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, 2012

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, 2012, there were 1,158,077,970 shares of common stock of the registrant outstanding.
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TABLE OF CONTENTS

Page

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

Item 1.

Item 2.

Item 3.

Item 4.

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

Item 1.

Item 1A.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Financial Statements

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

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). . . . . . . . . . . . 90

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

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

Note 2—Consolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Note 3—Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Note 4—Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Note 5—Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Note 6—Financial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Note 7—Acquired Property, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Note 8—Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Note 9—Derivative Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Note 10—Segment Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Note 11—Concentration of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Note 12—Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Note 13—Commitments and Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

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

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

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Legislative and Regulatory Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Critical Accounting Policies and Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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

Business Segment Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Consolidated Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Supplemental Non-GAAP Information—Fair Value Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Liquidity and Capital Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

163

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Unregistered Sales of Equity Securities and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
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MD&A TABLE REFERENCE

Table Description Page

1 Treasury Draws and Senior Preferred Stock Dividend Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period. . . . . 6

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

4 Level 3 Recurring Financial Assets at Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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

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

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

8 Impact of Nonaccrual Loans on Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

9 Fair Value Losses, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

10 Total Loss Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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

12 Nonperforming Single-Family and Multifamily Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

13 Credit Loss Performance Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

14 Single-Family Credit Loss Sensitivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

15 Single-Family Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

16 Multifamily Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

17 Capital Markets Group Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

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

19 Capital Markets Group’s Mortgage Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

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

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

22 Analysis of Losses on Alt-A and Subprime Private-Label Mortgage-Related Securities. . . . . . . . . . . . . . 43

23 Credit Statistics of Loans Underlying Alt-A and Subprime Private-Label Mortgage-Related Securities

(Including Wraps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

24 Comparative Measures—GAAP Change in Stockholders’ Equity (Deficit) and Non-GAAP Change in

Fair Value of Net Assets (Net of Tax Effect). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

25 Supplemental Non-GAAP Consolidated Fair Value Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

26 Activity in Debt of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

27 Outstanding Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

28 Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year. . . . . . . . . . . . . . . . . . . 53

29 Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year. . . . . . . . . . . . . . 54

30 Cash and Other Investments Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

31 Fannie Mae Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

32 Composition of Mortgage Credit Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

33 Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business. 60

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

Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

35 Delinquency Status of Single-Family Conventional Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

36 Single-Family Serious Delinquency Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

37 Single-Family Conventional Serious Delinquency Rate Concentration Analysis . . . . . . . . . . . . . . . . . . . 67

38 Statistics on Single-Family Loan Workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

39 Percentage of Loan Modifications That Were Current or Paid Off at One and Two Years PostModification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
iii

Table Description Page

40 Single-Family Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

41 Single-Family Foreclosed Property Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

42 Multifamily Lender Risk-Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

43 Multifamily Guaranty Book of Business Key Risk Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

44 Multifamily Concentration Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

45 Multifamily Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

46 Repurchase Request Activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

47 Outstanding Repurchase Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

48 Mortgage Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

49 Rescission Rates of Mortgage Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

50 Estimated Mortgage Insurance Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

51 Unpaid Principal Balance of Financial Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

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

53 Derivative Impact on Interest Rate Risk (50 Basis Points). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
1

PART I — FINANCIAL INFORMATION

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

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

September 6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and privileges of the company, and of any 

shareholder, officer or director of the company with respect to the company and its assets. The conservator has since 

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

day-to-day operations. Our directors do not have 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, 2011 (“2011 Form 10-K”) 

in “Business—Conservatorship and Treasury Agreements” and in this report in “Executive Summary—Amendment to 

Senior Preferred Stock Purchase Agreement with Treasury.”

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 2011 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 these 

forward-looking statements due to a variety of factors including, but not limited to, those described in “Risk Factors” and 

elsewhere in this report and in “Risk Factors” in our 2011 Form 10-K. 

You can find a “Glossary of Terms Used in This Report” in the “MD&A” of our 2011 Form 10-K. 

INTRODUCTION

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

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

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

to consumers in the primary mortgage market. Our most significant activity is securitizing mortgage loans originated by 

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

purchase mortgage loans and mortgage-related securities for our mortgage portfolio. We use the term “acquire” in this report 

to refer to both our guarantees and our purchases of mortgage loans. We obtain funds to support our business activities by 

issuing a variety of debt securities in the domestic and international capital markets. 

We are a corporation chartered by the U.S. Congress. Our conservator, FHFA, is a U.S. government agency. Treasury owns 

our senior preferred stock and a warrant to purchase 79.9% of our common stock. Moreover, Treasury has made a 

commitment under a senior preferred stock purchase agreement to provide us with funds under specified conditions and, after 

2012, up to a maximum amount, to maintain a positive net worth. 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

The actions we have been taking since 2009 to provide liquidity and support to the market, grow a strong new book of 

business and minimize losses on loans we acquired prior to 2009 are having a positive impact on our business and our 

performance:
2

• Financial Results. We experienced significant improvement in our financial results for the third quarter and first 

nine months of 2012, as compared with the third quarter and first nine months of 2011, despite elevated levels of 

mortgage delinquencies and foreclosures compared with pre-housing crisis levels, as well as home prices that are 

significantly below their peak in 2006. As described below under “Summary of Our Financial Performance for the 

Third Quarter and First Nine Months of 2012,” we had a positive net worth for the third quarter, paid Treasury its 

quarterly dividend and were not required to draw funds from Treasury for the quarter under the senior preferred 

stock purchase agreement. We expect to report net income for 2012, which would be the first time we have reported 

annual net income since 2006. 

• Strong New Book of Business. Single-family loans we have acquired since the beginning of 2009 constituted 63% of 

our single-family guaranty book of business as of September 30, 2012, while the single-family loans we acquired 

prior to 2009 constituted 37% of our single-family book of business. We refer to the single-family loans we have 

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

acquired prior to 2009 as our “legacy book of business.” Our new single-family book of business includes loans that 

are refinancings of loans that were in our legacy book of business. We provide information regarding the higher 

loan-to-value (“LTV”) ratios of these loans in “Our Strong New Book of Business—Credit Risk Characteristics of 

Loans Acquired under Refi Plus and HARP.” As described below in “Our Strong 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 has declined each quarter since the first quarter of 

2010, and was 3.41% as of September 30, 2012, compared with 4.00% as of September 30, 2011. See “Credit 

Performance” below for additional information about the credit performance of the mortgage loans in our singlefamily guaranty book of business. 

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

losses on our legacy book of business, which are described below under “Reducing Credit Losses on Our Legacy 

Book of Business.” As part of our strategy to reduce defaults, we provided approximately 69,200 workouts to help 

homeowners stay in their homes or otherwise avoid foreclosure in the third quarter of 2012. 

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

mortgage market in the third quarter of 2012. As described below under “Providing Liquidity and Support to the 

Mortgage Market,” we remained the largest single issuer of mortgage-related securities in the secondary mortgage 

market in the third quarter of 2012 and remained a constant source of liquidity in the multifamily market. 

• Helping to Build a New Housing Finance System. We also continued our work during the third quarter of 2012 to 

help build a new housing finance system, including pursuing the three strategic goals identified by our conservator 

for the next phase of our conservatorship: build a new infrastructure for the secondary mortgage market; gradually 

contract our dominant presence in the marketplace while simplifying and shrinking our operations; and maintain 

foreclosure prevention activities and credit availability for new and refinanced mortgages. In March 2012, FHFA

directed us to implement a set of corporate performance objectives and related targets and measures for 2012, 

referred to as the 2012 conservatorship scorecard, which provides the implementation roadmap for FHFA’s strategic 

plan. For more information on our strategic goals, see “Business—Executive Summary—Our Business Objectives 

and Strategy” in our 2011 Form 10-K. For a description of the objectives and targets included in FHFA’s 2012 

conservatorship scorecard, see “Executive Compensation—Compensation Discussion and Analysis—2012 

Executive Compensation Program—2012 Corporate Performance Objectives” in Amendment No. 1 on Form 10-K/

A to our Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K/A”).

Summary of Our Financial Performance for the Third Quarter and First Nine Months of 2012

We experienced significant improvement in our financial results for the third quarter and first nine months of 2012 compared 

with the third quarter and first nine months of 2011. Over the past nine months, home prices have increased and we have 

experienced further improvement in the performance of our book of business, such as lower serious delinquency rates. As a 

result, our loan loss reserves and our provision for credit losses have decreased for the third quarter and first nine months of 

2012.
3

Comprehensive Income (Loss) 

Quarterly Results

We recognized comprehensive income of $2.6 billion in the third quarter of 2012, consisting of net income of $1.8 billion and 

other comprehensive income of $746 million. In comparison, we recognized a comprehensive loss of $5.3 billion in the third 

quarter of 2011, consisting of a net loss of $5.1 billion and other comprehensive loss of $197 million.

The significant improvement in our financial results for the third quarter of 2012 compared with the third quarter of 2011 was 

primarily due to a $2.1 billion decrease in our provision for credit losses and a $3.5 billion decrease in fair value losses. Our 

provision for credit losses declined from $4.2 billion in the third quarter of 2011 to $2.1 billion in the third quarter of 2012 

primarily due to a decrease in our total loss reserves. This decrease was driven by an improvement in the profile of our 

single-family book of business resulting primarily from an increase in actual and expected home prices, including the sales 

prices of our real-estate owned (“REO”) properties throughout 2012. Home prices increased by 1.5% in the third quarter of 

2012 compared with a 0.9% decline in the third quarter of 2011 and increased by 4.8% in the first nine months of 2012 

compared with a 1.7% decrease in the first nine months of 2011. Higher home prices decrease the likelihood that loans will 

default and reduce the amount of credit loss on loans that do default. In addition, sales prices on dispositions of our REO 

properties improved in the third quarter of 2012 as a result of strong demand compared to both the second quarter of 2012 

and the prior year. We received net proceeds from our REO sales equal to 61% of the loans’ unpaid principal balance in the 

third quarter of 2012, compared with 59% in the second quarter of 2012 and 54% in the third quarter of 2011. The increase in 

sales proceeds reduces the amount of credit loss at foreclosure and, accordingly, results in a lower provision for credit loss.

The positive impact of higher home prices and higher REO sales values on our provision for credit losses in the third quarter 

of 2012 was partially offset by a $3.5 billion increase in our provision for credit losses due to changes in our assumptions and 

data used in calculating our loss reserves. For additional information on the impact from changes in our assumptions used in 

calculating our loss reserves in the third quarter of 2012, see “Critical Accounting Policies and Estimates—Total Loss 

Reserves.”

In addition, our provision for credit losses in the third quarter of 2012 was negatively impacted by a change in our accounting 

for loans to certain borrowers who have received bankruptcy relief. This change led to an increase in the number of loans we 

classify as troubled debt restructurings (“TDRs”), resulting in an increase in our provision for credit losses of approximately 

$1.1 billion in the third quarter of 2012. For additional information on this accounting change, see “Consolidated Results of 

Operations—Credit-Related Expenses—Provision for Credit Losses.”

As discussed below in “Our Expectations Regarding Future Loss Reserves and Credit-Related Expenses,” due to the large 

size of our guaranty book of business, even small changes in home prices, economic conditions and other variables can result 

in significant volatility in the amount of credit-related expenses we recognize from period to period. 

Fair value losses declined from $4.5 billion in the third quarter of 2011 to $1.0 billion in the third quarter of 2012. The 

decrease in fair value losses was primarily due to lower risk management derivative losses as swap rates declined 

significantly in the third quarter of 2011 compared with a more modest decline in swap rates in the third quarter of 2012. 

Derivative instruments are an integral part of how we manage interest rate risk and an inherent part of the cost of funding and 

hedging our mortgage investments. We expect high levels of period-to-period volatility in our results because our derivatives 

are recorded at fair value in our financial statements while some of the instruments they hedge are not recorded at fair value 

in our financial statements.

In addition, we recognized other comprehensive income of $746 million in the third quarter of 2012 compared with other 

comprehensive loss of $197 million in the third quarter of 2011. The other comprehensive income recognized in the third 

quarter of 2012 was driven by a decrease in unrealized losses on non-agency available-for-sale securities primarily due to 

narrowing of credit spreads.

Year-to-Date Results

Our comprehensive income for the first nine months of 2012 was $11.1 billion, consisting of net income of $9.7 billion and 

other comprehensive income of $1.4 billion. In comparison, we recognized a comprehensive loss of $14.5 billion in the first 

nine months of 2011, primarily related to our net loss of $14.4 billion. 

The significant improvement in our financial results in the first nine months of 2012 compared with the first nine months of 

2011 was primarily due to a $20.2 billion decrease in our provision for credit losses and a $2.7 billion decline in our fair 

value losses. Our provision for credit losses declined from $21.2 billion in the first nine months of 2011 to $1.0 billion in the 

first nine months of 2012 primarily due to an increase in actual and expected home prices in 2012. Fair value losses declined 

from $5.9 billion in the first nine months of 2011 to $3.2 billion in the first nine months of 2012 due to lower losses on our 

risk management derivatives.
4

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

Net Worth

Our net worth of $2.4 billion as of September 30, 2012 reflects our comprehensive income of $11.1 billion offset by our 

payment to Treasury of $8.7 billion in senior preferred stock dividends during the first nine months of 2012.

As a result of our positive net worth as of September 30, 2012, we are not requesting a draw from Treasury under the senior 

preferred stock purchase agreement. The aggregate liquidation preference on the senior preferred stock remains at $117.1 

billion, which requires a dividend payment of $2.9 billion for the fourth quarter of 2012. As of September 30, 2012, we have 

paid an aggregate of $28.5 billion to Treasury in dividends on the senior preferred stock. As described in “Amendment to 

Senior Preferred Stock Purchase Agreement with Treasury” below, our dividend obligations to Treasury will change 

beginning in 2013. 

Table 1 below displays our Treasury draws and senior preferred stock dividend payments to Treasury since entering 

conservatorship on September 6, 2008.

Table 1: Treasury Draws and Senior Preferred Stock Dividend Payments

2008 2009 2010 2011

2012 

(first nine 

months) 

Cumulative

Total

(Dollars in billions)

Treasury draws(1)(2)

. . . . . . . . . . . . . . . . . . . . . . . . $ 15.2 $ 60.0 $ 15.0 $ 25.9 $ — $116.1

Senior preferred stock dividends(3)

. . . . . . . . . . . . — 2.5 7.7 9.6 8.7 28.5

Treasury draws less senior preferred stock

dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.2 $ 57.5 $ 7.3 $ 16.3 $ (8.7) $ 87.6

Cumulative percentage of senior preferred stock 

dividends to Treasury draws . . . . . . . . . . . . . . . 0.2 % 3.3 % 11.3 % 17.1 % 24.5 % 24.5 %

__________

(1) Represents the total draws received from Treasury based on our quarterly net worth deficits for the periods presented. Draw requests are 

funded in the quarter following each quarterly net worth deficit.

(2) Treasury draws do not include the initial $1.0 billion liquidation preference of the senior preferred stock, for which we did not receive 

any cash proceeds.

(3) Represents total quarterly cash dividends paid to Treasury during the periods presented based on an annual rate of 10% per year on the 

aggregate liquidation preference of the senior preferred stock.

Total Loss Reserves

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

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

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

concessions we granted borrowers upon modification of their loans, decreased to $66.9 billion as of September 30, 2012 from 

$68.0 billion as of June 30, 2012 and $76.9 billion as of December 31, 2011. Our total loss reserve coverage to total 

nonperforming loans was 26% as of September 30, 2012, compared with 28% as of June 30, 2012 and 31% as of December 

31, 2011.

Our Expectations Regarding Future Loss Reserves and Credit-Related Expenses 

We expect the trends of stabilizing home prices and declining single-family serious delinquency rates to continue, although 

we expect serious delinquency rates to decline at a slower pace than in recent periods. As a result of these trends, we believe 

that our total loss reserves peaked as of December 31, 2011 and will not increase above $76.9 billion in the foreseeable 

future. Accordingly, we expect that our credit-related expenses will be significantly lower in 2012 than in 2011.

Although we expect these positive trends to continue, the amount of credit-related expenses we recognize in future periods 

could vary significantly from period to period and may be affected by many different factors, such as those described below. 

Moreover, although we believe that our total loss reserves peaked as of December 31, 2011, we expect our loss reserves will 

remain significantly elevated relative to historical levels for an extended period because (1) we expect future defaults on 

loans that we acquired prior to 2009 and the resulting charge-offs will occur over a period of years and (2) a significant 

portion of our reserves represents concessions granted to borrowers upon modification of their loans and will remain in our 

reserves until the loans are fully repaid or default.
5

Our expectations regarding our future credit-related expenses and loss reserves are based on our current expectations and 

assumptions about many factors that are subject to change. Factors that could result in higher credit-related expenses and loss 

reserves than we currently expect include: a drop in actual or expected home prices; an increase in our serious delinquency 

rate; an increase in interest rates; an increase in unemployment rates; future legislative or regulatory requirements that have a 

significant impact on our business, such as a requirement that we implement a principal forgiveness program; future updates 

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

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

behavior, such as an increasing number of underwater borrowers who strategically default on their mortgage loan; failures by 

our mortgage seller/servicers to fulfill their repurchase obligations in full; failures by our mortgage insurers to fulfill their 

obligations in full; natural or other disasters; and many other factors, including those discussed in “Outlook—Factors that 

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

Factors” in both this report and in our 2011 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.

We are currently assessing the financial impact on us from Hurricane Sandy. Our exposure to losses as a result of Hurricane 

Sandy arises primarily from our guaranty of principal and interest payments due to holders of Fannie Mae MBS secured by 

property in the affected areas, our portfolio holdings of mortgages and mortgage-related securities secured by property in the 

affected areas, and real estate that we own in the affected areas.

In addition, in April 2012, FHFA issued an Advisory Bulletin that could have an impact on the amount of our future creditrelated expenses and loss reserves; however, we are still assessing the impact of the Advisory Bulletin. See “Legislative and 

Regulatory Developments—FHFAAdvisory Bulletin Regarding Framework for Adversely Classifying Loans” in our 

quarterly report on Form 10-Q for the quarter ended June 30, 2012 (“Second Quarter 2012 Form 10-Q”) for additional 

information.

Our Strong New Book of Business 

Credit Risk Profile of Loans in our New Book of Business Compared with our Legacy Book of Business

Since 2009, we have seen the effect of actions we took, beginning in 2008, to significantly strengthen our underwriting and 

eligibility standards and change our pricing to promote sustainable homeownership and stability in the housing market. While 

it is too early to know how the single-family loans we have acquired since January 1, 2009 will ultimately perform, given 

their strong credit risk profile and based on their performance so far, we expect that these loans, in the aggregate, will be 

profitable over their lifetime, by which we mean that we expect our fee income on these loans to exceed our credit losses and 

administrative costs for them. In contrast, we expect that the single-family loans we acquired from 2005 through 2008, in the 

aggregate, will not be profitable over their lifetime. Loans we have acquired since the beginning of 2009 constituted 63% of 

our single-family guaranty book of business as of September 30, 2012. Our 2005 through 2008 acquisitions, which are 

becoming a smaller percentage of our single-family guaranty book of business, constituted only 24% of our single-family 

guaranty book of business as of September 30, 2012. 

The 63% of our single-family guaranty book of business that represents our new single-family book of business includes 

loans that are refinancings of existing Fannie Mae loans under our Refi PlusTM initiative. Refi Plus loans constituted 15% of 

our single-family guaranty book of business as of September 30, 2012. Refi Plus loans include loans that are refinancings 

under the Administration’s Home Affordable Refinance Program (“HARP”). Because HARP and Refi Plus are designed to 

expand refinancing opportunities for borrowers who may otherwise be unable to refinance their mortgage loans due to a 

decline in home values, many of the loans we acquire under HARP and some of the loans we acquire under Refi Plus have 

higher LTV ratios than we would otherwise permit, greater than 100% in some cases. The volume of loans with high LTV

ratios that we acquired under Refi Plus and HARP increased in the third quarter of 2012. As a result, loans with LTV ratios 

greater than 100% constituted 11% of our acquisitions in the third quarter of 2012, compared with 3% in the third quarter of 

2011, and the weighted average LTV ratio at origination of loans we acquired in the third quarter of 2012 increased to 77% 

from 71% in the third quarter of 2011. 

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

including those relating to expected changes in regional and national home prices, borrower behavior, public policy and other 

macroeconomic factors. If future conditions are more unfavorable than our expectations, the loans we acquired since the 

beginning of 2009 could become unprofitable. For example, home prices are a key factor affecting the profitability we 

expect. When home prices decline, the LTV ratios on our loans increase, and both the probability of default and the estimated 

severity of loss increase. If home prices decline significantly from September 2012 levels, the loans we acquired since the 

beginning of 2009 could become unprofitable. See “Outlook—Home Prices” for our current expectations regarding changes 

in home prices. Also see “Outlook—Factors that Could Cause Actual Results to be Materially Different from Our Estimates 
6

and Expectations” in this report and “Risk Factors” in both this report and our 2011 Form 10-K for a discussion of factors 

that could cause our expectations regarding the performance of the loans in our new single-family book of business to 

change.

Table 2 below displays information regarding the credit characteristics of the loans in our single-family conventional 

guaranty book of business as of September 30, 2012 by acquisition period, which illustrates the improvement in the credit 

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

Table 2: Selected Credit Characteristics of Single-Family Conventional Loans Held,by Acquisition Period

As of September 30, 2012

% of 

Single-Family Current Current

Conventional Estimated Mark-to-Market Serious 

Guaranty Book Mark-to-Market LTV Ratio Delinquency

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

Year of Acquisition:

New Single-Family Book of Business:

2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 % 73 % 8 % 0.02 %

2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 67 3 0.19

2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 69 4 0.49

2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 70 5 0.85

Total New Single-Family Book of Business . . . . . . . 63 70 5 0.34

Legacy Book of Business:

2005-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 99 42 9.62

2004 and prior. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 58 7 3.49

Total Single-Family Book of Business . . . . . . . . . . . 100 % 76 % 14 % 3.41 %

__________

(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, 2012.

(2) The majority of loans in our new single-family book of business as of September 30, 2012 with mark-to-market LTV ratios over 100% 

were loans acquired under our Refi Plus initiative. See “Credit Risk Characteristics of Loans Acquired under Refi Plus and HARP” for 

more information on our recent acquisitions of loans with high LTV ratios.

(3) Some of the loans acquired in 2012 were originated so recently that they could not yet have become seriously delinquent. 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, 2012 serious delinquency rates of loans in our legacy book of business.

The single-family loans that we acquired in the first nine months of 2012 had a weighted average FICO® credit score at 

origination of 761 and an average original LTV ratio of 74%. Of the single-family loans we acquired in the first nine months 

of 2012, approximately 16% had an original LTV ratio greater than 90%, and approximately 1% had a FICO credit score at 

origination of less than 620. The average original LTV ratio of single-family loans we acquired in the first nine months of 

2012, excluding HARP loans, was 69%, compared with 109% for HARP loans. See Table 2 in our 2011 Form 10-K for 

information regarding the credit risk profile of the single-family conventional loans we acquired during specified previous 

periods.

Credit Risk Characteristics of Loans Acquired under Refi Plus and HARP

Since 2009, our acquisitions have included a significant number of loans refinanced under HARP. We acquire HARP loans 

under Refi Plus, which provides expanded refinance opportunities for eligible Fannie Mae borrowers. HARP loans have LTV

ratios at origination in excess of 80% and must be secured by the borrower’s primary residence. In addition, a HARP loan 

cannot (1) be an adjustable-rate mortgage loan, or ARM, if the initial fixed period is less than five years; (2) have an interestonly 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. Under Refi Plus, we also acquire loans with LTV ratios at origination greater 

than 80% that do not meet the criteria for HARP because they are not secured by the borrower’s primary residence, as well as 

loans that have LTV ratios at origination of less than 80%. Many of the loans we acquire under HARP and some of the loans 

we acquire under Refi Plus have higher LTV ratios than we would otherwise permit. Some borrowers for these loans also 

have lower FICO credit scores than we would otherwise require. 
7

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 loans we acquire under Refi Plus and HARP essentially replaces the credit risk that 

we already held prior to the refinancing. Loans we acquire under Refi Plus and HARP have higher serious delinquency rates 

and may not perform as well as the other loans we have acquired since the beginning of 2009. However, we expect these 

loans will perform better than the loans they replace because Refi Plus and HARP loans should reduce the borrowers’

monthly payments and/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).

Loans we acquired under Refi Plus represented 24% of our new single-family book of business as of September 30, 2012 and 

had a serious delinquency rate of 0.60%, compared with a serious delinquency rate for our new single-family book of 

business overall of 0.34%. HARP loans, which are a subset of Refi Plus loans, represented 11% of our new single-family 

book of business as of September 30, 2012 and had a serious delinquency rate of 0.98%. See “Table 34: Selected Credit 

Characteristics of Single-Family Conventional Loans Acquired under HARP and Refi Plus” for more information on the 

serious delinquency rates and mark-to-market LTV ratios as of September 30, 2012 and the FICO credit scores at origination 

of loans in our new single-family book of business overall and of loans we acquired under Refi Plus and HARP. 

The changes we implemented in the first half of 2012 to make the benefits of HARP available to more borrowers, combined 

with historically low interest rates in the third quarter, resulted in an increase in the volume of loans we acquired under 

HARP and Refi Plus in the third quarter of 2012, as compared with the first and second quarters of 2012. The approximately 

164,000 loans we acquired under HARP in the third quarter of 2012 constituted 15% of our single-family acquisitions for the 

period, measured by unpaid principal balance, compared with 15% of single-family acquisitions in the second quarter of 

2012 and 10% of single-family acquisitions in the first quarter of 2012. These loans were included in the approximately 

312,000 loans we acquired under Refi Plus in the third quarter of 2012, which constituted 25% of our single-family 

acquisitions for the period, measured by unpaid principal balance, compared with 27% of single-family acquisitions in the 

second quarter of 2012 and 22% of single-family acquisitions in the first quarter of 2012. 

As a result of changes to HARP, we expect that if interest rates remain low we will continue to acquire a high volume of 

refinancings under HARP until there is no longer a large population of borrowers with loans that have high LTV ratios who 

would benefit from refinancing. In particular, we expect to acquire many refinancings with LTV ratios greater than 125%, 

because borrowers were unable to refinance loans with LTV ratios greater than 125% in large numbers until changes to 

HARP were fully implemented in the second quarter of 2012. HARP is scheduled to end in December 2013.

Factors that May Affect the Credit Risk Profile and Performance of Loans in our New Book of Business in the Future

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

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

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

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

under Refi Plus and HARP. 

See “Business—Executive Summary—Our Strong New Book of Business and Expected Losses on Our Legacy Book of 

Business—Building a Strong New Single-Family Book of Business” in our 2011 Form 10-K for a more detailed discussion 

of the changes in the credit profile of our single-family acquisitions. In addition, see “MD&A—Risk Management—Credit 

Risk Management—Single-Family Mortgage Credit Risk Management” for more detail regarding the credit risk 

characteristics of our single-family guaranty book of business.

Credit Performance

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

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

but not completed, nor does it reflect trial modifications that have not become permanent.
8

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

2012 2011

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)

. . . . . . . . . . . . . . 3.41 % 3.41 % 3.53 % 3.67 % 3.91 % 3.91 % 4.00 % 4.08 % 4.27 %

Seriously delinquent loan

count . . . . . . . . . . . . . . . . 599,430 599,430 622,052 650,918 690,911 690,911 708,847 729,772 767,161

Nonperforming loans(3). . $ 250,678 $250,678 $240,472 $243,981 $ 248,379 $248,379 $248,134 $245,848 $248,444

Foreclosed property

inventory:

Number of 

properties(4)

. . . . . . . 107,225 107,225 109,266 114,157 118,528 118,528 122,616 135,719 153,224

Carrying value . . . . . . $ 9,302 $ 9,302 $ 9,421 $ 9,721 $ 9,692 $ 9,692 $ 11,039 $ 12,480 $ 14,086

Combined loss reserves(5) $ 63,100 $ 63,100 $ 63,365 $ 69,633 $ 71,512 $ 71,512 $ 70,741 $ 68,887 $ 66,240

Total loss reserves(6). . . . . $ 65,685 $ 65,685 $ 66,694 $ 73,119 $ 75,264 $ 75,264 $ 73,973 $ 73,116 $ 70,466

During the period:

Foreclosed property 

(number of properties):

Acquisitions(4). . . . . . . 133,367 41,884 43,783 47,700 199,696 47,256 45,194 53,697 53,549

Dispositions . . . . . . . . (144,670) (43,925) (48,674) (52,071) (243,657) (51,344) (58,297) (71,202) (62,814)

Credit-related expenses 

(income)(7)

. . . . . . . . . . $ 1,500 $ 2,130 $ (3,015) $ 2,385 $ 27,218 $ 5,397 $ 4,782 $ 5,933 $ 11,106

Credit losses(8). . . . . . . . . $ 12,218 $ 3,485 $ 3,778 $ 4,955 $ 18,346 $ 4,548 $ 4,384 $ 3,810 $ 5,604

REO net sales prices to 

UPB(9). . . . . . . . . . . . . 59 % 61 % 59 % 56 % 54 % 55 % 54 % 54 % 53 %

Loan workout activity 

(number of loans):

Home retention loan 

workouts(10). . . . . . . . . 142,697 45,936 41,226 55,535 248,658 60,453 68,227 59,019 60,959

Short sales and deeds-inlieu of foreclosure . . . . 69,548 23,322 24,013 22,213 79,833 22,231 19,306 21,176 17,120

Total loan workouts. . . . . 212,245 69,258 65,239 77,748 328,491 82,684 87,533 80,195 78,079

Loan workouts as a 

percentage of 

delinquent loans in our 

guaranty book of 

business(11). . . . . . . . . . 25.72 % 25.18 % 24.14 % 28.85 % 27.05 % 27.24 % 28.39 % 25.71 % 25.01 %

__________

(1) Our single-family guaranty book of business consists of (a) single-family mortgage loans held in our mortgage portfolio, (b) singlefamily mortgage loans underlying Fannie Mae MBS, and (c) other credit enhancements that we provide on single-family mortgage 

assets, such as long-term standby commitments. It excludes non-Fannie Mae mortgage-related securities held in our mortgage portfolio 

for which we do not provide a guaranty.

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

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

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

single-family serious delinquency rate.

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

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

loans as nonperforming when the payment of principal or interest on the loan is 60 days or more past due. As of September 30, 2012, 

we classified $12.7 billion of loans on accrual status as TDRs where certain borrowers have received bankruptcy relief.

(4) Includes held for use properties, which are reported in our condensed consolidated balance sheets as a component of “Other assets” and 

acquisitions through deeds-in-lieu of foreclosure.
9

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

guaranty losses related to both single-family loans backing Fannie Mae MBS that we do not consolidate in our condensed consolidated 

balance sheets and single-family 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 Expenses—Provision for Credit Losses.”

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

taxes and insurance receivables.

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

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

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

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

those subject to repurchase requests made to our seller/servicers divided by the aggregate UPB of the related loans at the time of 

foreclosure. Net sales price represents the contract sale price less selling costs for the property and other charges paid by the seller at 

closing. 

(10) Consists of (a) modifications, which do not include trial modifications or repayment plans or forbearances that have been initiated but 

not completed and (b) repayment plans and forbearances completed. See “Table 38: 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.

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

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

Our single-family serious delinquency rate has decreased each quarter since the first quarter of 2010. The decrease in our 

serious delinquency rate is primarily the result of home retention solutions, foreclosure alternatives and completed 

foreclosures, as well as our acquisition of loans with stronger credit profiles since the beginning of 2009.

Although our single-family serious delinquency rate has decreased significantly since the first quarter of 2010, our serious 

delinquency rate and the period of time that loans remain seriously delinquent has been negatively affected in recent periods 

by the increase in the average number of days it is taking to complete a foreclosure. As described in “Business—Executive 

Summary—Reducing Credit Losses on Our Legacy Book of Business—Managing Timelines for Workouts and Foreclosures” 

in our 2011 Form 10-K, high levels of foreclosures, continuing issues in the servicer foreclosure process and changing 

legislative, regulatory and judicial requirements have lengthened the time it takes to foreclose on a mortgage loan in many 

states. We expect serious delinquency rates will continue to be affected in the future by home price changes, changes in other 

macroeconomic conditions, the length of the foreclosure process and the volume of loan modifications. We expect the 

number of our single-family loans that are seriously delinquent to remain well above pre-2008 levels for years. In addition, 

we anticipate that it will take a significant amount of time before our REO inventory is reduced to pre-2008 levels.

We provide additional information on our credit-related expenses in “Consolidated Results of Operations—Credit-Related 

Expenses” and on the credit performance of mortgage loans in our single-family book of business and our loan workouts in 

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

Reducing Credit Losses on Our Legacy Book of Business

To reduce the credit losses we ultimately incur on our legacy book of business, we have been focusing our efforts on the 

following strategies:

• Helping underwater and other eligible Fannie Mae borrowers with high LTV ratio loans refinance to more 

sustainable loans, including loans that significantly reduce their monthly payments, through HARP and our Refi 

Plus initiative;

• Reducing defaults by offering borrowers solutions that can significantly reduce their monthly payments and enable 

them to stay in their homes (“home retention solutions”);

• Pursuing “foreclosure alternatives,” which help borrowers avoid foreclosure and reduce the severity of the losses we 

incur overall;

• Efficiently managing timelines for home retention solutions, foreclosure alternatives and foreclosures; 

• Improving servicing standards and servicers’ execution and consistency;

• Managing our REO inventory to minimize costs and maximize sales proceeds; and

• Pursuing contractual remedies from lenders, servicers and providers of credit enhancement.
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See “Business—Executive Summary—Reducing Credit Losses on our Legacy Book of Business” in our 2011 Form 10-K, as 

well as “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management” in both this 

report and our 2011 Form 10-K, for more information on the strategies and actions we are taking to minimize our credit 

losses.

Providing Liquidity and Support to the Mortgage Market

Our Liquidity and Support Activities

We provide 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 $3.0 trillion in liquidity to the mortgage market 

from January 1, 2009 through September 30, 2012 through our purchases and guarantees of loans, which enabled 

borrowers to complete 8.9 million mortgage refinancings and 2.5 million home purchases, and provided financing 

for 1.5 million units of multifamily housing.

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

our new single-family book of business has a strong credit risk profile. Our support enables borrowers to have 

access to a variety of conforming mortgage products, including long-term, fixed-rate mortgages, such as the 

prepayable 30-year fixed-rate mortgage that protects homeowners from interest rate swings.

• We helped 1.2 million homeowners stay in their homes or otherwise avoid foreclosure from January 1, 2009 through 

September 30, 2012, which helped to support neighborhoods, home prices and the housing market. 

• We helped borrowers refinance loans through Refi Plus. From April 1, 2009, the date we began accepting delivery of 

Refi Plus loans, through September 30, 2012, we have acquired approximately 2.5 million loans refinanced under 

our Refi Plus initiative. Refinancings delivered to us through Refi Plus in the third quarter of 2012 reduced 

borrowers’ monthly mortgage payments by an average of $221. Some borrowers’ monthly payments increased as 

they took advantage of the ability to refinance through Refi Plus to reduce the term of their loan, to switch from an 

adjustable-rate mortgage to a fixed-rate mortgage or to switch from an interest-only mortgage to a fully amortizing 

mortgage.

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

through 2011 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 2011 Form 10-K in “Business—

Business Segments—Capital Markets.”

2012 Acquisitions and Market Share

In the first nine months of 2012, we purchased or guaranteed approximately $668 billion in loans, measured by unpaid 

principal balance, which includes $35.9 billion in delinquent loans we purchased from our single-family MBS trusts. These 

activities enabled our lender customers to finance approximately 2.8 million single-family conventional loans and loans for 

approximately 371,000 units in multifamily properties during the first nine months of 2012.

We remained the largest single issuer of mortgage-related securities in the secondary market during the third quarter of 2012, 

with an estimated market share of new single-family mortgage-related securities issuances of 52%. Our estimated market 

share of new single-family mortgage-related securities issuances was 46% in the second quarter of 2012 and 43% in the third 

quarter of 2011. The volume of our loan acquisitions in the first nine months of 2012 was greater than the volume of our loan 

acquisitions for all of 2011, due to the implementation of changes to HARP and lower interest rates in 2012.

We remained a constant source of liquidity in the multifamily market. We owned or guaranteed approximately 22% of the 

outstanding debt on multifamily properties as of June 30, 2012 (the latest date for which information was available).

Amendment to Senior Preferred Stock Purchase Agreement with Treasury

On August 17, 2012, we, through FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into an 

amendment to the senior preferred stock purchase agreement between us and Treasury. We describe the terms of this 

agreement and the related senior preferred stock, prior to the amendment described below, in our 2011 Form 10-K under the 

heading “Business—Conservatorship and Treasury Agreements—Treasury Agreements.” Unless the context indicates 

otherwise, references in this report to the senior preferred stock purchase agreement refer to the agreement as amended on 

August 17, 2012.
11

The August 2012 amendment revised the terms of the senior preferred stock purchase agreement and the related senior 

preferred stock in the following ways:

• Dividends. Beginning in 2013, the method for calculating the amount of dividends we are required to pay Treasury 

on the senior preferred stock will change. The current method, which will remain in effect through December 31, 

2012, is to apply an annual dividend rate of 10% to the aggregate liquidation preference of the senior preferred 

stock. Effective January 1, 2013, the amount of dividends payable on the senior preferred stock for a dividend period 

will be determined based on our net worth as of the end of the immediately preceding fiscal quarter. Our net worth 

as defined by the agreement is the amount, if any, by which our total assets (excluding Treasury’s funding 

commitment and any unfunded amounts related to the commitment) exceed our total liabilities (excluding any 

obligation in respect of capital stock), in each case as reflected on our balance sheet prepared in accordance with 

generally accepted accounting principles (“GAAP”). For each dividend period from January 1, 2013 through and 

including December 31, 2017, the dividend amount will be the amount, if any, by which our net worth as of the end 

of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount. The capital reserve 

amount will be $3.0 billion during 2013 and will be reduced by $600 million each year until it reaches zero on 

January 1, 2018. For each dividend period beginning in 2018, the dividend amount will be the entire amount of our 

net worth, if any, as of the end of the immediately preceding fiscal quarter.

As a result of these revised dividend payment provisions, beginning in 2013, when we have quarterly earnings that 

result in a net worth greater than the applicable capital reserve amount, we will pay dividends to Treasury in the next 

quarter; but if our net worth does not exceed the applicable capital reserve amount as of the end of a quarter, then we 

will not be required to accrue or pay any dividends in the next quarter. See “Risk Factors” for a discussion of the 

risks relating to our dividend obligations to Treasury on the senior preferred stock.

• Periodic Commitment Fee. Effective January 1, 2013, the periodic commitment fee provided for under the 

agreement is suspended, as long as the changes to the dividend payment provisions referenced above remain in 

effect. Although we had been scheduled to begin paying this commitment fee to Treasury beginning in 2011, 

Treasury waived the commitment fee for each quarter of 2011 and 2012 due to the continued fragility of the U.S. 

mortgage market and Treasury’s belief that the imposition of the fee would not generate increased compensation for 

taxpayers.

• Transfer of Assets Covenant. The transfer of assets covenant contained in the agreement was amended to allow the 

company to dispose of assets and properties at fair market value, in one transaction or a series of related 

transactions, without requiring the prior written consent of Treasury, if such assets have a fair market value 

individually or in the aggregate of less than $250 million, regardless of whether or not the transaction is in the 

ordinary course of business.

• Mortgage Assets Covenant. The mortgage assets covenant contained in the agreement was amended to: (1) reduce 

the maximum allowable amount of mortgage assets we may own as of December 31, 2012 from $656.1 billion to 

$650 billion; and (2) require that, on December 31 of each year following December 31, 2012, we 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 (rather than 90% as previously provided by the agreement), until the amount of 

our mortgage assets reaches $250 billion. This amendment to the mortgage assets covenant accelerates the reduction 

of our mortgage asset portfolio. As a result of this amendment, our mortgage asset cap will decrease to $250 billion 

by 2018, rather than by 2022.

• Annual Risk Management Plan Covenant. A new covenant was added requiring that we provide an annual risk 

management plan to Treasury not later than December 15 of each year we remain in conservatorship, beginning not 

later than December 15, 2012. Each annual risk management plan is required to set out our strategy for reducing our 

risk profile and to describe the actions we will take to reduce the financial and operational risk associated with each 

of our business segments. Each plan delivered after December 15, 2012 must include an assessment of our 

performance against the planned actions described in the prior year’s plan.

In addition to the above-described amendments, the August 2012 amendment also required that we amend or replace the 

existing certificate of designation for the senior preferred stock to reflect the revised dividend payment provisions described 

above. In accordance with this requirement, on September 27, 2012, FHFA, acting on our behalf as our conservator, issued an 

amended and restated certificate of designation reflecting the revised terms.

In its August 17, 2012 announcement regarding the modifications to the senior preferred stock purchase agreement, Treasury 

stated that the modifications will help achieve several important objectives, including:
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• making sure that every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit 

taxpayers for their investment in those firms;

• ending the circular practice of Treasury advancing funds to the GSEs simply to pay dividends back to Treasury;

• acting upon the commitment made in the Administration’s 2011 White Paper that the GSEs will be wound down and 

will not be allowed to retain profits, rebuild capital, and return to the market in their prior form;

• supporting the continued flow of mortgage credit by providing borrowers, market participants, and taxpayers with 

additional confidence in the ability of the GSEs to meet their commitments while operating under conservatorship; 

and

• providing greater market certainty regarding the financial strength of the GSEs.

Housing and Mortgage Market and Economic Conditions

Economic growth accelerated in the third quarter of 2012 compared with the second quarter of 2012. The inflation-adjusted 

U.S. gross domestic product, or GDP, rose by 2.0% on an annualized basis in the third quarter of 2012, according to the 

Bureau of Economic Analysis advance estimate, compared with an increase of 1.3% in the second quarter of 2012. Growth in 

employment improved during the third quarter of 2012, as the overall economy gained an estimated 521,000 jobs, compared 

with 200,000 jobs in the second quarter, according to the U.S. Bureau of Labor Statistics. Over the past 12 months ending in 

September 2012, the economy created 1.9 million non-farm jobs. The unemployment rate was 7.8% in September 2012 

compared with 8.2% in June 2012. In October 2012, non-farm payrolls strengthened, rising by 171,000 during the month, 

but the unemployment rate rose to 7.9%.

Housing activity improved during the third quarter of 2012. Total existing home sales averaged 4.7 million units annualized 

in the third quarter of 2012, a 3.2% increase from the second quarter of 2012, according to data available through October 

2012 from the National Association of REALTORS®. Sales of foreclosed homes and preforeclosure, or “short,” sales 

(together, “distressed sales”) accounted for 24% of existing home sales in September 2012, compared with 25% in June 2012 

and 30% in September 2011. New single-family home sales strengthened during the quarter, averaging an annualized rate of 

377,000 units, a 4.0% increase from the prior quarter.

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

remained high at 7.3% as of June 30, 2012, according to the Mortgage Bankers Association National Delinquency Survey. 

According to the National Association of REALTORS® October 2012 Existing Home Sales Report, the months’ supply of 

existing unsold homes was 5.9 months as of September 30, 2012, compared with 6.5 months as of June 30, 2012 and 8.1

months as of September 30, 2011. While the high level of seriously delinquent mortgage loans has resulted in a high level of 

foreclosures, new home building has remained at a low level, which has brought the previously elevated level of housing 

supply down to a more market-balanced position over the past year. However, properties that are vacant and held off the 

market, combined with a portion of properties backing seriously delinquent mortgages not currently listed for sale, represent 

an elevated level of shadow inventory that could potentially put downward pressure on home prices.

After declining by an estimated 23.7% from their peak in the third quarter of 2006 to the first quarter of 2012, we estimate 

that home prices on a national basis increased by 3.5% in the second quarter of 2012 and by 1.5% in the third quarter of 

2012. Our home price estimates are based on preliminary data and are subject to change as additional data become available. 

The decline in home prices over the past several years has left many homeowners with “negative equity” in their homes, 

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

that borrowers will walk away from their mortgage obligations and that the loans will become delinquent and proceed to 

foreclosure. According to CoreLogic, approximately 11 million, or 22%, of all residential properties with mortgages were in a 

negative equity position at the end of the second quarter of 2012, the most recent date for which information is available. This 

potential supply also weighs on the supply/demand balance putting downward pressure on home prices. See “Risk Factors” in 

our 2011 Form 10-K for a description of risks to our business associated with the weak economy and housing market.

During the third quarter of 2012, the multifamily sector continued to experience growth in rental demand, but at a slightly 

slower rate. Preliminary third-party data suggest that the national vacancy rate for professionally managed, institutional 

investment-type apartment properties declined to an estimated 5.50% as of September 30, 2012, compared with an estimated 

5.75% as of June 30, 2012 and an estimated 6.50% as of September 30, 2011. In addition, preliminary third-party data 

suggest that asking rents experienced a modest increase in the third quarter of 2012, rising by an estimated 0.75% on a 

national basis. As indicated by data from Axiometrics, multifamily concession rates, the rental discount rate as a percentage 

of asking rents, continued its declining trend during the third quarter of 2012, declining to less than -2.0%, compared with 

-2.3% as of June 30, 2012 and -3.0% as of September 30, 2011. Estimated positive net absorption, or the net change in the 

number of occupied rental units after deducting new supply added, remained positive during the third quarter of 2012, 
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although it slowed to approximately 23,000 units, according to preliminary data from Reis, Inc., compared with more than 

31,000 units during the second quarter of 2012 and more than 36,000 units during the first quarter of 2012.

Multifamily construction starts rose to an annualized rate of 260,000 units as of September 30, 2012, compared with 219,000 

units as of September 30, 2011, based on data from the Census Bureau. We believe that the overall national rental market’s 

supply will remain fairly stable over the longer term, based on expected construction completions, annualized obsolescence 

and anticipated household formation trends; however, there is a potential for over-supply in a limited number of local areas 

over the next 24 months.

Outlook 

Credit-Related Expenses and Financial Results. We expect that our credit-related expenses for 2012 will be significantly 

lower than for 2011. As a result, we expect to report net income for 2012, which would be the first time we have reported 

annual net income since 2006. There is significant uncertainty in the current market environment, however, and any changes 

in the trends in macroeconomic factors that we currently anticipate, such as home prices and unemployment, may cause our 

future credit-related expenses and overall financial results to vary significantly from our current expectations. We further 

describe our outlook for credit-related expenses, including factors that could result in higher credit-related expenses than we 

currently expect, in “Summary of Our Financial Performance for the Third Quarter and First Nine Months of 2012—Our 

Expectations Regarding Future Loss Reserves and Credit-Related Expenses.”

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

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

sales or deeds-in-lieu of foreclosure. We expect our credit losses to remain high in 2012 relative to pre-housing crisis levels. 

To the extent delays in foreclosures continue in 2012, our realization of some credit losses will be delayed. See “Consolidated 

Results of Operations—Credit-Related Expenses—Credit Loss Performance Metrics” for more information regarding our 

credit losses.

Overall Market Conditions. We expect mortgage loan delinquencies and foreclosures to continue to decline slowly while 

remaining at levels significantly higher than pre-housing crisis levels for the remainder of 2012 and through 2013. We expect 

that single-family default and severity rates will remain high for the remainder of 2012 compared to pre-housing crisis levels, 

but will be lower in 2012 overall than in 2011 overall. Despite multifamily sector improvement at the national level, we 

expect multifamily foreclosures in 2012 to remain generally commensurate with 2011 levels as certain local markets and 

properties continue to exhibit weak fundamentals. Conditions may worsen if the unemployment rate increases on either a 

national or regional basis.

As a result of the changes to HARP implemented this year and historically low interest rates, we acquired more refinancings 

in the first nine months of 2012 than we acquired in all of 2011. We expect that if interest rates remain low we will continue 

to acquire a high volume of refinancings under HARP until there is no longer a large population of borrowers with loans that 

have high LTV ratios who would benefit from refinancing. In particular, we expect to acquire many refinancings with LTV

ratios greater than 125%, because borrowers were unable to refinance loans with LTV ratios greater than 125% in large 

numbers until changes to HARP were fully implemented in the second quarter of 2012. For a description of the changes to 

HARP, see “Business—Making Home Affordable Program—Changes to the Home Affordable Refinance Program” in our 

2011 Form 10-K.

We estimate that total originations in the U.S. single-family mortgage market in 2012 will increase from 2011 levels by 

approximately 20% from an estimated $1.5 trillion to an estimated $1.8 trillion, and that the amount of originations in the 

U.S. single-family mortgage market that are refinancings will increase from approximately $980 billion in 2011 to 

approximately $1.3 trillion in 2012. Refinancings comprised approximately 79% of our single-family business volume in the 

first nine months of 2012, compared with approximately 76% for all of 2011.

Home Prices. After declining by an estimated 23.7% from their peak in the third quarter of 2006 to the first quarter of 2012, 

we estimate that home prices on a national basis increased by 3.5% in the second quarter of 2012 and by 1.5% in the third 

quarter of 2012. Although we believe home prices may decline again through early 2013, we expect that, if current market 

trends continue, home prices will not decline on a national basis below their first quarter 2012 levels. Future home price 

changes may be very different from our estimates as a result of significant inherent uncertainty in the current market 

environment, including uncertainty about the effect of actions the federal government has taken and may take with respect to 

tax policies, spending cuts, mortgage finance programs and policies, and housing finance reform; the management of the 

Federal Reserve’s MBS holdings; the impact of those actions on and changes generally in unemployment and the general 

economic and interest rate environment; and the impact on the U.S. economy of the European debt crisis. Because of these 

uncertainties, the actual home price changes we experience may differ significantly from these estimates. We also expect 

significant regional variation in home price changes and the timing of home price stabilization. Our estimates of home price 
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changes are based on our home price index, which is calculated differently from the S&P/Case-Shiller U.S. National Home 

Price Index and therefore results in different percentages for comparable changes. Our estimated 23.7% peak-to-trough 

decline in home prices on a national basis corresponds to a 34.7% decline according to the S&P/Case-Shiller U.S. National 

Home Price Index.

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

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

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

is terminated. We expect this uncertainty to continue. In February 2011, Treasury and the Department of Housing and Urban 

Development (“HUD”) released a report to Congress on reforming America’s housing finance market. The report states that 

the Administration will work with FHFA to determine the best way to responsibly wind down both Fannie Mae and Freddie 

Mac. The report emphasizes the importance of providing the necessary financial support to Fannie Mae and Freddie Mac 

during the transition period. In February 2012, Treasury Secretary Geithner stated that the Administration intended to release 

new details around approaches to housing finance reform, including winding down Fannie Mae and Freddie Mac, and to 

work with congressional leaders to explore options for legislation, but that he does not expect housing finance reform 

legislation to be enacted in 2012.

We cannot predict the prospects for the enactment, timing or content of legislative proposals regarding long-term reform of 

the GSEs. See “Legislative and Regulatory Developments” in this report and “Business—Legislative and Regulatory 

Developments” in our 2011 Form 10-K for discussions of recent legislative reform of the financial services industry and 

proposals for GSE reform that could affect our business. See “Risk Factors” in our 2011 Form 10-K for a discussion of the 

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

Treasury Draws and Dividend Payments. As a result of the revisions to the dividend payment provisions in our senior 

preferred stock purchase agreement with Treasury described in “Amendment to Senior Preferred Stock Purchase Agreement 

with Treasury,” beginning in 2013, if our net worth does not exceed the applicable capital reserve amount as of the end of a 

fiscal quarter, then no dividend amount will accrue or be payable for the applicable dividend period. Accordingly, beginning 

in 2013, we will no longer be required to draw additional funds from Treasury under the senior preferred stock purchase 

agreement in order to meet our dividend obligations to Treasury on the senior preferred stock. However, in some future 

periods we could have a net worth deficit and in such case we would be required to obtain additional funding from Treasury 

pursuant to the senior preferred stock purchase agreement. See “Risk Factors” for a discussion of the risks relating to our 

dividend obligation to Treasury on the senior preferred stock.

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, including estimates and expectations regarding our future 

financial results, the profitability of single-family loans we have acquired, our credit losses, our loss reserves, our creditrelated expenses, and our draws from and dividends to Treasury. These estimates and expectations are forward-looking 

statements based on our current assumptions regarding numerous factors, including future home prices and the future 

performance of our loans. Our future estimates of our performance, as well as the actual amounts, 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 variables; government policy; the length of 

time it takes to complete foreclosures; changes in GAAP; credit availability; borrower behavior; the volume of loans we 

modify; 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; changes in the fair value of our assets and liabilities; 

impairments of our assets; natural or other disasters; and many other factors, including those discussed in “Risk Factors,” 

“Forward-Looking Statements” and elsewhere in this report, and in “Risk Factors” in our 2011 Form 10-K. For example, if 

the economy were to enter a deep recession, we would expect actual outcomes to differ substantially from our current 

expectations.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

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

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

Activities” in our 2011 Form 10-K and in “MD&A—Legislative and Regulatory Developments” in both our quarterly report 

on Form 10-Q for the quarter ended March 31, 2012 (“First Quarter 2012 Form 10-Q”) and our Second Quarter 2012 Form 

10-Q. Also see “Risk Factors” in this report and our 2011 Form 10-K for a discussion of risks relating to legislative and 

regulatory matters.
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GSE Reform

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

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

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

Fannie Mae and Freddie Mac. The Dodd-Frank Act also required the Treasury Secretary to submit a report to Congress with 

recommendations for ending the conservatorships of Fannie Mae and Freddie Mac.

In February 2011, Treasury and HUD released their report to Congress on 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’s 

and Freddie Mac’s role in the market and ultimately wind down both institutions.

The report identifies a number of policy steps that could be used to wind down Fannie Mae and Freddie Mac, reduce the 

government’s role in housing finance and help bring private capital back to the mortgage market. These steps include 

(1) increasing guaranty fees, (2) gradually increasing the level of required down payments so that any mortgages insured by 

Fannie Mae or Freddie Mac eventually have at least a 10% down payment, (3) reducing conforming loan limits to those 

established in the Federal Housing Finance Regulatory Reform Act of 2008 (the “2008 Reform Act”), (4) encouraging Fannie 

Mae and Freddie Mac to pursue additional credit loss protection and (5) reducing Fannie Mae’s and Freddie Mac’s portfolios, 

consistent with Treasury’s senior preferred stock purchase agreements with the companies.

In addition, the report outlines three potential options for a new long-term structure for the housing finance system following 

the wind-down of Fannie Mae and Freddie Mac. The first option would privatize housing finance almost entirely. The second 

option would add a government guaranty mechanism that could scale up during times of crisis. The third option would 

involve the government offering catastrophic reinsurance behind private mortgage guarantors. Each of these options assumes 

the continued presence of programs operated by FHA, the Department of Agriculture and the Veterans Administration to 

assist targeted groups of borrowers. 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. A copy of the report can be found on the Housing Finance Reform section of Treasury’s Web 

site, www.Treasury.gov. We are providing Treasury’s Web site address solely for your information, and information appearing 

on Treasury’s Web site is not incorporated into this quarterly report on Form 10-Q.

In February 2012, Treasury Secretary Geithner stated that the Administration intended to release new details around 

approaches to housing finance reform, including winding down Fannie Mae and Freddie Mac, and to work with 

congressional leaders to explore options for legislation, but that he does not expect housing finance reform legislation to be 

enacted in 2012. As of the date of this filing, no further details have been released.

In the current congressional session, Congress has held hearings on the future status of Fannie Mae and Freddie Mac, and 

members of Congress have offered legislative proposals relating to the future status of the GSEs. We expect Congress to 

continue considering this issue in the next congressional session that begins in 2013. We expect additional hearings on GSE 

reform and additional legislation to be considered and proposals to be discussed, including proposals that could result in a 

substantial change to our business structure or that involve Fannie Mae’s liquidation or dissolution. Several bills have been 

introduced in the current congressional session that would place the GSEs into receivership after a period of time and either 

grant federal charters to new entities to engage in activities similar to those currently engaged in by the GSEs or leave 

secondary mortgage market activities to entities in the private sector. For example, legislation has been introduced in both the 

House of Representatives and the Senate that would require FHFA to make a determination within two years of enactment 

regarding whether the GSEs were financially viable and, if the GSEs were determined not to be financially viable, to place 

them into receivership. As drafted, these bills may, upon enactment, impair our ability to issue securities in the capital 

markets and therefore our ability to conduct our business, absent the federal government providing an explicit guarantee of 

our existing and future liabilities.

In addition to bills that seek to resolve the status of the GSEs, numerous bills have been introduced and considered in the 

current congressional session that could constrain the current operations of the GSEs or alter the existing authority that FHFA

or Treasury has over the enterprises. For example, the Subcommittee on Capital Markets and Government Sponsored 

Enterprises of the House Financial Services Committee has approved bills that would or could:

• suspend current compensation packages and apply a government pay scale for GSE employees;

• require the GSEs to increase guaranty fees;

• subject GSE loans to the risk retention standards in the Dodd-Frank Act;

• require a quicker reduction of GSE portfolios than required under the senior preferred stock purchase agreement;
16

• require Treasury to pre-approve all GSE debt issuances; 

• repeal the GSEs’ affordable housing goals; 

• provide additional authority to FHFA’s Inspector General; 

• prohibit FHFA from approving any new GSE products during conservatorship or receivership, with certain 

exceptions; 

• prevent Treasury from amending the senior preferred stock purchase agreement to reduce the dividend rate on our 

senior preferred stock; 

• abolish the Affordable Housing Trust Fund that the GSEs are required to fund except when such contributions have 

been temporarily suspended by FHFA; 

• require FHFA to identify mission critical assets of the GSEs and require the GSEs to dispose of non-mission critical 

assets; 

• cap the maximum aggregate amount of funds Treasury or any other agency or entity of the federal government can 

provide to the GSEs subject to certain qualifications; 

• grant FHFA the authority to revoke the enterprises’ charters following receivership under certain circumstances; and 

• subject the GSEs to the Freedom of Information Act. 

