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Fair Value

9 Months Ended

Sep. 30, 2019

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 condensed 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 September 30, 2019
	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		$	—		$	3,539		$	122		$	—			$	3,661
Other agency		—			3,702			2			—				3,704
Private-label and other mortgage securities		—			741			—			—				741
Non-mortgage-related securities:
U.S. Treasury securities		36,016			—			—			—				36,016
Other securities		—			84			—			—				84
Total trading securities		36,016			8,066			124			—				44,206
Available-for-sale securities:
Mortgage-related securities:
Fannie Mae		—			1,408			174			—				1,582
Other agency		—			213			—			—				213
Alt-A and subprime private-label securities		—			226			—			—				226
Mortgage revenue bonds		—			—			346			—				346
Other		—			8			315			—				323
Total available-for-sale securities		—			1,855			835			—				2,690
Mortgage loans		—			7,457			726			—				8,183
Other assets:
Risk management derivatives:
Swaps		—			1,267			184			—				1,451
Swaptions		—			221			—			—				221
Netting adjustment		—			—			—			(1,663		)		(1,663		)
Mortgage commitment derivatives		—			421			—			—				421
Credit enhancement derivatives		—			—			42			—				42
Total other assets		—			1,909			226			(1,663		)		472
Total assets at fair value		$	36,016		$	19,287		$	1,911		$	(1,663	)		$	55,551



	Fair Value Measurements as of September 30, 2019
	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		$	—		$	5,619		$	422		$	—			$	6,041
Total of Fannie Mae		—			5,619			422			—				6,041
Of consolidated trusts		—			22,631			88			—				22,719
Total long-term debt		—			28,250			510			—				28,760
Other liabilities:
Risk management derivatives:
Swaps		—			2,043			1			—				2,044
Swaptions		—			407			—			—				407
Netting adjustment		—			—			—			(2,299		)		(2,299		)
Mortgage commitment derivatives		—			416			—			—				416
Credit enhancement derivatives		—			—			27			—				27
Total other liabilities		—			2,866			28			(2,299		)		595
Total liabilities at fair value		$	—		$	31,116		$	538		$	(2,299	)		$	29,355



	Fair Value Measurements as of December 31, 2018
	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:
Cash equivalents⁽²⁾		$	748		$	—		$	—		$	—			$	748
Trading securities:
Mortgage-related securities:
Fannie Mae		—			1,435			32			—				1,467
Other agency		—			3,503			—			—				3,503
Private-label and other mortgage securities		—			1,305			1			—				1,306
Non-mortgage-related securities:
U.S. Treasury securities		35,502			—			—			—				35,502
Other securities		—			89			—			—				89
Total trading securities		35,502			6,332			33			—				41,867
Available-for-sale securities:
Mortgage-related securities:
Fannie Mae		—			1,645			152			—				1,797
Other agency		—			256			—			—				256
Alt-A and subprime private-label securities		—			568			24			—				592
Mortgage revenue bonds		—			—			434			—				434
Other		—			8			342			—				350
Total available-for-sale securities		—			2,477			952			—				3,429
Mortgage loans		—			7,985			937			—				8,922
Other assets:
Risk management derivatives:
Swaps		—			1,962			115			—				2,077
Swaptions		—			211			—			—				211
Netting adjustment		—			—			—			(2,266		)		(2,266		)
Mortgage commitment derivatives		—			342			37			—				379
Credit enhancement derivatives		—			—			57			—				57
Total other assets		—			2,515			209			(2,266		)		458
Total assets at fair value		$	36,250		$	19,309		$	2,131		$	(2,266	)		$	55,424



	Fair Value Measurements as of December 31, 2018
	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		$	—		$	6,475		$	351		$	—			$	6,826
Total of Fannie Mae		—			6,475			351			—				6,826
Of consolidated trusts		—			23,552			201			—				23,753
Total long-term debt		—			30,027			552			—				30,579
Other liabilities:
Risk management derivatives:
Swaps		—			2,089			2			—				2,091
Swaptions		—			342			—			—				342
Netting adjustment		—			—			—			(2,315		)		(2,315		)
Mortgage commitment derivatives		—			646			2			—				648
Credit enhancement derivatives		—			—			11			—				11
Total other liabilities		—			3,077			15			(2,315		)		777
Total liabilities at fair value		$	—		$	33,104		$	567		$	(2,315	)		$	31,356


⁽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.

