UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberÄ30, 2019

OR

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

EXCHANGE ACT OF 1934

For the transition period from to 

Commission file number: 0-50231

Federal National Mortgage Association

(Exact name of registrant as specified in its charter) 

Fannie Mae

Federally chartered corporation 52-0883107 1100 15th Street, NW 800 232-6643

Washington, DC 20005

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

(Address of principal executive

offices, including zip code)

(RegistrantÄs telephone number,

including area code)

Securities registered pursuant to Section 12(b) of the Act:Ä 

Title of each class Trading Symbol(s) Name of each exchange on which registered

None N/A N/A

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.ÄÄYes ÄÄÄÄÄÄNoÄÅ

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

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

shorter period that the registrant was required to submit such files).ÄÄYes ÄÄÄÄÄÄNoÄÅ

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

smaller reporting company, or an emerging growth company. See the definitions of Çlarge accelerated filer,É Çaccelerated filer,É

Çsmaller reporting company,É and Çemerging growth companyÉ in Rule 12b-2 of the Exchange Act. 

Large accelerated filer Ä Accelerated filer Å

Non-accelerated filer Å Smaller reporting company Å

Emerging growth company Å

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

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

Act. ÄÅ

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

ÅÄNoÄÄ

As of September 30, 2019, there were 1,158,087,567 shares of common stock of the registrant outstanding.
TABLE OF CONTENTS

Page

PARTÄIÅFinancial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 1. Financial Statements

Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Condensed Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . . . . 56

Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Condensed Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Note 1ÑSummary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Note 2ÑConsolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Note 3ÑMortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Note 4ÑAllowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Note 5ÑInvestments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Note 6ÑFinancial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Note 7ÑShort-Term and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Note 8ÑDerivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Note 9ÑSegment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Note 10ÑConcentrations of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Note 11ÑNetting Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Note 12ÑFair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Note 13ÑCommitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Item 2. ManagementÖs Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 1

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

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

Legislation and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Uniform Mortgage-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Key Market Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Consolidated Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Retained Mortgage Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Guaranty Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Single-Family Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Multifamily Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

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

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Impact of Future Adoption of New Accounting Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

ItemÄ3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

ItemÄ4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

PARTÄIIÅOther Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

ItemÄ1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

ItemÄ1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Fannie Mae Third Quarter 2019 Form 10-Q i
PART IÄFINANCIAL INFORMATION

MD&A | Introduction

Fannie Mae Third Quarter 2019 Form 10-Q 1

Item 2.ÅÅManagementÇs Discussion and Analysis of Financial

Condition and Results of Operations

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

SeptemberÄ6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and privileges of the company, and of

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

provided for the exercise of certain authorities by our Board of Directors. Our directors do not have any fiduciary duties to

any person or entity except to the conservator and, accordingly, are not obligated to consider the interests of the

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

so by the conservator.

We do not know when or how the conservatorship will terminate, what further changes to our business will be made

during or following conservatorship, what form we will have and what ownership interest, if any, our current common and

preferred stockholders will hold in us after the conservatorship is terminated or whether we will continue to exist following

conservatorship. Congress and the Administration continue to consider options for reform of the housing finance system,

including Fannie Mae. We are not permitted to retain more than $25 billion in capital reserves or to pay dividends or other

distributions to stockholders other than the U.S.ÄDepartment of the Treasury (ÇTreasuryÉ). Our agreements with Treasury

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

uncertainty of our future, our agreements with Treasury, and recent developments relating to housing finance reform, see

ÇBusinessÑConservatorship, Treasury Agreements and Housing Finance ReformÉ and ÇBusinessÑCharter Act and

RegulationÉ in our Form 10-K for the year ended December 31, 2018 (Ç2018 Form 10-KÉ), ÇLegislation and RegulationÉ in

this report, and ÇRisk FactorsÉ in both this report and our 2018 Form 10-K.

You should read this ManagementÄs Discussion and Analysis of Financial Condition and Results of Operations (ÅMD&AÇ) in

conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more

detailed information in our 2018 FormÉ10-K. You can find a ÅGlossary of Terms Used in This ReportÇ in the MD&A of our 2018

FormÉ10-K. 

Forward-looking statements in this report are based on managementÄs current expectations and are subject to significant

uncertainties and changes in circumstances, as we describe in ÅForward-Looking Statements.Ç Future events and our future

results may differ materially from those reflected in our forward-looking statements due to a variety of factors, including those

discussed in ÅRisk FactorsÇ and elsewhere in this report and in our 2018 FormÉ10-K. 

Introduction

Fannie MaeÖs mission is to provide a stable source of liquidity to support housing for low- and moderate-income Americans.

We operate in the secondary mortgage market, primarily working with lenders, who originate loans to borrowers. We do not

originate loans or lend money directly to borrowers in the primary mortgage market. Instead, we securitize mortgage loans

originated by lenders intoÄFannie Mae mortgage-backed securities that we guarantee (which we refer to as Fannie Mae MBS

or our MBS); purchase mortgage loans and mortgage-related securities, primarily for securitization and sale at a later date;

manage mortgage credit risk; and engage in other activities that support access to credit and the supply of affordable housing.

Our common stock is traded in the over-the-counter market and quoted on the OTCQB, operated by OTC Markets Group, Inc.,

under the ticker symbol ÇFNMA.É

Through our single-family and multifamily business segments, we provided $460 billion in liquidity to the mortgage market in

the first nine months of 2019, which enabled the financing of approximately 2.1 million home purchases, refinancings or rental

units.

 Fannie Mae Provided $460 Billion in Liquidity in the First Nine Months of 2019

Unpaid Principal Balance Units

$240.1B 942K

Single-Family Home Purchases

$167.3B 649K

Single-Family Refinancings

$52.1B 548K

Multifamily Rental Units
Executive Summary

MD&A | Executive Summary

Fannie Mae Third Quarter 2019 Form 10-Q 2

Summary of Our Financial Performance

Quarterly Condensed Consolidated Results

Net revenues Net income

Comprehensive income

(Dollars in billions)

Q3 2018 Q3 2019

$5.6 $5.6

$4.0 $4.0 $4.0 $4.0

Our net income in the third quarter of 2019

remained flat compared with the third

quarter of 2018 primarily due to:

Ü an increase in our credit-related

income; 

Ü offset by a shift from fair value

gains to fair value losses.

See ÇConsolidated Results of OperationsÉ

for more information on our financial

results.

Year-to-Date Condensed Consolidated Results

Net revenues Net income

Comprehensive income

(Dollars in billions)

YTD 2018 YTD 2019

$16.8 $16.0

$12.7

$9.8

$12.4

$9.7

The decrease in our net income in the first

nine months of 2019, compared with the

first nine months of 2018, was primarily

driven by:

Ü a shift from fair value gains to fair

value losses; and

Ü a decrease in net interest income;

Ü partially offset by an increase in

our credit-related income.

See ÇConsolidated Results of OperationsÉ

for more information on our financial

results.

Net worth. Our net worth was $10.3 billion as of September 30, 2019. This amount reflects:

Ü our net worth of $6.4 billion as of June 30, 2019, of which we previously expected to pay Treasury $3.4 billion as a

third-quarter 2019 dividend; and

Ä our comprehensive income of $4.0 billion for the third quarter of 2019. 

As we describe in ÇLegislation and RegulationÑLetter Agreement with Treasury,É the dividend provisions of our senior

preferred stock were modified on September 27, 2019. As a result, no dividends were payable on the senior preferred stock for

the third quarter of 2019, as our net worth of $6.4 billion as of June 30, 2019 was lower than the $25 billion capital reserve

amount. Additionally, no dividends will be payable on the senior preferred stock for the fourth quarter of 2019, as our net worth

of $10.3 billion as of September 30, 2019 was lower than $25 billion.
Net Worth, Treasury Funding and Senior Preferred Stock Dividends 

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

circumstances if we have a net worth deficit. Pursuant to the senior preferred stock purchase agreement, we issued shares of

senior preferred stock to Treasury in 2008. We have paid dividends to Treasury on the senior preferred stock on a quarterly

basis for every dividend period for which dividends were payable since we entered conservatorship in 2008.

Under the modified dividend provisions of the senior preferred stock described in ÇLegislation and RegulationÑLetter

Agreement with Treasury,É effective with the third quarter 2019 dividend period, we are not required to pay further dividends to

Treasury until we have accumulated over $25 billion in net worth. Accordingly, no dividends were payable to Treasury for the

third quarter of 2019, and none will be payable for the fourth quarter of 2019. Changes in our net worth can be significantly

impacted by market conditions that affect our net interest income, fluctuations in the estimated fair value of our derivatives and

other financial instruments that we mark to market through our earnings, developments that affect our loss reserves such as

changes in interest rates, home prices or accounting standards, or events such as natural disasters, and other factors, as we

discuss in ÇRisk FactorsÉ and ÇConsolidated Results of OperationsÉ in our 2018 Form 10-K and in this report.

The charts below show information about our net worth, the remaining amount of TreasuryÖs funding commitment to us, senior

preferred stock dividends we have paid Treasury and funds we have drawn from Treasury pursuant to its funding commitment.

Net worth

Remaining Treasury funding commitment

Net Worth and Treasury Funding

Commitment

(Dollars in billions)

As of September 30, 2019

$10.3

$113.9

Cumulative dividend payments to

Treasuryá

Cumulative draws from Treasuryà

Dividend Payments and Draws

(Dollars in billions)

As of September 30, 2019

$181.4

$119.8

(1) Aggregate amount of dividends we have paid to Treasury on the senior preferred stock from 2008 through September 30, 2019. Under the

terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset our draws of funds from

Treasury.

(2) Aggregate amount of funds we have drawn from Treasury pursuant to the senior preferred stock purchase agreement from 2008 through

September 30, 2019.

Under the modified liquidation preference provisions of the senior preferred stock described in ÇLegislation and RegulationÑ

Letter Agreement with Treasury,É the aggregate liquidation preference of the senior preferred stock increased from $123.8

billion as of June 30, 2019 to $127.2 billion as of September 30, 2019 due to the $3.4 billion increase in our net worth during

the second quarter of 2019. The aggregate liquidation preference of the senior preferred stock will further increase to $131.2

billion as of December 31, 2019 due to the $4.0 billion increase in our net worth during the third quarter of 2019.

For a description of the terms of the senior preferred stock purchase agreement and the senior preferred stock, see ÇBusiness

ÑConservatorship, Treasury Agreements and Housing Finance ReformÉ in our 2018 Form 10-K and ÇLegislation and

RegulationÑLetter Agreement with TreasuryÉ in this report.

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

commitment under the senior preferred stock purchase agreement to provide us with funds to maintain a positive net worth

under specified conditions, the U.S. government does not guarantee our securities or other obligations.

MD&A | Executive Summary

Fannie Mae Third Quarter 2019 Form 10-Q 3
Legislation and Regulation

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

affecting our business set forth in ÇBusinessÑConservatorship, Treasury Agreements and Housing Finance ReformÉ and

ÇBusinessÑCharter Act and RegulationÉ in our 2018 FormÄ10-K, as well as in ÇMD&AÑLegislation and RegulationÉ in our

Form 10-Q for the quarter ended March 31, 2019 (ÇFirst Quarter 2019 Form 10-QÉ) and our Form 10-Q for the quarter ended

June 30, 2019 (ÇSecond Quarter 2019 Form 10-QÉ). Also see ÇRisk FactorsÉ in this report and in our 2018 Form 10-K for

discussions of risks relating to legislative and regulatory matters.

Housing Finance Reform

In March 2019, President Trump issued a memorandum directing the Secretary of the Treasury to develop a plan for

administrative and legislative reforms relating to Fannie Mae and Freddie Mac (collectively referred to as the Çgovernmentsponsored enterprisesÉ or the ÇGSEsÉ), as described in our First Quarter 2019 Form 10-Q. 

On September 5, 2019, Treasury released its plan to reform the housing finance system. The Treasury Housing Reform Plan

(the ÇTreasury planÉ) is far-reaching in scope and could have a significant impact on our structure, our role in the secondary

mortgage market, our capitalization, our business and our competitive environment. The Treasury plan includes 49

recommended reformsÑ31 proposed administrative reforms and 18 proposed legislative reformsÑto define a limited role for

the federal government in the housing finance system, enhance taxpayer protections against future bailouts, and promote

competition in the housing finance system. The Treasury plan includes recommendations relating to ending our

conservatorship, amending our senior preferred stock purchase agreement with Treasury, considering additional restrictions

and requirements on our business, and many other matters. While the Treasury plan states that it is TreasuryÖs preference and

recommendation that Congress enact comprehensive housing finance reform legislation, the plan also states that Çreform

should not and need not wait on Congress. . . . Pending legislation, Treasury will continue to support FHFAÖs administrative

actions to enhance regulation of the GSEs, promote private sector competition, and satisfy the preconditions set forth in this

plan for ending the GSEsÖ conservatorships.É

The Treasury plan contemplates FHFA ending the conservatorships of each of Fannie Mae and Freddie Mac when the GSE

has met specified preconditions, which the plan recommends should include, at a minimum, that: 

Ü FHFA has prescribed regulatory capital requirements for both GSEs;

Ü FHFA has approved the GSEÖs capital restoration plan, and the GSE has retained or raised sufficient capital and

other loss-absorbing capacity to operate in a safe and sound manner;

Ü the senior preferred stock purchase agreement between Treasury and the GSE has been amended to:

â require the GSE to fully compensate the federal government in the form of an ongoing payment for the

ongoing support provided to the GSE under the senior preferred stock purchase agreement;

â focus the GSEÖs activities on its core statutory mission and otherwise tailor government support to the

underlying rationale for that support;

â further limit the size of the GSEÖs retained mortgage portfolio;

â subject the GSE to heightened prudential requirements and safety and soundness standards, including

increased capital requirements, designed to prevent a future taxpayer bailout and minimize risks to financial

stability; and

â ensure that the risk posed by the GSEÖs activities is calibrated to the amount of the remaining commitment

under the senior preferred stock purchase agreement;

Ü appropriate provision has been made to ensure there is no disruption to the market for the GSEÖs MBS, including its

previously-issued MBS;

Ü FHFA, after consulting with the Financial Stability Oversight Council, has determined that the heightened prudential

requirements incorporated into the amended senior preferred stock purchase agreements are, together with the

requirements and restrictions imposed by FHFA in its capacity as regulator, appropriate to minimize risks to financial

stability; and

Ü any other conditions that FHFA, in its discretion, determines are necessary to ensure that the GSE would operate in a

safe and sound manner after the conservatorship, including as to the GSEÖs compliance with FHFAÖs directives or

other requirements and also as to the build out of FHFAÖs supervisory function.

MD&A | Legislation and Regulation

Fannie Mae Third Quarter 2019 Form 10-Q 4
The Treasury plan also contemplates Treasury and FHFA adjusting Fannie MaeÖs and Freddie MacÖs senior preferred stock

purchase agreements with Treasury to allow each company to retain and raise capital. The Treasury plan does not specify

how Fannie Mae or Freddie Mac would recapitalize but states that potential approaches to recapitalization could include one

or more of the following, among other options:

Ü eliminating all or a portion of the liquidation preference of TreasuryÖs senior preferred stock or exchanging all or a

portion of that interest for common stock or other interests in the GSE; 

Ü adjusting the net worth sweep dividend on the senior preferred stock to allow the GSE to retain earnings in excess of

the $3 billion capital reserve in effect when the Treasury plan was released, with appropriate compensation to

Treasury for any deferred or forgone dividends;

Ü issuing shares of common or preferred stock, and perhaps also convertible debt or other loss-absorbing instruments,

through private or public offerings, perhaps in connection with the exercise of TreasuryÖs warrants for 79.9% of the

GSEÖs common stock;

Ü negotiating exchange offers for one or more classes of the GSEÖs existing junior preferred stock; and 

Ü placing the GSE in receivership to facilitate a restructuring of the capital structure.

The Treasury plan recommends that TreasuryÖs commitment to provide funding under the senior preferred stock purchase

agreement should be replaced with legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit

of the Federal Government that is limited to the timely payment of principal and interest on qualifying MBS. The Treasury plan

further recommends that, pending legislation, even after conservatorship Treasury should maintain its ongoing commitment to

support each GSEÖs single-family and multifamily mortgage-backed securities through the senior preferred stock purchase

agreements, as amended as contemplated by the plan. 

The Treasury plan contains recommendations for legislative and administrative reforms to limit our single-family activities and

restrict our multifamily footprint. For example, the plan recommends that FHFA assess whether each of our current singlefamily products, services and other activities, including our support for cash-out refinancings, investor loans, and higher

principal balance loans, should continue to benefit from support under our senior preferred stock purchase agreement. It also

recommends that FHFA and Treasury consider amendments to the senior preferred stock purchase agreement to further limit

the type and volume of multifamily loans we guarantee. The Treasury plan also contains a number of other recommendations

that could significantly affect our business and competitive environment if implemented. For example, the Treasury plan

recommends that: FHFA conduct assessments of our single-family and multifamily underwriting criteria; FHFA and the U.S.

Department of Housing and Urban Development (ÇHUDÉ) coordinate to identify and mitigate areas of duplication in government

support for affordable housing; and the Consumer Financial Protection Bureau (the ÇCFPBÉ) amend its ability-to-repay rule to

establish a bright-line safe harbor that replaces the Çqualified mortgageÉ patch for GSE-eligible loans.

There continues to be significant uncertainty regarding the timing, content and impact of future legislative and regulatory

actions affecting us, including the enactment of housing finance reform legislation and the implementation of all or any portion

of the Treasury plan. See ÇRisk FactorsÉ in this report and in our 2018 Form 10-K for a description of the risks associated with

our uncertain future and potential housing finance reform.

Letter Agreement with Treasury

On September 27, 2019, we, through FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into a

letter agreement modifying the dividend and liquidation preference provisions of the senior preferred stock held by Treasury.

These modifications and other specified provisions of the letter agreement are described below. 

Ü Modification to Dividend ProvisionsÑIncrease in Applicable Capital Reserve Amount. The terms of the senior

preferred stock provide for dividends each quarter in the amount, if any, by which our net worth as of the end of the

immediately preceding fiscal quarter exceeds the applicable capital reserve amount. The letter agreement modified

the dividend provisions of the senior preferred stock to increase the applicable capital reserve amount from $3 billion

to $25 billion, effective for dividend periods beginning July 1, 2019.

As a result of this change to the senior preferred stock dividend provisions:

â No dividends were payable on the senior preferred stock for the third quarter of 2019, as our net worth of

$6.4 billion as of June 30, 2019 was lower than the $25 billion capital reserve amount. 

â No dividends will be payable on the senior preferred stock for the fourth quarter of 2019, as our net worth of

$10.3 billion as of September 30, 2019 is lower than the $25 billion capital reserve amount. 

Ü Modification to Liquidation Preference ProvisionsÑIncrease in Liquidation Preference. The letter agreement provides

that, on September 30, 2019, and at the end of each fiscal quarter thereafter, the liquidation preference of the senior

preferred stock will increase by an amount equal to the increase in our net worth, if any, during the immediately prior

fiscal quarter, until such time as the liquidation preference has increased by $22 billion.

MD&A | Legislation and Regulation

Fannie Mae Third Quarter 2019 Form 10-Q 5
As a result of this change to the senior preferred stock liquidation preference provisions:

â The aggregate liquidation preference of the senior preferred stock increased from $123.8 billion as of June

30, 2019 to $127.2 billion as of September 30, 2019, due to the $3.4 billion increase in our net worth during

the second quarter of 2019.

â The aggregate liquidation preference of the senior preferred stock will increase from $127.2 billion as of

September 30, 2019 to $131.2 billion as of December 31, 2019, due to the $4.0 billion increase in our net

worth during the third quarter of 2019.

Ü New Certificate of Designation. Pursuant to the letter agreement, Fannie Mae replaced the Certificate of Designation

for the senior preferred stock to reflect the revised dividend provisions, effective September 30, 2019. The new

Certificate of Designation is filed as Exhibit 4.1 to this report.

Ü Agreement to Amend Senior Preferred Stock Purchase Agreement to Enhance Taxpayer Protections. The letter

agreement provides that we and Treasury agree to negotiate and execute an additional amendment to the senior

preferred stock purchase agreement that further enhances taxpayer protections by adopting covenants broadly

consistent with recommendations for administrative reform contained in the Treasury plan.

As described in ÇHousing Finance Reform,É the Treasury plan recommends that the GSEs have a capital restoration plan that

provides for sufficient capital and other loss-absorbing capacity to operate in a safe and sound manner. In announcing the

letter agreement, Treasury noted that subsequent amendments to the senior preferred stock purchase agreement may be

appropriate to facilitate the implementation of any eventual recapitalization plan.

We describe the terms of the senior preferred stock and the related senior preferred stock purchase agreement with Treasury,

prior to the modifications described above, in our 2018 Form 10-K under the heading ÇBusinessÑConservatorship, Treasury

Agreements and Housing Finance ReformÑTreasury Agreements.É

New FHFA Strategic Plan for Conservatorships and 2020 Scorecard

On October 28, 2019, FHFA released its 2019 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac (the

Ç2019 strategic planÉ), along with its 2020 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions (the

Ç2020 scorecardÉ), which is a set of corporate performance objectives that define our key priorities for 2020 and align with the

2019 strategic plan. According to the plan, Ç[FHFAÖs] end-state vision is for the [GSEs] to return to operating as fully-private

companies within a competitive, liquid, efficient, and resilient housing finance system, while a strengthened and independent

FHFA ensures they have the capital reserves, risk management capabilities, corporate governance, and regulatory oversight

that are appropriate for their size, risk, and systemic importance outside of conservatorship.É FHFA indicated that implementing

the 2019 strategic plan and 2020 scorecard, combined with the framework for reform put forward in the Treasury plan, will

Çreduce the role of government in the mortgage market, protect taxpayers, support sustainable homeownership and affordable

rental housing, and foster a mortgage finance market that is stable and liquid through the cycle.É 

The new strategic plan, which replaces FHFAÖs 2014 strategic plan, and the 2020 scorecard identify three broad objectives to

ensure that Fannie Mae and Freddie Mac:

1. Focus on their core mission responsibilities to foster competitive, liquid, efficient, and resilient (ÇCLEARÉ) national

housing finance markets that support sustainable homeownership and affordable rental housing;

2. Operate in a safe and sound manner appropriate for entities in conservatorship; and

3. Prepare for their eventual exits from conservatorship.

See ÇRisk FactorsÉ in this report and in our 2018 Form 10-K for a description of the risks associated with our uncertain future

and potential housing finance reform. For information on the objectives in the 2020 scorecard, see our Current Report on

FormÄ8-K filed with the Securities and Exchange Commission (ääSECÖÖ) on OctoberÄ29, 2019.

Revised Multifamily Business Volume Cap

On September 13, 2019, FHFA announced revisions to the structure of the loan acquisition volume caps applicable to Fannie

MaeÖs and Freddie MacÖs multifamily loan purchases. Previously, FHFAÖs 2019 conservatorship scorecard included an

objective to maintain the dollar volume of new multifamily business for each company at or below $35 billion for the year,

excluding certain targeted affordable and underserved market business segments such as loans financing energy or water

efficiency improvements. The new multifamily loan purchase caps, which replaced the prior caps effective October 1, 2019,

are $100 billion for all new multifamily business, with no exclusions, for each of Fannie Mae and Freddie Mac for the fivequarter period beginning in the fourth quarter of 2019 through the fourth quarter of 2020. In addition, FHFA directed that at

least 37.5% of each companyÖs multifamily business during that period must be mission-driven, affordable housing, pursuant to

FHFAÖs guidelines for mission-driven loans.

MD&A | Legislation and Regulation

Fannie Mae Third Quarter 2019 Form 10-Q 6
2018 Housing Goals Performance

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

or location. In September 2019, FHFA notified us that it had preliminarily determined that we met all of our single-family and

multifamily housing goals for 2018. See ÇBusinessÑCharter Act and RegulationÑGSE Act and Other RegulationÑHousing

GoalsÉ in our 2018 Form 10-K and ÇMD&AÑLegislation and RegulationÑ2018 Housing Goals PerformanceÉ in our First

Quarter 2019 Form 10-Q for more information regarding our housing goals.

Final Rule on Credit Score Models 

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the ÇEconomic Growth ActÉ) provides that, if

we condition the purchase of a mortgage loan on a borrower's credit score, that credit score must be produced by a model that

has been validated and approved by us based on the standards and criteria in the Economic Growth Act and FHFA

regulations. On August 16, 2019, FHFA published a final rule on the validation and approval of credit score models, which

became effective in October 2019. The final rule establishes standards and criteria, and outlines a four-phase process by

which we and Freddie Mac should validate and approve third-party credit score models. The credit score models will be

evaluated for factors such as accuracy, reliability and integrity, as well as impacts on fair lending and the mortgage industry.

Once our evaluation is complete, we must submit the proposed third-party credit score models to FHFA for a final decision.

The final rule does not address the time frame for industry adoption and implementation of the new credit score models.

MD&A | Legislation and Regulation

Fannie Mae Third Quarter 2019 Form 10-Q 7
Uniform Mortgage-Backed Securities

Overview

On June 3, 2019, we and Freddie Mac began issuing single-family uniform mortgage-backed securities, or ÇUMBSTM.É We also

began using the common securitization platform operated by Common Securitization Solutions, LLC (ÇCSSÉ), a limited liability

company we own jointly with Freddie Mac, to perform certain aspects of the securitization process for our single-family Fannie

Mae MBS issuances beginning in May 2019. This represented the final implementation of the Single Security Initiative that we,

Freddie Mac and FHFA began working on in 2014 to develop a single common mortgage-backed security issued by both

Fannie Mae and Freddie Mac to finance fixed-rate mortgage loans backed by single-family properties. The issuance of UMBS

and use of the common securitization platform represent significant changes for the mortgage market and for our securitization

operations and business. 

UMBS and Structured Securities

Each of Fannie Mae and Freddie Mac issues and guarantees UMBS and structured securities backed by UMBS and other

securities, as described below.

Ü UMBS. Each of Fannie Mae and Freddie Mac issues and guarantees UMBS that are directly backed by the mortgage

loans it has acquired, referred to as Çfirst-level securities.É UMBS issued by Fannie Mae are backed only by mortgage

loans that Fannie Mae has acquired, and similarly UMBS issued by Freddie Mac are backed only by mortgage loans

that Freddie Mac has acquired. There is no commingling of Fannie Mae- and Freddie Mac-acquired loans within

UMBS. 

Mortgage loans backing UMBS are limited to fixed-rate mortgage loans eligible for financing through the to-beannounced (ÇTBAÉ) market. We continue to issue some types of Fannie Mae MBS that are not TBA-eligible and

therefore are not issued as UMBS, such as single-family Fannie Mae MBS backed by adjustable-rate mortgages and

all multifamily Fannie Mae MBS.

Ç Structured Securities. Each of Fannie Mae and Freddie Mac also issues and guarantees structured mortgagebacked securities, referred to as Çsecond-level securities,É that are resecuritizations of UMBS or previously-issued

structured securities. In contrast to UMBS, second-level securities can be commingledÑthat is, they can include both

Fannie Mae securities and Freddie Mac securities as the underlying collateral for the security. These structured

securities include SupersTM, which are single-class resecuritizations, and real estate mortgage investment conduit

securities (ÇREMICsÉ), which are multi-class resecuritizations. While Supers are backed only by TBA-eligible

securities, REMICs can be backed by TBA-eligible or non-TBA-eligible securities.

The key features of UMBS are the same as those of legacy single-family Fannie Mae MBS. Accordingly, all single-family

Fannie Mae MBS that are directly backed by fixed-rate loans and generally eligible for trading in the TBA market are UMBS,

whether issued before or after the June 3, 2019 Single Security Initiative implementation date. In this report, we use the term

ÉFannie Mae-issued UMBSÑ to refer to single-family Fannie Mae MBS that are directly backed by fixed-rate mortgage loans

and generally eligible for trading in the TBA market. We use the term ÉFannie Mae MBSÑ or Éour MBSÑ to refer to any type of

mortgage-backed security that we issue, including UMBS, Supers, REMICs and other types of single-family or multifamily

mortgage-backed securities. References to our single-family guaranty book of business in this report exclude Freddie Macacquired mortgage loans underlying Freddie Mac mortgage-related securities that we have resecuritized.

When we issue a structured security backed in whole or part by Freddie Mac securities, we provide a new and separate

guaranty of principal and interest on the newly-formed structured security. If Freddie Mac were to fail to make a payment due

on its securities underlying a Fannie Mae-issued structured security, we would be obligated under our guaranty to fund any

shortfall. 

See ÇRisk FactorsÉ in this report and in our 2018 Form 10-K, ÇMD&AÑSingle Security Initiative & Common Securitization

PlatformÉ in our Second Quarter 2019 Form 10-Q, and ÇRisk ManagementÑInstitutional Counterparty Credit Risk

ManagementÑCounterparty Credit Risk Exposure arising from the Resecuritization of Freddie Mac-issued securitiesÉ in this

report for a discussion of the risks to our business associated with the Single Security Initiative, the resecuritization of Freddie

Mac-issued securities, and the common securitization platform.

MD&A | Uniform Mortgage-Backed Securities

Fannie Mae Third Quarter 2019 Form 10-Q 8
Key Market Economic Indicators

The graphs below display certain macroeconomic indicators that can significantly influence our business and financial results.

Selected Benchmark Interest Rates

09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19

1.33%

2.40%

2.09% 1.74%

2.99%

1.63%

2.29%

3.12%

1.56%

2.33%

3.06%

1.66%

2.97%

3.81%

2.61%

3.83%

4.72%

3.64%

ÅÅÅ 3-month LIBOR(1) ÅÅÅ 2-year swap rate(1) ÅÅÅ 10-year swap rate(1)

ÅÅÅ 10-year Treasury rate(1) ÅÅÅ 30-year Fannie Mae MBS

par coupon rate(1)

ÅÅÅ 30-year FRM rate(2)

(1) According to Bloomberg.

(2) Refers to the U.S. weekly average fixed-rate mortgage rate according to Freddie Mac's Primary Mortgage Market Surveyã

. These rates

are reported using the latest available data for a given period.

How Interest Rates Can Affect Our Financial Results

Ñ Net interest income. In a rising interest rate environment, our mortgage loans tend to prepay more slowly, which

typically results in lower net amortization income from cost basis adjustments on mortgage loans and related debt.

Conversely, in a declining interest rate environment, our mortgage loans tend to prepay faster, typically resulting in

higher net amortization income from cost basis adjustments on mortgage loans and related debt.

Ñ Fair value gains (losses). We have exposure to fair value gains and losses resulting from changes in interest rates,

primarily through our risk management derivatives and mortgage commitment derivatives, which we mark to market.

Generally, we experience fair value losses when swap rates decrease and fair value gains when swap rates increase;

however, because the composition of our derivative position varies across the yield curve, different yield curve

changes (for example, parallel, steepening or flattening) will generate different gains and losses.

Ñ Credit-related income (expense). Increases in mortgage interest rates tend to lengthen the expected lives of our

modified loans, which generally increases the impairment and provision for credit losses on such loans. Decreases in

mortgage interest rates tend to shorten the expected lives of our modified loans, which reduces the impairment and

provision for credit losses on such loans.

MD&A | Key Market Economic Indicators

Fannie Mae Third Quarter 2019 Form 10-Q 9
Fannie Mae national home price indexá

Rate of Single-Family

Quarterly Home Price Growth

3Q18 4Q18 1Q19 2Q19 3Q19

1.2%

0.0%

0.8%

2.6%

1.2%

Home prices and how they can affect

our financial results

Ü We expect home price appreciation on a national

basis to moderate in the remainder of this year and

2020, as compared with 2018. We also expect

significant regional variation in the timing and rate of

home price growth. For further discussion on housing

activity, see ÇSingle-Family BusinessÑSingle-Family

Mortgage MarketÉ and ÇMultifamily BusinessÑ

Multifamily Mortgage Market.É

Ü Actual and forecasted home prices impact our

provision or benefit for credit losses.

Ü Changes in home prices affect the amount of equity

that borrowers have in their homes. Borrowers with

less equity typically have higher delinquency and

default rates.

Ü As home prices increase, the severity of losses we

incur on defaulted loans that we hold or guarantee

decreases because the amount we can recover from

the properties securing the loans increases.

Decreases in home prices increase the losses we

incur on defaulted loans.

(1) Calculated internally using property data on loans purchased by Fannie Mae, Freddie Mac, and other third-party home sales data. Fannie

MaeÖs home price index is a weighted repeat transactions index, measuring average price changes in repeat sales on the same properties.

Fannie MaeÖs home price index excludes prices on properties sold in foreclosure. Fannie MaeÖs home price estimates are based on

preliminary data and are subject to change as additional data become available.

% change in single-family housing starts

% change in multifamily housing starts

New Housing Starts(2)

3Q18 4Q18 1Q19 2Q19 3Q19

(2.0)%

(5.6)%

4.3%

(2.0)%

6.5%

(2.4)%

0.2%

(2.2)%

17.1%

(6.9)%

How housing activity can affect our

financial results

Ü Homebuilding has typically been a leading indicator

of broader economic indicators, such as the U.S.

Gross Domestic Product, or GDP, and the

unemployment rate. Residential construction activity

tends to soften prior to a weakness in the economy

and can improve prior to a recovery in economic

activity. Broader economic indicators can affect

several mortgage market factors including the

demand for both single-family and multifamily

housing and the level of loan delinquencies.

Ü Fewer housing starts results in fewer properties

being available for purchase, which can lower the

volume of originations in the mortgage market.

Ü Construction activity can also affect credit losses.

When the pace of construction does not meet

demand, the resulting growth in home prices can

increase the risk profile of newly acquired home

purchase loans and increase the risk of default if

home prices subsequently decline. Reduced

construction may also coincide with a broader

deterioration in housing conditions, which may result

in higher levels of delinquencies and greater losses

on defaulted loans. 

(2) According to U.S. Census Bureau and subject to revision.

MD&A | Key Market Economic Indicators

Fannie Mae Third Quarter 2019 Form 10-Q 10
GDP, Unemployment Rate and Personal Income 

U.S. unemployment rate, as of period endá

U.S. real personal income, annualized percentage change from preceding quarterà

Growth in GDP, annualized percentage changeå

3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

4.2% 4.1% 4.0% 4.0%

3.7%

3.9% 3.8% 3.7% 3.5%

2.7%

4.5% 4.7%

2.0%

3.0%

2.1%

5.7%

3.0%

2.0%

3.2% 3.5%

2.5%

3.5%

2.9%

1.1%

3.1%

2.0% 1.7%

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

(2) According to the U.S. Bureau of Economic Analysis, calculated by the Federal Reserve Bank of St. Louis and subject to revision.

(3) GDP growth for periods prior to the third quarter of 2019 is based on the quarterly series calculated by the Bureau of Economic Analysis

and is subject to revision. GDP growth for the third quarter of 2019 is based on Fannie MaeÖs forecast. 

How GDP, the unemployment rate and personal income can affect our financial

results

Ü Changes in GDP, the unemployment rate and personal income can affect several mortgage market factors, including

the demand for both single-family and multifamily housing and the level of loan delinquencies.

Ü Decreases in the unemployment rate typically result in lower levels of delinquencies, which often correlate to a

decrease in credit losses. 

Ü Slower growth or outright declines in personal income heightens the risk of delinquency by reducing homeownersÖ

ability to pay their mortgages. Slower income growth could also negatively impact affordability, constraining home

sales and mortgage originations. 

See ÇRisk FactorsÉ in our 2018 Form 10-K and this report for further discussion of risks to our business and financial results

associated with interest rates, home prices, housing activity and economic conditions.

MD&A | Key Market Economic Indicators

Fannie Mae Third Quarter 2019 Form 10-Q 11
Consolidated Results of Operations

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

condensed consolidated financial statements, including the accompanying notes. 

Our long-term financial performance will depend on many factors, including:

Ü the size of and our share of the U.S. mortgage market, which in turn will depend upon such factors as population

growth, household formation and home price appreciation; 

Ü borrower performance and interest rate movements; and

Ü actions by FHFA, the Administration and Congress relating to our business and housing finance reform, including the

capital requirements that will be applicable to us, our ongoing financial obligations to Treasury and our competitive

environment.

Quarterly fluctuations in acquisition volumes, market share, guaranty fees, or acquisition credit characteristics in any one

period have limited impact on the size and stability of our conventional guaranty book of business and the associated revenue,

profitability, and credit quality.

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 12

Summary of Condensed Consolidated Results of Operations

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 Variance 2019 2018 Variance

(Dollars in millions)

Net interest income $ 5,229 $ 5,369 $ (140) $ 15,112 $ 15,978 $ (866)

Fee and other income 402 271 131 875 830 45

Net revenues 5,631 5,640 (9) 15,987 16,808 (821)

Investment gains, net 253 166 87 847 693 154

Fair value gains (losses), net (713) 386 (1,099) (2,298) 1,660 (3,958)

Administrative expenses (749) (740) (9) (2,237) (2,245) 8

Credit-related income:

Benefit for credit losses 1,857 716 1,141 3,732 2,229 1,503

Foreclosed property expense (96) (159) 63 (364) (460) 96

Total credit-related income 1,761 557 1,204 3,368 1,769 1,599

Temporary Payroll Tax Cut Continuation

Act of 2011 (ÇTCCAÉ) fees (613) (576) (37) (1,806) (1,698) (108)

Other expenses, net (571) (377) (194) (1,514) (946) (568)

Income before federal income taxes 4,999 5,056 (57) 12,347 16,041 (3,694)

Provision for federal income taxes (1,036) (1,045) 9 (2,552) (3,312) 760

Net income $ 3,963 $ 4,011 $ (48) $ 9,795 $ 12,729 $ (2,934)

Total comprehensive income $ 3,977 $ 3,975 $ 2 $ 9,703 $ 12,372 $ (2,669)

Net Interest Income 

We have two primary sources of net interest income: 

Ü guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties; and

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

investments portfolio (collectively, our ÇportfoliosÉ) and the interest expense associated with the debt that funds those

assets. See ÇRetained Mortgage PortfolioÉ and ÇLiquidity and Capital ManagementÑLiquidity ManagementÑOther

Investments PortfolioÉ for more information about our portfolios.

Guaranty fees consist of two primary components:

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

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

adjustments and other fees we receive from lenders, which are amortized into net interest income as cost basis

adjustments over the contractual life of the loan. We refer to this as amortization income.

We recognize almost all of our guaranty fee revenue in net interest income because we consolidate the substantial majority of

our loans underlying our Fannie Mae MBS in consolidated trusts on our consolidated balance sheets. Those guaranty fees are
the primary component of the difference between the interest income on loans in consolidated trusts and the interest expense

on the debt of consolidated trusts. 

The table below displays the components of our net interest income from our guaranty book of business, which we discuss in

ÇGuaranty Book of Business,É and from our portfolios.

Components of Net Interest Income

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 Variance 2019 2018 Variance

(Dollars in millions)

Net interest income from guaranty book of business:

Base guaranty fee income, net of TCCA $ 2,371 $ 2,153 $ 218 $ 6,942 $ 6,352 $ 590

Base guaranty fee income related to TCCA(1) 613 576 37 1,806 1,698 108

Net amortization income 1,475 1,508 (33) 3,828 4,503 (675)

Total net interest income from guaranty book of

business 4,459 4,237 222 12,576 12,553 23

Net interest income from portfolios(2) 770 1,132 (362) 2,536 3,425 (889)

Total net interest income $ 5,229 $ 5,369 $ (140) $ 15,112 $ 15,978 $ (866)

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

which is remitted to Treasury and not retained by us. 

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

used to generate lender liquidity. Also includes interest expense on our outstanding Connecticut Avenue Securitiesã of $356 million and

$366 million for the three months ended September 30, 2019 and 2018, respectively, and $1.1 billion and $1.0 billion for the first nine

months of 2019 and 2018, respectively. 

Net interest income declined in the third quarter and first nine months of 2019 compared with the third quarter and first nine

months of 2018, driven by lower net interest income from portfolios and a decline in net amortization income, partially offset by

higher base guaranty fee income. 

Ü Net interest income from portfolios decreased in the third quarter and first nine months of 2019 compared with the

third quarter and first nine months of 2018 primarily due to sales of reperforming loans in our loss mitigation portfolio

as well as liquidations, which reduced the average balance of our retained mortgage portfolio. This was partially offset

by increased interest income on our other investments portfolio due to higher short-term interest rates on our federal

funds sold and securities purchased under agreements to resell or similar arrangements, and a higher average

balance of non-mortgage securities. See ÇRetained Mortgage PortfolioÉ for more information on our loss mitigation

portfolio.

Ü Net interest income from base guaranty fees increased in the third quarter and first nine months of 2019 compared

with the third quarter and first nine months of 2018 due to an increase in the size of our guaranty book of business

and loans with higher base guaranty fees comprising a larger part of our guaranty book of business.

Ü Net amortization income decreased in the first nine months of 2019 compared with the first nine months of 2018

primarily due to a sharp decline in prepayment volumes in the first quarter of 2019, which resulted in lower

amortization of cost basis adjustments on mortgage loans of consolidated trusts and the related debt.

Analysis of Deferred Amortization Income

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

value. The difference between the initial fair value and the carrying value of these instruments is recorded as cost basis

adjustments, either as premiums or discounts. These cost basis adjustments are amortized as yield adjustments over the

contractual lives of the loans or debt. On a net basis, for mortgage loans and debt of consolidated trusts, we are in a premium

position with respect to debt of consolidated trusts, which represents deferred income we will recognize in our condensed

consolidated statements of operations and comprehensive income as amortization income in future periods. 

