fnm-20200930



			We have been under conservatorship, with the Federal Housing Finance Agency (“FHFA”) acting as conservator, since September 6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and privileges of the company, and of any shareholder, officer or director of the company with respect to the company and its assets. The conservator has since provided for the exercise of certain authorities by our Board of Directors. Our directors do not have any fiduciary duties to any person or entity except to the conservator and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities, or the holders of Fannie Mae MBS unless specifically directed to do so by the conservator.
			We do not know when or how the conservatorship will terminate, what further changes to our business will be made during or following conservatorship, what form we will have and what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated or whether we will continue to exist following conservatorship. The U.S. Department of the Treasury (“Treasury”) released a plan in September 2019 for housing finance reform (the “Treasury plan”) that includes recommendations related to ending our conservatorship. Congress and the Administration continue to consider options for reform of the housing finance system, including Fannie Mae. We are not permitted to retain more than $25 billion in capital reserves or to pay dividends or other distributions to stockholders other than Treasury. Our agreements with Treasury include covenants that significantly restrict our business activities. For additional information on the conservatorship, our uncertain future, our agreements with Treasury, and recent housing finance reform developments, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”), “Risk Factors” in our 2019 Form 10-K and in this report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations (‘MD&A’)—Legislation and Regulation” in our Form 10-Q for the quarter ended June 30, 2020 (“Second Quarter 2020 Form 10-Q”).

You should read this MD&A in conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more detailed information in our 2019 Form 10-K. You can find a “Glossary of Terms Used in This Report” in our 2019 Form 10-K. Forward-looking statements in this report are based on management’s current expectations and are subject to significant uncertainties and changes in circumstances, as we describe in “Forward-Looking Statements.” Future events and our future results may differ materially from those reflected in our forward-looking statements due to a variety of factors, including those discussed in “Risk Factors” and elsewhere in this report and in our 2019 Form 10-K.

Fannie Mae is a leading source of financing for mortgages in the United States. Our revenues are primarily driven by guaranty fees we receive for managing the credit risk on loans underlying the mortgage-backed securities we issue. Our mission is to provide a stable source of liquidity to support housing in the U.S. for low- and moderate-income borrowers and renters. We operate in the secondary mortgage market, primarily working with lenders, who originate loans to borrowers. We do not originate loans or lend money directly to borrowers in the primary mortgage market. Instead, we securitize mortgage loans originated by lenders into Fannie Mae mortgage-backed securities that we guarantee (which we refer to as Fannie Mae MBS or our MBS); purchase mortgage loans and mortgage-related securities, primarily for securitization and sale at a later date; manage mortgage credit risk; and engage in other activities that support access to credit and the supply of affordable housing. In order to perform these activities through market cycles in accordance with our mission, we are working closely with FHFA, our conservator and regulator, to prioritize safety and soundness, strong risk management and strong corporate governance.

The increase in our net income in the third quarter of 2020, compared with the third quarter of 2019, was primarily driven by an increase in net interest income due to higher loan prepayments as a result of the historically low interest rate environment, an increase in investment gains and a decrease in fair value losses. These were partially offset by a decrease in credit-related income due to expected credit losses as a result of the economic dislocation caused by the COVID-19 pandemic. Our net interest income for the third quarter of 2020 was also impacted by the application of our accounting policy for nonaccrual loans that allowed us to continue accruing interest income on delinquent loans that were current at March 1, 2020 and have been negatively impacted by the COVID-19 pandemic. As a result of this update, we recognized $763 million in interest income related to these loans in the third quarter which we would not have recognized prior to the application of our updated policy. See “Consolidated Results of Operations” for more information on our financial results and “Note 1, Summary of Significant Accounting Policies—New Accounting Guidance” for more information about our policy for nonaccrual loans.

The decrease in our net income in the first nine months of 2020, compared with the first nine months of 2019, was primarily driven by a shift from credit-related income to credit-related expense driven by the economic dislocation caused by the COVID-19 pandemic, partially offset by an increase in net interest income due to higher loan prepayments as a result of the historically low interest rate environment. Our net interest income in the first nine months of 2020 was also impacted by our recognition of $2.2 billion in interest income as a result of the update in our application of our policy for nonaccrual loans as

Changes in our net worth can be significantly impacted by market conditions that affect our net interest income; fluctuations in the estimated fair value of our derivatives and other financial instruments that we mark to market through our earnings; developments that affect our loss reserves, such as changes in interest rates, home prices or accounting standards, or events such as natural disasters or pandemics; and other factors, as we discuss in “Risk Factors” and “Consolidated Results of Operations” in our 2019 Form 10-K and in this report.

Historically low mortgage rates have contributed to our highest level of acquisition volume in the first nine months of 2020 since the same period in 2003. As a result, we acquired a higher-than-usual portion of our book of business during the first nine months of 2020, with 27% of the loans in our single-family conventional guaranty book of business as of September 30, 2020 originated in the first nine months of the year. Because we expect mortgage rates to remain low through 2021, we anticipate a large and growing portion of our book of business, originated in a historically-low-interest-rate environment, will have less incentive to refinance in the future, slowing the pace at which loans in our book of business turn over in future years. A slower turnover rate in our book of business would reduce our ability to increase our future revenues by increasing guaranty fees, as any such change would take longer to meaningfully increase the average charged guaranty fee on our total book of business. See “MD&A—Legislation and Regulation—Developments Relating to Exiting Conservatorship” in our Second Quarter 2020 Form 10-Q for a discussion of how this may impact our efforts to generate capital and “Consolidated Results of Operations—Net Interest Income” in this report for information on how this may affect amortization income we receive in future periods. Also see “COVID-19 Impact—Fannie Mae Response” and “Single-Family Business—Single-Family Business Metrics” in this report for a discussion of the new adverse market refinance fee we plan to implement on December 1, 2020.

If we were to draw additional funds from Treasury under the senior preferred stock purchase agreement with respect to a future period, the amount of remaining funding under the agreement would be reduced by the amount of our draw, and the aggregate liquidation preference of the senior preferred stock would increase by the amount of our draw. For a description of the terms of the senior preferred stock purchase agreement and the senior preferred stock, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2019 Form 10-K.

The COVID-19 pandemic caused substantial financial market volatility and has significantly adversely affected both the U.S. and global economies. While state and local governments throughout the country have re-opened their economies to varying degrees, the U.S. economy continues to be affected by the COVID-19 pandemic. Although the economy has improved significantly since the second quarter of 2020, business activity remains well below the level before the onset of the pandemic, with unemployment remaining substantially higher than pre-pandemic levels. Moreover, new daily cases of COVID-19 in the U.S. have been trending upward in October, exceeding their previous peak in July and increasing the risk of new shut-downs and reductions in business activity. The federal government has taken many actions to reduce the negative economic impact of the COVID-19 pandemic. For example, the Federal Reserve lowered the federal funds rate and increased its purchases of

The disruption caused by the pandemic differs from previous economic downturns because of the high level of uncertainty related to the health and safety of consumers and workers. We expect the path and timing of economic recovery will be impacted by the rate of new COVID-19 cases and the associated mortality rates. We believe that sustaining the current economic recovery depends on continued growth in consumer spending, increased business activity, and an associated reduction in unemployment, all of which impact the ability of borrowers and renters to make their monthly payments. Government support, as described above, has played a role in helping to reduce the negative economic impact of the pandemic. Some of these programs have ended, including the $600 federal supplement to state unemployment benefits, which expired at the end of July. The ultimate impact of the expiration of these programs and the extent to which any future government actions will mitigate the negative impacts of COVID-19 on the U.S. economy and our business is highly unclear. The pandemic resulted in a contraction in U.S. gross domestic product (“GDP”) in the second quarter of 2020 that we expect will not be entirely offset by growth in the second half of the year. See “Key Market Economic Indicators” for information on macroeconomic conditions during the first nine months of 2020 and our current forecasts regarding future macroeconomic conditions.

•Adverse Market Refinance Fee. We are implementing a new adverse market refinance fee in light of the increased costs and risk we expect to incur due to the COVID-19 pandemic. This new adverse market refinance fee is a one-time charge of 0.5% of the loan amount that the lender is required to pay at the time we acquire the loan and will be effective December 1, 2020. To help ensure that the fee does not negatively impact our affordable housing mission, the fee will only apply to eligible single-family loan refinances and will not apply to loans for home purchases, refinance loans with an original principal amount of less than or equal to $125,000, or certain HomeReady® refinance loans. The lender may choose whether to pass on all, some or none of the fee to the borrower. The new fee is intended to help us offset some of the higher projected expenses and risk due to COVID-19, including costs associated with the actions we are taking to help borrowers, lenders and servicers impacted by the pandemic, such as providing forbearances, suspending foreclosures and evictions, and offering repayment plans, payment deferrals and loan modifications.

We have also taken steps to help protect the safety and resiliency of our workforce. From mid-March through early October 2020, we required nearly all of our workforce to work remotely. Beginning in early October, we are now allowing employees, on a voluntary basis, to request approval to return to work at some of our office locations and have established mandatory COVID-19 safety protocols for these locations. We expect a significant majority of our employees will continue to work remotely for the foreseeable future. To date, our business resiliency plans and technology systems have effectively supported this telework arrangement.

substantial credit-related expenses. We are also incurring other costs associated with the pandemic, such as paying higher fees to servicers to support providing loss mitigation to borrowers. We expect the impact of the pandemic to continue to negatively affect our financial results, contributing to lower net income in 2020 than in 2019. We could also have net losses in future periods. In addition, we expect the pandemic to negatively affect our returns on capital under FHFA’s conservatorship capital requirements. See “Consolidated Results of Operations,” “Single-Family Business” and “Multifamily Business” for more information on our financial results for the third quarter and first nine months of 2020.

We did not enter into new credit risk transfer transactions in the second quarter of 2020 due to adverse market conditions resulting from the COVID-19 pandemic. Although market conditions improved in the third quarter of 2020, we did not enter into any new credit risk transfer transactions in the third quarter and currently do not have plans to engage in additional new credit risk transfer transactions in the near future, as we evaluate FHFA’s recently proposed capital rule, FHFA’s conservatorship scorecard requirements and other factors. FHFA’s proposed capital rule would reduce the amount of capital relief we obtain from these transactions. We will continue to review our plans, which may be affected by our evaluation of the proposed capital rule and changes in the rule as it is finalized, our progress in meeting FHFA’s conservatorship scorecard, the strength of future market conditions, and our review of our overall business and capital plan to enable us to exit conservatorship. See “MD&A—Legislation and Regulation” in our Second Quarter 2020 Form 10-Q for more information on FHFA’s proposed capital rule. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Transfer of Multifamily Mortgage Credit Risk” for more information about our credit-risk transfer activity.

Our current forecasts and expectations relating to the impact of the COVID-19 pandemic are subject to many uncertainties and may change, perhaps substantially. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the extent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration, spread and severity of COVID-19 outbreaks; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic and the widespread availability and public acceptance of a COVID-19 vaccine; the extent to which consumers, workers and families feel safe resuming pre-pandemic activities; the nature, extent and success of the forbearance, payment deferrals, modifications and other loss mitigation options we provide to borrowers affected by the pandemic; accounting elections and estimates relating to the impact of the COVID-19 pandemic; borrower and renter behavior in response to the pandemic and its economic impact; how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks or increases in the daily number of new COVID-19 cases interrupt economic recovery; and how quickly and to what extent affected borrowers, renters and counterparties can recover from the negative economic impact of the pandemic. See “Risk Factors” for a discussion of the risks to our business, financial results and financial condition relating to the COVID-19 pandemic. See “Forward-Looking Statements” for a discussion of factors that could cause actual conditions, events or results to differ materially from those described in our forecasts, expectations and other forward-looking statements in this report.

The information in this section updates and supplements information regarding legislative and regulatory developments affecting our business set forth in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Business—Charter Act and Regulation” in our 2019 Form 10-K, as well as in “MD&A—Legislation and Regulation” in our Form 10-Q for the quarter ended March 31, 2020 (“First Quarter 2020 Form 10-Q”) and our Second Quarter 2020 Form 10-Q. Also see “Risk Factors” in this report and in our 2019 Form 10-K for discussions of risks relating to legislative and regulatory matters.

Under the terms of our MBS trust documents, we have the option or, in some instances, the obligation to purchase mortgage loans that meet specific criteria from an MBS trust. Our current policy is that, except for loans that are in forbearance or that have been granted certain other types of loss mitigation options (such as a repayment plan or payment deferral), we generally purchase loans from single-family MBS trusts when they become four consecutive monthly payments delinquent. In September 2020, FHFA instructed both us and Freddie Mac to extend the timeframe for our single-family delinquent loan buyout policy to twenty-four consecutively missed monthly payments (that is, loans that are 24 months past due), with the same exceptions noted above, effective January 1, 2021. Despite this change in policy, we currently anticipate that in most cases we will purchase delinquent loans from single-family MBS trusts prior to the 24-month deadline under one of the exceptions to the general policy, which includes loans that are permanently modified, loans subject to a short-sale or deed-in-lieu of foreclosure, loans that are paid in full and loans referred to foreclosure. FHFA’s instruction provides that this new buyout

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires certain financial companies to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of adverse economic conditions. Under FHFA regulations implementing this requirement, each year we are required to conduct a stress test using two different scenarios of financial conditions provided by FHFA—baseline and severely adverse—and to publish a summary of our stress test results for the severely adverse scenario by August 15.

FHFA regulation requires that the scenarios provided by FHFA be generally consistent with and comparable to those established by the Federal Reserve Board. Following the onset of the COVID-19 pandemic, the Federal Reserve Board considered alternative scenarios that were not included among the scenarios initially issued by FHFA. Accordingly, on August 13, 2020, FHFA issued a waiver to delay publication of our stress test results for this year so that we may include the alternative scenarios considered by the Federal Reserve Board in the summary of our results, with such other supporting analysis that the Director of FHFA may deem necessary. In September 2020, in light of the continued uncertainty posed by the COVID-19 pandemic, the Federal Reserve Board published alternative hypothetical scenarios featuring severe recessions. We will publish our 2020 stress test results after FHFA provides us with instructions regarding these alternative scenarios and a revised publication timeframe.

On September 4, 2020, to prevent the further spread of COVID-19, the Centers for Disease Control and Prevention (the “CDC”) published an order prohibiting the eviction of any tenant, lessee or resident of a residential property for nonpayment of rent through December 31, 2020, if such person provides a specified declaration attesting that they meet the requirements to obtain the protection of the order. The requirements to obtain the protection of the order include a specified income cap and an inability to pay their full rent. The CDC order does not apply in any jurisdiction with a moratorium on residential evictions that provides the same or greater level of public-health protection. While the CDC order does not impose any obligations on Fannie Mae or its servicers to ensure compliance by borrowers, a borrower’s income may be impacted by tenants who do not pay their rent while under the protection of the CDC order. As a result, as described in “Risk Factors,” this eviction moratorium could adversely affect the ability of some of our borrowers to make payments on their loans.

In September 2020, the Financial Stability Oversight Council (the “FSOC”) announced that it had completed an activities-based review of the secondary mortgage market, focused in particular on the activities of Fannie Mae and Freddie Mac (the “GSEs”). In assessing potential risks to financial stability, the FSOC applied the framework for an activities-based approach described in its interpretative guidance on nonbank financial company determinations issued in December 2019. This framework provides that the FSOC will consult with relevant financial regulatory agencies, consider the risk profiles and business models of market participants engaging in the activities under evaluation, and take into account existing laws and regulations that may mitigate a potential risk to U.S. financial stability.

The FSOC noted that any distress at the GSEs that affected their secondary mortgage market activities could pose a risk to financial stability if the risks are not properly mitigated. In conducting its analysis on the extent to which FHFA’s regulatory framework would adequately mitigate potential stability risks, the FSOC reviewed FHFA’s recent proposed capital rule (which we describe in “MD&A—Legislation and Regulation” in our Second Quarter 2020 Form 10-Q) and additional enhancements FHFA is implementing to the GSEs’ regulatory framework. The FSOC’s announcement provided the following suggestions for FHFA to consider relating to the proposed capital rule:

•Risk-based capital requirements. The FSOC noted that FHFA’s proposed capital rule would require aggregate credit risk capital on mortgage exposures that would lead to a substantially lower risk-based capital requirement than the bank capital framework. The FSOC encouraged FHFA and other regulatory agencies to coordinate and take other appropriate action to avoid market distortions that could increase risks to financial stability by generally taking consistent approaches to the capital requirements and other regulation of similar risks across market participants, consistent with the business models and missions of their regulated entities.

•Total capital sufficiency. The FSOC noted that FHFA’s proposed capital rule requires a meaningful amount of capital for the GSEs, and is a significant step towards ensuring that the GSEs would be able to provide liquidity to the secondary mortgage market and satisfy their obligations during and after a period of severe stress. However, the FSOC also noted that its analysis using benchmark comparisons suggests that risk-based capital requirements and leverage ratio requirements that are materially less than those contemplated by FHFA’s proposed capital rule would likely not adequately mitigate the potential stability risk posed by the GSEs. Moreover, the FSOC noted that it is possible that additional capital could be required for the GSEs to remain viable concerns in the event of a severely adverse stress, particularly if the GSEs’ asset quality were ever to deteriorate to levels comparable to the experience leading up to the 2008 financial crisis. The FSOC encouraged FHFA to ensure high-quality capital by implementing regulatory capital definitions that are similar to those in the U.S. banking framework. The FSOC also encouraged FHFA to require the GSEs to be sufficiently capitalized to remain viable as going concerns during and after a severe economic downturn.

The FSOC also referenced FHFA’s implementation of other significant enhancements to the GSEs’ regulatory framework that would help mitigate the potential risk to financial stability, including efforts to strengthen GSE liquidity regulation, stress testing, supervision and resolution planning. The FSOC’s announcement stated that, “Should these reforms be implemented appropriately, they will lead to a more durable secondary mortgage market that helps provide sustainable access to mortgage credit across the economic cycle and is more resistant to shocks that could impair financial intermediation or financial market functioning to a degree that would be sufficient to inflict significant damage on the broader economy.” The FSOC concluded that it will continue to monitor the secondary mortgage market activities of the GSEs and FHFA’s implementation of the regulatory framework to ensure potential risks to financial stability are adequately addressed; if the FSOC determines that such risks to financial stability are not adequately addressed by FHFA’s capital and other regulatory requirements or other risk mitigants, the FSOC may consider more formal recommendations or other actions.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by the Federal Housing Finance Regulatory Reform Act of 2008 (together, the “GSE Act”), requires us to obtain prior approval from FHFA before initially offering new products and to provide advance notice to FHFA of new activities, subject to certain exceptions. In October 2020, FHFA issued a proposed rule implementing this provision. The proposed rule establishes a process for the review of new products and activities by FHFA, including providing for a public notice and comment period with respect to new products. The proposed rule also establishes revised criteria for determining what constitutes a new activity that requires notice to FHFA and describes the activities that are excluded from the requirements of the proposed rule. The proposed rule, if adopted as final, would replace an interim final rule that has been in effect since July 2009. Once adopted, the new rule would apply both during and after our transition from conservatorship. The new rule also would cover new activities and new products proposed by Common Securitization Solutions, LLC (“CSS”), which is an affiliate of Fannie Mae.

The Consumer Financial Protection Bureau’s (the “CFPB’s”) “ability-to-repay” rule under the Truth in Lending Act includes a general “qualified mortgage” definition, and an exception to that definition referred to as the qualified mortgage “patch,” pursuant to which conventional mortgage loans are considered qualified mortgages if they (1) meet certain qualified mortgage requirements generally and (2) are eligible to be purchased or guaranteed by Fannie Mae or Freddie Mac operating under the conservatorship or receivership of FHFA.

•Fair value gains (losses). We have exposure to fair value gains and losses resulting from changes in interest rates, primarily through our mortgage commitment derivatives and risk management derivatives, which we mark to market through earnings. Fair value gains and losses on our mortgage commitment derivatives fluctuate depending on how interest rates and prices move between the time the commitment is opened and settled. The net position and composition across the yield curve of our risk management derivatives changes over time. As a result, interest rate changes (increases or decreases) and yield curve changes (parallel, steepening or flattening shifts) will generate varying amounts of fair value gains or losses in a given period. We are preparing to implement hedge accounting in the first quarter of 2021 to reduce the impact of interest-rate volatility on our financial results. For additional information on the expected impact of hedge accounting, see “Consolidated Results of Operations—Fair Value Losses, Net.”

•We currently expect home prices on a national basis to increase 7.0% in 2020, compared with 4.8% home price growth in 2019. We revised our 2020 home price forecast upward since the second quarter due to better-than-expected housing demand and continued low levels of supply through the first nine months of the year. However, we have adjusted downward our longer-term projection of home price growth as we believe there may be an eventual weakening in housing demand due to the ongoing economic and labor market weaknesses caused by the pandemic. As such, our current estimate of home price growth on a national basis for 2021 is 1.7%. We also expect significant regional variation in the timing and rate of home price growth.

•Our forecasts and expectations relating to the impact of the COVID-19 pandemic are subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations. For example, home price growth could slow and potentially decline if GDP growth is weaker than we currently expect, if unemployment, particularly among existing homeowners and potential new home buyers, is higher than we expect, or if the housing market is more sensitive to economic and labor-market weaknesses than we expect. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”

•Growth of household formation stimulates homebuilding. Homebuilding has typically been a cyclical leader of broader economic activity contributing to the growth of GDP and to employment. Residential construction activity has historically been a leading indicator, weakening prior to a slowdown in U.S. economic activity and accelerating prior to a recovery. However, the housing sector’s performance may vary from its historical precedent due to the many uncertainties related to the impact of the COVID-19 pandemic on the economy and the housing market, as well as uncertainty surrounding future economic or housing policy.

