UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 

OF THE SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended December 31, 2012 

Commission File No.: 0-50231 

Federal National Mortgage Association

(Exact name of registrant as specified in its charter) 

Fannie Mae

Federally chartered corporation 52-0883107

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3900 Wisconsin Avenue, NW

Washington, DC

(Address of principal executive offices)

20016 

(zip code)

Registrant’s telephone number, including area code:

(202) 752-7000

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

Title of Each Class Name of Each Exchange on Which Registered

None

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

Common Stock, without par value 

(Title of class) 

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

(Title of class) 

8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series 2008-1, stated value $50 per share 

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

5.375% Non-Cumulative Convertible Series 2004-1 Preferred Stock, stated value $100,000 per share 

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

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

(Title of class) 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 

period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 

of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s 

knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” 

“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer 

(Do not check if a smaller reporting company)

Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

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 OTC Bulletin Board on 

June 30, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $301 million. 

As of February 28, 2013, there were 1,158,077,970 shares of common stock of the registrant outstanding.
i

TABLE OF CONTENTS

Page

PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Residential Mortgage Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mortgage Securitizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conservatorship and Treasury Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Our Charter and Regulation of Our Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Our Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

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

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

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

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 

Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . .

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

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

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

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

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

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

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

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

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

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

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

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Executive Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

1

1

1

2

14

17

19

26

31

35

41

42

42

42

43

46

62

62

62

63

64

64

66

69

69

74

89

100

102

106

117

119

160

160

163

163

163

163

169

169

169

169
ii

Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Compensation Committee Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Compensation Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Compensation Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

Transactions with Related Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

Director Independence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

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

PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

177

177

199

213

215

215

222

223

223

E-1

F-1
iii

MD&A TABLE REFERENCE

Table Description Page

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

2 Selected Credit Characteristics of Single-Family Conventional Loans Held, by Acquisition Period. . . . . 7

3 Single-Family Acquisitions Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4 Credit Statistics, Single-Family Guaranty Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

5 Housing and Mortgage Market Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

6 Multifamily Housing Goals for 2012 to 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

7 Housing Goals Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

8 Level 3 Recurring Financial Assets at Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

9 Summary of Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

10 Analysis of Net Interest Income and Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

11 Rate/Volume Analysis of Changes in Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

12 Impact of Nonaccrual Loans on Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

13 Fair Value Losses, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

14 Total Loss Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

15 Allowance for Loan Losses and Reserve for Guaranty Losses (Combined Loss Reserves). . . . . . . . . . . . 83

16 Total Single-Family Loss Reserves Concentration Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

17 Nonperforming Single-Family and Multifamily Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

18 Credit Loss Performance Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

19 Credit Loss Concentration Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

20 Single-Family Credit Loss Sensitivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

21 Business Segment Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

22 Business Segment Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

23 Single-Family Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

24 Multifamily Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

25 Capital Markets Group Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

26 Capital Markets Group’s Mortgage Portfolio Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

27 Capital Markets Group’s Mortgage Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

28 Summary of Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

29 Summary of Mortgage-Related Securities at Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

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

Fair Value of Net Assets (Net of Tax Effect). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

31 Supplemental Non-GAAP Consolidated Fair Value Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

32 Activity in Debt of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

33 Outstanding Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

34 Outstanding Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

35 Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year. . . . . . . . . . . . . . . . . . . 113

36 Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year. . . . . . . . . . . . . . 113

37 Contractual Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

38 Cash and Other Investments Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

39 Fannie Mae Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

40 Composition of Mortgage Credit Book of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

41 Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business. 126
iv

Table Description Page

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

Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

43 Single-Family Adjustable-Rate Mortgage Resets by Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

44 Delinquency Status of Single-Family Conventional Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

45 Single-Family Serious Delinquency Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

46 Single-Family Conventional Serious Delinquency Rate Concentration Analysis . . . . . . . . . . . . . . . . . . . 134

47 Statistics on Single-Family Loan Workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

48 Single-Family Troubled Debt Restructuring Activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

49 Percentage of Loan Modifications That Were Current or Paid Off at One and Two Years PostModification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

50 Single-Family Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

51 Single-Family Foreclosed Property Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

52 Single-Family Acquired Property Concentration Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

53 Multifamily Lender Risk-Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

54 Multifamily Guaranty Book of Business Key Risk Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

55 Multifamily Concentration Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

56 Multifamily Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

57 Repurchase Request Activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

58 Outstanding Repurchase Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

59 Mortgage Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

60 Rescission Rates of Mortgage Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

61 Estimated Mortgage Insurance Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

62 Unpaid Principal Balance of Financial Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

63 Credit Loss Exposure of Risk Management Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

64 Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve . . 158

65 Derivative Impact on Interest Rate Risk (50 Basis Points). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

66 Interest Rate Sensitivity of Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
1

PART I

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

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

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

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

day-to-day operations. Our directors do not have any fiduciary duties to any person or entity except to the conservator 

and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities or 

the holders of Fannie Mae MBS unless specifically directed to do so by the conservator. We describe the rights and powers 

of the conservator, key provisions of our agreements with the U.S. Department of the Treasury (“Treasury”), and their

impact on shareholders in “Business—Conservatorship and Treasury Agreements.”

This report contains forward-looking statements that are based on management’s current expectations and are subject to 

significant uncertainties and changes in circumstances. Please review “Business—Forward-Looking Statements” for more 

information on the forward-looking statements in this report. Our actual results may differ materially from those reflected in 

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

and elsewhere in this report. 

You can find a “Glossary of Terms Used in This Report” in “Management’s Discussion and Analysis of Financial Condition 

and Results of Operations (‘MD&A’).” 

Item 1. Business

INTRODUCTION

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

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

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

to consumers in the primary mortgage market. However, as the leading source of residential mortgage credit in the secondary 

market, we indirectly enable families to buy, refinance or rent a home. Our most significant activity is securitizing mortgage 

loans originated by lenders into Fannie Mae mortgage-backed securities that we guarantee, which we refer to as Fannie Mae 

MBS. We also purchase mortgage loans and mortgage-related securities. We use the term “acquire” in this report to refer to 

both our securitizations and our purchases of mortgage-related assets. We obtain funds to support our business activities by 

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

We have taken a number of actions in conservatorship to strengthen our financial performance, including reducing losses on 

our legacy book of business, building a profitable new book of business with responsible underwriting standards and pricing 

for risk. These actions are supporting the housing recovery and strengthening our financial performance. As a result of our 

actions and continued improvement in the housing market, our financial results improved significantly in 2012, and we 

expect our annual earnings to remain strong over the next few years. We recorded net income of $17.2 billion for 2012. Our 

net income reflects our determination not to release the valuation allowance on our deferred tax assets in the fourth quarter of 

2012, which we discuss in “Executive Summary—Deferred Tax Asset Valuation Allowance.” We paid Treasury senior 

preferred stock dividends of $4.2 billion for the first quarter of 2013, which reflected the excess of our net worth over a $3.0 

billion capital reserve applicable in 2013 under the terms of our senior preferred stock purchase agreement with Treasury. 

Like the mortgage finance industry we serve, Fannie Mae is undergoing significant transformation. Since entering into 

conservatorship in September 2008, our senior management, constituencies, and priorities have changed. More than 80% of 

our current senior management team, and every member of our management committee, has been hired or promoted into 

their current role since we entered into conservatorship. More than half of our employees were hired after conservatorship 

began. Moreover, instead of being run for the benefit of shareholders, our company is managed in the overall interest of 

taxpayers, which is consistent with the substantial public investment in us. This change in our constituencies is reflected in 

our corporate priorities, which we discuss below in “Our Business Objectives and Strategy.” Ultimately, we help fill the role 

of enabling families to buy, refinance or rent a home. We have provided approximately $3.3 trillion in liquidity to the housing 

market since 2009. By keeping liquidity flowing, we support the housing recovery, which strengthens the U.S. economy.

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

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

made during or following the conservatorship. Our agreements with Treasury that provide for financial support also include 

covenants that significantly restrict our business activities. We provide additional information on the conservatorship, the 
2

provisions of our agreements with Treasury, and its impact on our business below under “Conservatorship and Treasury 

Agreements” and “Risk Factors.” We discuss the uncertainty of our future and its impact on us in “Executive Summary—

Outlook” and “Risk Factors.” 

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

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

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

Our common stock is traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbol 

“FNMA.” Our debt securities are actively traded in the over-the-counter market.

EXECUTIVE SUMMARY

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

2012 and related notes.

Our Business Objectives and Strategy 

We are focused on paying Treasury for taxpayers’ investment in Fannie Mae, which can be accomplished by supporting the 

economic recovery, helping struggling homeowners and laying the foundation for a better housing finance system going 

forward.

Our actions to accomplish these objectives are having a positive impact:

• Financial Results and Treasury Dividend Payments. We experienced significant improvement in our financial results 

for 2012 compared with 2011, as we discuss in “Summary of Our Financial Performance for 2012.” Significant 

improvement in our credit results, coupled with growing revenue from our new book of business, led to our 

reporting net income in 2012 for the first time since 2006. Because loans remain in our book of business for a 

number of years, the credit quality of and guaranty fee we charge on the loans we acquire in a particular year affect 

our results for a period of years after we acquire them. Accordingly, we expect improvements in the credit quality of 

our loan acquisitions since 2009 and increases in our charged guaranty fees on recently acquired loans to benefit our 

results for years to come. Our net income of $17.2 billion in 2012 is the largest in our history. We were not required 

to draw funds from Treasury under the senior preferred stock purchase agreement for any quarter of 2012, and, 

during 2012, we paid Treasury $11.6 billion in senior preferred stock dividends. We paid Treasury additional senior 

preferred stock dividends of $4.2 billion for the first quarter of 2013. 

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

mortgage market in 2012. As described below under “Contributions to the Housing and Mortgage Markets Since 

Entering Conservatorship—2012 Acquisitions and Market Share,” we remained the largest single issuer of 

mortgage-related securities in the secondary market during the fourth quarter of 2012 and remained a constant 

source of liquidity in the multifamily market.

• Strong New Book of Business. Single-family loans we have acquired since the beginning of 2009 constituted 66% of 

our single-family guaranty book of business as of December 31, 2012, while the single-family loans we acquired 

prior to 2009 constituted 34% of our single-family book of business. We refer to the single-family loans we have 

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

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

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

loan-to-value (“LTV”) ratios of these loans in “Credit Risk Characteristics of Loans Acquired under HARP.” As 

described below in “Our Strong New Book of Business,” we expect that our new single-family book of business will 

be profitable over its lifetime.

• Expected Increases in Guaranty Fee Revenues. As a result of increases in our charged guaranty fee and the larger 

volume of single-family loans we acquired in 2012, we expect to receive significantly more guaranty fee income on 

the single-family loans we acquired in 2012, over their lifetime, than on the single-family loans we acquired in 2011. 

We expect rising guaranty fee revenue we receive for managing the credit risk on loans underlying Fannie Mae MBS 

held by third parties will in a number of years become the primary source of our revenues, particularly as we reduce 

the size of our mortgage portfolio to comply with the terms of the senior preferred stock purchase agreement. 

Moreover, if current market conditions continue, we expect these revenues will generally offset expected declines in 

the revenues we generate from the difference between the interest income earned on the assets in our mortgage 

portfolio and the interest expense associated with the debt funding of those assets. We discuss expected changes in 
3

our guaranty fee revenue in “Strengthening Our Book of Business—Guaranty Fees on Recently Acquired SingleFamily Loans,” and in “Outlook—Future Revenues and Profitability.”

• Credit Performance. Our single-family serious delinquency rate has steadily declined each quarter since the first 

quarter of 2010, and was 3.29% as of December 31, 2012 and 3.18% as of January 31, 2013, compared with 3.91% 

as of December 31, 2011. See “Credit Performance” below for additional information about the credit performance 

of the mortgage loans in our single-family guaranty book of business.

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

losses on our legacy book of business, which are addressed in “Reducing Credit Losses on Our Legacy Book of 

Business.” As part of our strategy to reduce defaults, we provided more than 275,000 loan workouts to help 

homeowners stay in their homes or otherwise avoid foreclosure in 2012.

• Helping to Build a New Housing Finance System. We continued our efforts to help build a new housing finance 

system, including pursuing the strategic goals identified by our conservator: build a new infrastructure for the 

secondary mortgage market; gradually contract our dominant presence in the marketplace while simplifying and 

shrinking our operations; and maintain foreclosure prevention activities and credit availability for new and 

refinanced mortgages. We discuss these goals in “Helping to Build a New Housing Finance System.”

To provide context for analyzing our consolidated financial statements and understanding our MD&A, we discuss the 

following topics in this executive summary: 

• Our 2012 financial performance, 

• Our work to strengthen our book of business, 

• Our efforts to reduce losses on our legacy book of business, 

• The credit performance of our single-family book of business, 

• Our contributions to the housing and mortgage markets since entering conservatorship,

• Our efforts to help build a new housing finance system,

• Our liquidity position, and 

• Our outlook. 

Summary of Our Financial Performance for 2012

We experienced significant improvement in our financial results for 2012 compared with 2011. Over the past year, home 

prices have increased, and we have experienced further improvement in the performance of our book of business, such as 

lower serious delinquency rates. As a result, our loan loss reserves have decreased, which has corresponded to the recognition 

of a benefit (rather than a provision) for credit losses in 2012. The significant improvement in our credit results, coupled with 

growing revenue from our new book of business, led to our reporting $17.2 billion in net income in 2012, the largest in our 

company’s history and our first annual net income since 2006.

Comprehensive Income (Loss) 

We recognized comprehensive income of $18.8 billion in 2012, consisting of net income of $17.2 billion and other 

comprehensive income of $1.6 billion. In comparison, we recognized a comprehensive loss of $16.4 billion in 2011, 

consisting of a net loss of $16.9 billion and other comprehensive income of $447 million.

The significant improvement in our financial results in 2012 compared with 2011 was primarily due to recognition of a 

benefit for credit losses of $852 million in 2012 compared with a provision for credit losses of $26.7 billion in 2011. This 

change was driven by improvement in the profile of our single-family book of business due to continuing positive trends in 

the housing market and our ongoing efforts to improve the credit quality of our single-family guaranty book of business. 

Specifically, the profile of our single-family guaranty book improved due to:

• A 4.7% increase in home prices in 2012 compared with a home price decline of 3.7% in 2011. Higher home prices 

decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default. 

• An increase in sales prices of our REO properties. We received net proceeds from our REO sales equal to 59% of the 

loans’ unpaid principal balance in 2012, compared with 54% in 2011. Sales prices on dispositions of our REO 

properties improved in 2012 as a result of increased demand compared with 2011 as well as our efforts to improve 

the sales execution of our REO properties. The increase in sales proceeds reduces the amount of credit loss at 

foreclosure and, accordingly, results in a lower provision for credit losses.
4

• A continued reduction in the number of delinquent loans in our single-family guaranty book of business. Our serious 

delinquency rate declined from 3.91% as of December 31, 2011 to 3.29% as of December 31, 2012 and our “early 

stage” delinquencies (loans that are 30 to 89 days past due) declined from 2.91% as of December 31, 2011 to 2.62%

as of December 31, 2012. The reduction in the delinquency rates is due, in part, to our efforts since 2009 to improve 

our underwriting standards and the credit quality of our single-family guaranty book of business, which has resulted 

in a decrease in the number of loans becoming delinquent. A decline in the number of loans becoming delinquent or 

seriously delinquent reduces our total loss reserves and provision for credit losses.

Due to the large size of our guaranty book of business, even small changes in home prices, economic conditions and other 

variables, such as foreclosure timelines, may result in significant volatility in the amount of credit-related expenses or income 

we recognize from period to period.

In addition to the improvement in our credit results, fair value losses declined from $6.6 billion in 2011 to $3.0 billion in 

2012. The decrease in fair value losses was primarily due to lower derivative losses as swap rates declined significantly in 

2011 compared with a more modest decline in swap rates in 2012. Derivative instruments are an integral part of how we 

manage interest rate risk and an inherent part of the cost of funding and hedging our mortgage investments. We expect high 

levels of period-to-period volatility in our results because our derivatives are recorded at fair value in our financial statements 

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

Our net income for 2012 was also affected positively by our resolution agreements on January 6, 2013 with Bank of America, 

N.A. and other affiliates of Bank of America Corporation related to repurchase requests and compensatory fees. In this report, 

we may refer to Bank of America Corporation and its affiliates, collectively or individually, as “Bank of America.” These 

agreements led to the recognition of $1.3 billion in pre-tax net income for 2012. See “Note 20, Subsequent Events” for 

additional information on these agreements and their impact on our financial results and see “Risk Management—Credit Risk 

Management—Institutional Counterparty Credit Risk Management” for additional information on repurchase requests. 

We recognized other comprehensive income of $1.6 billion in 2012 compared with $447 million in 2011. The other 

comprehensive income recognized in 2012 was driven by a decrease in unrealized losses on non-agency securities primarily 

due to the narrowing of credit spreads. 

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

Net Worth

Our net worth of $7.2 billion as of December 31, 2012 reflects our comprehensive income of $18.8 billion offset by our 

payment to Treasury of $11.6 billion in senior preferred stock dividends during 2012.

As a result of our positive net worth as of December 31, 2012, we are not requesting a draw from Treasury under the senior 

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

billion. As described in “Business—Conservatorship and Treasury Agreements” below, our dividend obligations to Treasury 

changed as of January 1, 2013. We paid our first quarter 2013 dividend payment of $4.2 billion on March 29, 2013. The first 

quarter 2013 dividend payment of $4.2 billion is calculated based on our net worth of $7.2 billion as of December 31, 2012 

less the applicable capital reserve amount of $3.0 billion. Including our first quarter 2013 dividend payment, we have paid 

$35.6 billion in dividends to Treasury.

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

conservatorship on September 6, 2008. 

Table 1: Treasury Draws and Senior Preferred Stock Dividend Payments

2008 2009 2010 2011 2012

Cumulative

Total

(Dollars in billions)

Treasury draws(1)(2)

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

Senior preferred stock dividends(3)

. . . . . . . . . . — 2.5 7.7 9.6 11.6 31.4

__________

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

funded in the quarter following each quarterly net worth deficit.

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

any cash proceeds.

(3) Represents total quarterly cash dividends paid to Treasury during the periods presented.
5

Total Loss Reserves

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

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

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

concessions we granted borrowers upon modification of their loans, decreased to $62.6 billion as of December 31, 2012 from 

$66.9 billion as of September 30, 2012 and $76.9 billion as of December 31, 2011. Our total loss reserve coverage to total 

nonperforming loans was 25% as of December 31, 2012 compared with 26% as of September 30, 2012 and 31% as of 

December 31, 2011.

Deferred Tax Asset Valuation Allowance

Each quarter, we evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence. We are 

required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that 

some or all of the deferred tax assets will not be realized. We established a valuation allowance against our deferred tax assets 

in 2008 and have maintained it since then. 

As discussed further under “Critical Accounting Policies and Estimates—Deferred Tax Assets” and “Note 10, Income Taxes,” 

in evaluating the recoverability of our deferred tax assets, as of December 31, 2012, we again determined that the negative 

evidence outweighed the positive evidence. Therefore we did not release any of our valuation allowance as of December 31, 

2012. The valuation allowance as of December 31, 2012 was $58.9 billion. 

If and when the valuation allowance is released, it will be included as income and, as a result, we expect to report significant 

net income for the period in which we release the valuation allowance, with a corresponding increase in our net worth as of 

the end of that period. Had we released the valuation allowance as of December 31, 2012, our 2012 net income would have 

increased by approximately $58.3 billion, with a corresponding increase in our net worth as of December 31, 2012. Our 

dividend obligation to Treasury on our senior preferred stock 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. Accordingly, we also expect to pay 

Treasury a significant dividend in the quarter following a release of the valuation allowance on our deferred tax assets. 

Our determination not to release the valuation allowance on our deferred tax assets as of December 31, 2012 was a 

complicated decision. As we reported in a Form 12b-25 filed with the SEC on March 14, 2013, we were unable to meet the 

March 18, 2013 filing deadline for this report because we needed additional time to analyze the issue. Our consideration of 

the evidence required management to make a number of significant judgments, estimates and assumptions about highly 

complex and inherently uncertain matters, particularly about our future financial condition and results of operations. Using 

reasonable but different estimates and assumptions, or assigning weight to various factors in reasonable but differing 

amounts, could have resulted in a decision to release the valuation allowance as of December 31, 2012. 

In our analysis, which we discuss more fully in “Critical Accounting Policies and Estimates—Deferred Tax Assets” and 

“Note 10, Income Taxes,” the following key factors were positive evidence in favor of releasing the allowance as of 

December 31, 2012: 

• our 2012 profitability and our expectations regarding the sustainability of profits,

• the strong credit profile of the loans we have acquired since 2009,

• our taxable income for 2012 and our expectations regarding the likelihood of future taxable income, and

• the carryforward periods for our net operating losses and tax credits.

The key factors against releasing the allowance as of December 31, 2012 were the following:

• on a cumulative basis, we reported losses in our consolidated statements of operations for the three years ended 

December 31, 2012;

• the impact of a reduction in funds available to us under the senior preferred stock purchase agreement that would 

have resulted from releasing the valuation allowance in the fourth quarter of 2012, which we discuss below; and

• we have a limited recent history of profitability and a large number of delinquent loans in our book of business.

In evaluating all the appropriate factors, including but not limited to those mentioned above, we gave more weight to 

evidence that could be objectively verified than to evidence that could not be objectively verified. 

We determined that the factors in favor of releasing the allowance were outweighed by the factors against releasing the 

valuation allowance as of December 31, 2012. 

Under the terms of the senior preferred stock purchase agreement, the amount of funding available to us after December 31, 

2012 is adjusted based on our positive net worth as of December 31, 2012 and is not affected by any positive net worth we 
6

may have on future dates. See “Conservatorship and Treasury Agreements—Treasury Agreements—Senior Preferred Stock 

Purchase Agreement” for a discussion of this adjustment. Accordingly, the amount of funding available under the senior 

preferred stock purchase agreement will be reduced only to the extent that we draw funds from Treasury under the agreement 

in the future. A decision to release the valuation allowance in 2013 will not reduce the funding available to us under the 

senior preferred stock purchase agreement. 

Releasing the valuation allowance in the fourth quarter of 2012 would have decreased our available funding under the senior 

preferred stock purchase agreement to approximately $84 billion, compared to approximately $118 billion of available 

funding that resulted from not releasing the valuation allowance in the fourth quarter. 

There was significant uncertainty regarding the effects that an approximately $34 billion reduction in the funds available to 

us under the senior preferred stock purchase agreement would have had on our business and financial results, including 

regulatory actions that would limit our business operations to ensure safety and soundness of the company, particularly in 

view of the fact that stability in the housing market and improvements in our financial results are relatively recent. This 

uncertainty was a significant consideration in our determination not to release the valuation allowance as of December 31, 

2012. 

We will continue to evaluate the recoverability of our deferred tax assets. Our evaluation in future quarters will be made by 

reviewing all relevant factors as of the end of those periods, including the factors discussed above to the extent applicable. 

Releasing all or a portion of the valuation allowance after December 31, 2012 will not reduce the funding available to us 

under the senior preferred stock purchase agreement, as discussed above. In addition, we expect that, as of the first quarter of 

2013, we will no longer be in a three-year cumulative loss position. Accordingly, although we have not completed the 

analysis, we believe that, after considering all relevant factors, we may release the valuation allowance as early as the first 

quarter of 2013.

Strengthening Our Book of Business

Credit Risk Profile 

We are setting responsible credit standards to protect homeowners and taxpayers, while making it possible for families to 

purchase a home. Since 2009, we have seen the effect of actions we took, beginning in 2008, to significantly strengthen our 

underwriting and eligibility standards and change our pricing to promote sustainable homeownership and stability in the 

housing market. While we do not yet know how the single-family loans we have acquired since January 1, 2009 will 

ultimately perform, given their strong credit risk profile and based on their performance so far, we expect that in the 

aggregate these loans, which constitute a growing majority of our single-family guaranty book of business, will be profitable 

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

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

aggregate, will not be profitable over their lifetime. 

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

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

factors. If future conditions are more unfavorable than our expectations, our new single-family book of business could 

become unprofitable. See “Outlook—Factors that Could Cause Actual Results to be Materially Different from Our Estimates 

and Expectations” and “Risk Factors” for a discussion of factors that could cause our expectations regarding the performance 

of the loans in our new single-family book of business to change.

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

guaranty book of business as of December 31, 2012 by acquisition period, which illustrates the improvement in the credit risk 

profile of loans we acquired beginning in 2009 compared with loans we acquired in 2005 through 2008.
7

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

As of December 31, 2012

% of 

Single-Family Current Current

Conventional Estimated Mark-to-Market Serious 

Guaranty Book Mark-to-Market LTV Ratio Delinquency

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

New Single-Family Book of Business . . . . . . . . . . . . . . . 66 % 71 % 6 % 0.35 %

Legacy Book of Business:

2005-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 98 41 9.92

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 57 6 3.62

Total Single-Family Book of Business. . . . . . . . . . . . . . 100 % 75 % 13 % 3.29 %

__________

(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 December 31, 2012.

(2) The majority of loans in our new single-family book of business as of December 31, 2012 with mark-to-market LTV ratios over 100% 

were loans acquired under the Administration’s Home Affordable Refinance Program. See “Credit Risk Characteristics of Loans 

Acquired under HARP” for more information on our recent acquisitions of loans with high LTV ratios.

(3) The serious delinquency rates for loans acquired in more recent years will be higher after the loans have aged, but we do not expect 

them to approach the levels of the December 31, 2012 serious delinquency rates of loans in our legacy book of business. The serious 

delinquency rate as of December 31, 2012 for loans we acquired in 2009, the oldest vintage in our new book of business, was 0.97%.

More detailed information on the risk characteristics of loans in our single-family book of business appears in “Table 41: 

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

Guaranty Fees on Recently Acquired Single-Family Loans

Table 3 below displays information regarding our average charged guaranty fee on single-family loans we acquired in each of 

the last three years, as well as the volume of our single-family Fannie Mae MBS issuances, which is indicative of the volume 

of single-family loans we acquired. 

Table 3: Single-Family Acquisitions Statistics

For the Year Ended December 31,

2012 2011 2010

Single-family average charged guaranty fee on new acquisitions (in basis 

points)(1)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 28.8 25.7

Single-family Fannie Mae MBS issuances(in millions)(3)

. . . . . . . . . . . . . . . . $ 827,749 $ 564,606 $ 603,247

__________

(1) Pursuant to the TCCA, effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages delivered to us 

on or after that date for securitization by 10 basis points; and the incremental revenue is remitted to Treasury. The resulting revenue is 

included in guaranty fee income, and the expense is included in other expenses. This increase in guaranty fee is included in the singlefamily charged guaranty fee.

(2) Calculated based on the average contractual fee rate for our single-family guaranty arrangements entered into during the period plus the 

recognition of any upfront cash payments ratably over an estimated average life, expressed in basis points.

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

Housing Finance Agency (“HFA”) new issue bond program issuances, none of which occurred in 2012 or 2011. There were HFA new 

issue bond program issuances of $3.1 billion during 2010.

The guaranty fee income we receive depends on the volume of our single-family acquisitions, the charged guaranty fee at 

acquisition, and the life of the loans. As a result of increases in the charged guaranty fee and the larger volume of singlefamily loans we acquired in 2012, we expect to receive significantly more guaranty fee income on the single-family loans we 

acquired in 2012, over their lifetime, than on the single-family loans we acquired in 2011. The average charged guaranty fee 

on newly acquired single-family loans increased by approximately 25.2 basis points over the course of 2012, from 27.9 basis 

points for the month of December 2011 to 53.1 basis points for the month of December 2012. The change was primarily 

attributable to a 10 basis point increase on April 1, 2012 mandated by the TCCA, an average increase of 10 basis points 

implemented during the fourth quarter of 2012 and lender-specific contractual fee increases implemented throughout the year. 

These changes to guaranty fee pricing represent a step toward encouraging greater participation in the mortgage market by 
8

private firms, which is one of the goals set forth in FHFA’s strategic plan for Fannie Mae’s and Freddie Mac’s 

conservatorships. See “Legislative and Regulatory Developments—Changes to Our Single-Family Guaranty Fee Pricing and 

Revenue” for more information on changes to our guaranty fee pricing. 

Credit Risk Characteristics of Loans Acquired under HARP

Since 2009, our acquisitions have included a significant number of loans that are refinancings of existing Fannie Mae loans 

under the Administration’s Home Affordable Refinance Program (“HARP”). HARP is designed to expand refinancing 

opportunities for borrowers who may otherwise be unable to refinance their mortgage loans due to a decline in home values. 

Accordingly, HARP loans have LTV ratios at origination in excess of 80%. In addition, a HARP loan cannot (1) be an 

adjustable-rate mortgage loan, or ARM, if the initial fixed period is less than five years; (2) have an interest-only feature, 

which permits the payment of interest without a payment of principal; (3) be a balloon mortgage loan; or (4) have the 

potential for negative amortization. We acquire HARP loans under our Refi PlusTM initiative, which provides expanded 

refinance opportunities for eligible Fannie Mae borrowers. In the fourth quarter of 2012, we revised how we present these 

loans to reflect all Refi Plus loans with LTV ratios at origination in excess of 80% as HARP loans. Previously we did not 

reflect loans that were backed by second homes or investor properties as HARP loans.

Many of the loans we acquire under HARP have higher LTV ratios than we would otherwise permit, greater than 100% in 

some cases. Some borrowers under HARP and Refi Plus also have lower FICO credit scores than we would otherwise 

require. The volume of loans with high LTV ratios that we acquired under HARP increased in 2012 as a result of changes we 

implemented in the first half of 2012 to make the benefits of HARP available to more borrowers, combined with historically 

low interest rates in the second half of 2012. Loans we acquired under HARP in the fourth quarter of 2012 constituted 16% of 

our single-family acquisitions for the period, measured by unpaid principal balance, compared with 7% in the fourth quarter 

of 2011. As a result of this increase, loans with LTV ratios greater than 100% constituted 8% of our acquisitions in 2012, 

compared with 2% in 2011, and the weighted average LTV ratio at origination of loans we acquired in 2012 increased to 75%

from 69% in 2011. The average original LTV ratio of single-family loans we acquired in 2012, excluding HARP loans, was 

68%, compared with 111% for HARP loans. 

Loans we acquire under HARP represent refinancings of loans that are already in our guaranty book of business. The credit 

risk associated with loans we acquire under HARP essentially replaces the credit risk that we already held prior to the 

refinancing. Loans we acquire under HARP have higher serious delinquency rates and may not perform as well as the other 

loans we have acquired since the beginning of 2009. However, we expect these loans will perform better than the loans they 

replace because HARP loans should reduce the borrowers’ monthly payments and/or provide more stable terms than the 

borrowers’ old loans (for example, by refinancing into a mortgage with a fixed interest rate instead of an adjustable rate).

We expect that if interest rates remain low we will continue to acquire a high volume of refinancings under HARP for the 

program’s duration or until there is no longer a large population of borrowers with high LTV loans who would benefit from 

refinancing. We expect to acquire many refinancings with LTV ratios greater than 125% in particular, because borrowers 

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

implemented in the second quarter of 2012. For a description of these changes to HARP, see “MD&A—Risk Management—

Credit Risk Management—Single-Family Credit Risk Management—Home Affordable Refinance Program (‘HARP’) and 

Refi Plus Loans.” HARP is scheduled to end in December 2013, although we will continue to accept deliveries of HARP

loans through September 30, 2014 for loans with application dates on or before December 31, 2013. 

Loans we acquired under HARP represented 13% of our new single-family book of business as of December 31, 2012 and 

had a serious delinquency rate of 0.93%, compared with a serious delinquency rate for our new single-family book of 

business overall of 0.35%. See “Table 42: Selected Credit Characteristics of Single-Family Conventional Loans Acquired 

under HARP and Refi Plus.”

Factors that May Affect the Credit Risk Profile and Performance of Loans We Acquire in the Future

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

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

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

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

acquire under HARP. See “MD&A—Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk 

Management” for more detail regarding the credit risk characteristics of our single-family guaranty book of business.

Reducing Credit Losses on Our Legacy Book of Business

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

following strategies:
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• Helping eligible Fannie Mae borrowers with high LTV loans, including those whose loans are underwater, refinance 

to more sustainable loans, including loans that significantly reduce their monthly payments, through HARP;

• Reducing defaults by offering borrowers loan modifications that can significantly reduce their monthly payments 

and other solutions that enable them to stay in their homes (collectively, “home retention solutions”);

• Pursuing short sales, which are also known as preforeclosure sales, as well as deeds-in-lieu of foreclosure; these 

“foreclosure alternatives” help borrowers avoid foreclosure and reduce the overall severity of the losses we incur; 

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

• Improving servicing standards and servicers’ execution and consistency;

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

• Pursuing contractual remedies from lenders, servicers and providers of credit enhancement.

As we work to reduce credit losses, we also seek to assist distressed borrowers, help stabilize communities, and support the 

housing market. For example, in November 2012 we, along with Freddie Mac, put into effect new, streamlined rules for short 

sales to enable servicers to quickly evaluate a borrower’s eligibility for a short sale. 

We view foreclosure as a last resort, and we offer alternatives to foreclosure to homeowners in need. These solutions have 

enabled 1.2 million homeowners to avoid foreclosure since 2009. In dealing with distressed borrowers, we first seek home 

retention solutions before turning to foreclosure alternatives. When there is no viable home retention solution or foreclosure 

alternative that can be applied, we seek to move to foreclosure expeditiously; prolonged delinquencies hurt local home values 

and destabilize communities, as these homes often go into disrepair. 

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

—Single-Family Mortgage Credit Risk Management” and “MD&A—Risk Management—Institutional Counterparty Credit 

Risk Management.” See also “Risk Factors,” where we describe factors that may adversely affect the success of our efforts, 

including our reliance on third parties to service our loans, conditions in the foreclosure environment, and risks relating to our 

mortgage insurer counterparties.

Credit Performance

Table 4 presents information for each of the last three years about the credit performance of mortgage loans in our singlefamily guaranty book of business and our workouts. The term “workouts” refers to home retention solutions and foreclosure 

alternatives. The workout information in Table 4 does not reflect repayment plans and forbearances that have been initiated 

but not completed, nor does it reflect trial modifications that have not become permanent.
10

Table 4: Credit Statistics, Single-Family Guaranty Book of Business(1)

2012 2011 2010

(Dollars in millions)

As of the end of each period:

Serious delinquency rate(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.29 % 3.91 % 4.48 %

Seriously delinquent loan count. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576,591 690,911 801,640

Nonperforming loans(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,823 $ 248,379 $ 251,631

Foreclosed property inventory:

Number of properties(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,666 118,528 162,489

Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,505 $ 9,692 $ 14,955

Combined loss reserves(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,809 $ 71,512 $ 60,163

Total loss reserves(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,396 $ 75,264 $ 64,469

During the period:

Foreclosed property (number of properties):

Acquisitions(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,479 199,696 262,078

Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,341) (243,657) (185,744)

Credit-related income (expenses)(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 919 $ (27,218) $ (26,420)

Credit losses(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,392 $ 18,346 $ 23,133

REO net sales prices to unpaid principal balance(9). . . . . . . . . . . . . . . . . . . . . . . . . . 59 % 54 % 56 %

Loan workout activity (number of loans):

Home retention loan workouts(10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,741 248,658 440,276

Short sales and deeds-in-lieu of foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,732 79,833 75,391

Total loan workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,473 328,491 515,667

Loan workouts as a percentage of delinquent loans in our guaranty book of 

business(11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.38 % 27.05 % 37.30 %

__________

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

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

for which we do not provide a guaranty.

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

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

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

single-family serious delinquency rate. As of January 31, 2013, our single-family serious delinquency rate was 3.18%.

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

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

nonperforming when the payment of principal or interest on the loan is 60 days or more past due.

(4) Includes held-for-use properties (properties that we do not intend to sell or that are not ready for immediate sale in their current 

condition), which are reported in our consolidated balance sheets as a component of “Other assets” and acquisitions through deeds-inlieu of foreclosure.

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

related to both single-family loans backing Fannie Mae MBS that we do not consolidate in our consolidated balance sheets and singlefamily loans that we have guaranteed under long-term standby commitments. For additional information on the change in our loss 

reserves see “Consolidated Results of Operations—Credit-Related (Income) Expenses—Benefit (Provision) for Credit Losses.”

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

taxes and insurance receivables.

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

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

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

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

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

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

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

not completed and (b) repayment plans and forbearances completed. See “Table 47: Statistics on Single-Family Loan Workouts” in 
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“Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Problem Loan Management—

Loan Workout Metrics” for additional information on our various types of loan workouts.

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

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

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

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

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

Although our serious delinquency rate has decreased, our serious delinquency rate and the period of time that loans remain 

seriously delinquent continue to be negatively impacted by the length of time required to complete a foreclosure. High levels 

of foreclosures, changes in state foreclosure laws, new federal and state servicing requirements imposed by regulatory actions 

and legal settlements, and the need for servicers to adapt to these changes have lengthened the time it takes to foreclose on a 

mortgage loan in many states. The length of the foreclosure process, the pace of loan modifications and changes in home 

prices and other macroeconomic conditions all influence serious delinquency rates. We expect the number of single-family 

loans in our legacy book of business that are seriously delinquent to remain well above pre-2008 levels for years. In addition, 

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

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

loan workouts in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”

Contributions to the Housing and Mortgage Markets Since Entering Conservatorship

Liquidity and Support Activities

We have provided approximately $3.3 trillion in liquidity to the housing market since 2009, enabling families to buy, 

refinance or rent a home. Since we entered into conservatorship in September 2008, we have provided critical liquidity and 

support to the U.S. mortgage market in a number of important ways:

• We serve as a stable source of liquidity for purchases of homes and financing of multifamily rental housing, as well 

as for refinancing existing mortgages. The approximately $3.3 trillion in liquidity we have provided to the mortgage 

market from 2009 through 2012 through our purchases and guarantees of loans enabled borrowers to complete 9.7 

million mortgage refinancings and 2.7 million home purchases and provided financing for 1.7 million units of 

multifamily housing.

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

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

a variety of conforming mortgage products, including long-term, fixed-rate mortgages, such as the prepayable 30-

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

• Through our loan workout efforts from 2009 through 2012, which included providing over 879,000 loan 

modifications, we helped 1.2 million homeowners stay in their homes or otherwise avoid foreclosure. These efforts 

helped to support neighborhoods, home prices and the housing market. 

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

Refi Plus initiative, through December 31, 2012, we acquired approximately 2.8 million Refi Plus loans. 

Refinancings delivered to us through Refi Plus in the fourth quarter of 2012 reduced borrowers’ monthly mortgage 

payments by an average of $237. Some borrowers’ monthly payments increased as they took advantage of the ability 

to refinance through Refi Plus to reduce the term of their loan, to switch from an adjustable-rate mortgage to a fixedrate mortgage or to switch from an interest-only mortgage to a fully amortizing mortgage.

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

through 2012 were affordable to families earning at or below the median income in their area.

• In addition to purchasing and guaranteeing loans, we provide funds to the mortgage market through short-term 

financing and other activities. These activities are described in more detail in “Business Segments—Capital 

Markets.”

2012 Acquisitions and Market Share 

As the leading provider of residential mortgage credit, we enable families to buy, refinance or rent a home. During 2012, we 

purchased or guaranteed approximately $918 billion in single-family and multifamily loans, measured by unpaid principal 

balance, which includes $45.8 billion in delinquent loans we purchased from our single-family MBS trusts. Our 2012 singlefamily acquisitions exceeded our 2011 acquisitions by more than a million loans, primarily as a result of lower interest rates 
12

in 2012 and the implementation of changes to HARP. Our activities enabled our lender customers to finance approximately 

3,898,000 single-family conventional loans and loans for approximately 559,000 units in multifamily properties during 2012. 

One of FHFA’s strategic goals for our conservatorship involves gradually contracting our dominant presence in the 

marketplace. Despite this goal, our market share remains large and even increased in 2012 as we have continued to meet the 

needs of the single-family mortgage market in the absence of substantial private capital. We currently estimate that our 

single-family market share was 43% in 2012, compared with 37% in 2011. These amounts represent our single-family 

mortgage acquisitions for each year, excluding delinquent loans we purchased from our MBS trusts, as a percentage of the 

single-family first-lien mortgages we currently estimate were originated in the United States that year. Because our estimate 

of mortgage originations in prior periods is subject to change as additional data become available, these market share 

estimates may change in the future, perhaps materially. 

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

2012, with an estimated market share of new single-family mortgage-related securities issuances of 48%, compared with 52%

in the third quarter of 2012 and 54% in the fourth quarter of 2011. For all of 2012, we estimate our market share of new 

single-family mortgage-related securities issuances was 49%, compared with 48% for 2011.

We remained a constant source of liquidity in the multifamily market in 2012. We owned or guaranteed approximately 22%

of the outstanding debt on multifamily properties as of December 31, 2012.

Helping to Build a New Housing Finance System

In addition to serving as the leading source of residential mortgage credit in the secondary market, we are committed to doing 

our part to improve the mortgage finance system. We have devoted significant resources towards helping to build a new 

housing finance system for the future, primarily through pursuing the strategic goals identified by our conservator. In 

February 2012, the Acting Director of FHFA sent a letter to Congress in which he provided FHFA’s strategic plan for Fannie 

Mae and Freddie Mac’s conservatorships. The plan identified three strategic goals for the conservatorships: 

• Build. Build a new infrastructure for the secondary mortgage market; 

• Contract. Gradually contract Fannie Mae and Freddie Mac’s dominant presence in the marketplace while simplifying 

and shrinking their operations; and 

• Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages. 

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

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

Fannie Mae and Freddie Mac. As described in “Executive Compensation—Compensation Discussion and Analysis—

Determination of 2012 Compensation—Assessment of Corporate Performance on 2012 Conservatorship Scorecard,” we met 

substantially all of the 2012 conservatorship scorecard objectives.

Liquidity 

During 2012, we issued a variety of non-callable and callable debt securities in a wide range of maturities to achieve costefficient funding and to extend our debt maturity profile. We believe that our ready access to debt funding since the beginning 

of 2009 has been primarily due to the actions taken by the federal government to support us and the financial markets. 

Accordingly, we believe that continued federal government support of our business and the financial markets, as well as our 

status as a GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in federal government 

support of our business and the financial markets or our status as a GSE could materially and adversely affect our liquidity, 

financial condition and results of operations, or our ability to continue as a going concern. Demand for our debt securities 

could decline in the future, as the Administration, Congress and our regulators debate our future. See “MD&A—Liquidity 

and Capital Management—Liquidity Management” for more information on our debt funding activities and “Risk Factors” 

for a discussion of the risks to our business posed by our reliance on the issuance of debt securities to fund our operations. 

Outlook

Financial Results and Dividend Payments to Treasury. Our financial results improved significantly in 2012, and we expect 

our annual net income to remain strong over the next few years. As a result of home price increases and improvement in the 

performance of our book of business, our total loss reserves decreased in 2012, which corresponded to the recognition of a 

benefit (rather than a provision) for credit losses. Because loans remain in our book of business for a number of years, the 

credit quality of and guaranty fee we charge on the loans we acquire in a particular year affects our results for a period of 

years after we acquire them. Accordingly we expect improvements in the credit quality of our loan acquisitions since 2009 

and increases in our charged guaranty fees on recently acquired loans to benefit our results for years to come, especially 

because these loans have relatively low interest rates, making them less likely to be refinanced. 
13

If we release our valuation allowance against our deferred tax assets in a future period, our net income, but not our pre-tax 

income, will be significantly favorably impacted in that period. Our effective tax rate will change for the years after a release 

of our valuation allowance, which will reduce any positive net income we record. While we maintain the valuation 

allowance, our recorded effective tax rate has been at or close to zero because changes in our deferred tax asset balance have 

been offset by corresponding changes in our valuation allowance. Although we have not completed the analysis, we believe 

that, after considering all relevant factors, we may release the valuation allowance as early as the first quarter of 2013. We 

discuss the factors that may lead to a release of our valuation allowance and the tax impact in more detail in “MD&A—

Critical Accounting Policies and Estimates—Deferred Tax Assets.” 

In compliance with our dividend obligation to Treasury, we will retain only a limited amount of any future earnings we have, 

and we will pay Treasury each quarter the amount, if any, by which our net worth as of the end of the immediately preceding 

fiscal quarter exceeds an applicable capital reserve amount. This capital reserve amount is $3.0 billion for each quarter of 

2013 and decreases annually until it reaches zero in 2018. 

One of our objectives is to pay taxpayers for their investment in our company. While the senior preferred stock purchase 

agreement does not permit us to pay down draws we have made under the agreement except in limited circumstances, in 

2012 we returned a total of $11.6 billion on taxpayers’ investment in us through dividends on the senior preferred stock, and, 

through March 31, 2013, we have paid a total of $35.6 billion. As of December 31, 2012, we have received a total of $116.1 

billion. 

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

downward trend, but that single-family delinquency, default and severity rates will remain high compared to pre-housing 

crisis levels. Despite multifamily sector improvement at the national level, we expect certain local markets and properties will 

continue to exhibit weak fundamentals. We expect the level of multifamily foreclosures in 2013 will generally remain 

commensurate with 2012 levels. Conditions may worsen if the unemployment rate increases on either a national or regional 

basis.

We forecast that total originations in the U.S. single-family mortgage market in 2013 will decrease from 2012 levels by 

approximately 15% from an estimated $1.93 trillion to $1.65 trillion, and that the amount of originations in the U.S. singlefamily mortgage market that are refinancings will decrease from an estimated $1.40 trillion in 2012 to $1.03 trillion in 2013. 

Refinancings comprised approximately 79% of our single-family business volume in 2012, compared with approximately 

76% in 2011.

Home Prices. After declining by an estimated 23.8% from their peak in the third quarter of 2006 to the first quarter of 2012, 

based on our home price index, we estimate that home prices on a national basis increased by 4.7% in 2012 overall and by 

0.5% in the fourth quarter of 2012. Although home price growth may not continue at 2012 rates, we expect that, if current 

market trends continue, home prices will increase on a national basis overall in 2013. Future home price changes may be very 

different from our expectations as a result of significant inherent uncertainty in the current market environment, including 

uncertainty about the effect of actions the federal government has taken and may take with respect to tax policies, spending 

cuts, mortgage finance programs and policies, and housing finance reform; the management of the Federal Reserve’s MBS 

holdings; the impact of those actions on and changes generally in unemployment and the general economic and interest rate 

environment; and the impact on the U.S. economy of the economic uncertainty in Europe. Because of these uncertainties, the 

actual home price changes we experience may differ significantly from our expectations. We also expect significant regional 

variation in the timing and rate of home price growth. 

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

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

sales or deeds-in-lieu of foreclosure. We expect our credit losses to remain high in 2013 relative to pre-housing crisis levels. 

In addition, to the extent the slow pace of foreclosures continues in 2013, our realization of some credit losses will be 

delayed. 

Loss Reserves. We expect the trends of improving home prices and declining single-family serious delinquency rates to 

continue. As a result of these trends, we believe that our total loss reserves peaked at $76.9 billion as of December 31, 2011. 

However, we expect our loss reserves will remain significantly elevated relative to historical levels for an extended period 

because (1) we expect future defaults on loans that we acquired prior to 2009 and the resulting charge-offs will occur over a 

period of years and (2) a significant portion of our reserves represents concessions granted to borrowers upon modification of 

their loans and our reserves will continue to reflect these concessions until the loans are fully repaid or default.

Future Revenues and Profitability. Historically, we have generated the majority of our net revenues from the difference 

between the interest income earned on the assets in our mortgage portfolio and the interest expense associated with the debt 

funding of those assets. As we discuss in “Conservatorship and Treasury Agreements—Treasury Agreements—Covenants 

under Treasury Agreements,” we are required to reduce the size of our mortgage portfolio each year until we hold no more 
14

than $250 billion in mortgage assets by the end of 2018. As we reduce the size of our mortgage portfolio, our revenues 

generated by our mortgage portfolio assets will also decrease. If current market conditions continue, we expect that these 

declines in our revenues will generally be offset by rising guaranty fee revenue received for managing the credit risk on loans 

underlying Fannie Mae MBS held by third parties. We recognize almost all of our guaranty fee revenue in net interest income 

in our consolidated statements of operations and comprehensive income (loss). We expect that, in a number of years, 

guaranty fees will become the primary source of our revenues as a result of both the shrinking of our portfolio and the impact 

of guaranty fee increases in 2011 and 2012. Any future increases in guaranty fees will likely only further increase our 

guaranty fee revenue. The amount of our guaranty fee revenue in future periods will be impacted by many factors, 

including adjustments to guaranty fee pricing we may make in the future, which we discuss in “Legislative and Regulatory 

Developments—Changes to Our Single-Family Guaranty Fee Pricing and Revenue.”

As our effective guaranty fee revenue increases in future periods, we expect our credit losses will decrease as a result of the 

higher credit quality of our new book of business, the decrease in our legacy book, and anticipated lower severity at the time 

of charge-off. 

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

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

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

is terminated. We expect this uncertainty to continue. 

In 2011, Treasury and the Department of Housing and Urban Development (“HUD”) released a report to Congress on 

reforming America’s housing finance market. The report states that the Administration will work with FHFA to determine the 

best way to responsibly wind down both Fannie Mae and Freddie Mac. The report emphasizes the importance of providing 

the necessary financial support to Fannie Mae and Freddie Mac during the transition period. We cannot predict the prospects 

for the enactment, timing or content of legislative proposals regarding long-term reform of the GSEs. See “Legislative and 

Regulatory Developments” for discussions of recent legislative reform of the financial services industry and proposals for 

GSE reform that could affect our business. See “Risk Factors” for a discussion of the risks to our business relating to the 

uncertain future of our company.

Factors that Could Cause Actual Results to be Materially Different from Our Estimates and Expectations. We present a 

number of estimates and expectations in this executive summary, including estimates and expectations regarding our future 

financial results and profitability, our future dividend payments to Treasury, our future revenues from guaranty fees, the 

profitability and performance of single-family loans we have acquired, our future acquisitions, our future REO inventory, our 

future delinquency, default and severity rates, our future credit losses and loss reserves, future housing market conditions, 

performance and volumes and future home prices. These estimates and expectations are forward-looking statements based on 

our current assumptions regarding numerous factors, especially future home prices and the future performance of our loans. 

Our future estimates of our performance, as well as the actual amounts, may differ materially from our current estimates and 

expectations as a result of: the timing and level of, as well as regional variation in, home price changes; changes in interest 

rates, unemployment rates and other macroeconomic and housing market variables; our future guaranty fee pricing; our 

future serious delinquency rates; future legislative or regulatory requirements that have a significant impact on our business, 

such as a requirement that we implement a principal forgiveness program; future updates to our models relating to our loss 

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

significant changes in modification and foreclosure activity; changes in borrower behavior, such as an increasing number of 

underwater borrowers who strategically default on their mortgage loan; the effectiveness of our loss mitigation strategies, 

management of our REO inventory and pursuit of contractual remedies; whether our counterparties meet their obligations in 

full; changes in the fair value of our assets and liabilities; impairments of our assets; changes in generally accepted 

accounting principles (“GAAP”); credit availability; natural and other disasters and many other factors, including those 

discussed in “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report. Due to the large size of our 

guaranty book of business, even small changes in these factors could have a significant impact on our financial results for a 

particular period.

RESIDENTIAL MORTGAGE MARKET

The U.S. Residential Mortgage Market

We conduct business in the U.S. residential mortgage market and the global securities market. According to the Federal 

Reserve, total U.S. residential mortgage debt outstanding, which includes $9.9 trillion of single-family mortgage debt 

outstanding, was estimated to be approximately $10.8 trillion as of December 31, 2012. After increasing every quarter since 
15

record keeping began in 1952 until the second quarter of 2008, single-family mortgage debt outstanding has been steadily 

declining since then. We owned or guaranteed mortgage assets representing approximately 29% of total U.S. residential 

mortgage debt outstanding as of December 31, 2012.

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.

Housing and Mortgage Market and Economic Conditions

The inflation-adjusted U.S. gross domestic product, or GDP, for 2012 was 2.2% higher than for 2011, according to the 

Bureau of Economic Analysis second estimate, compared with an increase of 1.8% from 2010 to 2011. According to the U.S. 

Bureau of Labor Statistics as of March 2013, the economy created 2.3 million non-farm jobs in 2012, compared with 2.1 

million non-farm jobs in 2011. At the start of the recession in December 2007, the unemployment rate was 5.0%, based on 

data from the U.S. Bureau of Labor Statistics, and the unemployment rate peaked at a 26-year high of 10.0% in October 

2009. The unemployment rate declined from 8.5% in December 2011 to 7.8% in December 2012. In February 2013, nonfarm payrolls increased by 236,000 jobs, and the unemployment rate decreased to 7.7%. We expect the unemployment rate to 

decline gradually in 2013.

The most comprehensive measure of the unemployment rate, which includes those working part-time who would rather work 

full-time (part-time workers for economic reasons) and those not looking for work but who want to work and are available 

for work (discouraged workers), was 14.3% in February 2013, substantially lower than the record high of 17.1% in October 

2009.

Housing activity improved in 2012 from depressed levels in 2011. Total existing home sales of 4.66 million units in 2012 

represent an increase of 9.4% from 2011, following a 1.7% increase in 2011, while mortgage rates reached new lows and 

home prices remained low. Sales of foreclosed homes and preforeclosure, or “short,” sales (together, “distressed sales”) 

accounted for 24% of existing home sales in December 2012, compared with 32% in December 2011, according to the 

National Association of REALTORS®. New home sales increased in 2012 after declining for six consecutive years, rising 

19.9%. Homebuilding activity in 2012 improved, as single-family housing starts rose approximately 24%, while multifamily 

starts rose approximately 38%.

At the end of 2012, the number of months’ supply, or the inventory/sales ratio, of available existing homes and of new homes 

were each below their historical average. The number of new homes available for sale remained near record lows in 

December 2012. According to the Bureau of the Census’ January 2013 New Residential Sales Report, the months’ supply was 

4.8 months as of December 31, 2012. For existing homes, the months’ supply fell sharply in the fourth quarter of 2012 as a 

result of rising sales in the quarter and a persistent decline in the number of existing homes available for sale in the second 

half of 2012. According to data through February 2013 from the National Association of REALTORS®, the months’ supply of 

existing unsold homes was 4.5 months as of December 31, 2012, compared with a 6.4 months’ supply as of December 31, 

2011. The overall mortgage market serious delinquency rate remained historically high at 6.8% as of December 31, 

2012, according to the Mortgage Bankers Association National Delinquency Survey, but has declined from its peak of 9.7%

as of December 31, 2009 and 7.7% as of December 31, 2011. We provide information about Fannie Mae’s serious 

delinquency rate, which also decreased during 2012, in “Executive Summary—Credit Performance.”
16

The table below presents several key indicators related to the total U.S. residential mortgage market.

Table 5: Housing and Mortgage Market Indicators(1)

% Change

2012 2011 2010

2012 vs.

2011

2011 vs.

2010

Home sales (units in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . 5,027 4,566 4,513 10.1 % 1.2 %

New home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 306 323 19.9 (5.3)

Existing home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,660 4,260 4,190 9.4 1.7

Home price change based on Fannie Mae Home Price Index 

(“HPI”)(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7% (3.7)% (4.4)% — —

Annual average fixed-rate mortgage interest rate(3). . . . . . . . . . 3.7% 4.5 % 4.7 % — —

Single-family mortgage originations (in billions) . . . . . . . . . . . $ 1,925 $ 1,498 $ 1,679 28.5 (10.8)

Type of single-family mortgage origination:

Refinance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72% 66 % 68 % — —

Adjustable-rate mortgage share . . . . . . . . . . . . . . . . . . . . . . . . 5% 6 % 5 % — —

Total U.S. residential mortgage debt outstanding (in billions). . $10,790 $11,008 $11,259 (2.0) (2.2)

__________

(1) The sources of the housing and mortgage market data in this table are the Federal Reserve Board, the Bureau of the Census, the 

Department of Housing and Urban Development, the National Association of Realtors, and the Mortgage Bankers Association. Home 

sales data are based on information available through January 2013. Single-family mortgage originations, as well as refinance shares, 

are based on February 2013 estimates from Fannie Mae’s Economic & Strategic Research group. The adjustable-rate mortgage share 

is based on the number of conventional mortgage applications data reported by the Mortgage Bankers Association. Certain previously 

reported data may have been changed to reflect revised historical data from any or all of these organizations.

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

sales data. Fannie Mae’s HPI is a weighted repeat transactions index, measuring average price changes in repeat sales on the same 

properties. Fannie Mae’s HPI excludes prices on properties sold in foreclosure. The reported home price change reflects the 

percentage change in Fannie Mae’s HPI from the fourth quarter of the prior year to the fourth quarter of the reported year.

(3) Based on the annual average 30-year fixed-rate mortgage interest rate reported by Freddie Mac.

After declining by an estimated 23.8% from their peak in the third quarter of 2006 to the first quarter of 2012, home prices 

increased on a national basis by an estimated 4.7% overall in 2012, with an estimated increase of 0.5% in the fourth quarter. 

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

We estimate that total single-family mortgage originations in 2012 increased from 2011 levels by 29% to $1.9 trillion, with a 

purchase share of 28% and a refinance share of 72%.

Since the second quarter of 2008, single-family mortgage debt outstanding has been steadily declining due to a number of 

factors including declining home sales and prices, rising foreclosures, increased cash sales, and reduced home equity 

extraction. Total U.S. residential mortgage debt outstanding fell by 2.0% from the fourth quarter of 2011 to the fourth quarter 

of 2012. 

Despite recent improvement in the housing market and declining delinquency rates, approximately one out of nine borrowers 

was delinquent or in foreclosure during the fourth quarter of 2012, according to the Mortgage Bankers Association National 

Delinquency Survey. The housing market remains under pressure due to the high level of unemployment, which was a 

primary driver of the significant number of mortgage delinquencies and defaults in 2012. 

Many homeowners continue to have “negative equity” in their homes as a result of declines in home prices since 2006, which 

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

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

foreclosure. According to CoreLogic, Inc. the number of residential properties with mortgages in a negative equity position in 

the fourth quarter of 2012 was approximately 10.4 million, down from its peak of 12.1 million in the fourth quarter of 2011. 

The percentage of properties with mortgages in a negative equity position in the fourth quarter of 2012 was 21.5%, down 

from 25.2% in the fourth quarter of 2011 and its peak of 25.7% reached in the fourth quarter of 2009. The elevated, albeit 

declining, potential supply may be putting downward pressure on home prices.

National multifamily market fundamentals, which include factors such as vacancy rates and rents, remained positive during 

2012, but began to show signs of slowing during the fourth quarter. Vacancy levels remained near historic lows, benefiting 
17

from sustained rental demand coupled with ongoing job growth and new household formation. Although vacancy rates 

declined through most of 2012, the national vacancy level for the fourth quarter of 2012 is estimated to have remained at 

5.50%, based on third-party data, which is the same level that was estimated for the third quarter of 2012, but down from an 

estimated 6.25% in the fourth quarter of 2011. While vacancy levels are expected to have remained the same, average asking 

rents are expected to have increased once again, by an estimated 0.5% on a national basis in the fourth quarter of 2012, 

continuing a trend over nearly three years. The increase in overall rental demand was also reflected in an estimated increase 

of approximately 47,000 units in the net number of occupied rental units during the fourth quarter of 2012, according to data 

from Reis, Inc. That brings the total estimated net absorption for the year (that is, the net change in the number of units 

occupied over the year) to approximately 140,000 units. 

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, followed by a leveling off 

in the second half of 2012, have helped boost property values in most metropolitan areas in 2012, as well as new construction 

development. As a result, over-supply may occur over the next 24 months in some localized areas. Nevertheless, the overall 

national rental market supply and demand is expected to remain in balance over the longer term, based on expected 

construction completions, expected obsolescence, positive household formation trends and expected increases in the 

population of 20- to 34-year olds, which as a group rents multifamily housing at a higher rate than other groups.

MORTGAGE SECURITIZATIONS

We support market liquidity by securitizing mortgage loans, which means we place loans in a trust and Fannie Mae MBS 

backed by the mortgage loans are then issued. We 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. In return for this 

guaranty, we receive guaranty fees.

Below we discuss (1) two broad categories of securitization transactions: lender swaps and portfolio securitizations; 

(2) features of our MBS trusts; (3) circumstances under which we purchase loans from MBS trusts; and (4) single-class and 

multi-class Fannie Mae MBS.

Lender Swaps and Portfolio Securitizations 

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

transactions primarily fall within two broad categories: lender swap transactions and portfolio securitizations.

Our most common type of securitization transaction is our “lender swap transaction.” Mortgage lenders that operate in the 

primary mortgage market generally deliver pools of mortgage loans to us in exchange for Fannie Mae MBS backed by these 

mortgage loans. 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 that is established for the sole purpose of holding the 

mortgage loans separate and apart from our 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 retain a portion of the interest payment 

as the fee for providing our guaranty. 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. 

In contrast to our lender swap securitizations, in which lenders deliver pools of mortgage loans to us that we immediately 

place in a trust for securitization, our “portfolio securitization transactions” involve creating and issuing Fannie Mae MBS 

using mortgage loans and mortgage-related securities that we hold in our mortgage portfolio.

Features of Our MBS Trusts 

We serve as trustee for our MBS trusts, each of which is established for the sole purpose of holding mortgage loans separate 

and apart from our assets. 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. 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 “trust documents” that govern an individual MBS trust.
18

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. For example, we have the option under the terms of the trust documents 

to purchase a loan from an MBS trust if the loan is delinquent as to four or more consecutive monthly payments. We 

generally have the obligation to purchase a mortgage loan from an MBS trust when the mortgage loan becomes delinquent as 

to 24 monthly payments. Our acquisition cost 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, which we cannot do while it remains in the trust; 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 Fannie Mae MBS trusts and holding them in our portfolio is currently less 

than the cost of advancing delinquent payments to security holders. We generally purchase loans from MBS trusts as they 

become four or more consecutive monthly payments delinquent. During 2012, we purchased delinquent loans with an unpaid 

principal balance of approximately $45.8 billion from our single-family MBS trusts. We expect to continue purchasing loans 

from MBS trusts as they become four or more consecutive monthly payments delinquent subject to market conditions, 

economic benefit, servicer capacity, and other constraints, including the limit on the amount of mortgage assets that we may 

own pursuant to the senior preferred stock purchase agreement.

For our multifamily MBS trusts, we typically exercise our option to purchase a loan from the trust if the loan is delinquent, in 

whole or in part, as to four or more consecutive monthly payments.

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 in proportion to their percentage ownership of the MBS issuance. Multi-class MBS are MBS, 

including Real Estate Mortgage Investment Conduits (“REMICs”), in which the cash flows on the underlying mortgage 

assets are divided, creating several classes of securities, each of which represents an undivided beneficial ownership interest 

in the assets of the related MBS trust and entitles the related holder to a specific portion 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 expire, cash flows received on the underlying mortgage 

assets are allocated to the remaining classes in accordance with the terms of the securities’ structures. 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. 
19

BUSINESS SEGMENTS

We have three business segments for management reporting purposes: Single-Family Credit Guaranty, Multifamily, and 

Capital Markets. In this report we refer to our business groups that run these segments as our “Single-Family business,” our 

“Multifamily business” and our “Capital Markets group.” These groups engage in complementary business activities in 

pursuing our mission of providing liquidity, stability and affordability to the U.S. housing market. These activities are 

summarized in the table below and described in more detail following this table. We also summarize in the table below the 

key sources of revenue for each of our segments and the primary expenses.

Business Segment Primary Business Activities Primary Drivers of Revenue Primary Drivers of Expense

Single-Family Mortgage acquisitions: Works 

with our lender customers to 

acquire single-family mortgage 

loans through lender swap 

transactions or, working also 

with our Capital Markets group, 

through purchases of loans

Credit risk management: Prices 

and manages the credit risk on 

loans in our single-family 

guaranty book of business

Credit loss management: Works 

to prevent foreclosures and 

reduce costs of defaulted loans 

through home retention solutions 

and foreclosure alternatives, 

through management of REO, 

and through pursuing contractual 

remedies from lenders, servicers 

and providers of credit 

enhancement

Guaranty fees: Compensation for 

assuming and managing the 

credit risk on our single-family 

guaranty book of business

Interest income not recognized: 

Consists of reimbursement costs 

for interest income not 

recognized for loans on 

nonaccrual status in our 

mortgage portfolio or in 

consolidated trusts, which are 

recorded as a reduction to our 

interest income

Fee and other income:

Compensation received for 

providing lender services

Credit-related expenses: Consists 

of provision for single-family 

loan losses, provision for singlefamily guaranty losses and 

foreclosed property expense on 

loans underlying our singlefamily guaranty book of business

Administrative expenses:

Consists of salaries and benefits, 

occupancy costs, professional 

services, and other expenses 

associated with our SingleFamily business operations

Remittances to Treasury of a 

portion of our guaranty fees:

Consists of amounts remitted to 

Treasury, which we expect will 

increase in future periods, from 

increases in our guaranty fees 

required by the TCCA

Multifamily Mortgage securitizations: Works 

with our lender customers to 

securitize multifamily mortgage 

loans delivered to us by lenders 

into Fannie Mae MBS in lender 

swap transactions

Credit risk management: Prices 

and manages the credit risk on 

loans in our multifamily guaranty 

book of business

Credit loss management: Works 

to prevent foreclosures and 

reduce costs of defaulted loans 

through foreclosure alternatives, 

through management of 

foreclosures and REO, and 

through pursuing contractual 

remedies from lenders, servicers 

and providers of credit 

enhancement

Guaranty fees: Compensation for 

assuming and managing the 

credit risk on our multifamily 

guaranty book of business

Fee and other income: 

Compensation received for 

engaging in multifamily 

transactions and bond credit 

enhancements

Credit-related expenses: Consists 

of provision for multifamily loan 

losses, provision for multifamily 

guaranty losses and foreclosed 

property expense on loans 

underlying our multifamily 

guaranty book of business

Administrative expenses: 

Consists of salaries and benefits, 

occupancy costs, professional 

services, and other expenses 

associated with our Multifamily 

business operations
20

Business Segment Primary Business Activities Primary Drivers of Revenue Primary Drivers of Expense

Capital Markets Mortgage and other investments: 

Purchases mortgage assets and 

makes investments in nonmortgage interest-earning assets

Mortgage securitizations:

Purchases loans from a large 

group of lenders, securitizes 

them, and may sell the securities 

to dealers and investors

Structured mortgage 

securitizations and other 

customer services: Issues 

structured Fannie Mae MBS for 

customers in exchange for a 

transaction fee and provides 

other fee-related services to our 

lender customers

Interest rate risk management:

Manages the interest rate risk on 

our portfolio by issuing a variety 

of debt securities in a wide range 

of maturities and by using 

derivatives

Net interest income: Generated 

from the difference between the 

interest income earned on our 

interest-earning assets and the 

interest expense associated with 

the debt funding those assets

Fee and other income: 

Compensation received for 

engaging in structured 

transactions and providing other 

lender services

Fair value gains and losses: 

Primarily consists of fair value 

gains and losses on derivatives 

and trading securities

Investment gains and losses: 

Primarily consists of gains and 

losses on the sale or 

securitization of mortgage assets

Other-than-temporary 

impairment: Consists of 

impairment recognized on our 

investments

Administrative expenses: 

Consists of salaries and benefits, 

occupancy costs, professional 

services, and other expenses 

associated with our Capital 

Markets business operations

Revenues from our Business Segments 

The following table displays the percentage of our total net revenues accounted for by our business segments for each of the 

last three years. For more information about the financial results and performance of each of our segments, see “MD&A—

Business Segment Results” and “Note 13, Segment Reporting.”

Business Segment Revenues(1)

For the Year Ended

December 31,

2012 2011 2010

Single-Family Credit Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 28% 12%

Multifamily(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 5

Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 63 77

__________

(1)

 Amounts presented represent the percentage of our total net revenues accounted for by each of our business segments. The sum of net 

revenues for our three business segments does not equal our consolidated total net revenues because we separate the activity related to 

our consolidated trusts from the results generated by our three segments.

(2)

 These amounts do not include the net interest income we earn on our multifamily investments in our mortgage portfolio, which is 

reflected in the revenues of our Capital Markets segment.

Single-Family Business 

Working with our lender customers, our Single-Family business provides funds to the mortgage market by acquiring singlefamily loans through lender swap transactions or, working also with our Capital Markets group, through purchases of loans. 

Our Single-Family business has primary responsibility for pricing and managing the credit risk on our single-family guaranty 

book of business, which consists of single-family mortgage loans underlying Fannie Mae MBS and single-family loans held 

in our mortgage portfolio.

A single-family loan is secured by a property with four or fewer residential units. Our Single-Family business and Capital 

Markets group securitize and purchase 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 Department of Veterans Affairs (“VA”), loans guaranteed by the 

Rural Development Housing and Community Facilities Program of the Department of Agriculture (the “Department of 

Agriculture”), manufactured housing loans and other mortgage-related securities.
21

Revenues for our Single-Family business are derived primarily from guaranty fees received as compensation for assuming 

the credit risk on the mortgage loans underlying single-family Fannie Mae MBS. We also allocate guaranty fee revenues to 

the Single-Family business for assuming and managing the credit risk on the single-family mortgage loans held in our 

portfolio. The aggregate amount of single-family guaranty fees we receive or that are allocated to our Single-Family business 

in any period depends on the amount of single-family Fannie Mae MBS outstanding and loans held in our mortgage portfolio 

during the period and the applicable guaranty fee rates. The amount of Fannie Mae MBS outstanding at any time is primarily 

determined by the rate at which we issue new Fannie Mae MBS and by the repayment rate for the loans underlying our 

outstanding Fannie Mae MBS. Other factors affecting the amount of Fannie Mae MBS outstanding are the extent to which 

(1) borrower defaults lead us to purchase loans from our MBS trusts (with the amount of these purchases affected by the rate 

of borrower defaults on the loans and the extent of loan modification programs in which we engage) and (2) sellers and 

servicers repurchase loans from us upon our demand based on a breach in the selling representations and warranties provided 

upon delivery of the loans.

We describe the credit risk management process employed by our Single-Family business, including its key strategies in 

managing credit risk and key metrics used in measuring and evaluating our single-family credit risk in “MD&A—Risk 

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

Single-Family Mortgage Securitizations and Other Acquisitions 

Our Single-Family business securitizes single-family mortgage loans and issues single-class Fannie Mae MBS, which are 

described above in “Mortgage Securitizations—Single-Class and Multi-Class Fannie Mae MBS,” for our lender customers. 

Unlike our Capital Markets group, which securitizes loans from our portfolio, our Single-Family business securitizes loans 

solely in lender swap transactions, in which lenders deliver to us pools of mortgage loans, which are placed immediately in a 

trust, in exchange for Fannie Mae MBS backed by these loans. We describe lender swap transactions, and how they differ 

from portfolio securitizations, in “Mortgage Securitizations—Lender Swaps and Portfolio Securitizations.” Our SingleFamily business also works with our Capital Markets group to acquire single-family loans through purchases of loans.

Loans from our lender customers are delivered to us through either our “flow” or “bulk” transaction channels. In our flow 

business, we enter into agreements that generally set agreed-upon guaranty fee prices for a lender’s future delivery of 

individual loans to us over a specified time period. Our bulk business generally consists of transactions in which a set of 

loans is delivered to us in bulk, typically with guaranty fees and other contract terms negotiated individually for each 

transaction.

Single-Family Mortgage Servicing, REO Management, and Lender Repurchases 

Servicing

Generally, the servicing of the mortgage loans that are held in our mortgage portfolio or that back our Fannie Mae MBS is 

performed by mortgage servicers on our behalf. Typically, lenders who sell single-family mortgage loans to us service these 

loans for 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 “Risk Factors” and “MD&A—Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk 

Management.”

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 prepayment premiums, 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.

REO Management

If a loan defaults and we acquire a home through foreclosure or a deed-in-lieu of foreclosure, we market and sell the home 

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—to prevent empty homes from depressing home values. In cases 
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where the property does not sell, we use alternative methods of disposition, including selling homes to cities, municipalities 

and other public entities, and selling properties in bulk or through public auctions.

Lender Repurchase Evaluations

We conduct post-purchase quality control file reviews to ensure that loans sold to, and serviced for, us meet our guidelines. If 

we discover violations through reviews, we issue repurchase demands to the seller or other responsible party and seek to 

collect on our repurchase claims. We discuss changes we are making to our post-purchase loan review process in “MD&A—

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

Acquisition and Servicing Policies and Underwriting and Servicing Standards.”

Multifamily Business 

A core part of Fannie Mae’s mission is to support the U.S. multifamily housing market to help serve the nation’s rental 

housing needs, focusing on low- to middle-income households and communities. Our Multifamily business provides 

mortgage market liquidity 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 into Fannie Mae MBS. We also purchase multifamily mortgage loans and provide credit 

enhancement for bonds issued by state and local housing finance authorities to finance multifamily housing. We have also 

offered debt financing structures that can be used to facilitate construction loans. Our Multifamily business also works with 

our Capital Markets group to facilitate the purchase and securitization of multifamily mortgage loans and securities for 

Fannie Mae’s portfolio, as well as to facilitate portfolio securitization and resecuritization activities. Our multifamily 

guaranty book of business consists of multifamily mortgage loans underlying Fannie Mae MBS and multifamily loans and 

securities held in our mortgage portfolio. Our Multifamily business has primary responsibility for pricing the credit risk on 

our multifamily guaranty book of business and for managing the credit risk on multifamily loans and Fannie Mae MBS 

backed by multifamily loans that are held in our mortgage portfolio.

Revenues for our Multifamily business are derived from a variety of sources, including: (1) guaranty fees received as 

compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS and on the 

multifamily mortgage loans held in our portfolio and on other mortgage-related securities; (2) transaction fees associated with 

the multifamily business and (3) other bond credit enhancement related fees. Additionally, our Capital Markets group earns 

revenue that is related to our multifamily mortgage loans and securities held in our portfolio.

We describe the credit risk management process employed by our Multifamily business, along with our Multifamily 

Enterprise Risk Management group, including its key strategies in managing credit risk and key metrics used in measuring 

and evaluating our multifamily credit risk, in “MD&A—Risk Management—Credit Risk Management—Multifamily 

Mortgage Credit Risk Management.”

Key Characteristics of the Multifamily Mortgage Market and Multifamily Transactions 

The multifamily mortgage market and our transactions in that market have a number of key characteristics that affect our 

multifamily activities and distinguish them from our activities in the single-family residential mortgage market.

• Funding sources: The multifamily market is made up of a wide variety of lending sources, including commercial 

banks, life insurance companies, investment banks, FHA, state and local housing finance agencies and the GSEs.

• Number of lenders; lender relationships: During 2012, we executed multifamily transactions with 33 lenders. Of 

these, 24 lenders delivered loans to us under our Delegated Underwriting and Servicing, or DUS®, product line. In 

determining whether to do business with a multifamily lender, we consider the lender’s 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.

• Loan size: The average size of a loan in our multifamily guaranty book of business is $5 million. A significant 

number of our multifamily loans are under $5 million, and some of our multifamily loans are greater than $25 

million.

• 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.

• Borrower and sponsor profile: Multifamily 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 
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invest in real estate for cash flow and equity returns in exchange for their original investment in the asset. The 

ultimate owners of a multifamily borrower are referred to as the borrower’s “sponsors.” In this report, we refer to 

both the borrowing entities and their sponsors as “borrowers.” Because borrowing entities are typically single-asset 

entities, with the property as their only asset, in evaluating a borrowing entity we also evaluate its sponsors. 

Multifamily loans are generally non-recourse to the sponsors. 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 lender exposure. 

• Borrower and lender investment: Borrowers are required to contribute equity into multifamily properties on which 

they borrow, while lenders generally share in any losses realized from the loans that we purchase.

• Underwriting process: Multifamily loans require detailed underwriting similar in many respects to that required for 

loans for an operating business. Our underwriting includes an evaluation of the property’s ability to support the loan, 

property quality, market and submarket factors, ability to exit at maturity and an initial risk categorization for the 

loan. 

• Term and lifecycle: In 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.

• Prepayment terms: Multifamily Fannie Mae loans and MBS trade in a market in which investors expect commercial 

investment terms, particularly limitations on prepayments of loans and the imposition of prepayment premiums.

Multifamily Mortgage Securitizations and Acquisitions 

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

our Single-Family business, as described in “Single-Family Business—Single-Family Mortgage Securitizations and 

Acquisitions.” Our multifamily lender customers typically deliver only one mortgage loan, often a fixed-rate loan, to back 

each multifamily Fannie Mae MBS. The characteristics of each mortgage loan are used to establish guaranty fees on a riskadjusted basis. Securitizing a single multifamily mortgage loan into a Fannie Mae MBS facilitates its sale into the secondary 

market.

Delegated Underwriting and Servicing (DUS) 

In an effort to promote product standardization in the multifamily marketplace, in 1988 Fannie Mae initiated the DUS 

product line for acquiring individual multifamily loans.

DUS is a unique business model in the commercial mortgage industry. The standard industry practice for a multifamily loan 

requires the purchaser or guarantor to underwrite or re-underwrite each loan prior to deciding whether to purchase or 

guaranty the loan. Under our model, DUS lenders are pre-approved and delegated the authority to underwrite and service 

loans on behalf of Fannie Mae. In exchange for this authority, DUS lenders are required to share with us the risk of loss over 

the life of the loan, as discussed in more detail in “MD&A—Risk Management—Credit Risk Management—Multifamily 

Mortgage Credit Risk Management—Multifamily Acquisition Policy and Underwriting Standards.” Since DUS lenders share 

in the credit risk, the servicing fee to the lenders includes compensation for credit risk. Delegation permits lenders to respond 

to customers more rapidly, as the lender generally has the authority to approve a loan within prescribed parameters, which 

provides an important competitive advantage.

We believe our DUS model aligns the interests of the borrower, lender and Fannie Mae. Our current 24-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.

Multifamily Mortgage Servicing 

As with the servicing of single-family mortgages, multifamily mortgage servicing is typically performed by the lenders who 

sell the mortgages to us. Multifamily mortgage servicers that are members of our DUS network have agreed to accept loss 

sharing, which we believe increases the alignment of interests between us and our multifamily loan servicers. Because of our 

loss-sharing arrangements with our multifamily lenders, transfers of multifamily servicing rights are infrequent, and we 

carefully monitor all our servicing relationships and enforce our right to approve all servicing transfers. As a seller-servicer, 

the lender is responsible for evaluating the financial condition of properties and property owners, administering various types 

of agreements (including agreements regarding replacement reserves, completion or repair, and operations and maintenance), 

as well as conducting routine property inspections.
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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, from those 

at the lower end of the income range up through middle-income households. Our mission requires us to serve the market 

steadily, rather than moving in and out depending on market conditions. Through the secondary mortgage market, we support 

rental housing for the workforce, for senior citizens and students, and for families with the greatest economic need. 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 needs described below.

• To meet the growing need for smaller multifamily property financing, we focus on the acquisition of multifamily 

loans up to $3 million ($5 million in high cost areas). We acquire these loans primarily from DUS lenders; however, 

we have also acquired these loans from other financial institutions. Over the years, we have been an active purchaser 

of these loans from both DUS and non-DUS lenders, and, as of December 31, 2012, they represented 66% of our 

multifamily guaranty book of business by loan count and 15% based on unpaid principal balance.

• 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 providing 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, 2012, this type of financing represented approximately 14% of our multifamily 

guaranty book of business, based on unpaid principal balance, including $15.7 billion in bond credit enhancements.

Capital Markets 

Our Capital Markets group manages our investment activity in mortgage-related assets and other interest-earning nonmortgage investments. We fund our investments primarily through proceeds we receive from the issuance of debt securities in 

the domestic and international capital markets. Our Capital Markets group has primary responsibility for managing the 

interest rate risk associated with our investments in mortgage assets.

Our Capital Markets group’s business activity is primarily focused more on making short-term use of our balance sheet than 

on long-term investments. As a result, our Capital Markets group works with lender customers to provide funds to the 

mortgage market through short-term financing and investing activities. Activities we are undertaking to provide liquidity to 

the mortgage market include the following:

• Whole Loan Conduit. Whole loan conduit activities involve our purchase of single-family loans principally for the 

purpose of securitizing them. We purchase loans from a large group of lenders and then securitize them as Fannie 

Mae MBS, which may then be sold to dealers and investors.

• Early Funding. Lenders who deliver whole loans or pools of whole loans to us in exchange for MBS typically must 

wait between 30 and 45 days from the closing and settlement of the loans or pools and the issuance of the MBS. 

This delay may limit lenders’ ability to originate new loans. Under our early lender funding programs, we purchase 

whole loans or pools of loans on an accelerated basis, allowing lenders to receive quicker payment for the whole 

loans and pools, which replenishes their funds and allows them to originate more mortgage loans.

• REMICs and Other Structured Securitizations. We issue structured Fannie Mae MBS (including REMICs), typically 

for our lender customers or securities dealer customers, in exchange for a transaction fee.

• MBS Trading. We regularly enter into purchase and sale transactions with other market participants 

involving mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae, which we refer to as 

“agency MBS.” These transactions can provide for the future delivery of mortgage-backed securities with 

underlying single-family loans that share certain general characteristics (often referred to as the “TBA

market”). These purchase and sale transactions also can provide for the future delivery of specifically identified 

mortgage-backed securities with underlying loans that have other characteristics considered desirable by some 

investors (often referred to as the “Specified Pools market”). Through our trading activity in the TBA and Specified 

Pools markets, we provide significant liquidity to the agency MBS markets.

Securitization Activities 

Our Capital Markets group is engaged in issuing both single-class and multi-class Fannie Mae MBS through both portfolio 

securitizations and structured securitizations involving third party assets.
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• Portfolio securitizations. Our Capital Markets group creates single-class and multi-class Fannie Mae MBS from 

mortgage-related assets held in our mortgage portfolio. Our Capital Markets group may sell these Fannie Mae MBS 

into the secondary market or may retain the Fannie Mae MBS in our investment portfolio.

• Structured securitizations: Our Capital Markets group creates single-class and multi-class structured Fannie Mae 

MBS, typically for our lender customers or securities dealer customers, in exchange for a transaction fee. In these 

transactions, the customer “swaps” a mortgage-related asset that it owns (typically a mortgage security) in exchange 

for a structured Fannie Mae MBS we issue. Our Capital Markets group earns transaction fees for creating structured 

Fannie Mae MBS for third parties. The process for issuing Fannie Mae MBS in a structured securitization is similar 

to the process involved in our lender swap securitizations. For more information about that process and how it 

differs from portfolio securitizations, see “Mortgage Securitizations—Lender Swaps and Portfolio Securitizations.”

For a description of single-class Fannie Mae MBS, see “Mortgage Securitizations—Single-Class and Multi-Class Fannie 

Mae MBS.”

Other Customer Services 

Our Capital Markets group provides our lender customers with services that include offering to purchase a wide variety of 

mortgage assets, including non-standard mortgage loan products; segregating customer portfolios to obtain optimal pricing 

for their mortgage loans; and assisting customers with hedging their mortgage business. These activities provide a significant 

flow of assets for our mortgage portfolio, help to create a broader market for our customers and enhance liquidity in the 

secondary mortgage market.

Mortgage Asset Portfolio 

Although our Capital Markets group’s business activities are focused on short-term financing and investing, revenue from our 

Capital Markets group is derived primarily from the difference, or spread, between the interest we earn on our mortgage and 

non-mortgage investments and the interest we incur on the debt we issue to fund these assets. Our Capital Markets revenues 

are primarily derived from our mortgage asset portfolio. Over time, we expect these revenues to decrease as the maximum 

allowable amount of mortgage assets we may own decreases each year to 85% of the amount we were permitted to own the 

previous year under our senior preferred stock purchase agreement with Treasury. See “Conservatorship and Treasury 

Agreements—Treasury Agreements—Covenants under Treasury Agreements” for more information on the decreasing limits 

on the amount of mortgage assets we are permitted to hold.

We describe the interest rate risk management process employed by our Capital Markets group, including its key strategies in 

managing interest rate risk and key metrics used in measuring and evaluating our interest rate risk, in “MD&A—Risk 

Management—Market Risk Management, Including Interest Rate Risk Management.”

Investment and Financing Activities 

Our Capital Markets group seeks to increase the liquidity of the mortgage market by maintaining a presence as an active 

investor in mortgage loans and mortgage-related securities and, in particular, supports the liquidity and value of Fannie Mae 

MBS in a variety of market conditions.

Our Capital Markets group funds its investments primarily through the issuance of a variety of debt securities in a wide range 

of maturities in the domestic and international capital markets. The most active investors in our debt securities include 

commercial bank portfolios and trust departments, investment fund managers, insurance companies, pension funds, state and 

local governments, and central banks. The approved dealers for underwriting various types of Fannie Mae debt securities may 

differ by funding program. See “MD&A—Liquidity and Capital Management—Liquidity Management” for information on 

the composition of our outstanding debt and a discussion of our liquidity and debt activity.

Our Capital Markets group’s investment and financing activities are affected by market conditions and the target rates of 

return that we expect to earn on the equity capital underlying our investments. Our investment activities also are subject to 

contractual limitations, including the provisions of the senior preferred stock purchase agreement with Treasury, capital 

requirements (although our regulator has announced that these are not binding on us during conservatorship) and other 

regulatory constraints, to the extent described below under “Conservatorship and Treasury Agreements” and “Our Charter 

and Regulation of Our Activities.”
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CONSERVATORSHIP AND TREASURY AGREEMENTS

Conservatorship 

On September 6, 2008, the Director of FHFA appointed FHFA as our conservator, pursuant to its authority under the Federal 

Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Federal Housing Finance Regulatory 

Reform Act of 2008, or 2008 Reform Act (together, the “GSE Act”). 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 and there continues to be uncertainty regarding the future of our 

company, including how long the company will continue to exist in its current form, the extent of our role in the market, what 

form we will have, and what ownership interest, if any, our current common and preferred stockholders will hold in us after 

the conservatorship is terminated. For 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 stock, see “Risk Factors.”

Management of the Company during Conservatorship 

Upon its appointment, the conservator immediately succeeded to (1) 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, and (2) title to the books, 

records and assets of any other legal custodian of Fannie Mae. The conservator subsequently delegated specified authorities 

to our Board of Directors and delegated to management the authority to conduct our day-to-day operations. In connection 

with its delegation of authority, in November 2008 FHFA instructed the Board to consult with and obtain FHFA’s approval 

before taking action in certain specified areas. In November 2012, FHFA revised and replaced these instructions, increasing 

the number of matters that require conservator approval before we may take action. Management must consult with and 

obtain the written approval of the conservator before taking action in any of the areas specified in “Directors, Executive 

Officers and Corporate Governance—Corporate Governance—Conservatorship and Delegation of Authority to Board of 

Directors.” The conservator retains the authority to amend or withdraw its delegations at any time. 

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 do not have any 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. In addition, the 

conservator directed the Board to consult with and obtain the approval of the conservator before taking action in specified 

areas, as described in “Directors, Executive Officers and Corporate Governance—Corporate Governance—Conservatorship 

and Delegation of Authority to Board of Directors.”

Because we are in conservatorship, our common shareholders 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, and we are no longer managed with a strategy to maximize 

shareholder returns. For additional information about our business strategy and the goals of the conservatorship, see 

“Executive Summary—Our Business Objectives and Strategy” and “—Helping to Build a New Housing Finance System.”

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. The GSE Act provides, however, that 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. As of April 2, 2013, FHFA has not exercised its power to 

transfer or sell our assets or liabilities. For more information on FHFA’s powers as conservator and the rules governing 

conservatorship and receivership operations for the GSEs, see “Our Charter and Regulation of Our Activities—Regulation 

and Oversight of Our Activities—Receivership.”

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.

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, in either 

case, for a period of 60 days. In addition, the Director of FHFA may place us in receivership at his discretion at any time for 
27

other reasons, including conditions that FHFA has already asserted existed at the time the Director of FHFA placed us into 

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

stock, debt securities and Fannie Mae MBS. Should we be placed into receivership, different assumptions would be required 

to determine the carrying value of our assets, which could lead to substantially different financial results. For more 

information on the risks to our business relating to conservatorship and uncertainties regarding the future of our business, see 

“Risk Factors.”

Treasury Agreements 

On September 7, 2008, we, through FHFA, in its capacity as conservator, and Treasury entered into a senior preferred stock 

purchase agreement, which was subsequently amended on September 26, 2008, May 6, 2009, December 24, 2009 and 

August 17, 2012. Unless the context indicates otherwise, references in this report to the senior preferred stock purchase 

agreement refer to the agreement as amended through August 17, 2012. The terms of the senior preferred stock purchase 

agreement, senior preferred stock and the warrant discussed below will continue to apply to us even if we are released from 

the conservatorship. See “Risk Factors” for a description of the risks to our business relating to the Treasury agreements, 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.

August 2012 Amendment to Senior Preferred Stock Purchase Agreement with Treasury

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

preferred stock in the following ways:

• Dividends. The method for calculating the amount of dividends we are required to pay Treasury on the senior 

preferred stock was changed, as described more fully below in “Senior Preferred Stock Purchase Agreement and 

Related Issuance of Senior Preferred Stock and Common Stock Warrant—Senior Preferred Stock.” 

• Periodic Commitment Fee. A periodic commitment fee provided for under the agreement was suspended, as long as 

the changes to the dividend payment provisions referenced above remain in effect. 

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

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

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

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

ordinary course of business.

• Mortgage Assets Covenant. The mortgage assets covenant contained in the agreement was amended to accelerate the 

reduction of our mortgage asset portfolio, decreasing our mortgage asset cap to $250 billion by 2018, rather than by 

2022. Limits on the amount of mortgage assets we may own are described in “Covenants under Treasury 

Agreements—Mortgage Asset Limit.”

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

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

more fully below. We submitted our risk management plan to Treasury in December 2012.

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

stated that the modifications will help achieve several important objectives, including:

• making sure that every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit 

taxpayers for their investment in those firms;

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

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

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

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

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

and

• providing greater market certainty regarding the financial strength of the GSEs.
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Senior Preferred Stock Purchase Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant 

Senior Preferred Stock Purchase Agreement 

Under the senior preferred stock purchase agreement, we issued to Treasury (a) one million shares of Variable Liquidation 

Preference Senior Preferred Stock, Series 2008-2, which we refer to as the “senior preferred stock,” and (b) a warrant to 

purchase, for a nominal price, 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, which we refer to as the “warrant.”

The senior preferred stock and 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. The senior preferred stock purchase agreement provides that, on a quarterly basis, we generally 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 GAAP, for the applicable fiscal quarter (referred to as the “deficiency amount”).

In December 2009, the maximum amount of Treasury’s funding commitment to us under the senior preferred stock purchase 

agreement was increased pursuant to an amendment to the agreement. The amendment provided that the $200 billion

maximum amount of the commitment from Treasury would increase as necessary to accommodate any net worth deficiencies 

attributable to periods during 2010, 2011 and 2012. The amendment further provided that to the extent we had a positive net 

worth as of December 31, 2012, the maximum amount of funding available to us after 2012 would depend on the size of that 

positive net worth relative to our cumulative draws for net worth deficiencies attributable to periods during 2010, 2011 and 

2012, as follows: 

• If our positive net worth as of December 31, 2012 was less than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011 and 2012, then the amount of available funding would have been $124.8 

billion less our positive net worth as of December 31, 2012. 

• If our positive net worth as of December 31, 2012 was greater than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011 and 2012, then the amount of available funding would have been $124.8 

billion less the cumulative draws attributable to periods during 2010, 2011 and 2012. 

Because our $7.2 billion positive net worth as of December 31, 2012 was less than our $40.9 billion in cumulative draws 

attributable to periods during 2010, 2011 and 2012, the amount of remaining available funding under the senior preferred 

stock purchase agreement is $117.6 billion. 

In announcing the December 24, 2009 amendments to the senior preferred stock purchase agreement and to Treasury’s 

preferred stock purchase agreement with Freddie Mac, Treasury noted that the amendments “should leave no uncertainty 

about the Treasury’s commitment to support [Fannie Mae and Freddie Mac] as they continue to play a vital role in the 

housing market during this current crisis.” 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. 

We were scheduled to begin paying a quarterly commitment fee to Treasury under the senior preferred stock purchase 

agreement on March 31, 2011; however, Treasury waived the quarterly commitment fee for each quarter of 2012 and 2011. 

Effective January 1, 2013, the periodic commitment fee provided for under the agreement was suspended, as long as the 

changes to the dividend payment provisions added to the senior preferred stock purchase agreement in August 2012 remain in 

effect.

The senior preferred stock purchase agreement provides that the Treasury’s funding commitment will terminate under any of 

the following circumstances: (1) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding 

commitment at that time, (2) the payment in full of, or reasonable provision for, all of our liabilities (whether or not 

contingent, including mortgage guaranty obligations), or (3) the 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 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 conservator’s 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.

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; however, no waiver or amendment of the agreement is permitted that would decrease 

Treasury’s aggregate funding commitment or add conditions to Treasury’s 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.

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 
29

in respect of that failure, the holders of our debt securities or Fannie Mae MBS may file a claim in the United States Court of 

Federal Claims for relief requiring Treasury to fund to us the lesser of (1) the amount necessary to cure the payment defaults 

on our debt and Fannie Mae MBS and (2) the lesser of (a) the deficiency amount and (b) the maximum amount that may be 

funded under the agreement less the aggregate amount of funding previously provided under the commitment. Any payment 

that Treasury makes under those circumstances will be treated for all purposes as a draw under the senior preferred stock 

purchase agreement that will increase the liquidation preference of the senior preferred stock.

Senior Preferred Stock 

Pursuant to the senior preferred stock purchase agreement, we issued one million shares of senior preferred stock to Treasury 

on September 8, 2008 with an aggregate initial liquidation preference of $1.0 billion. The stock’s liquidation preference is 

subject to adjustment. For any dividend period for which dividends are payable, to the extent that dividends are not paid in 

cash they will accrue and be added to the liquidation preference. In addition, any amounts Treasury pays to us pursuant to its 

funding commitment under the senior preferred stock purchase agreement and any quarterly commitment fees that are either 

not paid in cash to Treasury or not waived by Treasury will be added to the liquidation preference. Accordingly, the aggregate 

liquidation preference of the senior preferred stock was $117.1 billion as of December 31, 2012.

Treasury, as holder of the senior preferred stock, is entitled to receive, when, as and if declared by our Board of Directors, out 

of legally available funds, cumulative quarterly cash dividends. Beginning in 2013, the method for calculating the amount of 

dividends for each quarter was changed from an annual rate of 10% per year on the then-current liquidation preference of the 

senior preferred stock to an amount determined based on our net worth as of the end of the immediately preceding fiscal 

quarter. Our net worth as defined by the agreement is the amount, if any, by which our total assets (excluding Treasury’s 

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

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

each dividend period from January 1, 2013 through and including December 31, 2017, the dividend amount will be the 

amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds an applicable capital 

reserve amount. The capital reserve amount will be $3.0 billion during 2013 and will be reduced by $600 million each year 

until it reaches zero on January 1, 2018. For each dividend period beginning in 2018, the dividend amount will be the entire 

amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter. As a result of these dividend 

payment provisions, when we have quarterly earnings that result in a net worth greater than the applicable capital reserve 

amount, we will pay dividends to Treasury in the next quarter; but if our net worth does not exceed the applicable capital 

reserve amount as of the end of a quarter, then we will not be required to accrue or pay any dividends in the next quarter. See 

“Risk Factors” for a discussion of the risks relating to our dividend obligations to Treasury on the senior preferred stock.

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. 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) 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 (2) 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. 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 Treasury’s funding commitment under 

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

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

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

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

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

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

below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s 

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

time, in whole or in part.
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Common Stock Warrant 

Pursuant to the senior preferred stock purchase agreement, on September 7, 2008, we, through FHFA, in its capacity as 

conservator, 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 our common stock outstanding on a fully diluted basis 

on the date of exercise, 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 September 7, 2028.

Covenants under Treasury Agreements 

The senior preferred stock purchase agreement and warrant contain covenants that significantly restrict our business activities 

and require the prior written consent of Treasury before we can take certain actions. These covenants prohibit us from taking 

a number of actions, including:

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

or warrant);

• issuing additional equity securities (except in limited instances);

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

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

practice or in one transaction or a series of related transactions if the assets have a fair market value individually or 

in the aggregate of less than $250 million;

• issuing subordinated debt; and

• entering into any new compensation arrangements or increasing amounts or benefits payable under existing 

compensation arrangements for any of our executive officers (as defined by rules of the Securities and Exchange 

Commission (the “SEC”)) without the consent of the Director of FHFA, in consultation with the Secretary of the 

Treasury.

We also are subject to limits, which are described below, on the amount of mortgage assets that we may own and the total 

amount of our indebtedness. As a result, we can no longer obtain additional equity financing (other than pursuant to the 

senior preferred stock purchase agreement) and we are limited in the amount and type of debt financing we may obtain.

• Mortgage Asset Limit. We are restricted in the amount of mortgage assets that we may own. The maximum 

allowable amount was reduced to $650 billion on December 31, 2012. In the absence of the August 2012 

amendment to the senior preferred stock purchase agreement, the amount would have been reduced to $656.1 

billion. Based on the senior preferred stock purchase agreement’s definition of mortgage asset, our mortgage assets 

on December 31, 2012 were $633.1 billion. On each December 31 thereafter, we are required to reduce our 

mortgage assets to 85% of the maximum allowable amount that we were permitted to own as of December 31 of the 

immediately preceding calendar year (rather than 90% as provided by the agreement prior to its August 2012 

amendment), until the amount of our mortgage assets reaches $250 billion. Accordingly, the maximum allowable 

amount of mortgage assets we may own on December 31, 2013 is $552.5 billion. For purposes of the agreement, the 

definition of mortgage asset is based on the unpaid principal balance of such assets and does not reflect market 

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

of our consolidation of variable interest entities. We disclose the amount of our mortgage assets on a monthly basis 

under the caption “Gross Mortgage Portfolio” in our Monthly Summaries, which are available on our Web site and 

announced in a press release.

• Debt Limit. We are subject to a limit on the amount of our indebtedness. Our debt limit in 2012 was $874.8 billion

and in 2013 is $780.0 billion. For every year thereafter, our debt cap will equal 120% of the amount of mortgage 

assets we are allowed to own on December 31 of the immediately preceding calendar year. The definition of 

indebtedness for purposes of our debt cap is based on the par value of each applicable loan and does not reflect the 

impact of consolidation of variable interest entities. Under this definition, our indebtedness as of December 31, 2012 

was $621.8 billion. We disclose the amount of our indebtedness on a monthly basis under the caption “Total Debt 

Outstanding” in our Monthly Summaries, which are available on our Web site and announced in a press release. 

Annual Risk Management Plan Covenant. We are required to provide an annual risk management plan to Treasury not later 

than December 15 of each year we remain in conservatorship, beginning in 2012. Each annual risk management plan is 

required to set out our strategy for reducing our risk profile and to describe the actions we will take to reduce the financial 

and operational risk associated with each of our business segments. Each plan delivered after the first plan must include an 

assessment of our performance against the planned actions described in the prior year’s plan.
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LEGISLATIVE AND REGULATORY DEVELOPMENTS

GSE Reform

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

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

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

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

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

In February 2011, the Administration released a white paper on the future of housing finance reform. The report provides that 

the Administration will work with FHFA to determine the best way to responsibly reduce Fannie Mae’s and Freddie Mac’s 

role in the market and ultimately wind down both institutions.

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

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

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

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

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

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

consistent with Treasury’s senior preferred stock purchase agreements with the companies. In addition, the report outlines 

three potential options for a new long-term structure for the housing finance system following the wind-down of Fannie Mae 

and Freddie Mac. The first option would privatize housing finance almost entirely. The second option would add a 

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

offering catastrophic reinsurance behind private mortgage guarantors. 

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

to housing finance reform, including a transition plan for Fannie Mae and Freddie Mac, and to work with congressional 

leaders to explore options for legislation. As of the date of this filing, no further details have been released.

Also in early 2012, the Acting Director of FHFA provided a strategic plan for Fannie Mae and Freddie Mac’s 

conservatorships. On March 4, 2013, the Acting Director of FHFA released the 2013 Conservatorship Scorecard for Fannie 

Mae and Freddie Mac, which details specific priorities that build upon the goals in the strategic plan. At that time, FHFA

announced that, to further the goal of building a common securitization platform that would be able to function like a market 

utility, a new business entity will be established by Fannie Mae and Freddie Mac that will be separate from the two 

companies. The new business entity will be designed to operate as a replacement for some of Fannie Mae and Freddie Mac’s 

legacy infrastructure. The scorecard also established priorities relating to the goal that we contract our dominant presence in 

the marketplace. In support of this goal, FHFA set as goals that we (1) demonstrate the viability of multiple types of risk 

transfer transactions involving single-family mortgages with at least $30 billion of unpaid principal balances in 2013 and 

(2) reduce the unpaid principal balance of new multifamily business relative to 2012 by at least 10% by tightening 

underwriting, adjusting pricing and limiting product offerings, while not increasing the proportion of our retained risk.

During the last congressional session, several bills were introduced in the House of Representatives and the Senate to reform 

the housing finance system. These bills would have placed the GSEs into receivership after a period of time and either 

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

secondary mortgage market activities to entities in the private sector. 

In addition, numerous bills were referred to the Committee on Financial Services of the House of Representatives on discrete 

topics related to the activities and operations of the enterprises. Of these bills, only legislation that would have placed GSE 

employees on a government pay scale was approved by the full Committee. 

Congress passed two bills that were signed into law relating to GSE operations or activities. These bills increased the 

guaranty fees of the GSEs in order to offset the cost of a two month extension of the payroll tax cut in 2012 and prohibited 

the payment of bonuses to senior executives at the GSEs during conservatorship. In addition, the House, but not the Senate, 

passed legislation that would have placed GSE obligations on the federal budget and made them subject to the debt ceiling, as 

well as required receipts and disbursements of the GSEs to be counted in the federal budget. For legislation to be considered 

in the congressional session that convened in January 2013 and runs through 2014, the legislation must be reintroduced and 

begin the legislation process again. 
32

We expect Congress to continue consideration of housing finance reform in the current congressional session, including 

hearings on GSE reform and the consideration of legislation that may alter the housing finance reform system or the activities 

or operations of the GSEs. 

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

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

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

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

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

Financial Regulatory Reform Legislation: The Dodd-Frank Act 

The Dodd-Frank Act is significantly changing the regulation of the financial services industry, resulting in new standards 

related to regulatory oversight of systemically important financial companies, derivatives transactions, asset-backed 

securitization, mortgage underwriting and consumer financial protection. The Dodd-Frank Act has affected and will continue 

to directly affect our business through new and expanded regulatory oversight and standards that apply or will apply to us. 

We may also be affected by provisions of the Dodd-Frank Act and implementing regulations that impact the activities of our 

customers and counterparties in the financial services industry. Extensive regulatory guidance is still needed to implement 

and clarify many of the provisions of the Dodd-Frank Act and regulators have not completed many of the required 

administrative processes, which has created uncertainty for industry participants in some areas. It is therefore difficult to 

assess fully the impact of this legislation on our business and industry at this time. We discuss the potential risks to our 

business resulting from the Dodd-Frank Act in “Risk Factors.” Below we summarize some key provisions of the legislation, 

as well as some rules that have been proposed by various government agencies to implement provisions of the Dodd-Frank 

Act. We are currently evaluating these proposed rules and how they may impact our business and the housing finance 

industry. 

Enhanced supervision and prudential standards. The Dodd-Frank Act established the Financial Stability Oversight Council 

(the “FSOC”), chaired by the Secretary of the Treasury, to ensure that all financial companies whose failure could pose a 

threat to the financial stability of the United States—not just banks—will be subject to strong oversight. Under the DoddFrank Act, the FSOC is responsible for designating systemically important nonbank financial companies, while the Federal 

Reserve is responsible for establishing stricter prudential standards that will apply to certain bank holding companies and to 

FSOC-designated systemically important nonbank financial companies. The Federal Reserve must establish standards related 

to risk-based capital, leverage limits, liquidity, credit concentrations, resolution plans, reporting credit exposures and other 

risk management measures. On December 20, 2011, the Board of Governors of the Federal Reserve System issued proposed 

rules addressing a number of these enhanced prudential standards. The Federal Reserve may also impose other standards 

related to contingent capital, enhanced public disclosure, short-term debt limits and other requirements as appropriate. 

In April 2012, the FSOC adopted a three-step analysis process to determine whether a non-bank financial institution should 

be designated as a systemically important financial institution and thereby subject to Federal Reserve supervision. The 

process includes an opportunity for a company that could be designated as a systemically important financial institution to 

submit written materials to the FSOC related to its potential designation. In making its determinations, factors the FSOC may 

consider include: company size, leverage, interconnectedness, liquidity risk, maturity mismatch, importance to the economic 

system and the extent to which a company is already regulated. 

Depending on the scope and final form of the Federal Reserve’s enhanced standards, and the extent to which they apply to us 

if we are designated by the FSOC as a systemically important nonbank financial company, or to our customers and other 

counterparties, their adoption and application could increase our costs, pose operational challenges and adversely affect 

demand for Fannie Mae debt and MBS. We have not received any notification of possible designation as a systemically 

important financial institution. 

In addition to changes that directly result from the Dodd-Frank Act, the capital and liquidity regimes for the banking industry 

are also undergoing changes as a result of actions by international bank regulators. The Basel Committee on Banking 

Supervision issued a set of revisions (known as Basel III) to the international capital requirements in December 2010. 

Whereas the existing Basel II standards revised the risk-weighting process for assets, Basel III, which complements Basel II, 

generally narrowed the definition of capital that can be used to meet risk-based standards and raised the amount of capital 

that must be held. Basel III also introduced international liquidity requirements for the first time. The international Basel 

standards require adoption by the domestic bank regulatory authorities before they become operative in the United States. 

Typically U.S. bank regulatory authorities adopt Basel standards with adjustments that take into account U.S. banking law 

and other relevant considerations.
33

Minimum Capital and Margin Requirements; Swap Transactions. The Commodity Futures Trading Commission (the 

“CFTC”) and the SEC issued a joint final rule in May 2012 that, among other items, established the definitions of “swap 

dealer,” “security-based swap dealer,” “major swap participant” and “major security-based swap participant” under the DoddFrank Act. Institutions that meet one of these definitions are required to register with either the CFTC or the SEC, as 

applicable, and are subject to significant additional regulations. In addition, in August 2012, the CFTC and SEC issued a joint 

final rule that, among other items, defines “swap” and “security-based swap.”

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

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

register with the CFTC or the SEC. Nevertheless, because we are a user of interest rate swaps, the Dodd-Frank Act requires 

us, among other items, to submit new swap transactions for clearing to a derivatives clearing organization. Additionally, the 

Federal Reserve Board, the Federal Deposit Insurance Corporation (the “FDIC”), FHFA, the Farm Credit Administration and 

the Office of the Comptroller of the Currency have proposed rules under the Dodd-Frank Act governing margin and capital 

requirements applicable to entities that are subject to their oversight. These proposed rules would require that, for all trades 

that have not been submitted to a derivatives clearing organization, we collect from and provide to our counterparties 

collateral in excess of the amounts we have historically collected or provided.

Ability to Repay. The Dodd-Frank Act requires creditors to determine that borrowers have a “reasonable ability to repay” 

mortgage loans prior to making such loans. On January 10, 2013, the Consumer Financial Protection Bureau (the “CFPB”) 

issued a final rule pursuant to the Dodd-Frank Act that, among others things, requires creditors to determine a borrower’s 

“ability to repay” a mortgage loan under Regulation Z, which implements the Truth in Lending Act. If a creditor fails to 

comply, a borrower may be able to offset amounts owed in a foreclosure proceeding or recoup monetary damages. The rule 

offers several options for complying with the ability to repay requirement, including making loans that meet certain terms and 

characteristics (so-called “qualified mortgages”), which may provide creditors with special protection from liability. While 

Fannie Mae and Freddie Mac remain in conservatorship or, if earlier, until January 10, 2021, a loan will generally be a 

qualified mortgage under the rule if, among other things, (1) the points and fees paid in connection with the loan do not 

exceed 3% of the total loan amount, (2) the loan term does not exceed 30 years, (3) the loan is fully amortizing with no 

negative amortization, interest-only or balloon features and (4) the loan conforms to the standards set forth in Fannie Mae’s 

or Freddie Mac’s single-family selling guides or is determined to be eligible for purchase by Fannie Mae’s or Freddie Mac’s 

automated underwriting system. There are comparable provisions for loans insured or guaranteed by FHA, the VA or the 

Department of Agriculture. A loan that is not eligible for sale to a GSE pursuant to its selling guide or automated 

underwriting system can still be a qualified mortgage if it meets the other criteria listed above, the debt-to-income ratio on the 

loan does not exceed 43% using the maximum interest rate applicable in the first five years of the loan, taking into account 

all-mortgage related obligations, and the borrower’s income and assets are verified in accordance with the method prescribed 

in the rule. The rule is scheduled to become effective January 10, 2014. However, there is some uncertainty regarding the 

timing and final provisions of the rule as a result of legal challenges to the appointment of the CFPB’s director. We are 

currently evaluating the potential impact of the rule and the uncertainty surrounding its adoption on our business.

Risk Retention. The Dodd-Frank Act requires financial regulators to jointly prescribe regulations requiring securitizers and/or 

originators to maintain a portion of the credit risk in assets transferred, sold or conveyed through the issuance of asset-backed 

securities, with certain exceptions. On March 29, 2011, the Office of the Comptroller of the Currency, the Federal Reserve 

System, the FDIC, the SEC, FHFA and HUD issued a joint proposed rule implementing these risk retention requirements. 

Under the proposed rule, securitizers would be required to retain at least 5% of the credit risk with respect to the assets they 

securitize. The proposed rule offers several options for compliance by parties with assets to securitize, one of which is to have 

either Fannie Mae or Freddie Mac securitize the assets. As long as Fannie Mae or Freddie Mac (1) fully guarantees the assets, 

thereby taking on 100% of their credit risk, and (2) is in conservatorship or receivership at the time the assets are securitized, 

no further retention of credit risk is required. Certain mortgage loans meeting the definition of a “Qualified Residential 

Mortgage” are exempt from the requirements of the rule. Only mortgage loans that are first-lien mortgages on primary 

residences with loan-to-value ratios not exceeding 80% (75% for refinancings and 70% for cash-out refinancings) and that 

meet certain other underwriting requirements, would meet the definition of “Qualified Residential Mortgage” under the 

proposal. 

Changes to Our Single-Family Guaranty Fee Pricing and Revenue 

At the direction of FHFA, effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages 

delivered to us by 10 basis points. This fee increase was required by the TCCA and helps offset the cost of a two-month 

extension of the payroll tax cut from January 1, 2012 through February 29, 2012. FHFA and Treasury have 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 
34

before this date until those loans are paid off or otherwise liquidated. As of December 31, 2012, we paid $104 million to 

Treasury for our obligations through September 30, 2012 under the TCCA.

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

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

loans exchanged for Fannie Mae MBS. These changes to guaranty fee pricing represent a step toward encouraging greater 

participation in the mortgage market by private firms, which is one of the goals set forth in FHFA’s strategic plan for Fannie 

Mae’s and Freddie Mac’s conservatorships. This increase also reduced the cross subsidy that existed between certain higherrisk and lower-risk mortgage types by increasing guaranty fees on loans with maturities longer than 15 years by more than 

guaranty fees were increased on shorter-maturity loans.

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

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

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

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

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

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

guaranty fees. FHFA is currently in the process of evaluating comment letters received from the public and has not made a 

final determination on this rule. 

We expect our future guaranty fees will incorporate private sector pricing considerations such as pricing indicative of higher 

required minimum capital levels, and more significant pricing differentiation between higher-risk and lower-risk loans. These 

changes would be in addition to the other increases discussed above, although we do not know the timing, form or extent of 

all of these changes. 

New Servicer Requirements for Default-Related Legal Services In Lieu of Retained Attorney Network 

In November 2012, we announced new servicer requirements with respect to default-related legal services for our loans. 

These new requirements were developed in conjunction with FHFA and Freddie Mac, through FHFA’s Servicing Alignment 

Initiative, in response to FHFA’s October 2011 directive to phase out the practice of requiring mortgage servicers to use our 

network of retained attorneys to perform default- and foreclosure-related legal services for our loans. The new requirements 

become effective for our mortgage servicers in June 2013. During the transitional period, servicers will continue to be 

directly responsible for managing the foreclosure process and monitoring network firm performance in accordance with our 

current requirements and contractual arrangements. 

Principal Forgiveness

In July 2012, the Acting Director of FHFA announced FHFA’s decision not to direct Fannie Mae and Freddie Mac to 

participate in the Principal Reduction Alternative feature of Treasury’s Home Affordable Modification Program (“HAMP”). 

Based on its analysis, FHFA concluded that the economic benefit of participating in that program does not outweigh the costs 

and risks. 

FHFAAdvisory Bulletin Regarding Framework for Adversely Classifying Loans

On April 9, 2012, FHFA issued an Advisory Bulletin, “Framework for Adversely Classifying Loans, Other Real Estate 

Owned, and Other Assets and Listing Assets for Special Mention,” which was effective upon issuance and is applicable to 

Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Advisory Bulletin establishes guidelines for adverse 

classification and identification of specified single-family and multifamily assets and off-balance sheet credit exposures. The 

Advisory Bulletin indicates that this guidance considers and is generally consistent with the Uniform Retail Credit 

Classification and Account Management Policy issued by the federal banking regulators in June 2000.

Among other requirements, the Advisory Bulletin requires that we classify the portion of an outstanding single-family loan 

balance in excess of the fair value of the underlying property, less costs to sell, as “loss” when the loan is no more than 180 

days delinquent, except in certain specified circumstances (such as properly secured loans with an LTV ratio equal to or less 

than 60%), and charge off the portion of the loan classified as “loss.” The Advisory Bulletin also specifies that, if we 

subsequently receive full or partial payment of a previously charged-off loan, we may report a recovery of the amount, either 

through our loss reserves or as a reduction in our foreclosed property expenses.

The accounting methods outlined in FHFA’s Advisory Bulletin are different from our current methods of accounting for 

single-family loans that are 180 days or more delinquent. As described in “Risk Factors,” we believe that implementation of 

these changes in our accounting methods present significant operational challenges for us. We have agreed with FHFA that 

(1) effective January 1, 2014, we will implement the Advisory Bulletin’s requirements related to classification, and 
35

(2) effective January 1, 2015, we will implement an updated accounting policy related to charging-off delinquent loans. We 

are currently assessing the impact of implementing these accounting changes on our future financial results.

For information on additional regulatory matters affecting us, refer to “Our Charter and Regulation of Our Activities.” For a 

discussion of risks relating to legislative and regulatory matters, see “Risk Factors.”

OUR CHARTER AND REGULATION OF OUR ACTIVITIES

Charter Act 

We are a shareholder-owned corporation, originally established in 1938, organized and existing under the Federal National 

Mortgage Association Charter Act, as amended, which we refer to as the Charter Act or our charter. The Charter Act sets forth 

the activities that we are permitted to conduct, authorizes us to issue debt and equity securities, and describes our general 

corporate powers. The Charter Act states that our purposes are to:

• provide stability in the secondary market for residential mortgages;

• respond appropriately to the private capital market;

• 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; and

• 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.

It is from these sections of the Charter Act that we derive our mission of providing liquidity, increasing stability and 

promoting affordability in the residential mortgage market. In addition to the alignment of our overall strategy with these 

purposes, all of our business activities must be permissible under the Charter Act. Our charter authorizes us to: purchase, 

service, sell, lend on the security of, and otherwise deal in certain mortgage loans; issue debt obligations and mortgagerelated securities; and “do all things as are necessary or incidental to the proper management of [our] affairs and the proper 

conduct of [our] business.”

Loan Standards 

Mortgage loans we purchase or securitize must meet the following standards required by the Charter Act. 

• Principal Balance Limitations. Our charter permits us to purchase and securitize mortgage loans secured by either a 

single-family or multifamily property. Single-family conventional mortgage loans are subject to maximum original 

principal balance limits, known as “conforming loan limits.” The conforming loan limits are established each year 

based on the average prices of one-family residences.

The national conforming loan limit for mortgages that finance one-family residences is $417,000 in 2013, as it was in 

2010 through 2012, with higher limits for mortgages secured by two- to four-family residences and in four statutorilydesignated states and territories (Alaska, Hawaii, Guam and the U.S. Virgin Islands). Higher loan limits also apply in 

high-cost areas (counties or county-equivalent areas) that are designated by FHFA annually. Our charter sets permanent 

loan limits for high-cost areas up to 150% of the national loan limit ($625,500 for a one-family residence; higher for 

two- to four-family residences and in the four statutorily-designated states and territories). 

No statutory limits apply to the maximum original principal balance of multifamily mortgage loans that we purchase or 

securitize. In addition, the Charter Act imposes no maximum original principal balance limits on loans we purchase or 

securitize that are insured by FHA or guaranteed by the VA.

• Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit enhancement on any 

single-family conventional mortgage loan that we purchase or securitize if it has a loan-to-value ratio over 80% at the 

time of purchase. We also do not purchase or securitize second lien single-family mortgage loans when the combined 

loan-to-value ratio exceeds 80%, unless the second lien mortgage loan has credit enhancement in accordance with the 

requirements of the Charter Act. The credit enhancement required by our charter may take the form of one or more of 

the following: (1) insurance or a guaranty by a qualified insurer of the over-80% portion of the unpaid principal balance 

of the mortgage; (2) a seller’s agreement to repurchase or replace the mortgage in the event of default (for such period 

and under such circumstances as we may require); or (3) retention by the seller of at least a 10% participation interest 
36

in the mortgage. Regardless of loan-to-value 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.

Authority of U.S. Treasury to Purchase GSE Securities 

Pursuant to our charter, at the discretion of the Secretary of the Treasury, Treasury may purchase our obligations up to a 

maximum of $2.25 billion outstanding at any one time. Treasury temporarily received expanded authority, which expired on 

December 31, 2009, to purchase our obligations and other securities in unlimited amounts (up to the national debt limit) 

under the 2008 Reform Act. We describe Treasury’s investment in our senior preferred stock and a common stock warrant 

pursuant to this expanded temporary authority under “Conservatorship and Treasury Agreements—Treasury Agreements.”

Other Charter Act Provisions 

The Charter Act has the following additional provisions.

• Issuances of Our Securities. We are authorized, upon the approval of the Secretary of the Treasury, to issue debt 

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

or indirectly, our debt or mortgage-related securities.

