UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Ä ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DecemberÄ31, 2019

OR

Å TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from

Commission file number: 0-50231

Federal National Mortgage Association 

(Exact name of registrant as specified in its charter) 

Fannie Mae

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

Washington, DC 20005

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

(Address of principal executive

offices, including zip code)

(RegistrantÄs telephone number,

including area code)

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

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

None N/A N/A

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

Common Stock, without par value

8.25% Non-Cumulative Preferred Stock, SeriesÄT, stated value $25 per share

8.75% Non-Cumulative Mandatory Convertible Preferred Stock, SeriesÄ2008-1, stated value $50 per share

Fixed-to-Floating Rate Non-Cumulative Preferred Stock, SeriesÄS, stated value $25 per share

7.625% Non-Cumulative Preferred Stock, SeriesÄR, stated value $25 per share

6.75% Non-Cumulative Preferred Stock, SeriesÄQ, stated value $25 per share

Variable Rate Non-Cumulative Preferred Stock, SeriesÄP, stated value $25 per share

Variable Rate Non-Cumulative Preferred Stock, SeriesÄO, stated value $50 per share

5.375% Non-Cumulative Convertible SeriesÄ2004-1 Preferred Stock, stated value $100,000 per share

5.50% Non-Cumulative Preferred Stock, SeriesÄN, stated value $50 per share

4.75% Non-Cumulative Preferred Stock, SeriesÄM, stated value $50 per share

5.125% Non-Cumulative Preferred Stock, SeriesÄL, stated value $50 per share

5.375% Non-Cumulative Preferred Stock, SeriesÄI, stated value $50 per share

5.81% Non-Cumulative Preferred Stock, SeriesÄH, stated value $50 per share

Variable Rate Non-Cumulative Preferred Stock, SeriesÄG, stated value $50 per share

Variable Rate Non-Cumulative Preferred Stock, SeriesÄF, stated value $50 per share

5.10% Non-Cumulative Preferred Stock, SeriesÄE, stated value $50 per share

5.25% Non-Cumulative Preferred Stock, SeriesÄD, stated value $50 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in RuleÄ405 of the Securities Act.ÄÄÄÄYesÄÄÄÄÄÄÄÄÄNoÄÄÅ

Indicate by check mark if the registrant is not required to file reports pursuant to SectionÄ13 or 15(d) of the Act.ÄÄÄÄYesÄÄÄÄÄÄÄÄÄÄÄNoÄÄÅ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the

past 90 days.ÄÄYes ÅÄÄÄÄÄNoÄÄ

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T (Å 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).ÄÄYes ÅÄÄÄÄÄNoÄÄ

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

growth company. See the definitions of Çlarge accelerated filer,É Çaccelerated filer,É Çsmaller reporting company,É and Çemerging growth companyÉ in Rule 12b-2 of

the Exchange Act. 

Large accelerated filer Ä Accelerated filer Å

Non-accelerated filer Å Smaller reporting company Å

Emerging growth company Å

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or

revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Äo

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

The aggregate market value of the common stock held by non-affiliates of the registrant computed by reference to the last reported sale price of the common stock

quoted on the OTCQB, operated by OTC Markets Group, Inc., on June 28, 2019 (the last business day of the registrantÑs most recently completed second fiscal

quarter) was approximately $3.1 billion.

As of JanuaryÄ31, 2020, there were 1,158,087,567 shares of common stock of the registrant outstanding.
Table of Contents

Page

PARTÄI

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

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

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

Managing Mortgage Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Mortgage Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Conservatorship, Treasury Agreements and Housing Finance Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Charter Act and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Where You Can Find Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Item 1A. Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

PARTÄII

ItemÄ5. Market for RegistrantÑs Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

ItemÄ6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Item 7. ManagementÑs Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 50

Key Market Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Consolidated Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Retained Mortgage Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Guaranty Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Business Segments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Single-Family Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Multifamily Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Liquidity and Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Impact of Future Adoption of New Accounting Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Glossary of Terms Used in This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Item 7A. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . 134

Item 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Item 9B. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

PARTÄIII

Item 10. Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Fannie Mae 2019 Form 10-K i
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Compensation Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Compensation Tables and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . 176

Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . 177

Policies and Procedures Relating to Transactions with Related Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Transactions with Related Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

PARTÄIV

Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

Fannie Mae 2019 Form 10-K ii
PARTÄI

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. The U.S.ÄDepartment of the Treasury (ÇTreasuryÉ) released a plan in September 2019 for housing

finance reform (the ÇTreasury planÉ) that includes recommendations related to ending our conservatorship, and FHFA has

established 2020 performance objectives for us that include preparing for our eventual exit from conservatorship.

Congress and the Administration continue to consider options for reform of the housing finance system, including Fannie

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

stockholders other than Treasury. Our agreements with Treasury include covenants that significantly restrict our business

activities. For additional information on the conservatorship, the uncertainty of our future, our agreements with Treasury,

and recent developments relating to housing finance reform, see ÇConservatorship, Treasury Agreements and Housing

Finance Reform,É ÇCharter Act and RegulationÉ and ÇRisk Factors.É

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 ÅBusinessÇForward-Looking Statements.É 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 FactorsÉ and elsewhere in this report. 

You can find a ÅGlossary of Terms Used in This ReportÉ in ÅManagementÄs Discussion and Analysis of Financial Condition and

Results of Operations (ÑMD&AÄ).É 

Business | Introduction

Fannie Mae 2019 Form 10-K 1

Item 1.ÄÄBusiness

Introduction

Fannie Mae is a leading source of financing for mortgages in the United States. Our earnings are primarily driven by guaranty

fees we receive for managing the credit risk on mortgage-backed securities we issue. Our mission is to provide a stable

source of liquidity to support housing in the U.S. for low- and moderate-income borrowers and renters. 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. Through our singlefamily and multifamily business segments, we provided over $650 billion in liquidity to the mortgage market in 2019, which

enabled the financing of approximately 3 million home purchases, refinancings or rental units.

Fannie Mae Provided Over $650 billion in Liquidity in 2019

Unpaid Principal Balance Units

$313B 1.2M

Single-Family Home Purchases

$283B 1.1M

Single-Family Refinancings

$70B 726K

Multifamily Rental Units
Executive Summary

Please read this Executive Summary together with our MD&A and our consolidated financial statements as of December 31,

2019 and the accompanying notes.

Business | Executive Summary

Fannie Mae 2019 Form 10-K 2

Summary of Our Financial Performance

Consolidated Results

(Dollars in billions)

Net revenues Net income Comprehensive income

2017 2018 2019

$23.0

$21.9 $22.1

$2.5

$16.0

$14.2

$2.3

$15.6

$14.0

2017 vs. 2018 2018 vs. 2019

The increase in our net income in 2018 compared

with 2017 was primarily driven by a reduction in our

provision for federal income taxes in 2018 due to:

Ö a one-time tax charge recorded in 2017 for

federal income taxes in the amount of $9.9

billion; and 

Ö the lower corporate tax rate in effect for

2018 as a result of the Tax Cuts and Jobs

Act (the ÇTax ActÉ).

The decrease in our net income in 2019 compared

with 2018 was primarily driven by a shift from fair

value gains in 2018 to fair value losses in 2019 as a

result of decreasing interest rates throughout most of

2019.

See ÇMD&AÜConsolidated Results of OperationsÉ for more information on our financial results.

Net worth. Our net worth was $14.6 billion as of December 31, 2019. 

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

Ö the size of the GSEsÑ share 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; 

Ö borrower performance and interest rate movements; and

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

capital requirements that will be applicable to us, our ongoing financial obligations to Treasury, potential restrictions

on our activities and our business footprint, and our competitive environment.
Quarterly fluctuations in acquisition volumes, market share, guaranty fees, or acquisition credit characteristics in any one

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

profitability, and credit quality.

Business | Executive Summary

Fannie Mae 2019 Form 10-K 3

Net Worth, Treasury Funding and Senior Preferred Stock Dividends 

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

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

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

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

Under the terms of the senior preferred stock, effective with the third quarter 2019 dividend period, we will not owe dividends

to Treasury until we have accumulated over $25 billion in net worth as of the end of a quarter. Accordingly, no dividends were

payable to Treasury for the fourth quarter of 2019, and none are payable for the first quarter of 2020. Changes in our net worth

can be significantly impacted by market conditions that affect our net interest income; fluctuations in the estimated fair value of

our derivatives and other financial instruments that we mark to market through our earnings; developments that affect our loss

reserves such as changes in interest rates, home prices or accounting standards, or events such as natural disasters; and

other factors, as we discuss in ÇRisk FactorsÉ and ÇMD&AÜConsolidated Results of Operations.É

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

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

Net worth

Remaining Treasury funding commitment

Net Worth and Treasury Funding

Commitment

(Dollars in billions)

As of December 31, 2019

$14.6

$113.9

Cumulative dividend payments to

Treasuryá

Cumulative draws from Treasuryà

Dividend Payments and Draws

(Dollars in billions)

As of December 31, 2019

$181.4

$119.8

(1) Aggregate amount of dividends we have paid to Treasury on the senior preferred stock from 2008 through December 31, 2019. Under the

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

Treasury.

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

December 31, 2019.

The aggregate liquidation preference of the senior preferred stock increased from $127.2 billion as of September 30, 2019 to

$131.2 billion as of December 31, 2019 due to the increase in our net worth during the third quarter of 2019. The aggregate

liquidation preference of the senior preferred stock will further increase to $135.4 billion as of March 31, 2020 due to the

increase in our net worth during the fourth quarter of 2019. 

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

ÇConservatorship, Treasury Agreements and Housing Finance Reform.É

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

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

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

Our vision is to be AmericaÑs most valued housing partner and to provide liquidity, access to credit and affordability in all U.S.

housing markets at all times, while effectively managing risk. 

Planning for Changing Market and Regulatory Conditions 

We adopted, and FHFA approved, a new strategic plan in early 2020 in light of changing regulatory and market conditions. In

September 2019, Treasury released its plan for housing finance reform, which includes recommendations related to ending

our conservatorship, and in October 2019 FHFA released 2020 performance objectives for Fannie Mae and Freddie Mac (the

Çgovernment-sponsored enterprisesÉ or ÇGSEsÉ) that include preparing for our eventual exit from conservatorship. The

Treasury plan contains a number of recommendations that could significantly affect our competitive environment. FHFAÑs

performance objectives include focusing on our core mission responsibilities to foster competitive, liquid, efficient, and resilient

national housing finance markets that support sustainable homeownership and affordable rental housing. Our strategic

objectives are designed to ensure we are ready for the market and regulatory changes we anticipate: 

Ö an eventual exit from conservatorship;

Ö a more competitive landscape, in which competition could come from both traditional parties and firms using new

technological approaches; and 

Ö the need to attract private investment capital as a full participant in the global capital markets.

We discuss the Treasury plan and FHFAÑs objectives more fully in ÇConservatorship, Treasury Agreements and Housing

Finance ReformÜHousing Finance Reform.É

Our Strategic Objectives 

Our new strategic plan contains three objectives: 

Ö Ensure that we are a return-oriented company that is able to attract private capital while managing risk to the

company and the housing finance system.

Ö Increase operational agility and accelerate our digital transformation to deliver more value to our customers and to

the broader housing finance system.

Ö Build on our mission-oriented activities to become a globally-recognized, top-performing ESG (environmental, social

and governance) financial services company by delivering positive mission and community outcomes with our

stakeholders.

Accomplishments under our Recently Completed Strategic Plan

Our pursuit of our new strategic objectives will build on our accomplishments in pursuing our prior strategic priorities:

Ö advancing a sustainable and reliable business model with low risk to the housing finance system and taxpayers;

Ö providing great service to our customers and partners, enabling them to serve the needs of American households

more effectively;

Ö supporting and sustainably increasing access to credit and affordable housing; and

Ö building a simple, efficient, innovative and continuously improving company.

Our pursuit of these objectives improved our operations and our relationship with our customers, and helped to position us to

compete effectively in a diverse and rapidly changing housing finance market. 

Advancing a sustainable and reliable business model with low risk to the housing finance system and

taxpayers

We significantly changed our business model over the last decade in ways that reduced risks for the housing system and

taxpayers. We strengthened our underwriting and eligibility standards, developed innovative credit risk transfer programs, and

transitioned from a portfolio-driven business to a guaranty-driven business.

Business | Executive Summary

Fannie Mae 2019 Form 10-K 4
Over the last decade, our strong underwriting and eligibility standards significantly improved the credit quality of our singlefamily guaranty book of business and, combined with improvement in the overall economy, including strong home price

growth, drove substantial improvement in our single-family credit performance. Our single-family serious delinquency rate

decreased in 2019, primarily driven by improved loan payment performance and nonperforming loan sales. With the exception

of 2017, which was marked by several major hurricanes, our single-family serious delinquency rate has decreased in each of

the last ten years.

Single-Family Serious Delinquency Rate1

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

5.38%

4.48%

3.91%

3.29%

2.38%

1.89%

1.55%

1.20% 1.24%

0.76% 0.66%

(1) Calculated as of December 31 for each year shown, based on the number of single-family conventional loans that are 90 days or more

past due and loans that have been referred to foreclosure but not yet foreclosed upon, divided by the number of loans in our single-family

conventional guaranty book of business. 

In pursuit of advancing our sustainable and reliable business model, we developed new risk-sharing capabilities to transfer

portions of our mortgage credit risk to the private market, which we discuss in ÇManaging Mortgage Credit Risk,É ÇMD&AÜ

Single-Family BusinessÜSingle-Family Mortgage Credit Risk ManagementÉ and ÇMD&AÜMultifamily BusinessÜMultifamily

Mortgage Credit Risk Management.É We also worked on significant innovations to our securitization operations and business

in connection with the development and issuance of single-family uniform mortgage-backed securities, or ÇUMBSâÉ, and the

launch of the common securitization platform, which we discuss in ÇMortgage Securitizations.É

Providing great service to our customers and partners, enabling them to serve the needs of American

households more effectively

We achieve our mission through our customers. Responding to and anticipating the changing needs of our mortgage lender

and servicer customers and our investors with products, services and tools that offer greater speed, efficiency and

effectiveness is a core part of our strategy. In 2019, we continued to make improvements to our business processes and

policies to serve our customers better and enhance the value they can deliver to borrowers. We continue to work towards our

goal of a digital mortgage process that meaningfully reduces the time, cost and risk of originating and servicing mortgage

loans. In addition to providing value to our customers, we believe these improvements will encourage lenders to safely expand

their lending to a wider range of qualified borrowers. We also continue to work on enhancing our customersÑ day-to-day

experience in doing business with us.

Supporting and sustainably increasing access to credit and affordable housing

We have a mission to provide liquidity and promote stability and affordability in the residential mortgage market. This mission

includes promoting access to mortgage credit throughout the nation. We focus on supporting sustainable access to credit and

affordable housing, within our risk tolerance. In recent years, market forces have contributed to an overall decline in the supply

of affordable housing for both single-family homes and multifamily rental housing. We are working on multiple fronts to help

address housing affordability issues. Our work includes serving underserved markets through our duty to serve plan, which

incorporates solutions to expand our reach into three underserved markets: manufactured housing; affordable housing

preservation; and rural housing. We also support housing affordability through our purchases of loans to meet our single-family

Business | Executive Summary

Fannie Mae 2019 Form 10-K 5
and multifamily housing goals and our Multifamily businessÑs continued investments in low income housing tax credit (ÇLIHTCÉ)

projects. See ÇCharter Act and RegulationÜCharter ActÉ for more information about our mission.

Building a simple, efficient, innovative and continuously improving company

With the goal of making Fannie Mae more competitive and responsive to changing market conditions and customer

expectations, we continue to work on internal, multiyear initiatives to make our organization simpler, more efficient and more

innovative. For example, we made significant progress in 2019 on a number of strategic projects to improve our technology

infrastructure, including projects aimed at simplifying the customer experience and improving our data infrastructure. We also

continued to implement plans designed to improve the effectiveness of our organization, including continuing to increase the

percentage of our workforce using lean and agile management principles and techniques. 

Business | Executive Summary

Fannie Mae 2019 Form 10-K 6

Managing Mortgage Credit Risk

We facilitate the flow of global capital into the U.S. mortgage market by assuming and managing credit risk. Accordingly,

effective credit risk management is a key component of our overall operations. Our single-family and multifamily businesses

have built a comprehensive approach to credit risk management with end-to-end processes.

Our single-family credit risk management strategy includes acquisition and servicing policies, underwriting and servicing

standards, portfolio diversification and monitoring, problem loan and real estate owned (ÇREOÉ) management, and the transfer

of credit risk through credit enhancements including credit risk transfer transactions.

The Federal National Mortgage Association Charter Act, which we refer to as the Charter Act or our charter, requires that we

obtain credit enhancements on our single-family conventional mortgage loans that have loan-to-value (ÇLTVÉ) ratios over 80%

when we acquire them. We use several types of credit enhancements, including primary mortgage insurance, pool mortgage

insurance and credit risk transfer transactions. We refer to our credit enhancements that we obtain at the time we acquire a

loan as Çfront-endÉ enhancements, and those we obtain after acquiring a loan as Çback-endÉ enhancements. 

In our back-end risk transfer transactions, we use risk-sharing capabilities we have developed to obtain credit enhancement by

transferring portions of our single-family and multifamily mortgage credit risk on reference pools of mortgage loans to the

private market. In most of our credit risk transfer transactions, investors receive payments, which effectively reduce the

guaranty fee income we retain on the loans. In exchange for these payments, our credit risk transfer transactions are designed

to transfer to the investors a portion of the losses we expect would be incurred in an economic downturn or a stressed credit

environment. Our more recent credit risk transfer transactions have been designed to transfer a greater share of this risk. 

We enter into credit risk transfer transactions when it is economically advantageous for us to do so. Because they reduce our

credit risk, our credit risk transfer transactions and other credit enhancements also help us manage our capital. Because loans

are generally included in back-end credit risk transfer transactions on a lagged basis, we measure the impact of our 2019

credit risk transfer activity by how much it reduced our capital requirements on loans we acquired in 2018. Our single-family

credit risk transfer transactions and primary mortgage insurance coverage through December 31, 2019 reduced our

conservatorship capital requirement for the single-family loans we acquired in 2018 that were covered by these credit

enhancements by over 80%. Our multifamily back-end credit risk transfer transactions and lender risk-sharing through

December 31, 2019 reduced our conservatorship capital requirement for our 2018 multifamily business acquisitions by over

70%. SeeÄÇCharter Act and RegulationÜGSE Act and Other LegislationÉ for more information on the conservatorship capital

framework.

The chart below displays the percentage of loans in our single-family guaranty book of business, measured by unpaid principal

balance, that are covered by one or more forms of credit enhancement, including mortgage insurance or a credit risk transfer

transaction, including transactions under our Connecticut Avenue Securitiesâ (ÇCASÉ) program and our Credit Insurance Risk

TransferTM (ÇCIRTTMÉ) program. 

Single-Family Guaranty Book of Business with Credit Enhancement

12/31/17 12/31/18 12/31/19

40%

47%

53%
We provide more information about loans in our single-family guaranty book of business that are currently without credit

enhancement and about our single-family credit enhancement programs in ÇMD&AÜSingle-Family BusinessÜSingle-Family

Mortgage Credit Risk Management.É We will continue transferring credit risk to investors in 2020 and future years, subject to

market conditions and our ability to obtain economically advantageous terms.

Our Multifamily business uses a shared-risk business model that distributes credit risk to the private markets, primarily through

our Delegated Underwriting and Servicing (ÇDUSâÉ) program, which was initiated in 1988. Under DUS, we delegate to lenders

the ability to underwrite multifamily loans in accordance with our standards and requirements, and our DUS lenders typically

share with us approximately one-third of the credit risk on these loans, aligning the interests of lenders and Fannie Mae from

day one. The lender risk-sharing we obtain through our DUS program accompanies our multifamily loans at the time we

acquire them. To complement this front-end lender-risk sharing, we also engage in back-end credit risk transfer transactions

through our multifamily CIRT and Multifamily Connecticut Avenue Securitiesä (ÇMCASÉ) transactions. As of December 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. In addition, the percentage of loans in our multifamily guaranty book of business that were covered by a

back-end credit risk transfer transaction increased from 12% as of December 31, 2018 to 25% as of December 31, 2019. 

See ÇMD&AÜMultifamily BusinessÜMultifamily Mortgage Credit Risk ManagementÉ for more information on how we manage

credit risk in our multifamily guaranty book of business. 

Business | Managing Mortgage Credit Risk

Fannie Mae 2019 Form 10-K 7

Mortgage Securitizations

We support market liquidity by issuing Fannie Mae MBS that are readily traded in the capital markets. We create Fannie Mae

MBS by placing mortgage loans in a trust and issuing securities that are backed by those mortgage loans. Monthly payments

received on the loans are the primary source of payments passed through to Fannie Mae MBS holders.ÄWe guarantee to the

MBS trust that we will supplement amounts received by the MBS trust as required to permit timely payment of principal and

interest on the trust certificates.ÄIn return for this guaranty, we receive guaranty fees.

Below we discuss (1)Äthe three broad categories of our securitization transactions; (2)Äfeatures of our MBS trusts; (3)Äsingleclass and multi-class Fannie Mae MBS and (4) UMBS.

Securitization Transactions

We currently securitize a substantial majority of the single-family and multifamily mortgage loans we acquire. Our securitization

transactions primarily fall within three broad categories: lender swap transactions, portfolio securitizations, and structured

securitizations.

Lender Swap Transactions

Our most common type of securitization transaction is our Çlender swap transaction.É In a single-family lender swap

transaction, a mortgage lender that operates in the primary mortgage market generally delivers a pool of mortgage loans to us

in exchange for Fannie Mae MBS backed by these mortgage loans. Lenders may hold the Fannie Mae MBS they receive from

us or sell them to investors. A pool of mortgage loans is a group of mortgage loans with similar characteristics. After receiving

the mortgage loans in a lender swap transaction, we place them in a trust for which we serve as trustee. This trust is

established for the sole purpose of holding the mortgage loans separate and apart from our corporate assets. We deliver to

the lender (or its designee) Fannie Mae MBS that are backed by the pool of mortgage loans in the trust and that represent an

undivided beneficial ownership interest in each of the mortgage loans. We guarantee to each MBS trust that we will

supplement amounts received by the MBS trust as required to permit timely payment of principal and interest on the related

Fannie Mae MBS. We are entitled to a portion of the interest payment as a fee for providing our guaranty. The mortgage

servicer also retains a portion of the interest payment as a fee for servicing the loan. Then, on behalf of the trust, we make

monthly distributions to the Fannie Mae MBS certificateholders from the principal and interest payments and other collections

on the underlying mortgage loans.
Lender Swap Transaction

Our Multifamily business generally creates multifamily Fannie Mae MBS in lender swap transactions in a manner similar to our

Single-Family business. Our multifamily lender customers typically deliver only one mortgage loan to back each multifamily

Fannie Mae MBS. The characteristics of each mortgage loan are used to establish guaranty fees on a risk-adjusted basis.

Securitizing a multifamily mortgage loan into a Fannie Mae MBS facilitates its sale into the secondary market.

Portfolio Securitization Transactions

In contrast to our lender swap securitizations, in which a mortgage lender delivers a pool of mortgage loans to us that we

immediately place in a trust for securitization, we also purchase mortgage loans and mortgage-related securities for

securitization and sale at a later date through our Çportfolio securitization transactions.É Most of our portfolio securitization

transactions are driven by our single-family whole loan conduit activities, pursuant to which we purchase single-family whole

loans from a large group of typically smaller lenders principally for the purpose of securitizing the loans into Fannie Mae MBS,

which may then be sold to dealers and investors. We also securitize loans that have been held in our portfolio for a longer

period of time, including reperforming loans. Reperforming loans are mortgage loans on which the borrower had previously

been delinquent but subsequently became current, either with or without a modification.

Portfolio Securitization Transaction

Business | Mortgage Securitizations

Fannie Mae 2019 Form 10-K 8
Structured Securitization Transactions

In a Çstructured securitization transaction,É we create structured Fannie Mae MBS, typically for our lender customers or

securities dealer customers, in exchange for a transaction fee. In these transactions, the customer ÇswapsÉ a mortgage-related

asset that it owns (typically a mortgage security) in exchange for a structured Fannie Mae MBS we issue. The process for

issuing Fannie Mae MBS in a structured securitization is similar to the process involved in our lender swap securitizations

described above.

We also issue structured transactions backed by multifamily Fannie Mae MBS through the Fannie Mae Guaranteed Multifamily

Structures (ÇFannie Mae GeMSTMÉ) program, which provides additional liquidity and stability to the multifamily market, while

expanding the investor base for multifamily Fannie Mae MBS.

Features of Our MBS Trusts 

Our MBS trusts hold either single-family or multifamily mortgage loans or mortgage-related securities. Each trust operates in

accordance with a trust agreement or a trust indenture. Generally, each MBS trust is also governed by an issue supplement

documenting the formation of that MBS trust, the identification of its related assets and the issuance of the related Fannie Mae

MBS. The trust agreement or the trust indenture, together with the issue supplement and any amendments, are considered the

Çtrust documentsÉ that govern an individual MBS trust.

Single-Class and Multi-Class Fannie Mae MBS 

Fannie Mae MBS trusts may be single-class or multi-class. Single-class MBS are MBS in which the investors receive principal

and interest payments on the mortgage loans backing the MBS directly in proportion to their percentage ownership of the MBS

issuance. Multi-class MBS are MBS, including real estate mortgage investment conduit securities (ÇREMICsÉ), in which the

cash flows on the underlying mortgage assets are divided, creating several classes of securities, each of which represents a

beneficial ownership interest in the assets of the related MBS trust and entitles the related holder to a specific portion and

priority of cash flows. Terms to maturity of some multi-class Fannie Mae MBS, particularly REMIC classes, may match or be

shorter than the maturity of the underlying mortgage loans and/or mortgage-related securities. After these classes mature,

cash flows received on the underlying mortgage assets are allocated to the remaining classes in accordance with the payment

terms of the securities. As a result, each of the classes in a multi-class MBS may have a different coupon rate, average life,

repayment sensitivity or final maturity. Structured Fannie Mae MBS are either multi-class MBS or single-class MBS that are

typically resecuritizations of other single-class Fannie Mae MBS. In a resecuritization, pools of MBS are collected and

securitized. 

Uniform Mortgage-Backed Securities, or UMBS

Overview

In May 2019, we began using the common securitization platform operated by Common Securitization Solutions, LLC (ÇCSSÉ),

a limited liability company we own jointly with Freddie Mac, to perform certain aspects of the securitization process for our

single-family Fannie Mae MBS issuances. In June 2019, we and Freddie Mac began issuing UMBS. This represented the final

implementation of the Single Security Initiative that we, Freddie Mac and FHFA began working on in 2014 to develop a single

common mortgage-backed security issued by both Fannie Mae and Freddie Mac to finance fixed-rate mortgage loans backed

by single-family properties. The uniform mortgage-backed security is intended to maximize liquidity for both Fannie Mae and

Freddie Mac mortgage-backed securities in the to-be-announced (ÇTBAÉ) market. The issuance of UMBS and use of the

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

and business.

UMBS and Structured Securities

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

securities, as described below.

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

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

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

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

UMBS. 

Mortgage loans backing UMBS are limited to fixed-rate mortgage loans eligible for financing through the TBA market.

We continue to issue some types of Fannie Mae MBS that are not TBA-eligible and therefore are not issued as

UMBS, such as single-family Fannie Mae MBS backed by adjustable-rate mortgages and all multifamily Fannie Mae

MBS.

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

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

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

Business | Mortgage Securitizations

Fannie Mae 2019 Form 10-K 9
securities include SupersTM, which are single-class resecuritizations, and REMICs, which are multi-class

resecuritizations. While Supers are backed only by TBA-eligible securities, REMICs can be backed by TBA-eligible or

non-TBA-eligible securities.

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

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

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

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

and generally eligible for trading in the TBA market. We use the term ÇFannie Mae MBSÉ or Çour MBSÉ to refer to any type of

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

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

We entered into an indemnification agreement with Freddie Mac relating to the commingled structured securities that we and

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

and separate guaranty on the structured security. If Freddie Mac were to fail to make a payment due on its securities

underlying the structured security, we would be obligated under our guaranty to fund any shortfall. Under the indemnification

agreement, Fannie Mae and Freddie Mac each have agreed to indemnify the other party for losses caused by: its failure to

meet its payment or other specified obligations under the trust agreements pursuant to which the underlying resecuritized

securities were issued; its failure to meet its obligations under the customer services agreement described below; its violations

of laws; or with respect to material misstatements or omissions in offering documents, ongoing disclosures and related

materials relating to the underlying resecuritized securities. 

Common Securitization Platform

The common securitization platform operated by CSS has replaced certain elements of Fannie MaeÑs and Freddie MacÑs

proprietary systems for securitizing single-family mortgages and performing associated back-office and administrative

functions. The design of the common securitization platform also allows for the potential integration of additional market

participants in the future. We no longer use our individual proprietary securitization function for our single-family MBS

issuances. In addition to using the common securitization platform for our newly issued UMBS issuances, we are also now

using the common securitization platform for certain ongoing administrative functions for our previously issued and outstanding

single-family Fannie Mae MBS. We do not use the common securitization platform operated by CSS for securitizing or

performing associated administrative functions for our multifamily Fannie Mae MBS.

CSS is jointly owned by us and Freddie Mac. CSS operates as a separate company from us and Freddie Mac, with all funding

and limited administrative support services and other resources provided to it by us and Freddie Mac. CSS owns the common

securitization platform and has granted a non-exclusive perpetual, paid-up license to each of Fannie Mae and Freddie Mac to

use the materials and intellectual property owned and licensed by CSS while each is a member of CSS. We are parties to the

following agreements relating to the governance and operation of CSS and the common securitization platform.

Ö Limited Liability Company Agreement. Fannie Mae, Freddie Mac and CSS are parties to a limited liability company

agreement that sets forth the overall framework for the joint venture, including Fannie MaeÑs and Freddie MacÑs rights and

responsibilities as members of CSS, the governance of CSS and the intellectual property rights of Fannie Mae, Freddie

Mac and CSS in the common securitization platform. Fannie Mae and Freddie Mac each has a 50% financial ownership

interest in CSS, and each company makes capital contributions of equal value to CSS to fund the entirety of CSSÑs

operations. The agreement provides that FHFA has the decision-making role in CSSÑs governance while Fannie Mae and

Freddie Mac are both in conservatorship or receivership, including: the right to approve specified significant matters such

as budgets, business plans, capital contributions, and appointments, compensation and removal of CSS officers; and the

authority to resolve any deadlocks.

In January 2020 FHFA directed us and Freddie Mac to enter into an amended limited liability company agreement that

affects our influence and governance rights over CSS even if we exit conservatorship. The amendment removed the

requirement that any Board action must be approved by at least one manager from each GSE. The amendment also

expanded the CSS Board of Managers from two managers designated by Fannie Mae and two managers designated by

Freddie Mac to also include: (1)Äthe CSS Chief Executive Officer; (2)Äa Board Chair not affiliated with either GSE or CSS

(who was designated by FHFA in January 2020); and (3)Äup to three additional Board members not affiliated with either

GSE or CSS. Board actions must be approved by a majority vote and, while we and Freddie Mac both remain in

conservatorship, FHFA has the right to designate the additional Board members and the Board Chair, and no Board action

may be taken without the affirmative vote of the Board Chair. The Board Chair, CSS CEO and three additional FHFAdesignated Board members, if designated, will constitute a majority of the Board, in which case the four managers

designated by Fannie Mae and Freddie Mac will constitute a minority of the Board and could be outvoted by non-GSE

designated Board members on any matter during conservatorship and on a number of significant matters following either

our or Freddie MacÑs exit from conservatorship.

Under the amended agreement, if either we or Freddie Mac exit conservatorship, approval by at least one manager

designated by each GSE will be required for Çmaterial decisions,É including the following:

ã material business changes such as adding a new business line or reducing support of UMBS; 

Business | Mortgage Securitizations

Fannie Mae 2019 Form 10-K 10
ã capital contributions beyond those necessary to support CSSÑs ordinary business operations; 

ã the designation or removal of the CSS CEO; and 

ã the admission of new LLC members. 

Ö Customer Services Agreement. Fannie Mae, Freddie Mac and CSS are parties to a customer services agreement that

sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac, including the

operation of the common securitization platform. CSS uses the common securitization platform to perform data validation,

issuance, at-issuance and ongoing disclosures, tax reporting and bond administration for Fannie MaeÑs single-family

mortgage-backed securities. Fannie Mae and Freddie Mac do not pay service fees under the customer services

agreement; CSS operations are funded entirely through capital contributions from Fannie Mae and Freddie Mac pursuant

to the limited liability company agreement described above.

Ö Administrative Services Agreement. Each of Fannie Mae and Freddie Mac is party to a separate administrative

services agreement with CSS that sets forth the support services each company provides to CSS. We provide

procurement services to CSS. Freddie Mac provides tax-related services to CSS.

We discuss risks posed by our reliance on CSS in ÇRisk FactorsÜGSE and Conservatorship Risk.É

Business | Mortgage Securitizations

Fannie Mae 2019 Form 10-K 11

Conservatorship, Treasury Agreements and Housing Finance

Reform

Conservatorship 

On SeptemberÄ6, 2008, the Director of FHFA appointed FHFA as our conservator, pursuant to authority provided by 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). The conservatorship is a statutory process designed to

preserve and conserve our assets and property and put the company in a sound and solvent condition.

The conservatorship has no specified termination date. Although the Treasury plan and FHFAÑs recently released strategic plan

address ending the conservatorship, as we discuss below in ÇHousing Finance Reform,É there continues to be significant

uncertainty regarding the future of our company, including how long the company will continue to exist in its current form, the

extent of our role in the market, the level of government support of our business, 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.ÄFor more information on the

risks to our business relating to the conservatorship and uncertainties regarding the future of our company and business, as

well as the adverse effects of the conservatorship on the rights of holders of our common and preferred stock, see ÇRisk

FactorsÜGSE and Conservatorship Risk.É

Our conservatorship could terminate through a receivership. For information on the circumstances under which FHFA is

required or permitted to place us into receivership and the potential consequences of receivership, see ÇCharter Act and

RegulationÜGSE Act and Other LegislationÜReceivershipÉ and ÇRisk FactorsÜGSE and Conservatorship Risks.É

Management of the Company during Conservatorship 

Upon its appointment, the conservator immediately succeeded to (1)Äall rights, titles, powers and privileges of Fannie Mae, and

of any shareholder, officer or director of Fannie Mae with respect to Fannie Mae and its assets, and (2)Ätitle to the books,

records and assets of any other legal custodian of Fannie Mae. The conservator subsequently issued an order that provided

for our Board of Directors to exercise specified authorities. The conservator also provided instructions regarding matters for

which conservator decision or notification is required. The conservator retains the authority to amend or withdraw its order and

instructions at any time. For more information on the authorities of our Board of Directors during conservatorship, see

ÇDirectors, Executive Officers and Corporate GovernanceÜCorporate GovernanceÜConservatorship and Board Authorities.É

Our directors serve on behalf of the conservator and exercise their authority as directed by and with the approval, where

required, of the conservator. Our directors have no fiduciary duties to any person or entity except to the conservator.

Accordingly, our directors are not obligated to consider the interests of the company, the holders of our equity or debt

securities, or the holders of Fannie Mae MBS unless specifically directed to do so by the conservator. 

Because we are in conservatorship, our common stockholders currently do not have the ability to elect directors or to vote on

other matters. The conservator eliminated common and preferred stock dividends (other than dividends on the senior

preferred stock issued to Treasury) during the conservatorship.

Powers of the Conservator under the GSE Act 

FHFA has broad powers when acting as our conservator. As conservator, FHFA can direct us to enter into contracts or enter

into contracts on our behalf. Further, FHFA may transfer or sell any of our assets or liabilities (subject to limitations and posttransfer notice provisions for transfers of certain types of financial contracts), without any approval, assignment of rights or
consent of any party. However, mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS

trust must be held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the

general creditors of the company. Neither the conservatorship nor the terms of our agreements with Treasury change our

obligation to make required payments on our debt securities or perform under our mortgage guaranty obligations.

Treasury Agreements 

On SeptemberÄ7, 2008, we, through FHFA in its capacity as conservator, and Treasury entered into a senior preferred stock

purchase agreement, pursuant to which we issued to Treasury one million shares of Variable Liquidation Preference Senior

Preferred Stock, Series 2008-2, which we refer to as the Çsenior preferred stock,É and a warrant to purchase shares of

common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the

time the warrant is exercised for a nominal price. 

The senior preferred stock purchase agreement was amended and restated on SeptemberÄ26, 2008 and was subsequently

amended three times: in MayÄ2009, DecemberÄ2009 and AugustÄ2012. In addition, the dividend and liquidation preference

provisions of the senior preferred stock were amended in December 2017 and again in September 2019 pursuant to letter

agreements between us, through FHFA in its capacity as conservator, and Treasury. In the September 2019 letter agreement,

we and Treasury also agreed to negotiate and execute an additional amendment to the senior preferred stock purchase

agreement that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for

administrative reform contained in the Treasury plan. In announcing the letter agreement, Treasury noted that subsequent

amendments to the senior preferred stock purchase agreement may be appropriate to facilitate the implementation of any

eventual recapitalization plan. See ÇHousing Finance ReformÜTreasury Housing Reform PlanÉ for a discussion of potential

approaches to recapitalization discussed in the Treasury plan.

See ÇRisk FactorsÉ for a description of the risks to our business relating to the senior preferred stock purchase agreement, as

well as the adverse effects of the senior preferred stock and the warrant on the rights of holders of our common stock and

other series of preferred stock.

Senior Preferred Stock Purchase Agreement

The senior preferred stock purchase agreement provides that, on a quarterly basis, we may draw funds up to the amount, if

any, by which our total liabilities exceed our total assets, as reflected in our consolidated balance sheet, prepared in

accordance with generally accepted accounting principles in the United States of America (ÇGAAPÉ), for the applicable fiscal

quarter (referred to as the Çdeficiency amountÉ), up to the maximum amount of remaining funding under the agreement. 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. The senior preferred stock purchase agreement provides that the

deficiency amount will be calculated differently if we become subject to receivership or other liquidation process.

The senior preferred stock purchase agreement provides for the payment of an unspecified quarterly commitment fee to

Treasury; however, the August 2012 amendment to the agreement provided that this commitment fee will not be set, accrue or

be payable, as long as the dividend provisions of the senior preferred stock remain substantially the same in form and content.

TreasuryÑs funding commitment under the senior preferred stock purchase agreement has no expiration date. The agreement

provides that TreasuryÑs funding commitment will terminate under any of the following circumstances: (1)Äthe completion of our

liquidation and fulfillment of TreasuryÑs obligations under its funding commitment at that time; (2)Äthe payment in full of, or

reasonable provision for, all of our liabilities (whether or not contingent, including mortgage guaranty obligations); or (3)Äthe

funding by Treasury of the maximum amount that may be funded under the agreement. In addition, Treasury may terminate its

funding commitment and declare the agreement null and void if a court vacates, modifies, amends, conditions, enjoins, stays

or otherwise affects the appointment of the conservator or otherwise curtails the conservatorÑs powers. Treasury may not

terminate its funding commitment under the agreement solely by reason of our being in conservatorship, receivership or other

insolvency proceeding, or due to our financial condition or any adverse change in our financial condition.

In the event of our default on payments with respect to our debt securities or guaranteed Fannie Mae MBS, if Treasury fails to

perform its obligations under its funding commitment and if we and/or the conservator are not diligently pursuing remedies with

respect to that failure, the agreement provides that any holder of such defaulted debt securities or Fannie Mae MBS may file a

claim in the United States Court of Federal Claims for relief requiring Treasury to fund us up to (1) the amount necessary to

cure the payment defaults on our debt and Fannie Mae MBS, (2) the deficiency amount, or (3) the amount of remaining

funding under the senior preferred stock purchase agreement, whichever is the least. Any payment that Treasury makes under

those circumstances will be treated for all purposes as a draw under the agreement that will increase the liquidation

preference of the senior preferred stock.

Most provisions of the senior preferred stock purchase agreement may be waived or amended by mutual agreement of the

parties; however, no waiver or amendment of the agreement is permitted that would decrease TreasuryÑs aggregate funding

commitment or add conditions to TreasuryÑs funding commitment if the waiver or amendment would adversely affect in any

material respect the holders of our debt securities or guaranteed Fannie Mae MBS.

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Fannie Mae 2019 Form 10-K 12
Senior Preferred Stock

Shares of the senior preferred stock have no par value and have a stated value and initial liquidation preference equal to

$1,000 per share, for an aggregate initial liquidation preference of $1.0 billion. Under the terms governing the senior preferred

stock, the aggregate liquidation preference is increased by the following: 

Ö any amounts Treasury pays to us pursuant to its funding commitment under the senior preferred stock purchase

agreement (a total of $119.8 billion as of the date of this filing),

Ö any quarterly commitment fees that are payable but not paid in cash (no such fees have become payable, nor will

they under the current terms of the senior preferred stock purchase agreement and the senior preferred stock); and

Ö any dividends that are payable but not paid in cash to Treasury, regardless of whether or not they are declared.

In addition:

Ö the December 2017 letter agreement increased the aggregate liquidation preference of the senior preferred stock by

$3.0 billion as of December 31, 2017; and

Ö the September 2019 letter agreement provides that, beginning on September 30, 2019, and at the end of each fiscal

quarter thereafter, the liquidation preference shall be increased by an amount equal to the increase in our net worth, if

any, during the immediately prior fiscal quarter, until such time as the liquidation preference has increased by $22

billion pursuant to this provision.

Accordingly, the aggregate liquidation preference of the senior preferred stock was $131.2 billion as of December 31, 2019.

Treasury, as the holder of the senior preferred stock, is entitled to receive, when, as and if declared, out of legally available

funds, cumulative quarterly cash dividends. The dividends we have paid to Treasury on the senior preferred stock during

conservatorship have been declared by, and paid at the direction of, our conservator, acting as successor to the rights, titles,

powers and privileges of the Board of Directors. Dividend payments we make to Treasury do not restore or increase the

amount of funding available to us under the senior preferred stock purchase agreement. 

The dividend provisions of the senior preferred stock have been amended three times.

Ö Original Dividend Rate. As originally issued, the senior preferred stock provided for cumulative quarterly cash

dividends at an annual rate of 10%Äper year on the stockÑs then-current liquidation preference. This dividend rate was

applicable from the fourth quarter of 2008 through the fourth quarter of 2012.

Ö ÅNet Worth SweepÉ Amendment. As amended in August 2012, the senior preferred stock provides for a Çnet worth

sweepÉ dividend. For each quarterly dividend period, the dividend amount is the amount, if any, by which our net

worth as of the end of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount. Our

net worth is defined as the amount, if any, by which our total assets (excluding TreasuryÑs funding commitment and

any unfunded amounts related to the commitment) exceed our total liabilities (excluding any obligation in respect of

capital stock), in each case as reflected on our balance sheet prepared in accordance with GAAP. The applicable

capital reserve amount was initially $3.0 billion for dividend periods in 2013 and decreased by $600 million each year

until it reached $600 million for dividend periods in 2017. These provisions became applicable in the first quarter of

2013 and remain in effect as modified by the December 2017 and September 2019 letter agreements.

Ö December 2017 Amendment. As amended in December 2017, the applicable capital reserve amount was increased

to $3.0 billion. The December 2017 letter agreement also reduced byÄ$2.4 billionÄthe dividend amount otherwise

payable for the fourth quarter of 2017. 

Ö September 2019 Amendment. As amended in September 2019, the applicable capital reserve amount was increased

to $25 billion effective for dividend periods beginning July 1, 2019. If we do not declare and pay the dividend amount

in full for any dividend period for which dividends are payable, then the applicable capital reserve amount will

thereafter be zero.

As a result of these amended dividend provisions, for each quarterly period beginning with the third quarter of 2019, dividends

on the senior preferred stock accumulate and are payable based on the amount by which our net worth as of the end of the

immediately preceding fiscal quarter exceeds $25 billion. If our net worth does not exceed the applicable capital reserve

amount of $25 billion as of the end of the immediately preceding fiscal quarter, then dividends will neither accumulate nor be

payable for such period.

The senior preferred stock ranks ahead of our common stock and all other outstanding series of our preferred stock, as well as

any capital stock we issue in the future, as to both dividends and rights upon liquidation. As a result, if we are liquidated, the

holder of the senior preferred stock is entitled to its then-current liquidation preference (which includes any accumulated but

unpaid dividends) before any distribution is made to the holders of our common stock or other preferred stock.

The senior preferred stock provides that we may not, at any time, declare or pay dividends on, make distributions with respect

to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any common stock or other securities

ranking junior to the senior preferred stock unless (1)Äfull cumulative dividends on the outstanding senior preferred stock

(including any unpaid dividends added to the liquidation preference) have been declared and paid in cash, and (2)Äall amounts

Business | Conservatorship, Treasury Agreements and Housing Finance Reform

Fannie Mae 2019 Form 10-K 13
required to be paid with the net proceeds of any issuance of capital stock for cash (as described in the following paragraph)

have been paid in cash. Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no

general or special voting rights, other than those set forth in the certificate of designation for the senior preferred stock or

otherwise required by law. The consent of holders of at least two-thirds of all outstanding shares of senior preferred stock is

generally required to amend the terms of the senior preferred stock or to create any class or series of stock that ranks prior to

or on parity with the senior preferred stock.

We are not permitted to redeem the senior preferred stock prior to the termination of TreasuryÑs funding commitment under the

senior preferred stock purchase agreement. Moreover, we are not permitted to pay down the liquidation preference of the

outstanding shares of senior preferred stock except to the extent of (1)Äaccumulated and unpaid dividends previously added to

the liquidation preference and not previously paid down; and (2)Äquarterly commitment fees previously added to the liquidation

preference and not previously paid down. In addition to these exceptions, if we issue any shares of capital stock for cash while

the senior preferred stock is outstanding, the net proceeds of the issuance must be used to pay down the liquidation

preference of the senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not

be paid down below $1,000 per share prior to the termination of TreasuryÑs funding commitment. Following the termination of

TreasuryÑs funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred

stock at any time, in whole or in part.

Common Stock Warrant

Pursuant to the senior preferred stock purchase agreement, on SeptemberÄ7, 2008, we, through FHFA in its capacity as

conservator, issued to Treasury a warrant to purchase shares of our common stock equal to 79.9% of the total number of

shares of our common stock outstanding on a fully diluted basis on the date the warrant is exercised, for an exercise price of

$0.00001 per share. The warrant may be exercised in whole or in part at any time on or before SeptemberÄ7, 2028.

Covenants under Treasury Agreements 

The senior preferred stock purchase agreement contains covenants that prohibit us from taking a number of actions without

the prior written consent of Treasury, including:

Ö paying dividends or other distributions on or repurchasing our equity securities (other than the senior preferred stock

or warrant);

Ö issuing equity securities (except in limited instances);

Ö selling, transferring, leasing or otherwise disposing of any assets, except for dispositions for fair market value in

limited circumstances including if (a) the transaction is in the ordinary course of business and consistent with past

practice or (b) the assets have a fair market value individually or in the aggregate of less than $250 million;

Ö issuing subordinated debt;Äand

Ö seeking or permitting the termination of our conservatorship, other than in connection with a receivership.

The senior preferred stock purchase agreement also prohibits us from entering into any new compensation arrangements or

increasing amounts or benefits payable under existing compensation arrangements with any of our executive officers (as

defined by Securities and Exchange Commission (ÇSECÉ) rules) without the consent of the Director of FHFA, in consultation

with the Secretary of the Treasury.

In addition, the senior preferred stock purchase agreement subjects us to limits on the amount of mortgage assets that we

may own and the total amount of our indebtedness. 

Ö Mortgage Asset Limit. The amount of mortgage assets we are permitted to own decreased by a specified amount

each year until it reached a limit of $250 billion as of December 31, 2018. In addition, FHFA has directed that we

further cap our mortgage assets at $225 billion. For purposes of calculating our limit for 2019 and prior periods,

mortgage asset amounts are based on the unpaid principal balance of such assets and do not reflect market

valuation adjustments, allowance for loan losses, impairments, unamortized premiums and discounts and the impact

of our consolidation of variable interest entities. Applying this measure, our mortgage assets as of December 31,

2019 were $153.6 billion. For periods after 2019, at FHFAÑs direction our mortgage asset calculation will also include

10% of the notional value of interest-only securities we hold. We disclose the amount of our mortgage assets each

month in the ÇEndnotesÉ to our Monthly Summaries, which are available on our website and announced in a press

release. 

Ö Debt Limit. Our debt limit under the senior preferred stock purchase agreement is set at 120% of the amount of

mortgage assets we were allowed to own under the agreement on December 31 of the immediately preceding

calendar year. Accordingly, our debt limit for 2019 and each year thereafter is $300 billion. For purposes of this

calculation, indebtedness is based on the par value of each applicable loan and does not reflect the impact of our

consolidation of variable interest entities. Applying this measure, our indebtedness as of December 31, 2019 was

$182.2 billion. We disclose the amount of our indebtedness on a monthly basis under the caption ÇTotal Debt

OutstandingÉ in our Monthly Summaries, which are available on our website and announced in a press release. 

Business | Conservatorship, Treasury Agreements and Housing Finance Reform

Fannie Mae 2019 Form 10-K 14
Annual Risk Management Plan Covenant. Each year we remain in conservatorship we are required to provide Treasury a risk

management plan that sets out our strategy for reducing our risk profile, describes the actions we will take to reduce the

financial and operational risk associated with each of our business segments, and includes an assessment of our performance

against the planned actions described in the prior yearÑs plan. We submitted our most recent annual risk management plan to

Treasury in December 2019.

Lawsuits Challenging the Senior Preferred Stock Purchase Agreements and

Conservatorship

Several lawsuits have been filed by preferred and common stockholders of Fannie Mae and Freddie Mac against one or more

of the United States, Treasury and FHFA challenging actions taken by the defendants relating to the senior preferred stock

purchase agreements and the conservatorships of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims

against Fannie Mae and Freddie Mac. For a description of these lawsuits, see ÇLegal ProceedingsÉ and ÇNote 16,

Commitments and Contingencies.É 

Housing Finance Reform

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

system, including what role, if any, Fannie Mae and Freddie Mac should play in that system. Below we discuss the

administrationÑs plan for housing finance reform, recent actions and statements by members of Congress on housing finance

reform, and FHFAÑs strategic goals for the GSEsÑ conservatorships and its 2020 scorecard for the GSEs.

Treasury Housing Reform Plan

On September 5, 2019, Treasury released a plan recommending administrative and legislative reforms to the housing finance

system. The Treasury plan is far-reaching in scope and could have a significant impact on our structure, our role in the

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

recommended reformsÜ31 proposed administrative reforms and 18 proposed legislative reformsÜto define a limited role for

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

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

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

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

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

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

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

plan for ending the GSEsÑ conservatorships.É

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

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

Ö FHFA has prescribed regulatory capital requirements for both GSEs. We expect FHFA to propose new capital

requirements for the GSEs this year;

Ö FHFA has approved the GSEÑs capital restoration plan, and the GSE has retained or raised sufficient capital and

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

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

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

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

ã focus the GSEÑs activities on its core statutory mission and otherwise tailor government support to the

underlying rationale for that support;

ã further limit the size of the GSEÑs retained mortgage portfolio;

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

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

stability; and

ã ensure that the risk posed by the GSEÑs activities is calibrated to the amount of the remaining commitment

under the senior preferred stock purchase agreement;

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

previously-issued MBS;

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

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

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

stability; and

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Fannie Mae 2019 Form 10-K 15
Ö any other conditions that FHFA, in its discretion, determines are necessary to ensure that the GSE would operate in a

safe and sound manner after the conservatorship, including as to the GSEÑs compliance with FHFAÑs directives or

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

The Treasury plan also contemplates Treasury and FHFA adjusting Fannie MaeÑs and Freddie MacÑs senior preferred stock

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

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

or more of the following, among other options:

Ö eliminating all or a portion of the liquidation preference of TreasuryÑs senior preferred stock or exchanging all or a

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

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

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

Treasury for any deferred or forgone dividends. The net worth sweep dividend was amended in September 2019 to

permit us to retain up to $25 billion in earnings;

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

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

GSEÑs common stock;

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

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

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

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

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

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

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

agreements, as amended as contemplated by the plan.

The Treasury plan also recommends legislative changes that would limit our single-family activities and restrict our multifamily

footprint. Pending any legislative changes, the Treasury plan recommends that FHFA Çassess whether each of the current

products, services, and other single-family activities of [Fannie Mae and Freddie Mac] is consistent with its statutory mission

and should continue to benefit from support underÉ the senior preferred stock purchase agreement. It also recommends that

FHFA and Treasury consider amendments to the senior preferred stock purchase agreement to ensure that multifamily lending

activities are consistent with Fannie MaeÑs and Freddie MacÑs Çunderlying affordability mission.Ä

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

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

of the Treasury plan. See ÇRisk FactorsÜGSE and Conservatorship RiskÉ for a description of risks associated with our future

and potential housing finance reform.

Legislative Developments

The Chairman of the Senate Committee on Banking, Housing and Urban Affairs and the Chairwoman of the House Committee

on Financial Services have each stated that addressing housing finance reform is a responsibility of their respective

Committees.ÄOn February 1, 2019, the Chairman of the Senate Banking Committee stated his desire to reform the housing

finance system and released an outline of reform legislation. The House Committee on Financial Services in October 2019

released a draft bill that would, among other matters, prohibit Treasury from disposing of its senior preferred stock less than

two years following enactment and would also prohibit FHFA from implementing any new policy, or changing an existing policy,

with regard to the GSEs, without 30 daysÑ prior notice to Congress. Congress may continue to consider proposed housing

finance reform legislation that could result in significant changes in our structure and role in the future, including proposals that

would result in Fannie MaeÑs liquidation or dissolution. 

Conservator Strategic Goals and 2020 Scorecard

In October 2019, FHFA released its 2019 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac (the Ç2019

strategic planÉ), along with its 2020 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions (the Ç2020

scorecardÉ), which is a set of corporate performance objectives that define our key priorities for 2020 and align with the 2019

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

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

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

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

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

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

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

Business | Conservatorship, Treasury Agreements and Housing Finance Reform

Fannie Mae 2019 Form 10-K 16
The new strategic plan, which replaces FHFAÑs 2014 strategic plan, and the 2020 scorecard identify three broad objectives to

ensure that Fannie Mae and Freddie Mac:

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

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

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

3. Prepare for their eventual exits from conservatorship.

See ÇRisk FactorsÉ for a description of the risks associated with our uncertain future and potential housing finance reform. For

information on the objectives in the 2020 scorecard, see our Current Report on FormÄ8-K filed with the Securities and

Exchange Commission (ååSECÑÑ) on OctoberÄ29, 2019. 

Business | Conservatorship, Treasury Agreements and Housing Finance Reform

Fannie Mae 2019 Form 10-K 17

Charter Act and Regulation

Charter Act

Fannie Mae is a shareholder-owned corporation organized and existing under the Charter Act. We were initially established in

1938. 

The Charter Act defines our mission of providing liquidity, increasing stability and promoting affordability in the residential

mortgage market. Specifically, the Charter Act states that our purposes are to:

Ö provide stability in the secondary market for residential mortgages;

Ö respond appropriately to the private capital market;

Ö provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages

on housing for low- and moderate-income families involving a reasonable economic return that may be less than the

return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of

investment capital available for residential mortgage financing;Äand

Ö promote access to mortgage credit throughout the nation (including central cities, rural areas and underserved areas) by

increasing the liquidity of mortgage investments and improving the distribution of investment capital available for

residential mortgage financing.

Principal balance limitations. To meet these purposes, the Charter Act authorizes us to purchase and securitize mortgage

loans secured by single-family and multifamily properties, subject to maximum original principal balance limits, known as

Çconforming loan limitsÉ on single-family conventional mortgage loans that we purchase or securitize. The conforming loan

limits are adjusted each year based on FHFAÑs housing price index. For 2019, the conforming loan limit for mortgages secured

by one-family residences was set at $484,350, with higher limits for mortgages secured by two- to four-family residences and

in four statutorily-designated states and territories (Alaska, Hawaii, Guam and the U.S.ÄVirgin Islands). For 2020, FHFA

increased the national conforming loan limit for one-family residences to $510,400. In addition, higher loan limits of up to 150%

of the otherwise applicable loan limit apply in certain high-cost areas. The Charter Act does not impose maximum original

principal balance limits on loans we purchase or securitize that are insured by the Federal Housing Administration (ÇFHAÉ) or

guaranteed by the Department of Veterans Affairs (ÇVAÉ).

The Charter Act also includes the following provisions:

Ö Credit enhancement requirements. The Charter Act generally requires credit enhancement on any single-family

conventional mortgage loan that we purchase or securitize that has an LTV ratio over 80% at the time of purchase. The

credit enhancement required by our charter may take the form of one or more of the following: (1)Äinsurance or a

guaranty by a qualified insurer on the portion of the unpaid principal balance of a mortgage loan that exceeds 80% of the

property value; (2)Äa sellerÑs agreement to repurchase or replace the loan in the event of default; or (3)Äretention by the

seller of at least a 10% participation interest in the loan. Regardless of LTV ratio, the Charter Act does not require us to

obtain credit enhancement to purchase or securitize loans insured by FHA or guaranteed by the VA. 

Ö Issuances of our securities.ÄWe are authorized, upon the approval of the Secretary of the Treasury, to issue debt

obligations and mortgage-related securities. Neither the U.S.Ägovernment nor any of its agencies guarantees, directly or

indirectly, our debt or mortgage-related securities.

Ö Authority of Treasury to purchase our debt obligations. At the discretion of the Secretary of the Treasury, Treasury may

purchase our debt obligations up to a maximum of $2.25 billion outstanding at any one time. 

Ö Exemption for our securities offerings.ÄOur securities offerings are exempt from registration requirements under the

federal securities laws. As a result, we do not file registration statements or prospectuses with the SEC with respect to

our securities offerings. However, our equity securities are not treated as exempt securities for purposes of Sections 12,

13, 14 or 16 of the Securities Exchange Act of 1934 (the ÇExchange ActÉ). Consequently, we are required to file periodic
and current reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current

reports on Form 8-K. Our non-equity securities are exempt securities under the Exchange Act. 

Ö Exemption from specified taxes.ÄFannie Mae is exempt from taxation by states, territories, counties, municipalities and

local taxing authorities, except for taxation by those authorities on our real property. We are not exempt from the

payment of federal corporate income taxes.

Ö Limitations.ÄWe may not originate mortgage loans or advance funds to a mortgage seller on an interim basis, using

mortgage loans as collateral, pending the sale of the mortgages in the secondary market. We may purchase or

securitize mortgage loans only on properties located in the United States and its territories.

GSE Act and Other Legislation

As a federally chartered corporation, we are subject to government regulation and oversight. FHFA is our primary regulator,

and regulates our safety and soundness and our mission. FHFA is an independent agency of the federal government with

general supervisory and regulatory authority over Fannie Mae, Freddie Mac and the Federal Home Loan Banks (ÇFHLBsÉ).

The U.S. Department of Housing and Urban Development (ÇHUDÉ) is our regulator with respect to fair lending matters. Our

regulators also include the SEC and Treasury. 

We describe below regulations applicable to us pursuant to the GSE Act and other legislation. We also describe some

regulations applicable to the mortgage industry and the securities markets that may indirectly affect us. 

Capital

The GSE Act establishes minimum, risk-based, and critical capital standards for Fannie Mae and Freddie Mac, which we

discuss in ÇNote 12, Regulatory Capital Requirements.É However, FHFA has suspended these capital classifications because

we are under conservatorship. Although existing statutory and regulatory capital requirements are not binding during

conservatorship, we continue to submit capital reports to FHFA and FHFA monitors our capital levels. 

Conservatorship Capital Framework 

In 2017, FHFA directed Fannie Mae and Freddie Mac to implement an aligned risk measurement framework for evaluating

business decisions and performance during conservatorship. The framework includes specific requirements relating to risk on

our book of business and modeled returns on our new acquisitions. We are required to submit quarterly reports to FHFA

relating to the frameworkÑs requirements. 

Expected Re-Proposal on Capital Requirements

We expect FHFA, in its capacity as our regulator, to propose new capital requirements for the GSEs this year. In June 2018,

FHFA proposed capital requirements for Fannie Mae and Freddie Mac, which would be suspended while we remain in

conservatorship. The proposed rule would implement a new framework for risk-based capital requirements and a revised

minimum leverage capital requirement. The proposed risk-based capital framework would provide a granular assessment of

credit risk specific to different mortgage loan categories, as well as components for market risk, operational risk, and a goingconcern buffer. The proposed rule includes two alternative leverage ratio proposals on which FHFA sought feedback. FHFA

received approximately 80 comments on the proposed capital rule, including a comment from us, addressing a broad range of

issues prior to the closing of the comment period in 2018. On November 19, 2019, FHFA announced plans to re-propose the

entire regulation on capital requirements sometime in 2020.

We continuously review our business decisions as they relate to existing and prospective capital framework standards. Any

final capital rule would have a significant impact on our business and profitability outside of conservatorship. 

Stress Testing

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the ÇDodd-Frank ActÉ) requires certain financial companies

to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of

adverse economic conditions. Under FHFA regulations implementing this requirement, each year we are required to conduct a

stress test using three different scenarios of financial conditions provided by FHFA: baseline, adverse and severely adverse. In

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

specified measures of financial condition and performance over a period of at least nine quarters. In December 2019, FHFA

proposed revising the stress testing requirements to eliminate the adverse scenario from the list of required scenarios. We

published our most recent stress test results for the severely adverse scenario on our website in August 2019. 

Portfolio Standards

The GSE Act requires FHFA to establish standards governing our portfolio holdings, to ensure that they are backed by

sufficient capital and consistent with our mission and safe and sound operations. FHFA is also required to monitor our portfolio

and, in some circumstances, may require us to dispose of or acquire assets. In 2010, FHFA adopted, as the standard for our

portfolio holdings, the portfolio limits specified in the senior preferred stock purchase agreement described under

ÇConservatorship, Treasury Agreements and Housing Finance ReformÜTreasury AgreementsÜCovenants under Treasury

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 18
Agreements,É as it may be amended from time to time. The rule is effective for as long as we remain subject to the terms and

obligations of the senior preferred stock purchase agreement.

New Products and Activities

The GSE Act requires us to obtain FHFAÑs approval before initially offering any new product, subject to certain exceptions. The

GSE Act also requires us to provide FHFA with written notice before commencing any new activity. FHFA published an interim

final rule implementing these provisions in July 2009, but concluded that permitting us to engage in new products was

inconsistent with the goals of the conservatorship and instructed us not to submit new product requests under the rule.

Strategic Business Plan 

In October 2018, FHFA amended the corporate governance regulation that applies to us to require our Board of Directors to

adopt and have in effect at all times a strategic business plan that describes our strategy for achieving our mission and public

purposes. The plan must articulate measurable goals for each significant activity, describe any significant changes to business

strategy or approach we are planning to undertake, and identify current and emerging risks associated with our significant

activities. Our Board of Directors must review the strategic business plan at least annually, re-adopt the plan at least every

three years, establish management reporting requirements, and monitor the planÑs implementation. See ÇExecutive Summary

ÜOur Strategic ObjectivesÉ for information about our new strategic plan.

Receivership 

Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written determination that our

assets are less than our obligations (that is, we have a net worth deficit) or if we have not been paying our debts as they

become due, in either case, for a period of 60Ädays. FHFA has notified us that the measurement period for any mandatory

receivership determination with respect to our assets and liabilities would commence no earlier than the SEC public filing

deadline for our quarterly or annual financial statements and would continue for 60 calendar days thereafter. FHFA has

advised us that if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency

amount under the senior preferred stock purchase agreement, the Director of FHFA will not make a mandatory receivership

determination.

In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons set forth in

the GSE Act. The statutory grounds for discretionary appointment of a receiver include: a substantial dissipation of assets or

earnings due to unsafe or unsound practices; the existence of an unsafe or unsound condition to transact business; an inability

to meet our obligations in the ordinary course of business; a weakening of our condition due to unsafe or unsound practices or

conditions; critical undercapitalization; undercapitalization and no reasonable prospect of becoming adequately capitalized; the

likelihood of losses that will deplete substantially all of our capital; or by consent.

The appointment of FHFA as receiver would immediately terminate the conservatorship. In the event of receivership, the GSE

Act requires FHFA, as the receiver, to organize a limited-life regulated entity with respect to Fannie Mae. Among other

requirements, the GSE Act provides that this limited-life regulated entity:

Ö would succeed to Fannie MaeÑs charter and thereafter operate in accordance with and subject to such charter; 

Ö would assume, acquire or succeed to our assets and liabilities to the extent that such assets and liabilities are

transferred by FHFA to the entity; and 

Ö would not be permitted to assume, acquire or succeed to any of our obligations to shareholders.

Placement into receivership would likely have a material adverse effect on holders of our common stock and preferred stock,

and could have a material adverse effect on holders of our debt securities and Fannie Mae MBS. Should we be placed into

receivership, different assumptions would be required to determine the carrying value of our assets, which could lead to

substantially different financial results. For more information on the risks to our business relating to receivership and

uncertainties regarding the future of our business, see ÇRisk FactorsÜGSE and Conservatorship Risk.É

Affordable Housing Allocations

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points for each dollar 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 ÇMortgage Securitizations.É 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 yearÑs 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

ÇCertain Relationships and Related Transactions, and Director IndependenceÜTransactions with Related PersonsÜTreasury

Interest in Affordable Housing AllocationsÉ for information on our contribution for 2019 new business purchases.

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 19
Executive Compensation

The amount of compensation we may pay our executives is subject to a number of legal and regulatory restrictions,

particularly while we are in conservatorship. For a description of our executive compensation program and legal and regulatory

requirements that affect our executive compensation, see ÇExecutive Compensation.É 

Fair Lending

The GSEÄAct requires the Secretary of HUD to assure that Fannie Mae and Freddie Mac meet their fair lending

obligations.ÄAmong other things, HUD periodically reviews and comments on our underwriting and appraisal guidelines to

ensure consistency with the Fair Housing Act.Ä

Guaranty Fees and Pricing

Our guaranty fees and pricing are subject to regulatory, legislative and conservatorship requirements:

Ö FHFA, in its capacity as conservator, has provided guidance relating to our guaranty fee pricing for new single-family

acquisitions. FHFAÑs guidance requires that we meet a specified minimum return on equity target based on the

conservatorship capital framework.Ä

Ö In 2016, FHFA in its regulatory capacity, established minimum base guaranty fees that generally apply to our

acquisitions of 30-year and 15-year single-family fixed-rate loans in lender swap transactions. 

Ö In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act of 2011 (ÇTCCAÉ) under which,

at the direction of FHFA, we increased the guaranty fee on all single-family residential mortgages delivered to us by

10 basis points effective April 1, 2012. The revenue generated by this fee increase is paid to Treasury and helps

offset the cost of a two-month extension of the payroll tax cut in early 2012. While the TCCA provides that its fee

requirement expires on OctoberÄ1, 2021, FHFA directed us to apply the fee increase for an additional quarter, to loans

acquired through December 31, 2021. 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.

FHFA Rule on Uniform Mortgage-Backed Securities 

We and Freddie Mac are required to align our programs, policies and practices that affect the prepayment rates of TBA-eligible

MBS pursuant to an FHFA rule that became effective in May 2019. The rule, which codified alignment mandates that FHFA

implemented as conservator, 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 remain aligned

regardless of whether we and Freddie Mac are in conservatorship. The rule provides a non-exhaustive list of covered

programs, policies and practices, including management decisions or actions about: single-family guaranty fees; the spread

between the note rate on the mortgage and the pass-through coupon on the MBS; eligibility standards for sellers, servicers,

and private mortgage insurers; distressed loan servicing requirements; removal of mortgage loans from securities; servicer

compensation; and proposals that could materially change the credit risk profile of the single-family mortgages securitized by a

GSE. 

Prior to the first issuances of UMBS in June 2019, we, Freddie Mac and FHFA undertook alignment efforts with the goal of

ensuring consistency of prepayment speeds between Fannie Mae-issued and Freddie Mac-issued securities. In response to

this rule, we also created a process aimed at ensuring any changes to our programs, policies and practices do not have a

material effect on cash flows. Accordingly, we believe that our policies and practices are generally aligned with the

requirements specified by FHFA pursuant to the rule. To ensure reasonably consistent cash flows and the continued fungibility

of UMBS, in November 2019, FHFA solicited public input through January 21, 2020, to help it determine whether further

alignment is necessary, and whether having more aligned pooling practices could facilitate the issuance of UMBS by market

participants beyond Fannie Mae and Freddie Mac. While it is uncertain what further alignment would be required under any

such FHFA initiative, FHFAÑs request for input focused on possibilities such as the formation of larger multi-lender MBS pools

and further alignment of refinance policies and oversight. 

Housing Goals 

Our housing goals, which are established by FHFA in accordance with the GSE Act, require that a specified amount of

mortgage loans we acquire meet standards relating to affordability or location. For single-family goals, our acquisitions are

measured against the lower of benchmarks set by FHFA or the level of goals-qualifying originations in the primary mortgage

market. Multifamily goals are established as a number of units to be financed. 

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 20
In December 2019, FHFA determined that we met all of our 2018 single-family and multifamily housing goals. We believe we

also met all of our 2019 single-family and multifamily housing goals. We will report our 2019 housing goals performance to

FHFA in March 2020, and FHFA will make a final determination regarding our 2019 performance later in the year, after data

regarding the share of goals-qualifying originations in the primary mortgage market, reported under the Home Mortgage

Disclosure Act, becomes available. The tables below display our housing goals for 2018 and 2019, as well as our 2018

performance against our goals. 

Single-Family Housing Goals(1)

2018 2019

FHFA

Benchmark

SingleFamily

Market

Level Result

FHFA

Benchmark

Low-income (ç80% of area median income) families home

purchases 24 % 25.5 % 28.2 % 24 %

Very low-income (ç50% of area median income) families

home purchases 6 6.5 6.7 6

Low-income areas home purchases(2) 18 22.6 25.1 19

Low-income and high-minority areas home purchases(3) 14 18.0 20.1 14

Low-income families refinances 21 30.7 31.2 21

(1) The FHFA benchmarks and our results are expressed as a percentage of the total number of eligible single-family mortgages acquired

during the period. The Single-Family Market level is the percentage of eligible single-family mortgages originated in the primary mortgage

market.

(2) These mortgage loans must be secured by a property that is (a) in a low-income census tract, (b) in a high-minority census tract and

affordable to moderate-income families (those with incomes less than or equal to 100% of area median income), or (c) in a designated

disaster area and affordable to moderate-income families.

(3) These mortgage loans must be secured by a property that is (a) in a low-income census tract or (b) in a high-minority census tract and

affordable to moderate-income families.

Multifamily Housing Goals

2018 2019

Goal Result Goal

(in units)

Low-income families 315,000 421,813 315,000

Very low-income families 60,000 80,891 60,000

Small affordable multifamily properties(1) 10,000 11,890 10,000

(1) Small affordable multifamily properties are those with 5 to 50 units that are affordable to low-income families.

As described in ÇRisk FactorsÜGSE and Conservatorship Risk,É actions we may take to meet our housing goals and duty to

serve requirements described below may increase our credit losses and credit-related expense.

Duty to Serve Underserved Markets 

The GSE Act requires that we serve very low-, low-, and moderate-income families in three specified underserved markets:

manufactured housing, affordable housing preservation and rural housing. In December 2016, FHFA published a final rule

implementing our duty to serve these underserved markets. Under the rule, we are required to adopt an underserved markets

plan for each underserved market covering a three-year period that sets forth the activities and objectives we will undertake to

meet our duty to serve that market. Our underserved markets plans, which are effective for 2018 to 2020, received nonobjections from FHFA, were initially finalized and published in December 2017 and have been updated since that time. 

The types of activities that are eligible for duty to serve credit in each underserved market are summarized below:

Ö Manufactured housing market. For the manufactured housing market, duty to serve credit is available for eligible

activities relating to manufactured homes (whether titled as real property or personal property (known as chattel)) and

loans for specified categories of manufactured housing communities. 

Ö Affordable housing preservation market. For the affordable housing preservation market, duty to serve credit is

available for eligible activities relating to preserving the affordability of housing for renters and buyers under specified

programs enumerated in the GSE Act and other comparable affordable housing programs administered by state and

local governments, subject to FHFA approval. Duty to serve credit also is available for activities related to small

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 21
multifamily rental properties, energy efficiency improvements on existing multifamily rental and single-family first lien

properties, certain shared equity homeownership programs, the purchase or rehabilitation of certain distressed

properties, and activities under HUDÑs Choice Neighborhoods Initiative and Rental Assistance Demonstration

programs. 

Ö Rural housing market. For the rural housing market, duty to serve credit is available for eligible activities related to

housing in rural areas, including activities related to housing in high-needs rural regions and for high-needs rural

populations. 

FHFA adopted revised final evaluation guidance in December 2019. The guidance communicates FHFAÑs expectations

regarding the development of the underserved markets plans and describes the annual process by which FHFA will evaluate

our achievements under the plans, with performance results to be reported to Congress annually. If FHFA determines that we

failed to meet the requirements of an underserved markets plan, it may result in the imposition of a housing plan that could

require us to take additional steps. In October 2019, FHFA reported its determination that we complied with our 2018 duty to

serve requirements and its finding that we performed a satisfactory job of increasing the liquidity and distribution of available

capital in each of the three underserved markets. We believe we also complied with all of our 2019 duty to serve obligations;

however, FHFA will make the final determination.

Swap Transactions; Minimum Capital and Margin Requirements

As a result of the Dodd-Frank Act, we are required to submit new swap transactions for clearing to a derivatives clearing

organization.ÄAdditionally, in October 2015, an inter-agency body of regulators issued a final rule under the Dodd-Frank Act

governing margin and capital requirements applicable to entities that are subject to their oversight. The rule is effective in two

phases and each phase requires that we implement operational changes and changes relating to the collateral we collect and

provide for swap transactions. The first phase of the rule became effective in 2017, and the second phase of the rule is

scheduled to become effective in September 2020. This phase will require additional operational changes and changes to

collateral requirements, which may increase the costs associated with hedging our retained mortgage portfolio.

Risk Retention

In 2014, an inter-agency body of regulators issued a final rule implementing the Dodd-Frank ActÑs credit risk retention

requirement.ÄThe final rule generally requires sponsors of securitization transactions to retain a 5% economic interest in the

credit risk of the securitized assets.ÄThe rule offers several compliance options, one of which is to have either Fannie Mae or

Freddie Mac (so long as they are in conservatorship or receivership with capital support from the United States) securitize and

fully guarantee the assets, in which case no further retention of credit risk is required.ÄIn addition, securities backed solely by

mortgage loans meeting the definition of a Çqualified residential mortgageÉ are exempt from the risk retention requirements of

the rule.ÄThe rule defines Çqualified residential mortgageÉ to have the same meaning as the term Çqualified mortgageÉ as

defined by the Consumer Financial Protection BureauÄ(the ÇCFPBÉ) in connection with its ability-to-repay rule discussed below. 

Ability-to-Repay Rule and the Qualified Mortgage Patch

The Dodd-Frank Act amended the Truth in Lending Act (ÇTILAÉ) to require creditors to determine that borrowers have a

Çreasonable ability to repayÉ most mortgage loans prior to making such loans. In 2013, theÄCFPB issued aÄfinal rule under

Regulation Z that, among other things, requires creditors to determine a borrowerÑs Çability to repayÉ a mortgage loan. If a

creditor fails to comply, a borrower may be able to offset a portion of the amount owed in a foreclosure proceeding or recoup

monetary damages. TheÄrule offers several options for complying with the ability-to-repay requirement, including making loans

that meet certain terms and characteristics (referred to as Çqualified mortgagesÉ), which may provide creditors and their

assignees with special protection from liability. Generally, a loan will be a qualified mortgage under the rule if, among other

things,Ä(1)Äthe points and fees paid in connection with the loan do not exceed 3% of the total loan amount, (2)Äthe loan term

does not exceed 30Äyears, (3)Äthe loan is fully amortizing with no negative amortization, interest-only or balloon features and

(4)Äthe debt-to-income ratio on the loan does not exceed 43% at origination. The CFPB also created the qualified mortgage

Çpatch,É pursuant to which a special class of conventional mortgage loans are considered qualified mortgagesÄif they (1) meet

the points and fees, term and amortization requirements of qualified mortgages generally and (2) are eligible for sale to Fannie

Mae or Freddie Mac. The qualified mortgage patch is scheduled to expire on the earlier of January 10, 2021 or when Fannie

Mae and Freddie Mac cease to be in conservatorship or receivership. In 2013, FHFA directed Fannie Mae and Freddie Mac to

limit our acquisition of single-family loans to those loans that meet the points and fees, term and amortization requirements for

qualified mortgages, or to loans that are exempt from the ability-to-repay rule, such as loans made to investors. 

In July 2019, the CFPB issued an advance notice of proposed rulemaking seeking information relating to the expiration of the

qualified mortgage patch. The CFPBÑs notice stated that it planned to allow the qualified mortgage patch to expire in January

2021 or after a short extension, if necessary, to facilitate a smooth and orderly transition away from the qualified mortgage

patch.ÄThe CFPBÑs notice requested comments on possible amendments to the ability-to-repay rule, including whether to

revise Regulation ZÑs definition of a qualified mortgage in light of the qualified mortgage patchÑs scheduled expiration. In

January 2020, the CFPB indicated that it plans to release a notice of proposed rulemaking in the spring of 2020 that will

include a plan to extend the patch for a short period until the effective date of a new rule or until one or more of the GSEs exits

conservatorship.ÄThe Treasury plan, which was issued in September 2019, contains a recommendation that the CFPB replace

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 22
the qualified mortgage patch with a bright-line safe harbor. Although the obligation to make a good faith determination about a

consumerÑs ability to repay does not apply to us, as we do not originate loans in the primary mortgage market, these rules

apply to the lenders from which we acquire single-family mortgage loans. Changes in this rule will affect, perhaps materially,

the volume of loans available for delivery to us, and the competition we face for the acquisition and guaranty of mortgage

assets. See ÇRisk FactorsÜGSE and Conservatorship RiskÉ and ÇÜLegal, Regulatory and Other RisksÉ for more information

on the uncertainty of our exit from conservatorship and the risks presented by regulatory changes in the financial services

industry.

TILA-RESPA Integrated Disclosure (ÄTRIDÅ) 

The Dodd-Frank Act required theÄCFPB to streamline and simplify the disclosures required under TILA and the Real Estate

Settlement Procedures Act.ÄIn October 2015, the CFPBÑs final rule implementing these changes went into effect. Although this

rule applies to mortgage originators and is not directly applicable to us, we could face potential liability for certain errors in the

required disclosures in connection with the loans we acquire from lenders. It remains unclear what sorts of errors will give rise

to liability. Also in October 2015, FHFA directed us and Freddie Mac not to conduct post-purchase loan file reviews for

technical compliance with TRID.ÄConsistent with FHFAÑs directive, we currently do not intend to exercise our contractual

remedies, including requiring the lender to repurchase the loan, for noncompliance with the provisions of TRID, except in two

limited circumstances:Äif the required form is not used; or if a particular practice would impair enforcement of the note or

mortgage or would result in assignee liability, and a court of law, regulator or other authoritative body has determined that such

practice violates TRID.Ä

FHFA Rule on Credit Score Models

In August 2019, FHFA published a final rule on the validation and approval of credit score models, which became effective in

October 2019. The final rule establishes standards and criteria, and outlines a four-phase process by which we and Freddie

Mac should validate and approve third-party credit score models. The credit score models will be evaluated for factors such as

accuracy, reliability and integrity, as well as impacts on fair lending and the mortgage industry. Once our evaluation is

complete, we must submit the proposed third-party credit score models to FHFA for a final decision. The final rule does not

address the time frame for industry adoption and implementation of the new credit score models. Currently, we use the Çclassic

FICOâ ScoreÉ from Fair Isaac Corporation to establish a minimum credit threshold for mortgage lending, provide a foundation

for risk-based pricing, and support disclosures to investors. Fair Isaac Corporation, as well as other credit score model

developers, may submit applications under this new process.

Single-CounterpartyÄCredit Limit

The Federal Reserve Board has adopted rules to restrict the counterparty credit exposures of U.S.-based global systemically

important banks (ÇU.S. GSIBsÉ) and certain large bank holding companies, large savings and loan holding companies, and

U.S. intermediate holding companies that are subsidiaries of foreign banking organizations. These rules, which have various

implementation dates depending on the type of covered organization, generally limit the exposure of a covered organization to

any counterparty and its affiliates to no more than 25% of the covered organizationÑs tier 1 capital. U.S. GSIBs must adhere to

a stricter limit of 15% of their tier 1 capital for exposures to any other U.S. GSIB or non-bank entity supervised by the Federal

Reserve.Ä 

While Fannie Mae is in conservatorship, a covered organizationÑs exposures involving claims on or directly and fully

guaranteed by Fannie Mae are exempt from these restrictions and Fannie Mae MBS and debt can be used as collateral to

reduce a banking organizationÑs counterparty exposure. At this time, we do not know what impact, if any, these rules will have

on our customersÑ business practices, or whether and to what extent this rule may adversely affect demand for or the liquidity

of securities we issue.Ä 

In the discussion of a recent amendment to these rules, the Federal Reserve Board noted that a change in the

conservatorship status of the GSEs could affect aspects of the Federal Reserve BoardÑs regulatory framework, and that it Çwill

continue to monitor and take into consideration any future changes to the conservatorship status of the GSEs, including the

extent and type of support received by the GSEs.É

The Future of LIBOR and Alternative Reference Rates

In 2017, the United KingdomÑs Financial Conduct Authority, which regulates the London Inter-bank Offered Rate (ÇLIBORÉ),

announced its intention to stop persuading or compelling the group of major banks that sustains LIBOR to submit rate

quotations after 2021. As a result, it is uncertain whether LIBOR will continue to be quoted after 2021. We have exposure to

LIBOR, including in financial instruments that mature after 2021. Our exposure arises from our acquisitions of loans and

securities, our sales of securities, and our entry into derivative transactions that reference LIBOR. The markets for alternative

reference rates are developing and, as they develop, we expect to transition to these alternative reference rates. The transition

from LIBOR will require action by many market participants and leadership from organizations such as Alternative Reference

Rates Committee (the ÇARRCÉ) member firms, FHFA, our advisors and regulators. We are actively seeking to facilitate an

orderly transition from LIBOR. We have created an enterprise program office focused on:

Ö identifying and monitoring our exposure to LIBOR now and after 2021;

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 23
Ö updating our infrastructure (including models and systems) to prepare for the transition;

Ö developing key milestones and timelines for the adoption of alternative reference rates for new acquisitions of loans

and securities, and for new securities issuances; 

Ö monitoring the market adoption of alternative reference rates and industry-standard contractual fallback provisions;

and

Ö participating in industry working groups.

These efforts are overseen by our LIBOR Enterprise Steering Council, which includes members of senior management. We

also coordinate with FHFA on our LIBOR transition efforts. As part of these efforts, we have sought to identify the risks inherent

in this transition and engaged external business and legal consultants focused on LIBOR and alternative indices. We continue

to analyze potential risks associated with the LIBOR transition, including financial, operational, legal, reputational and

compliance risks.

In addition to the work we are doing on an enterprise level to facilitate an orderly transition from LIBOR, we also are a voting

member of the ARRC and participate in its working groups. The ARRC is a group of private-market participants convened by

the Federal Reserve Board and the Federal Reserve Bank of New York to identify a set of alternative U.S. dollar reference

interest rates and an adoption plan for those alternative rates. Banking and financial regulators, including FHFA, also

participate in the ARRC as ex-officio members. In 2017, the ARRC recommended an alternative reference rate, referred to as

the Secured Overnight Financing Rate (ÇSOFRÉ). The Federal Reserve Bank of New York began publishing SOFR in 2018. In

support of the ARRCÑs efforts to develop SOFR as a key market index, we issued the marketÑs first SOFR securities in 2018

and to date we have issued a total of $21.5 billion in SOFR-indexed floating-rate corporate debt. We also have entered into

SOFR-indexed interest rate swaps and futures transactions to further support the development of this emerging index. 

As part of its continued effort to develop plans to transition to SOFR as the new market benchmark, in July 2019, the ARRC

published a white paper that provides a framework for the use of SOFR for newly originated consumer residential adjustablerate mortgage products. We support the framework and intend to create a SOFR-indexed adjustable-rate mortgage product for

new originations after systems and processes have been put in place to accommodate the new index. We expect to

communicate later this year final details on SOFR adjustable-rate mortgage loans and the timeline for when lenders can begin

originating and delivering those loans to us. In connection with this transition, we announced on February 5, 2020, that we will

cease purchasing LIBOR adjustable-rate mortgage loans by the end of 2020.

Currently, our LIBOR-indexed derivative contracts represent a substantial portion of our LIBOR exposure. We anticipate that

the International Swaps and Derivatives Association will implement amendments and protocols this year for derivatives

contracts aimed at an orderly transition to SOFR upon any LIBOR cessation. Industry adoption of these amendments and

protocols should mitigate risks associated with a cessation of LIBOR. Another principal source of our exposure to LIBOR

arises from (1) single-family and multifamily LIBOR-based adjustable-rate mortgage loans that we have securitized or own and

(2) LIBOR-indexed REMIC structured securities that we have issued. The majority of these products allow us to select a

replacement index if LIBOR ceases to be published. We have implemented or are in the process of implementing fallback

language based on the recommendations of the ARRC for new issuances of these products. 

At this time, we are unable to predict whether or when LIBOR will cease to be available or if SOFR will become the most

prevalent benchmark to replace LIBOR. Given the historical importance of LIBOR for financial instruments, developments

regarding LIBOR and alternative reference rates could have a material impact on us, borrowers, investors, and our customers

and counterparties. See ÇRisk FactorsÜMarket and Industry RiskÉ for a discussion of the risks to our results of operations,

financial condition, liquidity and net worth posed by the potential discontinuance of LIBOR.

Business | Charter Act and Regulation

Fannie Mae 2019 Form 10-K 24

Employees

As of January 31, 2020, we employed approximately 7,500 personnel, including full-time and part-time employees, and

employees on leave.
Where You Can Find Additional Information

We make available free of charge through our website our annual reports on FormÄ10-K, quarterly reports on FormÄ10-Q,

current reports on FormÄ8-K and all other SEC reports and amendments to those reports as soon as reasonably practicable

after we electronically file the material with, or furnish it to, the SEC. Our website address is www.fanniemae.com. Materials

that we file with the SEC are also available from the SECÑs website, www.sec.gov. You may also request copies of any filing

from us, at no cost, by calling the Fannie Mae Fixed-Income Securities Helpline at 1-800-2FANNIE (1-800-232-6643), or by

writing to Fannie Mae, Attention: Fixed-Income Securities, 1100 15th Street, NW, Washington, DC 20005.

All references in this report to our website addresses or the website address of the SEC are provided solely for your

information. Information appearing on our website or on the SECÑs website is not incorporated into this annual report on

FormÄ10-K.

Business | Where You Can Find Additional Information

Fannie Mae 2019 Form 10-K 25

Forward-Looking Statements

This report includes statements that constitute forward-looking statements within the meaning of SectionÄ21E of the Exchange

Act. In addition, we and our senior management may from time to time make forward-looking 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: 

Ö factors that will affect our future net worth;

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

Ö factors that will affect our long-term financial performance;

Ö trends, expectations for, and the impact of fluctuations in our acquisition volumes, market share, guaranty fees, or

acquisition credit characteristics;

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

Ö continued consideration of housing finance reform by the Administration, FHFA and Congress, including the

recommended administrative and legislative reforms in the Treasury plan, efforts and plans to implement such

reforms; and the impact of housing finance reform on our conservatorship, our structure, our role in the secondary

mortgage market, our capitalization, our business and our competitive environment;

Ö our dividend payments to Treasury and the liquidation preference of the senior preferred stock; 

Ö volatility in our future financial results and efforts we may make to address volatility, including our work to implement

hedge accounting; 

Ö the size or composition of our retained mortgage portfolio;

Ö the impact of legislation and regulation on our business or financial results;

Ö our payments to HUD and Treasury funds under the GSE Act;

Ö our plans relating to and the effects of our credit risk transfer transactions;

Ö factors that could affect or mitigate our credit risk exposure;

Ö our future guaranty fees;

Ö our future capital requirements;

Ö mortgage market and economic conditions (including home price appreciation rates and the future volume of and

characteristics of mortgage originations) and the impact of such conditions on our business or financial results;

Ö the effects on our business, risk profile and financial condition of our issuance of UMBS and of structured securities

backed by Freddie Mac-issued UMBS, including the level and impact of our credit and operational risk exposure to

Freddie Mac;

Ö the TCCA fees we pay in the future;

Ö the risks to our business;

Ö the factors that will affect our serious delinquency rate;

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

Ö our loan acquisitions, the credit risk profile of such acquisitions, and the factors that will affect them; 
Ö our liquidity and ability to meet our debt obligations and factors relating to our liquidity contingency plans; and

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

Forward-looking statements reflect our managementÑs current expectations, forecasts or predictions of future conditions,

events or results based on various assumptions and managementÑs estimates of trends and economic factors in the markets

in which we are active and that otherwise impact our business plans. Forward-looking statements are not guarantees of future

performance. By their nature, forward-looking statements are subject to significant risks and uncertainties and changes in

circumstances. Our actual results and financial condition may differ, possibly materially, from the anticipated results and

financial condition indicated in these forward-looking statements. 

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

our forward-looking statements, including, among others, the following: 

Ö the uncertainty of our future and our exit from conservatorship; 

Ö the market and regulatory changes we anticipate and our readiness for them, including changes relating to eventual

exit from conservatorship, the competitive landscape, and the need to attract private investment; 

Ö future legislative and regulatory requirements or changes affecting us, such as the enactment of housing finance

reform legislation (including all or any portion of the Treasury plan), including changes that limit our business activities

or our footprint; 

Ö actions by FHFA, Treasury, HUD, the CFPB or other regulators, or Congress, that affect our business, including new

capital requirements that become applicable to us or changes in the ability-to-repay rule to replace the qualified

mortgage patch for GSE-eligible loans; 

Ö changes in the structure and regulation of the financial services industry;

Ö the timing and level of, as well as regional variation in, home price changes; 

Ö changes in interest rates and credit spreads; 

Ö developments that may be difficult to predict, including market conditions that result in changes in our net

amortization income from our guaranty book of business, fluctuations in the estimated fair value of our derivatives

and other financial instruments that we mark to market through our earnings, developments that affect our loss

reserves such as changes in interest rates, home prices or accounting standards, or events such as natural disasters;

Ö uncertainties relating to the discontinuance of LIBOR, or other market changes that could impact the loans we own or

guarantee or our MBS;

Ö credit availability; 

Ö disruptions or instability in the housing and credit markets;

Ö the size and our share of the U.S. mortgage market and the factors that affect them, including population growth and

household formation;

Ö growth, deterioration and the overall health and stability of the U.S. economy, including the U.S. gross domestic

product (ÇGDPÉ), unemployment rates, personal income and other indicators thereof;

Ö changes in the fiscal and monetary policies of the Federal Reserve; 

Ö our and our competitorsÑ future guaranty fee pricing and the impact of that pricing on our competitive environment and

guaranty fee revenues; 

Ö the volume of mortgage originations;

Ö the size, composition, quality and performance of our guaranty book of business and retained mortgage portfolio;

Ö the competitive environment in which we operate, including the impact of legislative, regulatory or other

developments on levels of competition in our industry and other factors affecting our market share;

Ö how long loans in our guaranty book of business remain outstanding; 

Ö challenges we face in retaining and hiring qualified executives and other employees; 

Ö our future serious delinquency rates; 

Ö the deteriorated credit performance of many loans in our guaranty book of business; 

Ö changes in the demand for Fannie Mae MBS, in general or from one or more major groups of investors;

Ö our conservatorship, including any changes to or termination (by receivership or otherwise) of the conservatorship

and its effect on our business; 

Ö the investment by Treasury, including potential changes to the terms of the senior preferred stock purchase

agreement or senior preferred stock, and its effect on our business, including restrictions imposed on us by the terms

of the senior preferred stock purchase agreement, the senior preferred stock, and TreasuryÑs warrant, as well as the

Business | Forward-Looking Statements

Fannie Mae 2019 Form 10-K 26
possibility that these or other restrictions on our business and activities may be applied to us through other

mechanisms even if we cease to be subject to these agreements and instruments; 

Ö adverse effects from activities we undertake to support the mortgage market and help borrowers; 

Ö actions we may be required to take by FHFA, in its role as our conservator or as our regulator, such as changes in the

type of business we do or actions relating to UMBS or our resecuritization of Freddie Mac-issued securities; 

Ö limitations on our business imposed by FHFA, in its role as our conservator or as our regulator; 

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

underserved creditworthy borrowers; 

Ö the possibility that future changes in leadership at FHFA or the Administration may result in changes in FHFAÑs or

TreasuryÑs willingness to pursue the administrative reform recommendations in the Treasury plan;

Ö our reliance on CSS and the common securitization platform for a majority of our single-family securitization activities,

our reduced influence over CSS as a result of recent changes to the CSS limited liability company agreement, and

any additional changes FHFA may require in our relationship with, or support of, CSS;

Ö a decrease in our credit ratings; 

Ö limitations on our ability to access the debt capital markets; 

Ö significant changes in modification and foreclosure activity; 

Ö the volume and pace of future nonperforming and reperforming loan sales and their impact on our results and serious

delinquency rates; 

Ö changes in borrower behavior; 

Ö actions we take to mitigate losses, and the effectiveness of our loss mitigation strategies, management of our REO

inventory and pursuit of contractual remedies; 

Ö defaults by one or more institutional counterparties; 

Ö resolution or settlement agreements we may enter into with our counterparties; 

Ö our need to rely on third parties to fully achieve some of our corporate objectives; 

Ö our reliance on mortgage servicers; 

Ö changes in GAAP, guidance by the Financial Accounting Standards Board (the ÇFASBÉ), and changes to our

accounting policies;

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

Ö 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;

Ö the impact of increasing interdependence between the single-family mortgage securitization programs of Fannie Mae

and Freddie Mac in connection with UMBS;

Ö operational control weaknesses; 

Ö our reliance on models and future updates we make to our models, including the assumptions used by these models; 

Ö domestic and global political risks and uncertainties; 

Ö natural disasters, environmental disasters, terrorist attacks, pandemics or other major disruptive events;

Ö cyber attacks or other information security breaches or threats; and 

Ö the other factors described in ÇRisk Factors.É 

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 this report. These forwardlooking 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. 

Business | Forward-Looking Statements

Fannie Mae 2019 Form 10-K 27

Item 1A.ÄÄRisk Factors

Refer to ÇMD&AÜKey Market Economic Indicators,É ÇMD&AÜRisk Management,É ÇMD&AÜSingle-Family BusinessÉ and

ÇMD&AÜMultifamily BusinessÉ 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 forward-
looking statements we make. We believe the risks described below and in the other sections of this report referenced above

are the most significant we face; however, these are not the only risks we face. We face additional risks and uncertainties not

currently known to us or that we currently believe are immaterial.

GSE and Conservatorship Risk

The future of our company is uncertain.

The company faces an uncertain future, including how long we will continue to exist in our current form, the extent of our role

in the market, the level of government support of our business, how long we will be in conservatorship, what form we will have,

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

terminated, and whether we will continue to exist following conservatorship. The conservatorship is indefinite in duration and

the timing, conditions and likelihood of our emerging from conservatorship are uncertain. Our conservatorship could terminate

through a receivership. Termination of the conservatorship, other than in connection with a receivership, requires TreasuryÑs

consent under the senior preferred stock purchase agreement.

On September 5, 2019, Treasury released its plan to reform the housing finance system. The Treasury plan, which is

described in ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance Reform,É is far-reaching in scope and

could have a significant impact on our structure, our role in the secondary mortgage market, our capitalization, our business

and our competitive environment. For example:

Ö Some of the recommendations in the Treasury plan, if implemented, could affect the credit risk of our mortgage

acquisitions, affect our pricing, affect the market for our securities, impose additional requirements on our business,

increase our costs or have other impacts that could negatively impact our ability to compete or otherwise negatively

affect our financial results and condition. 

Ö The Treasury plan recommends legislative changes that would limit our single-family activities and restrict our

multifamily footprint.

Ö Pending any legislative changes, the Treasury plan recommends that FHFA Çassess whether each of the current

products, services, and other single-family activities of [Fannie Mae and Freddie Mac] is consistent with its statutory

mission and should continue to benefit from support underÉ the senior preferred stock purchase agreement. It also

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

ensure that multifamily lending activities are consistent with Fannie MaeÑs and Freddie MacÑs Çunderlying affordability

mission.É 

Ö Regulatory capital requirements that become applicable to us as contemplated by the Treasury plan, depending on

their terms, may require us to change or limit certain business activities. For example, if the final capital rule requires

us to hold more capital than FHFAÑs currently proposed capital framework, we may be required to take actions to

maintain appropriate risk-adjusted returns, which could adversely affect our competitive position. Depending on how

the requirements are structured, this effect may be more pronounced in a stressed economic environment.

Ö The Treasury plan indicates one potential approach to recapitalizing us would be to place us in receivership to

facilitate a restructuring of our capital structure. In the event of such a receivership, existing holders of our preferred

and common stock would have no further ownership interest in us. 

In addition to or in connection with the recommendations set forth in the Treasury plan, Congress, FHFA or other agencies

may consider legislation, regulation or administrative actions to increase the competition we face, reduce our market share,

expand our obligations to provide funds to Treasury, constrain our business operations, or subject us to other obligations that

may adversely affect our business. We cannot predict the timing or final content of housing finance reform legislation or other

legislation, regulations or administrative actions related to our activities, nor can we predict the impact any such enacted

legislation, regulations or administrative actions would have on our business and financial condition.

Our exit from conservatorship is uncertain.