⁽²⁾

Cash equivalents are comprised of U.S. Treasuries that have a maturity at the date of acquisition of three months or less.

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 realized and unrealized gains and losses, recognized in our condensed consolidated statements of operations and comprehensive income for Level 3 assets and liabilities.



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Three Months Ended September 30, 2019
				Total Gains (Losses) (Realized/Unrealized)																											Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2019⁽⁴⁾⁽⁵⁾			Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30, 2019⁽¹⁾
	Balance, June 30, 2019			Included in Net Income				Included in Total OCI Gain/(Loss)⁽¹⁾			Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3			Transfers into Level 3			Balance, September 30, 2019
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	74		$	2			$	—		$	77	$	—		$	—		$	—		$	(31	)	$	—		$	122		$	1		$	—
Other agency	—			—				—			—		—			—			—			—			2			2			—			—
Total trading securities	$	74		$	2		⁽⁵⁾⁽⁶⁾	$	—		$	77	$	—		$	—		$	—		$	(31	)	$	2		$	124		$	1		$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	132		$	—			$	3		$	—	$	—		$	—		$	(1	)	$	—		$	40		$	174		$	—		$	3
Mortgage revenue bonds	364			1				(1		)	—		—			—			(18		)	—			—			346			—			—
Other	326			(1		)		(1		)	—		—			—			(9		)	—			—			315			—			(2		)
Total available-for-sale securities	$	822		$	—		⁽⁶⁾⁽⁷⁾	$	1		$	—	$	—		$	—		$	(28	)	$	—		$	40		$	835		$	—		$	1

Mortgage loans	$	770		$	14		⁽⁵⁾⁽⁶⁾	$	—		$	—	$	(27	)	$	—		$	(35	)	$	(41	)	$	45		$	726		$	10		$	—
Net derivatives	183			21			⁽⁵⁾	—			—		—			—			(6		)	—			—			198			15			—
Long-term debt:
Of Fannie Mae:
Senior floating	(398		)	(24		)		—			—		—			—			—			—			—			(422		)	(24		)	—
Of consolidated trusts	(102		)	(3		)		—			—		—			(2		)	6			20			(7		)	(88		)	(1		)	—
Total long-term debt	$	(500	)	$	(27	)	⁽⁵⁾	$	—		$	—	$	—		$	(2	)	$	6		$	20		$	(7	)	$	(510	)	$	(25	)	$	—



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Nine Months Ended September 30, 2019
				Total Gains (Losses) (Realized/Unrealized)																											Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2019⁽⁴⁾⁽⁵⁾			Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30, 2019⁽¹⁾
	Balance, December 31, 2018			Included in Net Income				Included in Total OCI Gain/(Loss)⁽¹⁾			Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾			Settlements⁽³⁾			Transfers out of Level 3			Transfers into Level 3			Balance, September 30, 2019
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	32		$	5			$	—		$	77	$	(14	)	$	—		$	(16	)	$	(31	)	$	69		$	122		$	4		$	—
Other agency	—			—				—			—		—			—			—			—			2			2			—			—
Private-label and other mortgage securities	1			—				—			—		—			—			(1		)	—			—			—			—			—
Total trading securities	$	33		$	5		⁽⁵⁾⁽⁶⁾	$	—		$	77	$	(14	)	$	—		$	(17	)	$	(31	)	$	71		$	124		$	4		$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	152		$	—			$	9		$	—	$	—		$	—		$	(8	)	$	(103	)	$	124		$	174		$	—		$	8
Alt-A and subprime private-label securities	24			5				(5		)	—		(23		)	—			(1		)	—			—			—			—			—
Mortgage revenue bonds	434			1				(2		)	—		(4		)	—			(83		)	—			—			346			—			(1		)
Other	342			11				(11		)	—		—			—			(26		)	(2		)	1			315			—			(9		)
Total available-for-sale securities	$	952		$	17		⁽⁶⁾⁽⁷⁾	$	(9	)	$	—	$	(27	)	$	—		$	(118	)	$	(105	)	$	125		$	835		$	—		$	(2	)

