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, 2013

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

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3900 Wisconsin Avenue, NW

Washington, DC

20016

(Zip Code)

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(202) 752-7000

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 and posted on its corporate Web site, if any, every 

Interactive Data File required to be submitted and posted 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 and post such 

files). Yes No 

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

smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 

company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer Accelerated filer 

Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company 

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, 2013, there were 1,158,080,657 shares of common stock of the registrant outstanding.
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TABLE OF CONTENTS

Page

PART I—Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 1.

Item 2.

Item 3.

Item 4.

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

Item 1.

Item 1A.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Financial Statements

Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Condensed Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . 90

Condensed Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Note 1—Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Note 2—Consolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Note 3—Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Note 4—Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Note 5—Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Note 6—Financial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Note 7—Acquired Property, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Note 8—Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Note 9—Derivative Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Note 10—Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Note 11—Earnings (Loss) Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Note 12—Segment Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Note 13—Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Note 14—Concentrations of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Note 15—Netting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Note 16—Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Note 17—Commitments and Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Note 18—Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Legislative and Regulatory Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Critical Accounting Policies and Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Business Segment Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Consolidated Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Supplemental Non-GAAP Information—Fair Value Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Liquidity and Capital Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

171

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Unregistered Sales of Equity Securities and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
ii

MD&A TABLE REFERENCE

Table Description Page

1 Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period. . . . . 5

2 Single-Family Acquisitions Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3 Credit Statistics, Single-Family Guaranty Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

4 Summary of Condensed Consolidated Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

5 Analysis of Net Interest Income and Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

6 Rate/Volume Analysis of Changes in Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

7 Impact of Nonaccrual Loans on Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

8 Fair Value Gains (Losses), Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

9 Total Loss Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

10 Allowance for Loan Losses and Reserve for Guaranty Losses (Combined Loss Reserves). . . . . . . . . . . . 26

11 Nonperforming Single-Family and Multifamily Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

12 Credit Loss Performance Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

13 Single-Family Credit Loss Sensitivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

14 Single-Family Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

15 Multifamily Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

16 Capital Markets Group Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

17 Capital Markets Group’s Mortgage Portfolio Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

18 Capital Markets Group’s Mortgage Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

19 Summary of Condensed Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

20 Summary of Mortgage-Related Securities at Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

21 Comparative Measures—GAAP Change in Stockholders’ Equity and Non-GAAP Change in Fair Value

of Net Assets (Net of Tax Effect) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

22 Supplemental Non-GAAP Consolidated Fair Value Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

23 Activity in Debt of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

24 Outstanding Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

25 Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year. . . . . . . . . . . . . . . . . . . 51

26 Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year. . . . . . . . . . . . . . 52

27 Cash and Other Investments Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

28 Fannie Mae Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

29 Composition of Mortgage Credit Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

30 Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business. 58

31 Selected Credit Characteristics of Single-Family Conventional Loans Acquired under HARP and Refi

Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

32 Delinquency Status of Single-Family Conventional Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

33 Single-Family Serious Delinquency Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

34 Single-Family Conventional Serious Delinquency Rate Concentration Analysis . . . . . . . . . . . . . . . . . . . 65

35 Statistics on Single-Family Loan Workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

36 Percentage of Single-Family Loan Modifications That Were Current or Paid Off at One and Two Years

Post-Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

37 Single-Family Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

38 Single-Family Foreclosed Property Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

39 Multifamily Lender Risk-Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

40 Multifamily Guaranty Book of Business Key Risk Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
iii

Table Description Page

41 Multifamily Concentration Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

42 Multifamily Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

43 Repurchase Request Activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

44 Outstanding Repurchase Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

45 Mortgage Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

46 Rescission Rates and Claims Resolution of Mortgage Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

47 Estimated Mortgage Insurance Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

48 Unpaid Principal Balance of Financial Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

49 Credit Loss Exposure of Risk Management Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

50 Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve . . 83

51 Derivative Impact on Interest Rate Risk (50 Basis Points). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
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 

delegated specified authorities to our Board of Directors and has delegated to management the authority to conduct our 

day-to-day operations. 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. We describe the rights and powers 

of the conservator, key provisions of our agreements with the U.S. Department of the Treasury (“Treasury”), and their

impact on shareholders in our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”) 

in “Business—Conservatorship and Treasury Agreements.”

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 and the more detailed 

information in our 2012 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 the forward-looking statements in this report. Our actual results may differ materially from those reflected in our forwardlooking statements due to a variety of factors including, but not limited to, those discussed in “Risk Factors” and elsewhere 

in this report and in “Risk Factors” in our 2012 Form 10-K. 

You can find a “Glossary of Terms Used in This Report” in the “MD&A” of our 2012 Form 10-K. 

INTRODUCTION

Fannie Mae is a government-sponsored enterprise (“GSE”) that was chartered by Congress in 1938. Our public mission is to 

support liquidity and stability in the secondary mortgage market, where existing mortgage-related assets are purchased and 

sold, and increase the supply of affordable housing. Our charter does not permit us to originate loans or lend money directly 

to consumers in the primary mortgage market. However, as the leading source of residential mortgage credit in the secondary 

market, we indirectly enable families to buy, refinance or rent a home. We securitize mortgage loans originated by lenders 

into Fannie Mae mortgage-backed securities that we guarantee, which we refer to as Fannie Mae MBS. We also purchase 

mortgage loans and mortgage-related securities. We use the term “acquire” in this report to refer to both our securitizations 

and our purchases of mortgage-related assets. We obtain funds to support our business activities by issuing a variety of debt 

securities in the domestic and international capital markets. 

Like the mortgage finance industry we serve, Fannie Mae is undergoing significant transformation. Since entering into 

conservatorship in September 2008, our senior management, constituencies and priorities have changed. More than 85% of 

our current senior management team, and every member of our management committee, has been hired or promoted into 

their current role since we entered into conservatorship. More than half of our employees were hired after conservatorship 

began. Moreover, instead of being run for the benefit of shareholders, our company is managed in the overall interest of 

taxpayers, which is consistent with the substantial public investment in us. Ultimately, we help fill the role of enabling 

families to buy, refinance or rent a home. 

Our conservatorship has no specified termination date, and we do not know when or how the conservatorship will be 

terminated, whether we will continue to exist following conservatorship, or what changes to our business structure will be 

made during or following the conservatorship. Our agreements with Treasury that provide for financial support also include 

covenants that significantly restrict our business activities. We provide additional information on the conservatorship, the 

provisions of our agreements with Treasury, and their impact on our business in our 2012 Form 10-K in “Business—

Conservatorship and Treasury Agreements” and “Risk Factors.” We discuss the uncertainty of our future and its impact on us 

in “Executive Summary—Outlook” in this report and in “Risk Factors” in our 2012 Form 10-K. We describe recent proposals 

for GSE reform that could materially affect our business in “Legislative and Regulatory Developments—GSE Reform” in our 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (“Second Quarter 2013 Form 10-Q”) and in “Business—

Legislative and Regulatory Developments” in our 2012 Form 10-K.
2

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.

Our common stock is traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbol 

“FNMA.” Our debt securities are actively traded in the over-the-counter market.

EXECUTIVE SUMMARY

We are focused on paying Treasury for taxpayers’ investment in Fannie Mae, which can be accomplished by supporting the 

housing recovery, helping struggling homeowners and laying the foundation for a better housing finance system going 

forward.

Our actions to accomplish these objectives are having a positive impact:

• Financial Results and Treasury Dividend Payments. Our financial results for the third quarter of 2013 continued to 

be strong. With our net income of $8.7 billion for the third quarter of 2013, we ended the quarter with a positive net 

worth of $11.6 billion as of September 30, 2013. We will pay $8.6 billion of that net worth as a dividend on the 

senior preferred stock to Treasury in the fourth quarter of 2013. With this dividend payment, we will have paid a 

total of $113.9 billion in dividends to Treasury on the senior preferred stock. We expect to remain profitable for the 

foreseeable future. See “Summary of Our Financial Performance” below for an overview of our financial 

performance for the third quarter and first nine months of 2013, as compared with the third quarter and first nine 

months of 2012. For more information regarding our expectations for our future financial performance, see 

“Outlook” and “Strengthening Our Book of Business—Expectations Regarding Future Revenues” below.

• Providing Liquidity and Support to the Mortgage Market. We continued to be the leading provider of liquidity to the 

mortgage market in the third quarter of 2013. As described below under “Contributions to the Housing and 

Mortgage Markets Since Entering Conservatorship—2013 Acquisitions and Market Share,” we remained the largest 

single issuer of mortgage-related securities in the secondary market during the quarter and remained a constant 

source of liquidity in the multifamily market.

• Strong New Book of Business. Single-family loans we have acquired since the beginning of 2009 constituted 75% of 

our single-family guaranty book of business as of September 30, 2013, while the single-family loans we acquired 

prior to 2009 constituted 25% of our single-family guaranty book of business. We refer to the single-family loans we 

have acquired since the beginning of 2009 as our “new single-family book of business” and the single-family loans 

we acquired prior to 2009 as our “legacy book of business.” As described below in “Strengthening Our Book of 

Business—Credit Risk Profile,” we expect that our new single-family book of business will be profitable over its 

lifetime.

• Credit Performance. Our single-family serious delinquency rate continued to decline from its peak of 5.59% as of 

February 28, 2010, and was 2.55% as of September 30, 2013, compared with 3.41% as of September 30, 2012. See 

“Credit Performance” below for additional information about the credit performance of the mortgage loans in our 

single-family guaranty book of business.

• Reducing Credit Losses and Helping Homeowners. We continued to execute on our strategies for reducing credit 

losses on our legacy book of business, which are addressed in “Business—Executive Summary—Reducing Credit 

Losses on Our Legacy Book of Business” in our 2012 Form 10-K. As part of our strategy to reduce defaults, we 

provided approximately 55,000 loan workouts in the third quarter of 2013 to help homeowners stay in their homes 

or otherwise avoid foreclosure.

We also continued our efforts to help build a new housing finance system, including pursuing the strategic goals identified by 

our conservator: build a new infrastructure for the secondary mortgage market; gradually contract our dominant presence in 

the marketplace while simplifying and shrinking our operations; and maintain foreclosure prevention activities and credit 

availability for new and refinanced mortgages. We discuss these goals in our 2012 Form 10-K in “Business—Executive 

Summary—Helping to Build a New Housing Finance System.” In March 2013, the Acting Director of FHFA released 2013 

corporate performance goals and related targets for Fannie Mae and Freddie Mac, referred to as the 2013 conservatorship 

scorecard, that build upon these strategic goals. See our current report on Form 8-K filed with the Securities and Exchange 

Commission (the “SEC”) on March 8, 2013 for a description of the 2013 conservatorship scorecard.

In addition to working on FHFA’s conservatorship scorecard objectives, we are also working on additional related projects to 

help prepare our business and infrastructure for potential future changes in the structure of the U.S. housing finance system. 
3

For example, one of our priorities is to modernize our technological infrastructure to give us the flexibility that may be 

required as the housing system undergoes transition. These projects will likely take several years to implement. We are 

devoting significant resources to and incurring significant expenses in implementing FHFA’s objectives and these additional 

related projects.

Summary of Our Financial Performance 

Our financial results for the third quarter and first nine months of 2013 reflected continued improvements in the housing and 

mortgage markets, resulting in a further reduction in our loss reserves, and continued stable revenues. In addition, the 

increase in interest rates during the first nine months of 2013 resulted in improvements in the fair value of financial 

instruments that we mark to market in our earnings, resulting in fair value gains primarily related to derivatives. Although the 

increase in interest rates had a positive impact on the fair value of our financial instruments, the increase in interest rates had 

a negative impact on our loss reserves.

We expect our revenues to continue to be stable; however, as we discuss more fully in “Strengthening Our Book of Business

—Expectations Regarding Future Revenues,” we expect the source of our revenue to shift in the future. Additionally, we 

expect volatility from period to period in our financial results due to changes in market conditions that result in periodic 

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

instruments include trading securities and derivatives. The estimated fair value of our trading securities and derivatives may 

fluctuate substantially from period to period because of changes in interest rates, credit spreads and interest rate 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. In addition, our credit-related income or expense can vary 

substantially from period to period primarily due to changes in home prices, borrower payment behavior and economic 

conditions. 

Comprehensive Income

Quarterly Results

We recognized comprehensive income of $8.6 billion in the third quarter of 2013, consisting of net income of $8.7 billion and 

other comprehensive loss of $134 million. In comparison, we recognized comprehensive income of $2.6 billion in the third 

quarter of 2012, consisting of net income of $1.8 billion and other comprehensive income of $746 million. The increase in 

our net income in the third quarter of 2013 compared with the third quarter of 2012 was primarily due to credit-related 

income and fair value gains.

We recognized credit-related income of $3.8 billion in the third quarter of 2013 compared with credit-related expense of $2.0 

billion in the third quarter of 2012. Our credit results for the third quarters of 2013 and 2012 were positively impacted by 

increases in home prices which resulted in reductions in our loss reserves. The improvement in our credit results was due to a 

decline in the number of delinquent loans in our single-family guaranty book of business. In addition, in the third quarter of 

2013, we recognized foreclosed property income of $1.2 billion, primarily due to the recognition of compensatory fees 

received in connection with our compensatory fee agreement with Bank of America. We had previously deferred this income 

until we substantially completed the loan review process related to the agreement. See “Note 20, Subsequent Events” in our 

2012 Form 10-K for additional information on the Bank of America compensatory fee agreement.

In the third quarter of 2012, our provision for credit losses was primarily driven by a change in the assumptions and data used 

in calculating our loss reserves and a change in our accounting for loans to certain borrowers who have received bankruptcy 

relief. See “Critical Accounting Policies and Estimates—Total Loss Reserves” and “Consolidated Results of Operations—

Benefit (Provision) for Credit Losses” in our 2012 Form 10-K for additional information on these changes.

Fair value gains of $335 million in the third quarter of 2013 were primarily driven by derivatives fair value gains as longerterm swap rates increased in the third quarter of 2013. Fair value losses of $1.0 billion in the third quarter of 2012 were 

primarily driven by derivatives fair value losses as swap rates declined in the third quarter of 2012.

Investment gains of $648 million in the third quarter of 2013 compared with $134 million in the third quarter of 2012 were 

primarily due to sales of non-agency mortgage-related securities. See “Business Segment Results—Capital Markets Group 

Results—The Capital Markets Group’s Mortgage Portfolio” and “Consolidated Balance Sheet Analysis—Investments in 

Mortgage-Related Securities” for additional information on our mortgage-related securities portfolio and requirements that 

we reduce our retained mortgage portfolio. Our “retained mortgage portfolio” refers to the mortgage-related assets we own 

(which excludes the portion of assets held by consolidated MBS trusts that back mortgage-related securities owned by third 

parties). 
4

We recognized a provision for federal income taxes of $1.4 billion in the third quarter of 2013 as our current estimate of pretax income for 2013 was greater than our estimate as of March 31, 2013. We did not recognize a provision for federal income 

taxes in the third quarter of 2012. See “Note 10, Income Taxes” for additional information.

Our other comprehensive loss of $134 million in the third quarter of 2013 was driven by the reversal of previously unrealized 

gains reflected in accumulated other comprehensive income that were realized as investment gains as a result of sales of nonagency securities.

Year-to-Date Results

We recognized comprehensive income of $78.2 billion in the first nine months of 2013, consisting of net income of $77.5 

billion and other comprehensive income of $686 million. In comparison, we recognized comprehensive income of $11.1 

billion in the first nine months of 2012, consisting of net income of $9.7 billion and other comprehensive income of $1.4 

billion.

Our comprehensive income in the first nine months of 2013 was primarily driven by the release of the substantial majority of 

our valuation allowance against our deferred tax assets in the first quarter of 2013, which resulted in a benefit for federal 

income taxes of $47.2 billion in our condensed consolidated statements of operations and comprehensive income for the first 

nine months of 2013. We discuss the factors that led to our conclusion to release the valuation allowance against our deferred 

tax assets in “Critical Accounting Policies and Estimates—Deferred Tax Assets” and “Note 10, Income Taxes.”

Our pre-tax income, which excludes the benefit for federal income taxes, was $30.3 billion in the first nine months of 2013 

compared with $9.7 billion in the first nine months of 2012. The increase in our pre-tax income was primarily due to creditrelated income of $10.7 billion in the first nine months of 2013 compared with credit-related expense of $1.3 billion in the 

first nine months of 2012. In addition to the factors that led to our increased credit-related income in the third quarter of 2013, 

in the second quarter of 2013 we updated the assumptions and data used to estimate our allowance for loan losses for 

individually impaired single-family loans to reflect faster prepayment and lower default expectations for these loans. These 

updates resulted in a decrease to our allowance for loan losses and an incremental benefit for credit losses of approximately 

$2.2 billion. See “Critical Accounting Policies and Estimates—Total Loss Reserves” for additional information. The positive 

impact of these factors on our credit-related income for the first nine months of 2013 was partially offset by lower cash flow 

projections on our individually impaired loans due to increasing mortgage interest rates in the first nine months of 2013. 

Higher mortgage interest rates lengthen the expected lives of modified loans, thus increasing the impairment related to 

concessions on these loans and resulting in an increase to the provision for credit losses. Conversely, in the first nine months 

of 2012, mortgage interest rates decreased, resulting in higher cash flow projections on our individually impaired loans, 

which resulted from shortened expected lives on modified loans and lower impairment related to concessions on these loans.

The factors that led to fair value gains of $2.0 billion in the first nine months of 2013 compared with fair value losses of $3.2 

billion in the first nine months of 2012 are the same factors that led to fair value gains in the third quarter of 2013.

Our other comprehensive income of $686 million in the first nine months of 2013 compared with $1.4 billion in the first nine 

months of 2012. The other comprehensive income recognized in the first nine months of 2013 and 2012 was driven by 

increases in net unrealized gains on available-for-sale securities primarily due to the narrowing of credit spreads. Other 

comprehensive income in the first nine months of 2013 was partially offset by other comprehensive loss driven by the 

reversal of previously unrealized gains reflected in accumulated other comprehensive income that were realized as 

investment gains as a result of sales of non-agency securities.

See “Consolidated Results of Operations” for more information on our results.

Net Worth

Our net worth increased to $11.6 billion as of September 30, 2013 from $7.2 billion as of December 31, 2012, primarily due 

to our comprehensive income of $78.2 billion, partially offset by our payments to Treasury of $73.8 billion in senior 

preferred stock dividends during the first nine months of 2013.

As a result of our positive net worth as of September 30, 2013, we are not requesting a draw from Treasury under the senior 

preferred stock purchase agreement. Our dividend payment for the fourth quarter of 2013 will be $8.6 billion, which is 

calculated based on our net worth of $11.6 billion as of September 30, 2013 less the applicable capital reserve amount of $3.0 

billion. As of December 31, 2013, we will have paid a total of $113.9 billion in dividends to Treasury on the senior preferred 

stock.
5

Total Loss Reserves

Our total loss reserves consist of (1) our allowance for loan losses, (2) our allowance for accrued interest receivable, (3) our 

allowance for preforeclosure property taxes and insurance receivables, and (4) our reserve for guaranty losses. Our total loss 

reserves, which reflect our estimate of the probable losses we have incurred in our guaranty book of business, including 

concessions we granted borrowers upon modification of their loans, decreased to $48.4 billion as of September 30, 2013 from 

$62.6 billion as of December 31, 2012. Our total loss reserve coverage to total nonperforming loans was 21% as of 

September 30, 2013 compared with 25% as of December 31, 2012.

Strengthening Our Book of Business

Credit Risk Profile

While making it possible for families to purchase, refinance or rent a home, we have established responsible credit standards 

to protect homeowners as well as taxpayers. Since 2009, we have seen the effect of actions we took, beginning in 2008, to 

significantly strengthen our underwriting and eligibility standards and change our pricing to promote sustainable 

homeownership and stability in the housing market. While we do not yet know how the single-family loans we have acquired 

since January 1, 2009 will ultimately perform, given their strong credit risk profile and based on their performance so far, we 

expect that in the aggregate these loans will be profitable over their lifetime, by which we mean that we expect our fee 

income on these loans to exceed our credit losses and administrative costs for them. In contrast, we expect that the singlefamily loans we acquired from 2005 through 2008, in the aggregate, will not be profitable over their lifetime.

Our expectations regarding the ultimate performance of our loans are based on numerous assumptions, including those 

relating to changes in home prices, borrower behavior, public policy and other macroeconomic factors. If future conditions 

are less favorable than our expectations, our new single-family book of business could become unprofitable. See “Outlook—

Home Prices” for our current expectations regarding changes in home prices. Also see “Outlook—Factors that Could Cause 

Actual Results to be Materially Different from Our Estimates and Expectations” in this report and “Risk Factors” in both this 

report and our 2012 Form 10-K for a discussion of factors that could cause our expectations regarding the performance of the 

loans in our new single-family book of business to change.

Table 1 below displays information regarding the credit characteristics of the loans in our single-family conventional 

guaranty book of business as of September 30, 2013 by acquisition period, which illustrates the improvement in the credit 

risk profile of loans we acquired beginning in 2009 compared with loans we acquired in 2005 through 2008.

Table 1: Selected Credit Characteristics of Single-Family Conventional Loans Held,by Acquisition Period

As of September 30, 2013

Percentage of 

Single-Family Current Current

Conventional Estimated Mark-to-Market Serious 

Guaranty Book Mark-to-Market LTV Ratio Delinquency

of Business(1) LTV Ratio >100%(2) Rate(3)

New single-family book of business. . . . . . . . . . . . . . . . . 75 % 65 % 4 % 0.32 %

Legacy single-family book of business:

2005-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 86 28 9.58

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 51 3 3.55

Total single-family book of business . . . . . . . . . . . . . . . 100 % 67 % 8 % 2.55 %

__________

(1) 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.

(2) The majority of loans in our new single-family book of business as of September 30, 2013 with mark-to-market loan-to-value (“LTV”) 

ratios over 100% were loans acquired under the Home Affordable Refinance Program. See “Risk Management—Credit Risk 

Management—Single-Family Mortgage Credit Risk Management—Single-Family Portfolio Diversification and Monitoring—HARP

and Refi Plus Loans” for more information on our recent acquisitions of loans with high LTV ratios.

(3) The serious delinquency rates for loans acquired in more recent years will be higher after the loans have aged, but we do not expect 

them to approach the levels of the September 30, 2013 serious delinquency rates of loans in our legacy book of business. 

Whether the loans we acquire in the future will exhibit an overall credit profile and performance similar to our more recent 

acquisitions will depend on a number of factors, including our future pricing and eligibility standards and those of mortgage 

insurers and the Federal Housing Administration (“FHA”), the percentage of loan originations representing refinancings, our 
6

future objectives, government policy, market and competitive conditions, and the volume and characteristics of loans we 

acquire under the Home Affordable Refinance Program (“HARPSM”).

More detailed information on the risk characteristics of loans in our single-family book of business appears in “Risk 

Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Single-Family Portfolio 

Diversification and Monitoring” and in “Table 30: Risk Characteristics of Single-Family Conventional Business Volume and 

Guaranty Book of Business” in that section. Information about the impact of HARP on the credit characteristics of our new 

single-family book of business appears in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit 

Risk Management—Single-Family Portfolio Diversification and Monitoring—HARP and Refi Plus Loans” and in “Table 31: 

Selected Credit Characteristics of Single-Family Conventional Loans Acquired under HARP and Refi Plus” in that section.

Guaranty Fees on Recently Acquired Single-Family Loans

Table 2 below displays information regarding our average charged guaranty fee on single-family loans we acquired in the 

third quarter and first nine months of 2013 and 2012, as well as the volume of our single-family Fannie Mae MBS issuances 

for these periods, which is indicative of the volume of single-family loans we acquired.

Table 2: Single-Family Acquisitions Statistics

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2013 2012 2013 2012

Single-family average charged guaranty fee on new 

acquisitions (in basis points)(1)(2)

. . . . . . . . . . . . . . . . . . . 58.7 41.8 56.6 37.1

Single-family Fannie Mae MBS issuances(in millions)(3)

. $186,459 $229,671 $615,302 $601,469

__________

(1) Pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, effective April 1, 2012, we increased the guaranty fee on all 

single-family residential mortgages delivered to us on or after that date for securitization by 10 basis points, and the incremental 

revenue must be remitted to Treasury. The resulting revenue is included in guaranty fee income and the expense is included in other 

expenses. This increase in guaranty fee is also included in the single-family average charged guaranty fee.

(2) Calculated based on the average contractual fee rate for our single-family guaranty arrangements entered into during the period plus the 

recognition of any upfront cash payments ratably over an estimated average life, expressed in basis points.

(3) Reflects unpaid principal balance of Fannie Mae MBS issued and guaranteed by the Single-Family segment during the period.

The revenue we receive from guaranty fees depends on the volume of our single-family acquisitions, the charged guaranty 

fee at acquisition and the life of the loans. Because we increased our guaranty fees in 2012 on loans acquired after the 

increase, we expect to benefit from receiving significantly more revenue from guaranty fees in future periods than we have in 

prior periods, even after we remit some of this revenue to Treasury as we are required to do under the Temporary Payroll Tax 

Cut Continuation Act of 2011 (the “TCCA”). The increase in our average charged guaranty fee on newly acquired singlefamily loans from the first nine months of 2012 to the first nine months of 2013 was primarily attributable to an average 

increase of 10 basis points implemented during the fourth quarter of 2012. The increase was also partially the result of the 10 

basis point increase on April 1, 2012 mandated by the TCCA, from which the incremental revenue is remitted to Treasury.

Although we do not know the specific timing, form or extent of future changes in our guaranty fee pricing, we believe that 

we will increase our guaranty fees in the future. These increases in guaranty fee pricing support FHFA’s strategic plan to 

gradually contract our dominant presence in the marketplace and attract private capital. See “Business—Legislative and 

Regulatory Developments—Changes to Our Single-Family Guaranty Fee Pricing and Revenue” in our 2012 Form 10-K for 

more information on changes to our guaranty fee pricing.

Expectations Regarding Future Revenues

We currently have two primary sources of revenues: (1) the difference between interest income earned on the assets in our 

retained mortgage portfolio and the interest expense associated with the debt that funds those assets; and (2) the guaranty fees 

we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties. Historically, we have 

generated the majority of our revenues from the difference between the interest income earned on the assets in our retained 

mortgage portfolio and the interest expense associated with the debt that funds those assets. As we discuss in our 2012 

Form 10-K in “Conservatorship and Treasury Agreements—Treasury Agreements—Covenants under Treasury Agreements,” 

we are required to reduce the size of our retained mortgage portfolio each year until we hold no more than $250 billion in 

mortgage assets by the end of 2018. As we reduce the size of our retained mortgage portfolio, our revenues generated by our 
7

retained mortgage portfolio assets will also decrease. As a result of both the shrinking of our retained mortgage portfolio and 

the impact of guaranty fee increases, we expect that, in a number of years, guaranty fees will become the primary source of 

our revenues. 

We recognize almost all of our guaranty fee revenue in net interest income in our condensed consolidated statements of 

operations and comprehensive income. The percentage of our net interest income derived from guaranty fees on loans 

underlying our Fannie Mae MBS has increased over the past year. We estimate that approximately 35% of our net interest 

income for the nine months ended September 30, 2013 was derived from guaranty fees on loans underlying our Fannie Mae 

MBS, compared with approximately 30% for the nine months ended September 30, 2012.

We expect that, if current housing market conditions continue and if we are not required to sell more of our retained mortgage 

portfolio assets than we currently anticipate selling, increases in our revenues from guaranty fees will generally offset the 

expected declines in our revenues generated by our retained mortgage portfolio assets. Any future increases in guaranty fees 

will likely further increase our guaranty fee revenue. The amount of our guaranty fee revenue in future periods will be 

impacted by many factors, including adjustments to guaranty fee pricing we may make in the future, the life of the loans in 

our guaranty book of business and the size of our guaranty book of business.

Because loans remain in our book of business for a number of years, the credit quality of and guaranty fees we charge on the 

loans we acquire in a particular year affects our results for a period of years after we acquire them. Accordingly, we expect 

the improvements in the credit quality of our loan acquisitions since 2009 and the increases in our charged guaranty fees on 

recently acquired loans to contribute significantly to our revenues for years to come, especially because these loans have 

relatively low interest rates, making them less likely to be refinanced than loans with higher interest rates. 
8

Credit Performance

Table 3 presents information for each of the last seven quarters about the credit performance of mortgage loans in our singlefamily guaranty book of business and our workouts. The term “workouts” refers to home retention solutions and foreclosure 

alternatives. The workout information in Table 3 does not reflect repayment plans and forbearances that have been initiated 

but not completed, nor does it reflect trial modifications that have not become permanent.

Table 3: Credit Statistics, Single-Family Guaranty Book of Business(1)

2013 2012

Q3 YTD Q3 Q2 Q1

Full

Year Q4 Q3 Q2 Q1

(Dollars in millions)

As of the end of each 

period:

Serious delinquency rate(2) 2.55 % 2.55 % 2.77 % 3.02 % 3.29 % 3.29 % 3.41 % 3.53 % 3.67 %

Seriously delinquent loan

count . . . . . . . . . . . . . . . 447,840 447,840 483,253 527,529 576,591 576,591 599,430 622,052 650,918

Nonperforming loans(3). . . $ 225,059 $225,059 $230,494 $236,988 $ 247,823 $247,823 $250,678 $240,472 $243,981

Foreclosed property

inventory:

Number of properties(4) 100,941 100,941 96,920 101,449 105,666 105,666 107,225 109,266 114,157

Carrying value . . . . . . . $ 10,036 $ 10,036 $ 9,075 $ 9,263 $ 9,505 $ 9,505 $ 9,302 $ 9,421 $ 9,721

Combined loss reserves(5). $ 45,608 $ 45,608 $ 49,930 $ 56,626 $ 58,809 $ 58,809 $ 63,100 $ 63,365 $ 69,633

Total loss reserves(6). . . . . $ 47,664 $ 47,664 $ 52,141 $ 59,114 $ 61,396 $ 61,396 $ 65,685 $ 66,694 $ 73,119

During the period:

Foreclosed property 

(number of properties):

Acquisitions(4). . . . . . . 112,176 37,353 36,106 38,717 174,479 41,112 41,884 43,783 47,700

Dispositions. . . . . . . . . (116,901) (33,332) (40,635) (42,934) (187,341) (42,671) (43,925) (48,674) (52,071)

Credit-related income 

(expense)(7). . . . . . . . . . $ 10,357 $ 3,642 $ 5,681 $ 1,034 $ 919 $ 2,419 $ (2,130) $ 3,015 $ (2,385)

Credit losses(8). . . . . . . . . . $ 4,127 $ 1,083 $ 1,541 $ 1,503 $ 14,392 $ 2,174 $ 3,485 $ 3,778 $ 4,955

REO net sales prices to 

unpaid principal 

balance(9). . . . . . . . . . . . 67 % 68 % 68 % 65 % 59 % 62 % 61 % 59 % 56 %

Short sales net sales price 

to unpaid principal 

balance(10). . . . . . . . . . . 66 % 68 % 67 % 64 % 61 % 63 % 61 % 60 % 58 %

Loan workout activity 

(number of loans):

Home retention loan 

workouts(11). . . . . . . . . . 130,976 39,559 43,782 47,635 186,741 44,044 45,936 41,226 55,535

Short sales and deeds-inlieu of foreclosure . . . . . 48,928 15,092 17,710 16,126 88,732 19,184 23,322 24,013 22,213

Total loan workouts. . . . . . 179,904 54,651 61,492 63,761 275,473 63,228 69,258 65,239 77,748

Loan workouts as a 

percentage of 

delinquent loans in our 

guaranty book of 

business(12)

. . . . . . . . . . . 29.04 % 26.47 % 27.31 % 27.53 % 26.38 % 24.22 % 25.18 % 24.14 % 28.85 %
9

__________

(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 longterm standby commitments. It excludes non-Fannie Mae mortgage-related securities held in our retained mortgage portfolio for which 

we do not provide a guaranty.

(2) Calculated based on the number of single-family conventional loans that are 90 days or more past due and loans that have been referred 

to foreclosure but not yet foreclosed upon, divided by the number of loans in our single-family conventional guaranty book of business. 

We include all of the single-family conventional loans that we own and those that back Fannie Mae MBS in the calculation of the 

single-family serious delinquency rate.

(3) Represents the total amount of nonperforming loans, including troubled debt restructurings (“TDR”). A TDR is a restructuring of a 

mortgage loan in which a concession is granted to a borrower experiencing financial difficulty. We generally classify loans as 

nonperforming when the payment of principal or interest on the loan is 60 days or more past due. 

(4) Includes held-for-use properties (properties that we do not intend to sell or that are not ready for immediate sale in their current 

condition), which are reported in our condensed consolidated balance sheets as a component of “Other assets,” and acquisitions through 

deeds-in-lieu of foreclosure.

(5) Consists of the allowance for loan losses for single-family loans recognized in our condensed consolidated balance sheets and the 

reserve for guaranty losses related to both loans backing Fannie Mae MBS that we do not consolidate in our condensed consolidated 

balance sheets and loans that we have guaranteed under long-term standby commitments. For additional information on the change in 

our loss reserves see “Consolidated Results of Operations—Credit-Related (Income) Expense—(Benefit) Provision for Credit Losses.”

(6) Consists of (a) the combined loss reserves, (b) allowance for accrued interest receivable and (c) allowance for preforeclosure property 

taxes and insurance receivables.

(7) Consists of (a) the benefit (provision) for credit losses and (b) foreclosed property income (expense).

(8) Consists of (a) charge-offs, net of recoveries and (b) foreclosed property (income) expense, adjusted to exclude the impact of fair value 

losses resulting from credit-impaired loans acquired from MBS trusts.

(9) Calculated as the amount of sale proceeds received on disposition of REO properties during the respective period, excluding those 

subject to repurchase requests made to our seller/servicers, divided by the aggregate unpaid principal balance (“UPB”) 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.

(10) Calculated as the amount of sale proceeds received on properties sold in short sale transactions during the respective period divided by 

the aggregate UPB 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.

(11) Consists of (a) modifications, which do not include trial modifications, loans to certain borrowers who have received bankruptcy relief 

that are classified as TDRs, or repayment and forbearance plans that have been initiated but not completed and (b) repayment plans and 

forbearances completed. See “Table 35: Statistics on Single-Family Loan Workouts” in “Risk Management—Credit Risk Management

—Single-Family Mortgage Credit Risk Management—Problem Loan Management—Loan Workout Metrics” for additional information 

on our various types of loan workouts.

(12) Calculated based on annualized problem loan workouts during the period as a percentage of delinquent loans in our single-family 

guaranty book of business as of the end of the period.

We provide information on the credit performance of mortgage loans in our single-family book of business, our loan 

workouts, our strategies and the actions we are taking to minimize our credit losses in “Risk Management—Credit Risk 

Management—Single-Family Mortgage Credit Risk Management” in both this report and our 2012 Form 10-K.

Contributions to the Housing and Mortgage Markets Since Entering Conservatorship

Liquidity and Support Activities

We have provided approximately $3.9 trillion in liquidity to the housing market since 2009, enabling families to buy, 

refinance or rent a home. Since we entered into conservatorship in September 2008, we have provided critical liquidity and 

support to the U.S. mortgage market in a number of important ways:

• We serve as a stable source of liquidity for purchases of homes and financing of multifamily rental housing, as well 

as for refinancing existing mortgages. The approximately $3.9 trillion in liquidity we have provided to the mortgage 

market from 2009 through the third quarter of 2013 through our purchases and guarantees of loans enabled 

borrowers to complete 12.0 million mortgage refinancings and 3.4 million home purchases and provided financing 

for 2.0 million units of multifamily housing.

• We strengthened our underwriting and eligibility standards to support sustainable homeownership. As a result, our 

new single-family book of business has a strong credit risk profile. Our support enables borrowers to have access to 
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a variety of mortgage products, including long-term, fixed-rate mortgages, such as the prepayable 30-year fixed-rate 

mortgage, which protects homeowners from interest rate swings.

• Through our loan workout efforts from 2009 through the third quarter of 2013, which included providing 

approximately 1.0 million loan modifications, we helped 1.3 million homeowners stay in their homes or otherwise 

avoid foreclosure. These efforts helped to support neighborhoods, home prices and the housing market. 

• We helped borrowers refinance loans, including through our Refi PlusTM initiative, which offers refinancing 

flexibility to eligible Fannie Mae borrowers. From April 1, 2009, the date we began accepting delivery of Refi Plus 

loans, through September 30, 2013, we acquired approximately 3.7 million Refi Plus loans. Refinancings delivered 

to us through Refi Plus in the third quarter of 2013 reduced borrowers’ monthly mortgage payments by an average 

of $210. Some borrowers’ monthly payments increased as they took advantage of the ability to refinance through 

Refi Plus to reduce the term of their loan, to switch from an adjustable-rate mortgage to a fixed-rate mortgage or to 

switch from an interest-only mortgage to a fully amortizing mortgage.

• We support affordability in the multifamily rental market. Over 85% of the multifamily units we financed from 2009 

through 2012 were affordable to families earning at or below the median income in their area.

• In addition to purchasing and guaranteeing loans, we provide funds to the mortgage market through short-term 

financing and other activities. These activities are described in more detail in our 2012 Form 10-K in “Business—

Business Segments—Capital Markets.”

2013 Acquisitions and Market Share 

As the leading provider of residential mortgage credit, we enable families to buy, refinance or rent a home. In the first nine

months of 2013, we purchased or guaranteed approximately $666 billion in single-family and multifamily loans, measured by 

unpaid principal balance, which includes $22.3 billion in delinquent loans we purchased from our single-family MBS trusts. 

Our activities enabled our lender customers to finance approximately 3.0 million single-family conventional loans and loans 

for approximately 386,000 units in multifamily properties during the first nine months of 2013. 

One of FHFA’s strategic goals for our conservatorship involves gradually contracting our dominant presence in the 

marketplace. Despite this goal, our market share remained large in the first nine months of 2013 as we have continued to 

meet the needs of the single-family mortgage market in the absence of substantial private capital. We remained the largest 

single issuer of mortgage-related securities in the secondary market during the third quarter of 2013, with an estimated 

market share of new single-family mortgage-related securities issuances of 48% in the third quarter of 2013, compared with 

45% in the second quarter of 2013 and 52% in the third quarter of 2012. 

We remain a constant source of liquidity in the multifamily market. We owned or guaranteed approximately 21% of the 

outstanding debt on multifamily properties as of June 30, 2013 (the latest date for which information is available), according 

to the Federal Reserve’s June 2013 mortgage debt outstanding release.

Housing and Mortgage Market and Economic Conditions 

According to the U.S. Bureau of Economic Analysis, in the second quarter of 2013 the inflation-adjusted U.S. gross domestic 

product, or GDP rose by 2.5% on an annualized basis. The Bureau of Economic Analysis advance estimate of GDP for the 

third quarter was not yet available at the time this report was prepared. In the third quarter of 2013, the overall economy 

gained an estimated 430,000 jobs. According to the U.S. Bureau of Labor Statistics, over the last 12 months ending 

in September 2013, the economy created 2.2 million non-farm jobs. The unemployment rate was 7.2% in September 2013, 

down from 7.6% in June 2013. We expect that the housing market will benefit if employment continues to improve.

Housing activity was mixed during the third quarter of 2013. Total existing home sales averaged 5.4 million units annualized 

in the third quarter of 2013, a 5.9% increase from the second quarter of 2013, according to data from the National Association 

of REALTORS®. Sales of foreclosed homes and preforeclosure, or “short,” sales (together, “distressed sales”) accounted for 

14% of existing home sales in September 2013, compared with 15% in June 2013 and 24% in September 2012. New singlefamily home sales weakened during the first two months of the third quarter of 2013 (the latest period for which information 

is available), averaging an annualized rate of 405,500 units in July and August, an 8.5% decrease from the second quarter of 

2013, according to the Bureau of the Census.

During the third quarter of 2013, the number of months’ supply, or the inventory/sales ratio, of available existing homes fell 

to 5.0 months while the number of months’ supply of new homes rose to an average of 5.1 months through the first two 

months of the third quarter of 2013 (the latest period for which information is available). The inventory/sales ratio for both 

existing and new homes remained below their historical average.
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The overall mortgage market serious delinquency rate, which has trended down since peaking in the fourth quarter of 2009, 

remained historically high at 5.9% as of June 30, 2013 (the latest date for which information is available), according to the 

Mortgage Bankers Association National Delinquency Survey. We provide information about Fannie Mae’s serious 

delinquency rate, which also decreased, in “Credit Performance.” 

Based on our home price index, we estimate that home prices on a national basis increased by 9.2% in the first nine months 

of 2013 and by 9.4% from the third quarter of 2012 to the third quarter of 2013. Despite the recent increases in home prices, 

we estimate that, through the third quarter of 2013, home prices on a national basis remained 13.2% below their peak in the 

third quarter of 2006. Our home price estimates are based on preliminary data and are subject to change as additional data 

become available. The decline in home prices that began in 2006 left many homeowners with “negative equity” in their 

homes, which means their principal mortgage balance exceeds the current market value of their home. This increases the 

likelihood that borrowers will abandon their mortgage obligations and that the loans will become delinquent and proceed to 

foreclosure. According to CoreLogic, Inc. the number of residential properties with mortgages in a negative equity position in 

the second quarter of 2013 was approximately 7.1 million, down from 9.6 million, in the first quarter of 2013. The percentage 

of properties with mortgages in a negative equity position in the second quarter of 2013 was 14.5%, down from 19.7% in the 

first quarter of 2013 and its peak of 25.7% reached in the fourth quarter of 2009.

Thirty-year mortgage rates, which were as low as 3.35% for the week of May 2nd, have increased substantially since early 

May and were 4.10% for the week of October 31st, according to Freddie Mac. See “Outlook—Overall Market Conditions” 

below for a description of our expectations regarding the impact of this increase in rates on mortgage originations.

During the third quarter of 2013, multifamily fundamentals remained stable, according to preliminary third-party data. 

Although the national multifamily vacancy rate for institutional investment-type apartment properties remained at an 

estimated 5.10% as of September 30, 2013, unchanged from June 30, 2013 and down from an estimated 5.50% as of 

December 31, 2012, there was an increase in both effective rents and net absorption. 

National asking rents increased by an estimated 1.0% during the third quarter of 2013, compared with an increase of 0.5%

during the second quarter of 2013. Continued demand for multifamily rental units is reflected in the estimated positive net 

absorption (that is, the net change in the number of occupied rental units during the time period) of more than 41,000 units 

during the third quarter of 2013, according to preliminary data from Reis, Inc., compared with 34,000 units during the second 

quarter of 2013.

As a result of the continued demand for multifamily rental units over the past few years, there has been an increase in the 

amount of new multifamily construction development nationally. It is expected that there will be nearly 200,000 new 

multifamily units completed this year, according to the most recent data from McGraw Hill Construction, with another 

227,000 units expected in 2014. The bulk of this new supply is concentrated in about 10 metropolitan areas. As a result, 

multifamily fundamentals could be impacted in certain localized areas, producing a temporary slowdown in net absorption 

rates, occupancy levels, and effective rents starting in 2014. 

Outlook

Financial Results and Dividend Payments to Treasury. Our pre-tax income was $10.1 billion for the third quarter of 2013 and 

$30.3 billion for the first nine months of 2013. We expect to remain profitable for the foreseeable future. While we expect our 

annual earnings to remain strong over the next few years, our earnings may vary significantly from quarter to quarter and 

year to year due to many different factors, such as changes in interest rates or home prices. The estimated 9.2% increase in 

home prices on a national basis in the first nine months of the year contributed significantly to the record pre-tax income we 

reported for the first nine months of 2013. As noted in “Home Prices” below, we expect minimal home price growth in the 

fourth quarter of the year. In addition to future changes in home prices and interest rates, our future earnings will be affected 

by a number of other factors, including the volume of single-family mortgage originations in the future and the size, 

composition and quality of our retained mortgage portfolio. For a discussion of our expectations regarding our future 

revenues, see “Strengthening Our Book of Business.”

In compliance with our dividend obligation to Treasury, we will retain only a limited amount of any future earnings because 

we must pay Treasury each quarter the amount, if any, by which our net worth as of the end of the immediately preceding 

fiscal quarter exceeds an applicable capital reserve amount. This capital reserve amount is $3.0 billion for each quarter of 

2013 and then decreases annually until it reaches zero in 2018. 

One of our objectives is to pay taxpayers for their investment in our company. Through September 30, 2013, we have 

received a total of $116.1 billion under the senior preferred stock purchase agreement. This funding has provided us with the 

capital and liquidity needed to fulfill our mission of providing liquidity and support to the nation’s housing finance markets 

and to avoid a trigger of mandatory receivership under the Federal Housing Finance Regulatory Reform Act of 2008 (the 
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“2008 Reform Act”). We have not received funds from Treasury under the agreement since the first quarter of 2012. Under 

the terms of the senior preferred stock purchase agreement, dividend payments cannot be used to offset prior Treasury draws, 

and we are not permitted to pay down draws we have made under the agreement except in limited circumstances. 

Accordingly, Treasury still maintains a liquidation preference of $117.1 billion on the senior preferred stock, even though we 

have paid $105.3 billion in dividends through September 30, 2013 and, with our dividend payment of $8.6 billion in the 

fourth quarter of 2013, we will have paid $113.9 billion in dividends. We expect that the amount of dividends we pay 

Treasury will exceed the amounts we have drawn.

Because we expect our annual earnings to remain strong over the next few years, in addition to dividend payments, we expect 

to make substantial federal income tax payments to Treasury going forward. 

Overall Market Conditions. We expect that single-family mortgage loan delinquency and severity rates will continue their 

downward trend, but that single-family serious delinquency, default and severity rates will remain high compared with prehousing crisis levels. Despite steady demand and stable fundamentals at the national level, the multifamily sector may 

continue to exhibit below average fundamentals in certain local markets and with certain properties. We expect the level of 

multifamily foreclosures for 2013 overall will generally remain commensurate with 2012 levels. Conditions may worsen if 

the unemployment rate increases on either a national or regional basis.

We believe that the recent increase in mortgage rates will result in a decline in overall single-family mortgage originations in 

2013 as compared with 2012, driven by a decline in refinancings. We currently forecast that total originations in the U.S. 

single-family mortgage market in 2013 will decrease from 2012 levels by approximately 15%, from an estimated $2.15 

trillion in 2012 to $1.83 trillion in 2013, and that the amount of originations in the U.S. single-family mortgage market that 

are refinancings will decrease from an estimated $1.54 trillion in 2012 to $1.13 trillion in 2013. In the third quarter of 2013, 

refinancings comprised approximately 62% of our single-family conventional business volume, compared with 

approximately 75% in the second quarter of 2013 and approximately 79% for all of 2012.

Home Prices. Based on our home price index, we estimate that home prices on a national basis increased by 9.2% in the first 

nine months of 2013. We expect home prices will increase only minimally on a national basis in the fourth quarter of 2013. 

Future home price changes may be very different from our expectations as a result of significant inherent uncertainty in the 

current market environment, including uncertainty about the effect of recent and future changes in mortgage rates; actions the 

federal government has taken and may take with respect to tax policies, spending cuts, mortgage finance programs and 

policies and housing finance reform; the management of the Federal Reserve’s MBS holdings; the impact of those actions on 

and changes generally in unemployment and the general economic and interest rate environment; and the impact on the U.S. 

economy of global economic conditions. We also expect significant regional variation in the timing and rate of home price 

growth. 

Credit Losses. Our credit losses, which include our charge-offs, net of recoveries, reflect our realization of losses on our 

loans. We realize losses on loans, through our charge-offs, when foreclosure sales are completed or when we accept short 

sales or deeds-in-lieu of foreclosure. We expect our credit losses will decrease in the future as a result of the higher credit 

quality of our new book of business, the decrease in our legacy book and anticipated positive home price growth, which 

reduces the level of defaults we expect on our new book of business and our legacy book and lowers severity at the time of 

charge off. However, we continue to expect our credit losses to remain elevated in 2013 relative to pre-housing crisis levels. 

In addition, to the extent the slow pace of foreclosures continues in the fourth quarter of 2013, our realization of some credit 

losses will be delayed. 

Loss Reserves. Our total loss reserves were $48.4 billion as of September 30, 2013, down from $62.6 billion as of 

December 31, 2012 and their peak of $76.9 billion as of December 31, 2011. If delinquencies continue to trend downward 

and home prices continue to increase, we expect our loss reserves will continue to decline, but at a slower pace than in recent 

quarters because the pace of home price growth has slowed. Although our loss reserves have declined substantially from their 

peak and are expected to decline further, we expect our loss reserves will remain significantly elevated relative to historical 

levels for an extended period because (1) we expect future defaults on loans that we acquired prior to 2009 and the resulting 

charge-offs will occur over a period of years and (2) a significant portion of our reserves represents concessions granted to 

borrowers upon modification of their loans and our reserves will continue to reflect these concessions until the loans are fully 

repaid or default.

Uncertainty Regarding our Future Status. There is significant uncertainty regarding the future of our company, including 

how long the company will continue to be in its current form, the extent of our role in the market, what form we will have, 

what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is 

terminated and whether we will continue to exist following conservatorship. We expect this uncertainty to continue. 
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We cannot predict the prospects for the enactment, timing or content of legislative proposals regarding long-term reform of 

the GSEs. See “Business—Legislative and Regulatory Developments” in our 2012 Form 10-K and “Legislative and 

Regulatory Developments” in our Second Quarter 2013 Form 10-Q for discussions of proposals for GSE reform that could 

materially affect our business, including two bills introduced in Congress that, among other things, would require the wind 

down of Fannie Mae and Freddie Mac. See “Risk Factors” in our 2012 Form 10-K for a discussion of the risks to our 

business relating to the uncertain future of our company.

Factors that Could Cause Actual Results to be Materially Different from Our Estimates and Expectations. We present a 

number of estimates and expectations in this executive summary regarding our future performance, including estimates and 

expectations regarding our future financial results and profitability, our future dividend and income tax payments to Treasury, 

our future revenues, the profitability and performance of single-family loans we have acquired, our future acquisitions, our 

future delinquency, default and severity rates, our future credit losses and our future loss reserves. We also present a number 

of estimates and expectations in this executive summary regarding future housing market conditions, including expectations 

regarding future mortgage originations and future home prices. These estimates and expectations are forward-looking 

statements based on our current assumptions regarding numerous factors. Our future estimates of our performance and 

housing market conditions, as well as the actual results, may differ materially from our current estimates and expectations as 

a result of: the timing and level of, as well as regional variation in, home price changes; changes in interest rates, 

unemployment rates and other macroeconomic and housing market variables; our future guaranty fee pricing and the impact 

of that pricing on our competitive environment; our future serious delinquency rates; future legislative or regulatory 

requirements that have a significant impact on our business, such as a requirement that we implement a principal forgiveness 

program; future updates to our models relating to our loss reserves, including the assumptions used by these models; future 

changes to our accounting policies relating to our loss reserves; significant changes in modification and foreclosure activity; 

changes in borrower behavior, such as an increasing number of underwater borrowers who strategically default on their 

mortgage loan; the effectiveness of our loss mitigation strategies, management of our real estate owned (“REO”) inventory 

and pursuit of contractual remedies; whether our counterparties meet their obligations in full; resolution or settlement 

agreements we may enter into with our counterparties; changes in the fair value of our assets and liabilities; impairments of 

our assets; changes in generally accepted accounting principles (“GAAP”); credit availability; natural and other disasters; and 

other factors, including those discussed in “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report and in 

our 2012 Form 10-K. Due to the large size of our guaranty book of business, even small changes in these factors could have a 

significant impact on our financial results for a particular period.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

The information in this section updates and supplements information regarding legislative and regulatory developments set 

forth in “Business—Legislative and Regulatory Developments” and “Business—Our Charter and Regulation of Our 

Activities” in our 2012 Form 10-K and in “MD&A—Legislative and Regulatory Developments” in our Second Quarter 2013 

Form 10-Q and in our quarterly report on Form 10-Q for the quarter ended March 31, 2013 (“First Quarter 2013 

Also see “Risk Factors” in our 2012 Form 10-K for a discussion of risks relating to legislative and regulatory 

matters.

GSE Reform

Policymakers and others have focused significant attention in recent years on how to reform the nation’s housing finance 

system, including what role, if any, the GSEs should play. The Dodd-Frank Wall Street Reform and Consumer Protection Act 

(the “Dodd-Frank Act”), which was signed into law in July 2010, calls for enactment of meaningful structural reforms of 

Fannie Mae and Freddie Mac. See “Business—Legislative and Regulatory Developments” in our 2012 Form 10-K and 

“MD&A—Legislative and Regulatory Developments” in our First Quarter 2013 Form 10-Q and our Second Quarter 2013 

Form 10-Q for a description of activities relating to GSE reform that occurred in 2011, 2012 and earlier in 2013, including a 

description of:

• the Administration’s housing policy priorities, which include winding down Fannie Mae and Freddie Mac through a 

responsible transition;

• the Administration’s February 2011 report on GSE reform, which discusses potential options for a new long-term 

structure for the housing finance system following the wind down of Fannie Mae and Freddie Mac; 

• examples of legislation considered by members of Congress relating to housing finance system reform and the 

GSEs; and
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• certain FHFA objectives for Fannie Mae and Freddie Mac included in its 2013 conservatorship scorecard that are 

designed to help build a new infrastructure for the secondary mortgage market and reduce the GSEs’ dominant 

presence in the marketplace while simplifying and shrinking our operations. 

In March 2013, FHFA announced that a new business entity would be established by Fannie Mae and Freddie Mac that would 

be separate from the two companies in order to further the goal of building a common securitization platform that would 

function like a market utility. The new business entity would be designed to operate as a replacement for some of Fannie Mae 

and Freddie Mac’s securitization infrastructure. On October 7, 2013, FHFA announced that the new joint venture by Fannie 

Mae and Freddie Mac, Common Securitization Solutions, LLC, has been established and that office space for the new entity 

has been secured. In connection with the entity’s establishment, we entered into a Limited Liability Company Agreement 

with Freddie Mac in October 2013 and anticipate entering into additional agreements relating to the new joint venture in the 

future.

The Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs publicly stated in 

September 2013 that the Committee will begin drafting housing finance reform legislation this fall with the hope that the 

Committee will consider it prior to the end of the year. As a result, the Committee is holding hearings to review relevant 

issues related to reform of the housing finance market. We expect Congress to continue to consider housing finance system 

reform in the current congressional session, including conducting hearings on GSE reform and considering legislation that 

would alter the housing finance system or the activities or operations of the GSEs. We cannot predict the prospects for the 

enactment, timing or content of legislative proposals regarding the future status of the GSEs.

Dodd-Frank Act—Risk Retention

The Dodd-Frank Act requires financial regulators to jointly prescribe regulations requiring securitizers to retain a portion of 

the credit risk in assets transferred, sold or conveyed through the issuance of asset-backed securities, with certain exceptions. 

On August 28, 2013, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System 

(the “Federal Reserve System”), the Federal Deposit Insurance Corporation, the SEC, FHFA and the U.S. Department of 

Housing and Urban Development (“HUD”) issued a joint proposed rule that would implement this risk retention requirement. 

This proposal replaced an earlier proposed rule that was published in 2011, but never approved. Under the new proposed rule, 

securitizers would be required to retain at least 5% of the credit risk with respect to the assets they securitize. The new 

proposed rule offers several options for compliance by parties with assets to securitize, one of which is to have either Fannie 

Mae or Freddie Mac (so long as they are in conservatorship or receivership) securitize the assets. As long as Fannie Mae or 

Freddie Mac fully guarantees the assets, no further retention of credit risk is required. Securities backed solely by mortgage 

loans meeting the definition of a “Qualified Residential Mortgage” would be exempt from the risk retention requirements of 

the rule. The new proposed rule made significant changes to the definition of a Qualified Residential Mortgage, defining the 

term to have the same meaning as the term “qualified mortgages” as defined by the Consumer Financial Protection Bureau in 

connection with its “ability to repay” rule. We discuss the ability-to-repay rule and the definition of qualified mortgages in 

“MD&A—Legislative and Regulatory Developments” in our First Quarter 2013 Form 10-Q.

Dodd-Frank Act—FHFA Rule Regarding Stress Testing

The Dodd-Frank Act requires certain financial companies to conduct annual stress tests to determine whether the companies 

have the capital necessary to absorb losses as a result of adverse economic conditions. On September 26, 2013, FHFA issued 

a final rule implementing the Dodd-Frank Act’s stress test requirements for Fannie Mae, Freddie Mac and the Federal Home 

Loan Banks. Under the rule, each year we are required to conduct a stress test, based on our data as of September 30 of that 

year, using scenarios of financial conditions that will be provided by FHFA, including a severely adverse scenario. In 

conducting the stress test, we will be required to calculate the impact of the scenario conditions on our capital levels and 

other specified measures of financial condition and performance over a period of at least nine quarters. The rule requires us to 

report the results of our stress test to FHFA and to the Federal Reserve System and to disclose publicly, in April of each year, 

a summary of the stress test results for the severely adverse scenario.

FHFAAdvisory Bulletin Regarding Framework for Adversely Classifying Loans

In April 2012, FHFA issued Advisory Bulletin AB 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate 

Owned, and Other Assets and Listing Assets for Special Mention.” This Advisory Bulletin requires that we classify the 

portion of an outstanding single-family loan balance in excess of the fair value of the underlying property, less costs to sell 

and adjusted for any credit enhancements, as a “loss” no later than when the loan becomes 180 days delinquent, except in 

certain specified circumstances (such as those involving properly secured loans with an LTV ratio equal to or less than 60%). 

For multifamily loans, the Advisory Bulletin requires that any portion of a loan balance that exceeds the amount secured by 

the fair value of the collateral, less costs to sell, for which there is no available and reliable source of repayment other than 
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the sale of the underlying real estate collateral, to be classified as a “loss.” The Advisory Bulletin also requires us to charge 

off the portion of the loan classified as a “loss.” In May 2013, FHFA issued an additional Advisory Bulletin clarifying the 

implementation timeline for AB 2012-02, requiring that: (1) the asset classification provisions of AB 2012-02 should be 

implemented by January 1, 2014; and (2) the charge-off provisions of AB 2012-02 should be implemented no later than 

January 1, 2015.

The Advisory Bulletin requires us to change our practice for determining when a loan is deemed uncollectible to the date the 

loan is classified as a “loss” as described above. This is a change from our current practice for determining when a loan is 

deemed to be uncollectible, which is based on historical data and results in a loan being deemed to be uncollectible at the date 

of foreclosure or other liquidation event (such as a deed-in-lieu of foreclosure or a pre-foreclosure sale). We will work with 

FHFA to consider how the Advisory Bulletin may impact our credit risk management practices.

The Advisory Bulletin will not have an impact on the approach we use to estimate the allowance for loan losses for our 

single-family and multifamily loans that are not classified as a “loss.” We establish an allowance for loan losses against these 

loans either through our collective loss reserve or through our loss reserve for individually impaired loans. Thus, at the time 

single-family loans become 180 days delinquent, we have already established an allowance for loan losses against them. 

However, upon adoption of the Advisory Bulletin, the amount of the charge-off for single-family loans classified as a “loss” 

is expected to exceed the amount of incurred losses we have recognized for those loans in our allowance for loan losses. The 

charge-off is expected to exceed the allowance for loan losses because the charge-off will not be reduced by the benefit we 

expect from borrower re-performance on these loans, which is considered in our current allowance for loan losses 

methodology. In the period in which we adopt the Advisory Bulletin, our provision for loan losses will be increased by the 

excess of the charge-off over the incurred losses previously recognized. Additionally, our allowance for loan losses on the 

impacted loans will be eliminated and the corresponding recorded investment will be reduced by the amounts that are 

charged off. Going forward, the amount of the charge-off at the time a loan is classified as a “loss” is expected to exceed our 

best estimate of incurred losses. Additionally, we expect to record larger loss recoveries for loans that become 180 days or 

more past due and subsequently re-perform.

Under our existing accounting practices and upon adoption of the Advisory Bulletin, the ultimate amount of losses we realize 

on our loan portfolio will be the same; however, the timing of when we recognize the losses will differ. If we had adopted this 

guidance on September 30, 2013, we estimate that our net income for the third quarter of 2013 would have been decreased by 

approximately $1.0 billion for the charge-off amount that would have exceeded the existing allowance on loans we estimate 

would have been classified as a “loss” pursuant to the Advisory Bulletin classification guidance, and our dividend obligation 

to Treasury would have been reduced by the same amount. If recent trends continue, we expect the population of loans that 

will be subject to accelerated charge-off will decline either through liquidation or re-performance. As a result, we believe the 

impact upon adoption of the guidance on January 1, 2015 will be less than $1.0 billion.

For information on the risks presented by our adoption of the Advisory Bulletin and the risks presented by the magnitude of 

the many new initiatives we are undertaking, see “Risk Factors” in our 2012 Form 10-K for our discussion of the risks we 

face from a potential failure in our operational systems or infrastructure.

Basel III and U.S. Capital and Liquidity Regimes for the Banking Industry

In addition to changes that directly result from the Dodd-Frank Act, the capital and liquidity regimes for the banking industry 

are also undergoing changes as a result of actions by international bank regulators. The Basel Committee on Banking 

Supervision issued a set of revisions (known as Basel III) to the international capital requirements in December 2010. 

Whereas the Basel II standards revised the risk-weighting process for assets, Basel III, which complements Basel II, 

generally narrowed the definition of capital that can be used to meet risk-based standards and raised the amount of capital 

that must be held. Basel III also introduced quantitative international liquidity requirements for the first time. The 

international Basel standards require adoption by the domestic bank regulatory authorities before they become operative in 

the United States. Typically U.S. bank regulatory authorities adopt Basel standards with adjustments that take into account 

U.S. banking law and other relevant considerations. On October 24, 2013, U.S. banking regulators issued a proposed 

regulation setting minimum liquidity standards generally in line with Basel III’s liquidity standards. See “Risk Factors” for a 

discussion of how capital and liquidity rules could materially and adversely affect demand by banks for our debt and MBS 

securities in the future and could otherwise affect the future business practices of our customers and counterparties. 