•With regard to housing construction, a decline in housing starts results in fewer new homes being available for purchase and potentially a lower volume of mortgage originations. Construction activity can also affect credit losses through its impact on home prices. If the growth of demand exceeds the growth of supply, prices will appreciate and impact the risk profile of newly originated home purchase mortgages, depending on where in the housing cycle the market is. A reduced pace of construction is often associated with a broader economic slowdown and may signal expected increases in delinquency and losses on defaulted loans.


Summary of Condensed Consolidated Results of Operations
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,

	2020		2019		Variance		2020		2019		Variance
	(Dollars in millions)
Net interest income(1)	$	6,656	$	5,348	$	1,308	$	17,780	$	15,371	$	2,409
Fee and other income	93		188		(95)		303		435		(132)
Net revenues	6,749		5,536		1,213		18,083		15,806		2,277
Investment gains, net	653		253		400		644		847		(203)
Fair value losses, net	(327)		(713)		386		(1,621)		(2,298)		677
Administrative expenses	(762)		(749)		(13)		(2,265)		(2,237)		(28)
Credit-related income (expenses):
Benefit (provision) for credit losses	501		1,857		(1,356)		(2,094)		3,732		(5,826)
Foreclosed property expense	(71)		(96)		25		(161)		(364)		203
Total credit-related income (expenses)	430		1,761		(1,331)		(2,255)		3,368		(5,623)
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees	(679)		(613)		(66)		(1,976)		(1,806)		(170)
Credit enhancement expense(2)	(325)		(290)		(35)		(1,061)		(782)		(279)
Change in expected credit enhancement recoveries(3)	(48)		—		(48)		413		—		413
Other expenses, net(4)	(313)		(186)		(127)		(792)		(551)		(241)
Income before federal income taxes	5,378		4,999		379		9,170		12,347		(3,177)
Provision for federal income taxes	(1,149)		(1,036)		(113)		(1,935)		(2,552)		617
Net income	$	4,229	$	3,963	$	266	$	7,235	$	9,795	$	(2,560)
Total comprehensive income	$	4,216	$	3,977	$	239	$	7,224	$	9,703	$	(2,479)


Components of Net Interest Income
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020		2019		Variance		2020		2019		Variance
	(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income, net of TCCA	$	2,842	$	2,478	$	364	$	8,119	$	7,178	$	941
Base guaranty fee income related to TCCA(1)	679		613		66		1,976		1,806		170
Net amortization income	2,713		1,487		1,226		6,174		3,851		2,323
Total net interest income from guaranty book of business	6,234		4,578		1,656		16,269		12,835		3,434
Net interest income from portfolios	422		770		(348)		1,511		2,536		(1,025)
Total net interest income	$	6,656	$	5,348	$	1,308	$	17,780	$	15,371	$	2,409

We expect mortgage rates to remain low through 2021, contributing to a significant amount of mortgage refinance activity and high levels of amortization income. Because a large portion of our book of business has been and is expected to be originated in a historically low interest rate environment, we anticipate that refinancing activity will decrease at some point in the future as fewer borrowers can benefit from a refinancing or as interest rates rise. Lower levels of refinancing in the future will likely slow the rate at which we amortize cost basis adjustments and therefore will likely result in lower amortization income in a given period as the average life of our outstanding book of business may extend.

We initially recognize mortgage loans and debt of consolidated trusts in our condensed consolidated balance sheets at fair value. The difference between the initial fair value and the carrying value of these instruments is recorded as a cost basis adjustment, either as a premium or a discount, in our condensed consolidated balance sheets. We amortize these cost basis adjustments over the contractual lives of the loans or debt. On a net basis, for mortgage loans and debt of consolidated trusts, we are in a premium position with respect to debt of consolidated trusts, which represents deferred income we will recognize in our condensed consolidated statements of operations and comprehensive income as amortization income in future periods.

We have updated the application of our accounting policy for nonaccrual loans as it relates to loans negatively impacted by COVID-19. As a result, for loans that were current as of March 1, 2020 and subsequently become delinquent, we continue to accrue interest income for up to six months pursuant to an April 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Interagency Statement”). If those loans are in a forbearance plan beyond six months of delinquency, we continue to accrue interest income provided collection of principal and interest continues to be reasonably assured. As a result of this update, we recognized $763 million in the third quarter of 2020 and $2.2 billion in the first nine months of 2020 in interest income related to these loans which we would not have recognized prior to the application of our updated policy. We also recognized $569 million of provision for loan losses on the related accrued interest receivable in the first nine months of 2020. This update also resulted in a significant portion of delinquent loans staying on accrual status. See “Note 1, Summary of Significant Accounting Policies” for more information about our accounting policy update and “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management” and “Multifamily Business—Multifamily Mortgage Credit Risk Management” for details about loans in forbearance, as well as on-balance sheet loans past due 90 days or more and continuing to accrue interest.


Analysis of Net Interest Income and Yield(1)
	For the Three Months Ended September 30,
	2020						2019
	Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Mortgage loans of Fannie Mae	$	118,270	$	959	3.24	%	$	119,887	$	1,248	4.16	%
Mortgage loans of consolidated trusts	3,401,660		24,851		2.92		3,185,389		27,824		3.49
Total mortgage loans(2)	3,519,930		25,810		2.93		3,305,276		29,072		3.52
Mortgage-related securities	9,582		63		2.63		10,859		111		4.09
Non-mortgage-related securities(3)	152,229		133		0.34		62,294		347		2.18
Federal funds sold and securities purchased under agreements to resell or similar arrangements	47,200		14		0.12		29,792		178		2.34
Advances to lenders	8,845		33		1.46		6,287		47		2.93
Total interest-earning assets	$	3,737,786	$	26,053	2.79	%	$	3,414,508	$	29,755	3.48	%
Interest-bearing liabilities:
Short-term funding debt	$	33,349	$	(19)	0.22	%	$	23,064	$	(125)	2.12	%
Long-term funding debt	237,020		(806)		1.36		163,996		(1,056)		2.58
Connecticut Avenue Securities® (“CAS”)	16,932		(188)		4.44		23,364		(356)		6.09
Total debt of Fannie Mae	287,301		(1,013)		1.41		210,424		(1,537)		2.92
Debt securities of consolidated trusts held by third parties	3,439,484		(18,384)		2.14		3,196,503		(22,870)		2.86
Total interest-bearing liabilities	$	3,726,785	$	(19,397)	2.08	%	$	3,406,927	$	(24,407)	2.87	%
Net interest income/net interest yield			$	6,656	0.71	%			$	5,348	0.61	%


	For the Nine Months Ended September 30,
	2020						2019
	Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Mortgage loans of Fannie Mae	$	111,752	$	3,003	3.58	%	$	119,180	$	3,848	4.30	%
Mortgage loans of consolidated trusts	3,326,312		78,752		3.16		3,167,172		84,597		3.56
Total mortgage loans(2)	3,438,064		81,755		3.17		3,286,352		88,445		3.59
Mortgage-related securities	10,474		278		3.54		9,904		320		4.31
Non-mortgage-related securities(3)	107,155		510		0.63		61,109		1,095		2.36
Federal funds sold and securities purchased under agreements to resell or similar arrangements	41,030		135		0.43		37,349		698		2.46
Advances to lenders	7,726		92		1.56		4,975		120		3.18
Total interest-earning assets	$	3,604,449	$	82,770	3.06	%	$	3,399,689	$	90,678	3.56	%
Interest-bearing liabilities:
Short-term funding debt	$	38,637	$	(175)	0.60	%	$	21,138	$	(369)	2.30	%
Long-term funding debt	187,628		(2,370)		1.68		172,284		(3,272)		2.53
Connecticut Avenue Securities® (“CAS”)	18,813		(696)		4.93		24,170		(1,114)		6.15
Total debt of Fannie Mae	245,078		(3,241)		1.76		217,592		(4,755)		2.91
Debt securities of consolidated trusts held by third parties	3,357,411		(61,749)		2.45		3,173,700		(70,552)		2.96
Total interest-bearing liabilities	$	3,602,489	$	(64,990)	2.41	%	$	3,391,292	$	(75,307)	2.96	%
Net interest income/net interest yield			$	17,780	0.66	%			$	15,371	0.60	%

The estimated fair value of our derivatives, trading securities and other financial instruments carried at fair value may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads and implied volatility, as well as activity related to these financial instruments. While the estimated fair value of our derivatives that mitigate certain risk exposures may fluctuate, some of the financial instruments that generate these exposures are not recorded at fair value in our condensed consolidated financial statements.

We are preparing to implement fair value hedge accounting in the first quarter of 2021 to reduce the impact of interest-rate volatility on our financial results. Once implemented, for derivatives in designated hedges, fair value gains and losses attributable to changes in certain benchmark interest rates, such as LIBOR or SOFR, may be reduced by offsetting gains and losses in the fair value of designated hedged mortgage loans or debt. Therefore, we expect the volatility of our financial results associated with changes in interest rates will be reduced substantially. We expect fair value gains and losses driven by other factors, such as credit spreads, will remain.


Fair Value Losses, Net
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(Dollars in millions)
Risk management derivatives fair value losses attributable to:
Net contractual interest expense on interest-rate swaps	$	(46)	$	(190)	$	(216)	$	(698)
Net change in fair value during the period	44		(294)		(85)		(541)
Total risk management derivatives fair value losses, net	(2)		(484)		(301)		(1,239)
Mortgage commitment derivatives fair value losses, net	(672)		(177)		(2,327)		(946)
Credit enhancement derivatives fair value gains (losses), net	380		(7)		400		(31)
Total derivatives fair value losses, net	(294)		(668)		(2,228)		(2,216)
Trading securities gains (losses), net	(91)		95		691		370
CAS debt fair value gains (losses), net	(9)		59		465		156
Other, net(1)	67		(199)		(549)		(608)
Fair value losses, net	$	(327)	$	(713)	$	(1,621)	$	(2,298)

Our credit-related income or expense can vary substantially from period to period based on a number of factors, such as changes in actual and forecasted home prices or property valuations, fluctuations in actual and forecasted interest rates, borrower payment behavior, events such as natural disasters or pandemics, the types and volume of our loss mitigation activities, including forbearances and loan modifications, the volume of foreclosures completed, and the redesignation of loans from held for investment (“HFI”) to HFS. In recent periods, the redesignation of certain reperforming and nonperforming single-family loans has been a significant driver of credit-related income. We suspended new sales of reperforming and nonperforming loans in the second quarter of 2020, as investor interest in purchasing these loans was severely impacted by the COVID-19 pandemic and its effects. Market conditions for the sale of these loans, particularly reperforming loans, has improved following the second quarter. As a result, we resumed sales of reperforming loans in the third quarter.

Our credit-related income or expense and our loss reserves can also be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses. The January 1, 2020 CECL standard implementation introduced additional volatility in our financial results as credit-related income or expense now includes expected lifetime losses on our loans and thus are sensitive to fluctuations in the factors detailed above. Although CECL impacts the timing and amount of estimated credit-related income or expense recognized in any given period, it does not impact the amount of credit losses we ultimately realize at the time a loan is written-off.

As described below, during 2020, our credit-related income or expense and our loss reserves have been significantly affected by our estimates of the impact of the COVID-19 pandemic, which require significant management judgment. Changes in our estimates of borrowers that will ultimately receive forbearance (referred to as our “cumulative forbearance take-up rate”) and even more significantly, the loss mitigation outcomes of affected borrowers after the forbearance period ends, remain uncertain and can affect the amount of credit-related income or expense we recognize. Although we believe the estimates underlying our allowance determination are reasonable, we may observe future volatility in these estimates as we continue to observe actual loan performance data and update our models and assumptions relating to this unprecedented event.

The table below provides a quantitative analysis of the drivers for the third quarter and first nine months of 2020 of our single-family and multifamily benefit or provision for credit losses and the decrease or increase in expected benefit from freestanding credit enhancements. The benefit or provision for credit losses includes our benefit or provision for loan losses, accrued interest receivable losses, and our guaranty loss reserves. It excludes the transition impact of adopting the CECL standard, which was recorded as an adjustment to retained earnings as of January 1, 2020. Many of the drivers that contribute to our benefit or provision for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates.


Components of Benefit (Provision) for Credit Losses and Change in Expected Credit Enhancement Recoveries
	For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
	(Dollars in millions)
Single-family benefit (provision) for credit losses:
Changes in loan activity(1)	$	(18)	$	(85)
Redesignation of loans from HFI to HFS	510		685
Actual and forecasted home prices	939		355
Actual and projected interest rates	25		1,366
Change in actual and expected loan delinquencies and change in assumptions regarding COVID-19 forbearance(2)	(537)		(3,127)
Provision from allowance on accrued interest receivable	(391)		(560)
Other(3)	14		(43)
Single-family benefit (provision) for credit losses	542		(1,409)
Multifamily provision for credit losses:
Changes in loan activity(1)	(32)		(106)
Actual and projected interest rates	(48)		226

Actual and projected economic data and estimated impact of the COVID-19 pandemic	49		(825)
Other(3)	(11)		22
Multifamily provision for credit losses	(42)		(683)
Total benefit (provision) for credit losses(4)	$	500	$	(2,092)

Change in expected credit enhancement recoveries:(5)
Single-family	$	(48)	$	218
Multifamily	(4)		188
Total change in expected credit enhancement recoveries	$	(52)	$	406

(1)Primarily consists of loan liquidations, new troubled debt restructurings (“TDRs”), amortization of concessions granted to borrowers and the impact of FHFA’s Advisory Bulletin 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”). For multifamily, changes in loan activity also includes changes in the allowance due to loan delinquencies and the impact of changes in debt service coverage ratios (“DSCRs”) based on updated property financial information, which is used to assess loan credit quality.

•Provision from change in actual and expected loan delinquencies and change in assumptions regarding COVID-19 forbearance, which includes adjustments to modeled results. Our single-family provision for credit losses for the first nine months of 2020 was driven by the economic dislocation caused by the COVID-19 pandemic, with the majority of the provision recognized in the first quarter of 2020. Estimating expected credit losses as a result of the COVID-19 pandemic continues to require significant management judgment regarding a number of matters, including our expectations surrounding borrower participation in a COVID-19-related forbearance, the type and extent of loss mitigation that may be needed when the loan exits forbearance, the high degree of uncertainty regarding the future course of the pandemic and its effect on the economy, and expectations regarding the impact of fiscal stimulus to support borrowers. As a result, the model used to estimate single-family credit losses does not capture the entirety of losses we expect to incur relating to COVID-19. The model has consumed data from the initial months of the pandemic, including loan delinquencies, and updated credit profile data for loans in forbearance. As more of this data was consumed by our credit loss model, we reduced the non-modeled adjustment initially recorded in the first quarter.

In the third quarter of 2020, management continued to apply its judgment and supplement model results as of September 30, 2020, taking into account the continued high degree of uncertainty regarding the future impact of the pandemic and its effect on the economy, future economic and housing policy, and extended foreclosure moratoriums. These factors, combined with higher loan delinquencies, led to an increase in provision attributable to these COVID-19-related factors, which was partially offset by a decrease in our estimated single-family cumulative forbearance take-up. This take-up rate, calculated by loan count, was revised from 12.5% as of June 30, 2020 to 8.8% as of September 30, 2020, based on recent economic data and actual forbearance activity observed through the third quarter of 2020. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management—Single-Family Loans in Forbearance” for information on our single-family loans in forbearance.

•Provision from allowance on accrued interest receivable. As a result of our update to the application of our nonaccrual policy in the second quarter of 2020, we continue to accrue interest for those loans that were negatively impacted by the COVID-19 pandemic. This update resulted in a significant portion of delinquent loans, that were current as of March 1, 2020 and subsequently became delinquent, remaining on accrual status. Accordingly, we established a valuation allowance for expected credit losses on the accrued interest receivable balance based on our evaluation of collectability. As shown in the table above, this contributed to a provision for credit losses attributable to this factor for the third quarter and first nine months of 2020. See “Note 1, Summary of Significant Accounting Policies” for more information about our nonaccrual policy.

•Benefit from lower actual and projected interest rates. For much of 2020, we continued to be in a historically low interest rate environment. As mortgage interest rates decline, we expect an increase in future prepayments on single-family loans, including modified loans. Higher expected prepayments shorten the expected lives of modified loans, which decreases the expected impairment relating to term and interest-rate concessions provided on these loans and results in a benefit for credit losses. Most of this benefit from lower actual and projected mortgage interest rates was recognized in the first half of 2020.

•Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS. In the third quarter of 2020, we resumed sales of reperforming loans after our suspension of new loan sales in the second quarter of 2020. As a result, we redesignated certain reperforming single-family loans from HFI to HFS in the third quarter of 2020, as we no longer intend to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or fair value with a write-off against the allowance for loan losses. Amounts recorded in the allowance related to these loans exceeded the amounts written off, which contributed to a net benefit for credit losses for the third quarter and first nine months of 2020 as shown in the table above.

by higher expected losses as a result of the economic dislocation caused by the COVID-19 pandemic and heightened economic uncertainty, driven by elevated unemployment, which we expect will result in a decrease of multifamily property income and property values. In addition, the multifamily provision for credit losses includes increased expected credit losses on seniors housing loans, as these properties have been disproportionately impacted by the pandemic. The vast majority of these expenses were recognized in the first half of 2020. Consistent with the single-family discussion above, the model we use to estimate multifamily credit losses does not capture the entirety of losses we expect to incur relating to COVID-19. The model has consumed data from the initial months of the pandemic, but we continue to apply management judgment and supplement model results as of September 30, 2020, taking into account the continued high degree of uncertainty that remains relating to the impact of the pandemic.

In the third quarter of 2020, our multifamily provision for expected losses as a result of the COVID-19 pandemic was relatively flat. In September 2020, we decreased our estimate for credit losses due to a downward revision of our estimated multifamily cumulative forbearance take-up rate from 10.0% as of June 30, 2020 to 5.0% as of September 30, 2020 based on the unpaid principal balance of the multifamily book of business, as well as an improved forecasted unemployment rate. These benefits were offset by continued economic uncertainty, forbearance arrangements that were extended beyond the initial term, and overall increased delinquencies. These factors, inclusive of the other components of the multifamily provision for credit losses, resulted in a modest expense for the third quarter of 2020. See “Multifamily Business—Multifamily Mortgage Credit Risk Management—-Multifamily Problem Loan Management and Foreclosure Prevention” for information on our multifamily loans in forbearance.

The table below provides quantitative analysis of the drivers for the third quarter and first nine months of 2019 of our single-family benefit for credit losses. The presentation of our components represents amounts recognized prior to our transition to the lifetime loss model prescribed by the CECL standard. Many of the drivers that contribute to our benefit for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates. The table does not include our multifamily benefit (provision) for credit losses as the amounts for 2019 were less than $50 million.

•An enhancement in the third quarter of 2019 to 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 “Other” in the table above.

Credit enhancement expense consists of costs associated with our freestanding credit enhancements, which primarily include our CAS and CIRT programs, EPMI, and amortization expense for certain lender risk-sharing programs. For our CAS and CIRT programs, this expense is generally based on the outstanding balance of the covered reference pool. Therefore, the periodic expense at the transaction or security level generally increases or decreases as the outstanding covered balance increases or decreases, respectively. We exclude from this expense costs related to our CAS transactions accounted for as debt instruments and credit risk transfer programs accounted for as derivative instruments. Credit enhancement expense has been presented as a separate line item for all periods presented. In prior periods, credit enhancement expenses were recorded in “Other expenses, net.” We discuss the transfer of mortgage credit risk in “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Transfer of Multifamily Mortgage Credit Risk.”

Change in expected credit enhancement recoveries consists of the change in benefits recognized from our freestanding credit enhancements, including any realized amounts. Benefits, if any, from our CAS, CIRT and EPMI programs previously recorded in “Fee and other income” have been reclassified to “Change in expected credit enhancement recoveries” for all periods presented. Benefits from other lender risk-sharing programs, including our multifamily Delegated Underwriting and Servicing (“DUS®”) program, were recorded as a reduction of credit-related expense in periods prior to 2020. However, with our adoption of the CECL standard on January 1, 2020, benefits from freestanding credit enhancements are no longer recorded as a reduction of credit-related expenses. These benefits from lender risk-sharing have been reclassified into “Change in expected credit enhancement recoveries” on a prospective basis beginning January 1, 2020.

Other expenses primarily consists of debt extinguishment gains and losses, housing trust fund expenses, loan subservicing costs, servicer fees paid in connection with certain loss mitigation activities, and gains and losses from partnership investments. We expect our fees paid to servicers for loss mitigation work to increase into 2021 as single-family borrowers who received a COVID-19-related forbearance enter into various loss mitigation solutions once the forbearance period ends, such as repayment plans, payment deferrals or loan modifications. For additional information about our loans in forbearance, see “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Loans in Forbearance.”


