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, 2014

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, 2014, there were 1,158,082,750 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Condensed Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . 88

Condensed Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Note 1—Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Note 2—Consolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Note 3—Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Note 4—Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Note 5—Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Note 6—Financial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Note 7—Acquired Property, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Note 8—Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Note 9—Derivative Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Note 10—Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Note 11—(Loss) Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Note 12—Segment Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Note 13—Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Note 14—Concentrations of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Note 15—Netting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Note 16—Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Note 17—Commitments and Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Business Segment Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

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

Supplemental Non-GAAP Information—Fair Value Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . 43

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

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Impact of Future Adoption of New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

167

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Unregistered Sales of Equity Securities and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
ii

MD&A TABLE REFERENCE

Table Description Page

1 Single-Family Acquisitions Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 Credit Statistics, Single-Family Guaranty Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3 Summary of Condensed Consolidated Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4 Analysis of Net Interest Income and Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5 Rate/Volume Analysis of Changes in Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

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

7 Total Loss Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

8 Allowance for Loan Losses and Reserve for Guaranty Losses (Combined Loss Reserves). . . . . . . . . . . . 25

9 Troubled Debt Restructurings and Nonaccrual Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

10 Credit Loss Performance Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

11 Single-Family Credit Loss Sensitivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

12 Single-Family Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

13 Multifamily Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

14 Capital Markets Group Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

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

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

17 Capital Markets Group’s Mortgage Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

18 Summary of Condensed Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

19 Summary of Mortgage-Related Securities at Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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

of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

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

22 Activity in Debt of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

23 Outstanding Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

24 Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year. . . . . . . . . . . . . . . . . . . 50

25 Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year. . . . . . . . . . . . . . 51

26 Cash and Other Investments Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

27 Fannie Mae Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

28 Composition of Mortgage Credit Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

29 Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period. . . . . 57

30 Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business. 59

31 Delinquency Status of Single-Family Conventional Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

32 Single-Family Serious Delinquency Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

33 Single-Family Conventional Serious Delinquent Loan Concentration Analysis . . . . . . . . . . . . . . . . . . . . 66

34 Statistics on Single-Family Loan Workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

35 Single-Family Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

36 Single-Family Foreclosed Property Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

37 Multifamily Lender Risk-Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

38 Multifamily Guaranty Book of Business Key Risk Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

39 Multifamily Concentration Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

40 Multifamily Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

41 Mortgage Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

42 Estimated Mortgage Insurance Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
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Table Description Page

43 Unpaid Principal Balance of Financial Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

44 Credit Loss Exposure of Risk Management Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

45 Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve . . 81

46 Derivative Impact on Interest Rate Risk (50 Basis Points). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
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, 2013 (“2013 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 2013 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 2013 Form 10-K. 

You can find a “Glossary of Terms Used in This Report” in the “MD&A” of our 2013 Form 10-K. 

INTRODUCTION

Fannie Mae is a government-sponsored enterprise (“GSE”) that was chartered by Congress in 1938. We serve an essential 

role in the functioning of the U.S. housing market and are investing in improvements to the U.S. housing finance system. Our 

public mission is to support liquidity and stability in the secondary mortgage market, where existing mortgage-related assets 

are purchased and sold, and to 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. 

Fannie Mae provides reliable, large-scale access to affordable mortgage credit and indirectly enables families to buy, 

refinance or rent homes. We securitize mortgage loans originated by lenders into Fannie Mae mortgage-backed securities that 

we guarantee, which we refer to as Fannie Mae MBS. One of our key functions is to evaluate, price and manage the credit 

risk on the loans and securities that we guarantee. We also purchase mortgage loans and mortgage-related securities for 

securitization and sale at a later date and, to a declining extent, for our retained mortgage portfolio. 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, which attracts 

global capital to the United States housing market. 

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

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

following the conservatorship, or what ownership interest, if any, our current common and preferred stockholders will hold in 

us after the conservatorship is terminated. In addition, our agreements with Treasury that provide for financial support 

include covenants that significantly restrict our business activities and provide for dividends to accrue at a rate equal to our 

net worth less a capital reserve amount, allowing us to retain only a limited and decreasing amount of our net worth. We 

provide additional information on the conservatorship, the provisions of our agreements with Treasury, and their impact on 

our business in our 2013 Form 10-K in “Business—Conservatorship and Treasury Agreements” and “Risk Factors.” We 

discuss the uncertainty of our future in “Executive Summary—Outlook” and “Risk Factors” in this report. We discuss 

proposals for housing finance reform that could materially affect our business in “Legislative and Regulatory Developments” 

in this report, in our quarterly report on Form 10-Q for the quarter ended June 30, 2014 (“Second Quarter 2014 Form 10-Q”) 

and in our quarterly report on Form 10-Q for the quarter ended March 31, 2014 (“First Quarter 2014 Form 10-Q”), and in 

“Business—Housing Finance Reform” in our 2013 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

Our Strategy and Progress

We are focused on: 

• achieving strong financial performance and strengthening our book of business; 

• supporting the housing recovery by providing reliable, large-scale access to affordable mortgage credit and helping 

struggling homeowners; and 

• helping to build a sustainable housing finance system.

Achieving strong financial performance and strengthening our book of business

Our actions to accomplish these goals have had a positive impact:

• Financial Performance. We reported net income of $3.9 billion for the third quarter of 2014, compared with net 

income of $8.7 billion for the third quarter of 2013. See “Summary of Our Financial Performance” below for an 

overview of our financial performance for the third quarter and first nine months of 2014, compared with the third

quarter and first nine months of 2013. We expect to remain profitable for the foreseeable future. For more 

information regarding our expectations for our future financial performance, see “Outlook—Financial Results” and 

“Outlook—Revenues” below.

• Dividend Payments to Treasury. With our expected December 2014 dividend payment to Treasury, we will have paid 

a total of $134.5 billion in dividends to Treasury on our senior preferred stock. The aggregate amount of draws we 

have received from Treasury to date under the senior preferred stock purchase agreement is $116.1 billion. Under 

the terms of the senior preferred stock purchase agreement, dividend payments do not offset prior Treasury draws. 

See “Outlook—Dividend Obligations to Treasury” below for more information regarding our dividend payments to 

Treasury.

• Book of Business. Changes we have made beginning in 2008 to strengthen our underwriting and eligibility standards 

have improved the credit quality of our single-family guaranty book of business. Single-family loans we have 

acquired since the beginning of 2009 (referred to as our “new single-family book of business”) comprised 80% of 

our single-family guaranty book of business as of September 30, 2014, while the single-family loans we acquired 

prior to 2009 (referred to as our “legacy book of business”) comprised 20% of our single-family guaranty book of 

business. As described below in “Strengthening Our Book of Business—New Book of Business,” we expect that our 

new single-family book of business will be profitable over its lifetime. 

• Credit Performance. Our single-family serious delinquency rate, which has decreased each quarter since the first 

quarter of 2010, was 1.96% as of September 30, 2014, compared with 2.38% as of December 31, 2013. See 

“Improving the Credit Performance of our Book of Business” below for additional information on the credit 

performance of the mortgage loans in our single-family guaranty book of business for each of the last seven 

quarters, and for a description of our strategies for reducing credit losses.

Although we have improved our financial performance and the quality of our book of business since entering into 

conservatorship in 2008, we remain under conservatorship and subject to the restrictions of the senior preferred stock 

purchase agreement with Treasury. As a result of the senior preferred stock purchase agreement and directives from our 

conservator, we are not permitted to retain our net worth (other than a limited amount that will decrease to zero by 2018), 

rebuild our capital position or pay dividends or other distributions to stockholders other than Treasury. See “Business—

Conservatorship and Treasury Agreements” in our 2013 Form 10-K for more information regarding our conservatorship and 

our senior preferred stock purchase agreement with Treasury. In addition, the future of our company remains uncertain. 

Congress continues to consider options for reform of the housing finance system, including the GSEs, and we cannot predict 

the prospects for the enactment, timing or final content of housing finance reform legislation. See “Legislative and 

Regulatory Developments” in this report, in our Second Quarter 2014 Form 10-Q and in our First Quarter 2014 Form 10-Q, 
3

and “Business—Housing Finance Reform” in our 2013 Form 10-K for information on recent proposals for housing finance 

reform.

Supporting the housing recovery by providing reliable, large-scale access to affordable mortgage credit and helping 

struggling homeowners

We continued our efforts to support the housing recovery in the third quarter of 2014. We remained the largest single issuer of 

mortgage-related securities in the secondary market during the third quarter of 2014 and a continuous source of liquidity in 

the multifamily market. We also continued to help struggling homeowners. In the third quarter of 2014, we provided 

approximately 39,000 loan workouts to help homeowners stay in their homes or otherwise avoid foreclosure. We discuss our 

activities to support the housing and mortgage markets in “Contributions to the Housing and Mortgage Markets” below.

Helping to build a sustainable housing finance system

We also continued our efforts to help lay the foundation for a safer, transparent and sustainable housing finance system, 

including pursuing the strategic goals identified by our conservator, as well as investing in improvements to our business and 

infrastructure. We discuss these efforts, as well as FHFA’s 2014 Strategic Plan for the Conservatorships of Fannie Mae and 

Freddie Mac and FHFA’s related 2014 conservatorship scorecard, in our Second Quarter 2014 Form 10-Q in “MD&A—

Executive Summary—Helping to Build a Sustainable Housing Finance System” and in “MD&A—Legislative and 

Regulatory Developments—Housing Finance Reform and the Role of the GSEs—Conservator Developments.” 

Summary of Our Financial Performance 

Comprehensive Income

Quarterly Results

We recognized comprehensive income of $4.0 billion in the third quarter of 2014, consisting of net income of $3.9 billion and 

other comprehensive income of $95 million. In comparison, 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. The decrease in our 

comprehensive income was primarily due to a decline in credit-related income and a shift to fair value losses from fair value 

gains. 

The decline in credit-related income was mainly attributable to home prices increasing at a slower pace in the third quarter of 

2014 as compared with the third quarter of 2013. In addition, the third quarter of 2013 benefited from foreclosed property 

income primarily due to the recognition of income related to our compensatory fee agreement with Bank of America. We 

recognized fair value losses in the third quarter of 2014 primarily due to increases in shorter-term swap rates. We recognized 

fair value gains in the third quarter of 2013 as longer-term swap rates increased.

Year-to-Date Results

We recognized comprehensive income of $13.4 billion in the first nine months of 2014, consisting of net income of $12.9 

billion and other comprehensive income of $512 million. In comparison, 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. The decrease in comprehensive income was primarily driven by a provision for federal income taxes in the first nine 

months of 2014 compared with a benefit for federal income taxes in the first nine months of 2013 primarily due to the release 

of our valuation allowance against our deferred tax assets in the first quarter of 2013. For a discussion of the release of our 

valuation allowance against our deferred tax assets in 2013, see “Critical Accounting Policies and Estimates—Deferred Tax 

Assets” in our 2013 Form 10-K.

Our pre-tax income was $19.0 billion in the first nine months of 2014 compared with $30.3 billion in the first nine months of 

2013. The decrease in our pre-tax income was primarily due to a decrease in credit-related income and a shift to fair value 

losses from fair value gains. 

The decline in credit-related income was primarily due to the same factors that impacted the third quarters of 2014 and 2013, 

as discussed above. We recognized fair value losses in the first nine months of 2014 primarily due to declines in longer-term 

swap rates. We recognized fair value gains in the first nine months of 2013 as longer-term swap rates increased.

We expect volatility from period to period in our financial results from a number of factors, particularly 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 derivatives and securities. The estimated fair value of our derivatives and 

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

spreads and implied volatility, as well as activity related to these financial instruments. While the estimated fair value of our 
4

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.

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

Net Worth

Our net worth decreased to $6.4 billion as of September 30, 2014 from $9.6 billion as of December 31, 2013 primarily due to 

our payments to Treasury of $16.6 billion in senior preferred stock dividends, partially offset by our comprehensive income 

of $13.4 billion during the first nine months of 2014. Our expected dividend payment of $4.0 billion for the fourth quarter of 

2014 is calculated based on our net worth of $6.4 billion as of September 30, 2014 less the applicable capital reserve amount 

of $2.4 billion.

Strengthening Our Book of Business

New Book of Business

Beginning in 2008, we took actions to significantly strengthen our underwriting and eligibility standards and change our 

pricing to promote sustainable homeownership and stability in the housing market. These actions have improved the credit 

quality of our book of business. Given their strong credit risk profile and based on their performance so far, we expect that in 

the aggregate the loans we have acquired since January 1, 2009, which comprised 80% of our single-family guaranty book of 

business as of September 30, 2014, will be profitable over their lifetime, by which we mean that we expect our guaranty 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. 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 2013 Form 10-K for a discussion of factors that could cause our expectations 

regarding the performance of the loans in our single-family book of business to change. For information on certain credit 

characteristics of our new single-family book of business as compared with our legacy book of business, see “Table 29: 

Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period.” For more information on 

the credit risk profile of our single-family guaranty book of business, see “Risk Management—Credit Risk Management—

Single-Family Mortgage Credit Risk Management,” including “Table 30: Risk Characteristics of Single-Family Conventional 

Business Volume and Guaranty Book of Business” in that section. 

Our new single-family book of business includes loans that are refinancings of loans that were in our legacy book of 

business, including loans acquired under our Refi PlusTM initiative, which has provided refinancing flexibility to eligible 

Fannie Mae borrowers since 2009. Our Refi Plus initiative includes loans acquired under the Obama Administration’s Home 

Affordable Refinance Program (“HARP®”). As of September 30, 2014, 61% of the loans in our single-family guaranty book 

of business were non-Refi Plus loans acquired since the beginning of 2009, 19% were Refi Plus loans, and the remaining 

20% were acquired prior to 2009. Information about the impact of HARP and Refi Plus 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—Credit Profile Summary—HARP and Refi Plus Loans” and in “Table 29: Selected Credit 

Characteristics of Single-Family Conventional Loans Held, by Acquisition Period.”

Recently Acquired Single-Family Loans

Table 1 below displays information regarding our average charged guaranty fee on and specified risk characteristics of the 

single-family loans we acquired in each of the last seven quarters. Table 1 also displays 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 for these 

periods.
5

Table 1: Single-Family Acquisitions Statistics

2014 2013

Q3 Q2 Q1 Q4 Q3 Q2 Q1

Single-family average 

charged guaranty fee on 

new acquisitions (in basis 

points)(1)(2)

. . . . . . . . . . . . . . 63.5 62.6 63.0 61.2 58.7 56.9 54.4

Single-family Fannie Mae 

MBS issuances(in 

millions)(3)

. . . . . . . . . . . . . . $105,563 $84,096 $76,972 $117,809 $186,459 $206,978 $221,865

Select risk characteristics of 

single-family conventional 

acquisitions:(4)

Weighted average FICO

credit score at origination. 744 744 741 745 750 754 757

Weighted average original 

loan-to-value ratio(5)

. . . . . 77 % 77 % 77 % 77 % 76 % 75 % 75 %

Original loan-to-value ratio 

over 80%(5)(6)

. . . . . . . . . . 32 % 32 % 31 % 33 % 31 % 29 % 26 %

Loan purpose:

Purchase. . . . . . . . . . . . . . . 57 % 54 % 45 % 49 % 38 % 25 % 17 %

Refinance. . . . . . . . . . . . . . 43 % 46 % 55 % 51 % 62 % 75 % 83 %

__________

(1) Includes the impact of a 10 basis point guaranty fee increase implemented pursuant to the Temporary Payroll Tax Cut Continuation Act 

of 2011 (the “TCCA”), the incremental revenue from which must be remitted to Treasury. The resulting revenue is included in guaranty 

fee income and the expense is recognized as “TCCA fees.” 

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

(4) 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.

(5) The original loan-to-value (“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% as part of our mission to serve the primary mortgage market and provide 

liquidity to the housing finance 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%.

The increase in our average charged guaranty fee on newly acquired single-family loans in the third quarter of 2014 as 

compared with the third quarter of 2013 was driven primarily by an increase in loan level price adjustments charged on our 

acquisitions in the third quarter of 2014, as these acquisitions included a higher proportion of loans with higher loan-to-value 

(“LTV”) ratios and a higher proportion of loans with lower FICO credit scores. Loan level price adjustments refer to one-time 

cash fees that we charge at the time we initially acquire a loan based on the credit characteristics of the loan. See “Legislative 

and Regulatory Developments—Potential Changes to Our Single-Family Guaranty Fee Pricing” in our Second Quarter 2014 

Form 10-Q for information on potential future changes to our guaranty fee pricing.

The increase in our acquisitions of loans with higher LTV ratios in the third quarter of 2014 as compared with the third

quarter of 2013 was primarily due to a decline in the percentage of our acquisitions consisting of refinance loans and a 

corresponding increase in the percentage of our acquisitions consisting of home purchase loans, which typically have higher 

LTV ratios than non-HARP refinance loans. In the third quarter of 2014, refinancings comprised approximately 43% of our 

single-family conventional business volume, compared with approximately 62% in the third quarter of 2013. In addition, we 

experienced a decline in the average FICO credit scores of our acquisitions in the third quarter of 2014 as compared with the 

third quarter of 2013. Despite this shift in the credit risk profile of our acquisitions, the single-family loans we acquired in the 

third quarter of 2014 continued to have a strong credit profile, with a weighted average original LTV ratio of 77% and a 

weighted average FICO credit score of 744. For more information on the credit risk profile of our single-family conventional 
6

loan acquisitions in the third quarter of 2014, see “Risk Management—Credit Risk Management—Single-Family Mortgage 

Credit Risk Management,” including “Table 30: Risk Characteristics of Single-Family Conventional Business Volume and 

Guaranty Book of Business” in that section.

We expect refinancings to constitute a smaller portion of our single-family business volume in 2014 than in 2013. As a result, 

we expect to acquire a higher proportion of loans with higher LTV ratios in 2014 than in 2013. Overall mortgage originations 

also declined significantly in the first nine months of 2014 as compared with the first nine months of 2013, and we expect 

mortgage originations in 2014 to be lower overall than in 2013.

Pursuant to FHFA’s 2014 conservatorship scorecard and our statutory mission, we are continuing to work to increase access 

to mortgage credit for creditworthy borrowers, consistent with the full extent of our applicable credit requirements and risk 

management practices. As part of this effort, we are encouraging lenders to originate loans to the full extent of our applicable 

credit requirements. Some actions we are taking in this regard include: providing additional clarity regarding seller and 

servicer representations and warranties and remedies for poor performance; making new quality control tools available to 

lenders, such as Collateral UnderwriterTM; conducting increased outreach to lenders and other industry stakeholders to 

increase awareness of our available products and programs; and conducting consumer research to provide industry partners 

with information to support their efforts to reach underserved market segments. We also plan to offer a 97% LTV ratio 

product to all customers in 2015. To the extent we are able to encourage lenders to increase access to mortgage credit, we 

may acquire a greater number of single-family loans with higher risk characteristics than we have acquired in recent periods; 

however, we believe our single-family acquisitions will continue to have a strong overall credit risk profile given our current 

underwriting and eligibility standards and product design.

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, the Federal Housing Administration (“FHA”) and the Department of Veterans Affairs (“VA”), the percentage of loan 

originations representing refinancings, changes in interest rates, our future objectives and activities in support of those 

objectives, including actions we may take to reach additional underserved creditworthy borrowers, government policy, 

market and competitive conditions, and the volume and characteristics of HARP loans we acquire in the future. In addition, if 

our lender customers retain more of the higher-quality loans they originate, it could negatively affect the credit risk profile of 

our new single-family acquisitions. 

Improving the Credit Performance of our Book of Business

We continue our efforts to improve the credit performance of our book of business. In addition to acquiring loans with strong 

credit profiles, as we discuss above in “Strengthening Our Book of Business,” we continue to execute on our strategies for 

reducing credit losses, such as helping eligible Fannie Mae borrowers with high LTV ratio loans refinance into more 

sustainable loans through HARP, offering borrowers loan modifications that can significantly reduce their monthly payments, 

pursuing foreclosure alternatives and managing our real estate owned (“REO”) inventory to minimize costs and maximize 

sales proceeds. As we work to reduce credit losses, we also seek to assist struggling homeowners, help stabilize communities 

and support the housing market.

Table 2 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 both home retention solutions (loan 

modifications and other solutions that enable a borrower to stay in his or her home) and foreclosure alternatives (short sales 

and deeds-in-lieu of foreclosure). The workout information in Table 2 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.
7

Table 2: Credit Statistics, Single-Family Guaranty Book of Business(1)

2014 2013

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) 1.96 % 1.96 % 2.05 % 2.19 % 2.38 % 2.38 % 2.55 % 2.77 % 3.02 %

Seriously delinquent loan

count . . . . . . . . . . . . . . . 340,897 340,897 357,267 383,810 418,837 418,837 447,840 483,253 527,529

Troubled debt 

restructurings on 

accrual status(3)

. . . . . . . $ 144,802 $ 144,802 $ 144,911 $ 144,077 $ 140,512 $ 140,512 $ 138,165 $ 136,558 $ 134,325

Nonaccrual loans(4)

. . . . . . 66,673 66,673 69,550 73,972 81,355 81,355 86,848 93,883 102,602

Foreclosed property

inventory:

Number of properties(5) 92,386 92,386 96,796 102,398 103,229 103,229 100,941 96,920 101,449

Carrying value . . . . . . . $ 10,209 $ 10,209 $ 10,347 $ 10,492 $ 10,334 $ 10,334 $ 10,036 $ 9,075 $ 9,263

Combined loss reserves(6)

. 37,854 37,854 39,984 42,919 44,705 44,705 45,608 49,930 56,626

Total loss reserves(7)

. . . . . 39,330 39,330 41,657 44,760 46,689 46,689 47,664 52,141 59,114

During the period:

Foreclosed property 

(number of properties):

Acquisitions(5)

. . . . . . . 91,372 27,798 31,678 31,896 144,384 32,208 37,353 36,106 38,717

Dispositions. . . . . . . . . (102,215) (32,208) (37,280) (32,727) (146,821) (29,920) (33,332) (40,635) (42,934)

Credit-related income(8)

. . . $ 3,531 $ 748 $ 1,781 $ 1,002 $ 11,205 $ 848 $ 3,642 $ 5,681 $ 1,034

Credit losses(9)

. . . . . . . . . . 4,362 1,738 1,497 1,127 4,452 325 1,083 1,541 1,503

REO net sales prices to 

unpaid principal 

balance(10)

. . . . . . . . . . . 69 % 69 % 69 % 68 % 67 % 68 % 68 % 68 % 65 %

Short sales net sales price 

to unpaid principal 

balance(11)

. . . . . . . . . . . 71 % 72 % 72 % 71 % 67 % 70 % 68 % 67 % 64 %

Loan workout activity 

(number of loans):

Home retention loan 

workouts(12)

. . . . . . . . . . 102,522 30,584 33,639 38,299 172,029 41,053 39,559 43,782 47,635

Short sales and deeds-inlieu of foreclosure . . . . . 27,635 7,992 9,516 10,127 61,949 13,021 15,092 17,710 16,126

Total loan workouts. . . . 130,157 38,576 43,155 48,426 233,978 54,074 54,651 61,492 63,761

Loan workouts as a 

percentage of the 

average balance of 

delinquent loans in our 

guaranty book of 

business(13). . . . . . . . . . . 24.09 % 22.46 % 24.69 % 25.70 % 26.01 % 26.59 % 25.32 % 26.93 % 25.88 %

__________

(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 or in the foreclosure process, 

divided by the number of loans in our single-family conventional guaranty book of business. We include 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) A troubled debt restructuring (“TDR”) is a modification to the contractual terms of a loan in which a concession is granted to a 

borrower experiencing financial difficulty. 
8

(4) We generally classify single-family loans as nonaccrual when the payment of principal or interest on the loan is two or more months 

past due according to its contractual terms. Excludes off-balance sheet loans in unconsolidated Fannie Mae MBS trusts that would meet 

our criteria for nonaccrual status if the loans had been on-balance sheet.

(5) 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.”

(6) 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—Benefit for Credit Losses.”

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

taxes and insurance receivables.

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

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

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

(10) 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 sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at 

the time of foreclosure. Net sales price represents the contract sales price less selling costs for the property and other charges paid by 

the seller at closing.

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

the aggregate unpaid principal balance of the related loans. Net sales price represents the contract sales price less the selling costs for 

the property and other charges paid by the seller at the closing, including borrower relocation incentive payments and subordinate 

lien(s) negotiated payoffs.

(12) 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 plans or forbearances that have been initiated but not completed and (b) repayment plans and 

forbearances completed. See “Table 34: 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.

(13) Calculated based on annualized problem loan workouts during the period as a percentage of the average balance of delinquent loans in 

our single-family guaranty book of business.

We provide additional information on our credit-related expense or income in “Consolidated Results of Operations—CreditRelated Income” and on the credit performance of mortgage loans in our single-family book of business in “Risk 

Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”

We provide more information on our efforts to reduce our credit losses in “Risk Management—Credit Risk Management—

Single-Family Mortgage Credit Risk Management” and “Risk Management—Credit Risk Management—Institutional 

Counterparty Credit Risk Management” in both this report and our 2013 Form 10-K. See also “Risk Factors” in our 2013 

Form 10-K, where we describe factors that may adversely affect the success of our efforts, including our reliance on third 

parties to service our loans, conditions in the foreclosure environment, and risks relating to our mortgage insurer 

counterparties.

Contributions to the Housing and Mortgage Markets 

Liquidity and Support Activities

As the largest provider of residential mortgage credit in the United States, we indirectly enable families to buy, refinance or 

rent homes. During the third quarter of 2014, we continued to provide 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. We provided approximately $123 billion in liquidity to the mortgage market 

in the third quarter of 2014 through our purchases and guarantees of loans and securities. This liquidity enabled 

borrowers to complete approximately 228,000 mortgage refinancings and approximately 265,000 home purchases, 

and provided financing for approximately 124,000 units of multifamily housing. 

• Our role in the market enables borrowers to have reliable access to affordable mortgage credit, including a variety of 

conforming mortgage products such as the prepayable 30-year fixed-rate mortgage that protects homeowners from 

fluctuations in interest rates.
9

• We provided approximately 39,000 loan workouts in the third quarter of 2014 to help homeowners stay in their 

homes or otherwise avoid foreclosure. Our loan workout efforts have helped to stabilize neighborhoods, home prices 

and the housing market. 

• We helped borrowers refinance loans, including through our Refi Plus initiative. We acquired over 68,000 Refi Plus 

loans in the third quarter of 2014. Refinancings delivered to us through Refi Plus in the third quarter of 2014

reduced borrowers’ monthly mortgage payments by an average of $159. 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 in the 

third quarter of 2014 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 2013 Form 10-K in “Business—

Business Segments—Capital Markets.”

2014 Market Share 

We remained the largest single issuer of mortgage-related securities in the secondary market during the third quarter of 2014, 

with an estimated market share of new single-family mortgage-related securities issuances of 38%, compared with 39% in the 

second quarter of 2014 and 48% in the third quarter of 2013. See “Outlook—Revenues” for a discussion of the impact on our 

market share of the decline in originations that are refinancings.

We remained a continuous source of liquidity in the multifamily market in the third quarter and first nine months of 2014. We 

owned or guaranteed approximately 19% of the outstanding debt on multifamily properties as of June 30, 2014 (the latest 

date for which information is available).

Housing and Mortgage Market and Economic Conditions 

Economic growth slowed in the third quarter of 2014 compared with the second quarter of 2014. According to the U.S. 

Bureau of Economic Analysis advance estimate, the inflation-adjusted U.S. gross domestic product, or GDP, rose by 3.5% on 

an annualized basis in the third quarter of 2014, compared with an increase of 4.6% in the second quarter of 2014. The 

overall economy gained an estimated 671,000 non-farm jobs in the third quarter of 2014. According to the U.S. Bureau of 

Labor Statistics, over the 12 months ending in September 2014, the economy created an estimated 2.7 million non-farm jobs. 

The unemployment rate was 5.9% in September 2014, compared with 6.1% in June 2014. 

According to the Federal Reserve, total U.S. residential mortgage debt outstanding, which includes $9.86 trillion of singlefamily debt outstanding, was estimated to be approximately $10.81 trillion as of June 30, 2014 (the latest date for which 

information is available), compared with $10.80 trillion as of March 31, 2014. 

Housing activity increased during the third quarter of 2014 as compared with the second quarter of 2014. Total existing home 

sales averaged 5.1 million units annualized in the third quarter of 2014, a 5.2% increase from the second quarter of 2014, 

according to data from the National Association of REALTORS®. Sales of foreclosed homes and preforeclosure, or “short,” 

sales (together, “distressed sales”) accounted for 10% of existing home sales in September 2014, compared with 11% in June 

2014 and 14% in September 2013. According to the U.S. Census Bureau, new single-family home sales increased during the 

third quarter of 2014, averaging an annualized rate of 446,000 units, a 4.5% increase from the second quarter of 2014. 

The number of months’ supply, or the inventory/sales ratio, of available existing homes and of new homes each decreased in 

the third quarter of 2014. According to the U.S. Census Bureau, the number of months’ supply of new homes was 5.3 months 

as of September 30, 2014, compared with 5.8 months as of June 30, 2014. According to data from the National Association of 

REALTORS®, the months’ supply of existing unsold homes was 5.3 months as of September 30, 2014, compared with a 5.5

months’ supply as of June 30, 2014. 

The overall mortgage market serious delinquency rate, which has trended down since peaking in the fourth quarter of 2009, 

remained historically high at 4.8% as of June 30, 2014 (the latest date for which information is available), according to the 

Mortgage Bankers Association National Delinquency Survey, compared with 5.0% as of March 31, 2014. We provide 

information about Fannie Mae’s serious delinquency rate, which also decreased in the second quarter of 2014, in “Improving 

the Credit Performance of our Book of Business.” 

Based on our home price index, we estimate that home prices on a national basis increased by 1.2% in the third quarter of 

2014 and by 5.3% in the first nine months of 2014, following increases of 8.2% in 2013 and 4.1% in 2012. Despite the recent 
10

increases in home prices, we estimate that, through September 30, 2014, home prices on a national basis remained 9.5%

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. 

Many homeowners continue to have “negative equity” in their homes as a result of declines in home prices since 2006, 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 2014 was approximately 5.3 million, down from 6.3 million in the first quarter of 2014 and from 7.2 million in the 

second quarter of 2013. The percentage of properties with mortgages in a negative equity position in the second quarter of 

2014 was 10.7%, down from 12.7% in the first quarter of 2014 and from 14.9% in the second quarter of 2013.

Thirty-year mortgage rates ended the quarter at 4.20% for the week of September 25, 2014, up from 4.14% for the week of 

June 26, 2014, according to Freddie Mac.

During the third quarter of 2014, the multifamily sector continued to exhibit solid fundamentals, according to preliminary 

third-party data, with flat vacancy levels and increasing rent growth. The national multifamily vacancy rate for institutional 

investment-type apartment properties remained at an estimated 4.75% as of September 30, 2014, unchanged from June 30, 

2014, and compared with 5.10% as of September 30, 2013. 

National asking rents increased by an estimated 1.00% during the third quarter of 2014, compared with an increase of 0.75%

during the second quarter of 2014. Continued demand for multifamily rental units was reflected in the estimated positive net 

absorption (that is, the net change in the number of occupied rental units during the time period) of approximately 37,000

units during the third quarter of 2014, according to preliminary data from Reis, Inc., compared with approximately 35,000

units during the second quarter of 2014.

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. Approximately 264,000 new multifamily units are expected 

to be completed this year. The bulk of this new supply is concentrated in a limited number of 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 in those areas during the remainder of 2014 and into early 2015.

Outlook

Uncertainty Regarding our Future Status. We expect continued significant uncertainty regarding the future of our company 

and the housing finance system, 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 cannot predict the prospects for the enactment, timing or final content of housing finance reform legislation. See 

“Legislative and Regulatory Developments” in this report, in our Second Quarter 2014 and in our First Quarter 

2014 Form 10-Q, and “Business—Housing Finance Reform” in our 2013 Form 10-K, for discussion of proposals for reform 

of the housing finance system, including the GSEs, that could materially affect our business, including proposed federal 

legislation that, among other things, would require the wind down of Fannie Mae and Freddie Mac. See “Risk Factors” in 

both this report and in our 2013 Form 10-K for a discussion of the risks to our business relating to the uncertain future of our 

company.

Financial Results. Our financial results continued to be strong in the third quarter of 2014, with net income of $3.9 billion. 

We expect to remain profitable for the foreseeable future. While we expect our annual net income to remain strong over the 

next few years, we expect our annual net income to be substantially lower than our net income for 2013. We discuss the 

reasons for this expectation, and note our expectation that certain factors that contributed to a large portion of our 2013 net 

income will not contribute as significantly or at all to our earnings in 2014 or future years, in “Business—Executive 

Summary—Outlook—Financial Results” in our 2013 Form 10-K. Our earnings will be affected by a number of factors, 

including: changes in interest rates; changes in home prices; our guaranty fee rates; the volume of single-family mortgage 

originations in the future; the size, composition and quality of our retained mortgage portfolio and guaranty book of business; 

and economic and housing market conditions. Some of these factors, such as changes in interest rates or home prices, could 

result in significant variability in our earnings from quarter to quarter or year to year. Our expectations for our future financial 

results do not take into account the impact on our business of potential future legislative or regulatory changes, which could 

have a material impact on our financial results, particularly the enactment of housing finance reform legislation as noted in 

“Uncertainty Regarding our Future Status” above.
11

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. 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). 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 2013 Form 10-K in 

“Business—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. In addition, as described in “Legislative and Regulatory Developments—Housing 

Finance Reform and the Role of the GSEs—Conservator Developments,” our conservator recently requested that we further 

cap our retained mortgage portfolio each year at 90% of the annual limit under our senior preferred stock purchase agreement 

with Treasury. 

As a result of both the shrinking of our retained mortgage portfolio and the impact of guaranty fee increases, an increasing 

portion of our revenues in recent years has been derived from guaranty fees rather than from interest income earned on our 

retained mortgage portfolio assets. We recognize almost all of our guaranty fee revenue in net interest income in our 

condensed consolidated statement of operations and comprehensive income due to the consolidation of the substantial 

majority of our MBS trusts on our condensed consolidated balance sheet. The percentage of our net interest income derived 

from guaranty fees on loans underlying our Fannie Mae MBS has increased in recent periods. We estimate that approximately 

half of our net interest income for the first nine months of 2014 was derived from guaranty fees on loans underlying our 

Fannie Mae MBS, compared with approximately one-third of our net interest income for the first nine months of 2013. We 

expect that guaranty fees will continue to account for an increasing portion of our revenues.

The decrease in the balance of mortgage assets held in our retained mortgage portfolio contributed to a decline in our net 

interest income and revenues in the third quarter of 2014 as compared with the third quarter of 2013. We expect continued 

decreases in the size of our retained mortgage portfolio, which will continue to negatively impact our net interest income and 

revenues; however, we also expect increases in our guaranty fee revenues will at least partially offset the negative impact of 

the decline in our retained mortgage portfolio. We expect our guaranty fee revenues to increase over the long term, as loans 

with lower guaranty fees liquidate from our book of business and are replaced with new loans with higher guaranty fees. The 

extent to which the positive impact of increased guaranty fee revenues will offset the negative impact of the decline in the 

size of our retained mortgage portfolio will depend on many factors, including: changes to guaranty fee pricing we may make 

in the future; the size, composition and quality of our guaranty book of business; the life of the loans in our guaranty book of 

business; the size, composition and quality of our retained mortgage portfolio, including the pace at which we are required by 

our conservator to reduce the size of our portfolio and the types of assets we are required to sell; economic and housing 

market conditions, including changes in interest rates; our market share; and legislative and regulatory changes.

Although our single-family acquisition volume declined significantly in the first nine months of 2014 as compared with the 

first nine months of 2013, liquidations of loans from our single-family guaranty book of business also declined. Accordingly, 

the size of our single-family guaranty book of business remained relatively flat during the first nine months of 2014, and our 

single-family guaranty fee revenues continued to increase. The decline in our single-family acquisition volume reflects a 

decrease in originations of single-family mortgages that are refinancings. The decrease in refinancings as a percentage of 

originations has reduced our market share. See “Contributions to the Housing and Mortgage Markets—2014 Market Share” 

above for information on our market share and “Overall Market Conditions” below for information on our expectations for 

refinancing originations.

We expect our single-family acquisition volumes this year to continue to remain lower than prior year volumes; however, we 

also expect liquidations of loans from our single-family guaranty book of business to remain lower. As a result, we do not 

expect these lower volumes to have a material adverse effect on the size of our single-family guaranty book of business or on 

our single-family guaranty fee revenues in the near term. However, if the current reduction in our acquisition volume 

accelerates or remains ongoing for a significant period of time or if the rate of liquidations of loans from our single-family 

guaranty book increases without a corresponding increase in our acquisitions, it could adversely affect the size of our singlefamily guaranty book of business and our single-family guaranty fee revenues over the long term. 

Dividend Obligations to Treasury. We expect to retain only a limited amount of any future net worth because we are required 

by the dividend provisions of the senior preferred stock and quarterly directives from our conservator to 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 $2.4 billion for each quarter of 2014 and then decreases by 

$600 million annually until it reaches zero in 2018. 
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From 2009 through the first quarter of 2012, we received a total of $116.1 billion from Treasury under the senior preferred 

stock purchase agreement. This funding 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 “2008 Reform Act”). In addition, a portion of the $116.1 

billion we received from Treasury was drawn to pay dividends to Treasury because, prior to 2013, our dividend payments on 

the senior preferred stock accrued at an annual rate of 10%, and we were directed by our conservator to pay these dividends 

to Treasury each quarter even when we did not have sufficient income to pay the dividend. We have not received funds from 

Treasury under the agreement since the first quarter of 2012. From 2008 through the third quarter of 2014, we paid a total of 

$130.5 billion in dividends to Treasury on the senior preferred stock. Under the terms of the senior preferred stock purchase 

agreement, dividend payments do not offset prior Treasury draws, and we are not permitted to pay down draws we have made 

under the agreement except in limited circumstances. Accordingly, the current aggregate liquidation preference of the senior 

preferred stock is $117.1 billion, due to the initial $1.0 billion liquidation preference of the senior preferred stock (for which 

we did not receive cash proceeds) and the $116.1 billion we have drawn from Treasury. 

The Director of FHFA directs us to make dividend payments on the senior preferred stock on a quarterly basis. In December 

2014, we expect to pay Treasury additional senior preferred stock dividends of $4.0 billion for the fourth quarter of 2014.

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

their downward trend, but at a slower pace than in recent years. We expect that single-family serious delinquency and 

severity rates will remain high compared with pre-housing crisis levels because it will take some time for the remaining 

delinquent loans with high mark-to-market LTV ratios originated prior to 2009 to work their way through the foreclosure 

process. 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. 

The increase in mortgage rates since the first half of 2013 has resulted in a decline in single-family mortgage originations, 

driven by a decline in refinancings. We forecast that total originations in the U.S. single-family mortgage market in 2014 will 

decrease from 2013 levels by approximately 41%, from an estimated $1.87 trillion in 2013 to $1.10 trillion in 2014, and that 

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

$1.12 trillion in 2013 to $425.6 billion in 2014. We forecast that the amount of total single-family mortgage debt outstanding 

will remain relatively flat in 2014, ending the year at an estimated $9.91 trillion as of December 31, 2014, compared with 

$9.89 trillion as of December 31, 2013. 

In recent years, the Federal Reserve has purchased a significant amount of mortgage-backed securities issued by us, Freddie 

Mac and Ginnie Mae. The Federal Reserve began to taper these purchases in January 2014. In October 2014, the Federal 

Reserve announced that it will conclude its asset purchase program by the end of October; however, it stated that it is 

maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgagebacked securities in agency mortgage-backed securities. Any change in the Federal Reserve’s policy towards the reinvestment 

of principal payments of mortgage-backed securities, or possible future sales of mortgage-backed securities by the Federal 

Reserve, could result in increases in mortgage interest rates and adversely affect our single-family business volume, which 

could adversely affect our results of operations and financial condition. See “Risk Factors” in our 2013 Form 10-K for a 

description of the potential risks to our business as a result of increases in mortgage interest rates.