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 13
Deferred Income Represented by Net Premium Position on

Debt of Consolidated Trusts

(Dollars in billions)

9/30/2018 12/31/2018 9/30/2019

$37.2 $36.9

$34.5

The timing of when we recognize amortization income can vary based on a number of factors, the most significant of which is

interest rates. In a rising interest rate environment, our mortgage loans tend to prepay more slowly, which typically results in

lower net amortization income. Conversely, in a declining interest rate environment, our mortgage loans tend to prepay faster,

typically resulting in higher net amortization income.

Analysis of Net Interest Income

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

incurred on liabilities. For most components of the average balances, we use a daily weighted average of amortized cost.

When daily average balance information is not available, such as for mortgage loans, we use monthly averages. 

Analysis of Net Interest Income and Yield

For the Three Months Ended September 30,

2019 2018

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 $ 119,887 $ 1,248 4.16% $ 149,859 $ 1,665 4.44%

Mortgage loans of consolidated trusts 3,185,389 27,610 3.47 3,090,212 27,058 3.50

Total mortgage loans(1) 3,305,276 28,858 3.49 3,240,071 28,723 3.55

Mortgage-related securities 10,859 111 4.09 10,513 115 4.38

Non-mortgage-related securities(2) 62,294 347 2.18 57,271 302 2.06

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements 29,792 178 2.34 32,208 166 2.02

Advances to lenders 6,287 47 2.93 4,459 38 3.34

Total interest-earning assets $3,414,508 $ 29,541 3.46% $3,344,522 $ 29,344 3.51%

Interest-bearing liabilities:

Short-term funding debt $ 23,064 $ (125) 2.12% $ 22,837 $ (114) 1.95%

Long-term funding debt 163,996 (1,056) 2.58 196,266 (1,133) 2.31

Connecticut Avenue Securitiesã (ÇCASÉ) 23,364 (356) 6.09 25,100 (366) 5.83

Total debt of Fannie Mae 210,424 (1,537) 2.92 244,203 (1,613) 2.64

Debt securities of consolidated trusts held by

third parties 3,196,503 (22,775) 2.85 3,090,509 (22,362) 2.89

Total interest-bearing liabilities $3,406,927 $ (24,312) 2.85% $3,334,712 $ (23,975) 2.88%

Net interest income/net interest yield $ 5,229 0.61% $ 5,369 0.64%

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 14
For the Nine Months Ended September 30,

2019 2018

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 $ 119,180 $ 3,848 4.30% $ 156,168 $ 5,187 4.43%

Mortgage loans of consolidated trusts 3,167,172 84,157 3.54 3,068,521 79,877 3.47

Total mortgage loans(1) 3,286,352 88,005 3.57 3,224,689 85,064 3.52

Mortgage-related securities 9,904 320 4.31 10,670 321 4.01

Non-mortgage-related securities(2) 61,109 1,095 2.36 54,572 771 1.86

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements 37,349 698 2.46 33,826 457 1.78

Advances to lenders 4,975 120 3.18 4,171 102 3.22

Total interest-earning assets $3,399,689 $ 90,238 3.54% $3,327,928 $ 86,715 3.47%

Interest-bearing liabilities:

Short-term funding debt $ 21,138 $ (369) 2.30% $ 26,395 $ (328) 1.64%

Long-term funding debt 172,284 (3,272) 2.53 204,543 (3,426) 2.23

Connecticut Avenue Securities 24,170 (1,114) 6.15 23,830 (1,007) 5.63

Total debt of Fannie Mae 217,592 (4,755) 2.91 254,768 (4,761) 2.49

Debt securities of consolidated trusts held by

third parties 3,173,700 (70,371) 2.96 3,068,839 (65,976) 2.87

Total interest-bearing liabilities $3,391,292 $ (75,126) 2.95% $3,323,607 $ (70,737) 2.84%

Net interest income/net interest yield $ 15,112 0.59% $ 15,978 0.64%

(1) Average balance includes mortgage loans on nonaccrual status. A single-family loan is placed on nonaccrual status when the payment of

principal or interest on the loan is 60 days or more past due. A multifamily loan is placed on nonaccrual status when the loan becomes 90

days or more past due according to its contractual terms or is deemed individually impaired. Typically, interest income on nonaccrual

mortgage loans is recognized when cash is received. Interest income not recognized for loans on nonaccrual status was $110 million and

$301 million, respectively, for the third quarter and first nine months of 2019, compared with $86 million and $351 million, respectively, for

the third quarter and first nine months of 2018.

(2) Consists of cash, cash equivalents and U.S Treasury securities.

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 15

Fee and Other Income

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

increased in the third quarter of 2019 compared with the third quarter of 2018, primarily due to an increase in yield

maintenance fees due to increased prepayments on multifamily loans as interest rates decreased.

Investment Gains, Net

Investment gains, net primarily includes gains and losses recognized from the sale of loans and available-for-sale securities,

gains and losses recognized on the consolidation and deconsolidation of securities, the lower of cost or fair value adjustments

on held for sale (ÇHFSÉ) loans, and net other-than-temporary impairments recognized on our investments. Investment gains,

net increased in the third quarter and the first nine months of 2019 compared with the third quarter and first nine months of

2018, primarily driven by an increase in gains on sales of single-family loans. 

Fair Value Gains (Losses), Net

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

substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads and

implied volatility, as well as activity related to these financial instruments. While the estimated fair value of our derivatives that

serve to mitigate certain risk exposures may fluctuate, some of the financial instruments that generate these exposures are not

recorded at fair value in our condensed consolidated financial statements. We are developing capabilities to implement hedge

accounting to reduce interest rate volatility in our consolidated statements of operations and comprehensive income.
The table below displays the components of our fair value gains and losses.

Fair Value Gains (Losses), Net

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

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

Net contractual interest expense accruals on interest rate swaps $ (190) $ (285) $ (698) $ (786)

Net change in fair value during the period (294) 528 (541) 1,367

Total risk management derivatives fair value gains (losses), net (484) 243 (1,239) 581

Mortgage commitment derivatives fair value gains (losses), net (177) 118 (946) 606

Credit enhancement derivatives fair value losses, net (7) (1) (31) (2)

Total derivatives fair value gains (losses), net (668) 360 (2,216) 1,185

Trading securities gains (losses), net 95 (40) 370 79

CAS debt fair value gains, net 59 16 156 35

Other, net(1) (199) 50 (608) 361

Fair value gains (losses), net $ (713) $ 386 $ (2,298) $ 1,660

(1) Consists of fair value gains and losses on non-CAS debt and mortgage loans held at fair value.

Fair value losses in the third quarter and first nine months of 2019 were primarily driven by: 

Ü net interest expense accruals on risk management derivatives combined with decreases in the fair value of pay-fixed

risk management derivatives due to declines in medium- to longer-term swap rates, which were partially offset by

increases in the fair value of receive-fixed risk management derivatives; 

Ü decreases in the fair value of mortgage commitment derivatives due to losses on commitments to sell mortgagerelated securities as a result of increases in the prices of securities as interest rates declined during the commitment

periods, partially offset by gains on commitments to buy mortgage-related securities; and

Ü increases in the fair value of long-term debt of consolidated trusts held at fair value, which are included in ÇOther,

net,É due to declines in interest rates.

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

Ü increases in the fair value of mortgage commitment derivatives due to gains on commitments to sell mortgage-related

securities as a result of decreases in the prices of securities as interest rates rose during the commitment periods;

and

Ü increases in the fair value of pay-fixed risk management derivatives due to an increase in longer-term swap rates

during the periods.

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 16

Credit-Related Income

Our credit-related income or expense can vary substantially from period to period based on a number of factors, such as

changes in actual and expected home prices, fluctuations in interest rates, borrower payment behavior, events such as natural

disasters, the types and volume of our loss mitigation activities, the volume of foreclosures completed, and the redesignation

of loans from held for investment (ÇHFIÉ) to HFS. In addition, our credit-related income or expense and our loss reserves can

be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses.

While the redesignation of certain reperforming and nonperforming single-family loans from HFI to HFS has been a significant

driver of credit-related income in recent periods, we may see a reduced impact from this activity in the future to the extent the

population of loans we are considering for redesignation declines. Further, our implementation of Accounting Standards

Update 2016-13, Financial InstrumentsÑCredit Losses, Measurement of Credit Losses on Financial Instruments and related

amendments (the ÇCECL standardÉ) on January 1, 2020 will likely introduce additional volatility in our results as credit-related

income or expense will include expected lifetime losses on our loans and other financial instruments subject to the standard

and thus become more sensitive to fluctuations in the factors detailed above. 
Benefit for Credit Losses

The table below displays components of the drivers of our single-family benefit for credit losses for the periods presented.

Many of the drivers that contribute to our benefit or provision for credit losses overlap or are interdependent. The attribution

shown below is based on internal allocation estimates. The table does not display our multifamily benefit or provision for credit

losses as the amounts for all periods presented were less than $50 million.

Components of Benefit for Credit Losses

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in billions)

Single-family benefit for credit losses:

Changes in loan activity(1) $ 0.2 $ 0.4 $ 0.4 $ 0.7

Redesignation of loans from HFI to HFS 0.5 0.4 1.2 1.4

Actual and forecasted home prices 0.2 0.2 0.7 0.9

Actual and projected interest rates 0.1 (0.3) 0.5 (1.0)

Other(2) 0.9 * 1.0 0.2

Total single-family benefit for credit losses $ 1.9 $ 0.7 $ 3.8 $ 2.2

* Represents less than $50 million.

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

concessions granted to borrowers and the impact of FHFAÖs Advisory Bulletin 2012-02, ÇFramework for Adversely Classifying Loans, Other

Real Estate Owned, and Other Assets and Listing Assets for Special MentionÉ (the ÇAdvisory BulletinÉ). 

(2) Primarily consists of the impact of model and assumption changes and changes in the reserve for guaranty losses that are not separately

included in the other components.

The factors that contributed to our benefit for credit losses in the third quarter and first nine months of 2019 were: 

Ü The redesignation of certain reperforming single-family loans from HFI to HFS as we no longer intend to hold them for

the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or

fair value with a charge-off to the allowance for loan losses. Amounts recorded in the allowance related to these loans

exceeded the amounts charged off, which contributed to the benefit for credit losses.

Ü In the third quarter of 2019, we enhanced the model used to estimate cash flows for individually impaired singlefamily loans within our allowance for loan losses. This enhancement was performed as a part of managementÖs

routine model performance review process. In addition to incorporating recent loan performance data, this model

enhancement better captures recent prepayment activity, default rates, and loss severity in the event of default.ÄThe

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

approximately $850 million and is included in ÇOtherÉ in the table above.

Ü An increase in actual and forecasted home prices. Higher home prices decrease the likelihood that loans will default

and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately

reduces our loss reserves and provision for credit losses.

Ü Lower actual and projected mortgage interest rates. As mortgage interest rates decline, we expect an increase in

future prepayments on single-family individually impaired loans, including modified loans. Higher expected

prepayments shorten the expected lives of modified loans, which decreases the impairment relating to term and

interest rate concessions provided on these loans and results in a decrease in the provision for credit losses.

Ü Changes in loan activity. Higher loan liquidation activity generally occurs during a lower interest rate environment as

loans prepay, and during the peak home buying season of the second and third quarters of each year. When

mortgage loans prepay, we reverse any remaining allowance related to these loans, which contributed to the benefit

for credit losses.

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

Ü We recognized a benefit from the redesignation of certain reperforming and nonperforming single-family loans from

HFI to HFS during the periods.

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

Ü These factors were partially offset by the impact of higher actual and projected mortgage interest rates. As mortgage

interest rates rise, we expect a decrease in future prepayments on single-family individually impaired loans, including

modified loans. Lower expected prepayments lengthen the expected lives of modified loans, which increases the

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 17
impairment relating to term and interest rate concessions provided on these loans and results in an increase in the

provision for credit losses.

MD&A | Consolidated Results of Operations

Fannie Mae Third Quarter 2019 Form 10-Q 18

TCCA Fees 

Pursuant to the TCCA, in 2012 FHFA directed us to increase our single-family guaranty fees by 10 basis points and remit this

increase to Treasury. This TCCA-related revenue is included in ÇNet interest incomeÉ and the expense is recognized as ÇTCCA

feesÉ in our condensed consolidated financial statements. TCCA fees increased in the third quarter and first nine months of

2019 compared with the third quarter and first nine months of 2018 as our book of business subject to the TCCA continued to

grow. We expect the guaranty fees collected and expenses incurred under the TCCA to continue to increase. 

Other Expenses, Net

Other expenses, net primarily consist of credit enhancement and mortgage insurance expenses, debt extinguishment gains

and losses, housing trust fund expenses, loan subservicing costs and multifamily fees. Other expenses, net increased in the

third quarter and first nine months of 2019 compared with the third quarter and first nine months of 2018 primarily due to an

increase in credit enhancement costs resulting from higher outstanding volumes of credit risk transfer transactions. We expect

our credit enhancement expenses to continue to rise as the percentage of our guaranty book of business on which we have

transferred a portion of credit risk continues to increase. We discuss transfer of mortgage credit risk in ÇMD&AÑSingle-Family

BusinessÑSingle-Family Mortgage Credit Risk ManagementÑSingle-Family Credit Enhancement and Transfer of Mortgage

Credit RiskÉ and ÇMD&AÑMultifamily BusinessÑMultifamily Mortgage Credit Risk ManagementÑTransfer of Multifamily

Mortgage Credit Risk.É
Consolidated Balance Sheet Analysis

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

condensed consolidated financial statements, including the accompanying notes. 

MD&A | Consolidated Balance Sheet Analysis

Fannie Mae Third Quarter 2019 Form 10-Q 19

Summary of Condensed Consolidated Balance Sheets

As of

September 30,

2019

December 31,

2018 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities purchased

under agreements to resell or similar arrangements $ 45,768 $ 58,495 $ (12,727)

Restricted cash 41,906 23,866 18,040

Investments in securities 46,896 45,296 1,600

Mortgage loans:

Of Fannie Mae 116,639 120,717 (4,078)

Of consolidated trusts 3,206,873 3,142,881 63,992

Allowance for loan losses (9,376) (14,203) 4,827

Mortgage loans, net of allowance for loan losses 3,314,136 3,249,395 64,741

Deferred tax assets, net 11,994 13,188 (1,194)

Other assets 33,736 28,078 5,658

Total assets $ 3,494,436 $ 3,418,318 $ 76,118

Liabilities and equity

Debt:

Of Fannie Mae $ 213,522 $ 232,074 $ (18,552)

Of consolidated trusts 3,248,336 3,159,846 88,490

Other liabilities 22,236 20,158 2,078

Total liabilities 3,484,094 3,412,078 72,016

Fannie Mae stockholdersÖ equity:

Senior preferred stock 120,836 120,836 Ñ

Other net deficit (110,494) (114,596) 4,102

Total equity 10,342 6,240 4,102

Total liabilities and equity $ 3,494,436 $ 3,418,318 $ 76,118

Mortgage Loans, Net of Allowance for Loan Losses

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

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

Mortgage loans, net of allowance for loan losses increased as of September 30, 2019 compared with December 31, 2018

primarily driven by:

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

Ü a decrease in our allowance for loan losses primarily driven by the redesignation of certain nonperforming and

reperforming single-family loans from HFI to HFS and as a result of an enhancement to the model, including the

incorporation of recent loan performance data, used to estimate cash flows for individually impaired single-family

loans.

For additional information on our mortgage loans, see ÇNote 3, Mortgage Loans,É and for additional information on changes in

our allowance for loan losses, see ÇNote 4, Allowance for Loan Losses.É 
Other Assets 

The increase in other assets from December 31, 2018 to September 30, 2019 was primarily driven by an increase in advances

to lenders. As interest rates declined during the first nine months of 2019, mortgage origination activity increased, resulting in

higher funding needs by lenders. For information on our accounting policy for advances to lenders, refer to ÇNote 1, Summary

of Significant Accounting PoliciesÉ in our 2018 Form 10-K.

Debt

The decrease in debt of Fannie Mae from December 31, 2018 to September 30, 2019 was primarily driven by the decline in

the size of our retained mortgage portfolio. We did not issue new debt to replace all of our debt of Fannie Mae that paid off

during the first nine months of 2019. The increase in debt of consolidated trusts from December 31, 2018 to September 30,

2019 was primarily driven by sales of Fannie Mae MBS, which are accounted for as issuances of debt of consolidated trusts in

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

ÇMD&AÑLiquidity and Capital ManagementÑLiquidity ManagementÑDebt FundingÉ for a summary of the activity of the debt

of Fannie Mae and a comparison of the mix between our outstanding short-term and long-term debt. Also see ÇNote 7, ShortTerm and Long-Term DebtÉ for additional information on our outstanding debt.

StockholdersÇ Equity

Our net equity increased as of September 30, 2019 compared with December 31, 2018 by the amount of our comprehensive

income recognized during the first nine months of 2019, partially offset by our payments of senior preferred stock dividends to

Treasury during the first two quarters of 2019.

Under the modified liquidation preference provisions of the senior preferred stock described in ÇLegislation and RegulationÑ

Letter Agreement with Treasury,É the aggregate liquidation preference of the senior preferred stock increased from $123.8

billion as of June 30, 2019 to $127.2 billion as of September 30, 2019, and will further increase to $131.2 billion as of

December 31, 2019.

MD&A | Consolidated Balance Sheet Analysis

Fannie Mae Third Quarter 2019 Form 10-Q 20

Retained Mortgage Portfolio

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

Mae MBS and non-Fannie Mae mortgage-related securities. Assets held by consolidated MBS trusts that back mortgagerelated securities owned by third parties are not included in our retained mortgage portfolio. 

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

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

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

three categories based on each instrumentÖs use:

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

liquidity to the single-family and multifamily mortgage markets. 

Ü Loss mitigation supports our loss mitigation efforts through the purchase of delinquent loans from our MBS trusts. 

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

ÇOtherÉ as of September 30, 2019 consisted of Fannie Mae reverse mortgage securities and reverse mortgage loans.

We expect the amount of assets in ÇOtherÉ will continue to decline over time as they liquidate, mature or are sold.
Retained Mortgage Portfolio

(Dollars in billions)

Lender liquidity Loss mitigation Other

12/31/2018 9/30/2019

$49.2

$70.0

$87.2

$70.7

$42.8

$179.2

$36.3

$177.0

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

Retained Mortgage Portfolio

As of

September 30,

2019

December 31,

2018

(Dollars in millions)

Lender liquidity:

Agency securities(1) $ 45,178 $ 40,528

Mortgage loans 24,808 8,640

Total lender liquidity 69,986 49,168

Loss mitigation mortgage loans(2) 70,729 87,220

Other:

Reverse mortgage loans 18,488 21,856

Mortgage loans 7,495 8,959

Reverse mortgage securities(3) 7,723 7,883

Private-label and other securities 1,679 3,042

Fannie Mae-wrapped private-label securities 595 650

Mortgage revenue bonds 294 375

Total other 36,274 42,765

Total retained mortgage portfolio $ 176,989 $ 179,153

Retained mortgage portfolio by segment:

Single-family mortgage loans and mortgage-related securities $ 167,305 $ 168,338

Multifamily mortgage loans and mortgage-related securities $ 9,684 $ 10,815

(1) Consists of Fannie Mae, Freddie Mac, and Ginnie Mae mortgage-related securities, including Freddie Mac securities guaranteed by

Fannie Mae. Excludes Fannie Mae and Ginnie Mae reverse mortgage securities and Fannie Mae-wrapped private-label securities.

(2) Includes single-family loans classified as troubled debt restructurings (ÇTDRsÉ) that were on accrual status of $46.2 billion and $58.5 billion

as of September 30, 2019 and December 31, 2018, respectively, and single-family loans on nonaccrual status of $21.0 billion and $24.4

billion as of September 30, 2019 and December 31, 2018, respectively. Includes multifamily loans classified as TDRs that were on accrual

status of $35 million and $57 million as of September 30, 2019 and December 31, 2018, respectively, and multifamily loans on nonaccrual

status of $260 million and $150 million as of September 30, 2019 and December 31, 2018, respectively.

(3) Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.

MD&A | Retained Mortgage Portfolio

Fannie Mae Third Quarter 2019 Form 10-Q 21
The amount of mortgage assets that we may own is capped at $250 billion by our senior preferred stock purchase agreement

with Treasury, and FHFA has directed that we further cap our mortgage assets at $225 billion, as described in ÇBusinessÑ

Conservatorship, Treasury Agreements and Housing Finance ReformÑTreasury AgreementsÉ in our 2018 Form 10-K. We

expect our retained mortgage portfolio to remain below the current $225 billion cap directed by FHFA. The September 2019

Treasury plan includes a recommendation that Treasury and FHFA amend our senior preferred stock purchase agreement to

further reduce the cap on our investments in mortgage-related assets, and also to restrict our retained mortgage portfolio to

solely supporting the business of securitizing MBS.

MD&A | Retained Mortgage Portfolio

Fannie Mae Third Quarter 2019 Form 10-Q 22

We have the option or, in some instances, the obligation, to purchase mortgage loans that meet specific criteria from an MBS

trust.ÄIn support of our loss mitigation strategy, we purchased $7.8 billion of loans from our single-family MBS trusts in the first

nine months of 2019, the substantial majority of which were delinquent. In deciding whether and when to exercise our option to

purchase a loan from a single-family MBS trust, we consider a variety of factors, including, but not limited to, the cost of funds,

general market conditions, and relevant market yields. The weight we give to these factors, among others, changes depending

on market circumstances and other factors. See ÇMD&AÑRetained Mortgage PortfolioÑPurchases of Loans from Our MBS

TrustsÉ in our 2018 Form 10-K for more information relating to our purchases of loans from MBS trusts. 
Guaranty Book of Business

Our Çguaranty book of businessÉ consists of: 

Ü Fannie Mae MBS outstanding, excluding the portions of any structured securities we issue that are backed by

Freddie Mac securities; 

Ü mortgage loans of Fannie Mae held in our retained mortgage portfolio; and 

Ü other credit enhancements that we provide on mortgage assets. 

ÇTotal Fannie Mae guaranteesÉ consists of: 

Ü our guaranty book of business; and 

Ü the portions of any structured securities we issue that are backed by Freddie Mac securities.

When we resecuritize Freddie Mac securities into Fannie Mae-issued structured securities, our guaranty of principal and

interest extends to the underlying Freddie Mac securities. However, Freddie Mac continues to guaranty the payment of

principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an incremental

guaranty fee to include Freddie Mac securities in the structured securities that we issue.

The table below displays the composition of our guaranty book of business based on unpaid principal balance. Our singlefamily guaranty book of business accounted for 90% of our guaranty book of business as of September 30, 2019 and 91% of

our guaranty book of business as of December 31, 2018. 

Composition of Fannie Mae Guaranty Book of Business(1)

As of

September 30, 2019 December 31, 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Conventional guaranty book of business(2) $ 2,989,312 $ 333,030 $ 3,322,342 $ 2,925,246 $ 308,543 $ 3,233,789

Government guaranty book of business(3) 29,311 1,157 30,468 34,158 1,205 35,363

Guaranty book of business 3,018,623 334,187 3,352,810 2,959,404 309,748 3,269,152

Freddie Mac securities guaranteed by Fannie Mae

(4) 28,942 Å 28,942 Ñ Ñ Ñ

Total Fannie Mae guarantees $ 3,047,565 $ 334,187 $ 3,381,752 $ 2,959,404 $ 309,748 $ 3,269,152

(1) Includes other single-family Fannie Mae guaranty arrangements of $1.4 billion and $1.6 billion as of September 30, 2019 and December

31, 2018, respectively, and other multifamily Fannie Mae guaranty arrangements of $11.6 billion and $12.3 billion as of September 30,

2019 and December 31, 2018, respectively. The unpaid principal balance of resecuritized Fannie Mae MBS is included only once in the

reported amount.

(2) Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government.

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

(4) Consists of approximately (i) $23.0 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers;

and (ii) $5.9 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs, a portion of which may be

backed in whole or in part by Fannie Mae MBS. Therefore, our total exposure to Freddie Mac securities included in Fannie Mae REMIC

collateral may be lower.

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

Finance Regulatory Reform Act of 2008 (together, the ÇGSE ActÉ) requires us to set aside each year an amount equal to 4.2

basis points of the unpaid principal balance of our total new business purchases and to pay this amount to specified HUD and

Treasury funds. In April 2019, we paid $215 million to the funds based on our new business purchases in 2018. For the first

nine months of 2019, we recognized an expense of $193 million related to this obligation based on our $460.0 billion in new

business purchases during the period. We expect to pay this amount to the funds in 2020, plus additional amounts to be

accrued based on our new business purchases in the fourth quarter of 2019. See ÇMD&AÑLegislation and RegulationÑ

Affordable Housing AllocationsÉ in our First Quarter 2019 Form 10-Q for more information regarding this obligation.

MD&A | Guaranty Book of Business

Fannie Mae Third Quarter 2019 Form 10-Q 23
Business Segments

We have two reportable business segments: Single-Family and Multifamily. The Single-Family business operates in the

secondary mortgage market relating to single-family mortgage loans, which are secured by properties containing four or fewer

residential dwelling units. The Multifamily business operates in the secondary mortgage market relating primarily to multifamily

mortgage loans, which are secured by properties containing five or more residential units.

The chart below displays the net revenues and net income for each of our business segments for the first nine months of 2018

compared with the first nine months of 2019. Net revenues consist of net interest income and fee and other income.

Business Segment Net Revenues and Net Income

(Dollars in billions)

Single-Family net revenues Multifamily net revenues

Single-Family net income Multifamily net income

YTD 2018 YTD 2019

$14.3 $13.3

$2.5

$16.8

$2.7

$16.0

$11.1

$8.0

$1.6

$12.7

$1.8

$9.8

Segment Allocation Methodology

The majority of our revenues and expenses are directly associated with either our single-family or our multifamily business

segment and are included in determining that segmentÖs operating results. Other revenues and expenses, including

administrative expenses, that are not directly attributable to a particular business segment are allocated based on the size of

each segmentÖs guaranty book of business. The substantial majority of the gains and losses associated with our risk

management derivatives are allocated to our single-family business segment.

In the following sections, we describe each segmentÖs business metrics and financial results. We also describe how each

segment manages mortgage credit risk and its credit metrics.

MD&A | Business Segments

Fannie Mae Third Quarter 2019 Form 10-Q 24

Single-Family Business

Working with our lender customers, our Single-Family business provides liquidity to the mortgage market primarily by acquiring

single-family loans from lenders and securitizing those loans into Fannie Mae MBS, which are either delivered to the lenders

or sold to investors or dealers. A single-family loan is secured by a property with four or fewer residential units.

This section supplements and updates information regarding our Single-Family business segment in our 2018 Form 10-K. See

ÇMD&AÑSingle-Family BusinessÉ in our 2018 Form 10-K for additional information regarding the primary business activities,

customers and competition of our Single-Family business.

Presentation of our single-family guaranty book of business

For purposes of the information reported in this ÇSingle-Family BusinessÉ section, we measure the single-family guaranty book

of business by using the unpaid principal balance of our mortgage loans underlying Fannie Mae MBS outstanding. By contrast,

the single-family guaranty book of business presented in the ÇComposition of Fannie Mae Guaranty Book of BusinessÉ table in

the ÇGuaranty Book of BusinessÉ section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather

than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we

receive on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information

reported below, our single-family conventional guaranty book of business was $2,940 billion as of September 30, 2019 and

$2,903 billion as of December 31, 2018.
Single-Family Market Share

Single-Family Mortgage Acquisition Market Share

Our share of the single-family acquisition market, including loans held on lendersÖ books, may fluctuate from period to period.

We currently estimate our single-family acquisition market share in the last three years remained within the range of 24% to

30%, supporting approximately one in four single-family mortgage loans. Our market share estimate is based on publicly

available data regarding the amount of single-family first-lien mortgage loans originated and our competitorsÖ acquisitions. Our

single-family acquisitions were $194.3 billion for the third quarter of 2019, compared with $122.3 billion for the third quarter of

2018.

Single-Family Mortgage-Related Securities Issuances Market Share

Our single-family Fannie Mae MBS issuances were $188.5 billion for the third quarter of 2019, compared with $129.9 billion for

the third quarter of 2018. The chart below displays our market share, using data available as of publication, of single-family

mortgage-related securities issuances in the third quarter of 2019 as compared with that of our primary competitors for the

issuance of single-family mortgage-related securities.

New Single-Family Mortgage-Related Securities Issuances

Third Quarter 2019 Market Share

Fannie Mae: 39%

Freddie Mac: 27%

Ginnie Mae: 31%

Private-label securities: 3%

We estimate our market share of single-family mortgage-related securities issuances was 39% in the third quarter of 2019,

compared with 35% in the second quarter of 2019 and 40% in the third quarter of 2018. 

Single-Family Mortgage Market

Housing activity rose slightly in the third quarter of 2019 compared with the second quarter of 2019. Total existing home sales

averaged 5.4 million units annualized in the third quarter of 2019, compared with 5.3 million units in the second quarter of

2019, according to data from the National Association of REALTORSã. According to the U.S. Census Bureau, new singlefamily home sales increased during the third quarter of 2019, averaging an annualized rate of 691,000 units, compared with

661,000 units in the second quarter of 2019.

The 30-year fixed mortgage rate averaged 3.66% in the third quarter of 2019, compared with 4.01% in the second quarter of

2019, according to Freddie MacÖs Primary Mortgage Market Surveyã.

We forecast that total originations in the U.S. single-family mortgage market in 2019 will increase from 2018 levels by

approximately 15%, from an estimated $1.77 trillion in 2018 to $2.04 trillion in 2019, and that the amount of originations in the

U.S. single-family mortgage market that are refinancings will increase from an estimated $532 billion in 2018 to $761 billion in

2019, as mortgage rates have declined in 2019. 

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 25
Single-Family Business Metrics

Net interest income from guaranty fees for our Single-Family business is driven by the guaranty fees we charge on our singlefamily conventional guaranty book of business and the size of our single-family conventional guaranty book of business. The

guaranty fees we charge are based on the characteristics of the loans we acquire. We adjust our guaranty fees in light of

market conditions and to achieve return targets, which are based on FHFAÖs proposed capital framework. As a result, the

average charged guaranty fee on new acquisitions may fluctuate based on the credit quality and product mix of loans

acquired, as well as market conditions and other factors.

Single-Family Guaranty Fee and Book of Business Metrics

Average charged guaranty fee on

single-family conventional guaranty

book of business, net of TCCAá

Average charged guaranty fee on new

single-family conventional acquisitions,

net of TCCAá

Q3 2018 Q3 2019

42.8 bps 43.5 bps

49.7 bps

45.9 bps

Average single-family conventional

guaranty book of businessà

Q3 2018 Q3 2019

$2,889

$2,924

(1) Represents the sum of the average guaranty fee rate for our single-family conventional guaranty arrangements during the period plus the

recognition of any upfront cash payments relating to these guaranty arrangements over an estimated average life at the time of

acquisition. For the prior period, the methodology used to estimate average life at the time of acquisition has been updated. Excludes the

impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to

Treasury and not retained by us.

(2) Our single-family conventional guaranty book of business consists primarily of single-family conventional mortgage loans underlying

Fannie Mae MBS outstanding. It also includes single-family conventional mortgage loans of Fannie Mae held in our retained mortgage

portfolio, and other credit enhancements that we provide on single-family conventional mortgage assets. Our single-family conventional

guaranty book of business does not include: (a) non-Fannie Mae single-family mortgage-related securities held in our retained mortgage

portfolio for which we do not provide a guaranty; (b) mortgage loans guaranteed or insured, in whole or in part, by the U.S. government; or

(c) Freddie Mac-acquired mortgage loans underlying Freddie Mac-issued UMBS that we have resecuritized.

Our average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fees, decreased from 49.7

basis points in the third quarter of 2018 to 45.9 basis points in the third quarter of 2019, primarily driven by the stronger credit

profile of our newly acquired single-family loans. Under FHFAÖs proposed capital requirements, loans with stronger credit

profiles typically require less capital.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 26
Single-Family Business Financial Results

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 Variance 2019 2018 Variance

(Dollars in millions)

Net interest income(1) $ 4,484 $ 4,670 $ (186) $ 12,942 $ 13,954 $ (1,012)

Fee and other income 156 79 77 350 306 44

Net revenues 4,640 4,749 (109) 13,292 14,260 (968)

Investment gains, net 198 146 52 709 640 69

Fair value gains (losses), net (719) 417 (1,136) (2,364) 1,729 (4,093)

Administrative expenses (634) (636) 2 (1,899) (1,928) 29

Credit-related income(2) 1,747 582 1,165 3,391 1,775 1,616

TCCA fees(1) (613) (576) (37) (1,806) (1,698) (108)

Other expenses, net (424) (282) (142) (1,179) (684) (495)

Income before federal income taxes 4,195 4,400 (205) 10,144 14,094 (3,950)

Provision for federal income taxes (872) (938) 66 (2,125) (2,998) 873

Net income $ 3,323 $ 3,462 $ (139) $ 8,019 $ 11,096 $ (3,077)

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

remitted to Treasury. The resulting revenue is included in net interest income and the expense is recognized as ÇTCCA fees.É 

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

Net interest income

Single-family net interest income decreased in the third quarter and first nine months of 2019 compared with the third quarter

and first nine months of 2018, primarily due to a decline in net interest income from portfolios and a decline in net amortization

income, partially offset by an increase in single-family base guaranty fee income. The drivers of net interest income for the

single-family segment for the third quarter and first nine months of 2019 are consistent with the drivers of net interest income

in our condensed consolidated statements of operations and comprehensive income, which we discuss in ÇConsolidated

Results of OperationsÑNet Interest Income.É

Fair value gains (losses), net

Fair value losses in the third quarter and first nine months of 2019 were primarily driven by decreases in the fair value of our

pay-fixed risk management derivatives, partially offset by increases in the fair value of our receive-fixed risk management

derivatives, and decreases in the fair value of our mortgage commitments. In addition, increases in the fair value of our debt

also resulted in fair value losses for the third quarter and first nine months of 2019. Conversely, fair value gains in the third

quarter and first nine months of 2018 were primarily driven by increases in the fair value of our mortgage commitments

derivatives and our pay-fixed risk management derivatives.

The drivers of our fair value gains (losses), net for the single-family segment for all periods presented are consistent with the

drivers of fair value gains (losses), net in our condensed consolidated statements of operations and comprehensive income,

which we discuss in ÇConsolidated Results of OperationsÑFair Value Gains (Losses), Net.É

Credit-related income

Credit-related income in the third quarter and first nine months of 2019 was primarily driven by the redesignation of certain

single-family loans from HFI to HFS; the enhancement to the model, including the incorporation of recent loan performance

data used to estimate cash flows for individually impaired single-family loans; an increase in actual and forecasted home

prices; lower actual and projected mortgage interest rates; and changes in loan activity related to loan liquidations.

Credit-related income in the third quarter and first nine months of 2018 was primarily driven by the redesignation of certain

reperforming and nonperforming single-family loans from HFI to HFS and an increase in actual home prices. These factors

were partially offset by the impact of higher actual and projected mortgage interest rates in the periods.

See ÇConsolidated Results of OperationsÑCredit-Related IncomeÉ in this report for more information on our credit-related

income.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 27
Other expenses, net

Other expenses, net increased in the third quarter and first nine months of 2019 compared with the third quarter and first nine

months of 2018, primarily due to an increase in credit enhancement costs resulting from higher outstanding volumes of loans

covered by a credit risk transfer transaction. The drivers of other expenses, net for the single-family segment for the third

quarter and first nine months of 2019 are consistent with the drivers discussed in our condensed consolidated statements of

operations and comprehensive income, which we discuss in ÇConsolidated Results of OperationsÑOther Expenses, Net.É

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 28

Single-Family Mortgage Credit Risk Management

This section updates our discussion of single-family mortgage credit risk management in our 2018 Form 10-K. For information

on our acquisition and servicing policies, underwriting and servicing standards, quality control process, repurchase requests,

and representation and warranty framework, see ÇMD&AÑSingle-Family BusinessÑSingle-Family Mortgage Credit Risk

ManagementÉ in our 2018 Form 10-K.

Single-Family Portfolio Diversification and Monitoring

The profile of our single-family conventional guaranty book of business includes the following key risk characteristics:

Ñ Loan-to-value ratio. Loan-to-value (ÇLTVÉ) ratio is a strong predictor of credit performance. The likelihood of default and

the gross severity of a loss in the event of default are typically lower as the LTV ratio decreases. This also applies to

the estimated mark-to-market LTV ratios, particularly those over 100%, as this indicates that the borrowerÖs mortgage

balance exceeds the property value.

Ñ Product type. Certain loan product types have features that may result in increased risk. Generally, intermediate-term,

fixed-rate mortgages exhibit the lowest default rates, followed by long-term, fixed-rate mortgages. Historically,

adjustable-rate mortgages (ÇARMsÉ), including negative-amortizing and interest-only loans, and balloon/reset

mortgages have exhibited higher default rates than fixed-rate mortgages, partly because the borrowerÖs payments

rose, within limits, as interest rates changed.

Ü Number of units. Mortgages on one-unit properties tend to have lower credit risk than mortgages on two-, three- or

four-unit properties. 

Ü Property type. Certain property types have a higher risk of default. For example, condominiums generally are

considered to have higher credit risk than single-family detached properties.

Ü Occupancy type. Mortgages on properties occupied by the borrower as a primary or secondary residence tend to have

lower credit risk than mortgages on investment properties.

Ü Credit score. Credit score is a measure often used by the financial services industry, including us, to assess borrower

credit quality and the likelihood that a borrower will repay future obligations as expected. A higher credit score typically

indicates lower credit risk.

Ü Debt-to-income ratio. Debt-to-income (ÇDTIÉ) ratio refers to the ratio of a borrowerÖs outstanding debt obligations

(including both mortgage debt and certain other long-term and significant short-term debts) to that borrowerÖs reported

or calculated monthly income, to the extent the income is used to qualify for the mortgage. As a borrowerÖs DTI ratio

increases, the associated risk of default on the loan generally increases, especially if other higher-risk factors are

present. From time to time, we revise our guidelines for determining a borrowerÖs DTI ratio. The amount of income

reported by a borrower and used to qualify for a mortgage may not represent the borrowerÖs total income; therefore,

the DTI ratios we report may be higher than borrowersÖ actual DTI ratios.

Ü Loan purpose. Loan purpose refers to how the borrower intends to use the funds from a mortgage loanÑeither for a

home purchase or refinancing of an existing mortgage. Cash-out refinancings have a higher risk of default than either

mortgage loans used for the purchase of a property or other refinancings that restrict the amount of cash returned to

the borrower.

Ü Geographic concentration. Local economic conditions affect borrowersÖ ability to repay loans and the value of collateral

underlying loans. Geographic diversification reduces mortgage credit risk.

Ü Loan age. We monitor year of origination and loan age, which is defined as the number of years since origination.

Credit losses on mortgage loans typically do not peak until the third through sixth year following origination; however,

this range can vary based on many factors, including changes in macroeconomic conditions and foreclosure timelines.

The table below displays our single-family conventional business volumes and our single-family conventional guaranty book of

business, based on certain key risk characteristics that we use to evaluate the risk profile and credit quality of our single-family

loans. We exclude from the single-family credit statistics reported below less than 1% of our single-family conventional

guaranty book of business for which our loan-level information was incomplete as of September 30, 2019 and December 31,

2018.
We provide additional information on the credit characteristics of our single-family loans in quarterly financial supplements,

which we submit to the SEC with current reports on Form 8-K. Information in our quarterly financial supplements is not

incorporated by reference into this report.

Key Risk Characteristics of Single-Family Conventional Business Volume

and Guaranty Book of Business(1)

Percent of Single-Family Conventional Business 

Volume at Acquisition(2)

Percent of Single-Family Conventional

Guaranty Book of Business(3)

As of

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018 September 30, 2019 December 31, 2018

Original LTV ratio:(4)

<= 60% 16 % 14 % 16 % 16 % 19 % 19 %

60.01% to 70% 12 11 12 12 13 13

70.01% to 80% 38 37 37 37 37 38

80.01% to 90% 13 14 13 13 12 12

90.01% to 95% 14 16 14 15 12 11

95.01% to 100% 7 8 8 7 5 4

Greater than 100% Å * * * 2 3

Total 100 % 100 % 100 % 100 % 100 % 100 %

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

Average loan amount $ 269,204 $ 235,125 $ 255,909 $ 233,027 $ 172,566 $ 170,076

Estimated mark-to-market LTV

ratio:(5)

<= 60% 55 % 54 %

60.01% to 70% 17 18

70.01% to 80% 16 16

80.01% to 90% 8 8

90.01% to 100% 4 4

Greater than 100% * *

Total 100 % 100 %

Weighted average 56 % 57 %

Product type:

Fixed-rate:(6)

Long-term 90 % 91 % 90 % 89 % 85 % 84 %

Intermediate-term 10 7 9 9 13 14

Total fixed-rate 100 98 99 98 98 98

Adjustable-rate * 2 1 2 2 2

Total 100 % 100 % 100 % 100 % 100 % 100 %

Number of property units:

1Äunit 98 % 98 % 98 % 98 % 97 % 97 %

2 to 4Äunits 2 2 2 2 3 3

Total 100 % 100 % 100 % 100 % 100 % 100 %

Property type:

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

Condo/Co-op 9 10 9 10 9 9

Total 100 % 100 % 100 % 100 % 100 % 100 %

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 29
Percent of Single-Family Conventional Business 

Volume at Acquisition(2)

Percent of Single-Family Conventional

Guaranty Book of Business(3)

As of

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018 September 30, 2019 December 31, 2018

Occupancy type:

Primary residence 93 % 89 % 91 % 89 % 89 % 89 %

Second/vacation home 3 4 4 4 4 4

Investor 4 7 5 7 7 7

Total 100 % 100 % 100 % 100 % 100 % 100 %

FICO credit score at

origination:

< 620 * % * % * % * % 1 % 2 %

620 to < 660 3 6 4 6 5 5

660 to < 680 3 5 4 5 5 5

680 to < 700 7 9 8 9 7 7

700 to < 740 22 23 23 23 21 20

>= 740 65 57 61 57 61 61

Total 100 % 100 % 100 % 100 % 100 % 100 %

Weighted average 751 743 747 743 746 746

DTI ratio at origination:(7)

<= 43% 74 % 66 % 71 % 66 % 76 % 77 %

43.01% to 45% 9 9 9 9 9 9

Greater than 45% 17 25 20 25 15 14

Total 100 % 100 % 100 % 100 % 100 % 100 %

Weighted average 36 % 38 % 36 % 37 % 35 % 35 %

Loan purpose:

Purchase 54 % 72 % 59 % 64 % 45 % 43 %

Cash-out refinance 18 19 19 22 19 20

Other refinance 28 9 22 14 36 37

Total 100 % 100 % 100 % 100 % 100 % 100 %

Geographic concentration:(8)

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

Northeast 14 14 14 13 17 17

Southeast 21 23 22 23 22 22

Southwest 20 21 21 21 18 18

West 31 27 29 29 28 28

Total 100 % 100 % 100 % 100 % 100 % 100 %

Origination year:

2013 and prior 35 % 40 %

2014 5 6

2015 9 10

2016 14 16

2017 13 15

2018 12 13

2019 12 Ñ

Total 100 % 100 %

* Represents less than 0.5% of single-family conventional business volume or book of business.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 30
(1) Second-lien mortgage loans held by third parties are not reflected in the original LTV or the estimated mark-to-market LTV ratios in this

table. 