Summary of Condensed Consolidated Balance Sheets
	As of
	September 30, 2020		December 31, 2019		Variance
	(Dollars in millions)
Assets
Cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements	$	50,172	$	34,762	$	15,410
Restricted cash	73,516		40,223		33,293
Investments in securities	144,367		50,527		93,840
Mortgage loans:
Of Fannie Mae	119,337		101,668		17,669
Of consolidated trusts	3,439,709		3,241,510		198,199
Allowance for loan losses	(11,703)		(9,016)		(2,687)
Mortgage loans, net of allowance for loan losses	3,547,343		3,334,162		213,181
Deferred tax assets, net	12,808		11,910		898
Other assets	36,397		31,735		4,662
Total assets	$	3,864,603	$	3,503,319	$	361,284
Liabilities and equity
Debt:
Of Fannie Mae	$	289,423	$	182,247	$	107,176
Of consolidated trusts	3,530,381		3,285,139		245,242
Other liabilities	24,106		21,325		2,781
Total liabilities	3,843,910		3,488,711		355,199
Fannie Mae stockholders’ equity:
Senior preferred stock	120,836		120,836		—
Other net deficit	(100,143)		(106,228)		6,085
Total equity	20,693		14,608		6,085
Total liabilities and equity	$	3,864,603	$	3,503,319	$	361,284

The increase in debt of Fannie Mae from December 31, 2019 to September 30, 2020 was primarily driven by new long-term debt issuances to support elevated refinancing and purchase activity, in preparation for the implementation in December 2020 of the new liquidity risk management requirements issued by FHFA, and in anticipation of future potential liquidity needs as a result of the COVID-19 pandemic. The increase in debt of consolidated trusts from December 31, 2019 to September 30, 2020 was primarily driven by sales of Fannie Mae MBS, which are accounted for as issuances of debt of consolidated trusts in our condensed consolidated balance sheets, since the MBS certificate ownership is transferred from us to a third party. See “Liquidity and Capital Management—Debt Funding” for a summary of activity in debt of Fannie Mae and a comparison of the mix between our outstanding short-term and long-term debt. Also see “Note 7, Short-Term and Long-Term Debt” for additional information on our total outstanding debt.


Retained Mortgage Portfolio
	As of
	September 30, 2020			December 31, 2019
	(Dollars in millions)
Lender liquidity:
Agency securities(1)		$	42,196		$	38,375
Mortgage loans		44,061			21,152
Total lender liquidity		86,257			59,527
Loss mitigation mortgage loans(2)		57,460			60,731
Other:
Reverse mortgage loans		14,533			17,129
Mortgage loans		5,287			6,546
Reverse mortgage securities(3)		7,324			7,575
Private-label and other securities		495			1,250
Fannie Mae-wrapped private-label securities		534			581
Mortgage revenue bonds		218			272
Total other		28,391			33,353
Total retained mortgage portfolio		$	172,108		$	153,611

Retained mortgage portfolio by segment:
Single-family mortgage loans and mortgage-related securities		$	166,038		$	145,179
Multifamily mortgage loans and mortgage-related securities		$	6,070		$	8,432

(2)Includes single-family loans classified as TDRs that were on accrual status of $33.1 billion and $38.2 billion as of September 30, 2020 and December 31, 2019, and single-family loans on nonaccrual status of $18.9 billion and $19.6 billion as of September 30, 2020 and December 31, 2019. Includes multifamily loans classified as TDRs that were on accrual status of $26 million and $51 million as of September 30, 2020 and December 31, 2019, respectively, and multifamily loans on nonaccrual status of $355 million and $132 million as of September 30, 2020 and December 31, 2019, respectively.

The amount of mortgage assets that we may own is capped at $250 billion by our senior preferred stock purchase agreement with Treasury, and FHFA has directed that we further cap our mortgage assets at $225 billion. The Treasury plan includes a recommendation that Treasury and FHFA amend our senior preferred stock purchase agreement to further reduce the cap on our investments in mortgage-related assets, and also to restrict our retained mortgage portfolio to solely supporting the business of securitizing MBS. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2019 Form 10-K for additional information on our portfolio cap and the Treasury plan.

Under the terms of our MBS trust documents, we have the option or, in some instances, the obligation, to purchase mortgage loans that meet specific criteria from an MBS trust. The purchase price for these loans is the unpaid principal balance of the loan plus accrued interest. If a delinquent loan remains in a single-family MBS trust, the servicer is responsible for advancing the borrower’s missed scheduled principal and interest payments to the MBS holders for up to four months, after which time we must make these missed payments. In addition, we must eventually reimburse servicers for advanced principal and interest payments. In deciding whether and when to exercise our option to purchase a loan from a single-family MBS trust, we consider a variety of factors, including, but not limited to, our cost of funds, general market conditions, and relevant market yields. The cost of purchasing most delinquent loans from a single-family Fannie Mae MBS trust and holding them in our retained mortgage portfolio is currently less than the cost of advancing delinquent payments to security holders.

Our current policy is that, except for loans that are in forbearance or that have been granted certain other types of loss mitigation options (such as a repayment plan or payment deferral), we generally purchase loans from single-family MBS trusts when they become four consecutive monthly payments delinquent. As described in “Legislation and Regulation—FHFA Instruction to Extend Timeframe for Single-Family MBS Delinquent Loan Buyout Policy,” in September 2020, FHFA instructed both us and Freddie Mac to extend the timeframe for our single-family delinquent loan buyout policy to twenty-four consecutively missed monthly payments (that is, loans that are 24 months past due), with the same exceptions noted above, effective January 1, 2021. Despite this change in policy, we currently anticipate that in most cases we will purchase delinquent loans from single-family MBS trusts prior to the 24-month deadline under one of the exceptions to the general policy, which includes loans that are permanently modified, loans subject to a short-sale or deed-in-lieu of foreclosure, loans that are paid in full and loans referred to foreclosure.

In support of our loss mitigation strategies, we purchased $9.2 billion of loans from our single-family MBS trusts in the first nine months of 2020, the substantial majority of which were delinquent, compared with $7.8 billion of loans purchased from single-family MBS trusts in the first nine months of 2019. We expect the amount of loans we buy out of trusts to increase significantly in 2021 as a result of COVID-19-related loan delinquencies and loss mitigation strategies, which will increase the size of our retained mortgage portfolio, perhaps substantially. The volume of loans we ultimately buy, the timing of those purchases, and the length of time those loans remain in our retained mortgage portfolio remain highly uncertain and depend on a number of factors, including the success of our loss mitigation activities. If the amount of mortgage loans we purchase from MBS trusts is significantly higher than we currently expect, or if liquidations and sales from our retained mortgage portfolio are significantly lower than we expect, we may seek to obtain FHFA’s and Treasury’s prior written consent to increase our current mortgage asset limit. Depending on the amount, if any, by which Treasury and FHFA agree to any request we make for an increase in our mortgage asset limit, our business activities may be constrained. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management—Single-Family Loans in Forbearance” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Multifamily Problem Loan Management and Foreclosure Prevention” for information on our loans in forbearance.

We and Freddie Mac began issuing single-family uniform mortgage-backed securities, or “UMBS®,” in June 2019. In this report, we use the term “Fannie Mae-issued UMBS” to refer to single-family Fannie Mae MBS that are directly backed by fixed-rate mortgage loans and generally eligible for trading in the to-be-announced (“TBA”) market. We use the term “Fannie Mae MBS” or “our MBS” to refer to any type of mortgage-backed security that we issue, including UMBS, Supers®, Real Estate Mortgage Investment Conduit securities (“REMICs”) and other types of single-family or multifamily mortgage-backed securities.

Some Fannie Mae MBS that we issue are backed in whole or in part by Freddie Mac securities. When we resecuritize Freddie Mac securities into Fannie Mae-issued structured securities, such as Supers and REMICs, our guaranty of principal and interest extends to the underlying Freddie Mac securities. 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. References to our single-family guaranty book of business in this report exclude Freddie Mac-acquired mortgage loans underlying Freddie Mac securities that we have resecuritized.


Composition of Fannie Mae Guaranty Book of Business(1)
	As of
	September 30, 2020						December 31, 2019
	Single-Family		Multifamily		Total		Single-Family		Multifamily		Total
	(Dollars in millions)
Conventional guaranty book of business(2)	$	3,221,939	$	367,209	$	3,589,148	$	2,997,475	$	341,522	$	3,338,997
Government guaranty book of business(3)	23,402		2,303		25,705		27,422		1,079		28,501
Guaranty book of business	3,245,341		369,512		3,614,853		3,024,897		342,601		3,367,498
Freddie Mac securities guaranteed by Fannie Mae(4)	117,748		—		117,748		50,100		—		50,100
Total Fannie Mae guarantees	$	3,363,089	$	369,512	$	3,732,601	$	3,074,997	$	342,601	$	3,417,598

(4)Consists of approximately (i) $93.3 billion and $37.8 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers as of September 30, 2020 and December 31, 2019, respectively; and (ii) $24.4 billion and $12.3 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs as of September 30, 2020 and December 31, 2019, respectively. Our total exposure to Freddie Mac securities backing Fannie Mae-issued REMICs disclosed as of December 31, 2019 may have been lower because a portion of the Freddie Mac securities backing these Fannie Mae-issued REMICs may have been backed by Fannie Mae MBS.

The GSE Act requires us to set aside each year an amount equal to 4.2 basis points of the unpaid principal balance of our new business purchases and to pay this amount to specified U.S. Department of Housing and Urban Development (“HUD”) and Treasury funds in support of affordable housing. In February 2020, we paid $280 million to the funds based on our new business purchases in 2019. For the first nine months of 2020, we recognized an expense of $413 million related to this obligation based on $982.6 billion in new business purchases during the period. We expect to pay this amount to the funds in 2021, plus additional amounts to be accrued based on our new business purchases in the fourth quarter of 2020. See “Business—Charter Act and Regulation—GSE Act and Other Legislation—Affordable Housing Allocations” in our 2019 Form 10-K for more information regarding this obligation.

Our share of the single-family mortgage acquisition market fluctuates from period to period. We currently estimate our single-family acquisition share in the last three years was within the range of 23% to 30%, supporting approximately one in four single-family mortgage loans. As shown in the table below, our share of total mortgage acquisitions over a longer period of time has varied within a wider range and is often impacted by economic cycles. For example, during periods of recession, our acquisition share has historically increased as some other market competitors reduced their acquisitions.

Our competitors for the acquisition of single-family mortgage assets are financial institutions and government agencies that manage residential mortgage credit risk or invest in residential mortgage loans, including Freddie Mac, the Federal Housing Administration (“FHA”), the United States Department of Veterans Affairs (“VA”), Ginnie Mae (which primarily guarantees securities backed by FHA-insured loans and VA-guaranteed loans), the Federal Home Loan Banks (“FHLBs”), U.S. banks and thrifts, securities dealers, insurance companies, pension funds, investment funds and other mortgage investors.

Our single-family Fannie Mae MBS issuances were $383.8 billion for the third quarter of 2020, compared with $188.5 billion for the third quarter of 2019. This increase was driven by a high volume of refinance activity in the second and third quarters of 2020 due to historically low mortgage rates. Based on the latest data available, the chart below displays our estimated share of single-family mortgage-related securities issuances in the third quarter of 2020 as compared with that of our primary competitors for the issuance of single-family mortgage-related securities.

For purposes of the information reported in this “Single-Family Business” section, we measure the single-family guaranty book of business using the unpaid principal balance of our mortgage loans underlying Fannie Mae MBS outstanding. By contrast, the single-family guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information reported below, our single-family conventional guaranty book of business was $3,120.3 billion as of September 30, 2020 and $2,951.9 billion as of December 31, 2019.

Net interest income for our Single-Family business is driven by the guaranty fees we charge and the size of our single-family conventional guaranty book of business. Our business volume and growth in our guaranty book of business is affected by the rate of growth in total U.S. residential mortgage debt outstanding, the size of the U.S. residential mortgage market and our share of mortgage acquisitions. The guaranty fees we charge are based on the characteristics of the loans we acquire. We may adjust our guaranty fees in light of market conditions and to achieve return targets, which are based on FHFA’s conservatorship capital framework that currently applies to Fannie Mae. As a result, the average charged guaranty fee on new acquisitions may fluctuate based on the credit quality and product mix of loans acquired, as well as market conditions and other factors.

We are implementing a new adverse market refinance fee effective December 1, 2020. The new fee is intended to help us offset some of the higher projected expenses and risk due to COVID-19. For every $1 billion in eligible refinance loans we acquire, we will collect $5 million in adverse market refinance fees, which will be amortized into net interest income over the contractual life of the loans as a cost basis adjustment. See “Executive Summary—COVID-19 Impact” for additional information on the new adverse market refinance fee we plan to implement.

(2) Our single-family conventional guaranty book of business primarily consists of single-family conventional mortgage loans underlying Fannie Mae MBS outstanding. It also includes single-family conventional mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on single-family conventional mortgage assets. Our single-family conventional guaranty book of business does not include: (a) non-Fannie Mae single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty; (b) mortgage loans guaranteed or insured, in whole or in part, by the U.S. government; or (c) Freddie Mac-acquired mortgage loans underlying Freddie Mac-issued UMBS that we have resecuritized. Our average single-family conventional guaranty book of business is based on quarter-end balances.

Average charged guaranty fee represents, on an annualized basis, the sum of the average base guaranty fees for our single-family conventional guaranty arrangements, which we receive over the life of the loan, during the period, plus the recognition of any upfront cash payments relating to these guaranty arrangements based on an estimated average life at the time of acquisition. Management uses average charged guaranty fee on new acquisitions as a metric to assess the reasonableness of our compensation for the credit risk we manage on newly acquired single-family loans.


Single-Family Business Financial Results(1)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020		2019		Variance		2020		2019		Variance
	(Dollars in millions)
Net interest income(2)	$	5,870	$	4,484	$	1,386	$	15,350	$	12,942	$	2,408
Fee and other income	73		156		(83)		238		350		(112)
Net revenues	5,943		4,640		1,303		15,588		13,292		2,296
Investment gains, net	583		198		385		527		709		(182)
Fair value losses, net	(244)		(719)		475		(1,734)		(2,364)		630
Administrative expenses	(634)		(634)		—		(1,888)		(1,899)		11
Credit-related income (expense)(3)	478		1,747		(1,269)		(1,556)		3,391		(4,947)
TCCA fees(2)	(679)		(613)		(66)		(1,976)		(1,806)		(170)
Credit enhancement expense	(274)		(240)		(34)		(897)		(639)		(258)
Change in expected credit enhancement recoveries(4)	(48)		—		(48)		218		—		218
Other expenses, net(5)	(307)		(184)		(123)		(722)		(540)		(182)
Income before federal income taxes	4,818		4,195		623		7,560		10,144		(2,584)
Provision for federal income taxes	(1,049)		(872)		(177)		(1,623)		(2,125)		502
Net income	$	3,769	$	3,323	$	446	$	5,937	$	8,019	$	(2,082)

Fair value losses, net in the third quarter and first nine months of 2019 were primarily driven by net interest expense accruals on our risk management derivatives combined with decreases in the fair value of our pay-fixed risk management derivatives, partially offset by increases in the fair value of our receive-fixed risk management derivatives, and decreases in the fair value of our mortgage commitment derivatives. In addition, increases in the fair value of our debt also resulted in fair value losses for the third quarter and first nine months of 2019.

We also continue to work with Freddie Mac as instructed by FHFA and/or as required by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), to implement temporary policies to enable our single-family loan servicers to better assist borrowers impacted by COVID-19. We issued initial requirements to servicers on temporary policies to assist borrowers impacted by COVID-19 in March 2020, and have subsequently amended the requirements. We will continue monitoring the market to determine whether further adjustments to or extensions of our temporary policies are appropriate.

•provide forbearance upon the request of any single-family borrower experiencing a financial hardship due to the COVID-19 pandemic, regardless of the borrower’s delinquency status and with no additional documentation required other than the borrower’s attestation to a financial hardship caused by COVID-19. The borrower must be provided an initial forbearance plan for a period up to 180 days, and that forbearance period may be extended for up to an additional 180 days at the request of the borrower. If the borrower’s COVID-19-related hardship has not been resolved during an incremental forbearance period, the servicer must extend the borrower’s forbearance period at the borrower’s request, not to exceed 12 months total;

•beginning July 1, 2020, offer a payment deferral workout option to eligible borrowers who have resolved a COVID-19-related financial hardship but cannot afford to bring the loan current by reinstating the loan (that is, repaying all the missed payments at one time) or through a repayment plan (that is, repaying the missed payments over time). The payment deferral workout option allows the borrower to defer up to 12 months of past-due payments, without interest, to the end of the loan term (or when the loan is refinanced, the property is sold or the loan is otherwise paid off before the end of the loan term). All other terms of the loan remain unchanged;

As part of our comprehensive risk management approach, we periodically update our proprietary automated underwriting system, Desktop Underwriter® (“DU®”), to reflect changes to our underwriting and eligibility guidelines. As part of normal business operations, we regularly review DU to determine whether its risk analysis and eligibility assessment are appropriate based on the current market environment and loan performance information. As a result of our most recent review, in April 2020 we enhanced the DU eligibility assessment to help Fannie Mae and our customers better manage credit risk in the current market while providing sustainable options to borrowers. We expect this change will result in a modest reduction of loans with high-risk factors being eligible for acquisition through DU.

The table below displays our single-family conventional business volumes and our single-family conventional guaranty book of business, based on certain key risk characteristics that we use to evaluate the risk profile and credit quality of our single-family loans. We provide additional information on the credit characteristics of our single-family loans in quarterly financial supplements, which we furnish to the U.S. Securities and Exchange Commission (“SEC”) with current reports on Form 8-K. Information in our quarterly financial supplements is not incorporated by reference into this report.


Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1)
	Percent of Single-Family Conventional Business Volume at Acquisition(2)												Percent of Single-Family Conventional Guaranty Book of Business(3) As of
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019				September 30, 2020			December 31, 2019
Original loan-to-value (“LTV”) ratio:(4)
<= 60%	28		%	16		%	25		%	16		%		21		%	19		%
60.01% to 70%	15			12			16			12				14			13
70.01% to 80%	33			38			34			37				36			37
80.01% to 90%	11			13			12			13				12			12
90.01% to 95%	10			14			10			14				11			12
95.01% to 100%	3			7			3			8				4			5
Greater than 100%	*			—			*			*				2			2
Total	100		%	100		%	100		%	100		%		100		%	100		%
Weighted average	71		%	77		%	72		%	77		%		74		%	76		%
Average loan amount	$	281,202		$	269,204		$	279,641		$	255,909			$	181,361		$	173,804
Estimated mark-to-market LTV ratio:(5)
<= 60%														52		%	54		%
60.01% to 70%														17			17
70.01% to 80%														18			16
80.01% to 90%														9			8
90.01% to 100%														4			5
Greater than 100%														*			*
Total														100		%	100		%
Weighted average														57		%	57		%
Product type:
Fixed-rate:(6)
Long-term	84		%	90		%	85		%	90		%		85		%	85		%
Intermediate-term	16			10			15			9				14			13
Total fixed-rate	100			100			100			99				99			98
Adjustable-rate	*			*			*			1				1			2
Total	100		%	100		%	100		%	100		%		100		%	100		%
Number of property units:
1 unit	99		%	98		%	98		%	98		%		97		%	97		%
2 to 4 units	1			2			2			2				3			3
Total	100		%	100		%	100		%	100		%		100		%	100		%
Property type:
Single-family homes	92		%	91		%	92		%	91		%		91		%	91		%
Condo/Co-op	8			9			8			9				9			9
Total	100		%	100		%	100		%	100		%		100		%	100		%


	Percent of Single-Family Conventional Business Volume at Acquisition(2)								Percent of Single-Family Conventional Guaranty Book of Business(3) As of
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019			September 30, 2020		December 31, 2019
Occupancy type:
Primary residence	92	%	93	%	93	%	91	%		89	%	89	%
Second/vacation home	4		3		3		4			4		4
Investor	4		4		4		5			7		7
Total	100	%	100	%	100	%	100	%		100	%	100	%
FICO credit score at origination:
< 620	—	%	*	%	*	%	*	%		1	%	1	%
620 to < 660	2		3		2		4			5		5
660 to < 680	2		3		2		4			4		5
680 to < 700	5		7		5		8			7		7
700 to < 740	17		22		19		23			20		21
>= 740	74		65		72		61			63		61
Total	100	%	100	%	100	%	100	%		100	%	100	%
Weighted average	762		751		759		747			749		746
Debt-to-income (“DTI”) ratio at origination:(7)
<= 43%	81	%	74	%	79	%	71	%		77	%	76	%
43.01% to 45%	7		9		8		9			9		9
Greater than 45%	12		17		13		20			14		15
Total	100	%	100	%	100	%	100	%		100	%	100	%
Weighted average	33	%	36	%	34	%	36	%		35	%	35	%
Loan purpose:
Purchase	32	%	54	%	31	%	59	%		40	%	45	%
Cash-out refinance	17		18		19		19			20		19
Other refinance	51		28		50		22			40		36
Total	100	%	100	%	100	%	100	%		100	%	100	%
Geographic concentration:(8)
Midwest	14	%	14	%	14	%	14	%		15	%	15	%
Northeast	12		14		12		14			17		17
Southeast	21		21		21		22			22		22
Southwest	20		20		21		21			18		18
West	33		31		32		29			28		28
Total	100	%	100	%	100	%	100	%		100	%	100	%
Origination year:
2014 and prior										29	%	38	%
2015										6		8
2016										10		14
2017										8		12
2018										7		11
2019										13		17
2020										27		—
Total										100	%	100	%

Our share of our single-family loan acquisitions consisting of refinance loans rather than home purchase loans increased in the third quarter of 2020 compared with the third quarter of 2019, primarily due to a lower interest-rate environment, which encouraged refinance activity. Typically, refinance loans have lower LTV ratios than home purchase loans. This trend contributed to a decrease in the percentage of our single-family loan acquisitions with LTV ratios over 90%, from 21% in the third quarter of 2019 to 13% in the third quarter of 2020. The historically low interest-rate environment, combined with the high level of refinancing activity, also led to an increase in the percentage of loans we acquired with a FICO credit score over 740, from 65% in the third quarter of 2019 to 74% in the third quarter of 2020.