• Exemptions for Our Securities. The Charter Act generally provides that our securities are exempt under the federal 

securities laws administered by the SEC. As a result, we are not required to file registration statements with the SEC 

under the Securities Act of 1933 with respect to offerings of any of our securities. Our non-equity securities are also 

exempt securities under the Securities Exchange Act of 1934 (the “Exchange Act”). However, our equity securities 

are not treated as exempted securities for purposes of Sections 12, 13, 14 or 16 of the Exchange Act. 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.

• Exemption from Specified Taxes. Fannie 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.

• Other Limitations and Requirements. We 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. In 

addition, we may only purchase or securitize mortgages on properties located in the United States and its territories.

Regulation and Oversight of Our Activities 

As a federally chartered corporation, we are subject to government regulation and oversight. FHFA is an independent agency 

of the federal government with general supervisory and regulatory authority over Fannie Mae, Freddie Mac and the 12 

Federal Home Loan Banks (“FHLBs”). FHFA was established in July 2008, assuming the duties of our former safety and 

soundness regulator, the Office of Federal Housing Enterprise Oversight (“OFHEO”), and our former mission regulator, 

HUD. HUD remains our regulator with respect to fair lending matters. Our regulators also include the SEC and Treasury.

The GSE Act provides FHFA with safety and soundness authority that is comparable to and in some respects broader than 

that of the federal banking agencies. Even if we were not in conservatorship, the GSE Act gives FHFA the authority to raise 

capital levels above statutory minimum levels, regulate the size and content of our portfolio and approve new mortgage 

products, among other things.

FHFA is responsible for implementing the various provisions of the GSE Act. In general, we remain subject to existing 

regulations, orders and determinations until new ones are issued or made.

Capital. The GSE Act provides FHFA with broad authority to increase the level of our required minimum capital and to 

establish capital or reserve requirements for specific products and activities. FHFA also has broad authority to establish riskbased capital requirements, to ensure that we operate in a safe and sound manner and maintain sufficient capital and reserves. 

During the conservatorship, FHFA has suspended our capital classifications. We continue to submit capital reports to FHFA

during the conservatorship, and FHFA continues to monitor our capital levels. We describe our capital requirements below 

under “Capital Adequacy Requirements.”

Portfolio. 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 published a final rule 

adopting, as the standard for our portfolio holdings, the portfolio limits specified in the senior preferred stock purchase 

agreement described under “Treasury Agreements—Covenants under Treasury Agreements,” as it may be amended from time 
37

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. The GSE Act requires us to obtain FHFA’s approval before initially offering any product, subject to certain 

exceptions. The GSE Act also requires us to provide FHFA with written notice before commencing any new activity. In July 

2009, FHFA published an interim final rule implementing these provisions of the GSE Act. Subsequently, the Acting Director 

of FHFA concluded that permitting us to offer new products at this time is inconsistent with the goals of the conservatorship. 

He therefore instructed us not to submit requests for approval of new products under the interim final rule. We cannot predict 

when or if FHFA will permit us to submit new product requests under the rule.

Receivership. Under the GSE Act, FHFA must place us into receivership if it determines that our assets are less than our 

obligations for 60 days, or we have not been paying our debts as they become due for 60 days. 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, 

including conditions that FHFA has already asserted existed at the time the then-Director of FHFA placed us into 

conservatorship. 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; the likelihood of losses that will deplete substantially all of our capital; or 

by consent.

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

GSEs. The rule is part of FHFA’s implementation of the powers provided by the 2008 Reform Act, and does not seek to 

anticipate or predict future conservatorships or receiverships. The final rule, which became effective on July 20, 2011, 

establishes procedures for conservatorship and receivership, and priorities of claims for contract parties and other claimants. 

For example, the final rule clarifies that:

• the powers of the conservator or receiver include continuing our mission and ensuring that our operations foster 

liquid, efficient, competitive and resilient national housing finance markets;

• the conservator or receiver may disaffirm or repudiate any contract or lease to which we are a party for up to 

18 months following the appointment of a conservator or receiver;

• we are prohibited from making capital distributions while in conservatorship unless authorized by the Director of 

FHFA; and

• claims by current or former shareholders (including securities litigation claims) would receive the lowest priority in 

a receivership, behind: (1) administrative expenses of the receiver (or an immediately preceding conservator), 

(2) our other general or senior liabilities, and (3) obligations subordinated to those of general creditors.

The rule also provides that FHFA, as conservator, will not pay securities litigation claims against us during conservatorship, 

unless the Director of FHFA determines it is in the interest of the conservatorship. An action, which was brought by the Ohio 

Public Employees Retirement System and the State Teachers Retirement System of Ohio, is currently pending in the U.S. 

District Court for the District of Columbia against FHFA and FHFA’s Acting Director challenging the rule’s provisions 

regarding nonpayment of securities litigation claims.

Prudential Management and Operational Standards. As required by the GSE Act, in June 2012, FHFA published a final rule 

establishing prudential standards relating to the management and operations of Fannie Mae, Freddie Mac and the FHLBs in 

the following ten areas: (1) internal controls and information systems; (2) independence and adequacy of internal audit 

systems; (3) management of market risk exposure; (4) management of market risk—measurement systems, risk limits, stress 

testing, and monitoring and reporting; (5) adequacy and maintenance of liquidity and reserves; (6) management of asset and 

investment portfolio growth; (7) investments and acquisitions of assets; (8) overall risk management processes; 

(9) management of credit and counterparty risk; and (10) maintenance of adequate records. These standards were established 

as guidelines, which the Director of FHFA may modify, revoke or add to at any time by order or notice. The rule also 

specifies actions FHFA may take if a regulated entity fails to meet one or more of the standards or fails to comply with the 

rule, such as requiring the entity to submit a corrective plan or increasing its capital requirements.

Affordable Housing Goals and Duty to Serve. We discuss our affordable housing goals and our duty to serve underserved 

markets below under “Housing Goals and Duty to Serve Underserved Markets.”
38

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 acquisitions, and to allocate such amount to certain 

government funds. The GSE Act also allows FHFA to suspend allocations on a temporary basis. In November 2008, FHFA

advised us that it was suspending our allocations until further notice.

Executive Compensation. The Charter Act provides that the company has the power to pay compensation to our executives 

that the Board of Directors determines is reasonable and comparable with the compensation of executives performing similar 

duties in similar businesses, except that a significant portion of potential compensation must be based on our performance. 

Further, the GSE Act directs FHFA to prohibit us from providing unreasonable or non-comparable compensation to our 

executive officers. FHFA may at any time review the reasonableness and comparability of an executive officer’s 

compensation and may require us to withhold any payment to the officer during such review. FHFA is also authorized to 

prohibit or limit certain golden parachute and indemnification payments to directors, officers and certain other parties. FHFA

has issued rules relating to golden parachute payments, setting forth factors to be considered by the Director of FHFA in 

acting upon his authority to limit such payments.

Fair Lending. The GSE Act requires the Secretary of HUD to assure that the GSEs meet their fair lending 

obligations. Among other things, HUD is required to periodically review and comment on the underwriting and appraisal 

guidelines of each company to ensure consistency with the Fair Housing Act. HUD is currently conducting such a review.

Capital Adequacy Requirements 

The GSE Act establishes capital adequacy requirements. The statutory capital framework incorporates two different 

quantitative assessments of capital—a minimum capital requirement and a risk-based capital requirement. The minimum 

capital requirement is ratio-based, while the risk-based capital requirement is based on simulated stress test performance. The 

GSE Act requires us to maintain sufficient capital to meet both of these requirements in order to be classified as “adequately 

capitalized.” However, during the conservatorship, FHFA has suspended capital classification of us and announced that our 

existing statutory and FHFA-directed regulatory capital requirements will not be binding. FHFA has advised us that, because 

we are under conservatorship, we will not be subject to corrective action requirements that would ordinarily result from our 

receiving a capital classification of “undercapitalized.”

Minimum Capital Requirement. Under the GSE Act, we must maintain an amount of core capital that equals or exceeds our 

minimum capital requirement. The GSE Act defines core capital as the sum of the stated value of outstanding common stock 

(common stock less treasury stock), the stated value of outstanding non-cumulative perpetual preferred stock, paid-in capital, 

and retained earnings, as determined in accordance with GAAP. Our minimum capital requirement is generally equal to the 

sum of 2.50% of on-balance sheet assets and 0.45% of off-balance sheet obligations. For purposes of minimum capital, FHFA

has directed us to continue reporting loans backing Fannie Mae MBS held by third parties based on 0.45% of the unpaid 

principal balance regardless of whether these loans have been consolidated pursuant to accounting rules. FHFA retains 

authority under the GSE Act to raise the minimum capital requirement for any of our assets or activities.

Risk-Based Capital Requirement. The GSE Act requires FHFA to establish risk-based capital requirements for Fannie Mae 

and Freddie Mac, to ensure that we operate in a safe and sound manner. Existing risk-based capital regulation ties our capital 

requirements to the risk in our book of business, as measured by a stress test model. The stress test simulates our financial 

performance over a ten-year period of severe economic conditions characterized by both extreme interest rate movements and 

high mortgage default rates. FHFA has stated that it does not intend to publish our risk-based capital level during the 

conservatorship and has discontinued stress test simulations under the existing rule. We continue to submit detailed profiles 

of our books of business to FHFA to support FHFA’s monitoring of our business activity and their research into future riskbased capital rules.

Critical Capital Requirement. The GSE Act also establishes a critical capital requirement, which is the amount of core capital 

below which we would be classified as “critically undercapitalized.” Under the GSE Act, such classification is a discretionary 

ground for appointing a conservator or receiver. Our critical capital requirement is generally equal to the sum of 1.25% of onbalance sheet assets and 0.25% of off-balance sheet obligations. FHFA has directed us, for purposes of critical capital, to 

continue reporting loans backing Fannie Mae MBS held by third parties based on 0.25% of the unpaid principal balance, 

notwithstanding our consolidation of substantially all of the loans backing these securities. FHFA has stated that it does not 

intend to publish our critical capital level during the conservatorship.

Bank Capital, Liquidity and Other Supervisory Standards. In the wake of the financial crisis and as a result of the DoddFrank Act and of actions by international bank regulators, the capital, liquidity and other risk regimes for the banking 

industry are undergoing major changes, as we discuss above in “Legislative and Regulatory Developments—Financial 

Regulatory Reform Legislation: The Dodd-Frank Act—Enhanced supervision and prudential standards.” Although the GSEs 

are not currently subject to bank capital, liquidity and other requirements, any revised framework for GSE standards may be 
39

based on bank requirements, particularly if the GSEs are deemed to be systemically important financial companies subject to 

Federal Reserve oversight. 

Housing Goals and Duty to Serve Underserved Markets

Since 1993, we have been subject to housing goals. The structure of our housing goals changed in 2010 as a result of the 

2008 Reform Act. The 2008 Reform Act also created a new duty for us to serve three underserved markets, which we discuss 

below.

Housing Goals

On November 13, 2012, FHFA published a final rule establishing the following single-family home purchase and refinance 

housing goal benchmarks for 2012 to 2014 for Fannie Mae and Freddie Mac. A home purchase mortgage may be counted 

toward more than one home purchase benchmark.

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

less than 80% of area median income).

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

to or less than 50% of area median income).

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

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

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

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

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

• Low-Income Areas Home Purchase Subgoal Benchmark: At least 11% of our acquisitions of single-family owneroccupied purchase money mortgage loans must be affordable to families in low-income census tracts or to moderateincome families in high-minority census tracts.

• Low-Income Families Refinancing Benchmark: At least 20% of our acquisitions of single-family owner-occupied 

refinance mortgage loans must be affordable to low-income families.

Private-label mortgage-related securities, second liens and single-family government loans do not count towards our housing 

goals. In addition, only permanent modifications of mortgages under HAMP completed during the year count towards our 

housing goals; trial modifications will not be counted. Moreover, these modifications count only towards our single-family 

low-income families refinance goal, not any of the home purchase goals. Refinancings under HARP also count toward our 

single-family low-income families refinancing goal.

If we do not meet these benchmarks, we may still meet our goals. Our single-family housing goals performance is measured 

against benchmarks and against goals-qualifying originations in the primary mortgage market after the release of data 

reported under the Home Mortgage Disclosure Act (“HMDA”). HMDA data are typically released each year in the fall. We 

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

To meet FHFA’s housing goals, our multifamily mortgage acquisitions must finance a certain number of units affordable to 

low-income families and a certain number of units affordable to very low-income families. The specific requirements for 

each year are set forth in Table 6 below. There is no market-based alternative measurement for the multifamily goals.

Table 6: Multifamily Housing Goals for 2012 to 2014

Goals for

2012 2013 2014

(in units)

Affordable to low-income families. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,000 265,000 250,000

Affordable to very low-income families. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 70,000 60,000

In adopting the rule in 2010 establishing the structure of our housing goals, FHFA indicated “FHFA does not intend for 

[Fannie Mae] to undertake uneconomic or high-risk activities in support of the [housing] goals. However, the fact that 

[Fannie Mae is] in conservatorship should not be a justification for withdrawing support from these market segments.” If our 

efforts to meet our goals prove to be insufficient, FHFA determines whether the goals were feasible. If FHFA finds that our 
40

goals 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 housing plan must describe the actions we would take 

to meet the goal in the next calendar year and be approved by FHFA. The potential penalties for failure to comply with 

housing plan requirements include a cease-and-desist order and civil money penalties. See “Risk Factors” for a description of 

how we may be unable to meet our housing goals and how actions we may take to meet these goals and other regulatory 

requirements could adversely affect our business, results of operations and financial condition.

The following table presents our performance against our single-family housing benchmarks and market share measures, as 

well as our multifamily housing goals, for 2011 and 2010, as validated by FHFA. Our 2012 performance results have not yet 

been validated by FHFA.

Table 7: Housing Goals Performance

2011 2010

Result

BenchmarkSingle-Family

Market Level Result

BenchmarkSingle-Family

Market Level

Single-family housing goals:(1)

Low-income families home purchases . . . . . 25.82 % 27 % 26.5 % 25.13 % 27 % 27.2 %

Very low-income families home purchases. . 7.59 8 8.0 7.24 8 8.1

Low-income areas home purchases. . . . . . . . 22.35 24 22.0 24.05 24 24.0

Low-income and high-minority areas home 

purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 11.62 13 11.4 12.37 13 12.1

Low-income families refinancing . . . . . . . . . 23.05 21 21.5 20.90 21 20.2

2011 2010

Result(1) Goal Result Goal

(in units)

Multifamily housing goals:

Affordable to families with income no higher than 80% of area 

median income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301,224 177,750 214,997 177,750

Affordable to families with income no higher than 50% of area 

median income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,244 42,750 53,908 42,750

__________

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

period.

We believe we met all of our single-family benchmarks for 2012, as well as our 2012 multifamily goals. We have reported 

this information to FHFA as well as to the Financial Services Committee of the House of Representatives and the Committee 

on Banking, Housing and Urban Affairs of the Senate, as part of our 2012 Annual Housing Activities Report and Annual 

Mortgage Report that is required under the Charter Act. FHFA will issue a final determination on our 2012 housing goals 

performance after the release of data reported under HMDA later this year.

For 2011, FHFA determined that we met our single-family low-income areas home purchase goals and our single-family 

refinance goal, as well as our 2011 multifamily goals. FHFA determined that we did not meet our single-family low-income 

home purchase goal or our single-family very low-income home purchase goal. Although FHFA determined that we did not 

meet these two goals and that their achievement was feasible, FHFA is not requiring us to submit a housing plan. FHFA stated 

that a housing plan is not required because the two goals were missed by a very small amount and because of our continued 

operation under conservatorship. 

Duty to Serve

The 2008 Reform Act created the duty to serve underserved markets in order for us and Freddie Mac to “provide leadership 

to the market in developing loan products and flexible underwriting guidelines to facilitate a secondary market for very low-, 

low-, and moderate-income families” with respect to three underserved markets: manufactured housing, affordable housing 

preservation, and rural areas.
41

In June 2010, FHFA published a proposed rule to implement our duty to serve. Under the proposed rule, we would be 

required to submit an underserved markets plan establishing benchmarks and objectives against which FHFA would evaluate 

and rate our performance. A final rule has not been issued.

The 2008 Reform Act requires FHFA to separately evaluate the following four assessment factors:

• The loan product assessment factor requires evaluation of our “development of loan products, more flexible 

underwriting guidelines, and other innovative approaches to providing financing to each” underserved market.

• The outreach assessment factor requires evaluation of “the extent of outreach to qualified loan sellers and other 

market participants.” We are expected to engage market participants and pursue relationships with qualified sellers 

that serve each underserved market.

• The loan purchase assessment factor requires FHFA to consider the volume of loans acquired in each underserved 

market relative to the market opportunities available to us. The 2008 Reform Act prohibits the establishment of 

specific quantitative targets by FHFA. However, in its evaluation FHFA could consider the volume of loans acquired 

in past years. 

• The investment and grants assessment factor requires evaluation of the amount of investment and grants in projects 

that assist in meeting the needs of underserved markets.

See “Risk Factors” for a description of how changes we may make in our business strategies in order to meet our housing 

goals and duty to serve requirement may increase our credit losses and adversely affect our results of operations. 

OUR CUSTOMERS

Our principal 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, 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.

We have a diversified funding base of domestic and international investors. Purchasers of our Fannie Mae MBS and debt 

securities include fund managers, commercial banks, pension funds, insurance companies, foreign central banks, 

corporations, state and local governments and other municipal authorities.

During 2012, approximately 1,100 lenders delivered single-family mortgage loans to us, either for securitization or for 

purchase. We acquire a significant portion of our single-family mortgage loans from several large mortgage lenders. During 

2012, our top five lender customers, in the aggregate, accounted for approximately 46% of our single-family business 

volume, down from approximately 60% in 2011. Wells Fargo Bank, N.A., together with its affiliates, was the only customer 

that accounted for more than 10% of our single-family business volume in 2012, with approximately 23%. 

A number of factors impacted our customers in 2012 and affected the volume of business and mix of customers with whom 

we and our competitors do business. We obtained fewer single-family loans from large mortgage lenders in 2012 than in prior 

years as a result of (1) exits from correspondent or broker lending by several large lenders who are focusing instead on 

lending through their retail channels, and (2) a number of large mortgage lenders having gone out of business since 2006. At 

the same time, we sought and continue to seek to provide liquidity to a broader, more diverse set of mortgage lenders. Doing 

more business with a more diverse set of mortgage lenders has lowered to a degree the significant exposure concentration we 

have built up with a few large institutions. However, the potentially lesser financial strength and operational capacity of many 

of these smaller sellers/servicers may negatively affect their ability to service the loans on our behalf or to satisfy their 

repurchase or compensatory fee obligations. The decrease in the concentration of our business with large institutions could 

increase both our institutional counterparty credit risk and our mortgage credit risk and, as a result, could have a material 

adverse effect on our business, results of operations, financial condition, liquidity and net worth.

See “Risk Factors” for a discussion of risks relating to our institutional counterparties, changes in the mortgage industry and 

our acquisition of a significant portion of our mortgage loans from several large mortgage lenders. 
42

COMPETITION

Historically, our competitors have included Freddie Mac, FHA, Ginnie Mae (which primarily guarantees securities backed by 

FHA-insured loans), the twelve FHLBs, financial institutions, securities dealers, insurance companies, pension funds, 

investment funds and other investors. During 2008, almost all of our competitors, other than Freddie Mac, FHA, Ginnie Mae 

and the FHLBs, dramatically reduced or ceased their activities in the residential mortgage finance business. 

One of FHFA’s strategic goals for our conservatorship involves gradually contracting our dominant presence in the 

marketplace. Despite this goal, our market share remains large and even increased in 2012 as we have continued to meet the 

needs of the single-family mortgage market in the absence of substantial private capital. We remained the largest single issuer 

of mortgage-related securities in the secondary market in 2012. During 2012, our primary competitors for the issuance of 

mortgage-related securities were Ginnie Mae and Freddie Mac. We currently estimate that our single-family market share 

was 43% in 2012, compared with 37% in 2011. These amounts represent our single-family mortgage acquisitions for each 

year, excluding delinquent loans we purchased from our MBS trusts, as a percentage of the single-family first-lien mortgages 

we currently estimate were originated in the United States that year. Because our estimate of mortgage originations in prior 

periods is subject to change as additional data become available, these market share estimates may change in the future, 

perhaps materially.

We compete to acquire mortgage assets in the secondary market. We also compete for the issuance of 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 pricing and eligibility standards. We compete with Freddie 

Mac and, especially for loans with higher LTV ratios to finance home purchases, with FHA. We expect our guaranty fees may 

increase in coming years, which would likely affect our competitive environment. See “Our Charter and Regulation of Our 

Activities—Charter Act—Loan Standards” for more information about our loan limits, and “Legislative and Regulatory 

Developments—Changes to Our Single-Family Guaranty Fee Pricing and Revenue,” for a discussion of anticipated pricing 

increases.

We also compete for low-cost debt funding with institutions that hold mortgage portfolios, including Freddie Mac and the 

FHLBs.

Although we do not know the structure that long-term GSE reform will ultimately take, we expect that, if our company 

continues, we will face more competition in the future. See “Legislative and Regulatory Developments—GSE Reform” for 

discussions of GSE reform, recent legislative reform of the financial services industry that is likely to affect our business and 

the role of private capital in the mortgage markets.

EMPLOYEES

As of February 28, 2013, we employed approximately 7,200 personnel, including full-time and part-time employees, term 

employees and employees on leave.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We make available free of charge through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, 

current reports on Form 8-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 Web site address is www.fanniemae.com. 

Materials that we file with the SEC are also available from the SEC’s Web site, 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 1-888-BOND-HLP

(1-888-266-3457) or 1-202-752-7115 or by writing to Fannie Mae, Attention: Fixed-Income Securities, 3900 Wisconsin 

Avenue, NW, Area 2H-3N, Washington, DC 20016.

All references in this report to our Web site addresses or the Web site address of the SEC are provided solely for your 

information. Information appearing on our Web site or on the SEC’s Web site is not incorporated into this annual report on 

Form 10-K.
43

FORWARD-LOOKING STATEMENTS

This report includes statements that constitute forward-looking statements within the meaning of Section 21E of the 

Exchange Act. In addition, our senior management may from time to time make forward-looking statements orally to 

analysts, investors, the news media and others. Forward-looking statements often include words such as “expect,” 

“anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “forecast,” “project,” “would,” “should,” “could,” “likely,” 

“may,” or similar words.

Among the forward-looking statements in this report are statements relating to:

• Our expectation that our annual earnings will remain strong over the next few years;

• Our expectation that improvements in the credit quality of our loan acquisitions since 2009 and increases in our 

charged guaranty fees on recently acquired loans will benefit our results for years to come, especially because these 

loans have relatively low interest rates, making them less likely to be refinanced;

• Our expectation that the single-family loans we have acquired since the beginning of 2009, in the aggregate, will be 

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

losses and administrative costs for them; 

• Our expectation that, as a result of increases in the charged guaranty fee and the larger volume of single-family loans 

we acquired in 2012, we will receive significantly more guaranty fee income on the single-family loans we acquired 

in 2012, over their lifetime, than on the single-family loans we acquired in 2011;

• Our expectation that rising guaranty fee revenue we receive for managing the credit risk on loans underlying Fannie 

Mae MBS held by third parties will in a number of years become the primary source of our revenues;

• Our expectation that, if current market conditions continue, revenues from guaranty fees will generally offset 

expected declines in the revenues we generate from the difference between the interest income earned on the assets 

in our mortgage portfolio and the interest expense associated with the debt funding of those assets;

• Our expectation of high levels of period-to-period volatility in our results because our derivatives are recorded at fair 

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

financial statements;

• Our expectation that, as of the first quarter of 2013, we will no longer be in a three-year cumulative loss position;

• Our belief that, although we have not completed the analysis, after considering all relevant factors, we may release 

the valuation allowance on our deferred tax assets as early as the first quarter of 2013;

• Our expectation that the single-family loans we acquired from 2005 through 2008, in the aggregate, will not be 

profitable over their lifetime; 

• Our expectation that the ultimate performance of all our loans will be affected by numerous factors, including 

changes in home prices, borrower behavior, public policy and other macroeconomic factors;

• Our expectation that the serious delinquency rates for single-family loans acquired in more recent years will be 

higher after the loans have aged, but not as high as the December 31, 2012 serious delinquency rates of loans in our 

legacy book of business;

• Our belief that loans we acquire under HARP may not perform as well as the other loans we have acquired since the 

beginning of 2009, but they will perform better than the loans they replace because they should reduce the 

borrowers’ monthly payments and/or provide more stable terms than the borrowers’ old loans (for example, by 

refinancing into a mortgage with a fixed interest rate instead of an adjustable rate);

• Our expectation that if interest rates remain low, we will continue to acquire a high volume of refinancings under 

HARP for the program’s duration or until there is no longer a large population of borrowers with high LTV loans 

who would benefit from refinancing; 

• Our expectation that we will acquire many refinancings with LTV ratios greater than 125% as a result of changes to 

HARP;

• Our expectation that we will continue to accept deliveries through September 30, 2014 of HARP loans with 

application dates on or before December 31, 2013;
44

• Our expectation that the number of our single-family loans in our legacy book of business that are seriously 

delinquent will remain well above pre-2008 levels for years;

• Our expectation that it will take a significant amount of time before our REO inventory is reduced to pre-2008 

levels;

• Our belief that changes or perceived changes in federal government support of our business and the financial 

markets or our status as a GSE could materially and adversely affect our liquidity, financial condition and results of 

operations;

• Our expectation that single-family mortgage loan delinquency and severity rates will continue their downward trend, 

but that single-family delinquency, default and severity rates will remain high compared to pre-housing crisis levels; 

• Our expectation that certain local multifamily markets and rental properties will continue to exhibit weak 

fundamentals, despite multifamily sector improvement at the national level;

• Our expectation that multifamily foreclosures in 2013 will remain generally commensurate with 2012 levels, 

although conditions may worsen if the unemployment rate increases on either a national or regional basis;

• Our forecast that total originations in the U.S. single-family mortgage market in 2013 will decrease from 2012 levels 

by approximately 15% from an estimated $1.93 trillion to $1.65 trillion, and that the amount of originations in the 

U.S. single family mortgage market that are refinancings will decrease from an estimated $1.40 trillion in 2012 to 

$1.03 trillion in 2013; 

• Our expectation that home prices may increase on a national basis overall in 2013, if current market trends continue, 

although home price growth may not continue at 2012 rates;

• Our expectation of significant regional variation in the timing and rate of home price growth;

• Our expectation that our credit losses will remain high in 2013 relative to pre-housing crisis levels;

• Our expectation that, to the extent the slow pace of foreclosures continue in 2013, our realization of some credit 

losses will be delayed;

• Our expectation that the trends of improving home prices and declining single-family serious delinquency rates will 

continue;

• Our belief that our total loss reserves peaked at $76.9 billion as of December 31, 2011;

• Our expectation that our loss reserves will remain significantly elevated relative to historical levels for an extended 

period because (1) we expect future defaults on loans we acquired prior to 2009 and the resulting charge-offs will 

occur over a period of years and (2) a significant portion of our reserves represents concessions granted to borrowers 

upon modification of their loans and our reserves will continue to reflect these concessions until the loans are fully 

repaid or in default; 

• Our expectation that revenues generated from the difference between the interest income earned on the assets in our 

mortgage portfolio and the interest expense associated with the debt funding of those assets will decrease as we 

reduce the size of our mortgage portfolio;

• Our expectation that any future increases in guaranty fees will likely only further increase our guaranty fee revenue;

• Our expectation that in future periods our effective guaranty fee revenue will increase and our credit losses will 

decrease as a result of the higher credit quality of our new book of business, the decrease in our legacy book, and 

anticipated lower severity at the time of charge-off;

• Our expectation that uncertainty regarding the future of our company will continue;

• Our expectation that the unemployment rate will continue to decline gradually in 2013;

• Our belief that there is a potential for over-supply in multifamily properties in some localized areas over the next 24 

months;

• Our expectation that the overall national rental market’s supply and demand will remain in balance over the longer 

term, based on expected construction completions, expected obsolescence, positive household formation trends and 

expected increases in the population of 20- to 34-year olds, which as a group rents multifamily housing at a higher 

rate than other groups;

• Our expectation that Congress will continue consideration of housing finance reform in the current congressional 

session, including hearings on GSE reform, and the consideration of legislation that may alter the housing finance 

reform system or the activities or operations of the GSEs; 
45

• Our expectations that our future guaranty fees will incorporate private sector pricing considerations such as pricing 

indicative of higher required minimum capital levels, and more significant pricing differentiation between higherrisk and lower-risk loans, and that these changes would be in addition to the other increases;

• Our expectation that Congress will continue to hold hearings and consider legislation on the future status of Fannie 

Mae and Freddie Mac, including proposals that would result in a substantial change to our business structure, our 

operations, or that involve Fannie Mae’s liquidation or dissolution;

• Our expectation that our strategic objectives and business activities will continue to change, possibly significantly, 

including in pursuit of our public mission and other non-financial objectives;

• Our belief that implementing recent FHFA directives will increase our operational risk and could result in one or 

more significant deficiencies or material weaknesses in our internal control over financial reporting in a future 

period;

• Our belief that continued federal government support of our business and the financial markets, as well as our status 

as a GSE, are essential to maintaining our access to debt funding;

• Our expectations regarding our credit ratings and their impact on us as set forth in “Risk Factors” and “MD&A—

Liquidity and Capital Management—Liquidity Management—Credit Ratings”;

• Our expectation that the slow pace of foreclosures will continue to negatively affect our foreclosure timelines, 

credit-related expenses and single-family serious delinquency rates;

• Our expectation that our administrative expenses may increase in 2013 compared with 2012 as we continue to 

execute on our strategic goals;

• Our expectation that we will continue to purchase loans from MBS trusts as they become four or more consecutive 

monthly payments delinquent subject to market conditions, economic benefit, servicer capacity, and other factors 

including the limit on the mortgage assets that we may own pursuant to the senior preferred stock purchase 

agreement;

• Our intention generally not to have other parties assume the credit risk inherent in our book of business;

• Our intention to repay our short-term and long-term debt obligations as they become due primarily through proceeds 

from the issuance of additional debt securities;

• Our expectation that we may also use proceeds from our mortgage assets to pay our debt obligations;

• Our belief that our liquidity contingency plan may be difficult or impossible to execute for a company of our size in 

our circumstances;

• Our belief that we have limited credit exposure on government loans;

• Our expectation that our acquisitions of Alt-A mortgage loans (which are limited to refinancings of existing Fannie 

Mae loans) will continue to be minimal in future periods and the percentage of the book of business attributable to 

Alt-A will continue to decrease over time;

• Our expectation that the volume of our home retention solutions and foreclosure alternatives will remain high 

throughout 2013, as they did in 2012;

• Our expectation that we may be unable to recover on all outstanding loan repurchase obligations resulting from 

sellers/servicers’ breaches of contractual obligations;

• Our expectation that, with the implementation of our new representation and warranty framework, a greater 

proportion of repurchase requests may be issued on performing loans, as compared with our current repurchase 

requests, the substantial majority of which relate to loans that are either nonperforming or have been foreclosed 

upon;

• Our belief, based on the stressed financial condition of our non-governmental financial guarantor counterparties, that 

all but one of these counterparties may not be able to fully meet their obligations to us in the future; 

• Our expectations regarding recoveries from lenders under risk sharing arrangements, and the possibility that we may 

require a lender to pledge collateral to secure its recourse obligations;

• Our expectation that the Uniform Mortgage Servicing Dataset (UMSD) Foundation Template will be released to 

targeted stakeholders in the first half of 2013; and

• Our expectation that a joint GSE plan for the design and build of a single securitization platform will be finalized in 

2013.
46

Forward-looking statements reflect our management’s expectations, forecasts or predictions of future conditions, events or 

results based on various assumptions and management’s estimates of trends and economic factors in the markets in which we 

are active, as well as our business plans. They are not guarantees of future performance. By their nature, forward-looking 

statements are subject to risks and uncertainties. Our actual results and financial condition may differ, possibly materially, 

from the anticipated results and financial condition indicated in these forward-looking statements. There are a number of 

factors that could cause actual conditions, events or results to differ materially from those described in the forward-looking 

statements contained in this report, including, but not limited to, the following: the uncertainty of our future; legislative and 

regulatory changes affecting us; our future guaranty fee pricing; challenges we face in retaining and hiring qualified 

employees; the deteriorated credit performance of many loans in our guaranty book of business; the conservatorship and its 

effect on our business; the investment by Treasury and its effect on our business; adverse effects from activities we undertake 

to support the mortgage market and help borrowers; a decrease in our credit ratings; limitations on our ability to access the 

debt capital markets; further disruptions in the housing and credit markets; defaults by one or more institutional 

counterparties; our need to rely on third parties to fully achieve some of our corporate objectives; our reliance on mortgage 

servicers; guidance by the Financial Accounting Standards Board (“FASB”); operational control weaknesses; our reliance on 

models; the level and volatility of interest rates and credit spreads; changes in the structure and regulation of the financial 

services industry; natural or other disasters; and those factors described in “Risk Factors,” as well as the factors described in 

“Executive Summary—Outlook—Factors that Could Cause Actual Results to be Materially Different from our Estimates and 

Expectations.”

Readers are cautioned to place forward-looking statements in this report or that we make from time to time into proper 

context by carefully considering the factors discussed in this report. These forward-looking statements are representative only 

as of the date they are made, and we undertake no obligation to update any forward-looking statement as a result of new 

information, future events or otherwise, except as required under the federal securities laws. 

Item 1A. Risk Factors

Refer to “MD&A—Risk Management” for more detailed descriptions of the primary risks to our business and how we seek 

to manage those risks.

The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity and net 

worth, and could cause our actual results to differ materially from our past results or the results contemplated by forwardlooking statements contained in this report. However, these are not the only risks we face. In addition to the risks we discuss 

below, we face risks and uncertainties not currently known to us or that we currently believe are immaterial.

RISKS RELATING TO OUR BUSINESS

The future of our company is uncertain. 

There is significant uncertainty regarding the future of our company, including how long the company will continue to exist 

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

current common and preferred stockholders will hold in us after the conservatorship is terminated. 

In 2011, Treasury and HUD released a report to Congress on ending the conservatorships of the GSEs and reforming 

America’s housing finance market. The report provides that the Administration will work with FHFA to determine the best 

way to responsibly reduce Fannie Mae’s and Freddie Mac’s role in the market and ultimately wind down both institutions. 

The report also addresses three options for a reformed housing finance system. The report does not state whether or how the 

existing infrastructure or human capital of Fannie Mae may be used in the establishment of such a reformed system. The 

report emphasizes the importance of proceeding with a careful transition plan and providing the necessary financial support 

to Fannie Mae and Freddie Mac during the transition period. In his February 2012 letter to Congress, the Acting Director of 

FHFA wrote that, with “no near-term resolution [of Fannie Mae and Freddie Mac’s conservatorships] in sight, it is time to 

update and extend the goals and directions of the conservatorships.” He provided a strategic plan for Fannie Mae and Freddie 

Mac’s conservatorships that included, among its three strategic goals, gradually contracting Fannie Mae and Freddie Mac’s 

dominant presence in the marketplace while simplifying and shrinking our and Freddie Mac’s operations. 

During the last congressional session, the Subcommittee on Capital Markets and Government Sponsored Enterprises of the 

House Financial Services Committee approved numerous bills that could have constrained the operations of the GSEs or 

altered the authority that FHFA or Treasury has over the enterprises. In addition, several bills were introduced in the House of 

Representatives and the Senate that would have placed the GSEs into receivership after a period of time and either granted 

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

mortgage market activities to entities in the private sector. 
47

We expect that Congress will continue to hold hearings and consider legislation on the future status of Fannie Mae and 

Freddie Mac, including proposals that would result in a substantial change to our business structure, our operations, or that 

involve Fannie Mae’s liquidation or dissolution. Congress may also consider legislation aimed at reducing our market share 

including, for example, significant changes to conforming loan limits that could reduce the number of loans available for us 

to acquire, which would affect the amount of guaranty fees we receive. We cannot predict the prospects for the enactment, 

timing or content of legislative proposals regarding the future status of the GSEs. See “Business—Legislative and Regulatory 

Developments—GSE Reform” for more information about the Treasury report and Congressional proposals regarding reform 

of the GSEs. 

Our dividend obligations on Treasury’s investment result in our retaining a limited and decreasing amount of our 

earnings each year until 2018. Beginning in 2018, we will no longer retain any of our earnings. 

In compliance with our dividend obligation to Treasury, we will retain only a limited amount of our future earnings, and we 

will pay Treasury each quarter the amount, if any, by which our net worth as of the end of the immediately preceding fiscal 

quarter exceeds an applicable capital reserve amount. This capital reserve amount is $3.0 billion for each quarter of 2013 and 

decreases by $600 million annually until it reaches zero in 2018. Accordingly, our dividend obligations will result in our 

retaining a limited and decreasing amount of our earnings each year until 2018. Beginning in 2018, we will no longer retain 

any of our earnings, as the entire amount of our net worth will be paid to Treasury as dividends on the senior preferred stock. 

Because we are permitted to retain only a limited and decreasing amount of capital reserves through 2017, we may not have 

sufficient reserves to avoid a net worth deficit if we experience a comprehensive loss in a future quarter. In addition, 

beginning in 2018, we are not permitted to retain any capital reserves against losses in subsequent quarters; therefore, if we 

have a comprehensive loss for a quarter we will also have a net worth deficit for that quarter. For any quarter for which we 

have a net worth deficit, we will be required to draw funds from Treasury under the senior preferred stock purchase 

agreement in order to avoid being placed into receivership. 

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 has an obligation to place us into receivership if the Director of FHFA makes a written determination that our assets 

are less than our obligations for a period of 60 days after the filing deadline for our Form 10-K or Form 10-Q with the SEC. 

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 FHFA’s obligation, Treasury may not provide these funds to 

us within the required 60 days if it has exhausted its borrowing authority, if there is a government shutdown or if we need 

more funds than remain available to us under the agreement. As of December 31, 2012, $117.6 billion remained available to 

us under the senior preferred stock purchase agreement. In addition, we could be put into receivership at the discretion of the 

Director of FHFA at any time for other reasons, including conditions that FHFA has already asserted existed at the time the 

former Director of FHFA placed us into conservatorship. 

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. Unlike a conservatorship, the purpose of which is to conserve our 

assets and return us to a sound and solvent condition, the purpose of a receivership is to liquidate our assets and resolve 

claims against us. 

To the extent we are placed into receivership and do not or cannot fulfill our guaranty to the holders of our Fannie Mae MBS, 

the MBS holders could become unsecured creditors of ours with respect to claims made under our guaranty. 

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 

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 light of the amended dividend requirements under the senior preferred stock purchase agreement, 

there may not be sufficient proceeds to make any distribution to holders of our preferred stock or common stock, other than 

to Treasury as a holder of our senior preferred stock.
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Our business and results of operations may be materially adversely affected if we are unable to retain and hire qualified 

employees. 

Our business processes are highly dependent on the talents and efforts of our employees. The conservatorship, the uncertainty 

of our future, limitations on employee compensation, the heightened scrutiny of our actions by Congress and regulators and 

the working environment created thereby, and negative publicity concerning the GSEs have had and are likely to continue to 

have an adverse effect on our ability to retain and recruit well-qualified employees. Turnover in key management positions 

and challenges in integrating new management could harm our ability to manage our business effectively and ultimately 

adversely affect our financial performance.

Actions taken by Congress, FHFA and Treasury to date, or that may be taken by them or other government agencies in the 

future, may have an adverse effect on the retention and recruitment of senior executives, management and other employees. 

We are subject to significant restrictions on the amount and type of compensation we may pay our executives and other 

employees under conservatorship. For example, in April 2012, the Stop Trading on Congressional Knowledge Act (the 

“STOCK Act”) was enacted, which includes a provision that prohibits senior executives at Fannie Mae and Freddie Mac from 

receiving bonuses during any period of conservatorship on or after the date of enactment of the law. In addition, we are 

unable to offer equity-based compensation. 

The compensation we pay our senior executives is significantly less than executives’ compensation at many comparable 

companies. As discussed more fully in “Executive Compensation—Compensation Discussion and Analysis—Other 

Executive Compensation Considerations—Comparator Group and Role of Benchmark Data,” total target direct compensation 

for 2012 under our 2012 executive compensation program for each of our executives identified as a named executive was 

more than 30% below the market median for comparable firms and, in the case of our Chief Executive Officer, was more than 

70% below the market median. 

Congress has considered other legislation that would alter the compensation for Fannie Mae and Freddie Mac employees. In 

2011, the Financial Services Committee of the House of Representatives approved a bill that would put our employees on a 

federal government pay scale. Although this legislation was not passed by the House or the Senate in the last congressional 

session, if similar legislation were to become law, our employees could experience a sudden and sharp decrease in 

compensation. The Acting Director of FHFA stated on November 15, 2011 that this “would certainly risk a substantial exodus 

of talent, the best leaving first in many instances. [Fannie Mae and Freddie Mac] likely would suffer a rapidly growing 

vacancy list and replacements with lesser skills and no experience in their specific jobs. A significant increase in safety and 

soundness risks and in costly operational failures would, in my opinion, be highly likely.” The Acting Director observed, 

“Should the risks I fear materialize, FHFA might well be forced to limit [Fannie Mae and Freddie Mac’s] business 

activities. . . . Some of the business [Fannie Mae and Freddie Mac] would be unable to undertake might simply not occur, 

with potential disruption in housing markets and the economy.”

We face competition from within the financial services industry and from businesses outside of the financial services industry 

for qualified employees. Additionally, an improving economy is putting additional pressures on turnover, as attractive 

opportunities become available to our employees. Our competitors for talent are able to provide market-based compensation 

and to link employees’ pay to performance. The constraints on our compensation could adversely affect our ability to attract 

qualified candidates. While we engage in succession planning for our senior management and other critical positions and 

have been able to fill a number of important positions internally, our inability to offer market-based compensation may limit 

our ability to attract and retain qualified employees below the senior executive level that could fill our senior executive level 

positions if there is further turnover.

If we are unable to retain, promote and attract employees with the necessary skills and talent, we would face increased risks 

for operational failures. Our ability to conduct our business and our results of operations would likely be materially adversely 

affected.

Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase 

agreement. 

We are currently under the control of our conservator, FHFA, and we do not know when or how the conservatorship will be 

terminated. As conservator, FHFA can direct us to enter into contracts or enter into contracts on our behalf, and generally has 

the power to transfer or sell any of our assets or liabilities. In addition, our directors do not have fiduciary duties to any 

person or entity except to the conservator. Accordingly, our directors are not obligated to consider the interests of the 

company, the holders of our equity or debt securities or the holders of Fannie Mae MBS in making or approving a decision 

unless specifically directed to do so by the conservator. 

The conservator has determined that, while we are in conservatorship, we will be limited to continuing our existing core 

business activities and taking actions to advance the goals of the conservatorship. We are devoting significant resources to 
49

FHFA’s strategic goals relating to building a new housing finance system for the future. FHFA’s strategic goals include 

contracting our operations and reducing our role in the secondary mortgage market. In view of FHFA’s strategic goals, we 

expect that our strategic objectives and business activities will continue to change, possibly significantly, including in pursuit 

of our public mission and other non-financial objectives. Accordingly, our strategic and operational focus going forward may 

not be consistent with the investment objectives of our investors. In addition, we may be directed to engage in activities that 

are operationally difficult, costly to implement or unprofitable. For example, if FHFA or Treasury directed us to reduce the 

amount of mortgage assets we hold at a substantially faster pace than we currently anticipate, we may be required to dispose 

of our assets at unfavorable prices.

The senior preferred stock purchase agreement with Treasury includes a number of covenants that significantly restrict our 

business activities. We cannot, without the prior written consent of Treasury: pay dividends (except on the senior preferred 

stock); sell, issue, purchase or redeem Fannie Mae equity securities; sell, transfer, lease or otherwise dispose of assets in 

specified situations; engage in transactions with affiliates other than on arm’s-length terms or in the ordinary course of 

business; issue subordinated debt; or incur indebtedness that would result in our aggregate indebtedness exceeding 120% of 

the amount of mortgage assets we are allowed to own. In deciding whether to consent to any request for approval it receives 

from us under the agreement, Treasury has the right to withhold its consent for any reason and is not required by the 

agreement to consider any particular factors, including whether or not management believes that the transaction would 

benefit the company. For example, in November 2009, Treasury withheld its consent under these covenants to our proposed 

transfer of interests in low-income housing tax credit (“LIHTC”) investments, eliminating our ability to transfer the assets for 

value and resulting in our recognizing a $5 billion loss with respect to these investments in that quarter. Pursuant to the senior 

preferred stock purchase agreement, the maximum allowable amount of mortgage assets we are permitted to own was 

reduced to $650 billion on December 31, 2012, and on each December 31 thereafter, our mortgage assets may not exceed 

85% of the maximum allowable amount that we were permitted to own as of December 31 of the immediately preceding 

calendar year until the amount of our mortgage assets reaches $250 billion. This limit on the amount of mortgage assets we 

are permitted to hold could constrain the amount of delinquent loans we purchase from single-family MBS trusts, which 

could increase our costs. 

Actions taken by the conservator and the restrictions set forth in the senior preferred stock purchase agreement could 

adversely affect our business, results of operations, financial condition, liquidity and net worth. 

The conservatorship and investment by Treasury have had, and will continue to have, a material adverse effect on our 

common and preferred shareholders. 

We do not know when or how the conservatorship will be terminated. Moreover, even if the conservatorship is terminated, 

we remain subject to the terms of the senior preferred stock purchase agreement, senior preferred stock and warrant, which 

can only be canceled or modified by mutual consent of Treasury and the conservator. The conservatorship and investment by 

Treasury have had, and will continue to have, material adverse effects on our common and preferred shareholders, including 

the following: 

No voting rights during conservatorship. The rights and powers of our shareholders are suspended during the 

conservatorship. The conservatorship has no specified termination date. During the conservatorship, our common 

shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates this 

authority to them. 

Dividends to common and preferred shareholders, other than to Treasury, have been eliminated. Under the terms of the 

senior preferred stock purchase agreement, dividends may not be paid to common or preferred shareholders (other than on the 

senior preferred stock) without the consent of Treasury, regardless of whether we are in conservatorship. 

Liquidation preference of senior preferred stock is high and could increase. The senior preferred stock ranks prior to our 

common stock and all other series of our preferred stock, as well as any capital stock we issue in the future, as to both 

dividends and distributions upon liquidation. Accordingly, if we are liquidated, the senior preferred stock is entitled to its 

then-current liquidation preference, plus any accrued but unpaid dividends, before any distribution is made to the holders of 

our common stock or other preferred stock. The liquidation preference on the senior preferred stock is currently $117.1 

billion and would increase if we draw on Treasury’s funding commitment in any future quarters or if we do not pay dividends 

owed on the senior preferred stock. If we are liquidated, it is unlikely that there would be sufficient funds remaining after 

payment of amounts to our creditors and to Treasury as holder of the senior preferred stock to make any distribution to 

holders of our common stock and other preferred stock. 

Exercise of the Treasury warrant would substantially dilute investment of current shareholders. If Treasury exercises its 

warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock 
50

outstanding on a fully diluted basis, the ownership interest in the company of our then existing common shareholders will be 

substantially diluted, and we would thereafter have a controlling shareholder. 

No longer managed for the benefit of shareholders. Because we are in conservatorship, we are no longer managed with a 

strategy to maximize shareholder returns. 

For additional description of the restrictions on us and the risks to our shareholders, see “Business—Conservatorship and 

Treasury Agreements.” 

We may incur additional credit-related expenses, particularly in light of the poor credit performance of loans we acquired 

prior to 2009. 

Some of the mortgage loans we acquired prior to 2009 have performed poorly, which increased our credit losses and creditrelated expenses, and our risk of future credit losses and credit-related expenses, as a result of borrowers failing to make 

required payments of principal and interest on their mortgage loans. Home price declines from 2006 to 2011 and other 

adverse conditions in the housing market contributed to our legacy book of business’s poor credit performance, resulting in 

elevated serious delinquency rates and negatively impacting default rates and average loan loss severity on the mortgage 

loans in our legacy book of business. High delinquencies, default rates and loss severity cause us to experience higher creditrelated expenses. The credit performance of our book of business was also negatively affected by the extent and duration of 

high unemployment. Further, home price declines have resulted in a large number of borrowers with “negative equity” in 

their properties (that is, they owe more on their mortgage loans than their houses are worth), which increases the likelihood 

that either these borrowers will strategically default on their mortgage loans even if they have the ability to continue to pay 

the loans or that distressed homeowners will sell their homes in a “short sale” for significantly less than the unpaid amount of 

the loans. We present detailed information about the risk characteristics of our single-family conventional guaranty book of 

business in “MD&A—Risk Management—Credit Risk Management—Mortgage Credit Risk Management,” and we present 

detailed information on our 2012 credit-related expenses, credit losses and results of operations in “MD&A—Consolidated 

Results of Operations.” The credit performance of loans in our guaranty book of business, particularly those in our legacy 

book of business, could deteriorate in the future, particularly if we experience national and regional declines in home prices, 

weakening economic conditions and high unemployment. 

We may experience further losses and write-downs relating to our investment securities. 

We have experienced significant fair value losses relating to our investment securities and recorded significant other-thantemporary impairment write-downs of some of our available-for-sale securities. We may experience additional other-thantemporary impairment write-downs of our investments in private-label mortgage-related securities. See “Note 5, Investments 

in Securities” for more information on our investments in private-label mortgage-related securities backed by Alt-A and 

subprime mortgage loans. 

If the market for securities we hold in our investment portfolio is not liquid, we must use a greater amount of management 

judgment to value these securities. Later valuations and any price we ultimately would realize if we were to sell these 

securities could be materially lower than the estimated fair value at which we carry them on our balance sheet. 

Any of the above factors could require us to record additional write-downs in the value of our investment portfolio, which 

could have a material adverse effect on our business, results of operations, financial condition, liquidity and net worth. 

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 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, liability to customers, financial losses 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 and in an 

environment in which we must make frequent changes to our core processes in response to changing external conditions. 

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, adversely affecting our 

ability to process these transactions. 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. 

The magnitude of the many new initiatives we are undertaking, including as part of our effort to help build a new housing 

finance system, may increase our operational risk. Some actions we have been directed to take by FHFA also present 

significant operational challenges for us, and we believe that implementing these directives will increase our operational risk 

and could result in one or more significant deficiencies or material weaknesses in our internal control over financial reporting 
51

in a future period. In April 2012, FHFA issued supervisory guidance requiring that we change our method of accounting for 

delinquent loans. This directive, which is described in “Business—Legislative and Regulatory Developments—FHFA

Advisory Bulletin Regarding Framework for Adversely Classifying Loans,” creates significant operational burdens and costs 

for us. We are also currently working on implementing a number of other FHFA directives and initiatives that may increase 

our operational burdens and our costs. In addition, FHFA, other agencies of the U.S. government or Congress may direct us 

to take actions in the future that could further increase our operational risk.

While implementation of each individual initiative and directive creates operational challenges, implementing multiple 

directives during the same time period significantly increases these challenges. Implementing these directives requires a 

substantial time commitment from management and the employees responsible for implementing the changes, which could 

adversely affect our ability to retain these employees. In addition, some of these directives require significant changes to our 

accounting methods and systems. Due to the operational complexity associated with these changes and the limited time 

periods for implementing them, we believe there is a significant risk that implementing these changes could result in one or 

more significant deficiencies or material weaknesses in our internal control over financial reporting in a future period. If this 

were to occur, we could experience material errors in our reported financial results.

We rely upon business processes that are highly dependent on people, legacy technology and the use of numerous complex 

systems and models to manage our business and produce books and records upon which our financial statements 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 systems, or failed execution of our systems. While we continue to enhance our 

technology, 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 

increased use of third-party service providers for some of our business functions increases the risk that an operational failure 

by a third party will adversely affect us. 

We also face the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, 

clearinghouses or other financial intermediaries we use to facilitate our securities and derivatives transactions. 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. 

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer 

systems and networks. Our computer systems, software and networks may be vulnerable to breaches, unauthorized access, 

misuse, computer viruses or other malicious code and other events that could have a security impact. If one or more such 

events occurs, this could jeopardize our or our customers’ or counterparties’ confidential and other information processed and 

stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in 

our, our customers’, our counterparties’ or third parties’ operations, which could result in significant losses, reputational 

damage, litigation, regulatory fines or penalties, or adversely affect our business, financial condition or results of operations. 

In addition, we may be required to expend significant additional resources to modify our protective measures or to investigate 

and remediate vulnerabilities or other exposures arising from operational and security risks. 

Since the conservatorship began, we have experienced, and we expect we may continue to experience, substantial changes in 

our management, employees and business structure and practices. These changes could increase our operational risk and 

result in business interruptions and financial losses. In addition, due to events that are wholly or partially beyond our control, 

our systems could fail to operate properly, which could lead to financial losses, business disruptions, legal and regulatory 

sanctions and reputational damage. 

We may undertake efforts that adversely affect our business, results of operations, financial condition, liquidity and net 

worth. 

In conservatorship our business is no longer managed with a strategy to maximize shareholder returns while fulfilling our 

mission. Our conservator previously directed us to focus primarily on minimizing our credit losses from delinquent 

mortgages and providing assistance to struggling homeowners to help them remain in their homes. More recently, our 

conservator has announced two strategic goals for our conservatorship—building a new infrastructure for the secondary 

mortgage market and gradually contracting our dominant presence in the marketplace while simplifying and shrinking our 

operations. In pursuit of these or other goals prescribed by our conservator, we may take a variety of actions that could 

adversely affect our economic returns, possibly significantly, such as encouraging increased competition in our markets; 

modifying loans to defer principal, lower the interest rate or extend the maturity; or engaging in principal reduction. We are 

already taking some of these actions. These activities may have short- and long-term adverse effects on our business, results 

of operations, financial condition, liquidity and net worth. 
52

Other agencies of the U.S. government or Congress also may ask us to undertake significant efforts to support the housing 

and mortgage markets, as well as struggling homeowners. They may also ask us to take actions in support of other goals. For 

example, as we discuss in “Business—Legislative and Regulatory Developments—Changes to Our Single-Family Guaranty 

Fee Pricing and Revenue,” in December 2011 Congress enacted the TCCA under which, at the direction of FHFA, we 

increased the guaranty fee on all single-family residential mortgages delivered to us by 10 basis points effective April 1, 

2012. This fee increase helps offset the cost of a two-month extension of the payroll tax cut from January 1, 2012 through 

February 29, 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 addition, to meet our housing goals, a portion of the mortgage loans we acquire must be for low- and very-low income 

families, families in low-income census tracts and moderate-income families in minority census tracts or designated disaster 

areas. We may take actions to meet our housing goals obligations that could increase our credit losses and credit-related 

expenses. We discuss our housing goals in “Business—Our Charter and Regulation of Our Activities—Regulation and 

Oversight of Our Activities—Housing Goals and Duty to Serve Underserved Markets.”

Actions taken by state and local governments to address the housing crisis or increase revenues could have an adverse 

effect on our business, results of operations, financial condition and net worth. 

Many state and local governments are seeking ways to address the effects of the housing crisis, including high levels of 

foreclosures. State and local governments are also seeking ways to address declining tax revenues. Some of the legislative, 

regulatory or litigation-related actions governments take to address these issues may adversely affect us by, for example, 

increasing our costs or affecting our ability to achieve our business goals efficiently and effectively.

For example, a number of lawsuits have been filed against us challenging our right to claim an exemption, under our charter, 

from transfer taxes in connection with the recordation of deeds upon transfers of real property. Additional similar lawsuits 

could be filed against us, and taxing authorities in jurisdictions that do not normally impose a tax on the transfer of real 

property could also seek to impose transfer taxes on us. If we were to become subject to real property transfer taxes in a large 

number of states and localities, and if we were required to pay a number of years of past transfer taxes in these states and 

localities, it would increase our costs going forward and could have an adverse effect on our financial results.

In another example, a number of local governments are considering or may consider using eminent domain to seize mortgage 

loans and forgive principal on the loans. Such seizures, if they are successful, could result in further losses and write-downs 

relating to our investment securities and could increase our credit losses.

These actions and others that state and local governments may pursue in the future could have an adverse effect on our 

business, results of operations, financial condition and net worth.

Limitations on our ability to access the debt capital markets could have a material adverse effect on our ability to fund our 

operations and generate net interest income. 

Our ability to fund our business depends primarily on our ongoing access to the debt capital markets. Our level of net interest 

income depends on how much lower our cost of funds is compared with what we earn on our mortgage assets. Market 

concerns about matters such as the extent of government support for our business, the future of our business (including future 

profitability, future structure, regulatory actions and GSE status) and the creditworthiness of the U.S. government 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 2011 and 2012 to issue debt of varying maturities at attractive pricing resulted from federal government support of 

us and the financial markets. As a result, we believe that our status as a GSE 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 and the financial markets or our status as a GSE 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 us or the markets, 

or that our current level of access to debt funding will continue. In addition, due to our reliance on the U.S. government’s 

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. government. 

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. 
53

Our liquidity contingency plans may be difficult or impossible to execute during a liquidity crisis. 

We believe that our liquidity contingency plans may be difficult or impossible to execute during a 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 sources of liquidity—consisting of our cash and other 

investments portfolio and the unencumbered mortgage assets in our mortgage portfolio—may not be sufficient to meet our 

liquidity needs. 

We believe that the amount of mortgage-related assets that we could successfully sell or borrow against in the event of a 

liquidity crisis or significant market disruption is substantially lower than the amount of mortgage-related assets we hold. 

Due to the large size of our portfolio of mortgage assets, current market conditions and the significant amount of distressed 

assets in our mortgage portfolio, there would likely be insufficient market demand for large amounts of these assets over a 

prolonged period of time, which would limit our ability to borrow against or sell these assets. 

To the extent that we are able to obtain funding by pledging or selling mortgage-related securities as collateral, we anticipate 

that a discount would be applied that would reduce the value assigned to those securities. Depending on market conditions at 

the time, this discount could result in proceeds significantly lower than the current market value of these securities and could 

thereby reduce the amount of financing we obtain. In addition, our primary source of collateral is Fannie Mae MBS that we 

own. In the event of a liquidity crisis in which the future of our company is uncertain, counterparties may be unwilling to 

accept Fannie Mae MBS as collateral. As a result, we may not be able to sell or borrow against these securities in sufficient 

amounts 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 and trigger additional collateral requirements, and would likely do so if such a decrease were not based 

on a similar action on the credit ratings of the U.S. government. 

Credit ratings on our senior unsecured debt, as well as the credit ratings of the U.S. government, are primary factors that 

could affect our borrowing costs and our access to the debt capital markets. Credit ratings on our debt are subject to revision 

or withdrawal at any time by the rating agencies. Actions by governmental entities impacting the support we receive from 

Treasury could adversely affect the credit ratings on our senior unsecured debt.

On August 5, 2011, Standard & Poor’s Ratings Services (“S&P”) lowered the long-term sovereign credit rating on the U.S. to 

“AA+.” As a result of this action, and because we directly rely on the U.S. government for capital support, on August 8, 2011, 

S&P lowered our long-term senior debt rating to “AA+” with a negative outlook. Previously, our long-term senior debt had 

been rated by S&P as “AAA” and had been on CreditWatch Negative. S&P affirmed our short-term senior debt rating of 

“A-1+” and removed it from CreditWatch Negative. In assigning a negative outlook on the U.S. government’s long-term debt 

rating, S&P noted that it may lower the U.S. government’s long-term debt rating to “AA” within the next two years if it sees 

less reduction in spending than agreed to or higher interest rates, or if new fiscal pressures during the period result in a higher 

general government debt trajectory than S&P currently assumes. If S&P further lowers the U.S. government’s long-term debt 

rating, we expect that S&P would lower our long-term debt rating correspondingly.

After the U.S. government’s statutory debt limit was raised on August 2, 2011, Moody’s Investors Services (“Moody’s”) 

confirmed the U.S. government’s rating and our long-term debt ratings. Moody’s also removed the designation that these 

ratings were under review for possible downgrade. Moody’s revised the outlook for both the U.S. government’s rating and 

our long-term debt ratings to negative. In assigning the negative outlook to the U.S. government’s rating, Moody’s indicated 

there would be a risk of a downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal 

consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an 

appreciable rise in the U.S. government’s funding costs over and above what is currently expected. On September 11, 2012, 

Moody’s issued an update to its outlook for the U.S. government’s debt rating. In this update, Moody’s noted that they would 

expect to lower the U.S. government’s debt rating if budget negotiations in 2013 fail to produce a plan that includes policies 

that result in stabilization and then downward trend in the ratio of federal debt to GDP over the medium term.

On November 28, 2011, Fitch Ratings Limited (“Fitch”) affirmed the long-term issuer default rating and senior unsecured 

debt rating of Fannie Mae at “AAA,” but revised its ratings outlook on Fannie Mae’s long-term issuer default rating to 

Negative from Stable. This action followed a similar action by Fitch on the United States sovereign rating.

As of March 25, 2013, our long-term debt continued to be rated “AA+” by S&P, “Aaa” by Moody’s and “AAA” by Fitch. 

S&P, Moody’s and Fitch have all indicated that they would likely lower their ratings on the debt of Fannie Mae and certain 

other government-related entities if they were to lower their ratings on the U.S. government. We currently cannot predict 

whether one or more of these rating agencies will downgrade our debt ratings in the future, nor can we predict the potential 

impact. Although S&P’s downgrade of our credit rating has not increased our borrowing costs or limited our access to the 

debt capital markets to date, an additional reduction in our credit ratings could have a material adverse impact on our access 
54

to debt funding or on the cost of our debt funding, and would likely do so if it were not based on a similar action on the credit 

ratings of the U.S. government.

An additional reduction in our credit ratings may also trigger additional collateral requirements under our derivatives 

contracts because a majority of our derivatives contracts contain provisions that require our senior unsecured debt to maintain 

a minimum credit rating from S&P and Moody’s. If our senior unsecured debt credit ratings were downgraded to established 

thresholds in our derivatives contracts, which range from A+ to BBB+, we could be required to provide additional collateral 

to or terminate transactions with certain counterparties. The aggregate fair value of all derivatives with credit-risk-related 

contingent features that were in a net liability position as of December 31, 2012 was $6.4 billion, for which we posted 

collateral of $6.3 billion in the normal course of business. If our senior unsecured debt had been downgraded to AA or Aa1, 

or even to AA- or Aa2, we would not have been required to post any additional collateral as of December 31, 2012. If all of 

the credit-risk-related contingency features underlying these agreements had been triggered, an additional $159 million would 

have been required either to be posted as collateral or to immediately settle our positions based on the individual agreements 

and our fair value position as of December 31, 2012. An additional reduction in our credit ratings may also materially 

adversely affect our liquidity, our ability to conduct our normal business operations, our financial condition and our results of 

operations. Our credit ratings and ratings outlook are included in “MD&A—Liquidity and Capital Management—Liquidity 

Management—Credit Ratings.”

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 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 mortgage sellers/servicers that service the loans we hold in our 

mortgage portfolio or that back our Fannie Mae MBS; sellers/servicers that are obligated to repurchase loans from us or 

reimburse us for losses in certain circumstances; third-party providers of credit enhancement on the mortgage assets that we 

hold in our mortgage portfolio or that back our Fannie Mae MBS, including mortgage insurers, lenders with risk sharing 

arrangements and financial guarantors; issuers of securities held in our cash and other investments portfolio; and derivatives 

counterparties. 

We may have multiple exposures to one counterparty as many of our counterparties provide several types of services to us. 

For example, our lender customers or their affiliates 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. 

An institutional counterparty may default in its obligations to us for a number of reasons, such as changes in financial 

condition that affect its credit rating, a reduction in liquidity, operational failures or insolvency. Although the liquidity and 

financial condition of some of our institutional counterparties improved in 2012 compared with 2011, there is still significant 

risk to our business of defaults by these counterparties due to bankruptcy or receivership, lack of liquidity, insufficient 

capital, operational failure or other reasons. 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, which would adversely affect our business, results 

of operations, financial condition, liquidity and net worth. For example, failure by a significant seller/servicer counterparty, or 

a number of sellers/servicers, to fulfill repurchase obligations to us could result in a significant increase in our credit losses 

and have a material adverse effect on our results of operations and financial condition. 

We routinely execute a high volume of transactions with counterparties in the financial services industry. Many of the 

transactions we engage in with these counterparties expose us to credit risk relating to the possibility of a default by our 

counterparties. In addition, to the extent these transactions are secured, our credit risk may be exacerbated to the extent that 

the collateral we hold cannot be realized or can be liquidated only at prices too low to recover the full amount of the loan or 

derivative exposure. We have exposure to these financial institutions in the form of unsecured debt instruments and 

derivatives transactions. As a result, we could incur losses relating to defaults under these instruments or relating to 

impairments to the carrying value of our assets represented by these instruments. These losses could materially and adversely 

affect our business, results of operations, financial condition, liquidity and net worth. 

We depend on our ability to enter into derivatives transactions in order to manage the duration and prepayment risk of our 

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, liquidity and net 

worth. 
55

We may incur losses as a result of claims under our mortgage insurance policies not being paid in full or at all, and we 

may face business disruptions and increased concentration risk. 

We rely heavily on mortgage insurers to provide insurance against borrower defaults on single-family conventional mortgage 

loans with LTV ratios over 80% at the time of acquisition. Several of our mortgage insurer counterparties continued to incur 

losses in 2012, and their risk-to-capital positions continued to erode, which may increase the risk that these counterparties 

will fail to fulfill their obligations to pay in full our claims under insurance policies.

Three of our largest mortgage insurance counterparties—PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance 

Corporation (“Triad”) and Republic Mortgage Insurance Company (“RMIC”)—are under various forms of supervised control 

by their state regulator and are in run-off. A mortgage insurer that is in run-off continues to collect renewal premiums on its 

existing insurance business, but no longer writes new insurance. Entering run-off may close off a source of profits and 

liquidity that may have otherwise assisted a mortgage insurer in paying claims under insurance policies, and could also cause 

the quality and speed of its claims processing to deteriorate. PMI, Triad and RMIC are currently paying only a portion of 

policyholder claims and deferring the remaining portion. Currently, PMI is paying only 50% of claims under its mortgage 

guaranty insurance policies in cash and is deferring the remaining 50%, and both Triad and RMIC are paying 60% of claims 

in cash and deferring the remaining 40%. It is uncertain when, or if, regulators for PMI, Triad or RMIC will allow them to 

begin paying deferred policyholder claims and/or increase or decrease the amount of cash they pay on claims.

In addition to the three mortgage insurers in run-off, the amount of capital held by both Genworth Mortgage Insurance 

Corporation (“Genworth”) and Mortgage Guaranty Insurance Corporation (“MGIC”) has fallen below applicable state 

regulatory capital requirements. As a result, each is currently operating pursuant to a waiver it received from the regulator of 

the state regulatory capital requirements applicable to its main insurance writing entity. Moreover, Radian Guaranty, Inc. 

(“Radian”) has disclosed that, in the absence of additional capital contributions to its main insurance writing entity, its capital 

might fall below state regulatory capital requirements in 2013. 

These six mortgage insurers—PMI, Triad, RMIC, Genworth, MGIC and Radian—provided a combined $70.3 billion, or 

77%, of our risk-in-force mortgage insurance coverage of our single-family guaranty book of business as of December 31, 

2012. We do not know how long regulators will permit mortgage insurers that do not meet, or may soon fail to meet, state 

regulatory capital requirements to continue operating without obtaining additional capital. Nor do we know how long our 

mortgage insurer counterparties that are operating under waivers will continue to operate under waivers, or how long those 

that are currently below their state-imposed risk-to-capital limits will remain below these limits. If a mortgage insurer 

counterparty is unable to generate or obtain sufficient capital to stay below its risk-to-capital limits and cannot secure and 

maintain a waiver from its state regulator, it will likely be placed into run-off or receivership. 

Some mortgage insurers have explored corporate restructurings, which are intended to provide relief from risk-to-capital 

limits in certain states. A restructuring plan that would involve contributing capital to a subsidiary of a mortgage insurer 

would result in less liquidity available to the mortgage insurer to pay claims on its existing book of business and an increased 

risk that the mortgage insurer will not pay its claims in full in the future. 

From time to time we assess our mortgage insurer counterparties’ ability to fulfill their obligations to us, and our loss reserves 

take into account this assessment. If our assessment indicates their ability to pay claims has deteriorated significantly or if our 

projected claim amounts have increased, it could result in a significant increase in our loss reserves and our credit losses. 

Beginning in 2007, many mortgage insurers stopped insuring new mortgages with certain higher risk characteristics such as 

higher LTV ratios, lower borrower FICO credit scores or select property types. Under HARP, we allow our borrowers who 

have mortgage loans with current LTV ratios above 80% to refinance their mortgages without obtaining new mortgage 

insurance in excess of what is already in place. Except as permitted under HARP, our charter specifically requires us to obtain 

credit enhancement on single-family conventional mortgage loans with loan-to-value ratios over 80% at the time of purchase. 

As a result, an inability to obtain mortgage insurance may inhibit our ability to serve and support the housing and mortgage 

markets, meet our housing goals, and help borrowers remain in their homes by acquiring refinancings into more affordable 

loans. In addition, access to fewer mortgage insurer counterparties increases our concentration risk with the remaining 

mortgage insurers in the industry. 

Changes in the mortgage industry may negatively impact our business. 

A number of our largest single-family mortgage seller/servicer counterparties have reduced or eliminated their purchases of 

mortgage loans from mortgage brokers and correspondent lenders. As a result, we are acquiring an increasing portion of our 

business volume directly from, and a larger portion of our servicing is being performed by, smaller financial institutions that 

may not have the same financial strength or operational capacity as our largest counterparties. Our top five lender customers 

in terms of single-family business acquisition volume, in the aggregate, accounted for approximately 46% of our singlefamily business acquisition volume in 2012, compared with approximately 60% of our single-family business acquisition 
56

volume in 2011. In addition, only three of our top five lender customers for 2011 remained in our top five for 2012. Similarly, 

some of our servicing volume is shifting to smaller or non-traditional servicers. Our five largest single-family mortgage 

servicers, including their affiliates, serviced 57% of our single-family guaranty book of business as of December 31, 2012, 

compared with 63% as of December 31, 2011. The potentially lesser financial strength and operational capacity of smaller 

mortgage servicers may negatively affect their ability to service the loans on our behalf or to satisfy their repurchase or 

compensatory fee obligations. This decrease in the concentration of our business with large institutions could increase both 

our institutional counterparty credit risk and our mortgage credit risk, and could have a material adverse effect on our 

business, results of operations, financial condition, liquidity and net worth.

The loss of business volume from a key lender customer could adversely affect our business and result in a decrease in 

our revenues, especially if we are unable to replace the business volume that customer provided to us. 

Our ability to generate revenue from the purchase and securitization of mortgage loans depends on our ability to acquire a 

steady flow of mortgage loans from the originators of those loans. Although we are acquiring an increasing portion of our 

single-family business volume directly from smaller financial institutions, we continue to acquire a significant portion of our 

mortgage loans from several large mortgage lenders, with our top five lender customers in terms of single-family business 

acquisition volume, in the aggregate, accounting for approximately 46% of our single-family business acquisition volume in 

2012. Accordingly, maintaining our current business relationships and business volumes with our top lender customers is 

important to our business. To the extent a key lender customer significantly reduces the volume or quality of mortgage loans 

that the lender delivers to us or that we are willing to buy from them, we could lose significant business volume that we 

might be unable to replace, which could adversely affect our business and result in a decrease in our revenues. In addition, a 

significant reduction in the volume of mortgage loans that we securitize could reduce the liquidity of Fannie Mae MBS, 

which in turn could have an adverse effect on their market value.

Our reliance on third parties to service our mortgage loans may impede our efforts to keep people in their homes and 

adversely affect the re-performance rate of loans we modify. 

Mortgage servicers, or their agents and contractors, typically are the primary point of contact for borrowers on our loans. We 

rely on these mortgage servicers to identify and contact troubled borrowers as early as possible, to assess the situation and 

offer appropriate options for resolving the problem and to successfully implement a solution. Over the past few years, the 

demands placed on experienced mortgage loan servicers to service delinquent loans have increased significantly across the 

industry, straining servicer capacity. To the extent that mortgage servicers are hampered by limited resources or other factors, 

they may not be successful in conducting their servicing activities in a manner that fully accomplishes our objectives within 

the timeframe we desire. Further, our servicers have advised us that they have not been able to reach many of the borrowers 

who may need help with their mortgage loans even when repeated efforts have been made to contact the borrower. 

For these reasons, 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. This reliance could have a material adverse effect on our business, results of operations and financial 

condition. 

Changes in the foreclosure environment and our reliance on servicers and their counsel and other service providers to 

complete foreclosures could continue to have a material adverse effect on our business, results of operations, financial 

condition and net worth. 

The processing of foreclosures continues to be slow in many states, primarily as a result of the elevated level of foreclosures 

caused by the housing market downturn that began in 2006, changes in state foreclosure laws, new federal and state servicing 

requirements imposed by regulatory actions and legal settlements, and the need for servicers to adapt to these changes. 

The slow pace of foreclosures has negatively affected our foreclosure timelines, credit-related expenses and single-family 

serious delinquency rates, and we expect they will continue to do so. We believe the slow pace of foreclosures is also slowing 

the recovery of the housing market. It may also negatively affect the value of the private-label securities we hold and result in 

additional impairments on these securities. Moreover, the failure of our servicers or their service providers to apply prudent 

and effective process controls and to comply with legal and other requirements in the foreclosure process poses operational, 

reputational and legal risks for us. 

In addition, in response to an October 2011 directive from FHFA, we are phasing out the practice of requiring mortgage 

servicers to use our network of retained attorneys to perform default- and foreclosure-related legal services for our loans. 

Phasing out the use of our retained attorney network may make it more difficult for us to oversee the performance of defaultand foreclosure-related legal services for our loans, which may adversely impact our efforts to reduce our credit losses.
57

Challenges to the MERS® company, system and processes could pose operational, reputational and legal risks for us. 

MERSCORP Holdings, Inc. (“MERSCORP”) is a privately held company that maintains an electronic registry (the “MERS 

System”) that tracks servicing rights and ownership of loans in the United States. Mortgage Electronic Registration Systems, 

Inc. (“MERS”), a wholly owned subsidiary of MERSCORP, can serve as a nominee for the owner of a mortgage loan and, in 

that role, become the mortgagee of record for the loan in local land records. Fannie Mae sellers/servicers may choose to use 

MERS as a nominee; however, we have prohibited servicers from initiating foreclosures on Fannie Mae loans in MERS’s 

name. Approximately half of the loans we own or guarantee are registered in MERS’s name and the related servicing rights 

are tracked in the MERS System. The MERS System is widely used by participants in the mortgage finance industry. Along 

with a number of other organizations in the mortgage finance industry, we are a shareholder of MERSCORP. 

Several legal challenges have been made disputing MERS’s ability to initiate foreclosures, act as nominee in local land 

records, and/or assign mortgages or take other action on behalf of the loan owner. These challenges seek judicial relief 

ranging from money damages to injunctive/declaratory relief seeking the prevention of mortgage assignments by MERS and/

or the voiding of completed foreclosures in which MERS appeared in the chain of title. These challenges have focused public 

attention on MERS and on how loans are recorded in local land records. As a result, these challenges could negatively affect 

MERS’s ability to serve as the mortgagee of record in some jurisdictions, which could cause additional costs and time in the 

recordation process. These challenges also could result in court decisions that substantially delay new or pending 

foreclosures, or void completed foreclosures in certain jurisdictions, which would require that we re-foreclose on the affected 

properties, thereby increasing our costs and lengthening the time it takes for us to foreclose on and dispose of the properties. 

In addition, where MERS is the mortgagee of record, it must execute assignments of mortgages, affidavits and other legal 

documents in connection with foreclosure proceedings. In April 2011, federal banking regulators and FHFA announced that 

they were taking enforcement action against MERS and MERSCORP to address significant weaknesses in, among other 

things, oversight, management supervision and corporate governance at MERS and MERSCORP that were uncovered as part 

of the regulators’ review of mortgage servicers’ foreclosure processing. Failures by MERS or MERSCORP to apply prudent 

and effective process controls and to comply with legal and other requirements could pose counterparty, operational, 

reputational and legal risks for us. If investigations or new regulation or legislation restricts servicers’ use of MERS, our 

counterparties may be required to record all mortgage transfers in land records, incurring additional costs and time in the 

recordation process. At this time, we cannot predict the ultimate outcome of these legal challenges to, or the enforcement 

action against, MERS and MERSCORP or the impact on our business, results of operations or financial condition. 

Changes in accounting standards and policies can be difficult to predict and can materially impact how we record and 

report our financial results. 

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of 

operations. From time to time, the FASB 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 and results of operations. We could 

be required to apply new or revised guidance retrospectively, which may result in the revision of prior period financial 

statements by material amounts. The implementation of new or revised accounting guidance could have a material adverse 

effect on our financial results or net worth and result in or contribute to the need for additional draws from Treasury under the 

senior preferred stock purchase agreement.

Legislative and regulatory changes affecting the mortgage market may negatively impact our business, results of 

operations or financial condition. 

As a result of action by Congress or government agencies, significant changes may be effected in the mortgage market that 

could negatively impact our business, results of operation or financial condition. These effects could be the result of actions 

taken in connection with housing finance reform. Alternatively, changes aimed at addressing other issues could affect us. For 

example, if Congress addresses fiscal issues by restricting the deductibility of mortgage interest, depending on the extent and 

nature of the restrictions, our business and financial results could be significantly adversely affected.

Basel III capital and liquidity rules could materially and adversely affect demand by banks for our debt and MBS 

securities in the future and otherwise could affect the future business practices of our customers and counterparties. 

Recently published international bank liquidity requirements may adversely affect demand by banks for our debt and Fannie 

Mae MBS securities in the future, which could in turn have a material adverse effect on our business, results of operations, 

financial condition, liquidity or net worth. Basel III, a set of global regulatory standards on bank capital adequacy and 

liquidity developed by the Basel Committee on Banking Supervision, was initially issued in December 2010. Basel III 
58

generally narrowed the definition of capital that can be used to meet risk-based standards and raised the amount of capital 

that must be held by banks. Basel III also established liquidity requirements for banks. On January 6, 2013, the Basel 

Committee revised these liquidity rules to require banks subject to Basel III to hold a specified level of high-quality liquid 

assets, no more than 40% of which may be composed of certain types of assets, including debt and mortgage-related 

securities of Fannie Mae, Freddie Mac and the other GSEs. These requirements will be phased in from 2015 through 2018. 

U.S. banking regulators are already working to update Basel capital standards in the United States. We believe substantially 

more than 40% of U.S. banks’ liquid assets are currently composed of GSE debt and mortgage-related securities. Depending 

on how the Basel III liquidity rules are implemented in the United States, in the future they could materially, adversely affect 

demand by banks for our debt securities and Fannie Mae MBS. 

In addition, Basel III’s revisions to international capital requirements, depending on how they are implemented in the United 

States, could limit some lenders’ ability to count the value of their rights to service mortgage loans as assets in meeting their 

regulatory capital requirements, which may reduce the economic value of mortgage servicing rights. As a result, a number of 

our customers and counterparties may change their business practices, including reducing the amount of loans they service or 

exiting servicing altogether. 

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 and a 

material weakness in our internal control over financial reporting. In addition, our independent registered public accounting 

firm, Deloitte & 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 within FHFA’s knowledge. 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, it is likely that we will 

not remediate this weakness while we are under conservatorship. See “Controls and Procedures” for further discussion of 

management’s conclusions on our disclosure controls and procedures and internal control over financial reporting. 

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 

these policies and methods comply with GAAP and reflect management’s 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 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 “Note 1, Summary of Significant Accounting 

Policies” for a description of our significant accounting policies. 

We have identified some of our accounting policies as being critical to the presentation of our financial condition and results 

of operations. These accounting policies are described in “MD&A—Critical Accounting Policies and Estimates.” We believe 

these policies are critical because they require 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 total loss reserves are so large, even a change 

that has a small impact relative to the size of our loss reserves can have a meaningful impact on our results for the quarter in 

which we make the change. 
59

Due to the complexity of the critical accounting policies we have identified, our accounting methods relating to these policies 

involve substantial use of models. Models are inherently imperfect predictors of actual results because they are based on 

assumptions, including assumptions about future events. Our models may not include assumptions that reflect very positive 

or very negative market conditions and, accordingly, our actual results could differ significantly from those generated by our 

models. As a result of the above factors, 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. 

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 model’s 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 primary models are vetted by an independent model risk oversight team within 

our Enterprise Risk Division. 

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 oversight team and our business, finance, and risk 

committees. 

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, asset and liability 

management and the management of our net worth. Any of these decisions could adversely affect our businesses, 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. 

Changes in interest rates or our loss of the ability to manage interest rate risk successfully could adversely affect our net 

interest income and increase interest rate risk. 

We fund our operations primarily through the issuance of debt and invest our funds primarily in mortgage-related assets that 

permit mortgage borrowers to prepay their mortgages at any time. These business activities expose us to market risk, which is 

the risk of adverse changes in the fair value of financial instruments resulting from changes in market conditions. Our most 

significant market risks are interest rate risk and prepayment risk. We describe these risks in more detail in “MD&A—Risk 

Management—Market Risk Management, Including Interest Rate Risk Management.” Changes in interest rates affect both 

the value of our mortgage assets and prepayment rates on our mortgage loans. 

Changes in interest rates could have a material adverse effect on our business, results of operations, financial condition, 

liquidity and net worth. 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 derivatives 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. 
60

Our business is subject to laws and regulations that restrict our activities and operations, which may prohibit us from 

undertaking activities that management believes would benefit our business and limit our ability to diversify 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. As a 

company under conservatorship, our primary regulator has management authority over us in its role as our conservator. We 

are also subject to other laws and regulations that affect our business, including those regarding taxation and privacy. 

The Charter Act defines our permissible business activities. For example, we may not originate mortgage loans or purchase 

single-family loans in excess of the conforming loan limits, and our business is limited to the U.S. housing finance sector. In 

addition, our conservator has determined that, while in conservatorship, we will not be permitted to engage in new products 

and will be limited to continuing our existing business activities and taking actions necessary to advance the goals of the 

conservatorship. 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. economy, specifically, the U.S. housing 

market. Weak or unstable conditions in the housing market, as we have seen in recent years, can therefore have a significant 

adverse effect on our results of operations, financial condition and net worth. 

We could be required to pay substantial judgments, settlements or other penalties as a result of civil litigation. 

We are a party to a number of lawsuits. We are unable at this time to estimate our potential liability in some of these matters, 

but may be required to pay substantial judgments, settlements or other penalties and incur significant expenses in connection 

with some of these lawsuits, which could have a material adverse effect on our business, results of operations, financial 

condition, liquidity and net worth. In addition, responding to these lawsuits may divert significant internal resources away 

from managing our business. More information regarding these lawsuits is included in “Note 18, Commitments and 

Contingencies.” 

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. 

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. 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. 

RISKS RELATING TO OUR INDUSTRY

A decline in U.S. home prices or activity in the U.S. housing market would likely cause higher credit losses and creditrelated expenses, and lower business volumes. 

If a decline in home prices or activity in the U.S. housing market resulted in increases in delinquencies or defaults, or in loss 

severity, it would likely result in a higher level of credit losses and credit-related expenses, which in turn would adversely 

affect our results of operations, net worth and financial condition. 

In addition, our business volume is affected by the rate of growth in total U.S. residential mortgage debt outstanding and the 

size of the U.S. residential mortgage market. Since the second quarter of 2008, single-family mortgage debt outstanding has 

been steadily declining. A decline in mortgage debt outstanding reduces the unpaid principal balance of mortgage loans 

available for us to securitize or purchase, which in turn could reduce our guaranty fee income and 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 the decline in 

the rate of growth in mortgage originations, which could adversely affect our results of operations and financial condition. 
61

The Dodd-Frank Act and regulatory changes in the financial services industry may negatively impact our business. 

The Dodd-Frank Act is significantly changing the regulation of the financial services industry, resulting in new standards 

related to regulatory oversight of systemically important financial companies, derivatives transactions, asset-backed 

securitization, mortgage underwriting and consumer financial protection. This legislation is affecting and will, in the future, 

directly and indirectly affect many aspects of our business and could have a material adverse effect on our business, results of 

operations, financial condition, liquidity and net worth. The Dodd-Frank Act and related regulatory changes could require us 

to change certain business practices, cause us to incur significant additional costs, limit the products we offer, require us to 

increase our regulatory capital or otherwise adversely affect our business. Additionally, implementation of this legislation will 

result in increased supervision and more comprehensive regulation of our customers and counterparties in the financial 

services industry, which may have a significant impact on the business practices of our customers and counterparties, as well 

as on our counterparty credit risk. 

Examples of aspects of the Dodd-Frank Act and related regulatory changes that may affect us include mandatory clearing of 

certain derivatives transactions, which imposes significant additional costs on us; minimum standards for residential 

mortgage loans, which could subject us to increased legal risk for some loans we acquire; and the development of credit risk 

retention regulations applicable to residential mortgage loan securitizations, which could impact the types and volume of 

loans sold to us. Uncertainty regarding the CFPB’s “ability to repay” rule may increase our legal risk for loans we acquire. 

Enhanced prudential standards that become applicable to certain bank holding companies and nonbank financial companies 

could affect investor demand for our debt and MBS securities. We could also be designated as a systemically important 

nonbank financial company subject to supervision and regulation by the Federal Reserve. If this were to occur, the Federal 

Reserve would have the authority to examine us and could impose stricter prudential standards on us, including risk-based 

capital requirements, leverage limits, liquidity requirements, credit concentration limits, resolution plan and credit exposure 

reporting requirements, overall risk management requirements, contingent capital requirements, enhanced public disclosures 

and short-term debt limits. 

Because federal agencies have not completed all of the extensive rule-making processes needed to implement and clarify 

many of the provisions of the Dodd-Frank Act, it is difficult to assess fully the impact of this legislation on our business and 

industry at this time, and we cannot predict what similar changes to statutes or regulations will occur in the future. In 

addition, for many of the provisions of the Dodd-Frank Act, uncertainty regarding how they will ultimately be implemented 

is affecting and may in the future affect our actions and those of our customers and counterparties, which may negatively 

impact our business, results of operation, financial condition or liquidity.

Basel III’s revisions to international capital requirements also may have a significant impact on us. Depending on how they 

are implemented by regulators, the Basel III rules could be the basis for a revised framework for GSE capital standards that 

could increase our capital requirements. See “Risks Relating to Our Business,” for a discussion of how the Basel III capital 

and liquidity rules could affect investor demand for our debt and MBS securities and the business practices of our customers 

and counterparties. 

In addition, the actions of Treasury, the CFTC, the SEC, the FDIC, the Federal Reserve and international central banking 

authorities directly or indirectly impact financial institutions’ 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. In particular, these 

changes could affect our ability to issue debt and may reduce our customer base. 

The occurrence of a major natural or other disaster in the United States could negatively impact our credit losses and 

credit-related expenses or disrupt our business operations in the affected geographic area. 

We conduct our business in the residential and multifamily mortgage markets and own or guarantee the performance of 

mortgage loans throughout the United States. The occurrence of a major natural or environmental disaster, terrorist attack, 

pandemic, or similar event (a “major disruptive event”) in a regional geographic area of the United States could negatively 

impact our credit losses and credit-related expenses in the affected area. 

The occurrence of a major disruptive event could negatively impact a geographic area in a number of different ways, 

depending on the nature of the event. 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 continue 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, which could have a material adverse 

effect on our business, results of operations, financial condition, liquidity and net worth. While we attempt to create a 
62

geographically diverse mortgage credit book of business, there can be no assurance that a major disruptive event, depending 

on its magnitude, scope and nature, will not generate significant credit losses and credit-related expenses. 

Additionally, the contingency plans and facilities that we have in place may be insufficient to prevent an adverse effect on our 

ability to conduct business, which could lead to financial losses. Despite our ongoing protective measures and planning, 

unforeseen catastrophic events may exceed our recovery capabilities and those of our customers and the marketplace.

Item 1B. Unresolved Staff Comments 

None.

Item 2. Properties

We own our principal office, which is located at 3900 Wisconsin Avenue, NW, Washington, DC, as well as additional 

Washington, DC facilities at 3939 Wisconsin Avenue, NW and 4250 Connecticut Avenue, NW. We also own two office 

facilities in Herndon, Virginia, as well as two additional facilities located in Reston, Virginia; and Urbana, Maryland. These 

owned facilities contain a total of approximately 1,459,000 square feet of space. We lease the land underlying the 4250 

Connecticut Avenue building pursuant to a ground lease that automatically renews on July 1, 2029 for an additional 49 years 

unless we elect to terminate the lease by providing notice to the landlord of our decision to terminate at least one year prior to 

the automatic renewal date. In addition, we lease approximately 429,000 square feet of office space, including a conference 

center, at 4000 Wisconsin Avenue, NW, which is adjacent to our principal office. The lease term for the office and conference 

center at 4000 Wisconsin Avenue expires in April 2018. We also lease an additional approximately 87,000 square feet of 

office space at one other location in Washington, DC. We maintain approximately 713,000 square feet of office space in 

leased premises in Pasadena, California; Irvine, California; Atlanta, Georgia; Chicago, Illinois; Philadelphia, Pennsylvania; 

and three facilities in Dallas, Texas.

Item 3. Legal Proceedings

This item describes our material legal proceedings. We describe additional material legal proceedings in “Note 18, 

Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically 

described or incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise 

in the ordinary course of business that do not have a material impact on our business. Litigation claims and proceedings of all 

types are subject to many factors that generally cannot be predicted accurately.

We record reserves for legal claims when losses associated with the claims become probable and the amounts can be 

reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts 

reserved for those claims. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably 

estimated, we do not recognize in our consolidated financial statements the potential liability that may result from these 

matters. We presently cannot determine the ultimate resolution of the matters described below or incorporated by reference 

into this item. We have recorded a reserve for legal claims related to those matters when we were able to determine a loss was 

both probable and reasonably estimable. If certain of these matters are determined against us, it could have a material adverse 

effect on our results of operations, liquidity and financial condition, including our net worth.

FHFA Private-Label Mortgage-Related Securities Litigation 

In the third quarter of 2011, FHFA, as conservator for us and for Freddie Mac, filed 16 lawsuits on behalf of us and Freddie 

Mac against various financial institutions, their officers and affiliated and unaffiliated underwriters that were responsible for 

marketing and selling private-label mortgage-related securities to us. The lawsuits seek to recover losses we and Freddie Mac 

incurred on the securities. Fourteen of the lawsuits are pending in the U.S. District Court for the Southern District of New 

York (“SDNY”). These cases are against Bank of America Corp.; Barclays Bank PLC; Citigroup, Inc.; Credit Suisse 

Holdings (USA), Inc.; Deutsche Bank AG; First Horizon National Corporation; Goldman, Sachs & Co.; HSBC North 

America Holdings Inc.; JPMorgan Chase & Co.; Merrill Lynch & Co.; Morgan Stanley; Nomura Holding America Inc.; SG 

Americas, Inc.; and UBS Americas Inc. (“UBS”) and against certain related entities and individuals. FHFA’s lawsuit against 

Countrywide Financial Corporation (“Countrywide”) and certain related entities and individuals is pending in the U.S. 

District Court for the Central District of California and its lawsuit against The Royal Bank of Scotland Group PLC (“RBS”) 

and certain related entities and individuals is pending in the U.S. District Court for the District of Connecticut. The lawsuit 

against UBS was filed on July 27, 2011, and all the others were filed on September 2, 2011. The lawsuits allege that the 

defendants violated federal and state securities laws and, in some cases, committed fraud by making material misstatements 

and omissions regarding the characteristics of the loans underlying the securities in the offering documents for the securities 

that were sold to Fannie Mae and Freddie Mac. The complaints seek, among other things, rescission and recovery of 

consideration paid for the securities at issue in the lawsuits, monetary damages, interest and, in certain cases, punitive 

damages for common law fraud claims. Discovery is ongoing in all cases, except in the Countrywide case.
63

SDNY cases. On December 21, 2011, FHFA filed an amended complaint in the UBS case. On January 20, 2012, defendants in 

the UBS case filed a motion to dismiss the amended complaint. On May 4, 2012, the court denied defendants’ motion to 

dismiss in the UBS case with respect to the federal and state securities law claims and granted defendants’ motion to dismiss 

with respect to the negligent misrepresentation claim. On June 13, 2012 and June 28, 2012, FHFA filed amended complaints 

in the non-UBS cases pending in the SDNY. Defendants in these cases filed motions to dismiss on July 13, 2012 and August 

17, 2012. On November 26, 2012, the U.S. Court of Appeals for the Second Circuit heard the UBS defendants’ appeal of the 

district court’s May 4, 2012 order denying their motion to dismiss. In a series of orders issued in November 2012, the district 

court denied, in large part, defendants’ motions to dismiss in the non-UBS cases.

RBS case. On February 1, 2012, FHFA filed an amended complaint in the RBS case. On March 2, 2012, defendants in the 

RBS case filed a motion to dismiss the amended complaint. This motion is fully briefed.

Countrywide case. On June 8, 2012, defendants in the Countrywide case filed motions to dismiss. FHFA filed an amended 

complaint in that case on June 29, 2012 and defendants filed renewed motions to dismiss on July 13, 2012. On October 18, 

2012, the court denied defendants’ motions to dismiss as to all claims except certain federal securities law claims related to 

securities with shelf registration statements filed before July 25, 2005. On December 18, 2012, defendants filed motions to 

dismiss on certain issues not covered by the court’s October order. On March 15, 2013, the court denied defendants’ motions 

in part and granted them in part.

Investigation into Multifamily Asset Stabilization Program 

In October 2011, we received notice of an ongoing investigation by the Office of Inspector General of FHFA (“FHFA OIG”) 

and the U.S. Attorney for the Eastern District of Virginia with regard to a multifamily agreement with The Related 

Companies, L.P. (the “Multifamily Asset Stabilization Program”). The Department of Justice Civil Division has also become 

involved in the investigation. The financial impact of the agreement was not material to our financial statements. In 

connection with the investigation, we have received subpoenas for documents from the FHFA OIG. We are cooperating with 

this investigation.

Item 4. Mine Safety Disclosures

None.
64

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 

Securities

Our common stock is traded in the over-the-counter market and quoted on the OTC Bulletin Board under the ticker symbol 

“FNMA.” The transfer agent and registrar for our common stock is Computershare, P.O. Box 43078, Providence, Rhode 

Island 02940. 

Common Stock Data 

The following table displays, for the periods indicated, the high and low prices per share of our common stock as reported in 

the Bloomberg Financial Markets service. These prices represent high and low trade prices. No dividends were declared on 

shares of our common stock during the periods indicated.

Quarter High Low

2011

First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.96 $ 0.30

Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50 0.32

Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.39 0.23

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.27 0.19

2012

First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.20

Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.32 0.25

Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.34 0.20

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.31 0.25

Dividends 

Our payment of dividends is subject to the following restrictions: 

Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not pay any 

dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. 

Restrictions Under Senior Preferred Stock Purchase Agreement. The senior preferred stock purchase agreement prohibits us 

from declaring or paying any dividends on Fannie Mae equity securities without the prior written consent of Treasury. In 

addition, in 2012 the terms of the senior preferred stock purchase agreement were amended to ultimately require the payment 

of our entire net worth to Treasury. As a result, our net income will not be available to common stockholders.

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. See “MD&A—Liquidity and Capital Management” for information on dividends declared and paid to Treasury on the 

senior preferred stock. 

Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of 

dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of the 

Director of FHFA is required for any dividend payment. Under the GSE Act, we are not permitted to make a capital 

distribution if, after making the distribution, we would be undercapitalized, except the Director of FHFA may permit us to 

repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at least an 

equivalent amount and will reduce our financial obligations or otherwise improve our financial condition. 

Restrictions Relating to Subordinated Debt. During any period in which we defer payment of interest on qualifying 

subordinated debt, we may not declare or pay dividends on, or redeem, purchase or acquire, our common stock or preferred 

stock. 

Holders 

As of February 28, 2013, we had approximately 14,000 registered holders of record of our common stock, including holders 

of our restricted stock. In addition, as of February 28, 2013, 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. 
65

Recent Sales of Unregistered Securities

Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or issuing our 

equity interests, other than as required by (and pursuant to) the terms of a binding agreement in effect on September 7, 2008, 

without the prior written consent of Treasury. During the quarter ended December 31, 2012, we did not issue any equity 

securities.

Information about Certain Securities Issuances by Fannie Mae

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct 

financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet 

arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in 

connection with certain types of securities offerings, in prospectuses for that offering that are filed with the SEC.

Because the securities we issue are exempted securities under the Securities Act of 1933, we do not file registration 

statements or prospectuses with the SEC with respect to our securities offerings. To comply with the disclosure requirements 

of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence of these types of obligations 

either in offering circulars or prospectuses (or supplements thereto) that we post on our Web site or in a current report on 

Form 8-K that we file with the SEC, in accordance with a “no-action” letter we received from the SEC staff in 2004. In cases 

where the information is disclosed in a prospectus or offering circular posted on our Web site, the document will be posted on 

our Web site within the same time period that a prospectus for a non-exempt securities offering would be required to be filed 

with the SEC.

The Web site address for disclosure about our debt securities is www.fanniemae.com/debtsearch. From this address, investors 

can access the offering circular and related supplements for debt securities offerings under Fannie Mae’s universal debt 

facility, including pricing supplements for individual issuances of debt securities.

Disclosure about our obligations pursuant to some of the MBS we issue, some of which may be off-balance sheet obligations, 

can be found at www.fanniemae.com/mbsdisclosure. From this address, investors can access information and documents 

about our MBS, including prospectuses and related prospectus supplements.

We are providing our Web site address solely for your information. Information appearing on our Web site is not incorporated 

into this report.

Our Purchases of Equity Securities

We did not repurchase any of our equity securities during the fourth quarter of 2012.
66

Item 6. Selected Financial Data

The selected consolidated financial data displayed below are summarized from our results of operations for the five-year 

period ended December 31, 2012, as well as selected consolidated balance sheet data as of the end of each year within this 

five-year period. Certain prior period amounts have been reclassified to conform to the current period presentation. This data 

should be reviewed in conjunction with the audited consolidated financial statements and related notes and with the MD&A

included in this annual report on Form 10-K.

In 2009, the FASB concurrently revised the accounting guidance related to the consolidation of variable interest entities (the 

“consolidation accounting guidance”) and the accounting guidance related to transfers of financial assets. The revisions to the 

accounting guidance for these topics replaced the previous accounting model with a qualitative model for determining the 

primary beneficiary of a variable interest entity (“VIE”) and also increased the population of entities that are subject to 

assessment under the consolidation accounting guidance by removing the scope exception for qualifying special purpose 

entities. On January 1, 2010, we prospectively adopted the revised guidance for these topics, which had a significant impact 

on the presentation and comparability of our consolidated financial statements. Upon adoption of the consolidation 

accounting guidance, we consolidated the substantial majority of our single-class securitization trusts and eliminated 

previously recorded deferred revenue from our guaranty arrangements. While some line items in our consolidated financial 

statements were not impacted, others were impacted significantly, which reduces the comparability of our results for years 

prior to 2010.

For the Year Ended December 31,

2012 2011 2010 2009 2008

(Dollars in millions)

Statement of operations data:

Net revenues(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,988 $ 20,444 $ 17,493 $ 22,494 $ 17,436

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . (713) (308) (722) (9,861) (6,974)

Investment gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . 487 506 346 1,458 (246)

Fair value losses, net(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,977) (6,621) (511) (2,811) (20,129)

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,367) (2,370) (2,597) (2,207) (1,979)

Credit-related income (expenses)(3). . . . . . . . . . . . . . . . . . . . 1,106 (27,498) (26,614) (73,536) (29,809)

Other expenses, net(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124) (151) (642) (7,060) (1,776)

Benefit (provision) for federal income taxes. . . . . . . . . . . . . — 90 82 985 (13,749)

Net income (loss) attributable to Fannie Mae . . . . . . . . . . . . 17,224 (16,855) (14,014) (71,969) (58,707)

New business acquisition data:

Fannie Mae MBS issues acquired by third parties(5). . . . . . . $ 630,077 $ 478,870 $ 497,975 $ 496,067 $ 434,711

Mortgage portfolio purchases(6). . . . . . . . . . . . . . . . . . . . . . . 288,337 173,978 357,573 327,578 196,645

New business acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . $ 918,414 $ 652,848 $ 855,548 $ 823,645 $ 631,356
67

As of December 31,

2012 2011 2010 2009 2008

(Dollars in millions)

Balance sheet data:

Investments in securities:

 Fannie Mae MBS . . . . . . . . . $ 16,683 $ 24,274 $ 30,226 $ 229,169 $ 234,250

 Other agency MBS . . . . . . . . 13,361 16,744 19,951 43,905 35,440

 Mortgage revenue bonds. . . . 8,517 10,978 11,650 13,446 13,183

 Other mortgage-related 

securities . . . . . . . . . . . . . . 47,365 49,936 56,668 54,265 56,781

 Non-mortgage-related 

securities . . . . . . . . . . . . . .

17,950 49,848 32,753 8,882 17,640

Mortgage loans:(7)

 Loans held for sale . . . . . . . . 464 311 915 18,462 13,270

 Loans held for investment, 

net of allowance . . . . . . . .

2,948,942 2,898,310 2,922,805 376,099 412,142

Total assets. . . . . . . . . . . . . . . . 3,222,422 3,211,484 3,221,972 869,141 912,404

Short-term debt. . . . . . . . . . . . . 108,716 151,725 157,243 200,437 330,991

Long-term debt. . . . . . . . . . . . . 3,080,801 3,038,147 3,039,757 574,117 539,402

Total liabilities . . . . . . . . . . . . . 3,215,198 3,216,055 3,224,489 884,422 927,561

Senior preferred stock . . . . . . . 117,149 112,578 88,600 60,900 1,000

Preferred stock . . . . . . . . . . . . . 19,130 19,130 20,204 20,348 21,222

Total Fannie Mae 

stockholders’ equity 

(deficit) . . . . . . . . . . . . . . . . 7,183 (4,624) (2,599) (15,372) (15,314)

Net worth surplus (deficit)(8). . 7,224 (4,571) (2,517) (15,281) (15,157)

Book of business data:

Total mortgage assets(9). . . . . . $ 3,063,712 $3,065,616 $3,099,250 $ 769,252 $ 792,196

Unconsolidated Fannie Mae 

MBS, held by third parties(10)

. . 16,915 19,612 21,323 2,432,789 2,289,459

Other guarantees(11). . . . . . . . . 36,215 42,406 35,619 27,624 27,809

 Mortgage credit book of 

business. . . . . . . . . . . . . . . $ 3,116,842 $3,127,634 $3,156,192 $3,229,665 $3,109,464

 Guaranty book of business(12)

. $ 3,039,457 $3,037,549 $3,054,488 $3,097,201 $2,975,710

Credit quality:

Total nonperforming loans(13)

. . $ 250,897 $ 251,949 $ 253,579 $ 222,064 $ 119,955

Total loss reserves . . . . . . . . . . 62,629 76,938 66,251 64,891 24,753

Total loss reserves as a 

percentage of total guaranty 

book of business . . . . . . . . . .

2.06 % 2.53 % 2.17 % 2.10 % 0.83 %

Total loss reserves as a 

percentage of total 

nonperforming loans. . . . . . . 24.96 30.54 26.13 29.22 20.64

For the Year Ended December 31,

2012 2011 2010 2009 2008

Performance ratios:

Net interest yield(14). . . . . . . . . 0.68 % 0.60 % 0.51 % 1.65 % 1.03 %

Credit loss ratio (in basis 

points)(15). . . . . . . . . . . . . . . . . 48.2 bps 61.3 bps 77.4 bps 44.6 bps 22.7 bps
68

_______

(1) Consists of net interest income and fee and other income.

(2) Consists of the following: (a) derivatives fair value gains (losses), net; (b) trading securities gains (losses), net; (c) hedged mortgage 

assets gains (losses), net; (d) debt foreign exchange gains (losses), net; (e) debt fair value gains (losses), net; and (f) mortgage loans 

fair value losses, net.

(3) Consists of benefit (provision) for loan losses, provision for guaranty losses and foreclosed property income (expense).

(4) Consists of the following: (a) debt extinguishment losses, net; (b) gains (losses) from partnership investments; and (c) losses on certain 

guaranty contracts.

(5) Reflects unpaid principal balance of Fannie Mae MBS issued and guaranteed by us during the reporting period less: (a) securitizations 

of mortgage loans held in our mortgage portfolio during the reporting period and (b) Fannie Mae MBS purchased for our mortgage 

portfolio during the reporting period.

(6) Reflects unpaid principal balance of mortgage loans and mortgage-related securities we purchased for our mortgage portfolio during 

the reporting period. Includes acquisition of mortgage-related securities accounted for as the extinguishment of debt because the entity 

underlying the mortgage-related securities has been consolidated in our consolidated balance sheets. For 2012, 2011 and 2010, 

includes unpaid principal balance of approximately $46 billion, $67 billion, and $217 billion, respectively, of delinquent loans 

purchased from our single-family MBS trusts. Under our MBS trust documents, we have the option to purchase from MBS trusts loans 

that are delinquent as to four or more consecutive monthly payments.

(7) Mortgage loans consist solely of domestic residential real-estate mortgages.

(8)

 Total assets less total liabilities.

(9)

 Reflects unpaid principal balance of mortgage loans and mortgage-related securities reported in our consolidated balance sheets. The 

principal balance of resecuritized Fannie Mae MBS is included only once in the reported amount. As a result of our adoption of the 

consolidation accounting guidance as of January 1, 2010, we reflect a substantial majority of our Fannie Mae MBS as mortgage assets 

and the balance as unconsolidated Fannie Mae MBS.

(10)

 Reflects unpaid principal balance of unconsolidated Fannie Mae MBS, held by third-party investors. The principal balance of 

resecuritized Fannie Mae MBS is included only once in the reported amount.

(11)

 Primarily includes long-term standby commitments we have issued and single-family and multifamily credit enhancements we have 

provided that are not otherwise reflected in the table.

(12)

 Reflects mortgage credit book of business less non-Fannie Mae mortgage-related securities held in our investment portfolio for which 

we do not provide a guaranty.

(13)

 Consists of on-balance sheet nonperforming loans held in our mortgage assets and off-balance sheet nonperforming loans in 

unconsolidated Fannie Mae MBS trusts held by third parties. Includes all nonaccrual loans, as well as TDRs and HomeSaver Advance 

first-lien loans on accrual status. See “MD&A—Consolidated Results of Operations—Credit-Related (Income) Expenses—

Nonperforming Loans” for a discussion of our nonperforming loans.

(14)

 Calculated based on net interest income for the reporting period divided by the average balance of total interest-earning assets during 

the period, expressed as a percentage.

(15)

 Consists of (a) charge-offs, net of recoveries and (b) foreclosed property income (expense) for the reporting period (adjusted to 

exclude the impact of fair value losses resulting from credit-impaired loans acquired from MBS trusts and HomeSaver Advance loans) 

divided by the average guaranty book of business during the period, expressed in basis points. See “MD&A—Consolidated Results of 

Operations—Credit-Related (Income) Expenses—Credit Loss Performance Metrics” for a discussion of how our credit loss metrics 

are calculated.
69

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this MD&A in conjunction with our consolidated financial statements as of December 31, 2012 and related 

notes, and with “Business—Executive Summary.”

This report contains forward-looking statements that are based upon management’s current expectations and are subject to 

significant uncertainties and changes in circumstances. Please review “Business—Forward-Looking Statements” for more 

information on the forward-looking statements in this report and “Risk Factors” for a discussion of factors that could cause 

our actual results to differ, perhaps materially, from our forward-looking statements. Please also see “Glossary of Terms Used 

in This Report.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, 

estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the consolidated 

financial statements. Understanding our accounting policies and the extent to which we use management judgment and 

estimates in applying these policies is integral to understanding our financial statements. We describe our most significant 

accounting policies in “Note 1, Summary of Significant Accounting Policies.”

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as 

necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in 

applying our critical accounting policies with the Audit Committee of our Board of Directors. See “Risk Factors” for a 

discussion of the risk associated with the need for management to make judgments and estimates in applying our accounting 

policies and methods. We have identified four of our accounting policies as critical because they involve significant 

judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different 

estimates and assumptions could have a material impact on our reported results of operations or financial condition. These 

critical accounting policies and estimates are as follows:

• Fair Value Measurement

• Total Loss Reserves

• Other-Than-Temporary Impairment of Investment Securities

• Deferred Tax Assets

Fair Value Measurement

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

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

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

to determine the fair value of our assets and liabilities and disclose their carrying value and fair value in “Note 17, Fair 

Value.” 

The fair value accounting rules provide a three-level fair value hierarchy for classifying financial instruments. This hierarchy 

is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. Each 

asset or liability is assigned to a level based on the lowest level of any input that is significant to its fair value measurement. 

The three levels of the fair value hierarchy are described below: 

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. 

Level 2: Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities. 

Level 3: Unobservable inputs. 

The majority of the financial instruments that we report at fair value in our consolidated financial statements fall within the 

Level 2 category and are valued primarily utilizing inputs and assumptions that are observable in the marketplace, that can be 

derived from observable market data or that can be corroborated by recent trading activity of similar instruments with similar 

characteristics. For example, we generally request non-binding prices from at least three independent pricing services to 

estimate the fair value of our trading and available-for-sale securities at an individual security level. We use the average of 

these prices to determine the fair value. 

In the absence of such information or if we are not able to corroborate these prices by other available, relevant market 

information, we estimate their fair values based on single source quotations from brokers or dealers or by using internal 

calculations or discounted cash flow techniques that incorporate inputs, such as prepayment rates, discount rates and 
70

delinquency, default and cumulative loss expectations, that are implied by market prices for similar securities and collateral 

structure types. Because this valuation technique relies on significant unobservable inputs, the fair value estimation is 

classified as Level 3. The process for determining fair value using unobservable inputs is generally more subjective and 

involves a high degree of management judgment and assumptions. These assumptions may have a significant effect on our 

estimates of fair value, and the use of different assumptions as well as changes in market conditions could have a material 

effect on our results of operations or financial condition. 

Fair Value Hierarchy—Level 3 Assets and Liabilities

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

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

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

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

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

arrangements and certain highly structured, complex derivative instruments. 

Table 8 displays a comparison of the amount of financial assets carried in our consolidated balance sheets at fair value on a 

recurring basis (“recurring assets”) that were classified as Level 3 as of December 31, 2012 and 2011. The availability of 

observable market inputs to measure fair value varies based on changes in market conditions, such as liquidity. As a result, 

we expect the amount of financial instruments carried at fair value on a recurring basis and classified as Level 3 to vary each 

period.

Table 8: Level 3 Recurring Financial Assets at Fair Value

As of December 31,

2012 2011

(Dollars in millions)

Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,286 $ 4,238

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,034 29,492

Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,634 2,319

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 238

Level 3 recurring assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,129 $ 36,287

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 3,211,484

Total recurring assets measured at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,261 $ 156,552

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

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

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

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

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

primarily include mortgage loans and acquired property. The fair value of Level 3 nonrecurring assets totaled $29.5 billion as 

of December 31, 2012.

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

fair value of $1.5 billion as of December 31, 2012 and $1.2 billion as of December 31, 2011, and other liabilities with a fair 

value of $161 million as of December 31, 2012 and $173 million as of December 31, 2011.

Valuation Control Processes 

We have control processes that are designed to ensure that our fair value measurements are appropriate and reliable, that they 

are based on observable inputs wherever possible and that our valuation approaches are consistently applied and the 

assumptions used are reasonable. Our control processes consist of a framework that provides for a segregation of duties and 

oversight of our fair value methodologies and valuations, as well as validation procedures. We provide a detailed discussion 

of our Valuation Control Processes in “Note 17, Fair Value.”

Total Loss Reserves 

Our total loss reserves consist of the following components: 

• Allowance for loan losses; 
71

• Allowance for accrued interest receivable; 

• Reserve for guaranty losses; and 

• Allowance for preforeclosure property tax and insurance receivable. 

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

We maintain an allowance for loan losses and an allowance for accrued interest receivable for loans classified as held for 

investment, including both loans we hold in our portfolio and loans held in consolidated Fannie Mae MBS trusts. We 

maintain a reserve for guaranty losses for loans held in unconsolidated Fannie Mae MBS trusts we guarantee and loans we 

have guaranteed under long-term standby commitments and other credit enhancements we have provided. We also maintain 

an allowance for preforeclosure property tax and insurance receivable on delinquent loans that is included in “Other assets” 

in our consolidated balance sheets. These amounts, which we collectively refer to as our total loss reserves, represent 

probable losses incurred related to loans in our guaranty book of business, including concessions granted to borrowers upon 

modifications of their loans, as of the balance sheet date. 

The allowance for loan losses, allowance for accrued interest receivable and allowance for preforeclosure property tax and 

insurance receivable are valuation allowances that reflect an estimate of incurred credit losses related to our recorded 

investment in loans held for investment. The reserve for guaranty losses is a liability account in our consolidated balance 

sheets that reflects an estimate of incurred credit losses related to our guaranty to each unconsolidated Fannie Mae MBS trust 

that we will supplement amounts received by the Fannie Mae MBS trust as required to permit timely payments of principal 

and interest on the related Fannie Mae MBS. As a result, the guaranty reserve considers not only the principal and interest 

due on the loan at the current balance sheet date, but also an estimate of any additional interest payments due to the trust from 

the current balance sheet date until the point of loan acquisition or foreclosure. Our loss reserves consist 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, benchmarks and management judgment, 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 delinquency and default trends and make changes in our historically developed assumptions and 

estimates as necessary to better reflect present conditions, including current trends in borrower risk and/or 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. 

Single-Family Loss Reserves 

We establish a specific single-family loss reserve for individually impaired loans, which includes loans we restructure in 

TDRs, certain nonperforming loans in MBS trusts and acquired credit-impaired loans that have been further impaired 

subsequent to acquisition. 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. We then 

allocate a portion of the reserve to interest accrued on the loans as of the balance sheet date. 

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 of loans to derive an overall loss reserve estimate given 

multiple factors such as: origination year, mark-to-market LTV ratio, delinquency status and loan product type. We believe 

that 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 a look back period to develop our loss severity 

estimates for all loan categories. We then allocate a portion of the reserve to interest accrued on the loans as of the balance 

sheet date. 

In the third quarter of 2012, we enhanced our collective single-family loss reserve model and our model that calculates loss 

reserves for individually impaired loans. The combined impact from these changes resulted in an approximately $3.5 billion
72

increase to our allowance for loan losses and provision for credit losses. The components of the enhancement to our loan loss 

models are as follows:

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

experience of default expectations. The impact of this change had the most pronounced effect on loans with higher 

mark-to-market LTV ratios, where we have observed better than anticipated payment performance in recent 

periods. Historically, we had limited information on the performance of loans with higher mark-to-market LTV

ratios. However, we have recently observed that loans with higher mark-to-market LTV ratios have performed better 

than the prior models estimated since the prior models had limited observations. As a result of incorporating these 

recent observations, our loss expectations have improved for these loans. The change resulted in an approximately $1.5 

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

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

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

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

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

modified loan increases the charge we record related to the concession. Therefore, while our expectations of credit 

losses decreased due to better performance of our modified loans, this decrease was more than offset by an increase in 

the present value of the concession granted to the borrower by the modification. The change resulted in an 

approximately $5.0 billion increase to our allowance for loan losses and provision for credit losses.

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 

model-generated loss factors. We then allocate a portion of the reserve to interest accrued on the loans as of the balance sheet 

date. 

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 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 loan’s original interest rate unless foreclosure is probable, at which time we measure impairment the same 

way we measure it for other individually impaired multifamily loans. We generally obtain property appraisals from 

independent third-parties to determine the fair value of multifamily loans that we consider to be individually impaired. We 

also obtain property appraisals and broker price opinions when we foreclose on a multifamily property. We then allocate a 

portion of the reserve to interest accrued on the loans as of the balance sheet date. 

Other-Than-Temporary Impairment of Investment Securities

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

impairment. We recognize other-than-temporary impairment in earnings if one of the following conditions exists: (1) our 

intent is to sell the security; (2) it is more likely than not that we will be required to sell the security before the impairment is 

recovered; or (3) we do not expect to recover our amortized cost basis. If, by contrast, we do not intend to sell the security 

and will not be required to sell prior to recovery of the amortized cost basis, we recognize only the credit component of otherthan-temporary impairment in earnings. We record the noncredit component in other comprehensive income. The credit 

component is the difference between the security’s amortized cost basis and the present value of its expected future cash 

flows, while the noncredit component is the remaining difference between the security’s fair value and the present value of 

expected future cash flows. If, subsequent to recognizing other-than-temporary impairment, our estimates of future cash 

flows improve, we recognize the change in estimate prospectively over the remaining life of securities as a component of 

interest income. 
73

Our evaluation requires significant management judgment and consideration of various factors to determine if we will receive 

the amortized cost basis of our investment securities. We evaluate a debt security for other-than-temporary impairment using 

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

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

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

payments. We rely on expected future cash flow projections to determine if we will recover the amortized cost basis of our 

available-for-sale securities. 

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

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

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

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

and increased our other-than-temporary impairment expense by approximately $500 million.

We provide more detailed information on our accounting for other-than-temporary impairment in “Note 1, Summary of 

Significant Accounting Policies” and “Note 5, Investments in Securities.” See “Risk Factors” for a discussion of the risks 

associated with possible future write-downs of our investment securities. 

Deferred Tax Assets

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying 

amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards 

and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative 

evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely 

than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate 

with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary 

to support a conclusion that a valuation allowance is not needed.

Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including: 

• the sustainability of recent profitability required to realize the deferred tax assets;

• the cumulative net losses in our consolidated statements of operations in recent years; 

• unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a 

continuing basis in future years; and

• the carryforward periods for net operating losses and tax credits.

As of December 31, 2012, we have concluded that it is more likely than not that our deferred tax asset will not be realized in 

its entirety and that therefore we should retain the valuation allowance against our net deferred tax assets. The valuation 

allowance as of December 31, 2012 was $58.9 billion. Giving more weight to evidence that could be objectively verified than 

to evidence that could not be objectively verified, we determined that the factors in favor of releasing the allowance were 

outweighed by the evidence against releasing the valuation allowance. The factors that weighed against releasing the 

allowance as of December 31, 2012 and ultimately outweighed the factors in favor of releasing the reserve discussed below 

were the following: 

• on a cumulative basis, we reported losses in our consolidated statements of operations for the three years ended 

December 31, 2012; 

• the impact of a reduction in funds available to us under the senior preferred stock purchase agreement that would 

have resulted from releasing the valuation allowance in the fourth quarter of 2012, which we discuss below;

• stability in the housing market is relatively recent and home prices, while improving, are still well below their peak, 

which results in uncertainty regarding our projections of future credit losses;

• the uncertainty surrounding the future of our company given we are in conservatorship; and

• we have a limited recent history of profitability and a large number of delinquent loans in our book of business.

