Mortgage Loans

9 Months Ended

Sep. 30, 2017

Mortgage Loans on Real Estate [Abstract]

We own single-family mortgage loans, which are secured by four or fewer residential dwelling units, and multifamily mortgage loans, which are secured by five or more residential dwelling units. We classify these loans as either held for investment (“HFI”) or held for sale (“HFS”). We report the carrying value of HFI loans at the unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and an allowance for loan losses. We report the carrying value of HFS loans at the lower of cost or fair value and record valuation changes in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income. We define the recorded investment of HFI loans as unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and accrued interest receivable.

For purposes of the single-family mortgage loan disclosures below, we define “primary” class as mortgage loans that are not included in other loan classes; “government” class as mortgage loans that are guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies, and that are not Alt-A; and “other” class as loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans, that are neither government nor Alt-A.

The following table displays the carrying value of our mortgage loans.



	As of
	September 30, 2017			December 31, 2016
	(Dollars in millions)
Single-family	$	2,878,456		$	2,833,750
Multifamily	253,031			229,896
Total unpaid principal balance of mortgage loans	3,131,487			3,063,646
Cost basis and fair value adjustments, net	41,466			39,572
Allowance for loan losses for loans held for investment	(20,194		)	(23,465		)
Total mortgage loans	$	3,152,759		$	3,079,753

During the three and nine months ended September 30, 2017, we redesignated loans with a carrying value of $2.1 billion and $7.5 billion, respectively, from HFI to HFS. During the three and nine months ended September 30, 2016, we redesignated loans with a carrying value of $652 million and $2.3 billion, respectively, from HFI to HFS. During the three and nine months ended September 30, 2017, we redesignated loans with a carrying value of $59 million and $111 million, respectively, from HFS to HFI. We sold loans with an unpaid principal balance of $3.4 billion and $6.5 billion during the three and nine months ended September 30, 2017, respectively. We sold loans with an unpaid balance of $1.6 billion and $4.2 billion during the three and nine months ended September 30, 2016, respectively.

The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process was $14.5 billion and $18.3 billion as of September 30, 2017 and December 31, 2016, respectively. As a result of our various loss mitigation and foreclosure prevention efforts, we expect that a portion of the loans in the process of formal foreclosure proceedings will not ultimately foreclose.

Nonaccrual Loans

We discontinue accruing interest on loans when we believe collectibility of principal or interest is not reasonably assured, which for a single-family loan we have determined, based on our historical experience, to be when the loan becomes two months or more past due according to its contractual terms. Interest previously accrued but not collected is reversed through interest income at the date a loan is placed on nonaccrual status. We return a nonmodified single-family loan to accrual status at the point that the borrower brings the loan current. We return a modified single-family loan to accrual status at the point that the borrower successfully makes all required payments during the trial period (generally three to four months) and the modification is made permanent. We place a multifamily loan on nonaccrual status when the loan becomes three months or more past due according to its contractual terms or is deemed to be individually impaired, unless the loan is well secured such that collectibility of principal and accrued interest is reasonably assured. We return a multifamily loan to accrual status when the borrower cures the delinquency of the loan or we otherwise determine that the loan is well secured such that collectibility is reasonably assured.

Aging Analysis

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans by portfolio segment and class, excluding loans for which we have elected the fair value option.



	As of September 30, 2017
	30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽¹⁾		Total Delinquent		Current		Total		Recorded Investment in Loans 90 Days or More Delinquent and Accruing Interest		Recorded Investment in Nonaccrual Loans
	(Dollars in millions)
Single-family:
Primary	$	34,976	$	7,810	$	18,110	$	60,896	$	2,720,530	$	2,781,426	$	24	$	29,169
Government⁽²⁾	53		25		212		290		34,267		34,557		212		—
Alt-A	3,460		1,060		3,381		7,901		62,863		70,764		2		4,935
Other	1,253		372		1,252		2,877		20,714		23,591		2		1,793
Total single-family	39,742		9,267		22,955		71,964		2,838,374		2,910,338		240		35,897
Multifamily⁽³⁾	10		N/A		87		97		254,896		254,993		—		322
Total	$	39,752	$	9,267	$	23,042	$	72,061	$	3,093,270	$	3,165,331	$	240	$	36,219



	As of December 31, 2016
	30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽¹⁾		Total Delinquent		Current		Total		Recorded Investment in Loans 90 Days or More Delinquent and Accruing Interest		Recorded Investment in Nonaccrual Loans
	(Dollars in millions)
Single-family:
Primary	$	31,631	$	7,910	$	21,761	$	61,302	$	2,654,195	$	2,715,497	$	22	$	33,448
Government⁽²⁾	56		22		256		334		36,814		37,148		256		—
Alt-A	3,629		1,194		4,221		9,044		72,903		81,947		2		6,019
Other	1,349		438		1,582		3,369		25,974		29,343		5		2,238
Total single-family	36,665		9,564		27,820		74,049		2,789,886		2,863,935		285		41,705
Multifamily⁽³⁾	44		N/A		129		173		231,708		231,881		—		403
Total	$	36,709	$	9,564	$	27,949	$	74,222	$	3,021,594	$	3,095,816	$	285	$	42,108

__________


⁽¹⁾	Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are loans that are 60 days or more past due.


