Mortgage Loans

6 Months Ended

Jun. 30, 2018

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 in this footnote, 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
	June 30, 2018			December 31, 2017
	(Dollars in millions)
Single-family	$	2,910,803		$	2,890,634
Multifamily	275,797			265,069
Total unpaid principal balance of mortgage loans	3,186,600			3,155,703
Cost basis and fair value adjustments, net	38,836			41,906
Allowance for loan losses for loans held for investment	(16,812		)	(19,084		)
Total mortgage loans	$	3,208,624		$	3,178,525

The following table displays information about our redesignated mortgage loans.



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
	(Dollars in millions)
Carrying value of loans redesignated from HFI to HFS	$	6,235	$	2,879	$	13,602	$	5,422
Carrying value of loans redesignated from HFS to HFI	12		17		30		52
Loans sold - unpaid principal balance	3,710		2,947		4,458		3,040
Realized gains on sale of mortgage loans	210		55		208		53

The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process was $12.0 billion and $13.0 billion as of June 30, 2018 and December 31, 2017, 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 non-modified 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 June 30, 2018
	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	$	28,773	$	6,876	$	17,962	$	53,611	$	2,776,694	$	2,830,305	$	29	$	28,570
Government⁽²⁾	49		17		185		251		24,068		24,319		185		—
Alt-A	2,569		876		2,485		5,930		53,395		59,325		4		3,854
Other	935		313		941		2,189		15,901		18,090		3		1,417
Total single-family	32,326		8,082		21,573		61,981		2,870,058		2,932,039		221		33,841
Multifamily⁽³⁾	13		N/A		347		360		277,107		277,467		—		619
Total	$	32,339	$	8,082	$	21,920	$	62,341	$	3,147,165	$	3,209,506	$	221	$	34,460



	As of December 31, 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	$	35,582	$	10,396	$	23,999	$	69,977	$	2,732,818	$	2,802,795	$	87	$	37,971
Government⁽²⁾	55		21		206		282		30,807		31,089		206		—
Alt-A	3,186		1,147		3,418		7,751		59,475		67,226		5		5,094
Other	1,185		411		1,252		2,848		19,016		21,864		5		1,834
Total single-family	40,008		11,975		28,875		80,858		2,842,116		2,922,974		303		44,899
Multifamily⁽³⁾	26		N/A		276		302		266,699		267,001		—		424
Total	$	40,034	$	11,975	$	29,151	$	81,160	$	3,108,815	$	3,189,975	$	303	$	45,323

__________


⁽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
	June 30, 2018⁽¹⁾						December 31, 2017⁽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%	$	2,516,133	$	49,011	$	14,537	$	2,439,858	$	51,903	$	16,428
Greater than 80%and less than or equal to 90%	218,193		4,846		1,585		238,038		6,680		2,277
Greater than 90%and less than or equal to 100%	83,243		2,675		940		106,076		4,044		1,443
Greater than 100%	12,736		2,793		1,028		18,823		4,599		1,716
Total	$	2,830,305	$	59,325	$	18,090	$	2,802,795	$	67,226	$	21,864

__________


⁽¹⁾	Excludes $24.3 billion and $31.1 billion as of June 30, 2018 and December 31, 2017, 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
	June 30,			December 31,
	2018			2017
	(Dollars in millions)
Credit risk profile by internally assigned grade:
Non-classified		$	273,064		$	263,416
Classified⁽¹⁾		4,403			3,585
Total		$	277,467		$	267,001

_________


⁽¹⁾	Represents loans classified as “Substandard,” which have a well-defined weakness that jeopardizes the timely full repayment. Loans with a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions and values are referred to as “Doubtful.” We had no loans classified as doubtful for the periods indicated.

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
	June 30, 2018										December 31, 2017
	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		$	89,828		$	86,148		$	(11,258	)		$	91,194		$	86,864		$	(11,652	)
Government		274			279			(58		)		276			279			(56		)
Alt-A		19,098			17,475			(3,314		)		23,077			21,045			(4,046		)
Other		6,900			6,504			(1,252		)		8,488			8,006			(1,493		)
Total single-family		116,100			110,406			(15,882		)		123,035			116,194			(17,247		)
Multifamily		229			230			(39		)		279			280			(42		)
Total individually impaired loans with related allowance recorded		116,329			110,636			(15,921		)		123,314			116,474			(17,289		)
With no related allowance recorded:⁽¹⁾
Single-family:
Primary		15,904			15,086			—				16,027			15,158			—
Government		61			56			—				66			60			—
Alt-A		2,915			2,608			—				3,253			2,870			—
Other		868			803			—				988			909			—
Total single-family		19,748			18,553			—				20,334			18,997			—
Multifamily		354			356			—				308			310			—
Total individually impaired loans with no related allowance recorded		20,102			18,909			—				20,642			19,307			—
Total individually impaired loans⁽²⁾		$	136,431		$	129,545		$	(15,921	)		$	143,956		$	135,781		$	(17,289	)



