(17
)
 
 
(604
)
 
(748
)
 
 
(22
)
 
 
(770
)
Recoveries
108

 
 
27

 
 
135

 
161

 
 
3

 
 
164

Transfers(4)
113

 
 
(113
)
 
 

 
262

 
 
(262
)
 
 

Other(5)
10

 
 

 
 
10

 
(13
)
 
 

 
 
(13
)
Ending balance
$
21,819

 
 
$
697

 
 
$
22,516

 
$
27,564

 
 
$
1,301

 
 
$
28,865

Multifamily allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
57

 
 
$
158

 
 
$
215

 
$
100

 
 
$
174

 
 
$
274

Provision (benefit) for loan losses(1)
(22
)
 
 
(5
)
 
 
(27
)
 
(10
)
 
 
8

 
 
(2
)
Charge-offs(2)(3)
(2
)
 
 
(2
)
 
 
(4
)
 
(5
)
 
 
(2
)
 
 
(7
)
Recoveries
6

 
 

 
 
6

 
4

 
 

 
 
4

Transfers(4)

 
 

 
 

 
1

 
 
(1
)
 
 

Other(5)

 
 

 
 

 
1

 
 

 
 
1

Ending balance
$
39

 
 
$
151

 
 
$
190

 
$
91

 
 
$
179

 
 
$
270

Total allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
22,793

 
 
$
1,006

 
 
$
23,799

 
$
29,724

 
 
$
1,426

 
 
$
31,150

Provision (benefit) for loan losses(1)
(583
)
 
 
(53
)
 
 
(636
)
 
(1,732
)
 
 
338

 
 
(1,394
)
Charge-offs(2)(3)
(589
)
 
 
(19
)
 
 
(608
)
 
(753
)
 
 
(24
)
 
 
(777
)
Recoveries
114

 
 
27

 
 
141

 
165

 
 
3

 
 
168

Transfers(4)
113

 
 
(113
)
 
 

 
263

 
 
(263
)
 
 

Other(5)
10

 
 

 
 
10

 
(12
)
 
 

 
 
(12
)
Ending balance
$
21,858

 
 
$
848

 
 
$
22,706

 
$
27,655

 
 
$
1,480

 
 
$
29,135


 
For the Nine Months Ended September 30,
 
2016
 
2015
 
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
$
26,439

 
 
$
1,270

 
 
$
27,709

 
$
32,956

 
 
$
2,221

 
 
$
35,177

Provision (benefit) for loan losses(1)
(2,979
)
 
 
22

 
 
(2,957
)
 
(249
)
 
 
(44
)
 
 
(293
)
Charge-offs(2)(3)
(2,629
)
 
 
(72
)
 
 
(2,701
)
 
(8,108
)
 
 
(64
)
 
 
(8,172
)
Recoveries
339

 
 
30

 
 
369

 
1,032

 
 
15

 
 
1,047

Transfers(4)
553

 
 
(553
)
 
 

 
877

 
 
(877
)
 
 

Other(5)
96

 
 

 
 
96

 
1,056

 
 
50

 
 
1,106

Ending balance
$
21,819

 
 
$
697

 
 
$
22,516

 
$
27,564

 
 
$
1,301

 
 
$
28,865

Multifamily allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
71

 
 
$
171

 
 
$
242

 
$
161

 
 
$
203

 
 
$
364

Benefit for loan losses(1)
(33
)
 
 
(14
)
 
 
(47
)
 
(41
)
 
 
(23
)
 
 
(64
)
Charge-offs(2)(3)
(10
)
 
 
(2
)
 
 
(12
)
 
(39
)
 
 
(2
)
 
 
(41
)
Recoveries
7

 
 

 
 
7

 
4

 
 

 
 
4

Transfers(4)
4

 
 
(4
)
 
 

 
1

 
 
(1
)
 
 

Other(5)

 
 

 
 

 
5

 
 
2

 
 
7

Ending balance
$
39

 
 
$
151

 
 
$
190

 
$
91

 
 
$
179

 
 
$
270

Total allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
26,510

 
 
$
1,441

 
 
$
27,951

 
$
33,117

 
 
$
2,424

 
 
$
35,541

Provision (benefit) for loan losses(1)
(3,012
)
 
 
8

 
 
(3,004
)
 
(290
)
 
 
(67
)
 
 
(357
)
Charge-offs(2)(3)
(2,639
)
 
 
(74
)
 
 
(2,713
)
 
(8,147
)
 
 
(66
)
 
 
(8,213
)
Recoveries
346

 
 
30

 
 
376

 
1,036

 
 
15

 
 
1,051

Transfers(4)
557

 
 
(557
)
 
 

 
878

 
 
(878
)
 
 

Other(5)
96

 
 

 
 
96

 
1,061

 
 
52

 
 
1,113

Ending balance
$
21,858

 
 
$
848

 
 
$
22,706

 
$
27,655

 
 
$
1,480

 
 
$
29,135


__________
(1) 
Provision (benefit) for loan losses is included in “Benefit for credit losses” in our condensed consolidated statements of operations and comprehensive income.
(2) 
While we purchase the substantial majority of loans that are four or more months delinquent from our MBS trusts, we do not exercise this option to purchase loans during a forbearance period. Charge-offs of consolidated trusts generally represent loans that remained in our consolidated trusts at the time of default.
(3) 
Our charge-offs for 2015 include the initial charge-offs associated with our approach to adopting the charge-off provisions of Advisory Bulletin AB 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention,” as well as charge-offs relating to a change in accounting policy for nonaccrual loans.
(4) 
Includes transfers from trusts for delinquent loan purchases.
(5) 
Amounts represent changes in other loss reserves which are reflected in provision (benefit) for loan losses, charge-offs, and recoveries.
The following table displays the allowance for loan losses and recorded investment in our HFI loans, excluding loans for which we have elected the fair value option, by impairment or reserve methodology and portfolio segment.
 
As of
  
September 30, 2016
 
December 31, 2015
 
Single-Family
 
Multifamily
 
Total
 
Single-Family
 
Multifamily
 
Total
 
(Dollars in millions)
Allowance for loan losses by segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans(1)
$
21,285

 
 
$
41

 
 
$
21,326

 
$
25,437

 
 
$
80

 
 
$
25,517

Collectively reserved loans
1,231

 
 
149

 
 
1,380

 
2,272

 
 
162

 
 
2,434

Total allowance for loan losses
$
22,516

 
 
$
190

 
 
$
22,706

 
$
27,709

 
 
$
242

 
 
$
27,951

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans by segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans(1)
$
160,307

 
 
$
766

 
 
$
161,073

 
$
171,161

 
 
$
1,008

 
 
$
172,169

Collectively reserved loans
2,678,498

 
 
223,339

 
 
2,901,837

 
2,664,377

 
 
199,166

 
 
2,863,543

Total recorded investment in loans
$
2,838,805

 
 
$
224,105

 
 
$
3,062,910

 
$
2,835,538

 
 
$
200,174

 
 
$
3,035,712

__________
(1) 
Includes acquired credit-impaired loans.