Housing Goals

We are subject to meeting housing goals, which require that the mortgage loans we acquire must meet requirements 

established by FHFA relating to affordability or location. Our single-family performance is measured against the lower of 

benchmarks established by FHFA or goals-qualifying originations in the primary mortgage market. Multifamily goals are 
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established as a number of units to be financed. In our 2012 Form 10-K, we reported that we believed we met all of the 

FHFA-established single-family benchmarks for 2012, as well as our 2012 multifamily goals, but that FHFA would issue the 

final determination on our 2012 housing goals performance after the release of data reported under Home Mortgage 

Disclosure Act (“HMDA”) later this year. In October 2013, FHFA determined that we met all of our single-family and 

multifamily housing goals for 2012. See “Business—Our Charter and Regulation of Our Activities—Regulation and 

Oversight of Our Activities—Housing Goals and Duty to Serve Underserved Markets” in our 2012 Form 10-K for more a 

more detailed discussion of our housing goals.

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 2012 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 2012 

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 four 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. These critical accounting policies and estimates are as follows:

• Fair Value Measurement

• Total Loss Reserves

• Other-Than-Temporary Impairment of Investment Securities

• Deferred Tax Assets

See “MD&A—Critical Accounting Policies and Estimates” in our 2012 Form 10-K for a detailed discussion of these critical 

accounting policies and estimates. We describe below significant changes in the judgments and assumptions we made during 

the first nine months of 2013 in applying our critical accounting policies and significant changes to our critical estimates.

Total Loss Reserves

Our total single-family and multifamily loss reserves consist of the following components:

• Allowance for loan losses;

• Allowance for accrued interest receivable;

• Reserve for guaranty losses; and

• Allowance for preforeclosure property tax and insurance receivable.

We continually monitor prepayment, default and loss severity trends and periodically make changes in our historically 

developed assumptions to better reflect present conditions of loan performance. In the second quarter of 2013, we updated the 

assumptions and data used to estimate our allowance for loan losses for individually impaired single-family loans based on 

current observable performance trends as well as future expectations of payment behavior. These updates reflect faster 

prepayment and lower default expectations for these loans primarily as a result of improvements in loan performance, in part 

due to increases in home prices. Increases in home prices reduce the mark-to-market loan-to-value (“LTV”) ratios on these 

loans and, as a result, borrowers’ equity increases. Faster prepayment and lower default expectations shortened the expected 

average life of modified loans which reduced the expected credit losses and lowered concessions on modified loans. This 

resulted in a decrease to our allowance for loan losses as of June 30, 2013 and an incremental benefit for credit losses of 

approximately $2.2 billion for the second quarter of 2013.
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Deferred Tax Assets 

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying 

amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards 

and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative 

evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely 

than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate 

with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary 

to support a conclusion that a valuation allowance is not needed.

Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including:

• the sustainability of recent profitability required to realize the deferred tax assets;

• whether or not there are cumulative net losses in our consolidated statements of operations in recent years;

• unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels 

on a continuing basis in future years; and

• the carryforward periods for net operating losses and tax credits.

After weighing all of the evidence, we determined that the positive evidence in favor of releasing the valuation allowance, 

particularly the evidence that was objectively verifiable, outweighed the negative evidence against releasing the allowance as 

of March 31, 2013. Therefore, we concluded that it is more likely than not that our deferred tax assets, except the deferred tax 

assets relating to capital loss carryforwards, will be realized. As a result, we released the valuation allowance on our deferred 

tax assets as of March 31, 2013, except for amounts that were expected to be released against income before federal income 

taxes for the remainder of the year. However, as of September 30, 2013, we retained $447 million of the valuation allowance 

that pertains to our capital loss carryforwards, which we believe will expire unused. We recognized a benefit for federal 

income taxes of $47.2 billion in our condensed consolidated statements of operations and comprehensive income in the first 

nine months of 2013 primarily due to the release of the valuation allowance. We expect that the remaining valuation 

allowance not related to capital loss carryforwards will be released against income before federal income taxes during the 

fourth quarter of 2013. 

The positive evidence that weighed in favor of releasing the allowance as of March 31, 2013 and ultimately outweighed the 

negative evidence against releasing the allowance was the following: 

• our profitability in 2012 and the first quarter of 2013 and our expectations regarding the sustainability of these 

profits;

• our three-year cumulative income position as of March 31, 2013;

• the strong credit profile of the loans we have acquired since 2009;

• the significant size of our guaranty book of business and our contractual rights for future revenue from this book 

of business;

• our taxable income for 2012 and our expectations regarding the likelihood of future taxable income; and

• that our net operating loss carryforwards will not expire until 2030 through 2031. We anticipate that we will 

utilize all of these carryforwards by the end of 2013.

As discussed in our 2012 Form 10-K in “MD&A—Critical Accounting Policies and Estimates—Deferred Tax Assets,” 

releasing all or a portion of the valuation allowance in any period after December 31, 2012 did not reduce the funding 

available to us under the senior preferred stock purchase agreement and therefore did not result in regulatory actions that 

would limit our business operations to ensure our safety and soundness. In addition, we transitioned from a three-year 

cumulative loss position over the three years ended December 31, 2012 to a three-year cumulative income position over the 

three years ended March 31, 2013. The change in these conditions during the first quarter of 2013 removed negative evidence 

that supported maintaining the valuation allowance against our net deferred tax assets as of December 31, 2012. The balance 

of our net deferred tax assets was $48.3 billion as of September 30, 2013 compared with net deferred tax liabilities of $509 

million as of December 31, 2012.

In the second and third quarters of 2013, we updated our estimate of income before federal income taxes for 2013 and 

determined they were greater than our estimate used as of March 31, 2013. Therefore, we recognized a provision for federal 

income taxes in both the second and third quarters of 2013 based on our updated estimates. For the first nine months of 2013, 

we recognized a benefit for federal income taxes of $47.2 billion. We did not recognize a provision or benefit for federal 
18

income taxes for the third quarter or first nine months of 2012. Starting in 2014, we expect that our effective tax rate will 

approach the statutory tax rate. 

CONSOLIDATED RESULTS OF OPERATIONS

This section provides a discussion of our condensed consolidated results of operations for the periods indicated and should be 

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

Table 4 displays a summary of our condensed consolidated results of operations for the periods indicated.

Table 4: Summary of Condensed Consolidated Results of Operations

For the Three Months Ended For the Nine Months Ended

September 30, September 30,

2013 2012 Variance 2013 2012 Variance

(Dollars in millions)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,582 $ 5,317 $ 265 $17,553 $15,942 $ 1,611

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 378 363 1,794 1,148 646

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,323 5,695 628 19,347 17,090 2,257

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648 134 514 1,056 381 675

Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . . (27) (38) 11 (42) (701) 659

Fair value gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 (1,020) 1,355 1,998 (3,186) 5,184

Administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (646) (588) (58) (1,913) (1,719) (194)

Credit-related income (expense)

Benefit (provision) for credit losses. . . . . . . . . . . . . . . . . . . . 2,609 (2,079) 4,688 8,949 (1,038) 9,987

Foreclosed property income (expense) . . . . . . . . . . . . . . . . . 1,165 48 1,117 1,757 (221) 1,978

Total credit-related income (expense). . . . . . . . . . . . . . . . 3,774 (2,031) 5,805 10,706 (1,259) 11,965

Other non-interest expenses(1). . . . . . . . . . . . . . . . . . . . . . . . . . . (308) (339) 31 (859) (956) 97

Income before federal income taxes. . . . . . . . . . . . . . . . . . . . . . 10,099 1,813 8,286 30,293 9,650 20,643

(Provision) benefit for federal income taxes . . . . . . . . . . . . . . . (1,355) — (1,355) 47,231 — 47,231

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,744 1,813 6,931 77,524 9,650 67,874

Less: Net (income) loss attributable to noncontrolling interest . (7) 8 (15) (18) 4 (22)

Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . $ 8,737 $ 1,821 $ 6,916 $77,506 $ 9,654 $ 67,852

Total comprehensive income attributable to Fannie Mae. . . . . . $ 8,603 $ 2,567 $ 6,036 $78,192 $11,090 $ 67,102

__________

(1) Consists of debt extinguishment gains (losses), net and other expenses.

Net Interest Income

Table 5 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. Table 6 displays the change in our net interest income between periods and the extent to which that variance is 

attributable to: (1) changes in the volume of our interest-earning assets and interest-bearing liabilities or (2) changes in the 

interest rates of these assets and liabilities.
19

Table 5: Analysis of Net Interest Income and Yield

For the Three Months Ended September 30,

2013 2012

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 . . . . . . . . . . . . . . . . . . . . . . $ 320,651 $ 2,948 3.68 % $ 366,836 $ 3,536 3.86 %

Mortgage loans of consolidated trusts. . . . . . . . . . . . . . . . . 2,721,041 25,351 3.73 2,627,408 27,057 4.12

Total mortgage loans(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,041,692 28,299 3.72 2,994,244 30,593 4.09

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . 191,284 2,189 4.58 263,333 3,085 4.69

Elimination of Fannie Mae MBS held in retained

mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124,991) (1,464) 4.69 (171,205) (2,075) 4.85

Total mortgage-related securities, net. . . . . . . . . . . . . . . . 66,293 725 4.37 92,128 1,010 4.39

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . 35,959 6 0.07 42,922 13 0.12

Federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . . 54,623 9 0.06 40,565 19 0.18

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250 28 2.09 7,178 34 1.85

Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,203,817 $29,067 3.63 % $3,177,037 $31,669 3.99 %

Interest-bearing liabilities:

Short-term debt(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,591 $ 28 0.12 % $ 93,186 $ 37 0.16 %

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,042 2,551 2.06 559,968 2,919 2.09

Total short-term and long-term funding debt . . . . . . . . . . 587,633 2,579 1.76 653,154 2,956 1.81

Debt securities of consolidated trusts . . . . . . . . . . . . . . . . . 2,790,170 22,370 3.21 2,707,451 25,471 3.76

Elimination of Fannie Mae MBS held in retained

mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124,991) (1,464) 4.69 (171,205) (2,075) 4.85

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,665,179 20,906 3.14 2,536,246 23,396 3.69

Total interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . . . $3,252,812 $23,485 2.89 % $3,189,400 $26,352 3.30 %

Net interest income/net interest yield . . . . . . . . . . . . . . . . . . . . $ 5,582 0.70 % $ 5,317 0.67 %
20

For the Nine Months Ended September 30,

2013 2012

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 . . . . . . . . . . . . . . . . . . . . . . $ 332,803 $ 9,987 4.00 % $ 372,916 $10,704 3.83 %

Mortgage loans of consolidated trusts. . . . . . . . . . . . . . . . . 2,694,339 75,592 3.74 2,613,196 84,482 4.31

Total mortgage loans(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,027,142 85,579 3.77 2,986,112 95,186 4.25

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . 215,302 7,361 4.56 275,456 9,809 4.75

Elimination of Fannie Mae MBS held in retained

mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,372) (4,890) 4.68 (178,218) (6,558) 4.91

Total mortgage-related securities, net. . . . . . . . . . . . . . . . 75,930 2,471 4.34 97,238 3,251 4.46

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . 44,157 32 0.10 55,391 56 0.13

Federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . . 65,496 58 0.12 33,349 42 0.17

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,593 85 2.00 5,959 89 1.96

Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,218,318 $88,225 3.66 % $3,178,049 $98,624 4.14 %

Interest-bearing liabilities:

Short-term debt(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,419 $ 106 0.14 % $ 105,393 $ 108 0.13 %

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505,903 7,778 2.05 569,112 9,101 2.13

Total short-term and long-term funding debt . . . . . . . . . . 609,322 7,884 1.73 674,505 9,209 1.82

Debt securities of consolidated trusts . . . . . . . . . . . . . . . . . 2,772,826 67,678 3.25 2,685,408 80,031 3.97

Elimination of Fannie Mae MBS held in retained

mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,372) (4,890) 4.68 (178,218) (6,558) 4.91

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,633,454 62,788 3.18 2,507,190 73,473 3.91

Total interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . . . $3,242,776 $70,672 2.91 % $3,181,695 $82,682 3.46 %

Net interest income/net interest yield . . . . . . . . . . . . . . . . . . . . $17,553 0.73 % $15,942 0.67 %

As of September 30,

2013 2012

Selected benchmark interest rates(4)

3-month LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25 % 0.36 %

2-year swap rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.46 0.37

5-year swap rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.54 0.76

30-year Fannie Mae MBS par coupon rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.29 1.84

__________

(1) Includes mortgage loans on nonaccrual status. Interest income on nonaccrual mortgage loans is recognized when cash is received.

(2) Includes cash equivalents.

(3) Includes federal funds purchased and securities sold under agreements to repurchase.

(4) Data from British Bankers’Association, Thomson Reuters Indices and Bloomberg L.P.
21

Table 6: Rate/Volume Analysis of Changes in Net Interest Income

For the Three Months Ended For the Nine Months Ended

September 30, 2013 vs. 2012 September 30, 2013 vs. 2012

Total Variance Due to:(1) Total Variance Due to:(1)

Variance Volume Rate Variance Volume Rate

(Dollars in millions)

Interest income:

Mortgage loans of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (588) $ (430) $ (158) $ (717) $(1,188) $ 471

Mortgage loans of consolidated trusts . . . . . . . . . . . . . . . . . . . . . (1,706) 939 (2,645) (8,890) 2,557 (11,447)

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,294) 509 (2,803) (9,607) 1,369 (10,976)

Total mortgage-related securities, net. . . . . . . . . . . . . . . . . . . . . . (285) (283) (2) (780) (695) (85)

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (2) (5) (24) (10) (14)

Federal funds sold and securities purchased under agreements to

resell or similar arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . (10) 5 (15) 16 31 (15)

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (10) 4 (4) (6) 2

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,602) 219 (2,821) (10,399) 689 (11,088)

Interest expense:

Short-term debt(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) — (9) (2) (2) —

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (368) (335) (33) (1,323) (982) (341)

Total short-term and long-term funding debt. . . . . . . . . . . . . . . (377) (335) (42) (1,325) (984) (341)

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,490) 1,301 (3,791) (10,685) 3,908 (14,593)

Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,867) 966 (3,833) (12,010) 2,924 (14,934)

Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265 $ (747) $ 1,012 $ 1,611 $(2,235) $ 3,846

__________

(1) Combined rate/volume variances are allocated to both rate and volume based on the relative size of each variance.

(2) Includes cash equivalents.

(3) Includes federal funds purchased and securities sold under agreements to repurchase.

Net interest income increased in the third quarter and first nine months of 2013, compared with the third quarter and first nine 

months of 2012, primarily due to accelerated net amortization income on loans and debt of consolidated trusts, higher 

guaranty fees, and a reduction in the amount of interest income not recognized for nonaccrual mortgage loans. These factors 

were partially offset by lower net interest income from our retained mortgage portfolio. The primary drivers of these changes 

were:

• accelerated net amortization income related to mortgage loans and debt of consolidated trusts driven by 

prepayments;

• higher guaranty fees, primarily due to an average increase of 10 basis points implemented during the fourth quarter 

of 2012 and the 10 basis point increase related to the TCCA, which increased guaranty fees on all single-family 

residential mortgages delivered to Fannie Mae starting on April 1, 2012. The incremental TCCA-related guaranty 

fees are remitted to Treasury and recorded in “Other expenses” in our condensed consolidated statements of 

operations and comprehensive income; 

• higher interest income recognized on mortgage loans due to a reduction in the amount of interest income not 

recognized for nonaccrual mortgage loans. The balance of nonaccrual loans in our condensed consolidated balance 

sheet declined as we continued to complete a high number of loan workouts and foreclosures, and fewer loans 

became seriously delinquent; and

• lower interest income on mortgage loans and securities held in our retained mortgage portfolio due to lower 

mortgage rates and a decrease in their average balance, as we continued to reduce our retained mortgage portfolio 

pursuant to the requirements of the senior preferred stock purchase agreement. This decrease in interest income was 

partially offset by lower interest expense on funding debt due to lower average borrowing rates and funding needs, 

which allowed us to continue to replace higher-cost debt with lower-cost debt. Our sales of non-agency mortgagerelated securities will result in a decrease in future net interest income from our retained mortgage portfolio. See 
22

“Business Segment Results—Capital Markets Group Results” for additional information on our mortgage-related 

securities.

We amortize cost basis adjustments, including premiums and discounts on mortgage loans and securities, as a yield 

adjustment over the contractual or estimated life of the loan or security as a component of net interest income. Net 

unamortized premiums on debt of consolidated trusts exceeded net unamortized premiums on the related mortgage loans by 

$24.0 billion as of September 30, 2013, compared with $16.8 billion as of December 31, 2012. This net premium position 

represents deferred revenue which is amortized within net interest income. This deferred revenue primarily relates to upfront 

fees we receive from lenders for loans with greater credit risk and upfront payments we receive from lenders to adjust the 

monthly contractual guaranty fee rate on Fannie Mae MBS so that the pass-through coupon rate on the MBS is in a more 

easily tradable increment of a whole or half percent. The increase in net unamortized premiums from December 31, 2012 to 

September 30, 2013 is primarily due to the upfront fees recorded on acquisitions year-to-date.

We had $14.3 billion in net unamortized discounts and other cost basis adjustments on mortgage loans of Fannie Mae 

included in our condensed consolidated balance sheets as of September 30, 2013 compared with $15.8 billion as of 

December 31, 2012. These discounts and other cost basis adjustments were primarily recorded upon the acquisition of creditimpaired loans and the extent to which we may record them as income in future periods will be based on the actual 

performance of the loans.

Table 7 displays the interest income not recognized for loans on nonaccrual status and the resulting reduction in our net 

interest yield on total interest earning assets for the periods indicated.

Table 7: Impact of Nonaccrual Loans on Net Interest Income

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2013 2012 2013 2012

Interest

Income Not

Recognized

for

Nonaccrual

Loans

Reduction 

in Net 

Interest 

Yield(1)

Interest

Income Not

Recognized

for

Nonaccrual

Loans

Reduction 

in Net 

Interest 

Yield(1)

Interest

Income Not

Recognized

for

Nonaccrual

Loans

Reduction 

in Net 

Interest 

Yield(1)

Interest

Income Not

Recognized

for

Nonaccrual

Loans

Reduction 

in Net 

Interest 

Yield(1)

(Dollars in millions)

Mortgage loans of Fannie Mae . . $ (612) $ (856) $(1,896) $ (2,734)

Mortgage loans of consolidated

trusts . . . . . . . . . . . . . . . . . . . .

(76) (137) (273) (464)

Total mortgage loans. . . . . . . . . . $ (688) (8)bps $ (993) (12)bps $(2,169) (9)bps $ (3,198) (13)bps

__________

(1) Calculated based on annualized interest income not recognized divided by total interest-earning assets, expressed in basis points.

For a discussion of the interest income from the assets we have purchased and the interest expense from the debt we have 

issued, see the discussion of our Capital Markets group’s net interest income in “Business Segment Results.”

Fee and Other Income

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

other income increased in the third quarter of 2013 compared with the third quarter of 2012 primarily as a result of a legal 

settlement related to certain private-label securities recognized in the third quarter of 2013. Fee and other income increased in 

the first nine months of 2013 compared with the first nine months of 2012 primarily as a result of legal settlements related to 

certain private-label securities recognized in the first nine months of 2013. In addition, we recognized higher yield 

maintenance fees related to large multifamily loan prepayments in the first nine months of 2013 compared with the first nine 

months of 2012. 

Investment Gains, Net

Investment gains, net consist of gains and losses recognized from the sale of available-for-sale (“AFS”) securities, gains and 

losses recognized on the securitization of loans and securities from our portfolio, gains and losses on the consolidation and 

deconsolidation of securities, lower of cost or fair value adjustments on held-for-sale loans, and other investment gains and 

losses. Investment gains increased in the third quarter and first nine months of 2013 compared with the third quarter and first 

nine months of 2012 primarily due to sales of non-agency mortgage-related securities. See “Business Segment Results—

Capital Markets Group Results—The Capital Markets Group’s Mortgage Portfolio” and “Consolidated Balance Sheet 

Analysis—Investments in Mortgage-Related Securities” for additional information on our mortgage-related securities 

portfolio and requirements that we reduce our retained mortgage portfolio.
23

Other-Than-Temporary Impairment of Investment Securities

Net other-than-temporary impairments for the third quarter and first nine months of 2013 decreased compared with the third 

quarter and first nine months of 2012. During the first nine months of 2012, there was an update to the assumptions used to 

project cash flow estimates on our Alt-A and subprime private-label securities which was the primary driver of net otherthan-temporary impairments for the period. See “Critical Accounting Policies and Estimates—Other-Than-Temporary 

Impairment of Investment Securities” in our Third Quarter 2012 Form 10-Q for additional information on the update to these 

assumptions.

Fair Value Gains (Losses), Net

Table 8 displays the components of our fair value gains and losses. 

Table 8: Fair Value Gains (Losses), Net

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

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

Net contractual interest expense accruals on interest rate swaps. . . . . . . . $ (229) $ (369) $ (610) $ (1,134)

Net change in fair value during the period. . . . . . . . . . . . . . . . . . . . . . . . . 942 (139) 2,445 (1,016)

Total risk management derivatives fair value gains (losses), net. . . . . . 713 (508) 1,835 (2,150)

Mortgage commitment derivatives fair value (losses) gains, net. . . . . . . . . . (169) (816) 459 (1,583)

Total derivatives fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . 544 (1,324) 2,294 (3,733)

Trading securities (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57) 406 111 676

Other, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (152) (102) (407) (129)

Fair value gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 335 $ (1,020) $ 1,998 $ (3,186)

2013 2012

5-year swap rate:

As of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.86% 1.22%

As of March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.95% 1.27%

As of June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.57% 0.97%

As of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.54% 0.76% 

__________

(1) Consists of debt fair value gains (losses), net; debt foreign exchange gains (losses), net; and mortgage loans fair value gains (losses), 

net.

Risk Management Derivatives Fair Value Gains (Losses), Net

Risk management derivative instruments are an integral part of our interest rate risk management strategy. We supplement 

our issuance of debt securities with derivative instruments to further reduce duration risk, which includes prepayment risk. 

We recognized risk management derivative fair value gains in the third quarter and first nine months of 2013 primarily as a 

result of increases in the fair value of our pay-fixed derivatives as longer-term swap rates increased during the periods. We 

recognized risk management derivatives fair value losses in the third quarter and first nine months of 2012 primarily as a 

result of decreases in the fair value of our pay-fixed derivatives due to decreases in swap rates during the periods.

We present, by derivative instrument type, the fair value gains and losses, net on our derivatives for the three and nine months 

ended September 30, 2013 and 2012 in “Note 9, Derivative Instruments.”
24

Mortgage Commitment Derivatives Fair Value (Losses) Gains, Net

We recognized fair value losses on our mortgage commitments in the third quarter primarily due to losses on commitments to 

sell mortgage-related securities driven by higher prices as interest rates decreased during the commitment period. We 

recognized fair value gains on our mortgage commitments in the first nine months of 2013 primarily due to gains on 

commitments to sell mortgage-related securities driven by lower prices as interest rates increased during the commitment 

period. We recognized fair value losses on our mortgage commitments in the third quarter and first nine months of 2012

primarily due to losses on commitments to sell mortgage-related securities driven by higher prices as interest rates decreased 

during the commitment period. 

Trading Securities (Losses) Gains, Net

Losses from trading securities in the third quarter of 2013 were primarily driven by lower prices on commercial mortgagebacked securities (“CMBS”) and subprime private-label securities due to a widening of credit spreads. Gains from trading 

securities in the first nine months of 2013 were primarily driven by gains from higher prices on Alt-A and subprime private 

label securities, due to the narrowing of credit spreads on these securities as well as improvements in the credit outlook of 

certain financial guarantors of these securities in the first quarter of 2013. These gains were partially offset by losses on 

CMBS in the second and third quarters of 2013.

Gains from trading securities in the third quarter of 2012 and first nine months of 2012 were primarily driven by the 

narrowing of credit spreads on CMBS. 

Credit-Related (Income) Expense

We refer to our (benefit) provision for loan losses and guaranty losses collectively as our “(benefit) provision for credit 

losses.” Credit-related (income) expense consist of our (benefit) provision for credit losses and foreclosed property (income) 

expense.

(Benefit) Provision for Credit Losses

Our total loss reserves provide for an estimate of credit losses incurred in our guaranty book of business, including 

concessions we granted borrowers upon modification of their loans, as of each balance sheet date. We establish our loss 

reserves through our provision for credit losses for losses that we believe have been incurred and will eventually be reflected 

over time in our charge-offs. When we reduce our loss reserves, we recognize a benefit for credit losses. When we determine 

that a loan is uncollectible, typically upon foreclosure, we recognize a charge-off against our loss reserves. We record 

recoveries of previously charged-off amounts as a reduction to charge-offs.

Table 9 displays the components of our total loss reserves and our total fair value losses previously recognized on loans 

purchased out of unconsolidated MBS trusts reflected in our condensed consolidated balance sheets. Because these fair value 

losses lowered our recorded loan balances, we have fewer inherent losses in our guaranty book of business and consequently 

require lower total loss reserves. For these reasons, we consider these fair value losses as an “effective reserve,” apart from 

our total loss reserves, to the extent that we expect to realize these amounts as credit losses on the acquired loans in the 

future. The fair value losses shown in Table 9 represent credit losses we expect to realize in the future or amounts that will 

eventually be recovered, either through net interest income for loans that cure or through foreclosed property income for 

loans where the sale of the collateral exceeds our recorded investment in the loan. We exclude these fair value losses from our 

credit loss calculation as described in “Credit Loss Performance Metrics.”
25

Table 9: Total Loss Reserves

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,169 $58,795

Reserve for guaranty losses(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,193 1,231

Combined loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,362 60,026

Allowance for accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243 1,737

Allowance for preforeclosure property taxes and insurance receivable(2)

. . . . . . . . . . . . . . . . . . . . 828 866

Total loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,433 62,629

Fair value losses previously recognized on acquired credit-impaired loans(3)

. . . . . . . . . . . . . . . . 11,712 13,694

Total loss reserves and fair value losses previously recognized on acquired creditimpaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,145 $76,323

__________

(1) Amount included in “Other liabilities” in our condensed consolidated balance sheets.

(2) Amount included in “Other assets” in our condensed consolidated balance sheets.

(3) Represents the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our condensed consolidated balance 

sheets.

Table 10 displays changes in the total allowance for loan losses, reserve for guaranty losses and the total combined loss 

reserves for the periods indicated.
26

Table 10: Allowance for Loan Losses and Reserve for Guaranty Losses (Combined Loss Reserves)

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

Changes in combined loss reserves:

Allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,643 $ 63,375 $ 58,795 $ 72,156

(Benefit) provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,600) 2,083 (9,033) 676

Charge-offs(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,325) (3,541) (7,263) (12,328)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 350 2,138 1,321

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 745 532 1,187

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,169 $ 63,012 $ 45,169 $ 63,012

Reserve for guaranty losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,230 $ 1,320 $ 1,231 $ 994

(Benefit) provision for guaranty losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) (4) 84 362

Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28) (32) (123) (132)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11 1 71

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,193 $ 1,295 $ 1,193 $ 1,295

Combined loss reserves:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,873 $ 64,695 $ 60,026 $ 73,150

Total (benefit) provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,609) 2,079 (8,949) 1,038

Charge-offs(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,353) (3,573) (7,386) (12,460)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 361 2,139 1,392

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 745 532 1,187

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,362 $ 64,307 $ 46,362 $ 64,307

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

Allocation of combined loss reserves:

Balance at end of each period attributable to:

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,608 $ 58,809

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754 1,217

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,362 $ 60,026

Single-family and multifamily combined loss reserves as a percentage of applicable

guaranty book of business:

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.58% 2.08%

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37 0.59

Combined loss reserves as a percentage of:

Total guaranty book of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50% 1.97%

Recorded investment in nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.33 23.92
27

_________

(1) Includes accrued interest of $100 million and $198 million for the three months ended September 30, 2013 and 2012, respectively, and 

$337 million and $709 million for the nine months ended September 30, 2013 and 2012, respectively.

(2) Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and 

insurance receivable from borrowers. The (benefit) provision for credit losses, charge-offs and recoveries activity included in this table 

reflects all changes for both the allowance for loan losses and the valuation allowances for accrued interest and preforeclosure property 

taxes and insurance receivable that relate to the mortgage loans.

Our benefit or provision for credit losses continues to be a key driver of our results for each period presented. The amount of 

our benefit or provision for credit losses varies from period to period based on changes in actual and expected home prices, 

borrower payment behavior, the types and volumes of loss mitigation activities and foreclosures completed, and actual and 

estimated recoveries from our lender and mortgage insurer counterparties. See “Risk Management—Credit Risk Management

—Institutional Counterparty Credit Risk Management” for information on mortgage insurers and outstanding mortgage 

seller/servicer repurchase obligations. In addition, our benefit or provision for credit losses and our loss reserves can be 

impacted by updates to the assumptions and data used in determining our allowance for loan losses.

We recognized a benefit for credit losses in the third quarter of 2013 compared with a provision for credit losses in the third 

quarter of 2012. In the third quarter of 2012, our provision for credit losses was primarily driven by a change in the 

assumptions and data used in calculating our loss reserves and a change in our accounting for loans to certain borrowers who 

have received bankruptcy relief. See “Critical Accounting Policies and Estimates—Total Loss Reserves” and “Consolidated 

Results of Operations—Benefit (Provision) for Credit Losses” in our 2012 Form 10-K for additional information on these 

changes. Factors that impacted our benefit for credit losses in the third quarter of 2013 include:

• Home prices increased by 2.5% in the third quarter of 2013 compared with an increase of 1.5% in the third quarter 

of 2012 and increased by 9.2% in the first nine months of 2013 compared with an increase of 4.8% in the first nine 

months of 2012. The home price increases in the third quarter and first nine months of 2013 were greater than the 

increases in the third quarter and first nine months of 2012 due to improving market conditions. Higher home prices 

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

• The number of seriously delinquent loans declined 25% to approximately 448,000 as of September 30, 2013 from 

approximately 599,000 as of September 30, 2012 and the number of “early stage” delinquent loans (loans that are 30 

to 89 days past due) declined 25% to approximately 371,000 as of September 30, 2013 from approximately 492,000

as of September 30, 2012. The reduction in the number of delinquent loans was due, in part, to our efforts since 

2009 to improve our underwriting standards and the credit quality of our single-family guaranty book of business. A

decline in the number of loans becoming delinquent or seriously delinquent reduces our total loss reserves and 

provision for credit losses.

We recognized a benefit for credit losses in the first nine months of 2013 compared with a provision for credit losses in the 

first nine months of 2012. In addition to the factors discussed above, the following impacted our benefit for credit losses:

• Sales prices on dispositions of our REO properties improved in the first nine months of 2013 compared with the 

prior year. We received net proceeds from our REO sales equal to 67% of the loans’ unpaid principal balance in the 

first nine months of 2013 compared with 59% in the first nine months of 2012. The increase in sales prices 

contributed to a reduction in the single-family initial charge-off severity rate to 24.8% for the first nine months of 

2013 from 31.4% for the first nine months of 2012. The decrease in our charge-off severity rate indicates a lower 

amount of credit loss at foreclosure and, accordingly, a lower provision for credit losses. 

• In the second quarter of 2013, we updated the assumptions and data used to estimate our allowance for loan losses 

for individually impaired single-family loans, which resulted in a decrease to our allowance for loan losses. For 

additional information on this update, see “Critical Accounting Policies and Estimates—Total Loss Reserves.” 

The factors that contributed to our benefit for credit losses in the first nine months of 2013 were partially offset by lower cash 

flow projections on our individually impaired loans due to increasing mortgage interest rates in the first nine months of 2013. 

Higher mortgage interest rates lengthen the expected lives of modified loans, thus increasing the impairment related to 

concessions on these loans and resulting in an increase to the provision for credit losses. Conversely, in the first nine months 

of 2012, mortgage interest rates declined, causing higher cash flow projections on our individually impaired loans, which 

resulted from shortened expected lives on modified loans and lower impairment related to concessions on these loans.

We discuss our expectations regarding our future loss reserves in “Executive Summary—Outlook—Loss Reserves.”
28

 Nonperforming Loans

Our balance of nonperforming single-family loans remained high as of September 30, 2013 due to high levels of loans 

modified as troubled debt restructurings (“TDRs”). When a TDR occurs, the loan may return to a current status, but it will 

continue to be classified as a nonperforming loan as the loan is not performing in accordance with its original terms. Table 11

displays the composition of our nonperforming loans, which includes our single-family and multifamily held-for-investment 

and held-for-sale 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.” 

Table 11: Nonperforming Single-Family and Multifamily Loans

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

On-balance sheet nonperforming loans including loans in consolidated Fannie Mae MBS

trusts:

Nonaccrual loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,096 $ 114,761

TDRs on accrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,897 136,064

Total on-balance sheet nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,993 250,825

Off-balance sheet nonperforming loans in unconsolidated Fannie Mae MBS trusts(1)

. . . . . . . . . 46 72

Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,039 250,897

Allowance for loan losses and allowance for accrued interest receivable related to

individually impaired on-balance sheet nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . (38,501) (45,776)

Total nonperforming loans, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 189,538 $ 205,121

Accruing on-balance sheet loans past due 90 days or more(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 732 $ 3,580

For the Nine Months Ended

September 30,

2013 2012

(Dollars in millions)

Interest related to on-balance sheet nonperforming loans:

Interest income forgone(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,291 $ 6,108

Interest income recognized for the period(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,527 4,659

__________

(1) Represents loans that would meet our criteria for nonaccrual status if the loans had been on-balance sheet.

(2) Recorded investment in loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. As of 

December 31, 2012, includes loans with a recorded investment of $2.8 billion which were repurchased in January 2013 pursuant to our 

resolution agreement with Bank of America. These loans were returned to accrual status to reflect the change in our assessment of 

collectibility resulting from this agreement. Also includes 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.

(3) Represents the amount of interest income we did not record but would have recorded during the period for on-balance sheet 

nonperforming loans as of the end of each period had the loans performed according to their original contractual terms.

(4) Represents interest income recognized during the period for on-balance sheet loans classified as nonperforming as of the end of each 

period. Primarily includes amounts accrued while the loans were performing and cash payments received on nonaccrual loans.

Foreclosed Property (Income) Expense 

Foreclosed property income increased in the third quarter of 2013 compared with the third quarter of 2012, and we 

recognized foreclosed property income in the first nine months of 2013 compared with foreclosed property expense in the 

first nine months of 2012. This was primarily due to the recognition of compensatory fees received in connection with our 

compensatory fee agreement with Bank of America. We had previously deferred this income until we substantially completed 

the loan review process related to the agreement. See “Note 20, Subsequent Events” in our 2012 Form 10-K for additional 

information on the Bank of America compensatory fee agreement. In addition, foreclosed property income in the third quarter 

and first nine months of 2013 was driven by improvement in sales prices on dispositions of our REO properties.
29

Credit Loss Performance Metrics

Our credit-related (income) expense should be considered in conjunction with our credit loss performance metrics. Our credit 

loss performance metrics, however, are not defined terms within GAAP and may not be calculated in the same manner as 

similarly titled measures reported by other companies. Because management does not view changes in the fair value of our 

mortgage loans as credit losses, we adjust our credit loss performance metrics for the impact associated with our acquisition 

of credit-impaired loans from unconsolidated MBS trusts. We also exclude interest forgone on nonperforming loans, otherthan-temporary impairment losses resulting from deterioration in the credit quality of our mortgage-related securities and 

accretion of interest income on acquired credit-impaired loans from credit losses. We believe that credit loss performance 

metrics may be useful to investors as the losses are presented as a percentage of our book of business and have historically 

been used by analysts, investors and other companies within the financial services industry. Moreover, by presenting credit 

losses with and without the effect of fair value losses associated with the acquisition of credit-impaired loans, investors are 

able to evaluate our credit performance on a more consistent basis among periods. Table 12 displays the components of our 

credit loss performance metrics as well as our average single-family and multifamily default rates and initial charge-off 

severity rates. 

Table 12: Credit Loss Performance Metrics

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2013 2012 2013 2012

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of recoveries. . . . . . $ 2,059 26.9 bps $ 3,212 42.2 bps $5,247 22.9 bps $11,068 48.5 bps

Foreclosed property (income)

expense . . . . . . . . . . . . . . . . . . . . . (1,165) (15.2) (48) (0.6) (1,757) (7.7) 221 1.0

Credit losses including the effect of

fair value losses on acquired

credit-impaired loans. . . . . . . . . . . 894 11.7 3,164 41.6 3,490 15.2 11,289 49.5

Plus: Impact of acquired creditimpaired loans on charge-offs and 

foreclosed property (income) 

expense(2). . . . . . . . . . . . . . . . . . . . 248 3.2 348 4.6 754 3.3 1,142 5.0

Credit losses and credit loss ratio . . . $ 1,142 14.9 bps $ 3,512 46.2 bps $4,244 18.5 bps $12,431 54.5 bps

Credit losses attributable to:

Single-family . . . . . . . . . . . . . . . . $ 1,083 $ 3,485 $4,127 $12,218

Multifamily . . . . . . . . . . . . . . . . . 59 27 117 213

Total. . . . . . . . . . . . . . . . . . . . . . . $ 1,142 $ 3,512 $4,244 $12,431

Single-family default rate . . . . . . . . . 0.30 % 0.38 % 0.93 % 1.20 %

Single-family initial charge-off 

severity rate(3)

. . . . . . . . . . . . . . . . 22.16 % 29.83 % 24.78 % 31.36 %

Average multifamily default rate . . . 0.12 % 0.05 % 0.25 % 0.30 %

Average multifamily initial chargeoff severity rate(3)

. . . . . . . . . . . . . 21.00 % 28.31 % 24.49 % 37.03 %

__________

(1) Basis points are based on the annualized amount for each line item presented divided by the average guaranty book of business during 

the period.

(2) Includes fair value losses from acquired credit-impaired loans.

(3) Single-family and multifamily rates exclude fair value losses on credit-impaired loans acquired from MBS trusts and any costs, gains or 

losses associated with REO after initial acquisition through final disposition; single-family rate excludes charge-offs from short sales 

and third-party sales.

Credit losses decreased in the third quarter and first nine months of 2013 compared with the third quarter and first nine 

months of 2012 primarily due to the recognition of compensatory fees received in connection with our compensatory fee 

agreement with Bank of America. See “Note 20, Subsequent Events” in our 2012 Form 10-K for additional information on 

the agreement. In addition, the decrease in credit losses in the third quarter and first nine months of 2013 was driven by 

improvement in sales prices on dispositions of our REO properties and by lower REO acquisitions primarily driven by lower 

delinquencies.
30

We discuss our expectations regarding our future credit losses in “Executive Summary—Outlook—Credit Losses.”

Regulatory Hypothetical Stress Test Scenario

Under a September 2005 agreement with FHFA’s predecessor, the Office of Federal Housing Enterprise Oversight, we are 

required to disclose on a quarterly basis the present value of the change in future expected credit losses from our existing 

single-family guaranty book of business from an immediate 5% decline in single-family home prices for the entire United 

States followed by a return to the average of the possible growth rate paths used in our internal credit pricing models. The 

sensitivity results represent the difference between future expected credit losses under our base case scenario, which is 

derived from our internal home price path forecast, and a scenario that assumes an instantaneous nationwide 5% decline in 

home prices.

Table 13 displays the credit loss sensitivities as of the dates indicated for first-lien single-family loans that are in our retained 

mortgage portfolio or underlying Fannie Mae MBS, before and after consideration of projected credit risk sharing proceeds, 

such as private mortgage insurance claims and other credit enhancements.

Table 13: Single-Family Credit Loss Sensitivity(1)

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

Gross single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,618 $ 13,508

Less: Projected credit risk sharing proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,084) (2,206)

Net single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,534 $ 11,302

Single-family loans in our retained mortgage portfolio and loans underlying Fannie Mae MBS. $ 2,814,690 $ 2,765,460

Single-family net credit loss sensitivity as a percentage of outstanding single-family loans in

our retained mortgage portfolio and Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.30% 0.41%

__________

(1) Represents total economic credit losses, which consist of credit losses and forgone interest. Calculations are based on 98% of our total 

single-family guaranty book of business as of September 30, 2013 and December 31, 2012. The mortgage loans and mortgage-related 

securities that are included in these estimates consist of: (a) single-family Fannie Mae MBS (whether held in our retained mortgage 

portfolio or held by third parties), excluding certain whole loan Real Estate Mortgage Investment Conduits (“REMICs”) and privatelabel wraps; (b) single-family mortgage loans, excluding mortgages secured only by second liens, subprime mortgages, manufactured 

housing chattel loans and reverse mortgages; and (c) long-term standby commitments. We expect the inclusion in our estimates of the 

excluded products may impact the estimated sensitivities set forth in this table.

Because these sensitivities represent hypothetical scenarios, they should be used with caution. Our regulatory stress test 

scenario is limited in that it assumes an instantaneous uniform 5% nationwide decline in home prices, which is not 

representative of the historical pattern of changes in home prices. Changes in home prices generally vary on a regional, as 

well as a local, basis. In addition, these stress test scenarios are calculated independently without considering changes in 

other interrelated assumptions, such as unemployment rates or other economic factors, which are likely to have a significant 

impact on our future expected credit losses.
31

Federal Income Taxes

We recognized a provision for federal income taxes of $1.4 billion in the third quarter of 2013 and a benefit for federal 

income taxes of $47.2 billion for the first nine months of 2013. We did not recognize a provision or benefit for federal income 

taxes for the third quarter or first nine months of 2012. In the first quarter of 2013, we released the substantial majority of the 

valuation allowance against our deferred tax assets. We discuss the factors that led us to release our valuation allowance 

against our deferred tax assets in “Critical Accounting Policies and Estimates—Deferred Tax Assets” and “Note 10, Income 

Taxes.”

BUSINESS SEGMENT RESULTS

Results of our three business segments are intended to reflect each segment as if it were a stand-alone business. Under our 

segment reporting structure, the sum of the results for our three business segments does not equal our condensed consolidated 

results of operations as we separate the activity related to our consolidated trusts from the results generated by our three 

segments. In addition, because we apply accounting methods that differ from our condensed consolidated results for segment 

reporting purposes, we include an eliminations/adjustments category to reconcile our business segment results and the 

activity related to our consolidated trusts to our condensed consolidated results of operations. We describe the management 

reporting and allocation process used to generate our segment results in “Note 13, Segment Reporting” in our 2012 Form 10-

K.

In this section, we summarize our segment results for the third quarter and first nine months of 2013 and 2012 in the tables 

below and provide a comparative discussion of these results. This section should be read together with our comparative 

discussion of our condensed consolidated results of operations in “Consolidated Results of Operations.” See “Note 12, 

Segment Reporting” for a reconciliation of our segment results to our condensed consolidated results.

During the first quarter of 2013, we released the substantial majority of our valuation allowance against our deferred tax 

assets, except for amounts that were expected to be released against income before federal income taxes for the remainder of 

the year and the portion of the valuation allowance that pertains to our capital loss carryforwards. This resulted in a 

significant benefit for income taxes during the first nine months of 2013. See “Critical Accounting Policies and Estimates—

Deferred Tax Assets” and “Note 10, Income Taxes” for additional information regarding the factors that led to our conclusion 

to release the valuation allowance against our deferred tax assets. The benefit for income taxes allocated to each business 

segment represents the release of the valuation allowance against deferred tax assets that primarily are directly attributable to 

that segment based on the nature of the item.

Single-Family Business Results

Table 14 displays the financial results of our Single-Family business for the periods indicated. For a discussion of SingleFamily credit risk management, including information on serious delinquency rates and loan workouts, see “Risk 

Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.” The primary source of 

revenue for our Single-Family business is guaranty fee income. Expenses and other items that impact income or loss 

primarily include credit-related income (expense), net interest (loss) income and administrative expenses.
32

Table 14: Single-Family Business Results

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2013 2012 Variance 2013 2012 Variance

(Dollars in millions)

Net interest (loss) income(1)

. . . . . . . . . . . . . . . . . . . $ (152) $ (192) $ 40 $ 318 $ (786) $ 1,104

Guaranty fee income(2)(3)

. . . . . . . . . . . . . . . . . . . . . 2,719 2,014 705 7,638 5,895 1,743

Credit-related income (expense)(4)

. . . . . . . . . . . . . . 3,642 (2,130) 5,772 10,357 (1,500) 11,857

Other expenses(3)(5)

. . . . . . . . . . . . . . . . . . . . . . . . . (713) (502) (211) (1,948) (1,333) (615)

Income (loss) before federal income taxes . . . . . . . 5,496 (810) 6,306 16,365 2,276 14,089

(Provision) benefit for federal income taxes(6)

. . . . (751) (12) (739) 29,777 (12) 29,789

Net income (loss) attributable to Fannie Mae . . . . . $ 4,745 $ (822) $ 5,567 $ 46,142 $ 2,264 $43,878

Other key performance data:

Single-family effective guaranty fee rate (in basis 

points)(3)(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.0 28.3 35.8 27.6

Single-family average charged guaranty fee on 

new acquisitions (in basis points)(3)(8). . . . . . . . . 58.7 41.8 56.6 37.1

Average single-family guaranty book of business(9) $2,860,103 $2,842,649 $2,847,297 $2,846,328

Single-family Fannie Mae MBS issuances(10)

. . . . . $ 186,459 $ 229,671 $ 615,302 $ 601,469

__________

(1) Includes the cost to reimburse the Capital Markets group for interest income not recognized for loans in our retained mortgage portfolio 

on nonaccrual status, the cost to reimburse MBS trusts for interest income not recognized for loans in consolidated trusts on nonaccrual 

status and income from cash payments received on loans that have been placed on nonaccrual status.

(2) Guaranty fee income related to unconsolidated Fannie Mae MBS trusts and other credit enhancement arrangements is included in fee 

and other income in our condensed consolidated statements of operations and comprehensive income.

(3) Pursuant to the TCCA, effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages delivered to us 

on or after that date for securitization by 10 basis points, and the incremental revenue must be remitted to Treasury. The resulting 

revenue is included in guaranty fee income and the expense is included in other expenses. This increase in guaranty fee is also included 

in the single-family average charged guaranty fee.

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

(5) Consists of investment gains, net, fair value losses, net, fee and other income, administrative expenses and other expenses.

(6) The benefit for the first nine months of 2013 primarily represents the release in the first quarter of 2013 of the substantial majority of 

our valuation allowance against the portion of our deferred tax assets that we attribute to our single-family segment based on the nature 

of the item.

(7) Calculated based on annualized Single-Family segment guaranty fee income divided by the average single-family guaranty book of 

business, expressed in basis points.

(8) Calculated based on the average contractual fee rate for our single-family guaranty arrangements entered into during the period plus the 

recognition of any upfront cash payments ratably over an estimated average life, expressed in basis points.

(9) Consists of single-family mortgage loans held in our retained mortgage portfolio, single-family mortgage loans held by consolidated 

trusts, single-family Fannie Mae MBS issued from unconsolidated trusts held by either third parties or within our retained mortgage 

portfolio and other credit enhancements that we provide on single-family mortgage assets. Excludes non-Fannie Mae mortgage-related 

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

(10) Reflects unpaid principal balance of Fannie Mae MBS issued and guaranteed by the Single-Family segment during the period.

We recognized pre-tax income in the third quarter of 2013 compared with a pre-tax loss in the third quarter of 2012 primarily 

due to significant improvement in our credit results and increased guaranty fee income. Pre-tax income increased in the first 

nine months of 2013 compared with the first nine months of 2012 primarily due to significant improvement in our credit 

results, increased guaranty fee income and net interest income in the first nine months of 2013 compared with net interest 

loss in the first nine months of 2012.

The improvement to credit-related income in the third quarter of 2013 from credit-related expense in the third quarter of 2012 

was primarily due to the recognition of compensatory fees received in connection with our compensatory fee agreement with 

Bank of America. We had previously deferred this income until we substantially completed the loan review process related to 

the agreement. In addition, in the third quarter of 2012 we made a change to assumptions and data used to calculate our loss 
33

reserves and a change to our accounting for loans to certain borrowers who have received bankruptcy relief that negatively 

impacted our provision for credit losses during that period.

Also, the improvement to credit-related income in the first nine months of 2013 from credit-related expense in the first nine 

months of 2012 was due to an update in the second quarter of 2013 to the assumptions and data used to estimate our 

allowance for loan losses for individually impaired single-family loans to reflect faster prepayment and lower default 

expectations for these loans, which resulted in an increase in credit-related income in the first nine months of 2013. 

Our single-family credit-related results for the 2012 and 2013 periods indicated above continue to be positively impacted by 

increases in home prices and declines in the number of delinquent loans, which have resulted in a reduction in our loss 

reserves. Our single-family credit-related income represents the substantial majority of our consolidated activity. We provide 

a discussion of our credit-related income and credit losses in “Consolidated Results of Operations—Credit-Related (Income) 

Expense.”

Guaranty fee income increased in the third quarter and first nine months of 2013 compared with the third quarter and first 

nine months of 2012 due to the cumulative impact of price increases, including a 10 basis point increase on April 1, 2012 

mandated by the TCCA and an additional average increase of 10 basis points implemented during the fourth quarter of 2012, 

and higher amortization income on risk-based fees. As described in “Business—Legislative and Regulatory Developments—

Changes to Our Single-Family Guaranty Fee Pricing and Revenue” in our 2012 Form 10-K, in December 2011, Congress 

enacted the TCCA which, among other provisions, required that we increase our single-family guaranty fees by at least 10 

basis points and remit this increase to Treasury, rather than retaining the incremental revenue. Effective April 1, 2012, the 

guaranty fee on all single-family residential mortgages delivered to Fannie Mae and Freddie Mac on or after that date for 

securitization was increased by 10 basis points; accordingly, the single-family average charged guaranty fee increased. The 

resulting revenue is included in guaranty fee income, and the expense is included in other expenses. We recorded other 

expenses of $276 million for the third quarter of 2013 compared with $78 million for the third quarter of 2012 and $695 

million for the first nine months of 2013 compared with $104 million for the first nine months of 2012 for this obligation due 

to Treasury. We expect the guaranty fees collected and expenses incurred to increase in the future.

We recognized net interest income in the first nine months of 2013 compared with a net interest loss in the first nine months 

of 2012, primarily due to the reduction in the amount of interest income not recognized for nonaccrual mortgage loans, as 

well as our resolution agreement with Bank of America, which resulted in the recognition of unamortized cost basis 

adjustments on the loans repurchased by Bank of America. See “Note 20, Subsequent Events” in our 2012 Form 10-K for 

additional information on this agreement.

Net income in the third quarter of 2013 included a provision for federal income taxes, as our current estimate of income 

before federal income taxes for 2013 was greater than our estimate as of March 31, 2013. Net income in the first nine months 

of 2013 included a benefit for federal income taxes that primarily represents the release in the first quarter of 2013 of the 

substantial majority of the valuation allowance against the portion of our deferred tax assets that we attributed to our singlefamily segment. Those assets primarily related to the allowance for loan losses and guaranty fee income. See “Note 10, 

Income Taxes” for additional information.

The increase in the single-family average charged guaranty fee on new acquisitions in the third quarter and first nine months 

of 2013 compared with the third quarter and first nine months of 2012 was primarily due to price increases implemented 

during 2012, as discussed above. Although we do not know the specific timing, form or extent of future changes in our 

guaranty fee pricing, we believe that we will increase our guaranty fees in the future. Increases in our guaranty fee pricing 

support FHFA’s strategic plan to gradually contract our dominant presence in the marketplace and attract private capital. We 

expect that any future increases to guaranty fee pricing will likely further increase our guaranty fee revenue.

We remained the largest single issuer of mortgage related securities in the secondary market during the third quarter of 2013, 

with an estimated market share of new single-family mortgage-related securities issuances, which excludes previously 

securitized mortgages, of 48% in the third quarter of 2013 compared with 52% in the third quarter of 2012. Despite our 

continued high market share, our average single-family guaranty book of business remained flat in the third quarter and first 

nine months of 2013 compared with the third quarter and first nine months of 2012, primarily due to the decline in U.S. 

residential mortgage debt outstanding.
34

Multifamily Business Results

Multifamily business results primarily reflect our multifamily guaranty business. Our multifamily business results also 

include activity relating to our low-income housing tax credit (“LIHTC”) and equity investments. Although we are no longer 

making new LIHTC or equity investments, we continue to make contractually required contributions for our legacy 

investments. Activity from multifamily products is also reflected in the Capital Markets group results, which include net 

interest income related to multifamily loans and securities held in our retained mortgage portfolio, gains and losses from the 

sale of multifamily Fannie Mae MBS and re-securitizations and other miscellaneous income.

Table 15 displays the financial results of our Multifamily business for the periods indicated. The primary sources of revenue 

for our multifamily business are guaranty fee income and fee and other income. Expenses and other items that impact income 

or loss primarily include credit-related income and administrative expenses.

Table 15: Multifamily Business Results

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2013 2012 Variance 2013 2012 Variance

(Dollars in millions)

Guaranty fee income(1)

. . . . . . . . . . . . . . . . . . . . . . . $ 311 $ 265 $ 46 $ 902 $ 760 $ 142

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . 26 55 (29) 115 151 (36)

Gains from partnership investments(2)

. . . . . . . . . . . 121 43 78 284 72 212

Credit-related income(3)

. . . . . . . . . . . . . . . . . . . . . . 132 99 33 349 241 108

Other expenses(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . (104) (67) (37) (257) (192) (65)

Income before federal income taxes . . . . . . . . . . . . 486 395 91 1,393 1,032 361

(Provision) benefit for federal income taxes(5)

. . . . . (8) 32 (40) 7,970 32 7,938

Net income attributable to Fannie Mae . . . . . . . . . . $ 478 $ 427 $ 51 $ 9,363 $ 1,064 $ 8,299

Other key performance data:

Multifamily effective guaranty fee rate (in basis 

points)(6)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.8 52.9 58.6 51.1

Multifamily credit loss performance ratio (in basis 

points)(7)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 5.4 7.6 14.3

Average multifamily guaranty book of business(8)

. $204,601 $200,384 $205,200 $198,201

Multifamily new business volumes(9)

. . . . . . . . . . . $ 5,810 $ 8,965 $ 21,791 $ 22,862

Multifamily units financed from new business

volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

103,000 135,000 386,000 371,000

Multifamily Fannie Mae MBS issuances(10)

. . . . . . $ 6,373 $ 9,576 $ 23,648 $ 25,969

Multifamily Fannie Mae structured securities

issuances (issued by Capital Markets group). . . . $ 1,671 $ 4,038 $ 7,879 $ 7,462

Additional net interest income earned on Fannie 

Mae multifamily mortgage loans and MBS 

(included in Capital Markets group’s results)(11). $ 167 $ 212 $ 543 $ 631

Average Fannie Mae multifamily mortgage loans 

and MBS in Capital Markets group’s mortgage 

portfolio(12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,629 $ 97,186 $ 78,328 $100,636

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

Multifamily serious delinquency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.18 % 0.24 %

Percentage of multifamily guaranty book of business with credit enhancement. . . . . . . . . . 91 % 90 %

Fannie Mae percentage of total multifamily mortgage debt outstanding(13)

. . . . . . . . . . . . . 21 % 22 %

Multifamily Fannie Mae MBS outstanding(14)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,224 $128,477
35

__________

(1) Guaranty fee income related to unconsolidated Fannie Mae MBS trusts and other credit enhancement arrangements is included in fee 

and other income in our condensed consolidated statements of operations and comprehensive income.

(2) Gains from partnership investments are included in other expenses in our condensed consolidated statements of operations and 

comprehensive income. Gains from partnership investments are reported using the equity method of accounting. As a result, net income 

attributable to noncontrolling interest from partnership investments is not included in income for the Multifamily segment.

(3) Consists of the benefit for credit losses and foreclosed property (expense) income.

(4) Consists of net interest loss, investment gains, administrative expenses and other expenses.

(5) The benefit for the first nine months of 2013 primarily represents the release in the first quarter of 2013 of the substantial majority of 

our valuation allowance against the portion of our deferred tax assets that we attribute to our multifamily segment based on the nature 

of the item.

(6) Calculated based on annualized Multifamily segment guaranty fee income divided by the average multifamily guaranty book of 

business, expressed in basis points.

(7) Calculated based on annualized Multifamily segment credit losses divided by the average multifamily guaranty book of business, 

expressed in basis points.

(8) Consists of multifamily mortgage loans held in our retained mortgage portfolio, multifamily mortgage loans held by consolidated trusts, 

multifamily Fannie Mae MBS issued from unconsolidated trusts held by either third parties or within our retained mortgage portfolio 

and other credit enhancements that we provide on multifamily mortgage assets. Excludes non-Fannie Mae mortgage-related securities 

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

(9) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued (excluding portfolio securitizations) and multifamily loans 

purchased during the period.

(10) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued during the period. Includes (a) issuances of new MBS, 

(b) Fannie Mae portfolio securitization transactions of $632 million and $1.1 billion for the three months ended September 30, 2013 

and 2012, respectively, and $2.1 billion and $3.4 billion for the nine months ended September 30, 2013 and 2012, respectively, and 

(c) conversions of adjustable-rate loans to fixed-rate loans and discount MBS (“DMBS”) to MBS of $24 million and $18 million for the 

three months ended September 30, 2013 and 2012, respectively, and $68 million and $208 million for the nine months ended September 

30, 2013 and 2012, respectively.

(11) Interest expense estimate is based on allocated duration-matched funding costs. Net interest income was reduced by guaranty fees 

allocated to Multifamily from the Capital Markets Group on multifamily loans in Fannie Mae’s retained mortgage portfolio.

(12) Based on unpaid principal balance.

(13) Includes mortgage loans and Fannie Mae MBS guaranteed by the Multifamily segment. Information labeled as of September 30, 2013 

is as of June 30, 2013 and is based on the Federal Reserve’s June 2013 mortgage debt outstanding release, the latest date for which the 

Federal Reserve has estimated mortgage debt outstanding for multifamily residences. Prior period amounts may have been changed to 

reflect revised historical data from the Federal Reserve.

(14) Includes $23.5 billion and $28.1 billion of Fannie Mae multifamily MBS held in the retained mortgage portfolio, the vast majority of 

which have been consolidated to loans in our condensed consolidated balance sheets, as of September 30, 2013 and December 31, 

2012, respectively, and $1.2 billion and $1.3 billion of Fannie Mae MBS collateralized by bonds issued by state and local housing 

finance agencies as of September 30, 2013 and December 31, 2012, respectively.

Pre-tax income increased in the third quarter and first nine months of 2013 compared with the third quarter and first nine 

months of 2012 primarily due to increased guaranty fee income, increased credit-related income and increased gains from 

partnership investments.

Guaranty fee income increased in the third quarter and first nine months of 2013 compared with the third quarter and first 

nine months of 2012 as we continue to acquire loans with higher guaranty fees. Loans with higher guaranty fees have become 

a larger part of our multifamily guaranty book of business, while loans with lower guaranty fees continue to liquidate.

Credit-related income increased in the third quarter and first nine months of 2013 compared with the third quarter and first 

nine months of 2012, primarily due to improvements in default and loss severity trends and improvements in property 

valuations.

Gains from partnership investments increased in the third quarter and first nine months of 2013 compared with the third 

quarter and first nine months of 2012 as the continued strength of national multifamily market fundamentals resulted in 

improved property-level operating performance and increased gains on the sale of investments.

Net income in the third quarter of 2013 included a provision for federal income taxes, as our current estimate of income 

before federal income taxes for 2013 was greater than our estimate as of March 31, 2013. A benefit for federal income taxes 

in the third quarter and first nine months of 2012 was driven by the utilization of tax credits related to LIHTC investments to 

offset our alternative minimum tax liability resulting from our projected 2012 taxable income. Net income in the first nine 
36

months of 2013 included a benefit for federal income taxes that primarily represents the release in the first quarter of 2013 of 

the substantial majority of the valuation allowance against the portion of our deferred tax assets that we attributed to our 

multifamily segment. Those assets primarily related to partnership and other equity investment losses and credits. See “Note 

10, Income Taxes” for additional information.

Multifamily new business volumes decreased in the third quarter and first nine months of 2013 compared with the third 

quarter and first nine months of 2012. Our 2013 conservatorship scorecard includes a goal to reduce the unpaid principal 

balance of new multifamily business relative to 2012 by at least 10% by tightening underwriting, adjusting pricing and 

limiting product offerings, while not increasing the proportion of our retained risk. 

Capital Markets Group Results

Table 16 displays the financial results of our Capital Markets group for the periods indicated. Following the table we discuss 

the Capital Markets group’s financial results and describe the Capital Markets group’s mortgage portfolio. For a discussion of 

the debt issued by the Capital Markets group to fund its investment activities, see “Liquidity and Capital Management.” For a 

discussion of the derivative instruments that the Capital Markets group uses to manage interest rate risk, see “Risk 

Management—Market Risk Management, Including Interest Rate Risk Management—Derivative Instruments” in our 2012 

Form 10-K and “Note 9, Derivative Instruments” in this report and our 2012 Form 10-K. The primary sources of revenue for 

our Capital Markets group are net interest income and fee and other income. Expenses and other items that impact income or 

loss primarily include fair value gains (losses), investment gains, allocated guaranty fee expense and administrative expenses.

Table 16: Capital Markets Group Results

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2013 2012 Variance 2013 2012 Variance

(Dollars in millions)

Net interest income(1)

. . . . . . . . . . . . . . $ 2,311 $ 3,247 $ (936) $ 7,733 $10,231 $ (2,498)

Investment gains, net(2)

. . . . . . . . . . . . 1,590 2,201 (611) 3,837 4,666 (829)

Net other-than-temporary impairments (27) (38) 11 (42) (699) 657

Fair value gains (losses), net(3)

. . . . . . . 371 (961) 1,332 2,087 (3,252) 5,339

Fee and other income . . . . . . . . . . . . . . 525 185 340 1,129 551 578

Other expenses(4)

. . . . . . . . . . . . . . . . . (375) (492) 117 (1,229) (1,578) 349

Income before federal income taxes . . 4,395 4,142 253 13,515 9,919 3,596

(Provision) benefit for federal income 

taxes(5)

. . . . . . . . . . . . . . . . . . . . . . . . (596) (20) (576) 9,484 (20) 9,504

Net income attributable to Fannie Mae $ 3,799 $ 4,122 $ (323) $22,999 $ 9,899 $ 13,100

__________

(1) Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $895 

million and $1.3 billion for the three months ended September 30, 2013 and 2012, respectively, and $3.0 billion and $4.0 billion for the 

nine months ended September 30, 2013 and 2012, respectively. The Capital Markets group’s net interest income is reported based on 

the mortgage-related assets held in the segment’s retained mortgage portfolio and excludes interest income on mortgage-related assets 

held by consolidated MBS trusts that are owned by third parties and the interest expense on the corresponding debt of such trusts.

