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 March 31, 2019

OR

o 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

Washington, DC 20005

(800) 2FANNIE 

(800-232-6643)

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

(Address of principal executive offices,

including zip code)

(RegistrantÄs telephone number, including

area code)

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

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

to file such reports), and (2) has been subject to such filing requirements for the past 90 days.ÄÄYesÄÄÄÄÄÄÄNoÄo

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).ÄÄYesÄÄÄÄÄÄÄNoÄo

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 filerÄÄo

Non-accelerated filer Äo Smaller reporting companyÄÄo

Emerging growth company Äo

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. Äo

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

Act).ÄYesÄoÄÄNoÄÄ

As of March 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Condensed Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . . . . 50

Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Condensed Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Note 1ÑSummary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Note 2ÑConsolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Note 3ÑMortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Note 4ÑAllowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Note 5ÑInvestments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Note 6ÑFinancial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Note 7ÑShort-Term and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Note 8ÑDerivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Note 9ÑSegment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Note 10ÑEquity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Note 11ÑConcentrations of Credit Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Note 12ÑNetting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Note 13ÑFair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Note 14ÑCommitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

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

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

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

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

Single Security Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Key Market Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Consolidated Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Retained Mortgage Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Total Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Single-Family Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Multifamily Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Liquidity and Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Impact of Future Adoption of New Accounting Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

ItemÄ3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

ItemÄ4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

PARTÄIIÅOther Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

ItemÄ1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

ItemÄ1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Fannie Mae First Quarter 2019 Form 10-Q ii
PART IÄFINANCIAL INFORMATION

MD&A | Introduction

Fannie Mae First 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 $3.0 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 actions and statements relating to housing finance

reform by the Administration, Congress and FHFA, see ÇBusinessÑConservatorship, Treasury Agreements and Housing

Finance Reform,É ÇBusinessÑCharter Act and RegulationÉ and ÇRisk FactorsÉ in our Form 10-K for the year ended

December 31, 2018 (Ç2018 Form 10-KÉ) and ÇLegislation and RegulationÉ and ÇRisk FactorsÉ in this report.

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

By federal charter, Fannie Mae provides a stable source of liquidity to the mortgage market and supports the availability and

affordability of housing in the United States. 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 $102 billion in liquidity to the mortgage market in

the first quarter of 2019, which enabled the financing of approximately 527,000 home purchases, refinancings or rental units.

 Fannie Mae Provided $102 Billion in Liquidity in the First Quarter of 2019

$16.9B 171K

Multifamily Rental Units

$56.3B 229K

Single-Family Home Purchases

$28.8B 127K

Single-Family Refinancings

Unpaid Principal Balance Units
Executive Summary

MD&A | Executive Summary

Fannie Mae First Quarter 2019 Form 10-Q 2

Summary of Our Financial Performance 

Net revenues

Net income

Comprehensive income

Condensed Consolidated Results

(Dollars in billions)

Q1 2018 Q1 2019

$5.6

$5.0

$4.3

$2.4

$3.9

$2.4

 

 

Quarterly Results

The decrease in our net income in the first quarter of 2019,

compared with the first quarter 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 benefit for

credit losses. 

See ÇConsolidated Results of OperationsÉ for more

information on our financial results.

Net Worth. Our net worth of $5.4 billion as of March 31, 2019 reflects our comprehensive income of $2.4 billion for the first

quarter of 2019 and $3.0 billion in retained capital reserves.

Financial Performance Outlook

Our long-term financial performance will depend in large part upon both 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. While we

expect to remain profitable on an annual basis for the foreseeable future, certain factors could result in significant volatility in

our financial results from quarter to quarter or year to year. We expect quarterly volatility in our financial results due to a

number of factors, particularly changes in market conditions that result in fluctuations in the estimated fair value of our

derivatives and other financial instruments that we mark to market through our earnings. Other factors that may result in

volatility in our quarterly financial results include factors that affect our loss reserves, such as redesignations of loans from held

for investment (ÇHFIÉ) to held for sale (ÇHFSÉ), 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 ÇMD&AÑConsolidated Results of OperationsÑ

Credit-Related Income (Expense)É in our 2018 Form 10-K and in ÇConsolidated Results of OperationsÑCredit-Related

IncomeÉ in this report. Further, our implementation on January 1, 2020 of ASU 2016-13, Financial InstrumentsÑCredit Losses

(Topic 326), Measurement of Credit Losses on Financial Instruments (the ÇCECL standardÉ) will likely introduce additional

volatility in our results thereafter 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 these factors. 

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

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

experience in the future could be greater than the amount of our capital reserves, which would result in a net worth deficit for
that quarter. For example, our implementation of the CECL standard will likely decrease, perhaps substantially, our retained

earnings and increase our allowance for credit losses, which could result in a net worth deficit when we adopt the guidance in

the first quarter of 2020. If we experience a net worth deficit in a future quarter, we will be required to draw funds from Treasury

under our senior preferred stock purchase agreement with Treasury to avoid being placed into receivership. See ÇRisk

FactorsÉ in our 2018 Form 10-K for a discussion of the risks associated with the limitations on our ability to rebuild our capital

reserves, including factors that could result in a net loss or net worth deficit in a future quarter. 

MD&A | Executive Summary

Fannie Mae First Quarter 2019 Form 10-Q 3

Treasury Draws and Dividend Payments 

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

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

senior preferred stock to Treasury in 2008. Acting as successor to the rights, titles, powers and privileges of the Board, the

conservator has declared and directed us to pay dividends to Treasury on the senior preferred stock on a quarterly basis for

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

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

agreement, as well as all of the dividends we have paid to Treasury on the senior preferred stock. 

Treasury Draws and Dividend Payments: 2008 - Q1 2019

(Dollars in billions)

Draws from Treasuryá Dividend payments to Treasury

2008-2016 2017 2018 YTD 2019 Totalà

$116.1

$3.7 $0.0 $0.0

$119.8

$154.4

$12.0 $9.4

$3.2

$179.0

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

of funds from Treasury. Amounts may not sum due to rounding.

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

in the quarter following a net worth deficit.

We expect to pay Treasury a second quarter 2019 dividend of $2.4 billion by June 30, 2019. The senior preferred stock

currently provides for dividends each quarter in the amount, if any, by which our net worth as of the end of the prior quarter

exceeds a $3.0 billion capital reserve amount. We refer to this as a Çnet worth sweepÉ dividend. 

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

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

under the agreement would be reduced by the amount of our draw. Dividend payments we make to Treasury do not restore or

increase the amount of funding available to us under the agreement. For a description of the terms of the senior preferred

stock purchase agreement and the senior preferred stock, see ÇBusinessÑConservatorship, Treasury Agreements and

Housing Finance ReformÉ in our 2018 Form 10-K. 

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

commitment under 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.
Legislation and Regulation

The information in this section and in the following section on the Single Security Initiative 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. 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

On March 27, 2019, President Trump issued a memorandum directing the Secretary of the Treasury to develop a plan (the

ÇTreasury Housing Reform PlanÉ) for administrative and legislative reforms for Fannie Mae and Freddie Mac (the ÇGSEsÉ) to

achieve the following goals:

Ü ending the conservatorships of the GSEs upon the completion of specified reforms;

Ü facilitating competition in the housing finance market;

Ü establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to

the financial stability of the United States; and

Ü providing that the federal government is properly compensated for any explicit or implicit support it provides to the

GSEs or the secondary housing finance market.

The memorandum states that the Treasury Housing Reform Plan shall include reform proposals to achieve the following

specific objectives and, for those reforms that can be implemented administratively, include a timeline for implementation:

Ü preserving access for qualified homebuyers to 30-year fixed-rate mortgages and other mortgage options that best

serve the financial needs of potential homebuyers;

Ü maintaining equal access to the federal housing finance system for lenders of all sizes, charter types, and geographic

locations, including the maintenance of a cash window for loan sales;

Ü establishing appropriate capital and liquidity requirements for the GSEs;

Ü increasing competition and participation of the private sector in the mortgage market, including by authorizing FHFA

to approve guarantors of conventional mortgage loans in the secondary market;

Ü mitigating the risks undertaken by the GSEs, including by altering, if necessary, our respective policies on loan limits,

program and product offerings, credit underwriting parameters, and the use of private capital to transfer credit risk;

Ü recommending appropriate size and risk profiles for the GSEsÖ retained mortgage and investment portfolios;

Ü defining the role of the GSEs in multifamily mortgage finance;

Ü defining the mission of the Federal Home Loan Bank system and its role in supporting federal housing finance;

Ü evaluating, in consultation with the Secretary of the U.S. Department of Housing and Urban Development (ÇHUDÉ)

and the Director of the Bureau of Consumer Financial Protection, the ÇQM Patch.É The QM patch refers to a special

class of conventional mortgage loans that will be considered Çqualified mortgagesÉ under the Truth in Lending Act

(ÇTILAÉ)Äif they (1) meet certain qualified mortgage requirements generally and (2) are eligible for sale to Fannie Mae

or Freddie Mac;

Ü defining the GSEsÖ role in promoting affordable housing without duplicating support provided by the Federal Housing

Administration (ÇFHAÉ) or other federal programs; and

Ü setting the conditions necessary for the termination of the conservatorships of the GSEs, which shall include the

following conditions being satisfied:

â the federal government is fully compensated for the explicit and implicit guarantees provided by it to the

GSEs or any successor entities in the form of an ongoing payment to the United States;

â the GSEsÖ activities are restricted to their core statutory mission and the size of investment and retained

mortgage portfolios is appropriately limited; and

â the GSEs are subjected 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.

The memorandum also directs the Secretary of HUD to develop a plan for reforming FHA and Ginnie Mae. All plans are to be

submitted to the President for approval as soon as practicable. 

MD&A | Legislation and Regulation

Fannie Mae First Quarter 2019 Form 10-Q 4
We expect Congress, the Administration and FHFA to continue to consider housing finance reform, which could result in

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

the future of our company. See ÇRisk FactorsÑGSE and Conservatorship RiskÉ in our 2018 FormÄ10-K for more information on

our uncertain future, including the risks to our business and profitability arising from our conservatorship status and potential

housing finance reform.

Proposed Legislation Regarding CEO Responsibilities and Compensation

On April 11, 2019, legislation was introduced in the U.S. Senate that would prohibit either GSE from transferring or delegating

any duty or responsibility of its chief executive officer, as of November 25, 2015, 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 a GSE at a level greater than that permitted under the Equity in Government Compensation Act of 2015, which caps the

annual total direct compensation for the chief executive officers of the GSEs at $600,000 during conservatorship. 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. In addition,

uncertainty about and limitations on the amount and form of compensation we may pay executives and other employees

impacts our ability to retain and recruit well-qualified executives and other employees. For more information on risks to our

business relating to compensation limitations and legislative actions, see ÇRisk Factors.É

New FHFA Director 

On April 15, 2019, Mark Calabria became the new Director of FHFA. As we discuss in ÇRisk FactorsÑGSE and

Conservatorship RiskÉ in our 2018 Form 10-K, changes in leadership at FHFA could result in significant changes to FHFAÖs

goals for our conservatorship and have a material impact on our business and financial results.

2018 Housing Goals Performance

We are subject to housing goals established by FHFA, which call for a specified amount of mortgage loans we acquire to meet

requirements relating to affordability or location. To meet our single-family housing goals, our performance must meet or

exceed benchmarks established by FHFA or, if lower, the level of goals-qualifying originations in the primary mortgage market.

To meet our multifamily housing goals, our performance must meet or exceed benchmarks established by FHFA. ForÄ2018, we

believe we met all of our single-family and multifamily benchmarks. Final performance results will be determined and published

by FHFA sometime after the release later this year of 2018 data reported by primary mortgage market originators under the

Home Mortgage Disclosure Act. For more information on our housing goals, see ÇBusinessÑCharter Act and RegulationÑ

GSE Act and Other RegulationÉ in our 2018 Form 10-K.

Affordable Housing Allocations

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 in each fiscal year an amount equal

to 4.2 basis points of the unpaid principal balance of our new business purchases and to pay this amount to specified HUD

and Treasury funds in support of affordable housing. New business purchases consist of single-family and multifamily whole

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

issued during the period pursuant to lender swaps, which we describe in ÇBusinessÑMortgage SecuritizationsÉ in our 2018

Form 10-K. We are prohibited from passing through the cost of these allocations to the originators of the mortgage loans that

we purchase or securitize. For each yearÖs new business purchases since 2015, we have set aside amounts for these

contributions and transferred the funds when directed by FHFA to do so. See ÇTotal Book of BusinessÉ for information on our

contribution for 2018 new business purchases and our expense related to our 2019 new business purchases.

MD&A | Legislation and Regulation

Fannie Mae First Quarter 2019 Form 10-Q 5

Single Security Initiative

Upcoming Transition to UMBS and Reliance on Common Securitization Platform

After five years of working on the Single Security Initiative with Freddie Mac, our jointly owned limited liability company,

Common Securitization Solutions, LLC (ÇCSSÉ), and FHFA, we expect that in June 2019 we and Freddie Mac will start issuing

single-family uniform mortgage-backed securities, or ÇUMBS.É At that time, we will also begin using the common securitization

platform we have developed in conjunction with FHFA, Freddie Mac and CSS to perform certain aspects of the securitization

process. The objective of the Single Security Initiative is to enhance the overall liquidity of Fannie Mae and Freddie Mac MBS

eligible for forward trading in the to-be-announced (ÇTBAÉ) market by supporting their fungibility without regard to which

company is the issuer. Forward trading of UMBS began in March 2019, and, as of April 25, 2019, $755 billion of UMBS had

been traded in the TBA market for settlement beginning in June 2019.
The common securitization platform and the Single Security Initiative represent significant changes for the mortgage market

and for our securitization operations and business. We expect that once we begin issuing UMBS, the vast majority of our

single-family MBS will be issued as UMBS. See ÇBusinessÑMortgage SecuritizationsÑCommon Securitization Platform and

Single Security InitiativeÉ in our 2018 Form 10-K and ÇRisk FactorsÉ in this report for more information on these efforts and the

risks they present. 

Final Rule on MBS Prepayment Rates

On February 28, 2019, FHFA issued a final rule to require Fannie Mae and Freddie Mac to align their programs, policies and

practices that affect the prepayment rates of TBA-eligible MBS. The rule applies to Fannie MaeÖs and Freddie MacÖs current

offerings of TBA-eligible MBS and to the new UMBS expected to be issued starting in June 2019. In proposing the rule, FHFA

noted that Ç[t]he industry has expressed concerns that Fannie Mae and Freddie Mac UMBS may not be truly fungible because

differences in Fannie Mae and Freddie Mac policies could result in materially differing cash flows (as a result of, e.g., differing

prepayment speeds).É FHFA, as conservator, had previously responded to industry input by imposing alignment mandates on

Fannie Mae and Freddie Mac, and publishing a Prepayment Monitoring Report. The final rule codifies FHFAÖs previous

mandates and is intended to ensure that Fannie Mae and Freddie Mac programs, policies and practices that individually have

a material effect on cash flows (including policies that affect prepayment speeds) are and will continue to be aligned. 

MD&A | Single Security Initiative

Fannie Mae First Quarter 2019 Form 10-Q 6
Key Market Economic Indicators

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

Selected Benchmark Interest Rates

03/31/17 06/30/17 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 3/31/2019

1.15%

2.31%

2.60%

1.62%

2.58%

2.38% 2.38%

2.79%

2.41%

2.40%

2.74%

2.41%

3.13%

3.46%

3.11%

4.14%

4.44%

4.06%

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 Surveyä. 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, 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 increases the impairment on these loans and results in increases in the provision for credit

losses. Conversely, decreases in mortgage interest rates tend to shorten the expected lives of our modified loans,

which reduces the impairment on these loans and results in decreases in the provision for credit losses.

MD&A | Key Market Economic Indicators

Fannie Mae First Quarter 2019 Form 10-Q 7
Fannie Mae national home price indexà

Rate of Single-Family Home Price

Growth (Decline)

1Q18 2Q18 3Q18 4Q18 1Q19

1.3%

2.9%

1.2%

(0.1)%

0.4%

We expect home price appreciation on a national basis to

slow slightly in 2019, 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 BusinessÑMultifamily

Mortgage Market.É

How home prices can affect our

financial results

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)

1Q18 2Q18 3Q18 4Q18 1Q19

(0.6)%

0.7%

(2.1)%

(5.5)%

2.5%

17.2%

(14.7)%

(2.2)%

(0.1)%

(3.5)%

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 new purchase money

mortgage 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 future 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 First Quarter 2019 Form 10-Q 8
GDP, Unemployment Rate and Personal Income

U.S. unemployment rate, as of period endà

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

Growth in GDP, annualized percentage changeã

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

4.4% 4.3% 4.2% 4.1% 4.0% 4.0%

3.7%

3.9% 3.8%

4.2%

2.0%

2.6%

2.2%

2.6%

1.4%

2.8% 3.7%

1.8% 2.6%

3.0% 2.8%

2.3% 2.2%

4.2%

3.4%

2.2% 3.2%

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

(2) Personal income growth through the fourth quarter of 2018 is the quarterly average of the monthly series calculated by the Federal

Reserve Bank of St. Louis. Growth in the first quarter of 2019 is based on January 2019 data, the most recent data available at the time

this report was prepared.