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

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

principal balance of loans in our single-family conventional guaranty book of business as of the end of each period.

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

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

(5) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic

changes in home value. Excludes loans for which this information is not readily available.

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

maturities equal to or less than 15 years.

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

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

VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM,

OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

Characteristics of our New Single-Family Loan Acquisitions

The share of our single-family loan acquisitions consisting of refinance loans rather than home purchase loans increased in

the third quarter of 2019 compared with the third quarter of 2018, primarily due to a lower interest rate environment, which

encouraged refinance activity. Typically, refinance loans have lower LTV ratios than home purchase loans. This trend

contributed to a decrease in the percentage of our single-family loan acquisitions with LTV ratios over 90%Ñfrom 24% in the

third quarter of 2018 to 21% in the third quarter of 2019.

Our share of acquisitions of loans with DTI ratios above 45% decreased in the third quarter of 2019 compared with the third

quarter of 2018. This decrease was driven in part by changes in our eligibility guidelines implemented in December 2018 and

July 2019 to further limit risk layering, particularly with respect to loans with DTI ratios above 45%, as well as a higher volume

of refinance loan acquisitions.

Desktop Underwriter Update

As part of our comprehensive risk management approach, we periodically update our proprietary automated underwriting

system, Desktop Underwriterã (ÇDUãÉ), to reflect changes to our underwriting and eligibility guidelines. In July 2019, we

implemented the following changes to DU:

Ü HomeReadyÖ income limits. To better align with our housing goals, we changed the income limit requirement for

HomeReady loans, our flagship affordable product, to set a maximum borrower income limit of 80% of area median

income for the propertyÖs location. Previously, a borrower could be eligible for a HomeReady loan if the borrowerÖs

total annual income did not exceed 100% of area median income or if the property was located in a low-income

census tract. We expect this change will reduce the proportion of our loan acquisitions consisting of HomeReady

loans, which we also expect may reduce the proportion of our loan acquisitions with LTV ratios over 90%.

Approximately 7% of our single-family conventional loan acquisitions in the third quarter of 2019 consisted of

HomeReady loans, compared with approximately 9% in the second quarter of 2019.

Ü DU eligibility assessment. As part of normal business operations, we regularly review DU to determine whether its

risk analysis and eligibility assessment are appropriate based on the current market environment and loan

performance information. As a result of our most recent review, we updated the DU eligibility assessment to better

align the mix of business delivered to us with the composition of business in the overall market. We expect this

change will result in fewer acquisitions of loans with multiple higher-risk characteristics.

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

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

For further information regarding Desktop Underwriter, please see ÇMD&AÑSingle-Family BusinessÑSingle-Family Mortgage

Credit Risk ManagementÑSingle-Family Acquisition and Servicing Policies and Underwriting and Servicing StandardsÉ in our

2018 Form 10-K. 

For a discussion of factors that may impact the credit characteristics of loans we acquire in the future, see ÇMD&AÑSingleFamily BusinessÑSingle-Family Mortgage Credit Risk ManagementÑSingle-Family Portfolio Diversification and MonitoringÉ in

our 2018 Form 10-K. In this section of our 2018 Form 10-K, we also provide more information on the credit characteristics of

loans in our single-family conventional guaranty book of business, including Home Affordable Refinance Programã (ÇHARPãÉ)

and Refi PlusTM loans, jumbo-conforming and high-balance loans, reverse mortgages and mortgage products with rate resets. 

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 31
Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk

Single-Family Credit Enhancement

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

securitize if it has an LTV ratio over 80% at the time of purchase. We generally achieve this charter requirement through

primary mortgage insurance. We also enter into various other types of transactions in which we transfer mortgage credit risk to

third parties.

The table below displays information about loans in our single-family conventional guaranty book of business covered by one

or more forms of credit enhancement, including mortgage insurance or a credit risk transfer transaction. For a description of

primary mortgage insurance and the other types of credit enhancements specified in the table, see ÇMD&AÑSingle-Family

BusinessÑSingle-Family Mortgage Credit Risk ManagementÑSingle-Family Credit Enhancement and Transfer of Mortgage

Credit RiskÉ in our 2018 Form 10-K. For a discussion of our exposure to and management of the institutional counterparty

credit risk associated with the providers of these credit enhancements, see ÇMD&AÑRisk ManagementÑInstitutional

Counterparty Credit Risk ManagementÉ and "Note 13, Concentrations of Credit Risk" in our 2018 Form 10-K and ÇNote 10,

Concentrations of Credit RiskÉ in this report.

Single-Family Loans with Credit Enhancement

As of

September 30, 2019 December 31, 2018

Unpaid

Principal

Balance

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

Unpaid

Principal

Balance

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

(Dollars in billions)

Primary mortgage insurance and other $ 644 22% $ 618 21%

Connecticut Avenue Securities 816 28 798 27

Credit Insurance Risk TransferTM (ÇCIRTTMÉ) 263 9 243 8

Lender risk sharing 135 4 102 4

Less: Loans covered by multiple credit enhancements (413) (14) (394) (13)

Total single-family loans with credit enhancement $ 1,445 49% $ 1,367 47%

Transfer of Mortgage Credit Risk

In addition to primary mortgage insurance, our Single-Family business has developed other risk-sharing capabilities to transfer

portions of our single-family mortgage credit risk to the private market. Our credit risk transfer transactions are designed to

transfer a portion of the losses we expect would be incurred in a stressed credit environment, such as a severe or prolonged

economic downturn. We continually evaluate our credit risk transfer transactions which, in addition to managing our credit risk,

also affect our returns on capital and may impact the amount of capital we would be required to hold under FHFAÖs proposed

capital requirements. We discuss FHFAÖs proposed capital rule in ÇBusinessÑCharter Act and RegulationÑGSE Act and Other

RegulationÉ in our 2018 Form 10-K.

During the first nine months of 2019, pursuant to our credit risk transfer transactions, we transferred a portion of the mortgage

credit risk on single-family mortgages with an unpaid principal balance of $223 billion at the time of the transactions. As of

September 30, 2019, approximately 41% of the loans in our single-family conventional guaranty book of business, measured

by unpaid principal balance, were included in a reference pool for a credit risk transfer transaction.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 32
The table below displays the mortgage credit risk transferred to third parties and retained by Fannie Mae pursuant to our

single-family credit risk transfer transactions. 

Single-Family Credit Risk Transfer Transactions

Issuances from Inception to September 30, 2019

(Dollars in billions)

Senior

Fannie Mae(1)

Initial

Reference

Pool(5)

$1,744

Mezzanine Fannie Mae(1) CIRT(2)(3) CAS(2)

Lender RiskSharing(2)(4)

$2 $10 $36 $3 $1,811

First Loss Fannie Mae(1) CAS(2)(6)

Lender RiskSharing(2)(4)

$9 $4 $3

Outstanding as of September 30, 2019

(Dollars in billions)

Senior

Fannie Mae(1)

Outstanding

Reference

Pool(5)(7)

$1,199

Mezzanine Fannie Mae(1) CIRT(2)(3) CAS(2)

Lender RiskSharing(2)(4)

$2 $8 $24 $3 $1,252

First Loss Fannie Mae(1) CAS(2)(6)

Lender RiskSharing(2)(4)

$9 $4 $3

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

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

(3) Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $7 billion at issuance and

approximately $3 billion outstanding as of September 30, 2019. 

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

(5) For CIRT and some lender risk-sharing transactions, ÇReference PoolÉ reflects a pool of covered loans. 

(6) For CAS transactions, ÇFirst LossÉ represents all B tranche balances.

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

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

on which risk has been transferred in lender risk-sharing transactions, was $1,213 billion as of September 30, 2019.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 33
The following table displays the approximate cash paid or transferred to investors for these credit risk transfer transactions.

The cash represents the portion of the guaranty fee paid to investors as compensation for taking on a share of the credit risk.

These expenses increased from the first nine months of 2018 to the first nine months of 2019. We expect these expenses will

continue to increase as the percentage of our single-family conventional guaranty book of business that is covered by a credit

risk transfer transaction increases.

Credit Risk Transfer Transactions

For the Nine Months Ended September 30,

2019 2018

Cash paid or transferred for: (Dollars in millions)

CAS transactions(1) $ 724 $ 655

CIRT transactions 264 205

Lender risk-sharing transactions 207 97

(1) Consists of cash paid for interest expense net of LIBOR on outstanding CAS debt and amounts paid for CAS REMICTM transactions. ÇCAS

REMICsÉ are Connecticut Avenue Securities that are structured as notes issued by trusts that qualify as REMICs.

With our July 2019 CAS REMICTM transaction, we updated the following terms of our CAS REMIC transactions compared with

our prior CAS REMIC transactions: extended the term from 12.5 years to 20 years; shortened the call option from 10 years to

7 years; and retained a smaller first-loss position (that is, investors purchased a larger portion of the risk that we refer to as the

first-loss tranche). These updates were primarily designed to further reduce the amount of capital we would be required to hold

for the associated loans in the reference pool under FHFAÖs proposed capital framework. Our subsequent CAS REMIC

transactions included these updated terms, and we currently expect that our future CAS REMIC transactions will contain

similar terms.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 34
Single-Family Problem Loan Management

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

occur and pursuing foreclosure alternatives to mitigate the severity of the losses we incur. See ÇMD&AÑSingle-Family

BusinessÑSingle-Family Mortgage Credit Risk ManagementÑProblem Loan ManagementÉ in our 2018 Form 10-K for a

discussion of delinquency statistics on our problem loans, efforts undertaken to manage our problem loans, metrics regarding

our loan workout activities, real estate owned (ÇREOÉ) management and other single-family credit-related disclosures. The

discussion below updates some of that information.

Delinquency

The table below displays the delinquency status of loans and changes in the balance of seriously delinquent loans in our

single-family conventional guaranty book of business, based on the number of loans. Single-family seriously delinquent loans

are loans that are 90 days or more past due or in the foreclosure process.

Delinquency Status and Activity of Single-Family Conventional Loans

As of

September 30, 

 2019

December 31,

2018

September 30, 

 2018

Delinquency status:

30 to 59 days delinquent 1.28% 1.37% 1.52%

60 to 89 days delinquent 0.35 0.38 0.37

Seriously delinquent (ÇSDQÉ) 0.68 0.76 0.82

Percentage of SDQ loans that have been delinquent for more than

180 days 50% 49% 53%

Percentage of SDQ loans that have been delinquent for more than

two years 11 12 13

For the Nine Months

Ended September 30,

2019 2018

Single-family SDQ loans (number of loans):

Beginning balance 130,440 212,183

Additions 150,288 171,516

Removals:

Modifications and other loan workouts (35,242) (83,567)

Liquidations and sales (39,066) (58,912)

Cured or less than 90 days delinquent (91,255) (101,524)

Total removals (165,563) (244,003)

Ending balance 115,165 139,696

Our single-family serious delinquency rate decreased as of September 30, 2019 compared with December 31, 2018 and

September 30, 2018. The decrease in our single-family serious delinquency rate in the first nine months of 2019 was primarily

driven by improved loan payment performance and the sale of nonperforming loans. The decline through the first nine months

of 2018 was driven primarily by delinquent borrowers in the regions affected by Hurricanes Harvey, Irma and Maria

(collectively, the Ç2017 hurricanesÉ) continuing to resolve their loan delinquencies.

Certain higher-risk loan categories, such as Alt-A loans, loans with mark-to-market LTV ratios greater than 100%, and our

2005 through 2008 loan vintages, continue to exhibit higher-than-average delinquency rates and/or account for a higher share

of our credit losses. Single-family loans originated in 2005 through 2008 constituted 4% of our single-family book of business

as of September 30, 2019, but constituted 36% of our seriously delinquent single-family loans as of September 30, 2019 and

drove 64% of our single-family credit losses in the first nine months of 2019. In addition, loans in certain judicial foreclosure

states such as Florida, New Jersey and New York with historically long foreclosure timelines have exhibited higher-thanaverage delinquency rates and/or account for a higher share of our credit losses. 

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 35
The table below displays the serious delinquency rates for, and the percentage of our total seriously delinquent single-family

conventional loans represented by, the specified loan categories. 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

conventional guaranty book of business for which we have detailed loan-level information. We also include information for our

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

reported categories are not mutually exclusive.

Single-Family Conventional Seriously Delinquent Loan Concentration Analysis

As of

September 30, 2019 December 31, 2018 September 30, 2018

Percentage

of Book

Outstanding

Percentage

of Seriously

Delinquent

Loans(1)

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Percentage

of Seriously

Delinquent

Loans(1)

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Percentage

of Seriously

Delinquent

Loans(1)

Serious

Delinquency

Rate

States:

California 19% 7% 0.32% 19% 6% 0.34% 19% 6% 0.34%

Florida 6 8 0.87 6 10 1.16 6 12 1.51

New Jersey 3 5 1.21 4 5 1.38 4 6 1.51

New York 5 8 1.24 5 8 1.40 5 8 1.55

All other states 67 72 0.67 66 71 0.75 66 68 0.77

Product type:

Alt-A(2) 2 10 3.09 2 11 3.35 2 12 3.68

Vintages:

2004 and prior 2 21 2.53 3 23 2.69 3 23 2.77

2005-2008 4 36 4.24 5 39 4.61 5 41 4.90

2009-2019 94 43 0.33 92 38 0.34 92 36 0.34

Estimated mark-tomarket LTV ratio:

<= 60% 55 52 0.54 54 48 0.58 56 47 0.61

60.01% to 70% 17 17 0.81 18 17 0.87 18 17 0.91

70.01% to 80% 16 14 0.79 16 14 0.90 15 15 0.99

80.01% to 90% 8 9 1.04 8 10 1.24 7 10 1.38

90.01% to 100% 4 4 0.97 4 5 1.33 3 5 1.74

Greater than 100% * 4 10.62 * 6 9.85 1 6 10.65

Credit enhanced:(3)

Primary MI & other(4) 22 26 0.97 21 26 1.11 21 25 1.19

Credit risk transfer(5) 41 13 0.27 39 10 0.24 38 8 0.23

Non-credit enhanced 51 67 0.75 53 69 0.85 55 70 0.90

* Represents less than 0.5% of single-family conventional business volume or book of business.

(1) Calculated based on the number of single-family loans that were seriously delinquent for each category divided by the total number of

single-family conventional loans that were seriously delinquent.

(2) For a description of our Alt-A loan classification criteria, see ÇMD&AÑGlossary of Terms Used in this ReportÉ in our 2018 Form 10-K. 

(3) The credit-enhanced categories are not mutually exclusive. A loan with primary mortgage insurance that is also covered by a credit risk

transfer transaction will be included in both the ÇPrimary MI & otherÉ category and the ÇCredit risk transferÉ category. As a result, the ÇCredit

enhancedÉ and ÇNon-credit enhancedÉ categories do not sum to 100%. The total percentage of our single-family conventional guaranty

book of business with some form of credit enhancement as of September 30, 2019 was 49%. 

(4) Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit,

corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to some degree in the

event of a financial loss. Excludes loans covered by credit risk transfer transactions unless such loans are also covered by primary

mortgage insurance.

(5) Refers to loans included in reference pools for credit risk transfer transactions, including loans in these transactions that are also covered

by primary mortgage insurance. For CAS and some lender risk-sharing transactions, this represents outstanding unpaid principal balance

of the underlying loans on the single-family mortgage credit book, not the outstanding reference pool, as of the specified date. Loans

included in our credit risk transfer transactions have all been acquired since 2012. Newer vintages typically have significantly lower

delinquency rates than more seasoned loans.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 36
Loan Workout Metrics

Our loan workouts reflect:

Ü our home retention solutions, including loan modifications, repayment plans and forbearances; and

Ü foreclosure alternatives, including short sales and deeds-in-lieu of foreclosure.

The chart below displays the unpaid principal balance of our completed single-family loan workouts by type for the first nine

months of 2018 compared with the first nine months of 2019, as well as the number of loan workouts for each period.

Loan Workout Activity 

(Dollars in billions)

Home retention solutionsá Foreclosure alternativesà

Number of loan workouts (in thousands)

YTD 2018 YTD 2019

$14.9

$6.7

$0.9

$15.8

$0.5

$7.2

98.6

44.1

(1) Consists of loan modifications and completed repayment plans and forbearances. Repayment plans reflect only those plans associated

with loans that were 60 days or more delinquent. Forbearances reflect loans that were 90 days or more delinquent. Excludes trial

modifications, loans to certain borrowers who have received bankruptcy relief that are classified as troubled debt restructurings, and

repayment and forbearance plans that have been initiated but not completed. There were approximately 13,200 loans in a trial modification

period as of September 30, 2019.

(2) Consists of short sales and deeds-in-lieu of foreclosure.

The decrease in home retention solutions in the first nine months of 2019 compared with the first nine months of 2018 was

primarily driven by improved loan performance and a decrease in the volume of modifications and forbearances granted,

which was elevated in 2018 due to the number of borrowers affected by the 2017 hurricanes.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 37
REO Management

If a loan defaults, we acquire the home through foreclosure or a deed-in-lieu of foreclosure. The table below displays our

foreclosure activity by region. Regional REO acquisition trends generally follow a pattern that is similar to, but lags, that of

regional delinquency trends.

Single-Family REO Properties

For the Nine Months

Ended September 30,

2019 2018

Single-family REO properties (number of properties):

Beginning of period inventory of single-family REO properties(1) 20,156 26,311

Acquisitions by geographic area:(2)

Midwest 3,734 4,675

Northeast 3,858 5,023

Southeast 5,001 6,190

Southwest 2,256 2,864

West 1,334 1,518

Total REO acquisitions(1) 16,183 20,270

Dispositions of REO (18,468) (25,549)

End of period inventory of single-family REO properties(1) 17,871 21,032

Carrying value of single-family REO properties (dollars in millions) $ 2,349 $ 2,606

Single-family foreclosure rate(3) 0.13 % 0.16 %

REO net sales price to unpaid principal balance(4) 78 % 77 %

Short sales net sales price to unpaid principal balance(5) 78 % 77 %

(1) Includes acquisitions through foreclosure and deeds-in-lieu of foreclosure. Also includes held-for-use properties, which are reported in our

condensed consolidated balance sheets as a component of ÇOther assets.É 

(2) See footnote 8 to the ÇKey Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of BusinessÉ table for

states included in each geographic region.

(3) Estimated based on the annualized total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage

of the total number of loans in our single-family conventional guaranty book of business as of the end of each period.

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

subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at

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

seller at closing. 

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

the aggregate unpaid principal balance of the related loans. Net sales price includes borrower relocation incentive payments and

subordinate lien(s) negotiated payoffs. 

Single-family REO properties declined in the first nine months of 2019 compared with the first nine months of 2018 primarily

due to a reduction in REO acquisitions from serious delinquencies aged greater than 180 days, driven by improved loan

performance and nonperforming loan sales.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 38

Other Single-Family Credit Information

Single-Family Credit Loss Performance Metrics

The amount of credit loss or income we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity,

mortgage loan redesignations and charge-offs, net of recoveries. The table below displays the components of our single-family

credit loss performance metrics, as well as our single-family initial charge-off severity rate. 

Our credit loss performance metrics are not defined terms within generally accepted accounting principles in the United States

of America (ÇGAAPÉ) and may not be calculated in the same manner as similarly titled measures reported by other companies.

We believe these credit loss performance metrics may be useful to investors because they are presented as a percentage of

our guaranty book of business and have historically been used by analysts, investors and other companies within the financial

services industry.
Single-Family Credit Loss Performance Metrics

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2019 2018 2019 2018

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of

recoveries $ (255) 3.5 bps $ (430) 5.8 bps $(1,115) 5.1 bps $(1,473) 6.7 bps

Foreclosed property

expense (93) 1.3 (150) 2.1 (362) 1.7 (448) 2.0

Credit losses and

credit loss ratio $ (348) 4.8 bps $ (580) 7.9 bps $(1,477) 6.8 bps $(1,921) 8.7 bps

Single-family initial

charge-off severity

rate(2) 7.43 % 10.34 % 8.11 % 11.56 %

(1) Basis points are calculated based on the amount of each line item divided by the average single-family conventional guaranty book of

business during the period.

(2) Credit losses on single-familyÄloans initially charged off during the period divided by the average defaulted unpaid principal balance of

those loans. The initial charge-off event is defined as the earliest of (1) when the loan is charged off pursuant to the provisions of the

Advisory Bulletin, or (2) when there is a short sale, deed-in-lieu of foreclosure, or foreclosure of the underlying collateral. This severity rate

does not reflect any gains or losses associated with subsequent events, such as REO transactions that occur after we acquire the

property.

Our single-family credit losses and credit loss ratio decreased in the third quarter and first nine months of 2019 compared with

the third quarter and first nine months of 2018 primarily due to reduced foreclosures and foreclosure alternatives, lower

charge-off expenses on the loans we redesignated from HFI to HFS, and lower charge-off severity rates due to continued

home price appreciation.

For information on our credit-related income or expense, which includes changes in our allowance, see ÇSingle-Family

Financial Results.É

Single-Family Loss Reserves

Our single-family loss reserves, which include our allowance for loan losses and reserve for guaranty losses, provide for an

estimate of credit losses incurred in our single-family guaranty book of business, including concessions we granted borrowers

upon modification of their loans. The table below summarizes the changes in our single-family loss reserves. 

Single-Family Loss Reserves

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2019 2018 2019 2018

(Dollars in millions)

Changes in loss reserves:

Beginning balance $ (11,239) $ (16,638) $ (14,007) $ (19,155)

Benefit for credit losses 1,840 732 3,753 2,223

Charge-offs 274 514 1,221 1,728

Recoveries (19) (84) (106) (255)

Other (1) (2) (6) (19)

Ending balance $ (9,145) $ (15,478) $ (9,145) $ (15,478)

As of

September 30,

2019

December 31,

2018

Loss reserves as a percentage of:

Single-family guaranty book of business 0.31% 0.49%

Recorded investment in nonaccrual loans 31.48 44.24

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 39
Troubled Debt Restructurings and Nonaccrual Loans

The table below displays the single-family loans classified as TDRs that were on accrual status and single-family loans on

nonaccrual status. The table includes our recorded investment in HFI and HFS single-family mortgage loans. For information

on the impact of TDRs and other individually impaired loans on our allowance for loan losses, see ÇNote 3, Mortgage Loans.É

Single-Family TDRs on Accrual Status and Nonaccrual Loans

As of

September 30,

2019

December 31,

2018

(Dollars in millions)

TDRs on accrual status $ 89,083 $ 98,320

Nonaccrual loans 29,051 31,658

Total TDRs on accrual status and nonaccrual loans $ 118,134 $ 129,978

Accruing on-balance sheet loans past due 90Ädays or more(1) $ 198 $ 228

For the Nine Months Ended

September 30,

2019 2018

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:

Interest income forgone(2) $ 1,280 $ 1,680

Interest income recognized(3) 3,614 4,141

(1) Includes loans that, as of the end of each period, are 90Ädays or more past due and continuing to accrue interest. The majority of these

amounts consist of loans insured or guaranteed by the U.S. government and loans for which we have recourse against the seller in the

event of a default.

(2) Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and

TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.

(3) Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual loans.

MD&A | Single-Family Business

Fannie Mae Third Quarter 2019 Form 10-Q 40

Multifamily Business

Our Multifamily business provides mortgage market liquidity primarily for properties with five or more residential units, which

may be apartment communities, cooperative properties, seniors housing, dedicated student housing or manufactured housing

communities.

This section supplements and updates information regarding our Multifamily business segment in our 2018 Form 10-K. See

ÇMD&AÑMultifamily BusinessÉ in our 2018 Form 10-K for additional information regarding the primary business activities,

customers, competition and market share of our Multifamily business.

Presentation of our multifamily guaranty book of business

For purposes of the information reported in this ÇMultifamily BusinessÉ section, we measure our multifamily guaranty book of

business by using the unpaid principal balance of mortgage loans underlying Fannie Mae MBS. By contrast, the multifamily

guaranty book of business presented in the ÇComposition of Fannie Mae Guaranty Book of BusinessÉ table in the ÇGuaranty

Book of BusinessÉ section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather than the

unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive

on underlying loans that have not yet been remitted to the MBS holders. As measured for purposes of the information reported

below, the unpaid principal balance of our multifamily guaranty book of business was $329.6 billion as of September 30, 2019

and $305.9 billion as of December 31, 2018.

Multifamily Mortgage Market

National multifamily market fundamentals, which include factors such as vacancy rates and rents, remained steady during the

third quarter of 2019, most likely due to ongoing job growth, favorable demographic trends, and renter household formations. 

Ñ Vacancy rates. Based on preliminary third-party data, the national multifamily vacancy rate for institutional

investment-type apartment properties is estimated to have remained at 5.3% at September 30, 2019, which was the

same as of June 30, 2019. 

Ü Rents. Effective rents are estimated to have increased during the third quarter of 2019, with national asking rents

increasing by an estimated 0.8% in the third quarter of 2019, compared with 1.0% during the second quarter of 2019. 
Continued demand for multifamily rental units during the third quarter of 2019 was reflected in the estimated positive net

absorption (that is, the net change in the number of occupied rental units during the time period) of approximately 33,000 units,

according to data from Reis, Inc., compared with approximately 49,000 units during the second quarter of 2019. 

Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from the cash flows

generated by the underlying property. Several years of improvement in these fundamentals have helped to increase property

values in most metropolitan areas. It is estimated that approximately 424,000 new multifamily units will be completed in 2019.

The bulk of this new supply is concentrated in a limited number of metropolitan areas. Although multifamily fundamentals

remain positive, we believe increasing supply will result in a continuing slowdown in national net absorption rates and effective

rents for the remainder of 2019 compared with recent years.

MD&A | Multifamily Business

Fannie Mae Third Quarter 2019 Form 10-Q 41

Multifamily Business Metrics

Through the secondary mortgage market, we support rental housing for the workforce population, for senior citizens and

students and for families with the greatest economic need. Over 90% of the multifamily units we financed in the third quarter of

2019 were affordable to families earning at or below 120% of the median income in their area, providing support for both

workforce housing and affordable housing. 

Multifamily New Business Volume

(Dollars in billions)

Multifamily new business volumeá Multifamily units financed from new business volume

Q3 2018 Q3 2019 YTD 2018 YTD 2019

$18.2 $18.0

$44.0

$52.1

206,000 194,000

548,000 548,000

(1) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued, multifamily loans purchased, and credit enhancements provided

on multifamily mortgage assets during the period.

FHFAÖs 2019 conservatorship scorecard included an objective to maintain the dollar volume of new multifamily business at or

below $35 billion for the year, excluding certain targeted affordable and underserved market business segments such as loans

financing energy or water efficiency improvements. Approximately 44% of our multifamily new business volume of $52.1 billion

for the first nine months of 2019 counted toward FHFAÖs 2019 multifamily volume cap. On September 13, 2019, FHFA

announced a revised multifamily business volume cap structure. The new multifamily volume cap, which replaced the prior cap

effective October 1, 2019, is $100 billion for the five-quarter period ending December 31, 2020. The new cap applies with no

exclusions. In addition, FHFA directed that 37.5% of our multifamily business during that time period must be mission-driven,

affordable housing, pursuant to FHFAÖs guidelines for mission-driven loans.
Multifamily Business Financial Results

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 Variance 2019 2018 Variance

(Dollars in millions)

Net interest income $ 745 $ 699 $ 46 $ 2,170 $ 2,024 $ 146

Fee and other income 246 192 54 525 524 1

Net revenues 991 891 100 2,695 2,548 147

Fair value gains (losses), net 6 (31) 37 66 (69) 135

Administrative expenses (115) (104) (11) (338) (317) (21)

Credit-related income (expense)(1) 14 (25) 39 (23) (6) (17)

Other expenses, net(2) (92) (75) (17) (197) (209) 12

Income before federal income taxes 804 656 148 2,203 1,947 256

Provision for federal income taxes (164) (107) (57) (427) (314) (113)

Net income $ 640 $ 549 $ 91 $ 1,776 $ 1,633 $ 143

(1) Consists of the benefit or provision for credit losses and foreclosed property income or expense.

(2) Consists of investment gains, gains or losses from partnership investments and other income or expenses.

Net interest income

Multifamily net interest income is primarily driven by guaranty fee income. Guaranty fee income increased in the third quarter

and first nine months of 2019 as compared with the third quarter and first nine months of 2018 as a result of growth in our

multifamily guaranty book of business, partially offset by a decrease in charged guaranty fees on the guaranty book.

Average multifamily guaranty book of businessá (dollars in billions)

Average charged guaranty fee rate on multifamily guaranty book of business (in basis

points), at end of period

Q3 2018 Q3 2019

$291.8

$326.1

77.0

71.9

(1) Our multifamily guaranty book of business consists of multifamily mortgage loans underlying Fannie Mae MBS outstanding, multifamily

mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on multifamily

mortgage assets. It excludes non-Fannie Mae multifamily mortgage-related securities held in our retained mortgage portfolio for which we

do not provide a guaranty.

Our average charged guaranty fee has trended downward from 2018 to 2019, driven by competitive market pressure on

guaranty fees charged on newly acquired multifamily loans and liquidations of loans with higher guaranty fees.

Fee and other income

Fee and other income in all periods presented was primarily driven by yield maintenance fees resulting from prepayment

activity.

MD&A | Multifamily Business

Fannie Mae Third Quarter 2019 Form 10-Q 42
Fair value gains (losses), net

Depending on portfolio activity, our Multifamily business may be in a net buy or net sell position during any given period. Fair

value gains in the first nine months of 2019 were primarily driven by gains on commitments to buy multifamily mortgagerelated securities as a result of increases in prices as interest rates declined during the commitment periods.

Fair value losses in the third quarter and first nine months of 2018 were primarily driven by losses on commitments to buy

multifamily mortgage-related securities as a result of decreases in prices as interest rates rose during the commitment periods.

MD&A | Multifamily Business

Fannie Mae Third Quarter 2019 Form 10-Q 43

Multifamily Mortgage Credit Risk Management

This section updates our discussion of multifamily mortgage credit risk management in our 2018 Form 10-K in ÇMD&AÑ

Multifamily BusinessÑMultifamily Mortgage Credit Risk Management.É

Multifamily Acquisition Policy and Underwriting Standards 

Our standards for multifamily loans specify maximum original LTV ratio and minimum original debt service coverage ratio

(ÇDSCRÉ) values that vary based on loan characteristics. Our experience has been that original LTV ratio and DSCR values

have been reliable indicators of future credit performance. 

At underwriting, we evaluate the DSCR based on both actual and underwritten debt service payments. Underwritten debt

service payments are based on debt service calculations that include both principal and interest payments. The original DSCR

for the loan is calculated using these underwritten debt service payments rather than the actual debt service payments, which,

depending on the interest rate of the loan and loan structure, may result in a more conservative estimate of the debt service

payments. This approach is used for all loans, including those with full and partial interest-only terms.

The following table displays key risk characteristics of our multifamily guaranty book of business.

Key Risk Characteristics of Multifamily Guaranty Book of Business

As of

September 30, 

 2019

December 31,

2018

September 30, 

 2018

Weighted average original LTV ratio 66 % 66 % 67 %

Original LTV ratio greater than 80% 1 1 1

Original DSCR less than or equal to 1.10 11 12 13

Full interest-only loans 26 24 23

Partial interest-only loans(1) 50 49 48

(1) Consists of mortgage loans that were underwritten with an interest-only term, regardless of whether the loan is currently in its interest-only

period.

We provide additional information on the credit characteristics of our multifamily loans in quarterly financial supplements,

which we submit to the SEC with current reports on Form 8-K. Information in our quarterly financial supplements is not

incorporated by reference into this report. 

Transfer of Multifamily Mortgage Credit Risk

Lender risk-sharing is a cornerstone of our Multifamily business. We primarily transfer risk through our Delegated Underwriting

and Servicing (ÇDUSãÉ) program, which delegates to DUS lenders the ability to underwrite and service multifamily loans, in

accordance with our standards and requirements. DUS lenders receive credit risk-related revenues for their respective portion

of credit risk retained, and, in turn, are required to fulfill any loss sharing obligation. This aligns the interests of the lender and

Fannie Mae throughout the life of the loan.

Our DUS model typically results in our lenders sharing on a pro-rata or tiered basis approximately one-third of the credit risk

on our multifamily loans. In the first nine months of 2019, nearly 100% of our new multifamily business volume had lender risksharing. As of September 30, 2019 and December 31, 2018, 98% of the unpaid principal balance of loans in our multifamily

guaranty book of business had lender risk-sharing. 

To complement our lender risk-sharing program through our DUS model, we engage in multifamily CIRT transactions, pursuant

to which we transfer a portion of the mortgage credit risk on multifamily loans in our multifamily guaranty book of business to

insurers or reinsurers. As of September 30, 2019, we have completed six multifamily CIRT transactions since the inception of

the program, which covered multifamily loans with an unpaid principal balance of approximately $62.0 billion at the time of the

transactions. As of September 30, 2019, 18% of the loans in our multifamily guaranty book of business, measured by unpaid

principal balance, were covered by a CIRT transaction. We continue to support the growth of the credit risk transfer market

and expand the types of loans covered in our credit risk transfer programs.
Multifamily Portfolio Diversification and Monitoring

Diversification within our multifamily book of business by geographic concentration, term to maturity, interest rate structure,

borrower concentration, loan size and credit enhancement coverage, are important factors that influence credit performance

and help reduce our credit risk. 

As part of our ongoing credit risk management process, we and our lenders monitor the performance of our multifamily loans

and the underlying properties on an ongoing basis throughout the loan term at the asset and portfolio level. We require lenders

to provide quarterly and annual financial updates for the loans for which we are contractually entitled to receive such

information. 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, calculated based on unpaid principal balance, with

a current DSCR less than 1.0 was approximately 2% as of September 30, 2019 and December 31, 2018. Our estimates of

current DSCRs are based on the latest available income information for these properties and exclude co-op loans. Although

we use the most recently available results from our multifamily borrowers, there is a lag in reporting, which typically can range

from three to six months, but in some cases may be longer. 

In addition to the factors discussed above, we track the following credit risk characteristics to determine loan credit quality

indicators, which are the internal risk categories we use and which are further discussed in ÇNote 3, Mortgage LoansÉ:

Ü the physical condition of the property;

Ü delinquency status;

Ü the relevant local market and economic conditions that may signal changing risk or return profiles; and

Ü other risk factors.

The percentage of our multifamily loans categorized as substandard based on these characteristics increased throughout

2018, but decreased as of September 30, 2019 as compared with December 31, 2018 and remains at historically low levels.

Substandard loans are loans that have a well-defined weakness that could impact the timely full repayment. While the vast

majority of the substandard loans in our multifamily guaranty book of business are currently making timely payments, we

continue to monitor the performance of the full substandard loan population. 

MD&A | Multifamily Business

Fannie Mae Third Quarter 2019 Form 10-Q 44

Multifamily Problem Loan Management and Foreclosure Prevention

The multifamily serious delinquency rate was 0.06% as of September 30, 2019 and December 31, 2018 and 0.07% as of

September 30, 2018. We classify multifamily loans as seriously delinquent when payment is 60 days or more past due.

Other Multifamily Credit Information 

Multifamily Credit Loss Performance Metrics

The amount of credit loss or income we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity

and charge-offs, net of recoveries. Our credit loss performance metrics are not defined terms within GAAP and may not be

calculated in the same manner as similarly titled measures reported by other companies. We believe our credit loss

performance metrics may be useful to investors because they have historically been used by analysts, investors and other

companies within the financial services industry.

We had $5 million in multifamily credit losses in the third quarter of 2019 compared with $7 million in the third quarter of 2018.

We had $6 million in multifamily credit losses in the first nine months of 2019 compared with $15 million in the first nine months

of 2018.

Credit losses in the third quarter of 2019 were primarily driven by foreclosed property expenses. Credit losses in the first nine

months of 2019 were primarily driven by charge-off activity in the second quarter.
Multifamily Loss Reserves

The table below summarizes the changes in our multifamily loss reserves, which includes our allowance for loan losses and

our reserve for guaranty losses for multifamily loans.

Multifamily Loss Reserves

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2019 2018 2019 2018

(Dollars in millions)

Changes in loss reserves:

Beginning balance $ (281) $ (218) $ (245) $ (245)

Benefit (provision) for credit losses 17 (16) (21) 6

Charge-offs 3 1 7 6

Recoveries (1) (3) (3) (3)

Ending balance $ (262) $ (236) $ (262) $ (236)

As of

September 30,

2019

December 31,

2018

Loss reserves as a percentage of multifamily guaranty book of business 0.08% 0.08%

MD&A | Multifamily Business

Fannie Mae Third Quarter 2019 Form 10-Q 45

Troubled Debt Restructurings and Nonaccrual Loans

The table below displays the multifamily loans classified as TDRs that were on accrual status and multifamily loans on

nonaccrual status. The table includes our recorded investment in HFI and HFS multifamily mortgage loans. For information on

the impact of TDRs and other individually impaired loans on our allowance for loan losses, see ÇNote 3, Mortgage Loans.É

Multifamily TDRs on Accrual Status and Nonaccrual Loans

As of

September 30,

2019

December 31,

2018

(Dollars in millions)

TDRs on accrual status $ 33 $ 55

Nonaccrual loans 608 492

Total TDRs on accrual status and nonaccrual loans $ 641 $ 547

For the Nine Months Ended

September 30,

2019 2018

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:

Interest income forgone(1) $ 18 $ 20

Interest income recognized(2) 5 2

(1) Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and

TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.

(2) Represents interest income recognized during the period, including the amortization of any deferred cost basis adjustments, for loans

classified as either nonaccrual loans or TDRs on accrual status as of the end of each period. Primarily includes amounts accrued while the

loans were performing.

REO Management

The number of multifamily foreclosed properties held for sale was 16 properties with a carrying value of $88 million as of

September 30, 2019, compared with 16 properties with a carrying value of $81 million as of December 31, 2018.
Liquidity and Capital Management

Liquidity Management

This section supplements and updates information regarding liquidity management in our 2018 Form 10-K. See ÇMD&AÑ

Liquidity and Capital ManagementÑLiquidity ManagementÉ and ÇRisk FactorsÉ in our 2018 Form 10-K for additional

information, including discussions of our primary sources and uses of funds, our liquidity and funding risk management

practices and contingency planning, factors that influence our debt funding activity, factors that may impact our access to or

the cost of our debt funding and factors that could adversely affect our liquidity and funding.

MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2019 Form 10-Q 46

Debt Funding

Outstanding Debt 

Total outstanding debt of Fannie Mae includes short-term and long-term debt and excludes debt of consolidated trusts. Shortterm debt of Fannie Mae consists of borrowings with an original contractual maturity of one year or less and, therefore, does

not include the current portion of long-term debt. Long-term debt of Fannie Mae consists of borrowings with an original

contractual maturity of greater than one year. 

The chart and table below display information on our outstanding short-term and long-term debt based on original contractual

maturity. The increase in our short-term debt from December 31, 2018 to September 30, 2019 was primarily driven by an

increase in our acquisition of mortgage loans through our whole loan conduit as mortgage refinance activity increased during

the third quarter of 2019. The decrease in our long-term debt from December 31, 2018 to September 30, 2019 was primarily

driven by the decline in the size of our retained mortgage portfolio. We did not issue new debt to replace all of our debt that

paid off during the first nine months of 2019. 