Under the terms of the senior preferred stock purchase agreement, the amount of funding available to us after December 31, 

2012 is adjusted based on our positive net worth as of December 31, 2012 and is not affected by any positive net worth we 

may have on future dates. Accordingly, the amount of funding available under the senior preferred stock purchase agreement 

will be reduced only to the extent that we draw funds from Treasury under the agreement in the future. A decision to release 

the valuation allowance in 2013 will not reduce the funding available to us under the senior preferred stock purchase 

agreement.
74

Releasing the valuation allowance in the fourth quarter of 2012 would have decreased our available funding under the senior 

preferred stock purchase agreement to approximately $84 billion, compared to approximately $118 billion of available 

funding that resulted from not releasing the valuation allowance in the fourth quarter. 

There was significant uncertainty regarding the effects that an approximately $34 billion reduction in the funds available to 

us under the senior preferred stock purchase agreement would have had on our business and financial results, including 

regulatory actions that would limit our business operations to ensure safety and soundness of the company, particularly in 

view of the fact that stability in the housing market and improvements in our financial results are relatively recent. This 

uncertainty was a significant consideration in our determination not to release the valuation allowance as of December 31, 

2012. 

In addition, it is difficult to conclude a valuation allowance is not required when there is significant objective and verifiable 

negative evidence, such as cumulative losses in recent years. We utilize a rolling three years of pre-tax income or loss as the 

primary measure of cumulative losses in recent years. Over the three years ended December 31, 2012, we remain in a 

cumulative loss position. However, we expect that as of the end of the first quarter 2013, we will report income for the fifth 

consecutive quarter and we will show cumulative profits for the past twelve quarters. 

The following factors weighed in favor of releasing the allowance as of December 31, 2012:

• our 2012 profitability and our expectations regarding the sustainability of profits;

• the strong credit profile of the loans we have acquired since 2009;

• the significant size of our guaranty book of business and our contractual rights for future revenue from this book of 

business;

• our taxable income for 2012 and our expectations regarding the likelihood of future taxable income; and

• the carryforward periods for our net operating losses and tax credits.

We will continue to evaluate the recoverability of our deferred tax assets. Our evaluation in future quarters will be made by 

reviewing all relevant factors as of the end of those periods including the factors discussed above to the extent applicable. 

Releasing all or a portion of the valuation allowance after December 31, 2012 will not reduce the funding available to us 

under the senior preferred stock purchase agreement, as discussed above. In addition, we expect that, as of the first quarter of 

2013, we will no longer be in a three-year cumulative loss position. Accordingly, although we have not completed the 

analysis, we believe that, after considering all relevant factors, we may release the valuation allowance as early as the first 

quarter of 2013.

If we reverse all or a significant portion of our valuation allowance in a future period we would record a material tax benefit 

in net income reflecting the reversal. This tax benefit would increase our net worth as of the end of the period in which we 

record it and, as a result, the amount of the dividend we will be required to pay Treasury in the following quarter pursuant to 

the terms of the senior preferred stock purchase agreement. This tax benefit would also result in a large negative effective tax 

rate in the period in which the valuation allowance is released. 

In addition, if all or a significant portion of the valuation allowance is reversed, our effective tax rate will approach the 

statutory tax rate after the year in which the reversal is recorded. Our recorded effective tax rate has been at or close to zero 

since we established our valuation allowance because our provision or benefit for income taxes, as it relates to the change in 

the deferred tax asset balance, has been offset by a corresponding decrease or increase to our valuation allowance.

CONSOLIDATED RESULTS OF OPERATIONS

This section provides a discussion of our consolidated results of operations for the periods indicated and should be read 

together with our consolidated financial statements, including the accompanying notes. In 2009, FASB concurrently revised 

the accounting guidance related to the consolidation of variable interest entities and the accounting guidance related to 

transfers of financial assets. On January 1, 2010, we prospectively adopted the revised guidance for these topics, which had a 

significant impact on the presentation and comparability of our consolidated financial statements. See “Note 1, Summary of 

Significant Accounting Policies” for more information on the revised accounting guidance.
75

Table 9 displays a summary of our consolidated results of operations for the periods indicated.

Table 9: Summary of Consolidated Results of Operations

For the Year Ended December 31, Variance

2012 2011 2010 2012 vs. 2011 2011 vs. 2010

(Dollars in millions)

Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,501 $ 19,281 $ 16,409 $ 2,220 $ 2,872

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,487 1,163 1,084 324 79

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,988 $ 20,444 $ 17,493 $ 2,544 $ 2,951

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 506 346 (19) 160

Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . (713) (308) (722) (405) 414

Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,977) (6,621) (511) 3,644 (6,110)

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,367) (2,370) (2,597) 3 227

Credit-related income (expenses):

Benefit (provision) for credit losses . . . . . . . . . . . . . . . . . . 852 (26,718) (24,896) 27,570 (1,822)

Foreclosed property income (expense) . . . . . . . . . . . . . . . . 254 (780) (1,718) 1,034 938

Total credit-related income (expenses) . . . . . . . . . . . . . . 1,106 (27,498) (26,614) 28,604 (884)

Other non-interest expenses(1). . . . . . . . . . . . . . . . . . . . . . . . . (1,304) (1,098) (1,495) (206) 397

Income (loss) before federal income taxes. . . . . . . . . . . . . . . . 17,220 (16,945) (14,100) 34,165 (2,845)

Benefit for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . — 90 82 (90) 8

Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,220 $(16,855) $(14,018) $34,075 $ (2,837)

Less: Net loss attributable to noncontrolling interest. . . . . . . . 4 — 4 4 (4)

Net income (loss) attributable to Fannie Mae . . . . . . . . . . . $17,224 $(16,855) $ (14,014) $34,079 $ (2,841)

Total comprehensive income (loss) attributable to Fannie 

Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,843 $(16,408) $ (10,570) $35,251 $ (5,838)

__________

(1) Consists of debt extinguishment losses, net and other expenses.

Net Interest Income

Net interest income represents the difference between interest income and interest expense and is a primary source of our 

revenue. The amount of interest income and interest expense we recognize in the consolidated statements of operations and 

comprehensive income (loss) is affected by our investment and debt activity, asset yields (including the impact of loans on 

nonaccrual status) and our funding costs.

Table 10 displays an analysis of our net interest income, average balances, and related yields earned on assets and incurred on 

liabilities for the periods indicated. For most components of the average balances, we use a daily weighted average of 

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

averages. Table 11 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.
76

Table 10: Analysis of Net Interest Income and Yield

For the Year Ended December 31,

2012 2011 2010

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 . . . . . . . $ 370,455 $ 14,255 3.85 % $ 392,719 $ 14,829 3.78 % $ 362,785 $ 14,992 4.13 %

Mortgage loans of consolidated trusts . 2,621,317 110,451 4.21 2,596,816 123,633 4.76 2,619,258 132,591 5.06

Total mortgage loans . . . . . . . . . . . . . 2,991,772 124,706 4.17 2,989,535 138,462 4.63 2,982,043 147,583 4.95

Mortgage-related securities. . . . . . . . . . 268,761 12,709 4.73 316,963 14,607 4.61 387,798 19,552 5.04

Elimination of Fannie Mae MBS held

in portfolio. . . . . . . . . . . . . . . . . . . . . (173,933) (8,492) 4.88 (202,806) (10,360) 5.11 (250,748) (13,232) 5.28

Total mortgage-related securities, 

net(1)

. . . . . . . . . . . . . . . . . . . . . . . . 94,828 4,217 4.45 114,157 4,247 3.72 137,050 6,320 4.61

Non-mortgage securities(2)

. . . . . . . . . . 50,282 71 0.14 71,713 117 0.16 91,613 221 0.24

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements. . . . . . 38,708 73 0.19 26,045 32 0.12 28,685 62 0.22

Advances to lenders . . . . . . . . . . . . . . . 6,220 123 1.98 3,943 85 2.16 3,523 84 2.38

Total interest-earning assets . . . . . . . . . . . . $3,181,810 $129,190 4.06 % $3,205,393 $142,943 4.46 % $3,242,914 $154,270 4.76 %

Interest-bearing liabilities:

Short-term debt(3)

. . . . . . . . . . . . . . . . . $ 102,877 $ 147 0.14 % $ 160,704 $ 301 0.19 % $ 212,784 $ 619 0.29 %

Long-term debt . . . . . . . . . . . . . . . . . . . 561,280 11,925 2.12 585,362 14,711 2.51 583,369 18,857 3.23

Total short-term and long-term

funding debt . . . . . . . . . . . . . . . . . . 664,157 12,072 1.82 746,066 15,012 2.01 796,153 19,476 2.45

Debt securities of consolidated trusts . . 2,697,592 104,109 3.86 2,651,121 119,010 4.49 2,682,434 131,617 4.91

Elimination of Fannie Mae MBS held

in portfolio. . . . . . . . . . . . . . . . . . . . . (173,933) (8,492) 4.88 (202,806) (10,360) 5.11 (250,748) (13,232) 5.28

Total debt securities of consolidated

trusts held by third parties . . . . . . . 2,523,659 95,617 3.79 2,448,315 108,650 4.44 2,431,686 118,385 4.87

Total interest-bearing liabilities. . . . . . . . . . $3,187,816 $107,689 3.38 % $3,194,381 $123,662 3.87 % $3,227,839 $137,861 4.27 %

Net interest income/net interest yield(1)

. . . . $ 21,501 0.68 % $ 19,281 0.60 % $ 16,409 0.51 %

Net interest income/net interest yield of 

consolidated trusts(4)

. . . . . . . . . . . . . . . . . . $ 6,342 0.24 % $ 4,623 0.18 % $ 974 0.04 %

As of December 31,

2012 2011 2010

Selected benchmark interest rates(5)

3-month LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.31 % 0.58 % 0.30 %

2-year swap rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.39 0.73 0.80

5-year swap rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.86 1.22 2.17

30-year Fannie Mae MBS par coupon rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.23 2.88 4.13

__________

(1) Includes an out-of-period adjustment of $727 million to reduce “Interest income: Available-for-sale securities” in our consolidated 

statements of operations and comprehensive income (loss) for the year ended December 31, 2011. Without this adjustment the average 

interest rate earned on total mortgage-related securities would have been 4.36% and the total net interest yield would have been 0.62%

for the year ended December 31, 2011.

(2) Includes cash equivalents.

(3) Includes federal funds purchased and securities sold under agreements to repurchase.
77

(4) Net interest income of consolidated trusts represents interest income from mortgage loans of consolidated trusts less interest expense 

from debt securities of consolidated trusts. Net interest yield is calculated based on net interest income from consolidated trusts 

divided by average balance of mortgage loans of consolidated trusts. 

(5) Data from British Bankers’Association, Thomson Reuters Indices and Bloomberg L.P.

Table 11: Rate/Volume Analysis of Changes in Net Interest Income

2012 vs. 2011 2011 vs. 2010

Total Variance Due to:(1) Total Variance Due to:(1)

Variance Volume Rate Variance Volume Rate

(Dollars in millions)

Interest income:

Mortgage loans of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . $ (574) $ (853) $ 279 $ (163) $ 1,185 $ (1,348)

Mortgage loans of consolidated trusts . . . . . . . . . . . . . . . . . . . (13,182) 1,156 (14,338) (8,958) (1,128) (7,830)

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,756) 303 (14,059) (9,121) 57 (9,178)

Total mortgage-related securities, net(2)

. . . . . . . . . . . . . . . . . . (757) (846) 89 (1,346) (902) (444)

Non-mortgage securities(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) (32) (14) (104) (42) (62)

Federal funds sold and securities purchased under

agreements to resell or similar arrangements. . . . . . . . . . . . 41 20 21 (30) (5) (25)

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 46 (8) 1 9 (8)

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,480) (509) (13,971) (10,600) (883) (9,717)

Interest expense:

Short-term debt(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (154) (93) (61) (318) (130) (188)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,786) (586) (2,200) (4,146) 64 (4,210)

Total short-term and long-term funding debt. . . . . . . . . . . . . (2,940) (679) (2,261) (4,464) (66) (4,398)

Total debt securities of consolidated trusts held by third

parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,033) 3,479 (16,512) (9,735) 940 (10,675)

Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,973) 2,800 (18,773) (14,199) 874 (15,073)

Net interest income(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,493 $ (3,309) $ 4,802 $ 3,599 $ (1,757) $ 5,356

__________

(1) Combined rate/volume variances are allocated to both rate and volume based on the relative size of each variance.

(2) Excludes an out-of-period adjustment of $727 million that reduced the interest income on mortgage related securities for the year 

ended December 31, 2011.

(3) Includes cash equivalents.

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

Although our portfolio balance declined, net interest income increased in 2012 compared with 2011, primarily due to lower 

interest expense on funding debt, a reduction in the amount of interest income not recognized for nonaccrual mortgage loans 

and accelerated net amortization income on loans and debt of consolidated trusts. These factors were partially offset by lower 

interest income on Fannie Mae mortgage loans and securities. The primary drivers of these changes were:

• lower interest expense on funding debt due to lower borrowing rates and lower funding needs, which allowed us to 

continue to replace higher-cost debt with lower-cost debt;

• higher coupon interest income recognized on mortgage loans due to a reduction in the amount of interest income not 

recognized for nonaccrual mortgage loans. The balance of nonaccrual loans in our consolidated balance sheet 

declined as we continued to complete a high number of loan workouts and foreclosures, and fewer loans became 

seriously delinquent;

• accelerated net amortization income related to mortgage loans and debt of consolidated trusts driven by a high 

volume of prepayments due to declining interest rates;

• lower interest income on Fannie Mae mortgage loans due to a decrease in average balance and new business 

acquisitions which continued to replace higher-yielding loans with loans issued at lower mortgage rates; and

• lower interest income on mortgage securities due to a decrease in the balance of our mortgage securities, as we 

continue to manage our portfolio to the requirements of the senior preferred stock purchase agreement.
78

Net interest income increased during 2011, as compared with 2010, due to lower interest expense on debt, which was 

partially offset by lower interest income on loans and securities. The primary drivers of these changes were: 

• a reduction in the interest expense of debt of consolidated trusts driven by a decrease in rates. The rate on debt of 

consolidated trusts is generally driven by mortgage rates of loans securitized in MBS, and these mortgage rates 

declined in 2011; 

• lower interest expense on funding debt due to lower borrowing rates, which allowed us to continue to replace 

higher-cost debt with lower-cost debt; 

• lower interest income on mortgage securities due to a decrease in the balance of our mortgage securities, as we 

continue to manage our portfolio to the requirements of the senior preferred stock purchase agreement; and 

• lower yields on mortgage loans as new business acquisitions continue to replace higher-yielding loans with loans 

issued at lower mortgage rates. The reduction in interest income on loans due to lower yields was partially offset by 

a reduction in the amount of interest income not recognized for nonaccrual mortgage loans, due to a decline in the 

balance of nonaccrual loans in our consolidated balance sheets as we continued to complete a high number of loan 

modifications and foreclosures. 

Additionally, our net interest income and net interest yield were higher than they would have otherwise been in 2010 through 

2012 because our debt funding needs were lower than they would otherwise have been as a result of the funds we received 

from Treasury under the senior preferred stock purchase agreement and because dividends paid to Treasury are not 

recognized in interest expense. 

We initially recognize mortgage loans and debt of consolidated trusts in our consolidated balance sheets at fair value. We 

recognize the difference between (1) the initial fair value of the consolidated trust’s mortgage loans and debt and (2) the 

unpaid principal balance as cost basis adjustments in our consolidated balance sheets. These cost basis adjustments are 

amortized over the contractual life of the underlying loans as a component of net interest income. Cost basis adjustments 

related to consolidated debt that is in a premium position are amortized as an income component within net interest income, 

while cost basis adjustments related to underlying mortgage loans that are in a premium position are recognized as an 

expense component within net interest income. Net unamortized premiums on debt of consolidated trusts exceeded net 

unamortized premiums on the related mortgage loans by $16.8 billion as of December 31, 2012, compared with $8.7 billion

as of December 31, 2011. The increase is primarily due to higher prepayment volumes which significantly increased our 

portfolio securitization transactions during 2012.

We had $15.8 billion in net unamortized discounts and other cost basis adjustments on mortgage loans of Fannie Mae 

included in our consolidated balance sheets as of December 31, 2012 compared with $17.9 billion as of December 31, 2011. 

The extent to which we may record these discounts and other cost basis adjustments as income in future periods will be based 

on the actual performance of the loans.

Mortgage loans average balance includes loans on nonaccrual status while interest income on these loans is recognized when 

collected. Table 12 displays the interest income not recognized for loans on nonaccrual status and the resulting reduction in 

our net interest yield on total interest earning assets for the periods indicated.

Table 12: Impact of Nonaccrual Loans on Net Interest Income

For the Year Ended December 31,

2012 2011 2010

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

Interest 

Income not 

Recognized 

for

Nonaccrual 

Loans(1)

Reduction 

in Net 

Interest 

Yield(2)

(Dollars in millions)

Mortgage loans of Fannie Mae . . . . . . . . . . . . . . . . . . . . $ (3,403) $ (4,666) $ (4,721)

Mortgage loans of consolidated trusts . . . . . . . . . . . . . . (594) (896) (3,692)

Total mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,997) (12)bps $ (5,562) (18)bps $ (8,413) (26)bps

__________

(1) Amount includes cash received for loans on nonaccrual status.

(2) Calculated based on annualized interest income not recognized divided by total interest-earning assets, expressed in basis points.

For a discussion of the interest income from the assets we have purchased and the interest expense from the debt we have 

issued, see the discussion of our Capital Markets group’s net interest income in “Business Segment Results.”
79

Other-Than-Temporary Impairment of Investment Securities

Net other-than-temporary impairments in 2012 increased compared with 2011. The increase was primarily driven by an 

update to the assumptions used to project cash flow estimates on our Alt-A and subprime private-label securities in the 

second quarter of 2012.

The net other-than-temporary impairment charges recognized in 2011 and 2010 were primarily driven by a net decline in 

forecasted home prices for certain geographic regions, which resulted in a decrease in the present value of our cash flow 

projections on Alt-A and subprime private-label securities. The charges recorded in 2011 were partially offset by an out-ofperiod adjustment, which reduced “Other-than-temporary impairments” in our consolidated statements of operations and 

comprehensive loss for the year ended December 31, 2011. 

Fair Value Losses, Net

Table 13 displays the components of our fair value gains and losses.

Table 13: Fair Value Losses, Net

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Risk management derivatives fair value losses attributable to:

Net contractual interest expense accruals on interest rate swaps . . . . . . . . . . . . . . . . . . . $(1,430) $(2,185) $(2,895)

Net change in fair value during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (508) (3,954) 1,088

Total risk management derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . (1,938) (6,139) (1,807)

Mortgage commitment derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,688) (423) (1,193)

Total derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,626) (6,562) (3,000)

Trading securities gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004 266 2,692

Other, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (355) (325) (203)

Fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,977) $(6,621) $ (511)

2012 2011 2010

5-year swap rate:

As of March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27% 2.47% 2.73%

As of June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.97 2.03 2.06

As of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.76 1.26 1.51

As of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.86 1.22 2.18

__________

(1) Consists of debt fair value gains (losses), net; debt foreign exchange gains (losses), net; and mortgage loans fair value gains (losses), 

net.

We can expect high levels of period-to-period volatility in our results of operations and financial condition due to changes in 

market conditions that result in periodic fluctuations in the estimated fair value of financial instruments that we mark to 

market through our earnings. These instruments include trading securities and derivatives. The estimated fair value of our 

trading securities and derivatives may fluctuate substantially from period to period because of changes in interest rates, credit 

spreads and interest rate volatility, as well as activity related to these financial instruments. While the estimated fair value of 

our derivatives may fluctuate, some of the financial instruments that the derivatives hedge are not recorded at fair value in our 

consolidated financial statements. Therefore, the accounting volatility resulting from market fluctuations related to our 

trading securities and derivatives may not be indicative of the economics of these transactions.
80

Risk Management Derivatives Fair Value Losses, Net

Risk management derivative instruments are an integral part of our management of interest rate risk. 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 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 for the years ended December 31, 

2012, 2011 and 2010 in “Note 9, Derivative Instruments.”

The primary factors affecting the fair value of our risk management derivatives include the following: 

• Changes in interest rates: Our derivatives, in combination with our issuances of debt securities, are intended to 

offset changes in the fair value of our mortgage assets. Mortgage assets tend to increase in value when interest rates 

decrease and, conversely, decrease in value when interest rates rise. Pay-fixed swaps decrease in value and receivefixed swaps increase in value as swap rates decrease (with the opposite being true when swap rates increase). 

Because the composition of our pay-fixed and receive-fixed derivatives varies across the yield curve, the overall fair 

value gains and losses of our derivatives are sensitive to flattening and steepening of the yield curve. 

• Implied interest rate volatility: Our derivatives portfolio includes option-based derivatives, which we purchase to 

economically hedge the prepayment option embedded in our mortgage investments and sell to offset the options 

obtained through callable debt issuances when those options are not needed for risk management purposes. A key 

variable in estimating the fair value of option-based derivatives is implied volatility, which reflects the market’s 

expectation of the magnitude of future changes in interest rates. Assuming all other factors are held equal, including 

interest rates, a decrease in implied volatility would reduce the fair value of our purchased options and an increase in 

implied volatility would increase the fair value of our purchased options, while having the opposite effect on the 

options that we have sold. 

• Changes in our derivative activity: As interest rates change, we are likely to rebalance our portfolio to manage our 

interest rate exposure. As interest rates decrease, expected mortgage prepayments are likely to increase, which 

reduces the duration of our mortgage investments. In this scenario, we generally will rebalance our existing portfolio 

to manage this risk by adding receive-fixed swaps, which shortens the duration of our liabilities. Conversely, when 

interest rates increase and the duration of our mortgage assets increases, we are likely to add pay-fixed swaps, which 

have the effect of extending the duration of our liabilities. We use derivatives to rebalance our portfolio when the 

duration of our mortgage assets changes as the result of mortgage purchases or sales. We also use foreign-currency 

swaps to manage the foreign exchange impact of our foreign currency-denominated debt issuances. 

• Time value of purchased options: Intrinsic value and time value are the two primary components of an option’s 

price. The intrinsic value is determined by the amount by which the market rate exceeds or is below the exercise, or 

strike rate, such that the option is in-the-money. The time value of an option is the amount by which the price of an 

option exceeds its intrinsic value. Time decay refers to the diminishing value of an option over time as less time 

remains to exercise the option. 

We recognized risk management derivative fair value losses in 2012, 2011 and 2010 primarily as a result of a decrease in the 

fair value of our pay-fixed derivatives due to a decline in swap rates during the periods. Risk management derivative fair 

value losses in 2011 were greater than the losses in 2012, primarily due to a significant decline in swap rates in 2011 

compared with a more modest decline in swap rates in 2012. In 2010, the risk management derivative fair value losses we 

recognized were also the result of time decay on our purchased options and a decrease in implied interest rate volatility, 

which reduced the fair value of our purchased options.

Because risk management derivatives are an important part of our interest rate risk management strategy, it is important to 

evaluate the impact of our derivatives in the context of our overall interest rate risk profile and in conjunction with the other 

offsetting mark-to-market gains and losses presented in Table 13. For additional information on our use of derivatives to 

manage interest rate risk, including the economic objective of our use of various types of derivative instruments, changes in 

our derivatives activity and the outstanding notional amounts, see “Risk Management—Market Risk Management, Including 

Interest Rate Risk Management—Interest Rate Risk Management.” 
81

Mortgage Commitment Derivatives Fair Value Losses, Net

Certain commitments to purchase or sell mortgage-related securities and to purchase single-family mortgage loans are 

generally accounted for as derivatives. For open mortgage commitment derivatives, we include changes in their fair value in 

our consolidated statements of operations and comprehensive income (loss). When 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. 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 2012, 2011 and 2010 primarily due to losses on 

commitments to sell mortgage-related securities as a result of an increase in prices as interest rates decreased during the 

commitment period. Mortgage commitment derivative fair value losses in 2012 were greater than the losses in 2011, 

primarily as a result of (1) a higher volume of net commitments to sell mortgage-related securities and (2) a further increase 

in prices driven by the Federal Reserve’s announcement that it would increase its MBS purchases from financial institutions 

beginning in September 2012. 

Trading Securities Gains, Net

The estimated fair value of our trading securities may fluctuate substantially from period-to-period primarily due to changes 

in interest rates and credit spreads. Gains from our trading securities in 2012 were primarily driven by the narrowing of credit 

spreads on commercial mortgage-backed securities (“CMBS”). Gains from our trading securities in 2011 were primarily 

driven by higher prices on our CMBS as a result of significant narrowing of the U.S. Treasury yield curve and swap yield 

curve spreads offset by widening credit spreads. Gains from trading securities in 2010 were primarily driven by a decrease in 

interest rates and narrowing of credit spreads, primarily on CMBS. 

We provide additional information on our trading and available-for-sale securities in “Consolidated Balance Sheet Analysis—

Investments in Mortgage-Related Securities.” We disclose the sensitivity of changes in the fair value of our trading securities 

to changes in interest rates in “Risk Management—Market Risk Management, Including Interest Rate Risk Management—

Measurement of Interest Rate Risk.”

Administrative Expenses

Administrative expenses were flat in 2012 compared with 2011, as continued efforts to reduce ongoing operating costs were 

offset by additional costs related to the execution of FHFA’s strategic goals. Administrative expenses decreased in 2011 

compared with 2010 due to cost reduction efforts and a realignment of resources in order to focus on our most critical 

priorities. We expect that our administrative expenses may increase in 2013 compared with 2012 as we continue to execute 

on our strategic goals.

Credit-Related (Income) Expenses 

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

provision for credit losses.” Credit-related (income) expenses consist of our benefit (provision) for credit losses and 

foreclosed property (income) expense.

Benefit (Provision) for Credit Losses

Our total loss reserves provide for an estimate of credit losses incurred in our guaranty book of business, including 

concessions we granted borrowers upon modification of their loans, as of each balance sheet date. We establish our loss 

reserves through our provision for credit losses for losses that we believe have been incurred and will eventually be reflected 

over time in our charge-offs. When we determine that a loan is uncollectible, typically upon foreclosure, we record a chargeoff against our loss reserves. We record recoveries of previously charged-off amounts as a reduction to charge-offs.

Table 14 displays the components of our total loss reserves and our total fair value losses previously recognized on loans 

purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets. Because these fair value losses 

lowered our recorded loan balances, we have fewer inherent losses in our guaranty book of business and consequently require 

lower total loss reserves. For these reasons, we consider these fair value losses as an “effective reserve,” apart from our total 

loss reserves, to the extent that we expect to realize these amounts as credit losses on the acquired loans in the future. The fair 

value losses shown in Table 14 represent credit losses we expect to realize in the future or amounts that will eventually be 

recovered, either through net interest income for loans that cure or through foreclosed property income for loans where the 
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sale of the collateral exceeds our recorded investment in the loan. We exclude these fair value losses from our credit loss 

calculation as described in “Credit Loss Performance Metrics.” 

Table 14: Total Loss Reserves

As of December 31,

2012 2011

(Dollars in millions)

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,795 $72,156

Reserve for guaranty losses(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,231 994

Combined loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,026 73,150

Allowance for accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,737 2,496

Allowance for preforeclosure property taxes and insurance receivable(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . 866 1,292

Total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,629 76,938

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

. . . . . . . . . . . . . . . . . . . . . . . 13,694 16,273

Total loss reserves and fair value losses previously recognized on acquired credit-impaired loans . . . . $76,323 $93,211

__________

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

(2) Amount included in “Other assets” in our consolidated balance sheets.

(3) Represents the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets.

The following table displays changes in the total allowance for loan losses, reserve for guaranty losses and the total combined 

loss reserves for the periods indicated.
83

Table 15: Allowance for Loan Losses and Reserve for Guaranty Losses (Combined Loss Reserves)

For the Year Ended December 31,

2012 2011 2010 2009 2008

(Dollars in millions)

Changes in combined loss reserves:

Allowance for loan losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,156 $ 61,556 $ 9,925 $ 2,772 $ 629

Adoption of consolidation accounting guidance(1)

. . . . . . . . . — — 43,576 — —

(Benefit) provision for loan losses. . . . . . . . . . . . . . . . . . . . . . (1,191) 25,914 24,702 9,569 4,022

Charge-offs(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,139) (21,170) (22,878) (2,245) (1,987)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,784 5,272 3,077 214 190

Other(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 584 3,154 (385) (82)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,795 $ 72,156 $ 61,556 $ 9,925 $ 2,772

Reserve for guaranty losses:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 994 $ 323 $ 54,430 $ 21,830 $ 2,693

Adoption of consolidation accounting guidance(1)

. . . . . . . . . — — (54,103) — —

Provision for guaranty losses. . . . . . . . . . . . . . . . . . . . . . . . . . 339 804 194 63,057 23,929

Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174) (138) (203) (31,142) (4,986)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 5 5 685 194

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,231 $ 994 $ 323 $ 54,430 $ 21,830

Combined loss reserves:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,150 $ 61,879 $ 64,355 $ 24,602 $ 3,322

Adoption of consolidation accounting guidance(1)

. . . . . . . . . — — (10,527) — —

Total (benefit) provision for credit losses . . . . . . . . . . . . . . . . (852) 26,718 24,896 72,626 27,951

Charge-offs(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,313) (21,308) (23,081) (33,387) (6,973)

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,856 5,277 3,082 899 384

Other(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 584 3,154 (385) (82)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,026 $ 73,150 $ 61,879 $ 64,355 $ 24,602

Attribution of charge-offs:

Charge-offs attributable to guaranty book of business. . . . . . . . $(15,249) $(21,192) $(22,901) $(12,832) $ (4,544)

Charge-offs attributable to fair value losses on acquired creditimpaired and HomeSaver Advance loans. . . . . . . . . . . . . . . . . (64) (116) (180) (20,555) (2,429)

Total charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(15,313) $(21,308) $(23,081) $(33,387) $ (6,973)

Allocation of combined loss reserves:

Balance at end of each period attributable to:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,809 $ 71,512 $ 60,163 $ 62,312 $ 24,498

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,217 1,638 1,716 2,043 104

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,026 $ 73,150 $ 61,879 $ 64,355 $ 24,602

Single-family and multifamily combined loss reserves as a

percentage of applicable guaranty book of business:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.08% 2.52% 2.10% 2.14% 0.87%

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.59 0.84 0.91 1.10 0.06

Combined loss reserves as a percentage of:

Total guaranty book of business. . . . . . . . . . . . . . . . . . . . . . . . . 1.97% 2.41% 2.03% 2.08% 0.83%

Recorded investment in nonperforming loans . . . . . . . . . . . . . . 23.92 29.03 24.40 28.98 20.51
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_________

(1) Because we recognized mortgage loans held by newly consolidated trusts upon adoption of the consolidation accounting guidance on 

January 1, 2010, we increased our “Allowance for loan losses” and decreased our “Reserve for guaranty losses.” The impact at the 

transition date is reported as “Adoption of consolidation accounting guidance.” The decrease in the combined loss reserves on the 

adoption date represents a difference in the methodology used to estimate incurred losses for our allowance for loan losses as compared 

with our reserve for guaranty losses and our separate presentation of the portion of the allowance related to accrued interest as our 

“Allowance for accrued interest receivable.”

(2) Includes accrued interest of $872 million, $1.4 billion, $2.4 billion, $1.5 billion and $642 million for the years ended December 31, 

2012, 2011, 2010, 2009 and 2008, respectively.

(3) Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and 

insurance receivable from borrowers. The provision for credit losses, charge-offs, recoveries and transfer activity included in this table 

reflects all changes for both the allowance for loan losses and the valuation allowances for accrued interest and preforeclosure property 

taxes and insurance receivable that relate to the mortgage loans.

Our provision, and in some cases benefit, for credit losses continues to be a key driver of our results for each period 

presented. The amount of our provision for credit losses varies from period to period based on changes in actual and expected 

home prices, borrower payment behavior, the types and volumes of loss mitigation activities and foreclosures completed, and 

actual and estimated recoveries from our lender and mortgage insurer counterparties. See “Risk Management—Credit Risk 

Management—Institutional Counterparty Credit Risk Management” for information on mortgage insurers and outstanding 

mortgage seller/servicer repurchase obligations. In addition, our provision for credit losses and our loss reserves can be 

impacted by updates to our allowance for loan loss models that we use to estimate our loss reserves.

We recognized a benefit for credit losses of $852 million in 2012 compared with a provision for credit losses of $26.7 billion

in 2011. This result was driven by improvement in the profile of our single-family book of business due to continuing 

positive trends in the housing market and our ongoing efforts to improve the credit quality of our single-family guaranty book 

of business. Specifically, the profile of our single-family guaranty book improved due to:

• A 4.7% increase in home prices in 2012 compared with a home price decline of 3.7% in 2011. Higher home prices 

decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default. 

• An increase in sales prices of our REO properties. We received net proceeds from our REO sales equal to 59% of the 

loans’ unpaid principal balance in 2012, compared with 54% in 2011. Sales prices on dispositions of our REO 

properties improved in 2012 as a result of increased demand compared with 2011 as well as our efforts to improve 

the sales execution of our REO properties. The increase in sales proceeds reduces the amount of credit loss at 

foreclosure and, accordingly, results in a lower provision for credit losses.

• A continued reduction in the number of delinquent loans in our single-family guaranty book of business. Our serious 

delinquency rate declined from 3.91% as of December 31, 2011 to 3.29% as of December 31, 2012 and our early 

stage delinquencies declined from 2.91% as of December 31, 2011 to 2.62% as of December 31, 2012. The 

reduction in the delinquency rates is due, in part, to our efforts since 2009 to improve our underwriting standards 

and the credit quality of our single-family guaranty book of business, which has resulted in a decrease in the number 

of loans becoming delinquent. A decline in the number of loans becoming delinquent or seriously delinquent reduces 

our total loss reserves and provision for credit losses.

The improvement in our credit results in 2012 was partially offset by a $3.5 billion increase in our provision for credit losses 

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

from changes in our assumptions used in calculating our loss reserves in the third quarter of 2012, see “Critical Accounting 

Policies and Estimates—Total Loss Reserves.”

In addition, the improvement in our credit results in 2012 was also partially offset by a change in our accounting for loans to 

certain borrowers who have received bankruptcy relief, which led to an increase in the number of loans we classify as 

troubled debt restructurings (“TDRs”). In the third quarter of 2012, we began classifying loans as TDRs where the borrower 

used the bankruptcy process to receive a discharge of the mortgage debt or to cure a mortgage delinquency over time. We 

determined that the discharge of mortgage debt in bankruptcy was a concession in cases in which the discharge effectively 

resulted in us losing our ability to hold the borrower personally liable for deficiencies under state law, although we continue 

to be able to foreclose on the collateral. We also determined that curing a mortgage delinquency over time through 

bankruptcy resulted in a concession similar to other long-term repayment plans. The increase in TDRs as a result of the 

implementation of this change in the third quarter of 2012 resulted in an increase in our provision for credit losses of 

approximately $1.1 billion.

Our provision for credit losses increased in 2011 compared with 2010 primarily due to: (1) a decline in actual and projected 

home prices in 2011, which led to an increase in projected defaults and higher loss severity rates; (2) a decrease in the 
85

estimated recovery amount from mortgage insurance coverage; and (3) the implementation of new accounting guidance that 

increased our TDR population, which increased the number of loans that were individually impaired. The increase in our 

provision was partially offset by an increase in cash received by us and estimated amounts due to us for repurchase requests; 

and accelerated expected prepayment speeds due to the lower interest rate environment, which reduced the expected lives of 

loans and increased the present value of cash flows expected on those loans.

In April 2012, FHFA issued an Advisory Bulletin that could have an impact on our provision for credit losses in the future; 

however, we are still assessing the impact of the Advisory Bulletin. See “Legislative and Regulatory Developments—FHFA

Advisory Bulletin Regarding Framework for Adversely Classifying Loans” for additional information.

We discuss our expectations regarding our future loss reserves in “Executive Summary—Outlook—Loss Reserves.”

Loss Reserves Concentration Analysis

Certain loan categories have contributed disproportionately to the increase in our nonperforming loans and credit losses. 

These categories include: loans on properties in California, Florida, Arizona and Nevada and certain Midwest states; loans 

originated in 2005 through 2008; and loans related to higher-risk product types, such as Alt-A loans. Our total single-family 

loss reserves are also disproportionately higher for these states, Alt-A loans and our 2005 through 2008 vintages. Table 16

displays our single-family loss reserves concentration analysis.

Table 16: Total Single-Family Loss Reserves Concentration Analysis(1)

Total Single-Family Loss

Reserves

As of December 31,

2012 2011

Illinois, Indiana, Michigan, and Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14% 13%

California, Florida, Arizona, Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 49

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 29

2005 - 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 88

_________

(1) Loans that meet more than one category are included in each applicable category.

Nonperforming Loans

Our balance of nonperforming single-family loans remained high as of December 31, 2012 due to both high levels of 

delinquencies and an increase in TDRs. When a TDR occurs, the loan may return to a current status, but it will continue to be 

classified as a nonperforming loan as the loan is not performing in accordance with its original terms. Table 17 displays the 

composition of our nonperforming loans, which includes our single-family and multifamily held-for-investment and held-forsale mortgage loans. For information on the impact of TDRs and other individually impaired loans on our allowance for loan 

losses, see “Note 3, Mortgage Loans.” For activity related to our single-family TDRs, see Table 48 in “MD&A—Risk 

Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”
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Table 17: Nonperforming Single-Family and Multifamily Loans

As of December 31,

2012 2011 2010 2009 2008

(Dollars in millions)

On-balance sheet nonperforming loans including

loans in consolidated Fannie Mae MBS trusts:

Nonaccrual loans. . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,761 $ 142,998 $ 170,788 $ 37,596 $ 15,610

TDRs on accrual status(1). . . . . . . . . . . . . . . . . . . . 136,064 108,797 82,702 9,880 5,799

Total on-balance sheet nonperforming loans . . 250,825 251,795 253,490 47,476 21,409

Off-balance sheet nonperforming loans in 

unconsolidated Fannie Mae MBS trusts(2). . . . . . . 72 154 89 174,588 98,546

Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . 250,897 251,949 253,579 222,064 119,955

Allowance for loan losses and allowance for

accrued interest receivable related to

individually impaired on-balance sheet

nonperforming loans . . . . . . . . . . . . . . . . . . . . . .

(45,776) (47,711) (38,827) (5,609) (723)

Total nonperforming loans, net of allowance. . . . . . . $ 205,121 $ 204,238 $ 214,752 $ 216,455 $119,232

Accruing on-balance sheet loans past due 90 days 

or more(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,580 $ 768 $ 896 $ 612 $ 317

For the Year Ended December 31,

2012 2011 2010 2009 2008

(Dollars in millions)

Interest related to on-balance sheet nonperforming loans:

Interest income forgone(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,554 $8,224 $8,185 $1,341 $ 401

Interest income recognized for the period(5)

. . . . . . . . . . . . . . . . . . 6,442 6,598 7,995 1,206 771

__________

(1) Includes HomeSaver Advance first-lien loans on accrual status.

(2) Represents loans that would meet our criteria for nonaccrual status if the loans had been on-balance sheet.

(3) Recorded investment in loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. As of 

December 31, 2012, includes loans with a recorded investment of $2.8 billion which were repurchased in January 2013 pursuant to 

our resolution agreement with Bank of America. These loans were returned to accrual status to reflect the change in our assessment of 

collectibility resulting from this agreement, see “Note 20, Subsequent Events.” Also includes 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.

(4) Represents the amount of interest income we did not record but would have recorded during the period for on-balance sheet 

nonperforming loans as of the end of each period had the loans performed according to their original contractual terms.

(5) Represents interest income recognized during the period for on-balance sheet loans classified as nonperforming as of the end of each 

period. Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual loans.

Foreclosed Property (Income) Expense 

We recorded foreclosed property income in 2012 compared with recording foreclosed property expense in 2011 primarily due 

to: (1) improved sales prices on dispositions of our REO properties, resulting from strong demand in markets with limited 

REO supply and (2) the recognition of foreclosed property income resulting from resolutions with Bank of America on 

January 6, 2013 related to outstanding repurchase requests and compensatory fees. Compensatory fees are amounts we 

charge our primary servicers for servicing delays within their control when they fail to comply with established loss 

mitigation and foreclosure timelines as required by our Servicing Guide, which sets forth our policies and procedures related 

to servicing our single-family mortgages. See “Note 20, Subsequent Events” for additional information on these agreements 

and their impact on our financial results.

Foreclosed property expense decreased in 2011 compared with 2010 due, in part, to an increase in cash received by us and 

estimated amounts due to us for repurchase requests. These amounts were recognized in our provision for credit losses and 

foreclosed property expense. In addition, we had fewer REO properties in 2011 compared with 2010, primarily driven by 

delays in the foreclosure process, which resulted in lower foreclosed property expense. The decrease in foreclosed property 

expense was partially offset by a decrease in the estimated recovery amount from mortgage insurance coverage.
87

Credit Loss Performance Metrics

Our credit-related (income) expenses should be considered in conjunction with our credit loss performance metrics. Our 

credit loss performance metrics, however, are not defined terms within GAAP and may not be calculated in the same manner 

as similarly titled measures reported by other companies. Because management does not view changes in the fair value of our 

mortgage loans as credit losses, we adjust our credit loss performance metrics for the impact associated with our acquisition 

of credit-impaired loans from unconsolidated MBS trusts. We also exclude interest forgone on nonperforming loans in our 

mortgage portfolio, other-than-temporary impairment losses resulting from deterioration in the credit quality of our 

mortgage-related securities and accretion of interest income on acquired credit-impaired loans from credit losses. We believe 

that credit loss performance metrics may be useful to investors as the losses are presented as a percentage of our book of 

business and have historically been used by analysts, investors and other companies within the financial services industry. 

Moreover, by presenting credit losses with and without the effect of fair value losses associated with the acquisition of creditimpaired loans, investors are able to evaluate our credit performance on a more consistent basis among periods. Table 18

displays the components of our credit loss performance metrics as well as our average single-family and multifamily default 

rates and initial charge-off severity rates.

Table 18: Credit Loss Performance Metrics

For the Year Ended December 31,

2012 2011 2010

Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)

(Dollars in millions)

Charge-offs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . $13,457 44.2 bps $16,031 52.4 bps $19,999 65.6 bps

Foreclosed property (income) expense . . . . . . . . . . . . . . . (254) (0.8) 780 2.6 1,718 5.6

Credit losses including the effect of fair value losses on

acquired credit-impaired loans . . . . . . . . . . . . . . . . . . . 13,203 43.4 16,811 55.0 21,717 71.2

Plus: Impact of acquired credit-impaired loans on 

charge-offs and foreclosed property expense(2) 

. . . . . . . 1,446 4.8 1,926 6.3 1,914 6.2

Credit losses and credit loss ratio . . . . . . . . . . . . . . . . . $14,649 48.2 bps $18,737 61.3 bps $23,631 77.4 bps

Credit losses attributable to:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,392 $18,346 $23,133

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 391 498

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,649 $18,737 $23,631

Single-family default rate . . . . . . . . . . . . . . . . . . . . . . 1.55 % 1.71 % 1.99 %

Single-family initial charge-off severity rate (3)

. . . . . . . . . 30.71 % 34.82 % 34.07 %

Average multifamily default rate. . . . . . . . . . . . . . . . . . . . 0.35 % 0.53 % 0.61 %

Average multifamily initial charge-off severity rate (3)

. . . 37.43 % 37.10 % 39.18 %

__________

(1) Basis points are based on the amount for each line item presented divided by the average guaranty book of business during the period.

(2) Includes fair value losses from acquired credit-impaired loans.

(3) Single-family and multifamily rates exclude fair value losses on credit-impaired loans acquired from MBS trusts and any costs, gains or 

losses associated with REO after initial acquisition through final disposition; single-family rate excludes charge-offs from short sales.

Credit losses decreased in 2012 compared with 2011 primarily due to improved actual home prices and sales prices of our 

REO properties and lower REO acquisitions primarily due to the continued slow pace of foreclosures in 2012. The decrease 

in credit losses in 2011 compared with 2010 was driven by delays in the foreclosure process and an increase in cash received 

by us and estimated amounts due to us for repurchase requests.

Table 19 displays an analysis of our credit losses in certain higher-risk loan categories, loan vintages and loans within certain 

states that have continued to account for a disproportionate share of our credit losses as compared with our other loans.
88

Table 19: Credit Loss Concentration Analysis

Percentage of SingleFamily Conventional 

Guaranty Book of 

Business 

Outstanding(1)

Percentage of SingleFamily Credit Losses

As of December 31,

For the Year Ended

December 31,

2012 2011 2010 2012 2011 2010

Geographical Distribution:

Arizona, California, Florida, and Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28% 28% 28% 51% 58% 56%

Illinois, Indiana, Michigan, and Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 11 19 12 14

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 62 61 30 30 30

Select higher-risk product features(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 21 22 54 56 61

Vintages:

2005 - 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 31 38 82 83 88

All other vintages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 69 62 18 17 12

__________

(1) Calculated based on the unpaid principal balance of loans, where we have detailed loan-level information, for each category divided by 

the unpaid principal balance of our single-family conventional guaranty book of business.

(2) Includes Alt-A loans, subprime loans, interest-only loans, loans with original LTV ratios greater than 90% and loans with FICO credit 

scores less than 620.

Our new single-family book of business accounted for approximately 5% of our single-family credit losses for 2012. Credit 

losses on mortgage loans typically do not peak until the third through sixth years following origination; however, this range 

can vary based on many factors, including changes in macroeconomic conditions and foreclosure timelines. We provide more 

detailed credit performance information, including serious delinquency rates by geographic region and foreclosure activity, in 

“Risk Management—Credit Risk Management—Mortgage Credit Risk Management.”

Regulatory Hypothetical Stress Test Scenario

Under a September 2005 agreement with FHFA’s predecessor, the OFHEO, we are required to disclose on a quarterly basis 

the present value of the change in future expected credit losses from our existing single-family guaranty book of business 

from an immediate 5% decline in single-family home prices for the entire United States followed by a return to the average of 

the possible growth rate paths used in our internal credit pricing models. The sensitivity results represent the difference 

between future expected credit losses under our base case scenario, which is derived from our internal home price path 

forecast, and a scenario that assumes an instantaneous nationwide 5% decline in home prices.

Table 20 displays the credit loss sensitivities as of the dates indicated for first-lien single-family loans that are in our portfolio 

or underlying Fannie Mae MBS, before and after consideration of projected credit risk sharing proceeds, such as private 

mortgage insurance claims and other credit enhancements.

Table 20: Single-Family Credit Loss Sensitivity(1)

As of December 31,

2012 2011

(Dollars in millions)

Gross single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,508 $ 21,922

Less: Projected credit risk sharing proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,206) (1,690)

Net single-family credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,302 $ 20,232

Single-family loans in our portfolio and loans underlying Fannie Mae MBS . . . . . . . . . . . . . . . $ 2,765,460 $ 2,769,454

Single-family net credit loss sensitivity as a percentage of outstanding single-family loans in

our portfolio and Fannie Mae MBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.41% 0.73%
89

__________

(1) Represents total economic credit losses, which consist of credit losses and forgone interest. Calculations are based on 98% and 97% of 

our total single-family guaranty book of business as of December 31, 2012 and 2011, respectively. The mortgage loans and mortgagerelated securities that are included in these estimates consist of: (a) single-family Fannie Mae MBS (whether held in our mortgage 

portfolio or held by third parties), excluding certain whole loan REMICs and private-label wraps; (b) single-family mortgage loans, 

excluding mortgages secured only by second liens, subprime mortgages, manufactured housing chattel loans and reverse mortgages; 

and (c) long-term standby commitments. We expect the inclusion in our estimates of the excluded products may impact the estimated 

sensitivities set forth in this table.

The decrease in the projected credit loss sensitivities in 2012 compared with 2011 was the result of the increase in home 

prices and lower projected default expectations for loans in our single-family guaranty book of business. Because these 

sensitivities represent hypothetical scenarios, they should be used with caution. Our regulatory stress test scenario is limited 

in that it assumes an instantaneous uniform 5% nationwide decline in home prices, which is not representative of the 

historical pattern of changes in home prices. Changes in home prices generally vary on a regional, as well as a local, basis. In 

addition, these stress test scenarios are calculated independently without considering changes in other interrelated 

assumptions, such as unemployment rates or other economic factors, which are likely to have a significant impact on our 

future expected credit losses.

Other Non-Interest Expenses

Other non-interest expenses consist of credit enhancement expenses, which reflect the amortization of the credit enhancement 

asset we record at the inception of guaranty contracts; costs associated with the purchase of additional mortgage insurance to 

protect against credit losses; net gains and losses on the extinguishment of debt; servicer incentive fees in connection with 

loans modified under HAMP; our obligation to Treasury under the TCCA, which was effective on April 1, 2012; and other 

miscellaneous expenses. 

Other non-interest expenses increased in 2012 compared with 2011 primarily due to our obligation and payments to Treasury 

under the TCCA of $238 million. As a result of the TCCA, we increased the guaranty fee on all single-family residential 

mortgages delivered to us on or after April 1, 2012 for securitization by 10 basis points and are required to remit this increase 

to Treasury, rather than retaining the incremental revenue. The resulting revenue is included in net interest income and the 

expense is included in other expenses. Other non-interest expenses decreased in 2011 compared with 2010 primarily due to a 

decrease in net losses recorded on the extinguishment of debt as a result of lower funding needs in 2011 compared with 

higher call activity due to low interest rates in 2010.

Federal Income Taxes 

We did not recognize a provision or a benefit for federal income taxes in 2012. We recorded a benefit for federal income 

taxes of $90 million for 2011 because we effectively settled our 2007 and 2008 tax years with the Internal Revenue Service 

(“IRS”) in 2011. We recorded a benefit for federal income taxes of $82 million for 2010 primarily due to the reversal of a 

portion of the valuation allowance for deferred tax assets resulting from a settlement agreement reached with the IRS for our 

unrecognized tax benefits for the tax years 1999 through 2004. 

We discuss federal income taxes and the factors that led us to record a valuation allowance against our net deferred tax assets 

in “Note 10, Income Taxes.” The amount of deferred tax assets considered realizable is subject to adjustment in future 

periods. We will continue to monitor all available evidence to assess the recoverability of our deferred tax assets and to assess 

whether we should retain a valuation allowance against our net deferred tax assets.

BUSINESS SEGMENT RESULTS

We provide a more complete description of our business segments in “Business—Business Segments.” Results of our three

business segments are intended to reflect each segment as if it were a stand-alone business. Under our segment reporting 

structure, the sum of the results for our three business segments does not equal our consolidated results of operations as we 

separate the activity related to our consolidated trusts from the results generated by our three segments. In addition, because 

we apply accounting methods that differ from our consolidated results for segment reporting purposes, we include an 

eliminations/adjustments category to reconcile our business segment results and the activity related to our consolidated trusts 

to our consolidated results of operations. We describe the management reporting and allocation process used to generate our 

segment results in “Note 13, Segment Reporting.”

In this section, we summarize our segment results for the years ended December 31, 2012, 2011 and 2010 in the tables below 

and provide a comparative discussion of these results. This section should be read together with our comparative discussion 
90

of our consolidated results of operations in “Consolidated Results of Operations.” See “Note 13, Segment Reporting” for a 

reconciliation of our segment results to our consolidated results.

Summary

Table 21 displays a summary of our segment results for 2012, 2011 and 2010.

Table 21: Business Segment Summary

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Net revenues:(1)

Single-Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,120 $ 5,675 $ 2,126

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,234 1,064 940

Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,667 12,901 13,400

Consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,024 950 460

Eliminations/adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,057) (146) 567

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,988 $ 20,444 $ 17,493

Net income (loss) attributable to Fannie Mae:

Single-Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,290 $ (23,941) $ (26,680)

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,511 583 216

Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,201 8,999 16,074

Consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,741 429 (224)

Eliminations/adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,519) (2,925) (3,400)

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,224 $ (16,855) $ (14,014)

As of December 31,

2012 2011 2010

(Dollars in millions)

Total assets:

Single-Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,595 $ 11,822 $ 14,843

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,182 5,747 4,881

Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723,217 836,700 873,052

Consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,749,571 2,676,952 2,673,937

Eliminations/adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (273,143) (319,737) (344,741)

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,222,422 $3,211,484 $3,221,972

__________

(1) Includes net interest (loss) income, guaranty fee income (expense), and fee and other income (expense).
91

Segment Results

Table 22 displays our segment results for 2012.

Table 22: Business Segment Results

For the Year Ended December 31, 2012

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income. . . . . . . . . . . . $ (790) $ (13) $13,241 $7,156 $ 1,907 (3) $21,501

Benefit for credit losses . . . . . . . . . . . . . 672 180 — — — 852

Net interest (loss) income after benefit 

for credit losses. . . . . . . . . . . . . . . . . . (118) 167 13,241 7,156 1,907 22,353

Guaranty fee income (expense) . . . . . . . 8,151 1,040 (1,291) (4,737)

(4) (2,951)(4) 212 (4)

Investment gains (losses), net. . . . . . . . . 8 37 6,217 (1) (5,774)

(5) 487

Net other-than-temporary impairments . — — (711) (2) — (713)

Fair value losses, net . . . . . . . . . . . . . . . (8) — (3,041) (313) 385 (6) (2,977)

Debt extinguishment (losses) gains, net. — — (277) 33 — (244)

Gains from partnership investments. . . . — 123 — — (4) 119 (7)

Fee and other income (expense). . . . . . . 759 207 717 (395) (13) 1,275

Administrative expenses . . . . . . . . . . . . (1,590) (269) (508) — — (2,367)

Foreclosed property income . . . . . . . . . . 247 7 — — — 254

Other expenses . . . . . . . . . . . . . . . . . . . . (1,079) (5) (22) — (73) (1,179)

Income before federal income taxes. . . . 6,370 1,307 14,325 1,741 (6,523) 17,220

(Provision) benefit for federal income 

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (80) 204 (124) — — —

Net income . . . . . . . . . . . . . . . . . . . . 6,290 1,511 14,201 1,741 (6,523) 17,220

Less: Net loss attributable to

noncontrolling interest . . . . . . . . . — — — — 4

(8) 4

Net income attributable to Fannie 

Mae . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,290 $1,511 $14,201 $1,741 $(6,519) $17,224

__________

(1) Represents activity related to the assets and liabilities of consolidated trusts in our consolidated balance sheets.

(2) Represents the elimination of intercompany transactions occurring between the three business segments and our consolidated trusts, as 

well as other adjustments to reconcile to our consolidated results.

(3) Represents the amortization expense of cost basis adjustments on securities that we own in our portfolio that on a GAAP basis are 

eliminated.

(4) Represents the guaranty fees paid from consolidated trusts to the Single-Family and Multifamily segments. The adjustment to guaranty 

fee income in the Eliminations/Adjustments column represents the elimination of the amortization of deferred cash fees related to 

consolidated trusts that were re-established for segment reporting. Total guaranty fee income is included in fee and other income in our 

consolidated statements of operations and comprehensive income (loss).

(5) Primarily represents the removal of realized gains and losses on sales of Fannie Mae MBS classified as available-for-sale securities that 

are issued by consolidated trusts and retained in the Capital Markets portfolio. The adjustment also includes the removal of 

securitization gains (losses) recognized in the Capital Markets segment relating to portfolio securitization transactions that do not 

qualify for sale accounting under GAAP.

(6) Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are retained in the Capital 

Markets portfolio.

(7) Gains from partnership investments are included in other expenses in our consolidated statements of operations and comprehensive 

income (loss).

(8) Represents the adjustment from equity method accounting to consolidation accounting for partnership investments that are consolidated 

in our consolidated balance sheets.
92

Single-Family Business Results

Table 23 displays the financial results of our Single-Family business for the periods indicated. For a discussion on SingleFamily credit risk management, including information on serious delinquency rates and loan workouts, see “Risk 

Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.” The primary source of 

revenue for our Single-Family business is guaranty fee income. Expenses and other items that impact income or loss 

primarily include credit-related income (expenses), net interest loss and administrative expenses.

Table 23: Single-Family Business Results

For the Year Ended December 31, Variance

2012 2011 2010 2012 vs. 2011 2011 vs. 2010

(Dollars in millions)

Net interest loss(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (790) $ (2,411) $ (5,386) $ 1,621 $ 2,975

Guaranty fee income(2)(3)

. . . . . . . . . . . . . . . . . . . . . 8,151 7,507 7,206 644 301

Credit-related income (expenses)(4)

. . . . . . . . . . . . . 919 (27,218) (26,420) 28,137 (798)

Other expenses(3)(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . (1,910) (1,925) (2,149) 15 224

Income (loss) before federal income taxes. . . . . . . . 6,370 (24,047) (26,749) 30,417 2,702

(Provision) benefit for federal income taxes . . . . . . (80) 106 69 (186) 37

Net income (loss) attributable to Fannie Mae . . . . . $ 6,290 $ (23,941) $ (26,680) $30,231 $ 2,739

Other key performance data:

Single-family effective guaranty fee rate (in basis 

points)(3)(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.7 26.2 25.1

Single-family average charged guaranty fee on 

new acquisitions (in basis points)(3)(7). . . . . . . . . . 39.9 28.8 25.7

Average single-family guaranty book of business(8) $ 2,843,718 $ 2,864,919 $ 2,873,779

Single-family Fannie Mae MBS issuances(9)

. . . . . . $ 827,749 $ 564,606 $ 603,247

__________

(1) Primarily includes the cost to reimburse the Capital Markets group for interest income not recognized for loans in our mortgage 

portfolio on nonaccrual status, the cost to reimburse MBS trusts for interest income not recognized for loans in consolidated trusts on 

nonaccrual status, and income from cash payments received on loans that have been placed on nonaccrual status.

(2) Guaranty fee income is included in fee and other income in our consolidated statements of operations and comprehensive income (loss). 

(3) Pursuant to the TCCA, effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages delivered to us 

on or after that date for securitization by 10 basis points, and the incremental revenue must be remitted to Treasury. The resulting 

revenue is included in guaranty fee income and the expense is included in other expenses. This increase in guaranty fee is also included 

in the single-family charged guaranty fee.

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

(5) Consists of investment gains (losses), net, fair value losses, net, fee and other income, administrative expenses and other expenses.

(6) Calculated based on annualized Single-Family segment guaranty fee income divided by the average single-family guaranty book of 

business, expressed in basis points.

(7) Calculated based on the average contractual fee rate for our single-family guaranty arrangements entered into during the period plus the 

recognition of any upfront cash payments ratably over an estimated average life, expressed in basis points.

(8) Consists of single-family mortgage loans held in our mortgage portfolio, single-family mortgage loans held by consolidated trusts, 

single-family Fannie Mae MBS issued from unconsolidated trusts held by either third parties or within our retained portfolio, and other 

credit enhancements that we provide on single-family mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in 

our investment portfolio for which we do not provide a guaranty.

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

Housing Finance Agency (HFA) new issue bond program issuances, none of which occurred in 2012 or 2011. There were HFA new 

issue bond program issuances of $3.1 billion during 2010.
93

2012 compared with 2011

Net income in 2012 compared with net loss in 2011 was primarily due to credit-related income in 2012 compared with creditrelated expenses in 2011, driven primarily by a significant improvement in the profile of our single-family book of business 

resulting from an increase in actual home prices. Our single-family credit-related income represents the substantial majority 

of our consolidated activity. We provide a discussion of our credit-related income (expenses) and credit losses in 

“Consolidated Results of Operations—Credit-Related (Income) Expenses.”

Net interest loss decreased in 2012 compared with 2011 primarily due to a reduction in the amount of interest income not 

recognized for nonaccrual mortgage loans in our consolidated balance sheet as we continued to complete a high number of 

loan workouts and foreclosures. In addition, as loans with stronger credit profiles become a larger portion of our singlefamily guaranty book of business, a smaller percentage of our loans are becoming seriously delinquent.

Guaranty fee income increased in 2012 compared with 2011 due to an increase in the amortization of risk-based fees. 

Additionally, as described in “Business—Legislative and Regulatory Developments—Changes to Our Single-Family 

Guaranty Fee Pricing and Revenue,” in December 2011, Congress enacted the TCCA which, among other provisions, 

required that we increase our single-family guaranty fees by at least 10 basis points and remit this increase to Treasury, rather 

than retaining the incremental revenue. Effective April 1, 2012, the guaranty fee on all single-family residential mortgages 

delivered to Fannie Mae and Freddie Mac on or after that date for securitization was increased by 10 basis points; 

accordingly, the single-family average charged guaranty fee increased. The resulting revenue is included in guaranty fee 

income, and the expense is included in other expenses. We recorded other expenses of $238 million for 2012 for this 

obligation due to Treasury. We expect the guaranty fees collected and expenses incurred to increase in the future.

The single-family average charged guaranty fee on new Fannie Mae acquisitions increased 25.2 basis points over the course 

of 2012, from 27.9 basis points for the month of December 2011 to 53.1 basis points for the month of December 2012. The 

increase was primarily due to the 10 basis point TCCA increase noted above. An additional average increase of 10 basis 

points implemented during the fourth quarter of 2012, as well as lender specific contractual fee increases implemented 

throughout 2012, also contributed to the increased average charged guaranty fee. Some of these increases to guaranty fee 

pricing represent a step towards reducing our dominant presence in the marketplace by encouraging greater participation by 

private firms, a goal set forth in FHFA’s strategic plan, as well as to more appropriately price for the credit risk taken. We 

expect that future increases to guaranty fee pricing will further increase our guaranty fee revenue.

In addition, single-family net income increased as a result of our resolution agreement with Bank of America. See “Note 20, 

Subsequent Events” for additional information on this agreement. 

Our estimated market share of new single-family mortgage-related securities issuances, which excludes previously 

securitized mortgages, remained high at 49% for 2012. Despite our continued high market share, our average single-family 

guaranty book of business was flat in 2012 compared with 2011, primarily due to the decline in U.S. residential mortgage 

debt outstanding.

2011 compared with 2010

Net loss decreased in 2011 compared with 2010, primarily due to a decrease in net interest loss and an increase in guaranty 

fee income, partially offset by an increase in credit-related expenses.

The decrease in net interest loss in 2011 compared with 2010 was primarily due to a reduction in the amount of interest 

income not recognized for nonaccrual mortgage loans in our consolidated balance sheet as we continued to complete a high 

number of loan workouts and foreclosures.

Guaranty fee income increased in 2011 compared with 2010 due to an increase in the amortization of risk-based fees, 

reflecting the impact of higher risk based pricing associated with our more recent acquisition vintages. Our estimated market 

share of new single-family mortgage-related securities issuances was 48% for 2011 compared with 44% for 2010.

Single-family credit-related expenses represent the substantial majority of our consolidated activity. We provide a discussion 

of our credit-related expenses and credit losses in “Consolidated Results of Operations—Credit-Related (Income) Expenses.”
94

Multifamily Business Results

Multifamily business results primarily reflect our multifamily guaranty business. Our multifamily business results also 

include activity relating to our LIHTC and equity investments. Although we are no longer making new LIHTC or equity 

investments, we continue to make contractually required contributions for our legacy investments. Activity from multifamily 

products is also reflected in the Capital Markets group results, which include net interest income related to multifamily loans 

and securities, gains and losses from the sale of multifamily Fannie Mae MBS and re-securitizations, and other miscellaneous 

income.

Table 24 displays the financial results of our Multifamily business for the periods indicated. The primary sources of revenue 

for our Multifamily business are guaranty fee income and fee and other income. Expenses and other items that impact income 

or loss primarily include credit-related income (expenses) and administrative expenses.

Table 24: Multifamily Business Results

For the Year Ended December 31, Variance

2012 2011 2010 2012 vs. 2011 2011 vs. 2010

(Dollars in millions)

Guaranty fee income(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,040 $ 884 $ 791 $ 156 $ 93

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 218 146 (11) 72

Gains (losses) from partnership investments(2)

. . . . . . . . . . . . . . 123 81 (70) 42 151

Credit-related income (expense)(3)

. . . . . . . . . . . . . . . . . . . . . . . 187 (280) (194) 467 (86)

Other expenses(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (250) (259) (443) 9 184

Income before federal income taxes. . . . . . . . . . . . . . . . . . . . . . 1,307 644 230 663 414

Benefit (provision) for federal income taxes . . . . . . . . . . . . . . . 204 (61) (14) 265 (47)

Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . $ 1,511 $ 583 $ 216 $ 928 $ 367

Other key performance data:

Multifamily effective guaranty fee rate (in basis points)(5)

. . . . . 52.1 46.0 42.3

Multifamily credit loss performance ratio (in basis points)(6)

. . . 12.9 20.4 26.6

Average multifamily guaranty book of business(7)

. . . . . . . . . . . $199,797 $191,984 $186,867

Multifamily new business volumes(8)

. . . . . . . . . . . . . . . . . . . . . $ 33,763 $ 24,356 $ 17,919

Multifamily units financed from new business volumes(9)

. . . . . 559,000 423,000 306,000

Multifamily Fannie Mae MBS issuances(10)

. . . . . . . . . . . . . . . . $ 37,738 $ 34,066 $ 26,499

Multifamily Fannie Mae structured securities issuances 

(issued by Capital Markets group) . . . . . . . . . . . . . . . . . . . . . $ 10,084 $ 6,435 $ 4,808

Additional net interest income earned on Fannie Mae 

multifamily mortgage loans and MBS (included in Capital 

Markets group’s results)(11)

. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 827 $ 873 $ 865

Average Fannie Mae multifamily mortgage loans and MBS in 

Capital Markets group’s portfolio(12)

. . . . . . . . . . . . . . . . . . . . $ 98,025 $110,748 $115,839

As of December 31,

2012 2011

(Dollars in millions)

Multifamily serious delinquency rate(13)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.24 % 0.59 %

Percentage of multifamily guaranty book of business with credit enhancement. . . . . . . . . . . . . 90 % 90 %

Fannie Mae percentage of total multifamily mortgage debt outstanding(14)

. . . . . . . . . . . . . . . . 22 % 21 %

Multifamily Fannie Mae MBS outstanding(15)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,477 $101,574
95

__________

(1) Guaranty fee income is included in fee and other income in our consolidated statements of operations and comprehensive income (loss). 

(2) Gains (losses) from partnership investments are included in other expenses in our consolidated statements of operations and 

comprehensive income (loss). Gains (losses) from partnership investments are reported using the equity method of accounting. As a 

result, net loss attributable to noncontrolling interest from partnership investments is not included in income for the Multifamily 

segment.

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

(4) Consists of net interest (loss) income, investment gains, administrative expenses, and other (expenses) income.

(5) Calculated based on Multifamily segment guaranty fee income divided by the average multifamily guaranty book of business, 

expressed in basis points.

(6) Calculated based on Multifamily segment credit losses divided by the average multifamily guaranty book of business, expressed in 

basis points.

(7) Consists of multifamily mortgage loans held in our mortgage portfolio, multifamily mortgage loans held by consolidated trusts, 

multifamily Fannie Mae MBS issued from unconsolidated trusts held by either third parties or within our retained portfolio, and other 

credit enhancements that we provide on multifamily mortgage assets. Excludes non-Fannie Mae mortgage-related securities held in our 

investment portfolio for which we do not provide a guaranty.

(8) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued (excluding portfolio securitizations) and multifamily loans 

purchased during the period. Includes HFA new issue bond program issuances, none of which occurred in 2012 or 2011. There were 

HFA new issue bond program issuances of $1.0 billion during 2010.

(9) Excludes HFA new issue bond program.

(10) Reflects unpaid principal balance of multifamily Fannie Mae MBS issued during the period. Includes: (a) issuances of new MBS, 

(b) Fannie Mae portfolio securitization transactions of $4.4 billion, $10.0 billion and $8.7 billion for the years ended December 31, 

2012, 2011 and 2010, respectively, and (c) conversions of adjustable-rate loans to fixed-rate loans and discount MBS (“DMBS”) to 

MBS of $215 million, $241 million and $389 million for the years ended December 31, 2012, 2011 and 2010, respectively.

(11) Interest expense estimate is based on allocated duration-matched funding costs. Net interest income was reduced by guaranty fees 

allocated to Multifamily from the Capital Markets group on multifamily loans in Fannie Mae’s portfolio.

(12) Based on unpaid principal balance.

(13) As of January 31, 2013, our Multifamily serious delinquency rate was 0.35%.

(14) Includes mortgage loans and Fannie Mae MBS issued and guaranteed by the Multifamily segment. Information is based on the Federal 

Reserve’s December 2012 mortgage debt outstanding release. Prior period amounts may have been changed to reflect revised historical 

data from the Federal Reserve. 

(15) Includes $28.1 billion and $28.3 billion of Fannie Mae multifamily MBS held in the mortgage portfolio, the vast majority of which 

have been consolidated to loans in our consolidated balance sheets, as of December 31, 2012 and 2011, respectively, and $1.3 billion

and $1.4 billion of Fannie Mae MBS collateralized by bonds issued by state and local housing finance agencies as of December 31, 

2012 and 2011, respectively.

2012 compared with 2011

Net income increased in 2012 compared with 2011, primarily due to credit-related income in 2012 compared with creditrelated expenses in 2011. Credit-related income in 2012 was primarily due to reductions to our total loss reserves resulting 

from an improvement in national multifamily market fundamentals. In comparison, credit-related expenses in 2011 were 

primarily due to underperformance of certain local markets and properties due to localized economic conditions. Multifamily 

credit losses, which consist of net charge-offs and foreclosed property income (expense), were $257 million for 2012 

compared with $391 million for 2011.

Guaranty fee income increased in 2012 compared with 2011 as we continued to acquire loans with higher guaranty fees. Our 

acquisitions of loans with higher guaranty fees have become a larger part of our multifamily guaranty book of business, while 

loans with lower guaranty fees continue to liquidate.

A benefit for federal income taxes of $204 million in 2012 was primarily driven by the utilization of tax credits related to 

LIHTC investments to offset our alternative minimum tax liability resulting from our 2012 taxable income. In comparison, a 

provision for federal income taxes was recognized in 2011, resulting from an effective settlement of issues with the Internal 

Revenue Service relating to tax years 2007 and 2008, which reduced our total corporate tax liability. However, the reduction 

in our tax liability also reduced the tax credits we were able to use, resulting in a provision for federal income taxes for the 

Multifamily segment in 2011.
96

2011 compared with 2010

Net income increased in 2011 compared with 2010, primarily due to an increase in guaranty fee income and gains from 

partnership investments recognized in 2011 compared with losses from partnership investments recognized in 2010. The 

increase in net income was partially offset by increased credit-related expenses in 2011 compared with 2010.

Guaranty fee income increased in 2011 compared with 2010, primarily due to higher charged guaranty fees on new 

acquisitions.

Credit-related expenses increased in 2011 compared with 2010, primarily due to a stable allowance for loan losses in 2011 

compared with a decrease in 2010. Although national multifamily market fundamentals continued to improve in 2011, certain 

local markets and properties continued to underperform compared to the rest of the nation. Multifamily credit losses were 

$391 million for 2011 compared with $498 million for 2010.

We recognized gains from partnership investments in 2011 compared with losses from partnership investments in 2010 as 

stronger national multifamily market fundamentals resulted in improved property-level operating performance and increased 

gains on the sale of investments.

Capital Markets Group Results

Table 25 displays the financial results of our Capital Markets group for the periods indicated. Following the table we discuss 

the Capital Markets group’s financial results and describe the Capital Markets group’s mortgage portfolio. For a discussion of 

the debt issued by the Capital Markets group to fund its investment activities, see “Liquidity and Capital Management.” For a 

discussion of the derivative instruments that the Capital Markets group uses to manage interest rate risk, see “Consolidated 

Balance Sheet Analysis—Derivative Instruments,” “Risk Management—Market Risk Management, Including Interest Rate 

Risk Management—Derivative Instruments” and “Note 9, Derivative Instruments.” The primary sources of revenue for our 

Capital Markets group are net interest income and fee and other income. Expenses and other items that impact income or loss 

primarily include fair value gains and losses, investment gains and losses, other-than-temporary impairments, allocated 

guaranty fee expense and administrative expenses.

Table 25: Capital Markets Group Results

For the Year Ended December 31, Variance

2012 2011 2010 2012 vs. 2011 2011 vs. 2010

(Dollars in millions)

Net interest income (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,241 $13,920 $14,321 $ (679) $ (401)

Investment gains, net(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,217 3,711 4,047 2,506 (336)

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . (711) (306) (720) (405) 414

Fair value (losses) gains, net(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . (3,041) (6,596) 239 3,555 (6,835)

Fee and other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717 478 519 239 (41)

Other expenses(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,098) (2,253) (2,359) 155 106

Income before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . 14,325 8,954 16,047 5,371 (7,093)

(Provision) benefit for federal income taxes. . . . . . . . . . . . . . . . . (124) 45 27 (169) 18

Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . . . $14,201 $ 8,999 $16,074 $ 5,202 $(7,075)

__________

(1) Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $5.2 

billion, $6.6 billion and $6.3 billion for the years ended December 31, 2012, 2011 and 2010, respectively. The Capital Markets group’s 

net interest income is reported based on the mortgage-related assets held in the segment’s portfolio and excludes interest income on 

mortgage-related assets held by consolidated MBS trusts that are owned by third parties and the interest expense on the corresponding 

debt of such trusts.

(2) We include the securities that we own regardless of whether the trust has been consolidated in reporting of gains and losses on 

securitizations and sales of available-for-sale securities.

(3) Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been 

consolidated.

(4) Includes allocated guaranty fee expense, debt extinguishment losses, net, administrative expenses, and other (expenses) income. Gains 

or losses related to the extinguishment of debt issued by consolidated trusts are excluded from the Capital Markets group’s results 

because purchases of securities are recognized as such.
97

2012 compared with 2011

Net income increased in 2012 compared with 2011, primarily due to a decrease in fair value losses and an increase in 

investment gains, partially offset by a decrease in net interest income and an increase in net other-than-temporary 

impairments.

Fair value losses decreased in 2012 compared with 2011 primarily due to a decrease in risk management derivatives fair 

value losses. The derivatives fair value losses that are reported for the Capital Markets group are consistent with the losses 

reported in our consolidated statement of operations and comprehensive income (loss). We discuss our derivatives fair value 

losses in “Consolidated Results of Operations—Fair Value Losses, Net.”

The net other-than-temporary impairments recognized by the Capital Markets group are consistent with our consolidated 

statements of operations and comprehensive income (loss) as described in “Consolidated Results of Operations—OtherThan-Temporary Impairment of Investment Securities.” In addition, see “Note 5, Investments in Securities” for information 

on our other-than-temporary impairments by major security type and primary drivers for other-than-temporary impairments 

recorded during the periods disclosed.

The Capital Markets group reports interest income and amortization of cost basis adjustments only on securities and loans 

that are held in our portfolio. For mortgage loans held in our mortgage portfolio, when interest income is no longer 

recognized in accordance with our nonaccrual accounting policy, the Capital Markets group recognizes interest income 

reimbursements that the group receives, primarily from Single-Family, for the contractual interest due. The interest expense 

recognized on the Capital Markets group’s statements of operations is limited to our funding debt, which is reported as “Debt 

of Fannie Mae” in our consolidated balance sheets. Net interest expense also includes a cost of capital charge allocated 

among the three business segments.

The decrease in net interest income in 2012 compared with 2011 was primarily due to a decrease in the balance of mortgagerelated securities and lower interest rates on loans in our mortgage portfolio. This decrease in interest income on our interestearning mortgage assets was partially offset by a decline in interest expense due to lower funding needs and lower borrowing 

rates, which allowed us to continue to replace higher-cost debt with lower-cost debt.

Our net interest income and net interest yield were higher than they would have otherwise been because our debt funding 

needs were lower than they would otherwise have been as a result of the funds we received from Treasury under the senior 

preferred stock purchase agreement and because dividends paid to Treasury are not recognized in interest expense.

We supplement our issuance of debt securities with derivative instruments to further reduce duration risk, which includes 

prepayment risk. The effect of these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, 

is not reflected in the Capital Markets group’s net interest income but is included in our results as a component of “Fair value 

losses, net” and is displayed in “Table 13: Fair Value Losses, Net.” If we had included the economic impact of adding the net 

contractual interest accruals on our interest rate swaps in our Capital Markets group’s interest expense, the Capital Markets 

group’s net interest income would have decreased by $1.4 billion in 2012 compared with a decrease of $2.2 billion in 2011. 

Investment gains increased in 2012 compared with 2011 primarily due to a higher volume of portfolio securitizations. In 

2012, historically low interest rates and continued high acquisitions of HARP loans contributed to elevated portfolio 

securitization volumes. 

2011 compared with 2010

Net income decreased in 2011 compared with 2010, primarily due to fair value losses in 2011 compared with fair value gains 

in 2010 and a decrease in net interest income, partially offset by a decrease in net other-than-temporary impairments. 

Fair value losses in 2011 were primarily due to derivatives fair value losses. The derivatives fair value losses that are reported 

for the Capital Markets group are consistent with the losses reported in our consolidated statement of operations and 

comprehensive income (loss). We discuss our derivatives fair value losses in “Consolidated Results of Operations—Fair 

Value Losses, Net.”

The decrease in net interest income in 2011 compared with 2010 was primarily due to a decrease in the balance of mortgagerelated securities, lower coupon rates on modified loans in our portfolio and an out-of-period adjustment to reduce interest 

income on mortgage-related securities in 2011. This decrease in interest income on our interest-earning assets was partially 

offset by a decline in funding costs as we replaced higher cost debt with lower cost debt. The reimbursements of contractual 

interest due on nonaccrual loans from the Single-Family business were a significant portion of the Capital Markets group’s 

interest income during 2011. However, the increase in these reimbursements was offset by the decline in interest income on 

our mortgage-related securities because our securities portfolio balance has declined.
98

The Capital Markets Group’s Mortgage Portfolio

The Capital Markets group’s mortgage portfolio consists of mortgage loans and mortgage-related securities that we own. 

Mortgage-related securities held by the Capital Markets group include Fannie Mae MBS and non-Fannie Mae mortgagerelated securities. The Fannie Mae MBS that we own are maintained as securities on the Capital Markets group’s balance 

sheets. Mortgage-related assets held by consolidated MBS trusts are not included in the Capital Markets group’s mortgage 

portfolio. 

The amount of mortgage assets that we may own is restricted by our senior preferred stock purchase agreement with 

Treasury. Under the agreement, the maximum allowable amount of mortgage assets we may own was reduced to $650 billion

as of December 31, 2012. Beginning in 2013, by December 31 of each year, we are required to reduce our mortgage assets to 

85% of the maximum allowable amount that we were permitted to own as of December 31 of the immediately preceding 

calendar year, until the amount of our mortgage assets reaches $250 billion. As of December 31, 2012, we owned $633.1 

billion in mortgage assets, compared with $708.4 billion as of December 31, 2011. The terms of the senior preferred stock 

purchase agreement were amended in 2012 and the amended terms are described in “Business—Conservatorship and 

Treasury Agreements.”

Table 26 displays our Capital Markets group’s mortgage portfolio activity for the periods indicated.

Table 26: Capital Markets Group’s Mortgage Portfolio Activity(1)

For the Year Ended

December 31,

2012 2011

(Dollars in millions)

Mortgage loans:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 398,271 $ 427,074

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,463 153,218

Securitizations (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (211,455) (101,705)

Liquidations (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76,571) (80,316)

Mortgage loans, ending balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,708 398,271

Mortgage securities:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,143 361,697

Purchases (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,874 20,760

Securitizations (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,455 101,705

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (224,208) (108,430)

Liquidations (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,918) (65,589)

Mortgage securities, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,346 310,143

Total Capital Markets mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 633,054 $ 708,414

__________

(1) Based on unpaid principal balance.

(2) Includes portfolio securitization transactions that do not qualify for sale treatment under GAAP.

(3) Includes scheduled repayments, prepayments, foreclosures and lender repurchases.

(4) Includes purchases of Fannie Mae MBS issued by consolidated trusts.
99

Table 27 displays the composition of the Capital Markets group’s mortgage portfolio as of December 31, 2012 and 2011.

Table 27: Capital Markets Group’s Mortgage Portfolio Composition(1)

As of December 31,

2012 2011

(Dollars in millions)

Capital Markets group’s mortgage loans:

Single-family loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,886 $ 41,555

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,791 245,810

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,460 10,289

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,008 23,490

Total single-family conventional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,259 279,589

Total single-family loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,145 321,144

Multifamily loans:

Government insured or guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 362

Conventional:

Long-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,245 3,629

Intermediate-term, fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,662 58,885

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,344 14,251

Total multifamily conventional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,251 76,765

Total multifamily loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,563 77,127

Total Capital Markets group’s mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,708 398,271

Capital Markets group’s mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,964 220,061

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,274 14,509

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,049 1,043

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,079 19,670

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,093 16,538

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,587 23,226

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,486 10,899

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,814 4,197

Total Capital Markets group’s mortgage-related securities(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,346 310,143

Total Capital Markets group’s mortgage portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 633,054 $ 708,414

__________

(1) Based on unpaid principal balance.

(2) The fair value of these mortgage-related securities was $269.9 billion and $316.5 billion as of December 31, 2012 and 2011, 

respectively.

The Capital Markets group’s mortgage portfolio decreased to $633.1 billion as of December 31, 2012 from $708.4 billion as 

of December 31, 2011 primarily due to liquidations, partially offset by purchases of delinquent loans from MBS trusts as 

discussed below. Although the Capital Markets group’s mortgage portfolio decreased overall period over period, purchases, 

securitizations and sales activity increased in 2012 primarily as a result of lower interest rates and the implementation of 

changes to HARP.
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We expect to continue to purchase loans from MBS trusts as they become four or more consecutive monthly payments 

delinquent subject to market conditions, economic benefit, servicer capacity, and other factors including the limit on the 

mortgage assets that we may own pursuant to the senior preferred stock purchase agreement. We purchased approximately 

277,000 delinquent loans with an unpaid principal balance of $45.8 billion from our single-family MBS trusts in 2012. As of 

December 31, 2012, the total unpaid principal balance of all loans in single-family MBS trusts that were delinquent as to four 

or more consecutive monthly payments was $3.7 billion. As a result of purchasing these delinquent loans and our portfolio 

declining to meet the requirements of our senior preferred stock purchase agreement with Treasury, an increasing portion of 

the Capital Market group’s mortgage portfolio is comprised of nonperforming loans. The total unpaid principal balance of 

nonperforming loans in the Capital Markets group’s mortgage portfolio was $230.3 billion or 36% of the Capital Markets 

group’s mortgage portfolio as of December 31, 2012, compared with $236.2 billion or 33% of the Capital Markets group’s 

mortgage portfolio as of December 31, 2011. This population includes loans that have been modified and classified as TDRs, 

of which $130.2 billion as of December 31, 2012 and $114.2 billion as of December 31, 2011 were TDRs on accrual status, 

as well as unmodified delinquent loans that are on nonaccrual status in our consolidated financial statements. 

CONSOLIDATED BALANCE SHEET ANALYSIS

We seek to structure the composition of our balance sheet and manage its size to comply with our regulatory requirements, to 

provide adequate liquidity to meet our needs, and to mitigate our interest rate risk and credit risk exposure. The major asset 

components of our consolidated balance sheets include our mortgage investments and our cash and other investments 

portfolio. We fund and manage the interest rate risk on these investments through the issuance of debt securities and the use 

of derivatives. Our debt securities and derivatives represent the major liability components of our consolidated balance 

sheets.

This section provides a discussion of our consolidated balance sheets as of the dates indicated and should be read together 

with our consolidated financial statements, including the accompanying notes. 

Table 28 displays a summary of our consolidated balance sheets as of December 31, 2012 and 2011.

Table 28: Summary of Consolidated Balance Sheets

As of December 31,

2012 2011 Variance

(Dollars in millions)

Assets

Cash and cash equivalents and federal funds sold and securities purchased 

under agreements to resell or similar arrangements. . . . . . . . . . . . . . . . . . . . . $ 53,617 $ 63,539 $ (9,922)

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,919 50,797 17,122

Investments in securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,876 151,780 (47,904)

Mortgage loans:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,936 380,379 (24,443)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,652,265 2,590,398 61,867

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,795) (72,156) 13,361

Mortgage loans, net of allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . 2,949,406 2,898,621 50,785

Other assets(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,604 46,747 857

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 3,211,484 $ 10,938

Liabilities and equity (deficit)

Debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 615,864 $ 732,444 $ (116,580)

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,573,653 2,457,428 116,225

Other liabilities(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,681 26,183 (502)

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,215,198 3,216,055 (857)

Senior preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,149 112,578 4,571

Other deficit(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (109,925) (117,149) 7,224

Total equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,224 (4,571) 11,795

Total liabilities and equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 3,211,484 $ 10,938
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__________

(1) Includes $18.0 billion as of December 31, 2012 and $49.8 billion as of December 31, 2011 of non-mortgage-related securities that are 

included in our other investments portfolio, which we present in “Table 38: Cash and Other Investments Portfolio.”

(2) Consists of accrued interest receivable, net; acquired property, net; and other assets.

(3) Consists of accrued interest payable and other liabilities.

(4) Consists of preferred stock, common stock, accumulated deficit, accumulated other comprehensive income (loss), treasury stock, and 

noncontrolling interest.

Cash and Other Investments Portfolio

Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and securities purchased 

under agreements to resell or similar arrangements, and investments in non-mortgage-related securities. See “Liquidity and 

Capital Management—Liquidity Management—Cash and Other Investments Portfolio” for additional information on our 

cash and other investments portfolio.

Restricted Cash

Restricted cash primarily includes unscheduled borrower payments received by the servicer or consolidated trusts due to be 

remitted to the MBS certificateholders in the subsequent month. Our restricted cash increased as of December 31, 2012 

compared with the balance as of December 31, 2011 primarily due to an increase in refinance activity, resulting in an increase 

in unscheduled payments received. 

Investments in Mortgage-Related Securities

Our investments in mortgage-related securities are classified in our consolidated balance sheets as either trading or availablefor-sale and are measured at fair value. Unrealized and realized gains and losses on trading securities are included as a 

component of “Fair value losses, net” and unrealized gains and losses on available-for-sale securities are included in “Other 

comprehensive income (loss)” in our consolidated statements of operations and comprehensive income (loss). Realized gains 

and losses on available-for-sale securities are recognized when securities are sold in “Investment gains, net” in our 

consolidated statements of operations and comprehensive income (loss). We recognize the credit component of other-thantemporary impairments of debt securities we own in “Net other-than-temporary impairments” and the noncredit component in 

“Other comprehensive income (loss)” in our consolidated statements of operations and comprehensive income (loss) for 

those securities that we do not intend to sell and for which it is not more likely than not that we will be required to sell before 

recovery. See “Note 5, Investments in Securities” for additional information on our investments in mortgage-related 

securities, including the composition of our trading and available-for-sale securities at amortized cost and fair value and the 

gross unrealized gains and losses related to our available-for-sale securities as of December 31, 2012 and 2011. 

We classify private-label securities as Alt-A, subprime, CMBS or manufactured housing 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 (“wraps”). 

Table 29 displays the fair value of our investments in mortgage-related securities, including trading and available-for-sale 

securities, as of the dates indicated. The decrease during 2012 is primarily attributable to a reduction in our agency MBS 

investments as we continue to manage our portfolio to the requirements of the senior preferred stock purchase agreement.
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Table 29: Summary of Mortgage-Related Securities at Fair Value

As of December 31,

2012 2011 2010

(Dollars in millions)

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,683 $ 24,274 $ 30,226

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,173 15,555 18,322

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,188 1,189 1,629

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,405 13,032 15,573

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,766 8,866 11,513

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,923 24,437 25,608

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,517 10,978 11,650

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,271 3,601 3,974

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $85,926 $101,932 $118,495

Mortgage Loans

The mortgage loans reported in our consolidated balance sheets include loans owned by Fannie Mae and loans held in 

consolidated trusts and are classified as either held for sale or held for investment. The increase in mortgage loans, net of the 

allowance for loan losses, in 2012 was primarily driven by securitization activity from our lender swap and portfolio 

securitization programs. For additional information on our mortgage loans, see “Note 3, Mortgage Loans.” For additional 

information on the mortgage loan purchase and sale activities reported by our Capital Markets group, see “Business Segment 

Results—Capital Markets Group Results.” 

Deferred Tax Assets, Net

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying 

amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards 

and tax credit carryforwards. For additional information on our deferred tax assets and liabilities, see “Note 10, Income 

Taxes.”

Debt 

Debt of Fannie Mae is the primary means of funding our mortgage investments. Debt of consolidated trusts represents the 

amount of Fannie Mae MBS issued from consolidated trusts and held by third-party certificateholders. We provide a 

summary of the activity of the debt of Fannie Mae and a comparison of the mix between our outstanding short-term and longterm debt in “Liquidity and Capital Management—Liquidity Management—Debt Funding.” Also see “Note 8, Short-Term 

Borrowings and Long-Term Debt” for additional information on our outstanding debt. 

The increase in debt of consolidated trusts in 2012 was primarily driven by sales of Fannie Mae MBS, which are accounted 

for as reissuances of debt of consolidated trusts in our consolidated balance sheets, since the MBS certificate ownership is 

transferred from us to a third party.

Stockholders’ Equity (Deficit) 

Our net equity increased as of December 31, 2012 compared with December 31, 2011. See Table 30 in “Supplemental NonGAAP Information—Fair Value Balance Sheets” for details of the change in our net equity. 

SUPPLEMENTAL NON-GAAP INFORMATION—FAIR VALUE BALANCE SHEETS

As part of our disclosure requirements with FHFA, we disclose on a quarterly basis supplemental non-GAAP consolidated 

fair value balance sheets, which reflect our assets and liabilities at estimated fair value.

Table 30 summarizes changes in our stockholders’ equity (deficit) reported in our GAAP consolidated balance sheets and in 

the estimated fair value of our net assets in our non-GAAP consolidated fair value balance sheets for the year ended 

December 31, 2012. The estimated fair value of our net assets is calculated based on the difference between the fair value of 

our assets and the fair value of our liabilities, adjusted for noncontrolling interests. We use various valuation techniques to 
103

estimate fair value, some of which incorporate internal assumptions that are subjective and involve a high degree of 

management judgment. We describe the specific valuation techniques used to determine fair value and disclose the carrying 

value and fair value of our financial assets and liabilities in “Note 17, Fair Value.”

Table 30: Comparative Measures—GAAP Change in Stockholders’ Equity (Deficit) and Non-GAAP Change in Fair

Value of Net Assets (Net of Tax Effect)

For Year Ended

(Dollars in millions)

GAAP consolidated balance sheets:

Fannie Mae stockholders’ deficit as of December 31, 2011

(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,624)

Total comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,839

Capital transactions:(2)

Funds received from Treasury under the senior preferred stock purchase agreement. . . . . . . . . . . . . . . . . 4,571

Senior preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,608)

Capital transactions, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,037)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Fannie Mae stockholders’ equity as of December 31, 2012(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,183

Non-GAAP consolidated fair value balance sheets:

Estimated fair value of net assets as of December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(127,848)

Capital transactions, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,037)

Increase in estimated fair value of net assets, excluding capital transactions. . . . . . . . . . . . . . . . . . . . . . . . . 68,393

Increase in estimated fair value of net assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,356

Estimated fair value of net assets as of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (66,492)

__________

(1) Our net worth, as defined under the senior preferred stock purchase agreement, is equivalent to the “Total equity (deficit)” amount 

reported in our consolidated balance sheets, which consists of “Total Fannie Mae stockholders’ equity (deficit)” and “Noncontrolling 

interest.”

(2) Represents capital transactions, which are reported in our consolidated financial statements.

During 2012, the estimated fair value of our net assets, excluding capital transactions, increased by $68.4 billion. This 

increase was primarily driven by a significant improvement in credit-related items due to higher actual and expected home 

prices experienced in 2012, which lowered the expected losses on our guaranty book of business. We estimate that home 

prices increased by 4.7% in 2012. The increase in home prices in 2012 had the most significant impact on the increase in the 

fair value of our assets. Changes in single-family home prices, regardless of magnitude, may cause volatility in our fair value 

measurements due to our $2.8 trillion single-family guaranty book of business.

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

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

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

In addition, the increase in the estimated fair value of our net assets was also attributable to income resulting from the interest 

spread between our mortgage assets and associated debt and derivatives. Tightening of option-adjusted spreads realized on 

the mortgage-related assets held in our portfolio also contributed to the fair value increase.

The increase in fair value from the improvement in credit-related items, spread income, and tightening of option-adjusted 

spreads was partially offset by a decrease in fair value of $17 billion due to a change in the definition of principal market for 

certain of our loans and a change in fair value estimation for HARP loans (based on the definition of HARP at the time of 

implementation) as a result of the adoption of guidance issued by the FASB related to fair value measurement. For additional 

information on the changes resulting from the adoption of ASU 2011-04, Amendments to Achieve Common Fair Value 

Measurements and Disclosure Requirements in U.S. GAAP and IFRS, see “Note 17, Fair Value.”

Cautionary Language Relating to Supplemental Non-GAAP Financial Measures

In reviewing our non-GAAP consolidated fair value balance sheets, there are a number of important factors and limitations to 

consider. The estimated fair value of our net assets is calculated as of a particular point in time based on our existing assets 
104

and liabilities. It does not incorporate other factors that may have a significant impact on our long-term fair value, including 

revenues generated from future business activities in which we expect to engage, the value from our foreclosure and loss 

mitigation efforts or the impact that legislation or potential regulatory actions may have on us. As a result, the estimated fair 

value of our net assets presented in our non-GAAP consolidated fair value balance sheets does not represent an estimate of 

our net realizable value, liquidation value or our market value as a whole. Amounts we ultimately realize from the disposition 

of assets or settlement of liabilities may vary materially from the estimated fair values presented in our non-GAAP

consolidated fair value balance sheets.

In addition, the fair value of our net assets presented in our fair value balance sheet does not represent an estimate of the 

value we expect to realize from operating the company, primarily because:

• The estimated fair value of our credit exposures significantly exceeds our projected credit losses as fair value takes 

into account certain assumptions about liquidity and required rates of return that a market participant may demand 

in assuming a credit obligation. We do not generally intend to have other parties assume the credit risk inherent in 

our book of business, and therefore would not be obligated to pay a market premium for its assumption, and

• The fair value of our net assets reflects a point in time estimate of the fair value of our existing assets and liabilities, 

and does not incorporate the value associated with new business that may be added in the future.

The fair value of our net assets is not a measure defined within GAAP and may not be comparable to similarly titled measures 

reported by other companies.

Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

We display our non-GAAP fair value balance sheets as of the dates indicated in Table 31.
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Table 31: Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

As of December 31, 2012 As of December 31, 2011

GAAP

Carrying

Value

Fair Value 

Adjustment(1)

Estimated

Fair Value

GAAP

Carrying

Value

Fair Value 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Assets:

Cash and cash equivalents . . . . . . . . . . $ 89,036 $ — $ 89,036 $ 68,336 $ — $ 68,336

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements . . . . . 32,500 — 32,500 46,000 — 46,000

Trading securities . . . . . . . . . . . . . . . . . 40,695 — 40,695 74,198 — 74,198

Available-for-sale securities . . . . . . . . . 63,181 — 63,181 77,582 — 77,582

Mortgage loans:

Mortgage loans held for sale . . . . . . . 464 11 475 311 14 325

Mortgage loans held for investment,

net of allowance for loan losses:

Of Fannie Mae. . . . . . . . . . . . . . . . 305,025 (33,837) 271,188 322,825 (27,829) 294,996

Of consolidated trusts . . . . . . . . . . 2,643,917 118,511 (2) 2,762,428 (3) 2,575,485 76,540 (2) 2,652,025 (3)

Total mortgage loans . . . . . . . . . . . . . 2,949,406 84,685 3,034,091 (4) 2,898,621 48,725 2,947,346 (4)

Advances to lenders . . . . . . . . . . . . . . . 7,592 (84) 7,508 (5)(6) 5,538 (118) 5,420 (5)(6)

Derivative assets at fair value . . . . . . . . 435 — 435 (5)(6) 561 — 561 (5)(6)

Guaranty assets and buy-ups, net . . . . . 327 365 692 (5)(6) 503 398 901 (5)(6)

Total financial assets . . . . . . . . . . . . . 3,183,172 84,966 3,268,138 (7) 3,171,339 49,005 3,220,344 (7)

Credit enhancements. . . . . . . . . . . . . . . 488 997 1,485 (5)(6) 455 2,550 3,005 (5)(6)

Other assets. . . . . . . . . . . . . . . . . . . . . . 38,762 (244) 38,518 (5)(6) 39,690 (258) 39,432 (5)(6)

Total assets. . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 85,719 $ 3,308,141 $ 3,211,484 $ 51,297 $ 3,262,781

Liabilities:

Short-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . $ 105,233 $ 20 $ 105,253 $ 146,752 $ 30 $ 146,782

Of consolidated trusts. . . . . . . . . . . . 3,483 — 3,483 4,973 — 4,973

Long-term debt:

Of Fannie Mae . . . . . . . . . . . . . . . . . 510,631 (8) 24,941 535,572 585,692 (8) 28,291 613,983

Of consolidated trusts. . . . . . . . . . . . 2,570,170 (8) 131,009 (2) 2,701,179 2,452,455 (8) 144,202 (2) 2,596,657

Derivative liabilities at fair value . . . . . 705 — 705 (9)(10) 916 — 916 (9)(10)

Guaranty obligations. . . . . . . . . . . . . . . 599 2,514 3,113 (9)(10) 811 3,133 3,944 (9)(10)

Total financial liabilities . . . . . . . . . . 3,190,821 158,484 3,349,305 (7) 3,191,599 175,656 3,367,255 (7)

Other liabilities . . . . . . . . . . . . . . . . . . . 24,377 910 25,287 (9)(10) 24,456 (1,135) 23,321 (9)(10)

Total liabilities. . . . . . . . . . . . . . . . . . 3,215,198 159,394 3,374,592 3,216,055 174,521 3,390,576

Equity (deficit):

Fannie Mae stockholders’ equity

(deficit):

Senior preferred(11)

. . . . . . . . . . . . . . . . 117,149 — 117,149 112,578 — 112,578

Preferred . . . . . . . . . . . . . . . . . . . . . . . . 19,130 (17,938) 1,192 19,130 (18,163) 967

Common . . . . . . . . . . . . . . . . . . . . . . . . (129,096) (55,737) (184,833) (136,332) (105,061) (241,393)

Total Fannie Mae stockholders’

equity (deficit)/non-GAAP fair

value of net assets. . . . . . . . . . . . $ 7,183 $ (73,675) $ (66,492) $ (4,624) $ (123,224) $ (127,848)

Noncontrolling interest. . . . . . . . . . . 41 — 41 53 — 53

Total equity (deficit). . . . . . . . . . . . . 7,224 (73,675) (66,451) (4,571) (123,224) (127,795)

Total liabilities and equity (deficit) . $ 3,222,422 $ 85,719 $ 3,308,141 $ 3,211,484 $ 51,297 $ 3,262,781

__________

Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures

(1) Each of the amounts listed as a “fair value adjustment” represents the difference between the carrying value included in our GAAP 

consolidated balance sheets and our best judgment of the estimated fair value of the listed item.
106

(2) Fair value of consolidated loans is impacted by credit risk, which has no corresponding impact on the consolidated debt.

(3) Includes certain mortgage loans that we elected to report at fair value in our GAAP consolidated balance sheets of $10.8 billion and 

$3.6 billion as of December 31, 2012 and 2011, respectively.

(4) Performing loans had a fair value of $2.9 trillion and an unpaid principal balance of $2.8 trillion as of December 31, 2012 compared 

with a fair value of $2.8 trillion and an unpaid principal balance of $2.7 trillion as of December 31, 2011. Nonperforming loans, which 

for the purposes of our non-GAAP fair value balance sheets consists of loans that are delinquent by one or more payments, had a fair 

value of $112.3 billion and an unpaid principal balance of $189.9 billion as of December 31, 2012 compared with a fair value of $128.9 

billion and an unpaid principal balance of $226.5 billion as of December 31, 2011. See “Note 17, Fair Value” for additional information 

on valuation techniques for performing and nonperforming loans.

(5) The following line items: (a) Advances to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; (d) Credit 

enhancements; and (e) Other assets, together consist of the following assets presented in our GAAP consolidated balance sheets: 

(a) Accrued interest receivable, net; (b) Acquired property, net; and (c) Other assets.

(6) “Other assets” include the following GAAP consolidated balance sheets line items: (a) Accrued interest receivable, net and (b) Acquired 

property, net. The carrying value of these items in our GAAP consolidated balance sheets totaled $19.7 billion and $21.4 billion as of 

December 31, 2012 and 2011, respectively. “Other assets” in our GAAP consolidated balance sheets include the following: 

(a) Advances to lenders; (b) Derivative assets at fair value; (c) Guaranty assets and buy-ups, net; and (d) Credit enhancements. The 

carrying value of these items totaled $8.8 billion and $7.1 billion as of December 31, 2012 and 2011, respectively.

(7) We estimated the fair value of these financial instruments in accordance with the fair value accounting guidance as described in “Note 

17, Fair Value.”

(8) Includes certain long-term debt instruments that we elected to report at fair value in our GAAP consolidated balance sheets of $12.4 

billion and $4.8 billion as of December 31, 2012 and 2011, respectively.

(9) The following line items: (a) Derivative liabilities at fair value; (b) Guaranty obligations; and (c) Other liabilities, consist of the 

following liabilities presented in our GAAP consolidated balance sheets: (a) Accrued interest payable and (b) Other liabilities.

(10) “Other liabilities” include Accrued interest payable in our GAAP consolidated balance sheets. The carrying value of this item in our 

GAAP consolidated balance sheets totaled $11.3 billion and $12.6 billion as of December 31, 2012 and 2011, respectively. We assume 

that certain other liabilities, such as deferred revenues, have no fair value. Although we report the “Reserve for guaranty losses” as part 

of “Other liabilities” in our GAAP consolidated balance sheets, it is incorporated into and reported as part of the fair value of our 

guaranty obligations in our non-GAAP supplemental consolidated fair value balance sheets. “Other liabilities” in our GAAP

consolidated balance sheets include the following: (a) Derivative liabilities at fair value and (b) Guaranty obligations. The carrying 

value of these items totaled $1.3 billion and $1.7 billion as of December 31, 2012 and 2011, respectively.

(11) The amount included in “estimated fair value” of the senior preferred stock is the liquidation preference, which is the same as the 

GAAP carrying value, and does not reflect fair value.

LIQUIDITY AND CAPITAL MANAGEMENT

Liquidity Management

Our business activities require that we maintain adequate liquidity to fund our operations. Our liquidity risk management 

policy is designed to address our liquidity risk. Liquidity risk is the risk that we will not be able to meet our funding 

obligations in a timely manner. Liquidity risk management involves forecasting funding requirements, maintaining sufficient 

capacity to meet our needs based on our ongoing assessment of financial market liquidity and adhering to our regulatory 

requirements. 

Our treasury function resides within the Capital Markets group and is responsible for implementing our liquidity and 

contingency planning strategies. See “Liquidity Risk Management Practices and Contingency Planning” for a discussion of 

our liquidity contingency plans. Also see “Risk Factors” in this report for a description of the risks associated with our 

liquidity risk and liquidity contingency planning. 

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 GSE 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: 

• principal and interest payments received on mortgage loans, mortgage-related securities and non-mortgage 

investments we own; 

• proceeds from the sale of mortgage-related securities, mortgage loans and non-mortgage assets, including proceeds 

from the sales of foreclosed real estate assets; 
107

• guaranty fees received on Fannie Mae MBS; 

• payments received from mortgage insurance counterparties; 

• net receipts on derivative instruments; 

• borrowings under secured intraday funding lines of credit we have established with large financial institutions; and

• borrowings against mortgage-related securities and other investment securities we hold pursuant to repurchase 

agreements and loan agreements.

Our primary funding needs include: 

• the repayment of matured, redeemed and repurchased debt; 

• the purchase of mortgage loans (including delinquent loans from MBS trusts), mortgage-related securities and other 

investments; 

• interest payments on outstanding debt; 

• dividend payments made to Treasury pursuant to the senior preferred stock purchase agreement; 

• net payments on derivative instruments; 

• the pledging of collateral under derivative instruments; 

• administrative expenses; and 

• losses incurred in connection with our Fannie Mae MBS guaranty obligations. 

Liquidity Risk Management Practices and Contingency Planning 

Our liquidity position could be adversely affected by many factors, both internal and external to our business, including: 

actions taken by our conservator, the Federal Reserve, U.S. Treasury or other government agencies; legislation relating to us 

or our business; a U.S. government payment default on its debt obligations; a downgrade in the credit ratings of our senior 

unsecured debt or the U.S government’s debt from the major ratings organizations; a systemic event leading to the 

withdrawal of liquidity from the market; an extreme market-wide widening of credit spreads; public statements by key policy 

makers; a significant decline in our net worth; loss of demand for our debt, or certain types of our debt, from a major group of 

investors; a significant credit event involving one of our major institutional counterparties; a sudden catastrophic operational 

failure in the financial sector; or elimination of our GSE status. See “Risk Factors” for a discussion of factors that could 

adversely affect our liquidity. 

We conduct liquidity contingency planning to prepare for an event in which our access to the unsecured debt markets 

becomes limited. We plan for alternative sources of liquidity that are designed to allow us to meet our cash obligations 

without relying upon the issuance of unsecured debt. 

As directed by FHFA, our liquidity management policies and practices require that we: 

• maintain a portfolio of highly liquid securities to cover a minimum of 30 calendar days of net cash needs, assuming 

no access to the short- and long-term unsecured debt markets and other assumptions required by FHFA; 

• maintain within our cash and other investment portfolio a daily balance of U.S. Treasury securities and/or cash with 

the Federal Reserve Bank of New York that has a redemption amount of at least 50% of the average projected 30-

day cash needs over the previous three months (as adjusted in agreement with FHFA); and 

• maintain a liquidity profile that meets or exceeds our projected 365-day net cash needs by supplementing liquidity 

holdings with unencumbered agency mortgage securities. 

As of December 31, 2012, we were in compliance with each of the liquidity risk management policies and practices set forth 

above. 

In addition to these FHFA requirements, we run routine operational testing of our ability to rely upon mortgage 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 a number of 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 “Risk 

Factors” for the risks associated with our ability to fund operations. 

See “Cash and Other Investments Portfolio” and “Unencumbered Mortgage Portfolio” for further discussions of our 

alternative sources of liquidity if our access to the debt markets were to become limited. 
108

Debt Funding

We separately present the debt from consolidations (“debt of consolidated trusts”) and the debt issued by us (“debt of Fannie 

Mae”) in our consolidated balance sheets and in the debt tables below. Our discussion regarding debt funding in this section 

focuses on the debt of Fannie Mae. We fund our business primarily through the issuance of short-term and long-term debt 

securities in the domestic and international capital markets. Because debt issuance is our primary funding source, we are 

subject to “roll-over,” or refinancing, risk on our outstanding debt. 

We have a diversified funding base of domestic and international investors. Purchasers of our debt securities are 

geographically diversified and include fund managers, commercial banks, pension funds, insurance companies, foreign 

central banks, corporations, state and local governments, and other municipal authorities. 

Although our funding needs may vary from quarter to quarter depending on market conditions, our debt funding needs are 

influenced by anticipated liquidity needs, the size of our mortgage portfolio and our dividend payment obligations to 

Treasury. Under the agreement, we are required to reduce our mortgage portfolio to $650 billion by December 31, 2012 and, 

by December 31 of each year thereafter, to 85% of the maximum allowable amount that we were permitted to own as of 

December 31 of the immediately preceding calendar year, until the amount of our mortgage assets reaches $250 billion.

Fannie Mae Debt Funding Activity

Table 32 displays the activity in debt of Fannie Mae for the periods indicated. This activity excludes the debt of consolidated 

trusts and intraday loans. The reported amounts of debt issued and paid off during the period represent the face amount of the 

debt at issuance and redemption, respectively. Activity for short-term debt of Fannie Mae relates to borrowings with an 

original contractual maturity of one year or less while activity for long-term debt of Fannie Mae relates to borrowings with an 

original contractual maturity of greater than one year.

Table 32: Activity in Debt of Fannie Mae

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Issued during the period:

Short-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 246,092 $ 424,503 $ 451,289

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.12% 0.12% 0.25%

Long-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 255,902 $ 256,670 $ 463,157

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26% 1.72% 1.88%

Total issued:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 501,994 $ 681,173 $ 914,446

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70% 0.72% 1.08%

Paid off during the period: (1)

Short-term:

Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 287,624 $ 429,711 $ 499,828

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.12% 0.19% 0.23%

Long-term:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 334,564 $ 302,473 $ 406,267

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.88% 2.52% 3.16%

Total paid off:

Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,188 $ 732,184 $ 906,095

Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.06% 1.15% 1.54%

__________

(1) Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments resulting from 

calls and payments for any other repurchases. Calls and repurchases of zero-coupon debt are reported at original face value, which does 

not equal the amount of actual cash payment.
109

Overall debt funding activity decreased in 2012 compared with 2011 primarily due to lower funding needs as a result of a 

reduction in the size of our mortgage portfolio pursuant to the requirements of the senior preferred stock purchase agreement. 

Our debt funding activity is influenced by the size of our mortgage portfolio, anticipated liquidity needs and our dividend 

payment obligations to Treasury. As we discuss in “Critical Accounting Policies and Estimates—Deferred Tax Assets,” we 

expect that, if we release the valuation allowance on our deferred tax assets, we will pay Treasury a significant dividend in 

the quarter following the release. We will fund such a dividend payment primarily through the issuance of debt securities and 

funds we would otherwise use to redeem debt.

We believe that continued federal government support of our business and the financial markets, as well as our status as a 

GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in federal government support of 

our business and the financial markets or our status as a GSE could materially and adversely affect our liquidity, financial 

condition and results of operations. For more information on GSE reform, see “Legislative and Regulatory Developments—

GSE Reform” and “Risk Factors.”

In addition, due to our reliance on the U.S. government’s support, our access to debt funding or the cost of our debt funding 

could be materially adversely affected by a change or perceived change in the creditworthiness of the U.S. government. A

downgrade in our credit ratings could reduce demand for our debt securities and increase our borrowing costs. See our 

discussion of credit ratings in “Risk Factors” for information about factors that may lead to the U.S. government’s long-term 

debt rating being lowered, and “Credit Ratings” for further discussion of our dependence on our credit ratings. 

Future changes or disruptions in the financial markets could significantly change the amount, mix and cost of funds we 

obtain, which also could increase our liquidity and roll-over risk and have a material adverse impact on our liquidity, 

financial condition and results of operations. See “Risk Factors” for a discussion of the risks we face relating to (1) the 

uncertain future of our company; (2) our reliance on the issuance of debt securities to obtain funds for our operations and the 

relative cost to obtain these funds; and (3) our liquidity contingency plans.

Outstanding Debt

Total outstanding debt of Fannie Mae includes federal funds purchased and securities sold under agreements to repurchase 

and short-term and long-term debt, excluding debt of consolidated trusts. 

As of December 31, 2012, our outstanding short-term debt, based on its original contractual maturity, as a percentage of our 

total outstanding debt decreased to 17% from 20% as of December 31, 2011. For information on our outstanding debt 

maturing within one year, including the current portion of our long-term debt, as a percentage of our total debt, see “Maturity 

Profile of Outstanding Debt of Fannie Mae.” In addition, the weighted-average interest rate on our long-term debt, based on 

its original contractual maturity, decreased to 2.25% as of December 31, 2012 from 2.42% as of December 31, 2011.

Pursuant to the terms of the senior preferred stock purchase agreement, we are prohibited from issuing debt without the prior 

consent of Treasury if it would result in our aggregate indebtedness exceeding our outstanding debt limit, which is 120% of 

the amount of mortgage assets we were allowed to own on December 31 of the immediately preceding calendar year. Our 

debt limit under the senior preferred stock purchase agreement was reduced to $874.8 billion in 2012. As of December 31, 

2012, our aggregate indebtedness totaled $621.8 billion, which was $253.0 billion below our debt limit. The calculation of 

our indebtedness for purposes of complying with our debt limit reflects the unpaid principal balance and excludes debt basis 

adjustments and debt of consolidated trusts. Because of our debt limit, we may be restricted in the amount of debt we issue to 

fund our operations.
110

Table 33 displays information as of the dates indicated on our outstanding short-term and long-term debt based on its original 

contractual terms.

Table 33: Outstanding Short-Term Borrowings and Long-Term Debt(1)

As of December 31,

2012 2011

Maturities Outstanding

WeightedAverage

Interest

Rate Maturities Outstanding

WeightedAverage

Interest

Rate

(Dollars in millions)

Short-term debt:

Fixed-rate:

Discount notes . . . . . . . . . . . . . . . . . . — $ 104,730 0.15% — $ 146,301 0.13%

Foreign exchange discount notes . . . . — 503 1.61 — 371 1.88

Other (2)

. . . . . . . . . . . . . . . . . . . . . . . . — — — — 80 0.04

Total short-term debt of Fannie Mae (3)

. . . . 105,233 0.16 146,752 0.13

Debt of consolidated trusts. . . . . . . . . . . — 3,483 0.15 — 4,973 0.09

Total short-term debt . . . . . . . . . . . . . . . . . . $ 108,716 0.16% $ 151,725 0.13%

Long-term debt:

Senior fixed:

Benchmark notes and bonds. . . . . . . 2013 - 2030 $ 251,768 2.59% 2012 - 2030 $ 277,146 2.81%

Medium-term notes(4)

. . . . . . . . . . . . 2013 - 2022 172,288 1.35 2012 - 2021 176,886 1.61

Foreign exchange notes and bonds. . 2021 - 2028 694 5.44 2021 - 2028 662 5.44

Other(5)(6)

. . . . . . . . . . . . . . . . . . . . . . 2013 - 2038 40,819 4.99 2012 - 2040 50,912 5.29

Total senior fixed . . . . . . . . . . . . 465,569 2.35 505,606 2.64

Senior floating:

Medium-term notes(4)

. . . . . . . . . . . . 2013 - 2019 38,633 0.27 2012 - 2016 71,855 0.32

Other(5)(6)

. . . . . . . . . . . . . . . . . . . . . . 2020 - 2037 365 8.22 2020 - 2037 420 8.01

Total senior floating . . . . . . . . . . 38,998 0.33 72,275 0.35

Subordinated fixed-rate:

Qualifying subordinated(7)

. . . . . . . . 2013 - 2014 2,522 5.00 2012 - 2014 4,894 5.08

Subordinated debentures . . . . . . . . . 2019 3,197 9.92 2019 2,917 9.91

Total subordinated fixed-rate . . . 5,719 7.75 7,811 6.88

Secured borrowings(8)

. . . . . . . . . . . . . . 2021 - 2022 345 1.87 — — —

Total long-term debt of Fannie Mae(9)

. . . . . 510,631 2.25 585,692 2.42

Debt of consolidated trusts(6)

. . . . . . . . . 2013 - 2052 2,570,170 3.36 2012 - 2051 2,452,455 4.18

Total long-term debt. . . . . . . . . . . . . . . . . . . $ 3,080,801 3.18% $ 3,038,147 3.84%

Outstanding callable debt of Fannie Mae(10) $ 177,784 1.64% $ 187,937 2.17%

__________

(1) Outstanding debt amounts and weighted-average interest rates reported in this table include the effect of unamortized discounts, 

premiums and other cost basis adjustments. Reported amounts include fair value gains and losses associated with debt that we elected 

to carry at fair value. The unpaid principal balance of outstanding debt of Fannie Mae, which excludes unamortized discounts, 

premiums, fair value adjustments and other cost basis adjustments and debt of consolidated trusts, totaled $621.8 billion and $741.6 

billion as of December 31, 2012 and 2011, respectively.

(2) Consists of foreign exchange discount notes denominated in U.S. dollars.

(3) Short-term debt of Fannie Mae consists of borrowings with an original contractual maturity of one year or less and, therefore, does not 

include the current portion of long-term debt. Reported amounts include a net unamortized discount, fair value adjustments and other 

cost basis adjustments of $33 million and $53 million as of December 31, 2012 and 2011, respectively.

(4) Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.

(5) Includes long-term debt that is not included in other debt categories.

(6) Includes a portion of structured debt instruments that is reported at fair value.
111

(7) Consists of subordinated debt with an interest deferral feature. 

(8) Represents our remaining liability resulting from the transfers of financial assets from our consolidated balance sheets that did not 

qualify as sales under the accounting guidance for the transfer of financial instruments. 

(9) Long-term debt of Fannie Mae consists of borrowings with an original contractual maturity of greater than one year. Reported amounts 

include the current portion of long-term debt that is due within one year, which totaled $103.2 billion and $134.3 billion as of 

December 31, 2012 and 2011, respectively. Reported amounts also include a net unamortized discount, fair value adjustments and other 

cost basis adjustments of $6.0 billion and $9.2 billion as of December 31, 2012 and 2011, respectively. The unpaid principal balance of 

long-term debt of Fannie Mae, which excludes unamortized discounts, premiums, fair value adjustments and other cost basis 

adjustments and amounts related to debt of consolidated trusts, totaled $516.5 billion and $594.8 billion as of December 31, 2012 and 

2011, respectively. 

(10) Consists of long-term callable debt of Fannie Mae that can be paid off in whole or in part at our option or the option of the investor at 

any time on or after a specified date. Reported amounts reflect the unpaid principal balance, and excludes unamortized discounts, 

premiums and other cost basis adjustments. 

Table 34 below displays additional information for each category of our short-term borrowings.

