Segment Reporting

9 Months Ended

Sep. 30, 2011

Notes to Consolidated Financial Statements

10. Segment Reporting

Our three reportable segments are: Single-Family, Multifamily, and Capital Markets. We use these three segments to generate revenue and manage business risk, and each segment is based on the type of business activities it performs. We are working on reorganizing our company by function rather than by business in order to improve our operational efficiencies and effectiveness. In future periods, we may change some of our management reporting and how we report our business segment results.

Under our segment reporting, the sum of the results for our three business segments does not equal our condensed consolidated statements of operations and comprehensive loss, as we separate the activity related to our consolidated trusts from the results generated by our three segments. Our segment financial results include directly attributable revenues and expenses. Additionally, we allocate to each of our segments: (1) capital using FHFA minimum capital requirements adjusted for over- or under-capitalization; (2) indirect administrative costs; and (3) a provision or benefit for federal income taxes. In addition, we allocate intracompany guaranty fee income as a charge from the Single-Family and Multifamily segments to Capital Markets for managing the credit risk on mortgage loans held by the Capital Markets group. We also include an eliminations/adjustments category to reconcile our business segment results and the activity related to our consolidated trusts to net loss in our condensed consolidated statements of operations and comprehensive loss.

The following tables display our segment results for the three and nine months ended September 30, 2011 and 2010.

			For the Three Months Ended September 30, 2011
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest (loss) income			$	(374)	$	(7)	$	3,904	$	1,210		$	453	⁽³⁾	$	5,186
Provision for loan losses				(4,083)		(76)		-		-			-			(4,159)
Net interest (loss) income after provision
	for loan losses			(4,457)		(83)		3,904		1,210			453			1,027
Guaranty fee income (expense)				1,867		226		(369)		(1,124)	⁽⁴⁾		(551)	⁽⁴⁾		49	⁽⁴⁾
Investment gains (losses), net				3		5		801		(89)			(647)	⁽⁵⁾		73
Net other-than-temporary impairments				-		-		(262)		-			-			(262)
Fair value losses, net				(2)		-		(4,670)		(17)			164	⁽⁶⁾		(4,525)
Debt extinguishment losses, net				-		-		(107)		(12)			-			(119)
Losses from partnership investments				-		(30)		-		-			-			(30)	⁽⁷⁾
Fee and other income (expenses)				136		51		125		(67)			(3)			242
Administrative expenses				(409)		(62)		(120)		-			-			(591)
Benefit (provision) for guaranty losses				11		(3)		-		-			-			8
Foreclosed property expense				(710)		(23)		-		-			-			(733)
Other expenses				(184)		(9)		(14)		-			(17)			(224)
(Loss) income before federal income taxes				(3,745)		72		(712)		(99)			(601)			(5,085)
(Provision) benefit for federal income taxes				(1)		-		1		-			-			-
	Net (loss) income attributable to Fannie Mae		$	(3,746)	$	72	$	(711)	$	(99)		$	(601)		$	(5,085)


			For the Nine Months Ended September 30, 2011
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest (loss) income			$	(1,952)	$	(27)	$	11,481	$	4,098		$	1,518	⁽³⁾	$	15,118
Provision for loan losses				(20,372)		(176)		-		-			-			(20,548)
Net interest (loss) income after provision
	for loan losses			(22,324)		(203)		11,481		4,098			1,518			(5,430)
Guaranty fee income (expense)				5,618		651		(1,159)		(3,350)	⁽⁴⁾		(1,611)	⁽⁴⁾		149	⁽⁴⁾
Investment (losses) gains, net				(2)		10		2,589		(258)			(2,020)	⁽⁵⁾		319
Net other-than-temporary impairments				-		-		(361)		(1)			-			(362)
Fair value losses, net				(5)		-		(5,959)		(122)			216	⁽⁶⁾		(5,870)
Debt extinguishment (losses) gains, net				-		-		(186)		37			-			(149)
Losses from partnership investments				-		(8)		-		-			1			(7)	⁽⁷⁾
Fee and other income (expense)				397		166		309		(222)			(6)			644
Administrative expenses				(1,225)		(194)		(346)		-			-			(1,765)
(Provision) benefit for guaranty losses				(732)		38		-		-			-			(694)
Foreclosed property expense				(717)		(26)		-		-			-			(743)
Other (expenses) income				(579)		33		(32)		-			(53)			(631)
(Loss) income before federal income taxes				(19,569)		467		6,336		182			(1,955)			(14,539)
Benefit (provision) for federal income taxes				106		(61)		46		-			-			91
	Net (loss) income			(19,463)		406		6,382		182			(1,955)			(14,448)
	Less: Net income attributable to noncontrolling
		interest		-		-		-		-			(1)	⁽⁸⁾		(1)
	Net (loss) income attributable to Fannie Mae		$	(19,463)	$	406	$	6,382	$	182		$	(1,956)		$	(14,449)

