UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 

EXCHANGE ACT OF 1934

For the transition period from to 

Commission File No.: 0-50231

Federal National Mortgage Association

(Exact name of registrant as specified in its charter) 

Fannie Mae

Federally

chartered

corporation

52-0883107 1100 15th Street, NW

Washington, DC 20005

3900 Wisconsin Avenue, NW

Washington, DC 20016

(800) 2FANNIE

(800-232-6643)

(State or other 

jurisdiction of

incorporation or 

organization)

(I.R.S. Employer

Identification No.)

(Address of principal executive offices,

including zip code)

(Former address, if changed since last

report)

(Registrant’s

telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 

Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required 

to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be 

submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such 

shorter period that the registrant was required to submit such files). Yes No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 

smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” 

“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer Accelerated filer 

Non-accelerated filer Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period 

for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange 

Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 

Act). Yes No 

As of September 30, 2018, there were 1,158,087,567 shares of common stock of the registrant outstanding.
Fannie Mae Third Quarter 2018 Form 10-Q i

TABLE OF CONTENTS

Page

PART I—Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1. Financial Statements

Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Condensed Consolidated Statements of Operations and Comprehensive Income. . . . . . . . . . . .

Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 1—Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 2—Consolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 3—Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 4—Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 5—Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 6—Financial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 7—Short-Term and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 8—Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 9—Segment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 10—Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 11—Concentrations of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 12—Netting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 13—Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 14—Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legislation and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Key Market Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retained Mortgage Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liquidity and Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Impact of Future Adoption of New Accounting Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II—Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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MD&A | Introduction

Fannie Mae Third Quarter 2018 Form 10-Q 1

PART I—FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and 

Results of Operations

We have been under conservatorship, with the Federal Housing Finance Agency (“FHFA”) acting as 

conservator, since September 6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and 

privileges of the company, and of any shareholder, officer or director of the company with respect to the 

company and its assets. The conservator has since provided for the exercise of certain functions by our 

Board of Directors. Our directors do not have any fiduciary duties to any person or entity except to the 

conservator and, accordingly, are not obligated to consider the interests of the company, the holders of our 

equity or debt securities, or the holders of Fannie Mae MBS unless specifically directed to do so by the 

conservator. 

Our conservatorship has no specified termination date. We do not know when or how the conservatorship will

terminate, what further changes to our business will be made during or following conservatorship, what form

we will have and what ownership interest, if any, our current common and preferred stockholders will hold in

us after the conservatorship is terminated or whether we will continue to exist following conservatorship.

Congress continues to consider options for reform of the housing finance system, including Fannie Mae. As a

result of our agreements with the U.S. Department of the Treasury (“Treasury”) and directives from our

conservator, we are not permitted to retain more than $3.0 billion in capital reserves or to pay dividends or

other distributions to stockholders other than Treasury. Our agreements with Treasury also include covenants

that significantly restrict our business activities. For additional information on the conservatorship, the

uncertainty of our future, our agreements with Treasury, and recent actions and statements relating to

housing finance reform by the Administration, Congress and FHFA, see “Business—Conservatorship and

Treasury Agreements,” “Business—Legislation and Regulation” and “Risk Factors” in our Form 10-K for the

year ended December 31, 2017 (“2017 Form 10-K”) and “Legislation and Regulation” and “Risk Factors” in

our Form 10-Q for the quarter ended March 31, 2018 (“First Quarter 2018 Form 10-Q”), our Form 10-Q for the

quarter ended June 30, 2018 (“Second Quarter 2018 Form 10-Q”), and in this report.

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations 

(“MD&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes in this 

report and the more detailed information in our 2017 Form 10-K. You can find a “Glossary of Terms Used in This

Report” in the MD&A of our 2017 Form 10-K. 

This report contains forward-looking statements that are based on management’s current expectations and are 

subject to significant uncertainties and changes in circumstances. Please review “Forward-Looking Statements” 

for more information on these forward-looking statements. Our actual results may differ materially from those 

reflected in our forward-looking statements due to a variety of factors including, but not limited to, those discussed 

in “Risk Factors” and elsewhere in this report and in our 2017 Form 10-K. 

Introduction

Fannie Mae provides a stable source of liquidity to the mortgage market and increases the availability and 

affordability of housing in the United States. We operate in the secondary mortgage market, primarily working with 

lenders. We do not originate loans or lend money directly to consumers in the primary mortgage market. Instead, 

we securitize mortgage loans originated by lenders into Fannie Mae mortgage-backed securities that we 

guarantee (which we refer to as Fannie Mae MBS); purchase mortgage loans and mortgage-related securities, 

primarily for securitization and sale at a later date; and engage in other activities that increase the supply of 

affordable housing. Our common stock is traded in the OTCQB market and quoted under the ticker symbol 

“FNMA.”

Through our single-family and multifamily business segments, we provided $140 billion in liquidity to the mortgage 

market in the third quarter of 2018, which enabled the financing of 726,000 home purchases, refinancings or 

rental units.
MD&A | Introduction

Fannie Mae Third Quarter 2018 Form 10-Q 2

 Fannie Mae Provided $140 Billion in Liquidity in the Third Quarter of 2018

Executive Summary

Summary of Our Financial Performance

Quarterly Results

The increase in our net income in the third quarter of 

2018, compared with the third quarter of 2017, was 

primarily driven by:

• a shift to a benefit for credit losses from a 

provision for credit losses;

• a shift to fair value gains from fair value 

losses; and

 

• a lower provision for federal income taxes;

• partially offset by a decrease in fee and other 

income.

See “Consolidated Results of Operations” for more 

information on our quarterly financial results.
MD&A | Executive Summary

Fannie Mae Third Quarter 2018 Form 10-Q 3

Year-to-Date Results

The increase in our net income in the first nine months 

of 2018, compared with the first nine months of 2017, 

was primarily driven by:

• a shift to fair value gains from fair value 

losses;

• a lower provision for federal income taxes; 

and

• a higher benefit for credit losses;

• partially offset by a decrease in fee and other 

income.

See “Consolidated Results of Operations” for more 

information on our year-to-date financial results.

Net Worth

Our net worth of $7.0 billion as of September 30, 2018 reflects our comprehensive income of $4.0 billion for the 

third quarter of 2018 and $3.0 billion in retained capital reserves.

Financial Performance Outlook

We expect to remain profitable on an annual basis for the foreseeable future; however, certain factors could result 

in significant volatility in our financial results from quarter to quarter or year to year. We expect volatility from 

quarter to quarter in our financial results due to a number of factors, particularly changes in market conditions that 

result in fluctuations in the estimated fair value of the financial instruments that we mark to market through our 

earnings. Other factors that may result in volatility in our quarterly financial results include developments that 

affect our loss reserves, such as changes in interest rates, home prices or accounting standards, or events such 

as natural disasters.

The potential for significant volatility in our financial results could result in a net loss in a future quarter. We are 

permitted to retain up to $3.0 billion in capital reserves as a buffer in the event of a net loss in a future quarter. 

However, any net loss we experience in the future could be greater than the amount of our capital reserves, 

resulting in a net worth deficit for that quarter. See “Risk Factors” in our 2017 Form 10-K for a discussion of the 

risks associated with the limitations on our ability to rebuild our capital reserves, including factors that could result 

in a net loss or net worth deficit in a future quarter. 
MD&A | Executive Summary

Fannie Mae Third Quarter 2018 Form 10-Q 4

Treasury Draws and Dividend Payments

Treasury has made a commitment under a senior preferred stock purchase agreement to provide funding to us 

under certain circumstances if we have a net worth deficit. Pursuant to the senior preferred stock purchase 

agreement, we issued shares of senior preferred stock to Treasury in 2008. Acting as successor to the rights, 

titles, powers and privileges of the Board, the conservator has declared and directed us to pay dividends to 

Treasury on the senior preferred stock on a quarterly basis for every dividend period for which dividends were 

payable since we entered into conservatorship in 2008.

The chart below shows the funds we have drawn from Treasury pursuant to the senior preferred stock purchase 

agreement, as well as the dividend payments we have made to Treasury on the senior preferred stock, since 

entering into conservatorship. 

__________

(1) Under the terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset 

our prior draws of funds from Treasury, and we are not permitted to pay down draws we have made under the agreement 

except in limited circumstances. Amounts may not sum due to rounding.

(2) Treasury draws are shown in the period for which requested, not when the funds were received by us. Draw requests 

have been funded in the quarter following a net worth deficit.

We expect to pay Treasury a fourth quarter 2018 dividend of $4.0 billion by December 31, 2018. The current 

dividend provisions of the senior preferred stock provide for quarterly dividends consisting of the amount, if any, 

by which our net worth as of the end of the immediately preceding fiscal quarter exceeds a $3.0 billion capital 

reserve amount. We refer to this as a “net worth sweep” dividend. As noted above, our net worth was $7.0 billion

as of September 30, 2018.

If we experience a net worth deficit in a future quarter, we will be required to draw additional funds from Treasury 

under the senior preferred stock purchase agreement to avoid being placed into receivership. As of the date of 

this filing, the maximum amount of remaining funding under the agreement is $113.9 billion. If we were to draw 

additional funds from Treasury under the agreement with respect to a future period, the amount of remaining 

funding under the agreement would be reduced by the amount of our draw. Dividend payments we make to 

Treasury do not restore or increase the amount of funding available to us under the agreement. For a description 

of the terms of the senior preferred stock purchase agreement and the senior preferred stock, see “Business—

Conservatorship and Treasury Agreements—Treasury Agreements” in our 2017 Form 10-K. 

Although Treasury owns our senior preferred stock and a warrant to purchase 79.9% of our common stock, and 

has made a commitment under a senior preferred stock purchase agreement to provide us with funds to maintain 

a positive net worth under specified conditions, the U.S. government does not guarantee our securities or other 

obligations.
MD&A | Legislation and Regulation

Fannie Mae Third Quarter 2018 Form 10-Q 5

Legislation and Regulation

The information in this section updates and supplements information regarding legislation and regulation affecting 

our business set forth in “Business—Legislation and Regulation” in our 2017 Form 10-K and in “MD&A—

Legislation and Regulation” in our First Quarter 2018 Form 10-Q and Second Quarter 2018 Form 10-Q. Also see 

“Risk Factors” in this report and in our 2017 Form 10-K for discussions of risks relating to legislative and 

regulatory matters.

Housing Finance Reform

We expect Congress, the Administration and FHFA to continue considering housing finance reform that could 

result in significant changes in our structure and role in the future. As a result, there continues to be significant 

uncertainty regarding the future of our company. See “Risk Factors” in our 2017 Form 10-K for a discussion of the 

risks to our business relating to the uncertain future of our company.

2017 Housing Goals Performance

We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to 

affordability or location. In October 2018, FHFA notified us that it had preliminarily determined that we met all of 

our single-family and multifamily housing goals for 2017. See “Business—Legislation and Regulation—GSE Act 

and Other Regulation of Our Business—Housing Goals” in our 2017 Form 10-K and “MD&A—Legislation and 

Regulation—Housing Goals” in our First Quarter 2018 Form 10-Q for more information regarding our housing 

goals.

Proposed Rule on MBS Prepayment Rates

On September 12, 2018, FHFA issued a proposed rule to require Fannie Mae and Freddie Mac to align their 

programs, policies and practices that affect the prepayment rates of “To-Be-Announced” (“TBA”)-eligible MBS. 

The rule would apply to both Fannie Mae’s and Freddie Mac’s current offerings of TBA-eligible MBS and to the 

new Uniform Mortgage-Backed Security (“UMBS”) scheduled to be implemented in June 2019. The objective of 

the Single Security Initiative and the proposed rule is to enhance the overall liquidity of Fannie Mae and Freddie 

Mac TBA-eligible MBS by supporting their fungibility without regard to which company is the issuer. The proposed 

rule notes that “[t]he industry has expressed concerns that Fannie Mae and Freddie Mac UMBS may not be truly 

fungible because differences in Fannie Mae and Freddie Mac policies could result in materially differing cash 

flows (as a result of, e.g., differing prepayment speeds).” FHFA, as conservator, has previously responded to 

industry input by imposing alignment mandates on Fannie Mae and Freddie Mac, and publishing a Prepayment 

Monitoring Report. The proposed rule would codify FHFA’s previous mandates, and is intended to ensure that 

Fannie Mae and Freddie Mac programs, policies and practices that individually have a material effect on cash 

flows (including policies that affect prepayment speeds) are aligned and will continue to be aligned. See “Risk 

Factors” for a discussion of the risks to our business associated with the new UMBS and the Single Security 

Initiative.

Amended FHFA Corporate Governance Regulation: New Strategic Business Plan Requirement

On October 19, 2018, FHFA published in the Federal Register a final rule amending its corporate governance 

regulation applicable to Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The amended regulation 

requires our Board of Directors to adopt and have in effect at all times a strategic business plan that describes our 

strategy for achieving our mission and public purposes. Among other things, this plan must articulate measurable 

goals and objectives for each significant activity, describe any significant changes to business strategy or 

approach we are planning to undertake, and identify current and emerging risks associated with our significant 

activities. The amended regulation requires our Board of Directors to review the strategic business plan at least 

annually, to re-adopt the plan at least every three years, and to establish management reporting requirements and 

monitor the implementation of the plan. The final rule will become effective on December 18, 2018. Our Board of 

Directors has previously adopted a strategic business plan and we are currently assessing whether any changes 

to this plan may be required as a result of FHFA’s amended regulation.
MD&A | Key Market Economic Indicators

Fannie Mae Third Quarter 2018 Form 10-Q 6

Key Market Economic Indicators

The table below displays certain macroeconomic indicators that can significantly influence our business and 

financial results. We expect home prices on a national basis to continue to grow in 2018 at a similar rate as in 

2017. We also expect significant regional variation in the timing and rate of home price growth. 

Selected Key Market Economic Indicators

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2018 2017 2018 2017

Home price change based on Fannie Mae national home price index(1)

. . . . . . 1.2% 1.2% 5.7% 5.4%

Growth in U.S. gross domestic product ("GDP"), annualized percentage 

change(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5% 2.8%

As of

September 30, 2018 December 31, 2017 September 30, 2017

U.S. unemployment rate(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . 3.7% 4.1% 4.2%

2-year swap rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.99 2.08 1.74

10-year swap rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12 2.40 2.29

10-year Treasury rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.06 2.41 2.33

30-year Fannie Mae MBS par coupon rate(4)

. . . . . . . . . . . . . 3.81 3.00 2.97

_______

(1) Calculated internally using property data information on loans purchased by Fannie Mae or Freddie Mac and property data 

information obtained from other third-party data providers. Fannie Mae’s home price index is a weighted repeat 

transactions index, measuring average price changes in repeat transactions on the same properties. Fannie Mae’s home 

price index excludes prices on properties sold in foreclosure. Fannie Mae’s home price estimates are based on preliminary 

data and are subject to change as additional data becomes available.

(2) According to the U.S. Bureau of Economic Analysis and subject to revision.

(3) According to the U.S. Bureau of Labor Statistics and subject to revision.

(4) According to Bloomberg. 

See “Key Market Economic Indicators” in our 2017 Form 10-K for a description of how changes in GDP, 

unemployment rates, home prices and interest rates can affect our financial results.
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 7

Consolidated Results of Operations

This section provides a discussion of our condensed consolidated results of operations and should be read 

together with our condensed consolidated financial statements, including the accompanying notes. 

Summary of Condensed Consolidated Results of Operations

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2018 2017 Variance 2018 2017 Variance

(Dollars in millions)

Net interest income . . . . . . . . . . . . . . . . . . . . . . $ 5,369 $ 5,274 $ 95 $ 15,978 $ 15,622 $ 356

Fee and other income . . . . . . . . . . . . . . . . . . . . 271 1,194 (923) 830 1,796 (966)

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,640 6,468 (828) 16,808 17,418 (610)

Investment gains, net. . . . . . . . . . . . . . . . . . . . . 166 313 (147) 693 689 4

Fair value gains (losses), net. . . . . . . . . . . . . . . 386 (289) 675 1,660 (1,020) 2,680

Administrative expenses . . . . . . . . . . . . . . . . . . (740) (664) (76) (2,245) (2,034) (211)

Credit-related income (expense):

Benefit (provision) for credit losses. . . . . . . . 716 (182) 898 2,229 1,481 748

Foreclosed property expense . . . . . . . . . . . . (159) (140) (19) (460) (391) (69)

Total credit-related income (expense) . . . 557 (322) 879 1,769 1,090 679

Temporary Payroll Tax Cut Continuation Act of

2011 (“TCCA”) fees . . . . . . . . . . . . . . . . . . . .

(576) (531) (45) (1,698) (1,552) (146)

Other expenses, net . . . . . . . . . . . . . . . . . . . . . (377) (427) 50 (946) (1,100) 154

Income before federal income taxes . . . . . . . . . 5,056 4,548 508 16,041 13,491 2,550

Provision for federal income taxes. . . . . . . . . . . (1,045) (1,525) 480 (3,312) (4,495) 1,183

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,011 $ 3,023 $ 988 $ 12,729 $ 8,996 $ 3,733

Total comprehensive income . . . . . . . . . . . . . . . $ 3,975 $ 3,048 $ 927 $ 12,372 $ 8,944 $ 3,428

Net Interest Income

We have two primary sources of net interest income: 

• guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third 

parties; and

• the difference between interest income earned on the assets in our retained mortgage portfolio and our 

other investments portfolio (collectively, our “portfolios”) and the interest expense associated with the debt 

that funds those assets.

Guaranty fees consist of two primary components:

• base guaranty fees that we receive over the life of the loan; and

• upfront fees that we receive at the time of loan acquisition primarily related to single-family loan level 

pricing adjustments and other fees we receive from lenders, which are amortized over the contractual life 

of the loan. We refer to this as amortization income.
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 8

The table below displays the components of our net interest income from our portfolios and our guaranty book of 

business.

Components of Net Interest Income

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2018 2017 Variance 2018 2017 Variance

(Dollars in millions)

Net interest income from portfolios(1)

. . . . . . . . . . . . . . . $ 1,132 $ 1,109 $ 23 $ 3,425 $ 3,318 $ 107

Net interest income from guaranty book of business:

Base guaranty fee income, net of TCCA. . . . . . . . . . 2,153 2,050 103 6,352 6,060 292

Base guaranty fee income related to TCCA(2)

. . . . . . 576 531 45 1,698 1,552 146

Net amortization income . . . . . . . . . . . . . . . . . . . . . . 1,508 1,584 (76) 4,503 4,692 (189)

Total net interest income from guaranty book of

business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,237 4,165 72 12,553 12,304 249

Total net interest income. . . . . . . . . . . . . . . . . . . . . . . . . $ 5,369 $ 5,274 $ 95 $15,978 $15,622 $ 356

__________

(1) Includes interest income from assets held in our retained mortgage portfolio and our other investments portfolio, as well as 

other assets used to generate lender liquidity. Also includes interest expense on our outstanding Connecticut Avenue 

Securities® of $366 million and $274 million for the three months ended September 30, 2018 and 2017, respectively, and 

$1.0 billion and $723 million for the nine months ended September 30, 2018 and 2017, respectively. 

(2) Revenues generated by the 10 basis point guaranty fee increase we implemented pursuant to the TCCA, the incremental 

revenue from which is remitted to Treasury and not retained by us. 

Net interest income increased slightly in the third quarter and first nine months of 2018 compared with the third 

quarter and first nine months of 2017 due to:

• An increase in base guaranty fee income as the size of our guaranty book of business increased and 

loans with higher base guaranty fees comprised a larger part of our guaranty book of business in the third 

quarter and first nine months of 2018 compared with the third quarter and first nine months of 2017.

• An increase in income from our other investments portfolio, primarily due to higher interest rates in the 

third quarter and first nine months of 2018 compared with the third quarter and first nine months of 2017.

• These increases were partially offset by a decline in net amortization income as higher interest rates in 

the third quarter and first nine months of 2018 compared with the third quarter and first nine months of 

2017 slowed down loan prepayments, resulting in lower amortization of cost basis adjustments on 

mortgage loans of consolidated trusts and related debt.

Amortization of Cost Basis Adjustments

We initially recognize mortgage loans and debt of consolidated trusts in our consolidated balance sheet at fair 

value. We recognize the difference between the initial fair value and the carrying value of these mortgage loans 

and debt as cost basis adjustments in our consolidated balance sheet. We amortize these cost basis adjustments 

as a yield adjustment over the contractual lives of these loans or debt as a component of net interest income. 
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 9

The following charts display information about the outstanding net premium on debt in excess of loans of 

consolidated trusts and net discount positions on loans of Fannie Mae.

The net premium position of our consolidated debt will amortize as income over time. The timing of when this 

amortization income is recognized in our consolidated statements of income can vary based on a number of 

factors, the most significant of which is interest rates. In a rising interest rate environment, our mortgage loans 

tend to prepay more slowly, which typically results in lower net amortization income from cost basis adjustments 

on our net consolidated debt. Conversely, in a declining interest rate environment, our mortgage loans tend to 

prepay faster, resulting in higher net amortization income from cost basis adjustments on our net consolidated 

debt.

The net discount position on our mortgage loans of Fannie Mae was primarily recorded upon the acquisition of 

credit-impaired loans. The extent to which we may record income in future periods as we amortize this discount 

will be based on the actual performance of the loans.
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 10

Analysis of Net Interest Income and Yield

The table below displays an analysis of our net interest income, average balances, and related yields earned on 

assets and incurred on liabilities for the periods indicated. For most components of the average balances, we use 

a daily weighted average of amortized cost. When daily average balance information is not available, such as for 

mortgage loans, we use monthly averages. 

Analysis of Net Interest Income and Yield

For the Three Months Ended September 30,

2018 2017

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

(Dollars in millions)

Interest-earning assets:

Mortgage loans of Fannie Mae . . . . . . . . . . . . . . . $ 149,859 $ 1,665 4.44% $ 181,445 $ 1,879 4.14%

Mortgage loans of consolidated trusts . . . . . . . . . 3,090,212 27,058 3.50 2,979,153 25,168 3.38

Total mortgage loans(1)

. . . . . . . . . . . . . . . . . . . . 3,240,071 28,723 3.55 3,160,598 27,047 3.42

Mortgage-related securities . . . . . . . . . . . . . . . . . 10,513 115 4.38 12,132 99 3.30

Non-mortgage-related securities(2)

. . . . . . . . . . . . 57,271 302 2.06 57,880 173 1.17

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 32,208 166 2.02 37,094 109 1.15

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . 4,459 38 3.34 4,634 33 2.78

Total interest-earning assets . . . . . . . . . . . . . . . . . . . $ 3,344,522 $ 29,344 3.51% $ 3,272,338 $ 27,461 3.36%

Interest-bearing liabilities:

Short-term funding debt . . . . . . . . . . . . . . . . . . . . $ 22,837 $ (114) 1.95% $ 27,967 $ (71) 0.99%

Long-term funding debt . . . . . . . . . . . . . . . . . . . . 196,266 (1,133) 2.31 247,334 (1,232) 1.99

Connecticut Avenue Securities® (“CAS”) . . . . . . . 25,100 (366) 5.83 20,978 (274) 5.22

Total debt of Fannie Mae . . . . . . . . . . . . . . . . . . 244,203 (1,613) 2.64 296,279 (1,577) 2.13

Debt securities of consolidated trusts held by

third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,090,509 (22,362) 2.89 2,984,811 (20,610) 2.76

Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . $ 3,334,712 $ (23,975) 2.88% $ 3,281,090 $ (22,187) 2.70%

Net interest income/net interest yield . . . . . . . . . . . . . $ 5,369 0.64% $ 5,274 0.64%
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 11

For the Nine Months Ended September 30,

2018 2017

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

(Dollars in millions)

Interest-earning assets:

Mortgage loans of Fannie Mae . . . . . . . . . . . . . . . $ 156,168 $ 5,187 4.43% $ 190,552 $ 5,950 4.16%

Mortgage loans of consolidated trusts . . . . . . . . . 3,068,521 79,877 3.47 2,951,478 75,155 3.40

Total mortgage loans(1). . . . . . . . . . . . . . . . . . . . 3,224,689 85,064 3.52 3,142,030 81,105 3.44

Mortgage-related securities . . . . . . . . . . . . . . . . . 10,670 321 4.01 13,796 368 3.55

Non-mortgage-related securities(2). . . . . . . . . . . . 54,572 771 1.86 56,145 414 0.97

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 33,826 457 1.78 38,260 262 0.90

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . 4,171 102 3.22 4,445 89 2.63

Total interest-earning assets . . . . . . . . . . . . . . . . . . . $ 3,327,928 $ 86,715 3.47% $ 3,254,676 $ 82,238 3.37%

Interest-bearing liabilities:

Short-term funding debt . . . . . . . . . . . . . . . . . . . . $ 26,395 $ (328) 1.64% $ 30,231 $ (170) 0.74%

Long-term funding debt . . . . . . . . . . . . . . . . . . . . 204,543 (3,426) 2.23 261,090 (4,098) 2.09

Connecticut Avenue Securities® (“CAS”) . . . . . . . 23,830 (1,007) 5.63 18,940 (723) 5.09

Total debt of Fannie Mae . . . . . . . . . . . . . . . . . . 254,768 (4,761) 2.49 310,261 (4,991) 2.14

Debt securities of consolidated trusts held by

third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,068,839 (65,976) 2.87 2,953,203 (61,625) 2.78

Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . $ 3,323,607 $ (70,737) 2.84% $ 3,263,464 $ (66,616) 2.72%

Net interest income/net interest yield . . . . . . . . . . . . . $ 15,978 0.64% $ 15,622 0.64%

__________

(1) Average balance includes mortgage loans on nonaccrual status. Typically, interest income on nonaccrual mortgage loans is 

recognized when cash is received. Interest income not recognized for loans on nonaccrual status was $86 million and $351 

million, respectively, for the third quarter and first nine months of 2018, compared with $209 million and $611 million, 

respectively, for the third quarter and first nine months of 2017.

(2) Includes cash equivalents.

Fee and Other Income

Fee and other income includes transaction fees, multifamily fees, technology fees and other miscellaneous 

income. Fee and other income declined in the third quarter and first nine months of 2018, compared with the third 

quarter and first nine months of 2017, primarily due to $975 million of income in the third quarter of 2017 resulting 

from a settlement agreement resolving legal claims related to private-label securities we purchased.

Fair Value Gains (Losses), Net

The estimated fair value of our derivatives, trading securities and other financial instruments carried at fair value 

may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage 

and credit spreads and implied volatility, as well as activity related to these financial instruments. While the 

estimated fair value of our derivatives that serve to mitigate certain risk exposures may fluctuate, some of the 

financial instruments that generate these exposures are not recorded at fair value in our condensed consolidated 

financial statements. 
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 12

The table below displays the components of our fair value gains and losses.

Fair Value Gains (Losses), Net

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Risk management derivatives fair value gains (losses) attributable to:

Net contractual interest expense accruals on interest rate swaps. . . $ (285) $ (223) $ (786) $ (702)

Net change in fair value during the period . . . . . . . . . . . . . . . . . . . . . 527 75 1,365 364

Total risk management derivatives fair value gains (losses), net 242 (148) 579 (338)

Mortgage commitment derivatives fair value gains (losses), net . . . . . . 118 (248) 606 (520)

Total derivatives fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . 360 (396) 1,185 (858)

Trading securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . (40) 59 79 145

CAS fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 113 35 (218)

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (65) 361 (89)

Fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 386 $ (289) $ 1,660 $ (1,020)

Fair value gains in the third quarter and first nine months of 2018 were primarily driven by: 

• increases in the fair value of our mortgage commitment derivatives due to gains on commitments to sell 

mortgage-related securities as a result of decreases in the prices of securities as interest rates rose 

during the commitment periods; and

• increases in the fair value of our pay-fixed risk management derivatives due to an increase in longer-term 

swap rates during the periods.

Fair value losses in the third quarter and first nine months of 2017 were primarily driven by:

• decreases in the fair value of our mortgage commitments due to losses on commitments to sell mortgagerelated securities due to an increase in prices as interest rates decreased during most of the commitment 

periods; and

• decreases in the fair value of our pay-fixed risk management derivatives due to declines in longer-term 

swap rates during the second quarter and most of the third quarter.

Administrative Expenses

Administrative expenses include salaries and employee benefits, professional services, occupancy and other 

miscellaneous expenses. Administrative expenses increased in the third quarter and first nine months of 2018, 

compared with the third quarter and first nine months of 2017, primarily due to an increase in salaries and 

professional services expense in support of our business resiliency activities and from severance expenses.
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 13

Credit-Related Income (Expense)

Benefit (Provision) for Credit Losses

The table below provides quantitative analysis of the drivers of our single-family benefit or provision for credit 

losses for the periods presented. Many of the drivers that contribute to our benefit or provision for credit losses 

overlap or are interdependent. The attribution shown below is based on internal allocation estimates. The table 

does not display our multifamily benefit or provision for credit losses as the amounts for all periods presented 

were less than $50 million. 

Components of Benefit (Provision) for Credit Losses

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017

(Dollars in billions)

Single-family benefit (provision) for credit losses:

Changes in loan activity(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.4 $ (0.9) $ 0.7 $ (0.8)

Redesignation of held for investment (“HFI”) loans to held for

sale (“HFS”) loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.5 1.4 1.0

Actual and forecasted home prices . . . . . . . . . . . . . . . . . . . . . . 0.2 0.1 0.9 1.3

Actual and projected interest rates . . . . . . . . . . . . . . . . . . . . . . (0.3) (0.1) (1.0) (0.2)

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 0.2 0.2 0.2

Single-family benefit (provision) for credit losses . . . . . . . . . . . . . . . 0.7 (0.2) 2.2 1.5

Total benefit (provision) for credit losses . . . . . . . . . . . . . . . . . . . . $ 0.7 $ (0.2) $ 2.2 $ 1.5

_________

* Represents less than $50 million.

(1) Primarily consists of changes in the allowance due to loan delinquency, loan liquidations, new troubled debt restructurings, 

amortization of concessions granted to borrowers and the impact of FHFA’s Advisory Bulletin 2012-02, “Framework for 

Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the 

“Advisory Bulletin”). The 2017 amounts include our estimate as of September 30, 2017 of incurred losses resulting from 

Hurricanes Harvey, Irma and Maria (the “2017 hurricanes”), which is revised quarterly. 

(2) Primarily consists of the impact of model and assumption changes that are not separately included in the other 

components.

The primary factors that impacted our benefit for credit losses in the third quarter and first nine months of 2018

were:

• The redesignation of certain reperforming and nonperforming single-family loans from HFI to HFS as we 

no longer intend to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, 

we recorded the loans at the lower of cost or fair value with a charge-off to the allowance for loan losses. 

Amounts recorded in the allowance related to the loans exceeded the amounts charged off, which 

contributed to the benefit for credit losses.

• An increase in actual home prices, which contributed to the benefit for credit losses. Higher home prices 

decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do 

default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for 

credit losses.

• The benefit for credit losses was partially offset by the impact of higher actual and projected mortgage 

interest rates. As mortgage interest rates rise, we expect a decrease in future prepayments on singlefamily individually impaired loans, including modified loans. Lower expected prepayments lengthen the 

expected lives of modified loans, which increases the impairment relating to term and interest rate 

concessions provided on these loans and results in an increase in the provision for credit losses.
MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2018 Form 10-Q 14

The following factors impacted our provision for credit losses in the third quarter of 2017:

• The estimate of incurred losses from the 2017 hurricanes contributed to the provision for credit losses. 

• This was partially offset by a benefit primarily due to higher actual home prices. 