Of these bills that passed at a subcommittee level, the only one that has passed the full committee is the bill that would put 

GSE employees on a government pay scale. Unless these bills are enacted by the end of 2012, they would need to be 

reintroduced in the next congressional session that convenes in January 2013 in order to be considered again. We expect 

additional legislation relating to the GSEs to be introduced and considered by Congress. We cannot predict the prospects for 

the enactment, timing or content of legislative proposals concerning the future status of the GSEs, their regulation or 

operations. 

In sum, there continues to be uncertainty regarding the future of our company, including how long the company will continue 

to exist in its current form, the extent of our role in the market, what form we will have, and what ownership interest, if any, 

our current common and preferred stockholders will hold in us after the conservatorship is terminated. See “Risk Factors” in 

our 2011 Form 10-K for a discussion of the risks to our business relating to the uncertain future of our company. Also see 

“Risk Factors” in this report for a discussion of how the uncertain future of our company may adversely affect our ability to 

retain and recruit well-qualified employees, including senior management. 

The Dodd-Frank Act: Regulation of Swap Transactions

The Commodity Futures Trading Commission (the “CFTC”) and the SEC issued a joint final rule in May 2012 that, among 

other items, established the definitions of “swap dealer,” “security-based swap dealer,” “major swap participant” and “major 

security-based swap participant” under the Dodd-Frank Act. Institutions that meet one of these definitions are required to 

register with either the CFTC or the SEC, as applicable, and are subject to significant additional regulations. In addition, in 

August 2012, the CFTC and SEC issued a joint final rule that, among other items, defines “swap” and “security-based swap.”

We have reviewed these rules and determined that we are not a swap dealer, security-based swap dealer, major swap 

participant or major security-based swap participant for purposes of the Dodd-Frank Act. Accordingly, we do not need to 

register with the CFTC or the SEC. Although we do not need to register with the CFTC or the SEC, because we are a user of 

interest rate swaps, the Dodd-Frank Act requires us, among other items, to submit new swap transactions for clearing to a 

derivatives clearing organization. Additionally, the Federal Reserve Board, the Federal Deposit Insurance Corporation, 

FHFA, the Farm Credit Administration and the Office of the Comptroller of the Currency have 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 our counterparties and provide to our counterparties collateral in excess of the amounts we have historically collected or 

provided.

Increase in Single-Family Guaranty Fee Pricing

In August 2012, FHFA directed us and Freddie Mac to increase our single-family guaranty fee prices by an average of 10 

basis points. This increase was effective on November 1, 2012 for whole loan commitments and will be effective on 

December 1, 2012 for loans exchanged for Fannie Mae MBS. These changes to guaranty fee pricing represent a step toward 

encouraging greater participation in the mortgage market by private firms, which is one of the goals set forth in FHFA’s 

strategic plan for the next phase of Fannie Mae’s and Freddie Mac’s conservatorships.
17

In addition to the fee increase described above, in September 2012, FHFA published a notice presenting an approach to adjust 

the guaranty fees that we and Freddie Mac charge on single-family mortgages in states where costs related to foreclosure 

practices are significantly higher than the national average. The approach outlined in FHFA’s notice would be to charge a 

one-time upfront payment of between 15 and 30 basis points on each loan acquired in the following five states that have 

significantly higher default-related costs than the national average: Connecticut, Florida, Illinois, New Jersey and New York. 

FHFA’s notice requests public input on this approach and potential future approaches to setting and adjusting state-level 

guaranty fees. FHFA’s notice indicates that, after reviewing public input and determining a final state-level guaranty fee 

pricing method, it expects to direct us and Freddie Mac to implement these pricing adjustments in 2013.

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 2011 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. We have identified three 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

See “MD&A—Critical Accounting Policies and Estimates” in our 2011 Form 10-K for a detailed discussion of these critical 

accounting policies and estimates. We provide below information about our Level 3 assets and liabilities as of September 30, 

2012 as compared with December 31, 2011. We also describe any significant changes in the judgments and assumptions we 

made during the first nine months of 2012 in applying our critical accounting policies and significant changes to critical 

estimates.

Fair Value Measurement

The use of fair value to measure our assets and liabilities is fundamental to our financial statements and our fair value 

measurement is a critical accounting estimate because we account for and record a portion of our assets and liabilities at fair 

value. In determining fair value, we use various valuation techniques. We describe the valuation techniques and inputs used 

to determine the fair value of our assets and liabilities and disclose their carrying value and fair value in “Note 12, Fair 

Value.” 

Fair Value Hierarchy—Level 3 Assets and Liabilities

The assets and liabilities that we have classified as Level 3 consist primarily of financial instruments for which there is 

limited market activity and therefore little or no price transparency. As a result, the valuation techniques that we use to 

estimate the fair value of Level 3 instruments involve significant unobservable inputs, which generally are more subjective 

and involve a high degree of management judgment and assumptions. Our Level 3 assets and liabilities consist of certain 

mortgage-backed securities and residual interests, certain mortgage loans, certain acquired property, certain long-term debt 

arrangements and certain highly structured, complex derivative instruments. 

Table 4 presents a comparison of the amount of financial assets carried in our condensed consolidated balance sheets at fair 

value on a recurring basis (“recurring assets”) that were classified as Level 3 as of September 30, 2012 and December 31, 

2011. The availability of observable market inputs to measure fair value varies based on changes in market conditions, such 

as liquidity. As a result, we expect the amount of financial instruments carried at fair value on a recurring basis and classified 

as Level 3 to vary each period.
18

Table 4: Level 3 Recurring Financial Assets at Fair Value

As of

September 30, 2012 December 31, 2011

(Dollars in millions)

Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,573 $ 4,238

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,840 29,492

Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,416 2,319

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 238

Level 3 recurring assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,026 $ 36,287

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,226,250 $ 3,211,484

Total recurring assets measured at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,617 $ 156,552

Level 3 recurring assets as a percentage of total assets . . . . . . . . . . . . . . . . . . . . . . 1% 1%

Level 3 recurring assets as a percentage of total recurring assets measured

at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26% 23%

Total recurring assets measured at fair value as a percentage of total assets . . . . . . 4% 5%

Assets measured at fair value on a nonrecurring basis and classified as Level 3, which are not presented in the table above, 

primarily include mortgage loans and acquired property. The fair value of Level 3 nonrecurring assets totaled $30.4 billion as 

of September 30, 2012.

Financial liabilities measured at fair value on a recurring basis and classified as Level 3 consisted of long-term debt with a 

fair value of $1.9 billion as of September 30, 2012 and $1.2 billion as of December 31, 2011, and other liabilities with a fair 

value of $167 million as of September 30, 2012 and $173 million as of December 31, 2011.

We updated our assumptions for prepayment speeds, severities and default rates during the third quarter of 2012, which 

resulted in an increase in the fair value of our loans of approximately $23 billion. These updates resulted in lower 

expectations of losses on certain loans, primarily performing loans with high LTV ratios.

Total Loss Reserves

Our total 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.

These components can be further divided into our single-family and multifamily loss reserves.

We continually monitor delinquency and default trends and periodically make changes in our historically developed 

assumptions to better reflect present conditions. In the third quarter of 2012, as described below, we enhanced our collective 

single-family loss reserve model and our model that calculates loss reserves for individually impaired loans. The combined 

impact from these changes resulted in an approximately $3.5 billion increase to our allowance for loan losses and provision 

for credit losses.

We enhanced our loan loss models for loans in our collective single-family loss reserve to reflect more recent experience of 

default expectations, including incorporating current credit bureau data, which provides additional information about the 

borrower’s ability to pay. The impact of this change had the most pronounced effect on loans with higher mark-to-market 

LTV ratios, where we have observed better than anticipated payment performance. The change resulted in an approximately 

$1.5 billion decrease to our allowance for loan losses and provision for credit losses.

We also enhanced our single-family loan loss models for individually impaired loans based on current observable trends of 

payment behavior on our modified loans to reflect slower prepayment and lower default expectations for these loans, which 

significantly extended the expected average life of our modified loans. Since a loan modification changes the contractual 

terms of a loan such that a concession is granted to the borrower, an extension of the average life of a modified loan increases 

the charge we record related to the concession. Therefore, while our expectations of credit loss decreased due to better 

performance of our modified loans, this decrease was more than offset by an increase in the present value of the concession 

granted to the borrower by the modification. The change resulted in an approximately $5.0 billion increase to our allowance 

for loan losses and provision for credit losses.
19

Other-Than-Temporary Impairment of Investment Securities

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter for other-than-temporary 

impairment. Our evaluation requires significant management judgment and consideration of various factors to determine if 

we will receive the amortized cost basis of our investment securities. We evaluate a debt security for other-than-temporary 

impairment using an econometric model that estimates the present value of cash flows given multiple factors. These factors 

include: the severity and duration of the impairment; recent events specific to the issuer and/or industry to which the issuer 

belongs; the payment structure of the security; external credit ratings and the failure of the issuer to make scheduled interest 

or principal payments. We rely on expected future cash flow projections to determine if we will recover the amortized cost 

basis of our available-for-sale securities. 

In the second quarter of 2012, we updated our assumptions used to project cash flow estimates on our Alt-A and subprime 

private-label securities to incorporate observable market trends, which included extending the time it takes to liquidate loans 

underlying these securities and increasing severity rates for loans where the servicer stopped advancing payments. These 

updates resulted in lower net present value of cash flow projections on our Alt-A and subprime securities and increased our 

other-than-temporary impairment expense by approximately $500 million. We provide more detailed information on our 

accounting for other-than-temporary impairment in “Note 5, Investments in Securities.”

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

Table 5: Summary of Condensed Consolidated Results of Operations

For the Three Months Ended For the Nine Months Ended

September 30, September 30,

2012 2011 Variance 2012 2011 Variance

(Dollars in millions)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,317 $ 5,186 $ 131 $15,942 $ 15,118 $ 824

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 291 87 1,148 793 355

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,695 $ 5,477 $ 218 $17,090 $ 15,911 $ 1,179

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 73 61 381 319 62

Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . (38) (262) 224 (701) (362) (339)

Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,020) (4,525) 3,505 (3,186) (5,870) 2,684

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (588) (591) 3 (1,719) (1,765) 46

Credit-related expenses

Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . (2,079) (4,151) 2,072 (1,038) (21,242) 20,204

Foreclosed property income (expense) . . . . . . . . . . . . . . . . 48 (733) 781 (221) (743) 522

Total credit-related expenses . . . . . . . . . . . . . . . . . . . . . (2,031) (4,884) 2,853 (1,259) (21,985) 20,726

Other non-interest expenses(1). . . . . . . . . . . . . . . . . . . . . . . . . (339) (373) 34 (956) (787) (169)

Income (loss) before federal income taxes. . . . . . . . . . . . . . . . 1,813 (5,085) 6,898 9,650 (14,539) 24,189

Benefit for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . — — — — 91 (91)

Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813 (5,085) 6,898 9,650 (14,448) 24,098

Less: Net loss (income) attributable to the noncontrolling

interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 — 8 4 (1) 5

Net income (loss) attributable to Fannie Mae . . . . . . . . . . . $ 1,821 $(5,085) $ 6,906 $ 9,654 $(14,449) $ 24,103

Total comprehensive income (loss) attributable to Fannie

Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,567 $(5,282) $ 7,849 $11,090 $(14,463) $ 25,553

__________

(1) Consists of debt extinguishment losses, net and other expenses.
20

Net Interest Income

Table 6 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 7 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.

Table 6: Analysis of Net Interest Income and Yield

For the Three Months Ended September 30,

2012 2011

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 . . . . . . . . . . . . . . . . . . . . . $ 366,836 $ 3,536 3.86 % $ 386,067 $ 3,701 3.83 %

Mortgage loans of consolidated trusts. . . . . . . . . . . . . . . . 2,627,408 27,057 4.12 2,598,264 30,633 4.72

Total mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,994,244 30,593 4.09 2,984,331 34,334 4.60

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . 263,333 3,085 4.69 312,482 3,930 5.03

Elimination of Fannie Mae MBS held in portfolio . . . . . . (171,205) (2,075) 4.85 (199,691) (2,520) 5.05

Total mortgage-related securities, net. . . . . . . . . . . . . . . 92,128 1,010 4.39 112,791 1,410 5.00

Non-mortgage securities(1)

. . . . . . . . . . . . . . . . . . . . . . . . . 42,922 13 0.12 72,333 24 0.13

Federal funds sold and securities purchased under

agreements to resell or similar arrangements . . . . . . . . 40,565 19 0.18 27,217 7 0.10

Advances to lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,178 34 1.85 3,417 19 2.18

Total interest-earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $3,177,037 $31,669 3.99 % $3,200,089 $35,794 4.47 %

Interest-bearing liabilities:

Short-term debt(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,186 $ 37 0.16 % $ 181,495 $ 63 0.14 %

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559,968 2,919 2.09 552,191 3,385 2.45

Total short-term and long-term funding debt . . . . . . . . . 653,154 2,956 1.81 733,686 3,448 1.88

Debt securities of consolidated trusts . . . . . . . . . . . . . . . . 2,707,451 25,471 3.76 2,650,256 29,680 4.48

Elimination of Fannie Mae MBS held in portfolio . . . . . . (171,205) (2,075) 4.85 (199,691) (2,520) 5.05

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,536,246 23,396 3.69 2,450,565 27,160 4.43

Total interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . . $3,189,400 $26,352 3.30 % $3,184,251 $30,608 3.84 %

Net interest income/net interest yield . . . . . . . . . . . . . . . . . . . $ 5,317 0.67 % $ 5,186 0.65 %

Net interest income/net interest yield of consolidated trusts(3) $ 1,586 0.24 % $ 953 0.15 %
21

For the Nine Months Ended September 30,

2012 2011

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 . . . . . . . . . . . . . . . . . . . $ 372,916 $10,704 3.83 % $ 395,686 $ 11,146 3.76 %

Mortgage loans of consolidated trusts . . . . . . . . . . . . . . 2,613,196 84,482 4.31 2,601,710 94,111 4.82

Total mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . 2,986,112 95,186 4.25 2,997,396 105,257 4.68

Mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . 275,456 9,809 4.75 321,979 12,204 5.05

Elimination of Fannie Mae MBS held in portfolio . . . . (178,218) (6,558) 4.91 (206,176) (7,956) 5.15

Total mortgage-related securities, net . . . . . . . . . . . . . 97,238 3,251 4.46 115,803 4,248 4.89

Non-mortgage securities(1)

. . . . . . . . . . . . . . . . . . . . . . . 55,391 56 0.13 76,266 99 0.17

Federal funds sold and securities purchased under

agreements to resell or similar arrangements. . . . . . . 33,349 42 0.17 20,980 20 0.13

Advances to lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,959 89 1.96 3,548 59 2.19

Total interest-earning assets. . . . . . . . . . . . . . . . . . . . . . . . . $3,178,049 $98,624 4.14 % $3,213,993 $109,683 4.55 %

Interest-bearing liabilities:

Short-term debt(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,393 $ 108 0.13 % $ 160,961 $ 246 0.20 %

Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569,112 9,101 2.13 591,126 11,383 2.57

Total short-term and long-term funding debt . . . . . . . 674,505 9,209 1.82 752,087 11,629 2.06

Debt securities of consolidated trusts . . . . . . . . . . . . . . 2,685,408 80,031 3.97 2,652,057 90,892 4.57

Elimination of Fannie Mae MBS held in portfolio . . . . (178,218) (6,558) 4.91 (206,176) (7,956) 5.15

Total debt securities of consolidated trusts held by

third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,507,190 73,473 3.91 2,445,881 82,936 4.52

Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . $3,181,695 $82,682 3.46 % $3,197,968 $ 94,565 3.94 %

Net interest income/net interest yield. . . . . . . . . . . . . . . . . . $15,942 0.67 % $ 15,118 0.63 %

Net interest income/net interest yield of consolidated 

trusts(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,451 0.23 % $ 3,219 0.16 %

As of September 30,

2012 2011

Selected benchmark interest rates(4)

3-month LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.36 % 0.37 %

2-year swap rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37 0.58

5-year swap rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.76 1.26

30-year Fannie Mae MBS par coupon rate. . . . . . . . . . . . 1.84 2.96

__________

(1) Includes cash equivalents.

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

(3) Net interest income of consolidated trusts represents interest income from mortgage loans of consolidated trusts less interest expense from 

debt securities of consolidated trusts. Net interest yield is calculated based on net interest income from consolidated trusts divided by 

average balance of mortgage loans of consolidated trusts. 

(4) Data from British Bankers’Association, Thomson Reuters Indices and Bloomberg L.P.
22

Table 7: Rate/Volume Analysis of Changes in Net Interest Income

For the Three Months Ended For the Nine Months Ended 

September 30, 2012 vs. 2011 September 30, 2012 vs. 2011 

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (165) $ (185) $ 20 $ (442) $ (651) $ 209

Mortgage loans of consolidated trusts . . . . . . . . . . . . . . . . . . . . . (3,576) 340 (3,916) (9,629) 414 (10,043)

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,741) 155 (3,896) (10,071) (237) (9,834)

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (845) (589) (256) (2,395) (1,688) (707)

Elimination of Fannie Mae MBS held in portfolio. . . . . . . . . . . . 445 348 97 1,398 1,042 356

Total mortgage-related securities, net . . . . . . . . . . . . . . . . . . . . (400) (241) (159) (997) (646) (351)

Non-mortgage securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (9) (2) (43) (24) (19)

Federal funds sold and securities purchased under agreements to

resell or similar arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . 12 4 8 22 14 8

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 18 (3) 30 37 (7)

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,125) (73) (4,052) (11,059) (856) (10,203)

Interest expense:

Short-term debt (3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (34) 8 (138) (71) (67)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (466) 47 (513) (2,282) (411) (1,871)

Total short-term and long-term funding debt. . . . . . . . . . . . . . . (492) 13 (505) (2,420) (482) (1,938)

Debt securities of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . (4,209) 628 (4,837) (10,861) 1,130 (11,991)

Elimination of Fannie Mae MBS held in portfolio. . . . . . . . . . . . 445 348 97 1,398 1,042 356

Total debt securities of consolidated trusts held by third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,764) 976 (4,740) (9,463) 2,172 (11,635)

Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,256) 989 (5,245) (11,883) 1,690 (13,573)

Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131 $ (1,062) $ 1,193 $ 824 $ (2,546) $ 3,370

__________

(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.

Although our portfolio balance declined, net interest income increased in the third quarter and first nine months of 2012, 

compared with the third quarter and first nine months of 2011, primarily due to lower interest expense on funding debt, a 

reduction in the amount of interest income not recognized for nonaccrual mortgage loans and accelerated net amortization 

income on loans and debt of consolidated trusts. These factors were partially offset by lower interest income on Fannie Mae 

mortgage loans and securities. The primary drivers of these changes were:

• lower interest expense on funding debt due to lower borrowing rates and lower funding needs, which allowed us to 

continue to replace higher-cost debt with lower-cost debt; 

• higher coupon interest income recognized on mortgage loans due to a reduction in the amount of interest income 

not recognized for nonaccrual mortgage loans. The balance of nonaccrual loans in our condensed consolidated 

balance sheet declined as we continued to complete a high number of loan workouts and foreclosures, and fewer 

loans became seriously delinquent;

• accelerated net amortization income related to mortgage loans and debt of consolidated trusts driven by a high 

volume of prepayments due to declining interest rates;

• lower interest income on Fannie Mae mortgage loans due to a decrease in average balance and new business 

acquisitions which continued to replace higher-yielding loans with loans issued at lower mortgage rates; and

• lower interest income on mortgage securities due to lower interest rates and a decrease in the balance of our 

mortgage securities, as we continue to manage our portfolio requirements of the senior preferred stock purchase 

agreement.
23

Additionally, our net interest income and net interest yield were higher than they would have otherwise been because our debt 

funding needs were lower than would otherwise have been required because of the funds we have received from Treasury to 

date under the senior preferred stock purchase agreement and because dividends paid to Treasury are not recognized as 

interest expense.

Table 8 displays the interest income not recognized for loans on nonaccrual status and the resulting reduction in our net 

interest yield on total interest earning assets for the periods indicated.

Table 8: Impact of Nonaccrual Loans on Net Interest Income

For the Three Months Ended September 30, For the Nine Months Ended September 30, 

2012 2011 2012 2011

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

(Dollars in millions)

Mortgage loans of Fannie Mae . . . $ (856) $(1,078) $(2,734) $(3,623)

Mortgage loans of consolidated

trusts. . . . . . . . . . . . . . . . . . . . . .

(137) (212) (464) (690)

Total mortgage loans. . . . . . . . . . . $ (993) (12)bp $(1,290) (16)bp $(3,198) (13)bp $(4,313) (18)bp

__________

(1) Amount includes cash received for loans on nonaccrual status.

(2) Calculated based on annualized interest income not recognized divided by total interest-earning assets, expressed in basis points.

For a discussion of the interest income from the assets we have purchased and the interest expense from the debt we have 

issued, see the discussion of our Capital Markets group’s net interest income in “Business Segment Results.”

Other-Than-Temporary Impairment of Investment Securities

Net other-than-temporary impairments for the third quarter of 2012 decreased compared with the third quarter of 2011, 

primarily due to an increase in the net present value of projected cash flows on our Alt-A and subprime private-label 

securities resulting from improved home prices, as well as a tightening of credit spreads.

The increase in net other-than-temporary impairments for the first nine months of 2012 compared with the first nine months 

of 2011 was primarily driven by an update to the assumptions used to project cash flow estimates on our Alt-A and subprime 

securities in the second quarter of 2012. For additional information, see “Critical Accounting Policies and Estimates—OtherThan-Temporary Impairment of Investment Securities.”

Fair Value Losses, Net

Table 9 displays the components of our fair value gains and losses. 
24

Table 9: Fair Value Losses, Net

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2012 2011 2012 2011

(Dollars in millions)

Risk management derivatives fair value losses attributable to:

Net contractual interest expense accruals on interest rate swaps . . . . . . . . . . $ (369) $ (497) $ (1,134) $ (1,790)

Net change in fair value during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . (139) (3,570) (1,016) (3,777)

Total risk management derivatives fair value losses, net . . . . . . . . . . . . . . (508) (4,067) (2,150) (5,567)

Mortgage commitment derivatives fair value losses, net . . . . . . . . . . . . . . . . . . (816) (188) (1,583) (226)

Total derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,324) (4,255) (3,733) (5,793)

Trading securities gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 (214) 676 146

Other, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102) (56) (129) (223)

Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,020) $ (4,525) $ (3,186) $ (5,870)

2012 2011

5-year swap rate:

As of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22% 2.18%

As of March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27 2.47

As of June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.97 2.03

As of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.76 1.26

 

__________

(1) Consists of debt fair value gains (losses), net; debt foreign exchange gains (losses), net; and mortgage loans fair value gains (losses), 

net.

We can expect high levels of period-to-period volatility in our results of operations and financial condition due to changes in 

market conditions that result in periodic fluctuations in the estimated fair value of financial instruments that we mark to 

market through our earnings. These instruments include trading securities and derivatives. The estimated fair value of our 

trading securities and derivatives may fluctuate substantially from period to period because of changes in interest rates, credit 

spreads and interest rate volatility, as well as activity related to these financial instruments. While the estimated fair value of 

our derivatives may fluctuate, some of the financial instruments that the derivatives hedge are not recorded at fair value in our 

condensed consolidated financial statements.

Risk Management Derivatives Fair Value Losses, Net

Risk management derivative instruments are an integral part of our interest rate risk management strategy. We supplement 

our issuance of debt securities with derivative instruments to further reduce duration risk, which includes prepayment risk. 

We recognized risk management derivative fair value losses in the third quarter and first nine months of 2012 and 2011 

primarily as a result of a decrease in the fair value of our pay-fixed derivatives due to a decline in swap rates during these 

periods. Risk management derivative fair value losses in the third quarter and first nine months of 2011 were greater than the 

losses in the third quarter and first nine months of 2012, primarily due to a significant decline in swap rates in the third 

quarter and first nine months of 2011 compared with a more modest decline in swap rates in the third quarter and first nine 

months of 2012.

We present, by derivative instrument type, the fair value gains and losses on our derivatives for the three and nine months 

ended September 30, 2012 and 2011 in “Note 9, Derivative Instruments.”

Mortgage Commitment Derivatives Fair Value Losses, Net

We recognized fair value losses on our mortgage commitments in the third quarter and first nine months of 2012 and 2011 

primarily due to losses on commitments to sell mortgage-related securities as a result of an increase in prices as interest rates 

decreased during the commitment period. Mortgage commitment derivative fair value losses in the third quarter and first nine 

months of 2012 were greater than the losses in the third quarter and first nine months of 2011, primarily as a result of (1) a 

higher volume of net commitments to sell mortgage-related securities in the third quarter and first nine months of 2012, and 
25

(2) a further increase in prices driven by the Federal Reserve’s announcement that it would increase its MBS purchases from 

financial institutions beginning in September 2012.

Trading Securities Gains (Losses), Net

Gains from our trading securities in the third quarter and first nine months of 2012 were primarily driven by the narrowing 

of credit spreads on commercial mortgage-backed securities (“CMBS”).

Losses from our trading securities in the third quarter of 2011 were primarily driven by the widening of credit spreads on 

CMBS. However, these credit spreads narrowed over the first nine months of 2011, which primarily drove gains on trading 

securities for the nine-month period. 

Credit-Related Expenses

We refer to our provision for loan losses and guaranty losses collectively as our “provision for credit losses.” Credit-related 

expenses consist of our provision for credit losses and foreclosed property (income) expense.

Provision for Credit Losses

Our total loss reserves provide for an estimate of credit losses incurred in our guaranty book of business, including 

concessions we granted borrowers upon modification of their loans, as of each balance sheet date. We establish our loss 

reserves through our provision for credit losses for losses that we believe have been incurred and will eventually be reflected 

over time in our charge-offs. When we determine that a loan is uncollectible, typically upon foreclosure, we record a chargeoff against our loss reserves. We record recoveries of previously charged-off amounts as a reduction to charge-offs.

Table 10 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. As of September 30, 2012, we estimate that nearly two-thirds of this amount represents credit losses we expect to 

realize in the future and over one-third 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 10: Total Loss Reserves

As of

September 30,

2012

December 31,

2011

(Dollars in millions)

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,012 $72,156

Reserve for guaranty losses(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,295 994

Combined loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,307 73,150

Allowance for accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,832 2,496

Allowance for preforeclosure property taxes and insurance receivable(2)

. . . . . . . . . . . . . . . . . . . . 769 1,292

Total loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,908 76,938

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

. . . . . . . . . . . . . . . . . 14,304 16,273

Total loss reserves and fair value losses previously recognized on acquired creditimpaired loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,212 $93,211

__________

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

(2) Amount included in “Other assets” in our condensed consolidated balance sheets.

(3) Represents the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our condensed consolidated balance 

sheets.

The following table displays changes in the total allowance for loan losses, reserve for guaranty losses and the total combined 

loss reserves for the three and nine months ended September 30, 2012 and 2011.
26

Table 11: Allowance for Loan Losses and Reserve for Guaranty Losses (Combined Loss Reserves)

For the Three Months Ended September 30,

2012 2011

Of

Fannie

Mae

Of

Consolidated

Trusts Total

Of

Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Changes in combined loss reserves:

Allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 52,082 $ 11,293 $ 63,375 $ 55,966 $ 13,540 $ 69,506

Provision (benefit) for loan losses . . . . . . . . . . 3,029 (946) 2,083 (196) 4,355 4,159

Charge-offs(1)(2)

. . . . . . . . . . . . . . . . . . . . . . . . . (3,309) (232) (3,541) (3,853) (260) (4,113)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 27 350 848 35 883

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,378 (1,378) — 1,770 (1,770) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711 34 745 863 137 1,000

Ending balance(5)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 54,214 $ 8,798 $ 63,012 $ 55,398 $ 16,037 $ 71,435

Reserve for guaranty losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 1,320 $ — $ 1,320 $ 960 $ — $ 960

Benefit for guaranty losses. . . . . . . . . . . . . . . . (4) — (4) (8) — (8)

Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) — (32) (38) — (38)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 — 11 2 — 2

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,295 $ — $ 1,295 $ 916 $ — $ 916

Combined loss reserves:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 53,402 $ 11,293 $ 64,695 $ 56,926 $ 13,540 $ 70,466

Total provision (benefit) for credit losses. . . . . 3,025 (946) 2,079 (204) 4,355 4,151

Charge-offs(1)(2)

. . . . . . . . . . . . . . . . . . . . . . . . . (3,341) (232) (3,573) (3,891) (260) (4,151)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 27 361 850 35 885

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,378 (1,378) — 1,770 (1,770) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711 34 745 863 137 1,000

Ending balance(5)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 55,509 $ 8,798 $ 64,307 $ 56,314 $ 16,037 $ 72,351
27

For the Nine Months Ended September 30,

2012 2011

Of

Fannie

Mae

Of

Consolidated

Trusts Total

Of

Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Changes in combined loss reserves:

Allowance for loan losses:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . $ 57,309 $ 14,847 $ 72,156 $ 48,530 $13,026 $ 61,556

Provision (benefit) for loan losses . . . . . . . . . 1,083 (407) 676 10,003 10,545 20,548

Charge-offs(1)(2)

. . . . . . . . . . . . . . . . . . . . . . . . (11,625) (703) (12,328) (15,018) (1,466) (16,484)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 136 1,321 3,197 1,537 4,734

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,195 (5,195) — 7,739 (7,739) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,067 120 1,187 947 134 1,081

Ending balance(5)

. . . . . . . . . . . . . . . . . . . . . . . . $ 54,214 $ 8,798 $ 63,012 $ 55,398 $16,037 $ 71,435

Reserve for guaranty losses:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . $ 994 $ — $ 994 $ 323 $ — $ 323

Provision for guaranty losses . . . . . . . . . . . . . 362 — 362 694 — 694

Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . (132) — (132) (106) — (106)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 — 71 5 — 5

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,295 $ — $ 1,295 $ 916 $ — $ 916

Combined loss reserves:

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . $ 58,303 $ 14,847 $ 73,150 $ 48,853 $13,026 $ 61,879

Total provision (benefit) for credit losses. . . . 1,445 (407) 1,038 10,697 10,545 21,242

Charge-offs(1)(2)

. . . . . . . . . . . . . . . . . . . . . . . . (11,757) (703) (12,460) (15,124) (1,466) (16,590)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256 136 1,392 3,202 1,537 4,739

Transfers(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,195 (5,195) — 7,739 (7,739) —

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,067 120 1,187 947 134 1,081

Ending balance(5)

. . . . . . . . . . . . . . . . . . . . . . . . $ 55,509 $ 8,798 $ 64,307 $ 56,314 $16,037 $ 72,351

As of

September 30,

2012

December 31,

2011

Allocation of combined loss reserves:

Balance at end of each period attributable to:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,100 $ 71,512

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,207 1,638

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,307 $ 73,150

Single-family and multifamily combined loss reserves as a percentage of applicable

guaranty book of business:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.22% 2.52%

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60 0.84

Combined loss reserves as a percentage of:

Total guaranty book of business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11% 2.41%

Recorded investment in nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.38 29.03
28

_________

(1) Includes accrued interest of $198 million and $289 million for the three months ended September 30, 2012 and 2011, respectively, and 

$709 million and $1.1 billion for the nine months ended September 30, 2012 and 2011, respectively.

(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. Accordingly, 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 provision for credit losses, charge-offs, recoveries and transfer activity included in this table reflects all 

changes for both the allowance for loan losses and the valuation allowances for accrued interest and preforeclosure property taxes and 

insurance receivable that relate to the mortgage loans.

(5) Includes $376 million and $334 million as of September 30, 2012 and 2011, respectively, for acquired credit-impaired loans.

Our provision for credit losses continues to be a key driver of our results for each period presented. The amount of our 

provision for credit losses varies from period to period based on changes in actual and expected home prices, borrower 

payment behavior, the types and volumes of loss mitigation activities and foreclosures completed, and actual and estimated 

recoveries from our lender and mortgage insurer counterparties. See “Risk Management—Credit Risk Management—

Institutional Counterparty Credit Risk Management” for information on mortgage insurers and outstanding mortgage seller/

servicer repurchase obligations. In addition, our provision for credit losses and our loss reserves can be impacted by updates 

to our allowance for loan loss models that we use to estimate our loss reserves.

The decrease in our provision for credit losses in the third quarter of 2012 compared with the third quarter of 2011 was 

primarily due to a decrease in our total loss reserves driven by an improvement in the profile of our single-family book of 

business resulting primarily from an increase in actual and expected home prices, including the sales prices of our REO 

properties throughout 2012. Home prices increased by 1.5% in the third quarter of 2012 compared with a 0.9% decline in the 

third quarter of 2011 and increased by 4.8% in the first nine months of 2012 compared with a 1.7% decrease in the first nine 

months of 2011. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on 

loans that do default. In addition, sales prices on dispositions of our REO properties improved in the third quarter of 2012 as 

a result of strong demand compared to both the second quarter of 2012 and the prior year. We received net proceeds from our 

REO sales equal to 61% of the loans’ unpaid principal balance in the third quarter of 2012, compared with 59% in the second 

quarter of 2012 and 54% in the third quarter of 2011. The increase in sales proceeds reduces the amount of credit loss at 

foreclosure and, accordingly, results in a lower provision for credit loss.

The positive impact of higher home prices and higher REO sales values on our provision for credit losses in the third quarter 

of 2012 was partially offset by a $3.5 billion increase in our provision for credit losses due to changes in our assumptions and 

data used in calculating our loss reserves. For additional information on the impact from changes in our assumptions used in 

calculating our loss reserves in the third quarter of 2012, see “Critical Accounting Policies and Estimates—Total Loss 

Reserves.”

In addition, our provision for credit losses in the third quarter of 2012 was negatively impacted by a change in our accounting 

for loans to certain borrowers who have received bankruptcy relief, which led to an increase in the number of loans we 

classify as TDRs. A TDR is a loan restructuring that grants a concession to a borrower experiencing financial difficulties. In 

the third quarter of 2012, we began classifying loans as TDRs where the borrower used the bankruptcy process to receive a 

discharge of the mortgage debt or to cure a mortgage delinquency over time. We determined that the discharge of mortgage 

debt in bankruptcy was a concession in cases in which the discharge effectively resulted in us losing our ability to hold the 

borrower personally liable for deficiencies under state law, although we continue to be able to foreclose on the collateral. We 

also determined that curing a mortgage delinquency over time through bankruptcy resulted in a concession similar to other 

long-term repayment plans. The increase in TDRs as a result of this change resulted in an increase in our provision for credit 

losses of approximately $1.1 billion.

We continue to experience high volumes of loan modifications involving concessions to borrowers, which are considered 

TDRs. Individual impairment for a TDR is based on the restructured loan’s expected cash flows over the life of the loan, 

taking into account the effect of any concessions granted to the borrower, discounted at the loan’s original effective interest 

rate. If we expect to recover our recorded investment in an individually impaired loan through probable foreclosure of the 

underlying collateral, we measure the impairment based on the fair value of the collateral, less selling cost. The allowance 

calculated for an individually impaired loan has generally been greater than the allowance that would be calculated under the 

collective reserve.
29

The significant decrease in our provision for credit losses in the first nine months of 2012 compared with the first nine 

months of 2011 was primarily due to an increase in actual and expected home prices in 2012.

In April 2012, FHFA issued an Advisory Bulletin that could have an impact on our provision for credit losses in the future; 

however, we are still assessing the impact of the Advisory Bulletin. See “Legislative and Regulatory Developments—FHFA

Advisory Bulletin Regarding Framework for Adversely Classifying Loans” in our Second Quarter 2012 Form 10-Q for 

additional information.

We discuss our expectations regarding our future credit-related expenses and loss reserves in “Executive Summary—

Summary of Our Financial Performance for the Third Quarter and First Nine Months of 2012—Our Expectations Regarding 

Future Loss Reserves and Credit-Related Expenses.”

Nonperforming Loans

Our balance of nonperforming single-family loans remained high as of September 30, 2012 due to both high levels of 

delinquencies and an increase in TDRs. The increase in TDRs as of September 30, 2012 compared with December 31, 2011 

resulted from our classification, beginning in the third quarter of 2012, of loans to certain borrowers who have received 

bankruptcy relief as TDRs. 

When a TDR occurs, the loan may return to a current status, but it will continue to be classified as a nonperforming loan as 

the loan is not performing in accordance with its original terms. Table 12 displays the composition of our nonperforming 

loans, which includes our single-family and multifamily held-for-investment and held-for-sale mortgage loans. For 

information on the impact of TDRs and other individually impaired loans on our allowance for loan losses, see “Note 3, 

Mortgage Loans.”

Table 12: Nonperforming Single-Family and Multifamily Loans

As of

September 30,

2012

December 31,

2011

(Dollars in millions)

On-balance sheet nonperforming loans including loans in consolidated Fannie Mae MBS

trusts:

Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,602 $ 142,998

Troubled debt restructurings on accrual status(1)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,760 108,797

Total on-balance sheet nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,362 251,795

Off-balance sheet nonperforming loans in unconsolidated Fannie Mae MBS trusts(3). . . . . . . . 72 154

Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,434 251,949

Allowance for loan losses and allowance for accrued interest receivable related to

individually impaired on-balance sheet nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . (49,385) (47,711)

Total nonperforming loans, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 204,049 $ 204,238

Accruing on-balance sheet loans past due 90 days or more(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 831 $ 768

For the Nine Months Ended

September 30,

2012 2011

(Dollars in millions)

Interest related to on-balance sheet nonperforming loans:

Interest income forgone(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,108 $ 6,475

Interest income recognized for the period(6)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,659 4,760
30

__________

(1) Includes HomeSaver Advance first-lien loans on accrual status. 

(2) As of September 30, 2012, we classified $12.7 billion of loans on accrual status as TDRs where certain borrowers have received 

bankruptcy relief.

(3) Represents loans that would meet our criteria for nonaccrual status if the loans had been on-balance sheet.

(4) 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.

(5) Represents the amount of interest income we did not record but would have recorded during the period for on-balance sheet 

nonperforming loans as of the end of each period had the loans performed according to their original contractual terms.

(6) Represents interest income recognized during the period for on-balance sheet loans classified as nonperforming 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 (Income) Expense 

The decrease in foreclosed property expense in the third quarter and first nine months of 2012 compared with the third 

quarter and first nine months of 2011 was primarily due to improved sales prices on dispositions of our REO properties, 

resulting from strong demand in markets with limited REO supply. In addition, foreclosed property expense in the third 

quarter and first nine months of 2011 was negatively impacted by a decrease in the estimated recovery amount due to us from 

mortgage insurers. 

Credit Loss Performance Metrics

Our credit-related expenses should be considered in conjunction with our credit loss performance metrics. Our credit loss 

performance metrics, however, are not defined terms within GAAP and may not be calculated in the same manner as 

similarly titled measures reported by other companies. Because management does not view changes in the fair value of our 

mortgage loans as credit losses, we adjust our credit loss performance metrics for the impact associated with our acquisition 

of credit-impaired loans from unconsolidated MBS trusts. We also exclude interest forgone on nonperforming loans in our 

mortgage portfolio, 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 creditimpaired loans, investors are able to evaluate our credit performance on a more consistent basis among periods. Table 13

displays the components of our credit loss performance metrics as well as our average single-family and multifamily default 

rates and initial charge-off severity rates. 
31

Table 13: Credit Loss Performance Metrics

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2012 2011 2012 2011

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of recoveries . . . . . . . $3,212 42.2 bp $3,266 42.8 bp $ 11,068 48.5 bp $11,851 51.6 bp

Foreclosed property (income) expense (48) (0.6) 733 9.6 221 1.0 743 3.2

Credit losses including the effect of

fair value losses on acquired creditimpaired loans . . . . . . . . . . . . . . . . . 3,164 41.6 3,999 52.4 11,289 49.5 12,594 54.8

Plus: Impact of acquired creditimpaired loans on charge-offs and 

foreclosed property expense(2)

. . . . . 348 4.6 461 6.1 1,142 5.0 1,484 6.5

Credit losses and credit loss ratio . . . . $3,512 46.2 bp $4,460 58.5 bp $ 12,431 54.5 bp $14,078 61.3 bp

Credit losses attributable to:

Single-family . . . . . . . . . . . . . . . . . $3,485 $4,384 $ 12,218 $13,798

Multifamily. . . . . . . . . . . . . . . . . . . 27 76 213 280

Total . . . . . . . . . . . . . . . . . . . . . . . . $3,512 $4,460 $ 12,431 $14,078

Single-family default rate . . . . . . . . . . 0.38 % 0.44 % 1.20 % 1.34 %

Single-family initial charge-off 

severity rate (3)

. . . . . . . . . . . . . . . . . 29.83 % 34.20 % 31.36 % 35.00 %

Average multifamily default rate. . . . . 0.05 % 0.08 % 0.30 % 0.38 %

Average multifamily initial charge-off 

severity rate (3)

. . . . . . . . . . . . . . . . . 28.31 % 32.49 % 37.03 % 35.40 %

__________

(1) Basis points are based on the annualized amount for each line item presented divided by the average guaranty book of business during 

the period.

(2) Includes fair value losses from acquired credit-impaired loans.

(3) Single-family and multifamily rates exclude fair value losses on credit-impaired loans acquired from MBS trusts and any costs, gains or 

losses associated with REO after initial acquisition through final disposition; single-family rate excludes charge-offs from short sales.

Credit losses decreased in the third quarter and first nine months of 2012 compared with the third quarter and first nine 

months of 2011 primarily due to: (1) improved actual home prices and sales prices of our REO properties resulting from 

strong demand in markets with limited REO supply; and (2) lower volume of REO acquisitions due to the slow pace of 

foreclosures. The decrease in credit losses was partially offset by a decrease in amounts collected by us as a result of 

repurchase requests in the third quarter and first nine months of 2012 compared with the third quarter and first nine months of 

2011.We expect our credit losses to remain high in 2012 relative to pre-housing crisis levels. We expect delays in foreclosures 

to continue for the remainder of 2012, which delays our realization of credit losses.

Our new single-family book of business accounted for approximately 6% of our single-family credit losses for the third 

quarter of 2012 and 4% of these losses for the first nine months of 2012. Credit losses on mortgage loans typically do not 

peak until the third through sixth years following origination; however, this range can vary based on many factors, including 

changes in macroeconomic conditions and foreclosure timelines. We provide more detailed credit performance information, 

including serious delinquency rates by geographic region and foreclosure activity, in “Risk Management—Credit Risk 

Management—Mortgage Credit Risk Management.”

Regulatory Hypothetical Stress Test Scenario

Under a September 2005 agreement with FHFA’s predecessor, the Office of Federal Housing Enterprise Oversight, we are 

required to disclose on a quarterly basis the present value of the change in future expected credit losses from our existing 

single-family guaranty book of business from an immediate 5% decline in single-family home prices for the entire United 

States followed by a return to the average of the possible growth rate paths used in our internal credit pricing models. The 

sensitivity results represent the difference between future expected credit losses under our base case scenario, which is 

derived from our internal home price path forecast, and a scenario that assumes an instantaneous nationwide 5% decline in 

home prices.
32

Table 14 displays the credit loss sensitivities as of the dates indicated for first-lien single-family loans that are in our 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 14: Single-Family Credit Loss Sensitivity(1)

As of

September 30,

2012

December 31,

2011

(Dollars in millions)

Gross single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,201 $ 21,922

Less: Projected credit risk sharing proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,137) (1,690)

Net single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,064 $ 20,232

Single-family loans in our portfolio and loans underlying Fannie Mae MBS . . . . . . . . . . . . . . . $ 2,774,803 $ 2,769,454

Single-family net credit loss sensitivity as a percentage of outstanding single-family loans in

our portfolio and Fannie Mae MBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.47% 0.73%

__________

(1) Represents total economic credit losses, which consist of credit losses and forgone interest. Calculations are based on 98% and 97% of 

our total single-family guaranty book of business as of September 30, 2012 and December 31, 2011, respectively. 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 

mortgage portfolio or held by third parties), excluding certain whole loan REMICs and private-label 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.

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 our 2011 Form 10-K in “Notes to Consolidated 

Financial Statements—Note 14, Segment Reporting.” We are working on reorganizing our company by function rather than 

by business in order to improve our operational efficiencies and effectiveness. In future periods, we may change some of our 

management reporting and how we report our business segment results. 

In this section, we summarize our segment results for the third quarter and first nine months of 2012 and 2011 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 10, 

Segment Reporting” for a reconciliation of our segment results to our condensed consolidated results.
33

Single-Family Business Results

Table 15 displays the financial results of our Single-Family business for the periods indicated. For a discussion on SingleFamily credit risk management, including information on serious delinquency rates and loan workouts, see “Risk 

Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.” The primary source of 

revenue for our Single-Family business is guaranty fee income. Expenses and other items that impact income or loss 

primarily include credit-related expenses, net interest loss and administrative expenses.

Table 15: Single-Family Business Results 

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2012 2011 Variance 2012 2011 Variance

(Dollars in millions)

Net interest loss(1)

. . . . . . . . . . . . . . . . . . . . . $ (192) $ (374) $ 182 $ (786) $ (1,952) $ 1,166

Guaranty fee income(2)(3)

. . . . . . . . . . . . . . . . 2,014 1,867 147 5,895 5,618 277

Credit-related expenses(4)

. . . . . . . . . . . . . . . (2,130) (4,782) 2,652 (1,500) (21,821) 20,321

Other expenses(3)(5)

. . . . . . . . . . . . . . . . . . . . (502) (456) (46) (1,333) (1,414) 81

(Loss) income before federal income taxes . (810) (3,745) 2,935 2,276 (19,569) 21,845

(Provision) benefit for federal income taxes (12) (1) (11) (12) 106 (118)

Net (loss) income attributable to Fannie 

Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (822) $ (3,746) $ 2,924 $ 2,264 $ (19,463) $ 21,727

Single-family effective guaranty fee rate (in 

basis points)(3)(6). . . . . . . . . . . . . . . . . . . . . 28.3 26.1 27.6 26.1

Single-family average charged guaranty fee 

on new acquisitions (in basis points)(3)(7). 41.8 31.1 37.1 29.0

Average single-family guaranty book of 

business(8). . . . . . . . . . . . . . . . . . . . . . . . . $2,842,649 $2,859,814 $2,846,328 $2,870,557

Single-family Fannie Mae MBS issuances(9) $ 229,671 $ 111,808 $ 601,469 $ 381,135

__________

(1) Primarily includes: (1) the cost to reimburse the Capital Markets group for interest income not recognized for loans in our mortgage 

portfolio on nonaccrual status; (2) the cost to reimburse MBS trusts for interest income not recognized for loans in consolidated trusts 

on nonaccrual status; and (3) income from cash payments received on loans that have been placed on nonaccrual status. 

(2) Guaranty fee income is included in fee and other income in our condensed consolidated statements of operations and comprehensive 

income (loss). 

(3) Pursuant to the TCCA, effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages delivered to us 

on or after that date for securitization by 10 basis points, and the incremental revenue must be remitted to Treasury. The resulting 

revenue is included in guaranty fee income and the expense is included in other expenses. This increase in guaranty fee is also included 

in the single-family charged guaranty fee.

(4) Consists of the provision for credit losses and foreclosed property income (expense). 

(5) Consists of investment gains (losses), net, fair value losses, net, fee and other income, administrative expenses and other expenses. 

(6) Calculated based on annualized Single-Family segment guaranty fee income divided by the average single-family guaranty book of 

business, expressed in basis points.

(7) 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. 

(8) Consists of single-family mortgage loans held in our mortgage portfolio, single-family mortgage loans held by consolidated trusts, 

single-family Fannie Mae MBS issued from unconsolidated trusts held by either third parties or within our retained portfolio, and other 

credit enhancements that we provide on single-family mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in 

our investment portfolio for which we do not provide a guaranty.

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

Single-family business results reflected a decrease in net loss in the third quarter of 2012 compared with the third quarter of 

2011, and net income in the first nine months of 2012 compared with a net loss in the first nine months of 2011, primarily due 

to a decrease in credit-related expenses. In addition, net interest loss decreased and guaranty fee income increased in the third 

quarter and first nine months of 2012 compared with the third quarter and first nine months of 2011.
34

Single-family credit-related expenses represent the substantial majority of our consolidated activity. We provide a discussion 

of our credit-related expenses and credit losses in “Consolidated Results of Operations—Credit-Related Expenses.”

The decrease in net interest loss in the third quarter and first nine months of 2012 compared with the third quarter and first 

nine months of 2011 was primarily due to a reduction in the amount of interest income not recognized for nonaccrual 

mortgage loans in our condensed consolidated balance sheet as we continued to complete a high number of loan workouts 

and foreclosures. In addition, as loans with stronger credit profiles become a larger portion of our single-family guaranty 

book of business, a smaller percentage of our loans are becoming seriously delinquent.

Guaranty fee income increased in the third quarter and first nine months of 2012 compared with the third quarter and first 

nine months of 2011 due to an increase in the amortization of risk-based fees. Additionally, as described in “Business—

Legislative and Regulatory Developments—Changes to Our Single-Family Guaranty Fee Pricing” in our 2011 Form 10-K, in 

December 2011, Congress enacted the TCCA which, among other provisions, requires that we increase our single-family 

guaranty fees by at least 10 basis points and remit this increase to Treasury, rather than retaining the incremental revenue. 

Effective April 1, 2012, the guaranty fee on all single-family residential mortgages delivered to Fannie Mae and Freddie Mac 

on or after that date for securitization was increased by 10 basis points; accordingly, the Single-Family average charged 

guaranty fee increased. The resulting revenue is included in guaranty fee income, and the expense is included in other 

expenses. We recorded other expenses of $78 million for the third quarter of 2012 and $104 million for the first nine months 

of 2012 for this obligation due to Treasury.

Our estimated market share of new single-family mortgage-related securities issuances, which excludes previously 

securitized mortgages, remained high at 52% for the third quarter of 2012 and 50% for the first nine months of 2012. Despite 

our continued high market share, our average single-family guaranty book of business was flat in the third quarter and first 

nine months of 2012 compared with the third quarter and first nine months of 2011, primarily due to the decline in U.S. 

residential mortgage debt outstanding. 

Multifamily Business Results

Multifamily business results primarily reflect our multifamily guaranty business. Our multifamily business results also 

include activity relating to our low-income housing tax credit (“LIHTC”) and equity investments. Although we are no longer 

making new LIHTC or equity investments, we continue to make contractually required contributions for our legacy 

investments. Activity from multifamily products is also reflected in the Capital Markets group results, which include net 

interest income related to multifamily loans and securities, gains and losses from the sale of multifamily Fannie Mae MBS 

and re-securitizations, and other miscellaneous income. Estimated net interest income earned on multifamily mortgage loans 

and multifamily Fannie Mae MBS in the Capital Markets group results was $212 million for the third quarter of 2012 

compared with $210 million for the third quarter of 2011 and $631 million for the first nine months of 2012 compared with 

$662 million for the first nine months of 2011.

Table 16 displays the financial results of our Multifamily business for the periods indicated. The primary sources of revenue 

for our multifamily business are guaranty fee income and fee and other income. Expenses and other items that impact income 

or loss primarily include credit-related income (expenses) and administrative expenses.
35

Table 16: Multifamily Business Results

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2012 2011 Variance 2012 2011 Variance

(Dollars in millions)

Guaranty fee income(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . $ 265 $ 226 $ 39 $ 760 $ 651 $ 109

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 51 4 151 166 (15)

Gains (losses) from partnership investments(2)

. . . . . . . 43 (30) 73 72 (8) 80

Credit-related income (expenses)(3)

. . . . . . . . . . . . . . . . 99 (102) 201 241 (164) 405

Other expenses(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67) (73) 6 (192) (178) (14)

Income before federal income taxes . . . . . . . . . . . . . . . 395 72 323 1,032 467 565

Benefit (provision) for federal income taxes. . . . . . . . . 32 — 32 32 (61) 93

Net income attributable to Fannie Mae . . . . . . . . . . . . . $ 427 $ 72 $ 355 $ 1,064 $ 406 $ 658

Multifamily effective guaranty fee rate (in basis 

points)(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.9 47.0 51.1 45.4

Multifamily credit loss performance ratio (in basis 

points)(6)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 15.8 14.3 19.5

Average multifamily guaranty book of business(7)

. . . . $ 200,384 $ 192,357 $ 198,201 $ 191,185

Multifamily new business volumes(8)

. . . . . . . . . . . . . . $ 8,965 $ 6,500 $ 22,862 $ 16,963

Multifamily units financed from new business

volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 110,000 371,000 289,000

Multifamily Fannie Mae MBS issuances(9)

. . . . . . . . . . $ 9,576 $ 7,756 $ 25,969 $ 24,466

Multifamily Fannie Mae structured securities 

issuances (issued by Capital Markets group)(10)

. . . . . $ 4,038 $ 1,495 $ 7,462 $ 4,517

Additional net interest income earned on Fannie Mae 

multifamily mortgage loans and MBS (included in 

Capital Markets Group’s results)(11)

. . . . . . . . . . . . . . $ 212 $ 210 $ 631 $ 662

Average Fannie Mae multifamily mortgage loans and 

MBS in Capital Markets Group’s portfolio(12)

. . . . . . $ 97,186 $ 109,608 $ 100,636 $ 112,092

As of

September 30,

2012

December 31,

2011

(Dollars in millions)

Multifamily serious delinquency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.28 % 0.59 %

Percentage of multifamily guaranty book of business with credit enhancement . . . . . . . . . . . 90 % 90 %

Fannie Mae percentage of total multifamily mortgage debt outstanding(13)

. . . . . . . . . . . . . . . 21.5 % 21.1 %

Multifamily Fannie Mae MBS outstanding(14)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,171 $101,574

__________

(1) Guaranty fee income is included in fee and other income in our condensed consolidated statements of operations and comprehensive 

income (loss). 

(2) Gains (losses) from partnership investments are included in other expenses in our condensed consolidated statements of operations and 

comprehensive income (loss). Gains (losses) 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 (provision) for credit losses and foreclosed property income (expense). 

(4) Consists of net interest loss, investment gains, administrative expenses, and other (expenses) income. 

(5) Calculated based on annualized Multifamily segment guaranty fee income divided by the average multifamily guaranty book of 

business, expressed in basis points.

(6) Calculated based on the annualized Multifamily credit losses divided by the average multifamily guaranty book of business, expressed 

in basis points.
36

(7) Consists of multifamily mortgage loans held in our mortgage portfolio, multifamily mortgage loans held by consolidated trusts, 

multifamily Fannie Mae MBS issued from unconsolidated trusts held by either third parties or within our retained portfolio, and other 

credit enhancements that we provide on multifamily mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in our 

investment portfolio for which we do not provide a guaranty. 

(8) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued (excluding portfolio securitizations) and multifamily loans 

purchased during the period. 

(9) 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 $1.1 billion and $1.3 billion for the three months ended September 30, 2012 and 

2011, respectively, and $3.4 billion and $7.6 billion for the nine months ended September 30, 2012 and 2011, respectively, and 

(c) conversions of adjustable-rate loans to fixed-rate loans and discount MBS (“DMBS”) to MBS of $18 million and $69 million for the 

three months ended September 30, 2012 and 2011, respectively, and $208 million and $188 million for the nine months ended 

September 30, 2012 and 2011, respectively.

(10) Reflects original unpaid principal balance of out-of-portfolio multifamily structured securities issuances by our Capital Markets Group. 

(11) Interest expense estimate is based on allocated duration-matched funding costs. Net interest income was reduced by guaranty fees 

allocated to Multifamily from the Capital Markets Group on multifamily loans in Fannie Mae’s portfolio. 

(12) Based on unpaid principal balance. 

(13) Includes mortgage loans and Fannie Mae MBS issued and guaranteed by the Multifamily segment. Information labeled as of September 

30, 2012 is as of June 30, 2012 and is based on the Federal Reserve’s June 2012 mortgage debt outstanding release, the latest date for 

which the Federal Reserve has estimated mortgage debt outstanding for multifamily residences. Prior period amounts have been 

changed to reflect revised historical data from the Federal Reserve. 

(14) Includes $27.4 billion and $28.3 billion of Fannie Mae multifamily MBS held in the mortgage portfolio, the vast majority of which 

have been consolidated to loans in our condensed consolidated balance sheets, as of September 30, 2012 and December 31, 2011, 

respectively, and $1.3 billion and $1.4 billion of bonds issued by state and local housing finance agencies as of September 30, 2012 and 

December 31, 2011, respectively. 

Multifamily business results reflected an increase in net income in the third quarter and first nine months of 2012 compared 

with the third quarter and first nine months of 2011, primarily due to credit-related income in the third quarter and first nine 

months of 2012 compared with credit-related expenses in the third quarter and first nine months of 2011. Credit-related 

income in the third quarter and first nine months of 2012 was primarily due to reductions to our total loss reserves resulting 

from an improvement in national multifamily market fundamentals. In comparison, multifamily credit-related expenses in the 

third quarter and first nine months of 2011 were primarily due to underperformance of certain local markets and properties 

due to localized economic conditions. Multifamily credit losses, which consist of net charge-offs and foreclosed property 

expense, were $27 million for the third quarter of 2012 compared with $76 million for the third quarter of 2011, and $213 

million for the first nine months of 2012 compared with $280 million for the first nine months of 2011.

Guaranty fee income increased in the third quarter and first nine months of 2012 compared with the third quarter and first 

nine months of 2011 as we continue to acquire loans with higher guaranty fees. Our acquisitions of 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.

We recognized gains from partnership investments in the third quarter and first nine months of 2012 compared with losses 

from partnership investments in the third quarter and first nine months of 2011 as stronger national multifamily market 

fundamentals resulted in improved property-level operating performance and increased gains on the sale of investments.