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

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 lower affordability, constraining home sales and

mortgage originations. 

MD&A | Key Market Economic Indicators

Fannie Mae First Quarter 2019 Form 10-Q 9
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. 

MD&A | Consolidated Results of Operations

Fannie Mae First Quarter 2019 Form 10-Q 10

Summary of Condensed Consolidated Results of Operations

For the Three Months Ended

March 31,

2019 2018 Variance

(Dollars in millions)

Net interest income $ 4,733 $ 5,232 $ (499)

Fee and other income 227 320 (93)

Net revenues 4,960 5,552 (592)

Investment gains, net 133 250 (117)

Fair value gains (losses), net (831) 1,045 (1,876)

Administrative expenses (744) (750) 6

Credit-related income:

Benefit for credit losses 650 217 433

Foreclosed property expense (140) (162) 22

Total credit-related income 510 55 455

Temporary Payroll Tax Cut Continuation Act of 2011 (ÇTCCAÉ) fees (593) (557) (36)

Other expenses, net (408) (203) (205)

Income before federal income taxes 3,027 5,392 (2,365)

Provision for federal income taxes (627) (1,131) 504

Net income $ 2,400 $ 4,261 $ (1,861)

Total comprehensive income $ 2,361 $ 3,938 $ (1,577)

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

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 and from our

portfolios.

Components of Net Interest Income

For the Three Months Ended

March 31,

2019 2018 Variance

(Dollars in millions)

Net interest income from guaranty book of business:

Base guaranty fee income, net of TCCA $ 2,259 $ 2,089 $ 170

Base guaranty fee income related to TCCA(1) 593 557 36

Net amortization income 982 1,508 (526)

Total net interest income from guaranty book of business 3,834 4,154 (320)

Net interest income from portfolios(2) 899 1,078 (179)

Total net interest income $ 4,733 $ 5,232 $ (499)

(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 Securitiesä of $382 million and

$302 million for the first quarter of 2019 and 2018, respectively. 

Net interest income from base guaranty fees increased in the first quarter of 2019 compared with the first quarter 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 in the first quarter of 2019 compared with the first quarter of 2018.

Net amortization income from our guaranty book of business decreased in the first quarter of 2019 compared with the first

quarter of 2018 primarily due to lower amortization income from our guaranty book of business driven by a higher prevailing

interest rate environment, which resulted in lower mortgage prepayment activity during the quarter.

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. 

Deferred Income Represented by Net Premium Position on

Debt of Consolidated Trusts

(Dollars in billions)

3/31/2018 12/31/2018 3/31/2019

$37.7 $36.9 $36.2

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,

resulting in higher net amortization income.

MD&A | Consolidated Results of Operations

Fannie Mae First Quarter 2019 Form 10-Q 11
Net interest income from portfolios decreased in the first quarter of 2019 compared with the first quarter of 2018 primarily due

to a decline in the average balance of our retained mortgage portfolio. See ÇRetained Mortgage PortfolioÉ for more information.

A higher interest rate environment and possible decreases in our retained mortgage portfolio could result in a decrease in our

net interest income in 2019.

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 March 31,

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 $ 119,495 $ 1,323 4.43% $ 163,134 $ 1,736 4.26%

Mortgage loans of consolidated trusts 3,153,383 28,445 3.61 3,048,711 26,298 3.45

Total mortgage loans(1) 3,272,878 29,768 3.64 3,211,845 28,034 3.49

Mortgage-related securities 9,044 102 4.51 10,531 100 3.80

Non-mortgage-related securities(2) 60,833 378 2.49 51,707 207 1.60

Federal funds sold and securities purchased

under agreements to resell or similar

arrangements 41,533 263 2.53 37,389 142 1.52

Advances to lenders 3,703 32 3.46 3,844 31 3.23

Total interest-earning assets $3,387,991 $ 30,543 3.61% $3,315,316 $ 28,514 3.44%

Interest-bearing liabilities:

Short-term funding debt $ 20,712 $ (125) 2.41% $ 31,242 $ (106) 1.36%

Long-term funding debt 179,152 (1,114) 2.49 214,397 (1,158) 2.16

Connecticut Avenue Securitiesä (ÇCASÉ) 24,884 (382) 6.14 22,473 (302) 5.38

Total debt of Fannie Mae 224,748 (1,621) 2.89 268,112 (1,566) 2.34

Debt securities of consolidated trusts held by

third parties 3,156,398 (24,189) 3.07 3,050,041 (21,716) 2.85

Total interest-bearing liabilities $3,381,146 $ (25,810) 3.05% $3,318,153 $ (23,282) 2.81%

Net interest income/net interest yield $ 4,733 0.56% $ 5,232 0.63%

(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 $111 million for

the first quarter of 2019, compared with $168 million for the first quarter of 2018.

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

MD&A | Consolidated Results of Operations

Fannie Mae First Quarter 2019 Form 10-Q 12

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

March 31,

2019 2018

(Dollars in millions)

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

Net contractual interest expense accruals on interest rate swaps $ (266) $ (215)

Net change in fair value during the period (122) 510

Total risk management derivatives fair value gains (losses), net (388) 295

Mortgage commitment derivatives fair value gains (losses), net (300) 564

Credit enhancement derivatives fair value gains (losses), net (7) 4

Total derivatives fair value gains (losses), net (695) 863

Trading securities gains, net 92 98

CAS debt fair value losses, net (22) (8)

Other, net(1) (206) 92

Fair value gains (losses), net $ (831) $ 1,045

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

Fair value losses in the first quarter of 2019 were primarily driven by: 

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

pay-fixed risk management derivatives due to declines in longer-term swap rates during the quarter, which were

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

Ü decreases in the fair value of our 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 decreased during the

commitment periods; and

Ü losses driven by increases in the fair value of long-term debt of consolidated trusts held at fair value.

Fair value gains in the first quarter of 2018 were primarily driven by:

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

securities due to a decrease in prices as interest rates increased during the commitment periods; and

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

during the quarter.

MD&A | Consolidated Results of Operations

Fannie Mae First Quarter 2019 Form 10-Q 13

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, the overall size of our

allowance, events such as natural disasters, the types and volume of our loss mitigation activities, the volume of foreclosures

completed, and redesignations of loans from HFI 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 the CECL standard on

January 1, 2020 will likely introduce additional volatility in our results thereafter 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 provides quantitative analysis 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

March 31,

2019 2018

(Dollars in billions)

Single-family benefit for credit losses:

Changes in loan activity(1) $ * $ (0.2)

Redesignation of loans from HFI to HFS 0.3 0.2

Actual and forecasted home prices 0.2 0.3

Actual and projected interest rates 0.2 (0.4)

Other(2) * 0.3

Total single-family benefit for credit losses $ 0.7 $ 0.2

* 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 primary factors that contributed to our benefit for credit losses in the first quarter 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 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.

The following factors impacted our benefit for credit losses in the first quarter of 2018:

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

Ü The redesignation of certain single-family loans from HFI to HFS during the quarter.

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

increase in single-family loans classified as a troubled debt restructuring (ÇTDRÉ) in the areas affected by Hurricanes

Harvey, Irma and Maria (collectively, Çthe 2017 hurricanesÉ).

MD&A | Consolidated Results of Operations

Fannie Mae First Quarter 2019 Form 10-Q 14

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 first quarter of 2019 compared with the

first quarter 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. 
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 First Quarter 2019 Form 10-Q 15

Summary of Condensed Consolidated Balance Sheets

As of

March 31,

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 $ 49,746 $ 58,495 $ (8,749)

Restricted cash 24,745 23,866 879

Investments in securities 44,113 45,296 (1,183)

Mortgage loans:

Of Fannie Mae 115,936 120,717 (4,781)

Of consolidated trusts 3,157,061 3,142,881 14,180

Allowance for loan losses (13,232) (14,203) 971

Mortgage loans, net of allowance for loan losses 3,259,765 3,249,395 10,370

Deferred tax assets, net 13,411 13,188 223

Other assets 29,254 28,078 1,176

Total assets $ 3,421,034 $ 3,418,318 $ 2,716

Liabilities and equity

Debt:

Of Fannie Mae $ 221,238 $ 232,074 $ (10,836)

Of consolidated trusts 3,173,772 3,159,846 13,926

Other liabilities 20,663 20,158 505

Total liabilities 3,415,673 3,412,078 3,595

Fannie Mae stockholdersÖ equity:

Senior preferred stock 120,836 120,836 Ñ

Other net deficit (115,475) (114,596) (879)

Total equity 5,361 6,240 (879)

Total liabilities and equity $ 3,421,034 $ 3,418,318 $ 2,716

Mortgage Loans, Net of Allowance for Loan Losses

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

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

Mortgage loans, net of allowance for loan losses increased as of March 31, 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 reperforming single-family

loans from HFI to HFS.

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 
Debt

The total amount of outstanding debt of Fannie Mae decreased during the first quarter of 2019. Because our funding needs

have declined with the decline in size of our retained mortgage portfolio, we did not replace all of our debt that paid off during

the first quarter of 2019 with new debt issuances. The increase in debt of consolidated trusts from December 31, 2018 to

March 31, 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 ÇLiquidity 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, Short-Term and Long-Term DebtÉ for additional information on our outstanding debt.

StockholdersÇ Equity

Our net equity decreased as of March 31, 2019 compared with December 31, 2018 due to our payment of senior preferred

stock dividends to Treasury during the first quarter of 2019, partially offset by our comprehensive income recognized during

the quarter.

MD&A | Consolidated Balance Sheet Analysis

Fannie Mae First Quarter 2019 Form 10-Q 16

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 MBS trusts. 

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

ÇOtherÉ consisted of Fannie Mae-wrapped reverse mortgage securities and reverse mortgage loans as of March 31,

2019. 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 3/31/2019

$49.2 $52.0

$87.2 $83.7

$42.8

$179.2

$40.7

$176.4
The table below displays the components of our retained mortgage portfolio, measured by unpaid principal balance.

Retained Mortgage Portfolio

As of

March 31,

2019

December 31,

2018

(Dollars in millions)

Lender liquidity:

Agency securities(1) $ 43,369 $ 40,528

Mortgage loans 8,646 8,640

Total lender liquidity 52,015 49,168

Loss mitigation mortgage loans 83,725 87,220

Other:

Reverse mortgage loans 21,137 21,856

Mortgage loans 8,504 8,959

Reverse mortgage securities(2) 7,610 7,883

Private-label and other securities 2,454 3,042

Other Fannie Mae-wrapped securities 620 650

Mortgage revenue bonds 368 375

Total other 40,693 42,765

Total retained mortgage portfolio $ 176,433 $ 179,153

Retained mortgage portfolio by segment:

Single-family mortgage loans and mortgage-related securities $ 166,731 $ 168,338

Multifamily mortgage loans and mortgage-related securities $ 9,702 $ 10,815

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

Mae reverse mortgage securities.

(2) Includes Fannie Mae-wrapped securities and Ginnie Mae reverse mortgage securities.

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 $225 billion cap directed by FHFA. 

MD&A | Retained Mortgage Portfolio

Fannie Mae First Quarter 2019 Form 10-Q 17

In support of our loss mitigation strategy, we purchased $2.8 billion of loans from our single-family MBS trusts in the first

quarter of 2019, the substantial majority of which were delinquent. 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.
Total Book of Business

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

book of business accounted for 90% of our total book of business as of March 31, 2019 and 91% of our total book of business

as of December 31, 2018. While our total book of business includes all of our mortgage-related assets, both on- and offbalance sheet, our guaranty book of business excludes non-Fannie Mae mortgage-related securities held in our retained

mortgage portfolio for which we do not provide a guaranty.

Composition of Total Book of Business(1)

As of

March 31, 2019 December 31, 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Guaranty book of business(2) $ 2,963,846 $ 316,981 $ 3,280,827 $ 2,959,404 $ 309,748 $ 3,269,152

Non-Fannie Mae mortgage securities(3) 5,763 368 6,131 6,698 375 7,073

Total book of business $ 2,969,609 $ 317,349 $ 3,286,958 $ 2,966,102 $ 310,123 $ 3,276,225

Guaranty Book of Business Detail:

Conventional guaranty book of business(4) $ 2,930,836 $ 315,810 $ 3,246,646 $ 2,925,246 $ 308,543 $ 3,233,789

Government guaranty book of business(5) $ 33,010 $ 1,171 $ 34,181 $ 34,158 $ 1,205 $ 35,363

(1) Our total book of business refers to the sum of the unpaid principal balance of: Fannie Mae MBS outstanding; mortgage loans of Fannie

Mae; non-Fannie Mae mortgage-related securities held in our retained mortgage portfolio; and other credit enhancements that we provide

on mortgage assets.

(2) Includes other single-family Fannie Mae guaranty arrangements of $1.5 billion and $1.6 billion as of March 31, 2019 and December 31,

2018, respectively, and other multifamily Fannie Mae guaranty arrangements of $12.1 billion and $12.3 billion as of March 31, 2019 and

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

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

securities, and commercial mortgage-backed securities (ÇCMBSÉ).

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

or one of its agencies. 

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

agencies. 

The GSE Act 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 three months of 2019, we recognized an expense of $43

million related to this obligation based on our $102.0 billion in new business purchases. We expect to pay this amount to the

funds after the end of 2019, plus additional amounts to be accrued based on our new business purchases in the remaining

nine months of 2019. See ÇLegislation and RegulationÑAffordable Housing AllocationsÉ for more information regarding this

obligation.

MD&A | Total Book of Business

Fannie Mae First Quarter 2019 Form 10-Q 18
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. 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

Q1 2018 Q1 2019

$4.7

$4.2

$0.9

$5.6

$0.8

$5.0

$3.7

$1.8

$0.6

$4.3

$0.6

$2.4

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 total book of business. The substantial majority of our 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 and credit metrics, and financial results. We also describe how

each segment manages mortgage credit risk.

MD&A | Business Segments

Fannie Mae First Quarter 2019 Form 10-Q 19
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.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 20

Single-Family Market Share

Single-Family Mortgage Acquisition Market Share

Our share of the single-family acquisition market, including loans held on lendersÖ books, fluctuates from quarter to quarter. We

estimate our single-family acquisition market share in the last three years remained within the range of 25% to 30%, based on

our current estimates of the amount of single-family first lien mortgage loans that were originated in the United States, as well

as estimates of our competitorsÖ acquisitions based on publicly available data. 

Single-Family Mortgage-Related Issuances Market Share

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

First Quarter 2019 Market Share

Fannie Mae: 36%

Freddie Mac: 27%

Ginnie Mae: 31%

Private-label securities: 6%

We estimate our market share of single-family mortgage-related securities issuances was 36% in the first quarter of 2019,

compared with 37% in the fourth quarter of 2018 and 42% in the first quarter of 2018.

Single-Family Mortgage Market

Housing activity rose slightly in the first quarter of 2019 compared with the fourth quarter of 2018. Total existing home sales

averaged 5.2 million units annualized in the first quarter of 2019, compared with 5.1 million units in the fourth quarter of 2018,

according to data from the National Association of REALTORSä. According to the U.S. Census Bureau, new single-family

home sales increased during the first quarter of 2019, averaging an annualized rate of 660,000 units, compared with 575,000

units in the fourth quarter of 2018.

The 30-year fixed mortgage rate averaged 4.37% in the first quarter of 2019, compared with 4.78% in the fourth quarter of

2018, according to Freddie MacÖs Primary Mortgage Market Surveyä. Despite a sharp decline in mortgage rates at the end of
the quarter, the single-family mortgage market continued to experience a shift to a purchase mortgage market, as the share of

refinance originations in the first quarter of 2019 fell to the lowest level since the fourth quarter of 2000.

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

approximately 1.25%, from an estimated $1.60 trillion in 2018 to $1.62 trillion in 2019, and that the amount of originations in

the U.S. single-family mortgage market that are refinancings will decrease from an estimated $456 billion in 2018 to $446

billion in 2019.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 21

Single-Family Business Metrics

Net interest income from guaranty fees for our single-family business is driven by the single-family MBS we issue and the

guaranty fees we charge.

Single-Family Fannie Mae MBS Issuances and 

Average Guaranty Book of Business 

(Dollars in billions)

Single-Family Fannie Mae MBS issuances Average single-family guaranty book of businessà

Q1 2018 Q1 2019

$121 $88

$2,938 $2,962

(1) Our single-family guaranty book of business consists primarily of single-family Fannie Mae MBS outstanding. It also includes single-family

mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on single-family

mortgage assets. Our single-family guaranty book of business does not include non-Fannie Mae single-family mortgage-related securities

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

Average Charged Guaranty Fee on Single-Family Guaranty Book of

Business and on New Single-Family Acquisitions(1)

Average charged guaranty fee on single-family guaranty book of business, net of TCCA

Average charged guaranty fee on new single-family acquisitions, net of TCCA

Q1 2018 Q1 2019

42.3 bps 42.9 bps 43.3 bps

50.4 bps

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

any upfront cash payments over an estimated average life 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.
Our average charged guaranty fee on newly acquired single-family loans, net of TCCA fees, increased from 42.9 basis points

in the first quarter of 2018 to 50.4 basis points in the first quarter of 2019, primarily driven by an increase in the total base

guaranty fees charged on our loan acquisitions in the period.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 22

Single-Family Business Financial Results

For the Three Months Ended

March 31,

2019 2018 Variance

(Dollars in millions)

Net interest income(1) $ 4,039 $ 4,561 $ (522)

Fee and other income 106 158 (52)

Net revenues 4,145 4,719 (574)

Investment gains, net 94 242 (148)

Fair value gains (losses), net (887) 1,034 (1,921)

Administrative expenses (631) (643) 12

Credit-related income(2) 518 34 484

TCCA fees(1) (593) (557) (36)

Other expenses, net (337) (132) (205)

Income before federal income taxes 2,309 4,697 (2,388)

Provision for federal income taxes (484) (1,016) 532

Net income $ 1,825 $ 3,681 $ (1,856)

(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 for credit losses and foreclosed property expense.