• In addition, we recognized a benefit from the redesignation of certain reperforming single-family loans 

from HFI to HFS during the period.

The following factors impacted our benefit for credit losses in the first nine months of 2017:

• We recognized a benefit for credit losses due to higher actual and forecasted home prices in the period.

• In addition, we recognized a benefit from the redesignation of certain reperforming and nonperforming 

single-family loans from HFI to HFS during the period.

• This was partially offset by the estimate of incurred losses from the 2017 hurricanes. 

Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) Fees 

Pursuant to the TCCA, FHFA directed us to increase our single-family guaranty fees by 10 basis points and remit 

this increase to Treasury. This TCCA-related revenue is included in “Net interest income” and the expense is 

recognized as “TCCA fees” in our condensed consolidated financial statements. TCCA fees increased in the third 

quarter and first nine months of 2018 compared with the third quarter and first nine months of 2017 as our book of 

business subject to the TCCA continued to grow. We expect the guaranty fees collected and expenses incurred 

under the TCCA to continue to increase. 

Federal Income Taxes

The decrease in our provision for federal income taxes in the third quarter and first nine months of 2018 as 

compared to the third quarter and first nine months of 2017 was the result of the Tax Cuts and Jobs Act of 2017, 

which reduced the federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. This 

decline was the primary driver of the reduction in our effective tax rate to 20.7% for the third quarter of 2018 and 

20.6% for the first nine months of 2018, compared with 33.5% for the third quarter of 2017 and 33.3% for the first 

nine months of 2017. Our effective tax rates for all the periods presented were different from the prevailing federal 

statutory rate primarily due to the benefits of our investments in housing projects eligible for low-income housing 

tax credits.
MD&A | Consolidated Balance Sheet Analysis

Fannie Mae Third Quarter 2018 Form 10-Q 15

Consolidated Balance Sheet Analysis

This section provides a discussion of our condensed consolidated balance sheets and should be read together 

with our condensed consolidated financial statements, including the accompanying notes. 

Summary of Condensed Consolidated Balance Sheets

As of

September 30,

2018

December 31,

2017 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities

purchased under agreements to resell or similar arrangements . . . . $ 54,387 $ 51,580 $ 2,807

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,242 28,150 (4,908)

Investments in securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,438 39,522 7,916

Mortgage loans:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,227 167,793 (30,566)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,111,570 3,029,816 81,754

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,663) (19,084) 3,421

Mortgage loans, net of allowance for loan losses . . . . . . . . . . . . . . . 3,233,134 3,178,525 54,609

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,368 17,350 (2,982)

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,536 30,402 (1,866)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,401,105 $ 3,345,529 $ 55,576

Liabilities and equity (deficit)

Debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 246,682 $ 276,752 $ (30,070)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,127,688 3,053,302 74,386

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,760 19,161 599

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,394,130 3,349,215 44,915

Fannie Mae stockholders’ equity (deficit):

Senior preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,836 117,149 3,687

Other net deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113,861) (120,835) 6,974

Total equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,975 (3,686) 10,661

Total liabilities and equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,401,105 $ 3,345,529 $ 55,576

__________

(1) Includes $37.4 billion as of September 30, 2018 and $29.2 billion as of December 31, 2017 of non-mortgage-related 

securities. 

Mortgage Loans, Net of Allowance for Loan Losses

The mortgage loans reported in our condensed consolidated balance sheet are classified as either HFS or HFI 

and include loans owned by Fannie Mae and loans held in consolidated trusts. 

Mortgage loans, net of allowance for loan losses increased as of September 30, 2018 compared with 

December 31, 2017 primarily driven by:

• an increase in mortgage loans due to acquisitions outpacing liquidations and sales; and

• a decrease in our allowance for loan losses primarily driven by the redesignation of single-family loans 

from HFI to HFS.

For additional information on our mortgage loans, see “Note 3, Mortgage Loans,” and for additional information on 

changes in our allowance for loan losses, see “Note 4, Allowance for Loan Losses.” 
MD&A | Consolidated Balance Sheet Analysis

Fannie Mae Third Quarter 2018 Form 10-Q 16

Debt

The decrease in debt of Fannie Mae from December 31, 2017 to September 30, 2018 was primarily driven by 

lower funding needs as our retained mortgage portfolio continued to decrease during the first nine months of 

2018. The increase in debt of consolidated trusts from December 31, 2017 to September 30, 2018 was primarily 

driven by sales of Fannie Mae MBS, which are accounted for as issuances of debt of consolidated trusts in our 

condensed consolidated balance sheets, since the MBS certificate ownership is transferred from us to a third 

party. See “Liquidity and Capital Management—Liquidity Management—Debt Funding” for a summary of the 

activity of the debt of Fannie Mae and a comparison of the mix between our outstanding short-term and long-term 

debt. Also see “Note 7, Short-Term and Long-Term Debt” for additional information on our outstanding debt. 

Stockholders’ Equity (Deficit)

The shift from a net deficit of $3.7 billion as of December 31, 2017 to net equity of $7.0 billion as of September 30, 

2018 reflects: 

• our comprehensive income of $12.4 billion for the first nine months of 2018;

• our receipt of $3.7 billion from Treasury during the first quarter of 2018 pursuant to the senior preferred 

stock purchase agreement, which eliminated our net worth deficit as of December 31, 2017; and

• our dividend payments to Treasury of $5.4 billion during the year.
MD&A | Retained Mortgage Portfolio

Fannie Mae Third Quarter 2018 Form 10-Q 17

Retained Mortgage Portfolio

Our retained mortgage portfolio consists of mortgage loans and mortgage-related securities that we own, 

including Fannie Mae MBS and non-Fannie Mae mortgage-related securities. Assets held by consolidated MBS 

trusts that back mortgage-related securities owned by third parties are not included in our retained mortgage 

portfolio. We use our retained mortgage portfolio primarily to provide liquidity to the mortgage market and support 

our loss mitigation activities. Previously, we also used our retained mortgage portfolio for investment purposes.

The chart below separates the instruments within our retained mortgage portfolio, measured by unpaid principal 

balance, into three categories based on each instrument’s use:

• Lender liquidity, which includes balances related to our whole loan conduit activity, supports our efforts to 

provide liquidity to the single-family and multifamily mortgage markets. 

• Loss mitigation supports our loss mitigation efforts through the purchase of delinquent loans from MBS 

trusts. 

• Other represents assets that were previously purchased for investment purposes. More than half of the 

balance of “Other” consisted of reverse mortgage loans and Fannie Mae-wrapped reverse mortgage 

securities as of September 30, 2018. We expect the amount of assets in “Other” will continue to decline 

over time as they liquidate, mature or are sold.

Retained Mortgage Portfolio

(Dollars in billions)
MD&A | Retained Mortgage Portfolio

Fannie Mae Third Quarter 2018 Form 10-Q 18

The table below displays the components of our retained mortgage portfolio, measured by unpaid principal 

balance.

Retained Mortgage Portfolio

As of

September 30,

2018

December 31,

2017

(Dollars in millions)

Single-family:

Mortgage loans(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,118 $146,316

Reverse mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,943 26,458

Mortgage-related securities:

Agency securities(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,688 31,719

Fannie Mae-wrapped reverse mortgage securities . . . . . . . . . . . . . . . . . . . . . . . 6,171 6,689

Ginnie Mae reverse mortgage securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,882 527

Other Fannie Mae-wrapped securities(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664 3,414

Private-label and other securities(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,107 2,588

Total single-family mortgage-related securities(4). . . . . . . . . . . . . . . . . . . . . . . . . . . 46,512 44,937

Total single-family mortgage loans and mortgage-related securities . . . . . . . . . . . . . . 187,573 217,711

Multifamily:

Mortgage loans(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,430 4,591

Mortgage-related securities:

Agency securities(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,709 7,860

Commercial mortgage-backed securities (“CMBS”) . . . . . . . . . . . . . . . . . . . . . . — 24

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 597

Total multifamily mortgage-related securities(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,111 8,481

Total multifamily mortgage loans and mortgage-related securities. . . . . . . . . . . . . . . . 11,541 13,072

Total retained mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199,114 $230,783

__________

(1) Includes single-family loans classified as troubled debt restructurings (“TDRs”) that were on accrual status of $68.4 billion

and $86.3 billion as of September 30, 2018 and December 31, 2017, respectively, and single-family loans on nonaccrual 

status of $26.5 billion and $33.1 billion as of September 30, 2018 and December 31, 2017, respectively.

(2) Includes Fannie Mae, Freddie Mac and Ginnie Mae mortgage-related securities, excluding Fannie Mae-wrapped securities 

and Ginnie Mae reverse mortgage securities.

(3) The increase in private-label and other securities from December 31, 2017 to September 30, 2018 was due to the 

dissolution in the first quarter of 2018 of a Fannie Mae-wrapped private-label securities trust. The Fannie Mae-wrapped 

private-label securities had been classified as other Fannie Mae-wrapped securities prior to the dissolution.

(4) The fair value of these single-family mortgage-related securities was $47.5 billion and $46.7 billion as of September 30, 

2018 and December 31, 2017, respectively.

(5) Includes multifamily loans classified as TDRs that were on accrual status of $64 million and $84 million as of 

September 30, 2018 and December 31, 2017, respectively, and multifamily loans on nonaccrual status of $163 million and 

$122 million as of September 30, 2018 and December 31, 2017, respectively.

(6) The fair value of these multifamily mortgage-related securities was $8.3 billion and $9.0 billion as of September 30, 2018

and December 31, 2017, respectively.

The amount of mortgage assets that we may own is restricted by our senior preferred stock purchase agreement 

with Treasury, as described in “Business—Conservatorship and Treasury Agreements—Treasury Agreements” in 

our 2017 Form 10-K. Our retained mortgage portfolio is below the final $250 billion cap under the senior preferred 

stock purchase agreement that becomes effective on December 31, 2018. We expect the size of our retained 

mortgage portfolio will continue to decrease in 2018.

In support of our loss mitigation strategy, we purchased $13.6 billion of loans from our single-family MBS trusts in 

the first nine months of 2018, the substantial majority of which were delinquent. See “MD&A—Retained Mortgage 

Portfolio—Purchases of Loans from Our MBS Trusts” in our 2017 Form 10-K for more information relating to our 

purchases of loans from MBS trusts.
MD&A | Total Book of Business

Fannie Mae Third Quarter 2018 Form 10-Q 19

Total Book of Business

The table below displays the composition of our total book of business based on unpaid principal balance. Our 

single-family book of business accounted for 91% of our total book of business as of September 30, 2018 and 

December 31, 2017. While our total book of business includes all of our mortgage-related assets, both on- and 

off-balance sheet, our guaranty book of business excludes non-Fannie Mae mortgage-related securities held in 

our retained mortgage portfolio for which we do not provide a guaranty.

Composition of Total Book of Business

As of

September 30, 2018 December 31, 2017

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Guaranty book of business(1)

. . . . . . . . . . . . . $2,955,925 $ 299,817 $3,255,742 $2,931,356 $ 280,502 $3,211,858

Non-Fannie Mae mortgage securities(2)

. . . . . 6,924 402 7,326 4,005 621 4,626

Total book of business . . . . . . . . . . . . . . . . . $2,962,849 $ 300,219 $3,263,068 $2,935,361 $ 281,123 $3,216,484

Guaranty Book of Business Detail:

Conventional guaranty book of business(3)

. $2,920,132 $ 298,589 $3,218,721 $2,890,908 $ 279,235 $3,170,143

Government guaranty book of business(4)

. . $ 35,793 $ 1,228 $ 37,021 $ 40,448 $ 1,267 $ 41,715

__________

(1) Includes other single-family Fannie Mae guaranty arrangements of $1.6 billion and $1.8 billion as of September 30, 2018

and December 31, 2017, respectively, and other multifamily Fannie Mae guaranty arrangements of $12.4 billion as of 

September 30, 2018 and December 31, 2017. The unpaid principal balance of resecuritized Fannie Mae MBS is included 

only once in the reported amount.

(2) Includes mortgage-related securities issued by Freddie Mac and Ginnie Mae, mortgage revenue bonds, Alt-A and subprime 

private-label securities, and CMBS.

(3) Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured, in whole or in part, by the 

U.S. government or one of its agencies. 

(4) Refers to mortgage loans and mortgage-related securities guaranteed or insured, in whole or in part, by the U.S. 

government or one of its agencies. 

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Federal 

Housing Finance Regulatory Reform Act of 2008 (together, the “GSE Act”), requires us to set aside each year an 

amount equal to 4.2 basis points for each dollar of the unpaid principal balance of our total new business 

purchases and to pay this amount to specified U.S. Department of Housing and Urban Development (“HUD”) and 

Treasury funds. New business purchases consist of single-family and multifamily mortgage loans purchased 

during the period and single-family and multifamily mortgage loans underlying Fannie Mae MBS issued during the 

period pursuant to lender swaps. In February 2018, we paid $239 million to the funds based on our new business 

purchases in 2017. Our new business purchases were $389.5 billion for the first nine months of 2018. 

Accordingly, we recognized an expense of $163 million related to this obligation for the first nine months of 2018. 

We expect to pay this amount, plus additional amounts to be accrued based on our new business purchases in 

the fourth quarter of 2018, to the funds on or before March 1, 2019. See “Business—Legislation and Regulation—

GSE Act and Other Regulation of Our Business—Affordable Housing Allocations” in our 2017 Form 10-K for more 

information regarding this obligation.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 20

Business Segments

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, which are referred to as single-family mortgage loans. The Multifamily business operates in the 

secondary mortgage market relating primarily to loans secured by properties containing five or more residential 

units, which are referred to as multifamily mortgage loans.

The chart below displays the net revenues and net income for each of our business segments for the first nine 

months of 2018 compared with the first nine months of 2017.

This section describes each segment’s business and credit metrics, and financial results. For further discussion of 

our Single-Family and Multifamily business segments, including each segment’s primary business activities and 

customers, see “MD&A—Business Segments” in our 2017 Form 10-K.

Single-Family Business

Single-Family Mortgage Market

Housing activity declined in the third quarter of 2018 compared with the second quarter of 2018. Total existing 

home sales averaged 5.3 million units annualized in the third quarter of 2018, compared with 5.4 million units in 

the second quarter of 2018, according to data from the National Association of REALTORS®. According to the 

U.S. Census Bureau, new single-family home sales decreased during the third quarter of 2018, averaging an 

annualized rate of 580,000 units, compared with 633,000 units in the second quarter of 2018.

The 30-year fixed mortgage rate averaged 4.72% during the week ended September 28, 2018, compared with 

4.55% during the week ended June 30, 2018, according to Freddie Mac’s Primary Mortgage Market Survey®. The 

single-family mortgage market continued to experience a shift to a purchase mortgage market, as the share of 

refinance originations in the third quarter of 2018 fell to the lowest level since the third quarter of 2000.

We forecast that total originations in the U.S. single-family mortgage market in 2018 will decrease from 2017

levels by approximately 10.5%, from an estimated $1.83 trillion in 2017 to $1.64 trillion in 2018, and that the 
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 21

amount of originations in the U.S. single-family mortgage market that are refinancings will decrease from an 

estimated $650 billion in 2017 to $454 billion in 2018. 

Single-Family Market Share

The chart below displays our estimated market share of single-family mortgage-related securities issuances in the 

third quarter of 2018 as compared with that of our primary competitors for the issuance of single-family mortgagerelated securities.

• We estimate our market share of single-family mortgage-related securities issuances was 40% in the third 

quarter of 2018, compared with 36% in the second quarter of 2018 and 39% in the third quarter of 2017.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 22

Single-Family Business Metrics

Single-family Fannie Mae MBS outstanding increased as of September 30, 2018 compared to September 30, 

2017 because acquisitions during the past twelve months outpaced liquidations, which slowed as a result of a 

decline in prepayments due to the rising interest rate environment.

__________

(1) Our single-family guaranty book of business consists of (a) single-family mortgage loans of Fannie Mae, (b) single-family 

mortgage loans underlying Fannie Mae MBS, and (c) other credit enhancements that we provide on single-family mortgage 

assets, such as long-term standby commitments. It excludes non-Fannie Mae single-family mortgage-related securities 

held in our retained mortgage portfolio for which we do not provide a guaranty.

Our average charged guaranty fee on newly acquired single-family loans, net of TCCA fees, increased from 47.1

basis points in the third quarter of 2017 to 51.2 basis points in the third quarter of 2018, primarily driven by an 

increase in the total base guaranty fees charged on our 2018 acquisitions.

Average Charged Guaranty Fee on Single-Family Guaranty Book of Business and

Average Charged Guaranty Fee on New Single-Family Acquisitions(1)

__________
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 23

(1) Calculated based on the average guaranty fee rate for our single-family guaranty arrangements during the period plus the 

recognition of any upfront cash payments over an estimated average life. Excludes the impact of a 10 basis point guaranty 

fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not 

retained by us.

Single-Family Business Financial Results

Single-Family Business Financial Results

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2018 2017 Variance 2018 2017 Variance

(Dollars in millions)

Net interest income(1)

. . . . . . . . . . . . . . . . . . . $ 4,670 $ 4,627 $ 43 $ 13,954 $ 13,749 $ 205

Fee and other income . . . . . . . . . . . . . . . . . . 79 1,005 (926) 306 1,192 (886)

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . 4,749 5,632 (883) 14,260 14,941 (681)

Investment gains, net. . . . . . . . . . . . . . . . . . . 146 286 (140) 640 557 83

Fair value gains (losses), net. . . . . . . . . . . . . 417 (300) 717 1,729 (997) 2,726

Administrative expenses . . . . . . . . . . . . . . . . (636) (580) (56) (1,928) (1,781) (147)

Credit-related income (expense)(2)

. . . . . . . . . 582 (294) 876 1,775 1,113 662

TCCA fees(1)

. . . . . . . . . . . . . . . . . . . . . . . . . (576) (531) (45) (1,698) (1,552) (146)

Other expenses, net . . . . . . . . . . . . . . . . . . . (282) (320) 38 (684) (731) 47

Income before federal income taxes . . . . . . . 4,400 3,893 507 14,094 11,550 2,544

Provision for federal income taxes. . . . . . . . . (938) (1,361) 423 (2,998) (4,014) 1,016

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,462 $ 2,532 $ 930 $ 11,096 $ 7,536 $ 3,560

__________

(1) Reflects the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue 

from which is remitted to Treasury. The resulting revenue is included in net interest income and the expense is recognized 

as “TCCA fees.” 

(2) Consists of the benefit (provision) for credit losses and foreclosed property expense.

Net interest income

Single-family net interest income increased in the third quarter and first nine months of 2018 compared with the 

third quarter and first nine months of 2017. The drivers of net interest income for the single-family segment for all 

periods presented are consistent with the drivers of net interest income reported in our condensed consolidated 

statements of operations and comprehensive income for the same periods, which we discuss in “Consolidated 

Results of Operations—Net Interest Income.”

Fee and other income

Fee and other income decreased in the third quarter and first nine months of 2018 compared with the third quarter

and first nine months of 2017 primarily due to $975 million of income in the third quarter of 2017 resulting from a 

settlement agreement resolving legal claims related to private-label securities we purchased.

Fair value gains (losses), net

We recognized fair value gains in the third quarter and first nine months of 2018, a shift from fair value losses 

recognized in the third quarter and first nine months of 2017. The drivers of fair value gains and losses for the 

single-family segment for all the periods presented are consistent with the drivers of fair value gains and losses 

reported in our condensed consolidated statements of operations and comprehensive income for the same 

periods, which we discuss in “Consolidated Results of Operations—Fair Value Gains (Losses), Net.”

Credit-related income (expense)

We recognized credit-related income in the third quarter of 2018, a shift from credit-related expense in the third 

quarter of 2017. We recognized higher credit-related income in the first nine months of 2018 compared with the 

first nine months of 2017. The drivers of credit-related income and expense for the single-family segment for all 
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 24

periods presented are consistent with the drivers of credit-related income and expense reported in our condensed 

consolidated statements of operations and comprehensive income for the same periods. We discuss our creditrelated income and expense in “Consolidated Results of Operations—Credit-Related Income (Expense).”

Single-Family Mortgage Credit Risk Management

This section updates our discussion of single-family mortgage credit risk management in our 2017 Form 10-K in 

“MD&A—Business Segments—Single-Family Business—Single-Family Mortgage Credit Risk Management.”

Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards

For information on our underwriting and servicing standards, quality control process, repurchase requests, and 

representation and warranty framework, see “MD&A—Business Segments—Single-Family Business—SingleFamily Mortgage Credit Risk Management—Single-Family Acquisition and Servicing Policies and Underwriting 

and Servicing Standards” in our 2017 Form 10-K.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 25

Single-Family Portfolio Diversification and Monitoring

For information on key loan attributes, see “MD&A—Business Segments—Single-Family Business—SingleFamily Mortgage Credit Risk Management—Single-Family Portfolio Diversification and Monitoring” in our 2017

Form 10-K. The table below displays our single-family conventional business volumes and our single-family 

conventional guaranty book of business, based on certain key risk characteristics that we use to evaluate the risk 

profile and credit quality of our single-family loans. 

Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1)

Percent of Single-Family Conventional Business 

Volume at Acquisition(2) Percent of Single-Family

Conventional Guaranty Book of 

Business(3)

As of

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017 September 30, 2018 December 31, 2017

Original loan-to-value (“LTV”) 

ratio:(4)

<= 60% . . . . . . . . . . . . . . . 14 % 16 % 16 % 18 % 20 % 20 %

60.01% to 70% . . . . . . . . . 11 12 12 13 13 14

70.01% to 80% . . . . . . . . . 37 39 37 39 38 38

80.01% to 90% . . . . . . . . . 14 13 13 12 11 11

90.01% to 95% . . . . . . . . . 16 15 15 14 11 10

95.01% to 100% . . . . . . . . 8 5 7 4 4 4

Greater than 100% . . . . . . * * * * 3 3

Total . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Weighted average . . . . 78 % 76 % 77 % 75 % 75 % 75 %

Average loan amount. . . . . . . $ 235,125 $ 228,445 $ 233,027 $225,123 $ 169,600 $ 166,643

Estimated mark-to-market 

LTV ratio:(5)

<= 60% . . . . . . . . . . . . . . . 56 % 52 %

60.01% to 70% . . . . . . . . . 18 18

70.01% to 80% . . . . . . . . . 15 17

80.01% to 90% . . . . . . . . . 7 8

90.01% to 100% . . . . . . . . 3 4

Greater than 100% . . . . . . 1 1

Total. . . . . . . . . . . . . . . 100 % 100 %

Weighted average . . . . 56 % 58 %

Product type:

Fixed-rate:(6)

Long-term . . . . . . . . . . 91 % 85 % 89 % 83 % 82 % 80 %

Intermediate-term . . . . 7 12 9 14 14 15

Total fixed-rate . . . . . 98 97 98 97 96 95

Adjustable-rate 2 3 2 3 4 5

Total . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Number of property units:

1 unit . . . . . . . . . . . . . . . . 98 % 98 % 98 % 97 % 97 % 97 %

2 to 4 units . . . . . . . . . . . . 2 2 2 3 3 3

Total . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 26

Percent of Single-Family Conventional Business 

Volume at Acquisition(2)

Percent of Single-Family Conventional 

Guaranty Book of Business(3)

As of

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017 September 30, 2018 December 31, 2017

Property type:

Single-family homes . . . . . . 90 % 90 % 90 % 90 % 91 % 91 %

Condo/Co-op . . . . . . . . . . . . 10 10 10 10 9 9

Total . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Occupancy type:

Primary residence . . . . . . . . 89 % 89 % 89 % 89 % 89 % 89 %

Second/vacation home . . . . 4 4 4 4 4 4

Investor . . . . . . . . . . . . . . . . 7 7 7 7 7 7

Total . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

FICO credit score at

origination:

< 620 . . . . . . . . . . . . . . . . . * % * % * % * % 2 % 2 %

620 to < 660 . . . . . . . . . . . . 6 5 6 5 5 5

660 to < 700 . . . . . . . . . . . . 14 13 14 13 12 12

700 to < 740 . . . . . . . . . . . . 23 23 23 23 20 20

>= 740 . . . . . . . . . . . . . . . . 57 59 57 59 61 61

Total . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Weighted average . . . . . 743 745 743 745 745 745

Loan purpose:

Purchase . . . . . . . . . . . . . . 72 % 63 % 64 % 56 % 42 % 39 %

Cash-out refinance . . . . . . . 19 19 22 21 20 20

Other refinance . . . . . . . . . . 9 18 14 23 38 41

Total . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Geographic concentration:(7)

Midwest . . . . . . . . . . . . . . . 15 % 15 % 14 % 14 % 15 % 15 %

Northeast . . . . . . . . . . . . . . 14 14 13 14 17 18

Southeast . . . . . . . . . . . . . . 23 23 23 23 22 22

Southwest . . . . . . . . . . . . . . 21 20 21 20 18 17

West . . . . . . . . . . . . . . . . . . 27 28 29 29 28 28

Total . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Origination year:

2012 and prior . . . . . . . . . . 31 % 36 %

2013 . . . . . . . . . . . . . . . . . . 11 12

2014 . . . . . . . . . . . . . . . . . . 6 7

2015 . . . . . . . . . . . . . . . . . . 10 12

2016 . . . . . . . . . . . . . . . . . . 17 18

2017 . . . . . . . . . . . . . . . . . . 15 15

2018 . . . . . . . . . . . . . . . . . . 10 —

Total . . . . . . . . . . . . . . . . 100 % 100 %

__________

* Represents less than 0.5% of single-family conventional business volume or book of business.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 27

(1) Second lien mortgage loans held by third parties are not reflected in the original LTV or mark-to-market LTV ratios in this 

table. 

(2) Calculated based on unpaid principal balance of single-family loans for each category at time of acquisition.

(3) Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the 

aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business as of the end of 

each period.

(4) The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised 

property value reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily 

available.

(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. Excludes loans for which this information is not readily available.

(6) Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate 

loans have maturities equal to or less than 15 years.

(7) Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, 

PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, 

AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

The share of our single-family loan acquisitions consisting of home purchase loans rather than refinances 

increased in the first nine months of 2018 compared with the first nine months of 2017, primarily driven by higher 

mortgage rates in 2018. In addition, our acquisitions of loans from first-time home buyers increased from 23% of 

our single-family loan acquisitions in the first nine months of 2017 to 27% in the first nine months of 2018. 

Typically, home purchase loans—particularly those to first-time home buyers—have significantly higher LTV ratios 

than refinances. This trend contributed to an increase in the percentage of our single-family loan acquisitions with 

LTV ratios over 95%—from 4% in the first nine months of 2017 to 7% in the first nine months of 2018. The 

increased share of home purchase loan acquisitions has increased the percentage of home purchase loans in our 

single-family conventional guaranty book of business.

In July 2017, we implemented Desktop Underwriter® (“DU®”) Version 10.1, which included a change that enabled 

loans with debt-to-income ratios above 45% (up to 50%) to rely on DU’s comprehensive risk assessment, and 

removed specific policy rules that had previously set maximum LTV ratio and minimum reserves requirements for 

those loans. Due in part to our implementation of this change, acquisitions associated with borrower debt-toincome ratios above 45% increased to 25% of our non-Refi Plus single-family acquisitions in the first nine months

of 2018, compared with 7% in the first nine months of 2017. After assessing the profile of loans delivered to us 

using DU Version 10.1, in March 2018 we implemented DU Version 10.2, which revised DU’s risk assessment to 

limit risk layering. Risk layering refers to the acquisition of loans with multiple higher-risk characteristics (such as 

high LTV ratio, credit profile with a history of delinquencies, debt-to-income ratio above 45% and no or low levels 

of reserves). In October 2018, we announced our plan to implement DU Version 10.3 in December 2018. DU 

Version 10.3 will revise DU’s risk assessment to further limit risk layering, particularly with respect to loans with 

debt-to-income ratios above 45%. We expect to continue to acquire a higher proportion of loans with debt-toincome ratios above 45% than we acquired in periods prior to our July 2017 implementation of DU Version 10.1. 

We will continue to closely monitor loan acquisitions and market conditions and, as appropriate, make changes in 

our eligibility criteria so that the loans we acquire are consistent with our risk appetite. 

For a discussion of factors that may impact the credit characteristics of loans we acquire in the future, see “MD&A

—Business Segments—Single-Family Business—Single-Family Mortgage Credit Risk Management—SingleFamily Portfolio Diversification and Monitoring” in our 2017 Form 10-K. In this section of our 2017 Form 10-K, we 

also provide more information on the credit characteristics of loans in our guaranty book of business, including 

Home Affordable Refinance Program® (“HARP®”) and Refi PlusTM loans, jumbo-conforming and high-balance 

loans, reverse mortgages and mortgage products with rate resets.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 28

Transfer of Mortgage Credit Risk

Single-Family Credit Enhancements

Our charter generally requires credit enhancement on any single-family conventional mortgage loan that we 

purchase or securitize if it has an LTV ratio over 80% at the time of purchase. We also enter into various other 

types of transactions in which we transfer mortgage credit risk to third parties. The table below displays 

information on the outstanding unpaid principal balance of our single-family loans, as well as the percentage of 

our total single-family conventional guaranty book of business measured by unpaid principal balance, that were 

covered by one or more forms of credit enhancement as of the dates specified. For a description of the types of 

credit enhancements specified in the table, see “MD&A—Business Segments—Single-Family Business—SingleFamily Mortgage Credit Risk Management—Transfer of Mortgage Credit Risk” in our 2017 Form 10-K. For a 

discussion of our exposure to and management of the institutional counterparty credit risk associated with the 

providers of these credit enhancements see “Risk Management—Credit Risk Management—Institutional 

Counterparty Credit Risk Management” in our 2017 Form 10-K and “Note 11, Concentrations of Credit Risk” in 

this report. 

Single-Family Loans with Credit Enhancement

As of

September 30, 2018 December 31, 2017

Unpaid

Principal

Balance

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

Unpaid

Principal

Balance

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

(Dollars in billions)

Primary mortgage insurance and other . . . . . . . . . . . . . . . . . . . . $ 601 21% $ 566 20%

Connecticut Avenue Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 768 27 681 24

Credit Insurance Risk TransferTM (“CIRT

TM”) . . . . . . . . . . . . . . . . . 231 8 181 6

Lender risk sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 3 65 2

Less: Loans covered by multiple credit enhancements . . . . . . . (379) (14) (335) (12)

Total unpaid principal balance of single-family loans with credit

enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,315 45% $ 1,158 40%

Credit Risk Transfer Transactions 

Our Single-Family business has developed risk-sharing capabilities to transfer portions of our single-family 

mortgage credit risk to the private market. Our primary method of achieving this objective has been through our 

CAS and CIRT transactions. In most of our credit risk transfer transactions, we transfer a small portion of the 

expected credit losses, and a significant portion of the losses we expect would be incurred in a stressed credit 

environment, such as a severe or prolonged economic downturn. 
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 29

The tables below display the mortgage credit risk transferred to third parties and retained by Fannie Mae pursuant 

to our single-family credit risk transfer transactions.

Single-Family Credit Risk Transfer Transactions

Issuances from Inception to September 30, 2018(1)

(Dollars in billions)

Senior Fannie Mae(2)

Initial 

Reference 

Pool(5)

$1,427

Mezzanine Fannie Mae(2) CIRT

(3)(4) CAS(3)

Lender 

RiskSharing(3)

$2 $7 $31 $2 $1,481

First Loss Fannie Mae(2) CAS(3)(6)

Lender 

RiskSharing(3)

$8 $3 $1

Outstanding as of September 30, 2018(1)

(Dollars in billions)

Senior Fannie Mae(2)

Outstanding 

Reference 

Pool(5)(7)

$1,041

Mezzanine Fannie Mae(2) CIRT

(3)(4) CAS(3)

Lender 

RiskSharing(3)

$1 $7 $22 $2 $1,085

First Loss Fannie Mae(2) CAS(3)(6)

Lender 

RiskSharing(3)

$8 $3 $1

__________

(1) For some lender risk-sharing transactions, does not reflect completed transfers of risk prior to settlement.

