Mortgage Loans

9 Months Ended

Sep. 30, 2011

Notes to Consolidated Financial Statements

3. Mortgage Loans

The following table displays our mortgage loans as of September 30, 2011 and December 31, 2010.

			As of
			September 30, 2011						December 31, 2010
			Of		Of				Of		Of
			Fannie		Consolidated				Fannie		Consolidated
			Mae		Trusts		Total		Mae		Trusts		Total
			(Dollars in millions)
Single-family			$	319,756	$	2,474,912	$	2,794,668	$	328,824	$	2,490,623	$	2,819,447
Multifamily				82,136		92,643		174,779		95,157		75,393		170,550
	Total unpaid principal balance of
		mortgage loans		401,892		2,567,555		2,969,447		423,981		2,566,016		2,989,997
Cost basis and fair value adjustments,
	net			(16,389)		16,197		(192)		(16,498)		11,777		(4,721)
Allowance for loan losses for
	loans held for investment			(55,398)		(16,037)		(71,435)		(48,530)		(13,026)		(61,556)
		Total mortgage loans	$	330,105	$	2,567,715	$	2,897,820	$	358,953	$	2,564,767	$	2,923,720

During the three months ended September 30, 2011, we did not redesignate any loans from held for investment (“HFI”) to held for sale (“HFS”). During the nine months ended September 30, 2011, we redesignated loans with a carrying value of $561 million from HFI to HFS.

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans, excluding loans for which we have elected the fair value option, by portfolio segment and class as of September 30, 2011 and December 31, 2010.

				As of September 30, 2011⁽¹⁾
				30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽²⁾		Total Delinquent		Current		Total		Recorded Investment in Loans Over 90 Days Delinquent and Accruing Interest		Recorded Investment in Nonaccrual Loans

				(Dollars in millions)
Single-family:
	Primary⁽³⁾		$	43,721	$	15,523	$	82,808	$	142,052	$	2,330,328	$	2,472,380	$	122	$	98,154
	Government⁽⁴⁾			105		46		312		463		51,458		51,921		312		-
	Alt-A			7,445		3,261		30,126		40,832		143,126		183,958		15		33,366
	Other⁽⁵⁾			3,586		1,556		11,940		17,082		75,753		92,835		101		13,305
		Total single-family		54,857		20,386		125,186		200,429		2,600,665		2,801,094		550		144,825

Multifamily ⁽⁶⁾				519		NA		753		1,272		175,761		177,033		-		698
		Total	$	55,376	$	20,386	$	125,939	$	201,701	$	2,776,426	$	2,978,127	$	550	$	145,523

				As of December 31, 2010⁽¹⁾
				30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽²⁾		Total Delinquent		Current		Total		Recorded Investment in Loans Over 90 Days Delinquent and Accruing Interest		Recorded Investment in Nonaccrual Loans

				(Dollars in millions)
Single-family:
	Primary⁽³⁾		$	47,048	$	18,055	$	93,302	$	158,405	$	2,299,080	$	2,457,485	$	139	$	110,758
	Government⁽⁴⁾			125		58		371		554		51,930		52,484		354		-
	Alt-A			8,547		4,097		37,557		50,201		156,951		207,152		21		41,566
	Other⁽⁵⁾			3,785		1,831		15,290		20,906		84,473		105,379		80		17,022
		Total single-family		59,505		24,041		146,520		230,066		2,592,434		2,822,500		594		169,346

Multifamily ⁽⁶⁾				382		NA		1,132		1,514		171,000		172,514		-		1,012
		Total	$	59,887	$	24,041	$	147,652	$	231,580	$	2,763,434	$	2,995,014	$	594	$	170,358

____________
⁽¹⁾	Recorded investment consists of (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and
	(c) accrued interest receivable.
⁽²⁾	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.
⁽³⁾	Consists of mortgage loans that are not included in other loan classes.
⁽⁴⁾	Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.
	Primarily consists of reverse mortgages which due to their nature are not aged and are included in the current column.
⁽⁵⁾	Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither government
	nor Alt-A.
⁽⁶⁾	Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.

The following table displays the total recorded investment in our single-family HFI loans, excluding loans for which we have elected the fair value option, by class and credit quality indicator as of September 30, 2011 and December 31, 2010. The single-family credit quality indicator is updated quarterly.