For a discussion of factors that may impact the credit characteristics of loans we acquire in the future, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Portfolio Diversification and Monitoring” in our 2019 Form 10-K. In this section of our 2019 Form 10-K, we also provide more information on the credit characteristics of loans in our single-family conventional guaranty book of business, including Home Affordable Refinance Program® (“HARP®”) and Refi PlusTM loans, jumbo-conforming and high-balance loans, reverse mortgages and mortgage products with rate resets.

Our approved monoline mortgage insurers’ financial ability and willingness to pay claims is an important determinant of our overall credit risk exposure. For a discussion of our exposure to and management of the institutional counterparty credit risk associated with the providers of these credit enhancements, see “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Note 13, Concentrations of Credit Risk” in our 2019 Form 10-K and “Note 10, Concentrations of Credit Risk” in this report. Also see “Risk Factors” in our 2019 Form 10-K and in this report.


Single-Family Loans with Credit Enhancement
	As of
		September 30, 2020				December 31, 2019
		Unpaid Principal Balance		Percentage of Single-Family Conventional Guaranty Book of Business		Unpaid Principal Balance		Percentage of Single-Family Conventional Guaranty Book of Business
	(Dollars in billions)
Primary mortgage insurance and other		$	674	21	%	$	653	22	%
Connecticut Avenue Securities		708		23		919		31
Credit Insurance Risk Transfer		246		8		275		10
Lender risk-sharing		113		4		147		5
Less: Loans covered by multiple credit enhancements		(338)		(11)		(438)		(15)
Total single-family loans with credit enhancement		$	1,403	45	%	$	1,556	53	%

In addition to primary mortgage insurance, our Single-Family business has developed other risk-sharing capabilities to transfer portions of our single-family mortgage credit risk to domestic and international investors and reinsurers in the private market. Our credit risk transfer transactions are designed to transfer a portion of the losses we expect would be incurred in an economic downturn or a stressed credit environment. As described in “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2019 Form 10-K, we have three primary single-family credit risk transfer programs: Connecticut Avenue Securities®, Credit Insurance Risk Transfer, and lender risk-sharing. In March 2020, FHFA directed us to wind down our single-family lender risk-sharing transactions by the end of this year. We continually evaluate our credit risk transfer transactions which, in addition to managing our credit risk, also affect our returns on capital under FHFA’s conservatorship capital requirements.

Though we engaged in transactions in the first quarter, we did not enter into new single-family credit risk transfer transactions in the second quarter of 2020 due to adverse market conditions resulting from the COVID-19 pandemic. Although market conditions improved in the third quarter, we did not enter into any new single-family credit risk transfer transactions in the third quarter and currently do not have plans to engage in additional new single-family credit risk transfer transactions in the near future, as we evaluate FHFA’s recently proposed capital rule, FHFA’s conservatorship scorecard requirements and other factors. FHFA’s proposed capital rule would reduce the amount of capital relief we obtain from these transactions. Not entering into credit risk transfer transactions in the second and third quarters of 2020 contributed to the percentage of loans in our single-family conventional guaranty book of business with credit enhancement declining from 53% as of December 31, 2019 to 45% as of September 30, 2020.

The table below displays the mortgage credit risk transferred to third parties and retained by Fannie Mae pursuant to our single-family credit risk transfer transactions. During the first nine months of 2020, pursuant to our credit risk transfer transactions, we transferred a portion of the mortgage credit risk on single-family mortgages with an unpaid principal balance of $133 billion at the time of the transactions. As of September 30, 2020, approximately 35% of the loans in our single-family conventional guaranty book of business, measured by unpaid principal balance, were included in a reference pool for a credit risk transfer transaction.


Single-Family Loans without Credit Enhancement
	As of
	September 30, 2020				December 31, 2019
	Unpaid Principal Balance		Percentage of Single-Family Conventional Guaranty Book of Business		Unpaid Principal Balance		Percentage of Single-Family Conventional Guaranty Book of Business
	(Dollars in billions)
Low LTV ratio or short-term(1)	$	865	28	%	$	736	25	%
Pre-credit risk transfer program inception(2)	506		16		608		20
Recently acquired(3)	741		24		287		10
Other(4)	284		9		246		8
Less: Loans in multiple categories	(679)		(22)		(481)		(16)
Total single-family loans currently without credit enhancement	$	1,717	55	%	$	1,396	47	%

Our problem loan management strategies focus primarily on reducing defaults to avoid losses that would otherwise occur and pursuing foreclosure alternatives to mitigate the severity of the losses we incur. See “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Problem Loan Management” in our 2019 Form 10-K for a discussion of delinquency statistics on our problem loans, efforts undertaken to manage our problem loans, metrics regarding our loan workout activities, real estate owned (“REO”) management and other single-family credit-related information. The discussion below updates some of that information. We also provide ongoing credit performance information on loans underlying single-family Fannie Mae MBS and loans covered by single-family credit risk transfer transactions. For loans backing Fannie Mae MBS, see the “Forbearance and Delinquency Dashboard” available in the MBS section of our Data Dynamics® tool, which is available at www.fanniemae.com/datadynamics. For loans covered by credit risk transfer transactions, see the “Deal Performance Data” report available in the CAS and CIRT sections of the tool. Information on our website is not incorporated into this report.

The tables below display the delinquency status of loans and changes in the volume of seriously delinquent loans in our single-family conventional guaranty book of business, based on the number of loans. Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process, expressed as a percentage of our single-family conventional guaranty book of business based on loan count. Management monitors the single-family serious delinquency rate as an indicator of potential future credit losses and loss mitigation activities. Serious delinquency rates are reflective of our performance in assessing and managing credit risk associated with single-family loans in our guaranty book of business. Typically, higher serious delinquency rates result in a higher allowance for loan losses.

As described above in “Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards—COVID-19 Servicing Policies,” pursuant to the CARES Act, for purposes of reporting to the credit bureaus, servicers must report a borrower receiving a COVID-19-related payment accommodation during the covered period, such as a forbearance plan or loan modification, as current if the borrower was current prior to receiving the accommodation and the borrower makes all required payments in accordance with the accommodation. For purposes of our disclosures regarding delinquency status, we will continue to report loans receiving COVID-19-related payment forbearance as delinquent according to the contractual terms of the loan.

Our single-family serious delinquency rate increased as of September 30, 2020 compared with December 31, 2019 and September 30, 2019, due to the economic dislocation caused by the COVID-19 pandemic, which increased borrower participation in forbearance plans. A significant majority of our single-family SDQ loan additions in the first nine months of 2020 have been in a COVID-19-related forbearance. Our single-family serious delinquency rate excluding loans in forbearance was 0.65% as of September 30, 2020. We expect the COVID-19 pandemic to result in a continued higher single-family serious delinquency rate over the next several quarters.

The table below displays the serious delinquency rates for, and the percentage of our total seriously delinquent single-family conventional loans represented by, the specified loan categories. Percentage of book amounts present the unpaid principal balance of loans for each category divided by the unpaid principal balance of our total single-family conventional guaranty book of business. We also include information for our loans in California because the state accounts for a large share of our single-family conventional guaranty book of business. The reported categories are not mutually exclusive.


Single-Family Conventional Seriously Delinquent Loan Concentration Analysis
	As of
	September 30, 2020							December 31, 2019							September 30, 2019
		Percentage of Book Outstanding		Percentage of Seriously Delinquent Loans(1)		Serious Delinquency Rate			Percentage of Book Outstanding		Percentage of Seriously Delinquent Loans(1)		Serious Delinquency Rate			Percentage of Book Outstanding		Percentage of Seriously Delinquent Loans(1)		Serious Delinquency Rate
States:
California		19	%	13	%	3.04	%		19	%	6	%	0.32	%		19	%	7	%	0.32	%
Florida		6		10		4.76			6		8		0.84			6		8		0.87
Illinois		3		4		3.46			4		6		0.91			4		6		0.92
New Jersey		3		5		5.31			3		5		1.13			3		5		1.21
New York		5		7		5.39			5		8		1.18			5		8		1.24
All other states		64		61		2.85			63		67		0.64			63		66		0.65
Product type:
Alt-A(2)		1		5		9.46			2		9		2.95			2		10		3.09
Vintages:
2004 and prior		2		9		5.81			2		20		2.48			2		21		2.53
2005-2008		3		14		9.84			4		33		4.11			4		36		4.24
2009-2020		95		77		2.74			94		47		0.35			94		43		0.33
Estimated mark-to-market LTV ratio:
<= 60%		52		54		2.70			54		52		0.53			55		52		0.54
60.01% to 70%		17		18		4.13			17		17		0.80			17		17		0.81
70.01% to 80%		18		15		3.66			16		14		0.75			16		14		0.79
80.01% to 90%		9		10		4.98			8		9		1.00			8		9		1.04
90.01% to 100%		4		2		3.05			5		4		0.86			4		4		0.97
Greater than 100%		*		1		21.74			*		4		10.14			*		4		10.62
Credit enhanced:(3)
Primary MI & other(4)		21		26		4.73			22		26		0.96			22		26		0.97
Credit risk transfer(5)		35		37		3.79			45		16		0.27			41		13		0.27
Non-credit enhanced		55		51		2.73			47		66		0.79			51		67		0.75

As a part of our relief programs and pursuant to the CARES Act, we are providing payment forbearance for up to 12 months to borrowers experiencing a COVID-19-related financial hardship. We estimate that, through September 30, 2020, approximately 7.3% of the single-family loans, based on loan count, in our conventional guaranty book of business as of March 31, 2020 have been in a COVID-19-related forbearance at some point in time (referred to as our “single-family cumulative forbearance take-up rate”). As shown in the tables below, many of these loans have exited forbearance; therefore, the percentage of loans in our single-family conventional guaranty book of business in forbearance as of September 30, 2020 has declined to 4.1%.

Due to the economic dislocation caused by the COVID-19 pandemic, we expect the number of single-family loans in forbearance to remain elevated through 2021 compared with pre-pandemic levels. Some borrowers whose loans are in forbearance continued making payments according to the original contractual terms of the loan notwithstanding the forbearance arrangement; we expect some of these borrowers will continue to do so. The vast majority of our single-family conventional loans in forbearance as of September 30, 2020 was due to borrowers experiencing a COVID-19-related financial hardship.

The following table displays interest income recognized on single-family loans in forbearance held as of period end. As discussed in “Note 1, Summary of Significant Accounting Policies,” we have updated our application of our nonaccrual accounting policy for those loans negatively impacted by the COVID-19 pandemic. For loans that were current as of March 1, 2020 and subsequently become delinquent, we continue to accrue interest income for up to six months. If those loans are in a forbearance plan, where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided collection of principal and interest continues to be reasonably assured according to the updated policy. Additionally, we record a provision for loan losses on the associated accrued interest income as a component of “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income. This update resulted in a significant portion of delinquent loans, including those in forbearance, remaining on accrual status. As a result of the application of our updated nonaccrual policy, we recognized $2.0 billion of interest income for the first nine months of 2020, on loans that were in forbearance during the year, including amounts recognized on loans that subsequently exited forbearance.


Delinquency Status and Risk Characteristics of Loans in Forbearance
	As of September 30, 2020					As of December 31, 2019
	Number of Loans	Percentage of Loans in Forbearance(1)		Unpaid Principal Balance		Number of Loans		Percentage of Loans in Forbearance(1)		Unpaid Principal Balance
	(Dollars in millions)
Delinquency status:
Current	142,333	20	%	$	27,532	454		8	%	$	76
30 to 59 days delinquent	59,752	9		11,579		592		11		103
60 to 89 days delinquent	57,237	8		11,166		710		13		126
Seriously delinquent	444,024	63		94,997		3,659		68		686
Total loans in forbearance	703,346	100	%	$	145,274	5,415		100	%	$	991

				As of September 30, 2020				As of December 31, 2019
				Number of Loans		Percentage of Unpaid Principal Balance in Forbearance		Number of Loans		Percentage of Unpaid Principal Balance in Forbearance

Loans in forbearance with certain higher-risk characteristics:(2)
Estimated mark-to-market LTV ratio > 80%				101,883		19	%	1,073		24		%
Estimated mark-to-market LTV ratio > 80% without mortgage insurance				11,853		2		54		1
DTI > 43%				292,989		44		1,956		39
FICO credit score at origination < 680				210,311		26		2,395		42


Status of Single-Family Forbearance Loans
	As of September 30, 2020
	Number of Loans	Percentage of Loans with Forbearance by Category


Loans that received a forbearance, by status:
Active forbearance	703,346	56	%
Payment deferral	126,483	10
Modification(1)	6,276	1
Repayment plan	7,969	1
Reinstated(2)	272,738	22
Other(3)	34,370	3
Total loans that received a forbearance in our single-family guaranty book of business	1,151,182	93
Loans that have received a forbearance, but liquidated	90,096	7
Total loans that have received a forbearance(4)	1,241,278	100	%

While a loan is in forbearance and backs an MBS trust, investors in the MBS are entitled to continue to receive principal and interest payments on the MBS even though the borrower is not required to make principal and interest payments on the loan. For the majority of loans in our single-family guaranty book of business, our Single-Family Servicing Guide has, until recently, required servicers to advance missed scheduled principal and interest payments to the MBS trusts until the loans were purchased from the MBS trusts. Because we typically do not purchase loans from MBS trusts while they are in forbearance, this servicer payment obligation could have continued for the entirety of the forbearance plan (which could be up to 12 months). In April 2020, FHFA instructed us to reduce our single-family servicers’ obligations to advance these missed borrower payments and to only require servicers to advance missed scheduled principal and interest payments on a loan for the first four months of missed borrower payments beginning August 2020. After four months, we will make the missed scheduled principal and interest payments to the MBS trust for payment to MBS holders so long as the loan remains in the MBS trust. For the three and nine months ended September 30, 2020, we advanced $458 million in missed borrower principal and interest payments to MBS trusts for payment to MBS holders. See “Retained Mortgage Portfolio” for a description of when we purchase loans from single-family MBS trusts. Also, see “Liquidity and Capital Management—Liquidity Management—Debt Funding—Debt Funding Activity” for information on the COVID-19 pandemic’s impact on our liquidity and debt funding needs.


Single-Family REO Properties
	For the Nine Months Ended September 30,
	2020			2019
Single-family REO properties (number of properties):
Beginning of period inventory of single-family REO properties(1)	17,501			20,156
Acquisitions by geographic area:(2)
Midwest	1,298			3,734
Northeast	1,104			3,858
Southeast	1,572			5,001
Southwest	862			2,256
West	381			1,334
Total REO acquisitions(1)	5,217			16,183
Dispositions of REO	(13,146)			(18,468)
End of period inventory of single-family REO properties(1)	9,572			17,871
Carrying value of single-family REO properties (dollars in millions)	$	1,347		$	2,349
Single-family foreclosure rate(3)	0.04		%	0.13		%
REO net sales price to unpaid principal balance(4)	86		%	78		%
Short sales net sales price to unpaid principal balance(5)	80		%	78		%

The single-family credit loss and loan sale performance measures below present information about gains or losses we realized on our single-family loans during the periods presented. The amount of these gains or losses in a given period is driven by foreclosures, pre-foreclosure sales, REO activity, mortgage loan redesignations, and other events that trigger write-offs and recoveries. The single-family credit loss metrics we present are not defined terms within generally accepted accounting principles in the United States of America (“GAAP”) and may not be calculated in the same manner as similarly titled measures reported by other companies. Management uses these measures to evaluate the effectiveness of our single-family credit risk management strategies in tandem with leading indicators such as SDQ and forbearance rates, which are potential indicators of future realized single-family credit losses. We believe these measures provide useful information about our single-family credit performance and the factors that impact our credit performance.

We revised the presentation of our single-family credit loss metrics in connection with our implementation of the CECL standard in January 2020, principally by separating the “Charge-offs, net of recoveries” line item into three line items: “Write-offs,” “Recoveries” and “Write-offs on the redesignation of mortgage loans from HFI to HFS.” Because sales of nonperforming and reperforming loans have been an important part of our credit loss mitigation strategy in recent periods, we also provide information in the table below on our loan sale performance through the “Gains on sales and other valuation adjustments” line item.


Single-Family Credit Loss Metrics and Loan Sale Performance
	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2020				2019				2020				2019
	Amount		Ratio(1)		Amount		Ratio(1)		Amount		Ratio(1)		Amount		Ratio(1)
	(Dollars in millions)
Write-offs	$	(35)			$	(47)			$	(150)			$	(275)
Recoveries	7				19				26				106
Foreclosed property expense	(64)				(93)				(145)				(362)
Credit losses and credit loss ratio	(92)		1.2	bps	(121)		1.7	bps	(269)		1.2	bps	(531)		2.4	bps
Write-offs on the redesignation of mortgage loans from HFI to HFS(2)	(227)				(227)				(236)				(946)
Gains on sales and other valuation adjustments(3)	486				185				407				493
Net gains (losses) from credit losses, write-offs on redesignations, and gains on sales and other valuation adjustments, and related ratios	$	167	(2.2)	bps	$	(163)	2.2	bps	$	(98)	0.4	bps	$	(984)	4.5	bps

We do not expect a substantial increase in our single-family credit losses in the near term as a result of COVID-19, as we are currently offering up to 12 months of forbearance to single-family borrowers suffering financial hardship relating to the pandemic and because we have suspended foreclosures and foreclosure-related activities for single-family properties through at least December 31, 2020. Over the longer term, we expect the COVID-19 pandemic will result in higher single-family credit losses, as reflected in our increased allowance for loan losses since the inception of the pandemic. See “Risk Factors” for additional information on the potential credit risk impact of the COVID-19 pandemic.

Our single-family loss reserves, which include our allowance for loan losses and the related accrued interest receivable, and our reserve for guaranty losses, provide for an estimate of credit losses in our single-family guaranty book of business. For periods beginning January 1, 2020, our measurement of loss reserves reflects a lifetime credit loss methodology pursuant to our adoption of the CECL standard and requires consideration of a broader range of reasonable and supportable forecast information to develop credit loss estimates. For prior periods, single-family loss reserves were measured using an incurred loss impairment methodology for loans that were collectively evaluated for impairment. For further details on our previous single-family loss reserves methodology, refer to “Note 1, Summary of Significant Accounting Policies” in our 2019 Form 10-K.


Single-Family Loss Reserves
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020			2019
	(Dollars in millions)
Changes in loss reserves:
Beginning balance	$	(11,788)	$	(11,239)	$	(8,779)		$	(14,007)
Transition impact of the adoption of the CECL standard	—		—		(1,231)			—
Benefit (provision) for credit losses	542		1,840		(1,409)			3,753
Write-offs	262		274		386			1,221
Recoveries	(7)		(19)		(26)			(106)
Other	23		(1)		91			(6)
Ending balance	$	(10,968)	$	(9,145)	$	(10,968)		$	(9,145)

Write-offs, net of recoveries annualized, as a percentage of the average single-family conventional guaranty book of business (in bps)	3.3		3.5		1.6			5.1

					As of
					September 30, 2020			December 31, 2019
Loss reserves as a percentage of single-family:
Conventional guaranty book of business					0.35		%	0.30		%
Nonaccrual loans at amortized cost					40.86			30.58

We have elected to account for eligible COVID-19-related loss mitigation activities, including forbearance plans, payment deferrals and loan modifications, as permitted under the CARES Act, which provides relief from TDR accounting and disclosure requirements. To be eligible for this treatment, a loan must not have been more than 30 days delinquent as of December 31, 2019, and the activity must occur between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date on which the COVID-19 pandemic national emergency terminates. Accordingly, we do not expect a significant increase in our single-family TDRs in 2020.

We have also updated the application of our accounting policy for nonaccrual loans that were negatively impacted by the COVID-19 pandemic. For loans that were current as of March 1, 2020 and subsequently become delinquent, we continue to accrue interest income for up to six months. If those loans are in a forbearance plan, where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided collection of principal and interest continues to be reasonably assured according to the updated policy. This update, combined with the elevated number of borrowers in forbearance, contributed to a significant increase in loans accruing on-balance sheet that were past due 90 days or more as of September 30, 2020. As a result, we established a valuation allowance of $560 million for expected credit losses on single-family accrued interest receivable as of September 30, 2020. See “Note 1, Summary of Significant Accounting Policies” for additional information on our accounting for TDRs and nonaccrual loans.

•Vacancy rates. Based on preliminary third-party data, the estimated national multifamily vacancy rate for institutional investment-type apartment properties as of September 30, 2020 remained at 5.8%, the same as of June 30, 2020 and up from 5.3% as of September 30, 2019. The estimated national multifamily vacancy rate remains below its estimated average rate of about 6.0% over the last ten years. We believe that declining rents resulted in a boost in demand during the third quarter, especially in suburban markets, keeping the estimated national vacancy rates level.

Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from the cash flows generated by the underlying property. Several years of improvement in these fundamentals helped to increase property values in most metropolitan areas. Based on current multifamily property sales data, transaction volumes have significantly declined since the second quarter, yet capitalization rates appear to have only increased slightly during the third quarter of 2020. This may be due to property owners choosing to retain their multifamily properties rather than accept a discounted offer in the current uncertain environment, thus keeping overall property values relatively stable.