Home Prices. Based on our home price index, we estimate that home prices on a national basis increased by 1.2% in the third

quarter of 2014 and by 5.3% in the first nine months of 2014. We expect that home prices on a national basis will be 

relatively flat in the fourth quarter of 2014. 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 fiscal policies, 

mortgage finance programs and policies, and housing finance reform; the Federal Reserve’s purchases and sales of mortgagebacked securities; 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 and political 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 currently realize losses on loans, through our charge-offs, at the time of foreclosure or when we accept short sales 

or deeds-in-lieu of foreclosure. Our credit losses were $1.7 billion in the third quarter of 2014, compared with $1.1 billion in 

the third quarter of 2013, and $4.3 billion in the first nine months of 2014, compared with $4.2 billion in the first nine months 

of 2013. Although our credit losses have declined in recent years, we expect our credit losses in 2014 and 2015 will be higher 

than in 2013. The amounts we recognized in 2013 pursuant to a number of repurchase and compensatory fee resolution 

agreements reduced our 2013 credit losses from what they otherwise would have been. Moreover, we expect our approach to 

implementing the charge-off provisions of FHFA’s Advisory Bulletin AB 2012-02 in 2015 will increase our credit losses for 
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2015 from what they otherwise would be. We expect our credit losses to resume their downward trend beginning in 2016. See 

“Legislative and Regulatory Developments—FHFAAdvisory Bulletin Regarding Framework for Adversely Classifying 

Loans” for further information about this Advisory Bulletin.

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 were $39.7 billion as of September 30, 2014, down from $47.3 billion as of December 31, 

2013. We expect the overall decline in our loss reserves in 2014 will be lower than the decline in 2013. We expect our 

approach to charging off the population of loans subject to FHFA’s Advisory Bulletin AB 2012-02 in the first quarter of 2015 

will contribute to a decline in our loss reserves during the period, as the corresponding allowance is removed on the loans that 

are subject to charge off. Although our loss reserves have declined substantially from their peak and are expected to decline 

further, we expect our loss reserves will remain elevated relative to the levels experienced prior to the 2008 housing crisis 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.

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, the level and sources of our revenues, our future dividend 

payments to Treasury, the profitability and performance of single-family loans we have acquired, the level and credit 

characteristics of our future acquisitions, future liquidations of loans from our single-family guaranty book of business, the 

size of our single-family guaranty book of business in the future, 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 delinquency and severity rates, future mortgage originations, future refinancings, 

future single-family mortgage debt outstanding, future home prices and future conditions in the multifamily market. 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; our 

future objectives and activities in support of those objectives, including actions we may take to reach additional underserved 

creditworthy borrowers; 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 legislative or regulatory changes that have a 

significant impact on our business, such as the enactment of housing finance reform legislation; actions we may be required 

to take by FHFA, as our conservator or as our regulator, such as changes in the type of business we do; future updates to our 

models relating to our loss reserves, including the assumptions used by these models; future changes to our accounting 

policies; 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 loans; the effectiveness of our loss mitigation 

strategies, management of our 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 fiscal and 

monetary policies of the Federal Reserve, including any change in the Federal Reserve’s policy towards the reinvestment of 

principal payments of mortgage-backed securities or any future sales of such securities; changes in the fair value of our assets 

and liabilities; impairments of our assets; changes in generally accepted accounting principles (“GAAP”); credit availability; 

global political risks; natural disasters, terrorist attacks, pandemics or other major disruptive events; information security 

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

this report and in our 2013 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—Housing Finance Reform” and “Business—Our Charter and Regulation of Our Activities” in our 2013 

Form 10-K and in “MD&A—Legislative and Regulatory Developments” in our First Quarter 2014 Form 10-Q and in our 

Second Quarter 2014 Form 10-Q. Also see “Risk Factors” in this report and in our 2013 Form 10-K for a discussion of risks 

relating to legislative and regulatory matters.
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Housing Finance Reform and the Role of the GSEs

Legislative Developments

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, Fannie Mae and Freddie Mac should play in that system. The Dodd-Frank Wall Street 

Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July 2010, called for enactment 

of meaningful structural reforms of Fannie Mae and Freddie Mac. See “Business—Housing Finance Reform” in our 2013 

Form 10-K and “MD&A—Legislative and Regulatory Developments” in our First Quarter 2014 Form 10-Q and in our 

Second Quarter 2014 Form 10-Q for a description of activities relating to GSE reform that occurred from 2011 through the 

second quarter of 2014, including descriptions 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 winddown of Fannie Mae and Freddie Mac; and legislation considered in the current Congress relating to housing finance system 

reform and the terms of Fannie Mae’s and Freddie Mac’s senior preferred stock purchase agreements with Treasury.

Congress has continued to consider housing finance reform and the future of the GSEs this year. On May 15, 2014, the 

Senate Banking Committee approved the Housing Finance Reform and Taxpayer Protection Act of 2014, which is also 

known as the Johnson-Crapo bill. This bill, if enacted in its current form, would result in the wind-down and eventual 

liquidation of Fannie Mae and Freddie Mac and would materially affect our business prior to our eventual liquidation. 

Despite activity at the committee level, neither the full Senate nor the full House of Representatives has considered the 

Johnson-Crapo bill or any other housing finance reform bill in the current Congress.

We expect Congress to continue to consider housing finance reform legislation. We cannot predict the prospects for the 

enactment, timing or final content of housing finance reform legislation. As a result, there continues to be significant 

uncertainty regarding the future of our company. See “Risk Factors” in this report and our 2013 Form 10-K for discussions of 

the risks to our business relating to the uncertain future of our company and of how the uncertain future of our company may 

adversely affect our ability to retain and recruit well-qualified employees, including senior management.

Conservator Developments

In addition to the legislative debate, actions taken by our conservator have an impact on the role of the GSEs in the nation’s 

housing finance system now and in the future. See “MD&A—Executive Summary—Helping to Build a Sustainable Housing 

Finance System” and “MD&A—Legislative and Regulatory Developments—Housing Finance Reform and the Role of the 

GSEs—Conservator Developments” in our Second Quarter 2014 Form 10-Q for a discussion of FHFA’s 2014 Strategic Plan 

for the Conservatorships of Fannie Mae and Freddie Mac, and FHFA’s related 2014 conservatorship scorecard. 

Single GSE Security. FHFA’s 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac includes the goal 

of developing a single GSE mortgage-backed security. In August 2014, FHFA published a request for public input on a 

proposed structure for a single security that would be issued and guaranteed by Fannie Mae or Freddie Mac. FHFA’s request 

for public input states that development of the single security will be a multi-year initiative, and that FHFA’s goal for the 

proposed single security structure is for legacy Fannie Mae MBS and legacy Freddie Mac PCs to be fungible with the new 

single security for purposes of fulfilling “to-be-announced” (“TBA”) contracts. Many of the proposed features of the single 

security are similar to those of current Fannie Mae MBS. We believe the development of a single common security would 

likely reduce, and could eliminate, the trading advantage Fannie Mae mortgage-backed securities have over Freddie Mac 

mortgage-backed securities. If this occurs, we believe it would negatively impact our ability to compete for mortgage assets 

in the secondary market, and therefore could adversely affect our results of operations. See “Risk Factors” for a discussion of 

the risks to our business associated with a single common security for Fannie Mae and Freddie Mac, as well as other risks 

associated with FHFA’s 2014 strategic plan.

FHFA Strategic Plan. In August 2014, FHFA also issued a Strategic Plan: Fiscal Years 2015-2019 for public input. Like 

FHFA’s 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, FHFA’s Strategic Plan for 2015-2019 

identifies as important priorities for FHFA the ongoing work to develop a common securitization infrastructure, improve the 

liquidity of GSE securities and build more accurate and uniform mortgage data standards.

Common Securitization Platform. In October 2013, Fannie Mae and Freddie Mac established Common Securitization 

Solutions, LLC (“CSS”), a jointly owned limited liability company formed to design, develop, build and ultimately operate a 

common securitization platform. The intended purpose of the common securitization platform is to replace certain elements 

of Fannie Mae’s and Freddie Mac’s proprietary systems for securitizing mortgages and performing associated back office and 

administrative functions. Fannie Mae and Freddie Mac recently took further steps to develop CSS’s capabilities with the 

execution of three agreements on November 3, 2014. Fannie Mae and Freddie Mac entered into an Amended and Restated 
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Limited Liability Company Agreement with CSS that provides further detail regarding the rights, obligations and 

understandings between the companies with respect to CSS, including the governance of CSS. In connection with the 

agreement, the companies appointed a chief executive officer and four members of the CSS Board of Managers, two each 

from Fannie Mae and Freddie Mac. Fannie Mae, Freddie Mac and CSS also entered into a contribution agreement providing 

for, among other things, the contribution by Fannie Mae and Freddie Mac of intellectual property and cash resources to CSS, 

as well as the assignment of various agreements necessary for CSS’s development and operation of securitization 

functions. In addition, Fannie Mae and Freddie Mac each entered into a separate agreement with CSS with respect to the 

administrative support services the companies will provide to CSS until CSS has the capabilities to provide these services on 

its own. Although these are important steps towards the further development of the common securitization platform, we 

expect it will be several years before CSS will have sufficient operational capabilities to serve its intended purpose as a 

common securitization platform for us and Freddie Mac.

Portfolio Reduction Plan. Under 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 in 

2018. FHFA’s 2014 conservatorship scorecard required us to submit a portfolio plan to FHFA outlining how we will meet, 

even under adverse conditions, the reductions in our portfolio required by our senior preferred stock purchase agreement with 

Treasury. We initially submitted this plan to FHFA in July 2014. In October 2014, FHFA requested that we revise our plan to 

cap the portfolio each year at 90% of the annual limit under our senior preferred stock purchase agreement with Treasury. 

FHFA’s request noted that we may seek FHFA permission to increase this cap to 95% of the annual limit under our senior 

preferred stock purchase agreement with Treasury upon written request and with a documented basis for exception, such as 

changed market conditions. We submitted a revised portfolio plan to FHFA in October 2014 that complies with FHFA’s 

request to cap our portfolio at 90% of the annual limit under our senior preferred stock purchase agreement with Treasury. 

Accordingly, under our revised portfolio plan, we plan to reduce our mortgage portfolio to no more than $422.7 billion as of 

December 31, 2014, in compliance with both our senior preferred stock purchase agreement with Treasury and FHFA’s 

request. See “Business Segment Results—Capital Markets Group Results—The Capital Markets Group’s Mortgage 

Portfolio” for more information about our mortgage portfolio.

2013 Housing Goals Performance

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

or location. Our single-family performance is measured against the lower of benchmarks established by FHFA or goalsqualifying originations in the primary mortgage market. Multifamily goals are established as a number of units to be 

financed. In our 2013 Form 10-K, we reported that we believed we met all of the FHFA-established single-family 

benchmarks for 2013 except for the single-family very low-income families home purchase goal benchmark, as well as both 

of our 2013 multifamily goals, and that FHFA would issue a final determination on our 2013 housing goals performance after 

the release of data reported under the Home Mortgage Disclosure Act (“HMDA”). In October 2014, FHFA notified us that it 

had preliminarily determined that we met all of our single-family and multifamily housing goals for 2013, except for the 

single-family very low-income families home purchase goal. FHFA preliminarily determined that our performance for this 

goal, which was 6% of our 2013 acquisitions of single-family owner-occupied purchase money mortgage loans, failed to 

meet both the applicable benchmark of 7% and the overall market level for 2013 of 6.3%. See “Business—Our Charter and 

Regulation of Our Activities—The GSE Act—Housing Goals and Duty to Serve Undeserved Markets—Housing Goals” in 

our 2013 Form 10-K for a more detailed discussion of our housing goals.

Proposed Housing Goals for 2015 to 2017

In August 2014, FHFA published a proposed rule that would establish single-family and multifamily housing goals for Fannie 

Mae and Freddie Mac for 2015 to 2017. Comments on the proposed rule were due in October 2014. FHFA will issue a final 

rule after considering the comments received on the proposed rule.

Proposed Single-Family Housing Goals

FHFA’s proposed rule requests comment on three alternative approaches for measuring Fannie Mae and Freddie Mac’s 

performance on the single-family housing goals for 2015 to 2017:

• Alternative 1 would use the current two-step process, which measures performance by comparing it to both (1) 

benchmark levels that are set prospectively and (2) actual market levels that are determined retrospectively based on 

HMDA data;

• Alternative 2 would measure performance against prospective benchmark levels only; and
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• Alternative 3 would measure performance against retrospective market levels only.

FHFA has proposed the following single-family home purchase and refinance housing goal benchmarks for 2015 to 2017 

under Alternative 1. A home purchase mortgage may be counted toward more than one home purchase benchmark. 

• Low-Income Families Home Purchase Benchmark: At least 23% of our acquisitions of single-family owneroccupied purchase money mortgage loans must be affordable to low-income families (defined as income equal to or 

less than 80% of area median income). This is the same benchmark currently applicable for 2014.

• Very Low-Income Families Home Purchase Benchmark: At least 7% of our acquisitions of single-family owneroccupied purchase money mortgage loans must be affordable to very low-income families (defined as income equal 

to or less than 50% of area median income). This is the same benchmark currently applicable for 2014.

• Low-Income Areas Home Purchase Goal Benchmark: The benchmark level for our acquisitions of single-family 

owner-occupied purchase money mortgage loans for families in low-income areas is set annually by notice from 

FHFA, based on the benchmark level for the low-income areas home purchase subgoal (below), plus an adjustment 

factor reflecting the additional incremental share of mortgages for moderate-income families (defined as income 

equal to or less than 100% of area median income) in designated disaster areas. 

• Low-Income Areas Home Purchase Subgoal Benchmark: At least 14% of our acquisitions of single-family owneroccupied purchase money mortgage loans must be affordable to families in low-income census tracts or to moderateincome families in high-minority census tracts. This is an increase from the benchmark of 11% currently applicable 

for 2014.

• Low-Income Families Refinancing Benchmark: At least 27% of our acquisitions of single-family owner-occupied 

refinance mortgage loans must be affordable to low-income families. This is an increase from the benchmark of 20% 

currently applicable for 2014.

Under Alternative 1, if we do not meet these benchmarks, we may still meet our goals. Our single-family housing goals 

performance would be measured against both these benchmarks and against goals-qualifying originations in the primary 

mortgage market after the release of HMDA data, which is typically released each year in the fall. We would be in 

compliance with the housing goals if we meet either the benchmarks or market share measures.

FHFA’s proposed rule noted that, if it were to adopt Alternative 2, it would consider adopting single-family benchmark levels 

that are lower than the proposed levels for Alternative 1 described above. Alternative 3 would not involve setting prospective 

benchmark levels.

Proposed Multifamily Housing Goals

FHFA’s proposed rule also includes benchmark levels for a multifamily special affordable housing goal and subgoal, and 

establishes a new subgoal for small multifamily properties (defined as those with 5 to 50 units) affordable to low-income 

families. FHFA’s proposed multifamily benchmark levels for Fannie Mae for 2015 to 2017 would be the same levels 

currently applicable to Fannie Mae for 2014: 250,000 units per year must be affordable to low-income families and 60,000 

units per year must be affordable to very low-income families.FHFA’s proposed new subgoal for Fannie Mae for small 

multifamily properties affordable to low-income families increases each year: 20,000 units in 2015; 25,000 units in 2016; and 

30,000 units in 2017. There is no market-based alternative measurement for the multifamily goal or subgoals. 

The Dodd-Frank Act: Margin and Capital Requirements for Covered Swap Entities

In September 2014, the Federal Reserve Board, the Federal Deposit Insurance Corporation (“FDIC”), FHFA, the Farm Credit 

Administration and the Office of the Comptroller of the Currency issued new proposed rules under the Dodd-Frank Act 

governing margin and capital requirements applicable to entities that are subject to their oversight. These proposed rules 

would require that, for all trades that have not been submitted to a derivatives clearing organization, we collect from and 

provide to our counterparties collateral in excess of the amounts we have historically collected or provided relative to our 

level of activity. We continue to evaluate the potential impact of this rule on our business.

The Dodd-Frank Act: Final Risk Retention Rule

In October 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the 

FDIC, the Securities and Exchange Commission (“SEC”), FHFA and the Department of Housing and Urban Development 

issued a final rule 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. This rule was mandated by Section 941 of the Dodd-Frank 

Act. The final rule requires securitizers to retain at least 5% of the credit risk of the assets they securitize. The rule offers 
17

several compliance options, one of which is to have either Fannie Mae or Freddie Mac (so long as they are in conservatorship 

or receivership) securitize and fully guarantee the assets, in which case no further retention of credit risk is required. In 

addition, securities backed solely by mortgage loans meeting the definition of a “qualified residential mortgage” are exempt 

from the risk retention requirements of the rule. The rule defines qualified residential mortgage to have the same meaning as 

the term “qualified mortgage” as defined by the Consumer Financial Protection Bureau (“CFPB”) in connection with its 

“ability to repay” rule under Regulation Z. Generally, a loan will be a qualified mortgage under the CFPB’s ability to repay 

rule if, among other things, (1) the points and fees paid in connection with the loan do not exceed 3% of the total loan 

amount, (2) the loan term does not exceed 30 years, (3) the loan is fully amortizing with no negative amortization, interestonly or balloon features and (4) the debt-to-income ratio on the loan does not exceed 43% at origination. The CFPB also 

defined a special class of conventional mortgage loans that will be qualified mortgages if they (1) meet the points and fees, 

term and amortization requirements of qualified mortgages generally and (2) are eligible for sale to Fannie Mae or Freddie 

Mac. This class of qualified mortgages expires on the earlier of January 10, 2021 or when the GSEs cease to be in 

conservatorship or receivership. The final risk retention rule will become effective one year after publication in the Federal 

Register for single-family mortgage loans and two years after publication in the Federal Register for multifamily mortgage 

loans. We continue to evaluate the potential impact of this rule on our business.

Final Bank Minimum Liquidity Standards

In September 2014, U.S. banking regulators issued a final regulation setting minimum liquidity standards for large U.S. 

banks generally in accordance with Basel III standards. Although we are not subject to banking regulations, U.S. banks 

currently hold large amounts of our outstanding debt and Fannie Mae MBS securities and, as a result, our business may be 

affected by these new minimum liquidity standards.

Under the final rule, U.S. banks subject to the standards are required to hold a minimum level of high-quality liquid assets 

based on projections of their short-term cash needs. The debt and mortgage-related securities of Fannie Mae and Freddie Mac 

are permitted to count toward only up to 40% of the banks’ high-quality liquid asset requirement, and then only after applying 

a 15% discount to the market value of those securities. The final rule becomes effective January 1, 2015 and provides for a 

transition period. Banks subject to the rule are required to maintain a minimum liquidity coverage ratio of 80% beginning on 

January 1, 2015, 90% beginning on January 1, 2016 and 100% beginning on January 1, 2017.

Prior U.S. banking regulations did not limit the amount of Fannie Mae or Freddie Mac debt and mortgage-related securities 

that banks were permitted to count toward their liquidity requirements. Accordingly, the implementation of this rule could 

materially adversely affect demand by banks for Fannie Mae debt securities and MBS, which could adversely affect the price 

of those securities and could have a material adverse effect on our business, results of operations, financial condition, 

liquidity and net worth.

Dismissal of Lawsuit Relating to Conservatorship Operations

In June 2011, FHFA issued a final rule establishing a framework for conservatorship and receivership operations for the 

GSEs, which became effective in July 2011. The rule includes a provision that FHFA, as conservator, will not pay securities 

litigation claims against us during conservatorship, unless the Director of FHFA determines it is in the interest of the 

conservatorship. In August 2011, an action was brought in the U.S. District Court for the District of Columbia against FHFA

and FHFA’s Director by the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio 

challenging the rule’s provisions regarding nonpayment of securities litigation claims. In October 2014, the plaintiffs 

voluntarily dismissed this action without prejudice.

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” (the “Advisory Bulletin”). The Advisory Bulletin requires, 

among other things, 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%). The Advisory Bulletin also requires us to charge off the portion of the loan classified 

as a “loss.” Our current analytics and historical data do not support charging off loans at 180 days delinquent. As a result, for 

the vast majority of our delinquent single-family loans, we expect to continue to charge off the loan at the date of foreclosure 

or other liquidation event (such as a deed-in-lieu of foreclosure or a short sale). For a small subset of delinquent loans 

deemed to be uncollectible prior to foreclosure by our historical data, we will classify them as “loss” and charge off the 

portion of the loan classified as “loss” prior to the date of foreclosure or other liquidation event, which given our current 

credit analytics and historical data, will be when the loans are excessively delinquent and the outstanding loan balance 
18

exceeds the fair value of the underlying property. Under our approach to adopting the charge-off provisions of the Advisory 

Bulletin in the first quarter of 2015, our allowance for loan losses on the charged-off loans will be eliminated and the 

corresponding recorded investment in the loans will be reduced by the amounts that are charged off. We do not expect that 

the adoption of the Advisory Bulletin will have a material impact on our financial position or results of operations.

For information on the risks presented by our adoption of the Advisory Bulletin, see “Risk Factors” in our 2013 Form 10-K. 

See “Executive Summary—Outlook” for a discussion of the expected impact of our implementation of the charge-off 

provisions of the Advisory Bulletin on our credit losses and loss reserves.

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 2013 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 2013 

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; and

• Deferred Tax Assets.

See “MD&A—Critical Accounting Policies and Estimates” in our 2013 Form 10-K for a discussion of these critical 

accounting policies and estimates. We describe below significant changes we made in the third quarter of 2014 to the model 

and the assumptions used in estimating our allowance for loan losses, which is a component of our total loss reserves.

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, delinquency, modification, default and loss severity trends and periodically make 

changes in our historically developed assumptions to better reflect present conditions of loan performance. In the third 

quarter of 2014, we updated the model and the assumptions used to estimate cash flows for individually impaired singlefamily loans within our allowance for loan losses. In addition to incorporating recent loan performance, this update 

better captures regional variations in expected future cash flows, particularly with respect to expectations of future home 

prices. This update resulted in a decrease to our allowance for loan losses as of September 30, 2014 and an incremental 

benefit for credit losses of approximately $600 million for the third quarter of 2014.
19

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

Table 3: Summary of Condensed Consolidated Results of Operations

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2014 2013 Variance 2014 2013 Variance

(Dollars in millions)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,184 $ 5,582 $ (398) $ 14,826 $ 17,553 $ (2,727)

Fee and other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826 741 85 5,564 1,794 3,770

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,010 6,323 (313) 20,390 19,347 1,043

Investment gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 648 (471) 829 1,056 (227)

Fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . (207) 335 (542) (2,331) 1,998 (4,329)

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (706) (646) (60) (2,075) (1,913) (162)

Credit-related income

Benefit for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085 2,609 (1,524) 3,498 8,949 (5,451)

Foreclosed property (expense) income. . . . . . . . . . . . . . . . (249) 1,165 (1,414) 227 1,757 (1,530)

Total credit-related income . . . . . . . . . . . . . . . . . . . . . . 836 3,774 (2,938) 3,725 10,706 (6,981)

Other non-interest expenses(1). . . . . . . . . . . . . . . . . . . . . . . . . (418) (335) (83) (1,518) (901) (617)

Income before federal income taxes . . . . . . . . . . . . . . . . . . . . 5,692 10,099 (4,407) 19,020 30,293 (11,273)

(Provision) benefit for federal income taxes. . . . . . . . . . . . . . (1,787) (1,355) (432) (6,123) 47,231 (53,354)

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,905 8,744 (4,839) 12,897 77,524 (64,627)

Less: Net income attributable to noncontrolling interest . . . . — (7) 7 (1) (18) 17

Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . . $ 3,905 $ 8,737 $ (4,832) $ 12,896 $ 77,506 $ (64,610)

Total comprehensive income attributable to Fannie Mae . . . . $ 4,000 $ 8,603 $ (4,603) $ 13,408 $ 78,192 $ (64,784)

__________

(1) Consists of net other-than-temporary impairments; debt extinguishment gains, net; TCCA fees and other expenses, net.

Net Interest Income

We currently have two primary sources of net interest income: (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, which we 

refer to as mortgage loans of consolidated trusts.

Table 4 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 5 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.
20

Table 4: Analysis of Net Interest Income and Yield

For the Three Months Ended September 30,

2014 2013

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 . . . . . . . . . . . . . . . . . . . . . . $ 282,019 $ 2,562 3.63 % $ 320,651 $ 2,948 3.68 %

Mortgage loans of consolidated trusts. . . . . . . . . . . . . . . . . 2,762,984 25,217 3.65 2,721,041 25,351 3.73

Total mortgage loans(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,045,003 27,779 3.65 3,041,692 28,299 3.72

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . 140,357 1,652 4.71 191,284 2,189 4.58

Elimination of Fannie Mae MBS held in retained

mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (96,785) (1,113) 4.60 (124,991) (1,464) 4.69

Total mortgage-related securities, net. . . . . . . . . . . . . . . . 43,572 539 4.95 66,293 725 4.37

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . 32,283 7 0.08 35,959 6 0.07

Federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . . 38,488 9 0.09 54,623 9 0.06

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,794 20 2.06 5,250 28 2.09

Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,163,140 $28,354 3.59 % $3,203,817 $29,067 3.63 %

Interest-bearing liabilities:

Short-term debt(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,497 $ 25 0.10 % $ 92,591 $ 28 0.12 %

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,412 2,050 2.14 495,042 2,551 2.06

Total short-term and long-term funding debt . . . . . . . . . . 484,909 2,075 1.71 587,633 2,579 1.76

Debt securities of consolidated trusts . . . . . . . . . . . . . . . . . 2,820,711 22,208 3.15 2,790,170 22,370 3.21

Elimination of Fannie Mae MBS held in retained

mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (96,785) (1,113) 4.60 (124,991) (1,464) 4.69

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,723,926 21,095 3.10 2,665,179 20,906 3.14

Total interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . . . $3,208,835 $23,170 2.89 % $3,252,812 $23,485 2.89 %

Net interest income/net interest yield . . . . . . . . . . . . . . . . . . . . $ 5,184 0.66 % $ 5,582 0.70 %
21

For the Nine Months Ended September 30,

2014 2013

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 . . . . . . . . . . . . . . . . . . . . . . $ 289,028 $ 7,828 3.61 % $ 332,803 $ 9,987 4.00 %

Mortgage loans of consolidated trusts. . . . . . . . . . . . . . . . . 2,766,787 76,704 3.70 2,694,339 75,592 3.74

Total mortgage loans(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,055,815 84,532 3.69 3,027,142 85,579 3.77

Mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . 148,195 5,190 4.67 215,302 7,361 4.56

Elimination of Fannie Mae MBS held in retained

mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (101,608) (3,542) 4.65 (139,372) (4,890) 4.68

Total mortgage-related securities, net. . . . . . . . . . . . . . . . 46,587 1,648 4.72 75,930 2,471 4.34

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . 33,435 22 0.09 44,157 32 0.10

Federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . . 33,557 20 0.08 65,496 58 0.12

Advances to lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,303 57 2.28 5,593 85 2.00

Total interest-earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,172,697 $86,279 3.63 % $3,218,318 $88,225 3.66 %

Interest-bearing liabilities:

Short-term debt(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,844 $ 65 0.10 % $ 103,419 $ 106 0.14 %

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,633 6,524 2.12 505,903 7,778 2.05

Total short-term and long-term funding debt . . . . . . . . . . 491,477 6,589 1.79 609,322 7,884 1.73

Debt securities of consolidated trusts . . . . . . . . . . . . . . . . . 2,820,774 68,406 3.23 2,772,826 67,678 3.25

Elimination of Fannie Mae MBS held in retained

mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (101,608) (3,542) 4.65 (139,372) (4,890) 4.68

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,719,166 64,864 3.18 2,633,454 62,788 3.18

Total interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . . . $3,210,643 $71,453 2.97 % $3,242,776 $70,672 2.91 %

Net interest income/net interest yield . . . . . . . . . . . . . . . . . . . . $14,826 0.62 % $17,553 0.73 %

As of September 30,

2014 2013

Selected benchmark interest rates(4)

3-month LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.24 % 0.25 %

2-year swap rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.82 0.46

5-year swap rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.93 1.54

30-year Fannie Mae MBS par coupon rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 3.29

__________

(1) Average balance includes mortgage loans on nonaccrual status. Interest income on nonaccrual mortgage loans is recognized when cash is 

received. Interest income not recognized for loans on nonaccrual status was $436 million and $1.4 billion for the third quarter and first 

nine months of 2014, respectively, compared with $688 million and $2.2 billion for the third quarter and first nine months of 2013, 

respectively.

(2) Includes cash equivalents.

(3) Includes federal funds purchased and securities sold under agreements to repurchase.

(4) Data from IntercontinentalExchange Group, Inc., Thomson Reuters and Bloomberg L.P.
22

Table 5: Rate/Volume Analysis of Changes in Net Interest Income

For the Three Months Ended For the Nine Months Ended

September 30, 2014 vs. 2013 September 30, 2014 vs. 2013

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (386) $ (351) $ (35) $ (2,159) $ (1,240) $ (919)

Mortgage loans of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . (134) 387 (521) 1,112 2,016 (904)

Total mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (520) 36 (556) (1,047) 776 (1,823)

Total mortgage-related securities, net . . . . . . . . . . . . . . . . . . . . . . . (186) (273) 87 (823) (1,029) 206

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (1) 2 (10) (7) (3)

Federal funds sold and securities purchased under agreements to

resell or similar arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . — (3) 3 (38) (23) (15)

Advances to lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (8) — (28) (38) 10

Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (713) $ (249) $ (464) $ (1,946) $ (321) $ (1,625)

Interest expense:

Short-term debt(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 3 (6) (41) (20) (21)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (501) (594) 93 (1,254) (1,525) 271

Total short-term and long-term funding debt . . . . . . . . . . . . . . . . (504) (591) 87 (1,295) (1,545) 250

Total debt securities of consolidated trusts held by third parties . 189 568 (379) 2,076 2,482 (406)

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (315) $ (23) $ (292) $ 781 $ 937 $ (156)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (398) $ (226) $ (172) $ (2,727) $ (1,258) $ (1,469)

__________

(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 decreased in the third quarter and first nine months of 2014 compared with the third quarter and first nine 

months of 2013, primarily due to a decline in the average balance of our retained mortgage portfolio. The average balance of 

our retained mortgage portfolio was 17% lower in the third quarter of 2014 than in the third quarter of 2013 and was 20%

lower in the first nine months of 2014 than in the first nine months of 2013. In addition, net amortization income related to 

mortgage loans and debt of consolidated trusts declined compared with the prior year periods due to a decline in 

prepayments. The decrease in net interest income was partially offset by increased guaranty fee revenue, as loans with higher 

guaranty fees have become a larger part of our guaranty book of business. We recognize almost all of our guaranty fee 

revenue in net interest income due to the consolidation of the substantial majority of loans underlying our MBS trusts on our 

balance sheet.

Net interest yield decreased in the third quarter and first nine months of 2014 compared with the third quarter and first nine

months of 2013 due to the decline in the percentage of net interest income from our retained mortgage portfolio, which has a 

higher net interest yield than the net interest yield from guaranty fees.

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 first nine months of 2014 compared with the first nine months of 2013, primarily as a result of 

$4.8 billion recognized as income in the first nine months of 2014 compared with $561 million in the first nine months of 

2013, both resulting from settlement agreements resolving certain lawsuits relating to PLS sold to us. See “Legal Proceedings

—FHFA Private-Label Mortgage-Related Securities Litigation” for additional information.
23

Investment Gains, Net

Investment gains, net include 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 retained mortgage portfolio and gains and losses 

recognized on the consolidation and deconsolidation of securities. Investment gains decreased in the third quarter of 2014 

compared with the third quarter of 2013 primarily due to fewer sales of non-agency mortgage-related securities in the third 

quarter of 2014 compared with the third quarter of 2013. Investment gains decreased in the first nine months of 2014 

compared with the first nine months of 2013 primarily due to an increase in losses on the consolidation and deconsolidation 

of securities.

Fair Value (Losses) Gains, Net

Table 6 displays the components of our fair value gains and losses. 

Table 6: Fair Value (Losses) Gains, Net

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2014 2013 2014 2013

(Dollars in millions)

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

Net contractual interest expense accruals on interest rate swaps . . . . . . . . . . . $ (314) $ (229) $ (770) $ (610)

Net change in fair value during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . (93) 942 (1,513) 2,445

Total risk management derivatives fair value (losses) gains, net . . . . . . . . . (407) 713 (2,283) 1,835

Mortgage commitment derivatives fair value (losses) gains, net . . . . . . . . . . . . . (73) (169) (728) 459

Total derivatives fair value (losses) gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (480) 544 (3,011) 2,294

Trading securities gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (57) 444 111

Other, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 (152) 236 (407)

Fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (207) $ 335 $(2,331) $ 1,998

2014 2013

5-year swap rate:

As of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.79% 0.86%

As of March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.80% 0.95%

As of June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.70% 1.57%

As of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.93% 1.54%

10-year swap rate:

As of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09% 1.84%

As of March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.84% 2.01%

As of June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.63% 2.70%

As of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.64% 2.77%

__________

(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 (Losses) Gains, 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 interest rate risk. We recognized risk management 

derivative fair value losses in the third quarter of 2014 primarily due to increases in shorter-term swap rates. We recognized 

risk management derivative fair value losses for the first nine months of 2014 primarily as a result of decreases in the fair 

value of our pay-fixed derivatives due to declines in longer-term swap rates during the period. 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.
24

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, 2014 and 2013 in “Note 9, Derivative Instruments.”

Mortgage Commitment Derivatives Fair Value (Losses) Gains, Net

We recognized fair value losses on our mortgage commitments in the third quarter and first nine months of 2014 primarily 

due to losses on commitments to sell mortgage-related securities driven by an increase in prices as interest rates decreased 

during the commitment period. We recognized fair value losses on our mortgage commitments in the third quarter of 2013

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.

Trading Securities Gains (Losses), Net

Gains from trading securities in the third quarter and first nine months of 2014 were driven by higher prices on securities 

primarily due to a decrease in interest rates, in addition to a narrowing of credit spreads on PLS. 

Losses from trading securities in the third quarter of 2013 were primarily driven by lower prices on commercial mortgagebacked securities (“CMBS”) and PLS 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 PLS, 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 the losses on CMBS in the second and third quarters of 2013.

Credit-Related Income

We refer to our benefit for loan losses and (benefit) provision for guaranty losses collectively as our “benefit for credit 

losses.” Credit-related income consists of our benefit for credit losses and foreclosed property expense (income).

Benefit for Credit Losses

Table 7 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 7 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.”

Table 7: Total Loss Reserves

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,931 $43,846

Reserve for guaranty losses(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,324 1,449

Combined loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,255 45,295

Allowance for accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764 1,156

Allowance for preforeclosure property taxes and insurance receivable(2)

. . . . . . . . . . . . . . . . . . . . 718 839

Total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,737 47,290

Fair value losses previously recognized on acquired credit-impaired loans(3)

. . . . . . . . . . . . . . . . 10,211 11,316

Total loss reserves and fair value losses previously recognized on acquired credit-impaired

loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,948 $58,606

__________

(1) Amount included in “Other liabilities” in our condensed consolidated balance sheets.
25

(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 8 displays changes in the total allowance for loan losses, reserve for guaranty losses and the total combined loss 

reserves for the periods indicated.

Table 8: 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,

2014 2013 2014 2013

(Dollars in millions)

Changes in combined loss reserves:

Allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,067 $ 49,643 $ 43,846 $ 58,795

Benefit for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,051) (2,600) (3,481) (9,033)

Charge-offs(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,561) (2,325) (5,071) (7,263)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 294 1,124 2,138

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 157 513 532

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,931 $ 45,169 $ 36,931 $ 45,169

Reserve for guaranty losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,384 $ 1,230 $ 1,449 $ 1,231

(Benefit) provision for guaranty losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) (9) (17) 84

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (28) (103) (123)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (5) 1

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,324 $ 1,193 $ 1,324 $ 1,193

Combined loss reserves:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,451 $ 50,873 $ 45,295 $ 60,026

Benefit for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,085) (2,609) (3,498) (8,949)

Charge-offs(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,587) (2,353) (5,174) (7,386)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 294 1,119 2,139

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 157 513 532

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,255 $ 46,362 $ 38,255 $ 46,362
26

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

Allocation of combined loss reserves:

Balance at end of each period attributable to:

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,854 $ 44,705

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 590

 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,255 $ 45,295

Single-family and multifamily combined loss reserves as a percentage of applicable

guaranty book of business:

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.33% 1.55%

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.20 0.29

Combined loss reserves as a percentage of:

Total guaranty book of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25% 1.47%

Recorded investment in nonaccrual loans(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56.26 54.20

_________

(1) Includes accrued interest of $72 million and $100 million for the three months ended September 30, 2014 and 2013, respectively, and

$241 million and $337 million for the nine months ended September 30, 2014 and 2013, 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 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.

(3) Excludes off-balance sheet loans in unconsolidated Fannie Mae MBS trusts that would meet our criteria for nonaccrual status if the 

loans had been on-balance sheet.

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 and servicer repurchase obligations. In addition, our benefit or provision for credit losses and our loss 

reserves can be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses.

We recognized a benefit for credit losses in the third quarter and first nine months of 2014 primarily due to increases in home 

prices of 1.2% in the third quarter of 2014 and 5.3% in the first nine months of 2014. Higher home prices decrease the 

likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of 

losses and ultimately reduces our total loss reserves and provision for credit losses. In addition, in the third quarter of 2014, 

we updated the model and the assumptions used to estimate cash flows for individually impaired single-family loans within 

our allowance for loan losses, which resulted in a decrease to our allowance for loan losses and an incremental benefit for 

credit losses of approximately $600 million for the third quarter and first nine months of 2014. For additional information, 

see “Critical Accounting Policies and Estimates—Total Loss Reserves.”

We recognized a benefit for credit losses in the third quarter and first nine months of 2013 primarily due to increases in home 

prices, including the sales prices of our REO properties as a result of strong demand in the first nine months of 2013. Home 

prices increased by 2.1% in the third quarter of 2013 and 8.3% in the first nine months of 2013. In addition, in the first nine 

months 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 and an incremental benefit for 

credit losses of approximately $2.2 billion for the first nine months of 2013.

We discuss our expectations regarding our future loss reserves in “Executive Summary—Outlook—Loss Reserves.”
27

Troubled Debt Restructurings and Nonaccrual Loans

Table 9 displays the composition of loans restructured in a troubled debt restructuring (“TDR”) that are on accrual status and 

loans on nonaccrual status. The table includes 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 9: Troubled Debt Restructurings and Nonaccrual Loans

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

TDRs on accrual status:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $144,802 $140,512

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,124 715

Total TDRs on accrual status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,926 $141,227

Nonaccrual loans:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,673 $ 81,355

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,325 2,209

Total nonaccrual loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,998 $ 83,564

Accruing on-balance sheet loans past due 90 days or more(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 616 $ 719

For the Nine Months

Ended September 30,

2014 2013

(Dollars in millions)

Interest related to on-balance sheet TDRs and nonaccrual loans:

Interest income forgone(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,628 $ 5,291

Interest income recognized for the period(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,628 4,527

__________

(1) Recorded investment in loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. The 

majority of this amount consists of loans insured or guaranteed by the U.S. government and loans for which we have recourse against 

the seller in the event of a default.

(2) Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and 

TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.

(3) Represents interest income recognized during the period for loans classified as either nonaccrual loans or TDRs on accrual status as of 

the end of each period. Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual 

loans.

Foreclosed Property (Expense) Income

We recognized foreclosed property expense in the third quarter of 2014 compared with foreclosed property income in the 

third quarter of 2013. Foreclosed property income decreased in the first nine months of 2014 compared with the first nine 

months of 2013. These changes were primarily due to a decrease in the amount of compensatory fee income recognized 

related to servicing matters. In the third quarter of 2013, we recognized compensatory fee income received in connection with 

our compensatory fee agreement with Bank of America which had previously been deferred until we substantially completed 

the loan review process related to the agreement. Compensatory fees are amounts we charge our primary servicers for 

servicing delays within their control when they fail to comply with established loss mitigation and foreclosure timelines as 

required by our Servicing Guide, which sets forth our policies and procedures related to servicing our single-family 

mortgages.

Credit Loss Performance Metrics

Our credit-related income 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 
28

of credit-impaired loans from unconsolidated MBS trusts. We also exclude interest forgone on nonaccrual loans and TDRs, 

other-than-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 10 displays the components of our 

credit loss performance metrics as well as our single-family and multifamily initial charge-off severity rates. 

Table 10: Credit Loss Performance Metrics

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2014 2013 2014 2013

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of recoveries. . . . . . . . $ 1,312 17.2 bps $ 2,059 26.9 bps $ 4,055 17.6 bps $ 5,247 22.9 bps

Foreclosed property expense (income) . 249 3.3 (1,165) (15.2) (227) (1.0) (1,757) (7.7)

Credit losses including the effect of

fair value losses on acquired creditimpaired loans. . . . . . . . . . . . . . . . . . 1,561 20.5 894 11.7 3,828 16.6 3,490 15.2

Plus: Impact of acquired creditimpaired loans on charge-offs and 

foreclosed property expense 

(income)(2)

. . . . . . . . . . . . . . . . . . . . . 158 2.1 248 3.2 493 2.1 754 3.3

Credit losses and credit loss ratio . . . . . $ 1,719 22.6 bps $ 1,142 14.9 bps $ 4,321 18.7 bps $ 4,244 18.5 bps

Credit losses attributable to:

Single-family . . . . . . . . . . . . . . . . . . $ 1,738 $ 1,083 $ 4,362 $ 4,127

Multifamily(3)

. . . . . . . . . . . . . . . . . . (19) 59 (41) 117

 Total . . . . . . . . . . . . . . . . . . . . . . $ 1,719 $ 1,142 $ 4,321 $ 4,244

Single-family initial charge-off 

severity rate(4)

. . . . . . . . . . . . . . . . . . 19.24 % 22.16 % 19.50 % 24.78 %

Multifamily initial charge-off severity 

rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . 28.21 % 21.00 % 24.18 % 24.49 %

__________

(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) Negative credit losses are the result of recoveries on previously charged-off amounts.

