XML 112 R28.htm IDEA: XBRL DOCUMENT v3.24.0.1
Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2023
Accounting Policies [Abstract]  
Segment Reporting We have two reportable business segments: Single-Family and Multifamily. The Single-Family business operates in the
secondary mortgage market relating to loans secured by properties containing four or fewer residential dwelling units.
The Multifamily business operates in the secondary mortgage market relating primarily to loans secured by properties
containing five or more residential units. We have two reportable business segments, which are based on the type of business activities each perform: Single-
Family and Multifamily. Results of our two business segments are intended to reflect each segment as if it were a stand-
alone business. The sum of the results for our two business segments equals our consolidated results of operations.
Basis of Presentation Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). To conform to our current-period presentation, we have
reclassified certain amounts reported in our prior period consolidated financial statements.
Use of Estimates Use of Estimates
Preparing consolidated financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
as of the dates of our consolidated financial statements, as well as our reported amounts of revenues and expenses
during the reporting periods. Management has made significant estimates in a variety of areas including, but not limited
to, the allowance for loan losses. Actual results could be different from these estimates.
Principles of Consolidation Principles of Consolidation
Our consolidated financial statements include our accounts as well as the accounts of the other entities in which we
have a controlling financial interest. All intercompany balances and transactions have been eliminated. The typical
condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. A controlling
financial interest may also exist in an entity such as a variable interest entity (“VIE”) through arrangements that do not
involve voting interests, such as control over the servicing of the collateral held by the VIE. Fannie Mae’s controlling
interest generally arises from arrangements with VIEs.
We consolidate VIEs when we have a controlling financial interest in the VIE and are therefore considered the primary
beneficiary of the VIE. We are the primary beneficiary of a VIE when we have both the power to direct the activities of
the VIE that most significantly impact its economic performance and exposure to losses or benefits of the VIE that could
potentially be significant to the VIE. The primary beneficiary determination may change over time as our interest in the
VIE changes. Therefore, we evaluate whether we are the primary beneficiary of VIEs in which we have variable
interests at both inception and on an ongoing basis. Generally, the assets of our consolidated VIEs can be used only to
settle obligations of the VIE, and the creditors of our consolidated VIEs do not have recourse to Fannie Mae, except
when we provide a guarantee to the VIE.
The measurement of assets and liabilities of VIEs that we consolidate depends on whether we are the transferor of
assets into a VIE. When we are the transferor of assets into a VIE that we consolidate at the time of the transfer, we
continue to recognize the assets and liabilities of the VIE at the amounts that they would have been recognized if we
had not transferred the assets and no gain or loss is recognized. We are the transferor to the VIEs created during our
portfolio securitizations; this execution occurs when we purchase loans from third-party sellers for cash and later deposit
these loans into an MBS trust. The securities issued through a portfolio securitization are then sold to investors for cash.
When we are not the transferor of assets into a VIE that we consolidate, we recognize the assets and liabilities of the
VIE in our consolidated financial statements at fair value and a gain or loss for the difference between (1) the fair value
of the consideration paid, fair value of noncontrolling interests and the reported amount of any previously held interests,
and (2) the net amount of the fair value of the assets and liabilities recognized upon consolidation. However, for the
VIEs established under our lender swap program, we do not recognize a gain or loss if the VIEs are consolidated at
formation as there is no difference in the respective fair value of (1) and (2) above. We record gains or losses that are
associated with the consolidation of VIEs as a component of “Investment gains (losses), net” in our consolidated
statements of operations and comprehensive income. A lender swap transaction occurs when a mortgage lender
delivers a pool of loans to us, which we immediately deposit into an MBS trust.
If we cease to be deemed the primary beneficiary of a VIE, we deconsolidate the VIE. We use fair value to measure the
initial cost basis for any retained interests that are recorded upon the deconsolidation of a VIE. Any difference between
the fair value and the previous carrying amount of our investment in the VIE is recorded in “Investment gains (losses),
net” in our consolidated statements of operations and comprehensive income.
We do not consolidate VIEs when we are not deemed to be the primary beneficiary.
Transfers of Financial Assets Transfers of Financial Assets
We evaluate each transfer of financial assets to determine whether we have surrendered control and the transfer
qualifies as a sale. If a transfer does not meet the criteria for sale treatment, the transferred assets remain in our
consolidated balance sheets and we record a liability to the extent of any proceeds received in connection with the
transfer.
When a transfer that qualifies as a sale is completed, we derecognize all assets transferred and recognize all assets
received and liabilities incurred at fair value. The difference between the carrying basis of the assets transferred and the
fair value of the net proceeds from the sale is recorded as a component of “Investment gains (losses), net” in our
consolidated statements of operations and comprehensive income. We retain interests from the transfer and sale of
mortgage-related securities to unconsolidated single-class and multi-class portfolio securitization trusts. Retained
interests are primarily derived from transfers associated with our portfolio securitizations in the form of Fannie Mae
securities. We separately describe the subsequent accounting, as well as how we determine fair value, for our retained
interests in the “Investments in Securities” section of this note.
Cash Equivalents and Restricted Cash Cash Equivalents and Restricted Cash
Short-term investments that have a maturity at the date of acquisition of three months or less and are readily convertible
to known amounts of cash are generally considered cash equivalents. We also include securities purchased under
agreements to resell on an overnight basis in “cash and cash equivalents” in our consolidated balance sheets. We may
pledge as collateral certain short-term investments classified as cash equivalents.
“Restricted cash and cash equivalents” in our consolidated balance sheets primarily represents cash held in accounts
that are for the benefit of MBS certificateholders (inclusive of amounts that have been advanced by us under the terms
of our guaranty) that will be distributed to the MBS certificateholders on a future date in accordance with the terms of the
MBS trust agreements. Fannie Mae, in its role as trustee, invests funds held by consolidated trusts directly in eligible
short-term third-party investments, which may include investments in cash equivalents that are composed of overnight
repurchase agreements and U.S. Treasuries that have a maturity at the date of acquisition of three months or less. The
funds underlying these short-term investments are restricted per the MBS trust agreements. Cash may also be
recognized as restricted cash for certain collateral arrangements for which we do not have the right to use the cash.