(2) We include the securities that we own regardless of whether the trust has been consolidated in reporting of gains and losses on 

securitizations and sales of available-for-sale securities.

(3) Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been 

consolidated.

(4) Includes allocated guaranty fee expense, debt extinguishment gains (losses), net, administrative expenses and other (expenses) income. 

Gains or losses related to the extinguishment of debt issued by consolidated trusts are excluded from the Capital Markets group’s results 

because purchases of securities are recognized as such.

(5) The benefit for the first nine months of 2013 primarily represents the release in the first quarter of 2013 of the substantial majority of 

our valuation allowance against the portion of our deferred tax assets that we attribute to our Capital Markets group based on the nature 

of the item. 

Pre-tax income increased in the third quarter and first nine months of 2013 compared with the third quarter and first nine 

months of 2012 primarily due to fair value gains in the third quarter and first nine months of 2013 compared with fair value 

losses in the third quarter and first nine months of 2012, an increase in fee and other income and a decrease in net other-than-
37

temporary impairments. These increases were partially offset by a decrease in net interest income and a decrease in 

investment gains.

Fair value gains in the third quarter and first nine months of 2013 were primarily due to derivatives fair value gains driven by 

an increase in longer-term swap rates during the periods. Fair value losses in the third quarter and first nine months of 2012 

were primarily due to derivatives fair value losses driven by a decrease in swap rates during the periods.

Fee and other income increased in the third quarter and first nine months of 2013 compared with the third quarter and first 

nine months of 2012 primarily as a result of legal settlements related to certain private-label securities recognized in the third 

quarter and first nine months of 2013.

The net other-than-temporary impairments recognized by our Capital Markets group are consistent with our condensed 

consolidated statements of operations and comprehensive income as described in “Consolidated Results of Operations—

Other-Than-Temporary Impairment of Investment Securities.” In addition, see “Note 5, Investments in Securities” for 

information on our other-than-temporary impairments by major security type and primary drivers for other-than-temporary 

impairments recorded during the periods disclosed.

The decrease in net interest income in the third quarter and first nine months of 2013 compared with the third quarter and first 

nine months of 2012 was primarily due to a decrease in our mortgage-related assets and lower interest rates on mortgage 

assets in our Capital Market group’s mortgage portfolio. This decrease in interest income on our interest-earning mortgage 

assets was partially offset by a decline in interest expense due to lower funding needs and lower borrowing rates, which 

allowed us to continue to replace higher-cost debt with lower-cost debt. Our sales of non-agency mortgage-related securities 

will result in a decrease in future net interest income from our retained mortgage portfolio. See “The Capital Markets Group’s 

Mortgage Portfolio” for additional information on our mortgage-related securities.

We supplement our issuance of debt securities with derivative instruments to further reduce duration risk, which includes 

prepayment risk. The effect of these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, 

is not reflected in the Capital Markets group’s net interest income but is included in our results as a component of “Fair value 

gains (losses), net” and is displayed in “Table 8: Fair Value Gains (Losses), Net.” If we had included the economic impact of 

adding the net contractual interest accruals on our interest rate swaps in our Capital Markets group’s interest expense, the 

Capital Markets group’s net interest income would have decreased by $229 million in the third quarter of 2013 compared 

with a decrease of $369 million in the third quarter of 2012 and would have decreased by $610 million in the first nine 

months of 2013 compared with a decrease of $1.1 billion in the first nine months of 2012.

Investment gains decreased in the third quarter and first nine months 2013 compared with the third quarter and first nine 

months of 2012 primarily due to decreased gains on the sale of Fannie Mae MBS AFS securities and decreased gains on 

portfolio securitizations due to an increase in mortgage interest rates in the third quarter and first nine months of 2013. The 

decrease in gains during the third quarter and first nine months of 2013 were partially offset by gains on sales of non-agency 

mortgage-related securities. 

Net income in the third quarter of 2013 included a provision for federal income taxes, as our current estimate of income 

before federal income taxes for 2013 was greater than our estimate as of March 31, 2013. Net income in the first nine months 

of 2013 included a benefit for federal income taxes that primarily represents the release in the first quarter of 2013 of the 

substantial majority of the valuation allowance against the portion of our deferred tax assets that we attributed to our Capital 

Markets group. Those assets primarily related to debt and derivative instruments and mortgage and mortgage-related assets. 

See “Note 10, Income Taxes” for additional information.

The Capital Markets Group’s Mortgage Portfolio

The Capital Markets group’s mortgage portfolio, which we also refer to as our retained mortgage portfolio, consists of 

mortgage loans and mortgage-related securities that we own. Mortgage-related securities held by the Capital Markets group 

include Fannie Mae MBS and non-Fannie Mae mortgage-related securities. The Fannie Mae MBS that we own are 

maintained as securities on the Capital Markets group’s balance sheets. The portion of assets held by consolidated MBS trusts 

that back mortgage-related securities owned by third parties are not included in the Capital Markets group’s mortgage 

portfolio.

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

Treasury. By December 31 of each year, we are required to reduce our mortgage assets to 85% of the maximum allowable 

amount that we were permitted to own as of December 31 of the immediately preceding calendar year, until the amount of 

our mortgage assets reaches $250 billion. Under the agreement, the maximum allowable amount of mortgage assets we may 

own as of December 31, 2013 is $552.5 billion. As we reduce the size of our retained mortgage portfolio, our revenues 

generated by our retained mortgage portfolio will decrease. As of September 30, 2013, we owned $516.3 billion in mortgage 
38

assets, compared with $633.1 billion as of December 31, 2012. Additionally, our 2013 conservatorship scorecard includes a 

goal to sell 5%, or $21.1 billion, of the non-agency mortgage-related assets we held in our retained mortgage portfolio as of 

December 31, 2012. During the first nine months of 2013, we sold $18.9 billion of non-agency mortgage-related assets. For 

additional information regarding our 2013 conservatorship scorecard, see our current report on Form 8-K filed with the SEC 

on March 8, 2013.

Table 17 displays our Capital Markets group’s mortgage portfolio activity for the periods indicated.

Table 17: Capital Markets Group’s Mortgage Portfolio Activity(1)

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

Mortgage loans:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 343,742 $ 386,804 $ 371,708 $ 398,271

Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,882 71,946 191,813 181,631

Securitizations(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,966) (59,661) (170,513) (142,554)

Liquidations and sales(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,253) (19,493) (64,603) (57,752)

Mortgage loans, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328,405 379,596 328,405 379,596

Mortgage securities:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,456 285,982 261,346 310,143

Purchases(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,259 6,959 27,443 17,450

Securitizations(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,966 59,661 170,513 142,554

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78,299) (61,836) (229,359) (148,331)

Liquidations(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,528) (16,093) (42,089) (47,143)

Mortgage securities, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,854 274,673 187,854 274,673

Total Capital Markets group’s mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . $ 516,259 $ 654,269 $ 516,259 $ 654,269

__________

(1) Based on unpaid principal balance.

(2) Includes portfolio securitization transactions that do not qualify for sale treatment under GAAP.

(3) Includes scheduled repayments, prepayments, foreclosures, lender repurchases and sales. 

(4) Includes purchases of Fannie Mae MBS issued by consolidated trusts.
39

Table 18 displays the composition of the Capital Markets group’s mortgage portfolio as of September 30, 2013 and December 

31, 2012. 

Table 18: Capital Markets Group’s Mortgage Portfolio Composition(1)

As of

September 30, December 31,

2013 2012

(Dollars in millions)

Capital Markets group’s mortgage loans:

Single-family loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,941 $ 40,886

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,717 240,791

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,964 10,460

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,043 18,008

Total single-family conventional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,724 269,259

Total single-family loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,665 310,145

Multifamily loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 312

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,828 3,245

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,299 45,662

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,324 12,344

Total multifamily conventional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,451 61,251

Total multifamily loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,740 61,563

Total Capital Markets group’s mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328,405 371,708

Capital Markets group’s mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,240 183,964

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,828 11,274

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 953 1,049

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,494 17,079

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,595 15,093

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,422 20,587

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,808 8,486

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,514 3,814

Total Capital Markets group’s mortgage-related securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,854 261,346

Total Capital Markets group’s mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $516,259 $633,054

__________

(1) Based on unpaid principal balance.

(2) The fair value of these mortgage-related securities was $191.6 billion and $269.9 billion as of September 30, 2013 and December 31, 

2012, respectively.

The Capital Markets group’s mortgage portfolio decreased as of September 30, 2013 compared with December 31, 2012, 

primarily due to sales and liquidations, partially offset by purchases of delinquent loans from MBS trusts, as discussed below. 

Securitizations and sales activities increased in the first nine months of 2013 compared with the first nine months of 2012, 

primarily due to low interest rates and the implementation of changes to HARP in 2012.

We expect to continue to purchase loans from MBS trusts as they become four or more consecutive monthly payments 

delinquent subject to market conditions, economic benefit, servicer capacity, and other factors including the limit on the 
40

mortgage assets that we may own pursuant to our senior preferred stock purchase agreement with Treasury. We purchased 

approximately 145,000 delinquent loans with an unpaid principal balance of $22.3 billion from our single-family MBS trusts 

in the first nine months of 2013. As of September 30, 2013, the total unpaid principal balance of all loans in single-family 

MBS trusts that were delinquent for four or more consecutive monthly payments was $2.4 billion. 

As a result of purchasing these delinquent loans and our portfolio declining to meet the requirements of the senior preferred 

stock purchase agreement, an increasing portion of the Capital Markets group’s mortgage portfolio is comprised of 

nonperforming loans. The total unpaid principal balance of nonperforming loans in the Capital Markets group’s mortgage 

portfolio was $213.8 billion or 41% of the Capital Markets group’s mortgage portfolio as of September 30, 2013, compared 

with $230.3 billion or 36% of the Capital Markets group’s mortgage portfolio as of December 31, 2012. This population 

includes loans that have been modified and classified as TDRs, of which $133.7 billion as of September 30, 2013 and $130.2 

billion as of December 31, 2012 were TDRs on accrual status, as well as unmodified delinquent loans that are on nonaccrual 

status in our condensed consolidated financial statements.

CONSOLIDATED BALANCE SHEET ANALYSIS

This section provides a discussion of our condensed consolidated balance sheets as of the dates indicated and should be read 

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

Table 19 displays a summary of our condensed consolidated balance sheets as of the dates indicated.

Table 19: Summary of Condensed Consolidated Balance Sheets

As of

September 30,

2013

December 31,

2012 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,084 $ 53,617 $ 17,467

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,525 67,919 (36,394)

Investments in securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,860 103,876 (30,016)

Mortgage loans:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,224 355,936 (41,712)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,744,125 2,652,265 91,860

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,169) (58,795) 13,626

Mortgage loans, net of allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . 3,013,180 2,949,406 63,774

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,256 — 48,256

Other assets(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,317 47,604 (4,287)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,281,222 $ 3,222,422 $ 58,800

Liabilities and equity

Debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 565,110 $ 615,864 $ (50,754)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,675,011 2,573,653 101,358

Other liabilities(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,484 25,681 3,803

Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,269,605 3,215,198 54,407

Senior preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,149 117,149 —

Other deficit(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,532) (109,925) 4,393

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,617 7,224 4,393

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,281,222 $ 3,222,422 $ 58,800

__________

(1) Includes $16.4 billion as of September 30, 2013 and $18.0 billion as of December 31, 2012 of non-mortgage-related securities that are 

included in our other investments portfolio, which we present in “Table 27: Cash and Other Investments Portfolio.”

(2) Consists of accrued interest receivable, net; acquired property, net; and other assets.

(3) Consists of accrued interest payable and other liabilities.
41

(4) Consists of preferred stock, common stock, accumulated deficit, accumulated other comprehensive income, treasury stock, and 

noncontrolling interest.

Cash and Other Investments Portfolio

Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and securities purchased 

under agreements to resell or similar arrangements, and investments in non-mortgage-related securities. See “Liquidity and 

Capital Management—Liquidity Management—Cash and Other Investments Portfolio” for additional information on our 

cash and other investments portfolio.

Restricted Cash

Restricted cash primarily includes unscheduled borrower payments received by the servicer or consolidated trusts due to be 

remitted to the MBS certificateholders in the subsequent month. Our restricted cash decreased as of September 30, 2013

compared with the balance as of December 31, 2012, resulting from a decrease in unscheduled payments received due to 

lower payoff volumes in September 2013 compared with December 2012.

Investments in Mortgage-Related Securities

Our investments in mortgage-related securities are classified in our condensed consolidated balance sheets as either trading or 

available-for-sale and are measured at fair value. Unrealized and realized gains and losses on trading securities are included 

as a component of “Fair value gains (losses), net” and unrealized gains and losses on available-for-sale securities are included 

in “Other comprehensive (loss) income” in our condensed consolidated statements of operations and comprehensive income. 

Realized gains and losses on available-for-sale securities are recognized when securities are sold in “Investment gains, net” in 

our condensed consolidated statements of operations and comprehensive income. We recognize the credit component of 

other-than-temporary impairments of debt securities we own and unrealized losses of debt securities we own and intend to 

sell before we recover such losses in “Net other-than-temporary impairments.” We recognize the noncredit component of 

other-than-temporary impairments in “Other comprehensive (loss) income” in our condensed consolidated statements of 

operations and comprehensive income for those securities that we do not intend to sell and for which it is not more likely than 

not that we will be required to sell before recovery. 

Table 20 displays the fair value of our investments in mortgage-related securities, including trading and available-for-sale 

securities, as of the dates indicated. We classify private-label securities as Alt-A, subprime, CMBS or manufactured housing 

if the securities were labeled as such when issued. We have also invested in subprime private-label mortgage-related 

securities that we have resecuritized to include our guaranty (“wraps”).

Table 20: Summary of Mortgage-Related Securities at Fair Value

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,280 $ 16,683

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,427 12,173

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,057 1,188

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,894 12,405

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,376 8,766

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,960 22,923

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,397 8,517

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,073 3,271

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,464 $ 85,926

During the first nine months of 2013, we sold $18.1 billion of non-agency mortgage-related securities. See “Business 

Segment Results—Capital Markets Group Results—The Capital Markets Group’s Mortgage Portfolio” for additional 

information on the requirements that we reduce our retained mortgage portfolio.
42

See “Note 5, Investments in Securities” for additional information on our investments in mortgage-related securities, 

including the composition of our trading and available-for-sale securities at amortized cost and fair value and the gross 

unrealized gains and losses related to our available-for-sale securities as of September 30, 2013 and December 31, 2012. 

Mortgage Loans

The increase in mortgage loans, net of the allowance for loan losses, as of September 30, 2013 compared with the balance as 

of December 31, 2012 was primarily driven by securitization activity from our lender swap and portfolio securitization 

programs. For additional information on our mortgage loans, see “Note 3, Mortgage Loans.” For additional information on 

the mortgage loan purchase and sale activities reported by our Capital Markets group, see “Business Segment Results—

Capital Markets Group Results.” 

Deferred Tax Assets, Net

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying 

amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards 

and tax credit carryforwards. For additional information on our deferred tax assets and liabilities, see “Note 10, Income 

Taxes.”

Debt 

Debt of Fannie Mae is the primary means of funding our mortgage investments. We provide 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 in “Liquidity and 

Capital Management—Liquidity Management—Debt Funding.” Also see “Note 8, Short-Term Borrowings and Long-Term 

Debt” for additional information on our outstanding debt.

Debt of consolidated trusts represents the amount of Fannie Mae MBS issued from consolidated trusts and held by third-party 

certificateholders. The increase in debt of consolidated trusts as of September 30, 2013 compared with the balance as of 

December 31, 2012 was primarily driven by securitization activity from our lender swap and portfolio securitization 

programs.

Stockholders’ Equity

Our net equity increased as of September 30, 2013 compared with December 31, 2012. See “Table 21: Comparative 

Measures—GAAP Change in Stockholders’ Equity and Non-GAAP Change in Fair Value of Net Assets (Net of Tax Effect)” 

for details of the change in our net equity.

SUPPLEMENTAL NON-GAAP INFORMATION—FAIR VALUE BALANCE SHEETS

As part of our disclosure requirements with FHFA, we disclose on a quarterly basis supplemental non-GAAP consolidated 

fair value balance sheets, which reflect our assets and liabilities at estimated fair value. 

Table 21 summarizes changes in our stockholders’ equity reported in our GAAP condensed consolidated balance sheets and 

in the estimated fair value of our net assets in our non-GAAP consolidated fair value balance sheets for the nine months 

ended September 30, 2013. The estimated fair value of our net assets is calculated based on the difference between the fair 

value of our assets and the fair value of our liabilities, adjusted for noncontrolling interests. We use various valuation 

techniques to estimate fair value, some of which incorporate internal assumptions that are subjective and involve a high 

degree of management judgment. We describe the specific valuation techniques used to determine fair value and disclose the 

carrying value and fair value of our financial assets and liabilities in “Note 16, Fair Value.”
43

Table 21: Comparative Measures—GAAP Change in Stockholders’ Equity and Non-GAAP Change in Fair Value of 

Net Assets (Net of Tax Effect)

For the Nine Months

Ended September 30, 2013

(Dollars in millions)

GAAP consolidated balance sheets:

Fannie Mae stockholders’ equity as of December 31, 2012(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,183

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,210

Senior preferred stock dividend paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,835)

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Fannie Mae stockholders’ equity as of September 30, 2013(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,568

Non-GAAP consolidated fair value balance sheets:

Estimated fair value of net assets as of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (66,492)

Senior preferred stock dividend paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,835)

Senior preferred stock dividend payable(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,617)

Increase in deferred tax assets, net(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,256

Change in estimated fair value of net assets excluding the senior preferred stock dividend paid, the

senior preferred stock dividend payable and the increase in deferred tax assets . . . . . . . . . . . . . . . . 60,781

Increase in estimated fair value of net assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,585

Estimated fair value of net assets as of September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (39,907)

__________

(1) Our net worth, as defined under the senior preferred stock purchase agreement, is equivalent to the “Total equity” amount reported in 

our condensed consolidated balance sheets, which consists of “Total Fannie Mae stockholders’ equity” and “Noncontrolling interest.”

(2) Represents the dividend payment we will pay Treasury in the fourth quarter of 2013 under the senior preferred stock purchase 

agreement, which, for purposes of our non-GAAP fair value balance sheets, we present as a liability. Under the terms of the senior 

preferred stock purchase agreement, starting January 1, 2013, we are required to pay Treasury each quarter a dividend, when, as and if 

declared, equal to the excess of our net worth as of the end of the preceding quarter over an applicable capital reserve. 

(3) Represents an increase in the carrying value of our deferred tax assets, net as of September 30, 2013 compared with December 31, 

2012, as we released the substantial majority of our valuation allowance against our deferred tax assets in the first quarter of 2013.

During the first nine months of 2013, the estimated fair value of our net assets (excluding the senior preferred stock dividend 

paid, the senior preferred stock dividend payable and the increase in deferred tax assets) increased by approximately $61 

billion. This increase was primarily driven by an improvement in credit-related items due to overall improved housing market 

and economic conditions, including higher actual and expected home prices experienced in the first nine months of 2013, 

which lowered the expected losses on our guaranty book of business. We estimate that home prices increased by 9.2% in the 

first nine months of 2013. Changes in single-family home prices, regardless of magnitude, may cause volatility in our fair 

value measurements due to our $2.9 trillion single-family guaranty book of business. 

The income from the interest spread between our mortgage assets and associated debt and derivatives during the first nine 

months of 2013 contributed to the increase in the estimated fair value of our net assets. In addition, the tightening of optionadjusted spreads during the first nine months of 2013 increased the estimated fair value of our portfolio, resulting in an 

increase in our net assets.

The increase in the estimated fair value of our net assets was partially offset by a decrease in the estimated fair value of our 

mortgage loans. This reflects the change in the fair value of our loan portfolio that is associated with recent increases in the 

guaranty fees that we charge in the GSE securitization market. As the guaranty fees we charge in the GSE securitization 

market increase, the fair value of our mortgage loans that are held in our portfolio will decrease because the current market 

rate of compensation for exposure to credit risk is now higher than the compensation that we are receiving for exposure to 

credit risk on the loans that are held in our mortgage portfolio. 
44

Cautionary Language Relating to Supplemental Non-GAAP Financial Measures

In reviewing our non-GAAP consolidated fair value balance sheets, there are a number of important factors and limitations to 

consider. The estimated fair value of our net assets is calculated as of a particular point in time based on our existing assets 

and liabilities. It does not incorporate other factors that may have a significant impact on our long-term fair value, including 

revenues generated from future business activities in which we expect to engage, the value from our foreclosure and loss 

mitigation efforts or the impact that legislation or potential regulatory actions may have on us. As a result, the estimated fair 

value of our net assets presented in our non-GAAP consolidated fair value balance sheets does not represent an estimate of 

our net realizable value, liquidation value or our market value as a whole. Amounts we ultimately realize from the disposition 

of assets or settlement of liabilities may vary materially from the estimated fair values presented in our non-GAAP

consolidated fair value balance sheets.

In addition, the fair value of our net assets presented in our fair value balance sheet does not represent an estimate of the 

value we expect to realize from operating the company, primarily because:

• The estimated fair value of our credit exposures significantly exceeds the projected credit losses we would expect to 

incur if we were to retain the credit exposure, as fair value takes into account certain assumptions about liquidity 

and required rates of return that a market participant may demand in assuming a credit obligation, and

• The fair value of our net assets reflects a point in time estimate of the fair value of our existing assets and liabilities, 

and does not incorporate the value associated with new business that may be added in the future. 

The fair value of our net assets is not a measure defined within GAAP and may not be comparable to similarly titled measures 

reported by other companies.

Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

We display our non-GAAP fair value balance sheets as of the dates indicated in Table 22.
45

Table 22: Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

As of September 30, 2013 As of December 31, 2012

GAAP

Carrying

Value

Fair Value 

Adjustment(1)

Estimated

Fair Value

GAAP

Carrying

Value

Fair Value 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Assets:

Cash and cash equivalents . . . . . . . . . . . $ 62,309 $ — $ 62,309 $ 89,036 $ — $ 89,036

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements. . . . . . . . . . . 40,300 — 40,300 32,500 — 32,500

Trading securities. . . . . . . . . . . . . . . . . . 32,860 — 32,860 40,695 — 40,695

Available-for-sale securities. . . . . . . . . . 41,000 — 41,000 63,181 — 63,181

Mortgage loans:

Mortgage loans held for sale. . . . . . . . 998 27 1,025 464 11 475

Mortgage loans held for investment,

net of allowance for loan losses:

Of Fannie Mae . . . . . . . . . . . . . . . . 271,923 (14,560) 257,363 305,025 (33,837) 271,188

Of consolidated trusts. . . . . . . . . . . 2,740,259 14,186 (2) 2,754,445 (3) 2,643,917 118,511 (2) 2,762,428 (3)

Total mortgage loans. . . . . . . . . . . . . . 3,013,180 (347) 3,012,833 (4) 2,949,406 84,685 3,034,091 (4)

Advances to lenders. . . . . . . . . . . . . . . . 3,633 (35) 3,598 (5)(6) 7,592 (84) 7,508 (5)(6)

Derivative assets at fair value . . . . . . . . 2,019 — 2,019 (5)(6) 435 — 435 (5)(6)

Guaranty assets and buy-ups, net. . . . . . 271 413 684 (5)(6) 327 365 692 (5)(6)

Total financial assets. . . . . . . . . . . . . . 3,195,572 31 3,195,603 (7) 3,183,172 84,966 3,268,138 (7)

Credit enhancements . . . . . . . . . . . . . . . 526 712 1,238 (5)(6) 488 997 1,485 (5)(6)

Deferred tax assets, net . . . . . . . . . . . . . 48,256 — 48,256 (8) — — —

Other assets . . . . . . . . . . . . . . . . . . . . . . 36,868 (221) 36,647 (5)(6) 38,762 (244) 38,518 (5)(6)

Total assets . . . . . . . . . . . . . . . . . . . . . $ 3,281,222 $ 522 $ 3,281,744 $ 3,222,422 $ 85,719 $ 3,308,141

Liabilities:

 Short-term debt:

Of Fannie Mae. . . . . . . . . . . . . . . . . . $ 77,813 $ 17 $ 77,830 $ 105,233 $ 20 $ 105,253

Of consolidated trusts . . . . . . . . . . . . 2,297 — 2,297 3,483 — 3,483

 Long-term debt:

Of Fannie Mae. . . . . . . . . . . . . . . . . . 487,297 (9) 11,711 499,008 510,631 (9) 24,941 535,572

Of consolidated trusts . . . . . . . . . . . . 2,672,714 (9) 31,524 (2) 2,704,238 2,570,170 (9) 131,009 (2) 2,701,179

Derivative liabilities at fair value. . . . . . 2,361 — 2,361 (10)(11) 705 — 705 (10)(11)

Guaranty obligations . . . . . . . . . . . . . . . 502 1,970 2,472 (10)(11) 599 2,514 3,113 (10)(11)

Total financial liabilities. . . . . . . . . . . 3,242,984 45,222 3,288,206 (7) 3,190,821 158,484 3,349,305 (7)

Senior preferred stock dividend payable — 8,617 8,617 (12) — — —

Other liabilities. . . . . . . . . . . . . . . . . . . . 26,621 (1,842) 24,779 (10)(11) 24,377 910 25,287 (10)(11)

(13)

Total liabilities . . . . . . . . . . . . . . . . . . 3,269,605 51,997 3,321,602 3,215,198 159,394 3,374,592

Equity (deficit):

Fannie Mae stockholders’ equity

(deficit):

Senior preferred(14)

. . . . . . . . . . . . . . . . . 117,149 — 117,149 117,149 — 117,149

Preferred. . . . . . . . . . . . . . . . . . . . . . . . . 19,130 (14,925) 4,205 19,130 (17,938) 1,192

Common. . . . . . . . . . . . . . . . . . . . . . . . . (124,711) (36,550) (161,261) (15) (129,096) (55,737) (184,833)

Total Fannie Mae stockholders’

equity (deficit)/non-GAAP fair

value of net assets . . . . . . . . . . . . $ 11,568 $ (51,475) $ (39,907) $ 7,183 $ (73,675) $ (66,492)

Noncontrolling interest . . . . . . . . . . . 49 — 49 41 — 41

Total equity (deficit) . . . . . . . . . . . . . 11,617 (51,475) (39,858) 7,224 (73,675) (66,451)

Total liabilities and equity (deficit). . $ 3,281,222 $ 522 $ 3,281,744 $ 3,222,422 $ 85,719 $ 3,308,141
46

__________

Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures

(1) Each of the amounts listed as a “fair value adjustment” represents the difference between the carrying value included in our GAAP

condensed consolidated balance sheets and our best judgment of the estimated fair value of the listed item.

(2) Fair value of consolidated loans is impacted by credit risk, which has no corresponding impact on the consolidated debt.

(3) Includes certain mortgage loans that we elected to report at fair value in our GAAP condensed consolidated balance sheets of $13.9 

billion and $10.8 billion as of September 30, 2013 and December 31, 2012, respectively.

(4) Performing loans had a fair value and an unpaid principal balance of $2.9 trillion as of September 30, 2013, compared with a fair value 

of $2.9 trillion and an unpaid principal balance of $2.8 trillion as of December 31, 2012. Nonperforming loans, which for the purposes 

of our non-GAAP fair value balance sheets consists of loans that are delinquent by one or more payments, had a fair value of $103.1 

billion and an unpaid principal balance of $152.7 billion as of September 30, 2013, compared with a fair value of $112.3 billion and an 

unpaid principal balance of $189.9 billion as of December 31, 2012. See “Note 16, Fair Value” for additional information on valuation 

techniques for performing and nonperforming loans.

(5) The following line items: (a) Advances to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; (d) Credit 

enhancements; and (e) Other assets, together consist of the following assets presented in our GAAP condensed consolidated balance 

sheets: (a) Accrued interest receivable, net; (b) Acquired property, net; and (c) Other assets.

(6) “Other assets” include the following GAAP condensed consolidated balance sheets line items: (a) Accrued interest receivable, net and 

(b) Acquired property, net. The carrying value of these items in our GAAP condensed consolidated balance sheets totaled $20.1 billion

and $19.7 billion as of September 30, 2013 and December 31, 2012, respectively. “Other assets” in our GAAP condensed consolidated 

balance sheets include the following: (a) Advances to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; 

and (d) Credit enhancements. The carrying value of these items totaled $6.4 billion and $8.8 billion as of September 30, 2013 and 

December 31, 2012, respectively. 

(7) We estimated the fair value of these financial instruments in accordance with the fair value accounting guidance as described in “Note 

16, Fair Value.”

(8) The amount included in “estimated fair value” of deferred tax assets, net represents the GAAP carrying value and does not reflect fair 

value.

(9) Includes certain long-term debt instruments that we elected to report at fair value in our GAAP condensed consolidated balance sheets 

of $15.1 billion and $12.4 billion as of September 30, 2013 and December 31, 2012, respectively. 

(10) The following line items: (a) Derivative liabilities at fair value; (b) Guaranty obligations; and (c) Other liabilities, consist of the 

following liabilities presented in our GAAP condensed consolidated balance sheets: (a) Accrued interest payable and (b) Other 

liabilities.

(11) “Other liabilities” include accrued interest payable in our GAAP condensed consolidated balance sheets. The carrying value of this item 

in our GAAP condensed consolidated balance sheets totaled $10.8 billion and $11.3 billion as of September 30, 2013 and December 31, 

2012, respectively. We assume that certain other liabilities, such as deferred revenues, have no fair value. Although we report the 

“Reserve for guaranty losses” as part of “Other liabilities” in our GAAP condensed consolidated balance sheets, it is incorporated into 

and reported as part of the fair value of our guaranty obligations in our non-GAAP supplemental consolidated fair value balance sheets. 

“Other liabilities” in our GAAP condensed consolidated balance sheets include the following: (a) Derivative liabilities at fair value and 

(b) Guaranty obligations. The carrying value of these items totaled $2.9 billion and $1.3 billion as of September 30, 2013 and 

December 31, 2012. 

(12) Represents the dividend payment we will pay to Treasury under the senior preferred stock purchase agreement, which, for purposes of 

our non-GAAP fair balance sheets, we present as a liability.

(13) Includes the estimated fair value of our liability to Treasury for TCCA-related guaranty fee payments over the expected life of the 

loans. As of September 30, 2013, the estimated fair value of TCCA-related guaranty fee payments is included in the line item 

“Mortgage loans held for investment—Of consolidated trusts.”

(14) The amount included in “estimated fair value” of the senior preferred stock is the liquidation preference, which is the same as the 

GAAP carrying value, and does not reflect fair value.

(15) Includes the dividend payment we will pay to Treasury under the senior preferred stock purchase agreement, which, for purposes of our 

non-GAAP fair value balance sheets, we present as a liability.

LIQUIDITY AND CAPITAL MANAGEMENT

Liquidity Management

Our business activities require that we maintain adequate liquidity to fund our operations. Our liquidity risk management 

policy is designed to address our liquidity risk. Liquidity risk is the risk that we will not be able to meet our funding 

obligations in a timely manner. Liquidity risk management involves forecasting funding requirements, maintaining sufficient 
47

capacity to meet our needs based on our ongoing assessment of financial market liquidity and adhering to our regulatory 

requirements. 

Our treasury function is responsible for implementing our liquidity and contingency planning strategies. We conduct liquidity 

contingency planning to prepare for an event in which our access to the unsecured debt markets becomes limited. We plan for 

alternative sources of liquidity that are designed to allow us to meet our cash obligations without relying upon the issuance of 

unsecured debt. While our liquidity contingency planning attempts to address stressed market conditions, we believe that our 

liquidity contingency plan may be difficult or impossible to execute for a company of our size and circumstances.

See “Liquidity and Capital Management—Liquidity Management—Liquidity Risk Management Practices and Contingency 

Planning” in our 2012 Form 10-K for a discussion of our liquidity contingency plans. Also see “Risk Factors” in our 2012 

Form 10-K for a description of the risks associated with our liquidity risk and liquidity contingency planning.

Our liquidity position could be adversely affected by many factors, both internal and external to our business, including: 

actions taken by our conservator, the Federal Reserve, U.S. Treasury or other government agencies; legislation relating to us 

or our business; a U.S. government payment default on its debt obligations; a downgrade in the credit ratings of our senior 

unsecured debt or the U.S government’s debt from the major ratings organizations; a systemic event leading to the 

withdrawal of liquidity from the market; an extreme market-wide widening of credit spreads; public statements by key policy 

makers; a significant decline in our net worth; potential investor concerns about the adequacy of funding available to us 

under the senior preferred stock purchase agreement; loss of demand for our debt, or certain types of our debt, from a major 

group of investors; a significant credit event involving one of our major institutional counterparties; a sudden catastrophic 

operational failure in the financial sector; or elimination of our GSE status. 

Debt Funding

We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and 

international capital markets. Because debt issuance is our primary funding source, we are subject to “roll-over,” or 

refinancing, risk on our outstanding debt.

We have a diversified funding base of domestic and international investors. Purchasers of our debt securities are 

geographically diversified and include fund managers, commercial banks, pension funds, insurance companies, foreign 

central banks, corporations, state and local governments, and other municipal authorities.

Our debt funding needs may vary from quarter to quarter depending on market conditions and are influenced by anticipated 

liquidity needs, the size of our retained mortgage portfolio and our dividend payment obligations to Treasury. Under the 

senior preferred stock purchase agreement, we are required to reduce our retained mortgage portfolio to $552.5 billion by 

December 31, 2013 and, by December 31 of each year thereafter, to 85% of the maximum allowable amount that we were 

permitted to own as of December 31 of the immediately preceding calendar year, until the amount of our mortgage assets 

reaches $250 billion. 

Fannie Mae Debt Funding Activity

Table 23 displays the activity in debt of Fannie Mae for the periods indicated. 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, respectively. Activity for short-term debt of Fannie Mae relates to borrowings with an 

original contractual maturity of one year or less while activity for long-term debt of Fannie Mae relates to borrowings with an 

original contractual maturity of greater than one year.
48

Table 23: Activity in Debt of Fannie Mae

For the Three Months 

Ended September 30,

For the Nine Months

Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

Issued during the period:

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,759 $ 81,621 $182,624 $181,226

Weighted-average interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.07% 0.12% 0.11% 0.12%

Long-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,164 $ 66,205 $125,461 $191,150

Weighted-average interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.18% 1.10% 1.05% 1.26%

Total issued:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,923 $147,826 $308,085 $372,376

Weighted-average interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.43% 0.56% 0.49% 0.70%

Paid off during the period:(1)

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,755 $ 69,619 $210,015 $222,937

Weighted-average interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.11% 0.10% 0.13% 0.11%

Long-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,551 $ 86,116 $149,511 $232,351

Weighted-average interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.52% 1.57% 1.82% 2.19%

Total paid off:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,306 $155,735 $359,526 $455,288

Weighted-average interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.58% 0.91% 0.83% 1.17%

__________

(1) 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.

Debt issuances decreased during the third quarter and first nine months of 2013 compared with the third quarter and first nine 

months of 2012 primarily due to lower funding needs as our retained mortgage portfolio decreased. Redemptions of callable 

debt decreased during the third quarter and first nine months of 2013 compared with the third quarter and first nine months of 

2012 due to increased interest rates.

We believe that continued federal government support of our business and the financial markets, as well as our status as a 

GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in federal government support of 

our business and the financial markets or our status as a GSE could materially and adversely affect our liquidity, financial 

condition and results of operations. For more information on GSE reform, see “Legislative and Regulatory Developments—

GSE Reform” in this report, in our Second Quarter 2013 Form 10-Q and in our 2012 Form 10-K, and in “Risk Factors” in our 

2012 Form 10-K.

In addition, due to our reliance on the U.S. government’s support, our access to debt funding or the cost of our debt funding 

could be materially adversely affected by a change or perceived change in the creditworthiness of the U.S. government. A

downgrade in our credit ratings could reduce demand for our debt securities and increase our borrowing costs. See our 

discussion of credit ratings in “Risk Factors” for information about factors that may lead to the U.S. government’s long-term 

debt rating being lowered, and “Credit Ratings” for further discussion of our dependence on our credit ratings.

Future changes or disruptions in the financial markets could significantly change the amount, mix and cost of funds we 

obtain, which also could increase our liquidity and roll-over risk and have a material adverse impact on our liquidity, 

financial condition and results of operations. See “Risk Factors” in our 2012 Form 10-K for a discussion of the risks we face 

relating to (1) the uncertain future of our company; (2) our reliance on the issuance of debt securities to obtain funds for our 

operations and the relative cost to obtain these funds; and (3) our liquidity contingency plans.
49

Outstanding Debt

Total outstanding debt of Fannie Mae includes short-term and long-term debt, excluding debt of consolidated trusts. 

Our outstanding short-term debt, based on its original contractual maturity, as a percentage of our total outstanding debt was 

14% as of September 30, 2013 and 17% as of December 31, 2012. For information on our outstanding debt maturing within 

one year, including the current portion of our long-term debt, as a percentage of our total debt, see “Maturity Profile of 

Outstanding Debt of Fannie Mae.” In addition, the weighted-average interest rate on our long-term debt, based on its original 

contractual maturity, decreased to 2.09% as of September 30, 2013 from 2.25% as of December 31, 2012.

Pursuant to the terms of the senior preferred stock purchase agreement, we are prohibited from issuing debt without the prior 

consent of Treasury if it would result in our aggregate indebtedness exceeding our outstanding debt limit, which is 120% of 

the amount of mortgage assets we were allowed to own on December 31 of the immediately preceding calendar year. Our 

debt limit under the senior preferred stock purchase agreement was reduced to $780.0 billion in 2013. As of September 30, 

2013, our aggregate indebtedness totaled $570.1 billion, which was $209.9 billion below our debt limit. The calculation of 

our indebtedness for purposes of complying with our debt limit reflects the unpaid principal balance and excludes debt basis 

adjustments and debt of consolidated trusts. Because of our debt limit, we may be restricted in the amount of debt we issue to 

fund our operations.
50

Table 24 displays information as of the dates indicated on our outstanding short-term and long-term debt based on its original 

contractual terms. 

Table 24: Outstanding Short-Term Borrowings and Long-Term Debt(1)

As of

September 30, 2013 December 31, 2012

Maturities Outstanding

WeightedAverage

Interest

Rate Maturities Outstanding

WeightedAverage

Interest

Rate

(Dollars in millions)

Short-term debt:

Fixed-rate:

Discount notes . . . . . . . . . . . . . . . . . . . — $ 77,470 0.11% — $ 104,730 0.15%

Foreign exchange discount notes . . . . . — 343 1.41 — 503 1.61

Total short-term debt of Fannie Mae(2)

. . . . . 77,813 0.12 105,233 0.16

Debt of consolidated trusts. . . . . . . . . . . . — 2,297 0.10 — 3,483 0.15

Total short-term debt . . . . . . . . . . . . . . . . . . . $ 80,110 0.11% $ 108,716 0.16%

Long-term debt:

Senior fixed:

Benchmark notes and bonds. . . . . . . . 2013 - 2030 $ 223,724 2.46% 2013 - 2030 $ 251,768 2.59%

Medium-term notes(3)

. . . . . . . . . . . . . 2013 - 2023 174,741 1.24 2013 - 2022 172,288 1.35

Foreign exchange notes and bonds. . . 2021 - 2028 691 5.28 2021 - 2028 694 5.44

Other(4)(5)

. . . . . . . . . . . . . . . . . . . . . . . 2013 - 2038 39,082 4.95 2013 - 2038 40,819 4.99

Total senior fixed . . . . . . . . . . . . . 438,238 2.20 465,569 2.35

Senior floating:

Medium-term notes(3)

. . . . . . . . . . . . . 2013 - 2019 43,895 0.21 2013 - 2019 38,633 0.27

Other(4)(5)

. . . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 289 7.83 2020 - 2037 365 8.22

Total senior floating . . . . . . . . . . . 44,184 0.26 38,998 0.33

Subordinated fixed:

Qualifying subordinated. . . . . . . . . . . 2014 1,168 5.27 2013 - 2014 2,522 5.00

Subordinated debentures(6)

. . . . . . . . . 2019 3,427 9.92 2019 3,197 9.92

Total subordinated fixed. . . . . . . . 4,595 8.74 5,719 7.75

Secured borrowings(7)

. . . . . . . . . . . . . . . 2021 - 2022 280 1.86 2021 - 2022 345 1.87

Total long-term debt of Fannie Mae(8)

. . . . . . 487,297 2.09 510,631 2.25

Debt of consolidated trusts(5)

. . . . . . . . . . 2013 - 2053 2,672,714 3.21 2013 - 2052 2,570,170 3.36

Total long-term debt. . . . . . . . . . . . . . . . . . . . $ 3,160,011 3.03% $ 3,080,801 3.18%

Outstanding callable debt of Fannie Mae(9)

. . $ 180,510 1.53% $ 177,784 1.64%

__________

(1) Outstanding debt amounts and weighted-average interest rates reported in this table include the effect of unamortized discounts, 

premiums and other cost basis adjustments. Reported amounts include fair value gains and losses associated with debt that we elected 

to carry at fair value. The unpaid principal balance of outstanding debt of Fannie Mae, which excludes unamortized discounts, 

premiums and other cost basis adjustments, and debt of consolidated trusts, totaled $570.2 billion and $621.8 billion as of 

September 30, 2013 and December 31, 2012, respectively.

(2) 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. Reported amounts include a net unamortized discount, fair value adjustments and other 

cost basis adjustments of $25 million and $33 million as of September 30, 2013 and December 31, 2012, respectively.

(3) Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.

(4) Includes long-term debt that is not included in other debt categories.

(5) Includes a portion of structured debt instruments that is reported at fair value.

(6) Consists of subordinated debt with an interest deferral feature.
51

(7) Represents remaining liability for transfer of financial assets from our condensed consolidated balance sheets that did not qualify as a 

sale.

(8) Long-term debt of Fannie Mae consists of borrowings with an original contractual maturity of greater than one year. Reported amounts 

include the current portion of long-term debt that is due within one year, which totaled $95.5 billion and $103.2 billion as of 

September 30, 2013 and December 31, 2012, respectively. Reported amounts also include a net unamortized discount, fair value 

adjustments and other cost basis adjustments of $5.1 billion and $6.0 billion as of September 30, 2013 and December 31, 2012, 

respectively. The unpaid principal balance of long-term debt of Fannie Mae, which excludes unamortized discounts, premiums, fair 

value adjustments and other cost basis adjustments and amounts related to debt of consolidated trusts, totaled $492.4 billion and $516.5 

billion as of September 30, 2013 and December 31, 2012, respectively.

(9) Consists of long-term callable debt of Fannie Mae that can be paid off in whole or in part at our option or the option of the investor at 

any time on or after a specified date. Includes the unpaid principal balance, and excludes unamortized discounts, premiums and other 

cost basis adjustments.

Maturity Profile of Outstanding Debt of Fannie Mae

Table 25 displays the maturity profile, as of September 30, 2013, of our outstanding debt maturing within one year, including 

the current portion of our long-term debt and amounts we have announced for early redemption. Our outstanding debt 

maturing within one year, as a percentage of our total outstanding debt, excluding debt of consolidated trusts, was 31% as of 

September 30, 2013 and 34% as of December 31, 2012. The weighted-average maturity of our outstanding debt that is 

maturing within one year was 143 days as of September 30, 2013, compared with 130 days as of December 31, 2012.

Table 25: Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year(1)

_________

(1) Includes unamortized discounts, premiums and other cost basis adjustments of $250 million as of September 30, 2013. Excludes debt of 

consolidated trusts maturing within one year of $3.8 billion as of September 30, 2013.

Table 26 displays the maturity profile, as of September 30, 2013, of the portion of our long-term debt that matures in more 

than one year, on a quarterly basis for one year and on an annual basis thereafter, excluding amounts we have announced for 

early redemption within one year. The weighted-average maturity of our outstanding debt maturing in more than one year 

was approximately 59 months as of September 30, 2013 and approximately 61 months as of December 31, 2012.
52

Table 26: Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year(1)

_________

(1) Includes unamortized discounts, premiums and other cost basis adjustments of $4.9 billion as of September 30, 2013. Excludes debt of 

consolidated trusts of $2.7 trillion as of September 30, 2013.

We intend to repay our short-term and long-term debt obligations as they become due primarily through proceeds from the 

issuance of additional debt securities. We also may use proceeds from our mortgage assets to pay our debt obligations.

Cash and Other Investments Portfolio

Our cash and other investments portfolio increased from December 31, 2012 to September 30, 2013. The balance of our cash 

and other investments portfolio fluctuates based on changes in our cash flows, overall liquidity in the fixed income markets 

and our liquidity risk management policies and practices. See “Risk Management—Credit Risk Management—Institutional 

Counterparty Credit Risk Management—Issuers of Investments Held in our Cash and Other Investments Portfolio” for 

additional information on the risks associated with the assets in our cash and other investments portfolio.

Table 27 displays information on the composition of our cash and other investments portfolio as of the dates indicated.

Table 27: Cash and Other Investments Portfolio

As of

September 30,

2013

December 31,

2012

(Dollars in millions)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,784 $ 21,117

Federal funds sold and securities purchased under agreements to resell or similar arrangements . 40,300 32,500

U.S. Treasury securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,396 17,950

Total cash and other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,480 $ 71,567

__________

(1) As of September 30, 2013, we held no U.S. Treasury securities that had a maturity at the date of acquisition of three months or less and 

would therefore be recognized in cash and cash equivalents. As of December 31, 2012, this balance excludes $1.1 billion of U.S. 

Treasury securities, which are a component of cash equivalents. 

Credit Ratings

Our credit ratings from the major credit ratings organizations, as well as the credit ratings of the U.S. government, are 

primary factors that could affect our ability to access the capital markets and our cost of funds. In addition, our credit ratings 

are important when we seek to engage in certain long-term transactions, such as derivative transactions. Standard & Poor’s 

Ratings Services (“S&P”), Moody’s Investors Service (“Moody’s”) and Fitch Ratings Limited (“Fitch”) have all indicated 

that, if they were to lower the sovereign credit ratings on the U.S, they would likely lower their ratings on the debt of Fannie 
53

Mae and certain other government-related entities. We cannot predict whether one or more of these ratings agencies will 

lower our debt ratings in the future. See “Risk Factors” for a discussion of the possibility of further downgrades and the risks 

to our business relating to a decrease in our credit ratings, which could include an increase in our borrowing costs, limits on 

our ability to issue debt, and additional collateral requirements under our derivatives contracts.

While there have been no changes in our credit ratings from December 31, 2012 to October 31, 2013, on October 16, 2013, 

Fitch placed our long-term senior debt, short-term senior debt, and qualifying subordinated debt ratings on “Rating Watch 

Negative,” following a similar action on the debt ratings of the U.S. government. A rating being placed on Rating Watch is 

typically event-driven and indicates there is a heightened probability of a rating change. Fitch noted that it placed our longterm debt, short-term debt, and qualifying subordinated debt on “Rating Watch Negative” due to our direct financial support 

from the U.S. government. 

Table 28 displays the credit ratings issued by the three major credit rating agencies as of October 30, 2013. 

Table 28: Fannie Mae Credit Ratings

As of October 30, 2013

S&P Moody’s Fitch

Long-term senior debt . . . . . . . . . AA+ Aaa AAA

Short-term senior debt . . . . . . . . . A-1+ P-1 F1+

Qualifying subordinated debt. . . . A Aa2 AAPreferred stock . . . . . . . . . . . . . . . C Ca C/RR6

Bank financial strength rating . . . — E+ —

Outlook . . . . . . . . . . . . . . . . . . . . Stable Stable Rating Watch Negative

(for Long Term Senior

Debt)

(for Long Term Senior

Debt and Qualifying

Subordinated Debt)

(for Long Term Senior

Debt, Short Term Senior

Debt and Qualifying

Subordinated Debt)

Cash Flows

Nine Months Ended September 30, 2013. Cash and cash equivalents increased from December 31, 2012 by $9.7 billion to 

$30.8 billion as of September 30, 2013. This increase in the balance reflected higher liquidity needs due to our expectation 

that we will make a significant dividend payment to Treasury as a result of our continued strong financial performance during 

2013. For the first nine months of 2013, net cash from operating activities totaled $11.5 billion. Net cash generated from 

investing activities totaled $383.3 billion, resulting primarily from proceeds received from repayments of loans held for 

investment. These proceeds were partially offset by cash used in the purchase of loans held for investment and advances to 

lenders. The net cash inflows generated in our investing and operating activities were largely offset by net cash used in 

financing activities of $385.1 billion. Net cash used in financing activities was primarily driven by debt redemptions in 

excess of proceeds received from the issuance of debt and by our dividend payments made to Treasury under the senior 

preferred stock purchase agreement. For the dividend payments to Treasury in the first nine months of 2013, we primarily 

used funds received from loan repayments and the issuance of debt securities.

Nine Months Ended September 30, 2012. Cash and cash equivalents increased from December 31, 2011 by $3.1 billion to 

$20.7 billion as of September 30, 2012. Net cash generated from investing activities totaled $386.4 billion, resulting 

primarily from proceeds received from repayments of loans held for investment. Net cash from operating activities totaled 

$32.3 billion. These net cash inflows were partially offset by net cash used in financing activities of $415.5 billion primarily 

attributable to a significant amount of debt redemptions in excess of proceeds received from the issuances of debt.

Capital Management

Regulatory Capital

FHFA has announced that, during the conservatorship, our existing statutory and FHFA-directed regulatory capital 

requirements will not be binding and that FHFA will not issue quarterly capital classifications. We submit capital reports to 

FHFA and FHFA monitors our capital levels. The deficit of core capital over statutory minimum capital was $136.0 billion as 

of September 30, 2013 and $141.2 billion as of December 31, 2012. 
54

Under the terms of the senior preferred stock purchase agreement, starting January 1, 2013, we are required to pay Treasury 

each quarter a dividend, when, as and if declared, equal to the excess of our net worth as of the end of the preceding quarter 

over an applicable capital reserve. Therefore, we do not expect to eliminate our deficit of core capital over statutory minimum 

capital. We expect to pay Treasury a dividend of $8.6 billion by December 31, 2013.

Senior Preferred Stock Purchase Agreement 

As a result of the covenants under the senior preferred stock purchase agreement, Treasury’s ownership of the warrant to 

purchase up to 79.9% of the total shares of our common stock outstanding and the uncertainty regarding our future, we 

effectively no longer have access to equity funding except through draws under the senior preferred stock purchase 

agreement. 

Under the senior preferred stock purchase agreement, Treasury made a commitment to provide funding, under certain 

conditions, to eliminate deficits in our net worth. We have received a total of $116.1 billion from Treasury pursuant to the 

senior preferred stock purchase agreement as of September 30, 2013. The aggregate liquidation preference of the senior 

preferred stock, including the initial aggregate liquidation preference of $1.0 billion, remains at $117.1 billion. 

While we had a positive net worth as of September 30, 2013, in some future periods we could have a net worth deficit and in 

such case would be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase 

agreement. The amount of remaining available funding under the senior preferred stock purchase agreement is $117.6 billion

as of September 30, 2013.

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment under 

the senior preferred stock purchase agreement. Moreover, we are not permitted to pay down the liquidation preference of the 

outstanding shares of senior preferred stock except in limited circumstances. The limited circumstances under which 

Treasury’s funding commitment will terminate and under which we can pay down the liquidation preference of the senior 

preferred stock are described in “Business—Conservatorship and Treasury Agreements—Treasury Agreements” in our 2012 

Form 10-K. 

Dividends

Our third quarter 2013 dividend of $10.2 billion was declared by FHFA and subsequently paid by us on September 30, 2013. 

For each dividend period from January 1, 2013 through and including December 31, 2017, when, as and if declared, the 

dividend amount will be the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter 

exceeds an applicable capital reserve amount. The applicable capital reserve amount will be $3.0 billion for 2013 and will be 

reduced by $600 million each year until it reaches zero on January 1, 2018. For each dividend period beginning in 2018, the 

dividend amount will be the entire amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter. 

Based on the terms of the senior preferred stock purchase agreement with Treasury, we expect to pay Treasury a dividend for 

the fourth quarter of 2013 of $8.6 billion by December 31, 2013. See “Risk Factors” in our 2012 Form 10-K for a discussion 

of the risks relating to our dividend obligations to Treasury on the senior preferred stock.

See “Business—Conservatorship and Treasury Agreements—Treasury Agreements” in our 2012 Form 10-K for more 

information on the terms of the senior preferred stock and our senior preferred stock purchase agreement with Treasury.

OFF-BALANCE SHEET ARRANGEMENTS

Our maximum potential exposure to credit losses relating to our outstanding and unconsolidated Fannie Mae MBS and other 

financial guarantees is primarily represented by the unpaid principal balance of the mortgage loans underlying outstanding 

and unconsolidated Fannie Mae MBS and other financial guarantees of $46.1 billion as of September 30, 2013 and $53.1 

billion as of December 31, 2012.

We also provide assistance to housing finance agencies under the temporary credit and liquidity facilities programs in which 

Treasury has purchased participation interests. For a description of these programs, see “MD&A—Off-Balance Sheet 

Arrangements—Treasury Housing Finance Agency Initiative” in our 2012 Form 10-K.
55

RISK MANAGEMENT

Our business activities expose us to the following three major categories of financial risk: credit risk, market risk (including 

interest rate and liquidity risk) and operational risk. We seek to actively monitor and manage these risks by using an 

established risk management framework. Our risk management framework is intended to provide the basis for the principles 

that govern our risk management activities. In addition to these financial risks, there is significant uncertainty regarding the 

future of our company, including how long we will continue to be in existence, which we discuss in more detail in 

“Legislative and Regulatory Developments—GSE Reform” in this report, in our Second Quarter 2013 Form 10-Q and in our 

2012 Form 10-K and in “Risk Factors” in our 2012 Form 10-K. This uncertainty, along with limitations on our employee 

compensation arising from our conservatorship, could affect our ability to retain and hire qualified employees. We are also 

subject to a number of other risks that could adversely impact our business, financial condition, earnings and cash flow, 

including model, legal, regulatory, compliance, reputational, strategic and execution risks. These risks may arise due to a 

failure to comply with laws, regulations or ethical standards and codes of conduct applicable to our business activities and 

functions.

In this section we provide an update on our management of our major risk categories. For a more complete discussion of the 

financial risks we face and how we manage credit risk, market risk and operational risk, see “MD&A—Risk Management” in 

our 2012 Form 10-K and “Risk Factors” in this report and our 2012 Form 10-K.

Credit Risk Management

We are generally subject to two types of credit risk: mortgage credit risk and institutional counterparty credit risk. Mortgage 

credit risk is the risk that a borrower will fail to make required mortgage payments. Institutional counterparty credit risk is the 

risk that our institutional counterparties may fail to fulfill their contractual obligations to us, including seller/servicers who 

are obligated to repurchase loans from us or reimburse us for losses in certain circumstances. 

Mortgage Credit Risk Management

We are exposed to credit risk on our mortgage credit book of business because we either hold mortgage assets, have issued a 

guaranty in connection with the creation of Fannie Mae MBS backed by mortgage assets or provided other credit 

enhancements on mortgage assets. While our mortgage credit 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. We provide information on the performance of nonFannie Mae mortgage-related securities held in our retained mortgage portfolio, including the impairment that we have 

recognized on these securities, in “Note 5, Investments in Securities.”

Mortgage Credit Book of Business

Table 29 displays the composition of our mortgage credit book of business as of the dates indicated. Our total single-family 

mortgage credit book of business accounted for 93% of our total mortgage credit book of business as of September 30, 2013

and December 31, 2012.
56

Table 29: Composition of Mortgage Credit Book of Business(1)

As of September 30, 2013 As of December 31, 2012

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Mortgage loans and Fannie Mae MBS(2)

. . . . . . . . . . . $ 2,849,252 $ 186,535 $ 3,035,787 $ 2,797,909 $ 188,418 $ 2,986,327

Unconsolidated Fannie Mae MBS, held by third 

parties(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,017 1,341 14,358 15,391 1,524 16,915

Other credit guarantees(4)

. . . . . . . . . . . . . . . . . . . . . . . 15,912 15,815 31,727 19,977 16,238 36,215

Guaranty book of business . . . . . . . . . . . . . . . . . . . . $ 2,878,181 $ 203,691 $ 3,081,872 $ 2,833,277 $ 206,180 $ 3,039,457

Agency mortgage-related securities(5)

. . . . . . . . . . . . . 9,749 32 9,781 12,294 32 12,326

Other mortgage-related securities(6)

. . . . . . . . . . . . . . . 28,436 12,429 40,865 37,524 27,535 65,059

Mortgage credit book of business . . . . . . . . . . . . . . $ 2,916,366 $ 216,152 $ 3,132,518 $ 2,883,095 $ 233,747 $ 3,116,842

Guaranty Book of Business Detail:

Conventional Guaranty Book of Business(7)

. . . . . . $ 2,814,117 $ 201,906 $ 3,016,023 $ 2,764,903 $ 204,112 $ 2,969,015

Government Guaranty Book of Business(8)

. . . . . . . $ 64,064 $ 1,785 $ 65,849 $ 68,374 $ 2,068 $ 70,442

__________

(1) Based on unpaid principal balance. 

(2) Consists of mortgage loans and Fannie Mae MBS recognized in our condensed consolidated balance sheets. The principal balance of 

resecuritized Fannie Mae MBS is included only once in the reported amount.

(3) Reflects unpaid principal balance of unconsolidated Fannie Mae MBS, held by third-party investors. The principal balance of 

resecuritized Fannie Mae MBS is included only once in the reported amount.

(4) Consists of single-family and multifamily credit enhancements that we have provided and that are not otherwise reflected in the table.

(5) Consists of mortgage-related securities issued by Freddie Mac and Ginnie Mae.

(6) Consists primarily of mortgage revenue bonds, Alt-A and subprime private-label securities and CMBS.

(7) 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. 

(8) 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. 

In the following sections, we discuss the mortgage credit risk of the single-family and multifamily loans in our guaranty book 

of business. The credit statistics reported below, unless otherwise noted, pertain generally to the portion of our guaranty book 

of business for which we have access to detailed loan-level information, which constituted approximately 99% of each of our 

single-family conventional guaranty book of business and our multifamily guaranty book of business, excluding defeased 

loans, as of September 30, 2013 and December 31, 2012. We typically obtain this data from the sellers or servicers of the 

mortgage loans in our guaranty book of business and receive representations and warranties from them as to the accuracy of 

the information. While we perform various quality assurance checks by sampling loans to assess compliance with our 

underwriting and eligibility criteria, we do not independently verify all reported information and we rely on lender 

representations regarding the accuracy of the characteristics of loans in our guaranty book of business. See “Risk Factors” in 

our 2012 Form 10-K for a discussion of the risk that we could experience mortgage fraud as a result of this reliance on lender 

representations.

Single-Family Mortgage Credit Risk Management

Our strategy in managing single-family mortgage credit risk consists of four primary components: (1) our acquisition and 

servicing policies along with our underwriting and servicing standards, including the use of credit enhancements; 

(2) portfolio diversification and monitoring; (3) management of problem loans; and (4) REO management. These approaches 

may increase our expenses and may not be effective in reducing our credit-related expenses or credit losses. We provide 

information on our credit-related income (expense) and credit losses in “Consolidated Results of Operations—Credit-Related 

Income.”

In evaluating our single-family mortgage credit risk, we closely monitor changes in housing and economic conditions and the 

impact of those changes on the credit risk profile and performance of our single-family mortgage credit book of business. We 

regularly review and provide updates to our underwriting standards and eligibility guidelines that take into consideration 
57

changing market conditions. The credit risk profile of our single-family mortgage credit book of business is influenced by, 

among other things, the credit profile of the borrower, features of the loan such as loan product type and the type of property 

securing the loan, the housing market and the general economy. We focus more on those loans that we believe pose a higher 

risk of default, which typically have been loans associated with higher mark-to-market LTV ratios, loans to borrowers with 

lower FICO credit scores and certain higher risk loan product categories, such as Alt-A loans. These and other factors affect 

both the amount of expected credit loss on a given loan and the sensitivity of that loss to changes in the economic 

environment.

The single-family credit statistics we focus on and report in the sections below generally relate to our single-family 

conventional guaranty book of business, which represents the substantial majority of our total single-family guaranty book of 

business. We believe we have limited credit exposure on our government loans, the majority of which are reverse mortgage 

loans insured by the federal government through FHA. The outstanding unpaid principal balance of reverse mortgage loans 

and Fannie Mae MBS backed by reverse mortgage loans in our guaranty book of business was $48.6 billion as of 

September 30, 2013 and $50.2 billion as of December 31, 2012.

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

As part of our efforts to mitigate future credit losses, we review delinquent and defaulted loans for compliance with our 

requirements. We use the information obtained from these loan quality reviews to provide feedback to lenders on possible 

areas for correction in their origination practices. In addition, we conduct reviews on random samples of performing loans 

soon after acquisition, in order to identify loans that may not have met our underwriting or eligibility requirements. We refer 

to these loans as having “underwriting defects.” By identifying loans with underwriting defects earlier in their lifecycle, we 

can provide earlier feedback to lenders, which may lead to systemic improvements in the loan origination process.

Performance for the random sample is measured using a significant findings rate, which represents the proportion of loans in 

the sample population with underwriting defects. The significant findings rate does not necessarily indicate how well the 

loans will ultimately perform or the extent to which the loans will become subject to repurchase requests. Instead, we use it to 

estimate the percentage of loans we acquired that may have had a significant error in the underwriting process. Based on 

these reviews, we believe that over the last three years the percentage of loans we acquired that have underwriting defects has 

been significantly reduced. 

Beginning with loans delivered in 2013, and in conjunction with our new representations and warranties framework, we have 

changed the way we review loan files in order to provide lenders with better and earlier feedback on underwriting defects. 

Our new framework, which is part of FHFA’s seller-servicer contract harmonization initiative, seeks to provide lenders a 

higher degree of certainty and clarity regarding their repurchase exposure and liability on future deliveries, as well as 

consistency around repurchase timelines and remedies. As a result of this new framework, we have made changes in our 

quality control process that move the primary focus of our quality control reviews from the time a loan defaults to shortly 

after the time the loan is delivered to us. We will also take advantage of recent advancements in tools and data-gathering. 