(2) Credit risk retained by Fannie Mae in CAS, CIRT and lender risk-sharing transactions. Tranche sizes vary across 

programs.

(3) Credit risk transferred to third parties. Tranche sizes vary across programs.

(4) Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $7 billion

at issuance and approximately $4 billion outstanding as of September 30, 2018.

(5) For CIRT and some lender risk-sharing transactions, “Reference Pool” reflects a pool of covered loans. 

(6) For CAS transactions, “First Loss” represents all B tranche balances.

(7) For CAS and some lender risk-sharing transactions, represents outstanding reference pools, not the outstanding unpaid 

principal balance of the underlying loans. The outstanding unpaid principal balance for all loans covered by credit risk 

transfer programs, including all loans on which risk has been transferred in lender risk-sharing transactions, was $1,093 

billion as of September 30, 2018.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 30

During the first nine months of 2018, pursuant to our credit risk transfer transactions, we transferred a portion of 

the mortgage credit risk on single-family mortgages with an unpaid principal balance of over $250 billion at the 

time of the transactions. 

Because a larger portion of our single-family book of business was covered by CAS and CIRT transactions in the 

first nine months of 2018 than in the first nine months of 2017, the expenses related to these transactions 

increased: 

• For the first nine months of 2018, we paid approximately $655 million in interest expense, net of LIBOR, 

on our outstanding CAS and approximately $205 million in CIRT premiums.

• Comparatively, we paid approximately $568 million in interest expense, net of LIBOR, on our outstanding 

CAS and approximately $127 million in CIRT premiums for the first nine months of 2017.

As a part of our continued effort to innovate and improve our credit risk transfer programs, we are in the process 

of executing an enhancement to our credit risk transfer securities that will structure our CAS offerings as notes 

issued by a trust that qualifies as a Real Estate Mortgage Investment Conduit (“REMIC”), enabling expanded 

participation by real estate investment trusts and international investors. The new REMIC structure will differ from 

the prior CAS notes that were issued as Fannie Mae corporate debt. Under the prior CAS structure, there can be 

a significant lag between the time when we recognize a provision for credit losses and when we recognize the 

related recovery from the CAS transaction. Under current accounting rules, while a credit expense on a loan in a 

reference pool for a CAS transaction is recorded when it is probable that we have incurred a loss, for our CAS 

issued beginning in 2016, a recovery is recorded only when an actual loss event occurs, which is typically several 

months after the collateral has been liquidated. The new CAS structure will eliminate this timing mismatch, 

allowing us to recognize the expected credit loss protection benefit at the same time the credit loss is recognized 

in our consolidated financial statements. We will continue to record the expected benefit and the loss in the same 

period upon our adoption of Accounting Standards Update 2016-13, Financial Instruments—Credit Losses, in 

January 2020.

The enhancement to our CAS program is designed to promote the continued growth of the market by expanding 

the potential investor base for these securities and limiting investor exposure to Fannie Mae counterparty risk, 

without disrupting the TBA MBS market. We expect to issue CAS under the new REMIC structure in November 

2018.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 31

Single-Family Problem Loan Management

Our problem loan management strategies are primarily focused on reducing defaults to avoid losses that would 

otherwise occur and pursuing foreclosure alternatives to attempt to minimize the severity of the losses we incur. 

See “MD&A—Business Segments—Single-Family Business—Single-Family Mortgage Credit Risk Management—

Problem Loan Management” in our 2017 Form 10-K for a discussion of delinquency statistics on our problem 

loans, efforts undertaken to manage our problem loans, metrics regarding our loan workout activities, real estate 

owned (“REO”) management and other single-family credit-related disclosures. The discussion below updates 

some of that information.

Delinquency

The tables below display the delinquency status of loans and changes in the balance of seriously delinquent loans 

in our single-family conventional guaranty book of business, based on the number of loans. We include singlefamily conventional loans that we own and those that back Fannie Mae MBS in the calculation of the single-family 

delinquency rate. Seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure 

process. 

Delinquency Status and Activity of Single-Family Conventional Loans

As of

September 30,

2018

December 31,

2017

September 30,

2017

Delinquency status:

30 to 59 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.52% 1.63% 1.63%

60 to 89 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37 0.50 0.40

Seriously delinquent (“SDQ”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.82 1.24 1.01

Percentage of SDQ loans that have been delinquent for more

than 180 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53% 43% 57%

Percentage of SDQ loans that have been delinquent for more

than two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13 18

For the Nine Months

Ended September 30,

2018 2017

Single-family SDQ loans (number of loans):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,183 206,549

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,516 177,449

Removals:

Modifications and other loan workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,567) (56,048)

Liquidations and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,912) (63,854)

Cured or less than 90 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (101,524) (91,545)

Total removals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (244,003) (211,447)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,696 172,551

Our single-family serious delinquency rate was 0.82% as of September 30, 2018, compared with 1.24% as of 

December 31, 2017 and 1.01% as of September 30, 2017. Our single-family serious delinquency rate increased 

in the latter part of 2017 due to the impact of the 2017 hurricanes, but has since resumed its prior downward trend 

because many delinquent borrowers in the affected areas have resolved their loan delinquencies by obtaining 

loan modifications or through resuming payments and becoming current on their loans. Our single-family serious 

delinquency rate may be negatively impacted in the near term as a result of the hurricanes that occurred late in 

the third quarter of 2018 and early in the fourth quarter of 2018, which may cause some borrowers in the affected 

regions to miss their payments, including through forbearance arrangements that may be extended. We are still 

evaluating the impact, but we do not believe that the hurricanes to date in 2018, individually or in aggregate, will 

have a material impact on our credit losses or loss reserves. In the longer term, we expect our single-family 
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 32

serious delinquency rate to continue to decline, but at a more modest pace than in the past several years, and to 

experience period-to-period fluctuations.

Certain higher-risk loan categories, such as Alt-A loans, loans with higher estimated mark-to-market LTV ratios, 

and our 2005 through 2008 loan vintages, continue to exhibit higher than average delinquency rates and/or 

account for a higher share of our credit losses. Single-family loans originated in 2005 through 2008 constituted 

5% of our single-family book of business as of September 30, 2018, but constituted 41% of our seriously 

delinquent single-family loans as of September 30, 2018. In addition, single-family loans originated in 2005 

through 2008 drove 58% of our single-family credit losses in the third quarter of 2018 and 65% in the first nine 

months of 2018. Loans in certain judicial foreclosure states such as Florida, New Jersey and New York with 

historically long foreclosure timelines have exhibited higher than average delinquency rates and/or account for a 

higher share of our credit losses.

The table below displays the serious delinquency rates for, and the percentage of our total seriously delinquent 

single-family conventional loans represented by, the specified loan categories. We also include information for our 

loans in California, as this state accounts for a large share of our single-family conventional guaranty book of 

business. The reported categories are not mutually exclusive. Percentage of book outstanding calculations are 

based on the unpaid principal balance of loans for each category divided by the unpaid principal balance of our 

total single-family guaranty book of business for which we have detailed loan level information.

Single-Family Conventional Seriously Delinquent Loan Concentration Analysis

As of

September 30, 2018 December 31, 2017 September 30, 2017

Percentage

of Book

Outstanding

Percentage 

of Seriously 

Delinquent 

Loans(1)

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Percentage 

of Seriously 

Delinquent 

Loans(1)

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Percentage 

of Seriously 

Delinquent 

Loans(1)

Serious

Delinquency

Rate

States:

California. . . . . . . . . . 19% 6% 0.34% 19% 5% 0.42% 19% 6% 0.43%

Florida. . . . . . . . . . . . 6 12 1.51 6 19 3.71 6 10 1.50

New Jersey . . . . . . . . 4 6 1.51 4 5 2.15 4 7 2.36

New York. . . . . . . . . . 5 8 1.55 5 7 2.02 5 9 2.13

All other states . . . . . 66 68 0.77 66 64 1.09 66 68 0.94

Product type:

Alt-A(2)

. . . . . . . . . . . . 2 12 3.68 2 12 4.95 3 14 4.54

Vintages:

2004 and prior. . . . . . 3 23 2.77 4 23 3.28 4 25 2.75

2005-2008. . . . . . . . . 5 41 4.90 6 42 6.55 7 48 5.83

2009-2018. . . . . . . . . 92 36 0.34 90 35 0.53 89 27 0.33

Estimated mark-tomarket LTV ratio:

<= 60% . . . . . . . . . . . 56 47 0.61 52 41 0.84 53 40 0.66

60.01% to 70% . . . . . 18 17 0.91 18 18 1.34 19 17 1.05

70.01% to 80% . . . . . 15 15 0.99 17 16 1.48 16 15 1.17

80.01% to 90% . . . . . 7 10 1.38 8 11 2.09 8 11 1.77

90.01% to 100% . . . . 3 5 1.74 4 6 2.62 3 7 2.72

Greater than 100% . . 1 6 10.65 1 8 11.70 1 10 10.73

Credit enhanced:(3)

Primary MI & other(4)

. 21 25 1.19 20 26 1.95 19 26 1.62

Credit risk transfer(5)

. 38 8 0.23 32 8 0.42 31 4 0.16

Non-credit enhanced. . . 55 70 0.90 60 69 1.27 60 72 1.05

__________

(1) Calculated based on the number of single-family loans that were seriously delinquent for each category divided by the total 

number of single-family conventional loans that were seriously delinquent.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 33

(2) For a description of our Alt-A loan classification criteria, see “Glossary of Terms Used in This Report” in our 2017 Form 10-

K.

(3) The credit-enhanced categories are not mutually exclusive. A loan with primary mortgage insurance that is also covered by 

a credit risk transfer transaction will be included in both the “Primary MI & other” category and the “Credit risk transfer” 

category. As a result, the “Credit enhanced” and “Non-credit enhanced” categories do not sum to 100%. The total 

percentage of our single-family conventional guaranty book of business with some form of credit enhancement as of 

September 30, 2018 was 45%.

(4) Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, 

letters of credit, corporate guarantees, or other agreements to provide an entity with some assurance that it will be 

compensated to some degree in the event of a financial loss. Excludes loans covered by credit risk transfer transactions 

unless such loans are also covered by primary mortgage insurance.

(5) Refers to loans included in reference pools for credit risk transfer transactions, including loans in these transactions that 

are also covered by primary mortgage insurance. For CAS and some lender risk-sharing transactions, this represents 

outstanding unpaid principal balance of the underlying loans on the single-family mortgage credit book, not the outstanding 

reference pool, as of the specified date. Loans included in our credit risk transfer transactions have all been acquired since 

2012 and newer vintages typically have significantly lower delinquency rates than more seasoned loans.

Loan Workout Metrics

Our loan workouts reflect our home retention solutions, including loan modifications, repayment plans and 

forbearances, and foreclosure alternatives, including short sales and deeds-in-lieu of foreclosure.

The chart below displays the unpaid principal balance of our completed single-family loan workouts by type, as 

well as the number of loan workouts.

__________

(1) Consists of loan modifications and completed repayment plans and forbearances. Repayment plans reflect only those 

plans associated with loans that were 60 days or more delinquent. Forbearances reflect loans that were 90 days or more 

delinquent. Excludes trial modifications, loans to certain borrowers who have received bankruptcy relief that are classified 

as troubled debt restructurings, and repayment and forbearance plans that have been initiated but not completed. There 

were approximately 22,700 loans in a trial modification period as of September 30, 2018.

(2) Consists of short sales and deeds-in-lieu of foreclosure.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 34

The increase in home retention solutions in the first nine months of 2018 compared with the first nine months of 

2017 was primarily driven by modifications and forbearances granted during the first nine months of 2018 to 

borrowers in areas affected by the 2017 hurricanes.

REO Management

If a loan defaults, we acquire the home through foreclosure or a deed-in-lieu of foreclosure. The table below

displays our foreclosure activity by region. Regional REO acquisition trends generally follow a pattern that is 

similar to, but lags, that of regional delinquency trends.

Single-Family REO Properties

For the Nine Months

Ended September 30,

2018 2017

Single-family REO properties (number of properties):

Beginning of period inventory of single-family REO properties(1). . . . . . . . . . . . . . . . 26,311 38,093

Acquisitions by geographic area:(2)

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,675 6,716

Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,023 7,496

Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,190 8,966

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,864 4,083

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,518 2,156

Total REO acquisitions(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,270 29,417

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,549) (38,497)

End of period inventory of single-family REO properties(1). . . . . . . . . . . . . . . . . . . . . . 21,032 29,013

Carrying value of single-family REO properties (dollars in millions) . . . . . . . . . . . . . . . $ 2,606 $ 3,448

Single-family foreclosure rate(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.16 % 0.23 %

REO net sales prices to unpaid principal balance(4). . . . . . . . . . . . . . . . . . . . . . . . . . . 77 % 75 %

Short sales net sales prices to unpaid principal balance(5). . . . . . . . . . . . . . . . . . . . . . 77 % 75 %

__________

(1) Includes acquisitions through foreclosure and deeds-in-lieu of foreclosure. Also includes held for use properties, which are 

reported in our condensed consolidated balance sheets as a component of “Other assets.” 

(2) See footnote 7 to the Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business

table for states included in each geographic region.

(3) Estimated based on the annualized total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure 

as a percentage of the total number of loans in our single-family guaranty book of business as of the end of each 

respective period.

(4) Calculated as the amount of sale proceeds received on disposition of REO properties during the respective periods, 

excluding those subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal 

balance of the related loans at the time of foreclosure. Net sales price represents the contract sales price less selling costs 

for the property and other charges paid by the seller at closing. 

(5) Calculated as the amount of sale proceeds received on properties sold in short sale transactions during the respective 

periods divided by the aggregate unpaid principal balance of the related loans. Net sales price represents the contract 

sales price less the selling costs for the property and other charges paid by the seller at the closing, including borrower 

relocation incentive payments and subordinate lien(s) negotiated payoffs. 

The decrease in single-family REO properties from December 31, 2017 to September 30, 2018 was primarily due 

to a reduction in REO acquisitions from serious delinquencies aged greater than 180 days driven by improved 

loan performance and the continued sale of nonperforming loans in 2018.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 35

Other Single-Family Credit Information

Credit Loss Performance and Concentration Metrics

The amount of credit losses we realize in a given period are driven by foreclosures, pre-foreclosure sales, REO 

activity, mortgage loan redesignations and charge-offs pursuant to the provisions of the Advisory Bulletin in the 

period. The table below displays the components of our single-family credit loss performance metrics, as well as 

our single-family initial charge-off severity rate. Our credit loss performance metrics are not defined terms within 

generally accepted accounting principles in the United States of America (“GAAP”) and may not be calculated in 

the same manner as similarly titled measures reported by other companies. We believe that credit loss 

performance metrics may be useful to investors as the losses are presented as a percentage of our guaranty 

book of business and have historically been used by analysts, investors and other companies within the financial 

services industry.

Single-Family Credit Loss Performance Metrics

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2018 2017 2018 2017

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of

recoveries. . . . . . . . . $ (430) 5.8 bps $ (382) 5.2 bps $(1,473) 6.7 bps $(1,851) 8.5 bps

Foreclosed property

expense . . . . . . . . . . (150) 2.1 (157) 2.2 (448) 2.0 (405) 1.9

Credit losses and 

credit loss ratio . . . . . $ (580) 7.9 bps $ (539) 7.4 bps $(1,921) 8.7 bps $(2,256) 10.4 bps

Single-family initial 

charge-off severity 

rate(2)

. . . . . . . . . . . . 10.34 % 13.82 % 11.56 % 15.44 %

___________

(1) Basis points are based on the amount for each line item presented divided by the average single-family guaranty book of 

business during the period.

(2) The rate excludes any costs, gains or losses associated with REO after initial acquisition through final disposition. The rate 

includes charge-offs pursuant to the provisions of the Advisory Bulletin and charge-offs of property tax and insurance 

receivables.

Our single-family credit losses and credit loss ratio increased in the third quarter of 2018 compared with the third 

quarter of 2017, primarily due to higher charge-offs related to the redesignation of single-family loans from HFI to 

HFS, partially offset by lower charge-off expenses from reduced foreclosures and foreclosure alternatives and 

higher home prices in the third quarter of 2018.

Our single-family credit losses and credit loss ratio decreased in the first nine months of 2018 compared with the 

first nine months of 2017 primarily due to lower charge-off expenses from reduced foreclosures and foreclosure 

alternatives and higher home prices in 2018, as well as an expansion at the beginning of 2017 of the charge-off 

criteria for non-liquidated loans pursuant to the provisions of the Advisory Bulletin. The decline in single-family 

credit losses and credit loss ratio in the first nine months of 2018 was partially offset by higher charge-offs related 

to the redesignation of single-family loans from HFI to HFS.

Our single-family initial charge-off severity rates declined in the third quarter and first nine months of 2018

compared with the third quarter and first nine months of 2017 primarily as a result of higher home prices in 2018.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 36

Single-Family Loss Reserves

Our single-family loss reserves provide for an estimate of credit losses incurred in our single-family guaranty book 

of business, including concessions we granted borrowers upon modification of their loans. The table below 

summarizes the changes in our single-family loss reserves. 

Single-Family Loss Reserves

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2018 2017 2018 2017

(Dollars in millions)

Changes in loss reserves:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,638) $ (20,553) $ (19,155) $ (23,639)

Benefit (provision) for credit losses . . . . . . . . . . . . . . . . 732 (137) 2,223 1,518

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 455 1,728 2,221

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (84) (73) (255) (370)

Other(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 17 (19) (21)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (15,478) $ (20,291) $ (15,478) $ (20,291)

As of

September 30,

2018

December 31,

2017

Loss reserves as a percentage of single-family:

Guaranty book of business. . . . . . . . . . . . . . . . . . . . . . . 0.52% 0.65%

Recorded investment in nonaccrual loans . . . . . . . . . . . 47.52 40.80

__________

(1) Amounts represent the portion of single-family benefit (provision) for credit losses, charge-offs and recoveries that are not a 

part of loss reserves.

Troubled Debt Restructurings and Nonaccrual Loans

The table below displays the single-family loans classified as TDRs that are on accrual status and loans on 

nonaccrual status. The table includes our recorded investment in HFI and HFS single-family mortgage loans. For 

information on the impact of TDRs and other individually impaired loans on our allowance for loan losses, see 

“Note 3, Mortgage Loans.”

Single-Family Troubled Debt Restructurings on Accrual Status and Nonaccrual Loans

As of

September 30

, 2018

December 31,

2017

(Dollars in millions)

TDRs on accrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,569 $ 110,043

Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,571 46,945

Total TDRs on accrual status and nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . $ 137,140 $ 156,988

Accruing on-balance sheet loans past due 90 days or more(1)

. . . . . . . . . . . . . . . . . . . $ 243 $ 353

For the Nine Months

Ended September 30,

2018 2017

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:

Interest income forgone(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,680 $ 2,616

Interest income recognized(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,141 4,247
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 37

__________

(1) Includes loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. The 

majority of these amounts consists of loans insured or guaranteed by the U.S. government and loans for which we have 

recourse against the seller in the event of a default.

(2) Represents the amount of interest income we did not recognize, but would have recognized during the period for 

nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their 

original contractual terms.

(3) Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual loans.

The post-modification unpaid principal balance of single-family HFI and HFS loans classified as TDRs as of 

September 30, 2018 was $134.8 billion, compared with $146.4 billion as of December 31, 2017. This decrease in 

loans classified as TDRs was primarily attributable to HFS loan sales in the first nine months of 2018, in addition 

to other removals, and was partially offset by a higher volume of single-family loan modifications and other forms 

of loss mitigation in the areas affected by the 2017 hurricanes that resulted in a restructuring of the terms of these 

loans.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 38

Multifamily Business

Our Multifamily business provides mortgage market liquidity primarily for properties with five or more residential 

units, which may be apartment communities, cooperative properties, seniors housing, dedicated student housing 

or manufactured housing communities.

Multifamily Mortgage Market

National multifamily market fundamentals, which include factors such as vacancy rates and rents, showed 

improvement during the third quarter of 2018 despite an increase in new apartment supply. As a result of 

continued multifamily demand, the national estimated vacancy level decreased during the third quarter of 2018, 

remaining near historic lows.

• Vacancy rates. According to preliminary third-party data, the national multifamily vacancy rate for 

institutional investment-type apartment properties was an estimated 5.3% as of September 30, 2018, 

compared with 5.5% as of June 30, 2018. 

• Rents. Rents continued to increase during the third quarter of 2018. National asking rents increased by 

an estimated 0.8%, compared with 1.5% during the second quarter of 2018. 

Continued demand for multifamily rental units during the third quarter of 2018 was reflected in the estimated 

positive net absorption (that is, the net change in the number of occupied rental units during the time period) of 

approximately 36,000 units, according to preliminary data from Reis, Inc., compared with approximately 40,000

units during the second quarter of 2018.

Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from 

the cash flows generated by the underlying property. Several years of improvement in these fundamentals has 

helped to increase property values in most metropolitan areas. It is estimated that approximately 423,000 new 

multifamily units will be completed in 2018. The bulk of this new supply is concentrated in a limited number of 

metropolitan areas. 

Multifamily Business Metrics

We support affordability in the multifamily rental market. We enabled the financing of 206,000 multifamily units 

from new business volume in the third quarter of 2018, compared with 189,000 units in the third quarter of 2017. 

Over 90% of the multifamily units we financed in the third quarter of 2018 were affordable to families earning at or 

below 120% of the median income in their area, providing support for both workforce housing and affordable 

housing.

Multifamily New Business Volume(1)

(Dollars in billions)

__________

(1) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued, multifamily loans purchased, and credit 

enhancements provided during the period.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 39

FHFA’s 2018 conservatorship scorecard includes an objective to maintain the dollar volume of new multifamily 

business at or below $35 billion, excluding certain targeted affordable and underserved market business 

segments. Approximately 42% of our multifamily new business volume of $44.0 billion for the first nine months of 

2018 counted toward FHFA’s 2018 multifamily volume cap.

The chart below displays our multifamily MBS outstanding as of September 30, 2018 compared with 

December 31, 2017.

Multifamily Fannie Mae MBS Outstanding

(Dollars in billions)

Multifamily Business Financial Results

Multifamily Business Financial Results

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2018 2017 Variance 2018 2017 Variance

(Dollars in millions)

Net interest income . . . . . . . . . . . . . . . . . . . . $ 699 $ 647 $ 52 $ 2,024 $ 1,873 $ 151

Fee and other income . . . . . . . . . . . . . . . . . . 192 189 3 524 604 (80)

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . 891 836 55 2,548 2,477 71

Fair value gains (losses), net. . . . . . . . . . . . . (31) 11 (42) (69) (23) (46)

Administrative expenses . . . . . . . . . . . . . . . . (104) (84) (20) (317) (253) (64)

Credit-related expense(1)

. . . . . . . . . . . . . . . . (25) (28) 3 (6) (23) 17

Other expenses, net(2)

. . . . . . . . . . . . . . . . . . (75) (80) 5 (209) (237) 28

Income before federal income taxes . . . . . . . 656 655 1 1,947 1,941 6

Provision for federal income taxes. . . . . . . . . (107) (164) 57 (314) (481) 167

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 549 $ 491 $ 58 $ 1,633 $ 1,460 $ 173

__________

(1) Consists of the provision for credit losses and foreclosed property income (expense).

(2) Consists of investment gains, gains (losses) on partnership investments and other income (expenses).

Net interest income

Multifamily net interest income increased in the third quarter and first nine months of 2018 compared with the third 

quarter and first nine months of 2017, primarily due to continued growth of our multifamily guaranty book of 

business.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 40

__________

(1) Our multifamily guaranty book of business consists of: (a) multifamily mortgage loans of Fannie Mae; (b) multifamily 

mortgage loans underlying Fannie Mae MBS; and (c) other credit enhancements that we provide on multifamily mortgage 

assets. It excludes non-Fannie Mae multifamily mortgage-related securities held in our retained mortgage portfolio for 

which we do not provide a guaranty.

Fee and Other Income

Fee and other income decreased in the first nine months of 2018 compared with the first nine months of 2017

primarily driven by lower yield maintenance fees as a result of increases in interest rates during the first nine 

months of 2018.

Fair value gains (losses), net

Fair value losses in the third quarter and first nine months of 2018 were primarily driven by losses on 

commitments to buy multifamily mortgage-related securities due to increasing interest rates resulting in 

decreasing prices during the commitment periods.

Fair value losses in the first nine months of 2017 were primarily driven by losses on commitments to sell 

multifamily mortgage-related securities as a result of increases in prices during the commitment periods.

Credit-related expense

Credit-related expense in the third quarter and first nine months of 2018 was due to an increase in the allowance 

for loan losses primarily driven by a slight increase in downgrades in loan risk ratings.

Credit-related expense in the third quarter and first nine months of 2017 was primarily driven by an increase in our 

allowance for loan losses, which included estimated losses from the 2017 hurricanes.

Multifamily Mortgage Credit Risk Management

This section updates our discussion of multifamily mortgage credit risk management in our 2017 Form 10-K in 

“MD&A—Business Segments—Multifamily Business—Multifamily Mortgage Credit Risk Management.”

Multifamily Underwriting Standards and Portfolio Monitoring

Lender risk-sharing is a cornerstone of our Multifamily business. We primarily transfer risk through our Delegated 

Underwriting and Servicing (“DUS®”) program, which delegates to DUS lenders the ability to underwrite and 

service multifamily loans, in accordance with our standards and requirements. DUS lenders receive credit riskrelated revenues for their respective portion of credit risk retained, and, in turn, are required to fulfill any loss 
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 41

sharing obligation. This aligns the interests of the lender and Fannie Mae from day one and throughout the life of 

the loan.

Our DUS model typically results in our lenders sharing on a pro-rata or tiered basis approximately one-third of the 

credit risk on our multifamily loans. In the first nine months of 2018, nearly 100% of our new multifamily business 

volume had lender risk-sharing. As of September 30, 2018, 97% of the unpaid principal balance of loans in our 

multifamily guaranty book of business had lender risk-sharing, compared with 96% as of December 31, 2017. 

To complement our lender-risk sharing program through our DUS model, we engage in multifamily CIRT

transactions, pursuant to which we transfer a portion of the mortgage credit risk on multifamily loans in our 

multifamily guaranty book of business to insurers or reinsurers. In August 2018, we completed our third 

multifamily CIRT transaction since the inception of the program, which covered multifamily loans with an unpaid 

principal balance of approximately $11.1 billion. We plan to continue to transfer credit risk through multifamily 

CIRT transactions in the future.

We and our lenders monitor the performance and risk characteristics of our multifamily loans and the underlying 

properties on an ongoing basis throughout the loan term at the asset and portfolio level. Our standards for 

multifamily loans specify maximum original LTV ratio and minimum original debt service coverage ratio (“DSCR”) 

values that vary based on loan characteristics. We closely monitor loans with an estimated current DSCR below 

1.0, as that is an indicator of heightened default risk. The table below displays original LTV ratio and DSCR 

metrics for our multifamily guaranty book of business. 

Multifamily Guaranty Book of Business Key Risk Characteristics

As of

September 30,

2018

December 31,

2017

September 30,

2017

Weighted average original LTV ratio . . . . . . . . . . . . . . . . . . . . . . . . . 67% 67% 67%

Original LTV ratio greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 2

Original DSCR less than or equal to 1.10 . . . . . . . . . . . . . . . . . . . . . 13 14 14

Current DSCR less than 1.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 1

Multifamily Problem Loan Management and Foreclosure Prevention

The multifamily serious delinquency rate was 0.07% as of September 30, 2018, compared with 0.11% as of 

December 31, 2017 and 0.03% as of September 30, 2017. We classify multifamily loans as seriously delinquent 

when payment is 60 days or more past due. The decrease in the multifamily serious delinquency rate since 

December 31, 2017 resulted mostly from a decrease in delinquent loans subject to forbearance agreements 

granted to borrowers in the areas affected by the 2017 hurricanes.

REO Management

The number of multifamily foreclosed properties held for sale increased to 13 properties with a carrying value of 

$79 million as of September 30, 2018, compared with 11 properties with a carrying value of $66 million as of 

December 31, 2017.

Other Multifamily Credit Information

Multifamily Credit Losses

We had $7 million in multifamily credit losses in the third quarter of 2018 compared with a benefit for credit losses 

of $16 million in the third quarter of 2017. We had $15 million in multifamily credit losses in the first nine months of 

2018 compared with a benefit for credit losses of $14 million in the first nine months of 2017. The benefit for credit 

losses for both 2017 periods was the result of recoveries of previously charged-off amounts.
MD&A | Business Segments

Fannie Mae Third Quarter 2018 Form 10-Q 42

Multifamily Loss Reserves

The table below summarizes the changes in our multifamily loss reserves.

Multifamily Loss Reserves

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2018 2017 2018 2017

(Dollars in millions)

Changes in loss reserves: . . . . . . . . . . . . . . . . . . . .

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (218) $ (189) $ (245) $ (196)

Benefit (provision) for credit losses . . . . . . . . . . . . (16) (45) 6 (37)

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 6 3

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) (3) (3)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (236) $ (233) $ (236) $ (233)

As of

September 30,

2018

December 31,

2017

Loss reserves as a percentage of multifamily guaranty book of business. . . . . . . . 0.08% 0.09%

Troubled Debt Restructurings and Nonaccrual Loans

The table below displays the composition of multifamily loans classified as TDRs that are on accrual status and 

multifamily loans on nonaccrual status. The table includes our recorded investment in HFI and HFS multifamily 

mortgage loans. For information on the impact of TDRs and other individually impaired loans on our allowance for 

loan losses, see “Note 3, Mortgage Loans.”

Multifamily Troubled Debt Restructurings on Accrual Status and Nonaccrual Loans

As of

September 30,

2018

December 31,

2017

(Dollars in millions)

TDRs on accrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63 $ 87

Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554 424

Total TDRs on accrual status and nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . $ 617 $ 511

For the Nine Months

Ended September 30,

2018 2017

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:

Interest income forgone(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 12

Interest income recognized(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6

__________

(1) Represents the amount of interest income we did not recognize, but would have recognized during the period for 

nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their 

original contractual terms.

(2) Represents interest income recognized during the period, including the amortization of any deferred cost basis 

adjustments, for loans classified as either nonaccrual loans or TDRs on accrual status as of the end of each period. 

Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual loans.
MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2018 Form 10-Q 43

Liquidity and Capital Management

Liquidity Management

This section supplements and updates information regarding liquidity risk management in our 2017 Form 10-K. 

See “MD&A—Liquidity and Capital Management—Liquidity Management” and “Risk Factors” in our 2017 Form 

10-K for additional information, including discussions of our primary sources and uses of funds, our liquidity risk 

management practices and liquidity contingency planning, factors that influence our debt funding activity, factors 

that may impact our access to or the cost of our debt funding, and factors that could adversely affect our liquidity.

Debt Funding

Outstanding Debt 

Total outstanding debt of Fannie Mae excludes debt of consolidated trusts. Short-term debt of Fannie Mae 

consists of borrowings with an original contractual maturity of one year or less and, therefore, does not include the 

current portion of long-term debt. Long-term debt of Fannie Mae consists of borrowings with an original 

contractual maturity of greater than one year. 