Securities Purchased Under Agreements to Resell Securities Purchased Under Agreements to Resell
We enter into repurchase agreements that involve contemporaneous trades to purchase and sell securities. As the
transferor has not relinquished control over the securities, these transactions are accounted for as secured financings
and reported as securities purchased under agreements to resell in our consolidated balance sheets except for
securities purchased under agreements to resell on an overnight basis, which are included in cash and cash equivalents
in our consolidated balance sheets. We present cash flows from securities purchased under agreements to resell as
investing activities in our consolidated statements of cash flows.
These repurchase agreements may allow us to repledge all, or a portion, of the transferred collateral, and we may
repledge such collateral periodically, although it is not typically our practice to repledge collateral that has been
transferred to us.
Investments in Securities Investments in Securities
Securities Classified as Trading or Available-for-Sale
We classify and account for our investments in securities as either trading or available-for-sale (“AFS”). We measure
trading securities at fair value in our consolidated balance sheets with unrealized and realized gains and losses included
as a component of “Fair value gains (losses), net” in our consolidated statements of operations and comprehensive
income. We include interest on investments in securities in our consolidated statements of operations and
comprehensive income. Interest income includes the amortization of cost basis adjustments, including premiums and
discounts, recognized as a yield adjustment using the interest method over the contractual term of the security. We
measure AFS securities at fair value in our consolidated balance sheets, with unrealized gains and losses, net of
income taxes, recorded in “Accumulated other comprehensive income,” and changes in expected credit losses recorded
in “Benefit (provision) for credit losses.” We recognize realized gains and losses on AFS securities when securities are
sold. We calculate the gains and losses on AFS securities using the specific identification method and record them in
“Investment gains (losses), net” in our consolidated statements of operations and comprehensive income. As of
December 31, 2023 and 2022, we did not have any investments in securities classified as held-to-maturity.
When we own Fannie Mae MBS issued by unconsolidated trusts, the asset is recorded in “Investments in securities, at
fair value” in our consolidated balance sheets. We determine the fair value of Fannie Mae MBS based on observable
market prices because most Fannie Mae MBS are actively traded. For any subsequent purchase or sale of Fannie Mae
MBS issued by unconsolidated trusts, we continue to account for any outstanding recorded amounts associated with the
guaranty transaction on the same basis of accounting. We do not derecognize any components of the guaranty assets,
guaranty obligations, or any other outstanding recorded amounts associated with the guaranty transaction for the
Fannie Mae MBS because our contractual obligation to the MBS trust remains in force until the trust is liquidated.
Impairment of Available-for-Sale Debt Securities
An AFS debt security is impaired if the fair value of the investment is less than its amortized cost basis. In these
circumstances, we separate the excess of the amortized cost basis of the debt security over its fair value into the
amount representing the credit loss, which we recognize as an allowance for credit losses with the corresponding
amount recorded in “Benefit (provision) for credit losses” in our consolidated statements of operations and
comprehensive income, and the amount related to all other factors, which we recognize in “Other comprehensive loss,”
net of taxes, in our consolidated statements of operations and comprehensive income. Credit losses are evaluated on
an individual security basis and are limited to the excess of the amortized cost basis over the fair value of the debt
security. If we intend to sell a debt security or it is more likely than not that we will be required to sell the debt security
before recovery, any allowance for credit losses on the debt security is reversed and the amortized cost basis of the
debt security is written down to its fair value through “Investment gains (losses), net.”
Trading securities are recorded at fair value with subsequent changes in fair value recorded as “Fair value gains, net” in our consolidated statements of operations and comprehensive income.Available-for-Sale Securities
We record AFS securities at fair value with unrealized gains and losses, recorded net of tax, as a component of “Other
comprehensive loss” and we recognize realized gains and losses from the sale of AFS securities in “Investment gains
(losses), net” in our consolidated statements of operations and comprehensive income. We define the amortized cost
basis of our AFS securities as unpaid principal balance, net of unamortized premiums and discounts, and other cost
basis adjustments. We record an allowance for credit losses for AFS securities that reflects the impairment for credit
losses, which are limited to the amount that fair value is less than the amortized cost. Impairment due to non-credit
losses are recorded as unrealized losses within “Other comprehensive loss.”
Loans Held for Sale Loans Held for Sale
When we acquire mortgage loans that we intend to sell or securitize via trusts that will not be consolidated, we classify
the loans as held for sale (“HFS”). We report the carrying value of HFS loans at the lower of cost or fair value. Any
excess of an HFS loan’s cost over its fair value is recognized as a valuation allowance with the corresponding amount
and subsequent changes in the valuation allowance recognized as “Investment gains (losses), net” in our consolidated
statements of operations and comprehensive income. We recognize interest income on HFS loans on an accrual basis
unless we determine that the ultimate collection of contractual principal or interest payments in full is not reasonably
assured. Purchased premiums and discounts on HFS loans are deferred upon loan acquisition, included in the cost
basis of the loan, and not amortized. We determine any lower of cost or fair value adjustment on HFS loans at an
individual loan level.
In the presentation of our consolidated statements of cash flows, we present cash flows from loans classified as HFS at
acquisition as operating activities. If a loan is initially classified as HFI and it is transferred to HFS, the principal cash
flows and sales proceeds from such loans continue to be presented as investing activities in the consolidated statement
of cash flows.
Our accounting for transfers to HFS differs based upon the loan’s classification as either nonperforming or performing.
Nonperforming loans include both seriously delinquent and reperforming loans. For both single-family and multifamily
loans, reperforming loans are loans that were previously delinquent but are performing again because payments on the
loan have become current with or without the use of a loan modification plan. Single-family seriously delinquent loans
are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are
loans that are 60 days or more past due. All other loans are considered performing.
For nonperforming loans transferred from held for investment (“HFI”) to HFS, based upon a change in our intent, we
record the loans at the lower of cost or fair value on the date of transfer. When the fair value of the nonperforming loan
is less than its amortized cost, we record a write-off against the allowance for loan losses in an amount equal to the
excess of the amortized cost basis over the fair value of the loan. Any difference between the amount written off upon
transfer and the recorded valuation allowance related to the transferred loan is recognized in “Benefit (provision) for
credit losses” in our consolidated statements of operations and comprehensive income.