While the Treasury plan contemplates FHFA potentially ending our conservatorship, the preconditions to prepare for an exit

are significant. A number of factors may keep us from meeting the preconditions for exiting conservatorship, otherwise prevent

our exiting conservatorship, or delay any exit from conservatorship as contemplated under the plan, including the following:

Ö we may be unable to retain or raise sufficient capital;

Ö we may be unable to meet additional requirements FHFA determines are necessary for us to operate in a safe and

sound manner;

Ö possible future changes in leadership at FHFA or the Administration may result in changes in FHFAÑs or TreasuryÑs

willingness to pursue the administrative reform recommendations in the Treasury plan;

Ö legislation may pass that prevents the Treasury plan from being implemented;

Ö the need to address operational challenges to exiting conservatorship, including challenges arising from the

interdependence between us and Freddie Mac in connection with UMBS and our resecuritization of each otherÑs

securities; or

Risk Factors

Fannie Mae 2019 Form 10-K 28
Ö the potential loss of regulatory exemptions or protections resulting from exiting conservatorship, including the

qualified mortgage patch and exemptions under the Dodd-Frank risk retention and single-counterparty credit limit

rules. 

Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase

agreement and could be significantly impacted by TreasuryÄs Housing Reform Plan. 

We are currently under the control of our conservator, FHFA, and we do not know whether, when or how the conservatorship

will terminate. In conservatorship our business is not managed with a strategy to maximize shareholder returns while fulfilling

our mission. As conservator, FHFA can direct us to enter into contracts or enter into contracts on our behalf, and generally has

the power to transfer or sell any of our assets or liabilities. In addition, our directors have no fiduciary duties to any person or

entity except to the conservator. Accordingly, our directors are not obligated to consider the interests of the company, the

holders of our equity or debt securities, or the holders of Fannie Mae MBS in making or approving a decision unless

specifically directed to do so by the conservator.

As conservator, FHFA may prevent us from engaging in business activities or transactions that we believe would benefit our

business and financial results. For example, under FHFAÑs 2020 scorecard, one of our performance objectives this year is to

review the risk profile of all of our business activities and reduce risk and complexity to levels determined to be Çmore

appropriateÉ in light of our conservatorship status and limited capital cushion. FHFA has advised us that it expects us to make

changes in our business activities as a result of this review. At this time, we do not know what changes will be required, but it is

possible we may be required to cease engaging in some activities that are profitable and currently within our risk appetite. 

We use loan-level price adjustments to price for the credit risk we assume in providing our guaranty. FHFA must approve

changes to the national loan-level price adjustments we charge and can direct us to make other changes to our single-family

guaranty fee pricing. We also must submit any proposed changes to our single-family automated underwriting system,

Desktop Underwriterâ (ÇDUâÉ), to FHFA for approval. DU provides a comprehensive risk assessment of a borrowerÑs loan

application and is used to evaluate a majority of the single-family loans we acquire. We regularly review DUÑs underlying risk

assessment models and recalibrate them to improve DUÑs ability to analyze risk and avoid excessive risk layering. These

restrictions could decrease our guaranty fee revenues in future periods, decrease our single-family business volume or

negatively impact the credit risk profile of our new single-family acquisitions.

Even if we are released from conservatorship, we remain subject to the terms of the senior preferred stock purchase

agreement, senior preferred stock and warrant, which can only be canceled or modified with the consent of Treasury. The

senior preferred stock purchase agreement with Treasury includes a number of covenants that significantly restrict our

business activities, which are described in ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance ReformÜ

Treasury AgreementsÜCovenants under Treasury Agreements.É 

In addition, the September 2019 letter agreement with Treasury contemplates amending the senior preferred stock purchase

agreement to adopt covenants broadly consistent with the Treasury planÑs recommendations to impose additional restrictions

on our business activities. Limitations on our business activities could restrict our potential sources of revenue, impose

additional costs on us, negatively impact our ability to compete, or otherwise negatively affect our business, results and

financial condition.

Our regulator is authorized or required to place us into receivership under specified conditions, which would result in

the liquidation of our assets. Amounts recovered from the liquidation may not be sufficient to repay the liquidation

preference of any series of our preferred stock or to provide any proceeds to common shareholders. 

FHFA is required to place us into receivership if the Director of FHFA makes a written determination that our assets are less

than our obligations or if we have not been paying our debts as they become due, in either case, for a period of 60Ädays after

the SEC filing deadline for any of our FormÄ10-Ks or FormÄ10-Qs. Although Treasury committed to providing us funds in

accordance with the terms of the senior preferred stock purchase agreement, if we need funding from Treasury to avoid

triggering FHFAÑs obligation, Treasury may not be able to provide sufficient funds to us within the required 60Ädays if it has

exhausted its borrowing authority, if there is a government shutdown, or if the funding we need exceeds the amount available

to us under the agreement. In addition, we could be put into receivership at the discretion of the Director of FHFA at any time

for other reasons set forth in the GSE Act, including if we are critically undercapitalized or if we are undercapitalized and have

no reasonable prospect of becoming adequately capitalized.

A receivership would terminate the conservatorship. In addition to the powers FHFA has as our conservator, the appointment

of FHFA as our receiver would terminate all rights and claims that our shareholders and creditors may have against our assets

or under our charter arising from their status as shareholders or creditors, except for their right to payment, resolution or other

satisfaction of their claims as permitted under the GSE Act. If we are placed into receivership and do not or cannot fulfill our

MBS guaranty obligations, there may be significant delays of any payments to our MBS holders, and the MBS holders could

become unsecured creditors of ours with respect to claims made under our guaranty to the extent the mortgage collateral

underlying the Fannie Mae MBS is insufficient to satisfy the claims of the MBS holders. 

In the event of a liquidation of our assets, only after payment of the administrative expenses of the receiver and the

immediately preceding conservator, the secured and unsecured claims against the company (including repaying all

outstanding debt obligations), and the liquidation preference of the senior preferred stock, would any liquidation proceeds be

Risk Factors

Fannie Mae 2019 Form 10-K 29
available to repay the liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference

on all series of preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our

common stock. In the event of a liquidation of our assets it is uncertain that there would be sufficient proceeds to make any

distribution to holders of our preferred stock or common stock, other than to Treasury as the holder of our senior preferred

stock.

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 is 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 FHFAÑs current strategic initiatives, and ultimately could adversely

affect our financial performance. 

Actions taken by Congress, FHFA and Treasury to date, or that may be taken by them or other government agencies in the

future, have had, and may continue to have, an adverse effect on our retention and recruitment of senior executives and other

employees. We are subject to significant restrictions on the amount and type of compensation we may pay our executives and

other employees while under conservatorship. For example:

Ö The Equity in Government Compensation Act of 2015 limits the annual direct compensation for our Chief Executive

Officer to $600,000 in base salary while we are in conservatorship or receivership.

Ö The Stop Trading on Congressional Knowledge Act of 2012, known as the STOCK Act, and related FHFA regulations

prohibit our senior executives from receiving bonuses during conservatorship. 

Ö In April 2019, legislation was introduced in the U.S. Senate that would prohibit either Fannie Mae or Freddie Mac from

transferring or delegating any duty or responsibility, as of November 25, 2015, of its chief executive officer to any

other position. The legislation would also provide that the Director of FHFA may be removed for cause for approving

the compensation of any chief executive officer of Fannie Mae or Freddie Mac at a level greater than that permitted

under the Equity in Government Compensation Act of 2015. 

Ö As our conservator, FHFA has the authority to approve the terms and amount of our executive compensation, and

may require us to make changes to our executive compensation program. For example:

Ö In August 2019, FHFA directed us, for so long as we are in conservatorship, to:

Ö increase the mandatory deferral period for at-risk deferred salary received by senior vice presidents

and above from one year to two years, effective January 1, 2022 for executives hired before

January 1, 2020 and effective January 1, 2020 for executives hired or promoted to senior vice

president on or after January 1, 2020; and

Ö limit base salaries for all employees to no more than $600,000. 

Ö In September 2019, FHFA directed us to submit for conservator decision any compensation arrangement for

a newly hired employee where the proposed total target direct compensation is $600,000 or above, or any

increase in total target direct compensation for an existing employee where the proposed total target direct

compensation is $600,000 or above. This directive continues for so long as we are in conservatorship.

Ö The terms of our senior preferred stock purchase agreement with Treasury contain specified restrictions relating to

compensation, including a prohibition on selling or issuing equity securities without TreasuryÑs prior written consent,

which effectively eliminates our ability to offer equity-based compensation to our employees.

As a result of the restrictions on our compensation practices, we have not been able to incent and reward excellent

performance with compensation structures that provide upside potential to our executives, which places us at a disadvantage

compared to many other companies in attracting and retaining executives. In addition, the uncertainty of potential action by

Congress or the Administration with respect to housing finance reform, which may result in the wind-down or significant

restructuring of the company, also negatively affects our ability to retain and recruit executives and other employees.

Our inability to offer market-based compensation to our Chief Executive Officer also makes retention and succession planning

for this position difficult. We believe the limit applicable to our chief executive officer compensation negatively affected our

ability to retain our former Chief Executive Officer, who left the company in October 2018.

We face competition from the financial services and technology industries, and from businesses outside of these industries, for

qualified executives and other employees. If we are unable to retain, promote and attract executives and other employees with

the necessary skills and talent, we would face increased risks for operational failures. If there were several high-level

departures at approximately the same time, our ability to conduct our business would likely be materially adversely affected,

which could have a material adverse effect on our results of operations and financial condition.

Risk Factors

Fannie Mae 2019 Form 10-K 30
Pursuing our housing goals and duty to serve obligations may adversely affect our business, results of operations

and financial condition

We are required by the GSE Act to support the housing market in ways that could adversely affect our financial results and

condition. For example, we are subject to housing goals that require a portion of the mortgage loans we acquire to be for lowand very low-income families, families in low-income census tracts and moderate-income families in minority census tracts or

designated disaster areas. We also have a duty to serve very low-, low- and moderate-income families in three underserved

markets: manufactured housing, affordable housing preservation and rural areas. We may take actions to meet our housing

goals and duty to serve obligations that could adversely affect our profitability. For example, we may acquire loans that offer

lower expected returns or increase our credit losses and credit-related expenses. If we do not meet our housing goals or duty

to serve requirements, and FHFA finds that the goals or requirements were feasible, we may become subject to a housing plan

that could require us to take additional steps that could have an adverse effect on our results of operations and financial

condition. The potential penalties for failure to comply with housing plan requirements include a cease-and-desist order and

civil money penalties. See ÇBusinessÜCharter Act and RegulationÜGSE Act and Other LegislationÉ for more information on

our housing goals and duty to serve underserved markets.

The conservatorship and agreements with Treasury have had, and will continue to have, a material adverse effect on

our common and preferred shareholders. 

The material adverse effects of the conservatorship and our agreements with Treasury include the following: 

No voting rights during conservatorship. The rights and powers of our shareholders are suspended during conservatorship.

During conservatorship, our common shareholders do not have the ability to elect directors or to vote on other matters unless

the conservator delegates this authority to them. 

No dividends to common or preferred shareholders, other than to Treasury. Our conservator announced in September 2008

that we would not pay any dividends on the common stock or on any series of preferred stock, other than the senior preferred

stock, while we are in conservatorship. In addition, under the terms of the senior preferred stock purchase agreement,

dividends may not be paid to common or preferred shareholders (other than on the senior preferred stock) without the prior

written consent of Treasury, regardless of whether we are in conservatorship. 

Our profits directly increase the liquidation preference of TreasuryÄs senior preferred stock and, once they exceed our capital

reserve amount, will be payable to Treasury as dividends. The senior preferred stock ranks senior to our common stock and all

other series of our preferred stock, as well as any capital stock we issue in the future, as to both dividends and distributions

upon liquidation. Accordingly, if we are liquidated, the senior preferred stock is entitled to its then-current liquidation preference

(which includes any accumulated but unpaid dividends), before any distribution is made to the holders of our common stock or

other preferred stock. The liquidation preference on the senior preferred stock was $131.2 billion as of December 31, 2019.

Currently, the liquidation preference of the senior preferred stock increases at the end of each quarter by an amount equal to

the increase in our net worth, if any, during the immediately prior fiscal quarter, until the liquidation preference has increased

by $22 billion pursuant to this provision. The liquidation preference would increase further if we draw on TreasuryÑs funding

commitment or if we do not pay dividends owed on the senior preferred stock. If we are liquidated, it is uncertain that there

would be sufficient funds remaining after payment of amounts to our creditors and to Treasury as holder of the senior preferred

stock to make any distribution to holders of our common stock and other preferred stock. 

Pursuant to the dividend provisions of the senior preferred stock and quarterly directives from our conservator, we are

obligated to pay Treasury each quarter any dividends declared consisting of the amount, if any, by which our net worth as of

the end of the immediately preceding fiscal quarter exceeds the $25 billion capital reserve amount. If we do not declare and

pay the dividend amount in full for any dividend period for which dividends are payable, the applicable capital reserve amount

will thereafter be zero.

As a result, our net income is not available to common shareholders or preferred shareholders other than Treasury as holder

of the senior preferred stock.

Exercise of the Treasury warrant would substantially dilute the investment of current shareholders. If Treasury exercises its

warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock

outstanding on a fully diluted basis, the ownership interest in the company of our then-existing common shareholders will be

substantially diluted, and we would thereafter have a controlling shareholder. 

We are not managed for the benefit of shareholders. Because we are in conservatorship, we are not managed with a strategy

to maximize shareholder returns. 

The senior preferred stock purchase agreement, senior preferred stock and warrant can only be canceled or modified with the

consent of Treasury. For additional description of the conservatorship and our agreements with Treasury, see ÇBusinessÜ

Conservatorship, Treasury Agreements and Housing Finance Reform.É 

Risk Factors

Fannie Mae 2019 Form 10-K 31
The liquidity and market value of our MBS could be adversely affected by developments in the UMBS market,

including those connected with our or Freddie MacÄs exit from conservatorship. 

In June 2019, we and Freddie Mac began issuing UMBS. The issuance of UMBS represents significant changes for the

mortgage market and for our securitization operations and business. The success of UMBS is largely predicated on the

fungibility of UMBS issued by Fannie Mae and Freddie Mac. If investors stop viewing Fannie Mae-issued UMBS and Freddie

Mac-issued UMBS as fungible, or if investors prefer Freddie Mac-issued UMBS over Fannie Mae-issued UMBS, it could

adversely affect the liquidity and market value of Fannie Mae MBS, the volume of our UMBS issuances and our guaranty fee

revenues. FHFA adopted a rule to align Fannie Mae and Freddie Mac programs, policies and practices that affect the

prepayment rates of TBA-eligible mortgage-backed securities to support the fungibility of Fannie Mae-issued UMBS and

Freddie Mac-issued UMBS. However, these alignment efforts may not be successful over the long term and the prepayment

rates on Fannie Mae-issued UMBS and Freddie Mac-issued UMBS could diverge in a manner that is disadvantageous for us. 

The continued support of FHFA, Treasury, the Securities Industry and Financial Markets Association, and certain other

regulatory bodies is critical to the success of the Single Security Initiative. If any of these entities were to cease its support, the

liquidity and market value of Fannie Mae-issued UMBS could be adversely affected. Furthermore, if either we or Freddie Mac

exits conservatorship, it is unclear whether our and Freddie MacÑs programs, policies and practices in support of UMBS and

resecuritizations of each otherÑs securities would be sustained.

Our issuance of UMBS and structured securities backed by Freddie Mac-issued securities has increased our

operational and counterparty credit risk.

Issuing UMBS has increased our operational and counterparty credit risk exposure to Freddie Mac. When we resecuritize

Freddie Mac-issued UMBS or other Freddie Mac securities, our guaranty of principal and interest extends to the underlying

Freddie Mac security. We expect this risk exposure to increase as we issue more structured securities backed directly or

indirectly by Freddie Mac-issued securities going forward. Although we have an indemnification agreement with Freddie Mac,

in the event Freddie Mac were to fail (for credit or operational reasons) to make a payment due on its securities underlying a

Fannie Mae-issued structured security, we would be obligated under our guaranty to fund any shortfall and make the entire

payment on the related Fannie Mae-issued structured security on that payment date. Our pricing does not currently reflect any

incremental credit, liquidity or operational risk associated with our guaranty of resecuritized Freddie Mac securities. As a result,

a failure by Freddie Mac to meet its obligations under the terms of its securities that back structured securities we issue could

have a material adverse effect on our earnings and financial condition, and we could be dependent on Freddie Mac and on the

senior preferred stock purchase agreements that we and Freddie Mac each have with Treasury to avoid a liquidity event or a

default under our guaranty.

The implementation of the Single Security Initiative created significant interdependence between the single-family mortgage

securitization programs of Fannie Mae and Freddie Mac. Accordingly, the market value of single-family Fannie Mae MBS could

be affected by financial and operational incidents relating to Freddie Mac, even if those incidents do not directly relate to

Fannie Mae or Fannie Mae MBS. Similarly, any disruption in Freddie MacÑs securitization activities or any adverse events

affecting Freddie MacÑs significant mortgage sellers and servicers also could adversely affect the market value of single-family

Fannie Mae MBS. 

Our reliance on CSS and the common securitization platform has increased our counterparty and third-party risk.

We began using the common securitization platform operated by CSS to perform certain aspects of the securitization process

for our single-family Fannie Mae MBS issuances in May 2019. We also use the common securitization platform for certain

ongoing administrative functions for our previously issued and outstanding single-family Fannie Mae MBS. As a result, we no

longer use our individual proprietary securitization function for our single-family MBS issuances. Accordingly, we are reliant on

the common securitization platform and CSS for the operation of a majority of our single-family securitization activities. 

In January 2020, at FHFAÑs direction we entered into an amended limited liability company agreement for CSS. The

amendment reduces our and Freddie MacÑs ability to control CSS Board decisions, even after conservatorship, including

decisions about strategy, business operations and funding. The amendment expanded the CSS Board of Managers from two

members designated by each GSE to include (1)Äthe CSS Chief Executive Officer; (2)Äa Board Chair not affiliated with either

GSE or CSS (who was designated by FHFA in January 2020); and (3)Äup to three independent Board members not affiliated

with either GSE or CSS who, along with the Board Chair and the Chief Executive Officer of CSS, may continue to serve on the

CSS Board after an exit from conservatorship. Board actions must be approved by a majority vote and, while we and Freddie

Mac both remain in conservatorship, FHFA has the right to designate the additional Board members and the Board Chair, and

no Board action may be taken without the affirmative vote of the Board Chair. The Board Chair, CSS CEO and three additional

FHFA-designated Board members, if designated, will constitute a majority of the Board, in which case the four managers

designated by Fannie Mae and Freddie Mac will constitute a minority of the Board and could be outvoted by non-GSE

designated Board members on any matter during conservatorship and on a number of significant matters following either our

or Freddie MacÑs exit from conservatorship. Although the amended agreement would require our approval for certain Çmaterial

decisionsÉ if either we or Freddie Mac have exited conservatorship, the Board may approve a number of actions even after

conservatorship over the objection of the managers we and Freddie Mac designate, including: approval of the annual budget

and strategic plan for CSS (so long as it does not involve a material business change); withdrawal of capital by a member; and

requiring capital contributions necessary to support CSSÑs ordinary business operations. We are still evaluating how these

Risk Factors

Fannie Mae 2019 Form 10-K 32
changes to the CSS governance structure will affect us, and it is possible that FHFA may require us to make additional

changes to the CSS limited liability company agreement, or may otherwise impose restrictions or provisions relating to CSS or

UMBS, that may adversely affect us.

We do not currently pay service fees to CSS under our customer services agreement; its operations are funded entirely

through capital contributions from Fannie Mae and Freddie Mac pursuant to the limited liability company agreement described

above. We expect this arrangement may change, but we do not know how the eventual arrangement will be structured, or

what control we will have in establishing those fees. During conservatorship, FHFA can direct us to enter into an amendment

of the customer services agreement or enter such an amendment on our behalf, that could provide for a fee structure that

would survive an exit from conservatorship absent a further amendment to the customer services agreement, which a majority

of the Board would have to approve. Further, following either our or Freddie MacÑs exit from conservatorship, a majority of the

Board can determine how the annual operations of CSS are funded. Although implementation of any fee changes could

require a further amendment to the customer services agreement, we might not have significant leverage to negotiate that

amendment and the associated fee changes given our dependence on CSS.

Our securitization activities are complex and present significant operational and technological challenges and risks. Any

measures we take to mitigate these challenges and risks might not be sufficient to prevent a disruption to our securitization

activities. Our business activities could be adversely affected and the market for single-family Fannie Mae MBS could be

disrupted if the common securitization platform were to fail or otherwise become unavailable to us or if CSS were unable to

perform its obligations to us. Any such failure or unavailability could have a significant adverse impact on our business,

liquidity, financial condition, net worth and results of operations, and could adversely affect the liquidity or market value of our

single-family MBS. In addition, a failure by CSS to maintain effective controls and procedures could result in material errors in

our reported results or disclosures that are not complete or accurate.

We are limited in our ability to diversify our business and may be prohibited from undertaking activities that

management believes would benefit our business. 

As a federally chartered corporation, we are subject to the limitations imposed by the Charter Act, extensive regulation,

supervision and examination by FHFA and regulation by other federal agencies, including Treasury, HUD and the SEC. The

Charter Act defines our permissible business activities. For example, we may not originate mortgage loans or purchase singlefamily loans in excess of the conforming loan limits, and our business is limited to the U.S.Ähousing finance sector. In addition,

as described in a previous risk factor, our business activities are subject to significant restrictions as a result of the

conservatorship and the senior preferred stock purchase agreement. As a result of these limitations on our ability to diversify

our operations, our financial condition and results of operations depend almost entirely on conditions in a single sector of the

U.S.Äeconomy, specifically, the U.S.Ähousing market. Weak or unstable conditions in the U.S. housing market can therefore

have a significant adverse effect on our business that we cannot mitigate through diversification. 

An active trading market in our equity securities may cease to exist, which would adversely affect the market price

and liquidity of our common and preferred stock. 

Our common stock and preferred stock are now traded exclusively in the over-the-counter market. We cannot predict the

actions of market makers, investors or other market participants, and can offer no assurances that the market for our securities

will be stable. If there is no active trading market in our equity securities, the market price and liquidity of the securities will be

adversely affected. In addition, the market price of our common stock and preferred stock is subject to significant volatility,

which may be due to other factors described in these ÇRisk Factors,É as well as speculation regarding our future, economic

and political conditions generally, liquidity in the over-the-counter market in which our stock trades, and other factors, many of

which are beyond our control. Such factors could cause the market price of our common stock and preferred stock to decline

significantly, which may result in significant losses to holders of our common stock and preferred stock. 

We may not have sufficient capital reserves to avoid a net worth deficit if we experience comprehensive losses in the

future. If we have a net worth deficit in a future quarter, we will be required to draw funds from Treasury to avoid

being placed into receivership. 

The recently amended dividend provisions of the senior preferred stock permit us to retain only up to $25 billion as capital

reserves, provided our conservator directs us to declare and pay senior preferred stock dividends that become payable in the

future. As of December 31, 2019, our net worth was $14.6 billion. As a result, we may not have sufficient capital reserves to

avoid a net worth deficit if we have comprehensive losses in the future.

For any quarter for which we have a net worth deficit, we would need to draw funds from Treasury under the senior preferred

stock purchase agreement to avoid being placed into receivership. As of the date of this filing, the maximum amount of

remaining funding under the agreement is $113.9 billion. If we were to draw additional funds from Treasury under the

agreement with respect to a future period, the amount of remaining funding under the agreement would be reduced by the

amount of our draw. Dividend payments we make to Treasury do not restore or increase the amount of funding available to us

under the agreement. Accordingly, if we experience multiple quarters of net worth deficits, the amount of remaining funding

available under the senior preferred stock purchase agreement could be significantly reduced from its current level.

Risk Factors

Fannie Mae 2019 Form 10-K 33
Credit Risk

We may incur significant credit losses and credit-related expenses on the loans in our book of business, which could

materially adversely affect our earnings, financial condition and net worth. 

We are exposed to a significant amount of mortgage credit risk on our $3.4 trillion guaranty book of business, which includes

mortgage assets that back our guaranteed Fannie Mae MBS, mortgage assets in our retained mortgage portfolio and credit

enhancements we provide. Borrowers of mortgage loans that we own or guaranty may fail to make required payments of

principal and interest on their mortgage loans, exposing us to the risk of credit losses and credit-related expenses. Increases

in our credit-related expenses would reduce our earnings and adversely affect our financial condition and net worth.

The credit performance of loans in our book of business could deteriorate in the future, particularly if we experience national or

regional declines in home prices, weakening economic conditions or high unemployment, resulting in significantly higher credit

losses and credit-related expenses. Although we strengthened our underwriting and eligibility standards over the last decade,

we continue to have loans in our book of business that were originated prior to the financial market crisis of 2008. We present

detailed information about the risk characteristics of our single-family conventional guaranty book of business in ÇMD&AÜ

Single-Family BusinessÉ and our multifamily guaranty book of business in ÇMD&AÜMultifamily Business.É The processing of

foreclosures of single-family loans continues to be slow in some states, which has negatively affected our foreclosure timelines

and our single-family serious delinquency rate. 

While we use certain credit enhancements to mitigate some of our potential future credit losses, we may not be able to obtain

as much protection from our credit enhancements as we would like to obtain, for a number of reasons: 

Ö Some of the credit enhancements we use, such as mortgage insurance and credit insurance risk transfer

transactions, are subject to the risk that the counterparties may not meet their obligations to us. 

Ö Our credit risk transfer transactions have limited terms (typically 10, 12.5 or 20 years), after which they provide limited

or no further credit protection on the covered loans. 

Ö Generally, our credit risk transfer transactions do not cover losses from principal forgiveness.

Ö Our credit risk transfer transactions are not designed to shield us from all losses because we retain a portion of the

risk of future losses on loans covered by these transactions, including all or a portion of the first loss risk in most

transactions. 

Ö In the event of a sufficiently severe economic downturn, we may not be able to enter into new back-end credit risk

transfer transactions for our recent acquisitions on economically advantageous terms.

Ö Mortgage insurance does not protect us from all losses on covered loans.ÄFor example, mortgage insurance does not

cover us from default risk for properties that suffered damages that were not covered by the hazard or flood

insurance we require.ÄA property damaged by a flood that was outside a Federal Emergency Management Agency

(ÇFEMAÉ)-designated Special Flood Hazard Area, where we require coverage, or a property damaged by an

earthquake are the most likely scenarios where property damage may result in a default not covered by hazard

insurance.

One or more of our institutional counterparties may fail to fulfill their contractual obligations to us, resulting in

financial losses, business disruption and decreased ability to manage risk. 

We rely on our institutional counterparties to provide services and credit enhancements that are critical to our business. We

face the risk that one or more of our institutional counterparties may fail to fulfill their contractual obligations to us. Our primary

exposures to institutional counterparty risk are with credit guarantors that provide credit enhancements on the mortgage

assets that we hold in our retained mortgage portfolio or that back our Fannie Mae MBS, including mortgage insurers and

reinsurers, including those that participate in our CIRT transactions, and multifamily lenders with risk sharing arrangements;

mortgage servicers that service the loans we hold in our retained mortgage portfolio or that back our Fannie Mae MBS;

mortgage sellers and servicers that are obligated to repurchase loans from us or reimburse us for losses in certain

circumstances; the financial institutions that issue the investments, including overnight bank deposits, held in our other

investments portfolio; and derivatives counterparties. We do not generally select the provider of primary mortgage insurance

on a specific loan, because the selection is usually made by the lender at the time the loan is originated. Accordingly, we have

limited ability to manage our concentration risk with respect to primary mortgage insurers. We also have counterparty

exposure to custodial depository institutions; mortgage originators, investors and dealers; debt security dealers; and document

custodians.

We routinely enter into a high volume of transactions with counterparties in the financial services industry, including brokers

and dealers, mortgage lenders and commercial banks, and mortgage insurers, resulting in a significant credit concentration

with respect to this industry. We may also have multiple exposures to particular counterparties, as many of our counterparties

perform several types of services for us. For example, our lender customers or their affiliates may also act as derivatives

counterparties, mortgage servicers, custodial depository institutions or document custodians. Accordingly, if one of these

counterparties were to become insolvent or otherwise default on its obligations to us, it could harm our business and financial

results in a variety of ways.

Risk Factors

Fannie Mae 2019 Form 10-K 34
An institutional counterparty may default on its obligations to us for a number of reasons, such as changes in financial

condition that affect its credit rating, changes in its servicer rating, a reduction in liquidity, operational failures or insolvency. In

the event of a bankruptcy or receivership of one of our counterparties, we may be required to establish our ownership rights to

the assets these counterparties hold on our behalf to the satisfaction of the bankruptcy court or receiver, which could result in

a delay in accessing these assets causing a decline in their value. Counterparty defaults or limitations on their ability to do

business with us could result in significant financial losses or hamper our ability to do business or manage the risks to our

business, which could materially adversely affect our business, results of operations, financial condition, liquidity and net

worth. In addition, if we are unable to replace a defaulting counterparty that performs services that are critical to our business

with another counterparty, it could adversely affect our ability to conduct our operations and manage risk.

We depend on our ability to enter into derivatives transactions in order to manage the duration and prepayment risk of our

retained mortgage portfolio. If we lose access to our derivatives counterparties, it could adversely affect our ability to manage

these risks, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. 

Our financial condition or results of operations may be adversely affected if mortgage servicers fail to perform their

obligations to us.

We delegate the servicing of the mortgage loans in our guaranty book of business to mortgage servicers; we do not have our

own servicing function. Functions performed by mortgage servicers on our behalf include collecting and delivering principal

and interest payments, administering escrow accounts, monitoring and reporting delinquencies, performing default prevention

activities and other functions. The inability of a mortgage servicer to perform these functions due to financial, operational,

regulatory or other issues could negatively affect our ability to manage our book of business, delay or prevent our collection of

amounts due to us, or otherwise result in the failure to perform other servicing duties, resulting in financial losses. 

Our servicers also have an active role in our loss mitigation efforts. Our ability to actively manage the troubled loans that we

own or guarantee, and to implement our homeownership assistance and foreclosure prevention efforts quickly and effectively,

is limited by our reliance on our mortgage servicers. A decline in servicer performance on loss mitigation could adversely affect

our credit performance, which could have a material adverse effect on our business, results of operations and financial

condition.

A large portion of our single-family guaranty book is serviced by non-depository servicers. The potentially lower financial

strength, liquidity and operational capacity of non-depository mortgage sellers and servicers compared with depository

mortgage sellers and servicers may negatively affect their ability to fully satisfy their financial obligations or to properly service

the loans on our behalf.

If we replace a mortgage servicer, we likely would incur costs and potential increases in servicing fees and could also face

operational risks. If a mortgage servicer fails, it could result in a temporary disruption in servicing and loss mitigation activities

relating to the loans serviced by that mortgage servicer, particularly if there is a loss of experienced servicing personnel. We

may also face challenges in transferring a large servicing portfolio.

Multifamily mortgage servicing is typically performed by the lenders who sell the mortgages to us. We are exposed to the risk

that multifamily servicers could come under financial pressure, which could potentially result in a decline in the quality of the

servicing they provide us. 

We may incur losses as a result of claims under our mortgage insurance policies not being paid in full or at all. 

We rely heavily on mortgage insurers to provide insurance against borrower defaults on single-family conventional mortgage

loans with LTV ratios over 80% at the time of acquisition. Although the financial condition of our primary mortgage insurer

counterparties currently approved to write new business has improved in recent years and they must meet risk-based asset

requirements, there is still a risk that these counterparties may fail to fulfill their obligations to pay our claims under insurance

policies. 

With respect to primary mortgage insurers that we have approved to write coverage on loans sold to us, we currently do not

differentiate pricing based on counterparty strength or operational performance.ÄAdditionally, we would not revoke a primary

mortgage insurerÑs status as an eligible insurer unless there was a material violation of our private mortgage insurer eligibility

requirements.ÄFurther, we do not generally select the provider of primary mortgage insurance on a specific loan, because the

selection is usually made by the lender at the time the loan is originated. Accordingly, we have limited ability to manage our

concentration risk with respect to primary mortgage insurers.

Three of our mortgage insurer counterparties who are currently not approved to write new businessÜPMI Mortgage Insurance

Co. (ÇPMIÉ), Triad Guaranty Insurance Corporation (ÇTriadÉ) and Republic Mortgage Insurance Company (ÇRMICÉ)Üare

currently in run-off. A mortgage insurer that is in run-off continues to collect renewal premiums and process claims on its

existing insurance business, but no longer writes new insurance, which increases the risk that the mortgage insurer will pay

claims only in part or fail to pay claims at all under existing insurance policies. Entering run-off may close off a source of profits

and liquidity that may have otherwise assisted a mortgage insurer in paying claims under insurance policies, and could also

cause the quality and speed of its claims processing to deteriorate. PMI and 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 their deferred policyholder claims and/

Risk Factors

Fannie Mae 2019 Form 10-K 35
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. PMI, Triad and RMIC provided a combined $3.3 billion, or 2%, of our risk in force mortgage insurance

coverage of our single-family guaranty book of business as of December 31, 2019. 

On at least a quarterly basis, we assess our mortgage insurer counterpartiesÑ respective abilities to fulfill their obligations to us,

and our loss reserves take into account this assessment. If our assessment indicates their ability to pay claims has

deteriorated significantly or if our projected claim amounts have increased, it could result in an increase in our loss reserves

and our credit losses. 

Mortgage fraud could result in significant financial losses and harm to our reputation. 

We use a process of delegated underwriting in which lenders make specific representations and warranties about the

characteristics of the mortgage loans we purchase and securitize. As a result, we do not independently verify most borrower

information that is provided to us. This exposes us to the risk that one or more of the parties involved in a transaction (the

borrower, seller, broker, appraiser, title agent, lender or servicer) will engage in fraud by misrepresenting facts about a

mortgage loan. Similarly, we rely on delegated servicing of loans and use of a variety of external resources to manage our

REO inventory. We have experienced financial losses resulting from mortgage fraud, including institutional fraud perpetrated

by counterparties. In the future, we may experience additional financial losses or reputational damage as a result of mortgage

fraud. 

We may suffer losses if borrowers are unable to obtain property or flood insurance, if their claims under insurance

policies are not paid, or if they suffer property damage as a result of a hazard for which we do not require insurance.

In general, we require borrowers to obtain property insurance to cover the risk of damage to their homes resulting from

hazards such as fire, wind and, for properties in a Special Flood Hazard Area as designated by FEMA, flooding. Approximately

3.5% of loans in our single-family guaranty book of business and 5% of loans in our multifamily guaranty book of business are

located in a Special Flood Hazard Area. For flood insurance, single-family borrowers generally rely on the National Flood

Insurance Program (ÇNFIPÉ), which was recently extended through September 2020 after a series of short-term extensions

since late 2017. If Congress fails to extend or re-authorize the program upon future expirations, FEMA may not have sufficient

funds to pay claims for flood damage, and borrowers may not be able to renew their flood insurance coverage or obtain new

policies through the NFIP. In addition, NFIP insurance does not cover temporary living expenses, and the maximum limit of

coverage available under NFIP for a single-family residential property is $250,000, which may not be sufficient to cover all

losses. Moreover, any increase in the severity or frequency of floods or other weather-related disasters as a result of changing

weather patterns could intensify the foregoing risks. If borrowers are unable to obtain property or flood insurance and suffer

property damage, if their claims under insurance policies are not paid, or if they suffer property damage as a result of a hazard

for which we do not generally require insurance, such as earthquake damage or flood damage on a property located outside a

Special Flood Hazard Area, they may not pay their mortgage loans, which would negatively impact our credit losses and

credit-related expenses.

The occurrence of major natural or other disasters in the United States or its territories, and any increase in the

frequency and severity of such events, could negatively impact our credit losses and credit-related expenses. 

We conduct our business in the single-family and multifamily residential mortgage markets and own or guarantee the

performance of mortgage loans throughout the United States and its territories. The occurrence of a major natural or

environmental disaster, terrorist attack, cyber attack, pandemic, or similar event (a Çmajor disruptive eventÉ) in the United

States or its territories could negatively impact our credit losses and credit-related expenses in the affected geographic area

or, depending on the magnitude, scope and nature of the event, nationally, in a number of ways. For example, a major

disruptive event that either damages or destroys residential or multifamily real estate securing mortgage loans in our book of

business or negatively impacts the ability of borrowers to make principal and interest payments on mortgage loans in our book

of business could increase our delinquency rates, default rates and average loan loss severity of our book of business in the

affected region or regions. Further, a major disruptive event that discourages housing activity, including homebuilding or home

buying, or causes a deterioration in housing conditions in the affected region could lower the volume of originations in the

mortgage market, influence home prices and property values in the affected region or in adjacent regions and increase

delinquency rates and default rates. Any of these outcomes could generate significant credit losses and credit-related

expenses and have a material adverse effect on our business, results of operations, financial condition, liquidity and net worth.

Recent years have seen frequent and severe natural disasters in the U.S., including hurricanes, wildfires and floods. There are

concerns that the frequency and severity of major weather-related events is indicative of changing weather patterns and that

these patterns could persist or intensify. Population growth and an increase in people living in high-risk areas, such as coastal

areas vulnerable to severe storms and flooding, has also increased the impact of these events. Although our financial

exposure from these events is mitigated to the extent our book of business is geographically diverse, we remain exposed to

risk, particularly in connection with the risk of geographically widespread weather events due to global changes in weather

patterns. In addition, the increasing unpredictability of major natural disasters negatively affects our ability to forecast losses

from such events, which may negatively impact our ability to accurately address the likelihood of such losses in the guaranty

fees that we charge. As a result, any continuation or increase in recent weather trends or their unpredictability, or any single

natural disaster of significant scope or severity, could have a material impact on our results of operations and financial

Risk Factors

Fannie Mae 2019 Form 10-K 36
condition. Further, legal or regulatory responses to concerns about global climate change may impact the housing markets

and, as a result, our business.

Operational Risk 

A failure in our operational systems or infrastructure, or those of third parties, could materially adversely affect our

business, impair our liquidity, cause financial losses and harm our reputation. 

Shortcomings or failures in our internal processes, people, data management or systems could disrupt our business or have a

material adverse effect on our risk management, liquidity, financial statement reliability, financial condition and results of

operations. Such a failure could result in legislative or regulatory intervention or sanctions, liability to customers, financial

losses, business disruptions and damage to our reputation. For example, our business is highly dependent on our ability to

manage and process, on a daily basis, an extremely large number of transactions, many of which are highly complex, across

numerous and diverse markets that continuously and rapidly change and evolve. These transactions are subject to various

legal, accounting and regulatory standards. Our financial, accounting, data processing or other operating systems and facilities

may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are

wholly or partially beyond our control, adversely affecting our ability to process these transactions or manage associated data

with reliability and integrity. In addition, we rely on information provided by third parties in processing many of our transactions;

that information may be incorrect or we may fail to properly manage or analyze it or properly monitor its data quality. 

We rely upon business processes that are highly dependent on people, technology and equipment, data and the use of

numerous complex systems and models to manage our business and produce books and records upon which our financial

statements and risk reporting are prepared. This reliance increases the risk that we may be exposed to financial, reputational

or other losses as a result of inadequately designed internal processes or data management architecture, inflexible technology

or the failure of our systems. While we continue to enhance our technology, infrastructure, operational controls and

organizational structure in order to reduce our operational risk, these actions may not be effective to manage these risks and

may create additional operational risk as we execute these enhancements. In addition, our use of third-party service providers

for some of our business and technology functions increases the risk that an operational failure by a third party will adversely

affect us.

Our ability to manage and aggregate data may be limited by the effectiveness of our policies, programs, processes, systems

and practices that govern how data is acquired, validated, stored, protected, processed and shared. Failure to manage data

effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks,

as well as to manage changing business needs.

We also face the risk of operational failure, termination or capacity constraints of any of the clearing agents, paying agents,

exchanges, clearinghouses or other financial intermediaries, including CSS and Freddie Mac, we use to facilitate our securities

and derivatives transactions. In recent years, there has been significant consolidation among clearing agents, exchanges and

clearing houses. This consolidation and interconnectivity increases the risk of operational failure, on both an individual basis

and an industry-wide basis, as disparate complex systems need to be integrated, often on an accelerated basis. Any such

failure, termination or constraint could adversely affect our ability to effect transactions or manage our exposure to risk, and

could have a significant adverse impact on our business, liquidity, financial condition, net worth and results of operations. 

Substantially all of our employees and business operations functions are consolidated in two metropolitan areas: Washington,

DC and Dallas, Texas. As a result of this concentration of our employees and facilities, a major disruptive event at either

location could impact our ability to operate notwithstanding the business continuity plans and facilities that we have in place,

including our out-of-region data center for disaster recovery. Moreover, because of the concentration of our employees in the

Washington, DC and Dallas metropolitan areas, a regional disruption in one of these areas could prevent our employees from

occupying our facilities, working remotely, or communicating with or traveling to other locations. Further, if the frequency,

severity or unpredictability of weather-related events in the Washington, DC or Dallas regions increases as a result of

changing weather patterns, then these disruptions could occur regularly or last for longer periods of time. Accordingly, the

occurrence of one or more major disruptive events could materially adversely affect our ability to conduct our business and

lead to financial losses.

A breach of the security of our systems or facilities, or those of third parties with which we do business, including as

a result of cyber attacks, could damage or disrupt our business or result in the disclosure or misuse of confidential

information, which could damage our reputation, result in regulatory sanctions and/or increase our costs and cause

losses.

Our operations rely on the secure receipt, processing, storage and transmission of confidential and other information in our

computer systems and networks and with our business partners, including proprietary, confidential or personal information that

is subject to privacy laws, regulations or contractual obligations. Information security risks for large institutions like us have

significantly increased in recent years in part because of the proliferation of new technologies and the use of the Internet and

telecommunications technologies to conduct or automate financial transactions. A number of financial services companies,

consumer-based companies and other organizations have reported the unauthorized disclosure of client, customer or other

confidential information, as well as cyber attacks involving the dissemination, theft and destruction of corporate information,

intellectual property, cash or other valuable assets. There have also been several highly publicized cases where hackers have

Risk Factors

Fannie Mae 2019 Form 10-K 37
requested ÇransomÉ payments in exchange for not disclosing stolen customer information or for not disabling the target

companyÑs computer or other systems.

We have been, and likely will continue to be, the target of cyber attacks, computer viruses, malicious code, phishing attacks,

denial of service attacks and other information security threats. To date, cyber attacks have not had a material impact on our

financial condition, results or business; however, we could suffer material financial or other losses in the future and we are not

able to predict the severity of these attacks. Our risk and exposure to these matters remains heightened because of, among

other things, the evolving nature of these threats, the current global economic and political environment, our prominent size

and scale and our role in the financial services industry, the outsourcing of some of our business operations, the ongoing

shortage of qualified cyber security professionals, our migration to cloud-based systems, our increased use of employeeowned devices for business communication, and the interconnectivity and interdependence of third parties to our systems. 

Despite our efforts to ensure the integrity of our software, computers, systems and information, we may not be able to

anticipate, detect or recognize threats to our systems and assets, or to implement effective preventive measures against all

cyber threats, especially because the techniques used are increasingly sophisticated, change frequently, are complex, and are

often not recognized until launched. We routinely identify cyber threats as well as vulnerabilities in our systems and work to

address them, but these efforts may be insufficient. Further, these efforts involve costs that can be significant as cyber attack

methods continue to rapidly evolve. Cyber attacks can originate from a variety of sources, including external parties who are

affiliated with foreign governments or are involved with organized crime or terrorist organizations. Third parties may also

attempt to induce employees, customers or other users of our systems to disclose sensitive information or provide access to

our systems or network, or to our data or that of our counterparties or borrowers, and these types of risks may be difficult to

detect or prevent.

The occurrence of a cyber attack, breach, unauthorized access, misuse, computer virus or other malicious code or other cyber

security event could jeopardize or result in the unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or

destruction of confidential and other information that belongs to us, our customers, our counterparties, third-party service

providers or borrowers that is processed and stored in, and transmitted through, our computer systems and networks. The

occurrence of such an event could also result in damage to our software, computers or systems, or otherwise cause

interruptions or malfunctions in our, our customersÑ, our counterpartiesÑ or third partiesÑ operations. This could result in

significant financial losses, loss of customers and business opportunities, reputational damage, litigation, regulatory fines,

penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our business, financial

condition or results of operations. 

Cyber attacks can occur and persist for an extended period of time without detection. Investigations of cyber attacks are

inherently unpredictable, and it takes time to complete an investigation and have full and reliable information. While we are

investigating a cyber attack, we do not necessarily know the extent of the harm or how best to remediate it, and we can repeat

or compound certain errors or actions before we discover and remediate them. In addition, announcing that a cyber attack has

occurred increases the risk of additional cyber attacks, and preparing for this elevated risk can delay the announcement of a

cyber attack. All or any of these challenges could further increase the costs and consequences of a cyber attack. 

In addition, we may be required to expend significant additional resources to modify our protective measures and to

investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Although we maintain

insurance coverage relating to cybersecurity risks, our insurance may not be sufficient to provide adequate loss coverage in all

circumstances. 

Because we are interconnected with and dependent on third-party vendors, exchanges, clearing houses, fiscal and paying

agents, and other financial intermediaries, including CSS, we could be materially adversely impacted if any of them is subject

to a successful cyber attack or other information security event. For example, if a data breach compromises the integrity of

borrower data that we or our customers rely on, it could materially adversely affect our operations or financial results. Third

parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain

functions and these relationships allow for the external storage and processing of our information, as well as customer,

counterparty and borrower information, including on cloud-based systems. We also share this type of information with

regulatory agencies and their vendors. While we engage in actions to mitigate our exposure resulting from our informationsharing activities, ongoing threats may result in unauthorized access, loss or destruction of data or other cybersecurity

incidents with increased costs and consequences to us such as those described above.

We routinely transmit and receive personal, confidential and proprietary information by electronic means. In addition, our

customers maintain personal, confidential and proprietary information on systems we provide. We have discussed and worked

with customers, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities

and protect against cyber attacks, but we do not have, and may be unable to put in place, secure capabilities with all of our

clients, vendors, service providers, counterparties and other third parties and we may not be able to ensure that these third

parties have appropriate controls in place to protect the confidentiality of the information. An interception, misuse or

mishandling of personal, confidential or proprietary information being sent to or received from a customer, vendor, service

provider, counterparty or other third party could result in legal liability, regulatory action and reputational harm. 

Risk Factors

Fannie Mae 2019 Form 10-K 38
Our 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 reporting.

We are currently implementing a number of initiatives in furtherance of both our and our conservatorÑs strategic objectives. The

magnitude of the many new initiatives we are undertaking may increase our operational risk. Many of these initiatives involve

significant changes to our business processes, systems and infrastructure, and present significant operational challenges for

us. For example, for the past several years we have been transitioning our core information technology systems to third-party

cloud-based platforms. If completing this initiative is delayed or we fail to complete it in a well-managed, secure and effective

manner, we may experience unplanned service disruption or unforeseen costs, which could result in material harm to our

business and results of operations. While implementation of each individual initiative creates operational challenges,

implementing multiple initiatives during the same time period significantly increases these challenges. Due to the operational

complexity associated with these changes and the limited time periods for implementing them, we believe there is a risk that

implementing these changes could result in one or more material weaknesses in our internal control over financial reporting in

a future period. If this were to occur, we could experience material errors in our reported financial results. In addition, FHFA,

Treasury, other agencies of the U.S. government or Congress may require us to implement additional initiatives in the future

that could further increase our operational risk.

Material weaknesses in our internal control over financial reporting could result in errors in our reported results or

disclosures that are not complete or accurate. 

Management has determined that, as of the date of this filing, we have ineffective disclosure controls and procedures that

result in a material weakness in our internal control over financial reporting. In addition, our independent registered public

accounting firm, DeloitteÄ& Touche LLP, has expressed an adverse opinion on our internal control over financial reporting

because of the material weakness. Our ineffective disclosure controls and procedures and material weakness could result in

errors in our reported results or disclosures that are not complete or accurate, which could have a material adverse effect on

our business and operations.

Our material weakness relates specifically to the impact of the conservatorship on our disclosure controls and procedures.

Because we are under the control of FHFA, 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. Because FHFA currently functions as both our regulator and our conservator,

there are inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls and

procedures relating to information known to FHFA. As a result, 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

financial statements. Given the structural nature of this material weakness, we do not expect to remediate this weakness while

we are under conservatorship. See ÇControls and ProceduresÉ for further discussion of managementÑs conclusions on our

disclosure controls and procedures and internal control over financial reporting. 

Failure of our models to produce reliable results may adversely affect our ability to manage risk and make effective

business decisions. 

We make significant use of quantitative models to measure and monitor our risk exposures and to manage our business. For

example, we use models to measure and monitor our exposures to interest rate, credit and market risks, and to forecast credit

losses. The information provided by these models is used in making business decisions relating to strategies, initiatives,

transactions, pricing and products. 

Models are inherently imperfect predictors of actual results because they are based on historical data and assumptions

regarding factors such as future loan demand, borrower behavior, creditworthiness and home price trends. Other potential

sources of inaccurate or inappropriate model results include errors in computer code, bad data, misuse of data, or use of a

model for a purpose outside the scope of the modelÑs design. Modeling often assumes that historical data or experience can

be relied upon as a basis for forecasting future events, an assumption that may be especially tenuous in the face of

unprecedented events. 

Given the challenges of predicting future behavior, management judgment is used at every stage of the modeling process,

from model design decisions regarding core underlying assumptions, to interpreting and applying final model output. To control

for these inherent imperfections, our models are validated by an independent model risk management team within our

Enterprise Risk Management Division and are subject to control requirements set by our model risk policies. 

When market conditions change quickly and in unforeseen ways, there is an increased risk that the model assumptions and

data inputs for our models are not representative of the most recent market conditions. Under such circumstances, we must

rely on management judgment to make adjustments or overrides to our models. A formal model update is typically an

extensive process that involves basic research, testing, independent validation and production implementation. In a rapidly

changing environment, it may not be possible to update existing models quickly enough to properly account for the most

recently available data and events. Management adjustments to modeled results are applied within the confines of the

governance structure provided by a combination of our model risk management team and our management-level risk

committees. 

Risk Factors

Fannie Mae 2019 Form 10-K 39
If our models fail to produce reliable results on an ongoing basis, we may not make appropriate risk management decisions,

including decisions affecting loan purchases, management of credit losses, guaranty fee pricing, and asset and liability

management. Any of these decisions could adversely affect our business, results of operations, liquidity, net worth and

financial condition. Furthermore, strategies we employ to manage and govern the risks associated with our use of models may

not be effective or fully reliable. 

Liquidity and Funding Risk

Limitations on our ability to access the debt capital markets could have a material adverse effect on our ability to

fund our operations, and our liquidity contingency plans may be difficult or impossible to execute during a sustained

liquidity crisis. 

Our ability to fund our business depends on our ongoing access to the debt capital markets. Market concerns about matters

such as the extent of government support for our business and debt securities, the future of our business (including future

profitability, future structure, regulatory actions and our status as a government-sponsored enterprise) and the creditworthiness

of the U.S.Ägovernment could cause a severe negative effect on our access to the unsecured debt markets, particularly for

long-term debt. We believe that our ability in recent years to issue debt of varying maturities at attractive pricing resulted from

federal government support of our business. As a result, we believe that our status as a government-sponsored enterprise and

continued federal government support is essential to maintaining our access to debt funding. Changes or perceived changes

in federal government support of our business, our debt securities or our status as a government-sponsored enterprise,

including changes arising in connection with efforts to end our conservatorship, could materially and adversely affect our

liquidity, financial condition and results of operations. There can be no assurance that the government will continue to support

our business or our debt securities, or that our current level of access to debt funding will continue. As described in ÇBusiness

ÜConservatorship, Treasury Agreements and Housing Finance ReformÜTreasury Housing Reform Plan,É the Treasury plan

contemplates amending our senior preferred stock purchase agreement with Treasury. If our senior preferred stock purchase

agreement with Treasury is amended to reduce its support for our debt securities issued after such amendment, it could

materially increase our borrowing costs or materially adversely affect our access to the debt capital markets. In addition, due to

our reliance on the U.S.ÄgovernmentÑs support, our access to debt funding also could be materially adversely affected by a

change or perceived change in the creditworthiness of the U.S.Ägovernment. 

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. If we are unable to issue both short- and long-term debt securities at attractive rates and in

amounts sufficient to operate our business and meet our obligations, it likely would interfere with the operation of our business

and have a material adverse effect on our liquidity, results of operations, financial condition and net worth. 

Our liquidity contingency plans may be difficult or impossible to execute during a sustained market liquidity crisis. If we cannot

access the unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could be eliminated or

significantly impaired. In this event, our alternative source of liquidity, our other investments portfolio, may not be sufficient to

meet our liquidity needs. 

A decrease in the credit ratings on our senior unsecured debt could have an adverse effect on our ability to issue

debt on reasonable terms, particularly if such a decrease were not based on a similar action on the credit ratings of

the U.S. government. A decrease in our credit ratings also could require that we post additional collateral for our

derivatives contracts.

A reduction in our credit ratings could materially adversely affect our liquidity, our ability to conduct our normal business

operations, our financial condition and our results of operations. Credit ratings on our senior unsecured debt, as well as the

credit ratings of the U.S.Ägovernment, are primary factors that could affect our borrowing costs and our access to the debt

capital markets. Credit ratings on our debt are subject to revision or withdrawal at any time by the rating agencies. Actions by

governmental entities impacting the support our business or our debt securities receive from Treasury could adversely affect

the credit ratings on our senior unsecured debt. If our senior preferred stock purchase agreement with Treasury is amended to

reduce its support for our debt securities issued after such amendment, it could result in a downgrade in the credit ratings on

our senior unsecured debt.

Because we rely on the U.S. government for capital support, in recent years, when a rating agency has taken an action

relating to the U.S. governmentÑs credit rating, they have taken a similar action relating to our ratings at approximately the

same time. S&P, MoodyÑs and Fitch have all indicated that they would likely lower their ratings on the debt of Fannie Mae and

certain other government-related entities if they were to lower their ratings on the U.S.Ägovernment. As a result, if a future

government shutdown or other event results in downgrades of the governmentÑs credit rating, our credit ratings may be

similarly downgraded. We currently cannot predict the potential impact of a credit ratings downgrade on demand for our

securities or on our business. 

A reduction in our credit ratings also could cause derivatives clearing organizations or their members to demand that we post

additional collateral for our derivative contracts. Our credit ratings and ratings outlook are included in ÇMD&AÜLiquidity and

Capital ManagementÜLiquidity ManagementÜCredit Ratings.É

Risk Factors

Fannie Mae 2019 Form 10-K 40
Market and Industry Risk

Changes in interest rates or our loss of the ability to manage interest-rate risk successfully could adversely affect our

financial results and condition, and increase interest-rate risk. 

We are subject to interest-rate risk, which is the risk that movements in interest rates will adversely affect the value of our

assets or liabilities or our future earnings. The primary source of our interest-rate risk is our retained mortgage portfolio, other

investments portfolio and the Fannie Mae debt and risk management derivatives we use to fund and manage these portfolios.

We describe these risks in more detail in ÇMD&AÜRisk ManagementÜMarket Risk Management, Including Interest-Rate Risk

Management.É Changes in interest rates affect both the value of our mortgage assets and prepayment rates on our mortgage

loans, which could have a material adverse effect on our financial results and condition, as well as our liquidity. 

Our ability to manage interest-rate risk depends on our ability to issue debt instruments with a range of maturities and other

features, including call provisions, at attractive rates and to engage in derivatives transactions. We must exercise judgment in

selecting the amount, type and mix of debt and derivative instruments that will most effectively manage our interest-rate risk.

The amount, type and mix of financial instruments that are available to us may not offset possible future changes in the spread

between our borrowing costs and the interest we earn on our mortgage assets. 

We mark to market changes in the estimated fair value of our derivatives through our earnings on a quarterly basis, but we do

not similarly mark to market changes in some of the financial instruments that generate our interest-rate risk exposures. As a

result, changes in interest rates, particularly significant changes, can have a significant adverse effect on our earnings and net

worth for the quarter in which the changes occur, depending on the nature of the changes and the derivatives we hold at that

time. While we are developing capabilities to implement hedge accounting to reduce the impact of interest-rate volatility on our

financial results, we have experienced significant fair value losses in some periods due to changes in interest rates, and we

expect to continue to experience volatility from period to period in our financial results as a result of fair value losses or gains

on our derivatives.

Changes in interest rates also can affect our credit losses. When interest rates increase, our credit losses from loans with

adjustable payment terms may increase as borrower payments increase at their reset dates, which increases the borrowerÑs

risk of default. Rising interest rates may also reduce the opportunity for these borrowers to refinance into a fixed-rate loan.

Similarly, many borrowers may have additional debt obligations, such as home equity lines of credit and second liens, that also

have adjustable payment terms. If a borrowerÑs payment on his or her other debt obligations increases due to rising interest

rates or a change in amortization, it increases the risk that the borrower may default on a loan we own or guarantee. In

addition to increasing the risk of future borrower defaults, rising interest rates reduce expected future loan prepayments, which

lengthens the expected life of our loans and therefore increases our impairment related to any concessions we may have

provided on those loans.

Changes in spreads could materially impact our results of operations, net worth and the fair value of our net assets.

Spread risk can result from changes in the spread between our mortgage assets and our debt and derivatives we use to

hedge our position, as well as the current market spreads of our CAS deals issued prior to 2016 that are subject to fair value

accounting. Changes in market conditions, including changes in interest rates, liquidity, prepayment and default expectations,

and the level of uncertainty in the market for a particular asset class may cause fluctuations in spreads. Changes in mortgage

spreads have contributed to significant volatility in our financial results in certain periods, due to fluctuations in the estimated

fair value of the financial instruments that we mark to market through our earnings, and this could occur again in a future

period. Changes in mortgage spreads could cause significant fair value losses, and could adversely affect our near-term

financial results and net worth. We do not actively manage or hedge our spread risk after we purchase mortgage assets, other

than through asset monitoring and disposition.

Uncertainty relating to the potential discontinuance of LIBOR after 2021 may adversely affect our results of

operations, financial condition, liquidity and net worth. 

We routinely engage in transactions involving financial instruments that reference LIBOR, including acquiring loans and

securities, selling securities and entering into derivative transactions that reference LIBOR. In 2017, the United KingdomÑs

Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling the group of

major banks that sustain LIBOR to submit rate quotations after 2021. As a result, it is uncertain whether LIBOR will continue to

be quoted after 2021.

Efforts are underway to identify and transition to a set of alternative reference rates. The transition may lead to disruption,

including yield volatility on LIBOR-based securities. The Federal Reserve convened a group of private-market participants,

known as the ARRC, to identify a set of alternative U.S. dollar reference interest rates and an adoption plan for those

alternative rates. We are a voting member of the ARRC and participate in its working groups. In 2017, the ARRC

recommended an alternative reference rate referred to as SOFR and the Federal Reserve Bank of New York began publishing

SOFR in 2018. However, SOFR is calculated based on different criteria than LIBOR. Accordingly, SOFR and LIBOR may

diverge, particularly in times of macroeconomic stress. Since the initial publication of SOFR in 2018, daily changes in SOFR

have at times been more volatile than daily changes in comparable benchmark or market rates, and SOFR may be subject to

direct influence by activities of the Federal Reserve and the Federal Reserve Bank of New York in ways that other rates may

not be. For example, at the direction of the Federal Reserve, in late September 2019, the Federal Reserve Bank of New York

Risk Factors

Fannie Mae 2019 Form 10-K 41
began conducting a series of overnight and term repurchase agreement (ÇrepoÉ) operations to help maintain the federal funds

rate within a target range. In January 2020, the Federal Reserve Bank of New York announced that this activity would continue

at least through April 2020. These activities directly impact prevailing SOFR rates.

While many of our LIBOR-indexed financial instruments allow us to take discretionary action to select an alternative reference

rate if LIBOR is discontinued, our use of an alternative reference rate may be subject to legal challenges. There is

considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial

instruments. This uncertainty could result in disputes and litigation with counterparties and borrowers surrounding the

implementation of alternative reference rates in our financial instruments that reference LIBOR. If LIBOR ceases or changes in

a manner that causes regulators or market participants to question its viability, financial instruments indexed to LIBOR could

experience disparate outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or

regulatory jurisdiction, and other factors. There can be no assurance that legislative or regulatory actions will dictate what

happens if LIBOR ceases or is no longer viable, or what those actions might be. In addition, while the ARRC was created to

ensure a successful transition from LIBOR, there can be no assurance that the ARRC will endorse practices that create a

smooth transition and minimize value transfers between market participants, or that its endorsed practices will be broadly

adopted by market participants. Divergent industry or market participant actions could result after LIBOR is no longer available

or viable. It is uncertain what effect any divergent industry practices will have on the performance of financial instruments,

including those that we own or have issued. Alternative reference rates that replace LIBOR may not yield the same or similar

economic results over the lives of the financial instruments, which could adversely affect the value of and return on these

instruments. The LIBOR transition could result in our paying higher interest rates on our current LIBOR-indexed obligations,

adversely affect the yield on and fair value of the loans and securities we hold or guarantee that reference LIBOR, and

increase the costs of or affect our ability to effectively use derivative instruments to manage interest-rate risk.

In addition, we cannot anticipate how long it will take to develop the systems and processes necessary to adopt SOFR or other

benchmark replacements, which may delay and contribute to uncertainty and volatility surrounding the LIBOR transition.

These developments could have a material impact on us, adjustable-rate mortgage borrowers, investors, and our customers

and counterparties. This could result in losses, reputational damage, litigation or costs, or otherwise adversely affect our

business. 

Our business and financial results are affected by general economic conditions, particularly home prices and

employment trends, and a deterioration of economic conditions or the financial markets may materially adversely

affect our results of operations, net worth and financial condition.

Our business is significantly affected by the status of the U.S. economy, particularly home prices and employment trends. A

prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions or the financial

markets could materially adversely affect our results of operations, net worth and financial condition. In general, if home prices

decrease, or the unemployment rate increases, it could result in significantly higher levels of credit losses and credit-related

expense.

Global economic conditions can also adversely affect our business and financial results. Changes or volatility in market

conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of

our assets, which could materially adversely affect our results of operations, net worth and financial condition. A slowdown in

economic growth around the world remains a concern for policy makers and financial markets. To the extent global economic

conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our book

of business.

Volatility or uncertainty in global political conditions also can significantly affect economic conditions and the financial markets.

Currently, there is elevated uncertainty around several unresolved global political events, including the United KingdomÑs 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.

A decline in activity in the U.S.Åhousing market, increasing interest rates, or recent changes in tax laws 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.

Risk Factors

Fannie Mae 2019 Form 10-K 42
The cap on mortgage interest deductions, the increase in the amount of the standard deduction and other changes in tax laws

may also adversely affect housing demand, home prices or other housing or mortgage market conditions, which could impact

our business volumes and adversely affect our results of operations, net worth and financial condition.

The continued run-off of mortgage-backed securities from the Federal ReserveÄs portfolio could adversely affect our

business, results of operations, financial condition, liquidity and net worth.

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

Mac and Ginnie Mae. In October 2017, the Federal Reserve initiated a balance sheet normalization program to reduce its

holdings of Treasury securities and mortgage-backed securities. While the Federal Reserve stopped the run-off of U.S.

Treasury securities from its portfolio in September 2019, it continued to allow its mortgage-backed securities to run-off,

replacing the principal balance with U.S. Treasuries and thus holding the portfolio constant. This may create upward pressure

on mortgage interest rates and reduce demand for mortgage-backed securities, which could adversely affect our business,

results of operations, financial condition, liquidity and net worth.

Legal, Regulatory and Other Risks

Our business and financial results could be materially adversely affected by legal or regulatory proceedings.

We are a party to various claims and other legal proceedings. We are periodically involved in government investigations. We

may be required to establish accruals and to make substantial payments in the event of adverse judgments or settlements of

any such claims, investigations or proceedings, which could have a material adverse effect on our business, results of

operations, financial condition, liquidity and net worth. Any legal proceeding or governmental investigation, even if resolved in

our favor, could result in negative publicity or cause us to incur significant legal and other expenses. 

In addition, a number of lawsuits have been filed against the U.S. government relating to the senior preferred stock purchase

agreement and the conservatorship. See ÇNote 16, Commitments and ContingenciesÉ and ÇLegal ProceedingsÉ for a

description of these lawsuits. These lawsuits, and actions Treasury or FHFA may take in response to these lawsuits, could

have a material impact on our business. 

Developments in, outcomes of, impacts of, and costs, expenses, settlements and judgments related to these legal

proceedings and government investigations may differ from our expectations and exceed any amounts for which we have

accrued or require adjustments to such accruals. In addition, responding to these matters could divert significant internal

resources away from managing our business.

Regulatory changes in the financial services industry may negatively impact our business. 

Changes in the regulation of the financial services industry are affecting and are expected to continue to affect many aspects

of our business. Changes to financial regulations could affect our business directly or indirectly if they affect our customers and

counterparties. Examples of regulatory changes that have affected us or may affect us in the future include: rules requiring the

clearing of certain derivatives transactions and margin and capital rules for uncleared derivative trades, which impose

additional costs on us; and the Dodd-Frank Act risk retention and single-counterparty credit limit requirements.

Our business and results also may be adversely affected by changes in the CFPBÑs Çability-to-repayÉ rule to replace the

Çqualified mortgage patch,É including proposed changes to the rule discussed in ÇBusinessÜCharter Act and RegulationÜGSE

Act and Other Legislation.É Although the ability-to-repay rule does not apply directly to us, the rule applies to the lenders from

which we acquire single-family mortgage loans. And because FHFA has directed that Fannie Mae and Freddie Mac shall only

acquire loans that are qualified mortgages under the ability-to-repay rule, changes in the rule may reduce the volume of loans

that are eligible for delivery to us, and may increase the competition we face for the acquisition and guaranty of such loans.

Changes in regulations applicable to U.S. banks could affect the volume and characteristics of mortgage loans available in the

market. For example, in December 2019, the Office of the Comptroller of the Currency and Federal Deposit Insurance

Corporation jointly proposed new regulations under the Community Reinvestment Act (ÇCRAÉ) that could encourage banks

regulated by these agencies to hold mortgage loans that satisfy their CRA obligations on their balance sheets, rather than

selling them to us in the secondary market.

Changes in regulations could also affect demand for our debt and MBS, as U.S. banks purchase a large amount of our debt

securities and MBS. New or revised liquidity or capital requirements applicable to U.S. banks could materially affect banksÑ

willingness to deliver loans to us and demand by those banks for our debt securities and MBS. Developments in connection

with the single-counterparty credit limit regulations, including those taken in anticipation of our eventual exit from

conservatorship, could also cause our customers to change their business practices.

The actions of Treasury, the Commodity Futures Trading Commission, the SEC, the Federal Deposit Insurance Corporation,

the Federal Reserve and international central banking authorities directly or indirectly impact financial institutionsÑ cost of funds

for lending, capital-raising and investment activities, which could increase our borrowing costs or make borrowing more difficult

for us. Changes in monetary policy are beyond our control and difficult to anticipate.

Overall, these legislative and regulatory changes could affect us in substantial and unforeseeable ways and could have a

material adverse effect on our business, results of operations, financial condition, liquidity and net worth. 

Risk Factors

Fannie Mae 2019 Form 10-K 43
Changes in accounting standards and policies can be difficult to predict and can materially impact how we record

and report our financial results. 

Our accounting policies and methods are fundamental to how we record and report our financial condition, results of

operations and cash flows. From time to time, the FASB or the SEC changes the financial accounting and reporting standards

or the policies that govern the preparation of our financial statements. In addition, FHFA provides guidance that affects our

adoption or implementation of financial accounting or reporting standards. These changes can be difficult to predict and

expensive to implement, and can materially impact how we record and report our financial condition, results of operations and

cash flows. We could be required to apply new or revised guidance retrospectively, which may result in the revision of prior

period financial statements by material amounts. The implementation of new or revised accounting guidance, could have a

material adverse effect on our financial results or net worth.

In many cases, our accounting policies and methods, which are fundamental to how we report our financial condition

and results of operations, require management to make judgments and estimates about matters that are inherently

uncertain. Management also relies on models in making these estimates. 

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of

operations. Our management must exercise judgment in applying many of these accounting policies and methods so that they

comply with GAAP and reflect managementÑs judgment of the most appropriate manner to report our financial condition and

results of operations. In some cases, management must select the appropriate accounting policy or method from two or more

acceptable alternatives, any of which might be reasonable under the circumstances but might affect the amounts of assets,

liabilities, revenues and expenses that we report. See ÇNoteÄ1, Summary of Significant Accounting PoliciesÉ for a description of

our significant accounting policies. 

We have identified our allowance for loan losses accounting policy as critical to the presentation of our financial condition and

results of operations. This policy is described in ÇMD&AÜCritical Accounting Policies and Estimates.É We believe this policy is

critical because it requires management to make particularly subjective or complex judgments about matters that are

inherently uncertain and because of the likelihood that materially different amounts would be reported under different

conditions or using different assumptions. 

Because our financial statements involve estimates for amounts that are very large, even a small change in the estimate can

have a significant impact for the reporting period. For example, because our allowance for loan losses is so large, even a

change that has a small impact relative to the size of this allowance can have a meaningful impact on our results for the

quarter in which we make the change. This effect will be increased with our implementation of the CECL standard on

JanuaryÄ1, 2020, because, for loans that are collectively evaluated for impairment, our credit-related income or expense will

reflect expected lifetime losses, rather than just incurred losses. As a result, the implementation of the CECL standard will

introduce additional volatility to our results.

Many of our accounting methods involve substantial use of models. For example, we will determine expected lifetime losses

on loans and other financial instruments subject to the CECL standard using models. Models are inherently imperfect

predictors of actual results because they are based on assumptions, including assumptions about future events. Our actual

results could differ significantly from those generated by our models. As a result, the estimates that we use to prepare our

financial statements, as well as our estimates of our future results of operations, may be inaccurate, perhaps significantly. 

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:

Ö Designation as a systemically important financial institution. The Senate Committee on Banking, Housing, and Urban

Affairs held a hearing in June 2019 on whether we should be regulated as a systemically important financial

institution, which would result in our becoming subject to additional regulation and oversight by the Federal Reserve

Board.

Ö Legislative or regulatory changes that expand our, or our servicersÑ, responsibility and liability for securing,

maintaining or otherwise overseeing vacant properties prior to foreclosure, which could increase our costs. 

Ö Court decisions concluding that we or our affiliates are a federal agency, which could impose additional burdens and

requirements on us.

Ö 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. 

Ö State and local laws and regulations expanding rent control and other tenant protections, such as New YorkÑs

Housing Stability and Tenant Protection Act of 2019, which could negatively affect the housing market in the

applicable areas and increase our credit risk on the loans we guarantee in those areas.

Risk Factors

Fannie Mae 2019 Form 10-K 44
Ö Other agencies of the U.S.Ägovernment or Congress asking us to take actions to support the housing and mortgage

markets or in support of other goals. For example, in December 2011 Congress enacted the TCCA under which we

increased our guaranty fee on all single-family mortgages delivered to us through December 31, 2021 by 10 basis

points. The revenue generated by this fee increase is paid to Treasury. 

Risk Factors

Fannie Mae 2019 Form 10-K 45

Item 1B.ÄÄUnresolved Staff Comments

None.

Item 2.ÄÄProperties

There are no physical properties that are material to us. 

Item 3.ÄÄLegal Proceedings

This item describes our material legal proceedings. We describe additional material legal proceedings in ÇNote 16,

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 FHFAÑs 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 FHFAÑs 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 September 30, 2019 are as follows:

District of Columbia. Fannie Mae is a defendant in three cases pending in the U.S. District Court for the District of ColumbiaÜ

a consolidated putative class action and two additional cases. In all three cases, Fannie Mae and Freddie Mac stockholders

filed amended complaints on November 1, 2017 against us, FHFA as our conservator and Freddie Mac. On September 28,

2018, the court dismissed all of the plaintiffsÑ claims in these cases, except for their claims for breach of an implied covenant of

good faith and fair dealing. In a fourth case that was filed in the U.S. District Court for the District of Columbia on May 21,

2018, the court granted defendantsÑ motion to dismiss on March 6, 2019, and on March 18, 2019, plaintiff moved to alter or

amend the judgment and to file an amended complaint. On May 24, 2019, the court denied this motion. On June 19, 2019,

plaintiff filed a notice of appeal of the courtÑs dismissal and related orders with the U.S. Court of Appeals for the District of

Columbia Circuit. All four cases are described in ÇNote 16, Commitments and Contingencies.É

Southern District of Texas (Collins v. Mnuchin). On October 20, 2016, preferred and common stockholders filed a complaint

against FHFA and Treasury in the U.S. District Court for the Southern District of Texas. On May 22, 2017, the court dismissed

the case. On September 6, 2019, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc, affirmed the district courtÑs

dismissal of claims against Treasury, but reversed the dismissal of claims against FHFA. The court held that plaintiffs could

pursue their claim that FHFA exceeded its statutory powers as conservator when it implemented the net worth sweep

provisions of the senior preferred stock purchase agreements in August 2012. The court also held that the provision of the

Housing and Economic Recovery Act that insulates the FHFA Director from removal without cause violates constitutional

separation of powers principles and, thus, that the FHFA Director may be removed by the president for any reason. The court

held that the appropriate remedy for this violation is to declare the provision severed from the statute. Plaintiffs have requested

that the Supreme Court review the constitutional claim, arguing that the relief granted by Fifth Circuit is insufficient, and the

government has requested review of the decision to allow the plaintiffsÑ statutory claims to go forward. 

Western District of Michigan. On June 1, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a

complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Western District of
Michigan. FHFA and Treasury moved to dismiss the case on September 8, 2017, and plaintiffs filed a motion for summary

judgment on October 6, 2017. 

District of Minnesota. On June 22, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a

complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the District of Minnesota.

The court dismissed the case on July 6, 2018, and plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the

Eighth Circuit on July 10, 2018.

Eastern District of Pennsylvania. On August 16, 2018, common stockholders of Fannie Mae and Freddie Mac filed a complaint

for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Eastern District of

Pennsylvania. FHFA and Treasury moved to dismiss the case on November 16, 2018, and plaintiffs filed a motion for summary

judgment on December 21, 2018.

U.S. Court of Federal Claims. Numerous cases are pending against the United States in the U.S. Court of Federal Claims.

Fannie Mae is a nominal defendant in four 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; Perry Capital LLC v. United States of America, filed on August 15,

2018; and Fairholme Funds Inc. v. United States, which was originally filed on July 9, 2013, and amended publicly to include

Fannie Mae as a nominal defendant on October 2, 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 MaeÑs 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, Perry Capital and Fairholme Funds 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 and Fairholme Funds plaintiffs allege similar breach of contract claims, as

well as direct and derivative breach of fiduciary duty claims against the government. Plaintiffs in Fisher request just

compensation to Fannie Mae in an unspecified amount. Plaintiffs in Rafter, Perry Capital and Fairholme Funds 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, Rafter and Fairholme cases on August 1, 2018. On December 6, 2019, the

Court entered an order in the Fairholme case that granted the governmentÑs motion to dismiss all the direct claims but denied

the motion as to all of the derivative claims brought on behalf of Fannie Mae.

LIBOR Lawsuit 

On October 31, 2013, Fannie Mae filed a lawsuit in the U.S. District Court for the Southern District of New York against

Barclays Bank PLC, UBS AG, The Royal Bank of Scotland Group PLC, The Royal Bank of Scotland PLC, Deutsche Bank AG,

Credit Suisse Group AG, Credit Suisse International, Bank of America Corp., Bank of America, N.A., Citigroup Inc., Citibank,

N.A., J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., Coéperative Centrale Raiffeisen-Boerenleenbank B.A.

(ÇRabobankÉ), the British Bankers Association (the ÇBBAÉ) and BBA LIBOR Ltd. alleging they manipulated LIBOR. On October

6, 2014, Fannie Mae filed an amended complaint alleging, among other things, that the banks submitted false borrowing costs

to the BBA in order to suppress LIBOR. The amended complaint seeks compensatory and punitive damages based on claims

for breach of contract, breach of the implied duty of good faith and fair dealing, unjust enrichment, fraud and conspiracy to

commit fraud. The defendants filed motions to dismiss the lawsuit, which the court granted in part and denied in part on August

4, 2015. The court ruled that Fannie Mae had adequately pled fraud, breach of contract and unjust enrichment claims against

most defendants, but that the applicable statute of limitations periods precluded some contract and unjust enrichment claims

from proceeding. The court dismissed the BBA, Rabobank, and Credit Suisse Group AG from the lawsuit on personal

jurisdiction grounds.ÄOn July 22, 2019, we entered into an agreement resolving our claims against two of the defendants in this

lawsuit: Citigroup Inc. and Citibank, N.A. The financial impact of the settlement was not material to our financial statements.

Legal Proceedings

Fannie Mae 2019 Form 10-K 46

Item 4.ÄÄMine Safety Disclosures

None.

PARTÄII

ItemÄ5.ÄÄMarket for RegistrantÅs Common Equity, Related

Stockholder Matters and Issuer Purchases of Equity

Securities

Common Stock 

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 Over-the-counter market quotations for our common stock reflect inter-dealer prices, without

retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The transfer agent and
registrar for our common stock is Computershare Trust Company, N.A., and its address is P.O.ÄBox 50500, Louisville, KY

40233 or, for overnight correspondence, 462 South 4th Street, Suite 1600, Louisville, KY 40202. 

Holders 

As of January 31, 2020, we had approximately 8,000 registered holders of record of our common stock. In addition, as of

January 31, 2020, Treasury held a warrant giving it the right to purchase shares of our common stock equal to 79.9% of the

total number of shares of our common stock outstanding on a fully diluted basis on the date of exercise. 

Equity Compensation Plan Information

As of December 31, 2019, we had no outstanding options, warrants or rights under any equity compensation plan. Although

we have a legacy equity compensation plan that was previously approved by shareholders, our 1985 Employee Stock

Purchase Plan, we do not anticipate issuing additional shares under that plan. Moreover, we are prohibited from issuing any

stock or other equity securities as compensation without the approval of FHFA and the prior written consent of Treasury under

the senior preferred stock purchase agreement. 

Market for RegistrantÑs Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Fannie Mae 2019 Form 10-K 47

Recent Sales of Unregistered Equity Securities

Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or issuing our

equity interests, other than as required by (and pursuant to) the terms of a binding agreement in effect on September 7, 2008,

without the prior written consent of Treasury. During the quarter ended December 31, 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 MaeÑs 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 fourth quarter of 2019. 
ItemÄ6.ÄÄSelected Financial Data

The selected consolidated financial data displayed below are summarized from our results of operations for the five-year

period ended December 31, 2019, as well as selected consolidated balance sheet data as of the end of each year within this

five-year period. Our results of operations for any one period are not necessarily indicative of the results to be expected in any

other period. This section should be read together with our consolidated financial statements and the accompanying notes.

For the Year Ended December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Statement of operations data:

Net revenues(1) $ 22,138 $ 21,930 $ 22,960 $ 22,261 $ 22,757

Net income attributable to Fannie Mae 14,160 15,959 2,463 12,313 10,954

New business purchase data:

New business purchases(2) $ 666,878 $ 512,023 $ 569,616 $ 637,425 $ 515,541

Performance ratios:

Net interest yield(3) 0.61 % 0.63 % 0.64 % 0.67 % 0.68 %

Credit (income) loss ratio (in basis points):(4)

Single-family 5.9 bps 8.5 bps 10.2 bps 11.6 bps 35.8 bps

Multifamily (0.1) 0.6 (0.7) (0.2) (2.7)

Return on assets(5) 0.41 % 0.47 % 0.07 % 0.38 % 0.34 %

As of December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Balance sheet data:

Investments in securities $ 50,527 $ 45,296 $ 39,522 $ 48,925 $ 60,138

Mortgage loans, net of allowance 3,334,162 3,249,395 3,178,525 3,079,753 3,019,644

Total assets 3,503,319 3,418,318 3,345,529 3,287,968 3,221,917

Short-term debt 26,662 24,896 33,756 35,579 71,950

Long-term debt 3,440,724 3,367,024 3,296,298 3,226,737 3,125,721

Total liabilities 3,488,711 3,412,078 3,349,215 3,281,897 3,217,858

Senior preferred stock 120,836 120,836 117,149 117,149 117,149

Preferred stock 19,130 19,130 19,130 19,130 19,130

Total Fannie Mae stockholdersÑ equity (deficit) 14,608 6,240 (3,686) 6,071 4,030

Net worth surplus (deficit) 14,608 6,240 (3,686) 6,071 4,059

As of December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Book of business data:

Guaranty book of business(6) $ 3,367,498 $ 3,269,152 $ 3,211,858 $ 3,134,005 $ 3,076,556

Credit quality:

Total troubled debt restructurings on accrual

status $ 81,700 $ 98,375 $ 110,130 $ 127,494 $ 140,964

Total nonaccrual loans(7) 29,147 32,150 47,369 44,450 49,412

Loss reserves(8) (9,047) (14,252) (19,400) (23,835) (28,590)

Loss reserves as a percentage of guaranty

book of business:

Single-family 0.30 % 0.49 % 0.65 % 0.83 % 1.00 %

Multifamily 0.08 0.08 0.09 0.08 0.12

Selected Financial Data

Fannie Mae 2019 Form 10-K 48
(1) Consists of net interest income and fee and other income.

(2) 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. 

(3) Calculated based on net interest income for the period divided by the average balance of total interest-earning assets during the period,

expressed as a percentage.

(4) Consists of (a)Ächarge-offs, net of recoveries and (b)Äforeclosed property expense (income) for the reporting period divided by the average

guaranty book of business during the period, expressed in basis points. 

(5) Calculated based on net income for the reporting period divided by average total assets during the period, expressed as a percentage.

Average balances for purposes of ratio calculations are based on balances at the beginning of the year and at the end of each quarter for

each year shown.

(6) Refers to the sum of the unpaid principal balance of: (a)ÄFannie Mae MBS outstanding (excluding the portions of any structured securities

Fannie Mae issues that are backed by Freddie Mac securities); (b)Ämortgage loans of Fannie Mae held in our retained mortgage portfolio;

and (c)Äother credit enhancements that we provide on mortgage assets. It also excludes non-Fannie Mae mortgage-related securities held

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

(7) Total amounts based on recorded investment of nonaccrual loans. We generally classify single-family loans as nonaccrual when the

payment of principal or interest on the loan is 60 days or more past due. Multifamily loans are placed on nonaccrual status when the loan

becomes 90 days or more past due according to its contractual terms or is deemed individually impaired. See ÇNote 1, Summary of

Significant Accounting PoliciesÉ for more information about our policies on nonaccrual loans.

(8) Consists of our allowance for loan losses and reserve for guaranty losses. The measurement of our loss reserves was impacted upon the

adoption of the CECL standard on January 1, 2020, which will be reflected in our financial statements for the quarter ending March 31,

2020. See ÇNote 1, Summary of Significant Accounting PoliciesÉ for more information about our adoption of the CECL standard.

Selected Financial Data

Fannie Mae 2019 Form 10-K 49
Item 7.ÄÄManagementÅs Discussion and Analysis of Financial

Condition and Results of Operations

You should read this MD&A together with our consolidated financial statements as of December 31, 2019 and the

accompanying notes. This MD&A does not discuss 2017 performance or a comparison of 2017 versus 2018 performance for

select areas where we have determined the omitted information is not necessary to understand our current period financial

condition, changes in our financial condition, or our results. The omitted information may be found in our 2018 Form 10-K, filed

with the SEC on February 14, 2019, in MD&A sections titled ÅConsolidated Results of Operations,É ÅSingle-Family Business,É

ÅMultifamily Business,É and ÅLiquidity and Capital Management.É

MD&A | Key Market Economic Indicators

Fannie Mae 2019 Form 10-K 50

Key Market Economic Indicators

Below we discuss how varying macroeconomic conditions can significantly influence our financial results across different

business and economic environments.

Interest Rates

Selected Benchmark Interest Rates

12/31/15 12/31/16 12/31/17 12/31/18 12/31/19

0.61%

1.00%

1.69%

2.81%

1.91%

Ü% Ü% Ü%

3.00%

1.55%

2.19%

2.34%

2.40% 2.71%

1.90%

2.27%

2.44%

2.41%

2.68%

1.92%

3.00%

3.13% 3.00%

3.50%

2.71%

4.01%

4.32%

3.99%

4.55%

3.74%

ÑÑÑ 3-month LIBOR(1) ÜÜÜ SOFR(1)(2) ÑÑÑ 10-year swap rate(1)

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

par coupon rate(1)

ÑÑÑ 30-year FRM rate(3)

(1) According to Bloomberg.

(2) SOFR began April 2018.

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

. These rates

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

How interest rates can affect our financial results

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

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

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

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

Ö 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 (e.g., parallel, steepening or flattening) will generate different gains and losses. We are developing
capabilities to implement hedge accounting to reduce the impact of interest-rate volatility on our financial results. For

additional information on the expected impact of hedge accounting, see ÇConsolidated Results of OperationsÜFair

Value Gains (Losses), Net.É

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

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

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

provision for credit losses on such loans.

Fannie Mae national home price indexá

Rate of Single-Family

Home Price Growth

2015 2016 2017 2018 2019

4.5%

5.3%

5.9%

5.4%

5.1%

How home prices can affect our

financial results

Ö Actual and forecasted home prices impact our

provision or benefit for credit losses.

Ö 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.

Ö 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.

Ö We expect home price appreciation on a national

basis to moderate slightly in 2020, as compared with

2018 and 2019. We also expect significant regional

variation in the timing and rate of home price growth.

For further discussion on housing activity, see

ÇSingle-Family BusinessÜSingle-Family Mortgage

MarketÉ and ÇMultifamily BusinessÜMultifamily

Mortgage Market.É

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

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

Fannie MaeÑs home price index excludes prices on properties sold in foreclosure. Fannie MaeÑs 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(1)

2015 2016 2017 2018 2019

10.3%

9.4% 8.6%

3.2% 1.4%

11.8%

(1.3)% (9.7)%

5.7% 7.3%

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

How housing activity can affect our financial results

Ö Two key aspects of economic activity that can impact supply and demand for housing and thus mortgage lending are

the rate of household formation and new housing construction.

Ö Household formation is a key driver of demand for both single-family and multifamily housing. A newly formed

household will either rent or purchase a home. Thus, changes in the pace of household formation can have

implications for both prices and credit performance as well as the degree of loss on defaulted loans.

MD&A | Key Market Economic Indicators

Fannie Mae 2019 Form 10-K 51
Ö Growth of household formation stimulates homebuilding. Homebuilding has typically been a cyclical leader of broader

economic activity contributing to the growth of GDP and to employment. Residential construction activity has

historically been a leading indicator, weakening prior to a slowdown in U.S. economic activity and accelerating prior to

a recovery. However, the most recent recession was significantly impacted by real estate and real estate finance.

Therefore, various policy responses were targeted to real estate and real estate finance, potentially altering the

cyclical performance of the real estate sector. There has not been a full housing cycle since the last recession, so it is

possible the sectorÑs future performance will vary from its historical performance.

Ö A decline in housing starts results in fewer new homes being available for purchase and potentially a lower volume of

mortgage originations. Construction activity can also affect credit losses. If the growth of demand exceeds the growth

of supply, prices will appreciate and impact the risk profile of newly originated home purchase mortgages, depending

on where in the housing cycle the market is. However, a reduced pace of construction often leads to a broader

economic slowdown and signals expected increases in delinquency and losses on defaulted loans.

GDP, Unemployment Rate and Personal Consumption

U.S. unemployment rate, as of period endá

U.S. personal consumption, annualized percentage changeà

Growth in GDP, annualized percentage changeè

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

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

3.7%

3.9% 3.8% 3.7% 3.5% 3.5%

2.4% 2.4% 2.4%

4.6%

1.7%

4.0% 3.5%

1.4% 1.1%

4.6%

3.2%

1.8%

2.3% 2.2%

3.2% 3.5%

2.5%

3.5%

2.9%

1.1%

3.1%

2.0% 2.1% 2.1%

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

(2) Personal consumption growth is the quarterly series calculated by the Bureau of Economic Analysis and is subject to revision.

(3) GDP growth is the quarterly series calculated by the Bureau of Economic Analysis and is subject to revision.

How GDP, the unemployment rate and personal consumption can affect our

financial results

Ö Changes in GDP, the unemployment rate and personal consumption can affect several mortgage market factors,

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

Ö Economic growth is a key factor for the performance of mortgage-related assets. In a growing economy, employment

and income are rising thus allowing existing borrowers to meet payment requirements, existing homeowners to

consider purchasing another home, and renters to consider becoming homeowners. Homebuilding typically increases

to meet the rise in demand. Mortgage delinquencies typically fall in an expanding economy, thereby decreasing credit

losses. 

Ö In a slowing economy, employment and income growth slow and housing activity slows as an early indicator of

reduced economic activity. As the slowdown intensifies, households become more conservative and debt repayment

takes precedence over consumption, which then falls and accelerates the slowdown. If the slowdown of economic

growth turns to recession, employment losses occur impairing the ability of borrowers to meet mortgage payments

and delinquencies rise. Home sales and mortgage originations also fall in a slowing economy. 

See ÇRisk FactorsÜMarket and Industry RiskÉ for further discussion of risks to our business and financial results associated

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

MD&A | Key Market Economic Indicators

Fannie Mae 2019 Form 10-K 52
Consolidated Results of Operations

This section discusses our consolidated results of operations and should be read together with our consolidated financial

statements and the accompanying notes.

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 53

Summary of Consolidated Results of Operations

For the Year Ended December 31, Variance

2019 2018 2017 2019 vs. 2018 2018 vs. 2017

(Dollars in millions)

Net interest income $ 20,962 $ 20,951 $ 20,733 $ 11 $ 218

Fee and other income 1,176 979 2,227 197 (1,248)

Net revenues 22,138 21,930 22,960 208 (1,030)

Investment gains, net 1,770 952 1,522 818 (570)

Fair value gains (losses), net (2,214) 1,121 (1,211) (3,335) 2,332

Administrative expenses (3,023) (3,059) (2,737) 36 (322)

Credit-related income:

Benefit for credit losses 4,011 3,309 2,041 702 1,268

Foreclosed property expense (515) (617) (521) 102 (96)

Total credit-related income 3,496 2,692 1,520 804 1,172

TCCA fees (2,432) (2,284) (2,096) (148) (188)

Other expenses, net (2,158) (1,253) (1,511) (905) 258

Income before federal income taxes 17,577 20,099 18,447 (2,522) 1,652

Provision for federal income taxes (3,417) (4,140) (15,984) 723 11,844

Net income $ 14,160 $ 15,959 $ 2,463 $ (1,799) $ 13,496

Total comprehensive income $ 13,969 $ 15,611 $ 2,257 $ (1,642) $ 13,354

Net Interest Income

Our primary source of net interest income is guaranty fees we receive for managing the credit risk on loans underlying Fannie

Mae MBS held by third parties.

Guaranty fees consist of two primary components: 

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

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

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

which typically results in lower net amortization income. Conversely, in a declining interest-rate environment, our mortgage

loans tend to prepay faster, typically resulting in higher net amortization income. 

We also recognize net interest income on 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 ManagementÜLiquidity

ManagementÜOther Investments PortfolioÉ for more information about our portfolios.
The table below displays the components of our net interest income from our guaranty book of business, which we discuss in

ÇGuaranty Book of Business,É and from our portfolios.

Components of Net Interest Income

For the Year Ended

December 31, Variance

2019 2018 2017 2019 vs. 2018 2018 vs. 2017

(Dollars in millions)

Net interest income from guaranty book of business:

Base guaranty fee income, net of TCCA $ 9,413 $ 8,615 $ 8,139 $ 798 $ 476

Base guaranty fee income related to TCCA(1) 2,432 2,284 2,096 148 188

Net amortization income 5,833 5,626 6,158 207 (532)

Total net interest income from guaranty book of business 17,678 16,525 16,393 1,153 132

Net interest income from portfolios(2) 3,284 4,426 4,340 (1,142) 86

Total net interest income $ 20,962 $ 20,951 $ 20,733 $ 11 $ 218

(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 Securities of $1.4 billion, $1.4

billion and $1.0 billion in 2019, 2018 and 2017, respectively.

Net interest income from base guaranty fees: 

Ö Increased in 2019 compared with 2018 and in 2018 compared with 2017 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.

Net interest income from net amortization income:

Ö Increased in 2019 compared with 2018 as a lower interest-rate environment in 2019 led to increased prepayments on

mortgage loans, which accelerated the amortization of cost basis adjustments on mortgage loans of consolidated

trusts and the related debt. Conversely, higher interest rates in 2018 compared with 2017 led to a decline in

prepayments and net amortization income in 2018 from 2017.

Net interest income from portfolios: 

Å Decreased in 2019 compared with 2018 primarily due to sales of reperforming loans as well as liquidations, which

reduced the average balance of our retained mortgage portfolio. This was partially offset by increased interest income

on our other investments portfolio due to higher short-term interest rates on our federal funds sold and securities

purchased under agreements to resell or similar arrangements, and a higher average balance of non-mortgagerelated securities.

Analysis of Deferred Amortization Income

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

recognize the difference between the initial fair value and the carrying value of these instruments as cost basis adjustments,

either as premiums or discounts, in our consolidated balance sheet. We amortize these cost basis adjustments 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 consolidated statements of operations and comprehensive income as amortization income in future periods.

Our net premium position on debt of consolidated MBS trusts decreased in 2019 compared with 2018. The low interest-rate

environment coupled with a flatter yield curve throughout most of 2019 made it economically attractive to adjust the passthrough rates downward on new MBS issuances, which resulted in recognizing fewer premiums on newly issued MBS debt

than in prior periods. In addition, increased refinancing activity in 2019 extinguished MBS debt that had been issued in the past

with higher premiums.

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 54
Deferred Income Represented by Net Premium Position 

on Debt of Consolidated Trusts

(Dollars in billions)

12/31/2017 12/31/2018 12/31/2019

$37.7 $36.9

$33.6

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(1)

For the Year Ended December 31,

2019 2018 2017

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

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 $ 116,350 $ 4,959 4.26% $ 149,878 $ 6,641 4.43% $ 186,216 $ 7,726 4.15%

Mortgage loans of consolidated trusts 3,181,505 111,805 3.51 3,083,060 107,964 3.50 2,966,541 100,593 3.39

Total mortgage loans(2) 3,297,855 116,764 3.54 3,232,938 114,605 3.54 3,152,757 108,319 3.44

Mortgage-related securities 10,115 421 4.16 10,744 440 4.10 12,984 450 3.47

Non-mortgage-related securities(3) 61,332 1,381 2.22 55,809 1,126 1.99 55,778 591 1.06

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements 35,891 843 2.32 37,338 742 1.96 37,369 373 1.00

Advances to lenders 5,410 163 2.97 4,102 136 3.27 4,506 123 2.73

Total interest-earning assets $ 3,410,603 $ 119,572 3.50% $ 3,340,931 $ 117,049 3.50% $ 3,263,394 $ 109,856 3.37%

Interest-bearing liabilities:

Short-term funding debt $ 23,426 $ (501) 2.11% $ 25,835 $ (464) 1.77% $ 29,651 $ (246) 0.83%

Long-term funding debt 164,752 (4,115) 2.50 200,478 (4,557) 2.27 253,138 (5,287) 2.09

Connecticut Avenue Securitiesâ

(ÇCASÉ) 23,630 (1,433) 6.06 24,247 (1,391) 5.74 19,631 (1,006) 5.12

Total debt of Fannie Mae 211,808 (6,049) 2.86 250,560 (6,412) 2.56 302,420 (6,539) 2.16

Debt securities of consolidated trusts

held by third parties 3,190,070 (92,561) 2.90 3,084,846 (89,686) 2.91 2,969,238 (82,584) 2.78

Total interest-bearing liabilities $ 3,401,878 $ (98,610) 2.90% $ 3,335,406 $ (96,098) 2.88% $ 3,271,658 $ (89,123) 2.72%

Net interest income/net interest yield $ 20,962 0.61% $ 20,951 0.63% $ 20,733 0.64%

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Average balance includes mortgage loans on nonaccrual status. Typically, interest income on nonaccrual mortgage loans is recognized

when cash is received. Interest income from the amortization of loan fees, primarily consisting of upfront cash fees, was $5.4 billion, $4.2

billion and $4.3 billion for the years ended 2019, 2018, and 2017, respectively. 

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

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 55
The table below displays the change in our net interest income between periods and the extent to which that variance is

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

interest rates of these assets and liabilities.

Rate/Volume Analysis of Changes in Net Interest Income

2019 vs. 2018 2018 vs. 2017

Total

Variance

Variance Due to:(1)

Total

Variance

Variance Due to:(1)

Volume Rate Volume Rate

(Dollars in millions)

Interest income:

Mortgage loans of Fannie Mae $ (1,682) $ (1,437) $ (245) $ (1,085) $ (1,584) $ 499

Mortgage loans of consolidated trusts 3,841 3,458 383 7,371 4,022 3,349

Total mortgage loans 2,159 2,021 138 6,286 2,438 3,848

Mortgage-related securities (19) (26) 7 (10) (86) 76

Non-mortgage-related securities(2) 255 118 137 535 Ü 535

Federal funds sold and securities purchased under agreements

to resell or similar arrangements 101 (30) 131 369 Ü 369

Advances to lenders 27 40 (13) 13 (12) 25

Total interest income $ 2,523 $ 2,123 $ 400 $ 7,193 $ 2,340 $ 4,853

Interest expense:

Short-term funding debt $ (37) $ 46 $ (83) $ (218) $ 35 $ (253)

Long-term funding debt 442 864 (422) 730 1,168 (438)

CAS debt (42) 36 (78) (385) (255) (130)

Total debt of Fannie Mae 363 946 (583) 127 948 (821)

Debt securities of consolidated trusts held by third parties (2,875) (3,105) 230 (7,102) (3,295) (3,807)

Total interest expense $ (2,512) $ (2,159) $ (353) $ (6,975) $ (2,347) $ (4,628)

Net interest income $ 11 $ (36) $ 47 $ 218 $ (7) $ 225

(1) Combined rate/volume variances are allocated between rate and volume based on the relative size of each variance.

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

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 56

Fee and Other Income

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

increased in 2019 compared with 2018, primarily due to an increase in yield maintenance fees due to increased prepayments

on multifamily loans as interest rates decreased during the year. Fee and other income decreased in 2018 compared with

2017, primarily due to $975 million of income in 2017 resulting from a settlement agreement resolving legal claims related to

private-label securities we purchased.

Investment Gains, Net

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

of loans, gains and losses recognized on the consolidation and deconsolidation of securities, net other-than-temporary

impairments recognized on our investments, and lower of cost or fair value adjustments on held for sale (ÇHFSÉ) loans.

Investment gains, net increased during 2019 compared with 2018 primarily driven by an increase in gains on sales of singlefamily HFS loans. Investment gains, net decreased during 2018 compared with 2017 primarily due to lower gains from the sale

of HFS loans driven by a decline in average sales prices.