Because of these changes, the significant findings rate that we will begin to report in 2014, for 2013 deliveries, will not be 

comparable to prior period reporting. We expect to report our significant findings rate under the new representations and 

warranties framework beginning in 2014.

Single-Family Portfolio Diversification and Monitoring

Diversification within our single-family mortgage credit book of business by product type, loan characteristics and geography 

is an important factor that influences credit quality and performance and may reduce our credit risk. We monitor various loan 

attributes, in conjunction with housing market and economic conditions, to determine if our pricing and our eligibility and 

underwriting criteria accurately reflect the risk associated with loans we acquire or guarantee. For additional information on 

the key loan attributes, see “MD&A—Risk Management” in our 2012 Form 10-K.

Table 30 displays our single-family conventional business volumes and our single-family conventional guaranty book of 

business for the periods indicated, based on certain key risk characteristics that we use to evaluate the risk profile and credit 

quality of our single-family loans.
58

Table 30: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1)

Percent of Single-Family

Conventional Business Volume(2)

For the

Three Months

Ended

September 30,

For the

Nine Months

Ended

September 30,

Percent of Single-Family

Conventional Guaranty

Book of Business(3)(4)

As of

2013 2012 2013 2012 September 30, 2013 December 31, 2012

Original LTV ratio:(5)

<= 60% . . . . . . . . . . . . . . . . 20 % 24 % 23 % 26 % 23 % 23 %

60.01% to 70% . . . . . . . . . . 13 14 14 14 15 15

70.01% to 80% . . . . . . . . . . 36 34 34 35 37 39

80.01% to 90%(6). . . . . . . . . 11 9 10 9 10 10

90.01% to 100%(6). . . . . . . . 14 8 11 8 10 10

100.01% to 125%(6). . . . . . . 4 6 5 5 3 2

Greater than 125%(6). . . . . . 2 5 3 3 2 1

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

Weighted-average. . . . . . 76 % 77 % 75 % 74 % 74 % 73 %

Average loan amount . . . . . . . . $202,769 $216,658 $206,633 $214,047 $160,089 $157,512

Estimated mark-to-market LTV

ratio:(7)

<= 60% . . . . . . . . . . . . . . . . 37 % 28 %

60.01% to 70% . . . . . . . . . . 20 15

70.01% to 80% . . . . . . . . . . 19 22

80.01% to 90% . . . . . . . . . . 10 13

90.01% to 100% . . . . . . . . . 6 9

100.01% to 125%. . . . . . . . . 5 8

Greater than 125% . . . . . . . 3 5

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

Weighted-average. . . . . . 67 % 75 %

Product type:

Fixed-rate:(8)

Long-term. . . . . . . . . . . . 76 % 75 % 76 % 74 % 72 % 72 %

Intermediate-term. . . . . . 21 22 22 23 18 17

Interest-only . . . . . . . . . . * * * * 1 1

Total fixed-rate. . . . . . 97 97 98 97 91 90

Adjustable-rate:

Interest-only . . . . . . . . . . * * * * 2 3

Other ARMs. . . . . . . . . . 3 3 2 3 7 7

Total adjustable-rate. . 3 3 2 3 9 10

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

Number of property units:

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

2-4 units . . . . . . . . . . . . . . . 3 2 3 2 3 3

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

Property type:

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

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

Total. . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %
59

Percent of Single-Family

Conventional Business Volume(2)

For the

Three Months

Ended

September 30,

For the

Nine Months

Ended

September 30,

Percent of Single-Family

Conventional Guaranty

Book of Business(3)(4)

As of

2013 2012 2013 2012 September 30, 2013 December 31, 2012

Occupancy type:

Primary residence. . . . . . . 86 % 89 % 87 % 89 % 88 % 89 %

Second/vacation home . . . 4 4 4 4 5 4

Investor . . . . . . . . . . . . . . 10 7 9 7 7 7

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

FICO credit score at

origination:

< 620 . . . . . . . . . . . . . . . . 1 % 1 % 1 % 1 % 3 % 3 %

620 to < 660 . . . . . . . . . . . 4 2 3 2 6 6

660 to < 700 . . . . . . . . . . . 11 7 9 7 12 12

700 to < 740 . . . . . . . . . . . 19 16 18 16 19 20

>= 740 . . . . . . . . . . . . . . . 65 74 69 74 60 59

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

Weighted-average . . . . 750 761 754 761 744 742

Loan purpose:

Purchase . . . . . . . . . . . . . . 38 % 24 % 26 % 21 % 27 % 28 %

Cash-out refinance . . . . . . 14 13 15 15 22 24

Other refinance. . . . . . . . . 48 63 59 64 51 48

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

Geographic concentration:(9)

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

Northeast . . . . . . . . . . . . . 17 18 17 18 19 19

Southeast . . . . . . . . . . . . . 21 19 20 19 22 23

Southwest. . . . . . . . . . . . . 18 16 17 16 16 16

West. . . . . . . . . . . . . . . . . 30 32 32 32 28 27

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

Origination year:

< = 2004. . . . . . . . . . . . . . 10 % 13 %

2005 . . . . . . . . . . . . . . . . . 4 5

2006 . . . . . . . . . . . . . . . . . 4 5

2007 . . . . . . . . . . . . . . . . . 5 7

2008 . . . . . . . . . . . . . . . . . 3 5

2009 . . . . . . . . . . . . . . . . . 8 11

2010 . . . . . . . . . . . . . . . . . 10 13

2011 . . . . . . . . . . . . . . . . . 12 15

2012 . . . . . . . . . . . . . . . . . 26 26

2013 . . . . . . . . . . . . . . . . . 18 —

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

__________

* Represents less than 0.5% of single-family conventional business volume or book of business.

(1) We reflect second lien mortgage loans in the original LTV ratio calculation only when we own both the first and second lien mortgage 

loans or we own only the second lien mortgage loan. Second lien mortgage loans represented less than 0.5% of our single-family 

conventional guaranty book of business as of September 30, 2013 and December 31, 2012. 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. Single-family business 

volume refers to both single-family mortgage loans we purchase for our retained mortgage portfolio and single-family mortgage loans 

we guarantee.
60

(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) Our single-family conventional guaranty book of business includes jumbo-conforming and high-balance loans that represented 

approximately 5% of our single-family conventional guaranty book of business as of September 30, 2013 and December 31, 2012. See 

“Business—Our Charter and Regulation of Our Activities—Charter Act—Loan Standards” and “Risk Management—Credit Risk 

Management—Single Family Mortgage Credit Risk Management—Credit Profile Summary” in our 2012 Form 10-K for additional 

information on loan limits.

(5) 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.

(6) We purchase loans with original LTV ratios above 80% to fulfill our mission to serve the primary mortgage market and provide 

liquidity to the housing system. Except as permitted under HARP, our charter generally requires primary mortgage insurance or other 

credit enhancement for loans that we acquire that have an LTV ratio over 80%.

(7) 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.

(8) 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. Loans with interest-only terms are included in the interest-only category regardless of their 

maturities.

(9) Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast includes 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.

Credit Profile Summary

The single-family loans we purchased or guaranteed in the first nine months of 2013 have a strong credit profile with a 

weighted-average original LTV ratio of 75%, a weighted-average FICO credit score of 754, and a product mix with a 

significant percentage of fully amortizing fixed-rate mortgage loans. The average original LTV ratio of single-family loans 

we acquired in the first nine months of 2013, excluding HARP loans, was 70%, compared with 110% for HARP loans. The 

weighted-average FICO credit score of the single-family mortgage loans we acquired in the first nine months of 2013, 

excluding HARP loans, was 759, compared with 724 for HARP loans.

The credit profile of our future acquisitions will depend on many factors, including our future pricing and eligibility 

standards and those of mortgage insurers and FHA, the percentage of loan originations representing refinancings, our future 

objectives, government policy, market and competitive conditions, and the volume and characteristics of loans we acquire 

under HARP. We expect the ultimate performance of all our loans will be affected by borrower behavior, public policy and 

macroeconomic trends, including unemployment, the economy and home prices.

The increase in the weighted-average original LTV ratio of the single-family loans we acquired in the first nine months of 

2013 compared with the first nine months of 2012 was due to acquisitions of home purchase mortgages with LTV ratios 

greater than 80% and acquisitions of refinancings of loans under HARP with LTV ratios greater than 80%. The home 

purchase mortgages with LTV ratios greater than 80% that we acquired in the first nine months of 2013 have otherwise strong 

credit profiles, with a weighted-average FICO score of 751.

The prolonged and severe decline in home prices from 2006 through the first quarter of 2012 resulted in an increase in the 

overall estimated weighted-average mark-to-market LTV ratio of our single-family conventional guaranty book of business. 

If home prices were to decline, more loans would have mark-to-market LTV ratios greater than 100%, which increases the 

risk of delinquency and default. However, in the first nine months of 2013, as home prices continued to increase, the 

estimated weighted-average mark-to-market LTV ratio of our single-family conventional guaranty book of business 

decreased. As of September 30, 2013, the estimated weighted-average mark-to market LTV ratio of our single-family 

conventional guaranty book of business was 67% compared with 75% as of December 31, 2012 and 76% as of September 30, 

2012. The portion of our single-family conventional guaranty book of business with an estimated mark-to-market LTV ratio 

greater than 100% was 8% as of September 30, 2013 compared with 13% as of December 31, 2012 and 14% as of 

September 30, 2012.

For additional information on selected credit characteristics of our single-family loans by acquisition period, refer to 

“Executive Summary—Strengthening Our Book of Business—Credit Risk Profile.”

HARP and Refi Plus Loans

Since 2009, our acquisitions have included a significant number of loans that are refinancings of existing Fannie Mae loans 

under HARP, which was designed to expand refinancing opportunities for borrowers who may otherwise be unable to 
61

refinance their mortgage loans due to a decline in home values. The loans we acquire under HARP have higher LTV ratios 

than we would otherwise permit, greater than 100% in some cases. We offer HARP under our Refi Plus initiative, which 

offers additional refinancing flexibility to eligible borrowers who are current on their loans and whose loans are owned or 

guaranteed by us and meet certain additional criteria. Refi Plus includes but is not limited to HARP, under which we allow 

our borrowers who have mortgage loans with current LTV ratios greater than 80% to refinance their mortgages without 

obtaining new mortgage insurance in excess of what is already in place. Under HARP, we were previously authorized to 

acquire loans only if their current LTV ratios did not exceed 125% for fixed-rate loans or 105% for adjustable-rate mortgages. 

Changes to HARP implemented in the first half of 2012 extended refinancing flexibility to eligible borrowers with loans that 

have LTV ratios greater than 125% for fixed-rate loans, which made the benefits of HARP available to a greater number of 

borrowers. In addition to the high LTV ratios that characterize HARP loans, some borrowers for HARP and Refi Plus loans 

also have lower FICO credit scores and/or may provide less documentation than we would otherwise require. On April 11, 

2013, FHFA announced the extension of the ending date for HARP to December 31, 2015. 

Loans we acquire under Refi Plus in general and HARP in particular represent refinancings of loans that are already in our 

guaranty book of business. The credit risk associated with the acquired loans essentially replaces the credit risk that we 

already held prior to the refinancing. These loans may not perform as well as the other loans we have acquired since the 

beginning of 2009. However, we expect these loans will perform better than the loans they replace because HARP and Refi 

Plus loans should either reduce the borrowers’ monthly payments or provide more stable terms than the borrowers’ old loans 

(for example, by refinancing into a mortgage with a fixed interest rate instead of an adjustable rate). 

Although mortgage rates remain low by historical standards, they have increased in recent months. As a result, the percentage 

of acquisitions that are refinanced loans, including loans acquired under our Refi Plus initiative, which includes HARP, has 

started to decline. HARP loans constituted approximately 14% of our total single-family acquisitions in the first nine months 

of 2013, compared with approximately 15% of our total single-family acquisitions in the first nine months of 2012.

We expect the volume of refinancings under HARP to decline, due to the increase in interest rates and a decrease in the 

population of borrowers with loans that have high LTV ratios who are willing to refinance and would benefit from 

refinancing. Approximately 3% of our total single-family conventional business volume consisted of HARP refinanced loans 

with LTV ratios greater than 125% at the time of acquisition for the first nine months of 2013 and 2012.

Table 31 displays the serious delinquency rates and current mark-to-market LTV ratios as of September 30, 2013 of singlefamily loans we acquired under HARP and Refi Plus, compared with the other single-family loans we acquired since the 

beginning of 2009.

Table 31: Selected Credit Characteristics of Single-Family Conventional Loans Acquired under HARP and Refi Plus

As of September 30, 2013

Percentage

of New Book

Current

Mark-toMarket 

LTV Ratio

> 100%

FICO Credit 

Score at 

Origination(1)

Serious

Delinquency

Rate

HARP(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% 25% 736 0.82%

Other Refi Plus(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 * 750 0.31

Total Refi Plus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 14 742 0.56

Non-Refi Plus(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 * 762 0.23

Total new book of business(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 4% 757 0.32%

__________

* Represents less than 0.5%.

(1) In the case of refinancings, represents FICO credit score at the time of the refinancing.

(2) HARP loans have LTV ratios at origination in excess of 80%. In the fourth quarter of 2012, we revised our presentation of the data to 

reflect all loans under our Refi Plus program with LTV ratios at origination in excess of 80% as HARP loans. Previously we did not 

reflect loans that were backed by second homes or investor properties as HARP loans.

(3) Other Refi Plus includes all other Refi Plus loans that are not HARP loans.

(4) Includes primarily other refinancings and home purchase mortgages.

(5) Refers to single-family mortgage loans we have acquired since the beginning of 2009.
62

Alt-A and Subprime Loans

We classify certain loans as subprime or Alt-A so that we can discuss our exposure to subprime and Alt-A loans in this 

Form 10-Q and elsewhere. However, there is no universally accepted definition of subprime or Alt-A loans. Our single-family 

conventional guaranty book of business includes loans with some features that are similar to Alt-A loans or subprime loans 

that we have not classified as Alt-A or subprime because they do not meet our classification criteria.

We do not rely solely on our classifications of loans as Alt-A or subprime to evaluate the credit risk exposure relating to these 

loans in our single-family conventional guaranty book of business. For more information about the credit risk characteristics 

of loans in our single-family guaranty book of business, see “Note 3, Mortgage Loans,” and “Note 6, Financial Guarantees.”

Our exposure to Alt-A and subprime loans included in our single-family conventional guaranty book of business, based on 

the classification criteria described in this section, does not include (1) our investments in private-label mortgage-related 

securities backed by Alt-A and subprime loans or (2) resecuritizations, or wraps, of private-label mortgage-related securities 

backed by Alt-A mortgage loans that we have guaranteed. As a result of our decision to discontinue the purchase of newly 

originated Alt-A loans, except for those that represent the refinancing of a loan we acquired prior to 2009, we expect our 

acquisitions of Alt-A mortgage loans to continue to be minimal in future periods and the percentage of the book of business 

attributable to Alt-A to continue to decrease over time. We are also not currently acquiring newly originated subprime loans, 

although we are acquiring refinancings of existing Fannie Mae subprime loans in connection with our Refi Plus initiative. 

Unlike the loans they replace, these refinancings are not included in our reported subprime loans because they do not meet 

our classification criteria for subprime loans.

We have classified a mortgage loan as Alt-A if and only if the lender that delivered the loan to us classified the loan as Alt-A, 

based on documentation or other features. We have classified a mortgage loan as subprime if and only if the loan was 

originated by a lender specializing in subprime business or by a subprime division of a large lender; however, we exclude 

loans originated by these lenders from the subprime classification if we acquired the loans in accordance with our standard 

underwriting criteria, which typically require compliance by the seller with our Selling Guide (including standard 

representations and warranties) and/or evaluation of the loans through our Desktop Underwriter® system. The unpaid 

principal balance of Alt-A loans included in our single-family conventional guaranty book of business of $136.0 billion as of 

September 30, 2013, represented approximately 5.0% of our single-family conventional guaranty book of business. The 

unpaid principal balance of subprime loans included in our single-family conventional guaranty book of business of $4.3 

billion as of September 30, 2013, represented approximately 0.2% of our single-family conventional guaranty book of 

business.

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. If a borrower does not 

make required payments, or is in jeopardy of not making payments, we work with the servicers of our loans to offer workout 

solutions to minimize the likelihood of foreclosure as well as the severity of loss. Our loan workouts reflect our various types 

of home retention solutions, including loan modifications, repayment plans and forbearances, and foreclosure alternatives, 

including short sales and deeds-in-lieu of foreclosure. When appropriate, we seek to move to foreclosure expeditiously.

Loan modifications involve changes to the original mortgage terms such as product type, interest rate, amortization term, 

maturity date and/or unpaid principal balance. Additionally, we currently offer up to twelve months of forbearance for those 

homeowners who are unemployed as an additional tool to help homeowners avoid foreclosure.

Foreclosure alternatives may be more appropriate if the borrower has experienced a significant adverse change in financial 

condition due to events such as unemployment or reduced income, divorce, or unexpected issues like medical bills and is 

therefore no longer able to make the required mortgage payments. Since the cost of foreclosure can be significant to both the 

borrower and Fannie Mae, to avoid foreclosure and satisfy the first-lien mortgage obligation, our servicers work with a 

borrower to accept a deed-in-lieu of foreclosure whereby the borrower voluntarily signs over the title to their property to the 

servicer or sells the home prior to foreclosure in a short sale. These alternatives are designed to reduce our credit losses while 

helping borrowers avoid having to go through a foreclosure. We work to obtain the highest price possible for the properties 

sold in short sales and, in the first nine months of 2013, we received net sales proceeds from our short sale transactions equal 

to 66% of the loans’ unpaid principal balance, compared with 60% in the first nine months of 2012.

In the following section, we present statistics on our problem loans, describe specific efforts undertaken to manage these 

loans and prevent foreclosures, and provide metrics regarding the performance of our loan workout activities. Unless 

otherwise noted, single-family delinquency data is calculated based on number of loans. We include single-family 

conventional loans that we own and that back Fannie Mae MBS in the calculation of the single-family delinquency rate. 
63

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

Problem Loan Statistics

The following table displays the delinquency status of loans in our single-family conventional guaranty book of business 

(based on number of loans) as of the dates indicated.

Table 32: Delinquency Status of Single-Family Conventional Loans

As of

September 30,

2013

December 31,

2012

September 30,

2012

Delinquency status:

30 to 59 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.62% 1.96% 2.12%

60 to 89 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.49 0.66 0.68

Seriously delinquent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.55 3.29 3.41

Percentage of seriously delinquent loans that have been delinquent for

more than 180 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74% 72% 73%

Our single-family serious delinquency rate has decreased each quarter since the first quarter of 2010. The decrease in our 

serious delinquency rate is primarily the result of home retention solutions, foreclosure alternatives and completed 

foreclosures, as well as our acquisition of loans with stronger credit profiles since the beginning of 2009. Our new singlefamily book of business represented 75% of our single-family guaranty book of business and had a serious delinquency rate 

of 0.32% as of September 30, 2013.

Although our serious delinquency rate has decreased, this rate and the period of time that loans remain seriously delinquent 

continue to be negatively impacted by the length of time required to complete a foreclosure. High levels of foreclosures, 

changes in state foreclosure laws, new federal and state servicing requirements imposed by regulatory actions and legal 

settlements, and the need for servicers to adapt to these changes have lengthened the time it takes to foreclose on a mortgage 

loan in many states. Longer foreclosure timelines result in these loans remaining in our book of business for a longer time, 

which has caused our serious delinquency rate to decrease more slowly in the last few years than it would have if the pace of 

foreclosures had been faster. We believe the slow pace of foreclosures will continue to negatively affect our single-family 

serious delinquency rates, foreclosure timelines and credit-related income (expense). Other factors such as the pace of loan 

modifications, changes in home prices, unemployment levels and other macroeconomic conditions also influence serious 

delinquency rates. We expect the number of our single-family loans in our book of business that are seriously delinquent to 

remain above pre-2008 levels for years.

Table 33 displays a comparison, by geographic region and by loans with and without credit enhancement, of the serious 

delinquency rates as of the dates indicated for single-family conventional loans in our single-family guaranty book of 

business. Serious delinquency rates vary by geographic region due to many factors including regional home prices, 

unemployment, economic conditions and state foreclosure timelines.
64

Table 33: Single-Family Serious Delinquency Rates

As of

September 30, 2013 December 31, 2012 September 30, 2012

Percentage 

ofBook 

Outstanding

Serious

Delinquency 

Rate

Percentage 

ofBook 

Outstanding

Serious

Delinquency 

Rate

Percentage 

ofBook 

Outstanding

Serious

Delinquency 

Rate

Single-family conventional delinquency 

rates by geographic region:(1)

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 % 2.17% 15 % 2.92% 15 % 3.05%

Northeast. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.00 19 4.40 19 4.32

Southeast. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.61 23 4.78 23 4.96

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.30 16 1.76 16 1.85

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 1.57 27 2.28 27 2.46

Total single-family conventional loans . 100 % 2.55% 100 % 3.29% 100 % 3.41%

Single-family conventional loans:

Credit enhanced . . . . . . . . . . . . . . . . . . . . . 15 % 5.15% 14 % 7.09% 14 % 7.47%

Non-credit enhanced. . . . . . . . . . . . . . . . . . 85 2.14 86 2.70 86 2.77

Total single-family conventional loans . 100 % 2.55% 100 % 3.29% 100 % 3.41%

__________

(1) See footnote 9 to “Table 30: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” for 

states included in each geographic region.

While loans across our single-family guaranty book of business have been affected by the weak market conditions 

experienced in previous years, certain higher-risk loan categories, such as Alt-A loans and loans with higher 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 disproportionate share of our credit losses. Also, as a result of the housing crisis, California, Florida, Arizona, 

Nevada and some states in the Midwest experienced more significant declines in home prices coupled with high 

unemployment rates.

Table 34 displays the serious delinquency rates and other financial information for our single-family conventional loans with 

some of these higher-risk characteristics as of the dates indicated. The reported categories are not mutually exclusive.
65

Table 34: Single-Family Conventional Serious Delinquency Rate Concentration Analysis

As of

September 30, 2013 December 31, 2012 September 30, 2012

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio(1) 

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio(1) 

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio(1) 

(Dollars in millions)

States:

Arizona . . . . . . . . . . . . . . $ 67,372 2% 1.26% 74% $ 65,277 2% 2.14% 88% $ 65,400 2% 2.35% 92%

California . . . . . . . . . . . . 546,362 19 1.13 59 523,602 19 1.69 73 525,469 19 1.89 75

Florida. . . . . . . . . . . . . . . 161,078 6 7.60 82 165,377 6 10.06 96 167,884 6 10.49 98

Nevada . . . . . . . . . . . . . . 26,940 1 4.70 90 27,206 1 6.70 117 27,577 1 6.97 123

Select Midwest states(2)

. 277,049 10 2.64 74 278,455 10 3.51 81 280,138 10 3.66 81

All other states . . . . . . . . 1,728,363 62 2.34 67 1,697,209 62 2.85 71 1,700,785 62 2.89 71

Product type:

Alt-A. . . . . . . . . . . . . . . . 136,012 5 9.70 84 155,469 6 11.36 96 162,157 6 11.61 97

Subprime. . . . . . . . . . . . . 4,344 * 17.42 95 5,035 * 20.60 107 5,211 * 20.85 107

Vintages:

2005 . . . . . . . . . . . . . . . . 105,819 4 7.51 79 139,204 5 7.79 90 152,578 6 7.54 91

2006 . . . . . . . . . . . . . . . . 105,056 4 11.60 93 138,040 5 12.15 105 150,684 5 11.87 106

2007 . . . . . . . . . . . . . . . . 146,071 5 12.48 95 195,308 7 12.99 107 214,460 8 12.66 108

2008 . . . . . . . . . . . . . . . . 86,419 3 6.78 78 124,747 5 6.63 88 140,982 5 6.26 89

All other vintages . . . . . . 2,363,799 84 1.07 63 2,159,827 78 1.36 69 2,108,549 76 1.40 68

Estimated mark-to-market

LTV ratio:

Greater than 100%(1)

. . . . 214,101 8 12.84 123 374,010 13 13.42 128 393,101 14 13.53 129

Select combined risk

characteristics:

Original LTV ratio > 90%

and FICO score < 620 . . 20,982 1 11.37 104 19,416 1 14.76 113 18,993 1 15.33 112

__________

* Percentage is less than 0.5%.

(1) Second lien mortgage loans held by third parties are not included in the calculation of the estimated mark-to-market LTV ratios.

(2) Consists of Illinois, Indiana, Michigan and Ohio.

Loan Workout Metrics

Table 35 displays statistics on our single-family loan workouts that were completed, by type, for the periods indicated. These 

statistics include loan modifications but do not include trial modifications, loans to certain borrowers who have received 

bankruptcy relief that are classified as TDRs, or repayment or forbearance plans that have been initiated but not completed.
66

Table 35: Statistics on Single-Family Loan Workouts

For the Nine Months Ended September 30,

2013 2012

Unpaid

Principal

Balance

Number of

Loans

Unpaid

Principal

Balance

Number of

Loans

(Dollars in millions)

Home retention strategies:

Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,822 120,848 $23,214 123,700

Repayment plans and forbearances completed(1). . . . . . . . . . . . . . 1,331 10,128 2,708 18,997

Total home retention strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . 23,153 130,976 25,922 142,697

Foreclosure alternatives:

Short sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,860 37,247 12,629 58,376

Deeds-in-lieu of foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,917 11,681 1,904 11,172

Total foreclosure alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,777 48,928 14,533 69,548

Total loan workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,930 179,904 $40,455 212,245

Loan workouts as a percentage of single-family guaranty book of 

business(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.53 % 1.36 % 1.90 % 1.60 %

__________

(1) 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.

(2) Calculated based on annualized loan workouts during the period as a percentage of our single-family guaranty book of business as of the 

end of the period.

The volume of home retention solutions completed in the first nine months of 2013 decreased compared with the first nine 

months of 2012, primarily due to a decline in the number of delinquent loans in the first nine months of 2013, compared with 

the first nine months of 2012.

During the first nine months of 2013, we initiated approximately 127,000 trial modifications, including Home Affordable 

Modification Program (“HAMP”) and non-HAMP modifications, compared with approximately 137,000 trial modifications 

during the first nine months of 2012. We also initiated other types of workouts, such as repayment plans and forbearances.

HAMP guidance directs servicers either to cancel or to convert trial modifications after three or four monthly payments, 

depending on the borrower’s circumstances. As of September 30, 2013, 58% of our HAMP trial modifications had been 

converted to permanent HAMP modifications since the inception of the program. The conversion rate for HAMP

modifications since June 1, 2010, when servicers became required to perform a full verification of a borrower’s eligibility 

prior to offering a HAMP trial modification, was 88% as of September 30, 2013. The average length of a trial period for 

HAMP modifications initiated after June 1, 2010 was four months.

We continue to work with our servicers to implement our home retention and foreclosure prevention initiatives. Our approach 

to workouts continues to focus on the large number of borrowers facing financial hardships. Accordingly, the vast majority of 

loan modifications we have completed since 2009 have been concentrated on deferring or lowering the borrowers’ monthly 

mortgage payments to allow borrowers to work through their hardships. On March 27, 2013, FHFA announced that we and 

Freddie Mac would offer a new simplified loan modification solution. Under this streamlined modification initiative, 

beginning July 1, 2013, our servicers are required to offer loan modifications to eligible borrowers who are at least 90 days 

delinquent on their mortgages without requiring financial or hardship documentation. Eligible borrowers must demonstrate a 

willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently 

modified. 

On May 30, 2013, FHFA announced the extension of HAMP and the streamlined modification initiative to December 31, 

2015; our role as program administrator for HAMP will be extended accordingly. FHFA’s announcement was aligned with the 

extension of the Making Home Affordable Program announced by Treasury and HUD. Previously, the deadline to apply for 

HAMP eligibility was scheduled for December 31, 2013, while the streamlined modification initiative was scheduled to end 

on August 1, 2015.

Table 36 displays the percentage of our single-family loan modifications completed during the first nine months of 2012, all 

of 2011 and the second half of 2010 that were current or paid off one year after modification, as well as the percentage of our 
67

loan modifications completed during the first nine months of 2011 and the second half of 2010 that were current or paid off 

two years after modification. 

Table 36: Percentage of Single-Family Loan Modifications That Were Current or Paid Off at One and Two Years 

Post-Modification(1)

2012 2011 2010

Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3

One Year Post-Modification

HAMP Modifications. . . . . . . . . . . . . . . . 82% 81% 79% 78% 78% 78% 77% 74% 74%

Non-HAMP Modifications . . . . . . . . . . . 74 72 70 66 68 69 69 67 67

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 75 73 71 72 75 74 69 70

Two Years Post-Modification

HAMP Modifications. . . . . . . . . . . . . . . . 76% 75% 74% 70% 69%

Non-HAMP Modifications . . . . . . . . . . . 67 67 67 64 63

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 73 71 65 65

__________

(1) Excludes loans that were classified as subprime ARMs that were modified into fixed-rate mortgages. Modifications do not reflect loans 

currently in trial modifications.

There is significant uncertainty regarding the ultimate long term success of our current modification efforts. We believe the 

performance of our workouts will be highly dependent on economic factors, such as unemployment rates, household wealth 

and income, and home prices. Modifications, even those with reduced monthly payments, may also not be sufficient to help 

borrowers with second liens and other significant non-mortgage debt obligations. FHFA, other agencies of the U.S. 

government or Congress may ask us to undertake new initiatives to support the housing and mortgage markets should our 

current modification efforts ultimately not perform in a manner that results in the stabilization of these markets. See “Risk 

Factors” in our 2012 Form 10-K for a discussion of efforts we may be required or asked to undertake and their potential 

effect on us.

REO Management

Foreclosure and REO activity affect the amount of credit losses we realize in a given period. Table 37 displays our 

foreclosure activity, by region, for the periods indicated. Regional REO acquisition and charge-off trends generally follow a 

pattern that is similar to, but lags, that of regional delinquency trends.

Table 37: Single-Family Foreclosed Properties

For the Nine Months

Ended September 30,

2013 2012

Single-family foreclosed properties (number of properties):

Beginning of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . . . 105,666 118,528

Acquisitions by geographic area:(2)

Midwest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,996 39,058

Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,825 9,390

Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,011 44,087

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,718 22,475

West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,626 18,357

Total properties acquired through foreclosure(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,176 133,367

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116,901) (144,670)

End of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . . . . . . . . . . 100,941 107,225

Carrying value of single-family foreclosed properties (dollars in millions)(3)

. . . . . . . . . . . . . . $ 10,036 $ 9,302

Single-family foreclosure rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.85 % 1.01 %
68

__________

(1) Includes acquisitions through 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 9 to “Table 30: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” for 

states included in each geographic region.

(3) Excludes foreclosed property claims receivables, which are reported in our condensed consolidated balance sheets as a component of 

“Acquired property, net.” 

(4) 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.

The number of properties acquired through foreclosure declined in the first nine months of 2013 compared with the first nine 

months of 2012 due to a decline in the number of seriously delinquent loans in our single-family book of business. The pace 

of foreclosures, which has been affected by foreclosure process issues encountered by our servicers and changing legislative, 

regulatory and judicial requirements, caused a decline in the number of foreclosure acquisitions for the periods presented. 

Dispositions of foreclosed properties declined in the first nine months of 2013 compared with the first nine months of 2012 

and may continue to decline in the future due to increases in home prices and interest rates, which may lead to less attractive 

purchasing opportunities for investors and potential home owners. Furthermore, during the third quarter of 2013, REO 

dispositions slowed due to overall market conditions, resulting in an increase in inventory of single-family foreclosed 

properties as compared with the second quarter of 2013.

We continue to manage our REO inventory to minimize costs and maximize sales proceeds. However, we are unable to 

market and sell a large portion of our inventory primarily due to occupancy and state or local redemption or confirmation 

periods, extending the amount of time it takes to bring our properties to a marketable state and eventually dispose of them. 

This results in higher foreclosed property expenses, which include costs related to maintaining the property and ensuring that 

the property is vacant.

Table 38 displays the current status of our single-family foreclosed property inventory, including the percentage of our 

inventory that we are unable to market, as of the dates indicated.

Table 38: Single-Family Foreclosed Property Status

Percent of Single-Family

Foreclosed Properties

As of

September 30,

2013

December 31,

2012

Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 % 28 %

Offer accepted(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 17

Appraisal stage(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10

Unable to market:

Occupied status(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 14

Redemption status(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11

Properties being repaired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7

Rental property(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8

Total unable to market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 45

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

__________

(1) Properties for which an offer has been accepted, but the property has not yet been sold.

(2) Properties that are pending appraisals and being prepared to be listed for sale.

(3) Properties that are still occupied, and for which the eviction process is not yet complete.

(4) Properties that are within the period during which state laws allow the former mortgagor and second lien holders to redeem the 

property.

(5) Properties with a tenant living in the home under our tenant in place or deed for lease programs.
69

Multifamily Mortgage Credit Risk Management

The credit risk profile of our multifamily mortgage credit book of business is influenced by the structure of the financing, the 

type and location of the property, the condition and value of the property, the financial strength of the borrower, market and 

sub-market trends and growth, the current and anticipated cash flows from the property, as well as the financial strength of 

the lender. These and other factors affect both the amount of expected credit loss on a given loan and the sensitivity of that 

loss to changes in the economic environment. We provide information on our credit-related income (expense) and credit 

losses in “Business Segment Results—Multifamily Business Results.”

Multifamily Acquisition Policy and Underwriting Standards

Our Multifamily business, together with our Enterprise Risk Management division, which provides independent risk 

oversight of the Multifamily business, is responsible for pricing and managing the credit risk on multifamily mortgage loans 

we purchase and on Fannie Mae MBS backed by multifamily loans (whether held in our retained mortgage portfolio or held 

by third parties). Our primary multifamily delivery channel is the Delegated Underwriting and Servicing, or DUS®, program, 

which is comprised of multiple lenders that span the spectrum from large financial institutions to smaller independent 

multifamily lenders. Multifamily loans that we purchase or that back Fannie Mae MBS are either underwritten by a Fannie 

Mae-approved lender or subject to our underwriting review prior to closing, depending on the product type and/or loan size. 

Loans delivered to us by DUS lenders and their affiliates represented 90% of our multifamily guaranty book of business as of 

September 30, 2013 and 88% as of December 31, 2012. 

We use various types of credit enhancement arrangements for our multifamily loans including lender risk-sharing, lender 

repurchase agreements, pool insurance, subordinated participations in mortgage loans or structured pools, cash and letter of 

credit collateral agreements, and cross-collateralization/cross-default provisions. The most prevalent form of credit 

enhancement on multifamily loans is lender risk sharing. Lenders in the DUS program typically share in loan-level credit 

losses in one of two ways: (1) they bear losses up to the first 5% of the unpaid principal balance of the loan and share in 

remaining losses up to a prescribed limit; or (2) they share up to one-third of the credit losses on an equal basis with us. NonDUS lenders typically share or absorb credit losses based on a negotiated percentage of the loan or the pool balance. 

Table 39 displays the percentage of the unpaid principal balance of loans in our multifamily guaranty book of business with 

lender risk-sharing and with no recourse to the lender as of the dates indicated.

Table 39: Multifamily Lender Risk-Sharing

As of

September 30,

2013

December 31,

2012

Lender risk-sharing

DUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78% 73%

Non-DUS negotiated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 8

No recourse to the lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 19

At the time of our purchase or guarantee of multifamily mortgage loans, we and our lenders rely on sound underwriting 

standards, which often include third-party appraisals and cash flow analysis. Our standards for multifamily loans specify 

maximum original LTV and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan 

characteristics. Our experience has been that original LTV and DSCR values have been reliable indicators of future credit 

performance.

Table 40 displays original LTV and DSCR metrics for our multifamily guaranty book of business as of the dates indicated. 

Table 40: Multifamily Guaranty Book of Business Key Risk Characteristics

As of

September 30,

2013

December 31,

2012

September 30,

2012

Weighted-average original LTV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 % 66 % 66 %

Original LTV greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 4

Original DSCR less than or equal to 1.10. . . . . . . . . . . . . . . . . . . . . . . . . 7 8 8
70

Multifamily Portfolio Diversification and Monitoring

Diversification within our multifamily mortgage credit book of business by geographic concentration, term to maturity, 

interest rate structure, borrower concentration and credit enhancement coverage are important factors that influence credit 

performance and help reduce our credit risk.

We and our lenders monitor the performance and risk concentrations of our multifamily loans and the underlying properties 

on an ongoing basis throughout the life of the loan: at the loan, property, and portfolio levels. We closely monitor loans with 

an estimated current DSCR below 1.0, as that is an indicator of heightened default risk. The percentage of loans in our 

multifamily guaranty book of business with a current DSCR less than 1.0 was approximately 3% as of September 30, 2013

and 5% as of December 31, 2012.

Multifamily Problem Loan Management and Foreclosure Prevention

In general the number of multifamily loans at risk of becoming seriously delinquent has continued to decrease as early-stage 

delinquencies have declined significantly since the housing crisis. Since delinquency rates are a lagging indicator, we expect 

to continue to incur additional credit losses. We periodically refine our underwriting standards in response to market 

conditions and implement proactive portfolio management and monitoring which are each designed to keep credit losses to a 

low level relative to our multifamily guaranty book of business.

Multifamily Problem Loan Statistics

We classify multifamily loans as seriously delinquent when payment is 60 days or more past due. We include the unpaid 

principal balance of multifamily loans that we own or that back Fannie Mae MBS and any housing bonds for which we 

provide credit enhancement in the calculation of the multifamily serious delinquency rate.

Table 41 displays a comparison of our multifamily serious delinquency rates for loans acquired through our DUS program 

versus loans not acquired through our DUS program.

Table 41: Multifamily Concentration Analysis

Percentage of

Multifamily

As of Credit Losses

September 30, 2013 December 31, 2012 September 30, 2012 For the

Percentage of

Book

Outstanding

Serious

Delinquency

Rate

Percentage of

Book

Outstanding

Serious

Delinquency

Rate

Percentage of

Book

Outstanding

Serious

Delinquency

Rate

Nine Months Ended

September 30,

2013 2012(1)

DUS small balance 

loans(2)

. . . . . . . . . . 8 % 0.29 % 8 % 0.32 % 8 % 0.43 % 3 % 9 %

DUS non small 

balance loans(3)

. . . 79 0.15 76 0.17 75 0.18 44 78

Non-DUS small 

balance loans(2)

. . . 6 0.63 7 1.02 7 0.93 15 15

Non-DUS non small 

balance loans(3)

. . . 7 0.13 9 0.21 10 0.42 38 (2)

Total multifamily

loans. . . . . . . . . . 100 % 0.18 % 100 % 0.24 % 100 % 0.28 % 100 % 100 %

________

(1) The percentage of credit losses may be negative in circumstances where recoveries of previously charged-off amounts exceeded the amount 

that we charged off.

(2) Loans with original unpaid principal balances of up to $3 million as well as loans in high cost markets with original unpaid principal 

balances up to $5 million. 

(3) Loans with original unpaid principal balances greater than $3 million as well as loans in high cost markets with original unpaid principal 

balances greater than $5 million. 

The DUS loans in our guaranty book of business have lower delinquency rates when compared with the non-DUS loans 

overall in our guaranty book primarily due to the DUS model, which has several features that more closely align our interests 

with those of the lenders. Multifamily loans with an original balance of up to $3 million nationwide or $5 million in high cost 

markets, which we refer to as small balance loans, not acquired through our DUS program, continue to represent a 
71

disproportionately large share of delinquencies, but they are generally covered by loss sharing arrangements that limit the 

credit losses we incur. These loans were mainly acquired in 2007 and 2008. 

REO Management

Foreclosure and REO activity affect the level of our credit losses. Table 42 displays our held for sale multifamily REO 

activity for the periods indicated. 

Table 42: Multifamily Foreclosed Properties

For the Nine

Months Ended

September 30,

2013 2012

Multifamily foreclosed properties held for sale (number of properties):

Beginning of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . . . . . . . . . 128 260

Total properties acquired through foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 138

Transfers to (from) held for sale(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 (66)

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92) (165)

End of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 167

Carrying value of multifamily foreclosed properties (dollars in millions). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 707 $ 278

________

(1) Represents the transfer of properties between held for use and held for sale. Held-for-use properties are reported in our condensed 

consolidated balance sheets as a component of “Other assets.”

The decrease in our multifamily properties acquired through foreclosure reflects the stability of national multifamily market 

fundamentals in the first nine months of 2013. The increase in carrying value of multifamily foreclosed properties in the first 

nine months of 2013 is due to properties with higher values being reclassified from held for use to held for sale.

Institutional Counterparty Credit Risk Management

We rely on our institutional counterparties to provide services and credit enhancements, risk sharing agreements with lenders 

and financial guaranty contracts that are critical to our business. Institutional counterparty credit risk is the risk that these 

institutional counterparties may fail to fulfill their contractual obligations to us, including mortgage sellers/servicers who are 

obligated to repurchase loans from us or reimburse us for losses in certain circumstances and service our loans based on 

established guidelines. Defaults by a counterparty with significant obligations to us could result in significant financial losses 

to us.

See “MD&A—Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” in our 

2012 10-K and “Risk Factors” in this report and our 2012 Form 10-K for additional information about our institutional 

counterparties, including counterparty risk we face from mortgage originators and investors, from debt security and mortgage 

dealers, and from document custodians.

Mortgage Sellers/Servicers

One of our primary exposures to institutional counterparty risk is with mortgage sellers/servicers that service the loans we 

hold in our retained mortgage portfolio or that back our Fannie Mae MBS, as well as mortgage sellers/servicers that are 

obligated to repurchase loans from us or reimburse us for losses in certain circumstances. We rely on mortgage sellers/

servicers to meet our servicing standards and fulfill their servicing and repurchase obligations.

Our business with our mortgage sellers/servicers remains concentrated. However, we continue to see a drop in our 

concentration with our top sellers/servicers. Our five largest single-family mortgage servicers, including their affiliates, 

serviced approximately 50% of our single-family guaranty book of business as of September 30, 2013, compared with 

approximately 57% as of December 31, 2012. Our largest mortgage servicer is Wells Fargo Bank, N.A., which, together with 

its affiliates, serviced approximately 19% of our single-family guaranty book of business as of September 30, 2013, 

compared with approximately 18% as of December 31, 2012. As of September 30, 2013, one additional mortgage servicer, 

JPMorgan Chase Bank, N.A., with its affiliates, serviced over 10% of our single-family guaranty book of business. As of 

December 31, 2012, two additional mortgage servicers, Bank of America, N.A., and JPMorgan Chase Bank, N.A., with their 

affiliates, each serviced over 10% of our single-family guaranty book of business. In addition, Wells Fargo Bank, N.A. 

serviced over 10% of our multifamily guaranty book of business as of September 30, 2013 and December 31, 2012.
72

If we determine that a mortgage loan did not meet our underwriting or eligibility requirements, loan representations or 

warranties were violated, or a mortgage insurer rescinded coverage, then our mortgage sellers/servicers are obligated to either 

repurchase the loan or foreclosed property, or to reimburse us for our losses. If the collateral property relating to such a loan 

has been foreclosed upon and we have accepted an offer from a third party to purchase the property, or if a loan is in the 

process of being liquidated or has been liquidated, we require the mortgage seller/servicer to reimburse us for our losses. We 

may consider additional facts and circumstances when determining whether to require a mortgage seller/servicer to reimburse 

us for our losses instead of repurchasing the related loan or foreclosed property. On an economic basis, we are made whole 

for our losses regardless of whether the mortgage seller/servicer repurchases the loan or reimburses us for our losses. We 

consider the anticipated benefits from these types of recoveries when we establish our allowance for loan losses. We refer to 

our demands that mortgage sellers/servicers meet these obligations collectively as “repurchase requests.” In addition, we 

charge our primary mortgage servicers a compensatory fee for servicing delays within their control when they fail to comply 

with established loss mitigation and foreclosure timelines in our Servicing Guide. Compensatory fees are intended to 

compensate us for damages attributed to these servicing delays and to emphasize the importance of the mortgage servicer’s 

performance.

Mortgage sellers/servicers may not meet the terms of their repurchase obligations, and we may be unable to recover on all 

outstanding loan repurchase obligations resulting from their breaches of contractual obligations. Failure by a significant 

mortgage seller/servicer, or a number of mortgage sellers/servicers, to fulfill repurchase obligations to us could result in an 

increase in our credit losses and credit-related expenses, and have a material adverse effect on our results of operations and 

financial condition. In addition, actions we take to pursue our contractual remedies could increase our costs, reduce our 

revenues, or otherwise have a material adverse effect on our results of operations or financial condition. As of September 30, 

2013, in estimating our allowance for loan losses, we assumed no benefit from repurchase demands due to us from mortgage 

sellers/servicers that, in our view, lacked the financial capacity to honor their contractual obligations.

On June 28, 2013, we entered into an agreement (the “resolution agreement”) with CitiMortgage, which resolved certain 

repurchase requests arising from breaches of selling representations and warranties on specified single-family loans delivered 

to us by CitiMortgage prior to February 28, 2013 that were originated between January 1, 2000 and December 31, 2012. 

Under the resolution agreement, CitiMortgage paid us $968 million, subject to adjustment and reconciliation. CitiMortgage 

continues to be responsible for certain payments and related obligations with respect to mortgage insurance rescissions, 

cancellations and denials on the loans covered by the resolution agreement. CitiMortgage will also continue to be responsible 

for its repurchase obligations arising out of specified excluded defects (for example, certain violations of our Charter Act) and 

its servicing, third-party indemnification and recourse obligations with respect to loans covered by the agreement. All of 

these obligations are in addition to the payment described above. The resolution agreement resolved substantially all of our 

outstanding repurchase requests with CitiMortgage.

On October 25, 2013, we entered into an agreement (the “resolution agreement”) with JPMorgan Chase Bank, N.A. 

(“JPMorgan Chase”) to resolve certain repurchase requests arising from breaches of selling representations and 

warranties. The resolution agreement primarily resolved our outstanding and expected future repurchase requests arising from 

breaches of selling representations and warranties on specified single-family loans delivered to us by JPMorgan Chase that 

were originated between January 1, 2000 and December 31, 2008 as well as representations and warranties relating to loans 

underlying a private-label security that we guaranteed. As a result, JPMorgan Chase will make a cash payment to us of $670 

million in the fourth quarter of 2013, subject to adjustment and reconciliation in accordance with the resolution agreement, 

and be released from repurchase liability for these loans, with certain exceptions. It will remain obligated for certain other 

contractual responsibilities under the resolution agreement.

Table 43 displays repurchase request activity, measured by unpaid principal balance, during the first nine months of 2013 and 

2012. The dollar amounts of our outstanding repurchase requests provided below are based on the unpaid principal balance of 

the loans underlying the repurchase request issued, not the actual amount we have requested from the lenders. In some cases, 

we allow lenders to remit payment equal to our loss, including imputed interest, on the loan after we have disposed of the 

REO, which is less than the unpaid principal balance of the loan. As a result, we expect our actual cash receipts relating to 

these outstanding repurchase requests to be significantly lower than the unpaid principal balance of the loan. Amounts 

relating to repurchase requests originating from missing documentation or loan files are excluded from the total requests 

outstanding until we receive the missing documents and loan files and a full underwriting review is completed.
73

Table 43: Repurchase Request Activity

For the Nine Months Ended September 30,

2013 2012

(Dollars in millions)

Beginning outstanding repurchase requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,013 $ 10,400

Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,103 19,420

Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,637)

(1) (6,725)

Other resolutions(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,973)

(1) (6,086)

Total successfully resolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,610) (12,811)

Cancellations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (548) (765)

Ending outstanding repurchase requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,958 (3) $ 16,244

__________

(1) Includes the impact of our January 6, 2013 resolution agreement with Bank of America, which addressed $11.3 billion of the total 

outstanding repurchase request balance as of December 31, 2012. See “MD&A—Risk Management—Credit Risk Management—

Institutional Counterparty Credit Risk Management” in our 2012 Form 10-K for additional information. Also includes the impact of our 

June 28, 2013 resolution agreement with CitiMortgage, which addressed approximately $739 million of the total outstanding 

repurchase request balance that was outstanding before the resolution agreement.

(2) Primarily includes repurchase requests that were successfully resolved through negotiated settlements and the lender taking corrective 

action with or without a pricing adjustment. Also includes resolutions that were included in bulk indemnification and/or repurchase 

agreements with a mortgage seller/servicer.

(3) Excludes the impact of our resolution agreements that occurred subsequent to September 30, 2013.

The increase in “Total successfully resolved” activity during the first nine months of 2013 compared with the first nine 

months of 2012 was primarily due to the execution of repurchase resolution agreements with Bank of America and 

CitiMortgage. This reflects our continued effort in pursuing reimbursement for loss and other remedies on breaches of selling 

representations and warranties on delivered loans. See “MD&A—Risk Management—Credit Risk Management—

Institutional Counterparty Credit Risk Management” in our First Quarter 2013 Form 10-Q and in our 2012 Form 10-K for 

additional information on our January 2013 resolution agreement with Bank of America.

As of September 30, 2013, less than 0.25% of the loans in our new single-family book of business, which were acquired 

between 2009 and 2012, have been subject to a repurchase request, compared with approximately 3.6% of the single-family 

loans acquired between 2005 and 2008. As part of the 2013 conservatorship scorecard, FHFA set a goal for us to complete 

our demands for remedies for breaches of representations and warranties related to pre-conservatorship loan activity. As of 

September 30, 2013, we have completed loan reviews for potential underwriting defects on approximately 94% of the loans 

we acquired between 2005 and 2008 through our standard whole loan and MBS acquisitions that we currently intend to 

review. We expect to complete our review of the remaining population by the end of 2013. We plan to issue repurchase 

requests as and when appropriate, and lenders will continue to be responsible for their contractual obligations related to these 

loans. 
74

Table 44 displays our outstanding repurchase requests issued to our top five mortgage sellers/servicers based on the unpaid 

principal balance of the loans underlying repurchase requests as of December 31, 2012. Table 44 also displays these mortgage 

sellers/servicers’ outstanding repurchase requests issued as of September 30, 2013. In addition, Table 44 displays the 

mortgage sellers’/servicers’ balance and percentage of our repurchase requests to that mortgage seller/servicer that were over 

120 days outstanding, and the mortgage sellers’/servicers’ repurchase requests outstanding over 120 days as a percentage of 

our total repurchase requests outstanding over 120 days, as of September 30, 2013 and December 31, 2012.

Table 44: Outstanding Repurchase Requests(1)

Outstanding Repurchase Requests as of

September 30, 2013 December 31, 2012

Total

Outstanding

Balance(3)

Over 120 Days(2) Total

Outstanding

Balance(3)

Over 120 Days(2)

Balance(3) % % of Total Balance(3) % % of Total

(Dollars in millions)

Mortgage Seller/Servicer

Counterparty:

Wells Fargo Bank, N.A.(4). . . . . $ 829 $ 416 50% 42 % $ 758 $ 358 47% 3 %

JPMorgan Chase Bank, N.A.(6). 482 52 11 5 688 173 25 2

SunTrust Bank, Inc.(4)(6). . . . . . . 195 32 16 3 494 224 45 2

Bank of America, N.A. . . . . . . . 159 114 72 12 11,735 9,163 78 84

CitiMortgage, Inc.(4)(5). . . . . . . . 11 3 27 * 909 284 31 3

Other(4)(6). . . . . . . . . . . . . . . . . . 1,282 374 29 38 1,429 724 51 6

Total. . . . . . . . . . . . . . . . . . . . . . $ 2,958 $ 991 100 % $16,013 $10,926 100 %

__________

* Represents less than 0.5% of total balance over 120 days.

(1) Amounts relating to repurchase requests originating from missing documentation or loan files are excluded from the outstanding 

repurchase requests until we receive the missing documents and loan files and a full underwriting review is completed.

(2) Measured from the repurchase request date. For lenders remitting after the property is disposed, the number of days outstanding is 

adjusted to allow for final loss determination.

(3) Based on the unpaid principal balance of the loans underlying the repurchase request issued. In some cases, lenders remit payment 

equal to our loss on sale of the loan as REO, which includes imputed interest, and is significantly lower than the unpaid principal 

balance of the loan. Also includes repurchase requests resulting from the rescission of mortgage insurance coverage.

(4) Mortgage seller/servicer has entered into an agreement with us relating to some of the reported amounts. The agreement extended the 

time for resolving certain outstanding repurchase requests and/or provided for the mortgage seller/servicer to post collateral to us.

(5) Due to the resolution agreement in the second quarter of 2013, CitiMortgage is no longer in our top five mortgage sellers/ servicers by 

outstanding repurchase requests as of September 30, 2013.

(6) Subsequent to September 30, 2013, we entered into resolution agreements with JPMorgan Chase and SunTrust as well as other smaller 

single-family counterparties.

We continue to aggressively pursue our contractual rights associated with outstanding repurchase requests, and we continue 

to enter into resolution agreements with mortgage seller/servicers to resolve outstanding amounts owed. Failure by a 

mortgage seller/servicer to repurchase a loan or to otherwise make us whole for our losses may result in the imposition of 

certain sanctions including, but not limited to:

• requiring the posting of collateral, 

• denying transfer of servicing requests or denying pledged servicing requests,

• modifying or suspending any contract or agreement with a lender, or 

• suspending or terminating a lender or imposing some other formal sanction on a lender.

If we are unable to resolve these matters to our satisfaction, we may seek additional remedies. If we are unable to resolve our 

repurchase requests, either through collection or additional remedies, we will not recover the losses we have recognized on 

the associated loans.

As described in “Credit Risk Management—Single-Family Mortgage Credit Risk Management,” we implemented a new 

representation and warranty framework on January 1, 2013. With the implementation of these changes we will review a 

larger sample of loans near the time of acquisition for compliance with our underwriting and eligibility requirements. As a 
75

result, a greater proportion of our repurchase requests in the future may be issued on performing loans, as compared with our 

currently outstanding repurchase requests, the substantial majority of which relate to loans that are either nonperforming or 

have been foreclosed upon.

Mortgage Insurers

We are generally required, pursuant to our charter, to obtain credit enhancement on single-family conventional mortgage 

loans that we purchase or securitize with LTV ratios over 80% at the time of purchase. We use several types of credit 

enhancement to manage our single-family mortgage credit risk, including primary and pool mortgage insurance coverage. 

Table 45 displays our risk in force for the primary and pool mortgage insurance coverage on single-family loans in our 

guaranty book of business and our insurance in force for our mortgage insurer counterparties as of September 30, 2013 and 

December 31, 2012. The table includes our top ten mortgage insurer counterparties, which provided over 99% of our total 

mortgage insurance coverage on single-family loans in our guaranty book of business as of September 30, 2013 and 

December 31, 2012. See “Risk Management—Credit Risk Management—Institutional Counterparty Risk Management—

Mortgage Insurers” in our 2012 Form 10-K for a discussion of the credit ratings of our mortgage insurers.

Table 45: Mortgage Insurance Coverage

Risk in Force(1) Insurance in Force(2)

As of As of

As of September 30, 2013 December 31, As of September 30, 2013 December 31,

Primary Pool Total 2012 Primary Pool Total 2012

(Dollars in millions)

Counterparty:(3)

Radian Guaranty, Inc. . . . . . . . . . . . . $ 21,287 $ 90 $21,377 $ 18,126 $ 85,325 $ 706 $ 86,031 $ 73,746

United Guaranty Residential

Insurance Co. . . . . . . . . . . . . . . . . 20,723 65 20,788 17,182 82,101 257 82,358 69,185

Mortgage Guaranty Insurance Corp. . 20,330 277 20,607 20,089 79,682 2,054 81,736 82,346

Genworth Mortgage Insurance Corp. 14,259 13 14,272 13,626 57,228 125 57,353 54,764

PMI Mortgage Insurance Co.(4)

. . . . . 7,399 54 7,453 8,901 29,762 686 30,448 36,743

Republic Mortgage Insurance Co.(4)

. 5,817 202 6,019 7,142 22,931 2,168 25,099 30,402

Essent Guaranty, Inc.. . . . . . . . . . . . . 3,758 — 3,758 1,724 15,378 — 15,378 7,148

CMG Mortgage Insurance Co.(5)

. . . . 2,775 — 2,775 2,340 11,530 — 11,530 9,823

Triad Guaranty Insurance Corp.(4)

. . . 1,761 228 1,989 2,368 6,543 1,459 8,002 9,895

National Mortgage Insurance Corp. . — 93 93 — 1 5,150 5,151 —

Others . . . . . . . . . . . . . . . . . . . . . . . . 180 — 180 197 1,034 — 1,034 1,118

Total. . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,289 $1,022 $99,311 $ 91,695 $391,515 $12,605 $404,120 $ 375,170

Total as a percentage of singlefamily guaranty book of business. 3 % 3 % 14 % 13 %

__________

(1) Risk in force is generally the maximum potential loss recovery under the applicable mortgage insurance policies in force and is 

based on the loan level insurance coverage percentage and, if applicable, any aggregate pool loss limit, as specified in the policy. 

(2) Insurance in force represents the unpaid principal balance of single-family loans in our guaranty book of business covered under the 

applicable mortgage insurance policies.

(3) Insurance coverage amounts provided for each counterparty may include coverage provided by consolidated affiliates and subsidiaries 

of the counterparty.

(4) These mortgage insurers are under various forms of supervised control by their state regulators and are in run-off.

(5) CMG Mortgage Insurance Company is a joint venture owned by PMI Mortgage Insurance Co. and CUNA Mutual Insurance Society.

Although the financial condition of some of our primary mortgage insurer counterparties continues to improve, there is still 

significant risk that our primary mortgage insurer counterparties will 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 these 

mortgage insurer counterparties, or if we have already made that determination and our estimate of the shortfall increases, it 

could result in an increase in our loss reserves, which could adversely affect our earnings, liquidity, financial condition and 

net worth.
76

PMI Mortgage Insurance Co. (“PMI”), Republic Mortgage Insurance Company (“RMIC”) and Triad Guaranty Insurance 

Corporation (“Triad”) are under various forms of supervised control by their state regulators and are in run-off. These three

mortgage insurers provided a combined $15.5 billion, or 16%, of our risk in force mortgage insurance coverage of our singlefamily guaranty book of business as of September 30, 2013. A mortgage insurer that is in run-off continues to collect renewal 

premiums and process claims on its existing insurance business, but no longer writes new insurance, which increases the risk 

that the mortgage insurer will pay claims only in part or fail to pay claims at all under existing insurance policies.

The payment of claims by PMI and RMIC have been partially deferred pursuant to orders from their state regulators. State 

regulators could take additional corrective actions against these entities. PMI is now paying 55% of all valid claims and 

deferring 45% of policyholder claims. This is an increase from the 50% it paid prior to the second quarter of 2013 and is 

retroactive for all claims previously paid at 50%. It is uncertain when, or if, PMI or RMIC will be permitted to begin paying 

deferred policyholder claims and/or increase or decrease the amount of cash they pay on claims. In October 2013, a court 

approved a petition by Triad’s regulator for a new plan of rehabilitation that will increase the amount of cash Triad pays on 

policyholder claims from 60% to 75%, as well as pay 37.5% of Triad’s outstanding deferred payment obligations (bringing 

payment on those claims to 75%). The new plan provides that these payments will constitute payment in full by Triad and it 

will no longer be obligated to pay policyholders more than 75% on claims, except in specified limited circumstances. 

While our remaining mortgage insurers have continued to pay claims owed to us in full, there is still the risk that they will be 

unable to do so given their current financial condition.

Genworth Mortgage Insurance Corporation (“Genworth”) had been operating pursuant to waivers of state regulatory capital 

requirements applicable to its main insurance writing entity, as its capital had fallen below applicable state regulatory capital 

requirements. Genworth subsequently announced that, as of June 30, 2013, its risk-to-capital ratio met the regulatory capital 

requirements of all or most jurisdictions where it conducts business. We previously approved a subsidiary of Genworth to 

write new insurance in certain states where Genworth was unable to obtain a waiver of the state regulatory capital 

requirement.

Mortgage Guaranty Insurance Corporation (“MGIC”) and Radian Guaranty, Inc. (“Radian”) disclosed that they received 

additional capital contributions in March 2013 to supplement their capital positions. As of September 30, 2013, MGIC 

announced that it expects to meet the capital requirements where it conducts business. Radian met the capital requirements 

where it conducts business as of June 30, 2013.

Some mortgage insurers have explored corporate restructurings designed to provide relief from risk-to-capital limits in 

certain states. We have approved several restructurings so that certain of our mortgage insurer counterparties or their 

subsidiaries could continue to write new business.

During the first quarter of 2013, we approved an application from National Mortgage Insurance Corporation (“NMI”), a new 

mortgage insurer, requesting eligibility to do business with us. On July 15, 2013, we executed an agreement with NMI to 

insure a pool of loans with an unpaid principal balance of over $5 billion as part of FHFA’s 2013 conservatorship scorecard 

objective to transfer $30 billion in single-family risk to other entities. The coverage was effective as of September 1, 2013.

The number of mortgage loans for which our mortgage insurer counterparties have rescinded coverage decreased but 

remained high during the first nine months of 2013. In those cases where the mortgage insurer has rescinded coverage, we 

require the mortgage seller/servicer to repurchase the loan or indemnify us against loss. The table below displays cumulative 

rescission rates as of September 30, 2013 by the period in which the claim was filed and also displays the percentage of 

claims resolved by the period in which the claims were filed. We do not present information for claims filed in the most 

recent two quarters to allow sufficient time for a substantial percentage of the claims filed to be resolved.
77

Table 46: Rescission Rates and Claims Resolution of Mortgage Insurance

As of September 30, 2013

Cumulative Rescission 

Rate(1)

Cumulative Claims 

Resolution Percentage(2)

Primary mortgage insurance claims filed in:

First three months of 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 55%

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 73

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 83

Pool mortgage insurance claim filed in:

First three months of 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 78%

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 92

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 97

__________

(1) Represents claims filed during the period where coverage was rescinded as of September 30, 2013, divided by total claims filed during 

the same period. Denied claims are excluded from the rescinded population.

(2) Represents claims filed during the period that were resolved as of September 30, 2013, divided by the total claims filed during the same 

period. Claims resolved mainly consist of claims for which we have settled and claims for which coverage has been rescinded by the 

mortgage insurer.