			As of
			September 30, 2011⁽¹⁾⁽²⁾						December 31, 2010⁽¹⁾⁽²⁾
			Primary⁽³⁾		Alt-A		Other⁽⁴⁾		Primary⁽³⁾		Alt-A		Other⁽⁴⁾
			(Dollars in millions)
Estimated mark-to-market LTV ratio:⁽⁵⁾
	Less than or equal to 80%		$	1,543,118	$	68,340	$	26,170	$	1,561,202	$	79,305	$	29,854
	80.01% to 90%			377,448		23,146		10,371		376,414		27,472		13,394
	90.01% to 100%			223,477		20,355		10,111		217,193		24,392		12,935
	100.01% to 110%			117,339		16,051		9,275		112,376		18,022		11,400
	110.01% to 120%			66,747		11,974		7,980		62,283		12,718		8,967
	120.01% to 125%			23,692		4,878		3,368		21,729		5,083		3,733
	Greater than 125%			120,559		39,214		25,560		106,288		40,160		25,096
		Total	$	2,472,380	$	183,958	$	92,835	$	2,457,485	$	207,152	$	105,379

___________

⁽¹⁾	Recorded investment consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and (c) accrued interest receivable.

⁽²⁾	Excludes $51.9 billion and $52.5 billion as of September 30, 2011 and December 31, 2010, respectively, of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A loans. The segment class is primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV.

⁽³⁾	Consists of mortgage loans that are not included in other loan classes.

⁽⁴⁾	Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither government nor Alt-A.

⁽⁵⁾	The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value.

The following table displays the total recorded investment in our multifamily HFI loans, excluding loans for which we have elected the fair value option, by credit quality indicator as of September 30, 2011 and December 31, 2010. We stratify multifamily loans into different internal risk rating categories based on the credit risk inherent in each individual loan. We categorize loan credit risk based on relevant observable data about a borrower's ability to pay, including multifamily market economic fundamentals, review of available current borrower financial information (e.g. current debt service coverage ratios), operating statements on the underlying collateral, historical payment experience, estimates of the current collateral values and other related credit documentation. As a result of this analysis, multifamily loans are categorized based on management's judgment into the following categories: (1) Green (loan with acceptable risk); (2) Yellow (loan with signs of potential weakness); (3) Orange (loan with a well defined weakness that may jeopardize the timely full repayment); and (4) Red (loan with a weakness that makes timely collection or liquidation in full highly questionable based on existing conditions and values). We evaluate loans in the orange and red risk rating categories to determine which ones are individually impaired. The multifamily credit quality indicator is updated quarterly.

			As of
			September 30, 2011⁽¹⁾		December 31, 2010⁽¹⁾
			(Dollars in millions)
Credit risk profile by internally assigned grade:
	Green		$	127,551	$	117,388
	Yellow⁽²⁾			29,567		34,651
	Orange			17,924		18,075
	Red			1,991		2,400
		Total	$	177,033	$	172,514

___________

⁽¹⁾	Recorded investment consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and (c) accrued interest receivable.
⁽²⁾	Includes approximately $9.1 billion and $9.7 billion of unpaid principal balance as of September 30, 2011 and December 31, 2010, respectively, classified solely due to past due financial information.

Individually Impaired Loans

Individually impaired loans include TDRs, acquired credit-impaired loans, and other multifamily loans regardless of whether we are currently accruing interest. The following tables display the total recorded investment, unpaid principal balance, and related allowance as of September 30, 2011 and December 31, 2010 and interest income recognized and average recorded investment for the three and nine months ended September 30, 2011 for individually impaired loans.

					As of September 30, 2011								For the Three Months Ended September 30, 2011						For the Nine Months Ended September 30, 2011
					Unpaid Principal Balance		Total Recorded Investment⁽¹⁾		Related Allowance for Loan Losses		Related Allowance for Accrued Interest Receivable		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis
					Unpaid Principal Balance		Total Recorded Investment⁽¹⁾		Related Allowance for Loan Losses		Related Allowance for Accrued Interest Receivable		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis

					(Dollars in millions)
Individually impaired loans:
	With related allowance recorded:
		Single-family:
			Primary⁽³⁾		$	115,961	$	108,489	$	28,709	$	639	$	102,555	$	949	$	183	$	99,495	$	2,764	$	550
			Government⁽⁴⁾			247		247		58		7		280		3		-		270		9		-
			Alt-A			34,034		31,159		10,865		277		29,755		247		45		29,459		728		143
			⁽⁵⁾			16,088		15,237		5,175		101		14,630		111		22		14,295		323		69
				Total single-family		166,330		155,132		44,807		1,024		147,220		1,310		250		143,519		3,824		762

		Multifamily				2,877		2,896		704		27		2,485		26		2		2,324		74		5
		Total individually impaired loans
		with related allowance recorded				169,207		158,028		45,511		1,051		149,705		1,336		252		145,843		3,898		767