Mortgage loans	$	937		$	45		⁽⁵⁾⁽⁶⁾	$	—		$	—	$	(40	)	$	—		$	(105	)	$	(228	)	$	117		$	726		$	28		$	—
Net derivatives	194			139			⁽⁵⁾	—			—		—			—			(126		)	(9		)	—			198			39			—
Long-term debt:
Of Fannie Mae:
Senior floating	(351		)	(71		)		—			—		—			—			—			—			—			(422		)	(71		)	—
Of consolidated trusts	(201		)	(7		)		—			—		—			(2		)	16			189			(83		)	(88		)	(3		)	—
Total long-term debt	$	(552	)	$	(78	)	⁽⁵⁾	$	—		$	—	$	—		$	(2	)	$	16		$	189		$	(83	)	$	(510	)	$	(74	)	$	—



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Three Months Ended September 30, 2018
				Total Gains (Losses) (Realized/Unrealized)																										Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018⁽⁴⁾⁽⁵⁾			Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30, 2018⁽¹⁾
	Balance, June 30, 2018			Included in Net Income				Included in Total OCI (Loss)⁽¹⁾			Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾		Settlements⁽³⁾			Transfers out of Level 3			Transfers into Level 3			Balance, September 30, 2018
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	79		$	(3	)		$	—		$	—	$	—		$	—	$	—		$	—		$	—		$	76		$	2		$	—
Private-label and other mortgage securities	1			—				—			—		—			—		—			—			—			1			—			—
Total trading securities	$	80		$	(3	)	⁽⁵⁾⁽⁶⁾	$	—		$	—	$	—		$	—	$	—		$	—		$	—		$	77		$	2		$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	204		$	—			$	(1	)	$	—	$	—		$	—	$	(3	)	$	—		$	—		$	200		$	—		$	(1	)
Alt-A and subprime private-label securities	26			—				—			—		—			—		(2		)	—			—			24			—			—
Mortgage revenue bonds	506			1				(3		)	—		(4		)	—		(36		)	—			—			464			—			(2		)
Other	357			7				(7		)	—		—			—		(9		)	—			—			348			—			(6		)
Total available-for-sale securities	$	1,093		$	8		⁽⁶⁾⁽⁷⁾	$	(11	)	$	—	$	(4	)	$	—	$	(50	)	$	—		$	—		$	1,036		$	—		$	(9	)

Mortgage loans	$	1,018		$	7		⁽⁵⁾⁽⁶⁾	$	—		$	—	$	—		$	—	$	(47	)	$	(44	)	$	31		$	965		$	2		$	—
Net derivatives	117			(18		)	⁽⁵⁾	—			—		—			—		(1		)	—			—			98			(27		)	—
Long-term debt:
Of Fannie Mae:
Senior floating	(354		)	7				—			—		—			—		—			—			—			(347		)	7			—
Of consolidated trusts	(319		)	2				—			—		—			—		4			172			(22		)	(163		)	—			—
Total long-term debt	$	(673	)	$	9		⁽⁵⁾	$	—		$	—	$	—		$	—	$	4		$	172		$	(22	)	$	(510	)	$	7		$	—



