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Fair Value
12 Months Ended
Dec. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value
Fair Value
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 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 December 31, 2016
 
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
 
$

 
 
 
$
3,934

 
 
 
$
835

 
 
 
$

 
 
 
$
4,769

 
Freddie Mac
 

 
 
 
936

 
 
 

 
 
 

 
 
 
936

 
Ginnie Mae
 

 
 
 
1,122

 
 
 

 
 
 

 
 
 
1,122

 
Alt-A private-label securities
 

 
 
 
46

 
 
 
271

 
 
 

 
 
 
317

 
Subprime private-label securities
 

 
 
 
319

 
 
 

 
 
 

 
 
 
319

 
CMBS
 

 
 
 
761

 
 
 

 
 
 

 
 
 
761

 
Mortgage revenue bonds
 

 
 
 

 
 
 
21

 
 
 

 
 
 
21

 
Non-mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
  

 
 
 
 
 
U.S. Treasury securities
 
32,317

 
 
 

 
 
 

 
 
 

 
 
 
32,317

 
Total trading securities
 
32,317

 
 
 
7,118

 
 
 
1,127

 
 
 

 
 
 
40,562

 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
  

 
 
 
 
 
Mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
  

 
 
 
 
 
Fannie Mae
 

 
 
 
2,324

 
 
 
230

 
 
 

 
 
 
2,554

 
Freddie Mac
 

 
 
 
504

 
 
 
5

 
 
 

 
 
 
509

 
Ginnie Mae
 

 
 
 
38

 
 
 

 
 
 

 
 
 
38

 
Alt-A private-label securities
 

 
 
 
1,119

 
 
 
172

 
 
 

 
 
 
1,291

 
Subprime private-label securities
 

 
 
 
1,373

 
 
 
45

 
 
 

 
 
 
1,418

 
CMBS
 

 
 
 
819

 
 
 

 
 
 

 
 
 
819

 
Mortgage revenue bonds
 

 
 
 

 
 
 
1,272

 
 
 

 
 
 
1,272

 
Other
 

 
 
 
33

 
 
 
429

 
 
 

 
 
 
462

 
Total available-for-sale securities
 

 
 
 
6,210

 
 
 
2,153

 
 
 

 
 
 
8,363

 
Mortgage loans
 

 
 
 
10,860

 
 
 
1,197

 
 
 

 
 
 
12,057

 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk management derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
 

 
 
 
4,159

 
 
 
137

 
 
 

 
 
 
4,296

 
Swaptions
 

 
 
 
241

 
 
 

 
 
 

 
 
 
241

 
Other
 

 
 
 

 
 
 
33

 
 
 

 
 
 
33

 
Netting adjustment
 

 
 
 

 
 
 

 
 
 
(4,514
)
 
 
 
(4,514
)
 
Mortgage commitment derivatives
 

 
 
 
619

 
 
 
12

 
 
 

 
 
 
631

 
Total other assets
 

 
 
 
5,019

 
 
 
182

 
 
 
(4,514
)
 
 
 
687

 
Total assets at fair value
 
$
32,317

 
 
 
$
29,207

 
 
 
$
4,659

 
 
 
$
(4,514
)
 
 
 
$
61,669

 

 
Fair Value Measurements as of December 31, 2016
 
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
 
$

 
 
 
$
9,235

 
 
 
$
347

 
 
 
$

 
 
 
$
9,582

 
Total of Fannie Mae
 

 
 
 
9,235

 
 
 
347

 
 
 

 
 
 
9,582

 
Of consolidated trusts
 

 
 
 
36,283

 
 
 
241

 
 
 

 
 
 
36,524

 
Total long-term debt
 

 
 
 
45,518

 
 
 
588

 
 
 

 
 
 
46,106

 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk management derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
 

 
 
 
6,933

 
 
 
48

 
 
 

 
 
 
6,981

 
Swaptions
 

 
 
 
339

 
 
 

 
 
 

 
 
 
339

 
Other
 

 
 
 

 
 
 
2

 
 
 

 
 
 
2

 
Netting adjustment
 

 
 
 

 
 
 

 
 
 
(6,844
)
 
 
 
(6,844
)
 
Mortgage commitment derivatives
 

 
 
 
649

 
 
 
88

 
 
 

 
 
 
737

 
Total other liabilities
 

 
 
 
7,921

 
 
 
138

 
 
 
(6,844
)
 
 
 
1,215

 
Total liabilities at fair value
 
$

 
 
 
$
53,439

 
 
 
$
726

 
 
 
$
(6,844
)
 
 
 
$
47,321

 

 
Fair Value Measurements as of December 31, 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)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fannie Mae
 
$

 
 
 
$
4,813

 
 
 
$

 
 
 
$

 
 
 
$
4,813

 
Freddie Mac
 

 
 
 
1,314

 
 
 

 
 
 

 
 
 
1,314

 
Ginnie Mae
 

 
 
 
426

 
 
 

 
 
 

 
 
 
426

 
Alt-A private-label securities
 

 
 
 
131

 
 
 
305

 
 
 

 
 
 
436

 
Subprime private-label securities
 

 
 
 

 
 
 
644

 
 
 

 
 
 
644

 
CMBS
 

 
 
 
2,341

 
 
 

 
 
 

 
 
 
2,341

 
Mortgage revenue bonds
 

 
 
 

 
 
 
449

 
 
 

 
 
 
449

 
Non-mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
29,485

 
 
 

 
 
 

 
 
 

 
 
 
29,485

 
Total trading securities
 
29,485

 
 
 
9,025

 
 
 
1,398

 
 
 

 
 
 
39,908

 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fannie Mae
 

 
 
 
4,221

 
 
 

 
 
 

 
 
 
4,221

 
Freddie Mac
 

 
 
 
4,295

 
 
 
4

 
 
 

 
 
 
4,299

 
Ginnie Mae
 

 
 
