Allowance for Loan Losses

6 Months Ended

Jun. 30, 2023

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.

The following table displays changes in our allowance for single-family loans, multifamily loans and total allowance for loan losses. 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,
	2023		2022		2023		2022
	(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance	$	(9,479)	$	(5,241)	$	(9,443)	$	(4,950)
Benefit (provision) for loan losses	1,399		(248)		1,403		(530)
Write-offs	53		248		95		275
Recoveries	(27)		(84)		(103)		(117)
Other	64		(64)		58		(67)
Ending balance	$	(7,990)	$	(5,389)	$	(7,990)	$	(5,389)
Multifamily allowance for loan losses:
Beginning balance	$	(1,856)	$	(658)	$	(1,904)	$	(679)
Benefit (provision) for loan losses	(152)		(12)		(332)		16
Write-offs	17		—		254		—
Recoveries	(1)		(10)		(10)		(17)

Ending balance	$	(1,992)	$	(680)	$	(1,992)	$	(680)
Total allowance for loan losses:
Beginning balance	$	(11,335)	$	(5,899)	$	(11,347)	$	(5,629)
Benefit (provision) for loan losses	1,247		(260)		1,071		(514)
Write-offs	70		248		349		275
Recoveries	(28)		(94)		(113)		(134)
Other	64		(64)		58		(67)
Ending balance	$	(9,982)	$	(6,069)	$	(9,982)	$	(6,069)

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 type, volume and effectiveness of our loss mitigation activities, including forbearances and loan modifications, the volume of foreclosures completed, and the volume and pricing of loans redesignated 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.

Our single-family benefit for loan losses for the three and six months ended June 30, 2023 was primarily driven by a benefit from actual and forecasted home price growth, partially offset by a provision from changes in loan activity, as described in more detail below:

•Benefit from actual and forecasted home price growth. During the three and six months ended June 30, 2023, we observed strong actual home price appreciation. In addition, our updated 2023 home price forecast changed from our prior estimate, resulting in a shift to positive home price appreciation for the year. Higher home prices decrease the likelihood that loans will default and reduce the amount of losses on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for loan losses.

•Provision from changes in loan activity, which includes provision on newly acquired loans. The portion of our single-family acquisitions consisting of purchase loans increased in the three and six months ended June 30, 2023 compared with the three and six months ended June 30, 2022. As our acquisitions consisted of a greater percentage of purchase loans, which generally have higher origination loan to value (“LTV”) ratios than refinance loans, the credit profile of our acquisitions weakened. This factor drove a higher estimated risk of default and loss severity in the allowance and therefore a higher credit loss provision for those loans at the time of acquisition.

The largest driver of our single-family provision for loan losses for the three and six months ended June 30, 2022 was an increase in actual and projected interest rates as of June 30, 2022 compared with March 31, 2022 and December 31, 2021. As mortgage rates increased, we expected a decrease in future prepayments on single-family loans, including modified loans accounted for as TDRs. Lower expected prepayments extended the expected lives of these TDR loans, which increased the expected impairment relating to economic concessions provided on them, resulting in a provision for loan losses.

Some of the provision from increased actual and projected interest rates in the first half of 2022 was offset by a benefit from actual and forecasted home price growth. While home price growth was strong in the second quarter and first half of 2022, some market indicators at that time suggested that home price growth may have been moderating at a faster pace than indicated by our home price forecast, which reduced the benefit from home price growth recognized in the second quarter and first half of 2022.

Our multifamily provision for loan losses for the three and six months ended June 30, 2023 was primarily driven by decreases in estimated multifamily property values. This resulted in higher estimated LTV ratios on the loans in our multifamily guaranty book of business, which increased our estimate of expected credit losses on these loans.

Multifamily write-offs for the six months ended June 30, 2023 were due to the write-off of a seniors housing portfolio in the first quarter of 2023. The seniors housing loans in our multifamily book have been disproportionately affected by the COVID-19 pandemic and ongoing economic trends, higher operating costs exacerbated by the increase in inflation, and higher short-term interest rates for adjustable-rate mortgages, resulting in increased costs for these borrowers.

The primary factor that contributed to our multifamily provision for loan losses for the three months ended June 30, 2022, was a provision expense from higher actual and projected interest rates. This provision was partially offset by a benefit from actual and projected economic data, including strong property value growth, driven by continued demand for multifamily housing.

The primary factor that contributed to our multifamily benefit for loan losses in the six months ended June 30, 2022, was a benefit from actual and projected economic data. This benefit was partially offset by a provision from higher actual and projected interest rates.