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 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 Year Ended

December 31,

2019 2018 2017

(Dollars in millions)

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

Net contractual interest expense on interest-rate swaps $ (833) $ (1,061) $ (889)

Net change in fair value during the period (199) 1,133 316

Total risk management derivatives fair value gains (losses), net (1,032) 72 (573)

Mortgage commitment derivatives fair value gains (losses), net (1,043) 324 (603)

Credit enhancement derivatives fair value gains (losses), net (35) 26 (9)

Total derivatives fair value gains (losses), net (2,110) 422 (1,185)

Trading securities gains, net 322 126 190

CAS debt fair value gains (losses), net 145 208 (297)

Other, net(1) (571) 365 81

Fair value gains (losses), net $ (2,214) $ 1,121 $ (1,211)

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

Risk Management Derivatives Fair Value Gains (Losses), Net

Risk management derivative instruments are an integral part of our interest-rate risk management strategy. We supplement

our issuance of debt securities with derivative instruments to further reduce duration risk, which includes prepayment risk. We

purchase option-based risk management derivatives to economically hedge prepayment risk. In cases where options obtained

through callable debt issuances are not needed for risk management derivative purposes, we may sell options in the over-thecounter (ÇOTCÉ) derivatives market in order to offset the options obtained in the callable debt. Our principal purpose in using

derivatives is to manage our aggregate interest-rate risk profile within prescribed risk parameters. We generally use only

derivatives that are relatively liquid and straightforward to value. We consider the cost of derivatives used in our management

of interest-rate risk to be an inherent part of the cost of funding and hedging our mortgage investments and economically

similar to the interest expense that we recognize on the debt we issue to fund our mortgage investments.

We present, by derivative instrument type, the fair value gains and losses on our derivatives in ÇNote 8, Derivative

Instruments.É

The primary factors that may affect the fair value of our risk management derivatives include the following: 

Ö Changes in interest rates: Our primary derivative instruments are interest-rate swaps, including pay-fixed and

receive-fixed interest-rate swaps. Pay-fixed swaps decrease in value and receive-fixed swaps increase in value as

swap rates decrease (with the opposite being true when swap rates increase). Because the composition of our payfixed and receive-fixed derivatives varies across the yield curve, different yield curve changes (that is, parallel,

steepening or flattening) will generate different gains and losses.

Ö Changes in our derivative activity:ÄThe mix and balance of our derivative portfolio changes from period to period as

we enter into or terminate derivative instruments to respond to changes in interest rates and changes in the balances

and modeled characteristics of our assets and liabilities. Changes in the composition of our derivative portfolio affect

the derivative fair value gains and losses we recognize in a given period.

Additional factors that affect the fair value of our risk management derivatives include implied interest-rate volatility and the

time value of purchased or sold options, among other factors.

We recognized total risk management derivatives fair value losses in 2019, primarily as a result of net interest expense on

interest-rate swaps combined with a decrease in the fair value of our interest-rate swaps due to the decline in interest rates

during the year.

We recognized total risk management derivatives fair value gains in 2018, primarily as a result of an increase in the fair value

of our interest-rate swaps due to an increase in interest rates during the year. These gains were partially offset by net interest

expense on interest-rate swaps in 2018.

For additional information on our use of derivatives to manage interest-rate risk, see ÇRisk ManagementÜMarket Risk

Management, Including Interest-Rate Risk ManagementÜInterest-Rate Risk Management.É

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 57
Expected Impact of Hedge Accounting

We are developing capabilities to implement fair value hedge accounting to reduce the impact of interest-rate volatility on our

financial results. Once implemented, derivative fair value gains and losses resulting from changes in certain benchmark

interest rates, such as LIBOR or SOFR, may be reduced by offsetting gains and losses in the fair value of designated hedged

mortgage loans or debt. Therefore, we expect the volatility of our financial results associated with changes in interest rates will

be reduced substantially while fair value gains and losses driven by other factors, such as credit spreads, will remain.

Mortgage Commitment Derivatives Fair Value Gains (Losses), Net

We generally account for certain commitments to purchase or sell mortgage-related securities and to purchase single-family

mortgage loans as derivatives. For open mortgage commitment derivatives, we include changes in their fair value in our

consolidated statements of operations and comprehensive income.ÄWhen derivative purchase commitments settle, we include

the fair value of the commitment on the settlement date in the cost basis of the loan or security we purchase. When derivative

commitments to sell securities settle, we include the fair value of the commitment on the settlement date in the cost basis of

the security we sell. Purchases of securities issued by our consolidated MBS trusts are treated as extinguishments of debt; we

recognize the fair value of the commitment on the settlement date as a component of debt extinguishment gains and losses in

ÇOther expenses, net.É Sales of securities issued by our consolidated MBS trusts are treated as issuances of consolidated

debt; we recognize the fair value of the commitment on the settlement date as a component of debt in the cost basis of the

debt issued. 

We recognized fair value losses on our mortgage commitments in 2019 primarily due to losses on commitments to sell

mortgage-related securities driven by increases in prices during commitment periods as interest rates declined throughout

most of 2019. 

We recognized fair value gains on our mortgage commitments in 2018 primarily due to gains on commitments to sell

mortgage-related securities driven by decreases in prices during commitment periods as interest rates increased throughout

most of 2018. 

CAS Debt Fair Value Gains (Losses), Net

Credit risk transfer transactions, including CAS debt issuances, transfer a portion of credit losses on a reference pool of

mortgage loans to investors. CAS debt we issued prior to 2016 is reported at fair value as ÇDebt of Fannie MaeÉ in our

consolidated balance sheets. CAS debt issued subsequent to 2016 is not accounted for in a manner that generates fair value

gains and losses. We expect our exposure to fair value gains and losses on CAS debt to continue to decline as the

outstanding balance of this debt declines. 

We recognized fair value gains on CAS debt reported at fair value in 2019 and 2018 primarily due to paydowns and widening

spreads between CAS yields and LIBOR. 

For further discussion of our credit risk transfer transactions, see ÇSingle-Family BusinessÜSingle-Family Mortgage Credit

Risk ManagementÜSingle-Family Credit Enhancement and Transfer of Mortgage Credit RiskÜCredit Risk Transfer

Transactions.É

Fair Value Option Debt of Consolidated Trusts Fair Value Gains (Losses), Net

We elected the fair value option for our long-term debt of consolidated trusts that contain embedded derivatives that would

otherwise require bifurcation. The fair value of our long-term consolidated trust debt held at fair value is reported as ÇDebt of

Consolidated TrustsÉ in our consolidated balance sheets. The changes in the fair value of our long-term consolidated trust debt

held at fair value are included in ÇOther, netÉ in the table above.

We recognized fair value losses on our long-term debt of consolidated trusts held at fair value in 2019 due to declines in

interest rates.

We recognized fair value gains on our long-term debt of consolidated trusts held at fair value in 2018 due to increases in

interest rates.

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 58

Credit-Related Income

Credit-related income or expense consists of our benefit or provision for credit losses and foreclosed property income or

expense.

We record a provision for credit losses and establish loss reserves for losses that we believe have been incurred and will

eventually be realized over time in our consolidated financial statements. Our loss reserves, which include our allowance for

loan losses and reserve for guaranty losses, provide for an estimate of credit losses incurred in our guaranty book of business,

including concessions we granted borrowers upon modification of their loans. When we reduce our loss reserves, we

recognize a benefit for credit losses.

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

changes in actual and expected home prices, fluctuations in interest rates, borrower payment behavior, events such as natural
disasters, the types and volume of our loss mitigation activities, the volume of foreclosures completed, and the redesignation

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

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

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

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

population of loans we are considering for redesignation declines. Further, our implementation of the CECL standard on

January 1, 2020 will likely introduce additional volatility in our results as credit-related income or expense will include expected

lifetime losses on our loans and other financial instruments subject to the standard and thus become more sensitive to

fluctuations in the factors detailed above.

Benefit for Credit Losses

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

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

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

losses as the amounts for each period presented were less than $50 million.

Components of Benefit for Credit Losses

For the Year Ended December 31,

2019 2018 2017

(Dollars in billions)

Single-family benefit for credit losses:

Changes in loan activity(1) $ 0.4 $ 0.8 $ (0.9)

Redesignation of loans from HFI to HFS 1.4 1.9 1.1

Actual and forecasted home prices 0.9 1.2 1.7

Actual and projected interest rates 0.3 (0.8) (0.4)

Other(2) 1.0 0.2 0.6

Total single-family benefit for credit losses $ 4.0 $ 3.3 $ 2.1

(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 charge-offs pursuant to the provisions of FHFAÑs 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 model enhancements 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 2019 were:

Ö 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 for any required write-down.ÄWe also reversed amounts in

the allowance relating to these loans prior to the charge-off. For the period, the amount of allowance that was

reversed exceeded the amounts charged off, which resulted in a net benefit for credit losses.

Ö During 2019, we enhanced the model used to estimate cash flows for individually impaired single-family loans within

our allowance for loan losses. This enhancement was performed as a part of managementÑs

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

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

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

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

Ö 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.

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

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

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

for credit losses.

The primary factors that impacted our benefit for credit losses in 2018 were:

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

HFI to HFS during the year. 

Ö We recognized a benefit for credit losses due to higher actual and forecasted home prices in the year.

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 59
Ö The benefit for credit losses was partially offset by the impact of higher actual and projected mortgage interest rates.

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

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

increases the impairment relating to term and interest rate concessions provided on these loans and results in an

increase in the provision for credit losses.

MD&A | Consolidated Results of Operations

Fannie Mae 2019 Form 10-K 60

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 consolidated financial statements. 

TCCA fees increased in 2019 compared with 2018 as our book of business subject to the TCCA continued to grow during the

year. We expect the guaranty fees collected and expenses incurred under the TCCA to increase in 2020 and 2021 as we

acquire more loans subject to these fees. After 2021, we expect our expense for TCCA fees to decline as the loans subject to

these fees pay off and we are no longer obligated to remit fees on new loan acquisitions. How this will affect the guaranty fees

on loans we acquire after 2021 is uncertain. See ÇBusinessÅCharter Act and RegulationÅGSE Act and Other LegislationÅ

Guaranty Fees and PricingÉ for further discussion of the TCCA.

Other Expenses, Net 

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

and losses, housing trust fund expenses, loan subservicing costs and multifamily fees. Other expenses, net increased in 2019

compared with 2018 primarily due to an increase in credit enhancement costs resulting from higher outstanding volumes of

credit risk transfer transactions. We expect our credit enhancement costs to continue to rise as the percentage of our guaranty

book of business on which we have transferred a portion of credit risk continues to increase. We discuss transfer of mortgage

credit risk in ÇSingle-Family BusinessÜSingle-Family Mortgage Credit Risk ManagementÜSingle-Family Credit Enhancement

and Transfer of Mortgage Credit RiskÉ and ÇMultifamily BusinessÜMultifamily Mortgage Credit Risk ManagementÜTransfer of

Multifamily Mortgage Credit Risk.É

Federal Income Taxes 

We recognized a provision for federal income taxes of $3.4 billion in 2019, $4.1 billion in 2018 and $16.0 billion in 2017. Our

provision for federal income taxes declined in 2019 compared with 2018 primarily because our income before federal income

taxes was lower in 2019 than in 2018. In addition, we recognized a benefit for federal income taxes in 2019 of $205 million as

a result of a favorable resolution with the Internal Revenue Service (ÇIRSÉ) of an uncertain tax position. The decrease in the

provision for federal income taxes in 2018 compared with 2017 was primarily the result of the effects of the Tax Cuts and Jobs

Act (the ÇTax ActÉ), which reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The

provision for federal income taxes in 2017 reflects a charge of $9.9 billion that resulted from the remeasurement of our

deferred tax assets in the fourth quarter of 2017 resulting from the enactment of the Tax Act, which significantly increased our

effective tax rate for the year. 

Our effective tax rates were 19.4% in 2019, 20.6% in 2018 and 86.6% in 2017. Our effective tax rates for each of these

periods was also impacted by the benefits of our investments in housing projects eligible for low-income housing tax credits.

See ÇNote 9, Income TaxesÉ for additional information on our income taxes. 
Consolidated Balance Sheet Analysis

This section discusses our consolidated balance sheets and should be read together with our consolidated financial

statements and the accompanying notes. 

MD&A | Consolidated Balance Sheet Analysis

Fannie Mae 2019 Form 10-K 61

Summary of Consolidated Balance Sheets

As of December 31,

2019 2018 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities purchased under

agreements to resell or similar arrangements $ 34,762 $ 58,495 $ (23,733)

Restricted cash 40,223 23,866 16,357

Investments in securities 50,527 45,296 5,231

Mortgage loans:

Of Fannie Mae 101,668 120,717 (19,049)

Of consolidated trusts 3,241,510 3,142,881 98,629

Allowance for loan losses (9,016) (14,203) 5,187

Mortgage loans, net of allowance for loan losses 3,334,162 3,249,395 84,767

Deferred tax assets, net 11,910 13,188 (1,278)

Other assets 31,735 28,078 3,657

Total assets $ 3,503,319 $ 3,418,318 $ 85,001

Liabilities and equity

Debt:

Of Fannie Mae $ 182,247 $ 232,074 $ (49,827)

Of consolidated trusts 3,285,139 3,159,846 125,293

Other liabilities 21,325 20,158 1,167

Total liabilities 3,488,711 3,412,078 76,633

Fannie Mae stockholdersÑ equity (deficit):

Senior preferred stock 120,836 120,836 Ü

Other net deficit (106,228) (114,596) 8,368

Total equity 14,608 6,240 8,368

Total liabilities and equity $ 3,503,319 $ 3,418,318 $ 85,001

Cash, Cash Equivalents and Restricted Cash

For information on changes in our cash, cash equivalents and restricted cash, see ÇLiquidity and Capital ManagementÜ

Liquidity ManagementÜCash Flows.É

Investments in Securities

Investments in U.S. Treasury Securities

Our investments in U.S. Treasury securities are classified in our consolidated balance sheets as investments in securities

when the maturity date at the date of acquisition exceeds three months. U.S. Treasury securities included in our other

investments portfolio increased to $39.5 billion as of December 31, 2019 from $35.5 billion as of December 31, 2018. For

additional information on our investments in U.S. Treasury securities, see the ÇOther Investments PortfolioÉ chart in ÇLiquidity

and Capital ManagementÜLiquidity ManagementÜOther Investments PortfolioÉ and ÇNote 5, Investments in Securities.É

Investments in Mortgage-Related Securities

Our investments in mortgage-related securities are classified in our consolidated balance sheets as either trading or availablefor-sale and are measured at fair value. The table below displays the fair value of our investments in mortgage-related

securities, including trading and available-for-sale securities. We classify private-label securities as Alt-A or subprime

mortgage-backed securities if the securities were labeled as such when issued. We have also invested in subprime private-
label mortgage-related securities that we have resecuritized to include our guaranty, which are included as Fannie Mae

securities in the table below. 

Summary of Mortgage-Related Securities at Fair Value

As of December 31,

2019 2018

(Dollars in millions)

Mortgage-related securities:

Fannie Mae $ 4,944 $ 3,264

Other agency 4,688 3,759

Alt-A and subprime private-label securities 686 1,897

Mortgage revenue bonds 315 435

Other mortgage-related securities 314 350

Total $ 10,947 $ 9,705

See ÇNote 5, Investments in SecuritiesÉ for additional information on our investments in mortgage-related securities, including

the composition of our trading and available-for-sale securities at amortized cost and fair value and the gross unrealized gains

and losses related to our available-for-sale securities as of December 31, 2019 and 2018.

MD&A | Consolidated Balance Sheet Analysis

Fannie Mae 2019 Form 10-K 62

Mortgage Loans, Net of Allowance for Loan Losses 

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

by Fannie Mae and loans held in consolidated trusts. 

Mortgage loans, net of allowance for loan losses increased as of 2019 compared with 2018 primarily driven by:

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

Ö a decrease in our allowance for loan losses primarily driven by the redesignation of certain reperforming single-family

loans from HFI to HFS and as a result of an enhancement to the model used to estimate cash flows for individually

impaired single-family loans within our allowance for loan losses, which incorporated recent loan performance data

within the model.

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

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

Other Assets

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

to lenders. As interest rates declined during 2019, mortgage activity increased, resulting in higher funding needs by lenders.

For information on our accounting policy for advances to lenders, see ÇNote 1, Summary of Significant Accounting Policies.É

Debt

Debt of consolidated trusts represents the amount of Fannie Mae MBS issued from consolidated trusts and held by third-party

certificateholders. Debt of Fannie Mae is the primary means of funding our mortgage purchases. Debt of Fannie Mae also

includes CAS debt, which we issued in connection with our transfer of mortgage credit risk. We provide a comparison of the

mix between our outstanding short-term and long-term debt and a summary of the activity of the debt of Fannie Mae in

ÇLiquidity and Capital ManagementÜLiquidity ManagementÜDebt Funding.É Also see ÇNote 7, Short-Term and Long-Term

DebtÉ for additional information on our outstanding debt. 

The decrease in debt of Fannie Mae in 2019 was primarily driven by the decline in the size of our retained mortgage portfolio.

We did not issue new debt to replace all of our debt of Fannie Mae that was paid off during 2019. The increase in debt of

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

debt of consolidated trusts in our consolidated balance sheets, since the MBS certificate ownership is transferred from us to a

third party. 

StockholdersÅ Equity

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

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

two quarters of 2019.

Under the liquidation preference provisions governing the senior preferred stock described in ÇBusinessÜConservatorship,

Treasury Agreements and Housing Finance ReformÜTreasury AgreementsÜSenior Preferred Stock,É the aggregate
liquidation preference of the senior preferred stock increased from $127.2 billion as of September 30, 2019 to $131.2 billion as

of December 31, 2019, and will further increase to $135.4 billion as of March 31, 2020.

MD&A | Consolidated Balance Sheet Analysis

Fannie Mae 2019 Form 10-K 63

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 instrumentÑs use:

Ö 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. 

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

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

ÇOtherÉ as of December 31, 2019 consisted of Fannie Mae reverse mortgage securities and reverse mortgage loans.

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

Retained Mortgage Portfolio

(Dollars in billions)

Lender liquidity Loss mitigation Other

12/31/2018 12/31/2019

$49.2

$59.5

$87.2 $60.7

$42.8

$179.2

$33.4

$153.6

The decrease in our retained mortgage portfolio in 2019 compared with 2018 was due to a decrease in our loss mitigation

portfolio driven by portfolio loan sales as well as a decrease in our legacy investment portfolio due to continued liquidations of

loans and sales of private-label securities from this book. This decrease was partially offset by an increase in our lender

liquidity portfolio due to an increase in our acquisitions of loans through our whole loan conduit in 2019 driven by higher

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

Retained Mortgage Portfolio

As of December 31,

2019 2018

(Dollars in millions)

Lender liquidity:

Agency securities(1) $ 38,375 $ 40,528

Mortgage loans 21,152 8,640

Total lender liquidity 59,527 49,168

Loss mitigation mortgage loans(2) 60,731 87,220

Other:

Reverse mortgage loans 17,129 21,856

Mortgage loans 6,546 8,959

Reverse mortgage securities(3) 7,575 7,883

Private-label and other securities 1,250 3,042

Fannie Mae-wrapped private-label securities 581 650

Mortgage revenue bonds 272 375

Total other 33,353 42,765

Total retained mortgage portfolio $ 153,611 $ 179,153

Retained mortgage portfolio by segment:

Single-family mortgage loans and mortgage-related securities $ 145,179 $ 168,338

Multifamily mortgage loans and mortgage-related securities $ 8,432 $ 10,815

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

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

(2) Includes single-family loans classified as troubled debt restructurings (ÇTDRsÉ) that were on accrual status of $38.2 billion and $58.5 billion

as of December 31, 2019 and 2018, respectively, and single-family loans on nonaccrual status of $19.6 billion and $24.4 billion as of

December 31, 2019 and 2018, respectively. Includes multifamily loans classified as TDRs that were on accrual status of $51 million and

$57 million as of December 31, 2019 and 2018, respectively, and multifamily loans on nonaccrual status of $132 million and $150 million

as of December 31, 2019 and 2018, respectively.

(3) Consists of Fannie Mae 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 ÇBusinessÜ

Conservatorship, Treasury Agreements and Housing Finance ReformÜTreasury Agreements.É The Treasury plan includes a

recommendation that Treasury and FHFA amend our senior preferred stock purchase agreement to further reduce the cap on

our investments in mortgage-related assets, and also to restrict our retained mortgage portfolio to solely supporting the

business of securitizing MBS.

In November 2019, FHFA directed us to include 10% of the notional value of interest-only securities in calculating the size of

the retained portfolio for the purpose of determining compliance with the senior preferred stock purchase agreement retained

portfolio limits and associated FHFA guidance. As of December 31, 2019, 10% of the notional value of our interest-only

securities was $2.0 billion, which is not included in the table above. The directive is effective January 31, 2020.ÄWe expect our

retained mortgage portfolio to remain below the current $225 billion cap, under FHFAÑs revised calculation. We also expect the

size of our retained mortgage portfolio to fluctuate as a result of our activities to support lender liquidity and to shrink to the

extent we sell nonperforming and reperforming loans.

MD&A | Retained Mortgage Portfolio

Fannie Mae 2019 Form 10-K 64

Purchases of Loans from Our MBS Trusts

Under the terms of our MBS trust documents, we have the option or, in some instances, the obligation to purchase mortgage

loans that meet specific criteria from an MBS trust. The purchase price for these loans is the unpaid principal balance of the

loan plus accrued interest. In deciding whether and when to exercise our option to purchase a loan from a single-family MBS

trust, we consider a variety of factors, including: our legal ability to purchase loans under the terms of the trust documents;

whether we have agreed to modify the loan; our mission and public policy; our loss mitigation strategies and the exposure to

credit losses we face under our guaranty; our cost of funds; the impact on our results of operations; relevant market yields; the

accounting impact; the administrative costs associated with purchasing and holding the loans; counterparty exposure to

lenders that have agreed to cover losses associated with delinquent loans; and general market conditions. The weight we give
to these factors changes depending on market circumstances and other factors. The cost of purchasing most delinquent loans

from single-family Fannie Mae MBS trusts and holding them in our retained mortgage portfolio is currently less than the cost of

advancing delinquent payments to security holders. We generally purchase loans from single-family MBS trusts as they

become four or more consecutive monthly payments delinquent. As described in ÇBusinessÜMortgage SecuritizationsÜ

Uniform Mortgage-Backed Securities, or UMBSÉ we began issuing UMBS and structured securities backed by UMBS in June

2019. Accordingly, our resecuritization trusts now include Freddie Mac-issued UMBS. Because the underlying mortgage loans

that back Freddie Mac-issued UMBS are not in Fannie Mae MBS trusts, we do not have the right to purchase those mortgage

loans upon their becoming delinquent. During 2019, we purchased delinquent loans with an unpaid principal balance of $10.5

billion from our single-family MBS trusts. We expect to continue purchasing loans from single-family MBS trusts as they

become four or more consecutive monthly payments delinquent subject to market conditions, economic benefit, servicer

capacity and other factors, including the limit on the amount of mortgage assets that we may own pursuant to the senior

preferred stock purchase agreement and FHFAÑs portfolio requirements. For our multifamily MBS trusts, we typically exercise

our option to purchase a loan from the trust if the loan is delinquent with respect to four or more consecutive monthly

payments, whether those payments were missed in whole or in part.

MD&A | Retained Mortgage Portfolio

Fannie Mae 2019 Form 10-K 65

Guaranty Book of Business

Our Çguaranty book of businessÉ consists of: 

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

Freddie Mac securities; 

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

Ö other credit enhancements that we provide on mortgage assets. 

ÇTotal Fannie Mae guaranteesÉ consists of: 

Ö our guaranty book of business; and 

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

In June 2019, we began resecuritizing Freddie Mac securities into Fannie Mae-issued structured securities. In these

resecuritizations, our guaranty of principal and interest extends to the underlying Freddie Mac securities. However, Freddie

Mac continues to guaranty the payment of principal and interest on the underlying Freddie Mac securities that we have

resecuritized. We do not charge an incremental guaranty fee to include Freddie Mac securities in the structured securities that

we issue.

The table below displays the composition of our guaranty book of business based on unpaid principal balance. Our singlefamily guaranty book of business accounted for 90% of our guaranty book of business as of December 31, 2019 and 91% of

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

Composition of Fannie Mae Guaranty Book of Business(1)

As of December 31,

2019 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Conventional guaranty book of business(2) $ 2,997,475 $ 341,522 $ 3,338,997 $ 2,925,246 $ 308,543 $ 3,233,789

Government guaranty book of business(3) 27,422 1,079 28,501 34,158 1,205 35,363

Guaranty Book of Business 3,024,897 342,601 3,367,498 2,959,404 309,748 3,269,152

Freddie Mac securities guaranteed by Fannie Mae(4) 50,100 Ñ 50,100 Ü Ü Ü

Total Fannie Mae guarantees $ 3,074,997 $ 342,601 $ 3,417,598 $ 2,959,404 $ 309,748 $ 3,269,152

(1) Includes other single-family Fannie Mae guaranty arrangements of $1.3 billion and $1.6 billion as of December 31, 2019 and 2018,

respectively, and other multifamily Fannie Mae guaranty arrangements of $11.3 billion and $12.3 billion as of December 31, 2019 and

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

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

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

(4) Consists of approximately (i) $37.8 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers;

and (ii) $12.3 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs, a portion of which may be

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

collateral is likely lower.
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 new

business purchases and to pay this amount to specified HUD and Treasury funds in support of affordable housing. In April

2019, we paid $215 million to the funds based on our new business purchases in 2018. For 2019, we recognized an expense

of $280 million related to this obligation based on our $666.9 billion in new business purchases during the period. We expect

to pay this amount to the funds in 2020. See ÇBusinessÜCharter Act and RegulationÜGSE Act and Other LegislationÜ

Affordable Housing AllocationsÉ for more information regarding this obligation.

MD&A | Guaranty Book of Business

Fannie Mae 2019 Form 10-K 66

Business Segments

We conduct business in the U.S.Äresidential mortgage markets and the global securities market. According to the Federal

Reserve, total U.S.Äresidential mortgage debt outstanding was estimated to be approximately $12.6 trillion as of September

30, 2019 (the latest date for which information is available). We owned or guaranteed mortgage assets representing

approximately 26% of total U.S. residential mortgage debt outstanding as of September 30, 2019. 

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

2017 2018 2019

$19.6 $18.6 $18.4

$3.4

$23.0

$3.3

$21.9

$3.7

$22.1

$1.5

$13.8

$11.9

$1.0

$2.5

$2.2

$16.0

$2.3

$14.2

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 segmentÑs operating results. Other revenues and expenses that are not directly

attributable to a particular business segment are allocated based on the size of each segmentÑs guaranty book of business.

The substantial majority of the gains and losses associated with our risk management derivatives are allocated to our singlefamily business segment.
In the following sections, we describe each segmentÑs primary business activities, customers, competitive and market

conditions, business metrics, and financial results. We also describe how each segment manages mortgage credit risk and its

credit metrics.

MD&A | Business Segments

Fannie Mae 2019 Form 10-K 67

Single-Family Business

Single-Family Primary Business Activities

Providing Liquidity for Single-Family Mortgage Loans

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. We describe our securitization transactions and the types of Fannie Mae MBS that we issue in

ÇBusinessÜMortgage SecuritizationsÉ above. Our Single-Family business also supports liquidity in the mortgage market and

the businesses of our lender customers through other activities, such as issuing structured Fannie Mae MBS backed by singlefamily mortgage assets and buying and selling single-family agency mortgage-backed securities. 

A single-family loan is secured by a property with four or fewer residential units. Our Single-Family business securitizes and

purchases primarily conventional (not federally insured or guaranteed) single-family fixed-rate or adjustable-rate, first-lien

mortgage loans, or mortgage-related securities backed by these types of loans. We also securitize or purchase loans insured

by FHA, loans guaranteed by the VA, loans guaranteed by the Rural Development Housing and Community Facilities Program

of the U.S. Department of Agriculture, manufactured housing mortgage loans and other mortgage-related securities.

Single-Family Mortgage Servicing

Servicing of the mortgage loans held in our retained mortgage portfolio or backing Fannie Mae MBS is performed by mortgage

servicers on our behalf. Some loans are serviced for us by the lenders that initially sold the loans to us. In other cases, our

loans are serviced by third-party servicers that did not originate or sell the loans to us. For loans we own or guarantee, the

lender or servicer must obtain our approval before selling servicing rights to another servicer.

Our mortgage servicers typically collect and deliver principal and interest payments, administer escrow accounts, monitor and

report delinquencies, perform default prevention activities, evaluate transfers of ownership interests, respond to requests for

partial releases of security, and handle proceeds from casualty and condemnation losses. Our mortgage servicers are the

primary point of contact for borrowers and perform a key role in the effective implementation of our homeownership assistance

initiatives, negotiation of workouts of troubled loans, and other loss mitigation activities. If necessary, mortgage servicers

inspect and preserve properties and process foreclosures and bankruptcies. Because we generally delegate the servicing of

our mortgage loans to mortgage servicers and do not have our own servicing function, our ability to actively manage troubled

loans that we own or guarantee is limited. For more information on the risks of our reliance on servicers, refer to ÇRisk Factors

ÜCredit Risk.É 

We compensate servicers primarily by permitting them to retain a specified portion of each interest payment on a serviced

mortgage loan as a servicing fee. Servicers also generally retain assumption fees, late payment charges and other similar

charges, to the extent they are collected from borrowers, as additional servicing compensation. We also compensate servicers

for negotiating workouts on problem loans.

Our servicers are required to develop, follow and maintain written procedures relating to loan servicing and legal compliance in

accordance with our Servicing Guide.ÄWe oversee servicer compliance with our Servicing Guide requirements and execution

of our loss mitigation programs by conducting reviews of select servicers.ÄThese reviews are designed to test a servicerÑs

quality control processes and compliance with our requirements across key servicing functions.ÄIssues identified through these

Servicing Guide compliance reviews are provided to the servicer with prescribed corrective actions and expected resolution

due dates, and we monitor servicersÑ remediation of their compliance issues.

Performance management staff measure, monitor and manage overall servicer performance by providing loss mitigation

workout goals to targeted servicers, discussing performance against each goal and tracking action items to improve, and

following up on remediation of findings identified from compliance reviews.ÄAdditionally, we employ a servicer performance

management program, called the STARTM Program, which provides our largest servicers a transparent framework of key

metrics and operational assessments to recognize strong performance and identify areas of weakness. 

Repercussions for poor performance by a servicer may include performance improvement plans and servicing transfers, lost

incentive income, compensatory fees, monetary and non-monetary remedies, and reduced opportunity for STAR Program

recognition.
Single-Family Credit Risk and Credit Loss Management

Our Single-Family business: 

Ö Prices and manages the credit risk on loans in our single-family guaranty book of business.

Ö Enters into transactions that transfer a portion of the credit risk on some of the loans in our single-family guaranty

book of business.

Ö Works to reduce costs of defaulted single-family loans through home retention solutions and foreclosure alternatives,

management of foreclosures and our REO inventory, selling nonperforming loans, and pursuing contractual remedies

from lenders, servicers and providers of credit enhancement.

See ÇSingle-Family Mortgage Credit Risk ManagementÉ below for discussion of our strategies for managing credit risk and

credit losses on single-family loans.

Single-Family Customers

Our principal single-family customers are lenders that operate within the primary mortgage market where mortgage loans are

originated and funds are loaned to borrowers. Our customers include mortgage banking companies, savings and loan

associations, savings banks, commercial banks, credit unions, community banks, specialty servicers, insurance companies,

and state and local housing finance agencies. Lenders originating mortgages in the primary mortgage market often sell them

in the secondary mortgage market in the form of whole loans or in the form of mortgage-related securities.

During 2019, approximately 1,200 lenders delivered single-family mortgage loans to us. We acquire a significant portion of our

single-family mortgage loans from several large mortgage lenders. During 2019, our top five lender customers, in the

aggregate, accounted for approximately 44% of our single-family business volume, compared with approximately 42% in 2018.

Wells Fargo Bank, N.A., together with its affiliates, and Quicken Loans Inc., together with its affiliates, were the only customers

that accounted for 10% or more of our single-family business volume in 2019, with approximately 14% and 10%, respectively,

of our 2019 single-family business volume. 

We have a diversified funding base of domestic and international investors. Purchasers of single-family Fannie Mae MBS

include asset managers, commercial banks, pension funds, insurance companies, Treasury, central banks, corporations, state

and local governments, and other municipal authorities. Our CAS investors include asset managers, real estate investment

trusts, hedge funds and insurance companies, while our CIRT transaction counterparties are insurers and reinsurers.

Single-Family Competition

We compete to acquire single-family mortgage assets in the secondary market. We also compete for the issuance of singlefamily mortgage-related securities to investors. Competition in these areas is affected by many factors, including the number of

residential mortgage loans offered for sale in the secondary market by loan originators and other market participants, the

nature of the residential mortgage loans offered for sale (for example, whether the loans represent refinancings), the current

demand for mortgage assets from mortgage investors, the interest-rate risk investors are willing to assume and the yields they

will require as a result, and the credit risk and prices associated with available mortgage investments.

Competition to acquire mortgage assets is significantly affected by both our and our competitorsÑ pricing and eligibility

standards, as well as investor demand for UMBS and for our and our competitorsÑ other mortgage-related securities. Our

competitive environment also may be affected by many other factors, including changes in connection with recommendations

in the Treasury plan; other new legislation or regulations applicable to us, our customers or our investors; and digital

innovation and disruption in our markets. The Director of FHFA has indicated that, during conservatorship, Fannie Mae and

Freddie Mac should reduce competition with each other and FHA. As a result, in order to successfully acquire loans in the

secondary market, we focus on understanding what drives our customersÑ execution decisions and identifying how to best

deliver value. See ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance Reform,É ÇBusinessÜCharter Act

and Regulation,É and ÇRisk FactorsÉ for information on matters that could affect our business and competitive environment.

Our competitors for the acquisition of single-family mortgage assets are financial institutions and government agencies that

manage residential mortgage credit risk or invest in residential mortgage loans, including Freddie Mac, FHA, the VA, Ginnie

Mae (which primarily guarantees securities backed by FHA-insured loans and VA-guaranteed loans), the FHLBs, U.S. banks

and thrifts, securities dealers, insurance companies, pension funds, investment funds and other mortgage investors. Currently,

our primary competitors for the issuance of single-family mortgage-related securities are Freddie Mac and Ginnie Mae, as

many private market competitors dramatically reduced or ceased their activities in the single-family secondary mortgage

market following the 2008 housing crisis. Competition for investors and counterparties in our credit risk transfer transactions

comes primarily from other issuers of mortgage credit risk transactions, such as Freddie Mac and private mortgage insurers.

We also compete for investor funds against other credit-related securitized products, such as private-label residential

mortgage-backed securities (ÇRMBSÉ), commercial RMBS, and collateralized loan obligations. As noted above, the nature of

our primary competitors and the overall levels of competition we face could change as a result of a variety of factors, many of

which are outside our control.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 68
Single-Family Market Share

Single-Family Mortgage Acquisition Market Share

The chart below displays our estimated market share of single-family mortgage acquisitions in 2019 as compared with that of

our primary competitors. Our market share estimate is based on publicly available data regarding the amount of single-family

first-lien mortgage loans originated and our competitorsÑ acquisitions. Our share of the single-family acquisition market,

including loans held on lendersÑ books, may fluctuate from period to period. We exclude our purchase of delinquent loans from

our MBS trusts in the calculation of our market share.

2019 Single-Family Mortgage Acquisition Market Share

Fannie Mae: 26%

Freddie Mac: 19%

Ginnie Mae: 21%

Private-label securities: 3%

Held by lenders: 31%

We estimate our market share of single-family mortgage acquisitions was 25% in 2018 and 27% in 2017.

Single-Family Mortgage-Related Securities Issuances Market Share

Single-family Fannie Mae MBS issuances were $591.1 billion in 2019, compared with $470.5 billion in 2018 and $514.0 billion

in 2017. Based on the latest data available, the chart below displays our estimated market share of single-family mortgagerelated securities issuances in 2019 as compared with that of our primary competitors for the issuance of single-family

mortgage-related securities.

2019 Single-Family Mortgage-Related

Securities Issuances Market Share

Fannie Mae: 37%

Freddie Mac: 28%

Ginnie Mae: 31%

Private-label securities: 4%

We estimate our market share of single-family mortgage-related securities issuances was 39% in both 2018 and 2017. 

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 69
Single-Family Mortgage Market

Below we present macroeconomic factors that affect the single-family mortgage market in which our Single-Family business

operates. Home sales and the supply of unsold homes are indicators of the underlying demand for mortgage loans, which

impacts our acquisition volumes. 

Total Single-Family Home Sales and

MonthsÅ Supply of Unsold Homes(1) 

Single-Family Mortgage Originations

and Mortgage Debt Outstanding(2) (3)

(Home sales units in thousands) (Dollars in trillions)

New home sales

Existing home sales

MonthsÑ supply of new single-family unsold

homes, as of period end

MonthsÑ supply of existing single-family unsold

homes, as of period end

2017 2018 2019

613 617 681

5,510

6,123

5,340

5,957

5,340

6,021

5.3

7.4

5.7

3.2

3.7

3.0

Single-family mortgage loan originations

Single-family U.S. mortgage debt outstanding,

as of period end

.

.

2017 2018 2019

$1.88 $1.77

$2.32

$10.58

$10.87

$11.07

(1) Total existing home sales data according to National Association of REALTORSâ

. New single-family home sales data according to the U.S.

Census Bureau. Certain previously reported data has changed to reflect revised historical data from one or both of these organizations. 

(2) 2019 information is as of SeptemberÄ30, 2019 and is based on the Federal ReserveÑs December 2019 mortgage debt outstanding release,

the latest date for which the Federal Reserve has estimated mortgage debt outstanding for single-family residences. Prior period amounts

have been changed to reflect revised historical data from the Federal Reserve.

(3) We estimate that Fannie MaeÑs share of total U.S. single-family mortgage debt outstanding was 27% as of the end of both 2019 and 2018,

and was 28% as of the end of 2017.

Additional Factors

Ö The 30-year fixed mortgage rate averaged 3.9% in 2019 compared with 4.5% in 2018 according to Freddie MacÑs

Primary Mortgage Market SurveyÖ.

Ö We forecast that total originations in the U.S. single-family mortgage market in 2020 will decrease from 2019 levels

by approximately 1.6%, from an estimated $2.32 trillion in 2019 to $2.28 trillion in 2020, and that the amount of

originations in the U.S. single-family mortgage market that are refinancings will decrease from an estimated $1,012

billion in 2019 to $895 billion in 2020. 

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 70
Presentation of our Single-Family Guaranty Book of Business

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

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

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

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

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

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

below, our single-family conventional guaranty book of business was $2,951.9 billion as of December 31, 2019, $2,903.3

billion as of December 31, 2018 and $2,858.9 billion as of December 31, 2017.

Single-Family Business Metrics

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

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

market conditions and to achieve return targets, which are based on FHFAÑs conservatorship capital framework. As a result,

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

acquired, as well as market conditions and other factors.

Single-Family Guaranty Fees, Acquisition 

and Book of Business Metrics 

(Dollars in billions)

Average charged guaranty fee on singlefamily conventional guaranty book of

business, net of TCCAá

Average charged guaranty fee on new singlefamily conventional acquisitions, net of TCCAá

2017 2018 2019

42.1 bps 42.7 bps 43.4 bps

44.6 bps

47.2 bps 47.0 bps

Average single-family conventional guaranty

book of businessà

Single-family conventional acquisitions

.

2017 2018 2019

$2,830.0

$2,883.3 $2,921.7

$501.8 $446.1

$595.9

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

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

acquisition. Excludes the impact of a 10 basis-point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue

from which is remitted to Treasury and not retained by us.

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

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

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

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

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

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

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 71
Our average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fees, was relatively flat at

47.0 basis points in 2019 compared with 47.2 basis points in 2018. 

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 72

Single-Family Business Financial Results

For the Year Ended December 31, Variance

2019 2018 2017

2019 vs.

2018

2018 vs.

2017

(Dollars in millions)

Net interest income(1) $ 18,013 $ 18,162 $ 18,212 $ (149) $ (50)

Fee and other income 453 450 1,378 3 (928)

Net revenues 18,466 18,612 19,590 (146) (978)

Investment gains, net 1,589 850 1,352 739 (502)

Fair value gains (losses), net (2,216) 1,210 (1,188) (3,426) 2,398

Administrative expenses (2,565) (2,631) (2,391) 66 (240)

Credit-related income(2) 3,515 2,709 1,550 806 1,159

TCCA fees(1) (2,432) (2,284) (2,096) (148) (188)

Other expenses, net(3) (1,661) (1,012) (1,004) (649) (8)

Income before federal income taxes 14,696 17,454 15,813 (2,758) 1,641

Provision for federal income taxes (2,859) (3,708) (14,301) 849 10,593

Net income $ 11,837 $ 13,746 $ 1,512 $ (1,909) $ 12,234

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

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

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

(3) Consists of credit enhancement and mortgage insurance expenses, debt extinguishment gains and losses, housing trust fund expenses

and loan subservicing costs.

Net interest income

2017 2018 2019

(Dollars in millions)

$18,212 $18,162 $18,013

Single-family net interest income decreased slightly in 2019 compared with

2018, primarily due to a decline in net interest income from portfolios

partially offset by an increase in single-family base guaranty fee income.

Single-family net interest income decreased in 2018 compared with 2017,

primarily due to lower amortization income, partially offset by higher base

guaranty fee income.

_____________________________________________________________________________

Investment gains, net

2017 2018 2019

(Dollars in millions)

$1,352

$850

$1,589

Investment gains, net increased during 2019 compared with 2018 primarily

driven by an increase in gains on sales of HFS loans.

Investment gains, net decreased during 2018 compared with 2017 primarily

due to lower gains from the sale of HFS loans driven by a decline in

average sales prices.

_____________________________________________________________________________
Fair value gains (losses), net

2017 2018 2019

(Dollars in millions)

$(1,188)

$1,210

$(2,216)

As we discuss more fully in ÇConsolidated Results of OperationsÜFair

Value Gains (Losses), Net,É fair value losses in 2019 were primarily driven

by decreases in the fair value of our pay-fixed risk management derivatives

and decreases in the fair value of our commitments to sell mortgage-related

securities as a result of decreases in interest rates during the year.

Fair value gains in 2018 were primarily driven by increases in the fair value

of our risk management and mortgage commitment derivatives as a result of

increases in interest rates during the year. We also recognized fair value

gains on CAS debt in 2018 as a result of widening spreads between CAS

yields and LIBOR during the year.

As we discuss in ÇConsolidated Results of OperationsÜFair Value Gains

(Losses), Net,É we expect that implementing a hedge accounting program

will reduce the volatility of our financial results associated with changes in

interest rates, while fair value gains and losses driven by other factors such

as credit spreads will remain.

_____________________________________________________________________________

Credit-related income

2017 2018 2019

(Dollars in millions)

$1,550

$2,709

3,515

Credit-related income in 2019 was primarily driven by the redesignation of

certain single-family loans from HFI to HFS; the result of an enhancement to

the model used to estimate cash flows for individually impaired single-family

loans within our allowance for loan losses, which incorporated recent loan

performance data within the model; and an increase in actual and

forecasted home prices.

Credit-related income in 2018 was primarily driven by the redesignation of

loans from HFI to HFS and higher actual home prices, partially offset by

higher actual and projected interest rates.

See ÇConsolidated Results of OperationsÜCredit-Related IncomeÉ for more

information on our credit-related income.

_____________________________________________________________________________

Other expenses, net

2017 2018 2019

(Dollars in millions)

$(1,004) $(1,012)

(1,661)

Other expenses, net increased in 2019 compared with 2018, primarily due

to an increase in credit enhancement costs resulting from higher

outstanding volumes of loans covered by a credit risk transfer transaction.

_____________________________________________________________________________

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 73

Single-Family Mortgage Credit Risk Management

Our strategy for managing single-family mortgage credit risk consists of four primary components: 

Ö our acquisition and servicing policies along with our underwriting and servicing standards; 

Ö portfolio diversification and monitoring;

Ö the transfer of credit risk through risk transfer transactions and the use of credit enhancements;Äand

Ö management of problem loans.

We typically obtain our single-family credit information from the sellers or servicers of the mortgage loans in our guaranty book

of business and receive representations and warranties from them as to the accuracy of the information. While we perform

various quality assurance checks by sampling loans to assess compliance with our underwriting and eligibility criteria, we do

not independently verify all reported information and we rely on lender representations and warranties regarding the accuracy

of the characteristics of loans in our guaranty book of business. See ÇRisk FactorsÉ for a discussion of the risk that we could
experience mortgage fraud as a result of this reliance on lender representations and warranties. We provide information on

non-Fannie Mae mortgage-related securities held in our portfolio in ÇNote 5, Investments in Securities.É

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 74

Single-Family Acquisition and Servicing Policies and Underwriting and

Servicing Standards

Overview

Our Single-Family business, with the oversight of our Enterprise Risk Management division, is responsible for setting

underwriting and servicing standards and pricing, and managing credit risk relating to our single-family guaranty book of

business.

Underwriting and Servicing Standards

Our Selling Guide sets forth our underwriting and eligibility guidelines, as well as our policies and procedures related to selling

single-family mortgages to us. Our Servicing Guide sets forth our policies for servicing the single-family loans in our singlefamily guaranty book.

Desktop Underwriter 

Our proprietary automated underwriting system, Desktop Underwriter (ÇDUÉ), is used by mortgage lenders to evaluate the

majority of our single-family loan acquisitions. DU measures credit risk by assessing the primary risk factors of a mortgage and

provides a comprehensive risk assessment of a borrowerÑs loan application and eligibility of the loan for sale to us. Risk factors

evaluated by DU include the key loan attributes described under ÇSingle-Family Portfolio Diversification and MonitoringÉ below

such as borrower credit data, LTV ratio, loan purpose and occupancy type, as well as other risk factors such as the borrowerÑs

debt-to-income ratio, the amount of the borrowerÑs liquid reserves, the presence of co-borrowers and whether the borrower is

self-employed. DU does not use a FICO credit score to evaluate the borrowerÑs credit history, but applies our own assessment

of the borrowerÑs credit data, including using trended credit data when available. DU performs a comprehensive evaluation of

these factors, weighing each factor based on the amount of risk it represents and its importance to the recommendation. DU

analyzes the results of this risk and eligibility evaluation to arrive at the underwriting recommendation for the loan case file. As

part of our comprehensive risk management approach, we regularly review DUÑs underlying risk assessment models and

recalibrate these models to improve DUÑs ability to effectively analyze risk and avoid excessive risk layering. Factors we take

into account in these evaluations include the profile of loans delivered to us, loan performance and current market conditions.

We periodically update DU to reflect changes to our underwriting and eligibility guidelines based on these evaluations.

In July 2019, we implemented the following changes to DU:

Ö HomeReadyâ income limits. To better align with our housing goals, we changed the income limit requirement for

HomeReady loans, our flagship affordable product, to set a maximum borrower income limit of 80% of area median

income for the propertyÑs location. Previously, a borrower could be eligible for a HomeReady loan if the borrowerÑs

total annual income did not exceed 100% of area median income or if the property was located in a low-income

census tract. We believe this change reduced the proportion of our loan acquisitions consisting of HomeReady loans

in the second half of 2019. HomeReady loans consisted of 6.6% of our single-family conventional loan acquisitions in

2019, compared with 7.5% in 2018.

Ö DU eligibility assessment. As part of normal business operations, we regularly review DU to determine whether its

risk analysis and eligibility assessment are appropriate based on the current market environment and loan

performance information. As a result of our most recent review, we updated the DU eligibility assessment to better

align the mix of business delivered to us with the composition of business in the overall market. We expect this

change will result in fewer acquisitions of loans with multiple higher-risk characteristics.

We will continue to closely monitor loan acquisitions and market conditions and, as appropriate, seek to make changes in our

eligibility criteria so that the loans we acquire are consistent with our risk appetite.

Other Underwriting Standards

DU was used to evaluate over 90% of the single-family loans we acquired in 2019. However, we also purchase and securitize

mortgage loans that have been underwritten using other automated underwriting systems, as well as manually underwritten

mortgage loans that meet our stated underwriting requirements or meet agreed-upon standards that differ from our standard

underwriting and eligibility criteria. The majority of loans we acquired in 2019 that were not underwritten with DU were

underwritten through a third-party automated underwriting system, such as Freddie MacÑs Loan Product Advisorâ.

Servicing Policies

Our servicing policies establish the requirements our servicers must follow in:

Ö processing and remitting loan payments; 

Ö working with delinquent borrowers on loss mitigation activities; 
Ö managing and protecting Fannie MaeÑs interest in the pledged property; and 

Ö processing bankruptcies and foreclosures. 

Our goal is to ensure that our policies support management of risk over the life of the mortgage loan by enabling default

prevention activities, promoting loss mitigation in the event of default and providing for the preservation and protection of the

collateral supporting the mortgage loan. See ÇSingle-Family Primary Business ActivitiesÜSingle-Family Mortgage ServicingÉ

above for more information on the servicing of our single-family mortgage loans.

Quality Control Process

Our quality control process includes using automated tools to help us determine whether a loan meets our underwriting and

eligibility guidelines, performing more in-depth reviews, and selecting random samples of performing loans for quality control

review shortly after delivery. 

Repurchase Requests and Representation and Warranty Framework

If we determine that a mortgage loan did not meet our underwriting or eligibility requirements, loan representations or

warranties were violated, or a mortgage insurer rescinded coverage, then, except as described below, our mortgage sellers

and/or servicers are obligated to either repurchase the loan or foreclosed property, reimburse us for our losses or provide

other remedies. We refer to our demands that mortgage sellers and servicers meet these obligations collectively as

repurchase requests.

Under our representation and warranty framework, lenders can obtain relief from repurchase liability for violations of certain

underwriting representations and warranties. Loans with 36 months of consecutive monthly payments and minimal

delinquencies over a specified time period or with satisfactory conclusion of a full-file quality control review are eligible for

relief. However, no relief may be granted for violations of Çlife of loanÉ representations and warranties, such as those relating to

whether a loan was originated in compliance with applicable laws or conforms to our charter requirements.

We are able to provide relief from certain loan repurchase requests under our representation and warranty framework because

of improvements we made to our quality control process in conjunction with implementing the framework, including moving the

primary focus and timing of our loan quality control reviews to shortly after loan delivery. We also retain the right to review all

loans, including reviews for any violations of Çlife of loanÉ representations and warranties.

We implemented our representation and warranty framework discussed above on January 1, 2013.ÄAs of December 31, 2019,

approximately 53% of the outstanding loans in our single-family conventional guaranty book of business that were acquired

since that date and are subject to this framework have obtained relief based solely on payment history or the satisfactory

conclusion of a full-file quality control review, and an additional 45% remain eligible for relief in the future.Ä

In addition, lenders may obtain relief from liability for violations of a more narrow set of representations and warranties through

the use of specified underwriting tools. This primarily includes relief for:

Ö borrower income, asset and employment data that has been validated through DU; and

Ö appraised property value for appraisals that have received a qualifying risk score in Collateral Underwriterâ, our

appraisal review tool.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 75
Single-Family Portfolio Diversification and Monitoring

Overview

The composition of our single-family conventional guaranty book of business is diversified by product type, loan characteristics

and geography, all of which influence credit quality and performance and may reduce our credit risk. We monitor various loan

attributes, in conjunction with housing market and economic conditions, to determine if our pricing, eligibility and underwriting

criteria accurately reflect the risk associated with loans we acquire or guarantee. In some cases, we may decide to significantly

reduce our participation in riskier loan product categories. We also review the payment performance of loans in order to help

identify potential problem loans early in the delinquency cycle and to guide the development of our loss mitigation strategies.

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

Ö LTV ratio.ÜLTV ratio is a strong predictor of credit performance. The likelihood of default and the gross severity of a

loss in the event of default are typically lower as the LTV ratio decreases. This also applies to estimated mark-tomarket LTV ratios, particularly those over 100%, as this indicates that the borrowerÑs mortgage balance exceeds the

property value.

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

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

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

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

rose, within limits, as interest rates changed.

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

four-unit properties.

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

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

Ö Occupancy type.ÜMortgages on properties occupied by the borrower as a primary or secondary residence tend to

have lower credit risk than mortgages on investment properties.

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

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

typically indicates lower credit risk. Our underwriting evaluation does not use a credit score directly, but applies our

own assessment of the borrowerÑs credit quality, including using trended credit data, when available.

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

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

reported or calculated monthly income, to the extent the income is used to qualify for the mortgage. As a borrowerÑs

DTI ratio increases, the associated risk of default on the loan generally increases, especially if other higher-risk

factors are present. From time to time, we revise our guidelines for determining a borrowerÑs DTI ratio. The amount of

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

therefore, the DTI ratios we report may be higher than borrowersÑ actual DTI ratios.

Ö Loan purpose.ÜLoan purpose refers to how the borrower intends to use the funds from a mortgage loanÜeither for a

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

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

the borrower.

Ö Geographic concentration.ÜLocal economic conditions affect borrowersÑ ability to repay loans and the value of

collateral underlying loans. Geographic diversification reduces mortgage credit risk.

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

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

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

timelines.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 76
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 furnish to the SEC with current reports on Form 8-K. Information in our quarterly financial supplements

is not incorporated by reference into this report.

Key Risk Characteristics of Single-Family Conventional Business Volume

and Guaranty Book of Business(1)

Percent of Single-Family

Conventional Business Volume

at Acquisition(2)

For the Year Ended December 31,

Percent of Single-Family

Conventional Guaranty 

Book of Business(3)

As of December 31,

2019 2018 2017 2019 2018 2017

Original LTV ratio:(4)

<= 60% 17 % 16 % 18 % 19 % 19 % 20 %

60.01% to 70% 13 12 13 13 13 14

70.01% to 80% 37 37 39 37 38 38

80.01% to 90% 13 13 12 12 12 11

90.01% to 95% 13 15 13 12 11 10

95.01% to 100% 7 7 5 5 4 4

Greater than 100% * * * 2 3 3

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

Weighted average 76 % 77 % 75 % 76 % 75 % 75 %

Average loan amount $ 259,897 $ 232,651 $ 226,325 $ 173,804 $ 170,076 $ 166,643

Estimated mark-to-market LTV

ratio:(5)

<= 60% 54 % 54 % 52 %

60.01% to 70% 17 18 18

70.01% to 80% 16 16 17

80.01% to 90% 8 8 8

90.01% to 100% 5 4 4

Greater than 100% * * 1

Total 100 % 100 % 100 %

Weighted average 57 % 57 % 58 %

Product type:

Fixed-rate:(6)

Long-term 89 % 90 % 84 % 85 % 84 % 80 %

Intermediate-term 10 8 13 13 14 15

Total fixed-rate 99 98 97 98 98 95

Adjustable-rate 1 2 3 2 2 5

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

Number of property units:

1 unit 98 % 98 % 97 % 97 % 97 % 97 %

2-4 units 2 2 3 3 3 3

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

Property type:

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

Condo/Co-op 9 10 10 9 9 9

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

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 77
Percent of Single-Family

Conventional Business Volume

at Acquisition(2)

For the Year Ended December 31,

Percent of Single-Family

Conventional Guaranty

Book of Business(3)

As of December 31,

2019 2018 2017 2019 2018 2017

Occupancy type:

Primary residence 92 % 89 % 89 % 89 % 89 % 89 %

Second/vacation home 4 5 4 4 4 4

Investor 4 6 7 7 7 7

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

FICO credit score at origination:

< 620 * % * % * % 1 % 2 % 2 %

620 to < 660 3 6 5 5 5 5

660 to < 680 4 5 5 5 5 5

680 to < 700 7 9 8 7 7 7

700 to < 740 23 23 23 21 20 20

>= 740 63 57 59 61 61 61

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

Weighted average 749 743 745 746 746 745

DTI ratio at origination:(7)

<= 43% 72 % 66 % 77 % 76 % 77 % 79 %

43.01% to 45% 9 9 12 9 9 9

Greater than 45% 19 25 11 15 14 12

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

Weighted average 36 % 37 % 35 % 35 % 35 % 35 %

Loan purpose:

Purchase 52 % 65 % 56 % 45 % 43 % 39 %

Cash-out refinance 20 22 21 19 20 20

Other refinance 28 13 23 36 37 41

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

Geographic concentration:(8)

Midwest 14 % 14 % 14 % 15 % 15 % 15 %

Northeast 13 14 14 17 17 18

Southeast 22 23 23 22 22 22

Southwest 21 21 20 18 18 17

West 30 28 29 28 28 28

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

Origination year:

2013 and prior 33 % 40 % 48 %

2014 5 6 7

2015 8 10 12

2016 14 16 18

2017 12 15 15

2018 11 13 Ü

2019 17 Ü Ü

Total 100 % 100 % 100 %

 * Represents less than 0.5% of single-family conventional business volume or book of business.

(1) Second-lien mortgage loans held by third parties are not reflected in the original LTV or 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.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 78
(4) The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value

reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.

(5) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic

changes in home value. Excludes loans for which this information is not readily available.

(6) Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate loans have

maturities equal to or less than 15 years.

(7) Excludes loans for which this information is not readily available.

(8) Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and

VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM,

OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

Characteristics of our New Single-Family Loan Acquisitions

The share of our single-family loan acquisitions consisting of refinance loans rather than home purchase loans increased in

2019 compared with 2018, primarily due to a lower interest-rate environment in 2019, which encouraged refinance activity.

Typically refinance loans have lower LTV ratios than home purchase loans. This trend contributed to a decrease in the

percentage of our single-family loan acquisitions with LTV ratios over 90%Üfrom 22% in 2018 to 20% in 2019. In addition, our

acquisitions of loans from first-time home buyers decreased from 27% of our single-family loan acquisitions in 2018 to 23% in

2019. 

Our share of acquisitions of loans with DTI ratios above 45% decreased in 2019 compared with 2018. This decrease was

driven in part by changes in our eligibility guidelines implemented in December 2018 and July 2019 to further limit risk layering,

particularly with respect to loans with DTI ratios above 45%, as well as a higher volume of refinance loan acquisitions. 

The credit profile of our future acquisitions will depend on many factors, including: 

Ö our future guaranty fee pricing and our competitorsÑ pricing, and any impact of that pricing on the volume and mix of

loans we acquire; 

Ö our future eligibility standards and those of mortgage insurers, FHA and VA; 

Ö the percentage of loan originations representing refinancings; 

Ö changes in interest rates; 

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

underserved creditworthy borrowers; 

Ö government policy; 

Ö market and competitive conditions; 

Ö the volume and characteristics of high LTV refinance loans we acquire in the future; and

Ö our future capital requirements. 

We expect the ultimate performance of all our loans will be affected by borrower behavior, public policy and macroeconomic

trends, including unemployment, the economy and home prices. In addition, if lender customers retain more of the higherquality loans they originate, it could negatively affect the credit profile of our new single-family acquisitions. 

We continue to seek new ways to responsibly support access to mortgage credit. FHFAÑs 2020 conservatorship scorecard

specifies that in 2020 we should support sustainable homeownership and affordable rental housing, fulfilling our housing goals

and meeting our duty to serve underserved markets through sustainable mortgage programs and outreach. To the extent we

are able to encourage lenders to support access to mortgage credit, we may acquire a greater number of single-family loans

with higher risk characteristics than we acquired in recent periods; however, we expect our single-family acquisitions will

continue to have a strong overall credit risk profile given our current underwriting and eligibility standards and product design.

HARP and Refi Plus Loans

To expand refinancing opportunities for borrowers who may otherwise have been unable to refinance their mortgage loans due

to a decline in home values, through the end of 2018 we offered our Refi PlusTM initiative. Through Refi Plus, we also acquired

loans under the Home Affordable Refinance Programâ (ÇHARPâÉ), which allowed Fannie Mae borrowers who had mortgage

loans with note dates prior to June 2009 and current LTV ratios greater than 80% to refinance their mortgages without

obtaining new mortgage insurance in excess of what was already in place, provided certain other criteria were met. 

The loans we acquired under HARP had higher LTV ratios than we would otherwise permit, greater than 100% in some cases.

In addition to the high LTV ratios that characterize HARP loans, some borrowers for HARP and Refi Plus loans may also have

had lower FICO credit scores and may have provided less documentation than we would otherwise require.

Because loans we acquired under Refi Plus and HARP represented refinancings of loans that were already in our guaranty

book of business, the credit risk associated with HARP and Refi Plus loans essentially replaced the credit risk on the loans

that we already held prior to the refinancing. However, we expect these loans will perform better than the loans they replaced

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 79
because HARP and Refi Plus loans either reduced borrowersÑ monthly payments or provided more stable terms than the

borrowersÑ old loans.

The following table displays key statistics on our HARP loans. 

Statistics on HARP Loans

As of December 31,

2019 2018

Percentage of single-family conventional guaranty book of business 5 % 6 %

Serious delinquency rate 0.91 % 0.96 %

Estimated mark-to-market LTV ratio 61 % 65 %

Weighted-average FICO credit score at origination 697 700

The HARP program and our Refi Plus initiative ended on December 31, 2018. In December 2018, pursuant to a directive from

FHFA, we implemented a new high LTV refinance offering aimed at borrowers who are making their mortgage payments on

time and whose current LTV ratio exceeds a specified amount. The new high LTV refinance offering is available for borrowers

whose loans were originated on or after October 1, 2017 and who meet other eligibility requirements. 

Jumbo-Conforming and High-Balance Loans

The standard conforming loan limit for a one-unit property was $453,100 for 2018, $484,350 for 2019 and increased to

$510,400 for 2020. As we discuss in ÇBusinessÜCharter Act and RegulationÜCharter Act,É we are permitted to acquire loans

with higher balances in certain areas, which we refer to as jumbo-conforming and high-balance loans. 

The following table displays the amount of jumbo-conforming and high-balance loans in our single-family conventional

guaranty book of business.

Single-Family Jumbo-Conforming and High-Balance Loans

As of December 31,

2019 2018

Unpaid principal balance (in billions) $ 212.0 $ 202.0

Percentage of single-family conventional guaranty book of business 7 % 7 %

Reverse Mortgages

In 2010, we stopped acquiring newly originated reverse mortgages. The outstanding unpaid principal balance of reverse

mortgage loans and Fannie Mae MBS backed by reverse mortgage loans in our guaranty book of business was $21.9 billion

as of December 31, 2019 and $27.7 billion as of December 31, 2018. The principal balance of our reverse mortgage loans

could increase over time, as each month the scheduled and unscheduled payments, interest, mortgage insurance premium,

servicing fee and default-related costs accrue to increase the unpaid principal balance. The majority of these loans are home

equity conversion mortgages insured by the federal government through FHA. 

Mortgage Products with Rate Resets

ARMs are mortgage loans with an interest rate that adjusts periodically over the life of the mortgage based on changes in a

specified index. We have different types of ARMS including:

Ö Interest-only loans that allow the borrower to pay only the monthly interest due, and none of the principal, for a fixed

term. The majority of our interest-only loans are ARMs. 

Ö Negative-amortizing loans that allow the borrower to make monthly payments that are less than the interest actually

accrued for the period. The unpaid interest is added to the principal balance of the loan, which increases the

outstanding loan balance. 

ARMs represented approximately 2% of our single-family conventional guaranty book of business as of December 31, 2019

and 2018. 

Rate-reset modifications are mortgage loans we have modified with terms that include a reduction in the borrowersÑ interest

rate that is fixed for an initial period and is followed by one or more annual interest rate increases. The majority of these ratereset modifications are performing loans that were modified under the Home Affordable Modification Program (ÇHAMPâ

É) and

have fixed interest rates for an initial five-year period followed by annual interest rate increases, of up to 1 percent per year,

until the mortgage rate reaches the prevailing market rate at the time of modification. 

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 80
The outstanding unpaid principal balance of rate-reset modifications in our guaranty book of business was $7.8 billion as of

December 31, 2019. During 2019, approximately 63% of these modified loans experienced an interest rate reset to a

weighted-average interest rate of 3.48%. 

In anticipation of potential financial hardship related to interest rate increases, we have directed servicers to evaluate ratereset modifications for a re-modification, if a loan: 

Ö is at imminent risk of default and the borrower requests a loan modification; or 

Ö becomes 60 days delinquent within the first 12 months after an interest rate adjustment. 

Additionally, for borrowers with HAMP modifications we extended Çpay for performanceÉ incentives, in the form of principal

curtailment, to encourage borrowers to stay current on their mortgages after the initial interest rate reset and to reduce their

monthly payments in cases where the borrower chooses to re-amortize their unpaid principal balance following receipt of the

incentive.

The table below displays the unpaid principal balance for ARMs, rate-reset modifications and fixed-rate interest-only loans in

our single-family conventional guaranty book of business, aggregated by product type and categorized by the year of their next

scheduled contractual reset date. The contractual reset is either an adjustment to the loanÑs interest rate or a scheduled

change to the loanÑs monthly payment to begin to reflect the payment of principal. The timing of the actual reset dates may

differ from those presented due to a number of factors, including refinancing or exercising of other provisions within the terms

of the mortgage. 

Single-Family Adjustable-Rate Mortgage and Rate-Reset Modifications(1)

Reset Year

2020 2021 2022 2023 2024 Thereafter Total

(Dollars in millions)

ARMsÜAmortizing $ 17,398 $ 4,144 $ 5,297 $ 4,160 $ 5,579 $ 9,375 $ 45,953

ARMsÜInterest-Only and NegativeAmortizing 8,386 125 264 241 6 Ü 9,022

Rate-Reset Modifications 4,268 1,022 764 4 1 Ü 6,059

Fixed-Rate Interest-Only 32 32 13 9 Ü 1 87

(1) Excludes loans for which there is not an additional reset for the remaining life of the loan.

We have not observed a materially different performance trend for rate-reset modifications, interest-only loans or negativeamortizing loans that have recently reset as compared to those that are still in the initial period. We believe the current

performance trend for interest-only loans and negative-amortizing loans is the result of the historically low interest-rate

environment. If interest rates rise significantly, it is uncertain that this trend will continue.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 81
Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk

One of the key components of our credit risk management strategy is the transfer of mortgage credit risk to third parties. The

table below displays information about the 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 discussion of

our exposure to and management of the institutional counterparty credit risk associated with the providers of these credit

enhancements, see ÇRisk ManagementÜMortgage Credit Risk ManagementÜInstitutional Counterparty Credit Risk

ManagementÉ and ÇNote 13, Concentrations of Credit Risk.É

Single-Family Loans with Credit Enhancement

As of December 31,

2019 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 $ 653 22% $ 618 21%

Connecticut Avenue Securities 919 31 798 27

CIRT 275 10 243 8

Lender risk-sharing 147 5 102 4

Less: Loans covered by multiple credit enhancements (438) (15) (394) (13)

Total single-family loans with credit enhancement $ 1,556 53% $ 1,367 47%

Mortgage Insurance

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% when we acquire it. We generally achieve this through primary mortgage insurance.

Primary mortgage insurance transfers varying portions of the credit risk associated with a mortgage loan to a third-party

insurer. For us to receive a payment in settlement of a claim under a primary mortgage insurance policy, the insured loan must

be in default and the borrowerÑs interest in the property securing the loan must have been extinguished, generally in a

foreclosure action. Claims are generally paid three to six months after title to the property has been transferred. 

Credit Risk Transfer Transactions 

Our Single-Family business has developed other risk-sharing capabilities to transfer portions of our single-family mortgage

credit risk to the private market. Our credit risk transfer transactions are designed to transfer a portion of the losses we expect

would be incurred in an economic downturn or a stressed credit environment. We continually evaluate our credit risk transfer

transactions which, in addition to managing our credit risk, also affect our returns on capital under FHFAÑs conservatorship

capital requirements.

We target over 90% of acquisitions in the following loan categories for credit risk transfer transactions: 

Ö fixed-rate single-family conventional loans with terms greater than 20 years that meet certain additional, minimum

criteria; 

Ö loans that are non-Refi Plus; and 

Ö loans with LTV ratios between 60% and 97%. 

This criteria covers over 60% of our recent single-family acquisitions. Loans are generally included in reference pools for CAS

and CIRT transactions on a lagged basis. In recent years, we have shortened this lag for a majority of target loans to typically

less than six months after we initially acquire the loans. The portion of our single-family loan acquisitions we include in credit

risk transfer transactions can vary from period to period based on market conditions and other factors. 

We are also evaluating our seasoned loan portfolio, which includes loans that were initially acquired prior to the start of our

CAS and CIRT programs, for inclusion in these transactions. In December 2019 we completed our first CAS transaction that

transferred credit risk on loans acquired prior to the implementation of our CAS and CIRT programs, including Refi Plus loans.

In 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 $445 billion at the time of the transactions. As of December 31, 2019,

approximately 46% 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 2019 Form 10-K 82
One way we measure risk is through the conservatorship capital framework, under which our capital requirements associated

with our assets are reduced where we have reduced the risk on those assets. Because loans are generally included in credit

risk transfer transactions on a lagged basis, we measure the impact of our 2019 credit risk transfer activity by how much it

reduced our capital requirements on loans we acquired in 2018. Our single-family credit risk transfer transactions and primary

mortgage insurance coverage through December 31, 2019 reduced our conservatorship capital requirement for our covered

single-family business activity during the twelve months ended December 31, 2018 by over 80%. SeeÄÇBusinessÜCharter Act

and RegulationÜGSE Act and Other LegislationÜCapitalÉ for more information on our capital requirements.

Categories of our credit risk transfer transactions

Transaction Description Other Key Characteristics

CAS Ö We transfer to investors a portion of the mortgage

credit risk associated with losses on a reference

pool of mortgage loans. 

Ö We create a reference pool consisting of recently

acquired single-family mortgage loans included in

our guaranty book of business and create a

hypothetical securitization structure with notional

credit risk positions, or tranches (that is, first loss,

mezzanine and senior).

Ö CAS debt is issued related to the first loss,

mezzanine and senior loss mezzanine risk

positions.

Ö We retain the senior loss and all or a portion of

the first loss tranche in CAS transactions. In

addition, we retain a pro rata share of risk equal

to approximately 5% of all notes sold in

mezzanine tranches.

Ö CAS debt is recognized as Çdebt of Fannie MaeÉ

in our consolidated balance sheets. CAS debt

issued to investors beginning January 2016

through October 2018 is recognized at amortized

cost. CAS debt we issued prior to 2016 is

recognized at fair value.

Ö We stopped issuing this form of CAS in October

2018.

Ö The principal balance of CAS debt decreases as a

result of credit losses on loans in the related reference

pool. These write downs of the principal balance

reduce the total amount of payments we are obligated

to make to investors on the CAS debt.

Ö Credit losses on the loans in the reference pool for a

CAS transaction are first applied to reduce the

outstanding principal balance of the first loss tranche.

Ö If credit losses on these loans exceed the outstanding

principal balance of the first loss tranche, losses

would then be applied to reduce the outstanding

principal balance of the mezzanine loss tranche.

Ö Generally issued with a stated final maturity date of

either 10 or 12.5 years from issuance. 

Ö After maturity, CAS debt provides no further credit

protection with respect to the remaining loans in the

reference pool underlying that CAS transaction.

Ö Significant lag exists between the time when we

recognize a provision for credit losses and when we

recognize the related recovery from the CAS

transaction.

Ö Presents minimal counterparty risk as we receive the

proceeds that would reimburse us for certain credit

events on the related loans upon the issuance of the

CAS.

CAS REMIC CAS REMICâ transactions are similar to CAS

transactions, with some key differences: 

Ö CAS REMIC offerings are structured as notes

that qualify as interests in a REMIC issued by a

non-consolidated trust. We obtain credit

protection through arrangements that we execute

with the trust. 

Ö We recognize the cost of credit protection in

ÇOther expenses, netÉ in our consolidated

statements of operations and comprehensive

income.

CAS REMICs have characteristics similar to CAS, with

some key differences: 

Ö Enables expanded participation by real estate

investment trusts and certain international investors. 

Ö Aligns the timing of our recognition of credit losses

with the related recovery from CAS REMIC

transactions. We will continue to record the expected

benefit and the loss in the same period with our

adoption of the CECL standard in January 2020.

Ö Beginning with our July 2019 issuances: extended the

stated final maturity date from 12.5 to 20 years from

issuance, shortened the call option from 10 years to 7

years; and retained a smaller first loss position. These

updates were primarily designed to further reduce the

capital requirements associated with loans in the

reference pool under FHFAÑs conservatorship capital

framework.

Ö Presents minimal counterparty risk as the CAS

structure receives the proceeds that would reimburse

us for certain credit events on the related loans upon

the issuance of the CAS REMIC.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 83
Transaction Description Other Key Characteristics

CAS Creditlinked notes

(ÇCLNÉ)

CAS CLN transactions are similar to CAS REMIC

transactions, with some key differences: 

Ö In December 2019 we began offering CAS CLNs

in addition to CAS REMICs. CAS CLNs allow us

to obtain credit protection on reference pools

containing seasoned loans such as Refi Plus

loans.

Ö Since the loans used in our CAS CLNs were not

tagged for use in a REMIC transaction at the time

of acquisition, CAS CLNs do not qualify as

interests in a REMIC. We began taking a REMIC

election on the majority of single-family loans

beginning May 2018.

Ö CAS CLNs do not provide as broad of a range of

investor participation as CAS REMICs. 

CIRT Ö Insurance transactions whereby we obtain actual

loss coverage on pools of loans either directly

from an insurance provider that retains the risk,

or from an insurance provider that simultaneously

cedes all of its risk to one or more reinsurers. 

Ö In CIRT deals, we generally retain an initial

portion of losses on the loans in the pool (for

example the first 0.4% of the initial pool unpaid

principal balance). Reinsurers cover losses

above this retention amount up to a detachment

point (for example the next 3.0% of the initial pool

unpaid principal balance). We retain all losses

above this detachment point.

Ö We make premium payments on CIRT deals that

we recognize in ÇOther expenses, netÉ in our

consolidated statements of operations and

comprehensive income.

Ö The insurance layer typically provides coverage for

losses on the pool that are likely to occur only in a

stressed economic environment. 

Ö Insurance benefits are received after the underlying

property has been liquidated and all applicable

proceeds, including private mortgage insurance

benefits, have been applied to the loss.

Ö A portion of the insurersÑ or reinsurersÑ obligations is

collateralized with highly-rated liquid assets held in a

trust account initially determined according to the

ratings of such insurer or reinsurer. Contractual

provisions require additional collateral to be posted in

the event of adverse developments with the

counterparty, such as a ratings downgrade.

Ö Generally written for 10- or 12-1/2 year terms.

Lender risksharingÖ Customized lender risk-sharing transactions. 

Ö In most transactions, lenders invest directly in a

portion of the credit risk on mortgage loans they

originate and/or service.

Ö Transactions are generally structured so that a portion

of the credit risk on the underlying mortgage loans is

shared without increasing our counterparty exposure.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 84
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 DecemberÄ31, 2019

(Dollars in billions)

Senior Fannie Mae(1)

Initial

Reference

Pool(5)

$1,961

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

Lender RiskSharing(2)(4)

$2 $10 $39 $4 $2,033

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

Lender RiskSharing(2)(4)

$9 $5 $3

Outstanding as of December 31, 2019

(Dollars in billions)

Senior Fannie Mae(1)

Outstanding

Reference

Pool(5)(7)

$1,326

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

Lender RiskSharing(2)(4)

$1 $8 $24 $4 $1,380

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

Lender RiskSharing(2)(4)

$9 $5 $3

(1) Credit risk retained by Fannie Mae in CAS, CIRT and lender risk-sharing transactions. Tranche sizes vary across programs.

(2) Credit risk transferred to third parties. Tranche sizes vary across programs.

(3) Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $7 billion at issuance and

approximately $3 billion outstanding as of December 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 $1,341 billion as of December 31, 2019. 

While these deals are expected to mitigate some of our potential future credit losses, they are not designed to shield us from

all losses. We retain a portion of the risk of future credit losses on loans covered by CAS and CIRT transactions, including a

portion of the first loss positions and all of the senior loss positions. In addition, on our CAS transactions, we retain a pro rata

share of risk equal to approximately 5% of all notes sold in mezzanine tranches.

We have designed our credit risk transfer transactions so that the principal payment and loss performance of the transactions

correspond to the performance of the loans in the underlying reference pools. Losses are applied in reverse sequential order

starting with the first loss tranche. Principal repayments may be allocated to reduce the mezzanine amounts outstanding;

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 85
however, these payments may be subject to certain lock-out periods and performance triggers in order to build additional credit

protection for the senior tranches retained by us. For CAS transactions, all principal payments and losses assigned to the

mezzanine tranches are allocated pro rata between the sold notes and the portion we retain, when performance is above a

certain threshold. We have recognized minimal credit losses on the loans in reference pools underlying credit risk transfer

transactions to date, primarily because the loans were acquired in recent years, after we implemented improvements in our

credit underwriting practices, and because recent macroeconomic factors such as unemployment rates and home prices have

been favorable. 

The decreases in outstanding balances from issuance to December 31, 2019 in the senior and mezzanine tranches are the

result of paydowns. Outstanding balances from issuance to December 31, 2019 in the first loss tranches decreased only

slightly as the losses allocated to those tranches were insignificant. 

The table below 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. We

expect these expenses will continue to increase as the percentage of our single-family conventional guaranty book of business

that is covered by a credit risk transfer transaction increases.

Credit Risk Transfer Transactions

For the Year Ended December 31,

2019 2018

Cash paid or transferred for: (Dollars in millions)

CAS transactions(1) $ 981 $ 888

CIRT transactions 360 286

Lender risk-sharing transactions 285 141

(1) Consists of cash paid for interest expense net of LIBOR on outstanding CAS debt and amounts paid for CAS REMIC and CAS CLN

transactions.

We continually evaluate loans in our single-family guaranty book of business without credit enhancement to determine whether

it makes economic sense to include them in a future CAS or CIRT transaction. The following table displays the primary

characteristics of the loans in our single-family conventional guaranty book of business currently without credit enhancement.

Single-Family Loans Currently without Credit Enhancement

As of December 31, 2019

Unpaid Principal

Balance

Percentage of

Single-Family

Conventional

Guaranty Book of

Business

(Dollars in billions)

Low LTV ratio or short-term(1) $ 736 25%

Pre-credit risk transfer program inception(2) 608 20

Recently acquired(3) 287 10

Other(4) 246 8

Less: Loans in multiple categories (481) (16)

Total single-family loans currently without credit enhancement $ 1,396 47%

(1) Represents loans with an LTV ratio less than or equal to 60% or loans with an original maturity of 20 years or less.

(2) Represents loans that were acquired before the inception of our credit risk transfer programs. Also includes Refi Plus loans.

(3) Represents loans that were recently acquired and have yet to be included in a reference pool.

(4) Includes ARM loans, loans with a combined LTV ratio greater than 97%, non-Refi Plus loans acquired after the inception of our credit risk

transfer programs that became 30 or more days delinquent prior to inclusion in a credit risk transfer transaction, and loans that were

delinquent as of December 31, 2019.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 86

Problem Loan Management

Overview

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. If a borrower does not make
required payments, or is in jeopardy of not making payments, we work with the loan servicer to offer workout solutions to

minimize the likelihood of foreclosure as well as the severity of loss. When appropriate, we seek to move to foreclosure

expeditiously.

Below we describe the following:

Ö delinquency statistics on our problem loans;

Ö efforts undertaken to manage our problem loans, including the role of servicers in loss mitigation, loan workouts, and

sales of nonperforming loans;

Ö metrics regarding our loan workout activities;

Ö REO management; and

Ö other single-family credit-related information, including our credit loss performance and credit loss concentration

metrics, loss reserves and TDRs resulting from loan modifications.

Delinquency

The table below displays the delinquency status of loans and changes in the balance of seriously delinquent loans in our

single-family conventional guaranty book of business, based on the number of loans. Single-family seriously delinquent loans

are loans that are 90 days or more past due or in the foreclosure process. 

Delinquency Status and Activity of Single-Family Conventional Loans

As of December 31,

2019 2018 2017

Delinquency status:

30 to 59 days delinquent 1.27% 1.37% 1.63%

60 to 89 days delinquent 0.35 0.38 0.50

Seriously delinquent (ÇSDQÉ) 0.66 0.76 1.24

Percentage of SDQ loans that have been delinquent for more than 180 days 49% 49% 43%

Percentage of SDQ loans that have been delinquent for more than two years 11 12 13

For the Year Ended December 31,

2019 2018 2017

Single-family SDQ loans (number of loans):

Beginning balance 130,440 212,183 206,549

Additions 199,995 227,199 287,805

Removals:

Modifications and other loan workouts (44,853) (99,140) (76,119)

Liquidations and sales (55,472) (79,105) (84,512)

Cured or less than 90 days delinquent (117,676) (130,697) (121,540)

Total removals (218,001) (308,942) (282,171)

Ending balance 112,434 130,440 212,183

Our single-family serious delinquency rate decreased in 2019 primarily driven by improved loan payment performance and the

sale of nonperforming loans. Our single-family serious delinquency rate was higher in 2017 due to the impact of the 2017

hurricanes, but resumed its prior downward trend in 2018 because many delinquent borrowers in the affected areas resolved

their loan delinquencies by obtaining loan modifications or through resuming payments and becoming current on their loans. 

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 87

Our single-family serious delinquency rate and the period of time that loans remain seriously delinquent continue to be

negatively affected by the length of time required to complete a foreclosure in some states. Other factors that affect our singlefamily serious delinquency rate include:

Ö the pace and effectiveness of loan modifications and other workouts;

Ö the timing and volume of nonperforming loan sales we make;

Ö natural disasters; 

Ö servicer performance; and

Ö changes in home prices, unemployment levels and other macroeconomic conditions.
Certain higher-risk loan categories, such as Alt-A loans, loans with mark-to-market LTV ratios greater than 100%, and our

2005 through 2008 loan vintages, continue to exhibit higher than average delinquency rates and/or account for a higher share

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

as of December 31, 2019, but constituted 33% of our seriously delinquent single-family loans as of December 31, 2019 and

drove 61% of our 2019 single-family credit losses. 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.

The table below displays the serious delinquency rates for, and the percentage of our total seriously delinquent single-family

conventional loans represented by, the specified loan categories. Percentage of book amounts present the unpaid principal

balance of loans for each category divided by the unpaid principal balance of our total single-family conventional guaranty

book of business. We also include information for our loans in California because the 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 December 31,

2019 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

States:

California 19% 6% 0.32% 19% 6% 0.34%

Florida 6 8 0.84 6 10 1.16

Illinois 4 6 0.91 4 5 0.98

New Jersey 3 5 1.13 4 5 1.38

New York 5 8 1.18 5 8 1.40

All other states 63 67 0.64 62 66 0.73

Product type:

Alt-A(2) 2 9 2.95 2 11 3.35

Vintages:

2004 and prior 2 20 2.48 3 23 2.69

2005-2008 4 33 4.11 5 39 4.61

2009-2019 94 47 0.35 92 38 0.34

Estimated mark-to-market LTV ratio:

<= 60% 54 52 0.53 54 48 0.58

60.01% to 70% 17 17 0.80 18 17 0.87

70.01% to 80% 16 14 0.75 16 14 0.90

80.01% to 90% 8 9 1.00 8 10 1.24

90.01% to 100% 5 4 0.86 4 5 1.33

Greater than 100% * 4 10.14 * 6 9.85

Credit enhanced:(3)

Primary MI & other(4) 22 26 0.96 21 26 1.11

Credit risk transfer(5) 45 16 0.27 39 10 0.24

Non-credit enhanced 47 66 0.79 53 69 0.85

 * 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 Report.É

(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 December 31, 2019 was 53%.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 88
(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 2009.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 89

Role of Servicers in Loss Mitigation

The efforts of our mortgage servicers are critical in keeping people in their homes and preventing foreclosures. We maintain

standards for mortgage servicers regarding the management of delinquent loans, default prevention, and foreclosure time

frames. These standards, reinforced by incentives and compensatory fees, require servicers to take a consistent approach to

homeowner communications, loan modifications and other workouts, and when necessary, foreclosures.

Loan Workout Metrics

Our loan workouts reflect:

Ö home retention solutions, including loan modifications, repayment plans and forbearances; and

Ö foreclosure alternatives, including short sales and deeds-in-lieu of foreclosure.

We work with our servicers to implement our home retention solution and foreclosure alternative initiatives, and we emphasize

the importance of early contact with borrowers and early entry into a home retention solution. We require that servicers first

evaluate borrowers for eligibility under a workout option before considering foreclosure. The existence of a second lien may

limit our ability to provide borrowers with loan workout options, particularly those that are part of our foreclosure prevention

efforts; however, we are not required to contact a second lien holder to obtain their approval prior to providing a borrower with

a loan modification.

Home Retention Solutions

Loan modifications account for a significant majority of our home retention solutions. Characteristics of our loan modifications

may include:

Ö changes to the original mortgage terms such as product type, interest rate, amortization term, maturity date and/or

unpaid principal balance;

Ö collection of less than the contractual amount due under the original loan; or

Ö receiving the full amount due, or certain installments due, under the loan over a period of time that is longer than the

period of time originally provided for under the terms of the loan.

Our primary loan modification program is currently the Flex Modification program, which offers payment relief for eligible

borrowers, allowing forbearances of principal to an 80% mark-to-market LTV ratio, and targeting a 20% payment reduction. 

Approximately 32% of our modified loans that are performing included a reduction in the borrowerÑs interest rate that was fixed

for an initial period and subject to one or more annual interest rate increases thereafter. See ÇSingle-Family Portfolio

Diversification and MonitoringÜMortgage Products with Rate ResetsÉ for information on the timing of these interest rate

resets.

We also offer forbearance for homeowners experiencing temporary hardship, like natural disasters and unemployment, to

avoid delinquency and stay in their homes.

Foreclosure Alternatives

We continue to focus on foreclosure alternatives for borrowers who are unable to retain their homes. Foreclosure alternatives

may be more appropriate if the borrower has experienced a significant adverse change in financial condition due to events

such as long-term unemployment or reduced income, divorce, or unexpected issues like medical bills, and is therefore no

longer able to make the required mortgage payments. To avoid foreclosure and satisfy the first-lien mortgage obligation, our

servicers work with a borrower to:

Ö accept a deed-in-lieu of foreclosure, whereby the borrower voluntarily signs over the title to their property to the

servicer, or

Ö sell the home prior to foreclosure in a short sale, whereby the borrower sells the home for less than the full amount

owed to Fannie Mae under the mortgage loan.

These alternatives are designed to reduce our credit losses while helping borrowers avoid having to go through a foreclosure.

We work to obtain the highest price possible for the properties sold in short sales. 
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 solutionsá Foreclosure alternativesà

Number of loan workouts (in thousands)

2017 2018 2019

$14.6

$17.9

$8.6

$2.1

$16.7

$1.1

$19.0

$0.7

$9.3

100.6

118.1

56.3

(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 18,400 loans in a trial modification

period as of December 31, 2019.

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

The decrease in home retention solutions in 2019 compared with 2018 was primarily driven by improved loan performance

and a decrease in the volume of modifications and forbearances granted, which was elevated in 2018 due to the number of

borrowers affected by the 2017 hurricanes.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 90

The table below displays the percentage of our single-family closed loan modifications completed during 2018 and 2017 that

were current or paid off one year after modification and, for modifications completed during 2017, two years after modification.

Percentage of Single-Family Closed Loan Modifications That Were Current

or Paid Off at One and Two Years Post-Modification

2018 2017

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

One Year Post-Modification 72% 79% 78% 64% 61% 63% 65% 64%

Two Years Post-Modification 72 71 69 70
Nonperforming Loan Sales

We also undertake efforts to manage our problem loans by selling our nonperforming loans. This problem loan management

strategy is intended to reduce the number of seriously-delinquent loans, to stabilize neighborhoods and to reduce the severity

of losses incurred on these loans. During 2019, we sold approximately 7,800 nonperforming loans with an aggregate unpaid

principal balance of $1.4 billion. 

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 91

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 Year Ended December 31,

2019 2018 2017

Single-family REO properties (number of properties):

Beginning of period inventory of single-family REO properties(1) 20,156 26,311 38,093

Acquisitions by geographic area:(2)

Midwest 4,881 6,107 8,478

Northeast 4,867 6,460 9,453

Southeast 6,360 7,814 10,860

Southwest 2,892 3,713 5,133

West 1,667 2,001 2,691

Total REO acquisitions (1) 20,667 26,095 36,615

Dispositions of REO (23,322) (32,250) (48,397)

End of period inventory of single-family REO properties(1) 17,501 20,156 26,311

Carrying value of single-family REO properties (dollars in millions) $ 2,290 $ 2,503 $ 3,112

Single-family foreclosure rate(3) 0.12 % 0.15 % 0.21 %

REO net sales prices to unpaid principal balance(4) 78 % 77 % 75 %

Short sales net sales price to unpaid principal balance(5) 78 % 77 % 75 %

(1) Includes acquisitions through foreclosure and deeds-in-lieu of foreclosure. Also includes held for use properties, which are reported in our

consolidated balance sheets as a component of ÇOther assets.É

(2) See footnote 8 to the ÇKey Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of BusinessÉ table for

states included in each geographic region.

(3) Reflects the total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage of the total number of

loans in our single-family conventional guaranty book of business as of the end of each period.

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

subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at

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

seller at closing. 

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

the aggregate unpaid principal balance of the related loans. Net sales price includes borrower relocation incentive payments and

subordinate lien(s) negotiated payoffs. 

The decrease in single-family REO properties in 2019 compared with 2018 and 2017 was 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 in 2018 and 2019.

We market and sell the majority of our foreclosed properties through local real estate professionals. Our primary objectives are

both to minimize the severity of loss to Fannie Mae by maximizing sales prices and to stabilize neighborhoods by preventing

empty homes from depressing home values. In some cases, we use alternative methods of disposition, including selling

homes to municipalities, other public entities or non-profit organizations, and selling properties through public auctions.

In some cases, we engage in third party sales at foreclosure, which allow us to avoid maintenance and other REO expenses

we would have incurred had we acquired the property.
As shown in the chart below, a significant portion of our REO properties are unable to be marketed at any given time because

the properties are occupied, under repair, or are subject to state or local redemption or confirmation periods, which delays the

marketing and disposition of these properties.

REO Property Status

As of December 31, 2019

Unable to market: 45%

Available for sale: 24%

Pending sale settlement:

11%

Pending appraisals to be

listed for sale: 20%

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 92

Other Single-Family Credit Information

Single-Family Credit Loss Performance and Credit Loss Concentration 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 loss performance metrics, as well as our single-family initial charge-off severity rate. 

Our credit loss performance metrics are not defined terms within GAAP and may not be calculated in the same manner as

similarly titled measures reported by other companies. We believe these credit loss performance metrics may be useful to

investors because they are presented as a percentage of our conventional guaranty book of business and have historically

been used by analysts, investors and other companies within the financial services industry.

Single-Family Credit Loss Performance Metrics

For the Year Ended December 31,

2019 2018 2017

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of recoveries $ (1,196) 4.1 bps $ (1,853) 6.4 bps $ (2,423) 8.3 bps

Foreclosed property expense (523) 1.8 (604) 2.1 (540) 1.9

Credit losses and credit loss ratio $ (1,719) 5.9 bps $ (2,457) 8.5 bps $ (2,963) 10.2 bps

Single-family initial charge-off severity rate(2) 7.7 % 11.0 % 15.3 %

(1) Basis points are calculated based on the amount of each line item divided by the average single-family conventional guaranty book of

business during the period.

(2) Credit losses on single-family loans initially charged off during the period divided by the average defaulted unpaid principal balance of

those loans.ÄThe initial charge-off event is defined as the earliest of (1) when the loan is charged off pursuant to the provisions of the

Advisory Bulletin, or (2) when there is a short sale, deed-in-lieu of foreclosure, or foreclosure of the underlying collateral. This severity rate

does not reflect the charge-off of loans upon redesignation from HFI to HFS or any gains or losses associated with subsequent events,

such as REO transactions that occur after we acquire the property.

Our single-family credit losses and credit loss ratio decreased in 2019 compared with 2018, primarily driven by lower chargeoff expenses on lower volumes of reperforming and nonperforming loan redesignations and continued home price

appreciation.
Our single-family initial charge-off severity rate declined in 2019 compared with 2018 primarily due to lower LTV ratios on

charged-off loans driven by continued home price appreciation.

The table below displays concentrations of our single-family credit losses based on geography, credit characteristics and loan

vintages.

Single-Family Credit Loss Concentration Analysis

Percentage of Single-Family

Conventional Guaranty

Book of Business Outstanding(1)

Percentage of Single-Family

Credit Losses(2)

As of December 31, As of December 31,

2019 2018 2019 2018

Geographical distribution:

California 19% 19% 9% 11%

Florida 6 6 12 12

Illinois 4 4 10 10

New Jersey 3 4 10 10

New York 5 5 9 8

All other states 63 62 50 49

Select higher-risk products:

Alt-A loans 2 2 17 22

Vintages:(3)

2004 and prior 2 3 12 14

2005 - 2008 4 5 61 66

2009 - 2019 94 92 27 20

(1) Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid

principal balance of loans in our single-family conventional guaranty book of business as of the end of each period.

(2) Excludes the impact of recoveries resulting from resolution agreements related to representation and warranty matters and compensatory

fee income related to servicing matters that have not been allocated to specific loans.

(3) Credit losses on mortgage loans typically do not peak until the third through sixth years following origination; however, this range can vary

based on many factors, including changes in macroeconomic conditions and foreclosure timelines.

The majority of our credit losses in 2019 continued to be driven by loans originated in 2005 through 2008. However, these

loans accounted for the majority of the decrease in our credit losses in 2018 compared with 2019. As a result, the percentage

of overall credit losses driven by loans originated in more recent years increased, to 27% in 2019 from 20% in 2018, even as

the amount of credit losses from these loans decreased.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 93
Single-Family Loss Reserves

Our single-family loss reserves, which includes our allowance for loan losses and reserve for guaranty losses, provide for an

estimate of credit losses incurred in our single-family guaranty book of business, including concessions we granted borrowers

upon modification of their loans. The table below summarizes the changes in our single-family loss reserves.

Single-Family Loss Reserves

For the Year Ended December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Changes in loss reserves:

Beginning balance $ (14,007) $ (19,155) $ (23,639) $ (28,325) $ (36,383)

Benefit for credit losses 4,038 3,313 2,090 2,092 688

Charge-offs(1) 1,313 2,176 2,868 3,323 9,822

Recoveries (117) (323) (445) (638) (1,256)

Other (6) (18) (29) (91) (1,196)

Ending balance $ (8,779) $ (14,007) $ (19,155) $ (23,639) $ (28,325)

Loss reserves as a percentage of single-family:

Guaranty book of business 0.30% 0.49% 0.65% 0.83% 1.00%

Recorded investment in nonaccrual loans 30.58 44.24 40.80 53.67 58.02

Certain higher risk loan categories as a percentage of

single-family loss reserves:

2005-2008 loan vintages 72% 76% 78% 81% 81%

Alt-A loans 21 20 22 23 23

(1) Our charge-offs for 2015 include $2.5 billion of initial charge-offs associated with our adoption of the charge-off provisions of the Advisory

Bulletin, as well as $1.1 billion of charge-offs relating to a change in accounting policy for nonaccrual loans.

Troubled Debt Restructurings

We modify loans as part of our home retention strategy. The majority of these loans, including trial modifications and loans to

certain borrowers who received bankruptcy relief, are classified as TDRs. Such TDRs and other single-family loans that have

been individually evaluated for impairment generally have a higher associated loan loss reserve than loans that have been

collectively evaluated for impairment. The table below displays the unpaid principal balance of single-family HFI loans

classified as TDRs.

Single-Family TDR Activity on HFI Loans

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Beginning balance $ 123,951 $ 143,843 $ 165,960

New TDRs 8,319 14,867 9,847

Foreclosures(1) (1,794) (2,446) (3,519)

Payoffs and other reductions (28,538) (32,313) (28,445)

Ending balance $ 101,938 $ 123,951 $ 143,843

(1) Consists of foreclosures, deeds-in-lieu of foreclosure, short sales and third-party sales.

The decrease in new TDRs in 2019 compared with 2018 was primarily driven by improved loan performance and a decrease

in the volume of modifications and other forms of loss mitigation which were elevated in 2018 due to the number of borrowers

affected by hurricanes in 2017.

In addition, we had single-family HFS loans classified as TDRs with an unpaid principal balance of $2.0 billion as of December

31, 2019, $2.1 billion as of December 31, 2018 and $2.6 billion as of December 31, 2017.

MD&A | Single-Family Business

Fannie Mae 2019 Form 10-K 94
The tables below display the single-family loans classified as TDRs that were on accrual status and single-family loans on

nonaccrual status. The tables include the recorded investment in our single-family HFI and HFS mortgage loans, as well as

interest income forgone and recognized for on-balance sheet TDRs on accrual status and nonaccrual 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

For information related to our accounting policy for nonaccrual loans, see ÇNote 1, Summary of Significant Accounting

Policies.É

Single-Family TDRs on Accrual Status and Nonaccrual Loans

As of December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

TDRs on accrual status $ 81,634 $ 98,320 $ 110,043 $ 127,353 $140,588

Nonaccrual loans 28,708 31,658 46,945 44,047 48,821

Total TDRs on accrual status and nonaccrual loans $ 110,342 $ 129,978 $ 156,988 $ 171,400 $189,409

Accruing on-balance sheet loans past due 90Ädays or more(1) $ 191 $ 228 $ 353 $ 402 $ 499

For the Year Ended December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status

and nonaccrual loans:

Interest income forgone(2) $ 1,524 $ 2,000 $ 3,009 $ 4,102 $ 5,193

Interest income recognized(3) 4,513 5,292 5,705 5,996 6,493

(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 2019 Form 10-K 95

Multifamily Business

Multifamily Primary Business Activities

Providing Liquidity for Multifamily Mortgage Loans

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. Our Multifamily business works with our lender customers to provide funds to the mortgage market primarily by

securitizing multifamily mortgage loans acquired from these lenders into Fannie Mae MBS, which are sold to investors or

dealers. We also purchase multifamily mortgage loans and provide credit enhancement for bonds issued by state and local

housing finance authorities to finance multifamily housing. Our Multifamily business also supports liquidity in the mortgage

market through other activities, such as issuing structured MBS backed by Fannie Mae multifamily MBS and buying and

selling multifamily agency mortgage-backed securities. We also continue to invest in LIHTC projects to help support and

preserve the supply of affordable housing. 