For performing loans transferred from HFI to HFS, based upon a change in our intent, the allowance for loan losses
previously recorded on the HFI mortgage loan is reversed through “Benefit (provision) for credit losses” at the time of
transfer. The loan is transferred to HFS at its amortized cost basis and a valuation allowance is established to the extent
that the amortized cost basis of the loan exceeds its fair value. The initial recognition of the valuation allowance and any
subsequent changes are recorded as a gain or loss in “Investment gains (losses), net.”
Upon reclassification from HFS to HFI, we reverse the valuation allowance on the loan, if any, and establish an
allowance for loan losses as needed.
Loans Held for Investment Loans Held for Investment
When we acquire loans that we have the ability and the intent to hold for the foreseeable future or until maturity, we
classify the loans as HFI. When we consolidate a securitization trust, we recognize the loans underlying the trust in our
consolidated balance sheets. The trusts do not have the ability to sell loans and the use of such loans is limited
exclusively to the settlement of obligations of the trusts. Therefore, loans acquired when we have the intent to securitize
via consolidated trusts are generally classified as HFI in our consolidated balance sheets both prior to and subsequent
to their securitization.
In the presentation of our consolidated statements of cash flows, we present principal cash flows from loans classified
as HFI as investing activities and interest cash flows as operating activities.
We report the carrying value of HFI loans at the unpaid principal balance, net of unamortized premiums and discounts,
other cost basis adjustments, and allowance for loan losses. We define the amortized cost of HFI loans as unpaid
principal balance and accrued interest receivable, net, including any unamortized premiums, discounts, and other cost
basis adjustments. We present accrued interest receivable separately from the amortized cost of our HFI loans in our
consolidated balance sheets. We recognize interest income on HFI loans on an accrual basis using the effective yield
method over the contractual life of the loan, including the amortization of any deferred cost basis adjustments, such as
the premium or discount at acquisition, unless we determine that the ultimate collection of contractual principal or
interest payments in full is not reasonably assured.
Nonaccrual Loans and Allowance for Loan Losses Nonaccrual Loans
We recognize interest income on an accrual basis except when we believe the collection of principal and interest is not
reasonably assured. This generally occurs when a single-family loan is three or more months past due and a multifamily
loan is two or more months past due according to its contractual terms. A loan is reported as past due if a full payment
of principal and interest is not received within one month of its due date. When a loan is placed on nonaccrual status
based on delinquency status, interest previously accrued but not collected on the loan is reversed through interest
income.
Cost basis adjustments on HFI loans are amortized into interest income over the contractual life of the loan using the
effective interest method. Cost basis adjustments on the loan are not amortized into income while a loan is on
nonaccrual status. We have elected not to measure an allowance for credit losses on accrued interest receivable
balances as we have a nonaccrual policy to ensure the timely reversal of unpaid accrued interest.
For single-family loans, we recognize any contractual interest payments received on the loan while on nonaccrual status
as interest income on a cash basis. For multifamily loans, we account for interest income on a cost recovery basis and
we apply any payment received while on nonaccrual status to reduce the amortized cost of the loan. Thus, we do not
recognize any interest income on a multifamily loan placed on nonaccrual status until the amortized cost of the loan has
been reduced to zero.
A nonaccrual loan is returned to accrual status when the full collection of principal and interest is reasonably assured.
We generally determine that the full collection of principal and interest is reasonably assured when the loan returns to
current payment status. If a loan is restructured for a borrower experiencing financial difficulty, we require a performance
period of up to 6 months before we return the loan to accrual status. Upon a loan’s return to accrual status, we resume
the recognition of interest income on an accrual basis and the amortization of cost basis adjustments, if any, into interest
income. If interest is capitalized pursuant to a restructuring, any capitalized interest that had not been previously
recognized as interest income or that had been reversed through interest income when the loan was placed on
nonaccrual status is recorded as a discount to the loan and amortized into interest income over the remaining
contractual life of the loan.
For single-family loans negatively impacted by the COVID-19 pandemic that were three or more months past due as of
December 31, 2022, we continued to recognize interest income for up to six months of delinquency provided that the
loan was either current as of March 1, 2020, or originated after March 1, 2020. We continued to accrue interest income
beyond six months of delinquency provided that the full collection of principal and interest continued to be reasonably
assured. For multifamily loans that were in a COVID-19 forbearance arrangement on December 31, 2022, we continued
to recognize interest income for up to six months of delinquency and then placed the loans on nonaccrual status when
the borrower was six months past due.
For loans that were subject to the COVID-19-related nonaccrual policy, we established a valuation allowance for
expected credit losses on the accrued interest receivable balance applying the process that we have established for
both single-family and multifamily loans. The credit expense related to this valuation allowance was recorded in “Benefit
(provision) for credit losses” in our consolidated statements of operations and comprehensive income. Accrued interest
receivable was written off when the amount was deemed to be uncollectible. Loans that were in active forbearance
arrangements were not evaluated for write-off.
To the extent that loans that were subject to the COVID-19-related nonaccrual policy were restructured, the accrued
interest that was previously recognized was capitalized into the principal balance of the loan.
Allowance for Loan Losses
Our allowance for loan losses is a valuation account that is deducted from the amortized cost basis of HFI loans to
present the net amount expected to be collected on the loans. The allowance for loan losses reflects an estimate of
expected credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated MBS trusts.
Estimates of credit losses are based on expected cash flows derived from internal models that estimate loan
performance under simulated ranges of economic environments. Our modeled loan performance is based on our
historical experience of loans with similar risk characteristics, adjusted to reflect current conditions and reasonable and
supportable forecasts. Our historical loss experience and our credit loss estimates capture the possibility of remote
events that could result in credit losses on loans that are considered low risk. The allowance for loan losses does not
consider benefits from freestanding credit enhancements, such as our Connecticut Avenue Securities® (“CAS”) and
Credit Insurance Risk Transfer™ (“CIRT™”) programs and multifamily Delegated Underwriting and Servicing (“DUS®”)
lender risk-sharing arrangements, which are recorded in “Other assets” in our consolidated balance sheets.
Changes to our estimate of expected credit losses, including changes due to the passage of time, are recorded through
the “Benefit (provision) for credit losses” in our consolidated statements of operations and comprehensive income.