 
391

 
 
 

 
 
 

 
 
 
391

 
Alt-A private-label securities
 

 
 
 
1,637

 
 
 
1,041

 
 
 

 
 
 
2,678

 
Subprime private-label securities
 

 
 
 

 
 
 
3,281

 
 
 

 
 
 
3,281

 
CMBS
 

 
 
 
1,255

 
 
 

 
 
 

 
 
 
1,255

 
Mortgage revenue bonds
 

 
 
 

 
 
 
2,701

 
 
 

 
 
 
2,701

 
Other
 

 
 
 

 
 
 
1,404

 
 
 

 
 
 
1,404

 
Total available-for-sale securities
 

 
 
 
11,799

 
 
 
8,431

 
 
 

 
 
 
20,230

 
Mortgage loans
 

 
 
 
12,598

 
 
 
1,477

 
 
 

 
 
 
14,075

 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk management derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
 

 
 
 
4,541

 
 
 
156

 
 
 

 
 
 
4,697

 
Swaptions
 

 
 
 
53

 
 
 

 
 
 

 
 
 
53

 
Other
 

 
 
 

 
 
 
28

 
 
 

 
 
 
28

 
Netting adjustment
 

 
 
 

 
 
 

 
 
 
(4,024
)
 
 
 
(4,024
)
 
Mortgage commitment derivatives
 

 
 
 
135

 
 
 
5

 
 
 

 
 
 
140

 
Total other assets
 

 
 
 
4,729

 
 
 
189

 
 
 
(4,024
)
 
 
 
894

 
Total assets at fair value
 
$
29,485

 
 
 
$
38,151

 
 
 
$
11,495

 
 
 
$
(4,024
)
 
 
 
$
75,107

 

 
Fair Value Measurements as of December 31, 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
 
$

 
 
 
$
10,764

 
 
 
$
369

 
 
 
$

 
 
 
$
11,133

 
Total of Fannie Mae
 

 
 
 
10,764

 
 
 
369

 
 
 

 
 
 
11,133

 
Of consolidated trusts
 

 
 
 
23,113

 
 
 
496

 
 
 

 
 
 
23,609

 
Total long-term debt
 

 
 
 
33,877

 
 
 
865

 
 
 

 
 
 
34,742

 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk management derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
 

 
 
 
8,697

 
 
 
20

 
 
 

 
 
 
8,717

 
Swaptions
 

 
 
 
197

 
 
 

 
 
 

 
 
 
197

 
Other
 

 
 
 

 
 
 
2

 
 
 

 
 
 
2

 
Netting adjustment
 

 
 
 

 
 
 

 
 
 
(8,650
)
 
 
 
(8,650
)
 
Mortgage commitment derivatives
 

 
 
 
148

 
 
 
10

 
 
 

 
 
 
158

 
Total other liabilities
 

 
 
 
9,042

 
 
 
32

 
 
 
(8,650
)
 
 
 
424

 
Total liabilities at fair value
 
$

 
 
 
$
42,919

 
 
 
$
897

 
 
 
$
(8,650
)
 
 
 
$
35,166

 
__________
(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 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 Year Ended December 31, 2016
 
 
 
Total Gains (Losses) (Realized/Unrealized) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2016(5)(6)
 
Balance, December 31, 2015
 
Included in Net Income
 
Included in Total Other Comprehensive Income (Loss)(1)
 
Purchases(2)
 
Sales(2)
 
Issues(3)
 
Settlements(3)
 
Transfers out of Level 3(4)
 
Transfers into Level 3(4)
 
Balance, December 31, 2016
 
 
(Dollars in millions)
 
Trading securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fannie Mae
$

 
$

 
 
$

 
 
$

 
$

 
$

 
$
(1
)
 
$
(24
)
 
$
860

 
$
835

 
 
$

 
Freddie Mac

 

 
 

 
 

 

 

 

 
(1
)
 
1

 

 
 

 
Alt-A private-label securities
305

 
(1
)
 
 

 
 

 

 

 
(33
)
 

 

 
271

 
 
(1
)
 
Subprime private-label securities
644

 
(32
)
 
 

 
 

 
(231
)
 

 
(18
)
 
(363
)
 

 

 
 

 
Mortgage revenue bonds
449

 
33

 
 

 
 

 
(448
)
 

 
(13
)
 

 

 
21

 
 
(2
)
 
Total trading securities
$
1,398

 
$

(6)(7) 
 
$

 
 
$

 
$
(679
)
 
$

 
$
(65
)
 
$
(388
)
 
$
861

 
$
1,127

 
 
$
(3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fannie Mae
$

 
$

 
 
$

 
 
$

 
$

 
$

 
$

 
$
(1
)
 
$
231

 
$
230

 
 
$

 
Freddie Mac
4

 

 
 

 
 

 

 

 

 
(4
)
 
5

 
5

 
 

 
Alt-A private-label securities
1,041

 
14

 
 
(24
)
 
 

 
(291
)
 

 
(52
)
 
(516
)
 

 
172

 
 

 
Subprime private-label securities
3,281

 
170

 
 
(209
)
 
 

 
(706
)
 

 
(168
)
 
(2,323
)
 

 
45

 
 

 
Mortgage revenue bonds
2,701

 
132

 
 
(34
)
 
 

 
(1,129
)
 

 
(398
)
 

 

 
1,272

 
 

 
Other
1,404

 

 
 
(12
)
 
 

 
(605
)
 

 
(74
)
 
(284
)
 

 
429

 
 

 
Total available-for-sale securities
$
8,431

 
$
316

(7)(8) 
 
$
(279
)
 
 
$

 
$
(2,731
)
 
$

 
$
(692
)
 
$
(3,128
)
 
$
236

 
$
2,153

 
 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans
$
1,477

 
$
129

(6)(7) 
 
$

 
 
$
36

 
$
(392
)
 