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Nine Months Ended September 30, 2018
				Total Gains (Losses) (Realized/Unrealized)																										Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018⁽⁴⁾⁽⁵⁾			Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30, 2018⁽¹⁾
	Balance, December 31, 2017			Included in Net Income				Included in Total OCI (Loss)⁽¹⁾			Purchases⁽²⁾		Sales⁽²⁾			Issues⁽³⁾		Settlements⁽³⁾			Transfers out of Level 3			Transfers into Level 3			Balance, September 30, 2018
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	971		$	163			$	—		$	1	$	(1,060	)	$	—	$	—		$	—		$	1		$	76		$	2		$	—
Other agency	35			(1		)		—			—		—			—		(1		)	(33		)	—			—			—			—
Private-label and other mortgage securities	195			(85		)		—			—		—			—		(5		)	(104		)	—			1			—			—
Total trading securities	$	1,201		$	77		⁽⁵⁾⁽⁶⁾	$	—		$	1	$	(1,060	)	$	—	$	(6	)	$	(137	)	$	1		$	77		$	2		$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	208		$	1			$	(1	)	$	—	$	—		$	—	$	(8	)	$	—		$	—		$	200		$	—		$	(1	)
Alt-A and subprime private-label securities	77			—				(45		)	—		—			—		(4		)	(4		)	—			24			—			1
Mortgage revenue bonds	671			1				(6		)	—		(22		)	—		(180		)	—			—			464			—			(3		)
Other	357			21				1			—		—			—		(31		)	—			—			348			—			3
Total available-for-sale securities	$	1,313		$	23		⁽⁶⁾⁽⁷⁾	$	(51	)	$	—	$	(22	)	$	—	$	(223	)	$	(4	)	$	—		$	1,036		$	—		$	—

Mortgage loans	$	1,116		$	35		⁽⁵⁾⁽⁶⁾	$	—		$	—	$	—		$	—	$	(174	)	$	(131	)	$	119		$	965		$	17		$	—
Net derivatives	134			(104		)	⁽⁵⁾	—			—		—			—		15			53			—			98			(56		)	—
Long-term debt:
Of Fannie Mae:
Senior floating	(376		)	29				—			—		—			—		—			—			—			(347		)	29			—
Of consolidated trusts	(582		)	9				—			—		—			1		35			503			(129		)	(163		)	(3		)	—
Total long-term debt	$	(958	)	$	38		⁽⁵⁾	$	—		$	—	$	—		$	1	$	35		$	503		$	(129	)	$	(510	)	$	26		$	—


⁽¹⁾	Gains (losses) included in other comprehensive loss are included in “Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes” in our condensed consolidated statements of operations and comprehensive income.


⁽²⁾	Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts. For the nine months ended September 30, 2018, this includes the dissolution of a Fannie Mae-wrapped private-label securities trust.


⁽³⁾	Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.


⁽⁴⁾	Amount represents temporary changes in fair value. Amortization, accretion and OTTI are not considered unrealized and are not included in this amount.


⁽⁵⁾	Gains (losses) are included in “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.


⁽⁶⁾	Gains (losses) are included in “Net interest income” in our condensed consolidated statements of operations and comprehensive income.

⁽⁷⁾

Gains (losses) are included in “Investment gains, net” in our condensed 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, excluding instruments for which we have elected the fair value option. Changes in these unobservable inputs can result in significantly higher or lower fair value measurements of these assets and liabilities as of the reporting date.



	Fair Value Measurements as of September 30, 2019
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾			Weighted - Average⁽¹⁾⁽²⁾
	(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽³⁾	$	124	Various

Available-for-sale securities:
Mortgage-related securities:
Agency⁽³⁾	$	118	Consensus
	56		Various
Total agency	174
Mortgage revenue bonds	232		Single Vendor	Spreads(bps)	22.5	-	204.5	70.3
	114		Various
Total mortgage revenue bonds	346
Other	274		Discounted Cash Flow	Default Rate(%)	0.8			0.8
				Prepayment Speed(%)	8.7			8.7
				Severity(%)	84.0			84.0
				Spreads(bps)	77.5	-	300.0	299.4
	41		Various
Total other	315
Total available-for-sale securities	$	835
Net derivatives	$	183	Dealer Mark
	15		Various
Total net derivatives	$	198