When calculating our allowance for loan losses, we consider only our amortized cost in the loans at the balance sheet
date. We record write-offs as a reduction to the allowance for loan losses when amounts are deemed uncollectible.
When losses are confirmed through the receipt of assets in satisfaction of a loan, such as the underlying collateral upon
foreclosure or cash upon completion of a short sale, we record a write-off in an amount equal to the excess of a loan’s
amortized cost over fair value of assets received. We include expected recoveries of amounts previously written off and
expected to be written off in determining our allowance for loan losses.
We present foreclosed property in “Other assets” in our consolidated balance sheets. We held $1.8 billion and $1.6
billion of acquired property, net as of December 31, 2023 and December 31, 2022, respectively.
Single-Family Loans
We estimate the amount expected to be collected on our single-family loans using a discounted cash flow approach.
Our allowance for loan losses is calculated as the difference between the amortized cost basis of the loan and the
present value of expected cash flows on the loan. Expected cash flows include payments from the borrower, net of fees
retained by a third-party for servicing, contractually attached credit enhancements and proceeds from the sale of the
underlying collateral, net of selling costs.
When foreclosure of a single-family loan is probable, the allowance for loan losses is calculated as the difference
between the amortized cost basis of the loan and the fair value of the collateral as of the reporting date, adjusted for the
estimated costs to sell the property and the amount of expected recoveries from contractually attached credit
enhancements or other proceeds we expect to receive.
Expected cash flows are developed using internal models that capture market and loan characteristic inputs. Market
inputs include information such as actual and forecasted home prices, interest rates, volatility and spreads, while loan
characteristic inputs include information such as mark-to-market loan-to-value (“LTV”) ratios, delinquency status,
geography and borrower FICO credit scores. The model assigns a probability to borrower events including contractual
payment, loan payoff and default under various economic environments based on historical data, current conditions and
reasonable and supportable forecasts.
The two primary drivers of our forecasted economic environments are interest rates and home prices. Our model
projects the range of possible interest rate scenarios over the life of the loan based on actual interest rates and
observed option pricing volatility in the capital markets. For single-family home prices, we develop regional forecasts
based on Metropolitan Statistical Area data using a multi-path simulation that captures home price projections over a
five-year period, the period for which we can develop reasonable and supportable forecasts. After the five-year period,
the home price forecast reverts to a historical long-term growth rate.
Expected cash flows on the loan are discounted at the effective interest rate on the loan, adjusted for expected
prepayments. We update the discount rate of the loan each reporting period to reflect changes in expected
prepayments.
We may modify loans to borrowers experiencing financial difficulty as part of our loss mitigation activities. We consider
the effects of both actual and estimated restructurings in our estimate of expected credit losses.
Multifamily Loans
Our allowance for loan losses on multifamily loans is calculated based on estimated probabilities of default and loss
severities to derive expected loss ratios, which are then applied to the amortized cost basis of the loans. Our
probabilities of default and severity are estimated using internal models based on historical loss experience of loans
with similar risk characteristics that affect credit performance, such as debt service coverage ratio (“DSCR”), mark-to-
market LTV ratio, collateral type, age, loan size, geography, prepayment penalty term and note type. Our models
simulate a range of possible future economic scenarios, which are used to estimate probabilities of default and loss
severities. Key inputs to our models include rental income, which drives expected DSCRs for our loans, and property
values. Our reasonable and supportable forecasts for multifamily rental income and property values, which are
projected based on Metropolitan Statistical Area data, extend through the contractual maturity of the loans.
When foreclosure of a multifamily loan is probable, the allowance for loan losses is calculated as the difference between
the amortized cost basis of the loan and the fair value of the collateral as of the reporting date, adjusted for the
estimated costs to sell the property.
Restructured Loans
Effective January 1, 2022, we adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit
Losses (Topic 326), using the prospective transition method. ASU 2022-02 eliminates the recognition and measurement
of troubled debt restructurings (“TDRs”) and enhances the disclosures for loan restructurings for borrowers experiencing
financial difficulty. Pursuant to this guidance, when a single-family loan is restructured, we continue to measure
impairment on the loan using a discounted cash flow approach that utilizes a prepayment-adjusted discount rate that is
based on the loan’s restructured terms. Using a post-restructuring interest rate does not result in the recognition of an
economic concession in the allowance for loan losses. Additionally, loan modifications to single-family and multifamily
borrowers are evaluated to determine whether they result in a new loan or a continuation of an existing loan.
Modifications made by Fannie Mae for borrowers experiencing financial difficulty are generally accounted for as a
continuation of the existing loan as the terms of the restructured loans are typically not at market rates.
Prior to our adoption of this guidance, most of our restructurings were accounted for as TDRs. Under the TDR
accounting model, we used the discount rate that was in effect prior to the restructuring to measure impairment on each
loan, which resulted in the recognition, in the allowance for loan losses, of the economic concession that we granted to
borrowers as part of the loan restructuring.
As we have elected a prospective transition for the TDR-elimination guidance effective January 1, 2022, the economic
concession on a single-family loan that was previously restructured and accounted for as a TDR will continue to be
measured in our allowance for loan losses using the discount rate that was in effect prior to the restructuring and the
economic concession may increase or decrease as we update our cash flow assumptions related to the loan’s expected
life. Further, the component of the allowance for loan losses representing economic concessions will decrease as the
borrower makes payments in accordance with the restructured terms of the loan and as the loan is sold, liquidated, or
subsequently restructured.
In general, the effect of our current accounting for loan modifications is consistent with the accounting that we applied
under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to modifications of
loans not previously restructured in a TDR. The CARES Act provided temporary relief from the accounting and reporting
requirements for TDRs regarding certain loan modifications related to COVID-19 beginning March 2020 through
December 31, 2021.
The estimated mark-to-market LTV ratio is a primary factor we consider when estimating our allowance for loan losses
for single-family loans. As LTV ratios increase, the borrower’s equity in the home decreases, which may negatively
affect the borrower’s ability to refinance or to sell the property for an amount at or above the outstanding balance of the
loan.
The following tables display information about the credit quality of our single-family HFI loans, based on total amortized
cost. Effective January 1, 2023, we adopted amendments to ASU 2022-02 that require us to disclose current-period
gross write-offs by year of origination for financing receivables. As a result, for the periods beginning January 1, 2023,
the tables below include current year write-offs of our single-family HFI mortgage loans by class of financing receivable
and year of origination, excluding loans for which we have elected the fair value option.