$

 
$
(255
)
 
$
(77
)
 
$
279

 
$
1,197

 
 
$
17

 
Net derivatives
157

 
15

(6) 
 

 
 

 

 
(8
)
 
(122
)
 
2

 

 
44

 
 
(132
)
 
Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior floating
$
(369
)
 
$
22

 
 
$

 
 
$

 
$

 
$

 
$

 
$

 
$

 
$
(347
)
 
 
$
22

 
Of consolidated trusts
(496
)
 
(75
)
 
 

 
 

 

 
(74
)
 
378

 
215

 
(189
)
 
(241
)
 
 
(9
)
 
Total long-term debt
$
(865
)
 
$
(53
)
(6) 
 
$

 
 
$

 
$

 
$
(74
)
 
$
378

 
$
215

 
$
(189
)
 
$
(588
)
 
 
$
13

 

 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 
 
For the Year Ended December 31, 2015
 
 
 
Total Gains (Losses) (Realized/Unrealized) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2015(5)(6)
 
Balance,
December 31, 2014
 
Included in Net Income
 
Included in Total Other Comprehensive Income (Loss)(1)
 
Purchases(2)
 
Sales(2)
 
Issues(3)
 
Settlements(3)
 
Transfers out of Level 3(4)
 
Transfers into Level 3(4)
 
Balance, December 31, 2015
 
 
(Dollars in millions)
 
Trading securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fannie Mae
$
305

 
$
(27
)
 
 
$

 
 
$

 
$
(2
)
 
$

 
$

 
$
(278
)
 
$
2

 
$

 
 
$

 
Alt-A private-label securities
597

 
36

 
 

 
 

 
(267
)
 

 
(45
)
 
(44
)
 
28

 
305

 
 
15

 
Subprime private-label securities
1,307

 
36

 
 

 
 

 
(611
)
 

 
(88
)
 

 

 
644

 
 
10

 
Mortgage revenue bonds
722

 
(41
)
 
 

 
 

 
(220
)
 

 
(12
)
 

 

 
449

 
 
(33
)
 
Other
99

 
4

 
 

 
 

 
(100
)
 

 
(3
)
 

 

 

 
 

 
Total trading securities
$
3,030

 
$
8

(6)(7) 
 
$

 
 
$

 
$
(1,200
)
 
$

 
$
(148
)
 
$
(322
)
 
$
30

 
$
1,398

 
 
$
(8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
215

 
 
(173
)
 
 

 
(1,504
)
 

 
(436
)
 
(538
)
 
337

 
1,041

 
 

 
Subprime private-label securities
5,240

 
599

 
 
(382
)
 
 

 
(1,575
)
 

 
(601
)
 

 

 
3,281

 
 

 
Mortgage revenue bonds
4,023

 
51

 
 
(104
)
 
 

 
(410
)
 

 
(859
)
 

 

 
2,701

 
 

 
Other
2,671

 
(26
)
 
 
(2
)
 
 

 
(1,012
)
 

 
(227
)
 

 

 
1,404

 
 

 
Total available-for-sale securities
$
15,080

 
$
839

(7)(8) 
 
$
(661
)
 
 
$
421

 
$
(4,926
)
 
$

 
$
(2,132
)
 
$
(540
)
 
$
350

 
$
8,431

 
 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans
$
1,833

 
$
57

(6)(7) 
 
$

 
 
$
5

 
$

 
$

 
$
(350
)
 
$
(377
)
 
$
309

 
$
1,477

 
 
$
(20
)
 
Net derivatives
45

 
(55
)
(6) 
 

 
 

 

 
(4
)
 
169

 
(7
)
 
9

 
157

 
 
(2
)
 
Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior floating
$
(363
)
 
$
(6
)
 
 
$

 
 
$

 
$

 
$

 
$

 
$

 
$

 
$
(369
)
 
 
$
(6
)
 
Of consolidated trusts
(527
)
 
(9
)
 
 

 
 

 

 
(66
)
 
57

 
228

 
(179
)
 
(496
)
 
 
17

 
Total long-term debt
$
(890
)
 
$
(15
)
(6) 
 
$

 
 
$

 
$

 
$
(66
)
 
$
57

 
$
228

 
$
(179
)
 
$
(865
)
 
 
$
11

 

 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 
 
For the Year Ended December 31, 2014
 
 
 
Total Gains (Losses) (Realized/Unrealized) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2014(5)(6)
 
Balance,
December 31, 2013
 
Included in Net Income
 
Included in Total Other Comprehensive Income (Loss)(1)
 
Purchases(2)
 
 Sales(2)
 
Issues(3)
 
Settlements(3)
 
Transfers out of Level 3(4)
 
Transfers into Level 3(4)
 
Balance, December 31, 2014
 
 
(Dollars in millions)
 
Trading securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fannie Mae
$
42

 
$
(27
)
 
 
$

 
 
$
6

 
$

 
$

 
$
(2
)
 
$
(39
)
 
$
325

 
$
305

 
 
$
(18
)
 
Freddie Mac
2

 

 
 

 
 

 

 

 

 
(2
)
 

 

 
 

 
Alt-A private-label securities
618

 
88

 
 

 
 

 
(58
)
 

 
(81
)
 
(226
)
 
256

 
597

 
 
97

 
Subprime private-label securities
1,448

 
270

 
 

 
 

 
(241
)
 

 
(170
)
 

 

 
1,307

 
 
234

 
Mortgage revenue bonds
565

 
168

 
 

 
 

 

 

 
(11
)
 

 

 
722

 
 
160

 
Other
99

 
13

 
 

 
 

 

 

 
(13
)
 

 

 
99

 
 
13

 
Total trading securities
$
2,774

 
$
512

(6)(7) 
 
$

 
 
$
6

 
$
(299
)
 
$

 
$
(277
)
 
$
(267
)
 
$
581

 
$
3,030

 
 