(4) 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. Multifamily rate is net of risk-sharing agreements.

Credit losses increased in the third quarter and first nine months of 2014 compared with the third quarter and first nine 

months of 2013 primarily due to the recognition of compensatory fees received in connection with our compensatory fee 

agreement with Bank of America in the third quarter of 2013. This increase in our credit losses was partially offset by lower 

REO acquisitions in the third quarter and first nine months of 2014, driven by lower delinquencies and the slow pace of 

foreclosures in certain areas of the country. For additional information, refer to “Risk Management—Credit Risk 

Management—Single-Family Mortgage Credit Risk Management—Problem Loan Management.” The increase in credit 

losses in the third quarter and first nine months of 2014 was also partially offset by the recovery of previously charged off 

loans resulting from a settlement agreement reached in the first quarter of 2014 with Lehman Brothers Holdings, Inc. 

(“Lehman Brothers”) related to representation and warranty matters. For more information on this agreement, see “Risk 

Management—Credit Risk Management—Institutional Counterparty Credit Risk Management—Other.”

We discuss our expectations regarding our future credit losses in “Executive Summary—Outlook—Credit Losses.”
29

Regulatory Hypothetical Credit Loss Sensitivities

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 11 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 11: Single-Family Credit Loss Sensitivity(1)

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

Gross single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,980 $ 9,109

Less: Projected credit risk sharing proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (726) (1,062)

Net single-family credit loss sensitivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,254 $ 8,047

Single-family loans in our retained mortgage portfolio and loans underlying Fannie Mae MBS. . $2,797,842 $2,828,395

Single-family net credit loss sensitivity as a percentage of outstanding single-family loans in our

retained mortgage portfolio and Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.26% 0.28%

__________

(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, 2014 and December 31, 2013. 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.

Other Non-Interest Expenses

Other non-interest expenses increased in the first nine months of 2014 compared with the first nine months of 2013 primarily 

due to an increase in TCCA fees. TCCA fees increased in the first nine months of 2014 compared with the first nine months 

of 2013 due to an increase in the percentage of loans in our single-family book of business subject to the TCCA. We expect 

the guaranty fees collected and expenses incurred under the TCCA to continue to increase in the future.

Federal Income Taxes

We recognized a provision for federal income taxes of $1.8 billion for the third quarter of 2014 and $6.1 billion for the first 

nine months of 2014. We recognized a provision for federal income taxes of $1.4 billion for the third quarter of 2013 and a 

benefit for federal income taxes of $47.2 billion for the first nine months of 2013. In calculating our interim provision for 

federal income taxes, we use an estimate of our annual effective tax rate, which we update each quarter based on actual 

financial results and forward-looking estimates. In the first quarter of 2013, we released the substantial majority of the 

valuation allowance against our deferred tax assets, which fully offset the calculation of tax expense and resulted in the $50.6 

billion benefit reported in the first quarter of 2013. See “MD&A—Critical Accounting Policies and Estimates—Deferred Tax 
30

Assets” in our 2013 Form 10-K for a discussion of the factors that led us to release our valuation allowance against our 

deferred tax assets in 2013.

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 2013 Form 10-

K.

In this section, we summarize our segment results for the third quarter and first nine months of 2014 and 2013 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.

Single-Family Business Results

Table 12 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. Other items that impact income or loss primarily include 

credit-related income (expense), net interest income (loss), TCCA fees and administrative expenses.
31

Table 12: Single-Family Business Results(1)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2014 2013 Variance 2014 2013 Variance

(Dollars in millions)

Net interest income (loss)(2)

. . . . . . . . . $ 19 $ (152) $ 171 $ (24) $ 318 $ (342)

Guaranty fee income(3)(4)

. . . . . . . . . . . 2,945 2,719 226 8,708 7,638 1,070

Credit-related income(5)

. . . . . . . . . . . . 748 3,642 (2,894) 3,531 10,357 (6,826)

TCCA fees(4)

. . . . . . . . . . . . . . . . . . . . . (351) (276) (75) (1,008) (695) (313)

Other expenses(6)

. . . . . . . . . . . . . . . . . (462) (437) (25) (1,445) (1,253) (192)

Income before federal income taxes . . 2,899 5,496 (2,597) 9,762 16,365 (6,603)

(Provision) benefit for federal income 

taxes(7)

. . . . . . . . . . . . . . . . . . . . . . . . (837) (751) (86) (2,897) 29,777 (32,674)

Net income attributable to Fannie Mae $ 2,062 $ 4,745 $ (2,683) $ 6,865 $ 46,142 $(39,277)

Other key performance data:

Securitization Activity/New Business

Single-family Fannie Mae MBS 

issuances(8)

. . . . . . . . . . . . . . . . . . . . $ 105,563 $ 186,459 $ 266,631 $ 615,302

Credit Guaranty Activity

Average single-family guaranty book 

of business(9)

. . . . . . . . . . . . . . . . . . . $ 2,858,362 $ 2,860,103 $2,871,507 $ 2,847,297

Single-family effective guaranty fee 

rate (in basis points)(4)(10)

. . . . . . . . . 41.2 38.0 40.4 35.8

Single-family average charged 

guaranty fee on new acquisitions (in 

basis points)(4)(11)

. . . . . . . . . . . . . . . . 63.5 58.7 63.0 56.6

Single-family serious delinquency 

rate, at end of period(12)

. . . . . . . . . . 1.96 % 2.55 % 1.96 % 2.55 %

Market

Single-family mortgage debt 

outstanding, at end of period (total 

U.S. market)(13). . . . . . . . . . . . . . . . . $9,855,419 $ 9,921,552 $9,855,419 $ 9,921,552

30-year mortgage rate, at end of 

period(14)

. . . . . . . . . . . . . . . . . . . . . . 4.20 % 4.32 % 4.20 % 4.32 %

__________

(1) Certain prior period amounts have been reclassified to conform to our current period presentation.

(2) 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.

(3) 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.

(4) Includes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which 

must be remitted to Treasury. The resulting revenue is included in guaranty fee income and the expense is recognized as “TCCA fees.” 

(5) Consists of the benefit for credit losses and foreclosed property (expense) income.

(6) Consists of investment (losses) gains, net, fair value losses, net, fee and other income, administrative expenses and other expenses.

(7) The benefit for the first nine months of 2013 primarily represented 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.

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

(9) 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.
32

(10) Calculated based on annualized Single-Family segment guaranty fee income divided by the average single-family guaranty book of 

business, expressed in basis points.

(11) 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.

(12) Calculated based on the number of single-family conventional loans that are 90 days or more past due or in the foreclosure process, 

divided by the number of loans in our single-family conventional guaranty book of business. We include single-family conventional 

loans that we own and those that back Fannie Mae MBS in the calculation of the single-family serious delinquency rate.

(13) Information labeled as of September 30, 2014 is as of June 30, 2014 and is based on the Federal Reserve’s September 2014 mortgage 

debt outstanding release, the latest date for which the Federal Reserve has estimated mortgage debt outstanding for single-family 

residences. Prior period amounts may have been changed to reflect revised historical data from the Federal Reserve.

(14) Based on Freddie Mac’s Primary Mortgage Market Survey®

rate for the last week in the period, which represents the national average 

mortgage commitment rate to a qualified borrower exclusive of any fees and points required by the lender. 

Pre-tax income decreased in the third quarter of 2014 compared with the third quarter of 2013 primarily due to a decrease in 

credit-related income, which was partially offset by an increase in guaranty fee income and the recognition of net interest 

income in the third quarter of 2014 compared with a net interest loss recognized in the third quarter of 2013. Pre-tax income 

decreased in the first nine months of 2014 compared with the first nine months of 2013 primarily due to a decrease in creditrelated income and the recognition of a net interest loss in the first nine months of 2014 compared with net interest income 

recognized in the first nine months of 2013, partially offset by an increase in guaranty fee income.

Our single-family credit-related income decreased in the third quarter and first nine months of 2014 compared with the third 

quarter and first nine months of 2013 primarily due to home prices increasing at a slower pace in the third quarter and first 

nine months of 2014 as compared with the third quarter and first nine months of 2013. In addition, the third quarter and first 

nine months of 2013 benefited from foreclosed property income primarily due to the recognition of income related to our 

compensatory fee agreement with Bank of America. Our single-family credit-related income represents the substantial 

majority of our consolidated credit-related income reflected on our condensed consolidated statements of operations and 

comprehensive income. See “Consolidated Results of Operations—Credit-Related Income” for more information on the 

drivers of our credit-related income.

Guaranty fee income and our effective guaranty fee rate increased in the third quarter and first nine months of 2014 compared 

with the third quarter and first nine months of 2013 as loans with higher guaranty fees have become a larger part of our 

single-family guaranty book of business due to the cumulative impact of guaranty fee price increases implemented in 2012. 

TCCA fees increased in the third quarter and first nine months of 2014 compared with the third quarter and first nine months 

of 2013, as single-family loans acquired since the implementation of the TCCA-related guaranty fee increase constituted a 

larger portion of our single-family guaranty book of business in the third quarter and first nine months of 2014.

We recognized net interest income in the third quarter of 2014 compared with a net interest loss in the third quarter of 2013 

primarily due to the reduction in the amount of interest income not recognized for nonaccrual mortgage loans as the 

population of delinquent loans declined. We recognized a net interest loss in the first nine months of 2014 compared with net 

interest income in the first nine months of 2013. While there was a decline in the amount of interest income not recognized 

for nonaccrual mortgage loans in the first nine months of 2014 as compared with the first nine months of 2013, during the 

first quarter of 2013 we recognized a significant amount of interest income related to unamortized cost basis adjustments on 

the loans repurchased by Bank of America relating to our resolution agreement with Bank of America.

We recognized a provision for federal income taxes in the first nine months of 2014 compared with a benefit for federal 

income taxes in the first nine months of 2013. The benefit for federal income taxes in the first nine months of 2013 primarily 

represented 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 Single-Family segment.

Our single-family acquisition volume and single-family Fannie Mae MBS issuances decreased significantly in the third 

quarter and first nine months of 2014 compared with the third quarter and first nine months of 2013; however, liquidations of 

loans from our single-family guaranty book of business also declined due to lower refinance activity. Accordingly, the size of 

our single-family guaranty book of business has remained relatively flat. 

Our average charged guaranty fee on newly acquired single-family loans increased in the third quarter and first nine months 

of 2014 compared with the third quarter and first nine months of 2013 primarily as the result of an increase in loan level price 

adjustments charged on our acquisitions in the third quarter and first nine months of 2014, as these acquisitions included a 

higher proportion of loans with higher LTV ratios or lower FICO credit scores than our acquisitions in the third quarter and 

first nine months of 2013. 
33

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”) investments and equity investments. Although we 

are not currently 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, mortgage loans and re-securitizations, and other miscellaneous income.

Table 13 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. Other items that impact income or loss 

primarily include credit-related income (expense) and administrative expenses.
34

Table 13: Multifamily Business Results

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2014 2013 Variance 2014 2013 Variance

(Dollars in millions)

Guaranty fee income(1)

. . . . . . . . . . . . . . . . . $ 332 $ 311 $ 21 $ 960 $ 902 $ 58

Fee and other income . . . . . . . . . . . . . . . . . . 32 26 6 87 115 (28)

Gains from partnership investments(2)

. . . . . 52 121 (69) 131 284 (153)

Credit-related income(3)

. . . . . . . . . . . . . . . . 88 132 (44) 194 349 (155)

Other expenses(4)

. . . . . . . . . . . . . . . . . . . . . (83) (104) 21 (245) (257) 12

Income before federal income taxes . . . . . . 421 486 (65) 1,127 1,393 (266)

(Provision) benefit for federal income 

taxes(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37) (8) (29) (37) 7,970 (8,007)

Net income attributable to Fannie Mae . . . . $ 384 $ 478 $ (94) $ 1,090 $ 9,363 $ (8,273)

Other key performance data:

Securitization Activity/New Business

Multifamily new business volume(6)

. . . . . . $ 9,090 $ 5,810 $ 17,253 $ 21,791

Multifamily units financed from new

business volume . . . . . . . . . . . . . . . . . . . . 124,000 103,000 289,000 386,000

Multifamily Fannie Mae MBS issuances(7)

. $ 9,689 $ 6,373 $ 20,087 $ 23,648

Multifamily Fannie Mae structured

securities issuances (issued by Capital

Markets group). . . . . . . . . . . . . . . . . . . . . $ 3,074 $ 1,671 $ 9,497 $ 7,879

Multifamily Fannie Mae MBS outstanding, 

at end of period(8)

. . . . . . . . . . . . . . . . . . . $ 159,707 $ 143,224 $ 159,707 $ 143,224

Credit Guaranty Activity

Average multifamily guaranty book of 

business(9)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 198,888 $ 204,601 $ 199,358 $ 205,200

Multifamily effective guaranty fee rate (in 

basis points)(10)

. . . . . . . . . . . . . . . . . . . . . 66.8 60.8 64.2 58.6

Multifamily credit loss ratio (in basis 

points)(11)

. . . . . . . . . . . . . . . . . . . . . . . . . . (3.8) 11.5 (2.7) 7.6

Multifamily serious delinquency rate, at

end of period. . . . . . . . . . . . . . . . . . . . . . . 0.09 % 0.18 % 0.09 % 0.18 %

Percentage of multifamily guaranty book

of business with credit enhancement, at

end of period. . . . . . . . . . . . . . . . . . . . . . . 92 % 91 % 92 % 91 %

Fannie Mae percentage of total multifamily 

mortgage debt outstanding, at end of 

period(12)

. . . . . . . . . . . . . . . . . . . . . . . . . . 19 % 20 % 19 % 20 %

Portfolio Data

Additional net interest income earned on 

Fannie Mae multifamily mortgage loans 

and MBS (included in Capital Markets 

group’s results)(13)

. . . . . . . . . . . . . . . . . . . $ 120 $ 167 $ 377 $ 543

Average Fannie Mae multifamily mortgage 

loans and Fannie Mae MBS in Capital 

Markets group’s portfolio(14)

. . . . . . . . . . $ 46,930 $ 70,629 $ 51,578 $ 78,328

__________

(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.
35

(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 income (expense).

(4) Consists of net interest loss, investment gains, net, administrative expenses and other income (expenses).

(5) The benefit for the first nine months of 2013 primarily represented 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) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued (excluding portfolio securitizations) and multifamily loans 

purchased during the period.

(7) 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 $597 million and $632 million for the three months ended September 30, 2014

and 2013, respectively, and $2.9 billion and $2.1 billion for the nine months ended September 30, 2014 and 2013, respectively, and 

(c) conversions of adjustable-rate loans to fixed-rate loans and discount MBS (“DMBS”) to MBS of $3 million and $24 million for the 

three months ended September 30, 2014 and 2013, respectively, and $3 million and $68 million for the nine months ended 

September 30, 2014 and 2013, respectively. 

(8) Includes $18.8 billion and $23.5 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, 2014 and 2013, respectively, 

and $1.2 billion of Fannie Mae MBS collateralized by bonds issued by state and local housing finance agencies as of September 30, 

2014 and 2013.

(9) Our Multifamily guaranty book of business consists of (a) multifamily mortgage loans of Fannie Mae, (b) multifamily mortgage loans 

underlying Fannie Mae MBS, and (c) other credit enhancements that we provide on multifamily mortgage assets. It excludes nonFannie Mae mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty.

(10) Calculated based on annualized Multifamily segment guaranty fee income divided by the average multifamily guaranty book of 

business, expressed in basis points.

(11) Calculated based on annualized Multifamily segment credit losses divided by the average multifamily guaranty book of business, 

expressed in basis points. Negative credit losses are the result of recoveries on previously charged-off amounts.

(12) Includes mortgage loans and Fannie Mae MBS guaranteed by the Multifamily segment. Information labeled as of September 30, 2014

is as of June 30, 2014 and is based on the Federal Reserve’s September 2014 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.

(13) 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 our retained mortgage portfolio.

(14) Based on unpaid principal balance.

Pre-tax income decreased in the third quarter and first nine months of 2014 compared with the third quarter and first nine 

months of 2013 primarily due to decreases in credit-related income and gains on partnership investments, partially offset by 

an increase in guaranty fee income. 

Credit-related income decreased in the third quarter and first nine months of 2014 compared with the third quarter and first 

nine months of 2013 primarily as a result of smaller improvements in both defaults and property valuations.

Guaranty fee income increased in the third quarter and first nine months of 2014 compared with the third quarter and first 

nine months of 2013 as 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.

Gains from partnership investments decreased in the third quarter and first nine months of 2014 compared with the third 

quarter and first nine months of 2013 primarily as a result of lower sales activity.

We recognized a provision for federal income taxes in the first nine months of 2014 compared with a benefit for federal

income taxes in the first nine months of 2013. The benefit for federal income taxes in the first nine months of 2013 primarily 

represented 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. 

Capital Markets Group Results

Table 14 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 retained 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, 
36

see “Risk Management—Market Risk Management, Including Interest Rate Risk Management—Measurement of Interest 

Rate Risk” in our 2013 Form 10-K and “Note 9, Derivative Instruments” in this report and our 2013 Form 10-K. The primary 

sources of revenue for our Capital Markets group are net interest income and fee and other income. Other items that impact 

income or loss primarily include fair value gains and losses, investment gains and losses, other-than-temporary impairments, 

allocated guaranty fee expense and administrative expenses.

Table 14: Capital Markets Group Results(1)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2014 2013 Variance 2014 2013 Variance

(Dollars in millions)

Net interest income(2)

. . . . . . . . . . . . . . . . $ 1,845 $ 2,311 $ (466) $ 5,592 $ 7,733 $ (2,141)

Investment gains, net(3)

. . . . . . . . . . . . . . . 1,516 1,590 (74) 4,500 3,837 663

Fair value (losses) gains, net(4)

. . . . . . . . . (335) 371 (706) (2,770) 2,087 (4,857)

Fee and other income . . . . . . . . . . . . . . . . 579 525 54 4,848 1,129 3,719

Other expenses(5)

. . . . . . . . . . . . . . . . . . . . (410) (402) (8) (1,315) (1,271) (44)

Income before federal income taxes . . . . . 3,195 4,395 (1,200) 10,855 13,515 (2,660)

(Provision) benefit for federal income 

taxes(6)

. . . . . . . . . . . . . . . . . . . . . . . . . . (913) (596) (317) (3,189) 9,484 (12,673)

Net income attributable to Fannie Mae. . . $ 2,282 $ 3,799 $ (1,517) $ 7,666 $ 22,999 $ (15,333)

__________

(1) Certain prior period amounts have been reclassified to conform to our current period presentation.

(2) Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $627 

million and $895 million for the three months ended September 30, 2014 and 2013, respectively, and $2.0 billion and $3.0 billion for 

the nine months ended September 30, 2014 and 2013, 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.

(3) 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.

(4) Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been 

consolidated.

(5) Includes allocated guaranty fee expense, debt extinguishment (losses) gains, net, administrative expenses, net other-than-temporary 

impairments 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.

(6) The benefit for the nine months of 2013 primarily represented 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 decreased in the third quarter and first nine months of 2014 compared with the third quarter and first nine 

months of 2013 primarily due to the recognition of fair value losses in the third quarter and first nine months of 2014 

compared with fair value gains recognized in the third quarter and first nine months of 2013 and a decrease in net interest 

income. The decrease in pre-tax income in the first nine months of 2014 compared with the first nine months of 2013 was 

partially offset by increases in fee and other income and investment gains. 

Fair value losses in the third quarter and first nine months of 2014 were primarily due to fair value losses on our risk 

management derivatives. The derivatives fair value gains and losses that are reported for the Capital Markets group are 

consistent with the gains and losses reported in our condensed consolidated statements of operations and comprehensive 

income. We discuss our derivatives fair value gains and losses in “Consolidated Results of Operations—Fair Value (Losses) 

Gains, Net.”

The decrease in net interest income in the third quarter and first nine months of 2014 compared with the third quarter and first 

nine months of 2013 was primarily due to a decline in the average balance of our retained mortgage portfolio as we continued 

to reduce this portfolio pursuant to the requirements of our senior preferred stock purchase agreement with Treasury.

We supplement our issuance of debt securities with derivative instruments to further reduce interest rate risk. The effect of 

these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, is not reflected in the Capital 
37

Markets group’s net interest income but is included in our results as a component of “Fair value (losses) gains, net” and is 

displayed in “Table 6: Fair Value (Losses) Gains, Net.”

Fee and other income increased in the first nine months of 2014 compared with the first nine months of 2013, primarily as a 

result of $4.8 billion recognized as income in the first nine months of 2014 compared with $561 million in the first nine 

months of 2013, both resulting from settlement agreements resolving certain lawsuits relating to PLS sold to us. See “Legal 

Proceedings—FHFA Private-Label Mortgage-Related Securities Litigation” for additional information.

Investment gains increased in the first nine months of 2014 compared with the first nine months of 2013 primarily due to 

higher gains on the sale of Fannie Mae MBS AFS securities as a result of a decline in interest rates in the first nine months of 

2014. During the first nine months of 2013, we had lower gains on the sale of Fannie Mae MBS AFS securities due to an 

increase in interest rates in the first nine months of 2013.

We recognized a provision for federal income taxes in the first nine months of 2014 compared with a benefit for federal 

income taxes in the first nine months of 2013. The benefit for federal income taxes in the first nine months of 2013 primarily 

represented 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.

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 in 2018. Under the agreement, the maximum allowable amount of mortgage assets 

we are permitted to own as of December 31, 2014 is $469.6 billion. 

FHFA’s 2014 conservatorship scorecard required us to submit a portfolio plan to FHFA outlining how we will meet, even 

under adverse conditions, the reductions in our portfolio required by our senior preferred stock purchase agreement with 

Treasury. We initially submitted this plan to FHFA in July 2014. In October 2014, FHFA requested that we revise our plan to 

cap the portfolio each year at 90% of the annual limit under our senior preferred stock purchase agreement with Treasury. 

FHFA’s request noted that we may seek FHFA permission to increase this cap to 95% of the annual limit under our senior 

preferred stock purchase agreement with Treasury upon written request and with a documented basis for exception, such as 

changed market conditions. We submitted a revised portfolio plan to FHFA in October 2014 that complies with FHFA’s 

request to cap our portfolio at 90% of the annual limit under our senior preferred stock purchase agreement with Treasury. 

Accordingly, under our revised portfolio plan, we plan to reduce our mortgage portfolio to no more than $422.7 billion as of 

December 31, 2014, in compliance with both our senior preferred stock purchase agreement with Treasury and FHFA’s 

request.

As we reduce the size of our retained mortgage portfolio, our revenues generated by our retained mortgage portfolio will 

decrease. As of September 30, 2014, we owned $438.1 billion in mortgage assets, compared with $490.7 billion as of 

December 31, 2013. For additional information on the terms of the senior preferred stock purchase agreement with Treasury, 

see “Business—Conservatorship and Treasury Agreements—Treasury Agreements” in our 2013 Form 10-K.
38

Table 15 displays our Capital Markets group’s mortgage portfolio activity for the periods indicated.

Table 15: Capital Markets Group’s Mortgage Portfolio Activity(1)

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2014 2013 2014 2013

(Dollars in millions)

Mortgage loans:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 298,683 $ 343,742 $ 314,664 $ 371,708

Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,021 51,882 109,267 191,813

Securitizations(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,481) (48,966) (92,622) (170,513)

Liquidations and sales(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,680) (18,253) (38,766) (64,603)

Mortgage loans, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,543 328,405 292,543 328,405

Mortgage securities:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,089 221,456 176,037 261,346

Purchases(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,818 8,259 16,864 27,443

Securitizations(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,481 48,966 92,622 170,513

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,992) (78,299) (119,079) (229,359)

Liquidations(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,839) (12,528) (20,887) (42,089)

Mortgage securities, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,557 187,854 145,557 187,854

Total Capital Markets group’s mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . $ 438,100 $ 516,259 $ 438,100 $ 516,259

__________

(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, and lender repurchases. 

(4) Includes purchases of Fannie Mae MBS issued by consolidated trusts.
39

Table 16 displays the composition of the Capital Markets group’s mortgage portfolio as of September 30, 2014 and 

December 31, 2013. 

Table 16: Capital Markets Group’s Mortgage Portfolio Composition(1)

As of

September 30, December 31,

2014 2013

(Dollars in millions)

Capital Markets group’s mortgage loans:

Single-family loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,140 $ 39,399

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209,797 215,945

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,014 8,385

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,664 13,171

Total single-family conventional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,475 237,501

Total single-family loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,615 276,900

Multifamily loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 267

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,006 2,687

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,213 27,325

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,461 7,485

Total multifamily conventional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,680 37,497

Total multifamily loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,928 37,764

Total Capital Markets group’s mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,543 314,664

Capital Markets group’s mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,460 129,841

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,767 8,124

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740 899

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,612 11,153

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,214 12,322

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,758 3,983

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,873 6,319

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,133 3,396

Total Capital Markets group’s mortgage-related securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,557 176,037

Total Capital Markets group’s mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 438,100 $ 490,701

__________

(1) Based on unpaid principal balance.

(2) The fair value of these mortgage-related securities was $151.8 billion as of September 30, 2014 and $179.5 billion as of December 31, 

2013.

The Capital Markets group’s mortgage portfolio decreased as of September 30, 2014 compared with December 31, 2013, 

primarily due to sales and liquidations outpacing purchases in the first nine months of 2014. Purchase activity declined in the 

first nine months of 2014 compared with the first nine months of 2013 primarily due to fewer loan purchases as a result of 

lower origination volume driven by higher mortgage interest rates in 2014 compared with 2013. We continue to reduce the 

size of our retained mortgage portfolio to comply with the requirement of our senior preferred stock purchase agreement with 

Treasury.
40

The loans we purchased in the first nine months of 2014 included $13.8 billion in delinquent loans we purchased from our 

single-family MBS trusts. As a result of purchasing delinquent loans from MBS trusts as they become four or more 

consecutive monthly payments delinquent and decreasing our retained mortgage portfolio 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 loans restructured in a TDR and nonaccrual loans. Table 17 displays the composition of loans restructured in a 

TDR that were on accrual status, loans on nonaccrual status and all other mortgage-related assets in our Capital Markets 

group’s mortgage portfolio as of September 30, 2014 and December 31, 2013.

Table 17: Capital Markets Group’s Mortgage Portfolio

As of

September 30, 2014 December 31, 2013

Unpaid

Principal

Balance

Percent

of total

Unpaid

Principal

Balance

Percent

of total

(Dollars in millions)

TDRs on accrual status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,470 32% $136,237 28%

Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,357 14 75,006 15

All other mortgage-related assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,273 54 279,458 57

Total Capital Markets group’s mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . $438,100 100% $490,701 100%

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. 
41

Table 18 displays a summary of our condensed consolidated balance sheets as of the dates indicated.

Table 18: Summary of Condensed Consolidated Balance Sheets

As of

September 30,

2014

December 31,

2013 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,779 $ 58,203 $ (12,424)

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,518 28,995 (477)

Investments in securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,943 68,939 (5,996)

Mortgage loans:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,305 300,508 (21,203)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767,829 2,769,578 (1,749)

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,931) (43,846) 6,915

Mortgage loans, net of allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . 3,010,203 3,026,240 (16,037)

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,757 47,560 (4,803)

Other assets(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,116 40,171 (55)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,230,316 $ 3,270,108 $ (39,792)

Liabilities and equity

Debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 474,952 $ 529,434 $ (54,482)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,726,528 2,705,089 21,439

Other liabilities(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,437 25,994 (3,557)

Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,223,917 3,260,517 (36,600)

Total equity(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,399 9,591 (3,192)

Total liabilities and equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,230,316 $ 3,270,108 $ (39,792)

__________

(1) Includes $17.8 billion as of September 30, 2014 and $16.3 billion as of December 31, 2013 of non-mortgage-related securities that are 

included in our other investments portfolio, which we present in “Table 26: 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.

(4) Consists of senior preferred stock, 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.
42

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. Table 19 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 PLS as Alt-A, subprime or 

CMBS 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 (which we refer to as “wraps”).

Table 19: Summary of Mortgage-Related Securities at Fair Value

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,227 $12,443

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,312 8,681

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821 995

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,304 8,865

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,702 8,516

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,017 4,324

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,959 5,821

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,844 2,988

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,186 $52,633

The decrease in mortgage-related securities at fair value from December 31, 2013 to September 30, 2014 was primarily 

driven by a decrease in PLS due to the sale of certain PLS as a result of our settlement agreements in the first nine months of 

2014, in addition to the sale of other PLS and agency securities during the first nine months of 2014.

Mortgage Loans

The decrease in mortgage loans from December 31, 2013 to September 30, 2014 was primarily due to liquidations outpacing 

acquisition volumes. 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.” 

The decrease in our allowance for loan losses from December 31, 2013 to September 30, 2014 was primarily due to the 

recognition of a benefit for credit losses in the first nine months of 2014 and a decline in the number of seriously delinquent 

single-family loans. The number of our seriously delinquent single-family loans declined 19% to approximately 341,000 as 

of September 30, 2014 from approximately 419,000 as of December 31, 2013. The reduction in the number of delinquent 

loans was due to home retention solutions, foreclosure alternatives and completed foreclosures. For information on our 

benefit for credit losses, see “Consolidated Results of Operations—Credit-Related Income—Benefit for Credit Losses.”

Debt 

Debt of Fannie Mae is the primary means of funding our mortgage investments. The decrease in debt of Fannie Mae from 

December 31, 2013 to September 30, 2014 was primarily driven by lower funding needs. 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 from December 31, 2013 to September 30, 2014 was primarily 

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

consolidated balance sheets, since the MBS certificate ownership is transferred from us to a third party.
43

Total Equity

Total equity decreased as of September 30, 2014 compared with December 31, 2013 due to our payment of senior preferred 

stock dividends to Treasury during the first nine months of 2014, partially offset by comprehensive income recognized during 

the first nine months of 2014. 

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 20 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, 2014. 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.”

Table 20: Comparative Measures—GAAP Change in Stockholders’ Equity and Non-GAAP Change in Fair Value of 

Net Assets

For the Nine Months

Ended September 30, 2014

(Dollars in millions)

GAAP condensed consolidated balance sheets:

Fannie Mae stockholders’ equity as of December 31, 2013(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,541

Total comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,409

Senior preferred stock dividend paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,594)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)

Fannie Mae stockholders’ equity as of September 30, 2014(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,349

Non-GAAP consolidated fair value balance sheets:

Estimated fair value of net assets as of December 31, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (33,368)

Senior preferred stock dividends paid on June 28 and September 30, 2014. . . . . . . . . . . . . . . . . . . . (9,404)

Senior preferred stock dividends payable(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,999)

Change in estimated fair value of net assets excluding the senior preferred stock dividend . . . . . . . 30,393

Increase in estimated fair value of net assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,990

Estimated fair value of net assets as of September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,378)

__________

(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 we expect to pay Treasury in the fourth quarter of 2014 on the senior preferred stock, which, for purposes of 

our non-GAAP fair value balance sheets, we present as a liability. Under the terms of the senior preferred stock, effective 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 immediately preceding fiscal quarter over an applicable capital reserve amount. The applicable capital reserve amount is $2.4 

billion for all quarterly dividend periods in 2014 and will be reduced by $600 million each year until it reaches zero on January 1, 2018. 

The Director of FHFA directs us to make dividend payments on the senior preferred stock on a quarterly basis.

During the first nine months of 2014, the estimated fair value of our net assets (excluding the senior preferred stock dividend) 

increased by approximately $30 billion. This increase was primarily due to improvement in credit-related items, as well as 

income from the interest spread between our mortgage assets and associated debt and derivatives. The improvement in creditrelated items was primarily driven by an increase in the fair value of nonperforming loans due to improving property values 

and continued limited supply.
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 guaranty obligations on mortgage loans significantly exceeds the projected credit 

losses we would expect to incur, 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 21.
45

Table 21: Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

As of September 30, 2014 As of December 31, 2013

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 . . . . . . . . . . . . . . $ 44,847 $ — $ 44,847 $ 48,223 $ — $ 48,223

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . 29,450 — 29,450 38,975 — 38,975

Trading securities . . . . . . . . . . . . . . . . . . . . . 30,844 — 30,844 30,768 — 30,768

Available-for-sale securities . . . . . . . . . . . . . 32,099 — 32,099 38,171 — 38,171

Mortgage loans:

Mortgage loans held for sale . . . . . . . . . . . 368 6 374 380 — 380

Mortgage loans held for investment, net

of allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . 244,399 4,785 249,184 259,638 (13,758) 245,880

Of consolidated trusts . . . . . . . . . . . . . . 2,765,436 30,803 (2)(3) 2,796,239 2,766,222 (20,080) (2)(3) 2,746,142

Total mortgage loans . . . . . . . . . . . . . . . . . 3,010,203 35,594 3,045,797 (4) 3,026,240 (33,838) 2,992,402 (4)

Advances to lenders . . . . . . . . . . . . . . . . . . . 4,881 (17) 4,864 (5) 3,727 (39) 3,688 (5)

Derivative assets at fair value . . . . . . . . . . . . 1,256 — 1,256 (5) 2,073 — 2,073 (5)

Guaranty assets and buy-ups, net . . . . . . . . . 223 453 676 (5) 267 439 706 (5)

Total financial assets . . . . . . . . . . . . . . . . . 3,153,803 36,030 3,189,833 (6) 3,188,444 (33,438) 3,155,006 (6)

Credit enhancements. . . . . . . . . . . . . . . . . . . 578 558 1,136 (5) 548 984 1,532 (5)

Deferred tax assets, net . . . . . . . . . . . . . . . . . 42,757 — 42,757 (7) 47,560 — 47,560 (7)

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 33,178 (218) 32,960 (5) 33,556 (235) 33,321 (5)

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,230,316 $ 36,370 $ 3,266,686 $ 3,270,108 $ (32,689) $ 3,237,419

Liabilities:

 Short-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . $ 97,399 $ 21 $ 97,420 $ 72,295 $ 9 $ 72,304

Of consolidated trusts. . . . . . . . . . . . . . . . 1,804 — 1,804 2,154 — 2,154

 Long-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 377,553 11,309 388,862 457,139 8,409 465,548

Of consolidated trusts. . . . . . . . . . . . . . . . 2,724,724 44,034 (2) 2,768,758 2,702,935 (5,349) (2) 2,697,586

Derivative liabilities at fair value . . . . . . . . . 443 — 443 (8) 1,469 — 1,469 (8)

Guaranty obligations. . . . . . . . . . . . . . . . . . . 404 1,407 1,811 (8) 485 1,948 2,433 (8)

Total financial liabilities . . . . . . . . . . . . . . 3,202,327 56,771 3,259,098 (6) 3,236,477 5,017 3,241,494 (6)

Senior preferred stock dividend(9)

. . . . . . . . . — 3,999 3,999 — 7,191 7,191

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 21,590 (1,673) 19,917 (8) 24,040 (1,988) 22,052 (8)

Total liabilities. . . . . . . . . . . . . . . . . . . . . . 3,223,917 59,097 3,283,014 3,260,517 10,220 3,270,737

Equity (deficit):

Fannie Mae stockholders’ equity (deficit):

Senior preferred(10)

. . . . . . . . . . . . . . . . . . . . 117,149 — 117,149 117,149 — 117,149

Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,130 (12,373) 6,757 19,130 (13,004) 6,126

Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . (129,930) (10,354) (140,284) (126,738) (29,905) (156,643)

Total Fannie Mae stockholders’ equity

(deficit)/non-GAAP fair value of net

assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,349 $ (22,727) $ (16,378) $ 9,541 $ (42,909) $ (33,368)

Noncontrolling interest. . . . . . . . . . . . . . . 50 — 50 50 — 50

Total equity (deficit). . . . . . . . . . . . . . . . . 6,399 (22,727) (16,328) 9,591 (42,909) (33,318)

Total liabilities and equity (deficit) . . . . . $ 3,230,316 $ 36,370 $ 3,266,686 $ 3,270,108 $ (32,689) $ 3,237,419
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 trust loans is impacted by credit risk, which has no corresponding impact on the consolidated trust debt.

(3) Includes the estimated fair value of our liability to Treasury for TCCA-related guaranty fee payments over the expected life of the 

loans.

(4) Performing loans had a fair value and an unpaid principal balance of $2.9 trillion as of September 30, 2014 and as of December 31, 

2013. 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 $99.4 billion and an unpaid principal balance of $127.1 billion as of September 30, 2014, 

compared with a fair value of $103.8 billion and an unpaid principal balance of $149.3 billion as of December 31, 2013. See “Note 16, 

Fair Value” for additional information on valuation techniques for performing and nonperforming loans.

(5) “Other assets” include (a) Accrued interest receivable, net and (b) Acquired property, net as reported in our GAAP consolidated balance 

sheets. “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 $6.9 billion and $6.6 billion as of September 30, 2014 and December 31, 2013, respectively. 

(6) We estimated the fair value of these financial instruments in accordance with the fair value accounting guidance as described in “Note 

16, Fair Value.”

(7) The amount included in “estimated fair value” of deferred tax assets, net represents the GAAP carrying value and does not reflect fair 

value.

(8) “Other liabilities” include Accrued interest payable as reported in our GAAP consolidated 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 $847 million and $2.0 billion as of September 30, 2014 and December 31, 2013, respectively. 

(9) Represents the dividend we expect to pay to Treasury in the subsequent quarter on the senior preferred stock, which, for purposes of our 

non-GAAP fair value balance sheets, we present as a liability.

(10) 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.

LIQUIDITY AND CAPITAL MANAGEMENT

Liquidity Management

Our business activities require that we maintain adequate liquidity to fund our operations. Liquidity risk is the risk that we 

will not be able to meet our funding obligations in a timely manner. Our liquidity risk management framework is designed to 

address our liquidity risk. Liquidity risk management involves forecasting funding requirements, maintaining sufficient 

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 hold a portfolio 

of highly liquid investments and maintain access to alternative sources of liquidity which are designed to provide near term 

availability of cash in the event that our access to the debt markets becomes limited. 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 in our circumstances.

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.

This section supplements and updates information regarding liquidity risk management contained in our 2013 Form 10-K. 

See “MD&A—Liquidity and Capital Management—Liquidity Management” and “Risk Factors” in our 2013 Form 10-K for 

additional information, including discussions of our primary sources and uses of funds, our liquidity risk management 
47

practices and liquidity contingency planning, factors that influence our debt funding activity, factors that may impact our 

access to or the cost of our debt funding, and factors that could adversely affect our liquidity. 

Debt Funding

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 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 $469.6 billion by 

December 31, 2014 and, by December 31 of each year thereafter, to 85% of the maximum allowable amount that we were 

permitted to own under the senior preferred stock purchase agreement as of December 31 of the immediately preceding 

calendar year, until the amount of our mortgage assets reaches $250 billion. In October 2014, FHFA requested that we further 

cap our portfolio each year at 90% of the annual limit under our senior preferred stock purchase agreement with Treasury. See 

“Business Segment Results—Capital Markets Group Results—The Capital Markets Group’s Mortgage Portfolio” for more 

information about FHFA’s request.

Fannie Mae Debt Funding Activity

Table 22 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.

Table 22: Activity in Debt of Fannie Mae

For the Three Months 

Ended September 30,

For the Nine Months

Ended September 30,

2014 2013 2014 2013

(Dollars in millions)

Issued during the period:

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,584 $ 50,759 $161,296 $182,624

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.10% 0.07% 0.08% 0.11%

Long-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,821 $ 24,164 $ 31,981 $125,461

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.00% 1.18% 1.90% 1.05%

Total issued:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,405 $ 74,923 $193,277 $308,085

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.52% 0.43% 0.38% 0.49%

Paid off during the period:(1)

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,098 $ 75,755 $136,196 $210,015

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.09% 0.11% 0.09% 0.13%

Long-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,793 $ 37,551 $112,192 $149,511

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.85% 1.52% 1.80% 1.82%

Total paid off:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,891 $ 113,306 $248,388 $359,526

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.65% 0.58% 0.86% 0.83%
48

__________

(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 first nine months of 2014 compared with the first nine months of 2013 primarily due to 

lower funding needs as our retained mortgage portfolio decreased. Redemptions of callable debt decreased during the first 

nine months of 2014 compared with the first nine months of 2013 due to higher interest rates.