			For the Three Months Ended September 30, 2010
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest (loss) income			$	(1,108)	$	-	$	4,065	$	1,246		$	573	⁽³⁾	$	4,776
(Provision) benefit for loan losses				(4,702)		6		-		-			-			(4,696)
Net interest (loss) income after provision
	for loan losses			(5,810)		6		4,065		1,246			573			80
Guaranty fee income (expense)				1,804		205		(402)		(1,095)	⁽⁴⁾		(461)	⁽⁴⁾		51	⁽⁴⁾
Investment gains (losses), net				3		4		1,270		(165)			(1,030)	⁽⁵⁾		82
Net other-than-temporary impairments				-		-		(323)		(3)			-			(326)
Fair value gains (losses), net				-		-		436		(89)			178	⁽⁶⁾		525
Debt extinguishment losses, net				-		-		(185)		(29)			-			(214)
Gains from partnership investments				-		39		-		-			8			47	⁽⁷⁾
Fee and other income (expense)				93		35		130		(4)			(1)			253
Administrative expenses				(471)		(94)		(165)		-			-			(730)
(Provision) benefit for guaranty losses				(79)		1		-		-			-			(78)
Foreclosed property expense				(778)		(9)		-		-			-			(787)
Other expense				(217)		(7)		(3)		-			(16)			(243)
(Loss) income before federal income taxes				(5,455)		180		4,823		(139)			(749)			(1,340)
Benefit for federal income taxes				1		1		7		-			-			9
	Net (loss) income			(5,454)		181		4,830		(139)			(749)			(1,331)
	Less: Net income attributable to noncontrolling
		interests		-		-		-		-			(8)	⁽⁸⁾		(8)
	Net (loss) income attributable to Fannie Mae		$	(5,454)	$	181	$	4,830	$	(139)		$	(757)		$	(1,339)


			For the Nine Months Ended September 30, 2010
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest (loss) income			$	(4,438)	$	9	$	10,671	$	3,767		$	1,763	⁽³⁾	$	11,772
(Provision) benefit for loan losses				(20,966)		36		-		-			-			(20,930)
Net interest (loss) income after provision
	for loan losses			(25,404)		45		10,671		3,767			1,763			(9,158)
Guaranty fee income (expense)				5,367		594		(1,041)		(3,422)	⁽⁴⁾		(1,341)	⁽⁴⁾		157	⁽⁴⁾
Investment gains (losses), net				7		3		2,841		(348)			(2,232)	⁽⁵⁾		271
Net other-than-temporary impairments				-		-		(696)		(3)			-			(699)
Fair value losses, net				-		-		(119)		(113)			(645)	⁽⁶⁾		(877)
Debt extinguishment losses, net				-		-		(368)		(129)			-			(497)
Losses from partnership investments				-		(41)		-		-			4			(37)	⁽⁷⁾
Fee and other income (expense)				225		98		370		(18)			(1)			674
Administrative expenses				(1,297)		(286)		(422)		-			-			(2,005)
(Provision) benefit for guaranty losses				(163)		52		-		-			-			(111)
Foreclosed property expense				(1,227)		(28)		-		-			-			(1,255)
Other (expenses) income				(648)		(24)		115		-			(56)			(613)
(Loss) income before federal income taxes				(23,140)		413		11,351		(266)			(2,508)			(14,150)
Benefit (provision) for federal income taxes				53		(14)		28		-			-			67
	Net (loss) income			(23,087)		399		11,379		(266)			(2,508)			(14,083)
	Less: Net income attributable to noncontrolling
		interests		-		-		-		-			(4)	⁽⁸⁾		(4)
	Net (loss) income attributable to Fannie Mae		$	(23,087)	$	399	$	11,379	$	(266)		$	(2,512)		$	(14,087)

__________

⁽¹⁾	Represents activity related to the assets and liabilities of consolidated trusts in our condensed consolidated balance sheets.
⁽²⁾	Represents the elimination of intercompany transactions occurring between the three business segments and our consolidated trusts, as well as other adjustments to reconcile to our condensed consolidated results.
⁽³⁾	Represents the amortization expense of cost basis adjustments on securities that we own in our portfolio that on a GAAP basis are eliminated.
⁽⁴⁾	Represents the guaranty fees paid from consolidated trusts to the Single-Family and Multifamily segments. The adjustment to guaranty fee income in the Eliminations/Adjustments column represents the elimination of the amortization of deferred cash fees related to consolidated trusts that were re-established for segment reporting. Total guaranty fee income is included in fee and other income in our condensed consolidated statements of operations and comprehensive loss.
⁽⁵⁾	Primarily represents the removal of realized gains and losses on sales of Fannie Mae MBS classified as available-for-sale securities that are issued by consolidated trusts and retained in the Capital Markets portfolio. The adjustment also includes the removal of securitization gains (losses) recognized in the Capital Markets segment relating to portfolio securitization transactions that do not qualify for sale accounting under GAAP.
⁽⁶⁾	Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are retained in the Capital Markets portfolio.
⁽⁷⁾	Gains (losses) from partnership investments are included in other expenses in our condensed consolidated statements of operations and comprehensive loss.
⁽⁸⁾	Represents the adjustment from equity method accounting to consolidation accounting for partnership investments that are consolidated in our condensed consolidated balance sheets.