$
486

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
172

 
 
(26
)
 
 

 
(393
)
 

 
(471
)
 
(1,738
)
 
1,805

 
3,140

 
 

 
Subprime private-label securities
7,068

 
447

 
 
301

 
 

 
(1,730
)
 

 
(846
)
 

 

 
5,240

 
 

 
Mortgage revenue bonds
5,253

 
(32
)
 
 
554

 
 

 
(70
)
 

 
(1,682
)
 

 

 
4,023

 
 

 
Other
2,885

 
19

 
 
103

 
 

 

 

 
(336
)
 

 

 
2,671

 
 

 
Total available-for-sale securities
$
19,012

 
$
606

(7)(8) 
 
$
932

 
 
$

 
$
(2,193
)
 
$

 
$
(3,337
)
 
$
(1,748
)
 
$
1,808

 
$
15,080

 
 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans
$
2,704

 
$
260

(6)(7) 
 
$

 
 
$
36

 
$

 
$

 
$
(344
)
 
$
(1,113
)
 
$
290

 
$
1,833

 
 
$
53

 
Net derivatives
(40
)
 
103

(6) 
 

 
 

 

 

 
(21
)
 
(2
)
 
5

 
45

 
 
77

 
Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior floating
$
(955
)
 
$
(142
)
 
 
$

 
 
$

 
$

 
$
(750
)
 
$
19

 
$
1,465

 
$

 
$
(363
)
 
 
$
(97
)
 
Of consolidated trusts
(518
)
 
(53
)
 
 

 
 

 

 
(1
)
 
62

 
111

 
(128
)
 
(527
)
 
 
(49
)
 
Total long-term debt
$
(1,473
)
 
$
(195
)
(6) 
 
$

 
 
$

 
$

 
$
(751
)
 
$
81

 
$
1,576

 
$
(128
)
 
$
(890
)
 
 
$
(146
)
 
__________
(1) 
Gains (losses) included in other comprehensive income are included in “Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes” in the 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 and credit risk sharing securities issued under our CAS series. Prices for these securities are obtained from multiple third-party vendors or dealers and have demonstrated an increased and sustained level of observability over time. 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 Fannie Mae securities backed by private-label mortgage-related securities and 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 consolidated statements of operations and comprehensive income.
(7) 
Gains (losses) are included in “Net interest income” in our consolidated statements of operations and comprehensive income.
(8) 
Gains (losses) are included in “Investment gains, net” in our 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 December 31, 2016
 
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(2)
$
809

 
Consensus
 
 
 
 
 
 
 
 
 
26

 
Other
 
 
 
 
 
 
 
 
Total agency
835

 
 
 
 
 
 
 
 
 
 
Alt-A private-label securities
232

 
Consensus
 
Default Rate (%)
 
0.4
-
10.9
 
8.2
 
 
 
 
 
Prepayment Speed (%)
 
4.3
-
7.4
 
6.6
 
 
 
 
 
Severity (%)
 
71.0
-
95.0
 
88.9
 
 
 
 
 
Spreads (bps)
 
244.6
-
253.9
 
251.5
 
39

 
Consensus
 
 
 
 
 
 
 
 
Total Alt-A private-label securities
271

 
 
 
 
 
 
 
 
 
 
Mortgage revenue bonds
19

 
Discounted Cash Flow
 
Spreads (bps)
 
13.0
-
268.2
 
252.2
 
2

 
Other
 
 
 
 
 
 
 
 
Total mortgage revenue bonds
21

 
 
 
 
 
 
 
 
 
 
Total trading securities
$
1,127

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2016
 
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(2)
$
129

 
Single Vendor
 
Prepayment Speed (%)
 
124.8

-
165.5
 
142.4
 
 
 
 
 
Spreads (bps)
 
175.0

-
210.0
 
182.5
 
72

 
Consensus
 
 
 
 
 
 
 
 
 
34

 
Other
 
 
 
 
 
 
 
 
Total agency
235

 
 
 
 
 
 
 
 
 
 
Alt-A private-label securities
93

 
Single Vendor
 
Default Rate (%)
 
2.5

-
8.0
 
3.8
 
 
 
 
 
Prepayment Speed (%)
 
3.0

-
11.0
 
4.9
 
 
 
 
 
Severity (%)
 
38.0

-
80.0
 
48.1
 
 
 
 
 
Spreads (bps)
 
266.1

-
306.8
 
297.1
 
45

 
Discounted Cash Flow
 
Spreads (bps)
 
361.0

-
450.0
 
406.0
 
34

 
Other
 
 
 
 
 
 
 
 
Total Alt-A private-label securities
172

 
 
 
 
 
 
 
 
 
 
Subprime private-label securities
45

 
Other
 
 
 
 
 
 
 
 
Mortgage revenue bonds
684

 
Single Vendor
 
Spreads (bps)
 
(16.8
)
-
336.9
 
44.3
 
126

 
Single Vendor
 
 
 
 
 
 
 
 
 
435

 
Discounted Cash Flow
 
Spreads (bps)
 
(16.8
)
-
391.1
 
260.0
 
27

 
Other
 
 
 
 
 
 
 
 
Total mortgage revenue bonds
1,272

 
 
 
 
 
 
 
 
 
 
Other
47

 
Consensus
 
Default Rate (%)
 
0.5

-
3.5
 
3.5
 
 
 
 
 
Prepayment Speed (%)
 
2.5

-
6.0
 
2.5
 
 
 
 
 
Severity (%)
 
20.0

-
88.0
 
87.5
 
 
 
 
 
Spreads (bps)
 
221.6

-
300.2
 
237.7
 
348

 
Discounted Cash Flow
 
Default Rate (%)
 
2.3
 
2.3
 
 
 
 
 
Prepayment Speed (%)
 
0.5
 
0.5
 
 
 
 
 
Severity (%)
 
95.0
 
95.0
 
 
 
