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 September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance	$	(7,990)	$	(5,389)	$	(9,443)	$	(4,950)
Benefit (provision) for loan losses	718		(2,339)		2,121		(2,869)
Write-offs	699		289		794		564
Recoveries	(48)		(65)		(151)		(182)
Other	(19)		16		39		(51)
Ending balance	$	(6,640)	$	(7,488)	$	(6,640)	$	(7,488)
Multifamily allowance for loan losses:
Beginning balance	$	(1,992)	$	(680)	$	(1,904)	$	(679)
Benefit (provision) for loan losses	(83)		(169)		(415)		(153)
Write-offs	52		39		306		39
Recoveries	(8)		(4)		(18)		(21)

Ending balance	$	(2,031)	$	(814)	$	(2,031)	$	(814)
Total allowance for loan losses:
Beginning balance	$	(9,982)	$	(6,069)	$	(11,347)	$	(5,629)
Benefit (provision) for loan losses	635		(2,508)		1,706		(3,022)
Write-offs	751		328		1,100		603
Recoveries	(56)		(69)		(169)		(203)
Other	(19)		16		39		(51)
Ending balance	$	(8,671)	$	(8,302)	$	(8,671)	$	(8,302)

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 nine months ended September 30, 2023 was primarily driven by a benefit from actual and forecasted home price growth, partially offset by a provision relating to the redesignation of loans from HFI to HFS and a provision from changes in loan activity, as described below:

•Benefit from actual and forecasted home price growth. During the three and nine months ended September 30, 2023, we observed stronger than expected actual and forecasted home price appreciation. 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 redesignation of loans from HFI to HFS. We redesignated certain nonperforming and reperforming single-family loans from HFI to HFS, as we no longer intended 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. During the three months ended September 30, 2023, we redesignated loans with an amortized cost of $3.1 billion with an associated write-off against the allowance for loan losses of $638 million. Interest rates on the redesignated loans were below current market interest rates, and as a result, we recorded additional provision for loan losses to the extent that the carrying value of the loans exceeded their fair value at the time of redesignation.

•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 nine months ended September 30, 2023 compared with the three and nine months ended September 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.

Single-family write-offs for the three and nine months ended September 30, 2023 were primarily due to the resumption of our nonperforming and reperforming loan sales program, which resulted in an increase in write-offs on the redesignation of mortgage loans from HFI to HFS during the periods. Interest rates on loans redesignated in the third quarter of 2023 were below current market interest rates resulting in write-offs upon the redesignation.

Our single-family provision for loan losses for the three months ended September 30, 2022 was primarily driven by a provision from actual and forecasted home prices. Actual home prices declined slightly on a national basis in the third quarter of 2022. In addition, our home price forecast worsened compared with the second quarter of 2022. While our second quarter 2022 home price forecast estimated home price growth in the second half of 2022 and in 2023, our third quarter 2022 home price forecast estimated additional home price declines in the fourth quarter of 2022 and throughout 2023.

•Provision from actual and forecasted home prices in the third quarter of 2022 discussed above was the largest driver of our single-family provision for loan losses in the first nine months of 2022. The impact of this home-price related provision in the third quarter of 2022 was partially offset by a benefit from actual and expected home price growth in each of the first and second quarters of 2022. During the first half of 2022, our forecasted home prices were positive for the second half of 2022 through 2023. In addition, we observed strong actual home price growth through the second quarter of 2022.

•Provision from higher actual and projected interest rates as of September 30, 2022 compared with 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.

•Provision from changes in loan activity, which includes provision on newly acquired loans. Throughout the first nine months of 2022, refinance loan volumes declined and purchase loans increased as a percentage of acquisitions compared to the first nine months of 2021. In addition, in the third quarter of 2022, our loan loss provision also increased as our more negative home price forecast impacted our estimate of losses on newly acquired loans.

The largest driver of our multifamily provision for loan losses for the three months ended September 30, 2023 was a provision for actual and projected interest rates. Rising interest rates increase the likelihood that loans with balloon balances due at maturity will be unable to refinance, due to higher refinancing rates. In addition, rising interest rates increase costs for loans with adjustable-rates, which increases the expected impairment and the provision for loan losses on these loans.

The impact of this factor was offset by a benefit from actual and projected economic data for the three months ended September 30, 2023. The benefit from actual and projected economic data was primarily driven by the impact of a change in our long-term economic forecast assumptions, which was partially offset by continued declines in multifamily property values.