A benefit for federal income taxes of $32 million in the third quarter and first nine months of 2012 was driven by the 

utilization of tax credits related to LIHTC investments to offset our alternative minimum tax liability resulting from our 

projected 2012 taxable income. In comparison, a provision for federal income taxes was recognized in the second quarter of 

2011, resulting from an effective settlement of issues with the Internal Revenue Service relating to tax years 2007 and 2008, 

which reduced our total corporate tax liability. However, the reduction in our tax liability also reduced the tax credits we were 

able to use, resulting in a provision for federal income taxes for the Multifamily segment in the first nine months of 2011. 

There was no provision for federal income taxes recognized in the third quarter of 2011.
37

Capital Markets Group Results

Table 17 displays the financial results of our Capital Markets group for the periods indicated. Following the table we discuss 

the Capital Markets group’s financial results and describe the Capital Markets group’s mortgage portfolio. For a discussion of 

the debt issued by the Capital Markets group to fund its investment activities, see “Liquidity and Capital Management.” For a 

discussion of the derivative instruments that the Capital Markets group uses to manage interest rate risk, see “Consolidated 

Balance Sheet Analysis—Derivative Instruments” and “Risk Management—Market Risk Management, Including Interest 

Rate Risk Management—Derivative Instruments” in our 2011 Form 10-K and “Notes to Consolidated Financial Statements

—Note 9, Derivative Instruments” in both this report and our 2011 Form 10-K. The primary sources of revenue for our 

Capital Markets group are net interest income and fee and other income. Expenses and other items that impact income or loss 

primarily include fair value gains and losses, investment gains and losses, other-than-temporary impairments, allocated 

guaranty fee expense and administrative expenses.

Table 17: Capital Markets Group Results

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2012 2011 Variance 2012 2011 Variance

(Dollars in millions)

Net interest income (1)

. . . . . . . . . . . . . . . . . $ 3,247 $ 3,904 $ (657) $ 10,231 $11,481 $ (1,250)

Investment gains, net(2)

. . . . . . . . . . . . . . . . 2,201 801 1,400 4,666 2,589 2,077

Net other-than-temporary impairments . . . (38) (262) 224 (699) (361) (338)

Fair value losses, net(3)

. . . . . . . . . . . . . . . . (961) (4,670) 3,709 (3,252) (5,959) 2,707

Fee and other income . . . . . . . . . . . . . . . . . 185 125 60 551 309 242

Other expenses(4)

. . . . . . . . . . . . . . . . . . . . . (492) (610) 118 (1,578) (1,723) 145

Income (loss) before federal income taxes. 4,142 (712) 4,854 9,919 6,336 3,583

(Provision) benefit for federal income 

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) 1 (21) (20) 46 (66)

Net income (loss) attributable to Fannie 

Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,122 $ (711) $ 4,833 $ 9,899 $ 6,382 $ 3,517

__________

(1) Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $1.3 

billion and $1.6 billion for the three months ended September 30, 2012 and 2011, respectively, and $4.0 billion and $5.1 billion for the 

nine months ended September 30, 2012 and 2011, respectively. The Capital Markets group’s net interest income is reported based on 

the mortgage-related assets held in the segment’s portfolio and excludes interest income on mortgage-related assets held by 

consolidated MBS trusts that are owned by third parties and the interest expense on the corresponding debt of such trusts.

(2) We include the securities that we own regardless of whether the trust has been consolidated in reporting of gains and losses on 

securitizations and sales of available-for-sale securities.

(3) Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been 

consolidated.

(4) Includes allocated guaranty fee expense, debt extinguishment losses, net, administrative expenses, and other expenses. 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.

The Capital Markets group’s results reflected net income in the third quarter of 2012 compared with a net loss in the third 

quarter of 2011, primarily due to a decrease in fair value losses and net-other-than-temporary impairments and an increase in 

investment gains, partially offset by a decrease in net interest income. The Capital Markets group’s results reflected an 

increase in net income in the first nine months of 2012 compared with the first nine months of 2011, primarily due to a 

decrease in fair value losses and an increase in investment gains, partially offset by a decrease in net interest income and an 

increase in net other-than-temporary impairments.

Fair value losses decreased in the third quarter and first nine months of 2012 compared with the third quarter and first nine 

months of 2011 primarily due to a decrease in risk management derivatives fair value losses. The derivatives fair value losses 

that are reported for the Capital Markets group are consistent with the losses reported in our condensed consolidated 

statement of operations and comprehensive income (loss). We discuss our derivatives fair value losses in “Consolidated 

Results of Operations—Fair Value Losses, Net.”
38

The net other-than-temporary impairments recognized by the Capital Markets group during the third quarter and first nine 

months of 2012 are consistent with our condensed consolidated statement of operations and comprehensive income (loss) as 

described in “Consolidated Results of Operations—Other-Than-Temporary Impairment of Investment Securities.” In 

addition, see “Note 5, Investments in Securities” for information on our other-than-temporary impairments by major security 

type and primary drivers for other-than-temporary impairments recorded in the third quarter and first nine months of 2012.

Net interest income decreased in the third quarter and first nine months of 2012 primarily due to a decrease in the balance of 

mortgage-related securities and lower interest rates on loans in our mortgage portfolio. This decrease in interest income on 

our interest-earning assets was partially offset by a decline in interest expense due to lower funding needs and lower 

borrowing rates, which allowed us to continue to replace higher-cost debt with lower-cost debt.

Our net interest income and net interest yield were higher than they would have otherwise been because our debt funding 

needs were lower than would otherwise have been required because of the funds we have received from Treasury to date 

under the senior preferred stock purchase agreement and because dividends paid to Treasury are not recognized as interest 

expense.

We supplement our issuance of debt securities with derivative instruments to further reduce duration risk, which includes 

prepayment risk. The effect of these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, 

is not reflected in the Capital Markets group’s net interest income but is included in our results as a component of “Fair value 

losses, net” and is displayed in “Table 9: Fair Value Losses, Net.” If we had included the economic impact of adding the net 

contractual interest accruals on our interest rate swaps in our Capital Markets group’s interest expense, the Capital Markets 

group’s net interest income would have decreased by $369 million in the third quarter of 2012 compared with a decrease of 

$497 million in the third quarter of 2011, and would have decreased by $1.1 billion for the first nine months of 2012 

compared with a decrease of $1.8 billion for the first nine months of 2011.

Investment gains increased in the third quarter and first nine months of 2012 compared with the third quarter and first nine 

months of 2011 due to a higher volume of securitizations.

The Capital Markets Group’s Mortgage Portfolio

The Capital Markets group’s 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 mortgagerelated securities. The Fannie Mae MBS that we own are maintained as securities on the Capital Markets group’s balance 

sheet. Mortgage-related assets held by consolidated MBS trusts 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. Under the agreement, the maximum allowable amount of mortgage assets we may own as of December 31, 2012 is 

$650 billion. Beginning in 2013, 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. As of September 30, 2012, we owned $654.3 billion in 

mortgage assets, compared with $708.4 billion as of December 31, 2011. The terms of the senior preferred stock purchase 

agreement were amended on August 17, 2012 and the amended terms are described in “Executive Summary—Amendment to 

Senior Preferred Stock Purchase Agreement with Treasury.”

Table 18 displays our Capital Markets group’s mortgage portfolio activity for the periods indicated.
39

Table 18: Capital Markets Group’s Mortgage Portfolio Activity(1)

For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2012 2011 2012 2011

(Dollars in millions)

Mortgage loans:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 386,804 $ 405,417 $ 398,271 $ 427,074

Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,946 36,169 181,631 102,533

Securitizations (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,661) (18,420) (142,554) (64,962)

Liquidations (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,493) (19,361) (57,752) (60,840)

Mortgage loans, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,596 403,805 379,596 403,805

Mortgage securities:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,982 326,384 310,143 361,697

Purchases (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,959 5,964 17,450 15,587

Securitizations (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,661 18,420 142,554 64,962

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,836) (17,936) (148,331) (74,997)

Liquidations (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,093) (14,479) (47,143) (48,896)

Mortgage securities, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,673 318,353 274,673 318,353

Total Capital Markets mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . $ 654,269 $ 722,158 $ 654,269 $ 722,158

__________

(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.
40

Table 19 displays the composition of the Capital Markets group’s mortgage portfolio as of September 30, 2012 and December 

31, 2011. 

Table 19: Capital Markets Group’s Mortgage Portfolio Composition(1)

As of

September 30, December 31,

2012 2011

(Dollars in millions)

Capital Markets group’s mortgage loans:

Single-family loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,066 $ 41,555

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,887 245,810

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,630 10,289

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,230 23,490

Total single-family conventional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,747 279,589

Total single-family loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,813 321,144

Multifamily loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 362

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,423 3,629

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,890 58,885

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,146 14,251

Total multifamily conventional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,459 76,765

Total multifamily loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,783 77,127

Total Capital Markets group’s mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,596 398,271

Capital Markets group’s mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,252 220,061

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,020 14,509

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931 1,043

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,740 19,670

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,437 16,538

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,055 23,226

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,319 10,899

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,919 4,197

Total Capital Markets group’s mortgage-related securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 274,673 310,143

Total Capital Markets group’s mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $654,269 $708,414

__________

(1) Based on unpaid principal balance.

(2) The fair value of these mortgage-related securities was $284.1 billion and $316.5 billion as of September 30, 2012 and December 31, 

2011, respectively.

The Capital Markets group’s mortgage portfolio decreased as of September 30, 2012 compared with December 31, 2011

primarily due to liquidations, partially offset by purchases of delinquent loans from MBS trusts. The total unpaid principal 

balance of nonperforming loans in the Capital Markets group’s mortgage portfolio was $232.8 billion as of September 30, 

2012 and $236.2 billion as of December 31, 2011. This population includes loans that have been modified and have been 

classified as TDRs, as well as unmodified delinquent loans that are on nonaccrual status in our condensed consolidated 

financial statements. 
41

We expect to continue to purchase loans from MBS trusts as they become four or more consecutive monthly payments 

delinquent subject to market conditions, economic benefit, servicer capacity, and other factors including the limit on the 

mortgage assets that we may own pursuant to the senior preferred stock purchase agreement. We purchased approximately 

215,600 delinquent loans with an unpaid principal balance of $35.9 billion from our single-family MBS trusts in the first nine 

months of 2012. As of September 30, 2012, the total unpaid principal balance of all loans in single-family MBS trusts that 

were delinquent for four or more consecutive monthly payments was $3.9 billion.

CONSOLIDATED BALANCE SHEET ANALYSIS

This section provides a discussion of our condensed consolidated balance sheets as of the dates indicated and should be read 

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

Table 20 displays a summary of our condensed consolidated balance sheets as of September 30, 2012 and December 31, 

2011.

Table 20: Summary of Condensed Consolidated Balance Sheets

As of

September 30,

2012

December 31,

2011 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities purchased under 

agreements to resell or similar arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,174 $ 63,539 $ 2,635

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,944 50,797 9,147

Investments in securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,874 151,780 (42,906)

Mortgage loans:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363,459 380,379 (16,920)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,642,449 2,590,398 52,051

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,012) (72,156) 9,144

Mortgage loans, net of allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,942,896 2,898,621 44,275

Other assets(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,362 46,747 1,615

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,226,250 $ 3,211,484 $ 14,766

Liabilities and equity (deficit)

Debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 652,971 $ 732,444 $ (79,473)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,543,739 2,457,428 86,311

Other liabilities(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,128 26,183 945

Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,223,838 3,216,055 7,783

Senior preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,149 112,578 4,571

Other deficit(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,737) (117,149) 2,412

Total equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,412 (4,571) 6,983

Total liabilities and equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,226,250 $ 3,211,484 $ 14,766

__________

(1) Includes $19.9 billion as of September 30, 2012 and $49.8 billion as of December 31, 2011 of non-mortgage-related securities that are 

included in our other investments portfolio, which we present in “Table 30: 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 preferred stock, common stock, accumulated deficit, accumulated other comprehensive income (loss), treasury stock, and 

noncontrolling interest.
42

Cash and Other Investments Portfolio

Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and securities purchased 

under agreements to resell or similar arrangements, and investments in non-mortgage-related securities. See “Liquidity and 

Capital Management—Liquidity Management—Cash and Other Investments Portfolio” for additional information on our 

cash and other investments portfolio.

Restricted Cash

Restricted cash primarily includes unscheduled borrower payments received by the servicer or consolidated trusts due to be 

remitted to the MBS certificateholders in the subsequent month. Our restricted cash increased as of September 30, 2012 

compared with the balance as of December 31, 2011 primarily due to an increase in refinance activity, resulting in an increase 

in unscheduled payments received.

Investments in Mortgage-Related Securities

Our investments in mortgage-related securities are classified in our condensed consolidated balance sheets as either trading or 

available-for-sale and are measured at fair value. Unrealized and realized gains and losses on trading securities are included 

as a component of “Fair value losses, net” and unrealized gains and losses on available-for-sale securities are included in 

“Other comprehensive income (loss)” in our condensed consolidated statements of operations and comprehensive income 

(loss). Realized gains and losses on available-for-sale securities are recognized when securities are sold in “Investment gains, 

net” in our condensed consolidated statements of operations and comprehensive income (loss). See “Note 5, Investments in 

Securities” for additional information on our investments in mortgage-related securities, including the composition of our 

trading and available-for-sale securities at amortized cost and fair value and the gross unrealized gains and losses related to 

our available-for-sale securities as of September 30, 2012 and December 31, 2011.

Table 21 displays the fair value of our investments in mortgage-related securities, including trading and available-for-sale 

securities, as of the dates indicated.

Table 21: Summary of Mortgage-Related Securities at Fair Value

As of

September 30,

2012

December 31,

2011

(Dollars in millions)

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,815 $ 24,274

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,030 15,555

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,072 1,189

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,504 13,032

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,637 8,866

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,241 24,437

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,354 10,978

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,324 3,601

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,977 $101,932

Investments in Private-Label Mortgage-Related Securities

We classify private-label securities as Alt-A, subprime, multifamily or manufactured housing if the securities were labeled as 

such when issued. We have also invested in private-label subprime mortgage-related securities that we have resecuritized to 

include our guaranty (“wraps”). 
43

Although the current economic environment has started to show signs of improvement, weakness in the housing market and 

high unemployment over the past several years have adversely affected the performance of our Alt-A and subprime privatelabel securities. The unpaid principal balance of our investments in Alt-A and subprime securities was $33.2 billion as of 

September 30, 2012, of which $29.1 billion was rated below investment grade. Table 22 displays the unpaid principal balance 

and the fair value of our investments in Alt-A and subprime private-label securities along with an analysis of the cumulative 

losses on these investments as of September 30, 2012. We realized actual cumulative principal shortfalls of approximately 

8% as of September 30, 2012 and 6% as of December 31, 2011 of the total cumulative credit losses reported in this table and 

reflected in our condensed consolidated financial statements.

Table 22: Analysis of Losses on Alt-A and Subprime Private-Label Mortgage-Related Securities

As of September 30, 2012

Unpaid Total 

Principal Fair Cumulative Noncredit Credit 

Balance Value Losses(1) Component(2) Component(3)

(Dollars in millions)

Trading securities:(4)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . $ 2,420 $ 1,276 $ (1,105) $ 66 $ (1,171)

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . 2,477 1,265 (1,213) (305) (908)

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,897 2,541 (2,318) (239) (2,079)

Available-for-sale securities:(4)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . 15,320 11,228 (4,829) (540) (4,289)

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . 12,960 7,372 (5,627) (1,030) (4,597)

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,280 18,600 (10,456) (1,570) (8,886)

Grand Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,177 $ 21,141 $ (12,774) $(1,809) $(10,965)

__________

(1) Amounts reflect the difference between the fair value and unpaid principal balance net of unamortized premiums, discounts and certain 

other cost basis adjustments.

(2) We have calculated the credit component based on the difference between the amortized cost basis of the securities and the present 

value of expected future cash flows. The remaining difference between the fair value and the present value of expected future cash 

flows is classified as a noncredit component of any change in fair value.

(3) For securities classified as trading, amounts reflect the estimated portion of the total cumulative losses that is credit-related. For 

securities classified as available-for-sale, amounts reflect the estimated portion of total cumulative other-than-temporary credit 

impairment losses, net of accretion, that are recognized in our condensed consolidated statements of operations and comprehensive 

income (loss).

(4) Excludes resecuritizations, or wraps, of private-label securities backed by subprime loans that we have guaranteed and hold in our 

mortgage portfolio as Fannie Mae securities.

Table 23 displays the 60 days or more delinquency rates and average loss severities for the loans underlying our Alt-A and 

subprime private-label mortgage-related securities for the most recent remittance period of the current reporting quarter. The 

delinquency rates and average loss severities are based on available data provided by Intex Solutions, Inc. (“Intex”) and 

CoreLogic, LoanPerformance (“CoreLogic”). We also present the average credit enhancement and monoline financial 

guaranteed amount for these securities as of September 30, 2012. Based on the stressed condition of our non-governmental 

financial guarantors, we believe that all but one of these counterparties may not be able to fully meet their obligations to us in 

the future. See “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management—

Financial Guarantors” in this report and in our 2011 Form 10-K for additional information on our financial guarantor 

exposure and the counterparty risk associated with our financial guarantors. 
44

Table 23: Credit Statistics of Loans Underlying Alt-A and Subprime Private-Label Mortgage-Related Securities 

(Including Wraps)

As of September 30, 2012

Monoline 

Unpaid Principal Balance Average Financial 

Available- 60 Days Loss Average Credit Guaranteed 

Trading for-Sale Wraps(1) Delinquent(2)(3) Severity(3)(4) Enhancement(3)(5) Amount(6)

(Dollars in millions)

Private-label mortgage-related securities backed by: (7)

Alt-A mortgage loans:

Option ARM Alt-A mortgage 

loans:

2004 and prior . . . . . . . . . . . . . $ — $ 448 $ — 28.6% 49.5% 12.5% $ —

2005 . . . . . . . . . . . . . . . . . . . . — 1,203 — 37.8 61.2 33.8 216

2006 . . . . . . . . . . . . . . . . . . . . — 1,038 — 39.6 68.7 19.0 58

2007 . . . . . . . . . . . . . . . . . . . . 1,659 — — 42.7 65.3 48.6 492

Other Alt-A mortgage loans:

2004 and prior. . . . . . . . . . . . . — 5,445 — 10.0 58.2 12.2 11

2005 . . . . . . . . . . . . . . . . . . . . 78 3,664 101 20.6 60.3 4.7 —

2006 . . . . . . . . . . . . . . . . . . . . 53 3,417 — 24.3 59.7 0.3 —

2007 . . . . . . . . . . . . . . . . . . . . 630 — 143 37.5 85.1 32.7 247

2008 . . . . . . . . . . . . . . . . . . . . — 105 — 24.9 74.8 23.2 —

Total Alt-A mortgage loans. . . . . . . 2,420 15,320 244 1,024

Subprime mortgage loans:

2004 and prior . . . . . . . . . . . . . — 1,459 899 21.5 77.2 61.0 559

2005 . . . . . . . . . . . . . . . . . . . . — 145 1,117 38.1 81.1 56.0 217

2006 . . . . . . . . . . . . . . . . . . . . — 10,781 — 44.2 79.1 14.4 52

2007 . . . . . . . . . . . . . . . . . . . . 2,477 575 5,102 44.2 78.0 18.4 162

Total subprime mortgage loans. . . . 2,477 12,960 7,118 990

Total Alt-A and subprime 

mortgage loans . . . . . . . . . . . . . . $ 4,897 $28,280 $7,362 $ 2,014

__________

(1) Represents our exposure to private-label Alt-A and subprime mortgage-related securities that have been resecuritized (or wrapped) to 

include our guarantee. 

(2) Delinquency data provided by Intex, where available, for loans backing Alt-A and subprime private-label mortgage-related securities 

that we own or guarantee. The reported Intex delinquency data reflect information from September 2012 remittances for August 2012 

payments. For consistency purposes, we have adjusted the Intex delinquency data, where appropriate, to include all foreclosures, all 

REO and loans that were in bankruptcy and 60 or more days delinquent. 

(3) The average delinquency, severity and credit enhancement metrics are calculated for each loan pool associated with securities where 

Fannie Mae has exposure and are weighted based on the unpaid principal balance of those securities. 

(4) Severity data obtained from CoreLogic, where available, for loans backing Alt-A and subprime private-label mortgage-related securities 

that we own or guarantee. The CoreLogic severity data reflect information from September 2012 remittances for August 2012 

payments. For consistency purposes, we have adjusted the severity data, where appropriate. 

(5) Average credit enhancement percentage reflects both subordination and financial guarantees. Reflects the ratio of the current amount of 

the securities that will incur losses in the securitization structure before any losses are allocated to securities that we own or guarantee. 

Percentage generally calculated based on the quotient of the total unpaid principal balance of all credit enhancements in the form of 

subordination or financial guarantee of the security divided by the total unpaid principal balance of all of the tranches of collateral pools 

from which credit support is drawn for the security that we own or guarantee. Beginning in March 2012, in calculating the weighted 

average credit enhancement percentage for bonds in the population that show negative credit enhancement in Intex due to undercollateralization, the negative credit enhancement amounts have been replaced with zero values.

(6) Reflects amount of unpaid principal balance supported by financial guarantees from monoline financial guarantors. 

(7) Vintages are based on series date and not loan origination date.
45

Mortgage Loans

The increase in mortgage loans, net of the allowance for loan losses, in the first nine months of 2012 was primarily driven by 

securitization activity from our lender swap and portfolio securitization programs. For additional information on our 

mortgage loans, see “Note 3, Mortgage Loans.” For additional information on the mortgage loan purchase and sale activities 

reported by our Capital Markets group, see “Business Segment Results—Capital Markets Group Results.” 

Debt 

Debt of Fannie Mae is the primary means of funding our mortgage investments. We provide a summary of the activity of the 

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

Capital Management—Liquidity Management—Debt Funding.” Also see “Note 8, Short-Term Borrowings and Long-Term 

Debt” for additional information on our outstanding debt.

Debt of consolidated trusts represents the amount of Fannie Mae MBS issued from consolidated trusts and held by third-party 

certificateholders. The increase in debt of consolidated trusts in the first nine months of 2012 was primarily driven by 

securitization activity from our lender swap and portfolio securitization programs.

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 24 summarizes changes in our stockholders’ equity (deficit) 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, 2012. 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 12, Fair Value.”

Table 24: Comparative Measures—GAAP Change in Stockholders’ Equity (Deficit) and Non-GAAP Change in Fair 

Value of Net Assets (Net of Tax Effect)

For the Nine Months

Ended September 30, 2012

(Dollars in millions)

GAAP consolidated balance sheets:

Fannie Mae stockholders’ deficit as of December 31, 2011

(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,624)

Total comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,086

Capital transactions:(2)

Funds received from Treasury under the senior preferred stock purchase agreement . . . . . . . . . . 4,571

Senior preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,679)

Capital transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,108)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Fannie Mae stockholders’ equity as of September 30, 2012(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,359

Non-GAAP consolidated fair value balance sheets:

Estimated fair value of net assets as of December 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (127,848)

Capital transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,108)

Change in estimated fair value of net assets, excluding capital transactions . . . . . . . . . . . . . . . . . . 46,353

Increase in estimated fair value of net assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,245

Estimated fair value of net assets as of September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (85,603)
46

__________

(1) Our net worth, as defined under the senior preferred stock purchase agreement, is equivalent to the “Total equity (deficit)” amount 

reported in our condensed consolidated balance sheets, which consists of “Total Fannie Mae’s stockholders’ equity (deficit)” and 

“Noncontrolling interest.”

(2) Represents capital transactions, which are reported in our condensed consolidated financial statements.

During the first nine months of 2012, the estimated fair value of our net assets, excluding capital transactions, increased by 

$46.4 billion. This increase was primarily driven by an improvement in credit-related items due to higher actual and expected 

home prices experienced in the second and third quarters of 2012, which lowered the expected losses on our guaranty book of 

business. We estimate that home prices increased by 3.5% in the second quarter of 2012 and 1.5% in the third quarter of 

2012. Even a small change in home prices may cause volatility in our fair value measurements due to the large size of our 

guaranty book of business.

We updated our assumptions for prepayment speeds, severities and default rates during the third quarter of 2012, which 

resulted in an increase in the fair value of our loans of approximately $23 billion. These updates resulted in lower 

expectations of losses on certain loans, primarily performing loans with high LTV ratios.

The increase in fair value from higher actual and expected home prices and updated expectations for prepayment speeds, 

severities and default rates was partially offset by a decrease in fair value of $17 billion due to a change in the definition of 

principal market for certain of our loans and a change in fair value estimation for HARP loans as a result of the adoption of 

ASU 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and 

IFRS, during the first nine months of 2012.

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 attributable to common stockholders presented in our fair value balance sheet does 

not represent an estimate of the value we expect to realize from operating the company or what we expect to draw from 

Treasury under the terms of our senior preferred stock purchase agreement, primarily because: 

• The estimated fair value of our credit exposures significantly exceeds our projected credit losses 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. Because we do not generally intend to have other parties assume the credit risk 

inherent in our book of business, and therefore would not be obligated to pay a market premium for its assumption, 

we do not expect the current market premium portion of our current estimate of fair value to impact future Treasury 

draws, 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 25.
47

Table 25: Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

As of September 30, 2012 As of December 31, 2011

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 . . . . . . . . . . . . $ 80,618 $ — $ 80,618 $ 68,336 $ — $ 68,336

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements . . . . . . . . . . . . 45,500 — 45,500 46,000 — 46,000

Trading securities . . . . . . . . . . . . . . . . . . . 42,522 — 42,522 74,198 — 74,198

Available-for-sale securities . . . . . . . . . . . 66,352 — 66,352 77,582 — 77,582

Mortgage loans:

Mortgage loans held for sale . . . . . . . . . 490 13 503 311 14 325

Mortgage loans held for investment, net

of allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . . . 308,850 (39,955) 268,895 322,825 (27,829) 294,996

Of consolidated trusts . . . . . . . . . . . . 2,633,556 138,481 (2) 2,772,037 (3) 2,575,485 76,540 (2) 2,652,025 (3)

Total mortgage loans . . . . . . . . . . . . . . . 2,942,896 98,539 3,041,435 (4) 2,898,621 48,725 2,947,346 (4)

Advances to lenders . . . . . . . . . . . . . . . . . 6,367 (113) 6,254 (5)(6) 5,538 (118) 5,420 (5)(6)

Derivative assets at fair value . . . . . . . . . . 1,328 — 1,328 (5)(6) 561 — 561 (5)(6)

Guaranty assets and buy-ups, net . . . . . . . 378 351 729 (5)(6) 503 398 901 (5)(6)

Total financial assets . . . . . . . . . . . . . . . 3,185,961 98,777 3,284,738 (7) 3,171,339 49,005 3,220,344 (7)

Credit enhancements. . . . . . . . . . . . . . . . . 456 987 1,443 (5)(6) 455 2,550 3,005 (5)(6)

Other assets. . . . . . . . . . . . . . . . . . . . . . . . 39,833 (234) 39,599 (5)(6) 39,690 (258) 39,432 (5)(6)

Total assets. . . . . . . . . . . . . . . . . . . . . . . $ 3,226,250 $ 99,530 $ 3,325,780 $ 3,211,484 $ 51,297 $ 3,262,781

Liabilities:

 Short-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . $ 105,062 $ 17 $ 105,079 $ 146,752 $ 30 $ 146,782

Of consolidated trusts. . . . . . . . . . . . . . 3,806 — 3,806 4,973 — 4,973

 Long-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . 547,909 (8) 27,269 575,178 585,692 (8) 28,291 613,983

Of consolidated trusts. . . . . . . . . . . . . . 2,539,933 (8) 157,783 (2) 2,697,716 2,452,455 (8) 144,202 (2) 2,596,657

Derivative liabilities at fair value . . . . . . . 2,033 — 2,033 (9)(10) 916 — 916 (9)(10)

Guaranty obligations. . . . . . . . . . . . . . . . . 644 2,549 3,193 (9)(10) 811 3,133 3,944 (9)(10)

Total financial liabilities . . . . . . . . . . . . 3,199,387 187,618 3,387,005 (7) 3,191,599 175,656 3,367,255 (7)

Other liabilities . . . . . . . . . . . . . . . . . . . . . 24,451 (126) 24,325 (9)(10) 24,456 (1,135) 23,321 (9)(10)

Total liabilities. . . . . . . . . . . . . . . . . . . . 3,223,838 187,492 3,411,330 3,216,055 174,521 3,390,576

Equity (deficit):

Fannie Mae stockholders’ equity

(deficit):

Senior preferred(11)

. . . . . . . . . . . . . . . . . . 117,149 — 117,149 112,578 — 112,578

Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . 19,130 (18,551) 579 19,130 (18,163) 967

Common . . . . . . . . . . . . . . . . . . . . . . . . . . (133,920) (69,411) (203,331) (136,332) (105,061) (241,393)

Total Fannie Mae stockholders’

equity (deficit)/non-GAAP fair

value of net assets. . . . . . . . . . . . . . $ 2,359 $ (87,962) $ (85,603) $ (4,624) $ (123,224) $ (127,848)

Noncontrolling interest. . . . . . . . . . . . . 53 — 53 53 — 53

Total equity (deficit). . . . . . . . . . . . . . . 2,412 (87,962) (85,550) (4,571) (123,224) (127,795)

Total liabilities and equity (deficit) . . . $ 3,226,250 $ 99,530 $ 3,325,780 $ 3,211,484 $ 51,297 $ 3,262,781
48

__________

Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures

(1) Each of the amounts listed as a “fair value adjustment” represents the difference between the carrying value included in our GAAP

condensed consolidated balance sheets and our best judgment of the estimated fair value of the listed item.

(2) Fair value of consolidated loans is impacted by credit risk, which has no corresponding impact on the consolidated debt.

(3) Includes certain mortgage loans that we elected to report at fair value in our GAAP condensed consolidated balance sheets of $7.8 

billion and $3.6 billion as of September 30, 2012 and December 31, 2011, respectively.

(4) Performing loans had a fair value of $2.9 trillion and an unpaid principal balance of $2.8 trillion as of September 30, 2012 compared 

with a fair value of $2.8 trillion and an unpaid principal balance of $2.7 trillion as of December 31, 2011. 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 $107.0 billion and an unpaid principal balance of $194.1 billion as of September 30, 2012 compared with a fair value of 

$128.9 billion and an unpaid principal balance of $226.5 billion as of December 31, 2011. See “Note 12, Fair Value” for additional 

information on valuation techniques for performing and nonperforming loans.

(5) The following line items: (a) Advances to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; (d) Credit 

enhancements; and (e) Other assets, together consist of the following assets presented in our GAAP condensed consolidated balance 

sheets: (a) Accrued interest receivable, net; (b) Acquired property, net; and (c) Other assets.

(6) “Other assets” include the following GAAP condensed consolidated balance sheets line items: (a) Accrued interest receivable, net and 

(b) Acquired property, net. The carrying value of these items in our GAAP condensed consolidated balance sheets totaled $20.2 billion

and $21.4 billion as of September 30, 2012 and December 31, 2011, respectively. “Other assets” in our GAAP condensed consolidated 

balance sheets include the following: (a) Advances to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; 

and (d) Credit enhancements. The carrying value of these items totaled $8.5 billion and $7.1 billion as of September 30, 2012 and 

December 31, 2011, respectively. 

(7) We estimated the fair value of these financial instruments in accordance with the fair value accounting guidance as described in “Note 

12, Fair Value.”

(8) Includes certain long-term debt instruments that we elected to report at fair value in our GAAP condensed consolidated balance sheets 

of $8.2 billion and $4.8 billion as of September 30, 2012 and December 31, 2011, respectively. 

(9) The following line items: (a) Derivative liabilities at fair value; (b) Guaranty obligations; and (c) Other liabilities, consist of the 

following liabilities presented in our GAAP condensed consolidated balance sheets: (a) Accrued interest payable and (b) Other 

liabilities.

(10) “Other liabilities” include Accrued interest payable in our GAAP condensed consolidated balance sheets. The carrying value of this 

item in our GAAP condensed consolidated balance sheets totaled $11.7 billion and $12.6 billion as of September 30, 2012 and 

December 31, 2011, respectively. We assume that certain other liabilities, such as deferred revenues, have no fair value. Although we 

report the “Reserve for guaranty losses” as part of “Other liabilities” in our GAAP condensed consolidated balance sheets, it is 

incorporated into and reported as part of the fair value of our guaranty obligations in our non-GAAP supplemental consolidated fair 

value balance sheets. “Other liabilities” in our GAAP condensed consolidated balance sheets include the following: (a) Derivative 

liabilities at fair value and (b) Guaranty obligations. The carrying value of these items totaled $2.7 billion and $1.7 billion as of 

September 30, 2012 and December 31, 2011, respectively. 

(11) 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. Our liquidity risk management 

policy is designed to address our liquidity risk. Liquidity risk is the risk that we will not be able to meet our funding 

obligations in a timely manner. Liquidity risk management involves forecasting funding requirements, maintaining sufficient 

capacity to meet our needs based on our ongoing assessment of financial market liquidity and adhering to our regulatory 

requirements. 

Our treasury function resides within the Capital Markets group and is responsible for implementing our liquidity and 

contingency planning strategies. We conduct liquidity contingency planning to prepare for an event in which our access to the 

unsecured debt markets becomes limited. We plan for alternative sources of liquidity that are designed to allow us to meet our 

cash obligations without relying upon the issuance of unsecured debt. While our liquidity contingency planning attempts to 

address stressed market conditions and our status under conservatorship and Treasury support arrangements, we believe that 

our liquidity contingency plan may be difficult or impossible to execute for a company of our size in our circumstances.
49

See “Liquidity and Capital Management—Liquidity Management—Liquidity Risk Management Practices and Contingency 

Planning” in our 2011 Form 10-K for a discussion of our liquidity contingency plans. Also see “Risk Factors” in our 2011 

Form 10-K for a description of the risks associated with our liquidity risk and liquidity contingency planning.

One of our liquidity management policies requires that we maintain a minimum threshold of Treasury securities and/or cash 

deposits with the Federal Reserve Bank of New York. Effective August 2012, this minimum threshold represents 50% of our 

average projected 30-day cash needs over the previous three months. Prior to this change, this minimum threshold was 50% 

of the average of the previous three month-end balances of our cash and other investments portfolio.

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 after 2012; loss of demand for our debt, or certain types of our debt, 

from a major group of investors; a significant credit event involving one of our major institutional counterparties; a sudden 

catastrophic operational failure in the financial sector; or elimination of our GSE status. 

Debt Funding

We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and 

international capital markets. Because debt issuance is our primary funding source, we are subject to “roll-over,” or 

refinancing, risk on our outstanding debt.

We have a diversified funding base of domestic and international investors. Purchasers of our debt securities are 

geographically diversified and include fund managers, commercial banks, pension funds, insurance companies, foreign 

central banks, corporations, state and local governments, and other municipal authorities.

Although our funding needs may vary from quarter to quarter depending on market conditions, we currently expect our debt 

funding needs will decline in future periods as we reduce the size of our mortgage portfolio in compliance with the 

requirement of the senior preferred stock purchase agreement that we reduce our mortgage portfolio to $650 billion by 

December 31, 2012 and, by December 31 of each year thereafter, to 85% of the maximum allowable amount that we were 

permitted to own as of December 31 of the immediately preceding calendar year, until the amount of our mortgage assets 

reaches $250 billion.

Fannie Mae Debt Funding Activity

Table 26 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.
50

Table 26: Activity in Debt of Fannie Mae

For the Three Months 

Ended September 30,

For the Nine Months Ended 

September 30,

2012 2011 2012 2011

(Dollars in millions)

Issued during the period:

Short-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,621 $ 134,500 $181,226 $362,752

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 0.12% 0.12% 0.12% 0.12%

Long-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,205 $ 81,284 $191,150 $162,708

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.10% 1.39% 1.26% 1.81%

Total issued:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 147,826 $ 215,784 $372,376 $525,460

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 0.56% 0.60% 0.70% 0.65%

Paid off during the period:(1)

Short-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,619 $ 102,760 $222,937 $320,962

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 0.10% 0.16% 0.11% 0.21%

Long-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,116 $ 93,274 $232,351 $242,852

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 1.57% 1.96% 2.19% 2.49%

Total paid off:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,735 $ 196,034 $455,288 $563,814

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . 0.91% 1.01% 1.17% 1.19%

__________

(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. Calls and repurchases of zero-coupon debt are reported at original face value, which does 

not equal the amount of actual cash payment.

Overall debt funding activity decreased in the third quarter and first nine months of 2012 compared with the third quarter and 

first nine months of 2011. This decrease was primarily due to fewer short-term debt issuances during the third quarter of 2012 

compared to the third quarter of 2011 due to lower funding needs as the size of our mortgage portfolio decreases. Short-term 

debt funding activity decreased during the first nine months of 2012 as we redeemed more short-term debt than we issued. As 

interest rates declined in the third quarter and first nine months of 2012, we issued long-term debt with lower interest rates to 

replace redemptions of long-term debt with higher interest rates.

We believe that continued federal government support of our business and the financial markets, as well as our status as a 

GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in the government’s support 

could materially adversely affect our ability to refinance our debt as it becomes due, which could have a material adverse 

impact on our liquidity, financial condition and results of operations. In February 2011, Treasury and HUD released a report 

to Congress on reforming America’s housing finance market. The report provides that the Administration will work with 

FHFA to determine the best way to responsibly wind down both Fannie Mae and Freddie Mac. 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. For more information on GSE reform, see “Legislative and Regulatory 

Developments—GSE Reform” in this report and in our 2011 Form 10-K.
51

In addition, due to our reliance on the U.S. government’s support, our access to debt funding or the cost of our debt funding 

could be materially adversely affected by a change or perceived change in the creditworthiness of the U.S. government. A

downgrade in our credit ratings could reduce demand for our debt securities and increase our borrowing costs. See our 

discussion of credit ratings in “Risk Factors” for information about factors that may lead to the U.S. government’s long-term 

debt rating being lowered, and “Credit Ratings” for further discussion of our dependence on our credit ratings.

Future changes or disruptions in the financial markets could significantly change the amount, mix and cost of funds we 

obtain, which also could increase our liquidity and roll-over risk and have a material adverse impact on our liquidity, 

financial condition and results of operations. See “Risk Factors” in our 2011 Form 10-K for a discussion of the risks we face 

relating to (1) the uncertain future of our company; (2) our reliance on the issuance of debt securities to obtain funds for our 

operations and the relative cost to obtain these funds; and (3) our liquidity contingency plans.

Outstanding Debt

Total outstanding debt of Fannie Mae includes short-term and long-term debt, excluding debt of consolidated trusts. 

As of September 30, 2012, our outstanding short-term debt, based on its original contractual maturity, as a percentage of our 

total outstanding debt decreased to 16% from 20% as of December 31, 2011. For information on our outstanding debt 

maturing within one year, including the current portion of our long-term debt, as a percentage of our total debt, see “Maturity 

Profile of Outstanding Debt of Fannie Mae.” In addition, the weighted-average interest rate on our long-term debt, based on 

its original contractual maturity, decreased to 2.16% as of September 30, 2012 from 2.42% as of December 31, 2011.

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 $874.8 billion in 2012. As of September 30, 

2012, our aggregate indebtedness totaled $659.3 billion, which was $215.5 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.

Table 27 displays information as of the dates indicated on our outstanding short-term and long-term debt based on its original 

contractual terms. 
52

Table 27: Outstanding Short-Term Borrowings and Long-Term Debt(1)

As of

September 30, 2012 December 31, 2011

Maturities Outstanding

WeightedAverage

Interest

Rate Maturities Outstanding

WeightedAverage

Interest

Rate

(Dollars in millions)

Short-term debt:

Fixed-rate:

Discount notes . . . . . . . . . . . . . . . . . . . — $ 104,547 0.15% — $ 146,301 0.13%

Foreign exchange discount notes . . . . . — 515 1.71 — 371 1.88

Other(2)

. . . . . . . . . . . . . . . . . . . . . . . . . — — — — 80 0.04

Total short-term debt of Fannie Mae(3)

. . . . . 105,062 0.16 146,752 0.13

Debt of consolidated trusts. . . . . . . . . . . . — 3,806 0.15 — 4,973 0.09

Total short-term debt . . . . . . . . . . . . . . . . . . . $ 108,868 0.16% $ 151,725 0.13%

Long-term debt:

Senior fixed:

Benchmark notes and bonds. . . . . . . . 2012 - 2030 $ 260,774 2.58% 2012 - 2030 $ 277,146 2.81%

Medium-term notes(4)

. . . . . . . . . . . . . 2012 - 2022 174,867 1.31 2012 - 2021 176,886 1.61

Foreign exchange notes and bonds. . . 2021 - 2028 689 5.30 2021 - 2028 662 5.44

Other(5)(6)

. . . . . . . . . . . . . . . . . . . . . . . 2012 - 2038 41,654 5.11 2012 - 2040 50,912 5.29

Total senior fixed . . . . . . . . . . . . . 477,984 2.34 505,606 2.64

Senior floating:

Medium-term notes(4)

. . . . . . . . . . . . . 2012 - 2019 63,516 0.29 2012 - 2016 71,855 0.32

Other(5)(6)

. . . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 396 7.46 2020 - 2037 420 8.01

Total senior floating . . . . . . . . . . . 63,912 0.33 72,275 0.35

Subordinated fixed:

Qualifying subordinated(7)

. . . . . . . . . 2013 - 2014 2,522 5.00 2012 - 2014 4,894 5.08

Subordinated debentures . . . . . . . . . . 2019 3,124 9.92 2019 2,917 9.91

Total subordinated fixed. . . . . . . . 5,646 7.72 7,811 6.88

Secured borrowings(8)

. . . . . . . . . . . . . . . 2021 - 2022 367 1.87 — — —

Total long-term debt of Fannie Mae(9)

. . . . . . 547,909 2.16 585,692 2.42

Debt of consolidated trusts(6)

. . . . . . . . . . 2012 - 2052 2,539,933 3.58 2012 - 2051 2,452,455 4.18

Total long-term debt. . . . . . . . . . . . . . . . . . . . $ 3,087,842 3.32% $ 3,038,147 3.84%

Outstanding callable debt of Fannie Mae(10)

. $ 177,233 1.67% $ 187,937 2.17%

__________

(1) Outstanding debt amounts and weighted-average interest rates reported in this table include the effect of unamortized discounts, 

premiums and other cost basis adjustments. Reported amounts include fair value gains and losses associated with debt that we elected 

to carry at fair value. The unpaid principal balance of outstanding debt of Fannie Mae, which excludes unamortized discounts, 

premiums and other cost basis adjustments, and debt of consolidated trusts, totaled $658.7 billion and $741.6 billion as of 

September 30, 2012 and December 31, 2011, respectively.

(2) Includes foreign exchange discount notes denominated in U.S. dollars.

(3) Short-term debt of Fannie Mae consists of borrowings with an original contractual maturity of one year or less and, therefore, does not 

include the current portion of long-term debt. Reported amounts include a net discount and other cost basis adjustments of $40 million

and $53 million as of September 30, 2012 and December 31, 2011, respectively.

(4) Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.

(5) Includes long-term debt that is not included in other debt categories.

(6) Includes a portion of structured debt instruments that is reported at fair value.

(7) Consists of subordinated debt with an interest deferral feature.
53

(8) Represents remaining liability for transfer of financial assets from our condensed consolidated balance sheets that did not qualify as a 

sale.

(9) Long-term debt of Fannie Mae consists of borrowings with an original contractual maturity of greater than one year. Reported amounts 

include the current portion of long-term debt that is due within one year, which totaled $123.7 billion and $134.3 billion as of 

September 30, 2012 and December 31, 2011, respectively. Reported amounts also include unamortized discounts, premiums and other 

cost basis adjustments of $6.2 billion and $9.2 billion as of September 30, 2012 and December 31, 2011, respectively. The unpaid 

principal balance of long-term debt of Fannie Mae, which excludes unamortized discounts, premiums, fair value adjustments and other 

cost basis adjustments and amounts related to debt of consolidated trusts, totaled $554.0 billion and $594.8 billion as of September 30, 

2012 and December 31, 2011, respectively.

(10) Consists of long-term callable debt of Fannie Mae that can be paid off in whole or in part at our option or the option of the investor at 

any time on or after a specified date. Includes the unpaid principal balance, and excludes unamortized discounts, premiums and other 

cost basis adjustments.

Maturity Profile of Outstanding Debt of Fannie Mae

Table 28 displays the maturity profile, as of September 30, 2012, of our outstanding debt maturing within one year, by month, 

including amounts we have announced for early redemption. Our outstanding debt maturing within one year, including the 

current portion of our long-term debt, decreased as a percentage of our total outstanding debt, excluding debt of consolidated 

trusts, to 35% as of September 30, 2012, compared with 38% as of December 31, 2011. The weighted-average maturity of 

our outstanding debt that is maturing within one year was 127 days as of September 30, 2012, compared with 158 days as of 

December 31, 2011.

Table 28: Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year(1)

_________

(1) Includes unamortized discounts, premiums and other cost basis adjustments of $74 million as of September 30, 2012. Excludes debt of 

consolidated trusts maturing within one year of $6.6 billion as of September 30, 2012.

Table 29 displays the maturity profile, as of September 30, 2012, 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 57 months as of September 30, 2012 and approximately 59 months as of December 31, 2011.
54

Table 29: Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year(1)

________

(1) Includes unamortized discounts, premiums and other cost basis adjustments of $6.2 billion as of September 30, 2012. Excludes debt of 

consolidated trusts of $2.5 trillion as of September 30, 2012.

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.

Cash and Other Investments Portfolio

Table 30 displays information on the composition of our cash and other investments portfolio as of the dates indicated.

Table 30: Cash and Other Investments Portfolio

As of

September 30,

2012

December 31,

2011

(Dollars in millions)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,674 $ 17,539

Federal funds sold and securities purchased under agreements to resell or similar arrangements 45,500 46,000

Non-mortgage-related securities:

U.S. Treasury securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,897 47,737

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,111

Total non-mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,897 49,848

Total cash and other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,071 $113,387

__________

(1) Excludes $2.6 billion and $600 million of U.S. Treasury securities which are a component of cash equivalents as of September 30, 2012

and December 31, 2011, respectively, as these securities had a maturity at the date of acquisition of three months or less.

Our cash and other investments portfolio decreased from December 31, 2011 to September 30, 2012. 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.

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 
55

Ratings Services (“S&P”), Moody’s Investors Service (“Moody’s”) and Fitch Ratings Limited (“Fitch”) have all indicated 

that, if they were to lower the sovereign credit ratings on the U.S, they would likely lower their ratings on the debt of Fannie 

Mae and certain other government-related entities. We cannot predict whether one or more of these ratings agencies will 

lower our debt ratings in the future. See “Risk Factors” for a discussion of the possibility of further downgrades and the risks 

to our business relating to a decrease in our credit ratings, which could include an increase in our borrowing costs, limits on 

our ability to issue debt, and additional collateral requirements under our derivatives contracts. 

Table 31 displays the credit ratings issued by the three major credit rating agencies as of November 1, 2012. 

Table 31: Fannie Mae Credit Ratings

As of November 1, 2012

S&P Moody’s Fitch

Long-term senior debt. . . . . . . . . . . . . . . . . . . . . . . AA+ Aaa AAA

Short-term senior debt. . . . . . . . . . . . . . . . . . . . . . . A-1+ P-1 F1+

Qualifying subordinated debt . . . . . . . . . . . . . . . . . A Aa2 AAPreferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . C Ca C/RR6

Bank financial strength rating . . . . . . . . . . . . . . . . . — E+ —

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negative Negative Negative

(for Long Term

Senior Debt and

Qualifying

Subordinated Debt)

(for Long Term

Senior Debt and

Qualifying

Subordinated Debt)

(for AAA rated Long

Term Issuer Default

Rating)

Cash Flows

Nine Months Ended September 30, 2012. Cash and cash equivalents increased from December 31, 2011 by $3.1 billion to 

$20.7 billion as of September 30, 2012. Net cash generated from investing activities totaled $386.4 billion, resulting 

primarily from proceeds received from repayments of loans held for investment. Net cash from operating activities totaled 

$32.3 billion. These net cash inflows were partially offset by net cash used in financing activities of $415.5 billion primarily 

attributable to a significant amount of debt redemptions in excess of proceeds received from the issuances of debt.

Nine Months Ended September 30, 2011. Cash and cash equivalents increased from December 31, 2010 by $7.0 billion to 

$24.3 billion as of September 30, 2011. Net cash generated from investing activities totaled $327.8 billion, resulting primarily 

from proceeds received from repayments of loans held for investment. These net cash inflows were offset by net cash used in 

operating activities of $6.7 billion and net cash used in financing activities of $314.1 billion primarily attributable to a 

significant amount of debt redemptions in excess of proceeds received from the issuances of debt as well as proceeds 

received from Treasury under the senior preferred stock purchase agreement. 

Capital Management

Regulatory Capital

FHFA has announced that, during the conservatorship, our existing statutory and FHFA-directed regulatory capital 

requirements will not be binding and that FHFA will not issue quarterly capital classifications. We submit capital reports to 

FHFA and FHFA monitors our capital levels. The deficit of core capital over statutory minimum capital was $146.4 billion as 

of September 30, 2012 and $148.4 billion as of December 31, 2011. 

Senior Preferred Stock Purchase Agreement 

As a result of the covenants under the senior preferred stock purchase agreement, Treasury’s ownership of the warrant to 

purchase up to 79.9% of the total shares of our common stock outstanding and the uncertainty regarding our future, we 

effectively no longer have access to equity funding except through draws under the senior preferred stock purchase 

agreement. 

Under the senior preferred stock purchase agreement, Treasury made a commitment to provide funding, under certain 

conditions, to eliminate deficits in our net worth. We have received a total of $116.1 billion from Treasury pursuant to the 

senior preferred stock purchase agreement as of September 30, 2012. The aggregate liquidation preference of the senior 

preferred stock, including the initial aggregate liquidation preference of $1.0 billion, remains at $117.1 billion. 
56

While we had a positive net worth as of September 30, 2012, in some future periods we could have a net worth deficit and in 

such case would be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase 

agreement.

The senior preferred stock purchase agreement provides that the $200 billion maximum amount of the commitment from 

Treasury will increase as necessary to accommodate any net worth deficiencies attributable to periods during 2010, 2011 and 

2012. If we do not have a positive net worth as of December 31, 2012, then the amount of funding available under the senior 

preferred stock purchase agreement after 2012 will be $124.8 billion ($200 billion less $75.2 billion in cumulative draws for 

net worth deficiencies through December 31, 2009). 

In the event we have a positive net worth as of December 31, 2012, then the amount of funding available after 2012 under the 

senior preferred stock purchase agreement will depend on the size of that positive net worth relative to the cumulative draws 

for net worth deficiencies attributable to periods during 2010, 2011 and 2012, as follows: 

• If our positive net worth as of December 31, 2012 is less than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011 and 2012, then the amount of available funding will be $124.8 billion less 

our positive net worth as of December 31, 2012. 

• If our positive net worth as of December 31, 2012 is greater than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011 and 2012, then the amount of available funding will be $124.8 billion less 

the cumulative draws attributable to periods during 2010, 2011 and 2012. 

Treasury has waived the quarterly commitment fee under the senior preferred stock purchase agreement for each quarter of 

2011 and 2012 due to the continued fragility of the U.S. mortgage market and Treasury’s belief that imposing the 

commitment fee would not generate increased compensation for taxpayers. In addition, pursuant to the amendment to the 

senior preferred stock purchase agreement described in “Executive Summary—Amendment to Senior Preferred Stock 

Purchase Agreement with Treasury,” the periodic commitment fee under the agreement will be suspended effective January 1, 

2013. 

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment under 

the senior preferred stock purchase agreement. Moreover, we are not permitted to pay down the liquidation preference of the 

outstanding shares of senior preferred stock except to the extent of (1) accrued and unpaid dividends previously added to the 

liquidation preference and not previously paid down; and (2) quarterly commitment fees previously added to the liquidation 

preference and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior 

preferred stock is outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the 

senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not be paid down 

below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s 

funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any 

time, in whole or in part. The limited circumstances under which Treasury’s funding commitment will terminate are described 

in “Business— Conservatorship and Treasury Agreements” in our 2011 Form 10-K. 

Dividends

Our third quarter dividend of $2.9 billion was declared by the conservator and paid by us on September 28, 2012. The current 

annualized dividend on the senior preferred stock remains at $11.7 billion based on the 10% dividend rate. Pursuant to the 

August 2012 amendment to the senior preferred stock purchase agreement, beginning in 2013, the method for calculating the 

amount of dividends payable on the senior preferred stock will no longer be based on applying an annual dividend rate of 

10% to the aggregate liquidation preference of the senior preferred stock. Effective January 1, 2013, the amount of dividends 

payable on the senior preferred stock for a dividend period will be based on our net worth as of the end of the immediately 

preceding fiscal quarter. For each dividend period from January 1, 2013 through and including December 31, 2017, the 

dividend amount will be the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter 

exceeds an applicable capital reserve amount. The applicable capital reserve amount will be $3.0 billion for 2013 and will be 

reduced by $600 million each year until it reaches zero on January 1, 2018. For each dividend period beginning in 2018, the 

dividend amount will be the entire amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter. 

See “Risk Factors” for a discussion of the risks relating to our dividend obligations to Treasury on the senior preferred stock.
57

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 $56.2 billion as of September 30, 2012 and $62.0 

billion as of December 31, 2011.

We also provide assistance to housing finance agencies under the temporary credit and liquidity facilities programs in which 

Treasury has purchased participation interests. For a description of these programs, see “MD&A—Off-Balance Sheet 

Arrangements—Treasury Housing Finance Agency Initiative” in our 2011 Form 10-K.

RISK MANAGEMENT

Our business activities expose us to the following three major categories of financial risk: credit risk, market risk (including 

interest rate and liquidity risk) and operational risk. We seek to actively monitor and manage these risks by using an 

established risk management framework. Our risk management framework is intended to provide the basis for the principles 

that govern our risk management activities. In addition to these financial risks, there is significant uncertainty regarding the 

future of our company, including how long we will continue to be in existence, which we discuss in more detail in 

“Legislative and Regulatory Developments—GSE Reform” in this report and in “Risk Factors” in our 2011 Form 10-K. We 

are also subject to a number of other risks that could adversely impact our business, financial condition, earnings and cash 

flow, including model, legal and reputational risks that may arise due to a failure to comply with laws, regulations or ethical 

standards and codes of conduct applicable to our business activities and functions.

In this section we provide an update on our management of our major risk categories. For a more complete discussion of the 

financial risks we face and how we manage credit risk, market risk and operational risk, see “MD&A—Risk Management” in 

our 2011 Form 10-K and “Risk Factors” in our 2011 Form 10-K and in this report.

Credit Risk Management

We are generally subject to two types of credit risk: mortgage credit risk and institutional counterparty credit risk. Mortgage 

credit risk is the risk that a borrower will fail to make required mortgage payments. Institutional counterparty credit risk is the 

risk that our institutional counterparties may fail to fulfill their contractual obligations to us, including seller/servicers who 

are obligated to repurchase loans from us or reimburse us for losses in certain circumstances. 

Mortgage Credit Risk Management

We are exposed to credit risk on our mortgage credit book of business because we either hold mortgage assets, have issued a 

guaranty in connection with the creation of Fannie Mae MBS backed by mortgage assets or provided other credit 

enhancements on mortgage assets. While our mortgage credit book of business includes all of our mortgage-related assets, 

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

our portfolio for which we do not provide a guaranty. We provide information on the performance of non-Fannie Mae 

mortgage-related securities held in our portfolio, including the impairment that we have recognized on these securities, in 

“Consolidated Balance Sheet Analysis—Investments in Mortgage-Related Securities—Investments in Private-Label 

Mortgage-Related Securities.”

Mortgage Credit Book of Business

Table 32 displays the composition of our mortgage credit book of business as of the dates indicated. Our total single-family 

mortgage credit book of business accounted for 93% of our total mortgage credit book of business as of September 30, 2012

and December 31, 2011.
58

Table 32: Composition of Mortgage Credit Book of Business(1)

As of September 30, 2012 As of December 31, 2011

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Mortgage loans and Fannie Mae MBS(2)

. . . . . . . . . . . $ 2,806,813 $ 184,279 $ 2,991,092 $ 2,798,633 $ 176,898 $ 2,975,531

Unconsolidated Fannie Mae MBS, held by third 

parties(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,163 1,569 17,732 17,910 1,702 19,612

Other credit guarantees(4)

. . . . . . . . . . . . . . . . . . . . . . . 22,075 16,392 38,467 25,824 16,582 42,406

Guaranty book of business. . . . . . . . . . . . . . . . . . . $ 2,845,051 $ 202,240 $ 3,047,291 $ 2,842,367 $ 195,182 $ 3,037,549

Agency mortgage-related securities(5)

. . . . . . . . . . . . . 12,924 32 12,956 15,522 33 15,555

Other mortgage-related securities(6)

. . . . . . . . . . . . . . . 38,882 28,588 67,470 43,019 31,511 74,530

Mortgage credit book of business . . . . . . . . . . . . . . $ 2,896,857 $ 230,860 $ 3,127,717 $ 2,900,908 $ 226,726 $ 3,127,634

Guaranty Book of Business Detail:

Conventional Guaranty Book of Business(7)

. . . . . . $ 2,775,323 $ 200,077 $ 2,975,400 $ 2,769,919 $ 192,797 $ 2,962,716

Government Guaranty Book of Business(8)

. . . . . . . $ 69,728 $ 2,163 $ 71,891 $ 72,448 $ 2,385 $ 74,833

__________

(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) Includes 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, 2012 and December 31, 2011. 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 2011 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 strategies 

may increase our expenses and may not be effective in reducing our credit-related expenses or credit losses. We provide 

information on our credit-related expenses and credit losses in “Consolidated Results of Operations—Credit-Related 

Expenses.”