Short-term debt

Long-term debt maturing within one

year

Long-term debt, excluding portion

maturing within one year

Debt of Fannie Mae(1)

(Dollars in billions)

12/31/2018 09/30/2019

$24.9

$35.8

$61.6

$53.1

$145.6

$232.1

$124.6

$213.5

Selected Debt Information

As of

December 31,

2018

September 30,

2019

(Dollars in billions)

Selected Weighted-Average Interest

Rates(1)

Interest rate on short-term debt 2.29% 2.04%

Interest rate on long-term debt, including

portion maturing within one year 2.83% 3.14%

Interest rate on callable long-term debt 2.95% 3.39%

Selected Maturity Data

Weighted-average maturity of debt

maturing within one year (in days) 163 110

Weighted-average maturity of debt

maturing in more than one year (in

months) 63 63

Other Data

Outstanding callable long-term debt $ 64.3 $ 45.7

Connecticut Avenue Securities debt(2) $ 25.6 $ 23.0

(1) Outstanding debt amounts and weighted-average interest rates reported in this chart and table include the effects of discounts, premiums,

other cost basis adjustments and fair value gains and losses associated with debt that we elected to carry at fair value. Reported amounts

include unamortized cost basis adjustments and fair value adjustments of $74 million and $432 million as of September 30, 2019 and

December 31, 2018, respectively.
(2) Represents CAS debt issued prior to the implementation of our CAS REMIC structure in November 2018. See ÇMD&AÑSingle-Family

BusinessÑSingle-Family Mortgage Credit Risk ManagementÑSingle-Family Credit Enhancement and Transfer of Mortgage Credit RiskÑ

Credit Risk Transfer TransactionsÉ in our 2018 Form 10-K and in this report for information regarding our Connecticut Avenue Securities.

We intend to repay our short-term and long-term debt obligations as they become due primarily through proceeds from the

issuance of additional debt securities. We also may use proceeds from our mortgage assets to pay our debt obligations.

For more information on the maturity profile of our outstanding long-term debt, see ÇNote 7, Short-Term and Long-Term Debt.É

Debt Funding Activity

The table below displays the activity in debt of Fannie Mae. This activity excludes the debt of consolidated trusts and intraday

loans. 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. The reported amounts of debt issued and paid off during each period represent the face amount of the debt at issuance

and redemption.

The increase in our debt issued and paid off during the third quarter of 2019 compared with the third quarter of 2018 was

primarily driven by an increase in our acquisition of mortgage loans through our whole loan conduit as mortgage refinance

activity increased during the third quarter of 2019. The decrease in debt issued and paid off during the first nine months of

2019 compared with the first nine months of 2018 was primarily driven by the decline in the size of our retained mortgage

portfolio. We did not issue new debt to replace all of our debt that paid off during the first nine months of 2019.

Activity in Debt of Fannie Mae

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

Issued during the period:

Short-term:

Amount $ 161,434 $ 106,520 $ 418,202 $ 446,914

Weighted-average interest rate 2.13% 1.90% 2.27% 1.52%

Long-term:(1)

Amount $ 6,940 $ 6,032 $ 18,335 $ 17,595

Weighted-average interest rate 1.95% 3.26% 2.32% 3.08%

Total issued:

Amount $ 168,374 $ 112,552 $ 436,537 $ 464,509

Weighted-average interest rate 2.12% 1.97% 2.27% 1.58%

Paid off during the period:(2)

Short-term:

Amount $ 147,507 $ 103,256 $ 406,135 $ 451,295

Weighted-average interest rate 1.99% 1.82% 2.11% 1.42%

Long-term:(1)

Amount $ 23,246 $ 12,668 $ 48,156 $ 42,854

Weighted-average interest rate 1.55% 1.62% 1.67% 1.47%

Total paid off:

Amount $ 170,753 $ 115,924 $ 454,291 $ 494,149

Weighted-average interest rate 1.93% 1.79% 2.06% 1.43%

(1) Includes credit risk-sharing securities issued as CAS debt prior to the implementation of our CAS REMIC structure in November 2018. For

information on our credit risk transfer transactions, see ÇMD&AÑSingle Family BusinessÑSingle-Family Mortgage Credit Risk

ManagementÑSingle-Family Credit Enhancement and Transfer of Mortgage Credit RiskÑCredit Risk Transfer TransactionsÉ in our 2018

Form 10-K and in this report.

(2) Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments resulting from calls

and payments for any other repurchases. Repurchases of debt and early retirements of zero-coupon debt are reported at original face

value, which does not equal the amount of actual cash payment.

MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2019 Form 10-Q 47
Other Investments Portfolio

The chart below displays information on the composition of our other investments portfolio. The balance of our other

investments portfolio fluctuates as a result of changes in our cash flows, liquidity in the fixed-income markets, and our liquidity

risk management framework and practices.

Other Investments Portfolio 

(Dollars in billions)

Cash and cash equivalents

Federal funds sold and securities purchased under agreements to resell or similar arrangements

U.S. Treasury securities

12/31/2018 09/30/2019

$25.6 $22.6

$32.9

$23.2

$35.5

$94.0

$36.0

$81.8

MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2019 Form 10-Q 48

Cash Flows

Nine Months Ended September 30, 2019. Cash, cash equivalents and restricted cash increased from $49.4 billion as of

December 31, 2018 to $64.5 billion as of September 30, 2019. The increase was primarily driven by cash inflows from (1)

proceeds from repayments and sales of loans, (2) the sale of Fannie Mae MBS to third parties, and (3) the net decrease in

federal funds sold and securities purchased under agreements to resell or similar agreements. 

Partially offsetting these cash inflows were cash outflows primarily from (1) payments on outstanding debt of consolidated

trusts, (2) purchases of loans held for investment, and (3) the redemption of funding debt, which outpaced issuances, due to

lower funding needs.

Nine Months Ended September 30, 2018. Cash, cash equivalents and restricted cash decreased from $60.3 billion as of

December 31, 2017 to $51.0 billion as of September 30, 2018. The decrease was primarily driven by cash outflows from (1)

the redemption of funding debt, which outpaced issuances, due to lower funding needs, (2) the purchase of Fannie Mae MBS

from third parties, and (3) the acquisition of delinquent loans out of MBS trusts.

Partially offsetting these cash outflows were cash inflows from, among other things, (1) the sale of Fannie Mae MBS to third

parties and (2)Äproceeds from repayments and sales of loans of Fannie Mae. 

Credit Ratings

As of September 30, 2019, our credit ratings have not changed since we filed our 2018 Form 10-K. For information on our

credit ratings, see ÇMD&AÑLiquidity and Capital ManagementÑLiquidity ManagementÑCredit RatingsÉ in our 2018 Form 10-

K.

Capital Management

Regulatory Capital

The deficit of our core capital over statutory minimum capital was $133.8 billion as of September 30, 2019 and $137.1 billion

as of December 31, 2018. For information on our current and proposed capital requirements, see ÇBusinessÑCharter Act and
RegulationÑGSE Act and Other RegulationÉ and ÇNote 12, Regulatory Capital RequirementsÉ in our 2018 Form 10-K and

ÇLegislation and RegulationÑHousing Finance ReformÉ in this report.

MD&A | Liquidity and Capital Management

Fannie Mae Third Quarter 2019 Form 10-Q 49

Capital Activity

Under the modified dividend provisions of the senior preferred stock described in ÇLegislation and RegulationÑLetter

Agreement with Treasury,É effective with the third quarter 2019 dividend period, we are not required to pay further dividends to

Treasury until we have accumulated over $25 billion in net worth. Accordingly, no dividends were payable to Treasury for the

third quarter of 2019 and none are payable for the fourth quarter of 2019. As of September 30, 2019, our net worth was $10.3

billion.

Under the modified liquidation preference provisions of the senior preferred stock described in ÇLegislation and RegulationÑ

Letter Agreement with Treasury,É the aggregate liquidation preference of the senior preferred stock increased from $123.8

billion as of June 30, 2019 to $127.2 billion as of September 30, 2019, and will further increase to $131.2 billion as of

December 31, 2019.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements result primarily from the following: 

Ü our guaranty of mortgage loan securitization and resecuritization transactions, and other guaranty commitments, over

which we do not have control; 

Ü liquidity support transactions; and 

Ü partnership interests. 

Since we began issuing UMBS in June 2019, some of the securities we issue are structured securities backed, in whole or in

part, by Freddie Mac securities. When we issue a structured security, we provide a guaranty that we will supplement amounts

received from the underlying mortgage-related security as required to permit timely payment of principal and interest on the

certificates related to the resecuritization trust. Accordingly, when we issue structured securities backed in whole or in part by

Freddie Mac securities, we extend our guaranty to the underlying Freddie Mac security included in the structured security. Our

issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet

exposure as we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power

to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which

constitute control of these securitization trusts, we do not consolidate these trusts in our condensed consolidated balance

sheet, giving rise to off-balance sheet exposure. 

The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest

that we retain, and other financial guarantees was $48.5 billion as of September 30, 2019. Approximately $23.0 billion of this

amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers.

Additionally, off-balance sheet exposure includes approximately $5.9 billion of the unpaid principal balance of Freddie Mac

securities backing Fannie Mae-issued REMICs; however, a portion of these Freddie Mac securities may be backed in whole or

in part by Fannie Mae MBS. Therefore, our total exposure to Freddie Mac securities included in Fannie Mae REMIC collateral

may be lower. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured

securities backed by Freddie Mac securities in the future. The total amount of our off-balance sheet exposure related to

unconsolidated Fannie Mae MBS and other financial guarantees was $21.1 billion as of December 31, 2018. We did not have

any Freddie Mac-issued UMBS backing Fannie Mae structured securities as of December 31, 2018.

We also have off-balance sheet exposure to losses from liquidity support transactions and partnership interests.

Ü Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing revenue

bonds totaled $7.4 billion as of September 30, 2019 and $8.3 billion as of December 31, 2018. These commitments

require us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are

unable to be remarketed. We hold cash and cash equivalents in our other investments portfolio in excess of these

commitments to advance funds.

Ü We make investments in various limited partnerships and similar legal entities, which consist of low-income housing

tax credit investments, community investments and other entities. When we do not have a controlling financial

interest in those entities, our condensed consolidated balance sheets reflect only our investment rather than the full

amount of the partnershipÖs assets and liabilities. 
Risk Management

Our business activities expose us to the following major categories of risk: credit risk (including mortgage credit risk and

institutional counterparty credit risk), market risk (including interest rate risk), liquidity and funding risk, and operational risk

(including cyber/information security risk, third-party risk and model risk), as well as strategic risk, compliance risk and

reputational risk. See ÇMD&AÑRisk ManagementÉ in our 2018 Form 10-K for a discussion of our management of these risks.

This section supplements and updates that discussion but does not repeat all of the risk management categories described in

our 2018 Form 10-K.

MD&A | Risk Management

Fannie Mae Third Quarter 2019 Form 10-Q 50

Institutional Counterparty Credit Risk Management

This section supplements and updates our discussion of institutional counterparty credit risk management in our 2018 Form

10-K. See ÇMD&AÑRisk ManagementÑInstitutional Counterparty Credit Risk ManagementÉ and ÇRisk FactorsÑCredit RiskÉ

in our 2018 Form 10-K for additional information, including our exposure to institutional counterparty credit risk and our

strategy for managing this risk.

Counterparty Credit Risk Exposure arising from the Resecuritization of Freddie

Mac-issued Securities

We began resecuritizing Freddie Mac-issued securities in connection with the implementation of the Single Security Initiative in

June 2019, which has increased our credit risk exposure and operational risk exposure to Freddie Mac, and our risk exposure

to Freddie Mac is expected to increase as we issue more structured securities backed by Freddie Mac securities going

forward. Our inclusion of Freddie Mac securities as collateral for the structured securities that we issue increases our

counterparty credit risk exposure to Freddie Mac. In the event Freddie Mac were to fail (for credit or operational reasons) to

make a payment on a payment date on Freddie Mac securities that we had resecuritized in a Fannie Mae-issued structured

security, we would be responsible for making the entire payment on the Freddie Mac securities included in that structured

security in order to make payments on any of our outstanding single-family Fannie Mae MBS to be paid on that payment date.

Accordingly, as the amount of structured securities we issue that are backed by Freddie Mac securities grows, if Freddie Mac

were to fail to meet its obligations to us under the terms of these securities, it could have a material adverse effect on our

earnings and financial condition. We believe the risk of default by Freddie Mac is negligible because of the funding

commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury.

As of September 30, 2019, approximately $28.9 billion in Freddie Mac securities were backing Fannie Mae-issued structured

securities. We had no such transactions or activity in 2018. See ÇUniform Mortgage-Backed SecuritiesÉ and ÇRisk FactorsÉ in

this report for more information on UMBS and the risks associated with the Single Security Initiative. 

Market Risk Management, Including Interest Rate Risk Management

This section supplements and updates information regarding market risk management in our 2018 Form 10-K. See ÇMD&AÑ

Risk ManagementÑMarket Risk Management, Including Interest Rate Risk ManagementÉ and ÇRisk FactorsÉ in our 2018

Form 10-K for additional information, including our sources of interest rate risk exposure, business risks posed by changes in

interest rates, and our strategy for managing interest rate risk. 

Measurement of Interest Rate Risk

The table below displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the

slope of the yield curve as measured on the last day of each period presented. The table below also provides the daily

average, minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on

the net portfolio to changes in the level of interest rates and the slope of the yield curve for the three months ended September

30, 2019 and 2018. 

For information on how we measure our interest rate risk, see our 2018 Form 10-K in ÇMD&AÑRisk ManagementÑMarket

Risk Management, Including Interest Rate Risk Management.É
Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level

and Slope of Yield Curve

As of (1)(2)

September 30, 2019 December 31, 2018

(Dollars in millions)

Rate level shock:

-100Äbasis points $ 99 $ (286)

-50Äbasis points 24 (119)

+50 basis points 38 48

+100 basis points 124 29

Rate slope shock:

-25Äbasis points (flattening) (13) (7)

+25 basis points (steepening) 12 6

For the Three Months Ended September 30,(1)(3)

2019 2018

Duration

Gap

Rate Slope

Shock 25 bps

Rate Level

Shock 50 bps

Duration

Gap

Rate Slope

Shock 25 bps

Rate Level

Shock 50 bps

Market Value Sensitivity Market Value Sensitivity

(In years) (Dollars in millions) (In years) (Dollars in millions)

Average 0.01 $ (8) $ (24) 0.01 $ (13) $ (51)

Minimum (0.09) (21) (100) (0.01) (22) (119)

Maximum 0.09 (2) 26 0.07 (1) (30)

Standard deviation 0.04 6 28 0.02 6 17

(1) Computed based on changes in U.S. LIBOR interest rates swap curve. Changes in the level of interest rates assume a parallel shift in all

maturities of the U.S. LIBOR interest rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of

16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for

remaining maturity points are interpolated.

(2) Measured on the last business day of each period presented. 

(3) Computed based on daily values during the period presented.

The market value sensitivity of our net portfolio varies across a range of interest rate shocks depending upon the duration and

convexity profile of our net portfolio. Because the effective duration gap of our net portfolio was close to zero years in the

periods presented, the convexity exposure was the primary driver of the market value sensitivity of our net portfolio as of

September 30, 2019. In addition, the convexity exposure may result in similar market value sensitivities for positive and

negative interest rate shocks of the same magnitude.

We use derivatives to help manage the residual interest rate risk exposure between our assets and liabilities. Derivatives have

enabled us to keep our interest rate risk exposure at consistently low levels in a wide range of interest-rate environments. The

table below displays an example of how derivatives impacted the net market value exposure for a 50 basis point parallel

interest rate shock.

Derivative Impact on Interest Rate Risk (50 Basis Points)

As of (1)

September 30, 2019 December 31, 2018

(Dollars in millions)

Before derivatives $ (201) $ (535)

After derivatives 38 48

Effect of derivatives 239 583

(1) Measured on the last business day of each period presented.

MD&A | Risk Management

Fannie Mae Third Quarter 2019 Form 10-Q 51
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 our 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 ÇNote 1, Summary of Significant Accounting PoliciesÉ in this report and in our 2018 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. We previously identified our fair value measurement as a critical accounting

estimate due to the subjectivity of the unobservable inputs used to measure Level 3 assets and liabilities recorded at fair

value. However, because the amount of Level 3 assets and liabilities that we report at fair value has continued to decline,

using reasonably different estimates and assumptions in valuing these assets and liabilities would not have a material impact

on our reported results of operations or financial condition. Consequently, we no longer consider our fair value measurement a

critical accounting estimate.

We continue to identify the allowance for loan losses as critical because it involves 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. See ÇMD&AÑCritical Accounting Policies

and EstimatesÉ in our 2018 Form 10-K for more discussion of our allowance for loan losses. See ÇRisk FactorsÉ in our 2018

Form 10-K for a discussion of the risks associated with the need for management to make judgments and estimates in

applying our accounting policies and methods.

MD&A | Critical Accounting Policies and Estimates

Fannie Mae Third Quarter 2019 Form 10-Q 52

Impact of Future Adoption of New Accounting Guidance

We identify and discuss the expected impact on our condensed consolidated financial statements of recently issued

accounting guidance in ÇNote 1, Summary of Significant Accounting Policies.É

Forward-Looking Statements

This report includes statements that constitute forward-looking statements within the meaning of SectionÄ21E of the Securities

Exchange Act of 1934 (the ÇExchange ActÉ). In addition, we and our senior management may from time to time make forwardlooking statements in our other filings with the SEC, our other publicly available written statements, and orally to analysts,

investors, the news media and others. Forward-looking statements often include words such as Çexpect,É Çanticipate,É Çintend,É

Çplan,É Çbelieve,É Çseek,É Çestimate,É Çforecast,É Çproject,É Çwould,É Çshould,É Çcould,É Çlikely,É Çmay,É ÇwillÉ or similar words.

Examples of forward-looking statements in this report include, among others, statements relating to our expectations regarding

the following matters:

Ü factors that will affect our future net worth;

Ü our future financial condition and results of operations, and the factors that will affect them;

Ü factors that will affect our long-term financial performance;

Ü trends and the impact of fluctuations in our acquisition volumes, market share, guaranty fees, or acquisition credit

characteristics;

Ü our business plans and strategies and the impact of such plans and strategies; 

Ü continued consideration of housing finance reform by the Administration, FHFA and Congress, including the

recommended administrative and legislative reforms in the Treasury plan, efforts and plans to implement such

reforms; and the impact of housing finance reform on our conservatorship, our structure, our role in the secondary

mortgage market, our capitalization, our business and our competitive environment;

Ü our dividend payments to Treasury and the liquidation preference of the senior preferred stock; 

Ü volatility in our future financial results and efforts we may make to address volatility; 

Ü the size or composition of our retained mortgage portfolio;

Ü the impact of legislation and regulation on our business or financial results;

Ü our payments to HUD and Treasury funds under the GSE Act;

Ü our plans relating to and the effects of our credit risk transfer transactions;

Ü factors that could affect or mitigate our credit risk exposure;
Ü mortgage market and economic conditions (including home price appreciation rates) and the impact of such

conditions on our business or financial results;

Ü the effects on our business, risk profile and financial condition of our issuance of UMBS and of structured securities

backed by Freddie Mac-issued UMBS, including the level and impact of our credit and operational risk exposure to

Freddie Mac;

Ü the risks to our business;

Ü our loan acquisitions, the credit risk profile of such acquisitions, and the factors that will affect them; 

Ü our response to legal and regulatory proceedings and their impact on our business or financial condition; and

Ü the impact of our adoption of the CECL standard on our financial condition and results of operations.

Forward-looking statements reflect our managementÖs current expectations, forecasts or predictions of future conditions,

events or results based on various assumptions and managementÖs estimates of trends and economic factors in the markets

in which we are active and that otherwise impact our business plans. Forward-looking statements are not guaranties of future

performance. By their nature, forward-looking statements are subject to significant risks and uncertainties and changes in

circumstances. 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

our forward-looking statements, including, among others, the following: 

Ü the uncertainty of our future; 

Ü future legislative and regulatory requirements or changes affecting us, such as the enactment of housing finance

reform legislation (including all or any portion of the Treasury plan), including changes that limit our business activities

or our footprint; 

Ü actions by FHFA, Treasury, HUD, the CFPB or other regulators, or Congress, that affect our business, including new

capital requirements that become applicable to us or changes in the ability-to-repay rule to replace the qualified

mortgage patch for GSE-eligible loans;

Ü changes in the structure and regulation of the financial services industry; 

Ü the timing and level of, as well as regional variation in, home price changes; 

Ü changes in interest rates and credit spreads; 

Ü developments that may be difficult to predict, including market conditions that result in changes in our net

amortization income from our guaranty book of business, fluctuations in the estimated fair value of our derivatives

and other financial instruments that we mark to market through our earnings, developments that affect our loss

reserves such as changes in interest rates, home prices or accounting standards, or events such as natural disasters;

Ü uncertainties relating to the potential discontinuance of LIBOR, or other market changes that could impact the loans

we own or guarantee or our MBS; 

Ü credit availability; 

Ü disruptions or instability in the housing and credit markets;

Ü the size and our share of the U.S. mortgage market and the factors that affect them, including population growth and

household formation;

Ü growth, deterioration and the overall health and stability of the U.S. economy, including the U.S. GDP, unemployment

rates, personal income and other indicators thereof;

Ü changes in the fiscal and monetary policies of the Federal Reserve; 

Ü our and our competitorsÖ future guaranty fee pricing and the impact of that pricing on our competitive environment and

guaranty fee revenues; 

Ü the volume of mortgage originations;

Ü the size, composition and quality of our guaranty book of business and retained mortgage portfolio; 

Ü the competitive environment in which we operate, including the impact of legislative or other developments on levels

of competition in our industry and other factors affecting our market share; 

Ü the life of the loans in our guaranty book of business; 

Ü challenges we face in retaining and hiring qualified executives and other employees; 

Ü our future serious delinquency rates; 

Ü the deteriorated credit performance of many loans in our guaranty book of business; 

MD&A | Forward-Looking Statements

Fannie Mae Third Quarter 2019 Form 10-Q 53
Ü changes in the demand for Fannie Mae MBS, in general or from one or more major groups of investors;

Ü our conservatorship, including any changes to or termination (by receivership or otherwise) of the conservatorship

and its effect on our business; 

Ü the investment by Treasury, including potential changes to the terms of the senior preferred stock purchase

agreement or senior preferred stock, and its effect on our business, including restrictions imposed on us by the terms

of the senior preferred stock purchase agreement, the senior preferred stock, and TreasuryÖs warrant, as well as the

possibility that these or other restrictions on our business and activities may be applied to us through other

mechanisms even if we cease to be subject to these agreements and instruments; 

Ü adverse effects from activities we undertake to support the mortgage market and help borrowers; 

Ü actions we may be required to take by FHFA, in its role as our conservator or as our regulator, such as changes in the

type of business we do or actions relating to UMBS or our resecuritization of Freddie Mac-issued securities; 

Ü limitations on our business imposed by FHFA, in its role as our conservator or as our regulator; 

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

underserved creditworthy borrowers; 

Ü the possibility that future changes in leadership at FHFA or the Administration may result in changes in FHFAÖs or

TreasuryÖs willingness to pursue the administrative reform recommendations in the Treasury plan;

Ü a decrease in our credit ratings; 

Ü limitations on our ability to access the debt capital markets; 

Ü significant changes in modification and foreclosure activity; 

Ü the volume and pace of future nonperforming and reperforming loan sales and their impact on our results and serious

delinquency rates; 

Ü changes in borrower behavior; 

Ü the effectiveness of our loss mitigation strategies, management of our REO inventory and pursuit of contractual

remedies; 

Ü defaults by one or more institutional counterparties; 

Ü resolution or settlement agreements we may enter into with our counterparties; 

Ü our need to rely on third parties to fully achieve some of our corporate objectives; 

Ü our reliance on mortgage servicers; 

Ü changes in GAAP, guidance by the Financial Accounting Standards Board and changes to our accounting policies; 

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

Ü the stability and adequacy of the systems and infrastructure that impact our operations, including ours and those of

CSS, our other counterparties and other third parties; 

Ü the impact of increasing interdependence between the single-family mortgage securitization programs of Fannie Mae

and Freddie Mac in connection with uniform mortgage-backed securities;

Ü operational control weaknesses; 

Ü our reliance on models and future updates we make to our models, including the assumptions used by these models; 

Ü domestic and global political risks and uncertainties; 

Ü natural disasters, environmental disasters, terrorist attacks, pandemics or other major disruptive events; 

Ü cyber attacks or other information security breaches or threats; and 

Ü the other factors described in ÇRisk FactorsÉ in this report and in our 2018 Form 10-K.

Readers are cautioned not to unduly rely on the forward-looking statements we make and to place these forward-looking

statements into proper context by carefully considering the factors discussed in ÇRisk FactorsÉ in our 2018 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. 

MD&A | Forward-Looking Statements

Fannie Mae Third Quarter 2019 Form 10-Q 54
Item 1.ÅÅFinancial Statements

 Financial Statements | Condensed Consolidated Balance Sheets

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 55

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets Ä (Unaudited)

(Dollars in millions)

As of

September 30,

2019

December 31,

2018

ASSETS

Cash and cash equivalents $ 22,592 $ 25,557

Restricted cash (includes $35,496 and $17,849, respectively, related to consolidated trusts) 41,906 23,866

Federal funds sold and securities purchased under agreements to resell or similar arrangements 23,176 32,938

Investments in securities:

Trading, at fair value (includes $4,304 and $3,061, respectively, pledged as collateral) 44,206 41,867

Available-for-sale, at fair value 2,690 3,429

Total investments in securities 46,896 45,296

Mortgage loans:

Loans held for sale, at lower of cost or fair value 12,289 7,701

Loans held for investment, at amortized cost:

Of Fannie Mae 104,367 113,039

Of consolidated trusts 3,206,856 3,142,858

Total loans held for investment (includes $8,183 and $8,922, respectively, at fair value) 3,311,223 3,255,897

Allowance for loan losses (9,376) (14,203)

Total loans held for investment, net of allowance 3,301,847 3,241,694

Total mortgage loans 3,314,136 3,249,395

Deferred tax assets, net 11,994 13,188

Accrued interest receivable, net (includes $8,450 and $7,928, respectively, related to consolidated trusts) 8,923 8,490

Acquired property, net 2,452 2,584

Other assets 22,361 17,004

Total assets $ 3,494,436 $ 3,418,318

LIABILITIES AND EQUITY

Liabilities:

Accrued interest payable (includes $9,348 and $9,133, respectively, related to consolidated trusts) $ 10,400 $ 10,211

Debt:

Of Fannie Mae (includes $6,041 and $6,826, respectively, at fair value) 213,522 232,074

Of consolidated trusts (includes $22,719 and $23,753, respectively, at fair value) 3,248,336 3,159,846

Other liabilities (includes $359 and $356, respectively, related to consolidated trusts) 11,836 9,947

Total liabilities 3,484,094 3,412,078

Commitments and contingencies (Note 13) Å Ñ

Fannie Mae stockholdersÖ equity:

Senior preferred stock (liquidation preference of $127,201 and $123,836, respectively) 120,836 120,836

Preferred stock, 700,000,000Äshares are authorizedÑ555,374,922Äshares issued and outstanding 19,130 19,130

Common stock, no par value, no maximum authorizationÑ1,308,762,703 shares issued and

1,158,087,567 shares outstanding 687 687

Accumulated deficit (123,141) (127,335)

Accumulated other comprehensive income 230 322

Treasury stock, at cost, 150,675,136Äshares (7,400) (7,400)

Total stockholdersÖ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior

Preferred Stock for information on the related dividend obligation and liquidation preference) 10,342 6,240

Total liabilities and equity $ 3,494,436 $ 3,418,318

See Notes to Condensed Consolidated Financial Statements
FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Operations and

Comprehensive Income Ä (Unaudited)

(Dollars and shares in millions, except per share amounts)

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

Interest income:

Trading securities $ 418 $ 363 $ 1,277 $ 917

Available-for-sale securities 40 54 138 175

Mortgage loans (includes $27,610 and $27,058, respectively, for the three months

ended and $84,157 and $79,877, respectively, for the nine months ended related to

consolidated trusts) 28,858 28,723 88,005 85,064

Federal funds sold and securities purchased under agreements to resell or similar

arrangements 178 166 698 457

Other 47 38 120 102

Total interest income 29,541 29,344 90,238 86,715

Interest expense:

Short-term debt (125) (114) (369) (331)

Long-term debt (includes $22,775 and $22,361, respectively, for the three months

ended and $70,371 and $65,972, respectively, for the nine months ended related to

consolidated trusts) (24,187) (23,861) (74,757) (70,406)

Total interest expense (24,312) (23,975) (75,126) (70,737)

Net interest income 5,229 5,369 15,112 15,978

Benefit for credit losses 1,857 716 3,732 2,229

Net interest income after benefit for credit losses 7,086 6,085 18,844 18,207

Investment gains, net 253 166 847 693

Fair value gains (losses), net (713) 386 (2,298) 1,660

Fee and other income 402 271 875 830

Non-interest income (loss) (58) 823 (576) 3,183

Administrative expenses:

Salaries and employee benefits (361) (355) (1,123) (1,101)

Professional services (241) (247) (699) (744)

Other administrative expenses (147) (138) (415) (400)

Total administrative expenses (749) (740) (2,237) (2,245)

Foreclosed property expense (96) (159) (364) (460)

Temporary Payroll Tax Cut Continuation Act of 2011 (ÇTCCAÉ) fees (613) (576) (1,806) (1,698)

Other expenses, net (571) (377) (1,514) (946)

Total expenses (2,029) (1,852) (5,921) (5,349)

Income before federal income taxes 4,999 5,056 12,347 16,041

Provision for federal income taxes (1,036) (1,045) (2,552) (3,312)

Net income 3,963 4,011 9,795 12,729

Other comprehensive income (loss):

Changes in unrealized gains on available-for-sale securities, net of reclassification

adjustments and taxes 16 (33) (85) (349)

Other, net of taxes (2) (3) (7) (8)

Total other comprehensive income (loss) 14 (36) (92) (357)

Total comprehensive income $ 3,977 $ 3,975 $ 9,703 $ 12,372

Net income $ 3,963 $ 4,011 $ 9,795 $ 12,729

Dividends distributed or amounts attributable to senior preferred stock (3,977) (3,975) (9,703) (9,372)

Net income (loss) attributable to common stockholders $ (14) $ 36 $ 92 $ 3,357

Earnings per share:

Basic $ 0.00 $ 0.01 $ 0.02 $ 0.58

Diluted 0.00 0.01 0.02 0.57

Weighted-average common shares outstanding:

Basic 5,762 5,762 5,762 5,762

Diluted 5,762 5,893 5,893 5,893

See Notes to Condensed Consolidated Financial Statements

 Financial Statements | Condensed Consolidated Statements of Operations and Comprehensive Income

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 56
FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows Ä

(Unaudited)

(Dollars in millions)

For the Nine Months

Ended September 30,

2019 2018

Net cash provided by (used in) operating activities $ 3,176 $ (1,796)

Cash flows provided by investing activities:

Proceeds from maturities and paydowns of trading securities held for investment 46 163

Proceeds from sales of trading securities held for investment 49 96

Proceeds from maturities and paydowns of available-for-sale securities 364 564

Proceeds from sales of available-for-sale securities 376 729

Purchases of loans held for investment (181,898) (135,913)

Proceeds from repayments of loans acquired as held for investment of Fannie Mae 9,338 11,651

Proceeds from sales of loans acquired as held for investment of Fannie Mae 8,987 10,637

Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts 377,789 306,374

Advances to lenders (95,636) (83,643)

Proceeds from disposition of acquired property and preforeclosure sales 5,644 7,090

Net change in federal funds sold and securities purchased under agreements to resell or similar

arrangements 9,762 (7,128)

Other, net (74) (56)

Net cash provided by investing activities 134,747 110,564

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae 587,659 636,466

Payments to redeem debt of Fannie Mae (606,665) (666,888)

Proceeds from issuance of debt of consolidated trusts 286,126 278,357

Payments to redeem debt of consolidated trusts (385,496) (364,942)

Payments of cash dividends on senior preferred stock to Treasury (5,601) (5,397)

Proceeds from senior preferred stock purchase agreement with Treasury Å 3,687

Other, net 1,129 720

Net cash used in financing activities (122,848) (117,997)

Net increase (decrease) in cash, cash equivalents and restricted cash 15,075 (9,229)

Cash, cash equivalents and restricted cash at beginning of period 49,423 60,260

Cash, cash equivalents and restricted cash at end of period $ 64,498 $ 51,031

Cash paid during the period for:

Interest $ 86,699 $ 82,010

Income taxes 1,250 460

See Notes to Condensed Consolidated Financial Statements

 Financial Statements | Condensed Consolidated Statements of Cash Flows

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 57
FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Changes in Equity

(Deficit) Ä (Unaudited)

(Dollars and shares in millions)

Fannie Mae StockholdersÖ Equity (Deficit)

Shares Outstanding

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

Accumulated

Deficit

Accumulated 

Other

Comprehensive

Income

Treasury

Stock

Total

Equity

Senior

Preferred Preferred Common

Balance as of June 30, 2019 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (127,104) $ 216 $ (7,400) $ 6,365

Senior preferred stock dividends paid Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ

Comprehensive income:

Net income Ñ Ñ Ñ Ñ Ñ Ñ 3,963 Ñ Ñ 3,963

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $2) Ñ Ñ Ñ Ñ Ñ Ñ Ñ 10 Ñ 10

Reclassification adjustment for gains included

in net income (net of taxes of $1) Ñ Ñ Ñ Ñ Ñ Ñ Ñ 6 Ñ 6

Other (net of taxes of $1) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (2) Ñ (2)

Total comprehensive income 3,977

Balance as of September 30, 2019 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (123,141) $ 230 $ (7,400) $ 10,342

Fannie Mae StockholdersÖ Equity (Deficit)

Shares Outstanding

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

Accumulated

Deficit

Accumulated 

Other

Comprehensive

Income

Treasury

Stock

Total

Equity

Senior

Preferred Preferred Common

Balance as of December 31, 2018 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (127,335) $ 322 $ (7,400) $ 6,240

Senior preferred stock dividends paid Ñ Ñ Ñ Ñ Ñ Ñ (5,601) Ñ Ñ (5,601)

Comprehensive income:

Net income Ñ Ñ Ñ Ñ Ñ Ñ 9,795 Ñ Ñ 9,795

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $7) Ñ Ñ Ñ Ñ Ñ Ñ Ñ 27 Ñ 27

Reclassification adjustment for gains included

in net income (net of taxes of $30) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (112) Ñ (112)

Other (net of taxes of $2) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (7) Ñ (7)

Total comprehensive income 9,703

Balance as of September 30, 2019 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (123,141) $ 230 $ (7,400) $ 10,342

See Notes to Condensed Consolidated Financial Statements

Financial Statements | Condensed Consolidated Statements of Changes in Equity (Deficit)

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 58
FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Changes in Equity

(Deficit) Ä (Unaudited)

(Dollars and shares in millions)

Fannie Mae StockholdersÖ Equity (Deficit)

Shares Outstanding

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

Accumulated

Deficit

Accumulated 

Other

Comprehensive

Income

Treasury

Stock

Total

Equity

(Deficit)

Senior

Preferred Preferred Common

Balance as of June 30, 2018 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (126,143) $ 349 $ (7,400) $ 7,459

Senior preferred stock dividends paid Ñ Ñ Ñ Ñ Ñ Ñ (4,459) Ñ Ñ (4,459)

Increase to senior preferred stock Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ

Comprehensive income:

Net income Ñ Ñ Ñ Ñ Ñ Ñ 4,011 Ñ Ñ 4,011

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $8) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (31) Ñ (31)

Reclassification adjustment for gains included

in net income (net of taxes of $1) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (2) Ñ (2)

Other Ñ Ñ Ñ Ñ Ñ Ñ Ñ (3) Ñ (3)

Total comprehensive income 3,975

Reclassification related to Tax Cuts

and Jobs Act Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ

Other Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ

Balance as of September 30, 2018 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (126,591) $ 313 $ (7,400) $ 6,975

Fannie Mae StockholdersÖ Equity (Deficit)

Shares Outstanding

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

Accumulated

Deficit

Accumulated 

Other

Comprehensive

Income

Treasury

Stock

Total

Equity

(Deficit)

Senior

Preferred Preferred Common

Balance as of December 31, 2017 1 556 1,158 $ 117,149 $ 19,130 $ 687 $ (133,805) $ 553 $ (7,400) $ (3,686)

Senior preferred stock dividends paid Ñ Ñ Ñ Ñ Ñ Ñ (5,397) Ñ Ñ (5,397)

Increase to senior preferred stock Ñ Ñ Ñ 3,687 Ñ Ñ Ñ Ñ Ñ 3,687

Comprehensive income:

Net income Ñ Ñ Ñ Ñ Ñ Ñ 12,729 Ñ Ñ 12,729

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $22) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (84) Ñ (84)

Reclassification adjustment for gains included

in net income (net of taxes of $71) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (265) Ñ (265)

Other Ñ Ñ Ñ Ñ Ñ Ñ Ñ (8) Ñ (8)

Total comprehensive income 12,372

Reclassification related to Tax Cuts

and Jobs Act Ñ Ñ Ñ Ñ Ñ Ñ (117) 117 Ñ Ñ

Other Ñ Ñ Ñ Ñ Ñ Ñ (1) Ñ Ñ (1)

Balance as of September 30, 2018 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (126,591) $ 313 $ (7,400) $ 6,975

See Notes to Condensed Consolidated Financial Statements

Financial Statements | Condensed Consolidated Statements of Changes in Equity (Deficit)

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 59
FANNIE MAE

(In conservatorship)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 60

1.ÅÅSummary of Significant Accounting Policies

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act

(the ÇCharter ActÉ or our ÇcharterÉ). We are a government-sponsored enterprise (ÇGSEÉ), and we are subject to government

oversight and regulation. Our regulators include the Federal Housing Finance Agency (ÇFHFAÉ), the U.S.ÄDepartment of

Housing and Urban Development (ÇHUDÉ), the U.S.ÄSecurities and Exchange Commission (ÇSECÉ), and the U.S. Department

of the Treasury (ÇTreasuryÉ). The U.S.Ägovernment does not guarantee our securities or other obligations. 

We have been under conservatorship, with FHFA acting as conservator, since SeptemberÄ6, 2008. See below and ÇNote 1,

Summary of Significant Accounting PoliciesÉ in our annual report on Form 10-K for the year ended December 31, 2018 (Ç2018

Form 10-KÉ) for additional information on our conservatorship and the impact of U.S. government support of our business.

The unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September

30, 2019 and related notes, should be read in conjunction with our audited consolidated financial statements and related notes

included in our 2018 Form 10-K.

Basis of Presentation 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with

generally accepted accounting principles in the United States of America (ÇGAAPÉ) for interim financial information and with the

SECÖs instructions to Form 10-Q and ArticleÄ10 of Regulation S-X. Accordingly, they do not include all of the information and

note disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all

adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The accompanying

condensed consolidated financial statements include our accounts as well as the accounts of other entities in which we have a

controlling financial interest. All intercompany accounts and transactions have been eliminated. To conform to our current

period presentation, we have reclassified certain amounts reported in our prior period condensed consolidated financial

statements. Results for the three and nine months ended September 30, 2019 may not necessarily be indicative of the results

for the year ending December 31, 2019.

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, 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, the

allowance for loan losses. Actual results could be different from these estimates.

Conservatorship

On SeptemberÄ7, 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)Äplacing us in conservatorship and (2)Äthe 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. 

On September 5, 2019, Treasury released its plan to reform the housing finance system. The Treasury Housing Reform Plan

(the ÇTreasury planÉ) is far-reaching in scope and could have a significant impact on our structure, our role in the secondary

mortgage market, our capitalization, our business and our competitive environment. The Treasury plan includes

recommendations relating to ending our conservatorship, amending our senior preferred stock purchase agreement with

Treasury, considering additional restrictions and requirements on our business, and many other matters. The Treasury plan

recommends that TreasuryÖs commitment to provide funding under the senior preferred stock purchase agreement should be

replaced with legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit of the Federal

Government that is limited to the timely payment of principal and interest on qualifying MBS. The Treasury plan further

recommends that, pending legislation, even after conservatorship Treasury should maintain its ongoing commitment to support

our single-family and multifamily mortgage-backed securities through the senior preferred stock purchase agreement, as

amended as contemplated by the plan. 

There continues to be significant uncertainty regarding our future, including how long we will continue to exist in our current

form, the extent of our role in the market, how long we will be in conservatorship, what form we will have and what ownership
interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated and

whether we will continue to exist following conservatorship. Treasury has made a commitment under the senior preferred stock

purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. We are not aware of

any plans of FHFA (1) to fundamentally change our business model, other than changes that might result from

recommendations in the Treasury plan, if implemented, or (2) to reduce the aggregate amount available to or held by the

company under our capital structure, which includes the senior preferred stock purchase agreement. 

Senior Preferred Stock Purchase Agreement and Senior Preferred

Stock

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

circumstances if we have a net worth deficit. Pursuant to the senior preferred stock purchase agreement, we have received a

total of $119.8 billion from Treasury as of September 30, 2019, and the amount of remaining funding available to us under the

agreement was $113.9 billion.

Pursuant to the senior preferred stock purchase agreement, we issued shares of senior preferred stock in 2008. On

September 27, 2019, we, through FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into a

letter agreement modifying the dividend and liquidation preference provisions of the senior preferred stock. These

modifications and other specified provisions of the letter agreement are described below.

Ü Modification to Dividend ProvisionsÑIncrease in Applicable Capital Reserve Amount. The terms of the senior

preferred stock provide for dividends each quarter in the amount, if any, by which our net worth as of the end of the

immediately preceding fiscal quarter exceeds the applicable capital reserve amount. The letter agreement modified

the dividend provisions of the senior preferred stock to increase the applicable capital reserve amount from $3 billion

to $25 billion, effective for dividend periods beginning July 1, 2019.

As a result of this change to the senior preferred stock dividend provisions:

â No dividends were payable on the senior preferred stock for the third quarter of 2019, as our net worth of

$6.4 billion as of June 30, 2019 was lower than the $25 billion capital reserve amount.