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.
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.
Advances to Lenders Advances to Lenders
Advances to lenders represent our payments of cash in exchange for the receipt of loans from lenders in a transfer that
is accounted for as a secured lending arrangement. These transfers primarily occur when we provide early funding to
lenders for loans that they will subsequently either sell to us or securitize into a Fannie Mae MBS that they will deliver to
us. We individually negotiate early lender funding advances with our lenders. Early lender funding advances have terms
up to 60 days and earn a short-term market rate of interest.
We report cash outflows from advances to lenders as an investing activity in our consolidated statements of cash flows.
Settlements of the advances to lenders, other than through lender repurchases of loans, are not collected in cash, but
rather in the receipt of either loans or Fannie Mae MBS. Accordingly, this activity is reflected as a non-cash transfer in
our consolidated statements of cash flows in the line item entitled “Transfers from advances to lenders to loans held for
investment of consolidated trusts.”
Income Taxes Income Taxes
We recognize deferred tax assets and liabilities based on the differences in the book and tax bases of assets and
liabilities. We measure deferred tax assets and liabilities using enacted tax rates that are applicable to the periods that
the differences are expected to reverse. We adjust deferred tax assets and liabilities for the effects of changes in tax
laws and rates in the period of enactment. We recognize investment and other tax credits through our effective tax rate
calculation assuming that we will be able to realize the full benefit of the credits. We invest in Low-Income Housing Tax
Credit (“LIHTC”) projects and elect the proportional amortization method for the associated tax credits. We amortize the
cost of a LIHTC investment each reporting period in proportion to the tax credits and other tax benefits received. We
recognize the resulting amortization as a component of the “Provision for federal income taxes” in our consolidated
statements of operations and comprehensive income.
We present deferred taxes net in our consolidated balance sheets. We reduce our deferred tax assets by an allowance
if, based on the weight of available positive and negative evidence, it is more likely than not (a probability of greater than
50%) that we will not realize some portion, or all, of the deferred tax asset.
We account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based
on the technical merits of a tax position, it is more likely than not that the tax position would be sustained upon
examination by the taxing authority, which includes all related appeals and litigation. We then measure the recognized
tax benefit based on the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with
the taxing authority, considering all information available at the reporting date. We recognize interest expense and
penalties on unrecognized tax benefits as “Other expenses, net” in our consolidated statements of operations and
comprehensive income.
We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact
of negative and positive evidence, including our historical profitability and projections of future taxable income. Our
framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, to the
extent it exists, including:
•the sustainability of recent profitability required to realize the deferred tax assets;
•the cumulative net income or losses in our consolidated statements of operations and comprehensive income
in recent years;
•unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels
on a continuing basis in future years;
•the funding available to us under the senior preferred stock purchase agreement;
•the carryforward period for capital losses; and
•tax planning strategies.
Derivative Instruments Derivative Instruments
We recognize derivatives in a gain position in “Other assets” and derivatives in a loss position in “Other liabilities” in our
consolidated balance sheets at their fair value on a trade date basis. Changes in fair value and interest accruals on
derivatives not in qualifying fair value hedging relationships are recorded as “Fair value gains, net” in our consolidated
statements of operations and comprehensive income. We offset the carrying amounts of certain derivatives that are in
gain positions and loss positions as well as cash collateral receivables and payables associated with derivative
positions pursuant to the terms of enforceable master netting arrangements. We offset these amounts only when we
have the legal right to offset under the contract and we have met all the offsetting conditions. For our over-the-counter
(“OTC”) derivative positions, our master netting arrangements allow us to net derivative assets and liabilities with the
same counterparty. For our cleared derivative contracts, our master netting arrangements allow us to net our exposure
by clearing organization and by clearing member.
In the presentation of our consolidated statements of cash flows, we present cash flows from derivatives that do not
contain financing elements as operating activities.
We evaluate financial instruments that we purchase or issue and other financial and non-financial contracts for
embedded derivatives. To identify embedded derivatives that we must account for separately, we determine whether: (1)
the economic characteristics of the embedded derivative are not clearly and closely related to the economic
characteristics of the financial instrument or other contract (i.e., the host contract); (2) the financial instrument or other
contract itself is not already measured at fair value with changes in fair value included in earnings; and (3) a separate
instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the embedded
derivative meets all three of these conditions, we elect to carry the hybrid contract in its entirety at fair value with
changes in fair value recorded in earnings.
Fair Value Hedge Accounting
To reduce earnings volatility related to changes in benchmark interest rates, we apply fair value hedge accounting to
certain pools of single-family loans and certain issuances of our funding debt by designating such instruments as the
hedged item in hedging relationships with interest-rate swaps. In these relationships, we have designated the change in
the benchmark interest rate, the Secured Overnight Financing Rate (“SOFR”), as the risk being hedged. We have
elected to use the portfolio layer method to hedge certain pools of single-family loans. This election involves
establishing fair value hedging relationships on the portion of each loan pool that is not expected to be affected by
prepayments, defaults and other events that affect the timing and amount of cash flows. The term of each hedging
relationship is generally one business day and we establish hedging relationships each business day to align our hedge
accounting with our risk management practices.
We apply hedge accounting to qualifying hedging relationships. A qualifying hedging relationship exists when changes
in the fair value of a derivative hedging instrument are expected to be highly effective in offsetting changes in the fair
value of the hedged item attributable to the risk being hedged during the term of the hedging relationship. We assess
hedge effectiveness using statistical regression analysis. A hedging relationship is considered highly effective if the total
change in fair value of the hedging instrument and the change in the fair value of the hedged item due to changes in the
benchmark interest rate offset each other within a range of 80% to 125% and certain other statistical tests are met.
If a hedging relationship qualifies for hedge accounting, the change in the fair value of the interest-rate swap and the
change in the fair value of the hedged item for the risk being hedged are recorded through net interest income. A
corresponding basis adjustment is recorded against the hedged item, either the pool of loans or the debt, for the
changes in the fair value attributable to the risk being hedged. For hedging relationships that hedge pools of single-
family loans, basis adjustments are allocated to individual single-family loans based on the relative unpaid principal
balance of each loan at the termination of the hedging relationship. The cumulative basis adjustments on the hedged
item are amortized into earnings using the effective interest method over the contractual life of the hedged item, with
amortization beginning upon termination of the hedging relationship.