Net interest income

Single-family net interest income decreased in the first quarter of 2019 compared with the first quarter of 2018, primarily due to

a decline in net amortization income and a decline in net interest income from portfolios, 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 first quarter of

2019 are consistent with the drivers of net interest income discussed 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 first quarter of 2019 were primarily driven by net interest expense accruals on our risk management

derivatives, and decreases in the fair value of our pay-fixed risk management derivatives and our mortgage commitments. In

addition, the increase in the fair value of our debt also resulted in fair value losses for the quarter. Conversely, fair value gains

in the first quarter of 2018 were primarily driven by increases in the fair value of our mortgage commitments 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 first quarter of 2019 was primarily driven by the redesignation of certain single-family loans from

HFI to HFS; an increase in actual and forecasted home prices; and lower actual and projected mortgage interest rates. Creditrelated income in the first quarter of 2018 was primarily driven by an increase in actual and forecasted home prices and the

redesignation of certain single-family loans from HFI to HFS during the quarter. These factors were partially offset by the

impact of higher actual and projected mortgage interest rates in the period and an increase in single-family loans classified as

TDRs in the regions affected by the 2017 hurricanes. 

See ÇConsolidated Results of OperationsÑCredit-Related IncomeÉ for more information on our credit-related income.
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,

representation and warranty framework, and key attributes of our loans, see ÇMD&AÑSingle-Family BusinessÑSingle-Family

Mortgage Credit Risk ManagementÉ in our 2018 Form 10-K.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 23

Presentation of our single-family guaranty book for credit statistics

To align with how we manage our credit risk, for purposes of the information reported below, we adjust our measurement of

our single-family guaranty book of business by using the unpaid principal balance of mortgage loans underlying Fannie Mae

MBS instead of the unpaid principal balance of the MBS. 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 $2,905 billion as of March 31, 2019 and $2,903 billion as

of December 31, 2018.

In addition, we exclude from the single-family credit statistics reported below approximately 1% of our single-family guaranty

book of business for which our loan level information was incomplete as of March 31, 2019 and December 31, 2018.
Single-Family Portfolio Diversification and Monitoring

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 provide additional information on the credit characteristics of our single-family loans in quarterly financial

supplements, which we submit to the Securities and Exchange Commission (ååSECÖå) with current reports on Form 8-K.

Information in our quarterly financial supplements is not incorporated into this report.

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

March 31,

2019 2018 March 31, 2019 December 31, 2018

Original loan-to-value (ÇLTVÉ) ratio:(4)

<= 60% 15 % 18 % 19 % 19 %

60.01% to 70% 11 13 13 13

70.01% to 80% 35 38 38 38

80.01% to 90% 13 12 12 12

90.01% to 95% 16 13 11 11

95.01% to 100% 10 6 4 4

Greater than 100% * * 3 3

Total 100 % 100 % 100 % 100 %

Weighted average 78 % 75 % 76 % 75 %

Average loan amount $ 238,932 $ 232,284 $ 170,309 $ 170,076

Estimated mark-to-market LTV ratio:(5)

<= 60% 54 % 54 %

60.01% to 70% 18 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 57 % 57 %

Product type:

Fixed-rate:(6)

Long-term 90 % 88 % 84 % 84 %

Intermediate-term 8 10 14 14

Total fixed-rate 98 98 98 98

Adjustable-rate 2 2 2 2

Total 100 % 100 % 100 % 100 %

Number of property units:

1Äunit 98 % 97 % 97 % 97 %

2 to 4Äunits 2 3 3 3

Total 100 % 100 % 100 % 100 %

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 24
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

March 31,

2019 2018 March 31, 2019 December 31, 2018

Property type:

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

Condo/Co-op 10 9 9 9

Total 100 % 100 % 100 % 100 %

Occupancy type:

Primary residence 90 % 89 % 89 % 89 %

Second/vacation home 4 4 4 4

Investor 6 7 7 7

Total 100 % 100 % 100 % 100 %

FICO credit score at origination:

< 620 * % * % 1 % 2 %

620 to < 660 6 6 5 5

660 to < 680 5 5 5 5

680 to < 700 9 9 7 7

700 to < 740 24 23 21 20

>= 740 56 57 61 61

Total 100 % 100 % 100 % 100 %

Weighted average 742 743 745 746

Loan purpose:

Purchase 66 % 53 % 44 % 43 %

Cash-out refinance 20 26 20 20

Other refinance 14 21 36 37

Total 100 % 100 % 100 % 100 %

Geographic concentration:(7)

Midwest 13 % 13 % 15 % 15 %

Northeast 14 14 17 17

Southeast 24 22 22 22

Southwest 22 20 18 18

West 27 31 28 28

Total 100 % 100 % 100 % 100 %

Origination year:

2013 and prior 39 % 40 %

2014 6 6

2015 10 10

2016 15 16

2017 14 15

2018 14 13

2019 2 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 First Quarter 2019 Form 10-Q 25
(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) 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 home purchase loans rather than refinances increased in the first

quarter of 2019 compared with the first quarter of 2018, primarily due to a higher interest rate environment, which deters

refinance activity. In addition, our acquisitions of loans from first-time home buyers increased from 22% of our single-family

loan acquisitions in the first quarter of 2018 to 30% in the first quarter of 2019. Typically, home purchase loansÑparticularly

those to first-time home buyersÑhave higher LTV ratios than refinances. This trend contributed to an increase in the

percentage of our single-family loan acquisitions with LTV ratios over 90%Ñfrom 19% in the first quarter of 2018 to 26% in the

first quarter of 2019 as well as an increase in the average loan amount of our acquisitions as home purchase loans are

generally larger than refinancing loans. 

Our acquisitions of loans with debt-to-income ratios above 45% increased to 25% in the first quarter of 2019 compared with

23% in the first quarter of 2018. We 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 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 guaranty book of business, including Home Affordable Refinance Programä (ÇHARPäÉ) 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 First Quarter 2019 Form 10-Q 26
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 in our 2018 Form 10-K and ÇNote 11, Concentrations of Credit RiskÉ in this report. 

Single-Family Loans with Credit Enhancement

As of

March 31, 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 $ 615 21% $ 618 21%

Connecticut Avenue Securities 832 29 798 27

Credit Insurance Risk TransferTM (ÇCIRTTMÉ) 270 9 243 8

Lender risk sharing 108 4 102 4

Less: Loans covered by multiple credit enhancements (420) (15) (394) (13)

Total single-family loans with credit enhancement $ 1,405 48% $ 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 primary method of achieving this objective has

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

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

such as a severe or prolonged economic downturn. We continually evaluate our credit risk transfer transactions which, in

addition to managing our credit risk, also affect our returns and the 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 quarter 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 $91 billion at the time of the transactions. As of March 31,

2019, approximately 42% 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 First Quarter 2019 Form 10-Q 27
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 MarchÄ31, 2019

(Dollars in billions)

Senior

Fannie Mae(1)

Initial

Reference

Pool(5)

$1,616

Mezzanine Fannie Mae(1) CIRT(2)(3) CAS(2)

Lender RiskSharing(2)(4)

$2 $9 $34 $2 $1,678

First Loss Fannie Mae(1) CAS(2)(6)

Lender RiskSharing(2)(4)

$9 $4 $2

Outstanding as of March 31, 2019

(Dollars in billions)

Senior

Fannie Mae(1)

Outstanding

Reference

Pool(5)(7)

$1,176

Mezzanine Fannie Mae(1) CIRT(2)(3) CAS(2)

Lender RiskSharing(2)(4)

$1 $8 $24 $2 $1,225

First Loss Fannie Mae(1) CAS(2)(6)

Lender RiskSharing(2)(4)

$8 $4 $2

(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 $4 billion outstanding as of March 31, 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 $1,210 billion as of March 31, 2019.

The decreases in outstanding balances from issuance to March 31, 2019 in the senior and mezzanine tranches are a result of

paydowns. Outstanding balances from issuance to March 31, 2019 in the first loss tranches decreased slightly as a result of

loss allocations, which were insignificant.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 28
The following table displays the approximate cash paid or transferred to investors for these credit risk transfer transactions.

The cash represents the portion of guaranty fee paid to investors as compensation for taking on a share of the credit risk.

These expenses increased from the first quarter of 2018 to the first quarter of 2019 as the percentage of our single-family

conventional guaranty book of business on which we have transferred a portion of credit risk increased from March 31, 2018 to

March 31, 2019. 

Credit Risk Transfer Transactions

For the Three Months Ended March 31,

2019 2018

Cash paid or transferred for: (Dollars in millions)

CAS transactions(1) $ 229 $ 200

CIRT transactions 85 60

Lender risk-sharing transactions 48 27

(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 Real Estate Mortgage Investment

Conduits (ÇREMICsÉ).

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 29
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. 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 singlefamily guaranty book of business for which we have detailed loan level information.

Delinquency Status and Activity of Single-Family Conventional Loans

As of

March 31, 

 2019

December 31,

2018

March 31, 

 2018

Delinquency status:

30 to 59 days delinquent 1.32% 1.37% 1.20%

60 to 89 days delinquent 0.35 0.38 0.37

Seriously delinquent (ÇSDQÉ) 0.74 0.76 1.16

Percentage of SDQ loans that have been delinquent for more than 180

days 50% 49% 47%

Percentage of SDQ loans that have been delinquent for more than two

years 11 12 13

For the Three Months

Ended March 31,

2019 2018

Single-family SDQ loans (number of loans):

Beginning balance 130,440 212,183

Additions 52,679 66,804

Removals:

Modifications and other loan workouts (12,527) (21,855)

Liquidations and sales (11,830) (16,942)

Cured or less than 90 days delinquent (32,746) (41,133)

Total removals (57,103) (79,930)

Ending balance 126,016 199,057

Our single-family serious delinquency rate decreased as of March 31, 2019 compared with March 31, 2018 because many

delinquent borrowers in the regions affected by the 2017 hurricanes resolved their loan delinquencies over the past twelve

months. The decline in the first quarter of 2019 was primarily driven by improved loan payment performance.

Certain higher-risk loan categories, such as Alt-A loans, loans with higher mark-to-market LTV ratios, and our 2005 through

2008 loan vintages, continue to exhibit higher-than-average delinquency rates and/or account for a higher share of our credit

losses. Single-family loans originated in 2005 through 2008 constituted 4% of our single-family book of business as of March

31, 2019, but constituted 38% of our seriously delinquent single-family loans as of March 31, 2019 and drove 67% of our

single-family credit losses in the first quarter 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 than average delinquency rates

and/or account for a higher share of our credit losses.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 30
The table below displays the serious delinquency rates for, and the percentage of our total seriously delinquent single-family

conventional loans represented by, the specified loan categories. We also include information for our loans in California, as

this state accounts for a large share of our single-family conventional guaranty book of business. The reported categories are

not mutually exclusive.

Single-Family Conventional Seriously Delinquent Loan Concentration Analysis

As of

March 31, 2019 December 31, 2018 March 31, 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% 6% 0.34% 19% 6% 0.34% 19% 5% 0.39%

Florida 6 9 1.03 6 10 1.16 6 19 3.56

New Jersey 3 5 1.32 4 5 1.38 4 5 1.91

New York 5 8 1.38 5 8 1.40 5 7 1.87

All other states 67 72 0.72 66 71 0.75 66 64 1.02

Product type:

Alt-A(2) 2 11 3.31 2 11 3.35 2 12 4.76

Vintages:

2004 and prior 3 23 2.68 3 23 2.69 3 22 3.24

2005-2008 4 38 4.50 5 39 4.61 6 41 6.22

2009-2019 93 39 0.33 92 38 0.34 91 37 0.51

Estimated mark-tomarket LTV ratio:

<= 60% 54 48 0.56 54 48 0.58 52 42 0.81

60.01% to 70% 18 17 0.84 18 17 0.87 18 18 1.28

70.01% to 80% 16 14 0.87 16 14 0.90 17 16 1.38

80.01% to 90% 8 10 1.16 8 10 1.24 8 11 1.94

90.01% to 100% 4 5 1.21 4 5 1.33 4 6 2.26

Greater than 100% * 6 9.35 * 6 9.85 1 7 11.21

Credit enhanced:(3)

Primary MI & other(4) 21 26 1.07 21 26 1.11 20 24 1.67

Credit risk transfer(5) 42 10 0.24 39 10 0.24 35 9 0.39

Non-credit enhanced 52 69 0.83 53 69 0.85 57 71 1.24

* 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 ÇGlossary 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 March 31, 2019 was 48%.

(4) Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit,

corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to some degree in the

event of a financial loss. Excludes loans covered by credit risk transfer transactions unless such loans are also covered by primary

mortgage insurance.

(5) Refers to loans included in reference pools for credit risk transfer transactions, including loans in these transactions that are also covered

by primary mortgage insurance. For CAS and some lender risk-sharing transactions, this represents outstanding unpaid principal balance

of the underlying loans on the single-family mortgage credit book, not the outstanding reference pool, as of the specified date. Loans

included in our credit risk transfer transactions have all been acquired since 2012 and newer vintages typically have significantly lower

delinquency rates than more seasoned loans.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 31
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, as well as the

number of loan workouts.

Loan Workout Activity 

(Dollars in billions)

Home retention solutionsà Foreclosure alternativesá

Number of loan workouts (in thousands)

Q1 2018 Q1 2019

$3.9

$2.4

$0.3

$4.2

$0.2

$2.6

26.0

15.9

(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 21,400 loans in a trial modification

period as of March 31, 2019.

(2) Consists of short sales and deeds-in-lieu of foreclosure.

The decrease in home retention solutions in the first quarter of 2019 compared with the first quarter of 2018 was primarily

driven by improved loan performance. 

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 32
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 Three Months

Ended March 31,

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 1,261 1,748

Northeast 1,457 1,758

Southeast 1,746 2,204

Southwest 821 1,001

West 510 515

Total REO acquisitions(1) 5,795 7,226

Dispositions of REO (6,953) (9,474)

End of period inventory of single-family REO properties(1) 18,998 24,063

Carrying value of single-family REO properties (dollars in millions) $ 2,404 $ 2,917

Single-family foreclosure rate(3) 0.14 % 0.17 %

REO net sales price to unpaid principal balance(4) 77 % 76 %

Short sales net sales price to unpaid principal balance(5) 75 % 76 %

(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 7 to the Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business table for states

included in each geographic region.

(3) Estimated based on the annualized total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage

of the total number of loans in our single-family guaranty book of business as of the end of each 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 quarter of 2019 compared with the first quarter of 2018 primarily due to a

reduction in REO acquisitions from serious delinquencies aged greater than 180 days driven by improved loan performance

and the continued sale of nonperforming loans.

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 33

Other Single-Family Credit Information

Single-Family Credit Performance Metrics

The amount of credit income or losses 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 performance metrics, as well as our single-family initial charge-off severity rate. Our credit 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

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 Performance Metrics

For the Three Months Ended March 31,

2019 2018

Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of recoveries $ (326) 4.5 bps $ (392) 5.3 bps

Foreclosed property expense (143) 2.0 (162) 2.2

Credit losses and credit loss ratio $ (469) 6.5 bps $ (554) 7.5 bps

Single-family initial charge-off severity rate(2) 9.26 % 13.48 %

(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) Rate is calculated as the initial charge-off amount divided by the average defaulted unpaid principal balance.ÄThe rate includes charge-offs

pursuant to the provisions of the Advisory Bulletin and excludes any costs, gains or losses associated with REO after initial acquisition

through final disposition.

Our single-family credit losses and credit loss ratio decreased in the first quarter of 2019 compared with the first quarter of

2018 primarily due to lower charge-off expenses from reduced foreclosures and foreclosure alternatives and higher home

prices in the first quarter of 2019.

Our single-family initial charge-off severity rates declined in the first quarter of 2019 compared with the first quarter of 2018

primarily due to lower LTV ratios on charged-off loans driven by continued home price appreciation.

Single-Family Loss Reserves

Our single-family loss reserves provide for an estimate of credit losses incurred in our single-family guaranty book of business,

including concessions we granted borrowers upon modification of their loans. The table below summarizes the changes in our

single-family loss reserves. 