The chart and table below display information on our outstanding short-term and long-term debt of Fannie Mae 

based on original contractual maturity. The total amount of our outstanding debt of Fannie Mae decreased as of 

September 30, 2018 compared with December 31, 2017 primarily due to lower funding needs as our retained 

mortgage portfolio continued to decrease during the first nine months of 2018. 

Selected Debt Information

As of

December 31,

2017

September 30,

2018

(Dollars in billions)

Selected Weighted-Average Interest 

Rates(1)

Interest rate on short-term debt 1.18% 2.06%

Interest rate on long-term debt, including

portion maturing within one year 2.40% 2.75%

Interest rate on callable long-term debt 2.31% 2.82%

Selected Maturity Data

Weighted-average maturity of debt maturing

within one year (in days) 123 149

Weighted-average maturity of debt maturing

in more than one year (in months) 57 61

Other Data

Outstanding callable debt $ 72.3 $ 67.1

Connecticut Avenue Securities(2) $ 22.5 $ 25.7
MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2018 Form 10-Q 44

__________

(1) Outstanding debt amounts and weighted-average interest rates reported in this chart and table include the effects of 

discounts, premiums, other cost basis adjustments and fair value gains and losses associated with debt that we elected to 

carry at fair value. Reported amounts for total debt of Fannie Mae include unamortized cost basis adjustments and fair 

value adjustments of $433 million and $788 million as of September 30, 2018 and December 31, 2017, respectively.

(2) See “Business Segments—Single-Family Business—Single-Family Mortgage Credit Risk Management—Transfer of 

Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2017 Form 10-K and this report for information regarding 

our Connecticut Avenue Securities.

For more information on our outstanding short-term and long-term debt, see “Note 7, Short-Term and Long-Term 

Debt.”

Debt Funding Activity

The table below displays the activity in debt of Fannie Mae. This activity excludes the debt of consolidated trusts 

and intraday loans. The reported amounts of debt issued and paid off during the period represent the face amount 

of the debt at issuance and redemption.

Activity in Debt of Fannie Mae

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Issued during the period:

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106,520 $199,940 $446,914 $513,635

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.90% 0.97% 1.52% 0.78%

Long-term:(1)

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,032 $ 6,435 $ 17,595 $ 25,457

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 3.26% 2.44% 3.08% 2.44%

Total issued:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,552 $206,375 $464,509 $539,092

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.97% 1.02% 1.58% 0.85%

Paid off during the period:(2)

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,256 $197,034 $451,295 $515,220

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.82% 0.93% 1.42% 0.71%

Long-term:(1)

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,668 $ 21,123 $ 42,854 $ 60,419

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.62% 1.35% 1.47% 2.81%

Total paid off:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,924 $218,157 $494,149 $575,639

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.79% 0.97% 1.43% 0.93%

__________

(1) Includes Connecticut Avenue Securities. 

(2) Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments 

resulting from calls and payments for any other repurchases. Repurchases of debt and early retirements of zero-coupon 

debt are reported at original face value, which does not equal the amount of actual cash payment.
MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2018 Form 10-Q 45

Other Investments Portfolio

The chart below displays information on the composition of our other investments portfolio. The balance of our 

other investments portfolio fluctuates based on changes in our cash flows, liquidity in the fixed income markets 

and our liquidity risk management framework and practices.

Cash Flows

Nine Months Ended September 30, 2018. Cash, cash equivalents and restricted cash decreased by $9.2 billion in 

the nine months ended September 30, 2018. The decrease was primarily driven by cash outflows from (1) the 

purchase of Fannie Mae MBS from third parties, (2) the redemption of funding debt, which outpaced issuances, 

due to lower funding needs, and (3) the acquisition of delinquent loans out of MBS trusts.

Partially offsetting these cash outflows were primarily cash inflows from (1) the sale of Fannie Mae MBS to third 

parties and (2) proceeds from repayments and sales of loans of Fannie Mae. 

Nine Months Ended September 30, 2017. Cash, cash equivalents and restricted cash decreased by $10.1 billion

in the nine months ended September 30, 2017. The decrease was primarily driven by cash outflows from (1) the 

purchase of Fannie Mae MBS from third parties, (2) the redemption of funding debt, which outpaced issuances, 

due to lower funding needs, and (3) the payment of dividends to Treasury under our senior preferred stock 

purchase agreement.

Partially offsetting these cash outflows were primarily cash inflows from (1) the sale of Fannie Mae MBS to third 

parties and (2) proceeds from repayments and sales of loans of Fannie Mae.

Credit Ratings

In June 2018, upon reexamining the terms of our subordinated debt, Standard & Poor’s Ratings Services (“S&P”) 

both revised its rating on our outstanding rated subordinated debt from "AA-" to "AA" and announced that it was 

withdrawing its rating on our subordinated debt program due to our program no longer being active. There have 

been no other changes in our credit ratings since we filed our 2017 Form 10-K. For information on our credit 

ratings, see “MD&A—Liquidity and Capital Management—Liquidity Management—Credit Ratings” in our 2017 

Form 10-K.
MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2018 Form 10-Q 46

Capital Management

Regulatory Capital

The deficit of our core capital over statutory minimum capital was $136.7 billion as of September 30, 2018 and 

$144.4 billion as of December 31, 2017. For information on our minimum capital requirements, see “Note 12, 

Regulatory Capital Requirements” and “Business—Legislation and Regulation—GSE Act and Other Regulation of 

Our Business—Capital” in our 2017 Form 10-K and “MD&A—Legislation and Regulation” in our Second Quarter 

2018 Form 10-Q.

Capital Activity

The current dividend provisions of the senior preferred stock provide for quarterly dividends consisting of the 

amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds a $3.0 

billion capital reserve amount. Because we had a net worth of $7.5 billion as of June 30, 2018, we paid Treasury a 

third quarter 2018 dividend of $4.5 billion. We expect to pay Treasury a fourth quarter 2018 dividend of $4.0 billion

by December 31, 2018 based on our net worth of $7.0 billion as of September 30, 2018.

See “Business—Conservatorship and Treasury Agreements—Treasury Agreements” and “Business—Legislative 

and Regulation—GSE Act and Other Regulation of Our Business—Conservatorship Capital Framework” in our 

2017 Form 10-K for more information on the terms of our senior preferred stock, our senior preferred stock 

purchase agreement with Treasury and our conservatorship capital framework. See “Risk Factors” in our 2017

Form 10-K for a discussion of the risks associated with the limit on our capital reserves.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements result primarily from the following: 

• our guaranty of mortgage loan securitization and resecuritization transactions, and other guaranty 

commitments over which we do not have control; 

• liquidity support transactions; and 

• partnership interests. 

Our off-balance sheet exposure to credit losses is primarily related to the unpaid principal balance of our 

unconsolidated Fannie Mae MBS and other financial guarantees. This exposure was $21.5 billion as of 

September 30, 2018 and $25.1 billion as of December 31, 2017.

Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing 

revenue bonds totaled $8.7 billion as of September 30, 2018 and $9.2 billion as of December 31, 2017. 
MD&A | Risk Management

Fannie Mae Third Quarter 2018 Form 10-Q 47

Risk Management

Our business activities expose us to the following three major categories of risk: credit risk (including mortgage 

credit risk and institutional counterparty credit risk), market risk (including interest rate risk and liquidity risk) and 

operational risk (including cybersecurity, third-party and model risk). See “MD&A—Risk Management” and “MD&A

—Business Segments” in our 2017 Form 10-K for a discussion of our management of these risks.

In this section we provide an update on our management of institutional counterparty credit risk and interest rate 

risk. We provide an update on our management of mortgage credit risk in this report in “Business Segments—

Single-Family Business—Single-Family Mortgage Credit Risk Management” and “Business Segments—

Multifamily Business—Multifamily Mortgage Credit Risk Management.”

Institutional Counterparty Credit Risk Management

This section updates our discussion of institutional counterparty credit risk management in our 2017 Form 10-K. 

See “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Risk Factors” in our 

2017 Form 10-K for additional information, including our exposure to institutional counterparty credit risk and our 

strategy for managing this risk.

Mortgage Insurers

For information on our mortgage insurers, see “MD&A—Risk Management—Institutional Counterparty Credit Risk 

Management—Mortgage Insurers” in our 2017 Form 10-K. The discussion below updates some of that 

information.

Recent Changes

FHFA’s 2018 conservatorship scorecard directs Fannie Mae and Freddie Mac to evaluate the companies’ existing 

private mortgage insurer eligibility requirements (“PMIERs”) and consider whether changes or updates are 

appropriate. The PMIERs set the standards and guidelines that a private mortgage insurer must meet and 

maintain to be an approved insurer eligible to write mortgage insurance on loans acquired by Fannie Mae. The 

PMIERs are designed to ensure that mortgage insurers have sufficient liquid assets to pay all claims under a 

hypothetical future stress scenario. At FHFA’s direction, we and Freddie Mac completed our analysis of the 

PMIERs and, after consulting with our mortgage insurer counterparties, published revised PMIERs in September 

2018. The revised PMIERs include certain changes to the risk-based asset requirements, enhancements to the 

treatment of approved risk transfer transactions, and adjustments to risk transfer credit arising from counterparty 

risk associated with reinsurance transactions. Many of the changes contained in the update were previously 

announced through guidance. The revised PMIERs will become effective on March 31, 2019 for existing approved 

private mortgage insurers and are effective immediately for any new mortgage insurer applicant.

Market Risk Management, Including Interest Rate Risk Management

This section supplements and updates information regarding market risk management in our 2017 Form 10-K. 

See “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk Management” and 

“Risk Factors” in our 2017 Form 10-K for additional information, including our sources of interest rate risk 

exposure, business risks posed by changes in interest rates, and our strategy for managing interest rate risk. 

Measurement of Interest Rate Risk

The table below displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest 

rates and the slope of the yield curve as measured on the last day of each period presented. The table below also 

provides the daily average, minimum, maximum and standard deviation values for duration gap and for the most 

adverse market value impact on the net portfolio to changes in the level of interest rates and the slope of the yield 

curve for the three months ended September 30, 2018 and 2017. 

During the second quarter of 2018, we revised the presentation of our interest rate risk measures to show the 

market value sensitivity in millions, rather than billions, and to show effective duration gap in years, rather than in 

months. We have revised all prior period interest rate risk measures to correspond to the current period 

presentation.
MD&A | Risk Management

Fannie Mae Third Quarter 2018 Form 10-Q 48

For information on how we measure our interest rate risk, see our 2017 Form 10-K in “MD&A—Risk Management

—Market Risk Management, Including Interest Rate Risk Management.”

Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve

As of (1)(2)

September 30, 2018 December 31, 2017

(Dollars in millions)

Rate level shock:

-100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (193) $ (44)

-50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) (21)

+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (29)

+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113) (122)

Rate slope shock:

-25 basis points (flattening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (17)

+25 basis points (steepening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) 17

For the Three Months Ended September 30,(1)(3)

2018 2017

Duration

Gap

Rate Slope

Shock 25 bps

Rate Level

Shock 50 bps

Duration

Gap

Rate Slope

Shock 25 bps

Rate Level

Shock 50 bps

Market Value Sensitivity Market Value Sensitivity

(In years) (Dollars in millions) (In years) (Dollars in millions)

Average . . . . . . . . . . . . 0.01 $ (13) $ (51) 0.00 $ (16) $ (26)

Minimum. . . . . . . . . . . . (0.01) (22) (119) (0.04) (46) (64)

Maximum . . . . . . . . . . . 0.07 (1) (30) 0.02 (4) 1

Standard deviation . . . . 0.02 6 17 0.02 8 15

__________

(1) Computed based on changes in LIBOR interest rates swap curve. Changes in the level of interest rates assume a parallel 

shift in all maturities of the U.S. LIBOR interest rate swap curve. Changes in the slope of the yield curve assume a constant 

7-year rate, a shift of 16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for 

the 30-year rate. Rate shocks for remaining maturity points are interpolated. 

(2) Measured on the last day of each period presented. 

(3) Computed based on daily values during the period presented.

The market value sensitivity of our net portfolio varies across a range of interest rate shocks depending upon the 

duration and convexity profile of our net portfolio. Because the effective duration gap of our net portfolio was close 

to zero years in the periods presented, the convexity exposure was the primary driver of the market value 

sensitivity of our net portfolio as of September 30, 2018. In addition, the convexity exposure may result in similar 

market value sensitivities for positive and negative interest rate shocks of the same magnitude.

We use derivatives to help manage the residual interest rate risk exposure between our assets and liabilities. 

Derivatives have enabled us to keep our interest rate risk exposure at consistently low levels in a wide range of 

interest-rate environments. The table below displays an example of how derivatives impacted the net market 

value exposure for a 50 basis point parallel interest rate shock.

Derivative Impact on Interest Rate Risk (50 Basis Points)

As of (1)

September 30, 2018 December 31, 2017

(Dollars in millions)

Before derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (600) $ (520)

After derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (29)

Effect of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570 491

__________

(1) Measured on the last day of each period presented.
MD&A | Critical Accounting Policies and Estimates

Fannie Mae Third Quarter 2018 Form 10-Q 49

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make a number of 

judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses 

in the condensed consolidated financial statements. Understanding our accounting policies and the extent to 

which we use management judgment and estimates in applying these policies is integral to understanding our 

financial statements. We describe our most significant accounting policies in “Note 1, Summary of Significant 

Accounting Policies” in this report and in our 2017 Form 10-K.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and 

update them as necessary based on changing conditions. Management has discussed any significant changes in 

judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of 

Directors. See “Risk Factors” in our 2017 Form 10-K for a discussion of the risks associated with the need for 

management to make judgments and estimates in applying our accounting policies and methods. We have 

identified two of our accounting policies as critical because they involve significant judgments and assumptions 

about highly complex and inherently uncertain matters, and the use of reasonably different estimates and 

assumptions could have a material impact on our reported results of operations or financial condition: fair value 

measurement and allowance for loan losses. See “MD&A—Critical Accounting Policies and Estimates” in our 

2017 Form 10-K for a discussion of these critical accounting policies and estimates.

Impact of Future Adoption of New Accounting Guidance

We identify and discuss the expected impact on our condensed consolidated financial statements of recently 

issued accounting guidance in “Note 1, Summary of Significant Accounting Policies.”
MD&A | Forward-Looking Statements

Fannie Mae Third Quarter 2018 Form 10-Q 50

Forward-Looking Statements

This report includes statements that constitute forward-looking statements within the meaning of Section 21E of 

the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, our senior management may from time to 

time make forward-looking statements orally to analysts, investors, the news media and others. Forward-looking 

statements often include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” 

“forecast,” “project,” “would,” “should,” “could,” “likely,” “may,” “will” or similar words. Examples of forward-looking 

statements in this report include, but are not limited to, statements relating to our expectations regarding the 

following matters:

• our profitability, financial condition and results of operations, and the factors that will affect our profitability, 

financial condition and results of operations; 

• our business plans and strategies and the impact of such plans and strategies; 

• our dividend payments to Treasury; 

• our retained mortgage portfolio;

• our payments to HUD and Treasury funds under the GSE Act;

• our plans relating to and the effects of our credit risk transfer transactions;

• the impact of accounting guidance and accounting changes on our business or financial results, including 

the impact of impairment accounting guidance;

• mortgage market and economic conditions (including home price appreciation rates) and the impact of 

such conditions on our business or financial results;

• the risks to our business;

• the impact of the 2018 hurricanes on our credit losses and loss reserves;

• our serious delinquency rate and the factors that will affect our serious delinquency rate; and

• our single-family loan acquisitions and the credit risk profile of such acquisitions.

Forward-looking statements reflect our management’s expectations, forecasts or predictions of future conditions, 

events or results based on various assumptions and management’s estimates of trends and economic factors in 

the markets in which we are active, as well as our business plans. They are not guarantees of future performance. 

By their nature, forward-looking statements are subject to risks and uncertainties. Our actual results and financial 

condition may differ, possibly materially, from the anticipated results and financial condition indicated in these 

forward-looking statements. 

There are a number of factors that could cause actual conditions, events or results to differ materially from those 

described in the forward-looking statements contained in this report, including, but not limited to, the following: 

• the uncertainty of our future; 

• future legislative and regulatory requirements or changes affecting us, such as the enactment of housing 

finance reform legislation; 

• actions by FHFA, Treasury, HUD or other regulators that affect our business; 

• changes in the structure and regulation of the financial services industry; 

• the timing and level of, as well as regional variation in, home price changes; 

• changes in interest rates and credit spreads; 

• changes in unemployment rates and other macroeconomic and housing market conditions; 

• credit availability; 

• disruptions in the housing and credit markets; 

• changes in the fiscal and monetary policies of the Federal Reserve, including implementation of the 

Federal Reserve’s balance sheet normalization program; 

• our future guaranty fee pricing and the impact of that pricing on our competitive environment and 

guaranty fee revenues; 
MD&A | Forward-Looking Statements

Fannie Mae Third Quarter 2018 Form 10-Q 51

• the volume of mortgage originations;

• the size, composition and quality of our guaranty book of business and retained mortgage portfolio; 

• our market share; 

• the life of the loans in our guaranty book of business; 

• challenges we face in retaining and hiring qualified executives and other employees; 

• our future serious delinquency rates; 

• the deteriorated credit performance of many loans in our guaranty book of business; 

• the conservatorship and its effect on our business; 

• the investment by Treasury and its effect on our business; 

• adverse effects from activities we undertake to support the mortgage market and help borrowers; 

• actions we may be required to take by FHFA, in its role as our conservator or as our regulator, such as 

changes in the type of business we do or implementation of the Single Security Initiative; 

• limitations on our business imposed by FHFA, in its role as our conservator or as our regulator; 

• our future objectives and activities in support of those objectives, including actions we may take to reach 

additional underserved creditworthy borrowers; 

• a decrease in our credit ratings; 

• limitations on our ability to access the debt capital markets; 

• significant changes in modification and foreclosure activity; 

• the volume and pace of future nonperforming and reperforming loan sales and their impact on our results 

and serious delinquency rates; 

• changes in borrower behavior; 

• the effectiveness of our loss mitigation strategies, management of our REO inventory and pursuit of 

contractual remedies; 

• defaults by one or more institutional counterparties; 

• resolution or settlement agreements we may enter into with our counterparties; 

• our need to rely on third parties to fully achieve some of our corporate objectives; 

• our reliance on mortgage servicers; 

• changes in GAAP, guidance by the Financial Accounting Standards Board and changes to our accounting 

policies; 

• changes in the fair value of our assets and liabilities; 

• operational control weaknesses; 

• our reliance on models and future updates we make to our models, including the assumptions used by 

these models; 

• global political risks; 

• natural disasters, environmental disasters, terrorist attacks, pandemics or other major disruptive events; 

• cyber attacks or other information security breaches or threats; and 

• those factors described in “Risk Factors” in this report and in our 2017 Form 10-K.

Readers are cautioned to place forward-looking statements in this report or that we make from time to time into 

proper context by carefully considering the factors discussed in “Risk Factors” in this report and in our 2017 Form 

10-K. These forward-looking statements are representative only as of the date they are made, and we undertake 

no obligation to update any forward-looking statement as a result of new information, future events or otherwise, 

except as required under the federal securities laws. 
 Financial Statements | Condensed Consolidated Balance Sheets

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 52

Item 1. Financial Statements

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets — (Unaudited)

(Dollars in millions, except share amounts)

As of

September 30

,

December 31,

2018 2017

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,789 $ 32,110

Restricted cash (includes $17,835 and $22,132, respectively, related to consolidated trusts) . . . . . . . . . . . 23,242 28,150

Federal funds sold and securities purchased under agreements to resell or similar arrangements . . . . . . . 26,598 19,470

Investments in securities:

Trading, at fair value (includes $3,734 and $747, respectively, pledged as collateral). . . . . . . . . . . . . . . 43,901 34,679

Available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,537 4,843

Total investments in securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,438 39,522

Mortgage loans:

Loans held for sale, at lower of cost or fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,572 4,988

Loans held for investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,674 162,809

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,111,551 3,029,812

Total loans held for investment (includes $9,153 and $10,596, respectively, at fair value) . . . . . . . . . . . 3,238,225 3,192,621

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,663) (19,084)

Total loans held for investment, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,222,562 3,173,537

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,233,134 3,178,525

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,368 17,350

Accrued interest receivable, net (includes $8,234 and $7,560, respectively, related to consolidated trusts). 8,792 8,133

Acquired property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,722 3,220

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,022 19,049

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,401,105 $ 3,345,529

LIABILITIES AND EQUITY (DEFICIT)

Liabilities:

Accrued interest payable (includes $8,942 and $8,598, respectively, related to consolidated trusts). . . . . $ 10,105 $ 9,682

Debt:

Of Fannie Mae (includes $7,251 and $8,186, respectively, at fair value). . . . . . . . . . . . . . . . . . . . . . . . . 246,682 276,752

Of consolidated trusts (includes $24,948 and $30,493, respectively, at fair value) . . . . . . . . . . . . . . . . . 3,127,688 3,053,302

Other liabilities (includes $322 and $492, respectively, related to consolidated trusts). . . . . . . . . . . . . . . . 9,655 9,479

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,394,130 3,349,215

Commitments and contingencies (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Fannie Mae stockholders’ equity (deficit):

Senior preferred stock, 1,000,000 shares issued and outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,836 117,149

Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding . . . 19,130 19,130

Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and

1,158,087,567 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687 687

Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (126,591) (133,805)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 553

Treasury stock, at cost, 150,675,136 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,400) (7,400)

Total stockholders’ equity (deficit) (See Note 1: Senior Preferred Stock Purchase Agreement and 

Senior Preferred Stock for information on our dividend obligation to Treasury) . . . . . . . . . . . . . . . . . 6,975 (3,686)

Total liabilities and equity (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,401,105 $ 3,345,529

See Notes to Condensed Consolidated Financial Statements
 Financial Statements | Condensed Consolidated Statements of Operations and Comprehensive Income

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 53

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)

(Dollars and shares in millions, except per share amounts) 

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2018 2017 2018 2017

Interest income:

Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 363 $ 195 $ 917 $ 513

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 77 175 269

Mortgage loans (includes $27,058 and $25,168, respectively, for the three months

ended and $79,877 and $75,155, respectively, for the nine months ended related to

consolidated trusts). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28,723 27,047 85,064 81,105

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 142 559 351

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,344 27,461 86,715 82,238

Interest expense:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114) (72) (331) (173)

Long-term debt (includes $22,361 and $20,609, respectively, for the three months

ended and $65,972 and $61,622, respectively, for the nine months ended related to

consolidated trusts). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(23,861) (22,115) (70,406) (66,443)

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,975) (22,187) (70,737) (66,616)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,369 5,274 15,978 15,622

Benefit (provision) for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 (182) 2,229 1,481

Net interest income after benefit (provision) for credit losses . . . . . . . . . . . . . . . . . . . . . . . 6,085 5,092 18,207 17,103

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 313 693 689

Fair value gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 (289) 1,660 (1,020)

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 1,194 830 1,796

Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823 1,218 3,183 1,465

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (355) (331) (1,101) (1,007)

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247) (218) (744) (681)

Other administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (138) (115) (400) (346)

Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (740) (664) (2,245) (2,034)

Foreclosed property expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (159) (140) (460) (391)

Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees . . . . . . . . . . . . . . . . . . (576) (531) (1,698) (1,552)

Other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (377) (427) (946) (1,100)

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,852) (1,762) (5,349) (5,077)

Income before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,056 4,548 16,041 13,491

Provision for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,045) (1,525) (3,312) (4,495)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,011 3,023 12,729 8,996

Other comprehensive income (loss):

Changes in unrealized gains on available-for-sale securities, net of reclassification

adjustments and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(33) 27 (349) (46)

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) (8) (6)

Total other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36) 25 (357) (52)

Total comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,975 $ 3,048 $ 12,372 $ 8,944

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,011 $ 3,023 $ 12,729 $ 8,996

Dividends distributed or available for distribution to senior preferred stockholder. . . . . . . . (3,975) (3,048) (9,372) (8,944)

Net income (loss) attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36 $ (25) $ 3,357 $ 52

Earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.00 $ 0.58 $ 0.01

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.01 0.00 0.57 0.01

Weighted-average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,762 5,762 5,762

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,893 5,762 5,893 5,893

See Notes to Condensed Consolidated Financial Statements
 Financial Statements | Condensed Consolidated Statements of Cash Flows

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 54

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)

For the Nine Months

Ended September 30,

2018 2017

Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,796) $ 172

Cash flows provided by investing activities:

Proceeds from maturities and paydowns of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . 163 1,088

Proceeds from sales of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 149

Proceeds from maturities and paydowns of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564 1,671

Proceeds from sales of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729 1,207

Purchases of loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135,913) (142,565)

Proceeds from repayments of loans acquired as held for investment of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 11,651 17,721

Proceeds from sales of loans acquired as held for investment of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,637 5,399

Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts. . . . . . . . 306,374 323,424

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,643) (89,348)

Proceeds from disposition of acquired property and preforeclosure sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,090 9,671

Net change in federal funds sold and securities purchased under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,128) 6,675

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) 344

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,564 135,436

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636,466 776,380

Payments to redeem debt of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (666,888) (809,299)

Proceeds from issuance of debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,357 282,433

Payments to redeem debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (364,942) (383,969)

Payments of cash dividends on senior preferred stock to Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,397) (11,367)

Proceeds from senior preferred stock purchase agreement with Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,687 —

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 88

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (117,997) (145,734)

Net decrease in cash, cash equivalents and restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,229) (10,126)

Cash, cash equivalents and restricted cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,260 62,177

Cash, cash equivalents and restricted cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,031 $ 52,051

Cash paid during the period for:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,010 $ 82,652

Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460 1,670

See Notes to Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 55

FANNIE MAE

(In conservatorship)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association 

Charter Act (the “Charter Act” or our “charter”). We are a government-sponsored enterprise and we are subject to 

government oversight and regulation. Our regulators include the Federal Housing Finance Agency (“FHFA”), the 

U.S. Department of Housing and Urban Development (“HUD”), the U.S. Securities and Exchange Commission 

(“SEC”), and the U.S. Department of the Treasury (“Treasury”). The U.S. government does not guarantee our 

securities or other obligations. 

We have been under conservatorship, with FHFA acting as conservator, since September 6, 2008. See “Note 1, 

Summary of Significant Accounting Policies” in our annual report on Form 10-K for the year ended December 31, 

2017 (“2017 Form 10-K”) for additional information on our conservatorship and the impact of U.S. government 

support of our business.

The unaudited interim condensed consolidated financial statements as of and for the three and nine months 

ended September 30, 2018, and related notes, should be read in conjunction with our audited consolidated 

financial statements and related notes included in our 2017 Form 10-K.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in 

accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim 

financial information and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, 

they do not include all of the information and note disclosures required by GAAP for complete consolidated 

financial statements. In the opinion of management, all adjustments of a normal recurring nature considered 

necessary for a fair presentation have been included. The accompanying condensed consolidated financial 

statements include our accounts as well as the accounts of other entities in which we have a controlling financial 

interest. All intercompany accounts and transactions have been eliminated. To conform to our current period 

presentation, we have reclassified certain amounts reported in our prior periods’ condensed consolidated financial 

statements. Results for the three and nine months ended September 30, 2018 may not necessarily be indicative 

of the results for the year ending December 31, 2018.

Use of Estimates

Preparing condensed 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 condensed 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, valuation of certain financial instruments and allowance for loan 

losses. Actual results could be different from these estimates.

Senior Preferred Stock Purchase Agreement and Senior Preferred Stock

Treasury has made a commitment under a senior preferred stock purchase agreement to provide funding to us 

under certain circumstances if we have a net worth deficit. In the first quarter of 2018, we received $3.7 billion

from Treasury to eliminate our net worth deficit as of December 31, 2017. Pursuant to the senior preferred stock 

purchase agreement, we have received a total of $119.8 billion from Treasury as of September 30, 2018, and the 

amount of remaining funding available to us under the agreement was $113.9 billion.

Pursuant to the senior preferred stock purchase agreement, we issued shares of senior preferred stock to 

Treasury in 2008. Acting as successor to the rights, titles, powers and privileges of the Board, our conservator has 

declared and directed us to pay dividends to Treasury on the senior preferred stock on a quarterly basis for every 

dividend period for which dividends were payable since we entered into conservatorship in 2008. Effective 

January 1, 2018, the dividend provisions of the senior preferred stock provide for quarterly dividends consisting of 

the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds a 

$3.0 billion capital reserve amount. We refer to this as a “net worth sweep” dividend. On September 28, 2018, we 
Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 56

paid Treasury a dividend of $4.5 billion based on our net worth of $7.5 billion as of June 30, 2018, less the 

applicable capital reserve amount of $3.0 billion. Because we had a net worth of $7.0 billion as of September 30, 

2018, we expect to pay Treasury a dividend of $4.0 billion for the fourth quarter of 2018 by December 31, 2018.

The liquidation preference of the senior preferred stock is subject to adjustment. The aggregate liquidation 

preference of the senior preferred stock was $123.8 billion as of September 30, 2018. 

See “Note 11, Equity (Deficit)” in our 2017 Form 10-K for additional information about the senior preferred stock 

purchase agreement and the senior preferred stock.

Regulatory Capital

We submit capital reports to FHFA, which monitors our capital levels. The deficit of core capital over statutory 

minimum capital was $136.7 billion as of September 30, 2018 and $144.4 billion as of December 31, 2017. Due to 

the terms of our senior preferred stock described above, we do not expect to eliminate our deficit of core capital 

over statutory minimum capital.

Related Parties

As a result of our issuance to Treasury of 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 September 30, 2018, Treasury held an investment in our senior preferred stock with an aggregate 

liquidation preference of $123.8 billion. FHFA’s control of Fannie Mae and Freddie Mac has caused Fannie Mae, 

FHFA and Freddie Mac to be deemed related parties. In 2013, Fannie Mae and Freddie Mac established 

Common Securitization Solutions, LLC (“CSS”), a jointly owned limited liability company to operate a common 

securitization platform; therefore, CSS is deemed a related party.

Transactions with Treasury

Our administrative expenses were reduced by $6 million and $9 million for the three months ended 

September 30, 2018 and 2017, respectively, and $19 million and $32 million for the nine months ended 

September 30, 2018 and 2017, respectively, due to reimbursements from Treasury and Freddie Mac for expenses 

incurred as program administrator for Treasury’s Home Affordable Modification Program and other initiatives 

under Treasury’s Making Home Affordable Program.

During the three months ended September 30, 2018, we did not make any payments to the Internal Revenue 

Service (“IRS”), a bureau of Treasury. We made tax payments of $460 million during the nine months ended 

September 30, 2018. We made tax payments of $600 million and $1.7 billion during the three and nine months 

ended September 30, 2017, respectively.

In 2009, we entered into a memorandum of understanding with Treasury, FHFA and Freddie Mac pursuant to 

which we agreed to provide assistance to state and local housing finance agencies (“HFAs”) through certain 

programs, including a new issue bond (“NIB”) program. As of September 30, 2018, under the NIB program, 

Fannie Mae and Freddie Mac had $4.6 billion outstanding of pass-through securities backed by single-family 

and multifamily housing bonds issued by HFAs, which is less than 35% of the total original principal under the 

program, the amount of losses that Treasury would bear. Accordingly, we do not have a potential risk of loss under 

the NIB program.