Outstanding Debt

Total outstanding debt of Fannie Mae includes short-term and long-term debt, excluding debt of consolidated trusts. Shortterm debt of Fannie Mae consists of borrowings with an original contractual maturity of one year or less and, therefore, does 

not include the current portion of long-term debt. Long-term debt of Fannie Mae consists of borrowings with an original 

contractual maturity of greater than one year.

Our outstanding short-term debt, as a percentage of our total outstanding debt, was 21% as of September 30, 2014 compared 

with 14% as of December 31, 2013. The weighted-average interest rate on our long-term debt increased to 2.22% as of 

September 30, 2014 from 2.14% as of December 31, 2013.

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 $663.0 billion in 2014. As of September 30, 

2014, our aggregate indebtedness totaled $479.0 billion, which was $184.0 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.
49

Table 23 displays information as of the dates indicated on our outstanding short-term and long-term debt based on its original 

contractual terms. 

Table 23: Outstanding Short-Term Borrowings and Long-Term Debt(1)

As of

September 30, 2014 December 31, 2013

Maturities Outstanding

WeightedAverage

Interest

Rate Maturities Outstanding

WeightedAverage

Interest

Rate

(Dollars in millions)

Short-term debt:

Fixed-rate:

Discount notes . . . . . . . . . . . . . . . . . . — $ 97,399 0.10% — $ 71,933 0.12%

Foreign exchange discount notes. . . . — — — — 362 1.07

Total short-term debt of Fannie Mae. . . . . . . 97,399 0.10 72,295 0.13

Debt of consolidated trusts . . . . . . . . . . . — 1,804 0.11 — 2,154 0.09

Total short-term debt . . . . . . . . . . . . . . . . . . . $ 99,203 0.10% $ 74,449 0.13%

Long-term debt:

Senior fixed:

Benchmark notes and bonds . . . . . . . 2014 - 2030 $ 188,002 2.41% 2014 - 2030 $ 212,234 2.45%

Medium-term notes(2)

. . . . . . . . . . . . . 2014 - 2024 125,106 1.38 2014 - 2023 161,445 1.28

Foreign exchange notes and bonds . . 2021 - 2028 644 5.23 2021 - 2028 682 5.41

Other . . . . . . . . . . . . . . . . . . . . . . . . . 2014 - 2038 33,247 4.61 2014 - 2038 38,444 (3) 4.99

Total senior fixed. . . . . . . . . . . . . 346,999 2.25 412,805 2.24

Senior floating:

Medium-term notes(2)

. . . . . . . . . . . . . 2014 - 2019 21,374 0.17 2014 - 2019 38,441 0.20

Other(3)(4)

. . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 5,204 2.90 2020 - 2037 955 5.18

Total senior floating. . . . . . . . . . . 26,578 0.70 39,396 0.32

Subordinated fixed:

Qualifying subordinated . . . . . . . . . . — — — 2014 1,169 5.27

Subordinated debentures. . . . . . . . . . 2019 3,760 9.92 2019 3,507 9.92

Total subordinated fixed . . . . . . . 3,760 9.92 4,676 8.76

Secured borrowings(5)

. . . . . . . . . . . . . . . 2021 - 2022 216 1.89 2021 - 2022 262 1.86

Total long-term debt of Fannie Mae . . . . . . . 377,553 2.22 457,139 2.14

Debt of consolidated trusts(3)

. . . . . . . . . 2014 - 2054 2,724,724 3.10 2014 - 2053 2,702,935 3.26

Total long-term debt . . . . . . . . . . . . . . . . . . . $ 3,102,277 2.99% $ 3,160,074 3.10%

Outstanding callable debt of Fannie Mae(6)

. . $ 126,024 1.70% $ 168,397 1.59%

__________

(1) Outstanding debt amounts and weighted-average interest rates reported in this table include the effects of 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. Reported amounts for total debt of Fannie Mae include unamortized discounts and premiums, other cost basis adjustments and 

fair value adjustments of $4.2 billion and $4.9 billion as of September 30, 2014 and December 31, 2013, respectively. The unpaid 

principal balance of outstanding debt of Fannie Mae, which excludes unamortized discounts and premiums, other cost basis 

adjustments, fair value adjustments and debt of consolidated trusts, totaled $479.1 billion and $534.3 billion as of September 30, 2014

and December 31, 2013, respectively. 

(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 a portion of structured debt instruments that is reported at fair value.

(4) Includes credit risk sharing securities issued under our Connecticut Avenue Securities series, which transfers some of the credit risk on 

our mortgage loans to the investors in these securities.

(5) Represents remaining liability resulting from the transfer of financial assets from our condensed consolidated balance sheets that did 

not qualify as a sale.
50

(6) Consists of the unpaid principal balance 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.

Maturity Profile of Outstanding Debt of Fannie Mae

Table 24 displays the maturity profile, as of September 30, 2014, 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 35% as of 

September 30, 2014 and 31% as of December 31, 2013. The weighted-average maturity of our outstanding debt that is 

maturing within one year was 134 days as of September 30, 2014, compared with 151 days as of December 31, 2013.

Table 24: Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year(1)

________

(1) Includes unamortized discounts and premiums and other cost basis adjustments of $60 million as of September 30, 2014. Excludes debt 

of consolidated trusts maturing within one year of $4.2 billion as of September 30, 2014.

Table 25 displays the maturity profile, as of September 30, 2014, 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 60 months as of September 30, 2014 and approximately 59 months as of December 31, 2013.
51

Table 25: Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year(1)

________

(1) Includes unamortized discounts and premiums, other cost basis adjustments and fair value adjustments of $4.1 billion as of 

September 30, 2014. Excludes debt of consolidated trusts of $2.7 trillion as of September 30, 2014.

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 decreased from December 31, 2013 to September 30, 2014. This decrease was 

primarily driven by lower liquidity needs as our retained mortgage portfolio decreased. 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 26 displays information on the composition of our cash and other investments portfolio as of the dates indicated.

Table 26: Cash and Other Investments Portfolio

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,329 $ 19,228

Federal funds sold and securities purchased under agreements to resell or similar arrangements . 29,450 38,975

U.S. Treasury securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,757 16,306

Total cash and other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,536 $ 74,509

__________

(1) Excludes U.S. Treasury securities that had a maturity at the date of acquisition of three months or less and would therefore be included 

in cash and cash equivalents.
52

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 Ltd. (“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 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” in our 2013 Form 10-K for a discussion of 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.

Table 27 displays the credit ratings issued by the three major credit rating agencies as of October 30, 2014. 

Table 27: Fannie Mae Credit Ratings

As of October 30, 2014

S&P Moody’s Fitch

Long-term senior debt . . . . . . . . . . AA+ Aaa AAA

Short-term senior debt . . . . . . . . . . A-1+ P-1 F1+

Subordinated debt. . . . . . . . . . . . . . AA- Aa2 AAPreferred stock . . . . . . . . . . . . . . . . D Ca C/RR6

Outlook. . . . . . . . . . . . . . . . . . . . . . Stable Stable Stable

(for Long-Term Senior

Debt and Subordinated

Debt)

(for Long-Term Senior

Debt and Preferred Stock)

(for AAA rated Long-Term

Issuer Default Rating)

In March 2014, Fitch removed the Rating Watch Negative that was previously placed on our long-term senior debt, shortterm senior debt, and subordinated debt ratings, following a similar action on the debt ratings of the U.S. government. Fitch 

also affirmed our ‘AAA’ Long-term Issuer Default Ratings (IDRs) and the rating outlook is Stable. 

Cash Flows

Nine Months Ended September 30, 2014. Cash and cash equivalents decreased by $2.9 billion from $19.2 billion as of 

December 31, 2013 to $16.3 billion as of September 30, 2014. The decrease in the balance was primarily driven by cash 

outflows from (1) the redemption of funding debt, which outpaced issuances, due to lower funding needs, (2) the payment of 

dividends to Treasury under our senior preferred stock purchase agreement and (3) the acquisition of delinquent loans out of 

MBS trusts.

Partially offsetting these cash outflows were cash inflows from (1) the sale of Fannie Mae MBS, (2) proceeds from 

repayments of loans of Fannie Mae, (3) the sale of our REO inventory, (4) proceeds from the sale and liquidation of 

mortgage-related securities and (5) proceeds from resolution and settlement agreements related to PLS matters.

Nine Months Ended September 30, 2013. Cash and cash equivalents increased by $9.7 billion from $21.1 billion as of 

December 31, 2012 to $30.8 billion as of September 30, 2013. This increase in the balance was primarily driven by cash 

provided by (1) the sale of Fannie Mae MBS, (2) proceeds from repayments of loans of Fannie Mae, (3) proceeds from the 

sale and liquidation of mortgage-related securities, (4) the sale of our REO inventory and (5) proceeds from resolution and 

settlement agreements related to representation and warranty, compensatory fee, and PLS matters. 

Partially offsetting these cash inflows were cash outflows from (1) the payment of dividends to Treasury under our senior 

preferred stock purchase agreement, (2) payments to redeem debt, which outpaced issuances due to lower funding needs as 

we reduced our retained mortgage portfolio and (3) the acquisition of delinquent loans out of MBS trusts. 

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 our core capital over statutory minimum capital was $139.7 

billion as of September 30, 2014 and $137.3 billion as of December 31, 2013. 
53

Under the terms of the senior preferred stock, 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 amount. Therefore, we do not expect to eliminate our deficit of core capital over statutory 

minimum capital. We expect to pay Treasury a dividend of $4.0 billion by December 31, 2014.

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 significant 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 deficiencies 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, 2014. 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, 2014 and have not received funds from Treasury under the agreement 

since the first quarter of 2012, we will be required to obtain additional funding from Treasury pursuant to the senior preferred 

stock purchase agreement if we have a net worth deficit in future periods. As of the date of this filing, the amount of 

remaining available funding under the senior preferred stock purchase agreement is $117.6 billion. For additional 

information, see “Business—Conservatorship and Treasury Agreements—Treasury Agreements—Senior Preferred Stock 

Purchase Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant—Senior Preferred Stock 

Purchase Agreement” in our 2013 Form 10-K. 

Our third quarter 2014 dividend of $3.7 billion was declared by FHFA and subsequently paid by us on September 30, 2014. 

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 capital reserve amount is $2.4 billion for dividend periods in 2014 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, we expect to pay Treasury a dividend for the fourth quarter of 2014 

of $4.0 billion by December 31, 2014. The Director of FHFA directs us to make dividend payments on the senior preferred 

stock on a quarterly basis.

See “Risk Factors” in our 2013 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 2013 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 $36.1 billion as of September 30, 2014 and $44.3 

billion as of December 31, 2013.

For a description of our off-balance sheet arrangements, see “MD&A—Off-Balance Sheet Arrangements” in our 2013 Form 

10-K.
54

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. In addition to our exposure to credit, market and operational 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—Housing Finance Reform and the Role of the 

GSEs” and “Risk Factors” in this report and in our Second Quarter 2014 Form 10-Q, in “MD&A—Legislative Regulatory 

Developments—Housing Finance Reform” in our First Quarter 2014 Form 10-Q and in “Business—Housing Finance 

Reform” in our 2013 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 human capital, model, legal, regulatory and 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 

primary risks we face and how we manage credit risk, market risk and operational risk, see “MD&A—Risk Management” in 

our 2013 Form 10-K and “Risk Factors” in this report and our 2013 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.

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 28 displays the composition of our mortgage credit book of business as of the dates indicated. Our single-family 

mortgage credit book of business accounted for 93% of our mortgage credit book of business as of September 30, 2014 and 

December 31, 2013. 
55

Table 28: Composition of Mortgage Credit Book of Business(1)

As of

September 30, 2014 December 31, 2013

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Mortgage loans and Fannie Mae MBS(2)

. . . . . . . . . . . $ 2,834,604 $ 184,266 $ 3,018,870 $ 2,862,306 $ 183,891 $ 3,046,197

Unconsolidated Fannie Mae MBS, held by third 

parties(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,034 1,284 13,318 12,430 1,314 13,744

Other credit guarantees(4)

. . . . . . . . . . . . . . . . . . . . . . . 8,146 14,660 22,806 15,183 15,414 30,597

Guaranty book of business . . . . . . . . . . . . . . . . . . . . $ 2,854,784 $ 200,210 $ 3,054,994 $ 2,889,919 $ 200,619 $ 3,090,538

Agency mortgage-related securities(5)

. . . . . . . . . . . . . 7,489 19 7,508 8,992 32 9,024

Other mortgage-related securities(6)

. . . . . . . . . . . . . . . 21,272 8,318 29,590 27,563 9,640 37,203

Mortgage credit book of business . . . . . . . . . . . . . . $ 2,883,545 $ 208,547 $ 3,092,092 $ 2,926,474 $ 210,291 $ 3,136,765

Guaranty Book of Business Detail:

Conventional Guaranty Book of Business(7)

. . . . . . $ 2,796,303 $ 198,595 $ 2,994,898 $ 2,827,169 $ 198,906 $ 3,026,075

Government Guaranty Book of Business(8)

. . . . . . . $ 58,481 $ 1,615 $ 60,096 $ 62,750 $ 1,713 $ 64,463

__________

(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, 2014 and December 31, 2013. 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 2013 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 expense or credit losses. We provide 

information on our credit-related income (expense) and credit losses in “Consolidated Results of Operations—Credit-Related 

Income.” For information on how we evaluate and factors that affect our single-family mortgage credit risk, see “MD&A—

Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management” in our 2013 Form 10-K. 
56

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.

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

Our Single-Family business, with the oversight of our Enterprise Risk Management division, is responsible for pricing and 

managing credit risk relating to the portion of our single-family mortgage credit book of business consisting of single-family 

mortgage loans and Fannie Mae MBS backed by single-family mortgage loans (whether held in our portfolio or held by third 

parties). Desktop Underwriter®, our proprietary automated underwriting system which measures credit risk by assessing the 

primary risk factors of a mortgage, is used to evaluate the majority of the loans we purchase or securitize. For information on 

our single-family acquisition and servicing policies and on our underwriting and servicing standards, see “MD&A—Risk 

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

and Servicing Policies and Underwriting and Servicing Standards” in our 2013 Form 10-K.

Table 29 below displays information regarding the credit characteristics of the loans in our single-family conventional 

guaranty book of business as of September 30, 2014 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. We initiated 

underwriting and eligibility changes that became effective for deliveries in late 2008 and 2009 that focused on strengthening 

our underwriting and eligibility standards to promote sustainable homeownership. 
57

Table 29: Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period

As of September 30, 2014

Percentage

of New Book

% of SingleFamily 

Conventional 

Guaranty Book 

of Business(1)

Current 

Estimated 

Mark-toMarket LTV

Ratio(2)

Current

Estimated

Mark-toMarket LTV

Ratio>100%

Serious 

Delinquency 

Rate(3)

New Single-Family Book of Business:

 HARP(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 % 11 % 86 % 18 % 0.96 %

 Other Refi Plus(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8 50 * 0.35

 Total Refi Plus . . . . . . . . . . . . . . . . . . . . . . . . . . 24 19 71 10 0.65

 Non-Refi Plus(6). . . . . . . . . . . . . . . . . . . . . . . . . . . 76 61 59 * 0.23

Total New Single-Family Book of Business(7). . . . . . 100 % 80 62 3 0.34

Legacy Book of Business:

 2005-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 81 21 8.27

 2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 47 2 3.27

Total Single-Family Book of Business . . . . . . . . . . . 100 % 63 % 5 % 1.96 %

__________

* Represents less than 0.5%

(1) 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 September 30, 2014.

(2) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loans as of the end of the period 

divided by the estimated current value of the properties, 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.

(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, 2014 serious delinquency rates of loans in our legacy book of business. The serious 

delinquency rate as of September 30, 2014 for loans we acquired in 2009, the oldest vintage in our new book of business, was 1.04%.

(4) 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.

(5) Other Refi Plus includes all other Refi Plus loans that are not HARP loans.

(6) Includes other refinancings and home purchase mortgages.

(7) Refers to single-family mortgage loans we have acquired since the beginning of 2009.

As part of our credit risk management process, we review discretionary and random samples of performing loans soon after 

acquisition in order to identify loans that may not have met our underwriting or eligibility requirements. We statistically 

derive an eligibility defect rate from our random reviews, which represents the proportion of loans in the sample population 

with underwriting defects that would make them potentially ineligible for delivery to us. The eligibility defect rate does not 

necessarily indicate how well the loans will ultimately perform. Instead, we use it to estimate the percentage of loans we 

acquired that potentially had a significant error in the underwriting process. 

As of September 30, 2014, the eligibility defect rate for our single-family non-Refi Plus loan acquisitions during the first nine 

months of 2013 was 1.58%. Because of enhancements to the sampling methodology of our random reviews that we 

implemented in 2013, the eligibility defect rate for our 2013 loan acquisitions is not directly comparable to the “significant 

findings rate” we reported on our acquisitions in prior periods. We continue to work with lenders to reduce the number of 

defects identified. As of September 30, 2014, we have issued repurchase requests on approximately 0.32% of the $612.9 

billion of unpaid principal balance of single-family loans delivered to us in the first nine months of 2013, for which reviews 

have been substantially completed. 

In May 2014, at FHFA’s direction, we and Freddie Mac announced changes to our representation and warranty framework 

effective for conventional loan settlements on or after July 1, 2014. The primary change to the framework includes relaxing 

the 36-month timely payment history requirement for relief from certain selling representations and warranties to permit two 

instances of 30-day delinquency. These loans may also qualify for relief from certain selling representations and warranties 

after a satisfactory conclusion of a quality control review. We continue to work with FHFA to identify opportunities to 

enhance our framework, providing the mortgage finance industry with more certainty and transparency regarding selling 

representation and warranty obligations. For example, in the fourth quarter of 2014, we expect to make revisions to certain 
58

life-of-loan exclusions currently included in our representation and warranty framework. For a description of the changes in 

our quality control process and our representation and warranty framework, see “MD&A—Risk Management—Credit Risk 

Management—Single-Family Mortgage Credit Risk Management—Single-Family Acquisition and Servicing Policies and 

Underwriting and Servicing Standards” in our 2013 Form 10-K. 

FHFA’s 2014 conservatorship scorecard includes an objective to transact credit risk transfers on single-family mortgages with 

at least $90 billion of unpaid principal balance, adjusted for the amount of credit risk transferred. Our primary method of 

achieving this objective has been through the issuance of our Connecticut Avenue Securities (“CAS”), which transfers some 

of the credit risk associated with losses on the underlying mortgage loans to investors in these securities, in exchange for 

sharing a portion of the guaranty fee payments. During the first nine months of 2014, we issued $4.4 billion in CAS 

securities, transferring some of the credit risk on single-family mortgages with an unpaid principal balance of $168.6 billion. 

Some 2014 transactions include loans with LTV ratios of up to 97% in the reference pool. In addition to our CAS offerings, 

we are also entering into several alternative credit risk transfer transactions related to our 2014 conservatorship scorecard.

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, eligibility and 

underwriting criteria accurately reflect the risk associated with loans we acquire or guarantee. For additional information on 

key loan attributes, see “MD&A—Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk 

Management—Single-Family Portfolio Diversification and Monitoring” in our 2013 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. 
59

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

2014 2013 2014 2013 September 30, 2014 December 31, 2013

Original LTV ratio:(5)

<= 60% . . . . . . . . . . . . . . 15 % 20 % 16 % 23 % 22 % 22 %

60.01% to 70% . . . . . . . . 12 13 12 14 14 15

70.01% to 80% . . . . . . . . 41 36 40 34 38 38

80.01% to 90%(6). . . . . . . 14 11 13 10 10 10

90.01% to 100%(6). . . . . . 17 14 16 11 11 10

100.01% to 125%(6). . . . . 1 4 2 5 3 3

Greater than 125%(6). . . . * 2 1 3 2 2

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

Weighted-average . . . . 77 % 76 % 77 % 75 % 75 % 74 %

Average loan amount. . . . . . . $207,654 $202,769 $200,600 $206,633 $ 160,070 $ 160,357

Estimated mark-to-market 

LTV ratio:(7)

<= 60% . . . . . . . . . . . . . . 43 % 38 %

60.01% to 70% . . . . . . . . 20 19

70.01% to 80% . . . . . . . . 17 19

80.01% to 90% . . . . . . . . 10 11

90.01% to 100% . . . . . . . 5 6

100.01% to 125% . . . . . . . 4 5

Greater than 125%. . . . . . 1 2

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

Weighted-average . . . . 63 % 67 %

Product type:

Fixed-rate:(8)

Long-term . . . . . . . . . . 79 % 76 % 77 % 76 % 74 % 72 %

Intermediate-term . . . . 16 21 18 22 17 18

Interest-only . . . . . . . . — * — * 1 1

Total fixed-rate . . . . 95 97 95 98 92 91

Adjustable-rate:

Interest-only . . . . . . . . * * * * 2 2

Other ARMs . . . . . . . . 5 3 5 2 6 7

Total adjustable-rate 5 3 5 2 8 9

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

Number of property units:

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

2-4 units. . . . . . . . . . . . . . 3 3 3 3 3 3

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

Property type:

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

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

Total. . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %
60

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

2014 2013 2014 2013 September 30, 2014 December 31, 2013

Occupancy type:

Primary residence . . . . . . . 88 % 86 % 87 % 87 % 88 % 88 %

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

Investor . . . . . . . . . . . . . . . 8 10 9 9 8 8

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

FICO credit score at

origination:

< 620(9). . . . . . . . . . . . . . . 1 % 1 % 1 % 1 % 3 % 3 %

620 to < 660 . . . . . . . . . . . 6 4 5 3 5 5

660 to < 700 . . . . . . . . . . . 13 11 14 9 12 12

700 to < 740 . . . . . . . . . . . 21 19 21 18 19 19

>= 740. . . . . . . . . . . . . . . . 59 65 59 69 61 61

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

Weighted-average. . . . . 744 750 743 754 744 744

Loan purpose:

Purchase . . . . . . . . . . . . . . 57 % 38 % 53 % 26 % 30 % 28 %

Cash-out refinance . . . . . . 15 14 15 15 20 21

Other refinance . . . . . . . . . 28 48 32 59 50 51

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

Geographic concentration:(10)

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

Northeast. . . . . . . . . . . . . . 15 17 15 17 19 19

Southeast. . . . . . . . . . . . . . 21 21 21 20 22 22

Southwest . . . . . . . . . . . . . 20 18 20 17 16 16

West . . . . . . . . . . . . . . . . . 29 30 29 32 28 28

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

Origination year:

<= 2004. . . . . . . . . . . . . . . 8 % 9 %

2005 . . . . . . . . . . . . . . . . . 3 4

2006 . . . . . . . . . . . . . . . . . 3 3

2007 . . . . . . . . . . . . . . . . . 4 5

2008 . . . . . . . . . . . . . . . . . 3 3

2009 . . . . . . . . . . . . . . . . . 6 7

2010 . . . . . . . . . . . . . . . . . 9 10

2011 . . . . . . . . . . . . . . . . . 10 11

2012 . . . . . . . . . . . . . . . . . 24 26

2013 . . . . . . . . . . . . . . . . . 22 22

2014 . . . . . . . . . . . . . . . . . 8 —

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

__________

* Represents less than 0.5% of single-family conventional business volume or book of business.

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

Second lien mortgage loans represented less than 0.5% of our single-family conventional guaranty book of business as of 

September 30, 2014 and December 31, 2013. 
61

(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. 

(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, which together 

represented approximately 5% of our single-family conventional guaranty book of business as of September 30, 2014 and 

December 31, 2013. See “Business—Our Charter and Regulation of Our Activities—Charter Act—Loan Standards” and “MD&A—

Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Credit Profile Summary—Jumbo 

Conforming and High-Balance Loans” in our 2013 Form 10-K for information on our 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% as part of our mission to serve the primary mortgage market and provide 

liquidity to the housing finance 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) Loans acquired after 2009 with FICO credit scores below 620 consist primarily of the refinance of existing loans under our Refi Plus 

initiative.

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

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

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

Credit Profile Summary

Overview

Our acquisition of loans with original LTV ratios over 80% increased to 32% in the first nine months of 2014, compared with 

29% in the first nine months of 2013. This increase was primarily due to an increase in our acquisitions of home purchase 

mortgage loans, which increased to 53% in the first nine months of 2014, compared with 26% in the first nine months of 

2013, and a corresponding decline in our acquisitions of refinance loans. Our acquisitions of loans with FICO credit scores at 

origination of 740 or above decreased to 59% in the first nine months of 2014, compared with 69% in the first nine months of 

2013. Our acquisition of loans with FICO credit scores at origination of less than 700 increased to 20% in the first nine 

months of 2014, compared with 13% in the first nine months of 2013. The weighted average FICO credit score at origination 

of our acquisitions decreased to 743 in the first nine months of 2014, compared with 754 in the first nine months of 2013. 

Although our acquisitions in the first nine months of 2014 included a greater proportion of loans with higher LTV ratios or 

lower FICO credit scores compared with our acquisitions in the first nine months of 2013, our acquisitions in the first nine 

months of 2014 continued to have a strong credit profile with a weighted average original LTV ratio of 77% and a weighted 

average FICO credit score of 743. The average original LTV ratio of single-family loans we acquired in the first nine months 

of 2014, excluding HARP loans, was 75%, compared with 102% for HARP loans. The weighted average FICO credit score at 

origination of the single-family mortgage loans we acquired in the first nine months of 2014, excluding HARP loans, was 

746, compared with 704 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, the FHA and the VA, changes in interest rates, the percentage of loan originations 

representing refinancings, our future objectives and activities in support of those objectives, including actions we may take to 

reach additional underserved creditworthy borrowers, 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. In 

addition, if lender customers retain more of the higher-quality loans they originate, it could negatively affect the credit profile 

of our new single-family acquisitions. We discuss our efforts to increase access to mortgage credit for creditworthy borrowers 

in “Executive Summary—Strengthening Our Book of Business—Recently Acquired Single-Family Loans.”
62

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 

refinance their mortgage loans due to a decline in home values. 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. Under HARP, 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. Accordingly, HARP loans have LTV ratios at origination in excess of 80%. HARP loans cannot (1) 

be an adjustable-rate mortgage loan, if the initial fixed period is less than five years; (2) have an interest only feature, which 

permits the payment of interest without a payment of principal; (3) be a balloon mortgage loan; or (4) have the potential for 

negative amortization.

The loans we acquire under HARP have higher LTV ratios than we would otherwise permit, greater than 100% in some cases. 

Under HARP, we were previously authorized to acquire loans only if their current LTV ratios did not exceed 125% for fixedrate 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, borrowers for HARP and Refi Plus loans may also have lower FICO credit scores and may provide less 

documentation than we would otherwise require. As of September 30, 2014, HARP loans, which make up 14% of our new 

single-family book of business, had a weighted average FICO credit score of 732 at origination compared with 754 for loans 

in our new single-family book of business overall. 

Loans we acquire under Refi Plus and HARP 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 have higher risk profiles and higher serious delinquency rates than 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 since the first half of 2013. The percentage 

of our acquisitions that are refinanced loans, including loans acquired under our Refi Plus initiative, which includes HARP, 

has continued to decline. HARP loans constituted approximately 7% of our total single-family acquisitions in the first nine 

months of 2014, compared with approximately 14% of total single-family acquisitions in the first nine months of 2013. 

We expect the volume of refinancings under HARP to continue to decline, due to the increase in interest rates since the first 

half of 2013 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. With the decline in the volume of HARP refinancings, approximately 1% of our total 

single-family conventional business volume for the first nine months of 2014 consisted of HARP refinanced loans with LTV

ratios greater than 125% at the time of acquisition, compared with 3% for the first nine months of 2013. In addition, 

approximately 1% of our single-family conventional guaranty book of business consisted of loans with an estimated mark-tomarket LTV ratio greater than 125% as of September 30, 2014 compared with 3% as of September 30, 2013.

For information on the serious delinquency rates and current mark-to-market LTV ratios as of September 30, 2014 of singlefamily loans we acquired under HARP and Refi Plus, compared with other single-family loans we have acquired, see “Table 

29: Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period.”

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 Table 30: Risk Characteristics of Single-Family Conventional 

Business Volume and Guaranty Book of Business, “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 
63

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 $119.6 billion as of 

September 30, 2014, represented approximately 4% 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 $3.8 billion as 

of September 30, 2014, represented approximately 0.1% of our single-family conventional guaranty book of business.

See “MD&A—Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—SingleFamily Portfolio Diversification and Monitoring” in our 2013 Form 10-K for a discussion of other types of loans, including 

jumbo conforming loans, high balance loans, adjustable-rate mortgages and fixed-rate interest only mortgages.

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, whereby the borrower sells the home for less than the full 

amount owed to Fannie Mae under the mortgage loan. 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 2014, we received net sales proceeds from our short sale transactions equal 

to 71% of the loans’ unpaid principal balance, compared with 66% in the first nine months of 2013.

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 those that back Fannie Mae MBS in the calculation of the single-family delinquency rate. 

Seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. 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.
64

Table 31: Delinquency Status of Single-Family Conventional Loans

As of

September 30,

2014

December 31,

2013

September 30,

2013

Delinquency status:

30 to 59 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.48% 1.64% 1.62%

60 to 89 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.44 0.49 0.49

Seriously delinquent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.96 2.38 2.55

Percentage of seriously delinquent loans that have been delinquent for

more than 180 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71% 73% 74%

Our single-family serious delinquency rate has decreased each quarter since the first quarter of 2010. The decrease in our 

serious delinquency rate is 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. 

Although our single-family serious delinquency rate has decreased, the pace of declines in our single-family serious 

delinquency rate has slowed in recent months and we expect this trend to continue. Our single-family serious delinquency 

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 a number of 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 in certain areas of the country 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 32 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.
65

Table 32: Single-Family Serious Delinquency Rates

As of

September 30, 2014 December 31, 2013 September 30, 2013

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% 1.63% 15% 2.00% 15% 2.17%

Northeast. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.58 19 3.88 19 4.00

Southeast. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.55 22 3.33 22 3.61

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.02 16 1.23 16 1.30

West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 1.05 28 1.40 28 1.57

Total single-family conventional loans . . 100% 1.96% 100% 2.38% 100% 2.55%

Single-family conventional loans:

Credit enhanced(2)

. . . . . . . . . . . . . . . . . . . . . 16% 3.66% 15% 4.75% 15% 5.15%

Non-credit enhanced . . . . . . . . . . . . . . . . . . . 84 1.68 85 2.00 85 2.14

Total single-family conventional loans . . 100% 1.96% 100% 2.38% 100% 2.55%

__________

(1) See footnote 10 to “Table 30: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” 

for states included in each geographic region.

(2) Refers to loans included in an agreement used to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, 

corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to some degree in the 

event of a financial loss.

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 higher share of our 

credit losses. In addition, loans in certain states such as Florida, Illinois, New Jersey and New York have exhibited higher 

than average delinquency rates and/or account for a higher share of our credit losses.

Table 33 displays the serious delinquency rates and estimated mark-to-market LTV ratios for our single-family conventional 

loans with some of these higher-risk characteristics and in some of these higher-risk states as of the dates indicated. We also 

include information for our loans in California, as this state accounts for the largest share of our single-family conventional 

guaranty book of business. The reported categories are not mutually exclusive.
66

Table 33: Single-Family Conventional Serious Delinquent Loan Concentration Analysis

As of

September 30, 2014 December 31, 2013 September 30, 2013

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio(1) 

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio(1) 

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio(1) 

(Dollars in millions)

States:

California . . . . . . . . . . . . . . . . . . . . . 20% 0.73% 54% 20% 0.98% 58% 19% 1.13% 59%

Florida. . . . . . . . . . . . . . . . . . . . . . . . 6 4.87 74 6 6.89 80 6 7.60 82

Illinois. . . . . . . . . . . . . . . . . . . . . . . . 4 2.46 71 4 3.12 76 4 3.44 77

New Jersey . . . . . . . . . . . . . . . . . . . . 4 5.83 67 4 6.25 69 4 6.40 69

New York . . . . . . . . . . . . . . . . . . . . . 5 4.20 58 5 4.42 61 6 4.52 61

All other states . . . . . . . . . . . . . . . . . 61 1.56 65 61 1.85 68 61 1.97 68

Product type:

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . 4 8.03 78 5 9.23 83 5 9.70 84

Subprime . . . . . . . . . . . . . . . . . . . . . . * 15.76 89 * 16.93 95 * 17.42 95

Vintages:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . 3 6.30 73 4 7.26 78 4 7.51 79

2006. . . . . . . . . . . . . . . . . . . . . . . . . . 3 9.81 87 3 11.26 92 4 11.60 93

2007. . . . . . . . . . . . . . . . . . . . . . . . . . 4 10.91 89 5 12.18 94 5 12.48 95

2008. . . . . . . . . . . . . . . . . . . . . . . . . . 3 6.22 73 3 6.69 77 3 6.78 78

All other vintages . . . . . . . . . . . . . . . 87 0.89 61 85 1.02 63 84 1.07 63

Estimated mark-to-market LTV ratio:

Greater than 100%(1). . . . . . . . . . . . . 5 11.19 119 7 12.22 122 8 12.84 123

Select combined risk characteristics:

Original LTV ratio > 90% and FICO

score < 620 . . . . . . . . . . . . . . . . . . . . 1 9.34 98 1 10.90 103 1 11.37 104

__________

* 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.

Loan Workout Metrics

Table 34 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.
67

Table 34: Statistics on Single-Family Loan Workouts

For the Nine Months Ended September 30,

2014 2013

Unpaid

Principal

Balance

Number of

Loans

Unpaid

Principal

Balance

Number of

Loans

(Dollars in millions)

Home retention strategies:

Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,425 96,915 $21,822 120,848

Repayment plans and forbearances completed(1). . . . . . . . . . . . . . 752 5,607 1,331 10,128

Total home retention strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . 17,177 102,522 23,153 130,976

Foreclosure alternatives:

Short sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,866 18,691 7,860 37,247

Deeds-in-lieu of foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,414 8,944 1,917 11,681

Total foreclosure alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,280 27,635 9,777 48,928

Total loan workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,457 130,157 $32,930 179,904

Loan workouts as a percentage of single-family guaranty book of 

business(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05 % 0.99 % 1.53 % 1.36 %

__________

(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 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 2014 decreased compared with the first nine 

months of 2013, primarily due to a decline in the number of delinquent loans in the first nine months of 2014, compared with 

the first nine months of 2013.

During the first nine months of 2014, we initiated approximately 95,500 first time trial modifications, including Home 

Affordable Modification Program (“HAMPSM”) and non-HAMP modifications, compared with approximately 127,000 first 

time trial modifications during the first nine months of 2013. We also initiated other types of workouts, such as repayment 

plans and forbearances.

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. Approximately 56% of our performing loan 

modifications include a reduction in the borrower’s interest rate that is fixed for an initial period and may be followed by one 

or more annual interest rate increases. The majority of these modifications with pending interest rate resets, including HAMP

modifications, will begin to experience interest rate increases in late 2014 through 2015. These interest rate increases could 

adversely affect the performance of these modifications.

We provide information about the post-modification performance of single-family loans we modified in recent years in 

“MD&A—Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Problem 

Loan Management” in our 2013 Form 10-K. More recent performance of our loan modifications has been similar to the 

performance we reported in our 2013 Form 10-K.
68

REO Management

Foreclosure and REO activity affect the amount of credit losses we realize in a given period. Table 35 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 35: Single-Family Foreclosed Properties

For the Nine Months

Ended September 30,

2014 2013

Single-family foreclosed properties (number of properties):

Beginning of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . . . 103,229 105,666

Acquisitions by geographic area:(2)

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,669 30,996

Northeast. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,438 9,825

Southeast. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,956 44,011

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,880 14,718

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,429 12,626

Total properties acquired through foreclosure(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,372 112,176

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102,215) (116,901)

End of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . . . . . . . . . 92,386 100,941

Carrying value of single-family foreclosed properties (dollars in millions)(3)

. . . . . . . . . . . . . . $ 10,209 $ 10,036

Single-family foreclosure rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70 % 0.85 %

__________

(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 10 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 continued decrease in the number of our seriously delinquent single-family loans, as well as lengthy foreclosure 

timelines in a number of states, have resulted in a reduction in the number of REO acquisitions and fewer REO dispositions 

in the first nine months of 2014 as compared with the first nine months 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, which extends 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. Additionally, before we market our foreclosed properties, we may choose to repair them 

in order to maximize the sales price and increase the likelihood that an owner occupant will purchase. The percent of 

properties we repair prior to marketing has increased as a result of market demand and our continued focus on stabilizing 

neighborhoods and increasing opportunities for owner occupants to purchase. 

Table 36 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.
69

Table 36: Single-Family Foreclosed Property Status

Percent of Single-Family

Foreclosed Properties

As of

September 30,

2014

December 31,

2013

Available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 % 33 %

Offer accepted(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 14

Appraisal stage(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 17

Unable to market:

Occupied status(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 10

Redemption status(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9

Properties being repaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9

Rental property(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5

Total unable to market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 36

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.

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 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 consists of large financial institutions and independent mortgage 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 93% of our multifamily guaranty book of business as of September 30, 2014 and December 31, 2013. 

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. 
70

Table 37 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 37: Multifamily Lender Risk-Sharing

As of

September 30,

2014

December 31,

2013

Lender risk-sharing:

DUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83% 80%

Non-DUS negotiated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5

No recourse to the lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 15

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 ratio and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan 

characteristics. Our experience has been that original LTV ratio and DSCR values have been reliable indicators of future 

credit performance.

Table 38 displays original LTV ratios and DSCR values for our multifamily guaranty book of business as of the dates 

indicated. 

Table 38: Multifamily Guaranty Book of Business Key Risk Characteristics

As of

September 30,

2014

December 31,

2013

September 30,

2013

Weighted average original LTV ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 % 66 % 66 %

Original LTV ratio greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 4

Original DSCR less than or equal to 1.10. . . . . . . . . . . . . . . . . . . . . . . . . 8 7 7

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 characteristics 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, 2014

and 4% as of December 31, 2013. Our estimates of current DSCRs are based on the latest available income information for 

these properties. Although we use the most recently available results from our multifamily borrowers, there is a lag in 

reporting, which typically can range from 3 to 6 months but in some cases may be longer. 

Multifamily Problem Loan Management and Foreclosure Prevention

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 at 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.
71

Table 39 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 39: Multifamily Concentration Analysis

As of

September 30, 2014 December 31, 2013 September 30, 2013

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

DUS small balance loans(1)

. . . . . . . . . . . . . . . . . . 8 % 0.14 % 8 % 0.24 % 8 % 0.29 %

DUS non small balance loans(2)

. . . . . . . . . . . . . . 83 0.07 82 0.06 79 0.15

Non-DUS small balance loans(1)

. . . . . . . . . . . . . . 4 0.43 5 0.50 6 0.63

Non-DUS non small balance loans(2)

. . . . . . . . . . 5 0.06 5 0.17 7 0.13

Total multifamily loans. . . . . . . . . . . . . . . . . . . 100 % 0.09 % 100 % 0.10 % 100 % 0.18 %

________

(1) 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. 

(2) 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 multifamily serious delinquency rate decreased from 0.10% as of December 31, 2013 to 0.09% as of September 30, 

2014. The DUS loans in our guaranty book of business have lower delinquency rates when compared with the non-DUS 

loans 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, that were not acquired through our DUS program, continue to represent a 

larger share of delinquencies, but they are generally covered by loss sharing arrangements that limit the credit losses we incur 

and represent a small portion of our book. 

REO Management

Foreclosure and REO activity affect the level of our credit losses. Table 40 displays our held for sale multifamily REO 

activity for the periods indicated. 

Table 40: Multifamily Foreclosed Properties

For the Nine

Months Ended

September 30,

2014 2013

Multifamily foreclosed properties held for sale (number of properties):

Beginning of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . . . . . . . . . 118 128

Total properties acquired through foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 79

Transfers (from) to held for sale(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 43

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63) (92)

End of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 158

Carrying value of multifamily foreclosed properties (dollars in millions). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 430 $ 707

________

(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.”

Institutional Counterparty Credit Risk Management

Institutional counterparty credit risk is the risk that our institutional counterparties may fail to fulfill their contractual 

obligations to us. Defaults by a counterparty with significant obligations to us could result in significant financial losses to us.
72

See “MD&A—Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” and 

“Risk Factors” in our 2013 Form 10-K for additional information about institutional counterparty risk, including counterparty 

risk we face from mortgage originators, investors and dealers, from debt security dealers, from document custodians and 

from mortgage fraud.

Mortgage Sellers and Servicers

One of our primary exposures to institutional counterparty risk is with mortgage servicers that service the loans we hold in 

our retained mortgage portfolio or that back our Fannie Mae MBS, as well as mortgage sellers and servicers that are 

obligated to repurchase loans from us or reimburse us for losses in certain circumstances. We rely on mortgage servicers to 

meet our servicing standards and fulfill their servicing obligations. We also rely on mortgage sellers and servicers to fulfill 

their repurchase obligations.