	Fair Value Measurements as of December 31, 2018
	Fair Value		Significant Valuation Techniques	Significant Unobservable Inputs⁽¹⁾	Range⁽¹⁾				Weighted - Average⁽¹⁾⁽²⁾
	(Dollars in millions)
Recurring fair value measurements:
Trading securities:
Mortgage-related securities:
Agency⁽³⁾	$	32	Various
Private-label securities and other mortgage securities	1		Various
Total trading securities	$	33

Available-for-sale securities:
Mortgage-related securities:
Agency⁽³⁾	$	152	Various

Alt-A and subprime private-label securities	24		Various
Mortgage revenue bonds	349		Single Vendor	Spreads(bps)	(0.5	)	-	332.8	59.0
	85		Various
Total mortgage revenue bonds	434
Other	294		Discounted Cash Flow	Default Rate(%)	4.7				4.7
				Prepayment Speed(%)	8.2				8.2
				Severity(%)	70.0				70.0
				Spreads(bps)	75.4		-	390.0	389.1
	48		Various
Total other	342
Total available-for-sale securities	$	952
Net derivatives	$	113	Dealers Mark
	81		Various
Total net derivatives	$	194

⁽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.


⁽²⁾	Unobservable inputs were weighted by the relative fair value of the instruments.


⁽³⁾	Includes Fannie Mae and Freddie Mac securities.

In our condensed 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 had no Level 1 assets or liabilities held as of September 30, 2019 or December 31, 2018 that were measured at fair value on a nonrecurring basis. We held $620 million and $91 million in Level 2 assets as of September 30, 2019 and December 31, 2018, respectively, comprised of mortgage loans held for sale and mortgage loans held for investment that were individually impaired. We had no Level 2 liabilities that were measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018.

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
	Valuation Techniques	September 30, 2019		December 31, 2018
	(Dollars in millions)
Nonrecurring fair value measurements:
Mortgage loans held for sale, at lower of cost or fair value	Consensus	$	2,067	$	631
	Single Vendor	780		1,119
	Various	1		—
Total mortgage loans held for sale, at lower of cost or fair value		2,848		1,750

Single-family mortgage loans held for investment, at amortized cost	Internal Model	543		818
Multifamily mortgage loans held for investment, at amortized cost	Asset Manager Estimate	70		102
	Various	13		40
Total multifamily mortgage loans held for investment, at amortized cost		83		142
Acquired property, net:⁽¹⁾
Single-family	Accepted Offers	100		151
	Appraisals	386		419
	Walk Forwards	190		181
	Internal Model	152		219
	Various	32		41
Total single-family		860		1,011
Multifamily	Various	—		50
Total nonrecurring assets at fair value		$	4,334	$	3,771

⁽¹⁾

The most commonly used techniques in our valuation of acquired property are a proprietary home price model and third-party valuations (both current and walk forward). Based on the number of properties measured as of September 30, 2019, these methodologies comprised approximately 83% of our valuations, while accepted offers comprised approximately 13% of our valuations. Based on the number of properties measured as of December 31, 2018, these methodologies comprised approximately 82% of our valuations, while accepted offers comprised approximately 15% of our valuations.

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. See “Note 15, Fair Value” in our 2018 Form 10-K for information on the valuation control processes and 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. We made no material changes to the valuation control processes or the valuation techniques for the nine months ended September 30, 2019.

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 condensed 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 September 30, 2019
	Carrying Value		Quoted Prices 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	$	64,498	$	51,623	$	12,875	$	—	$	—		$	64,498
Federal funds sold and securities purchased under agreements to resell or similar arrangements	23,176		—		23,176		—		—			23,176
Trading securities	44,206		36,016		8,066		124		—			44,206
Available-for-sale securities	2,690		—		1,855		835		—			2,690
Mortgage loans held for sale	12,289		—		4,783		8,672		—			13,455
Mortgage loans held for investment, net of allowance for loan losses	3,301,847		—		3,241,129		134,732		—			3,375,861
Advances to lenders	6,937		—		6,935		2		—			6,937
Derivative assets at fair value	472		—		1,909		226		(1,663		)	472
Guaranty assets and buy-ups	149		—		—		319		—			319
Total financial assets	$	3,456,264	$	87,639	$	3,300,728	$	144,910	$	(1,663	)	$	3,531,614