All changes in fair value of the designated portion of the derivative hedging instrument (i.e., interest-rate swap),
including interest accruals, are recorded in the same line item in the consolidated statements of operations and
comprehensive income used to record the earnings effect of the hedged item. Therefore, changes in the fair value of the
hedged loans and debt attributable to the risk being hedged are recognized in “Interest income” or “Interest expense,”
respectively, along with the changes in the fair value of the respective derivative hedging instruments.
The recognition of basis adjustments on the hedged item and the subsequent amortization are noncash activities and
are removed from net income to derive the “Net cash provided by operating activities” in our consolidated statements of
cash flows. Cash paid or received on designated derivative instruments during a hedging relationship is reported as
“Net cash provided by operating activities” in the consolidated statements of cash flows.
Commitments to Purchase and Sell Loans and Securities
We enter into commitments to purchase and sell mortgage-backed securities and to purchase single-family and
multifamily loans. Certain of these commitments to purchase or sell mortgage-backed securities and to purchase single-
family loans are accounted for as derivatives, while other commitments are not within the scope of the derivative
accounting criteria or do not meet the definition of a derivative.
Our commitments for the purchase and sale of regular way securities trades are exempt from derivative accounting and
are recorded on their trade date.
When derivative purchase commitments settle, we include the fair value on the settlement date in the cost basis of the
loan or unconsolidated security we purchase. When derivative commitments to sell securities settle, we include the fair
value of the commitment on the settlement date in the cost basis of the security we sell. Purchases and sales of
securities issued by our consolidated single-class securitization trusts and certain resecuritization trusts where the
security that has been issued by the trust is substantially the same as the underlying collateral are treated as
extinguishments or issuances of the underlying MBS debt, respectively. For commitments to purchase and sell
securities issued by these trusts, we recognize the fair value of the commitment on the settlement date as a component
of debt extinguishment gains and losses or in the cost basis of the debt issued, respectively.
We recognize all derivatives as either assets or liabilities in our 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 consolidated balance sheets.We present cash flows from derivatives as
operating activities in our consolidated statements of cash flows.
We record all gains and losses, including accrued interest, on derivatives while they are not in a qualifying hedging relationship in “Fair value gains, net” in our consolidated statements of operations and comprehensive income.
Collateral Collateral
We enter into various transactions where we pledge and accept collateral, the most common of which are our derivative
transactions. Required collateral levels vary depending on the credit rating and type of counterparty. We also pledge
and receive collateral under our repurchase and reverse repurchase agreements. In order to reduce potential exposure
to counterparties for securities purchased under agreements to resell, a third-party custodian typically maintains the
collateral and any margin. We monitor the fair value of the collateral received from our counterparties, and we may
require additional collateral from those counterparties, as we deem appropriate.
Cash Collateral
We record cash collateral accepted from a counterparty that we have the right to use as “Cash and cash equivalents”
and cash collateral accepted from a counterparty that we do not have the right to use as “Restricted cash and cash
equivalents” in our consolidated balance sheets. We net our obligation to return cash collateral pledged to us against
the fair value of derivatives in a gain position recorded in “Other assets” in our consolidated balance sheets when the
offsetting requirements have been met as part of our counterparty netting calculation.
For derivative positions with the same counterparty under master netting arrangements where we pledge cash
collateral, we remove it from “Cash and cash equivalents” and net the right to receive it against the fair value of
derivatives in a loss position recorded in “Other liabilities” in our consolidated balance sheets as a part of our
counterparty netting calculation.
Non-Cash Collateral
We classify securities pledged to counterparties as “Investments in securities, at fair value” or “Cash and cash
equivalents” in our consolidated balance sheets. Securities that we own that are pledged to counterparties may include
securities issued by consolidated VIEs. The pledged collateral is classified as “Mortgage loans” when the trust that
issued the security has been consolidated to align with the classification of the underlying asset.
Debt Debt
Our consolidated balance sheets contain debt of Fannie Mae as well as debt of consolidated trusts. We report debt
issued by us as “Debt of Fannie Mae” and by consolidated trusts as “Debt of consolidated trusts.” Debt issued by us
represents debt that we issue to third parties to fund our general business activities and certain credit risk-sharing
securities. The debt of consolidated trusts represents the amount of Fannie Mae MBS issued from such trusts that is
held by third-party certificateholders and prepayable without penalty at any time. We report deferred items, including
premiums, discounts and other cost basis adjustments, as adjustments to the related debt balances in our consolidated
balance sheets. Our liability to third-party holders of Fannie Mae MBS that arises as the result of a consolidation of a
securitization trust is collateralized by the underlying loans and/or mortgage-related securities.
We classify interest expense as either short-term or long-term based on the contractual maturity of the related debt. We
recognize the amortization of premiums, discounts and other cost basis adjustments through interest expense using the
effective interest method over the contractual term of the debt. Amortization of premiums, discounts and other cost basis
adjustments begins at the time of debt issuance.
We purchase and sell guaranteed MBS that have been issued through lender swap and portfolio securitization
transactions. When we purchase or sell a Fannie Mae MBS issued from a consolidated single-class securitization trust
and certain resecuritization trusts where the security that has been issued by the trust is substantially the same as the
underlying collateral, we extinguish or issue, respectively, the related debt of the consolidated trust to reflect the debt
that is owed to a third-party. For the extinguishment of debt, we record debt extinguishment gains or losses related to
debt of consolidated trusts for any difference between the purchase price of the MBS and the carrying value of the
related consolidated MBS debt reported in our consolidated balance sheets (including unamortized premiums, discounts
and other cost basis adjustments) at the time of purchase as a component of “Other expenses, net” in our consolidated
statements of operations and comprehensive income. When we issue consolidated debt, the debt is recorded at its fair
value with any premiums or discounts amortized over the securities’ contractual life.