In evaluating our single-family mortgage credit risk, we closely monitor changes in housing and economic conditions and the 

impact of those changes on the credit risk profile of our single-family mortgage credit book of business. We regularly review 

and provide updates to our underwriting standards and eligibility guidelines that take into consideration changing market 
59

conditions. The credit risk profile of our single-family mortgage credit book of business is influenced by, among other things, 

the credit profile of the borrower, features of the loan, loan product type, the type of property securing the loan and the 

housing market and general economy. We focus more on loans that we believe pose a higher risk of default, which typically 

have been loans associated with higher mark-to-market LTV ratios, loans to borrowers with lower FICO credit scores and 

certain higher risk loan product categories, such as Alt-A loans. These and other factors affect both the amount of expected 

credit loss on a given loan and the sensitivity of that loss to changes in the economic environment.

In September 2012, we and Freddie Mac announced a new representation and warranty framework for conventional loans 

acquired by us on or after January 1, 2013. This new framework, which is part of FHFA’s seller-servicer contract 

harmonization initiative, seeks to provide lenders a higher degree of certainty and clarity regarding their repurchase exposure 

and liability on future deliveries, as well as consistency around repurchase timelines and remedies. Under the new 

framework, lenders will be relieved of certain repurchase obligations for loans that meet specific payment history 

requirements and other eligibility requirements. For example, a lender would not be required to repurchase a mortgage loan 

in breach of certain underwriting and eligibility representations and warranties if the borrower has made timely payments for 

36 months following the acquisition date (or, for Refi Plus loans, for 12 months following the acquisition date), and the loan 

meets other specified eligibility requirements. As a result of this new framework, we will make changes in our quality control 

process that will move the primary focus of our quality control reviews from the time a loan defaults to shortly after the time 

the loan is delivered to us. These changes will include augmenting the random sampling approach we currently use in 

selecting new mortgage loan deliveries for review with more targeted, discretionary loan selections.

Because we believe we have limited credit exposure on our government loans, 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.

Table 33 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.
60

Table 33: 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

2012 2011 2012 2011 September 30, 2012 December 31, 2011

Original LTV ratio:(5)

<= 60% . . . . . . . . . . . . . . . 24 % 26 % 26 % 28 % 23 % 24 %

60.01% to 70% . . . . . . . . . 14 14 14 15 15 16

70.01% to 80% . . . . . . . . . 34 38 35 38 40 40

80.01% to 90%(6). . . . . . . 9 10 9 9 10 10

90.01% to 100%(6). . . . . . 8 9 8 7 9 9

100.01% to 125%(6). . . . . 6 3 5 3 2 1

Greater than 125%(6). . . . . 5 — 3 — 1 —

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

Weighted average . . . . 77 % 71 % 74 % 70 % 72 % 71 %

Average loan amount. . . . . . . $216,658 $202,476 $214,047 $205,186 $ 157,291 $156,194

Estimated mark-to-market 

LTV ratio:(7)

<= 60% . . . . . . . . . . . . . . . 28 % 26 %

60.01% to 70% . . . . . . . . . 14 12

70.01% to 80% . . . . . . . . . 22 18

80.01% to 90% . . . . . . . . . 13 16

90.01% to 100% . . . . . . . . 9 10

100.01% to 125% . . . . . . . 8 11

Greater than 125% . . . . . . 6 7

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

Weighted average . . . . 76 % 79 %

Product type:

Fixed-rate:(8)

Long-term . . . . . . . . . . 75 % 67 % 74 % 69 % 72 % 73 %

Intermediate-term . . . . 22 25 23 24 17 15

Interest-only. . . . . . . . . * * * * 1 1

Total fixed-rate . . . . 97 92 97 93 90 89

Adjustable-rate:

Interest-only. . . . . . . . . * 1 * 1 3 3

Other ARMs. . . . . . . . . 3 7 3 6 7 8

Total adjustable-rate 3 8 3 7 10 11

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

Number of property units:

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

2-4 units. . . . . . . . . . . . . . 2 3 2 3 3 3

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

Property type:

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

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

Total . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %
61

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

2012 2011 2012 2011 September 30, 2012 December 31, 2011

Occupancy type:

Primary residence . . . . . . 89 % 88 % 89 % 88 % 89 % 89 %

Second/vacation home. . . 4 5 4 5 5 5

Investor . . . . . . . . . . . . . . 7 7 7 7 6 6

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

FICO credit score at

origination:

< 620 . . . . . . . . . . . . . . . . 1 % 1 % 1 % 1 % 3 % 3 %

620 to < 660. . . . . . . . . . . 2 2 2 2 6 7

660 to < 700. . . . . . . . . . . 7 8 7 8 13 13

700 to < 740. . . . . . . . . . . 16 17 16 17 20 20

>= 740 . . . . . . . . . . . . . . . 74 72 74 72 58 57

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

Weighted average . . . . 761 759 761 760 741 738

Loan purpose:

Purchase. . . . . . . . . . . . . . 24 % 32 % 21 % 26 % 29 % 31 %

Cash-out refinance. . . . . . 13 15 15 17 25 27

Other refinance . . . . . . . . 63 53 64 57 46 42

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

Geographic concentration:(9)

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

Northeast . . . . . . . . . . . . . 18 19 18 20 19 19

Southeast . . . . . . . . . . . . . 19 19 19 20 23 24

Southwest . . . . . . . . . . . . 16 16 16 16 16 15

West. . . . . . . . . . . . . . . . . 32 31 32 29 27 27

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

Origination year:

< = 2001. . . . . . . . . . . . . . 1 % 2 %

2002 . . . . . . . . . . . . . . . . . 2 2

2003 . . . . . . . . . . . . . . . . . 7 9

2004 . . . . . . . . . . . . . . . . . 4 5

2005 . . . . . . . . . . . . . . . . . 6 7

2006 . . . . . . . . . . . . . . . . . 5 7

2007 . . . . . . . . . . . . . . . . . 8 10

2008 . . . . . . . . . . . . . . . . . 5 7

2009 . . . . . . . . . . . . . . . . . 12 17

2010 . . . . . . . . . . . . . . . . . 15 18

2011 . . . . . . . . . . . . . . . . . 16 16

2012 . . . . . . . . . . . . . . . . . 19 —

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

__________

* Represents less than 0.5% of single-family conventional business volume or book of business.

(1) We reflect second lien mortgage loans in the original LTV ratio calculation only when we own both the first and second lien mortgage 

loans or we own only the second lien mortgage loan. Second lien mortgage loans represented less than 0.5% of our single-family 

conventional guaranty book of business as of September 30, 2012 and December 31, 2011. Second lien mortgage loans held by third 

parties are not reflected in the original LTV or mark-to-market LTV ratios in this table.
62

(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 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 that represented 5% of 

our single-family conventional guaranty book of business as of September 30, 2012 and December 31, 2011. See “Business—Our 

Charter and Regulation of Our Activities—Charter Act—Loan Standards” and “Risk Management—Credit Risk Management—Single 

Family Mortgage Credit Risk Management—Credit Profile Summary” in our 2011 Form 10-K for additional information on loan 

limits.

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

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

(6) We purchase loans with original LTV ratios above 80% to fulfill our mission to serve the primary mortgage market and provide 

liquidity to the housing system. Except as permitted under Refi Plus, 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 has maturities 

equal to or less than 15 years. Loans with interest-only terms are included in the interest-only category regardless of their maturities.

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

and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, 

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

Credit Profile Summary

The single-family loans we purchased or guaranteed in the first nine months of 2012 have a strong credit profile with a 

weighted average original LTV ratio of 74%, a weighted average FICO credit score of 761, and a product mix with a 

significant percentage of fully amortizing fixed-rate mortgage loans.

The credit profile of our future acquisitions will depend on many factors, including our future pricing and eligibility 

standards and those of mortgage insurers and FHA, the percentage of loan originations representing refinancings, our future 

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

under Refi Plus and 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.

As a result of low mortgage rates in recent periods, the percentage of acquisitions that are refinanced loans remains elevated. 

Refinanced loans include acquisitions under our Refi Plus initiative. Under our Refi Plus initiative, which offers expanded 

refinance opportunities for eligible Fannie Mae borrowers and includes but is not limited to HARP, we allow our borrowers 

who have mortgage loans with current LTV ratios above 80% to refinance their mortgages without obtaining new mortgage 

insurance in excess of what is already in place. Approximately 25% of our total single-family conventional business volume 

for the first nine months of 2012 consisted of loans with LTV ratios greater than 80% at the time of acquisition, compared 

with 19% for the first nine months of 2011. Refi Plus loans constituted approximately 24% of our total single-family 

acquisitions in the first nine months of 2012, compared with approximately 24% of total single-family acquisitions in all of 

2011. HARP loans constituted approximately 13% of our total single-family acquisitions in the first nine months of 2012, 

compared with approximately 9% of total single-family acquisitions in all of 2011.

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 loans we acquire under Refi Plus and HARP essentially replaces the credit risk that 

we already held prior to the refinancing. Loans we acquire under Refi Plus and HARP may not perform as well as the other 

loans we have acquired since the beginning of 2009. However, we expect these loans will perform better than the loans they 

replace because Refi Plus and HARP loans should 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). Due to the increase in the volume of HARP loans with higher LTV ratios, the weighted average LTV ratio at origination 

for our acquisitions in the first nine months of 2012 was higher than for our acquisitions in the first nine months of 2011. The 

average original LTV ratio of single-family loans we acquired in the first nine months of 2012, excluding HARP loans, was 

69%, compared with 109% for HARP loans.
63

As a result of changes to HARP, we expect that if interest rates remain low we will continue to acquire a high volume of 

refinancings under HARP until there is no longer a large population of borrowers with loans that have high LTV ratios who 

would benefit from refinancing. In particular, we expect to acquire many refinancings with LTV ratios greater than 125%, 

because borrowers were unable to refinance loans with LTV ratios greater than 125% in large numbers until changes to 

HARP were fully implemented in the second quarter of 2012. Approximately 5% of our total single-family conventional 

business volume for the third quarter of 2012 consisted of refinanced loans with LTV ratios greater than 125% at the time of 

acquisition. HARP is scheduled to end in December 2013.

Table 34 displays the serious delinquency rates and current mark-to-market LTV ratios as of September 30, 2012 and the 

FICO credit score at origination of single-family loans we acquired under HARP and Refi Plus, compared with the other 

single-family loans we acquired since the beginning of 2009.

Table 34: Selected Credit Characteristics of Single-Family Conventional Loans Acquired under HARP and Refi Plus

As of September 30, 2012

Percentage

of New

Book

Current

Mark-to-Market 

LTV Ratio

> 100%

FICO Credit 

Score at 

Origination(1)

Serious

Delinquency

Rate

HARP(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 % 35% 742 0.98%

Other Refi Plus(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4 755 0.35

Total Refi Plus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 18 749 0.60

Non-Refi Plus(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 1 763 0.25

Total new book of business(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 % 5% 759 0.34%

__________

(1) In the case of refinancings, represents FICO credit score at the time of the refinancing.

(2) HARP is targeted at borrowers who have demonstrated an acceptable payment history on their mortgage loans but may have been 

unable to refinance due to a decline in home prices or the unavailability of mortgage insurance. HARP loans, which have LTV ratios at 

origination in excess of 80%, must be secured by the borrower’s primary residence.

(3) Other Refi Plus includes loans with LTV ratios at origination greater than 80% that do not meet the criteria for HARP because they are 

not secured by the borrower’s primary residence, as well as loans that have LTV ratios at origination of less than 80%.

(4) Includes primarily other refinancings and home purchase mortgages.

(5) Refers to single-family mortgage loans we have acquired since the beginning of 2009.

In addition to the increase in refinancings under Refi Plus and HARP, our acquisitions of home purchase mortgages with LTV

ratios greater than 80% increased in the first nine months of 2012 compared with the first nine months of 2011 because: (1) 

most mortgage insurance companies lowered their premiums in 2011 for loans with higher credit scores; and (2) in April 

2011 and April 2012, FHA implemented a price increase in its mortgage insurance premium. Both price changes improved 

the economics of obtaining private mortgage insurance as compared to purchasing FHA insurance and drove an increase in 

our market share for these loans.

The prolonged and severe decline in home prices over the past several years has resulted in the overall estimated weighted 

average mark-to-market LTV ratio of our single-family conventional guaranty book of business remaining high at 76% as of 

September 30, 2012, and 79% as of December 31, 2011. The portion of our single-family conventional guaranty book of 

business with an estimated mark-to-market LTV ratio greater than 100% was 14% as of September 30, 2012, and 18% as of 

December 31, 2011. If home prices decline further, more loans may have mark-to-market LTV ratios greater than 100%, 

which increases the risk of delinquency and default.

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.
64

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, please see “Note 3, Mortgage Loans,” and “Note 6, Financial 

Guarantees.”

Our exposure to Alt-A and subprime loans included in our single-family conventional guaranty book of business, based on 

the classification criteria described in this section, does not include (1) our investments in private-label mortgage-related 

securities backed by Alt-A and subprime loans or (2) resecuritizations, or wraps, of private-label mortgage-related securities 

backed by Alt-A mortgage loans that we have guaranteed. See “Consolidated Balance Sheet Analysis—Investments in 

Mortgage-Related Securities—Investments in Private-Label Mortgage-Related Securities” for a discussion of our exposure to 

private-label mortgage-related securities backed by Alt-A and subprime loans. As a result of our decision to discontinue the 

purchase of newly originated Alt-A loans, except for those that represent the refinancing of an existing Fannie Mae loan, 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 $162.2 billion as of 

September 30, 2012, represented approximately 5.9% 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 $5.2 

billion as of September 30, 2012, represented approximately 0.2% of our single-family conventional guaranty book of 

business.

Problem Loan Management

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

occur and pursuing foreclosure alternatives to attempt to minimize the severity of the losses we incur. If a borrower does not 

make required payments, or is in jeopardy of not making payments, we work with the servicers of our loans to offer workout 

solutions to minimize the likelihood of foreclosure as well as the severity of loss. Our loan workouts reflect our various types 

of home retention solutions, including loan modifications, repayment plans and forbearances, and foreclosure alternatives, 

including short sales and deeds-in-lieu of foreclosure. When appropriate, we seek to move to foreclosure expeditiously.

Loan modifications involve changes to the original mortgage terms such as product type, interest rate, amortization term, 

maturity date and/or unpaid principal balance. Additionally, we currently offer up to twelve months of forbearance for those 

homeowners who are unemployed as an additional tool to help homeowners avoid foreclosure.

Foreclosure alternatives may be more appropriate if the borrower has experienced a significant adverse change in financial 

condition due to events such as unemployment or reduced income, divorce, or unexpected issues like medical bills and is 

therefore no longer able to make the required mortgage payments. Since the cost of foreclosure can be significant to both the 

borrower and Fannie Mae, to avoid foreclosure and satisfy the first-lien mortgage obligation, our servicers work with a 

borrower to sell their home prior to foreclosure in a short sale or accept a deed-in-lieu of foreclosure whereby the borrower 

voluntarily signs over the title to their property to the servicer. These alternatives are designed to reduce our credit losses 

while helping borrowers avoid having to go through a foreclosure.

In the following section, we present statistics on our problem loans, describe specific efforts undertaken to manage these 

loans and prevent foreclosures and provide metrics regarding the performance of our loan workout activities. Unless 

otherwise noted, single-family delinquency data is calculated based on number of loans. We include single-family 

conventional loans that we own and that back Fannie Mae MBS in the calculation of the single-family delinquency rate. 

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.
65

Problem Loan Statistics

The following table displays the delinquency status of loans in our single-family conventional guaranty book of business 

(based on number of loans) as of the dates indicated.

Table 35: Delinquency Status of Single-Family Conventional Loans

As of

September 30,

2012

December 31,

2011

September 30,

2011

Delinquency status:

30 to 59 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12% 2.17% 2.16%

60 to 89 days delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.68 0.74 0.75

Seriously delinquent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.41 3.91 4.00

Percentage of seriously delinquent loans that have been delinquent for

more than 180 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73% 70% 71%

Our single-family serious delinquency rate has decreased each quarter since the first quarter of 2010. The decrease in our 

serious delinquency rate is primarily the result of home retention solutions, foreclosure alternatives and completed 

foreclosures, as well as our acquisition of loans with stronger credit profiles since the beginning of 2009.

Although our single-family serious delinquency rate has decreased significantly since the first quarter of 2010, our serious 

delinquency rate and the period of time that loans remain seriously delinquent have been negatively affected in recent periods 

by the increase in the average number of days it is taking to complete a foreclosure. Continuing issues in the servicer 

foreclosure process and changing legislative, regulatory and judicial requirements have lengthened the time it takes to 

foreclose on a mortgage loan in many states. In addition, servicers and states are dealing with the backlog of foreclosures 

resulting from these delays and from the elevated level of foreclosures resulting from the housing market downturn. 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 year than it would have if the pace of foreclosures had been faster. We 

believe the changes in the foreclosure environment will continue to negatively affect our single-family serious delinquency 

rates, foreclosure timelines and credit-related expenses. We expect serious delinquency rates will continue to be affected in 

the future by home price changes, changes in other macroeconomic conditions, the length of the foreclosure process and the 

volume of loan modifications. We expect the number of our single-family loans that are seriously delinquent to remain well 

above pre-2008 levels for years. 

Table 36 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.
66

Table 36: Single-Family Serious Delinquency Rates

As of

September 30, 2012 December 31, 2011 September 30, 2011

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 % 3.05% 15 % 3.73% 15 % 3.89%

Northeast. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.32 19 4.43 19 4.36

Southeast. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.96 24 5.68 24 5.78

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.85 15 2.30 15 2.34

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.46 27 2.87 27 3.04

Total single-family conventional loans . 100 % 3.41% 100 % 3.91% 100 % 4.00%

Single-family conventional loans:

Credit enhanced . . . . . . . . . . . . . . . . . . . . . 14 % 7.47% 14 % 9.10% 14 % 9.43%

Non-credit enhanced. . . . . . . . . . . . . . . . . . 86 2.77 86 3.07 86 3.10

Total single-family conventional loans . 100 % 3.41% 100 % 3.91% 100 % 4.00%

__________

(1) See footnote 9 to “Table 33: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” for 

states included in each geographic region.

While loans across our single-family guaranty book of business have been affected by the weak market conditions, loans in 

certain states, certain higher-risk loan categories, such as Alt-A loans and loans with higher mark-to-market LTVs, and our 

2005 through 2008 loan vintages continue to exhibit higher than average delinquency rates and/or account for a 

disproportionate share of our credit losses. California, Florida, Arizona, Nevada and some states in the Midwest have 

experienced more significant declines in home prices coupled with unemployment rates that remain high.

Table 37 displays the serious delinquency rates and other financial information for our single-family conventional loans with 

some of these higher-risk characteristics as of the dates indicated. The reported categories are not mutually exclusive.
67

Table 37: Single-Family Conventional Serious Delinquency Rate Concentration Analysis

As of 

September 30, 2012 December 31, 2011 September 30, 2011

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio (1) 

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio (1) 

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio (1) 

(Dollars in millions)

States:

Arizona . . . . . . . . . . $ 65,400 2% 2.35% 92% $ 66,875 2% 3.65% 109% $ 67,562 2% 3.78% 110%

California. . . . . . . . . 525,469 19 1.89 75 516,608 19 2.46 81 510,199 19 2.70 79

Florida . . . . . . . . . . . 167,884 6 10.49 98 175,344 6 11.80 108 178,036 6 11.90 107

Nevada. . . . . . . . . . . 27,577 1 6.97 123 28,766 1 7.42 138 29,200 1 7.53 135

Select Midwest 

states (2)

. . . . . . . 280,138 10 3.66 81 284,060 10 4.39 84 286,389 10 4.55 82

All other states. . . . . 1,700,785 62 2.89 71 1,689,846 62 3.18 73 1,691,570 62 3.20 71

Product type:

Alt-A . . . . . . . . . . . . 162,157 6 11.61 97 182,236 7 12.43 101 188,385 7 12.71 99

Subprime . . . . . . . . . 5,211 * 20.85 107 5,791 * 23.18 111 5,968 * 23.91 108

Vintages:

2005. . . . . . . . . . . . . 152,578 6 7.54 91 190,521 7 7.27 95 202,024 7 7.13 93

2006. . . . . . . . . . . . . 150,684 5 11.87 106 186,835 7 11.81 111 196,843 7 11.81 108

2007. . . . . . . . . . . . . 214,460 8 12.66 108 269,012 10 12.62 112 283,866 10 12.63 109

2008. . . . . . . . . . . . . 140,982 5 6.26 89 192,713 7 5.64 92 209,502 8 5.34 89

All other vintages . . 2,108,549 76 1.40 68 1,922,418 69 1.59 69 1,870,721 68 1.60 67

Estimated mark-tomarket LTV ratio:

Greater than 100%(1) 393,101 14 13.53 129 493,762 18 13.76 131 463,241 16 14.53 131

Select combined risk

characteristics:

Original LTV ratio >

90% and FICO

score < 620 . . . . . . . 18,993 1 15.33 112 18,992 1 18.67 115 19,587 1 18.99 112

__________

* Percentage is less than 0.5%.

(1) Second lien mortgage loans held by third parties are not included in the calculation of the estimated mark-to-market LTV ratios.

(2) Consists of Illinois, Indiana, Michigan and Ohio.

Loan Workout Metrics

Table 38 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 and forbearance plans that have been initiated but not completed.
68

Table 38: Statistics on Single-Family Loan Workouts

For the Nine Months Ended September 30,

2012 2011

Unpaid

Principal

Balance

Number of

Loans

Unpaid

Principal

Balance

Number of

Loans

(Dollars in millions)

Home retention strategies:

Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,214 123,700 $ 32,658 161,404

Repayment plans and forbearances completed(1)

. . . . . . . . . . . . . . . . . . . . 2,708 18,997 3,769 26,801

Total home retention strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,922 142,697 36,427 188,205

Foreclosure alternatives:

Short sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,629 58,376 11,231 50,966

Deeds-in-lieu of foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,904 11,172 1,179 6,636

Total foreclosure alternatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,533 69,548 12,410 57,602

Total loan workouts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,455 212,245 $ 48,837 245,807

Loan workouts as a percentage of single-family guaranty book of business(2)

. 1.90 % 1.60 % 2.29 % 1.84 %

__________

(1) Repayment plans reflect only those plans associated with loans that were 60 days or more delinquent. Forbearances reflect loans that were 

90 days or more delinquent.

(2) Calculated based on annualized loan workouts during the period as a percentage of our single-family guaranty book of business as of the 

end of the period.

The volume of home retention solutions completed in the first nine months of 2012 decreased compared with the first nine 

months of 2011, primarily due to a decline in the number of delinquent loans in the first nine months of 2012, compared with 

the first nine months of 2011.

During the first nine months of 2012, we initiated approximately 137,000 trial modifications, including Home Affordable 

Modification Program (“HAMP”) and non-HAMP, compared with approximately 165,000 trial modifications during the first 

nine months of 2011. We also initiated other types of workouts, such as repayment plans and forbearances.

HAMP guidance directs servicers either to cancel or to convert trial modifications after three or four monthly payments, 

depending on the borrower’s circumstances. As of September 30, 2012, 56% of our HAMP trial modifications had been 

converted to permanent HAMP modifications since the inception of the program. The conversion rate for HAMP

modifications since June 1, 2010, when servicers were required to perform a full verification of a borrower’s eligibility prior 

to offering a HAMP trial modification, was 86% as of September 30, 2012. The average length of a trial period for HAMP

modifications initiated after June 1, 2010 was four months.

In addition to our home retention solutions, we continue to focus on alternatives to foreclosure for borrowers who are unable 

to retain their homes. The number of foreclosure alternatives completed during the first nine months of 2012 remained high 

as these are favorable solutions for a large number of borrowers. We expect the volume of our home retention solutions and 

foreclosure alternatives to remain high throughout the remainder of 2012.

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. 

Table 39 displays the percentage of our loan modifications completed during the first nine months of 2011, 2010 and the 

second half of 2009 that were current or paid off one year after modification, as well as the percentage of our loan 

modifications completed during the first nine months of 2010 and the second half of 2009 that were current or paid off two 

years after modification. 
69

Table 39: Percentage of Loan Modifications That Were Current or Paid Off at One and Two Years Post-Modification(1)

2011 2010 2009

Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3

One Year Post-Modification 

HAMP Modifications. . . . . . . . . . . . . . . . 78% 78% 77% 74% 74% 74% 76% 73% 71%

Non-HAMP Modifications . . . . . . . . . . . 68 69 69 67 67 65 55 50 39

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 75 74 69 70 70 65 58 42

Two Years Post-Modification 

HAMP Modifications. . . . . . . . . . . . . . . . 69% 68% 70% 67% 64%

Non-HAMP Modifications . . . . . . . . . . . 63 61 52 48 37

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 65 60 55 39

__________

(1) Excludes loans that were classified as subprime ARMs that were modified into fixed rate mortgages. Modifications included permanent 

modifications, but do not reflect loans currently in trial modifications.

We began changing the structure of our non-HAMP modifications in 2010 to lower borrowers’ monthly mortgage payments 

to a greater extent, which improved the performance of our non-HAMP modifications overall. In addition, because postmodification performance was greater for our HAMP modifications than for our non-HAMP modifications, we began in 

September 2010 to include trial periods for our non-HAMP modifications.

There is significant uncertainty regarding the ultimate long term success of our current modification efforts. We believe the 

performance of our workouts will be highly dependent on economic factors, such as unemployment rates, household wealth 

and income, and home prices. Modifications, even those with reduced monthly payments, may also not be sufficient to help 

borrowers with second liens and other significant non-mortgage debt obligations. FHFA, other agencies of the U.S. 

government or Congress may ask us to undertake new initiatives to support the housing and mortgage markets should our 

current modification efforts ultimately not perform in a manner that results in the stabilization of these markets. See “Risk 

Factors” in our 2011 Form 10-K for a discussion of efforts we may be required or asked to undertake and their potential 

effect on us.

REO Management

Foreclosure and REO activity affect the amount of credit losses we realize in a given period. Table 40 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 40: Single-Family Foreclosed Properties

For the Nine Months

Ended September 30,

2012 2011

Single-family foreclosed properties (number of properties):

Beginning of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . . . . . . 118,528 162,489

Acquisitions by geographic area:(2)

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,058 32,074

Northeast. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,390 7,091

Southeast. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,087 36,433

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,475 36,324

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,357 40,518

Total properties acquired through foreclosure (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,367 152,440

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (144,670) (192,313)

End of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . . . . . . . . . . . . 107,225 122,616

Carrying value of single-family foreclosed properties (dollars in millions)(3)

. . . . . . . . . . . . . . . . . $ 9,302 $ 11,039

Single-family foreclosure rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01 % 1.15 %
70

__________

(1) Includes held for use properties, which are reported in our condensed consolidated balance sheets as a component of “Other assets” and 

acquisitions through deeds-in-lieu of foreclosure.

(2) See footnote 9 to “Table 33: 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 ongoing weak economy, as well as high unemployment rates, continues to result in a high level of mortgage loans that 

transition from delinquent to REO status, either through foreclosure or deed-in-lieu of foreclosure. Our foreclosure rates 

remain high; however, foreclosures continue to proceed at a slow pace caused by continuing foreclosure process issues 

encountered by our servicers and changing legislative, regulatory and judicial requirements. The delay in foreclosures has 

resulted in a decrease in the inventory of foreclosed properties since December 31, 2010.

We continue to manage our REO inventory to minimize costs and maximize sales proceeds. However, as we are unable to 

market and sell a large portion of our inventory, the pace at which we can dispose of our properties slows, resulting in higher 

foreclosed property expenses related to costs associated with ensuring that the property is vacant and costs of maintaining the 

property.

Table 41 displays the current status of our single-family foreclosed property inventory, including the percentage of our 

inventory that we are unable to market, as of the dates indicated. 

Table 41: Single-Family Foreclosed Property Status

Percent of Single-Family

Foreclosed Properties

As of

September 30,

2012

December 31,

2011

Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 % 28 %

Offer accepted(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 17

Appraisal stage(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8

Unable to market:

Redemption status(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12

Occupied status(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 15

Rental property(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7

Properties being repaired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7

Total unable to market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 47

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 within the period during which state laws allows the former mortgagor and second lien holders to redeem the 

property. 

(4) Properties that are still occupied, and for which the eviction process is not yet complete. 

(5) Properties with a tenant living in the home under our Tenant in Place or Deed for Lease programs. 
71

In February 2012, FHFA announced the pilot of an REO initiative that solicited bids from qualified investors to purchase 

approximately 2,500 foreclosed properties from us with the requirement to rent the purchased properties for a specified 

number of years. The pilot involves the sale of pools of foreclosed homes and includes both vacant properties and occupied 

rental properties. In September 2012, there were dispositions of approximately 800 properties from our REO inventory 

through structured sale transactions as part of the REO pilot initiative. As these transfers did not meet the sale accounting 

criteria, the underlying properties are included in our condensed consolidated balance sheets as a component of “Other 

assets.” In addition, in November 2012, there were dispositions of 970 properties as part of this initiative. We do not yet 

know whether this initiative will have a material impact on our future REO sales and REO inventory levels.

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 and lender, 

market and sub-market trends and growth, and the current and anticipated cash flows from the property. 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 (expenses) 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 portfolio or held by third parties). 

Our primary multifamily delivery channel is the Delegated Underwriting and Servicing, or DUS®, program, which is 

comprised of multiple lenders that span the spectrum from large financial institutions to smaller independent multifamily 

lenders. Multifamily loans that we purchase or that back Fannie Mae MBS are either underwritten by a Fannie Mae-approved 

lender or subject to our underwriting review prior to closing, depending on the product type and/or loan size. Loans delivered 

to us by DUS lenders and their affiliates represented 87% of our multifamily guaranty book of business as of September 30, 

2012 and 86% as of December 31, 2011. 

We use various types of credit enhancement arrangements for our multifamily loans, including lender risk-sharing, lender 

repurchase agreements, pool insurance, subordinated participations in mortgage loans or structured pools, cash and letter of 

credit collateral agreements, and cross-collateralization/cross-default provisions. The most prevalent form of credit 

enhancement on multifamily loans is lender risk-sharing. Lenders in the DUS program typically share in loan-level credit 

losses in one of two ways: (1) they bear losses up to the first 5% of the unpaid principal balance of the loan and share in 

remaining losses up to a prescribed limit; or (2) they share up to one-third of the credit losses on an equal basis with us. NonDUS lenders typically share or absorb credit losses based on a negotiated percentage of the loan or the pool balance. 

Table 42 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 42: Multifamily Lender Risk-Sharing

As of

September 30,

2012

December 31,

2011

Lender risk-sharing

DUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71% 68%

Non-DUS negotiated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 11

No recourse to the lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 21

At the time of our purchase or guarantee of multifamily mortgage loans, we and our lenders rely on sound underwriting 

standards, which often include third-party appraisals and cash flow analysis. Our standards for multifamily loans specify 

maximum original LTV and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan 

characteristics. Our experience has been that original LTV and DSCR values have been reliable indicators of future credit 

performance. 
72

Table 43 displays original LTV and DSCR metrics for our multifamily guaranty book of business as of the dates indicated. 

Table 43: Multifamily Guaranty Book of Business Key Risk Characteristics

As of

September 30,

2012

December 31,

2011

September 30,

2011

Weighted average original LTV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 % 66 % 66 %

Original LTV greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5 5

Weighted average original DSCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.59 1.57 1.56

Original DSCR less than or equal to 1.10 . . . . . . . . . . . . . . . . . . . . . . . . 8 8 8

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 is an important factor that influences credit 

performance and helps reduce our credit risk.

We and our lenders monitor the performance and risk concentrations of our multifamily loans and the underlying properties 

on an ongoing basis throughout the life of the loan; at the loan, property, and portfolio level. 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 6% as of September 30, 2012

and 7% as of December 31, 2011.

Problem Loan Management and Foreclosure Prevention

The number of multifamily loans at risk of becoming seriously delinquent has continued to decrease in the first nine months 

of 2012, as early-stage delinquencies have decreased. Since delinquency rates are a lagging indicator, we expect to continue 

to incur additional credit losses. We periodically refine our underwriting standards in response to market conditions and 

implement proactive portfolio management and monitoring which are each designed to keep credit losses to a low level 

relative to our multifamily guaranty book of business.

Problem Loan Statistics

We classify multifamily loans as seriously delinquent when payment is 60 days or more past due. We include the unpaid 

principal balance of multifamily loans that we own or that back Fannie Mae MBS and any housing bonds for which we 

provide credit enhancement in the calculation of the multifamily serious delinquency rate.

Table 44 displays a comparison of our multifamily serious delinquency rates for loans acquired through DUS lenders versus 

loans acquired through non-DUS lenders and the percentage of total multifamily credit losses they represent.

Table 44: Multifamily Concentration Analysis

Percentage of

Multifamily

As of Credit Losses

September 30, 2012 December 31, 2011 September 30, 2011 For the

Percentage of

Book

Outstanding

Serious

Delinquency

Rate

Percentage of

Book

Outstanding

Serious

Delinquency

Rate

Percentage of

Book

Outstanding

Serious

Delinquency

Rate

Nine Months Ended

September 30,

2012(1) 2011

DUS small balance 

loans (2)

. . . . . . . . . . 8 % 0.43 % 8 % 0.45 % 8 % 0.64 % 9 % 7 %

DUS non small 

balance loans (3)

. . . . 75 0.18 72 0.51 72 0.46 78 72

Non-DUS small 

balance loans (2)

. . . . 7 0.93 9 1.38 9 1.27 15 14

Non-DUS non small 

balance loans (3)

. . . . 10 0.42 11 0.57 11 0.67 (2) 7

Total Multifamily 

Loans . . . . . . . . . 100 % 0.28 % 100 % 0.59 % 100 % 0.57 % 100 % 100 %
73

________

(1) The percentage of credit losses for non-DUS non-small balance loans is negative for the nine months ended September 30, 2012 because 

recoveries of previously charged-off amounts exceeded the amount that we charged off during the period.

(2) Loans with original unpaid principal balances of up to $3 million as well as loans in high cost markets with original unpaid principal 

balances up to $5 million. 

(3) Loans with original unpaid principal balances greater than $3 million as well as loans in high cost markets with original unpaid principal 

balances greater than $5 million. 

The multifamily serious delinquency rate decreased as of September 30, 2012 compared with December 31, 2011 as national 

multifamily market fundamentals continued to improve. 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. Small balance non-DUS loans continue to 

represent a disproportionately large share of delinquencies, but they are generally covered by loss sharing arrangements that 

limit the credit losses we incur. 

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, acquired through non-DUS lenders continue to exhibit higher delinquencies than small balance 

loans acquired through DUS lenders. These small balance non-DUS loans account for 25% of our multifamily serious 

delinquencies and 7% of our multifamily guaranty book of business as of September 30, 2012 compared with 20% of our 

multifamily serious delinquencies and 9% of our multifamily guaranty book of business as of December 31, 2011. These 

small balance non-DUS loan acquisitions were most common in 2007 and 2008 but have been less than 2% of the unpaid 

principal balance of our total multifamily acquisitions since 2008. Although our 2007 and early 2008 acquisitions were 

underwritten to our then-current credit standards and required borrower cash equity, they were acquired near the peak of 

multifamily housing values. During the second half of 2008, our underwriting standards were adjusted to reflect the evolving 

market trends at that time.

In addition, Nevada and Ohio have a disproportionately high share of seriously delinquent loans compared with their share of 

the multifamily guaranty book of business as a result of slow economic recovery in certain areas of these states. These states 

accounted for 19% of multifamily serious delinquencies but only 3% of the multifamily guaranty book of business as of 

September 30, 2012.

REO Management

Foreclosure and REO activity affect the level of our credit losses. Table 45 displays our held for sale multifamily REO 

activity for the periods indicated. 

Table 45: Multifamily Foreclosed Properties

For the Nine

Months Ended

September 30,

2012 2011

Multifamily foreclosed properties (number of properties):

Beginning of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . . . . . . . . . 260 222

Total properties acquired through foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 190

Transfers to held for use, net (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66) (27)

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (165) (111)

End of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 274

Carrying value of multifamily foreclosed properties (dollars in millions). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 278 $ 561

________

(1) Represents the transfer of properties from held for sale to held for use. Held for use properties are reported in our condensed 

consolidated balance sheets as a component of “Other assets.”

The decrease in our multifamily properties acquired through foreclosure reflects the continued improvement of national 

multifamily market fundamentals in the first nine months of 2012.

Institutional Counterparty Credit Risk Management

We rely on our institutional counterparties to provide services and credit enhancements, including primary and pool mortgage 
74

insurance coverage, risk sharing agreements with lenders and financial guaranty contracts that are critical to our business. 

Institutional counterparty credit risk is the risk that these institutional counterparties may fail to fulfill their contractual 

obligations to us, including seller/servicers who are obligated to repurchase loans from us or reimburse us for losses in certain 

circumstances. Defaults by a counterparty with significant obligations to us could result in significant financial losses to us.

See “MD&A—Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” in our 

2011 Form 10-K for additional information about our institutional counterparties, including counterparty risk we face from 

mortgage originators and investors, from debt security and mortgage dealers, and from document custodians.

Mortgage Seller/Servicers

Our primary exposures to institutional counterparty risk are with mortgage seller/servicers that service the loans we hold in 

our mortgage portfolio or that back our Fannie Mae MBS, as well as seller/servicers that are obligated to repurchase loans 

from us or reimburse us for losses in certain circumstances. We rely on mortgage seller/servicers to meet our servicing 

standards and fulfill their servicing and repurchase obligations.

Our business with our mortgage seller/servicers is concentrated. Our five largest single-family mortgage servicers, including 

their affiliates, serviced 59% of our single-family guaranty book of business as of September 30, 2012, compared with 63% 

as of December 31, 2011. 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, 2012, compared with 17% 

as of December 31, 2011. In addition, we had two other mortgage servicers, Bank of America, N.A. and JPMorgan Chase 

Bank, N.A., that, with their affiliates, each serviced over 10% of our single-family guaranty book of business as of September 

30, 2012 and December 31, 2011. In addition, Wells Fargo Bank, N.A. serviced over 10% of our multifamily guaranty book 

of business as of September 30, 2012 and December 31, 2011.

Although our business with our mortgage seller/servicers is concentrated, a number of our largest single-family mortgage 

seller/servicer counterparties have recently reduced or eliminated their purchases of mortgage loans from mortgage brokers 

and correspondent lenders. As a result, we are acquiring an increasing portion of our business volume directly from smaller 

financial institutions and some of our servicing volume is shifting to smaller or non-traditional servicers that may not have 

the same financial strength or operational capacity as our largest servicers. See “Risk Factors” for a description of the risks to 

our business associated with a decrease in the concentration of our business with large institutions.

If a significant mortgage seller/servicer counterparty fails, and its mortgage servicing obligations are not transferred to a 

company with the ability and intent to fulfill all of these obligations, we could incur penalties for late payment of taxes and 

insurance on the properties that secure the mortgage loans serviced by that mortgage seller/servicer. We could also be 

required to absorb losses on defaulted loans that a failed servicer is obligated to repurchase from us if we determine there was 

an underwriting or eligibility breach. In May 2012, Residential Capital LLC, GMAC Mortgage and other subsidiaries of Ally 

Financial Inc. (“Ally”), filed for Chapter 11 bankruptcy protection. We are evaluating the financial impact of the bankruptcy 

on our business; however, our exposure to possible losses in connection with GMAC Mortgage’s bankruptcy would have 

been greater had we not entered into an agreement with certain wholly-owned subsidiaries of Ally in December 2010. Under 

the agreement we received a cash payment of $462 million in exchange for our release of certain claims against specified 

Ally affiliates.

Because we delegate the servicing of our mortgage loans to mortgage servicers and do not have our own servicing function, 

servicers’ lack of appropriate process controls or the loss of business from a significant mortgage servicer counterparty could 

pose significant risks to our ability to conduct our business effectively. Many of our largest servicer counterparties continue 

to reevaluate the effectiveness of their process controls. Many servicers are also subject to consent orders by their regulators 

that require the servicers to correct foreclosure process deficiencies and improve their servicing and foreclosure 

practices. This has resulted in extended foreclosure timelines and, therefore, additional holding costs for us, such as property 

taxes and insurance, repairs and maintenance, and valuation adjustments due to home price changes. See “Business—

Executive Summary” in our 2011 Form 10-K for a discussion of managing foreclosure timelines.

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 seller/servicers are obligated to either 

repurchase the loan or foreclosed property, or to reimburse us for our losses. If the collateral property relating to such a loan 

has been foreclosed upon and we have accepted an offer from a third party to purchase the property, or if a loan is in the 

process of being liquidated or has been liquidated, we require the seller/servicer to reimburse us for our losses. We may 

consider additional facts and circumstances when determining whether to require a seller/servicer to reimburse us for our 

losses instead of repurchasing the related loan or foreclosed property. On an economic basis, we are made whole for our 

losses regardless of whether the seller/servicer repurchases the loan or reimburses us for our losses. We consider the 

anticipated benefits from these types of recoveries when we establish our allowance for loan losses. We refer to our demands 
75

that seller/servicers meet these obligations collectively as “repurchase requests.” The amount of our repurchase requests 

remained high during the third quarter and first nine months of 2012, and we expect that the amount of our outstanding 

repurchase requests will remain high until the majority of our outstanding repurchase requests to Bank of America are 

resolved.

As the volume of repurchase requests increases, so does the risk that affected seller/servicers will not meet the terms of their 

repurchase obligations, and we may be unable to recover on all outstanding loan repurchase obligations resulting from seller/

servicers’ breaches of contractual obligations. Failure by a significant seller/servicer counterparty, or a number of seller/

servicers, to fulfill repurchase obligations to us could result in a significant increase in our credit losses and credit-related 

expenses, and have a material adverse effect on our results of operations and financial condition. In addition, actions we take 

to pursue our contractual remedies could increase our costs, reduce our revenues, or otherwise have a material adverse effect 

on our results of operations or financial condition. We estimate our allowance for loan losses assuming the benefit of 

repurchase demands only from those counterparties we determine have the financial capacity to fulfill this obligation. 

Accordingly, as of September 30, 2012, in estimating our allowance for loan losses, we assumed no benefit from repurchase 

demands due to us from seller/servicers that, in our view, lacked the financial capacity to honor their contractual obligations.

Table 46 displays repurchase request activity, measured by unpaid principal balance, during the first nine months of 2012 and 

2011. The dollar amounts of our outstanding repurchase requests provided below are based on the unpaid principal balance of 

the loans underlying the repurchase request issued, not the actual amount we have requested from the lenders. In some cases, 

we allow lenders to remit payment equal to our loss, including imputed interest, on the loan after we have disposed of the 

REO, which is less than the unpaid principal balance of the loan. As a result, we expect our actual cash receipts relating to 

these outstanding repurchase requests to be significantly lower than the unpaid principal balance of the loan. Amounts 

relating to repurchase requests originating from missing documentation or loan files are excluded from the total requests 

outstanding until we receive the missing documents and loan files and a full underwriting review is completed.

Table 46: Repurchase Request Activity

For the Nine Months Ended September 30,

2012 2011

(Dollars in millions)

Beginning outstanding repurchase requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,400 $ 5,007

Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,420 18,739

Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,725) (8,850)

Other resolutions(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,086) (4,710)

Total successfully resolved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,811) (13,560)

Cancellations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (765) (729)

Ending outstanding repurchase requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,244 $ 9,457

__________

(1) Mainly includes repurchase requests that were successfully resolved through the lender taking corrective action with or without a 

pricing adjustment. Also includes resolutions through indemnification or future repurchase agreements, negotiated settlements for a 

pool of loans, and loans in which no further repurchase or reimbursement for loss was required from the seller/servicer.

The increase in “Other resolutions” activity during the first nine months of 2012 compared with the same period during 2011 

was primarily driven by an increase in the number of requests that were successfully resolved by lenders, thereby curing the 

defects identified in the repurchase request without requiring the lender to repurchase the loan or reimburse us for our losses. 

As of September 30, 2012, less than 0.25% of the loans in our new single-family book of business, which were acquired after 

2008, have been subject to a repurchase request, compared with approximately 3% of single-family loans acquired between 

2005 and 2008 that have been subject to a repurchase request. 

Table 47 displays our top five mortgage seller/servicers by outstanding repurchase requests based on the unpaid principal 

balance of the loans underlying repurchase requests issued as of September 30, 2012 and December 31, 2011. Table 47 also 

displays the mortgage seller/servicers balance and percentage of our repurchase requests to that seller/servicer that were over 

120 days outstanding, and the seller/servicers’ repurchase requests outstanding over 120 days as a percentage of our total 

repurchase requests outstanding over 120 days, as of September 30, 2012 and December 31, 2011. 
76

Table 47: Outstanding Repurchase Requests(1)

Outstanding Repurchase Requests as of

September 30, 2012 December 31, 2011

Total

Outstanding

Balance(3)

Over 120 Days(2) Total

Outstanding

Balance(3)

Over 120 Days(2)

Balance(3) % % of Total Balance(3) % % of Total

(Dollars in millions)

Mortgage Seller/Servicer

Counterparty:

Bank of America, N.A. . . . . . . . . . . $10,827 $ 7,437 69% 80 % $ 5,449 $ 1,841 34% 59 %

CitiMortgage(4)

. . . . . . . . . . . . . . . . 1,047 304 29 3 917 226 25 7

JPMorgan Chase Bank, N.A. . . . . . 983 363 37 4 1,136 197 17 6

Wells Fargo Bank, N.A.(4)

. . . . . . . . 834 270 32 3 830 259 31 8

SunTrust Bank, Inc.(4)

. . . . . . . . . . . 502 191 38 2 430 40 9 1

Other(5)

. . . . . . . . . . . . . . . . . . . . . . 2,051 781 38 8 1,638 576 35 19

Total . . . . . . . . . . . . . . . . . . . . . . . . $16,244 $ 9,346 100 % $ 10,400 $ 3,139 100 %

__________

(1) Amounts relating to repurchase requests originating from missing documentation or loan files are excluded from the outstanding 

repurchase requests until we receive the missing documents and loan files and a full underwriting review is completed.

(2) Measured from the repurchase request date. For lenders remitting after the property is disposed, the number of days outstanding is 

adjusted to allow for final loss determination.

(3) Based on the unpaid principal balance of the loans underlying the repurchase request issued. In some cases, lenders remit payment 

equal to our loss on sale of the loan as REO, which includes imputed interest, and is significantly lower than the unpaid principal 

balance of the loan. Also includes repurchase requests resulting from the rescission of mortgage insurance coverage.

(4) Seller/servicer has entered into a plan with us to resolve certain outstanding repurchase requests and/or has posted collateral to us.

(5) Includes some seller/servicers that have entered into a plan with us to resolve outstanding repurchase requests and/or have posted 

collateral to us.

We continue to aggressively pursue our contractual rights associated with outstanding repurchase requests. Failure by a seller/

servicer to repurchase a loan or to otherwise make us whole for our losses may result in the imposition of certain sanctions 

including, but not limited to: 

• requiring the posting of collateral, 

• denying transfer of servicing requests or denying pledged servicing requests,

• modifying or suspending any contract or agreement with a lender, or 

• suspending or terminating a lender or imposing some other formal sanction on a lender.

If we are unable to resolve these matters to our satisfaction, we may seek additional remedies. If we are unable to resolve our 

repurchase requests, either through collection or additional remedies, we will not recover the losses we have recognized from 

the associated loans.

As described in “Mortgage Credit Risk Management—Single-Family Mortgage Credit Risk Management,” we will be 

implementing a new representation and warranty framework in 2013. As a result of this new framework, we plan to make 

changes in our quality control process that will move the primary focus of our quality control reviews from the time a loan 

defaults to shortly after the time the loan is delivered to us. Once we have implemented these changes, a greater proportion of 

our repurchase requests may be issued on performing loans, as compared to our current repurchase requests, the substantial 

majority of which relate to loans that are either nonperforming or have been foreclosed upon.

Since the fourth quarter of 2011, Bank of America, the seller/servicer with which we have the most repurchase requests 

outstanding, slowed the pace of its repurchases. As a result of Bank of America’s failure to honor its contractual obligations 

in a timely manner, the already high volume of our outstanding repurchase requests with Bank of America increased 

substantially. Measured by unpaid principal balance, Bank of America accounted for approximately 67% of our total 

outstanding repurchase requests as of September 30, 2012, compared with 52% as of December 31, 2011 and 41% as of 

December 31, 2010. Similarly, Bank of America accounted for 80% of our repurchase requests that had been outstanding for 

more than 120 days as of September 30, 2012, compared with 59% as of December 31, 2011 and 37% as of December 31, 

2010. We are taking steps to address Bank of America’s delays in honoring our repurchase requests. For example, we did not 
77

renew our existing loan delivery contract with Bank of America at the end of January 2012, which significantly restricts the 

types of loans it can deliver to us. Bank of America, however, can continue delivering loans to us under our Refi Plus 

initiative, including HARP loans. Bank of America’s failure to honor repurchase obligations in a timely manner has not 

caused us to change our estimate of the amounts we expect to collect from it ultimately, and we continue to work with Bank 

of America to resolve these issues. If we collect less than the amount we expect from Bank of America, we may incur 

additional losses and as a result may be required to seek additional funds from Treasury under our senior preferred stock 

purchase agreement. Table 47 above displays our top five mortgage seller/servicers by outstanding repurchase requests based 

on the unpaid principal balance of the loans underlying repurchase requests issued as of September 30, 2012. We do not 

expect the change in our loan delivery agreement with Bank of America to be material to our business or results of 

operations. Bank of America represented less than 5% of our loan delivery volume in the first nine months of 2012.

We are also exposed to the risk that a mortgage seller/servicer or another party involved in a mortgage loan transaction will 

engage in mortgage fraud by misrepresenting the facts about the loan. We have experienced financial losses in the past and 

may experience significant financial losses and reputational damage in the future as a result of mortgage fraud. See “Risk 

Factors” in our 2011 Form 10-K for additional discussion on risks of mortgage fraud to which we are exposed.

Mortgage Insurers

We use several types of credit enhancement to manage our single-family mortgage credit risk, including primary and pool 

mortgage insurance coverage. Table 48 displays our maximum potential loss recovery for the primary and pool mortgage 

insurance coverage on single-family loans in our guaranty book of business and our unpaid principal balance covered by 

insurance for our mortgage insurer counterparties as of September 30, 2012 and December 31, 2011. The table includes our 

top nine mortgage insurer counterparties, which provided over 99% of our total mortgage insurance coverage on singlefamily loans in our guaranty book of business as of September 30, 2012 and December 31, 2011. See “Risk Management—

Credit Risk Management—Institutional Counterparty Risk Management—Mortgage Insurers” in our 2011 Form 10-K for a 

discussion on the credit ratings of our mortgage insurers. 

Table 48: Mortgage Insurance Coverage

Unpaid Principal Balance 

Maximum Coverage(1) Covered By Insurance(2)

As of As of As of 

As of September 30, 2012 December 31, September 30, December 31, 

Primary Pool Total 2011 2012 2011

(Dollars in millions)

Counterparty:(3)

Mortgage Guaranty Insurance Corporation . . . . . . $19,651 $ 385 $20,036 $ 21,479 $ 83,089 $ 89,872

Radian Guaranty, Inc.. . . . . . . . . . . . . . . . . . . . . . . 17,134 117 17,251 15,505 70,256 63,534

United Guaranty Residential Insurance Company . 16,309 83 16,392 14,579 66,075 59,233

Genworth Mortgage Insurance Corporation. . . . . . 13,525 18 13,543 13,628 54,428 54,893

PMI Mortgage Insurance Co. . . . . . . . . . . . . . . . . . 9,466 77 9,543 11,128 39,409 47,734

Republic Mortgage Insurance Company . . . . . . . . 7,081 489 7,570 9,219 32,797 39,130

Triad Guaranty Insurance Corporation . . . . . . . . . . 2,174 302 2,476 3,150 10,735 12,400

CMG Mortgage Insurance Company(4). . . . . . . . . 2,182 — 2,182 1,951 9,167 8,241

Essent Guaranty, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,325 — 1,325 395 5,482 1,685

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 — 205 217 1,159 1,214

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $89,052 $1,471 $90,523 $ 91,251 $372,597 $377,936

Total as a percentage of single-family guaranty 

book of business. . . . . . . . . . . . . . . . . . . . . . . . . 3 % 3 % 13 % 13 %

__________

(1) Maximum coverage refers to the aggregate dollar amount of insurance coverage (that is, “risk in force”) on single-family loans in our 

guaranty book of business and represents our maximum potential loss recovery under the applicable mortgage insurance policies.

(2) Represents the unpaid principal balance of single-family loans in our guaranty book of business covered under the applicable mortgage 

insurance policies (that is, “insurance in force”).

(3) Insurance coverage amounts provided for each counterparty may include coverage provided by consolidated affiliates and subsidiaries 

of the counterparty.

(4) CMG Mortgage Insurance Company is a joint venture owned by PMI Mortgage Insurance Co. and CUNA Mutual Insurance Society.
78

As of November 7, 2012, of our largest primary mortgage insurers:

• PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation (“Triad”) and Republic Mortgage 

Insurance Company (“RMIC”) are in run-off and PMI is also in receivership. A mortgage insurer that is in run-off 

continues to collect renewal premiums and pay claims on its existing insurance business, but no longer writes new 

insurance, which increases the risk that the mortgage insurer will fail to pay our claims under existing insurance 

policies.

• Genworth Mortgage Insurance Corporation (“Genworth”) and Mortgage Guaranty Insurance Corporation (“MGIC”) 

are operating pursuant to waivers they received from their regulators of the state regulatory capital requirements 

applicable to their main insurance writing entity, as the capital of each entity has fallen below applicable state 

regulatory capital requirements. We have approved subsidiaries of both Genworth and MGIC to write new insurance 

in states in which each company does not have a waiver; however, MGIC has disclosed that Freddie Mac has only 

contingently approved a subsidiary of MGIC subject to a number of conditions. Because lenders generally do not 

identify which GSE a loan will be delivered to at the time the insurance is obtained, if Freddie Mac does not approve 

this MGIC subsidiary, it could constrain MGIC’s ability to write new business for all GSE-guaranteed loans.

• Radian Guaranty, Inc. (“Radian”) has disclosed that, in the absence of additional capital contributions to its main 

insurance writing entity, its capital might fall below state regulatory capital requirements in the future. In April 2012, 

Radian announced that it had entered into a reinsurance agreement with an external reinsurance provider to help 

manage its mortgage insurance risk-to-capital position. We have approved a subsidiary of Radian to write new 

insurance if Radian falls below state regulatory capital requirements in the future.

These six mortgage insurers, PMI, Triad, RMIC, Genworth, MGIC and Radian, provided a combined $70.4 billion, or 78%, 

of our risk in force mortgage insurance coverage of our single-family guaranty book of business as of September 30, 2012. 

We do not know how long regulators will permit mortgage insurers that do not meet, or may soon fail to meet, state 

regulatory capital requirements to continue operating without obtaining additional capital. Nor do we know how long our 

mortgage insurer counterparties that are operating under waivers will continue to operate under waivers, or how long those 

that are currently below their state-imposed risk-to-capital limits will remain below these limits. If a mortgage insurer 

counterparty is unable to generate or obtain sufficient capital to stay below its risk-to-capital limits and cannot secure and 

maintain a waiver from its state regulator, it will likely be placed into run-off or receivership. This would increase the risk 

that these mortgage insurers will fail to pay our claims under insurance policies, and could also cause the quality and speed of 

their claims processing to deteriorate.

The weak financial condition of most of our primary mortgage insurer counterparties increases the significant risk that these 

counterparties will fail to fulfill their obligations to pay our claims under insurance policies. If we determine that it is 

probable that we will not collect all of our claims from one or more of these mortgage insurer counterparties, or if we have 

already made that determination 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.

We evaluate each of our mortgage insurer counterparties individually to determine whether or under what conditions it will 

remain eligible to insure new mortgages sold to us. Based on our evaluation, we may impose additional terms and conditions 

of approval on some of our mortgage insurers, including: limiting the volume and types of loans they may insure for us; 

requiring them to obtain our consent prior to entering into risk sharing arrangements with mortgage lenders; requiring them to 

meet certain financial conditions, such as maintaining a minimum level of policyholders’ surplus, a maximum risk-to-capital 

ratio, a maximum combined ratio, or a minimum amount of acceptable liquid assets; or requiring that they secure parental or 

other capital support agreements.

The claims obligations of RMIC, PMI and Triad have been partially deferred pursuant to orders from their state 

regulators. State regulators could take additional corrective actions against RMIC and Triad, including placing them into 

receivership. While our remaining mortgage insurers have continued to pay claims owed to us in full, there can be no 

assurance that they will continue to do so given their current financial condition. In addition, we cannot predict when or if 

these mortgage insurers’ regulators will allow them to begin paying their deferred policyholder claims and/or increase or 

decrease the amount of cash they pay on claims.

Some mortgage insurers have explored corporate restructurings designed to provide relief from risk-to-capital limits in 

certain states. We have approved several restructurings so that certain of our mortgage insurer counterparties or their 

subsidiaries could continue to write new business. Additionally, mortgage insurers continue to approach us with various 

proposed corporate restructurings that would require our approval of affiliated mortgage insurance writing entities.
79

The number of mortgage loans for which our mortgage insurer counterparties have rescinded coverage decreased but 

remained high in the first nine months of 2012. In those cases where the mortgage insurer has rescinded coverage, we require 

the seller/servicer to repurchase the loan or indemnify us against loss. The table below displays cumulative rescission rates as 

of September 30, 2012, by the period in which the claim was filed. We do not present information for claims filed in the most 

recent two quarters to allow sufficient time for a substantial percentage of the claims filed to be resolved.