Single-Family Loss Reserves

For the Three Months Ended

March 31,

2019 2018

(Dollars in millions)

Changes in loss reserves:

Beginning balance $ (14,007) $ (19,155)

Benefit for credit losses 661 196

Charge-offs 386 476

Recoveries (60) (84)

Other 1 (1)

Ending balance $ (13,019) $ (18,568)

As of

March 31,

2019

December 31,

2018

Loss reserves as a percentage of single-family:

Guaranty book of business 0.45% 0.49%

Recorded investment in nonaccrual loans 41.90 44.24

MD&A | Single-Family Business

Fannie Mae First Quarter 2019 Form 10-Q 34
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

March 31,

2019

December 31,

2018

(Dollars in millions)

TDRs on accrual status $ 97,743 $ 98,320

Nonaccrual loans 31,069 31,658

Total TDRs on accrual status and nonaccrual loans $ 128,812 $ 129,978

Accruing on-balance sheet loans past due 90Ädays or more(1) $ 221 $ 228

For the Three Months

Ended March 31,

2019 2018

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:

Interest income forgone(2) $ 521 $ 721

Interest income recognized(3) 1,272 1,394

(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 First Quarter 2019 Form 10-Q 35

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.

Multifamily Mortgage Market

National multifamily market fundamentals, which include factors such as vacancy rates and rents, remained relatively steady

during the first quarter of 2019, likely due to a combination of ongoing job growth and winter weather conditions impacting the

timing of new multifamily unit deliveries. As a result, the national estimated vacancy level remained near historic lows during

the first quarter of 2019.

Ñ Vacancy rates. According to preliminary third-party data, the national multifamily vacancy rate for institutional

investment-type apartment properties was an estimated 5.5% as of March 31, 2019 and December 31, 2018.

Ü Rents. Effective rents increased during the first quarter of 2019, with national asking rents increasing by an estimated

0.5% in the first quarter of 2019 after remaining flat during the fourth quarter of 2018.

Continued demand for multifamily rental units during the first 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 37,000 units,

according to data from Reis, Inc., compared with approximately 50,000 units during the fourth quarter of 2018.

Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from the cash flows

generated by the underlying property. Several years of improvement in these fundamentals has helped to increase property

values in most metropolitan areas. It is estimated that approximately 454,000 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 an increase in supply will result in a slowdown in national net absorption rates, occupancy levels,

and effective rents in 2019 compared with recent years. 

MD&A | Multifamily Business

Fannie Mae First Quarter 2019 Form 10-Q 36

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 85% of the multifamily units we financed in the first 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 volumeà Multifamily units financed from new business volume

Q1 2018 Q1 2019

$11.3

$16.9

154,000

171,000

(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 includes an objective to maintain the dollar volume of new multifamily business at or

below $35 billion, excluding certain targeted affordable and underserved market business segments. Approximately 63% of

our multifamily new business volume of $16.9 billion for the first quarter of 2019 counted toward FHFAÖs 2019 multifamily

volume cap.

Multifamily Business Financial Results

For the Three Months

Ended March 31,

2019 2018 Variance

(Dollars in millions)

Net interest income $ 694 $ 671 $ 23

Fee and other income 121 162 (41)

Net revenues 815 833 (18)

Fair value gains, net 56 11 45

Administrative expenses (113) (107) (6)

Credit-related income (expense)(1) (8) 21 (29)

Other expenses, net(2) (32) (63) 31

Income before federal income taxes 718 695 23

Provision for federal income taxes (143) (115) (28)

Net income $ 575 $ 580 $ (5)

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

(2) Consists of investment gains, gains (losses) from partnership investments and other income (expenses).
Net interest income

Multifamily net interest income is primarily driven by guaranty fee income. Guaranty fee income increased in the first quarter of

2019 as compared with the first quarter 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 businessà (dollars in billions)

Average charged guaranty fee rate on multifamily guaranty book of business (in basis

points), at end of period

Q1 2018 Q1 2019

$282.5

$310.0

78.9

74.1

(1) Our multifamily guaranty book of business consists of multifamily 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 nonFannie 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 been trending downward in recent periods driven by competitive market pressure on

guaranty fees charged on newly acquired multifamily loans.

Fee and other income

Fee and other income in all periods presented was primarily driven by yield maintenance fees resulting from prepayment

activity.

Fair value gains, 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 quarter of 2019 were primarily driven by gains on commitments to buy multifamily mortgage-related

securities as a result of increases in prices as interest rates decreased during the commitment periods.

Fair value gains in the first quarter of 2018 were primarily driven by gains on commitments to sell multifamily mortgage-related

securities as a result of decreases in prices as interest rates increased during the commitment periods.

Credit-related income (expense)

Credit-related expense in the first quarter of 2019 was primarily driven by an increase in the allowance for loan losses due to a

slight increase in downgrades on loan risk ratings resulting in a larger population of substandard loans. See ÇMultifamily

Mortgage Credit Risk ManagementÑMultifamily Portfolio Diversification and MonitoringÉ for more information regarding

substandard loans.

Credit-related income in the first quarter of 2018 was primarily driven by a decrease in the allowance for loan losses as a result

of updated estimated losses from the 2017 hurricanes.

MD&A | Multifamily Business

Fannie Mae First Quarter 2019 Form 10-Q 37

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

Presentation of our multifamily guaranty book for credit statistics

To align with how we manage our credit risk, for purposes of the information reported below, we adjust our measurement of

our multifamily guaranty book of business by using the unpaid principal balance of mortgage loans underlying Fannie Mae

MBS instead of the unpaid principal balance of the MBS. 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 $314.1 billion as of March 31, 2019 and

$305.9 billion as of December 31, 2018.

MD&A | Multifamily Business

Fannie Mae First Quarter 2019 Form 10-Q 38

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. Loans are underwritten based on debt service calculations that include both principal and

interest payments. This approach is used for all loans, including those with full and partial interest-only terms.

The original DSCR is calculated using the underwritten debt service payments for the loan, 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.

Multifamily Guaranty Book of Business Key Risk Characteristics

As of

March 31, 

 2019

December 31,

2018

March 31, 

 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 12 12 13

Full interest-only loans 25 24 21

Partial interest-only loans(1) 49 49 47

(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 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 (ÇDUSäÉ) 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 from day one and throughout the life of the loan.

Our DUS model typically results in our lenders sharing on a pro-rata or tiered basis approximately one-third of the credit risk

on our multifamily loans. In the first quarter of 2019, nearly 100% of our new multifamily business volume had lender risksharing. As of March 31, 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. In the first quarter of 2019, we completed our fifth multifamily CIRT transaction since the inception of the

program, which covered multifamily loans with an unpaid principal balance of approximately $11.7 billion. As of March 31,

2019, 15% of the loans in our multifamily guaranty book of business, measured by unpaid principal balance, were covered by

a CIRT transaction.

Multifamily Portfolio Diversification and Monitoring

Diversification within our multifamily book of business by geographic concentration, term to maturity, interest rate structure,

borrower concentration and loan size, as well as 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 March 31, 2019 and December 31, 2018. Our estimates of current

DSCRs are based on the latest available income information for these properties. Although we use the most recently available

results from our multifamily borrowers, there is a lag in reporting, which typically can range from 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 has been increasing in

recent periods, driven by profitability pressure on certain properties in competitive markets. 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 First Quarter 2019 Form 10-Q 39

Multifamily Problem Loan Management and Foreclosure Prevention

The multifamily serious delinquency rate was 0.07% as of March 31, 2019, compared with 0.06% as of December 31, 2018

and 0.13% as of March 31, 2018. We classify multifamily loans as seriously delinquent when payment is 60 days or more past

due. The decrease in the multifamily serious delinquency rate from March 31, 2018 to March 31, 2019 resulted primarily from

a decrease in delinquent loans subject to forbearance agreements granted to borrowers in the regions affected by the 2017

hurricanes.

Other Multifamily Credit Information 

Multifamily Credit Performance Metrics

The amount of credit income or loss we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity

and charge-offs, net of recoveries. Our credit 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 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 multifamily credit income of $3 million in the first quarter of 2019 compared with credit losses of $4 million in the first

quarter of 2018. Credit income in the first quarter of 2019 was primarily the result of having small net gains on the sale of

foreclosed properties with no offsetting charge offs. For information on our credit-related income or expense, which includes

changes in our allowance, see ÇMultifamily BusinessÑMultifamily Financial Results.É 

Multifamily Loss Reserves

The table below summarizes the changes in our multifamily loss reserves.

Multifamily Loss Reserves

For the Three Months Ended

March 31,

2019 2018

(Dollars in millions)

Changes in loss reserves:

Beginning balance $ (245) $ (245)

Benefit (provision) for credit losses (11) 21

Charge-offs Å 4

Ending balance $ (256) $ (220)

As of

March 31,

2019

December 31,

2018

Loss reserves as a percentage of multifamily guaranty book of business 0.08% 0.08%
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

March 31,

2019

December 31,

2018

(Dollars in millions)

TDRs on accrual status $ 61 $ 55

Nonaccrual loans 509 492

Total TDRs on accrual status and nonaccrual loans $ 570 $ 547

For the Three Months

Ended MarchÄ31,

2019 2018

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans:

Interest income forgone(1) $ 7 $ 7

Interest income recognized(2) Å Ñ

(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.

MD&A | Multifamily Business

Fannie Mae First Quarter 2019 Form 10-Q 40

REO Management

The number of multifamily foreclosed properties held for sale decreased to 14 properties with a carrying value of $67 million as

of March 31, 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.

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 the outstanding short-term and long-term debt of Fannie Mae based on

original contractual maturity. The total amount of outstanding debt of Fannie Mae decreased during the first quarter of 2019.

Because our funding needs have declined with the decline in size of our retained mortgage portfolio, we did not replace all of

our debt that paid off during the first quarter of 2019 with new debt issuances.

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 03/31/2019

$24.9 $23.1

$61.6 $60.8

$145.6

$232.1

$137.3

$221.2

Selected Debt Information

As of

December 31,

2018

March 31,

2019

(Dollars in billions)

Selected Weighted-Average Interest

Rates(1)

Interest rate on short-term debt 2.29% 2.33%

Interest rate on long-term debt, including

portion maturing within one year 2.83% 2.93%

Interest rate on callable long-term debt 2.95% 3.09%

Selected Maturity Data

Weighted-average maturity of debt

maturing within one year (in days) 163 156

Weighted-average maturity of debt

maturing in more than one year (in months) 63 64

Other Data

Outstanding callable debt $ 64.3 $ 59.7

Connecticut Avenue Securities debt(2) $ 25.6 $ 25.1

(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 $241 million and $432 million as of March 31, 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

MD&A | Liquidity and Capital Management

Fannie Mae First Quarter 2019 Form 10-Q 41
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.

In addition to an ongoing decrease in funding needs, the decline in our issuances and payoffs of short-term debt during the

first quarter of 2019 compared with the first quarter of 2018 was due to our use of Secured Overnight Financing Rate (ÇSOFRÉ)

indexed floating rate debt. Because this debt generally hadÄa longer term to maturity than the short-term debt we used in 2018,

the payoffs and reissuances were not as frequent.

Activity in Debt of Fannie Mae

For the Three Months

Ended March 31,

2019 2018

(Dollars in millions)

Issued during the period:

Short-term:

Amount $ 121,910 $ 219,288

Weighted-average interest rate 2.35% 1.28%

Long-term:(1)

Amount $ 6,595 $ 5,168

Weighted-average interest rate 2.63% 2.96%

Total issued:

Amount $ 128,505 $ 224,456

Weighted-average interest rate 2.36% 1.32%

Paid off during the period:(2)

Short-term:

Amount $ 123,726 $ 217,678

Weighted-average interest rate 2.10% 1.17%

Long-term:(1)

Amount $ 15,810 $ 17,780

Weighted-average interest rate 1.75% 1.49%

Total paid off:

Amount $ 139,536 $ 235,458

Weighted-average interest rate 2.06% 1.20%

(1) Includes credit risk-sharing securities issued as CAS debt. 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 First Quarter 2019 Form 10-Q 42
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 03/31/2019

$25.6 $27.5

$32.9

$22.3

$35.5

$94.0

$35.0

$84.8

MD&A | Liquidity and Capital Management

Fannie Mae First Quarter 2019 Form 10-Q 43

Cash Flows 

Three Months Ended March 31, 2019. Cash, cash equivalents and restricted cash increased by $2.8 billion from $49.4 billion

as of December 31, 2018 to $52.2 billion as of March 31, 2019. The increase was primarily driven by cash inflows from (1) the

net decrease in federal funds sold and securities purchased under agreements to resell or similar agreements, and (2) the sale

of Fannie Mae MBS to third parties.

Partially offsetting these cash inflows were primarily cash outflows from (1) the redemption of funding debt, which outpaced

issuances, due to lower funding needs, and (2) the purchase of Fannie Mae MBS from third parties.

Three Months Ended March 31, 2018. Cash, cash equivalents and restricted cash decreased by $22.9 billion from $60.3 billion

as of December 31, 2017 to $37.4 billion as of March 31, 2018. The decrease was primarily driven by cash outflows from (1)

the net increase in federal funds sold and securities purchased under agreements to resell or similar agreements (2) the

purchase of Fannie Mae MBS from third parties and (3) the redemption of funding debt, which outpaced issuances, due to

lower funding needs.

Partially offsetting these cash outflows were cash inflows from (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 March 31, 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 $137.8 billion as of March 31, 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.
Capital Activity

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

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

Because we had a net worth of $6.2 billion as of December 31, 2018, we paid Treasury a first quarter 2019 dividend of $3.2

billion in March 2019. We expect to pay Treasury a second quarter 2019 dividend of $2.4 billion by June 30, 2019 based on

our net worth of $5.4 billion as of March 31, 2019. 

See ÇBusinessÑConservatorship, Treasury Agreements and Housing Finance ReformÑTreasury AgreementsÉ in our 2018

Form 10-K for more information on the terms of our senior preferred stock and our senior preferred stock purchase agreement

with Treasury. See ÇRisk FactorsÉ in our 2018 Form 10-K for a discussion of the risks associated with the limit on our capital

reserves.

MD&A | Liquidity and Capital Management

Fannie Mae First Quarter 2019 Form 10-Q 44

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. 

Our off-balance sheet exposure to credit losses is primarily related to the unpaid principal balance of our unconsolidated

Fannie Mae MBS and other financial guarantees. This exposure was $20.7 billion as of March 31, 2019 and $21.1 billion 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 $8.0 billion as of March 31, 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 are not the primary beneficiary, our

condensed consolidated balance sheets reflect only our investment rather than the full amount of the partnershipÖs

assets and liabilities. 

Ü Upon implementation of the Single Security Initiative in June 2019, we expect to resecuritize securities that are

guaranteed by Freddie Mac. As part of these transactions, we will guarantee to the resecuritization trust that we will

supplement amounts received from the underlying Freddie Mac-guaranteed securities as required to permit timely

payment of principal and interest on the certificates issued by the resecuritization trust. Accordingly, these

resecuritizations will increase our off-balance sheet exposure to the extent that the certificates issued by the

resecuritization trust are held by third parties.

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.

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 March 31,

2019 and 2018. 

During the second quarter of 2018, we revised the presentation of our interest rate risk measures to show the market value

sensitivity in millions, rather than billions, and to show effective duration gap in years, rather than in months. We have revised

all prior period interest rate risk measures to correspond to the current period presentation.

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)

March 31, 2019 December 31, 2018

(Dollars in millions)

Rate level shock:

-100Äbasis points $ (103) $ (286)

-50Äbasis points (59) (119)

+50 basis points 32 48

+100 basis points 41 29

Rate slope shock:

-25Äbasis points (flattening) 7 (7)

+25 basis points (steepening) (8) 6

For the Three Months Ended March 31,(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 (0.02) $ (6) $ (48) 0.01 $ (8) $ (54)

Minimum (0.07) (11) (116) (0.02) (22) (107)

Maximum 0.02 (1) (11) 0.06 (1) (30)

Standard deviation 0.02 3 22 0.02 8 16

(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

March 31, 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.

MD&A | Risk Management

Fannie Mae First Quarter 2019 Form 10-Q 45
Derivative Impact on Interest Rate Risk (50 Basis Points)

As of (1)

March 31, 2019 December 31, 2018

(Dollars in millions)

Before derivatives $ (444) $ (535)

After derivatives 32 48

Effect of derivatives 476 583

(1) Measured on the last business day of each period presented.

MD&A | Risk Management

Fannie Mae First Quarter 2019 Form 10-Q 46

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 a 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.

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 our future profitability, financial condition and results of operations, and the factors that will affect them;

Ü volatility in our future results, factors that may affect that volatility, and efforts we may make to address volatility; 

Ü our business plans and strategies and the impact of such plans and strategies; 

Ü our expectations regarding continued consideration of housing finance reform by Congress, the Administration and

FHFA and the impact of any such housing finance reform on our structure and role in the future;

Ü our dividend payments to Treasury; 

Ü our retained mortgage portfolio;
Ü the impact of legislation and regulation on our business or financial results;

Ü our expectations regarding the implementation and our use of the common securitization platform and the

implementation and impact of the Single Security Initiative, as well as our issuances of UMBS;

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 the impact of accounting guidance and accounting changes on our business or financial results, including the impact

of our adoption and implementation of the CECL standard;

Ü other factors that could affect or mitigate our credit risk exposure;

Ü mortgage market and economic conditions (including home price appreciation rates, single-family loan origination

forecasts and trends in the national rental market) and the impact of such conditions on our business or financial

results;

Ü the risks to our business;

Ü factors that may affect the level of loan delinquencies; 

Ü the performance of loans in our book of business and factors that will affect such performance; 

Ü our loan acquisitions, the credit risk profile of such acquisitions, and the factors that will affect them; and

Ü our response to legal and regulatory proceedings and their impact on our business or financial condition.