FHFA’s 2020 conservatorship scorecard includes an objective to maintain the dollar volume of new multifamily business at or below $100 billion for the five-quarter period from October 1, 2019 through December 31, 2020. Pursuant to FHFA’s guidelines, at least 37.5% of our multifamily business during that time period must be mission-driven, affordable housing, which includes loans on targeted affordable properties and loans on other properties with affordable units that meet certain income criteria. Our multifamily new business volume was $18.1 billion for the fourth quarter of 2019 and $48.9 billion for the first nine months of 2020, leaving $33.0 billion of capacity remaining under our current multifamily volume cap for the remainder of 2020.

For purposes of the information reported in this “Multifamily Business” section, we measure our multifamily guaranty book of business using the unpaid principal balance of mortgage loans underlying Fannie Mae MBS. By contrast, the multifamily guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information reported below, the following chart displays our multifamily guaranty book of business.

Average charged guaranty fee represents our effective revenue rate relative to the size of our multifamily guaranty book of business. Management uses this metric to assess the reasonableness of our annual compensation rate for the multifamily credit risk we manage. While our multifamily guaranty fee pricing is primarily based on the individual credit risk characteristics of the loans we acquire, it is also influenced by market forces such as the availability of other sources of liquidity, our mission-related goals, the FHFA volume cap and the management of our overall portfolio composition.


Multifamily Business Financial Results(1)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020		2019		Variance		2020		2019		Variance
	(Dollars in millions)
Net interest income	$	786	$	864	$	(78)	$	2,430	$	2,429	$	1
Fee and other income	20		32		(12)		65		85		(20)
Net revenues	806		896		(90)		2,495		2,514		(19)
Fair value gains (losses), net	(83)		6		(89)		113		66		47
Administrative expenses	(128)		(115)		(13)		(377)		(338)		(39)
Credit-related income (expense)(2)	(48)		14		(62)		(699)		(23)		(676)
Credit enhancement expense	(51)		(50)		(1)		(164)		(143)		(21)
Change in expected credit enhancement recoveries(3)	—		—		—		195		—		195
Other income, net(4)	64		53		11		47		127		(80)
Income before federal income taxes	560		804		(244)		1,610		2,203		(593)
Provision for federal income taxes	(100)		(164)		64		(312)		(427)		115
Net income	$	460	$	640	$	(180)	$	1,298	$	1,776	$	(478)

Depending on portfolio activity, our multifamily mortgage commitment derivatives may be in a net-buy or net-sell position during any given period. Fair value losses in the third quarter of 2020 were primarily driven by losses on commitments to sell securities as a result of increases in pricing during their commitment period. Fair value gains in the first nine months of 2020 and the first nine months of 2019 were primarily driven by gains on commitments to buy multifamily mortgage-related securities as a result of increases in prices as interest rates declined during the commitment periods.

Our standards for multifamily loans specify maximum original LTV ratio and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan characteristics. Our experience has been that original LTV ratio and DSCR values have been reliable indicators of future credit performance. At underwriting, we evaluate the DSCR based on both actual and underwritten debt service payments. The original DSCR is calculated using the underwritten debt service payments for the loan, which assumes both principal and interest payments, rather than the actual debt service payments. Depending on the loan’s interest rate and structure, using the underwritten debt service payments may result in a more conservative estimate of the debt service payments (for example, loans with an interest-only period). This approach is used for all loans, including those with full and partial interest-only terms.

Lender risk-sharing is a cornerstone of our Multifamily business. We primarily transfer risk through our DUS program, which delegates to DUS lenders the ability to underwrite and service multifamily loans, in accordance with our standards and requirements. DUS lenders receive credit risk-related revenues for their respective portion of credit risk retained, and, in turn, are required to fulfill any loss-sharing obligation. This aligns the interests of the lender and Fannie Mae throughout the life of the loan. We monitor the capital resources and loss sharing capacity of our DUS lenders on an ongoing basis.

We did not enter into credit risk transfer transactions in the second quarter of 2020 due to adverse market conditions resulting from the COVID-19 pandemic. Although market conditions improved in the third quarter, we did not enter into any new multifamily back-end credit risk transfer transactions in the third quarter and currently do not have plans to engage in additional multifamily back-end credit risk transfer transactions in the near future, as we evaluate FHFA’s recently proposed capital rule, FHFA’s conservatorship scorecard requirements and other factors. FHFA’s proposed capital rule would reduce the amount of capital relief we obtain from these transactions. We will continue to review our plans, which may be affected by our evaluation

The table below displays the number of transactions and unpaid principal balance of multifamily mortgage loans covered by a back-end credit risk transfer transaction at the time of issuance. The table also includes the total unpaid principal balance of multifamily loans and percentage of our multifamily guaranty book of business that are covered by a back-end credit risk transfer transaction. The table does not reflect front-end lender risk-sharing arrangements, as only a small portion of our multifamily guaranty book of business does not include these arrangements.

As part of our ongoing credit risk management process, we and our lenders monitor the performance and risk characteristics of our multifamily loans and the underlying properties on an ongoing basis throughout the loan term at the asset and portfolio level. We require lenders to provide quarterly and annual financial updates for the loans for which we are contractually entitled to receive such information. We closely monitor loans with an estimated current DSCR below 1.0, as that is an indicator of heightened default risk. The percentage of loans in our multifamily guaranty book of business, calculated based on unpaid principal balance, with a current DSCR less than 1.0 was approximately 2% as of September 30, 2020 and December 31, 2019. Our estimates of current DSCRs are based on the latest available income information for these properties and exclude co-op loans. Although we use the most recently available results from our multifamily borrowers, there is a lag in reporting, which typically can range from three to six months, but in some cases may be longer. Accordingly, the financial information we have received from borrowers may only reflect the initial impact of COVID-19.

For example, we closely monitor the rental payment trends and vacancy levels in local markets, as well as capitalization rates, to identify loans that merit closer attention or loss mitigation actions. We manage our exposure to refinancing risk for multifamily loans maturing in the next several years. We have a team that proactively manages upcoming loan maturities to minimize losses on maturing loans. This team assists lenders and borrowers with timely and appropriate refinancing of maturing loans with the goal of reducing defaults and foreclosures related to these loans. The primary asset management responsibilities for our multifamily loans are performed by our DUS and other multifamily lenders. We periodically evaluate these lenders’ performance for compliance with our asset management criteria.

The percentage of our multifamily loans classified as substandard increased as of September 30, 2020 compared with December 31, 2019, due to loans in a COVID-19-related forbearance. Substandard loans are loans that have a well-defined weakness that could impact their timely full repayment. While the majority of the substandard loans in our multifamily guaranty book of business are currently making timely payments or are in forbearance, we continue to monitor the performance of the full substandard loan population. For more information on our credit quality indicators, including our population of substandard loans, see “Note 3, Mortgage Loans.”

Our multifamily serious delinquency rate increased to 1.12% as of September 30, 2020, compared with 0.04% as of December 31, 2019 and 0.06% as of September 30, 2019, due to the economic dislocation caused by the COVID-19 pandemic, which increased borrower participation in forbearance plans. Our multifamily serious delinquency rate consists of multifamily loans that were 60 days or more past due based on unpaid principal balance, expressed as a percentage of our multifamily guaranty book of business. Our multifamily serious delinquency rate, excluding loans that received a forbearance, was 0.04% as of September 30, 2020.

We initially offered forbearance relief to multifamily borrowers by delegating to our lenders the authority to execute a forbearance agreement with a multifamily borrower experiencing a documented financial hardship due to the COVID-19 pandemic for up to three monthly payments, beginning with the first missed monthly payment occurring after February 1, 2020. Effective July 1, 2020, we delegated to our lenders the ability to extend forbearance for up to three additional monthly payments for most loan types. For certain types of loans, such as seniors housing loans and loans with unpaid principal balances above $50 million, Fannie Mae determines whether to extend forbearance relief. For forbearance of any duration after July 1, 2020, the borrower is required to bring the loan current within a time period determined by multiplying the number of months of forbearance by four. For example, if a borrower receives a six-month forbearance period, the borrower would be required to make all missed payments over a period of 24 months. The borrower may also repay the missed payments in a lump sum at any time. In exchange for receiving forbearance, borrowers must agree to suspend tenant evictions for nonpayment of rent, provide monthly operating statements and remit any excess cash flow to our servicers on a monthly basis, to be held until the end of the forbearance period and then applied to missed mortgage payments. In addition, effective August 20, 2020, borrowers with new, extended or amended forbearance agreements must also provide each residential tenant with specified written notices regarding the protections available to them and certify their compliance with these notification requirements.

The table below displays the status as of current period end of the multifamily loans in our guaranty book of business that have received a forbearance, as well as the serious delinquency rate of such loans. As of September 30, 2020, nearly all of our multifamily loans in forbearance were associated with a COVID-19-related financial hardship. Seniors housing loans, which constituted 4.7% of our multifamily guaranty book of business as of September 30, 2020, comprised approximately 40% of the total unpaid principal balance of multifamily loans that received a forbearance and remained in our multifamily guaranty book as of September 30, 2020.


Status and SDQ Rate of Multifamily Forbearance Loans
	As of September 30, 2020
	Number of Loans	Unpaid Principal Balance		Percentage of Unpaid Principal Balance in Book of Business		Percentage of Unpaid Principal Balance with Forbearance by Category		Serious Delinquency Rate
	(Dollars in millions)

Loans that received a forbearance, by status:(1)
Active forbearance(2)	105	$	1,710	0.5	%	35	%	94.17	%
Repayment plan	159	2,433		0.6		50		86.52
Reinstated(3)	58	479		0.1		10		—
Defaulted(4)	24	275		0.1		5		90.78
Total loans that received a forbearance	346	4,897		1.3		100	%	80.96
Loans that have not received a forbearance	27,582	361,873		98.7		—		0.04
Total multifamily guaranty book of business	27,928	$	366,770	100	%	1.3	%	1.12	%

The following table displays interest income recognized on multifamily loans that received a forbearance and were held as of period end. As discussed in “Note 1, Summary of Significant Accounting Policies,” we have updated our application of our accounting policy for nonaccrual for loans negatively impacted by the COVID-19 pandemic. For loans that were current as of March 1, 2020 and subsequently become delinquent, we continue to accrue interest income for up to six months according to the updated policy. If those loans are in a forbearance plan, where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided collection of principal and interest continues to be reasonably assured. Additionally, we record a provision for loan losses on the associated accrued interest income as a component of “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income. The amount of interest income we recognized on loans in forbearance was not material for the three and nine months ended September 30, 2019, which was prior to the update to our application of our nonaccrual policy.

The amount of multifamily credit loss or income we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity and write-offs, net of recoveries. Our multifamily credit loss performance metrics are not defined terms within GAAP and may not be calculated in the same manner as similarly titled measures reported by other companies. We believe our multifamily credit losses and our multifamily credit losses, net of freestanding loss-sharing benefit, may be useful to stakeholders because they display our credit losses in the context of our guaranty book of business, including the benefit we receive from loss-sharing arrangements. Management views multifamily credit losses, net of freestanding loss-sharing benefit as a key metric related to our multifamily business model and our strategy to share multifamily credit risk.


Multifamily Credit Loss Performance Metrics
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019				2020			2019
	(Dollars in millions)
Write-offs(1)	$	(86)		$	(3)			$	(104)		$	(7)
Recoveries	—			1				1			3
Foreclosed property expense	(7)			(3)				(16)			(2)
Credit losses	(93)			(5)				(119)			(6)
Freestanding loss-sharing benefit(2)	26			N/A				29			N/A
Credit losses, net of freestanding loss-sharing benefit	$	(67)		$	(5)			$	(90)		$	(6)

Credit loss ratio (in bps)(3)	10.3			0.6				4.5			0.3
Credit loss ratio, net of freestanding loss-sharing benefit (in bps)(2)(3)	7.4			N/A				3.4			N/A
Initial write-off severity rate(4)	30.2		%	18.4		%		21.5		%	24.2		%
Loan write-off count	4			2				10			5

(2)Represents expected benefits that we receive upon foreclosure as a result of certain freestanding credit enhancements, primarily multifamily DUS lender risk-sharing transactions, as well as the expected loss-sharing benefit from write-offs pursuant to the Advisory Bulletin. These benefits are recorded in “Change in expected credit enhancement recoveries” in our condensed consolidated statements of operations and comprehensive income. Prior to the adoption of the CECL standard on January 1, 2020, benefits from lender risk-sharing transactions were included in “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income.

Our multifamily loss reserves, which include our allowance for loan losses and the related accrued interest receivable, and our reserve for guaranty losses, provide for an estimate of credit losses in our multifamily guaranty book of business. For periods beginning January 1, 2020, our measurement of loss reserves reflects a lifetime credit loss methodology pursuant to our adoption of the CECL standard and requires consideration of a broader range of reasonable and supportable forecast information to develop credit loss estimates. For prior periods, multifamily loss reserves were measured using an incurred loss methodology. For further details on our previous multifamily loss reserves methodology, refer to “Note 1, Summary of Significant Accounting Policies” in our 2019 Form 10-K.


Multifamily Loss Reserves
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020			2019
	(Dollars in millions)
Changes in loss reserves:
Beginning balance	$	(1,382)	$	(281)	$	(268)		$	(245)
Transition impact of the adoption of the CECL standard(1)	—		—		(490)			—
Benefit (provision) for credit losses	(42)		17		(683)			(21)
Write-offs	86		3		104			7
Recoveries	—		(1)		(1)			(3)
Ending balance	$	(1,338)	$	(262)	$	(1,338)		$	(262)

Expected benefit of freestanding credit enhancements on multifamily loans not netted against loss reserves as of the end of the period(2)					$	408		N/A





					As of
					September 30, 2020			December 31, 2019
Loss reserves as a percentage of multifamily guaranty book of business					0.36		%	0.08		%

We have elected to account for eligible COVID-19-related loss mitigation activities as permitted under the CARES Act, which provides relief from TDR accounting and disclosure requirements for our forbearance plans and loan modifications. As of January 1, 2020, we updated our nonaccrual accounting policy for multifamily loans. We place a multifamily loan on nonaccrual status when the loan becomes two months or more past due according to its contractual terms unless the loan is well secured such that collectability of principal and accrued interest is reasonably assured. As a result, the population of loans classified as nonaccrual declined as of January 1, 2020, as a substantial amount of these loans were current and had been previously individually impaired, but were not two months or more past due, contributing to the decrease in loans on nonaccrual status. In the second quarter of 2020, we updated our application of our nonaccrual accounting policy for those loans negatively impacted by the COVID-19 pandemic. For loans that were current as of March 1, 2020 and subsequently

become delinquent, we continue to accrue interest income for up to six months according to the updated policy, which contributed to the increase in loans accruing on-balance sheet that were past due 90 days or more as of September 30, 2020. If those loans are in a forbearance plan, where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided collection of principal and interest continues to be reasonably assured. These loans are not classified as nonaccrual. See “Note 1, Summary of Significant Accounting Policies” for more information on our accounting for TDRs and nonaccrual loans.

This section supplements and updates information regarding liquidity management in our 2019 Form 10-K. See “MD&A—Liquidity and Capital Management—Liquidity Management” in our 2019 Form 10-K for additional information, including discussions of our primary sources and uses of funds, our liquidity and funding risk management practices and contingency planning, factors that influence our debt funding activity, factors that may impact our access to or the cost of our debt funding and factors that could adversely affect our liquidity and funding. Also see “Risk Factors—Liquidity and Funding Risk” in our 2019 Form 10-K and “Risk Factors” in this report for a discussion of liquidity and funding risks, including potential impacts of the COVID-19 pandemic.

In June 2020, FHFA instructed that we and Freddie Mac comply with updated prescriptive liquidity requirements. We expect the effective date for these new requirements to be December 1, 2020. FHFA’s requirements require us to hold more liquid assets than are required under our current metrics. While we estimate that our liquidity position as of September 30, 2020 meets these new requirements, we will in the future be required to hold more liquidity than we would have under our current framework, which we expect will negatively impact our net interest income.


Selected Debt Information
	As of
	September 30, 2020			December 31, 2019
	(Dollars in billions)
Selected Weighted-Average Interest Rates(1)
Interest rate on short-term debt	0.23		%	1.56		%
Interest rate on long-term debt, including portion maturing within one year	1.48		%	2.86		%
Interest rate on callable long-term debt	1.69		%	3.39		%
Selected Maturity Data
Weighted-average maturity of debt maturing within one year (in days)	172			137
Weighted-average maturity of debt maturing in more than one year (in months)	47			66
Other Data
Outstanding callable long-term debt	$	45.0		$	38.5
Connecticut Avenue Securities debt(2)	$	15.3		$	21.4

Due to our increased funding needs, the unpaid principal balance of our aggregate indebtedness increased to $289.9 billion as of September 30, 2020, which is close to our $300 billion debt limit under our senior preferred stock purchase agreement with Treasury. We expect the amount of our outstanding debt to remain near our debt limit in 2021 due to the impact of the COVID-19 pandemic and the relief we are offering borrowers. The pandemic has resulted in significantly higher rates of loan delinquencies, as well as forbearances and other loss mitigation activity, which required us to increase our funding to its current level in anticipation of higher amounts of reimbursements to servicers and advances to MBS trusts for missed borrower payments and in anticipation of a larger volume of purchases of delinquent loans from MBS trusts. We also expect continued high levels of whole loan conduit activity due to low mortgage interest rates driving refinancings. Depending on the extent of our future funding needs, we may seek to obtain FHFA’s and Treasury’s prior written consent to increase our current debt limit. Depending on the extent of our future funding needs and the amount, if any, by which Treasury and FHFA agree to any request we make for an increase in our debt limit, our business activities may be constrained. See “Risk Factors” in this report for additional information on risks associated with our debt limit. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in our 2019 Form 10-K for additional information on our current debt limit.

Adverse market conditions in March 2020 limited our ability to issue debt with a maturity greater than two years. As a result, most of the debt we issued in the first quarter of 2020 had terms from three to twenty-four months. Market conditions have improved since the first quarter of 2020 and we were able to issue notes with maturities greater than two years in the second and third quarters of 2020. If market conditions deteriorate again such that our ability to issue longer-term debt is limited, we may need to fund longer-term assets with short-term debt, which would increase the roll-over risk on our outstanding debt. See “Risk Factors” for additional information on the impact of the COVID-19 pandemic on our liquidity risk.

The decrease in short-term debt issued and paid off during the third quarter and first nine months of 2020 compared with the third quarter and first nine months of 2019 was primarily driven by a reduction in the utilization of short-term notes. The increase in long-term debt issued during the third quarter and first nine months of 2020 compared with the third quarter and first nine months of 2019 was due to increased volume in the whole loan conduit driven by a significant increase in refinance and purchase activity, in preparation for the implementation in December 2020 of the new liquidity risk management requirements issued by FHFA, and in anticipation of potential future liquidity needs resulting from the COVID-19 pandemic.


Activity in Debt of Fannie Mae
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,

	2020			2019			2020			2019
	(Dollars in millions)
Issued during the period:
Short-term:
Amount	$	15,112		$	161,434		$	183,073		$	418,202
Weighted-average interest rate	0.10		%	2.13		%	1.10		%	2.27		%
Long-term:(1)
Amount	$	45,868		$	6,940		$	168,099		$	18,335
Weighted-average interest rate	0.50		%	1.95		%	0.50		%	2.32		%
Total issued:
Amount	$	60,980		$	168,374		$	351,172		$	436,537
Weighted-average interest rate	0.40		%	2.12		%	0.81		%	2.27		%
Paid off during the period:(2)
Short-term:
Amount	$	33,848		$	147,507		$	186,709		$	406,135
Weighted-average interest rate	0.22		%	1.99		%	1.21		%	2.11		%
Long-term:(1)
Amount	$	13,313		$	23,246		$	57,276		$	48,156
Weighted-average interest rate	1.94		%	1.55		%	1.85		%	1.67		%
Total paid off:
Amount	$	47,161		$	170,753		$	243,985		$	454,291
Weighted-average interest rate	0.71		%	1.93		%	1.36		%	2.06		%

Our credit ratings from the major credit ratings organizations, as well as the credit ratings of the U.S. government, are primary factors that could affect our ability to access the capital markets and our cost of funds. In addition, our credit ratings are important when we seek to engage in certain long-term transactions, such as derivative transactions. Standard & Poor’s Global Ratings (“S&P”), Moody’s Investors Services (“Moody’s”) and Fitch Ratings Limited (“Fitch”) have all indicated that, if they were to lower the sovereign credit ratings on the U.S., they would likely lower their ratings on the debt of Fannie Mae and certain other government-related entities. In addition, actions by governmental entities impacting Treasury’s support for our business or our debt securities could adversely affect the credit ratings of our senior unsecured debt. See “Risk Factors—

In August 2020, Fitch affirmed our “AAA” long-term issuer default rating, but lowered our rating outlook from stable to negative, following its affirmation of the United States’ “AAA” issuer default rating and revision of the United States’ rating outlook from stable to negative. Fitch noted that Fannie Mae’s long-term issuer default rating is directly linked to the United States’ long-term issuer default rating, based on Fitch’s view of the U.S. government’s direct financial support of Fannie Mae. We have no covenants in our existing debt agreements that would be violated by a downgrade in our credit ratings. However, in connection with certain derivatives counterparties, we could be required to provide additional collateral to or terminate transactions with certain counterparties in the event that our senior unsecured debt ratings are downgraded.

