Financial Guarantees

12 Months Ended

Dec. 31, 2019

We generate revenue by absorbing the credit risk of mortgage loans in unconsolidated trusts in exchange for a guaranty fee. We also provide credit enhancements on taxable or tax-exempt mortgage revenue bonds issued by state and local governmental entities to finance multifamily housing for low- and moderate-income families. Additionally, we issue long-term standby commitments that generally require us to purchase loans from lenders if the loans meet certain delinquency criteria.

We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily relating to the unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees. The remaining contractual terms of our guarantees range from 1 day to 33 years; however, the actual term of each guaranty may be significantly less than the contractual term based on the prepayment characteristics of the related mortgage loans.

As the guarantor of structured securities backed in whole or in part by Freddie Mac-issued securities, we extend our guaranty to the underlying Freddie Mac securities in our resecuritization trusts. However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. As described in “Note 1, Summary of Significant Accounting Policies,” in June 2019, we entered into an indemnification agreement under which Freddie Mac agreed to indemnify us for losses caused by its failure to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying resecuritized securities were issued. As a result, and due to the funding commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury, we have concluded that the associated credit risk is negligible. As such, we exclude from the following table approximately $50.1 billion of Freddie Mac securities backing unconsolidated Fannie Mae-issued structured securities as of December 31, 2019.

The following table displays our off-balance sheet maximum exposure, guaranty obligation recognized in our consolidated balance sheets and the potential maximum recovery from third parties through available credit enhancements and recourse related to our financial guarantees.



	As of December 31,
	2019									2018
	Maximum Exposure		Guaranty Obligation			Maximum Recovery⁽¹⁾			Maximum Exposure			Guaranty Obligation			Maximum Recovery⁽¹⁾
	(Dollars in millions)
Unconsolidated Fannie Mae MBS	$	5,801		$	26		$	5,545		$	7,278		$	30		$	6,811
Other guaranty arrangements⁽²⁾	12,670			128			2,553			13,847			130			2,711
Total	$	18,471		$	154		$	8,098		$	21,125		$	160		$	9,522


⁽¹⁾	Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurers’ and financial guarantors’ ability to meet their obligations to us. For information on our mortgage insurers, see “Note 13, Concentrations of Credit Risk.”

⁽²⁾

Primarily consists of credit enhancements and long-term standby commitments.