⁽²⁾	Primarily consists of reverse mortgages, which due to their nature, are not aged and are included in the current column.


⁽³⁾	Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.

Credit Quality Indicators

The following table displays the total recorded investment in our single-family HFI loans by class and credit quality indicator, excluding loans for which we have elected the fair value option.



	As of
	September 30, 2017⁽¹⁾						December 31, 2016⁽¹⁾
	Primary		Alt-A		Other		Primary		Alt-A		Other
	(Dollars in millions)
Estimated mark-to-market loan-to-value (“LTV”) ratio:⁽²⁾
Less than or equal to 80%	$	2,447,197	$	54,238	$	17,598	$	2,321,201	$	56,250	$	19,382
Greater than 80%and less than or equal to 90%	226,113		7,090		2,453		244,231		9,787		3,657
Greater than 90%and less than or equal to 100%	88,076		4,330		1,606		114,412		6,731		2,627
Greater than 100%	20,040		5,106		1,934		35,653		9,179		3,677
Total	$	2,781,426	$	70,764	$	23,591	$	2,715,497	$	81,947	$	29,343

__________


⁽¹⁾	Excludes $34.6 billion and $37.1 billion as of September 30, 2017 and December 31, 2016, respectively, of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies, that are not Alt-A loans. The segment class is primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV ratio.


⁽²⁾	The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value.

The following table displays the total recorded investment in our multifamily HFI loans by credit quality indicator, excluding loans for which we have elected the fair value option.



	As of
	September 30,			December 31,
	2017			2016
	(Dollars in millions)
Credit risk profile by internally assigned grade:
Non-classified		$	252,085		$	228,749
Classified:⁽¹⁾
Substandard		2,893			3,129
Doubtful		15			3
Total classified		2,908			3,132
Total		$	254,993		$	231,881

_________


⁽¹⁾	A loan classified as “Substandard” has a well-defined weakness that jeopardizes the timely full repayment. “Doubtful” refers to a loan with a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions and values.

Individually Impaired Loans

Individually impaired loans include troubled debt restructurings (“TDRs”), acquired credit-impaired loans and multifamily loans that we have assessed as probable that we will not collect all contractual amounts due, regardless of whether we are currently accruing interest; excluding loans classified as HFS. The following tables display the total unpaid principal balance, recorded investment, related allowance, average recorded investment and interest income recognized for individually impaired loans.



	As of
	September 30, 2017									December 31, 2016
	Unpaid Principal Balance			Total Recorded Investment			Related Allowance for Loan Losses			Unpaid Principal Balance			Total Recorded Investment			Related Allowance for Loan Losses
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
Primary		$	93,983		$	89,453		$	12,102		$	105,113		$	99,825		$	14,462
Government		283			286			58			302			305			59
Alt-A		24,426			22,269			4,327			28,599			26,059			5,365
Other		9,052			8,539			1,602			11,087			10,465			2,034
Total single-family		127,744			120,547			18,089			145,101			136,654			21,920
Multifamily		242			245			35			320			323			33
Total individually impaired loans with related allowance recorded		127,986			120,792			18,124			145,421			136,977			21,953
With no related allowance recorded:⁽¹⁾
Single-family:
Primary		16,356			15,438			—			15,733			14,758			—
Government		67			62			—			63			59			—
Alt-A		3,402			2,992			—			3,511			3,062			—
Other		1,054			968			—			1,159			1,065			—
Total single-family		20,879			19,460			—			20,466			18,944			—
Multifamily		338			340			—			266			266			—
Total individually impaired loans with no related allowance recorded		21,217			19,800			—			20,732			19,210			—
Total individually impaired loans⁽²⁾		$	149,203		$	140,592		$	18,124		$	166,153		$	156,187		$	21,953



	For the Three Months Ended September 30,
	2017									2016
	Average Recorded Investment			Total Interest Income Recognized⁽³⁾			Interest Income Recognized on a Cash Basis			Average Recorded Investment			Total Interest Income Recognized⁽³⁾			Interest Income Recognized on a Cash Basis
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
Primary		$	90,941		$	912		$	75		$	103,523		$	992		$	68
Government		289			2			—			310			3			—
Alt-A		22,904			228			13			27,115			250			10
Other		8,817			78			4			11,220			91			4
Total single-family		122,951			1,220			92			142,168			1,336			82
Multifamily		232			1			—			492			3			—
Total individually impaired loans with related allowance recorded		123,183			1,221			92			142,660			1,339			82
With no related allowance recorded:⁽¹⁾
Single-family:
Primary		15,402			273			24			15,534			320			19
Government		61			—			—			61			1			—
Alt-A		3,008			65			5			3,312			81			—
Other		983			21			1			1,115			27			—
Total single-family		19,454			359			30			20,022			429			19
Multifamily		304			6			—			311			3			—
Total individually impaired loans with no related allowance recorded		19,758			365			30			20,333			432			19
Total individually impaired loans		$	142,941		$	1,586		$	122		$	162,993		$	1,771		$	101



