Conservatorship, Senior Preferred Stock Purchase Agreement and Related Matters

6 Months Ended

Jun. 30, 2024

Conservatorship, Preferred Stock Agreements, And Related Parties [Abstract]

Conservatorship, Preferred Stock Agreements, And Related Parties

Conservatorship, Senior Preferred Stock Purchase Agreement and Related Matters

Conservatorship

We are currently operating under conservatorship, with FHFA acting as conservator. The conservatorship and related matters significantly affect our management, business activities, financial condition and results of operations.

Senior Preferred Stock Purchase Agreement

FHFA, as conservator, entered into a senior preferred stock purchase agreement with the U.S. Department of the Treasury (“Treasury”) on our behalf in September 2008. In connection with that agreement, we issued Treasury one million shares of Variable Liquidation Preference Senior Preferred Stock, Series 2008-2, which we refer to as the “senior preferred stock,” and a warrant to purchase shares equal to 79.9% of our common stock, on a fully diluted basis, for a nominal price. This agreement also provides funding to us under certain circumstances if we have a net worth deficit. Pursuant to the senior preferred stock purchase agreement, we have received a total of $119.8 billion from Treasury as of June 30, 2024, and the amount of remaining funding available to us under the agreement is $113.9 billion. We have not received any funding from Treasury under this commitment since the first quarter of 2018. We had a positive net worth of $86.5 billion as of June 30, 2024.

The dividend provisions of the senior preferred stock permit us to retain increases in our net worth until our net worth exceeds the amount of adjusted total capital necessary for us to meet the capital requirements and buffers under the enterprise regulatory capital framework established by FHFA. 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).

The aggregate liquidation preference of the senior preferred stock increased to $203.5 billion as of June 30, 2024 from $199.2 billion as of March 31, 2024, due to the $4.3 billion increase in our net worth in the first quarter of 2024. The aggregate liquidation preference of the senior preferred stock will further increase to $208.0 billion as of September 30, 2024, due to the $4.5 billion increase in our net worth in the second quarter of 2024.

Impact of U.S. Government Support

We continue to rely on support from Treasury to eliminate any net worth deficits we may experience in the future, which would otherwise trigger our being placed into receivership. 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 agreement. Based on consideration of all the relevant conditions and events affecting our operations, including our reliance on the U.S. government, we continue to operate as a going concern and in accordance with FHFA’s provision of authority.

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 June 30, 2024, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $203.5 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. 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. We also make regular income tax payments to and receive tax refunds from the Internal Revenue Service (“IRS”), a bureau of Treasury.

The following table provides the income statement impact of our related party transactions for the periods presented in addition to the associated liability at period end. The associated liability represents amounts accrued with respect to the related party transactions that have not yet been paid to the applicable related parties. In addition to the impact described in the table below, our investment in CSS, which is accounted for using the equity method, is classified as “Other assets” in our condensed consolidated balance sheets. We contributed $16 million to CSS for the three months ended June 30, 2024 and 2023. We contributed $38 million and $42 million for the six months ended June 30, 2024 and 2023, respectively.

Related Party	Activity	Income Statement Classification	For the Three Months Ended June 30,				For the Six Months Ended June 30,				Other Liabilities as of June 30, 2024
			2024		2023		2024		2023
			(Dollars in millions)
Treasury	TCCA fees	TCCA fees(1)	$	859	$	856	$	1,719	$	1,711	$	859
Treasury	Treasury’s Capital Magnet Fund	Other expenses, net	14		16		25		27		25
FHFA	FHFA regulatory assessment fees	Other administrative expenses	40		40		80		79		—
Treasury & Freddie Mac	Making Home Affordable Program reimbursements	Administrative expenses	—		3		—		6		—
CSS & Freddie Mac	Net operating losses associated with our investment in CSS	Other expenses, net	16		16		38		42		—

(1)Consists of the portion of our single-family guaranty fees that is paid to Treasury pursuant to the TCCA. The resulting fee revenue and expense are recorded in “Interest income: Mortgage loans” and “TCCA fees,” respectively, in our condensed consolidated statements of operations and comprehensive income.