Table 34: Outstanding Short-Term Borrowings(1)

2012

As of December 31 Average During the Year

Outstanding

WeightedAverage

Interest

Rate Outstanding(2)

WeightedAverage

Interest

Rate

Maximum 

Outstanding(3)

(Dollars in millions)

Federal funds purchase and securities sold under 

agreements to repurchase . . . . . . . . . . . . . . . . $ — —% $ 18 —% $ 490

Fixed-rate short-term debt:

Discount notes. . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,730 0.15% $ 102,414 0.14% $ 151,906

Foreign exchange discount notes . . . . . . . . . . . 503 1.61 412 1.82 516

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 33 0.04 80

Total short-term debt. . . . . . . . . . . . . . . . . . . . . $ 105,233 0.16%

2011

As of December 31 Average During the Year

Outstanding

WeightedAverage

Interest

Rate Outstanding(2)

WeightedAverage

Interest

Rate

Maximum 

Outstanding(3)

(Dollars in millions)

Federal funds purchase and securities sold under 

agreements to repurchase . . . . . . . . . . . . . . . . $ — —% $ 10 0.11% $ 829

Fixed-rate short-term debt:

Discount notes. . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,301 0.13% $ 160,358 0.18% $ 198,382

Foreign exchange discount notes . . . . . . . . . . . 371 1.88 327 2.25 401

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 0.04 9 0.06 80

Total short-term debt. . . . . . . . . . . . . . . . . . . . . $ 146,752 0.13%
112

2010

As of December 31 Average During the Year

Outstanding

WeightedAverage

Interest

Rate Outstanding(2)

WeightedAverage

Interest

Rate

Maximum 

Outstanding(3)

(Dollars in millions)

Federal funds purchase and securities sold under 

agreements to repurchase . . . . . . . . . . . . . . . . . $ 52 2.20% $ 72 0.16% $ 200

Fixed-rate short-term debt:

Discount notes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151,500 0.32% $ 210,986 0.29% $ 260,377

Foreign exchange discount notes . . . . . . . . . . . . 384 2.43 299 1.86 384

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 15 0.53 100

Floating-rate short-term debt. . . . . . . . . . . . . . . . . — — 8 0.02 50

Total short-term debt. . . . . . . . . . . . . . . . . . . . . . $ 151,884 0.32%

__________

(1) Includes unamortized discounts, premiums, fair value adjustments and other cost basis adjustments.

(2) For 2012 and 2011, average amount outstanding has been calculated using daily balances. For 2010, average amount outstanding has 

been calculated using month-end balances.

(3) For 2012 and 2011, maximum outstanding represents the highest daily outstanding balance during the year. For 2010, maximum 

outstanding represents the highest month-end outstanding balance during the year.

(4) Consists of foreign exchange discount notes denominated in U.S. dollars.

Subordinated Debt

We had $2.5 billion in outstanding qualifying subordinated debt as of December 31, 2012. Of this amount, $1.4 billion will 

mature during 2013. The terms of these securities state that, if our core capital is below 125% of our critical capital 

requirement (which it was as of December 31, 2012), we will defer interest payments on these securities. FHFA has directed 

us, however, to continue paying principal and interest on our outstanding qualifying subordinated debt during the 

conservatorship and thereafter until directed otherwise, regardless of our existing capital levels.

Under the senior preferred stock purchase agreement, we are prohibited from issuing additional subordinated debt without the 

written consent of Treasury. We did not issue any subordinated debt in 2012.

Maturity Profile of Outstanding Debt of Fannie Mae

Table 35 displays the maturity profile, as of December 31, 2012, of our outstanding debt maturing within one year, by month, 

including amounts we have announced for early redemption. Our outstanding debt maturing within one year, including the 

current portion of our long-term debt, decreased as a percentage of our total outstanding debt, excluding debt of consolidated 

trusts, to 34% as of December 31, 2012, compared with 38% as of December 31, 2011. The weighted-average maturity of our 

outstanding debt that is maturing within one year was 130 days as of December 31, 2012, compared with 158 days as of 

December 31, 2011. 
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Table 35: Maturity Profile of Outstanding Debt of Fannie Mae Maturing Within One Year(1)

__________

(1) Includes a net unamortized discount, fair value adjustments and other cost basis adjustments of $79 million as of December 31, 2012. 

Excludes debt of consolidated trusts maturing within one year of $5.8 billion as of December 31, 2012.

Table 36 displays the maturity profile, as of December 31, 2012, of the portion of our long-term debt that matures in more 

than one year, on a quarterly basis for one year and on an annual basis thereafter, excluding amounts we have announced for 

early redemption within one year. The weighted-average maturity of our outstanding debt maturing in more than one year 

was approximately 61 months as of December 31, 2012 and approximately 59 months as of December 31, 2011. 

Table 36: Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year(1) 

__________

(1) Includes a net unamortized discount, fair value adjustments and other cost basis adjustments of $5.9 billion as of December 31, 2012. 

Excludes debt of consolidated trusts of $2.6 trillion as of December 31, 2012.

We intend to repay our short-term and long-term debt obligations as they become due primarily through proceeds from the 

issuance of additional debt securities. We also may use proceeds from our mortgage assets to pay our debt obligations.

Contractual Obligations

Table 37 displays, by remaining maturity, our future cash obligations related to our long term debt, announced calls, 

operating leases, purchase obligations and other material noncancelable contractual obligations as of December 31, 2012.
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Table 37: Contractual Obligations

Payment Due by Period as of December 31, 2012

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)

. . . . . . . . . . . . . . . . . $ 510,631 $ 103,187 $ 171,631 $ 144,666 $ 91,147

Contractual interest on long-term obligations(2)

. . . 63,466 9,501 14,167 9,636 30,162

Operating lease obligations(3)

. . . . . . . . . . . . . . . . . 154 35 64 46 9

Purchase obligations:

Mortgage commitments(4)

. . . . . . . . . . . . . . . . . 65,310 65,309 1 — —

Other purchase obligations(5)

. . . . . . . . . . . . . . 161 62 77 22 —

Other long-term liabilities reflected in the 

consolidated balance sheet(6). . . . . . . . . . . . 227 81 60 68 18

Total contractual obligations. . . . . . . . . . . . . . . . . $ 639,949 $ 178,175 $ 186,000 $ 154,438 $ 121,336

__________

(1) Represents the carrying amount of our long-term debt assuming payments are made in full at maturity. Amounts exclude $2.6 trillion in 

long-term debt from consolidations. Amounts include a net unamortized discount, fair value adjustments and other cost basis 

adjustments of $6.0 billion.

(2) Excludes contractual interest on long-term debt from consolidations. 

(3) Includes certain premises and equipment leases.

(4) Includes on- and off-balance sheet commitments to purchase mortgage loans and mortgage-related securities.

(5) Includes only unconditional purchase obligations that are subject to a cancellation penalty for certain telecom services, software and 

computer services, and other agreements. Excludes arrangements that may be cancelled without penalty. Amounts also include offbalance sheet commitments for the unutilized portion of lending agreements entered into with multifamily borrowers.

(6) Excludes risk management derivative transactions that may require cash settlement in future periods and our obligations to stand ready 

to perform under our guarantees relating to Fannie Mae MBS and other financial guarantees, 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, 2012, see “Off-Balance Sheet 

Arrangements.” Includes future cash payments due under our contractual obligations to fund LIHTC and other partnerships that are 

unconditional and legally binding and cash received as collateral from derivative counterparties, which are included in our consolidated 

balance sheets under “Other liabilities.”

Equity Funding

As a result of the covenants under the senior preferred stock purchase agreement, Treasury’s ownership of the warrant to 

purchase up to 79.9% of the total shares of our common stock outstanding and the uncertainty regarding our future, we 

effectively no longer have access to equity funding except through draws under the senior preferred stock purchase 

agreement. For a description of the covenants under the senior preferred stock purchase agreement, see “Business—

Conservatorship and Treasury Agreements—Treasury Agreements—Covenants under Treasury Agreements.” We discuss our 

funding under the senior preferred stock purchase agreement in “Capital Management—Capital Activity—Senior Preferred 

Stock Purchase Agreement.”

Cash and Other Investments Portfolio

Our cash and other investments portfolio decreased in 2012 compared with 2011. Our 2011 balance was higher due to an 

increase in the amount of cash and highly liquid non-mortgage securities held in our portfolio to increase our liquidity 

position. The balance of our cash and other investments portfolio fluctuates based on changes in our cash flows, overall 

liquidity in the fixed income markets and our liquidity risk management policies and practices. See “Risk Management—

Credit Risk Management—Institutional Counterparty Credit Risk Management—Issuers of Investments Held in our Cash 

and Other Investments Portfolio” for additional information on the risks associated with the assets in our cash and other 

investments portfolio.
115

Table 38 displays information on the composition of our cash and other investments portfolio as of the dates indicated. 

Table 38: Cash and Other Investments Portfolio

As of December 31,

2012 2011 2010

(Dollars in millions)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,117 $ 17,539 $ 17,297

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

arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,500 46,000 11,751

Non-mortgage-related securities:

U.S. Treasury securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,950 47,737 27,432

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,111 5,321

Total non-mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,950 49,848 32,753

Total cash and other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,567 $113,387 $ 61,801

__________

(1) Excludes $1.1 billion, $600 million and $4.0 billion of U.S. Treasury securities which are a component of cash equivalents as of 

December 31, 2012, 2011 and 2010, respectively, as these securities had a maturity at the date of acquisition of three months or less.

Unencumbered Mortgage Portfolio

Another potential source of liquidity in the event our access to the unsecured debt market becomes impaired is the 

unencumbered mortgage assets in our mortgage portfolio, which could be sold or used as collateral for secured borrowing. 

We believe that the amount of mortgage-related assets that we could successfully sell or borrow against in the event of a 

liquidity crisis or significant market disruption is substantially lower than the amount of mortgage-related assets we hold. Our 

ability to sell whole loans from our mortgage portfolio is limited due to the credit-related issues of these loans, as well as 

operational constraints.

While our liquidity contingency planning attempts to address stressed market conditions and our status under conservatorship 

and Treasury arrangements, we believe that our liquidity contingency plans may be difficult or impossible to execute for a 

company of our size in our circumstances. See “Risk Factors” for a description of the risks associated with our liquidity 

contingency planning.

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, Moody’s 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. We cannot predict whether one or more of 

these ratings agencies will lower our debt ratings in the future. See “Risk Factors” for a discussion of the possibility of further 

downgrades and the risks to our business relating to a decrease in our credit ratings, which could include an increase in our 

borrowing costs, limits on our ability to issue debt, and additional collateral requirements under our derivatives contracts and 

other borrowing arrangements. 
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Table 39 displays the credit ratings issued by the three major credit rating agencies as of March 25, 2013.

Table 39: Fannie Mae Credit Ratings

As of March 25, 2013

S&P Moody’s Fitch

Long-term senior debt. . . . . . . . . . . . . . . . . . . . . . . AA+ Aaa AAA

Short-term senior debt. . . . . . . . . . . . . . . . . . . . . . . A-1+ P-1 F1+

Qualifying subordinated debt . . . . . . . . . . . . . . . . . A Aa2 AAPreferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . C Ca C/RR6

Bank financial strength rating . . . . . . . . . . . . . . . . . — E+ —

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negative Negative Negative

(for Long Term

Senior Debt and

Qualifying

Subordinated Debt)

(for Long Term

Senior Debt and

Qualifying

Subordinated Debt)

(for AAA rated Long

Term Issuer Default

Rating)

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. The amount of 

additional collateral required depends on the contract and is usually a fixed incremental amount, the market value of the 

exposure, or both. See “Note 9, Derivative Instruments” for additional information on collateral we are required to provide to 

our derivatives counterparties in the event of downgrades in our credit ratings. 

Cash Flows

Year Ended December 31, 2012. Cash and cash equivalents increased from December 31, 2011 by $3.6 billion to $21.1 

billion as of December 31, 2012. Net cash generated from investing activities totaled $527.7 billion, resulting primarily from 

proceeds received from repayments of loans held for investment. Net cash from operating activities totaled $37.0 billion. 

These net cash inflows were largely offset by net cash used in financing activities of $561.1 billion primarily attributable to a 

significant amount of debt redemptions in excess of proceeds received from the issuances of debt.

Year Ended December 31, 2011. Cash and cash equivalents increased from December 31, 2010 by $242 million to $17.5 

billion as of December 31, 2011. Net cash generated from investing activities totaled $464.4 billion, resulting primarily from 

proceeds received from repayments of loans held for investment. These net cash inflows were offset by net cash used in 

operating activities of $15.2 billion and net cash used in financing activities of $448.9 billion primarily attributable to a 

significant amount of debt redemptions in excess of proceeds received from the issuances of debt as well as proceeds 

received from Treasury under the senior preferred stock purchase agreement. 

Capital Management

Regulatory Capital

FHFA has announced that during the conservatorship, our existing statutory and FHFA-directed regulatory capital 

requirements will not be binding and FHFA will not issue quarterly capital classifications. We submit capital reports to FHFA

during the conservatorship and FHFA monitors our capital levels. We report our minimum capital requirement, core capital 

and GAAP net worth in our periodic reports on Form 10-Q and Form 10-K, and FHFA also reports them on its website. 

FHFA is not reporting our critical, risk-based capital or subordinated debt levels during the conservatorship. For information 

on our minimum capital requirements see “Note 15, Regulatory Capital Requirements.”

Capital Activity

We are effectively unable to raise equity capital from private sources at this time and, therefore, are reliant on the funding 

available under the senior preferred stock purchase agreement to address any net worth deficit.

Senior Preferred Stock Purchase Agreement 

Under the senior preferred stock purchase agreement, Treasury made a commitment to provide funding, under certain 

conditions, to eliminate deficiencies in our net worth. We have received a total of $116.1 billion from Treasury pursuant to 

the senior preferred stock purchase agreement as of December 31, 2012. The aggregate liquidation preference of the senior 

preferred stock, including the initial aggregate liquidation preference of $1.0 billion, remains at $117.1 billion. 
117

While we had a positive net worth as of December 31, 2012, in some future periods we could have a net worth deficit and if 

so would be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement. 

The remaining amount of funding available to us under the agreement was $117.6 billion as of December 31, 2012. For 

additional information, see “Business—Conservatorship and Treasury Agreements—Senior Preferred Stock Purchase 

Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant—Senior Preferred Stock Purchase 

Agreement.” 

Treasury waived the quarterly commitment fee under the senior preferred stock purchase agreement for each quarter of 2012 

and 2011. In addition, pursuant to the amendment to the senior preferred stock purchase agreement described in “Business—

Conservatorship and Treasury Agreements,” the periodic commitment fee under the agreement has been suspended effective 

January 1, 2013.

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

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

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

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

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

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

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

below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s 

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

time, in whole or in part. The limited circumstances under which Treasury’s funding commitment will terminate are described 

in “Business—Conservatorship and Treasury Agreements.”

Dividends

Our fourth quarter dividend on the senior preferred stock of $2.9 billion was declared by the conservator and paid by us on 

December 31, 2012, bringing our senior preferred stock dividends paid in 2012 to $11.6 billion. Beginning in 2013, the 

method for calculating the amount of dividends payable on the senior preferred stock will no longer be based on applying an 

annual dividend rate of 10% to the aggregate liquidation preference of the senior preferred stock. Instead, the amount of 

dividends payable on the senior preferred stock for a dividend period will be based on our net worth as of the end of the 

immediately preceding fiscal quarter. For each dividend period from January 1, 2013 through and including December 31, 

2017, when, as and if declared by our Board of Directors, the dividend amount will be the amount, if any, by which our net 

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

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

January 1, 2018. Our first quarter 2013 dividend on the senior preferred stock of $4.2 billion was declared by the conservator 

and paid by us on March 29, 2013. For each dividend period beginning in 2018, the dividend amount will be the entire 

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

See “Risk Factors” for a discussion of the risks relating to our dividend obligations to Treasury on the senior preferred stock. 

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 accounting required to be applied to, the arrangement. These 

arrangements are commonly referred to as “off-balance sheet arrangements” 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:

• our guaranty of mortgage loan securitization and resecuritization transactions over which we do not have control;

• other guaranty transactions;

• liquidity support transactions; and

• partnership interests.

Our maximum potential exposure to credit losses relating to our outstanding and unconsolidated Fannie Mae MBS and other 

financial guarantees is primarily represented by the unpaid principal balance of the mortgage loans underlying outstanding 
118

and unconsolidated Fannie Mae MBS and other financial guarantees of $53.1 billion as of December 31, 2012 and $62.0 

billion as of December 31, 2011.

For more information on the mortgage loans underlying both our on- and off-balance sheet Fannie Mae MBS, as well as 

whole mortgage loans that we own, see “Risk Management—Credit Risk Management.”

Partnership Investment Interests 

For partnership investments where we have determined that we are the primary beneficiary, we have consolidated these 

investments and recorded all of the partnership assets and liabilities in our consolidated balance sheets. Our partnership 

investments primarily consist of investments in affordable rental and for-sale housing partnerships. The carrying value of our 

partnership investments, including those we have consolidated, totaled $1.2 billion as of December 31, 2012, compared with 

$1.4 billion as of December 31, 2011.

LIHTC Partnership Interests 

In most instances, we are not the primary beneficiary of our LIHTC partnership investments, and therefore our consolidated 

balance sheets reflect only our investment in the LIHTC partnership, rather than the full amount of the LIHTC partnership’s 

assets and liabilities. FHFA informed us that, after consultation with Treasury, generally we are not authorized to sell or 

transfer our LIHTC partnership interests. Some exceptions to this rule exist in very limited circumstances and, in most cases, 

only with FHFA consent. In the fourth quarter of 2009, we reduced the carrying value of our LIHTC partnership investments 

to zero, as we no longer had both the intent and ability to sell or otherwise transfer our LIHTC investments for value. 

However, we still have an obligation to fund our LIHTC partnership investments and have recorded such obligation as a 

liability in our financial statements. We did not make any LIHTC investments in 2012, other than pursuant to existing prior 

commitments.

Treasury Housing Finance Agency Initiative

During the fourth quarter of 2009, we entered into a memorandum of understanding with Treasury, FHFA and Freddie Mac 

pursuant to which we agreed to provide assistance to state and local housing finance agencies (“HFAs”) through two primary 

programs, which together comprise what we refer to as the HFA initiative.

In November 2011, we entered into an Omnibus Consent to HFA Initiative Program Modifications with Treasury, Freddie 

Mac, and FHFA pursuant to which the parties agreed to specified modifications to the HFA initiative programs, including a 

three-year extension of the expiration date for the temporary credit and liquidity facilities (“TCLFs”) from December 2012 to 

December 2015, and a one-year extension of the expiration date for release of escrowed funds for the new issue bond 

(“NIB”) program from December 31, 2011 to December 31, 2012. See “Certain Relationships and Related Transactions, and 

Director Independence—Transactions with Related Persons—Transactions with Treasury—Treasury Housing Finance 

Agency Initiative” for a discussion of the HFA initiative.

Pursuant to the TCLF program that we describe in “Related Parties” in “Note 1, Summary of Significant Accounting 

Policies,” Treasury has purchased participation interests in TCLFs provided by us and Freddie Mac to the HFAs. These 

facilities create a credit and liquidity backstop for the HFAs. Our outstanding commitments under the TCLF program totaled 

$1.6 billion as of December 31, 2012 and $3.0 billion as of December 31, 2011.

Multifamily Bond Credit Enhancement Liquidity Commitments

Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing revenue bonds 

totaled $15.3 billion as of December 31, 2012 and $16.8 billion as of December 31, 2011. 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 cash and other investments portfolio in excess of these commitments to advance 

funds (exclusive of our outstanding commitments under the HFA TCLFs program, for which we are not required to hold 

excess cash).
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RISK MANAGEMENT

Our business activities expose us to the following three major categories of financial risk: credit risk, market risk (including 

interest rate and liquidity risk) and operational risk. We seek to actively monitor and manage these risks by using an 

established risk management framework. Our risk management framework is intended to provide the basis for the principles 

that govern our risk management activities. 

• Credit Risk. Credit risk is the potential for financial loss resulting from the failure of a borrower or institutional 

counterparty to honor its financial or contractual obligations, resulting in a potential loss of earnings or cash flows. In 

regards to financial securities or instruments, credit risk is the risk of not receiving principal, interest or any other 

financial obligation on a timely basis, for any reason. Credit risk exists primarily in our mortgage credit book of 

business and derivatives portfolio. 

• Market Risk. Market risk is the exposure generated by adverse changes in the value of financial instruments caused by 

a change in market prices or interest rates. Two significant market risks we face and actively manage are interest rate 

risk and liquidity risk. Interest rate risk is the risk of changes in our long-term earnings or in the value of our assets due 

to fluctuations in interest rates. Liquidity risk is our potential inability to meet our funding obligations in a timely 

manner. 

• Operational Risk. Operational risk is the loss resulting from inadequate or failed internal processes, people, systems, or 

from external events. 

We are also subject to a number of other risks that could adversely impact our business, financial condition, earnings and 

cash flow, including human capital, legal, regulatory and compliance, reputational, strategic and execution risks that may 

arise due to a failure to comply with laws, regulations or ethical standards and codes of conduct applicable to our business 

activities and functions. These risks are typically brought to the attention of our Management Committee, our Board of 

Directors or one or more of the Board’s committees and, in some cases, FHFA for discussion. 

Another risk that can impact our financial condition, earnings and cash flow is model risk, which is defined as the potential 

for model errors to adversely affect the company. This occurs because of our use of modeled estimations of future economic 

environments, borrower behavior or valuation methodologies. See “Risk Factors” for a discussion of the risks associated with 

our reliance on models. 

Our risk management framework and governance structure are intended to provide comprehensive controls and ongoing 

management of the major risks inherent in our business activities. Our ability to identify, assess, mitigate and control, and 

report and monitor risk is crucial to our safety and soundness. 

• Risk Identification. Risk identification is the process of finding, recognizing and describing risk. The identification of 

risk facilitates effective risk management by achieving awareness of the sources, impact and magnitude of risk. 

• Risk Assessment. We assess risk using a variety of methodologies, such as calculation of potential losses from loans 

and stress tests relating to interest rate sensitivity. When we assess risk, we look at metrics such as frequency, severity, 

concentration, correlation, volatility and loss. Information obtained from these assessments is reviewed on a regular 

basis to ensure that our risk assumptions are reasonable and reflect our current positions. 

• Risk Mitigation & Control. We proactively develop appropriate mitigation strategies to prevent excessive risk 

exposure, address risks that exceed established tolerances, and address risks that create unanticipated business impact. 

Mitigation strategies and controls can be in the form of reduction, transference, acceptance or avoidance of the 

identified risk. We also manage risk through four control elements that are designed to work in conjunction with each 

other: (1) risk policies, (2) risk limits, (3) delegations of authority, and (4) risk committees. 

• Risk Reporting & Monitoring. Our business units actively monitor emerging and identified risks that are taken when 

executing our strategies. Risks and concerns are reported to the appropriate level of management to ensure that the 

necessary action is taken to mitigate the risk. 

Enterprise Risk Governance 

Our enterprise risk management structure consists of the Board of Directors, executive leadership, including the Chief Risk 

Officer, the Enterprise Risk Management division, designated officers responsible for managing our financial risks, business 

unit chief risk officers, and risk management committees. This structure is designed to encourage a culture of accountability 

within the divisions and promote effective risk management throughout the company. 
120

Our organizational structure and risk management framework work in conjunction with each other to identify risk-related 

trends with respect to customers, products or portfolios and external events and to develop appropriate strategies to mitigate 

emerging and identified risks.

Under our enterprise risk management framework, each business unit is responsible for managing its risks but is subject to a 

governance and oversight process that includes independent oversight functions, management-level risk committees and 

Board-level engagement. 

Board of Directors 

The Risk Policy & Capital Committee of the Board, pursuant to its Charter, assists the Board in overseeing our management 

of risk and recommends for Board approval enterprise risk governance policy and limits. In addition, the Audit Committee 

reviews the system of internal controls that we rely upon to provide reasonable assurance of compliance with our enterprise 

risk management processes.

The Board of Directors delegates day-to-day risk management responsibilities to the Chief Executive Officer who then 

further delegates this responsibility among the company’s business unit heads, including the Chief Risk Officer and the Chief 

Compliance Officer. Risk management oversight authority, including responsibility for setting appropriate controls such as 

limits and policies, is delegated to the Chief Risk Officer, who then delegates certain levels of risk management oversight 

authority to our Chief Credit Officer and to the chief risk officers of each business unit or functional risk area (for example, 

model and operational risk). Management-level business risk committees serve in an advisory capacity to those officers to 

whom risk management authority has been delegated. In addition, certain activities require the approval of our conservator. 

See “Directors, Executive Officers and Corporate Governance—Corporate Governance—Conservatorship and Delegation of 

Authority to Board of Directors” for information about these activities.

Enterprise Risk Management Division

Our Enterprise Risk Management division reports directly to the Chief Risk Officer who reports directly to the Chief 

Executive Officer. The Chief Risk Officer also reports independently to the Board’s Risk Policy & Capital Committee. 

Enterprise Risk Management is responsible for the identification of emerging risks, the monitoring and reporting of risk 

within the existing policies and limits and independent oversight of risk management across the company.

We manage risk by using a “three line of defense” structure. The first line of defense is the active management of risk by the 

business unit. Each business unit is charged with conforming to the risk guidelines, risk appetite, risk policies and limits 

approved by the Board of Directors, the Risk Policy & Capital Committee and the Management Committee. The second line 

of defense is Enterprise Risk Management, which is responsible for ensuring compliance with the risk framework and 

independently reporting on risk management issues and performance. The third line of defense is Internal Audit, which is 

responsible for ensuring all parties are performing the actions for which they are accountable and for identifying any 

omissions or potential process improvements. Enterprise Risk Management reports independently to the Board’s Risk 

Policy & Capital Committee and Internal Audit reports independently to the Board’s Audit Committee.

Risk Committees

We use our risk committees as a forum for discussing emerging risks, risk mitigation strategies, and communication across 

business lines. Risk committees enhance the risk management framework by reinforcing our risk management culture and 

providing accountability for the resolution of key risk issues and decisions. Each business risk committee is chaired by the 

head of the business unit. In addition, the business unit chief risk officer can be designated as the committee co-chair or as a 

member of the committee who is responsible for the oversight of the risks discussed. Committees are also populated with key 

business and risk leaders from the respective business units.

The primary management-level business risk committees include the Asset Liability Committee, the Credit Risk Committee, 

the Model Oversight Committee and the Operational Risk Committee, as well as specific committees for each line of 

business. Executive-level risk discussions are held primarily by the Operating Committee, which consists of members of our 

executive management. On a periodic basis, the Chief Risk Officer prepares a detailed summary of current and emerging 

risks, compliance with risk limits and other risk reports, and reports on these matters to both the Operating Committee and 

the Risk Policy & Capital Committee of the Board. The Chief Risk Officer also reports periodically on other topics to the 

Risk Policy & Capital Committee of the Board, as appropriate.

Internal Audit 

Our Internal Audit group, under the direction of the Chief Audit Executive, provides an objective assessment of the design 

and execution of our internal control system, including our management systems, risk governance, and policies and 

procedures. The Chief Audit Executive reports directly and independently to the Audit Committee of the Board of Directors, 
121

and audit personnel are compensated based on objectives set for the group by the Audit Committee rather than corporate 

financial results or goals. The Chief Audit Executive reports administratively to the Chief Executive Officer and may be 

removed only upon approval by the Board’s Audit Committee. Internal audit activities are designed to provide reasonable 

assurance that resources are safeguarded; that significant financial, managerial and operating information is complete, 

accurate and reliable; and that employee actions comply with our policies and applicable laws and regulations. 

Compliance and Ethics 

The Compliance and Ethics division, under the direction of the Chief Compliance Officer, is dedicated to developing and 

maintaining policies and procedures to help ensure that Fannie Mae and its employees comply with the law, our Code of 

Conduct, and all regulatory obligations. The Chief Compliance Officer reports directly to our Chief Executive Officer and 

independently to the Audit Committee of the Board of Directors, and Compliance and Ethics personnel are compensated on 

objectives set for the group by the Audit Committee of the Board of Directors rather than corporate financial results or goals. 

The Chief Compliance Officer may be removed only upon Board approval. The Chief Compliance Officer is responsible for 

overseeing our compliance activities; developing and promoting a code of ethical conduct; evaluating and investigating any 

allegations of misconduct; and overseeing and coordinating regulatory reporting and examinations.

Credit Risk Management

We are generally subject to two types of credit risk: mortgage credit risk and institutional counterparty credit risk. Market 

conditions as a result of the housing crisis resulted in significant exposure to mortgage and institutional counterparty credit 

risk. The metrics used to measure credit risk are generated using internal models. 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. On a 

continuous basis, management makes judgments about the appropriateness of the risk assessments indicated by the models. 

See “Risk Factors” for a discussion of the risks associated with our use of models.

Mortgage Credit Risk Management

We are exposed to credit risk on our mortgage credit book of business because we either hold mortgage assets, have issued a 

guaranty in connection with the creation of Fannie Mae MBS backed by mortgage assets or provided other credit 

enhancements on mortgage assets. While our mortgage credit book of business includes all of our mortgage-related assets, 

both on- and off-balance sheet, our guaranty book of business excludes non-Fannie Mae mortgage-related securities held in 

our portfolio for which we do not provide a guaranty.

Mortgage Credit Book of Business

Table 40 displays the composition of our mortgage credit book of business as of the dates indicated. Our single-family 

mortgage credit book of business accounted for 93% of our mortgage credit book of business as of December 31, 2012 and 

2011.
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Table 40: Composition of Mortgage Credit Book of Business(1)

As of December 31, 2012 As of December 31, 2011

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Mortgage loans and Fannie Mae MBS(2)

. . . . . . . . . . . $ 2,797,909 $ 188,418 $ 2,986,327 $ 2,798,633 $ 176,898 $ 2,975,531

Unconsolidated Fannie Mae MBS, held by third 

parties(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,391 1,524 16,915 17,910 1,702 19,612

Other credit guarantees(4)

. . . . . . . . . . . . . . . . . . . . . . . 19,977 16,238 36,215 25,824 16,582 42,406

Guaranty book of business . . . . . . . . . . . . . . . . . . . . $ 2,833,277 $ 206,180 $ 3,039,457 $ 2,842,367 $ 195,182 $ 3,037,549

Agency mortgage-related securities(5)

. . . . . . . . . . . . . 12,294 32 12,326 15,522 33 15,555

Other mortgage-related securities(6)

. . . . . . . . . . . . . . . 37,524 27,535 65,059 43,019 31,511 74,530

Mortgage credit book of business . . . . . . . . . . . . . . $ 2,883,095 $ 233,747 $ 3,116,842 $ 2,900,908 $ 226,726 $ 3,127,634

Guaranty Book of Business Detail:

Conventional Guaranty Book of Business(7)

. . . . . . $ 2,764,903 $ 204,112 $ 2,969,015 $ 2,769,919 $ 192,797 $ 2,962,716

Government Guaranty Book of Business(8)

. . . . . . . $ 68,374 $ 2,068 $ 70,442 $ 72,448 $ 2,385 $ 74,833

__________

(1) Based on unpaid principal balance. 

(2) Consists of mortgage loans and Fannie Mae MBS recognized in our consolidated balance sheets. The principal balance of resecuritized 

Fannie Mae MBS is included only once in the reported amount.

(3) Reflects unpaid principal balance of unconsolidated Fannie Mae MBS, held by third-party investors. The principal balance of 

resecuritized Fannie Mae MBS is included only once in the reported amount.

(4) Consists of single-family and multifamily credit enhancements that we have provided and that are not otherwise reflected in the table.

(5) Consists of mortgage-related securities issued by Freddie Mac and Ginnie Mae.

(6) Consists primarily of mortgage revenue bonds, Alt-A and subprime private-label securities and CMBS.

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

or one of its agencies. 

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

its agencies. 

In the following sections, we discuss the mortgage credit risk of the single-family and multifamily loans in our guaranty book 

of business. The credit statistics reported below, unless otherwise noted, pertain generally to the portion of our guaranty book 

of business for which we have access to detailed loan-level information, which constituted approximately 99% of each of our 

single-family conventional guaranty book of business and our multifamily guaranty book of business, excluding defeased 

loans, as of December 31, 2012 and 2011. We typically obtain this data from the sellers or servicers of the mortgage loans in 

our guaranty book of business and receive representations and warranties from them as to the accuracy of the information. 

While we perform various quality assurance checks by sampling loans to assess compliance with our underwriting and 

eligibility criteria, we do not independently verify all reported information and we rely on lender representations regarding 

the accuracy of the characteristics of loans in our guaranty book of business. See “Risk Factors” for a discussion of the risk 

that we could experience mortgage fraud as a result of this reliance on lender representations.

Single-Family Mortgage Credit Risk Management

Our strategy in managing single-family mortgage credit risk consists of four primary components: (1) our acquisition and 

servicing policies along with our underwriting and servicing standards, including the use of credit enhancements; 

(2) portfolio diversification and monitoring; (3) management of problem loans; and (4) REO management. These approaches 

may increase our expenses and may not be effective in reducing our credit-related expenses or credit losses. We provide 

information on our credit-related expenses and credit losses in “Consolidated Results of Operations—Credit-Related 

Expenses.”

In evaluating our single-family mortgage credit risk, we closely monitor changes in housing and economic conditions and the 

impact of those changes on the credit risk profile of our single-family mortgage credit book of business. We regularly review 

and provide updates to our underwriting standards and eligibility guidelines that take into consideration changing market 

conditions. The credit risk profile of our single-family mortgage credit book of business is influenced by, among other things, 

the credit profile of the borrower, features of the loan, loan product type, the type of property securing the loan and the 
123

housing market and general economy. We focus more on loans that we believe pose a higher risk of default, which typically 

have been loans associated with higher mark-to-market LTV ratios, loans to borrowers with lower FICO credit scores and 

certain higher risk loan product categories, such as Alt-A loans. These and other factors affect both the amount of expected 

credit loss on a given loan and the sensitivity of that loss to changes in the economic environment.

Because we believe we have limited credit exposure on our government loans, the single-family credit statistics we focus on 

and report in the sections below generally relate to our single-family conventional guaranty book of business, which 

represents the substantial majority of our total single-family guaranty book of business.

We provide additional information on non-Fannie Mae mortgage-related securities held in our portfolio, including the 

impairment that we have recognized on these securities, in “Note 5, Investments in Securities.”

Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards 

Our Single-Family business, with the oversight of our Enterprise Risk Management division, is responsible for pricing and 

managing credit risk relating to the portion of our single-family mortgage credit book of business consisting of single-family 

mortgage loans and Fannie Mae MBS backed by single-family mortgage loans (whether held in our portfolio or held by third 

parties). Desktop UnderwriterTM, our proprietary automated underwriting system which measures credit risk by assessing the 

primary risk factors of a mortgage, is used to evaluate the majority of the loans we purchase or securitize. As part of our 

regular evaluation of Desktop Underwriter, we conduct periodic examinations of the underlying risk assessment models and 

recalibrate the models based on actual loan performance and market assumptions to improve Desktop Underwriter’s ability to 

effectively analyze risk. Subject to our prior approval, we also may 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. 

Because the number of our delinquent and defaulted loans increased during the housing crisis, we reviewed more of these 

loans for compliance with our requirements. We use the information obtained from these loan quality reviews to provide 

feedback to lenders on possible areas for correction in their origination practices. In addition to performing reviews on 

delinquent and defaulted loan populations, we also conduct reviews on random samples of performing loans soon after 

acquisition in order to identify loans that may not have met our underwriting or eligibility requirements. We refer to these 

loans as having “underwriting defects.” By identifying loans with underwriting defects earlier in their lifecycle, we can 

provide earlier feedback to lenders, which may lead to systemic improvements in the loan origination process.

Performance for the random sample is measured using a significant findings rate, which represents the proportion of loans in 

the sample population with underwriting defects. The significant findings rate does not necessarily indicate how well the 

loans will ultimately perform or the extent to which the loans will become subject to repurchase requests. Instead, we use it to 

estimate the percentage of loans we acquired that potentially had a significant error in the underwriting process.

Based on these reviews, we believe that over the last three years the percentage of loans we acquired that have underwriting 

defects has been reduced. As of February 28, 2013, the preliminary estimate of the non-Refi Plus loans we acquired in the 

twelve months ended June 30, 2012 that had underwriting defects was approximately 2.5%, compared with approximately 

3.9% for loans acquired in the twelve months ended June 30, 2011 and approximately 5.5% for loans acquired in the twelve 

months ended June 30, 2010. These estimates are subject to change, perhaps materially, as we work through reconciliation of 

loans with defects acquired during these periods with originators.

Beginning in 2013, and in conjunction with our new representations and warranties framework that is discussed below, we 

will be changing the way we review loan files in order to provide lenders with better and earlier feedback on underwriting 

defects. We will also take advantage of recent advancements in tools and data-gathering. We do not yet know what impact 

this change will have on our significant findings rates, but it may limit the comparability between prior and future periods.

We initiated underwriting and eligibility changes that became effective in late 2008 and 2009 that focused on strengthening 

our underwriting and eligibility standards to promote sustainable homeownership. The result of many of these changes is 

reflected in the substantially improved risk profile of our single-family loan acquisitions since 2009. Most recently, in 

October 2012, we initiated further underwriting and eligibility changes through Desktop Underwriter 9.0 and our Selling 

Guide, which sets forth our policies and procedures related to selling single-family mortgages to us. The changes include 

updates to maximum LTV ratio requirements for adjustable-rate mortgages, as well as certain fixed-rate loan categories and 

Refi Plus policies related to documentation requirements for income and appraisal representations and warranties. In 

addition, we further refined our policies for manually underwritten mortgage loans with regard to comprehensive risk 

assessments, debt-to-income ratios and minimum credit score requirements for adjustable-rate mortgages.

In September 2012, we and Freddie Mac announced a new representation and warranty framework for conventional loans 

acquired on or after January 1, 2013. This new framework, which is part of FHFA’s seller-servicer contract harmonization 
124

initiative, seeks to provide lenders a higher degree of certainty and clarity regarding their repurchase exposure and liability on 

future deliveries, as well as consistency around repurchase timelines and remedies. Under the new framework, lenders will be 

relieved of certain repurchase obligations for loans that meet specific payment history requirements and other eligibility 

requirements. For example, a lender would not be required to repurchase a mortgage loan in breach of certain underwriting 

and eligibility representations and warranties if the borrower has made timely payments for 36 months following the 

acquisition date (or, for Refi Plus loans, for 12 months following the acquisition date), and the loan meets other specified 

eligibility requirements. Certain representations and warranties are “life of loan” representations and warranties, meaning that 

no relief from enforcement is available to lenders regardless of the number of payments made by a borrower. Examples of life 

of loan representations and warranties include, but are not limited to, a lender’s representation and warranty that it has 

originated a loan in compliance with all laws and that the loan conforms to our Charter requirements. As a result of this new 

framework, we are making changes in our quality control process that moves the primary focus of our quality control reviews 

from the time a loan defaults to shortly after the time the loan is delivered to us. These changes include augmenting the 

random sampling approach we currently use in selecting new mortgage loan deliveries for review with more targeted, 

discretionary loan selections. 

As discussed in “Our Charter and Regulation of Our Activities—Charter Act,” our charter generally requires credit 

enhancement on any single-family conventional mortgage loan that we purchase or securitize if it has an LTV ratio over 80% 

at the time of purchase. However, under HARP, we allow our borrowers who have mortgage loans with current LTV ratios 

above 80% to refinance their mortgages without obtaining new mortgage insurance in excess of what was already in place. 

See “Credit Profile Summary—Home Affordable Refinance Program and Refi Plus Loans” below for more discussion on 

HARP and its impact on our single-family conventional business volume and guaranty book of business.

Borrower-paid primary mortgage insurance is the most common type of credit enhancement in our single-family guaranty 

book of business. Primary mortgage insurance transfers varying portions of the credit risk associated with a mortgage loan to 

a third-party insurer. In order 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 borrower’s interest in the property that secured the loan must have been 

extinguished, generally in a foreclosure action. The claims process for primary mortgage insurance typically takes three to six 

months after title to the property has been transferred.

Mortgage insurers may also provide pool mortgage insurance, which is insurance that applies to a defined group of loans. 

Pool mortgage insurance benefits typically are based on actual loss incurred and are subject to an aggregate loss limit. Under 

some of our pool mortgage insurance policies, we are required to meet specified loss deductibles before we can recover under 

the policy. We typically collect claims under pool mortgage insurance three to six months after disposition of the property 

that secured the loan. For a discussion of our aggregate mortgage insurance coverage as of December 31, 2012 and 2011, see 

“Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management—Mortgage Insurers.” 

Our mortgage servicers are the primary points of contact for borrowers and perform a vital role in our efforts to reduce 

defaults and pursue foreclosure alternatives. We discuss the actions we have taken to improve the servicing of our delinquent 

loans below in “Problem Loan Management.”

Single-Family Portfolio Diversification and Monitoring

Diversification within our single-family mortgage credit book of business by product type, loan characteristics and geography 

is an important factor that influences credit quality and performance and may reduce our credit risk. We monitor various loan 

attributes, in conjunction with housing market and economic conditions, to determine if our pricing and our 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 guaranty book of business is comprised of the following key loan attributes:

• LTV ratio. 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. This also applies to the estimated mark-tomarket LTV ratios, particularly those over 100%, as this indicates that the borrower’s mortgage balance exceeds the 

property value.

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

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

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

mortgages have exhibited higher default rates than fixed-rate mortgages, partly because the borrower’s payments rose, 

within limits, as interest rates changed.
125

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

four-unit properties.

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

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

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

lower credit risk than mortgages on investment properties.

• Credit score. Credit score is a measure often used by the financial services industry, including our company, 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.

• Loan purpose. Loan purpose refers to how the borrower intends to use the funds from a mortgage loan—either 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.

• Geographic concentration. Local economic conditions affect borrowers’ ability to repay loans and the value of 

collateral underlying loans. Geographic diversification reduces mortgage credit risk.

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

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

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

Table 41 displays our single-family conventional business volumes and our single-family conventional guaranty book of 

business for the periods indicated, based on certain key risk characteristics that we use to evaluate the risk profile and credit 

quality of our single-family loans.
126

Table 41: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1)

Percent of Single-Family

Conventional Business Volume(2)

For the Year Ended December 31,

Percent of Single-Family

Conventional Guaranty Book of Business(3)(4)

As of December 31,

2012 2011 2010 2012 2011 2010

Original LTV ratio:(5)

<= 60% . . . . . . . . . . . . . . . . . . . 25 % 29 % 30 % 23 % 24 % 24 %

60.01% to 70% . . . . . . . . . . . . . 15 16 16 15 16 16

70.01% to 80% . . . . . . . . . . . . . 35 37 38 39 40 41

80.01% to 90%(6). . . . . . . . . . . 9 9 9 10 10 9

90.01% to 100%(6). . . . . . . . . . 8 7 5 10 9 9

100.01% to 125%(6). . . . . . . . . 5 2 2 2 1 1

Greater than 125%(6). . . . . . . . . 3 — — 1 — —

Total. . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Weighted average . . . . . . . . 75 % 69 % 68 % 73 % 71 % 71 %

Average loan amount. . . . . . . . . . . $213,515 $209,847 $219,431 $157,512 $156,194 $155,531

Estimated mark-to-market LTV

ratio:(7)

<= 60% . . . . . . . . . . . . . . . . . . . 28 % 26 % 28 %

60.01% to 70% . . . . . . . . . . . . . 15 12 13

70.01% to 80% . . . . . . . . . . . . . 22 18 19

80.01% to 90% . . . . . . . . . . . . . 13 16 15

90.01% to 100% . . . . . . . . . . . . 9 10 9

100.01% to 125% . . . . . . . . . . . 8 11 10

Greater than 125% . . . . . . . . . . 5 7 6

Total. . . . . . . . . . . . . . . . . . . 100 % 100 % 100 %

Weighted average . . . . . . . . 75 % 79 % 77 %

Product type:

Fixed-rate:(8)

Long-term . . . . . . . . . . . . . . 74 % 67 % 72 % 72 % 73 % 74 %

Intermediate-term . . . . . . . . 23 26 22 17 15 14

Interest-only. . . . . . . . . . . . . * * * 1 1 2

Total fixed-rate . . . . . . . . 97 93 94 90 89 90

Adjustable-rate:

Interest-only. . . . . . . . . . . . . * 1 1 3 3 4

Other ARMs. . . . . . . . . . . . . 3 6 5 7 8 6

Total adjustable-rate . . . . 3 7 6 10 11 10

Total . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Number of property units:

1 unit . . . . . . . . . . . . . . . . . . . . 98 % 97 % 98 % 97 % 97 % 97 %

2-4 units. . . . . . . . . . . . . . . . . . 2 3 2 3 3 3

Total . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Property type:

Single-family homes . . . . . . . . 91 % 91 % 91 % 91 % 91 % 91 %

Condo/Co-op . . . . . . . . . . . . . . 9 9 9 9 9 9

Total . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Occupancy type:

Primary residence. . . . . . . . . . . 89 % 89 % 91 % 89 % 89 % 90 %

Second/vacation home . . . . . . . 4 5 4 4 5 4

Investor. . . . . . . . . . . . . . . . . . . 7 6 5 7 6 6

Total. . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %
127

Percent of Single-Family

Conventional Business Volume(2)

For the Year Ended December 31,

Percent of Single-Family

Conventional Guaranty Book of Business(3)(4)

As of December 31,

2012 2011 2010 2012 2011 2010

FICO credit score at origination:

< 620 . . . . . . . . . . . . . . . . . . . . 1 % * % * % 3 % 3 % 4 %

620 to < 660. . . . . . . . . . . . . . . 2 2 2 6 7 7

660 to < 700. . . . . . . . . . . . . . . 7 7 7 12 13 15

700 to < 740. . . . . . . . . . . . . . . 16 16 16 20 20 21

>= 740 . . . . . . . . . . . . . . . . . . . 74 75 75 59 57 53

Total . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Weighted average . . . . . . . . 761 762 762 742 738 735

Loan purpose:

Purchase. . . . . . . . . . . . . . . . . . 21 % 24 % 22 % 28 % 31 % 33 %

Cash-out refinance. . . . . . . . . . 14 17 20 24 27 29

Other refinance . . . . . . . . . . . . 65 59 58 48 42 38

Total . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Geographic concentration:(9)

Midwest. . . . . . . . . . . . . . . . . . 16 % 15 % 16 % 15 % 15 % 15 %

Northeast . . . . . . . . . . . . . . . . . 17 19 20 19 19 19

Southeast . . . . . . . . . . . . . . . . . 19 19 18 23 24 24

Southwest . . . . . . . . . . . . . . . . 16 16 15 16 15 15

West. . . . . . . . . . . . . . . . . . . . . 32 31 31 27 27 27

Total . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 % 100 % 100 %

Origination year:

< = 2004. . . . . . . . . . . . . . . . . . 13 % 18 % 23 %

2005 . . . . . . . . . . . . . . . . . . . . . 5 7 9

2006 . . . . . . . . . . . . . . . . . . . . . 5 7 8

2007 . . . . . . . . . . . . . . . . . . . . . 7 10 12

2008 . . . . . . . . . . . . . . . . . . . . . 5 7 9

2009 . . . . . . . . . . . . . . . . . . . . . 11 17 21

2010 . . . . . . . . . . . . . . . . . . . . . 13 18 18

2011 . . . . . . . . . . . . . . . . . . . . . 15 16 —

2012 . . . . . . . . . . . . . . . . . . . . . 26 — —

Total . . . . . . . . . . . . . . . . . . 100 % 100 % 100 %

 __________

 * Represents less than 0.5% of single-family conventional business volume or book of business.

(1) We reflect second lien mortgage loans in the original LTV ratio calculation only when we own both the first and second lien mortgage 

loans or we own only the second lien mortgage loan. Second lien mortgage loans represented less than 0.5% of our single-family 

conventional guaranty book of business as of December 31, 2012, 2011 and 2010. Second lien mortgage loans held by third parties are 

not reflected in the original LTV or mark-to-market LTV ratios in this table.

(2) Calculated based on unpaid principal balance of single-family loans for each category at time of acquisition. Single-family business 

volume refers to both single-family mortgage loans we purchase for our mortgage portfolio and single-family mortgage loans we 

guarantee.

(3) Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid 

principal balance of loans in our single-family conventional guaranty book of business as of the end of each period.

(4) Our single-family conventional guaranty book of business includes jumbo-conforming and high-balance loans that represented 

approximately 5% of our single-family conventional guaranty book of business as of December 31, 2012 and 2011. See “Credit Profile 

Summary” and “Business—Our Charter and Regulation of Our Activities—Charter Act—Loan Standards” for information on our loan 

limits.

(5) The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value 

reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.
128

(6) We purchase loans with original LTV ratios above 80% to fulfill our mission to serve the primary mortgage market and provide 

liquidity to the housing system. Except as permitted under HARP, our charter generally requires primary mortgage insurance or other 

credit enhancement for loans that we acquire that have an LTV ratio over 80%.

(7) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported 

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates 

periodic changes in home value. Excludes loans for which this information is not readily available.

(8) Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate loans have 

maturities equal to or less than 15 years. Loans with interest-only terms are included in the interest-only category regardless of their 

maturities.

(9) Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast includes CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT

and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, 

MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

Credit Profile Summary

The single-family loans we purchased or guaranteed in 2012 have a strong credit profile with a weighted average original 

LTV ratio of 75%, a weighted average FICO credit score of 761, and a product mix with a significant percentage of fully 

amortizing fixed-rate mortgage loans.

The credit profile of our future acquisitions will depend on many factors, including our future pricing and eligibility 

standards and those of mortgage insurers and FHA, the percentage of loan originations representing refinancings, our future 

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

under HARP. We expect the ultimate performance of all our loans will be affected by borrower behavior, public policy and 

macroeconomic trends, including unemployment, the economy and home prices.

The increase in our weighted average original LTV ratio in 2012 compared with 2011 was primarily due to (1) an increase in 

acquisitions of refinancings under HARP in 2012, including loans with LTV ratios above 125% (see our discussion on HARP

below), and (2) an increase in acquisitions of home purchase mortgages with LTV ratios greater than 80%. The increase in 

acquisitions of home purchase mortgages with LTV ratios greater than 80% in 2012 compared with 2011 was primarily due 

to: (1) most mortgage insurance companies lowering their premiums in 2012 and 2011 for loans with higher credit scores; 

and (2) FHA implementing price increases in its annual mortgage insurance premium in 2012 and 2011. These price changes 

improved the economics of purchasing private mortgage insurance as compared to purchasing FHA insurance and helped 

drive an increase in our acquisition of loans with LTV ratios over 80%. Despite the increase in home purchase mortgages 

with LTV ratios greater than 80%, these acquisitions have strong credit profile with weighted average FICO scores of 755.

Over the past several years, the prolonged and severe decline in home prices resulted in the overall estimated weighted 

average mark-to-market LTV ratio of our single-family conventional guaranty book of business to increase. However, in 

2012, as home prices began to increase, the estimated weighted average mark-to-market LTV ratio of our single-family 

conventional guaranty book of business decreased. As of December 31, 2012, the estimated weighted average mark-tomarket LTV ratio of our single-family conventional guaranty book of business was 75% compared with 79% as of 

December 31, 2011. The portion of our single-family conventional guaranty book of business with an estimated mark-tomarket LTV ratio greater than 100% was 13% as of December 31, 2012 and 18% as of December 31, 2011. If home prices 

were to decline, more loans would have mark-to-market LTV ratios greater than 100%, which increases the risk of 

delinquency and default.

Home Affordable Refinance Program (“HARP”) and Refi Plus Loans

HARP was designed to expand refinancing opportunities for borrowers who may otherwise be unable to refinance their 

mortgage loans due to a decline in home values. We offer HARP under our Refi Plus initiative, which offers additional 

refinancing flexibility to eligible borrowers who are current on their loans and whose loans are owned or guaranteed by us 

and meet certain additional criteria. Under HARP, we allow our borrowers who have mortgage loans with current LTV ratios 

greater than 80% to refinance their mortgages without obtaining new mortgage insurance in excess of what is already in 

place. Under HARP, we were previously authorized to acquire loans only if their current LTVs did not exceed 125% for 

fixed-rate loans and did not exceed 105% for adjustable-rate mortgages. Changes to HARP implemented in the first half of 

2012 extended refinancing flexibility to eligible borrowers with loans that have LTV ratios greater than 125% for fixed-rate 

loans, which make the benefits of HARP available to a greater number of borrowers. The changes also included an extension 

of the ending date for HARP to December 2013. In addition to the high LTV ratios that characterize HARP loans, some 

borrowers for HARP and Refi Plus loans also have lower FICO credit scores and/or may provide less documentation than we 

would otherwise require.
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Loans we acquire under Refi Plus in general and HARP in particular represent refinancings of loans that are already in our 

guaranty book of business. The credit risk associated with the acquired loans essentially replaces the credit risk that we 

already held prior to the refinancing. Loans we acquire under HARP and Refi Plus may not perform as well as the other loans 

we have acquired since the beginning of 2009. However, we expect these loans will perform better than the loans they replace 

because HARP and Refi Plus loans should either reduce the borrowers’ monthly payments or provide more stable terms than 

the borrowers’ old loans (for example, by refinancing into a mortgage with a fixed interest rate instead of an adjustable rate). 

As a result of low mortgage rates in recent periods, the percentage of acquisitions that are refinanced loans, including loans 

acquired under HARP, remains elevated. HARP loans constituted approximately 16% of our total single-family acquisitions 

in all of 2012, compared with approximately 10% of total single-family acquisitions in all of 2011. Due to the increase in the 

volume of HARP loans with higher LTV ratios, the weighted average LTV ratio at origination for our acquisitions in all of 

2012 was higher than for our acquisitions in all of 2011. The average original LTV ratio of single-family loans we acquired in 

2012, excluding HARP loans, was 68%, compared with 111% for HARP loans. As a result of the changes to HARP

implemented in 2012, we expect that if interest rates remain low we will continue to acquire a high volume of refinancings 

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

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

borrowers were unable to refinance loans with LTV ratios greater than 125% until changes to HARP were fully implemented 

in the second quarter of 2012. Approximately 3% of our total single-family conventional business volume for 2012 consisted 

of refinanced loans with LTV ratios greater than 125% at the time of acquisition. HARP is scheduled to end in December 

2013, although we will continue to accept deliveries of HARP loans through September 30, 2014 for the loans with 

application dates on or before December 2013.

Table 42 displays the serious delinquency rates and current mark-to-market LTV ratios as of December 31, 2012 of singlefamily loans we acquired under HARP and Refi Plus compared with the other single-family loans we acquired since the 

beginning of 2009.

Table 42: Selected Credit Characteristics of Single-Family Conventional Loans Acquired under HARP and Refi Plus

As of December 31, 2012

Percentage

of New

Book

Current

Mark-to-Market

LTV Ratio

> 100%

FICO Credit 

Score at 

Origination(1)

Serious

Delinquency

Rate

HARP(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 % 38% 741 0.93%

Other Refi Plus(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 * 755 0.33

Total Refi Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 20 748 0.61

Non-Refi Plus(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 1 762 0.26

Total new book of business(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 % 6% 759 0.35%

__________

 * Represents less than 0.5%.

(1) In the case of refinancings, represents FICO credit score at the time of the refinancing.

(2) HARP loans have LTV ratios at origination in excess of 80%. In the fourth quarter of 2012, we revised our presentation of the data to 

reflect all loans under our Refi Plus program with LTV ratios at origination in excess of 80% as HARP loans. Previously we did not 

reflect loans that were backed by second homes or investor properties as HARP loans.

(3) Other Refi Plus includes all other Refi Plus loans that are not HARP loans.

(4) Includes primarily other refinancings and home purchase mortgages.

(5) Refers to single-family mortgage loans we have acquired since the beginning of 2009.

Alt-A and Subprime Loans

We classify certain loans as subprime or Alt-A so that we can discuss our exposure to subprime and Alt-A loans in this 

Form 10-K and elsewhere. However, there is no universally accepted definition of subprime or Alt-A loans. Our single-family 

conventional guaranty book of business includes loans with some features that are similar to Alt-A loans or subprime loans 

that we have not classified as Alt-A or subprime because they do not meet our classification criteria.

We do not rely solely on our classifications of loans as Alt-A or subprime to evaluate the credit risk exposure relating to these 

loans in our single-family conventional guaranty book of business. For more information about the credit risk characteristics 

of loans in our single-family guaranty book of business, see “Note 3, Mortgage Loans” and “Note 6, Financial Guarantees.”
130

Our exposure to Alt-A and subprime loans included in our single-family conventional guaranty book of business, based on 

the classification criteria described in this section, does not include (1) our investments in private-label mortgage-related 

securities backed by Alt-A and subprime loans or (2) resecuritizations, or wraps, of private-label mortgage-related securities 

backed by Alt-A mortgage loans that we have guaranteed. See “Note 5, Investments in Securities” for more information on 

our exposure to private-label mortgage-related securities backed by Alt-A and subprime loans. As a result of our decision to 

discontinue the purchase of newly originated Alt-A loans, except for those that represent the refinancing of a loan we 

acquired prior to 2009, we expect our acquisitions of Alt-A mortgage loans to continue to be minimal in future periods and 

the percentage of the book of business attributable to Alt-A to continue to decrease over time. We are also not currently 

acquiring newly originated subprime loans, although we are acquiring refinancings of existing Fannie Mae subprime loans in 

connection with our Refi Plus initiative. Unlike the loans they replace, these refinancings are not included in our reported 

subprime loans because they do not meet our classification criteria for subprime loans.

We have classified a mortgage loan as Alt-A if and only if the lender that delivered the loan to us classified the loan as Alt-A, 

based on documentation or other features. We have classified a mortgage loan as subprime if and only if the loan was 

originated by a lender specializing in subprime business or by a subprime division of a large lender; however, we exclude 

loans originated by these lenders from the subprime classification if we acquired the loans in accordance with our standard 

underwriting criteria, which typically require compliance by the seller with our Selling Guide (including standard 

representations and warranties) and/or evaluation of the loans through our Desktop Underwriter system. The unpaid principal 

balance of Alt-A loans included in our single-family conventional guaranty book of business of $155.5 billion as of 

December 31, 2012, represented approximately 5.6% of our single-family conventional guaranty book of business. The 

unpaid principal balance of subprime loans included in our single-family conventional guaranty book of business of $5.0 

billion as of December 31, 2012, represented approximately 0.2% of our single-family conventional guaranty book of 

business. 

Jumbo-Conforming and High-Balance Loans

The outstanding unpaid principal balance of our jumbo-conforming and high-balance loans was $129.0 billion, or 4.7% of 

our single-family conventional guaranty book of business, as of December 31, 2012 and $133.0 billion, or 4.8% of our 

single-family conventional guaranty book of business, as of December 31, 2011. The standard conforming loan limit for a 

one-unit property was $417,000 in 2012 and 2011. Our loan limits were higher in specified high-cost areas, reaching as high 

as $729,750 for one-unit properties; however, our loan limits for loans originated after September 30, 2011 decreased in 

specified high-cost areas to an amount not to exceed $625,500 for one-unit properties. Unlike FHA, which is not subject to 

current loan limits for refinancing its existing loans above current limits, our current loan limits apply to all new acquisitions. 

Therefore, we expect refinances of our existing loans above current limits to be significantly reduced. See “Business—Our 

Charter and Regulation of Our Activities—Charter Act—Loan Standards” for additional information on our loan limits.

Reverse Mortgages

The outstanding unpaid principal balance of reverse mortgage whole loans and Fannie Mae MBS backed by reverse 

mortgage loans in our guaranty book of business was $50.2 billion as of December 31, 2012 and $50.9 billion as of 

December 31, 2011. The 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. Because home equity conversion mortgages are insured by the federal government, we believe 

that we have limited exposure to losses on these loans. In 2010, we communicated to our lenders that we were exiting the 

reverse mortgage business and would no longer acquire newly originated home equity conversion mortgages.

Adjustable-rate Mortgages (“ARMs”) and Fixed-rate Interest-only Mortgages

ARMs are mortgage loans with an interest rate that adjusts periodically over the life of the mortgage based on changes in a 

specified index. Interest-only loans 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. Our negative-amortizing loans are ARMs 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 9.9% of our 

single-family conventional guaranty book of business as of December 31, 2012.

Table 43 displays information for ARMs and fixed-rate interest-only loans in our single-family 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 loan’s interest rate or a scheduled change to the loan’s 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.
131

Table 43: Single-Family Adjustable-Rate Mortgage Resets by Year(1)

Reset Year

2013 2014 2015 2016 2017 Thereafter Total

(Dollars in millions)

ARMs—Amortizing . . . . . . . . . . . . . . . . . $ 43,113 $ 11,688 $ 59,851 $ 31,028 $ 19,542 $ 24,821 $190,043

ARMs—Interest Only . . . . . . . . . . . . . . . . 37,457 5,343 15,684 6,746 4,403 4,644 74,277

ARMs—Negative Amortizing . . . . . . . . . 5,592 348 800 475 195 — 7,410

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,162 $ 17,379 $ 76,335 $ 38,249 $ 24,140 $ 29,465 $271,730

Fixed-Rate Interest Only. . . . . . . . . . . . . . $ 80 $ 121 $ 1,060 $ 6,493 $ 12,596 $ 3,606 $ 23,956

__________

(1) Does not include loans we have modified, some of which are subject to higher interest rates and increased monthly payments in the 

future. Also 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 interest-only loans or negative-amortizing loans that have 

recently reset as compared to those that are still in the initial period. We believe the current performance trend is the result of 

the current low interest rate environment and do not expect this trend to continue if interest rates rise significantly.

Problem Loan Management

Our problem loan management strategies are primarily focused on reducing defaults to avoid losses that would otherwise 

occur and pursuing foreclosure alternatives to attempt to minimize the severity of the losses we incur. If a borrower does not 

make required payments, or is in jeopardy of not making payments, we work with the servicers of our loans to offer workout 

solutions to minimize the likelihood of foreclosure as well as the severity of loss. Our loan workouts reflect our various types 

of home retention solutions, including loan modifications, repayment plans and forbearances, and foreclosure alternatives, 

including short sales and deeds-in-lieu of foreclosure. When appropriate, we seek to move to foreclosure expeditiously.

We seek to improve the servicing of our delinquent loans through a variety of means, including improving our 

communications with and training of our servicers, directing servicers to contact borrowers at an earlier stage of delinquency 

and improve their telephone communications with borrowers, and holding our servicers accountable for following our 

requirements. In 2011, we issued new standards for mortgage servicers regarding the management of delinquent loans, 

default prevention and foreclosure time frames under FHFA’s directive to align GSE policies for servicing delinquent 

mortgages. The new standards, reinforced by new incentives and compensatory fees, require servicers to take a more 

consistent approach for homeowner communications, loan modifications and other workouts, and, when necessary, 

foreclosures.

In addition to the new standards, we took other steps to improve the servicing of our delinquent loans, which 

included transferring servicing on loan populations that include loans with higher-risk characteristics to special servicers with 

which we have worked to develop high-touch protocols for servicing these loans. We believe retaining special servicers to 

service these loans using high-touch protocols will reduce our future credit losses on the transferred loan portfolio. We 

continue to work with some of our servicers to test and implement high-touch servicing protocols designed for managing 

higher-risk loans, which include lower ratios of loans per servicer employee, beginning borrower outreach strategies earlier in 

the delinquency cycle and establishing a single point of contact for distressed borrowers. 

The efforts of our mortgage servicers are critical in keeping people in their homes and preventing foreclosures. We continue 

to work with our servicers to implement our foreclosure prevention initiatives effectively and to find ways to enhance our 

workout protocols and their workflow processes. As of December 31, 2012, we had established 13 Mortgage Help Centers 

across the nation to accelerate the response time for struggling homeowners with loans owned by us. During 2012, these 

centers helped borrowers obtain nearly 12,000 home retention plans. We have also established partnerships with 18 local nonprofit organizations in 17 cities, collectively known as our Mortgage Help Network. The Mortgage Help Network represents 

a contractual relationship with select not-for-profit counseling agencies located in our top delinquent mortgage markets to 

provide borrowers foreclosure prevention counseling, documentation and assistance with pending loan workout solutions. We 

also use direct mail and phone calls to encourage homeowners to pursue home retention solutions and foreclosure 

alternatives, and have established partnerships with counseling agencies in ten states across the country to provide similar 

services. Further, in cooperation with several Multiple Listing Services across the nation, we developed the Short Sale 

Assistance Desk to assist real estate professionals in handling post-offer short sale issues that may relate to servicer 

responsiveness, the existence of a second lien, or issues involving mortgage insurance. 
132

In the following section, we present statistics on our problem loans, describe specific efforts undertaken to manage these 

loans and prevent foreclosures, and provide metrics regarding the performance of our loan workout activities. Unless 

otherwise noted, single-family delinquency data is calculated based on number of loans. We include single-family 

conventional loans that we own and those that back Fannie Mae MBS in the calculation of the single-family delinquency rate. 

Seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Percentage of book 

outstanding calculations are based on the unpaid principal balance of loans for each category divided by the unpaid principal 

balance of our total single-family guaranty book of business for which we have detailed loan-level information.

Problem Loan Statistics

The following table displays the delinquency status of loans in our single-family conventional guaranty book of business 

(based on number of loans) as of the dates indicated.

Table 44: Delinquency Status of Single-Family Conventional Loans

As of December 31,

2012 2011 2010

Delinquency status:

30 to 59 days delinquent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.96% 2.17% 2.32%

60 to 89 days delinquent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.66 0.74 0.87

Seriously delinquent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.29 3.91 4.48

Percentage of seriously delinquent loans that have been delinquent for more than 180 days. . 72% 70% 67%

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

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

foreclosures, as well as our acquisition of loans with stronger credit profiles since the beginning of 2009. Our new singlefamily book of business represented 66% of our single-family guaranty book of business as of December 31, 2012. In 

January 2013, our single-family serious delinquency rate decreased further to 3.18% as a result of our continued loss 

mitigation efforts, as well as a result of the resolution agreement we entered into with Bank of America. Pursuant to the 

agreement, Bank of America repurchased specified single-family loans, some of which were seriously delinquent. See “Note 

20, Subsequent Events” for additional information on the resolution agreement.

Although our serious delinquency rate has decreased, our serious delinquency rate and the period of time that loans remain 

seriously delinquent continue to be negatively impacted by the length of time required to complete a foreclosure. High levels 

of foreclosures, changes in state foreclosure laws, new federal and state servicing requirements imposed by regulatory actions 

and legal settlements, and the need for servicers to adapt to these changes have lengthened the time it takes to foreclose on a 

mortgage loan in many states. Longer foreclosure timelines result in these loans remaining in our book of business for a 

longer time, which has caused our serious delinquency rate to decrease more slowly in the last few years than it would have if 

the pace of foreclosures had been faster. We believe the slow pace of foreclosures will continue to negatively affect our 

single-family serious delinquency rates, foreclosure timelines and credit-related expenses (income). The length of the 

foreclosure process, the pace of loan modifications and changes in home prices and other macroeconomic conditions all 

influence serious delinquency rates. We expect the number of our single-family loans in our legacy book of business that are 

seriously delinquent to remain well above pre-2008 levels for years.

Table 45 displays a comparison, by geographic region and by loans with and without credit enhancement, of the serious 

delinquency rates as of the dates indicated for single-family conventional loans in our single-family guaranty book of 

business. Serious delinquency rates vary by geographic region due to many factors including regional home prices, 

unemployment, economic conditions and state foreclosure timelines.
133

Table 45: Single-Family Serious Delinquency Rates

As of December 31,

2012 2011 2010

Percentage 

ofBook 

Outstanding

Serious

Delinquency 

Rate

Percentage 

ofBook 

Outstanding

Serious

Delinquency 

Rate

Percentage 

ofBook 

Outstanding

Serious

Delinquency 

Rate

Single-family conventional delinquency 

rates by geographic region:(1)

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 % 2.92% 15 % 3.73% 15 % 4.16%

Northeast. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.40 19 4.43 19 4.38

Southeast. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.78 24 5.68 24 6.15

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.76 15 2.30 15 3.05

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.28 27 2.87 27 4.06

Total single-family conventional loans . 100 % 3.29% 100 % 3.91% 100 % 4.48%

Single-family conventional loans:

Credit enhanced . . . . . . . . . . . . . . . . . . . . . 14 % 7.09% 14 % 9.10% 15 % 10.60%

Non-credit enhanced. . . . . . . . . . . . . . . . . . 86 2.70 86 3.07 85 3.40

Total single-family conventional loans . 100 % 3.29% 100 % 3.91% 100 % 4.48%

__________

(1) See footnote 9 to “Table 41: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” for 

states included in each geographic region.

While loans across our single-family guaranty book of business have been affected by the weak market conditions, loans in 

certain states, certain higher-risk loan categories, such as Alt-A loans and loans with higher mark-to-market LTVs, and our 

2005 through 2008 loan vintages continue to exhibit higher than average delinquency rates and/or account for a 

disproportionate share of our credit losses. California, Florida, Arizona, Nevada and some states in the Midwest experienced 

more significant declines in home prices coupled with unemployment rates that remain high.

Table 46 displays the serious delinquency rates and other financial information for our single-family conventional loans with 

some of these higher-risk characteristics as of the dates indicated. The reported categories are not mutually exclusive.
134

Table 46: Single-Family Conventional Serious Delinquency Rate Concentration Analysis

As of December 31,

2012 2011 2010

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio (1) 

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio (1) 

Unpaid

Principal

Balance

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Estimated 

Mark-toMarket 

LTV

Ratio (1) 

(Dollars in millions)

States:

Arizona . . . . . . . . . . $ 65,277 2% 2.14% 88% $ 66,875 2% 3.65% 109% $ 71,052 2% 6.23% 105%

California. . . . . . . . . 523,602 19 1.69 73 516,608 19 2.46 81 507,598 18 3.89 76

Florida . . . . . . . . . . . 165,377 6 10.06 96 175,344 6 11.80 108 184,101 7 12.31 107

Nevada. . . . . . . . . . . 27,206 1 6.70 117 28,766 1 7.42 138 31,661 1 10.66 128

Select Midwest 

states (2)

. . . . . . . 278,455 10 3.51 81 284,060 10 4.39 84 292,734 11 4.80 80

All other states. . . . . 1,697,209 62 2.85 71 1,689,846 62 3.18 73 1,695,615 61 3.46 71

Product type:

Alt-A . . . . . . . . . . . . 155,469 6 11.36 96 182,236 7 12.43 101 211,770 8 13.87 96

Subprime . . . . . . . . . 5,035 * 20.60 107 5,791 * 23.18 111 6,499 * 28.20 103

Vintages:

2005. . . . . . . . . . . . . 139,204 5 7.79 90 190,521 7 7.27 95 235,100 9 7.20 89

2006. . . . . . . . . . . . . 138,040 5 12.15 105 186,835 7 11.81 111 232,009 8 12.19 104

2007. . . . . . . . . . . . . 195,308 7 12.99 107 269,012 10 12.62 112 334,110 12 13.24 104

2008. . . . . . . . . . . . . 124,747 5 6.63 88 192,713 7 5.64 92 256,024 9 4.88 85

All other vintages . . 2,159,827 78 1.36 69 1,922,418 69 1.59 69 1,725,518 62 1.73 65

Estimated mark-tomarket LTV ratio:

Greater than 100%(1) 374,010 13 13.42 128 493,762 18 13.76 131 435,991 16 17.70 130

Select combined risk

characteristics:

Original LTV ratio >

90% and FICO

score < 620 . . . . . . . 19,416 1 14.76 113 18,992 1 18.67 115 21,205 1 21.41 109

__________

* Percentage is less than 0.5%.

(1) Second lien mortgage loans held by third parties are not included in the calculation of the estimated mark-to-market LTV ratios.

(2) Consists of Illinois, Indiana, Michigan and Ohio.

Loan Workout Metrics

We continue to work with our servicers to implement our home retention and foreclosure prevention initiatives. Loan 

modifications involve changes to the original mortgage terms such as product type, interest rate, amortization term, maturity 

date and/or unpaid principal balance. For many of our modifications, we will ultimately collect less than the contractual 

amount due under the original loan. Other resolutions and modifications may result in our 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. Additionally, we currently offer up to twelve months of forbearance for unemployed homeowners 

as an additional tool to help them avoid foreclosure. 

With our implementation of HAMP, a modification initiative under the Making Home Affordable Program that is intended to 

be uniform across servicers, our aim is to help borrowers whose loan is either currently delinquent or is at imminent risk of 

default. HAMP modifications can include reduced interest rates, term extensions, and/or principal forbearance to bring the 

monthly payment down to 31% of the borrower’s gross (pre-tax) income. After a servicer determines that the borrower’s 

hardship is not temporary in nature, we require that servicers first evaluate borrowers for eligibility under HAMP before 

considering other workout options or foreclosure. By design, not all borrowers facing foreclosure will be eligible for a HAMP

modification. As a result, we are working with servicers to ensure that borrowers who do not qualify for HAMP or who fail to 

successfully complete the HAMP required trial period are provided with alternative home retention options or a foreclosure 

prevention alternative. 

In addition, 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 unemployment or reduced income, divorce, or unexpected issues like medical bills and is therefore no 

longer able to make the required mortgage payments. Foreclosure alternatives include short sales, where our servicers work 
135

with a borrower to sell their home prior to foreclosure, and deeds-in-lieu of foreclosure, where the borrower voluntarily signs 

over the title to their property to the servicer. These alternatives are designed to reduce our credit losses while helping 

borrowers avoid 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.

Table 47 displays statistics on our single-family loan workouts that were completed, by type, for the periods indicated. These 

statistics include loan modifications but do not include trial modifications, loans to certain borrowers who have received 

bankruptcy relief that are classified as TDRs, or repayment and forbearance plans that have been initiated but not completed.

Table 47: Statistics on Single-Family Loan Workouts

For the Year Ended December 31, 

2012 2011 2010

Unpaid

Principal

Balance

Number of

Loans

Unpaid

Principal

Balance

Number of

Loans

Unpaid

Principal

Balance

Number of

Loans

(Dollars in millions)

Home retention strategies:

Modifications. . . . . . . . . . . . . . . . . . . . $ 30,640 163,412 $ 42,793 213,340 $ 82,826 403,506

Repayment plans and forbearances 

completed(1). . . . . . . . . . . . . . . . . . . 3,298 23,329 5,042 35,318 4,385 31,579

HomeSaver Advance first-lien loans. . — — — — 688 5,191

Total home retention strategies. . . . . 33,938 186,741 47,835 248,658 87,899 440,276

Foreclosure alternatives:

Short sales . . . . . . . . . . . . . . . . . . . . . . 15,916 73,528 15,412 70,275 15,899 69,634

Deeds-in-lieu of foreclosure . . . . . . . . 2,590 15,204 1,679 9,558 1,053 5,757

Total foreclosure alternatives . . . . . . 18,506 88,732 17,091 79,833 16,952 75,391

Total loan workouts . . . . . . . . . . . . . . . . . . $ 52,444 275,473 $ 64,926 328,491 $ 104,851 515,667

Loan workouts as a percentage of singlefamily guaranty book of business(2)

. . . . 1.85 % 1.57 % 2.29 % 1.85 % 3.66 % 2.87 %

__________

(1) Repayment plans reflect only those plans associated with loans that were 60 days or more delinquent. Forbearances reflect loans that were 

90 days or more delinquent. 

(2) Calculated based on loan workouts during the period as a percentage of our single-family guaranty book of business as of the end of the 

period. 

The volume of home retention solutions completed in 2012 decreased compared with 2011, primarily due to a decline in the 

number of delinquent loans in 2012, compared with 2011. 

During 2012, we initiated approximately 184,000 trial modifications, HAMP and non-HAMP, compared with approximately 

211,000 trial modifications during 2011. We also initiated other types of workouts, such as repayment plans and forbearances.

HAMP guidance directs servicers either to cancel or to convert trial modifications after three or four monthly payments, 

depending on the borrower’s circumstances. As of December 31, 2012, 56% of our HAMP trial modifications had been 

converted to permanent HAMP modifications since the inception of the program. The conversion rate for HAMP

modifications since June 1, 2010, when servicers became required to perform a full verification of a borrower’s eligibility 

prior to offering a HAMP trial modification, was 87% as of December 31, 2012. The average length of a trial period for 

HAMP modifications initiated after June 1, 2010 was four months. 

The number of foreclosure alternatives completed during 2012 remained high as these are favorable solutions for a large 

number of borrowers. We expect the volume of our home retention solutions and foreclosure alternatives to remain high 

throughout 2013.

We continue to work with our servicers to implement our home retention and foreclosure prevention initiatives. Our approach 

to workouts continues to focus on the large number of borrowers facing financial hardships. Accordingly, the vast majority of 

loan modifications we have completed since 2009 have been concentrated on deferring or lowering the borrowers’ monthly 

mortgage payments to allow borrowers to work through their hardships. In addition, more than half of the loan modifications 

we have made since 2009 have been made to loans that have mark-to-market LTV ratios above 100%.
136

The majority of our home retention strategies, including trial modifications and loans to certain borrowers who received 

bankruptcy relief, are classified as TDRs upon initiation.

Table 48 displays activity related to our single-family TDRs for the periods indicated. For more information on the impact of 

TDRs, see “Note 3, Mortgage Loans.”

Table 48: Single-Family Troubled Debt Restructuring Activity(1)(2)

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Beginning balance, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 177,484 $ 155,564 $ 101,282

New TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,032 42,088 67,550

Foreclosures(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,752) (14,143) (9,526)

Payoffs(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,992) (2,801) (1,915)

Other(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,367) (3,224) (1,827)

Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 207,405 $ 177,484 $ 155,564

__________

(1) Represents the unpaid principal balance of the loans post-modification.

(2) Consists of foreclosures, deeds-in-lieu of foreclosure, short sales, and third-party sales.

(3) Consists of full borrower payoffs and repurchases of loans that were successfully resolved through payment by mortgage sellers/

servicers.

(4) Primarily includes monthly principal payments.

Table 49 displays the percentage of our loan modifications completed during 2011 and 2010 that were current or paid off one 

year after modification, as well as the percentage of our loan modifications completed during 2010 that were current or paid 

off two years after modification.

Table 49: Percentage of Loan Modifications That Were Current or Paid Off at One and Two Years Post-Modification(1)

2011 2010

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

One Year Post-Modification 

HAMP Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . 78% 78% 78% 77% 74% 74% 74% 76%

Non-HAMP Modifications . . . . . . . . . . . . . . . . . . . . . . . 66 68 69 69 67 67 65 55

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 72 75 74 69 70 70 65

Two Years Post-Modification 

HAMP Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70% 69% 68% 70%

Non-HAMP Modifications . . . . . . . . . . . . . . . . . . . . . . . 64 63 61 52

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 65 65 60

__________

(1) Excludes loans that were classified as subprime ARMs that were modified into fixed-rate mortgages. Modifications do not reflect loans 

currently in trial modifications. 

We began changing the structure of our non-HAMP modifications in 2010 to lower borrowers’ monthly mortgage payments 

to a greater extent, which improved the performance of our non-HAMP modifications overall. In addition, because postmodification performance was greater for our HAMP modifications than for our non-HAMP modifications, we began in 

September 2010 to include trial periods for our non-HAMP modifications.

There is significant uncertainty regarding the ultimate long term success of our current modification efforts. We believe the 

performance of our workouts will be highly dependent on economic factors, such as unemployment rates, household wealth 

and income, and home prices. Modifications, even those with reduced monthly payments, may also not be sufficient to help 

borrowers with second liens and other significant non-mortgage debt obligations. FHFA, other agencies of the U.S. 

government or Congress may ask us to undertake new initiatives to support the housing and mortgage markets should our 
137

current modification efforts ultimately not perform in a manner that results in the stabilization of these markets. See “Risk 

Factors” for a discussion of efforts we may be required or asked to undertake and their potential effect on us.

REO Management

Foreclosure and REO activity affect the amount of credit losses we realize in a given period. Table 50 displays our 

foreclosure activity, by region, for the periods indicated. Regional REO acquisition and charge-off trends generally follow a 

pattern that is similar to, but lags, that of regional delinquency trends.

Table 50: Single-Family Foreclosed Properties

For the Year Ended December 31,

2012 2011 2010

Single-family foreclosed properties (number of properties):

Beginning of period inventory of single-family foreclosed properties (REO)(1)

. . 118,528 162,489 86,155

Acquisitions by geographic area:(2)

Midwest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,583 45,167 57,761

Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,008 9,858 14,049

Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,411 51,153 79,453

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,541 44,675 55,276

West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,936 48,843 55,539

Total properties acquired through foreclosure(1). . . . . . . . . . . . . . . . . . . . . . . . . 174,479 199,696 262,078

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,341) (243,657) (185,744)

End of period inventory of single-family foreclosed properties (REO)(1)

. . . . . . . . . 105,666 118,528 162,489

Carrying value of single-family foreclosed properties (dollars in millions)(3)

. . . . . $ 9,505 $ 9,692 $ 14,955

Single-family foreclosure rate(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.99 % 1.13 % 1.46 %

__________

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

acquisitions through deeds-in-lieu of foreclosure.

(2) See footnote 9 to “Table 41: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” for 

states included in each geographic region.

(3) Excludes foreclosed property claims receivables, which are reported in our consolidated balance sheets as a component of “Acquired 

property, net.”

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

percentage of the total number of loans in our single-family guaranty book of business as of the end of each respective period.

The slow economic recovery, combined with high unemployment rates, continues to result in a high level of mortgage loans 

that transition from delinquent to REO status, either through foreclosure or deed-in-lieu of foreclosure. Our foreclosure rates 

remain high; however, foreclosures continue to proceed at a slow pace caused by continuing foreclosure process issues 

encountered by our servicers and changing legislative, regulatory and judicial requirements. The delay in foreclosures has 

resulted in a decrease in the inventory of foreclosed properties since December 31, 2010.

Neighborhood stabilization is a core principle in our approach to managing our REO inventory. As a result, we seek to keep 

properties in good condition and, where appropriate, repair them to make them more marketable. Our goal is to obtain the 

highest price possible for the properties we sell. In 2012, we repaired approximately 84,000 properties from our single-family 

REO inventory, at an average cost of approximately $6,100 per property. 

Repairing REO properties increases sales to owner occupants and increases financing options for REO buyers. In addition, 

we encourage homeownership through our First LookTM marketing period. During this First Look period, owner occupants, 

some nonprofit organizations and public entities may submit offers and purchase properties without competition from 

investors. Approximately 107,000 of the 187,000 single-family properties we sold in 2012 were purchased by owner 

occupants, nonprofit organizations or public entities. 

We currently lease properties to tenants who occupied the properties before we acquired them into our REO inventory and to 

eligible borrowers who executed a deed-in-lieu of foreclosure, which can minimize disruption by providing additional time to 

find alternate housing, help stabilize local communities, provide us with rental income, and support our compliance with 
138

federal and state laws protecting tenants in foreclosed properties. As of December 31, 2012, over 7,000 tenants leased our 

REO properties.

We continue to manage our REO inventory to minimize costs and maximize sales proceeds. However, as we are unable to 

market and sell a higher portion of our inventory, the pace at which we can dispose of our properties has slowed, resulting in 

higher foreclosed property expenses related to costs associated with ensuring that the property is vacant and costs of 

maintaining the property.

Table 51 displays the current status of our single-family foreclosed property inventory, including the percentage of our 

inventory that we are unable to market, as of the dates indicated.

Table 51: Single-Family Foreclosed Property Status

Percent of Single-Family

Foreclosed Properties

As of December 31,

2012 2011 2010

Available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 % 28 % 37 %

Offer accepted(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 17 14

Appraisal stage(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8 8

Unable to market:

Redemption status(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 12 11

Occupied status(4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15 16

Rental property(5)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7 6

Properties being repaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6 5

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7 3

Total unable to market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 47 41

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 % 100 % 100 %

__________

(1) Properties for which an offer has been accepted, but the property has not yet been sold.

(2) Properties that are pending appraisals and being prepared to be listed for sale.

(3) Properties that are within the period during which state laws allows the former mortgagor and second lien holders to redeem the 

property.

(4) Properties that are still occupied, and for which the eviction process is not yet complete.

(5) Properties with a tenant living in the home under our Tenant in Place or Deed for Lease programs.

Table 52 displays the proportionate share of foreclosures in certain states as compared with their share of our guaranty book 

of business.

Table 52: Single-Family Acquired Property Concentration Analysis

As of For the Year Ended As of For the Year Ended As of For the Year Ended

December 31, 2012 December 31, 2011 December 31, 2010

Percentage of 

Book 

Outstanding(1)

Percentage of 

Properties Acquired 

by Foreclosure

(2)

Percentage of 

Book 

Outstanding(1)

Percentage of 

Properties Acquired 

by Foreclosure

(2)

Percentage of 

Book 

Outstanding(1)

Percentage of 

Properties Acquired 

by Foreclosure

(2)

States:

Arizona, California, 

Florida, and Nevada . . 28% 28% 28% 33% 28% 36%

Illinois, Indiana, 

Michigan, and Ohio. . . 10 23 10 17 11 17

__________

(1) Calculated based on the unpaid principal balance of loans, where we have detailed loan-level information, for each category divided by 

the unpaid principal balance of our single-family conventional guaranty book of business.

(2) Calculated based on the number of properties acquired through foreclosure or deed-in-lieu of foreclosure during the period divided by 

the total number of properties acquired through foreclosure.
139

Multifamily Mortgage Credit Risk Management

The credit risk profile of our multifamily mortgage credit book of business is influenced by the structure of the financing, the 

type and location of the property, the condition and value of the property, the financial strength of the borrower and lender, 

market and sub-market trends and growth, and the current and anticipated cash flows from the property. These and other 

factors affect both the amount of expected credit loss on a given loan and the sensitivity of that loss to changes in the 

economic environment. We provide information on our credit-related expenses (income) and credit losses in “Business 

Segment Results—Multifamily Business Results.”

Multifamily Acquisition Policy and Underwriting Standards

Our Multifamily business, together with our Enterprise Risk Management division, which provides independent risk 

oversight of the Multifamily business, is responsible for pricing and managing the credit risk on multifamily mortgage loans 

we purchase and on Fannie Mae MBS. Our primary multifamily delivery channel is the Delegated Underwriting and 

Servicing, or DUS®, program. Multifamily loans that we purchase or that back Fannie Mae MBS are either underwritten by a 

Fannie Mae-approved lender or subject to our underwriting review prior to closing, depending on the product type and/or 

loan size. Loans delivered to us by DUS lenders and their affiliates represented 88% of our multifamily guaranty book of 

business as of December 31, 2012, compared with 86% as of December 31, 2011 and 84% as of December 31, 2010. 

We use various types of credit enhancement arrangements for our multifamily loans, including lender risk-sharing, lender 

repurchase agreements, pool insurance, subordinated participations in mortgage loans or structured pools, cash and letter of 

credit collateral agreements, and cross-collateralization/cross-default provisions. The most prevalent form of credit 

enhancement on multifamily loans is lender risk-sharing. Lenders in the DUS program typically share in loan-level credit 

losses in one of two ways: (1) they bear losses up to the first 5% of the unpaid principal balance of the loan and share in 

remaining losses up to a prescribed limit; or (2) they share up to one-third of the credit losses on an equal basis with us. NonDUS lenders typically share or absorb credit losses based on a negotiated percentage of the loan or the pool balance. 

Table 53 displays the percentage of the unpaid principal balance of loans in our multifamily guaranty book of business with 

lender risk-sharing and with no recourse to the lender as of the dates indicated.

Table 53: Multifamily Lender Risk-Sharing

As of December 31,

2012 2011

Lender risk-sharing

DUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73% 68%

Non-DUS negotiated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 11

No recourse to the lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21

At the time of our purchase or guarantee of multifamily mortgage loans, we and our lenders rely significantly on sound 

underwriting standards, which often include third-party appraisals and cash flow analysis. Our standards for multifamily 

loans specify maximum original LTV ratio and minimum original debt service coverage ratio (“DSCR”) values that vary 

based on loan characteristics. Our experience has been that original LTV ratio and DSCR values have been reliable indicators 

of future credit performance.

Table 54 displays original LTV ratio and DSCR metrics for our multifamily guaranty book of business as of the dates 

indicated. 

Table 54: Multifamily Guaranty Book of Business Key Risk Characteristics

As of December 31,

2012 2011 2010

Weighted average original LTV ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 % 66 % 67 %

Original LTV ratio greater than 80%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5 5

Original DSCR less than or equal to 1.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8 9
140

Multifamily Portfolio Diversification and Monitoring

Diversification within our multifamily mortgage credit book of business by geographic concentration, term-to-maturity, 

interest rate structure, borrower concentration, and credit enhancement coverage is an important factor that influences credit 

performance and helps reduce our credit risk. 

We and our lenders monitor the performance and risk concentrations of our multifamily loans and the underlying properties 

on an ongoing basis throughout the life of the loan: at the loan, property and portfolio levels. We track credit risk 

characteristics to determine the loan credit quality indicator, which are the internal risk categories and are further discussed in 

“Note 3, Mortgage Loans.” The credit risk characteristics we use to help determine the internal risk categories include the 

physical condition of the property, delinquency status, the relevant local market and economic conditions that may signal 

changing risk or return profiles, and other risk factors. For example, in addition to capitalization rates, we closely monitor the 

rental payment trends and vacancy levels in local markets to identify loans that merit closer attention or loss mitigation 

actions. We are managing 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 loans maturing in the near term. The primary asset management responsibilities for our multifamily loans are 

performed by our DUS and other multifamily lenders. We periodically evaluate these lenders’ and our other third party 

service providers’ performance for compliance with our asset management criteria.

As part of our ongoing credit risk management process, we have worked with our lenders in recent years to collect limited 

sets of quarterly property operating measures from borrowers, in addition to more complete annual financial updates, for 

those loans where we are entitled contractually to receive such information. During the second quarter of 2012, we began 

requiring lenders to provide complete quarterly financial updates consistent with the information required for annual 

submissions. We closely monitor loans with an estimated current DSCR below 1.0, as that is an indicator of heightened 

default risk. The percentage of loans in our multifamily guaranty book of business with a current DSCR less than 1.0 was 

approximately 5% as of December 31, 2012 and 7% as of December 31, 2011. Our estimates of current DSCRs are based on 

the latest available income information for these properties and our assessments of market conditions. Although we use the 

most recently available results from our multifamily borrowers, there is a lag in reporting, which typically can range from 6 

to 12 months.

Problem Loan Management and Foreclosure Prevention

The number of seriously delinquent multifamily loans decreased in 2012. Since changes in delinquency rates lag changes in 

economic conditions, we expect delinquencies to continue to contribute to credit losses. We periodically refine our 

underwriting standards in response to market conditions and implement proactive portfolio management and monitoring 

which are each designed to keep credit losses to a low level relative to our multifamily guaranty book of business.

Problem Loan Statistics

We classify multifamily loans as seriously delinquent when payment is 60 days or more past due. We include the unpaid 

principal balance of multifamily loans that we own or that back Fannie Mae MBS and any housing bonds for which we 

provide credit enhancement in the calculation of the multifamily serious delinquency rate.
141

Table 55 displays a comparison of our multifamily serious delinquency rates for loans acquired through our DUS product line 

versus loans not acquired through our DUS product line and the percentage of total multifamily credit losses they represent. 

Table 55: Multifamily Concentration Analysis

As of December 31,

Percentage of Multifamily Credit

Losses For the Years Ended

December 31,

2012 2011 2010

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Serious

Delinquency

Rate

Percentage

of Book

Outstanding

Serious

Delinquency

Rate 2012 2011 2010

DUS small balance 

loans (1). . . . . . . . . . 8 % 0.32 % 8 % 0.45 % 8 % 0.55 % 7 % 9 % 7 %

DUS non small 

balance loans (2). . . . 76 0.17 72 0.51 70 0.56 71 72 61

Non-DUS small 

balance loans (1). . . . 7 1.02 9 1.38 10 1.47 16 12 10

Non-DUS non small 

balance loans (2). . . . 9 0.21 11 0.57 12 0.97 6 7 22

Total multifamily

loans . . . . . . . . . 100 % 0.24 % 100 % 0.59 % 100 % 0.71 % 100 % 100 % 100 %

__________

(1) Loans with original unpaid principal balances of up to $3 million as well as loans in high cost markets with original unpaid principal 

balances up to $5 million.

(2) Loans with original unpaid principal balances greater than $3 million as well as loans in high cost markets with original unpaid principal 

balances greater than $5 million.

The multifamily serious delinquency rate decreased as of December 31, 2012 compared with December 31, 2011 as national 

multifamily market fundamentals continued to improve. The DUS loans in our guaranty book of business have lower 

delinquency rates when compared with the non-DUS loans in our guaranty book primarily due to the DUS model, which has 

several features that more closely align our interests with those of the lenders. Multifamily loans with an original balance of 

up to $3 million nationwide or $5 million in high cost markets, which we refer to as small balance loans, acquired through 

non-DUS lenders continue to represent a disproportionately large share of delinquencies, but they are generally covered by 

loss sharing arrangements that limit the credit losses we incur.

Small balance non-DUS loans continue to exhibit higher delinquencies than small balance loans acquired through DUS 

lenders. These small balance non-DUS loans account for 29% of our multifamily serious delinquencies and 7% of our 

multifamily guaranty book of business as of December 31, 2012 compared with 20% of our multifamily serious 

delinquencies and 9% of our multifamily guaranty book of business as of December 31, 2011. These small balance non-DUS 

loan acquisitions mainly occurred in 2007 and 2008 but have been less than 2% of the unpaid principal balance of our total 

multifamily acquisitions since 2008. Although our 2007 and early 2008 acquisitions were underwritten to our then-current 

credit standards and required borrower equity, they were acquired near the peak of multifamily housing values. During the 

second half of 2008, our underwriting standards were adjusted to reflect the evolving market trends at that time.

In addition, Nevada has a disproportionately high share of seriously delinquent loans compared with its share of the 

multifamily guaranty book of business as a result of slow economic recovery in certain areas of the state. Nevada accounted 

for 12% of multifamily serious delinquencies but only 1% of the multifamily guaranty book of business as of December 31, 

2012.
142

REO Management

Foreclosure and REO activity affect the level of our credit losses. Table 56 displays our held for sale multifamily REO 

activity for the periods indicated.

Table 56: Multifamily Foreclosed Properties

For the Year Ended December 31,

2012 2011 2010

Multifamily foreclosed properties (number of properties):

Beginning of period inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . 260 222 73

Total properties acquired through foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 257 232

Transfers to held for use, net(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (27) (1)

Dispositions of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (252) (192) (82)

End of period inventory of multifamily foreclosed properties (REO). . . . . . . . . . . . . . . . . . . . . 128 260 222

Carrying value of multifamily foreclosed properties (dollars in millions) . . . . . . . . . . . . . . . . . $ 331 $ 577 $ 596

__________

(1) Represents the net transfers of properties from held for sale to held for use. Held for use properties are reported in our consolidated 

balance sheets as a component of “Other assets.”

The decrease in our multifamily foreclosed property inventory reflects the continued improvement of national multifamily 

market fundamentals in 2012.

Institutional Counterparty Credit Risk Management

We rely on our institutional counterparties to provide services and credit enhancements, risk sharing agreements with lenders 

and financial guaranty contracts that are critical to our business. Institutional counterparty credit risk is the risk that these 

institutional counterparties may fail to fulfill their contractual obligations to us, including mortgage sellers/servicers who are 

obligated to repurchase loans from us or reimburse us for losses in certain circumstances and service our loans based on 

established guidelines. Defaults by a counterparty with significant obligations to us could result in significant financial losses 

to us. 

Several of our institutional counterparties are subject to provisions of the Dodd-Frank Act. However, we cannot predict its 

potential impact on our company or our industry at this time. For additional discussion on key provisions and additional 

information about this legislation see “Legislative and Regulatory Developments—Financial Regulatory Reform Legislation: 

The Dodd-Frank Act” and “Risk Factors.”

We have exposure primarily to the following types of institutional counterparties:

• mortgage sellers/servicers that sell the loans to us or service the loans we hold in our investment portfolio or that back 

our Fannie Mae MBS;

• third-party providers of credit enhancement on the mortgage assets that we hold in our investment portfolio or that 

back our Fannie Mae MBS, including mortgage insurers, financial guarantors and lenders with risk sharing 

arrangements;

• custodial depository institutions that hold principal and interest payments for Fannie Mae portfolio loans and MBS 

certificateholders, as well as collateral posted by derivatives counterparties, and mortgage sellers/servicers;

• issuers of securities held in our cash and other investments portfolio;

• derivatives counterparties;

• debt security and mortgage 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 also have significant concentrations of credit risk with particular counterparties. Many of our 

institutional counterparties provide several types of services for us. For example, many of our lender customers or their 

affiliates act as mortgage sellers/servicers, derivatives counterparties, custodial depository institutions or document 

custodians on our behalf.
143

The liquidity and financial condition of some of our institutional counterparties improved in 2012 compared with 2011. 

However, there is still significant risk to our business of defaults by these counterparties due to bankruptcy or receivership, 

lack of liquidity, insufficient capital, operational failure or other reasons. As described in “Risk Factors,” the financial 

difficulties that our institutional counterparties are experiencing may negatively affect their ability to meet their obligations to 

us and the amount or quality of the products or services they provide to us.

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. 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 materially adversely 

affect our ability to conduct our operations.

Mortgage Sellers/Servicers

Our primary exposures to institutional counterparty risk are with mortgage sellers/servicers that service the loans we hold in 

our mortgage portfolio or that back our Fannie Mae MBS, as well as mortgage sellers/servicers that are obligated to 

repurchase loans from us or reimburse us for losses in certain circumstances. We rely on mortgage sellers/servicers to meet 

our servicing standards and fulfill their servicing and repurchase obligations.

Mortgage sellers/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. We have minimum standards 

and financial requirements for mortgage sellers/servicers. For example, we require mortgage servicers to collect and retain a 

sufficient level of servicing fees to reasonably compensate a replacement mortgage servicer in the event of a servicing 

contract breach. In addition, we perform periodic on-site and financial reviews of our mortgage servicers and monitor their 

financial and portfolio performance as compared to peers and internal benchmarks. We work with our largest mortgage 

servicers to establish performance goals and monitor performance against the goals, and our servicing consultants work with 

mortgage servicers to improve servicing results and compliance with our Servicing Guide.

We likely would incur costs and potential increases in servicing fees and could also face operational risks if we decide to 

replace a mortgage seller/servicer. If a significant mortgage servicer counterparty fails, and its mortgage servicing obligations 

are not transferred to a company with the ability and intent to fulfill all of these obligations, we could incur penalties for late 

payment of taxes and insurance on the properties that secure the mortgage loans serviced by that mortgage seller/servicer. We 

could also be required to absorb losses on defaulted loans that a failed mortgage seller/servicer is obligated to repurchase 

from us if we determine there was an underwriting or eligibility breach.

Risk management steps we have taken or may take to mitigate our risk to mortgage sellers/servicers with whom we have 

material counterparty exposure include guaranty of obligations by higher-rated entities, reduction or elimination of 

exposures, reduction or elimination of certain business activities, transfer of exposures to third parties, receipt of collateral 

and suspension or termination of the selling and servicing relationship.

We are exposed to the risk that a mortgage seller/servicer or another party involved in a mortgage loan transaction will 

engage in mortgage fraud by misrepresenting the facts about the loan. We have experienced financial losses in the past and 

may experience significant financial losses and reputational damage in the future as a result of mortgage fraud. See “Risk 

Factors” for additional discussion on risks of mortgage fraud to which we are exposed.

Our business with our mortgage servicers is concentrated. Our five largest single-family mortgage servicers, including their 

affiliates, serviced approximately 57% of our single-family guaranty book of business as of December 31, 2012, compared 

with approximately 63% as of December 31, 2011. Our largest mortgage servicer is Wells Fargo Bank, N.A., which, together 

with its affiliates, serviced approximately 18% of our single-family guaranty book of business as of December 31, 2012, 

compared with approximately 17% as of December 31, 2011. In addition, we had two other mortgage servicers, Bank of 

America, N.A. and JPMorgan Chase Bank, N.A., that, with their affiliates, each serviced over 10% of our single-family 

guaranty book of business as of December 31, 2012 and 2011. In addition, Wells Fargo Bank, N.A. serviced over 10% of our 

multifamily guaranty book of business as of December 31, 2012 and 2011.

Although our business with our mortgage sellers/servicers is concentrated, a number of our largest single-family mortgage 

seller/servicer counterparties have recently reduced or eliminated their purchases of mortgage loans from mortgage brokers 

and correspondent lenders. As a result, we are acquiring an increasing portion of our business volume directly from smaller 

financial institutions and some of our servicing volume is shifting to smaller or non-traditional mortgage servicers that may 

not have the same financial strength or operational capacity as our largest mortgage servicers. See “Risk Factors” for more 

information on the impact to our business due to changes in the mortgage industry.

Because we delegate the servicing of our mortgage loans to mortgage servicers and do not have our own servicing function, 

mortgage servicers’ lack of appropriate process controls or the loss of business from a significant mortgage servicer 
144

counterparty could pose significant risks to our ability to conduct our business effectively. Many of our largest mortgage 

servicer counterparties continue to reevaluate the effectiveness of their process controls. Many mortgage servicers are also 

subject to federal and state regulatory actions and legal settlements that require the mortgage servicers to correct foreclosure 

process deficiencies and improve their servicing and foreclosure practices. This has resulted in extended foreclosure 

timelines and, therefore, additional holding costs for us, such as property taxes and insurance, repairs and maintenance, and 

valuation adjustments due to home price changes. See “Risk Factors” for a discussion of changes in the foreclosure 

environment.

If we determine that a mortgage loan did not meet our underwriting or eligibility requirements, loan representations or 

warranties were violated, or a mortgage insurer rescinded coverage, then our mortgage sellers/servicers are obligated to either 

repurchase the loan or foreclosed property, or to reimburse us for our losses. If the collateral property relating to such a loan 

has been foreclosed upon and we have accepted an offer from a third party to purchase the property, or if a loan is in the 

process of being liquidated or has been liquidated, we require the mortgage seller/servicer to reimburse us for our losses. We 

may consider additional facts and circumstances when determining whether to require a mortgage seller/servicer to reimburse 

us for our losses instead of repurchasing the related loan or foreclosed property. On an economic basis, we are made whole 

for our losses regardless of whether the mortgage seller/servicer repurchases the loan or reimburses us for our losses. We 

consider the anticipated benefits from these types of recoveries when we establish our allowance for loan losses. We refer to 

our demands that mortgage sellers/servicers meet these obligations collectively as “repurchase requests.” In addition, we 

charge our primary mortgage servicers a compensatory fee for servicing delays within their control when they fail to comply 

with established loss mitigation and foreclosure timelines in our Servicing Guide. Compensatory fees are intended to 

compensate us for damages attributed to such servicing delays and to emphasize the importance of the mortgage servicer’s 

performance.

Repurchase requests impact the risk that affected mortgage sellers/servicers will not meet the terms of their repurchase 

obligations, and we may be unable to recover on all outstanding loan repurchase obligations resulting from their breaches of 

contractual obligations. Failure by a significant mortgage seller/servicer, or a number of mortgage sellers/servicers, to fulfill 

repurchase obligations to us could result in a significant increase in our credit losses and credit-related expenses, and have a 

material adverse effect on our results of operations and financial condition. In addition, actions we take to pursue our 

contractual remedies could increase our costs, reduce our revenues, or otherwise have a material adverse effect on our results 

of operations or financial condition. We estimate our allowance for loan losses assuming the benefit of repurchase demands 

only from those counterparties we determine have the financial capacity to fulfill this obligation. Accordingly, as of 

December 31, 2012, in estimating our allowance for loan losses, we assumed no benefit from repurchase demands due to us 

from mortgage sellers/servicers that, in our view, lacked the financial capacity to honor their contractual obligations.

On January 6, 2013, we entered into a comprehensive agreement (the “resolution agreement”) with Bank of America, which 

resolved certain repurchase requests arising from breaches of selling representations and warranties for loans originated 

between 2000 and 2008. Bank of America agreed, among other things, to a resolution which included a cash payment to us of 

$3.6 billion in January 2013 related to repurchase requests and the repurchase of approximately 29,500 loans from us for an 

aggregate repurchase price of $6.6 billion, subject to a reconciliation process. Also in January 2013, Bank of America made 

an initial cash payment to us of $518 million related to mortgage insurance claims. The resolution agreement addressed $11.3 

billion of unpaid principal balance of our outstanding repurchase requests with Bank of America as of December 31, 2012, of 

which $8.9 billion were over 120 days past due. Accordingly, the amount of our outstanding repurchase requests will 

decrease substantially in the first quarter of 2013 as outstanding repurchase requests to Bank of America represented 73% of 

our total repurchase requests outstanding as of December 31, 2012.

In connection with the resolution agreement, we also approved Bank of America’s request to transfer servicing of 

approximately 941,000 loans to two specialty mortgage servicers and resolved outstanding and certain future compensatory 

fees owed by Bank of America due to servicing delays. Bank of America made an initial payment to us of $1.3 billion in 

January 2013. Subsequent to the initial payment, we and Bank of America will complete a loan review process in 2013 as 

specified in the compensatory fee agreement to mutually determine the final amount of compensatory fees owed. See “Note 

20, Subsequent Events” for additional information on our agreements with Bank of America and their impact on our financial 

results.

Table 57 displays repurchase request activity, measured by unpaid principal balance, during 2012 and 2011. The dollar 

amounts of our outstanding repurchase requests provided below are based on the unpaid principal balance of the loans 

underlying the repurchase request issued, not the actual amount we have requested from the lenders. In some cases, we allow 

lenders to remit payment equal to our loss, including imputed interest, on the loan after we have disposed of the REO, which 

is less than the unpaid principal balance of the loan. As a result, we expect our actual cash receipts relating to these 

outstanding repurchase requests to be significantly lower than the unpaid principal balance of the loan. Amounts relating to 
145

repurchase requests originating from missing documentation or loan files are excluded from the total requests outstanding 

until we receive the missing documents and loan files and a full underwriting review is completed.

Table 57: Repurchase Request Activity

For the Year Ended December 31,

2012 2011

(Dollars in millions)

Beginning outstanding repurchase requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,400 $ 5,007

Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,764 24,828

Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,657) (11,533)

Other resolutions(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,425) (6,913)

 Total successfully resolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,082) (18,446)

Cancellations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,069) (989)

Ending outstanding repurchase requests(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,013 $ 10,400

__________

(1) Mainly includes repurchase requests that were successfully resolved through the lender taking corrective action with or without a 

pricing adjustment. Also includes resolutions through indemnification or future repurchase agreements, negotiated settlements for a 

pool of loans, and loans in which no further repurchase or reimbursement for loss was required from the mortgage seller/servicer.

(2) Excludes the impact of our January 6, 2013 resolution agreement with Bank of America, which reduced the total outstanding 

repurchase request balance by $11.3 billion and substantially resolved our outstanding and expected future repurchase requests on 

specified single-family loans originated between 2000 and 2008 that were delivered to us by Bank of America. See “Note 20, 

Subsequent Events” for additional information on this agreement.

The increase in “Other resolutions” activity during 2012 compared with 2011 was primarily driven by an increase in the 

number of requests that were successfully resolved by lenders, thereby curing the defects identified in the repurchase request 

without requiring the lender to repurchase the loan or reimburse us for our losses. As of December 31, 2012, less than 0.25% 

of the loans in our new single-family book of business, which were acquired after 2008, have been subject to a repurchase 

request, compared with approximately 3% of single-family loans acquired between 2005 and 2008 that have been subject to a 

repurchase request.

Table 58 displays our top five mortgage sellers/servicers by outstanding repurchase requests based on the unpaid principal 

balance of the loans underlying repurchase requests issued as of December 31, 2012 and 2011. Table 58 also displays the 

mortgage sellers’/servicers’ balance and percentage of our repurchase requests to that mortgage seller/servicer that were over 

120 days outstanding, and the mortgage sellers’/servicers’ repurchase requests outstanding over 120 days as a percentage of 

our total repurchase requests outstanding over 120 days, as of December 31, 2012 and 2011.

Table 58: Outstanding Repurchase Requests(1)

Outstanding Repurchase Requests as of December 31,

2012 2011

Total

Outstanding

Balance(3)

Over 120 Days(2) Total

Outstanding

Balance(3)

Over 120 Days(2)

Balance(3) % % of Total Balance(3) % % of Total

(Dollars in millions)

Mortgage Seller/Servicer

Counterparty:

Bank of America, N.A.(4)

. . . . . . . $11,735 $ 9,163 78% 84 % $ 5,449 $1,841 34% 59 %

CitiMortgage(5)

. . . . . . . . . . . . . . . 909 284 31 3 917 226 25 7

Wells Fargo Bank, N.A.(5)

. . . . . . 758 358 47 3 830 259 31 8

JPMorgan Chase Bank, N.A.. . . . 688 173 25 2 1,136 197 17 6

SunTrust Bank, Inc.(5)

. . . . . . . . . 494 224 45 2 430 40 9 1

Other(5)

. . . . . . . . . . . . . . . . . . . . . 1,429 724 51 6 1,638 576 35 19

Total. . . . . . . . . . . . . . . . . . . . . . . $16,013 $10,926 100 % $10,400 $3,139 100 %
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__________

(1) Amounts relating to repurchase requests originating from missing documentation or loan files are excluded from the outstanding 

repurchase requests until we receive the missing documents and loan files and a full underwriting review is completed.

(2) Measured from the repurchase request date. For lenders remitting after the property is disposed, the number of days outstanding is 

adjusted to allow for final loss determination.

(3) Based on the unpaid principal balance of the loans underlying the repurchase request issued. In some cases, lenders remit payment 

equal to our loss on sale of the loan as REO, which includes imputed interest, and is significantly lower than the unpaid principal 

balance of the loan. Also includes repurchase requests resulting from the rescission of mortgage insurance coverage.

(4) Excludes the impact of our January 6, 2013 resolution agreement with Bank of America, which reduced the total outstanding 

repurchase request balance by $11.3 billion, of which $8.9 billion represented repurchase requests that were over 120 days past due. 

The resolution agreement substantially resolved outstanding and expected future repurchase requests on specified single-family loans 

originated between 2000 and 2008 that were delivered to us by Bank of America. See “Note 20, Subsequent Events” for additional 

information on this agreement.

(5) Mortgage seller/servicer has entered into an agreement with us relating to some of the reported amounts. The agreement extended 

the time for resolving certain outstanding repurchase requests and/or provided for the seller/servicer to post collateral to us.

We continue to aggressively pursue our contractual rights associated with outstanding repurchase requests. Failure by a 

mortgage seller/servicer to repurchase a loan or to otherwise make us whole for our losses may result in the imposition of 

certain sanctions including, but not limited to:

• requiring the posting of collateral,

• denying transfer of servicing requests or denying pledged servicing requests,

• modifying or suspending any contract or agreement with a lender, or

• suspending or terminating a lender or imposing some other formal sanction on a lender.

If we are unable to resolve these matters to our satisfaction, we may seek additional remedies. If we are unable to resolve our 

repurchase requests, either through collection or additional remedies, we will not recover the losses we have recognized from 

the associated loans.

In December 2010, we entered into an agreement with Residential Capital LLC, GMAC Mortgage LLC and other 

subsidiaries of Ally Financial Inc. (“Ally”) and received a cash payment of $462 million in exchange for our release of 

certain claims against specified Ally affiliates. In May 2012, certain wholly-owned subsidiaries of Ally, including GMAC 

Mortgage LLC, filed for Chapter 11 bankruptcy protection. On January 31, 2013, Fannie Mae and GMAC Mortgage LLC 

reached an agreement pursuant to which Fannie Mae received $265 million primarily related to representation and warranty 

liabilities due to title defects, mortgage insurance coverage claims and compensatory fees. As a result of this settlement, we 

recorded $173 million as a benefit to “Benefit (provision) for credit losses,” in our consolidated statements of operations and 

comprehensive income (loss) for the year ended December 31, 2012. Also, as a part of this agreement, there was a mutual 

release of claims by parties and we approved GMAC Mortgage LLC’s request to transfer servicing of certain mortgage loans 

to another servicer.

As described in “Mortgage Credit Risk Management—Single-Family Mortgage Credit Risk Management,” we implemented 

a new representation and warranty framework on January 1, 2013. With the implementation of these changes, a greater 

proportion of our repurchase requests may be issued on performing loans, as compared with our current repurchase requests, 

the substantial majority of which relate to loans that are either nonperforming or have been foreclosed upon.

Mortgage Insurers

We are generally required, pursuant to our charter, to obtain credit enhancement 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 

enhancement to manage our single-family mortgage credit risk, including primary and pool mortgage insurance coverage. 

Table 59 displays our risk in force for the primary and pool mortgage insurance coverage on single-family loans in our 

guaranty book of business and our insurance in force for our mortgage insurer counterparties as of December 31, 2012 and 

2011. The table includes our top nine mortgage insurer counterparties, which provided over 99% of our total mortgage 

insurance coverage on single-family loans in our guaranty book of business as of December 31, 2012 and 2011.
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Table 59: Mortgage Insurance Coverage

Risk In Force(1) Insurance In Force(2)

As of As of

As of December 31, 2012 December 31, As of December 31, 2012 December 31,

Primary Pool Total 2011 Primary Pool Total 2011

(Dollars in millions)

Counterparty:(3)

Mortgage Guaranty Insurance Corp. . $19,671 $ 418 $20,089 $ 21,479 $ 77,771 $ 4,575 $ 82,346 $ 89,872

Radian Guaranty, Inc. . . . . . . . . . . . . 18,015 111 18,126 15,505 72,830 916 73,746 63,534

United Guaranty Residential 

Insurance Co.. . . . . . . . . . . . . . . . . 17,105 77 17,182 14,579 68,563 622 69,185 59,233

Genworth Mortgage Insurance Corp. 13,607 19 13,626 13,628 54,587 177 54,764 54,893

PMI Mortgage Insurance Co.(4) .. . . . 8,829 72 8,901 11,128 35,692 1,051 36,743 47,734

Republic Mortgage Insurance Co.(4) . 6,892 250 7,142 9,219 27,440 2,962 30,402 39,130

Triad Guaranty Insurance Corp.(4)

. . . 2,077 291 2,368 3,150 7,738 2,157 9,895 12,400

CMG Mortgage Insurance Co.(5)

. . . . 2,340 2,340 1,951 9,823 9,823 8,241

Essent Guaranty, Inc. . . . . . . . . . . . . . 1,724 1,724 395 7,148 7,148 1,685

Others . . . . . . . . . . . . . . . . . . . . . . . . . 197 197 217 1,118 1,118 1,214

Total . . . . . . . . . . . . . . . . . . . . . . . . . . $90,457 $ 1,238 $91,695 $ 91,251 $362,710 $12,460 $ 375,170 $ 377,936

Total as a percentage of singlefamily guaranty book of business . 3 % 3 % 13 % 13 %

__________

(1) Risk in force is generally the maximum potential loss recovery under the applicable mortgage insurance policies in force and is 

based on the loan level insurance coverage percentage and, if applicable, any aggregate pool loss limit, as specified in the policy. 

(2) Insurance in force represents the unpaid principal balance of single-family loans in our guaranty book of business covered under the 

applicable mortgage insurance policies.

(3) Insurance coverage amounts provided for each counterparty may include coverage provided by consolidated affiliates and subsidiaries 

of the counterparty.

(4) These mortgage insurers are under various forms of supervised control by their state regulators and are in run-off.

(5) CMG Mortgage Insurance Company is a joint venture owned by PMI Mortgage Insurance Co. and CUNA Mutual Insurance Society.

The continued high level of mortgage insurance claims due to higher defaults and credit losses in recent periods have 

adversely affected the financial results and condition of mortgage insurers. Each of our top seven mortgage insurer 

counterparties that continue to be rated by S&P, Fitch and Moody’s have a current insurer financial strength rating below the 

“AA-” level that we require under our qualified mortgage insurer approval requirements to be considered qualified as a “Type 

1” mortgage insurer. Due to these low credit ratings, we primarily rely on our internal credit ratings when assessing our 

exposure to a counterparty.

Our rating structure is based on a scale of 1 to 20. A rating of 1 represents a counterparty that we view as having excellent 

credit quality and a rating of 20 represents a counterparty with poor credit quality. These internal ratings, which reflect our 

views of a mortgage insurer’s claims paying ability, are based primarily on an assessment of the mortgage insurer’s capital 

adequacy and liquidity. These assessments involve in-depth credit reviews of each mortgage insurer, a comprehensive 

analysis of the mortgage insurance sector, analyses of the insurer’s portfolio, discussions with the insurer’s management, the 

insurer’s plans to maintain capital within the insuring entity and our views on macroeconomic variables which impact a 

mortgage insurer’s estimated future paid losses, such as changes in home prices and changes in interest rates. From time to 

time, we may also discuss a counterparty’s situation with the rating agencies.

As of April 2, 2013, of our largest primary mortgage insurers:

• PMI, RMIC and Triad are under various forms of supervised control by their state regulators and are in run-off. A

mortgage insurer that is in run-off continues to collect renewal premiums and pay claims on its existing insurance 

business, but no longer writes new insurance, which increases the risk that the mortgage insurer will fail to pay our 

claims under existing insurance policies.

• Genworth and MGIC are operating pursuant to waivers they received from the regulators of the state regulatory 

capital requirements applicable to their main insurance writing entity, as the capital of each entity has fallen below 

applicable state regulatory capital requirements. We have approved subsidiaries of both Genworth and MGIC to 

write new insurance in states in which each company does not have a waiver. Genworth and MGIC each recently 

disclosed in their public filings that they have also obtained requisite approvals from Freddie Mac. In January 2013, 
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Genworth announced a plan designed to reduce its risk-to-capital and ensure continued ability to write new business. 

The actions under the plan, some of which are subject to regulatory approval, include contributing additional capital 

and reorganizing the holding company structure for the U.S. mortgage insurance subsidiaries. Additionally, the plan 

includes a contingency for using an entity other than the existing main insurance writing entity for writing new 

business in all 50 states. Prior to the announcement, we entered into an agreement with Genworth that provided our 

approval for those elements of Genworth’s plan that required our approval. 

• Radian has disclosed that, in the absence of additional capital contributions to its main insurance writing entity, its 

capital might fall below state regulatory capital requirements in 2013. We have approved a subsidiary of Radian to 

write new insurance if Radian falls below state regulatory capital requirements in the future.

These six mortgage insurers, PMI, Triad, RMIC, Genworth, Radian and MGIC, provided a combined $70.3 billion, or 77%, 

of our risk in force mortgage insurance coverage of our single-family guaranty book of business as of December 31, 2012.

We are exposed to the risk that mortgage insurers that do not meet, or may soon fail to meet, state regulatory capital 

requirements may fail to pay our claims under insurance policies and that the quality and speed of their claims processing 

could deteriorate. See “Risk Factors” for more information on losses we may incur under our mortgage insurance policies.

The financial condition of some of our primary mortgage insurer counterparties improved during 2012 compared with 2011 

but there is still significant risk that these counterparties will fail to fulfill their obligations to pay our claims under insurance 

policies. If we determine that it is probable that we will not collect all of our claims from one or more of these mortgage 

insurer counterparties, or if we have already made that determination but our estimate of the shortfall increases, it could result 

in an increase in our loss reserves, which could adversely affect our earnings, liquidity, financial condition and net worth.