Key Characteristics of the Multifamily Business

The Multifamily business has a number of key characteristics that distinguish it from our Single-Family business.

Ö Collateral: Multifamily loans are collateralized by properties that generate cash flows and effectively operate as

businesses, such as garden and high-rise apartment complexes, seniors housing communities, cooperatives,

dedicated student housing and manufactured housing communities.

Ö Borrowers and sponsors:ÜMultifamily borrowers are entities that are typically owned, directly or indirectly, by for-profit

corporations, limited liability companies, partnerships, real estate investment trusts and individuals who invest in real

estate for cash flow and expected returns in excess of their original contribution of equity. Borrowers are typically

single-asset entities, with the property as their only asset. The ultimate owners of a multifamily borrower are referred

to as the borrowerÑs Çsponsors.É We evaluate both the borrowing entity and its sponsor when considering a new
transaction or managing our business. In this report, we refer to both the borrowing entities and their sponsors as

Çborrowers.É When considering a multifamily borrower, creditworthiness is evaluated through a combination of

quantitative and qualitative data including liquid assets, net worth, number of units owned, experience in a market

and/or property type, multifamily portfolio performance, access to additional liquidity, debt maturities, asset/property

management platform, senior management experience, reputation, and exposures to lenders and Fannie Mae. 

Ö Recourse: Multifamily loans are generally non-recourse to the borrowers. 

Ö Lenders: During 2019, we executed multifamily transactions with 30 lenders. Of these, 25 lenders delivered loans to

us under our DUS program described below. In determining whether to partner with a multifamily lender, we consider

the lenderÑs financial strength, multifamily underwriting and servicing experience, portfolio performance and

willingness and ability to share in the risk of loss associated with the multifamily loans they originate. 

Ö Loan size: The average size of a loan in our multifamily guaranty book of business is $12 million. 

Ö Underwriting process:ÄMultifamily loans require detailed underwriting of the propertyÑs operating cash flow.ÄOur

underwriting includes an evaluation of the propertyÑs ability to support the loan, property quality, market and

submarket factors, and ability to exit at maturity. 

Ö Term and lifecycle:ÄIn contrast to the standard 30-year single-family residential loan, multifamily loans typically have

terms of 5, 7 or 10 years, with balloon payments due at maturity. 

Ö Prepayment terms:ÄTo protect against prepayments, most multifamily Fannie Mae loans and MBS impose

prepayment premiums, primarily yield maintenance, consistent with standard commercial investment terms. This is in

contrast to single-family loans, which typically do not have prepayment protection. 

Delegated Underwriting and Servicing 

Fannie MaeÑs DUS program, which was initiated in 1988, is a unique business model in the commercial mortgage industry. Our

DUS model aligns the interests of the lender and Fannie Mae. Our current 25-member DUS lender network, which is

comprised of large financial institutions and independent mortgage lenders, continues to be our principal source of multifamily

loan deliveries. DUS lenders are pre-approved and delegated the authority to underwrite and service loans on behalf of Fannie

Mae in accordance with our standards and requirements. Delegation permits lenders to respond to customers more rapidly, as

the lender generally has the authority to approve a loan within prescribed parameters. Based on a given loanÑs unique

characteristics and Fannie MaeÑs pre-published delegation criteria, lenders assess whether a loan must be reviewed by Fannie

Mae. If review is required, Fannie MaeÑs internal credit team will assess the loanÑs risk profile to determine if it meets our risk

tolerances. DUS lenders are required to share with us the risk of loss over the life of the loan, as discussed in more detail in

ÇMultifamily Mortgage Credit Risk Management.É Since DUS lenders share in the credit risk, the servicing fee to the lenders

includes compensation for credit risk.

Multifamily Mortgage Servicing 

Multifamily mortgage servicing is typically performed by the lenders who sell mortgages to us. Because of our loss-sharing

arrangements with our multifamily lenders, transfers of multifamily servicing rights are infrequent, and we monitor our servicing

relationships and enforce our right to approve servicing transfers. As a seller-servicer, the lender is responsible for ongoing

evaluation of the financial condition of properties and property owners, administering various types of loan and property-level

agreements (including agreements covering replacement reserves, completion or repair, and operations and maintenance), as

well as conducting routine property inspections.

Multifamily Credit Risk and Credit Loss Management

Our Multifamily business: 

Ö Prices and manages the credit risk on loans in our multifamily guaranty book of business. Lenders retain a portion of

the credit risk in most multifamily transactions.

Ö Enters into transactions that transfer an additional portion of Fannie MaeÑs credit risk on some of the loans in our

multifamily guaranty book of business through our back-end credit risk transfer transactions.

Ö Works to maintain the credit quality of the multifamily book of business, prevent foreclosures, reduce costs of

defaulted multifamily loans, manage our REO inventory, and pursue contractual remedies from lenders, servicers,

borrowers, and providers of credit enhancement.

See ÇMultifamily Mortgage Credit Risk ManagementÉ for discussion of our strategies for managing credit risk and credit losses

on multifamily loans.

The Multifamily Markets in Which We Operate 

In the multifamily mortgage market, we aim to address the rental housing needs of a wide range of the population in all

markets across the country, with the substantial majority of our focus on supporting rental housing that is affordable to families

earning at or below the median income in their area. We serve the market steadily, rather than moving in and out depending

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 96
on market conditions. Through the secondary mortgage market, we support rental housing for the workforce population,Äfor

senior citizens and students, and for families with the greatest economic need.ÄOver 90% of the multifamily units we financed

in 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. 

Our Multifamily business is organized and operated as an integrated commercial real estate finance business, addressing the

spectrum of multifamily housing finance needs, including the need for smaller multifamily property financing and financing that

serves low- and very low-income households. 

Ö To meet the growing need for smaller multifamily property financing, we focus on the acquisition of small multifamily

loans. Through January 2019, we focused on loans of up to $3 million ($5 million in high cost areas). In February

2019, we expanded our parameters for small multifamily loans to cover loans of up to $6 million in any area. As of

December 31, 2019, small loans represented 48% of our multifamily guaranty book of business by loan count and 8%

based on unpaid principal balance. 

Ö To serve low- and very low-income households, we have a team that focuses exclusively on relationships with

lenders financing privately-owned multifamily properties that receive public subsidies in exchange for maintaining

long-term affordable rents. We enable borrowers to leverage housing programs and subsidies provided by local, state

and federal agencies. These public subsidy programs are largely targeted to provide housing to families earning less

than 60% of area median income (as defined by HUD) and are structured to ensure that the low- and very lowincome households who benefit from the subsidies pay no more than 30% of their gross monthly income for rent and

utilities. As of December 31, 2019, affordable loans represented approximately 11% of our multifamily guaranty book

of business, based on unpaid principal balance, including $10.2 billion in bond credit enhancements. 

Multifamily Customers

Our multifamily lenders are principally mortgage banking companies, large diversified financial institutions, and banks. During

2019, we executed multifamily transactions with 30 lenders. During 2019, our top five multifamily lender customers, in the

aggregate, accounted for approximately 48% of our multifamily business volume, compared with approximately 49% in 2018.

Two of our customers each accounted for 10% or more of our multifamily business volume in 2019. Walker & Dunlop

accounted for 12% and CBRE Multifamily Capital accounted for 10% of our 2019 multifamily business volume.

We have a diversified funding base of domestic and international investors. Purchasers of multifamily Fannie Mae MBS

include fund managers, commercial banks, pension funds, insurance companies, corporations, state and local governments,

and other municipal authorities. Our MCAS investors include fund managers, hedge funds and insurance companies, while we

engage in multifamily CIRT transactions with insurers and reinsurers.

Multifamily Competition 

Our primary competitors for the acquisition of multifamily mortgage assets and issuance of multifamily mortgage-related

securities are Freddie Mac, life insurers, U.S. banks and thrifts, other institutional investors, Ginnie Mae and private-label

issuers of commercial mortgage-backed securities.

Competition to acquire mortgage assets is significantly affected by both our and our competitorsÑ pricing, credit standards and

loan structures, as well as investor demand for our and our competitorsÑ mortgage-related securities. Our competitive

environment also may be affected by many other factors, including changes in connection with recommendations in the

Treasury plan; new legislation or regulations applicable to us, our customers or investors; and digital innovation and disruption

in our markets. The Director of FHFA has indicated that, during conservatorship, Fannie Mae and Freddie Mac should reduce

competition with each other and FHA. As a result, our ability to compete depends on our pricing and on our ability to address

and adapt to changing lender and borrower preferences. See ÇBusinessÜConservatorship, Treasury Agreements and Housing

Finance Reform,É ÇBusinessÜCharter Act and Regulation,É and ÇRisk FactorsÉ for information on matters that could affect our

business and competitive environment.

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 97
Multifamily Market Share

We remained a continuous source of liquidity in the multifamily market in 2019. We owned or guaranteed approximately 20%

of the outstanding debt on multifamily properties as of September 30, 2019 (the latest date for which information is available). 

Multifamily Mortgage Debt Outstanding(1)

(Dollars in trillions)

Total multifamily U.S. mortgage debt outstanding

Fannie Mae percentage of total multifamily mortgage debt outstanding

12/31/2017 12/31/2018 9/30/2019

$1.36

$1.47

$1.57

20% 20% 20%

(1) The mortgage debt outstanding as of September 30, 2019 is based on the Federal ReserveÑs December 2019 mortgage debt outstanding

release, the latest date for which the Federal Reserve has estimated mortgage debt outstanding for multifamily residences. Prior period

amounts have been updated to reflect revised historical data from the Federal Reserve. 

Multifamily Mortgage Market

National multifamily market fundamentals, primarily vacancy rates and rents, remained positive throughout 2019, most likely

due to ongoing job growth, favorable demographic trends, and renter household formations.

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

institutional investment-type apartment properties was 5.5% as of December 31, 2019, compared with 5.3% as of

SeptemberÄ30, 2019 and 5.5% as of December 31, 2018. The estimated national multifamily vacancy rate remains

below its average rate of about 6.0% over the last 10 years. 

Ö Rents. Effective rents continued to increase during most of 2019. National asking rents increased by an estimated

2.5% in 2019 and by an estimated 0.3% during the fourth quarter of 2019, compared with an estimated increase of

0.8% in the third quarter of 2019. 

An estimated 377,000 multifamily units were added to the nationÑs inventory in 2019 and demand remained positive for much

of the year. Continued demand for multifamily rental units was reflected in the estimated positive net absorption (that is, the net

change in the number of occupied rental units during the time period) of approximately 178,000 units in 2019, according to

data from Reis, Inc., compared with approximately 236,000 units in 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 helped to increase property values

in most metropolitan areas in 2019. It is estimated that approximately 476,000 new multifamily units will be completed in 2020.

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 and effective rents

in 2020 compared with recent years.

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 98

Multifamily Business Metrics

The multifamily loans we acquired in 2019 had a strong overall credit risk profile, consistent with our acquisition policy and

standards, which we describe in "Multifamily Mortgage Credit Risk ManagementÜMultifamily Acquisition Policy and

Underwriting Standards." For the three-month period starting October 1, 2019 through December 31, 2019, our multifamily

business volume was $18.1 billion, which contributed to overall 2019 business volume of $70.2 billion. Multifamily new

business volume increased in 2019 compared with 2018 driven by positive multifamily mortgage market fundamentals.
Multifamily New Business Volume

(Dollars in billions)

Multifamily new business volumeá Multifamily units financed from new business volume

2017 2018 2019

$66.1 $65.4

$70.2

770,000 777,000

726,000

(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. Excludes a transaction backed by a pool of single-family rental properties financed in the

amount of $945 million during the second quarter of 2017. 

FHFAÑs 2019 conservatorship scorecard included an objective to maintain the dollar volume of new multifamily business at or

below $35 billion for the year, excluding certain targeted affordable and underserved market business segments such as loans

financing energy or water efficiency improvements. Approximately 44% of our multifamily new business volume of $52.1 billion

for the first nine months of 2019 counted toward FHFAÑs 2019 multifamily volume cap. On September 13, 2019, FHFA

announced a revised multifamily business volume cap structure. The new multifamily volume cap, which replaced the prior cap

effective October 1, 2019, is $100 billion for the five-quarter period ending December 31, 2020. The new cap applies with no

exclusions. In addition, FHFA directed that 37.5% of our multifamily business during that time period must be mission-driven,

affordable housing, pursuant to FHFAÑs guidelines for mission-driven loans.

Our multifamily business securitizes the vast majority of mortgage loans we acquire through lender swap transactions. We

also support liquidity in the market through issuing structured MBS backed by Fannie Mae MBS.

Multifamily Fannie Mae MBS Issuances

(Dollars in billions)

Multifamily Fannie Mae MBS issuancesá

Multifamily Fannie Mae structured securities issuancesà

2017 2018 2019

$65.4 $64.3

$69.9

$12.0

$7.5

$9.6

(1) Excludes a transaction backed by a pool of single-family rental properties financed in the amount of $945 million during the second quarter

of 2017. 

(2) A portion of structured securities issuances may be backed by Fannie Mae MBS issued during the same period and held by Fannie Mae.

Structured securities backed by Fannie Mae MBS held by a third party are not included in the multifamily Fannie Mae MBS structured

security issuance amounts.

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 99
Presentation of our Multifamily Guaranty Book of Business

For purposes of the information reported in this ÇMultifamily BusinessÉ section, we measure our multifamily guaranty book of

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

guaranty book of business presented in the ÇComposition of Fannie Mae Guaranty Book of BusinessÉ table in the ÇGuaranty

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

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

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

below, the following chart displays our multifamily guaranty book of business.

Multifamily Guaranty Book of Business

(Dollars in billions)

Unpaid principal balance of multifamily guaranty book of business

Average charged guaranty fee rate on multifamily guaranty book of business (in basis points), at end of period

12/31/17 12/31/18 12/31/19

$277.3

$305.9

$338.8

78.7

75.4

71.8

 

Our average charged multifamily guaranty fee trended downward in 2018 and 2019 driven by competitive market pressure on

guaranty fees charged on newly acquired multifamily loans. 

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 100

Multifamily Business Financial Results

For the Year Ended December 31, Variance

2019 2018 2017 2019 vs. 2018 2018 vs. 2017

(Dollars in millions)

Net interest income $ 2,949 $ 2,789 $ 2,521 $ 160 $ 268

Fee and other income 723 529 849 194 (320)

Net revenues 3,672 3,318 3,370 354 (52)

Fair value gains (losses), net 2 (89) (23) 91 (66)

Administrative expenses (458) (428) (346) (30) (82)

Credit-related expense(1) (19) (17) (30) (2) 13

Other expenses, net(2) (316) (139) (337) (177) 198

Income before federal income taxes 2,881 2,645 2,634 236 11

Provision for federal income taxes (558) (432) (1,683) (126) 1,251

Net income $ 2,323 $ 2,213 $ 951 $ 110 $ 1,262

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

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

2017 2018 2019

(Dollars in millions)

$2,521

$2,789 $2,949

Multifamily net interest income increased in 2019 compared with

2018 primarily due to an increase in guaranty fee income as a result

of growth in the size of our multifamily guaranty book of business,

partially offset by a decrease in average charged guaranty fees on

the multifamily guaranty book. 

Multifamily net interest income increased in 2018 compared with

2017 primarily due to increases in guaranty fee income driven by an

increase in the average guaranty book of business. 

_____________________________________________________________________________

Fee and other income

2017 2018 2019

(Dollars in millions)

$849

$529

$723

Fee and other income increased in 2019 primarily driven by yield

maintenance fees resulting from increased prepayment activity.

Variation in yield maintenance fee income from period to period is

driven by the volume of prepayments, current interest rates, as well

as the timing of the prepayment relative to the loanÑs contractual

maturity date. All of these factors impact the fee due to us at the

time of prepayment, which is recognized in fee and other income. If

Fannie Mae is not the holder of the security, the portion of yield

maintenance paid out to the investor is recognized as an expense

in other expenses, net.

_____________________________________________________________________________

Fair value gains (losses), net

2017 2018 2019

(Dollars in millions)

$(23)

$(89)

$2

Depending on portfolio activity, our multifamily mortgage

commitment derivatives may be in a net buy or net sell position

during any given period. Fair value gains in 2019 were flat as a

result of offsetting gains and losses on commitments to buy or to

sell multifamily mortgage-related securities.

Fair value losses in 2018 were primarily driven by losses on

commitments to buy multifamily mortgage-related securities due to

increasing interest rates resulting in decreasing prices during the

commitment periods.

_____________________________________________________________________________

Credit-related expense

2017 2018 2019

(Dollars in millions)

$(30)

$(17) $(19)

We recognized higher credit-related expense in 2019 compared

with 2018 primarily driven by an increase in the allowance for loan

losses in 2019. Credit-related expense in 2018 was driven by

expenses on previously charged-off loans.

_____________________________________________________________________________

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 101
Multifamily Mortgage Credit Risk Management

The credit risk profile of our multifamily book of business is influenced by:

Ö the current and anticipated cash flows from the property;

Ö the type and location of the property; 

Ö the condition and value of the property; 

Ö the financial strength of the borrower; 

Ö market trends; and

Ö the structure of the financing. 

These and other factors affect both the amount of expected credit loss on a given loan and the sensitivity of that loss to

changes in the economic environment. 

Multifamily Acquisition Policy and Underwriting Standards

Our Multifamily business is responsible for pricing and managing the credit risk on our multifamily guaranty book of business,

with oversight from our Enterprise Risk Management division. Multifamily loans that we purchase or that back Fannie Mae

MBS are underwritten by a Fannie Mae-approved lender and may be subject to our underwriting review prior to closing,

depending on the product type, loan size, market and/or other factors. Our underwriting standards generally include, among

other things, property cash flow analysis and third-party appraisals. Additionally, 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. At underwriting, we evaluate the DSCR based on both actual and underwritten debt service payments. The

original DSCR is calculated using the underwritten debt service payments for the loan, which assumes both principal and

interest payments, rather than the actual debt service payments. Depending on the loanÑs interest rate and structure, using the

underwritten debt service payments may result in a more conservative estimate of the debt service payments (for example,

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

Our experience has been that original LTV ratio and DSCR values have been reliable indicators of future credit performance. 

Key Risk Characteristics of Multifamily Guaranty Book of Business

As of December 31,

2019 2018 2017

Weighted-average original LTV ratio 66% 66% 67%

Original LTV ratio greater than 80% 1% 1% 2%

Original DSCR less than or equal to 1.10 11% 12% 14%

Full interest-only loans 27% 24% 21%

Partial interest-only loans(1) 51% 49% 46%

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

incorporated by reference into this report. 

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 102

Transfer of Multifamily Mortgage Credit Risk

Lender risk-sharing is a cornerstone of our Multifamily business. We primarily transfer risk through our Delegated Underwriting

Servicing (ÇDUSÉ) program, which delegates to DUS lenders the ability to underwrite and service multifamily loans, in

accordance with our standards and requirements. DUS lenders receive credit risk-related revenues for their respective portion

of credit risk retained and, in turn, are required to fulfill any loss-sharing obligation. This aligns the interests of the lender and

Fannie Mae throughout the life of the loan. Our DUS model typically results in our lenders sharing approximately one-third of

the credit risk on our multifamily loans. Lenders in the DUS program typically share in loan-level credit losses in one of two

ways: 

Ö they share one-third of the losses on a pro rata basis with us; or

Ö they bear all losses up to the first 5% of the unpaid principal balance of the loan and then share with us any

remaining losses up to a prescribed limit.

Loans serviced by DUS lenders and their affiliates represented 99% of our multifamily guaranty book of business as of

December 31, 2019, 2018 and 2017. In certain situations, to effectively manage our counterparty risk, we do not allow the

lender to fully share in one-third of the credit risk, but have them share in a smaller portion. 
While not a large portion of our multifamily guaranty book of business, our non-DUS lenders typically also have lender risksharing, where the lenders typically share or absorb losses based on a negotiated percentage of the loan or the pool balance.

These risk-sharing agreements not only transfer credit risk, but also better align our interests with those of the lenders.

Our maximum potential loss recovery from lenders under current risk-sharing agreements represented over 20% of the unpaid

principal balance of our multifamily guaranty book of business as of December 31, 2019 and as of December 31, 2018. 

Percentage of Multifamily Guaranty Book of Business with Front-End

Lender Risk Sharing

2019

2018

2017

98%

98%

96%

To complement our front-end lender-risk sharing program through our DUS model, we engage in back-end credit risk transfer

transactions through our multifamily CIRT and Multifamily Connecticut Avenue Securities (ÇMCASÉ) transactions. In our

multifamily CIRT transactions we transfer a portion of Fannie MaeÑs mortgage credit risk on multifamily loans in our multifamily

guaranty book of business to insurers or reinsurers. We retain an initial portion of losses on the loans in the pool and

reinsurers cover losses above this retention amount up to a detachment point. We retain all losses above this detachment

point. The insurance layer typically provides coverage for losses on the pool that are likely to occur only in a stressed

economic environment. We completed three multifamily CIRT transactions in 2019, which covered multifamily loans with an

unpaid principal balance of $32.3 billion at the time of the transactions.

In the fourth quarter of 2019, we issued our first MCAS, whichÄused a credit-linked note structure to transfer a portion of the

mortgage credit risk associated with Fannie Mae losses on a reference pool of multifamily mortgage loans. MCAS are issued

with a stated final maturity date less than or equal to 12 years. Similar to CIRT transactions, we retained the exposure from

senior loss and the first loss tranches in this transaction. In addition, we retained a pro rata share of risk equal to

approximately 5% of all notes sold in the mezzanine tranches. Similar to our single-family CAS REMIC and CAS CLNs, MCAS

aligns the timing of our recognition of provisions for credit losses with the related recovery. With our adoption of the CECL

standard in January 2020, we continue to record the expected benefit and the loss in the same period.

The table below displays the total unpaid principal balance and percentage of loans in our multifamily guaranty book of

business that are covered by a back-end credit risk transfer transaction. The table does not reflect front-end lender risksharing arrangements.

Multifamily Loans in Back-End Credit Risk Transfer Transactions

As of December 31,

2019 2018

Unpaid

Principal

Balance

Percentage of

Multifamily

Guaranty

Book of

Business

Unpaid

Principal

Balance

Percentage of

Multifamily

Guaranty

Book of

Business

(Dollars in millions)

Credit Insurance Risk Transfer $ 66,851 20% $ 37,456 12%

Multifamily Connecticut Avenue Securities 17,077 5 Ü Ü

Total unpaid principal balance of multifamily loans in back-end

credit risk transfer transactions $ 83,928 25% $ 37,456 12%

The enhancements to our multifamily credit-risk sharing transactions were primarily designed to further reduce the capital

requirements associated with loans in the reference pool under FHFAÑs conservatorship capital framework with the associated

benefit of additional credit risk protection in the event of a stress environment. We transfer multifamily credit risk through

lender risk sharing at the time of acquisition, but our multifamily back-end credit risk transfer activity occurs later, typically up to

a year or more after acquisition. Accordingly, we measure the impact of our 2019 credit risk transfer activity by how much it

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 103
reduced our capital requirements on loans we acquired in 2018. Our multifamily front-end lender risk sharing and back-end

credit risk transfer transactions through December 31, 2019 reduced our conservatorship capital requirement for our

multifamily business acquisitions during the twelve months ended December 31, 2018 by over 70%. SeeÄÇBusinessÜCharter

Act and RegulationÜGSE Act and Other LegislationÜCapitalÉ for more information on our capital requirements.

We plan to continue to transfer credit risk through multifamily CIRT and MCAS transactions in the future and to explore other

multifamily credit risk transfer options.

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 104

Multifamily Portfolio Diversification and Monitoring

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

borrower concentration, loan size, and credit enhancement coverage are important factors that influence credit performance

and may help reduce our credit risk. 

As part of our ongoing credit risk management process, we and our lenders monitor the performance and risk characteristics

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 December 31, 2019 and 2018. Our

estimates of current DSCRs are based on the latest available income information for these properties and exclude co-op

loans. Although we use the most recently available results from our multifamily borrowers, there is a lag in reporting, which

typically can range from three to six months, but in some cases may be longer.

In addition to the factors described above, we track credit risk characteristics to determine the loan credit quality indicators,

which are the internal risk categories we use and are further discussed in ÇNote 3, Mortgage LoansÉ:

Ö the physical condition of the property; 

Ö delinquency status; 

Ö the relevant local market and economic conditions that may signal changing risk or return profiles; and 

Ö other risk factors. 

For example, we closely monitor the rental payment trends and vacancy levels in local markets, as well as capitalization rates,

to identify loans that merit closer attention or loss mitigation actions. We manage our exposure to refinancing risk for

multifamily loans maturing in the next several years. We have a team that proactively manages upcoming loan maturities to

minimize losses on maturing loans. This team assists lenders and borrowers with timely and appropriate refinancing of

maturing loans with the goal of reducing defaults and foreclosures related to these loans. The primary asset management

responsibilities for our multifamily loans are performed by our DUS and other multifamily lenders. We periodically evaluate

these lendersÑ performance for compliance with our asset management criteria. 

The percentage of our multifamily loans categorized as substandard based on these characteristics remained at historically

low levels and decreased as of December 31, 2019 compared with December 31, 2018. 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. 

Multifamily Problem Loan Management and Foreclosure Prevention

We periodically refine our underwriting standards in response to market conditions and implement proactive portfolio

management and monitoring which are each designed to keep credit losses and delinquencies to a low level relative to our

multifamily guaranty book of business.

Delinquency Statistics on our Problem Loans

The multifamily serious delinquency rate remained at low levels of 0.04% as of December 31, 2019 and 0.06% as of

December 31, 2018. Our multifamily seriously delinquent rate consists of multifamily loans that were 60 days or more past due

based on unpaid principal balance expressed as a percentage of our multifamily guaranty book of business.

Multifamily Credit Loss Performance Metrics

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

and charge-offs, net of recoveries. Our credit loss performance metrics are not defined terms within GAAP and may not be

calculated in the same manner as similarly titled measures reported by other companies. We believe our credit loss

performance metrics may be useful to investors because they have historically been used by analysts, investors and other

companies within the financial services industry.
The table below displays the components of our multifamily credit loss performance metrics, as well as our multifamily initial

charge-off severity rate. Our multifamily guaranty book of business has experienced very low levels of charge-offs in the past

several years, which in some periods has resulted in credit income rather than losses, and drives variability in our charge-off

severity rate.

Multifamily Credit Loss Performance Metrics

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Credit income (losses)(1) $ 4 $ (17) $ 19

Credit (income) loss ratio(1)(2) (0.1) bps 0.6 bps (0.7) bps

Multifamily initial charge-off severity rate(3) 21.6 % 17.1 % 4.5 %

Multifamily loan charge-off count 5 11 9

(1) Credit income and credit income ratios are the result of recoveries on previously charged-off amounts.

(2) Basis points are calculated based on the amount of credit income (losses) divided by the average multifamily guaranty book of business

during the period.

(3) 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. Charge-offs are net of lender loss sharing agreements. 

Multifamily Loss Reserves

The table below summarizes the changes in our multifamily loss reserves, which includes our allowance for loan losses and

our reserve for guaranty losses for multifamily loans.

Multifamily Loss Reserves

For the Year Ended December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Changes in loss reserves:

Beginning balance $ (245) $ (245) $ (196) $ (265) $ (404)

Benefit (provision) for credit losses (27) (4) (49) 63 107

Charge-offs 8 4 3 11 42

Recoveries (4) Ü (3) (6) (4)

Other Ñ Ü Ü 1 (6)

Ending balance $ (268) $ (245) $ (245) $ (196) $ (265)

Loss reserves as a percentage of multifamily guaranty book of business 0.08% 0.08% 0.09% 0.08% 0.12%

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, as well as interest

income forgone and recognized for on-balance sheet TDRs on accrual status and nonaccrual 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 December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

TDRs on accrual status $ 66 $ 55 $ 87 $ 141 $ 376

Nonaccrual loans 439 492 424 403 591

Total TDRs on accrual status and nonaccrual loans $ 505 $ 547 $ 511 $ 544 $ 967

MD&A | Multifamily Business

Fannie Mae 2019 Form 10-K 105
For the Year Ended December 31,

2019 2018 2017 2016 2015

(Dollars in millions)

Interest related to on-balance sheet TDRs on accrual status and

nonaccrual loans:

Interest income forgone(1) $ 16 $ 22 $ 17 $ 21 $ 34

Interest income recognized(2) 3 3 7 9 18

(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 2019 Form 10-K 106

REO Management

The number of multifamily foreclosed properties held for sale remained low at 12 properties with a carrying value of $72 million

as of December 31, 2019, compared with 16 properties with a carrying value of $81 million as of December 31, 2018.

Liquidity and Capital Management

Liquidity Management

Our business activities require that we maintain adequate liquidity to fund our operations. Our liquidity risk management

framework is designed to address our liquidity and funding risk, which is the risk that we will not be able to meet our

obligations when they come due, including the risk associated with the inability to access funding sources or manage

fluctuations in funding levels. Liquidity and funding risk management involves forecasting funding requirements, maintaining

sufficient capacity to meet our needs based on our ongoing assessment of financial market liquidity and adhering to our

regulatory requirements. 

Primary Sources and Uses of Funds 

Our primary source of funds is proceeds from the issuance of short-term and long-term debt securities. Accordingly, our

liquidity depends largely on our ability to issue unsecured debt in the capital markets. Our status as a government-sponsored

enterprise and federal government support of our business continue to be essential to maintaining our access to the

unsecured debt markets. 

In addition to funding we obtain from the issuance of debt securities, our other sources of cash include: 

Ö principal and interest payments received on mortgage loans, mortgage-related securities and non-mortgage

investments we own; 

Ö proceeds from the sale of mortgage-related securities, mortgage loans and other investments portfolio, including

proceeds from sales of foreclosed real estate assets;

Ö funds from Treasury pursuant to the senior preferred stock purchase agreement;

Ö guaranty fees received on Fannie Mae MBS, including the TCCA fees collected by us on behalf of Treasury; 

Ö payments received from mortgage insurance counterparties and other providers of credit enhancement;Ä

Ö net receipts on derivative instruments; 

Ö receipt of cash collateral; 

Ö borrowings we may make under a secured intraday funding line of credit or against mortgage-related securities and

other investment securities we hold pursuant to repurchase agreements and loan agreements; and

Ö tax refunds from the IRS.

Our primary uses of funds include: 

Ö the repayment of matured, redeemed and repurchased debt; 

Ö the purchase of mortgage loans (including delinquent loans from MBS trusts), mortgage-related securities and other

investments;

Ö interest payments on outstanding debt; 

Ö dividend payments made to Treasury on the senior preferred stock; 

Ö net payments on derivative instruments; 
Ö the pledging of collateral under derivative instruments; 

Ö administrative expenses;

Ö losses incurred in connection with our Fannie Mae MBS guaranty obligations;Ä

Ö payments of federal income taxes;

Ö payments to specified HUD and Treasury funds;

Ö payments of TCCA fees to Treasury; and

Ö payments associated with our credit risk transfer programs. 

Liquidity and Funding Risk Management Practices and Contingency Planning 

Our liquidity position could be adversely affected by many factors, both internal and external to our business, including: 

Ö actions taken by FHFA, the Federal Reserve, Treasury or other government agencies;

Ö legislation relating to us or our business; 

Ö a U.S. government payment default on its debt obligations; 

Ö a downgrade in the credit ratings of our senior unsecured debt or the U.S. governmentÑs debt from the major ratings

organizations;

Ö a systemic event leading to the withdrawal of liquidity from the market; 

Ö an extreme market-wide widening of credit spreads; 

Ö public statements by key policy makers; 

Ö a significant decline in our net worth; 

Ö potential investor concerns about the adequacy of funding available to us under or changes to the senior preferred

stock purchase agreement; 

Ö loss of demand for our debt, or certain types of our debt from a significant number of investors; 

Ö a significant credit event involving one of our major institutional counterparties; 

Ö a sudden catastrophic operational failure in the financial sector; or

Ö elimination of our status as a government-sponsored enterprise. 

See ÇRisk FactorsÉ for a discussion of factors that could adversely affect our liquidity.Ä

We conduct liquidity contingency planning to prepare for an event in which our access to the unsecured debt markets

becomes limited. 

Our liquidity management framework and practices require that we maintain: 

Ö a portfolio of highly liquid securities to cover a minimum of 30 calendar days of expected net cash needs, assuming

no access to the short- and long-term unsecured debt markets; 

Ö within our other investments portfolio a daily balance of U.S.ÄTreasury securities and/or cash with the Federal

Reserve Bank of New York that has a redemption amount of at least 50% of our average projected 30-day cash

needs over the previous three months;Äand 

Ö a liquidity profile that meets or exceeds our projected 365-day net cash needs with liquidity holdings and

unencumbered agency mortgage securities. 

As of December 31, 2019, we were in compliance with our liquidity risk management framework and practices set forth above. 

We run routine operational testing of our ability to rely upon mortgage and U.S. Treasury collateral to obtain financing. We

enter into relatively small repurchase agreements in order to confirm that we have the operational and systems capability to do

so. In addition, we have provided collateral in advance to clearing banks in the event we seek to enter into repurchase

agreements in the future. We do not, however, have committed repurchase agreements with specific counterparties, as

historically we have not relied on this form of funding. As a result, our use of such facilities and our ability to enter into them in

significant dollar amounts may be challenging in a stressed market environment. See ÇOther Investments PortfolioÉ for further

discussions of our alternative sources of liquidity if our access to the debt markets were to become limited.

While our liquidity contingency planning attempts to address stressed market conditions and our status in conservatorship, we

believe those plans could be difficult or impossible to execute under stressed conditions for a company of our size in our

circumstances. See ÇRisk FactorsÜLiquidity and Funding RiskÉ for a description of the risks associated with our ability to fund

operations and our liquidity contingency planning.

MD&A | Liquidity and Capital Management

Fannie Mae 2019 Form 10-K 107
Debt Funding

We separately present the debt from consolidations (Çdebt of consolidated trustsÉ) and the debt issued by us (Çdebt of Fannie

MaeÉ) in our consolidated balance sheets. This discussion regarding debt funding focuses on the debt of Fannie Mae. In

addition to MBS issuances, we fund our business through the issuance of a variety of short-term and long-term debt securities

in the domestic and international capital markets. Accordingly, we are subject to Çroll over,É or refinancing, risk on our

outstanding debt. 

Our debt securities are actively traded in the over-the-counter market. We have a diversified funding base of domestic and

international investors. Purchasers of our debt securities are geographically diversified and include fund managers,

commercial banks, pension funds, insurance companies, foreign central banks, corporations, state and local governments,

and other municipal authorities. We compete for low-cost debt funding with institutions that hold mortgage portfolios, including

Freddie Mac and the FHLBs.

Our debt funding needs and debt funding activity may vary from period to period depending on market conditions and are

influenced by anticipated liquidity needs, our capital management, the size of our retained mortgage portfolio and our dividend

payment obligations to Treasury. See ÇRetained Mortgage PortfolioÉ for information about our retained mortgage portfolio and

limits on its size.

Pursuant to the terms of the senior preferred stock purchase agreement, we are prohibited from issuing debt without the prior

consent of Treasury if it would result in our aggregate indebtedness exceeding our outstanding debt limit. Prior to 2019, our

debt limit under the senior preferred stock purchase agreement was subject to annual reductions. However, beginning in 2019,

the limit is fixed at $300 billion. As of December 31, 2019, our aggregate indebtedness totaled $182.2 billion. The calculation of

our indebtedness for purposes of complying with our debt limit reflects the unpaid principal balance and excludes debt basis

adjustments and debt of consolidated trusts. Because of our debt limit, we may be restricted in the amount of debt we issue to

fund our operations.

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

contractual maturity. The total amount of debt of Fannie Mae decreased during 2019 primarily due to the decline in the size of

our retained mortgage portfolio. We did not issue new debt to replace all of our debt that paid off during 2019. 

Short-term debt

Long-term debt maturing within one year

Long-term debt, excluding portion maturing within

one year

Debt of Fannie Mae (1)

(Dollars in billions)

12/31/2018 12/31/2019

$24.9 $26.7

$61.6 $47.4

$145.6

$232.1

$108.1

$182.2

Selected Debt Information

As of December 31,

2018 2019

(Dollars in billions)

Selected Weighted-Average Interest

Rates(1)

Interest rate on short-term debt 2.29% 1.56%

Interest rate on long-term debt, including

portion maturing within one year 2.83% 2.86%

Interest rate on callable long-term debt 2.95% 3.39%

Selected Maturity Data

Weighted-average maturity of debt

maturing within one year (in days) 163 137

Weighted-average maturity of debt

maturing in more than one year (in

months) 63 66

Other Data

Outstanding callable debt $ 64.3 $ 38.5

Connecticut Avenue Securities debt(2) $ 25.6 $ 21.4

MD&A | Liquidity and Capital Management

Fannie Mae 2019 Form 10-K 108
(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 $28 million and $432 million as of December 31, 2019 and

2018, respectively.

(2) Represents CAS debt issued prior to November 2018. See ÇSingle-Family BusinessÜSingle-Family Mortgage Credit Risk ManagementÜ

Single-Family Credit Enhancement and Transfer of Mortgage Credit RiskÜCredit Risk Transfer TransactionsÉ 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, proceeds from our mortgage asset sales, and cash from business operations.

For information on the maturity profile of our outstanding long-term debt for each of the years 2020 through 2024 and

thereafter, see ÇNote 7, Short-Term and Long-Term Debt.É

Debt Funding Activity

The table below displays the activity in debt of Fannie Mae. This activity excludes the debt of consolidated trusts and intraday

loans. Activity for short-term debt of Fannie Mae relates to borrowings with an original contractual maturity of one year or less

while activity for long-term debt of Fannie Mae relates to borrowings with an original contractual maturity of greater than one

year. The reported amounts of debt issued and paid off during each period represent the face amount of the debt at issuance

and redemption. 

The increase in short-term debt issued and paid off during 2019 compared with 2018 was primarily driven by higher utilization

of short-term notes with overnight maturities throughout 2019. The increase in long-term debt that was paid off in 2019 was

due to an increase in maturities of non-callable debt over the prior year. The decrease in our debt issued and paid off during

2018 compared with 2017 was primarily driven by the decline in the size of our retained mortgage portfolio. We did not issue

new debt to replace all of our debt that paid off during 2019 and 2018.

Activity in Debt of Fannie Mae

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Issued during the period:

Short-term:

Amount $ 562,189 $ 540,686 $ 707,834

Weighted-average interest rate 2.13% 1.63% 0.85%

Long-term:(1) 

Amount $ 21,545 $ 22,014 $ 30,746

Weighted-average interest rate 2.20% 3.07% 2.47%

Total issued:

Amount $ 583,734 $ 562,700 $ 738,580

Weighted-average interest rate 2.13% 1.68% 0.92%

Paid off during the period:(2)

Short-term:

Amount $ 559,938 $ 549,184 $ 709,446

Weighted-average interest rate 1.99% 1.51% 0.79%

Long-term:(1) 

Amount $ 73,547 $ 58,497 $ 80,513

Weighted-average interest rate 2.38% 1.48% 2.44%

Total paid off:

Amount $ 633,485 $ 607,681 $ 789,959

Weighted-average interest rate 2.04% 1.51% 0.96%

(1) Includes credit risk-sharing securities issued as CAS debt prior to November 2018. For information on our credit risk transfer transactions,

see ÇSingle-Family BusinessÜSingle-Family Mortgage Credit Risk ManagementÜSingle-Family Credit Enhancement and Transfer of

Mortgage Credit RiskÜCredit Risk Transfer Transactions.É

(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 2019 Form 10-K 109
Many factors could influence our debt activity, affect the amount, mix and cost of our debt funding, reduce demand for our debt

securities, increase our liquidity or roll over risk, or otherwise have a material adverse impact on our liquidity, including: 

Ö changes or perceived changes in federal government support of our business or our debt securities; 

Ö changes in our status as a government-sponsored enterprise; 

Ö future changes or disruptions in the financial markets; 

Ö a change or perceived change in the creditworthiness of the U.S. government, due to our reliance on the U.S.

governmentÑs support; or 

Ö a downgrade in our credit ratings. 

We believe that continued federal government support of our business, as well as our status as a government-sponsored

enterprise, are essential to maintaining our access to debt funding. See ÇRisk FactorsÉ for a discussion of the risks we face

relating to: 

Ö the uncertain future of our company; 

Ö our reliance on the issuance of debt securities to obtain funds for our operations and the relative cost to obtain these

funds;

Ö our liquidity contingency plans; 

Ö our credit ratings; and

Ö other factors that could adversely affect our ability to obtain adequate debt funding or otherwise negatively impact our

liquidity, including the factors listed above.

Also see ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance ReformÜHousing Finance ReformÉ for a

description of recent actions and statements relating to housing finance reform by the Administration, Congress and FHFA. 

The table below displays additional information for each category of our short-term debt based on original contractual terms.

Outstanding Short-Term Debt(1)

2019 2018 2017

(Dollars in millions)

Federal funds purchased and securities sold under agreements to repurchase:

Amount outstanding, as of December 31 $ 478 $ Ü $ Ü

Weighted-average interest rate 1.67% Ü% Ü%

Average outstanding, during the year(2) $ 234 $ 83 $ 106

Weighted-average interest rate 1.95% 1.08% 0.34%

Maximum outstanding, during the year(3) $ 1,726 $ 1,500 $ 1,138

Total short-term debt of Fannie Mae:

Amount outstanding, as of December 31 $ 26,662 $ 24,896 $ 33,377

Weighted-average interest rate 1.56% 2.29% 1.18%

Average outstanding, during the year(2) $ 18,547 $ 23,237 $ 29,545

Weighted-average interest rate 2.08% 1.73% 0.85%

Maximum outstanding, during the year(3) $ 33,461 $ 37,446 $ 39,317

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Average amount outstanding has been calculated using daily balances.

(3) Maximum outstanding represents the highest daily outstanding balance during the year.

MD&A | Liquidity and Capital Management

Fannie Mae 2019 Form 10-K 110

Contractual Obligations

The table below displays, by remaining maturity, our future cash obligations related to our long-term debt, announced calls,

operating leases, purchase obligations and other material non-cancelable contractual obligations. This table excludes certain

contractual obligation transactions that could significantly affect our short- and long-term liquidity and capital resource needs.

These transactions, which are listed below, are excluded because they involve future cash payments that are considered

uncertain and may vary based upon future conditions.

Ö Future payments of principal and interest related to debt securities of consolidated trusts;
Ö Future payments associated with our CIRT, CAS REMIC, and CAS CLN transactions, because the amount and timing

of such payments are contingent upon the occurrence of future credit and prepayment events on the related

reference pool of mortgage loans and are therefore uncertain; 

Ö Future payments related to our interest-rate risk management derivatives that may require cash settlement in future

periods, because the amount and timing of such payments are dependent upon items such as changes in interest

rates; and

Ö Future payments on our obligations to stand ready to perform under our guarantees relating to Fannie Mae MBS and

other financial guarantees, including Fannie Mae commingled structured securities, because the amount and timing

of payments under these arrangements are generally contingent upon the occurrence of future events. For a

description of the amount of our on- and off-balance sheet Fannie Mae MBS and other financial guarantees as of

December 31, 2019, see ÇGuaranty Book of BusinessÉ and ÇOff-Balance Sheet Arrangements.É

Contractual Obligations

Payment Due by Period as of December 31, 2019

Total

Less

than 1

Year

1 to < 3

Years

3 to 5

Years

More

than 5

Years

(Dollars in millions)

Long-term debt obligations(1) $ 155,585 $ 47,427 $ 44,612 $ 19,645 $ 43,901

Contractual interest on long-term obligations 28,286 4,293 6,563 5,488 11,942

Operating lease obligations(2) 744 59 111 99 475

Purchase obligations:

Mortgage commitments(3) 74,283 74,283 Ü Ü Ü

Other purchase obligations(4) 155 109 46 Ü Ü

Other liabilities reflected in our consolidated balance sheets

(5) 1,559 960 556 20 23

Total contractual obligations $ 260,612 $ 127,131 $ 51,888 $ 25,252 $ 56,341

(1) Represents the carrying amount of our long-term debt assuming payments are made in full at maturity. Includes the effects of discounts,

premiums and other cost basis adjustments.

(2) Includes amounts related to office buildings and equipment leases.

(3) Includes on- and off-balance sheet commitments to purchase mortgage loans and mortgage-related securities.

(4) Includes unconditional purchase obligations that are subject to a cancellation penalty for certain telecommunications services, software

and computer services, and other agreements.

(5) Includes cash received as collateral and future cash payments due under our contractual obligations to fund low-income housing tax credit

partnership investments and other partnerships that are unconditional and legally binding, which are included in our consolidated balance

sheets under ÇOther liabilities.É 

Equity Funding

As a result of the covenants under the senior preferred stock purchase agreement, TreasuryÑs ownership of the warrant to

purchase up to 79.9% of the total shares of our common stock outstanding and the uncertainty regarding our future, we

effectively no longer have access to equity funding except through draws under the senior preferred stock purchase

agreement. For a description of the funding available and the covenants under the senior preferred stock purchase agreement,

see ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance ReformÜTreasury Agreements.É

MD&A | Liquidity and Capital Management

Fannie Mae 2019 Form 10-K 111
Other Investments Portfolio

The chart below displays information on the composition of our other investments portfolio. Consistent with our liquidity

framework and practices, we hold highly liquid investments in our other investments portfolio, which we use to manage our

exposure to liquidity disruptions. 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 equivalentsá

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

U.S. Treasury securities

12/31/2017 12/31/2018 12/31/2019

$32.1

$25.6 $21.2

$19.5 $32.9

$13.6

$29.2

$80.8

$35.5

$94.0

$39.5

$74.3

(1) Cash equivalents are comprised of overnight repurchase agreements and U.S. Treasuries that have a maturity at the date of acquisition of

three months or less.

MD&A | Liquidity and Capital Management

Fannie Mae 2019 Form 10-K 112

Credit Ratings

Our credit ratings from the major credit ratings organizations, as well as the credit ratings of the U.S. government, are primary

factors that could affect our ability to access the capital markets and our cost of funds. In addition, our credit ratings are

important when we seek to engage in certain long-term transactions, such as derivative transactions. S&P, MoodyÑs and Fitch

have all indicated that, if they were to lower the sovereign credit ratings on the U.S., they would likely lower their ratings on the

debt of Fannie Mae and certain other government-related entities. In addition, actions by governmental entities impacting

TreasuryÑs support for our business or our debt securities could adversely affect the credit ratings of our senior unsecured

debt. See ÇRisk FactorsÜLiquidity and Funding RiskÉ for a discussion of the risks to our business relating to a decrease in our

credit ratings, which could include an increase in our borrowing costs, limits on our ability to issue debt, and additional

collateral requirements under our derivatives contracts.

The table below displays the credit ratings issued by the three major credit rating agencies. 

Fannie Mae Credit Ratings(1)

December 31, 2019

S&P MoodyÜs Fitch

Long-term senior debt AA+ Aaa AAA

Short-term senior debt A-1+ P-1 F1+

Preferred stock D Ca C/RR6

Outlook Stable Stable Stable

(for Long-Term Senior Debt) (for Long-Term Senior Debt

and Preferred Stock)

(for AAA rated Long-Term

Issuer Default Ratings)
(1) As of December 31, 2019, all outstanding subordinated debt has matured. As a result, there are no longer ratings on that instrument. One

Rating Agency, Moody's Investors Service, maintains a rating on the Subordinate Shelf of (P)Aa2.

We have no covenants in our existing debt agreements that would be violated by a downgrade in our credit ratings. However,

in connection with certain derivatives counterparties, we could be required to provide additional collateral to or terminate

transactions with certain counterparties in the event that our senior unsecured debt ratings are downgraded.

MD&A | Liquidity and Capital Management

Fannie Mae 2019 Form 10-K 113

Cash Flows

Year Ended December 31, 2019. Cash, cash equivalents and restricted cash increased from $49.4 billion as of December 31,

2018 to $61.4 billion as of December 31, 2019. The increase was primarily driven by cash inflows from (1) proceeds from

repayments and sales of loans, (2) the sale of Fannie Mae MBS to third parties, and (3) the net decrease in federal funds sold

and securities purchased under agreements to resell or similar agreements.

Partially offsetting these cash inflows were cash outflows primarily from (1) payments on outstanding debt of consolidated

trusts, (2) purchases of loans held for investment, and (3) the redemption of funding debt, which outpaced issuances due to

lower funding needs.

Year Ended December 31, 2018. Cash, cash equivalents and restricted cash decreased from $60.3 billion as of December 31,

2017 to $49.4 billion as of December 31, 2018. The decrease was primarily driven by cash outflows from (1) the purchase of

Fannie Mae MBS from third parties, (2) the redemption of funding debt, which outpaced issuances due to lower funding needs,

(3) the acquisition of delinquent loans out of our MBS trusts, and (4) the net increase in federal funds sold and securities

purchased under agreements to resell or similar arrangements.

Partially offsetting these cash outflows were primarily cash inflows from (1) the sale of Fannie Mae MBS to third parties,

(2)Äproceeds from repayments and sales of loans of Fannie Mae, and (3) the sale of our REO inventory.

Capital Management

Regulatory Capital

FHFA stated that, during conservatorship, our existing statutory and FHFA-directed regulatory capital requirements will not be

binding and that FHFA will not issue quarterly capital classifications. We report GAAP net worth and the deficit of our core

capital over statutory minimum capital in our periodic reports on Form 10-Q and Form 10-K. As we discuss in ÇBusinessÜ

Charter Act and RegulationÜGSE Act and Other LegislationÜCapital,É we expect FHFA, in its capacity as our regulator, to

propose new capital requirements for the GSEs this year, which would be suspended while we remain in conservatorship.

Capital Activity

Under the terms governing the senior preferred stock, effective with the third quarter 2019 dividend period, we will not owe

dividends to Treasury until we have accumulated over $25 billion in net worth; and the aggregate liquidation preference of the

senior preferred stock increases at the end of each quarter by the increase, if any, in our net worth during the immediately prior

fiscal quarter, until the liquidation preference has increased by $22 billion pursuant to this provision. Accordingly, no dividends

were payable to Treasury for the fourth quarter of 2019 and none are payable for the first quarter of 2020. Also, the aggregate

liquidation preference of the senior preferred stock increased to $131.2 billion as of December 31, 2019 and will further

increase to $135.4 billion as of March 31, 2020. As of December 31, 2019, our net worth was $14.6 billion.

See ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance ReformÜTreasury AgreementsÉ for more

information on the terms of our senior preferred stock and our senior preferred stock purchase agreement with Treasury. See

ÇRisk FactorsÜGSE and Conservatorship RiskÉ for a discussion of the risks associated with the limit on our capital reserves.

Off-Balance Sheet Arrangements

We enter into certain business arrangements to facilitate our statutory purpose of providing liquidity to the secondary mortgage

market and to reduce our exposure to interest rate fluctuations. Some of these arrangements are not recorded in our

consolidated balance sheets or may be recorded in amounts different from the full contract or notional amount of the

transaction, depending on the nature or structure of, and the accounting required to be applied to, the arrangement. These

arrangements are commonly referred to as Çoff-balance sheet arrangementsÉ and expose us to potential losses in excess of

the amounts recorded in our consolidated balance sheets.

Our off-balance sheet arrangements result primarily from the following:

Ö our guaranty of mortgage loan securitization and resecuritization transactions, and other guaranty commitments over

which we do not have control;

Ö liquidity support transactions; and

Ö partnership interests.
Since we began issuing UMBS in June 2019, some of the securities we issue are structured securities backed, in whole or in

part, by Freddie Mac securities. When we issue a structured security, we provide a guaranty that we will supplement amounts

received from the underlying mortgage-related security as required to permit timely payment of principal and interest on the

certificates related to the resecuritization trust. Accordingly, when we issue structured securities backed in whole or in part by

Freddie Mac securities, we extend our guaranty to the underlying Freddie Mac security included in the structured security. Our

issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet

exposure as we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power

to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which

constitute control of these securitization trusts, we do not consolidate these trusts in our consolidated balance sheet, giving

rise to off-balance sheet exposure. 

The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest

that we retain, and other financial guarantees was $68.6 billion as of December 31, 2019. Approximately $37.8 billion of this

amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers.

Additionally, off-balance sheet exposure includes approximately $12.3 billion of the unpaid principal balance of Freddie Mac

securities backing Fannie Mae-issued REMICs; however, a portion of these Freddie Mac securities may be backed in whole or

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

is likely lower. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured

securities backed by Freddie Mac securities in the future. The total amount of our off-balance sheet exposure related to

unconsolidated Fannie Mae MBS and other financial guarantees was $21.1 billion as of December 31, 2018. We did not have

any Freddie Mac-issued UMBS backing Fannie Mae structured securities as of December 31, 2018. See ÇNote 6, Financial

GuaranteesÉ for more information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie

Mac securities.

We also have off-balance sheet exposure to losses from liquidity support transactions and partnership interests.

Ö Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing revenue

bonds totaled $7.2 billion as of December 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.

Ö We make investments in various limited partnerships and similar legal entities, which consist of low-income housing

tax credit investments, community investments and other entities. When we do not have a controlling financial

interest in those entities, our consolidated balance sheets reflect only our investment rather than the full amount of

the partnershipÑs assets and liabilities. See ÇNote 2, Consolidations and Transfers of Financial AssetsÜ

Unconsolidated VIEsÉ for information regarding our limited partnerships and similar legal entities.

MD&A | Off-Balance Sheet Arrangements

Fannie Mae 2019 Form 10-K 114

Risk Management

We manage the risks that arise from our business activities through our enterprise risk management program. Our risk

management activities are based on principles aligned with the principles set forth by the Committee of Sponsoring

Organizations of the Treadway CommissionÑs (ÇCOSOÉ) Enterprise Risk Management (ÇERMÉ): Integrating with Strategy and

Performance framework. 

We are exposed to the following major risk categories:

Ö Credit Risk.ÄCredit risk is the risk of loss arising from another partyÑs failure to meet its contractual obligations. For

financial securities or instruments, credit risk is the risk of not receiving principal, interest or other financial obligation

on a timely basis. Our credit risk exposure exists primarily in connection with our guaranty book of business and our

institutional counterparties.

Ö Market Risk. Market risk is the risk of loss resulting from changes in the economic environment. Market risk arises from

fluctuations in interest rates, exchange rates, and other market rates and prices. Market risk includes interest-rate

risk, which is the risk that movements in interest rates will adversely affect the value of our assets or liabilities or our

future earnings. Market risk also includes spread risk, which can result in losses from changes in the spreads

between our mortgage assets and our debt and derivatives we use to hedge our position. 

Ö Liquidity and Funding Risk. Liquidity and funding risk is the risk to our financial condition and resilience arising from

an inability to meet obligations when they come due, including the risk associated with the inability to access funding

sources or manage fluctuations in funding levels.

Ö Operational Risk. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and

systems, or disruptions from external events. Operational risk includes cyber/information security risk, third-party risk

and model risk.
We are also exposed to these additional risk categories:

Ö Strategic Risk. Strategic risk is the risk of loss resulting from poor business decisions, poor implementation of business

decisions or the failure to respond appropriately to changes in the industry or external environment.

Ö Compliance Risk. Compliance risk is the risk to our company, including the risk of exposure to adverse legal

proceedings, arising from violations of laws or regulations; from nonconformance with requirements or guidance from

a regulator, MBS trust terms or disclosure obligations, or our ethical standards or Code of Conduct. 

Ç Reputational Risk. Reputational risk is the risk that substantial negative publicity may cause a decline in public

perception of us, a decline in our customer base, costly litigation, revenue reductions, or losses.

For a more detailed discussion of these and other risks that could materially adversely affect our business, results of

operations, financial condition, liquidity and net worth, see ÇRisk Factors.É

Components of Risk Management

Our risk management program is comprised of five inter-related components that are designed to work together as a

comprehensive risk management system aimed at enhancing our performance.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 115
Risk Management Governance

We manage risk by using the industry standard Çthree lines of defenseÉ structure. Our Board of Directors and managementlevel risk committees are also integral to our risk management program.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 116

Mortgage Credit Risk Management

Overview

Mortgage credit risk arises from the risk of loss resulting from the failure of a borrower to make required mortgage payments.

We are exposed to credit risk on our book of business because we either hold mortgage assets, have issued a guaranty in

connection with the creation of Fannie Mae MBS backed by mortgage assets or have provided other credit enhancements on

mortgage assets. For a discussion of our single-family credit risk management, see ÇSingle-Family BusinessÜSingle-Family

Mortgage Credit Risk Management.É For a discussion of our multifamily mortgage credit risk management, see ÇMultifamily

BusinessÜMultifamily Mortgage Credit Risk Management.É

Weather, Climate and Natural Disaster Risk Management

Major weather events or other natural disasters expose us to credit risk in a variety of ways, including by damaging properties

that secure mortgage loans in our book of business and by negatively impacting the ability of borrowers to make payments on

their mortgage loans. The amount of losses we incur as a result of a major weather event or natural disaster depends

significantly on the extent to which the resulting property damage is covered by hazard or flood insurance and whether

borrowers are able and willing to continue making payments on their mortgages. The amount of losses we incur can also be

affected by the extent that a disaster impacts the region, especially if it depresses the local economy, and by the availability of

federal, state, or local assistance to borrowers affected by a disaster.

For multifamily DUS loans, our DUS model results in lenders sharing the losses resulting from a disaster. However, other

forms of credit enhancement and risk transfer we establish typically have not been designed to reduce our weather and

disaster-related losses. For example, our credit risk transfer transactions are not designed to shield us from all losses because
we retain a portion of the risk of loss, including all or a portion of the first loss risk in most transactions. If aggregate losses

from future disasters exceed the amount of our retained first loss position, our credit risk transfer transactions will cover

disaster-related losses, similar to other credit losses. As a result, to the extent we transfer a greater portion of the risk of loss in

future transactions, or in the event that our potential losses from future disasters are greater than they have been for past

disasters, our credit risk transfer transactions may reduce the amount of losses we incur. In addition, mortgage insurance does

not protect us from default risk for properties that suffer damages not covered by the hazard or flood insurance we require.

In general, we require borrowers to obtain property insurance to cover the risk of damage to their property resulting from

hazards such as fire, wind and, for properties in areas identified by FEMA as Special Flood Hazard Areas, flooding. At the time

of origination, a borrower is required to provide proof of such insurance, and our servicers have the right and the obligation to

obtain such insurance, at the borrowerÑs cost, if the borrower allows the policy to lapse. We do not generally require property

insurance to cover damages from flooding in areas outside a Special Flood Hazard Area, or to cover earthquake damage to

single-family properties outside of Puerto Rico and to multifamily properties unless required by a seismic-risk assessment.

In the event of a natural or other disaster, our servicers work with affected borrowers to develop a plan that addresses the

borrowerÑs specific situation. Depending on the circumstances, the plan may include one or more of the following: a payment

forbearance plan; a repayment or reinstatement plan; loan modification; coordination with insurance companies and

administration of insurance proceeds; and, if necessary, loss mitigation or other property non-retention options. We have also

established Fannie MaeÑs Disaster Response NetworkTM to offer our eligible single-family borrowers free support from HUDapproved housing advisors, including help in developing a recovery assessment and action plan, filing claims, working with

mortgage servicers, and identifying and navigating sources of federal, state and local assistance. These activities are

designed to assist borrowers affected by disasters and thereby help reduce our losses, and we continue to evaluate their

impact and seek new options and resources to deploy in response to disasters.

Recent years have seen frequent and severe natural disasters in the U.S., including hurricanes, wildfires and floods. There are

concerns that the frequency and severity of major weather-related events is indicative of changing weather patterns and that

these patterns could persist or intensify. Population growth and an increase in people living in high-risk areas, such as coastal

areas vulnerable to severe storms and flooding, has also increased the impact of these events. 

We recognize that the increased frequency, severity and unpredictability of major natural disasters poses risks for all

stakeholders in the housing system, including borrowers, renters, lenders, investors, insurers, and us. We are exploring the

role we, along with FHFA and others, can play in helping to address some of these risks. For example, we are currently

examining flood risk and insurance beyond our current requirements and considering how we can help develop solutions to

address this risk, especially solutions that would not merely transfer risk away from us, but that would reduce the risks for all

involved. Developing solutions to these challenges is complicated by the range and diversity of affected stakeholders, the

possible need for legislative or regulatory action, industry insurance capacity, and the need to balance risk mitigation,

affordability and sustainability. 

See ÇRisk FactorsÜCredit RiskÉ for additional information on the risks we face from the occurrence of major natural or other

disasters, including additional ways that such events could negatively impact our business, results and liquidity.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 117

Institutional Counterparty Credit Risk Management

Overview

Institutional counterparty credit risk is the risk of loss resulting from the failure of an institutional counterparty to fulfill its

contractual obligations to us. Our primary exposure to institutional counterparty credit risk exists with our:

Ö credit guarantors, including mortgage insurers, reinsurers and multifamily lenders with risk sharing arrangements;

Ö mortgage sellers and servicers;

Ö financial institutions that issue investments included in our other investments portfolio; and

Ö derivatives counterparties.

We routinely enter into a high volume of transactions with counterparties in the financial services industry resulting in a

significant credit concentration with respect to this industry. We also may have multiple exposures to particular counterparties,

as many of our institutional counterparties perform several types of services for us. Accordingly, if one of these counterparties

were to default on its obligations to us, it could harm our business and financial results in a variety of ways. Our overall

objective in managing institutional counterparty credit risk is to maintain individual and portfolio-level counterparty exposures

within acceptable ranges based on our risk-based rating system. We achieve this objective through the following: 

Ö establishment and observance of counterparty eligibility standards appropriate to each exposure type and level;

Ö establishment of risk limits; 

Ö requiring collateralization of exposures where appropriate; and 

Ö exposure monitoring and management.
See ÇRisk FactorsÜCredit RiskÉ for additional discussion of the risks to our business if one or more of our institutional

counterparties fails to fulfill their contractual obligations to us. 

Establishment and Observance of Counterparty Eligibility Standards

The institutions with which we do business vary in size, complexity and geographic footprint. Because of this, counterparty

eligibility criteria vary depending upon the type and magnitude of the risk exposure incurred. We use a risk-based approach to

assess the credit risk of our counterparties through regular examination of their financial statements, confidential

communication with the management of those counterparties and regular monitoring of publicly available credit rating

information. This and other information is used to develop proprietary credit rating metrics that we use to assess credit quality.

Factors including corporate or third-party support or guaranties, our knowledge of the counterparty and its management,

reputation, quality of operations and experience are also important in determining the initial and continuing eligibility of a

counterparty. 

Establishment of Risk Limits 

Institutions are assigned a risk limit to ensure that our risk exposure is maintained at a level appropriate for the institutionÑs

credit assessment and the time horizon for the exposure, as well as to diversify exposure so that we adequately manage our

concentration risk. A corporate risk limit is first established at the counterparty level for the aggregate of all activity and then is

divided among our individual business units. Our business units may further subdivide limits among products or activities.

Collateralization of Exposures 

We may require collateral, letters of credit or investment agreements as a condition to approving exposure to a counterparty.

Collateral requirements are determined after a comprehensive review of the credit quality and the level of risk exposure of

each counterparty. We may require that a counterparty post collateral in the event of an adverse event such as a ratings

downgrade. Collateral requirements are monitored and adjusted daily.

Exposure Monitoring and Management

The risk management functions of the individual business units are responsible for managing the counterparty exposures

associated with their activities within risk limits. An oversight team that reports to our Chief Risk Officer is responsible for

establishing and enforcing corporate policies and procedures regarding counterparties, establishing corporate limits, and

aggregating and reporting institutional counterparty exposure. We regularly update exposure limits for individual institutions

and communicate changes to the relevant business units. We regularly report exposures against the risk limits to the Risk

Policy and Capital Committee of the Board of Directors. 

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 118

Mortgage Insurers

We are generally required, pursuant to our charter, to obtain credit enhancements on single-family conventional mortgage

loans that we purchase or securitize with LTV ratios over 80% at the time of purchase. We use several types of credit

enhancements to manage our single-family mortgage credit risk, including primary and pool mortgage insurance coverage.

Our primary exposure associated with mortgage insurers is that they will fail to fulfill their obligations to reimburse us for claims

under our insurance policies. 

Actions we take to manage this risk include: 

Ö Maintaining financial and operational eligibility requirements that an insurer must meet to become and remain a

qualified mortgage insurer.

Ö Regularly monitoring our exposure to individual mortgage insurers and mortgage insurer credit ratings. Our

monitoring of mortgage insurers includes in-depth financial reviews and analyses of the insurersÑ portfolios and capital

adequacy under hypothetical stress scenarios.

Ö Requiring certification and supporting documentation annually from each mortgage insurer. 

Ö Performing periodic reviews of mortgage insurers to confirm compliance with eligibility requirements and to evaluate

their management, control and underwriting practices. 

In describing our mortgage insurance coverage, Çinsurance in forceÉ refers to the unpaid principal balance of single-family

loans in our conventional guaranty book of business covered under the applicable mortgage insurance policies. Our total

mortgage insurance in force was $638.8 billion, or 22% of our single-family conventional guaranty book of business, as of

December 31, 2019, compared with $598.7 billion, or 21% of our single-family conventional guaranty book of business, as of

December 31, 2018. 

ÇRisk in forceÉ refers to the 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. As of December 31, 2019, our total mortgage insurance risk in force was $163.2 billion, or 6% of our single-family

conventional guaranty book of business, compared with $152.8 billion, or 5% of our single-family conventional guaranty book

of business, as of December 31, 2018.
Our total mortgage insurance in force and risk in force excludes insurance coverage provided by federal government entities

and credit insurance obtained through CIRT deals.

The charts below display our mortgage insurer counterparties that provided approximately 10% or more of the risk in force

mortgage insurance coverage on the single-family loans in our conventional guaranty book of business. 

Mortgage Insurer Concentration(1)

As of December 31, 2018

25%

21%

18%

15%

12%

9%

As of December 31, 2019

23%

20%

18%

15%

14%

10%

Arch Capital Group Ltd. Radian Guaranty, Inc. Mortgage Guaranty Insurance Corp.

Genworth Mortgage Insurance Corp.(2) Essent Guaranty, Inc. Others

(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. Upon acquisition, Genworth Mortgage Insurance Corp. will continue to be subject to our

ongoing review and private mortgage insurer eligibility requirements.

Of our total risk in force coverage, 2% as of December 31, 2019, compared with 3% as of December 31, 2018, was held with

three mortgage insurers that are in run-off, and therefore are no longer approved to write new insurance with us. See ÇRisk

FactorsÜCredit RiskÉ for a discussion of the risks to our business of claims under our mortgage insurance policies not being

paid in full or at all, including the risks associated with our three mortgage insurance counterparties that are in run-off. 

Mortgage insurers must meet and maintain compliance with private mortgage insurer eligibility requirements (ÇPMIERsÉ) to be

eligible to write mortgage insurance on loans acquired by Fannie Mae. The PMIERs are designed to ensure that mortgage

insurers have sufficient liquid assets to pay all claims under a hypothetical future stress scenario. At FHFAÑs direction, we and

Freddie Mac published revised PMIERs in September 2018, which became effective immediately for new mortgage insurer

applicants and in March 2019 for existing approved private mortgage insurers. The revised PMIERs changed the PMIERs riskbased asset requirements, enhanced the treatment of approved risk transfer transactions and adjusted risk-transfer credit

arising from counterparty risk associated with reinsurance transactions. 

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 119

Reinsurers

We use CIRT deals to transfer credit risk on a pool of loans to an insurance provider that retains the risk, or to an insurance

provider that simultaneously cedes all of its risk to one or more reinsurers. In CIRT transactions, we select the insurance

providers and approve the allocation of coverage that may be simultaneously transferred to reinsurers by a direct provider of

our CIRT insurance coverage.ÄWe take certain steps to increase the likelihood that we will recover on the claims we file with

the insurers, including the following:

Ö In our approval and selection of CIRT insurers and reinsurers, we take into account the financial strength of those

companies and the concentration risk that we have with those counterparties. 

Ö We monitor the financial strength of CIRT insurers and reinsurers to confirm compliance with our requirements and to

minimize potential exposure. Changes in the financial strength of an insurer or reinsurer may impact our future

allocation of new CIRT insurance coverage to those providers. In addition, a material deterioration of the financial

strength of a CIRT insurer or reinsurer may permit us to terminate existing CIRT coverage pursuant to terms of the

CIRT insurance policy.
Ö We require a portion of the insurersÑ or reinsurersÑ obligations in a CIRT transaction to be collateralized with highlyrated liquid assets held in a trust account. The required amount of collateral is initially determined according to the

ratings of the insurer or reinsurer. Contractual provisions require additional collateral to be posted in the event of

adverse developments with the counterparty, such as a ratings downgrade.

The charts below display the concentration of our credit risk exposure to our top five CIRT counterparties, measured by

maximum liability to us, excluding the benefit of collateral we hold to secure the counterpartiesÑ obligations. 

CIRT Counterparty Concentration

As of December 31, 2018

47%

53%

As of December 31, 2019

42%

58%

Top 5 Others

Ö As of December 31, 2019, our CIRT counterparties had a maximum liability to us of $9.9 billion.

Ö As of December 31, 2019, $2.9 billion in liquid assets securing CIRT counterpartiesÑ obligations were held in trust

accounts. 

Ö Our top five CIRT counterparties had a maximum liability to us of $4.1 billion as of December 31, 2019, compared

with $3.7 billion as of December 31, 2018.

Our CIRT counterparty credit concentration decreased in 2019 as we attracted and expanded participation with additional

approved reinsurers that wrote us new CIRT coverage. For information on our credit risk transfer transactions, see ÇSingleFamily BusinessÜSingle-Family Mortgage Credit Risk ManagementÜSingle-Family Credit Enhancement and Transfer of

Mortgage Credit RiskÜSingle-Family Credit Risk Transfer TransactionsÉ and ÇMultifamily BusinessÜMultifamily Mortgage

Credit Risk ManagementÜTransfer of Multifamily Mortgage Credit Risk.É 

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 120

Multifamily Lenders with Risk Sharing

We enter into risk sharing agreements with multifamily lenders, primarily through the DUS program, pursuant to which the

lenders agree to bear all or some portion of the credit losses on the covered loans. Our maximum potential loss recovery from

lenders under risk sharing agreements on multifamily loans was $81.4 billion as of December 31, 2019, compared with $71.8

billion as of December 31, 2018. As of both December 31, 2019 and December 31, 2018, 44% of our maximum potential loss

recovery on multifamily loans was from four DUS lenders.

As noted above in ÇMultifamily BusinessÜMultifamily Mortgage Credit Risk ManagementÜTransfer of Multifamily Mortgage

Credit Risk,É our primary multifamily delivery channel is our DUS program, which is comprised of lenders that range from large

depositories to independent non-bank financial institutions. As of December 31, 2019, approximately 37% of the unpaid

principal balance of loans in our multifamily guaranty book of business serviced by our DUS lenders was from institutions with

an external investment grade credit rating or a guaranty from an affiliate with an external investment grade credit rating,

compared with approximately 33% as of December 31, 2018. Given the recourse nature of the DUS program, DUS lenders

are bound by eligibility standards that dictate, among other items, minimum capital and liquidity levels, and the posting of

collateral at a highly rated custodian to secure a portion of the lendersÑ future obligations. We actively monitor the financial

condition of these lenders to help ensure the level of risk remains within our standards and to ensure required capital levels

are maintained and are in alignment with actual and modeled loss projections. 
Mortgage Servicers and Sellers

Mortgage Servicers

The primary risk associated with mortgage servicers that service the loans in our guaranty book of business is that they will fail

to fulfill their servicing obligations. See ÇSingle-Family BusinessÜSingle-Family Primary Business ActivitiesÜSingle-Family

Mortgage ServicingÉ and ÇMultifamily BusinessÜMultifamily Primary Business ActivitiesÜMultifamily Mortgage ServicingÉ for

more discussion on the services performed by our mortgage servicers. 

A servicing contract breach could result in credit losses for us or could cause us to incur the cost of finding a replacement

servicer. We likely would incur costs and potential increases in servicing fees and could also face operational risks if we

replace a mortgage servicer. If a mortgage servicer defaults, it could result in a temporary disruption in servicing and loss

mitigation activities relating to the loans serviced by that mortgage servicer, particularly if there is a loss of experienced

servicing personnel. See ÇRisk FactorsÜCredit RiskÉ for a discussion of additional risks to our business and financial results

associated with mortgage servicers. 

We mitigate these risks in several ways, including: 

Ö establishing minimum standards and financial requirements for our servicers;

Ö monitoring financial and portfolio performance as compared with peers and internal benchmarks; and

Ö 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:

Ö require a guaranty of obligations by higher-rated entities;

Ö transfer exposure to third parties;

Ö require collateral;

Ö establish more stringent financial requirements;

Ö work on-site with underperforming major servicers to improve operational processes; and

Ö suspend or terminate the selling and servicing relationship if deemed necessary.

A large portion of our single-family guaranty book is serviced by non-depository servicers, particularly our delinquent singlefamily 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 charts below display 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.

Single-Family Mortgage Servicer Concentration

As of December 31, 2018

34%

22%

44%

As of December 31, 2019

32%

27%

41%

Top 5 depository servicers Top 5 non-depository servicers Others

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 121
Ö As of December 31, 2019, Wells Fargo Bank, N.A., together with its affiliates, serviced approximately 17% of our

single-family guaranty book of business, compared with 18% as of December 31, 2018.

The charts below display the percentage of our multifamily guaranty book of business serviced by our top five multifamily

mortgage servicers.

Multifamily Mortgage Servicer Concentration

As of December 31, 2018

48%

52%

As of December 31, 2019

48%

52%

Top 5 Others

Ö As of December 31, 2019 and 2018, Wells Fargo Bank, N.A., together with its affiliates, and Walker & Dunlop, LLC

each serviced over 10% of our multifamily guaranty book of business.

Repurchase Requests

Mortgage sellers and servicers may not meet the terms of their repurchase obligations, and we may be unable to recover on

all outstanding loan repurchase obligations resulting from their breaches of contractual obligations. In addition, we acquire a

portion of our business volume directly from non-depository and smaller depository financial institutions that may not have the

same financial strength or operational capacity as our largest mortgage seller counterparties. Failure by a significant mortgage

seller or servicer, or a number of mortgage sellers or servicers, to fulfill repurchase obligations to us could result in an increase

in our credit losses and credit-related expense, and have an adverse effect on our results of operations and financial condition.

See ÇSingle-Family BusinessÜSingle-Family Mortgage Credit Risk ManagementÜSingle-Family Acquisition and Servicing

Policies and Underwriting and Servicing StandardsÜRepurchase Requests and Representation and Warranty Framework,É for

additional information regarding repurchase requests.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 122

Counterparty Credit Exposure of Investments Held in our Other Investments

Portfolio

The primary credit exposure associated with investments held in our other investments portfolio is that issuers will not repay

principal and interest in accordance with the contractual terms. If one of these counterparties fails to meet its obligations to us

under the terms of the investments, it could result in financial losses to us and have a material adverse effect on our earnings,

liquidity, financial condition and net worth. We believe the risk of default is low because our other investments portfolio consists

of instruments that are broadly traded in the financial markets including: cash and cash equivalents, securities purchased

under agreements to resell or similar arrangements, and U.S. Treasury securities. 

As of December 31, 2019, our other investments portfolio totaled $74.3 billion and included $39.5 billion of U.S. Treasury

securities. As of December 31, 2018, our other investments portfolio totaled $94.0 billion and included $35.5 billion of U.S.

Treasury securities. We mitigate our risk by monitoring the credit risk position of our other investments portfolio. As of

December 31, 2019, we held $8.7 billion in overnight unsecured deposits with seven financial institutions, compared with $8.0

billion held with six financial institutions as of December 31, 2018. The short-term credit ratings for each of these financial

institutions by S&P, MoodyÑs and Fitch were at least A-1 or the MoodyÑs or Fitch equivalent of A-1. 

See ÇLiquidity and Capital ManagementÜLiquidity ManagementÜOther Investments PortfolioÉ for more information on our

other investments portfolio.
Derivative Counterparty Credit Exposure

The primary credit exposure that we have on a derivative transaction is that a counterparty will default on payments due, which

could result in us having to acquire a replacement derivative from a different counterparty at a higher cost or we may be

unable to find a suitable replacement. Our derivative counterparty credit exposure relates principally to interest-rate derivative

contracts. 

Historically, our risk management derivative transactions have been made pursuant to bilateral contracts with a specific

counterparty governed by the terms of an International Swaps and Derivatives Association Inc. master agreement. Pursuant to

regulations implementing the Dodd-Frank Act, we are required to submit certain categories of interest-rate swaps to a

derivatives clearing organization. We refer to our derivative transactions made pursuant to bilateral contracts as our OTC

derivative transactions and our derivative transactions accepted for clearing by a derivatives clearing organization as our

cleared derivative transactions.

Actions we take to manage our derivative counterparty credit exposure relating to our OTC derivative transactions include:

Ö entering into enforceable master netting arrangements with these counterparties, which allow us to net derivative

assets and liabilities with the same counterparty; and

Ö requiring counterparties to post collateral, which includes cash, U.S. Treasury securities, agency debt and agency

mortgage-related securities.

We manage our credit exposure relating to our cleared derivative transactions through enforceable master netting

arrangements. These arrangements allow us to net our exposure to cleared derivatives by clearing organization and by

clearing member.

Our cleared derivative transactions are submitted to a derivatives clearing organization on our behalf through a clearing

member of the organization. A contract accepted by a derivatives clearing organization is governed by the terms of the clearing

organizationÑs rules and arrangements between us and the clearing member of the clearing organization. As a result, we are

exposed to the institutional credit risk of both the derivatives clearing organization and the member who is acting on our behalf.

We estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value

basis, to settle at current market prices all outstanding derivative contracts in a net gain position at the counterparty level

where the right of legal offset exists.

As of December 31, 2019 and 2018, we had thirteen counterparties with which we may transact OTC derivative transactions,

all of which were subject to enforceable master netting arrangements. We had outstanding notional amounts with all of these

OTC counterparties, and the highest concentration by total outstanding notional amount was approximately 7% as of

December 31, 2019 compared with 8% as of December 31, 2018.

Total exposure represents our exposure to credit loss on derivative instruments less the cash and non-cash collateral posted

by our counterparties to us. This does not include collateral held in excess of exposure. Our total exposure to credit loss on

derivative instruments was $40 million as of December 31, 2019 and $57 million as of December 31, 2018. 

See ÇNote 8, Derivative InstrumentsÉ and ÇNote 14, Netting ArrangementsÉ for additional information on our derivative

contracts as of December 31, 2019 and 2018.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 123

Other Counterparties

Counterparty Credit Risk Exposure Arising from the Resecuritization of Freddie Mac-Issued

Securities

We began resecuritizing Freddie Mac-issued securities in June 2019 when we began issuing UMBS, which has increased our

credit risk exposure and operational risk exposure to Freddie Mac, and our risk exposure to Freddie Mac is expected to

increase as we issue more structured securities backed by Freddie Mac securities going forward. Our inclusion of Freddie Mac

securities as collateral for the structured securities that we issue increases our counterparty credit risk exposure to Freddie

Mac. In the event Freddie Mac were to fail (for credit or operational reasons) to make a payment on a payment date on

Freddie Mac securities that we had resecuritized in a Fannie Mae-issued structured security, we would be responsible for

making the entire payment on the Freddie Mac securities included in that structured security in order to make payments on

any of our outstanding single-family Fannie Mae MBS to be paid on that payment date. Accordingly, as the amount of

structured securities we issue that are backed by Freddie Mac securities grows, if Freddie Mac were to fail to meet its

obligations to us under the terms of these securities, it could have a material adverse effect on our earnings and financial

condition. We believe the risk of default by Freddie Mac is negligible because of the funding commitment available to Freddie

Mac through its senior preferred stock purchase agreement with Treasury.

As of December 31, 2019, approximately $50.1 billion in Freddie Mac securities were backing Fannie Mae-issued structured

securities. We had no such transactions or activity in 2018. See ÇBusinessÜMortgage SecuritizationsÜUniform MortgageBacked Securities, or UMBSÉ and ÇRisk FactorsÜGSE and Conservatorship RiskÉ for more information on risks associated

with our issuance of UMBS. 
Custodial Depository Institutions

Our mortgage servicer counterparties are required by our Servicing Guide to use custodial depository institutions to hold

remittances of borrower payments of principal and interest on our behalf. If a custodial depository institution were to fail while

holding such remittances, we would be exposed to risk for balances in excess of the deposit insurance protection and might

not be able to recover all of the principal and interest payments being held by the depository on our behalf, or there might be a

substantial delay in receiving these amounts. If this were to occur, we would be required to replace these amounts with our

own funds to make payments that are due to Fannie Mae MBS certificateholders. Accordingly, the insolvency of one of our

principal custodial depository institutions could result in significant financial losses to us. To mitigate these risks, our Servicing

Guide requires our mortgage servicer counterparties to use custodial depository institutions that are insured, that are rated as

Çwell capitalizedÉ by their regulator and that meet certain minimum financial ratings from third-party agencies.

Mortgage Originators, Investors and Dealers

We are routinely exposed to pre-settlement risk through the purchase or sale of mortgage loans and mortgage-related

securities with mortgage originators, mortgage investors and mortgage dealers. The risk is the possibility that the counterparty

will be unable or unwilling to either deliver mortgage assets or compensate us for the cost to cancel or replace the transaction.

We manage this risk by determining position limits with these counterparties, based upon our assessment of their

creditworthiness, and by monitoring and managing these exposures.

Debt Security Dealers

The credit risk associated with dealers that commit to place our debt securities is that they will fail to honor their contracts to

take delivery of the debt, which could result in delayed issuance of the debt through another dealer. We manage these risks by

establishing approval standards, monitoring our exposure positions and monitoring changes in the credit quality of dealers.

Document Custodians

We use third-party document custodians to provide loan document certification and custody services for some of the loans that

we purchase and securitize. In many cases, our lender customers or their affiliates also serve as document custodians for us.

Our ownership rights to the mortgage loans that we own or that back our Fannie Mae MBS could be challenged if a lender

intentionally or negligently pledges or sells the loans that we purchased or fails to obtain a release of prior liens on the loans

that we purchased, which could result in financial losses to us. When a lender or one of its affiliates acts as a document

custodian for us, the risk that our ownership interest in the loans may be adversely affected is increased, particularly in the

event the lender were to become insolvent. We mitigate these risks through legal and contractual arrangements with these

custodians that identify our ownership interest, as well as by establishing qualifying standards for document custodians and

requiring removal of the documents to our possession or to an independent third-party document custodian if we have

concerns about the solvency or competency of the document custodian.

The MERS System

The MERSâ System is an electronic registry that is widely used by participants in the mortgage finance industry to track

servicing rights and ownership of loans in the United States. A large portion of the loans we own or guarantee are registered

and tracked in the MERS System. If we are unable to use the MERS System, or if our use of the MERS System adversely

affects our ability to enforce our rights with respect to our loans registered and tracked in the MERS System, it could create

operational and legal risks for us and increase the costs and time it takes to record loans or foreclose on loans.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 124

Market Risk Management, Including Interest-Rate Risk Management

We are subject to market risk, which includes interest-rate risk and spread risk. These risks arise from our mortgage asset

investments. Interest-rate risk is the risk that movements in interest rates will adversely affect the value of our assets or

liabilities or our future earnings. Spread risk can result from changes in the spread between our mortgage assets and our debt

and derivatives we use to hedge our position. 

Interest-Rate Risk Management

Our goal is to manage market risk to be neutral to movements in interest rates and volatility, subject to model constraints and

prevailing market conditions. We employ an integrated interest-rate risk management strategy that allows for informed risk

taking within pre-defined corporate risk limits. Decisions regarding our strategy in managing interest-rate risk are based upon

our corporate market risk policy and limits that are approved by our Board of Directors. 

We have actively managed the interest-rate risk of our Çnet portfolioÉ, which is defined below, through the following techniques: 

Ö asset selection and structuring (that is, by identifying or structuring mortgage assets with attractive prepayment and

other risk characteristics); 

Ö issuing a broad range of both callable and non-callable debt instruments; and 

Ö using interest-rate derivatives. 
We have not actively managed or hedged our spread risk, which would include the impact of changes in the spread between

our mortgage assets and debt (referred to as mortgage-to-debt spreads) after we purchase mortgage assets, other than

through asset monitoring and disposition. For mortgage assets in our portfolio that we intend to hold to maturity to realize the

contractual cash flows, we accept period-to-period volatility in our financial performance attributable to changes in mortgageto-debt spreads that occur after our purchase of mortgage assets. See ÇRisk FactorsÜMarket and Industry RiskÉ for a

discussion of the risks to our business posed by changes in interest rates and changes in spreads.

We monitor current market conditions, including the interest-rate environment, to assess the impact of these conditions on

individual positions and our interest-rate risk profile. In addition to qualitative factors, we use various quantitative risk metrics in

determining the appropriate composition of our retained mortgage portfolio, our investments in non-mortgage securities and

relative mix of debt and derivatives positions in order to remain within pre-defined risk tolerance levels that we consider

acceptable. We regularly disclose two interest-rate risk metrics that estimate our interest-rate exposure: (1)Äfair value

sensitivity to changes in interest-rate levels and the slope of the yield curve and (2)Äduration gap.

The metrics used to measure our interest-rate exposure are generated using internal models. Our internal models, consistent

with standard practice for models used in our industry,Ärequire numerous assumptions. There are inherent limitations in any

methodology used to estimate the exposure to changes in market interest rates. The reliability of our prepayment estimates

and interest-rate risk metrics depends on the availability and quality of historical data for each of the types of securities in our

net portfolio. When market conditions change rapidly and dramatically, as they did during the financial market crisis of late

2008, the assumptions of our models may no longer accurately capture or reflect the changing conditions. On a continuous

basis, management makes judgments about the appropriateness of the risk assessments indicated by the models. See ÇRisk

FactorsÜMarket and Industry RiskÉ for a discussion of the risks associated with our reliance on models to manage risk.

Sources of Interest-Rate Risk Exposure

The primary source of our interest-rate risk is the composition of our net portfolio. Our net portfolio consists of our retained

mortgage portfolio assets; other investments portfolio; our outstanding debt of Fannie Mae that is used to fund the retained

mortgage portfolio assets and other investments portfolio; mortgage commitments and risk management derivatives. Risk

management derivatives along with our debt instruments are used to manage interest-rate risk.

Our performing mortgage assets consist mainly of single-family and multifamily mortgage loans. For single-family loans,

borrowers have the option to prepay at any time before the scheduled maturity date or continue paying until the stated

maturity. Given this prepayment option held by the borrower, we are exposed to uncertainty as to when or at what rate

prepayments will occur, which affects the length of time our mortgage assets will remain outstanding and the timing of the cash

flows related to these assets. This prepayment uncertainty results in a potential mismatch between the timing of receipt of

cash flows related to our assets and the timing of payment of cash flows related to our liabilities.

Changes in interest rates, as well as other factors, influence mortgage prepayment rates and duration and also affect the value

of our mortgage assets. When interest rates decrease, prepayment rates on fixed-rate mortgages generally accelerate

because borrowers usually can pay off their existing mortgages and refinance at lower rates. Accelerated prepayment rates

have the effect of shortening the duration and average life of the fixed-rate mortgage assets we hold in our net portfolio. In a

declining interest-rate environment, existing mortgage assets held in our net portfolio tend to increase in value or price

because these mortgages are likely to have higher interest rates than new mortgages, which are being originated at the thencurrent lower interest rates. Conversely, when interest rates increase, prepayment rates generally slow, which extends the

duration and average life of our mortgage assets and results in a decrease in value.

Interest-Rate Risk Management Strategy

Our goal for managing the interest-rate risk of our net portfolio is to be neutral to movements in interest rates and volatility.

This involves asset selection and structuring of our liabilities to match and offset the interest-rate characteristics of our retained

mortgage portfolio and our investments in non-mortgage securities. Our strategy consists of the following principal elements:

Ö Debt Instruments.ÄWe issue a broad range of both callable and non-callable debt instruments to manage the duration

and prepayment risk of expected cash flows of the mortgage assets we own.

Ö Derivative Instruments.ÄWe supplement our issuance of debt with derivative instruments to further reduce duration

and prepayment risks.

Ö Monitoring and Active Portfolio Rebalancing.ÄWe continually monitor our risk positions and actively rebalance our

portfolio of interest rate-sensitive financial instruments to maintain a close match between the duration of our assets

and liabilities.

Debt Instruments

Historically, the primary tool we have used to fund the purchase of mortgage assets and manage the interest-rate risk implicit

in our mortgage assets is the variety of debt instruments we issue. The debt we issue is a mix that typically consists of shortand long-term, non-callable and callable debt. The varied maturities and flexibility of these debt combinations help us in

reducing the mismatch of cash flows between assets and liabilities in order to manage the duration risk associated with an

investment in long-term fixed-rate assets. Callable debt helps us manage the prepayment risk associated with fixed-rate

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 125
mortgage assets because the duration of callable debt changes when interest rates change in a manner similar to changes in

the duration of mortgage assets. See ÇLiquidity and Capital ManagementÜLiquidity ManagementÜDebt FundingÉ for

additional information on our debt activity.

Derivative Instruments

Derivative instruments also are an integral part of our strategy in managing interest-rate risk. Derivative instruments may be

privately negotiated contracts, which are often referred to as over-the-counter derivatives, or they may be listed and traded on

an exchange. When deciding whether to use derivatives, we consider a number of factors, such as cost, efficiency, the effect

on our liquidity and results of operations, and our interest-rate risk management strategy.

The derivatives we use for interest-rate risk management purposes fall into these broad categories:

Ö Interest-rate swap contracts.ÄAn interest-rate swap is a transaction between two parties in which each agrees to

exchange, or swap, interest payments. The interest payment amounts are tied to different interest rates or indices for

a specified period of time and are generally based on a notional amount of principal. The types of interest-rate swaps

we use include pay-fixed swaps, receive-fixed swaps and basis swaps.

Ö Interest-rate option contracts.ÄThese contracts primarily include pay-fixed swaptions, receive-fixed swaptions,

cancelable swaps and interest-rate caps. A swaption is an option contract that allows us or a counterparty to enter

into a pay-fixed or receive-fixed swap at some point in the future.

Ö Foreign currency swaps.ÜThese swaps convert debt that we issue in foreign denominated currencies into U.S. dollars.

We enter into foreign currency swaps only to the extent that we hold foreign currency debt.

Ö Futures.ÜThese are standardized exchange-traded contracts that either obligate a buyer to buy an asset or a seller to

sell an asset, in each case at a predetermined date and price.ÄThe types of futures contracts we enter into include

SOFR and U.S. Treasuries.

We use interest-rate swaps, interest-rate options and futures, in combination with our issuance of debt securities, to better

match the duration of our assets with the duration of our liabilities. We are generally an end-user of derivatives; our principal

purpose in using derivatives is to manage our aggregate interest-rate risk profile within prescribed risk parameters. We

generally only use derivatives that are relatively liquid and straightforward to value. We use derivatives for four primary

purposes:

Ö as a substitute for notes and bonds that we issue in the debt markets;

Ö to achieve risk management objectives not obtainable with debt market securities;

Ö to quickly and efficiently rebalance our portfolio; and

Ö to hedge foreign currency exposure.

Decisions regarding the repositioning of our derivatives portfolio are based upon current assessments of our interest-rate risk

profile and economic conditions, including the composition of our retained mortgage portfolio, our investments in nonmortgage securities and relative mix of our debt and derivative positions, the interest-rate environment and expected trends.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 126

Measurement of Interest-Rate Risk

Below we present two quantitative metrics that provide estimates of our interest-rate risk exposure: (1)Äfair value sensitivity of

our net portfolio to changes in interest-rate levels and slope of yield curve; and (2)Äduration gap. The metrics presented are

calculated using internal models that require standard assumptions regarding interest rates and future prepayments of

principal over the remaining life of our securities. These assumptions are derived based on the characteristics of the

underlying structure of the securities and historical prepayment rates experienced at specified interest-rate levels, taking into

account current market conditions, the current mortgage rates of our existing outstanding loans, loan age and other factors.

On a continuous basis, management makes judgments about the appropriateness of the risk assessmentsÄand will make

adjustments as necessary to properly assess our interest-rate exposure and manage our interest-rate risk. The methodologies

used to calculate risk estimates are periodically changed on a prospective basis to reflect improvements in the underlying

estimation process.

Interest-Rate Sensitivity to Changes in Interest-Rate Level and Slope of Yield Curve

Pursuant to a disclosure commitment with FHFA, we disclose on a monthly basis the estimated adverse impact on the fair

value of our net portfolio that would result from the following hypothetical situations:

Ö a 50Äbasis point shift in interest rates; and

Ö a 25Äbasis point change in the slope of the yield curve.

In measuring the estimated impact of changes in the level of interest rates, we assume a parallel shift in all maturities of the

U.S.ÄLIBOR interest-rate swap curve.
In measuring the estimated impact of changes in the slope of the yield curve, we assume a constant 7-year rate and a shift of

16.7Äbasis points for the 1-year rate and shorter tenors and an opposite shift of 8.3Äbasis points for the 30-year rate. Rate

shocks for remaining maturity points are interpolated. We believe the aforementioned interest-rate shocks for our monthly

disclosures represent moderate movements in interest rates over a one-month period.

Duration Gap

Duration gap measures the price sensitivity of our assets and liabilities in our net portfolio to changes in interest rates by

quantifying the difference between the estimated durations of our assets and liabilities. Our duration gap analysis reflects the

extent to which the estimated maturity and repricing cash flows for our assets are matched, on average, over time and across

interest-rate scenarios to those of our liabilities. A positive duration gap indicates that the duration of our assets exceeds the

duration of our liabilities. We disclose duration gap on a monthly basis under the caption ÇInterest-Rate Risk DisclosuresÉ in

our Monthly Summary, which is available on our website and announced in a press release.

While our goal is to reduce the price sensitivity of our net portfolio to movements in interest rates, various factors can

contribute to a duration gap that is either positive or negative. For example, changes in the market environment can increase

or decrease the price sensitivity of our mortgage assets relative to the price sensitivity of our liabilities because of prepayment

uncertainty associated with our assets. In a declining interest-rate environment, prepayment rates tend to accelerate, thereby

shortening the duration and average life of the fixed-rate mortgage assets we hold in our net portfolio.ÄConversely, when

interest rates increase, prepayment rates generally slow, which extends the duration and average life of our mortgage assets.

Our debt and derivative instrument positions are used to manage the interest-rate sensitivity of our retained mortgage portfolio

and our investments in non-mortgage securities.ÄAs a result, theÄdegree to which the interest-rate sensitivity of our retained

mortgage portfolio and our investments in non-mortgage securities is offset will be dependent upon, among other factors,Äthe

mix of funding andÄother risk management derivative instrumentsÄwe use at any given point in time.

The market value sensitivities of our net portfolio are a function of both the duration and the convexity of our net portfolio.

Duration provides a measure of the price sensitivity of a financial instrument to changes in interest rates while convexity

reflects the degree to which the duration of the assets and liabilities in our net portfolio changes in response to a given change

in interest rates. We use convexity measures to provide us with information about how quickly and by how much our net

portfolioÑs duration may change in different interest-rate environments. The market value sensitivity of our net portfolio will

depend on a number of factors, including the interest-rate environment, modeling assumptions and the composition of assets

and liabilities in our net portfolio, which vary over time. 

Results of Interest-Rate Sensitivity Measures

The interest-rate risk measures discussed below exclude the impact of changes in the fair value of our guaranty assets and

liabilities resulting from changes in interest rates. We exclude our guaranty business from these sensitivity measures based on

our current assumption that the guaranty fee income generated from future business activity will largely replace guaranty fee

income lost due to mortgage prepayments.

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 December

31, 2019 and 2018. 

The sensitivity measures displayed in the table below, which we disclose on a quarterly basis pursuant to a disclosure

commitment with FHFA, are an extension of our monthly sensitivity measures. There are three primary differences between

our monthly sensitivity disclosure and the quarterly sensitivity disclosure presented below: 

Ö the quarterly disclosure is expanded to include the sensitivity results for larger rate level shocks of positive or

negative 100 basis points; 

Ö the monthly disclosure reflects the estimated pre-tax impact on the market value of our net portfolio calculated based

on a daily average, while the quarterly disclosure reflects the estimated pre-tax impact calculated based on the

estimated financial position of our net portfolio and the market environment as of the last business day of the quarter;

and 

Ö the monthly disclosure shows the most adverse pre-tax impact on the market value of our net portfolio from the

hypothetical interest-rate shocks, while the quarterly disclosure includes the estimated pre-tax impact of both up and

down interest-rate shocks.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 127
Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level

and Slope of Yield Curve

As of December 31,(1)(2)

2019 2018

(Dollars in millions)

Rate level shock:

-100Äbasis points $ 57 $ (286)

-50Äbasis points 11 (119)

+50 basis points 51 48

+100 basis points 160 29

Rate slope shock:

-25Äbasis points (flattening) (20) (7)

+25 basis points (steepening) 22 6

For the Three Months Ended December 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) $ (19) $ 5 (0.01) $ (8) $ (65)

Minimum (0.05) (27) (20) (0.07) (18) (119)

Maximum 0.04 (12) 34 0.05 (1) (40)

Standard deviation 0.02 4 13 0.02 4 17

(1) Computed based on changes in U.S. LIBOR interest-rate swap curves. 

(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

December 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.

Derivative Impact on Interest-Rate Risk (50 Basis Points)

As of December 31,(1)

2019 2018

(Dollars in millions)

Before derivatives $ (197) $ (535)

After derivatives 51 48

Effect of derivatives 248 583

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

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 128

Liquidity and Funding Risk Management

See ÇLiquidity and Capital ManagementÉ for a discussion of how we manage liquidity and funding risk.
Operational Risk Management

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external

events. Our corporate operational risk framework aligns with our Enterprise Risk policy, as well as the COSO Enterprise Risk

Management framework, and has evolved based on the changing needs of our businesses and FHFA regulatory guidance.

The Operational Risk Management group is responsible for overseeing and monitoring compliance with our operational risk

programÑs requirements. Operational Risk Management works in conjunction with other second line of defense teams, such as

Compliance and Ethics, to oversee and aggregate the full range of operational risks, including fraud, resiliency, business

interruptions, processing errors, damage to physical assets, workplace safety, and employment practices. To quantify our

operational risk exposure, we rely on the Basel Standardized Approach, which is based on a percentage of gross income. In

addition, where appropriate, we purchase insurance policies to mitigate the impact of operational losses.

