Allowance for Loan Losses

12 Months Ended

Dec. 31, 2023

Allowance for Loan LossesWe 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 AFS debt securities. Cumulatively, these amounts are recognized as “Benefit

(provision) for credit losses” in our consolidated statements of operations and comprehensive income.


	For the Year Ended December 31,
	2023	2022	2021
	(Dollars in millions)
Single-family allowance for loan losses:
Beginning balance	$(9,443)	$(4,950)	$(9,344)
Benefit (provision) for loan losses	2,079	(5,061)	4,503
Write-offs	873	883	417
Recoveries	(203)	(276)	(419)
Other	23	(39)	(107)
Ending balance	$(6,671)	$(9,443)	$(4,950)
Multifamily allowance for loan losses:
Beginning balance	$(1,904)	$(679)	$(1,208)
Benefit (provision) for loan losses	(497)	(1,245)	519
Write-offs	401	43	59
Recoveries	(59)	(23)	(49)
Ending balance	$(2,059)	$(1,904)	$(679)
Total allowance for loan losses:
Beginning balance	$(11,347)	$(5,629)	$(10,552)
Benefit (provision) for loan losses	1,582	(6,306)	5,022
Write-offs	1,274	926	476
Recoveries	(262)	(299)	(468)
Other	23	(39)	(107)
Ending balance	$(8,730)	$(11,347)	$(5,629)

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 2023 was primarily driven by a benefit from actual and forecasted home

price growth, partially offset by a provision from changes in loan activity and a provision relating to the redesignation of

loans from HFI to HFS, as described below:

•Benefit from actual and forecasted home price growth. During 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 changes in loan activity, which includes provision on newly acquired loans. This was primarily

driven by the credit risk profile of our 2023 single-family acquisitions, which had a higher proportion of purchase

loans compared with our 2022 single-family acquisitions. Purchase loans generally have higher origination LTV

ratios than refinance loans. 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.

•Provision from redesignation of loans from HFI to HFS. In 2023 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, these loans had an amortized cost of $3.3 billion with a related

allowance of $42 million. Since interest rates on the loans were below current market interest rates, their

carrying value exceeded their fair value at the time of redesignation, which resulted in a write-off against the

allowance of $658 million, with a net impact of $616 million in additional provision for loan losses.

The primary factors that contributed to our single-family provision for loan losses for 2022 were:

•Net provision from actual and forecasted home prices. Provision from home price changes was primarily driven

by our home price forecast, which estimated home price declines in 2023 and 2024. Lower forecasted home

prices increase the likelihood that loans will default and increase the amount of credit loss on loans that do

default, which increased our estimate of 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 2022 compared with 2021. In addition, in

2022, our loan loss provision also increased as our more negative home price forecast increased our estimate

of losses on newly acquired loans.

•Provision from higher actual and projected interest rates. 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 loans resulting in an increase in expected losses.

For TDR loans, longer expected lives also increase the expected impairment relating to economic concessions

provided on them, resulting in a provision for loan losses.

The increase in single-family write-offs in 2022 compared with 2021 was primarily driven by higher lower-of-cost-or-

market adjustments at the time of loan redesignation due to price declines on our HFS loans as interest rates rose

during the year. In addition, we had higher write-offs on single-family loans that went into foreclosure in 2022.

The primary factors that contributed to our multifamily provision for loan losses in 2023 were:

•Provision from changes in loan activity. This was primarily driven by new acquisitions resulting in book growth,

as well as increased delinquencies and declining DSCRs on the multifamily guaranty book, particularly in

instances where the DSCR declined to at or below a 1.0x coverage ratio.

•Provision from actual and projected economic data. Multifamily property values decreased throughout 2023,

which resulted in higher estimated LTV ratios on the loans in our multifamily guaranty book of business,

resulting in a provision for loan losses.

Our seniors housing loans were not a driver of our multifamily provision for loan losses in 2023, as our estimate of

losses related to these loans has decreased slightly since year-end 2022 as a result of loss mitigation activities

performed on this portfolio in 2023 and some recovery in property financials. However, our allowance for seniors

housing loans remained elevated as of December 31, 2023. These properties continue to be stressed from the effects of

the COVID-19 pandemic and ongoing economic trends and have not recovered to pre-pandemic levels.

Multifamily write-offs for 2023 were primarily due to the write-off of a specific seniors housing portfolio in 2023. The

seniors housing loans in our guaranty book of business are still recovering from being disproportionately affected by the

COVID-19 pandemic and ongoing economic trends, as well as other factors.

The primary factors that contributed to our multifamily provision for loan losses in 2022 were:

•Provision relating to our multifamily seniors housing portfolio. As of December 31, 2022, our estimate of credit

losses reflected an increased probability of default and greater expected severity of loss on our seniors housing

portfolio. As of December 31, 2022, nearly all of the seniors housing loans in our guaranty book of business

were current on their payments. However, our seniors housing portfolio was disproportionately impacted by

market conditions, which resulted in higher expected losses on this portfolio.

Seniors housing was negatively impacted by elevated vacancy rates and higher operating costs, which were

exacerbated by inflation pressures. This reduced the net operating income on many seniors housing properties,

which in turn led to lower estimated property values. These factors, combined with increased costs associated

with adjustable-rate mortgages due to a sharp rise in short-term interest rates during the latter half of 2022, put

additional stress on our seniors housing portfolio and increased our estimate of credit losses on these loans. As

of December 31, 2022, our seniors housing portfolio had an unpaid principal balance of $16.6 billion, of which

39% were adjustable-rate mortgages.

•Provision for higher actual and projected interest rates. Rising interest rates may reduce the ability of

multifamily borrowers to refinance their loans, which often have balloon balances at maturity, increasing our

provision for loan losses. Additionally, rising interest rates increase the chance that multifamily borrowers with

adjustable-rate mortgages may default due to higher payments if the property net operating income is not

increasing at a similar pace.