 
 
Spreads (bps)
 
190.0

-
450.0
 
449.1
 
34

 
Other
 
 
 
 
 
 
 
 
Total other
429

 
 
 
 
 
 
 
 
 
 
Total available-for-sale securities
$
2,153

 
 
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
Single-family
$
516

 
Build-Up
 
 
 
 
 
 
 
 
 
300

 
Consensus
 
 
 
 
 
 
 
 
 
218

 
Other
 
 
 
 
 
 
 
 
Total single-family
1,034

 
 
 
 
 
 
 
 
 
 
Multifamily
163

 
Build-Up
 
Spreads (bps)
 
55.0

-
305.2
 
140.2
Total mortgage loans
$
1,197

 
 
 
 
 
 
 
 
 
 
Net derivatives
$
10

 
Internal Model
 
 
 
 
 
 
 
 
 
89

 
Dealer Mark
 
 
 
 
 
 
 
 
 
21

 
Discounted Cash Flow
 
 
 
 
 
 
 
 
 
(76
)
 
Other
 
 
 
 
 
 
 
 
Total net derivatives
$
44

 
 
 
 
 
 
 
 
 
 
Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae:
 
 
 
 
 
 
 
 
 
 
 
Senior floating
$
(347
)
 
Discounted Cash Flow
 
 
 
 
 
 
 
 
Of consolidated trusts
(241
)
 
Other
 
 
 
 
 
 
 
 
Total long-term debt
$
(588
)
 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 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
$
305

 
Consensus
 
Default Rate (%)
 
1.3
-
4.9
 
3.6
 
 
 
 
 
Prepayment Speed (%)
 
2.2
-
4.5
 
3.7
 
 
 
 
 
Severity (%)
 
20.5
-
95.0
 
69.3
 
 
 
 
 
Spreads (bps)
 
219.0
-
263.3
 
253.1
Total Alt-A private-label securities
305

 
 
 
 
 
 
 
 
 
 
Subprime private-label securities
526

 
Consensus
 
Default Rate (%)
 
4.2
-
8.4
 
5.9
 
 
 
 
 
Prepayment Speed (%)
 
0.4
-
5.3
 
3.3
 
 
 
 
 
Severity (%)
 
55.9
-
95.0
 
73.7
 
 
 
 
 
Spreads (bps)
 
285.0
 
285.0
 
73

 
Consensus
 
 
 
 
 
 
 
 
 
45

 
Other
 
 
 
 
 
 
 
 
Total subprime private-label securities
644

 
 
 
 
 
 
 
 
 
 
Mortgage revenue bonds
437

 
Discounted Cash Flow
 
Spreads (bps)
 
1.5
-
376.2
 
298.9
 
12

 
Other
 
 
 
 
 
 
 
 
Total mortgage revenue bonds
449

 
 
 
 
 
 
 
 
 
 
Total trading securities
$
1,398

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 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(2)
$
4

 
Other
 
 
 
 
 
 
 
 
Alt-A private-label securities
671

 
Consensus
 
Default Rate (%)
 
0.5

-
40.7
 
3.4
 
 
 
 
 
Prepayment Speed (%)
 
1.7

-
72.6
 
13.5
 
 
 
 
 
Severity (%)
 
1.4

-
95.0
 
58.5
 
 
 
 
 
Spreads (bps)
 
225.6

-
280.4
 
260.0
 
201

 
Consensus
 
 
 
 
 
 
 
 
 
169

 
Discounted Cash Flow
 
Default Rate (%)
 
4.0

-
5.0
 
4.8
 
 
 
 
 
Prepayment Speed (%)
 
4.0

-
7.5
 
6.4
 
 
 
 
 
Severity (%)
 
50.0

-
64.0
 
59.2
 
 
 
 
 
Spreads (bps)
 
260.0

-
369.4
 
296.5
Total Alt-A private-label securities
1,041

 
 
 
 
 
 
 
 
 
 
Subprime private-label securities
343

 
Single Vendor
 
Default Rate (%)
 
2.5

-
7.5
 
4.8
 
 
 
 
 
Prepayment Speed (%)
 
1.9

-
5.7
 
3.3
 
 
 
 
 
Severity (%)
 
67.6

-
85.7
 
72.7
 
 
 
 
 
Spreads (bps)
 
285.0

-
340.0
 
299.6
 
1,848

 
Consensus
 
Default Rate (%)
 
0.5

-
11.3
 
5.9
 
 
 
 
 
Prepayment Speed (%)
 
0.5

-
11.2
 
3.8
 
 
 
 
 
Severity (%)
 
20.0

-
95.0
 
79.0
 
 
 
 
 
Spreads (bps)
 
255.0

-
285.0
 
283.3
 
945

 
Consensus
 
 
 
 
 
 
 
 
 
145

 
Other
 
 
 
 
 
 
 
 
Total subprime private-label securities
3,281

 
 
 
 
 
 
 
 
 
 
Mortgage revenue bonds
991

 
Single Vendor
 
Spreads (bps)
 
(33.1
)
-
386.8
 
37.9
 
1,462

 
Discounted Cash Flow
 
Spreads (bps)
 
(15.8
)
-
379.1
 
283.8
 
248

 
Other
 
 
 
 
 
 
 
 
Total mortgage revenue bonds
2,701

 
 
 
 
 
 
 
 
 
 
Other
683

 
Consensus
 
Default Rate (%)
 
0.5

-
4.6
 
3.4
 
 
 
 
 
Prepayment Speed (%)
 
2.5

-
15.5
 
4.7
 
 
 
 
 
Severity (%)
 
6.6

-
95.0
 
65.7
 
 
 
 
 
Spreads (bps)
 
200.0

-
454.4
 
315.6
 
520

 
Discounted Cash Flow
 
Default Rate (%)
 
0.0

-
1.8
 
0.0
 
 
 
 
 