	With no related allowance recorded:⁽⁶⁾
		Single-family:
			Primary⁽³⁾			8,284		5,624		-		-		7,118		175		58		6,019		427		146
			Government⁽⁴⁾			19		12		-		-		21		2		-		14		6		-
			Alt-A			2,962		1,467		-		-		1,832		68		21		1,443		154		47
			⁽⁵⁾			638		342		-		-		483		18		6		403		39		13
				Total single-family		11,903		7,445		-		-		9,454		263		85		7,879		626		206

		Multifamily				908		914		-		-		836		12		2		799		37		7
		Total individually impaired loans
		with no related allowance recorded				12,811		8,359		-		-		10,290		275		87		8,678		663		213

	Total individually impaired loans⁽⁷⁾				$	182,018	$	166,387	$	45,511	$	1,051	$	159,995	$	1,611	$	339	$	154,521	$	4,561	$	980

					As of December 31, 2010								For the Year Ended December 31, 2010
					Unpaid Principal Balance		Total Recorded Investment⁽¹⁾		Related Allowance for Loan Losses		Related Allowance for Accrued Interest Receivable		Average Recorded Investment
					(Dollars in millions)
Individually impaired loans:
	With related allowance recorded:
		Single-family:
			Primary⁽³⁾		$	99,838	$	93,024	$	23,565	$	772	$	81,258
			Government⁽⁴⁾			240		248		38		7		141
			Alt-A			30,932		28,253		9,592		368		25,361
			⁽⁵⁾			14,429		13,689		4,479		137		12,094
				Total single-family		145,439		135,214		37,674		1,284		118,854

		Multifamily				2,372		2,371		556		23		1,496
		Total individually impaired loans
		with related allowance recorded				147,811		137,585		38,230		1,307		120,350

	With no related allowance recorded:⁽⁶⁾
		Single-family:
			Primary⁽³⁾			10,586		7,237		-		-		7,860
			Government⁽⁴⁾			19		13		-		-		11
			Alt-A			3,600		1,884		-		-		2,091
			⁽⁵⁾			879		512		-		-		589
				Total single-family		15,084		9,646		-		-		10,551

		Multifamily				789		811		-		-		642
		Total individually impaired loans
		with no related allowance recorded				15,873		10,457		-		-		11,193

	Total individually impaired loans⁽⁷⁾				$	163,684	$	148,042	$	38,230	$	1,307	$	131,543

___________

⁽¹⁾	Recorded investment consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and (c) accrued interest receivable.

⁽²⁾	Total single-family interest income recognized of $1.6 billion for the three months ended September 30, 2011 consists of $1.1 billion of contractual interest and $427 million of effective yield adjustments. Total single-family interest income recognized of $4.5 billion for the nine months ended September 30, 2011 consists of $3.3 billion of contractual interest and $1.2 billion of effective yield adjustments.

⁽³⁾	Consists of mortgage loans that are not included in other loan classes.

⁽⁴⁾	Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.

⁽⁵⁾	Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government nor Alt-A.

⁽⁶⁾	The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.

⁽⁷⁾	Includes single-family loans restructured in a TDR with a recorded investment of $159.0 billion and $140.1 billion as of September 30, 2011 and December 31, 2010, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $1.0 billion and $939 million as of September 30, 2011 and December 31, 2010, respectively.

Interest income recognized on impaired loans was $1.4 billion for the three months ended September 30, 2010 and $4.1 billion for the nine months ended September 30, 2010. Interest income recognized on a cash basis on impaired loans was $511 million for the three months ended September 30, 2010 and $1.4 billion for the nine months ended September 30, 2010.

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a TDR. In addition to formal loan modifications, we also engage in other loss mitigation activities with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal agreements with the borrower that do not result in the legal modification of the loan's contractual terms. As described in our “Summary of Significant Accounting Policies,” we account for these informal restructurings as a TDR if we defer more than three missed payments. The substantial majority of the loan modifications we complete result in term extensions, interest rate reductions or a combination of both. During the three and nine months ended September 30, 2011, the average term extension of a modified loan was 103 and 82 months, respectively, and the average interest rate reduction of a modified loan was 2.63 and 3.14 percentage points, respectively.

Upon adoption of the new TDR standard, we reassessed all modifications, forbearance arrangements, and repayment plans that occurred on or after January 1, 2011 through June 30, 2011 that were not previously considered TDRs and for which the allowance for loan losses was measured on a collective basis (“the transition population”). As of September 30, 2011, the recorded investment related to restructurings in the transition population that were not previously considered TDRs was $2.3 billion and the individually impaired allowance for loan losses on this population was $605 million.

The following table displays the number of loans and recorded investment in our loans restructured in a TDR during the three and nine months ended September 30, 2011.