Our five largest single-family mortgage servicers, including their affiliates, serviced approximately 47% of our single-family 

guaranty book of business as of September 30, 2014, compared with approximately 49% as of December 31, 2013. Our 

largest mortgage servicer is Wells Fargo Bank, N.A., which, together with its affiliates, serviced approximately 18% of our 

single-family guaranty book of business as of September 30, 2014, compared with approximately 19% as of December 31, 

2013. As of September 30, 2014 and December 31, 2013, one additional mortgage servicer, JPMorgan Chase Bank, N.A., 

with its affiliates, serviced over 10% of our single-family guaranty book of business.

We have seen an increasing shift in our servicing book from depository financial institution servicers to non-depository 

servicers. As of September 30, 2014, 13% of our total single-family guaranty book of business, including 32% of our 

delinquent single-family loans, were serviced by our three largest non-depository servicers, compared with 12% of our total 

single-family guaranty book of business, including 31% of our delinquent single-family loans, as of September 30, 2013. 

These three servicers’ growth is due to acquisitions from both depository and other non-depository servicers. The shift from 

depository to non-depository servicers poses additional risks to us because non-depository servicers may have a greater 

reliance on third-party sources of liquidity and may, in the event of significant increases in delinquent loan volumes, have less 

financial capacity to advance funds on our behalf or satisfy repurchase requests or compensatory fee obligations. As with any 

party experiencing such growth, there is increased operational risk, which could negatively impact their ability to effectively 

manage their servicing portfolios. In addition, regulatory bodies such as the Consumer Financial Protection Bureau and/or 

New York State Department of Financial Services have been reviewing the activities of our three largest non-depository 

servicers.

Our ten largest multifamily mortgage servicers, including their affiliates, serviced approximately 66% of our multifamily 

guaranty book of business as of September 30, 2014, compared with approximately 65% as of December 31, 2013. Wells 

Fargo Bank, N.A. serviced over 10% of our multifamily guaranty book of business as of September 30, 2014 and 

December 31, 2013.

We are acquiring a greater portion of our business volume directly from non-depository and smaller depository financial 

institutions, which may not have the same financial strength or operational capacity as our largest mortgage seller 

counterparties. In addition, although a number of our largest single-family mortgage seller counterparties have reduced or 

eliminated their purchases of mortgage loans from mortgage brokers and correspondent lenders, our business with our 

mortgage sellers remains concentrated. We could be required to absorb losses on defaulted loans that a failed mortgage seller 

is obligated to repurchase from us if we determine there was an underwriting or eligibility breach. See “Risk Factors” in our 

2013 Form 10-K for more information on the impact to our business due to changes in the mortgage industry.

Our five largest single-family mortgage sellers, including their affiliates, accounted for approximately 33% of our singlefamily business acquisition volume in the first nine months of 2014, compared with approximately 43% in the first nine 

months of 2013. Our largest mortgage seller is Wells Fargo Bank, N.A., which, together with its affiliates, accounted for 

approximately 13% of our single-family business acquisition volume in the first nine months of 2014, compared with 

approximately 20% in the first nine months of 2013.

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 and/or servicers are obligated 

to either repurchase the loan or foreclosed property, or reimburse us for our losses. We refer to our demands that mortgage 

sellers and servicers meet these obligations collectively as “repurchase requests.” See “MD&A—Risk Management—Credit 

Risk Management—Institutional Counterparty Credit Risk Management—Mortgage Sellers and Servicers” in our 2013 Form 

10-K for more information on our mortgage sellers and servicers’ repurchase obligations.

Mortgage sellers and 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 
73

mortgage seller or servicer, or a number of mortgage sellers or servicers, to fulfill repurchase obligations to us could result in 

an increase in our credit losses and credit-related expense, and have an 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 an adverse effect on our results of operations or financial condition.

Total outstanding repurchase requests as of September 30, 2014 were $1.0 billion, compared with $1.5 billion as of 

December 31, 2013. The dollar amounts of our outstanding repurchase requests are based on the unpaid principal balance of 

the loans underlying the repurchase request, 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 related 

REO, which is substantially 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 loans. 

Amounts relating to repurchase requests originating from missing documentation or loan files are excluded from the total 

requests outstanding until we receive the missing documentation or loan files and a full underwriting review is completed.

Mortgage Insurers

We are generally required, pursuant to our charter, to obtain credit enhancements 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 

enhancements to manage our single-family mortgage credit risk, including primary and pool mortgage insurance coverage.

Table 41 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, 2014 and 

December 31, 2013. 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, 2014 and 

December 31, 2013.

Table 41: Mortgage Insurance Coverage

Risk in Force(1) Insurance in Force(2)

As of As of

As of September 30, 2014 December 31, As of September 30, 2014 December 31,

Primary Pool Total 2013 Primary Pool Total 2013

(Dollars in millions)

Counterparty:(3)

United Guaranty Residential

Insurance Co. . . . . . . . . . . . . . . . . .

$ 24,228 $ 40 $ 24,268 $ 22,096 $ 94,050 $ 192 $ 94,242 $ 86,936

Radian Guaranty, Inc. . . . . . . . . . . . . . 23,640 110 23,750 22,435 93,396 531 93,927 89,644

Mortgage Guaranty Insurance Corp. . . 21,456 259 21,715 21,000 83,234 1,049 84,283 82,823

Genworth Mortgage Insurance Corp. . 15,141 22 15,163 14,602 60,220 50 60,270 58,475

PMI Mortgage Insurance Co.(4)

. . . . . . 6,142 33 6,175 7,123 24,615 219 24,834 29,034

Essent Guaranty, Inc.. . . . . . . . . . . . . . 5,985 37 6,022 4,394 23,815 1,483 25,298 17,748

Republic Mortgage Insurance Co.(4)

. . 4,871 178 5,049 5,801 19,077 1,559 20,636 23,970

Arch Mortgage Insurance Co.(5)

. . . . . 2,974 — 2,974 2,868 11,976 — 11,976 11,825

Triad Guaranty Insurance Corp.(4)

. . . . 1,486 164 1,650 1,908 5,515 690 6,205 7,523

National Mortgage Insurance Corp. . . 215 93 308 109 902 4,789 5,691 5,142

Others . . . . . . . . . . . . . . . . . . . . . . . . . 184 — 184 180 1,063 — 1,063 1,032

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $106,322 $ 936 $107,258 $ 102,516 $417,863 $10,562 $428,425 $ 414,152

Total as a percentage of single-family

guaranty book of business. . . . . . . . 4 % 4 % 15 % 14 %

__________

(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.
74

(5) In January 2014, we approved the acquisition of CMG Mortgage Insurance Company (“CMG”) and its affiliates by Arch U.S. MI 

Holdings, Inc. CMG has since changed its name to Arch Mortgage Insurance Company in Wisconsin, its state of domicile.

On June 24, 2014, we announced the implementation of new mortgage insurance master primary policies. Loans delivered to 

us with application dates on or after October 1, 2014 that require primary mortgage insurance must be insured under one of 

the new policies. These policies provide the terms of coverage under which loans having LTV ratios greater than 80% are 

insured. Also, these new master policies provide specific timelines for mortgage insurers to review and pay claims, and also 

include terms for when mortgage insurers must sunset certain rescission rights. Finalization of these new policies will help us 

meet one of our 2014 conservatorship scorecard goals.

On July 10, 2014, FHFA posted for public input proposed revisions by Fannie Mae and Freddie Mac to their eligibility 

standards for approved private mortgage insurers. The proposed standards include enhanced financial requirements, including 

risk-based and minimum asset standards and are designed to ensure that mortgage insurers have sufficient liquid assets to pay 

all claims under a hypothetical future stress scenario. The proposed standards also set forth enhanced operational 

performance expectations and define remedial actions that may be imposed should an approved mortgage insurer fail to 

comply with the revised requirements. In addition, Fannie Mae and Freddie Mac have established a framework and timelines 

for existing approved mortgage insurers to come into compliance with the new standards while they continue to insure new 

business eligible for delivery to us. FHFA, along with Fannie Mae and Freddie Mac, are currently reviewing the public input 

provided on the proposed revisions to the eligibility standards for approved private mortgage insurers. 

Although the financial condition of our primary mortgage insurer counterparties currently approved to write new business has 

improved, there is still risk that these counterparties may fail to fulfill their obligations to pay our claims under insurance 

policies. If we determine that it is probable that we will not collect all of our claims from one or more of these mortgage 

insurer counterparties, or if we have already made that determination but 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.

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. 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. These three mortgage insurers provided a combined $12.9 billion, or 12%, of 

our risk in force mortgage insurance coverage of our single-family guaranty book of business as of September 30, 2014. 

Effective March 7, 2014, the terms of PMI’s order regarding its deferred payment arrangements changed to increase its cash 

payments on policyholder claims from 55% to 67%. In addition, PMI has paid us sufficient amounts of its outstanding 

deferred payment obligations to bring payment on our claims to 67%. It is uncertain whether PMI will be permitted in the 

future to pay any remaining deferred policyholder claims or increase or decrease the amount of cash they pay on claims.

Effective July 1, 2014, the terms of RMIC’s order regarding its deferred payment arrangements changed to no longer defer 

payments on policyholder claims and to increase its cash payments from 60% to 100%. In addition, RMIC has paid us 

sufficient amounts of its outstanding deferred payment obligations to bring payment on our claims to 100%. Even though 

RMIC is no longer deferring payments on policyholder claims, RMIC remains in run-off and under the supervisory control of 

the North Carolina Department of Insurance.

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.
75

The following table displays the amount by which our estimated benefit from mortgage insurance as of September 30, 2014

and December 31, 2013 reduced our total loss reserves as of those dates.

Table 42: Estimated Mortgage Insurance Benefit

As of

September 30, 2014 December 31, 2013

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,491 $ 6,751

Less: Collectibility adjustment(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 431

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,205 $ 6,320

__________

(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 held in our retained mortgage portfolio 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 or servicer. We had outstanding receivables of $1.5 

billion as of September 30, 2014 and $2.1 billion as of December 31, 2013 related to amounts claimed on insured, defaulted 

loans excluding government insured loans. Of this amount, $296 million as of September 30, 2014 and $402 million as of 

December 31, 2013 was due from our mortgage sellers or servicers. We assessed the total outstanding receivables for 

collectibility, and they are recorded net of a valuation allowance of $745 million as of September 30, 2014 and $655 million

as of December 31, 2013 in “Other assets” in our condensed consolidated balance sheets. The valuation allowance reduces 

our claim receivable to the amount that we consider probable of collection.

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 43 displays the total unpaid principal balance of guaranteed non-agency securities in our retained mortgage portfolio as 

of September 30, 2014 and December 31, 2013.

Table 43: Unpaid Principal Balance of Financial Guarantees

As of

September 30, 2014 December 31, 2013

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 345 $ 511

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840 868

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,381 3,911

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 264

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,810 $ 5,554

With the exception of Ambac Assurance Corporation (“Ambac”), which is operating under a deferred payment obligation, 

none of our remaining non-governmental financial guarantor counterparties have failed to repay us for claims under guaranty 

contracts. Effective July 21, 2014, the terms of Ambac’s order regarding its deferred payment arrangements changed to 

increase its cash payments on policyholder claims from 25% to 45% and to provide for payment of sufficient amounts of its 

outstanding deferred payment obligations to bring payment on those claims to 45%. Based on the stressed financial condition 

of many of these counterparties, we are expecting full cash payment from half of the non-governmental financial guarantors, 

and we are uncertain of the level of payments we will ultimately receive from the remaining counterparties. Ambac provided 

coverage on $2.2 billion, or 46%, of our total non-governmental financial guarantees as of September 30, 2014. When 

assessing our securities for impairment, we consider the benefit of non-governmental financial guarantees from 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 impairments.
76

We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and 

its agencies that totaled $20.0 billion as of September 30, 2014 and $22.5 billion as of December 31, 2013.

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 $8.8 billion as of September 30, 2014, compared with $10.7 billion as of December 31, 2013. As of 

September 30, 2014, 48% of our maximum potential loss recovery on single-family loans was from three lenders, compared 

with 52% as of December 31, 2013. Our maximum potential loss recovery from lenders under risk sharing agreements on 

DUS and non-DUS multifamily loans was $40.4 billion as of September 30, 2014, compared with $39.4 billion as of 

December 31, 2013. As of September 30, 2014 and December 31, 2013, 32% of our maximum potential loss recovery on 

multifamily loans was from three DUS lenders.

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 47% as of September 30, 2014, compared with 55% as of December 31, 2013. The 

recourse obligations from lender counterparties rated below investment grade was 24% as of September 30, 2014, compared 

with 21% as of December 31, 2013. The percentage of remaining recourse obligations from lender counterparties that were 

not rated by rating agencies was 29% as of September 30, 2014, compared with 24% as of December 31, 2013. 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 above in “Multifamily Mortgage Credit Risk Management—Multifamily Acquisition Policy and Underwriting 

Standards,” our primary multifamily delivery channel is our DUS program, which consists of lenders that range from large 

depositories to independent non-bank financial institutions. As of September 30, 2014, approximately 36% 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 37% as of December 31, 2013. Given the recourse nature of the DUS program, the lenders are 

bound by eligibility standards that dictate, among other 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 $35.2 billion in deposits for single-family payments were received and held by 273 institutions during the month of 

September 2014 and a total of $34.6 billion in deposits for single-family payments were received and held by 284 institutions 

during the month of December 2013. Of these total deposits, 94% as of September 30, 2014 and December 31, 2013, 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 85% of these deposits as of September 30, 

2014, compared with 86% as of December 31, 2013.

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 2014, approximately $2.1 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 $1.7 billion, or 5%, during the month of December 2013. 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.
77

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, 2014, we held $2.0 

billion in short-term unsecured deposits with two financial institutions that had short-term credit ratings of A-1 from S&P (or 

its equivalent), based on the lowest credit rating issued by S&P, Moody’s and Fitch, and no other unsecured positions other 

than U.S. Treasury securities, compared with $1.0 billion at one such institution as of December 31, 2013. 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 regulations implementing the Dodd-Frank Act that became effective June 10, 2013, we are required to 

submit certain categories of new interest rate swaps to a derivatives clearing organization. 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 enforceable 

master netting arrangements. These arrangements allow us to net derivative assets and liabilities with the same counterparty. 

We 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 clearing 

member of the organization. A contract accepted by a derivatives clearing organization is governed by the terms of the 

clearing organization’s rules and arrangements between us and the clearing member of the clearing 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. To the extent we have an enforceable master netting arrangement with our OTC-cleared derivative counterparty, 

we net our exposure to cleared derivatives by clearing organization and by clearing member. 

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 comprise a larger percentage of our derivative instruments. 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. 

The fair value of derivatives in a gain position is included in our condensed consolidated balance sheets in “Other assets.” 

Table 44 below displays our counterparty credit exposure on outstanding risk management derivative instruments in a gain 

position as of September 30, 2014 and December 31, 2013. 
78

Table 44: Credit Loss Exposure of Risk Management Derivative Instruments

As of September 30, 2014

Credit Rating(1)

AA+/

AA/AA- A+/A/ABBB+/BBB/BBB- Subtotal(2)

OTCcleared(3) Other(4) Total

(Dollars in millions)

Credit loss exposure(5). . . . . . . . . . . . . . . $ 18 $ 601 $ — $ 619 $ 4 $ 25 $ 648

Less: Collateral held(6). . . . . . . . . . . . . . 12 601 — 613 1 — 614

Exposure net of collateral. . . . . . . . . . . . $ 6 $ — $ — $ 6 $ 3 $ 25 $ 34

Additional information:

Notional amount . . . . . . . . . . . . . . . . $ 26,465 $ 269,803 $ 36,130 $ 332,398 $ 148,742 $ 96 $ 481,236

Number of counterparties(7). . . . . . . . 4 10 2 16

As of December 31, 2013

Credit Rating(1)

AA+/

AA/AA- A+/A/ABBB+/BBB/BBB- Subtotal(2)

OTCcleared(3) Other(4) Total

(Dollars in millions)

Credit loss exposure(5). . . . . . . . . . . . . . . $ 79 $ 1,008 $ — $ 1,087 $ 1,475 $ 28 $ 2,590

Less: Collateral held(6). . . . . . . . . . . . . . 66 972 — 1,038 1,382 — 2,420

Exposure net of collateral. . . . . . . . . . . . $ 13 $ 36 $ — $ 49 $ 93 $ 28 $ 170

Additional information:

Notional amount . . . . . . . . . . . . . . . . $ 25,005 $ 338,905 $ 78,799 $ 442,709 $ 109,740 $ 281 $ 552,730

Number of counterparties(7). . . . . . . . 4 10 2 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 five counterparties with a notional balance of $108.6 billion as of September 30, 2014 and seven

counterparties with a notional balance of $227.7 billion as of December 31, 2013.

(3) Represents derivative transactions accepted for clearing by a derivatives clearing organization. 

(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. For our risk management derivatives transactions, we net derivative gains and losses with the same 

counterparty where a legal right of offset exists under enforceable master netting arrangements. Credit loss exposure for OTC-cleared 

derivative transactions as of December 31, 2013 does not reflect netting of derivative assets and liabilities where we have enforceable 

master netting arrangements. 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 arrangements to ensure recovery of any loss through the 

disposition of the collateral.

(7) Represents counterparties to OTC derivatives transactions with which we have enforceable master netting arrangements.

OTC derivative transactions with our ten largest counterparties accounted for approximately 63% of our total outstanding 

notional amount of our total derivative transactions as of September 30, 2014, with each of these counterparties accounting 

for between approximately 3% and 12% of that total outstanding notional amount. OTC derivative transactions with our ten

largest counterparties accounted for approximately 74% of our total outstanding notional amount of our total derivative 

transactions as of December 31, 2013, with each of these counterparties accounting for between approximately 3% 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, 2014 and December 31, 2013.
79

Other

We filed claims as a creditor in the bankruptcy case of Lehman Brothers, which filed for bankruptcy in September 2008. In 

January 2014, we resolved our outstanding unsecured bankruptcy claims against Lehman Brothers for an allowed amount of 

$2.15 billion. As of October 2, 2014, we have received distributions totaling $634 million pursuant to the Lehman Brothers 

plan of reorganization, representing approximately 29% of the allowed amount. We may receive additional distributions in 

the future, but under the terms of the Lehman Brothers plan of reorganization, we expect that the total amount we will receive 

will constitute only a portion of the $2.15 billion allowed amount.

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 or basis 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 2013 Form 10-K.

Measurement of Interest Rate Risk

Below we present two quantitative metrics that provide estimates of our interest rate risk exposure: (1) fair value sensitivity 

of our net portfolio to changes in interest rate levels and slope of yield curve; and (2) duration gap. Our net portfolio consists 

of our retained mortgage portfolio assets; cash and other investment portfolio; our outstanding debt of Fannie Mae that is 

used to fund the retained mortgage portfolio assets and cash and other investment portfolio; mortgage commitments and risk 

management derivatives. Risk management derivatives along with our debt instruments are used to manage interest rate risk. 

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 those 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 Web site 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 
80

uncertainty associated with our assets. In a declining interest rate environment, prepayment rates tend to accelerate, thereby 

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 retained mortgage 

portfolio and our investments in non-mortgage securities. As a result, the degree to which the interest rate sensitivity of our 

retained mortgage portfolio and our investments in non-mortgage securities 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.

The market value sensitivities of our net portfolio are a function of both the duration and the convexity of our net portfolio. 

Duration provides a measure of the price sensitivity of a financial instrument to changes in interest rates while 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 may change in different interest rate environments. The market value sensitivity of our net portfolio will 

depend on a number of factors, including the interest rate environment, modeling assumptions and the composition of assets 

and liabilities in our net portfolio, which vary over time. 

The sensitivity measures presented in Table 45, 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.

Results of Interest Rate Sensitivity Measures

Table 45 displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the slope 

of the yield curve as measured on the last day of each period presented. In addition, Table 45 also provides the daily average, 

minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on the net 

portfolio to changes in the level of interest rates and the slope of the yield curve for the three months ended September 30, 

2014 and 2013. 
81

Table 45: Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve(1)

As of

September 30, 2014(2) December 31, 2013(2)

(Dollars in billions)

Rate level shock:

-100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.2 $ 0.1

-50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0

+50 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 (0.1)

+100 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 (0.5)

Rate slope shock:

-25 basis points (flattening). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0

+25 basis points (steepening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0

For the Three Months Ended September 30, 2014(3)

Duration

Gap

Rate Slope Shock

25 Bps

Rate Level Shock

50 Bps

Exposure

(In months) (Dollars in billions)

Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 $ 0.0 $ 0.1

Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.4) 0.0 0.0

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.1 0.1

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.0 0.0

For the Three Months Ended September 30, 2013(3)

Duration

Gap

Rate Slope Shock 

25 Bps

Rate Level Shock

50 Bps

Exposure

(In months) (Dollars in billions)

Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) $ 0.0 $ 0.2

Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) 0.0 0.1

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.1 0.4

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.0 0.1

__________

(1) Computed based on changes in U.S. LIBOR interest rates swap curve.

(2) Measured on the last day of each period presented.

(3) Computed based on daily values during the period presented.

The market value sensitivity of our net portfolio varies across a range of interest rate shocks depending upon the duration and 

convexity profile of our net portfolio. The average duration gap was zero months for the three months ended September 30, 

2014, which is consistent with the average duration gap for the three months ended September 30, 2013. Because the 

effective duration gap of our net portfolio was close to zero months in the periods presented, convexity risk was the primary 

driver of the market value sensitivity of our net portfolio in those periods. 

A majority of the interest rate risk associated with our mortgage-related securities and loans is hedged with our debt 

issuances, which include 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 46 displays an example of how derivatives impacted the net market value exposure 

for a 50 basis point parallel interest rate shock.
82

Table 46: Derivative Impact on Interest Rate Risk (50 Basis Points)(1)

As of

September 30, 2014 December 31, 2013

(Dollars in billions)

Before Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.5) $ (0.3)

After Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 (0.1)

Effect of Derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 0.1

__________

(1) Measured on the last day of each period presented.

Other Interest Rate Risk Information

The interest rate risk measures discussed above exclude the impact of changes in the fair value of our guaranty assets and 

liabilities 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 2013 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 our other 

financial instruments. As of September 30, 2014, these sensitivities were relatively unchanged compared with December 31, 

2013. See “Note 16, Fair Value” for the fair value of our trading financial instruments and our other financial instruments as 

of September 30, 2014 and December 31, 2013.

Liquidity Risk Management

See “MD&A—Liquidity and Capital Management—Liquidity Management” in our 2013 Form 10-K and in this report for a 

discussion of how we manage liquidity risk.

Operational Risk Management

See “MD&A—Risk Management—Operational Risk Management” in our 2013 Form 10-K for information on operational 

risks that we face and our framework for managing operational risk.

IMPACT OF FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

We identify and discuss the expected impact on our condensed consolidated financial statements of recently issued 

accounting pronouncements in “Note 1, Summary of Significant Accounting Policies.” 

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 net income will remain strong over the next few years, our annual net income 

will be substantially lower than our net income for 2013;

• Our expectation that our earnings will be affected by a number of factors, including changes in interest rates, 

changes in home prices, our guaranty fee rates, the volume of single-family mortgage originations in the future, the 

size, composition and quality of our retained mortgage portfolio and guaranty book of business, and economic and 
83

housing market conditions; and our expectation that some of these factors, such as changes in interest rates or home 

prices, could result in significant variability in our earnings from quarter to quarter or year to year;

• Our expectation of volatility from period to period in our financial results from a number of factors, particularly 

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 in December 2014 we will pay Treasury a senior preferred stock dividend of $4.0 billion for the 

fourth quarter of 2014;

• Our expectation that we will retain only a limited amount of any future net worth because we are required by the 

dividend provisions of the senior preferred stock and quarterly directives from our conservator to 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 single-family loans we have acquired since January 1, 2009, in the aggregate, will be 

profitable over their lifetime, by which we mean that we expect our guaranty 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 belief that our single-family acquisitions will continue to have a strong overall credit risk profile given our 

current underwriting and eligibility standards and product design;

• Our expectation that guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS 

held by third parties will continue to account for an increasing portion of our revenues;

• Our expectation that our guaranty fee revenues will increase over the long term, as loans with lower guaranty fees 

liquidate from our book of business and are replaced with new loans with higher guaranty fees;

• Our expectation that continued decreases in the size of our retained mortgage portfolio will continue to negatively 

impact our net interest income and revenues;

• Our expectation that increases in our guaranty fee revenues will at least partially offset the negative impact of the 

decline in our retained mortgage portfolio, and that the extent to which the positive impact of increased guaranty fee 

revenues will offset the negative impact of the decline in the size of our retained mortgage portfolio will depend on 

many factors, including: changes to guaranty fee pricing we may make in the future; the size, composition and 

quality of our guaranty book of business; the life of the loans in our guaranty book of business; the size, composition 

and quality of our retained mortgage portfolio, including the pace at which we are required by our conservator to 

reduce the size of our portfolio and the types of assets we are required to sell; economic and housing market 

conditions, including changes in interest rates; our market share; and legislative and regulatory changes;

• Our expectation that refinancings will constitute a smaller portion of our single-family business volume in 2014 than 

in 2013;

• Our expectation that we will acquire a higher proportion of loans with higher LTV ratios in 2014 than in 2013;

• Our expectation that mortgage originations in 2014 will be lower overall than in 2013;

• Our expectation that our single-family acquisition volumes this year will continue to remain lower than prior year 

volumes, and that liquidations of loans from our single-family guaranty book of business will also remain lower;

• Our expectation that these lower volumes will not have a material adverse effect on the size of our single-family 

guaranty book of business or on our single-family guaranty fee revenues in the near term;

• Our expectation that approximately 264,000 new multifamily units will be completed this year;

• Our expectation that multifamily fundamentals could be impacted by the supply of new multifamily units in certain 

localized areas, producing a temporary slowdown in net absorption rates, occupancy levels and effective rents in 

those areas during the remainder of 2014 and into early 2015;

• 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 single-family mortgage loan serious delinquency and severity rates will continue their 

downward trend, but at a slower pace than in recent years;
84

• Our expectation that single-family serious delinquency and severity rates will remain high compared with prehousing crisis levels because it will take some time for the remaining delinquent high mark-to-market LTV ratio 

loans originated prior to 2009 to work their way through the foreclosure process; 

• Our forecast that total originations in the U.S. single-family mortgage market in 2014 will decrease from 2013 levels 

by approximately 41%, from an estimated $1.87 trillion in 2013 to $1.10 trillion in 2014;

• Our forecast that the amount of originations in the U.S. single-family mortgage market that are refinancings will 

decrease from an estimated $1.12 trillion in 2013 to $425.6 billion in 2014;

• Our forecast that the amount of total single-family mortgage debt outstanding will remain relatively flat in 2014, 

ending the year at an estimated $9.91 trillion as of December 31, 2014, compared with $9.89 trillion as of December 

31, 2013;

• Our expectation that home prices on a national basis will be relatively flat in the fourth quarter of 2014;

• Our expectation of significant regional variation in the timing and rate of home price growth;

• Our expectation that our credit losses in 2014 and 2015 will be higher than in 2013 because: (1) the amounts we 

recognized in 2013 pursuant to a number of repurchase and compensatory fee resolution agreements reduced our 

2013 credit losses from what they otherwise would have been; and (2) we expect our approach to implementing the 

charge-off provisions of FHFA’s Advisory Bulletin AB 2012-02 in 2015 will increase our credit losses for 2015 from 

what they otherwise would be;

• Our expectation that our credit losses will resume their downward trend beginning in 2016;

• Our expectation that the overall decline in our loss reserves in 2014 will be lower than the decline in 2013;

• Our expectation that our approach to charging off the population of loans subject to FHFA’s Advisory Bulletin AB 

2012-02 in the first quarter of 2015 will contribute to a decline in our loss reserves during the period, as the 

corresponding allowance is removed on the loans that are subject to charge off;

• Our expectation that our loss reserves will remain elevated relative to the levels experienced prior to the 2008 

housing crisis 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; 

• Our expectation that significant uncertainty regarding the future of our company and the housing finance system will 

continue;

• Our expectation that Congress will continue to consider housing finance reform legislation;

• Our belief that the development of a single common security would likely reduce, and could eliminate, the trading 

advantage Fannie Mae mortgage-backed securities have over Freddie Mac mortgage-backed securities, and that, if 

this occurs, it would negatively impact our ability to compete for mortgage assets in the secondary market, and 

therefore could adversely affect our results of operations;

• Our expectation that it will be several years before CSS will have sufficient operational capabilities to serve its 

intended purpose as a common securitization platform for us and Freddie Mac;

• Our plan to reduce our mortgage portfolio to no more than $422.7 billion as of December 31, 2014;

• Our expectation that, under our approach to adopting the charge-off provisions of FHFA’s Advisory Bulletin AB 

2012-02 in the first quarter of 2015, for the vast majority of our delinquent single-family loans, we will continue to 

charge off the loan at the date of foreclosure or other liquidation event (such as a deed-in-lieu of foreclosure or a 

short sale) and that, for a small subset of delinquent loans deemed to be uncollectible prior to foreclosure by our 

historical data, we will classify them as “loss” and charge off the portion of the loan classified as “loss” prior to the 

date of foreclosure or other liquidation event, which given our current credit analytics and historical data, will be 

when the loans are excessively delinquent and the outstanding loan balance exceeds the fair value of the underlying 

property; 

• Our expectation that, under our approach to adopting the charge-off provisions of FHFA’s Advisory Bulletin AB 

2012-02 in the first quarter of 2015, our allowance for loan losses on the charged-off loans will be eliminated and 

the corresponding recorded investment in the loans will be reduced by the amounts that are charged off;
85

• Our expectation that the adoption of FHFA’s Advisory Bulletin AB 2012-02 will not have a material impact on our 

financial position or results of operations;

• Our expectation that guaranty fees collected and expenses incurred under the TCCA will continue to increase in the 

future;

• Our expectation that, as we reduce the size of our retained mortgage portfolio, our revenues generated by our 

retained mortgage portfolio will decrease;

• 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 our liquidity contingency plan may be difficult or impossible to execute for a company of our size 

and in our 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 expectations regarding our credit ratings and their impact on us as set forth in “MD&A—Liquidity and Capital 

Management—Liquidity Management—Credit Ratings” in this report and “Risk Factors” in our 2013 Form 10-K;

• Our expectation that we will not eliminate our deficit of core capital over statutory minimum capital;

• Our expectation that, in the fourth quarter of 2014, we will make revisions to certain life-of-loan exclusions 

currently included in our representation and warranty framework;

• 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, 2014 serious delinquency rates of loans 

in our legacy book of business;

• 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 expectation that loans we acquire under Refi Plus and HARP 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 continue to decline, due to the increase in interest 

rates since the first half of 2013 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 in certain areas of the country will continue to negatively affect our 

single-family serious delinquency rates, foreclosure timelines and credit-related income (expense);

• Our expectation that the recent trend of a slower pace of declines in our single-family serious delinquency rates will 

continue;

• 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 expectation that, as a result of allowing lenders to remit payments equal to our losses on loans after we have 

disposed of the related REO, our actual cash receipts relating to our outstanding repurchase requests will be 

significantly lower than the unpaid principal balance of the loans;

• Our expectation, based on the stressed financial condition of many of our non-governmental financial guarantor 

counterparties, that we will receive full cash payment from half of these counterparties;

• 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 them, 

and our expectation that we may require a lender to pledge collateral to secure its recourse obligations;
86

• Our expectation that we will receive only a portion of our allowed amount under the terms of the Lehman Brothers 

plan of reorganization; and

• Our expectation that we will not remediate the material weakness relating to our disclosure controls and procedures 

while we are in conservatorship.

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; actions we may be required 

to take by FHFA, as our conservator or as our regulator; our future objectives and activities in support of those objectives, 

including actions we may take to reach additional underserved creditworthy borrowers; a decrease in our credit ratings; 

limitations on our ability to access the debt capital markets; 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 

fiscal and monetary policies of the Federal Reserve; changes in the structure and regulation of the financial services industry; 

credit availability; global political risks; natural disasters, terrorist attacks, pandemics or other major disruptive events; 

information security breaches; and those factors described in “Risk Factors” in this report and in our 2013 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 2013 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. 
87

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,

2014 2013

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,329 $ 19,228

Restricted cash (includes $24,106 and $23,982, respectively, related to consolidated trusts) . . . . . . . . . . . . . . . . . . . . . . . 28,518 28,995

Federal funds sold and securities purchased under agreements to resell or similar arrangements. . . . . . . . . . . . . . . . . . . . 29,450 38,975

Investments in securities:

Trading, at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,844 30,768

Available-for-sale, at fair value (includes $699 and $998, respectively, related to consolidated trusts) . . . . . . . . . . . . 32,099 38,171

Total investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,943 68,939

Mortgage loans:

Loans held for sale, at lower of cost or fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 380

Loans held for investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,961 300,159

Of consolidated trusts (includes $15,262 and $14,268, respectively, at fair value and loans pledged as collateral

that may be sold or repledged of $0 and $442, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767,805 2,769,547

Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,046,766 3,069,706

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,931) (43,846)

Total loans held for investment, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,009,835 3,025,860

Total mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,010,203 3,026,240

Accrued interest receivable, net (includes $7,506 and $7,271, respectively, related to consolidated trusts). . . . . . . . . . . . 8,566 8,319

Acquired property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,339 11,621

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,757 47,560

Other assets (includes cash pledged as collateral of $1,677 and $1,590, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,211 20,231

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,230,316 $ 3,270,108

LIABILITIES AND EQUITY

Liabilities:

Accrued interest payable (includes $8,215 and $8,276, respectively, related to consolidated trusts). . . . . . . . . . . . . . . . $ 10,492 $ 10,553

Debt:

Of Fannie Mae (includes $5,204 and $1,308, respectively, at fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,952 529,434

Of consolidated trusts (includes $16,598 and $14,976, respectively, at fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,726,528 2,705,089

Other liabilities (includes $466 and $488, respectively, related to consolidated trusts) . . . . . . . . . . . . . . . . . . . . . . . . . . 11,945 15,441

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,223,917 3,260,517

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. . . . . . . . . . . . . . . . 19,130 19,130

Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,082,750 and

1,158,080,657 shares outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

687 687

Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124,931) (121,227)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,715 1,203

Treasury stock, at cost, 150,679,953 and 150,682,046 shares, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,401) (7,401)

Total Fannie Mae stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,349 9,541

Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 50

Total equity (See Note 1: Impact of U.S. Government Support for information on our dividend obligation to 

Treasury). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,399 9,591

Total liabilities and equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,230,316 $ 3,270,108

See Notes to Condensed Consolidated Financial Statements
88

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)

(Dollars and shares in millions, except per share amounts)

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2014 2013 2014 2013

Interest income:

Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151 $ 185 $ 421 $ 633

Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 546 1,249 1,870

Mortgage loans (includes $25,217 and $25,351, respectively, for the three months ended and

$76,704 and $75,592, respectively, for the nine months ended related to consolidated trusts) . 27,779 28,299 84,532 85,579

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 37 77 143

Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,354 29,067 86,279 88,225

Interest expense:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 29 67 109

Long-term debt (includes $21,094 and $20,905, respectively, for the three months ended and

$64,862 and $62,785, respectively, for the nine months ended related to consolidated trusts) . 23,144 23,456 71,386 70,563

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,170 23,485 71,453 70,672

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,184 5,582 14,826 17,553

Benefit for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085 2,609 3,498 8,949

Net interest income after benefit for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,269 8,191 18,324 26,502

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 648 829 1,056

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (27) (80) (42)

Fair value (losses) gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207) 335 (2,331) 1,998

Debt extinguishment gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 92 49 96

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826 741 5,564 1,794

Non-interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801 1,789 4,031 4,902

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 307 981 928

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 236 780 678

Occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 48 144 141

Other administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 55 170 166

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706 646 2,075 1,913

Foreclosed property expense (income). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 (1,165) (227) (1,757)

Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees. . . . . . . . . . . . . . . . . . . . . . . 351 276 1,008 695

Other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 124 479 260

Total expenses (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,378 (119) 3,335 1,111

Income before federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,692 10,099 19,020 30,293

(Provision) benefit for federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,787) (1,355) (6,123) 47,231

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,905 8,744 12,897 77,524

Other comprehensive income:

Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments

and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 (133) 480 532

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (1) 32 154

Total other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 (134) 512 686

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 8,610 13,409 78,210

Less: Comprehensive income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . — (7) (1) (18)

Total comprehensive income attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000 $ 8,603 $ 13,408 $ 78,192

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,905 $ 8,744 $ 12,897 $ 77,524

Less: Net income attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (7) (1) (18)

Net income attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,905 8,737 12,896 77,506

Dividends distributed or available for distribution to senior preferred stockholder (Note 11). . . . . . (3,999) (8,617) (13,403) (78,228)

Net (loss) income attributable to common stockholders (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (94) $ 120 $ (507) $ (722)

(Loss) earnings per share: basic and diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.02) $ 0.02 $ (0.09) $ (0.13)

Weighted-average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,762 5,762 5,762

Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,893 5,762 5,762

See Notes to Condensed Consolidated Financial Statements
89

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)

For the Nine Months

Ended September 30,

2014 2013

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 960 $ 11,518

Cash flows provided by investing activities:

Purchases of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (5,855)

Proceeds from maturities and paydowns of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . 1,046 2,036

Proceeds from sales of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,241 11,118

Proceeds from maturities and paydowns of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,505 8,265

Proceeds from sales of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,461 14,312

Purchases of loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (93,029) (161,737)

Proceeds from repayments and sales of loans acquired as held for investment of Fannie Mae . . . . . . . . . . . . . . 19,765 38,427

Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts . . . . . . . . 281,787 532,411

Net change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 36,394

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71,268) (114,584)

Proceeds from disposition of acquired property and preforeclosure sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,533 29,688

Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements. 9,525 (7,800)

Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (178) 619

Net cash provided by investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,865 383,294

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,266 326,036

Payments to redeem debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (339,528) (377,514)

Proceeds from issuance of debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,719 339,687

Payments to redeem debt of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (296,612) (599,519)

Payments of cash dividends on senior preferred stock to Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,594) (73,835)

Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 —

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,724) (385,145)

Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,899) 9,667

Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,228 21,117

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,329 $ 30,784

Cash paid during the period for:

Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,947 $ 82,086

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,475 1,876

See Notes to Condensed Consolidated Financial Statements
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

90

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 conservatorship has no specified termination date and there continues to be significant 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, 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. 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 set forth in the GSE Act, including if we are 

undercapitalized and have no reasonable prospect of becoming adequately capitalized. Should we be placed into receivership, 

different assumptions would be required to determine the carrying value of our assets, which 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 from 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.

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.

Pursuant to the senior preferred stock purchase agreement, Treasury has committed to provide us with funding 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, 2014. The 

aggregate liquidation preference of the senior preferred stock, including the initial aggregate liquidation preference of $1.0 

billion, was $117.1 billion as of September 30, 2014. As of September 30, 2014, the amount of remaining funding available 

to us under the senior preferred stock purchase agreement was $117.6 billion.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

91

Based on the terms of the senior preferred stock, we paid Treasury a dividend of $3.7 billion on September 30, 2014 based on 

our net worth as of June 30, 2014, and we expect to pay Treasury an additional dividend of $4.0 billion by December 31, 

2014. 

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. 

The accompanying condensed consolidated financial statements include our accounts as well as the accounts of other entities 

in which we have a controlling financial interest. All intercompany accounts and transactions have been eliminated. To 

conform to our current period presentation, we have reclassified certain amounts reported in our prior periods’ condensed 

consolidated financial statements. Results for the nine months ended September 30, 2014 may not necessarily be indicative of 

the results for the year ending December 31, 2014. The unaudited interim condensed consolidated financial statements as of 

and for the nine months ended September 30, 2014 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, 2013 (“2013 

Form 10-K”), filed with the SEC on February 21, 2014.

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 $139.7 billion as 

of September 30, 2014 and $137.3 billion as of December 31, 2013. 

Under the terms of the senior preferred stock, 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 

amount. The Director of FHFA directs us to make dividend payments on the senior preferred stock on a quarterly basis. 

Therefore, we do not expect to eliminate our deficit of core capital over statutory minimum capital.

Related Parties

As a result of our issuance to Treasury of 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, 2014, 

Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $117.1 billion. FHFA’s 

control of Fannie Mae and Freddie Mac has caused us, FHFA and Freddie Mac to be deemed related parties.

