The following table displays changes in our allowance for single-family loans, multifamily loans and total allowance for loan losses, including the transition impact of adopting Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which was later amended by ASU 2019-04, ASU 2019-05 and ASU 2019-1 (collectively, the “CECL standard”), on January 1, 2020. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for additional information on changes to our allowance for loan losses resulting from our adoption of the CECL standard.

The benefit or provision for loan losses excludes provision for accrued interest receivable losses, guaranty loss reserves and credit losses on available-for-sale (“AFS”) debt securities. Cumulatively, these amounts are recognized as “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income.


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance	$	(8,547)	$	(12,070)	$	(9,344)	$	(8,759)
Transition impact of the adoption of the CECL standard	—		—		—		(1,229)
Benefit (provision) for loan losses	2,493		389		3,164		(1,788)
Write-offs	149		46		220		116
Recoveries	(77)		(3)		(79)		(6)
Other	(82)		40		(25)		68
Ending Balance	$	(6,064)	$	(11,598)	$	(6,064)	$	(11,598)
Multifamily allowance for loan losses:
Beginning balance	$	(1,081)	$	(1,139)	$	(1,208)	$	(257)
Transition impact of the adoption of the CECL standard	—		—		—		(493)
Benefit (provision) for loan losses	35		(228)		130		(635)
Write-offs	14		(1)		47		18
Recoveries	(18)		—		(19)		(1)

Ending Balance	$	(1,050)	$	(1,368)	$	(1,050)	$	(1,368)
Total allowance for loan losses:
Beginning balance	$	(9,628)	$	(13,209)	$	(10,552)	$	(9,016)
Transition impact of the adoption of the CECL standard	—		—		—		(1,722)
Benefit (provision) for loan losses	2,528		161		3,294		(2,423)
Write-offs	163		45		267		134
Recoveries	(95)		(3)		(98)		(7)
Other	(82)		40		(25)		68
Ending Balance	$	(7,114)	$	(12,966)	$	(7,114)	$	(12,966)

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 forbearances 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, 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 and the pace and strength of the economy’s subsequent recovery, which require significant management judgment. Changes in our expectations regarding the length of time borrowers remain in 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.

•Benefit from actual and forecasted home price growth. For the three months ended June 30, 2021, home price growth was very strong. We also increased our expectations for home price growth on a national basis for full-year 2021. Higher home prices decrease the likelihood that loans will default and reduce the amount of loan loss on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for loan losses.

•Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS. We redesignated certain reperforming single-family loans from HFI to HFS, 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, resulting in a benefit for loan losses.

•Benefit from lower actual and projected interest rates. Actual and projected interest rates decreased as of June 30, 2021 compared with March 31, 2021. As mortgage interest rates decrease, 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, resulting in a benefit for loan losses.

•Benefit from changes in assumptions regarding COVID-19 forbearance and loan delinquencies. For the three and six months ended June 30, 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model to account for uncertainty. The decrease in uncertainty as of June 30, 2021 compared with the end of 2020 was primarily driven by the passage of the American Rescue Plan Act of 2021, which provided additional economic stimulus and helped support the continued economic recovery. In addition, the implementation of the COVID-19 vaccination program in the United States, which has contributed to a significant increase in business activity and an improved economy in 2021, decreased uncertainty surrounding the post-pandemic recovery. There has also been decreased political uncertainty, as well as a decrease in the number of borrowers in a COVID-19-related forbearance, lessening expectations of loan losses. However, management continued to apply its judgment and supplement model results as of June 30, 2021 as uncertainty remains regarding the loss mitigation outcomes of borrowers still in forbearance and the future course of the pandemic, including the impact on the economy of the spread of the Delta variant or other new, more infectious variants of the virus and low vaccination rates in certain areas of the country.

•Provision from higher actual and projected interest rates. Actual and projected interest rates were higher as of June 30, 2021 compared with December 31, 2020. As mortgage rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans. Lower expected prepayments extend the expected lives of modified loans, which increases the expected impairment relating to term and interest-rate concessions provided on these loans, resulting in a provision for loan losses.

