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Derivative Instruments
 9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
Derivative instruments are an integral part of our strategy in managing interest-rate risk. Derivative instruments may be privately-negotiated, bilateral contracts or they may be listed and traded on an exchange. We refer to our derivative transactions made pursuant to bilateral contracts as our over-the-counter (“OTC”) derivative transactions and our derivative transactions accepted for clearing by a derivatives clearing organization as our cleared derivative transactions. We typically do not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for calculating actual payments or settlement amounts. The derivative contracts we use for interest-rate risk management purposes consist primarily of interest-rate swaps and interest-rate options. See “Note 8, Derivative Instruments” in our 2022 Form 10-K for additional information on interest-rate risk management.
We account for certain forms of credit risk transfer transactions as derivatives. In our credit risk transfer transactions, a portion of the credit risk associated with losses on a reference pool of mortgage loans is transferred to a third party. We enter into derivative transactions that are associated with some of our credit risk transfer transactions, whereby we manage investment risk to guarantee that certain unconsolidated VIEs have sufficient cash flows to pay their contractual obligations.
We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional amount of our mortgage commitments that are accounted for as derivatives.
We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a trade date basis. Fair value amounts, which are (1) netted to the extent a legal right of offset exists and is enforceable by law at the counterparty level and (2) inclusive of the right or obligation associated with the cash collateral posted or received, are recorded in “Other assets” or “Other liabilities” in our condensed consolidated balance sheets. See “Note 12, Fair Value” for additional information on derivatives recorded at fair value. We present cash flows from derivatives as operating activities in our condensed consolidated statements of cash flows.
Fair Value Hedge Accounting
Pursuant to our fair value hedge accounting program, we may designate certain interest-rate swaps as hedging instruments in hedges of the change in fair value attributable to the designated benchmark interest rate for certain closed pools of fixed-rate, single-family mortgage loans or our funding debt. For hedged items in qualifying fair value hedging relationships, changes in fair value attributable to the designated risk are recognized as a basis adjustment to the hedged item. We also report changes in the fair value of the derivative hedging instrument in the same condensed consolidated statements of operations and comprehensive income line item used to recognize the earnings effect of the hedged item’s basis adjustment. The objective of our fair value hedges is to reduce GAAP earnings volatility related to changes in benchmark interest rates. For additional discussion of our fair value hedge accounting policy, see “Note 1, Summary of Significant Accounting Policies” in our 2022 Form 10-K.
Notional and Fair Value Position of our Derivatives
The following table displays the notional amount and estimated fair value of our asset and liability derivative instruments, including derivative instruments designated as hedges.
As of September 30, 2023As of December 31, 2022
Notional AmountEstimated Fair ValueNotional AmountEstimated Fair Value
Asset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
(Dollars in millions)
Risk management derivatives designated as hedging instruments:
Swaps:(1)
Pay-fixed$8,269 $— $— $5,582 $— $— 
Receive-fixed28,005 — — 33,276 — — 
Total risk management derivatives designated as hedging instruments
36,274 — — 38,858 — — 
Risk management derivatives not designated as hedging instruments:
Swaps:(1)
Pay-fixed125,372 — — 97,808 — — 
Receive-fixed120,583 54 (4,097)99,799 1 (4,525)
Basis250 8 — 41,250 25 — 
Foreign currency303 — (98)300 — (98)
Swaptions:(1)
Pay-fixed5,816 294 (35)5,286 204 (18)
Receive-fixed2,666 18 (72)2,136 7 (45)
Futures(1)
44 — — — — — 
Total risk management derivatives not designated as hedging instruments255,034 374 (4,302)246,579 237 (4,686)
Netting adjustment(2)
— (321)4,241 — (154)4,662 
Total risk management derivatives portfolio
291,308 53 (61)285,437 83 (24)
Mortgage commitment derivatives:
Mortgage commitments to purchase whole loans
3,593 2 (16)2,596 4 (8)
Forward contracts to purchase mortgage-related securities
17,550 2 (111)17,808 50 (57)
Forward contracts to sell mortgage-related securities
39,062 47 (23)35,302 35 (13)
Total mortgage commitment derivatives
60,205 51 (150)55,706 89 (78)
Credit enhancement derivatives26,467 45 (14)23,784 3 (66)
Derivatives at fair value$377,980 $149 $(225)$364,927 $175 $(168)
(1)Centrally cleared derivatives have no ascribable fair value because the positions are settled daily.
(2)The netting adjustment represents the effect of the legal 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. Cash collateral posted was $4.0 billion and $4.5 billion as of September 30, 2023 and December 31, 2022, respectively. Cash collateral received was $47 million and $5 million as of September 30, 2023 and December 31, 2022, respectively.
We record all gains and losses, including accrued interest, on derivatives while they are not in a qualifying designated hedging relationship in “Fair value gains, net” in our condensed consolidated statements of operations and comprehensive income. The following table displays, by type of derivative instrument, the fair value gains and losses, net on our derivatives.
