We use master netting arrangements, which allow us to offset certain financial instruments and collateral with the same counterparty, to minimize counterparty credit exposure. The tables below display information related to derivatives, securities purchased under agreements to resell or similar arrangements, and securities sold under agreements to repurchase or similar arrangements, which are subject to an enforceable master netting arrangement or similar agreement that are either offset or not offset in our consolidated balance sheets.


	As of December 31, 2020
			Gross Amount Offset(1)		Net Amount Presented in our Consolidated Balance Sheets				Amounts Not Offset in our Consolidated Balance Sheets
	Gross Amount								Financial Instruments(2)			Collateral(3)		Net Amount
	(Dollars in millions)
Assets:
OTC risk management derivatives	$	962	$	(952)		$	10			$	—	$	—		$	10
Cleared risk management derivatives	—		47			47				—		—			47
Mortgage commitment derivatives	989		—			989				(406)		(53)			530
Total derivative assets	1,951		(905)			1,046		(4)		(406)		(53)			587
Securities purchased under agreements to resell or similar arrangements(5)	46,644		—			46,644				—		(46,644)			—
Total assets	$	48,595	$	(905)		$	47,690			$	(406)	$	(46,697)		$	587


Liabilities:
OTC risk management derivatives	$	(1,015)	$	999	$	(16)		$	—	$	—	$	(16)
Cleared risk management derivatives	—		(4)		(4)			—		2		(2)
Mortgage commitment derivatives	(1,426)		—		(1,426)			406		1,017		(3)
Total derivative liabilities	(2,441)		995		(1,446)		(4)	406		1,019		(21)

Total liabilities	$	(2,441)	$	995	$	(1,446)		$	406	$	1,019	$	(21)


	As of December 31, 2019
			Gross Amount Offset(1)		Net Amount Presented in our Consolidated Balance Sheets				Amounts Not Offset in our Consolidated Balance Sheets
	Gross Amount								Financial Instruments(2)			Collateral(3)		Net Amount
	(Dollars in millions)
Assets:
OTC risk management derivatives	$	1,354	$	(1,334)		$	20			$	—	$	—		$	20
Cleared risk management derivatives	—		46			46				—		—			46
Mortgage commitment derivatives	165		—			165				(101)		(1)			63
Total derivative assets	1,519		(1,288)			231		(4)		(101)		(1)			129
Securities purchased under agreements to resell or similar arrangements(5)	24,928		—			24,928				—		(24,928)			—
Total assets	$	26,447	$	(1,288)		$	25,159			$	(101)	$	(24,929)		$	129


Liabilities:
OTC risk management derivatives	$	(1,798)	$	1,695	$	(103)		$	—	$	—	$	(103)
Cleared risk management derivatives	—		(1)		(1)			—		1		—
Mortgage commitment derivatives	(306)		—		(306)			101		181		(24)
Total derivative liabilities	(2,104)		1,694		(410)		(4)	101		182		(127)
Securities sold under agreements to repurchase or similar arrangements(5)	(478)		—		(478)			—		475		(3)
Total liabilities	$	(2,582)	$	1,694	$	(888)		$	101	$	657	$	(130)

(1) Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received and accrued interest.

(2) Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty under an enforceable master netting arrangement but we have not elected to offset the related amounts in our consolidated balance sheets.

(3) Represents collateral received that has not been recognized and not offset in our consolidated balance sheets as well as collateral posted which has been recognized but not offset in our consolidated balance sheets. Does not include collateral held or posted in excess of our exposure. The fair value of non-cash collateral we pledged which the counterparty was permitted to sell or repledge was $4.7 billion and $2.3 billion as of December 31, 2020 and 2019, respectively. The fair value of non-cash collateral received was $46.6 billion and $24.7 billion, of which $46.6 billion and $23.8 billion could be sold or repledged as of December 31, 2020 and 2019, respectively. None of the underlying collateral was sold or repledged as of December 31, 2020 and 2019, respectively.

(4) Excludes derivative assets of $179 million and $40 million as of December 31, 2020 and 2019, respectively, and derivative liabilities of $49 million and $25 million recognized in our consolidated balance sheets as of December 31, 2020 and 2019, respectively, that are not subject to enforceable master netting arrangements.