Prepayment Speed (%)
 
0.0

-
0.5
 
0.0
 
 
 
 
 
Severity (%)
 
95.0
 
95.0
 
 
 
 
 
Spreads (bps)
 
260.0
-
350.0
 
323.6
 
201

 
Other
 
 
 
 
 
 
 
 
Total other
1,404

 
 
 
 
 
 
 
 
 
 
Total available-for-sale securities
$
8,431

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2015
 
Fair Value
 
Significant Valuation Techniques
 
Significant Unobservable Inputs(1)
 
Range(1)
 
Weighted - Average(1)
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
Single-family
$
127

 
Build-Up
 
Default Rate (%)
 
0.0
-
99.2
 
34.8
 
 
 
 
 
Prepayment Speed (%)
 
3.0
-
100.0
 
10.4
 
 
 
 
 
Severity (%)
 
0.0
-
100.0
 
39.9
 
632

 
Build-Up
 
 
 
 
 
 
 
 
 
234

 
Consensus
 
Default Rate (%)
 
0.5
-
5.0
 
3.7
 
 
 
 
 
Prepayment Speed (%)
 
2.5
-
26.0
 
6.4
 
 
 
 
 
Severity (%)
 
20.0
-
89.1
 
69.0
 
 
 
 
 
Spreads (bps)
 
255.0
-
277.6
 
264.6
 
274

 
Consensus
 
 
 
 
 
 
 
 
 
54

 
Other
 
 
 
 
 
 
 
 
Total single-family
1,321

 
 
 
 
 
 
 
 
 
 
Multifamily
156

 
Build-Up
 
Spreads (bps)
 
70.0
-
327.2
 
158.8
Total mortgage loans
$
1,477

 
 
 
 
 
 
 
 
 
 
Net derivatives
$
17

 
Internal Model
 
 
 
 
 
 
 
 
 
136

 
Dealer Mark
 
 
 
 
 
 
 
 
 
4

 
Other
 
 
 
 
 
 
 
 
Total net derivatives
$
157

 
 
 
 
 
 
 
 
 
 
Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae:
 
 
 
 
 
 
 
 
 
 
 
Senior floating
$
(369
)
 
Discounted Cash Flow
 
 
 
 
 
 
 
 
Of consolidated trusts
(181
)
 
Consensus
 
Default Rate (%)
 
0.5
-
3.8
 
3.4
 
 
 
 
 
Prepayment Speed (%)
 
2.5
-
26.0
 
5.6
 
 
 
 
 
Severity (%)
 
20.0
-
80.6
 
67.8
 
 
 
 
 
Spreads (bps)
 
255.0
-
270.0
 
265.8
 
 
 
 
 
 
 
 
 
 
 
 
 
(149
)
 
Consensus
 
 
 
 
 
 
 
 
 
(166
)
 
Other
 
 
 
 
 
 
 
 
Total of consolidated trusts
(496
)
 
 
 
 
 
 
 
 
 
 
Total long-term debt
$
(865
)
 
 
 
 
 
 
 
 
 
 
_________
(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. The prepayment speed used for available-for-sale agency securities is the Public Securities Association (“PSA”) prepayment speed, which can be greater than 100%. For all other securities, the Conditional Prepayment Rate (“CPR”) is used as the prepayment speed, which can be between 0%-100%.
(2) 
Includes Fannie Mae and Freddie Mac securities.
In our 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 December 31, 2016 or December 31, 2015. We held $250 million and $17 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 December 31, 2016 and December 31, 2015, 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 as of December 31,
 
Valuation Techniques
 
2016
 
2015
 
 
 
(Dollars in millions)
Nonrecurring fair value measurements:
 
 
 
 
 
Mortgage loans held for sale, at lower of cost or fair value
Consensus
 
$
1,025

 
$
3,651

 
Single Vendor

 
54

 
336

 
Other
 
9

 
4

Total mortgage loans held for sale, at lower of cost or fair value
 
 
1,088

 
3,991

Single-family mortgage loans held for investment, at amortized cost
Internal Model
 
2,816

 
6,379

Multifamily mortgage loans held for investment, at amortized cost
Broker Price Opinions
 
25

 
82

 
Asset Manager Estimate
 
170

 
236

 
Other
 
3

 
5

Total multifamily mortgage loans held for investment, at amortized cost
 
 
198

 
323

Acquired property, net:(1)
 
 
 
 
 
Single-family
Accepted Offers
 
340

 
541

 
Appraisals
 
571

 
1,117

 
Walk Forwards
 
306

 
433

 
Internal Model
 
476

 
986

 
Other
 
99

 
134

Total single-family
 
 
1,792

 
3,211

Other assets
Other
 
12

 
30

Total nonrecurring assets at fair value
 
 
$
5,906

 
$
13,934


_________
(1) 
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 December 31, 2016, these methodologies comprised approximately 75% of our valuations, while accepted offers comprised approximately 19% of our valuations. Based on the number of properties measured as of December 31, 2015, these methodologies comprised approximately 77% of our valuations, while accepted offers comprised approximately 18% of our valuations.
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.
Instruments
Valuation Techniques
Classification
U.S Treasury Securities

We classify securities whose values are based on quoted market prices in active markets for identical assets as Level 1 of the valuation hierarchy.
Level 1
Trading Securities and Available-for-Sale Securities

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.

Single Vendor: Uses 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: Uses 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: Uses 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.

Level 2 and 3
 
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

Build-up: We derive the fair value of performing mortgage loans using a build-up valuation technique starting with the base value for our Fannie Mae MBS with similar characteristics and then add or subtract the fair value of the associated guaranty asset, guaranty obligation (“GO”) and master servicing arrangement. 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. The fair value of the GO is estimated based on our current guaranty pricing for loans underwritten after 2008 and our internal valuation models considering management’s best estimate of key loan characteristics for loans underwritten before 2008. 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.