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. They are not guaranties of future performance. By their

nature, forward-looking statements are subject to risks and uncertainties. Our actual results and financial condition may differ,

possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. 

There are a number of factors that could cause actual conditions, events or results to differ materially from those described in

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 to-be-developed Treasury Housing Reform Plan); 

Ü actions by FHFA, Treasury, HUD or other regulators that affect our business; 

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 uncertainties relating to the potential phasing out of LIBOR, or other market changes that could impact the loans we

own or guaranty 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 landscape 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; 

MD&A | Forward-Looking Statements

Fannie Mae First Quarter 2019 Form 10-Q 47
Ü the deteriorated credit performance of many loans in our guaranty book of business; 

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 and its effect on our business; 

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 implementation of the Single Security Initiative; 

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 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 our reliance on CSS and the CSP for the operation of many of our securitization activities once we begin issuing

UMBS, including the ability of CSS to successfully take over the operation of those activities;

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 on which our business relies; 

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 First Quarter 2019 Form 10-Q 48
Item 1.ÅÅFinancial Statements

 Financial Statements | Condensed Consolidated Balance Sheets

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 49

FANNIE MAE

(In conservatorship)

Condensed Consolidated Balance Sheets Ä (Unaudited)

(Dollars in millions)

As of

March 31,

2019

December 31,

2018

ASSETS

Cash and cash equivalents $ 27,496 $ 25,557

Restricted cash (includes $19,216 and $17,849, respectively, related to consolidated trusts) 24,745 23,866

Federal funds sold and securities purchased under agreements to resell or similar arrangements 22,250 32,938

Investments in securities:

Trading, at fair value (includes $2,922 and $3,061, respectively, pledged as collateral) 40,899 41,867

Available-for-sale, at fair value 3,214 3,429

Total investments in securities 44,113 45,296

Mortgage loans:

Loans held for sale, at lower of cost or fair value 10,066 7,701

Loans held for investment, at amortized cost:

Of Fannie Mae 105,889 113,039

Of consolidated trusts 3,157,042 3,142,858

Total loans held for investment (includes $8,752 and $8,922, respectively, at fair value) 3,262,931 3,255,897

Allowance for loan losses (13,232) (14,203)

Total loans held for investment, net of allowance 3,249,699 3,241,694

Total mortgage loans 3,259,765 3,249,395

Deferred tax assets, net 13,411 13,188

Accrued interest receivable, net (includes $8,390 and $7,928, respectively, related to consolidated trusts) 8,926 8,490

Acquired property, net 2,489 2,584

Other assets 17,839 17,004

Total assets $ 3,421,034 $ 3,418,318

LIABILITIES AND EQUITY

Liabilities:

Accrued interest payable (includes $9,221 and $9,133, respectively, related to consolidated trusts) $ 10,364 $ 10,211

Debt:

Of Fannie Mae (includes $6,682 and $6,826, respectively, at fair value) 221,238 232,074

Of consolidated trusts (includes $23,050 and $23,753, respectively, at fair value) 3,173,772 3,159,846

Other liabilities (includes $343 and $356, respectively, related to consolidated trusts) 10,299 9,947

Total liabilities 3,415,673 3,412,078

Commitments and contingencies (Note 14) Å Ñ

Fannie Mae stockholdersÖ equity:

Senior preferred stock, 1,000,000 shares issued and outstanding 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 (128,175) (127,335)

Accumulated other comprehensive income 283 322

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 our dividend obligation to Treasury) 5,361 6,240

Total liabilities and equity $ 3,421,034 $ 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 in millions, except per share amounts) 

For the Three Months Ended

March 31,

2019 2018

Interest income:

Trading securities $ 427 $ 236

Available-for-sale securities 53 71

Mortgage loans (includes $28,445 and $26,298, respectively, related to consolidated trusts) 29,768 28,034

Federal funds sold and securities purchased under agreements to resell or similar arrangements 263 142

Other 32 31

Total interest income 30,543 28,514

Interest expense:

Short-term debt (125) (107)

Long-term debt (includes $24,189 and $21,715, respectively, related to consolidated trusts) (25,685) (23,175)

Total interest expense (25,810) (23,282)

Net interest income 4,733 5,232

Benefit for credit losses 650 217

Net interest income after benefit for credit losses 5,383 5,449

Investment gains, net 133 250

Fair value gains (losses), net (831) 1,045

Fee and other income 227 320

Non-interest income (loss) (471) 1,615

Administrative expenses:

Salaries and employee benefits (386) (381)

Professional services (225) (243)

Other administrative expenses (133) (126)

Total administrative expenses (744) (750)

Foreclosed property expense (140) (162)

Temporary Payroll Tax Cut Continuation Act of 2011 (ÇTCCAÉ) fees (593) (557)

Other expenses, net (408) (203)

Total expenses (1,885) (1,672)

Income before federal income taxes 3,027 5,392

Provision for federal income taxes (627) (1,131)

Net income 2,400 4,261

Other comprehensive loss:

Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and

taxes (36) (320)

Other, net of taxes (3) (3)

Total other comprehensive loss (39) (323)

Total comprehensive income $ 2,361 $ 3,938

Net income $ 2,400 $ 4,261

Dividends distributed or available for distribution to senior preferred stockholder (2,361) (938)

Net income attributable to common stockholders $ 39 $ 3,323

Earnings per share:

Basic $ 0.01 $ 0.58

Diluted 0.01 0.56

Weighted-average common shares outstanding:

Basic 5,762 5,762

Diluted 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) First Quarter 2019 Form 10-Q 50
FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Cash Flows Ä

(Unaudited)

(Dollars in millions)

For the Three Months

Ended March 31,

2019 2018

Net cash provided by (used in) operating activities $ 1,816 $ (1,409)

Cash flows provided by investing activities:

Proceeds from maturities and paydowns of trading securities held for investment 15 110

Proceeds from sales of trading securities held for investment 49 Ñ

Proceeds from maturities and paydowns of available-for-sale securities 113 266

Proceeds from sales of available-for-sale securities 131 648

Purchases of loans held for investment (33,631) (40,045)

Proceeds from repayments of loans acquired as held for investment of Fannie Mae 2,786 4,164

Proceeds from sales of loans acquired as held for investment of Fannie Mae 26 80

Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts 88,419 96,626

Advances to lenders (22,991) (27,898)

Proceeds from disposition of acquired property and preforeclosure sales 1,965 2,360

Net change in federal funds sold and securities purchased under agreements to resell or similar

arrangements 10,688 (20,231)

Other, net (124) (264)

Net cash provided by investing activities 47,446 15,816

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae 173,122 288,281

Payments to redeem debt of Fannie Mae (184,222) (299,797)

Proceeds from issuance of debt of consolidated trusts 64,821 89,493

Payments to redeem debt of consolidated trusts (96,925) (119,413)

Payments of cash dividends on senior preferred stock to Treasury (3,240) Ñ

Proceeds from senior preferred stock purchase agreement with Treasury Å 3,687

Other, net Å 442

Net cash used in financing activities (46,444) (37,307)

Net increase (decrease) in cash, cash equivalents and restricted cash 2,818 (22,900)

Cash, cash equivalents and restricted cash at beginning of period 49,423 60,260

Cash, cash equivalents and restricted cash at end of period $ 52,241 $ 37,360

Cash paid during the period for:

Interest $ 28,650 $ 27,041

Income taxes Å Ñ

See Notes to Condensed Consolidated Financial Statements

 Financial Statements | Condensed Consolidated Statements of Cash Flows

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 51
FANNIE MAE

(In conservatorship)

Condensed Consolidated Statements of Changes in Equity (Deficit)

Ä (Unaudited)

(Dollars and shares in millions, except per share amounts) 

Fannie Mae StockholdersÇ 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 ($3,240.33/share) Ñ Ñ Ñ Ñ Ñ Ñ (3,240) Ñ Ñ (3,240)

Comprehensive income:

Net income Ñ Ñ Ñ Ñ Ñ Ñ 2,400 Ñ Ñ 2,400

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 8 Ñ 8

Reclassification adjustment for gains included

in net income (net of taxes of $12) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (44) Ñ (44)

Other (net of taxes of $1) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (3) Ñ (3)

Total comprehensive income 2,361

Balance as of March 31, 2019 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (128,175) $ 283 $ (7,400) $ 5,361

Fannie Mae StockholdersÇ 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 ($0.00/share) Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ Ñ

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 4,261 Ñ Ñ 4,261

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $15) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (57) Ñ (57)

Reclassification adjustment for gains included

in net income (net of taxes of $70) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (263) Ñ (263)

Other Ñ Ñ Ñ Ñ Ñ Ñ Ñ (3) Ñ (3)

Total comprehensive income 3,938

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 March 31, 2018 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (129,662) $ 347 $ (7,400) $ 3,938

See Notes to Condensed Consolidated Financial Statements

 Financial Statements | Condensed Consolidated Statements of Cash Flows

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 52
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) First Quarter 2019 Form 10-Q 53

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, 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 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 months ended March 31, 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 months ended March 31, 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. 

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 to fundamentally change our business model or reduce the aggregate amount available to or held by the

company under our capital structure, which includes the senior preferred stock purchase agreement, in the near term.

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 March 31, 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 to Treasury in 2008.

Acting as successor to the rights, titles, powers and privileges of the Board, our conservator has declared and directed us to

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

payable since we entered conservatorship in 2008. The current dividend provisions of the senior preferred stock provide for

quarterly dividends consisting of the amount, if any, by which our net worth as of the end of the immediately preceding fiscal

quarter exceeds a $3.0 billion capital reserve amount. We refer to this as a Çnet worth sweepÉ dividend. On March 29, 2019,

we paid Treasury a dividend of $3.2 billion based on our net worth of $6.2 billion as of December 31, 2018, less the applicable

capital reserve amount of $3.0 billion. Because we had a net worth of $5.4 billion as of March 31, 2019, we expect to pay

Treasury a dividend of $2.4 billion for the second quarter of 2019 by June 30, 2019.

The liquidation preference of the senior preferred stock is subject to adjustment. The aggregate liquidation preference of the

senior preferred stock was $123.8 billion as of March 31, 2019. 

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.

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 54

Regulatory Capital

We submit capital reports to FHFA, which monitors our capital levels. The deficit of core capital over statutory minimum capital

was $137.8 billion as of March 31, 2019 and $137.1 billion as of December 31, 2018. Due to the terms of our senior preferred

stock, we do not expect to eliminate our deficit of core capital over statutory minimum capital.

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 March 31, 2019, Treasury held an

investment in our senior preferred stock with an aggregate liquidation preference of $123.8 billion. See ÇSenior Preferred Stock

Purchase Agreement and Senior Preferred StockÉ section 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 Common Securitization Solutions, LLC (ÇCSSÉ), 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.

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 $7 million for the three months ended March 31, 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 $593 million and $557 million in TCCA fees

for the three months ended March 31, 2019 and 2018, respectively, of which $593 million had not been remitted to Treasury as

of March 31, 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 expenses, recognized in ÇOther

expenses, netÉ in our condensed consolidated statements of operations and comprehensive income, were measured as the

product of 4.2 basis points and the unpaid principal balance of our total new business purchases for the respective period. We

recognized a total of $75 million in ÇOther expenses, netÉ in connection with TreasuryÖs Capital Magnet Fund for the year

ended December 31, 2018, which was outstanding as of March 31, 2019 and remitted on April 5, 2019. We recognized $15

million and $18 million in ÇOther expenses, netÉ in connection with TreasuryÖs Capital Magnet Fund for the three months ended

March 31, 2019 and 2018, respectively, of which $15 million had not been remitted as of March 31, 2019. 
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 $29 million for the three months ended

March 31, 2019 and 2018, respectively.

Transactions with CSS

We contributed capital to CSS, the company we jointly own with Freddie Mac, of $36 million and $41 million for the three

months ended March 31, 2019 and 2018, respectively. No other transactions outside of normal business activities have

occurred between us and CSS during the three months ended March 31, 2019 and 2018. 

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 55

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). Weighted average common shares includes 4.6 billion shares for the periods ended March 31, 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 March

31, 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 March 31, 2019 and 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 table 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.

Standard Description Effective

Date

Impact on Consolidated Financial

Statements

ASU 2016-02,

Leases (Topic 842)

The amendment addresses the

accounting for lease arrangements.

January 1,

2019

We adopted this standard on January 1,

2019. The adoption of this guidance did

not have a material impact on our

consolidated financial statements.

ASU 2017-12 - Derivatives

and Hedging (Topic 815)

The amendments in this standard made

targeted improvements to accounting

for hedging activities. The standard

changes the recognition and

presentation requirements of hedge

accounting and provides new

alternatives for measuring and

accounting for certain aspects of

hedging activities.

January 1,

2019

This guidance became effective this

quarter. Hedge accounting is elective

and, while we do not currently have a

hedge accounting program, we are

developing capabilities to implement

hedge accounting to reduce interest rate

volatility in our consolidated statements

of operations and comprehensive

income.

ASU 2016-13,

Financial InstrumentsÑ

Credit Losses (Topic 326),

Measurement of Credit

Losses on Financial

Instruments (ÇCECLÉ)

The amendments in this standard

replace the incurred loss impairment

methodology in current GAAP with a

methodology that reflects lifetime

expected credit losses and requires

consideration of a broader range of

reasonable and supportable information

to inform credit loss estimates.

January 1,

2020

CECL will become effective for our fiscal

year beginning January 1, 2020. We will

recognize the impact of the new

guidance through a cumulative effect

adjustment to retained earnings as of the

beginning of the year of adoption. We

are continuing to update our allowance

models and accounting systems that will

be used to estimate credit losses and

record accounting impacts under CECL,

and we are in the process of validating

their results. All updates to our allowance

models are subject to our model

oversight and review governance

process. We expect model and system

testing to continue in 2019, followed by

full integrated testing across all impacted

systems and processes. Implementation

of this guidance is being managed in

accordance with our change

management governance standards,

which are designed to ensure

compliance with GAAP as well as

operational readiness at adoption.ÄWe

provide updates to senior management

and the Audit Committee regarding the

status of our implementation plan,

results of initial modeled impacts and

any identified key risks.

We are continuing to evaluate the impact

of this guidance on our consolidated

financial statements. The adoption of this

guidance likely will increase our

allowance for credit losses and

decrease, perhaps substantially, our

retained earnings. We expect the greater

impact of the guidance to relate to our

accounting for credit losses for loans that

are not individually impaired. We do not

expect a material impact from the

valuation allowance associated with our

available for sale securities. However,

the impact at adoption will be influenced

by the composition and quality of our

total book of business at the adoption

date, as well as economic conditions and

forecasts at that time. 

Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 56
2.ÅÅConsolidations and Transfers of Financial Assets

Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 57

We have interests in various entities that are considered to be variable interest entities (ÇVIEsÉ). The primary types of entities

are securitization trusts, limited partnerships and special purpose vehicles (ÇSPVsÉ). These interests include investments in

securities issued by VIEs, such as Fannie Mae mortgage-backed securities (ÇMBSÉ) created pursuant to our securitization

transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts

because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of

mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class

securitization trusts when other organizations have the power to direct these activities.

Unconsolidated VIEs

We do not consolidate VIEs when we are not deemed to be the primary beneficiary. Our unconsolidated VIEs include

securitization trusts, 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

trusts.

As of

March 31, 2019 December 31, 2018

Assets and liabilities recorded in our condensed consolidated balance sheets

related to mortgage-backed trusts:

(Dollars in millions)

Assets:

Trading securities:

Fannie Mae $ 1,543 $ 1,422

Non-Fannie Mae 4,212 4,809

Total trading securities 5,755 6,231

Available-for-sale securities:

Fannie Mae 1,660 1,704

Non-Fannie Mae 1,046 1,207

Total available-for-sale securities 2,706 2,911

Other assets 65 66

Other liabilities (97) (101)

Net carrying amount $ 8,429 $ 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. However, our securities issued by Fannie Mae multi-class resecuritization

trusts that are not consolidated do not give rise to any additional exposure to loss as we already consolidate the underlying

collateral. The maximum exposure to loss related to unconsolidated mortgage-backed trusts was approximately $13 billion and

$14 billion as of March 31, 2019 and December 31, 2018, respectively. The total assets of our unconsolidated securitization

trusts were approximately $70 billion and $80 billion as of March 31, 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 $103 million and the related

carrying value was $82 million as of March 31, 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 March 31, 2019 and December 31, 2018, respectively.

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 special purpose vehicles was $2.9 billion and $920

million as of March 31, 2019 and December 31, 2018, respectively. The total assets related to these unconsolidated special

purpose vehicles were $2.9 billion and $931 million as of March 31, 2019 and December 31, 2018, respectively. 