Under the terms governing the senior preferred stock, we will not owe dividends to Treasury until we have accumulated over $25 billion in net worth. Accordingly, no dividends were payable to Treasury for the second quarter of 2020 and none are payable for the third quarter of 2020. The aggregate liquidation preference of the senior preferred stock increases at the end of each quarter by the increase, if any, in our net worth during the immediately prior fiscal quarter, until the liquidation preference has increased by $22 billion pursuant to this provision. The aggregate liquidation preference of the senior preferred stock increased from $135.4 billion as of June 30, 2020 to $138.0 billion as of September 30, 2020 due to the $2.5 billion increase in our net worth during the second quarter of 2020. The aggregate liquidation preference of the senior preferred stock will increase to $142.2 billion as of December 31, 2020 due to the $4.2 billion increase in our net worth during the third quarter of 2020.

certificates related to the resecuritization trust. Accordingly, when we issue structured securities backed in whole or in part by Freddie Mac securities, we extend our guaranty to the underlying Freddie Mac security included in the structured security. Our issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet exposure as we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which constitute control of these securitization trusts, we do not consolidate these trusts in our condensed consolidated balance sheet, giving rise to off-balance sheet exposure.

The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest that we retain, and other financial guarantees was $134.6 billion as of September 30, 2020. Approximately $93.3 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers. Additionally, off-balance sheet exposure includes approximately $24.4 billion of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured securities backed by Freddie Mac securities in the future. The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS and other financial guarantees was $68.6 billion as of December 31, 2019. Approximately $37.8 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers and $12.3 billion of this amount consisted of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs. Our total exposure to Freddie Mac securities backing Fannie Mae-issued REMICs disclosed as of December 31, 2019 may have been lower because a portion of the Freddie Mac securities backing these Fannie Mae-issued REMICs may have been backed by Fannie Mae MBS. See “Note 6, Financial Guarantees” for more information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie Mac securities.

•We make investments in various limited partnerships and similar legal entities, which consist of low-income housing tax credit investments, community investments and other entities. When we do not have a controlling financial interest in those entities, our condensed consolidated balance sheets reflect only our investment rather than the full amount of the partnership’s assets and liabilities. See “Note 2, Consolidations and Transfers of Financial Assets— Unconsolidated VIEs” for information regarding our limited partnerships and similar legal entities.

Our business activities expose us to the following major categories of risk: credit risk (including mortgage credit risk and institutional counterparty credit risk), market risk (including interest-rate risk), liquidity and funding risk, and operational risk (including cyber/information security risk, third-party risk and model risk), as well as strategic risk, compliance risk and reputational risk. See “MD&A—Risk Management” in our 2019 Form 10-K for a discussion of our management of these risks. This section supplements and updates that discussion but does not repeat all of the risk management categories described in our 2019 Form 10-K.

This section supplements and updates our discussion of institutional counterparty credit risk management in our 2019 Form 10-K. See “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Risk Factors—Credit Risk” in our 2019 Form 10-K for a discussion of our exposure to institutional counterparty credit risk and our strategy for managing this risk. As described in “Risk Factors” in this report, the COVID-19 pandemic has increased our counterparty credit risk. Also see “Note 10, Concentrations of Credit Risk” in this report for an update on our counterparty credit risk exposure.

We have previously established minimum liquidity requirements for single-family non-depository servicers to maintain eligibility with Fannie Mae. With the increase in delinquent loans in forbearance plans as a result of the unprecedented circumstances of the COVID-19 pandemic and the CARES Act, we temporarily modified our minimum liquidity requirements for single-family non-depository servicers to maintain eligibility with Fannie Mae. Beginning with the second quarter of 2020, when calculating the minimum liquidity requirement for seriously delinquent mortgage loans for non-depository servicers, an adjustment is included for mortgage loans in a COVID-19-related forbearance plan that are 90 days or more delinquent and were current at the inception of the plan. The adjustment provides partial relief of the minimum liquidity requirements for the servicers of these impacted loans.

Mortgage insurers must meet and maintain compliance with private mortgage insurer eligibility requirements (“PMIERs”) to be eligible to write mortgage insurance on loans acquired by Fannie Mae. The PMIERs are designed to ensure that mortgage insurers have sufficient liquid assets to pay all claims under a hypothetical future stress scenario. At FHFA’s instruction, in the second quarter of 2020, we and Freddie Mac published revisions to the PMIERs, which became effective June 30, 2020. The revisions include (1) a temporary adjustment when calculating risk-based required assets for nonperforming mortgage loans that became newly delinquent after the onset of the COVID-19 crisis or that are subject to a forbearance plan granted in response to a financial hardship related to COVID-19, and (2) through March 31, 2021, a requirement for private mortgage insurers to secure prior approval from Fannie Mae to enable payment of dividends or certain new transfers of cash. The adjustment provides partial relief to mortgage insurers’ capital requirements under the PMIERs for the impacted loans.

The table below displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the slope of the yield curve as measured on the last day of each period presented. The table below also provides the daily average, minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on the net portfolio to changes in the level of interest rates and the slope of the yield curve for the three months ended September 30, 2020 and 2019. Our practice is to allow interest rates to go below zero in the downward shock models unless otherwise prevented through contractual floors.

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our condensed consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in “Note 1, Summary of Significant Accounting Policies” in this report and in our 2019 Form 10-K.

Our allowance for loan losses is a valuation account that is deducted from the amortized cost basis of HFI loans to present the net amount expected to be collected on the loans. The allowance for loan losses reflects an estimate of expected credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts. Upon adoption, we used a discounted cash flow method to measure expected credit losses on our single-family mortgage loans and an undiscounted loss method to measure expected credit losses on our multifamily mortgage loans. The models used reasonable and supportable forecasts for key economic drivers, such as home prices (single-family), rental income (multifamily) and capitalization rates (multifamily). Our modeled loan performance is based on our historical experience of loans with similar risk characteristics adjusted to reflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our credit loss estimates capture the possibility of remote events that could result in credit losses on loans that are considered low risk. Our credit loss models, including the forecast data used as key inputs, are subject to our model oversight and review processes as well as other established governance and controls.

Changes to our estimate of expected credit losses, including changes due to the passage of time, are recorded through the benefit (provision) for credit losses. When calculating our allowance for loan losses, we consider only our amortized cost in the loans at the balance sheet date. We record write-offs as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in satisfaction of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. Additionally, we record write-offs as a reduction to our allowance for loan losses when a loan

This report includes statements that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, we and our senior management may from time to time make forward-looking statements in our other filings with the SEC, our other publicly available written statements, and orally to analysts, investors, the news media and others. Forward-looking statements often include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “forecast,” “project,” “would,” “should,” “could,” “likely,” “may,” “will” or similar words. Examples of forward-looking statements in this report include, among others, statements relating to our expectations regarding the following matters:

Forward-looking statements reflect our management’s current expectations, forecasts or predictions of future conditions, events or results based on various assumptions and management’s estimates of trends and economic factors in the markets in which we are active and that otherwise impact our business plans. Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to significant risks and uncertainties and changes in circumstances. Our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

•uncertainty surrounding the duration, spread and severity of COVID-19 outbreaks; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic and the widespread availability and public acceptance of a COVID-19 vaccine; the extent to which consumers, workers and families feel safe resuming pre-pandemic activities; the nature, extent and success of the forbearance, payment deferrals, modifications and other loss mitigation options we provide to borrowers affected by the pandemic; accounting elections and estimates relating to the impact of the COVID-19 pandemic; borrower and renter behavior in response to the pandemic and its economic impact; how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks or increases in the daily number of new COVID-19 cases interrupt economic recovery; and how quickly and to what extent affected borrowers, renters and counterparties can recover from the negative economic impact of the pandemic;


	As of
	September 30, 2020			December 31, 2019

ASSETS
Cash and cash equivalents		$	37,472		$	21,184
Restricted cash (includes $65,431 and $33,294, respectively, related to consolidated trusts)		73,516			40,223
Federal funds sold and securities purchased under agreements to resell or similar arrangements		12,700			13,578
Investments in securities:
Trading, at fair value (includes $6,237 and $3,037, respectively, pledged as collateral)		142,472			48,123
Available-for-sale, at fair value (with an amortized cost of $1,780, net of allowance for credit losses of $3 as of September 30, 2020)		1,895			2,404
Total investments in securities		144,367			50,527
Mortgage loans:
Loans held for sale, at lower of cost or fair value		8,312			6,773
Loans held for investment, at amortized cost:
Of Fannie Mae		111,056			94,911
Of consolidated trusts		3,439,678			3,241,494
Total loans held for investment (includes $6,968 and $7,825, respectively, at fair value)		3,550,734			3,336,405
Allowance for loan losses		(11,703)			(9,016)
Total loans held for investment, net of allowance		3,539,031			3,327,389
Total mortgage loans		3,547,343			3,334,162
Advances to lenders		10,228			6,453
Deferred tax assets, net		12,808			11,910
Accrued interest receivable, net (includes $9,867 and $8,172, respectively, related to consolidated trusts and net of an allowance of $569 as of September 30, 2020)		9,748			8,604
Acquired property, net		1,462			2,366
Other assets		14,959			14,312
Total assets		$	3,864,603		$	3,503,319
LIABILITIES AND EQUITY
Liabilities:
Accrued interest payable (includes $9,133 and $9,361, respectively, related to consolidated trusts)		$	9,982		$	10,228
Debt:
Of Fannie Mae (includes $3,986 and $5,687, respectively, at fair value)		289,423			182,247
Of consolidated trusts (includes $24,741 and $21,880, respectively, at fair value)		3,530,381			3,285,139
Other liabilities (includes $1,813 and $376, respectively, related to consolidated trusts)		14,124			11,097
Total liabilities		3,843,910			3,488,711
Commitments and contingencies (Note 13)		—			—
Fannie Mae stockholders’ equity:
Senior preferred stock (liquidation preference of $137,976 and $131,178, respectively)		120,836			120,836
Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding		19,130			19,130
Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding		687			687
Accumulated deficit		(112,680)			(118,776)
Accumulated other comprehensive income		120			131
Treasury stock, at cost, 150,675,136 shares		(7,400)			(7,400)
Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference)		20,693			14,608
Total liabilities and equity		$	3,864,603		$	3,503,319


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,

	2020			2019			2020			2019
Interest income:
Trading securities		$	177		$	418		$	712		$	1,277
Available-for-sale securities		19			40			76			138
Mortgage loans		25,810			29,072			81,755			88,445
Federal funds sold and securities purchased under agreements to resell or similar arrangements		14			178			135			698
Other		33			47			92			120
Total interest income		26,053			29,755			82,770			90,678
Interest expense:
Short-term debt		(19)			(125)			(175)			(369)
Long-term debt		(19,378)			(24,282)			(64,815)			(74,938)
Total interest expense		(19,397)			(24,407)			(64,990)			(75,307)
Net interest income		6,656			5,348			17,780			15,371
Benefit (provision) for credit losses		501			1,857			(2,094)			3,732
Net interest income after benefit (provision) for credit losses		7,157			7,205			15,686			19,103
Investment gains, net		653			253			644			847
Fair value losses, net		(327)			(713)			(1,621)			(2,298)
Fee and other income		93			188			303			435
Non-interest income (loss)		419			(272)			(674)			(1,016)
Administrative expenses:
Salaries and employee benefits		(386)			(361)			(1,161)			(1,123)
Professional services		(230)			(241)			(673)			(699)

Other administrative expenses		(146)			(147)			(431)			(415)
Total administrative expenses		(762)			(749)			(2,265)			(2,237)
Foreclosed property expense		(71)			(96)			(161)			(364)
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees		(679)			(613)			(1,976)			(1,806)
Credit enhancement expense		(325)			(290)			(1,061)			(782)
Change in expected credit enhancement recoveries		(48)			—			413			—
Other expenses, net		(313)			(186)			(792)			(551)
Total expenses		(2,198)			(1,934)			(5,842)			(5,740)
Income before federal income taxes		5,378			4,999			9,170			12,347
Provision for federal income taxes		(1,149)			(1,036)			(1,935)			(2,552)
Net income		4,229			3,963			7,235			9,795
Other comprehensive income (loss):
Changes in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustments and taxes		(11)			16			(4)			(85)
Other, net of taxes		(2)			(2)			(7)			(7)
Total other comprehensive income (loss)		(13)			14			(11)			(92)
Total comprehensive income		$	4,216		$	3,977		$	7,224		$	9,703
Net income		$	4,229		$	3,963		$	7,235		$	9,795
Dividends distributed or amounts attributable to senior preferred stock		(4,216)			(3,977)			(7,224)			(9,703)
Net income (loss) attributable to common stockholders		$	13		$	(14)		$	11		$	92
Earnings per share:
Basic		$	0.00		$	0.00		$	0.00		$	0.02
Diluted		0.00			0.00			0.00			0.02
Weighted-average common shares outstanding:
Basic		5,867			5,762			5,867			5,762
Diluted		5,893			5,762			5,893			5,893


	For the Nine Months Ended September 30,
	2020			2019
Net cash provided by (used in) operating activities		$	(76,994)		$	3,176
Cash flows provided by (used in) investing activities:
Proceeds from maturities and paydowns of trading securities held for investment		35			46
Proceeds from sales of trading securities held for investment		44			49
Proceeds from maturities and paydowns of available-for-sale securities		275			364
Proceeds from sales of available-for-sale securities		258			376
Purchases of loans held for investment		(519,133)			(181,898)
Proceeds from repayments of loans acquired as held for investment of Fannie Mae		7,711			9,338
Proceeds from sales of loans acquired as held for investment of Fannie Mae		4,422			8,987
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts		770,982			377,789
Advances to lenders		(223,007)			(95,636)
Proceeds from disposition of acquired property and preforeclosure sales		4,694			5,644
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements		878			9,762
Other, net		(576)			(74)
Net cash provided by investing activities		46,583			134,747
Cash flows provided by (used in) financing activities:
Proceeds from issuance of debt of Fannie Mae		501,627			587,659
Payments to redeem debt of Fannie Mae		(394,187)			(606,665)
Proceeds from issuance of debt of consolidated trusts		716,591			286,126
Payments to redeem debt of consolidated trusts		(743,578)			(385,496)
Payments of cash dividends on senior preferred stock to Treasury		—			(5,601)

Other, net		(461)			1,129
Net cash provided by (used in) financing activities		79,992			(122,848)
Net increase in cash, cash equivalents and restricted cash		49,581			15,075
Cash, cash equivalents and restricted cash at beginning of period		61,407			49,423
Cash, cash equivalents and restricted cash at end of period		$	110,988		$	64,498
Cash paid during the period for:
Interest		$	86,035		$	86,699
Income taxes		2,750			1,250


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding			Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of June 30, 2020	1	556	1,158	$	120,836	$	19,130	$	687	$	(116,909)	$	133	$	(7,400)	$	16,477
Senior preferred stock dividends paid	—	—	—	—		—		—		—		—		—		—
Comprehensive income:
Net income	—	—	—	—		—		—		4,229		—		—		4,229
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available- for-sale securities (net of taxes of $0)	—	—	—	—		—		—		—		1		—		1
Reclassification adjustment for gains included in net income (net of taxes of $3)	—	—	—	—		—		—		—		(12)		—		(12)
Other (net of taxes of $1)	—	—	—	—		—		—		—		(2)		—		(2)
Total comprehensive income																4,216
Balance as of September 30, 2020	1	556	1,158	$	120,836	$	19,130	$	687	$	(112,680)	$	120	$	(7,400)	$	20,693


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding			Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of December 31, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(118,776)	$	131	$	(7,400)	$	14,608
Transition impact, net of tax, from the adoption of the current expected credit loss standard	—	—	—	—		—		—		(1,139)		—		—		(1,139)
Balance as of January 1, 2020, adjusted	1	556	1,158	120,836		19,130		687		(119,915)		131		(7,400)		13,469
Senior preferred stock dividends paid	—	—	—	—		—		—		—		—		—		—
Comprehensive income:
Net income	—	—	—	—		—		—		7,235		—		—		7,235
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available- for-sale securities (net of taxes of $1)	—	—	—	—		—		—		—		2		—		2
Reclassification adjustment for gains included in net income (net of taxes of $2)	—	—	—	—		—		—		—		(6)		—		(6)
Other (net of taxes of $2)	—	—	—	—		—		—		—		(7)		—		(7)
Total comprehensive income																7,224
Balance as of September 30, 2020	1	556	1,158	$	120,836	$	19,130	$	687	$	(112,680)	$	120	$	(7,400)	$	20,693


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding			Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of June 30, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(127,104)	$	216	$	(7,400)	$	6,365
Senior preferred stock dividends paid	—	—	—	—		—		—		—		—		—		—
Comprehensive income:
Net income	—	—	—	—		—		—		3,963		—		—		3,963
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available- for-sale securities (net of taxes of $2)	—	—	—	—		—		—		—		10		—		10
Reclassification adjustment for gains included in net income (net of taxes of $1)	—	—	—	—		—		—		—		6		—		6
Other (net of taxes of $1)	—	—	—	—		—		—		—		(2)		—		(2)
Total comprehensive income																3,977
Balance as of September 30, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(123,141)	$	230	$	(7,400)	$	10,342


	Fannie Mae Stockholders’ Equity (Deficit)
	Shares Outstanding			Senior Preferred Stock		Preferred Stock		Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Total Equity
	Senior Preferred	Preferred	Common
Balance as of December 31, 2018	1	556	1,158	$	120,836	$	19,130	$	687	$	(127,335)	$	322	$	(7,400)	$	6,240
Senior preferred stock dividends paid	—	—	—	—		—		—		(5,601)		—		—		(5,601)
Comprehensive income:
Net income	—	—	—	—		—		—		9,795		—		—		9,795
Other comprehensive income, net of tax effect:
Changes in net unrealized gains on available- for-sale securities (net of taxes of $7)	—	—	—	—		—		—		—		27		—		27
Reclassification adjustment for gains included in net income (net of taxes of $30)	—	—	—	—		—		—		—		(112)		—		(112)
Other (net of taxes of $2)	—	—	—	—		—		—		—		(7)		—		(7)
Total comprehensive income																9,703
Balance as of September 30, 2019	1	556	1,158	$	120,836	$	19,130	$	687	$	(123,141)	$	230	$	(7,400)	$	10,342

continue to exist following conservatorship. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written determination that our assets are less than our obligations or if we have not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place us into receivership at his discretion at any time for other reasons set forth in the GSE Act, including if we are critically undercapitalized or if we are undercapitalized and have no reasonable prospect of becoming adequately capitalized. Should we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which could lead to substantially different financial results. Treasury has made a commitment under the senior preferred stock purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. We are not aware of any plans of FHFA (1) to fundamentally change our business model, other than changes that might result from recommendations in the Treasury plan, if implemented, or (2) to reduce the aggregate amount available to or held by the company under our capital structure, which includes the senior preferred stock purchase agreement.

We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities are securitization and resecuritization trusts, limited partnerships and special purpose vehicles (“SPVs”). These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct these activities unless we have the unilateral ability to dissolve the trust. We also do not consolidate our resecuritization trusts unless we have the unilateral ability to dissolve the trust. Historically, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts. However, with our issuance of UMBS, we include securities issued by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued securities are not held in trusts that are consolidated by Fannie Mae.

The unpaid principal balance of our multifamily loan portfolio was $356.0 billion as of September 30, 2020. As our lending relationship does not provide us with a controlling financial interest in the borrower entity, we do not consolidate these borrowers regardless of their status as either a VIE or a voting interest entity. We have excluded these entities from our VIE disclosures. However, the disclosures we have provided in “Note 3, Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respect to this population are consistent with the FASB’s stated objectives for the disclosures related to unconsolidated VIEs.


	For the Three Months Ended September 30, 2019
	Average Amortized Cost		Total Interest Income Recognized		Interest Income Recognized on a Cash Basis
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
20- and 30-year or more, amortizing fixed-rate	$	67,788	$	702	$	61
15-year or less, amortizing fixed-rate	1,141		10		1
Adjustable-rate	155		1		1
Other	16,011		164		11
Total single-family	85,095		877		74
Multifamily	313		2		—
Total individually impaired loans with related allowance recorded	85,408		879		74
With no related allowance recorded:(1)
Single-family:
20- and 30-year or more, amortizing fixed-rate	15,787		255		37
15-year or less, amortizing fixed-rate	329		4		1
Adjustable-rate	300		3		1
Other	2,767		55		5
Total single-family	19,183		317		44
Multifamily	401		8		—
Total individually impaired loans with no related allowance recorded	19,584		325		44
Total individually impaired loans	$	104,992	$	1,204	$	118


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	For the Nine Months Ended September 30, 2020
			Total Gains (Losses) (Realized/Unrealized)																			Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2020(4)(5)		Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of September 30, 2020(1)
	Balance, December 31, 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, 2020
	(Dollars in millions)
Trading securities:
Mortgage-related:
Fannie Mae	$	45	$	(9)		$	—	$	—	$	(1)	$	—	$	—	$	(48)	$	73	$	60	$	(8)	$	—
Other agency	1		—			—		—		—		—		—		(1)		1		1		—		—
Private-label and other mortgage securities	—		3			—		—		(94)		—		(3)		—		94		—		—		—
Total trading securities	$	46	$	(6)	(5)(6)	$	—	$	—	$	(95)	$	—	$	(3)	$	(49)	$	168	$	61	$	(8)	$	—

Available-for-sale securities:
Mortgage-related:
Fannie Mae	$	171	$	1		$	2	$	—	$	—	$	—	$	(12)	$	(218)	$	278	$	222	$	—	$	—
Alt-A and subprime private-label securities	—		—			—		—		—		—		—		—		2		2		—		—
Mortgage revenue bonds	315		(3)			3		74		(74)		—		(60)		—		—		255		—		5
Other	306		(9)			4		268		(268)		—		(53)		—		—		248		—		3
Total available-for-sale securities	$	792	$	(11)	(6)(7)	$	9	$	342	$	(342)	$	—	$	(125)	$	(218)	$	280	$	727	$	—	$	8

Mortgage loans	$	688	$	32	(5)(6)	$	—	$	—	$	(11)	$	—	$	(93)	$	(75)	$	337	$	878	$	5	$	—
Net derivatives	162		470		(5)	—		—		—		—		(8)		18		—		642		468		—
Long-term debt:
Of Fannie Mae:
Senior floating	(398)		(61)		(5)	—		—		—		—		24		—		—		(435)		(61)		—
Of consolidated trusts	(75)		—		(5)(6)	—		—		—		—		12		2		(24)		(85)		1		—
Total long-term debt	$	(473)	$	(61)		$	—	$	—	$	—	$	—	$	36	$	2	$	(24)	$	(520)	$	(60)	$	—


	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)		(5)	—		—		—		—		—		—		—		(422)		(24)		—
Of consolidated trusts	(102)		(3)		(5)(6)	—		—		—		(2)		6		20		(7)		(88)		(1)		—
Total long-term debt	$	(500)	$	(27)		$	—	$	—	$	—	$	(2)	$	6	$	20	$	(7)	$	(510)	$	(25)	$	—

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 2019 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, 2020.

