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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2024
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting PoliciesOrganization
Fannie Mae is a leading source of financing for residential mortgages in the United States. We are a government-
sponsored, stockholder-owned corporation, chartered by Congress to provide liquidity and stability to the U.S. housing
market and to promote access to mortgage credit. We primarily do this by buying residential mortgage loans that are
originated by lenders. We place these loans into trusts and issue guaranteed mortgage-backed securities (“MBS”) that
global investors buy from us. We do not originate mortgage loans or lend money directly to borrowers.
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 describe the management reporting and allocation process used to
generate our segment results in “Note 11, Segment Reporting.”
We have been under conservatorship with the Federal Housing Finance Agency (“FHFA”) acting as conservator since
September 2008. See “Note 2, Conservatorship, Senior Preferred Stock Purchase Agreement and Related Matters,” for
information on our conservatorship, the senior preferred stock purchase agreement, the impact of U.S. government
support on our business, and related party relationships.
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
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
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.
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
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
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
We classify and account for our investments in securities as either trading or available-for-sale (“AFS”).
Both trading and AFS securities are measured at fair value in our consolidated balance sheets and the related purchase
discounts or premiums are amortized into interest income on a level-yield basis over the contractual term of the security.
When securities are sold, we recognize realized gains (losses) on AFS securities using the specific identification
method.
Gains (losses) are classified in the consolidated statements of operations and comprehensive income as follows.
Classification
Trading
AFS
Unrealized gains (losses)
Fair value gains (losses), net
Other comprehensive income (loss)
Realized gains (losses)
Fair value gains (losses), net
Investment gains (losses), net
An AFS security is impaired if the fair value of the security is less than its amortized cost. The amount of impairment that
represents credit loss is recorded in “Benefit (provision) for credit losses” in our consolidated statements of operations
and comprehensive income.
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.
Mortgage Loans
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 held for investment (“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 our
consolidated statements 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 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
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 (“UPB”), net of unamortized premiums and
discounts, other cost basis adjustments, and allowance for loan losses. We define the amortized cost of HFI loans as
UPB 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
We recognize interest income on an accrual basis except when we believe the collection of principal and interest in full
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.
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 $1.7 billion and $1.8
billion of acquired property, net as of December 31, 2024 and December 31, 2023, 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.
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 net operating income and property values. These inputs are both projected
based on Metropolitan Statistical Area data over the expected life of each loan.
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
We may modify loans to borrowers experiencing financial difficulty as part of our loss mitigation activities and consider
the effects of both actual and estimated restructurings in our estimate of expected credit losses. Loan restructurings are
evaluated to determine whether they result in a new loan or a continuation of an existing loan. Loan restructurings are
generally accounted for as a continuation of the existing loan when borrowers are experiencing financial difficulty as the
terms of the restructured loans are typically not at market rates. Further, the allowance for loan losses does not
measure the economic concession that is provided to the borrower because, when a discount rate is used to measure
impairment, it is based on the loan’s restructured terms. 
For most restructurings that occurred prior to January 1, 2022, we continue to apply the troubled debt restructuring
(“TDR”) accounting model. Under the TDR accounting model, we use the discount rate in effect prior to the restructuring
to measure impairment on each loan, which results in the recognition of the economic concession granted to borrowers
as part of the restructuring in the allowance for loan losses. As a result, the economic concession related to these loans
will continue to be measured in our allowance for loan losses and 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.
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 non-cash supplemental
information, which is disclosed in the “Non-Cash Activities Related to Mortgage Loans” table of “Note 4, Mortgage
Loans” in the line item entitled “Mortgage loans received by consolidated trusts to satisfy advances to lenders.”
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 pursuant to Section 42 of the Internal Revenue Code,
which generate both tax credits and net operating losses. We elect the proportional amortization method and 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. Our tax years 2021 through 2023 remain
open to examination by the IRS.
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 (losses), 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.
We present cash flows from derivatives that do not contain financing elements and their related gains and losses as
operating activities in our consolidated statements of cash flows.
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 UPB 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 (used in) 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 (used in) 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.
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
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
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 was adopted retrospectively for the annual period ended December 31,
2024. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Income Taxes
In December 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. The adoption of this guidance is not expected to have a material impact on our financial
statements.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense
Disaggregation Disclosures. The guidance enhances the disclosures about an entity’s expenses by requiring more
detailed information about the types of expenses in commonly presented expense captions. This guidance is effective
for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027. We are
currently evaluating the impact that the new guidance will have on our consolidated financial statements.