Our administrative expenses were reduced by $18 million and $23 million for the three months ended September 30, 2014

and 2013, respectively, and $55 million and $73 million for the nine months ended September 30, 2014 and 2013, 

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 months ended September 30, 2014, we did not make any tax payments to the Internal Revenue Service, a 

bureau of Treasury. We made tax payments of $2.5 billion for the nine months ended September 30, 2014. We made tax 

payments of $860 million and $1.9 billion during the three and nine months ended September 30, 2013, respectively.

Under the temporary credit and liquidity facilities (“TCLF”) program, we had $450 million and $821 million outstanding, 

which includes principal and interest, of standby credit and liquidity support as of September 30, 2014 and December 31, 

2013, respectively. Under the new issue bond (“NIB”) program, we had $4.3 billion and $4.5 billion outstanding of passthrough securities backed by single-family and multifamily housing bonds issued by housing finance agencies (“HFAs”) as of 

September 30, 2014 and December 31, 2013, 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 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

92

any losses of unpaid interest under the two programs. As of September 30, 2014, 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 “TCCA fees,” respectively, in our condensed consolidated statements of operations and 

comprehensive income. We recognized $351 million and $276 million in TCCA fees during the three months ended 

September 30, 2014 and 2013, respectively, and $1.0 billion and $695 million for the nine months ended September 30, 2014

and 2013, respectively, of which $351 million had not been remitted to Treasury as of September 30, 2014. During the three 

months ended September 30, 2014, we remitted TCCA-related guaranty fees of $335 million to Treasury for our obligations 

as of June 30, 2014.

As of September 30, 2014 and December 31, 2013, we held Freddie Mac mortgage-related securities with a fair value of $7.3 

billion and $8.7 billion, respectively. We recognized interest income on these securities held by us of $68 million and $91 

million for the three months ended September 30, 2014 and 2013, respectively, and $219 million and $303 million for the 

nine months ended September 30, 2014 and 2013, 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.

The Housing and Economic Recovery Act of 2008 authorizes FHFA to establish an annual assessment for regulated entities, 

including Fannie Mae, which is payable on a semi-annual basis (April and October), for FHFA’s costs and expenses, as well 

as to maintain FHFA’s working capital. We recognized FHFA assessment fees, which are recorded in “Administrative 

expenses” in our condensed consolidated statements of operations and comprehensive income, of $26 million and $28 

million for the three months ended September 30, 2014 and 2013, respectively, and $80 million and $83 million for the nine 

months ended September 30, 2014 and 2013, respectively.

In October 2013, Fannie Mae and Freddie Mac established Common Securitization Solutions, LLC (“CSS”), a jointly owned 

limited liability company formed to design, develop, build and ultimately operate a common securitization platform. On 

November 3, 2014, Fannie Mae and Freddie Mac executed three agreements pertaining to CSS. These agreements provide 

further details regarding the rights, obligations and understandings between us, Freddie Mac and CSS. No other transactions 

outside of normal business activities occurred between us and Freddie Mac during the nine months ended September 30, 

2014 or 2013.

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.

We continually monitor prepayment, delinquency, modification, 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 September 30, 2014, we updated the model and the assumptions used to estimate cash flows for individually 

impaired single-family loans within our allowance for loan losses. In addition to incorporating recent loan performance, this 

update better captures regional variations in expected future cash flows, particularly with respect to expectations of future 

home prices. This update resulted in a decrease to our allowance for loan losses as of September 30, 2014 and an incremental 

benefit for credit losses of approximately $600 million for the three months ended September 30, 2014.

Fee and Other Income

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

the nine months ended September 30, 2014, we recognized $4.8 billion in “Fee and other income” in our condensed 

consolidated statement of operations and comprehensive income resulting from settlement agreements resolving certain 

lawsuits relating to private-label securities sold to us.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

93

Statement of Cash Flows

We classify cash flows related to trading securities based on their nature and purpose. Effective January 1, 2014, all cash 

flows related to trading securities purchased after December 31, 2013 are classified as operating activities as we do not intend 

to hold these securities for investment.

Adoption of New Accounting Guidance

In January 2014, the FASB issued guidance clarifying when a creditor is considered to have received physical possession of 

residential real estate property collateralized by a consumer mortgage loan in order to reduce diversity in practice for when a 

creditor derecognizes the loan receivable and recognizes the real estate property. The guidance also requires interim and 

annual disclosure of the amount of foreclosed residential real estate property held by the creditor and the recorded investment 

in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. The new 

guidance is effective for us on January 1, 2015. We have evaluated this guidance and determined it will not have a material 

impact on our consolidated financial statements.

In May 2014, the FASB issued their final standard on revenue from contracts with customers. The standard outlines a single 

model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current 

revenue recognition guidance in an effort to remove inconsistencies in revenue recognition standards, improve comparability 

across entities, provide enhanced disclosures related to revenue recognition and to converge with the jointly issued 

International Financial Reporting Standards revenue recognition guidance. The following contracts with customers are 

excluded from the scope of the new standard and will continue to be accounted for under existing guidance: leases, insurance, 

financial instruments (e.g., receivables, investments, liabilities, debt and derivatives) and guarantees. The new guidance is 

effective for us on January 1, 2017. We have evaluated this guidance and determined it will not have a material impact on our 

consolidated financial statements.

In June 2014, the FASB issued guidance to amend the accounting for repurchase-to-maturity transactions and repurchase 

agreements executed as repurchase financings. The guidance requires repurchase-to-maturity transactions to be accounted for 

as secured borrowings. In addition, the guidance removes the requirement to determine whether a repurchase financing and 

the initial transfer of a financial asset are linked for purposes of assessing whether sale accounting is appropriate. Under the 

amended guidance, repurchase financing transactions will be evaluated in the same manner as other repurchase transactions. 

The guidance also requires additional disclosures on transfers accounted for as sales transactions and collateral pledged in 

repurchase agreements accounted for as secured borrowings. The new guidance is effective on January 1, 2015, except for 

disclosures related to repurchase transactions accounted for as secured borrowings, which are effective April 1, 2015. We 

have evaluated this guidance and determined it will not have a material impact on our consolidated financial statements.

In August 2014, the FASB issued guidance on the classification of certain government guaranteed mortgage loans upon 

foreclosure. The guidance requires that a government guaranteed mortgage loan be derecognized and that a separate other 

receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable 

should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the 

guarantor. The new guidance is effective for us on January 1, 2015. We have evaluated this guidance and determined it will 

not have a material impact on our consolidated financial statements.

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)

94

We continually assess whether we are the primary beneficiary of the VIEs with which we are involved and therefore may 

consolidate or deconsolidate a VIE through the duration of our involvement. Examples of certain events that may change 

whether or not we consolidate the VIE include a change in the design of the entity or a change in our ownership in the entity 

such that we no longer hold substantially all of the certificates issued by a multi-class securitization trust. As of 

September 30, 2014, we consolidated certain VIEs that were not consolidated as of December 31, 2013. As a result of 

consolidating these entities, which had combined total assets of $439 million in unpaid principal balance as of September 30, 

2014, we derecognized our investment in these entities and recognized the assets and liabilities of the consolidated entities at 

fair value. As of September 30, 2014, we also deconsolidated certain VIEs that were consolidated as of December 31, 2013. 

As a result of deconsolidating these entities, which had combined total assets of $316 million in unpaid principal balance as 

of December 31, 2013, 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, 2014 and 

December 31, 2013, as well as our maximum exposure to loss and the total assets of these unconsolidated mortgage-backed 

trusts.

As of

September 30, 2014 December 31, 2013

(Dollars in millions)

Assets and liabilities recorded in our condensed consolidated balance sheets related to

mortgage-backed trusts:

Assets:

Trading securities:

Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,310 $ 5,660

Non-Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,590 8,559

Total trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,900 14,219

Available-for-sale securities:

Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,057 5,866

Non-Fannie Mae securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,795 27,441

Total available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,852 33,307

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 119

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,526) (1,668)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,343 $ 45,977

Maximum exposure to loss(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,456 $ 54,148

Total assets of unconsolidated mortgage-backed trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . $256,715 $313,202

__________

 (1) Our maximum exposure to loss generally represents the greater of our recorded investment in the entity or the unpaid principal balance 

of the assets covered by our guaranty. However, our securities issued by Fannie Mae multi-class resecuritization trusts that are not 

consolidated do not give rise to any additional exposure to loss as we already consolidate the underlying collateral.

The total assets of our unconsolidated limited partnership investments were $6.0 billion and $6.8 billion as of September 30, 

2014 and December 31, 2013, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

95

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 retained mortgage portfolio in a portfolio securitization transaction. For the three months ended 

September 30, 2014 and 2013, the unpaid principal balance of portfolio securitizations was $44.2 billion and $52.2 billion, 

respectively. For the nine months ended September 30, 2014 and 2013, the unpaid principal balance of portfolio 

securitizations was $113.1 billion and $184.0 billion, respectively.

The following table displays some key characteristics of the securities retained in unconsolidated portfolio securitization 

trusts as of September 30, 2014 and December 31, 2013. 

Fannie Mae

Single-class

MBS & Fannie

Megas

REMICS & 

SMBS(1)

(Dollars in millions)

As of September 30, 2014

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297 $ 6,576

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 7,667

Weighted-average coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.19 % 5.25 %

Weighted-average loan age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 years 5.9 years

Weighted-average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.7 years 10.8 years

As of December 31, 2013

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 349 $ 6,899

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 7,959

Weighted-average coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21 % 5.36 %

Weighted-average loan age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 years 5.4 years

Weighted-average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5 years 12.6 years

__________

(1) Consists of real estate mortgage investment conduits (“REMICs”) and stripped mortgage-backed securities (“SMBS”).

For the three months ended September 30, 2014 and 2013, the principal and interest received on retained interests was $386 

million and $434 million, respectively. For the nine months ended September 30, 2014 and 2013, the principal and interest 

received on retained interests was $1.1 billion and $1.4 billion, respectively.

Managed Loans

Managed loans are on-balance sheet mortgage loans, as well as mortgage loans that we have securitized in unconsolidated 

portfolio securitization trusts. The unpaid principal balance of securitized loans in unconsolidated portfolio securitization 

trusts, which are primarily loans that are guaranteed or insured, in whole or in part, by the U.S. government, was $1.9 billion

and $2.1 billion as of September 30, 2014 and December 31, 2013, respectively. For information on our on-balance sheet 

mortgage loans, see “Note 3, Mortgage Loans.”

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. There were 

no proceeds from the initial sale of securities from portfolio securitizations for the three and nine months ended 

September 30, 2014. Proceeds from the initial sale of securities from portfolio securitizations were $48 million and $299 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

96

million for the three and nine months ended September 30, 2013, 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.

3. Mortgage Loans

The following table displays our mortgage loans as of September 30, 2014 and December 31, 2013.

As of

September 30, 2014 December 31, 2013

Of Fannie

Mae

Of

Consolidated

Trusts Total

Of Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family . . . . . . . . . . . . . . . . . . . . . . . . $ 265,450 $ 2,563,768 $ 2,829,218 $ 276,644 $ 2,579,024 $ 2,855,668

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . 26,813 157,454 184,267 37,642 146,249 183,891

Total unpaid principal balance of

mortgage loans. . . . . . . . . . . . . . . . . . . . 292,263 2,721,222 3,013,485 314,286 2,725,273 3,039,559

Cost basis and fair value adjustments, net . . (12,958) 46,607 33,649 (13,778) 44,305 30,527

Allowance for loan losses for loans held for

investment. . . . . . . . . . . . . . . . . . . . . . . . . (34,562) (2,369) (36,931) (40,521) (3,325) (43,846)

Total mortgage loans . . . . . . . . . . . . . $ 244,743 $ 2,765,460 $ 3,010,203 $ 259,987 $ 2,766,253 $ 3,026,240

During the three and nine months ended September 30, 2014, we redesignated loans with a carrying value of $240 million

and $241 million, respectively, from held for sale (“HFS”) to held for investment (“HFI”). During the nine months ended 

September 30, 2014 and 2013, we redesignated loans with a carrying value of $2.2 billion and $1.3 billion, respectively, from 

HFI to HFS. During the three months ended September 30, 2013, we redesignated loans with a carrying value of $1.3 billion

from HFI to HFS. We sold loans with an unpaid principal balance of $1.9 billion during the nine months ended September 30, 

2014. We sold loans with an unpaid principal balance of $731 million during the three and nine months ended September 30, 

2013.

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.

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 reviewed for impairment in connection with our allowance for loan losses process. For singlefamily 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, 2014 and December 31, 

2013.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

97

As of September 30, 2014(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). . . . . . . . . . . . $29,364 $ 8,607 $ 39,555 $ 77,526 $ 2,569,091 $ 2,646,617 $ 54 $ 48,073

Government(4). . . . . . . . . 63 24 319 406 45,738 46,144 319 —

Alt-A. . . . . . . . . . . . . . . . 4,281 1,453 12,289 18,023 97,701 115,724 9 13,731

Other(5). . . . . . . . . . . . . . 1,685 559 4,034 6,278 39,785 46,063 9 4,570

Total single-family. . . . 35,393 10,643 56,197 102,233 2,752,315 2,854,548 391 66,374

Multifamily(6). . . . . . . . . . . 77 N/A 176 253 185,831 186,084 — 1,325

Total. . . . . . . . . . . . . $ 35,470 $ 10,643 $ 56,373 $ 102,486 $ 2,938,146 $ 3,040,632 $ 391 $ 67,699

As of December 31, 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). . . . . . . . . . . . $ 32,371 $ 9,755 $ 48,345 $ 90,471 $ 2,558,826 $ 2,649,297 $ 81 $ 57,973

Government(4). . . . . . . . 66 32 346 444 48,150 48,594 346 —

Alt-A . . . . . . . . . . . . . . . 4,748 1,692 15,425 21,865 105,644 127,509 11 17,102

Other(5). . . . . . . . . . . . . 1,940 659 5,404 8,003 45,288 53,291 22 5,999

Total single-family . . . 39,125 12,138 69,520 120,783 2,757,908 2,878,691 460 81,074

Multifamily(6). . . . . . . . . . 59 N/A 186 245 185,733 185,978 — 2,209

Total. . . . . . . . . . . . $ 39,184 $ 12,138 $ 69,706 $ 121,028 $ 2,943,641 $ 3,064,669 $ 460 $ 83,283

__________

(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.

(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 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.

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, 2014 and December 31, 2013. The 

single-family credit quality indicator is based on available data through the end of each period presented. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

98

As of

September 30, 2014(1)(2) December 31, 2013(1)(2)

Primary(3) Alt-A Other(4) Primary(3) Alt-A Other(4)

(Dollars in millions)

Estimated mark-to-market loan-to-value ratio:(5)

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,176,566 $ 63,102 $23,722 $2,073,079 $ 61,670 $24,112

Greater than 80% and less than or equal to 90%. . . . . . . . . . . 248,727 15,558 6,267 276,011 16,794 6,947

Greater than 90% and less than or equal to 100%. . . . . . . . . . 122,972 12,568 5,389 153,474 14,709 6,402

Greater than 100% and less than or equal to 110% . . . . . . . . . 42,671 9,029 3,973 59,630 11,006 5,146

Greater than 110% and less than or equal to 120% . . . . . . . . 23,522 5,987 2,659 33,954 7,742 3,691

Greater than 120% and less than or equal to 125% . . . . . . . . 7,616 2,142 922 11,256 2,951 1,406

Greater than 125% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,543 7,338 3,131 41,893 12,637 5,587

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,646,617 $115,724 $46,063 $2,649,297 $127,509 $53,291

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Excludes $46.1 billion and $48.6 billion as of September 30, 2014 and December 31, 2013, 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 characteristics, such as interest-only loans and negative-amortizing loans, that are neither government 

nor Alt-A.

(5) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported 

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates 

periodic changes in home value.

The following table displays the total recorded investment in our multifamily HFI loans, excluding loans for which we have 

elected the fair value option, by credit quality indicator as of September 30, 2014 and December 31, 2013. The multifamily 

credit quality indicator is based on available data through the end of each period presented.

As of

September 30, December 31,

2014(1) 2013(1)

(Dollars in millions)

Credit risk profile by internally assigned grade:(2)

Pass. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 177,962 $176,528

Special Mention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,633 2,234

Substandard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,174 6,758

Doubtful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 458

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186,084 $185,978

_________

(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 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).
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

99

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 unpaid principal balance, recorded investment and related 

allowance as of September 30, 2014 and December 31, 2013, and interest income recognized and average recorded 

investment for the three and nine months ended September 30, 2014 and 2013, for individually impaired loans.

As of

September 30, 2014 December 31, 2013

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)

. . . . . . . . . . . . . . . . . . . . . $ 126,650 $ 120,708 $ 21,147 $ 317 $ 130,080 $ 123,631 $ 24,145 $ 430

Government(3)

. . . . . . . . . . . . . . . . . . 280 284 47 12 213 210 35 5

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . 35,687 32,977 8,038 142 37,356 34,479 9,364 187

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . 14,861 14,123 3,187 41 15,789 15,023 3,879 56

Total single-family. . . . . . . . . . . . . 177,478 168,092 32,419 512 183,438 173,343 37,423 678

Multifamily . . . . . . . . . . . . . . . . . . . . . 1,341 1,351 183 6 2,257 2,276 306 10

Total individually impaired loans with

related allowance recorded . . . . . . . 178,819 169,443 32,602 518 185,695 175,619 37,729 688

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . 16,486 14,716 — — 14,076 12,305 — —

Government(3)

. . . . . . . . . . . . . . . . . . 62 57 — — 120 120 — —

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . 4,083 3,191 — — 3,290 2,428 — —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . 1,273 1,094 — — 1,039 868 — —

Total single-family. . . . . . . . . . . . . 21,904 19,058 — — 18,525 15,721 — —

Multifamily . . . . . . . . . . . . . . . . . . . . . 1,516 1,524 — — 1,927 1,939 — —

Total individually impaired loans with

no related allowance recorded . . . . 23,420 20,582 — — 20,452 17,660 — —

Total individually impaired loans(6)

. . . . $ 202,239 $ 190,025 $ 32,602 $ 518 $ 206,147 $ 193,279 $ 37,729 $ 688
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

100

For the Three Months Ended September 30,

2014 2013

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)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 121,246 $ 1,077 $ 111 $ 123,818 $ 1,081 $ 141

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 3 — 215 3 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,458 268 24 34,865 274 31

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,346 100 8 15,352 104 12

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,335 1,448 143 174,250 1,462 184

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,540 17 — 2,633 32 —

Total individually impaired loans with related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,875 1,465 143 176,883 1,494 184

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,442 226 56 12,067 243 58

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 1 — 114 2 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,887 51 14 2,332 52 11

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,008 16 3 815 19 4

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,392 294 73 15,328 316 73

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,572 18 — 2,002 25 2

 Total individually impaired loans with no related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,964 312 73 17,330 341 75

Total individually impaired loans(6)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 190,839 $ 1,777 $ 216 $ 194,213 $ 1,835 $ 259
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

101

For the Nine Months Ended September 30,

2014 2013

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)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,443 $ 3,264 $ 372 $ 125,026 $ 3,276 $ 466

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 9 — 213 8 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,926 805 74 35,231 826 105

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,635 305 28 15,672 321 41

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,270 4,383 474 176,142 4,431 612

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813 63 — 2,621 99 1

Total individually impaired loans with related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,083 4,446 474 178,763 4,530 613

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,514 616 157 11,148 1,167 174

Government(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 4 — 111 6 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,687 135 34 2,145 282 33

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 945 40 8 717 105 14

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,216 795 199 14,121 1,560 221

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,698 58 — 1,843 72 3

 Total individually impaired loans with no related allowance

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,914 853 199 15,964 1,632 224

Total individually impaired loans(6)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 191,997 $ 5,299 $ 673 $ 194,727 $ 6,162 $ 837

__________

(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 $185.9 billion and $187.6 billion as of September 30, 

2014 and December 31, 2013, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $1.6 billion

and $911 million as of September 30, 2014 and December 31, 2013, respectively.

(7) Total single-family interest income recognized of $1.8 billion for the three months ended September 30, 2014 and 2013, consists of 

$1.4 billion of contractual interest and $297 million and $355 million of effective yield adjustments, respectively. Total single-family 

interest income recognized of $5.2 billion and $6.0 billion for the nine months ended September 30, 2014 and 2013, respectively, 

consists of $4.3 billion of contractual interest and $857 million and $1.7 billion of effective yield adjustments, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

102

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial 

difficulties is considered a TDR. In addition to formal loan modifications, we also engage in other loss mitigation activities 

with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal 

agreements with the borrower that do not result in the legal modification of the loan’s contractual terms. We account for these 

informal restructurings as a TDR if we defer more than three missed payments. We also classify 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, 2014 and 2013, the average term extension of a singlefamily modified loan was 162 months and 156 months, respectively, and the average interest rate reduction was 0.89 and 1.66

percentage points, respectively. During the nine months ended September 30, 2014 and 2013, the average term extension of a 

single-family modified loan was 161 months and 152 months, respectively, and the average interest rate reduction was 1.04

and 1.73 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, 2014 and 2013.

For the Three Months Ended September 30,

2014 2013

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,057 $ 3,270 32,083 $ 4,831

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 12 73 8

 Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,175 521 5,410 964

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 142 1,532 339

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,021 3,945 39,098 6,142

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 811 4 19

Total troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,028 $ 4,756 39,102 $ 6,161

For the Nine Months Ended September 30,

2014 2013

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,831 $10,944 101,638 $ 15,308

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 33 253 29

 Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,231 1,875 17,695 3,134

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,608 540 5,230 1,161

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,934 13,392 124,816 19,632

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 849 29 187

Total troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,950 $14,241 124,845 $ 19,819

__________

(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 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

103

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, 2014 and 2013 and were restructured 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; 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,

2014 2013

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,798 $1,312 12,591 $1,905

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6 33 5

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,372 241 2,744 491

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 100 849 184

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,646 1,659 16,217 2,585

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 3 44

Total TDRs that subsequently defaulted. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,647 $1,664 16,220 $2,629

For the Nine Months Ended September 30,

2014 2013

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,586 $3,873 35,971 $5,521

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9 93 13

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,212 753 8,000 1,441

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362 304 2,524 564

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,234 4,939 46,588 7,539

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 22 9 64

Total TDRs that subsequently defaulted. . . . . . . . . . . . . . . . . . . . . . . . . . . 31,240 $4,961 46,597 $7,603

__________

(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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

104

(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 methodology on historical events and trends, such as loss 

severity (in event of default), default rates, and recoveries from mortgage insurance contracts and other credit enhancements. 

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, 2014 and 2013. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

105

For the Three Months Ended September 30,

2014 2013

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 . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,400 $ 2,243 $ 38,643 $ 44,332 $ 4,438 $ 48,770

(Benefit) provision for loan losses(1)

. . . . . . . . . . (1,393) 394 (999) (2,126) (345) (2,471)

Charge-offs(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,439) (108) (1,547) (2,221) (50) (2,271)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 4 275 257 37 294

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 (366) — 549 (549) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 28 198 132 22 154

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,375 $ 2,195 $ 36,570 $ 40,923 $ 3,553 $ 44,476

Multifamily allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 243 $ 181 $ 424 $ 493 $ 380 $ 873

Benefit for loan losses(1)

. . . . . . . . . . . . . . . . . . . (46) (6) (52) (24) (105) (129)

Charge-offs(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . (14) — (14) (54) — (54)

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (2) — 5 (5) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 3 2 1 3

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 187 $ 174 $ 361 $ 422 $ 271 $ 693

Total allowance for loan losses:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . $ 36,643 $ 2,424 $ 39,067 $ 44,825 $ 4,818 $ 49,643

(Benefit) provision for loan losses(1)

. . . . . . . . . . (1,439) 388 (1,051) (2,150) (450) (2,600)

Charge-offs(2)(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . (1,453) (108) (1,561) (2,275) (50) (2,325)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 4 275 257 37 294

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 (368) — 554 (554) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 29 201 134 23 157

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,562 $ 2,369 $ 36,931 $ 41,345 $ 3,824 $ 45,169
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

106

For the Nine Months Ended September 30,

2014 2013

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 . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,202 $ 3,105 $ 43,307 $ 49,848 $ 7,839 $ 57,687

(Benefit) provision for loan losses(1)

. . . . . . . . . . (3,563) 192 (3,371) (6,660) (2,078) (8,738)

Charge-offs(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,747) (251) (4,998) (6,906) (236) (7,142)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902 222 1,124 1,750 388 2,138

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 (1,123) — 2,440 (2,440) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458 50 508 451 80 531

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,375 $ 2,195 $ 36,570 $ 40,923 $ 3,553 $ 44,476

Multifamily allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 319 $ 220 $ 539 $ 671 $ 437 $ 1,108

Benefit for loan losses(1)

. . . . . . . . . . . . . . . . . . . (66) (44) (110) (151) (144) (295)

Charge-offs(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . (73) — (73) (121) — (121)

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (4) — 22 (22) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 5 1 — 1

Ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 187 $ 174 $ 361 $ 422 $ 271 $ 693

Total allowance for loan losses:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . $ 40,521 $ 3,325 $ 43,846 $ 50,519 $ 8,276 $ 58,795

(Benefit) provision for loan losses(1)

. . . . . . . . . . (3,629) 148 (3,481) (6,811) (2,222) (9,033)

Charge-offs(2)(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . (4,820) (251) (5,071) (7,027) (236) (7,263)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902 222 1,124 1,750 388 2,138

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,127 (1,127) — 2,462 (2,462) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 52 513 452 80 532

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,562 $ 2,369 $ 36,931 $ 41,345 $ 3,824 $ 45,169

__________

(1) (Benefit) provision for loan losses is included in “Benefit 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 loan losses, charge-offs, recoveries and transfer activity included in 

this table reflect 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 $72 million and $100 million for the three months ended September 30, 2014 and 2013, 

respectively, and $241 million and $337 million for the nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014, the allowance for accrued interest receivable for loans of Fannie Mae was $712 million and for 

loans of consolidated trusts was $52 million. As of December 31, 2013, the allowance for accrued interest receivable for 

loans of Fannie Mae was $1.1 billion and for loans of consolidated trusts was $104 million.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

107

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, 2014 and December 31, 2013.

As of

September 30, 2014 December 31, 2013

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans(1)

. . . . . . . . . . . . $ 32,419 $ 183 $ 32,602 $ 37,423 $ 306 $ 37,729

Collectively reserved loans. . . . . . . . . . . . . . 4,151 178 4,329 5,884 233 6,117

Total allowance for loan losses . . . . . . . . $ 36,570 $ 361 $ 36,931 $ 43,307 $ 539 $ 43,846

Recorded investment in loans by segment:(2)

Individually impaired loans(1)

. . . . . . . . . . . . $ 187,150 $ 2,875 $ 190,025 $ 189,064 $ 4,215 $ 193,279

Collectively reserved loans. . . . . . . . . . . . . . 2,667,398 183,209 2,850,607 2,689,627 181,763 2,871,390

Total recorded investment in loans . . . . . $ 2,854,548 $ 186,084 $ 3,040,632 $ 2,878,691 $ 185,978 $ 3,064,669

__________

(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 (losses) gains, net” 

in our condensed consolidated statements of operations and comprehensive income. The following table displays our 

investments in trading securities as of September 30, 2014 and December 31, 2013.

As of

September 30,

2014

December 31,

2013

(Dollars in millions)

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,471 $ 5,870

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 1,839

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 407

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135 1,516

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316 1,448

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550 2,718

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693 565

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 99

Total mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,087 14,462

U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,757 16,306

Total trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,844 $30,768
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

108

The following table displays information about our net trading gains and losses for the three and nine months ended 

September 30, 2014 and 2013.

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2014 2013 2014 2013

(Dollars in millions)

Net trading gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50 $ (57) $ 444 $ 111

Net trading gains (losses) recognized in the period related to securities still held at period end. 56 (56) 409 155

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 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, 2014 and 2013.

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2014 2013 2014 2013

(Dollars in millions)

Gross realized gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96 $ 1,338 $ 495 $ 1,520

Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (884) (5) (941)

Total proceeds(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 12,243 2,461 14,013

__________ 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, 2014 and December 31, 2013.

As of September 30, 2014

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,443 $ 343 $ — $ (30) $ 5,756

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,365 447 — — 5,812

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436 62 — — 498

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,071 1,115 (17) — 6,169

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,280 1,131 (9) (16) 5,386

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,401 66 — — 1,467

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,174 117 (18) (7) 4,266

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,709 194 (25) (133) 2,745

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,879 $ 3,475 $ (69) $(186) $32,099
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

109

As of December 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,227 $ 390 $ — $ (44) $ 6,573

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,365 477 — — 6,842

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512 76 — — 588

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,240 1,151 (40) (2) 7,349

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . 6,232 991 (102) (53) 7,068

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,526 80 — — 1,606

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,645 35 (228) (196) 5,256

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . 2,943 164 (15) (203) 2,889

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,690 $ 3,364 $ (385) $ (498) $ 38,171

__________

(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” in our condensed consolidated balance sheets, as well as cumulative changes in fair value of securities for which we 

previously recognized the credit component of other-than-temporary impairments.

(3) Represents the gross unrealized losses on securities for which we have not recognized other-than-temporary impairments.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

110

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, 2014 and December 31, 2013.

As of September 30, 2014

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) $ 335 $ (25) $ 624

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 90 (14) 113

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (25) 485

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 106 (22) 543

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (158) 1,033

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11) $ 531 $ (244) $ 2,798

As of December 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (40) $ 975 $ (4) $ 126

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) 490 (30) 308

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) 448 (131) 1,332

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (147) 1,662 (277) 970

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5 (218) 1,066

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (223) $ 3,580 $ (660) $ 3,802

Other-Than-Temporary Impairments 

We evaluate AFS 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. An other-than-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 to sell the security or it is not more likely than not we will be required to sell the security before recovery.

The following table displays the modeled attributes, including default rates and severities, which were used to determine as 

of September 30, 2014 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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

111

As of September 30, 2014

Alt-A

Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate

(Dollars in millions)

Vintage Year

2004 & Prior:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . $ 114 $ 113 $ 879 $ 126 $ 316

Weighted average collateral default(1)

. . . . . . . . . . . 26.5% 23.9% 9.5% 21.4% 14.1%

Weighted average collateral severities(2)

. . . . . . . . . 55.2 54.7 52.8 40.5 38.5

Weighted average voluntary prepayment rates(3). . . 9.5 9.8 13.1 9.6 10.2

Average credit enhancement(4)

. . . . . . . . . . . . . . . . . 38.2 3.9 11.0 22.4 9.4

2005:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . $ 10 $ 460 $ 797 $ 285 $1,272

Weighted average collateral default(1)

. . . . . . . . . . . 49.2% 31.2% 22.4% 33.4% 26.4%

Weighted average collateral severities(2)

. . . . . . . . . 63.3 53.1 53.9 48.2 44.0

Weighted average voluntary prepayment rates(3). . . 4.1 7.7 10.3 8.4 9.0

Average credit enhancement(4)

. . . . . . . . . . . . . . . . . 58.8 8.1 0.7 12.8 2.8

2006:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . $ 6,973 $ 631 $ 384 $ 895 $1,074

Weighted average collateral default(1)

. . . . . . . . . . . 53.2% 41.8% 24.4% 35.5% 17.0%

Weighted average collateral severities(2)

. . . . . . . . . 61.0 47.1 55.6 46.5 44.4

Weighted average voluntary prepayment rates(3). . . 2.4 6.2 8.2 7.7 10.2

Average credit enhancement(4)

. . . . . . . . . . . . . . . . . 9.9 2.2 0.1 0.9 —

2007 & After:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . $ 334 $ — $ — $ — $ 80

Weighted average collateral default(1)

. . . . . . . . . . . 50.3% N/A N/A N/A 22.1%

Weighted average collateral severities(2)

. . . . . . . . . 27.5 N/A N/A N/A 39.6

Weighted average voluntary prepayment rates(3). . . 1.4 N/A N/A N/A 9.6

Average credit enhancement(4)

. . . . . . . . . . . . . . . . . 19.9 N/A N/A N/A 20.5

Total:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . $ 7,431 $1,204 $2,060 $1,306 $2,742

Weighted average collateral default(1)

. . . . . . . . . . . 52.7% 36.1% 17.3% 33.7% 21.2%

Weighted average collateral severities(2)

. . . . . . . . . 59.5 49.6 54.1 46.5 43.6

Weighted average voluntary prepayment rates(3). . . 2.5 7.1 11.1 8.1 9.6

Average credit enhancement(4)

. . . . . . . . . . . . . . . . . 10.9 4.7 5.0 5.6 3.0

__________

(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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

112

(4) The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest projections and 

monoline bond insurance.

The following table displays activity related to the unrealized credit loss 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, 2014 and 2013. 

For the Three

Months Ended

For the Nine

Months Ended

September 30, September 30,

2014 2013 2014 2013

(Dollars in millions)

Balance, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,871 $ 8,964 $ 7,904 $ 9,214

Additions for the credit component on debt securities for which OTTI was not

previously recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 7

Additions for the credit component on debt securities for which OTTI was previously

recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 50 9

Reductions for securities no longer in portfolio at period end . . . . . . . . . . . . . . . . . . . . (355) (457) (792) (540)

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) (1,453) (193)

Reductions for amortization resulting from changes in cash flows expected to be

collected over the remaining life of the securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) (92) (264) (274)

Balance, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,446 $ 8,223 $ 5,446 $ 8,223

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining 

contractual maturity, assuming no principal prepayments, as of September 30, 2014. The contractual maturity of mortgagebacked 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, 2014

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. . . . . . . . . . . . . . . . . . . . . . $ 5,443 $ 5,756 $ — $ — $ 285 $ 300 $ 271 $ 292 $ 4,887 $ 5,164

Freddie Mac . . . . . . . . . . . . . . . . . . . . . 5,365 5,812 — — 309 327 523 571 4,533 4,914

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . 436 498 — — — — 65 74 371 424

Alt-A private-label securities. . . . . . . . 5,071 6,169 — — — — — — 5,071 6,169

Subprime private-label securities. . . . . 4,280 5,386 — — — — — — 4,280 5,386

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . 1,401 1,467 — — 1,321 1,385 — — 80 82

Mortgage revenue bonds . . . . . . . . . . . 4,174 4,266 24 24 198 202 380 383 3,572 3,657

Other mortgage-related securities . . . . 2,709 2,745 — — — 3 38 40 2,671 2,702

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,879 $ 32,099 $ 24 $ 24 $ 2,113 $ 2,217 $ 1,277 $ 1,360 $ 25,465 $ 28,498

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 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

113

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. 

The following table displays our maximum exposure, guaranty obligation recognized in our condensed consolidated balance 

sheets and the maximum potential recovery from third parties through available credit enhancements and recourse related to 

our financial guarantees as of September 30, 2014 and December 31, 2013.

As of

September 30, 2014 December 31, 2013

Maximum 

Exposure

(1)

Guaranty

Obligation

Maximum 

Recovery(2)

Maximum 

Exposure

(1)

Guaranty

Obligation

Maximum 

Recovery(2)

(Dollars in millions)

Non-consolidated Fannie Mae MBS . . . . . . . . . $ 17,728 $ 215 $ 10,062 $ 19,317 $ 232 $ 10,541

Other guaranty arrangements(3). . . . . . . . . . . . . 22,806 189 4,488 30,598 253 4,525

 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,534 $ 404 $ 14,550 $ 49,915 $ 485 $ 15,066

__________

(1) Primarily consists of the unpaid principal balance of the underlying mortgage loans.

(2) 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.”

(3) Primarily consists of credit enhancements, long-term standby commitments, and our commitment under the TCLF program.

The fair value of our guaranty obligations associated with the Fannie Mae MBS included in “Investments in securities” in our 

condensed consolidated balance sheets was $865 million and $1.1 billion as of September 30, 2014 and December 31, 2013, 

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 of the mortgage loans we hold in our 

retained mortgage portfolio, or in the case of mortgage-backed securities, the mortgage loans underlying the related 

securities.

For single-family loans, management monitors the serious delinquency rate, which is the percentage of 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, 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, 2014 and December 31, 2013.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

114

As of

September 30, 2014(1) December 31, 2013(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)

. . . . . . . . . . . . . . . . . . . . . . . . 1.29% 0.39% 2.07% 1.41% 0.44% 2.54%

Percentage of single-family conventional loans(4)

. . 1.48 0.44 1.96 1.64 0.49 2.38

As of

September 30, 2014(1) December 31, 2013(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 loan-to-value ratio:

Greater than 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% 11.19% 7% 12.22%

Geographical distribution:

California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 0.73 20 0.98

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.87 6 6.89

Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.46 4 3.12

New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5.83 4 6.25

New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.20 5 4.42

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 1.56 61 1.85

Product distribution:

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 8.03 5 9.23

Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 15.76 * 16.93

Vintages:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6.30 4 7.26

2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9.81 3 11.26

2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 10.91 5 12.18

2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6.22 3 6.69

All other vintages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 0.89 85 1.02

Select combined risk characteristics:

Original LTV ratio > 90% and FICO score < 620. . . . . . . . . . . 1 9.34 1 10.90

__________

* 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, 2014 and 

December 31, 2013.

(2) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of September 30, 2014

and December 31, 2013.

(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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

115

As of

September 30, 2014(1)(2) December 31, 2013(1)(2)

30 Days

Delinquent

Seriously 

Delinquent(3)

30 Days

Delinquent

Seriously 

Delinquent(3)

Percentage of multifamily guaranty book of business. . . . . . . . . . . . 0.03% 0.09% 0.03% 0.10%

As of

September 30, 2014(1) December 31, 2013(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% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 0.05% 3% 0.23%

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . 97 0.09 97 0.10

Current debt service coverage ratio less than 1.0(5). . . . . . . . 3 0.76 4 1.09

__________

(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, 2014 and December 31, 2013

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 3 to 6 months but in 

some cases may be longer.

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, and the related valuation allowance, for the three and nine months ended September 30, 2014 and 2013. 

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2014 2013 2014 2013

(Dollars in millions)

Beginning balance — Acquired property . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,296 $10,806 $12,307 $ 11,158

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,240 4,535 10,437 12,504

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,412) (3,397) (10,620) (11,718)

Ending balance — Acquired property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,124 $11,944 $12,124 $ 11,944

Beginning balance — Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . (736) (540) (686) (669)

(Increase) decrease in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . (49) (24) (99) 105

Ending balance — Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (785) (564) (785) (564)

Ending balance — Acquired property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,339 $11,380 $11,339 $ 11,380
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

116

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, 2014 and December 31, 2013.

As of

September 30, 2014 December 31, 2013

Outstanding

WeightedAverage 

Interest Rate(1) Outstanding

WeightedAverage 

Interest Rate(1)

(Dollars in millions)

Fixed-rate short-term debt:

Discount notes(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,399 0.10% $ 71,933 0.12%

Foreign exchange discount notes(3). . . . . . . . . . . . . . . . . . . . . . — — 362 1.07

Total short-term debt of Fannie Mae. . . . . . . . . . . . . . . . . . . 97,399 0.10 72,295 0.13

Debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,804 0.11 2,154 0.09

Total short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99,203 0.10% $ 74,449 0.13%

__________

(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 issued 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 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 as of September 30, 2014 and December 31, 2013. We had no borrowings outstanding from these lines of 

credit as of September 30, 2014 or December 31, 2013.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

117

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, 2014 and December 31, 2013.

As of

September 30, 2014 December 31, 2013

Maturities Outstanding

WeightedAverage 

Interest 

Rate(1) Maturities Outstanding

WeightedAverage 

Interest 

Rate(1)

(Dollars in millions)

Senior fixed:

Benchmark notes and bonds . . . . . . . . . . . 2014 - 2030 $ 188,002 2.41% 2014 - 2030 $ 212,234 2.45%

Medium-term notes(2)

. . . . . . . . . . . . . . . . . 2014 - 2024 125,106 1.38 2014 - 2023 161,445 1.28

Foreign exchange notes and bonds . . . . . . 2021 - 2028 644 5.23 2021 - 2028 682 5.41

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 - 2038 33,247 4.61 2014 - 2038 38,444 (3) 4.99

Total senior fixed . . . . . . . . . . . . . . . . . 346,999 2.25 412,805 2.24

Senior floating:

Medium-term notes(2)

. . . . . . . . . . . . . . . . . 2014 - 2019 21,374 0.17 2014 - 2019 38,441 0.20

Other(3)(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 5,204 2.90 2020 - 2037 955 5.18

Total senior floating . . . . . . . . . . . . . . . 26,578 0.70 39,396 0.32

Subordinated fixed:

Qualifying subordinated. . . . . . . . . . . . . . . — — — 2014 1,169 5.27

Subordinated debentures . . . . . . . . . . . . . . 2019 3,760 9.92 2019 3,507 9.92

Total subordinated fixed. . . . . . . . . . . . 3,760 9.92 4,676 8.76

Secured borrowings(5)

. . . . . . . . . . . . . . . . . . . 2021 - 2022 216 1.89 2021 - 2022 262 1.86

Total long-term debt of Fannie Mae(6)

. . . . 377,553 2.22 457,139 2.14

Debt of consolidated trusts(3)

. . . . . . . . . . . . . . 2014 - 2054 2,724,724 3.10 2014 - 2053 2,702,935 3.26

Total long-term debt . . . . . . . . . . . . . . . $ 3,102,277 2.99% $ 3,160,074 3.10%

__________

(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 a portion of structured debt instruments that is reported at fair value.