(5) Includes $18.4 billion and $11.4 billion of securities purchased under agreements to resell classified as “Cash and cash equivalents” in our consolidated balance sheets as of December 31, 2020 and 2019, respectively.

Derivative instruments are recorded at fair value and securities purchased under agreements to resell or similar arrangements are recorded at amortized cost in our consolidated balance sheets.

We determine our rights to offset the assets and liabilities presented above with the same counterparty, including collateral posted or received, based on the contractual arrangements entered into with our individual counterparties and various rules and regulations that would govern the insolvency of a derivative counterparty. The following is a description, under various agreements, of the nature of those rights and their effect or potential effect on our financial position.

The terms of the majority of our contracts for OTC risk management derivatives are governed under master agreements of the International Swaps and Derivatives Association Inc. (“ISDA”). These agreements provide that all transactions entered into under the agreement with the counterparty constitute a single contractual relationship. An event of default by the counterparty allows the early termination of all outstanding transactions under the same ISDA agreement and we may offset all outstanding amounts related to the terminated transactions including collateral posted or received.

The terms of our contracts for cleared derivatives are governed under the rules of the clearing organization and the agreement between us and the clearing member of that clearing organization. In the event of a clearing organization default, all open positions at the clearing organization are closed and a net position (on a clearing member by clearing member basis) is calculated. Unless otherwise transferred, in the event of a clearing member default, all open positions cleared through that clearing member are closed and a net position is calculated.

The terms of our contracts for mortgage commitment derivatives are primarily governed by the Fannie Mae Single-Family Selling Guide (“Selling Guide”), for Fannie Mae-approved lenders, or Master Securities Forward Transaction Agreements (“MSFTA”), for counterparties that are not Fannie Mae-approved lenders. In the event of default by the counterparty, both the Selling Guide and the MSFTA allow us to terminate all outstanding transactions under the applicable agreement and offset all outstanding amounts related to the terminated transactions including collateral posted or received. Under the Selling Guide, upon a lender event of default, we generally may offset any amounts owed to a lender against any amounts a lender may owe us under any other existing agreement, regardless of whether or not such other agreements are in default or payments are immediately due.

The terms of our contracts for securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by Master Repurchase Agreements, which are based on the guidelines prescribed by the Securities Industry and Financial Markets Association. Master Repurchase Agreements provide that all transactions under the agreement constitute a single contractual relationship. An event of default by the counterparty allows the early termination of all outstanding transactions under the same agreement and we may offset all outstanding amounts related to the terminated transactions including collateral posted or received.

In addition to these contractual relationships, we are also a clearing member of two divisions of the Fixed Income Clearing Corporation (“FICC”), a central counterparty (“CCP”). One FICC division clears our trades involving securities

purchased under agreements to resell, securities sold under agreements to repurchase, and other non-mortgage related securities. The other division clears our forward purchase and sale commitments of mortgage-related securities, including dollar roll transactions. As a result of these trades, we are required to post initial and variation margin payments and are exposed to the risk that FICC fails to perform. As a clearing member of FICC, we are exposed to the risk that the CCP or one or more of the CCP’s clearing members fails to perform its obligations as described below.

•A default by or the financial or operational failure of FICC would require us to replace contracts cleared through FICC, thereby increasing operational costs and potentially resulting in losses.

•We may also be exposed to losses if a clearing member of FICC defaults on its obligations as each clearing member is required to absorb a portion of those fellow-clearing member losses. As a result, we could lose the margin that we have posted to FICC. Moreover, our exposure could exceed the amount of margin that we previously posted to FICC, since FICC’s rules require non-defaulting clearing members to cover, on a pro rata basis, losses caused by a clearing member’s default.

•We are unable to develop an estimate of the maximum potential amount of future payments that we could be required to make to FICC under these arrangements as our exposure is dependent on the volume of trades FICC clearing members execute now and in the future, which varies daily. Although we are unable to develop an estimate of our maximum exposure, we expect that losses caused by any clearing member would be partially offset by the fair value of margin posted by the defaulting clearing member and any other available assets of the CCP for those purposes. We believe that the risk of loss is remote due to the FICC's initial and daily mark-to-market margin requirements, guarantee funds and other resources that are available in the event of a default.