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as in effect as of September 30, 2020, the end of the period covered by this report. As a result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2020 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of September 30, 2020 or as of the date of filing this report because they did not adequately ensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of September 30, 2020 or as of the date of this filing, and we continue to have a material weakness in our internal control over financial reporting. This material weakness is described in more detail below under “Description of Material Weakness.” Based on discussions with FHFA and the structural nature of this material weakness, we do not expect to remediate this material weakness while we are under conservatorship.

•Disclosure Controls and Procedures. We have been under the conservatorship of FHFA since September 6, 2008. Under the GSE Act, FHFA is an independent agency that currently functions as both our conservator and our regulator with respect to our safety, soundness and mission. Because of the nature of the conservatorship under the GSE Act, which places us under the “control” of FHFA (as that term is defined by securities laws), some of the information that we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions without our knowledge that could be material to our shareholders and other stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing business. Although we and FHFA attempted to design and implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls and procedures. As both our regulator and our conservator under the GSE

Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our condensed consolidated financial statements. As a result, we did not maintain effective controls and procedures designed to ensure complete and accurate disclosure as required by GAAP as of September 30, 2020 or as of the date of filing this report. Based on discussions with FHFA and the structural nature of this weakness, we do not expect to remediate this material weakness while we are under conservatorship.

•FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly report on Form 10-Q for the quarter ended September 30, 2020 (“Third Quarter 2020 Form 10-Q”), and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our Third Quarter 2020 Form 10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the Third Quarter 2020 Form 10-Q, and it was not aware of any material misstatements or omissions in the Third Quarter 2020 Form 10-Q and had no objection to our filing the Third Quarter 2020 Form 10-Q.

Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Below we describe changes in our internal control over financial reporting from June 30, 2020 through September 30, 2020 that management believes have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

•Overview. In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal controls. Changes may include implementing new, more efficient systems, automating manual processes and updating existing systems. For example, we are currently implementing changes to various financial system applications in stages across the company. As we continue to implement these changes, each implementation may become a significant component of our internal control over financial reporting.

The information in this item supplements and updates information regarding certain legal proceedings set forth in “Legal Proceedings” in our 2019 Form 10-K, our First Quarter 2020 Form 10-Q and our Second Quarter 2020 Form 10-Q. We also provide information regarding material legal proceedings in “Note 13, Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. However, litigation claims and proceedings of all types are subject to many factors and their outcome and effect on our business and financial condition generally cannot be predicted accurately.

Between June 2013 and August 2018, preferred and common stockholders of Fannie Mae and Freddie Mac filed lawsuits in multiple federal courts against one or more of the United States, Treasury and FHFA, challenging actions taken by the defendants relating to the Fannie Mae and Freddie Mac senior preferred stock purchase agreements and the conservatorships of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims against Fannie Mae and Freddie Mac. The legal claims being advanced by one or more of these lawsuits include challenges to the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to August 2012 amendments to the agreements, the payment of dividends to Treasury under the net worth sweep dividend provisions, and FHFA’s decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in order to pay dividends to Treasury prior to the August 2012 amendments. Some of the lawsuits also challenge the constitutionality of FHFA’s structure. The plaintiffs seek various forms of equitable and injunctive relief, including rescission of the August 2012 amendments, as well as damages. The cases that remain pending after June 30, 2020 are as follows:

District of Columbia. Fannie Mae is a defendant in three cases pending in the U.S. District Court for the District of Columbia—a consolidated putative class action and two additional cases. In all three cases, Fannie Mae and Freddie Mac stockholders filed amended complaints on November 1, 2017 against us, FHFA as our conservator and Freddie Mac. On September 28, 2018, the court dismissed all of the plaintiffs’ claims in these cases, except for their claims for breach of an implied covenant of good faith and fair dealing. All three cases are described in “Note 13, Commitments and Contingencies.”

Southern District of Texas (Collins v. Mnuchin). On October 20, 2016, preferred and common stockholders filed a complaint against FHFA and Treasury in the U.S. District Court for the Southern District of Texas. On May 22, 2017, the court dismissed the case. On September 6, 2019, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc, affirmed the district court’s dismissal of claims against Treasury, but reversed the dismissal of claims against FHFA. The court held that plaintiffs could pursue their claim that FHFA exceeded its statutory powers as conservator when it implemented the net worth sweep dividend provisions of the senior preferred stock purchase agreements in August 2012. The court also held that the provision of the Housing and Economic Recovery Act that insulates the FHFA Director from removal without cause violates constitutional separation of powers principles and, thus, that the FHFA Director may be removed by the president for any reason. The court held that the appropriate remedy for this violation is to declare the provision severed from the statute. Both the plaintiffs and the government filed petitions with the Supreme Court seeking review of the Fifth Circuit’s decision. The Supreme Court granted those petitions on July 9, 2020 and will review the case.

U.S. Court of Federal Claims. Numerous cases are pending against the United States in the U.S. Court of Federal Claims. Fannie Mae is a nominal defendant in four of these cases: Fisher v. United States of America, filed on December 2, 2013; Rafter v. United States of America, filed on August 14, 2014; Perry Capital LLC v. United States of America, filed on August 15, 2018; and Fairholme Funds Inc. v. United States, which was originally filed on July 9, 2013, and amended publicly to include Fannie Mae as a nominal defendant on October 2, 2018. Plaintiffs in these cases allege that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendment constitute a taking of Fannie Mae’s property without just compensation in violation of the U.S. Constitution. The Fisher plaintiffs are pursuing this claim derivatively on behalf of Fannie Mae, while the Rafter, Perry Capital and Fairholme Funds plaintiffs are pursuing the claim both derivatively and directly against the United States. Plaintiffs in Rafter also allege direct and derivative breach of contract claims against the government. The Perry Capital and Fairholme Funds plaintiffs allege similar breach of contract claims, as well as direct and derivative breach of fiduciary duty claims against the government. Plaintiffs in Fisher request just compensation to Fannie Mae in an unspecified amount. Plaintiffs in Rafter, Perry Capital and Fairholme Funds seek just compensation for themselves on their direct claims and payment of damages to Fannie Mae on their derivative claims. The United States filed a motion to dismiss the Fisher, Rafter and Fairholme Funds cases on August 1, 2018. On December 6, 2019, the court entered an order in the Fairholme Funds case that granted the government’s motion to dismiss all the direct claims but denied the motion as to all of the derivative claims brought on behalf of Fannie Mae. On June 18, 2020, the U.S. Court of Appeals for the Federal Circuit agreed to hear the appeal of the court’s December 6, 2019 order. In the Fisher case, the court denied the government’s motion to dismiss on May 8, 2020 and, on August 21, 2020, the Federal Circuit denied the Fisher plaintiffs’ request for interlocutory appeal.

The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity and net worth, and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make. We believe the risks described in the sections of this report and our 2019 Form 10-K identified above are the most significant we face; however, these are not the only risks we face. We face additional risks and uncertainties not currently known to us or that we currently believe are immaterial.

The disruption caused by the pandemic differs from previous economic downturns because of the high level of uncertainty related to the health and safety of consumers and workers. We expect the path and timing of economic recovery will be impacted by the rate of new COVID-19 cases and the associated mortality rates. We believe that sustaining the current economic recovery depends on continued growth in consumer spending, increased business activity, and an associated reduction in unemployment, all of which impact the ability of borrowers and renters to make their monthly payments. The federal government has taken many actions to reduce the negative economic impact of the pandemic, including providing direct funding to affected households and businesses, as described in “Executive Summary—COVID-19 Impact—Economic Impact.” Some of these programs have ended, including the $600 federal supplement to state unemployment benefits, which expired at the end of July. The ultimate impact of the expiration of these programs and the extent to which any future government actions will mitigate the negative impacts of COVID-19 on the U.S. economy and our business is highly unclear. The pandemic resulted in a contraction in U.S. GDP in the second quarter of 2020 that we expect will not be entirely offset by growth in the second half of the year. We expect the impact of the COVID-19 pandemic to continue to negatively affect our

Our current forecasts and expectations relating to the impact of the COVID-19 pandemic are subject to many uncertainties and may change, perhaps substantially. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the extent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration, spread and severity of COVID-19 outbreaks; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic and the widespread availability and public acceptance of a COVID-19 vaccine; the extent to which consumers, workers and families feel safe resuming pre-pandemic activities; the nature, extent and success of the forbearance, payment deferrals, modifications and other loss mitigation options we provide to borrowers affected by the pandemic; accounting elections and estimates relating to the impact of the COVID-19 pandemic; borrower and renter behavior in response to the pandemic and its economic impact; how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks or increases in the daily number of new COVID-19 cases interrupt economic recovery; and how quickly and to what extent affected borrowers, renters and counterparties can recover from the negative economic impact of the pandemic. While we are unable to predict the future course of these events or their longer-term effects on our business, key areas we have identified where the COVID-19 pandemic is negatively affecting or may negatively affect our business, financial results and financial condition are described below:

•Increased borrower credit risk. Among other factors, income growth and unemployment levels affect borrowers’ ability to repay their mortgage loans. We expect the economic dislocation caused by the COVID-19 pandemic and resulting higher unemployment rates than prior to the pandemic to result in continued higher serious delinquency rates and possibly in significantly higher defaults on the mortgage loans in our guaranty book of business. Because of this expectation, we had substantial credit-related expenses in the first nine months of 2020. As there is significant uncertainty associated with the impact of the COVID-19 pandemic, we may ultimately experience greater losses than we currently expect and also may have high credit-related expenses in future periods. Moreover, we are taking a number of actions to help borrowers affected by the COVID-19 pandemic that we expect will continue to adversely affect our financial results and financial condition, including:

The CARES Act also instituted a temporary moratorium through July 25, 2020 on tenant evictions for nonpayment of rent that applied to single-family or multifamily properties that secure a mortgage loan we own or guarantee. While the CARES Act eviction moratorium has expired, a number of federal, state and local authorities have implemented limitations on evictions, including the new CDC eviction moratorium described in “MD&A—Legislation and Regulation.” We believe that applicable eviction restrictions could have adversely affected, and could continue to adversely affect, the ability of some of our borrowers to make payments on their loans. We discuss the actions we have taken and their impact in more detail in “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management” and in “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management.”

Our loans currently in forbearance generally have a somewhat weaker credit profile than our overall guaranty book of business. If a large number of borrowers cannot repay the amounts owed at the end of their forbearance plans or over time, or fail to qualify for repayment plans, payment deferrals or modifications, this could result in significantly higher defaults on the mortgage loans in our guaranty book of business. Certain states and localities have implemented COVID-19-related borrower and renter protections that are more extensive than the CARES Act requirements or our requirements. States and localities may continue to consider such proposals in the future or extend the time period of existing protections. These additional protections, depending on their scope and whether and to what extent they apply to our business, could contribute to a higher number of single-family and multifamily borrowers becoming delinquent on their loans or could limit our ability to take enforcement actions with respect to our loans.

In addition, while the pace of home sales now exceeds that at the start of the year and home price appreciation has been positive in the first nine months of 2020, economic dislocation resulting from the COVID-19 pandemic could result in declines in home prices in the future. Similarly, economic dislocation resulting from the COVID-19 pandemic could result in declines in multifamily property valuations. Declines in home prices or multifamily property valuations would increase the amount of our loss in the event a borrower defaults on their loan. Lower home prices and multifamily property valuations would likely also lead to deterioration in loan performance and changes in borrower behavior, and potentially preclude some borrowers from being able to refinance their loans. The magnitude of the impact would likely vary significantly across geographic regions and based on the credit characteristics of the loans.

•Increased human capital and business resiliency risk. COVID-19 continues to spread in the U.S. and the rate of new daily cases may increase from current levels. If a significant number of our executives or other employees, or their family members for whom they provide care, contract COVID-19 during the same time period, it could materially adversely affect our ability to manage our business, which could have a material adverse effect on our results of operations and financial condition. The risk of executives, other employees or their family members contracting COVID-19 may increase with the resumption of business activity and the reopening of workplaces and schools. Beginning in early October, we are now allowing employees, on a voluntary basis, to request approval to return to work at some of our office locations. Although we have established COVID-19 safety protocols, the return of some employees to the office may increase the risk of our employees contracting COVID-19.

While we are now allowing employees the option to return to work at some of our office locations, we expect a significant majority of our employees will continue to work remotely for the foreseeable future, driven by safety concerns, childcare obligations and other factors. The strain on our workforce and our business operations caused by this shift to a remote work environment and the uncertainty and stressors associated with the COVID-19 pandemic may result in business interruptions, reduced productivity and other adverse impacts on our operations. While our technological systems to date have continued to function with our workforce working remotely, this telework arrangement increases the risk of technological or cybersecurity incidents that negatively affect our business operations. This telework arrangement, as well as the risk that employees or their family members could contract COVID-19 and our reliance on third parties for some functions, also could adversely affect our ability to maintain effective controls and procedures, which could result in material errors in our reported results or disclosures that are not complete or accurate.

•Increased counterparty credit and operational risk. The economic dislocation caused by the COVID-19 pandemic could lead to default by one or more of our institutional counterparties on their obligations to us. If a counterparty were to default on its obligations to us, it could result in significant financial losses. Counterparty defaults could also negatively impact our ability to operate our business, as we outsource some of our critical functions to third parties, such as mortgage servicing, single-family Fannie Mae MBS issuance and administration, and certain technology functions.

For the majority of the loans in our single-family guaranty book of business and nearly all of the loans in our multifamily guaranty book of business, we require servicers to advance missed borrower principal and interest payments for up to four months. Single-family servicers are also required to advance property tax and insurance payments to taxing authorities, hazard insurers and mortgage insurers. If a large number of single-family or multifamily borrowers do not pay their mortgages as a result of the economic dislocation caused by the COVID-19 pandemic, our servicers may not have sufficient liquidity to advance these missed payments. In such case, we would be required to make the payments, which could require us to obtain substantial additional funding. See below for a description of our increased liquidity risk.

In addition, if multiple single-family or multifamily servicers were to fail to meet their obligations to us, it could cause substantial disruption to our business, borrowers and the mortgage industry. We may not be able to transfer the servicing of loans to new servicers without significant operational disruptions and financial losses, and there may not be sufficient industry capacity to take on large servicing transfers. A large portion of our single-family and multifamily guaranty books of business are serviced by non-depository servicers. We believe the counterparty risks associated with our non-depository servicers are higher than the risks associated with our depository servicers, as our non-depository servicers typically have lower financial strength, liquidity and operational capacity than our depository servicers, which may negatively affect their ability to fully satisfy their financial obligations or to properly service the loans on our behalf. The actions we have taken to mitigate our credit risk exposure to mortgage servicers may not be sufficient to prevent us from experiencing significant financial losses or business interruptions in the event they cannot fulfill their obligations to us.

•Increased liquidity risk. As described in “MD&A—Liquidity and Capital Management,” while market conditions have improved since the first quarter of 2020, adverse market conditions in March limited our ability to issue debt with a maturity greater than two years. If the financial markets experience substantial volatility in the future similar to or more intensely than earlier this year, it could significantly adversely affect the amount, mix and cost of funds we obtain, as well as our liquidity position. If we are unable to issue both short- and long-term debt securities at attractive rates and in amounts sufficient to operate our business and meet our obligations, it likely would interfere with the operation of our business and have a material adverse effect on our liquidity, results of operations, financial condition and net worth. If the COVID-19 pandemic results in a sustained market liquidity crisis, our liquidity contingency plans may be difficult or impossible to execute. If we cannot access the unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could be eliminated or significantly impaired. In this event, our alternative source of liquidity, our other investments portfolio, may not be sufficient to meet our liquidity needs.

In addition, as described in “MD&A—Liquidity and Capital Management,” our debt funding needs increased in the first nine months of 2020 driven in part by the impact of the COVID-19 pandemic. Due to our increased funding needs, the unpaid principal balance of our aggregate indebtedness increased to $289.9 billion as of September 30, 2020, which is close to our $300 billion debt limit under our senior preferred stock purchase agreement with Treasury. We expect the amount of our outstanding debt to remain near our debt limit in 2021 due to the impact of the COVID-19 pandemic and the relief we are offering borrowers. Depending on the extent of our future funding needs and the amount, if any, by which Treasury and FHFA agree to any request we make for an increase in our debt limit, our business activities may be constrained.

•Increased market risk. Market dislocations relating to the COVID-19 pandemic have made it more challenging to manage our interest-rate risk. In addition, the overall decline in rates during the first nine months of 2020 resulted in declines in the fair value of some of the financial instruments that we mark to market through our earnings, which contributed to our fair value losses for the period. While we have not generally experienced negative interest rates in the United States, some central banks in Europe and Asia have in the past cut interest rates below zero. If the financial markets experience substantial volatility in the future similar to or more intensely than earlier this year or if U.S. interest rates decline further or fall below zero, it could further negatively affect our ability to manage our interest-rate risk and result in additional fair value losses, and negative interest rates could increase our operational risk. Furthermore, with the decline in borrower performance due to impact of the COVID-19 pandemic and increased uncertainty regarding the value of mortgage-related assets in the current environment, we may have higher investment losses in future periods relating to decreases in the fair value of our loans that are held for sale. The lower interest rates during the pandemic have also contributed to an increase in the size of our retained mortgage portfolio due to an increase in our acquisitions of loans through our whole loan conduit. We expect the size of our retained mortgage portfolio will continue to increase, driven by whole loan conduit activity and increases in the amount of loans we purchase from MBS trusts as a result of loan delinquencies and loss mitigation strategies. Due to our expectation that the size of our retained mortgage portfolio will continue to increase, we have increased our outstanding debt. Our increased derivative issuance activity associated with the increase in our outstanding debt has increased the risk that movements in interest rates will affect our financial results.

•Constraints on new credit risk transfer transactions. For the last several years we have used credit risk transfer transactions as an important tool to manage the credit risk of our loan acquisitions. We have also used them to reduce our overall conservatorship capital requirements. We did not enter into new credit risk transfer transactions in the second quarter of 2020 due to adverse market conditions resulting from the COVID-19 pandemic. Although market conditions improved in the third quarter of 2020, we did not enter into any new credit risk transfer transactions in the third quarter and currently do not have plans to engage in additional new credit risk transfer transactions in the near future, as we evaluate FHFA’s recently proposed capital rule, FHFA’s conservatorship scorecard requirements and other factors. FHFA’s proposed capital rule would reduce the amount of capital relief we obtain from these transactions. We will continue to review our plans, which may be affected by our evaluation of the proposed capital rule and changes in the rule as it is finalized, our progress in meeting FHFA’s conservatorship scorecard, the strength of future market conditions, and our review of our overall business and capital plan to enable us to exit conservatorship. As a result, we may incur increased credit losses in connection with our loan acquisitions that are not covered by a credit risk transfer transaction and we expect our capital requirements to increase. See “MD&A—Legislation and Regulation” in our Second Quarter 2020 Form 10-Q for more information on FHFA’s proposed capital rule.

•Increased model and accounting estimate risk. Given the unprecedented nature and timing of the COVID-19 pandemic and its uncertain impact, we believe our model results relating to our allowance for loan losses currently cannot accurately capture the entirety of loan losses we will ultimately incur relating to COVID-19. For the first, second and third quarters of 2020, management used its judgment to adjust loss projections developed by our credit loss model to reflect our expectations relating to COVID-19’s impact on our loan losses, but these judgments may be inaccurate and we may ultimately experience greater losses, perhaps substantially, than we currently expect. The unprecedented nature of the COVID-19 pandemic may also negatively affect our ability to rely on models to effectively manage the risks to our business. The CARES Act provisions prohibiting lenders from reporting some

•Increased risk of additional government action affecting our business. Federal, state and local governments have taken many actions that have or that we expect will adversely affect our financial results, such as stay-at-home orders and business shut-downs, and the loan forbearance requirements of the CARES Act. The U.S. Congress, Treasury, the Federal Reserve, FHFA or other national, state or local government agencies or legislatures may take additional steps in response to the COVID-19 pandemic that could adversely affect our business, financial results and financial condition, such as expanding or extending our obligations to help borrowers, renters or counterparties affected by the pandemic or imposing new or expanded business shut-downs.