			For the Three Months Ended				For the Nine Months Ended
			September 30, 2011⁽⁵⁾				September 30, 2011
			Number of		Recorded		Number of		Recorded
			Loans		Investment⁽¹⁾		Loans		Investment⁽¹⁾
			(Dollars in millions)

Single-family
	Primary⁽²⁾			60,725	$	10,594		132,682	$	23,783
	Government⁽³⁾			201		24		497		86
	Alt-A			12,932		2,691		27,722		5,958
	Other⁽⁴⁾			5,429		1,324		12,424		3,095
		Total Single-family		79,287		14,633		173,325		32,922

Multifamily				13		39		42		214
Total troubled debt restructurings				79,300	$	14,672		173,367	$	33,136

^______
⁽¹⁾		Consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments and fair value adjustments; and (c) accrued interest receivable on HFI loans. Based on the nature of our modification programs, which do not include principal or interest forgiveness, there is not a material difference between the recorded investment in our loans pre- and post- modification, therefore amounts represent recorded investment post-modification.
⁽²⁾		Consists of mortgage loans that are not included in other loan classes.
⁽³⁾		Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.
⁽⁴⁾		Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government nor Alt-A.
⁽⁵⁾		Includes recorded investment related to transition population.

The following table displays the number of loans and recorded investment of TDRs that had a payment default during the three and nine months ended September 30, 2011 and were modified in a TDR in the twelve months prior to the payment default. For purposes of this disclosure, we define loans that had a payment default as single-family and multifamily loans with completed TDRs that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure or a preforeclosure sale, single-family loans with completed modifications that are two or more months delinquent during the period or multifamily loans with completed modifications that are one or more months delinquent during the period.



			For the Three Months Ended September 30, 2011			For the Nine Months Ended September 30, 2011
			Number of		Recorded	Number of		Recorded
			Loans		Investment⁽¹⁾	Loans		Investment⁽¹⁾
			(Dollars in millions)
Single-family
	Primary⁽²⁾		14,545	$	2,531⁽²⁾	52,532	$	9,227
	Government⁽³⁾		70		17⁽³⁾	252		68
	Alt-A		2,929		620	11,625		2,499
	Other⁽⁴⁾		1,519		378⁽⁴⁾	5,384		1,315
		Total single-family	19,063		3,546	69,793		13,109
Multifamily			-		-	8		49
Total TDRs that subsequently defaulted			19,063	$	3,546	69,801	$	13,158

____________
⁽¹⁾	Consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and (c) fair value adjustments and accrued interest receivable on HFI loans. Represents our recorded investment in the loan at time of payment default.
⁽²⁾	Consists of mortgage loans that are not included in other loan classes.
⁽³⁾	Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.
⁽⁴⁾	Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government nor Alt-A.

Loans Acquired in a Transfer

We acquired delinquent loans from unconsolidated trusts and long-term standby commitments with an unpaid principal balance plus accrued interest of $48 million and $67 million for the three months ended September 30, 2011 and 2010, respectively, and $144 million and $227 million for the nine months ended September 30, 2011 and 2010, respectively. The following table displays the outstanding unpaid principal balance and accrued interest receivable, carrying amount by accrual status and accretable yield of acquired credit-impaired loans as of September 30, 2011 and December 31, 2010, excluding loans that were modified as TDRs subsequent to their acquisition from MBS trusts.

		As of
		September 30,		December 31,
		2011		2010
			(Dollars in millions)
Outstanding contractual balance		$	5,563	$	8,519
Carrying amount:
	Loans on accrual status	$	1,758	$	2,029
	Loans on nonaccrual status		1,392		2,449
Total carrying amount of loans		$	3,150	$	4,478
Accretable yield		$	1,584	$	2,412

The following table displays interest income recognized and the impact to the “Provision for loan losses” related to loans that are still being accounted for as acquired credit-impaired loans, as well as loans that have been subsequently modified as a TDR, for the three and nine months ended September 30, 2011 and 2010.

			For the				For the
			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2011		2010		2011		2010
			(Dollars in millions)
Accretion of fair value discount⁽¹⁾			$	288	$	231	$	769	$	785
Interest income on loans returned to accrual status or subsequently
	modified as TDRs			257		235		777		854
		Total interest income recognized on acquired credit-impaired loans	$	545	$	466	$	1,546	$	1,639
(Decrease) increase in “Provision for loan losses” subsequent to the
	acquisition of credit-impaired loans		$	(275)	$	(125)	$	684	$	319

__________

⁽¹⁾	Represents accretion of the fair value discount that was recorded on acquired credit-impaired loans.