â No dividends will be payable on the senior preferred stock for the fourth quarter of 2019, as our net worth of

$10.3 billion as of September 30, 2019 is lower than the $25 billion capital reserve amount.

Ü Modification to Liquidation Preference ProvisionsÑIncrease in Liquidation Preference. The letter agreement provides

that, on September 30, 2019, and at the end of each fiscal quarter thereafter, the liquidation preference of the senior

preferred stock will increase by an amount equal to the increase in our net worth, if any, during the immediately prior

fiscal quarter, until such time as the liquidation preference has increased by $22 billion.

As a result of this change to the senior preferred stock liquidation preference provisions:

â The aggregate liquidation preference of the senior preferred stock increased from $123.8 billion as of June

30, 2019 to $127.2 billion as of September 30, 2019, due to the $3.4 billion increase in our net worth during

the second quarter of 2019.

â The aggregate liquidation preference of the senior preferred stock will increase from $127.2 billion as of

September 30, 2019 to $131.2 billion as of December 31, 2019, due to the $4.0 billion increase in our net

worth during the third quarter of 2019.

Ü Agreement to Amend Senior Preferred Stock Purchase Agreement to Enhance Taxpayer Protections. The letter

agreement provides that we and Treasury agree to negotiate and execute an additional amendment to the senior

preferred stock purchase agreement that further enhances taxpayer protections by adopting covenants broadly

consistent with recommendations for administrative reform contained in the Treasury plan.

See ÇNote 11, Equity (Deficit)É in our 2018 Form 10-K for additional information about the senior preferred stock purchase

agreement and the senior preferred stock.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts as well as the accounts of the other entities in which

we have a controlling financial interest. All intercompany balances and transactions have been eliminated. The typical

condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. A controlling financial

interest may also exist in entities through arrangements that do not involve voting interests, such as a variable interest entity

(ÇVIEÉ).

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 61
Single Security Initiative and UMBS

The Single Security Initiative was a joint initiative among Fannie Mae, Freddie Mac, and our jointly owned limited liability

company, Common Securitization Solutions, LLC (ÇCSSÉ), under the direction of FHFA, to develop a single common mortgagebacked security issued by both Fannie Mae and Freddie Mac to finance fixed-rate mortgage loans backed by one- to four-unit

single-family properties. We and Freddie Mac began issuing uniform mortgage-backed securities (ÇUMBSÉ) pursuant to the

Single Security Initiative in June 2019. We and Freddie Mac also began resecuritizing UMBS certificates into structured

securities in June 2019. The structured securities backed by UMBS that we may issue include Supers, which are single-class

resecuritization transactions, and Real Estate Mortgage Investment Conduit securities (ÇREMICsÉ) and interest-only and

principal-only strip securities (ÇSMBSÉ), which are multi-class resecuritization transactions. 

Since the implementation of the Single Security Initiative in June 2019, we have been able to include UMBS, Supers and other

structured securities issued by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral

for Freddie Mac-issued UMBS are not held in trusts that are consolidated by Fannie Mae. When we include Freddie Mac

securities in our structured securities, we are subject to additional credit risk because we guarantee securities that were not

previously guaranteed by Fannie Mae. However, Freddie Mac continues to guarantee the payment of principal and interest on

the underlying Freddie Mac securities that we have resecuritized. We have concluded that this additional credit risk is

negligible because of the funding commitment available to Freddie Mac through its senior preferred stock purchase agreement

with Treasury. Prior to the implementation of the Single Security Initiative, the vast majority of underlying assets of our

resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated

trusts.

Single-Class Resecuritization Trusts

Fannie Mae single-class resecuritization trusts are created by depositing mortgage-backed securities (ÇMBSÉ) into a new

securitization trust for the purpose of aggregating multiple mortgage-related securities into a single security. Single-class

resecuritization securities pass through directly to the holders of the securities all of the cash flows of the underlying mortgagebacked securities held in the resecuritization trust. With the implementation of the Single Security Initiative, these securities

can now be collateralized directly or indirectly by cash flows from underlying securities issued by Fannie Mae, Freddie Mac, or

a combination of both. Resecuritization trusts backed directly or indirectly only by Fannie Mae MBS are non-commingled

resecuritization trusts. Resecuritization trusts collateralized directly or indirectly by cash flows either in part or in whole from

Freddie Mac securities are commingled resecuritization trusts.

Securities issued by our non-commingled single-class resecuritization trusts are backed solely by Fannie Mae MBS and the

guarantee we provide on the trust does not subject us to additional credit risk because we have already provided a guarantee

on the underlying securities. Further, the securities issued by our non-commingled single-class resecuritization trusts pass

through all of the cash flows of the underlying Fannie Mae MBS directly to the holders of the securities. Accordingly, these

securities are deemed to be substantially the same as the underlying Fannie Mae MBS collateral. Additionally, our involvement

with these trusts does not provide us with any incremental rights or powers that would enable us to direct any activities of the

trusts. As a result, we have concluded that we are not the primary beneficiaries of, and as a result, we do not consolidate, our

non-commingled single-class resecuritization trusts. Therefore, we account for purchases and sales of securities issued by

non-commingled single-class resecuritization trusts as extinguishments and issuances of the underlying MBS debt,

respectively.

Securities issued by our commingled single-class resecuritization trusts are backed in whole or in part by Freddie Mac

securities. The guaranty we provide to the commingled single-class resecuritization trust subjects us to additional credit risk

because we are providing a guaranty for the timely payment of principal and interest on the underlying Freddie Mac securities

that we have not previously guaranteed. Accordingly, securities issued by our commingled resecuritization trusts are not

deemed to be substantially the same as the underlying collateral. We do not have any incremental rights or powers related to

commingled single-class resecuritization trusts that would enable us to direct any activities of the underlying trusts. As a result,

we have concluded that we are not the primary beneficiary of, and therefore do not consolidate, our commingled single-class

resecuritization trusts unless we have the unilateral right to dissolve the trust. We have this right when we hold 100% of the

beneficial interests issued by the resecuritization trust. Therefore, we account for purchases and sales of these securities as

purchases and sales of investment securities.

Multi-Class Resecuritization Trusts

Multi-class resecuritization trusts are trusts we create to issue multi-class Fannie Mae structured securities, including REMICs

and SMBS, in which the cash flows of the underlying mortgage assets are divided, creating several classes of securities, each

of which represents a beneficial ownership interest in a separate portion of cash flows. We guarantee to each multi-class

resecuritization trust that we will supplement amounts received by the trusts as required to permit timely payments of principal

and interest, as applicable, on the related Fannie Mae structured securities. With the implementation of the Single Security

Initiative, these multi-class structured securities can now be collateralized, directly or indirectly, by securities issued by Fannie

Mae, Freddie Mac, or a combination of both.

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 62
The guaranty we provide to our non-commingled multi-class resecuritization trusts does not subject us to additional credit risk,

because the underlying assets are Fannie Mae-issued securities for which we have already provided a guaranty. However, for

commingled multi-class structured securities, we are subject to additional credit risk because we are providing a guaranty for

the timely payment of principal and interest on the underlying Freddie Mac securities that we have not previously guaranteed.

For both commingled and non-commingled multi-class resecuritization trusts, we may also be exposed to prepayment risk via

our ownership of securities issued by these trusts. We do not have the ability via our involvement with a multi-class

resecuritization trust to impact either the credit risk or prepayment risk to which we are exposed. Therefore, we have

concluded that we do not have the characteristics of a controlling financial interest and do not consolidate multi-class

resecuritization trusts unless we have the unilateral right to dissolve the trust as noted below. 

Securities issued by multi-class resecuritization trusts do not directly pass through all of the cash flows of the underlying

securities and therefore the issued and underlying securities are not considered substantially the same. Accordingly, if a multiclass resecuritization trust is not consolidated, we account for purchases and sales of securities issued by the trust as

purchases and sales of investment securities.

Since the implementation of the Single Security Initiative in June 2019, we may now include UMBS, Supers and other

structured securities backed by securities issued by Freddie Mac in our resecuritization trusts. As a result, we adopted a

consolidation threshold for multi-class resecuritization trusts that is based on our ability to unilaterally dissolve the

resecuritization trust. This ability exists only when we hold 100% of the outstanding beneficial interests issued by the

resecuritization trust. This new consolidation threshold was applied prospectively upon implementation of the Single Security

Initiative in the second quarter of 2019 and prior period amounts were not recast. Prior to the implementation of the Single

Security Initiative, we consolidated multi-class resecuritization trusts when we held a substantial portion of the outstanding

beneficial interests issued by the trust. Our adoption of the new consolidation threshold did not have a material impact on our

condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 63

Regulatory Capital

We submit capital reports to FHFA, which monitors our capital levels. The deficit of core capital over statutory minimum capital

was $133.8 billion as of September 30, 2019 and $137.1 billion as of December 31, 2018.

Related Parties

Because Treasury holds a warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the total number of

shares of Fannie Mae common stock, we and Treasury are deemed related parties. As of September 30, 2019, Treasury held

an investment in our senior preferred stock with an aggregate liquidation preference of $127.2 billion. See ÇSenior Preferred

Stock Purchase Agreement and Senior Preferred StockÉ above for additional information on transactions under this

agreement.

FHFAÖs control of both Fannie Mae and Freddie Mac has caused Fannie Mae, FHFA and Freddie Mac to be deemed related

parties. Additionally, Fannie Mae and Freddie Mac jointly own CSS, a limited liability company created to operate a common

securitization platform; as such, CSS is deemed a related party.

In the ordinary course of business, Fannie Mae may purchase and sell securities issued by Treasury and Freddie Mac. These

transactions occur on the same terms as those prevailing at the time for comparable transactions with unrelated parties. With

our implementation of the Single Security Initiative in June 2019, some of the structured securities we issue are backed in

whole or in part by Freddie Mac securities. Additionally, we make regular income tax payments to and receive tax refunds from

the Internal Revenue Service (ÇIRSÉ), a bureau of Treasury.

Transactions with Treasury

Our administrative expenses were reduced by $5 million and $6 million for the three months ended September 30, 2019 and

2018, respectively, and $15 million and $19 million for the nine months ended September 30, 2019 and 2018, respectively, due

to reimbursements from Treasury and Freddie Mac for expenses incurred as program administrator for TreasuryÖs Home

Affordable Modification Program and other initiatives under TreasuryÖs Making Home Affordable Program. 

In December 2011, Congress enacted the Temporary Payroll Cut Continuation Act of 2011 (ÇTCCAÉ) 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, we increased the guaranty fee on all single-family residential mortgages delivered to us by 10

basis points. FHFA and Treasury advised us to remit this fee increase to Treasury with respect to all loans acquired by us on or

after April 1, 2012 and before January 1, 2022, and to continue to remit these amounts to Treasury on and after January 1,

2022 with respect to loans we acquired before this date until those loans are paid off or otherwise liquidated. The resulting fee

revenue and expense are recorded in ÇMortgage loans interest incomeÉ and ÇTCCA fees,É respectively, in our condensed

consolidated statements of operations and comprehensive income. We recognized $613 million and $576 million in TCCA fees

during the three months ended September 30, 2019 and 2018, respectively, and $1.8 billion and $1.7 billion for the nine

months ended September 30, 2019 and 2018, respectively, of which $613 million had not been remitted to Treasury as of

September 30, 2019.
Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by the Federal

Housing Finance Regulatory Reform Act of 2008 (together, the ÇGSE ActÉ), we are required to set aside certain funding

obligations, a portion of which is attributable to TreasuryÖs Capital Magnet Fund. These funding obligations, recognized in

ÇOther expenses, netÉ in our condensed consolidated statements of operations and comprehensive income, are measured as

the product of 4.2 basis points and the unpaid principal balance of our total new business purchases for the respective period,

and 35% of this amount is payable to TreasuryÖs Capital Magnet Fund. We recognized a total of $32 million and $20 million in

ÇOther expenses, netÉ for the three months ended September 30, 2019 and 2018, respectively, and $68 million and $57 million

for the nine months ended September 30, 2019 and 2018, respectively, relating to amounts payable to TreasuryÖs Capital

Magnet Fund. In 2020, we expect to pay the $68 million recognized for the nine months ended September 30, 2019 to

TreasuryÖs Capital Magnet Fund, along with additional amounts based on our new business purchases in the fourth quarter of

2019. In April 2019, we paid $75 million to TreasuryÖs Capital Magnet Fund based on our new business purchases in 2018.

On September 27, 2019, we, through FHFA acting on our behalf in its capacity as our conservator, and Treasury entered into a

letter agreement modifying the dividend and liquidation preference provisions of the senior preferred stock held by Treasury.

These modifications and other specified provisions of the letter agreement are described under ÇSenior Preferred Stock

Purchase Agreement and Senior Preferred StockÉ above. 

Transactions with FHFA

The GSE Act authorizes FHFA to establish an annual assessment for regulated entities, including Fannie Mae, which is

payable on a semi-annual basis (April and October), for FHFAÖs costs and expenses, as well as to maintain FHFAÖs working

capital. We recognized FHFA assessment fees, which are recorded in ÇAdministrative expensesÉ in our condensed

consolidated statements of operations and comprehensive income, of $30 million and $26 million for the three months ended

September 30, 2019 and 2018, respectively, and $89 million and $81 million for the nine months ended September 30, 2019

and 2018, respectively. 

Transactions with CSS and Freddie Mac

We contributed capital to CSS, the company we jointly own with Freddie Mac, of $22 million and $33 million for the three

months ended September 30, 2019 and 2018, respectively, and $84 million and $109 million for the nine months ended

September 30, 2019 and 2018, respectively. In the second quarter of 2019, Fannie Mae, Freddie Mac and CSS entered into

an amendment to the customer services agreement that sets forth the terms under which CSS provides mortgage

securitization services to us and Freddie Mac. In June 2019, we entered into an indemnification agreement with Freddie Mac

relating to the commingled structured securities that we and Freddie Mac issue. Under the indemnification agreement, Fannie

Mae and Freddie Mac each have agreed to indemnify the other party for losses caused by: its failure to meet its payment or

other specified obligations under the trust agreements pursuant to which the underlying resecuritized securities were issued;

its failure to meet its obligations under the customer services agreement; its violations of laws; or with respect to material

misstatements or omissions in offering documents, ongoing disclosures and related materials relating to the underlying

resecuritized securities.

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 64

Earnings per Share 

Earnings per share (ÇEPSÉ) is presented for basic and diluted EPS. We compute basic EPS by dividing net income attributable

to common stockholders by the weighted-average number of shares of common stock outstanding during the period. However,

as a result of our conservatorship status and the terms of the senior preferred stock, no amounts would be available to

distribute as dividends to common or preferred stockholders (other than to Treasury as the holder of the senior preferred

stock). Net income (loss) attributable to common stockholders excludes amounts attributable to the senior preferred stock,

which increase the liquidation preference as described above in ÇSenior Preferred Stock Purchase Agreement and Senior

Preferred Stock.É Weighted average common shares includes 4.6 billion shares for the periods ended September 30, 2019

and 2018 that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued

through September 30, 2019 and 2018.

The calculation of diluted EPS includes all the components of basic earnings per share, plus the dilutive effect of common

stock equivalents such as convertible securities and stock options. Weighted average shares outstanding is increased to

include the number of additional common shares that would have been outstanding if the dilutive potential common shares

had been issued. For the three months ended September 30, 2019 convertible preferred stock is not included in the

calculation because a net loss attributable to common shareholders was incurred and it would have an anti-dilutive effect. For

the nine months ended September 30, 2019 and 2018 and the three months ended September 30, 2018, our diluted EPS

weighted average shares outstanding includes shares of common stock that would be issuable upon the conversion of 131

million shares of convertible preferred stock.
New Accounting Guidance 

The following updates information about our significant accounting policies that have recently been adopted or are yet to be

adopted from the information included in ÇNote 1, Summary of Significant Accounting PoliciesÉ in our 2018 Form 10-K.

The Financial Accounting Standards Board (the ÇFASBÉ) issued Accounting Standards Update (ÇASUÉ)Ä2016-13,ÄFinancial

InstrumentsÑCredit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments in June 2016. It was

amended by ASU 2019-04, Codification Improvements (to Topic 326), Financial InstrumentsÑCredit Losses in April 2019.

These ASUs (the ÇCECL standardÉ) replace the incurred loss impairment methodology in current GAAP with a methodology

that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable

information to develop credit loss estimates. The amendments in this standard also require credit losses related to availablefor-sale (ÇAFSÉ) debt securities to be recorded through an allowance for credit losses. We do not expect a material impact for

establishing an allowance for credit losses related to our AFS debt securities.

The CECL standard will become effective for our fiscal year beginning January 1, 2020. We are currently performing full

integrated testing across all models, accounting systems and processes that will be used to estimate credit losses and record

accounting impacts under the CECL standard. All updates to our credit loss models are subject to our model oversight and

review governance process. We are managing the implementation of this guidance in accordance with our change

management governance standards, which are designed to ensure compliance with GAAP as well as operational readiness at

adoption. Senior management and the Audit Committee receive regular updates regarding the status of our implementation

plan, results of modeled impacts and any identified key risks.

We will use a discounted cash flow method to measure expected credit losses on our single-family mortgage loans and an

undiscounted loss method to measure expected credit losses on our multifamily mortgage loans. The models we will use to

estimate credit losses will incorporate our historical credit loss experience, adjusted for current economic forecasts and the

current credit profile of our loan book of business. The models will use reasonable and supportable forecasts for key economic

drivers, such as home prices (Single-Family), rental income (Multifamily) and capitalization rates (Multifamily). 

Based on the composition of the loans in our book of business as of September 30, 2019 and our current expectations of

future economic conditions, we estimate that our adoption of the CECL standard will result in a reduction in our retained

earnings of up to $2 billion on an after-tax basis in the first quarter of 2020. Our estimated impact upon adoption has been

refined over the last quarter to incorporate updated economic conditions and the resolution of various implementation items,

including the exclusion of certain pre-foreclosure costs from our estimated allowance for credit losses. We continue to monitor

and will assess the impact of further implementation guidance that may be issued. In addition, we continue to evaluate our

modeled loss estimates and may make refinements to our approach and assumptions as a part of our overall integrated

testing efforts. The impact of our adoption of the CECL standard on our retained earnings will be further influenced by the

credit risk profile of the loans in our book of business as of the January 1, 2020 adoption date, as well as changes in economic

conditions and our forecasts of future economic conditions at that time.

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 65
2.ÅÅConsolidations and Transfers of Financial Assets

Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 66

We have interests in various entities that are considered to be variable interest entities (ÇVIEsÉ). The primary types of entities

are securitization and resecuritization trusts, limited partnerships and special purpose vehicles (ÇSPVsÉ). 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. Historically, the vast majority of underlying assets of our resecuritization

trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts. However,

beginning with the implementation of the Single Security Initiative in June 2019, we include securities issued by Freddie Mac in

some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued UMBS are not held in

trusts that are consolidated by Fannie Mae.

Unconsolidated VIEs

We do not consolidate VIEs when we are not deemed to be the primary beneficiary. Our unconsolidated VIEs include

securitization trusts, limited partnerships, and certain SPVs designed to transfer credit risk. The following table displays the

carrying amount and classification of our assets and liabilities that relate to our involvement with unconsolidated securitization

and resecuritization trusts.

As of

September 30, 2019 December 31, 2018

Assets and liabilities recorded in our condensed consolidated balance sheets

related to unconsolidated mortgage-backed trusts:

(Dollars in millions)

Assets:

Trading securities:

Fannie Mae $ 2,733 $ 1,422

Non-Fannie Mae 4,445 4,809

Total trading securities 7,178 6,231

Available-for-sale securities:

Fannie Mae 1,581 1,704

Non-Fannie Mae 771 1,207

Total available-for-sale securities 2,352 2,911

Other assets 57 66

Other liabilities (82) (101)

Net carrying amount $ 9,505 $ 9,107

Our maximum exposure to loss generally represents the greater ofÄour recorded investment in the entity or the unpaid principal

balance of the assets covered by our guaranty. Our involvement in unconsolidated resecuritization trusts may give rise to

additional exposure to loss depending on the type of resecuritization trust. Fannie Mae non-commingled resecuritization trusts

refers to our resecuritization trusts that are backed entirely by Fannie Mae MBS. These non-commingled single-class and

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 commingled resecuritization trusts refers to our resecuritization trusts that are backed in whole or in part by

Freddie Mac securities. The guaranty that we provide to these commingled resecuritization trusts increases our exposure to

loss relating to the Freddie Mac securities that serve as the underlying collateral. Our maximum exposure to loss for these

unconsolidated trusts is measured by the amount of Freddie Mac securities that back these resecuritization trusts. However, a

portion of these Freddie Mac securities may be backed in whole or in part by Fannie Mae MBS. Therefore, to the extent that

these Freddie Mac securities are backed by Fannie Mae MBS, it would not give rise to any additional exposure and our total

exposure to collateral that is ultimately guaranteed by Freddie Mac may be lower than the disclosed maximum exposure to

loss. Our maximum exposure to loss related to unconsolidated securitization and resecuritization trusts was approximately $41

billion and $14 billion as of September 30, 2019 and December 31, 2018, respectively. The total assets of our unconsolidated

securitization and resecuritization trusts were approximately $100 billion and $80 billion as of September 30, 2019 and

December 31, 2018, respectively.

The maximum exposure to loss for our unconsolidated limited partnerships and similar legal entities, which consist of lowincome housing tax credit investments (ÇLIHTCÉ), community investments and other entities, was $93 million and the related

carrying value was $70 million as of September 30, 2019. As of December 31, 2018, the maximum exposure to loss was $111
million and the related carrying value was $89 million. The total assets of these limited partnership investments were $2.3

billion as of September 30, 2019 and December 31, 2018.

The maximum exposure to loss related to our involvement with unconsolidated SPVs that transfer credit risk represents the

unpaid principal balance and accrued interest payable of obligations issued by the Connecticut Avenue Securities (ÇCASÉ)

SPVs. The maximum exposure to loss related to these unconsolidated SPVs was $6.5 billion and $920 million as of

September 30, 2019 and December 31, 2018, respectively. The total assets related to these unconsolidated SPVs were $6.5

billion and $931 million as of September 30, 2019 and December 31, 2018, respectively. 

The unpaid principal balance of our multifamily loan portfolio was $318.1 billion as of September 30, 2019. As our lending

relationship does not provide us with a controlling financial interest in the borrower entity, we do not consolidate these

borrowers regardless of their status as either a VIE or a voting interest entity. We have excluded these entities from our VIE

disclosures. However, the disclosures we have provided in ÇNote 3, Mortgage Loans,É ÇNote 4, Allowance for Loan LossesÉ

and ÇNote 6, Financial GuaranteesÉ with respect to this population are consistent with the FASBÖs stated objectives for the

disclosures related to unconsolidated VIEs.

Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 67

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgagerelated securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer

assets from our own retained mortgage portfolio in a portfolio securitization transaction. For the three months ended

September 30, 2019 and 2018, the unpaid principal balance of portfolio securitizations was $89.0 billion and $64.9 billion,

respectively. For the nine months ended September 30, 2019 and 2018, the unpaid principal balance of portfolio

securitizations was $187.7 billion and $180.8 billion, respectively. 

We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and multi-class

portfolio securitization trusts. As of September 30, 2019, the unpaid principal balance of retained interests was $3.1 billion and

its related fair value was $4.2 billion. As of December 31, 2018, the unpaid principal balance of retained interests was $1.5

billion and its related fair value was $2.2 billion. For the three months ended September 30, 2019 and 2018, the principal,

interest and other fees received on retained interests was $187 million and $114 million, respectively. For the nine months

ended September 30, 2019 and 2018, the principal, interest and other fees received on retained interests was $425 million

and $468 million, respectively.

Managed Loans

Managed loans primarily include loans that are guaranteed or insured, in whole or in part, by the U.S. government. For those

loans that we have securitized in unconsolidated portfolio securitization trusts, the outstanding unpaid principal balance was

$1.1 billion as of September 30, 2019 and $1.2 billion as of December 31, 2018. For information regarding on-balance sheet

managed loans, see ÇNote 3, Mortgage Loans.É
3.ÅÅMortgage Loans

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 68

We own single-family mortgage loans, which are secured by four or fewer residential dwelling units, and multifamily mortgage

loans, which are secured by five or more residential dwelling units. We classify these loans as either held for investment

(ÇHFIÉ) or held for sale (ÇHFSÉ). We report the carrying value of HFI loans at the unpaid principal balance, net of unamortized

premiums and discounts, other cost basis adjustments, and an allowance for loan losses. We report the carrying value of HFS

loans at the lower of cost or fair value and record valuation changes in ÇInvestment gains, netÉ in our condensed consolidated

statements of operations and comprehensive income. We define the recorded investment of HFI loans as unpaid principal

balance, net of unamortized premiums and discounts, other cost basis adjustments, and accrued interest receivable.

For purposes of the single-family mortgage loan disclosures below, we define ÇprimaryÉ class as mortgage loans that are not

included in other loan classes; ÇgovernmentÉ class as mortgage loans that are guaranteed or insured, in whole or in part, by

the U.S. government, and that are not Alt-A; and ÇotherÉ class as loans with certain higher-risk characteristics, such as interestonly loans and negative-amortizing loans, that are neither government nor Alt-A.

The following table displays the carrying value of our mortgage loans.

As of

September 30, 2019 December 31, 2018

(Dollars in millions)

Single-family $ 2,962,083 $ 2,929,925

Multifamily 318,106 293,858

Total unpaid principal balance of mortgage loans 3,280,189 3,223,783

Cost basis and fair value adjustments, net 43,323 39,815

Allowance for loan losses for loans held for investment (9,376) (14,203)

Total mortgage loans $ 3,314,136 $ 3,249,395

The following table displays information about our redesignated mortgage loans.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

Carrying value of loans redesignated from HFI to HFS(1) $ 4,882 $ 4,249 $ 14,252 $ 17,851

Carrying value of loans redesignated from HFS to HFI(1) 10 6 22 36

Loans sold - unpaid principal balance 3,941 9,373 10,497 13,831

Realized gains on sale of mortgage loans 184 93 504 301

(1) Represents the carrying value of the loans after redesignation, excluding allowance.

The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process was $8.2

billion and $10.1 billion as of September 30, 2019 and December 31, 2018, respectively. As a result of our various loss

mitigation and foreclosure prevention efforts, we expect that a portion of the loans in the process of formal foreclosure

proceedings will not ultimately foreclose.

Nonaccrual Loans

We discontinue accruing interest on loans when we believe collectibility of principal or interest is not reasonably assured,

which for a single-family loan we have determined, based on our historical experience, to be when the loan becomes two

months or more past due according to its contractual terms. Interest previously accrued but not collected is reversed through

interest income at the date a loan is placed on nonaccrual status. We return a non-modified single-family loan to accrual status

at the point that the borrower brings the loan current. We return a modified single-family loan to accrual status at the point that

the borrower successfully makes all required payments during the trial period (generally three to four months) and the

modification is made permanent. We place a multifamily loan on nonaccrual status when the loan becomes three months or

more past due according to its contractual terms or is deemed to be individually impaired, unless the loan is well secured such

that collectibility of principal and accrued interest is reasonably assured. We return a multifamily loan to accrual status when

the borrower cures the delinquency of the loan or we otherwise determine that the loan is well secured such that collectibility is

reasonably assured.
Aging Analysis

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans by portfolio segment

and class, excluding loans for which we have elected the fair value option.

As of September 30, 2019

30 - 59

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously

Delinquent(1)

Total

Delinquent Current Total

Recorded

Investment

in Loans 90

Days or

More

Delinquent

and

Accruing

Interest

Recorded

Investment

in

Nonaccrual

Loans

(Dollars in millions)

Single-family:

Primary $ 29,211 $ 7,188 $ 13,291 $ 49,690 $ 2,867,330 $ 2,917,020 $ 26 $ 23,840

Government(2) 44 20 144 208 17,881 18,089 144 Ñ

Alt-A 1,717 591 1,316 3,624 40,663 44,287 1 2,228

Other 572 212 485 1,269 9,836 11,105 2 800

Total singlefamily 31,544 8,011 15,236 54,791 2,935,710 2,990,501 173 26,868

Multifamily(3) 32 N/A 181 213 320,984 321,197 Ñ 604

Total $ 31,576 $ 8,011 $ 15,417 $ 55,004 $ 3,256,694 $ 3,311,698 $ 173 $ 27,472

As of December 31, 2018

30 - 59

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously

Delinquent(1)

Total

Delinquent Current Total

Recorded

Investment

in Loans 90

Days or

More

Delinquent

and

Accruing

Interest

Recorded

Investment

in

Nonaccrual

Loans

(Dollars in millions)

Single-family:

Primary $ 30,471 $ 7,881 $ 14,866 $ 53,218 $ 2,816,047 $ 2,869,265 $ 22 $ 26,170

Government(2) 57 17 169 243 21,887 22,130 169 Ñ

Alt-A 2,332 821 1,844 4,997 48,274 53,271 2 3,082

Other 804 283 713 1,800 13,038 14,838 2 1,128

Total singlefamily 33,664 9,002 17,592 60,258 2,899,246 2,959,504 195 30,380

Multifamily(3) 56 N/A 171 227 295,437 295,664 Ñ 492

Total $ 33,720 $ 9,002 $ 17,763 $ 60,485 $ 3,194,683 $ 3,255,168 $ 195 $ 30,872

(1) Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously

delinquent loans are loans that are 60 days or more past due.

(2) Primarily consists of reverse mortgages, which due to their nature, are not aged and are included in the current column.

(3) Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 69
Credit Quality Indicators

The following table displays the total recorded investment in our single-family HFI loans by class and credit quality indicator,

excluding loans for which we have elected the fair value option. 

As of

SeptemberÄ30, 2019(1) DecemberÄ31, 2018(1)

Primary Alt-A Other Primary Alt-A Other

(Dollars in millions)

Estimated mark-to-market loan-to-value (ÇLTVÉ) ratio:(2)

Less than or equal to 80% $ 2,569,771 $ 39,710 $ 9,694 $ 2,521,766 $ 45,476 $ 12,291

Greater than 80% and less than or equal to 90% 228,868 2,365 709 228,614 3,804 1,195

Greater than 90% and less than or equal to 100% 113,424 1,131 337 109,548 1,997 645

Greater than 100% 4,957 1,081 365 9,337 1,994 707

Total $ 2,917,020 $ 44,287 $ 11,105 $ 2,869,265 $ 53,271 $ 14,838

(1) Excludes $18.1 billion and $22.1 billion as of September 30, 2019 and December 31, 2018, 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 class is primarily reverse

mortgages for which we do not calculate an estimated mark-to-market LTV ratio.

(2) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current

value of the property as of the end of each reported period, which we calculate using an internal valuation model that estimates periodic

changes in home value.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 70

The following table displays the total recorded investment in our multifamily HFI loans by credit quality indicator, excluding

loans for which we have elected the fair value option.

As of

September 30, December 31,

2019 2018

(Dollars in millions)

Credit risk profile by internally assigned grade:

Non-classified $ 314,458 $ 289,231

Classified(1) 6,739 6,433

Total $ 321,197 $ 295,664

(1) Includes loans classified as ÇSubstandardÉ or ÇDoubtful.É Loans classified as ÇSubstandardÉ have a well-defined weakness that jeopardizes

the timely full repayment. Loans classified as ÇDoubtfulÉ have weakness that makes collection or liquidation in full highly questionable and

improbable based on existing conditions and values. As of September 30, 2019, we had loans with recorded investment of less than $0.1

million classified as doubtful, compared with $1 million as of December 31, 2018.
Individually Impaired Loans

Individually impaired loans include troubled debt restructurings (ÇTDRsÉ), acquired credit-impaired loans and multifamily loans

that we have assessed as probable that we will not collect all contractual amounts due, regardless of whether we are currently

accruing interest, excluding loans classified as HFS and loans for which we have elected the fair value option. The following

tables display the total unpaid principal balance, recorded investment, related allowance, average recorded investment and

interest income recognized for individually impaired loans. 

As of

September 30, 2019 December 31, 2018

Unpaid

Principal

Balance

Total

Recorded

Investment

Related

Allowance

for Loan

Losses

Unpaid

Principal

Balance

Total

Recorded

Investment

Related

Allowance

for Loan

Losses

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary $ 67,175 $ 64,987 $ (6,141) $ 81,791 $ 78,688 $ (9,406)

Government 250 255 (50) 264 270 (55)

Alt-A 11,956 11,008 (1,726) 16,576 15,158 (2,793)

Other 3,703 3,505 (590) 5,482 5,169 (1,001)

Total single-family 83,084 79,755 (8,507) 104,113 99,285 (13,255)

Multifamily 281 283 (45) 197 196 (40)

Total individually impaired loans with related

allowance recorded 83,365 80,038 (8,552) 104,310 99,481 (13,295)

With no related allowance recorded:(1)

Single-family:

Primary 19,326 18,463 Å 15,939 15,191 Ñ

Government 65 61 Å 61 56 Ñ

Alt-A 2,391 2,141 Å 2,628 2,363 Ñ

Other 624 571 Å 718 666 Ñ

Total single-family 22,406 21,236 Å 19,346 18,276 Ñ

Multifamily 368 369 Å 343 346 Ñ

Total individually impaired loans with no related

allowance recorded 22,774 21,605 Å 19,689 18,622 Ñ

Total individually impaired loans(2) $ 106,139 $ 101,643 $ (8,552) $ 123,999 $ 118,103 $ (13,295)

(1) The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is

required.

(2) Includes single-family loans restructured in a TDR with a recorded investment of $100.7 billion and $117.2 billion as of September 30,

2019 and December 31, 2018, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $126 million

and $187 million as of September 30, 2019 and December 31, 2018, respectively.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 71
For the Three Months Ended September 30,

2019 2018

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary $ 69,084 $ 713 $ 62 $ 84,043 $ 871 $ 86

Government 262 2 Å 276 3 Ñ

Alt-A 11,845 125 8 17,034 179 13

Other 3,904 37 4 6,254 57 4

Total single-family 85,095 877 74 107,607 1,110 103

Multifamily 313 2 Å 231 1 Ñ

Total individually impaired loans with related

allowance recorded 85,408 879 74 107,838 1,111 103

With no related allowance recorded:(1)

Single-family:

Primary 16,422 262 39 15,140 254 30

Government 56 1 Å 57 1 Ñ

Alt-A 2,130 44 4 2,562 54 4

Other 575 10 1 784 13 2

Total single-family 19,183 317 44 18,543 322 36

Multifamily 401 8 Å 335 8 Ñ

Total individually impaired loans with no related

allowance recorded 19,584 325 44 18,878 330 36

Total individually impaired loans $104,992 $ 1,204 $ 118 $126,716 $ 1,441 $ 139

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 72
For the Nine Months Ended September 30,

2019 2018

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total Interest

Income

Recognized

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary $ 73,601 $ 2,304 $ 214 $ 86,842 $ 2,697 $ 302

Government 267 8 Å 277 15 Ñ

Alt-A 13,299 426 30 19,081 610 45

Other 4,429 123 11 7,140 201 15

Total single-family 91,596 2,861 255 113,340 3,523 362

Multifamily 280 7 Å 244 2 Ñ

Total individually impaired loans with related

allowance recorded 91,876 2,868 255 113,584 3,525 362

With no related allowance recorded:(1)

Single-family:

Primary 15,718 731 103 15,039 740 88

Government 56 3 Å 58 3 Ñ

Alt-A 2,203 127 11 2,710 173 13

Other 611 28 3 848 44 4

Total single-family 18,588 889 117 18,655 960 105

Multifamily 377 16 Å 333 11 Ñ

Total individually impaired loans with no related

allowance recorded 18,965 905 117 18,988 971 105

Total individually impaired loans $110,841 $ 3,773 $ 372 $132,572 $ 4,496 $ 467

(1) The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is

required.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 73

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, including those modifications in a trial period, 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

loanÖs contractual terms. We account for these informal restructurings as a TDR if we defer more than three missed payments.

We also classify loans to certain borrowers who have received bankruptcy relief as TDRs.

The substantial majority of the loan modifications we complete result in term extensions, interest rate reductions or a

combination of both. The average term extension of a single-family modified loan was 164 months and 98 months for the three

months ended September 30, 2019 and 2018, respectively. The average interest rate reduction was 0.15 and 0.14 percentage

points, for the three months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30,

2019 and 2018, the average term extension of a single-family modified loan was 160 months and 104 months, respectively,

and the average interest rate reduction was 0.11 and 0.23 percentage points, respectively. 
The following tables display the number of loans and recorded investment in loans classified as a TDR.

For the Three Months Ended September 30,

2019 2018

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary 11,373 $ 1,819 12,291 $ 1,797

Government 16 1 21 3

Alt-A 543 70 779 100

Other 89 16 207 37

Total single-family 12,021 1,906 13,298 1,937

Multifamily 3 4 2 7

Total TDRs 12,024 $ 1,910 13,300 $ 1,944

For the Nine Months Ended September 30,

2019 2018

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary 36,126 $ 5,634 75,790 $ 11,469

Government 61 7 95 9

Alt-A 1,948 248 4,499 583

Other 374 68 937 173

Total single-family 38,509 5,957 81,321 12,234

Multifamily 9 37 12 68

Total TDRs 38,518 $ 5,994 81,333 $ 12,302

(1) Based on the nature of our modification programs, which do not include principal or past-due interest forgiveness, there is not a material

difference between the recorded investment in our loans pre- and post- modification. Therefore, these amounts represent recorded

investment post-modification.

The decrease in loans classified as a TDR for the three and nine months ended September 30, 2019 compared with the three

and nine months ended September 30, 2018 was primarily attributable to a significantly higher number of single-family loan

modifications and other forms of loss mitigation in the areas affected by Hurricanes Harvey, Irma and Maria that resulted in a

restructuring of the terms of those loans during the first nine months of 2018.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 74
For loans that had a payment default in the period presented and that were classified as a TDR in the twelve months prior to

the payment default, the following tables display the number of loans and our recorded investment in these loans at the time of

payment default. For the 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,

2019 2018

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary 3,780 $ 585 3,720 $ 519

Government 28 2 8 Ñ

Alt-A 307 43 438 74

Other 87 16 143 29

Total single-family 4,202 646 4,309 622

Multifamily 1 13 1 2

Total TDRs that subsequently defaulted 4,203 $ 659 4,310 $ 624

For the Nine Months Ended September 30,

2019 2018

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary 12,343 $ 1,864 12,372 $ 1,774

Government 56 7 37 4

Alt-A 1,157 174 1,703 275

Other 351 65 469 93

Total single-family 13,907 2,110 14,581 2,146

Multifamily 2 19 2 4

Total TDRs that subsequently defaulted 13,909 $ 2,129 14,583 $ 2,150

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 75

4.ÅÅAllowance for Loan Losses

We maintain an allowance for loan losses for HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts,

excluding loans for which we have elected the fair value option. When calculating our allowance for loan losses, we consider

the unpaid principal balance, net of amortized premiums and discounts, and other cost basis adjustments of HFI loans at the

balance sheet date. We record charge-offs as a reduction to our allowance for loan losses at the point of foreclosure,

completion of a short sale, upon the redesignation of loans from HFI to HFS or when a loan is determined to be uncollectible.

We aggregate single-family HFI loans that are not individually impaired based on similar risk characteristics, for purposes of

estimating incurred credit losses and establishing a collective single-family loss reserve using an econometric model that

derives an overall loss reserve estimate. We base our allowance methodology on historical events and trends, such as loss

severity (in event of default), default rates, and recoveries from mortgage insurance contracts and other credit enhancements

that provide loan-level loss coverage and are either contractually attached to a loan or that were entered into

contemporaneously with and in contemplation of a guaranty or loan purchase transaction. We use recent regional historical

sales and appraisal information, including the sales of our own foreclosed properties, to develop our loss severity estimates for

all loan categories. Our allowance calculation also incorporates a loss confirmation period (the anticipated time lag between a

credit loss event and the confirmation of the credit loss resulting from that event) to ensure our allowance estimate captures

credit losses that have been incurred as of the balance sheet date but have not been confirmed. In addition, management

performs a review of the observable data used in its estimate to ensure it is representative of prevailing economic conditions

and other events existing as of the balance sheet date. 

Individually impaired single-family loans currently include those classified as a TDR and acquired credit-impaired loans. We

consider a loan to be impaired when, based on current information, it is probable that we will not receive all amounts due,
including interest, in accordance with the contractual terms of the loan agreement. When a loan has been restructured, we

measure impairment using a cash flow analysis discounted at the loanÖs original effective interest rate. If we expect to recover

our recorded investment in an individually impaired loan through probable foreclosure of the underlying collateral, we measure

impairment based on the difference between our recorded investment in the loan and the fair value of the underlying property,

adjusted for the estimated costs to sell the property and estimated insurance or other proceeds we expect to receive. During

the three months ended September 30, 2019, we enhanced the model used to estimate cash flows for individually impaired

single-family loans within our allowance for loan losses. This enhancement was performed as a part of managementÖs routine

model performance review process. In addition to incorporating recent loan performance data, this model enhancement better

captures recent prepayment activity, default rates, and loss severity in the event of default.ÄThe enhancement resulted in a

decrease to our allowance for loan losses and an incremental benefit for credit losses of approximately $850 million and is

included in ÇBenefit (provision) for loan lossesÉ in the table below.

We establish a collective allowance for all loans in our multifamily guaranty book of business that are not individually

measured for impairment using an internal model that applies loss factors to loans in similar risk categories. Our loss factors

are developed based on our historical default and loss severity experience. We identify multifamily loans for evaluation for

impairment through a credit risk assessment process. If we determine that a multifamily loan is individually impaired, we

generally measure impairment on that loan based on the fair value of the underlying collateral less estimated costs to sell the

property, as we have concluded that such loans are collateral dependent. We evaluate collectively for impairment smallerbalance homogeneous multifamily loans. 