Financial liabilities:
Federal funds purchased and securities sold under agreements to repurchase	$	1,125	$	—	$	1,125	$	—	$	—		$	1,125
Short-term debt:
Of Fannie Mae	35,812		—		35,818		—		—			35,818
Long-term debt:
Of Fannie Mae	177,710		—		186,489		847		—			187,336
Of consolidated trusts	3,248,336		—		3,273,846		33,667		—			3,307,513
Derivative liabilities at fair value	595		—		2,866		28		(2,299		)	595
Guaranty obligations	161		—		—		102		—			102
Total financial liabilities	$	3,463,739	$	—	$	3,500,144	$	34,644	$	(2,299	)	$	3,532,489



	As of December 31, 2018
	Carrying Value		Quoted Prices 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	$	49,423	$	34,073	$	15,350	$	—	$	—		$	49,423
Federal funds sold and securities purchased under agreements to resell or similar arrangements	32,938		—		32,938		—		—			32,938
Trading securities	41,867		35,502		6,332		33		—			41,867
Available-for-sale securities	3,429		—		2,477		952		—			3,429
Mortgage loans held for sale	7,701		—		238		7,856		—			8,094
Mortgage loans held for investment, net of allowance for loan losses	3,241,694		—		2,990,104		216,404		—			3,206,508
Advances to lenders	3,356		—		3,354		2		—			3,356
Derivative assets at fair value	458		—		2,515		209		(2,266		)	458
Guaranty assets and buy-ups	147		—		—		356		—			356
Total financial assets	$	3,381,013	$	69,575	$	3,053,308	$	225,812	$	(2,266	)	$	3,346,429

Financial liabilities:
Short-term debt:
Of Fannie Mae	$	24,896	$	—	$	24,901	$	—	$	—		$	24,901
Long-term debt:
Of Fannie Mae	207,178		—		211,403		771		—			212,174
Of consolidated trusts	3,159,846		—		3,064,239		39,043		—			3,103,282
Derivative liabilities at fair value	777		—		3,077		15		(2,315		)	777
Guaranty obligations	160		—		—		121		—			121
Total financial liabilities	$	3,392,857	$	—	$	3,303,620	$	39,950	$	(2,315	)	$	3,341,255

For a detailed description and classification of our financial instruments, see “Note 15, Fair Value” in our 2018 Form 10-K.

Fair Value Option

We elected the fair value option for loans and debt that contain embedded derivatives that would otherwise require bifurcation. Additionally, we elected the fair value option for our credit risk-sharing securities accounted for as debt of Fannie Mae issued under our CAS series prior to January 1, 2016. Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from such instruments.

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 condensed 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
	September 30, 2019									December 31, 2018
	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		$	8,183		$	6,041		$	22,719		$	8,922		$	6,826		$	23,753
Unpaid principal balance		7,866			5,541			20,380			8,832			6,241			22,080

⁽¹⁾

Includes nonaccrual loans with a fair value of $127 million and $161 million as of September 30, 2019 and December 31, 2018, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2019 and December 31, 2018 was $11 million and $19 million, respectively. Includes loans that are 90 days or more past due with a fair value of $76 million and $102 million as of September 30, 2019 and December 31, 2018, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of September 30, 2019 and December 31, 2018 was $9 million and $14 million, respectively.

Changes in Fair Value under the Fair Value Option Election

We recorded gains of $95 million and $334 million for the three and nine months ended September 30, 2019, respectively, and losses of $63 million and $239 million for the three and nine months ended September 30, 2018, respectively, from changes in the fair value of loans recorded at fair value in “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.

We recorded losses of $245 million and $797 million for the three and nine months ended September 30, 2019, respectively, and gains of $128 million and $629 million for the three and nine months ended September 30, 2018, respectively, from changes in the fair value of long-term debt recorded at fair value in “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details