See ÇRisk FactorsÜOperational RiskÉ for more information regarding our operational risk and ÇRisk ManagementÉ for more

information regarding our governance of operational risk management.

Cybersecurity Risk Management

Our operations rely on the secure receipt, processing, storage and transmission of confidential and other information in our

computer systems and networks and with our business partners, including proprietary, confidential or personal information that

is subject to privacy laws, regulations or contractual obligations. Information security risks for large institutions like us have

significantly increased in recent years and from time to time we have been, and likely will continue to be, the target of

attempted cyber attacks and other information security threats. These risks are an unavoidable result of being in business, and

managing these risks is part of our business activities. 

We have developed and continue to enhance our cybersecurity risk management program to protect the security of our

computer systems, software, networks and other technology assets against unauthorized attempts to access confidential

information or to disrupt or degrade business operations. Our cybersecurity risk management program aligns to the COSO

Enterprise Risk Management framework, the National Institute of Standards and Technology Framework for Improving Critical

Infrastructure Cybersecurity, and has evolved based on the changing needs of our business, the evolving threat environment

and FHFA regulatory guidance. Our cybersecurity risk management program extends to oversight of third parties that could be

a source of cybersecurity risk, including customers that use our systems and third-party service providers. We examine the

effectiveness and maturity of our cyber defenses through various means, including internal audits, targeted testing, incident

response exercises, maturity assessments and industry benchmarking. We continue to strengthen our partnerships with the

appropriate government and law enforcement agencies and with other businesses and cybersecurity services in order to

understand the full spectrum of cybersecurity risks in the environment, enhance our defenses and improve our resiliency

against cybersecurity threats. We also have obtained insurance coverage relating to cybersecurity risks. To date, we have not

experienced any material losses relating to cyber attacks. For a discussion of our Board of DirectorsÑ role in overseeing the

companyÑs cybersecurity risk management, see ÇDirectors, Executive Officers and Corporate GovernanceÜCorporate

GovernanceÜRisk Management OversightÜBoard's Role in Cybersecurity Risk Oversight.É

Despite our efforts to ensure the integrity of our software, computers, systems and information, we may not be able to

anticipate, detect or recognize threats to our systems and assets, or to implement effective preventive measures against all

cyber threats, especially because the techniques used are increasingly sophisticated, change frequently, are complex, and are

often not recognized until launched. In addition, we have discussed and worked with customers, vendors, service providers,

counterparties and other third parties to develop secure transmission capabilities and protect against cyber attacks, but we do

not have, and may be unable to put in place, secure capabilities with all of our clients, vendors, service providers,

counterparties and other third parties, and we may not be able to ensure that these third parties have appropriate controls in

place to prevent cyber attacks. See ÇRisk FactorsÜOperational RiskÉ for additional discussion of cybersecurity risks to our

business.

Model Risk Management

Our internal models require numerous assumptions and there are inherent limitations in any methodology used to estimate

macroeconomic factors such as home prices, unemployment and interest rates, and their impact on borrower behavior. When

market conditions change rapidly and dramatically, the assumptions of our models may no longer accurately capture or reflect

the changing conditions. Management periodically makes judgments about the appropriateness of the risk assessments

indicated by the models. See ÇRisk FactorsÜOperational RiskÉ for a discussion of the risks associated with our use of models.

MD&A | Risk Management

Fannie Mae 2019 Form 10-K 129

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 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 ÇNoteÄ1, Summary of Significant Accounting Policies.É
We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as

necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions

in applying our critical accounting policies with the Audit Committee of our Board of Directors. See ÇRisk FactorsÉ for a

discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting

policies and methods. We have identified one of our accounting policies, 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.

Allowance for Loan Losses

We maintain an allowance for loan losses for loans classified as held for investment, including both loans held in our portfolio

and loans held in consolidated Fannie Mae MBS trusts. This amount represents probable losses incurred related to loans in

our consolidated balance sheets, including concessions granted to borrowers upon modifications of their loans, as of the

balance sheet date.

The allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to our loans

held for investment. Our allowance for loan losses consists of a specific loss reserve for individually impaired loans and a

collective loss reserve for all other loans.

We have an established process, using analytical tools and benchmarks, to determine our loss reserves. Our process for

determining our loss reserves is complex and involves significant management judgment. Although our loss reserve process

benefits from extensive historical loan performance data, this process is subject to risks and uncertainties, including a reliance

on historical loss information that may not be representative of current conditions. We continually monitor prepayment,

delinquency, modification, default and loss severity trends and periodically make changes in our historically developed

assumptions and estimates as necessary to better reflect present conditions, including current trends in borrower risk, general

economic trends, changes in risk management practices, and changes in public policy and the regulatory environment. We

also consider the recoveries that we expect to receive on mortgage insurance and other loan-specific credit enhancements

entered into contemporaneously with and in contemplation of a guaranty or loan purchase transaction, as such recoveries

reduce the severity of the loss associated with defaulted loans. 

We provide more detailed information on our accounting for the allowance for loan losses in ÇNote 1, Summary of Significant

Accounting Policies.É

Single-Family Loss Reserves 

We establish a specific single-family loss reserve for individually impaired loans, which includes loans we restructure in

troubled debt restructurings. The single-family loss reserve for individually impaired loans represents the majority of our singlefamily loss reserves due to the high volume of restructured loans. We typically measure impairment based on the difference

between our recorded investment in the loan and the present value of the estimated cash flows we expect to receive, which

we calculate using the effective interest rate of the original loan or the effective interest rate at acquisition for an acquired

credit-impaired loan. However, when foreclosure is probable on an individually impaired loan, 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 discounted costs to sell the property and estimated insurance or other proceeds we expect to receive. When a loan

has been restructured or modified, we measure impairment using a cash flow analysis discounted at the loanÑs original

effective interest rate.

We establish a collective single-family loss reserve for all other single-family loans in our single-family guaranty book of

business using a model that estimates the probability of default on these loans to derive a loss reserve estimate given multiple

factors such as: origination year, mark-to-market LTV ratio, delinquency status and loan product type. The loss severity

estimates we use in determining our loss reserves reflect current available information on actual events and conditions as of

each balance sheet date, including current home prices. Our loss severity estimates do not incorporate assumptions about

future changes in home prices. We do, however, use recent regional historical sales and appraisal information, including the

sales of our own foreclosed properties,Äto develop our loss severity estimates for all loan categories.

Multifamily Loss Reserves 

We establish a collective multifamily loss reserve for all loans in our multifamily guaranty book of business that are not

individually impaired 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. Management may also apply judgment to adjust the

loss factors derived from our models, taking into consideration model imprecision and specific, known events, such as current

credit conditions, that may affect the credit quality of our multifamily loan portfolio but are not yet reflected in our modelgenerated loss factors.

We establish a specific multifamily loss reserve for multifamily loans that we determine are individually impaired. We identify

multifamily loans for evaluation for impairment through a credit risk assessment process. As part of this assessment process,

we stratify multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan and

MD&A | Critical Accounting Policies and Estimates

Fannie Mae 2019 Form 10-K 130
management judgment. We categorize loan credit risk, taking into consideration available operating statements and expected

cash flows from the underlying property, the estimated value of the property, the historical loan payment experience and

current relevant market conditions that may impact credit quality. If we conclude that a multifamily loan is impaired, we

measure the impairment based on the difference between our recorded investment in the loan and the fair value of the

underlying property less the estimated discounted costs to sell the property and any lender loss sharing or other proceeds we

expect to receive. When a multifamily loan is deemed individually impaired because we have modified it, we measure the

impairment based on the difference between our recorded investment in the loan and the present value of expected cash flows

discounted at the loanÑs original interest rate unless foreclosure is probable, in which case we measure impairment the same

way we measure it for other individually impaired multifamily loans.

Impact of Adopting the CECL Standard

The CECL standard became effective for our fiscal year beginning January 1, 2020. We have changed our accounting policies

and implemented system, model and process changes to adopt the standard, which will be reflected in our financial

statements for the quarter ending March 31, 2020. Upon adoption we used a discounted cash flow method to measure

expected credit losses on our single-family mortgage loans and an undiscounted loss method to measure expected credit

losses on our multifamily mortgage loans. The models used to estimate credit losses incorporated our historical credit loss

experience, adjusted for current economic forecasts and the current credit profile of our loan book of business. The models

used reasonable and supportable forecasts for key economic drivers, such as home prices (single-family), rental income

(multifamily) and capitalization rates (multifamily).ÄOur process for determining the impact upon adoption of the new standard

is complex and involves significant management judgment, including a reliance on historical loss information and current

economic forecasts that may not be representative of credit losses we ultimately realize.

MD&A | Critical Accounting Policies and Estimates

Fannie Mae 2019 Form 10-K 131

Impact of Future Adoption of New Accounting Guidance

As discussed above, we adopted the CECL standard on January 1, 2020. Our adoption of the CECL standard will reduce our

retained earnings by $1.1 billion on an after-tax basis, which will be reflected in our financial statements for the quarter ending

March 31, 2020. We further identify and discuss the expected impact on our consolidated financial statements of recently

issued accounting guidance in ÇNote 1, Summary of Significant Accounting Policies.É

Glossary of Terms Used in This Report

Terms used in this report have the following meanings, unless the context indicates otherwise. 

ÅAcquired credit-impaired loansÉ refers to loans we have acquiredÄfor which there is evidence of credit deterioration since

origination and for which it is probable we will not be able to collect all of the contractually due cash flows.ÄWe record our net

investment inÄsuch loans at the lower of the acquisition cost of the loan or the estimated fair valueÄof the loan at the date of

acquisition.ÄTypically, loans we acquire from our unconsolidated MBS trusts pursuant to our option to purchase upon

defaultÄmeet these criteria.ÄBecause we acquire these loans from our MBSÄtrusts at par value plus accrued interest, to the

extent the par value of a loan exceeds the estimated fair value at the time we acquire the loan, we record the relatedÄfair value

loss as a charge against the ÇReserve for guaranty losses.É

ÅAdvisory BulletinÉ refers to FHFAÑs Advisory Bulletin AB 2012-02, ÇFramework for Adversely Classifying Loans, Other Real

Estate Owned, and Other Assets and Listing Assets for Special Mention.É

ÅAgency mortgage-related securitiesÉ refers to mortgage-related securities issued by Fannie Mae, Freddie Mac and Ginnie

Mae. 

ÅAlt-A mortgage loanÉ or ÅAlt-A loanÉ generally refers to a mortgage loan originated under a lenderÑs program offering reduced

or alternative documentation than that required for a full documentation mortgage loan but may also include other alternative

product features. As a result, Alt-A mortgage loans have a higher risk of default than non-Alt-A mortgage loans. We classify

certain loans as Alt-A so that we can discuss our exposure to Alt-A loans in this report and elsewhere. However, there is no

universally accepted definition of Alt-A loans. In reporting our Alt-A exposure, we have classified mortgage loans as Alt-A if and

only if the lenders that delivered the mortgage loans to us classified the loans as Alt-A, based on documentation or other

product features. We have loans with some features that are similar toÄAlt-A mortgageÄloans that we have not classified asÄAltA because they do not meet our classification criteria. We do not rely solely on our classifications of loans as Alt-A to evaluate

the credit risk exposure relating to these loans in our single-family conventional guaranty book of business. For more

information about the credit risk characteristics of loans in our single-family guaranty book of business, see ÇSingle-Family

BusinessÜSingle-Family Mortgage Credit Risk Management,É ÇNote 3, Mortgage Loans.É We have classified private-label

mortgage-related securities held in our retained mortgage portfolio as Alt-A if the securities were labeled as such when issued.

ÅAmortization incomeÉ refers to income resulting from the amortization of cost basis adjustments, including premiums and

discounts on mortgage loans and securities, as a yield adjustment over the contractual life of the loan or security. These basis
adjustments often result from upfront fees that we receive at the time of loan acquisition primarily related to single-family loanlevel pricing adjustments or other fees we receive from lenders, which are amortized over the contractual life of the loan.

ÅBusiness volumeÉ refers to the sum in any given period of the unpaid principal balance of: (1)Äthe mortgage loans and

mortgage-related securities we purchase for our retained mortgage portfolio; (2)Äthe mortgage loans we securitize into Fannie

Mae MBS that are acquired by third parties; and (3)Äcredit enhancements that we provide on our mortgage assets. It excludes

mortgage loans we securitize from our portfolio and the purchase of Fannie Mae MBS for our retained mortgage portfolio. 

ÅCECL standardÉ refers to Accounting Standards Update 2016-13, Financial InstrumentsÜCredit Losses, Measurement of

Credit Losses on Financial Instruments and related amendments.

ÅCharge-offÉ refers to loan amounts written off as uncollectible bad debts.ÄThese loan amounts are removed from our

consolidated balance sheet and charged against our loss reserves when the balance is deemed uncollectible, which is

generally at foreclosure or other liquidation events (such as deed-in-lieu of foreclosure or a short-sale). Also includes chargeoffs related to the redesignation of loans from held for investment (ÇHFIÉ) to held for sale (ÇHFSÉ) and charge-offs related to the

Advisory Bulletin.

ÅConnecticut Avenue SecuritiesÉ or ÅCASÉ refers to a type of security that allows Fannie Mae to transfer a portion of the credit

risk from loan reference pools, consisting of certain mortgage loans in our guaranty book of business, to third-party investors.

ÅConnecticut Avenue Securities Credit-Linked NotesÉ or ÅCAS CLNsÉ refers to Connecticut Avenue Securities that are

structured as securities issued by trusts that do not qualify as REMICs.

ÅConnecticut Avenue Securities REMICsÉ or ÅCAS REMICsÉ refers to Connecticut Avenue Securities that are structured as

notes issued by trusts that qualify as REMICs.

ÅConventional mortgageÉ refers to a mortgage loan that is not guaranteed or insured by the U.S.Ägovernment or its agencies,

such as the VA, the FHA or the Rural Development Housing and Community Facilities Program of the Department of

Agriculture. 

ÅCredit enhancementÉ refers to an agreement used to reduce credit risk by requiring collateral, letters of credit, mortgage

insurance, corporate guarantees, inclusion in a credit risk transfer transaction reference pool, 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. 

ÅFHFAÉ refers to the Federal Housing Finance Agency. FHFA is an independent agency of the federal government with general

supervisory and regulatory authority over Fannie Mae, Freddie Mac and the Federal Home Loan Banks. FHFA is our safety

and soundness regulator and our mission regulator. FHFA also has been acting as our conservator since September 6, 2008.

For more information on FHFAÑs authority as our conservator and as our regulator, see ÇBusinessÜConservatorship, Treasury

Agreements and Housing Finance ReformÉ and ÇBusinessÜCharter Act and RegulationÜGSE Act and Other Legislation.É

ÅGSE ActÉ refers to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by

the Federal Housing Finance Regulatory Reform Act of 2008.ÄWe are subject to regulation applicable to us pursuant to the

GSE Act, as described in ÇBusinessÜCharter Act and Regulation.É

ÅGuaranty book of businessÉ refers to the sum of the unpaid principal balance of: (1)ÄFannie Mae MBS outstanding (excluding

the portions of any structured securities Fannie Mae issues that are backed by Freddie Mac securities); (2)Ämortgage loans of

Fannie Mae held in our retained mortgage portfolio; and (3)Äother credit enhancements that we provide on mortgage assets. It

also excludes non-Fannie Mae mortgage-related securities held in our retained mortgage portfolio for which we do not provide

a guaranty. 

ÅHARP loansÉ refer to loans we acquired through the Home Affordable Refinance Program (ÇHARPÉ), which allowed eligible

Fannie Mae borrowers with high LTV ratio loans to refinance into more sustainable loans.

ÅHFI loansÉ or Åheld-for-investment loansÉ refer to mortgage loans we acquire for which we have the ability and intent to hold

for the foreseeable future or until maturity. 

ÅHFS loansÉ or Åheld-for-sale loansÉ refer to mortgage loans we acquire that we intend to sell or securitize via trusts that will

not be consolidated.

ÇIntermediate-term loansÉ are loans with maturities at origination equal to or less than 15 years. 

ÅLoans,É Åmortgage loansÉ and ÅmortgagesÉ refer to both whole loans and loan participations, secured by residential real

estate, cooperative shares or by manufactured housing units. 

ÅLoss reservesÉ consists of our allowance for loan losses and our reserve for guaranty losses. Through December 31, 2019,

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

concessions we granted borrowers upon modification of their loans. Since our adoption of the CECL standard on January 1,

2020, which will impact our financial statements for periods beginning on or after that date, our loss reserves reflect our

estimate of lifetime expected credit losses rather than solely incurred losses.

ÅMortgage assets,É when referring to our assets, refers to both mortgage loans and mortgage-related securities we hold in our

retained mortgage portfolio. For purposes of the senior preferred stock purchase agreement, the definition of mortgage assets

for 2019 and prior periods is based on the unpaid principal balance of such assets and does not reflect market valuation

MD&A | Glossary of Terms Used in This Report

Fannie Mae 2019 Form 10-K 132
adjustments, allowance for loan losses, impairments, unamortized premiums and discounts and the impact of our

consolidation of variable interest entities. For periods after 2019, at FHFAÑs direction our mortgage asset calculation will also

include 10% of the notional value of interest-only securities we hold. We disclose the amount of our mortgage assets for

purposes of the senior preferred stock purchase agreement on a monthly basis in the ÇEndnotesÉ to our Monthly Summaries,

which are available on our website and announced in a press release.

ÅMortgage-backed securitiesÉ or ÅMBSÉ refers generally to securities that represent beneficial interests in pools of mortgage

loans or other mortgage-related securities. These securities may be issued by Fannie Mae or by others.

ÅMultifamily Connecticut Avenue SecuritiesÉ or ÅMCASÉ refers to Connecticut Avenue Securities that are structured as notes

issued by trusts to transfer credit risk on our multifamily guaranty book of business to third-party investors.

ÅMultifamily mortgage loanÉ refers to a mortgage loan secured by a property containing five or more residential dwelling units. 

ÅNew business purchasesÉ refers to 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.

ÅNotional amountÉ refers to the hypothetical dollar amount in an interest rate swap transaction on which exchanged payments

are based. The notional amount in an interest rate swap transaction generally is not paid or received by either party to the

transaction, or generally perceived as being at risk. The notional amount is typically significantly greater than the potential

market or credit loss that could result from such transaction. 

ÅOutstanding Fannie Mae MBSÉ refers to the total unpaid principal balance of any type of mortgage-backed security that we

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

held by third-party investors or in our retained mortgage portfolio. For securities held by third-party investors, it excludes the

portions of any structured securities Fannie Mae issues that are backed by Freddie Mac-issued securities.

ÅPrivate-label securitiesÉ or ÅPLSÉ refers to mortgage-related securities issued by entities other than agency issuers Fannie

Mae, Freddie Mac or Ginnie Mae. 

ÅRefi Plus loansÉ refers to loans we acquired under our Refi Plus initiative, which offered refinancing flexibility to eligible Fannie

Mae borrowers who were current on their loans and who applied prior to the initiativeÑs December 31, 2018 sunset date. Refi

Plus had no limits on maximum LTV ratio and provided mortgage insurance flexibilities for loans with LTV ratios greater than

80%.

ÅREMICÉ or ÅReal Estate Mortgage Investment ConduitÉ refers to a type of mortgage-related security in which interest and

principal payments from mortgages or mortgage-related securities are structured into separately traded securities. 

ÅREOÉ refers to real-estate owned by Fannie Mae because we have foreclosed on the property or obtained the property

through a deed-in-lieu of foreclosure. 

ÅRepresentations and warrantiesÉ refers to a lenderÑs assurance that a mortgage loan sold to us complies with the standards

outlined in our Mortgage Selling and Servicing Contract, which incorporates the Selling and Servicing Guides, including

underwriting and documentation. Violation of any representation or warranty is a breach of the lender contract, including the

warranty that the loan complies with all applicable requirements of the contract, which provides us with certain rights and

remedies.

ÅRetained mortgage portfolioÉ refers to the mortgage-related assets we own (excluding the portion of assets that back

mortgage-related securities owned by third parties).

ÅSingle-family mortgage loanÉ refers to a mortgage loan secured by a property containing four or fewer residential dwelling

units. 

ÅStructured Fannie Mae MBSÉ refers to Fannie Mae securitizations that are resecuritizations of UMBS or previously-issued

structured securities. As described in ÇBusinessÜMortgage SecuritizationsÜUniform Mortgage-Backed Securities, or UMBS,É

structured securities can be commingledÜthat is, they can include both Fannie Mae securities and Freddie Mac securities as

the underlying collateral for the security 

ÅSubprime private-label mortgage securitiesÉ generally refers to private-label mortgage-related securities held in our retained

mortgage portfolio that were labeled as subprime when issued.

ÅTCCA feesÉ refers to the expense recognized as a result of the 10 basis point increase in guaranty fees on all single-family

residential mortgages delivered to us on or after April 1, 2012 and before January 1, 2022 pursuant to the Temporary Payroll

Tax Cut Continuation Act of 2011, which we remit to Treasury on a quarterly basis.

ÅTDRÉ or Çtroubled debt restructuringÉ refers to a modification to the contractual terms of a loan that results in granting a

concession to a borrower experiencing financial difficulties.

ÇUniform Mortgage-Backed SecuritiesÉ or ÇUMBSÉ refers to the securities each of Fannie Mae and Freddie Mac issues and

guarantees that are directly backed by mortgage loans it has acquired as described in ÇBusinessÜMortgage SecuritizationsÜ

Uniform Mortgage-Backed Securities, or UMBS.É

MD&A | Glossary of Terms Used in This Report

Fannie Mae 2019 Form 10-K 133
Item 7A.ÄÄQuantitative and Qualitative Disclosures about

Market Risk

Information about market risk is set forth in ÇMD&AÜRisk ManagementÜMarket Risk Management, Including Interest-Rate

Risk Management.É

Quantitative and Qualitative Disclosure about Market Risk

Fannie Mae 2019 Form 10-K 134

Item 8.ÄÄFinancial Statements and Supplementary Data

Our consolidated financial statements and notes thereto are included elsewhere in this annual report on FormÄ10-K as

described below in ÇExhibits, Financial Statement Schedules.É 

Item 9.ÄÄChanges in and Disagreements with Accountants on

Accounting and Financial Disclosure

None. 

Item 9A.ÄÄControls 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 in effect as of December 31,

2019, the end of the period covered by this report. As a result of managementÑs 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 December 31, 2019 or as of the date of filing this report.

Our disclosure controls and procedures were not effective as of December 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 December 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 ÇManagementÑs Report on Internal Control Over Financial ReportingÜDescription 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.

ManagementÅs Report on Internal Control Over Financial Reporting

Overview 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal

control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under

the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management

and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those

policies and procedures that: 

Ö pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and

dispositions of our assets; 

Ö provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with

authorizations of our management and our Board of Directors;Äand 

Ö provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition

of our assets that could have a material effect on our financial statements. 

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because

of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance

and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting

also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material

misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these

inherent limitations are known features of the financial reporting process, and it is possible to design into the process

safeguards to reduce, though not eliminate, this risk. 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In

making its assessment, management used the criteria established in the Internal ControlÜIntegrated Framework issued by

the Committee of Sponsoring Organizations of the Treadway Commission (ÇCOSOÉ) in May 2013. ManagementÑs assessment

of our internal control over financial reporting as of December 31, 2019 identified a material weakness, which is described

below. Because of this material weakness, management has concluded that our internal control over financial reporting was

not effective as of December 31, 2019 or as of the date of filing this report. 

Our independent registered public accounting firm, DeloitteÄ& Touche LLP, has issued an audit report on our internal control

over financial reporting, expressing an adverse opinion on the effectiveness of our internal control over financial reporting as of

December 31, 2019. This report is included below under the heading ÇReport of Independent Registered Public Accounting

Firm.É 

Description of Material Weakness

The Public Company Accounting Oversight BoardÑs 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 companyÑs 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 December 31, 2019 and as of

the date of filing this report:

Ö 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

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 December 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 ÇManagementÑs Report on Internal Control Over Financial ReportingÜDescription 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

Fannie Mae 2019 Form 10-K 135
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:

Ö FHFA has established the Division of Resolutions, which is intended to facilitate operation of the company with the

oversight of the conservator.

Ö 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.

Ö FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this annual report on

FormÄ10-K for the year ended December 31, 2019 (Ç2019 FormÄ10-KÉ), and engaged in discussions regarding issues

associated with the information contained in those filings. Prior to filing our 2019 FormÄ10-K, FHFA provided Fannie

Mae management with written acknowledgment that it had reviewed the 2019 FormÄ10-K, and it was not aware of any

material misstatements or omissions in the 2019 FormÄ10-K and had no objection to our filing the 2019 FormÄ10-K.

Ö Our senior management meets regularly with senior leadership at FHFA, including, but not limited to, the Director.

Ö 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.

Ö Senior officials within FHFAÑs Office of the Chief Accountant have met frequently with our senior finance executives

regarding our accounting policies, practices and procedures.

In view of these activities, we believe that our consolidated financial statements for the year ended December 31, 2019 have

been prepared in conformity with GAAP.

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 September 30, 2019 that management believes have materially affected, or are

reasonably likely to materially affect, our internal control over financial reporting.

In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we

believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal

controls. Changes may include implementing new, more efficient systems, automating manual processes and updating

existing systems. For example, we are currently implementing changes to various financial system applications in stages

across the company. As we continue to implement these changes, each implementation may become a significant component

of our internal control over financial reporting.

Implementation of CECL Standard

We began using new and enhanced models, new systems and enhanced business processes related to our adoption of the

CECL standard as of January 1, 2020. In connection with the adoption and related business process changes, we redesigned

multiple existing controls that were previously considered effective with new or modified controls and, in some cases, removed

controls that are no longer applicable. We will continue to monitor and test these new and modified controls for adequate

design and operating effectiveness. Because these changes were not fully implemented until January 2020, except for our

estimate of the impact of adopting the CECL standard, we used our existing incurred loss impairment methodology, processes

and controls for both single-family and multifamily mortgage loans in preparing our 2019 consolidated financial statements

included in this report.

Controls and Procedures

Fannie Mae 2019 Form 10-K 136
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Fannie Mae:

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Fannie Mae and consolidated entities (in conservatorship)

(the ÇCompanyÉ) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the

effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company

has not maintained effective internal control over financial reporting as of December 31, 2019, based on the criteria

established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our

report dated February 13, 2020, expressed an unqualified opinion on those financial statements and included an

explanatory paragraph regarding the CompanyÑs dependence upon the continued support from various agencies of the

United States Government, including the United States Department of Treasury and the CompanyÑs conservator and

regulator, the Federal Housing Finance Agency.

Basis for Opinion

The CompanyÑs management is responsible for maintaining effective internal control over financial reporting and for its

assessment of the effectiveness of internal control over financial reporting, included in the accompanying ManagementÑs

Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the CompanyÑs internal

control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are

required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in

all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the

risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe

that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A companyÑs internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. A companyÑs internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts

and expenditures of the company are being made only in accordance with authorizations of management and directors of

the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

use, or disposition of the companyÑs assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Material Weakness

A material weakness is 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 companyÑs annual or interim financial statements will not

Controls and Procedures

Fannie Mae 2019 Form 10-K 137
be prevented or detected on a timely basis. The following material weakness has been identified and included in

managementÑs assessment:

Ö Disclosure Controls and Procedures - The CompanyÑs disclosure controls and procedures did not adequately

ensure the accumulation and communication to management of information known to the Federal Housing Finance

Agency (as conservator) that is needed to meet their disclosure obligations under the federal securities laws as

they relate to financial reporting.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the

consolidated financial statements as of and for the year ended December 31, 2019, of the Company and this report does not

affect our report on such financial statements.

/s/ Deloitte & Touche LLP

McLean, Virginia 

February 13, 2020

Controls and Procedures

Fannie Mae 2019 Form 10-K 138
Item 9B.ÄÄOther Information

None.

Other Information

Fannie Mae 2019 Form 10-K 139

PARTÄIII

Item 10.ÄÄDirectors, Executive Officers and Corporate

Governance

Directors

Our current directors are listed below. They have provided the following information about their principal occupation, business

experience and other matters.

Amy E. Alving

Age 57

Independent director since October 2013

Board committees:

 Ö Nominating and Corporate Governance (Vice Chair)

 Ö Risk Policy and Capital 

 Ö Strategic Initiatives and Technology (Chair)

Dr. Alving served as Chief Technology Officer and Senior Vice President at Science Applications International Corporation

(ÇSAICÉ), now known as Leidos Holdings, Inc., a scientific, engineering and technology applications company, from 2007 to

2013. Dr. AlvingÑs prior positions include director of the Special Projects Office at the Defense Advanced Research Projects

Agency, White House Fellow, and tenured faculty member at the University of Minnesota. Dr. Alving is currently a member of

the Board of Directors of DXC Technology Company, where she serves as a member of the Nominating/Governance

Committee. Dr. Alving is also a current member of the Board of Directors of Arconic Inc., where she serves as a member of the

Compensation and Benefits Committee and the Governance and Nominating Committee, and chairs the Cybersecurity

Advisory Subcommittee. Dr. Alving previously served on the Board of Directors of Arconic from November 2016 to May 2017

and rejoined the Board of Directors of Arconic in May 2018. From 2010 to August 2015, Dr. Alving was a member of the Board

of Directors of Pall Corporation, where she served as a member of the Audit Committee and the Nominating/Governance

Committee. In addition, she is a member of the Defense Science Board and a Trustee of Princeton University. 

Sheila C. Bair

Age 65

Independent director since August 2019

Board committees:

 Ö Compensation

 Ö Nominating and Corporate Governance

 Ö Risk Policy and Capital

Ms. Bair was President of Washington College from August 2015 to June 2017. Prior to that, she was Senior Advisor to the

Pew Charitable Trusts from 2011 to 2015. Ms. Bair was also Senior Advisor to DLA Piper, an international law firm, from 2014

to 2015. Ms. Bair was the Chair of the Federal Deposit Insurance Corporation from 2006 to 2011. From 2002 to 2006, she was

the DeanÑs Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of

MassachusettsÜAmherst. She also served as Assistant Secretary for Financial Institutions at the U.S. Department of the

Treasury from 2001 to 2002, Senior Vice President for Government Relations of the New York Stock Exchange from 1995 to

2000, Commissioner of the Commodity Futures Trading Commission from 1991 to 1995, counsel to the New York Stock

Exchange from 1988 to 1990, and counsel to Senator Bob Dole from 1981 to 1988. Ms. Bair is currently a member of the

Board of Directors of the Thomson Reuters Corporation, where she serves as Chair of the Risk Committee and a member of

the Audit Committee. She is also a current member of the Board of Directors of Host Hotels & Resorts, Inc., where she serves
as a member of the Audit Committee and the Nominating and Corporate Governance Committee. Ms. Bair is also currently a

member of the Board of Directors of Bunge Limited, where she serves as a member of the Audit Committee and the Finance

and Risk Policy Committee. In addition, Ms. Bair is currently a member of the Board of Directors of the Industrial and

Commercial Bank of China Ltd. (ÇICBCÉ), where she serves as a member of the Compensation Committee, the Nomination

Committee, the Risk Management Committee, the Strategy Committee and the US Risk Committee. Ms. Bair also serves as

Chair Emerita of the Systemic Risk Council, a public interest group that monitors progress on the implementation of financial

reforms, and on the boards of Paxos Trust Company, LLC and its parent Kabompo Holdings, Ltd., and the Volcker Alliance.

Ms. Bair has announced that, in order to pursue new board opportunities at Fannie Mae and Bunge, she will not be standing

for re-appointment to the boards of Thomson Reuters and ICBC when her terms expire in 2020.

Brian P. Brooks

Age 50

Director since March 2019

Board committees:

 Ö Community Responsibility and Sustainability

 Ö Risk Policy and Capital

 Ö Strategic Initiatives and Technology

Mr. Brooks has served as the Chief Legal Officer of Coinbase Global, Inc. since September 2018. Mr. Brooks previously

served as Fannie Mae's Executive Vice President, General Counsel and Corporate Secretary from 2014 to September 2018.

Prior to that time, Mr. Brooks was Vice Chairman of OneWest Bank N.A., from 2011 to 2014, where he served as chief legal

officer. Previously, Mr. Brooks was a partner at the law firm of OÑMelveny & Myers LLP, where he served from 2008 through

2011 as managing partner of the Washington, D.C. office and from 2010 through 2011 as group leader of the firmÑs financial

services practice. Mr. Brooks currently serves as a member of the board of directors of Avant, a marketplace lender and

financial technology company. He is also an advisor to several venture-backed technology startups.

Hugh R. Frater

Age 64

Director since January 2016

Chief Executive Officer since March 2019

Board committees:

 Ö Community Responsibility and Sustainability

Mr. Frater was appointed Chief Executive Officer of Fannie Mae in March 2019, and prior to that time, he served as Fannie

MaeÑs Interim Chief Executive Officer beginning in October 2018. Prior to becoming Fannie MaeÑs Interim Chief Executive

Officer, Mr. Frater had been an independent director of Fannie Mae beginning in January 2016. Mr. Frater also serves as NonExecutive Chairman of the Board of VEREIT, Inc. Mr. Frater previously worked at Berkadia Commercial Mortgage LLC

(ÇBerkadiaÉ), a commercial real estate company providing comprehensive capital solutions and investment sales advisory and

research services for multifamily and commercial properties. He served as Chairman of Berkadia from 2014 to December

2015 and he served as Chief Executive Officer of Berkadia from 2010 to 2014. From 2007 to 2010, Mr. Frater was the Chief

Operating Officer of Good Energies, Inc., and from 2004 to 2007, Mr. Frater was an Executive Vice President at The PNC

Financial Services Group, Inc., where he led the real estate division. Mr. Frater was a Founding Partner and Managing

Director of BlackRock, Inc. from 1988 to 2004, where he led the real estate practice. Mr. Frater serves on the MBA Real Estate

Program Advisory Board at the Columbia University Graduate School of Business and is also a member of its Board of

Overseers.

Directors, Executives Officers and Corporate Governance | Directors

Fannie Mae 2019 Form 10-K 140
Renee Lewis Glover

Age 70

Independent director since January 2016

Board committees:

 Ö Community Responsibility and Sustainability

 Ö Nominating and Corporate Governance (Chair)

 Ö Strategic Initiatives and Technology

Ms. Glover is the Founder and Managing Member of The Catalyst Group, LLC, a national consulting firm focused on urban

revitalization, real estate development and community building, urban policy, and business transformation. Ms. Glover is

currently a member of the Board of Trustees of Enterprise Community Partners, Inc., where she serves on the Audit

Committee and the Compensation and Human Resources Committee. Ms. Glover served on the Board of Directors of Habitat

for Humanity International from 2006 to November 2015, including serving as Chair of the Board of Directors from 2013 to

November 2015. Committees on which she served during her time as a member of the Board of Directors of Habitat for

Humanity International included the Audit Committee, Finance Committee, Operations Committee and Executive Committee.

Ms. Glover served as a member of the Board of Directors of the Federal Reserve Bank of Atlanta from 2009 to 2014, where

she served on the Audit and Operational Risk Committee. She also served as a Commissioner of the Bipartisan Policy Center

Housing Commission from 2011 to 2014. The Commission was responsible for developing a set of bipartisan

recommendations concerning federal housing policy and housing finance. Ms. Glover served as president and chief executive

officer of the Atlanta Housing Authority and its affiliates from 1994 to 2013. Prior to joining the Atlanta Housing Authority, Ms.

Glover was a corporate finance attorney in Atlanta and New York. Ms. Glover served on the Board of Trustees of Starwood

Waypoint Homes from February 2017 to November 2017, where she served on the Nominating and Corporate Governance

Committee and the Audit Committee. Ms. Glover serves on the Advisory Board of the Penn Institute for Urban Research. 

Michael J. Heid

Age 62

Independent director since May 2016

Board committees:

 Ö Audit (Vice Chair)

 Ö Community Responsibility and Sustainability (Chair)

 Ö Compensation

Mr. Heid served as Executive Vice President (Home Lending) of Wells Fargo & Company from 1997 to his retirement in

January 2016. He served in a number of positions at Wells Fargo Home Mortgage, the mortgage banking division of Wells

Fargo, including as president from 2011 to September 2015, as co-president from 2004 to 2011, and earlier as chief financial

officer and head of Loan Servicing. Mr. Heid was employed by Wells Fargo or its predecessors since 1988. Mr. Heid is

currently a member of the Board of Directors of Roosevelt Management Company LLC, where he also serves as a member of

the Strategy Committee. Mr. Heid is also on the Advisory Board for Home Partners of America and Promontory Mortgage Path.

Robert H. Herz

Age 66

Independent director since June 2011

Board committees:

 Ö Audit (Chair)

 Ö Compensation (Vice Chair)

 Ö Nominating and Corporate Governance

Mr. Herz serves as President of Robert H. Herz LLC, providing consulting services on financial reporting and other matters. He

previously served as a senior advisor to and as a member of the Advisory Board of Workiva Inc. (formerly WebFilings LLC), a

provider of financial reporting software, from 2011 to 2014. From 2002 to 2010, Mr. Herz was Chairman of the Financial

Accounting Standards Board, or FASB. He was also a part-time member of the International Accounting Standards Board, or

IASB, from 2001 to 2002. He was a partner in PricewaterhouseCoopers LLP from 1985 until his retirement in 2002. He serves

on the Standing Advisory Group of the Public Company Accounting Oversight Board, on the Board of Directors of the

Directors, Executives Officers and Corporate Governance | Directors

Fannie Mae 2019 Form 10-K 141
Sustainability Accounting Standards Board Foundation, on the Advisory Board of AccountAbility, on the Advisory Board of

Lukka, Inc., on the Independent Investment Committee of the United Nations Office for Project Services (ÇUNOPSÉ), and as an

executive in residence at the Columbia Business School. Mr. Herz is currently a member of the Board of Directors of Morgan

Stanley, where he serves as Chair of the Audit Committee and as a member of the Nominating and Governance Committee.

Mr. Herz is also a current member of the Board of Directors of Workiva Inc., where he serves as a member of the Audit

Committee and Nominating and Governance Committee, and a member of the Board of Directors of Paxos Trust Company,

LLC and its parent Kabompo Holdings, Ltd. 

Antony Jenkins

Age 58

Independent director since July 2018

Board committees:

 Ö Audit

 Ö Risk Policy and Capital 

 Ö Strategic Initiatives and Technology (Vice Chair)

Mr. Jenkins is the Founder and Executive Chair of 10x Future Technologies Limited, a company that is building a digital

banking platform designed to redefine how banks operate and engage with customers. Mr. Jenkins was the Group Chief

Executive Officer and a member of the Board of Directors of Barclays PLC from 2012 to July 2015. He served as a member of

the Group Executive Committee from 2009 to July 2015. Prior to becoming Group Chief Executive Officer, Mr. Jenkins served

in various other roles at Barclays, including as Chief Executive Officer for the Retail and Business Banking Division from 2009

to 2012, and Chief Executive Officer for Barclaycard Global Operations from 2006 to 2009. Mr. Jenkins served in various roles

at Citigroup Inc. from 1989 to 2005, including as Executive Vice President for Citibrands, Executive Vice President for U.S.

Hispanic, Global and Strategic Delivery SBU, Chief Executive Officer for eConsumer, and Chief Executive Officer for c2it,

CitigroupÑs Internet payment initiative. Mr. Jenkins currently serves as Group Chairman of the Board of Directors of Currencies

Direct Ltd. and as a member of the Board of Directors of Blockchain Luxembourg SA. Mr. Jenkins also serves as Chair for the

Institute for Apprenticeships. Mr. Jenkins served as a member of Fannie MaeÑs Digital Advisory Council from February 2017 to

June 2018.

Karin J. Kimbrough

Age 51

Independent director since March 2019

Board committees:

 Ö Audit

 Ö Compensation

 Ö Nominating and Corporate Governance

Ms. Kimbrough has served as Chief Economist for LinkedIn Corporation since January 2020. Ms. Kimbrough previously

served as Assistant Treasurer for Google from October 2017 to December 2019. Prior to that time, Ms. Kimbrough served as a

Managing Director and Head of Macroeconomic Policy at Bank of America Merrill Lynch from 2014 to October 2017. Ms.

Kimbrough worked at the Federal Reserve Bank of New York from 2005 to 2014, serving as Vice President and a director for

the Financial Stability Monitoring Function in the Markets Group from 2010 to 2014 and as a manager for Analytical

Development from 2005 to 2010. Ms. Kimbrough previously worked as an economist and strategist at Morgan Stanley from

2000 to 2005.

Directors, Executives Officers and Corporate Governance | Directors

Fannie Mae 2019 Form 10-K 142
Diane C. Nordin

Age 61

Independent director since November 2013; Board Vice Chair since April 2019

Board committees:

 Ö Audit

 Ö Compensation (Chair)

 Ö Risk Policy and Capital

Ms. Nordin served as a partner of Wellington Management Company, LLP, a private asset management company, from 1995

to 2011, and originally joined Wellington in 1991. She served in many global leadership roles at Wellington, most notably as

head of Fixed Income, Vice Chair of the Compensation Committee and Audit Chair of the Wellington Management Trust

Company. Ms. Nordin spent over three decades in the investment business, having previously been employed by Fidelity

Investments and Putnam Investments. Ms. Nordin is a Chartered Financial Analyst. Following her retirement from the asset

management industry, Ms. Nordin served as an Advanced Leadership Initiative Fellow at Harvard University from 2011 to

2012. Ms. Nordin currently serves as a member of the Board of Directors of Principal Financial Group, where she serves as a

member of the Audit Committee and the Human Resources Committee. She also serves as a member of the Board of

Directors of Antares Midco, Inc., where she serves as Chair of the Compensation Committee. Ms. Nordin also serves as a

member of the Board of Governors of the CFA Institute, where she serves as Board Chair and Executive Committee Chair.

Jonathan Plutzik

Age 65

Independent director since November 2009; Board Chair since December 2018

Mr. Plutzik has served as Chairman of Betsy Ross Investors, LLC since 2005. He also has served as President of the

Jonathan Plutzik and Lesley Goldwasser Family Foundation Inc. since 2003. Mr. Plutzik served as Non-Executive Chairman of

the Board of Directors at Firaxis Games from 2002 to 2005. Before that, he served from 1978 to 2002 in various positions with

Credit Suisse First Boston, retiring in 2002 from his role as Vice Chairman. Mr. Plutzik currently serves as a member of the

Board of Directors of the Planet Word Museum, the UJA Federation of New York, ZaraÑs Center and ZaraÑs Center Trust, the

O, Miami Poetry Festival and the Jewish American and Holocaust Literature Association.

Manuel ÇManoloÉ Sánchez Rodràguez

Age 54

Independent director since September 2018

Board committees:

 Ö Nominating and Corporate Governance

 Ö Risk Policy and Capital (Vice Chair)

 Ö Strategic Initiatives and Technology

Mr. Sênchez was the President and Chief Executive Officer of Compass Bank, Inc. (ÇCompass BankÉ), a U.S. subsidiary of

Banco Bilbao Vizcaya Argentaria, S.A. (ÇBBVAÉ), from 2008 to January 2017. Mr. Sênchez also served as a member of BBVAÑs

worldwide Executive Committee and was BBVAÑs Country Manager for U.S. operations from 2010 to January 2017. In addition,

Mr. Sênchez became Chairman of the Board of Directors of Compass Bank and its holding company, BBVA Compass

Bancshares, Inc., in 2010 and served in these roles until November 2017. Mr. Sênchez joined BBVA in 1990 and served in a

number of other roles at BBVA prior to becoming President and Chief Executive Officer of Compass Bank in 2008. Mr.

Sênchez currently serves as a member of the Board of Directors of On Deck Capital, Inc., where he is a member of the Audit

Committee and the Compensation Committee. He is also currently a member of the Board of Directors of Stewart Information

Services Corporation, where he serves as a member of the Audit Committee. In addition, Mr. Sênchez currently serves on the

Board of Directors of BanCoppel S.A. Instuticiën de Banca Míltiple in Mexico City, where he is a member of the Risk

Committee. Mr. Sênchez is Founder of Adelante Ventures LLC and an advisor to several fintech companies, including Spring

Labs, Aura and Topl. He is an Adjunct Professor at Rice UniversityÑs Jones Graduate School of Business, where he teaches

Directors, Executives Officers and Corporate Governance | Directors

Fannie Mae 2019 Form 10-K 143
disruption in financial services with a focus on crypto currencies and blockchain. Mr. Sênchez also currently serves as a

trustee or member of the Board of Directors of a number of civic, cultural and educational institutions, including Texas

ChildrenÑs Hospital, the Houston Symphony, KIPP Houston Public Schools, and the Center for HoustonÑs Future.

Ryan A. Zanin

Age 57

Independent director since September 2016

Board committees:

 Ö Community Responsibility and Sustainability (Vice Chair)

 Ö Compensation

 Ö Risk Policy and Capital (Chair)

Mr. Zanin served as President and CEO of the Restructuring & Strategic Ventures Group at GE Capital from May 2015 until his

retirement from General Electric in July 2018. Previously, Mr. Zanin served as Chief Risk Officer of GE Capital from 2010 to

April 2015 and again served in that role from November 2016 until his retirement. Before joining GE Capital, Mr. Zanin served

as Managing Director and Chief Risk Officer, International Capital Markets, at Wells Fargo & Company, from 2008 to 2010,

and as Chief Risk Officer, Corporate and Investment Bank at Wachovia Corporation, from 2006 to 2008. Before that, he spent

14 years in leadership roles across Deutsche Bank AG and Bankers Trust Company. Mr. Zanin has over 30 years of

experience in financial services specializing in risk management. Mr. Zanin served as a member of the Board of Directors of

the holding company for GE Capital, General Electric Capital Corporation, from December 2016 to June 2018 and from 2010

to April 2015.

Directors, Executives Officers and Corporate Governance | Directors

Fannie Mae 2019 Form 10-K 144

Corporate Governance

Conservatorship and Board Authorities 

On SeptemberÄ6, 2008, the Director of FHFA appointed FHFA as our conservator in accordance with the GSE Act. As

conservator, FHFA succeeded to all rights, titles, powers and privileges of Fannie Mae, and of any shareholder, officer or

director of Fannie Mae with respect to Fannie Mae and its assets. As a result, our Board of Directors no longer had the power

or duty to manage, direct or oversee our business and affairs.

As conservator, FHFA reconstituted our Board of Directors and provided the Board with specified authorities. Our directors

serve on behalf of the conservator and exercise their authority as directed by and with the approval, where required, of the

conservator. Our directors have no fiduciary duties to any person or entity except to the conservator. Accordingly, our directors

are not obligated to consider the interests of the company, the holders of our equity or debt securities, or the holders of Fannie

Mae MBS unless specifically directed to do so by the conservator. 

Our Board of Directors exercises specified authorities provided to it pursuant to an order from FHFA, as our conservator. The

conservator also provided instructions regarding matters for which conservator decision or notification is required. The

conservator retains the authority to amend or withdraw its order and instructions at any time.

FHFAÑs instructions require that we obtain the conservatorÑs decision before taking action on matters that require the consent

of or consultation with Treasury under the senior preferred stock purchase agreement. See ÇNote 11, EquityÉ for a list of

matters that require the approval of Treasury under the senior preferred stock purchase agreement. 

FHFAÑs instructions also require us to obtain the conservatorÑs decision before taking action in the areas identified in the table

below. For some matters, FHFAÑs instructions specify that our Board must review and approve the matter before we request

FHFA decision, and for other matters the Board is expected to determine the appropriate level of its engagement. For some of

the matters specified in the table below that require prior Board review and approval, the Board is permitted to delegate

authority to a relevant Board committee.
Matters requiring prior Board review and approval: Other matters:

Ö redemptions or repurchases of our subordinated debt,

except as may be necessary to comply with the senior

preferred stock purchase agreement;

Ö creation of any subsidiary or affiliate, or entering into a

substantial transaction with a subsidiary or affiliate,

except for routine ongoing transactions with CSS or the

creation of, or a transaction with, a subsidiary or affiliate

undertaken in the ordinary course of business;

Ö changes to or removal of Board risk limits that would

result in an increase in the amount of risk that we may

take;

Ö retention and termination of the external auditor;

Ö terminations of law firms serving as consultants to the

Board; 

Ö proposed amendments to our bylaws or to charters of our

Board committees;

Ö setting or increasing the compensation or benefits

payable to members of the Board; and

Ö establishing the annual operating budget.

Ö material changes in accounting policy;

Ö proposed changes in our business operations, activities,

and transactions that in the reasonable business

judgment of management are more likely than not to

result in a significant increase in credit, market,

reputational, operational or other key risks;

Ö matters that impact or question the conservatorÑs powers,

our conservatorship status, the legal effect of the

conservatorship, interpretations of the senior preferred

stock purchase agreement or the Financial Agency

Agreement with Treasury or our performance under the

Financial Agency Agreement;

Ö agreements relating to litigation, lawsuits, claims,

demands, prosecutions, regulatory proceedings or tax

matters where the amount in dispute exceeds a specified

threshold, including related matters that aggregate to

more than the threshold; 

Ö mergers, acquisitions and changes in control of key

counterparties where we have a direct contractual right to

cease doing business with the entity or object to the

merger or acquisition; 

Ö changes to requirements, policies, frameworks,

standards or products that are aligned with Freddie

MacÑs, pursuant to FHFAÑs direction;

Ö credit risk transfer transactions that are a new transaction

type, involve a material change in terms, or involve a new

type of collateral;

Ö transfers of mortgage servicing rights that meet minimum

size thresholds and would increase the transfereeÑs

servicing of Fannie Mae seriously delinquent loans by

more than a specified threshold; and 

Ö changes in employee compensation that could

significantly impact our employees, including retention

awards, special incentive plans, and merit increase pool

funding.

FHFAÑs instructions also require us to provide timely notice to FHFA of: activities that represent a significant change in current

business practices, operations, policies or strategies not otherwise addressed in the instructions; exceptions and waivers to

aligned requirements, policies, frameworks, standards or products if not otherwise submitted to FHFA for decision as required

above; and accounting error corrections to previously-issued financial statements that are not de minimis. FHFA will then

determine whether any such items require its decision as conservator. For more information on the conservatorship, refer to

ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance Reform.É

Composition of Board of Directors

FHFA has directed that our Board of Directors should have a minimum of nine and not more than thirteen directors. There is a

non-executive Chair of the Board, and our Chief Executive Officer is the only corporate officer serving as a director. Our

Corporate Governance Guidelines, in accordance with FHFA corporate governance regulations, require a majority of Fannie

MaeÑs directors to be independent. The Board currently has thirteen members, eleven of whom are independent. See ÇCertain

Relationships and Related Transactions, and Director IndependenceÜDirector IndependenceÉ for a description of our director

independence requirements and a discussion of the BoardÑs review of the independence of all current Board members.

Our conservator appointed directors in 2008. Subsequent vacancies have been and may continue to be filled by the Board,

subject to review by the conservator. Each director serves on the Board until the earlier of (1)Äresignation or removal by the

conservator or (2)Äthe election of a successor director at an annual meeting of shareholders. 

Fannie MaeÑs bylaws provide that each director holds office for the term for which he or she was elected or appointed and until

his or her successor is chosen and qualified or until he or she dies, resigns, retires or is removed from office in accordance

with applicable law or regulation, whichever occurs first. Under the Charter Act, each director is elected for a term ending on

the date of our next annual shareholdersÑ meeting. As noted above, however, the conservator appointed an initial group of

directors to our Board following our entry into conservatorship, provided the Board with the authority to appoint directors to

subsequent vacancies subject to conservator review, and defined the term of service of directors during conservatorship.

Absent a waiver from FHFA, FHFA corporate governance regulations limit service on our Board to ten years or age 72,

Directors, Executive Officers and Corporate Governance | Corporate Governance

Fannie Mae 2019 Form 10-K 145
whichever comes first.ÄIn October 2019, FHFA approved a waiver of the ten-year Board term limit applicable to Mr. Plutzik,

allowing him to serve on the Board and as Board Chair through December 31, 2022.

Under the Charter Act, our Board shall at all times have as members at least one person from each of the homebuilding,

mortgage lending and real estate industries, and at least one person from an organization that has represented consumer or

community interests for not less than two years or one person who has demonstrated a career commitment to the provision of

housing for low-income households. In addition, our Corporate Governance Guidelines provide that the Board, as a group,

must be knowledgeable in business, finance, capital markets, accounting, risk management, public policy, mortgage lending,

real estate, low-income housing, homebuilding, regulation of financial institutions, technology and any other areas as may be

relevant to the safe and sound operation of Fannie Mae. In addition to expertise in the areas noted above, our Corporate

Governance Guidelines specify that the Nominating and Corporate Governance Committee also seeks Board members who

possess the highest personal values, judgment and integrity, and who understand the regulatory and policy environment in

which Fannie Mae does business. The Nominating and Corporate Governance Committee also considers whether a

prospective Board candidate has the ability to attend meetings and fully participate in the activities of the Board.

The Nominating and Corporate Governance Committee also considers diversity when evaluating the composition of the Board.

Our Corporate Governance Guidelines specify that the Nominating and Corporate Governance Committee is committed to

considering minorities, women and individuals with disabilities in the identification and evaluation process for prospective

Board candidates, and that the Committee seeks Board members who represent diversity in ideas and perspectives. These

provisions of our Corporate Governance Guidelines implement FHFA regulations that require the company to implement and

maintain policies and procedures that, among other things, encourage the consideration of diversity in nominating or soliciting

nominees for positions on our Board.

Our directors have a variety of backgrounds and overall experience. Nearly half of Fannie MaeÑs Board are women or

minorities. Our Board also has a balance of longer-serving directors with institutional knowledge and newer directors with fresh

perspectives. The charts below provide information on the composition of our Board by demographic background and Board

tenure. We believe Fannie MaeÑs Board has more gender and racial/ethnic diversity than the average of Fortune 500

companies.

Board Diversity

Gender

5

8

Race/Ethnicity

2

1

10

Age

6

6

1

Tenure

5

4

4

Black/African

Women American 50Ñs < 2 Years

Men White 60Ñs 2-4 Years

Hispanic/Latino 70Ñs 5+ Years

Directors, Executive Officers and Corporate Governance | Corporate Governance

Fannie Mae 2019 Form 10-K 146
The Nominating and Corporate Governance Committee evaluates the qualifications and performance of current directors on

an annual basis, taking into consideration factors related to a Board memberÑs contribution to the effective functioning of the

Board. In its assessment of current directors and evaluation of potential candidates for director, the Nominating and Corporate

Governance Committee considers these factors, as well as each individualÑs particular experience, qualifications, attributes

and skills in the areas identified in our Corporate Governance Guidelines. In concluding our current directors should continue

to serve as directors, the Nominating and Corporate Governance Committee took into account their knowledge in these areas

as indicated in the table below, which they gained from their experience described in ÇDirectors.É 

Director Experience, Qualifications, Attributes and Skills

Board Leadership Structure 

FHFA corporate governance regulations and our Corporate Governance Guidelines require separate Chair of the Board and

Chief Executive Officer positions, and require that the Chair of the Board be an independent director. A non-executive Chair

structure enables non-management directors to raise issues and concerns for Board consideration without immediately

involving management and is consistent with the BoardÑs emphasis on independent oversight of management, including

independent risk oversight.

Our Board has six standing committees: the Audit Committee, the Community Responsibility and Sustainability Committee, the

Compensation Committee, the Nominating and Corporate Governance Committee, the Risk Policy and Capital Committee,

and the Strategic Initiatives and Technology Committee. Pursuant to FHFA direction, with such exceptions as the conservator

may direct, the Board and the standing Board committees function in accordance with:

Ö their designated duties and authorities as set forth in the Charter Act, other applicable federal law, FHFAÑs corporate

governance rules, FHFAÑs prudential management and operations standards, FHFA written supervisory guidance and

direction, and, to the extent not inconsistent with the foregoing, Delaware law (insofar as Fannie Mae has adopted its

provisions for corporate governance purposes);

Ö Fannie MaeÑs bylaws and the applicable charters of Fannie MaeÑs Board committees; and 

Ö such other duties or authorities as the conservator may provide. 

Such duties or authorities may be modified by the conservator at any time. 

Directors, Executive Officers and Corporate Governance | Corporate Governance

Fannie Mae 2019 Form 10-K 147
Committee Charters and Corporate Governance

Our Corporate Governance Guidelines and charters for each of the BoardÑs standing committees are posted on our website,

www.fanniemae.com, under ÇGovernanceÉ in the ÇAbout UsÉ section. Although our equity securities are no longer listed on the

New York Stock Exchange (ÇNYSEÉ), we are required by FHFA corporate governance regulations to follow specified NYSE

corporate governance requirements relating to, among other things, the independence of our directors and the charter,

independence, composition, expertise, duties, responsibilities and other requirements of our Board committees.

Risk Management Oversight

Our Board of Directors oversees risk management primarily through the Risk Policy and Capital Committee of the Board.

FHFA corporate governance regulations set forth risk management requirements for our Board and our Risk Policy and Capital

Committee, as described below. These regulations require that our Board approve, have in effect at all times, and periodically

review an enterprise-wide risk management program that establishes our risk appetite, aligns the risk appetite with our

strategies and objectives, and addresses our exposure to credit risk, market risk, liquidity risk, business risk and operational

risk. Our risk management program must align with our risk appetite and include risk limitations appropriate to each line of

business, appropriate policies and procedures relating to risk management governance, risk oversight infrastructure, and

processes and systems for identifying and reporting risks, including emerging risks. Our program must also include provisions

for monitoring compliance with our risk limit structure and policies relating to risk management governance, risk oversight, and

effective and timely implementation of corrective actions. Additional provisions must specify managementÑs authority and

independence to carry out risk management responsibilities and the integration of risk management with managementÑs goals

and compensation structure. FHFA corporate governance regulations require our Risk Policy and Capital Committee to assist

the Board in carrying out its oversight of our risk management program. These regulations also require that our Risk Policy

and Capital Committee must:

Ö be chaired by a director not serving Fannie Mae in a management capacity;

Ö have at least one member with risk management experience that is commensurate with our capital structure, risk

appetite, complexity, activities, size and other appropriate risk-related factors;

Ö have committee members with a practical understanding of risk management principles and practices relevant to Fannie

Mae; 

Ö fully document and maintain records of its meetings; and

Ö report directly to the Board and not as part of, or combined with, another committee.

FHFA corporate governance regulations set forth specific responsibilities for our Risk Policy and Capital Committee, including

that it must: 

Ö periodically review and recommend for Board approval an appropriate enterprise-wide risk management program that is

commensurate with our capital structure, risk appetite, complexity, activities, size and other appropriate risk-related

factors;

Ö receive and review regular reports from our Chief Risk Officer; and

Ö periodically review the capabilities for, and adequacy of resources allocated to, enterprise-wide risk management.

Our Risk Policy and Capital Committee Charter also sets forth the Risk Policy and Capital CommitteeÑs duties and

responsibilities in overseeing risk management for all of our major categories of risk and any other emerging risks. For more

information on the role of our Board and management in risk oversight, see ÇMD&AÜRisk ManagementÜRisk Management

Governance.É

BoardÇs Role in Cybersecurity Risk Oversight

Cybersecurity risk is overseen by the Board as well as the Risk Policy and Capital Committee of the Board. The Risk Policy

and Capital Committee has primary responsibility for oversight of cybersecurity risk matters. The Board has also delegated

oversight authority for specified cybersecurity risk matters to certain management-level committees. The Board and the Risk

Policy and Capital Committee engage in discussions throughout the year with senior management on cybersecurity risk

matters and receive periodic reports from the companyÑs chief information security officer and other senior officers, including

updates on our cybersecurity program, the external threat environment, and the steps the company is taking to address and

mitigate the risks associated with the evolving cybersecurity threat environment. Senior management, including the senior

officers mentioned above, also discuss cybersecurity developments with the Chair of the Risk Policy and Capital Committee

and other Board members between Board and committee meetings, as appropriate. In addition, the Board and the Risk Policy

and Capital Committee receive updates regarding assessments by external parties about the company's cybersecurity

program. The company has procedures to escalate information regarding certain cybersecurity incidents to the appropriate

members of the Board in a timely fashion. The Board reviews and approves the companyÑs Cyber Risk Policy and Operational

Risk Policy at least annually. The Board and its committees also have authority, as they deem appropriate to fulfill Board or

committee responsibilities, to engage outside consultants or advisors, including technology consultants and cybersecurity

experts.

Directors, Executive Officers and Corporate Governance | Corporate Governance

Fannie Mae 2019 Form 10-K 148
Codes of Conduct

We have a Code of Conduct that is applicable to all officers and employees (our ÇEmployee Code of ConductÉ) and a Code of

Conduct for the Board of Directors (our ÇDirector Code of ConductÉ). Our Employee Code of Conduct also serves as the code

of ethics for our Chief Executive Officer and senior financial officers required by the Sarbanes-Oxley Act of 2002 and

implementing regulations of the SEC. We have posted these codes on our website, www.fanniemae.com, under ÇGovernanceÉ

in the ÇAbout UsÉ section of our website. We intend to disclose any changes to or waivers from these codes that apply to any

of our executive officers, our controller or our directors by posting this information on our website.

Audit Committee Membership

Our Board of Directors has a standing Audit Committee consisting of Mr.ÄHerz, who is the Chair, Mr.ÄHeid, who is the Vice

Chair, Mr. Jenkins, Ms. Kimbrough and Ms. Nordin, all of whom are financially literate and all of whom are independent under

the requirements of independence set forth in FHFA corporate governance regulations (which requires the standard of

independence adopted by the NYSE), Fannie MaeÑs Corporate Governance Guidelines, and other SEC rules and regulations

applicable to audit committees. The Board has determined that Mr. Herz, Mr.ÄHeid, Mr. Jenkins and Ms. Nordin each have the

requisite experience, as discussed in ÇDirectors,É to qualify as an Çaudit committee financial expertÉ under the rules and

regulations of the SEC and has designated each of them as such. 

Executive Sessions

Our non-management directors meet in executive session on a regularly scheduled basis. In addition, our independent

directors meet in executive session at least once each year. Our Board of Directors reserves time for an executive session at

every regularly scheduled Board meeting. The non-executive Chair of the Board, Mr.ÄPlutzik, presides over these sessions.

Communications with Directors or Audit Committee

Interested parties wishing to communicate any concerns or questions about Fannie Mae to the non-executive Chair of the

Board or to our non-management directors individually or as a group may do so by electronic mail addressed to

Çboard@fanniemae.com,É or by U.S.Ämail addressed to Board of Directors, c/oÄOffice of the Corporate Secretary, Fannie Mae,

1100 15th Street, NW, Washington, DC 20005. Communications may be addressed to a specific director or directors, including

Mr.ÄPlutzik, the Chair of the Board, or to groups of directors, such as the independent or non-management directors.

Interested parties wishing to communicate with the Audit Committee regarding accounting, internal accounting controls or

auditing matters may do so by electronic mail addressed to Çauditcommittee@fanniemae.com,É or by U.S. mail addressed to

Audit Committee, c/oÄOffice of the Corporate Secretary, Fannie Mae, 1100 15th Street, NW, Washington, DC 20005.

The Office of the Corporate Secretary is responsible for processing all communications to a director or directors.

Communications that are deemed by the Office of the Corporate Secretary to be commercial solicitations, ordinary course

customer inquiries or complaints, incoherent or obscene are not forwarded to directors.

Director Nominations; Shareholder Proposals

Under the GSE Act, FHFA, as conservator, has all rights, titles, powers and privileges of the shareholders and Board of

Directors of Fannie Mae. As a result, Fannie MaeÑs common shareholders no longer have the ability to recommend director

nominees or elect the directors of Fannie Mae or bring business before any meeting of shareholders pursuant to the

procedures in our bylaws. We currently do not plan to hold an annual meeting of shareholders in 2020. For more information

on the conservatorship, refer to ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance Reform.É

Directors, Executive Officers and Corporate Governance | Corporate Governance

Fannie Mae 2019 Form 10-K 149
Executive Officers

Under our bylaws, each executive officer holds office until his or her successor is chosen and qualified or until he or she dies,

resigns, retires or is removed from office, whichever occurs first. 

Mr. Frater, our Chief Executive Officer, has served as a member of our Board of Directors since January 2016. Information

about his business experience and other matters is provided in ÇDirectors.É As of FebruaryÄ13, 2020, we have seven other

executive officers: 

David C. Benson

Age 60 President

Joined Fannie Mae in 2002

Mr. Benson has been President since August 2018. Mr. Benson previously served as Executive Vice President and Chief

Financial Officer from 2013 to August 2018, as Executive Vice PresidentÜCapital Markets, Securitization & Corporate

Strategy from 2012 to 2013 and as Executive Vice PresidentÜCapital Markets from 2009 to 2012. He also served as

Treasurer from 2010 to 2012. Mr.ÄBenson previously served as Fannie MaeÑs Executive Vice PresidentÜCapital Markets and

Treasury from 2008 to 2009, as Fannie MaeÑs Senior Vice President and Treasurer from 2006 to 2008, and as Fannie MaeÑs

Vice President and Assistant Treasurer from 2002 to 2006. Prior to joining Fannie Mae, Mr.ÄBenson was Managing Director in

the fixed income division of Merrill LynchÄ& Co. From 1988 through 2002, he served in several capacities at Merrill Lynch in the

areas of risk management, trading, debt syndication and e-commerce based in New York and London.

Andrew J. Bon Salle

Age 54 Executive Vice PresidentÉSingle-Family Mortgage

Business

Joined Fannie Mae in 1992

Mr. Bon Salle has been Executive Vice PresidentÜSingle-Family Mortgage Business since 2014. Prior to that time, he served

as Executive Vice PresidentÜSingle-Family Underwriting, Pricing, and Capital Markets, from 2013 to 2014. Mr. Bon Salle

previously served as Fannie MaeÑs Senior Vice President and Head of Underwriting and Pricing from 2011 to 2013, Senior

Vice PresidentÜCapital Markets from 2006 to 2011, and as Fannie MaeÑs Vice PresidentÜPortfolio Management from 2000 to

2006. Mr.ÄBon Salle held the positions of Director, Finance from 1996 to 2000 and of Manager, Early Funding Programs from

1994 to 1996. Mr.ÄBon Salle joined Fannie Mae in 1992 as a senior capital markets analyst.

Celeste M. Brown

Age 43 Executive Vice President and Chief Financial Officer

Joined Fannie Mae in 2017

Ms. Brown has served as Executive Vice President and Chief Financial Officer since August 2018. Ms. Brown previously

served as Fannie MaeÑs Senior Vice President and Deputy Chief Financial Officer from May 2017, when she joined Fannie

Mae, to August 2018. Prior to joining Fannie Mae, Ms. Brown served in a variety of roles at Morgan Stanley from 1999 to April

2017, including as Global Treasurer from 2014 to April 2017 and as Head of Investor Relations from 2010 to 2014. 

Directors, Executive Officers and Corporate Governance | Executive Officers

Fannie Mae 2019 Form 10-K 150
John S. Forlines

Age 56 Senior Vice President and Chief Risk Officer

Joined Fannie Mae in 1987

Mr. Forlines has served as Senior Vice President and Chief Risk Officer since September 2018, and previously served as

Interim Chief Risk Officer from March 2018 to September 2018. Prior to that time, Mr. Forlines served as Senior Vice President

and Deputy Chief Risk Officer from November 2015 to March 2018, as Senior Vice President and Chief Audit Executive from

2013 to November 2015, and as Senior Vice President and Chief Credit Officer for Single-Family from 2012 to 2013. From

2006 to 2012, Mr. Forlines served as a Vice President in various positions with the company relating to single-family credit risk

management. Prior to his promotion to Vice President, Mr. Forlines held a number of Director-level positions with the company

relating to customer management, marketing and credit risk management from 1997 to 2006. Prior to this time, Mr. Forlines

held several Manager-level positions, including Manager of Lender Administration from 1992 to 1995 and various audit-related

positions from 1987 to 1992. Mr. Forlines joined Fannie Mae in 1987 as an auditor.

Jeffery R. Hayward

Age 63 Executive Vice President and Head of Multifamily

Joined Fannie Mae in 1987

Mr. Hayward has served as Head of Multifamily since 2012, first as Senior Vice President and, since 2014, as Executive Vice

President, after serving in various roles at Fannie Mae for over 25 years. He was Fannie MaeÑs Senior Vice PresidentÜ

National Servicing Organization from 2010 to 2012. He also served as Senior Vice President of Community Lending in Fannie

MaeÑs Multifamily division from 2004 to 2010. Prior to that time, Mr.ÄHayward served as both a Senior Vice President and a

Vice President in Fannie MaeÑs Single-Family division, including as Senior Vice President in the National Business Center from

2001 to 2004,Äas Vice President for Single-Family Business Strategy from 1999 to 2001,Äas Vice President for Asset

Management Services from 1998 to 1999 and as Vice President for Quality Control and Operations from 1996 to 1998.

Mr.ÄHayward also served as Vice President for Risk Management from 1993 to 1996. Before that, he served as Director, Loan

Acquisition from 1992 to 1993, as Director, Marketing from 1989 to 1992, and as Senior Negotiator from 1988 to 1989.

Mr.ÄHayward joined the company in 1987 as a senior MBS representative. 

Kimberly H. Johnson

Age 47 Executive Vice President and Chief Operating Officer

Joined Fannie Mae in 2006

Ms. Johnson has served as Executive Vice President and Chief Operating Officer since March 2018. Ms. Johnson previously

served as Executive Vice President and Chief Risk Officer from January 2017 to March 2018, and as Senior Vice President

and Chief Risk Officer from November 2015 to January 2017. She served as Senior Vice President and Deputy Chief Risk

Officer from 2013 to November 2015. Ms. Johnson served in Fannie MaeÑs Multifamily business as Senior Vice President for

loans, securities, credit pricing and modeling, and as Vice President in our Capital Markets group with responsibility for trading

multifamily loans and securities from 2009 to 2013. Prior to that time, Ms. Johnson was responsible for Metrics and Reporting

for the Making Home Affordable Program from March 2009 to September 2009. Ms. Johnson joined Fannie Mae in 2006 as a

Vice President in Capital Markets.

Directors, Executive Officers and Corporate Governance | Executive Officers

Fannie Mae 2019 Form 10-K 151
Stergios ÇTerryÉ Theologides

Age 53 Executive Vice President, General Counsel and

Corporate Secretary

Joined Fannie Mae in 2019

Mr. Theologides has served as Executive Vice President, General Counsel and Corporate Secretary since March 2019. Mr.

Theologides previously was in private legal practice at Theologides Law, P.C. from October 2017 to February 2019. He served

as Senior Vice President, General Counsel and Secretary of CoreLogic, Inc. from 2010 to September 2017, and served as

Senior Vice President and General Counsel, Information Solutions Group, of The First American Corporation, CoreLogicÑs

predecessor, from 2009 to 2010. Mr. Theologides was Executive Vice President and General Counsel for Morgan StanleyÑs

U.S. residential mortgage businesses from 2007 to 2009. He was Executive Vice President, General Counsel and Secretary

for New Century Financial Corporation from 1998 to 2007. Mr. Theologides was in private legal practice at OÑMelveny & Myers

LLP from 1992 to 1996.

Directors, Executive Officers and Corporate Governance | Executive Officers

Fannie Mae 2019 Form 10-K 152

Item 11.ÄÄExecutive Compensation

Compensation Discussion and Analysis

Named Executives for 2019

This Compensation Discussion and Analysis focuses on our compensation decisions and arrangements for 2019 relating to

the following executives, whom we refer to as our Çnamed executivesÉ:

Ö Hugh R. Frater Chief Executive Officer

Ö Celeste M. Brown Executive Vice President and Chief Financial Officer

Ö David C. Benson President

Ö Andrew J. Bon Salle Executive Vice PresidentÜSingle-Family Mortgage Business

Ö Jeffery R. Hayward Executive Vice President and Head of Multifamily

These officers are our principal executive officer, our principal financial officer, and our next three most highly compensated

executive officers during 2019. We refer to our 2019 compensation arrangements with our named executives, other than our

Chief Executive Officer, as the Ç2019 executive compensation program.É 

Executive Summary

Due to our conservatorship status and other legal requirements, FHFA, our conservator and regulator, has significant oversight

and approval rights over our executive compensation arrangements and determinations. Congress has also enacted

legislation that significantly impacts the compensation we pay our named executives. We describe these requirements and

legislation in ÇLegal and Regulatory Restrictions on Executive Compensation.É

Total annual direct compensation for our Chief Executive Officer is limited by statute to $600,000 in base salary while we are in

conservatorship or receivership. The 2019 executive compensation program applicable to our other named executives was

developed by FHFA in consultation with Treasury. These named executives receive two principal elements of compensation:

base salary, which is paid in regular installments throughout the year, and deferred salary, which is currently paid after a oneyear deferral period. There are two components to deferred salary: a fixed portion that is generally subject to reduction if an

executive leaves the company before payment and an at-risk portion that is subject to reduction based on corporate and

individual performance. Named executives do not receive bonuses or any form of equity compensation. 

We had a successful year in 2019. Under the leadership of our executives, including our named executives, we had net

income of $14.2 billion in 2019. As discussed in ÇDetermination of 2019 Compensation,É we achieved many milestones and

accomplishments as we strived to be AmericaÑs most valued housing partner. We completed all of the corporate performance

goals for 2019 set by FHFA as our conservator, which we refer to as the 2019 scorecard. In addition, our Board of Directors

determined that we substantially achieved the goals it established for 2019. We also began to lay the groundwork for a

potential exit from conservatorship.

While conserving taxpayer resources is an important objective of FHFAÑs design of our executive compensation program, we

and FHFA understand that this objective must be balanced with our need to attract and retain qualified and experienced
executives to prudently manage our $3.4 trillion guaranty book of business and enable the company to be an effective steward

of taxpayer resources.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 153

2019 Executive Compensation Program; Chief Executive Officer Compensation

Overview of 2019 Executive Compensation Program

FHFA has advised us that the design of our executive compensation program, which applies to our named executives other

than our Chief Executive Officer, was intended to fulfill, and to balance, three primary objectives: 

Ö Maintain Lower Pay Levels to Conserve Taxpayer Resources. Given our conservatorship status, our executive

compensation program is designed generally to provide for lower pay levels relative to large financial services firms that

are not in conservatorship.

Ö Attract and Retain Executive Talent. Our executive compensation program is intended to attract and retain executive

talent with the specialized skills and knowledge necessary to effectively manage a large financial services company.

Executives with these qualifications are needed for the company to continue to fulfill its important role in providing liquidity

to the mortgage market and supporting the housing market, as well as to prudently manage its $3.4 trillion guaranty book

of business and enable the company to be an effective steward of taxpayer resources. We face competition for qualified

executives from other companies. The Compensation Committee and the Board of Directors regularly consider the level

of our executivesÑ compensation and whether changes are needed to attract and retain executives. See ÇRisk FactorsÉ for

a discussion of the risks associated with executive retention and succession planning. 

Ö Reduce Pay if Goals Are Not Achieved. To support FHFAÑs goals for our conservatorship and encourage performance in

furtherance of these goals, 30% of each named executiveÑs total target direct compensation (other than the Chief

Executive OfficerÑs compensation) consists of at-risk deferred salary subject to reduction based on corporate and

individual performance. 

Legal and Regulatory Restrictions on Executive Compensation

The amount of compensation we may pay our named executives is subject to a number of legal and regulatory restrictions,

particularly while we are in conservatorship. The conservatorship also significantly affects the process by which our executivesÑ

compensation is determined. We describe below legal and regulatory requirements that significantly affect our executive

compensation program and policies.

Requirements Applicable During Conservatorship

While we are in conservatorship, we are subject to additional legal and regulatory requirements relating to our executive

compensation, including the following:

Ö Equity in Government Compensation Act. The Equity in Government Compensation Act of 2015 limits the annual direct

compensation for our Chief Executive Officer to $600,000 in base salary while we are in conservatorship or receivership.

This law also provides that compensation and benefits for our Chief Executive Officer may not be increased while we are in

conservatorship or receivership.Ä

Ö STOCK Act. Pursuant to the STOCK Act and related FHFA regulations, our senior executives, including the named

executives, are prohibited from receiving bonuses during conservatorship. 

Ö FHFA InstructionsÇExecutive Compensation. As our conservator, FHFA has retained the authority to approve the terms and

amounts of our executive compensation. In its instructions to us, FHFA directed that management obtain FHFAÑs decision

before entering into new compensation arrangements or increasing amounts or benefits payable under existing

compensation arrangements of named executives or other executive officers as defined in SEC rules. 

Ö FHFA InstructionsÇOther Compensation. Pursuant to FHFA instructions, FHFAÑs decision as conservator is required with

regard to any changes in employee compensation that could significantly impact our employees, including but not limited to

retention awards, special incentive plans and merit increase pool funding.

Ö FHFA Directives. As our conservator, FHFA has directed us to:

ã limit base salaries for all employees to no more than $600,000; 

ã obtain FHFAÑs decision before entering into any compensation arrangement for a new hire where the proposed total

target direct compensation is $600,000 or above; and

ã obtain FHFAÑs decision before increasing the total target direct compensation of any employee where the proposed

total target direct compensation is $600,000 or above.

Ö Shareholder Powers. As our conservator, FHFA has all powers of our shareholders. Accordingly, we have not held

shareholdersÑ meetings since entering into conservatorship, nor have we held any shareholder advisory votes on executive

compensation.
Ö Golden Parachute Regulation. FHFA regulation pursuant to the GSE Act generally prohibits us from making golden

parachute payments to any current or former director, officer or employee of the company during any period in which we are

in conservatorship, receivership or other troubled condition, unless either a specific exemption applies or the Director of

FHFA approves the payments. A golden parachute payment generally refers to a compensatory payment that is contingent

on termination of employment.

Other Applicable Requirements

We are also subject to legal and regulatory requirements relating to our executive compensation that apply whether or not we

are in conservatorship, including the following:

Ö Senior Preferred Stock Purchase Agreement. Under the terms of our senior preferred stock purchase agreement with

Treasury, until the senior preferred stock is repaid or redeemed in full:

ã We may not enter into any new compensation arrangements with, or increase amounts or benefits payable under

existing compensation arrangements of, any named executives or other executive officers as defined in SEC rules

without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.

ã We may not sell or issue any equity securities without the prior written consent of Treasury, other than as required by

the terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement. This

effectively eliminates our ability to offer stock-based compensation.

Ö Charter Act. Under the Charter Act and related FHFA regulations, FHFA as our regulator must approve any termination

benefits we offer to our named executives and certain other officers identified by FHFA.

Ö GSE Act. Pursuant to the GSE Act and related FHFA regulations, FHFA as our regulator has specified oversight authority

over our executive compensation. The GSE Act directs FHFA to prohibit us from providing compensation to our named

executives and certain other officers identified by FHFA that is not reasonable or comparable with compensation for

employment in other similar businesses involving similar duties and responsibilities. FHFA may at any time review the

reasonableness and comparability of an executive officerÑs compensation and may require us to withhold any payment to

the officer during such review. The GSE Act also provides that, if we are classified as significantly undercapitalized, FHFAÑs

prior written approval is required to pay any bonus to an executive officer or to provide certain increases in compensation to

an executive officer.

Chief Executive Officer Compensation

Direct compensation for our Chief Executive Officer consists solely of a base salary of $600,000 and has been limited to this

amount by statute since the enactment of the Equity in Government Compensation Act of 2015. For purposes of this disclosure,

Çdirect compensationÉ includes all salary and other cash compensation, but excludes certain health and welfare, retirement,

relocation and other similar benefits. See ÇCompensation Tables and Other InformationÜSummary Compensation TableÉ for

information about our Chief Executive OfficerÑs total 2019 compensation. 

Our current level of Chief Executive Officer compensation puts pressure on our ability to attract and retain executive talent.

Total direct compensation for our Chief Executive Officer in 2019 was more than 90% below the market median for 2018 chief

executive officer compensation at comparable firms. Our inability to offer market-based compensation to our Chief Executive

Officer hinders our succession planning for our chief executive officer role. See ÇRisk FactorsÉ for a discussion of the risks

associated with executive retention and succession planning.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 154
Elements of 2019 Executive Compensation Program

Direct Compensation

The table below summarizes the principal elements, objectives and key features of our 2019 executive compensation program

for our named executives. Our Chief Executive Officer received only base salary and no deferred salary. All elements of our

named executivesÑ direct compensation are paid in cash. 

Compensation

Element Form

Primary

Compensation

Objectives Key Features

BaseÄSalary Fixed cash payments,

which are paid during the

year on a bi-weekly

basis.

Attract and

retain named

executives by

providing a fixed

level of current

cash

compensation.

Base salary reflects each named executiveÑs level of

responsibility and experience, as well as individual

performance over time.Ä

Base salary may not exceed $600,000 for any

employee, including the named executives, while we are

in conservatorship.

Deferred Salary

(Not applicable

to our Chief

Executive

Officer)

Deferred salary is earned

in bi-weekly increments

over the course of the

performance year, and is

paid in quarterly

installments in March,

June, September and

December of the

following year.(1)

There are two elements

of deferred salary: 

Ö a fixed portion that is

generally subject to

reduction if an

executive leaves the

company within one

year following the end

of the performance

year; and

Ö an at-risk portion that is

subject to reduction

based on assessments

of corporate and

individual performance

following the end of the

performance year.Ä

Interest accrues on

deferred salary at onehalf of the one-year

Treasury Bill rate in

effect on the last

business day

immediately preceding

the year in which the

deferred salary is

earned.

Fixed Deferred Salary

Retain named

executives.

Earned but unpaid fixed deferred salary is generally

subject to reduction if a named executive leaves the

company within one year following the end of the

performance year. The amount of earned but unpaid

fixed deferred salary received by the named executive

will be reduced by 2% for each full or partial month by

which the executiveÑs separation date precedes January

31 of the second year following the performance year

(or, if later, the end of the twenty-fourth month following

the month in which the named executive first earned

deferred salary). 

The reduction provisions applicable to payments of

earned but unpaid fixed deferred salary do not apply if

an officerÑs employment terminates other than for cause

at or after age 62, or age 55 with 10 years of service

with Fannie Mae, or as a result of death or long-term

disability.

At-Risk Deferred Salary

Retain named

executives and

encourage them

to achieve

corporate and

individual

performance

objectives.

Equal to 30% of each named executiveÑs total target

direct compensation. Half of at-risk deferred salary was

subject to reduction based on corporate performance

against the 2019 scorecard as determined by FHFA in

its discretion. The remaining half of at-risk deferred

salary was subject to reduction based on individual

performance as determined by the Board of Directors,

with FHFAÑs review, taking into account corporate

performance against the 2019 Board of DirectorsÑ goals.

There is no potential for at-risk deferred salary to be

paid out at greater than 100% of target; at-risk deferred

salary is subject only to reduction.Ä

If the executiveÑs employment terminates due to death

or long-term disability prior to the Board of DirectorsÑ and

FHFAÑs determinations of performance, the reduction

provisions applicable to payments of earned but unpaid

at-risk deferred salary do not apply.

(1) As described in ÇFuture Change to At-Risk Deferred Salary Deferral PeriodÉ below, for our current named executives, at-risk

deferred salary earned beginning January 1, 2022 will be paid in March, June, September and December of the second

year following the performance year.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 155
Employee Benefits

Our employee benefits serve as an important tool in attracting and retaining senior executives. We describe the employee

benefits available in 2019 to our named executives in the table below. We provide more detail on our retirement plans in

ÇCompensation Tables and Other Information.É

Benefit Form Primary Objective

401(k) Plan (ÇRetirement Savings

PlanÉ)

A tax-qualified defined contribution plan (Ç401(k) planÉ)

available to our employee population as a whole.

Attract and retain named

executives by providing

retirement savings in a taxefficient manner.

Non-qualified Deferred

Compensation (ÇSupplemental

Retirement Savings PlanÉ)

The Supplemental Retirement Savings Plan is an

unfunded, non-tax-qualified defined contribution plan.

The plan supplements our 401(k) plan by providing

benefits to participants whose annual eligible earnings

exceed the Internal Revenue Service (ÇIRSÉ) limit on

eligible compensation for 401(k) plans.

Attract and retain named

executives by providing

additional retirement

savings.

Health, Welfare and Other

Benefits

In general, the named executives are eligible for the

same benefits available to our employee population as

a whole, including our medical insurance plans, life

insurance program and matching charitable gifts

program. The named executives are also eligible to

participate in our voluntary supplemental long-term

disability plan, which is available to many of our

employees.

Provide for the well-being

of the named executive

and his or her family.

Sign-on Awards and Relocation Benefits 

In addition to the direct compensation and employee benefits described in the tables above, from time to time we may offer a

sign-on award to a new executive to attract the executive to join Fannie Mae and/or to compensate him or her for compensation

forfeited upon leaving a prior employer. We also from time to time may offer relocation benefits to a new executive to attract the

executive by reimbursing him or her for costs associated with moving to the Washington, DC area. Mr. Frater was awarded

relocation benefits in connection with his hire as our Chief Executive Officer in March 2019. Ms. Brown was awarded a sign-on

award and relocation benefits in connection with her hire. See ÇDetermination of 2019 CompensationÜCertain Named

Executive Compensation ArrangementsÉ and ÇCompensation Tables and Other InformationÜSummary Compensation TableÉ

for more information regarding Mr. FraterÑs relocation benefits and Ms. BrownÑs sign-on award and relocation benefits.

Severance Benefits

We have not entered into agreements with any of our named executives that entitle the executive to severance benefits. Under

the 2019 executive compensation program, a named executive is entitled to receive a specified portion of his or her earned but

unpaid deferred salary if his or her employment is terminated for any reason other than for cause. See ÇCompensation Tables

and Other InformationÜPotential Payments Upon Termination or Change-in-ControlÉ for information on compensation that we

may pay to a named executive in certain circumstances in the event the executiveÑs employment is terminated.

Future Change to At-Risk Deferred Salary Deferral Period

In August 2019, FHFA directed us to increase the mandatory deferral period for at-risk deferred salary received by senior vice

presidents and above from one year to two years. For executives hired before January 1, 2020, this change will be effective for

at-risk deferred salary earned beginning January 1, 2022. For executives hired or promoted to senior vice president on or after

January 1, 2020, this change is effective for at-risk deferred salary earned beginning January 1, 2020. Accordingly, for our

current named executives, at-risk deferred salary earned beginning January 1, 2022 will be paid in quarterly installments in the

second year following the performance year. For example, at-risk deferred salary earned in 2022 will be paid in quarterly

installments in 2024. Because our Chief Executive Officer does not receive deferred salary, his compensation is not affected by

this change. This change to our executive compensation program applies for so long as we are in conservatorship.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 156
Determination of 2019 Compensation

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 157

2019 Compensation Actions

The table below displays the 2019 direct compensation targets for each of our named executives compared to the actual

amounts that will be paid to the named executives based on the assessments and determinations by FHFA, the Compensation

Committee and the Board of Directors. This table is presented on a different basis from, and is not intended to replace, the

Summary Compensation Table required under applicable SEC rules, which is included in ÇCompensation Tables and Other

InformationÜSummary Compensation TableÉ and includes additional forms of compensation not included in the table below. 

Summary of 2019 Compensation Actions

2019 Corporate

Performance-Based

At-Risk Deferred

Salary

2019 Individual

Performance-Based

At-Risk Deferred

Salary Total

Name and Principal Position

2019ÄBase

Salary

2019 Fixed

Deferred

Salary Target

Actual

% of

Target Target

Actual

% of

Target Target Actual

Hugh Frater(1) $ 600,000 $ Ü $ Ü Ü% $ Ü Ü% $ 600,000 $ 600,000

Chief Executive Officer

Celeste Brown(2) 569,231 1,229,231 385,385 85 385,384 100 2,569,231 2,511,423

Executive Vice President and Chief

Financial Officer

David Benson 600,000 1,920,000 540,000 85 540,000 95 3,600,000 3,492,000

President

Andrew Bon Salle 500,000 1,775,000 487,500 85 487,500 95 3,250,000 3,152,500

Executive Vice PresidentÜSingleFamily Mortgage Business

Jeffery Hayward 500,000 1,460,000 420,000 85 420,000 95 2,800,000 2,716,000

Executive Vice President and Head

of Multifamily

(1) Mr. Frater became our Chief Executive Officer in March 2019, after serving as our Interim Chief Executive Officer beginning

in October 2018. See ÇCertain Named Executive Compensation ArrangementsÜChief Executive OfficerÉ and

ÇCompensation Tables and Other InformationÜSummary Compensation TableÉ for more information regarding Mr. FraterÑs

compensation. 

(2) Amounts shown reflect increases in August 2019 in Ms. BrownÑs base salary, fixed deferred salary and at-risk deferred

salary, which were prorated based on the effective date of the increase. See ÇCertain Named Executive Compensation

ArrangementsÜChief Financial OfficerÉ and ÇCompensation Tables and Other InformationÜSummary Compensation

TableÉ for more information regarding Ms. BrownÑs compensation. 

Certain Named Executive Compensation Arrangements 

Chief Executive Officer

Mr. Frater became our Chief Executive Officer in March 2019, after serving as our Interim Chief Executive Officer beginning in

October 2018. We provided relocation benefits to Mr. Frater in connection with his hire in March 2019. See ÇCompensation

Tables and Other InformationÜSummary Compensation TableÉ for additional information regarding Mr. FraterÑs compensation.

Chief Financial Officer

Ms. Brown joined the company in May 2017 as Senior Vice President and Deputy Chief Financial Officer. Following her August

2018 promotion to Executive Vice President and Chief Financial Officer, the Board of Directors and FHFA approved an

increase in her annual target direct compensation from $1,800,000 to $3,000,000 to reflect the increased responsibilities,

scope and complexity of her new role and to better align her compensation with the market. This increase was implemented in

two steps. The first step was effective in November 2018 and increased her annual target direct compensation to $2,300,000,

consisting of base salary of $550,000, fixed deferred salary of $1,060,000 and at-risk deferred salary of $690,000. The second

step was effective in August 2019 and increased her annual target direct compensation to $3,000,000, consisting of base

salary of $600,000, fixed deferred salary of $1,500,000 and at-risk deferred salary of $900,000.

In addition to this compensation, Ms. Brown was awarded a sign-on award of $2,800,000, payable in three installments, when

she joined the company in 2017, primarily to compensate her for equity-based compensation she forfeited upon leaving her
prior employer. Ms. Brown received the second installment pursuant to this sign-on award, in the amount of $700,000, in May

2018, and the final $700,000 installment in May 2019. The final installment is subject to repayment if Ms. Brown leaves Fannie

Mae within one year after the payment. We also provided Ms. Brown with relocation benefits in 2018. See ÇCompensation

Tables and Other InformationÜSummary Compensation TableÉ for additional information regarding Ms. BrownÑs

compensation.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 158

Assessment of Corporate Performance against 2019 Scorecard 

Overview

In December 2018, FHFA issued the 2019 scorecard, a set of corporate performance objectives and related targets for 2019.

The elements of the 2019 scorecard are shown below under ÇFHFA Assessment.É FHFA developed these objectives and

related targets with input from management. Half of 2019 at-risk deferred salary, or 15% of overall 2019 total target direct

compensation for each named executive other than Mr. Frater, was subject to reduction based on FHFAÑs assessment in its

discretion of our performance against the 2019 scorecard and related objectives, including the assessment criteria identified

below. 

As part of the 2019 scorecard, FHFA established that, for all scorecard items, our performance would be assessed based on

the following criteria:

Ö The extent to which we conduct initiatives in a safe and sound manner consistent with FHFAÑs expectations for all

activities;

Ö The extent to which the outcomes of our activities support a competitive and resilient secondary mortgage market to

support homeowners and renters;

Ö The extent to which we meet FHFAÑs expectations under the conservatorship capital framework, including FHFAÑs

expectations on meeting appropriate return on conservatorship capital targets;

Ö The extent to which we conduct initiatives with consideration for diversity and inclusion consistent with FHFAÑs

expectations for all activities;

Ö Cooperation and collaboration with FHFA, CSS, Freddie Mac, the industry, and other stakeholders; and

Ö The quality, thoroughness, creativity, effectiveness, and timeliness of our work products. 

FHFA Assessment

We provided updates to and maintained a dialogue with FHFA throughout 2019 on our performance against the 2019

scorecard, including our performance against FHFAÑs expectations for diversity and inclusion. In January 2020, FHFA reviewed

and assessed our performance against the 2019 scorecard, with input from management and the Compensation Committee.

FHFA determined that our overall performance against the 2019 scorecard was strong and that the portion of 2019 at-risk

deferred salary for senior executives that is based on corporate performance would be paid at 85% of target. In assessing our

performance against the 2019 scorecard, the factors considered by FHFA included our completion of all of the 2019 scorecard

objectives and our performance against the qualitative assessment criteria referenced above.

The table below sets forth the 2019 scorecard and a summary of FHFAÑs assessment of our achievement against the

scorecard objectives and targets. For purposes of the 2019 scorecard, ÇEnterpriseÉ refers to each of Fannie Mae and Freddie

Mac.
Objectives and Weighting Performance Assessment

Maintain, in a safe and sound manner, credit availability and foreclosure prevention activities for new

and refinanced mortgages to foster liquid, efficient, competitive, and resilient national housing finance

marketsÑ40% weight

FHFA expects the Enterprises to efficiently and effectively operate their

single-family and multifamily business activities in a manner that

supports safety and soundness, market liquidity, and access to credit.

Continue efforts to support access to single-family mortgage

credit for creditworthy borrowers, including underserved

segments of the market:

Ö Continue to identify opportunities to support access to credit in

a safe and sound manner that take into consideration changing

borrower needs and enabling technology to document income,

assets, and employment.

Ö Continue to support access to credit for borrowers with limited

English proficiency and make progress on multi-year language

access plans.

Ö Continue efforts supporting appraisal process modernization,

including revised appraisal forms and data requirements.

The objective was completed.

FHFA acknowledged the quality, thoroughness,

creativity, effectiveness and timeliness of Fannie

MaeÑs work on appraisal modernization and future

technology.

Continue to responsibly support the Neighborhood Stabilization

Initiative.

The objective was completed.

Continue efforts related to mortgage servicing that promote

mortgage market stability by furthering opportunities to improve

the borrower experience, expand liquidity, and increase

efficiency.

The objective was completed.

Prepare for transition from LIBOR. Assess impact and perform

industry outreach to inform policy and implementation plans.

The objective was completed.

FHFA acknowledged Fannie MaeÑs cooperation,

collaboration and engagement on this objective. 

Explore opportunities to further affordability through multifamily

energy and water efficiency programs:

Ö Conduct research and outreach on loans that finance energy and

water efficiency improvements.

The objective was completed.

Manage the dollar volume of new multifamily business to remain

at or below $35 billion for each Enterprise:

Ö Loans in affordable and underserved market segments, as

defined in AppendixÄA to the 2019 scorecard, are to be

excluded from the $35 billion cap.

The objective was completed.

Reduce taxpayer risk through increasing the role of private capital in the mortgage marketÑ30% weight

FHFA expects the Enterprises to continue single-family and multifamily

credit risk transfers as core business practices. FHFA will adjust targets

as necessary to reflect market conditions and economic considerations.

FHFA expects the Enterprises to continue to refine and improve their

credit risk transfer programs. FHFA expects the Enterprises to transfer

a meaningful amount of credit risk and will publish in CRT progress

reports the actual amount of credit risk transferred by each Enterprise.

Single-Family Credit Risk Transfers:

Ö Transfer a meaningful portion of credit risk on at least 90 percent

of the unpaid principal balance (UPB) of newly acquired singlefamily mortgages in loan categories targeted for credit risk

transfer, subject to FHFA target adjustments as may be necessary

to reflect market conditions and economic considerations.

Ö For 2019, targeted single-family loan categories include: nonHARP, fixed-rate mortgages with terms greater than 20 years and

loan-to-value ratios above 60 percent. Additional information on

CRT targeted loan categories is in Appendix B to the 2019

scorecard.

Ö Report the actual amount of underlying mortgage credit risk

transferred.

The objective was completed.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 159
Objectives and Weighting Performance Assessment

Multifamily Credit Risk Transfers:

Ö Transfer a meaningful portion of the credit risk on newly acquired

mortgages, subject to FHFA target adjustments as may be

necessary to reflect market conditions and economic

considerations. 

Ö Report the actual amount of underlying mortgage credit risk

transferred.

The objective was completed.

FHFA commended Fannie Mae for demonstrating

creativity and leadership through the execution of

its first multifamily CAS transaction in October

2019, as well as for significantly exceeding the

annual target for multifamily CRT, executing

multifamily CIRT transactions on a programmatic

basis, and building capacity to transfer additional

multifamily credit risk.

Retained Portfolio:

Ö Execute FHFA-approved retained portfolio plans that maintain,

even under adverse conditions, the annual senior preferred stock

purchase agreement (ÇPSPAÉ) requirements and the $250 billion

PSPA cap. Any sales should be commercially reasonable

transactions that consider impacts to the market, borrowers, and

neighborhood stability.

The objective was completed.

Servicer Eligibility Requirements 2.0:

Ö Evaluate the current liquidity requirements for non-depository

Seller/Servicer Enterprise counterparties to determine whether

changes are appropriate.

The objective was completed.

Build a new single-family infrastructure for use by the Enterprises and adaptable for use by other

participants in the secondary market in the futureÑ30% weight

Common Securitization Platform (CSP) and Single Security

Initiative:

The Enterprises and Common Securitization Solutions, LLC (CSS) are

to implement the Single Security Initiative on the CSP for both Fannie

Mae and Freddie Mac in the second quarter of 2019.

Ö Continue working with FHFA, each other, and CSS to implement

the Single Security Initiative on the CSP for both Enterprises. 

Ö Incorporate the following design principles in developing the CSP: 

Ö Focus on the functions necessary for current Enterprise

single-family securitization activities. 

Ö Include the development of operational and system

capabilities necessary for CSP to facilitate the issuance and

administration of a common, single security for the

Enterprises. 

Ö Allow for the integration of additional market participants in

the future. 

Ö Continue to work with each other and CSS to obtain and use input

from industry stakeholders.

Ö Work proactively with the industry to help market participants

prepare for the implementation of the Single Security Initiative. 

The objective was completed.

FHFA acknowledged Fannie MaeÑs cooperation,

collaboration and engagement on the Single

Security Initiative, which was successfully

implemented in June 2019.

Continue to Provide Active Support for Mortgage Data

Standardization Initiatives:

Ö Continue implementation of the redesigned Uniform Residential

Loan Application, the Uniform Loan Application Dataset, and the

EnterprisesÑ respective Automated Underwriting Systems

specifications.

Ö Assess and, as appropriate, continue implementation of strategies

to redesign the Uniform Appraisal Dataset and forms.