Level 2 and 3
 
Consensus: Calculated through the extrapolation of indicative sample bids obtained from multiple active market participants plus the estimated value of any applicable mortgage insurance, the estimated fair value using the Consensus method represents an estimate of the prices we would receive if we were to sell these single-family nonperforming and certain reperforming loans in the whole-loan market. The fair value of any mortgage insurance is estimated by taking the loan level coverage and adjusting it by the expected claims paying ability of the associated mortgage insurer. 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.

 
 
Single Vendor: We estimate the fair value of our reverse mortgages using the single vendor valuation technique.

Internal Model: The internal model used in this process applies one of following two approaches when valuing the collateral depending on the historical accuracy of the two approaches.

(1)
The comparable foreclosed property sales approach is used in the majority of the internal model valuations. The comparable foreclosed property sales approach uses various factors such as geographic distance, transaction time and the value difference.
 
(2)
The median Metropolitan Statistical Area (“MSA”) approach is based on the median of all the foreclosure sales of REOs in a specific MSA or state when there is not enough REO sales in a specific MSA.

These loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.
 
Instruments
Valuation Techniques
Classification
Mortgage Loans Held for Investment

Appraisals: Uses appraisals to estimate the fair value for a portion of our multifamily loans based on either estimated replacement cost, the present value of future cash flows, or sales of similar properties. Significant unobservable inputs include estimated replacement or construction costs, property net operating income, capitalization rates, and adjustments made to sales of comparable properties based on characteristics such as financing, conditions of sale, and physical characteristics of the property.

Broker Price Opinion (“BPO”): Uses BPO to estimate the fair value for a portion of our multifamily loans. This technique uses both current property value and the property value adjusted for stabilization and market conditions. The unobservable inputs used in this technique are property net operating income and market capitalization rates to estimate property value.

Asset Manager Estimate (“AME”): 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.

Level 2 and 3

 
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
Single-family acquired property valuation techniques

Appraisal: An appraisal is an estimate based on recent historical data of the value of a specific property by a certified or licensed appraiser. Adjustments are made for differences between comparable properties for unobservable inputs such as square footage, location, and condition of the property.

Broker Price Opinion: This technique provides an estimate of what the property is worth based upon a real estate broker’s use of specific market research and a sales comparison approach that is similar to the appraisal process. 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.

Level 3
 
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.

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.”
Asset Manager Estimate (“AME”): 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”)
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.

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.
Level 2 and 3
Instruments
Valuation Techniques
Classification
Debt of Fannie Mae and Consolidated Trusts
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 debt 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.

Consensus: Uses 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: Uses a single vendor price that represents estimated fair value for these liabilities when traded as assets.

Discounted Cash Flow: 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.”
Level 2 and 3
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 Valuation Group, along with the Credit Valuation team, are responsible for the estimation and verification of the fair value for the majority of our financial assets and financial liabilities. These groups also provide updates to the Finance Committee on relevant market information, pricing trends, significant valuation challenges and the resolution of those challenges. The Pricing and Valuation Group, along with the Credit Valuation team, are independent of any trading or market related activities. Fair value measurements for acquired property and collateral dependent loans are determined by other valuation groups.
Our Finance Committee includes senior representation from our Enterprise Risk Management, Finance and Single-Family Divisions, and is responsible for reviewing and approving the methods used in valuing financial instruments for the purpose of financial reporting. The composition of the Finance Committee is set forth in its charter, which was approved by the Chief Executive Officer. Based on its review of valuation methodologies and fair value results for various financial instruments used for financial reporting, the Finance Committee has the ultimate responsibility over all valuation processes and results.
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 Valuation Group performs various review and validation procedures prior to utilizing these prices in our fair value estimation process. We validate 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 or in certain other circumstances, 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.
Our Real Estate Property Valuation Group utilizes third-party appraisals and broker price opinions along with internal models and market data to compare the values received on a property and determine the valuation risk based on several factors including the deviation between the various values. The property valuation team reviews the valuations with higher valuation risk for reasonableness. The internal models utilized in the process are 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 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.
For fair value reporting purposes, we mark each property in inventory each month, incorporating the values assigned by the property valuation team along with other information including accepted offers and predictions from our proprietary distressed home price model.
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 Finance Committee.
Our Real Estate Property Valuation 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 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 all non-financial instruments; therefore, 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 December 31, 2016
 
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
$
62,177

 
$
41,477

 
$
20,700

 
$

 
$

 
$
62,177

Federal funds sold and securities purchased under agreements to resell or similar arrangements
30,415

 

 
30,415

 

 

 
30,415

Trading securities
40,562

 
32,317

 
7,118

 
1,127

 

 
40,562

Available-for-sale securities
8,363

 

 
6,210

 
2,153

 

 
8,363

Mortgage loans held for sale
2,899

 

 
509

 
2,751

 

 
3,260

Mortgage loans held for investment, net of allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
181,738

 

 
36,194

 
157,469

 

 
193,663

Of consolidated trusts
2,895,116

 

 
2,731,619

 
159,273

 

 
2,890,892

Mortgage loans held for investment
3,076,854

 

 
2,767,813

 
316,742

 

 
3,084,555

Advances to lenders
7,494

 

 
7,156

 
352

 

 
7,508

Derivative assets at fair value
687

 

 
5,019

 
182

 
(4,514
)
 
687

Guaranty assets and buy-ups
158

 

 

 
432

 

 
432

Total financial assets
$
3,229,609

 
$
73,794

 
$
2,844,940

 
$
323,739

 
$
(4,514
)
 
$
3,237,959

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
Short-term debt:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
$
34,995

 
$

 
$
34,998

 
$

 
$

 
$
34,998

Of consolidated trusts
584

 

 

 
584

 

 
584

Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
292,102

 

 
298,980

 
770

 

 
299,750

Of consolidated trusts
2,934,635

 