The unpaid principal balance of our multifamily loan portfolio was $302.2 billion as of March 31, 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.
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 March 31,

2019 and 2018, the unpaid principal balance of portfolio securitizations was $41.4 billion and $64.3 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 March 31, 2019, the unpaid principal balance of retained interests was $1.6 billion and its

related fair value was $2.3 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 March 31, 2019 and 2018, the principal, interest and

other fees received on retained interests was $116 million and $226 million, respectively.

Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 58

Managed Loans

Managed loans are on-balance sheet mortgage loans, as well as mortgage loans that we have securitized in unconsolidated

portfolio securitization trusts. The unpaid principal balance of securitized loans in unconsolidated portfolio securitization trusts,

which are primarily loans that are guaranteed or insured, in whole or in part, by the U.S. government, was $1.2 billion as of

March 31, 2019 and December 31, 2018. For information on our on-balance sheet mortgage loans, see ÇNote 3, Mortgage

Loans.É
3.ÅÅMortgage Loans

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 59

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 or one of its agencies, and that are not Alt-A; and ÇotherÉ class as loans with higher-risk characteristics,

such as interest-only loans and negative-amortizing loans, that are neither government nor Alt-A.

The following table displays the carrying value of our mortgage loans.

As of

March 31,

2019

December 31,

2018

(Dollars in millions)

Single-family $ 2,930,649 $ 2,929,925

Multifamily 302,152 293,858

Total unpaid principal balance of mortgage loans 3,232,801 3,223,783

Cost basis and fair value adjustments, net 40,196 39,815

Allowance for loan losses for loans held for investment (13,232) (14,203)

Total mortgage loans $ 3,259,765 $ 3,249,395

The following table displays information about our redesignated mortgage loans.

For the Three Months Ended

March 31,

2019 2018

(Dollars in millions)

Carrying value of loans redesignated from HFI to HFS $ 2,611 $ 7,367

Carrying value of loans redesignated from HFS to HFI 9 18

Loans sold - unpaid principal balance 58 748

Realized gains on sale of mortgage loans 36 2

The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process was $10.1

billion as of March 31, 2019 and December 31, 2018. 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 March 31, 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 $ 29,620 $ 7,397 $ 14,601 $ 51,618 $ 2,821,187 $ 2,872,805 $ 24 $ 25,710

Government(2) 48 16 162 226 20,901 21,127 162 Ñ

Alt-A 2,470 803 1,779 5,052 45,750 50,802 1 2,998

Other 772 281 676 1,729 11,956 13,685 3 1,080

Total singlefamily 32,910 8,497 17,218 58,625 2,899,794 2,958,419 190 29,788

Multifamily(3) 3 N/A 193 196 304,201 304,397 Ñ 509

Total $ 32,913 $ 8,497 $ 17,411 $ 58,821 $ 3,203,995 $ 3,262,816 $ 190 $ 30,297

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) First Quarter 2019 Form 10-Q 60
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

MarchÄ31, 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% $ 2,496,412 $ 43,554 $ 11,362 $ 2,521,766 $ 45,476 $ 12,291

Greater than 80% and less than or equal to 90% 239,373 3,555 1,074 228,614 3,804 1,195

Greater than 90% and less than or equal to 100% 126,992 1,837 584 109,548 1,997 645

Greater than 100% 10,028 1,856 665 9,337 1,994 707

Total $ 2,872,805 $ 50,802 $ 13,685 $ 2,869,265 $ 53,271 $ 14,838

(1) Excludes $21.1 billion and $22.1 billion as of March 31, 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 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.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 61

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

March 31, December 31,

2019 2018

(Dollars in millions)

Credit risk profile by internally assigned grade:

Non-classified $ 297,312 $ 289,231

Classified(1) 7,085 6,433

Total $ 304,397 $ 295,664

(1) Represents loans classified as ÇSubstandard,É which have a well-defined weakness that jeopardizes the timely full repayment. Loans with

a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions and values are

referred to as ÇDoubtful.É As of March 31, 2019, we had loans with recorded investment of less than $0.5 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

March 31, 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 $ 79,713 $ 76,804 $ (8,816) $ 81,791 $ 78,688 $ (9,406)

Government 265 270 (55) 264 270 (55)

Alt-A 15,486 14,178 (2,526) 16,576 15,158 (2,793)

Other 4,987 4,706 (894) 5,482 5,169 (1,001)

Total single-family 100,451 95,958 (12,291) 104,113 99,285 (13,255)

Multifamily 297 298 (44) 197 196 (40)

Total individually impaired loans with related

allowance recorded 100,748 96,256 (12,335) 104,310 99,481 (13,295)

With no related allowance recorded:(1)

Single-family:

Primary 16,089 15,325 Å 15,939 15,191 Ñ

Government 61 57 Å 61 56 Ñ

Alt-A 2,508 2,248 Å 2,628 2,363 Ñ

Other 688 635 Å 718 666 Ñ

Total single-family 19,346 18,265 Å 19,346 18,276 Ñ

Multifamily 360 361 Å 343 346 Ñ

Total individually impaired loans with no related

allowance recorded 19,706 18,626 Å 19,689 18,622 Ñ

Total individually impaired loans(2) $ 120,454 $ 114,882 $ (12,335) $ 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 $113.9 billion and $117.2 billion as of March 31, 2019 and

December 31, 2018, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $188 million and $187

million as of March 31, 2019 and December 31, 2018, respectively.

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 62
For the Three Months Ended March 31,

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 $ 77,842 $ 817 $ 80 $ 88,411 $ 911 $ 107

Government 272 3 Å 276 3 Ñ

Alt-A 14,687 156 11 20,708 212 16

Other 4,940 45 4 7,854 71 5

Total single-family 97,741 1,021 95 117,249 1,197 128

Multifamily 247 2 Å 258 Ñ Ñ

Total individually impaired loans with related

allowance recorded 97,988 1,023 95 117,507 1,197 128

With no related allowance recorded:(1)

Single-family:

Primary 15,195 220 28 15,007 243 26

Government 56 1 Å 60 Ñ Ñ

Alt-A 2,293 39 2 2,842 58 4

Other 648 8 1 900 16 1

Total single-family 18,192 268 31 18,809 317 31

Multifamily 353 2 Å 331 2 Ñ

Total individually impaired loans with no related

allowance recorded 18,545 270 31 19,140 319 31

Total individually impaired loans $116,533 $ 1,293 $ 126 $136,647 $ 1,516 $ 159

(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) First Quarter 2019 Form 10-Q 63

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial

difficulties is considered a TDR. In addition to formal loan modifications, we also engage in other loss mitigation activities with

troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal

agreements with the borrower that do not result in the legal modification of the 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 157 months and 144 months for the

three months ended March 31, 2019 and 2018, respectively. The average interest rate reduction was 0.10 and 0.31

percentage points, for the three months ended March 31, 2019 and 2018, respectively.
The following table displays the number of loans and recorded investment in loans classified as a TDR.

For the Three Months Ended March 31,

2019 2018

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary 12,957 $ 1,971 41,679 $ 6,524

Government 23 4 48 4

Alt-A 766 97 2,182 283

Other 147 27 445 84

Total single-family 13,893 2,099 44,354 6,895

Multifamily 3 13 8 42

Total TDRs 13,896 $ 2,112 44,362 $ 6,937

(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 months ended March 31, 2019 compared with the three months ended

March 31, 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 quarter of 2018. 

Notes to Condensed Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 64

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 March 31,

2019 2018

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary 4,516 $ 673 4,818 $ 701

Government 18 3 14 2

Alt-A 471 73 677 109

Other 154 28 195 38

Total single-family 5,159 777 5,704 850

Multifamily Å Å 1 2

Total TDRs that subsequently defaulted 5,159 $ 777 5,705 $ 852

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.

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 March 31,

2019 2018

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance $ (13,969) $ (18,849)

Benefit (provision) for loan losses(1) 647 (78)

Charge-offs 381 465

Recoveries (45) (60)

Other 1 (1)

Ending balance $ (12,985) $ (18,523)

Multifamily allowance for loan losses:

Beginning balance $ (234) $ (235)

Benefit (provision) for loan losses(1) (13) 20

Charge-offs Å 4

Ending balance $ (247) $ (211)

Total allowance for loan losses:

Beginning balance $ (14,203) $ (19,084)

Benefit (provision) for loan losses(1) 634 (58)

Charge-offs 381 469

Recoveries (45) (60)

Other 1 (1)

Ending balance $ (13,232) $ (18,734)

(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) First Quarter 2019 Form 10-Q 65
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

March 31, 2019 December 31, 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans(1) $ (12,291) $ (44) $ (12,335) $ (13,255) $ (40) $ (13,295)

Collectively reserved loans (694) (203) (897) (714) (194) (908)

Total allowance for loan losses $ (12,985) $ (247) $ (13,232) $ (13,969) $ (234) $ (14,203)

Recorded investment in loans by segment:

Individually impaired loans(1) $ 114,223 $ 659 $ 114,882 $ 117,561 $ 542 $ 118,103

Collectively reserved loans 2,844,196 303,738 3,147,934 2,841,943 295,122 3,137,065

Total recorded investment in loans $ 2,958,419 $ 304,397 $ 3,262,816 $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) First Quarter 2019 Form 10-Q 66

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

March 31,

2019

December 31,

2018

(Dollars in millions)

Mortgage-related securities:

Fannie Mae $ 1,583 $ 1,467

Other agency 3,158 3,503

Private-label and other mortgage securities 1,054 1,306

Total mortgage-related securities 5,795 6,276

Non-mortgage-related securities:

U.S. Treasury securities 35,020 35,502

Other securities 84 89

Total non-mortgage-related securities 35,104 35,591

Total trading securities $ 40,899 $ 41,867

The following table displays information about our net trading gains.

For the Three Months

Ended March 31,

2019 2018

(Dollars in millions)

Net trading gains $ 92 $ 98

Net trading gains recognized in the period related to securities still held at period end 89 76
Available-for-Sale Securities

We record available-for-sale (ÇAFSÉ) securities at fair value with unrealized gains and losses, recorded net of tax, as a

component of ÇOther comprehensive lossÉ 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 March 31,

2019 2018

(Dollars in millions)

Gross realized gains $ 61 $ 363

Total proceeds (excludes initial sale of securities from new portfolio securitizations) 131 635

Notes to Condensed Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 67

The following tables display the amortized cost, gross unrealized gains and losses, and fair value by major security type for

AFS securities.

As of March 31, 2019

Total

Amortized

Cost(1)

Gross

Unrealized

Gains

Gross

Unrealized

Losses(2)

Total

Fair

Value

(Dollars in millions)

Fannie Mae $ 1,689 $ 82 $ (19) $ 1,752

Other agency 225 17 Ñ 242

Alt-A and subprime private-label securities 246 206 Ñ 452

Mortgage revenue bonds 416 13 (4) 425

Other mortgage-related securities 334 9 Ñ 343

Total $ 2,910 $ 327 $ (23) $ 3,214

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 March 31, 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 $ (19) $ 372

Mortgage revenue bonds (1) 15 (3) 3

Total $ (1) $ 15 $ (22) $ 375

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) First Quarter 2019 Form 10-Q 68

Other-Than-Temporary Impairments

The unrealized credit loss component of AFS debt securities held by us and recognized in our condensed consolidated

statements of operations and comprehensive income was $323 million and $635 million as of March 31, 2019 and December

31, 2018, respectively. The decrease in the first three months of 2019 was primarily driven by securities for which we had a

change in intent and it was more likely than not we would sell them before recovery of our amortized cost basis. 

The unrealized credit loss component of AFS debt securities held by us and recognized in our condensed consolidated

statements of operations and comprehensive income was $729 million and $1.1 billion as of March 31, 2018 and December

31, 2017, respectively. The decrease in the first three months of 2018 was primarily driven by securities that we no longer hold

in our portfolio.

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 March 31, 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 $ 1,689 $ 1,752 $ Ñ $ Ñ $ 14 $ 15 $ 114 $ 124 $ 1,561 $ 1,613

Other agency 225 242 Ñ Ñ 23 24 29 32 173 186

Alt-A and subprime privatelabel securities 246 452 Ñ Ñ Ñ Ñ 1 1 245 451

Mortgage revenue bonds 416 425 2 2 30 30 52 54 332 339

Other mortgage-related

securities 334 343 Ñ Ñ Ñ Ñ 28 31 306 312

Total $ 2,910 $ 3,214 $ 2 $ 2 $ 67 $ 69 $ 224 $ 242 $ 2,617 $ 2,901
6.ÅÅFinancial Guarantees

Notes to Condensed Consolidated Financial Statements | Financial Guarantees

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 69

We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts

and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily relating to the

unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees. The remaining contractual

terms of our guarantees range from 1 day to 34 years; however, the actual term of each guaranty may be significantly less

than the contractual term based on the prepayment characteristics of the related mortgage loans. The following table displays

our 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

March 31, 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 $ 7,102 $ 29 $ 6,699 $ 7,278 $ 30 $ 6,811

Other guaranty arrangements(2) 13,626 141 2,709 13,847 130 2,711

Total $ 20,728 $ 170 $ 9,408 $ 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 11, 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

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

March 31, 2019 December 31, 2018

Outstanding

WeightedAverage

Interest

Rate(1) Outstanding

WeightedAverage

Interest

Rate(1)

(Dollars in millions)

Short-term debt of Fannie Mae $ 23,071 2.33% $ 24,896 2.29%

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

Intraday Line of Credit

We use a secured intraday funding line of credit provided by a large financial institution. We post collateral which, in some

circumstances, the secured party has the right to repledge to third parties. As this line of credit is an uncommitted intraday loan

facility, we may be unable to draw on it if and when needed. The line of credit under this facility was $15.0 billion as of March

31, 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

March 31, 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 $ 97,710 2.46% 2019 - 2030 $ 103,206 2.36%

Medium-term notes(2) 2019 - 2026 57,220 1.48 2019 - 2026 61,455 1.48

Other(3) 2019 - 2038 6,675 4.61 2019 - 2038 6,683 4.62

Total senior fixed 161,605 2.20 171,344 2.13

Senior floating:

Medium-term notes(2) 2020 - 2020 5,574 2.47 2019 - 2020 4,174 2.36

Connecticut Avenue Securities(4) 2023 - 2031 25,064 6.13 2023 - 2031 25,641 5.97

Other(5) 2020 - 2037 376 7.85 2020 - 2037 351 10.19

Total senior floating 31,014 5.50 30,166 5.52

Subordinated debentures 2019 5,502 9.67 2019 5,617 9.64

Secured borrowings(6) 2021 - 2022 46 2.06 2021 - 2022 51 1.96

Total long-term debt of Fannie Mae(7) 198,167 2.93 207,178 2.83

Debt of consolidated trusts 2019 - 2058 3,173,772 3.06 2019 - 2058 3,159,846 3.03

Total long-term debt $ 3,371,939 3.06% $ 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 $213 million and $413

millionÄas of March 31, 2019 and December 31, 2018, respectively.

Notes to Condensed Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 70

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. 

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 13, 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 March 31, 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 $ 70,599 $ 171 $ 22,538 $ (823) $ 71,416 $ 438 $ 21,253 $ (740)

Receive-fixed 89,157 1,037 53,059 (541) 88,799 1,113 58,399 (860)

Basis 273 129 Å Å 250 104 624 Ñ

Foreign currency 226 35 228 (66) 221 22 223 (72)

Swaptions:

Pay-fixed 5,350 46 5,625 (45) 10,375 191 1,000 (4)

Receive-fixed 1,100 51 6,375 (287) 500 20 7,375 (338)

Futures(1) 21,594 Å Å Å 16,631 Ñ Ñ Ñ

Total gross risk management

derivatives 188,299 1,469 87,825 (1,762) 188,192 1,888 88,874 (2,014)

Accrued interest receivable

(payable) Å 395 Å (462) Ñ 400 Ñ (419)

Netting adjustment(2) Å (1,781) Å 2,126 Ñ (2,266) Ñ 2,315

Total net risk management

derivatives $ 188,299 $ 83 $ 87,825 $ (98) $ 188,192 $ 22 $ 88,874 $ (118)

Mortgage commitment

derivatives:

Mortgage commitments to

purchase whole loans $ 3,901 $ 26 $ 2,153 $ (3) $ 4,370 $ 29 $ 57 $ Ñ

Forward contracts to

purchase mortgagerelated securities 53,514 403 9,649 (10) 40,650 349 1,045 (3)

Forward contracts to sell

mortgage-related

securities 10,547 10 86,515 (653) 292 1 70,593 (645)

Total mortgage

commitment derivatives 67,962 439 98,317 (666) 45,312 379 71,695 (648)

Credit enhancement derivatives 32,745 62 2,874 (29) 33,431 57 919 (11)

Derivatives at fair value $ 289,006 $ 584 $ 189,016 $ (793) $ 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 $882 million and $713

million as of March 31, 2019 and December 31, 2018, respectively. Cash collateral received was $537 million and $664 million as of March

31, 2019 and December 31, 2018, respectively. 