The objective was completed.

FHFA acknowledged Fannie MaeÑs cooperation,

collaboration and engagement on the Uniform Loan

Application Dataset and Uniform Appraisal Dataset.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 160

Assessment of Corporate Performance against 2019 Board of DirectorsÇ Goals

In January 2019, the Board of Directors established the 2019 Board of DirectorsÑ goals, which are presented in the table below.

Performance against these goals was a factor the Board of Directors considered in determining the individual performance of

the named executives, other than our Chief Executive Officer, for purposes of the individual performance-based component of

the named executivesÑ 2019 at-risk deferred salary. 

In December 2019 and January 2020, the Compensation Committee reviewed our performance against the 2019 Board of

DirectorsÑ goals. In connection with the Compensation CommitteeÑs review, management provided the Compensation
Committee with a report assessing managementÑs performance against the goals, which was reviewed for accuracy by our

Internal Audit group. The Compensation Committee also discussed performance against the goals with the Chair of the Audit

Committee and the Chair of the Risk Policy and Capital Committee. The Compensation Committee considered managementÑs

assessment of its performance against the goals and also discussed the companyÑs performance with our Chief Executive

Officer and President. The Compensation Committee also discussed the performance of each named executive (other than

the Chief Executive Officer) with our Chief Executive Officer.

The Compensation Committee concluded that management performed well against the 2019 scorecard and Board of

DirectorsÑ goals. Fannie Mae met or exceeded all of the objectives that comprise the 2019 scorecard and nearly all of the

objectives that comprise the Board of DirectorsÑ goals. In assessing managementÑs performance, the Compensation

Committee recognized managementÑs many accomplishments during 2019, including successfully launching the Single

Security Initiative, developing a more customer-centric strategy, implementing a digital operating model for the Single-Family

business, enhancing workplace collaboration and innovation, and laying the groundwork for a potential exit from

conservatorship. The Compensation Committee also acknowledged that the Board of DirectorsÑ goal relating to regulatory

requirements was not fully achieved and changes in market conditions during the year resulted in adjustments to the

companyÑs duty to serve objectives and single-family acquisition Board risk limit. The Compensation Committee concluded

that, in light of the companyÑs many accomplishments in 2019, the company should be meaningfully credited for its

achievements in 2019, as well as for its resilience in the face of significant changes in 2019.

The Board of Directors did not assign any relative weight to the Board of DirectorsÑ goals and the Compensation Committee

used its judgment in determining the overall level of performance. In January 2020, following its review of managementÑs and

the companyÑs performance in 2019, and after discussions among the independent members of the Board of Directors, the

Compensation Committee recommended and the Board of Directors determined that corporate performance against the 2019

Board of DirectorsÑ goals was 100% overall. The Compensation Committee and the Board of Directors also assessed the 2019

individual performance of each named executive at this time. Following these assessments, the Compensation Committee

recommended and the Board of Directors determined each eligible named executiveÑs individual performance-based at-risk

deferred salary amount for 2019, as described in ÇAssessment of 2019 Individual PerformanceÉ below. 

The Compensation Committee provided FHFA with its assessments of corporate performance against the 2019 Board of

DirectorsÑ goals and its qualitative assessments of managementÑs performance against the 2019 scorecard objectives. In

January 2020, FHFA approved the performance-based at-risk deferred salary payments for the eligible named executives.

The table below sets forth our 2019 Board of DirectorsÑ goals and a summary of the Compensation CommitteeÑs assessment

of our achievement against these goals.

Board of DirectorsÜ Goals Assessment of Performance

Goals Relating to Strategic Objectives

Advancing a sustainable and reliable business

model with low risk to the housing finance system

and taxpayers.

The goal was achieved. We met all of our objectives relating to

this strategic goal, including our objectives for single-family and

multifamily credit risk transfers, return on conservator capital for

single-family and multifamily acquisitions, single-family and

multifamily market share, and managing our business within

Board-approved risk limits.

Providing great service to our customers and

partners, enabling them to serve the needs of

American households more effectively. 

The goal was achieved. We met our customer satisfaction

objectives relating to this strategic goal.

Supporting and sustainably increasing access to

credit and affordable housing.

The goal was achieved. We believe we met all of our objectives

relating to this strategic goal, including our single-family and

multifamily housing goals, and our duty to serve obligations. 

FHFA will make the final determination on whether we have met

our 2019 housing goals and duty to serve obligations.

Building a simple, efficient, innovative, and

continuously improving company.

The goal was achieved. We met all of our objectives relating to

this strategic goal, including our objectives relating to managing

expenses, employee engagement, and the diversity of our

workforce, suppliers, financial transaction partners and

borrowers.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 161
Board of DirectorsÜ Goals Assessment of Performance

Goal Relating to Regulatory Requirements

Resolve all Fannie Mae-identified medium- and

high-priority audit and compliance issues, and

FHFA-identified risk and control matters, within

established timeframes or mutually acceptable

extensions.

The goal was not fully achieved. Although we resolved all

Fannie Mae-identified medium- and high-priority audit and

compliance issues and nearly all FHFA-identified risk and control

matters within established timeframes or mutually acceptable

extensions, two FHFA-identified risk and control matters were

not resolved within established timeframes. 

Goal Relating to Success in Reaching Strategic

Priorities and Core Business Tactics

Assessment of progress towards strategic priorities

and core business tactics.

The goal was achieved. We met all of our objectives relating to

this strategic goal, including: 

Ö successfully launched the Single Security Initiative;

Ö created a digital modernization plan;

Ö improved our single-family and multifamily customer

delivery models; and

Ö continued to implement plans designed to improve the

effectiveness of our organization.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 162

Assessment of 2019 Individual Performance 

Half of each of eligible named executiveÑs 2019 at-risk deferred salary was subject to reduction based on individual

performance in 2019, as determined by the Board of Directors with FHFAÑs approval. The Board of Directors assessed the

performance of our Chief Executive Officer, who does not receive at-risk deferred salary, against goals prepared for the Chief

Executive Officer, with input from the Compensation Committee. The Board of Directors assessed the performance and

approved compensation for our other named executives with input from both the Compensation Committee and the Chief

Executive Officer.

The BoardÑs determinations regarding each eligible named executiveÑs individual performance-based at-risk deferred salary for

2019 and highlights of each named executiveÑs performance in 2019 are discussed below. As noted in ÇAssessment of

Corporate Performance against 2019 Board of DirectorsÑ GoalsÉ above, FHFA approved the performance-based at-risk

deferred salary payments for the eligible named executives in January 2020.

Hugh Frater

Chief Executive Officer

Mr. Frater became our Chief Executive Officer in March 2019, and had previously been

serving as our Interim Chief Executive Officer since October 2018. Mr. Frater provided

outstanding leadership to the company in 2019. His 2019 accomplishments included:

Ö overseeing managementÑs work to achieve the objectives set forth in the 2019

scorecard and 2019 Board of DirectorsÑ goals, which we refer to jointly in this

discussion as the companyÑs 2019 goals;

Ö under his leadership, the company continued to operate profitably, and deliver

quality services and products in a disciplined, risk-controlled environment;

Ö providing leadership and direction to the company in the development,

oversight and execution of the companyÑs strategic objectives; 

Ö working with the Management Committee to revise the companyÑs strategic

plan and objectives for 2020-2022 to prepare and better position the company

for a potential exit from conservatorship;

Ö improving the organizationÑs culture and employee morale through his

transparent and non-hierarchical leadership style, as well as engagement with

the broader employee base and key functional and business leaders;

Ö strengthening the companyÑs reputation through active engagement with

external constituencies, including FHFA, Treasury, customers, debt and MBS

investors, and mortgage industry leaders; and

Ö as a member of the Board of Directors, chartering and becoming a member of

a new Board CommitteeÜthe Community Responsibility and Sustainability

CommitteeÜfocused on our mission-oriented efforts and our commitment to

becoming a leading ESG company.
David Benson

President

The Board determined that Mr. BensonÑs individual performance-based at-risk deferred

salary for 2019 would be paid at 95% of his target. Mr. BensonÑs continued strong

leadership in 2019 was critical to the companyÑs success in achieving the 2019 goals

during a period of significant change. His 2019 accomplishments included:

Ö facilitating the seamless transition to our new Chief Executive Officer and new

leadership at FHFA while meeting or exceeding our primary goals and

objectives; 

Ö building cohesion and alignment among the Management Committee and

helping Management Committee members set and achieve goals;

Ö facilitating changes to our single-family underwriting and eligibility guidelines

to reduce risk to our business and improve returns;

Ö working on a cross-functional effort to increase the amount of credit risk

transferred on multifamily loans;

Ö evolving the companyÑs strategy towards a more commercial future;

Ö increasing the focus of the Management Committee on human capital

management; and

Ö as a Board member and Board Chair of CSS, helping to lead the successful

launch of the Single Security Initiative.

Celeste Brown

Executive Vice President

and Chief Financial Officer

The Board determined that Ms. BrownÑs individual performance-based at-risk deferred

salary for 2019 would be paid at 100% of her target. Ms. BrownÑs many

accomplishments in 2019 provided critical support to Fannie MaeÑs achievement of the

companyÑs 2019 goals. Her 2019 accomplishments included: 

Ö implementing structures to prepare for a potential exit from conservatorship;

Ö strengthening the companyÑs budget and planning process;

Ö continuing to improve the companyÑs capital management processes;

Ö continuing to focus on managing expenses and increasing cost transparency

and cost discipline;

Ö key role in developing the companyÑs 2020-2022 strategic plan and objectives;

Ö establishing a group focused on the companyÑs new ESG priority;

Ö developing and recruiting key talent in the Finance organization, and

continuing to make organizational changes to improve the division; and

Ö effectively engaging with FHFA on capital, liquidity and strategic topics.

Andrew Bon Salle

Executive Vice PresidentÇ

Single-Family Mortgage

Business

The Board determined that Mr. Bon SalleÑs individual performance-based at-risk

deferred salary for 2019 would be paid at 95% of his target. Mr. Bon SalleÑs strong

leadership of the Single-Family business in 2019 contributed to the companyÑs

achievement of its 2019 goals in a number of significant ways. His 2019

accomplishments included:

Ö implementing changes to our single-family underwriting and eligibility

guidelines that reduced risk to our business and improved returns, while

maintaining strong market share;

Ö continuing to work on initiatives to improve operations and enhance

technology in the Single-Family business and other areas of the company;

Ö instrumental role in the successful implementation of the Single Security

Initiative; 

Ö meeting FHFAÑs objectives relating to mortgage servicing, servicer eligibility,

mortgage data standardization initiatives, the neighborhood stabilization

initiative, and supporting access to single-family mortgage credit for

creditworthy borrowers;

Ö meeting all single-family housing goals;

Ö exceeding the objectives for single-family credit risk transfer transactions; and

Ö further driving the customer-centric culture change throughout the SingleFamily organization, resulting in a higher level of customer satisfaction.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 163
Jeffery Hayward

Executive Vice President

and Head of Multifamily

The Board determined that Mr. HaywardÑs individual performance-based at-risk

deferred salary for 2019 would be paid at 95% of his target. Mr. HaywardÑs strong

leadership of the Multifamily business in 2019 contributed to the companyÑs

achievement of its 2019 goals in a number of significant ways. His 2019

accomplishments included:

Ö maintaining strong profitability and market share in our Multifamily business

while operating it in a safe and sound manner;

Ö continuing to grow the multifamily guaranty book of business within the limits

set by FHFA;

Ö continuing to work on initiatives to improve operations and enhance

technology in the Multifamily business;

Ö meeting all multifamily housing goals and the companyÑs duty to serve

objectives, and continuing to lead the companyÑs affordable housing and

housing supply efforts;

Ö exceeding the objectives for multifamily credit risk transfer transactions,

including completing the companyÑs first multifamily CAS transaction; 

Ö helping to establish the companyÑs new ESG priority; and

Ö further driving the customer-centric culture change throughout the Multifamily

organization, resulting in a higher level of customer satisfaction.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 164

Other Executive Compensation Considerations 

Role of Compensation Consultants 

The Compensation CommitteeÑs independent compensation consultant is Frederic W. Cook & Co., Inc. (ÇFW CookÉ).

ManagementÑs outside compensation consultant is McLagan. 

For 2019, consultants from FW Cook attended meetings and advised the Compensation Committee and the Board of Directors

on various executive compensation matters, including:

Ö preparing an analysis of compensation for our Chief Executive Officer and our Chief Financial Officer in comparison to

comparable positions at companies in our primary comparator group, based on information in proxy statements and

other reports filed by those companies with the SEC;

Ö preparing a report on the compensation of our Board of Directors in comparison to companies in our primary comparator

group and other market trends, in response to a request from the Nominating and Corporate Governance Committee;

Ö reviewing McLaganÑs analysis of market compensation data for select senior management positions; 

Ö reviewing various management proposals relating to compensation structures and levels, and for new hires and

promotions;

Ö reviewing our risk assessment of our 2019 compensation program;

Ö assisting the Compensation Committee in its evaluation of our performance against the 2019 scorecard and

communicating its views to FHFA;

Ö assisting the Compensation Committee in its evaluation of our performance against the 2019 Board of DirectorsÑ goals; 

Ö facilitating the Compensation CommitteeÑs evaluation of our Chief Executive OfficerÑs performance;

Ö informing the Compensation Committee of regulatory updates and market trends in compensation and benefits; and

Ö assisting with the preparation of executive compensation disclosure in our Annual Report on Form 10-K.

For 2019, consultants from McLagan attended meetings as needed and advised management and the Compensation

Committee on various compensation and human resources matters, including:

Ö providing guidance and feedback on our 2019 executive compensation program;

Ö defining the protocol regarding benchmarking for executives;

Ö advising on market trends, competitive pay levels and various compensation proposals for new hires and promotions; 

Ö providing market compensation data for senior management positions, including the named executivesÑ positions (other

than the Chief Executive Officer and Chief Financial Officer); and

Ö reviewing market data and trends, and providing Compensation Committee members with an opportunity to ask

questions and discuss implications of trends on Fannie Mae.
Compensation Consultant Independence Assessment

Pursuant to SEC and NYSE rules, the Compensation Committee assessed the independence of FW Cook and McLagan most

recently in January 2020. Based on its assessments, the Compensation Committee determined that FW Cook is independent

from Fannie Mae management and has no conflicts of interest. 

Because McLagan was retained by and provides services to management, it is not an independent advisor. McLaganÑs work

raises no material conflicts of interest, and we believe any conflict of interest raised by McLaganÑs retention and provision of

services to management as well as to the Compensation Committee is addressed by the Compensation CommitteeÑs receipt

of advice from and access to FW Cook as its independent compensation consultant.

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 165

Comparator Group and Role of Benchmark Data

Our Compensation Committee typically requests benchmark compensation data for our senior executives on an annual basis

to assess the compensation of the companyÑs senior executives relative to our comparator group or other appropriate

benchmarks described below. In 2019, the Compensation Committee used benchmark compensation data as one of a number

of factors that informed its compensation decisions. 

Finding comparable firms for purposes of benchmarking executive compensation is challenging due to our unique business,

structure and mission, and the large size of our book of business compared to other financial services firms. We believe the

only directly comparable firm to us is Freddie Mac. At FHFAÑs request, we and Freddie Mac use the same comparator group of

companies for benchmarking executive compensation to provide consistency in the market data used for compensation

decisions. Factors relevant to the selection of companies for our comparator group included their status as U.S.Äpublic

companies, the industry in which they operate (each is a commercial bank, insurance company, finance lessor, governmentsponsored enterprise or financial technology firm) and their size (in terms of assets and number of employees) relative to the

size of Fannie Mae. Our primary comparator group for 2019 compensation benchmarking, which was developed and approved

by FHFA and the Compensation Committee in 2017, consisted of the following 25 companies:

Ö The Allstate Corporation Ö Mastercard Incorporated

Ö Ally Financial Inc. Ö MetLife, Inc.

Ö American International Group, Inc. Ö Northern Trust Corporation

Ö American Express Company Ö The PNC Financial Services Group, Inc.

Ö The BankÄofÄNewÄYorkÄMellon Corporation Ö PrudentialÄFinancial,ÄInc.

Ö BB&T Corporation Ö RegionsÄFinancial Corporation

Ö CapitalÄOneÄFinancialÄCorporation Ö StateÄStreetÄCorporation

Ö Citizens Financial Group, Inc. Ö SunTrustÄBanks,ÄInc.

Ö Discover Financial Services Ö Synchrony Financial

Ö Fifth Third Bancorp Ö U.S. Bancorp

Ö Freddie Mac Ö Visa Inc.

Ö The Hartford Financial Services Group, Inc. Ö Voya Financial, Inc.

Ö KeyCorp

In December 2019, two of these companiesÜBB&T Corporation and SunTrust Banks, Inc.Ücompleted a merger and became

Truist Financial Corporation. This did not impact 2019 compensation benchmarking.

The Compensation Committee follows a bifurcated approach to benchmarking the compensation of senior executive positions.

Under this approach, while the comparator group noted above is the primary group of companies used for benchmarking

senior management pay levels, for certain senior management roles that are more comparable in function and/or scope to

roles at firms outside this comparator group, the Compensation Committee considers pay levels against a broader or different

group of companies. The company believes this more comprehensive approach results in more reliable market data. 

As described in ÇRole of Compensation ConsultantsÉ above, in 2019, FW Cook and McLagan prepared compensation

benchmarking data for the named executives and other senior management positions. The named executivesÑ 2019 total

target direct compensation was compared with 2018 compensation for the comparable position at other companies as follows: 

Ö The compensation of our Chief Executive Officer (Mr. Frater) and Chief Financial Officer (Ms. Brown) was benchmarked

against our primary comparator group identified above;

Ö The compensation of our President (Mr. Benson) was benchmarked against our primary comparator group to the extent

those companies had a President position (11 of the 25 companies); and
Ö The compensation of our Executive Vice PresidentÜSingle-Family Mortgage Business (Mr. Bon Salle) and our Executive

Vice President and Head of Multifamily (Mr. Hayward) was benchmarked against five of the companies in our primary

comparator group (Ally Financial Inc., Freddie Mac, The PNC Financial Services Group, Inc., SunTrust Banks, Inc. and

U.S. Bancorp), a group of large banks (Bank of America Corporation, Citigroup Inc., JPMorgan Chase & Co. and Wells

Fargo & Company), and certain other U.S.-based financial services firms, specialty mortgage lending organizations and

commercial real estate firms, to the extent those firms have executives in comparable positions.

Members of the Compensation Committee reviewed and discussed this data in late 2019. 

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 166

Compensation Recoupment Policy

A portion of our executive officersÑ compensation is subject to forfeiture or repayment upon the occurrence of specified events.

We provide a summary of these repayment provisions, also known as ÇclawbackÉ provisions, in the table below. The full text of

the companyÑs repayment provisions is provided in Exhibit 10.1 to this report. These provisions do not apply to executive

officers serving on an interim basis.

Forfeiture Event Compensation Subject to Forfeiture/Repayment

Materially Inaccurate Information

The executive officer has been granted deferred salary or

incentive payments based on materially inaccurate financial

statements or any other materially inaccurate performance metric

criteria.

Amounts of deferred salary and incentive payments

granted in excess of the amounts the Board of

Directors determines would likely have been granted

using accurate metrics.

Termination for Cause

The executive officerÑs employment is terminated for cause. 

For a description of what constitutes termination for cause, see

ÇPotential Payments Upon Termination or Change-in-ControlÜ

Potential Payments to Named Executives.É

All deferred salary and incentive payments that have

not yet become payable.

Subsequent Determination of Cause

The Board of Directors later determines (within a specified period

of time) that the executive officer could have been terminated for

cause and that the officerÑs actions materially harmed the business

or reputation of the company.

Deferred salary and incentive payments to the extent

the Board of Directors deems appropriate.

Willful Misconduct

The executive officerÑs employment: 

Ö is terminated for cause (or the Board of Directors later

determines that cause for termination existed within a

specified period of time) due to willful misconduct in

connection with the performance of his or her duties for

the company; and 

Ö the Board of Directors determines this has materially

harmed the business or reputation of the company. 

All deferred salary and incentive payments that have

not yet become payable, and, to the extent the Board of

Directors deems appropriate, deferred salary and

annual incentives or long-term awards paid in the twoyear period prior to the officerÑs employment

termination date.

In addition, under SectionÄ304 of the Sarbanes-Oxley Act of 2002, certain of the incentive-based compensation for individuals

serving as our chief executive officer or chief financial officer, including compensation received for prior years, could become

subject to reimbursement.

Stock Ownership Policy 

We ceased paying new stock-based compensation to our executives after entering into conservatorship in September 2008. In

2009, our Board of Directors eliminated our stock ownership requirements. 

Hedging Policy

All Fannie Mae employees, officers and directors are prohibited from transacting in options, puts, calls or other derivative

securities relating to Fannie MaeÑs securities, on an exchange or in any other organized market. All Fannie Mae employees,

officers and directors are also prohibited from engaging in hedging transactions relating to Fannie MaeÑs securities, such as

prepaid variable forwards, equity swaps, collars and exchange funds, and other derivatives.
Tax Deductibility of our Compensation Expenses

Subject to a limited exception for binding contracts in effect on November 2, 2017 that are eligible for grandfathering, Section

162(m) of the Internal Revenue Code imposes a $1 million limit on the amount of total compensation a company may annually

deduct for the chief executive officer, chief financial officer and the three most highly compensated employees who were acting

as executive officers at any time during the year, as well as any other person who was covered under Section 162(m) as an

employee of the company for a taxable year beginning after December 31, 2016. We have not adopted a policy requiring all

compensation to be deductible under Section 162(m).

Executive Compensation | Compensation Discussion and Analysis

Fannie Mae 2019 Form 10-K 167

Compensation Committee Report

The Compensation Committee of the Board of Directors of Fannie Mae has reviewed and discussed the Compensation

Discussion and Analysis included in this Annual Report on FormÄ10-K with management. Based on such review and

discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion

and Analysis be included in this Annual Report on FormÄ10-K.

Compensation Committee:

Diane C. Nordin, Chair

Robert H. Herz, Vice Chair

Sheila C. Bair

Michael J. Heid

Karin J. Kimbrough

Ryan A. Zanin

Compensation Risk Assessment

Our Enterprise Risk Management division conducted a risk assessment of our 2019 employee compensation policies and

practices. In conducting this risk assessment, the division reviewed the following, among other things:

Ö our performance goals and performance appraisal process; 

Ö our compensation structure (including pay mix and severance arrangements);

Ö our compensation clawback provisions;

Ö the $600,000 limit on annual direct compensation for our Chief Executive Officer; and

Ö the oversight of aspects of our compensation by the Compensation Committee, the Board of Directors and FHFA.

The division also assessed whether mitigating factors existed that would reduce the opportunity for inappropriate risk-taking

within our compensation policies and practices. Our Chief Risk Officer discussed the risk assessment of the companyÑs 2019

compensation policies and practices with the Compensation Committee.

Based on the risk assessment, management concluded that our 2019 employee compensation policies and practices do not

create risks that are reasonably likely to have a material adverse effect on the company. A number of factors contributed to this

conclusion, including:

Ö the 2019 scorecard objectives and Board of DirectorsÑ goals are not designed to incentivize employees to engage in

activities outside our Code of Conduct, risk appetite or any other activity that would involve taking inappropriate risk or

result in a material adverse effect on the company;

Ö our Board risk limits define the maximum amount of risk the company is willing to take in pursuit of its objectives, and the

company regularly monitors and reports on these limits; and

Ö the overall design of our compensation structure, including that deferred salary for our executive officers is subject to

clawback provisions.

Management stated in its risk assessment that the cap on our Chief Executive OfficerÑs compensation under the Equity in

Government Compensation Act of 2015 continues to be a risk factor for the company. We may be unable to retain our Chief

Executive Officer, engage in effective succession planning or attract qualified candidates for this critical role. The risk

assessment also noted that additional restrictions on compensation imposed by FHFA directives in late 2019 could affect our

ability to attract and retain senior management. As discussed in ÇRisk Factors,É the conservatorship, the uncertainty of our

future and limitations on our 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.
Compensation Tables and Other Information

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 168

Summary Compensation Table

The following table shows summary compensation information for the named executives. 

Summary Compensation Table for 2019, 2018 and 2017

Salary

Name and Principal Position(1) Year

Base

Salary(2)

Fixed

Deferred

Salary

(ServiceBased)(3) Bonus(4)

Non-Equity

Incentive

Plan

Compensation(5)

All Other

Compensation(6) Total

Hugh Frater 2019 $600,000 $ Ñ $ Ñ $ Ñ $ 71,104 $ 671,104

Chief Executive 2018 113,077 Ü Ü Ü 139,615 252,692

Officer

Celeste Brown 2019 569,231 1,229,231 700,000 722,336 107,164 3,327,962

ExecutiveÄViceÄPresident 2018 505,769 794,615 700,000 562,212 549,475 3,112,071

and Chief Financial Officer

David Benson 2019 600,000 1,920,000 Ñ 984,782 121,948 3,626,730

President 2018 600,000 1,669,615 Ü 981,252 135,535 3,386,402

2017 600,000 1,500,000 Ü 903,825 150,875 3,154,700

Andrew Bon Salle 2019 500,000 1,775,000 Ñ 889,039 108,341 3,272,380

Executive Vice President 2018 500,000 1,741,346 Ü 969,030 97,824 3,308,200

ÜSingle-Family Mortgage 2017 500,000 1,578,462 Ü 894,556 89,208 3,062,226

Business

Jeffery Hayward 2019 500,000 1,460,000 Ñ 765,941 99,291 2,825,232

Executive Vice President 2018 500,000 1,209,615 Ü 739,140 112,991 2,561,746

and Head of Multifamily 2017 498,077 1,033,846 Ü 659,328 122,086 2,313,337

(1) The principal position for each named executive is the position he or she held on December 31, 2019.

(2) Amounts shown in this sub-column consist of base salary paid during the year on a bi-weekly basis. 

(3) Amounts shown in this sub-column consist of the fixed, service-based portion of deferred salary. Deferred salary shown for

2019 generally will be paid in four equal installments in March, June, September and December 2020. Deferred salary

accrues interest at one-half of the one-year Treasury Bill rate in effect on the last business day preceding the year in which

the deferred salary is earned. For deferred salary earned in 2019, this rate is 1.315% per year. For deferred salary earned

in 2018 and 2017, this rate was 0.88% and 0.425% per year, respectively. Interest on the named executivesÑ fixed deferred

salary is shown in the ÇAll Other CompensationÉ column. Deferred salary shown for 2018 was paid to our named

executives during 2019, and deferred salary shown for 2017 was paid to our named executives during 2018. 

(4) The amounts shown in this column consist of the second and third installments of Ms. BrownÑs sign-on award. See

ÇCompensation Discussion and AnalysisÜDetermination of 2019 CompensationÜCertain Named Executive Compensation

ArrangementsÜChief Financial OfficerÉ above for more information regarding Ms. BrownÑs sign-on award.
(5) Amounts shown in this column consist of the performance-based at-risk portion of deferred salary earned during the year

and interest payable on that deferred salary. The table below provides more detail on the 2019 at-risk deferred salary

awarded to our named executives. 

Performance-Based At-Risk Deferred Salary

Name

2019 Corporate

Performance-Based

At-Risk Deferred

Salary

2019 Individual

Performance-Based

At-Risk Deferred

Salary

Interest

Payable on

2019 At-Risk

Deferred

Salary Total

Hugh Frater $ Ü $ Ü $ Ü $ Ü

Celeste Brown 327,577 385,384 9,375 722,336

David Benson 459,000 513,000 12,782 984,782

Andrew Bon Salle 414,375 463,125 11,539 889,039

Jeffery Hayward 357,000 399,000 9,941 765,941

(6) The table below provides more detail on the amounts reported for 2019 in the ÇAll Other CompensationÉ column. 

All Other Compensation

Name

Company

Contributions

to

Retirement

Savings

(401(k)) Plan

Company

Credits to

Supplemental

Retirement

Savings

Plan

Matching

Charitable

Award

Program

Interest

Payable on

2019 Fixed

Deferred

Salary

Relocation

Benefits Total

Hugh Frater $ 22,400 $ 25,600 $ Ü $ Ü $ 23,104 $ 71,104

Celeste Brown 22,400 63,600 5,000 16,164 Ü 107,164

David Benson 22,400 73,600 700 25,248 Ü 121,948

Andrew Bon Salle 22,400 57,600 5,000 23,341 Ü 108,341

Jeffery Hayward 22,400 57,600 92 19,199 Ü 99,291

See ÇPension BenefitsÉ for the vesting provisions for company contributions to the Retirement Savings Plan and

ÇNonqualified Deferred CompensationÉ for the vesting provisions for company credits to the Supplemental Retirement

Savings Plan. 

Amounts shown in the ÇMatching Charitable Award ProgramÉ column consist of gifts we made on behalf of our named

executives under our matching charitable gifts program, under which gifts made by our employees and directors to Internal

Revenue Code SectionÄ501(c)(3) charities were matched, up to an aggregate total of $5,000 for the 2019 calendar year.

The amount shown in the ÇRelocation BenefitsÉ column consists of relocation benefits provided to Mr. Frater in 2019

primarily relating to costs associated with temporary lodging in Washington, DC, relocation-related travel, and other similar

expenses. We provided these benefits to Mr. Frater in connection with his hire in March 2019. These benefits will expire in

2020. These relocation benefits are conditioned on Mr. FraterÑs continued employment with Fannie Mae for a minimum of

18 months from his start date as Chief Executive Officer. He must reimburse 100% of the relocation benefits paid to him if

his employment terminates (either voluntarily or involuntarily due to misconduct) within 12 months, or 50% if his

employment terminates from the 13th through the 18th month. We calculated the incremental cost of Mr. FraterÑs relocation

benefits based on actual cost (that is, the total amount of expenses incurred by us in providing the benefits), which includes

fees and interest paid to the relocation benefit administrator.

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 169
Plan-Based Awards 

The following table shows the at-risk deferred salary for each of the named executives during 2019. The terms of 2019 at-risk

deferred salary are described in ÇCompensation Discussion and AnalysisÜ2019 Executive Compensation Program; Chief

Executive Officer CompensationÜElements of 2019 Executive Compensation ProgramÜDirect Compensation.É Deferred

salary amounts shown represent only the performance-based at-risk portionÄof the named executivesÑ 2019 deferred salary. 

Grants of Plan-Based Awards in 2019

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

Name Award Type Threshold Target Maximum

Hugh Frater At-risk deferred salaryÜCorporate $ Ü $ Ü $ Ü

At-risk deferred salaryÜIndividual Ü Ü Ü

Total at-risk deferred salary Ñ Ñ Ñ

Celeste Brown At-risk deferred salaryÜCorporate Ü 385,385 385,385

At-risk deferred salaryÜIndividual Ü 385,384 385,384

Total at-risk deferred salary Ñ 770,769 770,769

David Benson At-risk deferred salaryÜCorporate Ü 540,000 540,000

At-risk deferred salaryÜIndividual Ü 540,000 540,000

Total at-risk deferred salary Ñ 1,080,000 1,080,000

Andrew Bon Salle At-risk deferred salaryÜCorporate Ü 487,500 487,500

At-risk deferred salaryÜIndividual Ü 487,500 487,500

Total at-risk deferred salary Ñ 975,000 975,000

Jeffery Hayward At-risk deferred salaryÜCorporate Ü 420,000 420,000

At-risk deferred salaryÜIndividual Ü 420,000 420,000

Total at-risk deferred salary Ñ 840,000 840,000

(1) Amounts shown are the target amounts of the performance-based at-risk portion of the named executivesÑ 2019 deferred

salary. Half of 2019 at-risk deferred salary was subject to reduction based on corporate performance against the 2019

scorecard, as determined by FHFA, and half was subject to reduction based on individual performance in 2019, taking into

account corporate performance against the 2019 Board of DirectorsÑ goals, as determined by the Board of Directors with

FHFAÑs review. No amounts are shown in the ÇThresholdÉ column because deferred salary does not specify a minimum

amount payable. The amounts shown in the ÇMaximumÉ column are the same as the amounts shown in the ÇTargetÉ

column because 2019 at-risk deferred salary was only subject to reduction; amounts higher than the target amount could

not be awarded. The actual amounts of the at-risk portion of 2019 deferred salary that will be paid to the named executives

for 2019 performance are included in the ÇNon-Equity Incentive Plan CompensationÉ column of the ÇSummary

Compensation Table for 2019, 2018 and 2017.É 

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 170

Pension Benefits 

Retirement Savings Plan

The Retirement Savings Plan is a tax-qualified defined contribution plan for which all of our employees are generally eligible

that includes a 401(k) before-tax feature, a regular after-tax feature and a Roth after-tax feature. Under the plan, eligible

employees may allocate investment balances to a variety of investment options. Subject to IRS limits for 401(k) plans, we

make a contribution to the Retirement Savings Plan for our employees equal to 2% of salary and eligible incentive

compensation, which includes the deferred salary element of our executive compensation program. Participants are fully

vested in this 2% contribution after three years of service. In addition, we match in cash employee contributions up to 6% of

base salary and eligible incentive compensation. Employees are 100% vested in our matching contributions. 
Nonqualified Deferred Compensation

We provide nonqualified deferred compensation to the named executives pursuant to our Supplemental Retirement Savings

Plan. Our Supplemental Retirement Savings Plan is an unfunded, non-tax-qualified defined contribution plan. The

Supplemental Retirement Savings Plan is intended to supplement our Retirement Savings Plan, or 401(k) plan, by providing

benefits to participants whose eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans (for

2019, the annual limit was $280,000).

We credit 8% of the eligible compensation for our named executives that exceeds the applicable IRS annual limit. Eligible

compensation in any year consists of base salary plus any eligible incentive compensation (which includes deferred salary)

earned for that year, up to a combined maximum of two times base salary. The 8% credit consists of two parts: (1)Äa 2% credit

that will vest after the participant has completed three years of service with us; and (2)Äa 6% credit that is immediately vested. 

While the Supplemental Retirement Savings Plan is not funded, amounts credited on behalf of a participant under the

Supplemental Retirement Savings Plan are deemed to be invested in mutual fund investments selected by the participant that

are similar to the investments offered under our Retirement Savings Plan.

Amounts deferred under the Supplemental Retirement Savings Plan are payable to participants in the January or July

following separation from service with us, subject to a six month delay in payment for our 50 most highly-compensated

officers. Participants generally may not withdraw amounts from the Supplemental Retirement Savings Plan while they are

employees.

The table below provides information on the nonqualified deferred compensation of the named executives in 2019, all of which

was provided pursuant to our Supplemental Retirement Savings Plan. 

Non-Qualified Deferred Compensation for 2019

Name

Company

ContributionsÄ

in 2019(1)

Aggregate

EarningsÄin

2019(2)

Aggregate

BalanceÄat

December 31,

2019(3)

Hugh Frater $ 25,600 $ 1,059 $ 26,659

Celeste Brown 63,600 15,012 117,684

David Benson 73,600 56,214 740,138

Andrew Bon Salle 57,600 74,662 461,022

Jeffery Hayward 57,600 77,510 549,599

(1) All amounts reported in this column are also reported as 2019 compensation in the ÇAll Other CompensationÉ column of the

ÇSummary Compensation Table for 2019, 2018 and 2017.É 

(2) None of the earnings reported in this column are reported as 2019 compensation in the ÇSummary Compensation Table for

2019, 2018 and 2017É because the earnings are neither above-market nor preferential.

(3) Amounts reported in this column reflect company contributions to the Supplemental Retirement Savings Plan that are also

reported in the ÇAll Other CompensationÉ column of the ÇSummary Compensation Table for 2019, 2018 and 2017É as

follows:

Balance Amounts Reported in ÇAll Other CompensationÉ in the Summary Compensation Table

Name

Amounts in Aggregate Balance

Column that Represent Company

Contributions Reported as

Compensation for 2018 in the

Summary Compensation Table

Amounts in Aggregate Balance

Column that Represent Company

Contributions Reported as

Compensation for 2017 in the

Summary Compensation Table

Hugh Frater $ Ü $ Ü

Celeste Brown 41,385 Ü

David Benson 92,500 111,600

Andrew Bon Salle 58,000 58,400

Jeffery Hayward 72,346 85,292

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 171
Potential Payments Upon Termination or Change-in-Control

The information below describes and quantifies certain compensation and benefits that would have become payable to each of

our named executives under our existing plans and arrangements if the named executiveÑs employment had terminated on

December 31, 2019 under each of the circumstances described below, taking into account the named executiveÑs

compensation and service levels as of that date. The discussion below does not reflect retirement or deferred compensation

plan benefits to which our named executives may be entitled, as these benefits are described above under ÇPension BenefitsÉ

and ÇNonqualified Deferred Compensation.É The information below also does not generally reflect compensation and benefits

available to all salaried employees upon termination of employment with us under similar circumstances. We are not obligated

to provide any additional compensation to our named executives in connection with a change-in-control.

Potential Payments to Named Executives

We have not entered into agreements with any of our named executives that would entitle the executive to severance benefits.

Under the 2019 executive compensation program, a named executive would be entitled to receive a specified portion of his or

her earned but unpaid 2019 deferred salary if his or her employment was terminated for any reason, other than for cause. 

Below we discuss various elements of the named executivesÑ compensation that would become payable in the event a named

executive dies, resigns, retires, terminates employment due to long-term disability, or the company terminates his or her

employment. We then quantify the amounts that would be paid to our named executives in these circumstances, in each case

assuming the triggering event occurred on December 31, 2019.

Ö Deferred salary. If a named executive is separated from employment with the company for any reason other than

termination for cause, he or she would receive the following:

ã Fixed deferred salary. The earned but unpaid portion of his or her fixed deferred salary, reduced by 2% for each full

or partial month by which the named executiveÑs termination precedes January 31 of the second year following the

performance year (or, if later, the end of the twenty-fourth month following the month in which the named executive

first earned deferred salary), except that the reduction will not apply if: (1) at the time of separation the named

executive has reached age 62, or age 55 with 10 years of service with Fannie Mae, or (2) the named executiveÑs

employment terminates as a result of death or long-term disability.

ã At-risk deferred salary. The earned but unpaid portion of his or her at-risk deferred salary, subject to reduction from

the target level for corporate and individual performance for the applicable performance year, except that the

reduction will not apply if an officerÑs employment terminates as a result of death or long-term disability prior to the

Board of DirectorsÑ and FHFAÑs determinations of performance for at-risk deferred salary.

ã Interest on deferred salary. Interest on deferred salary payments. Deferred salary accrues interest at one-half of the

one-year Treasury Bill rate in effect on the last business day preceding the year in which the deferred salary is

earned.

Payment dates. Installment payments of deferred salary and related interest would be made on the original payment

schedule, except that payments will be made within 90 days in case of the named executiveÑs death.

Termination for cause. If a named executiveÑs employment is terminated by the company for cause, he or she would not

receive any of the earned but unpaid portion of his or her deferred salary. The company may terminate an executive for

cause if it determines that the executive has: (a) materially harmed the company by, in connection with the performance

of his or her duties for the company, engaging in gross misconduct or performing his or her duties in a grossly negligent

manner; or (b) been convicted of, or pleaded nolo contendere with respect to, a felony.

Ö Retiree medical benefits. We currently make certain retiree medical benefits available to our full-time employees who

meet certain age and service requirements at the time of retirement.

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 172
The table below shows the amounts that would have become payable to each of our named executives if his or her

employment had terminated on December 31, 2019 for the reasons specified. 

Potential Payments Upon Termination as of December 31, 2019

Name

2019 Fixed

DeferredÄSalary(1)

2019 At-Risk

DeferredÄSalary(2)

Interest on 2019

Deferred Salary(3) Total

Hugh Frater

Resignation, retirement, or termination

without cause $ Ü $ Ü $ Ü $ Ü

Long-term disability Ü Ü Ü Ü

Death Ü Ü Ü Ü

Termination for cause Ü Ü Ü Ü

Celeste Brown

Resignation, retirement, or termination

without cause 909,631 712,961 21,337 1,643,929

Long-term disability 1,229,231 770,769 26,300 2,026,300

Death 1,229,231 770,769 15,755 2,015,755

Termination for cause Ü Ü Ü Ü

David Benson

Resignation, retirement, or termination

without cause 1,920,000 972,000 38,030 2,930,030

Long-term disability 1,920,000 1,080,000 39,450 3,039,450

Death 1,920,000 1,080,000 25,036 3,025,036

Termination for cause Ü Ü Ü Ü

Andrew Bon Salle

Resignation, retirement, or termination

without cause 1,313,500 877,500 28,812 2,219,812

Long-term disability 1,775,000 975,000 36,163 2,786,163

Death 1,775,000 975,000 22,950 2,772,950

Termination for cause Ü Ü Ü Ü

Jeffery Hayward

Resignation, retirement, or termination

without cause 1,460,000 756,000 29,140 2,245,140

Long-term disability 1,460,000 840,000 30,245 2,330,245

Death 1,460,000 840,000 19,194 2,319,194

Termination for cause Ü Ü Ü Ü

(1) In the case of resignation, retirement or termination without cause, Ms. Brown and Mr. Bon Salle each would have received

74% of her or his 2019 fixed deferred salary, which is the earned but unpaid portion of her or his 2019 fixed deferred salary

as of December 31, 2019, reduced by 2% for each full or partial month by which the named executiveÑs separation from

employment preceded January 31, 2021. Mr. Benson and Mr. Hayward each would have received 100% of his 2019 fixed

deferred salary, with no reduction, because Mr. Benson had reached age 55 with 10 years of service with Fannie Mae and

Mr. Hayward had reached age 62.

(2) The amounts in this column in the event of resignation, retirement, or termination without cause reflect FHFAÑs and the

BoardÑs determinations of 2019 corporate performance-based at-risk deferred salary and 2019 individual performancebased at-risk deferred salary, as described in ÇCompensation Discussion and AnalysisÜDetermination of 2019

Compensation.É The amounts in this column in the event of a termination due to death or long-term disability do not reflect

any performance-based reduction, because the hypothetical December 31, 2019 termination date occurred prior to FHFAÑs

and the BoardÑs performance determinations for at-risk deferred salary in January 2020. 

(3) Interest payable on the deferred salary payments, which reflects that: (a) in the event of resignation, retirement, termination

without cause, or long-term disability, installment payments of deferred salary would be paid on the original payment

schedule; and (b) in the event of death, payments of deferred salary would be made within 90 days of the executiveÑs

death. The amount of interest payable in the event of death in this table assumes the payment of deferred salary would

occur on the 90th day following the hypothetical December 31, 2019 date of death. Interest on 2019 deferred salary

payments accrues at an annual rate of 1.315%.

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 173
Chief Executive Officer to Median Employee Pay Ratio

The following table shows the compensation paid to our Chief Executive Officer for 2019, the total 2019 compensation of our

median employee (which was calculated based on the methodology described below the table), and the estimated ratio of the

Chief Executive OfficerÑs pay to the median employeeÑs pay for 2019.

2019 Chief Executive Officer to Median Employee Pay Ratio

Individual Compensation Ratio

Chief Executive Officer $ 671,104 4.5 to 1

Median Employee 150,098

We took the following steps to identify our median employee and determine this employeeÑs compensation:

Ö We identified our employee population as of December 31, 2019, which consisted of approximately 7,500 full-time and

part-time employees. We did not include independent contractors in this population.

Ö For each employee (other than our Chief Executive Officer), we determined the sum of his or her base salary for 2019,

performance awards for 2019 and the value of company contributions made in 2019 on his or her behalf to retirement

plans. We did not annualize the compensation of employees who were employed for less than the full year, nor did we

make any full-time equivalent adjustments to part-time employees.

Ö Comparing the sums, we identified an employee whose compensation best reflected Fannie Mae employeesÑ median

2019 compensation (that is, the midpoint of employees ranked in order of compensation amount).

Ö We then determined that median employeeÑs total 2019 compensation using the approach required by the SEC when

calculating our named executivesÑ compensation, as reported in the Summary Compensation Table.

In general, we offer employees base salary, the opportunity to receive awards for performance, company retirement plan

contributions and other benefits. In accordance with SEC rules, the median employee compensation amount for 2019 provided

in the table above consists of base salary, an award for 2019 performance, company retirement plan contributions and other

benefits, but does not reflect benefits relating to group life or health plans generally available to all salaried employees or

parking or transit benefits that are generally available to all salaried employees. The Chief Executive Officer compensation

amount for 2019 provided in the table above consists of base salary, company retirement plan contributions and relocation

benefits, and is the same amount reported in the Summary Compensation Table for 2019, 2018 and 2017.

Given the different methodologies that companies may use to determine their CEO pay ratios, the estimated ratio we report

above may not be comparable to that reported by other companies.

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 174

Director Compensation 

Overview 

Our Corporate Governance Guidelines provide that compensation for members of the Board of Directors will be reasonable,

appropriate, and commensurate with the duties and responsibilities of their Board service. Our non-management directors

receive cash compensation pursuant to a program authorized by FHFA in November 2008. Mr. Frater, our Chief Executive

Officer and a member of the Board of Directors, did not receive any additional compensation for his service as a director in

2019.
Board Compensation Levels

Board compensation levels under the program authorized by FHFA are shown in the table below. Our directors receive no

equity compensation and no meeting fees.

Board Compensation Levels

Board Service Cash Compensation

Annual retainer for non-executive Chair $ 290,000

Annual retainer for non-management directors (other than the non-executive Chair) 160,000

Committee Service Cash Compensation

Annual retainer for Audit Committee Chair $ 25,000

Annual retainer for Risk Policy and Capital Committee Chair 15,000

Annual retainer for all other Committee Chairs 10,000

Annual retainer for Audit Committee members (other than the Audit Committee Chair) 10,000

Additional Arrangements with our Non-Management Directors

Expenses. We pay for or reimburse directors for out-of-pocket expenses incurred in connection with their service on the Board

of Directors, including travel to and from our meetings, accommodations, meals and education.

Matching Charitable Gifts Program. To further our support for charitable giving, non-employee directors are able to participate

in our corporate matching gifts program on the same terms as our employees.

Stock Ownership Guidelines for Directors. In 2009, our Board of Directors eliminated our stock ownership requirements for

directors.

2019 Non-Management Director Compensation

The total 2019 compensation for our non-management directors is shown in the table below. 

2019 Non-Management Director Compensation Table

Name

FeesÄEarned

or Paid

in Cash

All Other

Compensation(1) Total

Amy Alving $ 170,000 $ Ü $ 170,000

Sheila Bair(2) 58,495 Ü 58,495

Brian Brooks(3) 125,591 Ü 125,591

Renee Glover 170,000 Ü 170,000

Michael Heid 173,629 Ü 173,629

Robert Herz 185,000 3,500 188,500

Antony Jenkins 167,417 Ü 167,417

Karin Kimbrough(4) 133,008 Ü 133,008

Diane Nordin 180,000 Ü 180,000

Jonathan Plutzik 290,000 Ü 290,000

Manolo Sênchez 160,000 5,000 165,000

Ryan Zanin 175,000 Ü 175,000

(1) Amounts shown in the ÇAll Other CompensationÉ column consist of gifts we made on behalf of the directors under our

matching charitable gifts program, under which gifts made by our employees and directors to Internal Revenue Code

SectionÄ501(c)(3) charities were matched, up to an aggregate total of $5,000 for the 2019 calendar year.

(2) Ms. Bair joined Fannie MaeÑs Board of Directors in August 2019.

(3) Mr. Brooks joined Fannie MaeÑs Board of Directors in March 2019. Mr. Brooks was an executive officer of Fannie Mae from

November 2014 to September 2018. During 2018, Mr. Brooks earned $1,300,048 in deferred salary which, according to its

terms, was paid to him in three installments in March, June and September 2019. In addition, pursuant to the terms of the

companyÑs Supplemental Retirement Savings Plan, Mr. Brooks received a lump sum payment of his balance in this plan in

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 175
July 2019 in the amount of $227,662. These amounts relating to Mr. BrooksÑs prior executive compensation that were paid

in 2019 are excluded from the amounts in this table.

(4) Ms. Kimbrough joined Fannie MaeÑs Board of Directors in March 2019.

Executive Compensation | Compensation Tables and Other Information

Fannie Mae 2019 Form 10-K 176

Item 12.ÄÄSecurity Ownership of Certain Beneficial Owners

and Management and Related Stockholder Matters

Beneficial Ownership

Stock Ownership of Directors and Executive Officers

The following table shows the beneficial ownership of our stock by each of our directors, each of our named executives, and

all directors and executive officers as a group, as of FebruaryÄ1, 2020. As of that date, no director or named executive, nor all

directors and executive officers as a group, owned as much as 1% of our outstanding common stock or any series of our

preferred stock.

Beneficial Ownership of Stock by Directors and Executive Officers

Number of Shares 

Beneficially Owned(1)

Directors and Named

Executives Position

8.25% NonCumulative Series T

Preferred Stock Common Stock

Amy Alving Director 0 0

Sheila Bair Director 0 0

Brian Brooks Director 0 0

Renee Glover Director 0 0

Michael Heid Director 0 0

Robert Herz Director 0 0

Antony Jenkins Director 0 0

Karin Kimbrough Director 0 0

Diane Nordin Director 0 0

Jonathan Plutzik Director (Chair of the Board) 0 0

Manolo Sênchez Director 0 0

Ryan Zanin Director 0 0

Hugh Frater Chief Executive Officer and Director 0 0

Celeste Brown EVPÜChief Financial Officer 0 0

David Benson President 0 0

Andrew Bon Salle EVPÜSingle-Family Mortgage Business 1,000 0

Jeffery Hayward EVP and Head of Multifamily 0 14,868

All directors and executive officers as a group (20Äpersons) 1,000 21,537

(1) Beneficial ownership is determined in accordance with the rules of the SEC for computing the number of shares of

common stock beneficially owned by each person and the percentage owned. Each holder has sole investment and voting

power over the shares referenced in this table. 
Stock Ownership of Greater-Than 5% Holders

The following table shows the beneficial ownership of our common stock by the only persons or entities we know of that hold

more than 5% of our common stock as of February 1, 2020.

Beneficial Ownership of Stock by 5%+ Holders

5% Holders

CommonÄStock

Beneficially

Owned

Percent

ofÄClass

U.S. Department of the Treasury Variable(1) 79.9%

1500 Pennsylvania Avenue, NW, Washington, DC 20220

Pershing Square Capital Management, L.P.

PS Management GP, LLC

William A. Ackman 115,569,796(2) 9.98%

888 Seventh Avenue, 42nd Floor, New York, New York 10019

(1) In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share,

shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully

diluted basis at the time the warrant is exercised. The warrant may be exercised in whole or in part at any time until

SeptemberÄ7, 2028. As of FebruaryÄ13, 2020, Treasury has not exercised the warrant. The information above assumes

Treasury beneficially owns no other shares of our common stock.

(2) Information regarding these shares and their holders is based solely on information contained in a Schedule 13D filed with

the SEC on November 15, 2013, as amended by an amendment to the Schedule 13D filed on MarchÄ31, 2014. The

Schedule 13D and its amendment were filed by these holders as well as by Pershing Square GP, LLC. According to the

original Schedule 13D, Pershing Square Capital Management, L.P., as investment adviser for a number of funds for which

it purchased the shares reported in the table above, and PS Management GP, LLC, its general partner, may be deemed to

share voting and dispositive power for the shares. Pershing Square GP, LLC, as general partner of two of the funds, may

be deemed to share voting and dispositive power for 40,114,044 of the shares reported in the table above, which are held

by the two funds. As the Chief Executive Officer of Pershing Square Capital Management, L.P. and managing member of

each of PS Management GP, LLC and Pershing Square GP, LLC, William A. Ackman may be deemed to share voting and

dispositive power for all of the shares reported in the table above. In the amendment, the parties further reported that

certain of them had entered into swap transactions resulting in their having additional economic exposure to approximately

15,434,715 notional shares of common stock under certain cash-settled total return swaps, bringing their total aggregate

economic exposure to 131,004,511 shares of common stock (approximately 11.31% of the outstanding common stock). In

the amendment to the Schedule 13D, these parties indicated that they would forgo future reporting on Schedule 13D based

on their determination that shares of the common stock are not voting securities as such term is used in Rule 13d-1(i)

under the Securities Exchange Act. As a result, the information in the table above does not reflect any acquisitions or

dispositions by these holders of Fannie Mae common stock that occurred after March 31, 2014.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |

Beneficial Ownership

Fannie Mae 2019 Form 10-K 177

Item 13.ÄÄCertain Relationships and Related Transactions,

and Director Independence

Policies and Procedures Relating to Transactions with

Related Persons

Overview. We review transactions in which Fannie Mae is a participant and in which any of our directors or executive officers

or their immediate family members may have a material interest to determine whether any of those persons has a material

interest in the transaction. Our current written policies and procedures for the review, approval or ratification of transactions

with related persons that are required to be reported under ItemÄ404(a) of RegulationÄS-K are set forth in our:

Ö Director Code of Conduct;

Ö Corporate Governance Guidelines;

Ö Nominating and Corporate Governance Committee Charter;

Ö Board of DirectorsÑ delegation of authorities and reservation of powers;

Ö Employee Code of Conduct; and

Ö Conflict of Interest Policy, Conflict of Interest Standard and Conflict of Interest Procedure for employees.
In addition, depending on the circumstances, relationships and transactions with related persons may require conservator

decision pursuant to the instructions issued to the Board of Directors by the conservator or may require the consent of

Treasury pursuant to the senior preferred stock purchase agreement.

Director Code of Conduct. Our Director Code of Conduct prohibits our directors from engaging in any conduct or activity that

is inconsistent with our best interests, as defined by the conservatorÑs express directions, its policies and applicable federal

law. Our Director Code of Conduct requires each of our directors to excuse himself or herself from voting on any issue before

the Board that could result in a conflict, self-dealing or other circumstance where the directorÑs position as a director would be

detrimental to us or result in a noncompetitive, favored or unfair advantage to either the director or the directorÑs associates. In

addition, our directors must disclose to the Chair of the Nominating and Corporate Governance Committee, or another

member of the Committee, any situation that involves or appears to involve a conflict of interest. This includes, for example,

any financial interest of a director, an immediate family member of a director or a business associate of a director in any

transaction being considered by the Board, as well as any financial interest a director has in an organization doing business

with us. Each of our directors also must annually certify compliance with our Director Code of Conduct.

Corporate Governance Guidelines; Board Delegation of Authorities and Reservation of Powers. Our Corporate

Governance Guidelines provide that our Board of Directors, directly or through its committees, reviews and approves any

action that in the reasonable business judgment of management at the time the action is taken is likely to cause significant

reputational risk to Fannie Mae or result in substantial negative publicity. Our BoardÑs delegation of authorities and reservation

of powers similarly requires Board or Board committee approval for these actions. Depending on managementÑs business

judgment, this requirement might include a related party transaction.

Nominating and Corporate Governance Committee Charter; Board Delegation of Authorities and Reservation of

Powers. The Nominating and Corporate Governance Committee Charter and our BoardÑs delegation of authorities and

reservation of powers require the Nominating and Corporate Governance Committee to approve any transaction with any

director, nominee for director or executive officer, or any immediate family member of a director, nominee for director or

executive officer, that is required to be disclosed pursuant to ItemÄ404 of RegulationÄS-K. 

Employee Code of Conduct. Our Employee Code of Conduct requires that our employees seek to avoid any actual or

apparent conflicts between our business interests and the personal interests of our employees or their family members. Our

Employee Code of Conduct requires our employees to raise any compliance or ethics concerns, including concerns relating to

suspected or known violations of our Employee Code of Conduct, with the employeeÑs manager, another appropriate member

of management, a member of our Human Resources division or our Compliance and Ethics division.

Conflict of Interest Policy, Standard and Procedure. Our Conflict of Interest Policy, Conflict of Interest Standard and

Conflict of Interest Procedure for employees requires that our executive officers report to the ComplianceÄand Ethics division

any existing or currently proposed transaction with us, whether or not in the ordinary course of business, in which the

executive officer or any immediate family member of the executive officer has a direct or indirect interest. If the Compliance

and Ethics division determines the reported transaction presents a conflict concern, our Conflict of Interest Procedure for

employees provides that the division will submit its assessment and recommended mitigation activities regarding such

transaction to the Nominating and Corporate Governance Committee for approval. Our Conflict of Interest Procedure for

employees also provides that the ComplianceÄand Ethics division will refer any such report to the Legal department for review

so that they might evaluate it for reporting purposes.

Conservator Instructions. We are required by the conservator to obtain its decision for various matters, some of which may

involve relationships or transactions with related persons. These matters include: actions requiring the consent of or

consultation with Treasury under the senior preferred stock purchase agreement; the creation of any subsidiary or affiliate, or

entering into a substantial transaction with a subsidiary or affiliate, except for routine ongoing transactions with CSS or the

creation of, or a transaction with, a subsidiary or affiliate undertaken in the ordinary course of business; changes in employee

compensation that could significantly impact our employees; new compensation arrangements with or increases in

compensation or benefits for our executive officers; setting or increasing the compensation or benefits payable to members of

the Board; and changes in our business operations, activities, and transactions that in the reasonable business judgment of

management are more likely than not to result in a significant increase in credit, market, reputational, operational or other key

risks. 

Senior Preferred Stock Purchase Agreement. The senior preferred stock purchase agreement requires us to obtain written

Treasury approval of transactions with affiliates unless, among other things, the transaction is upon terms no less favorable to

us than would be obtained in a comparable armÑs-length transaction with a non-affiliate or the transaction is undertaken in the

ordinary course or pursuant to a contractual obligation or customary employment arrangement in existence at the time the

senior preferred stock purchase agreement was entered into.

Director and Officer Disclosures. We require our directors and executive officers, not less than annually, to describe to us

any transaction with us in which a director or executive officer could potentially have an interest that would require disclosure

under ItemÄ404 of RegulationÄS-K.

Certain Relationships and Related Transactions, and Director Independence |

Policies and Procedures Relating to Transactions with Related Persons

Fannie Mae 2019 Form 10-K 178
Transactions with Related Persons

Transactions with Treasury

Treasury beneficially owns more than 5% of the outstanding shares of our common stock by virtue of the warrant we issued to

Treasury on SeptemberÄ7, 2008. The warrant entitles Treasury to purchase shares of our common stock equal to 79.9% of our

outstanding common stock on a fully diluted basis on the date of exercise, for an exercise price of $0.00001 per share, and is

exercisable in whole or in part at any time on or before SeptemberÄ7, 2028. We describe below our current agreements with

Treasury, as well as payments we are making to Treasury pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011

and the GSE Act. 

FHFA, as conservator, approved the senior preferred stock purchase agreement, the amendments to the agreement and the

letter agreements modifying the provisions of the senior preferred stock. FHFA, as conservator, also approved our role as

program administrator for the Home Affordable Modification Program and other initiatives under the Making Home Affordable

Program.

Treasury Senior Preferred Stock Purchase Agreement and Senior Preferred

Stock

We issued the warrant to Treasury pursuant to the terms of the senior preferred stock purchase agreement we entered into

with Treasury on SeptemberÄ7, 2008. Under the senior preferred stock purchase agreement, we also issued to Treasury one

million shares of senior preferred stock. We issued the warrant and the senior preferred stock as an initial commitment fee in

consideration of TreasuryÑs commitment to provide funds to us under the terms and conditions set forth in the senior preferred

stock purchase agreement. The senior preferred stock purchase agreement was subsequently amended on SeptemberÄ26,

2008, May 6, 2009, December 24, 2009 and August 17, 2012. In addition, we, through FHFA, in its capacity as conservator,

and Treasury entered into letter agreements modifying the dividend and liquidation preference provisions of the senior

preferred stock on December 21, 2017 and on September 27, 2019. In the September 2019 letter agreement, we and

Treasury also agreed to negotiate and execute an additional amendment to the senior preferred stock purchase agreement

that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for administrative

reform contained in the Treasury plan. See ÇBusinessÜConservatorship, Treasury Agreements and Housing Finance Reform

ÜTreasury AgreementsÉ for a description of the terms of the senior preferred stock purchase agreement, the senior preferred

stock and the warrant.

As of December 31, 2019, we had received an aggregate of $119.8 billion from Treasury under the senior preferred stock

purchase agreement, none of which was received in 2019, and the remaining amount of funding available to us under the

agreement was $113.9 billion. Through December 31, 2019, we had paid an aggregate of $181.4 billion to Treasury in

dividends on the senior preferred stock, $5.6 billion of which was paid in 2019. 

Treasury Making Home Affordable Program

In 2009, Treasury launched the Making Home Affordable Program to help struggling homeowners avoid foreclosure and

engaged us as program administrator for loans modified under the Home Affordable Modification Program, or HAMP, and other

initiatives under the Making Home Affordable Program. HAMP was aimed at helping borrowers by modifying their mortgage

loan to make their payments more affordable. In 2019, our principal activities as program administrator included: 

Ö implementing the guidelines and policies of the Treasury program; 

Ö supporting servicers and managing the process for servicers to report modification activity and program performance; 

Ö calculating incentive compensation consistent with program guidelines; 

Ö acting as record-keeper for executed loan modifications and program administration; and 

Ö performing other tasks as directed by Treasury from time to time. 

Although borrowers could apply for modifications under HAMP only through 2016, our role as program administrator continues

in order to administer remaining incentives payable under the program and to continue record-keeping for completed

modification activity and performance.

Under our arrangement, Treasury has compensated us for a significant portion of the work we have performed in our role as

program administrator for HAMP and other initiatives under the Making Home Affordable Program. WeÄexpect we will have

received an aggregate of approximately $523 million from Treasury for our work as program administrator from 2009 through

2019, as well as an additional amount of approximately $146 million for this period to be passed through to third-party vendors

engaged by us for HAMP and other initiatives under the Making Home Affordable Program.ÄWe expect to continue to receive

reimbursements from Treasury for our work through the completion of our role as program administrator.

Certain Relationships and Related Transactions, and Director Independence |

Transactions with Related Persons

Fannie Mae 2019 Form 10-K 179
Temporary Payroll Tax Cut Continuation Act of 2011

In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act of 2011 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.ÄTo

meet our obligations under the TCCA and at the direction of FHFA, we increased the guaranty fee on all single-family

residential mortgages delivered to us by 10 basis points effective AprilÄ1, 2012. 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. In 2019, we recognized $2.4 billion for our obligations to Treasury under

the TCCA.

Treasury Interest in Affordable Housing Allocations 

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points for each dollar of the unpaid

principal balance of our total new business purchases and to pay this amount to specified HUD and Treasury funds. In

December 2014, FHFA directed us to set aside amounts for these contributions during each fiscal year, except for any fiscal

year for which a draw from Treasury was made under the terms of the senior preferred stock purchase agreement, or in which

such allocation or transfer would cause such a draw. We paid $215 million to the funds in 2019 based on our new business

purchases in 2018. Pursuant to the GSE Act and directions from FHFA, we paid $75 million of this amount to TreasuryÑs

Capital Magnet Fund and $140 million of this amount to HUDÑs Housing Trust Fund. 

Our new business purchases were $666.9 billion for the year ended December 31, 2019. Accordingly, we recognized an

expense of $280 million related to this obligation for the year ended December 31, 2019. Of this amount, $98 million is payable

to TreasuryÑs Capital Magnet Fund and $182 million is payable to HUDÑs Housing Trust Fund. See ÇBusinessÜCharter Act and

RegulationÜGSE Act and Other LegislationÜAffordable Housing AllocationsÉ for more information regarding the GSE ActÑs

affordable housing allocation requirements.

Deferred Executive Compensation Payments to New Director

Brian Brooks joined Fannie MaeÑs Board of Directors in March 2019. Mr. Brooks was an executive officer of Fannie Mae from

November 2014 to September 2018. During 2018, Mr. Brooks earned $1,300,048 in deferred salary which, according to its

terms, was paid to him in three installments in March, June and September 2019. In addition, pursuant to the terms of the

companyÑs Supplemental Retirement Savings Plan, Mr. Brooks received a lump sum payment of his balance in this plan in

July 2019 in the amount of $227,662. 

Certain Relationships and Related Transactions, and Director Independence |

Transactions with Related Persons

Fannie Mae 2019 Form 10-K 180

Director Independence

Independence Requirements

Our Corporate Governance Guidelines, in accordance with FHFA corporate governance regulations, require a majority of

Fannie MaeÑs directors to be independent as defined under the rules set forth by the NYSE, as amended from time to time.

Where the NYSE rules do not address a particular relationship, the Board, based upon the recommendation of the Nominating

and Corporate Governance Committee, determines whether a relationship is material, and whether a Board member is

independent. Our Corporate Governance Guidelines also provide that an Çindependent board memberÉ must be determined to

have no material relationship with us, either directly or through an organization that has a material relationship with us. A

relationship is ÇmaterialÉ if, in the judgment of the Board, it would interfere with the Board memberÑs independent judgment.

Our Corporate Governance Guidelines are posted on our website, www.fanniemae.com, under ÇGovernanceÉ in the ÇAbout UsÉ

section of our website. 

In addition, under FHFA corporate governance regulations, Board committees are required to comply with the independence

requirements set forth under NYSE rules. The NYSEÑs listing standards include additional independence criteria for members

of the Audit Committee and Compensation Committee. 

Our Board of Directors 

Our Board of Directors, with the assistance of the Nominating and Corporate Governance Committee of the Board, has

reviewed the independence of all current Board members pursuant to the requirements described in ÇIndependence

RequirementsÉ above. Based on its review, the Board has determined that all of our directors are independent under these

director independence requirements other than Mr. Brooks (who is a former employee of the company) and Mr. Frater (who is

our Chief Executive Officer). 
In determining the independence of our current Board members other than Mr. Brooks and Mr. Frater, the Board of Directors

considered the following relationships, transactions or arrangements and determined they were not material to the

independence of these Board members and would not interfere with the directorÑs independent judgment: 

Ö Board Memberships with Business Partners. Ms. Alving, Ms. Bair, Ms. Glover, Mr. Heid, Mr. Herz and Mr. Sênchez are

directors or advisory Board members of companies that engage in business with Fannie Mae, that have an interest in

one or more entities that engage in business with Fannie Mae or that may engage in business with Fannie Mae in the

future. The Board considered that each of these directors was solely a director or advisory board member of such

company, and not a current executive or employee of such company. The Board also considered other relevant

information, including to the extent available information regarding payments between these companies and Fannie Mae

during the past three years. 

Ö Board Memberships with Non-Profits to Which We Have Made Payments. Mr. Herz and Ms. Nordin serve as Board or

working group members of non-profit organizations that have received payments from Fannie Mae. The amount of these

payments fell substantially below the NYSE independence standardsÑ thresholds of materiality for a director who is a

current employee of a company to which Fannie Mae made, or from which Fannie Mae received, payments.

Ö Board Memberships with Companies that Invest in Our Securities. Ms. Bair, Mr. Herz and Ms. Nordin serve as directors

or advisory Board members of companies that invest in Fannie Mae fixed-income securities. It is generally not possible

for Fannie Mae to determine the extent of the holdings of these companies in Fannie Mae fixed-income securities as

payments to holders are made through the Federal Reserve, and most of these securities are held in turn by financial

intermediaries. We understand that the investments by these companies in Fannie Mae fixed-income securities are

entered into at armÑs length in the ordinary course of business, upon market terms and conditions, and are not entered

into at the direction of, or upon approval by, the director in his or her capacity as a director of these companies. 

Ö Prior Recent Employment with Business Partners. Mr. Heid, Ms. Kimbrough and Mr. Sênchez were each recently

employed at companies that engage in business with Fannie Mae.

Ö Mr.ÄHeid is a former employee of Wells Fargo, with which we regularly enter into a variety of transactions in the

ordinary course of business. For example, Wells Fargo Bank, N.A., together with its affiliates, accounted for

approximately 14% of our single-family business volume in 2019. 

Ö Ms. Kimbrough is a former employee of Google. Fannie Mae engages in business transactions with Google.

The payments made by Fannie Mae to Google during the past three years fall below the NYSE independence

standardsÑ thresholds of materiality for a director who is a current employee of a company to which Fannie Mae

made, or from which Fannie Mae received, payments. Ms. Kimbrough owns substantially less than 1% of the

outstanding equity interests in Alphabet Inc., GoogleÑs parent company. 

Ö Mr. Sênchez is a former executive and director of Compass Bank, a U.S. subsidiary of BBVA, and also served

as a director of Compass BankÑs holding company BBVA Compass Bancshares, Inc. BBVA Compass is a

single-family seller that engages in business transactions with Fannie Mae. Mr. Sênchez owns substantially

less than 1% of the outstanding equity interests in BBVA. 

Ö Current Employment with Business Partner. Ms. Kimbrough is currently an employee of LinkedIn Corporation, a

subsidiary of Microsoft Corporation. Fannie Mae engages in business transactions with LinkedIn and Microsoft. The

payments made by Fannie Mae to Microsoft during the past three years fall below the NYSE independence standardsÑ

thresholds of materiality for a director who is a current employee of a company to which Fannie Mae made, or from

which Fannie Mae received, payments.

Ö Prior Relationship with Company Engaged in Litigation with Fannie Mae. Mr. Jenkins is a former Group Chief Executive

Officer of Barclays PLC. Barclays Bank PLC is a defendant in a lawsuit the company filed in 2013 alleging the

defendants manipulated LIBOR, as described in ÇLegal ProceedingsÜLIBOR Lawsuit.É Mr. Jenkins is not a defendant in

the lawsuit and the alleged wrongdoing at Barclays precedes Mr. JenkinsÑs appointment as Group Chief Executive

Officer. 

Ö Prior Service on Fannie MaeÄs Digital Advisory Council. Mr. Jenkins served as a member of Fannie MaeÑs Digital

Advisory Council from February 2017 to June 2018 and received the standard advisory fee for this service of $60,000

per year. The amount of payments to Mr. Jenkins for his service on the Digital Advisory Council was below the $120,000

annual compensation threshold set forth in the NYSEÑs independence standards. 

The Board also determined that each member of the Audit Committee, Compensation Committee, and Nominating and

Corporate Governance Committee met the NYSEÑs independence criteria for members of such committees.

The Board did not consider the BoardÑs duties to the conservator, together with the federal governmentÑs controlling beneficial

ownership of Fannie Mae, in determining independence of the Board members.

Mr. Brooks is not considered an independent director under NYSE independence standards because he was an employee of

the company within the last three years. Mr. Frater is not considered an independent director under NYSE independence

standards because of his position as Chief Executive Officer.

Certain Relationships and Related Transactions, and Director Independence |

Director Independence

Fannie Mae 2019 Form 10-K 181
Item 14.ÄÄPrincipal Accounting Fees and Services

The Audit Committee of our Board of Directors is directly responsible for the appointment, oversight and evaluation of our

independent registered public accounting firm, subject to conservator approval of matters relating to retention and termination.

DeloitteÄ& Touche LLP was our independent registered public accounting firm for the years ended 2019 and 2018. DeloitteÄ&

Touche LLP has advised the Audit Committee that they are independent accountants with respect to the company, within the

meaning of standards established by the Public Company Accounting Oversight Board and federal securities laws

administered by the SEC.

The following table displays the aggregate estimated or actual fees for professional services provided by DeloitteÄ& Touche

LLP, including audit fees.

For the Year Ended 

December 31,

2019 2018

Description of fees:

Audit fees $ 37,630,000 $ 34,977,000

Audit-related fees(1) 315,000 252,000

Tax fees Ñ Ü

All other fees(2) 1,000 117,000

Total fees $ 37,946,000 $ 35,346,000

(1) Consists of fees billed for attest-related services on debt offerings and compliance with the covenants in the senior preferred stock

purchase agreement with Treasury.

(2) Consists of fees billed for non-audit engagements and trainings.

Pre-Approval Policy

In accordance with its charter, the Audit Committee must approve, in advance of the service, all audit and permissible nonaudit services to be provided by our independent registered public accounting firm and establish policies and procedures for

the engagement of the external auditor to provide audit and permissible non-audit services. The independent registered public

accounting firm and management are required to present reports on the nature of the services provided by the independent

registered public accounting firm for the past year and the fees for such services, categorized into audit services, audit-related

services, tax services and other services. The firm may not be retained to perform non-audit services specified in SectionÄ10A

(g) of the Exchange Act.

In connection with its approval of DeloitteÄ& Touche LLP as Fannie MaeÑs independent registered public accounting firm for

Fannie MaeÑs 2019 integrated audit, the Audit Committee delegated the authority to pre-approve any additional audit and

audit-related services to its Chair, who was required to report any such pre-approvals at the next scheduled meeting of the

Audit Committee. Additionally, any services provided by DeloitteÄ& Touche LLP outside of the scope of the integrated audit

must be approved by the conservator.

In 2019, we paid no fees to the independent registered public accounting firm pursuant to the de minimis exception

established by the SEC, and all services were pre-approved.

Principal Accounting Fees and Services

Fannie Mae 2019 Form 10-K 182
PARTÄIV

Exhibits, Financial Statement Schedules

Fannie Mae 2019 Form 10-K 183

Item 15.ÄÄExhibits, Financial Statement Schedules

Documents filed as part of this report 

Consolidated Financial Statements 

An index to our consolidated financial statements has been filed as part of this report beginning on page F-1 and is

incorporated herein by reference. 

Financial Statement Schedules 

None. 

Exhibits

The table below lists exhibits that are filed with or incorporated by reference into this report.

Item Description

3.1 Fannie Mae Charter Act (12ÄU.S.C. Å 1716 et seq.) as amended through July 25, 2019 (Incorporated by reference to Exhibit

3.1 to Fannie MaeÑs Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed October 31, 2019)

3.2 Fannie Mae Bylaws, as amended through January 29, 2019 (Incorporated by reference to Exhibit 3.2 to Fannie MaeÑs

Annual Report on Form 10-K for the year ended December 31, 2018, filed February 14, 2019) 

4.1 Description of Securities of the Registrant 

4.2 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄD (Incorporated by reference to ExhibitÄ4.1 to

Fannie MaeÑs registration statement on FormÄ10, filed MarchÄ31, 2003)

4.3 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄE (Incorporated by reference to ExhibitÄ4.2 to

Fannie MaeÑs registration statement on FormÄ10, filed MarchÄ31, 2003)

4.4 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series F (Incorporated by reference to Exhibit 4.3 to

Fannie MaeÑs registration statement on Form 10, filed March 31, 2003)

4.5 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄG (Incorporated by reference to ExhibitÄ4.4 to

Fannie MaeÑs registration statement on FormÄ10, filed MarchÄ31, 2003)

4.6 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄH (Incorporated by reference to ExhibitÄ4.5 to

Fannie MaeÑs registration statement on FormÄ10, filed MarchÄ31, 2003)

4.7 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄI (Incorporated by reference to ExhibitÄ4.6 to

Fannie MaeÑs registration statement on FormÄ10, filed MarchÄ31, 2003)

4.8 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄL (Incorporated by reference to ExhibitÄ4.7 to

Fannie MaeÑs Quarterly Report on FormÄ10-Q, filed AugustÄ8, 2008)

4.9 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄM (Incorporated by reference to ExhibitÄ4.8 to

Fannie MaeÑs Quarterly Report on FormÄ10-Q, filed AugustÄ8, 2008)

4.10 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄN (Incorporated by reference to ExhibitÄ4.9 to

Fannie MaeÑs Quarterly Report on FormÄ10-Q, filed AugustÄ8, 2008)

4.11 Certificate of Designation of Terms of Fannie Mae Non-Cumulative Convertible Preferred Stock, SeriesÄ2004-1 (Incorporated

by reference to Exhibit 4.10 to Fannie MaeÑs Annual Report on FormÄ10-K for the year ended DecemberÄ31, 2009, filed

FebruaryÄ26, 2010)

4.12 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄO (Incorporated by reference to Exhibit 4.11 to

Fannie MaeÑs Annual Report on FormÄ10-K for the year ended DecemberÄ31, 2009, filed FebruaryÄ26, 2010)

4.13 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄP (Incorporated by reference to Exhibit 4.12 to

Fannie MaeÑs Annual Report on Form 10-K for the year ended DecemberÄ31, 2012, filed April 2, 2013)

4.14 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄQ (Incorporated by reference to Exhibit 4.13 to

Fannie MaeÑs Annual Report on Form 10-K for the year ended DecemberÄ31, 2012, filed April 2, 2013)

4.15 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄR (Incorporated by reference to Exhibit 4.14 to

Fannie MaeÑs Annual Report on Form 10-K for the year ended DecemberÄ31, 2012, filed April 2, 2013)

4.16 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄS (Incorporated by reference to Exhibit 4.15 to

Fannie MaeÑs Annual Report on Form 10-K for the year ended DecemberÄ31, 2012, filed April 2, 2013)

4.17 Certificate of Designation of Terms of Fannie Mae Preferred Stock, SeriesÄT (Incorporated by reference to ExhibitÄ4.1 to

Fannie MaeÑs Current Report on FormÄ8-K, filed MayÄ19, 2008)
4.18 Amended and Restated Certificate of Designation of Terms of Variable Liquidation Preference Senior Preferred Stock,

SeriesÄ2008-2, amended and restated as of September 30, 2019 (Incorporated by reference to Exhibit 4.1 to Fannie MaeÑs

Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed October 31, 2019)

4.19 Warrant to Purchase Common Stock, dated SeptemberÄ7, 2008 (Incorporated by reference to ExhibitÄ4.3 to Fannie MaeÑs

Current Report on FormÄ8-K, filed SeptemberÄ11, 2008)

4.20 Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of SeptemberÄ26, 2008, between the United

States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing Finance

Agency as its duly appointed conservator (Incorporated by reference to ExhibitÄ4.1 to Fannie MaeÑs Current Report on

FormÄ8-K, filed October 2, 2008)

4.21 Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of MayÄ6, 2009, between the

United States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing

Finance Agency as its duly appointed conservator (Incorporated by reference to ExhibitÄ4.21 to Fannie MaeÑs Quarterly

Report on FormÄ10-Q for the quarter ended March 31, 2009, filed MayÄ8, 2009)

4.22 Second Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of DecemberÄ24,

2009, between the United States Department of the Treasury and Federal National Mortgage Association, acting through the

Federal Housing Finance Agency as its duly appointed conservator (Incorporated by reference to ExhibitÄ4.1 to Fannie MaeÑs

Current Report on FormÄ8-K, filed DecemberÄ30, 2009)

4.23 Third Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of August 17, 2012,

between the United States Department of the Treasury and Federal National Mortgage Association, acting through the

Federal Housing Finance Agency as its duly appointed conservator (Incorporated by reference to Exhibit 4.1 to Fannie MaeÑs

Current Report on Form 8-K, filed August 17, 2012)

4.24 Letter Agreement between the United States Department of the Treasury and the Federal National Mortgage Association,

acting through the Federal Housing Finance Agency as its duly appointed conservator, dated December 21, 2017

(Incorporated by reference to Exhibit 10.1 to Fannie MaeÑs Current Report on Form 8-K, filed December 21, 2017)

4.25 Letter Agreement between the United States Department of the Treasury and the Federal National Mortgage Association,

acting through the Federal Housing Finance Agency as its duly appointed conservator, dated September 27, 2019

(Incorporated by reference to Exhibit 10.1 to Fannie MaeÑs Current Report on Form 8-K, filed October 1, 2019)

10.1 Repayment Provisions for SEC Executive Officers, amended and restated as of March 8, 2012ì (Incorporated by reference

to Exhibit 10.44 to Fannie MaeÑs Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed May 9, 2012)

10.2 Fannie Mae Form of Indemnification Agreement for directors and officers of Fannie Mae (Incorporated by reference to Exhibit

10.15 to Fannie MaeÑs Annual Report on Form 10-K for the year ended December 31, 2008, filed February 26, 2009.)

10.3 Fannie Mae FormÄof Indemnification Agreement for directors and officers of Fannie Mae (Incorporated by reference to Exhibit

10.2 to Fannie MaeÑs Annual Report on Form 10-K for the year ended December 31, 2016, filed February 17, 2017)

10.4 Fannie Mae Form of Indemnification Agreement for directors and officers of Fannie Mae (Incorporated by reference to Exhibit

10.3 to Fannie MaeÑs Annual Report on Form 10-K for the year ended December 31, 2018, filed February 14, 2019)

10.5 Form of Relocation Repayment Agreement for Officers of Fannie Maeì (Incorporated by reference to Exhibit 10.1 to Fannie

MaeÑs Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed May 1, 2019)

10.6 Fannie Mae Supplemental Retirement Savings Plan, as amended through AprilÄ29, 2008ì (Incorporated by reference to

Exhibit 10.2 to Fannie MaeÑs Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed AugustÄ8, 2008)

10.7 Amendment to Fannie Mae Supplemental Retirement Savings Plan, effective OctoberÄ8, 2008ì (Incorporated by reference to

ExhibitÄ10.32 to Fannie MaeÑs Annual Report on FormÄ10-K for the year ended DecemberÄ31, 2008, filed FebruaryÄ26, 2009)

10.8 Amendment to Fannie Mae Supplemental Retirement Savings Plan, effective MayÄ14, 2010ì (Incorporated by reference to

Exhibit 10.2 to Fannie MaeÑs Quarterly Report on FormÄ10-Q for the quarter ended June 30, 2010, filed AugustÄ5, 2010)

10.9 Amendment to Fannie Mae Supplemental Retirement Savings plan for 2012 Executive Compensation Program, adopted

May 18, 2012ì (Incorporated by reference to Exhibit 10.3 to Fannie MaeÑs Quarterly Report on Form 10-Q for the quarter

ended June 30, 2012, filed August 8, 2012)

10.10 Amendment to Fannie Mae Supplemental Retirement Savings Plan, effective July 1, 2013ì (Incorporated by reference to

ExhibitÄ10.4 to Fannie MaeÑs Quarterly Report on FormÄ10-Q for the quarter ended September 30, 2013, filed November 7,

2013)

10.11 Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of SeptemberÄ26, 2008, between the United

States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing Finance

Agency as its duly appointed conservator (Incorporated by reference ExhibitÄ4.1 to Fannie MaeÑs Current Report on FormÄ8-

K, filed OctoberÄ2, 2008)

10.12 Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of MayÄ6, 2009, between the

United States Department of the Treasury and Federal National Mortgage Association, acting through the Federal Housing

Finance Agency as its duly appointed conservator (Incorporated by reference to ExhibitÄ4.21 to Fannie MaeÑs Quarterly

Report on FormÄ10-Q, filed MayÄ8, 2009)

10.13 Second Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of DecemberÄ24,

2009, between the United States Department of the Treasury and Federal National Mortgage Association, acting through the

Federal Housing Finance Agency as its duly appointed conservator (Incorporated by reference to ExhibitÄ4.1 to Fannie MaeÑs

Current Report on FormÄ8-K, filed DecemberÄ30, 2009)

Exhibits, Financial Statement Schedules

Fannie Mae 2019 Form 10-K 184
__________

ì This ExhibitÄis a management contract or compensatory plan or arrangement.

* The financial information contained in these XBRL documents is unaudited.

10.14 Third Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of August 17, 2012,

between the United States Department of the Treasury and Federal National Mortgage Association, acting through the

Federal Housing Finance Agency as its duly appointed conservator (Incorporated by reference to Exhibit 4.1 to Fannie MaeÑs

Current Report on Form 8-K, filed August 17, 2012)

10.15 Letter Agreement between the United States Department of the Treasury and the Federal National Mortgage Association,

acting through the Federal Housing Finance Agency as its duly appointed conservator, dated December 21, 2017

(Incorporated by reference to Exhibit 10.1 to Fannie MaeÑs Current Report on Form 8-K, filed December 21, 2017)

10.16 Letter Agreement between the United States Department of the Treasury and the Federal National Mortgage Association,

acting through the Federal Housing Finance Agency as its duly appointed conservator, dated September 27, 2019

(Incorporated by reference to Exhibit 10.1 to Fannie MaeÑs Current Report on Form 8-K, filed October 1, 2019)

10.17 Advisory Council Membership Agreement, dated as of February 3, 2017, by and between Fannie Mae and Antony Jenkins

(Incorporated by reference to Exhibit 10.1 to Fannie MaeÑs Quarterly Report on Form 10-Q (Commission file number

000-50231) for the quarter ended June 30, 2018, filed August 2, 2018)

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)

32.1 Certification of Chief Executive Officer pursuant to 18ÄU.S.C. Section 1350

32.2 Certification of Chief Financial Officer pursuant to 18ÄU.S.C. Section 1350

99.1 Third Amended and Restated Limited Liability Company Agreement of Common Securitization Solutions, LLC, dated as of

January 9, 2020

101. INS Inline XBRL Instance Document* - the instance document does not appear in the Interactive Data File because its XBRL tags

are embedded within the Inline XBRL document

101. SCH Inline XBRL Taxonomy Extension Schema*

101. CAL Inline XBRL Taxonomy Extension Calculation*

101. DEF Inline XBRL Taxonomy Extension Definition*

101. LAB Inline XBRL Taxonomy Extension Label*

101. PRE Inline XBRL Taxonomy Extension Presentation*

104 Cover Page Interactive Data File*ÜThe Cover Page Interactive Data File does not appear in the Interactive Data File

because its XBRL tags are embedded within the Inline XBRL document included as Exhibit 101

Exhibits, Financial Statement Schedules

Fannie Mae 2019 Form 10-K 185

Item 16.ÄÄForm 10-K Summary

None.
SIGNATURES

Pursuant to the requirements of SectionÄ13 or 15(d) 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

 /s/ Hugh R. Frater

Hugh R. Frater

Chief Executive Officer

Date: February 13, 2020 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints

Hugh R. Frater and Celeste M. Brown, and each of them severally, his or her true and lawful attorney-in-fact with power of

substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things

and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act

of 1934 and any rules, regulations and requirements of the U.S.ÄSecurities and Exchange Commission in connection with the

Annual Report on FormÄ10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or

could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her

substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Jonathan Plutzik Chair of the Board of Directors February 13, 2020

Jonathan Plutzik

 /s/ Hugh R. Frater Chief Executive Officer and Director February 13, 2020

Hugh R. Frater

/s/ Celeste M. Brown Executive Vice President and Chief Financial Officer February 13, 2020

Celeste M. Brown

/s/ Chryssa C. Halley Senior Vice President and Controller February 13, 2020

Chryssa C. Halley

/s/ Amy E. Alving Director February 13, 2020

Amy E. Alving

Signatures

Fannie Mae 2019 Form 10-K 186
Signature Title Date

/s/ Sheila C. Bair Director February 13, 2020

Sheila C. Bair

/s/ Brian P. Brooks Director February 13, 2020

Brian P. Brooks

/s/ Renee L. Glover Director February 13, 2020

Renee L. Glover

/s/ Michael J. Heid Director February 13, 2020

Michael J. Heid

/s/ Robert H. Herz Director February 13, 2020

Robert H. Herz

/s/ Antony Jenkins Director February 13, 2020

Antony Jenkins

/s/ Karin Kimbrough Director February 13, 2020

Karin Kimbrough

/s/ Diane C. Nordin Director February 13, 2020

Diane C. Nordin

/s/ Manuel Sênchez Rodrîguez Director February 13, 2020

Manuel Sênchez Rodrîguez

/s/ Ryan A. Zanin Director February 13, 2020

Ryan A. Zanin

Signatures

Fannie Mae 2019 Form 10-K 187
Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Consolidated Statements of Changes in Equity (Deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Note 1ÜSummary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Note 2ÜConsolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23

Note 3ÜMortgage Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25

Note 4ÜAllowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31

Note 5ÜInvestments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32

Note 6ÜFinancial Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35

Note 7ÜShort-Term and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36

Note 8ÜDerivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-38

Note 9ÜIncome Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40

Note 10ÜSegment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-42

Note 11ÜEquity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45

Note 12ÜRegulatory Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50

Note 13ÜConcentrations of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-51

Note 14ÜNetting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-57

Note 15ÜFair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58

Note 16ÜCommitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-72

Note 17ÜSelected Quarterly Financial Information (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-74

Index to Consolidated Financial Statements

Fannie Mae 2019 Form 10-K F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To Fannie Mae:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Fannie Mae and consolidated entities (in conservatorship)

(the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive

income, cash flows, and changes in equity (deficit) for each of the three years in the period ended December 31, 2019, and

the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in

all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its

operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with

accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in

Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway

Commission and our report dated February 13, 2020, expressed an adverse opinion on the Company's internal control over

financial reporting because of a material weakness.

Emphasis of a Matter

As discussed in Note 1 to the consolidated financial statements, the Company is currently under the control of its conservator

and regulator, the Federal Housing Finance Agency (ÇFHFAÉ). Further, the Company directly and indirectly received substantial

support from various agencies of the United States Government, including the United States Department of Treasury and

FHFA. The Company is dependent upon continued support of the United States Government, various United States

Government agencies and the CompanyÑs conservator and regulator, FHFA.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on

the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are

required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether

due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial

statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included

examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also

included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the

overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters 

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that

were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that

are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The

communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole,

and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or

on the accounts or disclosures to which they relate.

Allowance for Loan Losses - Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

The CompanyÑs allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to

its recorded investment in held for investment loans. The allowance for loan losses consists of a specific loss reserve for

Report of Independent Registered Public Accounting Firm

Fannie Mae 2019 Form 10-K F-2
individually impaired loans and a collective loss reserve for all other loans. The allowance for loan losses is determined based

on internal models and management assumptions. The CompanyÑs internal models incorporate both historical loan

performance data and market data to estimate incurred credit losses. In determining the collective reserve, the Company

develops estimates such as default rates and loss severity in the event of default. To estimate the specific loss reserve, the

Company primarily measures impairment using a discounted cash flow analysis. The cash flow analysis incorporates

estimates produced by the CompanyÑs internal models which include the probability of prepayment, default rates and loss

severity in the event of default.

We identified the allowance for loan losses as a critical audit matter because of the complexity of the CompanyÑs internal

models and the significant assumptions used by management. Auditing the allowance for loan losses required a high degree

of auditor judgment and an increased extent of effort, including the need to involve credit specialists when performing audit

procedures to evaluate the reasonableness of managementÑs models and assumptions. 

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the internal models and assumptions used by management to estimate the allowance for loan

losses included the following, among others:

Ö We tested the effectiveness of controls over the allowance for loan losses, including those related to the internal

models and significant management assumptions.

Ö With the assistance of our credit specialists, we evaluated the internal models and managementÑs assumptions

including inputs into and the resulting estimates of:

ï default rates and loss severity in the event of default for collectively assessed loans

ï the expected future cash flows for individually impaired loans, including estimates of the probability of

prepayment, default rates and loss severity in the event of default

Ö We analyzed macroeconomic trends and changes in the CompanyÑs book of business in order to evaluate the

appropriateness of managementÑs assumptions.

Ö We compared model-produced estimates of prepayment, default rates and loss severity in the event of default to

actual results over historical periods in order to evaluate key assumptions.

New Accounting Guidance - Accounting Standard Update 2016-13, Financial Instruments - Credit Losses (Topic 326),

Measurement of Credit Losses on Financial Instruments (ÉASC 326Ñ) - Refer to Note 1 to the financial statements

Critical Audit Matter Description 

The Company adopted ASC 326 on January 1, 2020. In accordance with Securities and Exchange Commission requirements,

the Company has disclosed the impact that the adoption of the new accounting standard will have on its financial statements.

ASC 326 replaces the incurred loss impairment methodology for loans that are collectively evaluated for impairment with a

methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and

supportable forecast information to develop credit loss estimates. To calculate the impact of the adoption of ASC 326, the

Company used a discounted cash flow method to measure expected credit losses on its single-family mortgage loans and an

undiscounted loss method to measure expected credit losses on its multifamily mortgage loans. The internal models used to

estimate credit losses incorporate historical loan performance data, adjusted for current economic forecasts and the current

credit profile of the CompanyÑs loan book of business. The models use reasonable and supportable forecasts for key economic

drivers, such as home prices (single-family), rental income (multifamily) and capitalization rates (multifamily). The cash flow

analysis incorporates estimates produced by the CompanyÑs internal models which include the probability of prepayment,

default rates and loss severity in the event of default. Accordingly, the estimate of lifetime expected credit losses requires

significant management judgment. 

We identified the disclosure of the impact of the adoption of ASC 326 as a critical audit matter because of the complexity of the

CompanyÑs internal models and the significant assumptions used by management to estimate the allowance for loan losses.

Testing the impact of the adoption of ASC 326 required a high degree of auditor judgment and an increased extent of effort,

including the need to involve credit specialists when performing audit procedures to evaluate the reasonableness of

managementÑs models and estimates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the internal models and assumptions used by management to estimate the impact of the

adoption of ASC 326 included the following, among others:

Report of Independent Registered Public Accounting Firm

Fannie Mae 2019 Form 10-K F-3
Ö We tested the effectiveness of internal controls, including those related to the internal models and significant

management assumptions.

Ö With the assistance of our credit specialists, we evaluated the internal models and managementÑs assumptions,

including inputs into and the resulting estimates of the expected future cash flows, including the probability of

prepayment, default rates and loss severity in the event of default.

Ö We tested the accuracy of historical loan performance data and current economic data consumed by the internal

models used to calculate expected credit losses.

Ö We evaluated the appropriateness of economic and other forecasts used in internal models, including the reversion

period applied for periods beyond the reasonable and supportable forecast period.

/s/ Deloitte & Touche LLP

McLean, Virginia 

February 13, 2020

We have served as the Company's auditor since 2005.