We evaluate each of our mortgage insurer counterparties individually to determine whether or under what conditions it will 

remain eligible to insure new mortgages sold to us. Based on our evaluation, we may impose additional terms and conditions 

of approval on some of our mortgage insurers, including: (1) limiting the volume and types of loans they may insure for us; 

(2) requiring them to obtain our consent prior to entering into risk sharing arrangements with mortgage lenders; (3) requiring 

them to meet certain financial conditions, such as maintaining a minimum level of policyholders’ surplus, a maximum riskto-capital ratio, a maximum combined ratio, or a minimum amount of acceptable liquid assets; or (4) requiring that they 

secure parental or other capital support agreements.

The payment of claims by RMIC, PMI and Triad have been partially deferred pursuant to orders from their state 

regulators. Pursuant to a new corrective order, effective December 3, 2012, RMIC is now paying 60% of all valid claims and 

40% is deferred as a policyholder claim. This new order increased RMIC’s payment from 50% and is retroactive for all 

claims after January 19, 2012, the date of the original order. PMI continues to pay 50% on all valid claims and 50% is 

deferred as a policyholder claim. Finally, Triad continues to pay 60% on all valid claims and 40% is deferred as a 

policyholder claim. It is uncertain when, or if, any of these mortgage insurers’ regulators will allow them to pay their deferred 

policyholder claims and/or increase the amount of cash they pay on claims. While our remaining mortgage insurers have 

continued to pay claims owed to us in full, there can be no assurance that they will continue to do so given their current 

financial condition.

Some mortgage insurers have explored corporate restructurings designed to provide relief from risk-to-capital limits in 

certain states. We have approved several restructurings so that certain of our mortgage insurer counterparties or their 

subsidiaries could continue to write new business. Additionally, mortgage insurers continue to approach us with various 

proposed corporate restructurings that would require our approval of affiliated mortgage insurance writing entities. In 

February 2013, CUNA Mutual Insurance Society (“CUNA”) and the Arizona Department of Insurance, which is the receiver 

for PMI, announced a proposed sale of all outstanding equity interests in CMG Mortgage Insurance Company 

(“CMG”). CMG is jointly owned by CUNA and PMI. The proposed sale would result in a change in control of CMG and our 

approval would be required in order for CMG to be eligible to write mortgage insurance for us.

The number of mortgage loans for which our mortgage insurer counterparties have rescinded coverage decreased but 

remained high in 2012. In those cases where the mortgage insurer has rescinded coverage, we require the mortgage seller/

servicer to repurchase the loan or indemnify us against loss. The table below displays cumulative rescission rates as of 

December 31, 2012, by the period in which the claim was filed. We do not present information for claims filed in the most 

recent two quarters to allow sufficient time for a substantial percentage of the claims filed to be resolved.
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Table 60: Rescission Rates of Mortgage Insurance

As of December 31, 2012

Cumulative Rescission 

Rate(1)

Cumulative Claims 

Resolution Percentage(2)

Primary mortgage insurance claims filed in:

First six months of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 % 48 %

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 74

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 92

Pool mortgage insurance claim filed in:

First six months of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 % 86 %

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 96

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 99

__________

(1) Represents claims filed during the period where coverage was rescinded as of December 31, 2012, divided by total claims filed during 

the same period. Denied claims are excluded from the rescinded population.

(2) Represents claims filed during the period that were resolved as of December 31, 2012, divided by the total claims filed during the 

same period. Claims resolved mainly consist of claims for which we have settled and claims for which coverage has been rescinded by 

the mortgage insurer.

When we estimate the credit losses that are inherent in our mortgage loan portfolio and under the terms of our guaranty 

obligations we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance 

recoveries would reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our 

mortgage insurer counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of 

the balance sheet date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage 

insurer counterparties’ ability to fulfill their respective obligations to us worsens, it could result in an increase in our loss 

reserves.

The following table displays our estimated benefit from mortgage insurers as of December 31, 2012 and 2011 that reduces 

our total loss reserves.

Table 61: Estimated Mortgage Insurance Benefit

As of December 31,

2012 2011

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,993 $15,099

Less: Collectibility adjustment(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708 2,867

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,285 $12,232

__________

(1) Represents an adjustment that reduces the contractual benefit for our assessment of our mortgage insurer counterparties’ inability to 

fully pay the contractual mortgage insurance claims.

During 2012, we experienced an improvement in the profile of our single-family book of business, which resulted in a 

decrease in the contractual benefit we expect to receive from mortgage insurers. The collectibility adjustment to the estimated 

mortgage insurance benefit for probable losses also decreased as of December 31, 2012 compared to December 31, 2011, 

primarily driven by lower projected claims that we will submit to our mortgage insurance counterparties due to lower 

expected defaults. We expect lower defaults primarily as a result of higher actual and forecasted home prices and better 

observed performance of high mark-to-market LTV loans. For loans that are collectively evaluated for impairment, we 

estimate the portion of our loss that we expect to recover from each of our mortgage insurance counterparties, the contractual 

mortgage insurance coverage, and an estimate of each counterparty’s resources available to pay claims to us. An analysis by 

our Counterparty Risk division determines whether, based on all the information available to us, any counterparty is 

considered probable to fail to meet their obligations in the next 30 months. This period is consistent with the amount of time 

over which claims related to losses incurred today are expected to be paid in the normal course of business. If this analysis 

finds a failure of a counterparty is probable, we then reserve for the shortfall between projected claims and estimated 

resources available to pay claims to us. For loans with delayed foreclosure timelines, where we expect the counterparty to 
150

meet its obligations beyond 30 months, we extend the time frame used to evaluate the mortgage insurers’ claims paying 

ability to a long-term forecast and use that long-term expected paying ability to determine the reserve amount, if any.

For loans that have been determined to be individually impaired and measured for impairment using a cash flow analysis, we 

calculate a net present value of the expected cash flows for each loan to determine the level of impairment, which is included 

in our allowance for loan losses. These expected cash flow projections include proceeds from mortgage insurance, that are 

based, in part, on the internal credit ratings for each of our mortgage insurance counterparties. Specifically, for loans insured 

by a mortgage insurer with a lower credit rating, our cash flow projections include fewer proceeds from the insurer. For loans 

that have been determined to be individually impaired and are deemed probable of foreclosure, the reserve is determined 

using the process for loans that are collectively evaluated for impairment and we expect the claims to be paid in the normal 

course of business.

As described above, our methodologies for individually and collectively impaired loans differ as required by GAAP, but both 

consider the ability of our counterparties to pay their obligations in a manner that is consistent with each impairment 

methodology. As the loans individually assessed for impairment using a cash flow analysis considers the life of the loan, we 

use the noted risk ratings to adjust the loss severity in our estimates of future cash flows. As the loans collectively assessed 

for impairment only look to the probable payments we would receive associated with our probable losses, we use the noted 

shortfall, or haircut, to adjust the loss severity. For counterparties under deferred payment obligation arrangements, the 

estimated mortgage insurance benefits are determined based on the long-term claims paying ability of each counterparty.

When an insured loan held in our mortgage portfolio subsequently goes into foreclosure, we charge off the loan, eliminating 

any previously-recorded loss reserves, and record REO and a mortgage insurance receivable for the claim proceeds deemed 

probable of recovery, as appropriate. However, if a mortgage insurer rescinds, cancels or denies insurance coverage, the 

initial receivable becomes due from the mortgage seller/servicer. We had outstanding receivables of $3.7 billion as of 

December 31, 2012 and $3.6 billion as of December 31, 2011 related to amounts claimed on insured, defaulted loans, of 

which $1.1 billion as of December 31, 2012 and $639 million as of December 31, 2011 was due from our mortgage sellers/

servicers. We assessed the total outstanding receivables for collectibility, and they were recorded net of a valuation allowance 

of $551 million as of December 31, 2012 and $570 million as of December 31, 2011 in “Other assets.” The valuation 

allowance reduces our claim receivable to the amount that we consider probable of collection. We received proceeds under 

our primary and pool mortgage insurance policies for single-family loans of $5.1 billion in 2012, $5.8 billion in 2011 and 

$6.4 billion in 2010.

From time to time, we may enter into negotiated transactions with mortgage insurer counterparties pursuant to which we 

agree to cancel or restructure insurance coverage, in excess of charter requirements, in exchange for a fee. These insurance 

cancellations and restructurings may provide our counterparties with capital relief and provide us with cash in lieu of future 

claims that the counterparty may not be able to pay, thereby reducing our future counterparty credit exposure. We received 

cash fees of $796 million during 2010, which are included in our total proceeds amount. We did not receive any fees for the 

cancellation or restructuring of coverage during 2012 or 2011. 

Financial Guarantors

We are the beneficiary of financial guarantees on non-agency securities held in our investment portfolio and on non-agency 

securities that have been resecuritized to include a Fannie Mae guaranty and sold to third parties. Table 62 displays the total 

unpaid principal balance of guaranteed non-agency securities in our portfolio as of December 31, 2012 and 2011.

Table 62: Unpaid Principal Balance of Financial Guarantees

As of December 31,

2012 2011

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 928 $1,279

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,264 1,398

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,374 4,931

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 317

Non mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 46

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,858 $7,971

With the exception of Ambac Assurance Corporation (“Ambac”), none of our financial guarantor counterparties has failed to 

repay us for claims under guaranty contracts. Based on the stressed financial condition of our non-governmental financial 

guarantor counterparties, we believe that all but one of these counterparties may not be able to fully meet their obligations to 
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us in the future. Pursuant to a court order, effective August 31, 2012, Ambac pays 25% on all filed claims that are valid. 

Ambac provided coverage on $3.0 billion, or 44%, of our total non-governmental guarantees, as of December 31, 2012. We 

model our securities without assuming the benefit of non-governmental financial guarantees. We then adjust results for those 

external financial guarantees from guarantors that we determine are creditworthy, although we continue to seek collection of 

any amounts due to us from all counterparties. As of December 31, 2012, when modeling our securities for impairments we 

did not assume the benefit of external financial guarantees from any non-governmental counterparties. See “Note 5, 

Investments in Securities” for a further discussion of our model methodology and key inputs used to determine other-thantemporary-impairment.

We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and 

its agencies that totaled $27.3 billion as of December 31, 2012 and $31.4 billion as of December 31, 2011.

Lenders with Risk Sharing

We enter into risk sharing agreements with lenders pursuant to which the lenders agree to bear all or some portion of the 

credit losses on the covered loans. Our maximum potential loss recovery from lenders under these risk sharing agreements on 

single-family loans was $11.9 billion as of December 31, 2012, compared with $12.8 billion as of December 31, 2011. As of 

December 31, 2012, 55% of our maximum potential loss recovery on single-family loans was from three lenders, compared 

with 58% as of December 31, 2011. Our maximum potential loss recovery from lenders under risk sharing agreements on 

DUS and non-DUS multifamily loans was $36.4 billion as of December 31, 2012, compared with $32.1 billion as of 

December 31, 2011. As of December 31, 2012, 35% of our maximum potential loss recovery on multifamily loans was from 

three DUS lenders, compared with 40% as of December 31, 2011.

Although market conditions have improved, unfavorable market conditions in prior years adversely affected the liquidity and 

financial condition of our lender counterparties. The percentage of single-family recourse obligations from lenders with 

investment grade credit ratings (based on the lower of S&P, Moody’s and Fitch ratings) was 51% as of December 31, 2012, 

compared with 46% as of December 31, 2011. The recourse obligations from lender counterparties rated below investment 

grade was 22% as of December 31, 2012, compared with 26% as of December 31, 2011. The remaining recourse obligations 

were from lender counterparties that were not rated by rating agencies, which was 27% as of December 31, 2012 and 28% as 

of December 31, 2011. Given the stressed financial condition of some of our single-family lenders, we expect in some cases 

we will recover less than the amount the lender is obligated to provide us under our risk sharing arrangement with them. 

Depending on the financial strength of the counterparty, we may require a lender to pledge collateral to secure its recourse 

obligations.

As noted above in “Mortgage Credit Risk Management—Multifamily Mortgage Credit Risk Management,” 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, 2012, approximately 40% 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 51% as of December 31, 2011. Given the recourse nature of the DUS program, the lenders are bound by 

eligibility standards that dictate, among other items, minimum capital and liquidity levels, and the posting of collateral at a 

highly rated custodian to secure a portion of the lenders’ future obligations. We actively monitor the financial condition of 

these lenders to help ensure the level of risk remains within our standards and to ensure required capital levels are maintained 

and are in alignment with actual and modeled loss projections. 

Custodial Depository Institutions

A total of $74.0 billion in deposits for single-family payments were received and held by 292 institutions during the month of 

December 2012 and a total of $66.4 billion in deposits for single-family payments were received and held by 284 institutions 

during the month of December 2011. During the month of January 2013, a total of $76.3 billion in deposits for single-family 

payments were received and held by 287 institutions. Of these total deposits, 93% as of December 31, 2012, compared with 

92% as of December 31, 2011, were held by institutions rated as investment grade by S&P, Moody’s and Fitch. As of January 

31, 2013, 95% of these total deposits were held by institutions rated as investment grade by S&P, Moody’s and Fitch. Our 

transactions with custodial depository institutions are concentrated. Our six largest custodial depository institutions held 87% 

of these deposits as of December 31, 2012 and 2011. As of January 31, 2013, our six largest custodial depository institutions 

held 87% of these deposits.

We evaluate our custodial depository institutions to determine whether they are eligible to hold deposits on our behalf based 

on requirements specified in our Servicing Guide. If a custodial depository institution were to fail while holding remittances 

of borrower payments of principal and interest due to us in our custodial account, we would be an unsecured creditor of the 

depository for balances in excess of the deposit insurance protection and might not be able to recover all of the principal and 
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interest payments being held by the depository on our behalf, or there might be a substantial delay in receiving these 

amounts. If this were to occur, we would be required to replace these amounts with our own funds to make payments that are 

due to Fannie Mae MBS certificateholders. Accordingly, the insolvency of one of our principal custodial depository 

counterparties could result in significant financial losses to us. During the month of December 2012, approximately $7.2 

billion, or 10%, of our total deposits for single-family payments received and held by these institutions was in excess of the 

deposit insurance protection limit compared with $6.1 billion, or 9%, during the month of December 2011. During the month 

of January 2013, approximately $8.0 billion, or 11%, of our total deposits for single-family payments received and held by 

these institutions was in excess of the deposit insurance protection limit. These amounts can vary as they are calculated based 

on individual payments of mortgage borrowers and we must estimate which borrowers are paying their regular principal and 

interest payments and other types of payments, such as prepayments from refinancing or sales.

Our counterparty exposure relating to principal and interest payments held on our behalf increased significantly in 2012 due 

to high prepayment volumes. In recent years our counterparty exposure has fluctuated as a result of (1) the September 2009 

adoption of a rule amending the deposit insurance regulations on mortgage servicer accounts to extend coverage on these 

accounts on a “per borrower” basis; and (2) the Dodd-Frank Act, which permanently increased the amount of federal deposit 

insurance available to $250,000 per depositor. The Dodd-Frank Act also provided temporary unlimited coverage through 

December 31, 2012 for noninterest-bearing transaction accounts. We generally used noninterest-bearing transaction accounts 

for otherwise ineligible custodial depository institutions, which is not a significant portion of our holdings. However, the 

temporary unlimited coverage for noninterest-bearing transaction accounts expired on December 31, 2012, which required 

that these custodial accounts be moved to eligible depositories.

Issuers of Investments Held in our Cash and Other Investments Portfolio

Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and securities purchased 

under agreements to resell or similar arrangements and U.S. Treasury securities. Our cash and other investment 

counterparties are primarily financial institutions and the Federal Reserve Bank. See “Liquidity and Capital Management—

Liquidity Management—Cash and Other Investments Portfolio” for more detailed information on our cash and other 

investments portfolio.

As of December 31, 2012, our cash and other investments portfolio totaled $71.6 billion and included $19.1 billion of U.S. 

Treasury securities. As of December 31, 2011, our cash and other investments portfolio totaled $113.4 billion and included 

$48.3 billion of U.S. Treasury securities. As of January 31, 2013, our cash and other investments portfolio totaled $99.5 

billion and included $23.6 billion of U.S. Treasury securities. We held no unsecured positions with financial institutions as of 

December 31, 2012 and 2011. As of January 31, 2013, we held a $1.0 billion short-term unsecured deposit with a financial 

institution that had a short-term credit rating of P-2 from Moody’s (based on the lowest credit rating issued by S&P, Moody’s 

and Fitch). The remaining amounts in our cash and other investment portfolio other than U.S. Treasury securities were 

primarily composed of securities purchased under agreements to resell or similar arrangements. 

We monitor the credit risk position of our cash and other investments portfolio by term and rating level. In addition, we 

monitor the financial position and any downgrades of these counterparties. 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.

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate derivatives contracts. We are exposed to the 

risk that a counterparty in a derivative transaction will default on payments due to us and we may also need to acquire a 

replacement derivative from a different counterparty at a higher cost or may be unable to find a suitable replacement. We 

manage our counterparty credit exposure through master netting arrangements, which we normally enter into with 

counterparties with which we deal on an over-the-counter basis. These arrangements allow us to net derivative asset and 

liabilities with the same counterparty.

We estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value 

basis, to settle at current market prices all outstanding derivative contracts in a net gain position at the counterparty level 

where the right of legal offset exists. For derivative instruments where the right of legal offset does not exist, we calculate the 

replacement cost of the outstanding derivative contracts in a gain position at the transaction level.

We also manage our counterparty exposure by requiring counterparties to post collateral, which includes cash, U.S. Treasury 

securities, agency debt and agency mortgage-related securities. In June 2012, Moody’s completed a credit rating review of 

banks and securities companies with global capital market operations, which encompassed most of Fannie Mae’s derivative 

counterparties. The companies were downgraded by Moody’s, which resulted in an increase in the amount of collateral these 
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companies are required to post to us under our derivative agreements. As of December 31, 2012 all of our derivative 

counterparties were in compliance with these additional collateral requirements.

The fair value of derivatives in a gain position is included in our consolidated balance sheets in “Other assets.” Table 63

below displays our counterparty credit exposure on outstanding risk management derivative instruments in a gain position by 

counterparty credit ratings and the number of counterparties for over-the-counter derivatives as of December 31, 2012 and 

2011. Also disclosed below are the notional amounts outstanding for all risk management derivatives for the periods 

indicated.

Table 63: Credit Loss Exposure of Risk Management Derivative Instruments

As of December 31, 2012

Credit Rating(1)

AA+/AA/

AA- A+/A/ABBB+/BBB/BBB- Subtotal(2)

ExchangeTraded/

Cleared(3) Other(4) Total

(Dollars in millions)

Credit loss exposure(5). . . . . . . . . . . . . . $ — $ 48 $ — $ 48 $ 171 $ 27 $ 246

Less: Collateral held(6). . . . . . . . . . . . . . — 48 — 48 163 — 211

Exposure net of collateral. . . . . . . . . . . . $ — $ — $ — $ — $ 8 $ 27 $ 35

Additional information:

Notional amount. . . . . . . . . . . . . . . . $ 22,703 $ 600,028 $ 40,350 $ 663,081 $ 38,426 $ 447 $ 701,954

Number of counterparties(7). . . . . . . 4 11 1 16

As of December 31, 2011

Credit Rating(1)

AA+/AA/

AA- A+/A/ABBB+/BBB/BBB- Subtotal(2) Other(4) Total

(Dollars in millions)

Credit loss exposure(5). . . . . . . . . . . . . . . . . . . . . . . . $ — $ 885 $ — $ 885 $ 51 $ 936

Less: Collateral held(6). . . . . . . . . . . . . . . . . . . . . . . — 840 — 840 — 840

Exposure net of collateral. . . . . . . . . . . . . . . . . . . . . $ — $ 45 $ — $ 45 $ 51 $ 96

Additional information:

Notional amount . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,294 $ 546,967 $ — $ 610,261 $ 2,929 $ 613,190

Number of counterparties(7). . . . . . . . . . . . . . . . . 6 10 — 16

__________

(1) We manage collateral requirements based on the lower credit rating of the legal entity, as issued by S&P and Moody’s. The credit rating 

reflects the equivalent S&P’s rating for any ratings based on Moody’s scale.

(2) We had credit loss exposure to one counterparty which had a notional balance of $5.9 billion as of December 31, 2012 compared with 

four counterparties which had notional balances of $127.5 billion as of December 31, 2011.

(3) Represents contracts entered through an agent on our behalf with a derivatives clearing organization.

(4) Includes mortgage insurance contracts and swap credit enhancements accounted for as derivatives. 

(5) Represents the exposure to credit loss on derivative instruments, which we estimate using the fair value of all outstanding derivative 

contracts in a gain position. We net derivative gains and losses with the same counterparty where a legal right of offset exists under an 

enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives.

(6) Represents both cash and non-cash collateral posted by our counterparties to us. Does not include collateral held in excess of exposure. 

We reduce the value of non-cash collateral in accordance with the counterparty agreements to help ensure recovery of any loss through 

the disposition of the collateral.

(7) Represents counterparties with which we have an enforceable master netting arrangements.

Derivative transactions with 10 of our counterparties accounted for approximately 90% of our total outstanding notional 

amount as of December 31, 2012, with each of these counterparties accounting for between approximately 6% and 14% of 

the total outstanding notional amount. Derivatives transactions with nine of our counterparties accounted for approximately 

91% of our total outstanding notional amount as of December 31, 2011, with each of these counterparties accounting for 

between approximately 7% and 15% of the total outstanding notional amount. 
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Under the Dodd-Frank Act we will be required in the future to submit certain interest rate swaps for clearing to a derivatives 

clearing organization. In anticipation of those requirements, we have cleared interest rate swap transactions with the Chicago 

Mercantile Exchange, Inc. (“CME”), a derivatives clearing organization. As a result, we are exposed to the institutional credit 

risk of CME and its members that execute and submit our transactions for clearing. Our institutional credit risk exposure to 

the CME or other comparable exchanges or trading facilities, as well as their members, will increase in the future.

See “Note 9, Derivative Instruments” for additional information on our derivative contracts as of December 31, 2012 and 

2011.

Mortgage Originators, Investors and Dealers

We are routinely exposed to pre-settlement risk through the purchase or sale of closed 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 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 and limits on exposure and monitoring both our exposure positions and 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.

Other

We have outstanding claims as a creditor in the bankruptcy case of Lehman Brothers Holdings, Inc. (“Lehman Brothers”), 

which filed for bankruptcy in September 2008. These claims include securities law claims related to Lehman Brothers 

private-label securities and notes and mortgage loan repurchase obligations. The bankruptcy court has set aside a reserve of 

$5.0 billion for these claims, which may not reflect the final allowed amount. We expect to receive only a portion of any 

claim amounts ultimately allowed in the proceedings.

Market Risk Management, Including Interest Rate Risk Management

We are subject to market risk, which includes interest rate risk, spread risk and liquidity risk. These risks arise from our 

mortgage asset investments. Interest rate risk is the risk of loss in value or expected future earnings that may result from 

changes to interest rates. Spread risk or basis risk is the resulting impact of changes in the spread between our mortgage 

assets and our debt and derivatives we use to hedge our position. Liquidity risk is the risk that we will not be able to meet our 

funding obligations in a timely manner.

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 established by our Chief Market Risk Officer and our Chief Risk Officer 

and are subject to review and approval by our Board of Directors. Our Capital Markets Group has primary responsibility for 

executing our interest rate risk management strategy.

We have actively managed the interest rate risk of our “net portfolio,” which is defined below, through the following 

techniques: (1) asset selection and structuring (that is, by identifying or structuring mortgage assets with attractive 

prepayment and other risk characteristics); (2) issuing a broad range of both callable and non-callable debt instruments; and 
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(3) using interest-rate derivatives. We have not actively managed or hedged our spread risk or basis 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 mortgage-to-debt spreads that occur after our purchase of mortgage assets. For more 

information on the impact that changes in spreads have on the value of the fair value of our net assets, see “Supplemental 

Non-GAAP Information—Fair Value Balance Sheets.”

We monitor current market conditions, including the interest rate environment, to assess the impact of these conditions on 

individual positions and our overall interest rate risk profile. In addition to qualitative factors, we use various quantitative risk 

metrics in determining the appropriate composition of our consolidated balance sheet 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 overall interest rate exposure: (1) fair value sensitivity to changes in interest rate 

levels and the slope of the yield curve and (2) duration 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, require 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.

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 existing 

investments in mortgage assets, investments in non-mortgage securities, our outstanding debt used to fund those assets and 

the derivatives used to supplement our debt instruments and manage interest rate risk, and any fixed-price asset, liability or 

derivative commitments.

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 portfolio. In a declining 

interest rate environment, existing mortgage assets held in our 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 then-current 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.

Although the fair value of our guaranty assets and our guaranty obligations is highly sensitive to changes in interest rates and 

the market’s perception of future credit performance, we do not actively manage the change in the fair value of our guaranty 

business that is attributable to changes in interest rates. We do not believe that periodic changes in fair value due to 

movements in interest rates are the best indication of the long-term value of our guaranty business because these changes do 

not take into account future guaranty business activity.

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 

balance sheet. Our strategy consists of the following principal elements:

• Debt Instruments. We 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.

• Derivative Instruments. We supplement our issuance of debt with derivative instruments to further reduce duration 

and prepayment risks.
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• Monitoring and Active Portfolio Rebalancing. We 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 

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 “Liquidity and Capital Management—Liquidity Management—Debt Funding” 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, results of operations and our overall interest rate risk management strategy.

The derivatives we use for interest rate risk management purposes fall into four broad categories:

• Interest rate swap contracts. An 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.

• 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.

• 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 issue foreign currency debt.

• 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. The types of futures 

contracts we enter into include Eurodollar, U.S. Treasury and swaps.

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:

(1) As a substitute for notes and bonds that we issue in the debt markets;

(2) To achieve risk management objectives not obtainable with debt market securities;

(3) To quickly and efficiently rebalance our portfolio; and

(4) 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 consolidated balance sheets and relative mix of our debt 

and derivative positions, the interest rate environment and expected trends.

Measurement of Interest Rate Risk

Below we present two quantitative metrics that provide estimates of our interest rate exposure: (1) fair value sensitivity of net 

portfolio to changes in interest rate levels and slope of yield curve; and (2) duration gap. The metrics presented are calculated 

using internal models that require standard assumptions regarding interest rates and future prepayments of principal over the 

remaining life of our securities. These assumptions are derived based on the characteristics of the underlying structure of the 

securities and historical prepayment rates experienced at specified interest rate levels, taking into account current market 

conditions, the current mortgage rates of our existing outstanding loans, loan age and other factors. On a continuous basis, 
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management makes judgments about the appropriateness of the risk assessments and will make adjustments as necessary to 

properly assess our interest rate exposure and manage our interest rate risk. The methodologies used to calculate risk 

estimates are periodically changed on a prospective basis to reflect improvements in the underlying estimation process.

Interest Rate Sensitivity to Changes in Interest Rate Level and Slope of Yield Curve

As part of our disclosure commitments with FHFA, we disclose on a monthly basis the estimated adverse impact on the fair 

value of our net portfolio that would result from the following hypothetical situations:

• A 50 basis point shift in interest rates.

• A 25 basis point change in the slope of the yield curve.

In measuring the estimated impact of changes in the level of interest rates, we assume a parallel shift in all maturities of the 

U.S. LIBOR interest rate swap curve.

In measuring the estimated impact of changes in the slope of the yield curve, we assume a constant 7-year rate and a shift of 

16.7 basis points for the 1-year rate and 8.3 basis points for the 30-year rate. We believe the aforementioned interest rate 

shocks for our monthly disclosures represent moderate movements in interest rates over a one-month period.

Duration Gap

Duration gap measures the price sensitivity of our assets and liabilities to changes in interest rates by quantifying the 

difference between the estimated durations of our assets and liabilities. Our duration gap analysis reflects the extent to which 

the estimated maturity and repricing cash flows for our assets are matched, on average, over time and across interest rate 

scenarios to the estimated cash flows of our liabilities. A positive duration gap indicates that the duration of our assets 

exceeds the duration of our liabilities. We disclose duration gap on a monthly basis under the caption “Interest Rate Risk 

Disclosures” in our Monthly Summary, which is available on our website and announced in a press release.

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 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 portfolio. Conversely, when interest rates increase, prepayment 

rates generally slow, which extends the duration and average life of our mortgage assets. Our debt and derivative instrument 

positions are used to manage the interest rate sensitivity of our mortgage assets. As a result, the degree to which the interest 

rate sensitivity of our assets is offset will be dependent upon, among other factors, the mix of funding and other derivative 

instruments we use at any given point in time.

The sensitivity measures presented in Table 64, which we disclose on a quarterly basis as part of our disclosure commitments 

with FHFA, are an extension of our monthly sensitivity measures. There are three primary differences between our monthly 

sensitivity disclosure and the quarterly sensitivity disclosure presented below: (1) the quarterly disclosure is expanded to 

include the sensitivity results for larger rate level shocks of plus or minus 100 basis points; (2) the monthly disclosure reflects 

the estimated pre-tax impact on the market value of our net portfolio calculated based on a daily average, while the quarterly 

disclosure reflects the estimated pre-tax impact calculated based on the estimated financial position of our net portfolio and 

the market environment as of the last business day of the quarter; and (3) the monthly disclosure shows the most adverse pretax impact on the market value of our net portfolio from the hypothetical interest rate shocks, while the quarterly disclosure 

includes the estimated pre-tax impact of both up and down interest rate shocks.
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Table 64 displays the pre-tax market value profile of our net portfolio as of December 31, 2012 and 2011. In addition, Table 

64 also provides the average, minimum, maximum and standard deviation for duration gap and for the most adverse market 

value impact on the net portfolio for non-parallel and parallel interest rate shocks for the three months ended December 31, 

2012 and 2011. The effective duration gap was (0.1) months for the last three months of 2012 which was the same average 

duration for the last three months of 2011.

Table 64: Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve(1)

As of December 31,

2012 2011

(Dollars in billions)

Rate level shock:

-100 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.8 $ 0.3

-50 basis points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.1

+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 (0.1)

+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (0.4)

Rate slope shock:

-25 basis points (flattening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

+25 basis points (steepening) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.1

For the Three Months Ended December 31, 2012

Duration 

Gap

Rate Slope Shock 

25 bps

Rate Level Shock 

50 bps

Exposure

(In months) (Dollars in billions)

Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) $ — $ 0.1

Minimum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8) — —

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 — 0.2

Standard deviation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 — 0.1

For the Three Months Ended December 31, 2011

Duration 

Gap

Rate Slope Shock 

25 bps

Rate Level Shock 

50 bps

Exposure

(In months) (Dollars in billions)

Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) $ — $ (0.1)

Minimum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) — (0.2)

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 — —

Standard deviation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 — 0.1

__________

(1) Computed based on changes in LIBOR swap rates.

A majority of the interest rate risk associated with our mortgage-related securities and loans is hedged with our debt 

issuances, which includes callable debt. We use derivatives to help manage the residual interest rate risk exposure between 

our assets and liabilities. Derivatives have enabled us to keep our interest rate risk exposure at consistently low levels in a 

wide range of interest-rate environments. Table 65 displays an example of how derivatives impacted the net market value 

exposure for a 50 basis point parallel interest rate shock.
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From December 31, 2012 to December 31, 2011, as displayed below in Table 65, debt issuance hedged a majority of the 

interest rate risk associated with our mortgage-related securities and loans. As displayed in Table 64, derivatives were also 

used to maintain a low interest rate risk exposure as the average duration gap was (0.1) months.

Table 65: Derivative Impact on Interest Rate Risk (50 Basis Points)

As of December 31,

2012 2011

(Dollars in billions)

Before Derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.5) $ (1.3)

After Derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 (0.1)

Effect of Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 1.2

Other Interest Rate Risk Information

The interest rate risk measures discussed above exclude the impact of changes in the fair value of our net guaranty assets 

resulting from changes in interest rates. We exclude our guaranty business from these sensitivity measures based on our 

current assumption that the guaranty fee income generated from future business activity will largely replace guaranty fee 

income lost due to mortgage prepayments.

We provide additional interest rate sensitivities below in Table 66, including separate disclosure of the potential impact on the 

fair value of our trading assets and our other financial instruments for the periods indicated, from the same hypothetical 

changes in the level of interest rates as displayed above in Table 64. In contrast to sensitivities disclosed in Table 64, these 

estimates exclude the interest rate sensitivities of derivatives and related debt funding. We also assume a parallel shift in all 

maturities along the interest rate swap curve in calculating these sensitivities. We believe these interest rate changes represent 

reasonably possible near-term changes in interest rates over the next twelve months.

Table 66: Interest Rate Sensitivity of Financial Instruments

As of December 31, 2012

Pre-Tax Effect on Estimated Fair Value

Change in Interest Rates (in basis points)

Estimated

Fair Value -100 -50 +50 +100

(Dollars in billions)

Trading financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.7 $ 0.7 $ 0.3 $ (0.3) $ (0.7)

Other financial instruments, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (121.9) (3.9) (3.8) (2.7) (2.4)

As of December 31, 2011

Pre-Tax Effect on Estimated Fair Value

Change in Interest Rates (in basis points)

Estimated

Fair Value -100 -50 +50 +100

(Dollars in billions)

Trading financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74.2 $ 0.9 $ 0.4 $ (0.4) $ (0.9)

Other financial instruments, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (221.1) 17.1 8.4 (6.6) (12.1)

__________

(1) Includes all financial assets less all Trading securities less all financial liabilities reported in “Note 17, Fair Value—Fair Value of 

Financial Instruments.”

Liquidity Risk Management

See “Liquidity and Capital Management—Liquidity Management” for a discussion on how we manage liquidity risk.

Operational Risk Management

Operational risk is the risk resulting from a failure in our operational systems or infrastructure, or those of third parties, that 

could materially adversely affect our business, impair our liquidity, cause financial losses and harm our reputation. 

Operational risk is an unavoidable result of being in business, and managing it is a central part of our business activities. We 
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continue to enhance our risk-conscious culture, in which all employees are expected to identify, discuss, manage and 

remediate potential and actual operational risk.

Our corporate operational risk framework is based on the OFHEO/FHFA Enterprise Guidance on Operational Risk 

Management, published September 23, 2008. We have made a number of enhancements to our operational risk management 

efforts including our business process focus, policies and framework. Our framework is intended to provide a methodology to 

identify, assess, mitigate, control and monitor operational risks by embedding the concepts of operational risk in the day-today activities of individuals across the company. Included in this framework is a requirement for a system to track and report 

operational risk incidents. The framework also includes a methodology for business owners to conduct risk and control self 

assessments to self identify potential operational risks and points of execution failure, the effectiveness of associated controls, 

and document corrective action plans to close identified deficiencies. The success of our operational risk effort will depend 

on the consistent execution of the operational risk programs and the timely remediation of high operational risk issues. To 

quantify our operational risk exposure, we rely on the Basel Standardized approach, which is based on a percentage of gross 

income.

While each business unit is responsible for managing its operational risk, our Operational Risk Management group provides 

the business units and process owners with the tools, techniques, expertise and guiding principles to assist them in prudent 

management of their operational risk exposure. Operational risk lead teams, comprised of centralized resources within our 

Enterprise Risk Management division, are aligned with each of our primary business units as well as with our corporate 

functions such as finance and legal. Each risk lead reports to the Vice President and Chief Risk Officer of Operational Risk, 

who reports directly to the Executive Vice President and Chief Risk Officer. The Operational Risk Committee provides an 

additional governance forum for managing operational risk.

See “Risk Factors” for more information regarding our operational risk and “Risk Management” for more information 

regarding our governance of operational risk.

Management of Business Resiliency

Our business resiliency program is designed to provide reasonable assurance for continuity of critical business operations in 

the event of disruptions caused by the loss of facilities, technology or personnel. Despite the planning, testing and continuous 

preparation of back up venues that we engage in, a catastrophic event may still result in a significant business disruption.

Non-Mortgage Related Fraud Risk

Our anti-fraud program provides a framework for managing non-mortgage related fraud risk. The program is designed to 

provide reasonable assurance for the prevention and detection of non-mortgage related fraudulent activity. However, because 

fraudulent activity requires the intentional circumvention of the internal control structure, the efforts of the program may not 

always prevent, or immediately detect, instances of such activity.

See “Risk Factors” for a discussion on our operational risk.

IMPACT OF FUTURE ADOPTION OF NEW ACCOUNTING GUIDANCE

We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting guidance 

in “Note 1, Summary of Significant Accounting Policies.”

GLOSSARY OF TERMS USED IN THIS REPORT

Terms used in this report have the following meanings, unless the context indicates otherwise. 

An “Acquired credit-impaired loan” refers to a loan we have acquired for 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. We record 

our net investment in such loans at the lower of the acquisition cost of the loan or the estimated fair value of the loan at the 

date of acquisition. Typically, loans we acquire from our unconsolidated MBS trusts pursuant to our option to purchase upon 

default meet these criteria. Because we acquire these loans from our MBS trusts 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 related fair value 

loss as a charge against the “Reserve for guaranty losses.”

“Alt-A mortgage loan” or “Alt-A loan” generally refers to a mortgage loan originated under a lender’s 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. 
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We classify certain loans as Alt-A so that we can discuss our exposure to Alt-A loans in this Form 10-K 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 to Alt-A mortgage loans that 

we have not classified as Alt-A 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 “Note 3, Mortgage Loans” and “Note 6, Financial Guarantees.” We have classified private-label 

mortgage-related securities held in our investment portfolio as Alt-A if the securities were labeled as such when issued. 

“Business volume” or “new business acquisitions” refers to the sum in any given period of the unpaid principal balance of: 

(1) the mortgage loans and mortgage-related securities we purchase for our investment portfolio; (2) the mortgage loans we 

securitize into Fannie Mae MBS that are acquired by third parties; and (3) credit 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 

investment portfolio. 

“Buy-ups” refer to upfront payments we make to lenders to adjust the monthly contractual guaranty fee rate on a Fannie Mae 

MBS so that the pass-through coupon rate on the MBS is in a more easily tradable increment of a whole or half percent. 

“Buy-downs” refer to upfront payments we receive from lenders to adjust the monthly contractual guaranty fee rate on a 

Fannie Mae MBS so that the pass-through coupon rate on the MBS is in a more easily tradable increment of a whole or half 

percent. 

“Charge-off” refers to loan amounts written off as uncollectible bad debts. These 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. 

“Conventional mortgage” refers to a mortgage loan that is not guaranteed or insured by the U.S. government or its agencies, 

such as the VA, the FHA or the Rural Development Housing and Community Facilities Program of the Department of 

Agriculture. 

“Credit enhancement” refers to an agreement used to reduce credit risk by requiring collateral, letters of credit, mortgage 

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

some degree in the event of a financial loss. 

“Duration” refers to the sensitivity of the value of a security to changes in interest rates. The duration of a financial 

instrument is the expected percentage change in its value in the event of a change in interest rates of 100 basis points. 

“Guaranty book of business” refers to the sum of the unpaid principal balance of: (1) mortgage loans held in our mortgage 

portfolio; (2) Fannie Mae MBS held in our mortgage portfolio; (3) Fannie Mae MBS held by third parties; and (4) other 

credit enhancements that we provide on mortgage assets. It excludes non-Fannie Mae mortgage-related securities held in our 

investment portfolio for which we do not provide a guaranty. 

“HomeSaver Advance loan” refers to a 15-year unsecured personal loan in an amount equal to all past due payments relating 

to a borrower’s first-lien mortgage loan, generally up to the lesser of $15,000 or 15% of the unpaid principal balance of the 

delinquent first-lien loan. The advance is used to bring the first-lien mortgage loan current. This workout option was retired 

in 2010. 

“Implied volatility” refers to the market’s expectation of the magnitude of future changes in interest rates. 

“Interest rate swap” refers to a transaction between two parties in which each agrees to exchange payments tied to different 

interest rates or indices for a specified period of time, generally based on a notional principal amount. An interest rate swap is 

a type of derivative. 

“LIHTC partnerships” refer to low-income housing tax credit limited partnerships or limited liability companies. 

“Loans,” “mortgage loans” and “mortgages” refer to both whole loans and loan participations, secured by residential real 

estate, cooperative shares or by manufactured housing units. 

“Mortgage assets,” when referring to our assets, refers to both mortgage loans and mortgage-related securities we hold in our 

investment portfolio. For purposes of the senior preferred stock purchase agreement, the definition of mortgage assets is 

based on the unpaid principal balance of such assets and does not reflect market valuation adjustments, allowance for loan 

losses, impairments, unamortized premiums and discounts and the impact of our consolidation of variable interest entities. 

We disclose the amount of our mortgage assets for purposes of the senior preferred stock purchase agreement on a monthly 

basis under the caption “Gross Mortgage Portfolio” in our Monthly Summaries, which are available on our Web site and 

announced in a press release.
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“Mortgage credit book of business” refers to the sum of the unpaid principal balance of: (1) mortgage loans held in our 

mortgage portfolio; (2) Fannie Mae MBS held in our mortgage portfolio; (3) non-Fannie Mae mortgage-related securities 

held in our investment portfolio; (4) Fannie Mae MBS held by third parties; and (5) other credit enhancements that we 

provide on mortgage assets. 

“Multifamily mortgage loan” refers to a mortgage loan secured by a property containing five or more residential dwelling 

units. 

“Notional amount” 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 and is typically significantly greater than the potential market or credit loss that could result from such 

transaction. 

“Option-adjusted spread” or “OAS” refers to the incremental expected return between a security, loan or derivative contract 

and a benchmark yield curve (typically, U.S. Treasury securities, LIBOR and swaps, or agency debt securities). The OAS 

provides explicit consideration of the variability in the security’s cash flows across multiple interest rate scenarios resulting 

from any options embedded in the security, such as prepayment options. For example, the OAS of a mortgage that can be 

prepaid by the homeowner without penalty is typically lower than a nominal yield spread to the same benchmark because the 

OAS reflects the exercise of the prepayment option by the homeowner, which lowers the expected return of the mortgage 

investor. In other words, OAS for mortgage loans is a risk-adjusted spread after consideration of the prepayment risk in 

mortgage loans. The market convention for mortgages is typically to quote their OAS to swaps. The OAS of our debt and 

derivative instruments are also frequently quoted to swaps. The OAS of our net mortgage assets is therefore the combination 

of these two spreads to swaps and is the option-adjusted spread between our assets and our funding and hedging instruments. 

“Outstanding Fannie Mae MBS” refers to the total unpaid principal balance of Fannie Mae MBS that is held by third-party 

investors and held in our mortgage portfolio. 

“Pay-fixed swap” refers to an agreement under which we pay a predetermined fixed rate of interest based upon a set notional 

principal amount and receive a variable interest payment based upon a stated index, with the index resetting at regular 

intervals over a specified period of time. These contracts generally increase in value as interest rates rise and decrease in 

value as interest rates fall. 

“Private-label securities” refers to mortgage-related securities issued by entities other than agency issuers Fannie Mae, 

Freddie Mac or Ginnie Mae. 

“Receive-fixed swap” refers to an agreement under which we make a variable interest payment based upon a stated index, 

with the index resetting at regular intervals, and receive a predetermined fixed rate of interest based upon a set notional 

amount and over a specified period of time. These contracts generally increase in value as interest rates fall and decrease in 

value as interest rates rise. 

“REMIC” or “Real Estate Mortgage Investment Conduit” 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. 

“REO” 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. 

“Severity rate” or “loss severity rate” refers to a measure of the amounts that will not be recovered in the event a loan 

defaults. Severity rates generally reflect charge-offs as a percentage of unpaid principal balance. Additional items may be 

taken into account in calculating severity rates. For example, the numerator may reflect items such as foreclosed property 

expenses, taxes and insurance, and expected recoveries from pool insurance, while the denominator may reflect items such as 

purchased interest, basis, and selling costs. 

“Single-class Fannie Mae MBS” refers to Fannie Mae MBS where the investors receive principal and interest payments in 

proportion to their percentage ownership of the MBS issue. 

“Single-family mortgage loan” refers to a mortgage loan secured by a property containing four or fewer residential dwelling 

units. 

“Small balance loans” refers to multifamily loans with an original unpaid balance of up to $3 million nationwide or up to $5 

million in high cost markets. 

“Subprime mortgage loan” generally refers to a mortgage loan made to a borrower with a weaker credit profile than that of a 

prime borrower. As a result of the weaker credit profile, subprime borrowers have a higher likelihood of default than prime 

borrowers. Subprime mortgage loans were typically originated by lenders specializing in this type of business or by subprime 

divisions of large lenders, using processes unique to subprime loans. We classify certain loans as subprime so that we can 

discuss our exposure to subprime loans in this Form 10-K and elsewhere. However, there is no universally accepted 
163

definition of subprime loans. In reporting our subprime exposure, we have classified mortgage loans as subprime if and only 

if the loans were originated by a lender specializing in subprime business or by a subprime division of a large lender; 

however, we exclude loans originated by these lenders from the subprime classification if we acquired the loans in 

accordance with our standard underwriting criteria, which typically require compliance by the seller with our Selling Guide 

(including standard representations and warranties) and/or evaluation of the loans through our Desktop Underwriter system. 

We have loans with some features that are similar to subprime mortgage loans that we have not classified as subprime 

because they do not meet our classification criteria. We do not rely solely on our classifications of loans as subprime to 

evaluate the credit risk exposure relating to these loans in our single-family conventional guaranty book of business. For 

more information about the credit risk characteristics of loans in our single-family guaranty book of business, see “Note 3, 

Mortgage Loans” and “Note 6, Financial Guarantees.” We have classified private-label mortgage-related securities held in 

our investment portfolio as subprime if the securities were labeled as such when issued. 

“Structured Fannie Mae MBS” refers to Fannie Mae MBS that are resecuritizations of other Fannie Mae MBS. 

“Swaptions” refers to options on interest rate swaps in the form of contracts granting an option to one party and creating a 

corresponding commitment from the counterparty to enter into specified interest rate swaps in the future. Swaptions are 

traded in the over-the-counter market and not through an exchange. 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, Including Interest 

Rate Risk Management.”

Item 8. Financial Statements and Supplementary Data 

Our consolidated financial statements and notes thereto are included elsewhere in this annual report on Form 10-K as 

described below in “Exhibits and Financial Statement Schedules.” 

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

None. 

Item 9A. Controls and Procedures

OVERVIEW

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls 

and procedures as well as internal control over financial reporting, as further described below.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that 

information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, 

summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and 

procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information 

required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated 

to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions 

regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management 

recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable 

assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and 

implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief 

Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as in effect as of 

December 31, 2012, the end of the period covered by this report. As a result of management’s evaluation, our Chief 

Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a 

reasonable assurance level as of December 31, 2012 or as of the date of filing this report.
164

Our disclosure controls and procedures were not effective as of December 31, 2012 or as of the date of filing this report 

because they did not adequately ensure the accumulation and communication to management of information known to FHFA

that is needed to meet our disclosure obligations under the federal securities laws. As a result, we were not able to rely upon 

the disclosure controls and procedures that were in place as of December 31, 2012 or as of the date of this filing, and we 

continue to have a material weakness in our internal control over financial reporting. This material weakness is described in 

more detail below under “Description of Material Weakness.” Based on discussions with FHFA and the structural nature of 

this material weakness, it is likely that we will not remediate this material weakness while we are under conservatorship.

MANAGEMENT’S 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: 

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and 

dispositions of our assets; 

• 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; and 

• 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, 2012. In 

making its assessment, management used the criteria established in Internal Control-Integrated Framework issued by the 

Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment of our internal 

control over financial reporting as of December 31, 2012 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, 2012 or as of the date of filing this report. 

Our independent registered public accounting firm, Deloitte & 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, 2012. This report is included below. 

Description of Material Weakness

The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as a deficiency or a 

combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a 

material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely 

basis.

Management has determined that we continued to have the following material weakness as of December 31, 2012 and as of 

the date of filing this report:

• Disclosure Controls and Procedures. We have been under the conservatorship of FHFA since September 6, 2008. 

Under the Regulatory Reform Act, FHFA is an independent agency that currently functions as both our conservator 

and our regulator with respect to our safety, soundness and mission. Because of the nature of the conservatorship 

under the Regulatory Reform Act, which places us under the “control” of FHFA (as that term is defined by securities 
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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 Regulatory Reform Act, FHFA is limited in its ability to design and implement a complete set of 

disclosure controls and procedures relating to Fannie Mae, particularly with respect to current reporting pursuant to 

Form 8-K. Similarly, as a regulated entity, we are limited in our ability to design, implement, operate and test the 

controls and procedures for which FHFA is responsible.

Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner that 

adequately ensures the accumulation and communication to management of information known to FHFA that is 

needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our 

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, 2012 or as of the date of filing this 

report. Based on discussions with FHFA and the structural nature of this weakness, it is likely that we will not 

remediate this material weakness while we are under conservatorship.

MITIGATING ACTIONS RELATING TO MATERIAL WEAKNESS

Disclosure Controls and Procedures

As described above under “Description of Material Weakness,” we continue to have a material weakness in our internal 

control over financial reporting relating to our disclosure controls and procedures. However, we and FHFA have engaged in 

the following practices intended to permit accumulation and communication to management of information needed to meet 

our disclosure obligations under the federal securities laws:

• FHFA has established the Office of Conservatorship Operations, which is intended to facilitate operation of the 

company with the oversight of the conservator.

• We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also 

have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and 

comment prior to release.

• FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this annual 

report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”), and engaged in discussions 

regarding issues associated with the information contained in those filings. Prior to filing our 2012 Form 10-K, 

FHFA provided Fannie Mae management with a written acknowledgment that it had reviewed the 2012 Form 10-K, 

and it was not aware of any material misstatements or omissions in the 2012 Form 10-K and had no objection to our 

filing the 2012 Form 10-K.

• The Acting Director of FHFA and our Chief Executive Officer have been in frequent communication, typically 

meeting on at least a bi-weekly basis.

• FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of 

information and to provide oversight on a variety of matters, including accounting, credit and market risk 

management, external communications and legal matters.

• Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance 

executives regarding our accounting policies, practices and procedures.

In view of these activities, we believe that our consolidated financial statements for the year ended December 31, 2012 have 

been prepared in conformity with GAAP. 
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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 a change in our 

internal control over financial reporting since September 30, 2012 that management believes has materially affected, or is 

reasonably likely to materially affect, our internal control over financial reporting.

Change in Management

Effective April 3, 2013, David C. Benson, who currently serves as Fannie Mae’s Executive Vice President—Capital Markets, 

Securitization & Corporate Strategy, will become Fannie Mae’s Executive Vice President and Chief Financial Officer, 

succeeding Susan R. McFarland, who will resign as Fannie Mae’s Executive Vice President and Chief Financial Officer and 

will become a senior adviser for a transition period that will end no later than June 30, 2013.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Fannie Mae:

We have audited the internal control over financial reporting of Fannie Mae and consolidated entities (in conservatorship) 

(the “Company”) as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued 

by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s 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 Management’s Report on Internal Control over Financial Reporting. 

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United 

States). 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 that 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.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s 

principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s 

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 generally accepted accounting 

principles. A company’s 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 

company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or 

improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on 

a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future 

periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of 

compliance with the policies or procedures may deteriorate.

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 company’s annual or interim financial statements will not 

be prevented or detected on a timely basis. The following material weakness has been identified and included in 

management’s assessment:

• Disclosure Controls and Procedures—The Company’s disclosure controls and procedures did not adequately ensure 

the accumulation and communication to management of information known to the Federal Housing Finance Agency 

that is needed to meet its 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, 2012, of the Company and this report does not 

affect our report on such financial statements.

In our opinion, because of the effect of the material weakness identified above 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, 2012, 

based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring 

Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), 

the consolidated financial statements as of and for the year ended December 31, 2012, of the Company and our report dated 

April 2, 2013, expressed an unqualified opinion on those financial statements and included an explanatory paragraph 

regarding the Company’s dependence upon the continued support from various agencies of the United States Government, 
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including the United States Department of Treasury and the Company’s conservator and regulator, the Federal Housing 

Finance Agency.

/s/ Deloitte & Touche LLP

Washington, DC

April 2, 2013
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Item 9B. Other Information

2013 Compensation Changes

On March 27, 2013, FHFA approved compensation changes for David C. Benson and Susan R. McFarland, two of our named 

executive officers. See “Executive Compensation—Compensation Discussion and Analysis—2013 Compensation Changes—

CFO Compensation Changes,” which is incorporated herein by reference, for a description of these changes.

On March 27, 2013, FHFA also directed us to revise the forfeiture provisions applicable to the named executives’ earned but 

unpaid fixed deferred salary for 2013 and subsequent performance years. See “Executive Compensation—Compensation 

Discussion and Analysis—2013 Compensation Changes—Change to Fixed Deferred Salary Forfeiture Provisions,” which is 

incorporated herein by reference, for a description of this revision.

On March 28, 2013, our Board of Directors adopted additional performance goals for 2013. See “Executive Compensation—

Compensation Discussion and Analysis—2013 Compensation Changes—2013 Performance Goals,” which is incorporated 

herein by reference, for a description of these performance goals.

PART III

Item 10. Directors, 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. Upon FHFA’s appointment as our conservator on September 6, 2008, FHFA succeeded 

to all rights, titles, powers and privileges of any director of Fannie Mae with respect to Fannie Mae and its assets. More 

information about FHFA’s September 6, 2008 appointment as our conservator and its subsequent reconstitution of our Board 

and direction regarding the Board’s function and authorities can be found below in “Corporate Governance—Conservatorship 

and Delegation of Authority to Board of Directors.”

As discussed in more detail below under “Corporate Governance—Composition of Board of Directors,” FHFA, as 

conservator, appointed an initial group of directors to our Board following our entry into conservatorship, delegated to the 

Board the authority to appoint directors to subsequent vacancies subject to conservator review, and defined the term of 

service of directors during conservatorship. The Nominating & Corporate Governance Committee evaluates the qualifications 

of individual directors on an annual basis. In its assessment of current directors and evaluation of potential candidates for 

director, the Nominating & Corporate Governance Committee considers, among other things, whether the Board as a whole 

possesses meaningful experience, qualifications and skills in the following subject areas: business; finance; capital markets; 

accounting; risk management; public policy; mortgage lending, real estate, low-income housing and/or homebuilding; and the 

regulation of financial institutions. See “Corporate Governance—Composition of Board of Directors” below for further 

information on the factors the Nominating & Corporate Governance Committee considers in evaluating and selecting board 

members. 

William Thomas Forrester, 64, served as Chief Financial Officer of The Progressive Corporation from 1999 until his 

retirement in March 2007, and served in a variety of senior financial and operating positions with Progressive prior to that 

time. Prior to joining The Progressive Corporation in 1984, Mr. Forrester was with Price Waterhouse LLP, a major public 

accounting firm, from 1976 to 1984. Mr. Forrester is currently a member of the Board of Directors of Alterra Capital 

Holdings Limited, where he serves on the Audit and Risk Management Committee and the Underwriting Committee. He 

previously was a member of the Board of Directors of The Navigators Group, Inc. from December 2006 to May 2012, where 

he served as Chairman of the Audit Committee and also as a member of the Finance and Compensation Committees. 

Mr. Forrester has been a Fannie Mae director since December 2008. Mr. Forrester serves as Chair of the Audit Committee 

and is also a member of the Nominating & Corporate Governance Committee, the Strategic Initiatives Committee and the 

Executive Committee. 

The Nominating & Corporate Governance Committee concluded that Mr. Forrester should continue to serve as a director due 

to his extensive experience in business, finance, accounting and risk management, which he gained in the positions described 

above. 

Brenda J. Gaines, 63, served as President and Chief Executive Officer of Diners Club North America, a subsidiary of 

Citigroup, from October 2002 until her retirement in April 2004. She served as President, Diners Club North America, from 

February 1999 to September 2002. From 1988 until her appointment as President, she held various positions within Diners 

Club North America, Citigroup and Citigroup’s predecessor corporations. She also served as Deputy Chief of Staff for the 
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Mayor of the City of Chicago from 1985 to 1987 and as Chicago Commissioner of Housing from 1983 to 1985. Ms. Gaines 

also has over 12 years of experience with the Department of Housing and Urban Development, including serving as Deputy 

Regional Administrator from 1980 to 1981. Ms. Gaines is currently a member of the Board of Directors of Office Depot, Inc., 

where she serves as a member of both the Audit Committee and the Corporate Governance and Nominating Committee. 

Ms. Gaines is also a member of the Board of Directors of AGL Resources Inc., where she serves as a member of both the 

Audit Committee and the Nominating, Governance and Corporate Responsibility Committee, and Tenet Healthcare 

Corporation, where she serves as a member of both the Compensation Committee and the Quality, Compliance & Ethics 

Committee. She previously was a member of the Board of Directors of NICOR, Inc. from April 2006 to December 2011, 

where she served on the Corporate Governance Committee. Ms. Gaines initially became a Fannie Mae director in September 

2006, before we were put into conservatorship, and FHFA appointed Ms. Gaines to Fannie Mae’s Board in December 2008. 

Ms. Gaines serves as Chair of the Compensation Committee and is also a member of the Audit Committee and the Executive 

Committee. 

The Nominating & Corporate Governance Committee concluded that Ms. Gaines should continue to serve as a director due 

to her extensive experience in business, finance, accounting, risk management, public policy matters, mortgage lending, lowincome housing, and the regulation of financial institutions, which she gained in the positions described above.

Charlynn Goins, 70, served as Chairperson of the Board of Directors of New York City Health and Hospitals Corporation 

from June 2004 to October 2008. She also served on the Board of Trustees of The Mainstay Funds, New York Life Insurance 

Company’s retail family of funds, from June 2001 through July 2006 and on the Board of Directors of The Community’s 

Bank from February 2001 through June 2004. Ms. Goins also was a Senior Vice President of Prudential Financial, Inc. 

(formerly, Prudential Securities, Inc.) from 1990 to 1997. Ms. Goins serves as the Chairperson of the New York Community 

Trust. She also previously served as a director of AXA Financial Inc. from September 2006 to December 2012, where she 

served as a member of the Organization and Compensation Committee. Ms. Goins is an attorney. Ms. Goins has been a 

Fannie Mae director since December 2008. Ms. Goins serves as Chair of the Nominating & Corporate Governance 

Committee and is also a member of the Executive Committee. 

The Nominating & Corporate Governance Committee concluded that Ms. Goins should continue to serve as a director due to 

her extensive experience in business, finance, public policy matters, and the regulation of financial institutions, which she 

gained in the positions described above. 

Frederick B. “Bart” Harvey III, 64, retired in March 2008 from his role as chairman of the Board of Trustees of Enterprise 

Community Partners and Enterprise Community Investment, providers of development capital and technical expertise to 

create affordable housing and rebuild communities. Enterprise is a national non-profit that raises funds from the private 

sector to finance homes primarily for low and very low income people. Enterprise has also pioneered “green” affordable 

housing with its EnterpriseGreen Communities initiative. Mr. Harvey was Enterprise’s chief executive officer from 1993 to 

2007. He joined Enterprise in 1984, and a year later became vice chairman. Before joining Enterprise, Mr. Harvey served for 

10 years in various domestic and international positions with Dean Witter Reynolds (now Morgan Stanley), leaving as 

Managing Director of Corporate Finance. Mr. Harvey was a member of the Board of Directors of the Federal Home Loan 

Bank of Atlanta from 1996 to 1999, a director of the National Housing Trust from 1990 to 2008, and also served as an 

executive committee member of the National Housing Conference from 1999 to 2008. Mr. Harvey initially became a Fannie 

Mae director in August 2008, before we were put into conservatorship, and FHFA appointed Mr. Harvey to Fannie Mae’s 

Board in December 2008. Mr. Harvey serves as a member of the Nominating & Corporate Governance Committee, the Risk 

Policy & Capital Committee, and the Strategic Initiatives Committee. 

The Nominating & Corporate Governance Committee concluded that Mr. Harvey should continue to serve as a director due 

to his extensive experience in business, finance, capital markets, risk management, public policy matters, mortgage lending, 

low-income housing and homebuilding, which he gained in the positions described above. 

Robert H. Herz, 59, serves as President of Robert H. Herz LLC, providing consulting services on financial reporting and 

other matters. He also serves as a senior advisor to and as a member of the Advisory Board of WebFilings LLC, a provider of 

financial reporting software. From July 2002 to September 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 

January 2001 to June 2002. He was a partner in PricewaterhouseCoopers LLP from 1985 until his retirement in 2002. He 

serves on the Accounting Standards Oversight Council of Canada, as a member of the Standing Advisory Group of the Public 

Company Accounting Oversight Board, as a member of the Advisory Council of the Sustainability Accounting Standards 

Board, on the Leadership Board of the Manchester Business School in England, on the Advisory Council of 

AccountAbility.org, as Trustee of the Kessler Foundation, 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 a member of the Audit 

Committee. Mr. Herz has been a Fannie Mae director since June 2011. Mr. Herz serves as a member of the Audit Committee, 

the Nominating & Corporate Governance Committee, and the Strategic Initiatives Committee. 
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The Nominating & Corporate Governance Committee concluded that Mr. Herz should continue to serve as a director due to 

his extensive experience in accounting, business, finance, capital markets, risk management and the regulation of financial 

institutions, which he gained in the positions described above. 

Philip A. Laskawy, 72, retired from Ernst & Young in September 2001, after having held several positions during his 

employment there from 1961 to 2001, including serving as Chairman and Chief Executive Officer from 1994 until his 

retirement in September 2001. Mr. Laskawy currently serves on the Boards of Directors of General Motors Company, Henry 

Schein, Inc., Lazard Ltd. and Loews Corporation. He serves as a member of the Finance Committee at General Motors 

Company. At Henry Schein, Inc., he serves as Lead Director, Chair of the Nominating and Governance Committee, a member 

of the Audit Committee and a member of the Strategic Advisory Committee. He is Chair of the Compensation Committee and 

a member of the Audit Committee at Lazard Ltd. At Loews Corporation, he is a member of the Audit Committee. 

Mr. Laskawy previously was a member of the Board of Directors of Discover Financial Services from June 2007 through 

September 2008. Mr. Laskawy initially became a director and Chairman of Fannie Mae’s Board in September 2008. 

Mr. Laskawy is Chair of the Executive Committee and a member of the Strategic Initiatives Committee. 

The Nominating & Corporate Governance Committee concluded that Mr. Laskawy should continue to serve as a director due 

to his extensive experience in business, finance, accounting and risk management, which he gained in the positions described 

above.

Timothy J. Mayopoulos, 54, has been President and Chief Executive Officer of Fannie Mae since June 2012. He previously 

served as Fannie Mae’s Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary 

from September 2010 to June 2012, and as Fannie Mae’s Executive Vice President, General Counsel and Corporate Secretary 

from April 2009 to September 2010. Before joining Fannie Mae, Mr. Mayopoulos was Executive Vice President and General 

Counsel of Bank of America Corporation from 2004 to 2008. He was Managing Director and General Counsel, Americas of 

Deutsche Bank AG’s Corporate and Investment Bank from 2002 to 2004. He was Managing Director and Senior Deputy 

General Counsel, Americas of Credit Suisse First Boston from 2000 to 2001, and Managing Director and Associate General 

Counsel of Donaldson, Lufkin & Jenrette, Inc. from 1996 to 2000. Mr. Mayopoulos was previously in private law practice at 

Davis Polk & Wardwell and served in the Office of the Independent Counsel during the Whitewater investigation. 

Mr. Mayopoulos has been a Fannie Mae director since June 2012. He is a member of the Executive Committee.

Mr. Mayopoulos serves as a member of our Board of Directors pursuant to an FHFA order that specifies that our Chief 

Executive Officer will serve as a member of the Board. In addition, the Nominating & Corporate Governance Committee 

concluded that Mr. Mayopoulos should serve as a director due to his extensive experience in business, risk management, 

public policy, mortgage lending, and the regulation of financial institutions, which he gained in the positions described above. 

Egbert L. J. Perry, 57, is the Chairman and Chief Executive Officer of The Integral Group LLC. Founded in 1993 by 

Mr. Perry, Integral is a real estate advisory, investment management and development company based in Atlanta. Mr. Perry 

has over 29 years experience as a real estate professional, including work in urban development, developing and investing in 

mixed-income, mixed-use communities, affordable/work force housing and commercial real estate projects in markets across 

the country. Mr. Perry currently serves as Chair of the Board of Directors of Atlanta Life Financial Group, where he serves as 

a member of the Audit Committee, as Chair of the Advisory Board of the Penn Institute for Urban Research and as a trustee 

of the University of Pennsylvania. Mr. Perry served from 2002 through 2008 as a director of the Federal Reserve Bank of 

Atlanta. Mr. Perry has been a Fannie Mae director since December 2008. Mr. Perry is a member of the Compensation 

Committee, the Risk Policy & Capital Committee, and the Strategic Initiatives Committee. 

The Nominating & Corporate Governance Committee concluded that Mr. Perry should continue to serve as a director due to 

his extensive experience in business, finance, accounting, risk management, mortgage lending, real estate, low-income 

housing and homebuilding, which he gained in the positions described above. 

Jonathan Plutzik, 58, has served as Chairman of Betsy Ross Investors, LLC since August 2005. He also has served as 

President of the Jonathan Plutzik and Lesley Goldwasser Family Foundation Inc. since January 2003. Mr. Plutzik served as 

Non-Executive Chairman of the Board of Directors at Firaxis Games from June 2002 to December 2005. Before that, he 

served from 1978 to June 2002 in various positions with Credit Suisse First Boston, retiring in June 2002 from his role as 

Vice Chairman. Mr. Plutzik has been a Fannie Mae director since November 2009. Mr. Plutzik is Chair of the Strategic 

Initiatives Committee and is a member of the Compensation Committee, the Executive Committee and the Risk Policy & 

Capital Committee. 

The Nominating & Corporate Governance Committee concluded that Mr. Plutzik should continue to serve as a director due to 

his extensive experience in business, finance, capital markets, risk management and the regulation of financial institutions, 

which he gained in the positions described above. 
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David H. Sidwell, 60, served as Executive Vice President and Chief Financial Officer of Morgan Stanley from March 2004 to 

October 2007, when he retired. From 1984 to March 2004, Mr. Sidwell worked for JPMorgan Chase & Co. in a variety of 

financial and operating positions, most recently as Chief Financial Officer of JPMorgan Chase’s investment bank from 

January 2000 to March 2004. Prior to joining JP Morgan in 1984, Mr. Sidwell was with Price Waterhouse LLP, a major 

public accounting firm, from 1975 to 1984. Mr. Sidwell is currently a member of the Board of Directors and Senior 

Independent Director of UBS AG, where he serves as Chair of the Risk Committee and a member of the Governance & 

Nominating Committee. He previously was a member of the Board of Directors of MSCI Inc. from November 2007 through 

September 2008, where he served as Chair of the Audit Committee and a member of the Nominating and Corporate 

Governance Committee. Mr. Sidwell served as a Trustee of the International Accounting Standards Committee Foundation 

from January 2007 until his term ended in December 2012. Mr. Sidwell has been a Fannie Mae director since December 

2008. Mr. Sidwell is Chair of the Risk Policy & Capital Committee and a member of the Compensation Committee and the 

Executive Committee.

The Nominating & Corporate Governance Committee concluded that Mr. Sidwell should continue to serve as a director due 

to his extensive experience in business, finance, capital markets, accounting, risk management and the regulation of financial 

institutions, which he gained in the positions described above. 

CORPORATE GOVERNANCE

Conservatorship and Delegation of Authority to Board of Directors

On September 6, 2008, the Director of FHFA appointed FHFA as our conservator in accordance with the GSE Act. Upon its 

appointment, the conservator immediately 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, and succeeded to the title to the 

books, records and assets of any other legal custodian of Fannie Mae. As a result, our Board of Directors no longer had the 

power or duty to manage, direct or oversee our business and affairs.

On November 24, 2008, FHFA, as conservator, reconstituted our Board of Directors and directed us regarding the function 

and authorities of the Board of Directors. FHFA has delegated to our Board of Directors and management the authority to 

conduct our day-to-day operations, subject to the direction of the conservator. FHFA’s delegation of authority to the Board 

became effective on December 19, 2008 when FHFA appointed nine Board members to serve in addition to the Board 

Chairman, who was appointed by FHFA on September 16, 2008. Pursuant to FHFA’s delegation of authority to the Board, the 

Board is responsible for carrying out normal Board functions, but is required to ensure that management has obtained the 

review and approval of FHFA as conservator before taking action in the specified areas described below. The delegation of 

authority will remain in effect until modified or rescinded by the conservator. The conservatorship has no specified 

termination date. The 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. 

In connection with FHFA’s delegation of authority to the Board, on November 24, 2008, FHFA instructed the Board to 

consult with and obtain FHFA’s approval before taking action in certain specified areas. On November 15, 2012, FHFA

revised and replaced these prior instructions to the Board. Pursuant to the new instructions, FHFA has increased the number 

of matters that require conservator approval before we may take action. FHFA’s new instructions require the Board to oversee 

that management consult with and obtain the written approval of the conservator before taking action in the following areas: 

• engaging in redemptions or repurchases of our subordinated debt, except as may be necessary to comply with the 

senior preferred stock purchase agreement;

• increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases 

in operational risk;

• matters that relate to the conservator’s powers, our conservatorship status, or the legal effect of the conservatorship 

on contracts;

• retention and termination of external auditors and law firms serving as consultants to the Board; 

• agreements relating to litigation, claims, regulatory proceedings or tax-related matters where the value of the claim 

exceeds a specified threshold, including related matters that aggregate to more than the threshold;
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• alterations or changes to the terms of the master agreement between us and one of our top five single-family sellers 

or top five single-family servicers that are not otherwise mandated by FHFA and that will materially alter the 

business relationship between the parties;

• the termination of a contract between us and one of our top five single-family sellers or top five single-family 

servicers, other than an expiration pursuant to its terms;

• actions that in the reasonable business judgment of management, at the time that the action is to be taken, are likely 

to cause significant reputational risk to us or result in substantial negative publicity; 

• creation of any subsidiary or affiliate, or entering into a substantial transaction with a subsidiary or affiliate, except 

for the creation of, or a transaction with, a subsidiary or affiliate undertaken in the ordinary course of business;

• setting or increasing the compensation or benefits payable to members of the Board of Directors;

• entering into new compensation arrangements or increasing amounts or benefits payable under existing 

compensation arrangements of executives at the senior vice president level and above, and other executives as FHFA

may deem necessary to successfully execute its role as conservator;

• any establishment or modification by us of performance management processes for executives at the senior vice 

president level and above and any executives designated as “officers” pursuant to Section 16 of the Exchange Act, 

including the establishment or modification of a conservator scorecard;

• any assessment by us of our performance against a conservator scorecard; 

• establishing the annual operating budget; and 

• matters that require the approval of or consultation with Treasury under the senior preferred stock purchase 

agreement. See “Note 14, Equity (Deficit)” for a list of matters that require the approval of Treasury under the senior 

preferred stock purchase agreement.

The new instructions also state that, in regards to the matters described above, the Board should review and approve these 

matters before they are submitted to the conservator for approval. For more information on the conservatorship, refer to 

“Business—Conservatorship and Treasury Agreements—Conservatorship.”

Composition of Board of Directors

In November 2008, FHFA directed that our Board should have a minimum of nine and not more than thirteen directors. There 

is a non-executive Chairman of the Board, and our Chief Executive Officer is the only corporate officer serving as a director. 

Our initial directors were appointed by the conservator and 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) resignation or 

removal by the conservator or (2) the election of a successor director at an annual meeting of shareholders.

Fannie Mae’s 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 or 

appointed for a term ending on the date of our next annual shareholders’ meeting. As noted above, however, the conservator 

appointed the initial directors to our Board, delegated to the Board the authority to appoint directors to subsequent vacancies 

subject to conservator review, and defined the term of service of directors during conservatorship. 

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. It is the policy of the Board that a substantial majority of Fannie Mae’s directors will be 

independent, in accordance with the standards adopted by the Board. 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, and any other areas that 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 & Corporate Governance 

Committee will seek out Board members who possess the highest personal values, judgment, and integrity, and who have an 

understanding of the regulatory and policy environment in which Fannie Mae does business. The Committee also considers 

whether a prospective candidate for the Board has the ability to attend meetings and fully participate in the activities of the 

Board.

The Nominating & Corporate Governance Committee also considers diversity when evaluating the composition of the Board. 

Our Corporate Governance Guidelines specify that the Nominating & Corporate Governance Committee is committed to 
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considering minorities, women and individuals with disabilities in the identification and evaluation process of prospective 

candidates. The Guidelines also specify that the Committee will seek out Board members who represent diversity in ideas, 

perspectives, gender, race, and disability. 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.

The Nominating & Corporate Governance Committee evaluates the qualifications and performance of current directors on an 

annual basis. Factors taken into consideration by the Committee in making this evaluation include:

• a director’s contribution to the effective functioning of the corporation;

• any change in the director’s principal area of responsibility with his or her company or his or her retirement from the 

company;

• whether the director continues to bring relevant experience to the Board;

• whether the director has the ability to attend meetings and fully participate in the activities of the Board;

• whether the director has developed any relationships with Fannie Mae or another organization, or other circumstances 

have arisen, that might make it inappropriate for the director to continue serving on the Board;

• the director’s age and length of service on the Board; and

• the director’s particular experience, qualifications, attributes and skills.

Information regarding the particular experience, qualifications, attributes and skills of each of our current directors is 

provided above under “Directors.”

Board Leadership Structure

We have had a non-executive Chairman of the Board since 2004. FHFA examination guidance and our Corporate Governance 

Guidelines require separate Chairman of the Board and Chief Executive Officer positions and require that the Chairman of 

the Board be an independent director. Our Board is also structured so that all but one of our directors, our Chief Executive 

Officer, are independent. A non-executive Chairman structure enables non-management directors to raise issues and concerns 

for Board consideration without immediately involving management and is consistent with the Board’s emphasis on 

independent oversight, as well as our conservator’s directives.

Our Board has six standing committees: the Audit Committee, the Compensation Committee, the Executive Committee, the 

Nominating & Corporate Governance Committee, the Risk Policy & Capital Committee, and the Strategic Initiatives 

Committee. The Board and the standing Board committees function in accordance with their designated duties and with the 

authorities as set forth in federal statutes, regulations and FHFA examination and policy guidance, Delaware law (for 

corporate governance purposes) and in Fannie Mae’s bylaws and applicable charters of Fannie Mae’s Board committees. 

Such duties or authorities may be modified by the conservator at any time. 

The Board oversees risk management primarily through the Risk Policy & Capital Committee. This Committee oversees 

management’s risk-related policies, including receiving, reviewing and discussing with management presentations and 

analyses on corporate level risk policies and limits, performance against these policies and limits, and the sufficiency of risk 

management capabilities. For more information on the Board’s role in risk oversight, see “MD&A—Risk Management—

Enterprise Risk Governance—Board of Directors.”

Corporate Governance Information, Committee Charters and Codes of Conduct

Our Corporate Governance Guidelines, as well as the charters for our Board’s Audit Committee, Compensation Committee, 

Nominating & Corporate Governance Committee, Risk Policy & Capital Committee, and Strategic Initiatives Committee, are 

posted on our Web site, www.fanniemae.com, under “Governance” in the “About Us” section of our Web site. Our Executive 

Committee does not have a written charter. The responsibilities, duties and authorities of the Executive Committee are set 

forth in our bylaws, which are also posted on our Web site, www.fanniemae.com, under “Governance” in the “About Us” 

section of our Web site.

We have a Code of Conduct that is applicable to all officers and employees and a Code of Conduct and Conflicts of Interest 

Policy for Members of the Board of Directors. Our 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 Web site, www.fanniemae.com, under “Governance” in the “About Us” section of our 

Web site. We intend to disclose any changes to or waivers from these codes that apply to any of our executive officers or 

directors by posting this information on our Web site.
175

Although our equity securities are no longer listed on the New York Stock Exchange (“NYSE”), we are required by FHFA’s 

corporate governance regulations and examination guidance for corporate governance, compensation practices and 

accounting practices to follow specified NYSE corporate governance requirements relating to, among other things, the 

independence of our Board members and the charters, independence, composition, expertise, duties and other requirements of 

our Board Committees.

Audit Committee Membership

Our Board has a standing Audit Committee consisting of Mr. Forrester, who is the Chair, Ms. Gaines and Mr. Herz, all of 

whom are independent under the requirements of independence set forth in FHFA’s corporate governance regulations (which 

requires the standard of independence adopted by the NYSE), Fannie Mae’s Corporate Governance Guidelines and other 

SEC rules and regulations applicable to audit committees. The Board has determined that Mr. Forrester, Ms. Gaines and 

Mr. Herz each have the requisite experience to qualify as an “audit committee financial expert” under the rules and 

regulations of the SEC and has designated each of them as such. 

Executive Sessions

Our non-management directors meet regularly in executive sessions without management present. Our Board of Directors 

reserves time for executive sessions at every regularly scheduled Board meeting. The non-executive Chairman of the Board, 

Mr. Laskawy, presides over these sessions.

Communications with Directors or the Audit Committee

Interested parties wishing to communicate any concerns or questions about Fannie Mae to the non-executive Chairman of the 

Board or to our non-management directors individually or as a group may do so by electronic mail addressed to 

“board@fanniemae.com,” or by U.S. mail addressed to Board of Directors, c/o Office of the Corporate Secretary, Fannie 

Mae, Mail Stop 1H-2S/05, 3900 Wisconsin Avenue NW, Washington, DC 20016-2892. Communications may be addressed to 

a specific director or directors, including Mr. Laskawy, the Chairman 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 “auditcommittee@fanniemae.com,” or by U.S. mail addressed to 

Audit Committee, c/o Office of the Corporate Secretary, Fannie Mae, Mail Stop 1H-2S/05, 3900 Wisconsin Avenue NW, 

Washington, DC 20016-2892.

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

During the conservatorship, FHFA, as conservator, has all powers of the shareholders and Board of Directors of Fannie Mae. 

As a result, under the GSE Act, Fannie Mae’s 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 2013. For more information 

on the conservatorship, refer to “Business—Conservatorship and Treasury Agreements—Conservatorship.”

EXECUTIVE OFFICERS

Our current executive officers who are not also members of the Board of Directors are listed below. They have provided the 

following information about their principal occupation, business experience and other matters. 

David C. Benson, 53, has been Executive Vice President—Capital Markets, Securitization & Corporate Strategy since 

September 2012. Mr. Benson previously served as Fannie Mae’s Executive Vice President—Capital Markets from April 2009 

to September 2012. He also served as Treasurer from June 2010 to January 2012. Mr. Benson previously served as Fannie 

Mae’s Executive Vice President—Capital Markets and Treasury from August 2008 to April 2009, as Fannie Mae’s Senior 

Vice President and Treasurer from March 2006 to August 2008, and as Fannie Mae’s Vice President and Assistant Treasurer 

from June 2002 to February 2006. Prior to joining Fannie Mae in 2002, Mr. Benson was Managing Director in the fixed 

income division of Merrill Lynch & 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. Effective April 3, 

2013, Mr. Benson will become Fannie Mae’s Executive Vice President and Chief Financial Officer.
176

Pascal Boillat, 46, has been Senior Vice President and Head of Operations and Technology since August 2012 and began 

acting as Head of Operations and Technology in July 2012. Mr. Boillat previously served as Fannie Mae’s Senior Vice 

President and Chief Information Officer from October 2009 to July 2012. Prior to joining Fannie Mae, Mr. Boillat was 

Managing Director of Operations Technology at Citigroup from September 2004 to October 2009.

Andrew J. Bon Salle, 47, has been Senior Vice President and Head of Underwriting and Pricing since May 2011. Mr. Bon 

Salle previously served as Fannie Mae’s Senior Vice President—Capital Markets from March 2006 to May 2011, and as 

Fannie Mae’s Vice President—Portfolio Management from November 2000 to February 2006. Mr. Bon Salle held the 

positions of Director, Finance from December 1996 to November 2000 and of Manager, Early Funding Programs from March 

1994 to December 1996. Mr. Bon Salle joined Fannie Mae in September 1992 as a senior capital markets analyst. Effective 

April 3, 2013, Mr. Bon Salle will become Fannie Mae’s Executive Vice President—Single-Family Underwriting, Pricing & 

Capital Markets.

Terence W. Edwards, 57, has been Executive Vice President—Credit Portfolio Management since September 2009, when he 

joined Fannie Mae. Prior to joining Fannie Mae, Mr. Edwards served as the President and Chief Executive Officer of PHH 

Corporation, a leading outsource provider of mortgage and fleet management services, from January 2005 to June 2009. 

Mr. Edwards was also a member of the Board of Directors of PHH Corporation from January 2005 through June 2009. Prior 

to PHH Corporation’s spin-off from Cendant Corporation (now known as Avis Budget Group, Inc.) in January 2005, 

Mr. Edwards served as President and Chief Executive Officer of Cendant Mortgage Corporation (now known as PHH 

Mortgage Corporation), a subsidiary of Cendant Corporation, beginning in February 1996. Mr. Edwards had previously 

served in other executive roles at PHH Corporation, which he joined in 1980. 

Jeffery R. Hayward, 57, has been Senior Vice President and Head of Multifamily since January 2012. Mr. Hayward has 

served in various roles at Fannie Mae for over 25 years. He previously served as Fannie Mae’s Senior Vice President—

National Servicing Organization from April 2010 to January 2012. He also served as Senior Vice President of Community 

Lending in Fannie Mae’s Multifamily division from May 2004 to April 2010. Prior to that time, Mr. Hayward served as both 

a Senior Vice President and a Vice President in Fannie Mae’s Single-Family division, including as Senior Vice President in 

the National Business Center from November 2001 to May 2004, as Vice President for Single-Family Business Strategy from 

November 1999 to November 2001, as Vice President for Asset Management Services from August 1998 to November 1999 

and as Vice President for Quality Control and Operations from January 1996 to August 1998. Mr. Hayward also served as 

Vice President for Risk Management from June 1993 to January 1996. Before that, he served as Director, Loan Acquisition 

from October 1992 to June 1993, as Director, Marketing from December 1989 to September 1992, and as Senior Negotiator 

from July 1988 to December 1989. Mr. Hayward joined the company in April 1987 as a senior MBS representative. 

Bradley E. Lerman, 56, has been Executive Vice President, General Counsel and Corporate Secretary since October 2012. 

Prior to joining Fannie Mae, Mr. Lerman was Senior Vice President and Head of Litigation at Pfizer, Inc. from January 2009 

to September 2012. He was previously a partner at the law firm of Winston & Strawn LLP from August 1998 to January 

2009.

Susan R. McFarland, 52, has served as Executive Vice President and Chief Financial Officer since July 2011. Prior to joining 

Fannie Mae, she served as Executive Vice President, Finance and Principal Accounting Officer of Capital One Financial 

Corporation from March 2011 to July 2011. She served as Capital One’s Executive Vice President and Controller from March 

2004 to March 2011, and as Chief Financial Officer of various lines of business at Capital One prior to that time. Prior to 

joining Capital One, she was with Bank One and its predecessor bank from 1986 to 2002, most recently as the Chief 

Financial Officer of the Retail Bank. She started her career with Deloitte & Touche. Effective April 3, 2013, Ms. McFarland 

will resign as Fannie Mae’s Executive Vice President and Chief Financial Officer, and will become a senior adviser for a 

transition period that will end no later than June 30, 2013.

John R. Nichols, 51, has been Executive Vice President and Chief Risk Officer since August 2011. Mr. Nichols previously 

served as Fannie Mae’s Senior Vice President and Interim Chief Risk Officer from March 2011 to August 2011. He also 

served as Fannie Mae’s Senior Vice President and Capital Markets Chief Risk Officer from November 2010 to June 2011. 

Prior to joining Fannie Mae, Mr. Nichols was Managing Director for BlackRock from February 2005 to October 2010. 

Zachary Oppenheimer, 53, has been Senior Vice President and Head of Customer Engagement since May 2011. 

Mr. Oppenheimer previously served as Fannie Mae’s Senior Vice President and Chief Acquisition Officer from August 2009 

to May 2011, and as Senior Vice President, Single-Family Mortgage Business from November 1998 through August 2009. 

Mr. Oppenheimer was Vice President of Marketing from April 1991 through November 1998. He held the positions of 

Director, Sales and Marketing from June 1988 to April 1991, of Director, MBS from May 1987 to June 1988, of MBS 

Manager from August 1985 to May 1987, and of Senior Sales Representative from October 1984 to August 1985. 

Mr. Oppenheimer joined Fannie Mae in August 1983 as an associate quality control representative. 
177

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. 

Section 16(a) Beneficial Ownership Reporting Compliance

Our directors and officers file with the SEC reports on their ownership of our stock and on changes in their stock ownership. 

Based on a review of forms filed during 2012 or with respect to 2012 and on written representations from our directors and 

officers, we believe that all of our directors and officers timely filed all required reports and reported all transactions 

reportable during 2012.

Item 11. Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

Named Executives for 2012 

This Compensation Discussion and Analysis focuses on compensation decisions relating to our Chief Executive Officer, our 

former Chief Executive Officer, our Chief Financial Officer, and our next three most highly compensated executive officers 

during 2012. We refer to these individuals as our named executives. For 2012, our named executives were: 

• Timothy J. Mayopoulos, President and Chief Executive Officer; 

• Michael J. Williams, our former President and Chief Executive Officer; 

• Susan R. McFarland, Executive Vice President and Chief Financial Officer; 

• David C. Benson, Executive Vice President—Capital Markets, Securitization & Corporate Strategy; 

• Terence W. Edwards, Executive Vice President—Credit Portfolio Management; and 

• John R. Nichols, Executive Vice President and Chief Risk Officer. 

This Compensation Discussion and Analysis describes our executive compensation program that was in effect for 2012. 

Specified changes to our executive compensation program effective for 2013 are described under “2013 Compensation 

Changes.”

Executive Summary 

Due to our conservatorship status and other legal requirements discussed under “2012 Executive Compensation Program—

Impact of Conservatorship and Other Legal Requirements,” FHFA, our conservator and regulator, has significant oversight 

over our executive compensation arrangements and determinations. In March 2012, FHFA directed us to implement new 

compensation arrangements it designed for our named executives, in consultation with Treasury, effective January 1, 2012. 

We refer to these arrangements as the “2012 executive compensation program.” The Acting Director of FHFA has stated that 

our 2012 executive compensation program “strikes the balance between prudent executive pay, including the elimination of 

bonuses, with the need to safeguard quality staffing in order to protect the taxpayers’ investment and achieve the objectives in 

the Conservatorship Scorecard.” 

As described in more detail under “2012 Executive Compensation Program—Elements of 2012 Executive Compensation 

Program—Direct Compensation,” the 2012 executive compensation program consists of two principal elements: base salary 

and deferred salary. The 2012 executive compensation program does not include any bonus component. Base salary is paid 

on a bi-weekly basis, and deferred salary is paid on a quarterly basis after a one-year deferral. There are two components to 

deferred salary: a fixed portion that is subject to reduction if an executive leaves the company before January 31, 2014 and an 

at-risk portion that is subject to reduction based on corporate and individual performance. In addition, effective January 1, 

2013, our Chief Executive Officer’s total target direct compensation consists solely of a base salary of $600,000.

Under the 2012 executive compensation program, FHFA:

• reduced total target direct compensation for each named executive by 10% from 2011 levels, except for one named 

executive who received a pay increase in connection with a promotion;

• eliminated long-term incentive awards as a component of the 2012 executive compensation program, so that the 

named executives’ direct compensation consists solely of base salary and deferred salary paid in cash; and

• increased the amount of the named executives’ deferred salary as a result of the elimination of long-term incentive 

awards.
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As a result of reductions in overall pay levels, total target direct compensation for 2012 under the 2012 executive 

compensation program for each current named executive was more than 30% below the market median for comparable firms 

and, in the case of our Chief Executive Officer, was more than 70% below the market median. See “Other Executive 

Compensation Considerations—Comparator Group and Role of Benchmark Data” for more information. 

While reducing pay levels to conserve taxpayer resources is an important objective of the 2012 executive compensation 

program, we and FHFA believe this objective must be balanced with the objective to attract and retain able and experienced 

executives to prudently manage our $3.1 trillion book of business and be an effective steward of taxpayer resources. Under 

the leadership of our experienced executives, the company achieved $17.2 billion in net income for 2012, which is the 

company’s first annual profit since 2006 and the highest annual net income in the company’s history. The company also 

substantially achieved the corporate goals for 2012 set by the conservator.

The 2012 executive compensation program is designed so that executive pay is reduced if the conservator’s goals are not 

fully achieved. In March 2012, FHFA established a set of 2012 corporate performance objectives and related targets, referred 

to as the 2012 conservatorship scorecard. In early 2013, FHFA evaluated the company’s performance against the 2012 

conservatorship scorecard and determined that the corporate-performance based portion of 2012 at-risk deferred salary would 

be paid at 95% of target for each named executive. See “Determination of 2012 Compensation—Assessment of Corporate 

Performance on 2012 Conservatorship Scorecard” for more information on the company’s performance against the 2012 

conservatorship scorecard. The remaining half of the named executives’ 2012 at-risk deferred salary was subject to reduction 

based on individual performance, as determined by the Board of Directors in consultation with the Compensation Committee 

and subject to FHFA’s approval. See “Determination of 2012 Compensation—Assessment of 2012 Individual Performance” 

for a description of the individual performance of the named executives. 

Although long-term incentive awards were eliminated as a component of the 2012 executive compensation program, in 

February 2013 the named executives were entitled to receive the second and final installment of their 2011 long-term 

incentive awards that were granted under our prior executive compensation program. This installment is required to be 

reported as 2012 compensation for purposes of the “Summary Compensation Table for 2012, 2011 and 2010” because it was 

determined based on performance for both 2011 and 2012. As a result of this final installment payment of the 2011 long-term 

incentive award, the amount of the named executives’ total compensation as reported in the Summary Compensation Table is 

generally higher for 2012 than for 2011, despite the 10% reduction in total target direct compensation for most of our named 

executives under the 2012 executive compensation program. See “Compensation Tables—Differences in 2012, 2011 and 

2010 Compensation” for a description of the differences in the named executives’ compensation in 2012, 2011 and 2010 as 

reflected in the Summary Compensation Table. Compensation reported for 2013 will not include a long-term incentive award 

component. See “Determination of 2012 Compensation—Assessment of Corporate Performance on 2011 Long-Term 

Incentive Award Goals (Second Installment)” for a description of the company’s performance against the 2012 goals relating 

to the second installment of the 2011 long-term incentive award. 

2012 Executive Compensation Program

Program Objectives 

FHFA has advised us that our 2012 executive compensation program was designed to fulfill, and to balance, three primary 

objectives: 

• reduce pay levels to conserve taxpayer resources and eliminate bonuses;

• attract and retain executive talent; and

• reduce pay if the conservator’s goals are not achieved.

Reduce Pay Levels to Conserve Taxpayer Resources and Eliminate Bonuses

A primary objective of the 2012 executive compensation program was to reduce pay levels given our conservatorship status 

and reliance on taxpayer support. A related objective of the new compensation program was to eliminate bonuses. At FHFA’s 

direction, we reduced total target direct compensation for our named executives by 10% in 2012 (except for one named 

executive who received a pay increase in connection with a promotion) and we eliminated long-term incentive awards from 

our executive compensation structure. In addition, beginning in 2013, total target direct compensation for our Chief 

Executive Officer position has been further reduced. Total target 2012 direct compensation for Mr. Williams, our former 

Chief Executive Officer, was $5,400,000. Total 2013 direct compensation for Mr. Mayopoulos, our current Chief Executive 

Officer, is $600,000.

As a result of these reductions and prior reductions in compensation, total target direct compensation for our named 

executives is significantly below the market median for comparable firms. As described in “Other Executive Compensation 

Considerations—Comparator Group and Role of Benchmark Data,” total target direct compensation for 2012 under the 2012 
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executive compensation program for each of our current named executives was more than 30% below the market median for 

comparable firms and, in the case of our Chief Executive Officer, was more than 70% below the market median.

In addition to reducing pay for our current executives, where appropriate, we also seek to compensate newly hired executives 

at lower amounts than the executives they are replacing. Our aggregate salary and employee benefit expense as a percentage 

of our net revenues was 5.2% in 2012. 

Attract and Retain Executive Talent

Another primary objective of the 2012 executive compensation program is 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 our $3.1 trillion book of business and be an 

effective steward of the government’s and taxpayers’ support. 

We and FHFA recognize that the current levels of our executive compensation and other factors put pressure on our ability to 

attract and retain executive talent with the necessary skills and knowledge. We face competition from both within the 

financial services industry and from businesses outside of this industry for qualified executives. If we are unable to attract 

and retain qualified executives, it could threaten our ability to continue to provide liquidity and stability to the mortgage 

market, result in costly operational failures, and heighten safety and soundness risks. See “Risk Factors” for a discussion of 

the risks associated with executive and employee retention. To encourage retention, the fixed portion of each named 

executive’s deferred salary is subject to reduction if an executive leaves the company before January 31, 2014. 

Reduce Pay if the Conservator’s Goals Are Not Achieved 

In order to support FHFA’s goals for our conservatorship and encourage corporate and individual performance in furtherance 

of these goals, 30% of each named executive’s total target direct compensation consists of “at-risk” deferred salary, which is 

subject to reduction based on corporate and individual performance. 

Impact of Conservatorship and Other Legal Requirements

As discussed in “Business—Conservatorship and Treasury Agreements—Conservatorship,” we have been under the 

conservatorship of FHFA since September 2008. The conservatorship has had a significant impact on the compensation 

received by our named executives, as well as the process by which executive compensation was determined. Regulatory and 

other legal requirements affecting our executive compensation include the following:

• Our directors serve on behalf of FHFA and exercise their authority subject to the direction of FHFA. More 

information about the role of our directors is described in “Directors, Executive Officers and Corporate Governance

—Corporate Governance—Conservatorship and Delegation of Authority to Board of Directors.”

• While we are in conservatorship, FHFA, as our conservator, has retained the authority to approve and to modify both 

the terms and amount of any executive compensation. FHFA, as our conservator, has directed that management 

consult with and obtain FHFA’s written approval before entering into new compensation arrangements or increasing 

amounts or benefits payable under existing compensation arrangements of executives at the senior vice president 

level and above, and other executives as FHFA may deem necessary to successfully execute its role as conservator. 

FHFA has also directed that management consult with and obtain FHFA’s written approval before establishing or 

modifying performance management processes for executives at the senior vice president level and above and any 

executives designated as “officers” pursuant to Section 16 of the Exchange Act, and before assessing our 

performance against a conservator scorecard.

• During the conservatorship, FHFA, as our conservator, has all powers of the shareholders. Accordingly, we have not 

held shareholders’ meetings since entering into conservatorship and have held no shareholder advisory vote on 

executive compensation.

• FHFA, as our regulator, must approve any termination benefits we offer to our named executives and certain other 

officers identified by FHFA.

• Under the terms of the senior preferred stock purchase agreement with Treasury, 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 executive officers without the consent of the Director of FHFA, in 

consultation with the Secretary of the Treasury.

• Under the terms of the senior preferred stock purchase agreement, 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 
180

on the date of the senior preferred stock purchase agreement. This effectively eliminates our ability to offer stockbased compensation.

• Under the Housing and Economic Recovery Act of 2008 and related regulations issued by FHFA, the Director of 

FHFA has the authority to prohibit or limit us from making any “golden parachute payment” to specified categories 

of persons, including our named executives. 

• Pursuant to the STOCK Act, the named executives are prohibited from receiving bonuses during any period of 

conservatorship on or after the April 4, 2012 enactment of the law. 

• Our Charter Act provides that the company has the power to pay compensation to our executives that the Board of 

Directors determines is reasonable and comparable with compensation for employment in other similar businesses, 

including other publicly held financial institutions or major financial services companies, involving similar duties 

and responsibilities. As described under “Other Executive Compensation Considerations—Comparator Group and 

Role of Benchmark Data,” each current named executive’s total target direct compensation for 2012 under the 2012 

executive compensation program was more than 30% below the market median for comparable firms. The Charter 

Act also provides that a significant portion of our executive officers’ potential compensation should be based on the 

company’s performance. As described under “Elements of 2012 Executive Compensation Program—Direct 

Compensation,” 15% of each named executive’s total target direct compensation consists of at-risk deferred salary 

that is subject to reduction based on corporate performance and 15% of each named executive’s total target direct 

compensation consists of at-risk deferred salary that is subject to reduction based on individual performance.

As a result of these requirements, the 2012 compensation decisions for our named executives discussed in this Compensation 

Discussion and Analysis were either determined or approved by the Acting Director of FHFA after receiving input from the 

Board of Directors, Compensation Committee and management.
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Elements of 2012 Executive Compensation Program

Direct Compensation

The table below summarizes the principal elements, objectives and key features of our 2012 executive compensation program 

for our named executives. All elements of our named executives’ direct compensation are paid in cash because we are 

prohibited from paying new stock-based compensation under the senior preferred stock purchase agreement without 

Treasury’s consent. 

Compensation

Element Form

Primary

Compensation 

Objectives Key Features

Base Salary 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 the named executive’s 

level of responsibility and experience, as 

well as individual performance over time. 

Base salary is capped at $500,000 for all of 

our executive officers, including the named 

executives, other than our Chief Executive 

Officer and Chief Financial Officer. 

Deferred Salary Deferred salary is earned in biweekly installments over the 

course of the performance year, 

and is paid in quarterly 

installments in March, June, 

September and December of 

the following year. 

There are two elements of 

deferred salary: 

• a fixed portion that is subject 

to reduction if an executive 

leaves the company before 

January 31, 2014; and

• an at-risk portion that is 

subject to reduction based on 

corporate and individual 

performance.

Fixed Deferred Salary

Retain named

executives.

Earned but unpaid fixed deferred salary is 

subject to reduction if a named executive 

leaves the company prior to January 31, 

2014. If he or she leaves the company prior 

to this date, 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 

executive’s separation date preceded 

January 31, 2014.* 

At-Risk Deferred Salary

Retain named 

executives and 

encourage named 

executives to achieve 

corporate and individual 

performance objectives.

Equal to 30% of the named executive’s total 

target direct compensation. Half of at-risk 

deferred salary is subject to reduction based 

on corporate performance as determined by 

FHFA. The remaining half of at-risk 

deferred salary is subject to reduction based 

on individual performance as determined by 

the Board of Directors with FHFA’s 

approval.

There is no potential for at-risk deferred 

salary to be higher than 100% of target 

based on performance; at-risk deferred 

salary is only subject to reduction based on 

performance. 

The 2012 conservatorship scorecard against 

which corporate performance was measured 

for the named executives’ 2012 at-risk 

deferred salary is described below under 

“Determination of 2012 Compensation—

Assessment of Corporate Performance on 

2012 Conservatorship Scorecard.” 

* The forfeiture provisions applicable to earned but unpaid fixed deferred salary have been modified for 2013 and subsequent 

performance years. See “2013 Compensation Changes—Change to Fixed Deferred Salary Forfeiture Provisions” for more 

information.
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Employee Benefits

Our employee benefits are a fundamental part of our executive compensation program, and serve as an important tool in 

attracting and retaining senior executives. We describe these employee benefits in the table below. We provide more detail on 

our retirement plans under “Compensation Tables—Pension Benefits” and “Compensation Tables—Nonqualified Deferred 

Compensation.”

Benefit Form Primary Objective

Health, Welfare and Other

Benefits

In general, the named executives are eligible for

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.

Retirement Plans:

Defined Benefit Pension Plans

• Qualified Retirement Plan

• Non-qualified Supplemental 

Pension Plan and 2003 

Supplemental Pension Plan

• Non-qualified Executive 

Pension Plan

Our Retirement Plan is a tax-qualified defined benefit 

pension plan that was generally available to employees 

before participation in the plan was frozen in 2007. 

Our non-qualified Supplemental Pension Plans and 

Executive Pension Plan provide supplemental 

retirement benefits in addition to those offered by the 

Retirement Plan.

The named executives who joined the company prior 

to 2008 (Mr. Williams and Mr. Benson) participate in 

the company’s defined benefit pension plans. Mr. 

Williams is the only named executive with a benefit 

under the Executive Pension Plan. We froze benefits 

under this plan in 2009.

The named executives who joined the company after 

2007 are not eligible to participate in any of these 

plans.

Retain named executives by

providing a level of

retirement income.

Non-qualified Deferred 

Compensation (“Supplemental

Retirement Savings Plan”)

The Supplemental Retirement Savings Plan is an 

unfunded, non-tax-qualified defined contribution plan. 

The plan supplements the company’s qualified defined 

contribution plan by providing benefits to participants 

whose annual eligible earnings exceed the IRS limit on 

eligible compensation for 401(k) plans.

The named executives who joined the company after 

2007 (Mr. Mayopoulos, Ms. McFarland, Mr. Edwards 

and Mr. Nichols) participate in the company’s 

Supplemental Retirement Savings Plan.

The named executives who joined the company prior 

to 2008 are not eligible to participate in this plan, as 

they participate in some or all of the company’s 

defined benefit pension plans.

Attract and retain named

executives by providing

retirement savings.

401(k) Plan (“Retirement Savings 

Plan”)

A tax-qualified defined contribution plan (401(k) plan) 

available to our employee population as a whole.

All of the named executives are eligible to participate 

in this plan.

Attract and retain named

executives by providing

retirement savings in a taxefficient manner.
183

Benefit Form Primary Objective

Relocation Benefits and Other

Perquisites

From time to time, we offer relocation benefits to new 

executives. As described in footnote 7 to the 

“Summary Compensation Table for 2012, 2011 and 

2010,” we agreed to provide up to $100,000 in 

relocation benefits to Ms. McFarland to facilitate her 

move to the Washington, D.C. area.

We believe that perquisites should be a minimal part of 

the compensation package for our named executives. 

Except for the relocation benefits provided to Ms. 

McFarland described above, the perquisites we 

provided to all of our named executives in 2012 did 

not exceed $2,000 in the aggregate.

Total perquisites for any named executive cannot 

exceed $25,000 per year without FHFA approval, and 

we do not provide a gross-up for taxes due on any 

perquisite.

Relocation benefits are

provided to attract new

named executives by

reimbursing them for a

specified amount of their

costs associated with

relocating to the

Washington, D.C. area.

Sign-on Award

In addition to the direct compensation and employee benefits described in the tables above, from time to time, a new 

executive may be awarded a sign-on award to attract the executive to join Fannie Mae and/or to compensate him or her for 

compensation forfeited upon leaving a prior employer. Our Chief Financial Officer, Susan R. McFarland, was awarded a $1.7 

million sign-on award when she joined the company in July 2011 to partially compensate her for equity grants forfeited upon 

leaving her prior employer. See footnote 10 to the “Summary Compensation Table for 2012, 2011 and 2010” for more 

information regarding Ms. McFarland’s sign-on award.

Severance Benefits

We have not entered into agreements with any of our named executives that entitle the executive to severance benefits; 

however, under the 2012 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 

“Compensation Tables—Potential Payments Upon Termination or Change-in-Control” for information on compensation that 

we may pay to a named executive in certain circumstances in the event the executive’s employment is terminated. In addition, 

as described in more detail in “2013 Compensation Changes—CFO Compensation Changes,” the Board of Directors and 

FHFA have approved a change to the terms of Ms. McFarland’s sign-on award contingent upon her execution of a release of 

claims in a form satisfactory to the company.

Compensation Arrangements with our Chief Executive Officer

Mr. Mayopoulos became our Chief Executive Officer in June 2012. Prior to becoming our Chief Executive Officer, he was 

Fannie Mae’s Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary. Mr. 

Mayopoulos did not receive any increase in his 2012 compensation as a result of his promotion to Chief Executive Officer. 

Moreover, Mr. Mayopoulos’ total direct compensation for 2013 will consist solely of $600,000 in base salary. He will not 

earn any deferred salary for 2013. He continues to be eligible to receive the deferred salary he earned for 2012 on the 

applicable payment dates in 2013, and he was paid the second installment of his 2011 long-term incentive award in February 

2013. He also continues to be eligible to participate in the employee benefit programs made available to all Fannie Mae 

executives. See “Compensation Tables—Summary Compensation Table for 2012, 2011 and 2010” for more information 

about Mr. Mayopoulos’ 2012 compensation.
184

Determination of 2012 Compensation

Summary of 2012 Compensation Actions

2012 Executive Compensation Program

The table below displays the named executives’ compensation targets under the 2012 executive compensation program 

compared to the actual payments to be received by the named executives under this program. The amounts shown in the 

“Total Target” and “Total Actual” columns consist of the sum of 2012 base salary and 2012 deferred salary. This table 

includes only direct compensation under the 2012 executive compensation program. In addition to this compensation, the 

current named executives also received the second and final installment of their 2011 long-term incentive award in February 

2013, which is described in a separate table below. This table is presented on a different basis than, and is not intended to 

replace, the Summary Compensation Table required under applicable SEC rules, which is included below under 

“Compensation Tables—Summary Compensation Table for 2012, 2011 and 2010.” 

2012 Corporate 

Performance-Based AtRisk Deferred Salary

2012 Individual 

Performance-Based AtRisk Deferred Salary Total 

Named Executive 

2012 Base 

Salary Rate

2012 Fixed 

Deferred 

Salary Target Actual Target Actual Target Actual

Timothy Mayopoulos(1)

. . $ 500,000 $ 1,358,500 $ 398,250 $ 378,338 $ 398,250 $ 398,250 $ 2,655,000 $2,635,088

President and Chief 

Executive Officer

Michael Williams(2)

. . . . . 900,000 2,880,000 810,000 443,942 810,000 467,308 5,400,000 2,535,404

Former President and 

Chief Executive 

Officer

Susan McFarland . . . . . . . 600,000 1,416,000 432,000 410,400 432,000 324,000 2,880,000 2,750,400

Executive Vice 

President and Chief 

Financial Officer

David Benson. . . . . . . . . . 500,000 1,264,000 378,000 359,100 378,000 378,000 2,520,000 2,501,100

Executive Vice 

President—Capital 

Markets, Securitization 

& Corporate Strategy

Terence Edwards . . . . . . . 500,000 1,264,000 378,000 359,100 378,000 378,000 2,520,000 2,501,100

Executive Vice 

President—Credit 

Portfolio Management

John Nichols(3)

. . . . . . . . . 430,962 861,538 276,923 263,077 276,923 276,923 1,846,346 1,832,500

Executive Vice 

President and Chief 

Risk Officer

__________

(1) Mr. Mayopoulos became our Chief Executive Officer in June 2012. Prior to becoming our Chief Executive Officer, he was Fannie 

Mae’s Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary. Mr. Mayopoulos did not 

receive any increase in his 2012 compensation as a result of his promotion to Chief Executive Officer and, effective January 1, 2013, 

his total direct compensation has been reduced to $600,000, comprised only of base salary. See “2012 Executive Compensation 

Program—Compensation Arrangements with our Chief Executive Officer” for more information.

(2) Amounts in the “2012 Base Salary Rate” and “2012 Fixed Deferred Salary” columns for Mr. Williams represent his target salary, not 

the amounts he actually received. Because Mr. Williams left the company in July 2012, he received $560,769 in base salary in 2012 

and will receive $1,063,385 in 2012 fixed deferred salary (which is the portion of 2012 fixed deferred salary that he earned from 

January 1, 2012 through July 31, 2012 ($1,661,538), reduced by 2% for each month by which his departure date preceded January 31, 

2014). The amount of 2012 corporate performance-based at-risk deferred salary that he will receive is the portion of this element of atrisk deferred salary that he earned from January 1, 2012 through July 31, 2012 ($467,308), reduced by 5% from the target due to 

corporate performance in 2012. The amount of 2012 individual performance-based at-risk deferred salary that he will receive is 100% 

of the portion of this element of at-risk deferred salary that he earned from January 1, 2012 through July 31, 2012 ($467,308). See 

“Assessment of 2012 Individual Performance” for more information on Mr. Williams’ individual performance. The amount in the 

“Total—Actual” column for Mr. Williams is the sum of the 2012 base salary, 2012 fixed deferred salary and 2012 at-risk deferred 

salary that he actually received or will receive.
185

(3) Effective May 18, 2012, Mr. Nichols’ annual base salary rate increased from $400,000 to $450,000, his fixed deferred salary increased 

from an annual rate of $720,000 to an annual rate of $950,000, and his at-risk deferred salary target increased from an annual target of 

$480,000 to an annual target of $600,000. Mr. Nichols’ total target direct compensation was increased in connection with his 

promotion to Chief Risk Officer in August 2011. The base salary and deferred salary target amounts provided in this table represent 

the sum of: (1) his annual base salary rate and annual deferred salary target for the period from January 1, 2012 through May 17, 2012, 

prorated based on the number of pay periods in this period; and (2) his annual base salary rate and annual deferred salary target for the 

period from May 18, 2012 through December 31, 2012, prorated based on the number of pay periods in this period.

Prior Executive Compensation Program

In addition to the above compensation under the 2012 executive compensation program, the current named executives also 

received the second and final installment of their 2011 long-term incentive award in February 2013. The long-term incentive 

awards, which allowed for payments above or below target, were a component of the company’s 2011 executive 

compensation program, but were eliminated from the 2012 executive compensation program. The table below displays the 

target amount of the second and final installment of each named executive’s 2011 long-term incentive award compared to the 

actual payment received by the named executive. The amount of this payment was based on both corporate and individual 

performance. See “Assessment of Corporate Performance of 2011 Long-Term Incentive Award Goals (Second Installment)” 

for a description of the company’s performance against the 2012 goals relating to this installment of the 2011 long-term 

incentive award and “Assessment of 2012 Individual Performance” for a description of the individual performance of the 

named executives. 

Second 

Installment of 2011 LongTerm Incentive Award

Named Executive Target Actual

Timothy Mayopoulos. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 490,167 $ 521,538

Michael Williams(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 —

Susan McFarland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,246 181,150

David Benson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465,167 465,000

Terence Edwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465,167 465,000

John Nichols. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,904 187,069

__________

(1) 

 Mr. Williams did not receive the second installment of his 2011 long-term incentive award because he was not employed by Fannie 

Mae on the payment date for that installment.

Although long-term incentive awards are not a component of the company’s 2012 executive compensation program, the 

second installment of the 2011 long-term incentive award is required to be reported as 2012 compensation for purposes of the 

“Summary Compensation Table for 2012, 2011 and 2010” because payment of this installment was based on performance in 

both 2011 and 2012.

Assessment of Corporate Performance on 2012 Conservatorship Scorecard 

Overview

In March 2012, FHFA developed a set of corporate performance objectives and related targets for 2012, referred to as the 

2012 conservatorship scorecard, and directed the company to implement them. The 2012 conservatorship scorecard is shown 

below under “FHFAAssessment.” The 2012 conservatorship scorecard provides the implementation roadmap for FHFA’s 

strategic plan for Fannie Mae and Freddie Mac. See “Executive Summary—Our Business Objectives and Strategy” for a 

description of FHFA’s strategic goals for the GSEs. FHFA developed these objectives and related targets with input from 

management, the Compensation Committee and the Board of Directors. Half of the named executives’ 2012 at-risk deferred 

salary, or 15% of their overall 2012 total target direct compensation, was subject to reduction based on the company’s 

performance against the 2012 conservatorship scorecard. As described below under “FHFAAssessment,” FHFA determined 

that the corporate-performance based portion of 2012 at-risk deferred salary would be paid at 95% of target. 

Compensation Committee Assessment

In late 2012 and early 2013, the Compensation Committee reviewed the company’s performance against the 2012 

conservatorship scorecard and, following its review, provided FHFA with its assessment of management’s performance 

against the 2012 conservatorship scorecard. As part of its review, the Compensation Committee reviewed management’s 

assessment of the company’s performance against the scorecard objectives and targets, and discussed the company’s 

performance with the Chief Executive Officer. The Compensation Committee also reviewed management reports regarding 
186

prior input management received from FHFA with respect to the company’s performance against the individual scorecard 

targets. 

The Compensation Committee determined that the company met substantially all of the 2012 conservatorship scorecard 

targets in a timely and high quality manner, while at the same time conducting the company’s core business at a high level in 

a complicated operating environment. A number of the targets that the company did not fully meet by year end were items 

that had either been suspended by FHFA or otherwise delayed due to factors primarily beyond the company’s control. The 

Compensation Committee determined that management’s overall performance with respect to achieving these challenging 

objectives was impressive, particularly in light of the major management transition the company experienced during the year. 

The Compensation Committee concluded that management’s performance had exceeded expectations. The Committee noted 

that its assessment accorded significant weight to the company’s improved financial condition.

The Compensation Committee recommended that FHFA also consider the company’s performance in other areas in assessing 

the company’s performance and making compensation determinations. Additional accomplishments noted by the 

Compensation Committee in its assessment included, among other things, the following:

• achieving four consecutive profitable quarters and $17.2 billion in net income for the year, which is the company’s 

first annual profit since 2006 and record annual net income for the company;

• acquiring and managing a high quality new book of business that we expect will be profitable over its lifetime;

• managing substantial leadership transitions, including a change in the company’s chief executive officer;

• reducing the company’s single-family serious delinquency rate to 3.29% as of December 31, 2012, compared to 

3.91% as of December 31, 2011;

• implementing a new HARP program to increase assistance to borrowers, more than doubling the number of HARP

refinances in 2012 as compared to 2011;

• reaching a repurchase resolution with Bank of America and collecting on over $8 billion in other outstanding 

repurchase requests, as described in “MD&A—Risk Management—Credit Risk Management—Institutional 

Counterparty Credit Risk Management—Mortgage Sellers/Servicers;” and

• successfully meeting the company’s obligations as program administrator for HAMP and other initiatives under the 

Making Home Affordable Program.

FHFA Assessment

In early 2013, FHFA reviewed our performance against the 2012 conservatorship scorecard, with input from management and 

the Compensation Committee. FHFA determined that the company substantially performed the objectives of the scorecard 

and that the corporate-performance based portion of 2012 at-risk deferred salary would be paid at 95% of target. FHFA stated 

that the company demonstrated a strong focus on achieving the objectives and collaborating with FHFA and Freddie Mac on 

the accomplishments. FHFA stated that in some instances the company’s failure to meet a target by the specified deadline was 

the result of factors outside of the company’s control. As a result of the company’s strong performance during 2012, FHFA

stated that significant progress has been made on the conservator’s strategic goals for the next phase of the GSEs’

conservatorships.
187

The table below sets forth the 2012 conservatorship scorecard and a summary of FHFA’s assessment of the company’s 

achievement of the scorecard objectives and targets, including the numerical score FHFA provided for each objective. 

Objectives Weighting Targets

Final 

Score

Summary of Performance 

Against Targets

1. Build a New Infrastructure 30% 28.9%

• Continued progress on, or 

completion of, mortgage 

market enhancement 

activities already underway

15% 14.9%

– Loan-level Disclosure 

in Mortgage-Backed 

Security (MBS)

– Develop template for enhanced loanlevel disclosures for single-family 

MBS that incorporates market 

standards and is consistent with 

maintaining liquidity in the to-beannounced market. Template to be 

submitted to FHFA by June 30, 2012.

– Met this target: Provided final template 

to FHFA on June 29, 2012.

– Uniform Mortgage 

Data Program (UMDP)

– Meet articulated Uniform Mortgage 

Data Program (UMDP) timetables as 

follows:

– Uniform Collateral Data Portal 

(UCDP) electronic appraisal 

submission requirement by March 

19, 2012.

– Uniform Loan Delivery Data 

(ULDD) format loan delivery data 

by July 23, 2012.

– Deliver new ULDD data point in 

compliance with SEC Rule 

15Ga-1 by November 30, 2012.

– Notify market of optional ULDD 

data points, including those 

necessary to improve disclosure 

and for other business uses in 

2012.

– Met this target: Met articulated UMDP

timetables including:

– Began collecting UCDP electronic 

appraisal data by March 19, 2012.

– Began collecting ULDD Phase 1 

required data points by July 23, 

2012.

– Developed ability to collect new 

ULDD data point on funder 

information by November 30, 2012.

– Notified market of optional ULDD 

Phase II data points on December 

13, 2012. Developed and agreed on 

an implementation timeline for 

ULDD Phase II.

– Notify market of servicing data 

standard, including data necessary to 

improve disclosure, and agree on 

timetable for data collection to begin 

in 2013 by December 31, 2012.

– Substantially met this target: In 

December 2012, made general 

announcement regarding progress on 

the creation of a Uniform Mortgage 

Servicing Dataset (UMSD), as well as 

announcements to targeted 

stakeholders requesting feedback on 

draft dataset in early 2013. Also 

completed the UMSD 

Foundation Template in December 

2012. The December 2012 

announcements did not include the 

UMSD Foundation Template, which is 

expected to be released to targeted 

stakeholders in the first half of 2013.

– Develop plans that leverage uniform 

appraisal data (UAD) and ULDD for 

enhanced risk management by 

December 31, 2012.

– Met this target: Developed an 

implementation plan for UAD and 

ULDD data on how the new data can 

be used to reduce loan repurchase 

exposure and incorporated into credit 

portfolio analytics, and submitted plan 

to FHFA in September 2012.

– Cooperate with FHA implementation 

of portal to accept electronic 

appraisals.

– Met this target: Supported FHA with 

respect to its roadmap for developing 

and implementing a portal to receive 

electronic appraisals.

– Seller-Servicer 

Contract 

Harmonization

– Appropriate resource allocation to 

seller-servicer contract 

harmonization and commitment to 

targeted timetables as outlined in 

FHFA directive.

– Met this target: Delivered on all of 

FHFA’s seller-servicer contract 

harmonization initiatives within the 

specified timeframes.
188

Objectives Weighting Targets

Final 

Score

Summary of Performance 

Against Targets

• Securitization Platform 10% • In collaboration with FHFA and the 

other Enterprise, develop and 

finalize a plan by December 31, 

2012 for the design and build of a 

single securitization platform that 

can serve both Enterprises and a 

post-conservatorship market with 

multiple future issuers.

9.5% • Substantially met this target: Delivered 

a joint GSE plan to FHFA in December 

2012 for the design and build of a 

single securitization platform. The plan 

incorporated industry feedback on 

FHFA’s October 2012 white paper on 

this topic. The plan remains under 

review by FHFA and is expected to be 

finalized in 2013.

• Pooling and Servicing 

Agreements

5% • Propose a model pooling and 

servicing agreement (PSA), 

collaborate with other Enterprise and 

FHFA on a specific proposal, seek 

public comment, and produce final 

recommendations for standard 

Enterprise trust documentation by 

December 31, 2012.

4.5% • Substantially met this target: Delivered 

a joint GSE plan to FHFA in December 

2012 for a model PSA. The plan 

incorporated industry feedback on 

FHFA’s October 2012 white paper on 

this topic and is currently under review 

by FHFA.

2. Contract the Enterprises’

dominant presence in the 

marketplace while 

simplifying and shrinking 

certain operations.