New Accounting Guidance New Accounting Guidance
Fair Value Hedging - Portfolio Layer Method
On March 28, 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-01, Fair Value Hedging –
Portfolio Layer Method, which clarifies the guidance on fair value hedge accounting of interest rate risk portfolios of
financial assets. The ASU expands the scope of the last-of-layer method to allow entities to apply this method, renamed
the portfolio layer method, to non-prepayable financial assets and to designate multiple hedge relationships within a
single closed portfolio of financial assets. Additionally, the ASU clarifies that basis adjustments related to existing
portfolio layer hedge relationships should not be considered when measuring credit losses on the financial assets
included in the closed portfolio. Further, the ASU clarifies that any reversal of fair value hedge basis adjustments
associated with an actual breach should be recognized in interest income immediately. We adopted this guidance on
January 1, 2023 and the adoption did not have a material impact on our financial statements.
Investments – Equity Method and Joint Ventures
On March 29, 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323),
Accounting for Investment in Tax Credit Structures Using the Proportional Amortization Method. The ASU expands the
scope of the proportional amortization method that is currently restricted to investments in LIHTC structures by allowing
an entity to elect this method on a program-by-program basis to other qualifying tax equity investments. We adopted
this guidance on January 1, 2024 and the adoption did not have a material impact on our financial statements.
Segment Reporting
On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable
Segment Disclosures. The ASU enhances disclosure of an entity’s reportable segments by requiring additional
information about significant segment expenses, interim disclosures of certain segment information that previously were
only required on an annual basis and other detailed segment-related disclosures. The ASU applies to all public entities
that are required to report segment information and is effective starting in annual periods beginning after December 15,
2023. The ASU is required to be adopted retrospectively to all prior periods presented in the financial statements. We
are currently evaluating the impact of this guidance on our consolidated financial statements.
Income Taxes
On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax
Disclosures, which enhances the required disclosures primarily related to the income tax rate reconciliation and income
taxes paid. The ASU requires an entity’s income tax rate reconciliation to provide additional information for reconciling
items meeting a quantitative threshold, and to disclose certain selected categories within the income tax rate
reconciliation. The ASU also requires entities to disclose the amount of income taxes paid, disaggregated by federal,
state and foreign taxes. The ASU is effective for annual periods beginning after December 15, 2024, though early
adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.
Conservatorship Conservatorship
In September 2008, FHFA was appointed as our conservator pursuant to authority provided by the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992, as amended (the “GSE Act”). Conservatorship is a statutory
process designed to preserve and conserve our assets and property and put the company in a sound and solvent
condition. Our conservatorship has no specified termination date.
FHFA, as conservator, succeeded to:
•all rights, titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae
with respect to Fannie Mae and its assets; and
•title to the books, records and assets of any other legal custodian of Fannie Mae.
As conservator, FHFA has the authority to exercise broad powers over the company, including:
•directing us to enter into contracts or entering into contracts on our behalf; and
•transferring or selling our assets or liabilities.
FHFA has broad latitude over our business while we are in conservatorship, including authority to rehabilitate us in a
way that, while not in Fannie Mae’s best interests, is beneficial to FHFA and, by extension, the public it serves.
The GSE Act provides special protections for mortgage loans and mortgage-related assets we hold in trust. Specifically,
mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the
conservator for the beneficial owners of such MBS and cannot be used to satisfy the company’s general creditors.
While we are operating in conservatorship, our directors:
•serve on behalf of the conservator;
•exercise their authority as directed by and with the approval (where required) of the conservator;
•owe their fiduciary duties of care and loyalty solely to the conservator, and not to either the company or the
stockholders; and
•are appointed by the conservator and not elected by stockholders.
FHFA, as conservator, has issued an order authorizing our Board of Directors to exercise specified functions and
authorities, and instructions regarding matters for which conservator decision or notification is required. The conservator
retains the authority to amend or withdraw its order and instructions at any time.
The conservator has suspended stockholder meetings since conservatorship, and our common stockholders are not
empowered to vote on directors or any other matters. The conservator also eliminated dividends on our common and
preferred stock (other than dividends on the senior preferred stock issued to the U.S. Department of Treasury described
below) during the conservatorship.
Receivership
Under the GSE Act, the Director of FHFA must place us into receivership if they determine that our assets are less than
our obligations (that is, we have a net worth deficit) or if we have not been paying our debts as they become due, in
either case, for a period of 60 days. FHFA has clarified that the 60-day measurement period will commence no earlier
than the SEC filing deadline for our Form 10-K or Form 10-Q for the relevant period. In addition, the Director of FHFA
may place us into receivership at the Director’s discretion at any time for other reasons set forth in the GSE Act,
including if we are critically undercapitalized or if we are undercapitalized and have no reasonable prospect of becoming
adequately capitalized. Should we be placed into receivership, different assumptions would be required to determine the
carrying value of our assets, which would likely lead to substantially different financial results. We are not aware of any
plans of FHFA: (1) to fundamentally change our business model, or (2) to reduce the aggregate amount available to or
held by the company under our equity structure, which includes the senior preferred stock purchase agreement.
Related Parties Related Parties
Because Treasury holds a warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the total number
of shares of Fannie Mae common stock, we and Treasury are deemed related parties. As of December 31, 2023,
Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $195.2 billion.
FHFA’s control of both Fannie Mae and Freddie Mac has caused Fannie Mae, FHFA and Freddie Mac to be deemed
related parties. Additionally, Fannie Mae and Freddie Mac jointly own Common Securitization Solutions, LLC (“CSS”), a
limited liability company created to operate a common securitization platform; as a result, CSS is deemed a related
party. As a part of our joint ownership, Fannie Mae, Freddie Mac and CSS are parties to a limited liability company
agreement that sets forth the overall framework for the joint venture, including Fannie Mae’s and Freddie Mac’s rights
and responsibilities as members of CSS. Fannie Mae, Freddie Mac and CSS are also parties to a customer services
agreement that sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac,
including the operation of the common securitization platform, as well as an administrative services agreement. CSS
operates as a separate company from us and Freddie Mac, with all funding and limited administrative support services
and other resources provided to it by us and Freddie Mac.