Report of Independent Registered Public Accounting Firm

Fannie Mae 2019 Form 10-K F-4
FANNIE MAE

(In conservatorship)

Consolidated Balance Sheets

(Dollars in millions)

As of December 31,

2019 2018

ASSETS

Cash and cash equivalents $ 21,184 $ 25,557

Restricted cash (includes $33,294 and $17,849, respectively, related to consolidated trusts) 40,223 23,866

Federal funds sold and securities purchased under agreements to resell or similar arrangements 13,578 32,938

Investments in securities:

Trading, at fair value (includes $3,037 and $3,061, respectively, pledged as collateral) 48,123 41,867

Available-for-sale, at fair value 2,404 3,429

Total investments in securities 50,527 45,296

Mortgage loans:

Loans held for sale, at lower of cost or fair value 6,773 7,701

Loans held for investment, at amortized cost:

Of Fannie Mae 94,911 113,039

Of consolidated trusts 3,241,494 3,142,858

Total loans held for investment (includes $7,825 and $8,922, respectively, at fair value) 3,336,405 3,255,897

Allowance for loan losses (9,016) (14,203)

Total loans held for investment, net of allowance 3,327,389 3,241,694

Total mortgage loans 3,334,162 3,249,395

Deferred tax assets, net 11,910 13,188

Accrued interest receivable, net (includes $8,172 and $7,928, respectively, related to consolidated trusts) 8,604 8,490

Acquired property, net 2,366 2,584

Other assets 20,765 17,004

Total assets $ 3,503,319 $ 3,418,318

LIABILITIES AND EQUITY

Liabilities:

Accrued interest payable (includes $9,361 and $9,133, respectively, related to consolidated trusts) $ 10,228 $ 10,211

Debt:

Of Fannie Mae (includes $5,687 and $6,826, respectively, at fair value) 182,247 232,074

Of consolidated trusts (includes $21,880 and $23,753, respectively, at fair value) 3,285,139 3,159,846

Other liabilities (includes $376 and $356, respectively, related to consolidated trusts) 11,097 9,947

Total liabilities 3,488,711 3,412,078

Commitments and contingencies (Note 16) Ñ Ü

Fannie Mae stockholdersÑ equity:

Senior preferred stock (liquidation preference of $131,178 and $123,836, respectively) 120,836 120,836

Preferred stock, 700,000,000Äshares are authorizedÜ555,374,922Äshares issued and outstanding 19,130 19,130

Common stock, no par value, no maximum authorizationÜ1,308,762,703 shares issued and

1,158,087,567 shares outstanding 687 687

Accumulated deficit (118,776) (127,335)

Accumulated other comprehensive income 131 322

Treasury stock, at cost, 150,675,136Äshares (7,400) (7,400)

Total stockholdersÑ equity (See Note 1: Senior Preferred Stock Purchase Agreement, Senior Preferred

Stock and Warrant for information on the related dividend obligation and liquidation preference) 14,608 6,240

Total liabilities and equity $ 3,503,319 $ 3,418,318

See Notes to Consolidated Financial Statements

 Financial Statements | Consolidated Balance Sheets

Fannie Mae (In conservatorship) 2019 Form 10-K F-5
FANNIE MAE

(In conservatorship)

Consolidated Statements of Operations and Comprehensive

Income

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

For the Year Ended December 31,

2019 2018 2017

Interest income:

Trading securities $ 1,627 $ 1,336 $ 706

Available-for-sale securities 175 230 335

Mortgage loans 116,764 114,605 108,319

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

arrangements 843 742 373

Other 163 136 123

Total interest income 119,572 117,049 109,856

Interest expense:

Short-term debt (501) (468) (250)

Long-term debt (98,109) (95,630) (88,873)

Total interest expense (98,610) (96,098) (89,123)

Net interest income 20,962 20,951 20,733

Benefit for credit losses 4,011 3,309 2,041

Net interest income after benefit for credit losses 24,973 24,260 22,774

Investment gains, net 1,770 952 1,522

Fair value gains (losses), net (2,214) 1,121 (1,211)

Fee and other income 1,176 979 2,227

Non-interest income 732 3,052 2,538

Administrative expenses:

Salaries and employee benefits (1,486) (1,451) (1,328)

Professional services (967) (1,032) (933)

Other administrative expenses (570) (576) (476)

Total administrative expenses (3,023) (3,059) (2,737)

Foreclosed property expense (515) (617) (521)

Temporary Payroll Tax Cut Continuation Act of 2011 (ÇTCCAÉ) fees (2,432) (2,284) (2,096)

Other expenses, net (2,158) (1,253) (1,511)

Total expenses (8,128) (7,213) (6,865)

Income before federal income taxes 17,577 20,099 18,447

Provision for federal income taxes (3,417) (4,140) (15,984)

Net income 14,160 15,959 2,463

Other comprehensive loss:

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

and taxes (179) (344) (206)

Other, net of taxes (12) (4) Ü

Total other comprehensive loss (191) (348) (206)

Total comprehensive income $ 13,969 $ 15,611 $ 2,257

Net income $ 14,160 $ 15,959 $ 2,463

Dividends distributed or amounts attributable to senior preferred stock (13,969) (12,613) (8,944)

Net income (loss) attributable to common stockholders $ 191 $ 3,346 $ (6,481)

Earnings (loss) per share:

Basic $ 0.03 $ 0.58 $ (1.12)

Diluted 0.03 0.57 (1.12)

Weighted-average common shares outstanding:

Basic 5,762 5,762 5,762

Diluted 5,893 5,893 5,762

See Notes to Consolidated Financial Statements

Financial Statements | Consolidated Statements of Operations and Comprehensive Income

Fannie Mae (In conservatorship) 2019 Form 10-K F-6
FANNIE MAE

(In conservatorship)

Consolidated Statements of Cash Flows

(Dollars in millions)

For the Year Ended December 31,

2019 2018 2017

Cash flows provided by (used in) operating activities:

Net income $ 14,160 $ 15,959 $ 2,463

Reconciliation of net income to net cash provided by operating activities:

Amortization of cost basis adjustments (6,002) (5,949) (6,641)

Benefit for credit losses (4,011) (3,309) (2,041)

Valuation gains (1,809) (911) (1,573)

Current and deferred federal income taxes 1,517 3,680 14,369

Net gains related to the disposition of acquired property and preforeclosure sales, including credit

enhancements (917) (1,785) (2,426)

Other, net (98) 440 (406)

Net change in trading securities (1,630) (5,454) 4,511

Interest payment on discounted debt (5,964) (423) (4,043)

Net cash provided by (used in) operating activities (4,754) 2,248 4,213

Cash flows provided by investing activities:

Proceeds from maturities and paydowns of trading securities held for investment 58 182 1,206

Proceeds from sales of trading securities held for investment 49 96 241

Proceeds from maturities and paydowns of available-for-sale securities 469 695 2,009

Proceeds from sales of available-for-sale securities 537 760 1,990

Purchases of loans held for investment (261,808) (172,155) (189,593)

Proceeds from repayments of loans acquired as held for investment of Fannie Mae 12,508 15,082 22,557

Proceeds from sales of loans acquired as held for investment of Fannie Mae 17,794 17,511 10,241

Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts 552,135 401,045 435,637

Advances to lenders (141,395) (108,294) (123,687)

Proceeds from disposition of acquired property and preforeclosure sales 7,425 9,321 12,221

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

arrangements 19,360 (13,468) 10,945

Other, net (80) 78 641

Net cash provided by investing activities 207,052 150,853 184,408

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae 789,572 789,355 1,034,742

Payments to redeem debt of Fannie Mae (834,294) (834,366) (1,082,427)

Proceeds from issuance of debt of consolidated trusts 435,235 357,846 383,793

Payments to redeem debt of consolidated trusts (575,706) (471,151) (514,637)

Payments of cash dividends on senior preferred stock to Treasury (5,601) (9,372) (12,015)

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

Other, net 480 63 6

Net cash used in financing activities (190,314) (163,938) (190,538)

Net increase (decrease) in cash, cash equivalents and restricted cash 11,984 (10,837) (1,917)

Cash, cash equivalents and restricted cash at beginning of period 49,423 60,260 62,177

Cash, cash equivalents and restricted cash at end of period $ 61,407 $ 49,423 $ 60,260

Cash paid during the period for:

Interest $ 121,542 $ 110,415 $ 109,480

Income taxes 1,900 460 3,090

Non-cash activities:

Net mortgage loans acquired by assuming debt $ 273,174 $ 231,478 $ 258,312

Net transfers from mortgage loans of Fannie Mae to mortgage loans of consolidated trusts 248,463 185,310 193,809

Transfers from advances to lenders to loans held for investment of consolidated trusts 128,272 102,865 118,282

Net transfers from mortgage loans to acquired property 6,681 8,131 10,262

See Notes to Consolidated Financial Statements

Financial Statements | Consolidated Statements of Cash Flows

Fannie Mae (In conservatorship) 2019 Form 10-K F-7
FANNIE MAE

(In conservatorship)

Consolidated Statements of Changes in Equity (Deficit)

(Dollars and shares in millions)

Fannie Mae StockholdersÜ 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 DecemberÄ31, 2016 1 556 1,158 $ 117,149 $ 19,130 $ 687 $ (124,253) $ 759 $ (7,401) $ 6,071

Senior preferred stock dividends paid Ü Ü Ü Ü Ü Ü (12,015) Ü Ü (12,015)

Comprehensive income:

Net income Ü Ü Ü Ü Ü Ü 2,463 Ü Ü 2,463

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $28) Ü Ü Ü Ü Ü Ü Ü 53 Ü 53

Reclassification adjustment for gains included

in net income (net of taxes of $139) Ü Ü Ü Ü Ü Ü Ü (259) Ü (259)

Total comprehensive income 2,257

Other Ü Ü Ü Ü Ü Ü Ü Ü 1 1

Balance as of DecemberÄ31, 2017 1 556 1,158 $ 117,149 $ 19,130 $ 687 $ (133,805) $ 553 $ (7,400) $ (3,686)

Senior preferred stock dividends paid Ü Ü Ü Ü Ü Ü (9,372) Ü Ü (9,372)

Increase to senior preferred stock Ü Ü Ü 3,687 Ü Ü Ü Ü Ü 3,687

Comprehensive income:

Net income Ü Ü Ü Ü Ü Ü 15,959 Ü Ü 15,959

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $21) Ü Ü Ü Ü Ü Ü Ü (79) Ü (79)

Reclassification adjustment for gains included

in net income (net of taxes of $70) Ü Ü Ü Ü Ü Ü Ü (265) Ü (265)

Other (net of taxes of $0) Ü Ü Ü Ü Ü Ü Ü (4) Ü (4)

Total comprehensive income 15,611

Reclassification related to Tax Cuts and Jobs Act Ü Ü Ü Ü Ü Ü (117) 117 Ü Ü

Balance as of DecemberÄ31, 2018 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (127,335) $ 322 $ (7,400) $ 6,240

Senior preferred stock dividends paid Ñ Ñ Ñ Ñ Ñ Ñ (5,601) Ñ Ñ (5,601)

Comprehensive income:

Net income Ñ Ñ Ñ Ñ Ñ Ñ 14,160 Ñ Ñ 14,160

Other comprehensive income, net of tax effect:

Changes in net unrealized gains on availablefor-sale securities (net of taxes of $0) Ñ Ñ Ñ Ñ Ñ Ñ Ñ 1 Ñ 1

Reclassification adjustment for gains included

in net income (net of taxes of $48) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (180) Ñ (180)

Other (net of taxes of $3) Ñ Ñ Ñ Ñ Ñ Ñ Ñ (12) Ñ (12)

Total comprehensive income 13,969

Balance as of DecemberÄ31, 2019 1 556 1,158 $ 120,836 $ 19,130 $ 687 $ (118,776) $ 131 $ (7,400) $ 14,608

See Notes to Consolidated Financial Statements

Financial Statements | Consolidated Statements of Changes in Equity (Deficit)

Fannie Mae (In conservatorship) 2019 Form 10-K F-8
FANNIE MAE

(In conservatorship)

Notes to Consolidated Financial Statements

1.ÄÄSummary of Significant Accounting Policies

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-9

Organization

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act

(the ÇCharter ActÉ or our ÇcharterÉ). We are a government-sponsored enterprise (ÇGSEÉ), and we are subject to government

oversight and regulation. Our regulators include the Federal Housing Finance Agency (ÇFHFAÉ), the U.S.ÄDepartment of

Housing and Urban Development (ÇHUDÉ), the U.S.ÄSecurities and Exchange Commission (ÇSECÉ), and the U.S.ÄDepartment

of the Treasury (ÇTreasuryÉ). The U.S.Ägovernment does not guarantee our securities or other obligations. 

We operate in the secondary mortgage market, primarily working with lenders. We do not originate loans or lend money

directly to consumers in the primary mortgage market. Instead, we securitize mortgage loans originated by lenders intoÄFannie

Mae mortgage-backed securities (ÇMBSÉ) that we guarantee; 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 increase

the supply of affordable housing.

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

secondary mortgage market relating to loans secured by properties containing four or fewer residential dwelling units. The

Multifamily business operates in the secondary mortgage market relating primarily to loans secured by properties containing

five or more residential units. We describe the management reporting and allocation process used to generate our segment

results in ÇNote 10, Segment Reporting.É

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. 

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), the conservator immediately succeeded to (1)Äall

rights, titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae with respect to

Fannie Mae and its assets, and (2)Ätitle to the books, records and assets of any other legal custodian of Fannie Mae. The

conservator subsequently issued an order that provided for our Board of Directors to exercise specified authorities. The

conservator also provided instructions regarding matters for which conservator decision or notification is required. The

conservator retains the authority to amend or withdraw its order and instructions at any time.

The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer

notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any

party. However, mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be

held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the general creditors

of Fannie Mae. Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make

required payments on our debt securities or perform under our mortgage guaranty obligations.

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

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

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

recommendations relating to ending our conservatorship, amending our senior preferred stock purchase agreement with

Treasury, considering additional restrictions and requirements on our business, and many other matters. The Treasury plan

recommends that TreasuryÑs commitment to provide funding under the senior preferred stock purchase agreement should be

replaced with legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit of the Federal

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

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

our single-family and multifamily mortgage-backed securities through the senior preferred stock purchase agreement, as

amended as contemplated by the plan.

The conservatorship has no specified termination date and 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, the level of government

support of our business, 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. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA

makes a written determination that our assets are less than our obligations or if we have not been paying our debts, in either

case, for a period of 60 days. In addition, the Director of FHFA may place us into receivership at his discretion at any time for

other reasons set forth in the GSE Act, including if we are critically undercapitalized or if we are undercapitalized and have no

reasonable prospect of becoming adequately capitalized. Should we be placed into receivership, different assumptions would

be required to determine the carrying value of our assets, which could lead to substantially different financial results. Treasury

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

circumstances if we have a net worth deficit. We are not aware of any plans of FHFA (1) to fundamentally change our business

model, other than changes that might result from recommendations in the Treasury plan, if implemented, or (2) to reduce the

aggregate amount available to or held by the company under our capital structure, which includes the senior preferred stock

purchase agreement.

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-10

Senior Preferred Stock Purchase Agreement, Senior Preferred Stock

and Warrant 

Senior Preferred Stock Purchase Agreement

Under our senior preferred stock purchase agreement with Treasury, in September 2008 we issued Treasury one million

shares of senior preferred stock and a warrant to purchase shares of our common stock. The senior preferred stock purchase

agreement was amended and restated on September 26, 2008 and was subsequently amended three times: in May 2009,

December 2009 and August 2012. The dividend and liquidation preference provisions of the senior preferred stock were also

amended in December 2017 and in September 2019 pursuant to letter agreements between us, through FHFA in its capacity

as conservator, and Treasury. 

Senior Preferred Stock 

The modifications and other specified provisions of the September 2019 letter agreement are described below.

Ö Modification to Dividend ProvisionsÜIncrease in Applicable Capital Reserve Amount. The terms of the senior

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

immediately preceding fiscal quarter exceeds the applicable capital reserve amount. The September 2019 letter

agreement modified the dividend provisions of the senior preferred stock to increase the applicable capital reserve

amount from $3 billion to $25 billion, effective for dividend periods beginning July 1, 2019. As a result of this change

to the senior preferred stock dividend provisions, no dividends will be payable on the senior preferred stock for the

first quarter of 2020, as our net worth of $14.6 billion as of December 31, 2019 is lower than the $25 billion capital

reserve amount.

Ö Modification to Liquidation Preference ProvisionsÜIncrease in Liquidation Preference. The September 2019 letter

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

preference of the senior preferred stock will increase by an amount equal to the increase in our net worth, if any,

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

pursuant to this provision. As a result of this change to the senior preferred stock liquidation preference provisions,

the aggregate liquidation preference of the senior preferred stock will increase from $131.2 billion as of December 31,

2019 to $135.4 billion as of March 31, 2020, due to the increase in our net worth during the fourth quarter of 2019.

Ö Agreement to Amend Senior Preferred Stock Purchase Agreement to Enhance Taxpayer Protections. The September

2019 letter agreement provides that we and Treasury agree to negotiate and execute an additional amendment to the

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

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

See ÇNote 11, EquityÉ for additional information about the senior preferred stock purchase agreement, including TreasuryÑs

funding commitment under the agreement.

Warrant 

On SeptemberÄ7, 2008, we issued to Treasury a warrant to purchase, at a nominal price, shares of our common stock equal to

79.9% of the total common stock outstanding on a fully diluted basis on the date the warrant is exercised. The warrant may be

exercised, in whole or in part, at any time on or before SeptemberÄ7, 2028. We recorded the warrant at fair value in our

stockholdersÑ equity as a component of additional paid-in-capital. The fair value of the warrant was calculated using the BlackScholes Option Pricing Model. Since the warrant has an exercise price of $0.00001 per share, the model is insensitive to the

risk-free rate and volatility assumptions used in the calculation and the share value of the warrant is equal to the price of the

underlying common stock. We estimated that the fair value of the warrant at issuance was $3.5 billion based on the price of

our common stock on SeptemberÄ8, 2008, which was after the dilutive effect of the warrant had been reflected in the market

price. Subsequent changes in the fair value of the warrant are not recognized in our financial statements. If the warrant is

exercised, the stated value of the common stock issued will be reclassified as ÇCommon stockÉ in our consolidated balance

sheets. Because the warrantÑs exercise price per share is considered non-substantive (compared to the market price of our
common stock), the warrant was determined to have characteristics of non-voting common stock, and thus is included in the

computation of basic and diluted earnings (loss) per share. The weighted-average shares of common stock outstanding for

2019, 2018 and 2017 included shares of common stock that would be issuable upon full exercise of the warrant issued to

Treasury. 

Impact of U.S. Government Support

We continue to rely on support from Treasury to eliminate any net worth deficits we may experience in the future, which would

otherwise trigger our being placed into receivership. Based on consideration of all the relevant conditions and events affecting

our operations, including our reliance on the U.S.Ägovernment, we continue to operate as a going concern and in accordance

with FHFAÑs provision of authority. 

In addition to MBS issuances, we fund our business through the issuance of short-term and long-term debt securities in the

domestic and international capital markets. Accordingly, we are subject to Çroll over,É or refinancing, risk on our outstanding

debt. Our ability to issue long-term debt has been strong primarily due to actions taken by the federal government to support

our business and our debt securities. 

We believe that continued federal government support of our business, as well as our status as a government-sponsored

enterprise, are essential to maintaining our current level of access to debt funding. Changes or perceived changes in federal

government support of our business without appropriate capitalization of the company could materially and adversely affect

our liquidity, financial condition and results of operations. Changes or perceived changes in our status as a governmentsponsored enterprise could also materially and adversely affect our liquidity, financial condition and results of operations. In

addition, due to our reliance on the U.S. governmentÑs support, our access to debt funding or the cost of debt funding also

could be materially adversely affected by a change or perceived change in the creditworthiness of the U.S government. A

downgrade in our credit ratings could reduce demand for our debt securities and increase our borrowing costs. Future

changes or disruptions in the financial markets could significantly impact the amount, mix and cost of funds we obtain, which

also could increase our liquidity and Çroll overÉ risk and have a material adverse impact on our liquidity, financial condition and

results of operations. 

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-11

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 December 31, 2019, Treasury held

an investment in our senior preferred stock with an aggregate liquidation preference of $131.2 billion. See ÇSenior Preferred

Stock Purchase Agreement, Senior Preferred Stock and WarrantÉ above for additional information on transactions under this

agreement.

FHFAÑs 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. As a part of our joint

ownership, Fannie Mae, Freddie Mac and CSS are parties to a limited liability company agreement that sets forth the overall

framework for the joint venture, including Fannie MaeÑs and Freddie MacÑs rights and responsibilities as members of CSS.

Fannie Mae, Freddie Mac and CSS are also parties to a customer services agreement that sets forth the terms under which

CSS provides mortgage securitization services to us and Freddie Mac, including the operation of the common securitization

platform as well as an administrative services agreement. CSS operates as a separate company from us and Freddie Mac,

with all funding and limited administrative support services and other resources provided to it by us and Freddie Mac through

our capital contributions.

In the ordinary course of business, Fannie Mae may purchase and sell securities issued by Treasury and Freddie Mac. These

transactions occur on the same terms as those prevailing at the time for comparable transactions with unrelated parties. With

our implementation of the Single Security Initiative in June 2019, some of the structured securities we issue are backed in

whole or in part by Freddie Mac securities. Additionally, we make regular income tax payments to and receive tax refunds from

the Internal Revenue Service (ÇIRSÉ), a bureau of Treasury.

Transactions with Treasury

Our administrative expenses were reduced by $20 million, $24 million and $40 million for the years ended December 31, 2019,

2018 and 2017, respectively, due to reimbursements from Treasury and Freddie Mac for expenses incurred as program

administrator for TreasuryÑs Home Affordable Modification Program (ÇHAMPÉ) and other initiatives under TreasuryÑs 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.ÄEffective AprilÄ1, 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 consolidated

statements of operations and comprehensive income. We recognized $2.4 billion, $2.3 billion and $2.1 billion in TCCA fees

during the years ended December 31, 2019, 2018 and 2017, respectively, of which $626 million and $586 million had not been

remitted as of December 31, 2019 and 2018, respectively.

The GSE Act requires us to set aside certain funding obligations, a portion of which is attributable to TreasuryÑs Capital Magnet

Fund. In December 2014, FHFA directed us to set aside amounts for these contributions during each fiscal year, except for any

fiscal year for which a draw from Treasury was made under the terms of the senior preferred stock purchase agreement or in

which such allocation or transfer would cause such a draw. These funding obligations, recognized in ÇOther expenses, netÉ in

our 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, with 35% of this amount payable to

TreasuryÑs Capital Magnet Fund. We recognized $98 million, $75 million and $84 million in ÇOther expenses, netÉ in connection

with TreasuryÑs Capital Magnet Fund for the years ended December 31, 2019, 2018 and 2017, respectively. We paid $75

million and $84 million to TreasuryÑs Capital Magnet Fund in 2019 and 2018, respectively. In 2020, we expect to pay $98

million to TreasuryÑs Capital Magnet Fund based on our new business purchases in 2019. 

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

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

These modifications and other specified provisions of the letter agreement are described under ÇSenior Preferred Stock

Purchase Agreement, Senior Preferred Stock and WarrantÉ above.

Transactions with FHFA

The GSE Act authorizes FHFA to establish an annual assessment for regulated entities, including Fannie Mae, which is

payable on a semi-annual basis (April and October), for FHFAÑs costs and expenses, as well as to maintain FHFAÑs working

capital. We recognized FHFA assessment fees, which are recorded in ÇAdministrative expensesÉ in our consolidated

statements of operations and comprehensive income, of $121 million, $110 million and $112 million for the years ended

December 31, 2019, 2018 and 2017, respectively.

Transactions with CSS and Freddie Mac

We contributed capital to CSS, the company we jointly own with Freddie Mac, of $105 million, $135 million and $102 million for

the years ended December 31, 2019, 2018 and 2017, respectively. 

In the second quarter of 2019, Fannie Mae, Freddie Mac and CSS entered into an amendment to the customer services

agreement that sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac. In

June 2019, we entered into an indemnification agreement with Freddie Mac relating to the commingled structured securities

that we and Freddie Mac issue. Under the indemnification agreement, Fannie Mae and Freddie Mac each have agreed to

indemnify the other party for losses caused by: its failure to meet its payment or other specified obligations under the trust

agreements pursuant to which the underlying resecuritized securities were issued; its failure to meet its obligations under the

customer services agreement; its violations of laws; or with respect to material misstatements or omissions in offering

documents, ongoing disclosures and related materials relating to the underlying resecuritized securities. 

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-12

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally

accepted in the United States of America (ÇGAAPÉ). To conform to our current period presentation, we have reclassified certain

amounts reported in our prior periodsÑ consolidated financial statements.

Use of Estimates 

Preparing consolidated financial statements in accordance with GAAP requires management to make estimates and

assumptions that affect our reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as of

the dates of our 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, our allowance

for loan losses. Actual results could be different from these estimates.

Principles of Consolidation 

Our consolidated financial statements include our accounts as well as the accounts of the other entities in which we have a

controlling financial interest. All intercompany balances and transactions have been eliminated. The typical condition for a

controlling financial interest is ownership of a majority of the voting interests of an entity. A controlling financial interest may

also exist in an entity such as a variable interest entity (ÇVIEÉ) through arrangements that do not involve voting interests.

VIE Assessment

We have interests in various entities that are considered VIEs. A VIE is an entity (1)Äthat has total equity at risk that is not

sufficient to finance its activities without additional subordinated financial support from other entities, (2)Äwhere the group of
equity holders does not have the power to direct the activities of the entity that most significantly impact the entityÑs economic

performance, or the obligation to absorb the entityÑs expected losses or the right to receive the entityÑs expected residual

returns, or both, or (3)Äwhere the voting rights of some investors are not proportional to their obligations to absorb the expected

losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entityÑs

activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.

We determine if an entity is a VIE by performing a qualitative analysis, which requires certain subjective decisions including,

but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest

holders, the rights of the parties and the purpose of the arrangement.

The primary types of VIE entities with which we are involved are securitization trusts guaranteed by us via lender swap and

portfolio securitization transactions, special-purpose vehicles (ÇSPVsÉ) associated with certain credit risk transfer programs,

limited partnership investments in low-income housing tax credit (ÇLIHTCÉ) and other housing partnerships, as well as

mortgage and asset-backed trusts that were not created by us. For more information on the primary types of VIE entities with

which we are involved, see ÇNote 2, Consolidations and Transfers of Financial Assets.É

Primary Beneficiary Determination

If an entity is a VIE, we consider whether our variable interest in that entity causes us to be the primary beneficiary. We are

deemed to be the primary beneficiary of a VIE when we have both (1)Äthe power to direct the activities of the VIE that most

significantly impact the entityÑs economic performance, and (2)Äexposure to benefits and/or losses that could potentially be

significant to the entity. The primary beneficiary of the VIE is required to consolidate and account for the assets, liabilities, and

noncontrolling interests of the VIE in its consolidated financial statements. The assessment of which party has the power to

direct the activities of the VIE may require significant management judgment when (1)Ämore than one party has power or

(2)Ämore than one party is involved in the design of the VIE but no party has the power to direct the ongoing activities that

could be significant.

We continually assess whether we are the primary beneficiary of the VIEs with which we are involved and therefore may

consolidate or deconsolidate a VIE through the duration of our involvement. Examples of certain events that may change

whether or not we consolidate the VIE include a change in the design of the entity or a change in our ownership in the entity.

Measurement of Consolidated Assets and Liabilities

When we are the transferor of assets into a VIE that we consolidate at the time of the transfer, we continue to recognize the

assets and liabilities of the VIE at the amounts that they would have been recognized if we had not transferred them, and no

gain or loss is recognized. For all other VIEs that we consolidate (that is, those for which we are not the transferor), we

recognize the assets and liabilities of the VIE in our consolidated financial statements at fair value, and we recognize a gain or

loss for the difference between (1)Äthe fair value of the consideration paid, fair value of noncontrolling interests and the

reported amount of any previously held interests, and (2)Äthe net amount of the fair value of the assets and liabilities

recognized upon consolidation. However, for the securitization trusts established under our lender swap program, no gain or

loss is recognized if the trust is consolidated at formation as there is no difference in the respective fair value of (1)Äand

(2)Äabove. We record gains or losses that are associated with the consolidation of VIEs as a component of ÇInvestment gains,

netÉ in our consolidated statements of operations and comprehensive income.

If we cease to be deemed the primary beneficiary of a VIE, we deconsolidate the VIE. We use fair value to measure the initial

cost basis for any retained interests that are recorded upon the deconsolidation of a VIE. Any difference between the fair value

and the previous carrying amount of our investment in the VIE is recorded in ÇInvestment gains, netÉ in our consolidated

statements of operations and comprehensive income. 

Purchase/Sale of Fannie Mae Securities

We actively purchase and may subsequently sell guaranteed MBS that have been issued through lender swap and portfolio

securitization transactions. The accounting for the purchase and sale of our guaranteed MBS issued by the trusts differs based

on the characteristics of the securitization trusts and whether the trusts are consolidated. 

Single Security Initiative and Uniform Mortgage-Backed Securities

(ÄUMBSÅ)

The Single Security Initiative was a joint initiative among Fannie Mae, Freddie Mac, and our jointly owned limited liability

company, Common Securitization Solutions, LLC, under the direction of FHFA, to develop a single common mortgage-backed

security issued by both Fannie Mae and Freddie Mac to finance fixed-rate mortgage loans backed by one- to four-unit singlefamily properties. We and Freddie Mac began issuing UMBS pursuant to the Single Security Initiative in June 2019. We and

Freddie Mac also began resecuritizing UMBS certificates into structured securities in June 2019. The structured securities

backed by UMBS that we may issue include Supers, which are single-class resecuritization transactions, and Real Estate

Mortgage Investment Conduit securities (ÇREMICsÉ) and interest-only and principal-only strip securities (ÇSMBSÉ), which are

multi-class resecuritization transactions. 

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-13
Since the implementation of the Single Security Initiative in June 2019, we have resecuritized UMBS, Supers and other

structured securities issued by Freddie Mac. The mortgage loans that serve as collateral for Freddie Mac-issued UMBS are

not held in trusts that are consolidated by Fannie Mae. When we include Freddie Mac securities in our structured securities,

we are subject to additional credit risk because we guarantee securities that were not previously guaranteed by Fannie Mae.

However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities

that we have resecuritized. We have concluded that this additional credit risk is negligible because of the funding commitment

available to Freddie Mac through its senior preferred stock purchase agreement with Treasury. Prior to the implementation of

the Single Security Initiative, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae

securities that were collateralized by mortgage loans held in consolidated trusts.

Single-ClassÑSecuritization Trusts 

We create single-class securitization trusts to issue single-class Fannie Mae MBS (including UMBS) that evidence an

undivided interest in the mortgage loans held in the trust. Investors in single-class Fannie Mae MBS receive principal and

interest payments in proportion to their percentage ownership of the MBS issuance. We guarantee to each single-class

securitization trust that we will supplement amounts received by the securitization trust as required to permit timely payments

of principal and interest on the related Fannie Mae MBS. This guaranty exposes us to credit losses on the loans underlying

Fannie Mae MBS. 

Single-class securitization trusts are used for lender swap and portfolio securitization transactions. A lender swap transaction

occurs when a mortgage lender delivers a pool of single-family mortgage loans to us, which we immediately deposit into an

MBS trust. The MBS are then issued to the lender in exchange for the mortgage loans. A portfolio securitization transaction

occurs when we purchase mortgage loans from third-party sellers for cash and later deposit these loans into an MBS trust.

The securities issued through a portfolio securitization are then sold to investors for cash. We consolidate single-class

securitization trusts that are issued under these programs when our role as guarantor and master servicer provides us with the

power to direct matters, such as the servicing of the 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 (for example, when the loan collateral is subject to a Federal Housing Administration guaranty and related Servicing

Guide). 

When we purchase single-classÄFannie Mae MBS issued from a consolidated trust, we account for the transaction as an

extinguishment of the related debt in our consolidated financial statements. We record a gain or loss on the extinguishment of

such debt to the extent that the purchase price of the MBS does not equal the carrying value of the related consolidated debt

reported in our consolidated balance sheets (including unamortized premiums, discounts or other cost basis adjustments) at

the time of purchase. When we sell single-classÄFannie Mae MBS that were issued from a consolidated trust, we account for

the transaction as the issuance of debt in our consolidated financial statements. We amortize the related premiums, discounts

and other cost basis adjustments into income over the contractual life of the MBS. 

If a single-class securitization trust is not consolidated, we account for the purchase and subsequent sale of such securities as

the transfer of an investment security in accordance with the accounting guidance for transfers of financial assets. 

Single-Class Resecuritization Trusts

Fannie Mae single-class resecuritization trusts are created by depositing MBS into a new securitization trust for the purpose of

aggregating multiple mortgage-related securities into one combined security. Single-class resecuritization securities pass

through directly to the holders of the securities all of the cash flows of the underlying MBS held in the trust. With the

implementation of the Single Security Initiative, these securities can now be collateralized directly or indirectly by cash flows

from underlying securities issued by Fannie Mae, Freddie Mac, or a combination of both. Resecuritization trusts backed

directly or indirectly only by Fannie Mae MBS are non-commingled resecuritization trusts. Resecuritization trusts collateralized

directly or indirectly by cash flows either in part or in whole from Freddie Mac MBS are commingled resecuritization trusts.

Securities issued by our non-commingled single-class resecuritization trusts are backed solely by Fannie Mae MBS, and the

guaranty we provide on the trust does not subject us to additional credit risk because we have already provided a guarantee

on the underlying securities. Further, the securities issued by our non-commingled single-class resecuritization trusts pass

through all of the cash flows of the underlying Fannie Mae MBS directly to the holders of the securities. Accordingly, these

securities are deemed to be substantially the same as the underlying Fannie Mae MBS collateral. Additionally, our involvement

with these trusts does not provide us with any incremental rights or powers that would enable us to direct any activities of the

trusts. We have concluded that we are not the primary beneficiary of and, as a result, we do not consolidate our noncommingled single-class resecuritization trusts. Therefore, we account for purchases and sales of securities issued by noncommingled single-class resecuritization trusts as extinguishments and issuances of the underlying MBS debt, respectively.

Securities issued by our commingled single-class resecuritization trusts are backed in whole or in part by Freddie Mac

securities. As discussed in ÇNote 6, Financial Guarantees,É the guaranty we provide to the commingled single-class

resecuritization trust subjects us to additional credit risk to the extent that we are providing a guaranty for the timely payment

of principal and interest on the underlying Freddie Mac securities that we have not previously guaranteed. Accordingly,

securities issued by our commingled resecuritization trusts are not deemed to be substantially the same as the underlying

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-14
collateral. We do not have any incremental rights or powers related to commingled single-class resecuritization trusts that

would enable us to direct any activities of the underlying trust. As a result, we have concluded that we are not the primary

beneficiary of, and therefore do not consolidate, our commingled single-class resecuritization trusts unless we have the

unilateral right to dissolve the trust. We have this right when we hold 100% of the beneficial interests issued by the

resecuritization trust. Therefore, we account for purchases and sales of these securities as the transfer of an investment

security .

Multi-Class Resecuritization Trusts

Multi-class resecuritization trusts are trusts we create to issue multi-class Fannie Mae structured securities, including REMICs

and SMBS, in which the cash flows of the underlying mortgage assets are divided, creating several classes of securities, each

of which represents a beneficial ownership interest in a separate portion of cash flows. We guarantee to each multi-class

resecuritization trust that we will supplement amounts received by the trusts as required to permit timely guaranty payments on

the related Fannie Mae structured securities. With the implementation of the Single Security Initiative, these multi-class

structured securities can now be collateralized, directly or indirectly, by securities issued by Fannie Mae, Freddie Mac or a

combination of both.

The guaranty we provide to our non-commingled multi-class resecuritization trusts does not subject us to additional credit risk,

because the underlying assets are Fannie Mae-issued securities for which we have already provided a guaranty. However, for

commingled multi-class structured securities, we are subject to additional credit risk to the extent we are providing a guaranty

for the timely payment of principal and interest on the underlying Freddie Mac securities that we have not previously

guaranteed. For both commingled and non-commingled multi-class resecuritization trusts, we may also be exposed to

prepayment risk via our ownership of securities issued by these trusts. We do not have the ability via our involvement with a

multi-class resecuritization trust to impact either the credit risk or prepayment risk to which we are exposed. Therefore, we

have concluded that we do not have the characteristics of a controlling financial interest and do not consolidate multi-class

resecuritization trusts unless we have the unilateral right to dissolve the trust as noted below. 

Securities issued by multi-class resecuritization trusts do not directly pass through all of the cash flows of the underlying

securities, and therefore the issued and underlying securities are not considered substantially the same. Accordingly, we

account for purchases and sales of securities issued by the multi-class resecuritization trusts as purchases and sales of

investment securities.

Since the implementation of the Single Security Initiative in June 2019, we may now include UMBS, Supers and other

structured securities that are either issued or backed by securities issued by Freddie Mac in our resecuritization trusts. As a

result, we adopted a consolidation threshold for multi-class resecuritization trusts that is based on our ability to unilaterally

dissolve the resecuritization trust. This ability exists only when we hold 100% of the outstanding beneficial interests issued by

the resecuritization trust. This new consolidation threshold was applied prospectively upon implementation of the Single

Security Initiative in the second quarter of 2019 and prior period amounts were not recast. Prior to the implementation of the

Single Security Initiative, we consolidated multi-class resecuritization trusts when we held a substantial portion of the

outstanding beneficial interests issued by the trust. Our adoption of the new consolidation threshold did not have a material

impact on our consolidated financial statements.

Transfers of Financial Assets

We evaluate each transfer of financial assets to determine whether the transfer qualifies as a sale. If a transfer does not meet

the criteria for sale treatment, the transferred assets remain in our consolidated balance sheets and we record a liability to the

extent of any proceeds received in connection with the transfer. We record transfers of financial assets in which we surrender

control of the transferred assets as sales. 

When a transfer that qualifies as a sale is completed, we derecognize all assets transferred and recognize all assets obtained

and liabilities incurred at fair value. The difference between the carrying basis of the assets transferred and the fair value of the

net proceeds from the sale is recorded as a component of ÇInvestment gains, netÉ in our consolidated statements of operations

and comprehensive income. Retained interests are primarily derived from transfers associated with our portfolio securitizations

in the form of Fannie Mae securities. We separately describe the subsequent accounting, as well as how we determine fair

value, for our retained interests in the ÇInvestments in SecuritiesÉ section of this note. 

We enter into repurchase agreements that involve contemporaneous trades to purchase and sell securities. These

transactions are accounted for as secured financings since the transferor has not relinquished control over the transferred

assets. These transactions are reported as securities purchased under agreements to resell and securities sold under

agreements to repurchase in our consolidated balance sheets except for securities purchased under agreements to resell on

an overnight basis, which are included in cash and cash equivalents in our consolidated balance sheets.

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-15
Cash and Cash Equivalents, Restricted Cash and Statements of Cash

Flows 

Short-term investments that have a maturity at the date of acquisition of three months or less and are readily convertible to

known amounts of cash are generally considered cash equivalents. We also include securities purchased under agreements

to resell on an overnight basis in Çcash and cash equivalentsÉ in our consolidated balance sheets. We may pledge as collateral

certain short-term investments classified as cash equivalents. 

ÇRestricted cashÉ in our consolidated balance sheets represents cash advanced to the extent such amounts are due to, but

have not yet been remitted to, MBS certificateholders. Similarly, when we or our servicers collect and hold cash that is due to

certain Fannie Mae MBS trusts in advance of our requirement to remit these amounts to the trusts, we recognize the collected

cash amounts as restricted cash. In addition, we recognize restricted cash when we and our servicers advance payments on

delinquent loans to consolidated Fannie Mae MBS trusts. Cash may also be recognized as restricted cash as a result of

restrictions related to certain consolidated partnership funds as well as for certain collateral arrangements for which we do not

have the right to use the cash.

In the presentation of our consolidated statements of cash flows, we present cash flows from derivatives that do not contain

financing elements and mortgage loans held for sale at acquisition as operating activities. We present cash flows from federal

funds sold and securities purchased under agreements to resell or similar arrangements as investing activities and cash flows

from federal funds purchased and securities sold under agreements to repurchase as financing activities in ÇOther, net.É We

classify cash flows from trading securities based on their nature and purpose.

We classify cash flows related to mortgage loans acquired as held-for-investment, including loans of Fannie Mae and loans of

consolidated trusts, as either investing activities (for principal repayments or sales proceeds) or operating activities (for interest

received from borrowers included as a component of our net income). Cash flows related to debt securities issued by

consolidated trusts are classified as either financing activities (for repayments of principal to certificateholders) or operating

activities (for interest payments to certificateholders included as a component of our net income). We distinguish between the

payments and proceeds related to the debt of Fannie Mae and the debt of consolidated trusts, as applicable. We present our

non-cash activities in the consolidated statements of cash flows at the associated unpaid principal balance.

Investments in Securities

Securities Classified as Trading or Available-for-Sale 

We classify and account for our securities as either trading or available-for-sale (ÇAFSÉ). We measure trading securities at fair

value in our consolidated balance sheets with unrealized and realized gains and losses included as a component of ÇFair value

gains (losses), netÉ in our consolidated statements of operations and comprehensive income. We include interest and

dividends on securities in our consolidated statements of operations and comprehensive income. Interest income includes the

amortization of cost basis adjustments, including premiums and discounts, recognized as a yield adjustment using the interest

method over the contractual term of the security. We measure AFS securities at fair value in our consolidated balance sheets,

with unrealized gains and losses included in accumulated other comprehensive income, net of income taxes. We recognize

realized gains and losses on AFS securities when securities are sold. We calculate the gains and losses using the specific

identification method and record them in ÇInvestment gains, netÉ in our consolidated statements of operations and

comprehensive income. As of December 31, 2019, we did not have any securities classified as held-to-maturity. 

Fannie Mae MBS included in ÄInvestments in securitiesÅ

When we own Fannie Mae MBS issued by unconsolidated trusts, we do not derecognize any components of the guaranty

assets, guaranty obligations, or any other outstanding recorded amounts associated with the guaranty transaction because our

contractual obligation to the MBS trust remains in force until the trust is liquidated. We determine the fair value of Fannie Mae

MBS based on observable market prices because most Fannie Mae MBS are actively traded. For any subsequent purchase or

sale, we continue to account for any outstanding recorded amounts associated with the guaranty transaction on the same

basis of accounting. 

Other-Than-Temporary Impairment of Debt Securities

We evaluate AFS securities for other-than-temporary impairment (ÇOTTIÉ) on a quarterly basis. OTTI is considered to have

occurred when the fair value of a debt security is below its amortized cost basis and we intend to sell the security or it is more

likely than not that we will be required to sell the security before recovery. In such cases, we recognize in ÇInvestment gains,

netÉ in our consolidated statements of operations and comprehensive income the entire difference between the amortized cost

basis of a security and its fair value. OTTI is also considered to have occurred if we do not expect to recover the entire

amortized cost basis of a debt security even if we do not intend to sell the security or it is not more likely than not that we will

be required to sell the security before recovery. In these circumstances, we separate the difference between the amortized

cost basis of the security and its fair value into the amount representing the credit loss, which we recognize in ÇInvestment

gains, netÉ in our consolidated statements of operations and comprehensive income, and the amount related to all other

factors, which we recognize in ÇTotal other comprehensive loss,É net of taxes, in our consolidated statements of operations and

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-16
comprehensive income. In periods after we recognize OTTI of debt securities, we use the prospective interest method to

recognize interest income.

Mortgage Loans

Loans Held for Sale

When we acquire mortgage loans that we intend to sell or securitize via trusts that will not be consolidated, we classify the

loans as held for sale (ÇHFSÉ). We report the carrying value of HFS loans at the lower of cost or fair value. Any excess of an

HFS loanÑs cost over its fair value is recognized as a valuation allowance, with changes in the valuation allowance recognized

as ÇInvestment gains, netÉ in our consolidated statements of operations and comprehensive income. We recognize interest

income on HFS loans on an accrual basis, unless we determine that the ultimate collection of contractual principal or interest

payments in full is not reasonably assured. Purchase premiums, discounts and other cost basis adjustments on HFS loans are

deferred upon loan acquisition, included in the cost basis of the loan, and not amortized. We determine any lower of cost or

fair value adjustment on HFS loans at an individual loan level. 

In the event that we reclassify held for investment (ÇHFIÉ) loans to HFS loans, based upon a change in our intent, we record

the loans at lower of cost or fair value on the date of redesignation. If the amounts charged off upon redesignation exceed the

allowance related to the loans, we record a provision for credit losses. If the amounts charged off are less than the allowance

related to the loans, we recognize a benefit for credit losses. 

Loans Held for Investment

When we acquire mortgage loans that we have the ability and the intent to hold for the foreseeable future or until maturity, we

classify the loans as HFI. When we consolidate a securitization trust, we recognize the loans underlying the trust in our

consolidated balance sheets. The trusts do not have the ability to sell mortgage loans and the use of such loans is limited

exclusively to the settlement of obligations of the trusts. Therefore, mortgage loans acquired with the intent to securitize via

consolidated trusts will be classified as HFI in our consolidated balance sheets both prior to and subsequent to their

securitization. 

We report the carrying value of HFI loans at the unpaid principal balance, net of unamortized premiums and discounts, other

cost basis adjustments, and allowance for loan losses. We recognize interest income on HFI loans on an accrual basis using

the interest method over the contractual life of the loan, including the amortization of any deferred cost basis adjustments,

such as the premium or discount at acquisition, unless we determine that the ultimate collection of contractual principal or

interest payments in full is not reasonably assured. 

Nonaccrual Loans

We discontinue accruing interest on loans when we believe collectability 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. For loans on nonaccrual status, we recognize income when

cash payments are received. 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 collectability 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 collectability is reasonably assured.

Restructured Loans

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

difficulty is considered a troubled debt restructuring (ÇTDRÉ). Our loss mitigation programs primarily include modifications that

result in the capitalization of past due amounts in combination with interest rate reductions and/or the extension of the loanÑs

maturity date. Such restructurings are granted to borrowers in financial difficulty on either a permanent or contingent basis, as

in the case of modifications with a trial period. We consider these types of loan restructurings to be TDRs. 

We generally do not include principal or past due interest forgiveness as part of our loss mitigation programs, and, as a result,

we generally do not charge off any outstanding principal or accrued interest amounts at the time of loan modification. We

believe that the loan underwriting activities we perform as a part of our loan modification process coupled with the borrowerÑs

successful performance during any required trial period provides us reasonable assurance regarding the collectability of the

principal and interest due in accordance with the loanÑs modified terms, which include any past due interest amounts that are

capitalized as principal at the time of modification. As such, the loan is returned to accrual status when the loan modification is

completed (i.e., at the end of the trial period), and we accrue interest thereafter in accordance with our interest accrual policy.

If the loan was on nonaccrual status prior to entering the trial period, it remains on nonaccrual status until the borrower

demonstrates performance via the trial period and the modification is finalized. 

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-17
We also engage in other loss mitigation activities with troubled borrowers, which include repayment plans, forbearance

arrangements, and modifications that are limited to the capitalization only of past due amounts. For all of these activities, we

consider the deferral or capitalization of three or fewer missed payments to represent only an insignificant delay, and thus not

a TDR. If we defer or capitalize more than three missed payments either through a legal or informal modification, the delay is

no longer considered insignificant, and the restructuring is accounted for as a TDR. 

We measure impairment of a loan restructured in a TDR individually based on the excess of the recorded investment in the

loan over the present value of the expected future cash inflows discounted at the loanÑs original effective interest rate. Costs

incurred to complete a TDR are expensed as incurred. However, when foreclosure is probable on an individually impaired

loan, 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. 

Allowance for Loan Losses

Our allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to our

recorded investment in both single-family and multifamily HFI loans. This population includes both HFI loans held by Fannie

Mae and by consolidated Fannie Mae MBS trusts. When calculating our allowance for loan losses, we consider only our net

recorded investment in the loan at the balance sheet date, which includes the loanÑs unpaid principal balance and any

applicable cost basis adjustments. When losses on a loan are confirmed, typically through our receipt of property upon

foreclosure of the loan or of cash proceeds upon completion of a short sale, we reduce our allowance for loan losses by

recording a charge-off. Additionally, we record charge-offs as a reduction to our allowance for loan losses when a loan is

determined to be uncollectible, upon the redesignation of loans from HFI to HFS and pursuant to the charge-off provisions of

FHFAÑs 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). The excess of a loanÑs unpaid principal balance, accrued

interest, and any applicable cost basis adjustments (Çour total exposureÉ) over the fair value of the assets is treated as a

charge-off loss that is deducted from the allowance for loan losses. The amount charged off also considers estimated

proceeds from primary mortgage insurance or other credit enhancements that are either contractually attached to a loan or

that were entered into contemporaneously with and in contemplation of a guaranty or loan purchase transaction as a recovery

of our total exposure, up to the amount of loss recognized as a charge-off. We recordÄadditional proceeds fromÄprimary

mortgage insurance and credit enhancements in excess of our total exposure as a recovery of any forgone contractually past

due interest,Äand then as an offset to the expenses recorded inÄÇForeclosed property expenseÉ in our consolidated statements

of operations and comprehensive income when received. 

Single-Family Loans

We recognize credit losses related to groups of similar single-family HFI loans that are not individually impaired when

(1)Äavailable information as of each balance sheet date indicates that it is probable a loss has occurred and (2)Äthe amount of

the loss can be reasonably estimated. We aggregate such loans, based on similar risk characteristics, for purposes of

estimating incurred credit losses and establish a collective single-family loss reserve using an econometric model that derives

an overall loss reserve estimate. The estimate takes into account multiple factors which include but are not limited to

origination year, loan product type, mark-to-market loan-to-value (ÇLTVÉ) ratio, and delinquency status. Once loans are

aggregated, there typically is not a single, distinct event that would result in an individual loan or pool of loans being impaired.

In determining our collective reserve, 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,Äto 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 

Individually impaired single-family loans currently consist of those we restructure in a TDR. 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 making our assessment as to whether a loan is impaired, we also take

into account more than insignificant delays in payment and shortfalls in amounts received. Determination of whether a delay in

payment or shortfall in amount is more than insignificant requires managementÑs judgment as to the facts and circumstances

surrounding the loan. 

Our measurement of impairment on an individually impaired loan follows the method that is most consistent with our

expectations of recovery of our recorded investment in the loan. When a loan has been restructured, we measure impairment

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-18
using a cash flow analysis discounted at the loanÑs original effective interest rate. If we expect to recover some or all of 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. For

individually impaired loans that we believe are probable of foreclosure, we take into consideration the sales prices of

foreclosed properties in determining the value of the underlying real estate collateral. 

We use internal models to project cash flows used to assess impairment of individually impaired loans, and generally update

the market and loan characteristic inputs we use in these models monthly, using month-end data. Market inputs include

information such as interest rates, volatility and spreads, while loan characteristic inputs include information such as mark-tomarket LTV ratios and delinquency status. The loan characteristic inputs are key factors that affect the predicted rate of default

for loans evaluated for impairment through our internal cash flow models. For example, loans with an unsuccessful trial

modification, which are often accompanied by high delinquency rates, have much higher predicted default rates compared to

performing loans with completed modifications, particularly those with a significant payment reduction in the borrowerÑs

required monthly payment. We evaluate the reasonableness of our models by comparing the results with actual performance

and our assessment of current market conditions. In addition, we review our models at least annually for reasonableness and

predictive ability in accordance with our corporate model review policy. Accordingly, we believe the projected cash flows

generated by our models that we use to assess impairment appropriately reflect the expected future performance of the loans.

Multifamily Loans

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. For groups of smaller-balance homogeneous multifamily loans,

we evaluate collectively for impairment. We establish a collective multifamily loss reserve for all loans in our multifamily

guaranty book of business that are not individually impaired, using an internal model that applies loss factors to loans in similar

risk categories. 

We categorize loan credit risk based on relevant observable data about a borrowerÑs ability to pay, including multifamily market

fundamentals such as vacancy rates and rents, review of available current borrower financial information, operating

statements on the underlying collateral, current debt service coverage ratios (ÇDSCRsÉ), historical payment experience,

estimates of the current collateral values and other related credit documentation. For each risk category, certain observed

default probability and loss severity (in event of default) factors, based on historical performance of loans in the same risk

category, are applied against our recorded investment in the loans to determine an appropriate allowance. Such performance

data reflect historical delinquencies and charge-offs, as well as loan size. In addition, we consider any credit enhancements

such as letters of credit or loss sharing arrangements with our lenders. 

Advances to Lenders 

Advances to lenders represent our payments of cash in exchange for the receipt of mortgage loans from lenders in a transfer

that is accounted for as a secured lending arrangement. These transfers primarily occur when we provide early funding to

lenders for loans that they will subsequently either sell to us or securitize into a Fannie Mae MBS that they will deliver to us.

We individually negotiate early lender funding advances with our lender customers. Early lender funding advances have terms

up to 60 days and earn a short-term market rate of interest. 

We report cash outflows from advances to lenders as an investing activity in our consolidated statements of cash flows.

Settlements of the advances to lenders, other than through lender repurchases of loans, are not collected in cash, but rather in

the receipt of either loans or Fannie Mae MBS. Accordingly, this activity is reflected as a non-cash transfer in our consolidated

statements of cash flows in the line item entitled ÇTransfers from advances to lenders to loans held for investment of

consolidated trusts.É 

Acquired Property, Net 

We recognize foreclosed property (i.e., ÇAcquired property, netÉ) upon the earlier of the loan foreclosure event or when we take

physical possession of the property (i.e., through a deed-in-lieu of foreclosure transaction). We initially measure foreclosed

property at its fair value less its estimated costs to sell. We treat any excess of our recorded investment in the loan over the

fair value less estimated costs to sell the property as a charge-off to the ÇAllowance for loan lossesÉ in our consolidated

balance sheets. Any excess of the fair value less estimated costs to sell the property over our recorded investment in the loan

is recognized first to recover any previously charged-off amounts, then to recover any forgone, contractually due interest, and

lastly to ÇForeclosed property expenseÉ in our consolidated statements of operations and comprehensive income. 

We classify foreclosed properties as HFS when we intend to sell the property and the following conditions are met at either

acquisition or within a relatively short period thereafter: we are actively marketing the property and it is available for immediate

sale in its current condition such that the sale is reasonably expected to take place within one year. We report these properties

at the lower of their carrying amount or fair value less estimated selling costs. We do not depreciate these properties. 

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-19
We recognize a loss for any subsequent write-down of the property to its fair value less its estimated costs to sell through a

valuation allowance with an offsetting charge to ÇForeclosed property expenseÉ in our consolidated statements of operations

and comprehensive income. We recognize a recovery for any subsequent increase in fair value less estimated costs to sell up

to the cumulative loss previously recognized through the valuation allowance. We recognize gains or losses on sales of

foreclosed property through ÇForeclosed property expenseÉ in our consolidated statements of operations and comprehensive

income. 

Properties that do not meet the criteria to be classified as HFS are classified as held for use and are recorded in ÇOther

assetsÉ in our consolidated balance sheets. These properties are depreciated and are evaluated for impairment when

circumstances indicate that the carrying amount of the property is no longer recoverable. 

Commitments to Purchase and Sell Mortgage Loans and Securities 

We enter into commitments to purchase and sell mortgage-backed securities and to purchase single-family and multifamily

mortgage loans. Certain commitments to purchase or sell mortgage-backed securities and to purchase single-family mortgage

loans are generally accounted for as derivatives. Our commitments to purchase multifamily loans are not accounted for as

derivatives because they do not meet the criteria for net settlement. 

When derivative purchase commitments settle, we include the fair value on the settlement date in the cost basis of the loan or

unconsolidated security we purchase. When derivative commitments to sell securities settle, we include the fair value of the

commitment on the settlement date in the cost basis of the security we sell. Purchases and sales of securities issued by our

consolidated MBS trusts are treated as extinguishments or issuances of debt, respectively. For commitments to purchase and

sell securities issued by our consolidated MBS trusts, we recognize the fair value of the commitment on the settlement date as

a component of debt extinguishment gains and losses or in the cost basis of the debt issued, respectively. 

Regular-way securities trades provide for delivery of securities within the time generally established by regulations or

conventions in the market in which the trade occurs and are exempt from application of derivative accounting. Commitments to

purchase or sell securities that we account for on a trade-date basis are also exempt fromÄthe derivative accounting

requirements. We record the purchase and sale of an existing security on its trade date when the commitment to purchase or

sell the existing security settles within the period of time that is customary in the market in which those trades take place. 

Additionally, contracts for the forward purchase or sale of when-issued and to-be-announced (ÇTBAÉ) securities are exempt

from the derivative accounting requirements if there is no other way to purchase or sell that security, delivery of that security

and settlement will occur within the shortest period possible for that type of security, and it is probable at inception and

throughout the term of the individual contract that physical delivery of the security will occur. Since our commitments for the

purchase of when-issued and TBA securities can be net settled and we do not document that physical settlement is probable,

we account for all such commitments as derivatives. 

Derivative Instruments 

We recognize all derivatives as either assets or liabilities in our consolidated balance sheets at their fair value on a trade date

basis. 

We offset the carrying amounts of certain derivatives that are in gain positions and loss positions as well as cash collateral

receivables and payables associated with derivative positions pursuant to the terms of enforceable master netting

arrangements. We offset these amounts only when we have the legal right to offset under the contract and we have met all of

the offsetting conditions. For our over-the-counter (ÇOTCÉ) derivative positions, our master netting arrangements allow us to

net derivative assets and liabilities with the same counterparty. For our cleared derivative contracts, our master netting

arrangements allow us to net our exposure by clearing organization and by clearing member.

After offsetting, we report derivatives in a gain position in ÇOther assetsÉ and derivatives in a loss position in ÇOther liabilitiesÉ in

our consolidated balance sheets. 

We evaluate financial instruments that we purchase or issue and other financial and non-financial contracts for embedded

derivatives. To identify embedded derivatives that we must account for separately, we determine if: (1)Äthe economic

characteristics of the embedded derivative are not clearly and closely related to the economic characteristics of the financial

instrument or other contract (i.e., the host contract); (2)Äthe financial instrument or other contract itself is not already measured

at fair value with changes in fair value included in earnings; and (3)Äa separate instrument with the same terms as the

embedded derivative would meet the definition of a derivative. If the embedded derivative meets all three of these conditions,

we elect to carry the hybrid contract in its entirety at fair value with changes in fair value recorded in earnings. 

Collateral 

We enter into various transactions where we pledge and accept collateral, the most common of which are our derivative

transactions. Required collateral levels vary depending on the credit rating and type of counterparty. We also pledge and

receive collateral under our repurchase and reverse repurchase agreements. In order to reduce potential exposure to

repurchase counterparties, a third-party custodian typically maintains the collateral and any margin. We monitor the fair value

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-20
of the collateral received from our counterparties, and we may require additional collateral from those counterparties, as we

deem appropriate. 

Cash Collateral

We record cash collateral accepted from a counterparty that we have the right to use as ÇCash and cash equivalentsÉ and

cash collateral accepted from a counterparty that we do not have the right to use as ÇRestricted cashÉ in our consolidated

balance sheets. We net our obligation to return cash collateral pledged to us against the fair value of derivatives in a gain

position recorded in ÇOther assetsÉ in our consolidated balance sheets as part of our counterparty netting calculation. 

For derivative positions with the same counterparty under master netting arrangements where we pledge cash collateral, we

remove it from ÇCash and cash equivalentsÉ and net the right to receive it against the fair value of derivatives in a loss position

recorded in ÇOther liabilitiesÉ in our consolidated balance sheets as a part of our counterparty netting calculation. 

Non-Cash Collateral

We classify securities pledged to counterparties as either ÇInvestments in securitiesÉ or ÇCash and cash equivalentsÉ in our

consolidated balance sheets. Securities pledged to counterparties that have been consolidated with the underlying assets

recognized as loans are included as ÇMortgage loansÉ in our consolidated balance sheets. 

Our liability to third party holders of Fannie Mae MBS that arises as the result of a consolidation of a securitization trust is

collateralized by the underlying loans and/or mortgage-related securities. 

Debt 

Our consolidated balance sheets contain debt of Fannie Mae as well as debt of consolidated trusts. We report debt issued by

us as ÇDebt of Fannie MaeÉ and by consolidated trusts as ÇDebt of consolidated trusts.É Debt issued by us represents debt that

we issue to third parties to fund our general business activities and certain credit risk-sharing securities. The debt of

consolidated trusts represents the amount of Fannie Mae MBS issued from such trusts that is held by third-party

certificateholders and prepayable without penalty at any time. We report deferred items, including premiums, discounts and

other cost basis adjustments, as adjustments to the related debt balances in our consolidated balance sheets. 

We classify interest expense as either short-term or long-term based on the contractual maturity of the related debt. We

recognize the amortization of premiums, discounts and other cost basis adjustments through interest expense using the

effective interest method usually over the contractual term of the debt. Amortization of premiums, discounts and other cost

basis adjustments begins at the time of debt issuance. 

When we purchase a Fannie Mae MBS issued from a consolidated single-class securitization trust, we extinguish the related

debt of the consolidated trust as the MBS debt is no longer owed to a third-party. We record debt extinguishment gains or

losses related to debt of consolidated trusts to the extent that the purchase price of the MBS does not equal the carrying value

of the related consolidated MBS debt reported in our consolidated balance sheet (including unamortized premiums, discounts

and other cost basis adjustments) at the time of purchase as a component of ÇOther expenses, netÉ in our consolidated

statements of operations and comprehensive income. 

Income Taxes

We recognize deferred tax assets and liabilities based on the differences in the book and tax bases of assets and liabilities.

We measure deferred tax assets and liabilities using enacted tax rates that are applicable to the period(s) that the differences

are expected to reverse. We adjust deferred tax assets and liabilities for the effects of changes in tax laws and rates in the

period of enactment. We recognize investment and other tax credits through our effective tax rate calculation assuming that we

will be able to realize the full benefit of the credits. In 2018, we resumed investing in new LIHTC projects and elected the

proportional amortization method for the associated tax credits. We amortize the cost of a LIHTC investment each reporting

period in proportion to the tax credits and other tax benefits received. We recognize the resulting amortization as a component

of the Çprovision for federal income taxesÉ in our consolidated statements of operations and comprehensive income.

We reduce our deferred tax assets by an allowance if, based on the weight of available positive and negative evidence, it is

more likely than not (a probability of greater than 50%) that we will not realize some portion, or all, of the deferred tax asset. In

December 2017, the Tax Cuts and Jobs Act (the ÇTax ActÉ) was enacted which, among other things, reduced the federal

corporate income tax rate from 35% to 21%, effective January 1, 2018. 

We account for uncertain tax positions using a two-step approach whereby we recognize an income tax benefit if, based on

the technical merits of a tax position, it is more likely than not that the tax position would be sustained upon examination by the

taxing authority, which includes all related appeals and litigation. We then measure the recognized tax benefit based on the

largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority,

considering all information available at the reporting date. We recognize interest expense and penalties on unrecognized tax

benefits as ÇOther expenses, netÉ in our consolidated statements of operations and comprehensive income.

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-21
Earnings (Loss) per Share

Earnings (loss) per share (ÇEPSÉ) is presented for basic and diluted EPS. We compute basic EPS by dividing net income (loss)

attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the

period. However, as a result of our conservatorship status and the terms of the senior preferred stock, no amounts would be

available to distribute as dividends to common or preferred stockholders (other than to Treasury as the holder of the senior

preferred stock). Net income (loss) attributable to common stockholders excludes amounts attributable to the senior preferred

stock, which increase the liquidation preference as described above in ÇSenior Preferred Stock Purchase Agreement, Senior

Preferred Stock and Warrant.É Weighted average common shares includes 4.6 billion shares for the years ended December

31, 2019, 2018 and 2017 that would be issued upon the full exercise of the warrant issued to Treasury from the date the

warrant was issued through December 31, 2019, 2018 and 2017, respectively.

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. Our diluted EPS weighted-average shares outstanding includes 131 million shares of convertible preferred

stock for the years ended December 31, 2019 and 2018. During periods in which a net loss attributable to common

stockholders has been incurred, such as the year ended December 31, 2017, potential common equivalent shares outstanding

are not included in the calculation because it would have an anti-dilutive effect.

Notes to Consolidated Financial Statements | Summary of Significant Accounting Policies

Fannie Mae (In conservatorship) 2019 Form 10-K F-22

New Accounting Guidance 

The Financial Accounting Standards Board (the ÇFASBÉ) issued Accounting Standards Update (ÇASUÉ)Ä2016-13,ÄFinancial

InstrumentsÜCredit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments in June 2016, which was

later amended by ASU 2019-04, ASU 2019-05 and ASU 2019-11. These ASUs (the ÇCECL standardÉ) replace the existing

incurred loss impairment methodology for loans that are collectively evaluated for impairment with a methodology that reflects

lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable forecast

information to develop a lifetime credit loss estimate. The CECL standard also requires credit losses related to AFS debt

securities to be recorded through an allowance for credit losses. Our adoption of this standard on January 1, 2020 did not

have a material impact on our portfolio of AFS debt securities.

The CECL standard became effective for our fiscal year beginning January 1, 2020. We have changed our accounting policies

and implemented system, model and process changes to adopt the standard. Upon adoption, we used a discounted cash flow

method to measure expected credit losses on our single-family mortgage loans and an undiscounted loss method to measure

expected credit losses on our multifamily mortgage loans. The models used to estimate credit losses incorporated our

historical credit loss experience, adjusted for current economic forecasts and the current credit profile of our loan book of

business. The models used reasonable and supportable forecasts for key economic drivers, such as home prices (singlefamily), rental income (multifamily) and capitalization rates (multifamily). 

The adoption of the CECL standard on January 1, 2020 will reduce our retained earnings by $1.1 billion on an after-tax basis,

which will be reflected in our financial statements for the quarter ending March 31, 2020. The adoption of this guidance

increased our overall credit loss reserves primarily as the result of an increase in our single-family loan loss reserves that were

previously evaluated on a collective basis for impairment. This increase was partially offset by a decrease in estimated credit

losses on loans that were previously considered individually impaired (our troubled debt restructurings). 

The increase in our single-family loan loss reserves that were previously evaluated on a collective basis was primarily driven

by the migration from an incurred-loss approach, which allowed us to consider only default events and economic conditions

that already existed as of each financial reporting date, to an estimate that incorporates both expected default events over the

expected life of each mortgage loan and a forecast of home prices in different economic environments over a reasonable and

supportable period. The increase in loss reserves for this portion of our book was low relative to its size due to the credit

quality of these loans and because our current model forecasts home price growth.

The allowance for loan losses on the TDR book was already measured using an expected lifetime credit loss estimate. The

expected credit losses on this portion of our single-family book decreased upon the adoption of CECL because the new

guidance required us to exclude from our estimate of credit losses all pre-foreclosure and post-foreclosure costs that are

expected to be advanced after the balance sheet date. Prior to the adoption of CECL, we incorporated these costs in our

estimate of expected credit losses for this book.
2.ÄÄConsolidations and Transfers of Financial Assets

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

Fannie Mae (In conservatorship) 2019 Form 10-K F-23

We have interests in various entities that are considered to be VIEs. The primary types of entities are: 

Ö securitization and resecuritization trusts, guaranteed by us via lender swap transactions; 

Ö portfolio securitization transactions; 

Ö commingled resecuritization trusts; 

Ö mortgage-backed trusts that were not created by us; 

Ö housing partnerships that are established to finance the acquisition, construction, development or rehabilitation of

affordable multifamily and single-family housing; and 

Ö certain credit risk transfer transactions. 

These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our

securitization transactions. 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 unless we have the unilateral ability to dissolve the trust. We also do not

consolidate our resecuritization trusts unless we have the unilateral ability to dissolve the trust. Historically, the vast majority of

underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage

loans held in consolidated trusts. However, with our issuance of UMBS beginning in June 2019, we include securities issued

by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued

securities are not held in trusts that are consolidated by Fannie Mae.

Types of VIEs

Securitization and Resecuritization Trusts

Under our lender swap and portfolio securitization transactions, mortgage loans are transferred to a trust specifically for the

purpose of issuing a single class of guaranteed securities that are collateralized by the underlying mortgage loans referred to

as Çfirst-level securities.É The trustÑs permitted activities include receiving the transferred assets, issuing beneficial interests,

establishing the guaranty and servicing the underlying mortgage loans. In our capacity as issuer, master servicer, trustee and

guarantor, we earn fees for our obligations to each trust. Additionally, we may retain or purchase a portion of the securities

issued by each trust.

In our structured securitization transactions, we earn fees for assisting lenders and dealers with the design and issuance of

structured mortgage-related securities, referred to as Çsecond-level securities.É In contrast to first-level securities, the trust

assets can include both Fannie Mae securities and Freddie Mac securities as the underlying collateral. These structured

securities include Fannie Megasâ and SupersTM, which are single-class resecuritizations, as well as REMICs and SMBS,

which are multi-class resecuritizations, and separate the cash flows from underlying assets into separately tradable interests.

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

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

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

shortfall. To the extent that the trust assets are Fannie Mae securities, the trust has permitted activities that are similar to those

for our lender swap and portfolio securitization transactions. Additionally, we may retain or purchase a portion of the securities

issued by each trust.

We also hold investments in mortgage-backed securities that have been issued via private-label trusts. These trusts are

structured to provide investors with a beneficial interest in a pool of receivables or other financial assets, typically mortgage

loans. The trusts act as vehicles to allow loan originators to securitize assets. Securities are structured from the underlying

pool of assets to provide for varying degrees of risk. The originators of the financial assets or the underwriters of the

transaction create the trusts and typically own the residual interest in the trustsÑ assets. Our involvement in these entities is

typically limited to our recorded investment in the beneficial interests that we have purchased. 

Limited Partnerships

In 2018, we resumed making new investments in various limited partnerships that sponsor affordable housing projects utilizing

the LIHTC pursuant to SectionÄ42 of the Internal Revenue Code. The purpose of these investments is to increase the supply of

affordable housing in the United States and to serve communities in need. In addition, our investments in LIHTC partnerships

generate both tax credits and net operating losses that may reduce our federal income tax liability. Our LIHTC investments

primarily represent limited partnership interests in entities that have been organized by a fund manager who acts as the

general partner. These fund investments seek out equity investments in LIHTC operating partnerships that have been

established to identify, develop and operate multifamily housing that is leased to qualifying residential tenants.
SPVs Associated with Our Credit Risk Transfer Programs

We transfer mortgage credit risk to investors through Connecticut Avenue Securities (ÇCASÉ) REMIC and CAS credit-linked

note (ÇCLNÉ) trusts. In October 2019, we issued our first Multifamily Connecticut Avenue Securities (ÇMCASÉ) transaction,

which is a CAS CLN and in December 2019, we issued our first single-family CAS CLN. The structure of CAS CLNs is similar

to CAS REMICs; however, CAS CLNs allow us to transfer risk on reference pools containing seasoned loans. Since the

REMIC election was not made on the loans in the reference pools at the time of acquisition, these trusts do not qualify as

REMICs. Each CAS trust is a separate legal entity which issues notes that are fully collateralized by amounts deposited into a

collateral account held by the CAS trust. To the extent that collateral held by the CAS trust and the earnings thereon are

insufficient relative to the payments due to holders of the CAS notes, we may be required to make payments to the CAS trust.

The CAS trusts qualify as VIEs. We do not have the power to direct significant activities of the CAS trusts while the CAS notes

are outstanding, and, therefore, we do not consolidate CAS trusts.

Consolidated VIEs

If an entity is a VIE, we consider whether our variable interest in that entity causes us to be the primary beneficiary. The

primary beneficiary of the VIE is required to consolidate and account for the assets, liabilities and noncontrolling interests of

the VIE in its consolidated financial statements. An enterprise is deemed to be the primary beneficiary when the enterprise has

the power to direct the activities of the VIE that most significantly impact the entityÑs economic performance and exposure to

benefits and/or losses could potentially be significant to the entity. In general, the investors in the obligations of consolidated

VIEs have recourse only to the assets of those VIEs and do not have recourse to us, except where we provide a guaranty to

the VIE.

We continually assess whether we are the primary beneficiary of the VIEs with which we are involved and therefore may

consolidate or deconsolidate a VIE through the duration of our involvement. As of December 31, 2019, we did not consolidate

any VIEs that were not already consolidated as of December 31, 2018. However, as of December 31, 2019, we

deconsolidated certain VIEs that were consolidated and had combined total assets of $1.5 billion in unpaid principal balance

as of December 31, 2018. The majority of this activity related to the deconsolidation of multi-class resecuritization trusts

containing consolidated Fannie Mae MBS. This resulted in the recognition of MBS debt outstanding and the fair value of our

retained interests as securities in our consolidated balance sheets.

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

Fannie Mae (In conservatorship) 2019 Form 10-K F-24

Unconsolidated VIEs 

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

securitization and resecuritization trusts, limited partnerships, and certain SPVs designed to transfer credit risk. The following

table displays the carrying amount and classification of our assets and liabilities that relate to our involvement with

unconsolidated securitization and resecuritization trusts.

As of December 31,

2019 2018

(Dollars in millions)

Assets and liabilities recorded in our consolidated balance sheets related to unconsolidated

mortgage-backed trusts:

Assets:

Trading securities:

Fannie Mae $ 2,543 $ 1,422

Non-Fannie Mae 5,100 4,809

Total trading securities 7,643 6,231

Available-for-sale securities:

Fannie Mae 1,524 1,704

Non-Fannie Mae 574 1,207

Total available-for-sale securities 2,098 2,911

Other assets 56 66

Other liabilities (78) (101)

Net carrying amount $ 9,719 $ 9,107

Our maximum exposure to loss generally represents the greater ofÄour recorded investment in the entity or the unpaid principal

balance of the assets covered by our guaranty. Our involvement in unconsolidated resecuritization trusts may give rise to

additional exposure to loss depending on the type of resecuritization trust. Fannie Mae non-commingled resecuritization trusts

are backed entirely by Fannie Mae MBS. These non-commingled single-class and multi-class resecuritization trusts are not

consolidated and do not give rise to any additional exposure to loss as we already consolidate the underlying collateral. 
Fannie Mae commingled resecuritization trusts are backed in whole or in part by Freddie Mac securities. The guaranty that we

provide to these commingled resecuritization trusts may increase our exposure to loss to the extent that we are providing a

guaranty for the timely payment and interest on the underlying Freddie Mac securities that we have not previously guaranteed.

Our maximum exposure to loss for these unconsolidated trusts is measured by the amount of Freddie Mac securities that are

held in these resecuritization trusts. However, a portion of these Freddie Mac securities may be backed in whole or in part by

Fannie Mae MBS. To the extent that these Freddie Mac securities are backed by Fannie Mae MBS, our guarantee to the

resecuritization trust does not subject us to any additional exposure to credit risk. Thus, our actual exposure to credit risk from

Freddie Mac securities held in our resecuritization trusts is likely lower than the disclosed maximum exposure to loss. Our

maximum exposure to loss related to unconsolidated securitization and resecuritization trusts was approximately $62 billion

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

resecuritization trusts were approximately $130 billion and $80 billion as of December 31, 2019 and 2018, respectively.

The maximum exposure to loss for our unconsolidated limited partnerships and similar legal entities, which consist of LIHTC,

community investments and other entities, was $98 million and the related carrying value was $79 million as of December 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 $2.0 billion and $2.3 billion as of December 31, 2019

and 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 CAS SPVs. The maximum exposure to loss

related to these unconsolidated SPVs was $9.5 billion and $920 million as of December 31, 2019 and 2018, respectively. The

total assets related to these unconsolidated SPVs were $9.5 billion and $931 million as of December 31, 2019 and 2018,

respectively.

The unpaid principal balance of our multifamily loan portfolio was $327.6 billion as of December 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 FASBÑs stated objectives for the

disclosures related to unconsolidated VIEs.

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

Fannie Mae (In conservatorship) 2019 Form 10-K F-25

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 years ended December 31,

2019, 2018 and 2017, the unpaid principal balance of portfolio securitizations was $278.6 billion, $228.4 billion and $252.7

billion, respectively. The substantial majority of these portfolio securitization transactions generally do not qualify for sale

treatment. Portfolio securitization trusts that do qualify for sale treatment primarily consist of loans that are guaranteed or

insured, in whole or in part, by the U.S. government.

We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and multi-class

portfolio securitization trusts. As of December 31, 2019, the unpaid principal balance of retained interests was $2.9 billion and

its related fair value was $4.0 billion. The unpaid principal balance of retained interests was $1.5 billion and its related fair

value was $2.2 billion as of December 31, 2018. For the years ended December 31, 2019, 2018 and 2017, the principal,

interest and other fees received on retained interests was $595 million, $585 million and $1.1 billion, respectively.

3.ÄÄMortgage Loans

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 HFI or HFS. 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 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 December 31,

2019 2018

(Dollars in millions)

Single-family $ 2,972,361 $ 2,929,925

Multifamily 327,593 293,858

Total unpaid principal balance of mortgage loans 3,299,954 3,223,783

Cost basis and fair value adjustments, net 43,224 39,815

Allowance for loan losses for HFI loans (9,016) (14,203)

Total mortgage loans $ 3,334,162 $ 3,249,395

The following table displays information about our redesignated mortgage loans.

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Carrying value of loans redesignated from HFI to HFS(1) $ 17,126 $ 21,960 $ 12,886

Carrying value of loans redesignated from HFS to HFI(1) 28 56 113

Loans sold - unpaid principal balance 19,737 21,918 12,184

Realized gains on sale of mortgage loans 1,238 444 723

(1) Represents the carrying value of the loans after redesignation, excluding allowance.

The recorded investment of single-family mortgage loans for which formal foreclosure proceedings are in process was $7.6

billion and $10.1 billion as of December 31, 2019 and 2018, respectively. As a result of our various loss mitigation and

foreclosure prevention efforts, we expect that a portion of the loans in the process of formal foreclosure proceedings will not

ultimately foreclose.

Notes to Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) 2019 Form 10-K F-26

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 December 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 $ 28,909 $ 7,497 $ 13,695 $ 50,101 $ 2,886,520 $2,936,621 $ 29 $ 24,573

Government(2) 44 21 133 198 16,931 17,129 133 Ü

Alt-A 1,721 602 1,290 3,613 38,642 42,255 1 2,198

Other 559 206 467 1,232 9,074 10,306 1 775

Total singlefamily 31,233 8,326 15,585 55,144 2,951,167 3,006,311 164 27,546

Multifamily(3) 7 N/A 115 122 330,496 330,618 Ü 435

Total $ 31,240 $ 8,326 $ 15,700 $ 55,266 $ 3,281,663 $3,336,929 $ 164 $ 27,981
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 Ü

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 Ü 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 Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) 2019 Form 10-K F-27

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. The estimated mark-to-market LTV ratio is a strong predictor

of credit performance. The likelihood of default and the gross severity of a loss in the event of default are typically lower as the

LTV ratio decreases.

As of December 31,

2019(1) 2018(1)

Primary Alt-A Other Primary Alt-A Other

(Dollars in millions)

Estimated mark-to-market LTV ratio:(2)

Less than or equal to 80% $2,556,685 $ 37,932 $ 9,002 $2,521,766 $ 45,476 $12,291

Greater than 80% and less than or equal to 90% 243,459 2,225 642 228,614 3,804 1,195

Greater than 90% and less than or equal to 100% 131,653 1,078 318 109,548 1,997 645

Greater than 100% 4,824 1,020 344 9,337 1,994 707

Total $2,936,621 $ 42,255 $10,306 $2,869,265 $ 53,271 $14,838

(1) Excludes the ÇgovernmentÉ class, which consists of $17.1 billion and $22.1 billion as of December 31, 2019 and 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. This

class is primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV ratio.

(2) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current

value of the property as of the end of each reported period, which we calculate using an internal valuation model that estimates periodic

changes in home value.
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 December 31,

2019 2018

(Dollars in millions)

Credit risk profile by internally assigned grade:

Non-classified $ 323,773 $ 289,231

Classified(1) 6,845 6,433

Total $ 330,618 $ 295,664

(1) Represents loans classified as ÇSubstandardÉ or ÇDoubtful.É Loans classified as ÇSubstandardÉ have a well-defined weakness that

jeopardizes the timely full repayment. Loans classified as ÇDoubtfulÉ have a weakness that makes collection or liquidation in full highly

questionable and improbable based on existing conditions and values. As of December 31, 2019, we had loans with recorded investment

of $5 million classified as doubtful, compared with $1 million as of December 31, 2018. 

Notes to Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) 2019 Form 10-K F-28

Individually Impaired Loans

Individually impaired loans include TDRs, acquired credit-impaired loans and multifamily loans that we have assessed as

probable that we will not collect all contractual amounts due, regardless of whether we are currently accruing interest,

excluding loans classified as HFS and loans for which we have elected the fair value option. The following tables display the

unpaid principal balance, total recorded investment, related allowance, average recorded investment and total interest income

recognized for individually impaired loans. 

As of December 31,

2019 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 $ 64,201 $ 62,150 $ (5,884) $ 81,791 $ 78,688 $ (9,406)

Government 243 247 (48) 264 270 (55)

Alt-A 11,453 10,535 (1,676) 16,576 15,158 (2,793)

Other 3,485 3,296 (567) 5,482 5,169 (1,001)

Total single-family 79,382 76,228 (8,175) 104,113 99,285 (13,255)

Multifamily 314 315 (45) 197 196 (40)

Total individually impaired loans with

related allowance recorded 79,696 76,543 (8,220) 104,310 99,481 (13,295)

With no related allowance recorded:(1)

Single-family:

Primary 19,047 18,249 Ñ 15,939 15,191 Ü

Government 64 60 Ñ 61 56 Ü

Alt-A 2,339 2,098 Ñ 2,628 2,363 Ü

Other 611 561 Ñ 718 666 Ü

Total single-family 22,061 20,968 Ñ 19,346 18,276 Ü

Multifamily 363 365 Ñ 343 346 Ü

Total individually impaired loans with

no related allowance recorded 22,424 21,333 Ñ 19,689 18,622 Ü

Total individually impaired loans(2) $ 102,120 $ 97,876 $ (8,220) $ 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 $96.9 billion and $117.2 billion as of December 31, 2019

and 2018, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $102 million and $187 million as of

December 31, 2019 and 2018, respectively.
For the Year Ended December 31,

2019 2018 2017

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

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 $ 71,048 $ 2,954 $ 264 $ 85,063 $ 3,522 $ 381 $ 92,893 $ 3,721 $ 319

Government 263 11 Ñ 276 17 Ü 292 10 Ü

Alt-A 12,685 540 38 18,202 772 57 23,536 929 56

Other 4,177 154 13 6,691 250 19 9,158 318 19

Total single-family 88,173 3,659 315 110,232 4,561 457 125,879 4,978 394

Multifamily 287 7 Ñ 235 3 Ü 273 9 Ü

Total individually

impaired loans with

related allowance

recorded 88,460 3,666 315 110,467 4,564 457 126,152 4,987 394

With no related

allowance recorded:(1)

Single-family:

Primary 16,243 1,008 150 15,005 967 119 15,166 1,107 96

Government 57 4 Ñ 57 4 Ü 61 3 Ü

Alt-A 2,176 169 15 2,625 218 17 3,000 270 13

Other 599 38 4 807 56 5 997 84 4

Total single-family 19,075 1,219 169 18,494 1,245 141 19,224 1,464 113

 Multifamily 375 31 Ñ 336 14 Ü 297 19 Ü

Total individually

impaired loans with

no related allowance

recorded 19,450 1,250 169 18,830 1,259 141 19,521 1,483 113

Total individually

impaired loans $ 107,910 $ 4,916 $ 484 $ 129,297 $ 5,823 $ 598 $ 145,673 $ 6,470 $ 507

(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 Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) 2019 Form 10-K F-29

Troubled Debt Restructurings

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

difficulties is considered a TDR. In addition to formal loan modifications, including loan modifications in a trial period, we also

engage in other loss mitigation activities with troubled borrowers, which include repayment plans and forbearance

arrangements, both of which represent informal agreements with the borrower that do not result in the legal modification of the

loanÑs 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. For discussion of how modifications

are factored into the determination of the allowance for loans losses, see ÇNote 1, Summary of Significant Accounting

Policies.É 

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 162 months, 109 months and 153

months for the years ended December 31, 2019, 2018 and 2017, respectively. The average interest rate reduction was 0.13,

0.21 and 0.56 percentage points for the years ended December 31, 2019, 2018 and 2017, respectively. 
The following table displays the number of loans and recorded investment in loans classified as a TDR.

For the Year Ended December 31,

2019 2018 2017

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

Number of

Loans

Recorded

Investment(1)

(Dollars in millions)

Single-family:

Primary 48,858 $ 7,688 89,192 $ 13,437 59,708 $ 8,247

Government 72 8 115 11 171 18

Alt-A 2,465 313 5,378 697 5,369 771

Other 464 81 1,127 208 1,158 207

Total single-family 51,859 8,090 95,812 14,353 66,406 9,243

Multifamily 11 56 14 74 8 99

Total TDRs 51,870 $ 8,146 95,826 $ 14,427 66,414 $ 9,342

(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 TDRs for the year ended December 31, 2019 compared with the year ended December

31, 2018 was primarily attributable to significantly higher 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 these loans.

Notes to Consolidated Financial Statements | Mortgage Loans

Fannie Mae (In conservatorship) 2019 Form 10-K F-30

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 table displays 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 Year Ended December 31,

2019 2018 2017

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

Number of

Loans

Recorded

Investment

(Dollars in millions)

Single-family:

Primary 15,875 $ 2,425 18,613 $ 2,697 19,539 $ 2,722

Government 74 10 55 7 91 10

Alt-A 1,453 218 2,412 386 2,588 400

Other 447 87 662 131 760 145

Total single-family 17,849 2,740 21,742 3,221 22,978 3,277

Multifamily 2 18 2 3 2 12

Total TDRs that subsequently

defaulted 17,851 $ 2,758 21,744 $ 3,224 22,980 $ 3,289
4.ÄÄAllowance for Loan Losses

Notes to Consolidated Financial Statements | Allowance for Loan Losses

Fannie Mae (In conservatorship) 2019 Form 10-K F-31

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 unamortized premiums and discounts, and other cost basis adjustments of HFI loans at

the balance sheet date.

The following table displays changes in our single-family, multifamily and total allowance for loan losses.

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance $ (13,969) $ (18,849) $ (23,283)

Benefit (provision) for loan losses(1) 3,988 2,990 1,994

Charge-offs 1,299 2,148 2,795

Recoveries (71) (240) (326)

Other (6) (18) (29)

Ending balance $ (8,759) $ (13,969) $ (18,849)

Multifamily allowance for loan losses:

Beginning balance $ (234) $ (235) $ (182)

Benefit (provision) for loan losses(1) (27) (3) (53)

Charge-offs 8 4 3

Recoveries (4) Ü (3)

Ending balance $ (257) $ (234) $ (235)

Total allowance for loan losses:

Beginning balance $ (14,203) $ (19,084) $ (23,465)

Benefit (provision) for loan losses(1) 3,961 2,987 1,941

Charge-offs 1,307 2,152 2,798

Recoveries (75) (240) (329)

Other (6) (18) (29)

Ending balance $ (9,016) $ (14,203) $ (19,084)

(1) Benefit (provision) for loan losses is included in ÇBenefit for credit lossesÉ in our consolidated statements of operations and comprehensive

income.

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 December 31,

2019 2018

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans $ (8,175) $ (45) $ (8,220) $ (13,255) $ (40) $ (13,295)

Collectively reserved loans (584) (212) (796) (714) (194) (908)

Total allowance for loan losses $ (8,759) $ (257) $ (9,016) $ (13,969) $ (234) $ (14,203)

Recorded investment in loans by

segment:

Individually impaired loans $ 97,196 $ 680 $ 97,876 $ 117,561 $ 542 $ 118,103

Collectively reserved loans 2,909,115 329,938 3,239,053 2,841,943 295,122 3,137,065

Total recorded investment in loans $ 3,006,311 $330,618 $ 3,336,929 $ 2,959,504 $295,664 $ 3,255,168
5.ÄÄInvestments in Securities

Notes to Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) 2019 Form 10-K F-32

Trading Securities

Trading securities are recorded at fair value with subsequent changes in fair value recorded as ÇFair value gains (losses), netÉ

in our consolidated statements of operations and comprehensive income. The following table displays our investments in

trading securities.

As of December 31,

2019 2018

(Dollars in millions)

Mortgage-related securities:

Fannie Mae(1) $ 3,424 $ 1,467

Other agency(2) 4,490 3,503

Private-label and other mortgage securities 629 1,306

Total mortgage-related securities (includes $896 and $32, respectively, related to

consolidated trusts) 8,543 6,276

Non-mortgage-related securities:

U.S. Treasury securities 39,501 35,502

Other securities 79 89

Total non-mortgage-related securities 39,580 35,591

Total trading securities $ 48,123 $ 41,867

(1) In the second quarter of 2019, we implemented the Single Security Initiative and recognized $1.4 billion in mortgage-related securities that

had previously been consolidated.

(2) Consists of Freddie Mac and Ginnie Mae mortgage-related securities.

The decrease in private-label and other mortgage securities for the year ended December 31, 2019 compared with the year

ended December 31, 2018 was primarily attributable to sales of Alt-A and subprime private-label securities.

The following table displays information about our net trading gains (losses).

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Net trading gains $ 322 $ 126 $ 190

Net trading gains recognized in the period related to securities still held at

period end 238 55 161

Available-for-Sale Securities

We record AFS securities at fair value with unrealized gains and losses, recorded net of tax, as a component of ÇOther

comprehensive lossÉ in our consolidated statements of operations and comprehensive income. We recognize realized gains

and losses from the sale of AFS securities in ÇInvestment gains, net.É

The following table displays the gross realized gains and proceeds on sales of AFS securities.

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Gross realized gains $ 265 $ 375 $ 487

Total proceeds (excludes initial sale of securities from new portfolio

securitizations) 537 662 1,780
The following tables display the amortized cost, gross unrealized gains and losses, and fair value by major security type for

AFS securities.

As of December 31, 2019

Total

Amortized

Cost(1)

Gross

Unrealized

Gains

Gross

Unrealized

Losses(2)

Total Fair

Value

(Dollars in millions)

Fannie Mae $ 1,445 $ 85 $ (10) $ 1,520

Other agency 183 15 Ü 198

Alt-A and subprime private-label securities 34 23 Ü 57

Mortgage revenue bonds 309 9 (3) 315

Other mortgage-related securities 310 5 (1) 314

Total $ 2,281 $ 137 $ (14) $ 2,404

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 Ü 256

Alt-A and subprime private-label securities 325 267 Ü 592

Mortgage revenue bonds 425 13 (4) 434

Other mortgage-related securities 336 14 Ü 350

Total $ 3,079 $ 380 $ (30) $ 3,429

s

(1) Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, as well as OTTI

recognized in ÇInvestment gains, netÉ in our 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 consolidated balance sheets.

The decrease in Alt-A and subprime private-label for the year ended December 31, 2019 compared with the year ended

December 31, 2018 was primarily attributable to sales of subprime private-label securities.

Notes to Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) 2019 Form 10-K F-33
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 December 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 $ Ü $ Ü $ (10) $ 337

Mortgage revenue bonds Ü Ü (3) 3

Other mortgage-related securities (1) 130 Ü Ü

Total $ (1) $ 130 $ (13) $ 340

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 $ Ü $ Ü $ (26) $ 487

Mortgage revenue bonds (1) 24 (3) 19

Total $ (1) $ 24 $ (29) $ 506

Notes to Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) 2019 Form 10-K F-34

Other-Than-Temporary Impairments 

For AFS securities, OTTI is considered to have occurred when the fair value of a debt security is below its amortized cost

basis and we intend to sell or it is more likely than not that we will be required to sell the security before recovery. Additionally,

OTTI is considered to have occurred if we do not expect to recover the entire amortized cost basis of a debt security even if

we do not intend to sell the security or it is not more likely than not we will be required to sell the security before recovery.

The balance of the unrealized credit loss component of AFS debt securities held by us and recognized in our consolidated

statements of operations and comprehensive income was $36 million, $635 million and $1.1 billion as of December 31, 2019,

2018 and 2017, respectively. The decrease for the years ended 2019 and 2018 was primarily driven by securities that we no

longer hold in our portfolio. 

The following table displays net unrealized gains on AFS securities and other amounts within accumulated other

comprehensive income (ÇAOCIÉ), net of tax, by major categories.

As of December 31,

2019 2018 2017

(Dollars in millions)

Net unrealized gains on AFS securities for which we have not recorded OTTI $ 97 $ 52 $ 87

Net unrealized gains on AFS securities for which we have recorded OTTI Ñ 224 423

Other 34 46 43

Accumulated other comprehensive income $ 131 $ 322 $ 553
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 December 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 $ 1,445 $ 1,520 $ Ü $ Ü $ 15 $ 16 $ 95 $ 104 $ 1,335 $ 1,400

Other agency 183 198 Ü Ü 18 18 24 27 141 153

Alt-A and subprime private-label

securities 34 57 Ü Ü Ü Ü 3 3 31 54

Mortgage revenue bonds 309 315 2 2 31 32 29 30 247 251

Other mortgage-related securities 310 314 Ü Ü Ü Ü 24 26 286 288

Total $ 2,281 $ 2,404 $ 2 $ 2 $ 64 $ 66 $ 175 $ 190 $ 2,040 $ 2,146

Weighted-average yield (1) 6.48% 5.51% 6.30% 6.19% 6.51%

(1) Yields are determined by dividing interest income (including amortization and accretion of premiums, discounts and other cost basis

adjustments) by amortized cost balances as of year-end. Yields on tax-exempt obligations have been computed on a tax equivalent basis.

Notes to Consolidated Financial Statements | Investments in Securities

Fannie Mae (In conservatorship) 2019 Form 10-K F-35

6.ÄÄFinancial Guarantees

We generate revenue by absorbing the credit risk of mortgage loans in unconsolidated trusts in exchange for a guaranty fee.

We also provide credit enhancements on taxable or tax-exempt mortgage revenue bonds issued by state and local

governmental entities to finance multifamily housing for low- and moderate-income families. Additionally, we issue long-term

standby commitments that generally require us to purchase loans from lenders if the loans meet certain delinquency criteria.

We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts

and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily relating to the

unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees. The remaining contractual

terms of our guarantees range from 1 day to 33 years; however, the actual term of each guaranty may be significantly less

than the contractual term based on the prepayment characteristics of the related mortgage loans. 

As the guarantor of structured securities backed in whole or in part by Freddie Mac-issued securities, we extend our guaranty

to the underlying Freddie Mac securities in our resecuritization trusts. However, Freddie Mac continues to guarantee the

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

incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. As described in ÇNote 1,

Summary of Significant Accounting Policies,É in June 2019, we entered into an indemnification agreement under which Freddie

Mac agreed to indemnify us for losses caused by its failure to meet its payment or other specified obligations under the trust

agreements pursuant to which the underlying resecuritized securities were issued. As a result, and due to the funding

commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury, we have

concluded that the associated credit risk is negligible. As such, we exclude from the following table approximately $50.1 billion

of Freddie Mac securities backing unconsolidated Fannie Mae-issued structured securities as of December 31, 2019.

The following table displays our off-balance sheet maximum exposure, guaranty obligation recognized in our consolidated

balance sheets and the potential maximum recovery from third parties through available credit enhancements and recourse

related to our financial guarantees.

As of December 31,

2019 2018

Maximum

Exposure

Guaranty

Obligation

Maximum

Recovery(1)

Maximum

Exposure

Guaranty

Obligation

Maximum

Recovery(1)

(Dollars in millions)

Unconsolidated Fannie Mae MBS $ 5,801 $ 26 $ 5,545 $ 7,278 $ 30 $ 6,811

Other guaranty arrangements(2) 12,670 128 2,553 13,847 130 2,711

Total $ 18,471 $ 154 $ 8,098 $ 21,125 $ 160 $ 9,522

(1) Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurersÑ and financial

guarantorsÑ ability to meet their obligations to us. For information on our mortgage insurers, see ÇNote 13, Concentrations of Credit Risk.É

(2) Primarily consists of credit enhancements and long-term standby commitments.
7.ÄÄShort-Term and Long-Term Debt

Notes to Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) 2019 Form 10-K F-36

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 December 31,

2019 2018

Outstanding

WeightedAverage

Interest Rate(1) Outstanding

WeightedAverage

Interest Rate(1) 

(Dollars in millions)

Federal funds purchased and securities sold under

agreements to repurchase(2) $ 478 1.67% $ Ü Ü%

Short-term debt of Fannie Mae $ 26,662 1.56% $ 24,896 2.29%

(1) Includes the effects of discounts, premiums and other cost basis adjustments.

(2) Represents agreements to repurchase securities for a specified price, with repayment generally occurring on the following day, reported as

ÇOther liabilitiesÉ in our consolidated balance sheets.

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

December 31, 2019 and 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 December 31,

2019 2018

Maturities Outstanding

WeightedAverage

Interest

Rate(1) Maturities Outstanding

WeightedAverage

Interest

Rate(1)

(Dollars in millions)

Senior fixed:

Benchmark notes and bonds 2020 - 2030 $ 86,114 2.66% 2019 - 2030 $ 103,206 2.36%

Medium-term notes(2) 2020 - 2026 32,590 1.57 2019 - 2026 61,455 1.48

Other(3) 2020 - 2038 5,254 5.01 2019 - 2038 6,683 4.62

Total senior fixed 123,958 2.47 171,344 2.13

Senior floating:

Medium-term notes(2) 2020 - 2021 9,774 1.66 2019 - 2020 4,174 2.36

CAS(4) 2023 - 2031 21,424 5.61 2023 - 2031 25,641 5.97

Other(5) 2020 - 2037 398 6.27 2020 - 2037 351 10.19

Total senior floating 31,596 4.40 30,166 5.52

Subordinated debentures 2019 Ñ Ñ 2019 5,617 9.64

Secured borrowings(6) 2021 - 2022 31 2.31 2021 - 2022 51 1.96

Total long-term debt of Fannie Mae(7) 155,585 2.86 207,178 2.83

Debt of consolidated trusts 2020 - 2059 3,285,139 2.78 2019 - 2058 3,159,846 3.03

Total long-term debt $ 3,440,724 2.78% $ 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 CAS issued prior to November 2018. See ÇNote 2, Consolidations

and Transfers of Financial AssetsÉ for more information about our CAS structures issued beginning November 2018.

(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 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 $2 million and $413 millionÄas

of December 31, 2019 and 2018, respectively.

Notes to Consolidated Financial Statements | Short-Term and Long-Term Debt

Fannie Mae (In conservatorship) 2019 Form 10-K F-37

Our long-term debt includes a variety of debt types. We issue fixed and floating-rate medium-term notes with maturities greater

than one year that are issued through dealer banks. We also offer Benchmark Notesâ in regularly-scheduled issuances that

provide increased efficiency, liquidity and tradability to the market. Additionally, we have issued notes and bonds denominated

in several foreign currencies. We effectively convert all foreign currency-denominated transactions into U.S.Ädollars through the

use of foreign currency swaps for the purpose of funding our mortgage assets. Our long-term debt also includes CAS

securities, which are credit risk-sharing securities that transfer a portion of the credit risk on specified pools of mortgage loans

to investors in these securities. 

Our other long-term debt includes callable and non-callable securities, which include all long-term non-Benchmark securities,

such as zero-coupon bonds, fixed rate and other long-term securities, and are generally negotiated underwritings with one or

more dealers or dealer banks.

Characteristics of Debt 

As of December 31, 2019 and 2018, the face amount of our debt securities of Fannie Mae was $182.2 billion and $232.5

billion, respectively. As of December 31, 2019, we had zero-coupon debt with a face amount of $23.1 billion, which had an

effective interest rate of 1.63%. As of December 31, 2018, we had zero-coupon debt with a face amount of $23.2 billion, which

had an effective interest rate of 4.15%. Our zero-coupon debt outstanding as of December 31, 2018 included subordinated

debentures, which matured in October 2019.

We issue callable debt instruments to manage the duration and prepayment risk of expected cash flows of the mortgage

assets we own. Our outstanding debt as of December 31, 2019 and 2018 included $38.5 billion and $64.3 billion, respectively,

of callable debt that could be redeemed in whole or in part at our option on or after a specified date.

The following table displays the amount of our long-term debt as of December 31, 2019 by year of maturity for each of the

years 2020 through 2024 and thereafter. The first column assumes that we pay off this debt at maturity or on the call date if the

call has been announced, while the second column assumes that we redeem our callable debt at the next available call date. 

Long-TermÄDebtÄby

Year of Maturity

AssumingÄCallableÄDebt

Redeemed at Next

Available Call Date

(Dollars in millions)

2020 $ 47,427 $ 60,464

2021 29,028 21,037

2022 15,584 14,010

2023 5,301 4,470

2024 14,344 13,320

Thereafter 43,901 42,284

Total long-term debt of Fannie Mae(1) 155,585 155,585

Debt of consolidated trusts(2) 3,285,139 3,285,139

Total long-term debt $ 3,440,724 $ 3,440,724

(1) Includes unamortized discounts and premiums, other cost basis adjustments and fair value adjustments.

(2) Contractual maturity of debt of consolidated trusts is not a reliable indicator of expected maturity because borrowers of the underlying

loans generally have the right to prepay their obligations at any time. 
8.ÄÄDerivative Instruments

Notes to Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) 2019 Form 10-K F-38

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 OTC 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 fall into these broad

categories:

Ö Interest-rate swap contracts. An interest-rate swap is a transaction between two parties in which each party agrees to

exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional

amount of principal. The types of interest-rate swaps we use include pay-fixed swaps, receive-fixed swaps and basis

swaps.

Ö Interest-rate option contracts. These contracts primarily include pay-fixed swaptions, receive-fixed swaptions,

cancelable swaps and interest-rate caps. A swaption is an option contract that allows us or a counterparty to enter into a

pay-fixed or receive-fixed swap at some point in the future.

Ö Foreign currency swaps. These swaps convert debt that we issue in foreign denominated currencies into U.S. dollars.

We enter into foreign currency swaps only to the extent that we hold foreign currency debt.

Ö Futures. These are standardized exchange-traded contracts that either obligate a buyer to buy an asset at a

predetermined date and price or a seller to sell an asset at a predetermined date and price.ÄThe types of futures

contracts we enter into include SOFR and U.S. Treasury.

We account for certain forms of credit risk transfer transactions as derivatives. In our credit risk transfer transactions, a portion

of the credit risk associated with losses on a reference pool of mortgage loans is transferred to a third party. We enter into

derivative transactions that are associated with some of our 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 consolidated balance sheets at their fair value on a trade-date

basis. Fair value amounts, which are (1) netted to the extent a legal right of offset exists and is enforceable by law at the

counterparty level and (2) inclusive of the right or obligation associated with the cash collateral posted or received, are

recorded in ÇOther assetsÉ or ÇOther liabilitiesÉ in our consolidated balance sheets. See ÇNote 15, Fair ValueÉ for additional

information on derivatives recorded at fair value. We present cash flows from derivatives as operating activities in our

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 December 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 $ 41,052 $ Ñ $ 29,178 $ (970) $ 71,416 $ 438 $ 21,253 $ (740)

Receive-fixed 73,579 816 26,382 (62) 88,799 1,113 58,399 (860)

Basis 273 149 Ñ Ñ 250 104 624 Ü

Foreign currency 229 39 232 (65) 221 22 223 (72)

Swaptions:

Pay-fixed 4,600 18 6,375 (219) 10,375 191 1,000 (4)

Receive-fixed 2,875 106 4,600 (232) 500 20 7,375 (338)

Futures(1) 20,507 Ñ Ñ Ñ 16,631 Ü Ü Ü

Total gross risk management

derivatives 143,115 1,128 66,767 (1,548) 188,192 1,888 88,874 (2,014)

Accrued interest receivable

(payable) Ñ 226 Ñ (250) Ü 400 Ü (419)

Netting adjustment(2) Ñ (1,288) Ñ 1,694 Ü (2,266) Ü 2,315

Total net risk management

derivatives $ 143,115 $ 66 $ 66,767 $ (104) $ 188,192 $ 22 $ 88,874 $ (118)

Mortgage commitment derivatives:

Mortgage commitments to

purchase whole loans $ 7,115 $ 15 $ 1,787 $ (1) $ 4,370 $ 29 $ 57 $ Ü

Forward contracts to purchase

mortgage-related securities 55,531 137 9,560 (28) 40,650 349 1,045 (3)

Forward contracts to sell

mortgage-related securities 9,282 13 109,066 (277) 292 1 70,593 (645)

Total mortgage commitment

derivatives 71,928 165 120,413 (306) 45,312 379 71,695 (648)

Credit enhancement derivatives 28,432 40 9,486 (25) 33,431 57 919 (11)

Derivatives at fair value $ 243,475 $ 271 $ 196,666 $ (435) $ 266,935 $ 458 $ 161,488 $ (777)

(1) Futures have no ascribable fair value since the positions are settled daily. 