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2023202220232022
(Dollars in millions)
Risk management derivatives:
Swaps:
Pay-fixed$1,349 $2,510 $1,617 $5,809 
Receive-fixed(1,040)(1,903)(478)(5,269)
Basis(22)5 6 (126)
Foreign currency(12)(62)(2)(122)
Swaptions:
Pay-fixed95 43 74 141 
Receive-fixed(13)(6)(16)(19)
Futures1 — 2 (1)
Net contractual interest expense on interest-rate swaps(193)(63)(499)(102)
Total risk management derivatives fair value gains, net165 524 704 311 
Mortgage commitment derivatives fair value gains, net591 517 675 2,933 
Credit enhancement derivatives fair value gains (losses), net47 (32)61 (83)
Total derivatives fair value gains, net$803 $1,009 $1,440 $3,161 
Effect of Fair Value Hedge Accounting
The following table displays the effect of fair value hedge accounting on our condensed consolidated statements of operations and comprehensive income, including gains and losses recognized on fair value hedging relationships.
For the Three Months Ended September 30,For the Nine Months Ended September 30,
20232022
2023
2022
Interest Income: Mortgage Loans
Interest Expense: Long-Term Debt
Interest Income: Mortgage Loans
Interest Expense: Long-Term Debt
Interest Income: Mortgage Loans
Interest Expense: Long-Term Debt
Interest Income: Mortgage Loans
Interest Expense: Long-Term Debt
(Dollars in millions)
Total amounts presented in our condensed consolidated statements of operations and comprehensive income
$33,711 $(27,994)$30,114 $(23,709)$98,503 $(81,781)$86,338 $(65,291)
Gains (losses) from fair value hedging relationships:
Mortgage loans HFI and related interest-rate contracts:
Hedged items
$(544)$— $(285)$— $(511)$— $(867)$— 
Discontinued hedge related basis adjustment amortization
14 — 9 — 34 — 14 — 
Derivatives designated as hedging instruments
560 — 269 — 478 — 833 — 
Interest accruals on hedging instruments
36 — 7 — 89 — (10)— 
Debt of Fannie Mae and related interest-rate contracts:
Hedged items
— 176 — 1,477 — 606 — 3,848 
Discontinued hedge-related basis adjustment amortization
— (223)— (145)— (618)— (329)
Derivatives designated as hedging instruments
— (66)— (1,289)— (137)— (3,381)
Interest accruals on derivative hedging instruments
— (191)— (108)— (713)— (54)
Total effect of fair value hedges
$66 $(304)$— $(65)$90 $(862)$(30)$84 
Hedged Items in Fair Value Hedging Relationships
The following table displays the carrying amounts of the hedged items that have been in qualifying fair value hedges recorded in our condensed consolidated balance sheets, including the hedged item’s cumulative basis adjustments and the closed portfolio balances under the portfolio layer method. The hedged item carrying amounts and total basis adjustments include both open and discontinued hedges. The amortized cost and designated UPB consists only of open hedges as of September 30, 2023 and December 31, 2022.
As of September 30, 2023
Carrying Amount Assets (Liabilities)
Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount
Closed Portfolio of Mortgage Loans Under Portfolio Layer Method
Total Basis Adjustments(1)(2)
Remaining Adjustments - Discontinued Hedge
Total Amortized Cost
Designated UPB
(Dollars in millions)
Mortgage loans HFI
$407,336 $(1,105)$(1,105)$228,502 $7,658 
Debt of Fannie Mae(61,705)4,701 4,701  N/AN/A
As of December 31, 2022
Carrying Amount Assets (Liabilities)
Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount
Closed Portfolio of Mortgage Loans Under Portfolio Layer Method
Total Basis Adjustments(1)(2)
Remaining Adjustments - Discontinued Hedge
Total Amortized Cost
Designated UPB
(Dollars in millions)
Mortgage loans HFI
$293,788 $(628)$(628)$98,377 $5,187 
Debt of Fannie Mae(73,790)4,713 4,713  N/AN/A
(1)    No basis adjustment associated with open hedges, as all hedges are designated at the close of business with a one-day term.
(2)    Based on the unamortized balance of the hedge-related cost basis.
Derivative Counterparty Credit Exposure
Our derivative counterparty credit exposure relates principally to interest-rate derivative contracts. We are exposed to the risk that a counterparty in a derivative transaction will default on payments due to us, which may require us to seek a replacement derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable replacement. We manage our derivative counterparty credit exposure relating to our risk management derivative transactions mainly through enforceable master netting arrangements, which allow us to net derivative assets and liabilities with the same counterparty or clearing organization and clearing member. For our OTC derivative transactions, we require counterparties to post collateral, which may include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.
See “Note 11, Netting Arrangements” for information on our rights to offset assets and liabilities as of September 30, 2023 and December 31, 2022