The following table displays changes in single-family, multifamily and total allowance for loan losses.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance $ (11,210) $ (16,602) $ (13,969) $ (18,849)

Benefit (provision) for loan losses(1) 1,826 724 3,712 1,916

Charge-offs 270 509 1,209 1,705

Recoveries (8) (65) (68) (189)

Other Å (2) (6) (19)

Ending balance $ (9,122) $ (15,436) $ (9,122) $ (15,436)

Multifamily allowance for loan losses:

Beginning balance $ (272) $ (210) $ (234) $ (235)

Benefit (provision) for loan losses(1) 17 (14) (23) 6

Charge-offs 2 Ñ 6 5

Recoveries (1) (3) (3) (3)

Ending balance $ (254) $ (227) $ (254) $ (227)

Total allowance for loan losses:

Beginning balance $ (11,482) $ (16,812) $ (14,203) $ (19,084)

Benefit (provision) for loan losses(1) 1,843 710 3,689 1,922

Charge-offs 272 509 1,215 1,710

Recoveries (9) (68) (71) (192)

Other Å (2) (6) (19)

Ending balance $ (9,376) $ (15,663) $ (9,376) $ (15,663)

(1) Benefit (provision) for loan losses is included in ÇBenefit for credit lossesÉ in our condensed consolidated statements of operations and

comprehensive income.

Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 76
The following table displays the allowance for loan losses and recorded investment in our HFI loans by impairment or

allowance methodology and portfolio segment, excluding loans for which we have elected the fair value option.

As of

September 30, 2019 December 31, 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans(1) $ (8,507) $ (45) $ (8,552) $ (13,255) $ (40) $ (13,295)

Collectively reserved loans (615) (209) (824) (714) (194) (908)

Total allowance for loan losses $ (9,122) $ (254) $ (9,376) $ (13,969) $ (234) $ (14,203)

Recorded investment in loans by segment:

Individually impaired loans(1) $ 100,991 $ 652 $ 101,643 $ 117,561 $ 542 $ 118,103

Collectively reserved loans 2,889,510 320,545 3,210,055 2,841,943 295,122 3,137,065

Total recorded investment in loans $ 2,990,501 $ 321,197 $ 3,311,698 $2,959,504 $ 295,664 $ 3,255,168

(1) Includes acquired credit-impaired loans.

Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 77

5.ÅÅInvestments in Securities

Trading Securities

Trading securities are recorded at fair value with subsequent changes in fair value recorded as ÇFair value gains (losses), netÉ

in our condensed consolidated statements of operations and comprehensive income. The following table displays our

investments in trading securities.

As of

September 30,

2019

December 31,

2018

(Dollars in millions)

Mortgage-related securities:

Fannie Mae(1) $ 3,661 $ 1,467

Other agency(2) 3,704 3,503

Private-label and other mortgage securities 741 1,306

Total mortgage-related securities (includes $922 and $32, respectively, related to

consolidated trusts) 8,106 6,276

Non-mortgage-related securities:

U.S. Treasury securities 36,016 35,502

Other securities 84 89

Total non-mortgage-related securities 36,100 35,591

Total trading securities $ 44,206 $ 41,867

(1) In the second quarter of 2019, we implemented the Single Security Initiative and recognized $1.4 billion in mortgage-related securities that

had previously been consolidated. 

(2) Consists of Freddie Mac and Ginnie Mae mortgage-related securities.

The following table displays information about our net trading gains (losses).

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

Net trading gains (losses) $ 95 $ (40) $ 370 $ 79

Net trading gains (losses) recognized in the period related to securities still

held at period end 82 (27) 298 20
Available-for-Sale Securities

We record AFS securities at fair value with unrealized gains and losses, recorded net of tax, as a component of ÇOther

comprehensive income (loss)É and we recognize realized gains and losses from the sale of AFS securities in ÇInvestment

gains, netÉ in our condensed consolidated statements of operations and comprehensive income. 

The following table displays the gross realized gains and proceeds on sales of AFS securities.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

Gross realized gains $ Å $ 12 $ 171 $ 375

Total proceeds (excludes initial sale of securities from new portfolio

securitizations) Å 21 376 662

Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 78

The following tables display the amortized cost, gross unrealized gains and losses, and fair value by major security type for

AFS securities.

As of September 30, 2019

Total

Amortized

Cost(1)

Gross

Unrealized

Gains

Gross

Unrealized

Losses(2)

Total

Fair

Value

(Dollars in millions)

Fannie Mae $ 1,492 $ 98 $ (8) $ 1,582

Other agency 195 18 Ñ 213

Alt-A and subprime private-label securities 102 124 Ñ 226

Mortgage revenue bonds 339 10 (3) 346

Other mortgage-related securities 320 5 (2) 323

Total $ 2,448 $ 255 $ (13) $ 2,690

As of December 31, 2018

Total

Amortized

Cost(1)

Gross

Unrealized

Gains

Gross

Unrealized

Losses(2)

Total

Fair

Value

(Dollars in millions)

Fannie Mae $ 1,754 $ 69 $ (26) $ 1,797

Other agency 239 17 Ñ 256

Alt-A and subprime private-label securities 325 267 Ñ 592

Mortgage revenue bonds 425 13 (4) 434

Other mortgage-related securities 336 14 Ñ 350

Total $ 3,079 $ 380 $ (30) $ 3,429

(1) Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, as well as net

other-than-temporary impairments (ÇOTTIÉ) recognized in ÇInvestment gains, netÉ in our condensed consolidated statements of operations

and comprehensive income.

(2) Represents the gross unrealized losses on securities for which we have not recognized OTTI, as well as the noncredit component of OTTI

and cumulative changes in fair value of securities for which we previously recognized the credit component of OTTI in ÇAccumulated other

comprehensive incomeÉ in our condensed consolidated balance sheets.
The following tables display additional information regarding gross unrealized losses and fair value by major security type for

AFS securities in an unrealized loss position.

As of September 30, 2019

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 $ Ñ $ Ñ $ (8) $ 348

Mortgage revenue bonds Ñ Ñ (3) 5

Other mortgage-related securities (2) 273 Ñ Ñ

Total $ (2) $ 273 $ (11) $ 353

As of December 31, 2018

Less Than 12

Consecutive Months

12 Consecutive

Months or Longer

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

(Dollars in millions)

Fannie Mae $ Ñ $ Ñ $ (26) $ 487

Mortgage revenue bonds (1) 24 (3) 19

Total $ (1) $ 24 $ (29) $ 506

Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 79

Other-Than-Temporary Impairments

The cumulative outstanding balance related to other-than-temporary-impairment (ÇOTTIÉ) credit loss amounts previously

recognized in our condensed consolidated statements of operations and comprehensive income throughout the life of AFS

debt securities held in portfolio were $37 million and $635 million as of September 30, 2019 and December 31, 2018,

respectively. Those amounts were $718 million and $1.1 billion as of September 30, 2018 and December 31, 2017,

respectively. The decrease in the cumulative outstanding balance in the first nine months of 2019 and 2018 was primarily

driven by securities that we no longer hold in portfolio. 

The following table displays net unrealized gains on AFS securities and other amounts within accumulated other

comprehensive income (ÇAOCIÉ), net of tax, by major categories.

As of

September 30, December 31,

2019 2018

(Dollars in millions)

Net unrealized gains on AFS securities for which we have not recorded OTTI $ 191 $ 52

Net unrealized gains on AFS securities for which we have recorded OTTI Å 224

Other 39 46

Accumulated other comprehensive income $ 230 $ 322
Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining

contractual maturity, assuming no principal prepayments. The contractual maturity of mortgage-backed securities is not a

reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any time.

As of September 30, 2019

Total

Amortized

Cost

Total 

Fair 

Value

One Year or Less

After One Year

Through Five Years

After Five Years

Through Ten Years After Ten Years

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

(Dollars in millions)

Fannie Mae $ 1,492 $ 1,582 $ Ñ $ Ñ $ 14 $ 15 $ 101 $ 111 $ 1,377 $ 1,456

Other agency 195 213 Ñ Ñ 20 21 26 29 149 163

Alt-A and subprime privatelabel securities 102 226 Ñ Ñ Ñ Ñ 1 1 101 225

Mortgage revenue bonds 339 346 2 2 26 27 36 37 275 280

Other mortgage-related

securities 320 323 Ñ Ñ 2 1 24 27 294 295

Total $ 2,448 $ 2,690 $ 2 $ 2 $ 62 $ 64 $ 188 $ 205 $ 2,196 $ 2,419

Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 80

6.ÅÅFinancial Guarantees

We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts

and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily relating to the

unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees. The remaining contractual

terms of our guarantees range from 1 day to 33 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. 

As the guarantor of structured securities backed in whole or in part by Freddie Mac-issued securities, we extend our guaranty

to the underlying Freddie Mac securities in our resecuritization trusts. However, Freddie Mac continues to guarantee the

payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an

incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. Due to the funding

commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury, we have

concluded that the associated credit risk is negligible. As such, we exclude from the following table approximately $28.9 billion

of Freddie Mac securities backing unconsolidated Fannie Mae-issued structured securities as of September 30, 2019.

The following table displays our off-balance sheet maximum exposure, guaranty obligation recognized in our condensed

consolidated balance sheets and the potential maximum recovery from third parties through available credit enhancements

and recourse related to our financial guarantees.

As of

September 30, 2019 December 31, 2018

Maximum

Exposure

Guaranty

Obligation

Maximum

Recovery(1)

Maximum

Exposure

Guaranty

Obligation

Maximum

Recovery(1)

(Dollars in millions)

Unconsolidated Fannie Mae MBS $ 6,603 $ 26 $ 6,354 $ 7,278 $ 30 $ 6,811

Other guaranty arrangements(2) 12,981 135 2,609 13,847 130 2,711

Total $ 19,584 $ 161 $ 8,963 $ 21,125 $ 160 $ 9,522

(1) Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurersÖ and financial

guarantorsÖ ability to meet their obligations to us. For information on our mortgage insurers and financial guarantors, see ÇNote 13,

Concentrations of Credit RiskÉ in our 2018 Form 10-K and ÇNote 10, Concentrations of Credit RiskÉ in this report.

(2) Primarily consists of credit enhancements and long-term standby commitments.
7.ÅÅShort-Term and Long-Term Debt

Notes to Condensed Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 81

Short-Term Debt

The following table displays our outstanding short-term debt (debt with an original contractual maturity of one year or less) and

weighted-average interest rates of this debt.

As of

September 30, 2019 December 31, 2018

Outstanding

WeightedAverage

Interest

Rate(1) Outstanding

WeightedAverage

Interest

Rate(1)

(Dollars in millions)

Federal funds purchased and securities sold under agreements to

repurchase(2) $ 1,125 2.15% $ Ñ Ñ%

Short-term debt of Fannie Mae $ 35,812 2.04% $ 24,896 2.29%

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Represents agreements to repurchase securities for a specified price, with repayment generally occurring on the following day.

Intraday Line of Credit

We use a secured intraday funding line of credit provided by a large financial institution. We post collateral which, in some

circumstances, the secured party has the right to repledge to third parties. As this line of credit is an uncommitted intraday loan

facility, we may be unable to draw on it if and when needed. The line of credit under this facility was up to $15.0 billion as of

September 30, 2019 and December 31, 2018.

Long-Term Debt

Long-term debt represents debt with an original contractual maturity of greater than one year. The following table displays our

outstanding long-term debt.

As of

September 30, 2019 December 31, 2018

Maturities Outstanding

WeightedAverage

Interest

Rate(1) Maturities Outstanding

WeightedAverage

Interest

Rate(1)

(Dollars in millions)

Senior fixed:

Benchmark notes and bonds 2019 - 2030 $ 91,603 2.66% 2019 - 2030 $ 103,206 2.36%

Medium-term notes(2) 2019 - 2026 40,973 1.60 2019 - 2026 61,455 1.48

Other(3) 2019 - 2038 6,142 4.84 2019 - 2038 6,683 4.62

Total senior fixed 138,718 2.44 171,344 2.13

Senior floating:

Medium-term notes(2) 2020 - 2021 9,773 2.28 2019 - 2020 4,174 2.36

Connecticut Avenue Securities(4) 2023 - 2031 22,977 5.90 2023 - 2031 25,641 5.97

Other(5) 2020 - 2037 422 7.79 2020 - 2037 351 10.19

Total senior floating 33,172 4.86 30,166 5.52

Subordinated debentures 2019 5,783 9.99 2019 5,617 9.64

Secured borrowings(6) 2021 - 2022 37 2.24 2021 - 2022 51 1.96

Total long-term debt of Fannie Mae(7) 177,710 3.14 207,178 2.83

Debt of consolidated trusts 2019 - 2058 3,248,336 2.79 2019 - 2058 3,159,846 3.03

Total long-term debt $ 3,426,046 2.81% $ 3,367,024 3.02%

(1) Includes the effects of discounts, premiums and other cost basis adjustments.
(2) Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.

(3) Includes other long-term debt with an original contractual maturity of greater than 10 years and foreign exchange bonds.

(4) Credit risk-sharing securities that transfer a portion of the credit risk on specified pools of single-family mortgage loans to the investors in

these securities, a portion of which is reported at fair value. Represents Connecticut Avenue Securities issued prior to the implementation

of our CAS REMIC structure in November 2018. See ÇNote 2, Consolidations and Transfers of Financial AssetsÉ in our 2018 Form 10-K for

more information about our CAS REMIC structure.

(5) Consists of structured debt instruments that are reported at fair value.

(6) Represents our remaining liability resulting from the transfer of financial assets from our condensed consolidated balance sheets that did

not qualify as a sale under the accounting guidance for the transfer of financial instruments.

(7) Includes unamortized discounts and premiums, other cost basis adjustments and fair value adjustments of $30 million and $413 millionÄas

of September 30, 2019 and December 31, 2018, respectively.

Notes to Condensed Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 82

8.ÅÅDerivative Instruments

Derivative instruments are an integral part of our strategy in managing interest rate risk. Derivative instruments may be

privately-negotiated, bilateral contracts, or they may be listed and traded on an exchange. We refer to our derivative

transactions made pursuant to bilateral contracts as our over-the-counter (ÇOTCÉ) derivative transactions and our derivative

transactions accepted for clearing by a derivatives clearing organization as our cleared derivative transactions. We typically do

not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for calculating

actual payments or settlement amounts. The derivative contracts we use for interest rate risk management purposes consist

primarily of interest rate swaps and interest rate options. See ÇNote 8, Derivative InstrumentsÉ in our 2018 Form 10-K for

additional information on interest rate risk management.

We enter into various forms of credit risk-sharing agreements that we account for as derivatives, including some of our credit

risk transfer transactions and swap credit enhancements. The majority of our credit-related derivatives are credit risk transfer

transactions, whereby a portion of the credit risk associated with losses on a reference pool of mortgage loans is transferred to

a third party. Additionally, we enter into derivative transactions that are associated with some of our other credit risk transfer

transactions, whereby we manage investment risk to guarantee that certain unconsolidated VIEs have sufficient cash flows to

pay their contractual obligations.

We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgage-related

securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgage-related

securities meet the criteria of a derivative. We typically settle the notional amount of our mortgage commitments that are

accounted for as derivatives.

We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a

trade date basis. Fair value amounts, which are netted to the extent a legal right of offset exists and is enforceable by law at

the counterparty level and are inclusive of the right or obligation associated with the cash collateral posted or received, are

recorded in ÇOther assetsÉ or ÇOther liabilitiesÉ in our condensed consolidated balance sheets. See ÇNote 12, Fair ValueÉ for

additional information on derivatives recorded at fair value. We present cash flows from derivatives as operating activities in

our condensed consolidated statements of cash flows. 
Notional and Fair Value Position of our Derivatives

The following table displays the notional amount and estimated fair value of our asset and liability derivative instruments.

As of September 30, 2019 As of December 31, 2018

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 $ 35,550 $ Å $ 32,893 $ (1,481) $ 71,416 $ 438 $ 21,253 $ (740)

Receive-fixed 71,372 958 34,986 (103) 88,799 1,113 58,399 (860)

Basis 273 179 Å Å 250 104 624 Ñ

Foreign currency 213 27 215 (86) 221 22 223 (72)

Swaptions:

Pay-fixed 4,600 18 6,375 (270) 10,375 191 1,000 (4)

Receive-fixed 2,875 203 4,600 (137) 500 20 7,375 (338)

Futures(1) 47,069 Å Å Å 16,631 Ñ Ñ Ñ

Total gross risk management

derivatives 161,952 1,385 79,069 (2,077) 188,192 1,888 88,874 (2,014)

Accrued interest receivable

(payable) Å 287 Å (374) Ñ 400 Ñ (419)

Netting adjustment(2) Å (1,663) Å 2,299 Ñ (2,266) Ñ 2,315

Total net risk management

derivatives $ 161,952 $ 9 $ 79,069 $ (152) $ 188,192 $ 22 $ 88,874 $ (118)

Mortgage commitment

derivatives:

Mortgage commitments to

purchase whole loans $ 7,812 $ 20 $ 6,258 $ (26) $ 4,370 $ 29 $ 57 $ Ñ

Forward contracts to

purchase mortgagerelated securities 70,120 231 28,853 (85) 40,650 349 1,045 (3)

Forward contracts to sell

mortgage-related

securities 57,048 170 109,229 (305) 292 1 70,593 (645)

Total mortgage

commitment derivatives 134,980 421 144,340 (416) 45,312 379 71,695 (648)

Credit enhancement derivatives 30,407 42 6,509 (27) 33,431 57 919 (11)

Derivatives at fair value $ 327,339 $ 472 $ 229,918 $ (595) $ 266,935 $ 458 $ 161,488 $ (777)

(1) Futures have no ascribable fair value because the positions are settled daily.

(2) The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with

the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $1.3 billion and $713

million as of September 30, 2019 and December 31, 2018, respectively. Cash collateral received was $684 million and $664 million as of

September 30, 2019 and December 31, 2018, respectively. 

Notes to Condensed Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 83
We record all derivative gains and losses, including accrued interest, in ÇFair value gains (losses), netÉ in our condensed

consolidated statements of operations and comprehensive income. The following table displays, by type of derivative

instrument, the fair value gains and losses, net on our derivatives. 

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

2019 2018 2019 2018

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed $ (1,414) $ 1,034 $ (4,913) $ 4,784

Receive-fixed 966 (524) 4,131 (3,508)

Basis 24 (5) 75 (31)

Foreign currency (11) (10) (9) (35)

Swaptions:

Pay-fixed (110) 67 (430) 232

Receive-fixed 209 (34) 309 (72)

Futures 42 Ñ 296 (3)

Net accrual of periodic settlements (190) (285) (698) (786)

Total risk management derivatives fair value gains (losses), net (484) 243 (1,239) 581

Mortgage commitment derivatives fair value gains (losses), net (177) 118 (946) 606

Credit enhancement derivatives fair value losses, net (7) (1) (31) (2)

Total derivatives fair value gains (losses), net $ (668) $ 360 $ (2,216) $ 1,185

Notes to Condensed Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 84

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate derivative contracts. We are exposed to the risk

that a counterparty in a derivative transaction will default on payments due to us, which may require us to seek a replacement

derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable

replacement. We manage our derivative counterparty credit exposure relating to our risk management derivative transactions

mainly through enforceable master netting arrangements, which allow us to net derivative assets and liabilities with the same

counterparty or clearing organization and clearing member. For our OTC derivative transactions, we require counterparties to

post collateral, which may include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.

See ÇNote 11, Netting ArrangementsÉ for information on our rights to offset assets and liabilities.
9.ÅÅSegment Reporting

We have two reportable business segments: Single-Family and Multifamily. Results of our two business segments are

intended to reflect each segment as if it were a stand-alone business. The sum of the results for our two business segments

equals our condensed consolidated results of operations.

Segment Allocations and Results

The majority of our revenues and expenses are directly associated with either our single-family or our multifamily business

segment and are included in determining that segmentÖs operating results. Other revenues and expenses, including

administrative expenses, that are not directly attributable to a particular business segment are allocated based on the size of

each segmentÖs guaranty book of business. The substantial majority of the gains and losses associated with our risk

management derivatives are allocated to our single-family business segment.

The following table displays our segment results.

For the Three Months Ended September 30,

2019 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Net interest income(1) $ 4,484 $ 745 $ 5,229 $ 4,670 $ 699 $ 5,369

Fee and other income(2) 156 246 402 79 192 271

Net revenues 4,640 991 5,631 4,749 891 5,640

Investment gains, net(3) 198 55 253 146 20 166

Fair value gains (losses), net(4) (719) 6 (713) 417 (31) 386

Administrative expenses (634) (115) (749) (636) (104) (740)

Credit-related income (expense)(5)

Benefit (provision) for credit losses 1,840 17 1,857 732 (16) 716

Foreclosed property expense (93) (3) (96) (150) (9) (159)

Total credit-related income (expense) 1,747 14 1,761 582 (25) 557

TCCA fees(6) (613) Å (613) (576) Ñ (576)

Other expenses, net (424) (147) (571) (282) (95) (377)

Income before federal income taxes 4,195 804 4,999 4,400 656 5,056

Provision for federal income taxes (872) (164) (1,036) (938) (107) (1,045)

Net income $ 3,323 $ 640 $ 3,963 $ 3,462 $ 549 $ 4,011

Notes to Condensed Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 85
For the Nine Months Ended September 30,

2019 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Net interest income(1) $ 12,942 $ 2,170 $ 15,112 $ 13,954 $ 2,024 $ 15,978

Fee and other income(2) 350 525 875 306 524 830

Net revenues 13,292 2,695 15,987 14,260 2,548 16,808

Investment gains, net(3) 709 138 847 640 53 693

Fair value gains (losses), net(4) (2,364) 66 (2,298) 1,729 (69) 1,660

Administrative expenses (1,899) (338) (2,237) (1,928) (317) (2,245)

Credit-related income (expense)(5)

Benefit (provision) for credit losses 3,753 (21) 3,732 2,223 6 2,229

Foreclosed property expense (362) (2) (364) (448) (12) (460)

Total credit-related income (expense) 3,391 (23) 3,368 1,775 (6) 1,769

TCCA fees(6) (1,806) Å (1,806) (1,698) Ñ (1,698)

Other expenses, net (1,179) (335) (1,514) (684) (262) (946)

Income before federal income taxes 10,144 2,203 12,347 14,094 1,947 16,041

Provision for federal income taxes (2,125) (427) (2,552) (2,998) (314) (3,312)

Net income $ 8,019 $ 1,776 $ 9,795 $ 11,096 $ 1,633 $ 12,729

(1) Net interest income primarily consists of guaranty fees received as compensation for assuming and managing the credit risk on loans

underlying Fannie Mae MBS held by third parties for the respective business segment, and the difference between the interest income

earned on the respective business segmentÖs mortgage assets in our retained mortgage portfolio and the interest expense associated with

the debt funding those assets. Revenues from single-family guaranty fees include revenues generated by the 10 basis point increase in

guaranty fees pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.

(2) Single-Family fee and other income primarily consists of compensation for engaging in structured transactions and providing other lender

services, and income resulting from settlement agreements resolving certain claims relating to private-label securities we purchased or

that we have guaranteed. Multifamily fee and other income consists of fees associated with Multifamily business activities, including yield

maintenance income.

(3) Investment gains and losses primarily consist of gains and losses on the sale of mortgage assets for the respective business segment. 

(4) Single-Family fair value gains and losses primarily consist of fair value gains and losses on risk management and mortgage commitment

derivatives, trading securities and other financial instruments associated with our single-family guaranty book of business. Multifamily fair

value gains and losses primarily consist of fair value gains and losses on MBS commitment derivatives, trading securities and other

financial instruments associated with our multifamily guaranty book of business. 

(5) Credit-related income or expense is based on the guaranty book of business of the respective business segment and consists of the

applicable segmentÖs benefit or provision for credit losses and foreclosed property income or expense on loans underlying the segmentÖs

guaranty book of business. 

(6) Consists of the portion of our single-family guaranty fees that is remitted to Treasury pursuant to the TCCA.

Notes to Condensed Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 86
10.ÅÅConcentrations of Credit Risk

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 87

Risk Characteristics of our Guaranty Book of Business

One of the key measures by which we gauge our performance risk is the delinquency status of the mortgage loans in our

guaranty book of business. 

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.

Single-Family credit risk characteristics

For single-family loans, management monitors the serious delinquency rate, which is the percentage of single-family loans,

based on the number of loans that are 90 days or more past due or in the foreclosure process, and loans that have higher risk

characteristics, such as high mark-to-market LTV ratios.

The following tables display the delinquency status and serious delinquency rates for specified loan categories of our singlefamily conventional guaranty book of business.

As of

September 30, 2019(1) December 31, 2018(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) 1.11% 0.29% 0.61% 1.17% 0.32% 0.69%

Percentage of single-family

conventional loans(4) 1.28 0.35 0.68 1.37 0.38 0.76

As of

September 30, 2019(1) December 31, 2018(1)

Percentage of 

Single-Family

Conventional

Guaranty Book

of Business(3)

Seriously

Delinquent

Rate(2)

Percentage of 

Single-Family

Conventional

Guaranty Book

of Business(3)

Seriously

Delinquent

Rate(2)

Estimated mark-to-market LTV ratio:

Greater than 100% * 10.62% * 9.85%

Geographical distribution:

California 19 0.32 19 0.34

Florida 6 0.87 6 1.16

New Jersey 3 1.21 4 1.38

New York 5 1.24 5 1.40

All other states 67 0.67 66 0.75

Product distribution:

Alt-A 2 3.09 2 3.35

Vintages:

2004 and prior 2 2.53 3 2.69

2005-2008 4 4.24 5 4.61

2009-2019 94 0.33 92 0.34

* Represents less than 0.5% of single-family conventional business volume or 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 more than 99% of our single-family conventional guaranty book of business as of September 30, 2019 and December

31, 2018. 

(2) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of September 30, 2019 or

December 31, 2018. 
(3) Calculated based on the aggregate unpaid principal balance of single-family conventional loans for each category divided by the

aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business.

(4) Calculated based on the number of single-family conventional loans that were delinquent divided by the total number of loans in our

single-family conventional guaranty book of business.

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 88

Multifamily credit risk characteristics

For multifamily loans, management monitors the serious delinquency rate, which is the percentage of multifamily loans, based

on unpaid principal balance, that are 60 days or more past due, and other loans that have higher risk characteristics, to

determine our overall credit quality indicator. Higher risk characteristics include, but are not limited to, current debt service

coverage ratio (ÇDSCRÉ) below 1.0 and original LTV ratios greater than 80%. We stratify multifamily loans into different internal

risk categories based on the credit risk inherent in each individual loan.

The following tables display the delinquency status and serious delinquency rates for specified loan categories of our

multifamily guaranty book of business.

As of

September 30, 2019(1) DecemberÄ31, 2018(1)

30 Days

Delinquent

Seriously

Delinquent(2)

30 Days

Delinquent

Seriously

Delinquent(2)

Percentage of multifamily guaranty book of business * 0.06% 0.02% 0.06%

As of

September 30, 2019 December 31, 2018

Percentage of

Multifamily

Guaranty Book

of Business(1)

Percentage

Seriously

Delinquent(2)(3)

Percentage of

Multifamily

Guaranty Book

of Business(1)

Percentage

Seriously

Delinquent(2)(3)

Original LTV ratio:

Greater than 80% 1% Å% 1% Ñ%

Less than or equal to 80% 99 0.06 99 0.06

Current DSCR below 1.0(4) 2 0.44 2 1.38

* Represents less than 0.01% of multifamily business volume or book of business.

(1) 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.

(2) Consists of multifamily loans that were 60 days or more past due as of the dates indicated.

(3) Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid

principal balance of multifamily loans for each category included in our multifamily guaranty book of business.

(4) Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most

recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range from 3 to 6 months but in some

cases may be longer.

Other Concentrations

Mortgage Insurers.ÄMortgage insurance Çrisk in forceÉ refers to our maximum potential loss recovery under the applicable

mortgage insurance policies in force and is generally based on the loan-level insurance coverage percentage and, if

applicable, any aggregate pool loss limit, as specified in the policy.

The following table displays our total mortgage insurance risk in force by primary and pool insurance, as well as the total risk in

force mortgage insurance coverage as a percentage of the single-family guaranty book of business.

As of

September 30, 2019 December 31, 2018

Risk in Force

Percentage of

Single-Family

Guaranty Book

of Business Risk in Force

Percentage of

Single-Family

Guaranty Book

of Business

(Dollars in millions)

Mortgage insurance risk in force:

Primary mortgage insurance $ 162,339 $ 152,379

Pool mortgage insurance 379 409

Total mortgage insurance risk in force $ 162,718 6% $ 152,788 5%
The table below displays our mortgage insurer counterparties that provided approximately 10% or more of the risk in force

mortgage insurance coverage on mortgage loans in our single-family guaranty book of business. 

Percentage of Risk in Force Coverage

by Mortgage Insurer

As of

September 30, 2019 December 31, 2018

Counterparty:(1)

Arch Capital Group Ltd. 24% 25%

Radian Guaranty, Inc. 20 21

Mortgage Guaranty Insurance Corp. 18 18

Genworth Mortgage Insurance Corp.(2) 15 15

Essent Guaranty, Inc. 13 12

Others 10 9

Total 100% 100%

(1) Insurance coverage amounts provided for each counterparty may include coverage provided by affiliates and subsidiaries of the

counterparty.

(2) Genworth Financial, Inc., the ultimate parent company of Genworth Mortgage Insurance Corp., is in the process of being acquired by

China Oceanwide Holdings Group Co., Ltd. We have approved the acquisition subject to specified conditions, including Genworth

Financial, Inc. receiving all required and outstanding regulatory approvals. Upon acquisition, Genworth Mortgage Insurance Corp. will

continue to be subject to our ongoing review of financial and operational eligibility requirements. 

Three of our mortgage insurer counterparties that are currently not approved to write new business are in run-off: PMI

Mortgage Insurance Co. (ÇPMIÉ), Triad Guaranty Insurance Corporation (ÇTriadÉ) and Republic Mortgage Insurance Company

(ÉRMICÉ). Entering run-off may close off a source of profits and liquidity that may have otherwise assisted a mortgage insurer

in paying claims under insurance policies, and could also cause the quality and speed of its claims processing to deteriorate.

These three mortgage insurers provided a combined $3.7 billion, or 2%, of our risk in force mortgage insurance coverage of

our single-family guaranty book of business as of September 30, 2019. 

PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion. PMI is currently

paying 74.5% of claims under its mortgage insurance policies in cash and is deferring the remaining 25.5%, and Triad is

currently paying 75% of claims in cash and deferring the remaining 25%. It is uncertain whether PMI or Triad will be permitted

in the future to pay any remaining deferred policyholder claims and/or increase or decrease the amount of cash they pay on

claims. RMIC is no longer deferring payments on policyholder claims and has paid us its previously outstanding deferred

payment obligations as well as interest on those obligations; however, RMIC remains in run-off.

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that insure

single-family loans we purchase or guarantee. There is risk that these counterparties may fail to fulfill their obligations to pay

our claims under insurance policies. On at least a quarterly basis, we assess our mortgage insurer counterpartiesÖ respective

abilities to fulfill their obligations to us. Our assessment includes financial reviews and analyses of the insurersÖ portfolios and

capital adequacy. If we determine that it is probable that we will not collect all of our claims from one or more of our mortgage

insurer counterparties, it could increase our loss reserves, which could adversely affect our results of operations, liquidity,

financial condition and net worth.

When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty obligations,

we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance recoveries would

reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our mortgage insurer

counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of the balance sheet

date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage insurer

counterpartiesÖ ability to fulfill their respective obligations to us worsens, it could increase our loss reserves. As of September

30, 2019 and December 31, 2018, our estimated benefit from mortgage insurance reduced our loss reserves by $398 million

and $691 million, respectively.

As of September 30, 2019 and December 31, 2018, we had outstanding receivables of $669 million and $745 million,

respectively, recorded in ÇOther assetsÉ in our condensed consolidated balance sheets related to amounts claimed on insured,

defaulted loans excluding government-insured loans. As of September 30, 2019 and December 31, 2018, we assessed these

outstanding receivables for collectibility, and established a valuation allowance of $545 million and $564 million, respectively,

which reduces our claim receivable to the amount considered probable of collection.

Mortgage Servicers and Sellers.ÄMortgage servicers collect mortgage and escrow payments from borrowers, pay taxes and

insurance costs from escrow accounts, monitor and report delinquencies, and perform other required activities on our behalf.

Our mortgage servicers and sellers may also be obligated to repurchase loans or foreclosed properties, reimburse us for

losses or provide other remedies under certain circumstances, such as if it is determined that the mortgage loan did not meet

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 89
our underwriting or eligibility requirements, if certain loan representations and warranties are violated or if mortgage insurers

rescind coverage. Our representation and warranty framework does not require repurchase for loans that have breaches of

certain selling representations and warranties if they have met specified criteria for relief.

Our business with mortgage servicers is concentrated. The table below displays the percentage of our single-family guaranty

book of business serviced by our top five depository single-family mortgage servicers and top five non-depository single-family

mortgage servicers, and identifies one servicer that serviced more than 10% of our single-family guaranty book of business

based on unpaid principal balance.

Percentage of Single-Family

Guaranty Book of Business

As of

September 30, 2019 December 31, 2018

Wells Fargo Bank, N.A. (together with its affiliates) 17% 18%

Remaining top five depository servicers 15 16

Top five non-depository servicers 25 22

Total 57% 56%

There was an increase in the portion of our single-family guaranty book serviced by our top five non-depository servicers,

particularly for our delinquent single-family loans. Compared with depository financial institutions, these institutions pose

additional risks to us because they may not have the same financial strength or operational capacity, or be subject to the same

level of regulatory oversight, as our largest mortgage servicer counterparties, which are mostly depository institutions.

The table below displays the percentage of our multifamily guaranty book of business serviced by our top five multifamily

mortgage servicers, and identifies two servicers that serviced 10% or more of our multifamily guaranty book of business based

on unpaid principal balance. 

Percentage of Multifamily

Guaranty Book of Business

As of

September 30, 2019 December 31, 2018

Wells Fargo Bank, N.A. (together with its affiliates) 13% 14%

Walker & Dunlop, Inc. 12 12

Remaining top five servicers 23 22

Total 48% 48%

If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet their

obligations to us, it could adversely affect our results of operations and financial condition. We mitigate these risks in several

ways, including: 

Ü establishing minimum standards and financial requirements for our servicers;

Ü monitoring financial and portfolio performance as compared with peers and internal benchmarks; and

Ü for our largest mortgage servicers, conducting periodic on-site and financial reviews to confirm compliance with

servicing guidelines and servicing performance expectations.

We may take one or more of the following actions to mitigate our credit exposure to mortgage servicers that present a higher

risk:

Ü require a guaranty of obligations by higher-rated entities;

Ü transfer exposure to third parties;

Ü require collateral;

Ü establish more stringent financial requirements;

Ü work on-site with underperforming major servicers to improve operational processes; and

Ü suspend or terminate the selling and servicing relationship if deemed necessary.

Derivative Counterparties. For information on credit risk associated with our derivative transactions and repurchase

agreements see ÇNote 8, Derivative InstrumentsÉ and ÇNote 11, Netting Arrangements.É

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 90
11.ÅÅNetting Arrangements

We use master netting arrangements, which allow us to offset certain financial instruments and collateral with the same

counterparty, to minimize counterparty credit exposure. The tables below display information related to derivatives, securities

purchased under agreements to resell or similar arrangements, and securities sold under agreements to repurchase or similar

arrangements, which are subject to an enforceable master netting arrangement or similar agreement that are either offset or

not offset in our condensed consolidated balance sheets.

As of September 30, 2019

Gross

Amount

Offset(1)

Net Amount

Presented in

our Condensed

Consolidated

Balance Sheets

Amounts Not Offset in our

Condensed Consolidated

Balance Sheets

Gross

Amount

Financial

Instruments(2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives $ 1,672 $ (1,667) $ 5 $ Ñ $ Ñ $ 5

Cleared risk management derivatives Ñ 4 4 Ñ Ñ 4

Mortgage commitment derivatives 421 Ñ 421 (368) (7) 46

Total derivative assets 2,093 (1,663) 430 (4) (368) (7) 55

Securities purchased under agreements to

resell or similar arrangements(5) 36,051 Ñ 36,051 Ñ (36,051) Ñ

Total assets $38,144 $ (1,663) $ 36,481 $ (368) $ (36,058) $ 55

Liabilities:

OTC risk management derivatives $ (2,451) $ 2,332 $ (119) $ Ñ $ Ñ $ (119)

Cleared risk management derivatives Ñ (33) (33) Ñ 33 Ñ

Mortgage commitment derivatives (416) Ñ (416) 368 4 (44)

Total derivative liabilities (2,867) 2,299 (568)

(4) 368 37 (163)

Securities sold under agreements to

repurchase or similar arrangements (1,125) Ñ (1,125) Ñ 1,123 (2)

Total liabilities $ (3,992) $ 2,299 $ (1,693) $ 368 $ 1,160 $ (165)

As of December 31, 2018

Gross

Amount

Offset(1)

Net Amount

Presented in

our Condensed

Consolidated

Balance Sheets

Amounts Not Offset in our

Condensed Consolidated

Balance Sheets

Gross

Amount

Financial

Instruments(2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives $ 2,288 $ (2,273) $ 15 $ Ñ $ Ñ $ 15

Cleared risk management derivatives Ñ 7 7 Ñ Ñ 7

Mortgage commitment derivatives 379 Ñ 379 (153) (7) 219

Total derivative assets 2,667 (2,266) 401 (4) (153) (7) 241

Securities purchased under agreements to

resell or similar arrangements(5) 48,288 Ñ 48,288 Ñ (48,288) Ñ

Total assets $50,955 $ (2,266) $ 48,689 $ (153) $ (48,295) $ 241

Liabilities:

OTC risk management derivatives $ (2,433) $ 2,342 $ (91) $ Ñ $ Ñ $ (91)

Cleared risk management derivatives Ñ (27) (27) Ñ 23 (4)

Mortgage commitment derivatives (648) Ñ (648) 153 466 (29)

Total derivative liabilities (3,081) 2,315 (766)

(4) 153 489 (124)

Total liabilities $ (3,081) $ 2,315 $ (766) $ 153 $ 489 $ (124)

Notes to Condensed Consolidated Financial Statements | Netting Arrangements

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 91
(1) Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a

net basis, including cash collateral posted and received and accrued interest. 

(2) Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty under

an enforceable master netting arrangement but we have not elected to offset the related amounts in our condensed consolidated balance

sheets. 

(3) Represents collateral received that has not been recognized and is not offset in our condensed consolidated balance sheets as well as

collateral posted which has been recognized but not offset in our condensed consolidated balance sheets. The fair value of non-cash

collateral we pledged was $3.1 billion and $1.9 billion as of September 30, 2019 and December 31, 2018, respectively, which the

counterparty was permitted to sell or repledge. The fair value of non-cash collateral received was $36.1 billion and $48.4 billion, of which

$34.3 billion and $45.7 billion could be sold or repledged as of September 30, 2019 and December 31, 2018, respectively. None of the

underlying collateral was sold or repledged as of September 30, 2019 or December 31, 2018. 

(4) Excludes derivative assets of $42 million and $57 million as of September 30, 2019 and December 31, 2018, respectively, and derivative

liabilities of $27 million and $11 million recognized in our condensed consolidated balance sheets as of September 30, 2019 and

December 31, 2018, respectively, that are not subject to enforceable master netting arrangements.

(5) Includes $12.9 billion and $15.4 billion in securities purchased under agreements to resell classified as ÇCash and cash equivalentsÉ in our

condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.

Derivative instruments are recorded at fair value and securities purchased under agreements to resell or similar arrangements

are recorded at amortized cost in our condensed consolidated balance sheets. For how we determine our rights to offset the

assets and liabilities presented above with the same counterparty, including collateral posted or received, see ÇNote 14,

Netting ArrangementsÉ in our 2018 Form 10-K.

Notes to Condensed Consolidated Financial Statements | Netting Arrangements

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 92
12.ÅÅFair Value

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 93

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain

assets and liabilities on a recurring or nonrecurring basis. 

Fair Value Measurement

Fair value measurement guidance defines fair value, establishes a framework for measuring fair value, and sets forth

disclosures around fair value measurements. This guidance applies whenever other accounting guidance requires or permits

assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that prioritizes the

inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority, Level 1, to

measurements based on unadjusted quoted prices in active markets for identical assets or liabilities. The next highest priority,

Level 2, is given to measurements of assets and liabilities based on limited observable inputs or observable inputs for similar

assets and liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs. 

Recurring Changes in Fair Value 

The following tables display our assets and liabilities measured in our condensed consolidated balance sheets at fair value on

a recurring basis subsequent to initial recognition, including instruments for which we have elected the fair value option. 