30% 28.4%

• Work with FHFA to 

evaluate options for 

meeting conservatorship 

goals, including shifting 

mortgage credit risk to 

private investors via 

assessment of:

10% 9.4%

– Multifamily line of 

business 

– Undertake a market analysis by 

December 31, 2012, of the viability 

of multifamily business operations 

without government guarantees. 

Review the likely viability of these 

models operating on a stand-alone 

basis after attracting private capital 

and adjusting pricing if needed.

– Met this target: Provided FHFA with 

the requested analysis of the 

multifamily business in December 

2012.

– Investment assets and 

nonperforming loans

– Perform analysis of investments 

portfolio as described in the strategic 

plan by the fourth quarter of 2012 

and make preparations for the 

competitive disposition of a pool of 

nonperforming assets by 

September 30, 2012.

– Substantially met this target: 

Performed the requested analysis of 

our portfolio and submitted a revised 

portfolio plan to FHFA in November 

2012. Also made preparations for the 

disposition of one or more pools of 

nonperforming assets, but this task was 

not completed by the September 30 

deadline specified in the target.

– Review options with board of 

directors and FHFA and make 

appropriate recommendations for 

future actions.

– Met this target: As noted above, 

submitted a revised portfolio plan to 

FHFA in November 2012.

– Implement plan agreed to by board 

and FHFA.

– Met this target: As noted above, 

submitted a revised portfolio plan to 

FHFA in November 2012.

• Risk Sharing 10% • Initiate risk sharing transactions by 

September 30, 2012.

9.0% • Substantially met this target: 

Completed work to initiate creditlinked note transaction; however, 

transaction has been delayed due to 

new CFTC derivative regulations.

• Execute new risk sharing transactions 

beyond the traditional charter 

required mortgage insurance 

coverage.

• Substantially met this target: Made 

preparations for bulk mortgage 

insurance transactions; however, 

transactions have been put on hold by 

FHFA pending review and update of 

mortgage insurer eligibility 

requirements.
189

Objectives Weighting Targets

Final 

Score

Summary of Performance 

Against Targets

• Propose timeline for continued 

growth in risk sharing through 2013.

• Met this target: Delivered 2013 plan 

for growth in risk-sharing activities to 

FHFA in October 2012.

• Pricing 10% 10.0%

– Single-family 

Guarantee Fee Pricing 

Increases

– Develop and begin implementing 

plan to increase guarantee fee pricing 

to more closely approximate the 

private sector.

– Met this target: Initial guaranty fee 

analysis provided to FHFA in July 

2012. After reviewing analysis, in 

August 2012, FHFA directed us and 

Freddie Mac to increase our singlefamily guaranty fee prices by an 

average of 10 basis points effective in 

the fourth quarter of 2012. Developed 

a plan for single-family pricing 

increases in 2013 forward and 

provided this plan to FHFA in 

September 2012.

– Set uniform pricing across loan 

sellers to extent practicable.

– Met this target: Developed a national 

price increase proposal that levels 

pricing between large and small 

lenders, and delivered this proposal to 

FHFA in June 2012. As noted above, in 

August 2012, FHFA directed us and 

Freddie Mac to increase our singlefamily guaranty fee prices by an 

average of 10 basis points effective in 

the fourth quarter of 2012. 

– Set plan to price for 

state law effects on 

mortgage credit losses 

given default

– Work with FHFA to develop 

appropriate risk-based pricing by 

state. State-level pricing grid to be 

completed by August 31, 2012.

– Met this target: Developed a plan for 

state-based pricing adjustments and 

delivered this plan to FHFA in July 

2012. In September 2012, FHFA

published a notice presenting an 

approach to adjust the guaranty fees 

that we and Freddie Mac charge on 

single-family mortgages in states 

where costs related to foreclosure 

practices are significantly higher than 

the national average.

3. Maintain foreclosure 

prevention activities and 

credit availability for new 

and refinanced mortgages.

20% 20.0%

• Loss Mitigation through 

continued implementation 

and enhancement of 

Servicer Alignment 

Initiative

10% • Enhance transparency of servicer 

requirements around foreclosure 

timelines and compensatory fees and 

publish applicable announcements 

by September 30, 2012.

10.0% • Met this target: Published updates to 

our servicer requirements in June 2012 

relating to compensatory fees and 

allowable foreclosure timelines that 

enhanced the transparency of these 

requirements.

• Short Sales • Enhance short sales programs that 

include efforts to identify program 

obstacles that impact utilization by 

June 30, 2012. Applicable lender 

announcements to foreclosure 

alternatives by September 30, 2012.

• Met this target: Issued new guidelines 

to mortgage servicers in August 2012 

to align and consolidate existing short 

sale programs into one standard short 

sale program.

 • Deeds in Lieu and Deedsfor-Lease• Design, develop, or enhance deed in 

lieu and deed-for-lease programs that 

include efforts to identify and 

resolve program obstacles that 

impact utilization by September 30, 

2012. Applicable lender 

announcements to foreclosure 

alternatives by December 31, 2012.

• Met this target: Issued new guidelines 

to mortgage servicers in November 

2012 to enhance and align existing 

deeds-in-lieu and deeds-for-lease 

programs. 

• Real Estate Owned Sales 10% • Implement, as needed, loans to 

facilitate real estate owned (REO) 

sales program by June 30, 2012.

10.0% • N/A: Not a Fannie Mae objective; 

applicable only to Freddie Mac.
190

Objectives Weighting Targets

Final 

Score

Summary of Performance 

Against Targets

• Expand financing for small investors 

in REO properties by June 30, 2012.

• Met this target: Implemented 

enhancements to our HomePath® 

financing program in July 2012 to 

provide expanded financing options for 

small investors in REO properties. 

• Initiate disposition pilot, either 

through financing or bulk sales, by 

September 30, 2012.

• Met this target: Completed the first 

transactions under FHFA’s REO pilot 

initiative in September 2012.

• Expand pilot programs and establish 

ongoing sales program, as agreed to 

with FHFA, during 2012.

• Met this target: Plan for ongoing sales 

program provided to FHFA in 

December 2012.

4. Manage Efficiently in 

Support of 

Conservatorship Goals

20% 18.3%

• Conservatorship / Board 

Priorities

20% • Work closely with FHFA toward 

concluding litigation associated with 

private-label securities and whole 

loan repurchase claims, as 

appropriate.

• Prioritize and manage Enterprise 

operations in support of 

conservatorship goals and board 

directions.

• Adapt to evolving conservatorship 

requirements.

• Collaborate fully with FHFA and, 

when requested, the other Enterprise.

• Actively seek and consider public 

input on conservatorship-related 

projects, as requested.

• Effectively identify, communicate, 

and remediate situations that create 

risk for the conservatorships or 

avoidable taxpayer losses.

• Ensure corporate governance 

procedures are maintained, including 

timely reporting to the board and 

adhering to board mandates and 

expectations.

• Take steps to mitigate key person 

dependencies and maintain 

appropriate internal controls and risk 

management governance.

• Achieve milestones agreed to within 

the year with regard to accounting 

alignment.

18.3% • Met 7 of 9 targets: Management 

worked closely with FHFA and the 

Board throughout the year to focus on 

and achieve these conservatorship and 

Board priorities for 2012. The 

company fully achieved all but the two 

following targets:

• Effectively identify, communicate, 

and remediate situations that create 

risk for the conservatorships or 

avoidable taxpayer losses. This 

target was not fully achieved. As of 

year end, certain aspects of the 

company’s internal control 

environment continued to need 

strengthening.

• Take steps to mitigate key person 

dependencies and maintain 

appropriate internal controls and 

risk management governance. This 

target was not fully achieved. While 

the company took steps to mitigate 

key person dependencies and 

maintain appropriate internal 

controls and risk management 

governance, as of year end, certain 

aspects of the company’s internal 

control environment continued to 

need strengthening.

Assessment of Corporate Performance of 2011 Long-Term Incentive Award Goals (Second Installment)

In March 2011, the Board established 2012 corporate performance goals for the second installment of the 2011 long-term 

incentive award. FHFA approved these goals in April 2011. The Board did not assign any relative weight to the goals and the 

Compensation Committee was permitted to consider other factors in addition to the goals in assessing corporate performance. 

In late 2012 and early 2013, the Compensation Committee reviewed the company’s performance against the 2012 

performance goals and related metrics relating to the second installment of the 2011 long-term incentive award. As part of its 

review, the Compensation Committee reviewed management’s assessment of the company’s performance against the goals, 

discussed the company’s performance with the Chief Executive Officer and received input from FHFA on the company’s 

performance against the goals. Based on this evaluation, the Compensation Committee determined that the pool for the 
191

second installment of the 2011 long-term incentive awards for executive officers would be funded at 95% of target. The 

Board of Directors and FHFA approved the Compensation Committee’s determination.

The table below presents our 2012 corporate performance goals and related metrics for purposes of determining the second 

installment of the 2011 long-term incentive award, and management’s assessment of our achievement against these goals and 

metrics. A summary of the Compensation Committee’s assessment of the company’s performance against these goals and 

metrics is provided following the table. 

Goals Metrics Performance Against Goal/Metric

Goal 1: Achieve cost savings 

consistent with the financial 

plan.

Limit core administrative expenses for 2012 

to no more than $1.8 billion.

Achieved this goal, with 2012 core 

administrative expenses of $1.8 billion. 

(Core administrative expenses exclude $607 

million in costs relating to the credit 

organization, Treasury’s Making Home 

Affordable program and extraordinary 

expenses that are included in administrative 

expenses in our statement of operations for 

2012.)

Goal 2: Achieve 2012 credit 

expense target.

Limit total credit-related expenses for 2012 

to no more than $15.9 billion.

Achieved this goal, with total credit-related 

income of $1.1 billion in 2012.

Goal 3: Resolve specified risk 

and control matters identified by 

FHFA.

Complete all remediation activity for risk 

and control matters identified by FHFA

within mutually agreed timeframes. 

Submit remediation plans for all new risk 

and control matters identified by FHFA

within FHFA-mandated timeframes.

Achieved this goal. Completed remediation 

activity for all FHFA-identified risk and 

control matters within agreed-upon 

timeframes. Submitted remediation plans for 

all new FHFA-identified risk and control 

matters within mandated timeframes.

Goal 4: Achieve 2012 

milestones of the operational 

risk plan.

Implement all planned risk controls selfassessments for 2012, and provide all 

deliverables established by the Board within 

agreed-upon timeframes.

Implement remediation plans for all highpriority business unit operational risk issues 

by specified dates.

Achieved this goal. Implemented the 2012 

risk controls self-assessment plan and 

completed all planned risk controls selfassessments for 2012. Implemented the highpriority business unit operational risk 

remediation plans scheduled for 2012.

Goal 5: Meet 2012 targets for 

Operating Plan.

Achieve approved Operating Plan

deliverables for 2012 and manage to overall

budget.

In March 2012, the Board of Directors

modified this metric to add that achievement

of the 2012 milestones should be considered

in light of the goals of the conservatorship

set forth in the 2012 conservatorship

scorecard.

Substantially achieved this goal. Completed 

substantially all 2012 deliverables under the 

Operating Plan. Some 2012 deliverables 

were delayed to 2013, in most cases because 

the final implementation of certain projects 

was postponed to early 2013 in order to 

minimize the operational risk associated with 

implementing multiple new initiatives at the 

same time. In addition, four Operating Plan 

projects have been postponed indefinitely 

due to the prioritization of conservatorship 

scorecard objectives. Costs under the 

Operating Plan during 2012 exceeded the 

budget due primarily to the achievement and 

implementation of some 2012 deliverables 

ahead of schedule.

The Compensation Committee determined that the company substantially achieved all of the 2012 performance goals and 

related metrics relating to the second installment of the 2011 long-term incentive award. Specifically, the Compensation 

Committee determined that the company met expectations with respect to the cost savings goal, exceeded expectations with 

respect to the credit expense goal, resolved all of the risk and control matters identified by FHFA within the agreed-upon 

timeframes, achieved all 2012 milestones of the operational risk plan, and substantially achieved the 2012 targets for the 

Operating Plan. In arriving at its funding determination, the Compensation Committee considered the full scope of 

management’s performance, including management’s performance of the 2012 conservatorship scorecard and the additional 

accomplishments described above under “Assessment of Corporate Performance on 2012 Conservatorship Scorecard.” The 

Compensation Committee also considered the company’s prior performance against its 2011 performance goals. In evaluating 

the company’s performance against these goals, the Compensation Committee did not assign specific weightings to any goal 

or metric.
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Assessment of 2012 Individual Performance

Overview. Half of the named executives’ 2012 at-risk deferred salary, or 15% of their overall 2012 total target direct 

compensation, was subject to reduction based on individual performance in 2012, as determined by the Board of Directors 

with FHFA’s approval. In addition, the amounts of the second installment of the current named executives’ 2011 long-term 

incentive awards took into account not only the company’s performance against the 2012 corporate goals and metrics 

described above, but also an assessment by the Board of Directors of each named executive’s performance during the 

applicable performance periods, as well as retention considerations. 

The Board (excluding Mr. Mayopoulos) assessed the Chief Executive Officer’s performance with input from the 

Compensation Committee and assessed each other named executive’s performance with input from both the Compensation 

Committee and the Chief Executive Officer. Based on these assessments, the Board used its judgment and discretion to 

determine the amount of compensation it deemed appropriate for each named executive. In each case, the Board’s 

determination was consistent with the recommendations of the Chief Executive Officer and the Compensation Committee. 

FHFA reviewed and approved these determinations. More information on the compensation arrangements for each of our 

named executives is set forth in the “Summary Compensation Table for 2012, 2011 and 2010.”

Timothy Mayopoulos, President and Chief Executive Officer. The Board determined that the individual performance-based 

portion of Mr. Mayopoulos’ 2012 at-risk deferred salary would be $398,250, which equals his target, and that the second 

installment of his 2011 long-term incentive award would be $521,538, compared with a target of $490,167. Mr. Mayopoulos’

individual performance was evaluated in part based on the company’s performance against the 2012 conservatorship 

scorecard and the corporate performance goals for the applicable performance periods, reflecting the fact that he has been 

accountable for the success of the entire organization since he became Chief Executive Officer in June 2012. In addition, 

other achievements not reflected in the 2012 conservatorship scorecard or the corporate performance goals were considered. 

The Board determined that, under Mr. Mayopoulos’ leadership since he became Chief Executive Officer in June 2012, the 

company has been profitable, had record annual net income for 2012, and performed substantially all of the 2012 

performance goals set for the organization by FHFA and the Board. Mr. Mayopoulos’ other accomplishments in 2012 

included significantly reducing the organization’s credit-related expenses while allowing the company to continue to 

effectively provide liquidity to the housing market, and promoting the company’s ability to assist troubled borrowers while 

further developing a high-quality book of new business. Mr. Mayopoulos also oversaw the organization’s achievement of a 

substantial portion of its 2012 Operating Plan deliverables and improvement in the company’s risk and control environment. 

The Board also recognized Mr. Mayopoulos’ exceptional leadership during the organization’s transition of chief executive 

officers and other members of management, his development of a strong new executive management team and his effective 

communications with the Board and FHFA regarding implementation of the Board’s and FHFA’s 2012 priorities for the 

company. The Board also considered Mr. Mayopoulos’ performance as Chief Administrative Officer, General Counsel and 

Corporate Secretary. For the portion of the year that he served in these roles, the Board considered his continued outstanding 

service as chief adviser to the Chief Executive Officer, leadership of the Legal, Human Resources, Communications and 

Marketing Services, and Government and Industry Relations divisions of the company, as well as his leadership on the 

company’s strategic initiatives. The Board recognized that Mr. Mayopoulos successfully implemented the 2012 executive 

compensation program developed by FHFA and furthered the company’s contingency planning processes, resulting in an 

improved risk environment. The Board concluded that, overall, Mr. Mayopoulos’ 2012 performance was exceptionally strong 

when measured against applicable goals and exceeded expectations. 

Michael Williams, Former President and Chief Executive Officer. The Board determined that the individual performancebased portion of Mr. Williams’ 2012 at-risk deferred salary would be $467,308, which equals the portion of his target that he 

earned prior to his departure from the company. In recommending and determining the amount of the individual 

performance-based portion of Mr. Williams’ 2012 at-risk deferred salary, the Compensation Committee and the Board 

considered in part the company’s performance against the 2012 conservatorship scorecard and the corporate performance 

goals for the applicable performance periods, reflecting the fact that Mr. Williams was the company’s Chief Executive Officer 

until June 2012. In addition, other achievements not reflected in the 2012 conservatorship scorecard or the corporate 

performance goals were considered. The Board acknowledged that under Mr. Williams’ leadership the company posted a 

profitable first quarter and a profitable second quarter shortly after Mr. Williams stepped down from the position of Chief 

Executive Officer, and that Mr. Williams’ performance helped make possible the company’s record 2012 annual net income. 

The Board also recognized Mr. Williams’ contributions towards managing the organization’s management turnover, including 

the successful transition of his role as Chief Executive Officer of the company, during the period between when he informed 

the company in January 2012 that he would step down as Chief Executive Officer and his departure. Mr. Williams did not 

receive the second installment of his 2011 long-term incentive award because he left the company before the payment date 

for the installment.
193

Susan McFarland, Executive Vice President and Chief Financial Officer. The Board determined that the individual 

performance-based portion of Ms. McFarland’s 2012 at-risk deferred salary would be $324,000, compared with a target of 

$432,000, and that the second installment of her 2011 long-term incentive award would be $181,150, compared with target of 

$254,246. In recommending and determining these amounts, the Chief Executive Officer, the Compensation Committee and 

the Board of Directors considered Ms. McFarland’s achievements and her leadership of the Finance organization in 2012. 

Ms. McFarland reconstituted and strengthened the Capital Working Group in 2012. In addition, Ms. McFarland oversaw the 

alignment of the company’s new accounting policies with Freddie Mac, as required by the 2012 conservatorship scorecard. 

Ms. McFarland also improved quarterly business reviews to provide increased understanding and transparency into business 

activities and performance, developed a plan to modernize the company’s financial reporting capabilities, and restructured the 

Finance organization’s shared services group to increase focus on critical capabilities. The Chief Executive Officer, the 

Compensation Committee and the Board of Directors also recognized there were opportunities to improve the company’s 

modeling and analytics and financial planning and analysis capabilities, both of which were identified early in 2012. 

David Benson, Executive Vice President—Capital Markets, Securitization & Corporate Strategy. The Board determined that 

the individual performance-based portion of Mr. Benson’s 2012 at-risk deferred salary would be $378,000, which equals his 

target, and that the second installment of his 2011 long-term incentive award would be $465,000, compared with a target of 

$465,167. In recommending and determining these amounts, the Chief Executive Officer, the Compensation Committee and 

the Board of Directors considered Mr. Benson’s many achievements and his expanded leadership role in 2012. Under Mr. 

Benson’s leadership, the Capital Markets group successfully managed significant growth in volumes and profitability for 

Capital Markets products and services in 2012, as well as the company’s mortgage portfolio. He also successfully carried out 

a wide variety of new assignments in 2012. Mr. Benson successfully led the company’s teams working with FHFA and 

Freddie Mac on the 2012 conservatorship scorecard objectives to develop both (1) a plan for the design and implementation 

of a new securitization platform and (2) a plan for a new model pooling and servicing agreement to be used as part of the 

company’s trust documentation. Mr. Benson also assumed responsibility for, restructured and enhanced the company’s 

Enterprise Project Management office, which coordinates the strategic alignment, execution and administration of all major 

projects across the company, including the 2012 conservatorship scorecard items, corporate strategic initiatives and other 

significant projects. In addition, Mr. Benson oversaw the preparation of the company’s annual risk management plan to 

Treasury, which is a new requirement that was added to the company’s senior preferred stock purchase agreement with 

Treasury in August 2012, and delivered the plan within a short timeframe.

Terence Edwards, Executive Vice President—Credit Portfolio Management. The Board determined that the individual 

performance-based portion of Mr. Edwards’ 2012 at-risk deferred salary would be $378,000, which equals his target, and that 

the second installment of his 2011 long-term incentive award would be $465,000, compared with a target of $465,167. In 

recommending and determining these amounts, the Chief Executive Officer, the Compensation Committee and the Board of 

Directors considered Mr. Edwards’ many achievements and continued outstanding leadership of the credit portfolio 

management division in 2012. Mr. Edwards successfully led a number of the company’s 2012 conservatorship scorecard 

initiatives, including the REO pilot initiative, the servicing alignment initiative, and the enhancements of the company’s short 

sale, deeds-in-lieu and deeds-for-lease programs. In addition, under Mr. Edwards’ leadership of the credit portfolio 

management division in 2012, the company: reduced the number of its seriously delinquent single-family loans to below 

600,000 as of December 31, 2012 from a peak of more than 1 million in 2010; reduced its single-family serious delinquency 

rate by 62 basis points during the year; and continued to improve its REO sales. Mr. Edwards also played an important role in 

negotiating the repurchase resolution with Bank of America. In addition, Mr. Edwards led the teams that: established the first 

servicing flow transfers with two major lenders; developed a new proposal for lender-placed insurance; and developed new 

modification programs to assist distressed borrowers.

John Nichols, Executive Vice President and Chief Risk Officer. The Board determined that the individual performance-based 

portion of Mr. Nichols’ 2012 at-risk deferred salary would be $276,923, which equals his target, and that the second 

installment of his 2011 long-term incentive award would be $187,069, compared with a target of $198,904. In recommending 

and determining these amounts, the Chief Executive Officer, the Compensation Committee and the Board of Directors 

considered Mr. Nichols’ many achievements in 2012 and his leadership of the Enterprise Risk Management organization. In 

2012, Mr. Nichols worked with the Board’s Risk Policy & Capital Committee to draft and adopt a new enterprise risk 

framework. Mr. Nichols also oversaw the implementation of new credit risk limits across the company, as well as new 

counterparty standards and processes. Mr. Nichols also supervised the company’s negotiation of the repurchase resolution 

with Bank of America. In addition, Mr. Nichols focused on infrastructure, improving reporting, establishing policies, and the 

company’s operational risk program. Mr. Nichols also served as chair of the company’s Cultural Steering Group and vice 

chair of the Diversity Advisory Council.
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Other Executive Compensation Considerations

Role of Compensation Consultants

The Compensation Committee’s independent compensation consultant is Frederic W. Cook & Co., Inc. (“FW Cook”). 

Management’s outside compensation consultant is McLagan. 

In 2012, McLagan advised management and the Compensation Committee on various compensation and human resources 

matters, including:

• providing recommendations for adjustments to the company’s comparator group for consistency with Freddie Mac’s 

comparator group; 

• providing recommendations and feedback on the development of the company’s 2012 executive compensation 

program;

• advising on market trends, competitive pay levels and various compensation proposals for new hires and 

promotions; and

• providing actual and forecasted market compensation data for senior management positions, including the named 

executives’ positions.

In 2012, FW Cook advised the Compensation Committee and the Board on various executive compensation matters, 

including:

• assisting the Compensation Committee in its discussions with FHFA on the company’s 2012 executive 

compensation program and communicating with FHFA on the Compensation Committee’s behalf;

• advising the Compensation Committee on adjustments to the company’s comparator group for consistency with 

Freddie Mac’s comparator group; 

• reviewing McLagan’s analysis of market compensation data for select senior management positions; 

• reviewing various management proposals relating to compensation structures and levels, and for new hires and 

promotions;

• reviewing the company’s risk assessment of its 2012 compensation program;

• assisting the Compensation Committee in its evaluation of the company’s performance against the 2012 

conservatorship scorecard and the 2012 corporate performance goals relating to the second installment of the 2011 

long-term incentive award; and

• informing the Compensation Committee of regulatory updates and market trends in compensation and benefits.

Compensation Consultant Independence Assessment

In December 2012, the Compensation Committee assessed the independence of FW Cook and McLagan. Based on its 

assessment, the Compensation Committee determined that FW Cook is independent from management and has no material 

conflicts of interest.

Because McLagan was retained by and provides services to management, it is not an independent adviser. In addition to the 

services McLagan performed for management that are described above, other potential conflicts identified include services 

performed by McLagan affiliates for management that are unrelated to executive compensation. No other potential conflicts 

of interest were identified with respect to McLagan.

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 company’s senior executives as compared to a group of similar firms. In 2012, FHFA

requested that we and Freddie Mac consider using the same comparator group of companies for benchmarking executive 

compensation, in order to provide consistency in the market data used for compensation decisions. In response to this request, 

both we and Freddie Mac made adjustments to our respective comparator groups so that they would be consistent. In 

September 2012, the Compensation Committee revised our primary comparator group to consist of the following 17 

companies:
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• Allstate Corporation • Fifth Third Bancorp • Prudential Financial, Inc.

• Ally Financial Inc. • Freddie Mac • Regions Financial Corporation

• American International Group Inc. • Hartford Financial Services 

Group, Inc.

• State Street Corporation

• Bank of New York Mellon 

Corporation

• Metlife, Inc. • SunTrust Banks, Inc.

• BB&T Corporation • Northern Trust Corporation • U.S. Bancorp 

• Capital One Financial Corporation • PNC Financial Services Group, 

Inc.

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. The only directly 

comparable firm to us is Freddie Mac. Factors relevant to the selection of this comparator group included their status as 

U.S. public companies, the industry in which they operate (each is a commercial bank, insurance company, finance lessor or 

government-sponsored enterprise) and their size (in terms of total revenues) relative to the size of Fannie Mae.

The Compensation Committee determined to continue the bifurcated approach to benchmarking senior executive positions 

that it adopted in 2011. 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 company benchmarks pay levels against a broader group of 

companies. We believe this more comprehensive approach results in more relevant and better aligned market data.

In September 2012, the Compensation Committee determined that the current named executives’ compensation would be 

benchmarked as follows:

• The compensation of our Chief Executive Officer (Mr. Mayopoulos), Chief Financial Officer (Ms. McFarland) and 

Executive Vice President—Capital Markets, Securitization & Corporate Strategy (Mr. Benson) would be 

benchmarked against our revised comparator group identified above;

• The compensation of our Executive Vice President and Chief Risk Officer (Mr. Nichols) would be benchmarked 

against both the revised comparator group and a group of large banks consisting of Bank of America Corporation, 

Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Company; and

• The compensation of our Executive Vice President—Credit Portfolio Management (Mr. Edwards) would be 

benchmarked against the group of large banks previously described, multifamily specialty firms, Freddie Mac and 

Ally Financial Inc.

In October 2012, McLagan provided the Compensation Committee with updated benchmarking data for the current named 

executives following these instructions and the Compensation Committee discussed this data at its November 2012 meeting. 

In each case, the data compared the named executives’ total target direct compensation for 2012 under the 2012 executive 

compensation program (which excludes the second installment of the 2011 long-term incentive award they received in 

February 2013) with the market median of 2011 direct compensation for comparable positions in the applicable comparator 

group of companies based on McLagan’s proprietary database and as disclosed in the companies’ annual reports, proxy 

statements and SEC filings. The benchmarking took into account individual variations in job scope for one of the named 

executives (Mr. Benson). As shown in the table below, each current named executive’s total target direct compensation for 

2012 under the 2012 executive compensation program was more than 30% below the market median.

The table below displays the current named executives’ total target direct compensation and total actual direct compensation 

for 2012 under the 2012 executive compensation program (which excludes the second installment of the 2011 long-term 

incentive award), in each case as compared to the market median of 2011 total direct compensation for the applicable 

comparator group of companies. 
196

Named Executive

Target Direct

Compensation 

% below

Market Median

Actual Direct

Compensation % 

below

Market Median

Timothy Mayopoulos(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71% -72%

Susan McFarland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32 -35

David Benson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31 -31

Terence Edwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42 -43

John Nichols(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34 -39

__________

(1) Mr. Mayopoulos became our Chief Executive Officer in June 2012. Prior to becoming our Chief Executive Officer, he was Fannie 

Mae’s Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary. For purposes of this 

benchmarking, Mr. Mayopoulos’ 2012 total target direct compensation (which did not increase as a result of his promotion to Chief 

Executive Officer) was benchmarked against the compensation of Chief Executive Officers in the applicable comparator group of 

companies. Effective January 1, 2013, Mr. Mayopoulos’ total direct compensation consists solely of $600,000 in base salary, which is 

94% below the market median of 2011 total direct compensation for Chief Executive Officers in the applicable comparator group.

(2) Mr. Nichols’ total target direct compensation used for purposes of this comparison reflects his increased annual target direct 

compensation effective May 18, 2012 ($2,000,000).

Compensation Recoupment Policy

Beginning with compensation for the 2009 performance year, our executive officers’ compensation (other than executive 

officers serving on an interim basis) is subject to the following forfeiture and repayment provisions, also known as 

“clawback” provisions:

• Materially Inaccurate Information. If an executive officer has been granted deferred salary (defined in the 

compensation recoupment policy as both the awards made under the deferred pay program established in 2009 and 

deferred salary under the executive compensation program established in 2012) or incentive payments (including longterm incentive awards) based on materially inaccurate financial statements or any other materially inaccurate 

performance metric criteria, he or she will forfeit or must repay amounts granted in excess of the amounts the Board of 

Directors determines would likely have been granted using accurate metrics.

• Termination for Cause. If we terminate an executive officer’s employment for cause, he or she will immediately forfeit 

all deferred salary, long-term incentive awards and any other incentive payments that have not yet been paid. We may 

terminate an executive officer’s employment for cause if we determine that the officer has: (a) materially harmed the 

company by, in connection with the officer’s 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.

• Subsequent Determination of Cause. If an executive officer’s employment was not terminated for cause, but the Board 

of Directors later determines, within a specified period of time, that he or she could have been terminated for cause and 

that the officer’s actions materially harmed the business or reputation of the company, the officer will forfeit or must 

repay, as the case may be, deferred salary, long-term incentive awards and any other incentive payments received by the 

officer to the extent the Board of Directors deems appropriate under the circumstances. The Board of Directors may 

require the forfeiture or repayment of all deferred salary, long-term incentive awards and any other incentive payments 

so that the officer is in the same economic position as if he or she had been terminated for cause as of the date of 

termination of his or her employment.

• Effect of Willful Misconduct. If an executive officer’s employment: (a) is terminated for cause (or the Board of 

Directors later determines that cause for termination existed) due to either (i) willful misconduct by the officer in 

connection with his or her performance of his or her duties for the company or (ii) the officer has been convicted of, or 

pleaded nolo contendere with respect to, a felony consisting of an act of willful misconduct in the performance of his or 

her duties for the company and (b) in the determination of the Board of Directors, this has materially harmed the 

business or reputation of the company, then, to the extent the Board of Directors deems it appropriate under the 

circumstances, in addition to the forfeiture or repayment of deferred salary, long-term incentive awards and any other 

incentive payments described above, the executive officer will also forfeit or must repay, as the case may be, deferred 

salary and annual incentives or long-term awards paid to him or her in the two-year period prior to the date of 

termination of his or her employment or payable to him or her in the future. Misconduct is not considered willful unless 
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it is done or omitted to be done by the officer in bad faith or without reasonable belief that his or her action or omission 

was in the best interest of the company.

Certain of the incentive-based or equity-based compensation for our Chief Executive Officer and Chief Financial Officer also 

may be subject to a requirement that they be reimbursed to the company in the event that Section 304 of the Sarbanes-Oxley 

Act of 2002 applies to that compensation.

The Compensation Committee plans to review our compensation recoupment policy and revise it as necessary to comply 

with the Dodd-Frank Wall Street Reform and Consumer Protection Act once rules implementing the Act’s clawback 

requirements have been finalized by the SEC.

Stock Ownership and Hedging Policies

In January 2009, our Board eliminated our stock ownership requirements. We ceased paying new stock-based compensation 

to our executives after entering into conservatorship in September 2008. All employees, including our named executives, are 

prohibited from transacting in derivative securities related to our securities, including options, puts and calls, other than 

pursuant to our stock-based benefit plans.

Tax Deductibility of our Compensation Expenses

Subject to certain exceptions, section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount that a 

company may annually deduct for compensation to its Chief Executive Officer and certain other named executives, unless, 

among other things, the compensation is “performance-based,” as defined in section 162(m), and provided under a plan that 

has been approved by the shareholders. We have not adopted a policy requiring all compensation to be deductible under 

section 162(m). This approach allows us flexibility in light of the conservatorship. Deferred salary and long-term incentive 

awards received by the named executives do not qualify as performance-based compensation under section 162(m).

2013 Compensation Changes

CEO Compensation Changes

As described above under “Elements of 2012 Executive Compensation Program—Compensation Arrangements with our 

Chief Executive Officer,” effective January 1, 2013, Mr. Mayopoulos’ total direct compensation consists solely of $600,000 

in base salary. He will not earn any deferred salary for 2013. He continues to be eligible to receive the deferred salary he 

earned for 2012 on the applicable payment dates in 2013, and he was paid the second installment of his 2011 long-term 

incentive award in February 2013. He also continues to be eligible to participate in the employee benefit programs made 

available to all Fannie Mae executives.

CFO Compensation Changes

Ms. McFarland has announced her retirement from the company. Mr. Benson will succeed Ms. McFarland as the company’s 

Chief Financial Officer, effective as of April 3, 2013. Ms. McFarland will remain employed by the company as a senior 

adviser for a transition period that will end no later than June 30, 2013. 

In addition to his new responsibilities as Chief Financial Officer, Mr. Benson will retain responsibility for corporate strategy, 

treasury, balance sheet management and securitization. To reflect the increased scope of his new position, Mr. Benson’s target 

total direct annual compensation will increase to $3,000,000, comprised of three components: (1) annual base salary of 

$600,000; (2) annual fixed deferred salary of $1,500,000; and (3) target annual at-risk deferred salary of $900,000. The 

change in Mr. Benson’s compensation will be effective as of April 3, 2013 and his deferred salary for 2013 will be prorated to 

reflect the change in his compensation rate as of this date. FHFA has approved the terms of Fannie Mae’s new compensation 

arrangements with Mr. Benson.

Ms. McFarland will continue to earn compensation under her current compensation arrangement through the conclusion of 

her service as a senior adviser to the company. Under the terms of Ms. McFarland’s offer letter from the company, she is 

obligated to repay to the company the final $200,000 installment payment of her sign-on award if she chooses to leave the 

company prior to July 31, 2013. The Board has waived the requirement that Ms. McFarland repay this final installment 

payment, contingent upon Ms. McFarland’s execution of a release of claims in a form satisfactory to the company. FHFA has 

approved these arrangements. 

Change to Fixed Deferred Salary Forfeiture Provisions

As described under “Elements of 2012 Executive Compensation Program—Direct Compensation,” under the 2012 executive 

compensation program as initially established by FHFA in March 2012, earned but unpaid fixed deferred salary for 2012 and 

subsequent performance years was subject to reduction if a named executive left the company prior to January 31, 2014. If 
198

the named executive left the company prior to this date, the amount of earned but unpaid fixed deferred salary received by the 

named executive would be reduced by 2% for each full or partial month by which the executive’s separation date preceded 

January 31, 2014. Under the original terms of the 2012 executive compensation program, the January 31, 2014 date by which 

a named executive’s deferred salary would be fully vested was applicable not only to 2012 fixed deferred salary but also to 

fixed deferred salary earned for 2013 and subsequent performance years.

On March 27, 2013, FHFA directed us to revise the 2012 executive compensation program so that, effective for 2013 and 

subsequent performance years, earned but unpaid fixed deferred salary will be reduced by 2% for each full or partial month 

by which the named executive’s separation date precedes January 31 of the second year following the performance year. 

Accordingly, for 2013 and each subsequent performance year, the vesting schedule for earned but unpaid fixed deferred 

salary will restart each year and earned but unpaid fixed deferred salary will not be fully vested until January 31 of the second 

year following the performance year. For example, the amount of earned but unpaid fixed 2013 deferred salary received by a 

named executive if he or she left the company (other than due to termination for cause) would be reduced by 2% for each full 

or partial month by which the executive’s separation date preceded January 31, 2015. FHFA made this change to the 2012 

executive compensation program in order to maintain the retention feature of fixed deferred salary for 2013 and subsequent 

performance years.

2013 Performance Goals

As described under “2012 Executive Compensation Program—Elements of 2012 Executive Compensation Program—Direct 

Compensation,” half of the named executives’ at-risk deferred salary is subject to reduction based on corporate performance 

as determined by FHFA. The remaining half of at-risk deferred salary is subject to reduction based on individual performance 

as determined by the Board of Directors with FHFA’s approval.

On March 4, 2013, the Acting Director of FHFA released 2013 corporate performance goals and related targets for Fannie 

Mae and Freddie Mac, referred to as the 2013 conservatorship scorecard. The company’s performance against the 2013 

conservatorship scorecard, as determined by FHFA with input from management and the Board of Directors, will determine 

the amount of the corporate-performance based component of the named executives’ 2013 at-risk deferred salary. See our 

Current Report on Form 8-K filed with the SEC on March 8, 2013 for a description of the 2013 conservatorship scorecard.

On March 28, 2013, our Board of Directors adopted the following additional performance goals for 2013, referred to as the 

2013 Board of Directors goals. Performance against the 2013 Board of Directors goals will be a factor that the Board of 

Directors considers in determining the individual performance of the named executives for purposes of the individual 

performance-based component of the named executives’ 2013 at-risk deferred salary.

1. Achieve key financial targets, including acquiring and managing a profitable, high-quality book of new business from 

2009 forward. Metrics associated with this goal consist of generating projected returns in excess of our cost of capital on 

our 2013 single-family and multifamily acquisitions, managing our businesses within Board risk limits, and limiting our 

core administrative expenses for 2013.

2. Serve the housing market by being a major source of liquidity, effectively managing our legacy book of business and 

assisting troubled borrowers. Metrics associated with this goal consist of reducing the number of our seriously 

delinquent single-family loans and meeting our obligations as program administrator of the Department of the Treasury’s 

Making Home Affordable Program.

3. Improve the company’s risk, control and compliance environment. Most of the metrics associated with this goal seek to 

address various risk, control and compliance matters raised by FHFA or Internal Audit. Other metrics associated with this 

goal consist of accomplishing specified 2013 enterprise risk management goals and meeting the 2013 milestones relating 

to the implementation of two safety and soundness initiatives (a new loan accounting platform and a new data center).

4. Improve the company’s capabilities, infrastructure and efficiency. Metrics associated with this goal consist of achieving 

specified 2013 investment plan goals (including maintenance projects), and developing and meeting the 2013 milestones 

of a human capital plan.

The Board expects these goals to be accomplished within the risk, control and compliance framework set forth in the third 

objective listed above.
199

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 Form 10-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 Form 10-K.

Compensation Committee:

Brenda J. Gaines, Chair

Egbert L. J. Perry 

Jonathan Plutzik

David H. Sidwell

COMPENSATION RISK ASSESSMENT

We conducted a risk assessment of our 2012 employee compensation policies and practices. In conducting this risk 

assessment, we reviewed, among other things, our compensation plans, pay profiles, performance goals and performance 

appraisal management process. We also assessed whether policies, procedures or other mitigating controls existed that would 

reduce the opportunity for excessive or inappropriate risk-taking within our compensation policies and practices.

Based on the results of our risk assessment, we concluded that our 2012 employee compensation policies and practices do not 

create risks that are reasonably likely to have a material adverse effect on the company. Several factors contributed to our 

conclusion, including:

• Payment of incentive compensation is based on the achievement of performance metrics that we have concluded do not 

encourage unnecessary or excessive risk-taking. Our mix of multiple performance metrics without undue emphasis on 

any one metric provides an appropriate balance of incentives.

• Our extensive performance appraisal process is designed to ensure achievement of goals without encouraging 

executives or employees to take excessive risks.

• FHFA, with input from the Compensation Committee and Board of Directors, has the discretion to determine or 

approve if scorecard goals have been achieved, the funding level for deferred salary and long-term incentive awards, 

and the amount of incentive compensation paid to individual executive officers.

• Deferred salary and incentive compensation for our executive officers are subject to the terms of a clawback policy.

• We have no pre-arranged severance arrangements for our executive officers that would guarantee additional 

compensation when an executive leaves.

Although we determined that our 2012 employee compensation policies and practices do not create risks that are reasonably 

likely to have a material adverse effect on the company, we believe that we face an elevated risk of executive officer attrition 

due in part to the level of our senior executives’ compensation as compared to comparable firms. As described in “Other 

Executive Compensation Considerations—Comparator Group and Role of Benchmark Data,” total target direct compensation 

for 2012 under the 2012 executive compensation program for each of our current named executives was more than 30% 

below the market median for comparable firms and, in the case of our Chief Executive Officer, was more than 70% below the 

market median. Other factors that increase our risk of executive officer attrition include our conservatorship status, the 

uncertainty of our future, and the heightened scrutiny of our actions by Congress and our regulators. See “Risk Factors” for a 

discussion of the risks associated with executive and employee retention.

COMPENSATION TABLES

Differences in 2012, 2011 and 2010 Compensation

As described above in “Compensation Discussion and Analysis,” FHFA instituted new compensation arrangements for our 

named executives in 2012. Under these new arrangements, FHFA:

• reduced total target direct compensation for each named executive by 10% from 2011 levels, except for one named 

executive who received a pay increase in connection with a promotion;
200

• eliminated long-term incentive awards as a component of the 2012 executive compensation program, so that the 

named executives’ direct compensation consists solely of base salary and deferred salary paid in cash; and

• increased the amount of the named executives’ deferred salary as a result of the elimination of long-term incentive 

awards.

Although FHFA reduced total target direct compensation for most of our named executives under the 2012 executive 

compensation program, total compensation for our named executives reported for 2012 in the “Summary Compensation 

Table for 2012, 2011 and 2010” is generally higher than for 2011 because the named executives received the final installment 

of their 2011 long-term incentive award in February 2013, and this installment is required to be reported as 2012 

compensation for purposes of the table. Although long-term incentive awards were eliminated as a component of the 2012 

executive compensation program, the named executives were entitled to receive the final installment of their 2011 long-term 

incentive awards that were granted under our prior executive compensation program. This installment is required to be 

reported as 2012 compensation for purposes of the Summary Compensation Table because it was determined based on 

performance for both 2011 and 2012. Compensation reported in the Summary Compensation Table for 2013 will not include 

a long-term incentive award component.

In addition, as a result of the changes to the named executives’ compensation arrangements instituted in 2012, the amounts 

shown in the Summary Compensation Table in the “Fixed Deferred Salary (Service-Based)” sub-column and the “At-Risk 

Deferred Salary (Performance-Based)” sub-column are generally higher for 2012 than for 2011 and 2010, and the amounts 

shown in the “Long-Term Incentive Awards” sub-column are lower than for 2011.

Summary Compensation Table for 2012, 2011 and 2010

The following table shows summary compensation information for 2012, 2011 and 2010 for the named executives. For more 

information on the compensation reflected in this table, see the footnotes following the table and “Differences in 2012, 2011 

and 2010 Compensation” above.

Salary

($)

Non-Equity

Incentive

Plan

Compensation

($)

Name and

Principal Position Year

Base

Salary(1)

Fixed 

Deferred

Salary

(ServiceBased)(2)Bonus

($)(3)

At-Risk 

Deferred

Salary

(PerformanceBased)(4)

Long-Term

Incentive

Awards(5)

Change in

Pension

Value and

Nonqualified

Deferred

Compensation 

Earnings

($)(6)

All Other

Compensation 

($)(7)

Total

($)

Timothy Mayopoulos(8). . . . . 2012 500,000 1,358,500 — 776,588 521,538 — 80,000 3,236,626

President and Chief 2011 500,000 734,834 — 624,608 952,149 — 80,000 2,891,591

Executive Officer 2010 500,000 734,834 — 661,350 485,000 — 88,308 2,469,492

Michael Williams(9). . . . . . . . 2012 560,769 1,063,385 — 911,250 — 2,491,883 9,142 5,036,429

President and Chief 2011 900,000 1,550,000 — 1,317,500 1,491,000 1,268,300 11,300 6,538,100

Executive Officer 2010 900,000 1,550,000 — 1,395,000 900,000 833,156 16,300 5,594,456

Susan McFarland(10). . . . . . . . 2012 600,000 1,416,000 800,000 734,400 181,150 — 100,013 3,831,563

Executive Vice President 2011 288,462 766,667 900,000 651,667 218,906 — 94,391 2,920,093

and Chief Financial Officer

David Benson . . . . . . . . . . . . 2012 500,000 1,264,000 — 737,100 465,000 321,555 13,350 3,301,005

Executive Vice 2011 500,000 684,834 — 582,108 820,553 299,704 15,500 2,902,699

President—Capital 2010 500,000 684,834 — 616,350 440,000 218,844 22,250 2,482,278

Markets, Securitization &

Corporate Strategy

Terence Edwards. . . . . . . . . . 2012 500,000 1,264,000 — 737,100 465,000 — 80,000 3,046,100

Executive Vice 2011 500,000 684,834 — 582,108 854,744 — 80,000 2,701,686

President—Credit 2010 500,000 684,834 — 616,350 420,000 — 54,439 2,275,623

Portfolio Management

John Nichols(11). . . . . . . . . . . . 2012 430,962 861,538 — 540,000 187,069 — 66,862 2,086,431

Executive Vice President

and Chief Risk Officer

__________

(1) Amounts shown in this sub-column consist of base salary paid during the year on a bi-weekly basis. Amount of base salary for Mr. 

Williams includes $34,615 paid out upon termination of his employment for unused vacation days.
201

(2) Amounts shown in this sub-column consist of the fixed, service-based portion of 2012, 2011 and 2010 deferred salary. As described in 

footnote 4 below, the remaining portion of 2012, 2011 and 2010 deferred salary is included in the “Non-Equity Incentive Plan 

Compensation” column because it is performance-based. Deferred salary for 2012 generally will be paid in four equal installments in 

March, June, September and December 2013. More information about 2012 deferred salary is presented in “Compensation Discussion 

and Analysis—2012 Executive Compensation Program—Elements of 2012 Executive Compensation Program—Direct 

Compensation.” 

(3) As described in footnote 10 below, amounts shown for 2012 and 2011 in this column consist of Ms. McFarland’s $1.7 million sign-on 

award, which was awarded in July 2011.

(4) Amounts shown for 2012, 2011 and 2010 in this sub-column consist of the at-risk, performance-based portion of 2012, 2011 and 2010 

deferred salary earned by each named executive. Half of 2012 at-risk deferred salary was subject to reduction based on corporate 

performance for the year and the remaining half was subject to reduction based on individual performance for the year. The table 

below provides more detail on the 2012 at-risk deferred salary awarded to each named executive: 

2012 Corporate PerformanceBased At-Risk Deferred Salary2012 Individual PerformanceBased At-Risk Deferred Salary

Name Amount % of Target Amount % of Target

Timothy Mayopoulos. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,338 95% 398,250 100%

Michael Williams. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,942 95% 467,308 100%

Susan McFarland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,400 95% 324,000 75%

David Benson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359,100 95% 378,000 100%

Terence Edwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359,100 95% 378,000 100%

John Nichols. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,077 95% 276,923 100%

Because Mr. Williams left the company in July 2012, he was eligible to receive a maximum of $934,615 in 2012 at-risk deferred 

salary, which is the portion of his original $1,620,000 2012 at-risk deferred salary target that he earned prior to his departure from the 

company. The percentages in each of the “% of Target” columns for Mr. Williams in the table above reflect the percentage of the 

earned portion of his target. See footnote 9 below for additional information. 

The amount of the performance-based portion of 2011 and 2010 deferred salary was based solely on corporate performance for the 

applicable year. The amount of 2011 deferred salary awarded to each applicable named executive represented 85% of the target 

amount of the performance-based portion of deferred salary. The amount of 2010 deferred salary awarded to each applicable named 

executive represented 90% of the target amount of the performance-based portion of deferred salary.

(5) For all of the named executives except for Mr. Williams, amounts shown for 2012 in this sub-column consist of the second installment 

of the 2011 long-term incentive award, which was based on corporate and individual performance for both 2011 and 2012. The second 

installment of the 2011 long-term incentive award was determined in early 2013 and paid in February 2013. As described in footnote 9 

below, Mr. Williams left the company in July 2012 and therefore he did not receive the second installment of his 2011 long-term 

incentive award. 

For all of the applicable named executives except for Ms. McFarland, amounts shown for 2011 in this sub-column consist of both: 

(1) the first installment of the 2011 long-term incentive award, which was based on corporate and individual performance for 2011; 

and (2) the second installment of the 2010 long-term incentive award, which was based on corporate and individual performance for 

both 2010 and 2011. As described in footnote 10 below, Ms. McFarland joined the company in 2011 and therefore she did not receive 

a 2010 long-term incentive award. Accordingly, for Ms. McFarland, the amount shown for 2011 in this sub-column consists only of 

the first installment of her 2011 long-term incentive award, which was prorated based on her hire date. 

The table below provides details on the amounts of each of these awards for each named executive other than Mr. Nichols (who was 

not a named executive in 2011): 

Name

2011 Long-term

Incentive Award

(First Installment)

2010 Long-term

Incentive Award

(Second Installment)

Timothy Mayopoulos. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 483,794 $ 468,355

Michael Williams. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714,000 777,000

Susan McFarland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,906 —

David Benson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,276 410,277

Terence Edwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439,582 415,162

Both the first installment of the 2011 long-term incentive award and the second installment of the 2010 long-term incentive award 

were paid in February 2012. 

Amounts shown for 2010 in this sub-column consist solely of the first installment of the 2010 long-term incentive award, which was 

based on corporate and individual performance for 2010. 
202

(6) The reported amounts represent change in pension value. We calculated these amounts using the same assumptions we use for 

financial reporting under GAAP, using a discount rate of 4.15% as of December 31, 2012. None of our named executives received 

above-market or preferential earnings on nonqualified deferred compensation. 

Mr. Williams left the company in July 2012 and began receiving retirement benefit payments in February 2013, based on a benefit 

commencement date of November 1, 2012, at age 55. Accordingly, for purposes of determining Mr. Williams’ change in pension 

value, we calculated Mr. Williams’ pension value as of December 31, 2012 based on his actual benefit commencing at age 55. If we 

had calculated Mr. Williams’ change in pension value assuming that he would remain in service until the normal retirement ages under 

the applicable pension plans, the increase in pension value reported in this column would have been $1,112,108. See “Pension 

Benefits” below for more information.

 The discount rate used to determine pension value as of December 31, 2012 decreased by 80 basis points from the rate used as of 

December 31, 2011. Of the $2,491,883 increase in pension value reported for Mr. Williams, $1,379,775 was attributable to his election 

to begin receiving benefits at age 55 rather than at the normal retirement ages under the plans, $822,800 was attributable to changes in 

actuarial assumptions (primarily the reduction in the discount rate noted above), $267,400 was attributable to financing cost, and 

$21,908 was attributable to amounts earned through his 2012 service. Of the $321,555 increase in pension value reported for 

Mr. Benson, $181,900 was attributable to changes in actuarial assumptions (primarily the reduction in the discount rate noted above), 

$48,500 was attributable to financing cost, and $91,155 was attributable to amounts earned through his 2012 service. 

(7) The table below shows more information about the amounts reported for 2012 in the “All Other Compensation” column, which consist 

of (1) company contributions under our Retirement Savings Plan (401(k) Plan); (2) company credits to our Supplemental Retirement 

Savings Plan; (3) matching charitable contributions under our matching charitable gifts program; and (4) relocation benefits provided 

to our Chief Financial Officer.

Name

Company

Contributions

to

Retirement

Savings

(401(k)) Plan

Company

Credits to

Supplemental

Retirement

Savings

Plan

Charitable

Award

Programs Relocation Benefits

Timothy Mayopoulos . . . . . . . . . . . . . . . . . . $ 20,000 $ 60,000 $ — $ —

Michael Williams . . . . . . . . . . . . . . . . . . . . . 5,192 — 3,950 —

Susan McFarland . . . . . . . . . . . . . . . . . . . . . 20,000 51,077 250 28,686

David Benson . . . . . . . . . . . . . . . . . . . . . . . . 12,500 — 850 —

Terence Edwards. . . . . . . . . . . . . . . . . . . . . . 20,000 60,000 — —

John Nichols. . . . . . . . . . . . . . . . . . . . . . . . . 20,000 41,862 5,000 —

 In accordance with SEC rules, amounts shown under “All Other Compensation” for 2012 do not include perquisites or personal 

benefits for a named executive that, in the aggregate, amount to less than $10,000.

 See “Pension Benefits” for the vesting provisions for company contributions to the Retirement Savings Plan and “Nonqualified 

Deferred Compensation” for the vesting provisions for company credits to the Supplemental Retirement Savings Plan.

The amount shown in the “Relocation Benefits” column for Ms. McFarland consists of relocation benefits provided to her consisting 

of the reimbursement of costs associated with selling her home during 2012. These benefits were provided to Ms. McFarland as part of 

a relocation benefit of up to $100,000 that we agreed to provide to her in connection with her hire in July 2011. This benefit expired in 

July 2012 in accordance with its terms. We calculated the incremental cost of providing Ms. McFarland’s relocation benefits based on 

actual cost (that is, the total amount of expenses incurred by us in providing the benefits), excluding $41 in fees and interest paid to the 

relocation benefit administrator.

 Amounts shown in the “Charitable Award Programs” column reflect gifts we made under our matching charitable gifts program, under 

which gifts made by our employees and directors to Section 501(c)(3) charities are matched, up to an aggregate total of $5,000 for the 

2012 calendar year.

(8) Mr. Mayopoulos became our President and Chief Executive Officer on June 18, 2012. He previously served as Fannie Mae’s 

Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary from September 2010 through June 

17, 2012, and as Fannie Mae’s Executive Vice President, General Counsel and Corporate Secretary from April 2009 to September 

2010.

(9) 

 Mr. Williams was our President and Chief Executive Officer from April 2009 through June 17, 2012. He remained employed by the 

company as an adviser following his resignation as President and Chief Executive Officer from June 18, 2012 through July 31, 2012. 

Because Mr. Williams left the company in July 2012, he did not receive the third or fourth installments of his 2011 deferred salary 

(which total $1,433,750) because he was not employed by Fannie Mae on the respective payment dates for those installments. The 

amounts reported in this table as Mr. Williams’ 2011 compensation include the $1,433,750 in 2011 deferred salary that he forfeited due 

to his departure from the company. 

Because of his departure from the company, Mr. Williams also did not receive the second installment of his 2011 long-term incentive 

award (which could have been up to $1,000,000) because he was not employed by Fannie Mae on the payment date for that 

installment. In addition, because of his departure from the company, Mr. Williams will receive only a portion of his target 2012 

deferred salary (which was $2,880,000 in fixed deferred salary and $1,620,000 in at-risk deferred salary). Specifically, he will receive: 
203

(1) $1,063,385 in 2012 fixed deferred salary, which is the portion of his 2012 fixed deferred salary that he earned from January 1, 

2012 through July 31, 2012 ($1,661,538), reduced by 2% for each month by which his departure date preceded January 31, 2014; and 

(2) $911,250 in at-risk 2012 deferred salary, which is the portion of his at-risk 2012 deferred salary that he earned from January 1, 

2012 through July 31, 2012 ($934,615), reduced by 2.5% from the adjusted target based on corporate and individual performance in 

2012 (the corporate performance-based portion was paid at 95% of target and the individual performance-based portion was paid at 

100% of target). The amounts reported as Mr. Williams’ 2012 compensation in this table exclude all forfeited amounts and represent 

amounts he actually received or will receive, rather than the original amounts awarded to him. Because he left the company in July 

2012, Mr. Williams will receive his 2012 deferred salary in the following three installment amounts, rather than in four equal 

installments: $789,854 in March 2013, $921,496 in June 2013, and $263,285 in September 2013.

(10) Ms. McFarland joined Fannie Mae as our Chief Financial Officer on July 11, 2011. Ms. McFarland will be resigning as our Chief 

Financial Officer effective April 3, 2013, but will remain employed by the company as a senior adviser for a transition period that will 

end no later than June 30, 2013. The amount of 2012 fixed deferred salary Ms. McFarland ultimately receives will be reduced based 

on the date she leaves the company (by 2% for each full or partial month by which her departure date precedes January 31, 2014). 

Ms. McFarland was granted a $1.7 million sign-on award in 2011, which was paid as follows: $900,000 in July 2011, $600,000 in the 

first quarter of 2012, and $200,000 in July 2012. Each of these payments was subject to repayment if Ms. McFarland chose to leave 

Fannie Mae within one year after the payment; however, as described in “Compensation Discussion and Analysis—2013 

Compensation Changes—CFO Compensation Changes,” the Board waived the requirement that Ms. McFarland repay the final 

$200,000 installment payment of her sign-on award, contingent upon Ms. McFarland’s execution of a release of claims. 

Amounts shown for 2011 in the “Bonus” column for Ms. McFarland consist of the first installment of her sign-on award ($900,000) 

and amounts shown for 2012 in the “Bonus” column for Ms. McFarland consist of the second and third installments of her sign-on 

award (which total $800,000). Amounts shown for 2011 in the “Non-Equity Incentive Plan Compensation” column for Ms. McFarland 

consist of: (1) the first installment of her 2011 long-term incentive award, which was prorated based on her hire date ($218,906); and 

(2) the performance-based portion of her 2011 deferred salary, which was not prorated ($651,667). Because she joined the company in 

2011, Ms. McFarland did not receive a 2010 long-term incentive award. 

(11) Effective May 18, 2012, Mr. Nichols’ annual base salary rate increased from $400,000 to $450,000, his fixed deferred salary increased 

from an annual rate of $720,000 to an annual rate of $950,000, and his at-risk deferred salary target increased from an annual target of 

$480,000 to an annual target of $600,000. Mr. Nichols’ total target direct compensation was increased in connection with his 

promotion to Chief Risk Officer in August 2011. Because of the increase in his deferred salary effective May 18, 2012, Mr. Nichols 

will receive his 2012 deferred salary in the following installment amounts, rather than in four equal installments: $297,000 in March 

2013, $337,038 in June 2013, $383,750 in September 2013 and $383,750 in December 2013. 
204

Grants of Plan-Based Awards in 2012

The following table shows the at-risk grants of deferred salary made to the named executives during 2012. The terms of 2012 

deferred salary are described in “Compensation Discussion and Analysis—2012 Executive Compensation Program—

Elements of 2012 Executive Compensation Program—Direct Compensation.” Deferred salary amounts shown represent only 

the at-risk, performance-based portion of the named executives’ 2012 deferred salary.

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

Name Award Type

Threshold

($)

Target

($)

Maximum

($)

Timothy Mayopoulos . . . . . . . . . . . . . At-risk deferred salary—Corporate — 398,250 398,250

At-risk deferred salary—Individual — 398,250 398,250

Total at-risk deferred salary — 796,500 796,500

Michael Williams. . . . . . . . . . . . . . . . . At-risk deferred salary—Corporate — 810,000 810,000

At-risk deferred salary—Individual — 810,000 810,000

Total at-risk deferred salary — 1,620,000 1,620,000

Susan McFarland. . . . . . . . . . . . . . . . . At-risk deferred salary—Corporate — 432,000 432,000

At-risk deferred salary—Individual — 432,000 432,000

Total at-risk deferred salary — 864,000 864,000

David Benson . . . . . . . . . . . . . . . . . . . At-risk deferred salary—Corporate — 378,000 378,000

At-risk deferred salary—Individual — 378,000 378,000

Total at-risk deferred salary — 756,000 756,000

Terence Edwards. . . . . . . . . . . . . . . . . At-risk deferred salary—Corporate — 378,000 378,000

At-risk deferred salary—Individual — 378,000 378,000

Total at-risk deferred salary — 756,000 756,000

John Nichols . . . . . . . . . . . . . . . . . . . . At-risk deferred salary—Corporate — 276,923 276,923

At-risk deferred salary—Individual — 276,923 276,923

Total at-risk deferred salary — 553,846 553,846

__________

(1) Amounts shown are the target amounts of the at-risk, performance-based portion of the named executives’ 2012 deferred salary. Half of 

2012 at-risk deferred salary was subject to reduction based on corporate performance against the 2012 conservatorship scorecard, as 

determined by FHFA, and half was subject to reduction based on individual performance in 2012, as determined by the Board of 

Directors with FHFA’s approval. No amounts are shown in the “Threshold” column because deferred salary does not specify a threshold 

payout amount. The amounts shown in the “Maximum” column are the same as the amounts shown in the “Target” column because 

2012 deferred salary is only subject to reduction; amounts higher than the target amount cannot be awarded. The actual amounts of the 

at-risk portion of 2012 deferred salary that will be paid to the named executives for 2012 performance are included in the “Non-Equity 

Incentive Plan Compensation” column of the “Summary Compensation Table for 2012, 2011 and 2010” and explained in footnote 4 to 

that table. 

Outstanding Equity Awards at 2012 Fiscal Year-End

The following table shows outstanding stock option awards held by the named executives as of December 31, 2012. As of 

December 31, 2012, the exercise prices of the outstanding options referenced in the table below were substantially higher 

than the market price of our common stock. The closing market price of our common stock on December 31, 2012 was $0.26 

per share. As of December 31, 2012, there were no remaining unvested restricted stock awards.
205

Option Awards(2)

Name

Award

Type(1)

Grant

Date

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

Option

Exercise

Price ($)

Option

Expiration

Date

Timothy Mayopoulos . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A

Michael Williams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A

Susan McFarland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A

David Benson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . O 1/21/2003 9,624 69.43 1/21/2013

O 1/23/2004 12,223 78.32 1/23/2014

Terence Edwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A

John Nichols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A

__________

(1) O indicates stock options.

(2) All awards of options listed in this table vested in four equal annual installments beginning on the first anniversary of the date of grant. 

Amounts reported in this table represent only the unexercised portions of option awards.

Option Exercises and Stock Vested in 2012

The following table shows information regarding vesting of restricted stock held by the named executives during 2012. We 

have calculated the value realized on vesting by multiplying the number of shares of stock by the fair market value (based on 

the average of the high and low prices) of our common stock on the vesting date. We have provided no information regarding 

stock option exercises because no named executives exercised stock options during 2012.

Stock Awards

Name

Number of Shares

Acquired on Vesting (#)

Value Realized on

Vesting ($)

Timothy Mayopoulos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Michael Williams. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,189 8,418

Susan McFarland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

David Benson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,986 1,355

Terence Edwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

John Nichols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Pension Benefits 

Retirement Savings Plan

The Retirement Savings Plan is a defined contribution plan 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 match in cash employee contributions up to 3% of base salary 

for employees who are grandfathered participants in our Retirement Plan and up to 6% of base salary and eligible incentive 

compensation (which for the applicable named executives includes the deferred salary element of our executive 

compensation program) for employees who are not grandfathered participants in our Retirement Plan. All non-grandfathered 

employees are 100% vested in our matching contributions. Grandfathered employees receive benefits under the 3% of base 

salary matching program and are fully vested in our matching contributions after five years of service. Messrs. Williams and 

Benson are grandfathered employees under our Retirement Plan and therefore receive benefits under the 3% matching 

program, while Ms. McFarland and Messrs. Mayopoulos, Edwards and Nichols are non-grandfathered employees and 

therefore receive benefits under the 6% matching program.

All regular employees, with the exception of those who participated in the Executive Pension Plan (which includes 

Mr. Williams), receive an additional 2% contribution (based on base salary for grandfathered employees and on base salary 

and eligible incentive compensation for non-grandfathered employees) from the company regardless of employee 

contributions to this plan. Participants are fully vested in this 2% contribution after three years of service.
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Defined Benefit Pension Plans

Retirement Plan. The Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil 

Service Retirement Law, referred to as the “Retirement Plan,” is a tax-qualified defined benefit pension plan. Participation in 

the Retirement Plan has been frozen, and employees hired after December 31, 2007 and employees who did not satisfy the 

age and service requirements to be grandfathered participants under the Retirement Plan do not earn benefits under the 

Retirement Plan. Prior to 2007, participation in the Retirement Plan was generally available to employees. Participants are 

fully vested in the Retirement Plan when they complete five years of credited service. Messrs. Williams and Benson are the 

only named executives who participate in the Retirement Plan.

Under the Retirement Plan, normal retirement benefits are computed on a single life basis using a formula based on final 

average annual earnings (which consists of base salary) and years of credited service. For years of service after 1988, the 

pension formula is:

• 1 1/2% multiplied by final average annual earnings, plus

• 1/2% multiplied by final average annual earnings over Social Security-covered compensation multiplied by years of 

credited service.

A different formula applies for years of service after 35 years. Final average annual earnings are average annual earnings in 

the participant’s highest paid 36 consecutive calendar months during the participant’s last 120 calendar months of 

employment. Earnings are base salary. Provisions of the Internal Revenue Code of 1986, as amended, limit the amount of 

annual compensation that may be used for calculating pension benefits and the annual benefit that may be paid. For 2012, the 

statutory compensation and benefit caps were $250,000 and $200,000, respectively. The normal form of benefit under the 

Retirement Plan is an annuity providing monthly payments for the life of the participant and a survivor annuity for the 

participant’s spouse, if applicable. The normal retirement age under the Retirement Plan is age 65; however, early retirement 

under the plan is generally available at age 55. For employees who retire before age 65, benefit payments are reduced by 

stated percentages for each year that they are younger than 65.

Mr. Williams is eligible for early retirement under the Retirement Plan, as well as under the Supplemental Pension Plan and 

the 2003 Supplemental Pension Plan described below, and has elected to receive benefit payments under these plans at age 

55. Applying the factors in these plans, Mr. Williams’ benefit payments were reduced by 37% as a result of his election to 

start benefits at age 55. Payments to Mr. Williams under all three plans began in February 2013. See the “Pension Benefits for 

2012” table below for more information.

Supplemental Pension Plan and 2003 Supplemental Pension Plan. The purpose of the Supplemental Pension Plan is to 

provide supplemental retirement benefits using the Retirement Plan formula to employees whose base salary exceeds the 

statutory compensation cap applicable to the Retirement Plan or whose benefit under the Retirement Plan is limited by the 

statutory benefit cap applicable to the Retirement Plan. The purpose of the Supplemental Pension Plan of 2003 (the “2003 

Supplemental Pension Plan”) is to provide additional benefits based on eligible incentive compensation not taken into 

account under the Retirement Plan or the Supplemental Pension Plan. Eligible incentive compensation for executive officers 

includes deferred salary under our current executive compensation program and other types of incentive compensation paid 

in prior years under our prior executive compensation programs. For purposes of determining benefits under the 2003 

Supplemental Pension Plan, the amount of an officer’s eligible incentive compensation taken into account is limited in the 

aggregate to 50% of the officer’s base salary. Benefits under these plans vest at the same time as benefits under the 

Retirement Plan, and benefits under these plans typically commence at the later of age 55 or separation from service. The 

normal retirement age under these plans is age 65; however, early retirement under the plans is generally available at age 55. 

For employees who retire before age 65, benefit payments are reduced by stated percentages for each year that they are 

younger than 65 in the same manner as under the Retirement Plan. Messrs. Williams and Benson are the only named 

executives who participate in the Supplemental Pension Plan and the 2003 Supplemental Pension Plan.

In general, officers who are eligible to participate in the Executive Pension Plan receive the greater of their Executive 

Pension Plan benefits or combined Supplemental Pension Plan and 2003 Supplemental Pension Plan benefits. However, for 

2010 and 2011, Mr. Williams accrued benefits under the Supplemental Pension Plan and the 2003 Supplemental Pension Plan 

that will not be offset by his Executive Pension Plan benefit. In light of its decision to freeze Mr. Williams’ benefit under the 

Executive Pension Plan, the Board adopted this change for 2010 and 2011, with the approval of FHFA, to provide 

Mr. Williams a pension benefit for 2010 and 2011. The Board did not adopt this change for 2012.

Executive Pension Plan. The Executive Pension Plan was designed to supplement the benefits payable under the Retirement 

Plan. Mr. Williams is the only named executive with a benefit under the Executive Pension Plan, and his benefit under the 

plan was frozen as of December 31, 2009. Because the Executive Pension Plan is frozen, Mr. Williams’ compensation, years 
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of service and Retirement Plan benefits earned for years after 2009 are not taken into account in determining his benefit 

under the Executive Pension Plan.

Executive Pension Plan benefits vested after ten years of participation in the plan, and Mr. Williams was 90% vested at the 

time the plan was frozen. Mr. Williams’ maximum potential annual pension benefit under the Executive Pension Plan, based 

on his status as 90% vested and a pension goal formula of 40%, was 36% of his average annual covered compensation earned 

for the years 2007, 2008 and 2009. Covered compensation is Mr. Williams’ average annual base salary, including deferred 

compensation, plus eligible incentive compensation. For this purpose, eligible incentive compensation is limited in the 

aggregate to 50% of Mr. Williams’ base salary, and consists of payments made in prior years under the Annual Incentive Plan 

and 2008 Retention Program. His payments under the Executive Pension Plan are reduced by his Retirement Plan benefit 

determined as of December 31, 2009.

The normal retirement age under the Executive Pension Plan is age 60; however, early retirement is available under the plan 

at age 55, with a reduction in the plan benefit of 2% for each year between the year in which benefit payments begin and the 

year in which the participant turns 60. The benefit payment for Mr. Williams is a monthly amount equal to 1/12th of his 

annual retirement benefit payable during the lives of Mr. Williams and his surviving spouse. 

Mr. Williams is also eligible for early retirement under the Executive Pension Plan and elected to receive benefit payments 

under this plan at age 55. His benefit payments were reduced by 10% in accordance with the early retirement reduction 

provisions of the plan. Payments to Mr. Williams under this plan began in February 2013. See the “Pension Benefits for 

2012” table below for more information.

The table below shows the years of credited service and the present value of accumulated benefits for each named executive 

under our defined benefit pension plans as of December 31, 2012.

Pension Benefits for 2012 

Name Plan Name

Number of

Years

Credited

Service (#)(1)

Present Value of

Accumulated

Benefit ($)(2)

Timothy Mayopoulos . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable

Michael Williams. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement Plan 22 965,975

Supplemental Pension Plan(3) 22 778,316

2003 Supplemental Pension Plan(3) 22 460,627

Executive Pension Plan 9 5,659,896

Susan McFarland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable

David Benson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement Plan 11 371,826

Supplemental Pension Plan 11 421,900

2003 Supplemental Pension Plan 11 416,348

Terence Edwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable

John Nichols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable

__________

(1) Mr. Williams has fewer years of credited service under the Executive Pension Plan than under the Retirement Plan because he worked 

at Fannie Mae prior to becoming a participant in the Executive Pension Plan. In addition, because benefit accruals under the Executive 

Pension Plan for years after 2009 were frozen, Mr. Williams’ credited service under the Executive Pension Plan was frozen in 2009 at 9 

years.

(2) The present value of Mr. Benson’s benefits under the Retirement Plan, Supplemental Pension Plan and 2003 Supplemental Pension Plan 

assumes that he will remain in service until age 65, the normal retirement age under those plans. Mr. Williams left the company in July 

2012 and began receiving retirement benefit payments in February 2013, based on a benefit commencement date of November 1, 2012, 

at age 55. Accordingly, the present value of Mr. Williams’ benefits under the Executive Pension Plan, Retirement Plan, Supplemental 

Pension Plan and 2003 Supplemental Pension Plan have been calculated based on his actual benefit commencing at age 55. If Mr. 

Williams had remained in service until age 60, the normal retirement age under the Executive Pension Plan, the present value of his 

accumulated benefit under that plan as of December 31, 2012 would have been $4,635,890. If Mr. Williams had remained in service 

until age 65, the normal retirement age under the Retirement Plan, the Supplemental Pension Plan and the 2003 Supplemental Pension 

Plan, the present value of his accumulated benefit under each of these plans as of December 31, 2012 would have been $810,110, 

$652,732 and $386,307, respectively. Even though the terms of the Executive Pension Plan, Retirement Plan, Supplemental Pension 

Plan and 2003 Supplemental Pension Plan provide for a reduction in benefit payments for those electing to receive benefits prior to the 

normal retirement age, the actuarial valuations of the present value of Mr. Williams’ benefits are higher for retirement at age 55 under 

these plans than for retirement at the normal retirement ages because the reductions in benefit payments specified in the plans do not 
208

fully offset the value of the additional years of benefits he will receive by electing to receive benefits earlier. The present values assume 

that benefits under these plans will be paid to Mr. Williams in the form of a monthly annuity for Mr. Williams’ life and that of 

Mr. Williams’ surviving spouse, reflecting Mr. Williams’ benefit election under the plans. The postretirement mortality assumption for 

both Mr. Benson and Mr. Williams is based on the IRS prescribed mortality table for 2013 funding purposes. Under the terms of the 

2003 Supplemental Pension Plan, deferred salary for 2012 has been taken into account for the purpose of determining the present value 

of Mr. Benson’s accumulated benefit under the plan as of December 31, 2012. For additional information regarding the calculation of 

present value and the assumptions underlying these amounts, see “Note 12, Employee Retirement Benefits.” 

(3) The present value of accumulated benefit for Mr. Williams for the Supplemental Pension Plan and 2003 Supplemental Pension Plan 

shown in this table reflects only the amounts accrued under these plans in 2010 and 2011. Although Mr. Williams has 22 years of 

credited service under the Supplemental Pension Plan and 2003 Supplemental Pension Plan, as of December 31, 2012, his aggregate 

benefit under these plans for years prior to 2010 and for 2012 is offset by the benefit that he would receive upon his retirement under 

the Executive Pension Plan. 

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 for nongrandfathered employees. The Supplemental Retirement Savings Plan is intended to supplement our Retirement Savings 

Plan, or 401(k) plan, by providing benefits to participants whose annual eligible earnings exceed the IRS annual limit on 

eligible compensation for 401(k) plans (for 2012, the limit was $250,000). Ms. McFarland and Messrs. Mayopoulos, 

Edwards and Nichols are the named executives who participated in the Supplemental Retirement Savings Plan in 2012.

For 2012, we credited 8% of the eligible compensation for Ms. McFarland and Messrs. Mayopoulos, Edwards and Nichols 

that exceeded the IRS annual limit for 2012. Eligible compensation for Ms. McFarland and Messrs. Mayopoulos, Edwards 

and Nichols 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) a 2% credit that will vest 

after the participant has completed three years of service with us; and (2) a 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 similar to the investments 

offered under our 401(k) plan. Participants may change their investment elections on a daily basis.

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 the 50 most highly-compensated 

officers. Participants may not withdraw amounts from the Supplemental Retirement Savings Plan while they are employed by 

us.

The table below provides information on the nonqualified deferred compensation of the named executives for 2012. 

Nonqualified Deferred Compensation for 2012 

Name

Executive

Contributions

in Last

Fiscal Year ($)

Company

Contributions in

Last Fiscal Year

($)(1)

Aggregate

Earnings in

Last Fiscal

Year ($)(2)

Aggregate

Withdrawals/

Distributions ($)

Aggregate

Balance at

Last Fiscal

Year-End ($)(3)

Timothy Mayopoulos

Supplemental Retirement Savings Plan. . — 60,000 18,759 — 200,030

Michael Williams

2001 Special Stock Award(4). . . . . . . . . . — — 46 (322) —

Susan McFarland

Supplemental Retirement Savings Plan. . — 51,077 2,349 — 56,936

David Benson . . . . . . . . . . . . . . . . . . . . . . . — — — — —

Terence Edwards

Supplemental Retirement Savings Plan. . — 60,000 9,315 — 159,522

John Nichols

Supplemental Retirement Savings Plan. . — 41,862 2,029 — 51,726

__________

(1) All amounts reported in this column for Ms. McFarland and Messrs. Mayopoulos, Edwards and Nichols as company contributions in 

the last fiscal year pursuant to the Supplemental Retirement Savings Plan are also reported as 2012 compensation in the “All Other 

Compensation” column of the “Summary Compensation Table for 2012, 2011 and 2010.” 
209

(2) None of the earnings reported in this column are reported as 2012 compensation in the “Summary Compensation Table for 2012, 2011 

and 2010” because the earnings are neither above-market nor preferential.

(3) Amounts reported in this column for Mr. Mayopoulos include company contributions in 2011 and 2010 to the Supplemental Retirement 

Savings Plan of $60,400 and $48,708, respectively, that are also reported as 2011 and 2010 compensation, respectively, in the “All 

Other Compensation” column of the “Summary Compensation Table for 2012, 2011 and 2010.”

Amounts reported in this column for Ms. McFarland include company contributions in 2011 to the Supplemental Retirement Savings 

Plan of $3,477 that are also reported as 2011 compensation in the “All Other Compensation” column of the “Summary Compensation 

Table for 2012, 2011 and 2010.”

Amounts reported in this column for Mr. Edwards include company contributions in 2011 and 2010 to the Supplemental Retirement 

Savings Plan of $60,400 and $30,339, respectively, that are also reported as 2011 and 2010 compensation, respectively, in the “All 

Other Compensation” column of the “Summary Compensation Table for 2012, 2011 and 2010.”

(4) The Board previously approved a special stock award to officers for 2001 performance. On January 15, 2002, Mr. Williams deferred 

until retirement 1,142 shares he received in connection with this award. Mr. Williams’ number of shares grew through the reinvestment 

of dividends prior to 2009 to 1,372.81 shares. On August 1, 2012, following his retirement, these shares were distributed to Mr. 

Williams, excluding a portion that were retained to cover tax obligations. Aggregate earnings on these shares reflect changes in stock 

price from January 1, 2012 to August 1, 2012. Aggregate withdrawals/distributions on these shares reflect the value of the shares on 

August 1, 2012.

Potential Payments Upon Termination or Change-in-Control

The information below describes and quantifies certain compensation and benefits that may have become payable to each of 

our named executives under our existing plans and arrangements if the named executive’s employment had terminated on 

December 31, 2012, taking into account the named executive’s 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 “Pension Benefits” and “Nonqualified Deferred Compensation.” 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; 

however, under the 2012 executive compensation program, a named executive would be entitled to receive a specified 

portion of his or her earned but unpaid 2012 deferred salary if his or her employment was terminated for any reason, other 

than for cause. In addition, as described in more detail in “2013 Compensation Changes—CFO Compensation Changes,” the 

Board of Directors and FHFA have approved a change to the terms of Ms. McFarland’s sign-on award contingent upon her 

execution of a release of claims in a form satisfactory to the company.

Below we discuss various elements of the named executives’ compensation under our current executive compensation 

program and our prior executive compensation program that would or could have become payable in the event a named 

executive dies, resigns, retires, or his or her employment is terminated by the company without cause. We then quantify the 

amounts that would or could have been paid to our named executives in these circumstances, in each case as of December 31, 

2012.

• 2012 Deferred Salary. Under the 2012 executive compensation program, if a named executive is separated from 

employment with the company for any reason other than termination for cause (including his or her death, resignation, 

retirement or the termination of his or her employment by the company without cause), he or she would receive:

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 executive’s termination precedes January 31, 2014; and

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.

The forfeiture provisions applicable to earned but unpaid fixed deferred salary have been modified for 2013 and 

subsequent performance years. See “2013 Compensation Changes—Change to Fixed Deferred Salary Forfeiture 

Provisions” for more information.

If a named executive’s 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 2012 deferred salary. Under the 2012 executive compensation program, the 

company may terminate an executive for cause if it determines that the executive has: (a) materially harmed the company 

by, in connection with his or her performance of his or her duties for the company, engaging in gross misconduct or 
210

performing his or her duties in a grossly negligent manner; or (b) been convicted of, or pleaded “no contest” with respect 

to, a felony.

• 2011 Deferred Salary and 2011 Long-Term Incentive Awards. The following describes the termination provisions that 

were applicable to deferred salary and long-term incentive awards awarded in 2011 pursuant to our prior executive 

compensation program. These provisions do not apply to deferred salary awarded in 2012 or subsequent years. As of the 

date of this filing, there are no remaining unpaid installments of 2011 deferred salary or 2011 long-term incentive 

awards. In general, an executive officer, including our named executives, was required to continue to be employed to 

receive payments of his or her 2011 deferred salary and 2011 long-term incentive award, and would forfeit any unpaid 

amounts upon termination of his or her employment. Exceptions to this general rule applied in the case of an executive 

officer’s death or retirement, and could have applied in the event an executive officer’s employment was terminated by 

Fannie Mae other than for cause, as follows:

Death. Under our prior executive compensation program, in the event an executive officer’s employment was 

terminated due to his or her death, his or her estate would receive the remaining installment payments of 

deferred salary for the prior year, as well as a pro rata portion of deferred salary for the current year, based on 

time worked during the year. In addition, his or her estate would receive any remaining installment payment of a 

long-term incentive award for a completed performance year and a pro rata portion of a long-term incentive 

award for the current performance year, based on time worked during the year; provided that the executive 

officer was employed at least one complete calendar quarter during the current performance year.

Retirement. Under our prior executive compensation program, if an executive officer retired from Fannie Mae at 

or after age 65 with at least 5 years of service, he or she would receive the remaining installment payments of 

deferred salary for the prior year. In addition, he or she would receive any remaining installment payment of a 

long-term incentive award for a completed performance year. 

Termination by Fannie Mae. Under our prior executive compensation program, if Fannie Mae terminated an 

executive officer’s employment other than for cause, the Board of Directors could determine, subject to the 

approval of FHFA in consultation with Treasury, that he or she may receive certain unpaid deferred salary or 

long-term incentive awards. The determination to pay amounts of unpaid deferred salary or long-term incentive 

awards was in the discretion of the Board of Directors and FHFA; under our prior executive compensation 

program, the named executives did not have any contractual right or right under the terms of the deferred salary 

plan or the long-term incentive plan to receive any unpaid deferred salary or long-term incentive awards in the 

event of a termination by Fannie Mae. 

In each case, for any portion of a long-term incentive award or any performance-based portion of a deferred 

salary award that had not been finally determined, the award would have been adjusted based on performance 

relative to the applicable performance goals and could not exceed 100% of the target award. Under our prior 

executive compensation program, an executive officer was required to agree to the terms of a standard 

termination agreement with the company in order to receive these post-termination of employment payments. 

Under both our new executive compensation program and our prior executive compensation program, installment 

payments of deferred salary will be made on the original payment schedule, rather than being provided in a lump sum. 

• Stock Compensation Plans. Under the Fannie Mae Stock Compensation Plan of 2003, stock options, restricted stock and 

restricted stock units held by our employees, including our named executives, fully vested upon the employee’s death, 

total disability or retirement. Under both the Fannie Mae Stock Compensation Plan of 2003 and the Fannie Mae Stock 

Compensation Plan of 1993, upon the occurrence of these events, or if an option holder leaves our employment after 

age 55 with at least 5 years of service, the option holder, or the holder’s estate in the case of death, can exercise any stock 

options until the initial expiration date of the stock option, which is generally 10 years after the date of grant. For these 

purposes, “retirement” generally means that the executive retires at or after age 60 with 5 years of service or age 65 (with 

no service requirement). As of December 31, 2012, there were no remaining unvested awards of stock options, restricted 

stock or restricted stock units.

• Retiree Medical Benefits. We currently make certain retiree medical benefits available to our full-time employees who 

retire and meet certain age and service requirements.

The table below shows the amounts that would have become payable to each our current named executives if the named 

executive’s employment had terminated on December 31, 2012 as a result of either (1) his or her resignation, retirement or 

the termination of his or her employment by the company without cause, or (2) his or her death. If a named executive’s 

employment had been terminated by the company for cause, he or she would not receive any of these amounts. Because Mr. 

Williams left the company in July 2012, the amounts shown in the table below reflect the amounts he will receive based on 
211

his July 31, 2012 separation date, rather than the amounts he would have received if he had left the company on December 

31, 2012. 

Potential Payments Upon Termination as of December 31, 2012

Name

2012 Fixed

Deferred Salary(1)

2012 At-Risk

Deferred Salary(2)

Second 

Installment of 

2011 Long-Term

Incentive Award(3) Total 

Timothy Mayopoulos

Resignation, retirement or termination without cause 1,005,290 776,588 — 1,781,878

Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,290 776,588 521,538 2,303,416

Termination for cause . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

Michael Williams(4)

Resignation, retirement or termination without cause . 1,063,385 911,250 — 1,974,635

Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

Termination for cause . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

Susan McFarland

Resignation, retirement or termination without cause . 1,047,840 734,400 — 1,782,240

Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047,840 734,400 181,150 1,963,390

Termination for cause . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

David Benson

Resignation, retirement or termination without cause . 935,360 737,100 — 1,672,460

Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,360 737,100 465,000 2,137,460

Termination for cause . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

Terence Edwards

Resignation, retirement or termination without cause . 935,360 737,100 — 1,672,460

Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,360 737,100 465,000 2,137,460

Termination for cause . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

John Nichols

Resignation, retirement or termination without cause . 637,538 540,000 — 1,177,538

Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637,538 540,000 187,069 1,364,607

Termination for cause . . . . . . . . . . . . . . . . . . . . . . . . . — — — —

__________

(1) Each named executive other than Mr. Williams would have received 74% of his or her 2012 fixed deferred salary, which is the earned 

but unpaid portion of his or her 2012 fixed deferred salary as of December 31, 2012, reduced by 2% for each full or partial month by 

which the named executive’s separation of employment preceded January 31, 2014. Mr. Williams left the company in July 2012, 

therefore he will receive 64% of his earned but unpaid 2012 fixed deferred salary (which is 37% of the total 2012 fixed deferred salary 

originally awarded to him).

(2) Each named executive would have received all of his or her earned but unpaid 2012 at-risk deferred salary, as determined by FHFA and 

the Board in early 2013 (that is, his or her earned but unpaid 2012 at-risk deferred salary target, reduced by the amounts determined by 

FHFA and the Board in early 2013 as a result of corporate and individual performance). See the “At-Risk Deferred Salary 

(Performance-Based)” sub-column of the “Summary Compensation Table for 2012, 2011 and 2010” for the amount of 2012 at-risk 

deferred salary that was awarded to each named executive.

(3) In the event of his or her death as of December 31, 2012, each named executive other than Mr. Williams would have received the 

second installment of his or her 2011 long-term incentive award, which was determined in early 2013 and paid in February 2013. Mr. 

Williams left the company in July 2012, therefore he forfeited the second installment of his 2011 long-term incentive award. None of 

the named executives would have received the second installment of his or her 2011 long-term incentive award if his or her 

employment had been terminated for any other reason as of December 31, 2012.
212

(4) Mr. Williams left the company on July 31, 2012. As a result, the amounts shown in this table reflect the amounts he will receive based 

on his July 31, 2012 separation date, rather than the amounts he would have received if he had left the company on December 31, 2012.

Director Compensation 

Our non-management directors receive cash compensation pursuant to a program authorized by FHFA in November 2008. 

This compensation for the directors is designed to be reasonable, appropriate and commensurate with the duties and 

responsibilities of their Board service.

The total 2012 compensation for our non-management directors is shown in the table below. Messrs. Mayopoulos and 

Williams, our only directors who also served as employees of Fannie Mae during 2012, were not entitled to receive any 

additional compensation for their service as directors.

2012 Non-Employee Director Compensation Table

Name

Fees Earned

or Paid

in Cash

($)

All Other

Compensation

($)(1)

Total

($)

Dennis R. Beresford(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,833 — 30,833

William Thomas Forrester . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,500 — 182,500

Brenda J. Gaines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000 — 180,000

Charlynn Goins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 1,590 171,590

Frederick B. “Bart” Harvey III. . . . . . . . . . . . . . . . . . . . . . . . 160,000 — 160,000

Robert H. Herz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 — 170,000

Philip A. Laskawy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,000 — 290,000

Egbert L. J. Perry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000 — 160,000

Jonathan Plutzik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000 — 160,000

David H. Sidwell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 — 175,000

__________

(1) “All Other Compensation” consists only of gifts we made or will make under our matching charitable gifts program. Our matching 

charitable gifts program is discussed in greater detail following this table.

(2) Mr. Beresford was a member of the Board of Directors through February 29, 2012.

Compensation Arrangements for our Non-Management Directors

Our non-management directors receive a retainer at an annual rate of $160,000, with no meeting fees. Committee chairs and 

Audit Committee members receive an additional retainer at an annual rate of $25,000 for the Audit Committee chair, $15,000 

for the Risk Policy & Capital Committee chair and $10,000 for all other committee chairs and each member of the Audit 

Committee. In recognition of the substantial amount of time and effort necessary to fulfill the duties of non-executive 

Chairman of the Board, the annual retainer for our non-executive Chairman, Mr. Laskawy, is $290,000. Our directors receive 

no equity compensation.

Additional Arrangements with our Non-Management Directors

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. Under this program, gifts made by 

employees and directors to Section 501(c)(3) charities are matched, up to an aggregate total of $5,000 for the 2012 calendar 

year. Effective January 1, 2013, the aggregate total amount that may be matched by the company under this program in a 

calendar year has been reduced to $2,500.

Stock Ownership Guidelines for Directors. In January 2009, our Board eliminated our stock ownership requirements for 

directors and for senior officers. We ceased paying stock-based compensation after entering into conservatorship in 

September 2008. 

Other Expenses. We also pay for or reimburse directors for out-of-pocket expenses incurred in connection with their service 

on the Board, including travel to and from our meetings, accommodations, meals and training.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table provides information as of December 31, 2012 with respect to shares of common stock that may be 

issued under our existing equity compensation plans. At this time, we are prohibited from issuing new stock without the prior 

written consent of Treasury under the terms of the senior preferred stock purchase agreement, other than as required by the 

terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement.

Equity Compensation Plan Information

As of December 31, 2012

Plan Category

Number of

Securities to be

Issued upon

Exercise of

Outstanding

Options,

Warrants

and Rights (#)

Weighted-Average

Exercise Price of

Outstanding

Options, Warrants

and Rights

Number of

Securities

Remaining Available

for Future Issuance

under Equity

Compensation Plans

(Excluding

Securities

Reflected in First

Column) (#)

Equity compensation plans approved by stockholders. . . . . . . . . 2,440,071 (1) $71.72 (2) 41,248,352 (3)

Equity compensation plans not approved by stockholders. . . . . . N/A N/A N/A

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,440,071 $71.72 41,248,352

__________

(1) This amount includes outstanding stock options and shares issuable upon the payout of deferred stock balances. Outstanding awards, 

options and rights include grants under the Fannie Mae Stock Compensation Plan of 1993, the Stock Compensation Plan of 2003 and 

the payout of shares deferred upon the settlement of awards made under a prior plan.

(2) The weighted average exercise price is calculated for the outstanding options and does not take into account deferred shares.

(3) This number of shares consists of 11,960,258 shares available under the 1985 Employee Stock Purchase Plan and 29,288,094 shares 

available under the Stock Compensation Plan of 2003 that may be issued as restricted stock, stock bonuses, stock options or in 

settlement of restricted stock units, performance share program awards, stock appreciation rights or other stock-based awards. No more 

than 1,433,784 of the shares issuable under the Stock Compensation Plan of 2003 may be issued as restricted stock or restricted stock 

units vesting in full in fewer than three years, performance shares with a performance period of less than one year or bonus shares 

subject to similar vesting provisions or performance periods. Under the terms of our senior preferred stock purchase agreement with 

Treasury, 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.

Beneficial Ownership

The following table shows the beneficial ownership of our common stock by each of our current directors and the named 

executives, and all current directors and executive officers as a group, as of March 15, 2013. As of that date, no director or 

named executive, nor all directors and current executive officers as a group, owned as much as 1% of our outstanding 

common stock.
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Amount and Nature of Beneficial Ownership(1)

Name and Position

Common Stock

Beneficially

Owned Excluding

Stock Options

Stock Options

Exercisable or

Other Shares

Obtainable

Within 60 Days of

March 15,

2013(2)

Total

Common Stock

Beneficially

Owned

David C. Benson(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,966 12,223 27,189

Executive Vice President—Capital Markets, Securitization & Corporate 

Strategy

Terence W. Edwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Executive Vice President—Credit Portfolio Management

William Thomas Forrester . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

Brenda J. Gaines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 0 487

Director

Charlynn Goins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

Frederick B. Harvey, III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

Robert H. Herz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

Philip A. Laskawy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Chairman of the Board

Timothy J. Mayopoulos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

President and Chief Executive Officer

Susan R. McFarland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Executive Vice President and Chief Financial Officer

John R. Nichols. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Executive Vice President and Chief Risk Officer

Egbert L. J. Perry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

Jonathan Plutzik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

David H. Sidwell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0

Director

Michael J. Williams(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,513 0 240,513

Former President and Chief Executive Officer

All directors and current executive officers as a group (19 persons) . . . . . . 72,669 43,029 115,698

__________

(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. Except to the extent otherwise indicated, each holder has sole investment 

and voting power over the shares referenced in this table. Holders of stock options have no investment or voting power over the shares 

issuable upon the exercise of the options until the options are exercised. 

(2) These shares are issuable upon the exercise of outstanding stock options.

(3) Mr. Benson’s shares include 6,010 shares with respect to which he shares voting and investment power with his spouse.

(4) Mr. Williams resigned as President and Chief Executive Officer effective in June 2012. Mr. Williams’ shares include 41,539 shares held 

jointly with his spouse, 40,771 shares held solely by his spouse and 700 shares held by his daughter.
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The following table shows the beneficial ownership of our common stock by each holder of more than 5% of our common 

stock as of March 15, 2013.

5% Holders

Common Stock

Beneficially Owned Percent of Class

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable(1) 79.9%

1500 Pennsylvania Avenue, NW., Room 3000 Washington, DC 20220

__________

(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 September 7, 2028. As of April 2, 2013, 

Treasury has not exercised the warrant. The information above assumes Treasury beneficially owns no other shares of our common 

stock.

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

POLICIES AND PROCEDURES RELATING TO TRANSACTIONS WITH RELATED PERSONS

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 has an 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 Item 404(a) of Regulation S-K are set forth in our:

• Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors;

• Nominating & Corporate Governance Committee Charter;

• Board of Directors’ delegation of authorities and reservation of powers;

• Code of Conduct for employees; and

• Conflict of Interest Policy and Conflict of Interest Procedure for employees.

In addition, depending on the circumstances, relationships and transactions with related persons may require approval of the 

conservator pursuant to the instructions issued to the Board of Directors by the conservator on November 15, 2012 or may 

require the approval of Treasury pursuant to the senior preferred stock purchase agreement.

Our Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors prohibits our directors from 

engaging in any conduct or activity that is inconsistent with our best interests, as defined by the conservator’s express 

directions, its policies and applicable federal law. The Code of Conduct and Conflicts of Interest Policy for Members of the 

Board of Directors 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 director’s position as a director would be detrimental 

to us or result in a noncompetitive, favored or unfair advantage to either the director or the director’s associates. In addition, 

our directors must disclose to the Chair of the Nominating & 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 may have in an organization doing business with us. Each 

of our directors also must annually certify compliance with the Code of Conduct and Conflicts of Interest Policy for 

Members of the Board of Directors.

The Nominating & Corporate Governance Committee Charter and our Board’s delegation of authorities and reservation of 

powers require the Nominating & Corporate Governance Committee to approve any transaction that Fannie Mae engages in 

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 Item 404 of Regulation S-K. In addition, the Board’s 

delegation of authorities and reservation of powers requires the Board and the conservator to approve 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 

the company or result in substantial negative publicity. Depending on management’s business judgment, this requirement 

might include a related party transaction.

Our Code of Conduct for employees requires that we and our employees seek to avoid any actual or apparent conflict 

between our business interests and the personal interests of our employees or their family members. An employee who knows 

or suspects a violation of our Code of Conduct must raise the issue with the employee’s manager, another appropriate 

member of management, a member of our Human Resources division or our Compliance and Ethics division.
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Our Conflict of Interest Policy and Conflict of Interest Procedure for employees requires that our executive officers report to 

the Compliance & 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. Our Conflict of Interest Procedure for employees provides that the Compliance & Ethics division will refer 

any such report to the Legal department for review to determine whether the Nominating & Corporate Governance 

Committee or FHFA is required to review and approve the transaction pursuant to the Nominating & Corporate Governance 

Committee Charter and/or the Board’s delegation of authorities and reservation of powers.

We are required by the conservator to obtain its approval for various matters, some of which may involve relationships or 

transactions with related persons. These matters include actions involving the senior preferred stock purchase agreement, the 

creation of any subsidiary or affiliate, any substantial non-ordinary course transaction with a subsidiary or affiliate, the 

compensation or benefits of directors and officers at the senior vice president level and above and other executives FHFA

may designate, and actions that in the reasonable business judgment of management at the time that the action is to be taken 

are likely to cause significant reputational risk or result in substantial negative publicity. 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 arm’s-length transaction with a nonaffiliate 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.

We also require our directors and executive officers, not less than annually, to describe to us any situation involving a 

transaction with us in which a director or executive officer could potentially have a personal interest that would require 

disclosure under Item 404 of Regulation S-K.

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 September 7, 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 September 7, 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. 

FHFA, as conservator, approved the senior preferred stock purchase agreement and the amendments to the agreement, our 

role as program administrator for the Home Affordable Modification Program and other initiatives under the Making Home 

Affordable Program, and the housing finance agency transactions described below.

Treasury Senior Preferred Stock Purchase Agreement

We issued the warrant to Treasury pursuant to the terms of the senior preferred stock purchase agreement we entered into 

with Treasury on September 7, 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 Treasury’s 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 September 

26, 2008, May 6, 2009, December 24, 2009 and August 17, 2012. See “Business—Conservatorship and Treasury Agreements

—Treasury Agreements” for a description of the terms of the senior preferred stock purchase agreement, the senior preferred 

stock and the warrant, including the revisions to the agreement and the senior preferred stock set forth in the August 2012 

amendment to the agreement.

As of December 31, 2012, we had received an aggregate of $116.1 billion from Treasury under the senior preferred stock 

purchase agreement, and the remaining amount of funding available to us under the agreement was $117.6 billion. Through 

December 31, 2012, we had paid an aggregate of $31.4 billion to Treasury in dividends on the senior preferred stock. Our 

dividend payment on the senior preferred stock for the first quarter of 2013 was $4.2 billion. 

Treasury Making Home Affordable Program

In February 2009, the Obama Administration announced its Homeowner Affordability and Stability Plan, a plan to provide 

stability and affordability to the U.S. housing market. Pursuant to this plan, in March 2009, the Administration announced the 

details of its Making Home Affordable Program, a program intended to provide assistance to homeowners and prevent 

foreclosures. One of the primary initiatives under the Making Home Affordable Program is the Home Affordable 
217

Modification Program, or HAMP, which is aimed at helping borrowers whose loan is either currently delinquent or at 

imminent risk of default by modifying their mortgage loan to make their monthly payments more affordable. In addition to 

our participation in the Administration’s initiatives under the Making Home Affordable Program, Treasury engaged us to 

serve as program administrator for loans modified under HAMP and other initiatives under the Making Home Affordable 

Program pursuant to the financial agency agreement between Treasury and us, dated February 18, 2009. Our principal 

activities as program administrator include: 

• implementing the guidelines and policies of the Treasury program; 

• preparing the requisite forms, tools and training to facilitate efficient loan modifications by servicers; 

• creating, making available and managing the process for servicers to report modification activity and program 

performance; 

• calculating incentive compensation consistent with program guidelines; 

• acting as record-keeper for executed loan modifications and program administration; 

• coordinating with Treasury and other parties toward achievement of the program’s goals, including assisting with 

development and implementation of updates to the program and initiatives expanding the program’s reach; 

• helping servicers implement the program; and 

• performing other tasks as directed by Treasury from time to time. 

In January 2012, the Administration announced an extension of HAMP for an additional year through December 31, 2013. 

The Acting Director of FHFA has directed us to continue modifying loans under HAMP in accordance with the program’s 

extended guidelines, and our role as program administrator has been extended accordingly.

Under our arrangement with Treasury, Treasury has agreed to compensate 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. 

We expect to receive an aggregate of approximately $269 million from Treasury for our work as program administrator from 

2009 through 2012, as well as receive from Treasury an additional amount of approximately $62 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. We expect to continue to receive reimbursements from Treasury for our work as program administrator for HAMP

and other initiatives under the Making Home Affordable Program in 2013 and future years through the completion of our role 

as program administrator.

Treasury Housing Finance Agency Initiative

On October 19, 2009, we entered into a memorandum of understanding with Treasury, FHFA and Freddie Mac that 

established terms under which we, Freddie Mac and Treasury would provide assistance to state and local housing finance 

agencies (“HFAs”) so that the HFAs could continue to meet their mission of providing affordable financing for both singlefamily and multifamily housing. Pursuant to this HFA initiative, we, Freddie Mac and Treasury have provided assistance to 

the HFAs through two primary programs: a temporary credit and liquidity facilities (“TCLF”) program, which was intended 

to improve the HFAs’ access to liquidity for outstanding HFA bonds, and a new issue bond (“NIB”) program, which was 

intended to support new lending by the HFAs. We entered into various agreements in November and December 2009 to 

implement these HFA assistance programs, including several to which Treasury is a party. Pursuant to the TCLF program, 

Treasury has purchased participation interests in temporary credit and liquidity facilities provided by us and Freddie Mac to 

the HFAs, which facilities create a credit and liquidity backstop for the HFAs. Pursuant to the NIB program, Treasury has 

purchased new securities issued and guaranteed by us and Freddie Mac, which are backed by new housing bonds issued by 

the HFAs.

In November 2011, we entered into an Omnibus Consent to HFA Initiative Program Modifications with Treasury, Freddie 

Mac and FHFA pursuant to which the parties agreed to specified modifications to the HFA initiative programs, including a 

three-year extension of the expiration date for the TCLFs from December 2012 to December 2015, and a one-year extension 

of the expiration date for release of escrowed funds for the NIB program from December 31, 2011 to December 31, 2012. Six 

HFAs participated in the extension of the TCLF program. Prior to the extension of these HFAs’ TLCFs, each HFA agreed to a 

plan with Treasury, Fannie Mae and Freddie Mac that included a summary of the methods the HFA will use to reduce TCLF 

exposure in the future.

The total amount originally established by Treasury for the TCLF program and the NIB program was $23.4 billion: an 

aggregate of $8.2 billion for the TCLF program (of which $7.7 billion consisted of principal and approximately $500 million 

consisted of accrued interest) and an aggregate of $15.2 billion for the NIB program (of which $12.4 billion related to singlefamily bonds and $2.8 billion related to multifamily bonds). The amounts outstanding under these programs have been 
218

reduced since the programs were established and will continue to be reduced over time as liquidity facilities under the TCLF 

program are replaced by the HFAs and as principal payments are received on the mortgage loans financed by the NIB 

program. As of December 31, 2012, the total amount outstanding for both Fannie Mae and Freddie Mac under the TCLF 

program was $3.2 billion (of which $3.0 billion consisted of principal and $189 million consisted of accrued interest) and the 

total unpaid principal amount outstanding for both Fannie Mae and Freddie Mac under the NIB program was $12.3 billion. 

We and Freddie Mac administer these programs on a coordinated basis. We issued temporary credit and liquidity facilities 

and securities backed by HFA bonds on a 50-50 pro rata basis with Freddie Mac under these programs. Treasury will bear the 

initial losses of principal under the TCLF program and the NIB program up to 35% of total original principal on a combined 

program-wide basis, and thereafter we and Freddie Mac each will bear the losses of principal that are attributable to our own 

portion of the temporary credit and liquidity facilities and the securities that we have issued. Treasury will bear all losses of 

unpaid interest under the two programs. Accordingly, as of December 31, 2012, Fannie Mae’s maximum potential risk of loss 

under these programs, assuming a 100% loss of principal, was $3.6 billion. As of December 31, 2012, there had been no 

losses of principal or interest under the TCLF program or the NIB program.

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, requires that we increase our single-family guaranty fees by at least 10 basis points and remit this increase to 

Treasury. To meet our obligations under the TCCA and at the direction of FHFA, we increased the guaranty fee on all singlefamily residential mortgages delivered to us by 10 basis points effective April 1, 2012. FHFA and Treasury have 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. As of December 31, 2012, we had paid $104 million to 

Treasury for our obligations through September 30, 2012 under the TCCA, and our liability to Treasury for TCCA-related 

guaranty fees for the fourth quarter of 2012 was $134 million.

Transactions with PHH Corporation

Terence W. Edwards has been Executive Vice President—Credit Portfolio Management of Fannie Mae since September 14, 

2009, when he joined Fannie Mae. Prior to joining Fannie Mae, Mr. Edwards served as the President and Chief Executive 

Officer, as well as a member of the Board of Directors, of PHH Corporation, until June 17, 2009. Mr. Edwards continued to 

be employed by PHH Corporation until September 11, 2009.

PHH Mortgage Corporation (“PHH”), a subsidiary of PHH Corporation, is a single-family seller-servicer customer of Fannie 

Mae. We regularly enter into transactions with PHH in the ordinary course of this business relationship. In 2012, PHH 

delivered $21.4 billion in mortgage loans to us, which included the delivery of loans for direct payment and the delivery of 

pools of mortgage loans in exchange for Fannie Mae MBS. We acquired most of these mortgage loans pursuant to our early 

funding programs. This represented approximately 2.6% of our single-family business volume in 2012 and made PHH our 

sixth-largest single-family customer. In addition, as of December 31, 2012, PHH serviced $80.0 billion of single-family 

mortgage loans either owned directly by Fannie Mae or backing Fannie Mae MBS, which represented approximately 2.9% of 

our single-family servicing book, making PHH our sixth-largest servicer. PHH also entered into transactions with us to 

purchase or sell $4.4 billion in agency mortgage-related securities in 2012. As a single-family seller-servicer customer, PHH 

also pays us fees for its use of certain Fannie Mae technology, enters into risk-sharing arrangements with us, and provides us 

with collateral to secure some of its obligations. PHH renewed its delivery commitment to us in April 2012 for a 12-month 

term and in March 2013 extended its delivery commitment for an additional month to May 2013.

In November 2012, we renewed our committed purchase facility with PHH, pursuant to which PHH may have, at any given 

time during the term of the facility, up to $1.0 billion in outstanding early funding transactions with us. The renewal of the 

committed purchase facility was effective December 2012 and is for a 12-month term. This agreement is in addition to our 

existing uncommitted transaction limits with PHH under our early funding programs. We have also provided PHH with an 

early reimbursement facility to fund certain of PHH’s servicing advances, which was renewed in June 2012 for a 12-month 

term. The maximum amount outstanding under this early reimbursement facility during 2012 was $80 million. PHH is also a 

participating lender in our HomePath® Mortgage financing initiative relating to our REO properties.

We believe that Fannie Mae is one of PHH’s largest business partners and that transactions with Fannie Mae are material to 

PHH’s business. According to PHH Corporation’s annual report on Form 10-K for the year ended December 31, 2012, 85% 

of its mortgage loan sales during 2012 were sold to, or were sold pursuant to programs sponsored by, Fannie Mae, Freddie 

Mac or Ginnie Mae, and it is highly dependent on programs administered by Fannie Mae, Freddie Mac and Ginnie Mae.

Pursuant to a separation agreement with PHH Corporation, Mr. Edwards was entitled to receive additional compensation 

from PHH Corporation for his prior services to the company. Some of this additional compensation was dependent on the 
219

performance of PHH Corporation. According to Forms 8-K filed by PHH Corporation on August 5, 2009 and September 16, 

2009, Mr. Edwards’ separation agreement with PHH Corporation provided that he would receive the following additional 

compensation from PHH Corporation: (a) an amount equal to his base salary for a 24-month period beginning on PHH 

Corporation’s first regular pay date after March 11, 2010; (b) annual cash bonuses for calendar years 2009, 2010 and 2011 in 

an amount equal to the bonus he would have received based on actual performance of the company (except that the 2011 

bonus will be prorated to reflect the actual number of months covered by the severance period in 2011), which bonuses will 

be paid to Mr. Edwards at the same time bonuses are payable to corporate employees, but no later than March 15 after the end 

of the applicable performance year; and (c) a cash transition payment of $50,000 on PHH Corporation’s first regular pay date 

after March 11, 2010. In addition, the outstanding options and restricted stock units that were previously awarded to him 

continued to vest following his departure from the company and, on the last day of the severance period, all remaining 

unvested options and restricted stock units became fully vested, except for specified restricted stock units which vested only 

to the extent that performance goals were satisfied. As of March 2012, Mr. Edwards had received all remaining compensation 

due to him from PHH Corporation for his prior services to the company, and was no longer entitled to any additional 

compensation from PHH Corporation. In addition, as of September 2012, Mr. Edwards no longer owned any stock options, 

restricted stock units or other equity securities of PHH Corporation.

Our policies and procedures for the review and approval of related party transactions described above under “Policies and 

Procedures Relating to Transactions with Related Persons” did not require the review, approval or ratification of the abovedescribed transactions with PHH. Our Nominating & Corporate Governance Committee Charter and our Board’s delegation 

of authorities did not require the Nominating & Corporate Governance Committee to review and approve these transactions 

because Fannie Mae did not engage in any such transactions directly with Mr. Edwards; however, the Nominating & 

Corporate Governance Committee has reviewed this relationship. As required under our Conflict of Interest Policy and 

Conflict of Interest Procedure for employees in effect at the time Mr. Edwards commenced his employment with us, 

Mr. Edwards reported his ongoing financial interest in PHH Corporation at the time of his employment and requested review 

and approval of the conflict. Our Chief Executive Officer reviewed and approved of the conflict, and to address the conflict 

required that Mr. Edwards be recused from all matters relating to PHH. Because Mr. Edwards no longer had any remaining 

financial interests in PHH as of September 2012, the requirement that he be recused from PHH matters was removed in 

December 2012.

Transactions involving The Integral Group LLC

Egbert L.J. Perry, who joined our Board in December 2008, is the Chairman, Chief Executive Officer and controlling 

shareholder of The Integral Group LLC, referred to as Integral. Over the past eleven years, our Multifamily (formerly, 

Housing and Community Development) business has invested indirectly in certain limited partnerships or limited liability 

companies that are controlled and managed by entities affiliated with Integral, in the capacity of general partner or managing 

member, as the case may be. These limited partnerships or limited liability companies are referred to as the Integral Property 

Partnerships. The Integral Property Partnerships own and manage LIHTC properties. We also hold multifamily mortgage 

loans made to borrowing entities sponsored by Integral. We believe that Mr. Perry has no material direct or indirect interest in 

these transactions, and therefore disclosure of these transactions in this report is not required pursuant to Item 404 of 

Regulation S-K. In addition, as described in “Director Independence—Our Board of Directors” below, the Board of Directors 

has concluded that these business relationships are not material to Mr. Perry’s independence.

Mr. Perry has informed us that Integral accepted no further equity investments from us relating to Integral Property 

Partnerships beginning in December 2008, when he joined our Board. Mr. Perry has also informed us that Integral does not 

intend to seek debt financing intended specifically to be purchased by us, although, as a secondary market participant, in the 

ordinary course of our business we may purchase multifamily mortgage loans made to borrowing entities sponsored by 

Integral.

DIRECTOR INDEPENDENCE

Our Board of Directors, with the assistance of the Nominating & Corporate Governance Committee, has reviewed the 

independence of all current Board members under the requirements set forth in FHFA’s corporate governance regulations 

(which requires the standard of independence adopted by the NYSE) and under the standards of independence adopted by the 

Board, as set forth in our Corporate Governance Guidelines and outlined below. It is the policy of our Board of Directors that 

a substantial majority of our seated directors will be independent in accordance with these standards. Our Board is currently 

structured so that all but one of our directors, our Chief Executive Officer, is independent. Based on its review, the Board has 

determined that all of our non-employee directors meet the director independence requirements set forth in FHFA’s corporate 

governance regulations and in our Corporate Governance Guidelines.
220

Independence Standards

Under the standards of independence adopted by our Board, which meet and in some respects exceed the independence 

requirements set forth in FHFA’s corporate governance regulations (which requires the standard of independence adopted by 

the NYSE), an “independent director” 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 “material” if, in the judgment of the Board, it would 

interfere with the director’s independent judgment. The Board did not consider the Board’s duties to the conservator, together 

with the federal government’s controlling beneficial ownership of Fannie Mae, in determining independence of the Board 

members.

In addition, under FHFA’s corporate governance regulations, our Audit Committee is required to be in compliance with the 

NYSE’s listing requirements for audit committees, under which members of a company’s audit committee must meet 

additional, heightened independence criteria. Our own independence standards require all independent directors to meet these 

criteria.

To assist it in determining whether a director is independent, our Board has adopted the standards set forth below, which are 

posted on our Web site, www.fanniemae.com, under “Governance” in the “About Us” section of our Web site:

• A director will not be considered independent if, within the preceding five years:

• the director was our employee; or

• an immediate family member of the director was employed by us as an executive officer.

• A director will not be considered independent if:

• the director is a current partner or employee of our external auditor, or within the preceding five years, was (but is 

no longer) a partner or employee of our external auditor and personally worked on our audit within that time; or

• an immediate family member of the director is a current partner of our external auditor, or is a current employee of 

our external auditor and personally works on Fannie Mae’s audit, or, within the preceding five years, was (but is no 

longer) a partner or employee of our external auditor and personally worked on our audit within that time.

• A director will not be considered independent if, within the preceding five years:

• the director was employed by a company at a time when one of our current executive officers sat on that company’s 

compensation committee; or

• an immediate family member of the director was employed as an officer by a company at a time when one of our 

current executive officers sat on that company’s compensation committee.

• A director will not be considered independent if, within the preceding five years:

• the director received any compensation from us, directly or indirectly, other than fees for service as a director; or

• an immediate family member of the director received any compensation from us, directly or indirectly, other than 

compensation received for service as our employee (other than an executive officer).

• A director will not be considered independent if:

• the director is a current executive officer, employee, controlling stockholder or partner of a company or other entity 

that does or did business with us and to which we made, or from which we received, payments within the preceding 

five years that, in any single fiscal year, were in excess of $1 million or 2% of the entity’s consolidated gross annual 

revenues, whichever is greater; or

• an immediate family member of the director is a current executive officer of a company or other entity that does or 

did business with us and to which we made, or from which we received, payments within the preceding five years 

that, in any single fiscal year, were in excess of $1 million or 2% of the entity’s consolidated gross annual revenues, 

whichever is greater.

• A director will not be considered independent if the director or the director’s spouse is an executive officer, employee, 

director or trustee of a nonprofit organization to which we make or have made contributions within the preceding three 

years that, in a single year, were in excess of 5% of the organization’s consolidated gross annual revenues, or $120,000, 

whichever is less (amounts matched under our Matching Gifts Program are not included in the contributions calculated 

for purposes of this standard). The Nominating & Corporate Governance Committee also will receive periodic reports 

regarding charitable contributions to organizations otherwise associated with a director or any spouse of a director.

After considering all the facts and circumstances, our Board may determine in its judgment that a director is independent (in 

other words, the director has no relationship with us that would interfere with the director’s independent judgment), even 
221

though the director does not meet the standards listed above, so long as the determination of independence is consistent with 

the NYSE definition of “independence.” Where the standards above do not address a particular relationship, the 

determination of whether the relationship is material, and whether a director is independent, will be made by our Board, 

based upon the recommendation of the Nominating & Corporate Governance Committee.

Our Board of Directors

Our Board of Directors, with the assistance of the Nominating & Corporate Governance Committee, has reviewed the 

independence of all current Board members under the requirements set forth in FHFA’s corporate governance regulations 

(which requires the standard of independence adopted by the NYSE) and under the standards of independence adopted by the 

Board contained in our Corporate Governance Guidelines, as outlined above. Based on its review, the Board has affirmatively 

determined that all of our non-employee directors meet the director independence standards of our Guidelines and the NYSE, 

and that each of the following nine directors is independent: Philip A. Laskawy, William Thomas Forrester, Brenda J. Gaines, 

Charlynn Goins, Frederick B. Harvey III, Robert H. Herz, Egbert L. J. Perry, Jonathan Plutzik and David H. Sidwell.

In determining the independence of each of these Board members, the Board of Directors considered the following 

relationships in addition to those addressed by the standards contained in our Guidelines as set forth above:

• Certain of these Board members serve as directors or advisory Board members of other companies that engage in 

business with Fannie Mae. In each of these cases, the Board members are only directors or advisory Board members of 

these other companies. In addition, in most instances, the payments made by or to Fannie Mae pursuant to these 

relationships during the past five years fell below our Guidelines’ thresholds of materiality for a Board member that is a 

current executive officer, employee, controlling shareholder or partner of a company engaged in business with Fannie 

Mae. In light of these facts, the Board of Directors has concluded that these business relationships are not material to 

the independence of these Board members.

• One of these Board members serves as a trustee for a charitable organization that has received fees from Fannie Mae. 

The amount of these fees fell substantially below our Guidelines’ thresholds of materiality for a Board member who is a 

current trustee or board member of a charitable organization that receives donations from Fannie Mae. In light of this 

fact, the Board of Directors has concluded that this relationship with the charitable organization is not material to the 

independence of this Board member.

• Certain of these Board members serve as directors of other companies that hold Fannie Mae fixed income securities or 

control entities that direct investments in such securities. It is not possible for Fannie Mae to determine the extent of the 

holdings of these companies in Fannie Mae fixed income securities as all payments to holders are made through the 

Federal Reserve, and most of these securities are held in turn by financial intermediaries. Each director has confirmed 

that the transactions by these other companies in Fannie Mae fixed income securities are entered into in the ordinary 

course of business of these companies and are not entered into at the direction of, or upon approval by, him in his 

capacity as a director of these companies. In light of these facts, the Board of Directors has concluded that these 

business relationships are not material to the independence of these Board members.

• Two of these Board members and an immediate family member of another Board member serve as directors and an 

employee, respectively, of companies that have been sued by FHFA, as conservator to Fannie Mae and Freddie Mac, 

for violations of laws in the sale of residential private-label mortgage-backed securities to Fannie Mae and Freddie 

Mac. The Board of Directors has concluded that these relationships were not material to the independence of these 

Board members.

• Mr. Perry is an executive officer and majority shareholder of The Integral Group LLC, which has had multiple indirect 

business relationships with Fannie Mae during the past five years. These business relationships include the following:

• Since 2006, Fannie Mae has held six multifamily mortgage loans made to six borrowing entities sponsored by 

Integral. In each case, Integral participates in the borrowing entity as a general partner of the limited partnership, or 

as a managing member of the limited liability company, as the case may be, and holds a 0.01% economic interest in 

such entity. The aggregate unpaid principal balance of these loans as of December 31, 2012 constituted 

approximately 6% of Integral’s total debt outstanding. The borrowing entities have made interest payments on these 

loans. The total amount of these interest payments did not exceed $1 million in any of the last five years.

• Fannie Mae has invested as a limited partner or member in certain LIHTC funds that in turn have invested as a 

limited partner or member in various Integral Property Partnerships, which are lower-tier project partnerships or 

limited liability companies that own LIHTC properties. Integral participates indirectly as a member or the general 

partner of the Integral Property Partnerships (each a “Project General Partner”). The Integral Property Partnerships 

construct, develop and manage housing projects, a portion of which includes affordable housing units. Each Project 

General Partner and its affiliates earn certain fees each year in connection with those project activities, and such fees 
222

are paid from income generated by the project (other than certain developer fees paid from development sources). 