The fee revenue and expense related to the TCCA are recorded in “Mortgage loans interest income” and “TCCA

fees,” respectively, in our condensed consolidated statements of operations and comprehensive income. We 

recognized $576 million and $531 million in TCCA fees for the three months ended September 30, 2018 and 

2017, respectively, and $1.7 billion and $1.6 billion for the nine months ended September 30, 2018 and 2017, 

respectively, of which $576 million had not been remitted to Treasury as of September 30, 2018.

We incurred expenses in connection with certain funding obligations under the Federal Housing Enterprises 

Financial Safety and Soundness Act of 1992, as amended by the Federal Housing Finance Regulatory Reform 

Act of 2008 (the “GSE Act”), a portion of which is attributable to Treasury’s Capital Magnet Fund. These 

expenses, recognized in “Other expenses, net” in our condensed consolidated statements of operations and 

comprehensive income, were measured as the product of 4.2 basis points and the unpaid principal balance of our 

total new business purchases for the respective period. We recognized $20 million and $16 million in “Other 

expenses, net” in connection with Treasury’s Capital Magnet Fund for the three months ended September 30, 
Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 57

2018 and 2017, respectively, and $57 million and $46 million for the nine months ended September 30, 2018 and 

2017, respectively, of which $57 million had not been remitted as of September 30, 2018.

In addition to the transactions with Treasury mentioned above, we purchase and sell Treasury securities in the 

normal course of business. As of September 30, 2018 and December 31, 2017, we held Treasury securities with a 

fair value of $37.6 billion and $29.2 billion, respectively, and accrued interest receivable of $124 million and $77 

million, respectively. We recognized interest income on these securities held by us of $192 million and $95 million

for the three months ended September 30, 2018 and 2017, respectively, and $485 million and $244 million for the 

nine months ended September 30, 2018 and 2017, respectively.

Transactions with Freddie Mac

As of September 30, 2018 and December 31, 2017, we held Freddie Mac mortgage-related securities with a fair 

value of $497 million and $613 million, respectively, and accrued interest receivable of $2 million and $2 million, 

respectively. We recognized interest income on these securities held by us of $6 million and $8 million for the 

three months ended September 30, 2018 and 2017, respectively, and $19 million and $31 million for the nine

months ended September 30, 2018 and 2017, respectively. In addition, Freddie Mac may be an investor in 

variable interest entities (“VIEs”) that we have consolidated, and we may be an investor in VIEs that Freddie Mac 

has consolidated. Freddie Mac may also be an investor in our debt securities.

Transactions with FHFA

The GSE Act authorizes FHFA to establish an annual assessment for regulated entities, including Fannie Mae, 

which is payable on a semi-annual basis (April and October), for FHFA’s costs and expenses, as well as to 

maintain FHFA’s working capital. We recognized FHFA assessment fees, which are recorded in “Administrative 

expenses” in our condensed consolidated statements of operations and comprehensive income, of $26 million for 

the three months ended September 30, 2018 and 2017, and $81 million and $82 million for the nine months 

ended September 30, 2018 and 2017, respectively.

Transactions with CSS

We contributed capital to CSS, the company we jointly own with Freddie Mac, of $33 million and $25 million for 

the three months ended September 30, 2018 and 2017, respectively, and $109 million and $78 million for the nine

months ended September 30, 2018 and 2017, respectively. No other transactions outside of normal business 

activities have occurred between us and CSS during the three and nine months ended September 30, 2018 and 

2017. 

Income Taxes

The decrease in our provision for federal income taxes for the three and nine months ended September 30, 2018

as compared to the three and nine months ended September 30, 2017 was the result of the Tax Cuts and Jobs 

Act of 2017, which reduced the federal statutory corporate income tax rate from 35% to 21% effective January 1, 

2018. This decline was the primary driver of the reduction in our effective tax rate to 20.7% for the three months 

ended September 30, 2018 and 20.6% for the nine months ended September 30, 2018, compared with 33.5% for 

the three months ended September 30, 2017 and 33.3% for the nine months ended September 30, 2017. Our 

effective tax rates for all the periods presented were different from the prevailing federal statutory rate primarily 

due to the benefits of our investments in housing projects eligible for low-income housing tax credits.

Earnings (Loss) per Share 

Earnings (loss) per share (“EPS”) is presented for basic and diluted EPS. We compute basic EPS by dividing net 

income (loss) attributable to common stockholders by the weighted-average number of shares of common stock 

outstanding during the period. However, as a result of our conservatorship status and the terms of the senior 

preferred stock, no amounts are available to distribute as dividends to common or preferred stockholders (other 

than to Treasury as holder of the senior preferred stock). Weighted average common shares includes 4.6 billion

shares for the periods ended September 30, 2018 and 2017 that would be issued upon the full exercise of the 

warrant issued to Treasury from the date the warrant was issued.

The calculation of diluted EPS includes all the components of basic earnings per share, plus the dilutive effect of 

common stock equivalents such as convertible securities and stock options. Weighted average shares 

outstanding is increased to include the number of additional common shares that would have been outstanding if 

the dilutive potential common shares had been issued. For the three and nine months ended September 30, 2018 
Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 58

and the nine months ended September 30, 2017, our diluted EPS weighted average shares outstanding includes 

shares of common stock that would be issuable upon the conversion of 131 million shares of convertible preferred 

stock. For the three months ended September 30, 2017, convertible preferred stock is not included in the 

calculation because a net loss attributable to common stockholders was incurred and it would have an antidilutive effect.

New Accounting Guidance

The following table updates information about our significant policies that have recently been adopted or are yet 

to be adopted from the information included in our 2017 Form 10-K.

Standard Description Effective

Date

Impact on Consolidated Financial

Statements

Accounting Standards 

Update (“ASU”) 2016-01, 

Recognition and 

Measurement of Financial 

Assets and Financial 

Liabilities (Subtopic 

825-10)

The amendment addresses certain

aspects of recognition, measurement,

presentation and disclosure of financial

instruments.

January 1,

2018

The adoption of the amendments did not

have a material impact on our

consolidated financial statements.

ASU 2016-15,

Statement of Cash Flows 

(Topic 230), Classification 

of Certain Cash Receipts 

and Cash Payments (a 

consensus of the Emerging 

Issues Task Force)

The main objective of this update is to

address the diversity in practice that

currently exists in regards to how

certain cash receipts and cash

payments are presented and classified

in the statement of cash flows under

Topic 230, Statement of Cash Flows,

and other Topics.

January 1,

2018

This guidance was applied

retrospectively to the statement of cash

flows for the prior period presented. The

adoption of the amendments did not

have a material impact on our

consolidated financial statements.

ASU 2016-18,

Statement of Cash Flows

(Topic 230), Restricted 

Cash (a consensus of the 

Financial Accounting 

Standards Board (“FASB”) 

Emerging Issues Task 

Force)

The amendments in this update

address the diversity in the

classification and presentation of

changes in restricted cash on the

statement of cash flows under Topic

230, Statement of Cash Flows.

Specifically, this amendment dictates

that the statement of cash flows should

explain the change in the period of the

total of cash, cash equivalents and

restricted cash balances.

January 1,

2018

This guidance was applied

retrospectively to the statements of cash

flows for the prior period presented. As a

result of this adoption, the net change in

restricted cash that results from transfers

between cash, cash equivalents, and

restricted cash is no longer presented as

an investing activity in our consolidated

statement of cash flows. The adoption of

the amendments did not have a material

impact on our consolidated financial

statements.

ASU 2018-02,

Income Statement (Topic 

220): Reclassification of 

Certain Tax Effects from 

Accumulated Other 

Comprehensive Income

The amendments in this update allow a

reclassification from accumulated other

comprehensive income to retained

earnings for stranded tax effects

resulting from the Tax Cuts and Jobs

Act.

January 1,

2019

The early adoption of this guidance on

January 1, 2018 resulted in the

reclassification of $117 million in

stranded tax amounts from accumulated

other comprehensive income to retained

earnings.

ASU 2018-13,

Fair Value Measurement 

(Topic 820), Disclosure 

Framework—Changes to 

the Disclosure

Requirements for Fair 

Value Measurement 

The amendments in this update

streamline, clarify and enhance certain

disclosures related to Level 3 recurring

and nonrecurring fair value

measurements.

January 1,

2020

We do not expect the adoption of this

guidance to have a material impact on

our consolidated financial statements.

Adoption is required for periods

beginning January 1, 2020 with early

adoption permitted. We are considering

adopting this guidance for our 2018

Form 10-K.

ASU 2016-13,

Financial InstrumentsCredit Losses (Topic 326): 

Measurement of Credit 

Losses on Financial 

Instruments

The amendments in this update replace

the incurred loss impairment

methodology in current GAAP with a

methodology that reflects lifetime

expected credit losses and requires

consideration of a broader range of

reasonable and supportable information

to inform credit loss estimates.

January 1,

2020

We are continuing to evaluate the impact

of this guidance on our consolidated

financial statements. We expect the

greater impact of the guidance to relate

to our accounting for credit losses for

loans that are not individually impaired.

The adoption of this guidance may

increase our allowance for loan losses

and decrease, perhaps substantially, our

retained earnings.
Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 59

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be VIEs. The primary types of entities are 

securitization trusts and limited partnerships. These interests include investments in securities issued by VIEs, 

such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We 

consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and 

master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that 

impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts 

when other organizations have the power to direct these activities.

Unconsolidated VIEs

We do not consolidate VIEs when we are not deemed to be the primary beneficiary. Our unconsolidated VIEs 

include securitization trusts and limited partnerships. The following table displays the carrying amount and 

classification of our assets and liabilities that relate to our involvement with unconsolidated securitization trusts.

As of

September 30, 2018 December 31, 2017

(Dollars in millions)

Assets:

Trading securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,420 $ 3,809

Non-Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,009 1,580

Total trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,429 5,389

Available-for-sale securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754 2,032

Non-Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,254 2,062

Total available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,008 4,094

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 74

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108) (467)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,398 $ 9,090

Our maximum exposure to loss generally represents the greater of our recorded investment in the entity or the 

unpaid principal balance of the assets covered by our guaranty. However, our securities issued by Fannie Mae 

multi-class resecuritization trusts that are not consolidated do not give rise to any additional exposure to loss as 

we already consolidate the underlying collateral. The maximum exposure to loss related to unconsolidated 

mortgage-backed trusts was approximately $14 billion and $15 billion as of September 30, 2018 and December 

31, 2017, respectively. The total assets of our unconsolidated securitization trusts were approximately $90 billion

and $70 billion as of September 30, 2018 and December 31, 2017, respectively.

The maximum exposure to loss for our unconsolidated limited partnerships and similar legal entities, which 

consist of low-income housing tax credit investments, community investments and other entities, was $105 million

and the related carrying value was $83 million as of September 30, 2018. As of December 31, 2017, the 

maximum exposure to loss was $105 million and the related carrying value was $82 million. The total assets of 

these limited partnership investments were $2.4 billion and $3.2 billion as of September 30, 2018 and December 

31, 2017, respectively.

The unpaid principal balance of our multifamily loan portfolio was $284.3 billion as of September 30, 2018. As our 

lending relationship does not provide us with a controlling financial interest in the borrower entity, we do not 

consolidate these borrowers regardless of their status as either a VIE or a voting interest entity. We have 

excluded these entities from our VIE disclosures. However, the disclosures we have provided in “Note 3, 

Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respect to this 

population are consistent with the FASB’s stated objectives for the disclosures related to unconsolidated VIEs.

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or 

mortgage-related securities to one or more trusts or special purpose entities. We are considered to be the 
Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 60

transferor when we transfer assets from our own retained mortgage portfolio in a portfolio securitization 

transaction. For the three months ended September 30, 2018 and 2017, the unpaid principal balance of portfolio 

securitizations was $64.9 billion and $68.1 billion, respectively. For the nine months ended September 30, 2018

and 2017, the unpaid principal balance of portfolio securitizations was $180.8 billion and $194.5 billion, 

respectively. 

We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and 

multi-class portfolio securitization trusts. As of September 30, 2018, the unpaid principal balance of retained 

interests was $1.5 billion and its related fair value was $2.2 billion. The unpaid principal balance of retained 

interests was $3.9 billion and its related fair value was $4.7 billion as of December 31, 2017. For the three months 

ended September 30, 2018 and 2017, the principal and interest received on retained interests was $114 million

and $294 million, respectively. For the nine months ended September 30, 2018 and 2017, the principal and 

interest received on retained interests was $468 million and $854 million, respectively.

Managed Loans

Managed loans are on-balance sheet mortgage loans, as well as mortgage loans that we have securitized in 

unconsolidated portfolio securitization trusts. The unpaid principal balance of securitized loans in unconsolidated 

portfolio securitization trusts, which are primarily loans that are guaranteed or insured, in whole or in part, by the 

U.S. government, was $1.2 billion and $1.3 billion as of September 30, 2018 and December 31, 2017, 

respectively. For information on our on-balance sheet mortgage loans, see “Note 3, Mortgage Loans.”
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 61

3. Mortgage Loans

We own single-family mortgage loans, which are secured by four or fewer residential dwelling units, and 

multifamily mortgage loans, which are secured by five or more residential dwelling units. We classify these loans 

as either held for investment (“HFI”) or held for sale (“HFS”). We report the carrying value of HFI loans at the 

unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and an 

allowance for loan losses. We report the carrying value of HFS loans at the lower of cost or fair value and record 

valuation changes in “Investment gains, net” in our condensed consolidated statements of operations and 

comprehensive income. We define the recorded investment of HFI loans as unpaid principal balance, net of 

unamortized premiums and discounts, other cost basis adjustments, and accrued interest receivable.

For purposes of the single-family mortgage loan disclosures in this footnote, we define “primary” class as 

mortgage loans that are not included in other loan classes; “government” class as mortgage loans that are 

guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies, and that are not Alt-A; 

and “other” class as loans with higher-risk characteristics, such as interest-only loans and negative-amortizing 

loans, that are neither government nor Alt-A.

The following table displays the carrying value of our mortgage loans.

As of 

September 30, 2018 December 31, 2017

(Dollars in millions)

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,924,857 $ 2,890,634

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,298 265,069

Total unpaid principal balance of mortgage loans . . . . . . . . . . . . . . . . . . . . 3,209,155 3,155,703

Cost basis and fair value adjustments, net . . . . . . . . . . . . . . . . . . . . . . . . . . 39,642 41,906

Allowance for loan losses for loans held for investment . . . . . . . . . . . . . . . . (15,663) (19,084)

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,233,134 $ 3,178,525

The following table displays information about our redesignated mortgage loans.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Carrying value of loans redesignated from HFI to HFS . . . . . . . . . . . . $ 4,249 $ 2,077 $ 17,851 $ 7,499

Carrying value of loans redesignated from HFS to HFI . . . . . . . . . . . . 6 59 36 111

Loans sold - unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . 9,373 3,433 13,831 6,473

Realized gains on sale of mortgage loans . . . . . . . . . . . . . . . . . . . . . . 93 158 301 211

The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process 

was $10.6 billion and $13.0 billion as of September 30, 2018 and December 31, 2017, respectively. As a result of 

our various loss mitigation and foreclosure prevention efforts, we expect that a portion of the loans in the process 

of formal foreclosure proceedings will not ultimately foreclose.

Nonaccrual Loans

We discontinue accruing interest on loans when we believe collectibility of principal or interest is not reasonably 

assured, which for a single-family loan we have determined, based on our historical experience, to be when the 

loan becomes two months or more past due according to its contractual terms. Interest previously accrued but not 

collected is reversed through interest income at the date a loan is placed on nonaccrual status. We return a nonmodified single-family loan to accrual status at the point that the borrower brings the loan current. We return a 

modified single-family loan to accrual status at the point that the borrower successfully makes all required 

payments during the trial period (generally three to four months) and the modification is made permanent. We 

place a multifamily loan on nonaccrual status when the loan becomes three months or more past due according 

to its contractual terms or is deemed to be individually impaired, unless the loan is well secured such that 

collectibility of principal and accrued interest is reasonably assured. We return a multifamily loan to accrual status 
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 62

when the borrower cures the delinquency of the loan or we otherwise determine that the loan is well secured such 

that collectibility is reasonably assured.

Aging Analysis

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans by 

portfolio segment and class, excluding loans for which we have elected the fair value option.

As of September 30, 2018

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(1)

Total

Delinquent Current Total

Recorded

Investment

in Loans

90 Days or

More

Delinquent

and

Accruing

Interest

Recorded

Investment

in

Nonaccrual

Loans

(Dollars in millions)

Single-family:

Primary. . . . . . . . $ 33,519 $ 7,506 $ 14,932 $ 55,957 $ 2,799,358 $ 2,855,315 $ 25 $ 25,697

Government(2). . 54 18 175 247 23,132 23,379 175 —

Alt-A . . . . . . . . . . 2,725 875 1,908 5,508 50,900 56,408 2 3,212

Other . . . . . . . . . 978 319 761 2,058 14,502 16,560 5 1,216

Total singlefamily . . . . . . 37,276 8,718 17,776 63,770 2,887,892 2,951,662 207 30,125

Multifamily(3). . . . . . 20 N/A 198 218 285,736 285,954 — 554

Total . . . . . . . $ 37,296 $ 8,718 $ 17,974 $ 63,988 $ 3,173,628 $ 3,237,616 $ 207 $ 30,679

As of December 31, 2017

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(1)

Total

Delinquent Current Total

Recorded

Investment

in Loans

90 Days or

More

Delinquent

and

Accruing

Interest

Recorded 

Investment 

in 

Nonaccrual 

Loans

(Dollars in millions)

Single-family:

Primary . . . . . . . $ 35,582 $ 10,396 $ 23,999 $ 69,977 $ 2,732,818 $ 2,802,795 $ 87 $ 37,971

Government(2). . 55 21 206 282 30,807 31,089 206 —

Alt-A. . . . . . . . . . 3,186 1,147 3,418 7,751 59,475 67,226 5 5,094

Other . . . . . . . . . 1,185 411 1,252 2,848 19,016 21,864 5 1,834

Total singlefamily . . . . . . 40,008 11,975 28,875 80,858 2,842,116 2,922,974 303 44,899

Multifamily(3). . . . . 26 N/A 276 302 266,699 267,001 — 424

Total . . . . . . $ 40,034 $ 11,975 $ 29,151 $ 81,160 $ 3,108,815 $ 3,189,975 $ 303 $ 45,323

__________

(1) 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.

(2) Primarily consists of reverse mortgages, which due to their nature, are not aged and are included in the current column.

(3) Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 63

Credit Quality Indicators

The following table displays the total recorded investment in our single-family HFI loans by class and credit quality 

indicator, excluding loans for which we have elected the fair value option. 

As of

September 30, 2018(1) December 31, 2017(1)

Primary Alt-A Other Primary Alt-A Other

(Dollars in millions)

Estimated mark-to-market loan-to-value (“LTV”) ratio:(2)

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . $ 2,541,859 $ 47,773 $13,642 $ 2,439,858 $ 51,903 $16,428

Greater than 80% and less than or equal to 90% . . . . . 215,622 4,151 1,353 238,038 6,680 2,277

Greater than 90% and less than or equal to 100% . . . . 87,660 2,230 757 106,076 4,044 1,443

Greater than 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,174 2,254 808 18,823 4,599 1,716

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,855,315 $ 56,408 $16,560 $ 2,802,795 $ 67,226 $21,864

__________

(1) Excludes $23.4 billion and $31.1 billion as of September 30, 2018 and December 31, 2017, 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 ratio.

(2) 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 by credit quality indicator, 

excluding loans for which we have elected the fair value option.

As of

September 30, December 31,

2018 2017

(Dollars in millions)

Credit risk profile by internally assigned grade:

Non-classified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 280,952 $ 263,416

Classified(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,002 3,585

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285,954 $ 267,001

_________

(1) Represents loans classified as “Substandard,” which have a well-defined weakness that jeopardizes the timely full 

repayment. Loans with a weakness that makes collection or liquidation in full highly questionable and improbable based on 

existing conditions and values are referred to as “Doubtful.” We had no loans classified as doubtful for the periods 

indicated.

Individually Impaired Loans

Individually impaired loans include troubled debt restructurings (“TDRs”), acquired credit-impaired loans and 

multifamily loans that we have assessed as probable that we will not collect all contractual amounts due, 

regardless of whether we are currently accruing interest; excluding loans classified as HFS. The following tables 

display the total unpaid principal balance, recorded investment, related allowance, average recorded investment 

and interest income recognized for individually impaired loans. 
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 64

As of

September 30, 2018 December 31, 2017

Unpaid

Principal

Balance

Total

Recorded

Investment

Related

Allowance

for Loan

Losses

Unpaid

Principal

Balance

Total

Recorded

Investment

Related

Allowance

for Loan

Losses

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,297 $ 81,905 $ (10,348) $ 91,194 $ 86,864 $ (11,652)

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 274 (58) 276 279 (56)

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,058 16,505 (3,153) 23,077 21,045 (4,046)

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,334 5,972 (1,176) 8,488 8,006 (1,493)

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . 109,958 104,656 (14,735) 123,035 116,194 (17,247)

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 232 (44) 279 280 (42)

Total individually impaired loans with related

allowance recorded . . . . . . . . . . . . . . . . . . . . . . . . . 110,189 104,888 (14,779) 123,314 116,474 (17,289)

With no related allowance recorded:(1)

Single-family:

Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,656 14,916 — 16,027 15,158 —

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 55 — 66 60 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,730 2,461 — 3,253 2,870 —

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 759 — 988 909 —

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . 19,261 18,191 — 20,334 18,997 —

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 312 — 308 310 —

Total individually impaired loans with no related

allowance recorded . . . . . . . . . . . . . . . . . . . . . . . . . 19,573 18,503 — 20,642 19,307 —

Total individually impaired loans(2)

. . . . . . . . . . . . . . . . . $ 129,762 $ 123,391 $ (14,779) $ 143,956 $ 135,781 $ (17,289)
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 65

For the Three Months Ended September 30,

2018 2017

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,043 $ 871 $ 86 $ 90,941 $ 912 $ 75

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 3 — 289 2 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,034 179 13 22,904 228 13

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,254 57 4 8,817 78 4

Total single-family . . . . . . . . . . . . . . . . . . . . . . . 107,607 1,110 103 122,951 1,220 92

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 1 — 232 1 —

Total individually impaired loans with related

allowance recorded. . . . . . . . . . . . . . . . . . . . . . . 107,838 1,111 103 123,183 1,221 92

With no related allowance recorded:(1)

Single-family:

Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,140 254 30 15,402 273 24

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 1 — 61 — —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,562 54 4 3,008 65 5

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 784 13 2 983 21 1

Total single-family . . . . . . . . . . . . . . . . . . . . . . . 18,543 322 36 19,454 359 30

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 8 — 304 6 —

Total individually impaired loans with no related

allowance recorded. . . . . . . . . . . . . . . . . . . . . . . 18,878 330 36 19,758 365 30

Total individually impaired loans . . . . . . . . . . . . . . . . $126,716 $ 1,441 $ 139 $142,941 $ 1,586 $ 122
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 66

For the Nine Months Ended September 30,

2018 2017

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,842 $ 2,697 $ 302 $ 94,594 $ 2,853 $ 240

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 15 — 295 7 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,081 610 45 24,233 717 42

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,140 201 15 9,480 247 14

Total single-family . . . . . . . . . . . . . . . . . . . . . . . 113,340 3,523 362 128,602 3,824 296

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 2 — 271 7 —

Total individually impaired loans with related

allowance recorded. . . . . . . . . . . . . . . . . . . . . . . 113,584 3,525 362 128,873 3,831 296

With no related allowance recorded:(1)

Single-family:

Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,039 740 88 15,173 835 71

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 3 — 61 2 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,710 173 13 3,041 205 10

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848 44 4 1,023 65 3

Total single-family . . . . . . . . . . . . . . . . . . . . . . . 18,655 960 105 19,298 1,107 84

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 11 — 294 16 —

Total individually impaired loans with no related

allowance recorded. . . . . . . . . . . . . . . . . . . . . . . 18,988 971 105 19,592 1,123 84

Total individually impaired loans . . . . . . . . . . . . . . . . $132,572 $ 4,496 $ 467 $148,465 $ 4,954 $ 380

__________

(1) The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation 

allowance is required.

(2) Includes single-family loans classified as TDRs with a recorded investment of $122.4 billion and $134.7 billion as of 

September 30, 2018 and December 31, 2017, respectively. Includes multifamily loans classified as TDRs with a recorded 

investment of $210 million and $185 million as of September 30, 2018 and December 31, 2017, respectively.

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. We account for these informal restructurings as a TDR if we defer more than three missed 

payments. We also classify loans to certain borrowers who have received bankruptcy relief as TDRs.

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, 2018, the average term 

extension of a single-family modified loan was 98 months and 104 months, respectively, and the average interest 

rate reduction was 0.14 and 0.23 percentage points, respectively. During the three and nine months ended 

September 30, 2017, the average term extension of a single-family modified loan was 156 months and 155 

months, respectively, and the average interest rate reduction was 0.35 and 0.66 percentage points, respectively.
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 67

The following tables display the number of loans and recorded investment in loans classified as a TDR.

For the Three Months Ended September 30,

2018 2017

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,291 $ 1,797 13,323 $ 1,847

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3 32 5

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 779 100 1,229 182

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 37 264 50

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,298 1,937 14,848 2,084

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 5 82

Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,300 $ 1,944 14,853 $ 2,166

For the Nine Months Ended September 30,

2018 2017

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,790 $ 11,469 44,706 $ 6,155

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 9 138 15

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,499 583 4,122 600

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937 173 844 149

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,321 12,234 49,810 6,919

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 68 8 99

Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,333 $ 12,302 49,818 $ 7,018

The increase in loans classified as TDRs for the nine months ended September 30, 2018 compared with the nine

months ended September 30, 2017 was primarily attributable to single-family loan modifications and other forms 

of loss mitigation in the areas affected by Hurricanes Harvey, Irma and Maria that resulted in a restructuring of the 

terms of these loans.
Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 68

For loans that had a payment default in the period presented and that were classified as a TDR in the twelve 

months prior to the payment default, the following tables display the number of loans and our recorded investment 

in these loans at the time of 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 short 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,

2018 2017

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,720 $ 519 4,900 $ 684

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 — 25 3

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 74 627 95

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 29 178 34

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,309 622 5,730 816

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 — —

Total TDRs that subsequently defaulted . . . . . . . . . . . . . . . . 4,310 $ 624 5,730 $ 816

For the Nine Months Ended September 30,

2018 2017

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,372 $ 1,774 13,617 $ 1,894

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4 69 8

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,703 275 1,857 288

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 93 529 102

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,581 2,146 16,072 2,292

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4 1 4

Total TDRs that subsequently defaulted . . . . . . . . . . . . . . . . . . 14,583 $ 2,150 16,073 $ 2,296
Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 69

4. Allowance for Loan Losses

We maintain an allowance for loan losses for HFI loans held by Fannie Mae and loans backing Fannie Mae MBS 

issued from consolidated trusts. When calculating our allowance for loan losses, we consider the unpaid principal 

balance, net of amortized premiums and discounts, and other cost basis adjustments of HFI loans at the balance 

sheet date. We record charge-offs as a reduction to our allowance for loan losses at the point of foreclosure, 

completion of a short sale, upon the redesignation of loans from HFI to HFS or when a loan is determined to be 

uncollectible.

We aggregate single-family HFI loans that are not individually impaired based on similar risk characteristics for 

purposes of estimating incurred credit losses and establishing a collective single-family loss reserve using an 

econometric model that derives an overall loss reserve estimate. We base our allowance methodology on 

historical events and trends, such as loss severity (in event of default), default rates, and recoveries from 

mortgage insurance contracts and other credit enhancements that provide loan level loss coverage and are either 

contractually attached to a loan or that were entered into contemporaneously with and in contemplation of a 

guaranty or loan purchase transaction. We use recent regional historical sales and appraisal information including 

the sales of our own foreclosed properties, to develop our loss severity estimates for all loan categories. Our 

allowance calculation also incorporates a loss confirmation period (the anticipated time lag between a credit loss 

event and the confirmation of the credit loss resulting from that event) to ensure our allowance estimate captures 

credit losses that have been incurred as of the balance sheet date but have not been confirmed. In addition, 

management performs a review of the observable data used in its estimate to ensure it is representative of 

prevailing economic conditions and other events existing as of the balance sheet date.

Individually impaired single-family loans currently include those classified as a TDR and acquired credit-impaired 

loans. We consider a loan to be impaired when, based on current information, it is probable that we will not 

receive all amounts due, including interest, in accordance with the contractual terms of the loan agreement. When 

a loan has been restructured, we measure impairment using a cash flow analysis discounted at the loan’s original 

effective interest rate. If we expect to recover our recorded investment in an individually impaired loan through 

probable foreclosure of the underlying collateral, we measure impairment based on the fair value of the collateral, 

reduced by estimated disposal costs and adjusted for estimated proceeds from mortgage, flood, or hazard 

insurance or similar sources.

We establish a collective allowance for all loans in our multifamily guaranty book of business that are not 

individually measured for impairment using an internal model that applies loss factors to loans in similar risk 

categories. Our loss factors are developed based on our historical default and loss severity experience. We 

identify multifamily loans for evaluation for impairment through a credit risk assessment process. If we determine 

that a multifamily loan is individually impaired, we generally measure impairment on that loan based on the fair 

value of the underlying collateral less estimated costs to sell the property, as we have concluded that such loans 

are collateral dependent. We evaluate collectively for impairment smaller-balance homogeneous multifamily 

loans. 
Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 70

The following table displays changes in single-family, multifamily and total allowance for loan losses. 

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,602) $ (20,218) $ (18,849) $ (23,283)

Benefit (provision) for loan losses(1)

. . . . . . . . . . . . . . . . . . . . 724 (163) 1,916 1,442

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509 434 1,705 2,163

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) (42) (189) (273)

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 17 (19) (21)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (15,436) $ (19,972) $ (15,436) $ (19,972)

Multifamily allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (210) $ (181) $ (235) $ (182)

Benefit (provision) for loan losses(1)

. . . . . . . . . . . . . . . . . . . . (14) (42) 6 (40)

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3 5 3

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) (3) (3)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (227) $ (222) $ (227) $ (222)

Total allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,812) $ (20,399) $ (19,084) $ (23,465)

Benefit (provision) for loan losses(1)

. . . . . . . . . . . . . . . . . . . . 710 (205) 1,922 1,402

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509 437 1,710 2,166

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68) (44) (192) (276)

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 17 (19) (21)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (15,663) $ (20,194) $ (15,663) $ (20,194)

__________

(1) Benefit (provision) for loan losses is included in “Benefit (provision) for credit losses” in our condensed consolidated 

statements of operations and comprehensive income.

(2) Amounts represent the portion of benefit (provision) for loan losses, charge-offs and recoveries that are not a part of the 

allowance for loan losses.
Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 71

The following table displays the allowance for loan losses and recorded investment in our HFI loans by 

impairment or allowance methodology and portfolio segment, excluding loans for which we have elected the fair 

value option.

As of

September 30, 2018 December 31, 2017

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans(1)

. . . . . . . . . $ (14,735) $ (44) $ (14,779) $ (17,247) $ (42) $ (17,289)

Collectively reserved loans . . . . . . . . . . (701) (183) (884) (1,602) (193) (1,795)

Total allowance for loan losses . . . . . $ (15,436) $ (227) $ (15,663) $ (18,849) $ (235) $ (19,084)

Recorded investment in loans by segment:

Individually impaired loans(1)

. . . . . . . . . $ 122,847 $ 544 $ 123,391 $ 135,191 $ 590 $ 135,781

Collectively reserved loans . . . . . . . . . . 2,828,815 285,410 3,114,225 2,787,783 266,411 3,054,194

Total recorded investment in loans . $ 2,951,662 $ 285,954 $ 3,237,616 $ 2,922,974 $ 267,001 $ 3,189,975

__________

(1) Includes acquired credit-impaired loans.