•Increased risk of mortgage fraud. In response to the COVID-19 pandemic, we are offering certain temporary flexibilities relating to our Single-Family Selling Guide requirements. This could increase the risk of mortgage fraud relating to the loans we acquire during the COVID-19 pandemic. In addition, the CARES Act provides that a single-family borrower may obtain mortgage payment forbearance with no additional documentation required other than the borrower's attestation to a financial hardship caused by COVID-19, which creates the risk that borrowers who are not experiencing financial hardship may request a forbearance.

Because the securities we issue are exempted securities under the Securities Act of 1933, we do not file registration statements or prospectuses with the SEC with respect to our securities offerings. To comply with the disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence of these types of obligations either in offering circulars or prospectuses (or supplements thereto) that we post on our website or in a current report on Form 8-K that we file with the SEC, in accordance with a “no-action” letter we received from the SEC staff in 2004. In cases where the information is disclosed in a prospectus or offering circular posted on our website, the document will be posted on our website within the same time period that a prospectus for a non-exempt securities offering would be required to be filed with the SEC.

Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not pay any dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. In addition, FHFA’s regulations relating to conservatorship and receivership operations prohibit us from paying any dividends while in conservatorship unless authorized by the Director of FHFA. The Director of FHFA has directed us to make dividend payments on the senior preferred stock on a quarterly basis for every dividend period for which dividends were payable.

Restrictions Under Senior Preferred Stock Purchase Agreement and Senior Preferred Stock. The senior preferred stock purchase agreement prohibits us from declaring or paying any dividends on Fannie Mae equity securities (other than the senior preferred stock) without the prior written consent of Treasury. In addition, pursuant to the dividend provisions of the senior preferred stock and directives from our conservator, we are obligated to pay Treasury each quarter any dividends declared consisting of the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds $25 billion. As a result, our net income is not available to common stockholders. For more information on the terms of the senior preferred stock purchase agreement and senior preferred stock, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2019 Form 10-K.

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of the Director of FHFA is required for any dividend payment. Under the Charter Act and the GSE Act, we are not permitted to make a capital distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may permit us to repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at least an equivalent amount and will reduce our financial obligations or otherwise improve our financial condition.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A


	For the Nine Months Ended September 30,
	2020	2019
Single-family SDQ loans (number of loans):
Beginning balance	112,434	130,440
Additions	719,100	150,288
Removals:
Modifications and other loan workouts	(134,266)	(35,242)
Liquidations and sales	(37,801)	(39,066)
Cured or less than 90 days delinquent	(108,058)	(91,255)
Total removals	(280,125)	(165,563)
Ending balance	551,409	115,165


Interest Income Recognized on Single-Family Loans in Forbearance
	For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
	(Dollars in millions)
Interest income recognized on loans in forbearance held as of period end(1)	$	1,488	$	4,396


Single-Family TDRs on Accrual Status and Nonaccrual Loans
	As of
	September 30, 2020			December 31, 2019
	(Dollars in millions)
TDRs on accrual status		$	74,401		$	81,634
Nonaccrual loans		26,842			28,708
Total TDRs on accrual status and nonaccrual loans		$	101,243		$	110,342
Accruing on-balance sheet loans past due 90 days or more(1)		$	92,097		$	191


	For the Nine Months Ended September 30,

	2020		2019
	(Dollars in millions)
Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:
Interest income forgone(2)	$	1,143	$	1,280
Interest income recognized(3)	2,921		3,614


TABLE OF CONTENTS
		Page
PART I—Financial Information		1
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	74
	Condensed Consolidated Statements of Operations and Comprehensive Income	75
	Condensed Consolidated Statements of Cash Flows	76
	Condensed Consolidated Statements of Changes in Equity (Deficit)	77
	Note 1—Summary of Significant Accounting Policies	79
	Note 2—Consolidations and Transfers of Financial Assets	88
	Note 3—Mortgage Loans	90
	Note 4—Allowance for Loan Losses	100
	Note 5—Investments in Securities	104
	Note 6—Financial Guarantees	107
	Note 7—Short-Term and Long-Term Debt	108
	Note 8—Derivative Instruments	109
	Note 9—Segment Reporting	112
	Note 10—Concentrations of Credit Risk	114
	Note 11—Netting Arrangements	118
	Note 12—Fair Value	119
	Note 13—Commitments and Contingencies	131
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
	Introduction	1
	Executive Summary	2
	Legislation and Regulation	6
	Key Market Economic Indicators	9
	Consolidated Results of Operations	13
	Consolidated Balance Sheet Analysis	24
	Retained Mortgage Portfolio	25
	Guaranty Book of Business	27
	Business Segments	29
	Single-Family Business	29
	Multifamily Business	52
	Liquidity and Capital Management	61
	Off-Balance Sheet Arrangements	66
	Risk Management	67
	Critical Accounting Policies and Estimates	69
	Impact of Future Adoption of New Accounting Guidance	70
	Forward-Looking Statements	70
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	133
Item 4.	Controls and Procedures	133
PART II—Other Information		135
Item 1.	Legal Proceedings	135
Item 1A.	Risk Factors	136
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	140
Item 3.	Defaults Upon Senior Securities	141
Item 4.	Mine Safety Disclosures	141
Item 5.	Other Information	141
Item 6.	Exhibits	142


Components of Benefit for Credit Losses
	For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019
	(Dollars in millions)
Single-family benefit for credit losses:
Changes in loan activity(1)	$	161	$	383
Redesignation of loans from HFI to HFS	553		1,203
Actual and forecasted home prices	121		661
Actual and projected interest rates	126		486
Other(2)	879		1,020
Total single-family benefit for credit losses	$	1,840	$	3,753


Credit Risk Transfer Transactions
	For the Nine Months Ended September 30,
	2020		2019
Cash paid or transferred for:	(Dollars in millions)
CAS transactions(1)	$	773	$	724
CIRT transactions	300		264
Lender risk-sharing transactions	228		207


Delinquency Status and Activity of Single-Family Conventional Loans
	As of
	September 30, 2020		December 31, 2019		September 30, 2019
Delinquency status:
30 to 59 days delinquent	1.11	%	1.27	%	1.28	%
60 to 89 days delinquent	0.50		0.35		0.35
Seriously delinquent (“SDQ”)	3.20		0.66		0.68
Percentage of SDQ loans that have been delinquent for more than 180 days	18	%	49	%	50	%
Percentage of SDQ loans that have been delinquent for more than two years	3		11		11


Single-Family Loans in Forbearance
	As of
	September 30, 2020			December 31, 2019
	(Dollars in millions)
Number of loans	703,346			5,415
Amortized cost	$	148,159		$	989
Unpaid principal balance	$	145,274		$	991
Percentage of single-family conventional guaranty book of business based on loan count	4.1		%	*
Percentage of single-family conventional guaranty book of business based on unpaid principal balance	4.7			*


Key Risk Characteristics of Multifamily Guaranty Book of Business
	As of
	September 30, 2020			December 31, 2019			September 30, 2019
Weighted average original LTV ratio		66	%		66	%		66	%
Original LTV ratio greater than 80%		1			1			1
Original DSCR less than or equal to 1.10		11			11			11
Full term interest-only loans		29			27			26
Partial term interest-only loans(1)		51			51			50


Multifamily Loans in Back-End Credit Risk Transfer Transactions
	For the Nine Months Ended September 30,
	2020			Inception to September 30, 2020
	Number of Back-End Credit Risk Transfer Transactions	Unpaid Principal Balance Covered at Issuance		Number of Back-End Credit Risk Transfer Transactions	Unpaid Principal Balance Covered at issuance
	(Dollars in millions)
MCIRT	1	$	8,720	8	$	80,617
MCAS	1	12,212		2	29,293
Total	2	$	20,932	10	$	109,910


Interest Income Recognized on Multifamily Loans in Forbearance
	For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
	(Dollars in millions)
Interest income recognized on loans that received a forbearance and were held as of period end(1)	$	26	$	120


Multifamily TDRs on Accrual Status and Nonaccrual Loans
	As of
	September 30, 2020		December 31, 2019
	(Dollars in millions)
TDRs on accrual status	$	56	$	66
Nonaccrual loans	351		439
Total TDRs on accrual status and nonaccrual loans	$	407	$	505

Accruing on-balance sheet loans past due 90 days or more	$	3,729	$	—


						Cash and cash equivalents(1)

						Federal funds sold and securities purchased under agreements to resell or similar arrangements

						U.S. Treasury securities


Interest-Rate Sensitivity of Net Portfolio to Changes in Interest-Rate Level and Slope of Yield Curve
	As of (1)(2)
	September 30, 2020			December 31, 2019
	(Dollars in millions)
Rate level shock:
-100 basis points		$	477		$	57
-50 basis points		147			11
+50 basis points		(50)			51
+100 basis points		17			160
Rate slope shock:
-25 basis points (flattening)		(36)			(20)
+25 basis points (steepening)		34			22


Derivative Impact on Interest-Rate Risk (50 Basis Points)
	As of (1)
	September 30, 2020			December 31, 2019
	(Dollars in millions)
Before derivatives		$	(394)		$	(197)
After derivatives		147			51
Effect of derivatives		541			248


			Financial Statements \| Condensed Consolidated Balance Sheets


Fannie Mae (In conservatorship) Third Quarter 2020 Form 10-Q						74


			Notes to Condensed Consolidated Financial Statements \| Summary of Significant Accounting Policies


	Balance as of December 31, 2019		Transition Impact of Adoption of the CECL Standard		Balance as of January 1, 2020
	(Dollars in millions)
Mortgage loans held for sale	$	6,773	$	50	$	6,823
Allowance for loan losses	(9,016)		(1,722)		(10,738)
Other assets(1)	14,312		230		14,542
Deferred tax assets, net	11,910		303		12,213
Accumulated deficit (beginning retained earnings)	(118,776)		(1,139)		(119,915)


	As of September 30, 2020
	30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent(1)		Total Delinquent		Current		Total		Loans 90 Days or More Delinquent and Accruing Interest		Nonaccrual Loans with No Allowance
	(Dollars in millions)
Single-family:
20- and 30-year or more, amortizing fixed-rate	$	27,339	$	13,584	$	99,491	$	140,414	$	2,529,879	$	2,670,293	$	81,405	$	7,156
15-year or less, amortizing fixed-rate	2,084		965		6,170		9,219		420,848		430,067		5,533		393
Adjustable-rate	309		172		1,363		1,844		33,461		35,305		1,160		135
Other(2)	1,267		606		5,355		7,228		51,276		58,504		3,271		785
Total single-family	30,999		15,327		112,379		158,705		3,035,464		3,194,169		91,369		8,469
Multifamily(3)	512		N/A		4,074		4,586		355,131		359,717		3,729		44
Total	$	31,511	$	15,327	$	116,453	$	163,291	$	3,390,595	$	3,553,886	$	95,098	$	8,513


	As of September 30, 2020, by Year of Origination(1)
	2020		2019		2018		2017		2016		Prior		Total
	(Dollars in millions)
Estimated mark-to-market LTV ratio:(2)
20- and 30-year or more, amortizing fixed-rate:
Less than or equal to 80%	$	533,538	$	261,595	$	148,609	$	210,619	$	255,376	$	868,596	$	2,278,333
Greater than 80% and less than or equal to 90%	105,147		105,917		40,296		11,281		2,789		7,711		273,141
Greater than 90% and less than or equal to 100%	94,975		16,605		1,542		432		171		2,603		116,328
Greater than 100%	17		21		41		101		103		2,208		2,491
Total 20 and 30-year or more, amortizing fixed-rate	733,677		384,138		190,488		222,433		258,439		881,118		2,670,293
15-year or less, amortizing fixed-rate:
Less than or equal to 80%	124,783		46,988		18,095		35,192		50,610		146,127		421,795
Greater than 80% and less than or equal to 90%	5,020		1,627		100		18		11		25		6,801
Greater than 90% and less than or equal to 100%	1,379		38		4		5		3		12		1,441
Greater than 100%	—		—		4		6		4		16		30
Total 15-year or less, amortizing fixed-rate	131,182		48,653		18,203		35,221		50,628		146,180		430,067
Adjustable-rate:
Less than or equal to 80%	2,542		2,102		2,853		5,696		3,169		18,138		34,500
Greater than 80% and less than or equal to 90%	233		233		179		42		4		18		709
Greater than 90% and less than or equal to 100%	72		16		2		2		—		3		95
Greater than 100%	—		—		—		—		—		1		1
Total adjustable-rate	2,847		2,351		3,034		5,740		3,173		18,160		35,305
Other:
Less than or equal to 80%	—		42		341		839		1,076		37,973		40,271
Greater than 80% and less than or equal to 90%	—		3		25		54		37		1,590		1,709
Greater than 90% and less than or equal to 100%	—		1		11		22		16		736		786
Greater than 100%	—		1		5		11		11		782		810
Total other	—		47		382		926		1,140		41,081		43,576
Total	$	867,706	$	435,189	$	212,107	$	264,320	$	313,380	$	1,086,539	$	3,179,241

Total for all classes by LTV ratio:(2)
Less than or equal to 80%	$	660,863	$	310,727	$	169,898	$	252,346	$	310,231	$	1,070,834	$	2,774,899
Greater than 80% and less than or equal to 90%	110,400		107,780		40,600		11,395		2,841		9,344		282,360
Greater than 90% and less than or equal to 100%	96,426		16,660		1,559		461		190		3,354		118,650
Greater than 100%	17		22		50		118		118		3,007		3,332
Total	$	867,706	$	435,189	$	212,107	$	264,320	$	313,380	$	1,086,539	$	3,179,241


	As of December 31, 2019(1)
	20- and 30-Year or More, Amortizing Fixed-Rate		15-Year or Less, Amortizing Fixed-Rate		Adjustable-Rate		Other		Total
	(Dollars in millions)
Estimated mark-to-market LTV ratio:(2)
Less than or equal to 80%	$	2,145,018	$	368,181	$	43,415	$	47,005	$	2,603,619
Greater than 80% and less than or equal to 90%	237,623		4,556		1,275		2,872		246,326
Greater than 90% and less than or equal to 100%	130,152		1,284		215		1,398		133,049
Greater than 100%	4,754		66		3		1,365		6,188
Total	$	2,517,547	$	374,087	$	44,908	$	52,640	$	2,989,182


	As of December 31, 2019
	(Dollars in millions)
Internally assigned credit risk rating:
Non-classified(1)	$	323,773
Classified(2)	6,845
Total	$	330,618


	As of December 31, 2019
	Unpaid Principal Balance		Total Amortized Cost		Related Allowance for Loan Losses
	(Dollars in millions)
Individually impaired loans:
With related allowance recorded:
Single-family:
20- and 30-year or more, amortizing fixed-rate	$	63,091	$	61,033	$	(5,851)
15-year or less, amortizing fixed-rate	954		960		(24)
Adjustable-rate	156		157		(9)
Other	15,181		14,078		(2,291)
Total single-family	79,382		76,228		(8,175)
Multifamily	314		315		(45)
Total individually impaired loans with related allowance recorded	79,696		76,543		(8,220)
With no related allowance recorded:(1)
Single-family:
20- and 30-year or more, amortizing fixed-rate	18,372		17,578		—
15-year or less, amortizing fixed-rate	410		407		—
Adjustable-rate	265		265		—
Other	3,014		2,718		—
Total single-family	22,061		20,968		—
Multifamily	363		365		—
Total individually impaired loans with no related allowance recorded	22,424		21,333		—
Total individually impaired loans(2)	$	102,120	$	97,876	$	(8,220)


	As of September 30, 2020
	Total Amortized Cost(1)			Allowance for Credit Losses		Gross Unrealized Gains in AOCI		Gross Unrealized Losses in AOCI			Total Fair Value(1)
	(Dollars in millions)
Fannie Mae		$	1,195	$	—	$	102		$	(14)	$	1,283
Other agency(2)		85		—		11			—		96
Alt-A and subprime private-label securities		4		—		2			—		6

Mortgage revenue bonds		249		(3)		9			—		255
Other mortgage-related securities		247		—		8			—		255
Total		$	1,780	$	(3)	$	132		$	(14)	$	1,895


	As of December 31, 2019
	Total Amortized Cost(1)(3)			Gross Unrealized Gains			Gross Unrealized Losses			Total Fair Value(1)
	(Dollars in millions)
Fannie Mae		$	1,445		$	85		$	(10)	$	1,520
Other agency(2)		183			15			—		198
Alt-A and subprime private-label securities		34			23			—		57
Mortgage revenue bonds		309			9			(3)		315
Other mortgage-related securities		310			5			(1)		314
Total		$	2,281		$	137		$	(14)	$	2,404


	As of September 30, 2020
	Less Than 12 Consecutive Months					12 Consecutive Months or Longer
	Gross Unrealized Losses in AOCI			Fair Value		Gross Unrealized Losses in AOCI			Fair Value
	(Dollars in millions)
Fannie Mae		$	(2)	$	72		$	(12)	$	90
Mortgage revenue bonds		—		—			—		—
Other mortgage-related securities		—		—			—		—
Total		$	(2)	$	72		$	(12)	$	90

	As of December 31, 2019
	Less Than 12 Consecutive Months					12 Consecutive Months or Longer
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(Dollars in millions)
Fannie Mae		$	—	$	—		$	(10)	$	337
Mortgage revenue bonds		—		—			(3)		3
Other mortgage-related securities		(1)		130			—		—
Total		$	(1)	$	130		$	(13)	$	340


	As of September 30, 2020
	Total Carrying Amount (1)			Total Fair Value		One Year or Less					After One Year Through Five Years					After Five Years Through Ten Years					After Ten Years
						Net Carrying Amount (1)			Fair Value		Net Carrying Amount (1)			Fair Value		Net Carrying Amount (1)			Fair Value		Net Carrying Amount (1)			Fair Value
	(Dollars in millions)
Fannie Mae		$	1,195	$	1,283		$	—	$	—		$	6	$	6		$	88	$	100		$	1,101	$	1,177
Other agency		85		96			—		—			—		—			10		11			75		85
Alt-A and subprime private-label securities		4		6			—		—			—		—			2		3			2		3

Mortgage revenue bonds		246		255			1		1			28		30			24		24			193		200
Other mortgage-related securities		247		255			—		—			—		—			20		21			227		234
Total		$	1,777	$	1,895		$	1	$	1		$	34	$	36		$	144	$	159		$	1,598	$	1,699


	As of September 30, 2020								As of December 31, 2019
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
	(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed	$	110,215	$	—	$	25,728	$	(1,297)	$	41,052	$	—	$	29,178	$	(970)
Receive-fixed	109,774		1,082		19,213		(54)		73,579		816		26,382		(62)
Basis	250		218		—		—		273		149		—		—
Foreign currency	224		41		226		(78)		229		39		232		(65)
Swaptions:
Pay-fixed	5,400		10		5,525		(341)		4,600		18		6,375		(219)
Receive-fixed	6,625		591		800		(138)		2,875		106		4,600		(232)
Futures(1)	55,004		—		—		—		20,507		—		—		—
Total gross risk management derivatives	287,492		1,942		51,492		(1,908)		143,115		1,128		66,767		(1,548)
Accrued interest receivable (payable)	—		111		—		(230)		—		226		—		(250)
Netting adjustment(2)	—		(2,037)		—		2,053		—		(1,288)		—		1,694
Total net risk management derivatives	$	287,492	$	16	$	51,492	$	(85)	$	143,115	$	66	$	66,767	$	(104)
Mortgage commitment derivatives:
Mortgage commitments to purchase whole loans	$	36,756	$	93	$	9,180	$	(13)	$	7,115	$	15	$	1,787	$	(1)
Forward contracts to purchase mortgage-related securities	122,096		402		37,607		(70)		55,531		137		9,560		(28)
Forward contracts to sell mortgage-related securities	45,165		68		232,148		(759)		9,282		13		109,066		(277)
Total mortgage commitment derivatives	204,017		563		278,935		(842)		71,928		165		120,413		(306)
Credit enhancement derivatives	20,804		459		10,060		(38)		28,432		40		9,486		(25)
Derivatives at fair value	$	512,313	$	1,038	$	340,487	$	(965)	$	243,475	$	271	$	196,666	$	(435)


	As of
	September 30, 2020(1)				December 31, 2019(1)
	30 Days Delinquent		Seriously Delinquent(2)		30 Days Delinquent		Seriously Delinquent(2)
Percentage of multifamily guaranty book of business	0.14	%	1.12	%	0.02	%	0.04	%


	Percentage of Risk-in-Force Coverage by Mortgage Insurer
	As of
	September 30, 2020		December 31, 2019

Counterparty:(1)
Arch Capital Group Ltd.	21	%	23	%
Radian Guaranty, Inc.	19		20
Mortgage Guaranty Insurance Corp.	18		18
Genworth Mortgage Insurance Corp.(2)	17		15
Essent Guaranty, Inc.	15		14
Others	10		10
Total	100	%	100	%


	Percentage of Single-Family Guaranty Book of Business
	As of
	September 30, 2020		December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)	15	%	17	%
Remaining top five depository servicers	12		15
Top five non-depository servicers	25		27
Total	52	%	59	%


	Percentage of Multifamily Guaranty Book of Business
	As of
	September 30, 2020		December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)	13	%	13	%
Walker & Dunlop, Inc.	12		12
Remaining top five servicers	23		23
Total	48	%	48	%