Fair Value Measurements as of September 30, 2019

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Recurring fair value measurements:

Assets:

Trading securities:

Mortgage-related securities:

Fannie Mae $ Ñ $ 3,539 $ 122 $ Ñ $ 3,661

Other agency Ñ 3,702 2 Ñ 3,704

Private-label and other mortgage securities Ñ 741 Ñ Ñ 741

Non-mortgage-related securities:

U.S. Treasury securities 36,016 Ñ Ñ Ñ 36,016

Other securities Ñ 84 Ñ Ñ 84

Total trading securities 36,016 8,066 124 Ñ 44,206

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae Ñ 1,408 174 Ñ 1,582

Other agency Ñ 213 Ñ Ñ 213

Alt-A and subprime private-label securities Ñ 226 Ñ Ñ 226

Mortgage revenue bonds Ñ Ñ 346 Ñ 346

Other Ñ 8 315 Ñ 323

Total available-for-sale securities Ñ 1,855 835 Ñ 2,690

Mortgage loans Ñ 7,457 726 Ñ 8,183

Other assets:

Risk management derivatives:

Swaps Ñ 1,267 184 Ñ 1,451

Swaptions Ñ 221 Ñ Ñ 221

Netting adjustment Ñ Ñ Ñ (1,663) (1,663)

Mortgage commitment derivatives Ñ 421 Ñ Ñ 421

Credit enhancement derivatives Ñ Ñ 42 Ñ 42

Total other assets Ñ 1,909 226 (1,663) 472

Total assets at fair value $ 36,016 $ 19,287 $ 1,911 $ (1,663) $ 55,551
Fair Value Measurements as of September 30, 2019

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs 

(Level 3)

Netting

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating $ Ñ $ 5,619 $ 422 $ Ñ $ 6,041

Total of Fannie Mae Ñ 5,619 422 Ñ 6,041

Of consolidated trusts Ñ 22,631 88 Ñ 22,719

Total long-term debt Ñ 28,250 510 Ñ 28,760

Other liabilities:

Risk management derivatives:

Swaps Ñ 2,043 1 Ñ 2,044

Swaptions Ñ 407 Ñ Ñ 407

Netting adjustment Ñ Ñ Ñ (2,299) (2,299)

Mortgage commitment derivatives Ñ 416 Ñ Ñ 416

Credit enhancement derivatives Ñ Ñ 27 Ñ 27

Total other liabilities Ñ 2,866 28 (2,299) 595

Total liabilities at fair value $ Ñ $ 31,116 $ 538 $ (2,299) $ 29,355

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 94
Fair Value Measurements as of December 31, 2018

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs 

(Level 3)

Netting

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Recurring fair value measurements:

Assets:

Cash equivalents(2) $ 748 $ Ñ $ Ñ $ Ñ $ 748

Trading securities:

Mortgage-related securities:

Fannie Mae Ñ 1,435 32 Ñ 1,467

Other agency Ñ 3,503 Ñ Ñ 3,503

Private-label and other mortgage securities Ñ 1,305 1 Ñ 1,306

Non-mortgage-related securities:

U.S. Treasury securities 35,502 Ñ Ñ Ñ 35,502

Other securities Ñ 89 Ñ Ñ 89

Total trading securities 35,502 6,332 33 Ñ 41,867

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae Ñ 1,645 152 Ñ 1,797

Other agency Ñ 256 Ñ Ñ 256

Alt-A and subprime private-label securities Ñ 568 24 Ñ 592

Mortgage revenue bonds Ñ Ñ 434 Ñ 434

Other Ñ 8 342 Ñ 350

Total available-for-sale securities Ñ 2,477 952 Ñ 3,429

Mortgage loans Ñ 7,985 937 Ñ 8,922

Other assets:

Risk management derivatives:

Swaps Ñ 1,962 115 Ñ 2,077

Swaptions Ñ 211 Ñ Ñ 211

Netting adjustment Ñ Ñ Ñ (2,266) (2,266)

Mortgage commitment derivatives Ñ 342 37 Ñ 379

Credit enhancement derivatives Ñ Ñ 57 Ñ 57

Total other assets Ñ 2,515 209 (2,266) 458

Total assets at fair value $ 36,250 $ 19,309 $ 2,131 $ (2,266) $ 55,424

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 95
Fair Value Measurements as of December 31, 2018

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs 

(Level 3)

Netting

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating $ Ñ $ 6,475 $ 351 $ Ñ $ 6,826

Total of Fannie Mae Ñ 6,475 351 Ñ 6,826

Of consolidated trusts Ñ 23,552 201 Ñ 23,753

Total long-term debt Ñ 30,027 552 Ñ 30,579

Other liabilities:

Risk management derivatives:

Swaps Ñ 2,089 2 Ñ 2,091

Swaptions Ñ 342 Ñ Ñ 342

Netting adjustment Ñ Ñ Ñ (2,315) (2,315)

Mortgage commitment derivatives Ñ 646 2 Ñ 648

Credit enhancement derivatives Ñ Ñ 11 Ñ 11

Total other liabilities Ñ 3,077 15 (2,315) 777

Total liabilities at fair value $ Ñ $ 33,104 $ 567 $ (2,315) $ 31,356

(1) Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under

legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and

received.

(2) Cash equivalents are comprised of U.S. Treasuries that have a maturity at the date of acquisition of three months or less.

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 96
The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using

significant unobservable inputs (LevelÄ3). The tables also display gains and losses due to changes in fair value, including

realized and unrealized gains and losses, recognized in our condensed consolidated statements of operations and

comprehensive income for LevelÄ3 assets and liabilities.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2019

Total Gains (Losses)

(Realized/Unrealized) 

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

September

30, 

2019(4)(5)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

September

30, 

2019(1)

Balance,

June 30,

2019

Included

in Net

Income

Included in

Total OCI

Gain/(Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers

out of

Level 3

Transfers

into 

Level 3

Balance,

September

30, 2019

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 74 $ 2 $ Ñ $ 77 $ Ñ $ Ñ $ Ñ $ (31) $ Ñ $ 122 $ 1 $ Ñ

Other agency Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ 2 2 Ñ Ñ

Total trading securities $ 74 $ 2

(5)(6)

$ Ñ $ 77 $ Ñ $ Ñ $ Ñ $ (31) $ 2 $ 124 $ 1 $ Ñ

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 132 $ Ñ $ 3 $ Ñ $ Ñ $ Ñ $ (1) $ Ñ $ 40 $ 174 $ Ñ $ 3

Mortgage revenue

bonds 364 1 (1) Ñ Ñ Ñ (18) Ñ Ñ 346 Ñ Ñ

Other 326 (1) (1) Ñ Ñ Ñ (9) Ñ Ñ 315 Ñ (2)

Total available-forsale securities $ 822 $ Ñ

(6)(7)

$ 1 $ Ñ $ Ñ $ Ñ $ (28) $ Ñ $ 40 $ 835 $ Ñ $ 1

Mortgage loans $ 770 $ 14

(5)(6)

$ Ñ $ Ñ $ (27) $ Ñ $ (35) $ (41) $ 45 $ 726 $ 10 $ Ñ

Net derivatives 183 21 (5) Ñ Ñ Ñ Ñ (6) Ñ Ñ 198 15 Ñ

Long-term debt:

Of Fannie Mae:

Senior floating (398) (24) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (422) (24) Ñ

Of consolidated

trusts (102) (3) Ñ Ñ Ñ (2) 6 20 (7) (88) (1) Ñ

Total long-term debt $ (500) $ (27)

(5)

$ Ñ $ Ñ $ Ñ $ (2) $ 6 $ 20 $ (7) $ (510) $ (25) $ Ñ

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 97
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2019

Total Gains (Losses)

(Realized/Unrealized) 

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

September

30, 

2019(4)(5)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

September

30, 

2019(1)

Balance,

December

31, 2018

Included

in Net

Income

Included in

Total OCI

Gain/(Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers

out of

Level 3

Transfers

into 

Level 3

Balance,

September

30, 2019

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 32 $ 5 $ Ñ $ 77 $ (14) $ Ñ $ (16) $ (31) $ 69 $ 122 $ 4 $ Ñ

Other agency Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ 2 2 Ñ Ñ

Private-label and

other mortgage

securities 1 Ñ Ñ Ñ Ñ Ñ (1) Ñ Ñ Ñ Ñ Ñ

Total trading securities $ 33 $ 5

(5)(6)

$ Ñ $ 77 $ (14) $ Ñ $ (17) $ (31) $ 71 $ 124 $ 4 $ Ñ

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 152 $ Ñ $ 9 $ Ñ $ Ñ $ Ñ $ (8) $ (103) $ 124 $ 174 $ Ñ $ 8

Alt-A and

subprime

private-label

securities 24 5 (5) Ñ (23) Ñ (1) Ñ Ñ Ñ Ñ Ñ

Mortgage revenue

bonds 434 1 (2) Ñ (4) Ñ (83) Ñ Ñ 346 Ñ (1)

Other 342 11 (11) Ñ Ñ Ñ (26) (2) 1 315 Ñ (9)

Total available-forsale securities $ 952 $ 17

(6)(7)

$ (9) $ Ñ $ (27) $ Ñ $ (118) $ (105) $ 125 $ 835 $ Ñ $ (2)

Mortgage loans $ 937 $ 45 (5)(6) $ Ñ $ Ñ $ (40) $ Ñ $ (105) $ (228) $ 117 $ 726 $ 28 $ Ñ

Net derivatives 194 139 (5) Ñ Ñ Ñ Ñ (126) (9) Ñ 198 39 Ñ

Long-term debt:

Of Fannie Mae:

Senior floating (351) (71) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (422) (71) Ñ

Of consolidated

trusts (201) (7) Ñ Ñ Ñ (2) 16 189 (83) (88) (3) Ñ

Total long-term debt $ (552) $ (78)

(5)

$ Ñ $ Ñ $ Ñ $ (2) $ 16 $ 189 $ (83) $ (510) $ (74) $ Ñ

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 98
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended September 30, 2018

Total Gains (Losses)

(Realized/Unrealized) 

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

September

30, 

2018(4)(5)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

September

30, 

2018(1)

Balance,

June 30,

2018

Include

d in Net

Income

Included in

Total OCI

(Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements

(3)

Transfers

out of

Level 3

Transfers

into 

Level 3

Balance,

September

30, 2018

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 79 $ (3) $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ 76 $ 2 $ Ñ

Private-label and

other

mortgage

securities 1 Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ 1 Ñ Ñ

Total trading

securities $ 80 $ (3)

(5)(6)

$ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ 77 $ 2 $ Ñ

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 204 $ Ñ $ (1) $ Ñ $ Ñ $ Ñ $ (3) $ Ñ $ Ñ $ 200 $ Ñ $ (1)

Alt-A and

subprime

private-label

securities 26 Ñ Ñ Ñ Ñ Ñ (2) Ñ Ñ 24 Ñ Ñ

Mortgage revenue

bonds 506 1 (3) Ñ (4) Ñ (36) Ñ Ñ 464 Ñ (2)

Other 357 7 (7) Ñ Ñ Ñ (9) Ñ Ñ 348 Ñ (6)

Total available-forsale securities $ 1,093 $ 8

(6)(7)

$ (11) $ Ñ $ (4) $ Ñ $ (50) $ Ñ $ Ñ $ 1,036 $ Ñ $ (9)

Mortgage loans $ 1,018 $ 7

(5)(6) $ Ñ $ Ñ $ Ñ $ Ñ $ (47) $ (44) $ 31 $ 965 $ 2 $ Ñ

Net derivatives 117 (18)

(5) Ñ Ñ Ñ Ñ (1) Ñ Ñ 98 (27) Ñ

Long-term debt:

Of Fannie Mae:

Senior floating (354) 7 Ñ Ñ Ñ Ñ Ñ Ñ Ñ (347) 7 Ñ

Of consolidated

trusts (319) 2 Ñ Ñ Ñ Ñ 4 172 (22) (163) Ñ Ñ

Total long-term debt $ (673) $ 9

(5)

$ Ñ $ Ñ $ Ñ $ Ñ $ 4 $ 172 $ (22) $ (510) $ 7 $ Ñ

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 99
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Nine Months Ended September 30, 2018

Total Gains (Losses)

(Realized/Unrealized) 

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

September

30, 

2018(4)(5)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

September

30, 

2018(1)

Balance,

December

31, 2017

Included

in Net

Income

Included in

Total OCI

(Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers

out of

Level 3

Transfers

into 

Level 3

Balance,

September

30, 2018

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 971 $ 163 $ Ñ $ 1 $ (1,060) $ Ñ $ Ñ $ Ñ $ 1 $ 76 $ 2 $ Ñ

Other agency 35 (1) Ñ Ñ Ñ Ñ (1) (33) Ñ Ñ Ñ Ñ

Private-label and

other mortgage

securities 195 (85) Ñ Ñ Ñ Ñ (5) (104) Ñ 1 Ñ Ñ

Total trading securities $ 1,201 $ 77

(5)(6)

$ Ñ $ 1 $ (1,060) $ Ñ $ (6) $ (137) $ 1 $ 77 $ 2 $ Ñ

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 208 $ 1 $ (1) $ Ñ $ Ñ $ Ñ $ (8) $ Ñ $ Ñ $ 200 $ Ñ $ (1)

Alt-A and

subprime

private-label

securities 77 Ñ (45) Ñ Ñ Ñ (4) (4) Ñ 24 Ñ 1

Mortgage revenue

bonds 671 1 (6) Ñ (22) Ñ (180) Ñ Ñ 464 Ñ (3)

Other 357 21 1 Ñ Ñ Ñ (31) Ñ Ñ 348 Ñ 3

Total available-forsale securities $ 1,313 $ 23

(6)(7)

$ (51) $ Ñ $ (22) $ Ñ $ (223) $ (4) $ Ñ $ 1,036 $ Ñ $ Ñ

Mortgage loans $ 1,116 $ 35 (5)(6) $ Ñ $ Ñ $ Ñ $ Ñ $ (174) $ (131) $ 119 $ 965 $ 17 $ Ñ

Net derivatives 134 (104)

(5) Ñ Ñ Ñ Ñ 15 53 Ñ 98 (56) Ñ

Long-term debt:

Of Fannie Mae:

Senior floating (376) 29 Ñ Ñ Ñ Ñ Ñ Ñ Ñ (347) 29 Ñ

Of consolidated

trusts (582) 9 Ñ Ñ Ñ 1 35 503 (129) (163) (3) Ñ

Total long-term debt $ (958) $ 38

(5)

$ Ñ $ Ñ $ Ñ $ 1 $ 35 $ 503 $ (129) $ (510) $ 26 $ Ñ

(1) Gains (losses) included in other comprehensive loss are included in ÇChanges in unrealized gains on available-for-sale securities, net of

reclassification adjustments and taxesÉ in our condensed consolidated statements of operations and comprehensive income.

(2) Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts. For the nine months

ended September 30, 2018, this includes the dissolution of a Fannie Mae-wrapped private-label securities trust. 

(3) Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.

(4) Amount represents temporary changes in fair value. Amortization, accretion and OTTI are not considered unrealized and are not included in

this amount.

(5) Gains (losses) are included in ÇFair value gains (losses), netÉ in our condensed consolidated statements of operations and comprehensive

income.

(6) Gains (losses) are included in ÇNet interest incomeÉ in our condensed consolidated statements of operations and comprehensive income.

(7) Gains (losses) are included in ÇInvestment gains, netÉ in our condensed consolidated statements of operations and comprehensive income.

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 100
The following tables display valuation techniques and the range and the weighted average of significant unobservable inputs

for our Level 3 assets and liabilities measured at fair value on a recurring basis, excluding instruments for which we have

elected the fair value option. Changes in these unobservable inputs can result in significantly higher or lower fair value

measurements of these assets and liabilities as of the reporting date.

Fair Value Measurements as of September 30, 2019

Fair

Value

Significant

Valuation

Techniques

Significant

Unobservable

Inputs(1) Range(1)

Weighted -

Average(1)(2)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(3) $ 124 Various

Available-for-sale securities:

Mortgage-related securities:

Agency(3) $ 118 Consensus

56 Various

Total agency 174

Mortgage revenue bonds 232 Single Vendor Spreads(bps) 22.5 - 204.5 70.3

114 Various

Total mortgage revenue bonds 346

Other 274

Discounted Cash

Flow Default Rate(%) 0.8 0.8

Prepayment Speed(%) 8.7 8.7

Severity(%) 84.0 84.0

Spreads(bps) 77.5 - 300.0 299.4

41 Various

Total other 315

Total available-for-sale securities $ 835

Net derivatives $ 183 Dealer Mark

15 Various

Total net derivatives $ 198

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 101
Fair Value Measurements as of December 31, 2018

Fair

Value

Significant

Valuation

Techniques

Significant

Unobservable

Inputs(1) Range(1)

Weighted -

Average(1)(2)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(3) $ 32 Various

Private-label securities and other

mortgage securities 1 Various

Total trading securities $ 33

Available-for-sale securities:

Mortgage-related securities:

Agency(3) $ 152 Various

Alt-A and subprime private-label

securities 24 Various

Mortgage revenue bonds 349 Single Vendor Spreads(bps) (0.5) - 332.8 59.0

85 Various

Total mortgage revenue bonds 434

Other 294

Discounted Cash

Flow Default Rate(%) 4.7 4.7

Prepayment Speed(%) 8.2 8.2

Severity(%) 70.0 70.0

Spreads(bps) 75.4 - 390.0 389.1

48 Various

Total other 342

Total available-for-sale securities $ 952

Net derivatives $ 113 Dealers Mark

81 Various

Total net derivatives $ 194

(1) Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services or dealers, and

the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably estimated. Where we have

disclosed unobservable inputs for consensus and single vendor techniques, those inputs are based on our validations performed at the

security level using discounted cash flows. 

(2) Unobservable inputs were weighted by the relative fair value of the instruments. 

(3) Includes Fannie Mae and Freddie Mac securities.

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 102
In our condensed consolidated balance sheets, certain assets and liabilities are measured at fair value on a nonrecurring

basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in

certain circumstances (for example, when we evaluate loans for impairment). We had no Level 1 assets or liabilities held as of

September 30, 2019 or December 31, 2018 that were measured at fair value on a nonrecurring basis. We held $620 million

and $91 million in Level 2 assets as of September 30, 2019 and December 31, 2018, respectively, comprised of mortgage

loans held for sale and mortgage loans held for investment that were individually impaired. We had no Level 2 liabilities that

were measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis. The

significant unobservable inputs related to these techniques primarily relate to collateral dependent valuations. The related

ranges and weighted averages are not meaningful when aggregated as they vary significantly from property to property. 

Fair Value Measurements 

as of

Valuation

Techniques

September 30,

2019

December 31,

2018

(Dollars in millions)

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair value Consensus $ 2,067 $ 631

Single Vendor 780 1,119

Various 1 Ñ

Total mortgage loans held for sale, at lower of cost or fair value 2,848 1,750

Single-family mortgage loans held for investment, at amortized cost Internal Model 543 818

Multifamily mortgage loans held for investment, at amortized cost

Asset Manager

Estimate 70 102

Various 13 40

Total multifamily mortgage loans held for investment, at amortized cost 83 142

Acquired property, net:(1)

Single-family Accepted Offers 100 151

Appraisals 386 419

Walk Forwards 190 181

Internal Model 152 219

Various 32 41

Total single-family 860 1,011

Multifamily Various Å 50

Total nonrecurring assets at fair value $ 4,334 $ 3,771

(1) The most commonly used techniques in our valuation of acquired property are a proprietary home price model and third-party valuations

(both current and walk forward). Based on the number of properties measured as of September 30, 2019, these methodologies comprised

approximately 83% of our valuations, while accepted offers comprised approximately 13% of our valuations. Based on the number of

properties measured as of December 31, 2018, these methodologies comprised approximately 82% of our valuations, while accepted

offers comprised approximately 15% of our valuations.

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. See

ÇNote 15, Fair ValueÉ in our 2018 Form 10-K for information on the valuation control processes and the valuation techniques

we use for fair value measurement and disclosure as well as our basis for classifying these measurements as Level 1, Level 2

or Level 3 of the valuation hierarchy in more specific situations. We made no material changes to the valuation control

processes or the valuation techniques for the nine months ended September 30, 2019. 

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 103
Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments. The fair value of financial

instruments we disclose includes commitments to purchase multifamily and single-family mortgage loans that we do not record

in our condensed consolidated balance sheets. The fair values of these commitments are included as ÇMortgage loans held for

investment, net of allowance for loan losses.É The disclosure excludes all non-financial instruments; therefore, the fair value of

our financial assets and liabilities does not represent the underlying fair value of our total consolidated assets and liabilities.

As of September 30, 2019

Carrying 

Value

Quoted

Prices in

Active

Markets

for

Identical

Assets 

(Level 1)

Significant

Other

Observable

Inputs 

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting

Adjustment

Estimated 

Fair Value

(Dollars in millions)

Financial assets:

Cash and cash equivalents and restricted

cash $ 64,498 $ 51,623 $ 12,875 $ Ñ $ Ñ $ 64,498

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements 23,176 Ñ 23,176 Ñ Ñ 23,176

Trading securities 44,206 36,016 8,066 124 Ñ 44,206

Available-for-sale securities 2,690 Ñ 1,855 835 Ñ 2,690

Mortgage loans held for sale 12,289 Ñ 4,783 8,672 Ñ 13,455

Mortgage loans held for investment, net

of allowance for loan losses 3,301,847 Ñ 3,241,129 134,732 Ñ 3,375,861

Advances to lenders 6,937 Ñ 6,935 2 Ñ 6,937

Derivative assets at fair value 472 Ñ 1,909 226 (1,663) 472

Guaranty assets and buy-ups 149 Ñ Ñ 319 Ñ 319

Total financial assets $ 3,456,264 $ 87,639 $ 3,300,728 $ 144,910 $ (1,663) $ 3,531,614

Financial liabilities:

Federal funds purchased and securities

sold under agreements to repurchase $ 1,125 $ Ñ $ 1,125 $ Ñ $ Ñ $ 1,125

Short-term debt:

Of Fannie Mae 35,812 Ñ 35,818 Ñ Ñ 35,818

Long-term debt:

Of Fannie Mae 177,710 Ñ 186,489 847 Ñ 187,336

Of consolidated trusts 3,248,336 Ñ 3,273,846 33,667 Ñ 3,307,513

Derivative liabilities at fair value 595 Ñ 2,866 28 (2,299) 595

Guaranty obligations 161 Ñ Ñ 102 Ñ 102

Total financial liabilities $ 3,463,739 $ Ñ $ 3,500,144 $ 34,644 $ (2,299) $ 3,532,489

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 104
As of December 31, 2018

Carrying 

Value

Quoted

Prices in

Active

Markets

for

Identical

Assets 

(Level 1)

Significant

Other

Observable

Inputs 

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting

Adjustment

Estimated 

Fair Value

(Dollars in millions)

Financial assets:

Cash and cash equivalents and restricted

cash $ 49,423 $ 34,073 $ 15,350 $ Ñ $ Ñ $ 49,423

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements 32,938 Ñ 32,938 Ñ Ñ 32,938

Trading securities 41,867 35,502 6,332 33 Ñ 41,867

Available-for-sale securities 3,429 Ñ 2,477 952 Ñ 3,429

Mortgage loans held for sale 7,701 Ñ 238 7,856 Ñ 8,094

Mortgage loans held for investment, net

of allowance for loan losses 3,241,694 Ñ 2,990,104 216,404 Ñ 3,206,508

Advances to lenders 3,356 Ñ 3,354 2 Ñ 3,356

Derivative assets at fair value 458 Ñ 2,515 209 (2,266) 458

Guaranty assets and buy-ups 147 Ñ Ñ 356 Ñ 356

Total financial assets $ 3,381,013 $ 69,575 $ 3,053,308 $ 225,812 $ (2,266) $ 3,346,429

Financial liabilities:

Short-term debt:

Of Fannie Mae $ 24,896 $ Ñ $ 24,901 $ Ñ $ Ñ $ 24,901

Long-term debt:

Of Fannie Mae 207,178 Ñ 211,403 771 Ñ 212,174

Of consolidated trusts 3,159,846 Ñ 3,064,239 39,043 Ñ 3,103,282

Derivative liabilities at fair value 777 Ñ 3,077 15 (2,315) 777

Guaranty obligations 160 Ñ Ñ 121 Ñ 121

Total financial liabilities $ 3,392,857 $ Ñ $ 3,303,620 $ 39,950 $ (2,315) $ 3,341,255

For a detailed description and classification of our financial instruments, see ÇNote 15, Fair ValueÉ in our 2018 Form 10-K.

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 105

Fair Value Option

We elected the fair value option for loans and debt that contain embedded derivatives that would otherwise require bifurcation.

Additionally, we elected the fair value option for our credit risk-sharing securities accounted for as debt of Fannie Mae issued

under our CAS series prior to January 1, 2016. Under the fair value option, we elected to carry these instruments at fair value

instead of bifurcating the embedded derivative from such instruments. 

Interest income for the mortgage loans is recorded in ÇInterest incomeÑMortgage loansÉ and interest expense for the debt

instruments is recorded in ÇInterest expenseÑLong-term debtÉ in our condensed consolidated statements of operations and

comprehensive income. 
The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made

fair value elections.

As of

September 30, 2019 December 31, 2018

Loans(1)

Long-Term

Debt of

Fannie Mae

Long-Term Debt

of Consolidated

Trusts Loans(1)

Long-Term

Debt of

Fannie Mae

Long-Term Debt

of Consolidated

Trusts

(Dollars in millions)

Fair value $ 8,183 $ 6,041 $ 22,719 $ 8,922 $ 6,826 $ 23,753

Unpaid principal balance 7,866 5,541 20,380 8,832 6,241 22,080

(1) Includes nonaccrual loans with a fair value of $127 million and $161 million as of September 30, 2019 and December 31, 2018,

respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of September 30, 2019 and

December 31, 2018 was $11 million and $19 million, respectively. Includes loans that are 90 days or more past due with a fair value of $76

million and $102 million as of September 30, 2019 and December 31, 2018, respectively. The difference between unpaid principal balance

and the fair value of these 90 or more days past due loans as of September 30, 2019 and December 31, 2018 was $9 million and $14

million, respectively.

Changes in Fair Value under the Fair Value Option Election

We recorded gains of $95 million and $334 million for the three and nine months ended September 30, 2019, respectively, and

losses of $63 million and $239 million for the three and nine months ended September 30, 2018, respectively, from changes in

the fair value of loans recorded at fair value in ÇFair value gains (losses), netÉ in our condensed consolidated statements of

operations and comprehensive income. 

We recorded losses of $245 million and $797 million for the three and nine months ended September 30, 2019, respectively,

and gains of $128 million and $629 million for the three and nine months ended September 30, 2018, respectively, from

changes in the fair value of long-term debt recorded at fair value in ÇFair value gains (losses), netÉ in our condensed

consolidated statements of operations and comprehensive income.

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 106
13.ÅÅCommitments 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 counselÖs actual experience in litigating or

settling claims, leads us to conclude that the monetary relief that may be sought by plaintiffs bears little relevance to the merits

or disposition value of claims. 

We have substantial and valid defenses to the claims in the proceedings described below and intend to defend these matters

vigorously. However, legal actions and proceedings of all types are subject to many uncertain factors that generally cannot be

predicted with assurance. Accordingly, the outcome of any given matter and the amount or range of potential loss at particular

points in time is frequently difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence

and the credibility and effectiveness of witness testimony, and how courts will apply the law. Disposition valuations are also

subject to the uncertainty of how opposing parties and their counsel may view the evidence and applicable law. 

On a quarterly basis, we review relevant information about all pending legal actions and proceedings for the purpose of

evaluating and revising our contingencies, accruals and disclosures. We establish an accrual only for matters when a loss is

probable and we can reasonably estimate the amount of such loss. We are often unable to estimate the possible losses or

ranges of losses, particularly for proceedings that are in their early stages of development, where plaintiffs seek indeterminate

or unspecified damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where

settlement negotiations have not occurred or progressed. Given the uncertainties involved in any action or proceeding,

regardless of whether we have established an accrual, the ultimate resolution of certain of these matters may be material to

our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the

level of our net income or loss for that period. 

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that

arise in the ordinary course of business that we do not expect will have a material impact on our business or financial

condition. We have also advanced fees and expenses of certain current and former officers and directors in connection with

various legal proceedings pursuant to our bylaws and indemnification agreements.

Senior Preferred Stock Purchase Agreements Litigation

A consolidated putative class action (ÇIn re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action

LitigationsÉ) and two non-class action lawsuits filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our

conservator, and Freddie Mac are pending in the U.S. District Court for the District of Columbia. The lawsuits challenge the

August 2012 amendment to each companyÖs senior preferred stock purchase agreement with Treasury. 

In the consolidated class action and two of the non-class action suits, Arrowood Indemnity Company v. Fannie Mae and

Fairholme Funds v. FHFA, plaintiffs filed amended complaints on November 1, 2017 alleging that the net worth sweep dividend

provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments nullified certain of

the shareholdersÖ rights, particularly the right to receive dividends. Plaintiffs seek unspecified damages, equitable and

injunctive relief, and costs and expenses, including attorneysÖ fees. Plaintiffs in the class action seek to represent several

classes of preferred and/or common shareholders of Fannie Mae and/or Freddie Mac who held stock as of the public

announcement of the August 2012 amendments. On September 28, 2018, the court dismissed all of the plaintiffsÖ claims

except for their claims for breach of an implied covenant of good faith and fair dealing. On October 15, 2018, defendants filed

a motion for partial reconsideration. On May 16, 2019, the court denied this motion. 

On May 21, 2018, a plaintiff in a non-class action case, Angel v. Federal Home Loan Mortgage Corporation, filed a complaint

for declaratory relief and compensatory damages against Fannie Mae (including certain members of its Board of Directors),

Freddie Mac (including certain members of its Board of Directors) and FHFA, as conservator, in the U.S. District Court for the

District of Columbia. Plaintiff in that case asserts claims for breach of contract, breach of implied covenants of good faith and

fair dealing, and aiding and abetting the federal government in avoiding an alleged implicit guarantee of dividend payments.

On March 6, 2019, the court granted defendantsÖ motion to dismiss and on March 18, 2019, plaintiff moved to alter or amend

the judgment and to file an amended complaint. On May 24, 2019, the court denied this motion. On June 19, 2019, plaintiff

filed a notice of appeal of the courtÖs dismissal and related orders with the U.S. Court of Appeals for the District of Columbia

Circuit.

Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial defenses, we are

currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.

Notes to Condensed Consolidated Financial Statements | Commitments and Contingencies

Fannie Mae (In conservatorship) Third Quarter 2019 Form 10-Q 107
ItemÅ3.ÅÅQuantitative and Qualitative Disclosures about

Market Risk

Information about market risk is set forth in ÇMD&AÑRisk ManagementÑMarket Risk Management, including Interest Rate

Risk Management.É

Quantitative and Qualitative Disclosures about Market Risk

Fannie Mae Third Quarter 2019 Form 10-Q 108

ItemÅ4.ÅÅControls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls

and procedures as well as internal control over financial reporting, as further described below.

Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that

information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed,

summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and

procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information

required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated

to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions

regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management

recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable

assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and

implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by RuleÄ13a-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,

2019, the end of the period covered by this report. As a result of managementÖs 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, 2019 or as of the date of filing this report. 

Our disclosure controls and procedures were not effective as of September 30, 2019 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, 2019 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 ÇDescription of Material Weakness.É Based on discussions with FHFA and the structural nature of this

material weakness, we do not expect to remediate this material weakness while we are under conservatorship.

Description of Material Weakness

The Public Company Accounting Oversight BoardÖs Auditing Standard 2201 defines a material weakness as a deficiency, or a

combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a

material misstatement of the companyÖs 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, 2019 and as of

the date of filing this report:

Ü Disclosure Controls and Procedures.ÄWe have been under the conservatorship of FHFA since SeptemberÄ6, 2008.

Under the GSE Act, FHFA is an independent agency that currently functions as both our conservator and our regulator

with respect to our safety, soundness and mission. Because of the nature of the conservatorship under the GSE Act,

which places us under the ÇcontrolÉ of FHFA (as that term is defined by securities laws), some of the information that

we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator,

FHFA has the power to take actions without our knowledge that could be material to our shareholders and other

stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing

business. Although we and FHFA attempted to design and implement disclosure policies and procedures that would

account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy of

a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate
effective disclosure controls and procedures. As both our regulator and our conservator under the GSE Act, FHFA is

limited in its ability to design and implement a complete set of disclosure controls and procedures relating to Fannie

Mae, particularly with respect to current reporting pursuant to FormÄ8-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, 2019 or as of the date

of filing this report. Based on discussions with FHFA and the structural nature of this weakness, we do not expect to

remediate this material weakness while we are under conservatorship.

Mitigating Actions Related to Material Weakness

As described above under ÇDescription of Material Weakness,É 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:

Ü FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the company with

the oversight of the conservator.

Ü 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.

Ü FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly report

on FormÄ10-Q for the quarter ended September 30, 2019 (ÇThird Quarter 2019 FormÄ10-QÉ), and engaged in

discussions regarding issues associated with the information contained in those filings. Prior to filing our Third

Quarter 2019 FormÄ10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed

the Third Quarter 2019 FormÄ10-Q, and it was not aware of any material misstatements or omissions in the Third

Quarter 2019 FormÄ10-Q and had no objection to our filing the Third Quarter 2019 FormÄ10-Q.

Ü Our senior management meets regularly with senior leadership at FHFA, including, but not limited to, the Director.

Ü 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.

Ü Senior officials within FHFAÖs Office of the Chief Accountant have met frequently with our senior finance executives

regarding our accounting policies, practices and procedures.

Changes in Internal Control Over Financial Reporting

Overview

Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any

changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or

are reasonably likely to materially affect, our internal control over financial reporting. Below we describe changes in our

internal control over financial reporting since June 30, 2019 that management believes have materially affected, or are

reasonably likely to materially affect, our internal control over financial reporting. 

In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we

believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal

controls. Changes may include implementing new, more efficient systems, automating manual processes and updating

existing systems. For example, we are currently implementing changes to various financial system applications in stages

across the company. As we continue to implement these changes, each implementation may become a significant component

of our internal control over financial reporting.

Treasury Cash Management System

In July 2019, we consolidated our treasury systems used for cash activities, liquidity management and bank account

administration into a fully integrated new treasury cash management system. In connection with this implementation and

related business process changes, we redesigned or replaced multiple existing controls that were previously considered

effective with new or modified controls and, in some cases, removed controls that are no longer applicable. We will continue to

monitor and test these new and modified controls for adequate design and operating effectiveness. This new system was

Controls and Procedures

Fannie Mae Third Quarter 2019 Form 10-Q 109
operating during the third quarter of 2019 and was used to prepare our third quarter 2019 condensed consolidated financial

statements included in this report.

Controls and Procedures

Fannie Mae Third Quarter 2019 Form 10-Q 110

PARTÅIIÄOTHER INFORMATION

ItemÅ1.ÅÅLegal Proceedings

The information in this item supplements and updates information regarding certain legal proceedings set forth in ÇLegal

ProceedingsÉ in our 2018 FormÄ10-K, our First Quarter 2019 Form 10-Q and our Second Quarter 2019 Form 10-Q. We also

provide information regarding material legal proceedings in ÇNote 13, Commitments and Contingencies,É 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 we do not expect will have a

material impact on our business or financial condition. However, litigation claims and proceedings of all types are subject to

many factors and their outcome and effect on our business and financial condition generally cannot be predicted accurately. 

We establish an accrual for legal claims only when a loss is probable and we can reasonably estimate the amount of such

loss. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those

claims. If certain of these matters are determined against us, FHFA or Treasury, it could have a material adverse effect on our

results of operations, liquidity and financial condition, including our net worth. 

Senior Preferred Stock Purchase Agreements Litigation 

Between June 2013 and August 2018, preferred and common stockholders of Fannie Mae and Freddie Mac filed lawsuits in

multiple federal courts against one or more of the United States, Treasury and FHFA, challenging actions taken by the

defendants relating to the Fannie Mae and Freddie Mac senior preferred stock purchase agreements and the conservatorships

of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims against Fannie Mae and Freddie Mac. The legal

claims being advanced by one or more of these lawsuits include challenges to the net worth sweep dividend provisions of the

senior preferred stock that were implemented pursuant to August 2012 amendments to the agreements, the payment of

dividends to Treasury under the net worth sweep dividend provisions, and FHFAÖs decision to require Fannie Mae and Freddie

Mac to draw funds from Treasury in order to pay dividends to Treasury prior to the August 2012 amendments. Some of the

lawsuits also challenge the constitutionality of FHFAÖs structure. The plaintiffs seek various forms of equitable and injunctive

relief, including rescission of the August 2012 amendments, as well as damages. The cases that remain pending or were

terminated after June 30, 2019 are as follows:

District of Columbia. Fannie Mae is a defendant in three cases pending in the U.S. District Court for the District of ColumbiaÑ

a consolidated putative class action and two additional cases. In all three cases, Fannie Mae and Freddie Mac stockholders

filed amended complaints on November 1, 2017 against us, FHFA as our conservator and Freddie Mac. On September 28,

2018, the court dismissed all of the plaintiffsÖ claims in these cases, except for their claims for breach of an implied covenant of

good faith and fair dealing, and on May 16, 2019, the court denied defendantsÖ motion for partial reconsideration. In a fourth

case that was filed in the U.S. District Court for the District of Columbia on May 21, 2018, the court granted defendantsÖ motion

to dismiss on March 6, 2019, and on March 18, 2019, plaintiff moved to alter or amend the judgment and to file an amended

complaint. On May 24, 2019, the court denied this motion. On June 19, 2019, plaintiff filed a notice of appeal of the courtÖs

dismissal and related orders with the U.S. Court of Appeals for the District of Columbia Circuit. All four cases are described in

ÇNote 13, Commitments and Contingencies.É

Southern District of Texas. On October 20, 2016, preferred and common stockholders filed a complaint against FHFA and

Treasury in the U.S. District Court for the Southern District of Texas. On May 22, 2017, the court dismissed the case. On

September 6, 2019, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc, affirmed the district courtÖs dismissal of

claims against Treasury, but reversed the dismissal of claims against FHFA. The court held that plaintiffs could pursue their

claim that FHFA exceeded its statutory powers as conservator when it implemented the net worth sweep provisions of the

senior preferred stock purchase agreements in August 2012. The court also held that the provision of the Housing and

Economic Recovery Act that insulates the FHFA Director from removal without cause violates constitutional separation of

powers principles and, thus, that the FHFA Director may be removed by the president for any reason. The court held that the

appropriate remedy for this violation is to declare the provision severed from the statute. Plaintiffs have requested that the

Supreme Court review the constitutional claim, arguing that the relief granted by Fifth Circuit is insufficient, and the

government has requested review of the decision to allow the plaintiffsÖ statutory claims to go forward. 

Western District of Michigan. On June 1, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a

complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Western District of

Michigan. FHFA and Treasury moved to dismiss the case on September 8, 2017, and plaintiffs filed a motion for summary

judgment on October 6, 2017. 

District of Minnesota. On June 22, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a

complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the District of Minnesota.

The court dismissed the case on July 6, 2018, and plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the

Eighth Circuit on July 10, 2018.
Eastern District of Pennsylvania. On August 16, 2018, common stockholders of Fannie Mae and Freddie Mac filed a complaint

for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Eastern District of

Pennsylvania. FHFA and Treasury moved to dismiss the case on November 16, 2018, and plaintiffs filed a motion for summary

judgment on December 21, 2018.

U.S. Court of Federal Claims. Numerous cases are pending against the United States in the U.S. Court of Federal Claims.

Fannie Mae is a nominal defendant in three of these cases: Fisher v. United States of America, filed on December 2, 2013;

Rafter v. United States of America, filed on August 14, 2014; and Perry Capital LLC v. United States of America, filed on

August 15, 2018. Plaintiffs in these cases allege that the net worth sweep dividend provisions of the senior preferred stock that

were implemented pursuant to the August 2012 amendment constitute a taking of Fannie MaeÖs property without just

compensation in violation of the U.S. Constitution. The Fisher plaintiffs are pursuing this claim derivatively on behalf of Fannie

Mae, while the Rafter and Perry Capital plaintiffs are pursing the claim both derivatively and directly against the United States.

Plaintiffs in Rafter also allege direct and derivative breach of contract claims against the government. The Perry Capital

plaintiffs allege similar breach of contract claims, as well as breach of fiduciary duty claims against the government. Plaintiffs in

Fisher request just compensation to Fannie Mae in an unspecified amount. Plaintiffs in Rafter and Perry Capital seek just

compensation for themselves on their direct claims and payment of damages to Fannie Mae on their derivative claims. The

United States filed a motion to dismiss the Fisher and Rafter cases on August 1, 2018.

LIBOR Lawsuit

As described further in our 2018 Form 10-K, in October 2013, Fannie Mae filed a lawsuit in the U.S. District Court for the

Southern District of New York against a number of banks and other defendants alleging they manipulated LIBOR. On July 22,

2019, we entered into an agreement resolving our claims against two of the defendants in this lawsuit: Citigroup Inc. and

Citibank, N.A. The financial impact of the settlement was not material to our financial statements.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 111

ItemÅ1A.ÅÅRisk Factors

In addition to the information in this report, you should carefully consider the risks relating to our business that we identify in

ÇRisk FactorsÉ in our 2018 FormÄ10-K. This section supplements and updates that discussion but does not repeat all of the risk

factors described in our 2018 Form 10-K. Also refer to ÇMD&AÑRisk Management,É ÇMD&AÑSingle-Family BusinessÉ and

ÇMD&AÑMultifamily BusinessÉ in our 2018 Form 10-K and in this report 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 any forwardlooking statements we make. We believe the risks described in the sections of this report and our 2018 Form 10-K identified

above are the most significant we face; however, these are not the only risks we face. In addition to the risks we discuss in this

report and in our 2018 Form 10-K, we face risks and uncertainties not currently known to us or that we currently believe are

immaterial. 

GSE and Conservatorship Risk

The future of our company is uncertain.

There continues to be significant uncertainty regarding the future of our company, including how long the company will

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

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

conservatorship is terminated, and whether we will continue to exist following conservatorship. The conservatorship is

indefinite in duration and the timing, conditions and likelihood of our emerging from conservatorship are uncertain. Our

conservatorship could terminate through a receivership. Termination of the conservatorship, other than in connection with a

receivership, requires TreasuryÖs consent under the senior preferred stock purchase agreement.