	For the Three Months Ended June 30,
	2018									2017
	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		$	88,526		$	915		$	109		$	94,599		$	955		$	77
Government		279			9			—			295			2			—
Alt-A		19,349			219			16			24,249			240			14
Other		7,265			73			6			9,419			82			5
Total single-family		115,419			1,216			131			128,562			1,279			96
Multifamily		232			1			—			259			4			—
Total individually impaired loans with related allowance recorded		115,651			1,217			131			128,821			1,283			96
With no related allowance recorded:⁽¹⁾
Single-family:
Primary		14,942			243			32			15,091			273			24
Government		57			2			—			61			1			—
Alt-A		2,723			61			5			3,026			67			2
Other		857			15			1			1,016			21			1
Total single-family		18,579			321			38			19,194			362			27
Multifamily		355			1			—			284			7			—
Total individually impaired loans with no related allowance recorded		18,934			322			38			19,478			369			27
Total individually impaired loans		$	134,585		$	1,539		$	169		$	148,299		$	1,652		$	123



	For the Six Months Ended June 30,
	2018									2017
	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		$	88,342		$	1,826		$	216		$	96,395		$	1,941		$	165
Government		278			12			—			298			5			—
Alt-A		20,020			431			32			24,896			489			29
Other		7,556			144			11			9,805			169			10
Total single-family		116,196			2,413			259			131,394			2,604			204
Multifamily		248			1			—			280			6			—
Total individually impaired loans with related allowance recorded		116,444			2,414			259			131,674			2,610			204
With no related allowance recorded:⁽¹⁾
Single-family:
Primary		14,988			486			58			15,050			562			47
Government		58			2			—			61			2			—
Alt-A		2,781			119			9			3,056			140			5
Other		878			31			2			1,041			44			2
Total single-family		18,705			638			69			19,208			748			54
Multifamily		340			3			—			278			10			—
Total individually impaired loans with no related allowance recorded		19,045			641			69			19,486			758			54
Total individually impaired loans		$	135,489		$	3,055		$	328		$	151,160		$	3,368		$	258

__________


⁽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 classified as TDRs with a recorded investment of $128.5 billion and $134.7 billion as of June 30, 2018 and December 31, 2017, respectively. Includes multifamily loans classified as TDRs with a recorded investment of $211 million and $185 million as of June 30, 2018 and December 31, 2017, respectively.

⁽³⁾

Total single-family interest income recognized of $1.5 billion for the three months ended June 30, 2018 consists of $1.4 billion of contractual interest and $186 million of effective yield adjustments. Total single-family interest income recognized of $1.7 billion for the three months ended June 30, 2017 consists of $1.5 billion of contractual interest and $229 million of effective yield adjustments. Total single-family interest income recognized of $3.1 billion for the six months ended June 30, 2018 consists of $2.7 billion of contractual interest and $352 million of effective yield adjustments. Total single-family interest income recognized of $3.4 billion for the six months ended June 30, 2017 consists of $2.9 billion of contractual interest and $497 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. In addition to formal loan modifications, we also engage in other loss mitigation activities with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal agreements with the borrower that do not result in the legal modification of the loan’s contractual terms. We account for these informal restructurings as a TDR if we defer more than three missed payments. We also classify loans to certain borrowers who have received bankruptcy relief as TDRs.

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 June 30, 2018 and 2017, the average term extension of a single-family modified loan was 128 months and 155 months, respectively, and the average interest rate reduction was 0.13 and 0.67 percentage points, respectively. During the six months ended June 30, 2018 and 2017, the average term extension of a single-family modified loan was 133 months and 154 months, respectively, and the average interest rate reduction was 0.18 and 0.80 percentage points, respectively.

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



	For the Three Months Ended June 30,
	2018					2017
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		21,820		$	3,148		14,148		$	1,945
Government		26		2			45		4
Alt-A		1,538		200			1,328		194
Other		285		52			271		46
Total single-family		23,669		3,402			15,792		2,189
Multifamily		2		19			3		17
Total TDRs		23,671		$	3,421		15,795		$	2,206



	For the Six Months Ended June 30,
	2018					2017
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		63,499		$	9,672		31,383		$	4,308
Government		74		6			106		10
Alt-A		3,720		483			2,893		418
Other		730		136			580		99
Total single-family		68,023		10,297			34,962		4,835
Multifamily		10		61			3		17
Total TDRs		68,033		$	10,358		34,965		$	4,852

The increase in loans classified as TDRs for the three and six months ended June 30, 2018 compared with the three and six months ended June 30, 2017 was primarily attributable to single-family loan modifications and other forms of loss mitigation in the areas affected by Hurricanes Harvey, Irma and Maria that resulted in a restructuring of the terms of these loans.

he following tables display the number of loans and our recorded investment in these loans at the time of 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 June 30,
	2018					2017
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		3,834		$	554		4,238		$	589
Government		15		2			25		3
Alt-A		588		92			616		97
Other		131		26			150		30
Total TDRs that subsequently defaulted		4,568		$	674		5,029		$	719



	For the Six Months Ended June 30,
	2018					2017
	Number of Loans		RecordedInvestment			Number of Loans		RecordedInvestment
	(Dollars in millions)
Single-family:
Primary		8,652		$	1,255		8,717		$	1,210
Government		29		4			44		5
Alt-A		1,265		201			1,230		193
Other		326		64			351		68
Total single-family		10,272		1,524			10,342		1,476
Multifamily		1		2			1		4
Total TDRs that subsequently defaulted		10,273		$	1,526		10,343		$	1,480