Table 49: Rescission Rates of Mortgage Insurance

As of September 30, 2012

Cumulative Rescission 

Rate(1)

Cumulative Claims 

Resolution Percentage(2)

Primary mortgage insurance claims filed in:

First three months of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 44%

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 71

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 92

Pool mortgage insurance claim filed in:

First three months of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% 85%

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 95

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 99

__________

(1) Represents claims filed during the period where coverage was rescinded as of September 30, 2012, divided by total claims filed during 

the same period. Denied claims are excluded from the rescinded population.

(2) Represents claims filed during the period that were resolved as of September 30, 2012, divided by the total claims filed during the same 

period. Claims resolved mainly consist of claims for which we have settled and claims for which coverage has been rescinded by the 

mortgage insurer.

When we estimate the credit losses that are inherent in our mortgage loan portfolio 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 our estimated benefit from mortgage insurer recoveries. 

Table 50: Estimated Mortgage Insurance Benefit

As of

September 30, 2012 December 31, 2011

(Dollars in millions)

Contractual mortgage insurance benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,681 $15,099

Less: Collectability adjustment(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,823 2,867

Estimated benefit included in total loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,858 $12,232

__________

(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 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/servicer. We had outstanding receivables of $3.8 billion as of 

September 30, 2012 and $3.6 billion as of December 31, 2011 related to amounts claimed on insured, defaulted loans, of 

which $1.1 billion as of September 30, 2012 and $639 million as of December 31, 2011 was due from our mortgage seller/

servicers. We assessed the total outstanding receivables for collectability, and they were recorded net of a valuation allowance 

of $881 million as of September 30, 2012 and $570 million as of December 31, 2011 in “Other assets.” The valuation 
80

allowance reduces our claim receivable to the amount that we consider probable of collection. We received proceeds under 

our primary and pool mortgage insurance policies for single-family loans of $1.1 billion for the third quarter of 2012 and $3.6

billion for the first nine months of 2012, compared with $1.4 billion for the third quarter of 2011 and $4.6 billion for the first 

nine months of 2011.

Financial Guarantors

We are the beneficiary of financial guarantees on non-agency securities held in our investment portfolio and on non-agency 

securities that have been resecuritized to include a Fannie Mae guaranty and sold to third parties. Table 51 displays the total 

unpaid principal balance of guaranteed non-agency securities in our portfolio as of September 30, 2012 and December 31, 

2011.

Table 51: Unpaid Principal Balance of Financial Guarantees

As of

September 30, 2012 December 31, 2011

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,024 $1,279

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,302 1,398

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,525 4,931

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 317

Non mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 46

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,149 $7,971

With the exception of Ambac Assurance Corporation (“Ambac”), none of our financial guarantor counterparties has failed to 

fully repay us for claims under guaranty contracts. During 2010, Ambac and its insurance regulator, the Wisconsin Office of 

the Commissioner of Insurance, imposed a court-ordered moratorium on certain claim payments under Ambac’s bond 

insurance coverage, including claims arising under coverage on $1.2 billion of our private-label securities insured by Ambac 

as of December 31, 2010. In 2011, the Wisconsin Circuit Court of Dane County confirmed Ambac’s rehabilitation plan; 

however, the plan is subject to stay and appeal. In the second quarter of 2012, the court approved a request for Ambac to 

commence partial payment on claims that meet specified requirements. Ambac provided coverage on $3.1 billion, or 43%, of 

our total non-governmental guarantees, as of September 30, 2012. Based on the stressed financial condition of our nongovernmental financial guarantor counterparties, we believe that all but one of these counterparties may not be able to fully 

meet their obligations to us in the future. We model our securities without assuming the benefit of non-governmental 

financial guarantees. We then adjust results for those external financial guarantees from guarantors that we determine are 

creditworthy, although we continue to seek collection of any amounts due to us from all counterparties. As of September 30, 

2012, when modeling our securities for impairments we did not assume the benefit of external financial guarantees from any 

non-governmental counterparties. See “Note 5, Investments in Securities” for a further discussion of our model methodology 

and key inputs used to determine other-than-temporary-impairment.

We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and 

its agencies that totaled $28.3 billion as of September 30, 2012 and $31.4 billion as of December 31, 2011.

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 $12.1 billion as of September 30, 2012 and $12.8 billion as of December 31, 2011. As of September 

30, 2012 and December 31, 2011, 56% and 58% of our maximum potential loss recovery on single-family loans was from 

three lenders. Our maximum potential loss recovery from lenders under risk sharing agreements on DUS and non-DUS 

multifamily loans was $35.1 billion as of September 30, 2012 and $32.1 billion as of December 31, 2011. As of September 

30, 2012 and December 31, 2011, 36% and 40% of our maximum potential loss recovery on multifamily loans was from 

three DUS lenders.

Unfavorable market conditions have adversely affected, and continue to adversely affect, the liquidity and financial condition 

of our lender counterparties. The percentage of single-family recourse obligations to lenders with investment grade credit 

ratings (based on the lower of S&P, Moody’s and Fitch ratings) was 49% and 46% as of September 30, 2012 and December 

31, 2011. The percentage of these recourse obligations to lender counterparties rated below investment grade was 25% and 

26% as of September 30, 2012 and December 31, 2011. The remaining percentage of these recourse obligations were to 
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lender counterparties that were not rated by rating agencies, which was 26% and 28% as of September 30, 2012 and 

December 31, 2011. Given the stressed financial condition of some of our single-family lenders, we expect in some cases we 

will recover less, perhaps significantly 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,” our primary multifamily delivery channel is our DUS 

program, which is comprised of lenders that span the spectrum from large depositories to independent non-bank financial 

institutions. Approximately 41% as of September 30, 2012, and 51% as of December 31, 2011, 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. 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 $78.7 billion in deposits for single-family payments were received and held by 293 institutions in the month of 

September 2012 and a total of $66.4 billion in deposits for single-family payments were received and held by 284 institutions 

in the month of December 2011. Of these total deposits, 93% as of September 30, 2012 and 92% as of December 31, 2011 

were held by institutions rated as investment grade by S&P, Moody’s and Fitch. Our transactions with custodial depository 

institutions is concentrated. Our six largest custodial depository institutions held 87% of these deposits as of September 30, 

2012 and December 31, 2011. 

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. In the month of September 2012, approximately $7.8 billion, or 10%, 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 $6.1 billion, or 9%, in the month of December 2011. These amounts can vary as they are calculated based on 

individual payments of mortgage borrowers and we must estimate which borrowers are paying their regular principal and 

interest payments and other types of payments, such as prepayments from refinancing or sales.

Issuers of Investments Held in our Cash and Other Investments Portfolio

Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and securities purchased 

under agreements to resell or similar arrangements, U.S. Treasury securities and asset-backed securities. Our cash and other 

investment counterparties are primarily financial institutions and the Federal Reserve Bank. We held no unsecured positions 

with financial institutions as of September 30, 2012 or December 31, 2011. 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 and foreign currency derivatives contracts. We 

estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to 

settle at current market prices all outstanding derivative contracts in a net gain position at the counterparty level where the 

right of legal offset exists. For derivative instruments where the right of legal offset does not exist, we calculate the 

replacement cost of the outstanding derivative contracts in a gain position at the transaction level. The fair value of 

derivatives in a gain position is included in our condensed consolidated balance sheets in “Other assets.” We manage our 

credit exposure by requiring counterparties to post collateral, which includes cash, U.S. Treasury securities, agency debt and 
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agency mortgage-related securities. On June 21, 2012, Moody’s completed a credit rating review of banks and securities 

companies with global capital market operations, which encompassed most of Fannie Mae’s derivative counterparties. The 

companies were downgraded by Moody’s, which resulted in an increase in the amount of collateral these companies are 

required to post to us under our derivative agreements. As of September 30, 2012 all of our derivative counterparties were in 

compliance with these additional collateral requirements.

Our net counterparty credit exposure on derivatives contracts decreased to $31 million as of September 30, 2012, from $96 

million as of December 31, 2011. We had outstanding interest rate and foreign currency derivative transactions with 22 and 

16 counterparties as of September 30, 2012 and December 31, 2011, respectively. Derivative transactions with 10 of our 

counterparties accounted for approximately 92% of our total outstanding notional amount as of September 30, 2012, with 

each of these counterparties accounting for between approximately 5% and 13% of the total outstanding notional amount. We 

had master netting agreements and outstanding notional amounts with 15 counterparties as of September 30, 2012, and in 

addition we had a master netting agreement with one counterparty with which we may enter into interest rate derivative or 

foreign currency transactions in the future.

See “Note 9, Derivative Instruments” for information on the outstanding notional amount and additional information on our 

risk management derivative contracts as of September 30, 2012 and December 31, 2011, as well as a discussion of our 

collateral requirements including the impact of decreases in our credit ratings on our collateral obligations under our 

derivatives contracts. 

Market Risk Management, Including Interest Rate Risk Management

We are subject to market risk, which includes interest rate risk, spread risk and liquidity risk. These risks arise from our 

mortgage asset investments. Interest rate risk is the risk of loss in value or expected future earnings that may result from 

changes to interest rates. Spread risk is the resulting impact of changes in the spread between our mortgage assets and our 

debt and derivatives we use to hedge our position. Liquidity risk is the risk that we will not be able to meet our funding 

obligations in a timely manner. We describe our sources of interest rate risk exposure and our strategy for managing interest 

rate risk and spread risk in “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk 

Management” in our 2011 Form 10-K.

Measurement of Interest Rate Risk

Below we present two quantitative metrics that provide estimates of our interest rate exposure: (1) fair value sensitivity of net 

portfolio to changes in interest rate levels and slope of yield curve; and (2) duration gap. The metrics presented are calculated 

using internal models that require standard assumptions regarding interest rates and future prepayments of principal over the 

remaining life of our securities. These assumptions are derived based on the characteristics of the underlying structure of the 

securities and historical prepayment rates experienced at specified interest rate levels, taking into account current market 

conditions, the current mortgage rates of our existing outstanding loans, loan age and other factors. On a continuous basis, 

management makes judgments about the appropriateness of the risk assessments and will make adjustments as necessary to 

properly assess our interest rate exposure and manage our interest rate risk. The methodologies used to calculate risk 

estimates are periodically changed on a prospective basis to reflect improvements in the underlying estimation process.

Interest Rate Sensitivity to Changes in Interest Rate Level and Slope of Yield Curve

As part of our disclosure commitments with FHFA, we disclose on a monthly basis the estimated adverse impact on the fair 

value of our net portfolio that would result from the following hypothetical situations:

• A 50 basis point shift in interest rates.

• A 25 basis point change in the slope of the yield curve. 

In measuring the estimated impact of changes in the level of interest rates, we assume a parallel shift in all maturities of the 

U.S. LIBOR interest rate swap curve. 

In measuring the estimated impact of changes in the slope of the yield curve, we assume a constant 7-year rate and a shift of 

16.7 basis points for the 1-year rate and 8.3 basis points for the 30-year rate. We believe the aforementioned interest rate 

shocks for our monthly disclosures represent moderate movements in interest rates over a one-month period.
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Duration Gap

Duration gap measures the price sensitivity of our assets and liabilities to changes in interest rates by quantifying the 

difference between the estimated durations of our assets and liabilities. Our duration gap analysis reflects the extent to which 

the estimated maturity and repricing cash flows for our assets are matched, on average, over time and across interest rate 

scenarios to the estimated cash flows of our liabilities. A positive duration gap indicates that the duration of our assets 

exceeds the duration of our liabilities. We disclose duration gap on a monthly basis under the caption “Interest Rate Risk 

Disclosures” in our Monthly Summary, which is available on our website and announced in a press release.

The sensitivity measures presented in Table 52, 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.

In addition, Table 52 also provides the average, minimum, maximum and standard deviation for duration gap and for the most 

adverse market value impact on the net portfolio for non-parallel and parallel interest rate shocks for the three months ended 

September 30, 2012 and 2011.

Table 52: Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve(1)

As of

September 30, 2012 December 31, 2011

(Dollars in billions)

Rate level shock:

-100 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.7 $ 0.3

-50 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.1

+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 (0.1)

+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 (0.4)

Rate slope shock:

-25 basis points (flattening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

+25 basis points (steepening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.1
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For the Three Months Ended September 30, 2012

Duration 

Gap

Rate Slope Shock

25 Bps

Rate Level Shock

50 Bps

Exposure

(In months) (Dollars in billions)

Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 $ — $ 0.2

Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.3) — —

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 — 0.1

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 — —

For the Three Months Ended September 30, 2011

 Duration 

Gap

Rate Slope Shock 

25 Bps

Rate Level Shock 

50 Bps

Exposure

(In months) (Dollars in billions)

Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 $ 0.1 $ 0.2

Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) — —

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.2 0.3

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.1 0.1

__________

(1) Computed based on changes in LIBOR swap rates.

A majority of the interest rate risk associated with our mortgage-related securities and loans is hedged with our debt 

issuances, which includes callable debt. We use derivatives to help manage the residual interest rate risk exposure between 

our assets and liabilities. Derivatives have enabled us to keep our interest rate risk exposure at consistently low levels in a 

wide range of interest-rate environments. Table 53 displays an example of how derivatives impacted the net market value 

exposure for a 50 basis point parallel interest rate shock.

Table 53: Derivative Impact on Interest Rate Risk (50 Basis Points)

As of

September 30, 2012 December 31, 2011

(Dollars in billions)

Before Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.9) $ (1.3)

After Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 (0.1)

Effect of Derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 1.2

Other Interest Rate Risk Information

The interest rate risk measures discussed above exclude the impact of changes in the fair value of our net guaranty assets 

resulting from changes in interest rates. We exclude our guaranty business from these sensitivity measures based on our 

current assumption that the guaranty fee income generated from future business activity will largely replace guaranty fee 

income lost due to mortgage prepayments. 

In “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk Management—Measurement of 

Interest Rate Risk—Other Interest Rate Risk Information” in our 2011 Form 10-K, we provided additional interest rate 

sensitivities including separate disclosure of the potential impact on the fair value of our trading assets and other financial 

instruments. The sensitivity of our net guaranty assets and liabilities, which are included in other financial instruments, net, 

decreased from December 31, 2011 to September 30, 2012, primarily due to updates in our assumptions for prepayment 

speeds, severities and default rates. The fair value of our trading financial instruments and our other financial instruments as 

of September 30, 2012 and December 31, 2011 can be found in “Note 12, Fair Value.”

Liquidity Risk Management

See “Liquidity and Capital Management—Liquidity Management” for a discussion on how we manage liquidity risk.
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Operational Risk Management

See “Risk Management—Operational Risk Management” in our 2011 Form 10-K for more information on our framework for 

managing operational risk.

FORWARD-LOOKING STATEMENTS

This report includes statements that constitute forward-looking statements within the meaning of Section 21E of the 

Securities Exchange Act of 1934 (the “Exchange Act”). In addition, our senior management may from time to time make 

forward-looking statements orally to analysts, investors, the news media and others. Forward-looking statements often 

include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “forecast,” “project,” “would,” 

“should,” “could,” “likely,” “may,” or similar words. 

Among the forward-looking statements in this report are statements relating to: 

• Our expectation that we will report net income for 2012; 

• Our expectation that our credit-related expenses for 2012 will be significantly lower than for 2011; 

• Our expectation of high levels of period-to-period volatility in our results of operations and financial condition 

because our derivatives are recorded at fair value in our financial statements while some of the instruments they 

hedge are not recorded at fair value in our financial statements; 

• Our expectation that the single-family loans we have acquired since the beginning of 2009, in the aggregate, will be 

profitable over their lifetime, by which we mean that we expect our fee income on these loans to exceed our credit 

losses and administrative costs for them; 

• Our expectation that the single-family loans we acquired from 2005 through 2008, in the aggregate, will not be 

profitable over their lifetime; 

• Our expectation that 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 the serious delinquency rates for single-family loans acquired in more recent years will be 

higher after the loans have aged, but not as high as the September 30, 2012 serious delinquency rates of loans in our 

legacy book of business; 

• Our expectation that the trends of stabilizing home prices and declining single-family serious delinquency rates will 

continue, as well as our expectation that serious delinquency rates will decline at a slower pace than in recent 

periods; 

• Our belief that the changes in the foreclosure environment will continue to negatively affect our single-family 

serious delinquency rates, foreclosure timelines and credit-related expenses; 

• Our expectation that serious delinquency rates will continue to be affected in the future by home price changes, 

changes in other macroeconomic conditions, the length of the foreclosure process and the volume of loan 

modifications; 

• Our expectation that the number of our single-family loans that are seriously delinquent will remain well above 

pre-2008 levels for years; 

• Our expectation that mortgage loan delinquencies and foreclosures will continue to decline slowly while remaining 

at levels significantly higher than pre-housing crisis levels for the remainder of 2012 and through 2013;

• Our expectation that single-family default and severity rates will remain high for the remainder of 2012 compared to 

pre-housing crisis levels, but will be lower than in 2011; 

• Our expectation that multifamily foreclosures in 2012 will remain generally commensurate with 2011 levels as 

certain local markets and properties continue to exhibit weak fundamentals; 

• Our belief that our total loss reserves peaked as of December 31, 2011 and will not increase above $76.9 billion in 

the foreseeable future; 
86

• Our expectation that our loss reserves will remain significantly elevated relative to historical levels for an extended 

period because (1) we expect future defaults on loans 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 will remain in our reserves until the loans are fully paid or default; 

• Our expectation that it will take a significant amount of time before our REO inventory is reduced to pre-2008 

levels; 

• Our expectation that our credit losses will remain high in 2012 relative to pre-housing crisis levels;

• Our expectation that, to the extent delays in foreclosures continue in 2012, our realization of some credit losses will 

be delayed;

• Our estimate that we will realize as credit losses nearly two-thirds of the fair value losses on loans purchased out of 

unconsolidated MBS trusts that are reflected in our condensed consolidated balance sheets, and eventually recover 

the remaining over one-third, 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; 

• Our belief that the overall national rental market’s supply will remain fairly stable over the longer term, based on 

expected construction completions, annualized obsolescence and anticipated household formation trends; however, 

there is a potential for over-supply in a limited number of local areas over the next 24 months;

• Our expectation that if interest rates remain low we will continue to acquire a high volume of refinancings under 

HARP until there is no longer a large population of borrowers with loans that have high LTV ratios who would 

benefit from refinancing;

• Our expectation that we will acquire many refinancings with LTV ratios greater than 125% as a result of changes to 

HARP;

• Our belief that loans we acquire under Refi Plus and HARP may not perform as well as the other loans we have 

acquired since the beginning of 2009;

• Our expectation that Refi Plus and HARP loans will perform better than the loans they replace because Refi Plus 

and HARP loans should reduce the borrowers’ monthly payments and/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 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 estimation that total originations in the U.S. single-family mortgage market in 2012 will increase from 2011 

levels by approximately 20%, from an estimated $1.5 trillion to an estimated $1.8 trillion, and that the amount of 

originations in the U.S. single-family mortgage market that are refinancings will increase from approximately $980 

billion in 2011 to approximately $1.3 trillion in 2012;

• Our belief that home prices may decline again through early 2013, and our expectation that, if current market trends 

continue, home prices will not decline on a national basis below their first quarter 2012 levels;

• Our expectation of significant regional variation in home price changes and the timing of home price stabilization;

• Our expectation that we will continue to purchase loans from MBS trusts as they become four or more consecutive 

monthly payments delinquent subject to market conditions, economic benefit, servicer capacity, and other factors, 

including the limit on the mortgage assets that we may own pursuant to the senior preferred stock purchase 

agreement;

• Our expectation that uncertainty regarding the future of our company will continue;

• Our expectation that our strategic objectives and business activities will continue to change, possibly significantly, 

including in pursuit of our public mission and other non-financial objectives;

• Our expectation that Congress will continue considering GSE reform in the next congressional session that begins in 

2013;

• Our expectation of additional congressional hearings on GSE reform, and that additional legislation will be 

considered and proposals will be discussed by Congress, including proposals that could result in a substantial change 

to our business structure or that involve Fannie Mae’s liquidation or dissolution; 
87

• Our belief that, as drafted, bills introduced in Congress that would require FHFA to make a determination within two 

years of enactment regarding whether the GSEs were financially viable and, if the GSEs were determined to be not 

financially viable, to place them into receivership may, upon enactment, impair our ability to issue securities in the 

capital markets and therefore our ability to conduct our business, absent the federal government providing an 

explicit guarantee of our existing and future liabilities;

• Our expectation that the current market premium portion of our current estimate of the fair value of our book of 

business will not impact future Treasury draws, which is based on our intention generally not to have other parties 

assume the credit risk inherent in our book of business;

• Our belief that continued federal government support of our business and the financial markets, as well as our status 

as a GSE, are essential to maintaining our access to debt funding;

• Our belief that changes or perceived changes in the government’s support could materially adversely affect our 

ability to refinance our debt as it becomes due, which could have a material adverse impact on our liquidity, 

financial condition and results of operations;

• Our belief that our liquidity contingency plan may be difficult or impossible to execute for a company of our size in 

our circumstances;

• Our expectation that, although our funding needs may vary from quarter to quarter depending on market conditions, 

our debt funding needs will decline in future periods as we reduce the size of our mortgage portfolio in compliance 

with the requirement of the senior preferred stock purchase agreement; 

• 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 expectations regarding our credit ratings and their impact on us as set forth in “MD&A—Liquidity and Capital 

Management—Liquidity Management—Credit Ratings” and “Risk Factors”; 

• Our expectation that the volume of our home retention solutions and foreclosure alternatives will remain high 

throughout the remainder of 2012; 

• Our belief that the performance of our workouts will be highly dependent on economic factors, such as 

unemployment rates, household wealth and income, and home prices; 

• Our expectation that the amount of our outstanding repurchase requests to seller/servicers will remain high until the 

majority of our outstanding repurchase requests to Bank of America are resolved;

• Our expectation that we may be unable to recover on all outstanding loan repurchase obligations resulting from 

seller/servicers’ breaches of contractual obligations; 

• Our expectation that changes we plan to make in our quality control process may result in a greater proportion of our 

repurchase requests being issued on performing loans, as compared to our current repurchase requests, the 

substantial majority of which relate to loans that are either nonperforming or have been foreclosed upon;

• Our expectation that the change in our loan delivery agreement with Bank of America will not be material to our 

business or results of operations; 

• Our expectations regarding recoveries from lenders under risk sharing arrangements, and the possibility that we may 

require a lender to pledge collateral to secure its recourse obligations;

• Our beliefs regarding whether our financial guarantor counterparties will be able to fully meet their obligations to us 

in the future; 

• Our belief that we have limited credit exposure on government loans; and

• Our expectation that implementing recent FHFA directives will increase our operational risk and may potentially 

result in one or more significant deficiencies or material weaknesses in our internal control over financial reporting 

in a future period. 

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 
88

statements contained in this report, including, but not limited to, the following: the uncertainty of our future; legislative and 

regulatory changes affecting us; challenges we face in retaining and hiring qualified employees; the deteriorated credit 

performance of many loans in our guaranty book of business; the conservatorship and its effect on our business; the 

investment by Treasury and its effect on our business; adverse effects from activities we undertake to support the mortgage 

market and help borrowers; a decrease in our credit ratings; limitations on our ability to access the debt capital markets; 

further disruptions in the housing and credit markets; defaults by one or more institutional counterparties; our reliance on 

mortgage servicers; guidance by the Financial Accounting Standards Board (“FASB”); operational control weaknesses; our 

reliance on models; the level and volatility of interest rates and credit spreads; changes in the structure and regulation of the 

financial services industry; natural or other disasters; and those factors described in “Risk Factors” in this report and in our 

2011 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 2011 Form 10-K and in this report. These 

forward-looking statements are representative only as of the date they are made, and we undertake no obligation to update 

any forward-looking statement as a result of new information, future events or otherwise, except as required under the federal 

securities laws. 
89

Item 1. Financial Statements

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets — (Unaudited)

(Dollars in millions, except share amounts)

As of

September 30, December 31,

2012 2011

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,674 $ 17,539

Restricted cash (includes $54,750 and $45,900, respectively, related to consolidated trusts). . . . . . . . . . . . . . . . . . . . . . 59,944 50,797

Federal funds sold and securities purchased under agreements to resell or similar arrangements . . . . . . . . . . . . . . . . . . 45,500 46,000

Investments in securities:

Trading, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,522 74,198

Available-for-sale, at fair value (includes $1,042 and $1,191, respectively, related to consolidated trusts). . . . . . . . 66,352 77,582

Total investments in securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,874 151,780

Mortgage loans:

Loans held for sale, at lower of cost or fair value (includes $95 and $66, respectively, related to consolidated

trusts) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490 311

Loans held for investment, at amortized cost:

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363,064 380,134

Of consolidated trusts (includes $7,840 and $3,611, respectively, at fair value and loans pledged as collateral

that may be sold or repledged of $1,040 and $798, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,642,354 2,590,332

Total loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,005,418 2,970,466

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,012) (72,156)

Total loans held for investment, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,942,406 2,898,310

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,942,896 2,898,621

Accrued interest receivable, net (includes $8,358 and $8,466, respectively, related to consolidated trusts). . . . . . . . . . . 9,963 10,000

Acquired property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,278 11,373

Other assets (includes cash pledged as collateral of $2,038 and $1,109, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . 28,121 25,374

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,226,250 $3,211,484

LIABILITIES AND EQUITY (DEFICIT)

Liabilities:

Accrued interest payable (includes $8,856 and $9,302, respectively, related to consolidated trusts). . . . . . . . . . . . . . . $ 11,732 $ 12,648

Debt:

Of Fannie Mae (includes $830 and $838, respectively, at fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652,971 732,444

Of consolidated trusts (includes $7,368 and $3,939, respectively, at fair value). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,543,739 2,457,428

Other liabilities (includes $715 and $629, respectively, related to consolidated trusts). . . . . . . . . . . . . . . . . . . . . . . . . 15,396 13,535

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,223,838 3,216,055

Commitments and contingencies (Note 13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Fannie Mae stockholders’ equity (deficit):

Senior preferred stock, 1,000,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,149 112,578

Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding, respectively . . . . 19,130 19,130

Common stock, no par value, no maximum authorization—1,308,762,703 shares issued, respectively,

1,158,077,970 and 1,157,767,400 shares outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

687 687

Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (127,407) (128,381)

Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 (1,235)

Treasury stock, at cost, 150,684,733 and 150,995,303 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,401) (7,403)

Total Fannie Mae stockholders’ equity (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,359 (4,624)

Noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 53

Total equity (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,412 (4,571)

Total liabilities and equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,226,250 $3,211,484

See Notes to Condensed Consolidated Financial Statements
90

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) — (Unaudited)

(Dollars and shares in millions, except per share amounts)

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2012 2011 2012 2011

Interest income:

Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 234 $ 274 $ 756 $ 822

Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789 1,160 2,551 3,525

Mortgage loans (includes $27,057 and $30,633, respectively, for the three months ended and

$84,482 and $94,111, respectively, for the nine months ended related to consolidated trusts) .

30,593 34,334 95,186 105,257

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 26 131 79

Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,669 35,794 98,624 109,683

Interest expense:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 66 112 254

Long-term debt (includes $23,395 and $27,157, respectively, for the three months ended and

$73,469 and $82,928, respectively, for the nine months ended related to consolidated trusts) .

26,314 30,542 82,570 94,311

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,352 30,608 82,682 94,565

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,317 5,186 15,942 15,118

Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,079) (4,151) (1,038) (21,242)

Net interest income (loss) after provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,238 1,035 14,904 (6,124)

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 73 381 319

Other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (232) (293) (317)

Noncredit portion of other-than-temporary impairments recognized in other comprehensive

income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(21) (30) (408) (45)

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) (262) (701) (362)

Fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,020) (4,525) (3,186) (5,870)

Debt extinguishment losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) (119) (181) (149)

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 291 1,148 793

Non-interest loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (600) (4,542) (2,539) (5,269)

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 323 892 953

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 173 542 531

Occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 46 139 131

Other administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 49 146 150

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588 591 1,719 1,765

Foreclosed property (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) 733 221 743

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 254 775 638

Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825 1,578 2,715 3,146

Income (loss) before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813 (5,085) 9,650 (14,539)

Benefit for federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 91

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813 (5,085) 9,650 (14,448)

Other comprehensive income (loss):

Changes in unrealized gains (losses) on available-for-sale securities, net of reclassification

adjustments and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

741 (198) 1,416 (20)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 20 6

Total other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746 (197) 1,436 (14)

Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,559 (5,282) 11,086 (14,462)

Less: Comprehensive loss (income) attributable to the noncontrolling interest . . . . . . . . . . . . . . . 8 — 4 (1)

Total comprehensive income (loss) attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,567 $ (5,282) $ 11,090 $ (14,463)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,813 $ (5,085) $ 9,650 $ (14,448)

Less: Net loss (income) attributable to the noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . 8 — 4 (1)

Net income (loss) attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,821 (5,085) 9,654 (14,449)

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,929) (2,494) (8,675) (6,992)

Net (loss) income attributable to common stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,108) $ (7,579) $ 979 $ (21,441)

(Loss) earnings per share:

Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.19) $ (1.32) $ 0.17 $ (3.74)

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.19) (1.32) 0.17 (3.74)

Weighted-average common shares outstanding:

Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,760 5,762 5,730

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,760 5,893 5,730

See Notes to Condensed Consolidated Financial Statements
91

FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows — (Unaudited)

(Dollars in millions)

For the Nine Months

Ended September 30,

2012 2011

Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,279 $ (6,714)

Cash flows provided by investing activities:

Purchases of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,542) (2,483)

Proceeds from maturities and paydowns of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . 2,671 1,672

Proceeds from sales of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,357 837

Purchases of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) (44)

Proceeds from maturities and paydowns of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,423 9,995

Proceeds from sales of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923 2,590

Purchases of loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (141,539) (44,276)

Proceeds from repayments of loans held for investment of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,540 18,467

Proceeds from repayments of loans held for investment of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . 568,881 364,500

Net change in restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,147) 7,717

Advances to lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (97,508) (43,363)

Proceeds from disposition of acquired property and preforeclosure sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,822 36,280

Net change in federal funds sold and securities purchased under agreements to resell or similar agreements 500 (24,199)

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 137

Net cash provided by investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386,403 327,830

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,087 572,828

Payments to redeem debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (630,546) (609,399)

Proceeds from issuance of debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,552 157,280

Payments to redeem debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (601,523) (444,160)

Payments of cash dividends on senior preferred stock to Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,679) (6,992)

Proceeds from senior preferred stock purchase agreement with Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,571 16,187

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) 150

Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (415,547) (314,106)

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,135 7,010

Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,539 17,297

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,674 $ 24,307

Cash paid during the period for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,338 $ 97,592

See Notes to Condensed Consolidated Financial Statements
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

92

1. Summary of Significant Accounting Policies

Organization

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act 

(the “Charter Act” or our “charter”). We are a government-sponsored enterprise (“GSE”), and we are subject to government 

oversight and regulation. Our regulators include the Federal Housing Finance Agency (“FHFA”), the U.S. Department of 

Housing and Urban Development (“HUD”), the U.S. Securities and Exchange Commission (“SEC”), and the 

U.S. Department of the Treasury (“Treasury”). The U.S. government does not guarantee our securities or other obligations.

Conservatorship

On September 7, 2008, the Secretary of the Treasury and the Director of FHFA announced several actions taken by Treasury 

and FHFA regarding Fannie Mae, which included: (1) placing us in conservatorship and (2) the execution of a senior 

preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury 

both senior preferred stock and a warrant to purchase common stock. 

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

Finance Regulatory Reform Act of 2008, (together, the “GSE Act”), the conservator immediately succeeded to (1) all rights, 

titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae with respect to Fannie 

Mae and its assets, and (2) title to the books, records and assets of any other legal custodian of Fannie Mae. The conservator 

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

our day-to-day operations. The conservator retains the authority to withdraw its delegations at any time.

The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer 

notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any 

party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have been transferred to a 

Fannie Mae mortgage-backed securities (“MBS”) trust must be held by the conservator for the beneficial owners of the 

Fannie Mae MBS and cannot be used to satisfy the general creditors of Fannie Mae. As of November 7, 2012, FHFA has not 

exercised this power.

Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments 

on our debt securities or perform under our mortgage guaranty obligations. FHFA issued a rule establishing a framework for 

conservatorship and receivership operations for the GSEs, which became effective in 2011. The rule established procedures 

for conservatorship and receivership, and priorities of claims for contract parties and other claimants. This rule is part of 

FHFA’s implementation of the powers provided by the Federal Housing Finance Regulatory Reform Act of 2008, and does 

not seek to anticipate or predict future conservatorships or receiverships.

FHFA has announced that, during the conservatorship, our existing statutory and FHFA-directed regulatory capital 

requirements will not be binding and that FHFA will not issue quarterly capital classifications. We submit capital reports to 

FHFA and FHFA monitors our capital levels. The deficit of core capital over statutory minimum capital was $146.4 billion as 

of September 30, 2012 and $148.4 billion as of December 31, 2011.

The conservatorship has no specified termination date and there continues to be uncertainty regarding the future of our 

company, including how long the company will continue to exist in its current form, the extent of our role in the market, what 

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

the conservatorship is terminated. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a 

written determination that our assets are less than our obligations or if we have not been paying our debts, in either case, for a 

period of 60 days. In addition, the Director of FHFA may place us in receivership at his discretion at any time for other 

reasons, including conditions that FHFA has already asserted existed at the time the former Director of FHFA placed us into 

conservatorship. Placement into receivership would have a material adverse effect on holders of our common stock, preferred 

stock, debt securities and Fannie Mae MBS. Should we be placed into receivership, different assumptions would be required 

to determine the carrying value of our assets, which 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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

93

Impact of U.S. Government Support

We are dependent upon the continued support of Treasury to eliminate our net worth deficit, which avoids our being placed 

into receivership. Based on consideration of all the relevant conditions and events affecting our operations, including our 

dependence on the U.S. government, we continue to operate as a going concern and in accordance with our delegation of 

authority from FHFA.

Pursuant to the senior preferred stock purchase agreement, Treasury has committed to provide us with funding as described 

below to help us maintain a positive net worth thereby avoiding the mandatory receivership trigger described above. We have 

received a total of $116.1 billion from Treasury pursuant to the senior preferred stock purchase agreement as of 

September 30, 2012. The aggregate liquidation preference of the senior preferred stock, including the initial aggregate 

liquidation preference of $1.0 billion, remains at $117.1 billion as of September 30, 2012.

The senior preferred stock purchase agreement provides that the $200 billion maximum amount of the commitment from 

Treasury will increase as necessary to accommodate any net worth deficiencies attributable to periods during 2010, 2011, and 

2012. If we do not have a positive net worth as of December 31, 2012, then the amount of funding available under the 

amended senior preferred stock purchase agreement after 2012 will be $124.8 billion ($200 billion less $75.2 billion in 

cumulative draws for net worth deficiencies through December 31, 2009).

In the event we have a positive net worth as of December 31, 2012, then the amount of funding available after 2012 under the 

amended senior preferred stock purchase agreement will depend on the size of that positive net worth relative to the 

cumulative draws for net worth deficiencies attributable to periods during 2010, 2011, and 2012, as follows:

• If our positive net worth as of December 31, 2012 is less than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011, and 2012, then the amount of available funding will be $124.8 billion less 

our positive net worth as of December 31, 2012.

• If our positive net worth as of December 31, 2012 is greater than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011, and 2012, then the amount of available funding will be $124.8 billion less 

the cumulative draws attributable to periods during 2010, 2011, and 2012.

We were scheduled to begin paying a quarterly commitment fee to Treasury under the senior preferred stock purchase 

agreement beginning on March 31, 2011; however, Treasury waived the quarterly commitment fee for each quarter of 2011 

and 2012 due to the continued fragility of the U.S. mortgage market and Treasury's belief that the imposition of the quarterly 

commitment fee would not generate increased compensation for taxpayers.

On August 17, 2012, we, through FHFA acting on our behalf in its capacity as conservator, and Treasury entered into an 

amendment to the senior preferred stock purchase agreement between us and Treasury. The revisions to the senior preferred 

stock purchase agreement included, among other items, the following:

• Dividends. Beginning in 2013, the method for calculating the amount of dividends we are required to pay Treasury 

on the senior preferred stock will change. The method for calculating the amount of dividends payable on the senior 

preferred stock in effect prior to this amendment, which will remain in effect through December 31, 2012, is to 

apply an annual dividend rate of 10% to the aggregate liquidation preference of the senior preferred stock. Effective 

January 1, 2013, the amount of dividends payable on the senior preferred stock for a dividend period will be 

determined based on our net worth as of the end of the immediately preceding fiscal quarter. For each dividend 

period from January 1, 2013 through and including December 31, 2017, the dividend amount will be the amount, if 

any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds an applicable capital 

reserve amount. The applicable capital reserve amount will be $3.0 billion for 2013 and will be reduced by $600 

million each year until it reaches zero on January 1, 2018. For each dividend period beginning in 2018, the dividend 

amount will be the entire amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter. 

If our net worth does not exceed the applicable capital reserve amount as of the end of a fiscal quarter, then no 

dividend amount will accrue or be payable for the applicable dividend period.

• Periodic Commitment Fee. Effective January 1, 2013, the periodic commitment fee provided for under the 

agreement is suspended, as long as the changes to the dividend payment provisions referenced above remain in 

effect.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

94

We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and 

international capital markets. Because debt issuance is our primary funding source, we are subject to “roll-over,” or 

refinancing, risk on our outstanding debt.

We believe that continued federal government support of our business and the financial markets, as well as our status as a 

GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in the government’s support 

could materially adversely affect our ability to refinance our debt as it becomes due, which could have a material adverse 

impact on our liquidity, financial condition and results of operations. In addition, due to our reliance on the U.S. 

government’s support, our access to debt funding or the cost of debt funding also could be materially adversely affected by a 

change or perceived change in the creditworthiness of the U.S. government. A downgrade in our credit ratings could reduce 

demand for our debt securities and increase our borrowing costs. Standard & Poor’s Ratings Services’ (“S&P”) downgrade of 

our credit rating on August 8, 2011, which was a result of a similar action on the U.S. government’s sovereign credit rating, 

has not adversely affected our access to debt funding or the cost of our debt funding. Future changes or disruptions in the 

financial markets could significantly change the amount, mix and cost of funds we obtain, which also could increase our 

liquidity and roll-over risk and have a material adverse impact on our liquidity, financial condition and results of operations. 

In February 2011, Treasury and HUD released a report to Congress on reforming America’s housing finance market. The 

report provides that the Obama Administration will work with FHFA to determine the best way to responsibly reduce Fannie 

Mae’s and Freddie Mac’s role in the market and ultimately wind down both institutions. 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 February 2012, Treasury Secretary Geithner stated that the Administration 

intended to release new details around approaches to housing finance reform, including winding down Fannie Mae and 

Freddie Mac, and to work with Congressional leaders to explore options for legislation, but that he does not expect housing 

finance reform legislation to be enacted in 2012. We cannot predict the prospects for the enactment, timing or content of 

legislative proposals regarding the future of the GSEs.

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. Results 

for the three and nine months ended September 30, 2012 may not necessarily be indicative of the results for the year ending 

December 31, 2012. The unaudited interim condensed consolidated financial statements as of and for the three and nine

months ended September 30, 2012 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, 2011 (“2011 Form 10-K”), filed 

with the SEC on February 29, 2012. 

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, 2012, 

Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $117.1 billion. Our 

administrative expenses were reduced by $27 million and $30 million for the three months ended September 30, 2012 and 

2011, respectively, and $75 million and $90 million for the nine months ended September 30, 2012 and 2011, 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 nine months ended September 30, 2011, we received a refund of $1.1 billion from the Internal Revenue Service 

(“IRS”) related to the carryback of our 2009 operating loss to the 2008 and 2007 tax years. In addition, in June 2011, we 

effectively settled our 2007 and 2008 tax years with the IRS and, as a result, we recognized an income tax benefit of $90 

million in our condensed consolidated statements of operations and comprehensive loss for the nine months ended 

September 30, 2011.

Under the temporary credit and liquidity facilities (“TCLF”) program, we had $1.9 billion and $3.0 billion outstanding, 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

95

which includes principal and interest, of three-year standby credit and liquidity support as of September 30, 2012 and 

December 31, 2011, respectively. Under the new issue bond (“NIB”) program, we had $6.8 billion and $7.5 billion

outstanding of pass-through securities backed by single-family and multifamily housing bonds issued by housing finance 

agencies (“HFAs”) as of September 30, 2012 and December 31, 2011, respectively. Treasury will bear any initial losses of 

principal under the TCLF program and the NIB program up to 35% of the total original principal on a combined programwide basis, and thereafter we will bear the losses of principal that are attributable to the TCLF and the securities we have 

issued. Treasury will also bear any losses of unpaid interest under the two programs. As of September 30, 2012, there had 

been no losses of principal or interest under the TCLF program or the NIB program. 

As described in “Business—Legislative and Regulatory Developments—Changes to Our Single-Family Guaranty Fee 

Pricing” in our 2011 Form 10-K, in December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act of 

2011 (the “TCCA”), which among other provisions, required that we increase our single-family guaranty fees by at least 10

basis points and remit this increase to Treasury. Effective April 1, 2012, the guaranty fee on all single-family residential 

mortgages delivered to Fannie Mae and Freddie Mac on or after that date for securitization was increased by 10 basis points. 

The resulting fee revenue and expense are recorded in “Mortgage loans interest income” and “Other expenses,” respectively, 

in our condensed consolidated statements of operations and comprehensive income (loss). We recognized $78 million and 

$104 million of other expenses during the three months and nine months ended September 30, 2012, respectively, relating to 

TCCA guaranty fees, and our liability to Treasury for the remittance of TCCA-related guaranty fees was $78 million as of 

September 30, 2012. During the nine months ended September 30, 2012, we remitted TCCA-related guaranty fees of $26 

million to Treasury.

FHFA’s control of both us and Freddie Mac has caused us and Freddie Mac to be related parties. No transactions outside of 

normal business activities have occurred between us and Freddie Mac. As of September 30, 2012 and December 31, 2011, we 

held Freddie Mac mortgage-related securities with a fair value of $13.0 billion and $15.6 billion, respectively, and accrued 

interest receivable of $54 million and $69 million, respectively. We recognized interest income on these securities held by us 

of $132 million and $174 million for the three months ended September 30, 2012 and 2011, respectively, and $427 million

and $534 million for the nine months ended September 30, 2012 and 2011, 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. 

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, the 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 delinquency and default trends and periodically make changes in our historically developed 

assumptions to better reflect present conditions. In the three months ended September 30, 2012, we enhanced our collective 

single-family loss reserve model and our model that calculates loss reserves for individually impaired loans. The combined 

impact from these changes resulted in an approximately $3.5 billion increase to our allowance for loan losses and provision 

for credit losses.

We enhanced our loan loss models for loans in our collective single-family loss reserve to reflect more recent experience of 

default expectations, including incorporating current credit bureau data, which provides additional information about the 

borrower's ability to pay. The impact of this change had the most pronounced effect on loans with higher mark-to-market 

LTV ratios, where we have observed better than anticipated payment performance. The change resulted in an approximately 

$1.5 billion decrease to our allowance for loan losses and provision for credit losses.

We also enhanced our single-family loan loss models for individually impaired loans based on current observable trends of 

payment behavior on our modified loans to reflect slower prepayment and lower default expectations for these loans, which 

significantly extended the expected average life of our modified loans. Since a loan modification changes the contractual 

terms of a loan such that a concession is granted to the borrower, an extension of the average life of a modified loan increases 

the charge we record related to the concession. Therefore, while our expectations of credit loss decreased due to better 

performance of our modified loans, this decrease was more than offset by an increase in the present value of the concession 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

96

granted to the borrower by the modification. The change resulted in an approximately $5.0 billion increase to our allowance 

for loan losses and provision for credit losses. 

In the three months ended June 30, 2012, we updated our assumptions used to project cash flow estimates on our Alt-A and 

subprime private-label securities to incorporate recent observable market trends, which included extending the time it takes to 

liquidate loans underlying these securities and increasing severity rates for loans where the servicer stopped advancing 

payments. These updates resulted in lower net present value of cash flow projections on our Alt-A and subprime securities 

and increased our other-than-temporary impairment expense by approximately $500 million. 

Collateral 

Our liability to third party holders of Fannie Mae MBS that arises as the result of a consolidation of a securitization trust is 

collateralized by the underlying loans and/or mortgage related securities. 

We had reverse repurchase agreements outstanding of $54.3 billion and $49.5 billion as of September 30, 2012 and 

December 31, 2011, respectively. The fair value of non-cash collateral we accepted was $54.8 billion and $50.1 billion as of 

September 30, 2012 and December 31, 2011, respectively, of which we were permitted to sell or repledge $30.0 billion and 

$20.0 billion as of September 30, 2012 and December 31, 2011, respectively. None of the underlying collateral was sold or 

repledged as of September 30, 2012 or December 31, 2011.

Allowance for Loan Losses and Reserve for Guaranty Losses

In the three months ended September 30, 2012, we identified a misstatement in the classification of TDRs related to certain 

borrowers who used the bankruptcy process to receive a discharge of the mortgage debt or to cure a mortgage delinquency 

over time. We determined that the discharge of mortgage debt in bankruptcy was a concession in cases in which the discharge 

effectively resulted in us losing our ability to hold the borrower personally liable for deficiencies under state law, although we 

continue to be able to foreclose on the collateral. We also determined that curing a mortgage delinquency over time through 

bankruptcy resulted in a concession similar to other long-term repayment plans. Therefore, we determined that these loans 

should have been classified as TDRs and measured for individual impairment when estimating the allowance for loan losses 

as of December 31, 2011. To correct this misstatement, we have recorded an out-of-period adjustment of approximately $850 

million to increase the “Provision for credit losses” in our condensed consolidated statement of operations and 

comprehensive income (loss) for the three months ended September 30, 2012.

In the six months ended June 30, 2012, we identified misstatements in our consideration of the benefit for repurchase 

requests, as well as in the calculation used to discount the deferred payment obligation for certain mortgage insurers currently 

in run-off, when estimating the allowance for loan losses as of December 31, 2011. In the three months ended June 30, 2012, 

we identified a misstatement in the calculation of the default rate used for certain bonds to estimate the reserve for guaranty 

losses as of December 31, 2011. To correct the above misstatements, we have recorded an out-of-period adjustment of $1.1 

billion to increase the “Provision for credit losses” in our condensed consolidated statement of operations and comprehensive 

income (loss) for the six months ended June 30, 2012.

The impact of the above misstatements was an out-of-period adjustment of approximately $1.9 billion to increase the 

“Provision for credit losses” in our condensed consolidated statement of operations and comprehensive income (loss) for the 

nine months ended September 30, 2012. We have evaluated the effects of these misstatements, both quantitatively and 

qualitatively, and concluded that no prior periods are materially misstated. We have also concluded that the misstatement is 

not material to our projected 2012 consolidated financial statements taken as a whole.

Earnings (Loss) per Share

Earnings (loss) per share (“EPS”) is presented for both basic EPS and diluted EPS. We compute basic EPS by dividing net 

income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding 

during the period. In addition to common shares outstanding, the computation of basic EPS includes instruments for which 

the holder has (or is deemed to have) the present rights as of the end of the reporting period to share in current period 

earnings (loss) with common stockholders (i.e., participating securities and common shares that are currently issuable for 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

97

little or no cost to the holder). We include in the denominator of our basic EPS computation the weighted-average number of 

shares of common stock that would be issued upon the full exercise of the warrant issued to Treasury. Diluted EPS includes 

all the components of basic EPS, plus the dilutive effect of common stock equivalents such as convertible securities and stock 

options, but excludes those common stock equivalents from the calculation of diluted EPS when the effect of inclusion, 

assessed individually, would be anti-dilutive. There was no impact to the numerator of our diluted EPS calculation from the 

dilutive convertible preferred stock for the nine months ended September 30, 2012. The calculation of income available to 

common stockholders and earnings per share is based on the underlying premise that all income after payment of dividends 

on preferred shares is available to and will be distributed to the common stockholders. As a result of our conservatorship 

status and the terms of the senior preferred stock purchase agreement with Treasury, no amounts will be available to 

distribute as dividends to common or preferred stockholders (other than to Treasury as holder of the senior preferred stock).

The table below presents the computations of basic and diluted weighted average common shares outstanding.

For the Three Months

Ended September 30,

For the Nine Months 

Ended September 30,

2012 2011 2012 2011

(Shares in millions)

Weighted average common shares outstanding—basic . . . . . . . . . . . . . . . . . 5,762 5,760 5,762 5,730

Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 131 —

Weighted average common shares outstanding—diluted . . . . . . . . . . . . . . . 5,762 5,760 5,893 5,730

Reclassifications

To conform to our current period presentation, we have reclassified certain amounts reported in our condensed consolidated 

financial statements. 

Adoption of New Accounting Guidance 

Effective January 1, 2012, we prospectively adopted guidance issued by the Financial Accounting Standards Board (“FASB”) 

related to fair value measurement. The new guidance does not expand the use of fair value; instead, it provides guidance 

about how fair value should be determined where it already is required or permitted under U.S. GAAP. The new fair value 

guidance changes certain fair value principles and clarifies the FASB’s intent on certain items, including a clarification that 

the principal market should be determined based on the market the entity has access to with the greatest volume and level of 

activity for the asset or liability. It also expands the disclosures about fair value measurements. The adoption of this guidance 

did not have a material impact on our condensed consolidated financial statements; however, it required us to expand our fair 

value disclosures. See “Note 12, Fair Value,” for additional information regarding the impact upon adoption of this guidance. 

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities 

are securitization trusts guaranteed by us via lender swap and portfolio securitization transactions, mortgage and asset-backed 

trusts that were not created by us, as well as housing partnerships that are established to finance the acquisition, construction, 

development or rehabilitation of affordable multifamily and single-family housing. These interests include investments in 

securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to 

the entity. We consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and 

master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit 

risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations 

have the power to direct these activities.

As of September 30, 2012, we consolidated certain VIEs that were not consolidated as of December 31, 2011, generally due 

to increases in the amount of the certificates issued by the entity that are held in our portfolio (for example, when we hold a 

substantial portion of the securities issued by Fannie Mae multi-class resecuritization trusts). As a result of consolidating 

these entities, which had combined total assets of $3.7 billion in unpaid principal balance as of September 30, 2012, we 

derecognized our investment in these entities and recognized the assets and liabilities of the consolidated entities at fair value.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

98

As of September 30, 2012, we also deconsolidated certain VIEs that were consolidated as of December 31, 2011, generally 

due to decreases in the amount of the certificates issued by the entity that are held in our portfolio. As a result of 

deconsolidating these entities, which had combined total assets of $102 million in unpaid principal balance as of December 

31, 2011, 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, as well as other investment entities. The following table displays the carrying amount and classification 

of our assets and liabilities that relate to our involvement with unconsolidated VIEs as of September 30, 2012 and 

December 31, 2011, as well as our maximum exposure to loss and the total assets of those unconsolidated VIEs.

As of September 30, 2012

MortgageBacked

Trusts

AssetBacked

Trusts

Limited

Partnership

Investments

(Dollars in millions)

Assets and liabilities recorded in our condensed consolidated balance sheets:

Assets:

Available-for-sale securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,336 $ — $ —

Trading securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,579 — —

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 — 115

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,574) — (127)

Net carrying amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,525 $ — $ (12)

Maximum exposure to loss (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,283 $ — $ 110

Total assets of unconsolidated VIEs (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 629,950 $ — $10,982

As of December 31, 2011

MortgageBacked

Trusts

AssetBacked

Trusts

Limited

Partnership

Investments

(Dollars in millions)

Assets and liabilities recorded in our condensed consolidated balance sheets:

Assets:

Available-for-sale securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,101 $ — $ —

Trading securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,292 2,111 —

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 — 145

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,347) — (153)

Net carrying amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,317 $ 2,111 $ (8)

Maximum exposure to loss (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,146 $ 2,111 $ 137

Total assets of unconsolidated VIEs (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 641,346 $ 256,845 $12,256

__________

(1) Contains securities recognized in our condensed consolidated balance sheets due to consolidation of certain multi-class resecuritization 

trusts.

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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

99

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgagerelated securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer 

assets from our own portfolio in a portfolio securitization transaction. For the three months ended September 30, 2012 and 

2011, the unpaid principal balance of portfolio securitizations was $65.5 billion and $22.0 billion, respectively. For the nine 

months ended September 30, 2012 and 2011, the unpaid principal balance of portfolio securitizations was $153.6 billion and 

$78.7 billion, respectively.

The following table displays some key characteristics of the securities retained in unconsolidated portfolio securitization 

trusts as of September 30, 2012 and December 31, 2011. 

Fannie Mae

Single-class

MBS & Fannie

Mae Megas

REMICS & 

SMBS(1)

(Dollars in millions)

As of September 30, 2012

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 494 $ 9,106

Fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 10,277

Weighted-average coupon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21 % 5.60 %

Weighted-average loan age. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 years 4.5 years

Weighted-average maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.8 years 15.5 years

As of December 31, 2011

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 588 $ 12,697

Fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654 14,043

Weighted-average coupon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21 % 5.86 %

Weighted-average loan age. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 years 4.5 years

Weighted-average maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 years 18.6 years

__________

(1) Consists of Real Estate Mortgage Investment Conduits (“REMICs”) and stripped mortgage-backed securities (“SMBS”).

For the three months ended September 30, 2012 and 2011, the principal and interest received on retained interests was $563 

million and $777 million, respectively. For the nine months ended September 30, 2012 and 2011, the principal and interest 

received on retained interests was $1.9 billion and $2.2 billion, respectively.

Managed Loans

We define “managed loans” as on-balance sheet mortgage loans as well as mortgage loans that we have securitized in 

unconsolidated portfolio securitization trusts. The following table displays the unpaid principal balances of managed loans, 

including those managed loans that were delinquent as of September 30, 2012 and December 31, 2011.

As of

September 30, 2012 December 31, 2011

Unpaid

Principal

Balance

Principal Amount 

of Delinquent 

Loans(1)

Unpaid

Principal

Balance

Principal Amount 

of Delinquent 

Loans(1)

(Dollars in millions)

Loans held for investment:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 378,110 $ 107,658 $ 396,276 $ 122,392

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . 2,604,516 18,840 2,570,339 24,893

Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486 134 312 57

Securitized loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,224 1 2,273 71

Total loans managed. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,985,336 $ 126,633 $ 2,969,200 $ 147,413
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

100

__________

(1) Represents the unpaid principal balance of loans held for investment, loans held for sale and securitized loans for which we are no 

longer accruing interest and loans 90 days or more delinquent which are continuing to accrue interest.

Qualifying Sales of Portfolio Securitizations

The majority of our portfolio securitization transactions do not qualify for sale treatment as we consolidate the substantial 

majority of our single-class MBS trusts. We report assets and liabilities of consolidated trusts created via portfolio 

securitization transactions that do not qualify as sales in our condensed consolidated balance sheets.

We recognize assets obtained and liabilities incurred in qualifying sales of portfolio securitizations at fair value. Proceeds 

from the initial sale of securities from portfolio securitizations were $183 million and $143 million for the three months 

ended September 30, 2012 and 2011, respectively. Proceeds from the initial sale of securities from portfolio securitizations 

were $479 million and $764 million for the nine months ended September 30, 2012 and 2011, respectively. Our continuing 

involvement in the form of guaranty assets and guaranty liabilities with assets that were transferred into unconsolidated trusts 

is not material to our condensed consolidated financial statements.

Other Securitizations

We also completed other portfolio securitization transactions that did not qualify as sales during the nine months ended 

September 30, 2012 and were accounted for as secured borrowings. Proceeds from these transactions were $421 million and 

were recorded as long-term debt of Fannie Mae in our condensed consolidated balance sheet. As of September 30, 2012, the 

fair value of trading securities underlying these transactions was $189 million, and the unpaid principal balance of mortgage 

loans of consolidated trusts underlying these transactions was $214 million. The related assets have been transferred to MBS 

trusts and are restricted solely for the purpose of servicing the related MBS. We did not complete any securitizations of this 

type during the nine months ended September 30, 2011. 

3. Mortgage Loans

The following table displays our mortgage loans as of September 30, 2012 and December 31, 2011. 

As of

September 30, 2012 December 31, 2011

Of Fannie

Mae

Of

Consolidated

Trusts Total

Of Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . $ 312,824 $ 2,486,010 $ 2,798,834 $ 319,496 $ 2,470,533 $ 2,790,029

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,677 118,601 184,278 77,026 99,872 176,898

Total unpaid principal balance of mortgage

loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,501 2,604,611 2,983,112 396,522 2,570,405 2,966,927

Cost basis and fair value adjustments, net. . . . (15,042) 37,838 22,796 (16,143) 19,993 3,850

Allowance for loan losses for loans held for

investment . . . . . . . . . . . . . . . . . . . . . . . . . . (54,214) (8,798) (63,012) (57,309) (14,847) (72,156)

Total mortgage loans . . . . . . . . . . . . . . $ 309,245 $ 2,633,651 $ 2,942,896 $ 323,070 $ 2,575,551 $ 2,898,621

During the three and nine months ended September 30, 2012, we redesignated loans with a carrying value of $19 million and 

$33 million, respectively, from held for investment (“HFI”) to held for sale (“HFS”). During the three months ended 

September 30, 2011, there were no loans redesignated from HFI to HFS. During the nine months ended September 30, 2011, 

we redesignated loans with a carrying value of $561 million from HFI to HFS.

