We maintain an allowance for loan losses for HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts, excluding loans for which we have elected the fair value option. When calculating our allowance for loan losses, we consider the unpaid principal balance, net of unamortized premiums and discounts, and other cost basis adjustments of HFI loans at the balance sheet date. We record write-offs as a reduction to our allowance for loan losses at the point of foreclosure, completion of a short sale, upon the redesignation of nonperforming and reperforming loans from HFI to HFS or when a loan is determined to be uncollectible. See “Note 1, Summary of Significant Accounting Policies” for additional information and accounting policies on loans held for sale and changes resulting from our adoption of the CECL standard.


	For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
	(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance	$	(11,598)	$	(8,759)
Transition impact of the adoption of the CECL standard	—		(1,229)
Benefit (provision) for loan losses	931		(857)
Write-offs	261		377
Recoveries	(4)		(10)
Other	23		91
Ending Balance	$	(10,387)	$	(10,387)
Multifamily allowance for loan losses:
Beginning balance	$	(1,368)	$	(257)
Transition impact of the adoption of the CECL standard	—		(493)
Provision for loan losses	(34)		(669)
Write-offs	86		104
Recoveries	—		(1)

Ending Balance	$	(1,316)	$	(1,316)
Total allowance for loan losses:
Beginning balance	$	(12,966)	$	(9,016)
Transition impact of the adoption of the CECL standard	—		(1,722)
Benefit (provision) for loan losses	897		(1,526)
Write-offs	347		481
Recoveries	(4)		(11)
Other	23		91
Ending Balance	$	(11,703)	$	(11,703)

Our benefit or provision for loan losses 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 forbearance and loan modifications, the volume of foreclosures completed, and the redesignation of loans from HFI to HFS. Our benefit or provision can also be impacted by updates to the models, assumptions, and data used in determining our allowance for loan losses. As described below, during 2020, our benefit or provision for loan losses 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 and even more significantly, the loss mitigation outcomes of affected borrowers after the forbearance period ends, remain uncertain and can affect the amount of benefit or provision for loan losses we recognize.

months ended September 30, 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 loan 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 loan 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 COVD-19-related factors, which was partially offset by a decrease in our estimated single-family cumulative forbearance take-up, based on recent economic data and actual forbearance activity observed through the third quarter of 2020.

The factors discussed above were offset by the factors below, which contributed to a single-family benefit for loan losses for the three months ended September 30, 2020 and reduced the amount of single-family provision for loan losses recognized for the nine months ended September 30, 2020:

•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 loan 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 loan losses for the three and nine months ended September 30, 2020.

•Benefit from actual and expected home price growth. In the first quarter of 2020, we significantly reduced our expectations for home price growth to near-zero for 2020. However, the negative impact from the first quarter of 2020 was more than offset by an increase in actual home price growth in the second and third quarters due to better-than-expected housing demand and continued low levels of supply. Higher home prices decrease the likelihood that loans will default and decrease the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately decreases our loss reserves and provision for loan losses.

The primary factor that contributed to a decrease in single-family write-offs for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019 was a reduction in the volume of reperforming loans redesignated from HFI to HFS.

Our multifamily provision for loan losses for the nine months ended September 30, 2020 was driven 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 loan losses includes increased expected loan 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 loan 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 provision for expected multifamily loan losses as a result of the COVID-19 pandemic was relatively flat. In September 2020, we decreased our estimate for loan losses due to a downward revision of our estimated multifamily cumulative forbearance take-up rate, 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 loan losses, resulted in a modest expense for the third quarter of 2020.

The primary factor that contributed to multifamily write-offs for the three and nine months ended September 30, 2020 was a write down in the value of a seniors housing portfolio during the third quarter of 2020 following its default on its forbearance agreement.

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 single-family and multifamily 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. This contributed to the provision for credit losses for the three and nine months ended September 30, 2020. We recorded a valuation allowance of $569 million, as a component of “Accrued interest receivable, net” in our condensed consolidated balance sheet as of September 30, 2020. We recognized the related provision as a component of “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income. See “Note 1, Summary of Significant Accounting Policies” for more information about our nonaccrual policy.

The following tables display prior period changes in single-family and multifamily allowance for loan losses and the prior period amortized cost in our HFI loans by impairment or allowance methodology and portfolio segment prior to the adoption of the CECL standard. For a description of our previous allowance and impairment methodology refer to “Note 1, Summary of Significant Accounting Policies” in our 2019 Form 10-K.


	For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019
	(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance	$	(11,210)	$	(13,969)
Benefit for loan losses	1,826		3,712
Write-offs	270		1,209
Recoveries	(8)		(68)
Other	—		(6)
Ending Balance	$	(9,122)	$	(9,122)
Multifamily allowance for loan losses:
Beginning balance	$	(272)	$	(234)
Benefit (provision) for loan losses	17		(23)
Write-offs	2		6
Recoveries	(1)		(3)
Ending Balance	$	(254)	$	(254)
Total allowance for loan losses:
Beginning balance	$	(11,482)	$	(14,203)
Benefit for loan losses	1,843		3,689
Write-offs	272		1,215
Recoveries	(9)		(71)
Other	—		(6)
Ending Balance	$	(9,376)	$	(9,376)


	As of December 31, 2019
	Single-Family		Multifamily			Total
	(Dollars in millions)
Allowance for loan losses by segment:
Individually impaired loans	$	(8,175)		$	(45)	$	(8,220)
Collectively reserved loans	(584)			(212)		(796)
Total allowance for loan losses	$	(8,759)		$	(257)	$	(9,016)
Amortized cost in loans by segment:
Individually impaired loans	$	97,196		$	680	$	97,876
Collectively reserved loans	2,909,115			329,938		3,239,053
Total amortized cost in loans	$	3,006,311		$	330,618	$	3,336,929