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Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2019
Receivables [Abstract]  
Allowance for Loan Losses Allowance for Loan Losses
We maintain an allowance for loan losses for HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts, excluding loans for which we have elected the fair value option. When calculating our allowance for loan losses, we consider the unpaid principal balance, net of amortized premiums and discounts, and other cost basis adjustments of HFI loans at the balance sheet date. We record charge-offs as a reduction to our allowance for loan losses at the point of foreclosure, completion of a short sale, upon the redesignation of loans from HFI to HFS or when a loan is determined to be uncollectible.
We aggregate single-family HFI loans that are not individually impaired based on similar risk characteristics, for purposes of estimating incurred credit losses and establishing a collective single-family loss reserve using an econometric model that derives an overall loss reserve estimate. We base our allowance methodology on historical events and trends, such as loss severity (in event of default), default rates, and recoveries from mortgage insurance contracts and other credit enhancements that provide loan-level loss coverage and are either contractually attached to a loan or that were entered into contemporaneously with and in contemplation of a guaranty or loan purchase transaction. We use recent regional historical sales and appraisal information, including the sales of our own foreclosed properties, to develop our loss severity estimates for all loan categories. Our allowance calculation also incorporates a loss confirmation period (the anticipated time lag between a credit loss event and the confirmation of the credit loss resulting from that event) to ensure our allowance estimate captures credit losses that have been incurred as of the balance sheet date but have not been confirmed. In addition, management performs a review of the observable data used in its estimate to ensure it is representative of prevailing economic conditions and other events existing as of the balance sheet date.
Individually impaired single-family loans currently include those classified as a TDR and acquired credit-impaired loans. We consider a loan to be impaired when, based on current information, it is probable that we will not receive all amounts due,
including interest, in accordance with the contractual terms of the loan agreement. When a loan has been restructured, we measure impairment using a cash flow analysis discounted at the loan’s original effective interest rate. If we expect to recover our recorded investment in an individually impaired loan through probable foreclosure of the underlying collateral, we measure impairment based on the difference between our recorded investment in the loan and the fair value of the underlying property, adjusted for the estimated costs to sell the property and estimated insurance or other proceeds we expect to receive. During the three months ended September 30, 2019, we enhanced the model used to estimate cash flows for individually impaired single-family loans within our allowance for loan losses. This enhancement was performed as a part of management’s routine model performance review process. In addition to incorporating recent loan performance data, this model enhancement better captures recent prepayment activity, default rates, and loss severity in the event of default. The enhancement resulted in a decrease to our allowance for loan losses and an incremental benefit for credit losses of approximately $850 million and is included in “Benefit (provision) for loan losses” in the table below.
We establish a collective allowance for all loans in our multifamily guaranty book of business that are not individually measured for impairment using an internal model that applies loss factors to loans in similar risk categories. Our loss factors are developed based on our historical default and loss severity experience. We identify multifamily loans for evaluation for impairment through a credit risk assessment process. If we determine that a multifamily loan is individually impaired, we generally measure impairment on that loan based on the fair value of the underlying collateral less estimated costs to sell the property, as we have concluded that such loans are collateral dependent. We evaluate collectively for impairment smaller-balance homogeneous multifamily loans.
The following table displays changes in single-family, multifamily and total allowance for loan losses.
 
 
For the Three Months Ended September 30,
 
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
 
2019
 
2018
 
 
(Dollars in millions)
Single-family allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(11,210
)
 
$
(16,602
)
 
 
$
(13,969
)
 
$
(18,849
)
Benefit (provision) for loan losses(1)
 
1,826

 
724

 
 
3,712

 
1,916

Charge-offs
 
270

 
509

 
 
1,209

 
1,705

Recoveries
 
(8
)
 
(65
)
 
 
(68
)
 
(189
)
Other
 
—

 
(2
)
 
 
(6
)
 
(19
)
Ending balance
 
$
(9,122
)
 
$
(15,436
)
 
 
$
(9,122
)
 
$
(15,436
)
Multifamily allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(272
)
 
$
(210
)
 
 
$
(234
)
 
$
(235
)
Benefit (provision) for loan losses(1)
 
17

 
(14
)
 
 
(23
)
 
6

Charge-offs
 
2

 
—

 
 
6

 
5

Recoveries
 
(1
)
 
(3
)
 
 
(3
)
 
(3
)
Ending balance
 
$
(254
)
 
$
(227
)
 
 
$
(254
)
 
$
(227
)
Total allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(11,482
)
 
$
(16,812
)
 
 
$
(14,203
)
 
$
(19,084
)
Benefit (provision) for loan losses(1)
 
1,843

 
710

 
 
3,689

 
1,922

Charge-offs
 
272

 
509

 
 
1,215

 
1,710

Recoveries
 
(9
)
 
(68
)
 
 
(71
)
 
(192
)
Other
 
—

 
(2
)
 
 
(6
)
 
(19
)
Ending balance
 
$
(9,376
)
 
$
(15,663
)
 
 
$
(9,376
)
 
$
(15,663
)

(1) 
Benefit (provision) for loan losses is included in “Benefit for credit losses” in our condensed consolidated statements of operations and comprehensive income.
The following table displays the allowance for loan losses and recorded investment in our HFI loans by impairment or allowance methodology and portfolio segment, excluding loans for which we have elected the fair value option.
 
 
As of
 
 
September 30, 2019
 
December 31, 2018
 
 
Single-Family
 
Multifamily
 
Total
 
Single-Family
 
Multifamily
 
Total
 
 
(Dollars in millions)
Allowance for loan losses by segment:
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans(1)
 
$
(8,507
)
 
$
(45
)
 
$
(8,552
)
 
$
(13,255
)
 
$
(40
)
 
$
(13,295
)
Collectively reserved loans
 
(615
)
 
(209
)
 
(824
)
 
(714
)
 
(194
)
 
(908
)
Total allowance for loan losses
 
$
(9,122
)
 
$
(254
)
 
$
(9,376
)
 
$
(13,969
)
 
$
(234
)
 
$
(14,203
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans by segment:
 
 
 
 
 
 
 
 
 
 
 
 
Individually impaired loans(1)
 
$
100,991

 
$
652

 
$
101,643

 
$
117,561

 
$
542

 
$
118,103

Collectively reserved loans
 
2,889,510

 
320,545

 
3,210,055

 
2,841,943

 
295,122

 
3,137,065

Total recorded investment in loans
 
$
2,990,501

 
$
321,197

 
$
3,311,698

 
$
2,959,504

 
$
295,664

 
$
3,255,168


(1) 
Includes acquired credit-impaired loans.