On September 5, 2019, Treasury released its plan to reform the housing finance system. The Treasury plan, which is

described in ÇMD&AÑLegislation and RegulationÑHousing Finance Reform,É is far-reaching in scope and could have a

significant impact on our structure, our role in the secondary mortgage market, our capitalization, our business and our

competitive environment. For example:

Ü Some of the recommendations in the Treasury plan, if implemented, could significantly restrict our business activities,

increase the competition we face, affect the credit risk of our mortgage acquisitions, affect our pricing, impose

additional requirements on our business, increase our costs or have other impacts that could negatively affect our

financial results and condition. For example, the plan includes recommendations that we and Freddie Mac should

each be required to operate a cash window for smaller lenders, should be prohibited from offering volume-based

pricing discounts or similar incentives, and should be required to maintain a nationwide presence. 

Ü The Treasury plan also contains recommendations for administrative and legislative reforms to limit our single-family

activities and restrict our multifamily footprint. The plan recommends that FHFA assess whether each of our current

single-family products, services and other activities, including our support for cash-out refinancings, investor loans,
and higher principal balance loans, should continue to benefit from support under our senior preferred stock purchase

agreement. It also recommends that FHFA and Treasury consider amendments to the senior preferred stock

purchase agreement to further limit the type and volume of multifamily loans we guarantee. 

Ü Regulatory capital requirements that become applicable to us as contemplated by the Treasury plan, depending on

their terms, may substantially constrain our business and activities or adversely affect our financial results. For

example, if the final capital rule requires us to hold more capital than FHFAÖs proposed capital framework, we may be

required to increase our pricing or take other actions to maintain appropriate risk-adjusted returns, which may in turn

adversely affect our competitive position and financial results. This effect may be more pronounced in a stressed

economic environment.

Ü While the Treasury plan contemplates FHFA ending our conservatorship, implementing the plan will take time and a

great deal of effort, and a number of factors may keep us from meeting the preconditions for exiting conservatorship,

otherwise prevent our exiting conservatorship, or delay any exit from conservatorship as contemplated under the

plan, including the following:

â we may be unable to retain or raise sufficient capital;

â we may be unable to meet additional requirements FHFA determines are necessary for us to operate in a

safe and sound manner;

â possible future changes in leadership at FHFA or the Administration may result in changes in FHFAÖs or

TreasuryÖs willingness to pursue the administrative reform recommendations in the Treasury plan;

â legislation may pass that prevents the Treasury plan from being implemented;

â our exit from conservatorship may be delayed because we need to address operational challenges or the

loss of regulatory exemptions or protections resulting from an exit from conservatorship. 

Ü The Treasury plan indicates one potential approach to recapitalizing us would be to place us in receivership to

facilitate a restructuring of our capital structure. In the event of such a receivership, existing holders of our preferred

and common stock would have no further ownership interest in us. 

We expect the Administration, FHFA and Congress to continue to consider housing finance reform, which could result in

significant changes in our structure and role in the future, as well as other changes to our business and competitive

environment.

In addition to or in connection with the recommendations set forth in the Treasury plan, Congress, FHFA or other agencies

may consider legislation, regulation or administrative actions aimed at increasing the competition we face, reducing our market

share, expanding our obligations to provide funds to Treasury, constraining our business operations, or subjecting us to new

obligations that could impose substantial burdens or adversely affect our results of operations or financial condition. We cannot

predict the timing or final content of housing finance reform legislation or other legislation, regulations or administrative actions

related to our activities, nor can we predict the impact any such enacted legislation, regulations or administrative actions would

have on our business and financial condition.

We may not have sufficient capital reserves to avoid a net worth deficit if we experience comprehensive losses in the

future. If we have a net worth deficit in a future quarter, we will be required to draw funds from Treasury to avoid

being placed into receivership.

The recently amended dividend provisions of the senior preferred stock permit us to retain only up to $25 billion as capital

reserves, provided our conservator directs us to declare and pay senior preferred stock dividends that become payable in the

future. As of September 30, 2019, our net worth was only $10.3 billion. As a result, we may not have sufficient capital reserves

to avoid a net worth deficit if we have comprehensive losses in the future.

For any quarter for which we have a net worth deficit, we would need to draw funds from Treasury under the senior preferred

stock purchase agreement to avoid being placed into receivership. As of the date of this filing, the maximum amount of

remaining funding under the agreement is $113.9 billion. If we were to draw additional funds from Treasury under the

agreement with respect to a future period, the amount of remaining funding under the agreement would be reduced by the

amount of our draw. Dividend payments we make to Treasury do not restore or increase the amount of funding available to us

under the agreement. Accordingly, if we experience multiple quarters of net worth deficits, the amount of remaining funding

available under the senior preferred stock purchase agreement could be significantly reduced from its current level.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 112
Our business and results of operations may be materially adversely affected if we are unable to retain and recruit

well-qualified senior executives and other employees. The conservatorship, the uncertainty of our future and

limitations on our executive and employee compensation put us at a disadvantage compared to many other

companies in attracting and retaining these employees.

Our business processes are highly dependent on the talents and efforts of our senior executives and other employees. The

conservatorship, the uncertainty of our future and limitations on executive and employee compensation have had, and are

likely to continue to have, an adverse effect on our ability to retain and recruit well-qualified executives and other employees.

Turnover in key management positions and challenges in integrating new management could harm our ability to manage our

business effectively and successfully implement our and FHFAÖs current strategic initiatives, and ultimately could 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, have had, and may continue to have, an adverse effect on our retention and recruitment of senior executives and other

employees. We are subject to significant restrictions on the amount and type of compensation we may pay our executives and

other employees while under conservatorship. For example:

Ü The Equity in Government Compensation Act of 2015 caps the annual direct compensation payable to our chief

executive officer to no more than $600,000 while we are in conservatorship or receivership.

Ü The STOCK Act prohibits our senior executives from receiving bonuses during any period of conservatorship. 

Ü In April 2019, legislation was introduced in the U.S. Senate that would prohibit either Fannie Mae or Freddie Mac from

transferring or delegating any duty or responsibility, as of November 25, 2015, of its chief executive officer to any

other position. The legislation would also provide that the Director of FHFA may be removed for cause for approving

the compensation of any chief executive officer of Fannie Mae or Freddie Mac at a level greater than that permitted

under the Equity in Government Compensation Act of 2015. 

Ü As our conservator, FHFA has the authority to approve the terms and amount of our executive compensation, and

may require us to make changes to our executive compensation program. For example:

â In August 2019, FHFA directed us, for so long as we are in conservatorship, to:

ç increase the mandatory deferral period for at-risk deferred salary received by senior vice presidents

and above from one year to two years, effective January 1, 2022 for executives hired before

January 1, 2020 and effective January 1, 2020 for executives hired on or after January 1, 2020;

and

ç limit base salaries for all of our employees to $600,000. (We do not currently pay any of our

employees, including our named executive officers, a base salary of more than $600,000.)

â In September 2019, FHFA directed us to submit for conservator decision any compensation arrangement for

a newly hired employee where the proposed total target direct compensation is $600,000 or above, or any

increase in total target direct compensation for an existing employee where the proposed total target direct

compensation is $600,000 or above. This directive became effective in October 2019 and continues for so

long as we are in conservatorship.

Ü The terms of our senior preferred stock purchase agreement with Treasury contain specified restrictions relating to

compensation, including a prohibition on selling or issuing equity securities without TreasuryÖs prior written consent,

which effectively eliminates our ability to offer equity-based compensation to our employees.

As a result of the restrictions on our compensation practices, we have not been able to incent and reward excellent

performance with compensation structures that provide upside potential to our executives, which places us at a disadvantage

compared to many other companies in attracting and retaining executives. In addition, the uncertainty of potential action by

Congress or the Administration with respect to housing finance reform, which may result in the wind-down or significant

restructuring of the company, and with respect to the compensation and role of our executives, also negatively affects our

ability to retain and recruit executives and other employees.

Our inability to offer market-based compensation to our chief executive officer also makes retention and succession planning

for this position difficult. We believe the limit applicable to our chief executive officer compensation negatively affected our

ability to retain our former Chief Executive Officer, who left the company in October 2018. 

We face competition from the financial services and technology industries, and from businesses outside of these industries, for

qualified executives and other employees. If we are unable to retain, promote and attract executives and other employees with

the necessary skills and talent, we would face increased risks for operational failures. If there were several high-level

departures at approximately the same time, our ability to conduct our business would likely be materially adversely affected,

which could have a material adverse effect on our results of operations and financial condition.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 113
Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase

agreement and could be significantly impacted by TreasuryÄs September 2019 Housing Reform Plan.

We are currently under the control of our conservator, FHFA, and we do not know when or how the conservatorship will

terminate. 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 have no 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. 

We are subject to significant restrictions on our business activities during conservatorship. We may be prevented by our

conservator from engaging in business activities or transactions that we believe would benefit our business and financial

results. For example, because FHFA must approve changes to the national loan level price adjustments we charge and can

direct us to make other changes to our guaranty fee pricing, our ability to address changing market conditions, pursue certain

strategic objectives, or manage the mix of loans lenders choose to deliver to us is constrained. We publish national risk-based

loan level price adjustment grids that specify the additional cash fees we charge at the time we acquire a loan based on the

credit characteristics of the loan. These fees allow us to price appropriately for the credit risk we assume in providing our

guaranty on the loans. We do not have the ability to implement changes to these pricing grids without the approval of FHFA. If

the mix of our single-family loan acquisitions changes, and FHFA does not approve requested changes to our pricing grids in

response to these changes, it could adversely affect our financial results and condition. In addition, if FHFA directs us to

change our pricing in any mannerÑincluding increases or decreases in our base guaranty fees or our loan level price

adjustmentsÑit could result in a decrease in our guaranty fee revenues in future periods, a decrease in our single-family

business volume or a negative impact on the credit risk profile of our new single-family acquisitions, any of which could

adversely affect our financial results and condition.

Because we are under the control of our conservator, our business objectives may not be consistent with the investment

objectives of our investors. We are devoting significant resources to meeting FHFAÖs goals for our conservatorship and expect

to continue to do so. We may be required by our conservator to engage in activities that are operationally difficult, costly to

implement or unprofitable, or that may adversely affect our financial results or the credit risk profile of our book of business. In

addition, actions we take to meet FHFAÖs strategic goals and objectives for our conservatorship could adversely affect our

financial results. FHFA has changed our business objectives significantly since we entered conservatorship and could make

additional changes at any time, any of which could materially affect our results of operations and financial condition. 

Even if we are released from conservatorship, 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 with the consent of Treasury.

Moreover, restrictions on our business and activities imposed by the terms of the senior preferred stock and the senior

preferred stock purchase agreement may be applied to us through regulation or legislation even if we cease to be subject to

these agreements and instruments. 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 except in specified situations; engage in transactions with affiliates other than on armÖslength terms or in the ordinary course of business; issue subordinated debt; incur indebtedness that would result in our

aggregate indebtedness exceeding $300 billion; or seek or permit the termination of our conservatorship (other than in

connection with receivership). 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. Pursuant to

the senior preferred stock purchase agreement, the amount of mortgage assets that we may own is limited to $250 billion. In

addition, FHFA has directed that we further cap our mortgage assets at $225 billion.

Given FHFAÖs control over Fannie Mae as our conservator and its authority as our regulator, and given the restrictions and

obligations that apply to Fannie Mae as a result of our senior preferred stock purchase agreement with Treasury, the senior

preferred stock and the warrant, possible future changes in leadership at FHFA or the Administration could result in significant

changes in our goals, our business and our financial results. 

As described in ÇMD&AÑLegislation and RegulationÉ in this report, Treasury recently released its plan to reform the housing

finance system. The Treasury plan includes recommendations for administrative reforms that would impose additional

restrictions on our business activities, includingÄfurtherÄlimits on the size of our retained mortgage portfolio and potentialÄ

limitsÄon our current products, services, and other single-family activities and on our multifamily footprint.ÄOur letter agreement

with Treasury of September 27, 2019, contemplates the negotiation and execution of an amendment to the senior preferred

stock purchase agreement to adopt covenants broadly consistent with these recommendations. Limitations on our business

activities could restrict our potential sources of revenue, impose additional costs on us, negatively impact our ability to

compete, or otherwise negatively affect our business, results and financial condition.

Actions taken by the conservator, the restrictions set forth in the senior preferred stock purchase agreement, including those

contemplated by the letter agreement with Treasury, and some of the recommendations in the Treasury plan, if implemented,

could adversely affect our business, results of operations, financial condition, liquidity and net worth.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 114
A number of lawsuits have been filed against the U.S. government relating to the senior preferred stock purchase agreement

and the conservatorship. See ÇNote 13, Commitments and ContingenciesÉ and ÇLegal ProceedingsÉ for a description of these

lawsuits. These lawsuits, and actions Treasury or FHFA may take in response to these lawsuits, could have a material impact

on our business.

We may undertake efforts that adversely affect our business, results of operations, financial condition, liquidity and

net worth.

In conservatorship our business has not been managed with a strategy to maximize shareholder returns while fulfilling our

mission. In pursuit of FHFAÖs previous strategic goals for our conservatorship, which are described in our 2018 Form 10-K in

ÇBusinessÑConservatorship, Treasury Agreements and Housing Finance ReformÑHousing Finance ReformÑConservator

Developments and Strategic Goals,É we have been taking a variety of actions that could adversely affect our economic returns,

possibly significantly, such as modifying loans to help struggling borrowers; expanding our underwriting and eligibility

requirements to increase access to mortgage credit; increasing our use of credit risk transfer transactions, which effectively

reduces the guaranty fee income we retain on the covered loans; and issuing structured securities backed by Freddie Macissued securities. On October 28, 2019, FHFA released new strategic goals and key priorities for our conservatorship, which

are discussed in ÇMD&AÑLegislation and RegulationÑNew FHFA Strategic Plan for Conservatorships and 2020 Scorecard.É

Efforts we take in support of our conservatorÖs new or future goals may have short- and long-term adverse effects on our

business and competitive position, results of operations, financial condition, liquidity and net worth.

Other agencies of the U.S.Ägovernment or Congress also may ask us to take actions to support the housing and mortgage

markets or in support of other goals. These actions may adversely affect our financial results and condition. For example, in

December 2011 Congress enacted the TCCA under which, at the direction of FHFA, we increased the guaranty fee on all

single-family residential mortgages delivered to us by 10 basis points effective AprilÄ1, 2012. The revenue generated by this

fee increase is paid to Treasury and helps offset the cost of a two-month extension of the payroll tax cut in 2012.

We are also required by the GSE Act to undertake efforts in support of the housing market that could adversely affect our

financial results and condition. For example, we are subject to housing goals under the GSE Act that require that a portion of

the mortgage loans we acquire must be for low- and very low-income families, families in low-income census tracts and

moderate-income families in minority census tracts or designated disaster areas. In addition, in December 2016, FHFA issued

a final rule to implement our new duty to serve very low-, low- and moderate-income families in three underserved markets:

manufactured housing, affordable housing preservation and rural areas. We may take actions to meet our housing goals and

duty to serve obligations that could adversely affect our profitability. For example, we may acquire loans that offer lower

expected returns on our investment than our other loan acquisitions and that may potentially increase our credit losses and

credit-related expenses. If we do not meet our housing goals or duty to serve requirements, and FHFA finds that the goals or

requirements were feasible, we may become subject to a housing plan that could require us to take additional steps that could

have an adverse effect on our results of operations and financial condition. The potential penalties for failure to comply with

housing plan requirements include a cease-and-desist order and civil money penalties. See ÇBusinessÑCharter Act and

RegulationÑGSE Act and Other RegulationÉ in our 2018 Form 10-K for more information on our housing goals and duty to

serve underserved markets.

The conservatorship and agreements with Treasury have had, and will continue to have, a material adverse effect on

our common and preferred shareholders.

The material adverse effects of the conservatorship and our agreements with Treasury include the following:

No voting rights during conservatorship. The rights and powers of our shareholders are suspended during conservatorship.

During 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.

No dividends to common or preferred shareholders, other than to Treasury. Our conservator announced in September 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, while we are in conservatorship. In addition, 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 prior

written consent of Treasury, regardless of whether we are in conservatorship.

Our profits directly increase the liquidation preference on TreasuryÄs senior preferred stock and, once they exceed our capital

reserve amount, will be payable to Treasury as dividends. The senior preferred stock ranks senior 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

(which includes any accumulated 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 was $127.2 billion as of September 30, 2019.

Effective September 30, 2019, the liquidation preference of the senior preferred stock increases at the end of each quarter by

an amount equal to the increase in our net worth, if any, during the immediately prior fiscal quarter, until such time as the

liquidation preference has increased by $22 billion. The liquidation preference would increase further if we draw on TreasuryÖs

funding commitment with respect to any future quarters or if we do not pay dividends owed on the senior preferred stock. If we

are liquidated, it is uncertain that there would be sufficient funds remaining after payment of amounts to our creditors and to

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 115
Treasury as holder of the senior preferred stock to make any distribution to holders of our common stock and other preferred

stock.

Pursuant to the dividend provisions of the senior preferred stock and quarterly directives from our conservator, we are

obligated to pay Treasury each quarter any dividends declared consisting of the amount, if any, by which our net worth as of

the end of the immediately preceding fiscal quarter exceeds the $25 billion capital reserve amount. 

As a result, our net income is not available to common shareholders or preferred shareholders other than Treasury as holder

of the senior preferred stock.

Exercise of the Treasury warrant would substantially dilute the 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.

The senior preferred stock purchase agreement, senior preferred stock and warrant can only be canceled or modified with the

consent of Treasury. For additional description of the conservatorship and our agreements with Treasury, see ÇBusinessÑ

Conservatorship, Treasury Agreements and Housing Finance ReformÉ in our 2018 Form 10-K and ÇMD&AÑLegislation and

RegulationÑHousing Finance ReformÉ in this report.

The issuance of UMBS and structured securities backed by Freddie Mac-issued securities may have an adverse

effect on the liquidity or market value of our MBS. The issuance of UMBS and our reliance on the common

securitization platform also increase our counterparty credit risk and operational risk.

On June 3, 2019, we and Freddie Mac began issuing UMBS. We also began using the common securitization platform

operated by CSS to perform certain aspects of the securitization process for our single-family Fannie Mae MBS issuances

beginning in May 2019. The issuance of UMBS and use of the common securitization platform represent significant changes

for the mortgage market and for our securitization operations and business.

Historically, single-family Fannie Mae MBS had a trading advantage over comparable Freddie Mac single-family mortgagebacked securities. The Single Security Initiative has eliminated this trading advantage. We believe this has contributed, and

will continue to contribute, to competitive pressure on our single-family guaranty fee pricing.

Uncertainty in connection with UMBS could contribute to declines in the liquidity or market value of Fannie Mae MBS or

otherwise adversely affect our financial condition or results of operations. FHFA adopted a rule to align Fannie Mae and

Freddie Mac programs, policies and practices that affect the prepayment rates of TBA-eligible mortgage-backed securities.

However, these alignment efforts may not be successful and the prepayment rates on Fannie Mae-issued UMBS and Freddie

Mac-issued UMBS could diverge. If investors stop accepting the fungibility of Fannie Mae-issued UMBS and Freddie Macissued UMBS, or if investors prefer Freddie Mac-issued UMBS over Fannie Mae-issued UMBS, it could adversely affect the

volume of our UMBS issuances and the liquidity and market value of Fannie Mae MBS, which could have a significant adverse

impact on our business, liquidity, financial condition, net worth and results of operations. 

The continued support of FHFA, Treasury, the Securities Industry and Financial Markets Association, and certain other

regulatory bodies is critical to the success of the Single Security Initiative. If any of these entities were to cease its support, the

liquidity and market value of Fannie Mae-issued UMBS could be adversely affected. Furthermore, if either we or Freddie Mac

exit conservatorship in the future, it is unclear whether our and Freddie MacÖs programs, policies and practices in support of

UMBS and resecuritizations of each otherÖs securities would be sustained.

The Single Security Initiative has also resulted in increased credit risk exposure and operational risk exposure to Freddie Mac.

When we resecuritize Freddie Mac-issued UMBS or other Freddie Mac securities, our guaranty of principal and interest

extends to the underlying Freddie Mac security. Our risk exposure to Freddie Mac is expected to increase as we issue more

structured securities backed directly or indirectly by Freddie Mac-issued securities going forward. In the event Freddie Mac

were to fail (for credit or operational reasons) to make a payment due on its securities underlying a Fannie Mae-issued

structured security, we would be obligated under our guaranty to fund any shortfall and make the entire payment on the related

Fannie Mae-issued structured security on that payment date. Our pricing does not currently reflect any incremental credit,

liquidity or operational risk associated with our guaranty of resecuritized Freddie Mac securities. As a result, any failure by

Freddie Mac to meet its obligations under the terms of its securities that back structured securities we issue could have a

material adverse effect on our earnings and financial condition, and we could be dependent on Freddie Mac and on the senior

preferred stock purchase agreements that we and Freddie Mac each have with Treasury to avoid a liquidity event or a default

under our guaranty.

The implementation of the Single Security Initiative created significant interdependence between the single-family mortgage

securitization programs of Fannie Mae and Freddie Mac. Accordingly, the market value of single-family Fannie Mae MBS could

be affected by events relating to Freddie Mac, even if those events do not directly relate to Fannie Mae or Fannie Mae MBS.

For example, any actual or perceived change in Freddie MacÖs financial performance or condition, mortgage credit quality, or

systems and data reliability could adversely affect the market value of single-family Fannie Mae MBS. Similarly, any disruption

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 116
in Freddie MacÖs securitization activities or any adverse events affecting Freddie MacÖs significant mortgage sellers and

servicers also could adversely affect the market value of single-family Fannie Mae MBS.

We no longer use our individual proprietary securitization function for our single-family MBS issuances. In addition to using the

common securitization platform for our newly issued UMBS issuances, we are also now using the common securitization

platform for certain ongoing administrative functions for our previously issued and outstanding single-family Fannie Mae MBS.

Accordingly, we are reliant on the common securitization platform and CSS for the operation of several of our single-family

securitization activities. These activities are complex and present significant operational and technological challenges and

risks. Any measures we take to mitigate these challenges and risks might not be sufficient to prevent a disruption to our

securitization activities. Our business activities could be adversely affected and the market for single-family Fannie Mae MBS

could be disrupted if the common securitization platform were to fail or otherwise become unavailable to us or if CSS were

unable to perform its obligations to us. Any such failure or unavailability could have a significant adverse impact on our

business, liquidity, financial condition, net worth and results of operations, and could adversely affect the liquidity or market

value of our single-family MBS. In addition, a failure by CSS to maintain effective controls and procedures could result in

material errors in our reported results or disclosures that are not complete or accurate. See ÇRisk FactorsÉ in our 2018 Form

10-K for a discussion of other operational risks associated with our implementation of the Single Security Initiative and related

internal infrastructure upgrades.

Credit Risk

We may suffer losses if borrowers are unable to obtain property or flood insurance, if their claims under insurance

policies are not paid, or if they suffer property damage as a result of a hazard for which we do not require insurance.

In general, we require borrowers to obtain property insurance to cover the risk of damage to their homes resulting from

hazards such as fire, wind and, for properties in a Special Flood Hazard Area, flooding. For flood insurance, borrowers

generally rely on the National Flood Insurance Program (ÇNFIPÉ), which is due to expire on November 21, 2019. While

Congress has passed a series of short-term extensions of NFIP since late 2017, if Congress does not extend or re-authorize

the program again, the Federal Emergency Management Agency may not have sufficient funds to pay claims for flood

damage, and borrowers may not be able to renew their flood insurance coverage or obtain new policies through the NFIP. In

addition, the maximum limit of coverage available under NFIP for a single-family residential property is limited to $250,000,

which may not be sufficient to cover all losses. If borrowers are unable to obtain property or flood insurance and suffer property

damage, if their claims under insurance policies are not paid, or if they suffer property damage as a result of a hazard for

which we do not require insurance, such as earthquake damage or flood damage on a property located outside a special flood

hazard area, they may not pay their mortgage loans, which would negatively impact our credit losses and credit-related

expenses. 

Market and Industry Risk

Uncertainty relating to the potential discontinuance of LIBOR after 2021 may adversely affect our results of

operations, financial condition, liquidity and net worth.

We routinely engage in transactions involving financial instruments that reference LIBOR, including acquiring loans and

securities, selling securities and entering into derivative transactions that reference LIBOR. In 2017, the United KingdomÖs

Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling the group of

major banks that sustain LIBOR to submit rate quotations after 2021. As a result, it is uncertain whether LIBOR will continue to

be quoted after 2021. 

Efforts are underway to identify and transition to a set of alternative reference rates. The transition may lead to disruption,

including yield volatility on LIBOR-based securities. The Federal Reserve convened a group of private-market participants,

known as the Alternative Reference Rate Committee (the ÇARRCÉ), to identify a set of alternative U.S. dollar reference interest

rates and an adoption plan for those alternative rates. We are a voting member of the ARRC and participate in its working

groups. In 2017, the ARRC recommended an alternative reference rate referred to as the Secured Overnight Financing Rate

(ÇSOFRÉ) and the Federal Reserve Bank of New York began publishing SOFR in 2018. However, SOFR is calculated based on

different criteria than LIBOR. Accordingly, SOFR and LIBOR may diverge, particularly in times of macroeconomic stress. Since

the initial publication of SOFR in 2018, daily changes in SOFR have at times been more volatile than daily changes in

comparable benchmark or market rates, and SOFR may be subject to direct influence by activities of the Federal Reserve and

the Federal Reserve Bank of New York in ways that other rates may not be. For example, at the direction of the Federal

Reserve, in late September 2019, the Federal Reserve Bank of New York began conducting a series of overnight and term

repurchase agreement (ÇrepoÉ) operations to help maintain the federal funds rate within a target range. In October 2019, the

Federal Reserve Bank of New York announced that this activity would continue at least through January 2020. These activities

directly impact prevailing SOFR rates.

We continue to analyze potential risks associated with the LIBOR transition, including financial, operational, legal, reputational

and compliance risks. We have created an enterprise program office focused on this transition, including identifying and

monitoring our exposure to LIBOR, updating our infrastructure (including models and systems) to prepare for the transition,

and monitoring the market adoption of alternative reference rates and industry-standard contractual fallback provisions. 

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 117
While many of our LIBOR-indexed financial instruments allow us to take discretionary action to select an alternative reference

rate if LIBOR is discontinued, our use of an alternative reference rate may be subject to legal challenges. There is

considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial

instruments. This uncertainty could result in disputes and litigation with counterparties and borrowers surrounding the

implementation of alternative reference rates in our financial instruments that reference LIBOR. If LIBOR ceases or changes in

a manner that causes regulators or market participants to question its viability, financial instruments indexed to LIBOR could

experience disparate outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or

regulatory jurisdiction, and a host of other factors. There can be no assurance that legislative or regulatory actions will dictate

what happens if LIBOR ceases or is no longer viable, or what those actions might be. In addition, while the ARRC was created

to ensure a successful transition from LIBOR, there can be no assurance that the ARRC will endorse practices that create a

smooth transition and minimize value transfers between market participants, or that its endorsed practices will be broadly

adopted by market participants. Divergent industry or market participant actions could result after LIBOR is no longer available

or viable. It is uncertain what effect any divergent industry practices will have on the performance of financial instruments,

including those that we own or have issued. Alternative reference rates that replace LIBOR may not yield the same or similar

economic results over the lives of the financial instruments, which could adversely affect the value of and return on these

instruments. The LIBOR transition could result in our paying higher interest rates on our current LIBOR-indexed obligations,

adversely affect the yield on and fair value of the loans and securities we hold or guarantee that reference LIBOR, and

increase the costs of or affect our ability to effectively use derivative instruments to manage interest rate risk. 

In addition, we cannot anticipate how long it will take to develop the systems and processes necessary to adopt SOFR or other

benchmark replacements, which may delay and contribute to uncertainty and volatility surrounding the LIBOR transition.

These developments could have a material impact on us, adjustable-rate mortgage borrowers, investors, and our customers

and counterparties. This could result in losses, reputational damage, litigation or costs, or otherwise adversely affect our

business, financial condition, liquidity, net worth or results of operations.

Our business and financial results are affected by general economic conditions, particularly home prices and

employment trends, and a deterioration of economic conditions or the financial markets may materially adversely

affect our results of operations, net worth and financial condition.

Our business is significantly affected by the status of the U.S. economy, particularly home prices and employment trends. A

prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions or the financial

markets could materially adversely affect our results of operations, net worth and financial condition. In general, if home prices

decrease, or the unemployment rate increases, it could result in significantly higher levels of credit losses and credit-related

expense.

Global economic conditions can also adversely affect our business and financial results. Changes or volatility in market

conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of

our assets, which could materially adversely affect our results of operations, net worth and financial condition. A slowdown in

economic growth around the world remains a concern for policy makers and financial markets. To the extent global economic

conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our book

of business.

Volatility or uncertainty in global political conditions also can significantly affect U.S. economic conditions and financial

markets. Currently, there is elevated uncertainty around several unresolved global political events, including the United

KingdomÖs exit from the European Union and ongoing international trade negotiations, that could impact global growth and

financial markets. See ÇRisk FactorsÉ in our 2018 Form 10-K for a description of the risks to our business posed by changes in

interest rates and changes in spreads. In addition, as described in ÇRisk FactorsÉ in our 2018 Form 10-K, future changes or

disruptions in the financial markets could significantly change the amount, mix and cost of funds we obtain, as well as our

liquidity position.

A decline in activity in the U.S.Åhousing market, increasing interest rates, or longer-term effects of tax law changes

could lower our business volumes or otherwise adversely affect our results of operations, net worth and financial

condition.

Our business volume is affected by the rate of growth in total U.S.Äresidential mortgage debt outstanding and the size of the

U.S.Äresidential mortgage market. A decline in mortgage debt outstanding reduces the unpaid principal balance of mortgage

loans available for us to acquire, which in turn could reduce our net interest income. Even if we were able to increase our

share of the secondary mortgage market, it may not be sufficient to make up for a decline in the rate of growth in mortgage

originations.

Mortgage interest rates also affect our business volume. Rising interest rates generally result in fewer mortgage originations,

particularly for refinances. An increase in interest rates, particularly if the increase is sudden and steep, could significantly

reduce our business volume. Significant reductions in our business volume could adversely affect our results of operations and

financial condition. 

The cap on mortgage interest deductions, the increase in the amount of the standard deduction and other changes in tax laws

may also adversely affect housing demand, home prices or other housing or mortgage market conditions, which could impact

our business volumes and adversely affect our results of operations, net worth and financial condition.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 118
The continued run-off of mortgage-backed securities from the Federal ReserveÄs portfolio could adversely affect our

business, results of operations, financial condition, liquidity and net worth.

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

Mac and Ginnie Mae. In October 2017, the Federal Reserve initiated a balance sheet normalization program to reduce its

holdings of Treasury securities and mortgage-backed securities. While the Federal Reserve stopped the run-off of U.S.

Treasury securities from its portfolio in September 2019, it continued to allow its mortgage-backed securities to run-off,

replacing the principal balance with U.S. Treasuries and thus holding the portfolio constant. This may create upward pressure

on mortgage interest rates and reduce demand for mortgage-backed securities, which could adversely affect our business,

results of operations, financial condition, liquidity and net worth.

Legal, Regulatory and Other Risks

Regulatory changes in the financial services industry may negatively impact our business.

Changes in the regulation of the financial services industry are affecting and are expected to continue to affect many aspects

of our business. Examples of regulatory changes that have affected us or may affect us in the future include: rules requiring

the clearing of certain derivatives transactions and margin and capital rules for uncleared derivative trades, which impose

additional costs on us; and the development of single-counterparty credit limit regulations, which could cause our customers to

change their business practices.

Our business and results may be adversely affected by changes in the CFPBÖs Çability-to-repayÉ rule to replace the Çqualified

mortgage patch,É pursuant to which a special class of conventional mortgage loans are considered Çqualified mortgagesÉ

under the Truth in Lending ActÄif they (1)Ämeet certain qualified mortgage requirements generally and (2) are eligible for sale to

Fannie Mae or Freddie Mac. The qualified mortgage patch is scheduled to expire on the earlier of January 10, 2021 or when

Fannie Mae and Freddie Mac cease to be in conservatorship or receivership. In July 2019, the CFPB issued an advance

notice of proposed rulemaking relating to the expiration of the qualified mortgage patch, and in September 2019, in the

Treasury plan, Treasury recommended that the CFPB establish a bright-line safe harbor to replace the qualified mortgage

patch. Although the ability-to-repay rule does not apply directly to us, the rule applies to the lenders from which we acquire

single-family mortgage loans. And because FHFA has directed that Fannie Mae and Freddie Mac shall only acquire loans that

are qualified mortgages under the ability-to-repay rule, changes in the rule may reduce the number of loans that are eligible for

delivery to us, and may increase the competition we face for the acquisition and guaranty of such loans.

Changes to financial regulations could affect our business directly or indirectly if they affect our customers and counterparties.

Changes in regulations applicable to U.S. banks could also affect our business, as U.S. banks purchase a large amount of our

debt securities and MBS. New or revised liquidity or capital requirements applicable to U.S. banks could materially affect

demand by those banks for our debt securities and MBS in the future.

The actions of Treasury, the Commodity Futures Trading Commission, the SEC, the Federal Deposit Insurance Corporation,

the Federal Reserve and international central banking authorities directly or indirectly impact financial institutionsÖ cost of funds

for lending, capital-raising and investment activities, which could increase our borrowing costs or make borrowing more difficult

for us. Changes in monetary policy are beyond our control and difficult to anticipate.

Overall, these legislative and regulatory changes could affect us in substantial and unforeseeable ways and could have a

material adverse effect on our business, results of operations, financial condition, liquidity and net worth.

Legislative, regulatory or judicial actions could negatively impact our business, results of operations, financial

condition or net worth. 

Legislative, regulatory or judicial actions at the federal, state or local level could negatively impact our business, results of

operations, financial condition, liquidity or net worth. Legislative, regulatory or judicial actions could affect us in a number of

ways, including by imposing significant additional costs on us and diverting management attention or other resources. For

example, we could be affected by:

Ü Legislation designed to affect how we and Freddie Mac manage our business. For example, legislation introduced in

the U.S. Senate in April 2019 would prohibit either Fannie Mae or Freddie Mac from transferring or delegating any

duty or responsibility, as of November 25, 2015, of its chief executive officer to any other position. If enacted, this

legislation could negatively impact our business by requiring us to change our current management structure and

limiting our ability to determine the roles and responsibilities of our executives in response to evolving business

needs. 

Ü Designation as a systemically important financial institution. The Senate Committee on Banking, Housing, and Urban

Affairs held a hearing in June 2019 on whether we should be regulated as a systemically important financial

institution, which would result in our becoming subject to additional regulation and oversight by the Federal Reserve

Board.

Ü Legislative or regulatory changes that expand our, or our servicersÖ, responsibility and liability for securing,

maintaining or otherwise overseeing vacant properties prior to foreclosure, which could increase our costs. 

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 119
Ü State laws and court decisions granting new or expanded priority rights over our mortgages to homeowners

associations or through initiatives that provide a lien priority to loans used to finance energy efficiency or similar

improvements, which could adversely affect our ability to recover our losses on affected loans. 

Ü State and local laws and regulations expanding rent control and other tenant protections, such as New YorkÖs

Housing Stability and Tenant Protection Act of 2019, which could negatively affect the housing market in the

applicable areas and increase our credit risk on the loans we guarantee in those areas.

In addition, our business could be materially adversely affected by legislative and regulatory actions relating to housing finance

reform or the financial services industry, or by legal or regulatory proceedings. We describe many of these actions and

proceedings in these risk factors and in ÇRisk FactorsÉ in our 2018 Form 10-K.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 120

Item 2.ÅÅUnregistered Sales of Equity Securities and Use of

Proceeds

Recent Sales of Unregistered Equity 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 SeptemberÄ30, 2019, we did not sell any equity

securities.

Information about Certain Securities Issuances by Fannie Mae

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct

financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet arrangement.

The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in connection with

certain types of securities offerings, in prospectuses for that offering that are filed with the SEC.

Because the securities we issue are exempted securities under the Securities Act of 1933, we do not file registration

statements or prospectuses with the SEC with respect to our securities offerings. To comply with the disclosure requirements

of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence of these types of obligations

either in offering circulars or prospectuses (or supplements thereto) that we post on our website or in a current report on

FormÄ8-K that we file with the SEC, in accordance with a Çno-actionÉ letter we received from the SEC staff in 2004. In cases

where the information is disclosed in a prospectus or offering circular posted on our website, the document will be posted on

our website within the same time period that a prospectus for a non-exempt securities offering would be required to be filed

with the SEC.

The website address for disclosure about our debt securities is www.fanniemae.com/debtsearch. From this address, investors

can access the offering circular and related supplements for debt securities offerings under Fannie MaeÖs universal debt

facility, including pricing supplements for individual issuances of debt securities.

Disclosure about our obligations pursuant to the MBS we issue, some of which may be off-balance sheet obligations, can be

found at www.fanniemae.com/mbsdisclosure. From this address, investors can access information and documents about our

MBS, including prospectuses and related prospectus supplements.

We are providing our website address solely for your information. Information appearing on our website is not incorporated into

this report.

Our Purchases of Equity Securities

We did not repurchase any of our equity securities during the third quarter of 2019.

Dividend Restrictions 

Our payment of dividends is subject to the following restrictions: 

Restrictions Relating to Conservatorship. Our conservator announced on SeptemberÄ7, 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, FHFAÖs

regulations relating to conservatorship and receivership operations prohibit us from paying any dividends while in

conservatorship unless authorized by the Director of FHFA. The Director of FHFA has directed us to make dividend payments

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

Restrictions Under Senior Preferred Stock Purchase Agreement and Senior Preferred Stock. The senior preferred stock

purchase agreement prohibits us from declaring or paying any dividends on Fannie Mae equity securities (other than the

senior preferred stock) without the prior written consent of Treasury. In addition, pursuant to the dividend provisions of the

senior preferred stock and quarterly directives from our conservator, we are obligated to pay Treasury each quarter any

dividends declared consisting of the amount, if any, by which our net worth as of the end of the immediately preceding fiscal
quarter exceeds $25 billion. As a result, our net income is not available to common stockholders. For more information on the

terms of the senior preferred stock purchase agreement and senior preferred stock, see ÇBusinessÑConservatorship,

Treasury Agreements and Housing Finance ReformÉ in our 2018 Form 10-K and ÇMD&AÑLegislation and RegulationÑLetter

Agreement with TreasuryÉ in this report.

Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to the prior

payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all outstanding preferred

stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred stock. 

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends,

if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of the Director of

FHFA is required for any dividend payment. Under the Charter Act and the GSE Act, we are not permitted to make a capital

distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may permit us to

repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at least an

equivalent amount and will reduce our financial obligations or otherwise improve our financial condition. 

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 121

ItemÅ3.ÅÅDefaults Upon Senior Securities

None. 

ItemÅ4.ÅÅMine Safety Disclosures

None.

ItemÅ5.ÅÅOther Information

None.
ItemÅ6.ÅÅExhibits

The exhibits listed below are being filed or furnished with or incorporated by reference into this report. 

Item Description

3.1 Fannie Mae Charter Act (12 U.S.C. Å 1716 et seq.) as amended through July 25, 2019

3.2 Fannie Mae Bylaws, as amended through January 29, 2019 (Incorporated by reference to ExhibitÄ3.2 to

Fannie MaeÖs Annual Report on FormÄ10-K for the year ended December 31, 2018, filed February 14,

2019.)

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 30, 2019

4.2 Letter Agreement 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, dated September 27, 2019 (Incorporated by reference to Exhibit 10.1 to Fannie MaeÖs Current

Report on Form 8-K, filed October 1, 2019)

10.1 Letter Agreement 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, dated September 27, 2019 (Incorporated by reference to Exhibit 10.1 to Fannie MaeÖs Current

Report on Form 8-K, filed October 1, 2019)

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act RuleÄ13a-14(a)

31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act RuleÄ13a-14(a)

32.1 Certification of Chief Executive Officer pursuant to 18ÄU.S.C. SectionÄ1350

32.2 Certification of Chief Financial Officer pursuant to 18ÄU.S.C. SectionÄ1350

101. INS Inline XBRL Instance Document* - the instance document does not appear in the Interactive Data File

because its XBRL tags are embedded within the Inline XBRL document

101. SCH Inline XBRL Taxonomy Extension Schema*

101. CAL Inline XBRL Taxonomy Extension Calculation*

101. DEF Inline XBRL Taxonomy Extension Definition*

101. LAB Inline XBRL Taxonomy Extension Label*

101. PRE Inline XBRL Taxonomy Extension Presentation*

104 Cover Page Interactive Data File* - the cover page interactive data file does not appear in the Interactive

Data File because its XBRL tags are embedded within the Inline XBRL document included as Exhibit 101

* The financial information contained in these XBRL documents is unaudited.

Other Information

Fannie Mae Third Quarter 2019 Form 10-Q 122
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed

on its behalf by the undersigned thereunto duly authorized.

Federal National Mortgage Association

By: /s/ Hugh R. Frater

Hugh R. Frater

Chief Executive Officer

Date: OctoberÄ31, 2019

By: /s/ Celeste M. Brown

Celeste M. Brown

Executive Vice President and

Chief Financial Officer

Date: OctoberÄ31, 2019

Signatures

Fannie Mae Third Quarter 2019 Form 10-Q 123