Notes to Condensed Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 71
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 March 31,

2019 2018

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed $ (1,335) $ 2,783

Receive-fixed 1,281 (2,387)

Basis 24 (23)

Foreign currency 19 16

Swaptions:

Pay-fixed (177) 129

Receive-fixed 7 (16)

Futures 59 8

Net accrual of periodic settlements (266) (215)

Total risk management derivatives fair value gains (losses), net (388) 295

Mortgage commitment derivatives fair value gains (losses), net (300) 564

Credit enhancement derivatives fair value gains (losses), net (7) 4

Total derivatives fair value gains (losses), net $ (695) $ 863

Notes to Condensed Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 72

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 12, 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 total book of business. The substantial majority of our 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 March 31,

2019 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Net interest income(1) $ 4,039 $ 694 $ 4,733 $ 4,561 $ 671 $ 5,232

Fee and other income(2) 106 121 227 158 162 320

Net revenues 4,145 815 4,960 4,719 833 5,552

Investment gains, net(3) 94 39 133 242 8 250

Fair value gains (losses), net(4) (887) 56 (831) 1,034 11 1,045

Administrative expenses (631) (113) (744) (643) (107) (750)

Credit-related income (expense)(5)

Benefit (provision) for credit losses 661 (11) 650 196 21 217

Foreclosed property income (expense) (143) 3 (140) (162) Ñ (162)

Total credit-related income (expense) 518 (8) 510 34 21 55

TCCA fees(6) (593) Å (593) (557) Ñ (557)

Other expenses, net (337) (71) (408) (132) (71) (203)

Income before federal income taxes 2,309 718 3,027 4,697 695 5,392

Provision for federal income taxes (484) (143) (627) (1,016) (115) (1,131)

Net income $ 1,825 $ 575 $ 2,400 $ 3,681 $ 580 $ 4,261

(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 consists of gains and losses on the sale of mortgage assets for the respective business segment. 

(4) Single-Family fair value gains and losses primarily consist of fair value gains and losses on risk management and mortgage commitment

derivatives, trading securities and other financial instruments associated with our single-family total book of business. Multifamily fair value

gains and losses primarily consist of fair value gains and losses on MBS commitment derivatives, trading securities and other financial

instruments associated with our multifamily total book of business. 

(5) Credit-related income or expense is based on the guaranty book of business of the respective business segment and consists of the

applicable 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) First Quarter 2019 Form 10-Q 73
10.ÅÅEquity

The following table displays our accumulated other comprehensive income (ÇAOCIÉ), net of tax, by major categories.

As of

March 31, December 31,

2019 2018

(Dollars in millions)

Net unrealized gains on AFS securities for which we have not recorded OTTI $ 67 $ 52

Net unrealized gains on AFS securities for which we have recorded OTTI 173 224

Other 43 46

Accumulated other comprehensive income $ 283 $ 322

The following table displays changes in AOCI, net of tax.

For the Three Months Ended March 31,

2019 2018

AFS(1) Other Total AFS(1) Other Total

(Dollars in millions)

Beginning balance $ 276 $ 46 $ 322 $ 510 $ 43 $ 553

Reclassification of accumulated other comprehensive

income to retained earnings resulting from the

enactment of the Tax Cuts and Jobs Act(2) Å Å Å 110 7 117

Other comprehensive income (loss) before reclassifications 8 Å 8 (57) Ñ (57)

Amounts reclassified from other comprehensive loss (44) (3) (47) (263) (3) (266)

Net other comprehensive loss (36) (3) (39) (320) (3) (323)

Ending balance $ 240 $ 43 $ 283 $ 300 $ 47 $ 347

(1) The amounts reclassified from AOCI represent the gain or loss recognized in earnings due to a sale of an AFS security or the recognition

of net impairment in earnings, which are recorded in ÇInvestment gains, netÉ in our condensed consolidated statements of operations and

comprehensive income.

(2) Reclassification from AOCI to retained earnings for the tax effects resulting from the enactment of tax legislation on December 22, 2017

that reduced the federal corporate income tax rate from 35% to 21% effective JanuaryÄ1, 2018.

Notes to Condensed Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 74

11.ÅÅConcentrations of Credit Risk

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

March 31, 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) 1.15% 0.31% 0.67% 1.17% 0.32% 0.69%

Percentage of single-family

conventional loans(4) 1.32 0.35 0.74 1.37 0.38 0.76

As of

March 31, 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% * 9.35% * 9.85%

Geographical distribution:

California 19 0.34 19 0.34

Florida 6 1.03 6 1.16

New Jersey 3 1.32 4 1.38

New York 5 1.38 5 1.40

All other states 67 0.72 66 0.75

Product distribution:

Alt-A 2 3.31 2 3.35

Vintages:

2004 and prior 3 2.68 3 2.69

2005-2008 4 4.50 5 4.61

2009-2019 93 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 approximately 99% of our single-family conventional guaranty book of business as of March 31, 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 March 31, 2019 and

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) First Quarter 2019 Form 10-Q 75

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 high original LTV ratios. 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 total

multifamily guaranty book of business.

As of

MarchÄ31, 2019 (1) DecemberÄ31, 2018(1)

30 Days

Delinquent

Seriously

Delinquent(2)

30 Days

Delinquent

Seriously

Delinquent(2)

Percentage of multifamily guaranty book of business * 0.07% 0.02% 0.06%

As of

March 31, 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 0.07 99 0.06

Current DSCR below 1.0(4) 2 0.62 2 1.38

* Represents less than 0.005% of multifamily loans that were 30 days delinquent.

(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.

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 76

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

March 31, 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 $ 154,823 $ 152,379

Pool mortgage insurance 400 409

Total mortgage insurance risk in force $ 155,223 5% $ 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

March 31,

2019

December 31,

2018

Counterparty:(1)

Arch Capital Group Ltd. 24% 25%

Radian Guaranty, Inc. 21 21

Mortgage Guaranty Insurance Corp. 18 18

Genworth Mortgage Insurance Corp.(2) 15 15

Essent Guaranty, Inc. 12 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 $4.4 billion, or 3%, of our risk in force mortgage insurance coverage of

our single-family guaranty book of business as of March 31, 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. 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 March 31,

2019 and December 31, 2018, our estimated benefit from mortgage insurance reduced our loss reserves by $665 million and

$691 million, respectively.

As of March 31, 2019 and December 31, 2018, we had outstanding receivables of $699 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 March 31, 2019 and December 31, 2018, we assessed these outstanding

receivables for collectibility, and established a valuation allowance of $544 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

our underwriting or eligibility requirements, if certain loan representations and warranties are violated or if mortgage insurers

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 77
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

March 31,

2019

December 31,

2018

Wells Fargo Bank, N.A. (together with its affiliates) 18% 18%

Remaining top five depository servicers 15 16

Top five non-depository servicers 25 22

Total 58% 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

March 31,

2019

December

31, 2018

Wells Fargo Bank, N.A. (together with its affiliates) 14% 14%

Walker & Dunlop, LLC 12 12

Remaining top five servicers 22 22

Total 48% 48%

If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet their

obligations to us, it could adversely affect our results of operations and financial condition. 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 12, Netting Arrangements.É

Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 78
12.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 March 31, 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 $ 1,864 $ (1,801) $ 63 $ Ñ $ Ñ $ 63

Cleared risk management derivatives Ñ 20 20 Ñ Ñ 20

Mortgage commitment derivatives 439 Ñ 439 (223) (14) 202

Total derivative assets 2,303 (1,781) 522 (4) (223) (14) 285

Securities purchased under agreements to

resell or similar arrangements(5) 39,850 Ñ 39,850 Ñ (39,850) Ñ

Total assets $42,153 $ (1,781) $ 40,372 $ (223) $ (39,864) $ 285

Liabilities:

OTC risk management derivatives $ (2,224) $ 2,143 $ (81) $ Ñ $ Ñ $ (81)

Cleared risk management derivatives Ñ (17) (17) Ñ 10 (7)

Mortgage commitment derivatives (666) Ñ (666) 223 416 (27)

Total derivative liabilities (2,890) 2,126 (764)

(4) 223 426 (115)

Total liabilities $ (2,890) $ 2,126 $ (764) $ 223 $ 426 $ (115)

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) First Quarter 2019 Form 10-Q 79
(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 $1.8 billion and $1.9 billion as of March 31, 2019 and December 31, 2018, respectively, which the counterparty

was permitted to sell or repledge. The fair value of non-cash collateral received was $39.9 billion and $48.4 billion, of which $33.9 billion

and $45.7 billion could be sold or repledged as of March 31, 2019 and December 31, 2018, respectively. None of the underlying collateral

was sold or repledged as of March 31, 2019 or December 31, 2018. 

(4) Excludes derivative assets of $62 million and $57 million as of March 31, 2019 and December 31, 2018, respectively, and derivative

liabilities of $29 million and $11 million recognized in our condensed consolidated balance sheets as of March 31, 2019 and December 31,

2018, respectively, that are not subject to enforceable master netting arrangements.

(5) Includes $17.6 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 March 31, 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) First Quarter 2019 Form 10-Q 80
13.ÅÅFair Value

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 81

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 March 31, 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 $ 1,516 $ 67 $ Ñ $ 1,583

Other agency Ñ 3,158 Ñ Ñ 3,158

Private-label and other mortgage securities Ñ 1,054 Ñ Ñ 1,054

Non-mortgage-related securities:

U.S. Treasury securities 35,020 Ñ Ñ Ñ 35,020

Other securities Ñ 84 Ñ Ñ 84

Total trading securities 35,020 5,812 67 Ñ 40,899

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae Ñ 1,553 199 Ñ 1,752

Other agency Ñ 242 Ñ Ñ 242

Alt-A and subprime private-label securities Ñ 429 23 Ñ 452

Mortgage revenue bonds Ñ Ñ 425 Ñ 425

Other Ñ 6 337 Ñ 343

Total available-for-sale securities Ñ 2,230 984 Ñ 3,214

Mortgage loans Ñ 7,818 934 Ñ 8,752

Other assets:

Risk management derivatives:

Swaps Ñ 1,633 134 Ñ 1,767

Swaptions Ñ 97 Ñ Ñ 97

Netting adjustment Ñ Ñ Ñ (1,781) (1,781)

Mortgage commitment derivatives Ñ 399 40 Ñ 439

Credit enhancement derivatives Ñ Ñ 62 Ñ 62

Total other assets Ñ 2,129 236 (1,781) 584

Total assets at fair value $ 35,020 $ 17,989 $ 2,221 $ (1,781) $ 53,449
Fair Value Measurements as of March 31, 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 $ 6,306 $ 376 $ Ñ $ 6,682

Total of Fannie Mae Ñ 6,306 376 Ñ 6,682

Of consolidated trusts Ñ 22,826 224 Ñ 23,050

Total long-term debt Ñ 29,132 600 Ñ 29,732

Other liabilities:

Risk management derivatives:

Swaps Ñ 1,891 1 Ñ 1,892

Swaptions Ñ 332 Ñ Ñ 332

Netting adjustment Ñ Ñ Ñ (2,126) (2,126)

Mortgage commitment derivatives Ñ 663 3 Ñ 666

Credit enhancement derivatives Ñ Ñ 29 Ñ 29

Total other liabilities Ñ 2,886 33 (2,126) 793

Total liabilities at fair value $ Ñ $ 32,018 $ 633 $ (2,126) $ 30,525

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 82
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) First Quarter 2019 Form 10-Q 83
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) First Quarter 2019 Form 10-Q 84
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 March 31, 2019

Total Gains (Losses)

(Realized/Unrealized) 

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of March 31, 

2019(5)(6)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of March 31, 

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,

March

31, 2019

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 32 $ 2 $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ Ñ $ 33 $ 67 $ 2 $ Ñ

Private-label and

other mortgage

securities 1 Ñ Ñ Ñ Ñ Ñ (1) Ñ Ñ Ñ Ñ Ñ

Total trading securities $ 33 $ 2

(6)(7)

$ Ñ $ Ñ $ Ñ $ Ñ $ (1) $ Ñ $ 33 $ 67 $ 2 $ Ñ

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 152 $ Ñ $ 4 $ Ñ $ Ñ $ Ñ $ Ñ $ (41) $ 84 $ 199 $ Ñ $ 2

Alt-A and

subprime

private-label

securities 24 Ñ Ñ Ñ Ñ Ñ (1) Ñ Ñ 23 Ñ Ñ

Mortgage revenue

bonds 434 Ñ Ñ Ñ Ñ Ñ (9) Ñ Ñ 425 Ñ Ñ

Other 342 7 (5) Ñ Ñ Ñ (8) Ñ 1 337 Ñ (4)

Total available-forsale securities $ 952 $ 7

(7)(8)

$ (1) $ Ñ $ Ñ $ Ñ $ (18) $ (41) $ 85 $ 984 $ Ñ $ (2)

Mortgage loans $ 937 $ 14 (6)(7) $ Ñ $ Ñ $ Ñ $ Ñ $ (34) $ (28) $ 45 $ 934 $ 11 $ Ñ

Net derivatives 194 98 (6) Ñ Ñ Ñ Ñ (89) Ñ Ñ 203 44 Ñ

Long-term debt:

Of Fannie Mae:

Senior floating (351) (25) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (376) (25) Ñ

Of consolidated

trusts (201) (3) Ñ Ñ Ñ Ñ 5 49 (74) (224) (1) Ñ

Total long-term debt $ (552) $ (28)

(6)

$ Ñ $ Ñ $ Ñ $ Ñ $ 5 $ 49 $ (74) $ (600) $ (26) $ Ñ

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 85
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Three Months Ended March 31, 2018

Total Gains (Losses)

(Realized/Unrealized) 

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of March 31, 

2018(5)(6)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of March 31, 

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(4)

Transfers

into 

Level 3

Balance,

March

31, 2018

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 971 $ 171 $ Ñ $ 1 $ (1,060) $ Ñ $ Ñ $ Ñ $ Ñ $ 83 $ 1 $ 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 $ 85

(6)(7)

$ Ñ $ 1 $ (1,060) $ Ñ $ (6) $ (137) $ Ñ $ 84 $ 1 $ Ñ

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 208 $ Ñ $ (4) $ Ñ $ Ñ $ Ñ $ (2) $ Ñ $ Ñ $ 202 $ Ñ $ (3)

Alt-A and

subprime

private-label

securities 77 Ñ (45) Ñ Ñ Ñ (1) (4) Ñ 27 Ñ 1

Mortgage revenue

bonds 671 11 (13) Ñ (11) Ñ (119) Ñ Ñ 539 Ñ (8)

Other 357 7 (2) Ñ Ñ Ñ (11) Ñ Ñ 351 Ñ Ñ

Total available-forsale securities $ 1,313 $ 18

(7)(8)

$ (64) $ Ñ $ (11) $ Ñ $ (133) $ (4) $ Ñ $ 1,119 $ Ñ $ (10)

Mortgage loans $ 1,116 $ 17 (6)(7) $ Ñ $ Ñ $ Ñ $ Ñ $ (48) $ (36) $ 53 $ 1,102 $ 11 $ Ñ

Net derivatives 134 (58)

(6) Ñ Ñ Ñ Ñ 4 53 Ñ 133 (22) Ñ

Long-term debt:

Of Fannie Mae:

Senior floating (376) 19 Ñ Ñ Ñ Ñ Ñ Ñ Ñ (357) 19 Ñ

Of consolidated

trusts (582) 3 Ñ Ñ Ñ 1 10 154 (48) (462) 1 Ñ

Total long-term debt $ (958) $ 22

(6)

$ Ñ $ Ñ $ Ñ $ 1 $ 10 $ 154 $ (48) $ (819) $ 20 $ Ñ

(1) Gains (losses) included in other comprehensive loss are included in ÇChanges in unrealized gains on AFS 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 three months

ended March 31, 2018, includes the dissolution of a Fannie Mae-wrapped private-label securities trust. 

(3) Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.

(4) Transfers out of Level 3 during the first quarter of 2018 consisted primarily of mortgage loans of consolidated trusts for which unobservable

inputs used in valuations became less significant. Transfers out of Level 3 also included private-label mortgage-related securities backed by

Alt-A loans and subprime loans. Prices for these securities were available from multiple third-party vendors and demonstrated an increased

and sustained level of observability over time. 

(5) Amount represents temporary changes in fair value. Amortization, accretion and OTTI are not considered unrealized and are not included in

this amount.

(6) Gains (losses) are included in ÇFair value gains (losses), netÉ in our condensed consolidated statements of operations and comprehensive

income.

(7) Gains (losses) are included in ÇNet interest incomeÉ in our condensed consolidated statements of operations and comprehensive income.

(8) 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) First Quarter 2019 Form 10-Q 86
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 March 31, 2019

Fair

Value

Significant

Valuation

Techniques

Significant

Unobservable Inputs

(1) Range(1)

Weighted -

Average(1)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(2) $ 67 Various

Available-for-sale securities:

Mortgage-related securities:

Agency(2) $ 105 Consensus

94 Various

Total agency 199

Alt-A and subprime private-label

securities 23 Various

Mortgage revenue bonds 304 Single Vendor Spreads (bps) 16.0 - 265.2 71.2

121 Various

Total mortgage revenue bonds 425

Other 289

Discounted Cash

Flow Default Rate (%) 4.1 4.1

Prepayment Speed (%) 4.6 4.6

Severity (%) 95.0 95.0

Spreads (bps) 68.2 - 290.0 289.4

48 Various

Total other 337

Total available-for-sale securities $ 984

Net derivatives $ 132 Dealer Mark

71 Various

Total net derivatives $ 203

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 87
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(2) $ 32 Various

Private-label securities and other mortgage

securities 1 Various

Total trading securities $ 33

Available-for-sale securities:

Mortgage-related securities:

Agency(2) $ 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.