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 result in an increase in our loss reserves.

The following table displays the amount by which our estimated benefit from mortgage insurance as of September 30, 2013

and December 31, 2012 reduced our total loss reserves as of those dates.

Table 47: Estimated Mortgage Insurance Benefit

As of

September 30, 2013 December 31, 2012

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,117 $ 9,993

Less: Collectibility adjustment(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 708

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,658 $ 9,285

__________

(1) Represents an adjustment that reduces the contractual benefit for our assessment of our mortgage insurer counterparties’ inability to 

fully pay the contractual mortgage insurance claims.

When an insured loan subsequently goes into foreclosure, we charge off the loan, eliminating any previously-recorded loss 

reserves, and record REO and a mortgage insurance receivable for the claim proceeds deemed probable of recovery, as 

appropriate. However, if a mortgage insurer rescinds, cancels or denies insurance coverage, the initial receivable becomes 

due from the mortgage seller/servicer. We had outstanding receivables of $2.5 billion as of September 30, 2013 and $3.7 

billion as of December 31, 2012 related to amounts claimed on insured, defaulted loans excluding government insured loans. 

Of this amount, $554 million as of September 30, 2013 and $1.1 billion as of December 31, 2012 was due from our mortgage 

sellers/servicers. We assessed the total outstanding receivables for collectibility, and they were recorded net of a valuation 

allowance of $598 million as of September 30, 2013 and $551 million as of December 31, 2012 in “Other assets.” The 

valuation allowance reduces our claim receivable to the amount that we consider probable of collection. We received 

proceeds from private mortgage insurers (and, in cases where policies were rescinded or canceled or coverage was denied by 

the mortgage insurer, from mortgage sellers/servicers) for single-family loans of $1.1 billion for the third quarter of 2013 and 

$4.4 billion for the first nine months of 2013, compared with $1.1 billion for the third quarter of 2012 and $3.6 billion for the 

first nine months of 2012.
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Financial Guarantors

We are the beneficiary of non-governmental financial guarantees on non-agency securities held in our retained mortgage 

portfolio and on non-agency securities that have been resecuritized to include a Fannie Mae guaranty and sold to third parties. 

Table 48 displays the total unpaid principal balance of guaranteed non-agency securities in our retained mortgage portfolio as 

of September 30, 2013 and December 31, 2012.

Table 48: Unpaid Principal Balance of Financial Guarantees

As of

September 30, 2013 December 31, 2012

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 552 $ 928

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 883 1,264

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,041 4,374

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 292

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,746 $ 6,858

With the exception of Ambac Assurance Corporation (“Ambac”), none of our financial guarantor counterparties has failed to 

repay us for claims under guaranty contracts. However, based on the stressed financial condition of our non-governmental 

financial guarantor counterparties, we believe that all but one of these counterparties may not fully meet their obligations to 

us in the future. Pursuant to a court order, effective August 31, 2012, Ambac pays 25% on all filed claims that are valid. 

Ambac provided coverage on $2.6 billion, or 46%, of our total non-governmental financial guarantees as of September 30, 

2013. When assessing our securities for impairment, we consider the benefit of non-governmental financial guarantees for 

those guarantors that we determine are creditworthy, although we continue to seek collection of any amounts due to us from 

all counterparties. See “Note 5, Investments in Securities” for a further discussion of our model methodology and key inputs 

used to determine other-than-temporary impairment.

We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and 

its agencies that totaled $23.7 billion as of September 30, 2013 and $27.3 billion as of December 31, 2012.

Lenders with Risk Sharing

We enter into risk sharing agreements with lenders pursuant to which the lenders agree to bear all or some portion of the 

credit losses on the covered loans. Our maximum potential loss recovery from lenders under these risk sharing agreements on 

single-family loans was $10.8 billion as of September 30, 2013, compared with $11.9 billion as of December 31, 2012. As of 

September 30, 2013, 53% of our maximum potential loss recovery on single-family loans was from three lenders, compared 

with 55% as of December 31, 2012. Our maximum potential loss recovery from lenders under risk sharing agreements on 

DUS and non-DUS multifamily loans was $38.2 billion as of September 30, 2013, compared with $36.4 billion as of 

December 31, 2012. As of September 30, 2013, 34% of our maximum potential loss recovery on multifamily loans was from 

three DUS lenders, compared with 35% as of December 31, 2012.

Although market conditions have improved, unfavorable market conditions prior to 2012 adversely affected the liquidity and 

financial condition of our lender counterparties. The percentage of single-family recourse obligations from lenders with 

investment grade credit ratings (based on the lower of S&P, Moody’s and Fitch ratings) was 54% as of September 30, 2013, 

compared with 51% as of December 31, 2012. The recourse obligations from lender counterparties rated below investment 

grade was 22% as of September 30, 2013 and December 31, 2012. The remaining recourse obligations were from lender 

counterparties that were not rated by rating agencies, which was 24% as of September 30, 2013, compared with 27% as of 

December 31, 2012. Given the stressed financial condition of some of our single-family lenders, we expect in some cases we 

will recover less than the amount the lender is obligated to provide us under our risk sharing arrangement with them. 

Depending on the financial strength of the counterparty, we may require a lender to pledge collateral to secure its recourse 

obligations.

As noted in “Multifamily Mortgage Credit Risk Management,” our primary multifamily delivery channel is our DUS 

program, which is comprised of lenders that range from large depositories to independent non-bank financial institutions. As 

of September 30, 2013, approximately 38% of the unpaid principal balance of loans in our multifamily guaranty book of 

business serviced by our DUS lenders was from institutions with an external investment grade credit rating or a guaranty 

from an affiliate with an external investment grade credit rating, compared with approximately 40% as of December 31, 

2012. Given the recourse nature of the DUS program, the lenders are bound by eligibility standards that dictate, among other 
79

items, minimum capital and liquidity levels, and the posting of collateral at a highly rated custodian to secure a portion of the 

lenders’ future obligations. We actively monitor the financial condition of these lenders to help ensure the level of risk 

remains within our standards and to ensure required capital levels are maintained and are in alignment with actual and 

modeled loss projections.

Custodial Depository Institutions

A total of $47.7 billion in deposits for single-family payments were received and held by 285 institutions during the month of 

September 2013 and a total of $74.0 billion in deposits for single-family payments were received and held by 292 institutions 

during the month of December 2012. Of these total deposits, 94% as of September 30, 2013, compared with 93% as of 

December 31, 2012, were held by institutions rated as investment grade by S&P, Moody’s and Fitch. Our transactions with 

custodial depository institutions are concentrated. Our six largest custodial depository institutions held 86% of these deposits 

as of September 30, 2013, compared with 87% as of December 31, 2012.

If a custodial depository institution were to fail while holding remittances of borrower payments of principal and interest due 

to us in our custodial account, we would be an unsecured creditor of the depository for balances in excess of the deposit 

insurance protection and might not be able to recover all of the principal and interest payments being held by the depository 

on our behalf, or there might be a substantial delay in receiving these amounts. If this were to occur, we would be required to 

replace these amounts with our own funds to make payments that are due to Fannie Mae MBS certificateholders. 

Accordingly, the insolvency of one of our principal custodial depository counterparties could result in significant financial 

losses to us. During the month of September 2013, approximately $3.0 billion, or 6%, of our total deposits for single-family 

payments received and held by these institutions was in excess of the deposit insurance protection limit compared with 

approximately $7.2 billion, or 10%, during the month of December 2012. These amounts can vary as they are calculated 

based on individual payments of mortgage borrowers and we must estimate which borrowers are paying their regular 

principal and interest payments and other types of payments, such as prepayments from refinancing or sales.

Issuers of Investments Held in our Cash and Other Investments Portfolio

Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and securities purchased 

under agreements to resell or similar arrangements and U.S. Treasury securities. Our cash and other investment 

counterparties are primarily financial institutions and the Federal Reserve Bank. As of September 30, 2013, we held a $1.0 

billion short-term unsecured deposit with a financial institution that had a short-term credit rating of P-2 from Moody’s 

(based on the lowest credit rating issued by S&P, Moody’s and Fitch) and no other unsecured positions. We held no 

unsecured positions with financial institutions as of December 31, 2012. See “Liquidity and Capital Management—Liquidity 

Management—Cash and Other Investments Portfolio” for more detailed information on our cash and other investments 

portfolio.

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. Historically, our risk management derivative transactions have been made pursuant to bilateral contracts with a 

specific counterparty governed by the terms of an International Swaps and Derivatives Association Inc. (“ISDA”) master 

agreement. Pursuant to new regulations implementing the Dodd-Frank Act, effective June 10, 2013, we are required to submit 

certain categories of new interest rate swaps to a derivatives clearing organization. Once a contract is accepted by a 

derivatives clearing organization, such contract is not governed by the terms of an ISDA master agreement. 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 OTC-cleared derivative 

transactions.

We manage our derivative counterparty credit exposure relating to our OTC derivative transactions through master netting 

arrangements. These arrangements allow us to net derivative asset and liabilities with the same counterparty. We also manage 

our derivative counterparty exposure relating to our OTC derivative transactions by requiring counterparties to post 

collateral, which includes cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.

Our OTC-cleared derivative transactions are submitted to a derivatives clearing organization on our behalf through a member 

of the organization. As a result, we are exposed to the institutional credit risk of both the derivatives clearing organization and 

the member who is acting on our behalf. Our institutional credit risk exposure to derivatives clearing organizations and 

certain of their members will increase substantially in the future as OTC-cleared derivative contracts will comprise a larger 
80

percentage of our derivative instruments. Our agreements relating to our OTC-cleared derivative transactions are not master 

netting arrangements.

We estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value 

basis, to settle at current market prices all outstanding derivative contracts in a net gain position at the counterparty level 

where the right of legal offset exists. For derivative instruments where the right of legal offset does not exist (such as our 

OTC-cleared derivative transactions), we calculate the replacement cost of the outstanding derivative contracts in a gain 

position at the transaction level.

The fair value of derivatives in a gain position is included in our condensed consolidated balance sheets in “Other assets.” 

Table 49 below displays our counterparty credit exposure on outstanding risk management derivative instruments in a gain 

position as of September 30, 2013 and December 31, 2012. For our OTC derivative transactions, the table displays our 

exposure by counterparty credit ratings and number of counterparties. Our counterparty credit exposure to our OTC-cleared 

derivative transactions is shown in the “Exchange-Traded/Cleared” column. Also displayed below are the notional amounts 

outstanding for all risk management derivatives for the periods indicated.

Table 49: Credit Loss Exposure of Risk Management Derivative Instruments

As of September 30, 2013

Credit Rating(1)

AA+/

AA/AA- A+/A/ABBB+/BBB/BBB- Subtotal(2)

ExchangeTraded/

Cleared(3) Other(4) Total

(Dollars in millions)

Credit loss exposure(5). . . . . . . . . . . . . . . $ 56 $ 850 $ — $ 906 $ 1,119 $ 27 $ 2,052

Less: Collateral held(6). . . . . . . . . . . . . . 50 839 — 889 1,106 — 1,995

Exposure net of collateral. . . . . . . . . . . . $ 6 $ 11 $ — $ 17 $ 13 $ 27 $ 57

Additional information:

Notional amount . . . . . . . . . . . . . . . . $ 29,320 $ 422,789 $ 45,235 $ 497,344 $ 125,431 $ 281 $ 623,056

Number of counterparties(7). . . . . . . . 4 11 1 16

As of December 31, 2012

Credit Rating(1)

AA+/

AA/AA- A+/A/ABBB+/BBB/BBB- Subtotal(2)

ExchangeTraded/

Cleared(3) Other(4) Total

(Dollars in millions)

Credit loss exposure(5). . . . . . . . . . . . . . . $ — $ 48 $ — $ 48 $ 171 $ 27 $ 246

Less: Collateral held(6). . . . . . . . . . . . . . — 48 — 48 163 — 211

Exposure net of collateral. . . . . . . . . . . . $ — $ — $ — $ — $ 8 $ 27 $ 35

Additional information:

Notional amount . . . . . . . . . . . . . . . . $ 22,703 $ 600,028 $ 40,350 $ 663,081 $ 38,426 $ 447 $ 701,954

Number of counterparties(7). . . . . . . . 4 11 1 16

__________

(1) We manage collateral requirements based on the lower credit rating of the legal entity, as issued by S&P and Moody’s. The credit rating 

reflects the equivalent S&P rating for any ratings based on Moody’s scale.

(2) We had credit loss exposure to 6 counterparties with a notional balance of $164.6 billion as of September 30, 2013 and one 

counterparty with a notional balance of $5.9 billion as of December 31, 2012.

(3) Represents contracts entered through an agent on our behalf with derivatives clearing organizations.

(4) Includes mortgage insurance contracts and swap credit enhancements accounted for as derivatives. 

(5) Represents the exposure to credit loss on derivative instruments, which we estimate using the fair value of all outstanding derivative 

contracts in a gain position. We net derivative gains and losses with the same counterparty where a legal right of offset exists under an 

enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives.

(6) Represents cash and non-cash collateral posted by our counterparties to us. Does not include collateral held in excess of exposure. We 

reduce the value of non-cash collateral in accordance with the counterparty agreements to ensure recovery of any loss through the 

disposition of the collateral.
81

(7) Represents counterparties with which we have an enforceable master netting arrangements.

OTC derivative transactions with 10 of our counterparties accounted for approximately 74% of our total outstanding notional 

amount of our total derivative transactions as of September 30, 2013, with each of these counterparties accounting for 

between approximately 3% and 13% of that total outstanding notional amount. OTC derivative transactions with 10 of our 

counterparties accounted for approximately 90% of our total outstanding notional amount of our total derivative transactions 

as of December 31, 2012, with each of these counterparties accounting for between approximately 6% and 14% of that total 

outstanding notional amount. 

 See “Note 9, Derivative Instruments” and “Note 15, Netting Arrangements” for additional information on our derivative 

contracts as of September 30, 2013 and December 31, 2012.

Market Risk Management, Including Interest Rate Risk Management

We are subject to market risk, which includes interest rate risk, spread risk and liquidity risk. These risks arise from our 

mortgage asset investments. Interest rate risk is the risk of loss in value or expected future earnings that may result from 

changes to interest rates. Spread risk is the resulting impact of changes in the spread between our mortgage assets and our 

debt and derivatives we use to hedge our position. Liquidity risk is the risk that we will not be able to meet our funding 

obligations in a timely manner. We describe our sources of interest rate risk exposure and our strategy for managing interest 

rate risk and spread risk in “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk 

Management” in our 2012 Form 10-K.

Measurement of Interest Rate Risk

Below we present two quantitative metrics that provide estimates of our interest rate exposure: (1) fair value sensitivity of 

Fannie Mae assets and liabilities, which we refer to as our net portfolio, to changes in interest rate levels and slope of yield 

curve; and (2) duration gap. The metrics presented are calculated using internal models that require standard assumptions 

regarding interest rates and future prepayments of principal over the remaining life of our securities. These assumptions are 

derived based on the characteristics of the underlying structure of the securities and historical prepayment rates experienced 

at specified interest rate levels, taking into account current market conditions, the current mortgage rates of our existing 

outstanding loans, loan age and other factors. On a continuous basis, management makes judgments about the 

appropriateness of the risk assessments and will make adjustments as necessary to properly assess our interest rate exposure 

and manage our interest rate risk. The methodologies used to calculate risk estimates are periodically changed on a 

prospective basis to reflect improvements in the underlying estimation process.

Interest Rate Sensitivity to Changes in Interest Rate Level and Slope of Yield Curve

As part of our disclosure commitments with FHFA, we disclose on a monthly basis the estimated adverse impact on the fair 

value of our net portfolio that would result from the following hypothetical situations:

• A 50 basis point shift in interest rates.

• A 25 basis point change in the slope of the yield curve.

In measuring the estimated impact of changes in the level of interest rates, we assume a parallel shift in all maturities of the 

U.S. LIBOR interest rate swap curve.

In measuring the estimated impact of changes in the slope of the yield curve, we assume a constant 7-year rate and a shift of 

16.7 basis points for the 1-year rate and 8.3 basis points for the 30-year rate. We believe the aforementioned interest rate 

shocks for our monthly disclosures represent moderate movements in interest rates over a one-month period.

Duration Gap

Duration gap measures the price sensitivity of our assets and liabilities in our net portfolio to changes in interest rates by 

quantifying the difference between the estimated durations of our assets and liabilities. Our duration gap analysis reflects the 

extent to which the estimated maturity and repricing cash flows for our assets are matched, on average, over time and across 

interest rate scenarios to the estimated cash flows of our liabilities. A positive duration gap indicates that the duration of our 

assets exceeds the duration of our liabilities. We disclose duration gap on a monthly basis under the caption “Interest Rate 

Risk Disclosures” in our Monthly Summary, which is available on our website and announced in a press release.

While our goal is to reduce the price sensitivity of our net portfolio to movements in interest rates, various factors can 

contribute to a duration gap that is either positive or negative. For example, changes in the market environment can increase 

or decrease the price sensitivity of our mortgage assets relative to the price sensitivity of our liabilities because of prepayment 

uncertainty associated with our assets. In a declining interest rate environment, prepayment rates tend to accelerate, thereby 
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shortening the duration and average life of the fixed rate mortgage assets we hold in our net portfolio. Conversely, when 

interest rates increase, prepayment rates generally slow, which extends the duration and average life of our mortgage assets. 

Our debt and derivative instrument positions are used to manage the interest rate sensitivity of our mortgage assets. As a 

result, the degree to which the interest rate sensitivity of our assets is offset will be dependent upon, among other factors, the 

mix of funding and other risk management derivative instruments we use at any given point in time.

Convexity reflects the degree to which the duration of the assets and liabilities in our net portfolio changes in response to a 

given change in interest rates. We use convexity measures to provide us with information about how quickly and by how 

much our net portfolio’s duration gap may change in different interest rate environments. The market value sensitivity 

measures presented in Table 50 below are impacted by both the duration and convexity of our net portfolio and, depending on 

our position at that time, may not move symmetrically in response to hypothetical interest rate shocks.

The sensitivity measures presented in Table 50, which we disclose on a quarterly basis as part of our disclosure commitments 

with FHFA, are an extension of our monthly sensitivity measures. There are three primary differences between our monthly 

sensitivity disclosure and the quarterly sensitivity disclosure presented below: (1) the quarterly disclosure is expanded to 

include the sensitivity results for larger rate level shocks of plus or minus 100 basis points; (2) the monthly disclosure reflects 

the estimated pre-tax impact on the market value of our net portfolio calculated based on a daily average, while the quarterly 

disclosure reflects the estimated pre-tax impact calculated based on the estimated financial position of our net portfolio and 

the market environment as of the last business day of the quarter; and (3) the monthly disclosure shows the most adverse pretax impact on the market value of our net portfolio from the hypothetical interest rate shocks, while the quarterly disclosure 

includes the estimated pre-tax impact of both up and down interest rate shocks.

Table 50 displays the pre-tax market value profile of our net portfolio as of September 30, 2013 and December 31, 2012. In 

addition, Table 50 also provides the average, minimum, maximum and standard deviation for duration gap and for the most 

adverse market value impact on the net portfolio for non-parallel and parallel interest rate shocks for the three months ended 

September 30, 2013 and 2012. The effective duration gap was approximately zero months for the three months ended 

September 30, 2013 and 2012.
83

Table 50: Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve(1)

As of

September 30, 2013 December 31, 2012

(Dollars in billions)

Rate level shock:

-100 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.4) $ 0.8

-50 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) 0.2

+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.1

+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) —

Rate slope shock:

-25 basis points (flattening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

+25 basis points (steepening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

For the Three Months Ended September 30, 2013

Duration

Gap

Rate Slope Shock

25 Bps

Rate Level Shock

50 Bps

Exposure

(In months) (Dollars in billions)

Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) $ — $ 0.2

Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) — 0.1

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.1 0.4

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 — 0.1

For the Three Months Ended September 30, 2012

Duration

Gap

Rate Slope Shock 

25 Bps

Rate Level Shock

50 Bps

Exposure

(In months) (Dollars in billions)

Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 $ — $ 0.2

Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.3) — —

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 — 0.1

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 — —

__________

(1) Computed based on changes in LIBOR swap rates.

A majority of the interest rate risk associated with our mortgage-related securities and loans is hedged with our debt 

issuances, which includes callable debt. 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. Table 51 displays an example of how risk management derivatives impacted the net 

market value exposure for a 50 basis point parallel interest rate shock.
84

From December 31, 2012 to September 30, 2013, as displayed below in Table 51, debt issuance hedged a majority of the 

interest rate risk associated with our mortgage-related securities and loans. As displayed in Table 50, risk management 

derivatives were also used to maintain a low interest rate risk exposure as the average duration gap was approximately zero 

months.

Table 51: Derivative Impact on Interest Rate Risk (50 Basis Points)

As of

September 30, 2013 December 31, 2012

(Dollars in billions)

Before Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.1) $ (0.5)

After Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.1

Effect of Derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.6

Other Interest Rate Risk Information

The interest rate risk measures discussed above exclude the impact of changes in the fair value of our net guaranty assets 

resulting from changes in interest rates. We exclude our guaranty business from these sensitivity measures based on our 

current assumption that the guaranty fee income generated from future business activity will largely replace guaranty fee 

income lost due to mortgage prepayments.

In “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk Management—Measurement of 

Interest Rate Risk—Other Interest Rate Risk Information” in our 2012 Form 10-K, we provided additional interest rate 

sensitivities including separate disclosure of the potential impact on the fair value of our trading assets and other financial 

instruments. As of September 30, 2013, these sensitivities were relatively unchanged compared with December 31, 2012. The 

fair value of our trading financial instruments and our other financial instruments as of September 30, 2013 and 

December 31, 2012 can be found in “Note 16, Fair Value.”

Liquidity Risk Management

See “Liquidity and Capital Management—Liquidity Management” for a discussion on how we manage liquidity risk.

Operational Risk Management

See “Risk Management—Operational Risk Management” in our 2012 Form 10-K for more information on our framework for 

managing operational risk.

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,” or similar words. 

Among the forward-looking statements in this report are statements relating to: 

• Our expectation that we will remain profitable for the foreseeable future;

• Our expectation that, while our annual earnings will remain strong over the next few years, our earnings may vary 

significantly from quarter to quarter and year to year due to many different factors, such as changes in interest rates 

or home prices;

• Our expectations that our revenues will continue to be stable and that the source of our revenues will shift in the 

future;

• Our expectation of volatility from period to period in our financial results due to changes in market conditions that 

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

our earnings;

• Our expectation that we will make substantial federal income tax payments to Treasury going forward;
85

• Our expectation that we will pay Treasury a senior preferred stock dividend of $8.6 billion in the fourth quarter of 

2013;

• Our expectation that, in compliance with our dividend obligation to Treasury, we will retain only a limited amount 

of any future earnings because we must pay Treasury each quarter the amount, if any, by which our net worth as of 

the end of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount;

• Our expectation that the amount of dividends we pay Treasury will exceed the amounts we have drawn;

• Our expectation that the single-family loans we have acquired since the beginning of 2009, in the aggregate, will be 

profitable over their lifetime, by which we mean that we expect our fee income on these loans to exceed our credit 

losses and administrative costs for them; 

• Our expectation that the single-family loans we acquired from 2005 through 2008, in the aggregate, will not be 

profitable over their lifetime; 

• Our expectation that, as a result of our having increased our guaranty fees in 2012 on loans acquired after the 

increase, we will benefit from receiving significantly more revenue from guaranty fees in future periods than we 

have in prior periods, even after we remit some of this revenue to Treasury as we are required to do under the 

TCCA;

• Our belief that we will increase our guaranty fees in the future;

• Our expectation that the guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS 

held by third parties will in a number of years become the primary source of our revenues;

• Our expectation that revenues generated from the difference between the interest income earned on the assets in our 

retained mortgage portfolio and the interest expense associated with the debt that funds those assets will decrease as 

we reduce the size of our retained mortgage portfolio;

• Our expectation that, if current housing market conditions continue and if we are not required to sell more of our 

retained mortgage portfolio assets than we currently anticipate selling, increases in our revenues from guaranty fees 

will generally offset the expected declines in the revenues we generate from the difference between the interest 

income earned on the assets in our retained mortgage portfolio and the interest expense associated with the debt that 

funds those assets;

• Our expectation that any future increases in guaranty fees will likely further increase our guaranty fee revenue;

• Our expectation that improvements in the credit quality of our loan acquisitions since 2009 and increases in our 

charged guaranty fees on recently acquired loans will contribute significantly to our revenues for years to come, 

especially because these loans have relatively low interest rates, making them less likely to be refinanced than loans 

with higher interest rates;

• Our expectation that the serious delinquency rates for single-family loans acquired in more recent years will be 

higher after the loans have aged, but will not be as high as the September 30, 2013 serious delinquency rates of loans 

in our legacy book of business;

• Our expectation that the housing market will benefit if employment continues to improve;

• Our expectation that nearly 200,000 new multifamily units will be completed this year, which could impact 

multifamily fundamentals in certain localized areas, producing a temporary slowdown in net absorption rates, 

occupancy levels, and effective rents starting in 2014;

• Our expectation that, despite steady demand and stable fundamentals at the national level, the multifamily sector 

may continue to exhibit below average fundamentals in certain local markets and with certain properties;

• Our expectation that the level of multifamily foreclosures for 2013 overall will generally remain commensurate with 

2012 levels, although conditions may worsen if the unemployment rate increases on either a national or regional 

basis;

• Our expectation that single-family mortgage loan delinquency and severity rates will continue their downward trend, 

but that single-family serious delinquency, default and severity rates will remain high compared with pre-housing 

crisis levels; 

• Our belief that the recent increase in mortgage rates will result in a decline in overall single-family mortgage 

originations in 2013 as compared with 2012, driven by a decline in refinancings;
86

• Our forecast that total originations in the U.S. single-family mortgage market in 2013 will decrease from 2012 levels 

by approximately 15%, from an estimated $2.15 trillion in 2012 to $1.83 trillion in 2013;

• Our forecast that the amount of originations in the U.S. single-family mortgage market that are refinancings will 

decrease from an estimated $1.54 trillion in 2012 to $1.13 trillion in 2013;

• Our expectation that home prices will increase only minimally on a national basis in the fourth quarter of 2013;

• Our expectation of significant regional variation in the timing and rate of home price growth;

• Our expectation that our credit losses will decrease in the future as a result of the higher credit quality of our new 

book of business, the decrease in our legacy book and anticipated positive home price growth;

• Our expectation that our credit losses will remain elevated in 2013 relative to pre-housing crisis levels;

• Our expectation that, to the extent the slow pace of foreclosures continues in the fourth quarter of 2013, our 

realization of some credit losses will be delayed;

• Our belief that our total loss reserves peaked at $76.9 billion as of December 31, 2011;

• Our expectation that, if delinquencies continue to trend downward and home prices continue to increase, our loss 

reserves will continue to decline, but at a slower pace than in recent quarters because the pace of home price growth 

has slowed;

• Our expectation that our loss reserves will remain significantly elevated relative to historical levels for an extended 

period because (1) we expect future defaults on loans that we acquired prior to 2009 and the resulting charge-offs 

will occur over a period of years and (2) a significant portion of our reserves represents concessions granted to 

borrowers upon modification of their loans and our reserves will continue to reflect these concessions until the loans 

are fully repaid or in default; 

• Our expectation that uncertainty regarding the future of our company will continue;

• Our expectation that Congress will continue to consider housing finance system reform in the current congressional 

session, including conducting hearings on GSE reform and considering legislation that would alter the housing 

finance system or the activities or operations of the GSEs;

• Our anticipation that we will enter into additional agreements relating to Common Securitization Solutions, LLCin 

the future;

• Our expectation that, upon our adoption of Advisory Bulletin AB 2012-02, the amount of the charge-off for singlefamily loans classified as a “loss” will exceed the amount of incurred losses we have recognized for those loans in 

our allowance for loan losses, because the charge-off will not be reduced by the benefit we expect from borrower reperformance on these loans;

• Our expectations that, going forward after our adoption of Advisory Bulletin AB 2012-02, the amount of the chargeoff at the time a loan is classified as a “loss” will exceed our best estimate of incurred losses, and that we will record 

larger loss recoveries for loans that become 180 days or more past due and subsequently re-perform;

• Our expectation that, if recent trends continue, the population of loans that will be subject to accelerated charge-off 

under Advisory Bulletin AB 2012-02 will decline either through liquidation or re-performance and that, therefore, 

the impact upon adoption of the guidance will be less than $1.0 billion;

• Our conclusion that it is more likely than not that our deferred tax assets, except the deferred tax assets relating to 

capital loss carryforwards, will be realized;

• Our belief that our capital loss carryforwards will expire unused;

• Our anticipation that we will utilize all of our net operating loss carryforwards by the end of 2013;

• Our expectation that our remaining deferred tax asset valuation allowance not related to capital loss carryforwards 

will be released against income before federal income taxes during the fourth quarter of 2013;

• Our expectation that, starting in 2014, our effective tax rate will approach the statutory tax rate;

• Our expectation that the guaranty fees we collect and the expenses we incur pursuant to the TCCA will increase in 

the future;
87

• Our expectation that we will continue to purchase loans from MBS trusts as they become four or more consecutive 

monthly payments delinquent subject to market conditions, economic benefit, servicer capacity and other factors 

including the limit on the mortgage assets that we may own pursuant to the senior preferred stock purchase 

agreement;

• Our expectation that sales of non-agency mortgage-related securities will result in a decrease in future net interest 

income from our retained mortgage portfolio; 

• Our belief that our liquidity contingency plan may be difficult or impossible to execute for a company of our size 

and circumstances;

• Our intention to repay our short-term and long-term debt obligations as they become due primarily through proceeds 

from the issuance of additional debt securities;

• Our expectation that we may also use proceeds from our mortgage assets to pay our debt obligations;

• Our belief that continued federal government support of our business and the financial markets, as well as our status 

as a GSE, are essential to maintaining our access to debt funding;

• Our belief that changes or perceived changes in federal government support of our business and the financial 

markets or our status as a GSE could materially and adversely affect our liquidity, financial condition and results of 

operations;

• Our expectations regarding our credit ratings and their impact on us as set forth in “MD&A—Liquidity and Capital 

Management—Liquidity Management—Credit Ratings” and “Risk Factors”;

• Our expectation that we will not eliminate our deficit of core capital over statutory minimum capital due to our 

dividend obligations on the senior preferred stock;

• Our belief that we have limited credit exposure on government loans;

• Our expectation that the ultimate performance of all our loans will be affected by borrower behavior, public policy 

and macroeconomic trends, including unemployment, the economy and home prices;

• Our belief that loans we acquire under Refi Plus and HARP may not perform as well as the other loans we have 

acquired since the beginning of 2009, but they will perform better than the loans they replace because they should 

either reduce the borrowers’ monthly payments or provide more stable terms than the borrowers’ old loans (for 

example, by refinancing into a mortgage with a fixed interest rate instead of an adjustable rate);

• Our expectation that the volume of refinancings under HARP will decline due to increased interest rates and a 

decrease in the population of borrowers with loans that have high LTV ratios who are willing to refinance and would 

benefit from refinancing; 

• Our expectation that our acquisitions of Alt-A mortgage loans (which are limited to refinancings of existing Fannie 

Mae loans) will continue to be minimal in future periods and the percentage of the book of business attributable to 

Alt-A will continue to decrease over time;

• Our belief that the slow pace of foreclosures will continue to negatively affect our single-family serious delinquency 

rates, foreclosure timelines and credit-related income (expense);

• Our expectation that the number of our single-family loans in our book of business that are seriously delinquent will 

remain above pre-2008 levels for years;

• Our belief that the performance of our workouts will be highly dependent on economic factors, such as 

unemployment rates, household wealth and income, and home prices;

• Our expectation that our dispositions of foreclosed properties may decline in the future due to increases in home 

prices and interest rates, which may lead to less attractive purchasing opportunities for investors and potential home 

owners;

• Our expectation that we may be unable to recover on all outstanding loan repurchase obligations resulting from 

mortgage sellers/servicers’ breaches of contractual obligations;

• Our expectation that, by the end of 2013, we will have completed our loan reviews for potential underwriting defects 

on all of the loans we acquired between 2005 and 2008 through our standard whole loan and MBS acquisitions that 

we currently intend to review; 
88

• Our expectation that, with the implementation of our new representation and warranty framework, a greater 

proportion of our repurchase requests in the future may be issued on performing loans, as compared with our 

currently outstanding repurchase requests, the substantial majority of which relate to loans that are either 

nonperforming or have been foreclosed upon;

• Our belief that the financial condition of some of our primary mortgage insurer counterparties continues to improve;

• Our belief, based on the stressed financial condition of our non-governmental financial guarantor counterparties, that 

all but one of these counterparties may not fully meet their obligations to us in the future;

• Our expectation, given the stressed financial condition of some of our single-family lenders, that in some cases we 

will recover less than the amount the lender is obligated to provide us under our risk sharing arrangement with the 

lender; 

• Our expectation that, depending on the financial strength of a single-family lender with whom we have a risk 

sharing arrangement, we may require the lender to pledge collateral to secure its recourse obligations; and

• Our plans and expectations relating to the distribution of benefits remaining under our retirement plans and the 

termination of those plans.

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; legislative and 

regulatory changes affecting us; the timing and level of, as well as regional variation in, home price changes; changes in 

interest rates, unemployment rates and other macroeconomic and housing market variables; our future guaranty fee pricing 

and the impact of that pricing on our competitive environment; challenges we face in retaining and hiring qualified 

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; a decrease in our credit 

ratings; limitations on our ability to access the debt capital markets; disruptions in the housing and credit markets; significant 

changes in modification and foreclosure activity; 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 (“FASB”); future changes to our accounting policies; changes in the fair value of 

our assets and liabilities; impairments of our assets; operational control weaknesses; our reliance on models; future updates to 

our models, including the assumptions used by these models; the level and volatility of interest rates and credit spreads; 

changes in the structure and regulation of the financial services industry; natural or other disasters; and those factors 

described in “Risk Factors” in this report and in our 2012 Form 10-K, as well as the factors described in “Executive 

Summary—Outlook—Factors that Could Cause Actual Results to be Materially Different from our Estimates and 

Expectations” in this report. 

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 our 2012 Form 10-K and in this report. 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. 
89

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,

2013 2012

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,784 $ 21,117

Restricted cash (includes $26,804 and $61,976, respectively, related to consolidated trusts) . . . . . . . . . . . . . . . . . . . . . . . 31,525 67,919

Federal funds sold and securities purchased under agreements to resell or similar arrangements. . . . . . . . . . . . . . . . . . . . 40,300 32,500

Investments in securities:

Trading, at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,860 40,695

Available-for-sale, at fair value (includes $911 and $935, respectively, related to consolidated trusts) . . . . . . . . . . . . 41,000 63,181

Total investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,860 103,876

Mortgage loans:

Loans held for sale, at lower of cost or fair value (includes $41 and $72, respectively, related to consolidated trusts) 998 464

Loans held for investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,267 355,544

Of consolidated trusts (includes $13,877 and $10,800, respectively, at fair value and loans pledged as collateral

that may be sold or repledged of $477 and $943, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,744,084 2,652,193

Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,057,351 3,007,737

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,169) (58,795)

Total loans held for investment, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,012,182 2,948,942

Total mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,013,180 2,949,406

Accrued interest receivable, net (includes $7,568 and $7,567, respectively, related to consolidated trusts). . . . . . . . . . . . 8,696 9,176

Acquired property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,380 10,489

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,256 —

Other assets (includes cash pledged as collateral of $2,635 and $1,222, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,241 27,939

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,281,222 $ 3,222,422

LIABILITIES AND EQUITY

Liabilities:

Accrued interest payable (includes $8,234 and $8,645, respectively, related to consolidated trusts). . . . . . . . . . . . . . . . $ 10,769 $ 11,303

Debt:

Of Fannie Mae (includes $684 and $793, respectively, at fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565,110 615,864

Of consolidated trusts (includes $14,414 and $11,647, respectively, at fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,675,011 2,573,653

Other liabilities (includes $501 and $1,059, respectively, related to consolidated trusts). . . . . . . . . . . . . . . . . . . . . . . . . 18,715 14,378

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,269,605 3,215,198

Commitments and contingencies (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Fannie Mae stockholders’ equity:

Senior preferred stock, 1,000,000 shares issued and outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,149 117,149

Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding, respectively . . . . . 19,130 19,130

Common stock, no par value, no maximum authorization—1,308,762,703 shares issued, respectively,

1,158,080,657 and 1,158,077,970 shares outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

687 687

Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119,067) (122,766)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,070 384

Treasury stock, at cost, 150,682,046 and 150,684,733 shares, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,401) (7,401)

Total Fannie Mae stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,568 7,183

Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 41

Total equity (See Note 1: Impact of U.S. Government Support and Earnings (Loss) per Share for information on 

our dividend obligation to Treasury). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,617 7,224

Total liabilities and equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,281,222 $ 3,222,422

See Notes to Condensed Consolidated Financial Statements
90

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 For the Nine

Months Ended Months Ended

September 30, September 30,

2013 2012 2013 2012

Interest income:

Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185 $ 234 $ 633 $ 756

Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546 789 1,870 2,551

Mortgage loans (includes $25,351 and $27,057, respectively, for the three months ended and

$75,592 and $84,482, respectively, for the nine months ended related to consolidated trusts). . . .

28,299 30,593 85,579 95,186

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 53 143 131

Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,067 31,669 88,225 98,624

Interest expense:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 38 109 112

Long-term debt (includes $20,905 and $23,395, respectively, for the three months ended and

$62,785 and $73,469, respectively, for the nine months ended related to consolidated trusts) .

23,456 26,314 70,563 82,570

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,485 26,352 70,672 82,682

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,582 5,317 17,553 15,942

Benefit (provision) for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,609 (2,079) 8,949 (1,038)

Net interest income after benefit (provision) for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,191 3,238 26,502 14,904

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648 134 1,056 381

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) (38) (42) (701)

Fair value gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 (1,020) 1,998 (3,186)

Debt extinguishment gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 (54) 96 (181)

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 378 1,794 1,148

Non-interest income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,789 (600) 4,902 (2,539)

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 294 928 892

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 195 678 542

Occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 48 141 139

Other administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 51 166 146

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646 588 1,913 1,719

Foreclosed property (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,165) (48) (1,757) 221

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 285 955 775

Total other (income) expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119) 825 1,111 2,715

Income before federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,099 1,813 30,293 9,650

(Provision) benefit for federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,355) — 47,231 —

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,744 1,813 77,524 9,650

Other comprehensive (loss) income:

Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments

and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(133) 741 532 1,416

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 5 154 20

Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (134) 746 686 1,436

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,610 2,559 78,210 11,086

Less: Comprehensive (income) loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . (7) 8 (18) 4

Total comprehensive income attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,603 $ 2,567 $ 78,192 $ 11,090

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,744 $ 1,813 $ 77,524 $ 9,650

Less: Net (income) loss attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) 8 (18) 4

Net income attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,737 1,821 77,506 9,654

Dividends distributed or available for distribution to senior preferred stockholder. . . . . . . . . . . . . . (8,617) (2,929) (78,228) (8,675)

Net income (loss) attributable to common stockholders (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120 $ (1,108) $ (722) $ 979

Earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.02 $ (0.19) $ (0.13) $ 0.17

Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.02 (0.19) (0.13) 0.17

Weighted-average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,762 5,762 5,762

Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,893 5,762 5,762 5,893

See Notes to Condensed Consolidated Financial Statements
91

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)

For the Nine Months

Ended September 30,

2013 2012

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,518 $ 32,279

Cash flows provided by investing activities:

Purchases of trading securities held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,855) (1,542)

Proceeds from maturities and paydowns of trading securities held for investment. . . . . . . . . . . . . . . . . . . . . . . 2,036 2,671

Proceeds from sales of trading securities held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,118 1,357

Purchases of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (34)

Proceeds from maturities and paydowns of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,265 9,423

Proceeds from sales of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,312 923

Purchases of loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (161,737) (141,539)

Proceeds from repayments and sales of loans acquired as held for investment of Fannie Mae . . . . . . . . . . . . . 38,427 22,540

Proceeds from repayments of loans acquired as held for investment of consolidated trusts. . . . . . . . . . . . . . . . 532,411 568,881

Net change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,394 (9,147)

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,584) (97,508)

Proceeds from disposition of acquired property and preforeclosure sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,688 29,822

Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements (7,800) 500

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619 56

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,294 386,403

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,036 550,087

Payments to redeem debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (377,514) (630,546)

Proceeds from issuance of debt of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,687 270,552

Payments to redeem debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (599,519) (601,523)

Payments of cash dividends on senior preferred stock to Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,835) (8,679)

Proceeds from senior preferred stock purchase agreement with Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,571

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (9)

Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (385,145) (415,547)

Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,667 3,135

Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,117 17,539

Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,784 $ 20,674

Cash paid during the period for:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,086 $ 90,338

Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,876 $ —

See Notes to Condensed Consolidated Financial Statements
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

92

1. Summary of Significant Accounting Policies

Organization

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 (“GSE”) 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.

Conservatorship

On September 7, 2008, the Secretary of the Treasury and the Director of FHFA announced several actions taken by Treasury 

and FHFA regarding Fannie Mae, which included: (1) placing us in conservatorship and (2) the execution of a senior 

preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury 

both senior preferred stock and a warrant to purchase common stock. 

Under 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”), the conservator immediately succeeded to (1) all rights, 

titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae with respect to Fannie 

Mae and its assets, and (2) title to the books, records and assets of any other legal custodian of Fannie Mae. The conservator 

has since delegated specified authorities to our Board of Directors and has delegated to management the authority to conduct 

our day-to-day operations. The conservator retains the authority to withdraw its delegations at any time.

The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer 

notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any 

party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have been transferred to a 

Fannie Mae mortgage-backed securities (“MBS”) trust must be held by the conservator for the beneficial owners of the 

Fannie Mae MBS and cannot be used to satisfy the general creditors of Fannie Mae. As of November 7, 2013, FHFA has not 

exercised this power.

Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments 

on our debt securities or perform under our mortgage guaranty obligations. FHFA issued a rule establishing a framework for 

conservatorship and receivership operations for the GSEs, which became effective in 2011. The rule established procedures 

for conservatorship and receivership, and priorities of claims for contract parties and other claimants. This rule is part of 

FHFA’s implementation of the powers provided by the Federal Housing Finance Regulatory Reform Act of 2008, and does 

not seek to anticipate or predict future conservatorships or receiverships.

FHFA has announced that, during the conservatorship, our existing statutory and FHFA-directed regulatory capital 

requirements will not be binding and that FHFA will not issue quarterly capital classifications. We submit capital reports to 

FHFA and FHFA monitors our capital levels. The deficit of core capital over statutory minimum capital was $136.0 billion as 

of September 30, 2013 and $141.2 billion as of December 31, 2012. 

Under the terms of the senior preferred stock purchase agreement, starting January 1, 2013, we are required to pay Treasury a 

dividend each quarter, when, as and if declared, equal to the excess of our net worth as of the end of the preceding quarter 

over an applicable capital reserve. Therefore, we do not expect to eliminate our deficit of core capital over statutory minimum 

capital. We expect to pay Treasury a dividend of $8.6 billion by December 31, 2013. 

The conservatorship has no specified termination date and there continues to be uncertainty regarding the future of our 

company, including how long the company will continue to exist in its current form, the extent of our role in the market, 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. Under the GSE Act, FHFA

must place us into receivership if the Director of FHFA makes a written determination that our assets are less than our 

obligations or if we have not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA

may place us in receivership at his discretion at any time for other reasons, including conditions that FHFA has already 

asserted existed at the time the former Director of FHFA placed us into conservatorship. Placement into receivership would 

have a material adverse effect on holders of our common stock, preferred stock, debt securities and Fannie Mae MBS. Should 

we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

93

could lead to substantially different financial results. We are not aware of any plans of FHFA to significantly change our 

business model or capital structure in the near term.

Impact of U.S. Government Support

We continue to rely on support of Treasury to eliminate any net worth deficits we may experience in the future, which would 

otherwise trigger our being placed into receivership. Based on consideration of all the relevant conditions and events 

affecting our operations, including our reliance on the U.S. government, we continue to operate as a going concern and in 

accordance with our delegation of authority from FHFA.

Pursuant to the senior preferred stock purchase agreement, Treasury has committed to provide us with funding as described 

below to help us maintain a positive net worth thereby avoiding the mandatory receivership trigger described above. We have 

received a total of $116.1 billion from Treasury pursuant to the senior preferred stock purchase agreement as of 

September 30, 2013. The aggregate liquidation preference of the senior preferred stock, including the initial aggregate 

liquidation preference of $1.0 billion, remains at $117.1 billion as of September 30, 2013. As of November 7, 2013, the 

amount of remaining funding available to us under the senior preferred stock purchase agreement was $117.6 billion.

In August 2012, we, through FHFA acting on our behalf in its capacity as conservator, entered into an amendment to the 

senior preferred stock purchase agreement with Treasury. The amendment included, among other things, the following 

revision:

• Dividends. The method for calculating the amount of dividends we are required to pay Treasury on the senior 

preferred stock changed as of January 1, 2013. The method for calculating the amount of dividends payable on the 

senior preferred stock in effect prior to this amendment, which remained in effect through December 31, 2012, was 

to apply an annual dividend rate of 10% to the aggregate liquidation preference of the senior preferred stock. 

Effective January 1, 2013, when, as and if declared, the amount of dividends payable on the senior preferred stock 

for a dividend period are determined based on our net worth as of the end of the immediately preceding fiscal 

quarter. For each dividend period from January 1, 2013 through and including December 31, 2017, the dividend 

amount will be the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter 

exceeds an applicable capital reserve amount. If our net worth does not exceed the applicable capital reserve amount 

as of the end of a fiscal quarter, then no dividend amount will accrue or be payable for the applicable dividend 

period. The capital reserve amount will be $3.0 billion for 2013 and will be reduced by $600 million each year until 

it reaches zero on January 1, 2018. For each dividend period thereafter, the dividend amount will be the entire 

amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter.

On September 30, 2013, we paid Treasury a dividend of $10.2 billion based on our net worth as of June 30, 2013. Based on 

the terms of the senior preferred stock purchase agreement with Treasury, we expect to pay Treasury a dividend of $8.6 

billion by December 31, 2013.

We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and 

international capital markets. Because debt issuance is our primary funding source, we are subject to “roll-over,” or 

refinancing, risk on our outstanding debt. Our ability to issue long-term debt has been strong primarily due to actions taken 

by the federal government to support us and the financial markets.

We believe that continued federal government support of our business and the financial markets, as well as our status as a 

GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in the federal government 

support of our business and the financial markets or our status as a GSE could materially and adversely affect our liquidity, 

financial condition and results of operations. In addition, due to our reliance on the U.S. government’s support, our access to 

debt funding or the cost of debt funding also could be materially adversely affected by a change or perceived change in the 

creditworthiness of the U.S. government. A downgrade in our credit ratings could reduce demand for our debt securities and 

increase our borrowing costs.

Basis of Presentation 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with 

accounting principles generally accepted 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. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

94

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. Results 

for the three and nine months ended September 30, 2013 may not necessarily be indicative of the results for the year ending 

December 31, 2013. The unaudited interim condensed consolidated financial statements as of and for the three and nine

months ended September 30, 2013 should be read in conjunction with our audited consolidated financial statements and 

related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”), filed 

with the SEC on April 2, 2013.

Related Parties

As a result of our issuance to Treasury of the 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, 2013, 

Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $117.1 billion. FHFA’s 

control of both us and Freddie Mac has caused us and Freddie Mac to be related parties.

Our administrative expenses were reduced by $23 million and $27 million for the three months ended September 30, 2013

and 2012, respectively, and $73 million and $75 million for the nine months ended September 30, 2013 and 2012, 

respectively, due to reimbursements from Treasury and Freddie Mac for expenses incurred as program administrator for 

Treasury’s Home Affordable Modification Program (“HAMP”) and other initiatives under Treasury’s Making Home 

Affordable Program. 

During the three and nine months ended September 30, 2013, we made tax payments of $860 million and $1.9 billion, 

respectively to the Internal Revenue Service, a bureau of Treasury. We did not make any tax payments during the nine months 

ended September 30, 2012.

Under the temporary credit and liquidity facilities (“TCLF”) program, we had $1.0 billion and $1.6 billion outstanding, 

which include principal and interest, of standby credit and liquidity support as of September 30, 2013 and December 31, 

2012, respectively. Under the new issue bond (“NIB”) program, we had $4.6 billion and $6.1 billion outstanding of passthrough securities backed by single-family and multifamily housing bonds issued by housing finance agencies (“HFAs”) as of 

September 30, 2013 and December 31, 2012, respectively. Treasury will bear the initial losses of principal under the TCLF 

program and the NIB program up to 35% of the total original principal on a combined program-wide basis, and thereafter we 

will bear the losses of principal that are attributable to the TCLF and the securities we have issued. Treasury will also bear 

any losses of unpaid interest under the two programs. As of September 30, 2013, there had been no losses of principal or 

interest under the TCLF program or the NIB program.

The fee revenue and expense related to the Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) are recorded in 

“Mortgage loans interest income” and “Other expenses,” respectively, in our condensed consolidated statements of operations 

and comprehensive income. We recognized $276 million and $78 million in other expenses relating to TCCA-related 

guaranty fees during the three months ended September 30, 2013 and 2012, respectively, and $695 million and $104 million

for the nine months ended September 30, 2013 and 2012, respectively, of which $276 million has not been remitted to 

Treasury as of September 30, 2013. During the three months ended September 30, 2013, we have remitted TCCA-related 

guaranty fees of $233 million to Treasury for our obligations as of June 30, 2013.

As of September 30, 2013 and December 31, 2012, we held Freddie Mac mortgage-related securities with a fair value of $9.4 

billion and $12.2 billion, respectively, and accrued interest receivable of $38 million and $51 million, respectively. We 

recognized interest income on these securities held by us of $91 million and $132 million for the three months ended 

September 30, 2013 and 2012, respectively, and $303 million and $427 million for the nine months ended September 30, 

2013 and 2012, respectively. In addition, Freddie Mac may be an investor in variable interest entities that we have 

consolidated, and we may be an investor in variable interest entities that Freddie Mac has consolidated.

In March 2013, FHFA announced that a new business entity would be established by Fannie Mae and Freddie Mac that would 

be separate from the two companies in order to further the goal of building a common securitization platform that would 

function like a market utility. The new business entity would be designed to operate as a replacement for some of Fannie Mae 

and Freddie Mac’s securitization infrastructure. On October 7, 2013, FHFA announced that the new joint venture by Fannie 

Mae and Freddie Mac, Common Securitization Solutions, LLC, has been established and that office space for the new entity 

has been secured. In connection with the entity’s establishment, we entered into a Limited Liability Company Agreement 

with Freddie Mac in October 2013 and anticipate entering into additional agreements relating to the new joint venture in the 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

95

future. No other transactions outside of normal business activities have occurred between us and Freddie Mac in 2013 or 

2012.

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 other assets and liabilities, recoverability of our deferred tax assets, allowance 

for loan losses and reserve for guaranty losses, and other-than-temporary impairment of investment securities. Actual results 

could be different from these estimates.

As of March 31, 2013, we concluded that it is more likely than not that our deferred tax assets, except the deferred tax assets 

relating to capital loss carryforwards, would be realized. As a result, we released the valuation allowance on our deferred tax 

assets as of March 31, 2013. However, as of September 30, 2013, we retained $447 million of the valuation allowance that 

pertains to our capital loss carryforwards which we believe will expire unused. This conclusion was based upon the 

significance of the positive evidence of our ability to generate sufficient taxable income and utilize our net operating loss 

carryforwards. The release of the valuation allowance resulted in the recognition of $50.6 billion in our benefit for income 

taxes in our condensed consolidated statements of operations and comprehensive income for the three months ended March 

31, 2013. See “Note 10, Income Taxes,” for additional information regarding the factors that led to our conclusion to release 

the valuation allowance against our deferred tax assets.

We continually monitor prepayment, default and loss severity trends and periodically make changes in our historically 

developed assumptions to better reflect present conditions of loan performance. In the three months ended June 30, 2013, we 

updated the assumptions and data used to estimate our allowance for loan losses for individually impaired single-family loans 

based on current observable performance trends as well as future expectations of payment behavior. These updates reflect 

faster prepayment and lower default expectations for these loans primarily as a result of improvements in loan performance, 

in part due to increases in home prices. Increases in home prices reduce the mark-to-market loan-to-value (“LTV”) ratios on 

these loans and, as a result, borrowers’ equity increases. Faster prepayment and lower default expectations shortened the 

expected average life of modified loans, which reduced the expected credit losses and lowered concessions on modified 

loans. This resulted in a decrease to our allowance for loan losses as of June 30, 2013 and an incremental benefit for credit 

losses of approximately $2.2 billion during the three months ended June 30, 2013.

Earnings (Loss) per Share

Earnings (loss) per share (“EPS”) is presented for both basic EPS and diluted EPS. We compute basic EPS by dividing net 

income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding 

during the period. In addition to common shares outstanding, the computation of basic EPS includes instruments for which 

the holder has (or is deemed to have) the present rights as of the end of the reporting period to share in current period 

earnings with common stockholders (i.e., participating securities and common shares that are currently issuable for little or 

no cost to the holder). We include in the denominator of our basic EPS computation the weighted-average number of shares 

of common stock that would be issued upon the full exercise of the warrant issued to Treasury. Diluted EPS includes all the 

components of basic EPS, plus the dilutive effect of common stock equivalents such as convertible securities and stock 

options, but excludes those common stock equivalents from the calculation of diluted EPS when the effect of inclusion, 

assessed individually, would be anti-dilutive. The calculation of income available to common stockholders and earnings per 

share is based on the underlying premise that all income after payment of dividends on preferred shares is available to and 

will be distributed to the common stockholders. However, as a result of our conservatorship status and the terms of the senior 

preferred stock purchase agreement, no amounts are available to distribute as dividends to common or preferred stockholders 

(other than to Treasury as holder of the senior preferred stock).

Employee Retirement Benefits

We sponsor defined benefit pension plans for our employees that include qualified and nonqualified noncontributory plans. 

Effective December 31, 2009, our Executive Pension Plan was amended to cease benefit accruals for participating 

employees. Effective June 30, 2013, our tax-qualified Fannie Mae Retirement Plan for Employees Not Covered Under Civil 

Service Retirement Law (referred to as the “Retirement Plan”), our Supplemental Pension Plan and our Supplemental 

Pension Plan of 2003 were also amended to cease benefit accruals for all employees. As a result of freezing the Retirement 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

96

Plan, the Supplemental Pension Plan and the Supplemental Pension Plan of 2003, a curtailment was triggered as of April 30, 

2013 and resulted in a gain of $146 million recognized in “Other comprehensive income” (“OCI”). In October 2013, pursuant 

to a directive from our conservator, FHFA, our Board of Directors approved the termination of the Retirement Plan, the 

Supplemental Pension Plan, the Supplemental Pension Plan of 2003, and the Executive Pension Plan, effective as of 

December 31, 2013. 

We plan to distribute all benefits remaining under the Retirement Plan following receipt of regulatory approvals. We expect 

this distribution to be complete by December 31, 2015. Except for retirees receiving payments under the Retirement Plan (or 

“in pay status”), participants in that plan will have the choice of receiving either a single lump sum payment or an annuity. 

Retirees in pay status will continue to receive payments of their Retirement Plan benefits pursuant to their current annuity 

elections. We plan to distribute all benefits remaining under the Supplemental Pension Plan, the Supplemental Pension Plan 

of 2003, and the Executive Pension Plan between October 2014 and October 2015. All participants in these three plans will 

receive lump sum payments of their remaining accrued benefits under the plans. 

The lump sum payments paid to participants in all of the terminated plans will represent the actuarial equivalent value of the 

participants’ remaining accrued benefits under the plans as of the applicable distribution dates, calculated in accordance with 

the amended terms of the plans using the plans’ current benefit reduction factors for early retirement applicable for annuity 

payments and based on the participants’ ages on the distribution dates. 

Upon completion of the terminations and settlement, actuarial losses related to our defined benefit pension plans which were 

earlier recorded in OCI will be recognized in net income in our consolidated statements of operations and comprehensive 

income. We will re-measure the obligation and plan assets using updated assumptions during the three months ending 

December 31, 2013. 

Adoption of New Accounting Guidance

Effective January 1, 2013, we retrospectively adopted guidance issued by the Financial Accounting Standards Board 

(“FASB”) on additional disclosures about derivatives, repurchase agreements and reverse repurchase agreements, and 

securities borrowing and lending transactions that are either offset on the balance sheet or subject to a master netting 

arrangement or similar agreement. The additional disclosures about these instruments are intended to enable investors to 

understand the effect or potential effect of those arrangements on the company’s financial positions. The required disclosures 

will enhance comparability between companies that prepare their financial statements in accordance with GAAP and those 

that follow international financial reporting standards. The updated guidance does not change existing offsetting eligibility 

criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The adoption of this 

guidance did not have a material impact on our condensed consolidated financial statements; however, it required us to 

expand our disclosures. See “Note 15, Netting Arrangements,” for additional information regarding the impact upon adoption 

of this guidance.

Effective January 1, 2013, we prospectively adopted guidance issued by FASB related to disclosing amounts that have been 

reclassified out of AOCI. The new guidance does not change the current requirements for reporting or measuring net income 

or other comprehensive income in the financial statements. However, the new guidance does require entities to present 

information about amounts reclassified out of AOCI during the period and their corresponding effect on net income by 

specific line item. The adoption of this guidance did not have a material impact on our condensed consolidated financial 

statements; however, it required us to expand our AOCI disclosures. See “Note 13, Equity,” for additional information 

regarding the disclosures required upon adoption of this guidance.

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities 

are securitization trusts guaranteed by us via lender swap and portfolio securitization transactions, mortgage and asset-backed 

trusts that were not created by us, as well as housing partnerships that are established to finance the acquisition, construction, 

development or rehabilitation of affordable multifamily and single-family housing. 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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

97

As of September 30, 2013, we consolidated certain VIEs that were not consolidated as of December 31, 2012, generally due 

to increases in the amount of the certificates issued by the entity that are held in our portfolio (for example, when we hold a 

substantial portion of the securities issued by Fannie Mae multi-class resecuritization trusts). As a result of consolidating 

these entities, which had combined total assets of $1.8 billion in unpaid principal balance as of September 30, 2013, we 

derecognized our investment in these entities and recognized the assets and liabilities of the consolidated entities at fair value. 

As of September 30, 2013, we deconsolidated certain VIEs that were consolidated as of December 31, 2012, generally due to 

decreases in the amount of the certificates issued by the entity that are held in our portfolio. As a result of deconsolidating 

these entities, which had combined total assets of $791 million in unpaid principal balance as of December 31, 2012, we 

derecognized the assets and liabilities of the entities and recognized at fair value our retained interests as securities in our 

condensed consolidated balance sheets.

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 mortgage backed-trusts as of September 30, 2013 and 

December 31, 2012, as well as our maximum exposure to loss and the total assets of those unconsolidated mortgage backedtrusts.

As of

September 30, 2013 December 31, 2012

(Dollars in millions)

Assets and liabilities recorded in our condensed consolidated balance sheets related to

mortgage-backed trusts:

Assets:

Trading securities:(1)

Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,081 $ 6,248

Non-Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,350 16,458

Total trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,431 22,706

Available-for-sale securities:(1)

Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,199 10,435

Non-Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,454 46,569

Total available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,653 57,004

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 145

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,408) (1,449)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,791 $ 78,406

Maximum exposure to loss(1)(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,934 $ 87,397

Total assets of unconsolidated mortgage-backed trusts(1). . . . . . . . . . . . . . . . . . . . . . . . . . $367,866 $645,332

__________

(1) Contains securities recognized in our condensed consolidated balance sheets due to consolidation of certain multi-class resecuritization 

trusts.

(2) 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.

Additionally, our maximum exposure to loss related to our involvement with limited partnership investments was $21 million

and $118 million as of September 30, 2013 and December 31, 2012, respectively. The total assets of these unconsolidated 

limited partnership investments were $7.0 billion and $11.7 billion as of September 30, 2013 and December 31, 2012, 

respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

98

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgagerelated securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer 

assets from our own portfolio in a portfolio securitization transaction. For the three months ended September 30, 2013 and 

2012, the unpaid principal balance of portfolio securitizations was $52.2 billion and $65.5 billion, respectively. For the nine

months ended September 30, 2013 and 2012, the unpaid principal balance of portfolio securitizations was $184.0 billion and 

$153.6 billion, respectively.

The following table displays some key characteristics of the securities retained in unconsolidated portfolio securitization 

trusts as of September 30, 2013 and December 31, 2012. 

Fannie Mae

Single-class

MBS & Fannie

Mae Megas

REMICS & 

SMBS(1)

(Dollars in millions)

As of September 30, 2013

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 366 $ 7,388

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403 8,372

Weighted-average coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21 % 5.20 %

Weighted-average loan age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 years 5.0 years

Weighted-average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.7 years 12.9 years

As of December 31, 2012

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 456 $ 8,667

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 9,818

Weighted-average coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20 % 5.53 %

Weighted-average loan age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 years 4.6 years

Weighted-average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.5 years 15.0 years

__________

(1) Consists of Real Estate Mortgage Investment Conduits (“REMICs”) and stripped mortgage-backed securities (“SMBS”).

For the three months ended September 30, 2013 and 2012, the principal and interest received on retained interests was $434 

million and $563 million, respectively. For the nine months ended September 30, 2013 and 2012, the principal and interest 

received on retained interests was $1.4 billion and $1.9 billion, respectively.

Managed Loans

We define “managed loans” as on-balance sheet mortgage loans as well as mortgage loans that we have securitized in 

unconsolidated portfolio securitization trusts. The following table displays the unpaid principal balances of managed loans, 

including those managed loans that were delinquent as of September 30, 2013 and December 31, 2012.

As of

September 30, 2013 December 31, 2012

Unpaid

Principal

Balance

Principal Amount 

of Delinquent 

Loans(1)

Unpaid

Principal

Balance

Principal Amount 

of Delinquent 

Loans(1)

(Dollars in millions)

Loans held for investment:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 327,061 $ 80,067 $ 370,354 $ 102,504

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . 2,701,035 11,673 2,607,880 17,829

Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994 141 459 135

Securitized loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,147 1 2,272 4

Total loans managed. . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,031,237 $ 91,882 $ 2,980,965 $ 120,472
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

99

__________

(1) Represents the unpaid principal balance of loans held for investment (“HFI”), loans held for sale (“HFS”) and securitized loans for 

which we are no longer accruing interest and loans 90 days or more delinquent which are continuing to accrue interest.