5. Investments in Securities

Trading Securities

Trading securities are recorded at fair value with subsequent changes in fair value recorded as “Fair value gains 

(losses), net” in our condensed consolidated statements of operations and comprehensive income. The following 

table displays our investments in trading securities.

As of

September 30,

2018

December 31,

2017

(Dollars in millions)

Mortgage-related securities:

Fannie Mae(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,469 $ 3,876

Other agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,642 1,118

Alt-A and subprime private-label securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,367 453

Commercial mortgage-backed securities (“CMBS”) . . . . . . . . . . . . . . . . . . . . . . . . . — 9

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1

Total mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,479 5,457

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,328 29,222

Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 —

Total non-mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,422 29,222

Total trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,901 $ 34,679

__________

(1) The increase in Alt-A and subprime private-label securities from December 31, 2017 to September 30, 2018 was due to the 

dissolution in the first quarter of 2018 of a Fannie Mae-wrapped private-label securities trust. The Fannie Mae-wrapped 

private-label securities had been classified as Fannie Mae mortgage-related securities prior to the dissolution.
Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 72

The following table displays information about our net trading gains (losses).

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Net trading gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (40) $ 59 $ 79 $ 145

Net trading gains (losses) recognized in the period related to

securities still held at period end . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) 51 20 125

Available-for-Sale Securities

We record available-for-sale (“AFS”) securities at fair value with unrealized gains and losses, recorded net of tax, 

as a component of “Other comprehensive income (loss)” and we recognize realized gains and losses from the 

sale of AFS securities in “Investment gains, net” in our condensed consolidated statements of operations and 

comprehensive income. 

The following table displays the gross realized gains and proceeds on sales of AFS securities.

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12 $ 30 $ 375 $ 260

Total proceeds (excludes initial sale of securities from new portfolio

securitizations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 187 662 1,081

The following tables display the amortized cost, gross unrealized gains and losses, and fair value by major 

security type for AFS securities.

As of September 30, 2018

Total 

Amortized 

Cost(1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses(2)

Total

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,808 $ 58 $ (38) $ 1,828

Other agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 16 — 272

Alt-A and subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . 337 280 — 617

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 15 (5) 464

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 17 — 356

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,194 $ 386 $ (43) $ 3,537

As of December 31, 2017

Total 

Amortized 

Cost(1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses(2)

Total

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,044 $ 102 $ (27) $ 2,119

Other agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 25 — 357

Alt-A and subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . 662 652 — 1,314

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 — — 15

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655 20 (4) 671

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 17 — 367

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,058 $ 816 $ (31) $ 4,843
Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 73

__________

(1) Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, 

as well as net other-than-temporary impairments (“OTTI”) recognized in “Investment gains, net” in our condensed 

consolidated statements of operations and comprehensive income.

(2) Represents the gross unrealized losses on securities for which we have not recognized OTTI, as well as the noncredit 

component of OTTI and cumulative changes in fair value of securities for which we previously recognized the credit 

component of OTTI in “Accumulated other comprehensive income” in our condensed consolidated balance sheets.

The following tables display additional information regarding gross unrealized losses and fair value by major 

security type for AFS securities in an unrealized loss position.

As of September 30, 2018

Less Than 12

Consecutive Months

12 Consecutive

Months or Longer

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3) $ 208 $ (35) $ 472

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 42 (3) 3

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5) $ 250 $ (38) $ 475

As of December 31, 2017

Less Than 12

Consecutive Months

12 Consecutive

Months or Longer

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ 134 $ (26) $ 461

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (4) 3

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ 134 $ (30) $ 464

Other-Than-Temporary Impairments

The balance of the unrealized credit loss component of AFS debt securities held by us and recognized in our 

condensed consolidated statements of operations and comprehensive income was $718 million, $733 million and 

$1.1 billion as of September 30, 2018, June 30, 2018 and December 31, 2017, respectively. The decreases for 

the three and nine months ended September 30, 2018 were primarily driven by securities no longer held in our 

portfolio at period end. 

The balance of the unrealized credit loss component of AFS debt securities held by us and recognized in our 

condensed consolidated statements of operations and comprehensive income was $1.2 billion, $1.8 billion and 

$1.9 billion as of September 30, 2017, June 30, 2017 and December 31, 2016, respectively. The decreases for 

the three and nine months ended September 30, 2017 were primarily driven by securities we intend to sell or that 

it is more likely than not we will sell before recovery of our amortized cost basis.
Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 74

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and 

remaining contractual maturity, assuming no principal prepayments. The contractual maturity of mortgage-backed 

securities is not a reliable indicator of their expected life because borrowers generally have the right to prepay 

their obligations at any time.

As of September 30, 2018

Total

Amortized

Cost

Total 

Fair 

Value

One Year or Less

After One Year

Through Five Years

After Five Years

Through Ten Years After Ten Years

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . $ 1,808 $ 1,828 $ — $ — $ 13 $ 13 $ 77 $ 81 $ 1,718 $ 1,734

Other agency . . . . . . . . . . . 256 272 2 1 9 10 42 45 203 216

Alt-A and subprime privatelabel securities . . . . . . . 337 617 — — — — — — 337 617

Mortgage revenue bonds . . 454 464 3 4 33 33 61 62 357 365

Other mortgage-related

securities. . . . . . . . . . . . 339 356 — — — — 7 6 332 350

Total . . . . . . . . . . . . . . . . . $ 3,194 $ 3,537 $ 5 $ 5 $ 55 $ 56 $ 187 $ 194 $ 2,947 $ 3,282

6. 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. The remaining contractual terms of our guarantees range from 1 day to 34 years; however, 

the actual term of each guaranty may be significantly less than the contractual term based on the prepayment 

characteristics of the related mortgage loans. The following table displays our maximum exposure, guaranty 

obligation recognized in our condensed consolidated balance sheets, and the maximum potential recovery from 

third parties through available credit enhancements and recourse related to our financial guarantees.

As of

September 30, 2018 December 31, 2017

Maximum

Exposure

Guaranty

Obligation

Maximum 

Recovery(1)

Maximum

Exposure

Guaranty

Obligation

Maximum 

Recovery(1)

(Dollars in millions)

Unconsolidated Fannie Mae MBS. . . . . . . . $ 7,485 $ 31 $ 6,930 $ 10,876 $ 127 $ 7,340

Other guaranty arrangements(2)

. . . . . . . . . 14,024 131 2,399 14,265 131 2,404

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,509 $ 162 $ 9,329 $ 25,141 $ 258 $ 9,744

__________

(1) Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurers’ and 

financial guarantors’ ability to meet their obligations to us. For information on our mortgage insurers and financial 

guarantors, see “Note 13, Concentrations of Credit Risk” in our 2017 Form 10-K and “Note 11, Concentrations of Credit 

Risk” in this report.

(2) Primarily consists of credit enhancements and long-term standby commitments.
Notes to Condensed Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 75

7. Short-Term and Long-Term Debt

Short-Term Debt

The following table displays our outstanding short-term debt (debt with an original contractual maturity of one year 

or less) and weighted-average interest rates of this debt.

As of

September 30, 2018 December 31, 2017

Outstanding

WeightedAverage 

Interest 

Rate(1) Outstanding

WeightedAverage 

Interest 

Rate(1)

(Dollars in millions)

Federal funds purchased and securities sold under agreements 

to repurchase(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 749 1.90% $ — —%

Short-term debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,248 2.06% $ 33,377 1.18%

Debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 2.33 379 1.11

Total short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,522 2.06% $ 33,756 1.18%

__________

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Represents agreements to repurchase securities for a specified price, with repayment generally occurring on the following 

day.

Intraday Line of Credit

We use a secured intraday funding line of credit provided by a large financial institution. We post collateral which, 

in some circumstances, the secured party has the right to repledge to third parties. As this line of credit is an 

uncommitted intraday loan facility, we may be unable to draw on it if and when needed. The line of credit under 

this facility was $15.0 billion as of September 30, 2018 and December 31, 2017.
Notes to Condensed Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 76

Long-Term Debt

Long-term debt represents debt with an original contractual maturity of greater than one year. The following table 

displays our outstanding long-term debt.

As of

September 30, 2018 December 31, 2017

Maturities Outstanding

WeightedAverage 

Interest 

Rate(1) Maturities Outstanding

WeightedAverage 

Interest 

Rate(1)

(Dollars in millions)

Senior fixed:

Benchmark notes and bonds . . . . . . . . 2018 - 2030 $ 111,190 2.33% 2018 - 2030 $ 123,541 2.11%

Medium-term notes(2)

. . . . . . . . . . . . . . 2018 - 2026 66,297 1.50 2018 - 2026 75,901 1.41

Other(3)

. . . . . . . . . . . . . . . . . . . . . . . . . 2018 - 2038 6,725 4.74 2018 - 2038 7,421 4.84

Total senior fixed . . . . . . . . . . . . . . . 184,212 2.12 206,863 1.95

Senior floating:

Medium-term notes(2)

. . . . . . . . . . . . . . 2019 - 2020 2,675 2.05 2018 - 2020 8,425 1.36

Connecticut Avenue Securities(4)

. . . . . 2023 - 2031 25,657 5.73 2023 - 2030 22,527 5.18

Other(5)

. . . . . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 347 7.59 2020 - 2037 376 6.36

Total senior floating . . . . . . . . . . . . . 28,679 5.41 31,328 4.14

Subordinated debentures . . . . . . . . . . . . . 2019 5,486 9.96 2019 5,106 9.93

Secured borrowings(6)

. . . . . . . . . . . . . . . . 2021 - 2022 57 1.75 2021 - 2022 78 1.70

Total long-term debt of Fannie Mae(7)

. 218,434 2.75 243,375 2.40

Debt of consolidated trusts . . . . . . . . . . . . 2018 - 2058 3,127,414 2.92 2018 - 2057 3,052,923 2.80

Total long-term debt . . . . . . . . . . . . . $ 3,345,848 2.91% $ 3,296,298 2.77%

__________

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zerocoupon debt.

(3) Includes other long-term debt with an original contractual maturity of greater than 10 years and foreign exchange bonds.

(4) Credit risk-sharing securities that transfer a portion of the credit risk on specified pools of single-family mortgage loans to 

the investors in these securities, a portion of which is reported at fair value. 

(5) Consists of structured debt instruments that are reported at fair value.

(6) Represents our remaining liability resulting from the transfer of financial assets from our condensed consolidated balance 

sheets that did not qualify as a sale under the accounting guidance for the transfer of financial instruments.

(7) Includes unamortized discounts and premiums, other cost basis adjustments and fair value adjustments of $399 million and 

$752 million as of September 30, 2018 and December 31, 2017, respectively.

8. Derivative Instruments

Derivative instruments are an integral part of our strategy in managing interest rate risk. Derivative instruments 

may be privately-negotiated, bilateral contracts, or they may be listed and traded on an exchange. We refer to our 

derivative transactions made pursuant to bilateral contracts as our over-the-counter (“OTC”) derivative 

transactions and our derivative transactions accepted for clearing by a derivatives clearing organization as our 

cleared derivative transactions. We typically do not settle the notional amount of our risk management derivatives; 

rather, notional amounts provide the basis for calculating actual payments or settlement amounts. The derivatives 

we use for interest rate risk management purposes consist primarily of interest rate swaps and interest rate 

options. 

We enter into various forms of credit risk sharing agreements, including credit risk transfer transactions, swap 

credit enhancements and mortgage insurance contracts, that we account for as derivatives. The majority of our 

credit-related derivatives are credit risk transfer transactions, whereby a portion of the credit risk associated with 

losses on a reference pool of mortgage loans is transferred to a third party.
Notes to Condensed Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 77

We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and 

mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and 

purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional 

amount of our mortgage commitments that are accounted for as derivatives.

We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their 

fair value on a trade date basis. Fair value amounts, which are netted to the extent a legal right of offset exists 

and is enforceable by law at the counterparty level and are inclusive of the right or obligation associated with the 

cash collateral posted or received, are recorded in “Other assets” or “Other liabilities” in our condensed 

consolidated balance sheets. See “Note 13, Fair Value” for additional information on derivatives recorded at fair 

value. We present cash flows from derivatives as operating activities in our condensed consolidated statements of 

cash flows.

Notional and Fair Value Position of our Derivatives

The following table displays the notional amount and estimated fair value of our asset and liability derivative 

instruments.

As of September 30, 2018 As of December 31, 2017

Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives

Notional

Amount

Estimated

Fair Value

Notional

Amount

Estimated

Fair Value

Notional

Amount

Estimated

Fair Value

Notional

Amount

Estimated

Fair Value

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed . . . . . . . . . . . . . . . . . $ 103,362 $ 898 $ 18,245 $ (520) $ 52,732 $ 772 $ 70,211 $ (2,120)

Receive-fixed . . . . . . . . . . . . . . 114,773 1,031 60,219 (1,259) 31,671 2,391 138,852 (1,764)

Basis. . . . . . . . . . . . . . . . . . . . . 273 93 600 — 873 124 — —

Foreign currency . . . . . . . . . . . 225 28 228 (60) 234 59 236 (56)

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . 11,775 321 350 (2) 9,750 95 4,000 (20)

Receive-fixed . . . . . . . . . . . . . . 500 14 7,375 (366) 250 13 9,250 (304)

Other(1)

. . . . . . . . . . . . . . . . . . . . . . . . 25,799 18 — (1) 13,240 22 7,315 (1)

Total gross risk management

derivatives . . . . . . . . . . . . . . . . 256,707 2,403 87,017 (2,208) 108,750 3,476 229,864 (4,265)

Accrued interest receivable

(payable) . . . . . . . . . . . . . . . . . — 437 — (504) — 835 — (814)

Netting adjustment(2)

. . . . . . . . . . . — (2,775) — 2,648 — (4,272) — 4,979

Total net risk management

derivatives . . . . . . . . . . . . . . . $ 256,707 $ 65 $ 87,017 $ (64) $ 108,750 $ 39 $ 229,864 $ (100)

Mortgage commitment derivatives:

Mortgage commitments to

purchase whole loans . . . . . . . $ 2,569 $ 3 $ 3,054 $ (15) $ 4,143 $ 9 $ 1,570 $ (2)

Forward contracts to purchase

mortgage-related securities . . . 15,301 21 36,797 (149) 45,925 108 21,099 (21)

Forward contracts to sell

mortgage-related securities . . . 61,979 264 26,773 (48) 19,320 15 85,556 (205)

Total mortgage commitment

derivatives . . . . . . . . . . . . . . . 79,849 288 66,624 (212) 69,388 132 108,225 (228)

Derivatives at fair value . . . . . . $ 336,556 $ 353 $ 153,641 $ (276) $ 178,138 $ 171 $ 338,089 $ (328)

__________

(1) Includes credit risk transfer transactions, futures, swap credit enhancements and mortgage insurance contracts that we 

account for as derivatives.

(2) The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting 

arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received. Cash 

collateral posted was $611 million and $1.4 billion as of September 30, 2018 and December 31, 2017, respectively. Cash 

collateral received was $738 million and $649 million as of September 30, 2018 and December 31, 2017, respectively. 
Notes to Condensed Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 78

We record all derivative gains and losses, including accrued interest, in “Fair value gains (losses), net” in our 

condensed consolidated statements of operations and comprehensive income. The following table displays, by 

type of derivative instrument, the fair value gains and losses, net on our derivatives. 

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,034 $ 300 $ 4,784 $ 300

Receive-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (524) (202) (3,508) 120

Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) 1 (31) 24

Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) 13 (35) 36

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 (40) 232 (88)

Receive-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) (8) (72) (34)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 11 (5) 6

Net accrual of periodic settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . (285) (223) (786) (702)

Total risk management derivatives fair value gains (losses), net. . . 242 (148) 579 (338)

Mortgage commitment derivatives fair value gains (losses), net . . . . . . 118 (248) 606 (520)

Total derivatives fair value gains (losses), net . . . . . . . . . . . . . . . . . $ 360 $ (396) $ 1,185 $ (858)

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate derivative contracts. We are 

exposed to the risk that a counterparty in a derivative transaction will default on payments due to us, which may 

require us to seek a replacement derivative from a different counterparty. This replacement may be at a higher 

cost, or we may be unable to find a suitable replacement. We manage our derivative counterparty credit exposure 

relating to our risk management derivative transactions mainly through enforceable master netting arrangements, 

which allow us to net derivative assets and liabilities with the same counterparty or clearing organization and 

clearing member. For our OTC derivative transactions, we require counterparties to post collateral, which may 

include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.

See “Note 12, Netting Arrangements” for information on our rights to offset assets and liabilities.
Notes to Condensed Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 79

9. Segment Reporting

We have two reportable business segments: 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 condensed consolidated results of operations.

The following tables display our segment results.

For the Three Months Ended September 30,

2018 2017

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Net interest income(1)

. . . . . . . . . . . . . . . . . . $ 4,670 $ 699 $ 5,369 $ 4,627 $ 647 $ 5,274

Fee and other income(2)

. . . . . . . . . . . . . . . . 79 192 271 1,005 189 1,194

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . 4,749 891 5,640 5,632 836 6,468

Investment gains, net(3)

. . . . . . . . . . . . . . . . . 146 20 166 286 27 313

Fair value gains (losses), net(4)

. . . . . . . . . . . 417 (31) 386 (300) 11 (289)

Administrative expenses . . . . . . . . . . . . . . . . (636) (104) (740) (580) (84) (664)

Credit-related income (expense)(5)

Benefit (provision) for credit losses . . . . . 732 (16) 716 (137) (45) (182)

Foreclosed property income (expense). . (150) (9) (159) (157) 17 (140)

Total credit-related income (expense). . . . . . 582 (25) 557 (294) (28) (322)

TCCA fees(6)

. . . . . . . . . . . . . . . . . . . . . . . . . (576) — (576) (531) — (531)

Other expenses, net . . . . . . . . . . . . . . . . . . . (282) (95) (377) (320) (107) (427)

Income before federal income taxes. . . . . . . 4,400 656 5,056 3,893 655 4,548

Provision for federal income taxes . . . . . . . . (938) (107) (1,045) (1,361) (164) (1,525)

Net income . . . . . . . . . . . . . . . . . . . . . . . $ 3,462 $ 549 $ 4,011 $ 2,532 $ 491 $ 3,023

For the Nine Months Ended September 30,

2018 2017

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Net interest income(1)

. . . . . . . . . . . . . . . . . . . $ 13,954 $ 2,024 $ 15,978 $ 13,749 $ 1,873 $ 15,622

Fee and other income(2)

. . . . . . . . . . . . . . . . . 306 524 830 1,192 604 1,796

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . 14,260 2,548 16,808 14,941 2,477 17,418

Investment gains, net(3)

. . . . . . . . . . . . . . . . . 640 53 693 557 132 689

Fair value gains (losses), net(4)

. . . . . . . . . . . 1,729 (69) 1,660 (997) (23) (1,020)

Administrative expenses . . . . . . . . . . . . . . . . (1,928) (317) (2,245) (1,781) (253) (2,034)

Credit-related income (expense)(5)

Benefit (provision) for credit losses . . . . . 2,223 6 2,229 1,518 (37) 1,481

Foreclosed property income (expense) . . (448) (12) (460) (405) 14 (391)

Total credit-related income (expense) . . . . . . 1,775 (6) 1,769 1,113 (23) 1,090

TCCA fees(6)

. . . . . . . . . . . . . . . . . . . . . . . . . (1,698) — (1,698) (1,552) — (1,552)

Other expenses, net . . . . . . . . . . . . . . . . . . . (684) (262) (946) (731) (369) (1,100)

Income before federal income taxes . . . . . . . 14,094 1,947 16,041 11,550 1,941 13,491

Provision for federal income taxes . . . . . . . . (2,998) (314) (3,312) (4,014) (481) (4,495)

Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 11,096 $ 1,633 $ 12,729 $ 7,536 $ 1,460 $ 8,996
Notes to Condensed Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 80

__________

(1) Net interest income primarily consists of guaranty fees received as compensation for assuming and managing the credit 

risk on loans underlying Fannie Mae MBS held by third parties for the respective business segment, and the difference 

between the interest income earned on the respective business segment’s mortgage assets in our retained mortgage 

portfolio and the interest expense associated with the debt funding those assets. Revenues from single-family guaranty 

fees include revenues generated by the 10 basis point increase in guaranty fees pursuant to the TCCA, the incremental 

revenue from which is remitted to Treasury and not retained by us.

(2) Single-Family fee and other income primarily consists of compensation for engaging in structured transactions and 

providing other lender services, and income resulting from settlement agreements resolving certain claims relating to 

private-label securities we purchased or that we have guaranteed. Multifamily fee and other income consists of fees 

associated with multifamily business activities, including yield maintenance income.

(3) Investment gains and losses primarily consists of gains and losses on the sale of mortgage assets for the respective 

business segment. 

(4) Single-Family fair value gains and losses primarily consist of fair value gains and losses on risk management and 

mortgage commitment derivatives, trading securities and other financial instruments associated with our single-family total 

book of business. Multifamily fair value gains and losses primarily consist of fair value gains and losses on MBS 

commitment derivatives, trading securities and other financial instruments associated with our multifamily total book of 

business. 

(5) Credit-related income or expense is based on the guaranty book of business of the respective business segment and 

consists of the applicable segment’s benefit or provision for credit losses and foreclosed property expense on loans 

underlying the segment’s guaranty book of business. 

(6) Consists of the portion of our single-family guaranty fees that is remitted to Treasury pursuant to the TCCA.

10. Equity

The following table displays the activity in other comprehensive income (loss), net of tax, by major categories.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2018 2017 2018 2017

(Dollars in millions)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,011 $ 3,023 $ 12,729 $ 8,996

Other comprehensive income (loss), net of tax effect:

Changes in net unrealized gains (losses) on AFS securities (net of

tax of $8 and $25, respectively, for the three months ended and

net of tax of $22 and $36, respectively, for the nine months

ended) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31) 47 (84) 67

Reclassification adjustment for gains on AFS securities and OTTI

recognized in net income (net of tax of $1 and $12,

respectively for the three months ended and net of tax of $71

and $63, respectively, for the nine months ended) . . . . . . . . . . . (2) (20) (265) (113)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) (8) (6)

Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . (36) 25 (357) (52)

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,975 $ 3,048 $ 12,372 $ 8,944

The following table displays our accumulated other comprehensive income, net of tax, by major categories.

As of

September 30, December 31,

2018 2017

(Dollars in millions)

Net unrealized gains on AFS securities for which we have not recorded OTTI . . . . . . $ 34 $ 87

Net unrealized gains on AFS securities for which we have recorded OTTI . . . . . . . . . 237 423

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 43

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313 $ 553
Notes to Condensed Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 81

The following table displays changes in accumulated other comprehensive income, net of tax.

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2018 2017 2018 2017

AFS(1) Other Total AFS(1) Other Total AFS(1) Other Total AFS(1) Other Total

(Dollars in millions)

Beginning balance . . . . . . . . . . . . . $ 304 $ 45 $ 349 $ 643 $ 39 $ 682 $ 510 $ 43 $ 553 $ 716 $ 43 $ 759

Reclassification of accumulated 

other comprehensive income 

to retained earnings resulting 

from the enactment of the 

Tax Cuts and Jobs Act(2)

. . . . — — — — — — 110 7 117 — — —

Other comprehensive income

(loss) before reclassifications (31) — (31) 47 — 47 (84) — (84) 67 — 67

Amounts reclassified from other

comprehensive income (loss) (2) (3) (5) (20) (2) (22) (265) (8) (273) (113) (6) (119)

Net other comprehensive

income (loss) . . . . . . . . . . . (33) (3) (36) 27 (2) 25 (349) (8) (357) (46) (6) (52)

Ending balance . . . . . . . . . . . . . . . $ 271 $ 42 $ 313 $ 670 $ 37 $ 707 $ 271 $ 42 $ 313 $ 670 $ 37 $ 707

__________

(1) The amounts reclassified from accumulated other comprehensive income represent the gain or loss recognized in earnings 

due to a sale of an AFS security or the recognition of a net impairment recognized in earnings, which are recorded in 

“Investment gains, net” in our condensed consolidated statements of operations and comprehensive income.

(2) Reclassification from accumulated other comprehensive income to retained earnings of the tax effects resulting from the 

enactment of tax legislation on December 22, 2017 that reduced the federal corporate income tax rate from 35% to 21%

effective January 1, 2018. This amount is not included in net other comprehensive income (loss) for the three or nine 

months ended September 30, 2018.

11. Concentrations of Credit Risk

Risk Characteristics of our Guaranty Book of Business

One of the measures by which we gauge our performance risk under our guaranty is the delinquency status of the 

mortgage loans we hold in our retained mortgage portfolio, or in the case of mortgage-backed securities, the 

mortgage loans underlying the related securities.

For single-family loans, management monitors the serious delinquency rate, which is the percentage of singlefamily loans, based on number of loans, that are 90 days or more past due or in the foreclosure process, and 

loans that have higher risk characteristics, such as high mark-to-market LTV ratios.

For multifamily loans, management monitors the serious delinquency rate, which is the percentage of multifamily 

loans, based on unpaid principal balance, that are 60 days or more past due, and other loans that have higher 

risk characteristics, to determine our overall credit quality indicator. Higher risk characteristics include, but are not 

limited to, current debt service coverage ratio (“DSCR”) below 1.0 and high original LTV ratios. We stratify 

multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan.

For single-family and multifamily loans, we use this information, in conjunction with housing market and economic 

conditions, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans 

with these 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.
Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 82

The following tables display the delinquency status and serious delinquency rates for specified loan categories of 

our single-family conventional and total multifamily guaranty book of business.

As of

September 30, 2018(1) December 31, 2017(1)

30 Days

Delinquent

60 Days

Delinquent

Seriously 

Delinquent(2)

30 Days

Delinquent

60 Days

Delinquent

Seriously 

Delinquent(2)

Percentage of single-family 

conventional guaranty book of 

business(3)

. . . . . . . . . . . . . . . . 1.30% 0.32% 0.75% 1.42% 0.43% 1.15%

Percentage of single-family 

conventional loans(4). . . . . . . . 1.52 0.37 0.82 1.63 0.50 1.24

As of

September 30, 2018(1) December 31, 2017(1)

Percentage of 

Single-Family

Conventional

Guaranty Book 

of Business(3)

Seriously 

Delinquent 

Rate(2)

Percentage of 

Single-Family

Conventional

Guaranty Book 

of Business(3)

Seriously 

Delinquent 

Rate(2)

Estimated mark-to-market LTV ratio:

Greater than 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . 1% 10.65% 1% 11.70%

Geographical distribution:

California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 0.34 19 0.42

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.51 6 3.71

New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.51 4 2.15

New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.55 5 2.02

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 0.77 66 1.09

Product distribution:

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.68 2 4.95

Vintages:

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.77 4 3.28

2005-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.90 6 6.55

2009-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 0.34 90 0.53

__________

(1) Consists of the portion of our single-family conventional guaranty book of business for which we have detailed loan level 

information, which constituted approximately 99% of our total single-family conventional guaranty book of business as of 

September 30, 2018 and December 31, 2017.

(2) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of 

September 30, 2018 and December 31, 2017.

(3) Calculated based on the aggregate unpaid principal balance of single-family conventional loans for each category divided 

by the aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business.

(4) Calculated based on the number of single-family conventional loans that were delinquent divided by the total number of 

loans in our single-family conventional guaranty book of business.
Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 83

As of

September 30, 2018 (1)(2) December 31, 2017(1)(2)

30 Days

Delinquent

Seriously 

Delinquent(3)

30 Days

Delinquent

Seriously 

Delinquent(3)

Percentage of multifamily guaranty book of business . . . . . . . 0.01% 0.07% 0.03% 0.11%

As of

September 30, 2018 December 31, 2017

Percentage of 

Multifamily 

Guaranty Book 

of Business(2)

Percentage 

Seriously 

Delinquent(3)(4)

Percentage of 

Multifamily 

Guaranty Book 

of Business(2)

Percentage 

Seriously 

Delinquent(3)(4)

Original LTV ratio:

Greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . 1% 0.19% 2% 0.21%

Less than or equal to 80% . . . . . . . . . . . . . . . . . . 99 0.06 98 0.11

Current DSCR below 1.0(5). . . . . . . . . . . . . . . . . . . . 2 1.76 2 1.96

__________

(1) Consists of the portion of our multifamily guaranty book of business for which we have detailed loan level information, 

which constituted approximately 99% of our total multifamily guaranty book of business as of September 30, 2018 and 

December 31, 2017, excluding loans that have been defeased.

(2) Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the 

aggregate unpaid principal balance of loans in our multifamily guaranty book of business.

(3) Consists of multifamily loans that were 60 days or more past due as of the dates indicated.

(4) Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the 

aggregate unpaid principal balance of multifamily loans for each category included in our multifamily guaranty book of 

business.

(5) Our estimates of current DSCRs are based on the latest available income information for these properties. Although we 

use the most recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range 

from 3 to 6 months but in some cases may be longer.

Other Concentrations

Mortgage Insurers. Mortgage insurance “risk in force” refers to our maximum potential loss recovery under the 

applicable mortgage insurance policies in force and is generally based on the loan level insurance coverage 

percentage and, if applicable, any aggregate pool loss limit, as specified in the policy.

The following table displays our total mortgage insurance risk in force by primary and pool insurance, as well as 

the total risk in force mortgage insurance coverage as a percentage of the single-family guaranty book of 

business.

As of

September 30, 2018 December 31, 2017

Risk in Force

Percentage of

Single-Family

Guaranty Book

of Business Risk in Force

Percentage of

Single-Family

Guaranty Book

of Business

(Dollars in millions)

Mortgage insurance risk in force:

Primary mortgage insurance . . . . . . . . . . . . . . . $ 148,893 $ 137,941

Pool mortgage insurance . . . . . . . . . . . . . . . . . . 419 519

Total mortgage insurance risk in force . . . . . . . $ 149,312 5% $ 138,460 5%
Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 84

The table below displays our mortgage insurer counterparties that provided approximately 10% or more of the risk 

in force mortgage insurance coverage on the single-family loans in our guaranty book of business.

Percentage of Total Risk in Force

Mortgage Insurance Coverage

As of

September 30,

2018

December 31,

2017

Counterparty:(1)

Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25% 25%

Radian Guaranty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21

Mortgage Guaranty Insurance Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 19

Genworth Mortgage Insurance Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 15

Essent Guaranty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 11

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%

__________

(1) Insurance coverage amounts provided for each counterparty may include coverage provided by affiliates and subsidiaries 

of the counterparty.

Three of our mortgage insurer counterparties that are currently not approved to write new business are in run-off: 

PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation (“Triad”) and Republic Mortgage 

Insurance Company (”RMIC”). Entering run-off may close off a source of profits and liquidity that may have 

otherwise assisted a mortgage insurer in paying claims under insurance policies, and could also cause the quality 

and speed of its claims processing to deteriorate. These three mortgage insurers provided a combined $5.0 

billion, or 3%, of our risk in force mortgage insurance coverage of our single-family guaranty book of business as 

of September 30, 2018.

PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion. PMI is 

currently paying 72.5% of claims under its mortgage insurance policies in cash and is deferring the remaining 

27.5%, and Triad is currently paying 75% of claims in cash and deferring the remaining 25%. It is uncertain 

whether PMI or Triad will be permitted in the future to pay any remaining deferred policyholder claims and/or 

increase or decrease the amount of cash they pay on claims. RMIC is no longer deferring payments on 

policyholder claims and has paid us its previously outstanding deferred payment obligations as well as interest on 

those obligations; however, RMIC remains in run-off.