(4) Includes credit risk sharing securities issued under our Connecticut Avenue Securities series, which transfers some of the credit risk of 

our mortgage loans to the investors in these securities.

(5) 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.

(6) Reported amounts include unamortized discounts and premiums, other cost basis adjustments and fair value adjustments of $4.1 billion

and $4.8 billion as of September 30, 2014 and December 31, 2013, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

118

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 annual 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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

119

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, 2014 and December 31, 2013.

As of September 30, 2014 As of December 31, 2013

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 . . . . . . . . . . . . . . . . . . $ 72,309 $ 2,387 $ 91,531 $ (4,963) $ 68,637 $ 5,378 $ 93,428 $ (4,759)

Receive-fixed . . . . . . . . . . . . . . 56,477 3,753 158,087 (2,229) 67,527 3,320 156,250 (3,813)

Basis . . . . . . . . . . . . . . . . . . . . . 2,544 87 11,100 (2) 27,014 36 600 —

Foreign currency . . . . . . . . . . . . 358 131 284 (24) 389 120 653 (38)

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . . 20,400 79 31,525 (285) 33,400 445 48,025 (600)

Receive-fixed . . . . . . . . . . . . . . 2,000 82 34,525 (609) 8,000 117 48,025 (484)

Other(1)

. . . . . . . . . . . . . . . . . . . . . . . . 84 26 12 (1) 769 28 13 (1)

Total gross risk management

derivatives. . . . . . . . . . . . . . . . . 154,172 6,545 327,064 (8,113) 205,736 9,444 346,994 (9,695)

Accrued interest receivable

(payable) . . . . . . . . . . . . . . . . . . — 807 — (1,220) — 786 — (930)

Netting adjustment(2)

. . . . . . . . . . . — (6,202) — 9,040 — (8,422) — 9,370

Total net risk management

derivatives . . . . . . . . . . . . . . . $ 154,172 $ 1,150 $ 327,064 $ (293) $ 205,736 $ 1,808 $ 346,994 $ (1,255)

Mortgage commitment derivatives:

Mortgage commitments to

purchase whole loans . . . . . . . . $ 4,009 $ 9 $ 3,192 $ (6) $ 1,138 $ 1 $ 4,353 $ (31)

Forward contracts to purchase

mortgage-related securities. . . . 21,629 63 16,822 (34) 3,276 4 20,861 (168)

Forward contracts to sell

mortgage-related securities. . . . 22,388 34 36,122 (110) 35,423 260 7,886 (15)

Total mortgage commitment

derivatives . . . . . . . . . . . . . . . $ 48,026 $ 106 $ 56,136 $ (150) $ 39,837 $ 265 $ 33,100 $ (214)

Derivatives at fair value . . . . . . . $ 202,198 $ 1,256 $ 383,200 $ (443) $ 245,573 $ 2,073 $ 380,094 $ (1,469)

__________

(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 for our risk management derivatives transactions represents the effect of the legal right to offset under legally 

enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and 

received. Cash collateral posted was $3.5 billion and $2.0 billion as of September 30, 2014 and December 31, 2013, respectively. Cash 

collateral received was $685 million and $1.0 billion as of September 30, 2014 and December 31, 2013, respectively. 

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 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

120

contingent features that were in a net liability position was $2.2 billion and $2.1 billion as of September 30, 2014 and 

December 31, 2013, respectively, for which we posted collateral of $2.0 billion in the normal course of business as of 

September 30, 2014 and December 31, 2013. Had all of the credit-risk-related contingency features underlying these 

agreements been triggered, an additional $207 million and $130 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, 

2014 and December 31, 2013, respectively. A reduction in our credit ratings may also cause derivatives clearing organizations 

or their members to demand that we post additional collateral for our OTC-cleared derivative contracts.

We record all derivative gains and losses, including accrued interest, in “Fair value (losses) gains, 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, 2014 

and 2013. 

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2014 2013 2014 2013

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 712 $ 976 $ (3,755) $ 11,879

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (822) (217) 2,282 (9,250)

Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (13) 49 (85)

Foreign currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) 54 21 (79)

Swaptions:

Pay-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) 148 (90) (303)

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 (3) (19) 265

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (3) (1) 18

Accrual of periodic settlements:

Pay-fixed interest-rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (939) (1,141) (2,755) (3,550)

Receive-fixed interest-rate swaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 897 1,946 2,891

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15 39 49

Total risk management derivatives fair value (losses) gains, net. . . . . . . . . . $ (407) $ 713 $ (2,283) $ 1,835

Mortgage commitment derivatives fair value (losses) gains, net. . . . . . . . . . . . . . (73) (169) (728) 459

Total derivatives fair value (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . $ (480) $ 544 $ (3,011) $ 2,294

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate derivative contracts. We are exposed to the risk 

that a counterparty in a derivative transaction will default on payments due to us, which may require us to seek a replacement 

derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable 

replacement. We manage our derivative counterparty credit exposure relating to our risk management derivative transactions 

mainly through enforceable master netting arrangements, which allow us to net derivative assets and liabilities with the same 

counterparty or clearing organization. For our risk management derivative transactions, we require counterparties to post 

collateral, which may include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities. 

See “Note 15, Netting Arrangements” for information on our rights to offset assets and liabilities.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

121

10. Income Taxes

We recognized a provision for federal income taxes of $1.8 billion for the three months ended September 30, 2014, which 

resulted in an effective tax rate of 31.4%. For the nine months ended September 30, 2014, we recognized a provision for 

federal income taxes of $6.1 billion, which resulted in an effective tax rate of 32.2%. 

We recognized a provision for federal income taxes of $1.4 billion for the three months ended September 30, 2013, which 

resulted in an effective tax rate of 13.4%. For the nine months ended September 30, 2013, we recognized a benefit for federal 

income taxes of $47.2 billion, which resulted in an effective tax rate of (155.9)%.

For the three months and nine months ended September 30, 2014, the effective tax rates were different from the federal 

statutory rate of 35% primarily due to the benefits of our investments in housing projects eligible for the low-income housing 

tax credit. Our effective tax rates for the three months and nine months ended September 30, 2013 were different from the 

statutory rate of 35% primarily due to the release of our valuation allowance for our net deferred tax assets. 

11. (Loss) Earnings Per Share

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 common stockholders. 

However, as a result of our conservatorship status and the terms of the senior preferred stock, no amounts are available to 

distribute as dividends to common or preferred stockholders (other than to Treasury as holder of the senior preferred stock). 

The following table displays the computation of basic and diluted (loss) earnings per share of common stock for the three and 

nine months ended September 30, 2014 and 2013. 

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2014 2013 2014 2013

(Dollars and shares in millions, except per share amounts)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,905 $ 8,744 $ 12,897 $ 77,524

Less: Net income attributable to noncontrolling interest . . . . . . . . — (7) (1) (18)

Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . . . 3,905 8,737 12,896 77,506

Dividends distributed or available for distribution to senior 

preferred stockholder(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,999) (8,617) (13,403) (78,228)

Net (loss) income attributable to common stockholders . . . . . . . . $ (94) $ 120 $ (507) $ (722)

Weighted-average common shares outstanding—Basic(2)

. . . . . . . 5,762 5,762 5,762 5,762

Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 131 — —

Weighted-average common shares outstanding—Diluted(2)

. . . . . . 5,762 5,893 5,762 5,762

(Loss) earnings per share: basic and diluted. . . . . . . . . . . . . . . . . . $ (0.02) $ 0.02 $ (0.09) $ (0.13)

__________

(1) Represents our dividend payments to Treasury under the terms of the senior preferred stock. Dividends distributed or available for 

distribution for the three months ended September 30, 2014 (relating to the dividend period for the three months ended December 31, 

2014) were calculated based on our net worth as of September 30, 2014 less the applicable capital reserve amount of $2.4 billion and 

for the nine months ended September 30, 2014 we added dividends paid on June 30 and September 30, 2014. Dividends distributed or 

available for distribution for the three months ended September 30, 2013 (relating to the dividend period for the three months ended 

December 31, 2013) were 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 added dividends paid on June 28 and September 30, 2013.

(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, 2014.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

122

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.

The following tables display our business segment financial results for the three and nine months ended September 30, 2014

and 2013. 

For the Three Months Ended September 30, 2014

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest income (loss) . . . . . . . . . . . . . . . . . $ 19 $ (22) $ 1,845 $ 3,088 $ 254 (3) $ 5,184

Benefit for credit losses. . . . . . . . . . . . . . . . . . . 1,029 56 — — — 1,085

Net interest income after benefit for credit

losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,048 34 1,845 3,088 254 6,269

Guaranty fee income (expense)(4)

. . . . . . . . . . . . 2,945 332 (235) (1,488)

(5) (1,502)(5) 52 (5)

Investment gains, net. . . . . . . . . . . . . . . . . . . . . — 8 1,516 21 (1,368)

(6) 177

Net other-than-temporary impairments. . . . . . . — — (6) — — (6)

Fair value (losses) gains, net. . . . . . . . . . . . . . . (4) — (335) 13 119 (7) (207)

Debt extinguishment (losses) gains, net . . . . . . — — (3) 14 — 11

Gains from partnership investments(8)

. . . . . . . . — 52 — — — 52

Fee and other income (expense) . . . . . . . . . . . . 146 32 579 (71) 88 774

Administrative expenses. . . . . . . . . . . . . . . . . . (468) (77) (161) — — (706)

Foreclosed property (expense) income . . . . . . . (281) 32 — — — (249)

TCCA fees(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (351) — — — — (351)

Other (expenses) income. . . . . . . . . . . . . . . . . . (136) 8 (5) — 9 (124)

Income before federal income taxes . . . . . . . . . 2,899 421 3,195 1,577 (2,400) 5,692

Provision for federal income taxes . . . . . . . . . . (837) (37) (913) — — (1,787)

Net income attributable to Fannie Mae . . . . $ 2,062 $ 384 $ 2,282 $ 1,577 $ (2,400) $ 3,905
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

123

For the Nine Months Ended September 30, 2014

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . . . . $ (24) $ (65) $ 5,592 $ 8,525 $ 798 (3) $ 14,826

Benefit for credit losses. . . . . . . . . . . . . . . . . . . 3,377 121 — — — 3,498

Net interest income after benefit for credit

losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,353 56 5,592 8,525 798 18,324

Guaranty fee income (expense)(4)

. . . . . . . . . . . . 8,708 960 (722) (4,367)

(5) (4,441)(5) 138 (5)

Investment (losses) gains, net . . . . . . . . . . . . . . (1) 50 4,500 (141) (3,579)

(6) 829

Net other-than-temporary impairments. . . . . . . — — (80) — — (80)

Fair value (losses) gains, net. . . . . . . . . . . . . . . (11) — (2,770) 232 218 (7) (2,331)

Debt extinguishment gains, net. . . . . . . . . . . . . — — 31 18 — 49

Gains from partnership investments(8)

. . . . . . . . — 131 — — 1 132

Fee and other income (expense) . . . . . . . . . . . . 471 87 4,848 (242) 262 5,426

Administrative expenses. . . . . . . . . . . . . . . . . . (1,376) (225) (474) — — (2,075)

Foreclosed property income . . . . . . . . . . . . . . . 154 73 — — — 227

TCCA fees(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,008) — — — — (1,008)

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . (528) (5) (70) — (8) (611)

Income before federal income taxes . . . . . . . . . 9,762 1,127 10,855 4,025 (6,749) 19,020

Provision for federal income taxes . . . . . . . . . . (2,897) (37) (3,189) — — (6,123)

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . 6,865 1,090 7,666 4,025 (6,749) 12,897

Less: Net income attributable to

noncontrolling interest. . . . . . . . . . . . . . . — — — — (1)

(9) (1)

Net income attributable to Fannie Mae . . . . $ 6,865 $ 1,090 $ 7,666 $ 4,025 $ (6,750) $ 12,896
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

124

For the Three Months Ended September 30, 2013(10)

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)(4)

. . . . . . . . . . . . 2,719 311 (273) (1,345)

(5) (1,361)(5) 51 (5)

Investment gains, net . . . . . . . . . . . . . . . . . . . . 1 3 1,590 77 (1,023)

(6) 648

Net other-than-temporary impairments . . . . . . — — (27) — — (27)

Fair value (losses) gains, net . . . . . . . . . . . . . . (2) — 371 (120) 86 (7) 335

Debt extinguishment gains, net . . . . . . . . . . . . — — 54 38 — 92

Gains from partnership investments(8)

. . . . . . . . — 121 — — 7 128

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

TCCA fees(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (276) — — — — (276)

Other expenses. . . . . . . . . . . . . . . . . . . . . . . . . (151) (3) (19) — (79) (252)

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)

(9) (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)

125

For the Nine Months Ended September 30, 2013(10)

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)(4)

. . . . . . . . . . 7,638 902 (855) (3,832)

(5) (3,697)(5) 156 (5)

Investment gains (losses), net . . . . . . . . . . . . . 4 14 3,837 (79) (2,720)

(6) 1,056

Net other-than-temporary impairments. . . . . . — — (42) — — (42)

Fair value (losses) gains, net. . . . . . . . . . . . . . (5) — 2,087 (538) 454 (7) 1,998

Debt extinguishment gains, net. . . . . . . . . . . . — — 17 79 — 96

Gains from partnership investments(8)

. . . . . . — 284 — — 18 302

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

TCCA fees(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . (695) — — — — (695)

Other (expenses) income. . . . . . . . . . . . . . . . . (473) (2) 31 — (118) (562)

Income before federal income taxes . . . . . . . . 16,365 1,393 13,515 3,679 (4,659) 30,293

Benefit for federal income taxes(11)

. . . . . . . . . 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)

(9) (18)

Net income attributable to Fannie Mae . . . $ 46,142 $ 9,363 $ 22,999 $ 3,679 $ (4,677) $ 77,506

__________

(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 in the Capital Markets group’s retained mortgage portfolio 

that on a GAAP basis are eliminated.

(4) Includes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which 

must be remitted to Treasury. The resulting revenue is included in guaranty fee income and the expense is recognized as “TCCA fees.” 

(5) 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.

(6) 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 in the Capital Markets group’s retained 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.

(7) Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are in the Capital Markets 

group’s retained mortgage portfolio.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

126

(8) Gains from partnership investments are included in other expenses in our condensed consolidated statements of operations and 

comprehensive income.

(9) Represents the adjustment from equity method of accounting to consolidated accounting for partnership investments that are 

consolidated in our consolidated balance sheets.

(10) Certain prior period amounts have been reclassified to conform to our current period presentation.

(11) Primarily represented the release of the valuation allowance for our deferred tax assets that generally is directly attributable to each 

segment based on the nature of the item.

13. Equity

The following table displays the activity in other comprehensive income (“OCI”), net of tax, by major categories for the three 

and nine months ended September 30, 2014 and 2013.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2014 2013 2014 2013

(Dollars in millions)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,905 $ 8,744 $12,897 $ 77,524

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on AFS securities (net of tax of $61 and $37,

respectively, for the three months ended and net of tax of $364 and $433,

respectively, for the nine months ended). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113 70 675 805

Reclassification adjustment for OTTI recognized in net income

(net of tax of $2 and $10, respectively, for the three months ended and net of

tax of $28 and $15, respectively, for the nine months ended). . . . . . . . . . . . . .

4 17 52 27

Reclassification adjustment for gains on AFS securities included in net income

(net of tax of $29 and $119, respectively, for the three months ended and net

of tax of $133 and $162, respectively, for the nine months ended) . . . . . . . . .

(54) (220) (247) (300)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (1) 32 154

Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 (134) 512 686

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000 $ 8,610 $13,409 $ 78,210

The following table displays our accumulated other comprehensive income (“AOCI”) by major categories as of September 

30, 2014 and December 31, 2013.

As of

September 30, December 31,

2014 2013

(Dollars in millions)

Net unrealized gains on AFS securities for which we have not recorded OTTI, net of tax. . . . . . $ 570 $ 365

Net unrealized gains on AFS securities for which we have recorded OTTI, net of tax. . . . . . . . . 1,537 1,262

Prior service cost and actuarial losses, net of amortization, net of tax . . . . . . . . . . . . . . . . . . . . . (363) (395)

Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) (29)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,715 $ 1,203
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

127

The table below displays changes in accumulated other comprehensive income, net of tax, for the three and nine months 

ended September 30, 2014 and 2013.

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2014 2013 2014 2013

AFS(1) Other Total AFS(1) Other(2) Total AFS(1) Other Total AFS(1) Other(2) Total

(Dollars in millions)

Beginning balance . . . . . . . . . $ 2,044 $ (424) $ 1,620 $ 1,599 $ (395) $ 1,204 $ 1,627 $ (424) $ 1,203 $ 934 $ (550) $ 384

OCI before

reclassifications. . . . . . . 113 32 145 70 (1) 69 675 32 707 805 144 949

Amounts reclassified from

OCI . . . . . . . . . . . . . . . . (50) — (50) (203) — (203) (195) — (195) (273) 10 (263)

Net OCI . . . . . . . . . . . . . . . 63 32 95 (133) (1) (134) 480 32 512 532 154 686

Ending balance. . . . . . . . . . . . $ 2,107 $ (392) $ 1,715 $ 1,466 $ (396) $ 1,070 $ 2,107 $ (392) $ 1,715 $ 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 AFS security or the 

recognition of a net impairment recognized in earnings, which are recorded in “Investments gains, net” and “Net other-than-temporary 

impairments,” respectively, in our condensed consolidated statements of operations.

(2) The amounts reclassified from AOCI represent activity from our defined benefit pension plans, which is recorded in “Salaries and 

employee benefits” in our condensed consolidated statements of operations.

14. Concentrations of Credit Risk

Mortgage Sellers and 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 and 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 47% of our single-family guaranty book of business as of 

September 30, 2014, compared with approximately 49% as of December 31, 2013. Our ten largest multifamily mortgage 

servicers, including their affiliates, serviced approximately 66% of our multifamily guaranty book of business as of 

September 30, 2014, compared with approximately 65% as of December 31, 2013.

If a significant mortgage seller or servicer counterparty, or a number of mortgage sellers or servicers, fails to meet their 

obligations to us, it could result in a significant increase in our credit losses and credit-related expense, 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 $107.3 billion and $102.5 

billion on the single-family mortgage loans in our guaranty book of business as of September 30, 2014 and December 31, 

2013, respectively, which represented 4% of our single-family guaranty book of business as of September 30, 2014 and 

December 31, 2013. Our primary mortgage insurance coverage risk in force was $106.3 billion and $101.4 billion as of 

September 30, 2014 and December 31, 2013, respectively. Our pool mortgage insurance coverage risk in force was $936 

million and $1.1 billion as of September 30, 2014 and December 31, 2013, respectively. Our top four mortgage insurance 

companies provided 79% and 78% of our mortgage insurance as of September 30, 2014 and December 31, 2013, 

respectively.

Of our largest primary mortgage insurers, PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation 

(“Triad”) and Republic Mortgage Insurance Company (“RMIC”) are under various forms of supervised control by their state 

regulators and are in run-off. These three mortgage insurers provided a combined $12.9 billion, or 12%, of our risk in force 

mortgage insurance coverage of our single-family guaranty book of business as of September 30, 2014.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

128

Effective March 7, 2014, the terms of PMI’s order regarding its deferred payment arrangements changed to increase its cash 

payments on policyholder claims from 55% to 67%. In addition, PMI has paid us sufficient amounts of its outstanding 

deferred payment obligations to bring payment on our claims to 67%. It is uncertain whether PMI will be permitted in the 

future to pay any remaining deferred policyholder claims and/or increase or decrease the amount of cash they pay on claims.

Effective July 1, 2014, the terms of RMIC’s order regarding its deferred payment arrangements changed to no longer defer 

payments on policyholder claims and to increase its cash payments from 60% to 100%. In addition, RMIC has paid us 

sufficient amounts of its outstanding deferred payment obligations to bring payment on our claims to 100%. Even though 

RMIC is no longer deferring payments on policyholder claims, RMIC remains in run-off and under the supervisory control of 

the North Carolina Department of Insurance.

Although the financial condition of our mortgage insurer counterparties currently approved to write new business has 

improved, there is still risk that our mortgage insurer counterparties may 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 

results of operations, liquidity, financial condition and net worth.

When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty obligations 

we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance recoveries would 

reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our mortgage insurer 

counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of the balance sheet 

date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage insurer 

counterparties’ ability to fulfill their respective obligations to us worsens, it could 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, 2014

and December 31, 2013 reduced our total loss reserves as of those dates.

As of

September 30, 2014 December 31, 2013

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,491 $ 6,751

Less: Collectibility adjustment(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 431

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,205 $ 6,320

__________

(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 $1.5 billion recorded in “Other assets” in our condensed consolidated balance sheets as of 

September 30, 2014 and $2.1 billion as of December 31, 2013 related to amounts claimed on insured, defaulted loans 

excluding government insured loans. Of this amount, $296 million as of September 30, 2014 and $402 million as of 

December 31, 2013 was due from our mortgage sellers or servicers. We assessed the total outstanding receivables for 

collectibility, and they are recorded net of a valuation allowance of $745 million as of September 30, 2014 and $655 million

as of December 31, 2013. The valuation allowance reduces our claim receivable to the amount which is considered probable 

of collection as of September 30, 2014 and December 31, 2013.

For information on credit risk associated with our derivative transactions and repurchase agreements refer to “Note 9, 

Derivative Instruments” and “Note 15, Netting Arrangements.”
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

129

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 that are either offset or not offset in our condensed consolidated balance sheets as of September 30, 2014 and 

December 31, 2013.

As of September 30, 2014

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 . . . . . . . . . . . $ 6,201 $(6,181) $ 20 $ — $ (14) $ 6

OTC-cleared risk management derivatives(4)

. . . 1,125 (21) 1,104 — — 1,104

Mortgage commitment derivatives . . . . . . . . . . . 106 — 106 (81) — 25

Total derivative assets. . . . . . . . . . . . . . . . . . . . 7,432 (6,202) 1,230 (5)(81) (14) 1,135

Securities purchased under agreements to resell 

or similar arrangements(6). . . . . . . . . . . . . . . . 39,950 — 39,950 — (39,950) —

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,382 $(6,202) $ 41,180 $ (81) $ (39,964) $ 1,135

Liabilities:

OTC risk management derivatives . . . . . . . . . . . $ (7,830) $ 7,538 $ (292) $ — $ — $ (292)

OTC-cleared risk management derivatives(4)

. . . (1,502) 1,502 — — — —

Mortgage commitment derivatives . . . . . . . . . . . (150) — (150) 81 — (69)

 Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . $ (9,482) $ 9,040 $ (442)

(5)

$ 81 $ — $ (361)

As of December 31, 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 . . . . . . . . . . . $ 8,491 $(8,422) $ 69 $ — $ (20) $ 49

Mortgage commitment derivatives . . . . . . . . . . . 265 — 265 (83) — 182

Total derivative assets. . . . . . . . . . . . . . . . . . . . 8,756 (8,422) 334 (5)(83) (20) 231

Securities purchased under agreements to resell 

or similar arrangements(6). . . . . . . . . . . . . . . . 50,565 — 50,565 — (50,565) —

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,321 $(8,422) $ 50,899 $ (83) $ (50,585) $ 231

Liabilities:

OTC risk management derivatives . . . . . . . . . . . $ (9,503) $ 9,370 $ (133) $ — $ — $ (133)

Mortgage commitment derivatives . . . . . . . . . . . (214) — (214) 83 — (131)

 Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . $ (9,717) $ 9,370 $ (347)

(5)

$ 83 $ — $ (264)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

130

__________

(1) Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same counterparty on 

a net basis, including cash collateral posted and received and accrued interest. 

(2) Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty 

under an enforceable master netting arrangement but we have not elected to offset the related amounts in our condensed consolidated 

balance sheets.

(3) Represents collateral 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. The fair value of non-cash collateral accepted for OTC risk management 

derivatives was $66 million and $24 million as of September 30, 2014 and December 31, 2013, respectively. The fair value of non-cash 

collateral accepted for securities purchased under agreements to resell or similar arrangements was $40.0 billion and $50.7 billion, of 

which $36.7 billion and $39.8 billion could be sold or repledged as of September 30, 2014 and December 31, 2013, respectively. None

of the underlying collateral was sold or repledged as of September 30, 2014 and December 31, 2013, respectively.

(4) Net amounts as of September 30, 2014 reflect netting of OTC-cleared derivative assets and liabilities where we have enforceable master 

netting arrangements.

(5) Excludes derivative assets of $26 million and $1.7 billion and derivative liabilities of $1 million and $1.1 billion recognized in our 

condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013, respectively, that are not subject to 

enforceable master netting arrangements.

(6) Includes $10.5 billion and $11.6 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, 2014 and December 31, 2013, 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.

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 and various rules 

and regulations that would govern the insolvency of a derivative counterparty. 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 OTC-cleared derivatives are governed under the rules of the clearing organization and the 

agreement between us and the clearing member of that clearing organization. In the event of a clearing organization default, 

all open positions at the clearing organization are closed and a net position is calculated. Unless otherwise transferred, in the 

event of a clearing member default, all open positions cleared through that clearing member are closed and a net position is 

calculated. 

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. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

131

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.

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. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

132

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, 2014 and December 31, 2013.

Fair Value Measurements as of September 30, 2014

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 . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 5,146 $ 325 $ — $ 5,471

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . — 1,500 — — 1,500

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 323 — — 323

Alt-A private-label securities . . . . . . . . . . . . — 440 695 — 1,135

Subprime private-label securities . . . . . . . . . — — 1,316 — 1,316

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,550 — — 2,550

Mortgage revenue bonds. . . . . . . . . . . . . . . . — — 693 — 693

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 99 — 99

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . . . 17,757 — — — 17,757

Total trading securities . . . . . . . . . . . . . . . . . . . . . 17,757 9,959 3,128 — 30,844

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 5,756 — — 5,756

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . — 5,806 6 — 5,812

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 498 — — 498

Alt-A private-label securities . . . . . . . . . . . . — 2,673 3,496 — 6,169

Subprime private-label securities . . . . . . . . . — — 5,386 — 5,386

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,467 — — 1,467

Mortgage revenue bonds. . . . . . . . . . . . . . . . — — 4,266 — 4,266

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 2,743 — 2,745

Total available-for-sale securities. . . . . . . . . . . . . — 16,202 15,897 — 32,099

Mortgage loans of consolidated trusts . . . . . . . . . — 13,391 1,871 — 15,262

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 7,068 97 — 7,165

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . — 161 — — 161

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 26 — 26

Netting adjustment . . . . . . . . . . . . . . . . . . . . — — — (6,202) (6,202)

Mortgage commitment derivatives . . . . . . . . . — 104 2 — 106

Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . — 7,333 125 (6,202) 1,256

Total assets at fair value . . . . . . . . . . . . . . . . $ 17,757 $ 46,885 $ 21,021 $ (6,202) $ 79,461
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

133

Fair Value Measurements as of September 30, 2014

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant 

Other

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 4,868 $ 336 $ — $ 5,204

Total of Fannie Mae . . . . . . . . . . . . . . . . . . . . . — 4,868 336 — 5,204

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . — 16,110 488 — 16,598

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . — 20,978 824 — 21,802

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8,315 123 — 8,438

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 894 — — 894

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — 1

Netting adjustment . . . . . . . . . . . . . . . . . . . . . — — — (9,040) (9,040)

Mortgage commitment derivatives . . . . . . . . . . — 140 10 — 150

Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . — 9,349 134 (9,040) 443

Total liabilities at fair value . . . . . . . . . . . . . . $ — $ 30,327 $ 958 $ (9,040) $ 22,245
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

134

Fair Value Measurements as of December 31, 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)

Assets:

Trading securities:

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 5,828 $ 42 $ — $ 5,870

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,837 2 — 1,839

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 407 — — 407

Alt-A private-label securities. . . . . . . . . . . . . . . — 898 618 — 1,516

Subprime private-label securities. . . . . . . . . . . . — — 1,448 — 1,448

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,718 — — 2,718

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . — — 565 — 565

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 99 — 99

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . . . . . . 16,306 — — — 16,306

Total trading securities. . . . . . . . . . . . . . . . . . . . . . . 16,306 11,688 2,774 — 30,768

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 6,566 7 — 6,573

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 6,834 8 — 6,842

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 588 — — 588

Alt-A private-label securities. . . . . . . . . . . . . . . — 3,558 3,791 — 7,349

Subprime private-label securities. . . . . . . . . . . . — — 7,068 — 7,068

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,606 — — 1,606

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . — 3 5,253 — 5,256

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4 2,885 — 2,889

Total available-for-sale securities . . . . . . . . . . . . . . — 19,159 19,012 — 38,171

Mortgage loans of consolidated trusts . . . . . . . . . . . — 11,564 2,704 — 14,268

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,604 36 — 9,640

Swaptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 561 1 — 562

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 28 — 28

Netting adjustment . . . . . . . . . . . . . . . . . . . . . . . — — — (8,422) (8,422)

Mortgage commitment derivatives. . . . . . . . . . . . — 265 — — 265

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,430 65 (8,422) 2,073

Total assets at fair value . . . . . . . . . . . . . . . . . . . $ 16,306 $ 52,841 $ 24,555 $ (8,422) $ 85,280
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

135

Fair Value Measurements as of December 31, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 353 $ — $ — $ 353

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 955 — 955

Total of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 353 955 — 1,308

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . — 14,458 518 — 14,976

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . — 14,811 1,473 — 16,284

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,444 96 — 9,540

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,084 — — 1,084

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — 1

 Netting adjustment . . . . . . . . . . . . . . . . . . . . . . . . — — — (9,370) (9,370)

Mortgage commitment derivatives . . . . . . . . . . . . . — 206 8 — 214

Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . — 10,734 105 (9,370) 1,469

Total liabilities at fair value . . . . . . . . . . . . . . . . . $ — $ 25,545 $ 1,578 $ (9,370) $ 17,753

__________

(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.

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, 2014 and 2013. 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, 2014 and 2013. 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)

136

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2014

Total Gains or (Losses) 

 (Realized/Unrealized) 

Net 

Unrealized 

Gains 

(Losses) 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2014(5)

Balance,

June 30, 2014

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, 2014

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . $ — $ — $ — $ — $ — $ — $ — $ — $ 325 $ 325 $ —

 Alt-A privatelabel securities. 643 2 — — — — (21) (16) 87 695 3

Subprime

private-label

securities . . . . . 1,282 66 — — — — (32) — — 1,316 66

Mortgage

revenue bonds . 643 53 — — — — (3) — — 693 46

 Other. . . . . . . . . . 101 1 — — — — (3) — — 99 1

Total trading

securities. . . . . . . $ 2,669 $ 122 $ — $ — $ — $ — $ (59) $ (16) $ 412 $ 3,128 $ 116

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . $ 2 $ — $ — $ — $ — $ — $ — $ (2) $ — $ — $ —

Freddie Mac . . . . 9 — — — — — (1) (2) — 6 —

 Alt-A privatelabel securities. 3,717 15 (60) — — — (111) (333) 268 3,496 —

 Subprime

private-label

securities . . . . . 5,705 87 89 — (317) — (178) — — 5,386 —

 Mortgage

revenue bonds . 4,560 (4) 200 — (12) — (478) — — 4,266 —

 Other. . . . . . . . . . 2,817 11 (3) — — — (82) — — 2,743 —

Total available-forsale securities . . . $ 16,810 $ 109 $ 226 $ — $ (329) $ — $ (850) $ (337) $ 268 $ 15,897 $ —

Mortgage loans of

consolidated

trusts. . . . . . . . . . $ 2,531 $ 116 $ — $ 3 $ — $ — $ (93) $ (750) $ 64 $ 1,871 $ (13)

Net derivatives. . . . . 20 (25) — — — — (9) — 5 (9) (9)

Long-term debt:

Of Fannie Mae:

Senior floating . $ (325) $ (10) $ — $ — $ — $ — $ (1) $ — $ — $ (336) $ (11)

Of consolidated

trusts . . . . . . . . (498) (14) — — — — 16 34 (26) (488) (14)

Total long-term debt. $ (823) $ (24) $ — $ — $ — $ — $ 15 $ 34 $ (26) $ (824) $ (25)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

137

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2014

Total (Losses) or Gains

(Realized/Unrealized)

Net 

Unrealized 

Gains 

(Losses) 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2014(5)

Balance,

December 31,

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, 2014

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . $ 42 $ (1) $ — $ — $ — $ — $ (2) $ (39) $ 325 $ 325 $ —

Freddie Mac . . . . 2 — — — — — — (2) — — —

 Alt-A privatelabel securities. 618 105 — — (23) — (59) (159) 213 695 100

Subprime

private-label

securities . . . . . 1,448 245 — — (241) — (136) — — 1,316 209

Mortgage

revenue bonds . 565 137 — — — — (9) — — 693 130

 Other. . . . . . . . . . 99 10 — — — — (10) — — 99 10

Total trading

securities. . . . . . . $ 2,774 $ 496 $ — $ — $ (264) $ — $ (216) $ (200) $ 538 $ 3,128 $ 449

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . $ 7 $ — $ — $ — $ — $ — $ (1) $ (8) $ 2 $ — $ —

Freddie Mac . . . . 8 — — — — — (1) (2) 1 6 —

 Alt-A privatelabel securities. 3,791 131 (11) — (320) — (310) (1,207) 1,422 3,496 —

 Subprime

private-label

securities . . . . . 7,068 388 270 — (1,666) — (674) — — 5,386 —

 Mortgage

revenue bonds . 5,253 (31) 480 — (70) — (1,366) — — 4,266 —

 Other. . . . . . . . . . 2,885 17 92 — — — (251) — — 2,743 —

Total available-forsale securities . . . $ 19,012 $ 505 $ 831 $ — $(2,056) $ — $ (2,603) $ (1,217) $ 1,425 $ 15,897 $ —

Mortgage loans of

consolidated

trusts. . . . . . . . . . $ 2,704 $ 243 $ — $ 34 $ — $ — $ (259) $ (1,063) $ 212 $ 1,871 $ 49

Net derivatives. . . . . (40) 52 — — — — (25) (1) 5 (9) 14

Long-term debt:

Of Fannie Mae:

Senior floating . $ (955) $ (115) $ — $ — $ — $ (750) $ 19 $ 1,465 $ — $ (336) $ (70)

Of consolidated

trusts . . . . . . . . (518) (48) — — — (1) 51 100 (72) (488) (45)

Total long-term debt. $ (1,473) $ (163) $ — $ — $ — $ (751) $ 70 $ 1,565 $ (72) $ (824) $ (115)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

138

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2013

Total (Losses) or Gains or

(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 private-label

securities. . . . . . . . 703 88 — — — — (42) (229) — 520 63

Subprime privatelabel 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 private-label

securities. . . . . . . . 7,008 120 (55) — (2,663) — (263) (1,150) 242 3,239 —

 Subprime privatelabel 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-for-sale

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)

139

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2013

Total (Losses) or Gains or

(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 privatelabel 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

__________

(1) Gains (losses) 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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

140

(4) Transfers out of Level 3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans, mortgage loans of 

consolidated trusts and credit risk sharing securities issued under our Connecticut Avenue Securities series. Prices for these securities 

were obtained from multiple third-party vendors or dealers 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.

(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, 2014 and 2013, 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, 2014

Interest

Income

Fair Value

Gains, net Net OTTI Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income . . . . $ 79 $ 185 $ (5) $ 39 $ 298

Net unrealized gains related to Level 3 assets and liabilities still held as

of September 30, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 69 $ — $ — $ 69

For the Nine Months Ended September 30, 2014

Interest

Income

Fair Value

Gains, net Net OTTI Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income . . . $219 $ 620 $ (69) $ 363 $1,133

Net unrealized gains related to Level 3 assets and liabilities still held

as of September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 397 $ — $ — $ 397

For the Three Months Ended September 30, 2013

Interest

Income

Fair Value

Gains, net Net OTTI 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 OTTI 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
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

141

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 loans for impairment) as of September 30, 2014 and December 31, 

2013.

Fair Value Measurements as of September 30, 2014

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 . . . . . . . . . . $ — $ 87 $ 151 $ 238

Single-family mortgage loans held for investment, at amortized cost:(1)

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 16,771 16,771

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 56 56

Multifamily mortgage loans held for investment, at amortized cost . . . — — 747 747

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4,544 4,544

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 157 157

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 39 39

Total nonrecurring fair value measurements. . . . . . . . . . . . . . . . . . . $ — $ 87 $ 22,465 $22,552

Fair Value Measurements as of December 31, 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)

Assets:

Mortgage loans held for sale, at lower of cost or fair value . . . . . . . . . . $ — $ 101 $ 132 $ 233

Single-family mortgage loans held for investment, at amortized cost:(1)

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19,966 19,966

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 79 79

Multifamily mortgage loans held for investment, at amortized cost . . . — — 1,533 1,533

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4,041 4,041

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 98 98

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 121 121

Total nonrecurring fair value measurements. . . . . . . . . . . . . . . . . . . $ — $ 101 $25,970 $26,071

_________

(1) Excludes estimated recoveries from mortgage insurance proceeds.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

142

The following table displays 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, 2014 and December 31, 

2013.

Fair Value Measurements as of September 30, 2014

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . $ 98 Single Vendor Prepayment Speed (%) 100.0 100.0

Spreads (bps) 47.3 - 153.2 114.9

56 Single Vendor

136 Consensus Prepayment Speed (%) 100.0 100.0

Spreads (bps) 4.1 - 199.1 31.8

34 Discounted Cash Flow Prepayment Speed (%) 100.0 100.0

Spreads (bps) 128.8 128.8

1 Other

Total Agency. . . . . . . . . . . . . . . . . . . . 325

Alt-A private-label securities(3). . . . . . $ 70 Single Vendor Default Rate (%) 7.2 - 15.9 9.5

Prepayment Speed (%) 1.6 - 4.2 3.5

Severity (%) 31.0 - 78.8 43.4

Spreads (bps) 242.7 - 253.3 250.6

127 Consensus Default Rate (%) 4.2 - 13.4 5.3

Prepayment Speed (%) 2.2 - 21.4 4.5

Severity (%) 39.2 - 57.2 41.4

Spreads (bps) 220.0 - 246.0 240.2

353 Consensus

110 Discounted Cash Flow Default Rate (%) 8.0 8.0

Prepayment Speed (%) 2.0 2.0

Severity (%) 69.4 69.4

Spreads (bps) 288.7 288.7

35 Other

Total Alt-A private-label securities . 695

Subprime private-label securities(3). . 539 Consensus Default Rate (%) 1.7 - 9.1 5.4

Prepayment Speed (%) 1.2 - 5.5 2.4

Severity (%) 34.6 - 94.3 79.0

Spreads (bps) 245.0 245.0

229 Consensus

147 Discounted Cash Flow Default Rate (%) 1.5 1.5

Prepayment Speed (%) 2.2 2.2

Severity (%) 62.0 62.0

Spreads (bps) 245.0 245.0

401 Other

Total subprime private-label

securities. . . . . . . . . . . . . . . . . . .