Fannie Mae’s indirect investments in the Integral Property Partnerships, through the LIHTC funds, have not resulted 

in any direct payments by Fannie Mae to any Project General Partner or its affiliates, including Integral. Fannie 

Mae’s indirect equity investment in the Integral Property Partnerships as of December 31, 2012 constituted less than 

4% of the total capitalization and approximately 11% of the total equity in all of the Integral Property Partnerships.

The aggregate debt service and other required payments made, directly and indirectly, to or on behalf of Fannie Mae 

pursuant to these relationships with Integral for each of the past five years fall below our Guidelines’ thresholds of 

materiality for a Board member who is a current executive officer, employee, controlling shareholder or partner of a 

company that engages in business with Fannie Mae. In addition, as a limited partner or member in the LIHTC funds, 

which in turn are limited partners in the Integral Property Partnerships, Fannie Mae has no direct dealings with Integral 

or Mr. Perry and has not been involved in the management of the Integral Property Partnerships. Mr. Perry also was not 

generally aware of the identity of the limited partners or members of the LIHTC funds, as Integral sells the partnership 

or LLC interests to syndicators who, in turn, syndicate these interests to limited partners or members of their choosing. 

Further, Integral has not accepted additional equity investments from Fannie Mae since Mr. Perry joined the Board. 

Fannie Mae is not currently seeking to make additional equity investments in the LIHTC market and Mr. Perry has 

informed Fannie Mae that Integral does not intend to seek debt financing specifically to be purchased by Fannie Mae. 

Based on the foregoing, the Board of Directors has concluded that these business relationships are not material to 

Mr. Perry’s independence.

• Mr. Plutzik’s wife, Leslie Goldwasser, is a Managing Director with Credit Suisse. She is not an executive officer of 

Credit Suisse. Fannie Mae has multiple business relationships with Credit Suisse in the ordinary course of its business. 

We believe that payments made by or to Fannie Mae pursuant to its relationships with Credit Suisse during the past five 

years likely fell below our Guidelines’ thresholds of materiality for when an immediate family member of a director is a 

current executive officer, employee, controlling shareholder or partner of a company engaged in business with Fannie 

Mae. Ms. Goldwasser has confirmed that she has no direct or indirect interest or involvement in any transactions 

between Fannie Mae and Credit Suisse and that her compensation is not affected directly or indirectly by any such 

transactions. In light of these facts, the Board of Directors has concluded that these business relationships are not 

material to Mr. Plutzik’s independence. 

The Board determined that none of these relationships would interfere with the director’s independent judgment.

Mr. Mayopoulos is not considered an independent director under the Guidelines because of his position as Chief Executive 

Officer.

Item 14. Principal 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. In accordance with the Audit Committee’s charter, it must approve, in advance of the service, all audit and 

permissible non-audit 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. Our independent 

registered public accounting firm may not be retained to perform non-audit services specified in Section 10A(g) of the 

Exchange Act.

Deloitte & Touche LLP was our independent registered public accounting firm for the years ended December 31, 2012 and 

2011. Deloitte & 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 PCAOB and federal securities laws administered by the SEC.
223

The following table displays the aggregate estimated or actual fees for professional services provided by Deloitte & Touche 

LLP in 2012 and 2011, including fees for the 2012 and 2011 audits.

For the Year Ended 

December 31,

Description of Fees 2012 2011

Audit fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,246,000 $34,400,000

Audit-related fees(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,090,000 1,850,000

Tax fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000 25,000

All other fees(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,360,000 65,000

Total fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,733,000 $36,340,000

__________

(1) Consists of fees billed for attest-related services on debt offerings, securitization transactions and compliance with our covenants of the 

Senior Preferred Stock Purchase Agreement.

(2) Consists of fees billed for analysis and assessment of the finance organization and human capital continuity planning.

Pre-Approval Policy

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services to be provided by the 

independent registered public accounting firm. 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.

In connection with its approval of Deloitte & Touche as Fannie Mae’s independent registered public accounting firm for 

Fannie Mae’s 2012 integrated audit, the Audit Committee delegated the authority to pre-approve any additional audit and 

audit-related services to its Chairman, Mr. Forrester, who was required to report any such pre-approvals at the next scheduled 

meeting of the Audit Committee. Additionally, any services provided by Deloitte & Touche outside of the scope of the 

integrated audit must be approved by the Conservator.

In 2012, 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.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report 

1. Consolidated Financial Statements 

An index to financial statements has been filed as part of this report beginning on page F-1 and is incorporated herein by 

reference. 

2. Financial Statement Schedules 

None. 

3. Exhibits 

An index to exhibits has been filed as part of this report beginning on page E-1 and is incorporated herein by reference.
224

SIGNATURES

Pursuant to the requirements of Section 13 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/ Timothy J. Mayopoulos

Timothy J. Mayopoulos

President and Chief Executive Officer

Date: April 2, 2013

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints 

Timothy J. Mayopoulos and Susan R. McFarland, 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. Securities and Exchange Commission in connection with 

the Annual Report on Form 10-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/ Philip A. Laskawy Chairman of the Board of Directors April 2, 2013

Philip A. Laskawy

/s/ Timothy J. Mayopoulos President and Chief Executive Officer April 2, 2013

Timothy J. Mayopoulos and Director

/s/ Susan R. McFarland Executive Vice President and April 2, 2013

Susan R. McFarland Chief Financial Officer

/s/ Gregory A. Fink Senior Vice President and Controller April 2, 2013

Gregory A. Fink

/s/ William Thomas Forrester Director April 2, 2013

William Thomas Forrester
225

Signature Title Date

 /s/ Brenda J. Gaines Director April 2, 2013

Brenda J. Gaines

 /s/ Charlynn Goins Director April 2, 2013

Charlynn Goins

 /s/ Frederick B. Harvey III Director April 2, 2013

Frederick B. Harvey III

 /s/ Robert H. Herz Director April 2, 2013

Robert H. Herz

 /s/ Egbert L. J. Perry Director April 2, 2013

Egbert L. J. Perry

 /s/ Jonathan Plutzik Director April 2, 2013

Jonathan Plutzik

 /s/ David H. Sidwell Director April 2, 2013

David H. Sidwell
E-1

INDEX TO EXHIBITS

Item Description

3.1 Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through July 30, 2008 (Incorporated by 

reference to Exhibit 3.1 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 

2010, filed February 24, 2011.)

3.2 Fannie Mae Bylaws, as amended through January 30, 2009 (Incorporated by reference to Exhibit 3.2 to

Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2008, filed February 26,

2009.)

4.1 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series D (Incorporated by reference to

Exhibit 4.1 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.)

4.2 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series E (Incorporated by reference to

Exhibit 4.2 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.)

4.3 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series F (Incorporated by reference to

Exhibit 4.3 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.)

4.4 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series G (Incorporated by reference to

Exhibit 4.4 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.)

4.5 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series H (Incorporated by reference to

Exhibit 4.5 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.)

4.6 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series I (Incorporated by reference to

Exhibit 4.6 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.)

4.7 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series L (Incorporated by reference to

Exhibit 4.7 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.)

4.8 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series M (Incorporated by reference to

Exhibit 4.8 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.)

4.9 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series N (Incorporated by reference to

Exhibit 4.9 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.)

4.10 Certificate of Designation of Terms of Fannie Mae Non-Cumulative Convertible Preferred Stock,

Series 2004-1(Incorporated by reference to Exhibit 4.10 to Fannie Mae’s Annual Report on Form 10-K for

the year ended December 31, 2009, filed February 26, 2010.)

4.11 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series O (Incorporated by reference to

Exhibit 4.11 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2009, filed

February 26, 2010.)

4.12 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series P

4.13 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series Q

4.14 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series R

4.15 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series S 

4.16 Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series T (Incorporated by reference to

Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed May 19, 2008.)

4.17 Amended and Restated Certificate of Designation of Terms of Variable Liquidation Preference Senior 

Preferred Stock, Series 2008-2, amended and restated as of September 27, 2012 (Incorporated by reference 

to Exhibit 4.1 to Fannie Mae’s Quarterly Report on filed November 7, 2012.)

4.18 Warrant to Purchase Common Stock, dated September 7, 2008 (Incorporated by reference to Exhibit 4.3 to

Fannie Mae’s Current Report on Form 8-K, filed September 11, 2008.)

4.19 Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of September 26, 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 Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed October 2, 2008.)

4.20 Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6,

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 Exhibit 4.21 to Fannie Mae’s Quarterly Report on Form 10-Q, filed May 8, 2009.)
E-2

Item Description

4.21 Second Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of

December 24, 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 Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed December 30,

2009.)

4.22 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 Mae’s Current Report on Form 8-K, filed August 17,

2012.)

10.1 Repayment Provisions for SEC Executive Officers, amended and restated as of March 8, 2012† 

(Incorporated by reference to Exhibit 10.44 to Fannie Mae’s Quarterly Report on Form 10-Q, filed May 9, 

2012.)

10.2 Compensation Repayment Provisions† (Incorporated by reference to Exhibit 99.1 to Fannie Mae’s Current

Report on Form 8-K, filed December 24, 2009.)

10.3 Long-Term Incentive Plan, effective December 16, 2009† (Incorporated by reference to Exhibit 10.9 to

Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2009, filed February 26,

2010.)

10.4 Deferred Pay Plan, effective December 16, 2009† (Incorporated by reference to Exhibit 10.10 to Fannie

Mae’s Annual Report on Form 10-K for the year ended December 31, 2009, filed February 26, 2010.)

10.5 Fannie Mae Form of Indemnification Agreement for directors and officers of Fannie Mae (Incorporated by

reference to Exhibit 10.15 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31,

2008, filed February 26, 2009.)

10.6 Federal National Mortgage Association Supplemental Pension Plan, as amended on November 20, 2007† 

10.7 Amendment to Fannie Mae Supplemental Pension Plan for Internal Revenue Code Section 409A, effective 

January 1, 2009† 

10.8 Amendment to Fannie Mae Supplemental Pension Plan, executed December 22, 2008† (Incorporated by

reference to Exhibit 10.18 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31,

2008, filed February 26, 2009.)

10.9 Fannie Mae Supplemental Pension Plan of 2003, as amended on November 20, 2007†

10.10 Amendment to Fannie Mae Supplemental Pension Plan of 2003 for Internal Revenue Code Section 409A, 

effective January 1, 2009† 

10.11 Amendment to Fannie Mae Supplemental Pension Plan of 2003 for Internal Revenue Code Section 409A, 

adopted December 22, 2008† (Incorporated by reference to Exhibit 10.21 to Fannie Mae's Annual Report on 

Form 10-K for the year ended December 31, 2008, filed February 26, 2009.)

10.12 Amendment to Fannie Mae Supplemental Pension Plan of 2003, effective May 14, 2010† (Incorporated by 

reference to Exhibit 10.1 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 5, 2010.)

10.13 Amendment to Fannie Mae Supplemental Pension Plan of 2003 for 2012 Executive Compensation Program, 

adopted May 18, 2012† (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Quarterly Report on 

Form 10-Q, filed August 8, 2012.)

10.14 Executive Pension Plan of the Federal National Mortgage Association as amended and restated† 

(Incorporated by reference to Exhibit 10.10 to Fannie Mae’s registration statement on Form 10, filed 

March 31, 2003.)

10.15 Amendment, effective March 1, 2007, to the Executive Pension Plan of the Federal National Mortgage 

Association, as amended and restated† 

10.16 Amendment to Fannie Mae Executive Pension Plan, effective November 20, 2007† 

10.17 Amendment to the Executive Pension Plan of the Federal National Mortgage Association, effective

January 1, 2008† (Incorporated by reference to Exhibit 10.25 to Fannie Mae’s Annual Report on Form 10-K

for the year ended December 31, 2008, filed February 26, 2009.)

10.18 Amendment to the Executive Pension Plan of the Federal National Mortgage Association, effective

December 16, 2009† (Incorporated by reference to Exhibit 10.23 to Fannie Mae’s Annual Report on

Form 10-K for the year ended December 31, 2009, filed February 26, 2010.)

10.19 Amendment to the Executive Pension Plan of the Federal National Mortgage Association, effective

January 1, 2010† (Incorporated by reference to Exhibit 10.22 to Fannie Mae’s Annual Report on Form 10-K

for the year ended December 31, 2010, filed February 24, 2011.)
E-3

Item Description

10.20 Fannie Mae Annual Incentive Plan, as amended December 10, 2007† 

10.21 Fannie Mae Stock Compensation Plan of 2003, as amended through December 14, 2007† 

10.22 Amendment to Fannie Mae Stock Compensation Plan of 2003, as amended, for Internal Revenue Code

Section 409A, adopted December 22, 2008† (Incorporated by reference to Exhibit 10.28 to Fannie Mae’s

Annual Report on Form 10-K for the year ended December 31, 2008, filed February 26, 2009.)

10.23 Fannie Mae Stock Compensation Plan of 1993† (Incorporated by reference to Exhibit 10.26 to Fannie Mae’s

Annual Report on Form 10-K for the year ended December 31, 2011, filed February 29, 2012.)

10.24 2009 Amendment to Fannie Mae Stock Compensation Plans of 1993 and 2003† (Incorporated by reference

to Exhibit 10.1 to Fannie Mae’s Quarterly Report on Form 10-Q, filed November 5, 2009.)

10.25 Fannie Mae Procedures for Deferral and Diversification of Awards, as amended effective December 10,

2007† (Incorporated by reference to Exhibit 10.30 to Fannie Mae’s Annual Report on Form 10-K for the

year ended December 31, 2008, filed February 26, 2009.)

10.26 Fannie Mae Supplemental Retirement Savings Plan, as amended through April 29, 2008† (Incorporated by

reference to Exhibit 10.2 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 8, 2008.)

10.27 Amendment to Fannie Mae Supplemental Retirement Savings Plan, effective October 8, 2008†

(Incorporated by reference to Exhibit 10.32 to Fannie Mae’s Annual Report on Form 10-K for the year

ended December 31, 2008, filed February 26, 2009.)

10.28 Amendment to Fannie Mae Supplemental Retirement Savings Plan, effective May 14, 2010† (Incorporated

by reference to Exhibit 10.2 to Fannie Mae’s Quarterly Report on Form 10-Q, filed August 5, 2010.)

10.29 Amendment to Fannie Mae Supplemental Retirement Savings plan for 2012 Executive Compensation 

Program, adopted May 18, 2012† (Incorporated by reference to Exhibit 10.3 to Fannie Mae’s Quarterly 

Report on Form 10-Q, filed August 8, 2012.)

10.30 Form of Nonqualified Stock Option Grant Award Document† (Incorporated by reference to Exhibit 10.33 to

Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2009, filed February 26,

2010.)

10.31 Form of Restricted Stock Award Document† (Incorporated by reference to Exhibit 10.33 to Fannie Mae’s

Annual Report on Form 10-K for the year ended December 31, 2011, filed February 29, 2012.)

10.32 Form of Restricted Stock Units Award Document adopted January 23, 2008† 

10.33 Form of Restricted Stock Units Award Document† (Incorporated by reference to Exhibit 10.35 to Fannie

Mae’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 29, 2012.)

10.34 Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of September 26, 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

Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed October 2, 2008.)

10.35 Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6,

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 Exhibit 4.21 to Fannie Mae’s Quarterly Report on Form 10-Q, filed May 8, 2009.)

10.36 Second Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of

December 24, 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 Exhibit 4.1 to Fannie Mae’s Current Report on Form 8-K, filed December 30,

2009.)

10.37 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 Mae’s Current Report on Form 8-K, filed August 17,

2012.)

10.38 Letters, dated September 1, 2005, setting forth an agreement between Fannie Mae and OFHEO

(Incorporated by reference to Exhibit 10.39 to Fannie Mae’s Annual Report on Form 10-K for the year

ended December 31, 2011, filed February 29, 2012.)

10.39 Letter Agreement between Fannie Mae and Timothy J. Mayopoulos, dated March 9, 2009† (Incorporated by

reference to Exhibit 10.44 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31,

2009, filed February 26, 2010.)
E-4

Item Description

10.40 Letter Agreement between Timothy J. Mayopoulos and Fannie Mae, effective as of June 18, 2012† 

(Incorporated by reference to Exhibit 99.1 to Fannie Mae’s Current Report on Form 8-K, filed June 5, 

2012.)

10.41 Memorandum of Understanding among the Department of the Treasury, the Federal Housing Finance

Agency, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation,

dated October 19, 2009 (Incorporated by reference to Exhibit 99.1 to Fannie Mae’s Current Report on

Form 8-K, filed October 23, 2009.)

10.42 Omnibus Consent to HFA Initiative Program Modifications among the Department of Treasury, the Federal

Housing Finance Agency, Federal National Mortgage Association, and Federal Home Loan Mortgage

Corporation, dated November 23, 2011 (Incorporated by reference to Exhibit 10.42 to Fannie Mae’s Annual

Report on Form 10-K for the year ended December 31, 2011, filed February 29, 2012.)

10.43 Termination Agreement and General Release, effective as of February 28, 2012, by and between David C. 

Hisey and Fannie Mae† (Incorporated by reference to Exhibit 10.43 to Fannie Mae’s Quarterly Report on 

Form 10-Q, filed May 9, 2012.)

12.1 Statement re: computation of ratio of earnings to fixed charges

12.2 Statement re: computation of ratio of earnings to combined fixed charges and preferred stock dividends and 

issuance cost at redemption 

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a) 

31.2 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a) 

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 

101. INS XBRL Instance Document* 

101. SCH XBRL Taxonomy Extension Schema* 

101. CAL XBRL Taxonomy Extension Calculation*

101. DEF XBRL Taxonomy Extension Definition* 

101. LAB XBRL Taxonomy Extension Labels* 

101. PRE XBRL Taxonomy Extension Presentation* 

__________

† This Exhibit is a management contract or compensatory plan or arrangement.

* The financial information contained in these XBRL documents is unaudited. The information in these exhibits shall not be 

deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of 

Section 18, nor shall they be deemed incorporated by reference into any disclosure document relating to Fannie Mae, except to 

the extent, if any, expressly set forth by specific reference in such filing.
F-1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statements of Operations and Comprehensive Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Changes in Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Note 1—Summary of Significant Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Note 2—Consolidations and Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25

Note 3—Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29

Note 4—Allowance for Loan Losses and Reserve for Guaranty Losses . . . . . . . . . . . . . . . . . . . . . . . . F-35

Note 5—Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37

Note 6—Financial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44

Note 7—Acquired Property, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47

Note 8—Short-Term Borrowings and Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47

Note 9—Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50

Note 10—Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53

Note 11—Earnings (Loss) Per Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-57

Note 12—Employee Retirement Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58

Note 13—Segment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-64

Note 14—Equity (Deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-69

Note 15—Regulatory Capital Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-75

Note 16—Concentrations of Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-76

Note 17—Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-81

Note 18—Commitments and Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-105

Note 19—Selected Quarterly Financial Information (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-110

Note 20—Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-111
F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Fannie Mae:

We have audited the accompanying consolidated balance sheets of Fannie Mae and consolidated entities (in conservatorship) 

(the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations and 

comprehensive income (loss), cash flows, and changes in equity (deficit) for each of the three years in the period ended 

December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to 

express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United 

States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial 

statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts 

and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant 

estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 

provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Fannie 

Mae and consolidated entities (in conservatorship) as of December 31, 2012 and 2011, and the results of their operations and 

their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles 

generally accepted in the United States of America. 

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 (“FHFA”). 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 Company’s conservator and regulator, FHFA. 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), 

the Company’s internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal 

Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our 

report dated April 2, 2013 expressed an adverse opinion on the Company’s internal control over financial reporting because 

of a material weakness.

/s/ Deloitte & Touche LLP

Washington, DC

April 2, 2013
F-3

FANNIE MAE

(In conservatorship)

Consolidated Balance Sheets

(Dollars in millions, except share amounts)

As of December 31,

2012 2011

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,117 $ 17,539

Restricted cash (includes $61,976 and $45,900, respectively, related to consolidated trusts) . . . . . . . . . . . . . . . . . . . . . . . 67,919 50,797

Federal funds sold and securities purchased under agreements to resell or similar arrangements . . . . . . . . . . . . . . . . . . . . 32,500 46,000

Investments in securities:

Trading, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,695 74,198

Available-for-sale, at fair value (includes $935 and $1,191, respectively, related to consolidated trusts) . . . . . . . . . . . 63,181 77,582

Total investments in securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,876 151,780

Mortgage loans:

Loans held for sale, at lower of cost or fair value (includes $72 and $66, respectively, related to consolidated trusts). 464 311

Loans held for investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,544 380,134

Of consolidated trusts (includes $10,800 and $3,611 respectively, at fair value and loans pledged as collateral that

may be sold or repledged of $943 and $798, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,652,193 2,590,332

Total loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,007,737 2,970,466

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,795) (72,156)

Total loans held for investment, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,948,942 2,898,310

Total mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,949,406 2,898,621

Accrued interest receivable, net (includes $7,567 and $8,466, respectively, related to consolidated trusts) . . . . . . . . . . . . 9,176 10,000

Acquired property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,489 11,373

Other assets (includes cash pledged as collateral of $1,222 and $1,109, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,939 25,374

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 3,211,484

LIABILITIES AND EQUITY (DEFICIT)

Liabilities:

Accrued interest payable (includes $8,645 and $9,302, respectively, related to consolidated trusts) . . . . . . . . . . . . . . . . $ 11,303 $ 12,648

Debt:

Of Fannie Mae (includes $793 and $838, respectively, at fair value). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615,864 732,444

Of consolidated trusts (includes $11,647 and $3,939, respectively, at fair value). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,573,653 2,457,428

Other liabilities (includes $1,059 and $629, respectively, related to consolidated trusts) . . . . . . . . . . . . . . . . . . . . . . . . . 14,378 13,535

Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,215,198 3,216,055

Commitments and contingencies (Note 18). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Fannie Mae stockholders’ equity (deficit):

Senior preferred stock, 1,000,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,149 112,578

Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding . . . . . . . . . . . . . . . . 19,130 19,130

Common stock, no par value, no maximum authorization—1,308,762,703 shares issued, 1,158,077,970 and

1,157,767,400 shares outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687 687

Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122,766) (128,381)

Accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 (1,235)

Treasury stock, at cost, 150,684,733 and 150,995,303 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,401) (7,403)

Total Fannie Mae stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,183 (4,624)

Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 53

Total equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,224 (4,571)

Total liabilities and equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 3,211,484

See Notes to Consolidated Financial Statements
F-4

FANNIE MAE

(In conservatorship)

Consolidated Statements of Operations and Comprehensive Income (Loss)

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

For the Year Ended December 31,

2012 2011 2010

Interest income:

Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 989 $ 1,087 $ 1,251

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,299 3,277 5,290

Mortgage loans (includes $110,451, $123,633, and $132,591, respectively, related to

consolidated trusts) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

124,706 138,462 147,583

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 117 146

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,190 142,943 154,270

Interest expense:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 310 631

Long-term debt (includes $95,612, $108,641, and $118,373, respectively, related to consolidated

trusts). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

107,537 123,352 137,230

Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,689 123,662 137,861

Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,501 19,281 16,409

Benefit (provision) for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 852 (26,718) (24,896)

Net interest income (loss) after benefit (provision) for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . 22,353 (7,437) (8,487)

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 506 346

Other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (311) (614) (694)

Noncredit portion of other-than-temporary impairments recognized in other comprehensive

income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(402) 306 (28)

Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (713) (308) (722)

Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,977) (6,621) (511)

Debt extinguishment losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (244) (232) (568)

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,487 1,163 1,084

Non-interest loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,960) (5,492) (371)

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195 1,236 1,277

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 736 942

Occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 179 170

Other administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 219 208

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,367 2,370 2,597

Foreclosed property (income) expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (254) 780 1,718

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,060 866 927

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,173 4,016 5,242

Income (loss) before federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,220 (16,945) (14,100)

Benefit for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 90 82

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,220 (16,855) (14,018)

Other comprehensive income (loss):

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

and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,735 622 3,504

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116) (175) (60)

Total other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,619 447 3,444

Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,839 (16,408) (10,574)

Less: Comprehensive loss attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 — 4

Total comprehensive income (loss) attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,843 $ (16,408) $ (10,570)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,220 $ (16,855) $ (14,018)

Less: Net loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 — 4

Net income (loss) attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,224 $ (16,855) $ (14,014)

Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,603) (9,614) (7,704)

Undistributed earnings available for distribution to senior preferred stockholder. . . . . . . . . . . . . . . . (4,224) — —

Net income (loss) attributable to common stockholders (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,397 $ (26,469) $ (21,718)

Earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ (4.61) $ (3.81)

Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.24 (4.61) (3.81)

Weighted-average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,737 5,694

Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,893 5,737 5,694

See Notes to Consolidated Financial Statements
F-5

FANNIE MAE

(In conservatorship)

Consolidated Statements of Cash Flows

(Dollars in millions)

For the Year Ended December 31,

2012 2011 2010

Cash flows provided by (used in) operating activities:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,220 $ (16,855) $ (14,018)

Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

Amortization of cost basis adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,335) (369) 126

(Benefit) provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (852) 26,718 24,896

Valuation gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,345) (408) (1,289)

(Gains) losses from partnership investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119) (82) 74

Current and deferred federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1,044 258

Purchases of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (603) (737) (81)

Proceeds from repayments and sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 68 88

Net change in trading securities, excluding non-cash transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,972 (17,048) (23,612)

Payments for foreclosed property expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,722) (5,394) (5,658)

Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,402) (2,175) (8,179)

Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,001 (15,238) (27,395)

Cash flows provided by investing activities:

Purchases of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,216) (2,951) (8,547)

Proceeds from maturities and paydowns of trading securities held for investment . . . . . . . . . . . . . 3,508 2,591 2,638

Proceeds from sales of trading securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,861 1,526 21,556

Purchases of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) (192) (413)

Proceeds from maturities and paydowns of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . 12,636 13,552 17,102

Proceeds from sales of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,306 3,192 7,867

Purchases of loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (210,488) (78,099) (86,724)

Proceeds from repayments of loans held for investment of Fannie Mae . . . . . . . . . . . . . . . . . . . . . 31,322 25,190 20,715

Proceeds from repayments of loans held for investment of consolidated trusts. . . . . . . . . . . . . . . . 797,331 544,145 574,740

Net change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,122) 12,881 (15,025)

Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (144,064) (70,914) (74,130)

Proceeds from disposition of acquired property and preforeclosure sales . . . . . . . . . . . . . . . . . . . . 38,685 47,248 39,682

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

agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500 (34,249) 41,471

Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468 468 (753)

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527,693 464,388 540,179

Cash flows used in financing activities:

Proceeds from issuance of debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736,065 766,598 1,155,993

Payments to redeem debt of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (854,111) (815,838) (1,146,363)

Proceeds from issuance of debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,513 233,516 276,575

Payments to redeem debt of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (832,537) (647,695) (808,502)

Payments of cash dividends on senior preferred stock to Treasury . . . . . . . . . . . . . . . . . . . . . . . . . (11,608) (9,613) (7,706)

Proceeds from senior preferred stock purchase agreement with Treasury . . . . . . . . . . . . . . . . . . . . 4,571 23,978 27,700

Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) 146 4

Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (561,116) (448,908) (502,299)

Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,578 242 10,485

Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,539 17,297 6,812

Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,117 $ 17,539 $ 17,297

Cash paid during the period for:

Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,259 $ 128,806 $ 140,651

Non-cash activities:

Net mortgage loans acquired by assuming debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 537,862 $ 448,437 $ 484,699

Net transfers from (to) mortgage loans of Fannie Mae to (from) mortgage loans of consolidated 

trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,272 33,859 (121,852)

Transfers from advances to lenders to loans held for investment of consolidated trusts . . . . . . . . . . . . 133,554 69,223 68,385

Net transfers from mortgage loans to acquired property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,981 56,517 66,081

See Notes to Consolidated Financial Statements
F-6

FANNIE MAE

(In conservatorship)

Consolidated Statements of Changes in Equity (Deficit)

(Dollars and shares in millions)

Fannie Mae Stockholders’ Equity (Deficit)

Shares Outstanding Senior

Preferred 

Stock

Preferred

Stock

Common

Stock

Additional

Paid-In

Capital

Retained

Earnings

(Accumulated

Deficit)

Accumulated 

Other

Comprehensive

Income (Loss)

Treasury

Stock

Non

Controlling

Interest

Total

Equity

(Deficit)

Senior

Preferred Preferred Common

Balance as of January 1, 2010 . . . . . 1 580 1,113 $ 60,900 $ 20,348 $ 664 $ 2,083 $ (83,531) $ (5,126) $ (7,398) $ 77 $(11,983)

Change in investment in 

noncontrolling interest . . . . . . . . .

— — — — — — — — — — 9 9

Comprehensive loss:

Net loss. . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — (14,014) — — (4) (14,018)

Other comprehensive income, net of 

tax effect:

Changes in net unrealized losses 

on available-for-sale securities 

(net of tax of $1,644) . . . . . . . . — — — — — — — — 3,054 — — 3,054

Reclassification adjustment for 

other-than-temporary 

impairments recognized in net 

loss (net of tax of $253) . . . . . . — — — — — — — — 469 — — 469

Reclassification adjustment for 

gains included in net loss (net 

of tax of $10) . . . . . . . . . . . . . . — — — — — — — — (19) — — (19)

Unrealized gains on guaranty 

assets and guaranty fee buyups. . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — 1 — — 1

Prior service cost and actuarial 

gains, net of amortization for 

defined benefit plans. . . . . . . . . — — — — — — — — (61) — — (61)

Total comprehensive loss . . . . . . . . . . (10,574)

Senior preferred stock dividends . . . . — — — — — — (2,265) (5,441) — — — (7,706)

Increase to senior preferred 

liquidation preference . . . . . . . . . .

— — — 27,700 — — — — — — — 27,700

Conversion of convertible preferred 

stock into common stock . . . . . . .

— (3) 5 — (144) 3 141 — — — — —

Other. . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — — — 41 — — (4) — 37

Balance as of December 31, 2010 . . 1 577 1,119 88,600 20,204 667 — (102,986) (1,682) (7,402) 82 (2,517)

Change in investment in 

noncontrolling interest . . . . . . . . .

— — — — — — — — — — (29) (29)

Comprehensive loss:

Net loss. . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — (16,855) — — — (16,855)

Other comprehensive income, net of 

tax effect:

Changes in net unrealized losses 

on available-for-sale securities 

(net of tax of $250). . . . . . . . . . — — — — — — — — 465 — — 465

Reclassification adjustment for 

other-than-temporary 

impairments recognized in net 

loss (net of tax of $99) . . . . . . . — — — — — — — — 209 — — 209

Reclassification adjustment for 

gains included in net loss (net 

of tax of $28) . . . . . . . . . . . . . . — — — — — — — — (52) — — (52)

Prior service cost and actuarial 

gains, net of amortization for 

defined benefit plans. . . . . . . . . — — — — — — — — (175) — — (175)

Total comprehensive loss . . . . . . . . . . (16,408)

Senior preferred stock dividends . . . . — — — — — — (1,072) (8,541) — — — (9,613)

Increase to senior preferred 

liquidation preference . . . . . . . . . .

— — — 23,978 — — — — — — — 23,978

Conversion of convertible preferred 

stock into common stock . . . . . . .

— (21) 39 — (1,074) 20 1,054 — — — — —

Other. . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — 18 1 — (1) — 18

Balance as of December 31, 2011. . . 1 556 1,158 112,578 19,130 687 — (128,381) (1,235) (7,403) 53 (4,571)

Change in investment in 

noncontrolling interest . . . . . . . . .

— — — — — — — — — — (8) (8)

Comprehensive income:

Net income . . . . . . . . . . . . . . . . . . . . . — — — — — — — 17,224 — — (4) 17,220

Other comprehensive income, net of 

tax effect:

Changes in net unrealized losses

on available-for-sale securities

(net of tax of $702). . . . . . . . . . — — — — — — — — 1,289 — — 1,289

Reclassification adjustment for

other-than-temporary

impairments recognized in net

income (net of tax of $250) . . . — — — — — — — — 463 — — 463

Reclassification adjustment for

gains included in net income

(net of tax of $9). . . . . . . . . . . . — — — — — — — — (17) — — (17)

Prior service cost and actuarial

gains, net of amortization for

defined benefit plans. . . . . . . . . — — — — — — — — (116) — — (116)

Total comprehensive income . . . . . . . 18,839

Senior preferred stock dividends . . . . — — — — — — 1 (11,609) — — — (11,608)

Increase to senior preferred 

liquidation preference . . . . . . . . . .

— — — 4,571 — — — — — — — 4,571

Other. . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — (1) — — 2 — 1

Balance as of December 31, 2012 . . 1 556 1,158 $ 117,149 $ 19,130 $ 687 $ — $ (122,766) $ 384 $ (7,401) $ 41 $ 7,224

See Notes to Consolidated Financial Statements
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-7

1. Summary of Significant Accounting Policies

Organization

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act 

(the “Charter Act” or our “charter”). We are a government-sponsored enterprise (“GSE”), and we are subject to government 

oversight and regulation. Our regulators include the Federal Housing Finance Agency (“FHFA”), the U.S. Department of 

Housing and Urban Development (“HUD”), the U.S. Securities and Exchange Commission (“SEC”), and the 

U.S. Department of the Treasury (“Treasury”). The U.S. government does not guarantee our securities or other obligations. 

We operate in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities, including 

mortgage-related securities guaranteed by us, from primary mortgage market institutions, such as commercial banks, savings 

and loan associations, mortgage banking companies, securities dealers and other investors. We do not lend money directly to 

consumers in the primary mortgage market. We provide additional liquidity in the secondary mortgage market by issuing 

guaranteed mortgage-related securities. 

We operate under three business segments: Single-Family Credit Guaranty (“Single-Family”), Multifamily and Capital 

Markets. Our Single-Family segment generates revenue primarily from the guaranty fees on the mortgage loans underlying 

guaranteed single-family Fannie Mae mortgage-backed securities (“Fannie Mae MBS”). Our Multifamily segment generates 

revenue from a variety of sources, including guaranty fees on the mortgage loans underlying multifamily Fannie Mae MBS, 

transaction fees associated with the multifamily business and bond credit enhancement fees. Our Capital Markets segment 

invests in mortgage loans, mortgage-related securities and other investments, and generates income primarily from the 

difference, or spread, between the yield on the mortgage assets we own and the interest we pay on the debt we issue in the 

global capital markets to fund the purchases of these mortgage assets.

Conservatorship

On September 7, 2008, the Secretary of the Treasury and the Director of FHFA announced several actions taken by Treasury 

and FHFA regarding Fannie Mae, which included: (1) placing us in conservatorship and (2) the execution of a senior 

preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury 

both senior preferred stock and a warrant to purchase common stock. 

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

Finance Regulatory Reform Act of 2008, (together, the “GSE Act”), the conservator immediately succeeded to (1) all rights, 

titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae with respect to Fannie 

Mae and its assets, and (2) title to the books, records and assets of any other legal custodian of Fannie Mae. The conservator 

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

our day-to-day operations. The conservator retains the authority to withdraw its delegations at any time. 

We were directed by FHFA to voluntarily delist our common stock and each listed series of our preferred stock from the New 

York Stock Exchange and the Chicago Stock Exchange. The last trading day for the listed securities on the New York Stock 

Exchange and the Chicago Stock Exchange was July 7, 2010, and since July 8, 2010, the securities have been traded on the 

over-the-counter market. 

The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer 

notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any 

party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have been transferred to a 

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

to satisfy the general creditors of Fannie Mae. As of April 2, 2013, FHFA has not exercised this power. 

Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments 

on our debt securities or perform under our mortgage guaranty obligations. FHFA issued a rule establishing a framework for 

conservatorship and receivership operations for the GSEs, which became effective in 2011. The rule established procedures 

for conservatorship and receivership, and priorities of claims for contract parties and other claimants. This rule is part of 

FHFA’s implementation of the powers provided by the Federal Housing Finance Regulatory Reform Act of 2008, and does 

not seek to anticipate or predict future conservatorships or receiverships. 

The conservatorship has no specified termination date and there continues to be uncertainty regarding the future of our 

company, including how long the company will continue to exist in its current form, the extent of our role in the market, what 

form we will have, and what ownership interest, if any, our current common and preferred stockholders will hold in us after 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-8

the conservatorship is terminated. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a 

written determination that our assets are less than our obligations or if we have not been paying our debts, in either case, for a 

period of 60 days. In addition, the Director of FHFA may place us in receivership at his discretion at any time for other 

reasons, including conditions that FHFA has already asserted existed at the time the former Director of FHFA placed us into 

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

stock, debt securities and Fannie Mae MBS. Should we be placed into receivership, different assumptions would be required 

to determine the carrying value of our assets, which could lead to substantially different financial results. We are not aware of 

any plans of FHFA to significantly change our business model or capital structure in the near term.

Senior Preferred Stock and Warrant Issued to Treasury

Senior Preferred Stock

On September 7, 2008, we, through FHFA in its capacity as conservator, entered into a senior preferred stock purchase 

agreement with Treasury. This agreement was amended on September 26, 2008, May 6, 2009, December 24, 2009 and 

August 17, 2012. 

Pursuant to the senior preferred stock purchase agreement, Treasury has committed to provide us with funding as described 

below to help us maintain a positive net worth thereby avoiding the mandatory receivership trigger described above. As 

consideration for Treasury’s funding commitment, we issued one million shares of senior preferred stock and a warrant to 

purchase shares of our common stock to Treasury.

In 2009, the maximum amount of Treasury’s funding commitment to us under the senior preferred stock purchase agreement 

was increased pursuant to an amendment to the agreement. The amendment provided that the $200 billion maximum amount 

of the commitment from Treasury would increase as necessary to accommodate any net worth deficiencies attributable to 

periods during 2010, 2011 and 2012. The amendment further provided that to the extent we had a positive net worth as of 

December 31, 2012, the maximum amount of funding available to us after 2012 would depend on the size of that positive net 

worth relative to our cumulative draws for net worth deficiencies attributable to periods during 2010, 2011 and 2012, as 

follows: 

• If our positive net worth as of December 31, 2012 was less than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011 and 2012, then the amount of available funding would have been $124.8 

billion less our positive net worth as of December 31, 2012. 

• If our positive net worth as of December 31, 2012 was greater than the cumulative draws for net worth deficiencies 

attributable to periods during 2010, 2011 and 2012, then the amount of available funding would have been $124.8 

billion less the cumulative draws attributable to periods during 2010, 2011 and 2012. 

Because our $7.2 billion positive net worth as of December 31, 2012 was less than our $40.9 billion in cumulative draws 

attributable to periods during 2010, 2011 and 2012, the amount of remaining available funding under the senior preferred 

stock purchase agreement is $117.6 billion. 

The aggregate liquidation preference of the senior preferred stock was $117.1 billion as of December 31, 2012. This number 

represents the $116.1 billion we have drawn from Treasury pursuant to the senior preferred stock purchase agreement as of 

December 31, 2012 and the $1.0 billion initial aggregate liquidation preference of the senior preferred stock.

We were scheduled to begin paying a quarterly commitment fee to Treasury under the senior preferred stock purchase 

agreement beginning on March 31, 2011; however, Treasury waived the quarterly commitment fee for each quarter of 2012 

and 2011.

In August 2012, we, through FHFA acting on our behalf in its capacity as conservator, entered into an amendment to the 

senior preferred stock purchase agreement with Treasury. The revisions to the senior preferred stock purchase agreement in 

the amendment included, among other things, the following: 

• Dividends. The method for calculating the amount of dividends we are required to pay Treasury on the senior 

preferred stock changed as of January 1, 2013. The method for calculating the amount of dividends payable on the 

senior preferred stock in effect prior to this amendment, which remained in effect through December 31, 2012, was 

to apply an annual dividend rate of 10% to the aggregate liquidation preference of the senior preferred stock. 

Effective January 1, 2013, when, as and if declared by our Board of Directors, the amount of dividends payable on 

the senior preferred stock for a dividend period will be determined based on our net worth as of the end of the 

immediately preceding fiscal quarter. For each dividend period from January 1, 2013 through and including 
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F-9

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

immediately preceding fiscal quarter exceeds an applicable capital reserve amount. If our net worth does not exceed 

the applicable capital reserve amount as of the end of a fiscal quarter, then no dividend amount will accrue or be 

payable for the applicable dividend period. The applicable capital reserve amount will be $3.0 billion for 2013 and 

will be reduced by $600 million each year until it reaches zero on January 1, 2018. For each dividend period 

thereafter, the dividend amount will be the entire amount of our net worth, if any, as of the end of the immediately 

preceding fiscal quarter. 

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

agreement is suspended, as long as the dividend payment provisions described above remain in effect.

This amendment to the senior preferred stock purchase agreement was not accounted for as an extinguishment of the existing 

senior preferred stock purchase agreement. As a result, we did not recognize a gain or loss upon modification of the senior 

preferred stock purchase agreement. Consistent with our accounting policy, dividends on the modified senior preferred stock 

will continue to be accrued upon declaration, which occurs each quarter when FHFA directs us to pay the quarterly dividend 

to Treasury.

Warrant Issued to Treasury

On September 7, 2008, we issued a warrant to Treasury giving it the right 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 Treasury exercises 

the warrant. Treasury has the right to exercise the warrant, in whole or in part, at any time on or before September 7, 2028. 

We recorded the warrant at fair value in our stockholders’ equity as a component of additional paid-in-capital. The fair value 

of the warrant was calculated using the Black-Scholes 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 September 8, 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 “Common stock” in our consolidated balance sheets. Because the warrant’s 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 loss per share. The 

weighted-average shares of common stock outstanding for 2012, 2011 and 2010, 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 prevent our being placed into receivership. Based on consideration of all the relevant conditions and events affecting 

our operations, including our reliance on the U.S. government, we continue to operate as a going concern and in accordance 

with our delegation of authority from FHFA. 

We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and 

international capital markets. Because debt issuance is our primary funding source, we are subject to “roll-over,” or 

refinancing, risk on our outstanding debt. Our ability to issue long-term debt has been strong primarily due to actions taken 

by the federal government to support us and the financial markets. 

We believe that continued federal government support of our business and the financial markets, as well as our status as a 

GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in federal government support of 

our business and the financial markets or our status as a GSE could materially and adversely affect our liquidity, financial 

condition and results of operations. In addition, due to our reliance on the U.S. government’s support, our access to debt 

funding or the cost of debt funding also could be materially adversely affected by a change or perceived change in the 

creditworthiness of the U.S. government. A downgrade in our credit ratings could reduce demand for our debt securities and 

increase our borrowing costs. Standard & Poor’s Ratings Services’ (“S&P”) downgrade of our credit rating on August 8, 

2011, which was a result of a similar action on the U.S. government’s sovereign credit rating, has not adversely affected our 

access to debt funding or the cost of our debt funding. Future changes or disruptions in the financial markets could 

significantly change the amount, mix and cost of funds we obtain, which also could increase our liquidity and roll-over risk 

and have a material adverse impact on our liquidity, financial condition and results of operations. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-10

In 2011, Treasury and HUD released a report to Congress on reforming America’s housing finance market. The report 

provides that the Obama Administration will work with FHFA to determine the best way to responsibly reduce Fannie Mae’s 

and Freddie Mac’s role in the market and ultimately wind down both institutions. The report emphasizes the importance of 

proceeding with a careful transition plan and providing the necessary financial support to Fannie Mae and Freddie Mac 

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

details around approaches to housing finance reform, including a transition plan for Fannie Mae and Freddie Mac, and to 

work with congressional leaders to explore options for legislation. As of April 2, 2013, no further details have been released. 

Basis of Presentation 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally 

accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include our 

accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances 

and transactions have been eliminated. 

Related Parties

As a result of our issuance to Treasury of the warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the 

total number of shares of Fannie Mae common stock, we and Treasury are deemed related parties. As of December 31, 2012, 

Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $117.1 billion. Our 

administrative expenses were reduced by $96 million, $106 million and $167 million for the years ended December 31, 2012, 

2011 and 2010, respectively, due to reimbursements from Treasury and Freddie Mac for expenses incurred as program 

administrator for Treasury’s Home Affordable Modification Program (“HAMP”) and other initiatives under Treasury’s 

Making Home Affordable Program. 

During 2011, we received a refund of $1.1 billion from the Internal Revenue Service (“IRS”) related to the carryback of our 

2009 operating loss to the 2008 and 2007 tax years. In addition, we effectively settled our 2007 and 2008 tax years with the 

IRS and as a result, we recognized an income tax benefit of $90 million in our consolidated statements of operations and 

comprehensive income (loss) for the year ended December 31, 2011. 

In 2009, we entered into a memorandum of understanding with Treasury, FHFA and Freddie Mac pursuant to which we 

agreed to provide assistance to state and local housing finance agencies (“HFAs”) through two primary programs: a 

temporary credit and liquidity facilities (“TCLF”) program and a new issue bond (“NIB”) program. Pursuant to the TCLF 

program, Treasury has purchased participation interests in temporary credit and liquidity facilities provided by us and Freddie 

Mac to the HFAs, which facilities create a credit and liquidity backstop for the HFAs. Pursuant to the NIB program, Treasury 

has purchased new securities issued and guaranteed by us and Freddie Mac, which are backed by new housing bonds issued 

by the HFAs. 

Under the TCLF program, we had $1.6 billion and $3.0 billion outstanding, which includes principal and interest, of standby 

credit and liquidity support as of December 31, 2012 and 2011, respectively. Under the NIB program, we had $6.1 billion and 

$7.5 billion outstanding of pass-through securities backed by single-family and multifamily housing bonds issued by HFAs as 

of December 31, 2012 and 2011, respectively. Treasury will bear the initial losses of principal under the TCLF program and 

the NIB program up to 35% of the total original principal on a combined program-wide basis, and thereafter we will bear the 

losses of principal that are attributable to the TCLF and the securities we have issued. Treasury will bear all losses of unpaid 

interest under the two programs. As of December 31, 2012, there had been no losses of principal or interest under the TCLF 

program or the NIB program. 

In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act (“TCCA”) of 2011 which, among 

other provisions, requires that we increase our single-family guaranty fees by at least 10 basis points and remit this increase 

to Treasury. Effective April 1, 2012, the guaranty fee on all single-family residential mortgages delivered to Fannie Mae on or 

after that date for securitization was increased by 10 basis points. FHFA and Treasury have 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 “Mortgage loans interest income” and “Other expenses,” respectively, 

in our consolidated statements of operations and comprehensive income (loss). We recognized $238 million as other expenses 

for the year ended December 31, 2012 relating to TCCA guaranty fees, consisting of $104 million in TCCA-related guaranty 
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(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-11

fees we have remitted to Treasury for our obligations through September 30, 2012 and $134 million in TCCA-related 

guaranty fees for the three months ended December 31, 2012 that had not been remitted to Treasury.

FHFA’s control of both us and Freddie Mac has caused us and Freddie Mac to be related parties. No transactions outside of 

normal business activities have occurred between us and Freddie Mac. As of December 31, 2012 and 2011, we held Freddie 

Mac mortgage-related securities with a fair value of $12.2 billion and $15.6 billion, respectively, and accrued interest 

receivable of $51 million and $69 million, respectively. We recognized interest income on these securities held by us of $551 

million, $700 million and $1.1 billion for the years ended December 31, 2012, 2011 and 2010, respectively. In addition, 

Freddie Mac may be an investor in variable interest entities that we have consolidated, and we may be an investor in variable 

interest entities that Freddie Mac has consolidated. 

In 2010, we entered into an agreement with certain wholly-owned subsidiaries of Ally Financial, Inc. (“Ally”). Under the 

agreement, we received $462 million in exchange for our release of specified Ally affiliates from potential liability relating to 

certain private-label securities sponsored by the affiliates and for certain selling representation and warranty liability related 

to mortgage loans sold and/or serviced by one of Ally’s subsidiaries as of or prior to June 30, 2010. 

On January 31, 2013, we reached an agreement with GMAC Mortgage LLC (a subsidiary of Ally) pursuant to which we 

received $265 million in exchange for our release of potential liability primarily related to representation and warranty 

liabilities due to title defects, mortgage insurance coverage claims and compensatory fees. As a result of this settlement, we 

recorded $173 million as a benefit to “Benefit (provision) for credit losses,” in our consolidated statements of operations and 

comprehensive income (loss) for the year ended December 31, 2012. Treasury has majority ownership of Ally. 

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, valuation of 

certain financial instruments and other assets and liabilities, recoverability of our deferred tax assets, allowance for loan 

losses and reserve for guaranty losses, and other-than-temporary impairment of investment securities. Actual results could be 

different from these estimates.

As of December 31, 2012, we have concluded that it is more likely than not that our deferred tax assets will not be realized in 

their entirety and that therefore, we should retain the valuation allowance against our net deferred tax assets. Giving more 

weight to evidence that could be objectively verified than to evidence that could not be objectively verified, we determined 

that the factors in favor of releasing the allowance were outweighed by the evidence against releasing the valuation 

allowance. See “Note 10, Income Taxes,” for additional information regarding the factors that led to our conclusion to retain 

the valuation allowance against our deferred tax assets.

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

assumptions to better reflect present conditions. 

In the three months ended September 30, 2012, we enhanced our collective single-family loss reserve model and our model 

that calculates loss reserves for individually impaired loans. The combined impact from these changes resulted in an 

approximately $3.5 billion increase to our allowance for loan losses and provision for credit losses. The components of the 

enhancement to our loan loss models are as follows:

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

experience of default expectations. The impact of this change had the most pronounced effect on loans with higher 

mark-to-market LTV ratios, where we have observed better than anticipated payment performance in recent periods. 

Historically, we had limited information on the performance of loans with higher mark-to-market LTV

ratios. However, we have recently observed that loans with higher mark-to-market LTV ratios have performed better 

than the prior models estimated since the prior models had limited observations. As a result of incorporating these 

recent observations, our loss expectations have improved for these loans. The change resulted in an approximately 

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

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

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

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

contractual terms of a loan such that a concession is granted to the borrower, an extension of the average life of a 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-12

modified loan increases the charge we record related to the concession. Therefore, while our expectations of credit 

loss decreased due to better performance of our modified loans, this decrease was more than offset by an increase in 

the present value of the concession granted to the borrower by the modification. The change resulted in an 

approximately $5.0 billion increase to our allowance for loan losses and provision for credit losses.

In the three months ended June 30, 2012, we updated our assumptions used to project cash flow estimates on our Alt-A and 

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

liquidate loans underlying these securities and increasing severity rates for loans where the servicer stopped advancing 

payments. These updates resulted in lower net present value of cash flow projections on our Alt-A and subprime private-label 

securities and increased our other-than-temporary impairment expense by approximately $500 million. 

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 entities through arrangements that do not involve voting interests, such as a variable interest entity (“VIE”). 

VIE Assessment 

In 2009, the Financial Accounting Standards Board (“FASB”) concurrently revised the accounting guidance related to the 

consolidation of VIEs (the “consolidation accounting guidance”) and the guidance related to transfers of financial assets, and 

we adopted the revised guidance for these topics prospectively effective January 1, 2010 (the “transition date”).

We have interests in various entities that are considered VIEs. A VIE is an entity (1) that has total equity at risk that is not 

sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of 

equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s 

economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected 

residual returns, or both, or (3) where 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 entity’s 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. If we cannot conclude after a qualitative analysis 

whether an entity is a VIE, we perform a quantitative analysis. 

The primary types of VIE entities with which we are involved are securitization trusts guaranteed by us via lender swap and 

portfolio securitization transactions, limited partnership investments in low-income housing tax credit (“LIHTC”) and other 

housing partnerships, as well as mortgage and asset-backed trusts that were not created by us. 

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. An 

enterprise is deemed to be the primary beneficiary of a VIE when the enterprise has both (1) the power to direct the activities 

of the VIE that most significantly impact the entity’s economic performance, and (2) exposure 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 the party 

that has the power to direct the activities of the VIE may require significant management judgment when (1) more than one 

party has power or (2) more 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 

such that we no longer hold substantially all of the certificates issued by a multi-class resecuritization trust. 

Measurement of Consolidated Assets and Liabilities 

As of the transition date for the revised consolidation accounting guidance, we initially measured the assets and liabilities of 

the consolidated securitization trusts at their unpaid principal balances and established a corresponding valuation allowance 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-13

and accrued interest, as it was not practicable to determine the carrying amount of such assets and liabilities. The 

securitization assets and liabilities that did not qualify for the use of this practical expedient were initially measured at fair 

value. As such, we recognized in our consolidated balance sheets the mortgage loans underlying our consolidated trusts as 

“Mortgage loans held for investment of consolidated trusts.” We also recognized securities issued by these trusts that are held 

by third parties in our consolidated balance sheets as “Debt of consolidated trusts.” 

Subsequent to the transition date, 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 subsequent to transition 

(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) the fair value of the 

consideration paid, fair value of noncontrolling interests and the reported amount of any previously held interests, and (2) the 

net amount of the fair value of the assets and liabilities consolidated. 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) and (2) above. We record gains or losses that are associated with the consolidation of VIEs as 

“Investment gains, net” in our consolidated statements of operations and comprehensive income (loss). 

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 as “Investment gains, net” in our 

consolidated statements of operations and comprehensive income (loss). 

Purchase/Sale of Fannie Mae Securities 

We actively purchase and may subsequently sell guaranteed MBS that have been issued through our lender swap and 

portfolio securitization transaction programs. 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-Class Securitization Trusts 

We create single-class securitization trusts to issue single-class Fannie Mae MBS 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 single-class 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 both our lender swap and portfolio securitization transaction programs. 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 (e.g., when the loan collateral is subject to an FHA guarantee and 

related Servicing Guide). 

When we purchase single-class Fannie 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 the other cost basis adjustments) 

at the time of purchase. We account for the sale of an MBS from Fannie Mae’s portfolio that was issued from a consolidated 

trust as the issuance of debt in our consolidated financial statements. We amortize the related premiums, discounts and other 

cost basis adjustments into income over time. 

To determine the order in which consolidated debt is extinguished, we have elected to use a daily convention in the 

application of the last-issued first-extinguished method. Under this method, we record the net daily change in each MBS 

holding as either the issuance of debt if there has been an increase in the position that is held by third parties, or the 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-14

extinguishment of the most recently issued related debt if there has been a decrease in the position held by third parties. The 

impact of this method is that we record the net daily activity for an MBS as if it were a single buy or sell trade, which results 

in a change in our beginning debt balance if the total unpaid principal balance purchased does not match the total unpaid 

principal balance sold. 

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 

Single-class resecuritization trusts are created by depositing Fannie Mae MBS into a new securitization trust for the purpose 

of aggregating multiple MBS into a single larger security. The cash flows from the new security represent an aggregation of 

the cash flows from the underlying MBS. We guarantee to each single-class resecuritization trust that we will supplement 

amounts received by the trust as required to permit timely payments of principal and interest on the related Fannie Mae 

securities. However, we assume no additional credit risk in such a resecuritization transaction, because the underlying assets 

are MBS for which we have already provided a guaranty. Additionally, our involvement with these trusts does not provide 

any incremental rights or power that would enable Fannie Mae to direct any activities of the trusts. As a result, we have 

concluded that we are not the primary beneficiaries of, and therefore do not consolidate, our single-class resecuritization 

trusts. 

As our single-class resecuritization securities pass through all of the cash flows of the underlying MBS directly to the holders 

of the securities, they are deemed to be substantially the same as the underlying MBS. Therefore, we account for purchases of 

our single-class resecuritization securities as an extinguishment of the underlying MBS debt and the sale of these securities as 

an issuance of the underlying MBS debt. 

Multi-Class Resecuritization Trusts 

Multi-class resecuritization trusts are trusts we create to issue multi-class Fannie Mae securities, including Real Estate 

Mortgage Investment Conduit (“REMIC”) and strip securities, in which the cash flows of the underlying mortgage assets are 

divided, creating several classes of securities, each of which represents a beneficial ownership interest in a separate portion of 

cash flows. We guarantee to each multi-class resecuritization trust that we will supplement amounts received by the trusts as 

required to permit timely payments of principal and interest, as applicable, on the related Fannie Mae securities. However, we 

assume no additional credit risk in such a resecuritization transaction because the underlying assets are Fannie Mae MBS for 

which we have already provided a guaranty. Although we may be exposed to prepayment risk via our ownership of the 

securities issued by these trusts, we do not have the ability via our involvement with a multi-class resecuritization trust to 

impact the economic risk to which we are exposed. Therefore, we do not consolidate such a multi-class resecuritization trust 

until we hold a substantial portion of the outstanding beneficial interests that have been issued by the trust and are therefore 

considered the primary beneficiary of the trust. 

In contrast to our single-class resecuritization trust, the cash flows from the underlying MBS are divided between the debt 

securities issued by the multi-class resecuritization trust, and therefore, the debt issued by a multi-class resecuritization trust 

is not substantially the same as the consolidated MBS debt. As a result, if a multi-class resecuritization trust is not 

consolidated, we account for the purchase and sale of such securities as the transfer of an investment security in accordance 

with the accounting guidance for the transfers of financial assets rather than the issuance or extinguishment of the related 

multi-class debt. However, if a multi-class resecuritization trust is consolidated, we account for the purchase of the securities 

issued by consolidated multi-class resecuritization trusts as an extinguishment of the debt issued by these trusts and the 

subsequent sale of such securities as the issuance of multi-class debt. 

When we do not consolidate a multi-class resecuritization trust, we recognize in our consolidated financial statements both 

our investment in the trust and the mortgage loans of the Fannie Mae MBS trusts that we consolidate that underlie the multiclass resecuritization trust. Additionally, we recognize the unsecured corporate debt issued to third parties to fund the 

purchase of our investments in the multi-class resecuritization trusts and the debt issued to third parties of the MBS trusts we 

consolidate that underlie the multi-class resecuritization trusts. This results in the recognition of interest income from 

investments in multi-class resecuritization trusts and interest expense from the unsecured debt issued to third parties to fund 

the purchase of the investments in multi-class resecuritization trusts, as well as interest income from the mortgage loans and 

interest expense from the debt issued to third parties from the MBS trusts we consolidate that underlie the multi-class 

resecuritization trusts. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-15

Transfers of Financial Assets 

We evaluate a transfer of financial assets to determine whether the transfer qualifies as a sale. If the 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 such a transfer. Transfers of financial assets for which we surrender 

control of the transferred assets are recorded 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 proceeds from the sale is recorded as a component of “Investment gains, net” in our consolidated statements of operations 

and comprehensive income (loss). Retained interests are primarily derived from transfers associated with our portfolio 

securitizations in the form of Fannie Mae MBS, REMIC certificates, guaranty assets and master servicing assets (“MSAs”). 

We separately describe the subsequent accounting, as well as how we determine fair value, for our retained interests in the 

Fannie Mae MBS included in “Investments in Securities” section of this note. 

We enter into dollar roll transactions, which involve contemporaneous purchase and sale trades of agency securities, traded 

on a “to-be-announced” basis. When we enter into such agreements, we first account for our forward commitments to buy 

and sell the agency securities as derivatives in our financial statements at the trade date for both the purchase and sales trades. 

For certain dollar roll transactions, we may fully or partially settle the forward purchase or sale subsequent to the trade date, 

but prior to the contractual settlement date such that all or a portion of the securities will not be delivered according to the 

terms of the original trade. When such a settlement occurs, the contemporaneous purchase and sale trades no longer meet the 

“substantially the same” criteria as necessary for secured financing treatment, and the remaining transfers are accounted for 

as purchases or sales of securities. Purchased securities are initially recognized at fair value and accounted for as described in 

“Investment in Securities” section of this note.

For those commitments that are not settled prior to the contractual settlement date for the first trade, we assess whether both 

the purchase and sale trades have the same primary obligor, form and type, maturity, interest rate, collateral, and unpaid 

principal balance, and thus meet all of the criteria to be considered substantially the same. If the “substantially the same” 

criteria are met as of the settlement date for the first trade, we will account for the transaction as a secured financing and 

extinguish both the purchase and sale commitments as of that date. Dollar roll transactions involving transfers of securities 

issued by consolidated MBS trusts are accounted for as issuances or extinguishments of the related consolidated MBS debt in 

our consolidated financial statements.

We also enter into other 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. 

Cash and Cash Equivalents 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 cash and cash equivalents in our consolidated balance sheets. We may pledge as collateral 

certain short-term investments classified as cash equivalents. 

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 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. We classify cash flows 

related to dollar roll transactions that do not meet the requirements to be accounted for as secured borrowings as purchases 

and sales of securities in investing activities. We classify cash flows from trading securities based on their nature and 

purpose. We classify cash flows from trading securities that we intend to hold for investment (the majority of our mortgagerelated trading securities) as investing activities and cash flows from trading securities that we do not intend to hold for 

investment (primarily our non-mortgage-related securities) as operating activities. 

For consolidated trusts, we classify cash flows related to mortgage loans held by our consolidated trusts as either investing 

activities (for principal repayments) or operating activities (for interest received from borrowers included as a component of 

our net income (loss). Cash flows related to debt securities issued by consolidated trusts are classified as either financing 
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(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-16

activities (for repayments of principal to certificateholders) or operating activities (for interest payments to certificateholders 

included as a component of our net income (loss). 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. 

Restricted Cash 

We and our servicers advance payments on delinquent loans to consolidated Fannie Mae MBS trusts. We recognize the cash 

advanced as “Restricted cash” in our consolidated balance sheets to the extent such amounts are due to, but have not yet been 

remitted to, the MBS certificateholders. In addition, 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.” 

We also recognize “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. 

Investments in Securities

Securities Classified as Available-for-Sale or Trading 

We classify and account for our securities as either available-for-sale (“AFS”) or trading. We measure AFS securities at fair 

value in our consolidated balance sheets, with unrealized gains and losses included in “Accumulated other comprehensive 

income (loss)” (“AOCI”), net of applicable 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 “Investment 

gains, net” in our consolidated statements of operations and comprehensive income (loss). We measure trading securities at 

fair value in our consolidated balance sheets with unrealized and realized gains and losses included as a component of “Fair 

value losses, net” in our consolidated statements of operations and comprehensive income (loss). We include interest and 

dividends on securities, including amortization of the premium and discount at acquisition, in our consolidated statements of 

operations and comprehensive income (loss). When we receive multiple deliveries of securities on the same day that are 

backed by the same pools of loans, we calculate the specific cost of each security as the average price of the trades that 

delivered those securities. Currently, we do not have any securities classified as held-to-maturity, although we may elect to do 

so in the future. 

Other-Than-Temporary Impairment of Debt Securities 

We evaluate available-for-sale securities for other-than-temporary impairment on a quarterly basis. An other-than-temporary 

impairment is considered to have occurred when the fair value of a debt security is below its amortized cost basis and we 

intend to sell or it is more likely than not that we will be required to sell the security before recovery. We recognize in our 

consolidated statements of operations and comprehensive income (loss), the entire difference between the amortized cost 

basis of the security and its fair value. An other-than-temporary impairment is also considered to have occurred if we do not 

expect to recover the entire amortized cost basis of a debt security even if we do not intend or it is not more likely than not 

we will be required to sell the security before recovery. 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 our consolidated statements of 

operations and comprehensive income (loss), and the amount related to all other factors, which we recognize in “Other 

comprehensive income (loss),” net of applicable taxes. In determining whether a credit loss exists, we use our best estimate 

of cash flows expected to be collected from the debt security. 

We consider guarantees, insurance contracts or other credit enhancements (such as collateral) in determining our best 

estimate of cash flows expected to be collected only if (1) such guarantees, insurance contracts or other credit enhancements 

provide for payments to be made solely to reimburse us for failure of the issuer to satisfy its required payment obligations, 

(2) such guarantees, insurance contracts or other credit enhancements are contractually attached to the security and 

(3) collection of the amounts receivable under these agreements is deemed probable. Guarantees, insurance contracts or other 

credit enhancements are considered contractually attached if they are part of and trade with the security upon transfer of the 

security to a third party. 

In periods after we recognize an other-than-temporary impairment of debt securities, we use the prospective interest method 

to recognize interest income. Under the prospective interest method, we calculate a new effective yield for subsequent 

recognition of interest income and measurement of impairment when we determine that there has been a significant increase 

in expected or actual cash flows. We consider a significant increase in cash flows to be at least a ten percent increase over two 
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(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-17

consecutive quarters of the expected or actual cash flows. We calculate the new effective yield by using the new cost basis 

and the significantly increased actual or expected cash flows.

Mortgage Loans

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 held for investment (“HFI”). When we consolidate a 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, mortgages acquired when we have the intent to 

securitize via trusts that are consolidated will generally be classified as HFI in our consolidated balance sheets both prior to 

and subsequent to their securitization. 

We report HFI loans at their outstanding unpaid principal balance adjusted for any deferred and unamortized cost basis 

adjustments, including purchase premiums, discounts and other cost basis adjustments. We recognize interest income on HFI 

loans on an accrual basis using the interest method, including the amortization of any deferred cost basis adjustments, unless 

we determine that the ultimate collection of contractual principal or interest payments in full is not reasonably assured. 

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 (“HFS”). We report HFS loans at the lower of cost or fair value. Any excess of an HFS loan’s cost over 

its fair value is recognized as a valuation allowance, with changes in the valuation allowance recognized as “Investment 

gains, net” in our consolidated statements of operations and comprehensive income (loss). 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. Purchased 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 on a pool basis by aggregating those loans based on similar risks and characteristics, such as 

product types and interest rates. 

In the event that we reclassify HFS loans to HFI, we record the loans at lower of cost or fair value on the date of 

reclassification. We recognize any lower of cost or fair value adjustment recognized upon reclassification as a basis 

adjustment to the HFI loan.

Nonaccrual Loans 

We discontinue accruing interest on loans when we believe collectibility of principal or interest is not reasonably assured, 

which for single-family loans we have determined, based on our historical experience, to be when the loan becomes two 

months or more past due according to its contractual terms. We generally place multifamily loans on nonaccrual status when 

the loan is deemed to be individually impaired, unless the loan is well secured such that collectibility of principal and accrued 

interest is reasonably assured. 

When a loan is placed on nonaccrual status, interest previously accrued but not collected becomes part of our recorded 

investment in the loan and is collectively reviewed for impairment. For single-family loans, we recognize interest income for 

loans on nonaccrual status when cash is received. For multifamily loans, we apply any payment received on a cost recovery 

basis to reduce principal on the mortgage loan unless the loan is determined to be well secured. 

We return a single-family loan to accrual status at the point that the borrower has made sufficient payments to reduce their 

delinquency below our nonaccrual threshold. For modified single-family loans, the loan is not returned to accrual status until 

the borrower successfully makes all required payments during the trial period (generally three to four months) and the 

modification is made permanent. We generally return a multifamily loan to accrual status when the borrower cures the 

delinquency of the loan or we otherwise determine that the loan is well secured such that collectibility is reasonably assured. 

Restructured Loans 

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

difficulties is considered a troubled debt restructuring (“TDR”). Our loss mitigation programs primarily include modifications 

that result in the capitalization of past due amounts in combination with interest rate reductions below market and/or the 

extension of the loan’s maturity date. Such restructurings are granted to borrowers in financial difficulty on either a 
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(In conservatorship)

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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 do not currently include principal or past due interest forgiveness as part of our loss mitigation programs, and as a result, 

we 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 borrower’s successful 

performance during any required trial period provide us reasonable assurance regarding the collectibility of the principal and 

interest due in accordance with the loan’s modified terms, which include any past due interest amounts that are capitalized 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. 

In addition to these loan modifications, we also engage in other loss mitigation activities with troubled borrowers, which 

include repayment plans, forbearance arrangements, and the capitalization only of past due amounts. Repayment plans and 

forbearance arrangements are informal agreements with the borrower that do not result in the legal modification of the loan. 

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, 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 loan’s 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. 

In April 2011, FASB issued new guidance effective for the three months ended September 30, 2011 that applied 

retrospectively to January 1, 2011. The new guidance clarified how to determine when a borrower is experiencing financial 

difficulty, when a concession is granted by a creditor, and when a delay in payment is considered insignificant. The primary 

impact to us of adopting this new guidance was the refinement of how we define an insignificant delay. As a result, we 

lowered our threshold for an insignificant delay from approximately nine missed payments to three missed payments and thus 

this type of additional loss mitigation activity that had previously been excluded is now considered a TDR. This refinement 

was necessary in order to conform our policy to the new guidance on insignificant delay provided by the FASB. 

As a result of adopting the new TDR accounting guidance, we identified approximately 22,000 loan restructurings for the 

nine months ended September 30, 2011 that had not defaulted as of September 30, 2011 and were not previously considered 

TDRs. The impact of this was an increase in our provision for loan losses of $514 million in our condensed consolidated 

statements of operations and comprehensive loss for the three months ended September 30, 2011. This amount reflects the net 

increase in our allowance for loan losses due to identifying these restructurings as TDRs and measuring their impairment on 

an individual basis offset by the elimination of our allowance for loan loss measured on a collective basis related to these 

loans. 

Allowance for Loan Losses and Reserve for Guaranty Losses

Our allowance for loan losses is a valuation allowance that reflects an estimate of incurred credit losses related to our 

recorded investment in both single-family and multifamily HFI loans. This population includes both HFI loans held by 

Fannie Mae and by consolidated Fannie Mae MBS trusts. When calculating our loan loss allowance, we consider only our net 

recorded investment in the loan at the balance sheet date, which includes the loan’s unpaid principal balance and accrued 

interest recognized while the loan was on accrual status and any applicable cost basis adjustments. We record charge-offs as a 

reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in full satisfaction of a 

loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. We recognize incurred losses 

by recording a charge to the provision for loan losses, which is a component of “Benefit (provision) for credit losses” in our 

consolidated statements of operations and comprehensive income (loss).

In the three months ended September 30, 2012, we identified a misstatement in the classification of TDRs related to certain 

borrowers who used the bankruptcy process to receive a discharge of the mortgage debt or to cure a mortgage delinquency 

over time. We determined that the discharge of mortgage debt in bankruptcy was a concession in cases in which the discharge 

effectively resulted in us losing our ability to hold the borrower personally liable for deficiencies under state law, although we 
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(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-19

continue to be able to foreclose on the collateral. We also determined that curing a mortgage delinquency over time through 

bankruptcy resulted in a concession similar to other long-term repayment plans. Therefore, we determined that these loans 

should have been classified as TDRs and measured for individual impairment when estimating the allowance for loan losses 

as of December 31, 2011. To correct this misstatement, we recorded an out-of-period adjustment of approximately $850 

million to increase the “Provision for credit losses” in our condensed consolidated statement of operations and 

comprehensive income (loss) for the three months ended September 30, 2012.

Additionally, for the year ended December 31, 2012, we identified misstatements in our consideration of the benefit for 

repurchase requests, the calculation used to discount the deferred payment obligation for certain mortgage insurers currently 

in run-off, and the calculation of the recorded investment and yield on certain populations of individually impaired loans 

when estimating the allowance for loan losses as of December 31, 2011. In addition, we identified a misstatement in the 

calculation of the default rate used for certain bonds to estimate the reserve for guaranty losses as of December 31, 2011. To 

correct the above misstatements, we have recorded an out-of-period adjustment of $1.2 billion to increase the provision for 

credit losses in our consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 

2012.

The impact of the above misstatements was an out-of-period adjustment of approximately $2.1 billion to increase the 

provision for credit losses in our consolidated statement of operations and comprehensive income (loss) for the year ended 

December 31, 2012. We have evaluated the effects of these misstatements, both quantitatively and qualitatively, and 

concluded that no prior periods are materially misstated. We have also concluded that the misstatement is not material to our 

2012 consolidated financial statements.

The reserve for guaranty losses is a liability account which is a component of “Other liabilities” in our consolidated balance 

sheets that reflects an estimate of incurred credit losses related to our guaranty to each unconsolidated Fannie Mae MBS trust 

that we will supplement amounts received by the Fannie Mae MBS trust as required to permit timely payments of principal 

and interest on the related Fannie Mae MBS and our agreements to purchase credit-impaired loans from lenders under the 

terms of our long-term standby commitments. As a result, the guaranty reserve considers not only the principal and interest 

due on the loan at the current balance sheet date, but also any additional interest payments due to the trust from the current 

balance sheet date until the point of loan acquisition or foreclosure.

We recognize incurred losses by recording a charge to the provision for guaranty losses, which is a component of “Benefit 

(provision) for credit losses,” in our consolidated statements of operations and comprehensive income (loss).

Single-Family Loans 

We recognize credit losses related to groups of similar single-family HFI loans that are not individually impaired when 

(1) available information as of each balance sheet date indicates that it is probable a loss has occurred and (2) the 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 (“LTV”) 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. Accordingly, to determine an estimate of incurred credit losses, we base our allowance and reserve methodology on 

historical events and trends, such as loss severity (in event of default), default rates, and recoveries from mortgage insurance 

contracts and other credit enhancements 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. In 

determining our collective reserve, we use recent actual severity experienced in our real-estate owned (“REO”) and loss 

mitigation operations, including the sales of our own foreclosed properties, to estimate the loss given default. 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. 

We record charge-offs as a reduction to the allowance for loan losses or reserve for guaranty losses when losses are 

confirmed through the receipt of assets in full satisfaction of a loan, such as the underlying collateral upon foreclosure or cash 

upon completion of a short sale. The excess of a loan’s unpaid principal balance, accrued interest, and any applicable cost 

basis adjustments (“our total exposure”) over the fair value of the assets received is treated as a charge-off loss that is 
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(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-20

deducted from the allowance for loan losses or reserve for guaranty 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 record additional proceeds from primary 

mortgage insurance and credit enhancements in excess of our total exposure as a recovery of any forgone contractually past 

due interest, and then as an offset to the expenses recorded in “Foreclosed property (income) expense” in our consolidated 

statements of operations and comprehensive income (loss) when received. 

Individually Impaired Single-Family Loans 

Individually impaired single-family loans currently include those restructured in a TDR and acquired credit-impaired loans. 

We consider a loan to be impaired when, based on current information, it is probable that we will not receive all amounts due, 

including interest, in accordance with the contractual terms of the loan agreement. When 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 

management’s 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 

using a cash flow analysis discounted at the loan’s original effective interest rate. If we expect to recover our recorded 

investment in an individually impaired loan through probable foreclosure of the underlying collateral, we measure 

impairment based on the fair value of the collateral, reduced by estimated disposal costs on a discounted basis and adjusted 

for estimated proceeds from mortgage, flood, or hazard insurance or similar sources. 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 

borrower’s 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. Based on this 

evaluation, we determine for loans that are not in homogeneous pools whether or not a loan is individually impaired. We 

consider a loan to be individually impaired when, based on current information gathered in our risk assessment process, it is 

probable that we will not receive all amounts due, including interest, in accordance with the contractual terms of the loan 

agreement. If we determine that a multifamily loan is individually impaired, we generally measure impairment on that loan 

based on the fair value of the underlying collateral less estimated costs to sell the property. If we determine that an individual 

loan that was specifically evaluated for impairment is not individually impaired, we include the loan as part of a pool of loans 

with similar characteristics that are evaluated collectively for incurred losses. 

We stratify multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan. 

We categorize loan credit risk based on relevant observable data about a borrower’s ability to pay, including multifamily 

market economic fundamentals, review of available current borrower financial information, operating statements on the 

underlying collateral, current debt service coverage ratios, historical payment experience, estimates of the current collateral 

values and other related credit documentation. As a result of this analysis, multifamily loans are categorized based on 

management’s judgment into the following categories: (1) Green (loan with acceptable risk); (2) Yellow (loan with signs of 

potential weakness); (3) Orange (loan with a well-defined weakness that may jeopardize the timely full repayment); and 

(4) Red (loan with a weakness that makes timely collection or liquidation in full more questionable based on existing 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-21

conditions and values). We evaluate loans in the orange and red risk categories to determine which ones are individually 

impaired. 

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, including recorded 

accrued interest associated with such 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 “Transfers from advances to lenders to loans held for 

investment of consolidated trusts.” 

Acquired Property, Net 

“Acquired property, net” includes foreclosed property and any receivable outstanding on short sales received in full 

satisfaction of a loan. We recognize foreclosed property 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 “Allowance for loan losses.” 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 

forgone, contractually due interest, then to “Foreclosed property (income) expense” in our consolidated statements of 

operations and comprehensive income (loss). 

We classify foreclosed properties as held for sale 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, on a discounted basis if the sale is 

expected to occur beyond one year from the date of foreclosure. We do not depreciate these properties. 

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 “Foreclosed property (income) expense” in our consolidated statements of 

operations and comprehensive income (loss). 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 “Foreclosed property (income) expense” in our consolidated statements of 

operations and comprehensive income (loss). 

Properties that do not meet the criteria to be classified as held for sale are classified as held for use and are recorded in “Other 

assets” 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. 

Fannie Mae MBS included in “Investments in securities”

When we own unconsolidated Fannie Mae MBS, we do not derecognize any components of the guaranty assets, guaranty 

obligations, reserve for guaranty losses, 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 value Fannie Mae MBS 

based on their legal terms, which includes the Fannie Mae guaranty to the MBS trust, and continue to reflect the unamortized 

obligation to stand ready to perform over the term of our guaranty and any incurred credit losses in our “Other liabilities” and 

“Reserve for guaranty losses,” respectively. We disclose the aggregate amount of Fannie Mae MBS held as “Investments in 

securities” in our consolidated balance sheets as well as the amount of our “Reserve for guaranty losses” and “Other 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-22

liabilities” that relates to Fannie Mae MBS held as “Investments in securities.” Upon subsequent sale of a Fannie Mae MBS, 

we continue to account for any outstanding recorded amounts associated with the guaranty transaction on the same basis of 

accounting as prior to the sale of Fannie Mae MBS, as no new assets were retained and no new liabilities have been assumed 

upon the subsequent sale. 

Amortization of Cost Basis Adjustments

We generally amortize cost basis adjustments, including premiums and discounts on mortgage loans and securities, as a yield 

adjustment using the interest method over the contractual term of the loan or security. We amortize these cost basis 

adjustments into interest income for mortgage securities and for loans we classify as HFI. We do not amortize cost basis 

adjustments for loans that we classify as HFS, but include them in the calculation of the gain or loss on the sale of those 

loans. 

We cease amortization of cost basis adjustments during periods in which we are not recognizing interest income on a loan 

because the collection of the principal and interest payments is not reasonably assured (that is, when the loan is placed on 

nonaccrual status). 

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 extinguishment or issuance 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 the derivative accounting literature. 

Commitments to purchase or sell securities that we account for on a trade-date basis are also exempt from the 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 (“TBA”) 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. 

Commitments to purchase securities that we do not account for as derivatives and do not require trade-date accounting are 

accounted for as forward contracts to purchase securities. We designate these commitments as AFS or trading at inception 

and account for them in a manner consistent with that category of securities. 

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 report derivatives in a gain position after offsetting by counterparty in “Other assets” and derivatives in a loss 

position after offsetting by counterparty in “Other liabilities” in our consolidated balance sheets. 

We offset the carrying amounts of certain derivatives that are in gain positions and loss positions with the same counterparty 

as well as cash collateral receivables and payables associated with derivative positions under master netting arrangements. 

We offset these amounts only when we have the legal right to offset under the contract and we have met all the offsetting 

conditions.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-23

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) the 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 hybrid contract); (2) the financial instrument or other contract itself is not already 

measured at fair value with changes in fair value included in earnings; and (3) a 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 

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 “Cash and cash equivalents” and cash 

collateral accepted from a counterparty that we do not have the right to use as “Restricted cash” 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 “Other assets” 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 “Cash and cash equivalents” and net the right to receive it against the fair value of derivatives in a loss 

position recorded in “Other liabilities” in our consolidated balance sheets as a part of our counterparty netting calculation. 

Non-Cash Collateral 

We classify securities pledged to counterparties as either “Investments in securities” or “Cash and cash equivalents” in our 

consolidated balance sheets. Securities pledged to counterparties that have been consolidated with the underlying assets 

recognized as loans are included as “Mortgage loans” 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. 

We had reverse repurchase agreements outstanding of $45.8 billion and $49.5 billion as of December 31, 2012 and 2011, 

respectively. The fair value of non-cash collateral we accepted was $46.2 billion and $50.1 billion as of December 31, 2012

and 2011, respectively, of which we were permitted to sell or repledge $25.0 billion and $20.0 billion as of December 31, 

2012 and 2011, respectively. None of the underlying collateral was sold or repledged as of December 31, 2012 or 2011. 

Debt 

Our consolidated balance sheets contain debt of Fannie Mae as well as debt of consolidated trusts. Effective January 1, 2011, 

we reported debt issued by us as “Debt of Fannie Mae” and by consolidated trusts as “Debt of consolidated trusts.” Debt 

issued by us represents debt that we issue to third parties to fund our general business activities. The debt of consolidated 

trusts represents the amount of Fannie Mae MBS issued from such trusts which 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 remeasure the carrying 

amount, accrued interest and basis adjustments of debt denominated in a foreign currency into U.S. dollars using foreign 

exchange spot rates as of the balance sheet dates and report any associated gains or losses as a component of “Fair value 

losses, net” in our consolidated statements of operations and comprehensive income (loss). 

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. We remeasure interest expense for debt denominated in a foreign 

currency into U.S. dollars using the daily spot rates. The difference in rates arising from the month-end spot exchange rate 

used to calculate the interest accruals and the daily spot rates used to record the interest expense is a foreign currency 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-24

transaction gain or loss for the period and is recognized as a component of “Fair value losses, net” in our consolidated 

statements of operations and comprehensive income (loss). 

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 balance sheets (including unamortized premiums, discounts and other 

cost basis adjustments) at the time of purchase. 

Income Taxes

We recognize deferred tax assets and liabilities for the difference in the bases of assets and liabilities for financial accounting 

and tax purposes. We measure deferred tax assets and liabilities using enacted tax rates that are expected to be applicable to 

the taxable income or deductions in the period(s) the assets are realized or the liabilities are settled. We adjust deferred tax 

assets and liabilities for the effects of changes in tax laws and rates on the date 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. 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 that we will not realize some portion, or all, of the deferred tax asset. 

We account for income tax uncertainty 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 (a probability of greater than 50%) that the tax position would 

be sustained upon examination by the taxing authority, which includes all related appeals and litigation. We then recognize a 

tax benefit equal to 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 “Other expenses” in our consolidated statements of operations and comprehensive income 

(loss). 

Pension and Other Postretirement Benefits 

We provide pension and postretirement benefits and account for these benefit costs on an accrual basis. We determine pension 

and postretirement benefit amounts recognized in our consolidated financial statements on an actuarial basis using several 

different assumptions. The two most significant assumptions used in the valuation are the discount rate and the long-term rate 

of return on assets. In determining our net periodic benefit cost, we apply a discount rate in the actuarial valuation of our 

pension and postretirement benefit obligations. In determining the discount rate as of each balance sheet date, we consider the 

current yields on high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected 

duration of our benefit obligations. Additionally, the net periodic benefit cost recognized in our consolidated financial 

statements for our qualified pension plan is impacted by the long-term rate of return on plan assets. We base our assumption 

of the long-term rate of return on the current investment portfolio mix, actual long-term historical return information and the 

estimated future long-term investment returns for each class of assets. We measure plan assets and obligations as of the date 

of our consolidated financial statements. We recognize the over-funded or under-funded status of our benefit plans as a 

prepaid benefit cost (an asset) in “Other assets” or an accrued benefit cost (a liability) in “Other liabilities,” respectively, in 

our consolidated balance sheets. We recognize actuarial gains and losses and prior service costs and credits when incurred as 

adjustments to the prepaid benefit cost or accrued benefit cost with a corresponding offset in other comprehensive income 

(loss). 

Earnings (Loss) per Share

Earnings (loss) per share (“EPS”) is presented for both basic EPS and diluted EPS. We compute basic EPS by dividing net 

income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding 

during the period. In addition to common shares outstanding, the computation of basic EPS includes instruments for which 

the holder has (or is deemed to have) the present rights as of the end of the reporting period to share in current period 

earnings (loss) with common stockholders (i.e., participating securities and common shares that are currently issuable for 

little or no cost to the holder). We include in the denominator of our basic EPS computation the weighted-average number of 

shares of common stock that would be issued upon the full exercise of the warrant issued to Treasury. Diluted EPS includes 

all the components of basic EPS, plus the dilutive effect of common stock equivalents such as convertible securities and stock 

options, but excludes those common stock equivalents from the calculation of diluted EPS when the effect of inclusion, 

assessed individually, would be anti-dilutive. The calculation of income available to common stockholders and earnings per 

share is based on the underlying premise that all income after payment of dividends on preferred shares is available to and 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-25

will be distributed to the common shareholders. However, as a result of our conservatorship status and the terms of the senior 

preferred stock purchase agreement with Treasury, no amounts will be available to distribute as dividends to common or 

preferred stockholders (other than to Treasury as holder of the senior preferred stock).

Other Comprehensive Income (Loss) 

Other comprehensive income (loss) is the change in equity, net of tax, resulting from certain transactions that we record 

directly to stockholders’ equity (deficit). These transactions include unrealized gains and losses on certain AFS securities and 

certain commitments whose underlying securities are classified as AFS. It also includes change in prior service costs and 

credits and actuarial gains and losses associated with pension and postretirement benefits in other comprehensive income 

(loss). 

Compensatory Fees

We charge our primary servicers a compensatory fee for servicing delays within their control when they fail to comply with 

established loss mitigation and foreclosure timelines per our Servicing Guide, which sets forth our policies and procedures 

related to servicing our single-family mortgages. Compensatory fees are intended to compensate us for damages attributed to 

such servicing delays and to emphasize the importance of servicer performance.

We recognize a compensatory fee receivable when the amounts are chargeable per our Servicing Guide and are considered 

reasonably assured of collection. We subsequently establish a valuation allowance for any amounts we estimate to be 

uncollectible. If such fees are not reasonably assured of collection, we recognize them on a cash basis when received. The 

income associated with these fees is recognized as a component of “Foreclosed property (income) expense” in our 

consolidated statements of operations and comprehensive income (loss).

Reclassifications

To conform to our current period presentation, we have reclassified certain amounts reported in our consolidated financial 

statements. 

New Accounting Guidance

Effective January 1, 2012, we prospectively adopted guidance issued by the Financial Accounting Standards Board (“FASB”) 

related to fair value measurement. The new guidance does not expand the use of fair value; instead, it provides guidance 

about how fair value should be determined where it already is required or permitted under U.S. GAAP. The new fair value 

guidance changes certain fair value principles and clarifies the FASB’s intent on certain items, including a clarification that 

the principal market should be determined based on the market the entity has access to with the greatest volume and level of 

activity for the asset or liability. It also expands the disclosures about fair value measurements. The adoption of this guidance 

did not have a material impact on our consolidated financial statements; however, it required us to expand our fair value 

disclosures. See “Note 17, Fair Value,” for additional information regarding the impact upon adoption of this guidance.

In December 2011 and January 2013, the FASB issued guidance on additional disclosures about derivatives, repurchase 

agreements and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset on the 

balance sheet or subject to a master netting arrangement or similar agreement. The additional disclosures about these 

instruments are intended to enable investors to understand the effect or potential effect of those arrangements on the 

company’s financial positions. The required disclosures will enhance comparability between companies that prepare their 

financial statements in accordance with GAAP and those that follow international financial reporting standards. The updated 

guidance does not change existing offsetting eligibility criteria or the permitted balance sheet presentation for those 

instruments that meet the eligibility criteria. The new guidance became effective for us on January 1, 2013, and will be 

applied retrospectively. We do not expect that the adoption of these amendments will have a material impact on our 

consolidated financial statements. 

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be VIEs. The primary types of entities are securitization trusts 

guaranteed by us via lender swap and portfolio securitization transactions, mortgage and asset-backed trusts that were not 

created by us, as well as housing partnerships that are established to finance the acquisition, construction, development or 

rehabilitation of affordable multifamily and single-family housing. These interests include investments in securities issued by 

VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We 

consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-26

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.

Types of VIEs

Securitization 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. The trust’s 

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. We have 

securitized mortgage loans since 1981.

In our structured securitization transactions, we earn fees for assisting lenders and dealers with the design and issuance of 

structured mortgage-related securities. The trusts created in these transactions have permitted activities that are similar to 

those for our lender swap and portfolio securitization transactions. The assets of these trusts may include mortgage-related 

securities and/or mortgage loans. The trusts created for Fannie Mae Mega securities issue single-class securities while the 

trusts created for REMIC, grantor trust and stripped mortgage-backed securities (“SMBS”) issue single-class and multi-class 

securities, the latter of which separate the cash flows from underlying assets into separately tradable interests. Our obligations 

and continued involvement in these trusts are similar to those described for lender swap and portfolio securitization 

transactions. We have securitized mortgage assets in structured transactions since 1986.

We also invest 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 trusts’ assets. Our involvement in these entities is typically limited to our 

recorded investment in the beneficial interests that we have purchased. We have invested in these vehicles since 1987.

Limited Partnerships

We have historically made equity investments in various limited partnerships that sponsor affordable housing projects 

utilizing the low-income housing tax credit pursuant to Section 42 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.

We no longer recognize net operating losses or impairment on our LIHTC partnership investments as the carrying value was 

reduced to zero in the consolidated financial statements as of December 31, 2009. We did not make any LIHTC investments 

in 2012, other than pursuant to existing prior commitments.

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 entity’s 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.

As of December 31, 2012, we consolidated certain VIEs that were not consolidated as of December 31, 2011, generally due 

to increases in the amount of the certificates issued by the entity that are held in our portfolio (for example, when we hold a 

substantial portion of the securities issued by Fannie Mae multi-class resecuritization trusts). As a result of consolidating 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-27

these entities, which had combined total assets of $3.5 billion in unpaid principal balance as of December 31, 2012, we 

derecognized our investment in these entities and recognized the assets and liabilities of the consolidated entities at fair value.

As of December 31, 2012, we also deconsolidated certain VIEs that were consolidated as of December 31, 2011, generally 

due to decreases in the amount of the certificates issued by the entity that are held in our portfolio. As a result of 

deconsolidating these entities, which had combined total assets of $102 million in unpaid principal balance as of 

December 31, 2011, we derecognized the assets and liabilities of the entities and recognized at fair value our retained 

interests as securities in our consolidated balance sheets.

Unconsolidated VIEs

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

securitization trusts, as well as other investment entities. The following table displays the carrying amount and classification 

of our assets and liabilities that relate to our involvement with unconsolidated VIEs as of December 31, 2012 and 2011, as 

well as our maximum exposure to loss and the total assets of those unconsolidated VIEs.

As of December 31, 2012

MortgageBacked

Trusts

Limited

Partnership

Investments

(Dollars in millions)

Assets and liabilities recorded in our consolidated balance sheets:

Assets:

Available-for-sale securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,004 $ —

Trading securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,706 —

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 120

Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,449) (124)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,406 $ (4)

Maximum exposure to loss(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,397 $ 118

Total assets of unconsolidated VIEs(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 645,332 $11,675

As of December 31, 2011

MortgageBacked

Trusts

AssetBacked

Trusts

Limited

Partnership

Investments

(Dollars in millions)

Assets and liabilities recorded in our consolidated balance sheets:

Assets:

Available-for-sale securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,101 $ — $ —

Trading securities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,292 2,111 —

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 — 145

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,347) — (153)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,317 $ 2,111 $ (8)

Maximum exposure to loss (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,146 $ 2,111 $ 137

Total assets of unconsolidated VIEs (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 641,346 $ 256,845 $12,256

__________

(1) Contains securities recognized in our consolidated balance sheets due to consolidation of certain multi-class resecuritization trusts.

Our maximum exposure to loss generally represents the greater of our recorded investment in the entity or the unpaid 

principal balance of the assets covered by our guaranty. However, our securities issued by Fannie Mae multi-class 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-28

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

the underlying collateral.

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgagerelated securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer 

assets from our own portfolio in a portfolio securitization transaction. For the years ended December 31, 2012, 2011 and 

2010, the unpaid principal balance of portfolio securitizations was $225.1 billion, $118.5 billion and $120.0 billion, 

respectively.

The following table displays some key characteristics of the securities retained in unconsolidated portfolio securitization 

trusts as of December 31, 2012 and 2011.

Fannie Mae

Single-class

MBS & Fannie

Mae Megas

REMICS & 

SMBS

(Dollars in millions)

As of December 31, 2012

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 456 $ 8,667

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 9,818

Weighted-average coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20 % 5.53 %

Weighted-average loan age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 years 4.6 years

Weighted-average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.5 years 15.0 years

As of December 31, 2011

Unpaid principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 588 $ 12,697

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654 14,043

Weighted-average coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21 % 5.86 %

Weighted-average loan age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 years 4.5 years

Weighted-average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 years 18.6 years

For the years ended December 31, 2012, 2011 and 2010, the principal and interest received on retained interests was $2.4 

billion, $3.0 billion and $3.5 billion, respectively.

Managed Loans

We define “managed loans” as on-balance sheet mortgage loans as well as mortgage loans that we have securitized in 

unconsolidated portfolio securitization trusts. The following table displays the unpaid principal balances of managed loans, 

including those managed loans that were delinquent as of December 31, 2012 and 2011.

As of December 31,

2012 2011

Unpaid

Principal

Balance

Principal Amount 

of Delinquent 

Loans(1)

Unpaid

Principal

Balance

Principal Amount 

of Delinquent 

Loans(1)

(Dollars in millions)

Loans held for investment:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370,354 $ 102,504 $ 396,276 $ 122,392

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . 2,607,880 17,829 2,570,339 24,893

Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 135 312 57

Securitized loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,272 4 2,273 71

Total loans managed. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,980,965 $ 120,472 $ 2,969,200 $ 147,413

__________

(1) Represents the unpaid principal balance of loans held for investment, loans held for sale and securitized loans for which we are no 

longer accruing interest and loans 90 days or more delinquent which are continuing to accrue interest.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-29

Qualifying Sales of Portfolio Securitizations

As we consolidate the substantial majority of our single-class MBS trusts, these portfolio securitization transactions do not 

qualify for sale treatment. Therefore, the assets and liabilities of consolidated trusts created via portfolio securitization 

transactions that do not qualify as sales are reported in our consolidated balance sheets.

We recognize assets obtained and liabilities incurred in qualifying sales of portfolio securitizations at fair value. We 

recognized net gains on portfolio securitizations of $34 million, $146 million and $26 million for the years ended 

December 31, 2012, 2011 and 2010, respectively. Proceeds from the initial sale of securities from portfolio securitizations 

were $672 million, $1.0 billion and $660 million for the years ended December 31, 2012, 2011 and 2010, respectively. Our 

continuing involvement in the form of guaranty assets and guaranty liabilities with assets that were transferred into 

unconsolidated trusts is not material to our consolidated financial statements.

Other Securitizations

We also completed other portfolio securitization transactions that did not qualify as sales during the year ended December 31, 

2012 and were accounted for as secured borrowings. Proceeds from these transactions were $421 million and were recorded 

as long-term debt of Fannie Mae in our consolidated balance sheet. As of December 31, 2012, the fair value of trading 

securities underlying these transactions was $178 million, and the unpaid principal balance of mortgage loans of consolidated 

trusts underlying these transactions was $201 million. The related assets have been transferred to MBS trusts and are 

restricted solely for the purpose of servicing the related MBS. We did not complete any securitizations of this type during the 

years ended December 31, 2011 and 2010.

3. Mortgage Loans

We own both 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 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 HFS loans at the lower of cost or fair value determined on a pooled 

basis, and record valuation changes in our consolidated statements of operations and comprehensive income (loss).

The following table displays our mortgage loans as of December 31, 2012 and 2011. 

As of December 31,

2012 2011

Of Fannie

Mae

Of

Consolidated

Trusts Total

Of Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . $ 309,277 $ 2,480,999 $ 2,790,276 $ 319,496 $ 2,470,533 $ 2,790,029

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,464 126,953 188,417 77,026 99,872 176,898

Total unpaid principal balance of mortgage

loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,741 2,607,952 2,978,693 396,522 2,570,405 2,966,927

Cost basis and fair value adjustments, net. . . . (14,805) 44,313 29,508 (16,143) 19,993 3,850

Allowance for loan losses for loans held for

investment . . . . . . . . . . . . . . . . . . . . . . . . . . (50,519) (8,276) (58,795) (57,309) (14,847) (72,156)

Total mortgage loans . . . . . . . . . . . . . . $ 305,417 $ 2,643,989 $ 2,949,406 $ 323,070 $ 2,575,551 $ 2,898,621

For the year ended December 31, 2012, we redesignated loans with a carrying value of $33 million from HFI to HFS. For the 

year ended December 31, 2011, we redesignated loans with a carrying value of $561 million from HFI to HFS. For the year 

ended December 31, 2010, we did not redesignate loans between HFI and HFS other than at the transition date.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-30

Aging Analysis

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans, excluding loans 

for which we have elected the fair value option, by portfolio segment and class as of December 31, 2012 and 2011. 

As of December 31, 2012(1)

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(2)

Total

Delinquent Current Total

Recorded 

Investment 

in Loans 90 

Days or

More 

Delinquent 

and 

Accruing 

Interest(3)

Recorded 

Investment 

in 

Nonaccrual 

Loans

(Dollars in millions)

Single-family:

Primary(4). . . . . . . . . . $ 39,043 $ 13,513 $ 67,737 $ 120,293 $ 2,424,022 $ 2,544,315 $ 2,162 $ 78,822

Government(5). . . . . . . 82 40 340 462 50,408 50,870 340 —

Alt-A. . . . . . . . . . . . . . 6,009 2,417 22,181 30,607 121,099 151,706 502 24,048

Other(6). . . . . . . . . . . . 2,613 1,053 8,527 12,193 57,336 69,529 297 9,209

Total single-family . . 47,747 17,023 98,785 163,555 2,652,865 2,816,420 3,301 112,079

Multifamily(7). . . . . . . . . 178 NA 428 606 190,445 191,051 — 2,214

Total. . . . . . . . . . . $ 47,925 $ 17,023 $ 99,213 $ 164,161 $ 2,843,310 $ 3,007,471 $ 3,301 $ 114,293

As of December 31, 2011

(1)

30 - 59 

Days 

Delinquent

60 - 89

Days

Delinquent

Seriously 

Delinquent(2)

Total

Delinquent Current Total

Recorded

Investment

in Loans 90

Days or

More

Delinquent

and

Accruing

Interest

Recorded 

Investment 

in 

Nonaccrual 

Loans

(Dollars in millions)

Single-family:

Primary(4). . . . . . . . . . . $ 43,516 $ 15,282 $ 80,712 $ 139,510 $ 2,341,646 $ 2,481,156 $ 111 $ 95,959

Government(5). . . . . . . 109 49 327 485 51,391 51,876 327 —

Alt-A . . . . . . . . . . . . . . 7,155 3,054 28,323 38,532 138,880 177,412 14 31,356

Other(6). . . . . . . . . . . . . 3,403 1,431 11,277 16,111 73,115 89,226 96 12,533

Total single-family . . 54,183 19,816 120,639 194,638 2,605,032 2,799,670 548 139,848

Multifamily(7). . . . . . . . . 210 NA 1,105 1,315 177,906 179,221 — 2,764

Total . . . . . . . . . . . $ 54,393 $ 19,816 $121,744 $ 195,953 $ 2,782,938 $ 2,978,891 $ 548 $ 142,612

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily 

seriously delinquent loans are loans that are 60 days or more past due.

(3) Includes loans with a recorded investment of $2.8 billion, which were repurchased in January 2013 pursuant to our resolution 

agreement with Bank of America. These loans were returned to accrual status to reflect the change in our assessment of collectibility 

resulting from this agreement, see “Note 20, Subsequent Events.”

(4) Consists of mortgage loans that are not included in other loan classes.

(5) Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A. 

Primarily consists of reverse mortgages which due to their nature are not aged and are included in the current column.

(6) Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither 

government nor Alt-A.

(7) Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-31

Credit Quality Indicators 

The following table displays the total recorded investment in our single-family HFI loans, excluding loans for which we have 

elected the fair value option, by class and credit quality indicator as of December 31, 2012 and 2011. The single-family credit 

quality indicator is updated quarterly. 

As of December 31,

2012(1)(2) 2011

(1)(2)

Primary (3) Alt-A Other (4) Primary (3) Alt-A Other (4)

(Dollars in millions)

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

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,703,384 $ 57,419 $21,936 $1,464,348 $ 61,618 $23,414

Greater than 80% and less than or equal to 90%. . . . . . . . . . . 346,018 18,313 7,287 412,342 21,369 9,224

Greater than 90% and less than or equal to 100%. . . . . . . . . . 219,736 16,930 7,369 246,648 19,790 9,445

Greater than 100% and less than or equal to 110% . . . . . . . . . 100,302 14,293 7,169 128,428 16,164 8,951

Greater than 110% and less than or equal to 120% . . . . . . . . 59,723 10,994 6,231 73,836 12,534 7,912

Greater than 120% and less than or equal to 125% . . . . . . . . 20,620 4,387 2,665 25,750 5,087 3,557

Greater than 125% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,532 29,370 16,872 129,804 40,850 26,723

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,544,315 $151,706 $69,529 $2,481,156 $177,412 $89,226

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Excludes $50.9 billion and $51.9 billion as of December 31, 2012 and 2011, respectively, of mortgage loans guaranteed or insured, in 

whole or in part, by the U.S. government or one of its agencies that are not Alt-A loans. The segment class is primarily reverse 

mortgages for which we do not calculate an estimated mark-to-market LTV.

(3) Consists of mortgage loans that are not included in other loan classes.

(4) Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither 

government nor Alt-A.

(5) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported 

period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates 

periodic changes in home value.

The following table displays the total recorded investment in our multifamily HFI loans, excluding loans for which we have 

elected the fair value option, by credit quality indicator as of December 31, 2012 and 2011. The multifamily credit quality 

indicator is updated quarterly.

As of December 31,

2012(1) 2011

(1)

(Dollars in millions)

Credit risk profile by internally assigned grade:(2)

Green. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 154,235 $ 131,740

Yellow(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,304 28,354

Orange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,199 17,355

Red . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,313 1,772

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,051 $ 179,221

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Green (loan with acceptable risk); yellow (loan with signs of potential weakness); orange (loan with a well defined weakness that may 

jeopardize the timely full repayment); and red (loan with a weakness that makes timely collection or liquidation in full more 

questionable based on existing conditions and values).

(3) Includes approximately $5.1 billion and $6.9 billion of unpaid principal balance as of December 31, 2012 and 2011, respectively, 

classified as yellow due to no available current financial information.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-32

Individually Impaired Loans

Individually impaired loans include TDRs, acquired credit-impaired loans, and multifamily loans that we have assessed as 

probable that we will not collect all contractual amounts due, regardless of whether we are currently accruing interest. The 

following tables display the total recorded investment, unpaid principal balance, and related allowance as of December 31, 

2012 and 2011 and interest income recognized and average recorded investment for the years ended December 31, 2012 and 

2011 for individually impaired loans.

As of December 31,

2012 2011

Unpaid

Principal

Balance

Total 

Recorded 

Investment (1)

Related

Allowance

for Loan

Losses

Related

Allowance

for

Accrued

Interest

Receivable

Unpaid

Principal

Balance

Total 

Recorded 

Investment (1)

Related

Allowance

for Loan

Losses

Related

Allowance

for

Accrued

Interest

Receivable

(Dollars in millions)

Individually impaired loans:

With related allowance recorded:

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . $ 132,754 $ 126,106 $ 28,610 $ 628 $ 116,825 $ 109,684 $ 29,598 $ 674

Government (3)

. . . . . . . . . . . . . . . . . . . . . 214 208 38 4 258 258 67 8

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,387 35,620 11,154 267 34,318 31,516 11,121 268

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,873 16,114 4,743 86 16,181 15,363 5,353 99

Total single-family . . . . . . . . . . . . . . . . 188,228 178,048 44,545 985 167,582 156,821 46,139 1,049

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . 2,449 2,471 489 13 2,832 2,855 718 32

Total individually impaired loans with 

related allowance recorded . . . . . . . . . . . 190,677 180,519 45,034 998 170,414 159,676 46,857 1,081

With no related allowance recorded:(5)

Single-family:

Primary(2)

. . . . . . . . . . . . . . . . . . . . . . . . . 16,222 13,901 — — 9,370 6,471 — —

Government(3)

. . . . . . . . . . . . . . . . . . . . . . 104 104 — — 25 17 — —

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,994 2,822 — — 3,056 1,538 — —

Other (4)

. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,218 977 — — 680 367 — —

Total single-family . . . . . . . . . . . . . . . . 21,538 17,804 — — 13,131 8,393 — —

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . 2,056 2,068 — — 1,759 1,771 — —

Total individually impaired loans with no 

related allowance recorded . . . . . . . . . . . 23,594 19,872 — — 14,890 10,164 — —

Total individually impaired loans(6)

. . . . . . . . $ 214,271 $ 200,391 $ 45,034 $ 998 $ 185,304 $ 169,840 $ 46,857 $ 1,081
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-33

For the Year Ended December 31,

2012 2011 2010

Average

Recorded

Investment

Total Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total 

Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

Average

Recorded

Investment

Total 

Interest 

Income 

Recognized (7)

Interest

Income

Recognized

on a Cash

Basis

(Dollars in millions)

Individually impaired loans:

With related allowance 

recorded:

Single-family:

Primary (2)

. . . . . . . . . . . . . . $ 115,767 $ 4,077 $ 654 $ 100,797 $ 3,735 $ 733 $ 81,258 $ 3,314 $ 1,470

Government (3)

. . . . . . . . . . 216 11 — 229 12 — 141 9 —

Alt-A . . . . . . . . . . . . . . . . . 32,978 1,048 151 29,561 982 186 25,361 897 407

Other (4)

. . . . . . . . . . . . . . . . 15,593 444 65 14,431 435 90 12,094 384 204

Total single-family . . . . . 164,554 5,580 870 145,018 5,164 1,009 118,854 4,604 2,081

Multifamily . . . . . . . . . . . . . . 2,535 125 2 2,430 103 5 1,496 202 10

Total individually impaired 

loans with related 

allowance recorded . . . . . . 167,089 5,705 872 147,448 5,267 1,014 120,350 4,806 2,091

With no related allowance 

recorded: (5)

Single-family:

Primary (2)

. . . . . . . . . . . . . . 8,264 1,075 231 6,884 606 204 7,860 336 55

Government (3)

. . . . . . . . . . 78 7 — 12 7 — 11 8 —

Alt-A . . . . . . . . . . . . . . . . . 1,811 253 55 1,771 205 63 2,091 121 20

Other (4)

. . . . . . . . . . . . . . . . 455 95 24 467 57 19 589 36 7

Total single-family . . . . . 10,608 1,430 310 9,134 875 286 10,551 501 82

Multifamily . . . . . . . . . . . . . . 1,781 56 2 993 48 8 642 71 5

Total individually impaired 

loans with no related 

allowance recorded . . . . . . 12,389 1,486 312 10,127 923 294 11,193 572 87

Total individually impaired 

loans(6)

. . . . . . . . . . . . . . . . $ 179,478 $ 7,191 $ 1,184 $ 157,575 $ 6,190 $ 1,308 $ 131,543 $ 5,378 $ 2,178

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.

(2) Consists of mortgage loans that are not included in other loan classes.

(3) Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government 

nor Alt-A.

(5) The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is 

required.

(6) Includes single-family loans restructured in a TDR with a recorded investment of $193.4 billion and $161.9 billion as of December 31, 

2012 and 2011, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $1.1 billion and $956 

million as of December 31, 2012 and 2011, respectively.

(7) Total single-family interest income recognized of $7.0 billion for the year ended December 31, 2012 consists of $5.3 billion of 

contractual interest and $1.7 billion of effective yield adjustments. Total single-family interest income recognized of $6.0 billion for 

the year ended December 31, 2011 consists of $4.5 billion of contractual interest and $1.6 billion of effective yield adjustments. Total 

single-family interest income recognized of $5.1 billion for the year ended December 31, 2010 consists of $3.9 billion of contractual 

interest and $1.3 billion of effective yield adjustments.

Troubled Debt Restructurings

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

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

with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-34

agreements with the borrower that do not result in the legal modification of the loan’s contractual terms. We account for these 

informal restructurings as a TDR if we defer more than three missed payments. We also classify as TDRs loans to certain 

borrowers who have received bankruptcy relief.

The substantial majority of the loan modifications we complete result in term extensions, interest rate reductions or a 

combination of both. During the years ended December 31, 2012 and 2011, the average term extension of a single-family 

modified loan was 131 and 90 months, respectively, and the average interest rate reduction was 2.15 and 2.95 percentage 

points, respectively. 

The following table displays the number of loans and recorded investment in loans restructured in a TDR for the years ended

December 31, 2012 and 2011.

For the Year Ended December 31,

2012 2011

Number of

Loans

Recorded 

Investment(1)

Number of

Loans

Recorded 

Investment(1)

(Dollars in millions)

Single-family:

Primary (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,913 $ 39,527 160,227 $ 28,329

Government (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 50 497 86

Alt-A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,572 9,116 33,416 7,108

Other (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,484 3,489 14,724 3,644

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,363 52,182 208,864 39,167

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 324 47 223

Total troubled debt restructurings. . . . . . . . . . . . . . . . . . . . . . . . . 337,409 $ 52,506 208,911 $ 39,390

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable. Based on the nature of our modification programs, which do not include principal or past-due interest 

forgiveness, there is not a material difference between the recorded investment in our loans pre- and post- modification, therefore 

amounts represent recorded investment post-modification.

(2) Consists of mortgage loans that are not included in other loan classes.

(3) Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government 

nor Alt-A.

The following table displays the number of loans and recorded investment in loans that had a payment default for the years 

ended December 31, 2012 and 2011 and were modified in a TDR in the twelve months prior to the payment default. For 

purposes of this disclosure, we define loans that had a payment default as: single-family and multifamily loans with 

completed TDRs that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure or a short sale; 

single-family loans with completed modifications that are two or more months delinquent during the period; or multifamily 

loans with completed modifications that are one or more months delinquent during the period.

For the Year Ended December 31,

2012 2011

Number of

Loans

Recorded

Investment (1)

Number of

Loans

Recorded

Investment (1)

(Dollars in millions)

Single-family:

Primary (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,824 $ 7,828 66,088 $ 11,585

Government (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 33 376 95

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,848 1,761 14,223 3,045

Other (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,011 948 6,843 1,670

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,883 10,570 87,530 16,395

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 35 8 49

Total TDRs that subsequently defaulted . . . . . . . . . . . . . . . . . . . . . 59,890 $10,605 87,538 $ 16,444
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-35

__________

(1) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable. Represents our recorded investment in the loan at time of payment default.

(2) Consists of mortgage loans that are not included in other loan classes.

(3) Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.

(4) Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government 

nor Alt-A.

4. Allowance for Loan Losses and Reserve for Guaranty Losses

We maintain an allowance for loan losses for loans held for investment in our mortgage portfolio and loans backing Fannie 

Mae MBS issued from consolidated trusts and a reserve for guaranty losses related to loans backing Fannie Mae MBS issued 

from unconsolidated trusts and loans that we have guaranteed under long-term standby commitments. We refer to our 

allowance for loan losses and reserve for guaranty losses collectively as our combined loss reserves. When calculating our 

reserve for guaranty losses, we consider all contractually past due interest income including payments expected to be missed 

between the balance sheet date and the point of loan acquisition or foreclosure. When calculating our loan loss allowance, we 

consider only our net recorded investment in the loan at the balance sheet date, which includes interest income only while the 

loan was on accrual status. 

The following table displays changes in single-family, multifamily and total allowance for loan losses for the years ended 

December 31, 2012, 2011 and 2010. 

For the Year Ended December 31,

2012 2011 2010

Of

Fannie

Mae

Of

Consolidated

Trusts Total

Of

Fannie

Mae

Of

Consolidated

Trusts Total

Of

Fannie

Mae

Of

Consolidated

Trusts Total

(Dollars in millions)

Single-family allowance for loan losses:

Beginning balance, January 1 . . . . . . . . . $ 56,294 $ 14,339 $ 70,633 $ 47,377 $ 12,603 $ 59,980 $ 6,721 $ 1,749 $ 8,470

Adoption of consolidation accounting 

guidance(1)

. . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 43,170 43,170

(Benefit) provision for loan losses(2). . (1,482) 465 (1,017) 13,940 11,683 25,623 12,923 11,592 24,515

Charge-offs(3)(4). . . . . . . . . . . . . . . . . . (14,055) (823) (14,878) (19,026) (1,772) (20,798) (15,438) (7,026) (22,464)

Recoveries . . . . . . . . . . . . . . . . . . . . . . 1,632 152 1,784 3,636 1,636 5,272 1,913 1,164 3,077

Transfers(5). . . . . . . . . . . . . . . . . . . . . . 6,437 (6,437) — 9,901 (9,901) — 44,599 (44,599) —

Other(6). . . . . . . . . . . . . . . . . . . . . . . . . 1,022 143 1,165 466 90 556 (3,341) 6,553 3,212

Ending balance . . . . . . . . . . . . . . . . . . . . $ 49,848 $ 7,839 $ 57,687 $ 56,294 $ 14,339 $ 70,633 $ 47,377 $ 12,603 $ 59,980

Multifamily allowance for loan losses:

Beginning balance, January 1 . . . . . . . . . $ 1,015 $ 508 $ 1,523 $ 1,153 $ 423 $ 1,576 $ 1,357 $ 98 $ 1,455

Adoption of consolidation accounting 

guidance(1)

. . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 406 406

(Benefit) provision for loan losses(2). . (131) (43) (174) 140 151 291 144 43 187

Charge-offs(3)(4). . . . . . . . . . . . . . . . . . (261) — (261) (372) — (372) (414) — (414)

Transfers(5). . . . . . . . . . . . . . . . . . . . . . 29 (29) — 79 (79) — 115 (115) —

Other(6). . . . . . . . . . . . . . . . . . . . . . . . . 19 1 20 15 13 28 (49) (9) (58)

Ending balance . . . . . . . . . . . . . . . . . . . . $ 671 $ 437 $ 1,108 $ 1,015 $ 508 $ 1,523 $ 1,153 $ 423 $ 1,576

Total allowance for loan losses:

Beginning balance, January 1 . . . . . . . . . $ 57,309 $ 14,847 $ 72,156 $ 48,530 $ 13,026 $ 61,556 $ 8,078 $ 1,847 $ 9,925

Adoption of consolidation accounting 

guidance(1)

. . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 43,576 43,576

(Benefit) provision for loan losses(2). . (1,613) 422 (1,191) 14,080 11,834 25,914 13,067 11,635 24,702

Charge-offs(3)(4). . . . . . . . . . . . . . . . . . (14,316) (823) (15,139) (19,398) (1,772) (21,170) (15,852) (7,026) (22,878)

Recoveries . . . . . . . . . . . . . . . . . . . . . . 1,632 152 1,784 3,636 1,636 5,272 1,913 1,164 3,077

Transfers(5). . . . . . . . . . . . . . . . . . . . . . 6,466 (6,466) — 9,980 (9,980) — 44,714 (44,714) —

Other(6). . . . . . . . . . . . . . . . . . . . . . . . . 1,041 144 1,185 481 103 584 (3,390) 6,544 3,154

Ending balance . . . . . . . . . . . . . . . . . . . . $ 50,519 $ 8,276 $ 58,795 $ 57,309 $ 14,847 $ 72,156 $ 48,530 $ 13,026 $ 61,556
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-36

__________

(1) Upon recognition of the mortgage loans held by newly consolidated trusts and the associated accrued interest receivable at the 

transition date of our adoption of the consolidation accounting guidance on January 1, 2010, we increased our “Allowance for loan 

losses” by $43.6 billion, increased our “Allowance for accrued interest receivable” by $7.0 billion and decreased our “Reserve for 

guaranty losses” by $54.1 billion. The net decrease of $3.5 billion reflects the difference in the methodology used to estimate incurred 

losses for our allowance for loan losses and accrued interest receivable versus our reserve for guaranty losses.

(2) (Benefit) provision for loan losses is included in benefit (provision) for credit losses in our consolidated statements of operations and 

comprehensive income (loss).

(3) While we purchase the substantial majority of loans that are four or more months delinquent from our MBS trusts, we do not exercise 

this option to purchase loans during a forbearance period. Charge-offs of consolidated trusts generally represent loans that remained in 

our consolidated trusts at the time of default.

(4) Total charge-offs include accrued interest of $872 million, $1.4 billion and $2.4 billion for the years ended December 31, 2012, 2011 

and 2010, respectively. Single-family charge-offs include accrued interest of $843 million, $1.4 billion and $2.3 billion for the years 

ended December 31, 2012, 2011 and 2010, respectively. Multifamily charge-offs include accrued interest of $29 million, $46 million

and $64 million for the years ended December 31, 2012, 2011 and 2010, respectively.

(5) Includes transfers from trusts for delinquent loan purchases.

(6) Amounts represent the net activity recorded in our allowances for accrued interest receivable and preforeclosure property taxes and 

insurance receivable from borrowers. The (benefit) provision for credit losses, charge-offs, recoveries and transfer activity included in 

this table reflects all changes for both the allowance for loan losses and the valuation allowances for accrued interest and 

preforeclosure property taxes and insurance receivable that relate to the mortgage loans.

As of December 31, 2012, the allowance for accrued interest receivable for loans of Fannie Mae was $1.5 billion and for 

loans of consolidated trusts was $192 million. As of December 31, 2011, the allowance for accrued interest receivable for 

loans of Fannie Mae was $2.2 billion and for loans of consolidated trusts was $336 million.

The following table displays the allowance for loan losses and total recorded investment in our HFI loans, excluding loans for 

which we have elected the fair value option, by impairment or reserve methodology and portfolio segment as of 

December 31, 2012 and 2011.

As of December 31,

2012 2011

SingleFamily Multifamily TotalSingleFamily Multifamily Total

(Dollars in millions)

Allowance for loan losses by segment:

Individually impaired loans(1). . . . . . . . . . $ 44,545 $ 489 $ 45,034 $ 46,139 $ 718 $ 46,857

Collectively reserved loans . . . . . . . . . . . 13,142 619 13,761 24,494 805 25,299

Total allowance for loan losses . . . . . . $ 57,687 $ 1,108 $ 58,795 $ 70,633 $ 1,523 $ 72,156

Recorded investment in loans by segment:(2)

Individually impaired loans(1). . . . . . . . . . $ 195,852 $ 4,539 $ 200,391 $ 165,214 $ 4,626 $ 169,840

Collectively reserved loans . . . . . . . . . . . 2,620,568 186,512 2,807,080 2,634,456 174,595 2,809,051

Total recorded investment in loans . . . $2,816,420 $191,051 $3,007,471 $2,799,670 $179,221 $2,978,891

__________

(1) Includes acquired credit-impaired loans.

(2) Recorded investment consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments, and 

accrued interest receivable.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-37

Reserve for Guaranty Losses

The following table displays changes in the reserve for guaranty losses for the years ended December 31, 2012, 2011, and 

2010.