 
2,901,316

 
36,668

 

 
2,937,984

Derivative liabilities at fair value
1,215

 

 
7,921

 
138

 
(6,844
)
 
1,215

Guaranty obligations
280

 

 

 
710

 

 
710

Total financial liabilities
$
3,263,811

 
$

 
$
3,243,215

 
$
38,870

 
$
(6,844
)
 
$
3,275,241


 
As of December 31, 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
$
45,553

 
$
34,953

 
$
10,600

 
$

 
$

 
$
45,553

Federal funds sold and securities purchased under agreements to resell or similar arrangements
27,350

 

 
27,350

 

 

 
27,350

Trading securities
39,908

 
29,485

 
9,025

 
1,398

 

 
39,908

Available-for-sale securities
20,230

 

 
11,799

 
8,431

 

 
20,230

Mortgage loans held for sale
5,361

 

 
157

 
5,541

 

 
5,698

Mortgage loans held for investment, net of allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
206,544

 

 
26,544

 
193,670

 

 
220,214

Of consolidated trusts
2,807,739

 

 
2,675,982

 
157,685

 

 
2,833,667

Mortgage loans held for investment
3,014,283

 

 
2,702,526

 
351,355

 

 
3,053,881

Advances to lenders
4,308

 

 
3,902

 
394

 

 
4,296

Derivative assets at fair value
894

 

 
4,729

 
189

 
(4,024
)
 
894

Guaranty assets and buy-ups
184

 

 

 
544

 

 
544

Total financial assets
$
3,158,071

 
$
64,438

 
$
2,770,088

 
$
367,852

 
$
(4,024
)
 
$
3,198,354

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
62

 
$

 
$
62

 
$

 
$

 
$
62

Short-term debt:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
71,007

 

 
71,006

 

 

 
71,006

Of consolidated trusts
943

 

 

 
944

 

 
944

Long-term debt:
 
 
 
 
 
 
 
 
 
 
 
Of Fannie Mae
315,128

 

 
324,248

 
898

 

 
325,146

Of consolidated trusts
2,810,593

 

 
2,819,733

 
27,175

 

 
2,846,908

Derivative liabilities at fair value
424

 

 
9,042

 
32

 
(8,650
)
 
424

Guaranty obligations
329

 

 

 
1,012

 

 
1,012

Total financial liabilities
$
3,198,486

 
$

 
$
3,224,091

 
$
30,061

 
$
(8,650
)
 
$
3,245,502


Instruments
Description
Classification
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.

Level 1 and 2
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.

Level 2
Mortgage Loans Held for Sale
Loans are reported at the lower of cost or fair value in our 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.” To the extent that significant inputs are unobservable, the loans are classified within Level 3 of the valuation hierarchy.

Level 2 and 3
Mortgage Loans Held for Investment
For a description of loan valuation techniques, refer to “Fair Value Measurement—Mortgage Loans Held for Investment.” We measure the fair value of certain 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. 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.
Level 2 and 3
Advances to Lenders
The carrying value for the majority of our advances to lenders approximates the 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 that do not qualify for Fannie Mae MBS securitization and are valued using a discounted cash flow technique that uses estimated credit spreads of similar collateral and prepayment speeds that consider recent prepayment activity. We classify these valuations as Level 3 given that significant inputs are not observable or are determined by extrapolation of observable inputs.


Level 2 and 3
Guaranty Assets and Buy-ups
Guaranty assets related to our portfolio securitizations are recorded in our 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 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 by using proprietary models to project cash flows based on management’s best estimate of key assumptions such as prepayment speeds and forward yield curves. Because guaranty assets are similar to an interest-only income stream, the projected cash flows are discounted at rates that consider the current spreads on interest-only swaps that reference Fannie Mae MBS and also liquidity considerations of the guaranty assets. The fair value of guaranty assets includes the fair value of any associated buy-ups.

Level 3
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. 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.”

Level 3
Fair Value Option
We elected the fair value option for our credit risk-sharing debt securities issued under our CAS series prior to January 1, 2016 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 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 December 31,
 
 
 
2016
 
 
 
2015
 
 
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
 
$
12,057

 
 
 
$
9,582

 
 
 
$
36,524

 
 
 
$
14,075

 
 
 
$
11,133

 
 
 
$
23,609

 
Unpaid principal balance
 
11,688

 
 
 
9,090

 
 
 
33,055

 
 
 
13,661

 
 
 
11,263

 
 
 
21,604

 
__________
(1) 
Includes nonaccrual loans with a fair value of $200 million and $238 million as of December 31, 2016 and 2015, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of December 31, 2016 and 2015 is $34 million and $59 million, respectively. Includes loans that are 90 days or more past due with a fair value of $152 million and $256 million as of December 31, 2016 and 2015, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of December 31, 2016 and 2015 is $25 million and $52 million, respectively.
Changes in Fair Value under the Fair Value Option Election
The following table displays 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 consolidated statements of operations and comprehensive income.
 
For the Year Ended December 31,
 
2016
 
2015
 
2014
 
Loans
 
Long-Term Debt
 
Total Gains (Losses)
 
Loans
 
Long-Term Debt
 
Total Gains (Losses)
 
Loans
 
Long-Term Debt
 
Total Gains (Losses)
 
(Dollars in millions)
Changes in instrument-specific credit risk
$
23

 
 
$
(648
)
 
 
$
(625
)
 
$
86

 
 
$
39

 
 
$
125

 
$
60

 
 
$
216

 
 
$
276

Other changes in fair value
72

 
 
193

 
 
265

 
(191
)
 
 
146

 
 
(45
)
 
670

 
 
(505
)
 
 
165

Fair value gains (losses), net
$
95

 
 
$
(455
)
 
 
$
(360
)
 
$
(105
)
 
 
$
185

 
 
$
80

 
$
730

 
 
$
(289
)
 
 
$
441


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 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 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.