•Expected loan losses as a result of the COVID-19 pandemic, which included adjustments to modeled results. In the first quarter of 2020, the rapidly changing conditions as a result of the unprecedented COVID-19 pandemic caused us to believe our model used to estimate single-family credit losses did not capture the entirety of losses we expected to incur relating to COVID-19 at that time, which included our expectations surrounding loan forbearance and borrower behavior once the forbearance period ends. As a result, management used its judgment to significantly increase the loss projections developed by our credit loss model in the first quarter of 2020, contributing to the provision for loan losses for the six months ended June 30, 2020.

During the second quarter of 2020 our credit loss model consumed data from the initial months of the pandemic, including loan delinquencies, updated profile data for loans in forbearance, and an updated home price forecast. As more of this data was consumed by our credit loss model, we reduced our non-modeled adjustment. However, management continued to apply its judgment and supplement model results as of June 30, 2020, taking into account uncertainty at that time regarding the type and extent of loss mitigation that may be needed when loans complete their forbearance period and the continued high degree of uncertainty regarding the future course of the pandemic and its effect on the economy, including the continued availability of fiscal stimulus to support borrowers.

For the second quarter of 2020, our estimate of expected losses due to the pandemic, which included both modeled and non-modeled adjustments, remained relatively flat compared with the first quarter of 2020. A reduction in overall expected forbearance volumes was offset by a weaker credit profile for loans entering forbearance. Furthermore, the positive impact of higher-than-initially-expected borrower prepayment activity was offset by heightened uncertainty as noted above.

•Changes in our expectations for home price growth. In the first quarter of 2020, we significantly reduced our expectations for home price growth to near-zero for 2020, which contributed to our provision for loan losses for the period. However, the negative impact from the first quarter of 2020 was partially reduced in the second quarter of 2020 as we revised our home price forecast to reflect an increase in home price appreciation on a national basis for 2020 based on strong home sales data for the period. This improvement in the 2020 home price forecast was partially offset by our updated long-term projected home price growth estimate, which was lowered as a result of a longer projected economic recovery period at that time.

•Benefit from actual and projected economic data. For the three and six months ended June 30, 2021, property value forecasts increased due to continued demand for multifamily housing. In addition, improved job growth led to an increase in projected average property net operating income, which reduced the probability of loan defaults resulting in a benefit for loan losses for the quarter and year-to-date.

•Benefit from lower expected credit losses as a result of the COVID-19 pandemic. Similar to our single-family provision for loan losses described above, for both the three and six months ended June 30, 2021, management used its judgment to further reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model to account for uncertainty. The decrease in uncertainty as of June 30, 2021 compared with the end of 2020, was primarily driven by positive economic growth and the passage of the American Rescue Plan Act of 2021, which provided additional economic stimulus. However, management continued to apply its judgment and supplement model results with a non-modeled adjustment as of June 30, 2021, as uncertainty remains surrounding the future course of the pandemic, including new strains of the virus and its effect on the economy.

•Actual and projected economic data and expected loan losses as a result of the COVID-19 pandemic. Similar to the single-family provision for loan losses for the 2020 periods discussed above, we believed our model used to estimate multifamily loan losses as of June 30, 2020 did not capture the entirety of losses we expected to incur relating to COVID-19 at that time. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations relating to the impact of the pandemic at that time. Our multifamily provision for loan losses was primarily driven by elevated unemployment rates compared with pre-COVID-19 levels. We expected higher unemployment rates would reduce the operating income of multifamily properties in the near term, resulting in an increase in the number of loans in forbearance. Additionally, property values were expected to decrease, increasing the probability of loan defaults.

In the second quarter of 2020, we increased our expected loan losses as a result of significant economic uncertainty and worsened forecasted capitalization rates at that time. We also increased our expected loan losses on senior housing loans to reflect that these properties had been disproportionately impacted by the pandemic, which resulted in increased operating expenses and limited these borrowers’ ability to attract new tenants. These increases in expected loan losses were partially offset by a reduction in our overall estimated forbearance volumes and lower actual and projected interest rates. In developing these adjustments, management considered the credit risk profile of our multifamily loan book of business at that time, as well as relevant historical credit loss experience during rare or stressful economic environments.