	For the Nine Months Ended September 30,
	2017									2016
	Average Recorded Investment			Total Interest Income Recognized⁽³⁾			Interest Income Recognized on a Cash Basis			Average Recorded Investment			Total Interest Income Recognized⁽³⁾			Interest Income Recognized on a Cash Basis
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
Primary		$	94,594		$	2,853		$	240		$	106,498		$	3,028		$	243
Government		295			7			—			317			9			—
Alt-A		24,233			717			42			27,899			759			40
Other		9,480			247			14			11,622			276			15
Total single-family		128,602			3,824			296			146,336			4,072			298
Multifamily		271			7			—			555			21			—
Total individually impaired loans with related allowance recorded		128,873			3,831			296			146,891			4,093			298
With no related allowance recorded:⁽¹⁾
Single-family:
Primary		15,173			835			71			15,398			915			69
Government		61			2			—			59			3			—
Alt-A		3,041			205			10			3,350			224			8
Other		1,023			65			3			1,128			79			3
Total single-family		19,298			1,107			84			19,935			1,221			80
Multifamily		294			16			—			330			9			—
Total individually impaired loans with no related allowance recorded		19,592			1,123			84			20,265			1,230			80
Total individually impaired loans		$	148,465		$	4,954		$	380		$	167,156		$	5,323		$	378

__________


⁽¹⁾	The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.


⁽²⁾	Includes single-family loans restructured in a TDR with a recorded investment of $139.5 billion and $155.0 billion as of September 30, 2017 and December 31, 2016, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $264 million and $248 million as of September 30, 2017 and December 31, 2016, respectively.

⁽³⁾

Total single-family interest income recognized of $1.5 billion for the three months ended September 30, 2017 consists of $1.3 billion of contractual interest and $216 million of effective yield adjustments. Total single-family interest income recognized of $1.8 billion for the three months ended September 30, 2016 consists of $1.4 billion of contractual interest and $320 million of effective yield adjustments. Total single-family interest income recognized of $4.9 billion for the nine months ended September 30, 2017 consists of $4.2 billion of contractual interest and $713 million of effective yield adjustments. Total single-family interest income recognized of $5.3 billion for the nine months ended September 30, 2016 consists of $4.3 billion of contractual interest and $961 million of effective yield adjustments.

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a TDR.

The substantial majority of the loan modifications we complete result in term extensions, interest rate reductions or a combination of both. During the three months ended September 30, 2017 and 2016, the average term extension of a single-family modified loan was 156 months and 153 months, respectively, and the average interest rate reduction was 0.35 and 0.82 percentage points, respectively. During the nine months ended September 30, 2017 and 2016, the average term extension of a single-family modified loan was 155 months and 157 months, respectively, and the average interest rate reduction was 0.66 and 0.76 percentage points, respectively.

The following tables display the number of loans and recorded investment in loans restructured in a TDR.



	For the Three Months Ended September 30,
	2017					2016
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		13,323		$	1,847		13,983		$	1,922
Government		32		5			54		5
Alt-A		1,229		182			1,578		227
Other		264		50			317		57
Total single-family		14,848		2,084			15,932		2,211
Multifamily		5		82			2		5
Total TDRs		14,853		$	2,166		15,934		$	2,216



	For the Nine Months Ended September 30,
	2017					2016
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		44,706		$	6,155		45,987		$	6,282
Government		138		15			136		14
Alt-A		4,122		600			5,112		735
Other		844		149			1,078		190
Total single-family		49,810		6,919			52,313		7,221
Multifamily		8		99			6		50
Total TDRs		49,818		$	7,018		52,319		$	7,271

The following tables display the number of loans and our recorded investment in these loans at the time of payment default for loans that were restructured in a TDR in the twelve months prior to the payment default. For purposes of this disclosure, we define loans that had a payment default as: single-family and multifamily loans with completed TDRs that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure, or a short sale; single-family loans with completed modifications that are two or more months delinquent during the period; or multifamily loans with completed modifications that are one or more months delinquent during the period.



	For the Three Months Ended September 30,
	2017					2016
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		4,900		$	684		5,268		$	734
Government		25		3			31		4
Alt-A		627		95			734		116
Other		178		34			235		41
Total TDRs that subsequently defaulted		5,730		$	816		6,268		$	895



	For the Nine Months Ended September 30,
	2017					2016
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		13,617		$	1,894		15,377		$	2,174
Government		69		8			73		9
Alt-A		1,857		288			2,342		376
Other		529		102			767		130
Total single-family		16,072		2,292			18,559		2,689
Multifamily		1		4			—		—
Total TDRs that subsequently defaulted		16,073		$	2,296		18,559		$	2,689