(2) The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with

the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $1.0 billion and $713

million as of December 31, 2019 and 2018, respectively. Cash collateral received was $635 million and $664 million as of December 31,

2019 and 2018, respectively.

Notes to Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) 2019 Form 10-K F-39
We record all derivative gains and losses, including accrued interest, in ÇFair value gains (losses), netÉ in our 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 Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed $ (3,964) $ 2,940 $ 1,296

Receive-fixed 3,685 (1,834) (851)

Basis 46 (21) 21

Foreign currency 24 (51) 49

Swaptions:

Pay-fixed (380) 100 (161)

Receive-fixed 117 (39) (60)

Futures 273 38 22

Net contractual interest expense on interest-rate swaps (833) (1,061) (889)

Total risk management derivatives fair value gains (losses), net (1,032) 72 (573)

Mortgage commitment derivatives fair value gains (losses), net (1,043) 324 (603)

Credit enhancement derivatives fair value gains (losses), net (35) 26 (9)

Total derivatives fair value gains (losses), net $ (2,110) $ 422 $ (1,185)

Notes to Consolidated Financial Statements | Derivative Instruments

Fannie Mae (In conservatorship) 2019 Form 10-K F-40

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.ÄTreasury securities, agency debt and agency mortgage-related securities.

See ÇNote 14, Netting ArrangementsÉ for information on our rights to offset assets and liabilities as of December 31, 2019 and

2018.

9.ÄÄIncome Taxes

Provision for Federal Income Taxes

We are subject to federal income tax, but we are exempt from state and local income taxes. The following table displays the

components of our provision for federal income taxes.

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Current income tax benefit (provision) $ (2,089) $ 114 $ 600

Deferred income tax provision(1) (1,328) (4,254) (16,584)

Provision for federal income taxes $ (3,417) $ (4,140) $ (15,984)

(1) Amount excludes the current income tax effect of items recognized directly in ÇFannie Mae stockholdersÑ equity (deficit).É
The following table displays the difference between the statutory corporate tax rate and our effective tax rate.

For the Year Ended December 31,

2019 2018 2017

Statutory corporate tax rate 21.0 % 21.0 % 35.0 %

Equity investments in affordable housing projects (0.2) (0.6) (1.4)

Effect of corporate tax rate change Ñ Ü 53.6

Change in unrecognized tax benefits (1.2) Ü Ü

Other (0.2) 0.2 (0.6)

Effective tax rate 19.4 % 20.6 % 86.6 %

Our effective tax rate is the provision for federal income taxes expressed as a percentage of income or loss before federal

income taxes. Our effective tax rates for the years 2019, 2018, and 2017 were impacted by the benefits of our investments in

housing projects eligible for low-income housing tax credits. Our effective tax rate for 2019 was also impacted by the favorable

resolution of our uncertain tax position which reduced our provision for federal income taxes by $205 million. The effective tax

rate in 2017 was impacted by the re-measurement of our net deferred tax assets in the fourth quarter of 2017 as a result of the

federal statutory corporate tax rate change from 35% to 21%.

Notes to Consolidated Financial Statements | Income Taxes

Fannie Mae (In conservatorship) 2019 Form 10-K F-41

Deferred Tax Assets and Liabilities

We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of

negative and positive evidence, including our historical profitability and projections of future taxable income. 

As of December 31, 2019, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax

assets outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. Our

framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, to the extent it

exists, including:

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

Ö the cumulative net income or losses in our consolidated statements of operations and comprehensive income in recent

years;

Ö unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a

continuing basis in future years; and

Ö the funding available to us under the senior preferred stock purchase agreement. 

The following table displays our deferred tax assets and deferred tax liabilities.

As of December 31,

2019 2018

(Dollars in millions)

Deferred tax assets:

Mortgage and mortgage-related assets $ 9,290 $ 9,285

Allowance for loan losses and basis in acquired property, net 1,240 2,065

Debt and derivative instruments 627 687

Partnership credits Ñ 161

Partnership and other equity investments 152 223

Interest-only securities 788 738

Other, net Ñ 102

Total deferred tax assets 12,097 13,261

Deferred tax liabilities:

Unrealized gains on AFS securities, net 26 73

Other, net 161 Ü

Total deferred tax liabilities 187 73

Deferred tax assets, net $ 11,910 $ 13,188
Unrecognized Tax Benefits

The following table displays the changes in our unrecognized tax benefits.

For the Year Ended December 31,

2019 2018 2017

(Dollars in millions)

Unrecognized tax benefits as of January 1 $ 416 $ 514 $ Ü

Gross increases - tax positions in current year Ñ Ü 514

Gross decreases - tax positions in current year Ñ (98) Ñ

Gross decreases - tax positions in prior years (416) Ü Ñ

Unrecognized tax benefits as of December 31(1) $ Ñ $ 416 $ 514

(1) Amount excludes tax credits of $151 million, and $220 million as of 2018, and 2017, respectively. We had no unrecognized tax benefits as

of December 31, 2019.

Our tax years 2007 through 2018 remain open to assessment by the IRS. 

Notes to Consolidated Financial Statements | Income Taxes

Fannie Mae 2019 Form 10-K F-42

10.ÄÄSegment Reporting

We have two reportable business segments: Single-Family and Multifamily. The chief operating decision maker allocates

resources and assesses performance based on these two business segments. 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 consolidated results of operations.

The section below provides a discussion of our business segments.

Single-Family Business Segment

Ö Works with our lender customers to acquire and securitize single-family mortgage loans delivered to us by lenders

into Fannie Mae MBS. 

Ö Issues structured Fannie Mae MBS backed by single-family mortgage assets and provides other services to our

lender customers. 

Ö Prices and manages the credit risk on loans in our single-family guaranty book of business. Also enters into

transactions that transfer a portion of the credit risk on some of the loans in our single-family guaranty book of

business. 

Ö Works to reduce costs of defaulted single-family loans through home retention solutions and foreclosure alternatives,

management of foreclosures and our REO inventory, selling nonperforming loans and pursuing contractual remedies

from lenders, servicers and providers of credit enhancement.

Multifamily Business Segment

Ö Works with our lender customers to acquire and securitize multifamily mortgage loans delivered to us by lenders into

Fannie Mae MBS. 

Ö Issues structured multifamily Fannie Mae MBS through our Fannie Mae Guaranteed Multifamily Structures (ÇFannie

Mae GeMSÉ) program and provides other services to our lender customers. 

Ö Prices and manages the credit risk on loans in our multifamily guaranty book of business. Lenders retain a portion of

the credit risk in most multifamily transactions. 

Ö Enters into transactions that transfer an additional portion of Fannie MaeÑs credit risk on some of the loans in our

multifamily guaranty book of business.

Ö Works to maintain credit quality of the book, prevent foreclosure, reduce costs of defaulted multifamily loans, manage

our REO inventory, and pursue contractual remedies from lenders, servicers and providers of credit enhancement.
Segment Allocations and Results

The majority of our assets, revenues and expenses are directly associated with each respective business segment and are

included in determining its asset balance and operating results. Those assets, revenues and expenses that are not directly

attributable to a particular business segment are allocated based on the size of each segmentÑs guaranty book of business.

The substantial majority of our gains and losses associated with our risk management derivatives are allocated to our SingleFamily business segment. 

The following table displays total assets by segment. 

As of December 31,

2019 2018

(Dollars in millions)

Single-Family $ 3,149,212 $ 3,099,588

Multifamily 354,107 318,730

Total assets $ 3,503,319 $ 3,418,318

We operate our business solely in the United States and its territories, and accordingly, we generate no revenue from and

have no long-lived assets, other than financial instruments, in geographic locations other than the United States and its

territories.

The following tables display our segment results. 

For the Year Ended December 31, 2019

Single-Family Multifamily Total

(Dollars in millions)

Net interest income(1) $ 18,013 $ 2,949 $ 20,962

Fee and other income(2) 453 723 1,176

Net revenues 18,466 3,672 22,138

Investment gains, net(3) 1,589 181 1,770

Fair value gains (losses), net(4) (2,216) 2 (2,214)

Administrative expenses (2,565) (458) (3,023)

Credit-related income (expense):(5)

Benefit (provision) for credit losses 4,038 (27) 4,011

Foreclosed property income (expense) (523) 8 (515)

Total credit-related income (expense) 3,515 (19) 3,496

TCCA fees(6) (2,432) Ü (2,432)

Other expenses, net (1,661) (497) (2,158)

Income before federal income taxes 14,696 2,881 17,577

Provision for federal income taxes (2,859) (558) (3,417)

Net income $ 11,837 $ 2,323 $ 14,160

Notes to Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) 2019 Form 10-K F-43
For the Year Ended December 31, 2018

Single-Family Multifamily Total

(Dollars in millions)

Net interest income(1) $ 18,162 $ 2,789 $ 20,951

Fee and other income(2) 450 529 979

Net revenues 18,612 3,318 21,930

Investment gains, net(3) 850 102 952

Fair value gains (losses), net(4) 1,210 (89) 1,121

Administrative expenses (2,631) (428) (3,059)

Credit-related income (expense):(5)

Benefit (provision) for credit losses 3,313 (4) 3,309

Foreclosed property expense (604) (13) (617)

Total credit-related income (expense) 2,709 (17) 2,692

TCCA fees(6) (2,284) Ü (2,284)

Other expenses, net (1,012) (241) (1,253)

Income before federal income taxes 17,454 2,645 20,099

Provision for federal income taxes (3,708) (432) (4,140)

Net income $ 13,746 $ 2,213 $ 15,959

For the Year Ended December 31, 2017

Single-Family Multifamily Total

(Dollars in millions)

Net interest income(1) $ 18,212 $ 2,521 $ 20,733

Fee and other income(2) 1,378 849 2,227

Net revenues 19,590 3,370 22,960

Investment gains, net(3) 1,352 170 1,522

Fair value losses, net(4) (1,188) (23) (1,211)

Administrative expenses (2,391) (346) (2,737)

Credit-related income (expense):(5)

Benefit (provision) for credit losses 2,090 (49) 2,041

Foreclosed property income (expense) (540) 19 (521)

Total credit-related income (expense) 1,550 (30) 1,520

TCCA fees(6) (2,096) Ü (2,096)

Other expenses, net (1,004) (507) (1,511)

Income before federal income taxes 15,813 2,634 18,447

Provision for federal income taxes (14,301) (1,683) (15,984)

Net income $ 1,512 $ 951 $ 2,463

(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 segmentÑs 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 for which is remitted to Treasury and not retained by us.

(2) Single-family fee and other income primarily consists of compensation for engaging in structured transactions and providing other lender

services, and income resulting from settlement agreements resolving certain claims relating to private-label securities we purchased or

that we have guaranteed. Multifamily fee and other income consists of fees associated with Multifamily business activities, including yield

maintenance income. 

(3) Investment gains and losses primarily consist of gains and losses on the sale of mortgage assets for the respective business segment. 

(4) Single-family fair value gains and losses primarily consist of fair value gains and losses on risk management and mortgage commitment

derivatives, trading securities and other financial instruments associated with our single-family guaranty book of business. Multifamily fair

value gains and losses primarily consist of fair value gains and losses on MBS commitment derivatives, trading securities and other

financial instruments associated with our multifamily guaranty book of business. 

Notes to Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) 2019 Form 10-K F-44
(5) Credit-related income or expense is based on the guaranty book of business of the respective business segment and consists of the

applicable segmentÑs benefit or provision for credit losses and foreclosed property income or expense on loans underlying the segmentÑs

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 Consolidated Financial Statements | Segment Reporting

Fannie Mae (In conservatorship) 2019 Form 10-K F-45

11.ÄÄEquity

Common Stock

Shares of common stock outstanding, net of shares held as treasury stock, totaled 1.2 billion as of December 31, 2019 and

2018.

During conservatorship, the rights and powers of shareholders are suspended. Accordingly, our common shareholders have

no ability to elect directors or to vote on other matters during the conservatorship unless FHFA elects to delegate this authority

to them. The senior preferred stock purchase agreement with Treasury prohibits the payment of dividends on common stock

without the prior written consent of Treasury. The conservator also has eliminated common stock dividends. In addition, we

issued a warrant to Treasury that provides Treasury with the right to purchase for a nominal price shares of our common stock

equal to 79.9% of the total number of shares of common stock outstanding on a fully diluted basis on the date of exercise,

which would substantially dilute the ownership in Fannie Mae of our common stockholders at the time of exercise. Refer to the

ÇSenior Preferred Stock and Common Stock WarrantÉ section of this note for more information.

Preferred Stock

The following table displays our senior preferred stock and preferred stock outstanding.

Issued and Outstanding as of December 31, Annual

Dividend Rate

as of

December 31,

2019

2019 2018 Stated

Value per

Title Issue Date Shares Amount Shares Amount Share

Redeemable on or

After

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

Senior Preferred Stock

Series 2008-2 SeptemberÄ8, 2008 1 $ 120,836 1 $ 120,836 $ 120,836 (1) N/A (2) N/A (3)

Preferred Stock

Series D SeptemberÄ30, 1998 3 $ 150 3 $ 150 $ 50 5.250 % SeptemberÄ30, 1999

Series E AprilÄ15, 1999 3 150 3 150 50 5.100 AprilÄ15, 2004

Series F MarchÄ20, 2000 14 690 14 690 50 2.146 (4) MarchÄ31, 2002 (5)

Series G AugustÄ8, 2000 6 288 6 288 50 2.624 (6) SeptemberÄ30, 2002 (5)

Series H AprilÄ6, 2001 8 400 8 400 50 5.810 AprilÄ6, 2006

Series I OctoberÄ28, 2002 6 300 6 300 50 5.375 OctoberÄ28, 2007

Series L AprilÄ29, 2003 7 345 7 345 50 5.125 AprilÄ29, 2008

Series M JuneÄ10, 2003 9 460 9 460 50 4.750 JuneÄ10, 2008

Series N SeptemberÄ25, 2003 5 225 5 225 50 5.500 SeptemberÄ25, 2008

Series O DecemberÄ30, 2004 50 2,500 50 2,500 50 7.000 (7) DecemberÄ31, 2007

Convertible Series

2004-I(8) DecemberÄ30, 2004 Ñ 2,492 Ü 2,492 100,000 5.375 JanuaryÄ5, 2008

Series P SeptemberÄ28, 2007 40 1,000 40 1,000 25 4.500 (9) SeptemberÄ30, 2012

Series Q OctoberÄ4, 2007 15 375 15 375 25 6.750 SeptemberÄ30, 2010

Series R(10) NovemberÄ21, 2007 21 530 21 530 25 7.625 NovemberÄ21, 2012

Series S DecemberÄ11, 2007 280 7,000 280 7,000 25 7.750 (11) DecemberÄ31, 2010 (12)

Series T(13) MayÄ19, 2008 89 2,225 89 2,225 25 8.250 MayÄ20, 2013

Total 556 $ 19,130 556 $ 19,130
(1) Initial stated value per share was $1,000. Based on our draws of funds under the senior preferred stock purchase agreement with

Treasury, the stated value per share on December 31, 2019 was $120,836.

(2) Beginning in 2013, dividends on the senior preferred stock are calculated based on our net worth as of the end of the immediately

preceding fiscal quarter less an applicable capital reserve amount.ÄThe applicable capital reserve amount was $3 billion for 2018 and the

first and second quarters of 2019. The capital reserve amount increased to $25 billion effective for dividend periods beginning July 1,

2019, pursuant to the September 2019 letter agreement with Treasury.

(3) Any liquidation preference of our senior preferred stock in excess of $1.0 billion may be repaid through an issuance of common or

preferred stock, which would require the consent of the conservator and Treasury. The initial $1.0 billion liquidation preference may be

repaid only in conjunction with termination of TreasuryÑs funding commitment under the senior preferred stock purchase agreement.

(4) Rate effective MarchÄ31, 2018. Variable dividend rate resets every two years at a per annum rate equal to the two-year Constant Maturity

U.S. Treasury Rate (ÇCMTÉ) minus 0.16% with a cap of 11%Äper year. 

(5) Represents initial call date. Redeemable every two years thereafter.

(6) Rate effective SeptemberÄ30, 2018. Variable dividend rate resets every two years at a per annum rate equal to the two-year CMT rate

minus 0.18% with a cap of 11%Äper year. 

(7) Rate effective December 31, 2019. Variable dividend rate resets quarterly thereafter at a per annum rate equal to the greater of 7.00% or

10-year CMT rate plus 2.375%. 

(8) Issued and outstanding shares were 24,922 as of December 31, 2019 and 2018.

(9) Rate effective December 31, 2019. Variable dividend rate resets quarterly thereafter at a per annum rate equal to the greater of 4.50% or

3-Month LIBOR plus 0.75%. 

(10) On NovemberÄ21, 2007, we issued 20 million shares of preferred stock in the amount of $500 million. Subsequent to the initial issuance,

we issued an additional 1.2 million shares in the amount of $30 million on DecemberÄ14, 2007 under the same terms as the initial

issuance.

(11) Rate effective December 31, 2019. Variable dividend rate resets quarterly thereafter at a per annum rate equal to the greater of 7.75% or

3-Month LIBOR plus 4.23%. 

(12) Represents initial call date. Redeemable every five years thereafter.

(13) On MayÄ19, 2008, we issued 80 million shares of preferred stock in the amount of $2.0 billion. Subsequent to the initial issuance, we

issued an additional 8 million shares in the amount of $200 million on MayÄ22, 2008 and 1 million shares in the amount of $25 million on

JuneÄ4, 2008 under the same terms as the initial issuance.

As described under ÇSenior Preferred Stock and Common Stock Warrant,É we issued senior preferred stock that ranks senior

to all other series of preferred stock as to both dividends and distributions upon dissolution, liquidation or winding down of the

company. The senior preferred stock purchase agreement with Treasury also prohibits the payment of dividends on preferred

stock (other than the senior preferred stock) without the prior written consent of Treasury. The conservator also has eliminated

preferred stock dividends, other than dividends on the senior preferred stock.

Each series of our preferred stock has no par value, is non-participating, is non-voting and has a liquidation preference equal

to the stated value per share. None of our preferred stock is convertible into or exchangeable for any of our other stock or

obligations, with the exception of the Convertible SeriesÄ2004-1.

Shares of the Convertible SeriesÄ2004-1 Preferred Stock are convertible at any time, at the option of the holders, into shares of

Fannie Mae common stock at a conversion price of $94.31 per share of common stock (equivalent to a conversion rate of

1,060.3329Äshares of common stock for each share of SeriesÄ2004-1 Preferred Stock). The conversion price is adjustable, as

necessary, to maintain the stated conversion rate into common stock. Events which may trigger an adjustment to the

conversion price include certain changes in our common stock dividend rate, subdivisions of our outstanding common stock

into a greater number of shares, combinations of our outstanding common stock into a smaller number of shares and

issuances of any shares by reclassification of our common stock. No such events have occurred. 

Holders of preferred stock (other than the senior preferred stock) are entitled to receive non-cumulative, quarterly dividends

when, and if, declared by our Board of Directors, but have no right to require redemption of any shares of preferred stock.

Payment of dividends on preferred stock (other than the senior preferred stock) is not mandatory, but has priority over

payment of dividends on common stock, which are also declared by the Board of Directors. If dividends on the preferred stock

are not paid or set aside for payment for a given dividend period, dividends may not be paid on our common stock for that

period. There were no dividends declared or paid on preferred stock (other than the senior preferred stock) for the years

ended December 31, 2019 or 2018.

After a specified period, we have the option to redeem preferred stock (other than the senior preferred stock) at its redemption

price plus the dividend (whether or not declared) for the then-current period accrued to, but excluding, the date of redemption.

The redemption price is equal to the stated value for all issues of preferred stock except SeriesÄO, which has a redemption

price of $50 to $52.50 depending on the year of redemption and Convertible SeriesÄ2004-1, which has a redemption price of

$105,000 per share. 

Our preferred stock is traded in the over-the-counter market.

Senior Preferred Stock and Common Stock Warrant

On SeptemberÄ8, 2008, we issued to Treasury one million shares of Variable Liquidation Preference Senior Preferred Stock,

SeriesÄ2008-2, with an aggregate stated value and initial liquidation preference of $1.0 billion. On SeptemberÄ7, 2008, we

Notes to Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) 2019 Form 10-K F-46
issued a warrant to purchase common stock to Treasury. The warrant gives Treasury the right to purchase shares of our

common stock equal to 79.9% of the total number of shares of common stock outstanding on a fully diluted basis on the date

of exercise. The senior preferred stock and the warrant were issued to Treasury as an initial commitment fee in consideration

of the commitment from Treasury to provide funds to us under the terms and conditions set forth in the senior preferred stock

purchase agreement. We did not receive any cash proceeds as a result of issuing these shares or the warrant. We have

assigned a value of $4.5 billion to TreasuryÑs commitment, which has been recorded as a reduction to additional paid-in-capital

and was partially offset by the aggregate fair value of the warrant. There was no impact to the total balance of stockholdersÑ

equity as a result of the issuance.

Variable Liquidation Preference Senior Preferred Stock, SeriesÇ2008-2

Shares of the senior preferred stock have no par value and have a stated value and initial liquidation preference equal to

$1,000 per share, for an aggregate initial liquidation preference of $1.0 billion. Under the terms governing the senior preferred

stock, the aggregate liquidation preference is increased by the following: 

Ö any amounts Treasury pays to us pursuant to its funding commitment under the senior preferred stock purchase

agreement (a total of $119.8 billion as of the date of this filing),

Ö any quarterly commitment fees that are payable but not paid in cash (no such fees have become payable, nor will

they under the current terms of the agreement and the senior preferred stock); and

Ö any dividends that are payable but not paid in cash to Treasury, regardless of whether or not they are declared.

In addition:

Ö the December 2017 letter agreement increased the aggregate liquidation preference of the senior preferred stock by

$3.0 billion as of December 31, 2017; and

Ö the September 2019 letter agreement provides that, beginning on September 30, 2019, and at the end of each fiscal

quarter thereafter, the liquidation preference shall be increased by an amount equal to the increase in our net worth, if

any, during the immediately prior fiscal quarter, until such time as the liquidation preference has increased by $22

billion pursuant to this provision.

Accordingly, the aggregate liquidation preference of the senior preferred stock was $131.2 billion as of December 31, 2019

and will increase to $135.4 billion as of March 31, 2020 due to the increase in our net worth during the fourth quarter of 2019. 

Treasury, as the holder of the senior preferred stock, is entitled to receive, when, as and if declared, out of legally available

funds, cumulative quarterly cash dividends. Dividends declared and paid on the senior preferred stock were $5.6 billion, $9.4

billion, and $12.0 billion for the years ended December 31, 2019, 2018 and 2017, respectively. The dividends we have paid to

Treasury on the senior preferred stock during conservatorship have been declared by, and paid at the direction of, our

conservator, acting as successor to the rights, titles, powers and privileges of the Board of Directors. Dividend payments we

make to Treasury do not restore or increase the amount of funding available to us under the agreement.

The dividend provisions of the senior preferred stock have been amended three times.

Ö Original Dividend Rate. As originally issued, the senior preferred stock provided for cumulative quarterly cash

dividends at an annual rate of 10%Äper year on the stockÑs then-current liquidation preference. This dividend rate was

applicable from the fourth quarter of 2008 through the fourth quarter of 2012.

Ö ÅNet Worth SweepÉ Amendment. As amended in August 2012, the senior preferred stock provides for a Çnet worth

sweepÉ dividend. For each quarterly dividend period, the dividend amount is the amount, if any, by which our net

worth as of the end of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount. Our

net worth is defined as the amount, if any, by which our total assets (excluding TreasuryÑs funding commitment and

any unfunded amounts related to the commitment) exceed our total liabilities (excluding any obligation with respect to

capital stock), in each case as reflected on our balance sheet prepared in accordance with GAAP. The applicable

capital reserve amount was initially $3.0 billion for dividend periods in 2013 and decreased by $600 million each year

until it reached $600 million for dividend periods in 2017. These provisions became applicable in the first quarter of

2013 and remain in effect as modified by the December 2017 and September 2019 letter agreements.

Ö December 2017 Letter Agreement Amendment. As amended in December 2017, the applicable capital reserve

amount was increased to $3 billion. The December 2017 letter agreement also reduced by $2.4 billion the dividend

amount otherwise payable for the fourth quarter of 2017. 

Ö September 2019 Amendment. As amended in September 2019, the applicable capital reserve amount was increased

to $25 billion effective for dividend periods beginning July 1, 2019. If we do not declare and pay the dividend amount

in full for any dividend period for which dividends are payable, then the applicable capital reserve amount will

thereafter be zero. 

As a result of these amended dividend provisions, for each quarterly period beginning with the third quarter of 2019, dividends

on the senior preferred stock accumulate and are payable based on the amount by which our net worth as of the end of the

immediately preceding fiscal quarter exceeds $25 billion. If our net worth does not exceed the applicable capital reserve

Notes to Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) 2019 Form 10-K F-47
amount of $25 billion as of the end of the immediately preceding fiscal quarter, then dividends will neither accumulate nor be

payable for such period.

The senior preferred stock ranks ahead of our common stock and all other outstanding series of our preferred stock, as well as

any capital stock we issue in the future, as to both dividends and rights upon liquidation. As a result, if we are liquidated, the

holder of the senior preferred stock is entitled to its then-current liquidation preference (which includes any accumulated but

unpaid dividends) before any distribution is made to the holders of our common stock or other preferred stock.

The senior preferred stock provides that we may not declare or pay dividends on, make distributions with respect to, or

redeem, purchase or acquire, or make a liquidation payment with respect to, any common stock or other securities ranking

junior to the senior preferred stock unless:

Ö full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends added to the

liquidation preference) have been declared and paid in cash; and 

Ö all amounts required to be paid with the net proceeds of any issuance of capital stock for cash (as described in the

following paragraph) have been paid in cash. 

We are not permitted to redeem the senior preferred stock prior to the termination of TreasuryÑs funding commitment under the

senior preferred stock purchase agreement. Moreover, we are not permitted to pay down the liquidation preference of the

outstanding shares of senior preferred stock except to the extent of:

Ö accumulated and unpaid dividends previously added to the liquidation preference and not previously paid down; and 

Ö quarterly commitment fees previously added to the liquidation preference and not previously paid down. 

In addition to these exceptions, if we issue any shares of capital stock for cash while the senior preferred stock is outstanding

(which requires TreasuryÑs approval), we are required to use the net proceeds of the issuance to pay down the liquidation

preference of the senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not

be paid down below $1,000 per share prior to the termination of TreasuryÑs funding commitment. Following the termination of

TreasuryÑs funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred

stock at any time, in whole or in part.

Common Stock Warrant

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of shares of

our common stock outstanding on a fully diluted basis on the date the warrant is exercised. The warrant may be exercised in

whole or in part at any time on or before SeptemberÄ7, 2028, by delivery to Fannie Mae of:

Ö a notice of exercise; 

Ö payment of the exercise price of $0.00001 per share; and

Ö the warrant. 

If the market price of one share of common stock is greater than the exercise price, in lieu of exercising the warrant by

payment of the exercise price, Treasury may elect to receive shares equal to the value of the warrant (or portion thereof being

canceled) pursuant to the formula specified in the warrant. Upon exercise of the warrant, Treasury may assign the right to

receive the shares of common stock issuable upon exercise to any other person. If the warrant is exercised, the stated value

of the common stock issued will be reclassified as ÇCommon stockÉ in our consolidated balance sheets. As of FebruaryÄ13,

2020, Treasury has not exercised the warrant.

Senior Preferred Stock Purchase Agreement with Treasury

Funding Commitment

Under the senior preferred stock purchase agreement, Treasury made a commitment to provide funding, under certain

conditions, to eliminate deficits in our net worth. As of December 31, 2019, Treasury has provided us with a total of $119.8

billion under its senior preferred stock purchase agreement funding commitment, and the amount of funding remaining

available to us under the agreement was $113.9 billion.

While we had positive net worth as of December 31, 2019, in some future periods we could have net worth deficit and, if so,

will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement to avoid

being placed into receivership. 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. 

The senior preferred stock purchase agreement provides that the deficiency amount will be calculated differently if we become

subject to receivership or other liquidation process. The deficiency amount may be increased above the otherwise applicable

amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA determines that the Director will

be mandated by law to appoint a receiver for us unless our capital is increased by receiving funds under the commitment in an

amount up to the deficiency amount (subject to the maximum amount that may be funded under the agreement), then FHFA,

in its capacity as our conservator, may request that Treasury provide funds to us in such amount. The senior preferred stock

Notes to Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) 2019 Form 10-K F-48
purchase agreement also provides that, if we have a deficiency amount as of the date of completion of the liquidation of our

assets, we may request funds from Treasury in an amount up to the deficiency amount (subject to the maximum amount that

may be funded under the agreement). Any amounts that we draw under the senior preferred stock purchase agreement will be

added to the liquidation preference of the senior preferred stock. No additional shares of senior preferred stock are required to

be issued under the senior preferred stock purchase agreement.

Commitment Fee

The senior preferred stock purchase agreement provides for the payment of an unspecified quarterly commitment fee to

Treasury; however, the August 2012 amendment to the agreement provided that this commitment fee will not be set, accrue or

be payable, as long as the dividend provisions of the senior preferred stock remain substantially the same in form and content.

Covenants 

The senior preferred stock purchase agreement contains covenants that prohibit us from taking a number of actions without

the prior written consent of Treasury, including:

Ö declaring or paying dividends or making other distributions on or redeeming, purchasing, retiring or otherwise

acquiring our equity securities (other than the senior preferred stock or warrant);

Ö selling or issuing equity securities (except in limited instances);

Ö seeking or permitting the termination of our conservatorship (other than in connection with a receivership);

Ö selling, transferring, leasing or otherwise disposing of any assets, except for dispositions for fair market value in

limited circumstances including if (a) the transaction is in the ordinary course of business and consistent with past

practice or (b) the assets have a fair market value individually or in the aggregate of less than $250 million;

Ö incurring indebtedness that would result in our aggregate indebtedness exceeding $300 billion;

Ö issuing subordinated debt;

Ö entering into a corporate reorganization, recapitalization, merger, acquisition or similar event; and

Ö engaging in transactions with affiliates other than on armÑs-length terms or in the ordinary course of business.

The senior preferred stock purchase agreement also prohibits us from entering into any new compensation arrangements or

increasing amounts or benefits payable under existing compensation arrangements with any of our executive officers (as

defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.

In addition, the senior preferred stock purchase agreement subjects us to limits on the amount of mortgage assets that we

may own and the total amount of our indebtedness. 

Ö Mortgage Asset Limit. The amount of mortgage assets we are permitted to own decreased by a specified amount

each year until it reached a limit of $250 billion as of December 31, 2018. In addition, FHFA has directed that we

further cap our mortgage assets at $225 billion. For purposes of calculating our limit for 2019 and prior periods,

mortgage asset amounts are based on the unpaid principal balance of such assets and do not reflect market

valuation adjustments, allowance for loan losses, impairments, unamortized premiums and discounts and the impact

of our consolidation of variable interest entities. Applying this measure, our mortgage assets as of December 31,

2019 were $153.6 billion. For periods after 2019, at FHFAÑs direction our mortgage asset calculation will also include

10% of the notional value of interest-only securities we hold. 

Ö Debt Limit. Our debt limit under the senior preferred stock purchase agreement is set at 120% of the amount of

mortgage assets we were allowed to own under the agreement on December 31 of the immediately preceding

calendar year. Accordingly, our debt limit in 2019 and each year thereafter is $300 billion. For purposes of this

calculation, indebtedness is based on the par value of each applicable loan and does not reflect the impact of

consolidation of variable interest entities. Applying this measure, our indebtedness as of December 31, 2019 was

$182.2 billion. 

Annual Risk Management Plan Covenant. Each year we remain in conservatorship we are required to provide Treasury a risk

management plan that sets out our strategy for reducing our risk profile, describes the actions we will take to reduce the

financial and operational risk associated with each of our business segments, and includes an assessment of our performance

against the planned actions described in the prior yearÑs plan. We submitted our most recent annual risk management plan to

Treasury in December 2019.

Termination Provisions

The senior preferred stock purchase agreement provides that TreasuryÑs funding commitment will terminate under any of the

following circumstances: 

Ö the completion of our liquidation and fulfillment of TreasuryÑs obligations under its funding commitment at that time, 

Notes to Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) 2019 Form 10-K F-49
Ö the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including mortgage

guaranty obligations), or 

Ö the funding by Treasury of the maximum amount under the agreement. 

In addition, Treasury may terminate its funding commitment and declare the senior preferred stock purchase agreement null

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the

conservator or otherwise curtails the conservatorÑs powers. Treasury may not terminate its funding commitment solely by

reason of our being in conservatorship, receivership or other insolvency proceeding, or due to our financial condition or any

adverse change in our financial condition.

Waivers and Amendments

The senior preferred stock purchase agreement provides that most provisions of the agreement may be waived or amended

by mutual written agreement of the parties. No waiver or amendment of the agreement, however, may decrease TreasuryÑs

aggregate funding commitment or add conditions to TreasuryÑs funding commitment if the waiver or amendment would

adversely affect in any material respect the holders of our debt securities or guaranteed Fannie Mae MBS.

Third-party Enforcement Rights

If we default on payments with respect to our debt securities or guaranteed Fannie Mae MBS and Treasury fails to perform its

obligations under its funding commitment, and if we and/or the conservator are not diligently pursuing remedies in respect of

that failure, the holders of these debt securities or Fannie Mae MBS may file a claim for relief in the United States Court of

Federal Claims. The relief, if granted, would require Treasury to fund to us the lesser of (1)Äthe amount necessary to cure the

payment defaults on our debt and Fannie Mae MBS and (2)Äthe lesser of (a)Äthe deficiency amount and (b)Äthe maximum

amount available under the agreement less the aggregate amount of funding previously provided under the commitment. Any

payment that Treasury makes under those circumstances would be treated for all purposes as a draw under the senior

preferred stock purchase agreement that would increase the liquidation preference of the senior preferred stock.

Notes to Consolidated Financial Statements | Equity

Fannie Mae (In conservatorship) 2019 Form 10-K F-50

12.ÄÄRegulatory Capital Requirements

FHFA suspended our capital classifications during conservatorship. We submit capital reports to FHFA and FHFA monitors our

capital levels. Our regulatory capital classification measures are determined based on guidance from FHFA, in which FHFA

(1)Ädirected us, for loans backing Fannie Mae MBS held by third parties, to continue reporting our minimum capital

requirements based on 0.45% of the unpaid principal balance and critical capital based on 0.25% of the unpaid principal

balance, regardless of whether these loans have been consolidated pursuant to accounting rules, and (2)Äissued a regulatory

interpretation stating that our minimum capital requirements are not automatically affected by the consolidation accounting

guidance. Additionally, our regulatory capital classification measures exclude the funds provided to us by Treasury pursuant to

the senior preferred stock purchase agreement, as the senior preferred stock does not qualify as core capital due to its

cumulative dividend provisions.

FHFA has directed us, during the time we are under conservatorship, to focus on managing to a positive net worth, and we are

working on building our capital reserve up to the $25 billion we are permitted to retain. We had a positive net worth of $14.6

billion and $6.2 billion as of December 31, 2019 and 2018, respectively.

The following table displays our regulatory capital classification measures.

As of December 31,

2019 2018

(Dollars in millions)

Core capital(1) $ (106,360) $ (114,919)

Statutory minimum capital requirement(2) 22,392 22,216

Deficit of core capital over statutory minimum capital requirement $ (128,752) $ (137,135)

(1) The sum of (a)Äthe stated value of our outstanding common stock (common stock less treasury stock); (b)Äthe stated value of our

outstanding non-cumulative perpetual preferred stock; (c)Äour paid-in capital; and (d)Äour retained earnings (accumulated deficit). Core

capital does not include: (a)Äaccumulated other comprehensive income or (b)Äsenior preferred stock.

(2) Generally, the sum of (a)Ä2.50% of on-balance sheet assets, except those underlying Fannie Mae MBS held by third parties; (b)Ä0.45% of

the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c)Äup to 0.45% of other off-balance sheet

obligations, which may be adjusted by the Director of FHFA under certain circumstances.

Our critical capital requirement is generally equal to the sum of: (1)Ä1.25% of on-balance sheet assets, except those underlying

Fannie Mae MBS held by third parties; (2)Ä0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third

parties; and (3)Ä0.25% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under certain

circumstances.
As of December 31, 2019 and 2018, we had a minimum capital deficiency of $128.8 billion and $137.1 billion, respectively.

See ÇNote 1, Summary of Significant Accounting PoliciesÉ and ÇNote 11, EquityÉ for more information on capital and the terms

of our senior preferred stock purchase agreement with Treasury and the senior preferred stock we issued to Treasury. Set

forth below are additional restrictions related to our capital requirements.

Restrictions on Capital Distributions and Dividends

Statutory Restrictions.ÜUnder 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, we must obtain the approval

of the Director of FHFA for any dividend payment. Under the Charter Act and the GSE Act, we are not permitted to make a

capital distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may permit

us to repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at

least an equivalent amount and will reduce our financial obligations or otherwise improve our financial condition.

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, FHFAÑs

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 a $25 billion capital reserve amount. 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 ÇNote 1,

Summary of Significant Accounting PoliciesÉ and ÇNote 11, Equity.É

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.

Notes to Consolidated Financial Statements | Regulatory Capital Requirements

Fannie Mae (In conservatorship) 2019 Form 10-K F-51

13.ÄÄConcentrations of Credit Risk

Concentrations of credit risk arise when a number of customers and counterparties engage in similar activities or have similar

economic characteristics that make them susceptible to similar changes in industry conditions, which could affect their ability

to meet their contractual obligations. Based on our assessment of business conditions that could impact our financial results,

we have determined that concentrations of credit risk exist among: 

Ö single-family and multifamily borrowers (including geographic concentrations and loans with certain higher-risk

characteristics); 

Ö mortgage insurers; 

Ö mortgage sellers and servicers;

Ö multifamily lenders with risk sharing; and

Ö derivative counterparties and parties associated with our off-balance sheet transactions.

Concentrations for each of these groups are discussed below.

Single-Family Loan Borrowers

Regional economic conditions may affect a borrowerÑs ability to repay his or her mortgage loan and the property value

underlying the loan. Geographic concentrations increase the exposure of our portfolio to changes in credit risk. Single-family

borrowers are primarily affected by home prices and interest rates.

To manage credit risk and comply with legal requirements, we typically require primary mortgage insurance or other credit

enhancements if the current LTV ratio (i.e., the ratio of the unpaid principal balance of a loan to the current value of the

property that serves as collateral) of a single-family conventional mortgage loan is greater than 80% when the loan is delivered

to us. 

Multifamily Loan Borrowers

Numerous factors affect a multifamily borrowerÑs ability to repay the loan and the value of the property underlying the loan.

Multifamily loans are generally non-recourse to the borrower. The most significant factors affecting credit risk are rental

income, capitalization rates for the mortgaged property, and general economic conditions. The average unpaid principal
balance for multifamily loans is significantly larger than for single-family borrowers and, therefore, individual defaults for

multifamily borrowers can result in more significant losses. We continually monitor the performance and risk characteristics of

our multifamily loans, underlying properties and borrowers on an ongoing basis.

As part of our multifamily risk management activities, we perform detailed loan reviews that evaluate property performance,

borrower and geographic concentrations, lender qualifications, counterparty risk and contract compliance. We generally

require mortgage servicers to obtain and submit periodic property operating information and condition reviews, allowing us to

monitor the performance of individual loans. We use this information to evaluate the credit quality of our portfolio, identify

potential problem loans and initiate appropriate loss mitigation activities.

Geographic Concentration

The following table displays the regional geographic concentration of single-family and multifamily loans in our guaranty book

of business, measured by the unpaid principal balance of the loans.

Geographic Concentration(1)

Percentage of SingleFamily Conventional

Guaranty Book of

Business

Percentage of

Multifamily Guaranty

Book of Business

As of December 31, As of December 31,

2019 2018 2019 2018

Midwest 15 % 15 % 10 % 10 %

Northeast 17 17 15 14

Southeast 22 22 27 26

Southwest 18 18 23 24

West 28 28 25 26

Total 100 % 100 % 100 % 100 %

(1) 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.

Notes to Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) 2019 Form 10-K F-52

Risk Characteristics of our Guaranty Book of Business

One of the 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 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 December 31,

2019 2018

30 Days

Delinquent

60 Days

Delinquent

Seriously

Delinquent(1)

30 Days

Delinquent

60 Days

Delinquent

Seriously

Delinquent(1)

Percentage of single-family conventional

guaranty book of business based on UPB 1.07% 0.29% 0.59% 1.17% 0.32% 0.69%

Percentage of single-family conventional

loans based on loan count 1.27 0.35 0.66 1.37 0.38 0.76
As of December 31,

2019 2018

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

Based on UPB

Seriously

Delinquent 

Rate(1)

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

Based on UPB

Seriously

Delinquent 

Rate(1)

Estimated mark-to-market LTV ratio:

Greater than 100% * 10.14% * 9.85%

Geographical distribution:

California 19 0.32 19 0.34

Florida 6 0.84 6 1.16

Illinois 4 0.91 4 0.98

New Jersey 3 1.13 4 1.38

New York 5 1.18 5 1.40

All other states 63 0.64 62 0.73

Product distribution:

Alt-A 2 2.95 2 3.35

Vintages:

2004 and prior 2 2.48 3 2.69

2005-2008 4 4.11 5 4.61

2009-2019 94 0.35 92 0.34

 * Represents less than 0.5% of single-family conventional business volume or book of business.

(1) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of December 31, 2019

and 2018.

Notes to Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) 2019 Form 10-K F-53

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 DSCR below 1.0

and original LTV ratios greater than 80%. We stratify multifamily loans into different internal risk categories based on the credit

risk inherent in each individual loan.

The following tables display the delinquency status and serious delinquency rates for specified loan categories of our

multifamily guaranty book of business. 

As of December 31,

2019(1) 2018(1)

30 Days

Delinquent

Seriously

Delinquent(2)

30 Days

Delinquent

Seriously

Delinquent(2)

Percentage of multifamily guaranty book of business 0.02% 0.04% 0.02% 0.06%

As of December 31,

2019 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% Ñ% 1% Ü%

Less than or equal to 80% 99 0.04 99 0.06

Current DSCR below 1.0(4) 2 0.48 2 1.38

(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 from our multifamily borrowers, there is a lag in reporting, which typically can range from 3 to 6 months but in

some cases may be longer. For certain properties, we do not receive updated financial information.

Notes to Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) 2019 Form 10-K F-54

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 riskin-force mortgage insurance coverage as a percentage of the single-family conventional guaranty book of business. 

As of December 31,

2019 2018

Risk in

Force

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

Risk in

Force

Percentage of

Single-Family

Conventional

Guaranty Book

of Business

(Dollars in millions)

Mortgage insurance risk in force:

Primary mortgage insurance $ 162,855 $ 152,379

Pool mortgage insurance 339 409

Total mortgage insurance risk in force $ 163,194 6% $ 152,788 5%

Mortgage insurance does not protect us from all losses on covered loans.ÄFor example, mortgage insurance does not cover us

from default risk for properties that suffered damages that were not covered by the hazard insurance we require.ÄSpecifically, a

property damaged by a flood that was outside a Federal Emergency Management Agency (ÇFEMAÉ)-identified Special Flood

Hazard Area, where we require coverage, or a property damaged by an earthquake are the most likely scenarios where

property damage may result in a default not covered by hazard insurance. 

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 conventional guaranty book of business. 

Percentage of Risk in Force

Coverage by Mortgage Insurer

As of December 31,

2019 2018

Counterparty:(1)

Arch Capital Group Ltd. 23% 25%

Radian Guaranty, Inc. 20 21

Mortgage Guaranty Insurance Corp. 18 18

Genworth Mortgage Insurance Corp.(2) 15 15

Essent Guaranty, Inc. 14 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. 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

(ÇRMICÉ). Entering run-off may close off a source of profits and liquidity that may have otherwise assisted a mortgage insurer

in paying claims under insurance policies, and could also cause the quality and speed of its claims processing to deteriorate.

These three mortgage insurers provided a combined $3.3 billion, or 2%, of our risk in force mortgage insurance coverage of

our single-family conventional guaranty book of business as of December 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. On at least a quarterly basis, we assess our mortgage insurer counterpartiesÑ respective

abilities to fulfill their obligations to us. Our assessment includes financial reviews and analyses of the insurersÑ portfolios and

capital adequacy. If we determine that it is probable that we will not collect all of our claims from one or more of our mortgage

insurer counterparties, it could increase our loss reserves, which could adversely affect our results of operations, liquidity,

financial condition and net worth.

When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty obligations,

we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance recoveries would

reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our mortgage insurer

counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of the balance sheet

date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage insurer

counterpartiesÑ ability to fulfill their respective obligations to us worsens, it could increase our loss reserves. As of December

31, 2019 and 2018, our estimated benefit from mortgage insurance reduced our loss reserves by $410 million and $691

million, respectively.

When an insured loan held in our retained mortgage portfolio subsequently goes into foreclosure, we charge off the loan,

eliminating any previously-recorded loss reserves, and record REO and a mortgage insurance receivable for the claim

proceeds deemed probable of recovery, as appropriate. However, if a mortgage insurer rescinds, cancels or denies insurance

coverage, the initial receivable becomes due from the mortgage seller or servicer. We had outstanding receivables of $654

million recorded in ÇOther assetsÉ in our consolidated balance sheets as of December 31, 2019 and $745 million as of

December 31, 2018 related to amounts claimed on insured, defaulted loans excluding government-insured loans. We

assessed these outstanding receivables for collectability, and established a valuation allowance of $541 million as of

December 31, 2019 and $564 million as of December 31, 2018, which reduced 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

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 December 31,

2019 2018

Wells Fargo Bank, N.A. (together with its affiliates) 17% 18%

Remaining top five depository servicers 15 16

Top five non-depository servicers 27 22

Total 59% 56%

There was an increase in the portion of our single-family guaranty book serviced by our top five non-depository servicers in

2019, particularly for our delinquent single-family loans. Compared with depository financial institutions, these institutions pose

additional risks 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. 

Notes to Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) 2019 Form 10-K F-55
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 December 31,

2019 2018

Wells Fargo Bank, N.A. (together with its affiliates) 13% 14%

Walker & Dunlop, LLC 12 12

Remaining top five servicers 23 22

Total 48% 48%

If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet their

obligations to us, it could adversely affect our results of operations and financial condition. We mitigate these risks in several

ways, including: 

Ö establishing minimum standards and financial requirements for our servicers;

Ö monitoring financial and portfolio performance as compared with peers and internal benchmarks; and

Ö 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:

Ö require a guaranty of obligations by higher-rated entities;

Ö transfer exposure to third parties;

Ö require collateral;

Ö establish more stringent financial requirements;

Ö work on-site with underperforming major servicers to improve operational processes; and

Ö suspend or terminate the selling and servicing relationship if deemed necessary.

Multifamily Lenders with Risk Sharing. We enter into risk sharing agreements with lenders pursuant to which the lenders agree

to bear all or some portion of the credit losses on the covered loans. Our maximum potential loss recovery from lenders under

these risk sharing agreements on both Delegated Underwriting and Servicing (ÇDUSÉ) and non-DUS multifamily loans was

$81.4 billion as of December 31, 2019, compared with $71.8 billion as of December 31, 2018. As of December 31, 2019 and

2018, 44% of our maximum potential loss recovery on multifamily loans was from four DUS lenders.

Derivatives Counterparties.ÄFor information on credit risk associated with our derivative transactions and repurchase

agreements see ÇNote 8, Derivative InstrumentsÉ and ÇNote 14, Netting Arrangements.É

Notes to Consolidated Financial Statements | Concentrations of Credit Risk

Fannie Mae (In conservatorship) 2019 Form 10-K F-56
14.ÄÄNetting 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 consolidated balance sheets.

As of December 31, 2019

Gross

Amount

Offset(1)

Net Amount

Presented in

our

Consolidated

Balance

Sheets

Amounts Not Offset in our

Consolidated Balance

Sheets

Gross

Amount

Financial

Instruments(2) Collateral(3)

Net

Amount

(Dollars in millions)

Assets:

OTC risk management derivatives $ 1,354 $ (1,334) $ 20 $ Ü $ Ü $ 20

Cleared risk management derivatives Ü 46 46 Ü Ü 46

Mortgage commitment derivatives 165 Ü 165 (101) (1) 63

Total derivative assets 1,519 (1,288) 231 (4)(101) (1) 129

Securities purchased under agreements to resell

or similar arrangements(5) 24,928 Ü 24,928 Ü (24,928) Ü

Total assets $ 26,447 $ (1,288) $ 25,159 $ (101) $ (24,929) $ 129

Liabilities:

OTC risk management derivatives $ (1,798) $ 1,695 $ (103) $ Ü $ Ü $ (103)

Cleared risk management derivatives Ü (1) (1) Ü 1 Ü

Mortgage commitment derivatives (306) Ü (306) 101 181 (24)

Total derivative liabilities (2,104) 1,694 (410)

(4)

101 182 (127)

Securities sold under agreements to repurchase

or similar arrangements(5) (478) Ü (478) Ü 475 (3)

Total liabilities $ (2,582) $ 1,694 $ (888) $ 101 $ 657 $ (130)

As of December 31, 2018

Gross

Amount

Offset(1)

Net Amount

Presented in

our

Consolidated

Balance

Sheets

Amounts Not Offset in our

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 $ Ü $ Ü $ 15

Cleared risk management derivatives Ü 7 7 Ü Ü 7

Mortgage commitment derivatives 379 Ü 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 Ü 48,288 Ü (48,288) Ü

Total assets $ 50,955 $ (2,266) $ 48,689 $ (153) $ (48,295) $ 241

Liabilities:

OTC risk management derivatives $ (2,433) $ 2,342 $ (91) $ Ü $ Ü $ (91)

Cleared risk management derivatives Ü (27) (27) Ü 23 (4)

Mortgage commitment derivatives (648) Ü (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)

(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. 

Notes to Consolidated Financial Statements | Netting Arrangements

Fannie Mae (In conservatorship) 2019 Form 10-K F-57
(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 consolidated balance sheets.

(3) Represents collateral received that has not been recognized and not offset in our consolidated balance sheets as well as collateral posted

which has been recognized but not offset in our consolidated balance sheets. Does not include collateral held or posted in excess of our

exposure. The fair value of non-cash collateral we pledged which the counterparty was permitted to sell or repledge was $2.3 billion and

$1.9 billion as of December 31, 2019 and 2018, respectively. The fair value of non-cash collateral received was $24.7 billion and $48.4

billion, of which $23.8 billion and $45.7 billion could be sold or repledged as of December 31, 2019 and 2018, respectively. None of the

underlying collateral was sold or repledged as of December 31, 2019 and 2018, respectively.

(4) Excludes derivative assets of $40 million and $57 million as of December 31, 2019 and 2018, respectively, and derivative liabilities of $25

million and $11 million recognized in our consolidated balance sheets as of December 31, 2019 and 2018, respectively, that are not

subject to enforceable master netting arrangements.

(5) Includes $11.4 billion and $15.4 billion of securities purchased under agreements to resell classified as ÇCash and cash equivalentsÉ in our

consolidated balance sheets as of December 31, 2019 and 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 consolidated balance sheets.

We determine our rights to offset the assets and liabilities presented above with the same counterparty, including collateral

posted or received, based on the contractual arrangements entered into with our individual counterparties and various rules

and regulations that would govern the insolvency of a derivative counterparty. The following is a description, under various

agreements, of the nature of those rights and their effect or potential effect on our financial position.

The terms of the majority of our contracts for OTC risk management derivatives are governed under master agreements of the

International Swaps and Derivatives Association Inc. (ÇISDAÉ). These agreements provide that all transactions entered into

under the agreement with the counterparty constitute a single contractual relationship. An event of default by the counterparty

allows the early termination of all outstanding transactions under the same ISDA agreement and we may offset all outstanding

amounts related to the terminated transactions including collateral posted or received.

The terms of our contracts for cleared derivatives are governed under the rules of the clearing organization and the agreement

between us and the clearing member of that clearing organization. In the event of a clearing organization default, all open

positions at the clearing organization are closed and a net position (on a clearing member by clearing member basis) is

calculated. Unless otherwise transferred, in the event of a clearing member default, all open positions cleared through that

clearing member are closed and a net position is calculated.

The terms of our contracts for mortgage commitment derivatives are primarily governed by the Fannie Mae Single-Family

Selling Guide (ÇSelling GuideÉ), for Fannie Mae-approved lenders, or Master Securities Forward Transaction Agreements

(ÇMSFTAÉ), for counterparties that are not Fannie Mae-approved lenders. In the event of default by the counterparty, both the

Guide and the MSFTA allow us to terminate all outstanding transactions under the applicable agreement and offset all

outstanding amounts related to the terminated transactions including collateral posted or received. Under the Guide, upon a

lender event of default, we generally may offset any amounts owed to a lender against any amounts a lender may owe us

under any other existing agreement, regardless of whether or not such other agreements are in default or payments are

immediately due.

The terms of our contracts for securities purchased under agreements to resell and securities sold under agreements to

repurchase are governed by Master Repurchase Agreements, which are based on the guidelines prescribed by the Securities

Industry and Financial Markets Association. Master Repurchase Agreements provide that all transactions under the agreement

constitute a single contractual relationship. An event of default by the counterparty allows the early termination of all

outstanding transactions under the same agreement and we may offset all outstanding amounts related to the terminated

transactions including collateral posted or received. 

We also have securities purchased under agreements to resell which we transact through the Fixed Income Clearing

Corporation (ÇFICCÉ). All agreements for securities purchased under agreements to resell that are submitted to the FICC for

clearing become transactions with the FICC that are subject to FICC clearing rules. In the event of a FICC default, all open

positions at the FICC are closed and a net position is calculated.

Notes to Consolidated Financial Statements | Netting Arrangements

Fannie Mae (In conservatorship) 2019 Form 10-K F-58

15.ÄÄFair Value

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain

assets and liabilities on a recurring or nonrecurring basis. 

Fair Value Measurement

Fair value measurement guidance defines fair value, establishes a framework for measuring fair value and sets forth

disclosures around fair value measurements. This guidance applies whenever other accounting guidance requires or permits

assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that prioritizes the

inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority, Level 1, to

measurements based on unadjusted quoted prices in active markets for identical assets or liabilities. The next highest priority,
Level 2, is given to measurements of assets and liabilities based on limited observable inputs or observable inputs for similar

assets and liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs.

Recurring Changes in Fair Value 

The following tables display our assets and liabilities measured in our 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 December 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 $ Ü $ 3,379 $ 45 $ Ü $ 3,424

Other agency Ü 4,489 1 Ü 4,490

Private-label and other mortgage securities Ü 629 Ü Ü 629

Non-mortgage-related securities:

U.S. Treasury securities 39,501 Ü Ü Ü 39,501

Other securities Ü 79 Ü Ü 79

Total trading securities 39,501 8,576 46 Ü 48,123

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae Ü 1,349 171 Ü 1,520

Other agency Ü 198 Ü Ü 198

Alt-A and subprime private-label securities Ü 57 Ü Ü 57

Mortgage revenue bonds Ü Ü 315 Ü 315

Other Ü 8 306 Ü 314

Total available-for-sale securities Ü 1,612 792 Ü 2,404

Mortgage loans Ü 7,137 688 Ü 7,825

Other assets:

Risk management derivatives:

Swaps Ü 1,071 159 Ü 1,230

Swaptions Ü 124 Ü Ü 124

Netting adjustment Ü Ü Ü (1,288) (1,288)

Mortgage commitment derivatives Ü 165 Ü Ü 165

Credit enhancement derivatives Ü Ü 40 Ü 40

Total other assets Ü 1,360 199 (1,288) 271

Total assets at fair value $ 39,501 $ 18,685 $ 1,725 $ (1,288) $ 58,623

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating $ Ü $ 5,289 $ 398 $ Ü $ 5,687

Total of Fannie Mae Ü 5,289 398 Ü 5,687

Of consolidated trusts Ü 21,805 75 Ü 21,880

Total long-term debt Ü 27,094 473 Ü 27,567

Other liabilities:

Risk management derivatives:

Swaps Ü 1,346 1 Ü 1,347

Swaptions Ü 440 11 Ü 451

Netting adjustment Ü Ü Ü (1,694) (1,694)

Mortgage commitment derivatives Ü 306 Ü Ü 306

Credit enhancement derivatives Ü Ü 25 Ü 25

Total other liabilities Ü 2,092 37 (1,694) 435

Total liabilities at fair value $ Ü $ 29,186 $ 510 $ (1,694) $ 28,002

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-59
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)

Assets:

Cash equivalents(2) $ 748 $ Ü $ Ü $ Ü $ 748

Trading securities:

Mortgage-related securities:

Fannie Mae Ü 1,435 32 Ü 1,467

Other agency Ü 3,503 Ü Ü 3,503

Private-label and other mortgage securities Ü 1,305 1 Ü 1,306

Non-mortgage-related securities:

U.S. Treasury securities 35,502 Ü Ü Ü 35,502

Other securities Ü 89 Ü Ü 89

Total trading securities 35,502 6,332 33 Ü 41,867

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae Ü 1,645 152 Ü 1,797

Other agency Ü 256 Ü Ü 256

Alt-A and subprime private-label securities Ü 568 24 Ü 592

Mortgage revenue bonds Ü Ü 434 Ü 434

Other Ü 8 342 Ü 350

Total available-for-sale securities Ü 2,477 952 Ü 3,429

Mortgage loans Ü 7,985 937 Ü 8,922

Other assets:

Risk management derivatives:

Swaps Ü 1,962 115 Ü 2,077

Swaptions Ü 211 Ü Ü 211

Netting adjustment Ü Ü Ü (2,266) (2,266)

Mortgage commitment derivatives Ü 342 37 Ü 379

Credit enhancement derivatives Ü Ü 57 Ü 57

Total other assets Ü 2,515 209 (2,266) 458

Total assets at fair value $ 36,250 $ 19,309 $ 2,131 $ (2,266) $ 55,424

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior floating $ Ü $ 6,475 $ 351 $ Ü $ 6,826

Total of Fannie Mae Ü 6,475 351 Ü 6,826

Of consolidated trusts Ü 23,552 201 Ü 23,753

Total long-term debt Ü 30,027 552 Ü 30,579

Other liabilities:

Risk management derivatives:

Swaps Ü 2,089 2 Ü 2,091

Swaptions Ü 342 Ü Ü 342

Netting adjustment Ü Ü Ü (2,315) (2,315)

Mortgage commitment derivatives Ü 646 2 Ü 648

Credit enhancement derivatives Ü Ü 11 Ü 11

Total other liabilities Ü 3,077 15 (2,315) 777

Total liabilities at fair value $ Ü $ 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 Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-60
The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using

significant unobservable inputs (Level 3). The tables also display gains and losses due to changes in fair value, including both

realized and unrealized gains and losses, recognized in our consolidated statements of operations and comprehensive income

for Level 3 assets and liabilities.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Year Ended December 31, 2019

Total Gains (Losses)

(Realized/Unrealized)

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

December

31, 2019(5)(6)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

December

31, 2019(1)

Balance,

December

31, 2018

Included

in Net

Income

Included in

Total OCI

Gains/

(Losses)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers

out of

Level 3(4)

Transfers

into

Level 3(4)

Balance,

December

31, 2019

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 32 $ 3 $ Ü $ 77 $ (22) $ Ü $ (16) $ (108) $ 79 $ 45 $ 1 $ Ü

Other agency Ü Ü Ü Ü Ü Ü Ü Ü 1 1 Ü Ü

Private-label and

other mortgage

securities 1 Ü Ü Ü Ü Ü (1) Ü Ü Ü Ü Ü

Total trading securities $ 33 $ 3

(6)(7) $ Ü $ 77 $ (22) $ Ü $ (17) $ (108) $ 80 $ 46 $ 1 $ Ü

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 152 $ Ü $ 7 $ Ü $ Ü $ Ü $ (8) $ (103) $ 123 $ 171 $ Ü $ 6

Alt-A and

subprime

private-label

securities 24 5 (5) Ü (23) Ü (1) Ü Ü Ü Ü Ü

Mortgage revenue

bonds 434 1 (3) Ü (5) Ü (112) Ü Ü 315 Ü (1)

 Other 342 13 (10) Ü Ü Ü (37) (3) 1 306 Ü (8)

Total available-forsale securities $ 952 $ 19 (7)(8) $ (11) $ Ü $ (28) $ Ü $ (158) $ (106) $ 124 $ 792 $ Ü $ (3)

Mortgage loans $ 937 $ 46 (6)(7) $ Ü $ Ü $ (52) $ Ü $ (136) $ (254) $ 147 $ 688 $ 26 $ Ü

Net derivatives 194 109 (6) Ü Ü Ü Ü (119) (10) (12) 162 3 Ü

Long-term debt:

Of Fannie Mae:

Senior floating (351) (47)

(6) Ü Ü Ü Ü Ü Ü Ü (398) (47) Ü

Of consolidated

trusts (201) (8)

(6)(7) Ü Ü Ü (2) 19 200 (83) (75) (4) Ü

Total long-term debt $ (552) $ (55) $ Ü $ Ü $ Ü $ (2) $ 19 $ 200 $ (83) $ (473) $ (51) $ Ü

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-61
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Year Ended December 31, 2018

Total Gains (Losses)

(Realized/Unrealized)

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

December

31, 2018(5)(6)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

December

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(4)

Balance,

December

31, 2018

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 971 $ 163 $ Ü $ 1 $(1,059) $ Ü $ (1) $ (44) $ 1 $ 32 $ 4 $ Ü

Other agency 35 (1) Ü Ü Ü Ü (1) (33) Ü Ü Ü Ü

Private-label and

other mortgage

securities 195 (85) Ü Ü Ü Ü (5) (104) Ü 1 Ü Ü

Total trading securities $ 1,201 $ 77

(6)(7)

$ Ü $ 1 $(1,059) $ Ü $ (7) $ (181) $ 1 $ 33 $ 4 $ Ü

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 208 $ 2 $ 1 $ Ü $ Ü $ Ü $ (10) $ (49) $ Ü $ 152 $ Ü $ Ü

Alt-A and

subprime

private-label

securities 77 Ü (45) Ü Ü Ü (4) (4) Ü 24 Ü 1

Mortgage revenue

bonds 671 Ü (7) Ü (22) Ü (208) Ü Ü 434 Ü (2)

 Other 357 28 (2) Ü Ü Ü (41) Ü Ü 342 Ü 1

Total available-forsale securities $ 1,313 $ 30

(7)(8)

$ (53) $ Ü $ (22) $ Ü $ (263) $ (53) $ Ü $ 952 $ Ü $ Ü

Mortgage loans $ 1,116 $ 38

(6)(7)

$ Ü $ Ü $ Ü $ Ü $ (216) $ (162) $ 161 $ 937 $ 14 $ Ü

Net derivatives 134 (38)

(6) Ü Ü Ü Ü 45 53 Ü 194 40 Ü

Long-term debt:

Of Fannie Mae:

Senior floating (376) 25 (6) Ü Ü Ü Ü Ü Ü Ü (351) 25 Ü

Of consolidated

trusts (582) 9

(6)(7)

Ü Ü Ü 1 44 541 (214) (201) (2) Ü

Total long-term debt $ (958) $ 34 $ Ü $ Ü $ Ü $ 1 $ 44 $ 541 $ (214) $ (552) $ 23 $ Ü

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-62
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Year Ended December 31, 2017

Total Gains (Losses)

(Realized/Unrealized)

Net

Unrealized

Gains

(Losses)

Included in

Net Income

Related to

Assets and

Liabilities

Still Held as

of

December

31, 2017(5)(6)

Net

Unrealized

Gains

(Losses)

Included in

OCI Related

to Assets

and

Liabilities

Still Held as

of

December

31, 2017(1)

Balance,

December

31, 2016

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(4)

Balance,

December

31, 2017

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae $ 835 $ 41 $ Ü $ 64 $ Ü $ Ü $ (5) $ (991) $ 1,027 $ 971 $ 6 $ Ü

Other agency Ü Ü Ü 35 Ü Ü Ü Ü Ü 35 Ü Ü

Private-label and

other mortgage

securities 292 18 Ü Ü (81) Ü (34) Ü Ü 195 5 Ü

Total trading securities $ 1,127 $ 59

(6)(7)

$ Ü $ 99 $ (81) $ Ü $ (39) $ (991) $ 1,027 $ 1,201 $ 11 $ Ü

Available-for-sale

securities:

Mortgage-related:

Fannie Mae $ 230 $ 2 $ (1) $ Ü $ Ü $ Ü $ (9) $ (72) $ 58 $ 208 $ Ü $ Ü

Other agency 5 Ü Ü Ü (1) Ü Ü (4) Ü Ü Ü Ü

Alt-A and

subprime

private-label

securities 217 54 (53) Ü (105) Ü (36) Ü Ü 77 Ü 4

Mortgage revenue

bonds 1,272 35 (11) Ü (392) Ü (233) Ü Ü 671 Ü 4

Other 429 8 (11) Ü (5) Ü (64) Ü Ü 357 Ü (7)

Total available-forsale securities $ 2,153 $ 99

(7)(8)

$ (76) $ Ü $ (503) $ Ü $ (342) $ (76) $ 58 $ 1,313 $ Ü $ 1

Mortgage loans $ 1,197 $ 45

(6)(7)

$ Ü $ 5 $ Ü $ Ü $ (233) $ (70) $ 172 $ 1,116 $ 25 $ Ü

Net derivatives 44 111 (6) Ü Ü Ü Ü (22) 6 (5) 134 13 Ü

Long-term debt:

Of Fannie Mae:

Senior floating (347) (29)

(6) Ü Ü Ü Ü Ü Ü Ü (376) (29) Ü

Of consolidated

trusts (241) (9)

(6)(7)

Ü Ü Ü (2) 66 388 (784) (582) (11) Ü

Total long-term debt $ (588) $ (38) $ Ü $ Ü $ Ü $ (2) $ 66 $ 388 $ (784) $ (958) $ (40) $ Ü

(1) Gains (losses) included in other comprehensive income are included in ÇChanges in unrealized gains on available-for-sale securities, net

of reclassification adjustments and taxesÉ in our 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 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 into and out of Level 3 consisted primarily of Fannie Mae securities backed by private-label mortgage-related securities. Prices

for these securities are based on inputs that were not readily observable. Transfers out of Level 3 also occurred for Alt-A loans and

subprime private-label mortgage-related securities. 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 consolidated statements of operations and comprehensive income.

(7) Gains (losses) are included in ÇNet interest incomeÉ in our consolidated statements of operations and comprehensive income.

(8) Gains (losses) are included in ÇInvestment gains, netÉ in our consolidated statements of operations and comprehensive income. 

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-63
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 December 31, 2019

Fair

Value

Significant Valuation

Techniques

Significant

Unobservable

Inputs(1) Range(1)

Weighted -

Average(1)(2)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(3) $ 46 Various

Available-for-sale securities:

Mortgage-related securities:

Agency(3) 107 Consensus

64 Various

Total agency 171

Mortgage Revenue Bonds 222 Single Vendor Spreads (bps) 23.0 - 205.1 76.1

93 Various

Total mortgage revenue bonds 315

Other 267 Discounted Cash Flow Spreads (bps) 300.0 300.0

39 Various

Total other 306

Total available-for-sale securities $ 792

Net derivatives $ 147 Dealer Mark

15 Various

Total net derivatives $ 162

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-64
Fair Value Measurements as of December 31, 2018

Fair

Value

Significant

Valuation

Techniques

Significant

Unobservable Inputs

(1) Range(1)

Weighted -

Average(1)(2)

(Dollars in millions)

Recurring fair value measurements:

Trading securities:

Mortgage-related securities:

Agency(3) $ 32 Various

Private-label and other mortgage

securities 1 Various

Total trading securities $ 33

Available-for-sale securities:

Mortgage-related securities:

Agency(3) $ 152 Various

 Alt-A and subprime private-label

securities 24 Various

Mortgage revenue bonds 349 Single Vendor Spreads (bps) (0.5) - 332.8 59.0

85 Various

Total mortgage revenue bonds 434

Other 294

Discounted Cash

Flow Default Rate (%) 4.7 4.7

Prepayment Speed (%) 8.2 8.2

Severity (%) 70.0 70.0

Spreads (bps) 75.4 - 390.0 389.1

48 Various

Total other 342

Total available-for-sale securities $ 952

Net derivatives $ 113 Dealer Mark

81 Various

Total net derivatives $ 194

(1) Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services or dealers, and

the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably estimated. Where we have

disclosed unobservable inputs for consensus and single vendor techniques, those inputs are based on our validations performed at the

security level using discounted cash flows. 

(2) Unobservable inputs were weighted by the relative fair value of the instruments.

(3) Includes Fannie Mae and Freddie Mac securities.

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-65
In our 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 held no Level 1 assets or liabilities as of December

31, 2019 or December 31, 2018 that were measured on a nonrecurring basis. We held $274 million and $91 million in Level 2

assets, comprised of mortgage loans held for sale and mortgage loans held for investment that were individually impaired. We

had no Level 2 liabilities that were measured at fair value on a nonrecurring basis as of December 31, 2019 or December 31,

2018.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis. The

significant unobservable inputs related to these techniques primarily relate to collateral dependent valuations. The related

ranges and weighted averages are not meaningful when aggregated as they vary significantly from property to property.

Fair Value

Measurements as

of December 31,

Valuation Techniques 2019 2018

(Dollars in millions)

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair value Consensus $ 471 $ 631

Single Vendor 605 1,119

Total mortgage loans held for sale, at lower of cost or fair value 1,076 1,750

Single-family mortgage loans held for investment, at amortized cost Internal Model 555 818

Multifamily mortgage loans held for investment, at amortized cost Asset Manager Estimate 24 102

Various 16 40

Total multifamily mortgage loans held for investment, at amortized cost 40 142

Acquired property, net:(1)

Single-family Accepted Offers 101 151

Appraisals 362 419

Walk Forwards 240 181

Internal Model 164 219

Various 51 41

Total single-family 918 1,011

Multifamily Various 9 50

Total nonrecurring assets at fair value $ 2,598 $ 3,771

(1) The most commonly used techniques in our valuation of acquired property are a proprietary home price model and third-party valuations

(both current and walk forward). Based on the number of properties measured as of December 31, 2019, these methodologies comprised

approximately 85% of our valuations, while accepted offers comprised approximately 12% 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. The

following is a description of the valuation techniques we use for fair value measurement and disclosure as well as our basis for

classifying these measurements as Level 1, Level 2 or Level 3 of the valuation hierarchy in more specific situations.

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-66
Instruments Valuation Techniques Classification

U.S Treasury

Securities

We classify securities whose values are based on quoted market prices in active markets for

identical assets as Level 1 of the valuation hierarchy.

Level 1

Trading Securities and

Available-for-Sale

Securities

We classify securities in active markets as Level 2 of the valuation hierarchy if quoted market

prices in active markets for identical assets are not available. For all valuation techniques used for

securities where there is limited activity or less transparency around these inputs to the valuation,

these securities are classified as Level 3 of the valuation hierarchy.

Single Vendor: Uses one vendor price to estimate fair value. We generally validate these

observations of fair value through the use of a discounted cash flow technique whose

unobservable inputs (for example, default rates) are disclosed in the table above.

Dealer Mark: Uses one dealer price to estimate fair value. We generally validate these

observations of fair value through the use of a discounted cash flow technique whose

unobservable inputs (for example, default rates) are disclosed in the table above.

Consensus: Uses an average of two or more vendor prices for similar securities. We generally

validate these observations of fair value through the use of a discounted cash flow technique

whose unobservable inputs (for example, default rates) are disclosed in the table above.

Level 2 and 3

Discounted Cash Flow: In the absence of prices provided by third-party pricing services supported

by observable market data, we estimate the fair value of a portion of our securities using a

discounted cash flow technique that uses inputs such as default rates,Äprepayment speeds, loss

severity and spreads based on market assumptions where available.

For private-label securities, an increase in unobservable prepayment speeds in isolation would

generally result in an increase in fair value, and an increase in unobservable spreads, severity

rates or default rates in isolation would generally result in a decrease in fair value. For mortgage

revenue bonds classified as Level 3 of the valuation hierarchy, an increase in unobservable

spreads would result in a decrease in fair value. Although we have disclosed unobservable inputs

for the fair value of our recurring Level 3 securities above, interrelationships existÄamong these

inputs such thatÄa changeÄin one unobservable input typically results in a changeÄto one or more of

the other inputs.

Mortgage Loans Held

for Investment

Build-up: We derive the fair value of performing mortgage loans using a build-up valuation

technique starting with the base value for our Fannie Mae MBS with similar characteristics and

then add or subtract the fair value of the associated guaranty asset, guaranty obligation (ÇGOÉ) and

master servicing arrangement. We set the GO equal to the estimated fair value we would receive if

we were to issue our guaranty to an unrelated party in a stand-alone armÑs length transaction at

the measurement date. The fair value of the GO is estimated based on our current guaranty pricing

for loans underwritten after 2008 and our internal valuation models considering managementÑs

best estimate of key loan characteristics for loans underwritten before 2008. Our performing loans

are generally classified as Level 2 of the valuation hierarchy to the extent that significant inputs are

observable. To the extent that unobservable inputs are significant, the loans are classified as Level

3 of the valuation hierarchy.

Level 2 and 3

Consensus: Calculated through the extrapolation of indicative sample bids obtained from multiple

active market participants plus the estimated value of any applicable mortgage insurance, the

estimated fair value using the Consensus method represents an estimate of the prices we would

receive if we were to sell these single-family nonperforming and certain reperforming loans in the

whole-loan market. The fair value of any mortgage insurance is estimated by taking the loan-level

coverage and adjusting it by the expected claims paying ability of the associated mortgage insurer.

These loans are classified as Level 3 of the valuation hierarchy because significant inputs are

unobservable.

We estimate the fair value for a portion of our senior-subordinated trust structures using the

average of two or more vendor prices at the security level as a proxy for estimating loan fair value.

These loans are classified as Level 3 of the valuation hierarchy because significant inputs are

unobservable.

Single Vendor: We estimate the fair value of our reverse mortgages using the single vendor

valuation technique.

Internal Model:ÄThe internal model used in this process applies one of following two approaches

when valuing the collateral depending on the historical accuracy of the two approaches.

(1) The comparable foreclosed property sales approach is used in the majority of the

internal model valuations. The comparable foreclosed property sales approach uses

various factors such as geographic distance, transaction time and the value difference.

(2) The median Metropolitan Statistical Area (ÇMSAÉ) approach is based on the median of all

the foreclosure sales of REOs in a specific MSA or state when there is not enough REO

sales in a specific MSA. 

These loans are classified as Level 3 of the valuation hierarchy because significant inputs are

unobservable.

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-67
Instruments Valuation Techniques Classification

Mortgage Loans Held

for Investment

Appraisals:ÄUses appraisals to estimate the fair value for a portion of our multifamily loans based

on either estimated replacement cost, the present value of future cash flows, or sales of similar

properties. Significant unobservable inputs include estimated replacement or construction costs,

property net operating income, capitalization rates, and adjustments made to sales of comparable

properties based on characteristics such as financing, conditions of sale, and physical

characteristics of the property.

Broker Price Opinion (ÇBPOÉ):ÄUses BPO to estimate the fair value for a portion of our multifamily

loans. This technique uses both current property value and the property value adjusted for

stabilization and market conditions. The unobservable inputs used in this technique are property

net operating income and market capitalization rates to estimate property value. 

Asset Manager Estimate (ÇAMEÉ):ÄThis technique uses the net operating income and tax

assessments of the specific property as well as MSA-specific market capitalization rates and

average per unit sales values to estimate property fair value.

Level 2 and 3

An increase in prepayment speeds in isolation would generally result in an increase in the fair

value of our mortgage loans classified as Level 3 of the valuation hierarchy, and anÄincrease in

severity rates, default rates or spreads in isolation would generally result in a decrease in fair

value. Although we have disclosed unobservable inputs for the fair value of the mortgage loans

classified as Level 3 above, interrelationships exist among these inputs such that a change in one

unobservable input typically results in a change to one or more of the other inputs.

Acquired Property, Net

and Other Assets

Single-family acquired property valuation techniques

Appraisal:ÄAn appraisal is an estimate based on recent historical data of the value of a specific

property by a certified or licensed appraiser. Adjustments are made for differences between

comparable properties for unobservable inputs such as square footage, location, and condition of

the property.

Broker Price Opinion:ÄThis technique provides an estimate of what the property is worth based

upon a real estate brokerÑs use of specific market research and a sales comparison approach that

is similar to the appraisal process. This information, all of which is unobservable, is used along with

recent and pending sales and current listings of similar properties to arrive at an estimate of value.

Level 3

Appraisal and Broker Price Opinion Walk Forwards (ÇWalk ForwardsÉ):ÄWe use these techniques to

adjust appraisal and broker price opinion valuations for changing market conditions by applying a

walk forward factor based on local price movements since the time the third-party value was

obtained.

Internal Model:ÄWe use an internal model to estimate fair value for distressed properties. The

valuation methodology and inputs used are described under ÇMortgage Loans Held for

Investment.É

Multifamily acquired property valuation techniques

Appraisals:ÄWe use this method to estimate property values for distressed properties. The

valuation methodology and inputs used are described under ÇMortgage Loans Held for

Investment.É 

Broker Price Opinions:ÄWe use this method to estimate property values for distressed properties.

The valuation methodology and inputs used are described under ÇMortgage Loans Held for

Investment.É 

Asset Manager Estimate (ÇAMEÉ):ÄWe use this method to estimate property values for distressed

properties. The valuation methodology and inputs used are described under ÇMortgage Loans Held

for Investment.É 

Derivatives Assets and

Liabilities (collectively

ÇDerivativesÉ)

The valuation process for the majority of our risk management derivatives uses observable market

data provided by third-party sources, resulting in Level 2 classification of the valuation hierarchy.

Single Vendor: Uses one vendor price to estimate fair value. We generally validate these

observations of fair value through the use of a discounted cash flow technique.

Internal Model: We use internal models to value interest-rate derivatives which are valued by

referencing yield curves derived from observable interest rates and spreads to project and discount

cash flows to present value. 

Dealer Mark: Certain highly complex structured swaps primarily use a single dealer mark due to

lack of transparency in the market and may be modeled using observable interest rates and

volatility levels as well as significant unobservable assumptions, resulting in Level 3 classification

of the valuation hierarchy. Mortgage commitment derivatives that use observable market data,

quotes and actual transaction price levels adjusted for market movement are typically classified as

LevelÄ2 of the valuation hierarchy. To the extent mortgage commitment derivatives include

adjustments for market movement that cannot be corroborated by observable market data, we

classify them as LevelÄ3 of the valuation hierarchy.

Level 2 and 3

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-68
Instruments Valuation Techniques Classification

Debt of Fannie Mae

and Consolidated

Trusts

We classify debt instruments that have quoted market prices in active markets for similar liabilities

when traded as assets as Level 2 of the valuation hierarchy. For all valuation techniques used for

debt instruments where there is limited activity or less transparency around these inputs to the

valuation, these debt instruments are classified as Level 3 of the valuation hierarchy.

Consensus: Uses an average of two or more vendor prices or dealer marks that represents

estimated fair value for similar liabilities when traded as assets.

Single Vendor: Uses a single vendor price that represents estimated fair value for these liabilities

when traded as assets.

Discounted Cash Flow: Uses spreads based on market assumptions where available.

The valuation methodology and inputs used in estimating the fair value of MBS assets are

described under ÇTrading Securities and Available-for-Sale Securities.É

Level 2 and 3

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-69

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 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 December 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 $ 61,407 $ 50,057 $ 11,350 $ Ü $ Ü $ 61,407

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements 13,578 Ü 13,578 Ü Ü 13,578

Trading securities 48,123 39,501 8,576 46 Ü 48,123

Available-for-sale securities 2,404 Ü 1,612 792 Ü 2,404

Mortgage loans held for sale 6,773 Ü 229 7,054 Ü 7,283

Mortgage loans held for investment, net

of allowance for loan losses 3,327,389 Ü 3,270,535 127,650 Ü 3,398,185

Advances to lenders 6,453 Ü 6,451 2 Ü 6,453

Derivative assets at fair value 271 Ü 1,360 199 (1,288) 271

Guaranty assets and buy-ups 142 Ü Ü 305 Ü 305

Total financial assets $ 3,466,540 $ 89,558 $ 3,313,691 $ 136,048 $ (1,288) $ 3,538,009

Financial liabilities:

Federal funds purchased and securities

sold under agreements to repurchase $ 478 $ Ü $ 478 $ Ü $ Ü $ 478

Short-term debt:

Of Fannie Mae 26,662 Ü 26,667 Ü Ü 26,667

Long-term debt:

Of Fannie Mae 155,585 Ü 164,144 401 Ü 164,545

Of consolidated trusts 3,285,139 Ü 3,312,763 31,827 Ü 3,344,590

Derivative liabilities at fair value 435 Ü 2,092 37 (1,694) 435

Guaranty obligations 154 Ü Ü 97 Ü 97

Total financial liabilities $ 3,468,453 $ Ü $ 3,506,144 $ 32,362 $ (1,694) $ 3,536,812
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 $ Ü $ Ü $ 49,423

Federal funds sold and securities

purchased under agreements to resell

or similar arrangements 32,938 Ü 32,938 Ü Ü 32,938

Trading securities 41,867 35,502 6,332 33 Ü 41,867

Available-for-sale securities 3,429 Ü 2,477 952 Ü 3,429

Mortgage loans held for sale 7,701 Ü 238 7,856 Ü 8,094

Mortgage loans held for investment, net

of allowance for loan losses 3,241,694 Ü 2,990,104 216,404 Ü 3,206,508

Advances to lenders 3,356 Ü 3,354 2 Ü 3,356

Derivative assets at fair value 458 Ü 2,515 209 (2,266) 458

Guaranty assets and buy-ups 147 Ü Ü 356 Ü 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 $ Ü $ 24,901 $ Ü $ Ü $ 24,901

Long-term debt:

Of Fannie Mae 207,178 Ü 211,403 771 Ü 212,174

Of consolidated trusts 3,159,846 Ü 3,064,239 39,043 Ü 3,103,282

Derivative liabilities at fair value 777 Ü 3,077 15 (2,315) 777

Guaranty obligations 160 Ü Ü 121 Ü 121

Total financial liabilities $ 3,392,857 $ Ü $ 3,303,620 $ 39,950 $ (2,315) $ 3,341,255

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-70
The following is a description of the valuation techniques we use for fair value measurement of our financial instruments as

well as our basis for classifying these measurements as Level 1, Level 2 or Level 3 of the valuation hierarchy in certain

specific situations.

Instruments Description Classification

Financial instruments for

which fair value

approximates carrying value

We hold certain financial instruments that are not carried at fair value but for which the

carrying value approximates fair value due to the short-term nature and negligible credit risk

inherent in them. These financial instruments include cash and cash equivalents, the majority

of advances to lenders, and federal funds and securities sold/purchased under agreements

to repurchase/resell. 

Level 1 and 2

Federal funds and securities

sold/purchased under

agreements to repurchase/

resell

The carrying value for the majority of these specific instruments approximates the fair value

due to the short-term nature and the negligible inherent credit risk, as they involve the

exchange of collateral that is easily traded. Were we to calculate the fair value of these

instruments, we would use observable inputs.

Level 2

Mortgage loans held for sale Loans are reported at the lower of cost or fair value in our consolidated balance sheets. The

valuation methodology and inputs used in estimating the fair value of HFS loans are the

same as for our HFI loans and are describedÄunder ÇFair Value MeasurementÜMortgage

Loans Held for Investment.É To the extent that significant inputs are unobservable, the loans

are classified within Level 3 of the valuation hierarchy.

Level 2 and 3

Mortgage loans held for

investment

For a description of loan valuation techniques, refer to ÇFair Value MeasurementÜMortgage

Loans Held for Investment.É We measure the fair value of certain loans that are delivered

under the Home Affordable Refinance Program (ÇHARPÉ) using a modified build-up approach

while the loan is performing. Under this modified approach, we set the credit component of

the consolidated loans (that is, the guaranty obligation) equal to the compensation we would

currently receive for a loan delivered to us under the program because the total

compensation for these loans is equal to their current exit price in the government-sponsored

enterprise securitization market. We will continue to use this pricing methodology as long as

the HARP program is available to market participants. If, subsequent to delivery, the

refinanced loan becomes past due or is modified as a part of a troubled debt restructuring,

the fair value of the guaranty obligation is then measured consistent with other loans that

have similar characteristics.

Level 2 and 3

Advances to lenders The carrying value for the majority of our advances to lenders approximates the fair value

due to the short-term nature and the negligible inherent credit risk. If we were to calculate the

fair value of these instruments, we would use discounted cash flow models that use

observable inputs such as spreads based on market assumptions, resulting in Level 2

classification. Advances to lenders also include loans that do not qualify for Fannie Mae MBS

securitization and are valued using a discounted cash flow technique that uses estimated

credit spreads of similar collateral and prepayment speeds that consider recent prepayment

activity. We classify these valuations as Level 3 given that significant inputs are not

observable or are determined by extrapolation of observable inputs.

Level 2 and 3

Guaranty assets and buyupsGuaranty assets related to our portfolio securitizations are recorded in our consolidated

balance sheets at fair value on a recurring basis and are classified as Level 3. Guaranty

assets in lender swap transactions are recorded in our consolidated balance sheets at the

lower of cost or fair value. These assets, which are measured at fair value on a nonrecurring

basis, are also classified as Level 3.

We estimate the fair value of guaranty assets by using proprietary models to project cash

flows based on managementÑs best estimate of key assumptions such as prepayment

speeds and forward yield curves. Because guaranty assets are similar to an interest-only

income stream, the projected cash flows are discounted at rates that consider the current

spreads on interest-only swaps that reference Fannie Mae MBS and also liquidity

considerations of the guaranty assets. The fair value of guaranty assets includes the fair

value of any associated buy-ups.

Level 3

Guaranty obligations The fair value of all guaranty obligations, measured subsequent to their initial recognition, is

our estimate of a hypothetical transaction price we would receive if we were to issue our

guaranty to an unrelated party in a standalone armÑs-length transaction at the measurement

date. The valuation methodology and inputs used in estimating the fair value of the guaranty

obligations are described under ÇFair Value MeasurementÜMortgage Loans Held for

InvestmentÜBuild-up.É 

Level 3

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-71

Fair Value Option

We elected the fair value option for loans and debt which 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 bifurcatingÄthe embedded derivative from such instruments. 

Interest income for the mortgage loans is recorded in ÇInterest incomeÜMortgage loansÉ and interest expense for the debt

instruments is recorded in ÇInterest expenseÜLong-term debtÉ in our 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 December 31,

2019 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 $ 7,825 $ 5,687 $ 21,880 $ 8,922 $ 6,826 $ 23,753

Unpaid principal balance 7,514 5,200 19,653 8,832 6,241 22,080

(1) Includes nonaccrual loans with a fair value of $129 million and $161 million as of December 31, 2019 and 2018, respectively. The

difference between unpaid principal balance and the fair value of these nonaccrual loans as of December 31, 2019 and 2018 is $11 million

and $19 million, respectively. Includes loans that are 90 days or more past due with a fair value of $80 million and $102 million as of

December 31, 2019 and 2018, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days

past due loans as of December 31, 2019 and 2018 is $10 million and $14 million, respectively.

Changes in Fair Value under the Fair Value Option Election

We recorded gains of $357 million, losses of $128 million and gains of $136 million for the years ended December 31, 2019,

2018 and 2017, respectively, from changes in the fair value of loans recorded at fair value in ÇFair value gains (losses), netÉ in

our consolidated statements of operations and comprehensive income. 

We recorded losses of $765 million, gains of $688 million and losses of $294 million for the years ended December 31, 2019,

2018 and 2017, respectively, from changes in the fair value of long-term debt recorded at fair value in ÇFair value gains

(losses), netÉ in our consolidated statements of operations and comprehensive income. 

Notes to Consolidated Financial Statements | Fair Value

Fannie Mae (In conservatorship) 2019 Form 10-K F-72

16.ÄÄCommitments 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 counselÑs actual experience in litigating or

settling claims, leads us to conclude that the monetary relief that may be sought by plaintiffs bears little relevance to the merits

or disposition value of claims. 

We have substantial and valid defenses to the claims in the proceedings described below and intend to defend these matters

vigorously. However, legal actions and proceedings of all types are subject to many uncertain factors that generally cannot be

predicted with assurance. Accordingly, the outcome of any given matter and the amount or range of potential loss at particular

points in time is frequently difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence

and the credibility and effectiveness of witness testimony, and how courts will apply the law. Disposition valuations are also

subject to the uncertainty of how opposing parties and their counsel may view the evidence and applicable law. 

On a quarterly basis, we review relevant information about all pending legal actions and proceedings for the purpose of

evaluating and revising our contingencies, accruals and disclosures. We establish an accrual only for matters when a loss is

probable and we can reasonably estimate the amount of such loss. We are often unable to estimate the possible losses or

ranges of losses, particularly for proceedings that are in their early stages of development, where plaintiffs seek indeterminate

or unspecified damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where

settlement negotiations have not occurred or progressed. Given the uncertainties involved in any action or proceeding,

regardless of whether we have established an accrual, the ultimate resolution of certain of these matters may be material to

our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the

level of our net income or loss for that period.

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that

arise in the ordinary course of business that we do not expect will have a material impact on our business or financial

condition. We have also advanced fees and expenses of certain current and former officers and directors in connection with

various legal proceedings pursuant to our bylaws and indemnification agreements.
Senior Preferred Stock Purchase Agreements Litigation

A consolidated putative class action (ÇIn re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action

LitigationsÉ) and two non-class action lawsuits, Arrowood Indemnity Company v. Fannie Mae and Fairholme Funds v. FHFA,

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 companyÑs senior

preferred stock purchase agreement with Treasury. 

Plaintiffs filed amended complaints in all three lawsuits 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 shareholdersÑ rights, particularly the right to receive dividends. Plaintiffs seek unspecified damages, equitable and

injunctive relief, and costs and expenses, including attorneysÑ 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 plaintiffsÑ claims

except for their claims for breach of an implied covenant of good faith and fair dealing. 

On May 21, 2018, a plaintiff in a non-class action case, Angel v. Federal Home Loan Mortgage Corporation, filed a complaint

for declaratory relief and compensatory damages against Fannie Mae (including certain members of its Board of Directors),

Freddie Mac (including certain members of its Board of Directors) and FHFA, as conservator, in the U.S. District Court for the

District of Columbia. Plaintiff in that case asserts claims for breach of contract, breach of implied covenants of good faith and

fair dealing, and aiding and abetting the federal government in avoiding an alleged implicit guarantee of dividend payments.

On March 6, 2019, the court granted defendantsÑ motion to dismiss and on March 18, 2019, plaintiff moved to alter or amend

the judgment and to file an amended complaint. On May 24, 2019, the court denied this motion. On June 19, 2019, plaintiff

filed a notice of appeal of the courtÑs dismissal and related orders with the U.S. Court of Appeals for the District of Columbia

Circuit. 

Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial defenses, we are

currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.

Unconditional Purchase and Lease Commitments 

We have unconditional commitments related to the purchase of loans and mortgage-related securities. These include both onand off-balance sheet commitments. A portion of these have been recorded as derivatives in our consolidated balance sheets. 

We lease certain premises and equipment under agreements that expire at various dates through SeptemberÄ30, 2033. Some

of these leases provide for payment by the lessee of property taxes, insurance premiums, cost of maintenance and other

costs. Rental expenses for operating leases were $95 million, $100 million and $61 million for the years ended December 31,

2019, 2018 and 2017, respectively. 

The following table summarizes by remaining maturity, non-cancelable future commitments related to loan and mortgage

purchases, operating leases and other agreements.

As of December 31, 2019

Loans and

MortgageRelated

Securities(1)

Operating

Leases(2) Other(3)

(Dollars in millions)

2020 $ 74,283 $ 59 $ 109

2021 Ü 55 40

2022 Ü 56 6

2023 Ü 49 Ü

2024 Ü 50 Ü

Thereafter Ü 475 Ü

Total $ 74,283 $ 744 $ 155

(1) Primarily includes $74.0 billion that has been accounted for as mortgage commitment derivatives.

(2) Includes amounts related to office buildings and equipment leases.

(3) Includes purchase commitments for certain telecommunications services, computer software and services, and other agreements and

commitments.

Notes to Consolidated Financial Statements | Commitments and Contingencies

Fannie Mae (In conservatorship) 2019 Form 10-K F-73
17.ÄÄSelected Quarterly Financial Information

(Unaudited)

The consolidated statements of operations for the quarterly periods in 2019 and 2018 are unaudited and in the opinion of

management include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our

consolidated statements of operations. Certain prior period amounts have been reclassified to conform to the current period

presentation. The operating results for the interim periods are not necessarily indicative of the operating results to be expected

for a full year or for other interim periods.

For the 2019 Quarter Ended

March 31 June 30 September 30 December 31

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

Interest income:

Trading securities $ 427 $ 432 $ 418 $ 350

Available-for-sale securities 53 45 40 37

Mortgage loans 29,768 29,379 28,858 28,759

Federal funds sold and securities purchased under agreements to

resell or similar arrangements 263 257 178 145

Other 32 41 47 43

Total interest income 30,543 30,154 29,541 29,334

Interest expense:

Short-term debt (125) (119) (125) (132)

Long-term debt (25,685) (24,885) (24,187) (23,352)

Total interest expense (25,810) (25,004) (24,312) (23,484)

Net interest income 4,733 5,150 5,229 5,850

Benefit for credit losses 650 1,225 1,857 279

Net interest income after benefit for credit losses 5,383 6,375 7,086 6,129

Investment gains, net 133 461 253 923

Fair value gains (losses), net (831) (754) (713) 84

Fee and other income 227 246 402 301

Non-interest income (loss) (471) (47) (58) 1,308

Administrative expenses:

Salaries and employee benefits (386) (376) (361) (363)

Professional services (225) (233) (241) (268)

Other administrative expenses (133) (135) (147) (155)

Total administrative expenses (744) (744) (749) (786)

Foreclosed property expense (140) (128) (96) (151)

TCCA fees (593) (600) (613) (626)

Other expenses, net (408) (535) (571) (644)

Total expenses (1,885) (2,007) (2,029) (2,207)

Income before federal income taxes 3,027 4,321 4,999 5,230

Provision for federal income taxes (627) (889) (1,036) (865)

Net income 2,400 3,432 3,963 4,365

Dividends distributed or amounts attributable to senior preferred stock (2,361) (3,365) (3,977) (4,266)

Net income (loss) attributable to common stockholders $ 39 $ 67 $ (14) $ 99

Earnings per share:

Basic $ 0.01 $ 0.01 $ 0.00 $ 0.02

Diluted 0.01 0.01 0.00 0.02

Weighted-average common shares outstanding:

Basic 5,762 5,762 5,762 5,762

Diluted 5,893 5,893 5,762 5,893

Notes to Consolidated Financial Statements | Selected Quarterly Financial Information (Unaudited)

Fannie Mae (In conservatorship) 2019 Form 10-K F-74
For the 2018 Quarter Ended

March 31 June 30 September 30 December 31

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

Interest income:

Trading securities $ 236 $ 318 $ 363 $ 419

Available-for-sale securities 71 50 54 55

Mortgage loans 28,034 28,307 28,723 29,541

Federal funds sold and securities purchased under agreements to

resell or similar arrangements 142 149 166 285

Other 31 33 38 34

Total interest income 28,514 28,857 29,344 30,334

Interest expense:

Short-term debt (107) (110) (114) (137)

Long-term debt (23,175) (23,370) (23,861) (25,224)

Total interest expense (23,282) (23,480) (23,975) (25,361)

Net interest income 5,232 5,377 5,369 4,973

Benefit for credit losses 217 1,296 716 1,080

Net interest income after benefit for credit losses 5,449 6,673 6,085 6,053

Investment gains, net 250 277 166 259

Fair value gains (losses), net 1,045 229 386 (539)

Fee and other income 320 239 271 149

Non-interest income (loss) 1,615 745 823 (131)

Administrative expenses:

Salaries and employee benefits (381) (365) (355) (350)

Professional services (243) (254) (247) (288)

Other administrative expenses (126) (136) (138) (176)

Total administrative expenses (750) (755) (740) (814)

Foreclosed property expense (162) (139) (159) (157)

TCCA fees (557) (565) (576) (586)

Other expenses, net (203) (366) (377) (307)

Total expenses (1,672) (1,825) (1,852) (1,864)

Income before federal income taxes 5,392 5,593 5,056 4,058

Provision for federal income taxes (1,131) (1,136) (1,045) (828)

Net income 4,261 4,457 4,011 3,230

Dividends distributed or amounts attributable to senior preferred stock (938) (4,459) (3,975) (3,241)

Net income (loss) attributable to common stockholders $ 3,323 $ (2) $ 36 $ (11)

Earnings per share:

Basic $ 0.58 $ 0.00 $ 0.01 $ 0.00

Diluted 0.56 0.00 0.01 0.00

Weighted-average common shares outstanding:

Basic 5,762 5,762 5,762 5,762

Diluted 5,893 5,762 5,893 5,762

Notes to Consolidated Financial Statements | Selected Quarterly Financial Information (Unaudited)

Fannie Mae (In conservatorship) 2019 Form 10-K F-75