Qualifying Sales of Portfolio Securitizations

We consolidate the substantial majority of our single-class MBS trusts; therefore, these portfolio securitization transactions 

do not qualify for sale treatment. The assets and liabilities of consolidated trusts created via portfolio securitization 

transactions that do not qualify as sales are reported in our condensed consolidated balance sheets.

We recognize assets obtained and liabilities incurred in qualifying sales of portfolio securitizations at fair value. Proceeds 

from the initial sale of securities from portfolio securitizations were $48 million and $183 million for the three months ended 

September 30, 2013 and 2012, respectively. Proceeds from the initial sale of securities from portfolio securitizations were 

$299 million and $479 million for the nine months ended September 30, 2013 and 2012, respectively. Our continuing 

involvement in the form of guaranty assets and guaranty liabilities with assets that were transferred into unconsolidated trusts 

is not material to our condensed consolidated financial statements.

Other Securitizations

We also completed other portfolio securitization transactions that did not qualify as sales during the nine months ended 

September 30, 2012 and were accounted for as secured borrowings. Proceeds from these transactions were $421 million and 

were recorded as long-term debt of Fannie Mae in our condensed consolidated balance sheets. As of September 30, 2013, the 

fair value of trading securities underlying these transactions was $144 million, and the unpaid principal balance of mortgage 

loans of consolidated trusts underlying these transactions was $168 million. The related assets have been transferred to MBS 

trusts and are restricted solely for the purpose of servicing the related MBS. We did not complete any securitizations of this 

type during the nine months ended September 30, 2013.

3. Mortgage Loans

The following table displays our mortgage loans as of September 30, 2013 and December 31, 2012.

As of

September 30, 2013 December 31, 2012

Of Fannie

Mae

Of

Consolidated

Trusts Total

Of Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . $ 283,361 $ 2,559,194 $ 2,842,555 $ 309,277 $ 2,480,999 $ 2,790,276

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,653 141,882 186,535 61,464 126,953 188,417

Total unpaid principal balance of mortgage

loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328,014 2,701,076 3,029,090 370,741 2,607,952 2,978,693

Cost basis and fair value adjustments, net. . . . (13,790) 43,049 29,259 (14,805) 44,313 29,508

Allowance for loan losses for loans held for

investment . . . . . . . . . . . . . . . . . . . . . . . . . . (41,345) (3,824) (45,169) (50,519) (8,276) (58,795)

Total mortgage loans . . . . . . . . . . . . . . $ 272,879 $ 2,740,301 $ 3,013,180 $ 305,417 $ 2,643,989 $ 2,949,406

During the three months ended September 30, 2013 and 2012, we redesignated loans with a carrying value of $1.3 billion and 

$19 million, respectively, from held for investment (“HFI”) to held for sale (“HFS”). During the nine months ended 

September 30, 2013 and 2012, we redesignated loans with a carrying value of $1.3 billion and $33 million, respectively, from 

HFI to HFS.

Nonaccrual Loans 

We discontinue accruing interest on loans when we believe collectibility of principal or interest is not reasonably assured, 

which for single-family loans 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. We generally place multifamily loans on nonaccrual status when 

the loan is deemed to be individually impaired, unless the loan is well secured such that collectibility of principal and accrued 

interest is reasonably assured.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

100

When a loan is placed on nonaccrual status, interest previously accrued but not collected becomes part of our recorded 

investment in the loan and is collectively reviewed for impairment. For single-family loans, we recognize interest income for 

loans on nonaccrual status when cash is received. For multifamily loans on nonaccrual status, we apply any payment received 

on a cost recovery basis to reduce principal on the mortgage loan.

We return a single-family loan to accrual status at the point that the borrower has made sufficient payments to reduce their 

delinquency below our nonaccrual threshold. For modified single-family loans, the loan is not returned to accrual status until 

the borrower successfully makes all required payments during the trial period (generally three to four months) and the 

modification is made permanent. We generally return a multifamily loan to accrual status 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, excluding loans 

for which we have elected the fair value option, by portfolio segment and class as of September 30, 2013 and December 31, 

2012.

As of September 30, 2013(1)

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(2)

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(3). . . . . . . . . . . . $ 31,852 $ 9,784 $ 51,881 $ 93,517 $ 2,534,022 $ 2,627,539 $ 93 $ 61,525

Government(4). . . . . . . . . 75 30 345 450 48,799 49,249 345 —

Alt-A. . . . . . . . . . . . . . . . 5,015 1,721 16,747 23,483 108,864 132,347 11 18,451

Other(5). . . . . . . . . . . . . . 2,021 685 5,966 8,672 47,261 55,933 27 6,581

Total single-family. . . . 38,963 12,220 74,939 126,122 2,738,946 2,865,068 476 86,557

Multifamily(6). . . . . . . . . . . 103 NA 352 455 187,633 188,088 — 2,253

Total. . . . . . . . . . . . . $ 39,066 $ 12,220 $ 75,291 $ 126,577 $ 2,926,579 $ 3,053,156 $ 476 $ 88,810

As of December 31, 2012(1)

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(2)

Total

Delinquent Current Total

Recorded 

Investment 

in Loans 90 

Days or

More 

Delinquent 

and 

Accruing 

Interest(7)

Recorded 

Investment 

in 

Nonaccrual 

Loans

(Dollars in millions)

Single-family:

Primary(3). . . . . . . . . . . . $ 39,043 $ 13,513 $ 67,737 $ 120,293 $ 2,424,022 $ 2,544,315 $ 2,162 $ 78,822

Government(4). . . . . . . . 82 40 340 462 50,408 50,870 340 —

Alt-A . . . . . . . . . . . . . . . 6,009 2,417 22,181 30,607 121,099 151,706 502 24,048

Other(5). . . . . . . . . . . . . 2,613 1,053 8,527 12,193 57,336 69,529 297 9,209

Total single-family . . . 47,747 17,023 98,785 163,555 2,652,865 2,816,420 3,301 112,079

Multifamily(6). . . . . . . . . . 178 NA 428 606 190,445 191,051 — 2,214

Total. . . . . . . . . . . . $ 47,925 $ 17,023 $ 99,213 $ 164,161 $ 2,843,310 $ 3,007,471 $ 3,301 $ 114,293

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously 

delinquent loans are loans that are 60 days or more past due.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

101

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

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

Primarily consists of reverse mortgages which, due to their nature, are not aged and are included in the current column.

(5) Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans, that are neither 

government nor Alt-A.

(6) Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.

(7) Includes loans with a recorded investment of $2.8 billion, which were repurchased in January 2013 pursuant to our resolution 

agreement with Bank of America. These loans were returned to accrual status to reflect the change in our assessment of collectability 

resulting from this agreement.

Credit Quality Indicators 

The following table displays the total recorded investment in our single-family HFI loans, excluding loans for which we have 

elected the fair value option, by class and credit quality indicator as of September 30, 2013 and December 31, 2012. The 

single-family credit quality indicator is updated quarterly. 

As of

September 30, 2013(1)(2) December 31, 2012(1)(2)

Primary (3) Alt-A Other (4) Primary (3) Alt-A Other (4)

(Dollars in millions)

Estimated mark-to-market LTV ratio:(5)

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,049,537 $ 62,896 $24,554 $1,703,384 $ 57,419 $21,936

Greater than 80% and less than or equal to 90%. . . . . . . . . . . 273,714 17,362 7,064 346,018 18,313 7,287

Greater than 90% and less than or equal to 100%. . . . . . . . . . 146,419 14,974 6,711 219,736 16,930 7,369

Greater than 100% and less than or equal to 110% . . . . . . . . . 61,959 11,238 5,441 100,302 14,293 7,169

Greater than 110% and less than or equal to 120% . . . . . . . . 35,858 8,125 3,973 59,723 10,994 6,231

Greater than 120% and less than or equal to 125% . . . . . . . . 12,052 3,105 1,535 20,620 4,387 2,665

Greater than 125% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 14,647 6,655 94,532 29,370 16,872

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,627,539 $132,347 $55,933 $2,544,315 $151,706 $69,529

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Excludes $49.2 billion and $50.9 billion as of September 30, 2013 and December 31, 2012, 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.

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

(4) Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans, that are neither 

government nor Alt-A.

(5) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported 

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates 

periodic changes in home value.

As of September 30, 2013, we modified our multifamily credit quality indicator. The modification of the credit quality 

indicator had an insignificant impact on our multifamily allowance for loan losses as of September 30, 2013. The multifamily 

credit quality indicator is updated quarterly. The following tables display the total recorded investment in our multifamily 

HFI loans, excluding loans for which we have elected the fair value option, by credit quality indicator as of September 30, 

2013 and December 31, 2012.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

102

As of

September 30, 2013(1)

(Dollars in millions)

Credit risk profile by internally assigned grade:(2)

Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,074

Special Mention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,390

Substandard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,986

Doubtful. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $188,088

As of

December 31, 2012(1)

(Dollars in millions)

Credit risk profile by internally assigned grade:(3)

Green . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $154,235

Yellow(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,304

Orange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,199

Red. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,313

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191,051

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Pass (loan is current and adequately protected by the current financial strength and debt service capacity of the borrower); special 

mention (loan with signs of potential weakness); substandard (loan with a well defined weakness that jeopardizes the timely full 

repayment); and doubtful (loan with a weakness that makes collection or liquidation in full highly questionable and improbable based 

on existing conditions and values).

(3) Green (loan with acceptable risk); yellow (loan with signs of potential weakness); orange (loan with a well defined weakness that may 

jeopardize the timely full repayment); and red (loan with a weakness that makes timely collection or liquidation in full more 

questionable based on existing conditions and values).

(4) Includes approximately $5.1 billion of unpaid principal balance as of December 31, 2012 classified as yellow due to no available 

current financial information.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

103

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. The following tables display the total recorded investment, unpaid principal balance and related 

allowance as of September 30, 2013 and December 31, 2012, and interest income recognized and average recorded 

investment for the three and nine months ended September 30, 2013 and 2012, for individually impaired loans.

As of

September 30, 2013 December 31, 2012

Unpaid

Principal

Balance

Total 

Recorded 

Investment (1)

Related

Allowance

for Loan

Losses

Related

Allowance

for

Accrued

Interest

Receivable

Unpaid

Principal

Balance

Total 

Recorded 

Investment (1)

Related

Allowance

for Loan

Losses

Related

Allowance

for

Accrued

Interest

Receivable

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . $ 130,662 $ 124,205 $ 24,146 $ 461 $ 132,754 $ 126,106 $ 28,610 $ 628

Government(3)

. . . . . . . . . . . . . . . . . . 222 217 36 4 214 208 38 4

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . 37,637 34,767 9,465 199 38,387 35,620 11,154 267

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . 16,030 15,272 3,901 60 16,873 16,114 4,743 86

Total single-family . . . . . . . . . . . . . 184,551 174,461 37,548 724 188,228 178,048 44,545 985

Multifamily . . . . . . . . . . . . . . . . . . . . . . 2,575 2,598 398 13 2,449 2,471 489 13

Total individually impaired loans with

related allowance recorded. . . . . . . . 187,126 177,059 37,946 737 190,677 180,519 45,034 998

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . 13,901 12,042 — — 16,222 13,901 — —

Government(3)

. . . . . . . . . . . . . . . . . . 112 113 — — 104 104 — —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . 3,330 2,423 — — 3,994 2,822 — —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . 1,004 817 — — 1,218 977 — —

Total single-family . . . . . . . . . . . . . 18,347 15,395 — — 21,538 17,804 — —

Multifamily . . . . . . . . . . . . . . . . . . . . . . 1,958 1,966 — — 2,056 2,068 — —

Total individually impaired loans with

no related allowance recorded . . . . . 20,305 17,361 — — 23,594 19,872 — —

Total individually impaired loans(6)

. . . . . $ 207,431 $ 194,420 $ 37,946 $ 737 $ 214,271 $ 200,391 $ 45,034 $ 998
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

104

For the Three Months Ended September 30,

2013 2012

Average

Recorded

Investment

Total 

Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total 

Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,818 $ 1,081 $ 141 $ 115,042 $ 1,014 $ 157

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 3 — 197 3 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,865 274 31 32,875 259 35

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,352 104 12 15,523 110 15

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,250 1,462 184 163,637 1,386 207

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,633 32 — 2,420 31 1

Total individually impaired loans with related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,883 1,494 184 166,057 1,417 208

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,067 243 58 8,709 267 59

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 2 — 102 2 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,332 52 11 1,865 61 14

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 19 4 443 21 6

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,328 316 73 11,119 351 79

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,002 25 2 1,698 23 —

Total individually impaired loans with no related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,330 341 75 12,817 374 79

Total individually impaired loans(6)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 194,213 $ 1,835 $ 259 $ 178,874 $ 1,791 $ 287
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

105

For the Nine Months Ended September 30,

2013 2012

Average

Recorded

Investment

Total 

Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total 

Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,026 $ 3,276 $ 466 $ 112,050 $ 2,954 $ 479

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 8 — 220 9 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,231 826 105 32,050 765 109

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,672 321 41 15,348 330 49

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,142 4,431 612 159,668 4,058 637

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,621 99 1 2,551 96 2

Total individually impaired loans with related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,763 4,530 613 162,219 4,154 639

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,148 1,167 174 7,579 705 174

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 6 — 71 5 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,145 282 33 1,703 172 42

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717 105 14 406 60 19

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,121 1,560 221 9,759 942 235

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,843 72 3 1,707 70 1

 Total individually impaired loans with no related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,964 1,632 224 11,466 1,012 236

Total individually impaired loans(6)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 194,727 $ 6,162 $ 837 $ 173,685 $ 5,166 $ 875

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

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

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

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans, that are neither government 

nor Alt-A.

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

required.

(6) Includes single-family loans restructured in a TDR with a recorded investment of $188.2 billion and $193.4 billion as of September 30, 

2013 and December 31, 2012, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $904 

million and $1.1 billion as of September 30, 2013 and December 31, 2012, respectively.

(7) Total single-family interest income recognized of $1.8 billion and $1.7 billion for the three months ended September 30, 2013 and 

2012, respectively, consists of $1.4 billion and $1.3 billion of contractual interest and $355 million and $444 million of effective yield 

adjustments. Total single-family interest income recognized of $6.0 billion and $5.0 billion for the nine months ended September 30, 

2013 and 2012, respectively, consists of $4.3 billion and $3.7 billion of contractual interest and $1.7 billion and $1.3 billion of effective 

yield adjustments.

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 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

106

informal restructurings as a TDR if we defer more than three missed payments. We also classify as TDRs loans to certain 

borrowers who have received bankruptcy relief.

The substantial majority of the loan modifications we complete result in term extensions, interest rate reductions or a 

combination of both. During the three months ended September 30, 2013 and 2012, the average term extension of a singlefamily modified loan was 156 months and 133 months, respectively, and the average interest rate reduction was 1.66 and 2.08

percentage points, respectively. During the nine months ended September 30, 2013 and 2012, the average term extension of a 

single-family modified loan was 152 months and 127 months, respectively, and the average interest rate reduction was 1.73

and 2.23 percentage points, respectively.

The following table displays the number of loans and recorded investment in loans restructured in a TDR for the three and 

nine months ended September 30, 2013 and 2012.

For the Three Months Ended September 30,

2013 2012

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,083 $ 4,831 165,395 $ 22,068

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 8 112 13

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,410 964 31,088 5,284

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,532 339 8,868 1,865

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,098 6,142 205,463 29,230

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 19 4 19

Total troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,102 $ 6,161 205,467 $ 29,249

For the Nine Months Ended September 30,

2013 2012

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,638 $ 15,308 224,165 $ 32,022

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 29 314 41

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,695 3,134 42,026 7,537

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,230 1,161 12,721 2,823

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,816 19,632 279,226 42,423

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 187 25 152

Total troubled debt restructurings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,845 $ 19,819 279,251 $ 42,575

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable. Based on the nature of our modification programs, which do not include principal or past-due interest 

forgiveness, there is not a material difference between the recorded investment in our loans pre- and post- modification, therefore 

amounts represent recorded investment post-modification.

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

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

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans, that are neither government 

nor Alt-A.

The following table displays the number of loans and recorded investment in loans that had a payment default for the three 

and nine months ended September 30, 2013 and 2012 and were modified in a TDR in the twelve months prior to the payment 

default. For purposes of this disclosure, we define loans that had a payment default as single-family and multifamily loans 

with completed TDRs that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure or a short sale, 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

107

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,

2013 2012

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,591 $ 1,905 10,870 $ 1,798

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5 51 8

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,744 491 1,854 377

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849 184 841 196

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,217 2,585 13,616 2,379

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 44 1 9

Total TDRs that subsequently defaulted . . . . . . . . . . . . . . . . . . . . . . . . 16,220 $ 2,629 13,617 $ 2,388

For the Nine Months Ended September 30,

2013 2012

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,971 $ 5,521 33,446 $ 5,699

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 13 150 25

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 1,441 6,113 1,246

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,524 564 2,997 719

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,588 7,539 42,706 7,689

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 64 3 12

Total TDRs that subsequently defaulted. . . . . . . . . . . . . . . . . . . . . . . . . 46,597 $ 7,603 42,709 $ 7,701

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable. Represents our recorded investment in the loan at time of payment default.

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

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

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans, that are neither government 

nor Alt-A.

4. Allowance for Loan Losses

Our allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to our 

recorded investment in both single-family and multifamily HFI loans. This population includes both HFI loans held by 

Fannie Mae and by consolidated Fannie Mae MBS trusts. When calculating our allowance for loan losses, we consider only 

our net recorded investment in the loan at the balance sheet date, which includes the loan’s unpaid principal balance and 

accrued interest recognized while the loan was on accrual status and any applicable cost basis adjustments. We record chargeoffs as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in full satisfaction 

of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. 

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 and reserve 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 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

108

enhancements. 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 restructured in a TDR and acquired credit-impaired loans. 

When a loan has been restructured, we measure impairment using a cash flow analysis discounted at the loan’s original 

effective interest rate. However, 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 and other credit 

enhancements. 

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. If we determine that an individual loan that was specifically 

evaluated for impairment is not individually impaired, we include the loan as part of a pool of loans with similar 

characteristics that are evaluated collectively for incurred losses. 

The following table displays changes in single-family, multifamily and total allowance for loan losses for the three and nine 

months ended September 30, 2013 and 2012. 

For the Three Months Ended September 30,

2013 2012

Of

Fannie

Mae

Of

Consolidated

Trusts Total

Of

Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . $44,332 $ 4,438 $48,770 $51,322 $10,812 $62,134

(Benefit) provision for loan losses(1). . . . . . . . . . (2,126) (345) (2,471) 3,104 (922) 2,182

Charge-offs(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,221) (50) (2,271) (3,281) (232) (3,513)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 37 294 323 27 350

Transfers(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 (549) — 1,372 (1,372) —

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 22 154 710 34 744

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,923 $ 3,553 $44,476 $53,550 $ 8,347 $61,897

Multifamily allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 493 $ 380 $ 873 $ 760 $ 481 $ 1,241

Benefit for loan losses(1). . . . . . . . . . . . . . . . . . . (24) (105) (129) (75) (24) (99)

Charge-offs(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) — (54) (28) — (28)

Transfers(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (5) — 6 (6) —

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 3 1 — 1

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 422 $ 271 $ 693 $ 664 $ 451 $ 1,115

Total allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . $44,825 $ 4,818 $49,643 $52,082 $11,293 $63,375

(Benefit) provision for loan losses(1). . . . . . . . . . (2,150) (450) (2,600) 3,029 (946) 2,083

Charge-offs(2)(5). . . . . . . . . . . . . . . . . . . . . . . . . . (2,275) (50) (2,325) (3,309) (232) (3,541)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 37 294 323 27 350

Transfers(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554 (554) — 1,378 (1,378) —

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 23 157 711 34 745

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,345 $ 3,824 $45,169 $54,214 $ 8,798 $63,012
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

109

For the Nine Months Ended September 30,

2013 2012

Of

Fannie

Mae

Of

Consolidated

Trusts Total

Of

Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . $49,848 $ 7,839 $57,687 $ 56,294 $14,339 $ 70,633

(Benefit) provision for loan losses(1). . . . . . . . . (6,660) (2,078) (8,738) 1,260 (372) 888

Charge-offs(2). . . . . . . . . . . . . . . . . . . . . . . . . . . (6,906) (236) (7,142) (11,409) (703) (12,112)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750 388 2,138 1,185 136 1,321

Transfers(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,440 (2,440) — 5,172 (5,172) —

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451 80 531 1,048 119 1,167

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,923 $ 3,553 $44,476 $ 53,550 $ 8,347 $ 61,897

Multifamily allowance for loan losses:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . $ 671 $ 437 $ 1,108 $ 1,015 $ 508 $ 1,523

Benefit for loan losses(1). . . . . . . . . . . . . . . . . . . (151) (144) (295) (177) (35) (212)

Charge-offs(2). . . . . . . . . . . . . . . . . . . . . . . . . . . (121) — (121) (216) — (216)

Transfers(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (22) — 23 (23) —

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 — 1 19 1 20

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 422 $ 271 $ 693 $ 664 $ 451 $ 1,115

Total allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . $50,519 $ 8,276 $58,795 $ 57,309 $14,847 $ 72,156

(Benefit) provision for loan losses(1). . . . . . . . . (6,811) (2,222) (9,033) 1,083 (407) 676

Charge-offs(2)(5). . . . . . . . . . . . . . . . . . . . . . . . . (7,027) (236) (7,263) (11,625) (703) (12,328)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750 388 2,138 1,185 136 1,321

Transfers(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,462 (2,462) — 5,195 (5,195) —

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452 80 532 1,067 120 1,187

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,345 $ 3,824 $45,169 $ 54,214 $ 8,798 $ 63,012

__________

(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) While we purchase the substantial majority of loans that are four or more months delinquent from our MBS trusts, we do not exercise 

this option to purchase loans during a forbearance period. Charge-offs of consolidated trusts generally represent loans that remained in 

our consolidated trusts at the time of default.

(3) Includes transfers from trusts for delinquent loan purchases.

(4) Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and 

insurance receivable from borrowers. The (benefit) provision for credit losses, charge-offs, recoveries and transfer activity included in 

this table reflects all changes for both the allowance for loan losses and the valuation allowances for accrued interest and preforeclosure 

property taxes and insurance receivable that relate to the mortgage loans.

(5) Total charge-offs include accrued interest of $100 million and $198 million for the three months ended September 30, 2013 and 2012, 

respectively, and $337 million and $709 million for the nine months ended September 30, 2013 and 2012, respectively. 

As of September 30, 2013, the allowance for accrued interest receivable for loans of Fannie Mae was $1.1 billion and for 

loans of consolidated trusts was $113 million. As of December 31, 2012, the allowance for accrued interest receivable for 

loans of Fannie Mae was $1.5 billion and for loans of consolidated trusts was $192 million.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

110

The following table displays the allowance for loan losses and total recorded investment in our HFI loans, excluding loans for 

which we have elected the fair value option, by impairment or reserve methodology and portfolio segment as of 

September 30, 2013 and December 31, 2012.

As of

September 30, 2013 December 31, 2012

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans(1). . . . . . . . . . . . $ 37,548 $ 398 $ 37,946 $ 44,545 $ 489 $ 45,034

Collectively reserved loans . . . . . . . . . . . . . . 6,928 295 7,223 13,142 619 13,761

Total allowance for loan losses . . . . . . . . . $ 44,476 $ 693 $ 45,169 $ 57,687 $ 1,108 $ 58,795

Recorded investment in loans by segment:(2)

Individually impaired loans(1). . . . . . . . . . . . $ 189,856 $ 4,564 $ 194,420 $ 195,852 $ 4,539 $ 200,391

Collectively reserved loans . . . . . . . . . . . . . . 2,675,212 183,524 2,858,736 2,620,568 186,512 2,807,080

Total recorded investment in loans. . . . . . $ 2,865,068 $ 188,088 $ 3,053,156 $ 2,816,420 $ 191,051 $ 3,007,471

__________

(1) Includes acquired credit-impaired loans.

(2) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

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, 2013 and December 31, 2012.

As of

September 30, 2013 December 31, 2012

(Dollars in millions)

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,081 $ 6,248

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,163 2,793

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 437

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495 1,330

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,411 1,319

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,177 9,826

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595 675

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 117

Total mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,464 22,745

U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,396 17,950

Total trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,860 $ 40,695
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

111

The following table displays information about our net trading losses and gains for the three and nine months ended 

September 30, 2013 and 2012.

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2013 2012 2013 2012

(Dollars in millions)

Net trading (losses) gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (57) $ 406 $ 111 $ 676

Net trading (losses) gains recorded in the period related to securities still held at

period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (56) $ 399 $ 155 $ 725

Available-for-Sale Securities

We measure available-for-sale (“AFS”) securities at fair value with unrealized gains and losses, recorded net of tax as a 

component of “Other comprehensive (loss) income” 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, losses and proceeds on sales of AFS securities for the three and nine 

months ended September 30, 2013 and 2012.

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2013 2012 2013 2012

(Dollars in millions)

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,338 $ 5 $ 1,520 $ 32

Gross realized losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884 3 941 13

Total proceeds(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,243 44 14,013 444

__________ s

(1) Excludes proceeds from the initial sale of securities from new portfolio securitizations included in “Note 2, Consolidations and 

Transfers of Financial Assets.”

The following tables display the amortized cost, gross unrealized gains and losses, and fair value by major security type for 

AFS securities we held as of September 30, 2013 and December 31, 2012.

As of September 30, 2013

Total 

Amortized 

Cost(1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses - 

OTTI(2)

Gross 

Unrealized 

Losses - 

Other(3)

Total

Fair

Value

(Dollars in millions)

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,800 $ 446 $ — $ (47) $ 7,199

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,755 509 — — 7,264

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543 82 — — 625

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,445 1,034 (78) (2) 7,399

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . 6,418 765 (144) (74) 6,965

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,651 132 — — 2,783

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,107 51 (185) (171) 5,802

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . 3,048 134 (20) (199) 2,963

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,767 $ 3,153 $ (427) $ (493) $ 41,000
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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112

As of December 31, 2012

Total 

Amortized 

Cost(1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses - 

OTTI(2)

Gross 

Unrealized 

Losses - 

Other(3)

Total

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,580 $ 871 $ — $ (16) $10,435

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,652 728 — — 9,380

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645 106 — — 751

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,356 452 (637) (96) 11,075

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . 8,137 217 (669) (238) 7,447

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,284 824 — (11) 13,097

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,782 157 (45) (52) 7,842

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,330 109 (18) (267) 3,154

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,766 $3,464 $(1,369) $ (680) $63,181

__________

(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 our condensed consolidated statements of operations and comprehensive 

income.

(2) Represents the noncredit component of other-than-temporary impairments losses recorded in “Accumulated other comprehensive 

income” as well as cumulative changes in fair value of securities for which we previously recognized the credit component of otherthan-temporary impairments.

(3) Represents the gross unrealized losses on securities for which we have not recognized an other-than-temporary impairment.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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113

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 that we held as of September 30, 2013 and December 31, 2012.

As of September 30, 2013

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (44) $ 991 $ (3) $ 137

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16) 436 (64) 618

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) 851 (154) 1,581

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122) 1,580 (234) 1,008

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 51 (218) 1,176

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (247) $3,909 $ (673) $ 4,520

As of December 31, 2012

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5) $ 599 $ (11) $ 372

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18) 541 (715) 4,465

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) 243 (893) 5,058

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (11) 240

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 127 (94) 1,198

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 95 (282) 1,529

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (43) $1,605 $(2,006) $12,862

Other-Than-Temporary Impairments 

We evaluate available-for-sale securities for other-than-temporary impairment on a quarterly basis. An other-than-temporary 

impairment is considered to have occurred when the fair value of a debt security is below its amortized cost basis and we 

intend to sell or it is more likely than not that we will be required to sell the security before recovery. In such cases, we 

recognize in “Net other-than-temporary impairments” in our condensed consolidated statements of operations and 

comprehensive income, the entire difference between the amortized cost basis of the security and its fair value. An otherthan-temporary impairment is also considered to have occurred if we do not expect to recover the entire amortized cost basis 

of a debt security even if we do not intend or it is not more likely than not we will be required to sell the security before 

recovery. We separate the difference between the amortized cost basis of the security and its fair value into the amount 

representing the credit loss, which we recognize in “Net other-than-temporary impairments” in our condensed consolidated 

statements of operations and comprehensive income, and the amount related to all other factors, which we recognize in 

“Other comprehensive (loss) income,” net of applicable taxes. 

The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the 

underlying collateral and in the credit performance of the underlying issuer, among other factors. As of September 30, 2013, 

$673 million of gross unrealized losses on AFS securities had existed for a period of 12 consecutive months or longer. Gross 

unrealized losses on AFS securities as of September 30, 2013 include unrealized losses on securities with other-thantemporary impairment in which a portion of the impairment remains in “Accumulated other comprehensive income.” The 

securities with unrealized losses for 12 consecutive months or longer, on average, had a fair value as of September 30, 2013

that was 87% of their amortized cost basis. Based on our review for impairments of AFS securities, which includes an 

evaluation of the collectibility of cash flows and any intent or requirement to sell the securities, we have concluded that we 

do not have an intent to sell and we believe it is not more likely than not that we will be required to sell the securities with 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

114

unrealized losses of 12 consecutive months or longer. Additionally, our projections of cash flows indicate that we will recover 

these unrealized losses over the lives of the securities.

The following table displays our net other-than-temporary impairments by major security type recognized in our condensed 

consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2013 

and 2012. Net other-than-temporary impairments include credit losses on debt securities we do not intend to sell and the 

excess of amortized cost over the fair value of debt securities we intend to sell. 

For the Three

Months Ended

For the Nine

Months Ended

September 30, September 30,

2013 2012 2013 2012

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 6 $29 $ 361

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 21 5 324

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 11 8 16

Net other-than-temporary impairments(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27 $ 38 $42 $ 701

__________

(1) Includes $26 million of other-than-temporary impairments recognized in earnings for the three and nine months ended September 30, 

2013, as we had the intent to sell the related securities before recovery of their amortized cost basis.

Net other-than-temporary impairments recognized in the three and nine months ended September 30, 2013 decreased 

compared with the three and nine months ended September 30, 2012. Net other-than-temporary impairment for the nine 

months ended September 30, 2012 reflects an update to the assumptions used to project cash flow estimates on our Alt-A and 

subprime private-label securities, which resulted in a significant decrease in the net present value of projected cash flows. We 

updated our assumptions due to observable market trends, including extending the time it takes to liquidate the loans and 

increasing loss severity rates for loans where the servicers stopped advancing payments.

The following table displays activity related to the unrealized credit component on debt securities held by us and recognized 

in our condensed consolidated statements of operations and comprehensive income for the three and nine months ended 

September 30, 2013 and 2012. A related unrealized noncredit loss component of $7 million and $125 million for the three 

and nine months ended September 30, 2013, respectively, and related unrealized noncredit gain component of $21 million

and $408 million for the three and nine months ended September 30, 2012, respectively, was recognized in “Other 

comprehensive (loss) income.” 

For the Three

Months Ended

For the Nine

Months Ended

September 30, September 30,

2013 2012 2013 2012

(Dollars in millions)

Balance, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,964 $ 9,366 $9,214 $8,915

Additions for the credit component on debt securities for which OTTI was not

previously recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11 7 13

Additions for the credit component on debt securities for which OTTI was previously

recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 27 9 688

Reductions for securities no longer in portfolio at period end . . . . . . . . . . . . . . . . . . . . (457) (1) (540) (3)

Reductions for securities which we intend to sell or it is more likely than not that we

will be required to sell before recovery of amortized cost basis . . . . . . . . . . . . . . . . . (193) — (193) —

Reductions for amortization resulting from changes in cash flows expected to be

collected over the remaining life of the securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (92) (91) (274) (301)

Balance, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,223 $ 9,312 $8,223 $9,312

As of September 30, 2013, those debt securities with other-than-temporary impairment that we recognized in our condensed 

consolidated statements of operations and comprehensive income consisted predominantly of Alt-A and subprime privatelabel securities. We evaluate Alt-A (including option adjustable rate mortgage (“ARM”)) and subprime private-label 

securities for other-than-temporary impairment by discounting the projected cash flows from econometric models to estimate 

the portion of loss in value attributable to credit. Separate components of a third-party model project regional home prices, 

unemployment and interest rates. The model combines these factors with available current information regarding attributes of 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

115

loans in pools backing the private-label mortgage-related securities to project prepayment speeds, conditional default rates, 

loss severities and delinquency rates. It incorporates detailed information on security-level subordination levels and cash flow 

priority of payments to project security level cash flows. We have recorded other-than-temporary impairments for the three 

and nine months ended September 30, 2013 based on this analysis. For securities that we determined were not other-thantemporarily impaired, we concluded that either the security had no projected credit loss or, if we projected a loss, that the 

present value of expected cash flows was greater than the security’s cost basis.

The following table displays the modeled attributes, including default rates and severities, which are used to determine as of 

September 30, 2013 whether our senior interests in certain non-agency mortgage-related securities (including those we intend 

to sell) will experience a cash shortfall. An estimate of voluntary prepayment rates is also an input to the present value of 

expected losses.

As of September 30, 2013

Alt-A

Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate

(Dollars in millions)

Vintage Year

2004 & Prior:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 452 $ 215 $1,048 $ 178 $ 592

Weighted-average collateral default(1)

. . . . . . . . . . 30.7% 25.3% 10.1% 22.0% 15.4%

Weighted-average collateral severities(2)

. . . . . . . . 55.8 52.4 51.4 41.1 37.3

Weighted-average voluntary prepayment rates(3). . 7.3 8.1 11.8 8.6 8.7

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 47.2 5.5 11.2 20.1 6.7

2005:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 51 $ 827 $ 906 $ 425 $1,448

Weighted-average collateral default(1)

. . . . . . . . . . 54.1% 38.0% 25.2% 37.8% 30.4%

Weighted-average collateral severities(2)

. . . . . . . . 61.6 55.9 54.7 47.3 44.8

Weighted-average voluntary prepayment rates(3). . 2.7 6.6 9.5 7.6 8.2

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 49.3 8.7 0.5 12.1 3.1

2006:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 9,656 $ 854 $ 424 $1,171 $1,288

Weighted-average collateral default(1)

. . . . . . . . . . 58.1% 47.4% 27.3% 42.5% 21.8%

Weighted-average collateral severities(2)

. . . . . . . . 63.4 50.7 56.4 49.9 43.4

Weighted-average voluntary prepayment rates(3). . 2.3 5.3 7.2 6.9 8.9

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 11.8 5.7 0.1 0.7 0.0

2007 & After:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 483 $ — $ — $ — $ 91

Weighted-average collateral default(1)

. . . . . . . . . . 53.8% N/A N/A N/A 24.6%

Weighted-average collateral severities(2)

. . . . . . . . 47.7 N/A N/A N/A 44.3

Weighted-average voluntary prepayment rates(3). . 1.6 N/A N/A N/A 8.3

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 24.0 N/A N/A N/A 20.5

Total:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $10,642 $1,896 $2,378 $1,774 $3,419

Weighted-average collateral default(1)

. . . . . . . . . . 56.7% 40.8% 18.9% 39.3% 24.4%

Weighted-average collateral severities(2)

. . . . . . . . 62.5 52.9 54.3 48.8 43.5

Weighted-average voluntary prepayment rates(3). . 2.4 6.2 10.1 7.2 8.6

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 14.0 7.0 5.2 5.3 3.0
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

116

__________

(1) The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the current collateral 

unpaid principal balance, weighted by security unpaid principal balance.

(2) The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of remaining cumulative 

loss divided by cumulative defaults, weighted by security unpaid principal balance.

(3) The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.

(4) The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest projections and 

monoline bond insurance.

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining 

maturity, assuming no principal prepayments, as of September 30, 2013. 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, 2013

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 . . . . . . . . . . . . . . . . . . . $ 6,800 $ 7,199 $ — $ — $ 321 $ 339 $ 488 $ 523 $ 5,991 $ 6,337

Freddie Mac . . . . . . . . . . . . . . . . . . . 6,755 7,264 — — 310 329 710 763 5,735 6,172

Ginnie Mae . . . . . . . . . . . . . . . . . . . 543 625 — — 1 1 22 26 520 598

Alt-A private-label securities. . . . . . 6,445 7,399 — — 1 1 — — 6,444 7,398

Subprime private-label securities . . 6,418 6,965 — — — — — — 6,418 6,965

CMBS . . . . . . . . . . . . . . . . . . . . . . . 2,651 2,783 — — 2,543 2,672 — — 108 111

Mortgage revenue bonds . . . . . . . . . 6,107 5,802 34 36 279 284 577 580 5,217 4,902

Other mortgage-related securities . . 3,048 2,963 — — — 5 40 41 3,008 2,917

Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 38,767 $ 41,000 $ 34 $ 36 $ 3,455 $ 3,631 $ 1,837 $ 1,933 $ 33,441 $ 35,400

Accumulated Other Comprehensive Income

The following table displays our accumulated other comprehensive income by major categories as of September 30, 2013 and 

December 31, 2012.

As of

September 30, December 31,

2013 2012

(Dollars in millions)

Net unrealized gains on available-for-sale securities for which we have not recorded OTTI,

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 476 $ 1,399

Net unrealized gains (losses) on available-for-sale securities for which we have recorded

OTTI, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990 (465)

Prior service cost and actuarial losses, net of amortization for defined benefit plans, net of

tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (366) (505)

Other losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (45)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,070 $ 384

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 guarantees expose us to credit losses on the mortgage loans or, in the case of 

mortgage-related securities, the underlying mortgage loans of the related securities. The contractual terms of our guarantees 

range from 30 days to 40 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. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

117

For those guarantees recognized in our condensed consolidated balance sheets, our maximum potential exposure under these 

guarantees is primarily comprised of the unpaid principal balance of the underlying mortgage loans, which totaled $44.0 

billion and $50.6 billion as of September 30, 2013 and December 31, 2012, respectively.

In addition, we had maximum potential exposure of $7.6 billion and $8.3 billion for other guarantees not recognized in our 

condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, respectively, which primarily 

represents the unpaid principal balance of loans underlying guarantees issued prior to the effective date of current accounting 

guidance on guaranty accounting. 

The maximum amount we could recover through available credit enhancements and recourse with third parties on guarantees 

recognized in our condensed consolidated balance sheets was $12.3 billion and $13.3 billion as of September 30, 2013 and 

December 31, 2012, respectively. The maximum amount we could recover through available credit enhancements and 

recourse with third parties on guarantees not recognized in our condensed consolidated balance sheets was $3.2 billion and 

$3.6 billion as of September 30, 2013 and December 31, 2012, respectively. 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 see “Note 14, Concentrations of Credit Risk.”

The fair value of our guaranty obligations associated with the Fannie Mae MBS included in “Investments in securities” was 

$1.2 billion and $1.8 billion as of September 30, 2013 and December 31, 2012, respectively. These Fannie Mae MBS consist 

primarily of private-label wraps where our guaranty arrangement is with an unconsolidated MBS trust.

Risk Characteristics of our Book of Business

We gauge our performance risk under our guaranty based on the delinquency status and other risk characteristics of the 

mortgage loans we hold in 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 single-family loans 90

days or more past due or in the foreclosure process, and loans that have higher risk characteristics, such as high mark-tomarket LTV ratios.

For multifamily loans, management monitors the serious delinquency rate, which is the percentage of loans 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, original debt service coverage ratios (“DSCR”) below 1.10, current DSCR 

below 1.0, and high original and current estimated 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.

The following tables display the current delinquency status and certain higher risk characteristics of our single-family 

conventional and total multifamily guaranty book of business as of September 30, 2013 and December 31, 2012.

As of September 30, 2013(1) As of December 31, 2012(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)

. . . . . . . . . . . . . . . . . . . . . . . . 1.40% 0.44% 2.75% 1.75% 0.63% 3.66%

Percentage of single-family conventional loans(4)

. . 1.62 0.49 2.55 1.96 0.66 3.29
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

118

As of

September 30, 2013(1) December 31, 2012(1)

Percentage of 

Single-Family

Conventional

Guaranty Book 

of Business(3)

Percentage 

Seriously 

Delinquent(2)(5)

Percentage of 

Single-Family

Conventional

Guaranty Book 

of Business(3)

Percentage 

Seriously 

Delinquent(2)(5)

Estimated mark-to-market LTV ratio:

Greater than 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 12.84% 13% 13.42%

Geographical distribution:

Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.26 2 2.14

California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.13 19 1.69

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.60 6 10.06

Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4.70 1 6.70

Select Midwest states(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.64 10 3.51

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.34 62 2.85

Product distribution:

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 9.70 6 11.36

Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 17.42 * 20.60

Vintages:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7.51 5 7.79

2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 11.60 5 12.15

2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 12.48 7 12.99

2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6.78 5 6.63

All other vintages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 1.07 78 1.36

Select combined risk characteristics:

Original LTV ratio > 90% and FICO score < 620. . . . . . . . . . . 1 11.37 1 14.76

__________

* Represents less than 0.5% of the single-family conventional guaranty book of business.

(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, 2013 and 

December 31, 2012.

(2) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process, as of September 30, 2013

and December 31, 2012.

(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.

(5) Calculated based on the number of single-family conventional loans that were seriously delinquent divided by the total number of 

single-family conventional loans for each category included in our guaranty book of business.

(6) Consists of Illinois, Indiana, Michigan, and Ohio.

As of

September 30, 2013(1)(2) December 31, 2012(1)(2)

30 Days

Delinquent

Seriously 

Delinquent(3)

30 Days

Delinquent

Seriously 

Delinquent(3)

Percentage of multifamily guaranty book of business. . . . . . . . . . . . 0.06% 0.18% 0.23% 0.24%
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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As of

September 30, 2013(1) December 31, 2012(1)

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% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 0.52% 4% 0.36%

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . 96 0.17 96 0.24

Original debt service coverage ratio:

Less than or equal to 1.10. . . . . . . . . . . . . . . . . . . . . . . . . 7 0.18 8 0.22

Greater than 1.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 0.18 92 0.25

Current debt service coverage ratio less than 1.0(5). . . . . . . . 3 2.64 5 2.11

__________

(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, 2013 and December 31, 2012

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 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 6 to 12 months.

7. Acquired Property, Net

Acquired property, net consists of held-for-sale foreclosed property received in satisfaction of a loan, net of a valuation 

allowance for declines in the fair value of the properties after initial acquisition. We classify properties as held-for-sale when 

we intend to sell the property and are actively marketing it for sale. The following table displays the activity in acquired 

property, net of the related valuation allowance, for the three and nine months ended September 30, 2013 and 2012. 

For the Three Months

Ended September 30,

For the Nine Months 

Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

Balance as of beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,266 $10,387 $10,489 $11,373

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,422 4,090 12,185 11,957

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,171) (4,144) (10,917) (12,705)

Write-downs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (137) (55) (377) (347)

Balance as of end of period(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,380 $10,278 $11,380 $10,278

__________

(1) Includes valuation allowance of $564 million and $664 million as of September 30, 2013 and 2012, respectively.

8. Short-Term Borrowings and Long-Term Debt

Short-Term Borrowings

The following table displays our outstanding short-term borrowings (borrowings with an original contractual maturity of one 

year or less) and weighted-average interest rates of these borrowings as of September 30, 2013 and December 31, 2012.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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As of

September 30, 2013 December 31, 2012

Outstanding

WeightedAverage 

Interest Rate(1) Outstanding

WeightedAverage 

Interest Rate(1)

(Dollars in millions)

Fixed-rate short-term debt:

Discount notes(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,470 0.11% $104,730 0.15%

Foreign exchange discount notes(3). . . . . . . . . . . . . . . . . . . . . . 343 1.41 503 1.61

Total short-term debt of Fannie Mae. . . . . . . . . . . . . . . . . . . 77,813 0.12 105,233 0.16

Debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,297 0.10 3,483 0.15

Total short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,110 0.11% $108,716 0.16%

__________

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Represents unsecured general obligations with maturities ranging from overnight to 360 days from the date of issuance.

(3) Represents foreign exchange discount notes we issue in the Euro commercial paper market with maturities ranging from 5 to 360 days 

which enable investors to hold short-term investments in different currencies. We do not incur foreign exchange risk on these 

transactions, as we simultaneously enter into foreign currency swaps that have the effect of converting debt that we issue in foreign 

denominated currencies into U.S. dollars.

Intraday Lines of Credit

We periodically use secured intraday funding lines of credit provided by several large financial institutions. We post collateral 

which, in some circumstances, the secured party has the right to repledge to third parties. As these lines of credit are 

uncommitted intraday loan facilities, we may be unable to draw on them if and when needed. We had secured uncommitted 

lines of credit of $20.0 billion and $15.0 billion as of September 30, 2013 and December 31, 2012, respectively. We had no

borrowings outstanding from these lines of credit as of September 30, 2013 and December 31, 2012.
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(In conservatorship)

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Long-Term Debt

Long-term debt represents borrowings with an original contractual maturity of greater than one year. The following table 

displays our outstanding long-term debt as of September 30, 2013 and December 31, 2012.

As of

September 30, 2013 December 31, 2012

Maturities Outstanding

WeightedAverage 

Interest 

Rate(1) Maturities Outstanding

WeightedAverage 

Interest 

Rate(1)

(Dollars in millions)

Senior fixed:

Benchmark notes and bonds. . . . . . . . . 2013 - 2030 $ 223,724 2.46% 2013 - 2030 $ 251,768 2.59%

Medium-term notes(2)

. . . . . . . . . . . . . . 2013 - 2023 174,741 1.24 2013 - 2022 172,288 1.35

Foreign exchange notes and bonds . . . 2021 - 2028 691 5.28 2021 - 2028 694 5.44

Other(3)(4)

. . . . . . . . . . . . . . . . . . . . . . . . 2013 - 2038 39,082 4.95 2013 - 2038 40,819 4.99

Total senior fixed . . . . . . . . . . . . . . 438,238 2.20 465,569 2.35

Senior floating:

Medium-term notes(2)

. . . . . . . . . . . . . . 2013 - 2019 43,895 0.21 2013 - 2019 38,633 0.27

Other(3)(4)

. . . . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 289 7.83 2020 - 2037 365 8.22

Total senior floating . . . . . . . . . . . . 44,184 0.26 38,998 0.33

Subordinated fixed:

Qualifying subordinated. . . . . . . . . . . . 2014 1,168 5.27 2013 - 2014 2,522 5.00

Subordinated debentures(5)

. . . . . . . . . . 2019 3,427 9.92 2019 3,197 9.92

Total subordinated fixed . . . . . . . . . 4,595 8.74 5,719 7.75

Secured borrowings(6)

. . . . . . . . . . . . . . . . 2021 - 2022 280 1.86 2021 - 2022 345 1.87

Total long-term debt of Fannie Mae(7)

. 487,297 2.09 510,631 2.25

Debt of consolidated trusts(4)

. . . . . . . . . . . 2013 - 2053 2,672,714 3.21 2013 - 2052 2,570,170 3.36

Total long-term debt . . . . . . . . . . . . $ 3,160,011 3.03% $ 3,080,801 3.18%

__________

(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 zero-coupon debt.

(3) Includes long-term debt that is not included in other debt categories.

(4) Includes a portion of structured debt instruments that is reported at fair value.

(5) Consists of subordinated debt issued with an interest deferral feature.

(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) Reported amounts include a net unamortized discount, fair value adjustments and other cost basis adjustments of $5.1 billion and $6.0 

billion as of September 30, 2013 and December 31, 2012, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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122

9. 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 OTC-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 forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgagerelated securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgagerelated 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. 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, 2013 and December 31, 2012.
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(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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As of September 30, 2013 As of December 31, 2012

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 . . . . . . . . . . . . . . . . . . $ 62,617 $ 4,030 $ 115,474 $ (6,746) $ 19,450 $ 270 $ 239,017 $ (18,237)

Receive-fixed . . . . . . . . . . . . . . . 93,232 4,231 166,071 (3,107) 231,346 10,514 57,190 (200)

Basis. . . . . . . . . . . . . . . . . . . . . . 28,199 66 1,200 — 23,199 151 1,700 —

Foreign currency . . . . . . . . . . . . 591 138 441 (31) 686 193 509 (45)

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . . 33,150 374 54,525 (627) 33,050 102 36,225 (184)

Receive-fixed . . . . . . . . . . . . . . . 11,750 790 54,525 (624) 15,970 3,572 36,225 (2,279)

Other(1)

. . . . . . . . . . . . . . . . . . . . . . . . 1,269 27 12 — 7,374 26 13 (1)

Total gross risk management

derivatives . . . . . . . . . . . . . . . . . 230,808 9,656 392,248 (11,135) 331,075 14,828 370,879 (20,946)

Accrued interest receivable

(payable) . . . . . . . . . . . . . . . . . . — 1,029 — (1,223) — 1,242 — (1,508)

Netting adjustment(2)

. . . . . . . . . . . — (9,275) — 10,909 — (15,791) — 22,046

Total net risk management

derivatives. . . . . . . . . . . . . . . . $ 230,808 $ 1,410 $ 392,248 $ (1,449) $ 331,075 $ 279 $ 370,879 $ (408)

Mortgage commitment derivatives:

Mortgage commitments to

purchase whole loans. . . . . . . . . $ 7,951 $ 99 $ 236 $ (1) $ 12,360 $ 27 $ 5,232 $ (8)

Forward contracts to purchase

mortgage-related securities . . . . 32,630 508 1,650 (5) 34,545 103 12,557 (23)

Forward contracts to sell

mortgage-related securities . . . . 974 2 57,282 (906) 18,886 26 75,477 (266)

Total mortgage commitment

derivatives. . . . . . . . . . . . . . . . $ 41,555 $ 609 $ 59,168 $ (912) $ 65,791 $ 156 $ 93,266 $ (297)

Derivatives at fair value . . . . . . . $ 272,363 $ 2,019 $ 451,416 $ (2,361) $ 396,866 $ 435 $ 464,145 $ (705)

__________

(1) Includes interest rate caps, futures, swap credit enhancements and mortgage insurance contracts that we account for as derivatives. The 

mortgage insurance contracts have payment provisions that are not based on a notional amount.

(2) The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting agreements to settle with 

the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $2.5 billion and $6.3 

billion as of September 30, 2013 and December 31, 2012, respectively. Since the agreements related to clearing contracts through 

derivatives clearing organizations do not provide us with a legal right of offset, no netting adjustments have been made for those 

contracts. Cash collateral received was $884 million as of September 30, 2013. No cash collateral was received as of December 31, 

2012. 

A majority of our OTC derivative contracts contain provisions that require our senior unsecured debt to maintain a minimum 

credit rating from S&P and Moody’s. If our senior unsecured debt credit ratings were downgraded to established thresholds in 

these derivative contracts, which range from A+ to BBB+, we could be required to provide additional collateral to or 

terminate transactions with certain counterparties. The aggregate fair value of all OTC derivatives with credit-risk-related 

contingent features that were in a net liability position were $2.7 billion and $6.4 billion, for which we posted collateral of 

$2.5 billion and $6.3 billion in the normal course of business as of September 30, 2013 and December 31, 2012, respectively. 

Had all of the credit-risk-related contingency features underlying these agreements been triggered, an additional $179 million

and $159 million would have been required to be posted as collateral or to immediately settle our positions based on the 

individual agreements and our fair value position as of September 30, 2013 and December 31, 2012, respectively. A reduction 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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in our credit ratings may also cause derivatives clearing organizations or their members to demand that we post additional 

collateral for our OTC-cleared derivatives contracts.

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 and nine months ended September 30, 2013 

and 2012. 

For the For the

Three Months Nine Months

Ended September 30, Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (166) $ (2,272) $ 8,328 $ (6,955)

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680 1,511 (6,359) 4,185

Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 42 (52) 98

Foreign currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 61 (67) 70

Swaptions:

Pay-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 51 (303) 108

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 123 265 374

Other(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (24) 23 (30)

Total risk management derivatives fair value gains (losses), net. . . . . . . . . . 713 (508) 1,835 (2,150)

Mortgage commitment derivatives fair value (losses) gains, net. . . . . . . . . . . . . . (169) (816) 459 (1,583)

Total derivatives fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . $ 544 $ (1,324) $ 2,294 $ (3,733)

__________

(1) Includes interest rate caps, futures, swap credit enhancements and mortgage insurance contracts.

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 OTC derivative transactions mainly 

through master netting arrangements, which allow us to net derivative assets and liabilities with the same counterparty, and 

by requiring counterparties to post collateral, which includes cash, U.S. Treasury securities, agency debt and agency 

mortgage-related securities. However, for derivative contracts cleared through a derivatives clearing organization, the related 

agreements are not master netting arrangements.

See “Note 15, Netting Arrangements” for information on our rights to offset assets and liabilities as of September 30, 2013

and December 31, 2012.

10. Income Taxes

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying 

amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards 

and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative 

evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely 

than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate 

with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary 

to support a conclusion that a valuation allowance is not needed.
FANNIE MAE

(In conservatorship)

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Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including:

• the sustainability of recent profitability required to realize the deferred tax assets;

• whether or not there are cumulative net losses in our consolidated statements of operations in recent years;

• unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels 

on a continuing basis in future years; and

• the carryforward periods for net operating losses and tax credits.

After weighing all of the evidence, we determined that the positive evidence in favor of releasing the valuation allowance, 

particularly the evidence that was objectively verifiable, outweighed the negative evidence against releasing the allowance as 

of March 31, 2013. Therefore, we concluded that it is more likely than not that our deferred tax assets, except the deferred tax 

assets relating to capital loss carryforwards, will be realized. As a result, we released the valuation allowance on our deferred 

tax assets as of March 31, 2013, except for amounts that were expected to be released against income before federal income 

taxes for the remainder of the year. However, as of September 30, 2013, we retained $447 million of the valuation allowance 

that pertains to our capital loss carryforwards, which we believe will expire unused. We recognized a benefit for federal 

income taxes of $47.2 billion in our condensed consolidated statements of operations and comprehensive income for the nine 

months ended September 30, 2013 primarily due to the release of the valuation allowance. We expect that the remaining 

valuation allowance not related to capital loss carryforwards will be released against income before federal income taxes 

during the three months ended December 31, 2013.

The positive evidence that weighed in favor of releasing the allowance as of March 31, 2013 and ultimately outweighed the 

negative evidence against releasing the allowance was the following: 

• our profitability in 2012 and for the three months ended March 31, 2013 and our expectations regarding the 

sustainability of these profits;

• our three-year cumulative income position as of March 31, 2013;

• the strong credit profile of the loans we have acquired since 2009;

• the significant size of our guaranty book of business and our contractual rights for future revenue from this book 

of business;

• our taxable income for 2012 and our expectations regarding the likelihood of future taxable income; and

• that our net operating loss carryforwards will not expire until 2030 through 2031. We anticipate that we will 

utilize all of these carryforwards by the end of 2013.

As discussed in “Note 10, Income Taxes” in our 2012 Form 10-K, releasing all or a portion of the valuation allowance in any 

period after December 31, 2012 did not reduce the funding available to us under the senior preferred stock purchase 

agreement and therefore did not result in regulatory actions that would limit our business operations to ensure our safety and 

soundness. In addition, we transitioned from a three-year cumulative loss position over the three years ended December 31, 

2012 to a three-year cumulative income position over the three years ended March 31, 2013. The change in these conditions 

during the three months ended March 31, 2013 removed negative evidence that supported maintaining the valuation 

allowance against our net deferred tax assets as of December 31, 2012. The balance of our net deferred tax assets was $48.3 

billion as of September 30, 2013 compared with net deferred tax liabilities of $509 million as of December 31, 2012.

(Provision) Benefit for Federal Income Taxes

For the three months ended June 30, 2013 and September 30, 2013, we updated our estimates of income before federal 

income taxes for 2013 and determined they were greater than our estimate used as of March 31, 2013. Therefore, we 

recognized a provision for federal income taxes in both the three months ended June 30, 2013 and September 30, 2013 based 

on our updated estimates. For the nine months ended September 30, 2013, we recognized a benefit for federal income taxes 

of $47.2 billion. We did not recognize a provision or benefit for federal income taxes for the three or nine months ended 

September 30, 2012. Starting in 2014, we expect that our effective tax rate will approach the statutory tax rate. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

126

11. Earnings (Loss) Per Share

The following table displays the computation of basic and diluted earnings (loss) per share of common stock for the three and 

nine months ended September 30, 2013 and 2012. 

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2013 2012 2013 2012

(Dollars and shares in millions,

except per share amounts)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,744 $ 1,813 $ 77,524 $ 9,650

Less: Net (income) loss attributable to noncontrolling interest . . . . . . . (7) 8 (18) 4

Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . 8,737 1,821 77,506 9,654

Dividends distributed or available for distribution to senior preferred 

stockholder(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,617) (2,929) (78,228) (8,675)

Net income (loss) attributable to common stockholders . . . . . . . . . . . . $ 120 $ (1,108) $ (722) $ 979

Weighted-average common shares outstanding—Basic(2)

. . . . . . . . . . . 5,762 5,762 5,762 5,762

Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 — — 131

Weighted-average common shares outstanding—Diluted(2)

. . . . . . . . . . 5,893 5,762 5,762 5,893

Earnings (loss) per share:

Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.02 $ (0.19) $ (0.13) $ 0.17

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.02 $ (0.19) $ (0.13) $ 0.17

__________

(1) Represents our required dividend payments to Treasury under the terms of the senior preferred stock purchase agreement. For the three 

months ended September 30, 2013, the dividend is calculated based on our net worth as of September 30, 2013 less the applicable 

capital reserve amount of $3.0 billion and for the nine months ended September 30, 2013, we add dividends paid related to 2013 to this 

amount. For the three and nine months ended September 30, 2012, an annual dividend rate of 10% on the aggregate liquidation 

preference was used to calculate the dividend. 

(2) Includes 4.6 billion of weighted-average shares of common stock that would be issued upon the full exercise of the warrant issued to 

Treasury from the date the warrant was issued through September 30, 2013.

In 2012, the terms of the senior preferred stock purchase agreement were amended to ultimately require the payment of our 

entire net worth to Treasury. On September 30, 2013 we paid Treasury a senior preferred stock dividend of $10.2 billion for 

the third quarter of 2013. By December 31, 2013, we will pay Treasury a senior preferred stock dividend for the fourth 

quarter of 2013 of $8.6 billion, which equals the excess of our net worth as of September 30, 2013 over a $3.0 billion capital 

reserve amount applicable in 2013 under the terms of our senior preferred stock purchase agreement. 

12. Segment Reporting

Our three reportable segments are: Single-Family, Multifamily and Capital Markets. We use these three segments to generate 

revenue and manage business risk, and each segment is based on the type of business activities it performs. Under our 

segment reporting, the sum of the results for our three business segments does not equal our condensed consolidated 

statements of operations and comprehensive income, as we separate the activity related to our consolidated trusts from the 

results generated by our three segments. Our business segment financial results include directly attributable revenues and 

expenses. Additionally, we allocate to each of our segments: (1) capital using FHFA minimum capital requirements adjusted 

for over- or under-capitalization; (2) indirect administrative costs; and (3) a provision or benefit for federal income taxes. In 

addition, we allocate intracompany guaranty fee income as a charge from the Single-Family and Multifamily segments to 

Capital Markets for managing the credit risk on mortgage loans held by the Capital Markets group. We also include an 

eliminations/adjustments category to reconcile our business segment financial results and the activity related to our 

consolidated trusts to net income in our condensed consolidated statements of operations and comprehensive income.

As of March 31, 2013, we released the valuation allowance for our deferred tax assets, except for amounts that will be 

released against income before federal income taxes for the remainder of the year and the portion of the valuation allowance 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

127

that pertains to our capital loss carryforwards. This resulted in a significant benefit for income taxes during the nine months 

ended September 30, 2013. See “Note 10, Income Taxes” for additional information regarding the factors that led to our 

conclusion to release the valuation allowance against our deferred tax assets. The benefit for income taxes allocated to each 

business segment for the nine months ended September 30, 2013 primarily represents the release of the valuation allowance 

against deferred tax assets that primarily are directly attributable to that segment based on the nature of the item. For SingleFamily, we attributed the benefit of the valuation allowance release against deferred tax assets primarily related to the 

allowance for loan losses and guaranty fee income. For Multifamily, we attributed the benefit of the valuation allowance 

release against deferred tax assets primarily related to partnership and other equity investment losses and credits. For the 

Capital Markets group, we attributed the benefit of the valuation allowance release against deferred tax assets primarily 

related to debt and derivative instruments and mortgage and mortgage-related assets.

The following tables display our business segment financial results for the three and nine months ended September 30, 2013

and 2012. 