1,316

Mortgage revenue bonds . . . . . . . . . . . 672 Discounted Cash Flow Spreads (bps) 20.9 - 300.0 254.6

21 Other

Total mortgage revenue bonds. . . . . 693

Other . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Discounted Cash Flow Spreads (bps) 445.0 445.0

Total trading securities . . . . . . . . . . . . . . . $ 3,128
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

143

Fair Value Measurements as of September 30, 2014

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . $ 6 Other

Alt-A private-label securities(3). . . . . . 353 Single Vendor Default Rate (%) 1.9 - 24.1 5.1

Prepayment Speed (%) 4.1 - 11.6 7.8

Severity (%) 20.4 - 95.0 54.4

Spreads (bps) 154.2 - 295.0 223.8

1,242 Consensus Default Rate (%) 0.1 - 28.5 5.7

Prepayment Speed (%) 0.2 - 37.9 11.3

Severity (%) 13.5 - 95.0 67.1

Spreads (bps) 129.2 - 350.0 215.7

915 Consensus

467 Discounted Cash Flow Default Rate (%) 1.5 - 13.5 3.4

Prepayment Speed (%) 1.5 - 8.4 7.1

Severity (%) 26.5 - 92.8 48.0

Spreads (bps) 200.0 - 320.0 253.3

519 Other

Total Alt-A private-label securities . 3,496

Subprime private-label securities(3). . 337 Single Vendor

3,187 Consensus Default Rate (%) 1.9 - 33.2 6.4

Prepayment Speed (%) 0.2 - 14.4 2.8

Severity (%) 39.7 - 95.0 82.8

Spreads (bps) 135.0 - 245.0 197.7

1,095 Consensus

253 Discounted Cash Flow Default Rate (%) 2.5 - 7.5 6.4

Prepayment Speed (%) 1.4 - 8.4 2.3

Severity (%) 64.9 - 95.0 70.4

Spreads (bps) 135.0 - 250.0 217.8

514 Other

Total subprime private-label

securities. . . . . . . . . . . . . . . . . . . 5,386

Mortgage revenue bonds. . . . . . . . . . . 1,728 Single Vendor Spreads (bps) 3.5 - 378.6 61.0

557 Single Vendor

1,963 Discounted Cash Flow Spreads (bps) 3.5 - 604.6 244.6

18 Other

Total mortgage revenue bonds. . . . . 4,266

Other . . . . . . . . . . . . . . . . . . . . . . . . . . 666 Consensus Default Rate (%) 0.0 - 8.5 4.3

Prepayment Speed (%) 3.0 - 10.5 4.0

Severity (%) 0.5 - 85.0 60.1

Spreads (bps) 195.0 - 484.3 310.2

558 Consensus

632 Discounted Cash Flow Default Rate (%) 3.0 - 5.0 4.9

Prepayment Speed (%) 2.1 - 3.0 2.9

Severity (%) 33.9 - 85.0 81.5

Spreads (bps) 220.0 - 431.0 383.3

887 Other

Total Other . . . . . . . . . . . . . . . . . . . . 2,743

Total available-for-sale securities. . . . . . . $ 15,897
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

144

Fair Value Measurements as of September 30, 2014

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Mortgage loans of consolidated trusts:

Single-family . . . . . . . . . . . . . . . . . . . . . $ 972 Build-Up Default Rate (%) 0.0 - 98.0 15.2

Prepayment Speed (%) 3.5 - 99.3 14.8

Severity (%) 3.7 - 95.0 23.3

260 Consensus

409 Discounted Cash Flow Default Rate (%) 1.2 - 14.6 5.8

Prepayment Speed (%) 0.8 - 29.7 9.7

Severity (%) 44.4 - 95.0 69.9

Spreads (bps) 135.0 - 500.0 225.2

52 Other

Total single-family . . . . . . . . . . . . . . . 1,693

Multifamily . . . . . . . . . . . . . . . . . . . . . . 178 Build-Up Spreads (bps) 49.0 - 285.4 116.5

Total mortgage loans of consolidated

trusts . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,871

Net derivatives . . . . . . . . . . . . . . . . . . . . . $ (96) Internal Model

95 Dealer Mark

(8) Other

Total net derivatives . . . . . . . . . . . . . . . . $ (9)

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . . . . . . . $ (336) Discounted Cash Flow

Total of Fannie Mae . . . . . . . . . . . . . . (336)

Of consolidated trusts . . . . . . . . . . . . . . (208) Consensus

(84) Single Vendor

(142) Discounted Cash Flow Default Rate (%) 1.3 - 12.8 3.7

Prepayment Speed (%) 0.8 - 100.0 15.5

Severity (%) 44.4 - 95.0 66.0

Spreads (bps) 100.3 - 500.0 239.1

(54) Other

Total of consolidated trusts. . . . . . . . . (488)

Total long-term debt . . . . . . . . . . . . . . . . . $ (824)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

145

Fair Value Measurements as of December 31, 2013

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . . $ 44 Other

Alt-A private-label securities(3). . . . . . . . 60 Single Vendor Default Rate (%) 6.0 - 10.8 8.7

Prepayment Speed (%) 4.1 - 5.4 4.6

Severity (%) 76.1 - 92.7 83.1

Spreads (bps) 414.3 - 421.7 417.5

325 Consensus Default Rate (%) 6.9 - 10.4 8.9

Prepayment Speed (%) 1.9 - 2.5 2.2

Severity (%) 77.3 - 97.8 88.7

Spreads (bps) 298.3 - 420.2 366.3

85 Consensus

148 Discounted Cash Flow Default Rate (%) 4.0 - 6.9 6.5

Prepayment Speed (%) 1.9 - 3.4 2.2

Severity (%) 42.7 - 77.3 67.6

Spreads (bps) 325.4 - 439.4 418.6

Total Alt-A private-label securities. . . . . 618

Subprime private-label securities(3). . . . . 113 Single Vendor Default Rate (%) 3.1 - 7.5 3.9

Prepayment Speed (%) 1.8 - 2.5 2.0

Severity (%) 75.0 - 87.2 75.8

Spreads (bps) 325.0 325.0

77 Single Vendor

400 Consensus Default Rate (%) 3.0 - 9.2 6.4

Prepayment Speed (%) 1.4 - 2.2 1.9

Severity (%) 50.4 - 87.2 74.4

Spreads (bps) 325.0 - 425.0 353.0

808 Consensus

50 Discounted Cash Flow Default Rate (%) 6.9 6.9

Prepayment Speed (%) 0.1 0.1

Severity (%) 75.0 75.0

Spreads (bps) 325.0 325.0

Total subprime private-label securities . 1,448

Mortgage revenue bonds . . . . . . . . . . . . . 539 Discounted Cash Flow Spreads (bps) 35.0 - 440.0 340.6

26 Other

Total mortgage revenue bonds . . . . . . . 565

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Discounted Cash Flow Spreads (bps) 525.0 525.0

Total trading securities . . . . . . . . . . . . . . . . . $ 2,774
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

146

Fair Value Measurements as of December 31, 2013

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . . . . . . . $ 15 Other

Alt-A private-label securities(3). . . . . . . 139 Single Vendor Default Rate (%) 0.9 - 6.4 3.9

Prepayment Speed (%) 9.3 - 11.9 11.3

Severity (%) 53.7 - 82.6 68.8

Spreads (bps) 300.0 - 400.0 349.3

435 Single Vendor

1,948 Consensus Default Rate (%) 0.1 - 10.3 3.5

Prepayment Speed (%) 0.1 - 32.9 9.9

Severity (%) 7.2 - 100.0 62.3

Spreads (bps) 210.6 - 404.2 336.7

740 Consensus

420 Discounted Cash Flow Default Rate (%) 2.3 - 10.1 5.1

Prepayment Speed (%) 1.2 - 7.0 3.4

Severity (%) 45.2 - 79.5 60.5

Spreads (bps) 220.2 - 500.0 381.3

109 Other

Total Alt-A private-label securities. . . 3,791

Subprime private-label securities(3). . . . 442 Single Vendor Default Rate (%) 1.8 - 11.0 7.4

Prepayment Speed (%) 1.0 - 9.4 2.0

Severity (%) 65.0 - 100.0 82.2

Spreads (bps) 275.0 - 375.0 315.2

322 Single Vendor

2,981 Consensus Default Rate (%) 0.0 - 36.8 7.4

Prepayment Speed (%) 0.3 - 9.7 2.3

Severity (%) 36.8 - 100.0 81.7

Spreads (bps) 175.0 - 375.0 319.9

2,442 Consensus

816 Discounted Cash Flow Default Rate (%) 0.7 - 7.6 5.1

Prepayment Speed (%) 0.2 - 12.5 4.1

Severity (%) 43.8 - 98.0 79.5

Spreads (bps) 175.0 - 375.0 292.4

65 Other

Total subprime private-label securities 7,068

Mortgage revenue bonds . . . . . . . . . . . . 1,937 Single Vendor Spreads (bps) 0.0 - 463.2 112.1

1,386 Single Vendor

1,899 Discounted Cash Flow Spreads (bps) 5.5 - 490.0 310.0

31 Other

Total mortgage revenue bonds. . . . . . . 5,253

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Single Vendor

483 Consensus Default Rate (%) 0.1 - 5.0 5.0

Prepayment Speed (%) 3.0 - 11.4 3.0

Severity (%) 65.0 - 85.0 84.6

Spreads (bps) 275.0 - 925.0 526.4

625 Consensus

610 Discounted Cash Flow Default Rate (%) 5.0 5.0

Prepayment Speed (%) 10.0 10.0

Severity (%) 55.0 55.0

Spreads (bps) 300.0 - 511.0 469.5

1,045 Other

Total other . . . . . . . . . . . . . . . . . . . . . . 2,885

Total available-for-sale securities. . . . . . . . . $19,012
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

147

Fair Value Measurements as of December 31, 2013

Fair

Value

Significant Valuation

Techniques

Significant 

Unobservable Inputs(1) Range(1)

Weighted - 

Average(1)

(Dollars in millions)

Mortgage loans of consolidated trusts:

Single-family . . . . . . . . . . . . . . . . . . . . . . $ 1,828 Build-Up Default Rate (%) 0.1 - 95.6 15.7

Prepayment Speed (%) 2.3 - 37.6 14.1

Severity (%) 0.0 - 100.0 26.6

219 Consensus

112 Consensus Default Rate (%) 1.1 - 4.7 3.2

Prepayment Speed (%) 0.2 - 16.7 15.2

Severity (%) 63.9 - 89.5 85.6

Spreads (bps) 175.0 - 950.0 293.9

310 Discounted Cash Flow Default Rate (%) 1.2 - 15.7 7.0

Prepayment Speed (%) 1.9 - 16.7 7.0

Severity (%) 58.8 - 97.7 75.5

Spreads (bps) 175.0 - 360.6 252.1

60 Other

Total single-family . . . . . . . . . . . . . . . . 2,529

Multifamily . . . . . . . . . . . . . . . . . . . . . . . 175 Build-Up Spreads (bps) 62.0 - 243.4 114.3

Total mortgage loans of consolidated

trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,704

Net derivatives . . . . . . . . . . . . . . . . . . . . . . $ (64) Internal Model

32 Dealer Mark

(8) Other

Total net derivatives . . . . . . . . . . . . . . . . . $ (40)

Long-term debt:

Of Fannie Mae:

Senior floating. . . . . . . . . . . . . . . . . . . . $ (266) Discounted Cash Flow

(689) Consensus Default Rate (%) 0.2 0.2

Prepayment Speed (%) 8.4 8.4

Spreads (bps) 171.0 - 438.0 306.2

Total of Fannie Mae . . . . . . . . . . . . . . . (955)

Of consolidated trusts . . . . . . . . . . . . . . . (227) Consensus

(116) Consensus Default Rate (%) 1.1 - 4.7 3.2

Prepayment Speed (%) 0.2 - 16.7 15.2

Severity (%) 63.9 - 89.5 85.6

Spreads (bps) 175.0 - 950.0 295.1

(80) Single Vendor

(95) Other

Total of consolidated trusts. . . . . . . . . . (518)

Total long-term debt. . . . . . . . . . . . . . . . . . $ (1,473)

_________

(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 and Freddie Mac securities.

(3) Default Rate as disclosed represents the estimated beginning annualized rate of default and is used as a basis to forecast the future 

default rates that serve as an input for valuation.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis as of 

September 30, 2014 and December 31, 2013. The significant unobservable inputs related to these techniques primarily relate 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

148

to collateral dependent valuations. The related ranges and weighted averages are not meaningful when aggregated as they 

vary significantly from property to property.

Fair Value Measurements

as of 

Valuation Techniques

September 30,

2014

December 31,

2013

(Dollars in millions)

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair value . . . . . Consensus $ 113 $ 132

Build-Up 38 —

Total mortgage loans held for sale, at lower of cost or fair

value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 132

Single-family mortgage loans held for investment, at amortized

cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 16,771 19,966

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 56 79

Multifamily mortgage loans held for investment, at amortized

cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisals 16 39

Broker Price Opinions 100 248

Asset Manager Estimate 631 1,230

Other — 16

Total multifamily mortgage loans held for investment, at

amortized cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747 1,533

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 845 691

Appraisals 1,611 1,077

Walk Forwards 1,054 1,106

Internal Model 909 1,049

Other 125 118

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,544 4,041

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 5 24

Appraisals 66 65

Broker Price Opinions 86 9

Total multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 98

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisals 2 26

Internal Model 32 81

Other 5 14

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 121

Total nonrecurring assets at fair value . . . . . . . . . . . . . . . . . . . . . $ 22,465 $ 25,970

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 in more specific situations. 

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.

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 in active markets 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 
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activity or less transparency around these inputs to the valuation, these securities are classified as Level 3 of the valuation 

hierarchy.

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.

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.

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: 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 and then 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.
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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 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 certain key factors, including collateral value, 

cash flow characteristics and mortgage insurance repayment. Collateral value is derived from the current estimated mark-tomarket LTV ratio of the individual loan and, where appropriate, a state-level distressed property sales discount. Cash flow 

characteristics include attributes such as the weighted average coupon rate and loan payment history. 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 insurance 

are consistent with our credit loss forecast. Fair value is estimated from the extrapolation of indicative sample bids obtained 

from multiple active market participants plus the estimated value of any applicable mortgage insurance. 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. These loans are classified as Level 3 of the valuation 

hierarchy because significant inputs are unobservable. 

Internal Model: For loans whose value it has been determined should be based on collateral value, we use an internal 

proprietary distressed home price model. The internal model used in this process takes one of two approaches when valuing 

the collateral. 

The first approach relies on comparable foreclosed property sales to estimate the value of the target collateral. The 

comparable foreclosed property sales approach uses various factors such as geographic distance, transaction time and the 

value difference. The second approach referred to as the median Metropolitan Statistical Area (“MSA”) is based on the 

median of all the foreclosure sales of REOs in a specific MSA. Using this sales price, MSA level discount is computed and 

applied to the estimated non distressed value to derive an estimated fair value. If there are not enough REO sales in a specific 

MSA, a median state level foreclosure discount is used to estimate the fair value. 

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 median MSA is based 

on historical accuracy. 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. 

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 
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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 

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 next highest priority valuation methodology available, 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, 2014, these methodologies 

comprised approximately 78% of our valuations, while accepted offers comprised approximately 19% of our valuations. 

Based on the number of properties measured as of December 31, 2013, these methodologies comprised approximately 81%

of our valuations, while accepted offers comprised approximately 16% of our valuations.

Acquired property is classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 
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A description of our acquired property significant 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 

which is unobservable, is used along with recent and pending sales and current listings of similar properties to arrive at an 

estimate of value. 

We review the appraisals and broker price opinions received to determine if they have been performed in accordance with 

applicable standards and if the results are consistent with our observed transactions on similar properties. We make necessary 

adjustments as required.

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 
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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 Fannie Mae debt instruments 

and debt of consolidated trusts with embedded derivatives, which are recorded in our condensed consolidated balance sheets 

at fair value on a recurring basis. 

We classify debt instruments that have quoted market prices in active markets for similar liabilities when traded as assets as 

Level 2 of the valuation hierarchy. For all valuation techniques used for debts instruments where there is limited activity or 

less transparency around these inputs to the valuation, these debt instruments are classified as Level 3 of the valuation 

hierarchy.

A description of our debt valuation techniques is as follows: 

Consensus: We estimate the fair value of debt of Fannie Mae and our debt of consolidated trusts using an average of two or 

more vendor prices or dealer marks that represents estimated fair value for similar liabilities when traded as assets. 

Single Vendor: We estimate the fair value of debt of Fannie Mae and our debt of consolidated trusts using a single vendor 

price that represents estimated fair value for these liabilities when traded as assets. 

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 the debt of Fannie Mae and our debt of consolidated trusts using a discounted 

cash flow technique that uses spreads based on market assumptions where available. 

The valuation methodology and inputs used in estimating the fair value of MBS assets are described under “Trading 

Securities and Available-for-Sale Securities.” 

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 comprises 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 Management Group is responsible for establishing risk management controls and for reviewing models used in 

the determination of fair value measurements for financial reporting. 

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. The 

Pricing and Verification Group resides within our Finance Division and is independent of any trading or market related 

activities. 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 
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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 vendors 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 

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 Property Valuation Review Group reviews appraisals and broker price opinions to determine the most appropriate value 

by comparing data within these products with current comparable properties and market data. We conduct regular 

performance reviews of the counterparties that provide products and services for this process. In addition, valuation results 

and trend analyses are reviewed regularly by management responsible for valuing and disposing of real estate.

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments as of September 30, 

2014 and December 31, 2013. 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.
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As of September 30, 2014

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,847 $ 34,347 $ 10,500 $ — $ — $ 44,847

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . 29,450 — 29,450 — — 29,450

Trading securities . . . . . . . . . . . . . . . . . . . . . 30,844 17,757 9,959 3,128 — 30,844

Available-for-sale securities . . . . . . . . . . . . . 32,099 — 16,202 15,897 — 32,099

Mortgage loans held for sale . . . . . . . . . . . . . 368 — 164 210 — 374

Mortgage loans held for investment, net of

allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . 244,399 — 30,689 218,495 — 249,184

Of consolidated trusts . . . . . . . . . . . . . . . 2,765,436 — 2,625,535 170,704 — 2,796,239

Mortgage loans held for investment . . . . . . . 3,009,835 — 2,656,224 389,199 — 3,045,423

Advances to lenders. . . . . . . . . . . . . . . . . . . . 4,881 — 4,381 483 — 4,864

Derivative assets at fair value . . . . . . . . . . . . 1,256 — 7,333 125 (6,202) 1,256

Guaranty assets and buy-ups. . . . . . . . . . . . . 223 — — 676 — 676

Total financial assets . . . . . . . . . . . . . . . . . . . $ 3,153,803 $ 52,104 $ 2,734,213 $ 409,718 $ (6,202) $ 3,189,833

Financial liabilities:

Short-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . $ 97,399 $ — $ 97,420 $ — $ — $ 97,420

 Of consolidated trusts. . . . . . . . . . . . . . . . 1,804 — — 1,804 — 1,804

Long-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 377,553 — 387,920 942 — 388,862

 Of consolidated trusts. . . . . . . . . . . . . . . . 2,724,724 — 2,752,301 16,457 — 2,768,758

Derivative liabilities at fair value . . . . . . . . . 443 — 9,349 134 (9,040) 443

Guaranty obligations . . . . . . . . . . . . . . . . . . . 404 — — 1,811 — 1,811

Total financial liabilities . . . . . . . . . . . . . . . . $ 3,202,327 $ — $ 3,246,990 $ 21,148 $ (9,040) $ 3,259,098
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As of December 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,223 $ 36,633 $ 11,590 $ — $ — $ 48,223

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements . . . . . . . . . . . . . . . . . . . . . . . 38,975 — 38,975 — — 38,975

Trading securities . . . . . . . . . . . . . . . . . . . . . 30,768 16,306 11,688 2,774 — 30,768

Available-for-sale securities . . . . . . . . . . . . . 38,171 — 19,159 19,012 — 38,171

Mortgage loans held for sale . . . . . . . . . . . . . 380 — 185 195 — 380

Mortgage loans held for investment, net of

allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . 259,638 — 29,920 215,960 — 245,880

Of consolidated trusts . . . . . . . . . . . . . . . 2,766,222 — 2,569,747 176,395 — 2,746,142

Mortgage loans held for investment . . . . . . . 3,025,860 — 2,599,667 392,355 — 2,992,022

Advances to lenders. . . . . . . . . . . . . . . . . . . . 3,727 — 3,165 523 — 3,688

Derivative assets at fair value . . . . . . . . . . . . 2,073 — 10,430 65 (8,422) 2,073

Guaranty assets and buy-ups. . . . . . . . . . . . . 267 — — 706 — 706

Total financial assets . . . . . . . . . . . . . . . . . . . $ 3,188,444 $ 52,939 $ 2,694,859 $ 415,630 $ (8,422) $ 3,155,006

Financial liabilities:

Short-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . $ 72,295 $ — $ 72,304 $ — $ — $ 72,304

 Of consolidated trusts. . . . . . . . . . . . . . . . 2,154 — — 2,154 — 2,154

Long-term debt:

 Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 457,139 — 463,991 1,557 — 465,548

 Of consolidated trusts. . . . . . . . . . . . . . . . 2,702,935 — 2,684,224 13,362 — 2,697,586

Derivative liabilities at fair value . . . . . . . . . 1,469 — 10,734 105 (9,370) 1,469

Guaranty obligations . . . . . . . . . . . . . . . . . . . 485 — — 2,433 — 2,433

Total financial liabilities . . . . . . . . . . . . . . . . $ 3,236,477 $ — $ 3,231,253 $ 19,611 $ (9,370) $ 3,241,494

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.

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 
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loans and are described under “Fair Value Measurement—Mortgage Loans Held for Investment.” These loans are classified 

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.

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 

similar 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 $2.9 billion as of September 30, 

2014 and $11.5 billion as of December 31, 2013. The total fair value of our mortgage loans that have been refinanced under 

HARP as presented in the table above is $314.9 billion as of September 30, 2014 and $306.9 billion as of December 31, 

2013.

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. If we were 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 inputs.

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 as Level 3. 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 also classified as Level 3.

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. Therefore, we take a further discount of 

the present value for these liquidity considerations. This discount is based on market quotes from third-party pricing services.

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 as Level 3. The valuation 

methodology and inputs used in estimating the fair value of the guaranty obligations are described under “Fair Value 

Measurement—Mortgage Loans Held for Investment, Build-up.”
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Fair Value Option

We elected the fair value option for our credit risk sharing debt securities issued under our Connecticut Avenue Securities 

series and certain loans of consolidated trusts 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. 

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 “Interest income—Mortgage loans” and interest expense for the debt 

instruments is recorded in “Interest expense—Long-term debt” in our condensed consolidated statements of operations and 

comprehensive income. 

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, 2014 and December 31, 2013. 

As of

September 30, 2014 December 31, 2013

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. . . . . . . . . . . . . . . . . $ 15,262 $ 5,204 $ 16,598 $ 14,268 $ 1,308 $ 14,976

Unpaid principal balance . . . . 14,829 5,188 15,229 14,440 1,290 13,988

__________

(1) Includes nonaccrual loans with a fair value of $215 million and $196 million as of September 30, 2014 and December 31, 2013, 

respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2014 and 

December 31, 2013 was $67 million and $74 million, respectively. Includes loans that are 90 days or more past due with a fair value of 

$272 million and $288 million as of September 30, 2014 and December 31, 2013, respectively. The difference between unpaid principal 

balance and the fair value of these 90 or more days past due loans as of September 30, 2014 and December 31, 2013 was $74 million

and $75 million, respectively.

(2) Includes interest-only debt instruments with no unpaid principal balance and a fair value of $120 million and $85 million as of 

September 30, 2014 and December 31, 2013, respectively.
FANNIE MAE

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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 (losses) 

gains, net” in our condensed consolidated statements of operations and comprehensive income for the three and nine months 

ended September 30, 2014 and 2013.

For the Three Months Ended September 30,

2014 2013

Loans

LongTerm

Debt

Total

Gains

(Losses) Loans

LongTerm

Debt

Total

(Losses)

Gains

(Dollars in millions)

Changes in instrument-specific credit risk . . . . . . . . . . . . . . . . . . $ 67 $ 187 $ 254 $ (94) $ 1 $ (93)

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33) (27) (60) 143 (138) 5

Fair value (losses) gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34 $ 160 $ 194 $ 49 $ (137) $ (88)

For the Nine Months Ended September 30,

2014 2013

Loans

LongTerm

Debt

Total

Gains Loans

LongTerm

Debt

Total

Losses

(Dollars in millions)

Changes in instrument-specific credit risk . . . . . . . . . . . . . . . . . . $ 92 $ 60 $ 152 $ (93) $ (2) $ (95)

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 (364) 97 (563) 267 (296)

Fair value (losses) gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 553 $ (304) $ 249 $ (656) $ 265 $ (391)

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 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, where we are a party, intend to 

defend these matters vigorously. However, legal actions and proceedings of all types are subject to many uncertain factors 
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that generally cannot be predicted with assurance. Accordingly, the outcome of any given matter and the amount or range of 

potential loss at particular points in time is frequently difficult to ascertain. Uncertainties can include how fact finders will 

evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how courts will apply the law. 

Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel may view the evidence 

and applicable law. 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 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 loss, 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 indeterminate or unspecified damages, where there may be novel or unsettled legal questions relevant to the 

proceedings, or where settlement negotiations have not occurred or progressed. 

Given the uncertainties involved in any action or proceeding, regardless of whether we have established 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. 

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that 

arise in the ordinary course of business that we do not expect will have a material impact on our business or financial 

condition. We have also advanced fees and expenses of certain current and former officers and directors in connection with 

various legal proceedings pursuant to our bylaws and indemnification agreements. 

In re Fannie Mae Securities Litigation

Fannie Mae was a defendant in a consolidated class action lawsuit initially filed in 2004 that was 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 alleged 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 contended that Fannie Mae’s 

accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of 

premiums and discounts, and sought 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. 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, and on December 5, 2013, granted final approval of the settlement, dismissed the case with prejudice, 

and entered an order and judgment effecting the settlement. Fannie Mae’s contribution to the settlement did not have a 

material impact on our results of operations or financial condition. On January 9, 2014, Rinis Travel Service, Inc. Profit 

Sharing Trust U.A. 61-1989, a purported class member, appealed the court’s approval order with the U.S. Court of Appeals 

for the District of Columbia, but voluntarily dismissed the appeal with prejudice on March 13, 2014. On January 29, 2014, an 

individual purported class member also appealed the settlement approval, and plaintiffs-appellees moved to dismiss this 
FANNIE MAE

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appeal on February 6, 2014. The motion to dismiss the appeal was granted on May 8, 2014. On June 9, 2014, the individual 

filed a petition for rehearing en banc. That petition was denied on June 25, 2014. 

The time for further appeals has expired and this matter is concluded with respect to Fannie Mae.

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) alleged 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 alleged 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 sought 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. 

Plaintiffs filed a second amended joint consolidated class action complaint on March 2, 2012, renewing the remaining claims 

and adding 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. 

On July 15, 2014, the parties reached an agreement in principle to settle this litigation. The proposed settlement amount did 

not have a material impact on our results of operations or financial condition. On October 24, 2014, lead plaintiffs filed a 

motion seeking preliminary approval of the settlement, certification of the settlement classes, and approval of a notice to be 

sent to class members. 

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. 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 
FANNIE MAE

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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). The 

court denied the motion for reconsideration on April 21, 2014. 

On October 31, 2014, we reached an agreement in principle with the plaintiffs that would resolve this matter on behalf of all 

parties. The proposed settlement amount did not have any impact on our results of operations or financial condition.

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. 

Fannie Mae filed its answer to the amended complaint on October 29, 2012. 

We do not expect that the reasonably possible loss or range of loss arising from this litigation will have a material impact on 

our results of operations or financial condition. 

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 on March 2, 

2012. On August 30, 2012, the court denied defendants’ motion 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, but granted defendants’ motions to dismiss the state law claims. Fannie Mae filed its answer to the 

amended complaint on October 29, 2012. 

We do not expect that the reasonably possible loss or range of loss arising from this litigation will have a material impact on 

our results of operations or financial condition. 
FANNIE MAE

(In conservatorship)

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Senior Preferred Stock Purchase Agreements Litigation

A number of putative class action lawsuits were filed in the U.S. District Court for the District of Columbia against us, FHFA

as our conservator, Treasury and Freddie Mac from July through September 2013 by shareholders of Fannie Mae and/or 

Freddie Mac challenging the August 2012 amendment to each company’s senior preferred stock purchase agreement with 

Treasury. These lawsuits were consolidated and, on December 3, 2013, plaintiffs (preferred and common shareholders of 

Fannie Mae and/or Freddie Mac) filed a consolidated class action complaint in the U.S. District Court for the District of 

Columbia against us, FHFA as our conservator, Treasury and Freddie Mac (“In re Fannie Mae/Freddie Mac Senior Preferred 

Stock Purchase Agreement Class Action Litigations”). The preferred shareholder plaintiffs allege that the August 2012 

amendments to the terms of the senior preferred stock purchase agreements 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 of the shareholders’ rights, particularly the right to receive dividends. The common shareholder 

plaintiffs allege that the August 2012 amendments constituted a taking of their property by requiring that all future profits of 

Fannie Mae and Freddie Mac be paid to Treasury. Plaintiffs allege claims for breach of contract and breach of the implied 

covenant of good faith and fair dealing against us, FHFA and Freddie Mac, a takings claim against FHFA and Treasury, and a 

breach of fiduciary duty claim derivatively on our and Freddie Mac’s behalf against FHFA and Treasury. Plaintiffs seek to 

represent several classes of preferred and/or common shareholders of Fannie Mae and/or Freddie Mac who held stock as of 

the public announcement of the August 2012 amendments. Plaintiffs seek unspecified damages, equitable and injunctive 

relief, and costs and expenses, including attorneys’ fees.

A non-class action suit, Arrowood Indemnity Company v. Fannie Mae, was filed in the U.S. District Court for the District of 

Columbia on September 20, 2013 by preferred shareholders against us, FHFA as our conservator, the Director of FHFA (in 

his official capacity), Treasury, the Secretary of the Treasury (in his official capacity) and Freddie Mac. Plaintiffs bring claims 

for breach of contract and breach of the implied covenant of good faith and fair dealing against us, FHFA and Freddie Mac, 

and claims for violation of the Administrative Procedure Act against the FHFA and Treasury defendants, alleging that the net 

worth sweep provisions nullified certain rights of the preferred shareholders, particularly the right to receive dividends. 

Plaintiffs seek damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. 

On September 30, 2014, the court dismissed both lawsuits. Plaintiffs in Arrowood Indemnity Company v. Fannie Mae filed a 

notice of appeal on October 9, 2014, and plaintiffs in In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase 

Agreement Class Action Litigations filed a notice of appeal on October 15, 2014. On October 27, 2014, the U.S. Court of 

Appeals for the D.C. Circuit consolidated these appeals with appeals in two other cases involving the same subject matter, but 

to which we are not a party.

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 Director of FHFA (in his official capacity) 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 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 the Capital Magnet Fund until further notice. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

164

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. Plaintiffs filed an amended complaint on October 29, 2013. FHFA filed a 

motion to dismiss the amended complaint on December 6, 2013, and the court granted FHFA’s motion to dismiss on 

September 29, 2014.

We cannot predict the course or the outcome of this lawsuit.
165

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, Including Interest 

Rate Risk Management.”

Item 4. Controls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls 

and procedures as well as internal control over financial reporting, as further described below.

Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that 

information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, 

summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and 

procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information 

required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated 

to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions 

regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management 

recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable 

assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and 

implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief 

Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as in effect as of 

September 30, 2014, 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, 2014 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of September 30, 2014 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, 2014 or as of the date of this filing, and we 

continue to have a material weakness in our internal control over financial reporting. This material weakness is described in 

more detail below under “Description of Material Weakness.” Based on discussions with FHFA and the structural nature of 

this material weakness, we do not expect to remediate this material weakness while we are under conservatorship.

Description of Material Weakness

The Public Company Accounting Oversight Board’s Auditing Standard 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, 2014 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 

policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test 
166

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, 2014 or as of the date 

of filing this report. Based on discussions with FHFA and the structural nature of this weakness, we do not expect to 

remediate this material weakness while we are under conservatorship.

Mitigating Actions 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 Division of Conservatorship, which is intended to facilitate operation of the company with 

the oversight of the conservator.

• We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also 

have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and 

comment prior to release.

• FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly 

report on Form 10-Q for the quarter ended September 30, 2014 (“Third Quarter 2014 Form 10-Q”), and engaged in 

discussions regarding issues associated with the information contained in those filings. Prior to filing our Third 

Quarter 2014 Form 10-Q, FHFA provided Fannie Mae management with a written acknowledgment that it had 

reviewed the Third Quarter 2014 Form 10-Q, and it was not aware of any material misstatements or omissions in the 

Third Quarter 2014 Form 10-Q and had no objection to our filing the Third Quarter 2014 Form 10-Q.

• The 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

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, 2014 that management believes have materially affected, or are 

reasonably likely to materially affect, our internal control over financial reporting.
167

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 2013 Form 10-K, our First Quarter 2014 Form 10-Q and our Second Quarter 2014 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 2013 Form 10-K, our First Quarter 2014 Form 10-Q or 

our Second Quarter 2014 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 2013 Form 10-K in “Legal Proceedings,” in the third quarter of 2011, FHFA, as conservator, filed 

sixteen lawsuits on behalf of both Fannie Mae 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. 

As described in our 2013 Form 10-K, our First Quarter 2014 Form 10-Q and our Second Quarter 2014 Form 10-Q, twelve of 

these lawsuits were resolved in 2013 and the first and second quarters of 2014. The following additional lawsuits were 

resolved in the third quarter of 2014:

• Goldman Sachs. On August 22, 2014, we and FHFA entered into a settlement agreement with Goldman Sachs & Co. 

and certain related entities resolving our claims in the Goldman Sachs case. Under the terms of the agreement, 

Goldman Sachs paid us approximately $1.0 billion in connection with releases and its purchase of specified 

securities that were the subject of our claims in the suit. On August 27, 2014, the district court entered a voluntary 

order dismissing the case.

• HSBC. On September 12, 2014, we, along with FHFA and Freddie Mac, entered into a settlement agreement with 

HSBC North America Holdings Inc. and certain related entities resolving the HSBC North America Holdings Inc. 

case for a payment of $550 million. HSBC paid us $176 million of this amount in September 2014. On September 

17, 2014, the district court entered a voluntary order dismissing the case.

The other two lawsuits filed by FHFA on our behalf remain pending. 

Senior Preferred Stock Purchase Agreements Litigation

Between June 2013 and August 2014, several lawsuits were filed by preferred and common stockholders of Fannie Mae and 

Freddie Mac in the U.S. Court of Federal Claims, the U.S. District Court for the District of Columbia and the U.S. District 

Court for the Southern District of Iowa against the United States, Treasury and/or FHFA, challenging actions taken by the 

defendants relating to the senior preferred stock purchase agreements and the conservatorships of Fannie Mae and Freddie 

Mac. Some of these lawsuits also contain claims against Fannie Mae and Freddie Mac. The legal claims being advanced by 

one or more of these lawsuits include challenges to the net worth sweep dividend provisions of the senior preferred stock that 

were implemented pursuant to the August 2012 amendments to the agreements, as well as to FHFA’s decision to require 

Fannie Mae and Freddie Mac to draw funds from Treasury in order to pay dividends to Treasury during conservatorship. The 

plaintiffs seek various forms of equitable and injunctive relief, including rescission of the August 2012 amendments, as well 

as damages. On September 30, 2014, the U.S. District Court for the District of Columbia dismissed all but one of the cases 

pending before that court. The plaintiffs in each of the dismissed cases have filed a notice of appeal. The plaintiffs in the case 

that was not dismissed by the court voluntarily dismissed their lawsuit on October 31, 2014. The matters where Fannie Mae 

is a named defendant are described below and in “Note 17, Commitments and Contingencies.”
168

Fannie Mae is a nominal defendant in two actions filed against the United States in the U.S. Court of Federal Claims: Fisher 

v. United States of America, filed on December 2, 2013, and Rafter v. United States of America, filed on August 14, 2014. 

Plaintiffs in these cases allege that the net worth sweep dividend provisions of the senior preferred stock that were 

implemented pursuant to the August 2012 amendment to the senior preferred stock purchase agreement constitute a taking of 

Fannie Mae’s property without just compensation in violation of the U.S. Constitution. The Fisher plaintiffs are pursuing this 

claim derivatively on behalf of Fannie Mae, while the Rafter plaintiffs are pursing the claim directly against the United 

States. Plaintiffs in Rafter also allege a derivative claim that the government breached an implied contract with Fannie Mae’s 

Board of Directors by implementing the net worth sweep dividend provisions. Plaintiffs in Fisher request just compensation 

to Fannie Mae in an unspecified amount. Plaintiffs in Rafter seek just compensation to themselves on their constitutional 

claim and payment of damages to Fannie Mae on their derivative claim for breach of an implied contract. The United States 

filed a motion to dismiss the Fisher case on January 23, 2014; however, the court has stayed proceedings in this case until 

discovery in a related case, Fairholme Funds v. United States, is complete and the court sets a date for the Fairholme 

plaintiffs to respond to the government’s motion to dismiss filed in that case. In the Rafter case, the court has ordered the 

government to file a response to the complaint within sixty days after discovery is complete in the Fairholme Funds case.

LIBOR Lawsuit

On October 6, 2014, Fannie Mae filed an amended complaint in its lawsuit pending 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 (“BBA”) and BBA LIBOR Ltd. 

alleging they manipulated LIBOR. The amended complaint alleges, among other things, that the banks submitted false 

borrowing costs to the BBA in order to suppress LIBOR. The amended complaint seeks compensatory and punitive damages 

based on claims for breach of contract, breach of the implied duty of good faith and fair dealing, unjust enrichment, fraud and 

conspiracy to commit fraud. 

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 2013 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 2013 

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 and in our 2013 Form 10-K, we face risks and uncertainties not currently known to us or that we currently believe are 

immaterial. 

The future of our company is uncertain.

There continues to be significant 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 and 

whether we will continue to exist following conservatorship.

In 2011, the Administration released a report to Congress on ending the conservatorships of the GSEs and reforming 

America’s housing finance market. The report provides that the Administration will work with FHFA to determine the best 

way to responsibly reduce Fannie Mae and Freddie Mac’s role in the market and ultimately wind down both institutions. The 

report also addresses three options for a reformed housing finance system. The report does not state whether or how the 

existing infrastructure or human capital of Fannie Mae may be used in the establishment of such a reformed system. The 

report emphasizes the importance of proceeding with a careful transition plan and providing the necessary financial support 

to Fannie Mae and Freddie Mac during the transition period. In August 2013, the White House released a paper confirming 

that a core principle of the Administration’s housing policy priorities is to wind down Fannie Mae and Freddie Mac through a 

responsible transition. In January 2014, the White House issued a fact sheet reaffirming the Administration’s view that 

housing finance reform should include ending Fannie Mae and Freddie Mac’s business model.
169

In May 2014, FHFA released its 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac. Although the 

strategic plan no longer involves specific steps to contract Fannie Mae’s and Freddie Mac’s market presence, it retains a goal 

focused on ways to bring additional private capital into the system in order to reduce taxpayer risk. In addition, the strategic 

plan includes a goal that involves working toward the development of the operational and systems capabilities to issue a 

single common security for Fannie Mae and Freddie Mac. We believe the development of a single common security would 

likely reduce, and could eliminate, the trading advantage Fannie Mae mortgage-backed securities have over Freddie Mac 

mortgage-backed securities. If this occurs, we believe it would negatively impact our ability to compete for mortgage assets 

in the secondary market, and therefore could adversely affect our results of operations.

In both the first and second sessions of the current Congress, members of Congress considered several bills to reform the 

housing finance system, including bills that, among other things, would require Fannie Mae and Freddie Mac to be wound 

down after a period of time and place certain restrictions on Fannie Mae’s and Freddie Mac’s activities prior to being wound 

down. We expect that Congress will continue to hold hearings and consider legislation on the future status of Fannie Mae and 

Freddie Mac, including proposals that would result in Fannie Mae’s liquidation or dissolution. Congress or FHFA may also 

consider legislation or regulation aimed at increasing the competition we face or reducing our market share. We cannot 

predict the prospects for the enactment, timing or final content of housing finance reform legislation. See “Business—

Housing Finance Reform” in our 2013 Form 10-K, “Legislative and Regulatory Developments—Housing Finance Reform” 

in our First Quarter 2014 Form 10-Q and “Legislative and Regulatory Developments—Housing Finance Reform and the Role 

of the GSEs” in our Second Quarter 2014 Form 10-Q and in this report for more information about the Administration’s 

report and paper, and Congressional proposals regarding housing finance reform.

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, 2014, we did not sell any equity 

securities.

Information about Certain Securities Issuances by Fannie Mae

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct 

financial obligation or become directly or contingently liable for a material obligation under an 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 2014.
170

Dividend Restrictions 

Our payment of dividends is subject to the following restrictions: 

Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not pay any 

dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. In addition, FHFA’s 

regulations relating to conservatorship and receivership operations prohibit us from paying any dividends while in 

conservatorship unless authorized by the Director of FHFA. The Director of FHFA 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 and the 

senior preferred stock were amended to ultimately require the payment of our entire net worth to Treasury. As a result, our net 

income is not available to common stockholders. For more information on the terms of the senior preferred stock purchase 

agreement and senior preferred stock, see “Business—Conservatorship and Treasury Agreements—Treasury Agreements—

Senior Preferred Stock Purchase Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant” in 

our 2013 Form 10-K.

Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to the prior 

payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all outstanding 

preferred stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred 

stock. 

Statutory Restrictions. Under the 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. 

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.
171

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 6, 2014

By: /s/ David C. Benson

David C. Benson

Executive Vice President and

Chief Financial Officer

Date: November 6, 2014
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 (Commission file number 

001-34140) for the year ended December 31, 2010, 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 (Commission file number 001-34140) for the year ended

December 31, 2008, filed February 26, 2009.)

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. 
FR020