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 March

31, 2019 or December 31, 2018 that were measured at fair value on a nonrecurring basis. We held $946 million and $91

million in Level 2 assets, comprised of mortgage loans held for sale, and no Level 2 liabilities that were measured at fair value

on a nonrecurring basis as of March 31, 2019 and December 31, 2018, respectively.

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 88
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

March 31,

2019

December 31,

2018

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair value Consensus $ 1,487 $ 631

Single Vendor 828 1,119

Various 1 Ñ

Total mortgage loans held for sale, at lower of cost or fair value 2,316 1,750

Single-family mortgage loans held for investment, at amortized cost Internal Model 609 818

Multifamily mortgage loans held for investment, at amortized cost

Asset Manager

Estimate 153 102

Various 10 40

Total multifamily mortgage loans held for investment, at amortized

cost

163 142

Acquired property, net:(1)

Single-family Accepted Offers 153 151

Appraisals 346 419

Walk Forwards 158 181

Internal Model 147 219

Various 37 41

Total single-family 841 1,011

Multifamily Various 5 50

Other assets Various Ñ Ñ

Total nonrecurring assets at fair value $ 3,934 $ 3,771

(1) The most commonly used techniques in our valuation of acquired property are proprietary home price model and third-party valuations

(both current and walk forward). Based on the number of properties measured as of March 31, 2019, these methodologies comprised

approximately 78% of our valuations, while accepted offers comprised approximately 18% 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 three months ended March 31, 2019. 

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 89
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 March 31, 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 $ 52,241 $ 34,641 $ 17,600 $ Ñ $ Ñ $ 52,241

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements 22,250 Ñ 22,250 Ñ Ñ 22,250

Trading securities 40,899 35,020 5,812 67 Ñ 40,899

Available-for-sale securities 3,214 Ñ 2,230 984 Ñ 3,214

Mortgage loans held for sale 10,066 Ñ 2,729 7,931 Ñ 10,660

Mortgage loans held for investment, net

of allowance for loan losses 3,249,699 Ñ 2,982,238 275,207 Ñ 3,257,445

Advances to lenders 4,246 Ñ 4,244 2 Ñ 4,246

Derivative assets at fair value 584 Ñ 2,129 236 (1,781) 584

Guaranty assets and buy-ups 159 Ñ Ñ 370 Ñ 370

Total financial assets $ 3,383,358 $ 69,661 $ 3,039,232 $ 284,797 $ (1,781) $ 3,391,909

Financial liabilities:

Short-term debt:

Of Fannie Mae $ 23,071 $ Ñ $ 23,078 $ Ñ $ Ñ $ 23,078

Long-term debt:

Of Fannie Mae 198,167 Ñ 204,060 813 Ñ 204,873

Of consolidated trusts 3,173,772 Ñ 3,118,819 43,205 Ñ 3,162,024

Derivative liabilities at fair value 793 Ñ 2,886 33 (2,126) 793

Guaranty obligations 170 Ñ Ñ 107 Ñ 107

Total financial liabilities $ 3,395,973 $ Ñ $ 3,348,843 $ 44,158 $ (2,126) $ 3,390,875

Notes to Condensed Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) First Quarter 2019 Form 10-Q 90
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) First Quarter 2019 Form 10-Q 91

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

March 31, 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 $ 8,752 $ 6,682 $ 23,050 $ 8,922 $ 6,826 $ 23,753

Unpaid principal balance 8,578 6,050 21,216 8,832 6,241 22,080

(1) Includes nonaccrual loans with a fair value of $145 million and $161 million as of March 31, 2019 and December 31, 2018, respectively.

The difference between unpaid principal balance and the fair value of these nonaccrual loans as of March 31, 2019 and December 31,

2018 was $16 million and $19 million, respectively. Includes loans that are 90 days or more past due with a fair value of $95 million and

$102 million as of March 31, 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 March 31, 2019 and December 31, 2018 was $12 million and $14 million,

respectively.

Changes in Fair Value under the Fair Value Option Election

We recorded gains of $113 million and losses of $149 million for the three months ended March 31, 2019 and March 31, 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 $330 million and gains of $254 million for the three months ended March 31, 2019 and March 31, 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) First Quarter 2019 Form 10-Q 92

14.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 three 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 21, 2018, a pro se plaintiff in a third non-class action case, Angel v. Federal Home Loan Mortgage Corporation, filed a

complaint for declaratory relief and compensatory damages against Fannie Mae (including certain members of its Board of

Directors), Freddie Mac (including certain members of its Board of Directors) and FHFA, as conservator. Plaintiff in that case

asserts claims for breach of contract, breach of implied covenants of good faith and fair dealing, and aiding and abetting the

federal government in avoiding an alleged implicit guarantee of dividend payments. 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.

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) First Quarter 2019 Form 10-Q 93
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 First Quarter 2019 Form 10-Q 94

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 March 31,

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 March 31, 2019 or as of the date of filing this report. 

Our disclosure controls and procedures were not effective as of March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 2019 (ÇFirst Quarter 2019 FormÄ10-QÉ), and engaged in discussions

regarding issues associated with the information contained in those filings. Prior to filing our First Quarter 2019

FormÄ10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the First

Quarter 2019 FormÄ10-Q, and it was not aware of any material misstatements or omissions in the First Quarter 2019

FormÄ10-Q and had no objection to our filing the First 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 DecemberÄ31, 2018 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 various financial system applications in stages across the

company. As we continue to implement these financial system applications, each implementation may become a significant

component of our internal control over financial reporting.

Common Securitization Platform

We expect that by June 2019 we will begin using the common securitization platform we have developed in conjunction with

FHFA, Freddie Mac and CSS to perform certain aspects of the securitization process and we will begin issuing UMBS. The

use of the common securitization platform will represent a significant change to our control environment and require us to rely

on CSS for effective controls related to the issuance of UMBS and other securities we issue using the platform. In connection

with this transition of activities to CSS, we will modify certain of our accounting and financial reporting processes, including

replacing or redesigning existing internal controls over financial reporting that were previously considered effective with new or

Controls and Procedures

Fannie Mae First Quarter 2019 Form 10-Q 95
enhanced controls. We are monitoring and testing these new and enhanced controls for adequate design and operating

effectiveness. We continued to use our legacy securitization processes and related controls in preparing our first quarter 2019

condensed consolidated financial statements included in this report.

Controls and Procedures

Fannie Mae First Quarter 2019 Form 10-Q 96
PARTÅIIÄOTHER INFORMATION

Other Information

Fannie Mae First Quarter 2019 Form 10-Q 97

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. We also provide information regarding material legal proceedings in ÇNote 14,

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 DecemberÄ31, 2018 are as follows:

District of Columbia. Fannie Mae is a defendant in four cases pending in the U.S. District Court for the District of ColumbiaÑa

consolidated putative class action and three additional cases. On September 28, 2018, the court dismissed all of the plaintiffsÖ

claims in three of these cases (including the consolidated class action), except for their claims for breach of an implied

covenant of good faith and fair dealing. In the fourth case, which was filed on May 21, 2018, 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. All four cases are described in ÇNote 14, 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 July

16, 2018, the U.S Court of Appeals for the Fifth Circuit affirmed the dismissal, and on November 15, 2018 the Fifth Circuit

granted plaintiffsÖ and FHFAÖs petitions for rehearing en banc. 

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.

Other Information

Fannie Mae First Quarter 2019 Form 10-Q 98

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. Also refer to ÇMD&AÑRisk

ManagementÉ in this report and in our 2018 FormÄ10-K and ÇMD&AÑSingle-Family BusinessÉ and ÇMD&AÑMultifamily

BusinessÉ in our 2018 Form 10-K for more detailed descriptions of the primary risks to our business and how we seek to

manage those risks.

The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity and net

worth, and could cause our actual results to differ materially from our past results or the results contemplated by 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. 

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 of our company under conservatorship. For example, under the Equity in Government Compensation Act of

2015, the annual direct compensation payable to our chief executive officer is limited to no more than $600,000 while we are in

conservatorship or receivership, and the STOCK Act prohibits our senior executives from receiving bonuses during any period

of conservatorship. In April 2019, legislation was introduced in the U.S. Senate that would prohibit either GSE from transferring

or delegating any duty or responsibility of its chief executive officer, as of November 25, 2015, 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 a GSE at a level greater than that permitted under the Equity in Government Compensation Act of

2015. Additionally, we are unable 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 congressional action with respect to housing finance reform,

which may result in the wind-down 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 within the financial services industry and from businesses outside of the financial services industry

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.

The Single Security Initiative has had and may continue to have an adverse effect on the liquidity or market value of

our MBS. The Single Security Initiative also increases our counterparty credit risk and operational risk.

In 2014, FHFA directed Fannie Mae and Freddie Mac to develop a single common mortgage-backed security that will be

fungible with then-outstanding Fannie Mae guaranteed mortgage pass-through certificates and that will be exchangeable by

Freddie Mac for then-outstanding Freddie Mac PCs. FHFAÖs Single Security Initiative is intended to maximize liquidity for both

Fannie Mae and Freddie Mac mortgage-backed securities in the TBA market. In March 2018, FHFA announced that Fannie

Mae and Freddie Mac will start issuing UMBS in place of their current offerings of TBA-eligible mortgage-backed securities on
June 3, 2019. The new UMBS will be issued by Fannie Mae and Freddie Mac through their joint venture, CSS, using a

common securitization platform, or ÇCSP.É 

Historically, Fannie Mae MBS had a trading advantage over comparable Freddie Mac PCs. One of FHFAÖs stated objectives

for the Single Security Initiative is to reduce the costs to Freddie Mac and taxpayers that result from differences in liquidity of

Fannie Mae MBS and Freddie Mac PCs. In the last couple of years, as the implementation date of the Single Security Initiative

has drawn closer, Fannie Mae MBS and comparable Freddie Mac PCs have been trading at or near parity, and in some

instances Freddie Mac PCs have had a trading advantage, which has imposed costs on us in the form of downward

adjustments to our guaranty fee pricing. In addition to the loss of this trading advantage, uncertainty in connection with the

implementation and overall impact of the Single Security Initiative 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. The industry has expressed

concerns that Fannie Mae and Freddie Mac UMBS may not be truly fungible. FHFA, as conservator, has previously responded

to industry input by imposing alignment mandates on Fannie Mae and Freddie Mac, and, most recently, adopted a rule to align

Fannie Mae and Freddie Mac programs, policies and practices that affect the prepayment rates of TBA-eligible MBS. If

investors do not accept the fungibility of Fannie Mae and Freddie Mac UMBS, or if investors prefer Freddie Mac UMBS over

Fannie Mae UMBS, it could have a significant adverse impact on our business, liquidity, financial condition, net worth and

results of operations, and could adversely affect the liquidity or market value of Fannie Mae MBS. Furthermore, if we are no

longer in conservatorship, it is unclear whether we may continue to align our program, policies and practices with those of

Freddie Mac in support of UMBS. 

The Single Security Initiative will also result in increased credit exposure and operational exposure to Freddie Mac. Once the

initiative is implemented, investors will be able to commingle Fannie Mae UMBS and Freddie Mac UMBS in resecuritizations.

At this time, we do not know how much Freddie Mac UMBS we will ultimately guarantee as a result. When we resecuritize

Freddie Mac UMBS, our guaranty of principal and interest would extend to the underlying Freddie Mac UMBS. In addition, and

as a result of operational changes in connection with the Single Security Initiative, in the event Freddie Mac were to fail (for

credit or operational reasons) to make a payment on a payment date on Freddie Mac UMBS that we resecuritized, we would

be responsible for making the entire payment on the resecuritized Freddie Mac UMBS in order for that security to be paid, and

for any of our outstanding Fannie Mae MBS to be paid on that payment date. We do not anticipate that our pricing will reflect

any incremental credit, liquidity or operational risk associated with our guaranty of resecuritized Freddie Mac UMBS. As a

result, we could be dependent on Freddie Mac and on the senior preferred stock purchase agreements that we and Freddie

Mac each have with Treasury to avoid a liquidity event or a default under our guaranty.

Once we begin issuing UMBS, we plan to begin using CSS and the CSP to perform certain operational functions associated

with issuing and managing MBS on our behalf. Accordingly, we will be reliant on CSS and the CSP for the operation of many of

our securitization activities. Our business activities could be adversely affected and the market for Fannie Mae MBS could be

disrupted if the CSP were to fail or otherwise become unavailable to us or if CSS were unable to perform its obligations to us.

Any such failure or unavailability could have a significant adverse impact on our business, liquidity, financial condition, net

worth and results of operations, and could adversely affect the liquidity or market value of our MBS. 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 ÇOur concurrent implementation of multiple new initiatives may increase our operational risk and

result in one or more material weaknesses in our internal control over financial reportingÉ in 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.

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. Global economic conditions

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. We describe above the risks to our business posed by changes in interest rates and changes in spreads. In

addition, as described above, 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.

Other Information

Fannie Mae First Quarter 2019 Form 10-Q 99
A decline in activity in the U.S.Ähousing 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 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.

The continued run-off of mortgage-backed securities from the Federal ReserveÅs 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. The Federal Reserve began to taper these purchases in January 2014 and concluded its asset

purchase program in October 2014. From October 2014 through September 2017, the Federal Reserve maintained a policy of

reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgagebacked securities; therefore, it continued to purchase a significant amount of agency mortgage-backed securities. In October

2017, the Federal Reserve initiated a balance sheet normalization program. Under this program, the Federal ReserveÖs

securities holdings have been gradually reduced by decreasing reinvestment of principal payments from those securities. In

March 2019, the Federal Reserve announced a plan to end the runoff of its $4 trillion portfolio, which began in October 2017.

Starting in May 2019, the Federal Reserve will slow the runoff of assets and cease the reduction entirely by the end of

September 2019. After that, however, the Federal ReserveÖs holdings of mortgage-backed securities will continue to decline as

the Federal Reserve will invest proceeds from mortgage-backed securities in Treasury securities. The Federal ReserveÖs

balance sheet normalization program likely contributed to increases in mortgage interest rates, which reduced acquisition

volume. The continued run-off of mortgage-backed securities could adversely affect 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 GSE from transferring or delegating any duty or responsibility of its

chief executive officer, as of November 25, 2015, 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 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. 

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 Legal challenges relating to MERSCORP Holdings, Inc. and the MERSä System (an electronic registry widely used

to track servicing rights and ownership of loans in the United States), which could negatively affect our ability to use

the MERS System and adversely affect our ability to enforce our rights with respect to the large portion of our loans

that are registered and tracked in the MERS System. These challenges could result in court decisions that increase

the costs and time it takes to record loans or foreclose on loans.

In addition, as described above, 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.

Other Information

Fannie Mae First Quarter 2019 Form 10-Q 100
Item 2.ÅÅUnregistered Sales of Equity Securities and Use of

Proceeds

Recent Sales of Unregistered Securities

Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or issuing our

equity interests, other than as required by (and pursuant to) the terms of a binding agreement in effect on September 7, 2008,

without the prior written consent of Treasury. During the quarter ended MarchÄ31, 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 first 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 $3.0 billion. As a result, our net income is not available to common stockholders. For more information on the

terms of the senior preferred stock purchase agreement and senior preferred stock, see ÇBusinessÑConservatorship,

Treasury Agreements and Housing Finance ReformÉ in our 2018 Form 10-K.

Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to the prior

payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all outstanding preferred

stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred stock. 

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends,

if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of the Director of

FHFA is required for any dividend payment. Under the Charter Act and the GSE Act, we are not permitted to make a capital

distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may permit us to

Other Information

Fannie Mae First Quarter 2019 Form 10-Q 101
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 First Quarter 2019 Form 10-Q 102

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 May 24, 2018 (Incorporated by

reference to Exhibit 3.1 to Fannie MaeÖs Quarterly Report on Form 10-Q (Commission file number

000-50231) for the quarter ended June 30, 2018, filed August 2, 2018.)

3.2 Fannie Mae Bylaws, as amended through January 29, 2019 (Incorporated by reference to ExhibitÄ3.2 to

Fannie MaeÖs Annual Report on FormÄ10-K (Commission file number 000-50231) for the year ended

December 31, 2018, filed February 14, 2019.)

10.1 Form of Relocation Repayment Agreement for Officers of Fannie Mae

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 XBRL Instance Document* - the instance document does not appear in the Interactive Data File because its

XBRL tags are embedded within the Inline XBRL document

101. SCH XBRL Taxonomy Extension Schema*

101. CAL XBRL Taxonomy Extension Calculation*

101. DEF XBRL Taxonomy Extension Definition*

101. LAB XBRL Taxonomy Extension Label*

101. PRE XBRL Taxonomy Extension Presentation*

* The financial information contained in these XBRL documents is unaudited.
SIGNATURES

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: MayÄ1, 2019

By: /s/ Celeste M. Brown

Celeste M. Brown

Executive Vice President and

Chief Financial Officer

Date: MayÄ1, 2019

Signatures

Fannie Mae First Quarter 2019 Form 10-Q 103