For the Three Months Ended September 30, 2013

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . . . . $ (152) $ (31) $ 2,311 $ 3,085 $ 369 (3) $ 5,582

Benefit for credit losses . . . . . . . . . . . . . . . . . . . 2,471 138 — — — 2,609

Net interest income after benefit for credit

losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,319 107 2,311 3,085 369 8,191

Guaranty fee income (expense) . . . . . . . . . . . . . 2,719 311 (273) (1,345)

(4) (1,361)(4) 51 (4)

Investment gains, net . . . . . . . . . . . . . . . . . . . . . 1 3 1,590 77 (1,023)

(5) 648

Net other-than-temporary impairments . . . . . . . — — (27) — — (27)

Fair value (losses) gains, net . . . . . . . . . . . . . . . (2) — 371 (120) 86 (6) 335

Debt extinguishment gains, net . . . . . . . . . . . . . — — 54 38 — 92

Gains from partnership investments . . . . . . . . . — 121 — — 7 128 (7)

Fee and other income (expense) . . . . . . . . . . . . 151 26 525 (84) 72 690

Administrative expenses . . . . . . . . . . . . . . . . . . (436) (73) (137) — — (646)

Foreclosed property income (expense) . . . . . . . 1,171 (6) — — — 1,165

Other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . (427) (3) (19) — (79) (528)

Income before federal income taxes . . . . . . . . . 5,496 486 4,395 1,651 (1,929) 10,099

Provision for federal income taxes . . . . . . . . . . (751) (8) (596) — — (1,355)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 4,745 478 3,799 1,651 (1,929) 8,744

Less: Net income attributable to

noncontrolling interest . . . . . . . . . . . . . . . — — — — (7)

(8) (7)

Net income attributable to Fannie Mae . . . . $ 4,745 $ 478 $ 3,799 $ 1,651 $ (1,936) $ 8,737
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

128

For the Nine Months Ended September 30, 2013

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest income (loss) . . . . . . . . . . . . . . . . . . $ 318 $ (59) $ 7,733 $ 8,303 $ 1,258 (3) $17,553

Benefit for credit losses. . . . . . . . . . . . . . . . . . . . 8,605 344 — — — 8,949

Net interest income after benefit for credit

losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,923 285 7,733 8,303 1,258 26,502

Guaranty fee income (expense). . . . . . . . . . . . . . 7,638 902 (855) (3,832)

(4) (3,697)(4) 156 (4)

Investment gains (losses), net . . . . . . . . . . . . . . . 4 14 3,837 (79) (2,720)

(5) 1,056

Net other-than-temporary impairments. . . . . . . . — — (42) — — (42)

Fair value (losses) gains, net. . . . . . . . . . . . . . . . (5) — 2,087 (538) 454 (6) 1,998

Debt extinguishment gains, net. . . . . . . . . . . . . . — — 17 79 — 96

Gains from partnership investments . . . . . . . . . . — 284 — — 18 302 (7)

Fee and other income (expense) . . . . . . . . . . . . . 502 115 1,129 (254) 146 1,638

Administrative expenses. . . . . . . . . . . . . . . . . . . (1,281) (210) (422) — — (1,913)

Foreclosed property income . . . . . . . . . . . . . . . . 1,752 5 — — — 1,757

Other (expenses) income. . . . . . . . . . . . . . . . . . . (1,168) (2) 31 — (118) (1,257)

Income before federal income taxes . . . . . . . . . . 16,365 1,393 13,515 3,679 (4,659) 30,293

Benefit for federal income taxes(9)

. . . . . . . . . . . 29,777 7,970 9,484 — — 47,231

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . 46,142 9,363 22,999 3,679 (4,659) 77,524

Less: Net income attributable to

noncontrolling interest. . . . . . . . . . . . . . . . — — — — (18)

(8) (18)

Net income attributable to Fannie Mae . . . . . $46,142 $ 9,363 $ 22,999 $ 3,679 $ (4,677) $77,506
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

129

For the Three Months Ended September 30, 2012

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . . . . . $ (192) $ (1) $ 3,247 $ 1,778 $ 485 (3) $ 5,317

(Provision) benefit for credit losses . . . . . . . . . . (2,176) 97 — — — (2,079)

Net interest (loss) income after (provision)

benefit for credit losses. . . . . . . . . . . . . . . . . . (2,368) 96 3,247 1,778 485 3,238

Guaranty fee income (expense) . . . . . . . . . . . . . 2,014 265 (319) (1,219)

(4) (685)(4) 56 (4)

Investment gains (losses), net. . . . . . . . . . . . . . . 5 11 2,201 (64) (2,019)

(5) 134

Net other-than-temporary impairments . . . . . . . — — (38) — — (38)

Fair value losses, net. . . . . . . . . . . . . . . . . . . . . . (1) — (961) (58) —

(6) (1,020)

Debt extinguishment losses, net . . . . . . . . . . . . . — — (46) (8) — (54)

Gains from partnership investments. . . . . . . . . . — 43 — — (8) 35 (7)

Fee and other income (expense) . . . . . . . . . . . . . 181 55 185 (94) (5) 322

Administrative expenses. . . . . . . . . . . . . . . . . . . (397) (70) (121) — — (588)

Foreclosed property income . . . . . . . . . . . . . . . . 46 2 — — — 48

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (290) (7) (6) — (17) (320)

(Loss) income before federal income taxes . . . . (810) 395 4,142 335 (2,249) 1,813

(Provision) benefit for federal income taxes . . . (12) 32 (20) — — —

Net (loss) income . . . . . . . . . . . . . . . . . . . . . (822) 427 4,122 335 (2,249) 1,813

Less: Net loss attributable to noncontrolling

interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 8

(8) 8

Net (loss) income attributable to Fannie

Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (822) $ 427 $ 4,122 $ 335 $(2,241) $ 1,821
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

130

For the Nine Months Ended September 30, 2012

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . . . . $ (786) $ (14) $ 10,231 $ 5,078 $ 1,433 (3) $15,942

(Provision) benefit for credit losses . . . . . . . . . (1,273) 235 — — — (1,038)

Net interest (loss) income after (provision)

benefit for credit losses. . . . . . . . . . . . . . . . .

(2,059) 221 10,231 5,078 1,433 14,904

Guaranty fee income (expense) . . . . . . . . . . . . 5,895 760 (977) (3,584)

(4) (1,918)(4) 176 (4)

Investment gains, net . . . . . . . . . . . . . . . . . . . . 8 23 4,666 50 (4,366)

(5) 381

Net other-than-temporary impairments . . . . . . — — (699) (2) — (701)

Fair value losses, net. . . . . . . . . . . . . . . . . . . . . (5) — (3,252) (66) 137 (6) (3,186)

Debt extinguishment (losses) gains, net. . . . . . — — (218) 37 — (181)

Gains from partnership investments. . . . . . . . . — 72 — — (4) 68 (7)

Fee and other income (expense) . . . . . . . . . . . . 588 151 551 (302) (16) 972

Administrative expenses. . . . . . . . . . . . . . . . . . (1,159) (194) (366) — — (1,719)

Foreclosed property (expense) income. . . . . . . (227) 6 — — — (221)

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . (765) (7) (17) — (54) (843)

Income before federal income taxes. . . . . . . . . 2,276 1,032 9,919 1,211 (4,788) 9,650

(Provision) benefit for federal income taxes . . (12) 32 (20) — — —

Net income . . . . . . . . . . . . . . . . . . . . . . . . . 2,264 1,064 9,899 1,211 (4,788) 9,650

Less: Net loss attributable to

noncontrolling interest. . . . . . . . . . . . . . . — — — — 4

(8) 4

Net income attributable to Fannie Mae. . . . $ 2,264 $1,064 $ 9,899 $ 1,211 $(4,784) $ 9,654

__________

(1) Represents activity related to the assets and liabilities of consolidated trusts in our condensed consolidated balance sheets.

(2) Represents the elimination of intercompany transactions occurring between the three business segments and our consolidated trusts, as 

well as other adjustments to reconcile to our consolidated results.

(3) Represents the amortization expense of cost basis adjustments on securities that are retained in the Capital Markets group’s mortgage 

portfolio that on a GAAP basis are eliminated.

(4) Represents the guaranty fees paid from consolidated trusts to the Single-Family and Multifamily segments. The adjustment to guaranty 

fee income in the Eliminations/Adjustments column represents the elimination of the amortization of deferred cash fees related to 

consolidated trusts that were re-established for segment reporting. Total guaranty fee income related to unconsolidated Fannie Mae 

MBS trusts and other credit enhancement arrangements is included in fee and other income in our condensed consolidated statements of 

operations and comprehensive income.

(5) Primarily represents the removal of realized gains and losses on sales of Fannie Mae MBS classified as available-for-sale securities that 

are issued by consolidated trusts and retained in the Capital Markets group’s mortgage portfolio. The adjustment also includes the 

removal of securitization gains (losses) recognized in the Capital Markets segment relating to portfolio securitization transactions that 

do not qualify for sale accounting under GAAP.

(6) Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are retained in the Capital 

Markets group’s mortgage portfolio.

(7) Gains from partnership investments are included in other expenses in our condensed consolidated statements of operations and 

comprehensive income.

(8) Represents the adjustment from equity method accounting to consolidation accounting for partnership investments that are consolidated 

in our condensed consolidated balance sheets.

(9) Primarily represents the release of the valuation allowance for our deferred tax assets that primarily are directly attributable to each 

segment based on the nature of the item.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

131

13. Equity

The following table displays the activity in other comprehensive (loss) income, net of tax, by major categories for the three 

and nine months ended September 30, 2013 and 2012.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2013 2012 2013 2012

(Dollars in millions)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,744 $ 1,813 $77,524 $ 9,650

Other comprehensive (loss) income, net of tax effect:

Changes in net unrealized gains on available-for-sale securities (net of tax of

$37 and $386, respectively, for the three months ended and net of tax of $433

and $536, respectively, for the nine months ended). . . . . . . . . . . . . . . . . . . . . . 70 719 805 974

Reclassification adjustment for other-than-temporary impairments recognized

in net income (net of tax of $10 and $13, respectively, for the three months

ended and net of tax of $15 and $245, respectively, for the nine months

ended). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 25 27 456

Reclassification adjustment for gains on available-for-sale securities included

in net income (net of tax of $119 and $2 for the three months ended and net

of tax of $162 and $8, respectively, for the nine months ended). . . . . . . . . . . .

(220) (3) (300) (14)

Other (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 5 154 20

Total other comprehensive (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (134) 746 686 1,436

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,610 $ 2,559 $78,210 $ 11,086

___________

(1) Primarily represents activity from our defined benefit pension plans.

The table below displays changes in accumulated other comprehensive income, net of tax, for the three and nine months 

ended September 30, 2013.

For the Three Months Ended

September 30, 2013

For the Nine Months Ended

September 30, 2013

Availablefor-Sale 

Securities(1) Other(2) Total

Availablefor-Sale 

Securities(1) Other(2) Total

(Dollars in millions)

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,599 $ (395) $ 1,204 $ 934 $ (550) $ 384

Other comprehensive income (loss) before

reclassifications. . . . . . . . . . . . . . . . . . . . . . . . . . .

70 (1) 69 805 144 949

Amounts reclassified from other comprehensive

income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203) — (203) (273) 10 (263)

Net other comprehensive (loss) income . . . . . . . . . . (133) (1) (134) 532 154 686

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,466 $ (396) $ 1,070 $ 1,466 $ (396) $1,070

__________

(1) The amounts reclassified from AOCI represent the gain or loss recognized in earnings due to a sale of an available-for-sale security or 

the recognition of a net impairment recognized in earnings.

(2) Primarily represents activity from our defined benefit pension plans.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

132

The following table displays reclassifications from accumulated other comprehensive income, net of tax, including the 

affected line item in our condensed consolidated statement of operations and comprehensive income for the three and nine 

months ended September 30, 2013.

For the Three

Months Ended

September 30,

2013

For the Nine

Months Ended

September 30,

2013

(Dollars in millions)

Net other-than-temporary-impairments (net of tax of $10 and $15, respectively) . . . . . . . . $ 17 $ 27

Investment gains, net (net of tax of $119 and $162, respectively) . . . . . . . . . . . . . . . . . . . . (220) (300)

Salaries and employee benefits (net of tax of $- and $5, respectively). . . . . . . . . . . . . . . . . — 10

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (203) $ (263)

14. Concentrations of Credit Risk

Mortgage Sellers/Servicers. 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 sellers/servicers are also obligated to repurchase loans or foreclosed properties, or reimburse us for losses if the 

foreclosed property has been sold, under certain circumstances, such as if it is determined that the mortgage loan did not meet 

our underwriting or eligibility requirements, if loan representations and warranties are violated or if mortgage insurers 

rescind coverage. Our business with mortgage servicers is concentrated. Our five largest single-family mortgage servicers, 

including their affiliates, serviced approximately 50% of our single-family guaranty book of business as of September 30, 

2013, compared with approximately 57% as of December 31, 2012. Our ten largest multifamily mortgage servicers, including 

their affiliates, serviced approximately 66% of our multifamily guaranty book of business as of September 30, 2013, 

compared with approximately 67% as of December 31, 2012.

If a significant mortgage seller/servicer counterparty, or a number of mortgage sellers/servicers fails to meet their obligations 

to us, it could result in a significant increase in our credit losses and have a material adverse effect on our results of 

operations, liquidity, financial condition and net worth.

Mortgage Insurers. Mortgage insurance “risk in force” generally represents our maximum potential loss recovery under the 

applicable mortgage insurance policies. We had total mortgage insurance coverage risk in force of $99.3 billion and $91.7 

billion on the single-family mortgage loans in our guaranty book of business as of September 30, 2013 and December 31, 

2012, respectively, which represented 3% of our single-family guaranty book of business as of September 30, 2013 and 

December 31, 2012. Our primary mortgage insurance coverage risk in force was $98.3 billion and $90.5 billion as of 

September 30, 2013 and December 31, 2012, respectively. Our pool mortgage insurance coverage risk in force was $1.0 

billion and $1.2 billion as of September 30, 2013 and December 31, 2012, respectively. Our top six mortgage insurance 

companies provided 91% and 93% of our mortgage insurance as of September 30, 2013 and December 31, 2012, 

respectively.

Of our primary mortgage insurers, PMI Mortgage Insurance Co. (“PMI”), Republic Mortgage Insurance Company (“RMIC”) 

and Triad Guaranty Insurance Corporation (“Triad”) are under various forms of supervised control by their state regulators 

and are in run-off. These three mortgage insurers provided a combined $15.5 billion, or 16%, of our risk in force mortgage 

insurance coverage of our single-family guaranty book of business as of September 30, 2013.

Genworth Mortgage Insurance Corporation (“Genworth”) had been operating pursuant to waivers of state regulatory capital 

requirements applicable to its main insurance writing entity, as its capital had fallen below applicable state regulatory capital 

requirements. Genworth subsequently announced that, as of June 30, 2013, its risk-to-capital ratio met the regulatory capital 

requirements of all or most jurisdictions where it conducts business. We previously approved a subsidiary of Genworth to 

write new insurance in certain states where Genworth was unable to obtain a waiver of the state regulatory capital 

requirement.

Mortgage Guaranty Insurance Corporation (“MGIC”) and Radian Guaranty, Inc. (“Radian”) announced that they received 

additional capital contributions in March 2013. As of September 30, 2013, MGIC announced that it expects to meet the 

capital requirements where it conducts business. Radian met the capital requirements where it conducts business as of 

June 30, 2013.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

133

Although the financial condition of some of our mortgage insurer counterparties continued to improve, there is still 

significant risk that our mortgage insurer counterparties will fail to fulfill their obligations to reimburse us for 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 these 

mortgage insurer counterparties, it could result in an increase in our loss reserves, which could adversely affect our earnings, 

liquidity, financial condition and net worth.

Our total loss reserves incorporate an estimated recovery amount from mortgage insurance coverage. We evaluate the 

financial condition of our mortgage insurer counterparties and adjust the contractually due mortgage insurance benefit for 

collectibility in order to ensure that our total loss reserves reflect probable losses as of the balance sheet date. The following 

table displays the amount by which our estimated benefit from mortgage insurance as of September 30, 2013 and 

December 31, 2012 reduced our total loss reserves as of those dates.

As of

September 30, 2013 December 31, 2012

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,117 $ 9,993

Less: Collectibility adjustment(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 708

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,658 $ 9,285

__________

(1) Represents an adjustment that reduces the contractual benefit for our assessment of our mortgage insurer counterparties’ inability to 

fully pay the contractual mortgage insurance claims.

We had outstanding receivables of $2.5 billion recorded in “Other assets” in our condensed consolidated balance sheets as of 

September 30, 2013 and $3.7 billion as of December 31, 2012 related to amounts claimed on insured, defaulted loans 

excluding government insured loans. Of this amount, $554 million as of September 30, 2013 and $1.1 billion as of 

December 31, 2012 was due from our mortgage sellers/servicers. We assessed the total outstanding receivables for 

collectibility, and they are recorded net of a valuation allowance of $598 million as of September 30, 2013 and $551 million

as of December 31, 2012. The valuation allowance reduces our claim receivable to the amount which is considered probable 

of collection as of September 30, 2013 and December 31, 2012. We received proceeds from private mortgage insurers (and, 

in cases where policies were rescinded or canceled or coverage was denied by the mortgage insurer, from mortgage sellers/

servicers) for single-family loans of $1.1 billion and $4.4 billion for the three and nine months ended September 30, 2013, 

respectively, and $1.1 billion and $3.6 billion for three and nine months ended September 30, 2012, respectively.

For information on credit risk associated with our derivative transactions and repurchase agreements refer to “Note 15, 

Netting Arrangements.”
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

134

15. 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 table below displays information related to derivatives and 

securities purchased under agreements to resell 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, 2013 and December 31, 2012.

As of September 30, 2013

Net Amount

Presented in the

Condensed

Consolidated

Balance Sheets

Amounts Not Offset in the

Condensed Consolidated

Balance Sheets

Gross

Amount

Gross 

Amount 

Offset(1)

Financial 

Instruments(2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives . . . . . . $ 9,314 $ (9,275) $ 39 $ — $ (21) $ 18

Mortgage related commitment

derivatives. . . . . . . . . . . . . . . . . . . . . . . 609 — 609 (287) (10) 312

Total derivative assets . . . . . . . . . . . . . . $ 9,923 $ (9,275) $ 648 (4) $ (287) $ (31) $ 330

Securities purchased under agreements to 

resell or similar arrangements(5)

. . . . . . $ 57,800 $ — $ 57,800 $ — $ (57,800) $ —

Total assets. . . . . . . . . . . . . . . . . . . . . . $ 67,723 $ (9,275) $ 58,448 $ (287) $ (57,831) $ 330

Liabilities:

OTC risk management derivatives . . . . . . $ (11,104) $ 10,909 $ (195) $ — $ — $ (195)

Mortgage related commitment

derivatives. . . . . . . . . . . . . . . . . . . . . . . (912) — (912) 287 — (625)

Total liabilities. . . . . . . . . . . . . . . . . . . $ (12,016) $ 10,909 $ (1,107)

(4)

$ 287 $ — $ (820)

As of December 31, 2012

Net Amount

Presented in the

Condensed

Consolidated

Balance Sheets

Amounts Not Offset in the

Condensed Consolidated

Balance Sheets

Gross

Amount

Gross 

Amount 

Offset(1)

Financial 

Instruments (2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives . . . . . . $ 15,853 $ (15,791) $ 62 $ — $ (48) $ 14

Mortgage related commitment

derivatives. . . . . . . . . . . . . . . . . . . . . . . 156 — 156 (92) (2) 62

Total derivative assets . . . . . . . . . . . . . . $ 16,009 $ (15,791) $ 218 (4)$ (92) $ (50) $ 76

Securities purchased under agreements to 

resell or similar arrangements(5)

. . . . . . $ 45,750 $ — $ 45,750 $ — $ (45,750) $ —

Total assets. . . . . . . . . . . . . . . . . . . . . . $ 61,759 $ (15,791) $ 45,968 $ (92) $ (45,800) $ 76

Liabilities:

OTC risk management derivatives . . . . . . $ (22,204) $ 22,046 $ (158) $ — $ — $ (158)

Mortgage related commitment

derivatives. . . . . . . . . . . . . . . . . . . . . . . (297) — (297) 92 — (205)

Total liabilities . . . . . . . . . . . . . . . . . . . . $ (22,501) $ 22,046 $ (455)

(4)

$ 92 $ — $ (363)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

135

__________

(1) Represents the effect of the right to offset under legally enforceable master netting agreements 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 posted or received that has neither been recognized nor offset in our condensed consolidated balance sheets. Does 

not include collateral held in excess of our exposure. 

(4) Excludes derivative assets of $1.4 billion and $217 million and derivative liabilities of $1.3 billion and $250 million recognized in our 

condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, respectively, that are not subject to an 

enforceable master netting arrangement or similar agreement.

(5) Includes $17.5 billion and $13.3 billion of securities purchased under agreements to resell or similar arrangements classified as “cash 

and cash equivalents” in our condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, 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. The fair value of non-cash collateral accepted 

for OTC risk management derivatives was $23 million and $54 million as of September 30, 2013 and December 31, 2012, 

respectively. The fair value of non-cash collateral accepted for securities purchased under agreements to resell or similar 

arrangements was $58.1 billion and $46.2 billion, of which $44.8 billion and $25.0 billion could be sold or repledged as of 

September 30, 2013 and December 31, 2012, respectively. None of the underlying collateral was sold or repledged as of 

September 30, 2013 and December 31, 2012. We did not have any securities sold under agreements to repurchase as of 

September 30, 2013 and December 31, 2012. 

We determine our rights to offset the assets and liabilities presented above with the same counterparty, including collateral 

posted or received, based on the contractual arrangements entered into with our individual counterparties. The following is a 

description, under various agreements, of the nature of those rights and their effect or potential effect on our financial 

position.

The terms of the majority of our contracts for OTC risk management derivatives are governed under master agreements of the 

International Swaps and Derivatives Association Inc. (“ISDA”). These agreements provide that all transactions entered into 

under the agreement with the counterparty constitute a single contractual relationship. An event of default by the counterparty 

allows the early termination of all outstanding transactions under the same ISDA agreement and we may offset all 

outstanding amounts related to the terminated transactions including collateral posted or received.

The terms of our contracts for mortgage commitment derivatives are primarily governed by the Fannie Mae Single-Family 

Selling Guide (“Guide”), for Fannie Mae-approved lenders, or Master Securities Forward Transaction Agreements 

(“MSFTA”), for counterparties that are not Fannie Mae-approved lenders. In the event of default by the counterparty, both the 

Guide and the MSFTA allow us to terminate all outstanding transactions under the applicable agreement and offset all 

outstanding amounts related to the terminated transactions including collateral posted or received. In addition, under the 

Guide, upon a lender event of default, we generally may offset any amounts owed to a lender against any amounts a lender 

may owe us under any other existing agreement, regardless of whether or not such other agreements are in default or 

payments are immediately due.

The terms of our contracts for securities purchased under agreements to resell and securities sold under agreements to 

repurchase are governed by Master Repurchase Agreements, which are based on the guidelines prescribed by the Securities 

Industry and Financial Markets Association. Master Repurchase Agreements provide that all transactions under the 

agreement constitute a single contractual relationship. An event of default by the counterparty allows the early termination of 

all outstanding transactions under the same agreement and we may offset all outstanding amounts related to the terminated 

transactions including collateral posted or received. 

We also have securities purchased under agreements to resell which we transact through the Fixed Income Clearing 

Corporation (“FICC”). Under the rules of the FICC, all agreements for securities purchased under agreements to resell that 

are submitted to the FICC for clearing become transactions with the FICC that are subject to FICC clearing rules. In the event 

of a FICC default, all open positions at the FICC are closed and a net position is calculated.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

136

16. 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 highest 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. 

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 as of 

September 30, 2013 and December 31, 2012.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

137

Fair Value Measurements as of September 30, 2013

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 . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 6,035 $ 46 $ — $ 6,081

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . — 2,162 1 — 2,163

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 430 2 — 432

Alt-A private-label securities . . . . . . . . . . . . — 975 520 — 1,495

Subprime private-label securities . . . . . . . . . — — 1,411 — 1,411

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,177 — — 4,177

Mortgage revenue bonds. . . . . . . . . . . . . . . . — — 595 — 595

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 110 — 110

U.S. Treasury securities. . . . . . . . . . . . . . . . . . 16,396 — — — 16,396

Total trading securities . . . . . . . . . . . . . . . . . . . . . 16,396 13,779 2,685 — 32,860

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 7,191 8 — 7,199

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . — 7,255 9 — 7,264

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 624 1 — 625

Alt-A private-label securities . . . . . . . . . . . . — 4,160 3,239 — 7,399

Subprime private-label securities . . . . . . . . . — — 6,965 — 6,965

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,783 — — 2,783

Mortgage revenue bonds. . . . . . . . . . . . . . . . — 3 5,799 — 5,802

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5 2,958 — 2,963

Total available-for-sale securities. . . . . . . . . . . . . — 22,021 18,979 — 41,000

Mortgage loans of consolidated trusts . . . . . . . . . — 11,241 2,636 — 13,877

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,434 60 — 9,494

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,164 — — 1,164

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 27 — 27

Netting adjustment . . . . . . . . . . . . . . . . . . . . — — — (9,275) (9,275)

Mortgage commitment derivatives . . . . . . . . . — 604 5 — 609

Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . — 11,202 92 (9,275) 2,019

Total assets at fair value . . . . . . . . . . . . . . . . $ 16,396 $ 58,243 $ 24,392 $ (9,275) $ 89,756
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

138

Fair Value Measurements as of September 30, 2013

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 fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 360 $ — $ — $ 360

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . — — 324 — 324

Total of Fannie Mae . . . . . . . . . . . . . . . . . . . . . — 360 324 — 684

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . — 13,849 565 — 14,414

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . — 14,209 889 — 15,098

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,992 115 — 11,107

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,251 — — 1,251

Netting adjustment . . . . . . . . . . . . . . . . . . . . . — — — (10,909) (10,909)

Mortgage commitment derivatives . . . . . . . . . . — 909 3 — 912

Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . — 13,152 118 (10,909) 2,361

Total liabilities at fair value . . . . . . . . . . . . . . $ — $ 27,361 $ 1,007 $ (10,909) $ 17,459
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

139

Fair Value Measurements as of December 31, 2012

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)

Assets:

Cash equivalents(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,150 $ — $ — $ — $ 1,150

Trading securities:

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 6,180 68 — 6,248

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,791 2 — 2,793

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 436 1 — 437

Alt-A private-label securities. . . . . . . . . . . . . . . . . — 1,226 104 — 1,330

Subprime private-label securities. . . . . . . . . . . . . . — — 1,319 — 1,319

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,826 — — 9,826

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . — — 675 — 675

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 117 — 117

U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . 17,950 — — — 17,950

Total trading securities. . . . . . . . . . . . . . . . . . . . . . . . . 17,950 20,459 2,286 — 40,695

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,406 29 — 10,435

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,370 10 — 9,380

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 751 — — 751

Alt-A private-label securities. . . . . . . . . . . . . . . . . — 4,511 6,564 — 11,075

Subprime private-label securities. . . . . . . . . . . . . . — — 7,447 — 7,447

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13,097 — — 13,097

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . — 5 7,837 — 7,842

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 7 3,147 — 3,154

Total available-for-sale securities . . . . . . . . . . . . . . . . — 38,147 25,034 — 63,181

Mortgage loans of consolidated trusts . . . . . . . . . . . . . — 8,166 2,634 — 10,800

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,224 146 — 12,370

Swaptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,674 — — 3,674

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 26 — 26

Netting adjustment . . . . . . . . . . . . . . . . . . . . . . . . . — — — (15,791) (15,791)

Mortgage commitment derivatives. . . . . . . . . . . . . . — 153 3 — 156

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 16,051 175 (15,791) 435

Total assets at fair value . . . . . . . . . . . . . . . . . . . . . $ 19,100 $ 82,823 $ 30,129 $ (15,791) $ 116,261
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

140

Fair Value Measurements as of December 31, 2012

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 fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 393 $ — $ — $ 393

Senior floating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 400 — 400

Total of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . — 393 400 — 793

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . — 10,519 1,128 — 11,647

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,912 1,528 — 12,440

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 19,836 154 — 19,990

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,463 — — 2,463

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 — — 1

 Netting adjustment . . . . . . . . . . . . . . . . . . . . . . . . . — — — (22,046) (22,046)

Mortgage commitment derivatives . . . . . . . . . . . . . . — 290 7 — 297

Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . — 22,590 161 (22,046) 705

Total liabilities at fair value. . . . . . . . . . . . . . . . . . . $ — $ 33,502 $ 1,689 $ (22,046) $ 13,145

__________

(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 agreements 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 are classified as Level 1.

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) for the three and nine months ended September 30, 2013 and 2012. The tables also 

display gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recognized in 

our condensed consolidated statements of operations and comprehensive income for Level 3 assets and liabilities for the three 

and nine months ended September 30, 2013 and 2012. When assets and liabilities are transferred between levels, we 

recognize the transfer as of the end of the period.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

141

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2013

Total (Losses) or Gains

(Realized/Unrealized)

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2013(5)

Balance,

June 30, 2013

Included

in Net

Income

Included in 

Other

Comprehensive 

Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2013

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . $ 52 $ (2) $ — $ — $ — $ — $ (4) $ — $ — $ 46 $ (2)

Freddie Mac . . 2 — — — — — (1) — — 1 —

Ginnie Mae . . . 2 — — — — — — (2) 2 2 —

 Alt-A privatelabel

securities . . . 703 88 — — — — (42) (229) — 520 63

 Subprime

private-label

securities . . . 1,488 12 — — (50) — (39) — — 1,411 10

 Mortgage

revenue

bonds . . . . . . 603 (3) — — — — (5) — — 595 (4)

 Other . . . . . . . 109 2 — — — — (1) — — 110 2

Total trading

securities. . . . . . . $ 2,959 $ 97 $ — $ — $ (50) $ — $ (92) $ (231) $ 2 $ 2,685 $ 69

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . $ 10 $ — $ — $ — $ — $ — $ (2) $ — $ — $ 8 $ —

Freddie Mac . . 9 — — — — — — (1) 1 9 —

Ginnie Mae . . . — — — — — — — — 1 1 —

 Alt-A privatelabel

securities . . . 7,008 120 (55) — (2,663) — (263) (1,150) 242 3,239 —

 Subprime

private-label

securities . . . 7,862 (25) 327 312 (1,269) — (242) — — 6,965 —

 Mortgage

revenue

bonds . . . . . . 6,400 (10) (83) — — — (508) — — 5,799 —

Other. . . . . . . . 3,051 3 (5) — — — (91) — — 2,958 —

Total available-forsale securities . . . $ 24,340 $ 88 $ 184 $ 312 $(3,932) $ — $ (1,106) $ (1,151) $ 244 $ 18,979 $ —

Mortgage loans of

consolidated

trusts. . . . . . . . . . $ 2,961 $ 187 $ — $ 52 $ (393) $ — $ (114) $ (192) $ 135 $ 2,636 $ 19

Net derivatives. . . . . (49) 2 — — — — 21 — — (26) (7)

Long-term debt:

Of Fannie Mae:

Senior floating . $ (337) $ 13 $ — $ — $ — $ — $ — $ — $ — $ (324) $ 13

 Of consolidated

trusts . . . . . . . . (1,077) (121) — — — — 405 234 (6) (565) 3

Total long-term debt. $ (1,414) $ (108) $ — $ — $ — $ — $ 405 $ 234 $ (6) $ (889) $ 16
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

142

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2013

Total (Losses) or Gains

(Realized/Unrealized)

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2013(5)

Balance,

December 31,

2012

Included

in Net

Income

Included in 

Other

Comprehensive 

Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2013

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae. . . . . $ 68 $ (8) $ — $ — $ — $ — $ (14) $ — $ — $ 46 $ (8)

Freddie Mac . . . . 2 — — — — — (1) — — 1 —

Ginnie Mae. . . . . 1 — — — — — (1) (2) 4 2 —

 Alt-A private

label securities 104 215 — — — — (97) (435) 733 520 183

Subprime

private-label

securities. . . . . 1,319 251 — — (50) — (109) — — 1,411 245

Mortgage

revenue bonds. 675 (72) — — — — (8) — — 595 (72)

 Other . . . . . . . . 117 (2) — — — — (5) — — 110 (2)

Total trading

securities . . . . . . $ 2,286 $ 384 $ — $ — $ (50) $ — $ (235) $ (437) $ 737 $ 2,685 $ 346

Available-for-sale

securities:

Mortgage-related:

Fannie Mae. . . . . $ 29 $ — $ (1) $ — $ — $ — $ (6) $ (14) $ — $ 8 $ —

 Freddie Mac . . . . 10 — (1) — — — (1) (1) 2 9 —

Ginnie Mae. . . . . — — — — — — — — 1 1 —

 Alt-A privatelabel securities 6,564 140 412 — (2,663) — (932) (3,115) 2,833 3,239 —

 Subprime

private-label

securities. . . . . 7,447 65 1,238 312 (1,269) — (828) — — 6,965 —

 Mortgage

revenue bonds. 7,837 — (365) — (19) — (1,654) — — 5,799 —

 Other . . . . . . . . 3,147 8 94 — — — (291) — — 2,958 —

Total available-forsale securities. . . $ 25,034 $ 213 $ 1,377 $ 312 $(3,951) $ — $ (3,712) $ (3,130) $ 2,836 $ 18,979 $ —

Mortgage loans of

consolidated

trusts. . . . . . . . . . $ 2,634 $ 244 $ — $ 295 $ (393) $ — $ (348) $ (281) $ 485 $ 2,636 $ 18

Net derivatives . . . . 14 (127) — — — — 75 16 (4) (26) (38)

Long-term debt:

Of Fannie Mae:

Senior floating . $ (400) $ 76 $ — $ — $ — $ — $ — $ — $ — $ (324) $ 76

Of consolidated

trusts . . . . . . . . (1,128) (241) — — — (20) 510 404 (90) (565) (71)

Total long-term debt $ (1,528) $ (165) $ — $ — $ — $ (20) $ 510 $ 404 $ (90) $ (889) $ 5
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

143

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2012

Total (Losses) or Gains

(Realized/Unrealized)

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2012(5)

Balance,

June 30, 2012

Included

in Net

Income

Included in 

Other

Comprehensive 

Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2012

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . $ 82 $ (1) $ — $ — $ — $ — $ (5) $ — $ — $ 76 $ (1)

Freddie Mac . . . . 2 — — — — — — — — 2 —

Ginnie Mae . . . . . — — — — — — — — 1 1 —

 Alt-A private

label securities. 188 12 — — — — (19) (54) 303 430 7

Subprime

private-label

securities . . . . . 1,226 78 — — — — (39) — — 1,265 78

Mortgage

revenue bonds . 689 (5) — — — — (3) — — 681 (5)

 Other. . . . . . . . . 118 1 — — — — (1) — — 118 1

Total trading

securities. . . . . . . $ 2,305 $ 85 $ — $ — $ — $ — $ (67) $ (54) $ 304 $ 2,573 $ 80

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . $ 34 $ — $ — $ 35 $ (35) $ — $ (2) $ — $ — $ 32 $ —

 Freddie Mac . . . . 11 — — — — — (1) — — 10 —

 Alt-A privatelabel securities. 6,456 5 179 — — — (263) (769) 954 6,562 —

 Subprime

private-label

securities . . . . . 7,230 27 434 — — — (319) — — 7,372 —

 Mortgage

revenue bonds . 9,353 2 7 29 (29) — (693) — — 8,669 —

 Other. . . . . . . . . 3,244 (7) 50 — — — (92) — — 3,195 —

Total available-forsale securities . . . $ 26,328 $ 27 $ 670 $ 64 $ (64) $ — $ (1,370) $ (769) $ 954 $ 25,840 $ —

Mortgage loans of

consolidated

trusts. . . . . . . . . . $ 2,331 $ 96 $ — $ 146 $ — $ — $ (123) $ (60) $ 26 $ 2,416 $ 87

Net derivatives. . . . . 74 (1) — — — (2) (41) — — 30 (9)

Long-term debt:

Of Fannie Mae:

Senior floating . $ (412) $ (19) $ — $ — $ — $ — $ — $ — $ — $ (431) $ (19)

Of consolidated

trusts . . . . . . . . (1,319) (47) — — — (38) 69 62 (152) (1,425) (40)

Total long-term debt. $ (1,731) $ (66) $ — $ — $ — $ (38) $ 69 $ 62 $ (152) $ (1,856) $ (59)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

144

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2012

Total Gains or (Losses)

(Realized/Unrealized)

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2012(5)

Balance,

December 31,

2011

Included

in Net

Income

Included in 

Other

Comprehensive 

Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2012

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae. . . . . $ 1,737 $ 1 $ — $ — $ (33) $ — $ (113) $ (1,581) $ 65 $ 76 $ (3)

Freddie Mac . . . . — — — — — — — — 2 2 —

Ginnie Mae. . . . . 9 — — — — — — (9) 1 1 —

 Alt-A private

label securities 345 81 — — — — (86) (470) 560 430 19

Subprime

private-label

securities. . . . . 1,280 100 — — — — (115) — — 1,265 99

Mortgage

revenue bonds. 724 (31) — — — — (12) — — 681 (31)

 Other . . . . . . . . 143 (21) — — — — (4) — — 118 (21)

Total trading

securities . . . . . . $ 4,238 $ 130 $ — $ — $ (33) $ — $ (330) $ (2,060) $ 628 $ 2,573 $ 63

Available-for-sale

securities:

Mortgage-related:

Fannie Mae. . . . . $ 946 $ — $ (8) $ 41 $ (41) $ — $ (21) $ (895) $ 10 $ 32 $ —

 Freddie Mac . . . . 12 — — — — — (2) — — 10 —

 Alt-A privatelabel securities 7,256 (97) 472 — — — (800) (2,676) 2,407 6,562 —

 Subprime

private-label

securities. . . . . 7,586 (168) 940 — — — (986) — — 7,372 —

 Mortgage

revenue bonds. 10,247 5 (13) 29 (71) — (1,528) — — 8,669 —

 Other . . . . . . . . 3,445 7 12 — — — (269) — — 3,195 —

Total available-forsale securities. . . $ 29,492 $ (253) $ 1,403 $ 70 $ (112) $ — $ (3,606) $ (3,571) $ 2,417 $ 25,840 $ —

Mortgage loans of

consolidated

trusts. . . . . . . . . . $ 2,319 $ 216 $ — $ 533 $ — $ — $ (292) $ (404) $ 44 $ 2,416 $ 143

Net derivatives . . . . 65 14 — — — (8) (41) — — 30 8

Long-term debt:

Of Fannie Mae:

Senior floating . $ (406) $ (25) $ — $ — $ — $ — $ — $ — $ — $ (431) $ (25)

Of consolidated

trusts . . . . . . . . (765) (107) — — — (523) 147 172 (349) (1,425) (95)

Total long-term debt $ (1,171) $ (132) $ — $ — $ — $ (523) $ 147 $ 172 $ (349) $ (1,856) $ (120)

__________

(1) (Losses) gains included in other comprehensive income are included in “Changes in unrealized gains on available-for-sale securities, 

net of reclassification adjustments and taxes” in the 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.

(3) Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.

(4) Transfers out of Level 3 consisted primarily of Fannie Mae MBS and private-label mortgage-related securities backed by Alt-A loans. 

Prices for these securities were obtained from multiple third-party vendors supported by market observable inputs. Transfers into Level 

3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans. Prices for these securities are based on inputs 

from a single source or inputs that were not readily observable.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

145

(5) Amount represents temporary changes in fair value. Amortization, accretion and other-than-temporary impairments are not considered 

unrealized and are not included in this amount.

The following tables display realized and unrealized gains and losses included in our condensed consolidated statements of 

operations and comprehensive income for the three and nine months ended September 30, 2013 and 2012, for our Level 3 

assets and liabilities measured in our condensed consolidated balance sheets at fair value on a recurring basis. 

For the Three Months Ended September 30, 2013

Interest

Income

Fair Value

Gains, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income. . $ 62 $ 181 $ (11) $ 34 $ 266

Net unrealized gains related to Level 3 assets and liabilities still

held as of September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 97 $ — $ — $ 97

For the Nine Months Ended September 30, 2013

Interest

Income

Fair Value

Gains, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income. . $ 187 $ 342 $ (20) $ 40 $ 549

Net unrealized gains related to Level 3 assets and liabilities still

held as of September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 331 $ — $ — $ 331

For the Three Months Ended September 30, 2012

Interest

Income

Fair Value

Gains, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income. . $ 60 $ 117 $ (37) $ 1 $ 141

Net unrealized gains related to Level 3 assets and liabilities still

held as of September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 99 $ — $ — $ 99

For the Nine Months Ended September 30, 2012

Interest

Income

Fair Value

Gains, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income. . $205 $ 237 $ (476) $ 9 $ (25)

Net unrealized gains related to Level 3 assets and liabilities still

held as of September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 94 $ — $ — $ 94
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

146

Nonrecurring Changes in Fair Value

The following tables display assets measured in our condensed consolidated balance sheets 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 for impairment) as of September 30, 2013 and December 31, 2012.

Fair Value Measurements as of September 30, 2013

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Estimated

Fair Value

(Dollars in millions)

Nonrecurring fair value measurements:

Assets:

Mortgage loans held for sale, at lower of cost or fair value . . . . . . . . . . $ — $136 $ 143 $ 279

Single-family mortgage loans held for investment, at amortized cost:(1)

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19,232 19,232

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 94 94

Multifamily mortgage loans held for investment, at amortized cost. . . . — — 1,780 1,780

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,499 3,499

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 88 88

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 98 98

Total nonrecurring fair value measurements . . . . . . . . . . . . . . . . . . . $ — $136 $24,934 $ 25,070

Fair Value Measurements as of December 31, 2012

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Estimated

Fair Value

(Dollars in millions)

Assets:

Mortgage loans held for sale, at lower of cost or fair value . . . . . . . . . . $ — $104 $ 135 $ 239

Single-family mortgage loans held for investment, at amortized cost:(1)

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 23,314 23,314

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 227 227

Multifamily mortgage loans held for investment, at amortized cost . . . — — 1,624 1,624

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,692 3,692

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 74 74

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 384 384

Total nonrecurring fair value measurements . . . . . . . . . . . . . . . . . . . $ — $104 $29,450 $ 29,554

_________

(1) Excludes estimated recoveries from mortgage insurance proceeds.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

147

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 as of September 30, 2013 and December 31, 

2012.

Fair Value Measurements as of September 30, 2013

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Recurring fair value

measurements:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . Other $ 49

Alt-A private-label securities. . . Consensus Default Rate (%) 10.8 10.8

Prepayment Speed (%) 8.4 8.4

Severity (%) 70.3 70.3 145

Consensus 270

Discounted Cash Flow Default Rate (%) 10.7 - 10.8 10.8

Prepayment Speed (%) 4.3 - 8.4 7.2

Severity (%) 70.3 - 80.0 73.1 105

Total Alt-A private-label

securities. . . . . . . . . . . . . . . 520

Subprime private-label

securities . . . . . . . . . . . . . . . . Consensus Default Rate (%) 7.4 - 11.1 8.7

Prepayment Speed (%) 0.8 - 4.5 2.5

Severity (%) 67.3 - 90.5 77.9

Spreads (bps) 375.0 - 555.0 407.0 465

Consensus 906

Single Vendor 40

Total subprime private-label

securities. . . . . . . . . . . . . . . 1,411

Mortgage revenue bonds . . . . . . Discounted Cash Flow Spreads (bps) 290.0 - 405.0 345.9 563

Other 32

Total mortgage revenue bonds. 595

Other. . . . . . . . . . . . . . . . . . . . . . Single Vendor 110

Total trading securities. . . . . . . . . . . $2,685
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

148

Fair Value Measurements as of September 30, 2013

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . Other $ 18

Alt-A private-label securities . Single Vendor 90

Consensus Default Rate (%) 0.0 - 14.2 4.2

Prepayment Speed (%) 0.1 - 31.7 13.5

Severity (%) 0.1 - 92.3 61.5

Spreads (bps) 275.0 - 555.0 407.2 1,886

Consensus 1,117

Discounted Cash Flow 146

Total Alt-A private-label

securities . . . . . . . . . . . . .

3,239

Subprime private-label

securities . . . . . . . . . . . . . .

Consensus Default Rate (%) 0.0 - 16.1 8.2

Prepayment Speed (%) 0.0 - 18.7 4.8

Severity (%) 10.2 - 99.2 80.6

Spreads (bps) 175.0 - 530.0 429.6 2,549

Consensus 3,882

Discounted Cash Flow Default Rate (%) 0.0 - 9.1 5.2

Prepayment Speed (%) 0.0 - 36.2 6.3

Severity (%) 65.0 - 100.0 79.8

Spreads (bps) 225.0 - 350.0 316.4 433

Other 101

Total subprime private-label

securities . . . . . . . . . . . . . 6,965

Mortgage revenue bonds. . . . . Single Vendor Spreads (bps) 44.2 - 520.0 197.2 2,004

Single Vendor 1,721

Discounted Cash Flow Spreads (bps) 96.3 - 545.0 330.0 2,031

Other 43

Total mortgage revenue

bonds . . . . . . . . . . . . . . . .

5,799

Other . . . . . . . . . . . . . . . . . . . . Consensus Default Rate (%) 0.0 - 5.0 4.7

Prepayment Speed (%) 3.0 - 13.8 3.7

Severity (%) 65.0 - 85.0 83.7

Spreads (bps) 350.0 - 679.0 481.7 405

Consensus 569

Other 1,984

Total other. . . . . . . . . . . . . . . 2,958

Total available-for-sale securities. $18,979
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

149

Fair Value Measurements as of September 30, 2013

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Mortgage loans of consolidated

trusts:

Single-family . . . . . . . . . . . . . Build-Up Default Rate (%) 0.1 - 93.3 17.0

Prepayment Speed (%) 3.3 - 33.4 15.4

Severity (%) 3.3 - 95.4 27.3 $ 1,798

Consensus Default Rate (%) 0.0 - 21.7 5.2

Prepayment Speed (%) 2.2 - 31.8 12.8

Severity (%) 39.3 - 86.5 45.6

Spreads (bps) 225.0 - 975.0 390.8 142

Consensus 243

Discounted Cash Flow Default Rate (%) 2.8 - 20.3 8.8

Prepayment Speed (%) 0.0 - 12.3 5.7

Severity (%) 39.3 - 92.2 67.3

Spreads (bps) 225.0 - 513.0 311.2 264

Total single-family. . . . . . . . 2,447

Multifamily. . . . . . . . . . . . . . . Build-Up Spreads (bps) 79.0 - 274.4 129.3 189

Total mortgage loans of

consolidated trusts . . . . . . . . . $ 2,636

Net derivatives. . . . . . . . . . . . . . . Internal Model $ (82)

Dealer Mark 54

Other 2

Total net derivatives . . . . . . . . . . $ (26)

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . Discounted Cash Flow $ (324)

Of consolidated trusts. . . . . . . Consensus Default Rate (%) 0.0 - 21.7 5.2

Prepayment Speed (%) 2.2 - 31.8 12.7

Severity (%) 39.3 - 86.5 46.0

Spreads (bps) 225.0 - 975.0 396.3 (149)

Consensus (278)

Single Vendor (65)

Other (73)

 Total of consolidated trusts. . (565)

Total long-term debt. . . . . . . . . . . $ (889)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

150

Fair Value Measurements as of December 31, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . Consensus $ 44

Single Vendor 27

 Total agency . . . . . . . . . . . . . . 71

 Alt-A private-label securities. . Discounted Cash Flow Default Rate (%) 5.7 - 17.6 12.5

Prepayment Speed (%) 0.6 - 4.0 1.7

Severity (%) 65.0 - 70.0 67.6

Spreads (bps) 526.0 - 612.0 567.0 87

Other 17

 Total Alt-A private-label

securities . . . . . . . . . . . . . . . . 104

 Subprime private-label

securities . . . . . . . . . . . . . . . . . Consensus Default Rate (%) 10.9 - 23.0 16.0

Prepayment Speed (%) 0.3 - 7.9 2.6

Severity (%) 80.0 80.0

Spreads (bps) 427.0 - 657.0 488.5 544

Consensus 355

Discounted Cash Flow Default Rate (%) 14.1 - 20.4 18.7

Prepayment Speed (%) 3.4 - 8.3 5.6

Severity (%) 80.0 80.0

Spreads (bps) 422.0 - 637.0 564.8 236

Single Vendor 184

 Total subprime private-label

securities . . . . . . . . . . . . . . . . 1,319

 Mortgage revenue bonds. . . . . . Discounted Cash Flow Spreads (bps) 260.0 - 375.0 320.4 636

Single Vendor 39

 Total mortgage revenue bonds. 675

 Other . . . . . . . . . . . . . . . . . . . . . Other 117

Total trading securities. . . . . . . . . . $2,286
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

151

Fair Value Measurements as of December 31, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . Other $ 39

Alt-A private-label

securities. . . . . . . . . . . . . . Discounted Cash Flow Default Rate (%) 0.0 - 23.6 6.4

Prepayment Speed (%) 0.0 - 20.8 7.4

Severity (%) 50.0 - 70.0 57.2

Spreads (bps) 288.0 - 643.0 442.8 3,003

Consensus Default Rate (%) 0.0 - 17.7 3.6

Prepayment Speed (%) 0.2 - 41.3 10.0

Severity (%) 50.0 - 70.0 54.9

Spreads (bps) 300.0 - 634.0 429.0 2,285

Consensus 1,231

Single Vendor 45

 Total Alt-A private-label

securities. . . . . . . . . . . . . 6,564

Subprime private-label

securities. . . . . . . . . . . . . . Consensus Default Rate (%) 0.0 - 27.4 15.4

Prepayment Speed (%) 0.0 - 14.4 3.0

Severity (%) 65.0 - 80.0 77.8

Spreads (bps) 325.0 - 660.0 493.7 3,333

Consensus 2,326

Discounted Cash Flow Default Rate (%) 0.0 - 24.3 15.7

Prepayment Speed (%) 0.0 - 10.9 2.9

Severity (%) 65.0 - 80.0 76.7

Spreads (bps) 299.0 - 654.0 527.0 1,710

Other 78

Total subprime privatelabel securities . . . . . . . . 7,447

Mortgage revenue bonds . . . Single Vendor 5,721

Discounted Cash Flow Spreads (bps) 77.0 - 375.0 297.7 1,911

Other 205

Total mortgage revenue

bonds. . . . . . . . . . . . . . . 7,837

Other. . . . . . . . . . . . . . . . . . . Consensus 1,009

Discounted Cash Flow Default Rate (%) 4.0 - 10.0 5.0

Prepayment Speed (%) 0.2 - 10.0 3.0

Severity (%) 50.0 - 85.0 84.8

Spreads (bps) 431.0 - 1,154.0 588.6 916

Consensus Default Rate (%) 0.0 - 5.0 4.7

Prepayment Speed (%) 1.0 - 14.1 3.6

Severity (%) 65.0 - 85.0 83.8

Spreads (bps) 450.0 - 729.0 585.8 534

Other 688

Total other . . . . . . . . . . . . . 3,147

Total available-for-sale

securities . . . . . . . . . . . . . . . . $ 25,034
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Fair Value Measurements as of December 31, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Mortgage loans of consolidated

trusts:

Single-family . . . . . . . . . . . . Build-Up Default Rate (%) 0.1 - 99.3 18.4

Prepayment Speed (%) 4.4 - 92.0 19.4

Severity (%) 5.6 - 97.3 33.3 $ 1,698

Consensus 303

Consensus Default Rate (%) 0.0 - 9.0 6.4

Prepayment Speed (%) 1.7 - 14.4 10.4

Severity (%) 65.0 - 70.0 67.1

Spreads (bps) 468.0 - 851.0 567.9 302

Discounted Cash Flow Default Rate (%) 0.0 - 8.5 6.0

Prepayment Speed (%) 1.7 - 14.4 5.3

Severity (%) 65.0 - 70.0 65.0

Spreads (bps) 507.0 - 1,030.0 733.4 106

Single Vendor 50

 Total single-family . . . . . . . 2,459

 Multifamily . . . . . . . . . . . . . . Build-Up Spreads (bps) 77.0 - 363.4 154.5 175

Total mortgage loans of

consolidated trusts . . . . . . . . $ 2,634

Net derivatives . . . . . . . . . . . . . Dealer Mark $ 144

Internal Model (130)

Total net derivatives . . . . . . . . . $ 14

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . Discounted Cash Flow $ (400)

Of consolidated trusts. . . . . . . Consensus (370)

Discounted Cash Flow Default Rate (%) 0.0 - 10.0 5.8

Prepayment Speed (%) 0.0 - 100.0 36.9

Severity (%) 50.0 - 70.0 63.4

Spreads (bps) 98.0 - 1,030.0 331.4 (330)

Consensus Default Rate (%) 0.0 - 9.0 6.2

Prepayment Speed (%) 1.7 - 14.4 10.9

Severity (%) 65.0 - 70.0 67.5

Spreads (bps) 468.0 - 851.0 584.3 (271)

Single Vendor (157)

 Total of consolidated trusts . . (1,128)

Total long-term debt . . . . . . . . . $(1,528)

_________

(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.

(2) Includes Fannie Mae, Freddie Mac and Ginnie Mae securities.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis as of 

September 30, 2013 and December 31, 2012. 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.
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Fair Value as of

Valuation Techniques September 30, 2013 December 31, 2012

(Dollars in millions)

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair

value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consensus $ 143 $ 135

Single-family mortgage loans held for investment, at

amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 19,232 23,314

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . Internal Model 94 227

Multifamily mortgage loans held for investment, at

amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisals 89 194

Broker Price Opinions 354 395

Asset Manager Estimate 1,320 1,001

Other 17 34

Total multifamily mortgage loans held for

investment, at amortized cost . . . . . . . . . . . . . . . . . 1,780 1,624

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 582 787

Appraisals 1,310 467

Walk Forwards 673 1,348

Internal Model 870 1,014

Other 64 76

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . 3,499 3,692

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 10 20

Appraisals 43 8

Broker Price Opinions 35 46

Total multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 74

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisals 26 8

Walk Forwards 7 43

Internal Model 63 203

Other 2 130

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 384

Total nonrecurring assets at fair value . . . . . . . . . . . . . $ 24,934 $ 29,450

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The 

following is a description of 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.

Cash Equivalents, Trading Securities and Available-for-Sale Securities

These securities are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. Fair value is 

measured using quoted market prices in active markets for identical assets, when available.

A description of our securities valuation techniques is as follows:

Single Vendor: This valuation technique utilizes one vendor price to estimate fair value. We generally validate these 

observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, 

default rates) are disclosed in the table above.

Consensus: This technique utilizes an average of two or more vendor prices for similar securities. We generally validate these 

observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, 

default rates) are disclosed in the table above.
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Discounted Cash Flow: In the absence of prices provided by third-party pricing services supported by observable market 

data, we estimate the fair value of a portion of our securities using a discounted cash flow technique that uses inputs such as 

default rates, prepayment speeds, loss severity and spreads based on market assumptions where available.

We classify securities whose values are based on quoted market prices in active markets for identical assets as Level 1 of the 

valuation hierarchy. We classify securities as Level 2 of the valuation hierarchy if quoted market prices in active markets for 

identical assets are not available. For all valuation techniques used for securities where there is limited activity or less 

transparency around these inputs to the valuation, these securities are classified as Level 3 of the valuation hierarchy.

For private-label securities, an increase in unobservable prepayment speeds in isolation would generally result in an increase 

in fair value, and an increase in unobservable spreads, severity rates or default rates in isolation would generally result in a 

decrease in fair value. For mortgage revenue bonds classified as Level 3 of the valuation hierarchy, an increase in 

unobservable spreads would result in a decrease in fair value. Although the sensitivities of the fair value of our recurring 

Level 3 securities of the valuation hierarchy to various unobservable inputs are discussed above in isolation, 

interrelationships exist among these inputs such that a change in one unobservable input typically results in a change to one 

or more of the other inputs.

Mortgage Loans Held for Investment

The majority of HFI loans are reported in our condensed consolidated balance sheets at the principal amount outstanding, net 

of cost basis adjustments and an allowance for loan losses. We estimate the fair value of HFI loans using the build-up and 

consensus valuation techniques, as discussed below, for periodic disclosure of financial instruments as required by GAAP. 

For our remaining loans, which include those containing embedded derivatives that would otherwise require bifurcation and 

consolidated loans of senior-subordinated trust structures, we elected the fair value option and therefore, we record these 

loans at fair value in our condensed consolidated balance sheets. We measure these loans on a recurring basis using the buildup, consensus, discounted cash flow and single vendor price techniques. Certain impaired loans are measured at fair value on 

a nonrecurring basis by using the fair value of their underlying collateral. Specific techniques used include internal models, 

broker price opinions and appraisals.

A description of our loan valuation techniques is as follows:

Build-up: The fair value of performing loans represents an estimate of the prices we would receive if we were to securitize 

those loans in the GSE securitization market. We derive the fair value of mortgage loans using a build-up valuation 

technique. In the build-up valuation technique we start with the base value for our Fannie Mae MBS then we add or subtract 

the fair value of the associated guaranty asset, guaranty obligation (“GO”) and master servicing arrangement. We use 

observable market values of Fannie Mae MBS with similar characteristics, either on a pool or loan level, determined 

primarily from third party pricing services, quoted market prices in active markets for similar securities, and other observable 

market data as a base value. We set the GO equal to the estimated fair value we would receive if we were to issue our 

guaranty to an unrelated party in a stand-alone arm’s length transaction at the measurement date. We estimate the fair value of 

the GO using our internal valuation models, which calculate the present value of expected cash flows based on management’s 

best estimate of certain key assumptions such as current mark-to-market LTV ratios, future house prices, default rates, 

severity rates and required rate of return. We also estimate the fair value of the GO using our current guaranty pricing and 

adjust that pricing, as appropriate, for the seasoning of the collateral when such transactions reflect credit characteristics of 

loans held in our portfolio. As a result, the fair value of our mortgage loans will change when the pricing for our credit 

guaranty changes in the GSE securitization market.

Our performing loans are generally classified as Level 2 of the valuation hierarchy to the extent that significant inputs are 

observable. To the extent that unobservable inputs are significant, the loans are classified as Level 3 of the valuation 

hierarchy. 

Consensus: The fair value of single-family nonperforming loans represents an estimate of the prices we would receive if we 

were to sell these loans in the nonperforming whole-loan market. These nonperforming loans are either two or more months 

delinquent, in an open modification period, or in a closed modification state (both performing and nonperforming in 

accordance with the loan’s modified terms). We calculate the fair value of nonperforming loans based on assumptions about 

key factors, including collateral value and mortgage insurance repayment. Collateral value is derived from the current 

estimated mark-to-market LTV ratio of the individual loan along with a state-level distressed property sales discount. The fair 

value of mortgage insurance is estimated by taking the loan level coverage and adjusting it by the expected claims paying 

ability of the associated mortgage insurer. The expected claims paying abilities used for estimating the fair value of mortgage 
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insurance are consistent with our credit loss forecast. Using these assumptions, along with indicative bids for a representative 

sample of nonperforming loans, we estimate the fair value. The bids on sample loans are obtained from multiple active 

market participants. Fair value is estimated from the extrapolation of these indicative sample bids plus an amount for the 

recovery of any associated mortgage insurance estimated through our GO valuation models as described above. These loans 

are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

We estimate the fair value for a portion of our senior-subordinated trust structures using the average of two or more vendor 

prices at the security level as a proxy for estimating loan fair value. These loans are classified as Level 3 of the valuation 

hierarchy because significant inputs are unobservable.

Discounted Cash Flow: We estimate the fair value of a portion of our senior-subordinated trust structures using discounted 

cash flow at the security level as a proxy for estimating loan fair value. This valuation technique uses unobservable inputs 

such as prepayment speeds, default rates, spreads, and loss severities to estimate the fair value of our securities. These inputs 

are weighted in a model that calculates the expected cash flow of the security which is used as the basis of fair value. These 

loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 

Single Vendor: We estimate the fair value of a portion of our senior-subordinated trust structures using the single vendor 

valuation technique at the security level as a proxy for estimating loan fair value. We also estimate the fair value of our 

reverse mortgages using the single vendor valuation technique. This valuation technique estimates fair value based upon 

prices received from one specific vendor. These loans are classified as Level 3 of the valuation hierarchy because significant 

inputs are unobservable. 

Internal Model: We estimate the fair value of a portion of our single-family nonperforming loans using the value of the 

underlying collateral. The inputs into this internal model include property level data such as prior sales prices, tax assessment 

values, property characteristics, and historical foreclosure sales data. This internal model takes one of two approaches when 

valuing foreclosed properties. The first approach relies on comparable foreclosed property sales, where the value of the target 

property is the weighted average price of comparable foreclosed property sales. The weights in the comparable sales 

approach are determined by various factors such as geographic distance, transaction time, and the value difference. The 

second approach relies on model calibrations that consider the target property’s attributes such as prior sales prices, tax 

assessment values, and property characteristics to derive the foreclosed property values. In the second approach, we build 

separate predictive models for each Metropolitan Statistical Area (“MSA”). Specifically, we use data on prior sales prices, tax 

assessment values, property characteristics, and historical foreclosure sales to calibrate the models in each MSA. We can use 

the available data about that property and our MSA-level model to estimate the fair value for a given property. The majority 

of the internal model valuations come from the comparable sales approach. The determination of whether the internal model 

valuations in a particular geographic area should use the comparable sales approach or model calibration is based on the 

quarterly evaluation of these two approaches for valuation accuracy. The unobservable inputs used in this technique include 

model weights based upon geographic distance, transaction time, and metropolitan statistics. When a physical address is not 

available, we estimate fair value using state-average foreclosed property values. These loans are classified as Level 3 of the 

valuation hierarchy because significant inputs are unobservable. 

Appraisals: For a portion of our multifamily loans, we use appraisals to estimate the fair value of the loan. There are three 

approaches used to estimate fair value of a specific property: (1) cost, (2) income capitalization and (3) sales comparison. 

This technique uses an average of the three estimates. The cost approach uses the insurable value as a basis. The 

unobservable inputs used in this model include the estimated cost to construct or replace multifamily properties in the closest 

localities available. The income capitalization approach estimates the fair value using the present value of the future cash 

flow expectations by applying an appropriate overall capitalization rate to the forecasted net operating income. The 

significant unobservable inputs used in this calculation include rental income, fees associated with rental income, expenses 

associated with the property including taxes, payroll, insurance and other items, and capitalization rates, which are 

determined through market extraction and the debt service coverage ratio. The sales comparison approach compares the 

prices paid for similar properties, the prices asked by owners and offers made. The unobservable inputs to this methodology 

include ratios of sales prices to annual gross income, price paid per unit and adjustments made based on financing, conditions 

of sale, and physical characteristics of the property. These loans are classified as Level 3 of the valuation hierarchy because 

significant inputs are unobservable. 

Broker Price Opinion (“BPO”): For a portion of our multifamily loans, we use BPO to estimate the fair value of the loan. 

This technique uses both current property value and the property value adjusted for stabilization and market conditions. 

These approaches compute net operating income based on current rents and expenses and use a range of market capitalization 

rates to estimate property value. The unobservable inputs used in this technique are property net operating income and market 
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capitalization rates to estimate property value. These loans are classified as Level 3 of the valuation hierarchy because 

significant inputs are unobservable. 

Asset Manager Estimate (“AME”): For a portion of our multifamily loans, AME is used to estimate the fair value of the loan. 

This technique uses the net operating income and tax assessments of the specific property as well as MSA-specific market 

capitalization rates and average per unit sales values to estimate property fair value. These loans are classified as Level 3 of 

the valuation hierarchy because significant inputs are unobservable. 