In the ordinary course of business, Fannie Mae may purchase and sell securities issued by Treasury and Freddie Mac
in the capital markets. Some of the structured securities we issue are backed in whole or in part by Freddie Mac
securities. Fannie Mae and Freddie Mac each have agreed to indemnify the other party for losses caused by: its failure
to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying
resecuritized securities were issued; its failure to meet its obligations under the customer services agreement; its
violations of laws; or with respect to material misstatements or omissions in offering documents, ongoing disclosures
and materials relating to the underlying resecuritized securities. Additionally, we make regular income tax payments to
and receive tax refunds from the Internal Revenue Service (“IRS”), a bureau of Treasury.
Obligation to Pay TCCA Fees to Treasury To meet our obligations under the TCCA and at the direction of FHFA, we increased the guaranty
fee on all single-family mortgages delivered to us by 10 basis points in April 2012. The resulting fee revenue and
expense are recorded in “Interest income: Mortgage loans” and “TCCA fees,” respectively, in our consolidated
statements of operations and comprehensive income. In November 2021, the Infrastructure Investment and Jobs Act
was enacted, which extended to October 1, 2032 our obligation under the TCCA to collect 10 basis points in guaranty
fees on single-family mortgages delivered to us and pay the associated revenue to Treasury. In January 2022, FHFA
advised us to continue to collect and pay these TCCA fees on and after October 1, 2032 with respect to loans we
acquired before this date until those loans are paid off or otherwise liquidated.
Troubled Debt Restructuring Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in
granting a concession to a borrower experiencing financial difficulties as a TDR. In addition to formal loan modifications,
we accounted for informal restructurings as a TDR if we deferred more than three missed payments to a borrower
experiencing financial difficulty. We also classified bankruptcy relief provided to certain borrowers as TDRs. However,
our TDR accounting described herein was suspended for most of our loss mitigation activities through our election to
account for certain eligible loss mitigation activities occurring between March 2020 and January 1, 2022 under the
COVID-19 relief granted pursuant to the CARES Act and the Consolidated Appropriations Act of 2021. Effective January
1, 2022, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or
after January 1, 2022. Loans that were restructured in a TDR prior to the adoption of ASU 2022-02 will continue to be
accounted for under the historical TDR accounting until the loan is paid off, liquidated or subsequently modified.
Financial Guarantees We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated
trusts and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily
relating to the unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees.We
measure our guaranty reserve for estimated credit losses for off-balance sheet exposures over the contractual period
for which they are exposed to the credit risk, unless that obligation is unconditionally cancellable by the issuer.
Earnings per Share Earnings per Share
Earnings per share (“EPS”) is presented for basic and diluted EPS. However, as a result of our conservatorship status
and the terms of the senior preferred stock, no amounts would be available to distribute as dividends to common or
preferred stockholders (other than to Treasury as the holder of the senior preferred stock).
We compute basic EPS by dividing net income attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during the period. Net income attributable to common stockholders excludes
amounts attributable to the senior preferred stock because such amounts increase the liquidation preference of the
senior preferred stock and therefore are required to be excluded from basic EPS. See further information on the senior
preferred stock above in “Senior Preferred Stock.”
Risk Characteristics of our Guaranty Book of Business One of the measures by which we gauge our credit risk is the delinquency status of the mortgage loans in our guaranty
book of business.
For single-family and multifamily loans, we use this information, in conjunction with housing market and other economic
data, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with higher-risk
characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product categories.
Management also uses this data together with other credit risk measures to identify key trends that guide the
development of our loss mitigation strategies.
Acquired Property, Net When an insured loan held in our retained mortgage portfolio subsequently goes into foreclosure, we charge off the
loan, eliminating any previously-recorded loss reserves, and record REO and a mortgage insurance receivable for the
claim proceeds deemed probable of recovery, as appropriate. However, if a mortgage insurer rescinds, cancels or
denies insurance coverage, the initial receivable becomes due from the mortgage seller or servicer.
Derivatives, Hedging 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 consolidated
statements of operations and comprehensive income line item used to recognize the earnings effect of the hedged
item’s basis adjustment.
Derivatives, Offsetting Derivative instruments are recorded at fair value and securities purchased under agreements to resell are recorded at
amortized cost in our consolidated balance sheets.
We determine our rights to offset the assets and liabilities presented above with the same counterparty, including
collateral posted or received, based on the contractual arrangements entered into with our individual counterparties and
various rules and regulations that would govern the insolvency of a derivative counterparty.
Fair Value Measurements Fair Value Measurement
Fair value measurement guidance defines fair value, establishes a framework for measuring fair value and sets forth
disclosures around fair value measurements. This guidance applies whenever other accounting guidance requires or
permits assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that
prioritizes the inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest
priority, Level 1, to measurements based on unadjusted quoted prices in active markets for identical assets or liabilities.
The next highest priority, Level 2, is given to measurements of assets and liabilities based on limited observable inputs
or observable inputs for similar assets and liabilities. The lowest priority, Level 3, is given to measurements based on
unobservable inputs.
In our consolidated balance sheets certain assets and liabilities are measured at fair value on a nonrecurring basis; that
is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in
certain circumstances (for example, when we evaluate loans for impairment). Fair Value Option
We generally elect the fair value option on a financial instrument when the accounting guidance would otherwise require
us to separately account for a derivative that is embedded in an instrument at fair value. Under the fair value option, we
carry this type of instrument, in its entirety, at fair value instead of separately accounting for the derivative.
Interest income for the mortgage loans is recorded in “Interest income: Mortgage loans” and interest expense for the
debt instruments is recorded in “Interest expense: Long-term debt” in our consolidated statements of operations and
comprehensive income.
Fair Value of Financial Instruments The fair value of
financial instruments we disclose includes commitments to purchase multifamily and single-family mortgage loans that
we do not record in our consolidated balance sheets. The fair values of these commitments are included as “Mortgage
loans held for investment, net of allowance for loan losses.”
Commitments and Contingencies On a quarterly basis, we review relevant information about all pending legal actions and proceedings for the purpose of
evaluating and revising our contingencies, accruals and disclosures. We establish an accrual only for matters when the
likelihood of a loss is probable and we can reasonably estimate the amount of such loss.
Commitments to Purchase and Sell Mortgage Loans and Securities We have unconditional commitments related to the purchase of loans and mortgage-related securities. These include
both on- and off-balance sheet commitments. A portion of these have been recorded as derivatives in our consolidated
balance sheets.