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers 

that insure single-family loans we purchase or guarantee. There is risk that these counterparties may fail to fulfill 

their obligations to pay our claims under insurance policies. If we determine that it is probable that we will not 

collect all of our claims from one or more of our mortgage insurer counterparties, it could increase our loss 

reserves, which could adversely affect our results of operations, liquidity, financial condition and net worth.

When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty 

obligations we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage 

insurance recoveries would reduce the severity of the loss associated with defaulted loans. We evaluate the 

financial condition of our mortgage insurer counterparties and adjust the contractually due recovery amounts to 

ensure that only probable losses as of the balance sheet date are included in our loss reserve estimate. As a 

result, if our assessment of one or more of our mortgage insurer counterparties’ ability to fulfill their respective 

obligations to us worsens, it could increase our loss reserves. As of September 30, 2018 and December 31, 2017, 

the amount by which our estimated benefit from mortgage insurance reduced our loss reserves was $710 million

and $989 million, respectively.
Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 85

We had outstanding receivables of $768 million recorded in “Other assets” in our condensed consolidated 

balance sheets as of September 30, 2018 and $858 million as of December 31, 2017 related to amounts claimed 

on insured, defaulted loans excluding government-insured loans. Of this amount, $42 million as of September 30, 

2018 and $75 million as of December 31, 2017 was due from our mortgage servicers or sellers. We assessed the 

total outstanding receivables for collectibility, and they are recorded net of a valuation allowance of $567 million as 

of September 30, 2018 and $593 million as of December 31, 2017. The valuation allowance reduces our claim 

receivable to the amount considered probable of collection as of September 30, 2018 and December 31, 2017.

Mortgage Servicers and Sellers. Mortgage servicers collect mortgage and escrow payments from borrowers, pay 

taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required 

activities on our behalf. Our mortgage servicers and sellers may also be obligated to repurchase loans or 

foreclosed properties, reimburse us for losses or provide other remedies under certain circumstances, such as if it 

is determined that the mortgage loan did not meet our underwriting or eligibility requirements, if certain loan 

representations and warranties are violated or if mortgage insurers rescind coverage. However, under our revised 

representation and warranty framework, we no longer require repurchase for loans that have breaches of certain 

selling representations and warranties if they have met specified criteria for relief.

Our business with mortgage servicers is concentrated. The table below displays the percentage of our singlefamily guaranty book of business serviced by our top five depository single-family mortgage servicers and top five 

non-depository single-family mortgage servicers, and identifies one servicer that serviced more than 10% of our 

single-family guaranty book of business based on unpaid principal balance.

Percentage of Single-Family

Guaranty Book of Business

As of

September 30,

2018

December 31,

2017

Wells Fargo Bank, N.A. (together with its affiliates) . . . . . . . . . . . . . . . . . . . . . . . . . . . 18% 18%

Remaining top five depository servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 17

Top five non-depository servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 20

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55% 55%

The table below displays the percentage of our multifamily guaranty book of business serviced by our top five 

multifamily mortgage servicers, and identifies two servicers that serviced 10% or more of our multifamily guaranty 

book of business based on unpaid principal balance.

Percentage of Multifamily

Guaranty Book of Business

As of

September 30,

2018

December 31,

2017

Wells Fargo Bank, N.A. (together with its affiliates) . . . . . . . . . . . . . . . . . . . . . . . . . 14% 14%

Walker & Dunlop, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12

Remaining top five servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 22

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48% 48%

If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet 

their obligations to us, it could adversely affect our results of operations and financial condition.

For information on credit risk associated with our derivative transactions and repurchase agreements see “Note 8, 

Derivative Instruments” and “Note 12, Netting Arrangements.”
Notes to Condensed Consolidated Financial Statements | Netting Arrangements

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 86

12. Netting Arrangements

We use master netting arrangements, which allow us to offset certain financial instruments and collateral with the 

same counterparty, to minimize counterparty credit exposure. The tables below display information related to 

derivatives, securities purchased under agreements to resell or similar arrangements, and securities sold under 

agreements to repurchase or similar arrangements, which are subject to an enforceable master netting 

arrangement or similar agreement that are either offset or not offset in our condensed consolidated balance 

sheets.

As of September 30, 2018

Gross 

Amount 

Offset (1)

Net Amount

Presented in

our Condensed

Consolidated

Balance Sheets

Amounts Not Offset in our

Condensed Consolidated

Balance Sheets

Gross

Amount

Financial 

Instruments(2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives. . . . . . . $ 2,822 $(2,790) $ 32 $ — $ — $ 32

Cleared risk management derivatives . . . . — 15 15 — — 15

Mortgage commitment derivatives . . . . . . . 288 — 288 (104) (7) 177

Total derivative assets . . . . . . . . . . . . . . . 3,110 (2,775) 335 (4) (104) (7) 224

Securities purchased under agreements 

to resell or similar arrangements(5)

. . . . . 44,648 — 44,648 — (44,648) —

Total assets . . . . . . . . . . . . . . . . . . . . . . $ 47,758 $(2,775) $44,983 $ (104) $ (44,655) $ 224

Liabilities:

OTC risk management derivatives. . . . . . . $ (2,711) $ 2,649 $ (62) $ — $ — $ (62)

Cleared risk management derivatives . . . . — (1) (1) — 1 —

Mortgage commitment derivatives . . . . . . . (212) — (212) 104 — (108)

Total derivative liabilities . . . . . . . . . . . . . (2,923) 2,648 (275)

(4) 104 1 (170)

Securities sold under agreements to

repurchase or similar arrangements. . . . (749) — (749) — 746 (3)

Total liabilities . . . . . . . . . . . . . . . . . . . . $ (3,672) $ 2,648 $ (1,024) $ 104 $ 747 $ (173)

As of December 31, 2017

Gross 

Amount 

Offset (1)

Net Amount

Presented in

our Condensed

Consolidated

Balance Sheets

Amounts Not Offset in our

Condensed Consolidated

Balance Sheets

Gross

Amount

Financial 

Instruments(2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives. . . . . . . . $ 2,479 $ (2,464) $ 15 $ — $ — $ 15

Cleared risk management derivatives . . . . . 1,811 (1,808) 3 — — 3

Mortgage commitment derivatives . . . . . . . . 132 — 132 (117) (1) 14

Total derivative assets . . . . . . . . . . . . . . . . 4,422 (4,272) 150 (4) (117) (1) 32

Securities purchased under agreements to 

resell or similar arrangements(5)

. . . . . . . . 44,670 — 44,670 — (44,670) —

Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 49,092 $ (4,272) $44,820 $ (117) $ (44,671) $ 32

Liabilities:

OTC risk management derivatives. . . . . . . . $ (3,045) $ 2,957 $ (88) $ — $ — $ (88)

Cleared risk management derivatives . . . . . (2,033) 2,022 (11) — 11 —

Mortgage commitment derivatives . . . . . . . . (228) — (228) 117 93 (18)

Total derivative liabilities . . . . . . . . . . . . . . (5,306) 4,979 (327)

(4) 117 104 (106)

Total liabilities . . . . . . . . . . . . . . . . . . . . . $ (5,306) $ 4,979 $ (327) $ 117 $ 104 $ (106)
Notes to Condensed Consolidated Financial Statements | Netting Arrangements

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 87

__________

(1) Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same 

counterparty on a net basis, including cash collateral posted and received and accrued interest. 

(2) Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same 

counterparty under an enforceable master netting arrangement but we have not elected to offset the related amounts in our 

condensed consolidated balance sheets. 

(3) Represents collateral received or posted that has not been offset in our condensed consolidated balance sheets. Does not 

include collateral held or posted in excess of our exposure. The fair value of non-cash collateral we pledged was $2.7 

billion and $747 million as of September 30, 2018 and December 31, 2017, respectively, which the counterparty was 

permitted to sell or repledge. The fair value of non-cash collateral received was $45.3 billion and $44.7 billion, of which 

$42.5 billion could be sold or repledged as of September 30, 2018 and December 31, 2017, respectively. None of the 

underlying collateral was sold or repledged as of September 30, 2018 or December 31, 2017. 

(4) Excludes derivative assets of $18 million and $21 million as of September 30, 2018 and December 31, 2017, respectively, 

and derivative liabilities of $1 million as of September 30, 2018 and December 31, 2017, recognized in our condensed 

consolidated balance sheets that are not subject to enforceable master netting arrangements.

(5) Includes $18.1 billion and $25.2 billion in securities purchased under agreements to resell classified as “Cash and cash 

equivalents” in our condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017, 

respectively.

Derivative instruments are recorded at fair value and securities purchased under agreements to resell or similar 

arrangements are recorded at amortized cost in our condensed consolidated balance sheets. For how we 

determine our rights to offset the assets and liabilities presented above with the same counterparty, including 

collateral posted or received, see “Note 14, Netting Arrangements” in our 2017 Form 10-K.

13. Fair Value

We use fair value measurements for the initial recording of certain assets and liabilities and periodic 

remeasurement of certain assets and liabilities on a recurring or nonrecurring basis. 

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 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. 
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 88

Recurring Changes in Fair Value 

The following tables display our assets and liabilities measured in our condensed consolidated balance sheets at 

fair value on a recurring basis subsequent to initial recognition, including instruments for which we have elected 

the fair value option. 

Fair Value Measurements as of September 30, 2018

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant 

Other 

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Recurring fair value measurements:

Assets:

Cash equivalents(2)

. . . . . . . . . . . . . . . . . . . $ 249 $ — $ — $ — $ 249

Trading securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . — 1,393 76 — 1,469

Other agency. . . . . . . . . . . . . . . . . . . . . — 3,642 — — 3,642

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . — 1,367 — — 1,367

Mortgage revenue bonds . . . . . . . . . . . — — 1 — 1

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . 37,328 — — — 37,328

Other securities . . . . . . . . . . . . . . . . . . . — 94 — — 94

Total trading securities . . . . . . . . . . . . . . . . 37,328 6,496 77 — 43,901

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . — 1,628 200 — 1,828

Other agency. . . . . . . . . . . . . . . . . . . . . — 272 — — 272

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . — 593 24 — 617

Mortgage revenue bonds . . . . . . . . . . . — — 464 — 464

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8 348 — 356

Total available-for-sale securities . . . . . . . . — 2,501 1,036 — 3,537

Mortgage loans . . . . . . . . . . . . . . . . . . . . . — 8,188 965 — 9,153

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,389 98 — 2,487

Swaptions . . . . . . . . . . . . . . . . . . . . . . . — 335 — — 335

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 18 — 18

Netting adjustment . . . . . . . . . . . . . . . . — — — (2,775) (2,775)

Mortgage commitment derivatives. . . . . . — 286 2 — 288

Total other assets . . . . . . . . . . . . . . . . . . . . — 3,010 118 (2,775) 353

Total assets at fair value . . . . . . . . . . . . $ 37,577 $ 20,195 $ 2,196 $ (2,775) $ 57,193
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 89

Fair Value Measurements as of September 30, 2018

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant 

Other 

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . . . . . . . . . . $ — $ 6,904 $ 347 $ — $ 7,251

Total of Fannie Mae. . . . . . . . . . . . . . . . . — 6,904 347 — 7,251

Of consolidated trusts . . . . . . . . . . . . . . . — 24,785 163 — 24,948

Total long-term debt . . . . . . . . . . . . . . . . . . — 31,689 510 — 32,199

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,342 1 — 2,343

Swaptions . . . . . . . . . . . . . . . . . . . . . . . — 368 — — 368

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — 1

Netting adjustment . . . . . . . . . . . . . . . . — — — (2,648) (2,648)

Mortgage commitment derivatives. . . . . . — 194 18 — 212

Total other liabilities . . . . . . . . . . . . . . . . . . — 2,904 20 (2,648) 276

Total liabilities at fair value. . . . . . . . . . . $ — $ 34,593 $ 530 $ (2,648) $ 32,475
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 90

Fair Value Measurements as of December 31, 2017

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant 

Other 

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Recurring fair value measurements:

Assets:

Trading securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . $ — $ 2,905 $ 971 $ — $ 3,876

Other agency. . . . . . . . . . . . . . . . . . . . . — 1,083 35 — 1,118

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . — 259 194 — 453

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . — 9 — — 9

Mortgage revenue bonds . . . . . . . . . . . — — 1 — 1

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . 29,222 — — — 29,222

Total trading securities . . . . . . . . . . . . . . . . 29,222 4,256 1,201 — 34,679

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . — 1,911 208 — 2,119

Other agency. . . . . . . . . . . . . . . . . . . . . — 357 — — 357

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . — 1,237 77 — 1,314

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . — 15 — — 15

Mortgage revenue bonds . . . . . . . . . . . — — 671 — 671

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10 357 — 367

Total available-for-sale securities . . . . . . . . — 3,530 1,313 — 4,843

Mortgage loans . . . . . . . . . . . . . . . . . . . . . — 9,480 1,116 — 10,596

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,035 146 — 4,181

Swaptions . . . . . . . . . . . . . . . . . . . . . . . — 108 — — 108

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 22 — 22

Netting adjustment . . . . . . . . . . . . . . . . — — — (4,272) (4,272)

Mortgage commitment derivatives. . . . . . — 131 1 — 132

Total other assets . . . . . . . . . . . . . . . . . . . . — 4,274 169 (4,272) 171

Total assets at fair value . . . . . . . . . . . . $ 29,222 $ 21,540 $ 3,799 $ (4,272) $ 50,289
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 91

Fair Value Measurements as of December 31, 2017

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant 

Other 

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating. . . . . . . . . . . . . . . . . . . . . $ — $ 7,810 $ 376 $ — $ 8,186

Total of Fannie Mae . . . . . . . . . . . . . . . . . — 7,810 376 — 8,186

Of consolidated trusts . . . . . . . . . . . . . . . . — 29,911 582 — 30,493

Total long-term debt. . . . . . . . . . . . . . . . . . . — 37,721 958 — 38,679

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,721 33 — 4,754

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . — 324 — — 324

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — 1

Netting adjustment . . . . . . . . . . . . . . . . . — — — (4,979) (4,979)

Mortgage commitment derivatives . . . . . . — 227 1 — 228

Total other liabilities . . . . . . . . . . . . . . . . . . . — 5,272 35 (4,979) 328

Total liabilities at fair value . . . . . . . . . . . $ — $ 42,993 $ 993 $ (4,979) $ 39,007

__________

(1) Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to 

offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including 

cash collateral posted and received.

(2) Cash equivalents are comprised of U.S. Treasuries that have a maturity of three months or less at the date of acquisition.
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 92

The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis 

using significant unobservable inputs (Level 3). The tables also display gains and losses due to changes in fair 

value, including realized and unrealized gains and losses, recognized in our condensed consolidated statements 

of operations and comprehensive income for Level 3 assets and liabilities. When assets and liabilities are 

transferred between levels, we recognize the transfer as of the end of the period.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2018

Net Unrealized 

Gains (Losses) 

Included in Net 

Income 

Related to 

Assets and 

Liabilities Still 

Held as of 

September 30, 

2018(5)(6)

Total Gains (Losses)

(Realized/Unrealized) 

Balance,

June 30,

2018

Included

in Net

Income

Included in 

Total Other 

Comprehensive 

Income (Loss)(1) Purchases Sales Issues(3) Settlements(3)

Transfers

out of

Level 3

Transfers 

into 

Level 3

Balance,

September

30, 2018

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . $ 79 $ (3) $ — $ — $ — $ — $ — $ — $ — $ 76 $ 2

Mortgage

revenue

bonds . . . . . . 1 — — — — — — — — 1 —

Total trading

securities . . . . . . .

$ 80 $ (3)

(6)(7)

$ — $ — $ — $ — $ — $ — $ — $ 77 $ 2

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . $ 204 $ — $ (1) $ — $ — $ — $ (3) $ — $ — $ 200 $ —

Alt-A and

subprime

private-label

securities . . . . 26 — — — — — (2) — — 24 —

Mortgage

revenue

bonds . . . . . . 506 1 (3) — (4) — (36) — — 464 —

Other . . . . . . . . . 357 7 (7) — — — (9) — — 348 —

Total available-forsale securities . . .

$ 1,093 $ 8

(7)(8)

$ (11) $ — $ (4) $ — $ (50) $ — $ — $ 1,036 $ —

Mortgage loans . . . . $ 1,018 $ 7

(6)(7) $ — $ — $ — $ — $ (47) $ (44) $ 31 $ 965 $ 2

Net derivatives . . . . . 117 (18)

(6) — — — — (1) — — 98 (27)

Long-term debt:

Of Fannie Mae:

Senior floating . . $ (354) $ 7 $ — $ — $ — $ — $ — $ — $ — $ (347) $ 7

Of consolidated

trusts. . . . . . . . .

(319) 2 — — — — 4 172 (22) (163) —

Total long-term debt . $ (673) $ 9

(6) $ — $ — $ — $ — $ 4 $ 172 $ (22) $ (510) $ 7
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 93

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2018

Net Unrealized 

Gains (Losses) 

Included in Net 

Income 

Related to 

Assets and 

Liabilities Still 

Held as of 

September 30, 

2018(5)(6)

Total Gains (Losses)

(Realized/Unrealized) 

Balance,

December

31, 2017

Included

in Net

Income

Included in 

Total Other 

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3

Balance,

September

30, 2018

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . $ 971 $ 163 $ — $ 1 $(1,060) $ — $ — $ — $ 1 $ 76 $ 2

Other agency . . . 35 (1) — — — — (1) (33) — — —

Alt-A and

subprime

private-label

securities . . . . 194 (85) — — — — (5) (104) — — —

Mortgage

revenue

bonds . . . . . . 1 — — — — — — — — 1 —

Total trading

securities . . . . . . .

$ 1,201 $ 77

(6)(7)

$ — $ 1 $(1,060) $ — $ (6) $ (137) $ 1 $ 77 $ 2

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . $ 208 $ 1 $ (1) $ — $ — $ — $ (8) $ — $ — $ 200 $ —

Alt-A and

subprime

private-label

securities . . . . 77 — (45) — — — (4) (4) — 24 —

Mortgage

revenue

bonds . . . . . . 671 1 (6) — (22) — (180) — — 464 —

Other . . . . . . . . . 357 21 1 — — — (31) — — 348 —

Total available-forsale securities . . .

$ 1,313 $ 23

(7)(8)

$ (51) $ — $ (22) $ — $ (223) $ (4) $ — $ 1,036 $ —

Mortgage loans . . . . $ 1,116 $ 35 (6)(7) $ — $ — $ — $ — $ (174) $ (131) $ 119 $ 965 $ 17

Net derivatives . . . . . 134 (104)

(6) — — — — 15 53 — 98 (56)

Long-term debt:

Of Fannie Mae:

Senior floating . . $ (376) $ 29 $ — $ — $ — $ — $ — $ — $ — $ (347) $ 29

Of consolidated

trusts. . . . . . . . .

(582) 9 — — — 1 35 503 (129) (163) (3)

Total long-term debt . $ (958) $ 38 (6) $ — $ — $ — $ 1 $ 35 $ 503 $ (129) $ (510) $ 26
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 94

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2017

Net Unrealized 

Gains (Losses) 

Included in Net 

Income 

Related to 

Assets and 

Liabilities Still 

Held as of 

September 30, 

2017(5)(6)

Total Gains (Losses)

(Realized/Unrealized) 

Balance,

June 30,

2017

Included

in Net

Income

Included in 

Total Other 

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers

out of

Level 3

Transfers 

into 

Level 3(4)

Balance,

September

30, 2017

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . $ 1,871 $ 16 $ — $ — $ — $ — $ — $ (8) $ 7 $ 1,886 $ 27

Alt-A and

subprime

private-label

securities . . . . 264 (2) — — — — (9) — — 253 (1)

Mortgage

revenue

bonds . . . . . . 1 — — — — — — — — 1 —

Total trading

securities . . . . . . .

$ 2,136 $ 14

(6)(7)

$ — $ — $ — $ — $ (9) $ (8) $ 7 $ 2,140 $ 26

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . $ 206 $ — $ — $ — $ — $ — $ (2) $ (16) $ 8 $ 196 $ —

Alt-A and

subprime

private-label

securities . . . . 178 — 10 — — — (8) — — 180 —

Mortgage

revenue

bonds . . . . . . 873 5 (3) — (59) — (67) — — 749 —

Other . . . . . . . . . 380 — 4 — — — (14) — — 370 —

Total available-forsale securities . . .

$ 1,637 $ 5

(7)(8)

$ 11 $ — $ (59) $ — $ (91) $ (16) $ 8 $ 1,495 $ —

Mortgage loans . . . . $ 1,119 $ 9

(6)(7) $ — $ — $ — $ — $ (58) $ (6) $ 26 $ 1,090 $ 6

Net derivatives . . . . . 124 18

(6) — — — — (16) — (1) 125 (14)

Long-term debt:

Of Fannie Mae:

Senior floating . . $ (365) $ (4) $ — $ — $ — $ — $ — $ — $ — $ (369) $ (4)

Of consolidated

trusts. . . . . . . . .

(760) (2) — — — — 33 141 (117) (705) (5)

Total long-term debt . $ (1,125) $ (6)

(6) $ — $ — $ — $ — $ 33 $ 141 $ (117) $ (1,074) $ (9)
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 95

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2017

Net Unrealized 

Gains (Losses) 

Included in Net 

Income 

Related to 

Assets and 

Liabilities Still 

Held as of 

September 30, 

2017(5)(6)

Total Gains (Losses)

(Realized/Unrealized) 

Balance,

December

31, 2016

Included

in Net

Income

Included in 

Total Other 

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers

out of

Level 3

Transfers 

into 

Level 3(4)

Balance,

September

30, 2017

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . $ 835 $ 20 $ — $ 63 $ — $ — $ (5) $ (30) $ 1,003 $ 1,886 $ 3

Alt-A and

subprime

private-label

securities . . . . 271 9 — — — — (27) — — 253 10

Mortgage

revenue

bonds . . . . . . 21 3 — — (21) — (2) — — 1 —

Total trading

securities . . . . . . .

$ 1,127 $ 32

(6)(7)

$ — $ 63 $ (21) $ — $ (34) $ (30) $ 1,003 $ 2,140 $ 13

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . $ 230 $ 1 $ (2) $ — $ — $ — $ (8) $ (63) $ 38 $ 196 $ —

Other agency . . . 5 — — — (1) — — (4) — — —

Alt-A and

subprime

private-label

securities . . . . 217 — (5) — — — (32) — — 180 —

Mortgage

revenue

bonds . . . . . . 1,272 40 (15) — (383) — (165) — — 749 —

Other . . . . . . . . . 429 — (10) — — — (49) — — 370 —

Total available-forsale securities . . .

$ 2,153 $ 41

(7)(8)

$ (32) $ — $ (384) $ — $ (254) $ (67) $ 38 $ 1,495 $ —

Mortgage loans . . . . $ 1,197 $ 41

(6)(7) $ — $ — $ — $ — $ (175) $ (73) $ 100 $ 1,090 $ 21

Net derivatives . . . . . 44 118

(6) — — — — (40) 5 (2) 125 3

Long-term debt:

Of Fannie Mae:

Senior floating . . $ (347) $ (22) $ — $ — $ — $ — $ — $ — $ — $ (369) $ (22)

Of consolidated

trusts. . . . . . . . .

(241) (6) — — — (2) 52 229 (737) (705) (6)

Total long-term debt . $ (588) $ (28)

(6) $ — $ — $ — $ (2) $ 52 $ 229 $ (737) $ (1,074) $ (28)

__________

(1) Gains (losses) included in other comprehensive income (loss) are included in “Changes in unrealized gains on AFS 

securities, net of reclassification adjustments and taxes” in our condensed consolidated statements of operations and 

comprehensive income.

(2) Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts. For 

the nine months ended September 30, 2018, includes the dissolution of a Fannie Mae-wrapped private-label securities 

trust.

(3) Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.

(4) Transfers of long-term debt of consolidated trusts out of Level 3 during the first nine months of 2018 consisted of securities 

for which prices were available from multiple third-party vendors and demonstrated an increased and sustained level of 

observability over time. Transfers of Fannie Mae trading securities into Level 3 during the nine months ended September 

30, 2017 consisted primarily of a Fannie Mae security backed by private-label mortgage-related securities. Prices for this 

security were based on inputs that were not readily available. Transfers of long-term debt of consolidated trusts into Level 3 

during the first nine months of 2017 consisted of securities for which prices were estimated using inputs that were not 

readily available.

(5) Amount represents temporary changes in fair value. Amortization, accretion and OTTI are not considered unrealized and 

are not included in this amount.

(6) Gains (losses) are included in “Fair value gains (losses), net” in our condensed consolidated statements of operations and 

comprehensive income.
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 96

(7) Gains (losses) are included in “Net interest income” in our condensed consolidated statements of operations and 

comprehensive income.

(8) Gains (losses) are included in “Investment gains, net” in our condensed consolidated statements of operations and 

comprehensive income.

The following tables display valuation techniques and the range and the weighted average of significant 

unobservable inputs for our Level 3 assets and liabilities measured at fair value on a recurring basis. 

Fair Value Measurements as of September 30, 2018

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 76 Various

Mortgage revenue bonds . . . . . . . . . . . . . 1 Various

Total trading securities . . . . . . . . . . . . . . . . . . $ 77

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 107 Single Vendor

93 Various

Total Agency . . . . . . . . . . . . . . . . . . . . . 200

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . . 24 Various

Mortgage revenue bonds . . . . . . . . . . . . . 326 Single Vendor Spreads (bps) (2.0) - 377.8 53.0

138 Various

Total mortgage revenue bonds . . . . . . . 464

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 Discounted Cash Flow Default Rate (%) 5.9 5.9

Prepayment Speed (%) 10.2 10.2

Severity (%) 75.0 75.0

Spreads (bps) 58.3 - 394.0 392.5

51 Various

Total other . . . . . . . . . . . . . . . . . . . . . . . 348

Total available-for-sale securities . . . . . . . . . . $ 1,036

Net derivatives . . . . . . . . . . . . . . . . . . . . . . . . $ 97 Dealer Mark

1 Various

Total net derivatives . . . . . . . . . . . . . . . . . . . . $ 98
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 97

Fair Value Measurements as of December 31, 2017

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 971 Single Vendor Prepayment Speed (%) 0.0 - 177.0 160.0

Spreads (bps) 51.5 - 375.0 200.1

35 Various

Total agency. . . . . . . . . . . . . . . . . . . . . . 1,006

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . . 154 Consensus

40 Various

Total Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . 194

Mortgage revenue bonds . . . . . . . . . . . . . 1 Various

Total trading securities . . . . . . . . . . . . . . . . . . $ 1,201

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 112 Single Vendor Prepayment Speed (%) 0.0 - 175.7 147.1

Spreads (bps) 150.0 - 210.0 182.3

96 Various

Total agency. . . . . . . . . . . . . . . . . . . . . . 208

Alt-A and subprime private-label

securities . . . . . . . . . . . . . . . . . . . . . . 77 Various

Mortgage revenue bonds . . . . . . . . . . . . . 475 Single Vendor Spreads (bps) (17.0) - 248.0 39.0

196 Various

Total mortgage revenue bonds . . . . . . . 671

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Discounted Cash Flow Prepayment Speed (%) 1.6 - 2.5 2.5

Severity (%) 50.0 - 88.0 86.6

Spreads (bps) 84.8 - 607.0 577.9

32 Various

Total other . . . . . . . . . . . . . . . . . . . . . . . 357

Total available-for-sale securities . . . . . . . . . . $ 1,313

Net derivatives . . . . . . . . . . . . . . . . . . . . . . . . $ 113 Dealer Mark

21 Various

Total net derivatives . . . . . . . . . . . . . . . . . . . . $ 134

_________

(1) Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services 

or dealers, and the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably 

estimated. Where we have disclosed unobservable inputs for consensus and single vendor techniques, those inputs are 

based on our validations performed at the security level using discounted cash flows. The prepayment speed used for 

trading agency securities and available-for-sale agency securities is the Public Securities Association prepayment speed, 

which can be greater than 100%. For all other securities, the Conditional Prepayment Rate is used as the prepayment 

speed, which can be between 0% and 100%.

(2) Includes Fannie Mae and Freddie Mac securities.

In our condensed 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). We had no

Level 1 assets or liabilities held as of September 30, 2018 or December 31, 2017 that were measured at fair value 

on a nonrecurring basis. We held $863 million and $14 million in Level 2 assets, comprised of mortgage loans 

held for sale, and no Level 2 liabilities that were measured at fair value on a nonrecurring basis as of 

September 30, 2018 or December 31, 2017, respectively.
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 98

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring 

basis. The significant unobservable inputs related to these techniques primarily relate to collateral dependent 

valuations. The related ranges and weighted averages are not meaningful when aggregated as they vary 

significantly from property to property. 

Fair Value Measurements 

as of

Valuation Techniques

September 30,

2018

December 31,

2017

(Dollars in millions)

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair value . Single Vendor $ 623 $ 1,880

Consensus 1,623 1,113

Various 1 —

Total mortgage loans held for sale, at lower of cost or

fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,247 2,993

Single-family mortgage loans held for investment, at

amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Internal Model 770 1,623

Multifamily mortgage loans held for investment, at

amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Asset Manager

Estimate 143 163

Various 22 32

Total multifamily mortgage loans held for investment, at

amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 195

Acquired property, net:(1)

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 175 218

Appraisals 431 438

Walk Forwards 149 222

Internal Model 270 319

Various 38 113

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063 1,310

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Various 50 19

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Various — 2

Total nonrecurring assets at fair value . . . . . . . . . . . . . $ 4,295 $ 6,142

__________

(1) The most commonly used techniques in our valuation of acquired property are proprietary home price model and thirdparty valuations (both current and walk forward). Based on the number of properties measured as of September 30, 2018, 

these methodologies comprised approximately 78% of our valuations, while accepted offers comprised approximately 17%

of our valuations. Based on the number of properties measured as of December 31, 2017, these methodologies comprised 

approximately 77% of our valuations, while accepted offers comprised approximately 18% of our valuations.

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable 

inputs. See “Note 15, Fair Value” in our 2017 Form 10-K for information on the valuation control processes and 

the valuation techniques we use for fair value measurement and disclosure as well as our basis for classifying 

these measurements as Level 1, Level 2 or Level 3 of the valuation hierarchy in more specific situations. We 

made no material changes to the valuation control processes or the valuation techniques for the nine months 

ended September 30, 2018. 
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 99

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our 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 condensed consolidated balance sheets. The fair values of these commitments 

are included as “Mortgage loans held for investment, net of allowance for loan losses.” The disclosure excludes all 

non-financial instruments; therefore, the fair value of our financial assets and liabilities does not represent the 

underlying fair value of our total consolidated assets and liabilities.