An increase in prepayment speeds in isolation would generally result in an increase in the fair value of our mortgage loans 

classified as Level 3 of the valuation hierarchy, and an increase in severity rates, default rates, or spreads in isolation would 

generally result in a decrease in fair value. Although the sensitivities of the fair value of mortgage loans classified as Level 3 

of the valuation hierarchy to various unobservable inputs are discussed above in isolation, interrelationships exist among 

these inputs such that a change in one unobservable input typically results in a change to one or more of the other inputs. 

Acquired Property, Net and Other Assets

Acquired property, net represents foreclosed property received in full satisfaction of a loan net of a valuation allowance. 

Acquired property is initially recorded in our condensed consolidated balance sheets at its fair value less its estimated cost to 

sell. The initial fair value of foreclosed properties is determined using a hierarchy based on the reliability of available 

information. The hierarchy for single-family acquired property includes accepted offers, appraisals, broker price opinions and 

proprietary home price model values. The hierarchy for multifamily acquired property includes accepted offers, appraisals, 

and broker price opinions. We consider an accepted offer on a specific foreclosed property to be the best estimate of its fair 

value. If we have not accepted an offer on the property we use the highest available valuation methodology as described in 

our valuation hierarchy to determine fair value. While accepted offers represent an agreement in principle to transact, 

a significant portion of these agreements do not get executed for various reasons, and are therefore classified as Level 3 of the 

valuation hierarchy. 

Third-party valuations can be obtained from either an appraisal or a broker price opinion. These valuations are kept current 

using a monthly walk forward process that updates them for any change in the value of the property. When accepted offers or 

third-party valuations are not available, we generally utilize the home price values determined using an internal model. 

Subsequent to initial measurement, the foreclosed properties that we intend to sell are reported at the lower of the carrying 

amount or fair value less estimated costs to sell. Foreclosed properties classified as held for use, included in “Other Assets” in 

our condensed consolidated balance sheets, are depreciated and impaired when circumstances indicate that the carrying 

amount of the property is no longer recoverable. The fair values of our single-family foreclosed properties subsequent to 

initial measurement are determined using the same information hierarchy used for the initial fair value measurement. 

The most commonly used techniques in our valuation of acquired property are proprietary home price model and appraisals 

(both current and walk forward). Based on the number of properties measured as of September 30, 2013, these methodologies 

comprised approximately 79% of our valuations, while accepted offers comprised approximately 17% of our valuations. 

Based on the number of properties measured as of December 31, 2012, these methodologies comprised approximately 78%

of our valuations, while accepted offers comprised approximately 20% of our valuations.

Acquired property is classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 

A description of our acquired property valuation techniques is as follows: 

Single-family acquired property valuation techniques 

Appraisal: An appraisal is an estimate of the value of a specific property by a certified or licensed appraiser, in accordance 

with the Uniform Standards of Professional Appraisal Practice. Data most commonly used is from the local Multiple Listing 

Service and includes properties currently listed for sale, properties under contract, and closed transactions. The appraiser 

performs an analysis that starts with these data points and then adjusts for differences between the comparable properties and 

the property being appraised, to arrive at an estimated value for the specific property. Adjustments are made for differences 

between comparable properties for unobservable inputs such as square footage, location, and condition of the property. The 

appraiser typically uses recent historical data for the estimate of value. 

Broker Price Opinion: This technique provides an estimate of what the property is worth based upon a real estate broker’s 

knowledge. The broker uses research of pertinent data in the appropriate market, and a sales comparison approach that is 

similar to the appraisal process. The broker typically has insight into local market trends, such as the number of and terms of 

offers, lack of offers, increasing supply, shortage of inventory and overall interest in buying a home. This information, all of 
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which is unobservable, is used along with recent and pending sales and current listings of similar properties to arrive at an 

estimate of value. 

Appraisal and Broker Price Opinion Walk Forwards (“Walk Forwards”): We use these techniques to adjust appraisal and 

broker price opinion valuations for changing market conditions by applying a walk forward factor based on local price 

movements since the time the third-party value was obtained. The majority of third-party values are updated by comparing 

the difference in our internal home price model from the month of the original appraisal/broker price opinion to the current 

period and by applying the resulting percentage change to the original value. If a price is not determinable through our 

internal home price model, we use our zip code level home price index to update the valuations. 

Internal Model: We use an internal model to estimate fair value for distressed properties. The valuation methodology and 

inputs used are described under “Mortgage Loans Held for Investment.” 

Multifamily acquired property valuation techniques 

Appraisals: We use this method to estimate property values for distressed properties. The valuation methodology and inputs 

used are described under “Mortgage Loans Held for Investment.” 

Broker Price Opinions: We use this method to estimate property values for distressed properties. The valuation methodology 

and inputs used are described under “Mortgage Loans Held for Investment.” 

Derivatives Assets and Liabilities (collectively “Derivatives”)

Derivatives are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. The valuation 

process for the majority of our risk management derivatives uses observable market data provided by third-party sources, 

resulting in Level 2 classification of the valuation hierarchy. 

A description of our derivatives valuation techniques is as follows: 

Internal Model: We use internal models to value interest rate swaps which are valued by referencing yield curves derived 

from observable interest rates and spreads to project and discount swap cash flows to present value. Option-based derivatives 

use an internal model that projects the probability of various levels of interest rates by referencing swaption volatilities 

provided by market makers/dealers. The projected cash flows of the underlying swaps of these option-based derivatives are 

discounted to present value using yield curves derived from observable interest rates and spreads. 

Dealer Mark: Certain highly complex structured swaps primarily use a single dealer mark due to lack of transparency in the 

market and may be modeled using observable interest rates and volatility levels as well as significant unobservable 

assumptions, resulting in Level 3 classification of the valuation hierarchy. Mortgage commitment derivatives that use 

observable market data, quotes and actual transaction price levels adjusted for market movement are typically classified as 

Level 2 of the valuation hierarchy. To the extent mortgage commitment derivatives include adjustments for market movement 

that cannot be corroborated by observable market data, we classify them as Level 3 of the valuation hierarchy. 

Debt

The majority of debt of Fannie Mae is recorded in our condensed consolidated balance sheets at the principal amount 

outstanding, net of cost basis adjustments. We elected the fair value option for certain structured debt instruments, which are 

recorded in our condensed consolidated balance sheets at fair value on a recurring basis. 

We use third-party pricing services that reference observable market data such as interest rates and spreads to measure the fair 

value of debt, and thus classify that debt as Level 2 of the valuation hierarchy. 

A description of our debt valuation techniques is as follows: 

Discounted Cash Flow: For structured debt instruments that are not valued by third-party pricing services, cash flows are 

evaluated taking into consideration any structured derivatives through which we have swapped out of the structured features 

of the notes. The resulting cash flows are discounted to present value using a yield curve derived from market prices observed 

for Fannie Mae Benchmark Notes and adjusted to reflect fair values at the offer side of the market. Market swaption 

volatilities are also referenced for the valuation of callable structured debt instruments. Since the derivatives considered in the 

valuations of these structured debt instruments are classified as Level 3 of the valuation hierarchy, the valuations of the 

structured debt instruments result in a Level 3 classification. 

Consensus: Certain consolidated MBS debt with embedded derivatives is recorded in our condensed consolidated balance 

sheets at fair value on a recurring basis. Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we 
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estimate the fair value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when 

traded as assets. For a portion of our senior-subordinated trust structures, we estimate the fair value using the average of two 

or more vendor valuation techniques at the security level as a proxy for estimating debt fair value. This valuation technique 

estimates fair value based upon prices received from more than one vendor. These loans are classified as Level 3 of the 

valuation hierarchy because significant inputs are unobservable.

Single Vendor: Certain consolidated MBS debt with embedded derivatives is recorded in our condensed consolidated balance 

sheets at fair value on a recurring basis. Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we 

estimate the fair value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when 

traded as assets. For a portion of our senior-subordinated trust structures, we estimate the fair value using the single vendor 

valuation technique at the security level as a proxy for estimating debt fair value. This valuation technique estimates fair 

value based upon prices received from one specific vendor. The valuation methodology and inputs used in estimating the fair 

value of MBS assets are described under “Cash Equivalents, Trading Securities and Available-for-Sale Securities.” These 

loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 

Valuation Control Processes 

We have control processes that are designed to ensure that our fair value measurements are appropriate and reliable, that they 

are based on observable inputs wherever possible and that our valuation approaches are consistently applied and the 

assumptions used are reasonable. Our control processes consist of a framework that provides for a segregation of duties and 

oversight of our fair value methodologies and valuations, as well as validation procedures. 

Our Enterprise Models Group develops models that are used in estimating the fair value of assets and liabilities for financial 

reporting purposes. In addition, our Model Oversight Committee (“MOC”) facilitates the cross-functional coordination and 

effectiveness of our modeling efforts in terms of research, model use and risk governance. The MOC is comprised of senior 

representatives from Underwriting and Pricing, Capital Markets, Multifamily, Credit Portfolio Management, Enterprise Risk 

Management and Finance and is co-chaired by our Chief Risk Officer and our Head of Enterprise Business Analytics. Our 

Model Risk Oversight Group is responsible for establishing risk management controls and for reviewing models used in the 

determination of fair value measurements for financial reporting. 

During the three months ended September 30, 2013, the Pricing Group and the Price Verification Group within our Finance 

Division were merged to form the Pricing and Verification Group. The Pricing and Verification Group resides within our 

Finance Division and is independent of any trading or market related activities. The Pricing and Verification Group is 

responsible for the estimation and verification of the fair value for the majority of our financial assets and financial liabilities 

including review of material assumptions used when market-based inputs do not exist. The Pricing and Verification Group 

also provides a quarterly update to the Valuation Oversight Committee (“VOC”) on relevant market information, pricing 

trends, significant valuation challenges and the resolution of those challenges. Fair value measurements for acquired property 

and collateral dependent loans are determined by other valuation groups in the Finance Division.

Our VOC includes senior representation from our Capital Markets segment, our Enterprise Risk Office and our Finance 

division, and is responsible for providing overall governance for our valuation processes and results. The composition of the 

VOC is determined by the VOC chair, our Chief Financial Officer, with the objective of obtaining appropriate representation 

from Finance, Enterprise Risk Management and select business units within Fannie Mae. Based on its review of valuation 

methodologies and fair value results for various financial instruments used for financial reporting, the VOC is responsible for 

advising the VOC chair, who has the ultimate responsibility over all valuation processes and results. The VOC also reviews 

trend analysis for various financial assets and liabilities on a quarterly basis. 

We use third-party vendor prices and dealer quotes to estimate fair value of some of our financial assets and liabilities. Thirdparty vendor prices are primarily used to estimate fair value for trading securities, available-for-sale securities, debt of Fannie 

Mae and consolidated MBS debt. Our Pricing and Verification Group performs various review and validation procedures 

prior to utilizing these prices in our fair value estimation process. We verify selected prices, using a variety of methods, 

including corroborating the prices by reference to other independent market data, such as non-binding broker or dealer 

quotations, relevant benchmark indices and prices of similar instruments. We also review prices for reasonableness based on 

variations from prices provided in previous periods, comparing prices to internally estimated prices, using primarily a 

discounted cash flow approach, and conducting relative value comparisons based on specific characteristics of securities. 

We have discussions with the pricing services as part of our due diligence process in order to maintain a current 

understanding of the valuation processes and related assumptions and inputs that these vendors use in developing prices. The 
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prices provided to us by third-party pricing services reflect the existence of market reliance upon credit enhancements, if any, 

and the current lack of liquidity in the marketplace. If we determine that a price provided to us is outside established 

parameters, we will further examine the price, including having follow-up discussions with the pricing service or dealer. If 

we conclude that a price is not valid, we will adjust the price for various factors, such as liquidity, bid-ask spreads and credit 

considerations. All of these procedures are executed before we use the prices in preparing our financial statements.

We have an internal property valuation function that utilizes an internal model to compare the values received on a property 

and assign a risk rating based on several factors including the deviation between the various values. Property valuations with 

risk ratings above a specified threshold are reviewed for reasonableness by a team of property valuation experts. The internal 

model that is used to assign a risk rating and the threshold specified is subject to VOC oversight. In addition, our Quality 

Control Group reviews the overall work performed and inspects a portion of the properties in major markets, for which the 

third-party valuations are obtained, in order to assess the quality of the valuations. 

We calibrate the performance of our proprietary distressed home price model using actual offers in recently observed 

transactions. The model’s performance is reviewed on a monthly basis by the REO valuation team and compared quarterly to 

specific model performance thresholds. The results of the validation are regularly reviewed with the VOC. 

Our Appraisal Review Group reviews appraisals to determine whether they have been performed in accordance with 

appraisal standards and the results are consistent with our observed transactions on similar properties. We and/or third-party 

servicers review broker price opinions to determine whether the values provided are consistent with our observed transactions 

on similar properties. We conduct quarterly portfolio reviews, annual audits and periodic reviews of the counterparties that 

provide services to review broker price opinions. In addition, valuation results and trend analyses are reviewed at least 

monthly by REO management. 

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments as of September 30, 

2013 and December 31, 2012. The fair value of financial instruments we disclose includes commitments to purchase 

multifamily and single-family mortgage loans, which are off-balance sheet financial instruments 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 certain financial instruments, such as plan obligations 

for pension and postretirement health care benefits, employee stock option and stock purchase plans, and also excludes all 

non-financial instruments. As a result, the fair value of our financial assets and liabilities does not represent the underlying 

fair value of our total consolidated assets and liabilities.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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160

As of September 30, 2013

Carrying

Value

Quoted

Price 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,309 $ 44,809 $ 17,500 $ — $ — $ 62,309

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . 40,300 — 40,300 — — 40,300

Trading securities . . . . . . . . . . . . . . . . . . . . . 32,860 16,396 13,779 2,685 — 32,860

Available-for-sale securities . . . . . . . . . . . . . 41,000 — 22,021 18,979 — 41,000

Mortgage loans held for sale . . . . . . . . . . . . . 998 — 223 802 — 1,025

Mortgage loans held for investment, net of

allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . 271,923 — 33,998 223,365 — 257,363

Of consolidated trusts . . . . . . . . . . . . . . . 2,740,259 — 2,583,993 170,452 — 2,754,445

Mortgage loans held for investment . . . . . . . 3,012,182 — 2,617,991 393,817 — 3,011,808

Advances to lenders. . . . . . . . . . . . . . . . . . . . 3,633 — 3,050 548 — 3,598

Derivative assets at fair value . . . . . . . . . . . . 2,019 — 11,202 92 (9,275) 2,019

Guaranty assets and buy-ups. . . . . . . . . . . . . 271 — — 684 — 684

Total financial assets . . . . . . . . . . . . . . . . . . . $ 3,195,572 $ 61,205 $ 2,726,066 $ 417,607 $ (9,275) $ 3,195,603

Financial liabilities:

Short-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . $ 77,813 $ — $ 77,830 $ — $ — $ 77,830

 Of consolidated trusts. . . . . . . . . . . . . . . . 2,297 — — 2,297 — 2,297

Long-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 487,297 — 498,046 962 — 499,008

 Of consolidated trusts. . . . . . . . . . . . . . . . 2,672,714 — 2,691,156 13,082 — 2,704,238

Derivative liabilities at fair value . . . . . . . . . 2,361 — 13,152 118 (10,909) 2,361

Guaranty obligations . . . . . . . . . . . . . . . . . . . 502 — — 2,472 — 2,472

Total financial liabilities . . . . . . . . . . . . . . . . $ 3,242,984 $ — $ 3,280,184 $ 18,931 $ (10,909) $ 3,288,206
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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161

As of December 31, 2012

Carrying

Value

Quoted

Price 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,036 $ 75,786 $ 13,250 $ — $ — $ 89,036

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . 32,500 — 32,500 — — 32,500

Trading securities . . . . . . . . . . . . . . . . . . . . . 40,695 17,950 20,459 2,286 — 40,695

Available-for-sale securities . . . . . . . . . . . . . 63,181 — 38,147 25,034 — 63,181

Mortgage loans held for sale . . . . . . . . . . . . . 464 — 267 208 — 475

Mortgage loans held for investment, net of

allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . 305,025 — 39,018 232,170 — 271,188

Of consolidated trusts . . . . . . . . . . . . . . . 2,643,917 — 2,528,004 234,424 — 2,762,428

Mortgage loans held for investment . . . . . . . 2,948,942 — 2,567,022 466,594 — 3,033,616

Advances to lenders. . . . . . . . . . . . . . . . . . . . 7,592 — 6,936 572 — 7,508

Derivative assets at fair value . . . . . . . . . . . . 435 — 16,051 175 (15,791) 435

Guaranty assets and buy-ups. . . . . . . . . . . . . 327 — — 692 — 692

Total financial assets . . . . . . . . . . . . . . . . . . . $ 3,183,172 $ 93,736 $ 2,694,632 $ 495,561 $ (15,791) $ 3,268,138

Financial liabilities:

Short-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . $ 105,233 $ — $ 105,253 $ — $ — $ 105,253

 Of consolidated trusts. . . . . . . . . . . . . . . . 3,483 — — 3,483 — 3,483

Long-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 510,631 — 534,516 1,056 — 535,572

 Of consolidated trusts. . . . . . . . . . . . . . . . 2,570,170 — 2,685,008 16,171 — 2,701,179

Derivative liabilities at fair value . . . . . . . . . 705 — 22,590 161 (22,046) 705

Guaranty obligations . . . . . . . . . . . . . . . . . . . 599 — — 3,113 — 3,113

Total financial liabilities . . . . . . . . . . . . . . . . $ 3,190,821 $ — $ 3,347,367 $ 23,984 $ (22,046) $ 3,349,305

Financial Instruments for which fair value approximates carrying value—We hold certain financial instruments that are not 

carried at fair value but for which the carrying value approximates fair value due to the short-term nature and negligible 

credit risk inherent in them. These financial instruments include cash and cash equivalents, the majority of advances to 

lenders, and federal funds and securities sold/purchased under agreements to repurchase/resell (exclusive of dollar roll 

repurchase transactions).

Federal funds and securities sold/purchased under agreements to repurchase/resell—The carrying value for the majority of 

these specific instruments approximates the fair value due to the short-term nature and the negligible inherent credit risk, as 

they involve the exchange of liquid collateral. Were we to calculate the fair value of these instruments we would use 

observable inputs resulting in Level 2 classification.

Mortgage Loans Held for Sale—Loans are reported at the lower of cost or fair value in our condensed consolidated balance 

sheets. The valuation methodology and inputs used in estimating the fair value of HFS loans are the same as for our HFI 

loans and are described under “Fair Value Measurement—Mortgage Loans Held for Investment.” These loans are classified 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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162

as Level 2 of the valuation hierarchy to the extent that significant inputs are observable. To the extent that significant inputs 

are unobservable, the loans are classified within Level 3 of the valuation hierarchy.

Advances to Lenders—The carrying value for the majority of our advances to lenders approximates fair value due to the 

short-term nature and the negligible inherent credit risk. Were we to calculate the fair value of these instruments we would 

use discounted cash flow models that use observable inputs such as spreads based on market assumptions, resulting in Level 

2 classification.

Advances to lenders also include loans for which the carrying value does not approximate fair value. These loans do not 

qualify for Fannie Mae MBS securitization and are valued using market-based techniques including credit spreads, severities 

and prepayment speeds for similar loans, through third-party pricing services or through a model approach incorporating both 

interest rate and credit risk simulating a loan sale via a synthetic structure. We classify these valuations as Level 3 given that 

significant inputs are not observable or are determined by extrapolation of observable points.

Guaranty Assets and Buy-ups—Guaranty assets related to our portfolio securitizations are recorded in our condensed 

consolidated balance sheets at fair value on a recurring basis and are classified within Level 3 of the valuation hierarchy. 

Guaranty assets in lender swap transactions are recorded in our condensed consolidated balance sheets at the lower of cost or 

fair value. These assets, which are measured at fair value on a nonrecurring basis, are classified within Level 3 of the fair 

value hierarchy.

We estimate the fair value of guaranty assets based on the present value of expected future cash flows of the underlying 

mortgage assets using management’s best estimate of certain key assumptions, which include prepayment speeds, forward 

yield curves, and discount rates commensurate with the risks involved. These cash flows are projected using proprietary 

prepayment, interest rate and credit risk models. Because guaranty assets are like an interest-only income stream, the 

projected cash flows from our guaranty assets are discounted using one-month LIBOR plus an option-adjusted spread that is 

calibrated using a representative sample of interest-only swaps that reference Fannie Mae MBS. We believe the remitted fee 

income is less liquid than interest-only swaps and more like an excess servicing strip. We take a further discount of the 

present value for these liquidity considerations. This discount is based on market quotes from dealers.

The fair value of the guaranty assets includes the fair value of any associated buy-ups, which is estimated in the same manner 

as guaranty assets but is recorded separately as a component of “Other assets” in our condensed consolidated balance sheets.

Guaranty Obligations—The fair value of all guaranty obligations, measured subsequent to their initial recognition, is our 

estimate of a hypothetical transaction price we would receive if we were to issue our guaranty to an unrelated party in a 

standalone arm’s-length transaction at the measurement date. These obligations are classified within Level 3. The valuation 

methodology and inputs used in estimating the fair value of the guaranty obligation are described under “Fair Value 

Measurement—Mortgage Loans Held for Investment, Build-up.”

HARP Loans—We measure the fair value of loans that are delivered under the Home Affordable Refinance Program 

(“HARP”) using a modified build-up approach while the loan is performing. Under this modified approach, we set the credit 

component of the consolidated loans (that is, the guaranty obligation) equal to the compensation we would currently receive 

for a loan delivered to us under the program because the total compensation for these loans is equal to their current exit price 

in the GSE securitization market. For a description of the build-up valuation methodology, refer to “Fair Value Measurement

—Mortgage Loans Held for Investment.” We will continue to use this pricing methodology as long as the HARP program is 

available to market participants. If, subsequent to delivery, the refinanced loan becomes past due or is modified as a part of a 

troubled debt restructuring, the fair value of the guaranty obligation is then measured consistent with other loans that have 

these characteristics.

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are willing to offer 

because HARP is a part of a broader government program intended to provide assistance to homeowners and prevent 

foreclosures. If these benefits were not reflected in the pricing for these loans (that is, if the loans were valued using our 

standard build-up approach), the fair value disclosed in the table above would be lower by $6.9 billion as of September 30, 

2013. The total fair value of the loans in our retained mortgage portfolio that have been refinanced under HARP as of 

September 30, 2013 as presented in the table above is $307.1 billion.

Fair Value Option

We elected the fair value option for loans 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 

the respective loan. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

163

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. 

We elected the fair value option for the financial assets and liabilities of the consolidated senior-subordinate trust structures. 

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 different accounting treatment between loans at cost and debt at cost. 

Interest income for the mortgage loans is recorded in “Mortgage loans interest income” and interest expense for the debt 

instruments is recorded in “Long-term debt interest expense” in our condensed consolidated statements of operations and 

comprehensive income. 

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, 2013 and December 31, 2012. 

As of

September 30, 2013 December 31, 2012

Loans of 

Consolidated 

Trusts(1)

Long-Term

Debt of

Fannie Mae

Long-Term Debt 

of Consolidated 

Trusts(2)

Loans of 

Consolidated 

Trusts(1)

Long-Term

Debt of

Fannie Mae

Long-Term Debt 

of Consolidated 

Trusts(2)

(Dollars in millions)

Fair value . . . . . . . . . . . . . . . . . . . $ 13,877 $ 684 $ 14,414 $ 10,800 $ 793 $ 11,647

Unpaid principal balance . . . . . . . 13,904 658 13,428 10,657 674 10,803

__________

(1) Includes nonaccrual loans with a fair value of $177 million and $273 million as of September 30, 2013 and December 31, 2012, 

respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2013 and 

December 31, 2012 was $97 million and $189 million, respectively. Includes loans that are 90 days or more past due with a fair value 

of $273 million and $386 million as of September 30, 2013 and December 31, 2012, respectively. The difference between unpaid 

principal balance and the fair value of these 90 or more days past due loans as of September 30, 2013 and December 31, 2012 was $98 

million and $201 million, respectively.

(2) Includes interest-only debt instruments with no unpaid principal balance and a fair value of $81 million and $100 million as of 

September 30, 2013 and December 31, 2012, respectively.

Changes in Fair Value under the Fair Value Option Election

The following table displays fair value gains and losses, net, including changes attributable to instrument-specific credit risk, 

for loans and debt for which the fair value election was made. Amounts are recorded as a component of “Fair value gains 

(losses), net” in our condensed consolidated statements of operations and comprehensive income for the three and nine 

months ended September 30, 2013 and 2012.

For the Three Months Ended September 30,

2013 2012

Loans

Long-Term

Debt

Total

Gains

(Losses) Loans

Long-Term

Debt

Total

Gains

(Losses)

(Dollars in millions)

Changes in instrument-specific credit risk . . . . . . . . . . . . $ (94) $ 1 $ (93) $ 12 $ (7) $ 5

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . 143 (138) 5 23 (71) (48)

Fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . $ 49 $ (137) $ (88) $ 35 $ (78) $ (43)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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164

For the Nine Months Ended September 30,

2013 2012

Loans

Long-Term

Debt

Total

Losses Loans

Long-Term

Debt

Total

Gains

(Losses)

(Dollars in millions)

Changes in instrument-specific credit risk . . . . . . . . . . . . . . . $ (93) $ (2) $ (95) $ 89 $ (9) $ 80

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . (563) 267 (296) (80) (28) (108)

Fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . $ (656) $265 $ (391) $ 9 $ (37) $ (28)

In determining the changes in the instrument-specific credit risk for loans, the changes in the associated credit-related 

components of these loans, primarily the guaranty obligation, were taken into consideration with the overall change in the fair 

value of the loans for which we elected the fair value option for financial instruments. In determining the changes in the 

instrument-specific credit risk for debt, the changes in Fannie Mae debt spreads to LIBOR that occurred during the period 

were taken into consideration with the overall change in the fair value of the debt for which we elected the fair value option 

for financial instruments. Specifically, cash flows are evaluated taking into consideration any derivatives through which 

Fannie Mae has swapped out of the structured features of the notes and thus created a floating-rate LIBOR-based debt 

instrument. The change in value of these LIBOR-based cash flows based on the Fannie Mae yield curve at the beginning and 

end of the period represents the instrument-specific risk.

17. 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.

On a quarterly and annual basis, we review relevant information about all pending legal actions and proceedings for the 

purpose of evaluating and revising our contingencies, reserves and disclosures. 

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 trial and appellate courts will apply the law. 

Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel view the evidence and 

applicable law. Further, FHFA adopted a regulation in 2011, which provides, in part, that while we are in conservatorship, 

FHFA will not pay claims by our current or former shareholders, unless the Director of FHFA determines it is in the interest 

of the conservatorship. The presence of this regulation and the Director of FHFA’s assertion that FHFA will not pay claims 

asserted in certain cases discussed below while we are in conservatorship creates additional uncertainty in those cases. 

We establish a reserve for matters when a loss is probable and we can reasonably estimate the amount of such loss. For legal 

actions or proceedings where there is only a reasonable possibility that a loss may be incurred, or where we are not currently 

able to estimate the reasonably possible loss or range of losses we do not establish a reserve. 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 substantial or indeterminate damages, where there may be novel or unsettled legal questions relevant to the 

proceedings, or where settlement negotiations have not occurred or progressed. Further, as noted above, FHFA’s regulation 

and the Director of FHFA’s assertion creates additional uncertainty with respect to certain cases. 

Given the uncertainties involved in any action or proceeding, regardless of whether we have established a reserve, 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. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

165

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 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. 

In re Fannie Mae Securities Litigation

Fannie Mae is a defendant in a consolidated class action lawsuit initially filed in 2004 and currently pending in the U.S. 

District Court for the District of Columbia. In the consolidated complaint filed in 2005, lead plaintiffs Ohio Public 

Employees Retirement System and State Teachers Retirement System of Ohio allege that we and certain former officers, as 

well as our former outside auditor, made materially false and misleading statements in violation of Sections 10(b) and 20(a) 

of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder. Plaintiffs contend that Fannie Mae’s 

accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of 

premiums and discounts, and seek unspecified compensatory damages, attorneys’ fees, and other fees and costs. On 

January 7, 2008, the court defined the class as all purchasers of Fannie Mae common stock and call options and all sellers of 

publicly traded Fannie Mae put options during the period from April 17, 2001 through December 22, 2004. On October 17, 

2008, FHFA, as conservator for Fannie Mae, intervened in this case. In September and December 2010, plaintiffs served 

expert reports claiming damages to plaintiffs under various scenarios ranging cumulatively from $2.2 billion to $8.6 billion. 

In 2011, the parties filed various motions for summary judgment. On September 20, 2012, the court granted summary 

judgment to defendant Franklin D. Raines, Fannie Mae’s former Chief Executive Officer, on all claims against him. On 

October 16, 2012, the court granted summary judgment to defendant J. Timothy Howard, Fannie Mae’s former Chief 

Financial Officer, on all claims against him. On November 20, 2012, the court granted summary judgment to defendant 

Leanne Spencer, Fannie Mae’s former Controller, on all claims against her. 

On April 10, 2013, the parties reached an agreement in principle to settle this litigation, subject to court approval. Fannie 

Mae’s portion of the proposed settlement will not have a material impact on our results of operations or financial condition. 

On May 7, 2013, the parties filed a stipulation of settlement with the court. On June 7, 2013, the court granted preliminary 

approval of the settlement, approved the form and manner of notice to the class, stayed non-settlement related proceedings, 

and set certain other deadlines related to the settlement. On October 31, 2013, the court held a hearing to evaluate the fairness 

of the settlement to the class. Final approval of the settlement is pending with the court.

2008 Class Action Lawsuits and Related Proceedings

Fannie Mae is a defendant in two consolidated class actions filed in 2008 and currently pending in the U.S. District Court for 

the Southern District of New York—In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA

Litigation. On February 11, 2009, the Judicial Panel on Multidistrict Litigation ordered that the cases be coordinated for 

pretrial proceedings. In addition, two individual securities actions involving related facts and circumstances—Comprehensive 

Investment Services v. Mudd and Smith v. Fannie Mae—were later filed and ultimately transferred to the same court for 

coordination with the class actions.

In addition to these proceedings, certain underwriters have notified us that they have been named in various other actions 

arising out of certain of Fannie Mae’s preferred stock offerings and may seek indemnification for any losses arising out of 

those actions pursuant to the terms of our underwriting agreements with them.

In re Fannie Mae 2008 Securities Litigation 

In a consolidated amended complaint filed on June 22, 2009, lead plaintiffs Massachusetts Pension Reserves Investment 

Management Board and Boston Retirement Board (for common shareholders) and Tennessee Consolidated Retirement 

System (for preferred shareholders) allege that we, certain of our former officers, and certain of our underwriters violated 

Sections 12(a)(2) and 15 of the Securities Act of 1933. Lead plaintiffs also allege that we, certain of our former officers, and 

our outside auditor, violated Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange 

Act of 1934. Lead plaintiffs seek various forms of relief, including rescission, damages, interest, costs, attorneys’ and experts’

fees, and other equitable and injunctive relief. On October 13, 2009, the court entered an order allowing FHFA to intervene. 

In 2009, the court granted the defendants’ motion to dismiss the Securities Act claims as to all defendants. In 2010, the court 

granted in part and denied in part the defendants’ motions to dismiss the Securities Exchange Act claims. As a result of the 

partial denial, some of the Securities Exchange Act claims remained pending against us and certain of our former officers. 

Fannie Mae filed its answer to the consolidated complaint on December 31, 2010. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

166

Plaintiffs filed a second amended joint consolidated class action complaint on March 2, 2012 and added FHFA as a 

defendant. On August 30, 2012, the court denied defendants’ motions to dismiss the second amended complaint, allowing 

plaintiffs’ Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures to proceed along with 

plaintiffs’ claims premised on Fannie Mae’s risk management disclosures. Fannie Mae filed its answer to the second amended 

complaint on October 29, 2012. Discovery is ongoing.

Given the stage of this lawsuit, 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. 

In re 2008 Fannie Mae ERISA Litigation 

In a consolidated complaint filed in 2009, plaintiffs allege that certain of our current and former officers and directors, 

including members of Fannie Mae’s Benefit Plans Committee and the Compensation Committee of Fannie Mae’s Board of 

Directors during the relevant time periods, as fiduciaries of Fannie Mae’s Employee Stock Ownership Plan (“ESOP”), 

breached their duties to ESOP participants and beneficiaries by investing ESOP funds in Fannie Mae common stock when it 

was no longer prudent to continue to do so. Plaintiffs purport to represent a class of participants and beneficiaries of the 

ESOP whose accounts invested in Fannie Mae common stock beginning April 17, 2007. The plaintiffs seek unspecified 

damages, attorneys’ fees and other fees and costs, and injunctive and other equitable relief. On February 1, 2012, plaintiffs 

sought leave to amend their complaint to add new factual allegations and the court granted plaintiffs’ motion. Plaintiffs filed 

an amended complaint on March 2, 2012 adding two current Board members and then-CEO Michael J. Williams as 

defendants. On October 22, 2012, the court granted in part and denied in part defendants’ motions to dismiss. The court 

dismissed with prejudice claims against seven former and current directors and officers who joined the Board of Directors or 

Benefit Plans Committee after Fannie Mae was placed into conservatorship. The court allowed plaintiffs’ breach of fiduciary 

duty and failure to monitor claims to go forward, but dismissed plaintiffs’ conflict of interest claim. On September 23, 2013, 

defendants filed a motion asking the court to reconsider its October 22, 2012 order in light of the U.S. Court of Appeals for 

the Second Circuit’s decision in Rinehart v. Akers (In re Lehman Bros. ERISA Litigation), 722 F.3d 137 (2d Cir. 2013). 

Discovery is ongoing.

Given the stage of this lawsuit, 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. 

Comprehensive Investment Services v. Mudd

This individual securities action was originally filed on May 13, 2009, by plaintiff Comprehensive Investment Services, Inc. 

against certain of our former officers and directors, and certain of our underwriters in the U.S. District Court for the Southern 

District of Texas. On July 7, 2009, this case was transferred to the Southern District of New York for coordination with In re 

Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. Plaintiff filed an amended complaint on 

May 11, 2011 against us, certain of our former officers, and certain of our underwriters. The amended complaint alleges 

violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violations of 

Section 20(a) of the Securities Exchange Act of 1934; and violations of the Texas Business and Commerce Code, common 

law fraud, and negligent misrepresentation in connection with Fannie Mae’s May 2008 $2.0 billion offering of 8.25% noncumulative preferred Series T stock. Plaintiff seeks relief in the form of rescission, actual damages, punitive damages, 

interest, costs, attorneys’ and experts’ fees, and other equitable and injunctive relief. Plaintiff filed a second amended 

complaint on March 2, 2012. On August 30, 2012, the court denied defendants’ motions to dismiss the second amended 

complaint, allowing plaintiff’s Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures 

and risk management disclosures to proceed. The court granted defendants’ motions to dismiss the state law claims, as well as 

the federal claims based on alleged violations of GAAP, and also dismissed two of our former officers from the action. On 

October 10, 2012, the court denied plaintiff’s motion for reconsideration of the court’s order dismissing plaintiff’s state law 

claims against certain underwriters of Fannie Mae’s Series T preferred stock. Fannie Mae filed its answer to the amended 

complaint on October 29, 2012. Discovery is ongoing.

Given the stage of this lawsuit, 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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

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Smith v. Fannie Mae

This individual securities action was originally filed on February 25, 2010, by plaintiff Edward Smith against Fannie Mae 

and certain of its former officers as well as several underwriters in the U.S. District Court for the Central District of 

California. On April 12, 2010, this case was transferred to the Southern District of New York for coordination with In re 

Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. Plaintiff filed an amended complaint on 

April 19, 2011, which alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated 

thereunder; violations of Section 20(a) of the Securities Exchange Act of 1934; common law fraud and negligence claims; 

and California state law claims for misrepresentation in connection with Fannie Mae’s December 2007 $7.0 billion offering 

of 7.75% fixed-to-floating rate non-cumulative preferred Series S stock. Plaintiff seeks relief in the form of rescission, actual 

damages (including interest), and exemplary and punitive damages. Plaintiff filed a second amended complaint, allowing 

plaintiff’s Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures and risk management 

disclosures to proceed, but granted defendants’ motions to dismiss the state law claims. On October 10, 2012, the court 

denied plaintiff’s motion for reconsideration of the court’s order dismissing plaintiff’s state law claims against certain 

underwriters of Fannie Mae’s Series S preferred stock. Fannie Mae filed its answer to the amended complaint on October 29, 

2012. Discovery is ongoing.

Given the stage of this lawsuit, 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. 

Senior Preferred Stock Purchase Agreements Litigation

Four lawsuits pertaining to the senior preferred stock purchase agreements have been filed by preferred shareholders against 

us and FHFA as our conservator in the U.S. District Court for the District of Columbia. Cacciapelle v. Fannie Mae, brought 

by shareholders Joseph Cacciapelle and Melvin Bareiss, was filed on July 29, 2013. American European Insurance Company 

v. Fannie Mae was filed on July 30, 2013. Borodkin v. Fannie Mae, brought by shareholder Barry Borodkin, and Arrowood 

Indemnity Company v. Fannie Mae were filed on September 20, 2013. Freddie Mac is also a defendant in Cacciapelle, 

American European Insurance Company, and Arrowood Indemnity Company, and the U.S. Treasury is a defendant in 

Arrowood Indemnity Company. Plaintiffs bring claims for breach of contract and breach of the implied covenant of good faith 

and fair dealing, alleging that the amendments to the terms of the senior preferred stock purchase agreements on August 17, 

2012 providing that Fannie Mae and Freddie Mac would pay dividends equal to their entire net worth (minus a specified 

capital reserve amount) (“the net worth sweep provisions”) nullified certain rights of the preferred shareholders, particularly 

the right to receive dividends. Plaintiffs in three lawsuits, Cacciapelle, American European Insurance Company and Borodkin

seek to represent a class of all shareholders who held preferred stock prior to and as of the public announcement of the 

August 17, 2012 amendment. Plaintiffs seek damages, equitable and injunctive relief, and costs and expenses, including 

attorneys’ fees.

In addition, two putative class and derivative actions have been filed in the U.S. District Court for the District of Columbia by 

preferred shareholders against Fannie Mae, both as a defendant and derivatively on our behalf against FHFA and the U.S. 

Treasury. These lawsuits are Dennis v. FHFA, filed on August 5, 2013, and Marneu v. FHFA, filed on September 18, 2013. 

Plaintiffs bring claims for breach of contract and breach of the implied covenant of good faith and fair dealing against us, and 

breach of fiduciary duty claims on our behalf against FHFA and Treasury, alleging that the net worth sweep provisions 

nullified certain rights of the preferred shareholders, particularly the right to receive dividends. Plaintiffs in Dennis seek to 

represent a class of all shareholders who held Series S and Series T preferred stock prior to August 17, 2012; plaintiffs in 

Marneu seek to represent a class of all shareholders who held preferred or common stock prior to August 17, 2012. Plaintiffs 

seek damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. A motion to consolidate the 

class action lawsuits and appoint lead plaintiffs’ counsel is pending with the court. 

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. 

Housing Trust Fund

On July 9, 2013, plaintiffs Angela Samuels, Rossana Torres, Danielle Stelluto, the National Low Income Housing Coalition 

and the Right to the City Alliance filed a complaint against FHFA and the Acting Director of FHFA in the U.S. District Court 

for the Southern District of Florida. We are not a party to this lawsuit. The complaint challenges FHFA’s decision to suspend 

Fannie Mae’s and Freddie Mac’s contributions to HUD’s Housing Trust Fund. The Federal Housing Finance Regulatory 

Reform Act of 2008 (the “2008 Reform Act”), which was enacted on July 30, 2008, requires Fannie Mae and Freddie Mac to 

set aside an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of their total new business 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

168

purchases to fund the Housing Trust Fund and the Capital Magnet Fund, with 65% of this amount allocated to the Housing 

Trust Fund and the remaining 35% allocated to the Capital Magnet Fund. The 2008 Reform Act authorizes the Director of 

FHFA to temporarily suspend these allocations in specified circumstances. In November 2008, FHFA suspended allocations 

for these funds and directed Fannie Mae and Freddie Mac to not set aside or allocate funds for the Housing Trust Fund and 

Capital Magnet Fund until further notice. 

Plaintiffs’ complaint alleges that FHFA’s directives ordering Fannie Mae and Freddie Mac to suspend payments to the 

Housing Trust Fund, and FHFA’s failure to review its decision to suspend payments once Fannie Mae’s and Freddie Mac’s 

financial circumstances changed, violated the Administrative Procedure Act. Plaintiffs request that the court: (1) vacate and 

set aside FHFA’s decision to indefinitely suspend payments by Fannie Mae and Freddie Mac to the Housing Trust Fund; (2) 

declare that FHFA’s actions violated the Administrative Procedure Act; (3) order FHFA to instruct Fannie Mae and Freddie 

Mac to proceed as if FHFA’s suspension of payments to the Housing Trust Fund had never taken place; and (4) award 

reasonable attorneys’ fees and costs to the plaintiffs. On October 16, 2013, FHFA filed a motion to dismiss the complaint.

We cannot predict the course or the outcome of this lawsuit, or the actions FHFA may take in response. 

18. Subsequent Events

On October 25, 2013, we, along with FHFA and Freddie Mac, entered into a settlement agreement with JPMorgan Chase 

Bank, N.A. (“JPMorgan Chase”) and certain related individuals and entities (collectively with JPMorgan Chase, the 

“JPMorgan Chase parties”) over legal claims relating to private-label securities that we purchased from them. Under the 

agreement, the JPMorgan Chase parties agreed to pay us $1.3 billion in the three months ended December 31, 2013.

On October 25, 2013, we entered into an agreement (the “resolution agreement”) with JPMorgan Chase to resolve certain 

repurchase requests arising from breaches of selling representations and warranties. The resolution agreement primarily 

resolved our outstanding and expected future repurchase requests arising from breaches of selling representations and 

warranties on specified single-family loans delivered to us by JPMorgan Chase that were originated between January 1, 2000 

and December 31, 2008. As a result, JPMorgan Chase will make a cash payment to us of $670 million in the three months 

ended December 31, 2013 and will be released from repurchase liability for these loans, with certain exceptions. JPMorgan 

Chase remains obligated for certain other contractual responsibilities under the resolution agreement.
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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 Securities and Exchange 

Commission (“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, 2013, 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, 2013 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of September 30, 2013 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, 2013 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, it is likely that we will not remediate this material weakness while we are under conservatorship.

Description of Material Weakness

The Public Company Accounting Oversight Board’s Auditing Standard No. 5 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, 2013 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 2008 Reform 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 

2008 Reform 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 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 
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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 2008 

Reform 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, 2013 or as of the date 

of filing this report. Based on discussions with FHFA and the structural nature of this weakness, it is likely that we 

will not remediate this material weakness while we are under conservatorship.

Mitigating Actions Relating 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 Office of Conservatorship Operations, 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, 2013 (“Third Quarter 2013 Form 10-Q”), and engaged in 

discussions regarding issues associated with the information contained in those filings. Prior to filing our Third 

Quarter 2013 Form 10-Q, FHFA provided Fannie Mae management with a written acknowledgment that it had 

reviewed the Third Quarter 2013 Form 10-Q, and it was not aware of any material misstatements or omissions in the 

Third Quarter 2013 Form 10-Q and had no objection to our filing the Third Quarter 2013 Form 10-Q.

• The Acting Director of FHFA and our Chief Executive Officer have been in frequent communication, typically 

meeting on at least a bi-weekly 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

Overview

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, 2013 that management believes have materially affected, or are 

reasonably likely to materially affect, our internal control over financial reporting.
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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 2012 Form 10-K, our First Quarter 2013 Form 10-Q and our Second Quarter 2013 Form 10-Q. We also 

provide information regarding material legal proceedings in “Note 17, 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 record reserves for legal claims when losses associated with those claims become probable and the amounts can be 

reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts 

reserved for those claims. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably 

estimated, we do not recognize in our condensed consolidated financial statements the potential liability that may result from 

these matters. Except for matters that have been settled, we presently cannot determine the ultimate resolution of the matters 

described below or incorporated by reference into this item or in our 2012 Form 10-K, our First Quarter 2013 Form 10-Q or 

our Second Quarter 2013 Form 10-Q. If certain of these matters are determined against us, it could have a material adverse 

effect on our results of operations, liquidity and financial condition, including our net worth. 

FHFA Private-Label Mortgage-Related Securities Litigation

As we disclosed in our 2012 Form 10-K in “Legal Proceedings,” in the third quarter of 2011, FHFA, as conservator for us 

and for Freddie Mac, filed lawsuits on behalf of us and Freddie Mac against various financial institutions, their officers and 

affiliated and unaffiliated underwriters that were responsible for marketing and selling private-label mortgage-related 

securities to us. The lawsuits seek to recover losses we and Freddie Mac incurred on the securities. The lawsuits allege that 

the defendants violated federal and state securities laws and, in some cases, committed fraud by making material 

misstatements and omissions regarding the characteristics of the loans underlying the securities in the offering documents for 

the securities that were sold to Fannie Mae and Freddie Mac. 

On July 25, 2013, we, along with FHFA and Freddie Mac, entered into a settlement agreement with UBS Americas Inc. 

(“UBS”) and certain related entities and individuals resolving the UBS case and certain other claims in exchange for a 

payment of $885 million. UBS paid us $416 million and Freddie Mac $469 million. On July 30, 2013, the district court 

entered a voluntary order dismissing the case.

In FHFA’s case against The Royal Bank of Scotland Group PLC and certain related entities and individuals, which is pending 

in U.S. District Court for the District of Connecticut, the court denied defendants’ motion to dismiss on September 30, 2013.

On October 25, 2013, we, along with FHFA and Freddie Mac, entered into a settlement agreement with JPMorgan Chase and 

certain related entities and individuals (collectively with JPMorgan Chase, the “JPMorgan Chase parties”) resolving the 

JPMorgan case, which is pending in the Southern District of New York, and certain other claims in exchange for a payment 

of $4 billion. The JPMorgan Chase parties agreed to pay us approximately $1.3 billion and Freddie Mac approximately $2.7 

billion. 

Senior Preferred Stock Purchase Agreements Litigation

Several lawsuits have been filed against FHFA, Treasury and, in some cases, Fannie Mae, challenging decisions by the 

federal agencies regarding conservatorship and amendments to Treasury’s senior preferred stock purchase agreements with 

Fannie Mae and Freddie Mac. In addition to those cases described in “Note 17, Commitments and Contingencies,” Fannie 

Mae is a nominal defendant in two shareholder derivative actions against the United States in the U.S. Court of Federal 

Claims. In these cases, plaintiffs allege that the provisions of third amendment of the senior preferred stock purchase 

agreements that require Fannie Mae and Freddie Mac to pay dividends equal to their entire net worth (minus a specified 

capital reserve amount) (“the net worth sweep provisions”) constitute a taking of Fannie Mae’s property without just 

compensation in violation of the U.S. Constitution. Plaintiffs request just compensation to Fannie Mae in an unspecified 

amount. The two cases are Fisher v. United States of America and Shipmon v. United States of America, filed on 

September 12, 2013.
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LIBOR Lawsuit 

On October 31, 2013, Fannie Mae filed a lawsuit in the U.S. District Court for the Southern District of New York against 

Barclays Bank PLC, UBS AG, The Royal Bank of Scotland Group PLC, The Royal Bank of Scotland PLC, Deutsche Bank 

AG, Credit Suisse Group AG, Credit Suisse International, Bank of America Corp., Bank of America, N.A., Citigroup Inc., 

Citibank, N.A., J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., Coöperative Centrale Raiffeisen-Boerenleenbank 

B.A., the British Bankers Association and BBA LIBOR Ltd. alleging they manipulated LIBOR. The complaint alleges, 

among other things, that the banks submitted false borrowing costs to the BBA in order to suppress LIBOR. The complaint 

seeks compensatory and punitive damages based on claims for breach of contract, breach of the implied duty of good faith 

and fair dealing, fraud and conspiracy to commit fraud.

Discontinuation of Investigation into Multifamily Asset Stabilization Program

As we disclosed in our 2012 the FHFA OIG and the Department of Justice Civil Division had been conducting 

an investigation with regard to a multifamily agreement with The Related Companies, L.P. (the “Multifamily Asset 

Stabilization Program”). This investigation has been discontinued.

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 2012 Form 10-K. This section supplements and updates that discussion. For a complete understanding 

of the subject, you should read both together. Please also refer to “MD&A—Risk Management” in this report and in our 2012 

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 forwardlooking statements contained in this report. However, these are not the only risks we face. In addition to the risks we discuss 

below, we face risks and uncertainties not currently known to us or that we currently believe are immaterial. 

RISKS RELATING TO OUR BUSINESS

We may incur losses as a result of claims under our mortgage insurance policies not being paid in full or at all, and we 

may face business disruptions and increased concentration risk. 

We rely heavily on mortgage insurers to provide insurance against borrower defaults on single-family conventional mortgage 

loans with LTV ratios over 80% at the time of acquisition. Several of our mortgage insurer counterparties incurred losses in 

recent years, which may have increased the risk that these counterparties will fail to fulfill their obligations to pay in full our 

claims under insurance policies.

PMI, RMIC and Triad are under various forms of supervised control by their state regulators and are in run-off. A mortgage 

insurer that is in run-off continues to collect renewal premiums and process claims on its existing insurance business, but no 

longer writes new insurance, which increases the risk that the mortgage insurer will pay claims only in part or fail to pay 

claims at all under existing insurance policies. 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. PMI and RMIC have been paying only a portion of policyholder claims and deferring the 

remaining portion. Currently, PMI is paying 55% of claims under its mortgage insurance policies in cash and is deferring the 

remaining 45%, and RMIC is paying 60% of claims in cash and deferring the remaining 40%. It is uncertain when, or if, PMI 

or RMIC will be permitted to begin paying deferred policyholder claims and/or increase or decrease the amount of cash they 

pay on claims. In October 2013, a court approved a petition by Triad’s regulator for a new plan of rehabilitation that will 

increase the amount of cash Triad pays on policyholder claims from 60% to 75%, as well as pay 37.5% of Triad’s outstanding 

deferred payment obligations (bringing payment on those claims to 75%). The new plan provides that these payments will 

constitute payment in full by Triad and it will no longer be obligated to pay policyholders more than 75% on claims, except 

in specified limited circumstances. PMI, RMIC and Triad provided a combined $15.5 billion, or 16%, of our risk in force 

mortgage insurance coverage of our single-family guaranty book of business as of September 30, 2013. 

Genworth had been operating pursuant to waivers of state regulatory capital requirements applicable to its main insurance 

writing entity, as its capital had fallen below applicable state regulatory capital requirements. Genworth subsequently 

announced that, as of June 30, 2013, its risk-to-capital ratio met the regulatory capital requirements of all or most 

jurisdictions where it conducts business. 
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We do not know how long regulators will permit mortgage insurers that do not meet, or may fail to meet, state regulatory 

capital requirements to continue operating without obtaining additional capital. If a mortgage insurer counterparty is unable 

to generate or obtain sufficient capital to stay below its risk-to-capital limits and cannot secure and maintain a waiver from its 

state regulator, it will likely be placed into run-off or receivership. 

Some mortgage insurers have explored corporate restructurings designed to provide relief from risk-to-capital limits in 

certain states. We have approved several restructurings so that certain of our mortgage insurer counterparties or their 

subsidiaries could continue to write new business. A restructuring plan that would involve contributing capital to a subsidiary 

of a mortgage insurer could result in less liquidity available to the mortgage insurer to pay claims on its existing book of 

business and an increased risk that the mortgage insurer will not pay its claims in full in the future. 

From time to time we assess our mortgage insurer counterparties’ ability to fulfill their obligations to us, and our loss reserves 

take into account this assessment. If our assessment indicates their ability to pay claims has deteriorated significantly or if our 

projected claim amounts have increased, it could result in a significant increase in our loss reserves and our credit losses. 

Beginning in 2007, many mortgage insurers stopped insuring new mortgages with certain higher risk characteristics such as 

higher LTV ratios, lower borrower FICO credit scores or select property types. Under HARP, we allow our borrowers who 

have mortgage loans with current LTV ratios above 80% to refinance their mortgages without obtaining new mortgage 

insurance in excess of what is already in place. Except as permitted under HARP, our charter specifically requires us to obtain 

credit enhancement on single-family conventional mortgage loans with loan-to-value ratios over 80% at the time of purchase. 

As a result, an inability to obtain mortgage insurance may inhibit our ability to serve and support the housing and mortgage 

markets, meet our housing goals and help borrowers remain in their homes by acquiring refinancings into more affordable 

loans. In addition, access to fewer mortgage insurer counterparties increases our concentration risk with the remaining 

mortgage insurers in the industry. 

A decrease in the credit ratings on our senior unsecured debt could have an adverse effect on our ability to issue debt on 

reasonable terms, and would likely do so if such a decrease were not based on a similar action on the credit ratings of the 

U.S. government. A decrease in our credit ratings also could trigger additional collateral requirements under our 

derivatives contracts.

Credit ratings on our senior unsecured debt, as well as the credit ratings of the U.S. government, are primary factors that 

could affect our borrowing costs and our access to the debt capital markets. Credit ratings on our debt are subject to revision 

or withdrawal at any time by the rating agencies. Actions by governmental entities impacting the support we receive from 

Treasury could adversely affect the credit ratings on our senior unsecured debt.

On August 5, 2011, S&P lowered the long-term sovereign credit rating on the U.S. to “AA+.” As a result of this action, and 

because we directly rely on the U.S. government for capital support, on August 8, 2011, S&P lowered our long-term senior 

debt rating to “AA+” with a negative outlook. Previously, our long-term senior debt had been rated by S&P as “AAA” and 

had been on CreditWatch Negative. S&P affirmed our short-term senior debt rating of “A-1+” and removed it from 

CreditWatch Negative. On June 10, 2013, S&P revised its outlook on the long-term rating on the U.S. from negative to stable 

and affirmed its “AA+” long-term sovereign credit rating on the U.S. As a result, on June 10, 2013, S&P also revised its 

outlook on our issue-level rating from negative to stable and affirmed its “AA+” rating on our long-term senior debt. 

After the U.S. government’s statutory debt limit was raised on August 2, 2011, Moody’s confirmed the U.S. government’s 

rating and our long-term senior debt rating. Moody’s also removed the designation that these ratings were under review for 

possible downgrade. At that time, Moody’s revised the outlook for both the U.S. government’s rating and our long-term 

senior debt rating to negative. On July 18, 2013, Moody’s moved the outlook for both the U.S. government’s rating and our 

long-term senior debt rating back to stable, replacing the negative outlook that had been in place since August 2011. Moody’s 

also affirmed the “Aaa” rating of both the U.S. government and our long-term senior debt.

On November 28, 2011, Fitch affirmed the long-term issuer default rating and senior unsecured debt rating of Fannie Mae at 

“AAA,” but revised its ratings outlook on Fannie Mae’s long-term issuer default rating to Negative from Stable. This action 

followed a similar action by Fitch on the United States sovereign rating. On October 16, 2013, Fitch placed our long-term 

senior debt, short-term senior debt, and qualifying subordinated debt ratings on “Rating Watch Negative,” again following a 

similar action on the debt ratings of the U.S. government. A rating being placed on Rating Watch is typically event-driven and 

indicates there is a heightened probability of a rating change. Fitch noted that it placed our long-term debt, short-term debt, 

and qualifying subordinated debt on “Rating Watch Negative” due to our direct financial support from the U.S. government. 

As of October 30, 2013, our long-term debt continued to be rated “AA+” by S&P, “Aaa” by Moody’s and “AAA” by Fitch. 

S&P, Moody’s and Fitch have all indicated that they would likely lower their ratings on the debt of Fannie Mae and certain 

other government-related entities if they were to lower their ratings on the U.S. government. We currently cannot predict 
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whether one or more of these rating agencies will downgrade our debt ratings in the future, nor can we predict the potential 

impact. Although S&P’s downgrade of our credit rating has not increased our borrowing costs or limited our access to the 

debt capital markets to date, an additional reduction in our credit ratings could have a material adverse impact on our access 

to debt funding or on the cost of our debt funding, and would likely do so if it were not based on a similar action on the credit 

ratings of the U.S. government.

An additional reduction in our credit ratings may also trigger additional collateral requirements under our derivative contracts 

because a majority of our OTC derivative contracts contain provisions that require our senior unsecured debt to maintain a 

minimum credit rating from S&P and Moody’s. If our senior unsecured debt credit ratings were downgraded to established 

thresholds in our OTC derivative contracts, which range from A+ to BBB+, we could be required to provide additional 

collateral to or terminate transactions with certain counterparties. The aggregate fair value of all OTC derivatives with creditrisk-related contingent features that were in a net liability position as of September 30, 2013 was $2.7 billion, for which we 

posted collateral of $2.5 billion in the normal course of business. If our senior unsecured debt had been downgraded to AA or 

Aa1, or even to AA- or Aa2, we would not have been required to post any additional collateral under these agreements as of 

September 30, 2013. If all of the credit-risk-related contingency features underlying these agreements had been triggered, an 

additional $179 million would have been required either to be posted as collateral or to immediately settle our positions based 

on the individual agreements and our fair value position as of September 30, 2013. An additional reduction in our credit 

ratings also could cause derivatives clearing organizations or their members to demand that we post additional collateral for 

our OTC-cleared derivative contracts. Further, an additional reduction in our credit ratings may materially adversely affect 

our liquidity, our ability to conduct our normal business operations, our financial condition and our results of operations. Our 

credit ratings and ratings outlook are included in “MD&A—Liquidity and Capital Management—Liquidity Management—

Credit Ratings.”

Basel III and U.S. capital and liquidity rules could materially and adversely affect demand by banks for our debt and 

MBS securities in the future and otherwise could affect the future business practices of our customers and counterparties. 

Recently proposed bank liquidity requirements may adversely affect demand by banks for Fannie Mae debt and MBS 

securities in the future, which could in turn have a material adverse effect on our business, results of operations, financial 

condition, liquidity or net worth. Basel III, a set of global regulatory standards on bank capital adequacy and liquidity 

developed by the Basel Committee on Banking Supervision, was initially issued in December 2010. Basel III generally 

narrowed the definition of capital that can be used to meet risk-based standards and raised the amount of capital that must be 

held by banks. Basel III also established liquidity requirements for banks. In January 2013, the Basel Committee revised 

these liquidity rules to require banks subject to Basel III to hold a specified level of high-quality liquid assets, no more than 

40% of which may be composed of certain types of assets, including debt and mortgage-related securities of Fannie Mae, 

Freddie Mac and the other GSEs. These requirements will be phased in from 2015 through 2018. On October 24, 2013, U.S. 

banking regulators issued a proposed regulation setting minimum liquidity standards generally in line with Basel III’s 

liquidity standards. Under the proposed regulation, banks subject to the standards could count certain types of assets, 

including debt and mortgage-related securities of Fannie Mae, Freddie Mac and the other GSEs, only up to a cap of 40% of 

the highly liquid assets they would be required to hold, and only after applying a 15% discount to the market value of those 

assets. The Basel III liquidity requirements and adoption of the liquidity standards by U.S. banking regulators as proposed 

could in the future materially adversely affect demand by banks for Fannie Mae debt securities and MBS, which could 

adversely affect the price of those securities. 

In addition, Basel III’s revisions to international capital requirements could limit some lenders’ ability to count the value of 

their rights to service mortgage loans as assets in meeting their regulatory capital requirements, which may reduce the 

economic value of mortgage servicing rights. As a result, a number of our customers and counterparties may change their 

business practices, including reducing the amount of loans they service or exiting servicing altogether. 

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, 2013, we did not sell any equity 

securities.
175

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 off-balance 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 Web site or in a current report on 

Form 8-K that we file with the SEC, in accordance with a “no-action” 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 Web site, the document will be posted on 

our Web site within the same time period that a prospectus for a non-exempt securities offering would be required to be filed 

with the SEC.

The Web site 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 Web site address solely for your information. Information appearing on our Web site is not incorporated 

into this report.

Our Purchases of Equity Securities

We did not repurchase any of our equity securities during the third quarter of 2013.

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 Acting Director of FHFA directs us to make dividend 

payments on the senior preferred stock on a quarterly basis.

Restrictions under Senior Preferred Stock Purchase Agreement. 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, in 2012 the terms of the senior preferred stock purchase agreement were 

amended to ultimately require the payment of our entire net worth to Treasury. As a result, our net income will not be 

available to common stockholders.

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

the 2008 Reform Act (together, 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 GSE Act, we are not permitted to make a capital 

distribution if, after making the distribution, we would be undercapitalized, except the Director of FHFA 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. 

Restrictions Relating to Subordinated Debt. During any period in which we defer payment of interest on qualifying 

subordinated debt, we may not declare or pay dividends on, or redeem, purchase or acquire, our common stock or preferred 

stock. 
176

Item 3. Defaults Upon Senior Securities

None. 

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None. 

Item 6. Exhibits

An index to exhibits has been filed as part of this report beginning on page E-1 and is incorporated herein by reference.
177

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/ Timothy J. Mayopoulos

Timothy J. Mayopoulos

President and Chief Executive Officer

Date: November 7, 2013

By: /s/ David C. Benson

David C. Benson

Executive Vice President and

Chief Financial Officer

Date: November 7, 2013
E-1

INDEX TO EXHIBITS

Item Description

3.1 Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through July 30, 2008 (Incorporated by

reference to Exhibit 3.1 to Fannie Mae’s Annual Report on Form 10-K, filed February 24, 2011.)

3.2 Fannie Mae Bylaws, as amended through January 30, 2009 (Incorporated by reference to Exhibit 3.2 to

Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2008, filed February 26,

2009.)

10.1 Updated General Release, dated July 1, 2013, by and between Susan R. McFarland and Fannie Mae

(Incorporated by reference to Exhibit 99.1 to Fannie Mae’s Quarterly Report on Form 10-Q for the quarter

ended June 30, 2013, filed August 8, 2013.)

10.2 Amendment, effective June 30, 2013, to Fannie Mae Supplemental Pension Plan

10.3 Amendment, effective June 30, 2013, to Fannie Mae Supplemental Pension Plan of 2003

10.4 Amendment, effective July 1, 2013, to Fannie Mae Supplemental Retirement Savings Plan

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*

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. 
FR016