Nonaccrual Loans 

We discontinue accruing interest on loans when we believe collectibility of principal or interest is not reasonably assured, 

which for single-family loans we have determined, based on our historical experience, to be when the loan becomes 60 days 

or more past due according to its contractual terms. We generally place multifamily loans on nonaccrual status when the loan 

is deemed to be individually impaired, unless the loan is well secured such that collectibility of principal and accrued interest 

is reasonably assured. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

101

When a loan is placed on nonaccrual status, interest previously accrued but not collected becomes part of our recorded 

investment in the loan and is collectively reviewed for impairment. For single-family loans, we recognize interest income for 

loans on nonaccrual status when cash is received. For multifamily loans on nonaccrual status, we apply any payment received 

on a cost recovery basis to reduce principal on the mortgage loan.

We return a single-family loan to accrual status at the point that the borrower has made sufficient payments to reduce their 

delinquency below our nonaccrual threshold. For modified single-family loans, the loan is not returned to accrual status until 

the borrower successfully makes all required payments during the trial period (generally three to four months) and the 

modification is made permanent. We generally return a multifamily loan to accrual status when the borrower cures the 

delinquency of the loan or we otherwise determine that the loan is well secured such that collectibility is reasonably assured. 

Aging Analysis

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans, excluding loans 

for which we have elected the fair value option, by portfolio segment and class as of September 30, 2012 and December 31, 

2011. 

As of September 30, 2012(1)

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(2)

Total

Delinquent Current Total

Recorded

Investment

in Loans 90

Days or

More

Delinquent

and

Accruing

Interest

Recorded 

Investment 

in 

Nonaccrual 

Loans

(Dollars in millions)

Single-family:

Primary(3). . . . . . . . . . . . $ 42,795 $ 13,814 $ 70,279 $ 126,888 $ 2,410,890 $ 2,537,778 $109 $ 83,933

Government(4). . . . . . . . . 89 42 334 465 50,614 51,079 334 —

Alt-A. . . . . . . . . . . . . . . . 6,598 2,601 23,588 32,787 125,493 158,280 15 26,166

Other(5). . . . . . . . . . . . . . 3,081 1,192 9,139 13,412 61,556 74,968 86 10,176

Total single-family . . . . 52,563 17,649 103,340 173,552 2,648,553 2,822,105 544 120,275

Multifamily(6). . . . . . . . . . . 182 NA 462 644 186,225 186,869 — 1,880

Total. . . . . . . . . . . . . $ 52,745 $ 17,649 $103,802 $ 174,196 $ 2,834,778 $ 3,008,974 $544 $ 122,155

As of December 31, 2011

(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). . . . . . . . . . . . $ 43,516 $ 15,282 $ 80,712 $ 139,510 $ 2,341,646 $ 2,481,156 $111 $ 95,959

Government(4). . . . . . . . . 109 49 327 485 51,391 51,876 327 —

Alt-A. . . . . . . . . . . . . . . . 7,155 3,054 28,323 38,532 138,880 177,412 14 31,356

Other(5). . . . . . . . . . . . . . 3,403 1,431 11,277 16,111 73,115 89,226 96 12,533

Total single-family . . . . 54,183 19,816 120,639 194,638 2,605,032 2,799,670 548 139,848

Multifamily(6). . . . . . . . . . . 210 NA 1,105 1,315 177,906 179,221 — 2,764

Total. . . . . . . . . . . . . $ 54,393 $ 19,816 $121,744 $ 195,953 $ 2,782,938 $ 2,978,891 $548 $ 142,612
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

102

__________

(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 loan characteristics, such as interest-only loans and negative-amortizing loans that are neither 

government nor Alt-A.

(6) Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.

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, 2012 and December 31, 2011. The 

single-family credit quality indicator is updated quarterly. 

As of 

September 30, 2012(1)(2) December 31, 2011

(1)(2)

Primary (3) Alt-A Other (4) Primary (3) Alt-A Other (4)

(Dollars in millions)

Estimated mark-to-market LTV ratio: (5)

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,678,404 $ 59,408 $22,737 $1,464,348 $ 61,618 $23,414

Greater than 80% and less than or equal to 90%. . . . . . . . . . . 350,088 19,010 7,729 412,342 21,369 9,224

Greater than 90% and less than or equal to 100%. . . . . . . . . . 219,307 17,503 7,888 246,648 19,790 9,445

Greater than 100% and less than or equal to 110% . . . . . . . . . 104,161 14,588 7,591 128,428 16,164 8,951

Greater than 110% and less than or equal to 120% . . . . . . . . 61,721 11,261 6,709 73,836 12,534 7,912

Greater than 120% and less than or equal to 125% . . . . . . . . 21,803 4,504 2,844 25,750 5,087 3,557

Greater than 125% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,294 32,006 19,470 129,804 40,850 26,723

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,537,778 $158,280 $74,968 $2,481,156 $177,412 $89,226

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Excludes $51.1 billion and $51.9 billion as of September 30, 2012 and December 31, 2011, respectively, of mortgage loans guaranteed 

or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A loans. The segment class is primarily 

reverse mortgages for which we do not calculate an estimated mark-to-market LTV.

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

(4) Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither 

government nor Alt-A.

(5) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported 

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates 

periodic changes in home value.

The following table displays the total recorded investment in our multifamily HFI loans, excluding loans for which we have 

elected the fair value option, by credit quality indicator as of September 30, 2012 and December 31, 2011. The multifamily 

credit quality indicator is updated quarterly.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

103

As of 

September 30, December 31,

2012(1) 2011

(1)

(Dollars in millions)

Credit risk profile by internally assigned grade:(2)

Green. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,755 $131,740

Yellow(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,500 28,354

Orange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,500 17,355

Red . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,114 1,772

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186,869 $179,221

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Green (loan with acceptable risk); yellow (loan with signs of potential weakness); orange (loan with a well defined weakness that may 

jeopardize the timely full repayment); and red (loan with a weakness that makes timely collection or liquidation in full more 

questionable based on existing conditions and values).

(3) Includes approximately $6.7 billion and $6.9 billion of unpaid principal balance as of September 30, 2012 and December 31, 2011, 

respectively, classified as yellow due to no available financial information.

Individually Impaired Loans

Individually impaired loans include TDRs, acquired credit-impaired loans, and multifamily loans that we have assessed as 

probable that we will not collect all contractual amounts due, regardless of whether we are currently accruing interest. The 

following tables display the total recorded investment, unpaid principal balance, and related allowance as of September 30, 

2012 and December 31, 2011 and interest income recognized and average recorded investment for the three and nine months 

ended September 30, 2012 and 2011 for individually impaired loans.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

104

As of

September 30, 2012 December 31, 2011

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)

. . . . . . . . . . . . . . . . . . . . . $ 135,515 $ 128,530 $ 31,132 $ 668 $ 116,825 $ 109,684 $ 29,598 $ 674

Government (3)

. . . . . . . . . . . . . . . . . 213 207 39 4 258 258 67 8

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . 38,962 36,147 11,707 285 34,318 31,516 11,121 268

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . 17,359 16,565 5,281 92 16,181 15,363 5,353 99

Total single-family . . . . . . . . . . . . 192,049 181,449 48,159 1,049 167,582 156,821 46,139 1,049

Multifamily . . . . . . . . . . . . . . . . . . . . . 2,323 2,342 451 13 2,832 2,855 718 32

Total individually impaired loans with 

related allowance recorded . . . . . . . 194,372 183,791 48,610 1,062 170,414 159,676 46,857 1,081

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . 11,171 8,875 — — 9,370 6,471 — —

Government(3)

. . . . . . . . . . . . . . . . . 98 98 — — 25 17 — —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . 3,062 1,858 — — 3,056 1,538 — —

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . 694 446 — — 680 367 — —

Total single-family . . . . . . . . . . . . 15,025 11,277 — — 13,131 8,393 — —

Multifamily . . . . . . . . . . . . . . . . . . . . . 1,620 1,631 — — 1,759 1,771 — —

Total individually impaired loans with 

no related allowance recorded. . . . . 16,645 12,908 — — 14,890 10,164 — —

Total individually impaired loans(6)

. . . . $ 211,017 $ 196,699 $ 48,610 $ 1,062 $ 185,304 $ 169,840 $ 46,857 $ 1,081
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

105

For the Three Months Ended September 30,

2012 2011

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)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115,042 $ 1,014 $ 157 $ 102,555 $ 949 $ 183

Government (3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 3 — 280 3 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,875 259 35 29,755 247 45

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,523 110 15 14,630 111 22

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,637 1,386 207 147,220 1,310 250

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,420 31 1 2,485 26 2

Total individually impaired loans with related allowance 

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,057 1,417 208 149,705 1,336 252

With no related allowance recorded: (5)

Single-family:

Primary (2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,709 267 59 7,118 175 58

Government (3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 2 — 21 2 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,865 61 14 1,832 68 21

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 21 6 483 18 6

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,119 351 79 9,454 263 85

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,698 23 — 836 12 2

Total individually impaired loans with no related allowance 

recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,817 374 79 10,290 275 87

Total individually impaired loans. . . . . . . . . . . . . . . . . . . . . . . . . . $ 178,874 $ 1,791 $ 287 $ 159,995 $ 1,611 $ 339
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

106

For the Nine Months Ended September 30,

2012 2011

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)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,050 $ 2,954 $ 479 $ 99,495 $ 2,764 $ 550

Government (3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 9 — 270 9 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,050 765 109 29,459 728 143

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,348 330 49 14,295 323 69

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,668 4,058 637 143,519 3,824 762

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,551 96 2 2,324 74 5

Total individually impaired loans with related allowance 

recorded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,219 4,154 639 145,843 3,898 767

With no related allowance recorded: (5)

Single-family:

Primary (2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,579 705 174 6,019 427 146

Government (3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 5 — 14 6 —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,703 172 42 1,443 154 47

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 60 19 403 39 13

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,759 942 235 7,879 626 206

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,707 70 1 799 37 7

Total individually impaired loans with no related allowance 

recorded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,466 1,012 236 8,678 663 213

Total individually impaired loans . . . . . . . . . . . . . . . . . . . . . . . . $ 173,685 $ 5,166 $ 875 $ 154,521 $ 4,561 $ 980

__________

(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 $190.1 billion and $161.9 billion as of September 30, 

2012 and December 31, 2011, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $1.0 billion

and $956 million as of September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012, we began classifying as 

TDRs loans to certain borrowers who have received bankruptcy relief. These loans had a recorded investment of $22.9 billion and a 

related allowance of $1.1 billion as of September 30, 2012.

(7) Total single-family interest income recognized of $1.7 billion and $1.6 billion for the three months ended September 30, 2012 and 

2011, respectively, consists of $1.3 billion and $1.1 billion of contractual interest and $444 million and $427 million of effective yield 

adjustments. Total single-family interest income recognized of $5.0 billion and $4.5 billion for the nine months ended September 30, 

2012 and 2011, respectively, consists of $3.7 billion and $3.3 billion of contractual interest and $1.3 billion and $1.2 billion of effective 

yield adjustments.

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial 

difficulties is considered a TDR. In addition to formal loan modifications, we also engage in other loss mitigation activities 

with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal 

agreements with the borrower that do not result in the legal modification of the loan’s contractual terms. We account for these 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

107

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, 2012 and 2011, the average term extension of a singlefamily modified loan was 133 and 103 months, respectively, and the average interest rate reduction was 2.08 and 2.63

percentage points, respectively. During the nine months ended September 30, 2012 and 2011, the average term extension of a 

single-family modified loan was 127 and 82 months, respectively, and the average interest rate reduction was 2.23 and 3.14

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, 2012 and 2011.

For the Three Months Ended September 30,

2012(1) 2011

Number of

Loans

Recorded

Investment(2)

Number of

Loans

Recorded

Investment(2)

(Dollars in millions)

Single-family:

Primary(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,395 $22,068 60,725 $10,594

Government(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 13 201 24

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,088 5,284 12,932 2,691

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,868 1,865 5,429 1,324

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,463 29,230 79,287 14,633

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 19 13 39

Total troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . 205,467 $29,249 79,300 $14,672

For the Nine Months Ended September 30,

2012(1) 2011

Number of

Loans

Recorded

Investment(2)

Number of

Loans

Recorded

Investment(2)

(Dollars in millions)

Single-family:

Primary(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,165 $32,022 132,682 $23,783

Government(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 41 497 86

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,026 7,537 27,722 5,958

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,721 2,823 12,424 3,095

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,226 42,423 173,325 32,922

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 152 42 214

Total troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . 279,251 $42,575 173,367 $33,136

__________

(1) As of September 30, 2012, we classified as TDRs approximately 170,000 loans to certain borrowers who have received bankruptcy 

relief. These loans had a recorded investment of $22.9 billion.

(2) 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 interest forgiveness, 

there is not a material difference between the recorded investment in our loans pre- and post- modification, therefore amounts represent 

recorded investment post-modification.

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

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

(5) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government 

nor Alt-A.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

108

The increase in our TDR activity during the three and nine months ended September 30, 2012 was due to the classification of 

loans as TDRs where the borrower used the bankruptcy process to receive a discharge of the mortgage debt or to cure a 

mortgage delinquency over time. These loans were identified and classified as TDRs as of September 30, 2012.

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, 2012 and 2011 and were modified in a TDR in the twelve months prior to the payment 

default. For purposes of this disclosure, we define loans that had a payment default as single-family and multifamily loans 

with completed TDRs that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure or a 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,

2012 2011

Number of

Loans

Recorded

Investment (1)

Number of

Loans

Recorded

Investment (1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,870 $1,798 14,545 $ 2,531

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8 70 17

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,854 377 2,929 620

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841 196 1,519 378

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,616 2,379 19,063 3,546

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 — —

Total TDRs that subsequently defaulted . . . . . . . . . . . . . . . . . . . . . . . 13,617 $2,388 19,063 $ 3,546

For the Nine Months Ended September 30,

2012 2011

Number of

Loans

Recorded

Investment (1)

Number of

Loans

Recorded

Investment (1)

(Dollars in millions)

Single-family:

Primary(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,446 $5,699 52,532 $ 9,227

Government(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 25 252 68

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,113 1,246 11,625 2,499

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,997 719 5,384 1,315

Total single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,706 7,689 69,793 13,109

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 12 8 49

Total TDRs that subsequently defaulted . . . . . . . . . . . . . . . . . . . . . . . 42,709 $7,701 69,801 $ 13,158

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable. Represents our recorded investment in the loan at time of payment default.

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

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

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government 

nor Alt-A.

4. Allowance for Loan Losses

Our allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to our 

recorded investment in both single-family and multifamily HFI loans. This population includes both HFI loans held by 

Fannie Mae and by consolidated Fannie Mae MBS trusts. When calculating our loan loss allowance, 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
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

109

interest recognized while the loan was on accrual status and any applicable cost basis adjustments. We record charge-offs 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 establish a collective single-family loss reserve using an econometric model that derives 

an overall loss reserve estimate. We base our allowance and reserve methodology on historical events and trends, such as loss 

severity (in event of default), default rates, and recoveries from mortgage insurance contracts and other credit 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 or similar sources. 

We identify multifamily loans for evaluation for impairment through a credit risk assessment process. Based on this 

evaluation, we determine for loans that are not in homogeneous pools whether or not a loan is individually impaired. 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, 2012 and 2011. 

For the Three Months Ended September 30,

2012 2011

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,322 $ 10,812 $ 62,134 $ 54,949 $ 13,078 $ 68,027

Provision (benefit) for loan losses(1). . . . . . . . . . . . . . . . . . . . . 3,104 (922) 2,182 (235) 4,318 4,083

Charge-offs(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,281) (232) (3,513) (3,802) (260) (4,062)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 27 350 848 35 883

Transfers(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,372 (1,372) — 1,764 (1,764) —

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 710 34 744 860 137 997

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,550 $ 8,347 $ 61,897 $ 54,384 $ 15,544 $ 69,928

Multifamily allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760 $ 481 $ 1,241 $ 1,017 $ 462 $ 1,479

(Benefit) provision for loan losses(1). . . . . . . . . . . . . . . . . . . . . (75) (24) (99) 39 37 76

Charge-offs(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28) — (28) (51) — (51)

Transfers(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (6) — 6 (6) —

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 — 1 3 — 3

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 664 $ 451 $ 1,115 $ 1,014 $ 493 $ 1,507

Total allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,082 $ 11,293 $ 63,375 $ 55,966 $ 13,540 $ 69,506

Provision (benefit) for loan losses(1). . . . . . . . . . . . . . . . . . . . . 3,029 (946) 2,083 (196) 4,355 4,159

Charge-offs(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,309) (232) (3,541) (3,853) (260) (4,113)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 27 350 848 35 883

Transfers(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,378 (1,378) — 1,770 (1,770) —

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711 34 745 863 137 1,000

Ending balance(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,214 $ 8,798 $ 63,012 $ 55,398 $ 16,037 $ 71,435
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

110

For the Nine Months Ended September 30,

2012 2011

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,294 $ 14,339 $ 70,633 $ 47,377 $ 12,603 $ 59,980

Provision (benefit) for loan losses(1). . . . . . . . . . . . . 1,260 (372) 888 9,962 10,410 20,372

Charge-offs(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,409) (703) (12,112) (14,766) (1,466) (16,232)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 136 1,321 3,197 1,537 4,734

Transfers(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,172 (5,172) — 7,676 (7,676) —

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,048 119 1,167 938 136 1,074

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,550 $ 8,347 $ 61,897 $ 54,384 $ 15,544 $ 69,928

Multifamily allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,015 $ 508 $ 1,523 $ 1,153 $ 423 $ 1,576

(Benefit) provision for loan losses(1). . . . . . . . . . . . . (177) (35) (212) 41 135 176

Charge-offs(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216) — (216) (252) — (252)

Transfers(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (23) — 63 (63) —

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1 20 9 (2) 7

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 664 $ 451 $ 1,115 $ 1,014 $ 493 $ 1,507

Total allowance for loan losses: 

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,309 $ 14,847 $ 72,156 $ 48,530 $ 13,026 $ 61,556

Provision (benefit) for loan losses(1). . . . . . . . . . . . . 1,083 (407) 676 10,003 10,545 20,548

Charge-offs(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,625) (703) (12,328) (15,018) (1,466) (16,484)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 136 1,321 3,197 1,537 4,734

Transfers(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,195 (5,195) — 7,739 (7,739) —

Other(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,067 120 1,187 947 134 1,081

Ending balance(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,214 $ 8,798 $ 63,012 $ 55,398 $ 16,037 $ 71,435

__________

(1) Provision (benefit) for loan losses is included in (provision) benefit for credit losses in our condensed consolidated statements of 

operations and comprehensive income (loss).

(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. Accordingly, charge-offs of consolidated trusts generally represent loans that 

remained in our consolidated trusts at the time of default.

(3) Total charge-offs include accrued interest of $198 million and $289 million for the three months ended September 30, 2012 and 2011, 

respectively, and $709 million and $1.1 billion for the nine months ended September 30, 2012 and 2011, respectively. Single-family 

charge-offs include accrued interest of $196 million and $279 million for the three months ended September 30, 2012 and 2011, 

respectively, and $682 million and $1.1 billion for the nine months ended September 30, 2012 and 2011, respectively. Multifamily 

charge-offs include accrued interest of $2 million and $10 million for the three months ended September 30, 2012 and 2011, 

respectively, and $27 million and $34 million for the nine months ended September 30, 2012 and 2011, respectively.

(4) Includes transfers from trusts for delinquent loan purchases.

(5) Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and 

insurance receivable from borrowers. The provision for credit losses, charge-offs, recoveries and transfer activity included in this table 

reflects all changes for both the allowance for loan losses and the valuation allowances for accrued interest and preforeclosure property 

taxes and insurance receivable that relate to the mortgage loans.

(6) Total allowance for loan losses includes $376 million and $334 million as of September 30, 2012 and 2011, respectively, for acquired 

credit-impaired loans.

As of September 30, 2012, the allowance for accrued interest receivable for loans of Fannie Mae was $1.6 billion and for 

loans of consolidated trusts was $218 million. As of December 31, 2011, the allowance for accrued interest receivable for 

loans of Fannie Mae was $2.2 billion and for loans of consolidated trusts was $336 million.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

111

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, 2012 and December 31, 2011.

As of

September 30, 2012(1) December 31, 2011

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans . . . . . . . . . . . . . . $ 47,784 $ 450 $ 48,234 $ 45,765 $ 717 $ 46,482

Collectively reserved loans . . . . . . . . . . . . . . 13,738 664 14,402 24,494 805 25,299

Acquired credit-impaired loans . . . . . . . . . . . 375 1 376 374 1 375

Total allowance for loan losses . . . . . . . . . $ 61,897 $ 1,115 $ 63,012 $ 70,633 $ 1,523 $ 72,156

Recorded investment in loans by segment: (2)

Individually impaired loans . . . . . . . . . . . . . . $ 190,104 $ 3,934 $ 194,038 $ 161,942 $ 4,579 $ 166,521

Collectively reserved loans . . . . . . . . . . . . . . 2,629,379 182,896 2,812,275 2,634,456 174,595 2,809,051

Acquired credit-impaired loans . . . . . . . . . . . 2,622 39 2,661 3,272 47 3,319

Total recorded investment in loans. . . . . . $ 2,822,105 $ 186,869 $ 3,008,974 $ 2,799,670 $ 179,221 $ 2,978,891

__________

(1) As of September 30, 2012, we began classifying as TDRs loans to certain borrowers who have received bankruptcy relief. These loans 

had a recorded investment of $22.9 billion and a related allowance of $1.1 billion as of September 30, 2012.

(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, net” in our 

condensed consolidated statements of operations and comprehensive income (loss). The following table displays our 

investments in trading securities as of September 30, 2012 and December 31, 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

112

As of

September 30, December 31,

2012 2011

(Dollars in millions)

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,245 $ 7,424

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,840 2,732

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 287

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276 1,349

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265 1,280

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,920 10,411

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681 724

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 143

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,625 24,350

Non-mortgage-related securities:

U.S. Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,897 47,737

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,111

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,897 49,848

Total trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,522 $ 74,198

The following table displays information about our net trading gains and losses for the three and nine months ended 

September 30, 2012 and 2011.

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2012 2011 2012 2011

(Dollars in millions)

Net trading gains (losses):

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $403 $ (209) $687 $151

Non-mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (5) (11) (5)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $406 $ (214) $676 $146

Net trading gains (losses) recorded in the period related to securities still held at period end:

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $396 $ (206) $724 $145

Non-mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 — 1 2

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $399 $ (206) $725 $147

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, net of tax” and we record realized gains and losses from the sale of AFS 

securities in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income 

(loss). 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

113

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, 2012 and 2011.

For the Three For the Nine

Months Ended Months Ended

September 30, September 30,

2012 2011 2012 2011

(Dollars in millions)

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5 $ 15 $ 32 $ 148

Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 22 13 75

Total proceeds (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 597 444 1,826

__________ 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 table displays the amortized cost, gross unrealized gains and losses and fair value by major security type for 

AFS securities we held as of September 30, 2012 and December 31, 2011.

As of September 30, 2012

Total 

Amortized 

Cost (1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses - 

OTTI (2)

Gross 

Unrealized 

Losses - 

Other (3)

Total

Fair

Value

(Dollars in millions)

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,576 $1,005 $ (1) $ (10) $ 11,570

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,365 825 — — 10,190

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676 116 — — 792

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,768 380 (792) (128) 11,228

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,402 140 (868) (302) 7,372

CMBS(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,609 732 — (20) 13,321

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,604 176 (52) (55) 8,673

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,425 98 (22) (295) 3,206

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,425 $3,472 $(1,735) $ (810) $ 66,352

As of December 31, 2011

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,486 $1,381 $ (3) $ (14) $16,850

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 917 — — 12,823

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775 127 — — 902

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,314 233 (1,618) (246) 11,683

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . 9,556 17 (1,534) (453) 7,586

CMBS(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,949 181 — (104) 14,026

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,172 202 (56) (64) 10,254

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,687 92 (39) (282) 3,458

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $78,845 $3,150 $(3,250) $ (1,163) $77,582
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

114

__________ s

(1) Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments as well as the 

credit component of other-than-temporary impairments recognized in our condensed consolidated statements of operations and 

comprehensive income (loss).

(2) Represents the noncredit component of other-than-temporary impairment losses recorded in “Accumulated other comprehensive 

income (loss)” as well as cumulative changes in fair value of securities for which we previously recognized the credit component of an 

other-than-temporary impairment.

(3) Represents the gross unrealized losses on securities for which we have not recognized an other-than-temporary impairment.

(4) Amortized cost includes $566 million and $686 million as of September 30, 2012 and December 31, 2011, respectively, of increase to 

the carrying amount from previous fair value hedge accounting.

The following table displays 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, 2012 and December 31, 2011.

As of September 30, 2012

Less Than 12

Consecutive Months

12 Consecutive

Months or Longer

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ 259 $ (10) $ 334

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15) 748 (905) 5,159

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) 340 (1,153) 5,583

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (20) 272

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) 411 (78) 908

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 107 (314) 1,555

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (65) $1,865 $(2,480) $13,811

As of December 31, 2011

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4) $ 519 $ (13) $ 208

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133) 1,414 (1,731) 6,525

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) 471 (1,914) 6,686

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) 1,458 (84) 2,790

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 114 (116) 1,971

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) 547 (300) 1,588

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (255) $4,523 $(4,158) $19,768

Other-Than-Temporary Impairments 

We recognize the credit component of other-than-temporary impairments of our debt securities in “Net other-than-temporary 

impairments” and the noncredit component in “Other comprehensive income (loss)” in our condensed consolidated 

statements of operations and comprehensive income (loss) for those securities that we do not intend to sell and for which it is 

not more likely than not that we will be required to sell before recovery.

The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the 

underlying collateral and in the credit performance of the underlying issuer, among other factors. As of September 30, 2012, 

$2.5 billion of gross unrealized losses on AFS securities had existed for a period of 12 consecutive months or longer. Gross 

unrealized losses on AFS securities as of September 30, 2012 include unrealized losses on securities with other-than-
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

115

temporary impairment in which a portion of the impairment remains in “Accumulated other comprehensive income (loss).” 

The securities with unrealized losses for 12 consecutive months or longer, on average, had a fair value as of September 30, 

2012 that was 85% of their amortized cost basis. Based on our review for impairments of AFS securities, which includes an 

evaluation of the collectibility of cash flows and any intent or requirement to sell the securities, we have concluded that we 

do not have an intent to sell and we believe it is not more likely than not that we will be required to sell the securities. 

Additionally, our projections of cash flows indicate that we will recover these unrealized losses over the lives of the 

securities.

The following table displays our net other-than-temporary impairments by major security type recognized in our condensed 

consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 

2012 and 2011.

For the Three

Months Ended

For the Nine 

Months Ended

September 30, September 30,

2012 2011 2012 2011

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6 $ 238 $361 $ 329

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2 324 2

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 22 16 31

Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38 $ 262 $701 $ 362

Net other-than-temporary impairments recorded in the three months ended September 30, 2012 decreased compared with the 

three months ended September 30, 2011, primarily due to an increase in the net present value of projected cash flows on our 

Alt-A and subprime private-label securities resulting from improved home prices, as well as a tightening of credit 

spreads. Net other-than-temporary impairments recorded in the nine months ended September 30, 2012 increased compared 

with the nine months ended September 30, 2011, driven primarily by an update to the assumptions used to project cash flow 

estimates on our Alt-A and subprime securities in the three months ended June 30, 2012. For additional information, refer to 

“Note 1, Summary of Significant Accounting Policies.”

The following table displays activity related to the unrealized credit component on debt securities held by us and recognized 

in our condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months 

ended September 30, 2012 and 2011. A related unrealized noncredit component has been recognized in “Other 

comprehensive income (loss).”

For the Three

Months Ended

For the Nine

Months Ended

September 30, September 30,

2012 2011 2012 2011

(Dollars in millions)

Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,366 $7,876 $8,915 $8,215

Additions for the credit component on debt securities for which OTTI was not 

previously recognized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 — 13 8

Additions for the credit component on debt securities for which OTTI was previously

recognized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 262 688 354

Reductions for securities no longer in portfolio at period end. . . . . . . . . . . . . . . . . . . . . . . (1) (5) (3) (5)

Reductions for amortization resulting from changes in cash flows expected to be

collected over the remaining life of the securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (91) (253) (301) (692)

Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,312 $7,880 $9,312 $7,880

As of September 30, 2012, those debt securities with other-than-temporary impairment for which we recognized the credit 

component of OTTI in our condensed consolidated statements of operations and comprehensive income (loss) consisted 

predominantly of Alt-A and subprime securities. We evaluate Alt-A (including option adjustable rate mortgage (“ARM”)) and 

subprime private-label securities for other-than-temporary impairment by discounting the projected cash flows from 

econometric models to estimate the portion of loss in value attributable to credit. Separate components of a third-party model 

project regional home prices, unemployment and interest rates. The model combines these factors with available current 

information regarding attributes of loans in pools backing the private-label mortgage-related securities to project prepayment 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

116

speeds, conditional default rates, loss severities and delinquency rates. It incorporates detailed information on security-level 

subordination levels and cash flow priority of payments to project security level cash flows. We have recorded other-thantemporary impairments for the three and nine months ended September 30, 2012 based on this analysis. For securities we 

determined were not other-than-temporarily impaired, we concluded that either the bond had no projected credit loss or, if we 

projected a loss, that the present value of expected cash flows was greater than the security’s cost basis.

The following table displays the modeled attributes, including default rates and severities, which are used to determine 

whether our senior interests in certain non-agency mortgage-related securities will experience a cash shortfall as of 

September 30, 2012. Assumption of voluntary prepayment rates is also an input to the present value of expected losses.

As of September 30, 2012

Alt-A

Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate

(Dollars in millions)

Vintage Year

2004 & Prior:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 1,459 $ 448 $2,973 $ 445 $2,027

Weighted average collateral default(1)

. . . . . . . . . . 40.5% 38.4% 13.1% 28.7% 17.1%

Weighted average collateral severities(2)

. . . . . . . . 69.8 60.6 54.3 53.4 47.4

Weighted average voluntary prepayment rates(3). . 6.4 6.3 12.4 7.0 9.9

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 51.8 12.2 12.1 22.7 9.4

2005

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 145 $1,203 $1,056 $ 484 $2,124

Weighted average collateral default(1)

. . . . . . . . . . 67.8% 53.0% 38.5% 50.2% 36.8%

Weighted average collateral severities(2)

. . . . . . . . 75.6 67.5 65.5 64.0 55.1

Weighted average voluntary prepayment rates(3). . 2.4 4.9 7.3 5.5 6.4

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 64.9 20.7 0.9 12.4 4.1

2006

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $10,781 $1,038 $ 478 $1,444 $1,495

Weighted average collateral default(1)

. . . . . . . . . . 70.6% 67.3% 39.5% 55.8% 34.1%

Weighted average collateral severities(2)

. . . . . . . . 77.7 68.6 67.4 64.0 56.8

Weighted average voluntary prepayment rates(3). . 2.3 3.6 5.8 4.3 6.3

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 14.1 13.0 0.4 0.6 —

2007 & After:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $ 575 $ — $ — $ — $ 105

Weighted average collateral default(1)

. . . . . . . . . . 66.3% N/A N/A N/A 40.1%

Weighted average collateral severities(2)

. . . . . . . . 69.8 N/A N/A N/A 59.0

Weighted average voluntary prepayment rates(3). . 2.0 N/A N/A N/A 6.9

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 28.8 N/A N/A N/A 23.2

Total

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . $12,960 $2,689 $4,507 $2,373 $5,751

Weighted average collateral default(1)

. . . . . . . . . . 67.0% 56.1% 21.8% 49.6% 29.2%

Weighted average collateral severities(2)

. . . . . . . . 76.4 66.8 58.3 62.0 52.9

Weighted average voluntary prepayment rates(3). . 2.7 4.6 10.5 5.1 7.6

Average credit enhancement(4)

. . . . . . . . . . . . . . . . 19.6 16.3 8.2 7.1 5.3
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

117

__________

(1) The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the current collateral 

unpaid principal balance, weighted by security unpaid principal balance.

(2) The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of remaining cumulative 

loss divided by cumulative defaults, weighted by security unpaid principal balance.

(3) The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.

(4) The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest projections and 

monoline bond insurance.

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining 

maturity, assuming no principal prepayments, as of September 30, 2012. Contractual maturity of mortgage-backed securities 

is not a reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any 

time.

As of September 30, 2012

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 . . . . . . . . . . . . . . . . . . . $ 10,576 $ 11,570 $ — $ — $ 29 $ 30 $ 1,009 $ 1,073 $ 9,538 $ 10,467

Freddie Mac . . . . . . . . . . . . . . . . . . . 9,365 10,190 3 3 58 62 876 945 8,428 9,180

Ginnie Mae . . . . . . . . . . . . . . . . . . . 676 792 — — 2 2 4 4 670 786

Alt-A private-label securities. . . . . . 11,768 11,228 — — — 1 191 197 11,577 11,030

Subprime private-label securities . . 8,402 7,372 — — — — — — 8,402 7,372

CMBS . . . . . . . . . . . . . . . . . . . . . . . 12,609 13,321 44 46 11,601 12,288 711 751 253 236

Mortgage revenue bonds . . . . . . . . . 8,604 8,673 58 60 368 378 684 695 7,494 7,540

Other mortgage-related securities . . 3,425 3,206 — — — — — 11 3,425 3,195

Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 65,425 $ 66,352 $ 105 $ 109 $ 12,058 $ 12,761 $ 3,475 $ 3,676 $ 49,787 $ 49,806

Accumulated Other Comprehensive Income (Loss)

The following table displays our accumulated other comprehensive income (loss) by major categories as of September 30, 

2012 and December 31, 2011.

As of

September 30, December 31,

2012 2011

(Dollars in millions)

Net unrealized gains on available-for-sale securities for which we have not recorded otherthan-temporary impairment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,426 $1,152

Net unrealized losses on available-for-sale securities for which we have recorded other-thantemporary impairment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (812) (1,953)

Other losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (413) (434)

Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201 $(1,235)

The following table displays the activity in other comprehensive income (loss), net of tax, by major categories for the three 

and nine months ended September 30, 2012 and 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

118

For the Three

Months Ended

For the Nine 

Months Ended

September 30, September 30,

2012 2011 2012 2011

(Dollars in millions)

Comprehensive income (loss):

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,813 $ (5,085) $ 9,650 $(14,448)

Other comprehensive income (loss), net of tax effect:

Changes in net unrealized gains (losses) on available-for-sale securities (net

of tax of $386 and $210, respectively, for the three months ended and

net of tax of $536 and $142, respectively, for the nine months ended) . . 719 (391) 974 (264)

Reclassification adjustment for other-than-temporary impairments

recognized in net income (loss) (net of tax of $13 and $92,

respectively, for the three months ended and $245 and $120,

respectively, for the nine months ended) . . . . . . . . . . . . . . . . . . . . . . . . . 25 170 456 242

Reclassification adjustment for gains included in net income (loss) (net of

tax of $2 and $10, respectively, for the three months ended and net of

tax of $8 and $1, respectively, for the nine months ended) . . . . . . . . . . . (3) 23 (14) 2

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 20 6

Other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746 (197) 1,436 (14)

Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,559 $ (5,282) $11,086 $(14,462)

6. Financial Guarantees

We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts 

and other guaranty arrangements. These guarantees expose us to credit losses on the mortgage loans or, in the case of 

mortgage-related securities, the underlying mortgage loans of the related securities. The contractual terms of our guarantees 

range from 30 days to 40 years; however the actual term of each guaranty may be significantly less than the contractual term 

based on the prepayment characteristics of the related mortgage loans. 

For those guarantees recognized in our condensed consolidated balance sheets, our maximum potential exposure under these 

guarantees is primarily comprised of the unpaid principal balance of the underlying mortgage loans, which totaled $54.2 

billion and $59.4 billion as of September 30, 2012 and December 31, 2011, respectively.

In addition, we had maximum potential exposure of $8.6 billion and $9.3 billion for other guarantees not recognized in our 

condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011, respectively, which primarily 

represents the unpaid principal balance of loans underlying guarantees issued prior to the effective date of current accounting 

guidance on guaranty accounting. 

The maximum amount we could recover through available credit enhancements and recourse with third parties on guarantees 

recognized in our condensed consolidated balance sheets was $13.4 billion and $14.1 billion as of September 30, 2012 and 

December 31, 2011, respectively. The maximum amount we could recover through available credit enhancements and 

recourse with third parties on guarantees not recognized in our condensed consolidated balance sheets was $3.7 billion and 

$4.0 billion as of September 30, 2012 and December 31, 2011, respectively. Recoverability of such credit enhancements and 

recourse is subject to, among other factors, our mortgage insurers’ and financial guarantors’ ability to meet their obligations 

to us.

The fair value of our guaranty obligations associated with the Fannie Mae MBS included in “Investments in securities” was 

$1.9 billion and $2.2 billion as of September 30, 2012 and December 31, 2011, respectively.

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 

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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

119

For multifamily loans, management monitors the serious delinquency rate, which is the percentage of loans 60 days or more 

past due, and other loans that have higher risk characteristics, to determine our overall credit quality indicator. Higher risk 

characteristics include, but are not limited to, original debt service coverage ratios (“DSCR”) below 1.10, current DSCR 

below 1.0, and high original and current estimated LTV ratios. We stratify multifamily loans into different internal risk 

categories based on the credit risk inherent in each individual loan.

For single-family and multifamily loans, we use this information, in conjunction with housing market and economic 

conditions, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with these 

higher-risk characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product 

categories. Management also uses this data together with other credit risk measures to identify key trends that guide the 

development of our loss mitigation strategies.

The following tables display the current delinquency status and certain higher risk characteristics of our single-family 

conventional and total multifamily guaranty book of business as of September 30, 2012 and December 31, 2011.

As of September 30, 2012(1) As of December 31, 2011

(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)

. . . . . . . . . . . . . . . . . . . . . . . . 1.91% 0.65% 3.82% 1.98% 0.73% 4.47%

Percentage of single-family conventional loans(4)

. . 2.12 0.68 3.41 2.17 0.74 3.91

As of

September 30, 2012(1) December 31, 2011 (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% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14% 13.53% 18% 13.76%

Geographical distribution:

Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.35 2 3.65

California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.89 19 2.46

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10.49 6 11.80

Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6.97 1 7.42

Select Midwest states(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.66 10 4.39

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.89 62 3.18

Product distribution:

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11.61 7 12.43

Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 20.85 * 23.18

Vintages:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.54 7 7.27

2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 11.87 7 11.81

2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 12.66 10 12.62

2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.26 7 5.64

All other vintages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 1.40 69 1.59
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

120

__________

* 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, 2012 and 

December 31, 2011.

(2) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process, as of September 30, 2012

and December 31, 2011.

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

aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business.

(4) Calculated based on the number of single-family conventional loans that were delinquent divided by the total number of loans in our 

single-family conventional guaranty book of business.

(5) Calculated based on the number of single-family conventional loans that were seriously delinquent divided by the total number of 

single-family conventional loans for each category included in our guaranty book of business.

(6) Consists of Illinois, Indiana, Michigan, and Ohio.

As of

September 30, 2012(1)(2) December 31, 2011

(1)(2)

30 Days

Delinquent

Seriously 

Delinquent(3)

30 Days

Delinquent

Seriously 

Delinquent(3)

Percentage of multifamily guaranty book of business. . . . . . . . . . . . 0.09% 0.28% 0.11% 0.59%

As of

September 30, 2012(1) December 31, 2011

(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 loan-to-value ratio:

Greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 1.14% 5% 2.51%

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . 96 0.25 95 0.49

Original debt service coverage ratio:

Less than or equal to 1.10. . . . . . . . . . . . . . . . . . . . . . . . . 8 0.47 8 0.24

Greater than 1.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 0.26 92 0.62

Current debt service coverage ratio less than 1.0(5). . . . . . . . 6 1.90 7 3.66

__________

(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, 2012 and December 31, 2011

excluding loans that have been defeased.

(2) Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid 

principal balance of loans in our multifamily guaranty book of business.

(3) Consists of multifamily loans that were 60 days or more past due as of the dates indicated.

(4) Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid 

principal balance of multifamily loans for each category included in our guaranty book of business.

(5) Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most 

recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range from 6 to 18 months, as 

they prepare their results in the normal course of business.

7. Acquired Property, Net

Acquired property, net consists of held-for-sale foreclosed property received in full 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, 2012 and 2011. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

121

For the Three Months Ended For the Nine Months Ended

September 30, 2012 September 30, 2012

Acquired

Property

Valuation

Allowance(1)

Acquired

Property,

Net

Acquired

Property

Valuation

Allowance(1)

Acquired

Property,

Net

(Dollars in millions)

Balance as of beginning of period. . . . . . . . . . . $11,035 $(648) $10,387 $ 12,401 $(1,028) $ 11,373

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,349 (259) 4,090 12,457 (500) 11,957

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,442) 298 (4,144) (13,916) 1,211 (12,705)

Write-downs, net of recoveries . . . . . . . . . . . . . — (55) (55) — (347) (347)

Balance as of end of period . . . . . . . . . . . . . . . . $10,942 $(664) $10,278 $ 10,942 $ (664) $ 10,278

For the Three Months Ended For the Nine Months Ended

September 30, 2011 September 30, 2011

Acquired

Property

Valuation

Allowance(1)

Acquired

Property,

Net

Acquired

Property

Valuation

Allowance(1)

Acquired

Property,

Net

(Dollars in millions)

Balance as of beginning of period. . . . . . . . . . . $14,915 $ (1,323) $13,592 $ 18,054 $ (1,881) $ 16,173

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,066 (144) 3,922 13,953 (422) 13,531

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,606) 601 (5,005) (18,632) 2,119 (16,513)

Write-downs, net of recoveries . . . . . . . . . . . . . — (314) (314) — (996) (996)

Balance as of end of period . . . . . . . . . . . . . . . . $13,375 $ (1,180) $12,195 $ 13,375 $ (1,180) $ 12,195

__________

(1) Reflects activities in the valuation allowance for acquired properties held primarily by our single-family segment.

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, 2012 and December 31, 2011.

As of

September 30, 2012 December 31, 2011

Outstanding

WeightedAverage 

Interest Rate(1) Outstanding

WeightedAverage 

Interest Rate(1)

(Dollars in millions)

Fixed-rate short-term debt:

Discount notes(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $104,547 0.15% $146,301 0.13%

Foreign exchange discount notes(3)

. . . . . . . . . . . . . . . . . . . . . 515 1.71 371 1.88

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 80 0.04

Total short-term debt of Fannie Mae . . . . . . . . . . . . . . . . . 105,062 0.16 146,752 0.13

Debt of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,806 0.15 4,973 0.09

Total short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108,868 0.16% $151,725 0.13%
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

122

__________

(1) Includes the effects of discounts, premiums, and other cost basis adjustments.

(2) Represents unsecured general obligations with maturities ranging from overnight to 360 days from the date of issuance.

(3) Represents foreign exchange discount notes we issue in the Euro commercial paper market with maturities ranging from 5 to 360 days 

which enable investors to hold short-term investments in different currencies. We do not incur foreign exchange risk on these 

transactions, as we simultaneously enter into foreign currency swaps that have the effect of converting debt that we issue in foreign 

denominated currencies into U.S. dollars.

(4) Includes foreign exchange discount notes denominated in U.S. dollars.

Intraday Lines of Credit

We periodically use secured and unsecured intraday funding lines of credit provided by several large financial institutions. 

We post collateral which, in some circumstances, the secured party has the right to repledge to third parties. As these lines of 

credit are uncommitted intraday loan facilities, we may be unable to draw on them if and when needed. We had secured 

uncommitted lines of credit of $25.0 billion and unsecured uncommitted lines of credit of $500 million as of September 30, 

2012 and December 31, 2011. We had no borrowings outstanding from these lines of credit as of September 30, 2012.

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, 2012 and December 31, 2011.

As of

September 30, 2012 December 31, 2011

Maturities Outstanding

WeightedAverage 

Interest 

Rate(1) Maturities Outstanding

WeightedAverage 

Interest 

Rate(1)

(Dollars in millions)

Senior fixed:

Benchmark notes and bonds . . . 2012 - 2030 $ 260,774 2.58% 2012 - 2030 $ 277,146 2.81%

Medium-term notes(2)

. . . . . . . . 2012 - 2022 174,867 1.31 2012 - 2021 176,886 1.61

Foreign exchange notes and

bonds . . . . . . . . . . . . . . . . . . . 2021 - 2028 689 5.30 2021 - 2028 662 5.44

Other(3)(4)

. . . . . . . . . . . . . . . . . . 2012 - 2038 41,654 5.11 2012 - 2040 50,912 5.29

Total senior fixed . . . . . . . . . 477,984 2.34 505,606 2.64

Senior floating:

Medium-term notes(2)

. . . . . . . . 2012 - 2019 63,516 0.29 2012 - 2016 71,855 0.32

Other(3)(4)

. . . . . . . . . . . . . . . . . . 2020 - 2037 396 7.46 2020 - 2037 420 8.01

Total senior floating . . . . . . . 63,912 0.33 72,275 0.35

Subordinated fixed:

Qualifying subordinated(5)

. . . . . 2013 - 2014 2,522 5.00 2012 - 2014 4,894 5.08

Subordinated debentures . . . . . . 2019 3,124 9.92 2019 2,917 9.91

Total subordinated fixed. . . . 5,646 7.72 7,811 6.88

Secured borrowings(6)

. . . . . . . . . . 2021 - 2022 367 1.87 — — —

Total long-term debt of Fannie 

Mae(7)

. . . . . . . . . . . . . . . . . . . 547,909 2.16 585,692 2.42

Debt of consolidated trusts(4)

. . . . . 2012 - 2052 2,539,933 3.58 2012 - 2051 2,452,455 4.18

Total long-term debt . . . . . . . $ 3,087,842 3.32% $ 3,038,147 3.84%

__________

(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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

123

(3) Includes long-term debt that is not included in other debt categories.

(4) Includes a portion of structured debt instruments that is reported at fair value.

(5) Consists of subordinated debt issued with an interest deferral feature.

(6) Represents remaining liability for transfer of financial assets from our condensed consolidated balance sheets that did not qualify as a 

sale.

(7) Reported amounts include a net discount and other cost basis adjustments of $6.2 billion and $9.2 billion as of September 30, 2012 and 

December 31, 2011, respectively.

9. Derivative Instruments 

Derivative instruments are an integral part of our strategy in managing interest rate risk. Derivative instruments may be 

privately negotiated contracts, which are often referred to as over-the-counter derivatives, or they may be listed and traded on 

an exchange. We typically do not settle the notional amount of our risk management derivatives; rather, notional amounts 

provide the basis for calculating actual payments or settlement amounts. The derivatives we use for interest rate risk 

management purposes consist primarily of interest rate swaps and interest rate options. Our foreign currency swaps are used 

to manage foreign exchange risk.

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)

124

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, 2012 and December 31, 2011.

As of September 30, 2012 As of December 31, 2011

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 . . . . . . . . . . . . . . . . . . $ 5,375 $ 80 $ 244,217 $ (20,619) $ 30,950 $ 102 $ 155,807 $ (17,391)

Receive-fixed . . . . . . . . . . . . . . 286,365 10,971 9,075 (27) 170,668 8,118 59,027 (93)

Basis . . . . . . . . . . . . . . . . . . . . . 21,822 163 3,100 (1) 382 122 9,240 (44)

Foreign currency . . . . . . . . . . . . 811 195 391 (43) 581 155 451 (62)

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . . 33,400 105 26,625 (162) 48,600 165 47,750 (194)

Receive-fixed . . . . . . . . . . . . . . 19,470 4,317 26,625 (2,517) 33,695 6,371 47,750 (3,238)

Other(1)

. . . . . . . . . . . . . . . . . . . . . . . . 7,395 28 12 — 8,214 52 75 —

Total gross risk management

derivatives. . . . . . . . . . . . . . . . . 374,638 15,859 310,045 (23,369) 293,090 15,085 320,100 (21,022)

Accrued interest receivable

(payable) . . . . . . . . . . . . . . . . . . — 1,224 — (1,602) — 920 — (1,238)

Netting adjustment(2)

. . . . . . . . . . . — (16,826) — 24,596 — (15,829) — 21,898

Total net risk management

derivatives . . . . . . . . . . . . . . . $ 374,638 $ 257 $ 310,045 $ (375) $ 293,090 $ 176 $ 320,100 $ (362)

Mortgage commitment derivatives:

Mortgage commitments to

purchase whole loans. . . . . . . . $ 16,260 $ 255 $ 4,209 $ (6) $ 9,710 $ 73 $ 422 $ —

Forward contracts to purchase

mortgage-related securities . . . 48,212 804 7,447 (14) 32,707 309 2,570 (6)

Forward contracts to sell

mortgage-related securities . . . 6,414 12 96,999 (1,638) 1,370 3 54,656 (548)

Total mortgage commitment

derivatives. . . . . . . . . . . . . . . $ 70,886 $ 1,071 $ 108,655 $ (1,658) $ 43,787 $ 385 $ 57,648 $ (554)

Derivatives at fair value . . . . . . $ 445,524 $ 1,328 $ 418,700 $ (2,033) $ 336,877 $ 561 $ 377,748 $ (916)

__________

(1) Includes interest rate caps, futures, swap credit enhancements and mortgage insurance contracts that we account for as derivatives. The 

mortgage insurance contracts have payment provisions that are not based on a notional amount.

(2) The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting agreements to settle with 

the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $7.8 billion and $6.8 

billion as of September 30, 2012 and December 31, 2011, respectively. No cash collateral was received as of September 30, 2012 and 

$779 million was received as of December 31, 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

125

A majority of our derivative contracts contain provisions that require our senior unsecured debt to maintain a minimum credit 

rating from S&P and Moody’s. If our senior unsecured debt credit ratings were downgraded to established thresholds in our 

derivatives 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 derivatives with credit-risk-related contingent features 

that were in a net liability position as of September 30, 2012 was $7.9 billion, for which we posted collateral of $7.8 billion

in the normal course of business. Had all of the credit-risk-related contingency features underlying these agreements been 

triggered, an additional $116 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, 2012.

The aggregate fair value of all derivatives with credit risk-related contingent features that were in a net liability position as of 

December 31, 2011 was $7.2 billion, for which we posted collateral of $6.8 billion in the normal course of business. Had all 

of the credit risk-related contingency features underlying these agreements been triggered, an additional $362 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 December 31, 2011.

We record all derivative gains and losses, including accrued interest, in “Fair value losses, net” in our condensed consolidated 

statements of operations and comprehensive income (loss). 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, 2012 and 2011. 

For the For the

Three Months Nine Months

Ended September 30, Ended September 30,

2012 2011 2012 2011

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,272) $ (11,334) $ (6,955) $(16,206)

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,511 4,577 4,185 7,105

Basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 75 98 104

Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 31 70 114

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 533 108 805

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 2,091 374 2,591

Other(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) (40) (30) (80)

Total risk management derivatives fair value losses, net. . . . . . . . . . . . . . . (508) (4,067) (2,150) (5,567)

Mortgage commitment derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . (816) (188) (1,583) (226)

Total derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,324) $ (4,255) $ (3,733) $ (5,793)

__________

(1) Includes interest rate caps, futures, swap credit enhancements and mortgage insurance contracts.

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate and foreign currency derivative contracts. We 

are exposed to the risk that a counterparty in a derivative transaction will default on payments due to us. If there is a default, 

we may need to acquire a replacement derivative from a different counterparty at a higher cost or may be unable to find a 

suitable replacement. We estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, 

on a present value basis, to settle at current market prices all outstanding derivative contracts in a net gain position at the 

counterparty level where the right of legal offset exists. For derivative instruments where the right of legal offset does not 

exist, we calculate the replacement cost of the outstanding derivative contracts in a gain position at the transaction level. We 

manage our exposure by requiring counterparties to post collateral, which includes cash, U.S. Treasury securities, agency 

debt and agency mortgage-related securities. 

The table below displays our counterparty credit exposure on outstanding risk management derivative instruments in a gain 

position by counterparty credit ratings, as well as the notional amount outstanding and the number of counterparties for all 

risk management derivatives as of September 30, 2012 and December 31, 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

126

As of September 30, 2012

Credit Rating(1)

AA+/ AA/

AA- A+/A/ABBB+/BBB/BBB- Subtotal(2) Other(3) Total

(Dollars in millions)

Credit loss exposure(4). . . . . . . . . . . . . . . . . . . . . . . $ — $ 118 $ 83 $ 201 $ 28 $ 229

Less: Collateral held(5). . . . . . . . . . . . . . . . . . . . . . . — 116 82 198 — 198

Exposure net of collateral . . . . . . . . . . . . . . . . . . . . $ — $ 2 $ 1 $ 3 $ 28 $ 31

Additional information:

Notional amount. . . . . . . . . . . . . . . . . . . . . . . . . $ 19,038 $ 617,668 $ 47,513 $ 684,219 $ 464 $ 684,683

Number of counterparties . . . . . . . . . . . . . . . . . 4 14 4 22

As of December 31, 2011

Credit Rating(1)

AA+/AA/

AA- A+/A/ABBB+/BBB/BBB- Subtotal(2) Other(3) Total

(Dollars in millions)

Credit loss exposure(4). . . . . . . . . . . . . . . . . . . . . . . $ — $ 885 $ — $ 885 $ 51 $ 936

Less: Collateral held(5). . . . . . . . . . . . . . . . . . . . . . . — 840 — 840 — 840

Exposure net of collateral . . . . . . . . . . . . . . . . . . . . $ — $ 45 $ — $ 45 $ 51 $ 96

Additional information:

Notional amount. . . . . . . . . . . . . . . . . . . . . . . . . $ 63,294 $ 546,967 $ — $ 610,261 $ 2,929 $ 613,190

Number of counterparties . . . . . . . . . . . . . . . . . 6 10 — 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’s rating for any ratings based on Moody’s scale.

(2) We had credit loss exposure to eight and four counterparties for interest rate and foreign currency derivatives counterparties as of 

September 30, 2012 and December 31, 2011, respectively. Those interest rate and foreign currency derivatives had notional balances of 

$8.5 billion and $127.5 billion as of September 30, 2012 and December 31, 2011, respectively.

(3) Includes mortgage insurance contracts and swap credit enhancements accounted for as derivatives. 

(4) Represents the exposure to credit loss on derivative instruments, which we estimate using the fair value of all outstanding derivative 

contracts in a gain position. We net derivative gains and losses with the same counterparty where a legal right of offset exists under an 

enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives.

(5) Represents both cash and non-cash collateral posted by our counterparties to us. Does not include collateral held in excess of exposure. 

We reduce the value of non-cash collateral in accordance with the counterparty agreements to help ensure recovery of any loss through 

the disposition of the collateral.

10. Segment Reporting

Our three reportable segments are: Single-Family, Multifamily, and Capital Markets. We use these three segments to 

generate revenue and manage business risk, and each segment is based on the type of business activities it performs. We are 

working on reorganizing our company by function rather than by business in order to improve our operational efficiencies 

and effectiveness. In future periods, we may change some of our management reporting and how we report our business 

segment results. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

127

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 (loss), as we separate the activity related to our 

consolidated trusts from the results generated by our three segments. Our business segment results include directly 

attributable revenues and expenses. Additionally, we allocate to each of our segments: (1) capital using FHFA minimum 

capital requirements adjusted for over- or under-capitalization; (2) indirect administrative costs; and (3) a provision or benefit 

for federal income taxes. In addition, we allocate intracompany guaranty fee income as a charge from the Single-Family and 

Multifamily segments to Capital Markets for managing the credit risk on mortgage loans held by the Capital Markets group. 

We also include an eliminations/adjustments category to reconcile our business segment results and the activity related to our 

consolidated trusts to net income (loss) in our condensed consolidated statements of operations and comprehensive income 

(loss).

The following tables display our business segment results for the three and nine months ended September 30, 2012 and 2011. 