As of September 30, 2018

Carrying

Value

Quoted

Prices in

Active

Markets

for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting

Adjustment

Estimated

Fair Value

(Dollars in millions)

Financial assets:

Cash and cash equivalents and

restricted cash . . . . . . . . . . . . . . . . . $ 51,031 $ 32,982 $ 18,049 $ — $ — $ 51,031

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements . . . . . 26,598 — 26,598 — — 26,598

Trading securities . . . . . . . . . . . . . . . . 43,901 37,328 6,496 77 — 43,901

Available-for-sale securities . . . . . . . . 3,537 — 2,501 1,036 — 3,537

Mortgage loans held for sale. . . . . . . . 10,572 — 1,660 9,527 — 11,187

Mortgage loans held for investment,

net of allowance for loan losses. . . . 3,222,562 — 2,935,066 210,018 — 3,145,084

Advances to lenders . . . . . . . . . . . . . . 4,022 — 4,020 2 — 4,022

Derivative assets at fair value . . . . . . . 353 — 3,010 118 (2,775) 353

Guaranty assets and buy-ups . . . . . . . 149 — — 368 — 368

Total financial assets. . . . . . . . . . . . . . $ 3,362,725 $ 70,310 $ 2,997,400 $ 221,146 $ (2,775) $ 3,286,081

Financial liabilities:

Federal funds purchased and

securities sold under agreements to

repurchase. . . . . . . . . . . . . . . . . . . . $ 749 $ — $ 749 $ — $ — $ 749

Short-term debt:

Of Fannie Mae. . . . . . . . . . . . . . . . 28,248 — 28,251 — — 28,251

Of consolidated trusts . . . . . . . . . . 274 — — 273 — 273

Long-term debt:

Of Fannie Mae. . . . . . . . . . . . . . . . 218,434 — 221,671 771 — 222,442

Of consolidated trusts . . . . . . . . . . 3,127,414 — 2,989,699 39,447 — 3,029,146

Derivative liabilities at fair value . . . . . 276 — 2,904 20 (2,648) 276

Guaranty obligations . . . . . . . . . . . . . . 162 — — 117 — 117

Total financial liabilities . . . . . . . . . . . . $ 3,375,557 $ — $ 3,243,274 $ 40,628 $ (2,648) $ 3,281,254
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 100

As of December 31, 2017

Carrying

Value

Quoted

Prices in

Active

Markets

for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting

Adjustment

Estimated

Fair Value

(Dollars in millions)

Financial assets:

Cash and cash equivalents and

restricted cash . . . . . . . . . . . . . . . . . $ 60,260 $ 35,060 $ 25,200 $ — $ — $ 60,260

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements . . . . . 19,470 — 19,470 — — 19,470

Trading securities. . . . . . . . . . . . . . . . . 34,679 29,222 4,256 1,201 — 34,679

Available-for-sale securities . . . . . . . . . 4,843 — 3,530 1,313 — 4,843

Mortgage loans held for sale . . . . . . . . 4,988 — 101 5,333 — 5,434

Mortgage loans held for investment,

net of allowance for loan losses . . . . 3,173,537 — 2,886,470 315,719 — 3,202,189

Advances to lenders . . . . . . . . . . . . . . 4,938 — 4,936 2 — 4,938

Derivative assets at fair value . . . . . . . 171 — 4,274 169 (4,272) 171

Guaranty assets and buy-ups . . . . . . . 149 — — 436 — 436

Total financial assets . . . . . . . . . . . . . . $ 3,303,035 $ 64,282 $ 2,948,237 $ 324,173 $ (4,272) $ 3,332,420

Financial liabilities:

Short-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . $ 33,377 $ — $ 33,379 $ — $ — $ 33,379

Of consolidated trusts. . . . . . . . . . . 379 — — 378 — 378

Long-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . 243,375 — 249,780 837 — 250,617

Of consolidated trusts. . . . . . . . . . . 3,052,923 — 3,014,250 40,683 — 3,054,933

Derivative liabilities at fair value. . . . . . 328 — 5,272 35 (4,979) 328

Guaranty obligations . . . . . . . . . . . . . . 258 — — 456 — 456

Total financial liabilities . . . . . . . . . . . . $ 3,330,640 $ — $ 3,302,681 $ 42,389 $ (4,979) $ 3,340,091

For a detailed description and classification of our financial instruments, see “Note 15, Fair Value” in our 2017

Form 10-K.

Fair Value Option

We elected the fair value option for our credit risk sharing debt securities issued under our CAS series issued 

prior to January 1, 2016 and certain loans and debt that contain embedded derivatives that would otherwise 

require bifurcation. Under the fair value option, we elected to carry these instruments at fair value instead of 

bifurcating the embedded derivative from such instruments. 

We elected the fair value option for all long-term structured debt instruments that are issued in response to 

specific investor demand and have interest rates that are based on a calculated index or formula and are 

economically hedged with derivatives at the time of issuance. By electing the fair value option for these 

instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from the 

accounting asymmetry created by recording these structured debt instruments at cost while recording the related 

derivatives at fair value. 

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 condensed consolidated 

statements of operations and comprehensive income. 
Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 101

The following table displays the fair value and unpaid principal balance of the financial instruments for which we 

have made fair value elections.

As of

September 30, 2018 December 31, 2017

Loans(1)

Long-Term

Debt of

Fannie Mae

Long-Term Debt

of Consolidated

Trusts Loans(1)

Long-Term

Debt of

Fannie Mae

Long-Term Debt

of Consolidated

Trusts

(Dollars in millions)

Fair value. . . . . . . . . . . . . . $ 9,153 $ 7,251 $ 24,948 $10,596 $ 8,186 $ 30,493

Unpaid principal balance . . 9,140 6,496 23,245 10,246 7,368 27,717

__________

(1) Includes nonaccrual loans with a fair value of $160 million and $227 million as of September 30, 2018 and December 31, 

2017, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of 

September 30, 2018 and December 31, 2017 was $19 million and $46 million, respectively. Includes loans that are 90 days 

or more past due with a fair value of $106 million and $159 million as of September 30, 2018 and December 31, 2017, 

respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans 

as of September 30, 2018 and December 31, 2017 was $15 million and $34 million, respectively.

Changes in Fair Value under the Fair Value Option Election

We recorded losses of $63 million and $239 million for the three and nine months ended September 30, 2018, 

respectively, and gains of $30 million and $166 million for the three and nine months ended September 30, 2017, 

respectively, from changes in the fair value of loans recorded at fair value in “Fair value gains (losses), net” in our 

condensed consolidated statements of operations and comprehensive income. 

We recorded gains of $128 million and $629 million for the three and nine months ended September 30, 2018, 

respectively, and gains of $35 million and losses of $422 million for the three and nine months ended September 

30, 2017, respectively, from changes in the fair value of long-term debt recorded at fair value in “Fair value gains 

(losses), net” in our condensed consolidated statements of operations and comprehensive income.

14. Commitments and Contingencies

We are party to various types of legal actions and proceedings, including actions brought on behalf of various 

classes of claimants. We also are subject to regulatory examinations, inquiries and investigations, and other 

information gathering requests. In some of the matters, indeterminate amounts are sought. Modern pleading 

practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. 

Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state 

only that the amount sought is sufficient to invoke the jurisdiction of the trial court. This variability in pleadings, 

together with our and our counsel’s actual experience in litigating or settling claims, leads us to conclude that the 

monetary relief that may be sought by plaintiffs bears little relevance to the merits or disposition value of claims. 

We have substantial and valid defenses to the claims in the proceedings described below and intend to defend 

these matters vigorously. However, legal actions and proceedings of all types are subject to many uncertain 

factors that generally cannot be predicted with assurance. Accordingly, the outcome of any given matter and the 

amount or range of potential loss at particular points in time is frequently difficult to ascertain. Uncertainties can 

include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness 

testimony, and how courts will apply the law. Disposition valuations are also subject to the uncertainty of how 

opposing parties and their counsel may view the evidence and applicable law. 

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 a loss is probable and we can reasonably estimate the amount of such loss. We are often unable to 

estimate the possible losses or ranges of losses, particularly for proceedings that are in their early stages of 

development, where plaintiffs seek indeterminate or unspecified damages, where there may be novel or unsettled 

legal questions relevant to the proceedings, or where settlement negotiations have not occurred or progressed. 

Given the uncertainties involved in any action or proceeding, regardless of whether we have established an 

accrual, the ultimate resolution of certain of these matters may be material to our operating results for a particular 

period, depending on, among other factors, the size of the loss or liability imposed and the level of our net income 

or loss for that period. 
Notes to Condensed Consolidated Financial Statements | Commitments and Contingencies

Fannie Mae (In conservatorship) Third Quarter 2018 Form 10-Q 102

In addition to the matters specifically described below, we are involved in a number of legal and regulatory 

proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our 

business or financial condition. We have also advanced fees and expenses of certain current and former officers 

and directors in connection with various legal proceedings pursuant to our bylaws and indemnification 

agreements.

Senior Preferred Stock Purchase Agreements Litigation

A consolidated putative class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement 

Class Action Litigations”) and three non-class action lawsuits filed by Fannie Mae and Freddie Mac shareholders 

are pending in the U.S. District Court for the District of Columbia against us, FHFA as our conservator, and 

Freddie Mac that challenge the August 2012 amendment to each company’s senior preferred stock purchase 

agreement with Treasury. 

In the consolidated class action and two of the non-class action suits, Arrowood Indemnity Company v. Fannie 

Mae and Fairholme Funds v. FHFA, plaintiffs filed amended complaints on November 1, 2017 alleging that the net 

worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 

amendments nullified certain of the shareholders’ rights, particularly the right to receive dividends. Plaintiffs seek 

unspecified damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. Plaintiffs 

in the class action seek to represent several classes of preferred and/or common shareholders of Fannie Mae 

and/or Freddie Mac who held stock as of the public announcement of the August 2012 amendments. On 

September 28, 2018, the court dismissed all of the plaintiffs’ claims except for their claims for breach of an implied 

covenant of good faith and fair dealing. On October 15, 2018, defendants filed a motion for partial 

reconsideration.

On May 21, 2018, a pro se plaintiff in a third non-class action case, Angel v. Federal Home Loan Mortgage 

Corporation, filed a complaint for declaratory relief and compensatory damages against Fannie Mae (including 

certain members of its Board of Directors), Freddie Mac (including certain members of its Board of Directors) and 

FHFA, as conservator. Plaintiff in that case asserts claims for breach of contract, breach of implied covenants of 

good faith and fair dealing, and aiding and abetting the federal government in avoiding an alleged implicit 

guarantee of dividend payments. Defendants moved to dismiss the complaint on July 12, 2018.

Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial 

defenses, we are currently unable to estimate the reasonably possible loss or range of loss arising from this 

litigation.
Quantitative and Qualitative Disclosures about Market Risk

Fannie Mae Third Quarter 2018 Form 10-Q 103

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, Including 

Interest Rate Risk Management.”

Item 4. Controls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include 

disclosure controls and procedures as well as internal control over financial reporting, as further described below.

Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable 

assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is 

recorded, processed, summarized and reported within the time periods specified in the rules and forms of the 

SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide 

reasonable assurance that information required to be disclosed by us in the reports that we file or submit under 

the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and 

Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing 

and evaluating our disclosure controls and procedures, management recognizes that any controls and 

procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the 

desired control objectives, and management was required to apply its judgment in evaluating and implementing 

possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our 

Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as 

in effect as of September 30, 2018, the end of the period covered by this report. As a result of management’s 

evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and 

procedures were not effective at a reasonable assurance level as of September 30, 2018 or as of the date of filing 

this report. 

Our disclosure controls and procedures were not effective as of September 30, 2018 or as of the date of filing this 

report because they did not adequately ensure the accumulation and communication to management of 

information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws. As 

a result, we were not able to rely upon the disclosure controls and procedures that were in place as of 

September 30, 2018 or as of the date of this filing, and we continue to have a material weakness in our internal 

control over financial reporting. This material weakness is described in more detail below under “Description of 

Material Weakness.” Based on discussions with FHFA and the structural nature of this material weakness, we do 

not expect to remediate this material weakness while we are under conservatorship.

Description of Material Weakness

The Public Company Accounting Oversight Board’s Auditing Standard 2201 defines a material weakness as a 

deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a 

reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not 

be prevented or detected on a timely basis.

Management has determined that we continued to have the following material weakness as of September 30, 

2018 and as of the date of filing this report:

• Disclosure Controls and Procedures. We have been under the conservatorship of FHFA since 

September 6, 2008. Under the GSE Act, FHFA is an independent agency that currently functions as both 

our conservator and our regulator with respect to our safety, soundness and mission. Because of the 

nature of the conservatorship under the GSE Act, which places us under the “control” of FHFA (as that term 

is defined by securities laws), some of the information that we may need to meet our disclosure obligations 

may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions 
Controls and Procedures

Fannie Mae Third Quarter 2018 Form 10-Q 104

without our knowledge that could be material to our shareholders and other stakeholders, and could 

significantly affect our financial performance or our continued existence as an ongoing business. Although 

we and FHFA attempted to design and implement disclosure policies and procedures that would account 

for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy 

of a typical reporting company, there are inherent structural limitations on our ability to design, implement, 

test or operate effective disclosure controls and procedures. As both our regulator and our conservator 

under the GSE Act, FHFA is limited in its ability to design and implement a complete set of disclosure 

controls and procedures relating to Fannie Mae, particularly with respect to current reporting pursuant to 

Form 8-K. Similarly, as a regulated entity, we are limited in our ability to design, implement, operate and 

test the controls and procedures for which FHFA is responsible.

Due to these circumstances, we have not been able to update our disclosure controls and procedures in a 

manner that adequately ensures the accumulation and communication to management of information 

known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, 

including disclosures affecting our condensed consolidated financial statements. As a result, we did not 

maintain effective controls and procedures designed to ensure complete and accurate disclosure as 

required by GAAP as of September 30, 2018 or as of the date of filing this report. Based on discussions 

with FHFA and the structural nature of this weakness, we do not expect to remediate this material 

weakness while we are under conservatorship.

Mitigating Actions Related to Material Weakness

As described above under “Description of Material Weakness,” we continue to have a material weakness in our 

internal control over financial reporting relating to our disclosure controls and procedures. However, we and FHFA

have engaged in the following practices intended to permit accumulation and communication to management of 

information needed to meet our disclosure obligations under the federal securities laws:

• FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the 

company with the oversight of the conservator.

• We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. 

We also have provided drafts of external press releases, statements and speeches to FHFA personnel for 

their review and comment prior to release.

• FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this 

quarterly report on Form 10-Q for the quarter ended September 30, 2018 (“Third Quarter 2018 Form 10-

Q”), and engaged in discussions regarding issues associated with the information contained in those 

filings. Prior to filing our Third Quarter 2018 Form 10-Q, FHFA provided Fannie Mae management with a 

written acknowledgment that it had reviewed the Third Quarter 2018 Form 10-Q, and it was not aware of 

any material misstatements or omissions in the Third Quarter 2018 Form 10-Q and had no objection to 

our filing the Third Quarter 2018 Form 10-Q.

• The Director of FHFA and our Chief Executive Officer have been in frequent communication and meet on 

a regular basis.

• FHFA representatives attend meetings frequently with various groups within the company to enhance the 

flow of information and to provide oversight on a variety of matters, including accounting, credit and 

market risk management, external communications and legal matters.

• Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance 

executives regarding our accounting policies, practices and procedures.

Changes in Internal Control Over Financial Reporting

Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, 

whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter 

have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

There have been no changes in our internal control over financial reporting since June 30, 2018 that management 

believes have materially affected, or are reasonably likely to materially affect, our internal control over financial 

reporting.
Other Information

Fannie Mae Third Quarter 2018 Form 10-Q 105

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information in this item supplements and updates information regarding certain legal proceedings set forth in 

“Legal Proceedings” in our 2017 Form 10-K, our First Quarter 2018 Form 10-Q and our Second Quarter 2018 

Form 10-Q. We also provide information regarding material legal proceedings in “Note 14, Commitments and 

Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or 

incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise 

in the ordinary course of business that do not have a material impact on our business. Litigation claims and 

proceedings of all types are subject to many factors that generally cannot be predicted accurately. 

We establish an accrual for legal claims only when a loss is probable and we can reasonably estimate the amount 

of such loss. The actual costs of resolving legal claims may be substantially higher or lower than the amounts 

accrued for those claims. If certain of these matters are determined against us, FHFA or Treasury, it could have a 

material adverse effect on our results of operations, liquidity and financial condition, including our net worth. 

Senior Preferred Stock Purchase Agreements Litigation 

Between June 2013 and August 2018, preferred and common stockholders of Fannie Mae and Freddie Mac filed 

lawsuits in multiple federal courts against one or more of the United States, Treasury and FHFA, challenging 

actions taken by the defendants relating to the senior preferred stock purchase agreements and the 

conservatorships of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims against Fannie 

Mae and Freddie Mac. The legal claims being advanced by one or more of these lawsuits include challenges to 

the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the 

August 2012 amendments to the agreements, the payment of dividends to Treasury under the net worth sweep 

dividend provisions, and FHFA’s decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in 

order to pay dividends to Treasury prior to the August 2012 amendments. Some of the lawsuits also challenge the 

constitutionality of FHFA’s structure. The plaintiffs seek various forms of equitable and injunctive relief, including 

rescission of the August 2012 amendments, as well as damages. The cases that remain pending or were 

terminated after June 30, 2018 are as follows:

District of Columbia. Fannie Mae is a defendant in four cases pending in the U.S. District Court for the District of 

Columbia—a consolidated putative class action and three additional cases. On September 28, 2018, the court 

dismissed all of the plaintiffs’ claims in three of these cases (including the consolidated class action), except for 

their claims for breach of an implied covenant of good faith and fair dealing. In the fourth case, which was filed on 

May 21, 2018, defendants filed a motion to dismiss the case on July 12, 2018. All four cases are described in 

“Note 14, Commitments and Contingencies.”

Northern District of Iowa. On March 27, 2017, the U.S. District Court for the Northern District of Iowa dismissed 

the case pending before it. On August 23, 2018, the U.S. Court of Appeals for the Eighth Circuit affirmed the 

district court’s judgment.

Southern District of Texas. On May 22, 2017, the U.S. District Court for the Southern District of Texas dismissed 

the case pending before it. On July 16, 2018, the U.S Court of Appeals for the Fifth Circuit affirmed the dismissal 

of plaintiffs’ statutory claims seeking to invalidate the net worth sweep dividend provisions. Plaintiffs and FHFA

filed petitions for rehearing en banc in August 2018. 

Western District of Michigan. On June 1, 2017, preferred and common stockholders of Fannie Mae and Freddie 

Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for 

the Western District of Michigan. The complaint asks the court to set aside the net worth sweep dividend 

provisions of the senior preferred stock purchase agreements. FHFA and Treasury moved to dismiss the case on 

September 8, 2017, and plaintiffs filed a motion for summary judgment on October 6, 2017. 

District of Minnesota. On June 22, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac 

filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the 

District of Minnesota. The complaint asks the court to set aside the net worth sweep dividend provisions of the 

senior preferred stock purchase agreements. The court dismissed the case on July 6, 2018, and plaintiffs filed a 

notice of appeal with the U.S. Court of Appeals for the Eighth Circuit on July 10, 2018.

Eastern District of Pennsylvania. On August 16, 2018, common stockholders of Fannie Mae and Freddie Mac filed 

a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the 
Other Information

Fannie Mae Third Quarter 2018 Form 10-Q 106

Eastern District of Pennsylvania. The complaint asks the court to set aside the net worth sweep dividend 

provisions of the senior preferred stock purchase agreements.

U.S. Court of Federal Claims. Fannie Mae is a nominal defendant in three actions filed against the United States 

in the U.S. Court of Federal Claims: Fisher v. United States of America, filed on December 2, 2013; Rafter v. 

United States of America, filed on August 14, 2014; and Perry Capital LLC v. United States of America, filed on 

August 15, 2018. Plaintiffs in these cases allege that the net worth sweep dividend provisions of the senior 

preferred stock that were implemented pursuant to the August 2012 amendment to the senior preferred stock 

purchase agreement constitute a taking of Fannie Mae’s property without just compensation in violation of the 

U.S. Constitution. The Fisher plaintiffs are pursuing this claim derivatively on behalf of Fannie Mae, while the 

Rafter and Perry Capital plaintiffs are pursing the claim both derivatively and directly against the United States. 

Plaintiffs in Rafter also allege direct and derivative breach of contract claims against the government. The Perry 

Capital plaintiffs allege similar breach of contract claims, as well as breach of fiduciary duty claims against the 

government. Plaintiffs in Fisher request just compensation to Fannie Mae in an unspecified amount. Plaintiffs in 

Rafter and Perry Capital seek just compensation for themselves on their direct claims and payment of damages to 

Fannie Mae on their derivative claims. The United States filed a motion to dismiss the Fisher and Rafter cases on 

August 1, 2018.

District of Delaware. Fannie Mae is a nominal defendant in Jacobs v. FHFA, filed on August 17, 2015 against 

FHFA and Treasury in the U.S. District Court for the District of Delaware. Plaintiffs allege that the net worth sweep 

dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 

amendments to the agreements violate Delaware law. Plaintiffs are pursuing this claim derivatively on behalf of 

Fannie Mae and directly against the government. The court dismissed the case on November 27, 2017, and 

plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit on December 22, 2017.

Item 1A. Risk Factors

In addition to the information in this report, you should carefully consider the risks relating to our business that we 

identify in “Risk Factors” in our 2017 Form 10-K. This section supplements and updates that discussion. Please 

also refer to “MD&A—Risk Management” in this report and in our 2017 Form 10-K for more detailed descriptions 

of the primary risks to our business and how we seek to manage those risks.

The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity 

and net worth, and could cause our actual results to differ materially from our past results or the results 

contemplated by forward-looking statements contained in this report. However, these are not the only risks we 

face. In addition to the risks we discuss below and in our 2017 Form 10-K, we face risks and uncertainties not 

currently known to us or that we currently believe are immaterial. 

The Single Security Initiative may adversely affect our financial results and contribute to declines in the 

liquidity or market value of our MBS. The Single Security Initiative also increases our counterparty credit 

risk and operational risk.

In 2014, FHFA directed Fannie Mae and Freddie Mac to develop a single common mortgage-backed security that 

is fungible with then-outstanding Fannie Mae guaranteed mortgage pass-through certificates and Freddie Mac 

Participation Certificates (“Freddie Mac PCs”). The security to be developed will be known as a Uniform 

Mortgage-Backed Security or UMBS. The FHFA initiative to develop a UMBS (the “Single Security Initiative”) is 

intended to maximize liquidity for both Fannie Mae and Freddie Mac mortgage-backed securities in the “to-beannounced” or TBA market. In March 2018, FHFA announced that Fannie Mae and Freddie Mac will start issuing 

UMBS in place of their current offerings of TBA-eligible mortgage-backed securities on June 3, 2019. The new 

UMBS will be issued by Fannie Mae and Freddie Mac through their joint venture, Common Securitization 

Solutions, LLC (“CSS”), using the Common Securitization Platform (“CSP”). 

Historically, Fannie Mae MBS have had a trading advantage over comparable Freddie Mac PCs. One of FHFA’s 

stated objectives for the Single Security Initiative is to reduce the costs to Freddie Mac and taxpayers that result 

from differences in liquidity of Fannie Mae MBS and Freddie Mac PCs. As the implementation date of the Single 

Security Initiative approaches, some Fannie Mae MBS and comparable Freddie Mac PCs are trading closer to or 

at parity. If this trend continues, it could adversely affect our financial results. 

It is also possible that uncertainty surrounding the implementation and overall impact of the Single Security 

Initiative could contribute to declines in the liquidity or market value of our Fannie Mae MBS. The industry has 

expressed concerns that Fannie Mae and Freddie Mac UMBS may not be truly fungible. If investors do not accept 
Other Information

Fannie Mae Third Quarter 2018 Form 10-Q 107

the fungibility of Fannie Mae and Freddie Mac UMBS or if investors prefer Freddie Mac UMBS over Fannie Mae 

UMBS, it could have a significant adverse impact on our business, liquidity, financial condition, net worth and 

results of operations, and could adversely affect the liquidity or market value of our MBS.

The Single Security Initiative will also result in our credit and operational exposure to Freddie Mac. Once the 

initiative is implemented, investors will be able to commingle Fannie Mae UMBS and Freddie Mac UMBS in 

resecuritizations. When we resecuritize Freddie Mac UMBS, our guaranty of principal and interest would extend 

to the underlying Freddie Mac UMBS. Accordingly, in the event Freddie Mac were to fail (for credit or operational 

reasons) to make a payment on Freddie Mac UMBS that we resecuritized, we would be responsible for making 

the entire payment on the related Fannie Mae UMBS in order for any of our certificates to be paid. We do not 

intend to limit the amount of resecuritized Freddie Mac UMBS that we guarantee and we do not intend to modify 

our liquidity strategies to address this increased risk. As a result, we could be dependent on Freddie Mac and on 

the senior preferred stock purchase agreements that we and Freddie Mac each have with Treasury to avoid a 

liquidity event or a default under our guaranty. See “Risk Factors” in our 2017 Form 10-K for a discussion of other 

operational risks associated with our implementation of the Single Security Initiative and related internal 

infrastructure upgrades.

Once we begin issuing UMBS, we plan to begin using CSS and the CSP to perform certain operational functions 

associated with issuing and managing these UMBS on our behalf. Accordingly, we will be reliant on CSS and the 

CSP for the operation of many of our securitization activities. Our business activities could be adversely affected 

and the market for Fannie Mae MBS could be disrupted if the CSP were to fail or otherwise become unavailable 

to us or if CSS were unable to perform its obligations to us. Any such failure or unavailability could have a 

significant adverse impact on our business, liquidity, financial condition, net worth and results of operations, and 

could adversely affect the liquidity or market value of our MBS.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or 

issuing our equity interests, other than as required by (and pursuant to) the terms of a binding agreement in effect 

on September 7, 2008, without the prior written consent of Treasury. During the quarter ended September 30, 

2018, we did not sell any equity securities.

Information about Certain Securities Issuances by Fannie Mae

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a 

material direct financial obligation or become directly or contingently liable for a material obligation under an offbalance sheet arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if 

the obligation is incurred in connection with certain types of securities offerings, in prospectuses for that offering 

that are filed with the SEC.

Because the securities we issue are exempted securities under the Securities Act of 1933, we do not file 

registration statements or prospectuses with the SEC with respect to our securities offerings. To comply with the 

disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report our 

incurrence of these types of obligations either in offering circulars or prospectuses (or supplements thereto) that 

we post on our website or in a current report on Form 8-K that we file with the SEC, in accordance with a “noaction” letter we received from the SEC staff in 2004. In cases where the information is disclosed in a prospectus 

or offering circular posted on our website, the document will be posted on our website within the same time period 

that a prospectus for a non-exempt securities offering would be required to be filed with the SEC.

The website address for disclosure about our debt securities is www.fanniemae.com/debtsearch. From this 

address, investors can access the offering circular and related supplements for debt securities offerings under 

Fannie Mae’s universal debt facility, including pricing supplements for individual issuances of debt securities.

Disclosure about our obligations pursuant to some of the MBS we issue, some of which may be off-balance sheet 

obligations, can be found at www.fanniemae.com/mbsdisclosure. From this address, investors can access 

information and documents about our MBS, including prospectuses and related prospectus supplements.

We are providing our website address solely for your information. Information appearing on our website is not 

incorporated into this report.
Other Information

Fannie Mae Third Quarter 2018 Form 10-Q 108

Our Purchases of Equity Securities

We did not repurchase any of our equity securities during the third quarter of 2018.

Dividend Restrictions 

Our payment of dividends is subject to the following restrictions: 

Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not 

pay any dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. 

In addition, FHFA’s regulations relating to conservatorship and receivership operations prohibit us from paying any 

dividends while in conservatorship unless authorized by the Director of FHFA. The Director of FHFA has directed 

us to make dividend payments on the senior preferred stock on a quarterly basis for every dividend period for 

which dividends were payable.

Restrictions Under Senior Preferred Stock Purchase Agreement and Senior Preferred Stock. The senior preferred 

stock purchase agreement prohibits us from declaring or paying any dividends on Fannie Mae equity securities 

(other than the senior preferred stock) without the prior written consent of Treasury. In addition, pursuant to the 

dividend provisions of the senior preferred stock and quarterly directives from our conservator, we are obligated to 

pay Treasury each quarter any dividends declared consisting of the amount, if any, by which our net worth as of 

the end of the immediately preceding fiscal quarter exceeds $3.0 billion. As a result, our net income is not 

available to common stockholders. For more information on the terms of the senior preferred stock purchase 

agreement and senior preferred stock, see “Business—Conservatorship and Treasury Agreements—Treasury 

Agreements” in our 2017 Form 10-K.

Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to 

the prior payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all 

outstanding preferred stock, other than the senior preferred stock, is also subject to the prior payment of 

dividends on the senior preferred stock. 

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment 

of dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, 

approval of the Director of FHFA is required for any dividend payment. Under the Charter Act and the GSE Act, 

we are not permitted to make a capital distribution if, after making the distribution, we would be undercapitalized. 

The Director of FHFA, however, may permit us to repurchase shares if the repurchase is made in connection with 

the issuance of additional shares or obligations in at least an equivalent amount and will reduce our financial 

obligations or otherwise improve our financial condition. 

Item 3. Defaults Upon Senior Securities

None. 

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On October 31, 2018, FHFA approved an increase in the annual target direct compensation of Celeste M. Brown, 

Executive Vice President and Chief Financial Officer of Fannie Mae, to reflect her August 2018 promotion from 

Senior Vice President and Deputy Chief Financial Officer to Executive Vice President and Chief Financial Officer. 

The increase will be in two steps: 

• Effective November 11, 2018, her total annual target direct compensation will increase to $2,300,000; 

consisting of base salary of $550,000, fixed deferred salary of $1,060,000, and at-risk deferred salary of 

$690,000. This increase in Ms. Brown’s compensation will be prorated for 2018 based on the effective 

date of the increase. 

• Effective August 4, 2019, her total annual target direct compensation will increase to $3,000,000; 

consisting of base salary of $600,000, fixed deferred salary of $1,500,000, and at-risk deferred salary of 

$900,000. This increase in Ms. Brown’s compensation will be prorated for 2019 based on the effective 

date of the increase.
Other Information

Fannie Mae Third Quarter 2018 Form 10-Q 109

For a description of the principal elements of Fannie Mae’s executive compensation program for its named 

executives, see “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer 

Compensation and 2017 Executive Compensation Program—Elements of 2017 Executive Compensation 

Program” in our 2017 Form 10-K.

Item 6. Exhibits

The exhibits listed below are being filed with or incorporated by reference into this report. 

Item Description

3.1 Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through May 24, 2018 

(Incorporated by reference to Exhibit 3.1 to Fannie Mae’s Quarterly Report on Form 10-Q 

(Commission file number 000-50231) for the quarter ended June 30, 2018, filed August 2, 2018.)

3.2 Fannie Mae Bylaws, as amended through July 21, 2016 (Incorporated by reference to Exhibit 3.2 

to Fannie Mae’s Quarterly Report on Form 10-Q (Commission file number 000-50231) for the 

quarter ended June 30, 2016, filed August 4, 2016.)

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101. INS XBRL Instance Document* - the instance document does not appear in the Interactive Data File

because its XBRL tags are embedded within the Inline XBRL document

101. SCH XBRL Taxonomy Extension Schema*

101. CAL XBRL Taxonomy Extension Calculation*

101. DEF XBRL Taxonomy Extension Definition*

101. LAB XBRL Taxonomy Extension Label*

101. PRE XBRL Taxonomy Extension Presentation*

__________

* The financial information contained in these XBRL documents is unaudited.
Signatures

Fannie Mae Third Quarter 2018 Form 10-Q 110

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to 

be signed on its behalf by the undersigned thereunto duly authorized.

Federal National Mortgage Association

By: /s/ Hugh R. Frater

Hugh R. Frater

Interim Chief Executive Officer

Date: November 2, 2018

By: /s/ Celeste M. Brown

Celeste M. Brown

Executive Vice President and

Chief Financial Officer

Date: November 2, 2018