For the Three Months Ended September 30, 2012

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments (2)

Total

Results

(Dollars in millions)

Net interest (loss) income. . . . . . . . . . . . . . . . . . . $ (192) $ (1) $ 3,247 $ 1,778 $ 485 (3) $ 5,317

(Provision) benefit for credit losses . . . . . . . . . . . (2,176) 97 — — — (2,079)

Net interest (loss) income after (provision) 

benefit for credit losses. . . . . . . . . . . . . . . . . . . (2,368) 96 3,247 1,778 485 3,238

Guaranty fee income (expense) . . . . . . . . . . . . . . 2,014 265 (319) (1,219)

(5) (685)(5) 56 (5)

Investment gains (losses), net. . . . . . . . . . . . . . . . 5 11 2,201 (64) (2,019)

(6) 134

Net other-than-temporary impairments . . . . . . . . — — (38) — — (38)

Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . (1) — (961) (58) —

(7) (1,020)

Debt extinguishment losses, net. . . . . . . . . . . . . . — — (46) (8) — (54)

Gains from partnership investments. . . . . . . . . . . — 43 — — (8) 35 (8)

Fee and other income (expense). . . . . . . . . . . . . . 181 55 185 (94) (5) 322

Administrative expenses . . . . . . . . . . . . . . . . . . . (397) (70) (121) — — (588)

Foreclosed property income . . . . . . . . . . . . . . . . . 46 2 — — — 48

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (290) (7) (6) — (17) (320)

(Loss) income before federal income taxes. . . . . (810) 395 4,142 335 (2,249) 1,813

(Provision) benefit for federal income taxes. . . . (12) 32 (20) — — —

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . (822) 427 4,122 335 (2,249) 1,813

Less: Net loss attributable to noncontrolling

interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 8

(9) 8

Net (loss) income attributable to Fannie Mae. $ (822) $ 427 $ 4,122 $ 335 $ (2,241) $ 1,821
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

128

For the Nine Months Ended September 30, 2012

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments (2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . . . . . $ (786) $ (14) $ 10,231 $ 5,078 $ 1,433 (3) $ 15,942

(Provision) benefit for credit losses . . . . . . . . . . (1,273) 235 — — — (1,038)

Net interest (loss) income after (provision) 

benefit for credit losses. . . . . . . . . . . . . . . . . . (2,059) 221 10,231 5,078 1,433 14,904

Guaranty fee income (expense) . . . . . . . . . . . . . 5,895 760 (977) (3,584)

(5) (1,918)(5) 176 (5)

Investment gains, net . . . . . . . . . . . . . . . . . . . . . 8 23 4,666 50 (4,366)

(6) 381

Net other-than-temporary impairments . . . . . . . — — (699) (2) — (701)

Fair value losses, net. . . . . . . . . . . . . . . . . . . . . . (5) — (3,252) (66) 137 (7) (3,186)

Debt extinguishment (losses) gains, net. . . . . . . — — (218) 37 — (181)

Gains from partnership investments. . . . . . . . . . — 72 — — (4) 68 (8)

Fee and other income (expense) . . . . . . . . . . . . . 588 151 551 (302) (16) 972

Administrative expenses. . . . . . . . . . . . . . . . . . . (1,159) (194) (366) — — (1,719)

Foreclosed property (expense) income. . . . . . . . (227) 6 — — — (221)

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (765) (7) (17) — (54) (843)

Income before federal income taxes . . . . . . . . . 2,276 1,032 9,919 1,211 (4,788) 9,650

(Provision) benefit for federal income taxes . . . (12) 32 (20) — — —

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 2,264 1,064 9,899 1,211 (4,788) 9,650

Less: Net loss attributable to noncontrolling

interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 4

(9) 4

Net income attributable to Fannie Mae. . . . . $ 2,264 $ 1,064 $ 9,899 $ 1,211 $ (4,784) $ 9,654
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

129

For the Three Months Ended September 30, 2011

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments (2)

Total

Results

(Dollars in millions)

Net interest (loss) income. . . . . . . . . . . . . . . . . . $ (374) $ (7) $ 3,904 $ 1,210 $ 453 (3) $ 5,186

Provision for credit losses(4). . . . . . . . . . . . . . . . (4,072) (79) — — — (4,151)

Net interest (loss) income after provision for

credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,446) (86) 3,904 1,210 453 1,035

Guaranty fee income (expense) . . . . . . . . . . . . . 1,867 226 (369) (1,124)

(5) (551)(5) 49 (5)

Investment gains (losses), net. . . . . . . . . . . . . . . 3 5 801 (89) (647)

(6) 73

Net other-than-temporary impairments . . . . . . . — — (262) — — (262)

Fair value losses, net . . . . . . . . . . . . . . . . . . . . . (2) — (4,670) (17) 164 (7) (4,525)

Debt extinguishment losses, net. . . . . . . . . . . . . — — (107) (12) — (119)

Losses from partnership investments. . . . . . . . . — (30) — — — (30)

(8)

Fee and other income (expense). . . . . . . . . . . . . 136 51 125 (67) (3) 242

Administrative expenses . . . . . . . . . . . . . . . . . . (409) (62) (120) — — (591)

Foreclosed property expense . . . . . . . . . . . . . . . (710) (23) — — — (733)

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (184) (9) (14) — (17) (224)

(Loss) income before federal income taxes . . . . (3,745) 72 (712) (99) (601) (5,085)

(Provision) benefit for federal income taxes . . . (1) — 1 — — —

Net (loss) income attributable to Fannie

Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,746) $ 72 $ (711) $ (99) $ (601) $ (5,085)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

130

For the Nine Months Ended September 30, 2011

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments (2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . . $ (1,952) $ (27) $ 11,481 $ 4,098 $ 1,518 (3) $ 15,118

Provision for credit losses(4). . . . . . . . . . . . . (21,104) (138) — — — (21,242)

Net interest (loss) income after provision for

credit losses . . . . . . . . . . . . . . . . . . . . . . . . (23,056) (165) 11,481 4,098 1,518 (6,124)

Guaranty fee income (expense). . . . . . . . . . . 5,618 651 (1,159) (3,350)

(5) (1,611)(5) 149 (5)

Investment (losses) gains, net . . . . . . . . . . . . (2) 10 2,589 (258) (2,020)

(6) 319

Net other-than-temporary impairments. . . . . — — (361) (1) — (362)

Fair value losses, net . . . . . . . . . . . . . . . . . . . (5) — (5,959) (122) 216 (7) (5,870)

Debt extinguishment (losses) gains, net . . . . — — (186) 37 — (149)

Losses from partnership investments . . . . . . — (8) — — 1 (7)

(8)

Fee and other income (expense) . . . . . . . . . . 397 166 309 (222) (6) 644

Administrative expenses . . . . . . . . . . . . . . . . (1,225) (194) (346) — — (1,765)

Foreclosed property expense . . . . . . . . . . . . . (717) (26) — — — (743)

Other (expenses) income . . . . . . . . . . . . . . . . (579) 33 (32) — (53) (631)

(Loss) income before federal income taxes. . (19,569) 467 6,336 182 (1,955) (14,539)

Benefit (provision) for federal income taxes. 106 (61) 46 — — 91

Net (loss) income . . . . . . . . . . . . . . . . . . . (19,463) 406 6,382 182 (1,955) (14,448)

Less: Net income attributable to

noncontrolling interest . . . . . . . . . . . . . — — — — (1)

(9) (1)

Net (loss) income attributable to Fannie

Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (19,463) $ 406 $ 6,382 $ 182 $ (1,956) $(14,449)

__________

(1) Represents activity related to the assets and liabilities of consolidated trusts in our condensed consolidated balance sheets.

(2) Represents the elimination of intercompany transactions occurring between the three business segments and our consolidated trusts, as 

well as other adjustments to reconcile to our consolidated results.

(3) Represents the amortization expense of cost basis adjustments on securities that we own in our portfolio that on a GAAP basis are 

eliminated.

(4) Prior period amounts have been reclassified to conform to the current period presentation. 

(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 is included in fee and other income in our 

condensed consolidated statements of operations and comprehensive income (loss).

(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 retained in the Capital Markets portfolio. The adjustment also includes the removal of 

securitization gains (losses) recognized in the Capital Markets segment relating to portfolio securitization transactions that do not 

qualify for sale accounting under GAAP.

(7) Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are retained in the Capital 

Markets portfolio.

(8) Gains (losses) from partnership investments are included in other expenses in our condensed consolidated statements of operations and 

comprehensive income (loss).

(9) Represents the adjustment from equity method accounting to consolidation accounting for partnership investments that are consolidated 

in our condensed consolidated balance sheets. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

131

11. Concentration of Credit Risk

Mortgage Seller/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 seller/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 59% of our single-family guaranty book of business as of September 30, 2012, compared 

with 63% as of December 31, 2011. Our ten largest multifamily mortgage servicers, including their affiliates, serviced 68%

of our multifamily guaranty book of business as of September 30, 2012, compared with 67% as of December 31, 2011.

If a significant seller/servicer counterparty, or a number of seller/servicers fails to meet its obligations to us, it could result in 

a significant increase in our credit losses and have a material adverse affect on our results of operations, liquidity, financial 

condition and net worth.

Mortgage Insurers. Mortgage insurance “risk in force” represents our maximum potential loss recovery under the applicable 

mortgage insurance policies. We had total mortgage insurance coverage risk in force of $90.5 billion and $91.2 billion on the 

single-family mortgage loans in our guaranty book of business as of September 30, 2012 and December 31, 2011, which 

represented 3% of our single-family guaranty book of business. Our primary mortgage insurance coverage risk in force was 

$89.1 billion and $87.3 billion as of September 30, 2012 and December 31, 2011. Our pool mortgage insurance coverage risk 

in force was $1.5 billion and $3.9 billion as of September 30, 2012 and December 31, 2011, respectively. Our top six

mortgage insurance companies provided 93% and 94% of our mortgage insurance as of September 30, 2012 and December 

31, 2011, respectively.

As of November 7, 2012, of our largest primary mortgage insurers: PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty 

Insurance Corporation (“Triad”) and Republic Mortgage Insurance Company (“RMIC”) are in run-off and PMI is also in 

receivership; Genworth Mortgage Insurance Corporation (“Genworth”) and Mortgage Guaranty Insurance Corporation 

(“MGIC”) are operating pursuant to waivers they received from their regulators of the state regulatory capital requirements 

applicable to their main insurance writing entity, as the capital of each entity has fallen below applicable state regulatory 

capital requirements; and Radian Guaranty, Inc. (“Radian”) has disclosed that, in the absence of additional capital 

contributions to its main insurance writing entity, its capital might fall below state regulatory capital requirements in the 

future. These six mortgage insurers provided a combined $70.4 billion, or 78%, of our risk in force mortgage insurance 

coverage of our single-family guaranty book of business as of September 30, 2012.

The current weakened financial condition of our mortgage insurer counterparties creates an increased risk that these 

counterparties will fail to fulfill their obligations to reimburse us for claims under insurance policies. If we determine that it is 

probable that we will not collect all of our claims from one or more of these mortgage insurer counterparties, it could result in 

an increase in our loss reserves, which could adversely affect our earnings, liquidity, financial condition and net worth. 

Our total loss reserves incorporate an estimated recovery amount from mortgage insurance coverage. We evaluate the 

financial condition of our mortgage insurer counterparties and adjust the contractually due mortgage insurance benefit for 

collectability in order to ensure that our total loss reserves reflect probable losses as of the balance sheet date. The following 

table displays our estimated benefit from mortgage insurers as of September 30, 2012 and December 31, 2011 that reduce our 

total loss reserves.

As of

September 30, 2012 December 31, 2011

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,681 $ 15,099

Less: Collectability adjustment(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,823 2,867

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,858 $ 12,232

__________

(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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

132

We had outstanding receivables of $3.8 billion recorded in “Other assets” in our condensed consolidated balance sheets as of 

September 30, 2012 and $3.6 billion as of December 31, 2011 related to amounts claimed on insured, defaulted loans that we 

have not yet received, of which $1.1 billion as of September 30, 2012 and $639 million as of December 31, 2011 was due 

from our mortgage seller/servicers. We assessed the total outstanding receivables for collectability, and they are recorded net 

of a valuation allowance of $881 million as of September 30, 2012 and $570 million as of December 31, 2011. The valuation 

allowance reduces our claim receivable to the amount which is considered probable of collection as of September 30, 2012 

and December 31, 2011. 

We received proceeds under our primary and pool mortgage insurance policies for single-family loans of $1.1 billion and 

$3.6 billion for the three and nine months ended September 30, 2012, respectively, and $1.4 billion and $4.6 billion for the 

three and nine months ended September 30, 2011, respectively.

Derivatives Counterparties. For information on credit risk associated with our derivatives transactions refer to “Note 9, 

Derivative Instruments.”

12. 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. 

Effective January 1, 2012, we adopted new accounting guidance that requires enhanced disclosures about fair value 

measurement. Upon adoption of the new fair value guidance, we made changes to the principal markets that we use to 

estimate the fair value of the following categories of mortgage loans: (a) for loans that are one month delinquent, we changed 

to the GSE securitization market; (b) for loans that are two and three months delinquent, we changed to the whole loan 

market; and (c) for loans that have been modified in a troubled debt restructuring but have been reperforming for nine months 

or more, we changed to the whole loan market. After making these changes, (a) the principal market for all performing loans 

and those loans that are one month delinquent is the GSE securitization market; and (b) the principal market for all loans that 

are two or more months delinquent and all loans that have been modified in a troubled debt restructuring is the whole loan 

market. The impact of making these changes to our principal markets was a net decrease in the estimated fair value of our 

loans of $24.4 billion as of March 31, 2012.

In addition, we enhanced our fair value estimation process for HARP loans as of March 31, 2012 to use the modified build-up 

approach, as described in “Fair Value of Financial Instruments—HARP Loans.” Previously, we measured the fair value of 

these loans using our standard build-up approach. The impact of this enhancement was an increase in the estimated fair value 

of HARP loans of $7.4 billion as of March 31, 2012.

In the three months ended September 30, 2012, we updated our assumptions for prepayment speeds, severities and default 

rates, which resulted in an increase in the fair value of our loans of approximately $23 billion. These updates resulted in 

lower expectation of losses on certain loans, primarily performing loans with high LTV ratios.

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, 2012 and December 31, 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

133

Fair Value Measurements as of September 30, 2012

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Recurring fair value measurements:

Assets:

Cash equivalents(2)

. . . . . . . . . . . . . . . . . . . . . . $ 2,575 $ — $ — $ — $ 2,575

Trading securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . — 6,169 76 — 6,245

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . — 2,838 2 — 2,840

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . — 279 1 — 280

Alt-A private-label securities. . . . . . . . . . — 846 430 — 1,276

Subprime private-label securities . . . . . . — — 1,265 — 1,265

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,920 — — 9,920

Mortgage revenue bonds . . . . . . . . . . . . . — — 681 — 681

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 118 — 118

Non-mortgage-related securities:

U.S. Treasury securities. . . . . . . . . . . . . . 19,897 — — — 19,897

Total trading securities. . . . . . . . . . . . . . . . . . . 19,897 20,052 2,573 — 42,522

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . — 11,538 32 — 11,570

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . — 10,180 10 — 10,190

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . — 792 — — 792

Alt-A private-label securities. . . . . . . . . . — 4,666 6,562 — 11,228

Subprime private-label securities . . . . . . — — 7,372 — 7,372

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13,321 — — 13,321

Mortgage revenue bonds . . . . . . . . . . . . . — 4 8,669 — 8,673

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11 3,195 — 3,206

Total available-for-sale securities . . . . . . . . . . — 40,512 25,840 — 66,352

Mortgage loans of consolidated trusts. . . . . . . — 5,424 2,416 — 7,840

Other assets:

Risk management derivatives:

Swaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,476 157 — 12,633

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . — 4,422 — — 4,422

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 28 — 28

Netting adjustment. . . . . . . . . . . . . . . . . . — — — (16,826) (16,826)

Mortgage commitment derivatives . . . . . . — 1,059 12 — 1,071

Total other assets. . . . . . . . . . . . . . . . . . . . . . . — 17,957 197 (16,826) 1,328

Total assets at fair value. . . . . . . . . . . . . . $ 22,472 $ 83,945 $ 31,026 $(16,826) $120,617
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

134

Fair Value Measurements as of September 30, 2012

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior fixed . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 399 $ — $ — $ 399

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . — — 431 — 431

Total of Fannie Mae . . . . . . . . . . . . . . . . . . . . . — 399 431 — 830

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . — 5,943 1,425 — 7,368

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . — 6,342 1,856 — 8,198

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 22,126 166 — 22,292

Swaptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,679 — — 2,679

Netting adjustment . . . . . . . . . . . . . . . . . . . . . — — — (24,596) (24,596)

Mortgage commitment derivatives. . . . . . . . . . — 1,657 1 — 1,658

Total other liabilities . . . . . . . . . . . . . . . . . . . . . . — 26,462 167 (24,596) 2,033

Total liabilities at fair value . . . . . . . . . . . . . . $ — $ 32,804 $ 2,023 $ (24,596) $ 10,231
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

135

Fair Value Measurements as of December 31, 2011

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Assets:

Cash equivalents(2). . . . . . . . . . . . . . . . . . . . . . . $ 600 $ — $ — $ — $ 600

Trading securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 5,687 1,737 — 7,424

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . — 2,732 — — 2,732

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 278 9 — 287

Alt-A private-label securities . . . . . . . . . . . . — 1,004 345 — 1,349

Subprime private-label securities . . . . . . . . . — — 1,280 — 1,280

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,411 — — 10,411

Mortgage revenue bonds. . . . . . . . . . . . . . . . — — 724 — 724

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 143 — 143

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . . . 47,737 — — — 47,737

Asset-backed securities. . . . . . . . . . . . . . . . . — 2,111 — — 2,111

Total trading securities . . . . . . . . . . . . . . . . . . . . 47,737 22,223 4,238 — 74,198

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 15,904 946 — 16,850

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . — 12,811 12 — 12,823

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . — 902 — — 902

Alt-A private-label securities . . . . . . . . . . . . — 4,427 7,256 — 11,683

Subprime private-label securities . . . . . . . . . — — 7,586 — 7,586

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 14,026 — — 14,026

Mortgage revenue bonds. . . . . . . . . . . . . . . . — 7 10,247 — 10,254

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13 3,445 — 3,458

Total available-for-sale securities. . . . . . . . . . . . — 48,090 29,492 — 77,582

Mortgage loans of consolidated trusts . . . . . . . . — 1,292 2,319 — 3,611

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,247 170 — 9,417

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . — 6,536 — — 6,536

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 51 — 52

Netting adjustment . . . . . . . . . . . . . . . . . . . . — — — (15,829) (15,829)

Mortgage commitment derivatives . . . . . . . . . — 368 17 — 385

Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . — 16,152 238 (15,829) 561

Total assets at fair value . . . . . . . . . . . . . . . . $ 48,337 $ 87,757 $ 36,287 $ (15,829) $ 156,552
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

136

Fair Value Measurements as of December 31, 2011

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 432 $ — $ — $ 432

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 406 — 406

Total of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 432 406 — 838

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . — 3,174 765 — 3,939

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . — 3,606 1,171 — 4,777

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,661 167 — 18,828

Swaptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,432 — — 3,432

 Netting adjustment . . . . . . . . . . . . . . . . . . . . . . . . — — — (21,898) (21,898)

Mortgage commitment derivatives. . . . . . . . . . . . . — 548 6 — 554

Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . — 22,641 173 (21,898) 916

Total liabilities at fair value . . . . . . . . . . . . . . . . . $ — $ 26,247 $ 1,344 $ (21,898) $ 5,693

__________

(1) Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset 

under legally enforceable master netting agreements to settle with the same counterparty on a net basis, including cash collateral 

posted and received.

(2) Cash equivalents are comprised of U.S. Treasuries that are classified as Level 1.

The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using 

significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2012 and 2011. 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 (loss) for Level 3 assets and liabilities for 

the three and nine months ended September 30, 2012 and 2011. 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)

137

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 

For the Three Months Ended September 30, 2012

Total Gains or (Losses) 

(Realized/Unrealized) 

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of September

30, 2012(5)

Balance,

July 1,

2012

Included

in Net

Income

(Loss)

Included in 

Other

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance, 

September

30, 2012

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae. . . . . . . $ 82 $ (1) $ — $ — $ — $ — $ (5) $ — $ — $ 76 $ (1)

Freddie Mac . . . . . . 2 — — — — — — — — 2 —

Ginnie Mae. . . . . . . — — — — — — — — 1 1 —

 Alt-A private-label

securities. . . . . . . 188 12 — — — — (19) (54) 303 430 7

 Subprime privatelabel securities . . 1,226 78 — — — — (39) — — 1,265 78

 Mortgage revenue

bonds . . . . . . . . . 689 (5) — — — — (3) — — 681 (5)

 Other . . . . . . . . . . 118 1 — — — — (1) — — 118 1

Total trading securities. . $ 2,305 $ 85 $ — $ — $ — $ — $ (67) $ (54) $ 304 $ 2,573 $ 80

Available-for-sale

securities:

Mortgage-related:

Fannie Mae. . . . . . . $ 34 $ — $ — $ 35 $ (35) $ — $ (2) $ — $ — $ 32 $ —

Freddie Mac . . . . . . 11 — — — — — (1) — — 10 —

 Alt-A private-label

securities. . . . . . . 6,456 5 179 — — — (263) (769) 954 6,562 —

 Subprime privatelabel securities . . 7,230 27 434 — — — (319) — — 7,372 —

 Mortgage revenue

bonds . . . . . . . . . 9,353 2 7 29 (29) — (693) — — 8,669 —

Other . . . . . . . . . . . 3,244 (7) 50 — — — (92) — — 3,195 —

Total available-for-sale

securities . . . . . . . . . . $ 26,328 $ 27 $ 670 $ 64 $ (64) $ — $ (1,370) $ (769) $ 954 $ 25,840 $ —

Mortgage loans of

consolidated trusts. . . $ 2,331 $ 96 $ — $ 146 $ — $ — $ (123) $ (60) $ 26 $ 2,416 $ 87

Net derivatives . . . . . . . . 74 (1) — — — (2) (41) — — 30 (9)

Long-term debt:

Of Fannie Mae:

Senior floating. . . . . $ (412) $ (19) $ — $ — $ — $ — $ — $ — $ — $ (431) $ (19)

 Of consolidated trusts. (1,319) (47) — — — (38) 69 62 (152) (1,425) (40)

Total long-term debt. . . . $ (1,731) $ (66) $ — $ — $ — $ (38) $ 69 $ 62 $ (152) $ (1,856) $ (59)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

138

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 

For the Nine Months Ended September 30, 2012

Total Gains or (Losses) 

(Realized/Unrealized) 

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Income 

Related to 

Assets and 

Liabilities 

Still Held as 

of 

September

30, 2012(5)

Balance,

December

31, 2011

Included

in Net

Income

(Loss)

Included in 

Other

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2012

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . . . . $ 1,737 $ 1 $ — $ — $ (33) $ — $ (113) $ (1,581) $ 65 $ 76 $ (3)

Freddie Mac . . . . . . . — — — — — — — — 2 2 —

Ginnie Mae . . . . . . . . 9 — — — — — — (9) 1 1 —

 Alt-A private label

securities . . . . . . . . 345 81 — — — — (86) (470) 560 430 19

Subprime privatelabel securities. . . . 1,280 100 — — — — (115) — — 1,265 99

Mortgage revenue

bonds . . . . . . . . . . . 724 (31) — — — — (12) — — 681 (31)

 Other. . . . . . . . . . . . 143 (21) — — — — (4) — — 118 (21)

Total trading securities. . $ 4,238 $ 130 $ — $ — $ (33) $ — $ (330) $ (2,060) $ 628 $ 2,573 $ 63

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . . . . $ 946 $ — $ (8) $ 41 $ (41) $ — $ (21) $ (895) $ 10 $ 32 $ —

 Freddie Mac . . . . . . . 12 — — — — — (2) — — 10 —

 Alt-A private-label

securities . . . . . . . . 7,256 (97) 472 — — — (800) (2,676) 2,407 6,562 —

 Subprime privatelabel securities. . . . 7,586 (168) 940 — — — (986) — — 7,372 —

 Mortgage revenue

bonds . . . . . . . . . . . 10,247 5 (13) 29 (71) — (1,528) — — 8,669 —

 Other. . . . . . . . . . . . 3,445 7 12 — — — (269) — — 3,195 —

Total available-for-sale

securities. . . . . . . . . . $ 29,492 $ (253) $ 1,403 $ 70 $ (112) $ — $ (3,606) $ (3,571) $ 2,417 $ 25,840 $ —

Mortgage loans of

consolidated trusts . . $ 2,319 $ 216 $ — $ 533 $ — $ — $ (292) $ (404) $ 44 $ 2,416 $ 143

Net derivatives. . . . . . . . 65 14 — — — (8) (41) — — 30 8

Long-term debt:

Of Fannie Mae:

Senior floating . . . . $ (406) $ (25) $ — $ — $ — $ — $ — $ — $ — $ (431) $ (25)

Of consolidated trusts . (765) (107) — — — (523) 147 172 (349) (1,425) (95)

Total long-term debt. . . . $ (1,171) $ (132) $ — $ — $ — $ (523) $ 147 $ 172 $ (349) $ (1,856) $ (120)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

139

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 

For the Three Months Ended September 30, 2011

Total Gains or (Losses) 

(Realized/Unrealized) 

Net 

Unrealized 

Gains 

(Losses) 

Included in 

Net Loss 

Related to 

Assets and 

Liabilities 

Still Held as 

of 

September

30, 2011

(5)

Balance, 

July 1, 

2011

Included 

in Net 

Loss

Included in 

Other

Comprehensive 

(Loss) Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2011

(Dollars in millions)

Trading securities:

 Mortgage-related:

Fannie Mae . . . . . $ 1,679 $ 19 $ — $ 322 $ (3) $ — $ (115) $ (41) $ — $ 1,861 $ 41

 Ginnie Mae. . . . . . — — — — — — — — 36 36 —

 Alt- A privatelabel securities . 126 7 — — — — (13) (73) 165 212 10

 Subprime privatelabel securities . 1,459 (96) — — — — (45) — — 1,318 (95)

 Mortgage revenue

bonds . . . . . . . . 616 105 — — — — (3) — — 718 106

Other . . . . . . . . . . 154 (4) — — — — (3) (147) — — —

Total trading securities. $ 4,034 $ 31 $ — $ 322 $ (3) $ — $ (179) $ (261) $ 201 $ 4,145 $ 62

Available-for-sale

securities:

 Mortgage-related:

Fannie Mae . . . . . $ 635 $ (1) $ 16 $ 853 $ (344) $ — $ (9) $ (374) $ 21 $ 797 $ —

Freddie Mac. . . . . 12 — — — — — (1) — 1 12 —

 Alt-A privatelabel securities . 6,652 (20) (15) — — — (250) (431) 689 6,625 —

 Subprime privatelabel securities . 8,909 148 (484) — (363) — (323) — — 7,887 —

 Mortgage revenue

bonds . . . . . . . . 10,464 (5) 429 — (1) — (288) — — 10,599 —

Other . . . . . . . . . . 3,707 (10) 9 — — — (107) — — 3,599 —

Total available-for-sale

securities. . . . . . . . . $ 30,379 $ 112 $ (45) $ 853 $ (708) $ — $ (978) $ (805) $ 711 $ 29,519 $ —

Mortgage loans of

consolidated trusts . $ 2,365 $ 8 $ — $ 45 $ — $ — $ (101) $ (56) $ 23 $ 2,284 $ 6

Net derivatives . . . . . . . 79 118 — — — (1) (72) (70) — 54 33

Long-term debt:

Of Fannie Mae:

Senior floating . . . $ (402) $ (74) $ — $ — $ — $ — $ 70 $ — $ — $ (406) $ (74)

Of consolidated 

trusts . . . . . . . . . . (646) 1 — — 4 (4) 18 35 (136) (728) 6

Total long-term debt. . . $ (1,048) $ (73) $ — $ — $ 4 $ (4) $ 88 $ 35 $ (136) $ (1,134) $ (68)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

140

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2011

Total Gains or (Losses) 

(Realized/Unrealized) 

Net 

Unrealized 

(Losses) 

Gains 

Included in 

Net Loss 

Related to 

Assets and 

Liabilities 

Still Held 

as of 

September

30, 2011

(5)

Balance, 

December

31, 2010

Included 

in Net 

Loss

Included in 

Other

Comprehensive 

(Loss) Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

September

30, 2011

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . $ 2,202 $ 7 $ — $ 446 $ (18) $ — $ (344) $ (432) $ — $ 1,861 $ 32

Ginnie Mae . . . . . — — — — — — — — 36 36 —

 Alt-A privatelabel securities . 20 8 — — — — (14) (73) 271 212 12

 Subprime privatelabel securities . 1,581 (126) — — — — (137) — — 1,318 (126)

 Mortgage revenue

bonds . . . . . . . . 609 126 — — — — (17) — — 718 129

Other . . . . . . . . . . 152 1 — — — — (6) (147) — — —

Non-mortgagerelated:

Asset-backed

securities . . . . . . . 12 — — — — — (5) (9) 2 — —

Total trading securities. $ 4,576 $ 16 $ — $ 446 $ (18) $ — $ (523) $ (661) $ 309 $ 4,145 $ 47

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . $ 114 $ (1) $ 28 $ 1,742 $ (383) $ — $ (11) $ (843) $ 151 $ 797 $ —

Freddie Mac. . . . . 3 — — — — — (1) — 10 12 —

 Alt-A privatelabel securities . 7,049 (19) 63 — — — (725) (1,495) 1,752 6,625 —

 Subprime privatelabel securities . 9,932 408 (1,089) — (363) — (1,001) — — 7,887 —

 Mortgage revenue

bonds . . . . . . . . 11,030 (8) 723 — (107) — (1,039) — — 10,599 —

Other . . . . . . . . . . 3,806 (7) 120 — — — (320) — — 3,599 —

Total available-for-sale

securities. . . . . . . . . $ 31,934 $ 373 $ (155) $ 1,742 $ (853) $ — $ (3,097) $ (2,338) $ 1,913 $ 29,519 $ —

Mortgage loans of

consolidated trusts . $ 2,207 $ 38 $ — $ 102 $ — $ — $ (251) $ (93) $ 281 $ 2,284 $ 28

Net derivatives . . . . . . . 104 123 — — — (2) (101) (70) — 54 49

Long-term debt:

Of Fannie Mae:

Senior floating . . . $ (421) $ (88) $ — $ — $ — $ — $ 103 $ — $ — $ (406) $ (89)

Of consolidated

trusts . . . . . . . . . .

(627) (28) — — 4 (44) 66 112 (211) (728) (11)

 Total long-term debt . . $ (1,048) $ (116) $ — $ — $ 4 $ (44) $ 169 $ 112 $ (211) $ (1,134) $ (100)

_________

(1) Gains (losses) included in other comprehensive income (loss) are included in “Changes in unrealized gains (losses) on available-forsale securities, net of reclassification adjustments and taxes” in the condensed consolidated statement of operations and comprehensive 

income (loss).

(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)

141

(4) Transfers out of Level 3 consisted primarily of Fannie Mae MBS and private-label mortgage-related securities backed by Alt-A loans. 

Prices for these securities were obtained from multiple third-party vendors supported by market observable inputs. Transfers into Level 

3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans. Prices for these securities are based on inputs 

from a single source or inputs that were not readily observable.

(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 (loss) for the three and nine months ended September 30, 2012 and 2011, 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, 2012

Interest

Income

Fair Value 

Losses, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income 

(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60 $ 117 $ (37) $ 1 $ 141

Net unrealized gains related to Level 3 assets and liabilities still 

held as of September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 99 $ — $ — $ 99

For the Nine Months Ended September 30, 2012

Interest

Income

Fair Value 

Losses, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income 

(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $205 $ 237 $ (476) $ 9 $ (25)

Net unrealized gains related to Level 3 assets and liabilities still held 

as of September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 94 $ — $ — $ 94

For the Three Months Ended September 30, 2011

Interest

Income

Fair Value

Losses, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income 

(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158 $ 98 $ (62) $ 2 $ 196

Net unrealized (losses) gains related to Level 3 assets and liabilities 

still held as of September 30, 2011. . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ 34 $ — $ — $ 33

For the Nine Months Ended September 30, 2011

Interest

Income

Fair Value

Losses, net

Net OtherthanTemporary

Impairments Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income 

(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428 $ 82 $ (85) $ 9 $ 434

Net unrealized (losses) gains related to Level 3 assets and liabilities 

still held as of September 30, 2011. . . . . . . . . . . . . . . . . . . . . . . . . $ (2) $ 26 $ — $ — $ 24
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

142

Nonrecurring Changes in Fair Value

The following table displays assets and liabilities measured in our condensed consolidated balance sheets at fair value on a 

nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value 

adjustments in certain circumstances (for example, when we evaluate for impairment) as of September 30, 2012.

Fair Value Measurements

As of September 30, 2012

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Estimated

Fair Value

(Dollars in millions)

Nonrecurring fair value measurements:

Assets:

Mortgage loans held for sale, at lower of cost or fair value . . . . . . . . . . $ — $104 $ 132 $ 236

Single-family mortgage loans held for investment, at amortized cost:(1)

Of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 24,583 24,583

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 263 263

Multifamily mortgage loans held for investment, at amortized cost . . . — — 1,238 1,238

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,657 3,657

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 93 93

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 416 416

Total nonrecurring fair value measurements. . . . . . . . . . . . . . . . . . . $ — $104 $30,382 $ 30,486

_________

(1) Excludes estimated recoveries from mortgage insurance proceeds.

The following table displays assets and liabilities measured in our condensed consolidated balance sheets at fair value on a 

nonrecurring basis and the losses recognized for these assets and liabilities for the three and nine months ended September 

30, 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

143

For the Three

Months

Ended

September 30,

2011

For the Nine

Months

Ended

September 30,

2011

Fair Value Measurements

For the Nine Months Ended September 30, 2011

Quoted

Prices in

Active

Markets

for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Estimated Fair

Value Total Losses Total Losses

(Dollars in millions)

Assets:

Mortgage loans held for sale, at lower 

of cost or fair value. . . . . . . . . . . . . . $— $ 2 $ 204 $ 206 (1) $ (3) $ (16)

Single-family mortgage loans held for 

investment, at amortized cost:

Of Fannie Mae. . . . . . . . . . . . . . . — — 40,280 40,280 (2) (1,045) (2,125)

Of consolidated trusts . . . . . . . . . — — 885 885 (2) (33) (131)

Multifamily mortgage loans held for 

investment, at amortized cost:

Of Fannie Mae. . . . . . . . . . . . . . . — — 1,708 1,708 (2) (183) (291)

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . — — 17,642 17,642 (3) (635) (2,147)

Multifamily. . . . . . . . . . . . . . . . . . . — — 315 315 (3) (32) (81)

Other assets . . . . . . . . . . . . . . . . . . . . . — — 1,138 1,138 (4) (29) (94)

Total assets at fair value . . . . . . . . . $— $ 2 $ 62,172 $ 62,174 $ (1,960) $ (4,885)

_________

(1) Includes $72 million of mortgage loans held for sale that were sold, deconsolidated, retained as a mortgage-related security or 

redesignated to mortgage loans held for investment as of September 30, 2011.

(2) Includes $5.7 billion of mortgage loans held for investment that were liquidated or transferred to foreclosed properties as of September 

30, 2011.

(3) Includes $11.8 billion of acquired properties that were sold or transferred as of September 30, 2011.

(4) Includes $285 million of other assets that were sold or transferred as of September 30, 2011.

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, 2012.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

144

Fair Value Measurements as of September 30, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Recurring fair value

measurements:

Level 3 Assets:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . Consensus $ 79

Alt-A private-label securities. . . Discounted Cash Flow Default Rate (%) 9.1 - 15.0 14.3

Prepayment Speed (%) 0.7 - 3.8 2.0

Severity (%) 65.0 - 70.0 69.5

Spreads (bps) 487.0 - 600.0 526.8 398

Other 32

Total Alt-A private-label 

securities. . . . . . . . . . . . . . . 430

Subprime private-label 

securities . . . . . . . . . . . . . . . . Discounted Cash Flow Default Rate (%) 11.8 - 24.2 17.1

Prepayment Speed (%) 0.2 - 5.8 2.7

Severity (%) 80.0 80.0

Spreads (bps) 515.0 - 725.0 602.6 743

Consensus Default Rate (%) 14.9 - 27.8 20.2

Prepayment Speed (%) 0.1 - 4.3 2.0

Severity (%) 80.0 80.0

Spreads (bps) 525.0 - 693.0 610.8 198

Single Vendor 188

Consensus 136

Total subprime private-label 

securities. . . . . . . . . . . . . . . 1,265

Mortgage revenue bonds . . . . . . Discounted Cash Flow Spreads (bps) 275.0 - 390.0 335.4 635

Other 46

Total mortgage revenue bonds. 681

Other. . . . . . . . . . . . . . . . . . . . . . Other 118

Total trading securities. . . . . . . . . . . $2,573
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

145

Fair Value Measurements as of September 30, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Available-for-sale securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . Other $ 42

Alt-A private-label securities . Discounted Cash Flow Default Rate (%) 0.0 - 21.0 5.7

Prepayment Speed (%) 0.0 - 68.2 8.1

Severity (%) 50.0 - 70.0 56.4

Spreads (bps) 301.0 - 798.0 471.3 3,050

Consensus Default Rate (%) 0.0 - 15.6 2.9

Prepayment Speed (%) 0.2 - 32.8 10.0

Severity (%) 50.0 - 70.0 54.0

Spreads (bps) 303.0 - 623.0 438.9 2,034

Consensus 1,272

Single Vendor Default Rate (%) 1.1 - 1.4 1.1

Prepayment Speed (%) 15.1 - 15.7 15.2

Severity (%) 50.0 50.0

Spreads (bps) 430.0 - 431.0 430.2 206

Total Alt-A private-label 

securities . . . . . . . . . . . . . 6,562

Subprime private-label 

securities . . . . . . . . . . . . . . Discounted Cash Flow Default Rate (%) 0.0 - 25.8 15.4

Prepayment Speed (%) 0.1 - 14.2 2.5

Severity (%) 65.0 - 80.0 76.8

Spreads (bps) 375.0 - 735.0 581.9 3,079

Consensus 2,193

Consensus Default Rate (%) 0.0 - 32.8 16.7

Prepayment Speed (%) 0.0 - 17.1 2.4

Severity (%) 65.0 - 80.0 77.5

Spreads (bps) 416.0 - 738.0 578.1 2,011

Other 89

Total subprime private-label 

securities . . . . . . . . . . . . . 7,372

Mortgage revenue bonds. . . . . Single Vendor 6,389

Discounted Cash Flow Spreads (bps) 90.0 - 390.0 306.8 1,994

Other 286

Total mortgage revenue 

bonds . . . . . . . . . . . . . . . . 8,669

Other . . . . . . . . . . . . . . . . . . . . Consensus 1,223

Discounted Cash Flow Default Rate (%) 2.1 - 10.0 5.0

Prepayment Speed (%) 0.4 - 3.6 3.0

Severity (%) 65.0 - 85.0 84.9

Spreads (bps) 516.0 - 1,207.0 695.9 758

Consensus Default Rate (%) 0.2 - 5.0 4.6

Prepayment Speed (%) 3.0 - 11.0 3.6

Severity (%) 50.0 - 85.0 83.4

Spreads (bps) 437.0 - 829.0 675.6 442

Other 772

Total Other . . . . . . . . . . . . . . 3,195

Total available-for-sale securities. $25,840
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

146

Fair Value Measurements as of September 30, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted 

Average(1)

Fair

Value

(Dollars in millions)

Mortgage loans of consolidated

trusts:

Single-family . . . . . . . . . . . . . Build-Up Default Rate (%) 0.1 - 93.4 14.7

Prepayment Speed (%) 5.5 - 50.2 21.9

Severity (%) 4.9 - 97.0 33.2 $ 1,448

Consensus 294

Discounted Cash Flow Default Rate (%) 0.0 - 15.6 9.3

Prepayment Speed (%) 0.0 - 8.5 4.7

Severity (%) 50.0 - 70.0 61.2

Spreads (bps) 448.0 - 1,116.0 587.6 255

Consensus Default Rate (%) 6.0 - 18.7 10.9

Prepayment Speed (%) 1.3 - 8.5 4.2

Severity (%) 65.0 - 70.0 65.7

Spreads (bps) 507.0 - 1,098.0 618.5 239

Single Vendor 17

Total single-family. . . . . . . . 2,253

Multifamily. . . . . . . . . . . . . . . Build-Up Spreads (bps) 91.0 - 418.4 195.3 163

Total mortgage loans of 

consolidated trusts . . . . . . . . . $ 2,416

Net derivatives. . . . . . . . . . . . . . . Dealer Mark $ 166

Internal Model (136)

Total net derivatives . . . . . . . . . . $ 30

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . Discounted Cash Flow $ (431)

Of consolidated trusts. . . . . . . Discounted Cash Flow Default Rate (%) 0.0 - 15.6 8.9

Prepayment Speed (%) 0.0 - 100.0 53.5

Severity (%) 50.0 - 70.0 59.7

Spreads (bps) 103.0 - 1,116.0 380.7 (658)

Consensus (381)

Consensus Default Rate (%) 6.0 - 18.7 10.1

Prepayment Speed (%) 1.7 - 8.5 4.9

Severity (%) 65.0 - 70.0 65.8

Spreads (bps) 507.0 - 1,098.0 663.0 (209)

Single Vendor (177)

Total of consolidated trusts. . . (1,425)

Total long-term debt. . . . . . . . . . . $(1,856)

_________

(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.

(2) Includes Fannie Mae and Freddie Mac securities.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis as of 

September 30, 2012. The significant unobservable inputs related to these techniques primarily relate to collateral dependent 

valuations. The related ranges and weighted averages are not meaningful when aggregated as they vary significantly from 

property to property.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

147

Fair Value Measurements as of September 30, 2012

Valuation Techniques Fair Value

(Dollars in millions)

Nonrecurring fair value measurements:

Level 3 Assets:

Single-family mortgage loans held for sale, at lower of cost or fair 

value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consensus $ 132

Single-family mortgage loans held for investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 24,583

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 263

Multifamily mortgage loans held for investment, at amortized cost . . . Appraisals 181

Broker Price Opinions 242

Asset Manager Estimate 781

Other 34

Multifamily mortgage loans held for investment, at amortized cost . . . 1,238

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 860

Appraisals 520

Walk Forwards 1,263

Internal Model 952

Other 62

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,657

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 27

Appraisals 8

Broker Price Opinions 58

Total Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisals 47

Walk Forwards 53

Internal Model 211

Other 105

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416

Total nonrecurring assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,382

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 of 

classifying these measurements as Level 1, Level 2 or Level 3 of the valuation hierarchy.

Cash Equivalents, Trading Securities and Available-for-Sale Securities

These securities are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. Fair value is 

measured using quoted market prices in active markets for identical assets, when available.

A description of our securities valuation techniques is as follows:

Single Vendor: This valuation technique utilizes one vendor price to estimate fair value.

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.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

148

We classify securities whose values are based on quoted market prices in active markets for identical assets as Level 1 of the 

valuation hierarchy. We classify securities as Level 2 of the valuation hierarchy if quoted market prices in active markets for 

identical assets are not available. For all valuation techniques used for securities where there is limited activity or less 

transparency around these inputs to the valuation, these securities are classified as Level 3 of the valuation hierarchy.

For agency and private-label securities, an increase in unobservable prepayment speeds in isolation would generally result in 

an increase in fair value, and an increase in unobservable spreads, severity rates or default rates in isolation would generally 

result in a decrease in fair value. For mortgage revenue bonds classified as Level 3 of the valuation hierarchy, an increase in 

unobservable spreads would result in a decrease in fair value. Although the sensitivities of the fair value of our recurring 

Level 3 securities of the valuation hierarchy to various unobservable inputs are discussed above in isolation, 

interrelationships exist among these inputs such that a change in one unobservable input typically results in a change to one 

or more of the other inputs.

Mortgage Loans Held for Investment

The majority of HFI loans are reported in our condensed consolidated balance sheets at the principal amount outstanding, net 

of cost basis adjustments and an allowance for loan losses. We estimate the fair value of HFI loans using the build-up and 

consensus valuation techniques, as discussed below, for periodic disclosure of financial instruments as required by GAAP. 

For our remaining loans, which include those containing embedded derivatives that would otherwise require bifurcation and 

consolidated loans of senior-subordinated trust structures, we elected the fair value option and therefore, we record these 

loans at fair value in our condensed consolidated balance sheets. We measure these loans on a recurring basis using the buildup, consensus, discounted cash flow and single vendor price techniques. Certain impaired loans are measured at fair value on 

a nonrecurring basis by using the fair value of their underlying collateral. Specific techniques used include internal models, 

broker price opinions and appraisals.

A description of our loan valuation techniques is as follows:

Build-Up: The fair value of performing loans represents an estimate of the prices we would receive if we were to securitize 

those loans and is determined based on comparisons to Fannie Mae MBS with similar characteristics, either on a pool or loan 

level. We use the observable market values of our Fannie Mae MBS 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. In the build-up 

valuation technique we start with the base value for our Fannie Mae MBS then we add or subtract the fair value of the 

associated guaranty asset, guaranty obligation (“GO”) and master servicing arrangement. We 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 GO 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 may 

further adjust the model values based on our current market pricing when such transactions reflect credit characteristics that 

are similar to our outstanding GO. These loans are generally classified as Level 2 of the valuation hierarchy to the extent that 

significant inputs are observable. To the extent that unobservable inputs are significant, the loans are classified as Level 3 of 

the valuation hierarchy.

Consensus: The fair value of single-family nonperforming loans represents an estimate of the prices we would receive if we 

were to sell these loans in the nonperforming whole-loan market. These nonperforming loans are either two or more months 

delinquent, in an open modification period, or in a closed modification state (both performing and nonperforming in 

accordance with the loan’s modified terms). We calculate the fair value of nonperforming loans based on assumptions about 

key factors, including collateral value and mortgage insurance repayment. Collateral value is derived from the current 

estimated mark-to-market LTV ratio of the individual loan along with a state-level distressed property sales discount. 

Mortgage insurance is estimated by taking the loan-level coverage and adjusting it by the probability of repayment by the 

associated mortgage insurer. This probability is based on the credit rating of the mortgage insurance company. Using these 

assumptions, along with indicative bids for a representative sample of nonperforming loans, we estimate the fair value. The 

bids on sample loans are obtained from multiple active market participants. Fair value is estimated from the extrapolation of 

these indicative sample bids plus an amount for the recovery of any associated mortgage insurance estimated through our GO 

valuation models as described above. These loans are classified as Level 3 of the valuation hierarchy because significant 

inputs are unobservable.
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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. This valuation technique estimates fair 

value based upon prices received from one specific vendor. These loans are classified as Level 3 of the valuation hierarchy 

because significant inputs are unobservable. 

Internal Model: We estimate the fair value of a portion of our single-family nonperforming loans using the value of the 

underlying collateral. The inputs into this internal model include property level data such as prior sales prices, tax assessment 

values, property characteristics, and historical foreclosure sales data. This internal model takes one of two approaches when 

valuing foreclosed properties. The first approach relies on comparable foreclosed property sales, where the value of the target 

property is the weighted average price of comparable foreclosed property sales. The weights in the comparable sales 

approach are determined by various factors such as geographic distance, transaction time, and the value difference. The 

second approach relies on model calibrations that consider the target property’s attributes such as prior sales prices, tax 

assessment values, and property characteristics to derive the foreclosed property values. In the second approach, we build 

separate predictive models for each Metropolitan Statistical Area (“MSA”). Specifically, we use the data of prior sales prices, 

tax assessment values, property characteristics, and historical foreclosure sales to calibrate the models in each MSA. We can 

use the available data about that property and our MSA-level model to estimate the fair value for a given property. The 

majority of the internal model valuations come from the comparable sales approach. The determination of whether the 

internal model valuations in a particular geographic area should use the comparable sales approach or model calibration is 

based on the quarterly evaluation of these two approaches for valuation accuracy. The unobservable inputs used in this 

technique include model weights based upon geographic distance, transaction time, and metropolitan statistics. When a 

physical address is not available, we estimate fair value using state-average foreclosed property values. These loans are 

classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 

Appraisals: For a portion of our multifamily loans, we use appraisals to estimate the fair value of the loan. There are three 

approaches used to estimate fair value of a specific property: (1) cost, (2) income capitalization and (3) sales comparison. 

This technique uses an average of the three estimates. The cost approach uses the insurable value as a basis. The 

unobservable inputs used in this model include the estimated cost to construct or replace multifamily properties in the closest 

localities available. The income capitalization approach estimates the fair value using the present value of the future cash 

flow expectations by applying an appropriate overall capitalization rate to the forecasted net operating income. The 

significant unobservable inputs used in this calculation include rental income, fees associated with rental income, expenses 

associated with the property including taxes, payroll, insurance and other items, and the capitalization rates which are 

determined through market extraction and DSCR. The sales comparison approach compares the prices paid for similar 

properties, the prices asked by owners and offers made. The unobservable inputs to this methodology include ratios of sales 

prices to annual gross income, price paid per unit and adjustments made based on financing, conditions of sale, and physical 

characteristics of the property. These loans are classified as Level 3 of the valuation hierarchy because significant inputs are 

unobservable. 

Broker Price Opinion (“BPO”): For a portion of our multifamily loans, we use BPO to estimate the fair value of the loan. 

This technique uses both current property value and the property value adjusted for stabilization and market conditions. 

These approaches compute net operating income based on current rents and expenses and use a range of market capitalization 

rates to estimate property value. The unobservable inputs used in this technique are property net operating income and market 

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. 
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An increase in prepayment speeds in isolation would generally result in an increase in the fair value of our mortgage loans 

classified as Level 3 of the valuation hierarchy, and an increase in severity rates, default rates, or spreads in isolation would 

generally result in a decrease in fair value. Although the sensitivities of the fair value of mortgage loans classified as Level 3 

of the valuation hierarchy to various unobservable inputs are discussed above in isolation, interrelationships exist among 

these inputs such that a change in one unobservable input typically results in a change to one or more of the other inputs. 

Acquired Property, Net and Other Assets

Acquired property, net represents foreclosed property received in full satisfaction of a loan net of a valuation allowance. 

Acquired property is initially recorded in our condensed consolidated balance sheets at its fair value less its estimated cost to 

sell. The initial fair value of foreclosed properties is determined using a hierarchy based on the reliability of available 

information. The hierarchy for single-family acquired property includes accepted offers, appraisals, broker price opinions and 

proprietary home price model values. The hierarchy for multifamily acquired property includes accepted offers, appraisals, 

and broker price opinions. We consider an accepted offer on a specific foreclosed property to be the best estimate of its fair 

value. If we have not accepted an offer on the property we use the highest available valuation methodology as described in 

our valuation hierarchy to determine fair value. While accepted offers represent an agreement in principle to transact, 

a significant portion of these agreements do not get executed for various reasons, and are therefore classified as Level 3 of the 

valuation hierarchy. 

Third-party valuations can be obtained from either an appraisal or a broker price opinion. These valuations are kept current 

using a monthly walk forward process that updates them for any change in the value of the property. When accepted offers or 

third-party valuations are not available, we generally utilize the home price values determined using an internal model. 

Subsequent to initial measurement, the foreclosed properties that we intend to sell are reported at the lower of the carrying 

amount or fair value less estimated costs to sell. Foreclosed properties classified as held for use, included in “Other Assets” in 

our condensed consolidated balance sheets, are depreciated and impaired when circumstances indicate that the carrying 

amount of the property is no longer recoverable. The fair values of our single-family foreclosed properties subsequent to 

initial measurement are determined using the same information hierarchy used for the initial fair value measurement. 

The most commonly used techniques in our valuation of acquired property are proprietary home price model and appraisals 

(both current and walk forward). Based on the number of properties measured as of September 30, 2012, these methodologies 

comprised approximately 76% of our valuations, while accepted offers comprised approximately 22% of our valuations.

Acquired property is classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 

A description of our acquired property valuation techniques is as follows: 

Single-family acquired property valuation techniques 

Appraisal: An appraisal is an estimate of the value of a specific property by a certified or licensed appraiser, in accordance 

with the Uniform Standards of Professional Appraisal Practice. Data most commonly used is from the local Multiple Listing 

Service and includes properties currently listed for sale, properties under contract, and closed transactions. The appraiser 

performs an analysis that starts with these data points and then adjusts for differences between the comparable properties and 

the property being appraised, to arrive at an estimated value for the specific property. Adjustments are made for differences 

between comparable properties for unobservable inputs such as square footage, location, and condition of the property. The 

appraiser typically uses recent historical data for the estimate of value. 

Broker Price Opinion: This technique provides an estimate of what the property is worth based upon a real estate broker’s 

knowledge. The broker uses research of pertinent data in the appropriate market, and a sales comparison approach that is 

similar to the appraisal process. The broker typically has insight into local market trends, such as the number of and terms of 

offers, lack of offers, increasing supply, shortage of inventory and overall interest in buying a home. This information, all of 

which is unobservable, is used along with recent and pending sales and current listings of similar properties to arrive at an 

estimate of value. 
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Appraisal and Broker Price Opinion Walk Forwards (“Walk Forwards”): We use these techniques to adjust appraisal and 

broker price opinion valuations for changing market conditions by applying a walk forward factor based on local price 

movements since the time the third-party value was obtained. The majority of third-party values are updated by comparing 

the difference in our internal home price model from the month of the original appraisal/broker price opinion to the current 

period and by applying the resulting percentage change to the original value. If a price is not determinable through our 

internal home price model, we use our zip code level home price index to update the valuations. 

Internal Model: We use an internal model to estimate fair value for distressed properties. The valuation methodology and 

inputs used are described under “Mortgage Loans Held for Investment.” 

Multifamily acquired property valuation techniques 

Appraisals: We use this method to estimate property values for distressed properties. The valuation methodology and inputs 

used are described under “Mortgage Loans Held for Investment.” 

Broker Price Opinions: We use this method to estimate property values for distressed properties. The valuation methodology 

and inputs used are described under “Mortgage Loans Held for Investment.” 

Derivatives Assets and Liabilities (collectively “Derivatives”)

Derivatives are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. The valuation 

process for the majority of our risk management derivatives uses observable market data provided by third-party sources, 

resulting in Level 2 classification of the valuation hierarchy. 

A description of our derivatives valuation techniques is as follows: 

Internal Model: We use internal models to value interest rate swaps which are valued by referencing yield curves derived 

from observable interest rates and spreads to project and discount swap cash flows to present value. Option-based derivatives 

use an internal model that projects the probability of various levels of interest rates by referencing swaption volatilities 

provided by market makers/dealers. The projected cash flows of the underlying swaps of these option-based derivatives are 

discounted to present value using yield curves derived from observable interest rates and spreads. 

Dealer Mark: Certain highly complex structured swaps primarily use a single dealer mark due to lack of transparency in the 

market and may be modeled using observable interest rates and volatility levels as well as significant unobservable 

assumptions, resulting in Level 3 classification of the valuation hierarchy. Mortgage commitment derivatives that use 

observable market data, quotes and actual transaction price levels adjusted for market movement, are typically classified as 

Level 2 of the valuation hierarchy. To the extent mortgage commitment derivatives include adjustments for market movement 

that cannot be corroborated by observable market data, we classify them as Level 3 of the valuation hierarchy. 

Debt

The majority of debt of Fannie Mae is recorded in our condensed consolidated balance sheets at the principal amount 

outstanding, net of cost basis adjustments. We elected the fair value option for certain structured debt instruments, which are 

recorded in our condensed consolidated balance sheets at fair value on a recurring basis. 

We use third-party pricing services that reference observable market data such as interest rates and spreads to measure the fair 

value of debt, and thus classify that debt as Level 2 of the valuation hierarchy. 

A description of our debt valuation techniques is as follows: 

Discounted Cash Flow: For structured debt instruments that are not valued by third-party pricing services, cash flows are 

evaluated taking into consideration any structured derivatives through which we have swapped out of the structured features 

of the notes. The resulting cash flows are discounted to present value using a yield curve derived from market prices observed 

for Fannie Mae Benchmark Notes and adjusted to reflect fair values at the offer side of the market. Market swaption 

volatilities are also referenced for the valuation of callable structured debt instruments. Since the derivatives considered in the 

valuations of these structured debt instruments are classified as Level 3 of the valuation hierarchy, the valuations of the 

structured debt instruments result in a Level 3 classification. 

Consensus: Certain consolidated MBS debt with embedded derivatives is recorded in our condensed consolidated balance 

sheets at fair value on a recurring basis. Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we 

estimate the fair value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when 

traded as assets. For a portion of our senior-subordinated trust structures, we estimate the fair value using the average of two 
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or more vendor valuation techniques at the security level as a proxy for estimating debt fair value. This valuation technique 

estimates fair value based upon prices received from more than one vendor. These loans are classified as Level 3 of the 

valuation hierarchy because significant inputs are unobservable.

Single Vendor: Certain consolidated MBS debt with embedded derivatives is recorded in our condensed consolidated balance 

sheets at fair value on a recurring basis. Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we 

estimate the fair value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when 

traded as assets. For a portion of our senior-subordinated trust structures, we estimate the fair value using the single vendor 

valuation technique at the security level as a proxy for estimating debt fair value. This valuation technique estimates fair 

value based upon prices received from one specific vendor. The valuation methodology and inputs used in estimating the fair 

value of MBS assets are described under “Cash Equivalents, Trading Securities and Available-for-Sale Securities.” These 

loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable. 

Valuation Control Processes 

We have control processes that are designed to ensure that our fair value measurements are appropriate and reliable, that they 

are based on observable inputs wherever possible and that our valuation approaches are consistently applied and the 

assumptions used are reasonable. Our control processes consist of a framework that provides for a segregation of duties and 

oversight of our fair value methodologies and valuations, as well as validation procedures. 

The Pricing Group within our Finance Division is responsible for estimating the fair value of the majority of our financial 

assets and financial liabilities. These fair values are verified by our Price Verification Group, which is a control group 

separate from the group responsible for obtaining prices. Our Modeling and Analytics Group develops models that are used 

in estimating the fair value of assets and liabilities for financial reporting purposes. In addition, our Model Oversight 

Committee (“MOC”) facilitates the cross-functional coordination and effectiveness of our modeling efforts in terms of 

research, model use and risk governance. The MOC is comprised of senior representatives from Underwriting and Pricing, 

Capital Markets, Credit Portfolio Management, Enterprise Risk Management, Finance and Modeling & Analytics and is 

chaired by our Chief Risk Officer. Our Model Risk Oversight Group is responsible for establishing risk management controls 

and for reviewing, validating and approving models used in the determination of fair value measurements for financial 

reporting. Fair value measurements for acquired property and collateral dependent loans are determined by other valuation 

groups in the Finance division. 

Our Valuation Oversight Committee (“VOC”) includes senior representation from our Capital Markets segment, our 

Enterprise Risk Office and our Finance division, and is responsible for providing overall governance for our valuation 

processes and results. The composition of the VOC is determined by the VOC chair, our Chief Financial Officer, with the 

objective of obtaining appropriate representation from Finance, Enterprise Risk Management and select business units within 

Fannie Mae. Based on its review of valuation methodologies and fair value results for various financial instruments used for 

financial reporting, the VOC is responsible for advising the VOC chair, who has the ultimate responsibility over all valuation 

processes and results. The VOC also reviews trend analysis for various financial assets and liabilities on a quarterly basis. 

We use third-party vendor prices and dealer quotes to estimate fair value of some of our financial assets and liabilities. Thirdparty vendor prices are primarily used to estimate fair value for trading securities, available-for-sale securities, debt of Fannie 

Mae, and consolidated MBS debt. Our Pricing Group performs various review and validation procedures prior to utilizing 

these prices in our fair value estimation process. We verify selected prices, using a variety of methods, including 

corroborating the prices by reference to other independent market data, such as non-binding broker or dealer quotations, 

relevant benchmark indices, and prices of similar instruments. We also review prices for reasonableness based on variations 

from prices provided in previous periods, comparing prices to internally estimated prices, using primarily a discounted cash 

flow approach, and conducting relative value comparisons based on specific characteristics of securities. 

We have discussions with the pricing services as part of our due diligence process in order to maintain a current 

understanding of the valuation processes and related assumptions and inputs that these vendors use in developing prices. The 

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. 
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Our Price Verification Group is responsible for performing monthly independent price verification, primarily related to 

financial assets and financial liabilities that are priced by our Pricing Group. This is generally accomplished by comparing the 

value that the Price Verification Group obtains through its own sources and methods with values provided by the Pricing 

Group. Alternatively, the Price Verification Group may perform reviews of the assumptions used by the Pricing Group to 

estimate the fair value of products we hold that have material estimation risk because observable market-based inputs do not 

exist. This group provides an update to the VOC on results, relevant market information and pricing trends, and significant 

valuation challenges and resolution of those challenges with the Pricing Group on a quarterly basis. 

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 internal model using actual offers on our properties and recent observed 

transactions. The internal model’s performance is reviewed on a monthly basis by the REO valuation team and is compared 

with the review performed by our Modeling & Analytics team on a quarterly basis. These review results are presented to the 

Model Risk Oversight Group, which performs a review and evaluation of the model performance on a quarterly basis. The 

results of the validation are also reviewed with the VOC on a quarterly basis. 

Our Appraisal Review Group reviews appraisals to determine whether they have been performed in accordance with 

appraisal standards and the results are consistent with our observed transactions on similar properties. We and/or third-party 

servicers review broker price opinions to determine whether the values provided are consistent with our observed transactions 

on similar properties. We conduct quarterly portfolio reviews, annual audits and periodic reviews of the counterparties that 

provide services to review broker price opinions. In addition, valuation results and trend analyses are reviewed at least 

monthly by REO management. 

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments as of September 30, 

2012 and December 31, 2011. 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, 2012 December 31, 2011

Carrying

Value

Quoted Price

in Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

 (Level 3)

Netting

AdjustmentEstimated

Fair Value

Carrying

Value

Estimated

Fair

Value

(Dollars in millions)

Financial assets:

Cash and cash equivalents and

restricted cash . . . . . . . . . . . . . . $ 80,618 $ 71,818 $ 8,800 $ — $ — $ 80,618 $ 68,336 $ 68,336

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements . 45,500 — 45,500 — — 45,500 46,000 46,000

Trading securities . . . . . . . . . . . . . 42,522 19,897 20,052 2,573 — 42,522 74,198 74,198

Available-for-sale securities . . . . . 66,352 — 40,512 25,840 — 66,352 77,582 77,582

Mortgage loans held for sale. . . . . 490 — 302 201 — 503 311 325

Mortgage loans held for

investment, net of allowance

for loan losses:

Of Fannie Mae. . . . . . . . . . . . 308,850 — 38,720 230,175 — 268,895 322,825 294,996

Of consolidated trusts . . . . . . 2,633,556 — 2,524,627 247,410 — 2,772,037 2,575,485 2,652,025

Mortgage loans held for

investment . . . . . . . . . . . . . . . . 2,942,406 — 2,563,347 477,585 — 3,040,932 2,898,310 2,947,021

Advances to lenders . . . . . . . . . . . 6,367 — 5,686 568 — 6,254 5,538 5,420

Derivative assets at fair value . . . . 1,328 — 17,957 197 (16,826) 1,328 561 561

Guaranty assets and buy-ups. . . . . 378 — — 729 — 729 503 901

Total financial assets. . . . . . . . . . . $ 3,185,961 $ 91,715 $ 2,702,156 $ 507,693 $ (16,826) $ 3,284,738 $ 3,171,339 $ 3,220,344

Financial liabilities:

Short-term debt:

 Of Fannie Mae . . . . . . . . . . . . . $ 105,062 $ — $ 105,079 $ — $ — $ 105,079 $ 146,752 $ 146,782

 Of consolidated trusts . . . . . . . 3,806 — — 3,806 — 3,806 4,973 4,973

Long-term debt:

 Of Fannie Mae . . . . . . . . . . . . . 547,909 — 574,091 1,087 — 575,178 585,692 613,983

 Of consolidated trusts . . . . . . . 2,539,933 — 2,678,001 19,715 — 2,697,716 2,452,455 2,596,657

Derivative liabilities at fair value . 2,033 — 26,462 167 (24,596) 2,033 916 916

Guaranty obligations. . . . . . . . . . . 644 — — 3,193 — 3,193 811 3,944

Total financial liabilities. . . . . . . . $ 3,199,387 $ — $ 3,383,633 $ 27,968 $ (24,596) $ 3,387,005 $ 3,191,599 $ 3,367,255

Financial Instruments for which fair value approximates carrying value—We hold certain financial instruments that are not 

carried at fair value but for which the carrying value approximates fair value due to the short-term nature and negligible 

credit risk inherent in them. These financial instruments include cash and cash equivalents, the majority of advances to 

lenders and federal funds and securities sold/purchased under agreements to repurchase/resell (exclusive of dollar roll 

repurchase transactions). 

Federal funds and securities sold/purchased under agreements to repurchase/resell—The carrying value for the majority of 

these specific instruments approximates the fair value due to the short-term nature and the negligible inherent credit risk, as 

they involve the exchange of liquid collateral. Were we to calculate the fair value of these instruments, we would use 

observable inputs resulting in Level 2 classification. 
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Mortgage Loans Held for Sale—Loans are reported at the lower of cost or fair value in our condensed consolidated balance 

sheets. The valuation methodology and inputs used in estimating the fair value of HFS loans are the same as for our HFI 

loans and are described under “Fair Value Measurement—Mortgage Loans Held for Investment.” These loans are classified 

as Level 2 of the valuation hierarchy to the extent that significant inputs are observable. To the extent that significant inputs 

are unobservable, the loans are classified within Level 3 of the valuation hierarchy.

Advances to Lenders—The carrying value for the majority of our advances to lenders approximates fair value due to the 

short-term nature and the negligible inherent credit risk. Were we to calculate the fair value of these instruments, we would 

use discounted cash flow models that use observable inputs such as spreads based on market assumptions, resulting in Level 

2 classification. 

Advances to lenders also include loans for which the carrying value does not approximate fair value. These loans do not 

qualify for Fannie Mae MBS securitization and are valued using market-based techniques including credit spreads, severities 

and prepayment speeds for similar loans, through third-party pricing services or through a model approach incorporating both 

interest rate and credit risk simulating a loan sale via a synthetic structure. We classify these valuations as Level 3 given that 

significant inputs are not observable or are determined by extrapolation of observable points. 

Guaranty Assets and Buy-ups—Guaranty assets related to our portfolio securitizations are recorded in our condensed 

consolidated balance sheets at fair value on a recurring basis and are classified within Level 3 of the valuation hierarchy. 

Guaranty assets in lender swap transactions are recorded in our condensed consolidated balance sheets at the lower of cost or 

fair value. These assets, which are measured at fair value on a nonrecurring basis, are classified within Level 3 of the fair 

value hierarchy. 

We estimate the fair value of guaranty assets based on the present value of expected future cash flows of the underlying 

mortgage assets using management’s best estimate of certain key assumptions, which include prepayment speeds, forward 

yield curves, and discount rates commensurate with the risks involved. These cash flows are projected using proprietary 

prepayment, interest rate and credit risk models. Because guaranty assets are like an interest-only income stream, the 

projected cash flows from our guaranty assets are discounted using one-month LIBOR plus an option-adjusted spread that is 

calibrated using a representative sample of interest-only swaps that reference Fannie Mae MBS. We believe the remitted fee 

income is less liquid than interest-only swaps and more like an excess servicing strip. We take a further discount of the 

present value for these liquidity considerations. This discount is based on market quotes from dealers.

The fair value of the guaranty assets includes the fair value of any associated buy-ups, which is estimated in the same manner 

as guaranty assets but is recorded separately as a component of “Other assets” in our condensed consolidated balance sheets. 

Guaranty Obligations—The fair value of all guaranty obligations, measured subsequent to their initial recognition, is our 

estimate of a hypothetical transaction price we would receive if we were to issue our guaranty to an unrelated party in a 

standalone arm’s-length transaction at the measurement date. These obligations are classified within Level 3. The valuation 

methodology and inputs used in estimating the fair value of the guaranty obligation are described under “Fair Value 

Measurement—Mortgage Loans Held for Investment, Build up.”

HARP Loans—We measure the fair value of loans that are delivered under the Home Affordable Refinance Program 

(“HARP”) using a modified build-up approach while the loan is performing. Under this modified approach, we set the credit 

component of the consolidated loans (i.e., the guaranty obligation) equal to the compensation we would currently receive for 

a loan delivered to us under the program because the total compensation for these loans is equal to their current exit price in 

the GSE securitization market. For a description of the build-up valuation methodology, refer to “Fair Value Measurement–

Mortgage Loans Held for Investment.” We will continue to use this pricing methodology as long as the HARP program is 

available to market participants. If, subsequent to delivery, the refinanced loan becomes past due or is modified as a part of a 

troubled debt restructuring, the fair value of the guaranty obligation is then measured consistent with other loans that have 

these characteristics.

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are willing to offer 

because HARP is a part of a broader government program intended to provide assistance to homeowners and prevent 

foreclosures. If these benefits were not reflected in the pricing for these loans (that is, if the loans were valued using our 

standard build-up approach), the fair value disclosed in the table above would be lower by $5.8 billion as of September 30, 

2012. The total fair value of the loans in our portfolio that have been refinanced under HARP as of September 30, 2012 as 

presented in the table above is $199.9 billion.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

156

Fair Value Option

We elected the fair value option for loans which 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 “Mortgage loans interest income” and interest expense for the debt 

instruments is recorded in “Long-term debt interest expense” in our condensed consolidated statements of operations and 

comprehensive income (loss). 

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, 2012 and December 31, 2011. 

As of

September 30, 2012 December 31, 2011

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 . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,840 $ 830 $ 7,368 $3,611 $ 838 $3,939

Unpaid principal balance . . . . . . . . . . . . . 7,907 697 7,029 4,122 712 4,012

__________

(1) Includes nonaccrual loans with a fair value of $260 million and $195 million as of September 30, 2012 and December 31, 2011, 

respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2012 

and December 31, 2011 is $222 million and $232 million, respectively. Includes loans that are 90 days or more past due with a fair 

value of $378 million and $310 million as of September 30, 2012 and December 31, 2011, respectively. The difference between 

unpaid principal balance and the fair value of these 90 or more days past due loans as of September 30, 2012 and December 31, 2011 

is $238 million and $262 million, respectively.

(2) Includes interest-only debt instruments with no unpaid principal balance and a fair value of $101 million and $115 million as of 

September 30, 2012 and December 31, 2011, respectively.

Changes in Fair Value under the Fair Value Option Election

The following table displays fair value gains and losses, net, including changes attributable to instrument-specific credit risk, 

for loans and debt for which the fair value election was made. Amounts are recorded as a component of “Fair value losses, 

net” in our condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months 

ended September 30, 2012 and 2011.

For the Three Months Ended September 30,

2012 2011

Loans

Long-Term

Debt

Total

Gains

(Losses) Loans

Long-Term

Debt

Total 

Gains 

(Losses)

(Dollars in millions)

Changes in instrument-specific credit risk . . . . . . . . . . . . . . $ 12 $ (7) $ 5 $ 27 $ 8 $ 35

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (71) (48) (30) (79) (109)

Fair value gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . $ 35 $ (78) $ (43) $ (3) $ (71) $ (74)
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

157

For the Nine Months Ended September 30,

2012 2011

Loans

Long-Term

Debt

Total Gains

(Losses) Loans

Long-Term

Debt

Total 

Gains 

(Losses)

(Dollars in millions)

Changes in instrument-specific credit risk. . . . . . . . . . . . . . . $ 89 $ (9) $ 80 $ (184) $ 12 $ (172)

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . (80) (28) (108) 111 (72) 39

Fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . $ 9 $ (37) $ (28) $ (73) $ (60) $ (133)

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.

13. Commitments and Contingencies 

We are party to various types of legal actions and proceedings, including actions brought on behalf of various classes of 

claimants. We also are subject to regulatory examinations, inquiries and investigations and other information gathering 

requests. In some of the matters, indeterminate amounts are sought. Modern pleading practice in the U.S. permits 

considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify 

the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the 

jurisdiction of the trial court. This variability in pleadings, together with our and our counsel’s actual experience in litigating 

or settling claims, leads us to conclude that the monetary relief that may be sought by plaintiffs bears little relevance to the 

merits or disposition value of claims.

On a quarterly and annual basis, we review relevant information about all pending legal actions and proceedings for the 

purpose of evaluating and revising our contingencies, reserves and disclosures. 

Legal actions and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with 

assurance. Accordingly, the outcome of any given matter and the amount or range of potential loss at particular points in time 

is frequently difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the 

credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law. Disposition 

valuations are also subject to the uncertainty of how opposing parties and their counsel view the evidence and applicable law. 

Further, FHFA adopted a regulation on June 20, 2011, which provides, in part, that while we are in conservatorship, FHFA

will not pay claims by our current or former shareholders, unless the Director of FHFA determines it is in the interest of the 

conservatorship. The presence of this regulation and the Director of FHFA’s assertion that FHFA will not pay claims asserted 

in certain cases discussed below while we are in conservatorship creates additional uncertainty in those cases. 

We establish a reserve for those matters when a loss is probable and we can reasonably estimate the amount of such loss. 

Reserves have been established for certain of the matters noted below. These reserves did not have a material adverse effect 

on our financial statements. We note, however, that in light of the uncertainties involved in such actions and proceedings, 

there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves we have currently 

accrued. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

158

For the remaining legal actions or proceedings, including those where there is only a reasonable possibility that a loss may be 

incurred, we are not currently able to estimate the reasonably possible losses or ranges of losses and we have not established 

a reserve with respect to those actions or proceedings. We are often unable to estimate the possible losses or ranges of losses, 

particularly for proceedings that are in their early stages of development, where plaintiffs seek substantial or indeterminate 

damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where settlement negotiations 

have not occurred or progressed. Further, as noted above, FHFA’s regulation and the Director of FHFA’s assertion creates 

additional uncertainty with respect to certain cases. 

Given the uncertainties involved in any action or proceeding, regardless of whether we have established a reserve, the 

ultimate resolution of certain of these matters may be material to our operating results for a particular period, depending on, 

among other factors, the size of the loss or liability imposed and the level of our net income or loss for that period. Based on 

our current knowledge with respect to the matters described below, we believe we have valid defenses to the claims in these 

proceedings and intend to defend these matters vigorously regardless of whether or not we have recorded a loss reserve. 

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that 

arise in the ordinary course of business that we do not expect will have a material impact on our business or financial 

condition. We have advanced fees and expenses of certain current and former officers and directors in connection with 

various legal proceedings pursuant to indemnification agreements. 

In re Fannie Mae Securities Litigation

Fannie Mae is a defendant in a consolidated class action lawsuit initially filed in 2004 and currently pending in the U.S. 

District Court for the District of Columbia. In the consolidated complaint filed on March 4, 2005, lead plaintiffs Ohio Public 

Employees Retirement System and State Teachers Retirement System of Ohio allege that we and certain former officers, as 

well as our former outside auditor, made materially false and misleading statements in violation of Sections 10(b) and 20(a) 

of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder. Plaintiffs contend that Fannie Mae’s 

accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of 

premiums and discounts, and seek unspecified compensatory damages, attorneys’ fees, and other fees and costs. On 

January 7, 2008, the court defined the class as all purchasers of Fannie Mae common stock and call options and all sellers of 

publicly traded Fannie Mae put options during the period from April 17, 2001 through December 22, 2004. On October 17, 

2008, FHFA, as conservator for Fannie Mae, intervened in this case. On August 18, 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. The other motions 

for summary judgment remain pending.

As discussed above, FHFA adopted a regulation on June 20, 2011, that 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. FHFA’s regulation has been challenged by lead plaintiffs in a separate lawsuit also pending in the U.S. 

District Court for the District of Columbia. 

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. Given the substantial and novel legal questions that remain, including 

those raised by FHFA’s regulation and the Director of FHFA’s determination, we are currently unable to estimate the 

reasonably possible loss or range of loss arising from this litigation. 

2008 Class Action Lawsuits

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. 

Given the early status of these matters, the absence of a specified demand or claim by the plaintiffs, and the substantial and 

novel legal questions that remain, including those raised by FHFA’s regulation and the Director of FHFA’s determination, we 

are currently unable to estimate the reasonably possible loss or range of loss arising from these lawsuits. 
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

159

In re Fannie Mae 2008 Securities Litigation 

In a consolidated amended complaint filed on June 22, 2009, lead plaintiffs Massachusetts Pension Reserves Investment 

Management Board and Boston Retirement Board (for common shareholders) and Tennessee Consolidated Retirement 

System (for preferred shareholders) allege that we, certain of our former officers, and certain of our underwriters violated 

Sections 12(a)(2) and 15 of the Securities Act of 1933. Lead plaintiffs also allege that we, certain of our former officers, and 

our outside auditor, violated Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange 

Act of 1934. Lead plaintiffs seek various forms of relief, including rescission, damages, interest, costs, attorneys’ and experts’

fees, and other equitable and injunctive relief. On October 13, 2009, the Court entered an order allowing FHFA to intervene. 

On November 24, 2009, the Court granted the defendants’ motion to dismiss the Securities Act claims as to all defendants. 

On September 30, 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. On 

July 28, 2011, lead plaintiffs filed motions to certify a class of persons who, between November 8, 2006 and September 5, 

2008, inclusive, purchased or acquired (a) Fannie Mae common stock and options or (b) Fannie Mae preferred stock. 

Plaintiffs filed a second amended joint consolidated class action complaint on March 2, 2012 and added FHFA as a 

defendant. On August 30, 2012, the court denied defendants’ motions to dismiss the second amended complaint, allowing 

plaintiffs’ Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures to proceed along with 

plaintiffs’ claims premised on Fannie Mae’s risk management disclosures. Discovery has commenced.

In re 2008 Fannie Mae ERISA Litigation 

In a consolidated complaint filed on September 11, 2009, plaintiffs allege that certain of our current and former officers and 

directors, including former members of Fannie Mae’s Benefit Plans Committee and the Compensation Committee of Fannie 

Mae’s Board of Directors, as fiduciaries of Fannie Mae’s Employee Stock Ownership Plan (“ESOP”), breached their duties to 

ESOP participants and beneficiaries by investing ESOP funds in Fannie Mae common stock when it was no longer prudent to 

continue to do so. Plaintiffs purport to represent a class of participants and beneficiaries of the ESOP whose accounts 

invested in Fannie Mae common stock beginning April 17, 2007. The plaintiffs seek unspecified damages, attorneys’ fees and 

other fees and costs, and injunctive and other equitable relief. On February 1, 2012, plaintiffs sought leave to amend their 

complaint to add new factual allegations and the court granted plaintiffs’ motion. Plaintiffs filed an amended complaint on 

March 2, 2012 adding two current Board members and then-CEO Michael J. Williams as defendants. On October 22, 2012, 

the court granted in part and denied in part defendants’ motions to dismiss. The court dismissed with prejudice seven former 

and current directors and officers who joined the Board of Directors or Benefit Plans Committee after Fannie Mae was placed 

into conservatorship. The court allowed plaintiffs’ breach of fiduciary duty and failure to monitor claims to go forward, but 

dismissed plaintiffs’ conflict of interest claim.

Comprehensive Investment Services v. Mudd, et al.

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, and also 

dismissed two of our former officers from the action. On October 10, 2012, the court denied plaintiff’s motion for 

reconsideration of the court’s order dismissing plaintiff’s state law claims.
FANNIE MAE

(In conservatorship)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(UNAUDITED)

160

Given the preliminary stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the substantial 

and novel legal questions that remain, we are currently unable to estimate the reasonably possible loss or range of loss arising 

from this litigation.

Smith v. Fannie Mae, et al.

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’ 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, but granted defendants’ motions to dismiss the state law claims. On October 10, 2012, the court 

denied plaintiff’s motion for reconsideration of the court’s order dismissing plaintiff’s state law claims.

Given the preliminary stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the substantial 

and novel legal questions that remain, we are currently unable to estimate the reasonably possible loss or range of loss arising 

from this litigation. 

Transfer Tax Litigation

A number of lawsuits have been filed against us in multiple states challenging our right to claim an exemption under our 

charter from transfer taxes in connection with the recordation of deeds upon transfers of real property by sale or foreclosure. 

These lawsuits may lead to additional lawsuits in the various jurisdictions that impose these taxes. The plaintiffs in several of 

these lawsuits seek to represent a nationwide class of localities. In addition, we have filed a lawsuit against the state of 

Illinois and four counties seeking a judgment that we are exempt from these transfer taxes. If these lawsuits are decided 

against us, we may be required to pay past transfer taxes, damages, fees and/or costs. Although we believe that our charter 

provides us with an exemption from these taxes and therefore we have a valid defense in these lawsuits, in March 2012 a 

federal district court in Michigan held in two cases that we are not exempt from Michigan transfer taxes under our charter. 

We, along with FHFA and Freddie Mac, filed a Petition for Permission to Appeal the two Michigan decisions with 

the U.S. Court of Appeals for the Sixth Circuit, which was granted on September 5, 2012. We filed our opening brief on 

November 6, 2012. On August 9, 2012, the U.S. District Court for the District of Columbia issued an opinion in a tax-related 

case holding that we are exempt from District of Columbia real estate recordation taxes under our charter. Similarly, on 

September 18, 2012, a separate district court in Michigan held that we are exempt from Michigan transfer taxes under our 

charter. The plaintiff in one of the Michigan cases filed a motion with the Judicial Panel on Multidistrict Litigation seeking an 

order transferring all related cases filed as of that date, as well as all subsequently filed related actions, to the U.S. District 

Court for the Eastern District of Michigan for coordinated or consolidated pretrial proceedings; the motion, which we 

opposed, was denied on September 27, 2012. We do not expect the outcome of these lawsuits to have a material impact on 

our results of operations or financial condition.
161

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, Including Interest 

Rate Risk Management.”

Item 4. Controls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls 

and procedures as well as internal control over financial reporting, as further described below.

Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that 

information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, 

summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange 

Commission (“SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to 

provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 

Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial 

Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our 

disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed 

and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was 

required to apply its judgment in evaluating and implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief 

Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as in effect as of 

September 30, 2012, 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, 2012 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of September 30, 2012 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, 2012 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 

the weakness in our disclosure controls and procedures, it is likely that we will not remediate this material weakness while 

we are under conservatorship.

Description of Material Weakness

The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as a deficiency or a 

combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a 

material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely 

basis.

Management has determined that we continued to have the following material weakness as of September 30, 2012 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 
162

policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test 

or operate effective disclosure controls and procedures. As both our regulator and our conservator under the 2008 

Reform Act, FHFA is limited in its ability to design and implement a complete set of disclosure controls and 

procedures relating to Fannie Mae, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a 

regulated entity, we are limited in our ability to design, implement, operate and test the controls and procedures for 

which FHFA is responsible.

Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner that 

adequately ensures the accumulation and communication to management of information known to FHFA that is 

needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our 

condensed consolidated financial statements. As a result, we did not maintain effective controls and procedures 

designed to ensure complete and accurate disclosure as required by GAAP as of September 30, 2012 or as of the date 

of filing this report. Based on discussions with FHFA and the structural nature of this weakness, it is likely that we 

will not remediate this material weakness while we are under conservatorship.

Mitigating Actions Relating to Material Weakness

As described above under “Description of Material Weakness,” we continue to have a material weakness in our internal 

control over financial reporting relating to our disclosure controls and procedures. However, we and FHFA have engaged in 

the following practices intended to permit accumulation and communication to management of information needed to meet 

our disclosure obligations under the federal securities laws:

• FHFA has established the Office of Conservatorship Operations, which is intended to facilitate operation of the 

company with the oversight of the conservator.

• We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also 

have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and 

comment prior to release.

• FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly 

report on Form 10-Q for the quarter ended September 30, 2012 (“Third Quarter 2012 Form 10-Q”), and engaged in 

discussions regarding issues associated with the information contained in those filings. Prior to filing our Third 

Quarter 2012 Form 10-Q, FHFA provided Fannie Mae management with a written acknowledgement that it had 

reviewed the Third Quarter 2012 Form 10-Q, and it was not aware of any material misstatements or omissions in the 

Third Quarter 2012 Form 10-Q and had no objection to our filing the Third Quarter 2012 Form 10-Q.

• The Acting Director of FHFA and our Chief Executive Officer have been in frequent communication, typically 

meeting on at least a bi-weekly basis.

• FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of 

information and to provide oversight on a variety of matters, including accounting, credit and market risk 

management, external communications and legal matters.

• Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance 

executives regarding our accounting policies, practices and procedures.

Changes in Internal Control over Financial Reporting

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, 2012 that management believes have materially affected, or are 

reasonably likely to materially affect, our internal control over financial reporting.
163

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 2011 Form 10-K, First Quarter 2012 Form 10-Q and Second Quarter 2012 Form 10-Q. We also provide 

information regarding material legal proceedings in “Note 13, 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 the 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. We presently cannot determine the ultimate resolution of the matters described below or incorporated by 

reference into this item or in our 2011 Form 10-K, First Quarter 2012 Form 10-Q or Second Quarter 2012 Form 10-Q. We 

have recorded a reserve for legal claims related to those matters when we were able to determine a loss was both probable 

and reasonably estimable. 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 

In the third quarter of 2011, FHFA, as conservator for us and for Freddie Mac, filed 16 lawsuits on behalf of us and Freddie 

Mac against various financial institutions, their officers and affiliated and unaffiliated underwriters who 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. Fourteen of the lawsuits are pending before Judge Cote in the U.S. District Court for the Southern 

District of New York (“SDNY”). These cases are against Bank of America Corp.; Barclays Bank PLC; Citigroup, Inc.; 

Credit Suisse Holdings (USA), Inc.; Deutsche Bank AG; First Horizon National Corporation; Goldman, Sachs & Co.; HSBC 

North America Holdings Inc.; JPMorgan Chase & Co.; Merrill Lynch & Co.; Morgan Stanley; Nomura Holding America 

Inc.; SG Americas, Inc.; and UBS Americas Inc. (“UBS”) and against certain related entities and individuals. FHFA’s lawsuit 

against Countrywide Financial Corporation (“Countrywide”) is pending in the U.S. District Court for the Central District of 

California and its lawsuit against The Royal Bank of Scotland Group PLC (“RBS”) is pending in the U.S. District Court for 

the District of Connecticut. The lawsuit against UBS was filed on July 27, 2011, and all the others were filed on September 2, 

2011. The lawsuits allege that the defendants violated federal securities laws and state common law by making material 

misstatements and omissions in the offering documents for the securities that were sold to Fannie Mae and Freddie Mac 

regarding the characteristics of the loans underlying the securities. The complaints also allege state securities law violations 

and some allege common law fraud. The complaints seek, among other things, rescission and recovery of consideration paid 

for the securities at issue in the lawsuits, monetary damages and, in certain cases, punitive damages for common law fraud. 

SDNY cases. On December 21, 2011, FHFA filed an amended complaint in the UBS case. On January 20, 2012, defendants in 

the UBS case filed a motion to dismiss the amended complaint. On May 4, 2012, the court denied defendants’ motion to 

dismiss in the UBS case with respect to the federal and state securities law claims and granted defendants’ motion to dismiss 

with respect to the negligent misrepresentation claim. On June 13, 2012 and June 28, 2012, FHFA filed amended complaints 

in the non-UBS cases pending in the U.S. District Court for Southern District of New York. Defendants in these cases filed 

motions to dismiss on July 13, 2012 and August 17, 2012. On August 14, 2012, the U.S. Court of Appeals for the Second 

Circuit agreed to hear the UBS defendants’ appeal of the district court’s May 4, 2012 order denying their motion to dismiss. 

On November 5, 2012, the court denied in part and granted in part defendants’ motion to dismiss in the JPMorgan Chase & 

Co. case. The court’s order, among other things, permits FHFA’s claim that defendants fraudulently misrepresented lenders’

compliance with underwriting standards to move forward with respect to each of the securities at issue in the lawsuit.

RBS case. On February 1, 2012, FHFA filed an amended complaint in the RBS case. On March 2, 2012, defendants in the 

RBS case filed a motion to dismiss the amended complaint.

Countrywide case. On June 8, 2012, defendants in the Countrywide case filed motions to dismiss. FHFA filed an amended 

complaint in that case on June 29, 2012 and defendants filed renewed motions to dismiss on July 13, 2012. On October 18, 

2012, the court denied defendants’ motions to dismiss as to all claims except certain federal securities law claims related to 

securities with shelf registration statements filed before July 25, 2005.
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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 2011 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 2011 

Form 10-K for more detailed descriptions of the primary risks to our business and how we seek to manage those risks.

The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity and net 

worth, and could cause our actual results to differ materially from our past results or the results contemplated by forwardlooking statements contained in this report. However, these are not the only risks we face. In addition to the risks we discuss 

below, we face risks and uncertainties not currently known to us or that we currently believe are immaterial. 

Our business and results of operations may be materially adversely affected if we are unable to retain and hire qualified 

employees. 

Our business processes are highly dependent on the talents and efforts of our employees. The conservatorship, the uncertainty 

of our future, limitations on employee compensation, the heightened scrutiny of our actions by Congress and regulators and 

the working environment created thereby, and negative publicity concerning the GSEs have had and are likely to continue to 

have an adverse effect on our ability to retain and recruit well-qualified employees. We have already had significant 

departures by various members of executive management since shortly before we entered into conservatorship in September 

2008, including three Chief Executive Officers and three Chief Financial Officers. Further turnover in key management 

positions and challenges in integrating new management could harm our ability to manage our business effectively and 

ultimately adversely affect our financial performance. 

Actions taken by Congress, FHFA and Treasury to date, or that may be taken by them or other government agencies in the 

future, may have an adverse effect on the retention and recruitment of senior executives, management, and other valuable 

employees. We are subject to significant restrictions on the amount and type of compensation we may pay our executives and 

other employees under conservatorship. For example, in April 2012, the STOCK Act was enacted, which includes a provision 

that prohibits senior executives at Fannie Mae and Freddie Mac from receiving bonuses during any period of conservatorship 

on or after the date of enactment of the law. In addition, FHFA has directed us to maintain individual salaries and wage rates 

for all employees at 2010 levels for 2011 and 2012 (except in the case of promotions or significant changes in 

responsibilities). We are also unable to offer equity-based compensation. 

Congress has also considered other legislation that would alter the compensation for Fannie Mae and Freddie Mac 

employees. In 2011, the Financial Services Committee of the House of Representatives approved a bill that would put our 

employees on a federal government pay scale. If this or similar legislation were to become law, our employees could 

experience a sudden and sharp decrease in compensation. The Acting Director of FHFA stated on November 15, 2011 that 

this “would certainly risk a substantial exodus of talent, the best leaving first in many instances. [Fannie Mae and Freddie 

Mac] likely would suffer a rapidly growing vacancy list and replacements with lesser skills and no experience in their 

specific jobs. A significant increase in safety and soundness risks and in costly operational failures would, in my opinion, be 

highly likely.” The Acting Director observed, “Should the risks I fear materialize, FHFA might well be forced to limit [Fannie 

Mae and Freddie Mac’s] business activities. . . . Some of the business [Fannie Mae and Freddie Mac] would be unable to 

undertake might simply not occur, with potential disruption in housing markets and the economy.” 

We face competition from within the financial services industry and from businesses outside of the financial services industry 

for qualified employees. Additionally, an improving economy is putting additional pressures on turnover, as attractive 

opportunities become available to our employees. Our competitors for talent are able to provide market-based compensation 

and to link employees’ pay to performance. The constraints on our compensation could adversely affect our ability to attract 

qualified candidates. While we engage in succession planning for our senior management and other critical positions and 

have been able to fill a number of important positions internally, our inability to offer market-based compensation may limit 

our ability to attract and retain qualified employees below the senior executive level that could fill our senior executive level 

positions if there is further turnover. 

If we are unable to retain, promote and attract employees with the necessary skills and talent, we would face increased risks 

for operational failures. Our ability to conduct our business and our results of operations would likely be materially adversely 

affected. 
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Beginning in 2013, our dividend obligations on Treasury’s investment will result in our retaining a limited and decreasing 

amount of our earnings each year until 2018. Beginning in 2018, we will no longer retain any of our earnings. In 

addition, if we have significant non-cash GAAP earnings for a quarter, we could be required to issue debt to pay the 

dividend in the next quarter.

Our current dividend obligation to Treasury on the senior preferred stock is based on applying a 10% annual dividend rate to 

the aggregate liquidation preference of the senior preferred stock. As described in “MD&A—Executive Summary—

Amendment to Senior Preferred Stock Purchase Agreement with Treasury,” effective January 1, 2013, the amount of 

dividends payable on the senior preferred stock for a dividend period will be the amount, if any, by which our net worth as of 

the end of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount. The applicable capital 

reserve amount will be $3.0 billion for each quarter of 2013 and will be reduced by $600 million each year until it reaches 

zero on January 1, 2018. For each dividend period beginning in 2018, the dividend amount will be the entire amount of our 

net worth, if any, as of the end of the immediately preceding fiscal quarter. Accordingly, our dividend obligations beginning 

in 2013 will result in our retaining a limited and decreasing amount of our earnings each year until 2018. Beginning in 2018, 

we will no longer retain any of our earnings, as the entire amount of our net worth will be paid to Treasury as dividends on 

the senior preferred stock. Because we are permitted to retain only a limited and decreasing amount of capital reserves from 

2013 through 2017, we may not have sufficient reserves to avoid a net worth deficit if we experience a comprehensive loss in 

a future quarter. In addition, beginning in 2018, we are not permitted to retain any capital reserves against losses in 

subsequent quarters; therefore, if we have a comprehensive loss for a quarter we will also have a net worth deficit for that 

quarter. For any quarter for which we have a net worth deficit, we will be required to draw funds from Treasury under the 

senior preferred stock purchase agreement in order to avoid being placed into receivership. 

Although the change in our dividend obligation to Treasury means that we will no longer be required to pay substantial 

dividends to Treasury after a quarter in which we had losses or low earnings, we could be required to issue debt to pay the 

dividend after a quarter in which we had significant non-cash GAAP earnings. For example, if we release a substantial 

amount of loss reserves in a quarter or if we have substantial fair value gains in a quarter, which results in significant noncash earnings for the quarter, and we do not have sufficient cash available to pay the dividend owed to Treasury in the next 

quarter, we would be required to issue debt to pay the dividend. If we were required to issue a substantial amount of debt to 

pay the dividend on the senior preferred stock, it could have a material adverse affect on our results of operations, financial 

condition and liquidity position.

We expect our operational risk to increase as a result of recent FHFA directives. 

We recently have been directed by FHFA to take specified actions that present significant operational challenges for us. We 

believe that implementing these directives will increase our operational risk and may potentially result in one or more 

significant deficiencies or material weaknesses in our internal control over financial reporting in a future period. 

In April 2012, FHFA issued supervisory guidance requiring that we change our method of accounting for delinquent loans. 

This directive, which is described in “Legislative and Regulatory Developments—FHFAAdvisory Bulletin Regarding 

Framework for Adversely Classifying Loans” in our Second Quarter 2012 Form 10-Q, creates significant operational burdens 

and costs for us. We are also currently working on implementing a number of other FHFA directives and initiatives that may 

increase our operational burdens and our costs, including those described in “Executive Compensation—Compensation 

Discussion and Analysis—2012 Executive Compensation Program—2012 Corporate Performance Objectives” of our 2011 

Form 10-K/A. In addition, FHFA, other agencies of the U.S. government or Congress may direct us to take actions in the 

future that could further increase our operational risk. 

While implementation of each individual directive creates operational challenges, implementing multiple directives 

significantly increases these challenges. Implementing these directives requires a substantial time commitment from 

management and the employees responsible for implementing the changes, which could adversely affect our ability to retain 

these employees. In addition, some of these directives require significant changes to our accounting methods and systems. 

Due to the operational complexity associated with these changes and the limited time periods for implementing them, we 

believe there is a significant risk that implementing these changes may result in one or more significant deficiencies or 

material weaknesses in our internal control over financial reporting in a future period. If this were to occur, we could 

experience material errors in our reported financial results. 

Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase 

agreement. 

We are currently under the control of our conservator, FHFA, and we do not know when or how the conservatorship will be 

terminated. In its strategic plan for fiscal years 2013-2017 released in October 2012, FHFA stated that “[g]iven the 
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Enterprises’ current financial condition and the terms of the U.S. Department of Treasury’s financial support agreements, the 

Enterprises are unlikely to earn their way back to a condition that allows them to emerge from conservatorship.” As 

conservator, FHFA can direct us to enter into contracts or enter into contracts on our behalf, and generally has the power to 

transfer or sell any of our assets or liabilities. In addition, our directors do not have fiduciary duties to any person or entity 

except to the conservator. Accordingly, our directors 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 in making or approving a decision unless specifically directed 

to do so by the conservator. 

The conservator has determined that, while we are in conservatorship, we will be limited to continuing our existing core 

business activities and taking actions to advance the goals of the conservatorship. We are devoting significant resources to 

FHFA’s strategic goals relating to building a new housing finance system for the future. FHFA’s strategic goals include 

contracting our operations and reducing our role in the secondary mortgage market. In view of FHFA’s strategic goals, we 

expect that our strategic objectives and business activities will continue to change, possibly significantly, including in pursuit 

of our public mission and other non-financial objectives. Accordingly, our strategic and operational focus going forward may 

not be consistent with the investment objectives of our investors. In addition, we may be directed to engage in activities that 

are operationally difficult, costly to implement or unprofitable. 

The senior preferred stock purchase agreement with Treasury includes a number of covenants that significantly restrict our 

business activities. We cannot, without the prior written consent of Treasury: pay dividends (except on the senior preferred 

stock); sell, issue, purchase or redeem Fannie Mae equity securities; sell, transfer, lease or otherwise dispose of assets in 

specified situations; engage in transactions with affiliates other than on arm’s-length terms or in the ordinary course of 

business; issue subordinated debt; or incur indebtedness that would result in our aggregate indebtedness exceeding 120% of 

the amount of mortgage assets we are allowed to own. In deciding whether to consent to any request for approval it receives 

from us under the agreement, Treasury has the right to withhold its consent for any reason and is not required by the 

agreement to consider any particular factors, including whether or not management believes that the transaction would 

benefit the company. For example, in November 2009, Treasury withheld its consent under these covenants to our proposed 

transfer of interests in LIHTC investments, eliminating our ability to transfer the assets for value and resulting in our 

recognizing a $5 billion loss with respect to these investments in that quarter. Pursuant to the senior preferred stock purchase 

agreement, the maximum allowable amount of mortgage assets we are permitted to own will be reduced to $650 billion on 

December 31, 2012, and on each December 31 thereafter, our mortgage assets may not exceed 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. This limit on the amount of mortgage assets we are permitted to hold 

could constrain the amount of delinquent loans we purchase from single-family MBS trusts, which could increase our costs. 

Actions taken by the conservator and the restrictions set forth in the senior preferred stock purchase agreement could 

adversely affect our business, results of operations, financial condition, liquidity and net worth. 

The conservatorship and investment by Treasury have had, and will continue to have, a material adverse effect on our 

common and preferred shareholders. 

We do not know when or how the conservatorship will be terminated. Moreover, even if the conservatorship is terminated, 

we remain subject to the terms of the senior preferred stock purchase agreement, senior preferred stock and warrant, which 

can only be canceled or modified by mutual consent of Treasury and the conservator. The conservatorship and investment by 

Treasury have had, and will continue to have, material adverse effects on our common and preferred shareholders, including 

the following: 

No voting rights during conservatorship. The rights and powers of our shareholders are suspended during the 

conservatorship. The conservatorship has no specified termination date. During the conservatorship, our common 

shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates this 

authority to them. 

Dividends to common and preferred shareholders, other than to Treasury, have been eliminated. Under the terms of the 

senior preferred stock purchase agreement, dividends may not be paid to common or preferred shareholders (other than on the 

senior preferred stock) without the consent of Treasury, regardless of whether we are in conservatorship. 

Liquidation preference of senior preferred stock is high and could increase. The senior preferred stock ranks prior to our 

common stock and all other series of our preferred stock, as well as any capital stock we issue in the future, as to both 

dividends and distributions upon liquidation. Accordingly, if we are liquidated, the senior preferred stock is entitled to its 

then-current liquidation preference, plus any accrued but unpaid dividends, before any distribution is made to the holders of 

our common stock or other preferred stock. The liquidation preference on the senior preferred stock is currently 

$117.1 billion and would increase if we draw on Treasury’s funding commitment in any future quarters or if we do not pay 
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dividends owed on the senior preferred stock. If we are liquidated, it is unlikely that there would be sufficient funds 

remaining after payment of amounts to our creditors and to Treasury as holder of the senior preferred stock to make any 

distribution to holders of our common stock and other preferred stock. 

Exercise of the Treasury warrant would substantially dilute investment of current shareholders. If Treasury exercises its 

warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock 

outstanding on a fully diluted basis, the ownership interest in the company of our then existing common shareholders will be 

substantially diluted, and we would thereafter have a controlling shareholder. 

No longer managed for the benefit of shareholders. Because we are in conservatorship, we are no longer managed with a 

strategy to maximize shareholder returns. 

For additional description of the restrictions on us and the risks to our shareholders, see “Business—Conservatorship and 

Treasury Agreements” in our 2011 Form 10-K and “MD&A—Executive Summary—Amendment to Senior Preferred Stock 

Purchase Agreement with Treasury” in this report.

Changes in accounting standards and policies can be difficult to predict and can materially impact how we record and 

report our financial results. 

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of 

operations. From time to time, the FASB, the SEC or FHFA changes the financial accounting and reporting standards or the 

policies that govern the preparation of our financial statements. These changes can be difficult to predict and expensive to 

implement, and can materially impact how we record and report our financial condition and results of operations. We could 

be required to apply new or revised guidance retrospectively, which may result in the revision of prior period financial 

statements by material amounts. The implementation of new or revised accounting guidance could have a material adverse 

effect on our net worth and result in or contribute to the need for additional draws from Treasury under the senior preferred 

stock purchase agreement. 

Given the deteriorated credit quality of many of our mortgage insurer counterparties, we may incur losses as a result of 

claims under our mortgage insurance policies not being paid in full or at all, and we may face business disruptions and 

increased concentration risk. 

We rely heavily on mortgage insurers to provide insurance against borrower defaults on single-family conventional mortgage 

loans with LTV ratios over 80% at the time of acquisition. Several of our mortgage insurer counterparties have continued to 

incur losses in 2012, and their risk-to-capital positions have continued to erode, which may increase the risk that these 

counterparties will fail to fulfill their obligations to pay in full our claims under insurance policies.

Three of our largest mortgage insurance counterparties—Triad, RMIC and PMI—are in run-off. In addition, PMI is in 

receivership. A mortgage insurer that is in run-off continues to collect renewal premiums on its existing insurance business, 

but no longer writes new insurance. Entering run-off may close off a source of profits and liquidity that may have otherwise 

assisted a mortgage insurer in paying claims under insurance policies, and could also cause the quality and speed of its claims 

processing to deteriorate. Triad, RMIC and PMI are currently paying only a portion of policyholder claims and deferring the 

remaining portion. As of November 7, 2012, Triad is paying only 60% of claims under its mortgage guaranty insurance 

policies and deferring the remaining 40%, and both PMI and RMIC are paying 50% of claims and deferring the remaining 

50%. It is uncertain when, or if, regulators for Triad, RMIC or PMI will allow them to begin paying deferred policyholder 

claims and/or increase or decrease the amount of cash they pay on claims.

In addition to the three mortgage insurers in run-off, the amount of capital held by both Genworth and MGIC has fallen 

below applicable state regulatory capital requirements, and therefore each is currently operating pursuant to a waiver it 

received from the regulator of the state regulatory capital requirements applicable to its main insurance writing entity. 

Although we have approved a subsidiary of MGIC to write new insurance in states in which MGIC does not have a waiver, 

MGIC has disclosed that Freddie Mac has only contingently approved this subsidiary subject to a number of conditions. 

Because lenders generally do not identify which GSE a loan will be delivered to at the time the insurance is obtained, if 

Freddie Mac does not approve this MGIC subsidiary, it could constrain MGIC’s ability to write new business for all GSEguaranteed loans. Moreover, Radian has disclosed that, in the absence of additional capital contributions to its main insurance 

writing entity, its capital might fall below state regulatory capital requirements in the future. 

These six mortgage insurers—Triad, RMIC, PMI, Genworth, MGIC and Radian—provided a combined $70.4 billion, or 

78%, of our risk in force mortgage insurance coverage of our single-family guaranty book of business as of September 30, 

2012. We do not know how long regulators will permit mortgage insurers that do not meet, or may soon fail to meet, state 

regulatory capital requirements to continue operating without obtaining additional capital. Nor do we know how long our 

mortgage insurer counterparties that are operating under waivers will continue to operate under waivers, or how long those 
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that are currently below their state-imposed risk-to-capital limits will remain below these limits. If a mortgage insurer 

counterparty is unable to generate or obtain sufficient capital to stay below its risk-to-capital limits and cannot secure and 

maintain a waiver from its state regulator, it will likely be placed into run-off or receivership. 

Some mortgage insurers have explored corporate restructurings, which are intended to provide relief from risk-to-capital 

limits in certain states. A restructuring plan that would involve contributing capital to a subsidiary of a mortgage insurer 

would result in less liquidity available to the mortgage insurer to pay claims on its existing book of business and an increased 

risk that the mortgage insurer will not pay its claims in full in the future. 

From time to time we assess our mortgage insurer counterparties’ ability to fulfill their obligations to us, and our loss reserves 

take into account this assessment. If our assessment of their ability to pay claims deteriorates significantly, it could result in a 

significant increase in our loss reserves and our credit losses. 

Beginning in 2007, many mortgage insurers stopped insuring new mortgages with certain higher risk characteristics such as 

higher LTV ratios, lower borrower FICO credit scores or select property types. Under our Refi Plus initiative, we allow our 

borrowers who have mortgage loans with current LTV ratios above 80% to refinance their mortgages without obtaining new 

mortgage insurance in excess of what is already in place. Except as permitted under Refi Plus, our charter specifically 

requires us to obtain credit enhancement on single-family conventional mortgage loans with loan-to-value ratios over 80% at 

the time of purchase. As a result, an inability to obtain mortgage insurance may inhibit our ability to serve and support the 

housing and mortgage markets, meet our housing goals, and help borrowers remain in their homes by acquiring refinancings 

into more affordable loans. In addition, access to fewer mortgage insurer counterparties increases our concentration risk with 

the remaining mortgage insurers in the industry. 

Changes in the mortgage industry may negatively impact our business. 

A number of our largest mortgage seller/servicer counterparties have reduced or eliminated their purchases of mortgage loans 

from mortgage brokers and correspondent lenders. As a result, we are acquiring an increasing portion of our business volume 

directly from smaller financial institutions that may not have the same financial strength as our largest counterparties. Our top 

five lender customers in terms of single-family business acquisition volume, in the aggregate, accounted for approximately 

46% of our single-family business acquisition volume in the third quarter of 2012, compared with approximately 60% of our 

single-family business acquisition volume in the third quarter of 2011. In addition, only three of our top five lender customers 

for the third quarter of 2011 remained in our top five for the third quarter of 2012. Similarly, some of our servicing volume is 

shifting to smaller or non-traditional servicers. Our ten largest single-family mortgage servicers, including their affiliates, 

serviced 71% of our single-family guaranty book of business as of September 30, 2012, compared to 75% as of September 

30, 2011. These smaller servicers may not have the same financial strength or operational capacity as our largest servicers, 

which could negatively affect their ability to service the loans on our behalf or to satisfy their repurchase or compensatory fee 

obligations. This decrease in the concentration of our business with large institutions could increase both our institutional 

counterparty credit risk and our mortgage credit risk, and could have a material adverse effect on our business, results of 

operations, financial condition, liquidity and net worth. 

The loss of business volume from a key lender customer could adversely affect our business and result in a decrease in 

our revenues, especially if we are unable to replace the business volume that customer provided us. 

Our ability to generate revenue from the purchase and securitization of mortgage loans depends on our ability to acquire a 

steady flow of mortgage loans from the originators of those loans. Although we are acquiring an increasing portion of our 

business volume directly from smaller financial institutions, we continue to acquire a significant portion of our mortgage 

loans from several large mortgage lenders. Our top five lender customers in terms of single-family business acquisition 

volume, in the aggregate, accounted for approximately 46% of our single-family business acquisition volume in the third 

quarter of 2012, compared with approximately 60% of our single-family business acquisition volume in the third quarter of 

2011. Accordingly, maintaining our current business relationships and business volumes with our top lender customers is 

important to our business. To the extent a key lender customer significantly reduces the volume or quality of mortgage loans 

that the lender delivers to us or that we are willing to buy from them, we could lose significant business volume that we 

might be unable to replace, which could adversely affect our business and result in a decrease in our revenues. In addition, a 

significant reduction in the volume of mortgage loans that we securitize could reduce the liquidity of Fannie Mae MBS, 

which in turn could have an adverse effect on their market value. 

Actions taken by state and local governments to address the housing crisis or increase revenues could have an adverse 

effect on our business, results of operations, financial condition and net worth. 

Many state and local governments are seeking ways to address some of the effects of the housing crisis, including high levels 

of foreclosures. State and local governments are also seeking ways to address declining tax revenues. Some of the legislative, 
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regulatory or litigation-related actions governments take to address these issues may adversely affect us by, for example, 

increasing our costs or affecting our ability to achieve our business goals efficiently and effectively.

For example, a number of lawsuits have been filed against us challenging our right to claim an exemption, under our charter, 

from transfer taxes in connection with the recordation of deeds upon transfers of real property. Additional similar lawsuits 

could be filed against us, and taxing authorities in jurisdictions that do not normally impose a tax on the transfer of real 

property could also seek to impose transfer taxes on us. If we were to become subject to real property transfer taxes in a large 

number of states and localities, and if we were required to pay a number of years of past transfer taxes in these states and 

localities, it would increase our costs going forward and could have an adverse effect on our financial results. 

In another example, a number of local governments are considering or may consider using eminent domain to seize mortgage 

loans and forgive principal on the loans. Such seizures, if they are successful, could result in further losses and write-downs 

relating to our investment securities and could increase our credit losses. 

These actions and others that state and local governments may pursue in the future could have an adverse effect on our 

business, results of operations, financial condition and net worth.

A decrease in the credit ratings on our senior unsecured debt could have an adverse effect on our ability to issue debt on 

reasonable terms and trigger additional collateral requirements, and would likely do so if such a decrease were not based 

on a similar action on the credit ratings of the U.S. government. 

Credit ratings on our senior unsecured debt, as well as the credit ratings of the U.S. government, are primary factors that 

could affect our borrowing costs and our access to the debt capital markets. Credit ratings on our debt are subject to revision 

or withdrawal at any time by the rating agencies. Actions by governmental entities impacting the support we receive from 

Treasury could adversely affect the credit ratings on our senior unsecured debt. 

On August 5, 2011, S&P lowered the long-term sovereign credit rating on the U.S. to “AA+.” As a result of this action, and 

because we directly rely on the U.S. government for capital support, on August 8, 2011, S&P lowered our long-term senior 

debt rating to “AA+” with a negative outlook. Previously, our long-term senior debt had been rated by S&P as “AAA” and 

had been on CreditWatch Negative. S&P affirmed our short-term senior debt rating of “A-1+” and removed it from 

CreditWatch Negative. In assigning a negative outlook on the U.S. government’s long-term debt rating, S&P noted that it 

may lower the U.S. government’s long-term debt rating to “AA” within the next two years if it sees less reduction in 

spending than agreed to or higher interest rates, or if new fiscal pressures during the period result in a higher general 

government debt trajectory than S&P currently assumes. If S&P further lowers the U.S. government’s long-term debt rating, 

we expect that S&P would lower our long-term debt rating correspondingly. 

After the U.S. government’s statutory debt limit was raised on August 2, 2011, Moody’s confirmed the U.S. government’s 

rating and our long-term debt ratings. Moody’s also removed the designation that these ratings were under review for 

possible downgrade. Moody’s revised the outlook for both the U.S. government’s rating and our long-term debt ratings to 

negative. In assigning the negative outlook to the U.S. government’s rating, Moody’s indicated there would be a risk of a 

downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not 

adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the 

U.S. government’s funding costs over and above what is currently expected. On September 11, 2012, Moody’s issued an 

update to its outlook for the U.S. government’s debt rating. In this update, Moody’s noted that they would expect to lower the 

U.S. government’s debt rating if budget negotiations in 2013 fail to produce a plan that includes policies that produce a 

stabilization and then downward trend in the ratio of federal debt to GDP over the medium term. 

On November 28, 2011, Fitch affirmed the long-term issuer default rating and senior unsecured debt rating of Fannie Mae at 

“AAA,” but revised its ratings outlook on Fannie Mae’s long-term issuer default rating to Negative from Stable. This action 

followed a similar action by Fitch on the United States sovereign rating. 

As of November 1, 2012, our long-term debt continued to be rated “AA+” by S&P, “Aaa” by Moody’s and “AAA” by Fitch. 

S&P, Moody’s and Fitch have all indicated that they would likely lower their ratings on the debt of Fannie Mae and certain 

other government-related entities if they were to lower their ratings on the U.S. government. We currently cannot predict 

whether one or more of these rating agencies will downgrade our debt ratings in the future, nor can we predict the potential 

impact. Although S&P’s downgrade of our credit rating has not increased our borrowing costs or limited our access to the 

debt capital markets to date, an additional reduction in our credit ratings could have a material adverse impact on our access 

to debt funding or on the cost of our debt funding, and would likely do so if it were not based on a similar action on the credit 

ratings of the U.S. government. 
170

An additional reduction in our credit ratings may also trigger additional collateral requirements under our derivatives 

contracts because a majority of our derivatives contracts contain provisions that require our senior unsecured debt to maintain 

a minimum credit rating from S&P and Moody’s. If our senior unsecured debt credit ratings were downgraded to established 

thresholds in our derivatives 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 derivatives with credit-risk-related 

contingent features that were in a net liability position as of September 30, 2012 was $7.9 billion, for which we posted 

collateral of $7.8 billion in the normal course of business. If our senior unsecured debt had been downgraded to AA or Aa1, 

or even to AA- or Aa2, we would not have been required to post any additional collateral as of September 30, 2012. If all of 

the credit-risk-related contingency features underlying these agreements had been triggered, an additional $116 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, 2012. An additional reduction in our credit ratings may also materially adversely 

affect our liquidity, our ability to conduct our normal business operations, our financial condition and our results of 

operations. Our credit ratings and ratings outlook are included in “MD&A—Liquidity and Capital Management—Liquidity 

Management—Credit Ratings.” 

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, 2012, we did not issue 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 2012.
171

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, which became effective July 20, 2011, prohibit us from 

paying any dividends while in conservatorship unless authorized by the Director of FHFA. The Acting Director of FHFA

directs us to make dividend payments on the senior preferred stock on a quarterly basis.

Restrictions under Senior Preferred Stock Purchase Agreement. The senior preferred stock purchase agreement prohibits us 

from declaring or paying any dividends on Fannie Mae equity securities (other than the senior preferred stock) without the 

prior written consent of Treasury.

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of 

dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of the 

Director of FHFA is required for any dividend payment. Under the GSE Act, we are not permitted to make a capital 

distribution if, after making the distribution, we would be undercapitalized, except the Director of FHFA may permit us to 

repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at least an 

equivalent amount and will reduce our financial obligations or otherwise improve our financial condition.

Restrictions Relating to Qualifying Subordinated Debt. During any period in which we defer payment of interest on 

qualifying subordinated debt, we may not declare or pay dividends on, or redeem, purchase or acquire, our common stock or 

preferred stock.

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.

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.
172

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on 

its behalf by the undersigned thereunto duly authorized.

Federal National Mortgage Association

By: /s/ Timothy J. Mayopoulos

Timothy J. Mayopoulos

President and Chief Executive Officer

Date: November 7, 2012

By: /s/ Susan R. McFarland

Susan R. McFarland

Executive Vice President and

Chief Financial Officer

Date: November 7, 2012
E-1

INDEX TO EXHIBITS

Item Description

3.1 Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through July 30, 2008 (Incorporated by

reference to Exhibit 3.1 to Fannie Mae’s Annual Report on Form 10-K, filed February 24, 2011.)

3.2 Fannie Mae Bylaws, as amended through January 30, 2009 (Incorporated by reference to Exhibit 3.2 to

Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2008, filed February 26,

2009.)

4.1 Amended and Restated Certificate of Designation of Terms of Variable Liquidation Preference Senior 

Preferred Stock, Series 2008-2, amended and restated as of September 27, 2012

4.2 Third Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of 

August 17, 2012, between the United States Department of the Treasury and the Federal National 

Mortgage Association, acting through the Federal Housing Finance Agency as its duly appointed 

conservator (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed 

August 17, 2012.)

10.1 Third Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of

August 17, 2012, between the United States Department of the Treasury and the Federal National

Mortgage Association, acting through the Federal Housing Finance Agency as its duly appointed

conservator (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed

August 17, 2012.)

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. The information in these exhibits shall 

not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the 

liabilities of Section 18, nor shall they be deemed incorporated by reference into any disclosure document relating to 

Fannie Mae, except to the extent, if any, expressly set forth by specific reference in such filing.
FR012