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Reserve for guaranty losses:

Beginning balance, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 994 $ 323 $54,430

Adoption of consolidation accounting guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (54,103)

Provision for guaranty losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 804 194

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174) (138) (203)

Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 5 5

Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,231 $ 994 $ 323

5. Investments in Securities

Trading Securities

Trading securities are recorded at fair value with subsequent changes in fair value recorded as “Fair value losses, net” in our 

consolidated statements of operations and comprehensive income (loss). The following table displays our investments in 

trading securities as of December 31, 2012 and 2011.

As of December 31,

2012 2011

(Dollars in millions)

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,248 $ 7,424

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,793 2,732

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437 287

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,330 1,349

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,319 1,280

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,826 10,411

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675 724

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 143

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,745 24,350

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,950 47,737

Asset-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,111

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,950 49,848

Total trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,695 $ 74,198

The following table displays information about our net trading gains and losses for the years ended December 31, 2012, 2011 

and 2010.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-38

For the Year Ended

December 31,

2012 2011 2010

(Dollars in millions)

Net trading gains (losses):

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,014 $ 274 $ 2,607

Non-mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (8) 85

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,004 $ 266 $ 2,692

Net trading gains (losses) recorded in the period related to securities still held at period end:

Mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,035 $ 268 $ 2,485

Non-mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (1) 56

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,037 $ 267 $ 2,541

Available-for-Sale Securities

We measure AFS securities at fair value with unrealized gains and losses recorded net of tax as a component of “Other 

comprehensive income (loss)” and we record realized gains and losses from the sale of AFS securities in “Investment gains, 

net” in our consolidated statements of operations and comprehensive income (loss). 

The following table displays the gross realized gains, losses and proceeds on sales of AFS securities for the years ended 

December 31, 2012, 2011 and 2010.

For the Year Ended

December 31,

2012 2011 2010

(Dollars in millions)

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40 $ 182 $ 566

Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 90 293

Total proceeds (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634 2,152 7,207

__________ s

(1) Excludes proceeds from the initial sale of securities from new portfolio securitizations included in “Note 2, Consolidations and 

Transfers of Financial Assets.”

The following tables display the amortized cost, gross unrealized gains and losses and fair value by major security type for 

AFS securities we held as of December 31, 2012 and 2011.

As of December 31, 2012

Total 

Amortized 

Cost (1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses - 

OTTI (2)

Gross 

Unrealized 

Losses - 

Other (3)

Total

Fair

Value

(Dollars in millions)

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,580 $ 871 $ — $ (16) $ 10,435

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,652 728 — — 9,380

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645 106 — — 751

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,356 452 (637) (96) 11,075

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,137 217 (669) (238) 7,447

CMBS(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,284 824 — (11) 13,097

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,782 157 (45) (52) 7,842

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,330 109 (18) (267) 3,154

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,766 $3,464 $(1,369) $ (680) $ 63,181
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-39

As of December 31, 2011

Total 

Amortized 

Cost (1)

Gross

Unrealized

Gains

Gross 

Unrealized 

Losses - 

OTTI (2)

Gross 

Unrealized 

Losses - 

Other (3)

Total

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,486 $1,381 $ (3) $ (14) $16,850

Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 917 — — 12,823

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775 127 — — 902

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,314 233 (1,618) (246) 11,683

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . 9,556 17 (1,534) (453) 7,586

CMBS(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,949 181 — (104) 14,026

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,172 202 (56) (64) 10,254

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,687 92 (39) (282) 3,458

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $78,845 $3,150 $(3,250) $ (1,163) $77,582

__________ s

(1) Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments as well as the 

credit component of other-than-temporary impairments (“OTTI”) recognized in our consolidated statements of operations and 

comprehensive income (loss).

(2) Represents the noncredit component of other-than-temporary impairments losses recorded in “Accumulated other comprehensive 

income (loss)” as well as cumulative changes in fair value of securities for which we previously recognized the credit component of 

other-than-temporary impairments.

(3) Represents the gross unrealized losses on securities for which we have not recognized other-than-temporary impairments.

(4) Amortized cost includes $527 million and $686 million as of December 31, 2012 and 2011, respectively, of increases to the carrying 

amount from previous fair value hedge accounting.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-40

The following tables display additional information regarding gross unrealized losses and fair value by major security type 

for AFS securities in an unrealized loss position that we held as of December 31, 2012 and 2011.

As of December 31, 2012

Less Than 12

Consecutive Months

12 Consecutive

Months or Longer

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5) $ 599 $ (11) $ 372

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18) 541 (715) 4,465

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) 243 (893) 5,058

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (11) 240

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 127 (94) 1,198

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 95 (282) 1,529

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (43) $1,605 $(2,006) $12,862

As of December 31, 2011

Less Than 12

Consecutive Months

12 Consecutive

Months or Longer

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

(Dollars in millions)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4) $ 519 $ (13) $ 208

Alt-A private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133) 1,414 (1,731) 6,525

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) 471 (1,914) 6,686

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) 1,458 (84) 2,790

Mortgage revenue bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 114 (116) 1,971

Other mortgage-related securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) 547 (300) 1,588

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (255) $4,523 $(4,158) $19,768

Other-Than-Temporary Impairments 

We recognize the credit component of other-than-temporary impairments of our debt securities in “Net other-than-temporary 

impairments” and the noncredit component in “Other comprehensive income (loss)” in our consolidated statements of 

operations and comprehensive income (loss) for those securities that we do not intend to sell and for which it is not more 

likely than not that we will be required to sell before recovery.

The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the 

underlying collateral and in the credit performance of the underlying issuer, among other factors. As of December 31, 2012, 

$2.0 billion of gross unrealized losses on AFS securities had existed for a period of 12 consecutive months or longer. Gross 

unrealized losses on AFS securities as of December 31, 2012 include unrealized losses on securities with other-thantemporary impairment in which a portion of the impairment remains in “Accumulated other comprehensive income (loss).” 

The securities with unrealized losses for 12 consecutive months or longer, on average, had a fair value as of December 31, 

2012 that was 87% of their amortized cost basis. Based on our review for impairments of AFS securities, which includes an 

evaluation of the collectibility of cash flows and any intent or requirement to sell the securities, we have concluded that we 

do not have an intent to sell and we believe it is not more likely than not that we will be required to sell the securities. 

Additionally, our projections of cash flows indicate that we will recover these unrealized losses over the lives of the 

securities.

The following table displays our net other-than-temporary impairments by major security type recognized in our consolidated 

statements of operations and comprehensive income (loss) for the years ended December 31, 2012, 2011 and 2010.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-41

For the Year Ended

December 31,

2012 2011 2010(1)

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $365 $ 563 $327

Subprime private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 (303) 368

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 48 27

Net other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $713 $ 308 $722

__________

(1) Certain prior period amounts have been reclassified to conform to the current period presentation.

Net other-than-temporary impairments recorded in the year ended December 31, 2012 increased compared with the year 

ended December 31, 2011, driven primarily by an update to the assumptions used to project cash flow estimates on our Alt-A

and subprime private-label securities. For additional information, refer to “Note 1, Summary of Significant Accounting 

Policies.”

The following table displays activity related to the unrealized credit component on debt securities held by us and recognized 

in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2012 and 

2011. A related unrealized noncredit component has been recognized in “Other comprehensive income (loss).”

For the Year Ended

December 31,

2012 2011

(Dollars in millions)

Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,915 $ 8,215

Additions for the credit component on debt securities for which OTTI was not previously recognized . . . 15 23

Additions for the credit component on debt securities for which OTTI was previously recognized . . . . . . . 698 285

Reductions for securities no longer in portfolio at period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (7)

(Reductions) additions for amortization resulting from changes in cash flows expected to be collected 

over the remaining life of the securities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (409) 399

Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,214 $ 8,915

__________

(1) Amount includes out-of-period adjustment of $727 million in 2011 due to an overstatement of income and amortized cost.

As of December 31, 2012, those debt securities with other-than-temporary impairment for which we recognized the credit 

component of other-than-temporary impairments in our consolidated statements of operations and comprehensive income 

(loss) consisted predominantly of Alt-A and subprime private-label securities. We evaluate Alt-A (including option adjustable 

rate mortgage (“ARM”)) and subprime private-label securities for other-than-temporary impairment by discounting the 

projected cash flows from econometric models to estimate the portion of loss in value attributable to credit. Separate 

components of a third-party model project regional home prices, unemployment and interest rates. The model combines these 

factors with available current information regarding attributes of loans in pools backing the private-label mortgage-related 

securities to project prepayment speeds, conditional default rates, loss severities and delinquency rates. It incorporates 

detailed information on security-level subordination levels and cash flow priority of payments to project security level cash 

flows. We have recorded other-than-temporary impairments for the year ended December 31, 2012 based on this analysis. For 

securities we determined were not other-than-temporarily impaired, we concluded that either the bond had no projected credit 

loss or if we projected a loss, that the present value of expected cash flows was greater than the security’s cost basis.

The following table displays the modeled attributes, including default rates and severities, which are used to determine 

whether our senior interests in certain non-agency mortgage-related securities will experience a cash shortfall as of 

December 31, 2012. Assumption of voluntary prepayment rates is also an input to the present value of expected losses.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-42

As of December 31, 2012

Alt-A

Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate

(Dollars in millions)

Vintage Year

2004 & Prior:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . $ 1,404 $ 438 $2,836 $ 431 $ 1,955

Weighted average collateral default(1)

. . . . . . . . . 39.9% 37.3% 12.8% 26.6% 16.3%

Weighted average collateral severities(2)

. . . . . . . 69.0 60.0 53.7 53.0 47.1

Weighted average voluntary prepayment rates(3). 6.6 6.2 12.1 6.5 9.4

Average credit enhancement(4)

. . . . . . . . . . . . . . . 51.9 11.4 12.1 23.0 9.2

2005

Unpaid principal balance . . . . . . . . . . . . . . . . . . . $ 136 $ 1,171 $1,015 $ 467 $ 2,058

Weighted average collateral default(1)

. . . . . . . . . 66.5% 51.0% 36.6% 46.7% 33.3%

Weighted average collateral severities(2)

. . . . . . . 74.3 66.1 64.5 62.7 54.7

Weighted average voluntary prepayment rates(3). 2.6 4.8 7.3 5.4 6.0

Average credit enhancement(4)

. . . . . . . . . . . . . . . 65.3 17.1 0.8 11.8 3.9

2006

Unpaid principal balance . . . . . . . . . . . . . . . . . . . $10,543 $ 995 $ 464 $ 1,400 $ 1,434

Weighted average collateral default(1)

. . . . . . . . . 69.2% 65.2% 38.3% 51.8% 30.9%

Weighted average collateral severities(2)

. . . . . . . 76.4 67.4 66.4 63.4 55.3

Weighted average voluntary prepayment rates(3). 2.4 3.6 5.8 4.2 6.0

Average credit enhancement(4)

. . . . . . . . . . . . . . . 13.1 11.2 0.2 0.6 —

2007 & After:

Unpaid principal balance . . . . . . . . . . . . . . . . . . . $ 570 $ — $ — $ — $ 101

Weighted average collateral default(1)

. . . . . . . . . 64.6% N/A N/A N/A 37.1%

Weighted average collateral severities(2)

. . . . . . . 66.9 N/A N/A N/A 57.2

Weighted average voluntary prepayment rates(3). 1.9 N/A N/A N/A 6.9

Average credit enhancement(4)

. . . . . . . . . . . . . . . 27.4 N/A N/A N/A 21.7

Total

Unpaid principal balance . . . . . . . . . . . . . . . . . . . $12,653 $ 2,604 $4,315 $ 2,298 $ 5,548

Weighted average collateral default(1)

. . . . . . . . . 65.8% 54.1% 21.1% 46.0% 26.8%

Weighted average collateral severities(2)

. . . . . . . 75.2 65.6 57.6 61.3 52.2

Weighted average voluntary prepayment rates(3). 2.8 4.6 10.3 4.9 7.2

Average credit enhancement(4)

. . . . . . . . . . . . . . . 18.6 13.9 8.2 7.1 5.1

__________

(1) The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the current collateral 

unpaid principal balance, weighted by security unpaid principal balance.

(2) The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of remaining cumulative 

loss divided by cumulative defaults, weighted by security unpaid principal balance.

(3) The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.

(4) The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest projections and 

monoline bond insurance.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-43

For mortgage revenue bonds, where we cannot utilize credit-sensitized cash flows, we perform a qualitative and quantitative 

analysis to assess whether a bond is other-than-temporarily impaired. If a bond is deemed to be other-than-temporarily 

impaired, the projected contractual cash flows of the security are reduced by a default loss amount based on the security’s 

lowest credit rating as provided by the major nationally recognized statistical rating organizations. The lower the security’s 

credit rating, the larger the amount by which the contractual cash flows are reduced. These adjusted cash flows are then used 

in the present value calculation to determine the credit portion of other-than-temporary impairments. While we have 

recognized other-than-temporary impairments on these bonds, we expect to realize no credit losses on the vast majority of our 

holdings due to the inherent financial strength of the issuers, or in some cases, the amount of external credit support from 

mortgage collateral or financial guarantees. The fair values of these bonds are impacted by the low levels of market liquidity 

and greater expected yield, which has led to unrealized losses in the portfolio that we deem to be temporary.

Other mortgage-related securities include manufactured housing securities, some of which have been other-than-temporarily 

impaired in 2012. For manufactured housing securities, we utilize models that incorporate recent historical performance 

information and other relevant public data to run cash flows and assess for other-than-temporary impairments. Given the 

significant seasoning of these securities we expect that the future performance will be in line with how the securities are 

currently performing. We model securities assuming the benefit of those external financial guarantees that are deemed 

creditworthy. If we determined that securities were not other-than-temporarily impaired, we concluded that either the bond 

had no projected credit loss or, if a loss was projected, that present value of expected cash flows was greater than the 

security’s cost basis.

We analyzed commercial mortgage-backed securities (“CMBS”) using a CMBS loss forecast model that incorporates a loan 

level loss forecast. This forecast takes into account loan performance, loan status, loan attributes, structures, metropolitan 

area, property type and macroeconomic expectations. Given the current high level of credit enhancement and collateral loss 

expectations, no single bond is expected to experience a principal write-down or interest shortfall. Our CMBS loss forecast 

expectations may change as macroeconomic conditions and the commercial real estate market evolve. As of December 31, 

2012, we had no other-than-temporary impairments in our holdings of CMBS as we projected the remaining subordination to 

be more than sufficient to absorb the level of projected losses. While downgrades have occurred in this sector, all of our 

holdings remained investment grade as of December 31, 2012.

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining 

maturity, assuming no principal prepayments, as of December 31, 2012. Contractual maturity of mortgage-backed securities 

is not a reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any 

time.

As of December 31, 2012

Total

Amortized

Cost

Total 

Fair

Value

One Year or Less

After One Year Through

Five Years

After Five Years

Through Ten Years After Ten Years

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

(Dollars in millions)

Fannie Mae. . . . . . . . . . . . . . . $ 9,580 $ 10,435 $ — $ — $ 85 $ 90 $ 847 $ 899 $ 8,648 $ 9,446

Freddie Mac . . . . . . . . . . . . . . 8,652 9,380 2 2 79 83 786 845 7,785 8,450

Ginnie Mae. . . . . . . . . . . . . . . 645 751 — — 2 2 7 8 636 741

Alt-A private-label securities. 11,356 11,075 — — — — 178 183 11,178 10,892

Subprime private-label

securities . . . . . . . . . . . . . . 8,137 7,447 — — — — — — 8,137 7,447

CMBS . . . . . . . . . . . . . . . . . . 12,284 13,097 — — 11,892 12,699 149 164 243 234

Mortgage revenue bonds . . . . 7,782 7,842 46 48 309 319 647 657 6,780 6,818

Other mortgage-related

securities . . . . . . . . . . . . . . 3,330 3,154 — — — 8 2 2 3,328 3,144

Total. . . . . . . . . . . . . . . . . . . . $ 61,766 $ 63,181 $ 48 $ 50 $ 12,367 $ 13,201 $2,616 $ 2,758 $ 46,735 $ 47,172

Weighted average yield(1)

. . . . 4.64% 4.25% 3.87% 5.03% 4.82%
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-44

__________

(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. 

Accumulated Other Comprehensive Income (Loss)

The following table displays our accumulated other comprehensive income (loss) by major categories as of December 31, 

2012, 2011 and 2010.

As of December 31,

2012 2011 2010(1)

(Dollars in millions)

Net unrealized gains on available-for-sale securities for which we have not recorded OTTI, 

net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,399 $ 1,152 $ 304

Net unrealized losses on available-for-sale securities for which we have recorded OTTI, net 

of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (465) (1,953) (1,736)

Prior service cost and actuarial gains, net of amortization for defined benefit plans, net of 

tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (505) (389) (214)

Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) (45) (36)

Accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 384 $(1,235) $ (1,682)

__________

(1) Includes a net increase of $3.4 billion from the adoption of the consolidation accounting guidance.

6. Financial 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 longterm 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 guarantees expose us to credit losses on the mortgage loans or, in the case of 

mortgage-related securities, the underlying mortgage loans of the related securities. The contractual terms of our guarantees 

range from 30 days to 40 years; however, the actual term of each guaranty may be significantly less than the contractual term 

based on the prepayment characteristics of the related mortgage loans.

For those guarantees recognized in our consolidated balance sheets, our maximum potential exposure under these guarantees 

is primarily comprised of the unpaid principal balance of the underlying mortgage loans, which totaled $50.6 billion and 

$59.4 billion as of December 31, 2012 and 2011, respectively.

In addition, we had maximum potential exposure of $8.3 billion and $9.3 billion for other guarantees not recognized in our 

consolidated balance sheets as of December 31, 2012 and 2011, respectively, which primarily represents the unpaid principal 

balance of loans underlying guarantees issued prior to January 1, 2010, the effective date of current accounting guidance on 

guaranty accounting. 

The maximum amount we could recover through available credit enhancements and recourse with third parties on guarantees 

recognized in our consolidated balance sheets was $13.3 billion and $14.1 billion as of December 31, 2012 and 2011, 

respectively. The maximum amount we could recover through available credit enhancements and recourse with third parties 

on guarantees not recognized in our consolidated balance sheets was $3.6 billion and $4.0 billion as of December 31, 2012

and 2011, respectively. Recoverability of such credit enhancements and recourse is subject to, among other factors, our 

mortgage insurers’ and financial guarantors’ ability to meet their obligations to us.

Risk Characteristics of our Book of Business

We gauge our performance risk under our guaranty based on the delinquency status of the mortgage loans we hold in 

portfolio, or in the case of mortgage-backed securities, the mortgage loans underlying the related securities. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-45

For single-family loans, management monitors the serious delinquency rate, which is the percentage of single-family loans 90

days or more past due or in the foreclosure process, and loans that have higher risk characteristics, such as high mark-tomarket LTV ratios.

For multifamily loans, management monitors the serious delinquency rate, which is the percentage of loans 60 days or more 

past due, and other loans that have higher risk characteristics, to determine our overall credit quality indicator. Higher risk 

characteristics include, but are not limited to, original debt service coverage ratios (“DSCR”) below 1.10, current DSCR 

below 1.0, and high original and current estimated LTV ratios. We stratify multifamily loans into different internal risk 

categories based on the credit risk inherent in each individual loan.

For single-family and multifamily loans, we use this information, in conjunction with housing market and economic 

conditions, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with these 

higher-risk characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product 

categories. Management also uses this data together with other credit risk measures to identify key trends that guide the 

development of our loss mitigation strategies. 

The following tables display the current delinquency status and certain higher risk characteristics of our single-family 

conventional and total multifamily guaranty book of business as of December 31, 2012 and 2011. 

As of December 31,

2012(1) 2011

(1) 

30 Days

Delinquent

60 Days

Delinquent

Seriously 

Delinquent(2)

30 Days

Delinquent

60 Days

Delinquent

Seriously 

Delinquent(2)

Percentage of single-family conventional guaranty 

book of business(3)

. . . . . . . . . . . . . . . . . . . . . . . . 1.75% 0.63% 3.66% 1.98% 0.73% 4.47%

Percentage of single-family conventional loans(4)

. . 1.96 0.66 3.29 2.17 0.74 3.91

As of December 31,

2012(1) 2011

(1) 

Percentage of 

Single-Family

Conventional

Guaranty Book 

of Business(3)

Percentage 

Seriously 

Delinquent(2)(5)

Percentage of 

Single-Family

Conventional

Guaranty Book 

of Business(3)

Percentage 

Seriously 

Delinquent(2)(5)

Estimated mark-to-market loan-to-value ratio:

Greater than 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13% 13.42% 18% 13.76%

Geographical distribution:

Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.14 2 3.65

California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.69 19 2.46

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10.06 6 11.80

Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6.70 1 7.42

Select Midwest states(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.51 10 4.39

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.85 62 3.18

Product distribution:

Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11.36 7 12.43

Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 20.60 * 23.18

Vintages:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.79 7 7.27

2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 12.15 7 11.81

2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 12.99 10 12.62

2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.63 7 5.64

All other vintages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 1.36 69 1.59

Select combined risk characteristics:

Original LTV ratio > 90% and FICO score < 620. . . . . . . . . . . 1 14.76 1 18.67
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-46

__________

* Represents less than 0.5% of the single-family conventional guaranty book of business.

(1) Consists of the portion of our single-family conventional guaranty book of business for which we have detailed loan level information, 

which constituted approximately 99% of our total single-family conventional guaranty book of business as of December 31, 2012 and 

2011.

(2) Consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of December 31, 2012

and 2011.

(3) Calculated based on the aggregate unpaid principal balance of single-family conventional loans for each category divided by the 

aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business.

(4) Calculated based on the number of single-family conventional loans that were delinquent divided by the total number of loans in our 

single-family conventional guaranty book of business.

(5) Calculated based on the number of single-family conventional loans that were seriously delinquent divided by the total number of 

single-family conventional loans for each category included in our guaranty book of business.

(6) Consists of Illinois, Indiana, Michigan, and Ohio.

As of December 31,

2012(1)(2) 2011

(1)(2)

30 Days

Delinquent

Seriously 

Delinquent(3)

30 Days

Delinquent

Seriously 

Delinquent(3)

Percentage of multifamily guaranty book of business. . . . . . . . . . . . 0.23% 0.24% 0.11% 0.59%

As of December 31,

2012(1) 2011

(1)

Percentage of 

Multifamily 

Guaranty Book 

of Business(2)

Percentage 

Seriously 

Delinquent(3)(4)

Percentage of 

Multifamily 

Guaranty Book 

of Business(2)

Percentage 

Seriously 

Delinquent(3)(4)

Original loan-to-value ratio:

Greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 0.36% 5% 2.51%

Less than or equal to 80% . . . . . . . . . . . . . . . . . . . . . . . . 96 0.24 95 0.49

Original debt service coverage ratio:

Less than or equal to 1.10. . . . . . . . . . . . . . . . . . . . . . . . . 8 0.22 8 0.24

Greater than 1.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 0.25 92 0.62

Current debt service coverage ratio less than 1.0(5). . . . . . . . 5 2.11 7 3.66

__________

(1) Consists of the portion of our multifamily guaranty book of business for which we have detailed loan level information, which 

constituted approximately 99% of our total multifamily guaranty book of business as of December 31, 2012 and 2011 excluding loans 

that have been defeased.

(2) Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid 

principal balance of loans in our multifamily guaranty book of business.

(3) Consists of multifamily loans that were 60 days or more past due as of the dates indicated.

(4) Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid 

principal balance of multifamily loans for each category included in our guaranty book of business. 

(5) Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most 

recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range from 6 to 12 months.

Fannie Mae MBS Included in Investments in Securities

For Fannie Mae MBS included in “Investments in securities” in our consolidated balance sheets, we do not eliminate or 

extinguish the guaranty arrangement because it is a contractual arrangement with the unconsolidated MBS trusts. We 

determine the fair value of Fannie Mae MBS based on observable market prices because most Fannie Mae MBS are actively 

traded. Fannie Mae MBS receive high credit quality ratings primarily because of our guaranty. Absent our guaranty, Fannie 

Mae MBS would be subject to the credit risk on the underlying loans. We continue to recognize a guaranty obligation and a 

reserve for guaranty losses associated with these securities because we carry these securities in our consolidated financial 

statements as guaranteed Fannie Mae MBS. The fair value of the guaranty obligation, net of deferred profit, associated with 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-47

Fannie Mae MBS included in “Investments in securities” approximates the fair value of the credit risk that exists on these 

Fannie Mae MBS absent our guaranty. The fair value of our guaranty obligations associated with the Fannie Mae MBS 

included in “Investments in securities” was $1.8 billion and $2.2 billion as of December 31, 2012 and 2011, respectively.

7. Acquired Property, Net

Acquired property, net consists of held-for-sale foreclosed property received in full satisfaction of a loan, net of a valuation 

allowance for declines in the fair value of the properties after initial acquisition. We classify properties as held for sale when 

we intend to sell the property and are actively marketing it for sale. The following table displays the activity in acquired 

property net of the related valuation allowance for the years ended December 31, 2012, 2011 and 2010.

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Beginning balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,373 $ 16,173 $ 9,142

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,292 18,049 25,199

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,629) (21,617) (16,237)

Write-downs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (547) (1,232) (1,931)

Ending balance, December 31(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,489 $ 11,373 $ 16,173

__________

(1) Includes valuation allowance of $669 million, $1.0 billion and $1.9 billion for the years ended December 31, 2012, 2011 and 2010, 

respectively.

We classify as held for use those properties that we do not intend to sell or that are not ready for immediate sale in their 

current condition, which are reflected in “Other assets” in our consolidated balance sheets. The following table displays the 

activity and carrying amount of acquired properties held for use for the years ended December 31, 2012, 2011 and 2010.

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Beginning balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 835 $ 889 $ 44

Transfers in from held for sale, net and additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,173 1,045 977

Transfers to held for sale, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (748) (547) (64)

Depreciation, asset write-downs, and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (387) (552) (68)

Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 873 $ 835 $ 889

8. Short-Term Borrowings and Long-Term Debt

Short-Term Borrowings

The following table displays our outstanding short-term borrowings (borrowings with an original contractual maturity of one 

year or less) and weighted-average interest rates of these borrowings as of December 31, 2012 and 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-48

As of December 31,

2012 2011

Outstanding

WeightedAverage 

Interest Rate(1) Outstanding

WeightedAverage 

Interest Rate(1)

(Dollars in millions)

Fixed-rate short-term debt:

Discount notes(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,730 0.15% $ 146,301 0.13%

Foreign exchange discount notes(3). . . . . . . . . . . . . . . . . . . . . 503 1.61 371 1.88

Other(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 80 0.04

Total short-term debt of Fannie Mae . . . . . . . . . . . . . . . . . 105,233 0.16 146,752 0.13

Debt of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,483 0.15 4,973 0.09

Total short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,716 0.16% $ 151,725 0.13%

__________

(1) Includes unamortized discounts, premiums, fair value adjustments and other cost basis adjustments.

(2) Represents unsecured general obligations with maturities ranging from overnight to 360 days from the date of issuance.

(3) Represents foreign exchange discount notes we issue in the Euro commercial paper market with maturities ranging from 5 to 360 days 

which enable investors to hold short-term investments in different currencies. We do not incur foreign exchange risk on these 

transactions, as we simultaneously enter into foreign currency swaps that have the effect of converting debt that we issue in foreign 

denominated currencies into U.S. dollars.

(4) Consists of foreign exchange discount notes denominated in U.S. dollars.

Intraday Lines of Credit

We periodically use secured and unsecured intraday funding lines of credit provided by several large financial institutions. 

We post collateral which, in some circumstances, the secured party has the right to repledge to third parties. As these lines of 

credit are uncommitted intraday loan facilities, we may be unable to draw on them if and when needed. We had secured 

uncommitted lines of credit of $15.0 billion and $25.0 billion as of December 31, 2012 and 2011, respectively. We had no

borrowings outstanding from these lines of credit as of December 31, 2012. We had no unsecured, uncommitted lines of 

credit as of December 31, 2012 and $500 million as of December 31, 2011. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-49

Long-Term Debt

Long-term debt represents borrowings with an original contractual maturity of greater than one year. The following table 

displays our outstanding long-term debt as of December 31, 2012 and 2011.

As of December 31,

2012 2011

Maturities Outstanding

WeightedAverage 

Interest 

Rate (1) Maturities Outstanding

WeightedAverage 

Interest 

Rate (1)

(Dollars in millions)

Senior fixed: 

Benchmark notes and bonds . . . . 2013 - 2030 $ 251,768 2.59% 2012 - 2030 $ 277,146 2.81%

Medium-term notes(2). . . . . . . . . . 2013 - 2022 172,288 1.35 2012 - 2021 176,886 1.61

Foreign exchange notes and

bonds . . . . . . . . . . . . . . . . . . . . 2021 - 2028 694 5.44 2021 - 2028 662 5.44

Other(3)(4). . . . . . . . . . . . . . . . . . . 2013 - 2038 40,819 4.99 2012 - 2040 50,912 5.29

Total senior fixed. . . . . . . . . . . 465,569 2.35 505,606 2.64

Senior floating:

Medium-term notes(2). . . . . . . . . . 2013 - 2019 38,633 0.27 2012 - 2016 71,855 0.32

Other(3)(4). . . . . . . . . . . . . . . . . . . 2020 - 2037 365 8.22 2020 - 2037 420 8.01

Total senior floating . . . . . . . . 38,998 0.33 72,275 0.35

Subordinated fixed: 

Qualifying subordinated(5). . . . . . 2013 - 2014 2,522 5.00 2012 - 2014 4,894 5.08

Subordinated debentures . . . . . . . 2019 3,197 9.92 2019 2,917 9.91

Total subordinated fixed . . . . . 5,719 7.75 7,811 6.88

Secured borrowings(6). . . . . . . . . . . . 2021 - 2022 345 1.87 — — —

Total long-term debt of Fannie 

Mae(7). . . . . . . . . . . . . . . . . . . . 510,631 2.25 585,692 2.42

Debt of consolidated trusts(4). . . . . . . 2013 - 2052 2,570,170 3.36 2012 - 2051 2,452,455 4.18

Total long-term debt. . . . . . . . . $ 3,080,801 3.18% $ 3,038,147 3.84%

__________

(1) Includes unamortized discounts, premiums, fair value adjustments 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 long-term debt that is not included in other debt categories.

(4) Includes a portion of structured debt instruments that is reported at fair value.

(5) Consists of subordinated debt issued with an interest deferral feature.

(6) Represents our remaining liability resulting from the transfers 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) Reported amounts include a net unamortized discount, fair value adjustments and other cost basis adjustments of $6.0 billion and $9.2 

billion as of December 31, 2012 and 2011, respectively.

Our long-term debt includes a variety of debt types. We issue both fixed and floating-rate medium-term notes with maturities 

greater than one year that are issued through dealer banks. We also offer Benchmark Notes and other bonds in large, 

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 and are able to issue debt in numerous other currencies. We 

effectively convert all foreign currency-denominated transactions into U.S. dollars through the use of foreign currency swaps 

for the purpose of funding our mortgage assets. 

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. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-50

Debt of Consolidated Trusts 

Debt of consolidated trusts represents the amount of Fannie Mae MBS issued from consolidated trusts and held by third-party 

certificateholders. 

Characteristics of Debt 

As of December 31, 2012 and 2011, the face amount of our debt securities of Fannie Mae was $621.8 billion and $741.6 

billion, respectively. As of December 31, 2012 and 2011, we had zero-coupon debt with a face amount of $120.7 billion and 

$165.8 billion, respectively, which had an effective interest rate of 0.93% and 0.68%, respectively. 

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, 2012 and 2011 included $177.8 billion and $187.9 billion, respectively, of 

callable debt that could be redeemed in whole or in part at our option or the option of the investor any time on or after a 

specified date.

The following table displays the amount of our long-term debt as of December 31, 2012 by year of maturity for each of the 

years 2013 through 2017 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-Term Debt by

Year of Maturity

Assuming Callable Debt

Redeemed at Next

Available Call Date

(Dollars in millions)

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,187 $ 252,419

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,040 111,089

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,591 48,130

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,872 34,077

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,794 42,248

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,147 22,668

Total debt of Fannie Mae(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,631 510,631

Debt of consolidated trusts(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,570,170 2,570,170

Total long-term debt(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,080,801 $ 3,080,801

__________

(1) Reported amount includes a net unamortized discount, fair value adjustments and other cost basis adjustments of $6.0 billion.

(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. 

(3) Includes a portion of structured debt instruments that is reported at fair value. 

The following table displays the amount of our debt of Fannie Mae that was called and repurchased and the associated 

weighted-average interest rates for the years ended December 31, 2012, 2011 and 2010.

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Debt called . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,713 $201,651 $289,770

Weighted-average interest rate of debt called. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.4% 3.1%

Debt repurchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44 $ 2,887 $ 1,333

Weighted-average interest rate of debt repurchased . . . . . . . . . . . . . . . . . . . . . . . 3.8% 3.1% 3.3%

9. Derivative Instruments

Derivative instruments are an integral part of our strategy in managing interest rate risk. Derivative instruments may be 

privately negotiated contracts, which are often referred to as over-the-counter derivatives, or they may be listed and traded on 

an exchange. When deciding whether to use derivatives, we consider a number of factors, such as cost, efficiency, the effect 

on our liquidity, results of operations, and our overall interest rate risk management strategy. We use derivatives when we 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-51

believe they will provide greater relative value or more efficient execution of our strategy than debt securities. We typically 

do not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for 

calculating actual payments or settlement amounts. The derivatives we use for interest rate risk management purposes consist 

primarily of contracts that fall into the following broad categories:

• 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. 

• 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. 

We enter into forward commitments to purchase mortgage loans and to purchase or sell mortgage-related securities that lock 

in the future delivery of these instruments at a fixed price or yield. Certain commitments to purchase mortgage loans and 

purchase or sell mortgage-related securities meet the criteria to be accounted for as derivatives. We typically settle the 

notional amount of our mortgage loan commitments that are accounted for as a derivative.

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, 2012 and 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-52

As of December 31, 2012 As of December 31, 2011

Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives

Notional

Amount

Estimated

Fair

Value

Notional

Amount

Estimated

Fair

Value

Notional

Amount

Estimated

Fair

Value

Notional

Amount

Estimated

Fair

Value

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed . . . . . . . . . . . . . . . . . . . $ 19,450 $ 270 $ 239,017 $ (18,237) $ 30,950 $ 102 $ 155,807 $ (17,391)

Receive-fixed. . . . . . . . . . . . . . . . 231,346 10,514 57,190 (200) 170,668 8,118 59,027 (93)

Basis. . . . . . . . . . . . . . . . . . . . . . . 23,199 151 1,700 — 382 122 9,240 (44)

Foreign currency . . . . . . . . . . . . . 686 193 509 (45) 581 155 451 (62)

Swaptions:

Pay-fixed . . . . . . . . . . . . . . . . . . . 33,050 102 36,225 (184) 48,600 165 47,750 (194)

Receive-fixed. . . . . . . . . . . . . . . . 15,970 3,572 36,225 (2,279) 33,695 6,371 47,750 (3,238)

Other(1)

. . . . . . . . . . . . . . . . . . . . . . . . . 7,374 26 13 (1) 8,214 52 75 —

Total gross risk management

derivatives . . . . . . . . . . . . . . . . . . 331,075 14,828 370,879 (20,946) 293,090 15,085 320,100 (21,022)

Accrued interest receivable

(payable) . . . . . . . . . . . . . . . . . . . — 1,242 — (1,508) — 920 — (1,238)

Netting adjustment(2)

. . . . . . . . . . . . — (15,791) — 22,046 — (15,829) — 21,898

Total net risk management

derivatives. . . . . . . . . . . . . . . . . $ 331,075 $ 279 $ 370,879 $ (408) $ 293,090 $ 176 $ 320,100 $ (362)

Mortgage commitment derivatives:

Mortgage commitments to

purchase whole loans . . . . . . . . . $ 12,360 $ 27 $ 5,232 $ (8) $ 9,710 $ 73 $ 422 $ —

Forward contracts to purchase

mortgage-related securities . . . . . 34,545 103 12,557 (23) 32,707 309 2,570 (6)

Forward contracts to sell mortgagerelated securities . . . . . . . . . . . . . 18,886 26 75,477 (266) 1,370 3 54,656 (548)

Total mortgage commitment

derivatives. . . . . . . . . . . . . . . . . $ 65,791 $ 156 $ 93,266 $ (297) $ 43,787 $ 385 $ 57,648 $ (554)

Derivatives at fair value . . . . . . . . $ 396,866 $ 435 $ 464,145 $ (705) $ 336,877 $ 561 $ 377,748 $ (916)

__________

(1) Includes interest rate caps, futures, swap credit enhancements and mortgage insurance contracts that we account for as derivatives. The 

mortgage insurance contracts have payment provisions that are not based on a notional amount.

(2) The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting agreements to settle with 

the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $6.3 billion and $6.8 

billion as of December 31, 2012 and 2011, respectively. No cash collateral was received as of December 31, 2012 and $779 million was 

received as of December 31, 2011.

A majority of our derivative instruments contain provisions that require our senior unsecured debt to maintain a minimum 

credit rating from S&P and Moody’s. If our senior unsecured debt were to fall below established thresholds in our derivatives 

agreements, which range from A+ to BBB+, we could be required to provide additional collateral to or terminate transactions 

with certain counterparties. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in 

a net liability position as of December 31, 2012 was $6.4 billion, for which we posted collateral of $6.3 billion in the normal 

course of business. Had all of the credit-risk-related contingency features underlying these agreements been triggered, an 

additional $159 million of collateral would have been required to be posted as collateral or to immediately settle our positions 

based on the individual agreements and our fair value position as of December 31, 2012.

The aggregate fair value of all derivatives with credit risk-related contingent features that were in a net liability position as of 

December 31, 2011 was $7.2 billion, for which we posted collateral of $6.8 billion in the normal course of business. Had all 

of the credit risk-related contingency features underlying these agreements been triggered, an additional $362 million would 

have been required to be posted as collateral or to immediately settle our positions based on the individual agreements and 

our fair value position as of December 31, 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-53

We record all derivative gains and losses, including accrued interest, in “Fair value losses, net” in our consolidated statements 

of operations and comprehensive income (loss). The following table displays, by type of derivative instrument, the fair value 

gains and losses, net on our derivatives for the years ended December 31, 2012, 2011 and 2010. 

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Risk management derivatives:

Swaps:

Pay-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,681) $ (18,040) $ (17,573)

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,052 7,939 14,382

Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 86 17

Foreign currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 156 157

Swaptions:

Pay-fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 860 (2,026)

Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410 2,932 3,327

Other(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) (72) (91)

Total risk management derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . (1,938) (6,139) (1,807)

Mortgage commitment derivatives fair value losses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,688) (423) (1,193)

Total derivatives fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,626) $ (6,562) $ (3,000)

__________

(1) Includes interest rate caps, futures, swap credit enhancements and mortgage insurance contracts.

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate 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 obtain a 

replacement derivative from a different counterparty at a higher cost or may be unable to find a suitable replacement. We 

manage our counterparty credit exposure mainly through master netting arrangements which allow us to net derivative assets 

and liabilities with the same counterparty and by requiring counterparties to post collateral, which includes cash, 

U.S. Treasury securities, agency debt and agency mortgage-related securities.

10. Income Taxes

We operate as a government-sponsored enterprise. We are subject to federal income tax, but we are exempt from state and 

local income taxes. 

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying 

amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards 

and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative 

evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely 

than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate 

with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary 

to support a conclusion that a valuation allowance is not needed.

Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including: 

• the sustainability of recent profitability required to realize the deferred tax assets;

• the cumulative net losses in our consolidated statements of operations in recent years; 

• unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a 

continuing basis in future years; and

• the carryforward periods for net operating losses and tax credits.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-54

As of December 31, 2012, we have concluded that it is more likely than not that our deferred tax asset will not be realized in 

its entirety and that therefore we should retain the valuation allowance against our net deferred tax assets. The valuation 

allowance as of December 31, 2012 was $58.9 billion. Giving more weight to evidence that could be objectively verified than 

to evidence that could not be objectively verified, we determined that the factors in favor of releasing the allowance were 

outweighed by the evidence against releasing the valuation allowance. The factors that weighed against releasing the 

allowance as of December 31, 2012 and ultimately outweighed the factors in favor of releasing the reserve discussed below 

were the following:

• on a cumulative basis, we reported losses in our consolidated statements of operations for the three-years ended 

December 31, 2012; 

• the impact of a reduction in funds available to us under the senior preferred stock purchase agreement that would 

have resulted from releasing the valuation allowance during the three months ended December 31, 2012, which we 

discuss below;

• stability in the housing market is relatively recent and home prices, while improving, are still well below their peak, 

which results in uncertainty regarding our projections of future credit losses;

• the uncertainty surrounding the future of our company given we are in conservatorship; and

• we have a limited recent history of profitability and a large number of delinquent loans in our book of business.

Under the terms of the senior preferred stock purchase agreement, the amount of funding available to us after December 31, 

2012 is adjusted based on our positive net worth as of December 31, 2012 and is not affected by any positive net worth we 

may have on future dates. Accordingly, the amount of funding available under the senior preferred stock purchase agreement 

will be reduced only to the extent that we draw funds from Treasury under the agreement in the future. A decision to release 

the valuation allowance in 2013 will not reduce the funding available to us under the senior preferred stock purchase 

agreement. 

Releasing the valuation allowance during the three months ended December 31, 2012 would have decreased our available 

funding under the senior preferred stock purchase agreement to approximately $84 billion, compared to approximately $118 

billion of available funding that resulted from not releasing the valuation allowance in the fourth quarter. 

There was significant uncertainty regarding the effects that an approximately $34 billion reduction in the funds available to 

us under the senior preferred stock purchase agreement would have had on our business and financial results, including 

regulatory actions that would limit our business operations to ensure safety and soundness of the company, particularly in 

view of the fact that stability in the housing market and improvements in our financial results are relatively recent. This 

uncertainty was a significant consideration in our determination not to release the valuation allowance as of December 31, 

2012. 

In addition, it is difficult to conclude a valuation allowance is not required when there is significant objective and verifiable 

negative evidence, such as cumulative losses in recent years. We utilize a rolling three years of pre-tax income or loss as the 

primary measure of cumulative losses in recent years. Over the three years ended December 31, 2012, we remain in a 

cumulative loss position. However, we expect that as of the three months ended March 31, 2013, we will report income for 

the fifth consecutive quarter and we will show cumulative profits for the past twelve quarters. 

The following factors weighed in favor of releasing the allowance as of December 31, 2012:

• our 2012 profitability and our expectations regarding the sustainability of profits;

• the strong credit profile of the loans we have acquired since 2009;

• the significant size of our guaranty book of business and our contractual rights for future revenue from this book of 

business;

• our taxable income for 2012 and our expectations regarding the likelihood of future taxable income; and

• the carryforward periods for our net operating losses and tax credits.

We will continue to evaluate the recoverability of our deferred tax assets. Our evaluation in future quarters will be made by 

reviewing all relevant factors as of the end of those periods including the factors discussed above to the extent applicable. 

Releasing all or a portion of the valuation allowance after December 31, 2012 will not reduce the funding available to us 

under the senior preferred stock purchase agreement as discussed above. In addition, we expect that, for the three months 

ended March 31, 2013, we will no longer be in a three-year cumulative loss position. Accordingly, although we have not 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-55

completed the analysis, we believe that, after considering all relevant factors, we may release the valuation allowance as early 

as the three months ended March 31, 2013.

If we reverse all or a significant portion of our valuation allowance in a future period we would record a material tax benefit 

in net income reflecting the reversal. This tax benefit would increase our net worth as of the end of the period in which we 

record it and, as a result, the amount of the dividend we will be required to pay Treasury in the following quarter pursuant to 

the terms of the senior preferred stock purchase agreement. This tax benefit would also result in a large negative effective tax 

rate in the period in which the valuation allowance is released. 

In addition, if all or a significant portion of the valuation allowance is reversed, our effective tax rate will approach the 

statutory tax rate after the year in which the reversal is recorded. Our recorded effective tax rate has been at or close to zero 

since we established our valuation allowance because our provision or benefit for income taxes, as it relates to the change in 

the deferred tax asset balance, has been offset by a corresponding decrease or increase to our valuation allowance.

The following table displays our deferred tax assets, deferred tax liabilities, and valuation allowance as of December 31, 2012

and 2011.

As of December 31,

2012 2011

(Dollars in millions)

Deferred tax assets:

Allowance for loan losses and basis in acquired property, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,263 $ 29,935

Mortgage and mortgage-related assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,912 12,358

Debt and derivative instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,450 6,562

Partnership credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,933 5,473

Partnership and other equity investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,610 1,809

Unrealized losses on AFS securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 442

Net operating loss and alternative minimum tax credit carryforwards. . . . . . . . . . . . . . . . . . . . . . . 2,586 5,904

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084 2,053

Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,838 64,536

Deferred tax liabilities:

Unrealized gains on AFS securities, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 —

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 23

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 23

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,851) (64,080)

Net deferred tax (liabilities) assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (509) $ 433

As of December 31, 2012, we had $8.3 billion of net operating loss carryforwards that expire in 2030 through 2031, $1.5 

billion of capital loss carryforwards that expire in 2014 through 2017, $5.9 billion of partnership tax credit carryforwards that 

expire in various years through 2031, and $344 million of alternative minimum tax credit carryforwards that have an 

indefinite carryforward period.

Benefit for Income Taxes

The following table displays the components of our benefit for federal income taxes for the years ended December 31, 2012, 

2011 and 2010.

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Current income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 90 $ 82

Deferred income tax benefit (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —

Benefit for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 90 $ 82
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-56

__________

(1) Amount excludes the income tax effect of items recognized directly in “Fannie Mae stockholders’ equity (deficit).”

During 2011, we received a refund of $1.1 billion from the IRS related to the carryback of our 2009 operating loss to the 

2008 and 2007 tax years. In addition, we effectively settled our 2007 and 2008 tax years with the IRS and, as a result, we 

recognized an income tax benefit of $90 million in our consolidated statements of operations and comprehensive loss for 

2011.

The following table displays the difference between our effective tax rates and the statutory federal tax rates for the years 

ended December 31, 2012, 2011 and 2010, respectively.

For the Year Ended December 31,

2012 2011 2010

Statutory corporate tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0 % 35.0 % 35.0 %

Tax-exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) 0.9 1.3

Equity investments in affordable housing projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.9) 4.8 6.3

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 1.0 0.1

Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30.6) (41.2) (42.1)

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — % 0.5 % 0.6 %

Our effective tax rate is the benefit for federal income taxes expressed as a percentage of income or loss before federal 

income taxes. Our effective tax rate was different from the federal statutory rate of 35% for the year ended December 31, 

2012 due primarily to the decrease to our valuation allowance for our net deferred tax assets that resulted in the recognition of 

$5.3 billion in our benefit for income taxes, fully offset by a corresponding decrease in our deferred tax assets. Our effective 

tax rates were different from the federal statutory rate of 35% for the years ended December 31, 2011 and 2010 due primarily 

to the increase to our valuation allowance for our net deferred tax assets that resulted in the recognition of $7.0 billion and 

$5.9 billion, respectively, in our provision for income taxes, fully offset by a corresponding increase in our deferred tax assets 

in each period. Our effective tax rate for the year ended December 31, 2011 was further impacted by the release of a portion 

of the valuation allowance for deferred tax assets resulting from a settlement agreement reached with the IRS for our 

unrecognized tax benefits for the tax years 2007 through 2008.

Unrecognized Tax Benefits

We had $648 million, $758 million, and $864 million of unrecognized tax benefits as of December 31, 2012, 2011 and 2010, 

respectively. Of these amounts, we had $60 million as of December 31, 2010 that was resolved favorably in 2011 and 

reduced our effective tax rate in 2011. There are no unrecognized tax benefits as of December 31, 2012 and 2011 that would 

reduce our effective tax rate in future periods. As of December 31, 2012 and 2011, we had no accrued interest payable related 

to unrecognized tax benefits. As of December 31, 2010, we had accrued interest payable related to unrecognized tax benefits 

of $5 million. For the years ended December 31, 2012 and 2011, we had no interest expense related to unrecognized tax 

benefits and did not have any tax expense related to tax penalties. For the year ended 2010, we had total interest expense 

related to unrecognized tax benefits of $2 million and did not have any tax expense related to tax penalties. 

The IRS is currently examining our federal income tax returns related to the 2009 and 2010 tax years. In 2011, we effectively 

settled our federal income tax returns for the tax years 2007 and 2008 with the IRS, which resulted in a $105 million

reduction in our gross balance of unrecognized tax benefits. In 2010, we and the IRS appeals division reached an agreement 

for all issues related to the tax years 1999 through 2004, which resulted in a $99 million reduction in our gross balance of 

unrecognized tax benefits for the tax years 1999 through 2004. 

The following table displays the changes in our unrecognized tax benefits for the years ended December 31, 2012, 2011 and 

2010, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-57

For the Year Ended December 31,

2012 2011 2010

(Dollars in millions)

Unrecognized tax benefits as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 758 $ 864 $ 911

Gross increases—tax positions in prior years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 83

Gross decreases—tax positions in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110) (2) (31)

Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (105) (99)

Unrecognized tax benefits as of December 31(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 648 $ 758 $ 864

__________

(1) Amounts exclude tax credits and net operating losses of $648 million, $758 million and $804 million as of December 31, 2012, 2011

and 2010, respectively.

11. Earnings (Loss) Per Share

The following table displays the computation of basic and diluted loss per share of common stock for the years ended 

December 31, 2012, 2011 and 2010. 

For the Year Ended December 31,

2012 2011 2010

(Dollars and shares in millions, except 

per share amounts)

Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,220 $ (16,855) $ (14,018)

Less: Net loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 — 4

Net income (loss) attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,224 (16,855) (14,014)

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,603) (9,614) (7,704)

Undistributed earnings available for distribution to senior preferred stockholder . . . . . . . . . (4,224) — —

Net income (loss) attributable to common stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,397 $(26,469) $(21,718)

Weighted-average common shares outstanding—Basic(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,762 5,737 5,694

Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 — —

Weighted-average common shares outstanding—Diluted(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . 5,893 5,737 5,694

Earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ (4.61) $ (3.81)

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ (4.61) $ (3.81)

__________

(1) Includes 4.7 billion for the year ended December 31, 2012, and 4.6 billion for both the years ended December 31, 2011 and 2010 of 

weighted-average shares of common stock, that would be issued upon the full exercise of the warrant issued to Treasury from the date 

the warrant was issued through December 31, 2012, 2011 and 2010, respectively.

In 2012, the terms of the senior preferred stock purchase agreement were amended to ultimately require the payment of our 

entire net worth to Treasury. Although the calculation of earnings per share presented above and on our consolidated 

statements of operations and comprehensive income (loss) reflects basic and diluted earnings of $0.24 attributable to 

common stockholders for the year ended December 31, 2012, such amounts are not available to common stockholders under 

the amended terms of the senior preferred stock purchase agreement.

There was no impact to the numerator of our diluted EPS calculation from the dilutive convertible preferred stock for the year 

ended December 31, 2012.

Weighted-average options and performance awards to purchase approximately 3 million, 5 million and 8 million shares of 

common stock were outstanding for the years ended December 31, 2012, 2011 and 2010, respectively, and were excluded 

from the computation of diluted EPS in the table above as they would have been anti-dilutive.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-58

12. Employee Retirement Benefits

We sponsor both defined benefit plans and defined contribution plans for our employees, as well as a healthcare plan that 

provides certain health benefits for retired employees and their dependents. Net periodic benefit costs for defined benefit and 

healthcare plans, which are determined on an actuarial basis, and expenses for our defined contribution plans, are included in 

“Salaries and employee benefits expense” in our consolidated statements of operations and comprehensive income (loss). For 

the years ended December 31, 2012, 2011 and 2010, we recognized net periodic benefit costs for our defined benefit and 

healthcare plans and expenses for our defined contribution plans of $133 million, $118 million and $112 million, 

respectively.

Defined Benefit Pension Plans and Postretirement Health Care Plan

Our defined benefit pension plans include qualified and nonqualified noncontributory plans. Pension plan benefits are based 

on years of credited service and a percentage of eligible compensation. In 2007, the defined benefit pension plans were 

amended to cease benefits accruals for employees that did not meet certain criteria to be grandfathered under the plan and to 

vest those employees in their frozen accruals.

We fund our qualified pension plan through employer contributions to a qualified irrevocable trust that is maintained for the 

sole benefit of plan participants and their beneficiaries. Contributions to our qualified pension plan are subject to a minimum 

funding requirement and maximum funding limit under the Employee Retirement Income Security Act of 1974 (“ERISA”) 

and IRS regulations.

Our nonqualified defined benefit pension plans consist of an Executive Pension Plan, Supplemental Pension Plan and the 

Supplemental Pension Plan of 2003. These plans cover certain employees and supplement the benefits payable under the 

qualified pension plan. The Executive Pension Plan was frozen in 2009. Benefits under the Executive Pension Plan are paid 

through a rabbi trust.

The Supplemental Pension Plan provides retirement benefits to employees who participate in our qualified pension plan and 

do not receive a benefit from the Executive Pension Plan, and whose salary exceeds the statutory compensation cap 

applicable to the qualified plan or whose benefit is limited by the statutory benefit cap. The Supplemental Pension Plan of 

2003 provides additional benefits to our officers based on eligible incentive compensation, if any, received by an officer, but 

the amount of incentive compensation considered is limited to 50% of the officer’s base salary. We pay benefits under our 

unfunded defined benefit Supplemental Pension Plans from our cash and cash equivalents.

We also sponsor a postretirement Health Care Plan that covers substantially all regular full-time employees who meet the 

applicable age and service requirements. We subsidize premium costs for medical coverage for some employees who meet 

the age and service requirements. Employees hired after 2007 receive access to our retiree medical plan, when eligible, but 

they do not qualify for the subsidy. We accrue and pay the benefits for our unfunded postretirement Health Care Plan from 

our cash and cash equivalents.

The following table displays components of our net periodic benefit cost for our qualified and nonqualified pension plans and 

other postretirement plan for the years ended December 31, 2012, 2011 and 2010. The net periodic benefit cost for each 

period is calculated based on assumptions at the end of the prior year.

For the Year Ended December 31,

2012 2011 2010

Other Post- Other Post- Other PostPension Retirement Pension Retirement Pension Retirement

Plans Plan Plans Plan Plans Plan

(Dollars in millions)

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37 $ 6 $ 39 $ 6 $ 37 $ 6

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9 72 9 66 9

Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . (73) — (69) — (60) —

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (3) 12 (7) 9 (2)

Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . $ 66 $12 $ 54 $ 8 $ 52 $13
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-59

Prior service costs, which are changes in benefit obligations due to plan amendments, are amortized over the average 

remaining service period for active employees for our pension plans and prior to the full eligibility date for the other 

postretirement Health Care Plan.

The following table displays the changes in the pre-tax and after-tax amounts recognized in AOCI that have not been 

recognized as a component of net periodic benefit cost for the years ended December 31, 2012 and 2011. 

For the Year Ended

2012 2011

Other Post- Other PostPension Retirement Pension Retirement

Plans Plan Plans Plan

(Dollars in millions)

Actuarial Loss:

Beginning balance, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $393 $ 36 $218 $ 42

Current year actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 8 184 (5)

Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) (1) (9) (1)

Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499 43 393 36

Prior Service Cost (Credit):

Beginning balance, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4 $(46) $ 6 $(56)

Prior service credit due to curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 5

Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 6 (2) 5

Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (40) 4 (46)

Transition Obligation:

Beginning balance, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 2 $ — $ 4

Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2) — (2)

Ending balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 2

Pre-tax and after-tax amount recorded in AOCI . . . . . . . . . . . . . . . . . . . . . . . . $502 $ 3 $397 $ (8)

As of December 31, 2012 we expect to recognize pre-tax amounts in AOCI of $42 million in net periodic benefit costs 

associated with our pension plans and $3 million in net periodic benefit credits associated with our other postretirement plan 

in 2013.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-60

The following table displays the status of our pension and other postretirement plans as of December 31, 2012 and 2011.

As of December 31,

2012 2011

Other Post- Other PostPension Retirement Pension Retirement

Plans Plan Plans Plan

(Dollars in millions)

Change in Projected Benefit Obligation:

Projected benefit obligation at beginning of year . . . . . . . . . . . . . . . . . $1,452 $ 183 $1,257 $ 180

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6 39 6

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9 72 9

Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 — 2

Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 9 131 (1)

Curtailment gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (14) (5)

Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35) (8) (33) (8)

Projected benefit obligation at end of year. . . . . . . . . . . . . . . . . . . . . . . 1,724 201 1,452 183

Change in Plan Assets:

Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . 1,042 — 942 —

Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 — 2 —

Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6 131 6

Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 — 2

Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35) (8) (33) (8)

Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . 1,227 — 1,042 —

Funded status at end of year(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (497) $ (201) $ (410) $ (183)

__________

(1) Included in other liabilities of our consolidated balance sheets as of December 31, 2012 and 2011. 

Actuarial gains or losses reflect annual changes in the amount of either the benefit obligation or the fair value of plan assets 

that result from the difference between actual experience and projected amounts or from changes in assumptions.

The accumulated benefit obligation for our pension plans was $1.6 billion and $1.3 billion as of December 31, 2012 and 

2011, respectively.

Contributions to the qualified pension plan increase the plan assets while contributions to the unfunded plans are made to 

fund current period benefit payments or to fulfill annual funding requirements. We were not required to make minimum 

contributions to our qualified pension plan for each of the years in the three-year period ended December 31, 2012 since we 

met the minimum funding requirements as prescribed by ERISA. However, we did make a discretionary contribution to our 

qualified pension plan of $76 million, $124 million and $42 million during 2012, 2011 and 2010, respectively. 

During 2012, we contributed $76 million to our qualified pension plan, $8 million to our nonqualified pension plans and $6 

million to our other postretirement benefit plan. During 2013, we anticipate contributing $48 million to our benefit plans, 

consisting of $31 million to our qualified pension plan, $9 million to our nonqualified pension plans and $8 million to our 

other postretirement plan.

The fair value of plan assets of our funded qualified pension plan was less than our accumulated benefit obligation by $140 

million and $100 million as of December 31, 2012 and 2011, respectively. There were no plan assets returned to us as of 

April 2, 2013 and we do not expect any plan assets to be returned to us during the remainder of 2013.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-61

Assumptions

Pension and other postretirement benefit amounts recognized in our consolidated financial statements are determined on an 

actuarial basis using several different assumptions that are measured as of December 31, 2012, 2011 and 2010. The following 

table displays the actuarial assumptions for our plans used in determining the net periodic benefit costs and the projected and 

accumulated benefit obligations as of December 31, 2012, 2011 and 2010.

As of December 31,

Pension Benefits Postretirement Benefits

2012 2011 2010 2012 2011 2010

Weighted-average assumptions used to determine net periodic 

benefit costs:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.95% 5.65% 6.10% 4.75% 5.40% 5.75%

Average rate of increase in future compensation . . . . . . . . . . . . . . . . . . 4.00 4.00 4.00

Expected long-term weighted-average rate of return on plan assets. . . . 7.00 7.25 7.50

Weighted-average assumptions used to determine benefit 

obligation at year-end:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15% 4.95% 5.65% 4.05% 4.75% 5.40%

Average rate of increase in future compensation . . . . . . . . . . . . . . . . . . 4.00 4.00 4.00

Health care cost trend rate assumed for next year:

Pre-65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50% 8.00% 8.00%

Post-65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 8.00 8.00

Rate that cost trend rate gradually declines to and remains at: 5.00 5.00 5.00

Year that rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . 2018 2018 2018

As of December 31, 2012, the effect of a 1% increase in the assumed health care cost trend rate would change the 

accumulated postretirement benefit obligation by $8 million. The effect of a 1% decrease in the assumed health care cost 

trend rate would change the accumulated postretirement benefit obligation by $11 million.

We review our pension and other postretirement benefit plan assumptions on an annual basis. We calculate the net periodic 

benefit cost each year based on assumptions established at the end of the previous calendar year, unless we remeasure as a 

result of a curtailment. In determining our net periodic benefit costs, we assess the discount rate to be used in the annual 

actuarial valuation of our pension and other postretirement benefit obligations at year-end. We consider the current yields on 

high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected duration of our benefit 

obligations and supported by cash flow matching analysis based on expected cash flows specific to the characteristics of our 

plan participants, such as age and gender. As of December 31, 2012, the discount rate used to determine our obligation 

decreased by 80 basis points for pension and 70 basis points for postretirement, reflecting a corresponding rate decrease in 

corporate-fixed income debt instruments during 2012. We also assess the long-term rate of return on plan assets for our 

qualified pension plan. The return on asset assumption reflects our expectations for plan-level returns over a term of 

approximately seven to ten years. Given the longer-term nature of the assumption and a stable investment policy, it may or 

may not change from year to year. However, if longer-term market cycles or other economic developments impact the global 

investment environment, or asset allocation changes are made, we may adjust our assumption accordingly. Changes in 

assumptions used in determining pension and other postretirement benefits resulted in an increase in benefit cost of $22 

million, $17 million, and $4 million for the years ended December 31, 2012, 2011 and 2010, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-62

Qualified Pension Plan Assets

The following table displays our qualified pension plan assets by asset category at their fair value as of December 31, 2012 

and 2011. The fair value of assets in Level 1 have been determined based on quoted prices of identical assets in active 

markets as of year end, while the fair value of assets in Level 2 have been determined based on the net asset value per share 

of the investments as of year end. None of the fair values for plan assets were determined by using significant unobservable 

inputs, or Level 3.

Fair Value Measurement as of December 31,

2012 2011

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2) Total

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2) Total

(Dollars in millions)

Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 16 $ 16 $ — $ 22 $ 22

Equity securities:

U.S. large-cap(1)

. . . . . . . . . . . . . . . . . . . . . . . . . 405 — 405 353 — 353

U.S. mid/small cap(2)

. . . . . . . . . . . . . . . . . . . . . 105 — 105 91 — 91

International(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . — 215 215 — 167 167

Fixed income securities:

Investment grade credit(4)

. . . . . . . . . . . . . . . . . — 486 486 — 409 409

Total plan assets at fair value . . . . . . . . . . . . . . . . $ 510 $ 717 $1,227 $ 444 $ 598 $ 1,042

__________

(1) Consists of a publicly traded equity index fund that tracks the S&P 500.

(2) Consists of a publicly traded equity index fund that tracks all regularly traded U.S. stocks except those in the S&P 500.

(3) Consists of an international equity fund that tracks an index of approximately 6,100 and 6,400 securities for 2012 and 2011, 

respectively, across over 40 countries. United Kingdom has the largest share with 15% and 16% in 2012 and 2011, respectively.

(4) Consists of a bond fund that tracks a broadly diversified investment grade index that consists of approximately 3,600 and 3,000

issuances of investment grade bonds for 2012 and 2011, respectively, from diverse industries. International markets represent 19% and 

20% of the fund in 2012 and 2011, respectively.

Our investment strategy is to diversify our plan assets in order to reduce our concentration risk, reflect the plan’s profile over 

time, and maintain an asset allocation that allows us to meet current and future benefit obligations. The assets of the qualified 

pension plan consist of exchange-listed stocks, held in broadly diversified index funds. We also invest in a broadly diversified 

indexed fixed income account. In addition, the plan holds liquid short-term investments that provide for monthly pension 

payments, plan expenses and, from time to time, may represent uninvested contributions or reallocation of plan assets. The 

target allocations for plan assets are from 55% to 65% for equity securities, 35% to 45% for fixed income securities and up to 

2% for all other types of investments. The plan fiduciary periodically assesses our asset allocation to ensure it is consistent 

with our plan objective.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-63

Expected Benefit Payments

The following table displays the benefits we expect to pay in each of the next five years and in the aggregate for the 

subsequent five years for our pension plans and other postretirement plan and are based on the same assumptions used to 

measure our benefit obligation as of December 31, 2012.

Expected Retirement Plan Benefit Payments

Other Postretirement Benefits

Pension

Benefits

Before Medicare

Part D Subsidy

Medicare Part D

Subsidy

(Dollars in millions)

2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40 $ 8 $ 1

2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8 1

2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9 1

2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9 1

2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 10 1

2018 — 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 64 6

Defined Contribution Plans

Retirement Savings Plan

The Retirement Savings Plan is a defined contribution plan 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.

We match employee contributions in cash up to 6% of eligible compensation (base salary, overtime pay and eligible incentive 

compensation) for employees who are not active in our defined benefit pension plan and up to 3% of eligible compensation 

(base salary only) for employees who are active in our defined benefit pension plan. Matching contributions for employees 

who are not active in our defined benefit pension plan are 100% vested and matching contributions for employees who are 

active in our defined benefit pension plan are fully vested after 5 years of service. 

All employees, with the exception of those who participated in the Executive Pension Plan, receive a 2% contribution 

regardless of employee contributions to this plan. Participants are fully vested in this 2% contribution after three years of 

service.

The maximum employee contribution as established by the IRS was $17,000 for the year ended December 31, 2012 and 

$16,500 for the years ended December 31, 2011 and 2010, with additional “catch-up” contributions permitted for participants 

aged 50 and older of $5,500.

There was no option to invest directly in our common stock for the years ended December 31, 2012, 2011 and 2010. We 

recorded expense for this plan of $53 million, $55 million and $47 million for the years ended December 31, 2012, 2011 and 

2010, respectively.

Supplemental Retirement Savings Plan

The Supplemental Retirement Savings Plan is an unfunded, nonqualified defined contribution plan. This plan supplements 

our Retirement Savings Plan to provide benefits to employees who are not grandfathered under our defined benefit pension 

plan and whose annual eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans. 

We credit to the plan 8% of a participant’s eligible compensation that exceeds the IRS annual limit of $250,000 in 2012. 

Eligible compensation consists of base salary plus eligible incentive compensation earned, if any, up to a combined maximum 

of two times base salary. The 8% credit consists of (1) a 6% credit that vests immediately, and (2) a 2% credit that vests after 

three years of service.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-64

13. Segment Reporting

Our three reportable segments are: Single-Family, Multifamily, and Capital Markets. We use these three segments to generate 

revenue and manage business risk, and each segment is based on the type of business activities it performs. Under our 

segment reporting, the sum of the results for our three business segments does not equal our consolidated statements of 

operations and comprehensive income (loss), as we separate the activity related to our consolidated trusts from the results 

generated by our three segments. We also include an eliminations/adjustments category to reconcile our business segment 

financial results and the activity related to our consolidated trusts to net income (loss) in our consolidated statements of 

operations and comprehensive income (loss).

The section below provides a discussion of the three business segments and how each segment’s financial information 

reconciles to our consolidated financial statements.

Single-Family

Revenue for our Single-Family business is from the guaranty fees the segment receives as compensation for assuming the 

credit risk on the mortgage loans underlying single-family Fannie Mae MBS, most of which are held within consolidated 

trusts, and on the single-family mortgage loans held in our mortgage portfolio. The primary source of profit for the SingleFamily segment is the difference between the guaranty fees earned and the costs of providing the guaranty, including creditrelated losses.

Our segment reporting presentation differs from our consolidated balance sheets and statements of operations and 

comprehensive income (loss) in order to reflect the activities and results of the Single-Family segment. The significant 

differences from the consolidated statements of operations and comprehensive income (loss) are as follows:

• Guaranty fee income—Guaranty fee income reflects the cash guaranty fees paid by MBS trusts to Single-Family, the 

amortization of deferred cash fees (both the previously recorded deferred cash fees that were eliminated from our 

consolidated balance sheets at transition and deferred guaranty fees received subsequent to transition that are currently 

recognized in our consolidated financial statements through interest income), such as buy-ups, buy-downs, and riskbased pricing adjustments, and the guaranty fees from the Capital Markets group on single-family loans in our 

mortgage portfolio. To reconcile to our consolidated statements of operations and comprehensive income (loss), we 

eliminate guaranty fees and the amortization of deferred cash fees related to consolidated trusts as they are now 

reflected as a component of interest income; however, such accounting continues to be reflected for the segment 

reporting presentation.

• Net interest income (loss)—Net interest loss within the Single-Family segment reflects interest expense to reimburse 

Capital Markets and consolidated trusts for contractual interest not received on mortgage loans, when interest income is 

no longer recognized in accordance with our nonaccrual accounting policy in our consolidated statements of operations 

and comprehensive income (loss). Net interest income (loss), also includes an allocated cost of capital charge among 

the three segments that is not included in net interest income in the consolidated statement of operations and 

comprehensive income (loss).

Multifamily

The primary sources of revenue for our Multifamily business are guaranty fees the segment receives as compensation for 

assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS, most of which are held within 

consolidated trusts, guaranty fees on the multifamily mortgage loans held in our mortgage portfolio, transaction fees 

associated with the multifamily business and bond credit enhancement fees. Investments in rental and for-sale housing 

generate revenue and losses from operations and the eventual sale of the assets. While the Multifamily guaranty business is 

similar to our Single-Family business, neither the economic return nor the nature of the credit risk is similar to that of SingleFamily.

Our segment reporting presentation differs from our consolidated balance sheets and statements of operations and 

comprehensive income (loss) in order to reflect the activities and results of the Multifamily segment. The significant 

differences from the consolidated statements of operations and comprehensive income (loss) are as follows:

• Guaranty fee income—Guaranty fee income reflects the cash guaranty fees paid by MBS trusts to Multifamily and the 

guaranty fees from the Capital Markets group on multifamily loans in Fannie Mae’s portfolio. To reconcile to our 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-65

consolidated statements of operations and comprehensive income (loss), we eliminate guaranty fees related to 

consolidated trusts.

• Gains (losses) from partnership investments—Gains (losses) from partnership investments primarily reflect gains or 

losses on investments in affordable rental and for-sale housing partnerships measured under the equity method of 

accounting. To reconcile to our consolidated statements of operations and comprehensive income (loss), we adjust the 

gains or losses to reflect the consolidation of certain partnership investments.

Capital Markets Group

Our Capital Markets group generates most of its revenue from the difference, or spread, between the interest we earn on our 

mortgage assets and the interest we pay on the debt we issue to fund these assets. We refer to this spread as our net interest 

yield. Changes in the fair value of the derivative instruments and trading securities we hold impact the net income or loss 

reported by the Capital Markets group. The net income or loss reported by our Capital Markets group is also affected by the 

impairment of AFS securities.

Our segment reporting presentation differs from our consolidated balance sheets and statements of operations and 

comprehensive income (loss) in order to reflect the activities and results of the Capital Markets group. The significant 

differences from the consolidated statements of operations and comprehensive income (loss) are as follows:

• Net interest income—Net interest income reflects the interest income on mortgage loans and securities owned by 

Fannie Mae and interest expense on funding debt issued by Fannie Mae, including accretion and amortization of any 

cost basis adjustments. To reconcile to our consolidated statements of operations and comprehensive income (loss), we 

adjust for the impact of consolidated trusts and intercompany eliminations as follows:

• Interest income: Interest income consists of interest on the segment’s interest-earning assets, which differs from 

interest-earning assets in our consolidated balance sheets. We exclude loans and securities that underlie the 

consolidated trusts from our Capital Markets group balance sheets. The net interest income reported by the Capital 

Markets group excludes the interest income earned on assets held by consolidated trusts. As a result, we report 

interest income and amortization of cost basis adjustments only on securities and loans that are held in our portfolio. 

For mortgage loans held in our portfolio, when interest income is no longer recognized in accordance with our 

nonaccrual accounting policy, the Capital Markets group recognizes interest income for reimbursement from SingleFamily and Multifamily for the contractual interest due under the terms of our intracompany guaranty arrangement.

• Interest expense: Interest expense consists of contractual interest on the Capital Markets group’s interest-bearing 

liabilities, including the accretion and amortization of any cost basis adjustments. It excludes interest expense on 

debt issued by consolidated trusts. Therefore, the interest expense recognized on the Capital Markets group income 

statement is limited to our funding debt, which is reported as “Debt of Fannie Mae” in our consolidated balance 

sheets. Net interest expense also includes an allocated cost of capital charge among the three business segments that 

is not included in net interest income in our consolidated statements of operations and comprehensive income (loss).

• Investment gains or losses, net—Investment gains or losses, net reflects the gains and losses on securitizations and 

sales of available-for-sale securities from our portfolio. To reconcile to our consolidated statements of operations and 

comprehensive income (loss), we eliminate gains and losses on securities that have been consolidated to loans.

• Fair value gains or losses, net—Fair value gains or losses, net for the Capital Markets group includes derivative gains 

and losses, foreign exchange gains and losses, and the fair value gains and losses on certain debt securities in our 

portfolio. To reconcile to our consolidated statements of operations and comprehensive income (loss), we eliminate fair 

value gains or losses on Fannie Mae MBS that have been consolidated to loans.

• Other expenses, net—Debt extinguishment gains or losses recorded on the segment statements of operations relate 

exclusively to our funding debt, which is reported as “Debt of Fannie Mae” in our consolidated balance sheets. To 

reconcile to our consolidated statements of operations and comprehensive income (loss), we include debt 

extinguishment gains or losses related to consolidated trusts to arrive at our total recognized debt extinguishment gains 

or losses.

Segment Allocations and Results

Our business segment financial results include directly attributable revenues and expenses. Additionally, we allocate to each 

of our segments: (1) capital using FHFA minimum capital requirements adjusted for over- or under-capitalization; (2) indirect 

administrative costs; and (3) a provision or benefit for federal income taxes. In addition, we allocate intracompany guaranty 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-66

fee income as a charge from the Single-Family and Multifamily segments to Capital Markets for managing the credit risk on 

mortgage loans held by the Capital Markets group.

The following tables display our business segment financial results for the years ended December 31, 2012, 2011 and 2010.

For the Year Ended December 31, 2012

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . $ (790) $ (13) $13,241 $ 7,156 $1,907 (3) $ 21,501

Benefit for credit losses . . . . . . . . . . . . . . . 672 180 — — — 852

Net interest (loss) income after benefit for 

credit losses. . . . . . . . . . . . . . . . . . . . . . . (118) 167 13,241 7,156 1,907 22,353

Guaranty fee income (expense) . . . . . . . . . 8,151 1,040 (1,291) (4,737)

(4) (2,951)(4) 212 (4)

Investment gains (losses), net. . . . . . . . . . . 8 37 6,217 (1) (5,774)

(5) 487

Net other-than-temporary impairments . . . — — (711) (2) — (713)

Fair value losses, net. . . . . . . . . . . . . . . . . . (8) — (3,041) (313) 385 (6) (2,977)

Debt extinguishment (losses) gains, net. . . — — (277) 33 — (244)

Gains from partnership investments. . . . . . — 123 — — (4) 119 (7)

Fee and other income (expense) . . . . . . . . . 759 207 717 (395) (13) 1,275

Administrative expenses. . . . . . . . . . . . . . . (1,590) (269) (508) — — (2,367)

Foreclosed property income . . . . . . . . . . . . 247 7 — — — 254

Other expenses . . . . . . . . . . . . . . . . . . . . . . (1,079) (5) (22) — (73) (1,179)

Income before federal income taxes. . . . . . 6,370 1,307 14,325 1,741 (6,523) 17,220

(Provision) benefit for federal income 

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80) 204 (124) — — —

Net income . . . . . . . . . . . . . . . . . . . . . . 6,290 1,511 14,201 1,741 (6,523) 17,220

Less: Net loss attributable to

noncontrolling interest. . . . . . . . . . . . — — — — 4

(8) 4

Net income attributable to Fannie Mae. $ 6,290 $1,511 $14,201 $ 1,741 $(6,519) $ 17,224
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-67

For the Year Ended December 31, 2011

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income. . . . . . . . . . . . . $ (2,411) $ (38) $13,920 $ 5,765 $ 2,045 (3) $ 19,281

Provision for credit losses . . . . . . . . . . . . (26,453) (265) — — — (26,718)

Net interest (loss) income after provision

for credit losses. . . . . . . . . . . . . . . . . . . (28,864) (303) 13,920 5,765 2,045 (7,437)

Guaranty fee income (expense) . . . . . . . . 7,507 884 (1,497) (4,486)

(4) (2,181)(4) 227 (4)

Investment (losses) gains, net. . . . . . . . . . (2) 18 3,711 (315) (2,906)

(5) 506

Net other-than-temporary impairments . . — — (306) (2) — (308)

Fair value losses, net . . . . . . . . . . . . . . . . (7) — (6,596) (226) 208 (6) (6,621)

Debt extinguishment (losses) gains, net. . — — (254) 22 — (232)

Gains from partnership investments. . . . . — 81 — — — 81 (7)

Fee and other income (expense). . . . . . . . 579 218 478 (329) (10) 936

Administrative expenses . . . . . . . . . . . . . (1,638) (264) (468) — — (2,370)

Foreclosed property expense . . . . . . . . . . (765) (15) — — — (780)

Other (expenses) income . . . . . . . . . . . . . (857) 25 (34) — (81) (947)

(Loss) income before federal income

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24,047) 644 8,954 429 (2,925) (16,945)

Benefit (provision) for federal income

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 (61) 45 — — 90

Net (loss) income attributable to 

Fannie Mae . . . . . . . . . . . . . . . . . . . $(23,941) $ 583 $ 8,999 $ 429 $(2,925) $(16,855)
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-68

For the Year Ended December 31, 2010

Business Segments Other Activity/Reconciling Items

SingleFamily MultifamilyCapital

Markets

Consolidated 

Trusts(1)

Eliminations/ 

Adjustments(2)

Total

Results

(Dollars in millions)

Net interest (loss) income . . . . . . . . . . . . . . $ (5,386) $ 3 $14,321 $ 5,073 $ 2,398 (3) $ 16,409

Provision for credit losses. . . . . . . . . . . . . . (24,740) (156) — — — (24,896)

Net interest (loss) income after provision 

for credit losses . . . . . . . . . . . . . . . . . . . . (30,126) (153) 14,321 5,073 2,398 (8,487)

Guaranty fee income (expense). . . . . . . . . . 7,206 791 (1,440) (4,525)

(4) (1,830)(4) 202 (4)

Investment gains (losses), net . . . . . . . . . . . 9 6 4,047 (418) (3,298)

(5) 346

Net other-than-temporary impairments . . . . — — (720) (2) — (722)

Fair value gains (losses), net. . . . . . . . . . . . — — 239 (155) (595)

(6) (511)

Debt extinguishment losses, net . . . . . . . . . — — (459) (109) — (568)

Losses from partnership investments . . . . . — (70) — — (4) (74)

(7)

Fee and other income (expense) . . . . . . . . . 306 146 519 (88) (1) 882

Administrative expenses. . . . . . . . . . . . . . . (1,628) (384) (585) — — (2,597)

Foreclosed property expense. . . . . . . . . . . . (1,680) (38) — — — (1,718)

Other (expenses) income. . . . . . . . . . . . . . . (836) (68) 125 — (74) (853)

(Loss) income before federal income taxes (26,749) 230 16,047 (224) (3,404) (14,100)

Benefit (provision) for federal income

taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (14) 27 — — 82

Net (loss) income. . . . . . . . . . . . . . . . . . (26,680) 216 16,074 (224) (3,404) (14,018)

Less: Net loss attributable to

noncontrolling interest. . . . . . . . . . . . — — — — 4

(8) 4

Net (loss) income attributable to 

Fannie Mae. . . . . . . . . . . . . . . . . . . . . $(26,680) $ 216 $16,074 $ (224) $(3,400) $(14,014)

__________

(1) Represents activity related to the assets and liabilities of consolidated trusts in our consolidated balance sheets.

(2) Represents the elimination of intercompany transactions occurring between the three business segments and our consolidated trusts, as 

well as other adjustments to reconcile to our consolidated results.

(3) Represents the amortization expense of cost basis adjustments on securities that we own in our portfolio that on a GAAP basis are 

eliminated.

(4) Represents the guaranty fees paid from consolidated trusts to the Single-Family and Multifamily segments. The adjustment to guaranty 

fee income in the Eliminations/Adjustments column represents the elimination of the amortization of deferred cash fees related to 

consolidated trusts that were re-established for segment reporting. Total guaranty fee income is included in fee and other income in our 

consolidated statements of operations and comprehensive income (loss).

(5) Primarily represents the removal of realized gains and losses on sales of Fannie Mae MBS classified as available-for-sale securities that 

are issued by consolidated trusts and retained in the Capital Markets portfolio. The adjustment also includes the removal of 

securitization gains (losses) recognized in the Capital Markets segment relating to portfolio securitization transactions that do not 

qualify for sale accounting under GAAP.

(6) Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are retained in the Capital 

Markets portfolio.

(7) Gains (losses) from partnership investments are included in other expenses in our consolidated statements of operations and 

comprehensive income (loss).

(8) Represents the adjustment from equity method accounting to consolidation accounting for partnership investments that are consolidated 

in our consolidated balance sheets. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-69

The following table displays total assets by segment as of December 31, 2012 and 2011.

As of December 31,

2012 2011

(Dollars in millions)

Single-Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,595 $ 11,822

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,182 5,747

Capital Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723,217 836,700

Consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,749,571 2,676,952

Eliminations/adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (273,143) (319,737)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,222,422 $ 3,211,484

We operate our business solely in the United States and its territories, and accordingly, we generate no revenue from and have 

no assets in geographic locations other than the United States and its territories.

14. Equity (Deficit)

Common Stock

Shares of common stock outstanding, net of shares held as treasury stock, totaled 1.2 billion as of December 31, 2012 and 

2011.

During the 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 “Senior Preferred Stock and Common Stock Warrant” section of this note.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-70

Preferred Stock

The following table displays our senior preferred stock and preferred stock outstanding as of December 31, 2012 and 2011. 

Issued and Outstanding as of December 31,

Annual 

Dividend 

Rate as of 

December 31, 

2012

2012 2011 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 . . . . September 8, 2008 1 $ 117,149 1 $ 112,578 $ 117,149 (1) 10.000 %

(2) N/A (3)

Total. . . . . . . . . . . 1 $ 117,149 1 $ 112,578

Preferred Stock

Series D . . . . . . . . September 30, 1998 3 $ 150 3 $ 150 $ 50 5.250 % September 30, 1999

Series E . . . . . . . . April 15, 1999 3 150 3 150 50 5.100 April 15, 2004

Series F . . . . . . . . March 20, 2000 14 690 14 690 50 0.230 (4) March 31, 2002 (5)

Series G . . . . . . . . August 8, 2000 6 288 6 288 50 0.080 (6) September 30, 2002 (5)

Series H . . . . . . . . April 6, 2001 8 400 8 400 50 5.810 April 6, 2006

Series I. . . . . . . . . October 28, 2002 6 300 6 300 50 5.375 October 28, 2007

Series L . . . . . . . . April 29, 2003 7 345 7 345 50 5.125 April 29, 2008

Series M. . . . . . . . June 10, 2003 9 460 9 460 50 4.750 June 10, 2008

Series N . . . . . . . . September 25, 2003 5 225 5 225 50 5.500 September 25, 2008

Series O . . . . . . . . December 30, 2004 50 2,500 50 2,500 50 7.000 (7) December 31, 2007

Convertible Series 

2004-I(8)

. . . . . . . . December 30, 2004 — 2,492 — 2,492 100,000 5.375 January 5, 2008

Series P . . . . . . . . September 28, 2007 40 1,000 40 1,000 25 4.500 (9) September 30, 2012

Series Q . . . . . . . . October 4, 2007 15 375 15 375 25 6.750 September 30, 2010

Series R(10)

. . . . . . November 21, 2007 21 530 21 530 25 7.625 November 21, 2012

Series S . . . . . . . . December 11, 2007 280 7,000 280 7,000 25 7.750 (11) December 31, 2010 (12)

Series T

(13)

. . . . . . May 19, 2008 89 2,225 89 2,225 25 8.250 May 20, 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 Variable Liquidation 

Preference agreement with Treasury, the Stated Value per share on December 31, 2012 was $117,149.

(2) Rate effective September 9, 2008 through December 31, 2012.

(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. The initial $1.0 billion liquidation preference may be repaid only in conjunction with termination of the senior 

preferred stock purchase agreement. The provisions for termination under the senior preferred stock purchase agreement are very 

restrictive and cannot occur while we are in conservatorship.

(4) Rate effective March 31, 2012. Variable dividend rate resets every two years at a per annum rate equal to the two-year Maturity U.S. 

Treasury Rate (“CMT”) minus 0.16% with a cap of 11% per year. As of December 31, 2012, the annual dividend rate was 0.23%.

(5) Represents initial call date. Redeemable every two years thereafter.

(6) Rate effective September 30, 2012. 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% per year. As of December 31, 2012, the annual dividend rate was 0.08%.

(7) Rate effective December 31, 2012. 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%. As of December 31, 2012, the annual dividend rate was 7.00%.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-71

(8) Issued and outstanding shares were 24,922 as of December 31, 2012 and 2011, respectively.

(9) Rate effective December 31, 2012. 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%. As of December 31, 2012, the annual dividend rate was 4.50%.

(10) On November 21, 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 December 14, 2007 under the same terms as the 

initial issuance.

(11) Rate effective December 31, 2012. 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%. As of December 31, 2012, the annual dividend rate was 7.75%.

(12) Represents initial call date. Redeemable every five years thereafter.

(13) On May 19, 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 May 22, 2008 and one million shares in the amount of $25 

million on June 4, 2008 under the same terms as the initial issuance.

As described under “Senior Preferred Stock and Common Stock Warrant” 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 up of the 

company. During the conservatorship, the rights and powers of preferred stockholders (other than holders of senior preferred 

stock) are suspended. 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 Series 2004-1.

Shares of the Convertible Series 2004-1 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 

1,060.3329 shares of common stock for each share of Series 2004-1 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, 2012 or 2011.

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 Series O, which has a 

redemption price of $50 to $52.50 depending on the year of redemption and Convertible Series 2004-1, which has a 

redemption price of $105,000 per share. 

Our preferred stock is traded in the over-the-counter market.

Conversions of Preferred Stock to Common Stock

During 2011, 38,669,995 shares of common stock were issued upon conversion of 21,493,217 shares of 8.75% NonCumulative Mandatory Convertible Preferred Stock, Series 2008-1 at the option of the holders pursuant to the terms of the 

preferred stock. In May 2011, the mandatory conversion date, 36,398,449 shares of common stock were issued upon the 

mandatory conversion of all remaining outstanding shares (20,018,947 shares) of 8.75% Non-Cumulative Mandatory 

Convertible Preferred Stock, Series 2008-1, in accordance with its terms. In 2010, 2,867,318 shares of Mandatory 

Convertible Series 2008-1 were converted to 4,417,947 shares of common stock.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-72

Senior Preferred Stock and Common Stock Warrant

On September 8, 2008, we issued one million shares of Variable Liquidation Preference Senior Preferred Stock, 

Series 2008-2 (“senior preferred stock”), with an aggregate stated value and initial liquidation preference of $1.0 billion. On 

September 7, 2008, we 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 in consideration for the initial 

commitment from Treasury to provide up to $100.0 billion in cash to us under the terms set forth in the senior preferred stock 

purchase agreement prior to subsequent amendments. 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 Treasury’s 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 stockholders’ equity (deficit) as a result of the issuance.

Variable Liquidation Preference Senior Preferred Stock, Series 2008-2

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. The liquidation preference of the senior preferred stock is subject to adjustment. To the extent dividends 

payable in any period are not paid in cash, the dividends will accrue and be added to the liquidation preference of the senior 

preferred stock. In addition, any amounts paid by Treasury to us pursuant to Treasury’s funding commitment provided in the 

senior preferred stock purchase agreement and any quarterly commitment fee payable under the senior preferred stock 

purchase agreement that is not paid in cash to or waived by Treasury will be added to the liquidation preference of the senior 

preferred stock. As of April 2, 2013 we have received a total of $116.1 billion under Treasury’s funding commitment.

Treasury, as holder of the senior preferred stock, is entitled to receive, when, as and if declared by our Board of Directors, out 

of legally available funds, cumulative quarterly cash dividends. Dividends declared and paid on our senior preferred stock 

were $11.6 billion, $9.6 billion and $7.7 billion for the years ended December 31, 2012, 2011and 2010, respectively. 

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

based on our net worth as of the end of the immediately preceding fiscal quarter. Our net worth as defined by the agreement 

is the amount, if any, by which our total assets (excluding Treasury’s funding commitment and any unfunded amounts related 

to the commitment) exceed our total liabilities (excluding any obligation in respect of capital stock), in each case as reflected 

in our balance sheets prepared in accordance with GAAP. For each dividend period from January 1, 2013 through and 

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

immediately preceding fiscal quarter exceeds an applicable capital reserve amount. The capital reserve amount is $3.0 billion

during 2013 and will be reduced by $600 million each year until it reaches zero on January 1, 2018. Our first quarter 2013 

dividend on the senior preferred stock of $4.2 billion was declared by the conservator and paid by us on March 29, 2013. For 

each dividend period beginning in 2018, the dividend amount will be the entire amount of our net worth, if any, as of the end 

of the immediately preceding fiscal quarter. 

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

net worth greater than the applicable capital reserve amount, we will pay dividends to Treasury in the next quarter; but if our 

net worth does not exceed the applicable capital reserve amount as of the end of a quarter, then we will not be required to 

accrue or pay any dividends in the next quarter.

The senior preferred stock ranks prior to our common stock and all other outstanding series of our preferred stock as to both 

dividends and rights upon liquidation. 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 without the prior written consent of Treasury. 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 twothirds 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 in full prior to the termination of Treasury’s funding commitment 

under the senior preferred stock purchase agreement. However, we are permitted to pay down the liquidation preference of 

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

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

preference and not previously paid down. In addition, to the extent we issue any shares of capital stock for cash at any time 

the senior preferred stock is outstanding (which requires Treasury’s approval), we are required to use the net proceeds of the 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-73

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 Treasury’s funding 

commitment. Following the termination of Treasury’s funding commitment, we may pay down the liquidation preference of 

all outstanding shares of senior preferred stock at any time, in whole or in part. If we pay down the liquidation preference of 

each outstanding share of senior preferred stock in full, the shares will be considered redeemed as of the payment date.

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 

common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in whole or in part 

at any time on or before September 7, 2028, by delivery to Fannie Mae of: (a) a notice of exercise; (b) payment of the 

exercise price of $0.00001 per share; and (c) 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 “Common stock” in 

our consolidated balance sheets. As of April 2, 2013, Treasury had 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. We have received a total of $116.1 billion from Treasury pursuant to the 

senior preferred stock purchase agreement as of December 31, 2012. The aggregate liquidation preference of the senior 

preferred stock, including the initial aggregate liquidation preference of $1.0 billion, remains at $117.1 billion as of 

December 31, 2012. 

While we had a positive net worth as of December 31, 2012, in some future periods we could have a net worth deficit and, if 

so, would be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement. 

As of December 31, 2012, the remaining amount of funding available to us under the agreement was $117.6 billion. 

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 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

Treasury has waived the quarterly commitment fee under the senior preferred stock purchase agreement for each quarter of 

2012 and 2011. In addition, pursuant to the amendment to the senior preferred stock purchase agreement described in “Note 

1, Summary of Significant Accounting Policies,” the periodic commitment fee under the agreement was suspended effective 

January 1, 2013.

Covenants 

The senior preferred stock purchase agreement, as amended, provides that, until the senior preferred stock is repaid or 

redeemed in full, we may not, without the prior written consent of Treasury:

• Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Fannie Mae 

equity securities (other than with respect to the senior preferred stock or warrant);
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-74

• Redeem, purchase, retire or otherwise acquire any Fannie Mae equity securities (other than the senior preferred stock or 

warrant);

• Sell or issue any Fannie Mae equity securities (other than the senior preferred stock, the warrant and the common stock 

issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the 

date of the senior preferred stock purchase agreement);

• Terminate the conservatorship (other than in connection with a receivership);

• Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life 

regulated entity (in the context of receivership); (b) of assets and properties in the ordinary course of business, 

consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less than 

$250 million in one transaction or a series of related transactions; (d) in connection with a liquidation of Fannie Mae by 

a receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the 

covenant described below relating to the reduction of our mortgage assets;

• Incur indebtedness that would result in our aggregate indebtedness exceeding $874.8 billion through December 31, 

2012. For every year thereafter, our debt cap will equal 120% of the amount of mortgage assets we are allowed to own 

on December 31 of the immediately preceding calendar year;

• Issue any subordinated debt;

• Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

• Engage in transactions with affiliates unless the transaction is (a) pursuant to the senior preferred stock purchase 

agreement, the senior preferred stock or the warrant, (b) upon arm’s-length terms or (c) a transaction undertaken in the 

ordinary course or pursuant to a contractual obligation or customary employment arrangement in existence on the date 

of the senior preferred stock purchase agreement.

The agreement, as amended, also provides that we may not own mortgage assets in excess of $650 billion as of December 31, 

2012. On each December 31 thereafter, we are required to reduce our mortgage assets to 85% of the maximum allowable 

amount that we were permitted to own as of December 31 of the immediately preceding calendar year, until the amount of 

our mortgage assets reaches $250 billion.

Under the agreement, the effect of changes in generally accepted accounting principles that occurred subsequent to the date 

of the agreement and that require us to recognize additional mortgage assets in our consolidated balance sheets were not 

considered for purposes of evaluating our compliance with the limitation on the amount of mortgage assets we may own. In 

addition, the definition of indebtedness in the agreement was revised to clarify that it also does not give effect to any change 

that may be made in respect of the FASB guidance on accounting for transfers of financial assets or any similar accounting 

guidance.

In addition, the agreement provides that we may not enter into any new compensation arrangements with, or increase 

amounts or benefits payable under existing compensation arrangements of, any named executive officer or other executive 

officer (each as defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the 

Treasury. As of December 31, 2012, we were in compliance with the senior preferred stock purchase agreement covenants.

We are required to provide an annual risk management plan to Treasury no later than December 15 of each year we remain in 

conservatorship, beginning in 2012. Each annual risk management plan is required to set out our strategy for reducing our 

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

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

planned actions described in the prior year’s plan. We submitted our risk management plan to Treasury in December 2012. 

Termination Provisions

The senior preferred stock purchase agreement provides that Treasury’s funding commitment will terminate under any the 

following circumstances: (1) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding 

commitment at that time, (2) the payment in full of, or reasonable provision for, all of our liabilities (whether or not 

contingent, including mortgage guaranty obligations), or (3) 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 conservator’s powers. Treasury may not terminate its funding commitment solely 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-75

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 Treasury’s 

aggregate funding commitment or add conditions to Treasury’s 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) the amount necessary to cure the 

payment defaults on our debt and Fannie Mae MBS and (2) the lesser of (a) the deficiency amount and (b) the 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.

15. Regulatory Capital Requirements

FHFA has announced that during the conservatorship our existing statutory and FHFA-directed regulatory capital 

requirements will not be binding and that FHFA will not issue quarterly capital classifications. We submit capital reports to 

FHFA during the conservatorship and FHFA monitors our capital levels. FHFA has stated that it does not intend to report our 

critical capital, risk-based capital or subordinated debt levels during the conservatorship. Our regulatory capital classification 

measures are determined based on guidance from FHFA, in which FHFA (1) directed 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) issued 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.

Pursuant to the GSE Act, if the Director of FHFA makes a written determination that our total assets are less than our total 

obligations (a net worth deficit) for a period of 60 days, FHFA is mandated by law to appoint a receiver for Fannie Mae. 

Treasury’s funding commitment under the senior preferred stock purchase agreement is intended to ensure that we avoid a net 

worth deficit, in order to avoid this mandatory trigger of receivership. In order to avoid a net worth deficit, our conservator 

may request funds on our behalf from Treasury under the senior preferred stock purchase agreement.

FHFA has directed us, during the time we are under conservatorship, to focus on managing to a positive net worth. We had a 

positive net worth of $7.2 billion as of December 31, 2012 and a net worth deficit of $4.6 billion as of December 31, 2011.

The following table displays our regulatory capital classification measures as of December 31, 2012 and 2011.

As of December 31,

2012(1) 2011

(1)

(Dollars in millions)

Core Capital(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (110,350) $ (115,967)

Statutory minimum capital requirement(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,862 32,463

Deficit of core capital over statutory minimum capital requirement. . . . . . . . . . . . . . . . . . . . . . . $ (141,212) $ (148,430)

__________

(1) Amounts as of December 31, 2012 and 2011 represent estimates that we have submitted to FHFA.

(2) The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our 

outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings (accumulated deficit). Core 

capital does not include: (a) accumulated other comprehensive income (loss) or (b) senior preferred stock.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-76

(3) Generally, the sum of (a) 2.50% of on-balance sheet assets, except those underlying Fannie Mae MBS held by third parties; (b) 0.45%

of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet 

obligations, which may be adjusted by the Director of FHFA under certain circumstances (See 12 CFR 1750.4 for existing adjustments 

made by the Director).

Our critical capital requirement is generally equal to the sum of: (1) 1.25% of on-balance sheet assets, except those 

underlying Fannie Mae MBS held by third parties; (2) 0.25% of the unpaid principal balance of outstanding Fannie Mae 

MBS held by third parties; and (3) 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of 

FHFA under certain circumstances.

As of December 31, 2012 and 2011, we had a minimum capital deficiency of $141.2 billion and $148.4 billion, respectively. 

Under the terms of the senior preferred stock purchase agreement, starting January 1, 2013, we are required to pay Treasury 

each quarter dividends equal to the excess of our net worth as of the end of the preceding quarter over an applicable capital 

reserve amount. As a result, in periods in which we have net worth, our minimum capital deficiency will decline to the extent 

of our net worth but the deficiency will increase in the subsequent period as we pay Treasury the corresponding preferred 

stock dividend. Set forth below are additional restrictions related to our capital requirements.

Restrictions on Capital Distributions and Dividends

Restrictions Under GSE Act. Under the GSE Act, FHFA has the 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 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 Subordinated Debt. During any period in which we defer payment of interest on qualifying 

subordinated debt, we may not declare or pay dividends on, or redeem, purchase or acquire, our common stock or preferred 

stock. Our qualifying subordinated debt provides for the deferral of the payment of interest for up to five years if either: our 

core capital is below 125% of our critical capital requirement; or our core capital is below our statutory minimum capital 

requirement, and the U.S. Secretary of the Treasury, acting on our request, exercises his or her discretionary authority 

pursuant to Section 304(c) of the Charter Act to purchase our debt obligations. As of December 31, 2012 and 2011, our core 

capital was below 125% of our critical capital requirement; however, we have been directed by FHFA to continue paying 

principal and interest on our outstanding subordinated debt during the conservatorship and thereafter until directed otherwise, 

regardless of our existing capital levels.

Prior to conservatorship, we were subject to certain regulatory capital requirements, including minimum capital requirements, 

under the terms of various agreements and consent orders with OFHEO. We were in compliance with these regulatory capital 

requirements until they were suspended October 9, 2008 following our entry into conservatorship.

16. Concentrations 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, 

including those conditions arising through April 2, 2013, we have determined that concentrations of credit risk exist among 

single-family and multifamily borrowers (including geographic concentrations and loans with certain higher-risk 

characteristics), mortgage sellers/servicers, mortgage insurers, financial guarantors, lenders with risk sharing, 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 borrower’s 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. The geographic dispersion of our single-family business 

has been consistently diversified over the years ended December 31, 2012 and 2011, with our largest exposures in the 

Western region of the United States, which represented approximately 27% of our single-family conventional guaranty book 

of business as of December 31, 2012 and 2011. Except for California, where approximately 19% of the gross unpaid principal 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-77

balance of our single-family conventional mortgage loans held or securitized in Fannie Mae MBS as of December 31, 2012 

and 2011 were located, no other significant concentrations existed in any state.

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. We may also require credit enhancements if the original LTV ratio of a single-family conventional mortgage 

loan is less than 80%. As of December 31, 2012, approximately 36% of our single-family conventional guaranty book of 

business consists of loans with an estimated mark-to-market LTV greater than 80% compared with approximately 44% as of 

December 31, 2011.

Multifamily Loan Borrowers

Numerous factors affect a multifamily borrower’s ability to repay the loan and the value of the property underlying the loan. 

The most significant factors affecting credit risk are rental rates and capitalization rates for the mortgaged property. Rental 

rates vary among geographic regions of the United States. The average unpaid principal balance for multifamily loans is 

significantly larger than for single-family borrowers and, therefore, individual defaults for multifamily borrowers can be 

more significant to us. However, these loans, while individually large, represent a small percentage of our total guaranty book 

of business. Our multifamily geographic concentrations have been consistently diversified over the years ended 

December 31, 2012 and 2011, with our largest exposure in the Western region of the United States, which represented 32%

and 34% of our multifamily guaranty book of business as of December 31, 2012 and 2011, respectively. Except for California 

and New York, no other significant concentrations existed in any states as of December 31, 2012 and 2011. As of 

December 31, 2012, 25% and 13% of the gross unpaid principal balance of multifamily mortgage loans held by us or 

securitized in Fannie Mae MBS were located in California and New York, respectively. As of December 31, 2011, 26% and 

13% of the gross unpaid principal balance of our portfolio of multifamily mortgage loans held by us or securitized in Fannie 

Mae MBS were located in California and New York, respectively.

As part of our multifamily risk management activities, we perform detailed loan reviews that evaluate borrower and 

geographic concentrations, lender qualifications, counterparty risk, property performance and contract compliance. We 

generally require mortgage servicers to 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.

The following table displays the regional geographic concentration of single-family and multifamily loans in our mortgage 

portfolio and those loans held or securitized in Fannie Mae MBS as of December 31, 2012 and 2011.

Geographic Concentration(1)

Percentage of Conventional 

Single-Family Guaranty Book 

of Business(2)

Percentage of Multifamily 

Guaranty Book of Business(3)

As of December 31, As of December 31,

2012 2011 2012 2011

Midwest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 % 15 % 8 % 8 %

Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 19 21 21

Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 24 21 20

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 15 18 17

West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 27 32 34

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 % 100 % 100 % 100 %

__________

(1) Midwest includes IL, IN, IA, MI, MN, NE, ND, OH, SD, WI; Northeast includes CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT, VI; 

Southeast includes AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, WV; Southwest includes AZ, AR, CO, KS, LA, MO, NM, OK, 

TX, UT; West includes AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

(2) Consists of the portion of our single-family conventional guaranty book of business for which we have detailed loan level information, 

which constituted over 99% of our total single-family conventional guaranty book of business as of December 31, 2012 and 2011.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-78

(3) Consists of the portion of our multifamily guaranty book of business for which we have detailed loan level information, which 

constituted 99% of our total multifamily guaranty book of business as of December 31, 2012 and 2011.

Alt-A and Subprime Loans and Securities

We own and guarantee Alt-A and subprime mortgage loans and mortgage-related securities. An Alt-A mortgage loan 

generally refers to a mortgage loan that has been underwritten with 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 generally have a higher risk of default than non-Alt-A mortgage loans. In reporting our Alt-A exposure, we have 

classified mortgage loans as Alt-A if and only if the lenders that deliver the mortgage loans to us have classified the loans as 

Alt-A, based on documentation or other product features. We have classified private-label mortgage-related securities held in 

our investment portfolio as Alt-A if the securities were labeled as such when issued. 

A subprime mortgage loan generally refers to a mortgage loan made to a borrower with a weaker credit profile than that of a 

prime borrower. As a result of the weaker credit profile, subprime borrowers have a higher likelihood of default than prime 

borrowers. Subprime mortgage loans were typically originated by lenders specializing in this type of business or by subprime 

divisions of large lenders, using processes unique to subprime loans. In reporting our subprime exposure, we have classified 

mortgage loans as subprime if and only if the loans were originated by a lender specializing in subprime business or by a 

subprime division of a large lender; however, we exclude loans originated by these lenders from the subprime classification if 

we acquired the loans in accordance with our standard underwriting criteria, which typically require compliance by the lender 

with our Selling Guide, which sets forth our policies and procedures related to selling single-family mortgages to us, 

(including standard representations and warranties) and/or evaluation of the loans through our Desktop Underwriter system. 

We apply our classification criteria in order to discuss our exposure to subprime and Alt-A loans. However, there is no 

universally accepted definition of subprime or Alt-A loans. Our single-family conventional guaranty book of business 

includes loans with some features that are similar to Alt-A loans or subprime loans that we have not classified as Alt-A or 

subprime because they do not meet our classification criteria. We have classified private-label mortgage-related securities 

held in our investment portfolio as subprime if the securities were labeled as such when issued. We reduce our risk associated 

with some of these loans through credit enhancements, as described below under “Mortgage Insurers.” We do not rely solely 

on our classifications of loans as Alt-A or subprime to evaluate the credit risk exposure relating to these loans in our singlefamily conventional guaranty book of business. For more information about the credit risk characteristics of loans in our 

single-family guaranty book of business, see “Note 3, Mortgage Loans” and “Note 6, Financial Guarantees.”

The Alt-A mortgage loans and Fannie Mae MBS backed by Alt-A loans of $157.0 billion in unpaid principal balance 

represented 5% of our single-family mortgage credit book of business as of December 31, 2012, compared to $183.8 billion

in unpaid principal balance which represented 6% of our single-family mortgage credit book of business as of December 31, 

2011. Subprime loans, private-label securities backed by Alt-A loans and private-label securities backed by subprime loans 

each represented less than 1% percent of our single-family mortgage credit book of business as of December 31, 2012 and 

2011.

Other Concentrations

Mortgage Sellers/Servicers. Mortgage servicers collect mortgage and escrow payments from borrowers, pay taxes and 

insurance costs from escrow accounts, monitor and report delinquencies, and perform other required activities on our behalf. 

Our mortgage sellers/servicers are also obligated to repurchase loans or foreclosed properties, or reimburse us for losses if the 

foreclosed property has been sold, under certain circumstances, such as if it is determined that the mortgage loan did not meet 

our underwriting or eligibility requirements, if loan representations and warranties are violated or if mortgage insurers 

rescind coverage. Our business with mortgage servicers is concentrated. Our five largest single-family mortgage servicers, 

including their affiliates, serviced approximately 57% of our single-family guaranty book of business as of December 31, 

2012, compared with approximately 63% as of December 31, 2011. Our ten largest multifamily mortgage servicers, including 

their affiliates, serviced approximately 67% of our multifamily guaranty book of business as of both December 31, 2012 and 

2011.

If a significant mortgage seller/servicer counterparty, or a number of mortgage sellers/servicers fails to meet their obligations 

to us, it could result in a significant increase in our credit losses and have a material adverse effect on our results of 

operations, liquidity, financial condition and net worth.

Mortgage Insurers. Mortgage insurance “risk in force” generally represents our maximum potential loss recovery under the 

applicable mortgage insurance policies. We had total mortgage insurance coverage risk in force of $91.7 billion and $91.2 

billion on the single-family mortgage loans in our guaranty book of business as of December 31, 2012 and 2011, respectively, 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-79

which represented 3% of our single-family guaranty book of business as of December 31, 2012 and 2011. Our primary 

mortgage insurance coverage risk in force was $90.5 billion and $87.3 billion as of December 31, 2012 and 2011, 

respectively. Our pool mortgage insurance coverage risk in force was $1.2 billion and $3.9 billion as of December 31, 2012 

and 2011, respectively. Our top six mortgage insurance companies provided 93% and 94% of our mortgage insurance as of 

December 31, 2012 and 2011, respectively.

As of April 2, 2013, three of our largest primary mortgage insurers—PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty 

Insurance Corporation (“Triad”) and Republic Mortgage Insurance Company (“RMIC”)—are under various forms of 

supervised control by their state regulators and are in run-off; Genworth Mortgage Insurance Corporation (“Genworth”) and 

Mortgage Guaranty Insurance Corporation (“MGIC”) are operating pursuant to waivers they received from their regulators of 

the state regulatory capital requirements applicable to their main insurance writing entity, as the capital of each entity has 

fallen below applicable state regulatory capital requirements; and Radian Guaranty, Inc. (“Radian”) has disclosed that, in the 

absence of additional capital contributions to its main insurance writing entity, its capital might fall below state regulatory 

capital requirements in the future. These six mortgage insurers provided a combined $70.3 billion, or 77%, of our risk in 

force mortgage insurance coverage of our single-family guaranty book of business as of December 31, 2012.

The payment of claims by RMIC, PMI and Triad has been partially deferred pursuant to orders from their state 

regulators. Pursuant to a new corrective order, effective December 3, 2012, RMIC is now paying 60% of all valid claims and 

40% is deferred as a policyholder claim. This new order increased RMIC’s payment from 50% and is retroactive for all 

claims after January 19, 2012, the date of the original order. PMI continues to pay 50% on all valid claims and 50% is 

deferred as a policyholder claim. Finally, Triad continues to pay 60% on all valid claims and 40% is deferred as a 

policyholder claim. It is uncertain when, or if, any of these mortgage insurers’ regulators will allow them to begin paying 

their deferred policyholder claims and/or increase the amount of cash they pay on claims. 

The financial condition of some of our mortgage insurer counterparties has improved during 2012 but there is still significant 

risk that these counterparties will fail to fulfill their obligations to reimburse us for claims under insurance policies. If we 

determine that it is probable that we will not collect all of our claims from one or more of these mortgage insurer 

counterparties, it could result in an increase in our loss reserves, which could adversely affect our earnings, liquidity, 

financial condition and net worth.

Our total loss reserves incorporate an estimated recovery amount from mortgage insurance coverage. We evaluate the 

financial condition of our mortgage insurer counterparties and adjust the contractually due mortgage insurance benefit for 

collectibility in order to ensure that our total loss reserves reflect probable losses as of the balance sheet date. The following 

table displays our estimated benefit from mortgage insurers as of December 31, 2012 and 2011 that reduces our total loss 

reserves.

As of December 31,

2012 2011

(Dollars in millions)

Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,993 $15,099

Less: Collectibility adjustment(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708 2,867

Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,285 $12,232

__________

(1) Represents an adjustment that reduces the contractual benefit for our assessment of our mortgage insurer counterparties’ inability to 

fully pay the contractual mortgage insurance claims.

We had outstanding receivables of $3.7 billion recorded in “Other assets” in our consolidated balance sheets as of December 

31, 2012 and $3.6 billion as of December 31, 2011 related to amounts claimed on insured, defaulted loans, of which $1.1 

billion as of December 31, 2012 and $639 million as of December 31, 2011 was due from our mortgage sellers/servicers. We 

assessed the total outstanding receivables for collectibility, and they are recorded net of a valuation allowance of $551 million

as of December 31, 2012 and $570 million as of December 31, 2011. The valuation allowance reduces our claim receivable to 

the amount which is considered probable of collection as of December 31, 2012 and 2011.

We received proceeds under our primary and pool mortgage insurance policies for single-family loans of $5.1 billion and 

$5.8 billion for the years ended December 31, 2012 and 2011, respectively.

Financial Guarantors. We are the beneficiary of financial guarantees on non-agency securities held in our investment 

portfolio and on non-agency securities that have been resecuritized to include a Fannie Mae guaranty and sold to third parties. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-80

The following table displays the total unpaid principal balance of guaranteed non-agency securities in our portfolio as of 

December 31, 2012 and 2011.

As of December 31,

2012 2011

(Dollars in millions)

Alt-A private-label securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 928 $ 1,279

Subprime private-label securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,264 1,398

Mortgage revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,374 4,931

Other mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 317

Non mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 46

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,858 $ 7,971

If a financial guarantor fails to meet its obligations to us with respect to the securities for which we have obtained financial 

guarantees, it could reduce the fair value of our mortgage-related securities and result in financial losses to us, which could 

have a material adverse effect on our earnings, liquidity, financial condition and net worth. With the exception of Ambac 

Assurance Corporation (“Ambac”), none of our non-governmental financial guarantor counterparties has failed to repay us 

for claims under guaranty contracts. Pursuant to a court order, effective August 31, 2012, Ambac pays 25% on all filed claims 

that are valid. Ambac provided coverage on $3.0 billion, or 44%, of our total non-governmental guarantees, as of 

December 31, 2012.

We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and 

its agencies that totaled $27.3 billion as of December 31, 2012 and $31.4 billion as of December 31, 2011.

We model our securities without assuming the benefit of non-governmental financial guarantees. We then adjust results for 

those external financial guarantees from guarantors that we determine are creditworthy, although we continue to seek 

collection of any amounts due to us from all counterparties. As of December 31, 2012, when modeling our securities for 

impairments we did not assume the benefit of external financial guarantees from non-governmental counterparties. See “Note 

5, Investments in Securities” for a further discussion of our model methodology and key inputs used to determine other-thantemporary-impairment.

Lenders with Risk Sharing. We enter into risk sharing agreements with lenders pursuant to which the lenders agree to bear all 

or some portion of the credit losses on the covered loans. Our maximum potential loss recovery from lenders under these risk 

sharing agreements on single-family loans was $11.9 billion as of December 31, 2012 and $12.8 billion as of December 31, 

2011. As of December 31, 2012 and 2011, 55% and 58% of our maximum potential loss recovery on single-family loans was 

from three lenders. Our maximum potential loss recovery from lenders under these risk sharing agreements on both 

Delegated Underwriting and Servicing (“DUS”) and non-DUS multifamily loans was $36.4 billion as of December 31, 2012 

and $32.1 billion as of December 31, 2011. As of December 31, 2012 and 2011, 35% and 40% of our maximum potential loss 

recovery on multifamily loans was from three DUS lenders.

Parties Associated with Our Off-Balance Sheet Transactions. We enter into financial instrument transactions that create offbalance sheet credit risk in the normal course of our business. These transactions are designed to meet the financial needs of 

our customers, and manage our credit, market or liquidity risks.

We have entered into guarantees for which we have not recognized a guaranty obligation in our consolidated balance sheets 

relating to periods prior to 2003, the effective date of accounting guidance related to guaranty accounting. Our maximum 

potential exposure under these guarantees is $8.3 billion as of December 31, 2012 and $9.3 billion as of December 31, 2011. 

If we were required to make payments under these guarantees, we would pursue recovery through our right to the collateral 

backing the underlying loans, available credit enhancements and recourse with third parties that provide a maximum 

coverage of $3.6 billion as of December 31, 2012 and $4.0 billion as of December 31, 2011.

Derivatives Counterparties. For information on credit risk associated with our derivatives transactions refer to “Note 9, 

Derivative Instruments.”
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-81

17. Fair Value

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain 

assets and liabilities on a recurring or nonrecurring basis. 

Fair Value Measurement

Fair value measurement guidance defines fair value, establishes a framework for measuring fair value and sets forth 

disclosures around fair value measurements. This guidance applies whenever other accounting guidance requires or permits 

assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that prioritizes the 

inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority, Level 1, to 

measurements based on unadjusted quoted prices in active markets for identical assets or liabilities. The next highest priority, 

Level 2, is given to measurements of assets and liabilities based on limited observable inputs or observable inputs for similar 

assets and liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs. 

Effective January 1, 2012, we adopted new accounting guidance that requires enhanced disclosures about fair value 

measurement. Upon adoption of the new fair value guidance, we made changes to the principal markets that we use to 

estimate the fair value of the following categories of mortgage loans: (a) for loans that are one month delinquent, we changed 

to the GSE securitization market; (b) for loans that are two and three months delinquent, we changed to the whole loan 

market; and (c) for loans that have been modified in a troubled debt restructuring but have been reperforming for nine months 

or more, we changed to the whole loan market. After making these changes, (a) the principal market for all performing loans 

and those loans that are one month delinquent is the GSE securitization market; and (b) the principal market for all loans that 

are two or more months delinquent and all loans that have been modified in a troubled debt restructuring is the whole loan 

market. The impact of making these changes to our principal markets was a net decrease in the estimated fair value of our 

loans of $24.4 billion as of March 31, 2012.

In addition, we enhanced our fair value estimation process for HARP loans to use the modified build-up 

approach, as described in “Fair Value of Financial Instruments—HARP Loans.” Previously, we measured the fair value of 

these loans using our standard build-up approach. Based on the definition of HARP at the time we implemented this process 

enhancement, the impact of this enhancement was an increase in the estimated fair value of HARP loans of $7.4 billion as of 

March 31, 2012.

In the three months ended September 30, 2012, we updated our assumptions for prepayment speeds, severities and default 

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

lower expectation of losses on certain loans, primarily performing loans with high LTV ratios.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-82

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 as of 

December 31, 2012 and 2011. 

Fair Value Measurements as of December 31, 2012

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Significant 

Other

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Recurring fair value measurements:

Assets:

Cash equivalents(2)

. . . . . . . . . . . . . . . . . . . . . . $ 1,150 $ — $ — $ — $ 1,150

Trading securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 6,180 68 — 6,248

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . — 2,791 2 — 2,793

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 436 1 — 437

Alt-A private-label securities . . . . . . . . . . — 1,226 104 — 1,330

Subprime private-label securities . . . . . . . — — 1,319 — 1,319

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,826 — — 9,826

Mortgage revenue bonds. . . . . . . . . . . . . . — — 675 — 675

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 117 — 117

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . 17,950 — — — 17,950

Total trading securities . . . . . . . . . . . . . . . . . . . 17,950 20,459 2,286 — 40,695

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 10,406 29 — 10,435

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . — 9,370 10 — 9,380

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 751 — — 751

Alt-A private-label securities . . . . . . . . . . — 4,511 6,564 — 11,075

Subprime private-label securities . . . . . . . — — 7,447 — 7,447

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13,097 — — 13,097

Mortgage revenue bonds. . . . . . . . . . . . . . — 5 7,837 — 7,842

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 7 3,147 — 3,154

Total available-for-sale securities. . . . . . . . . . . — 38,147 25,034 — 63,181

Mortgage loans of consolidated trusts . . . . . . . — 8,166 2,634 — 10,800

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,224 146 — 12,370

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . — 3,674 — — 3,674

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 26 — 26

Netting adjustment . . . . . . . . . . . . . . . . . . — — — (15,791) (15,791)

Mortgage commitment derivatives . . . . . . . — 153 3 — 156

Total other assets. . . . . . . . . . . . . . . . . . . . . . . . — 16,051 175 (15,791) 435

Total assets at fair value . . . . . . . . . . . . . . $ 19,100 $ 82,823 $ 30,129 $ (15,791) $116,261
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-83

Fair Value Measurements as of December 31, 2012

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant 

Other

Observable 

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 393 $ — $ — $ 393

Senior floating. . . . . . . . . . . . . . . . . . . . . . . . . — — 400 — 400

Total of Fannie Mae. . . . . . . . . . . . . . . . . . . . . . — 393 400 — 793

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . — 10,519 1,128 — 11,647

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . — 10,912 1,528 — 12,440

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 19,836 154 — 19,990

Swaptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,463 — — 2,463

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 — — 1

Netting adjustment . . . . . . . . . . . . . . . . . . . . . — — — (22,046) (22,046)

Mortgage commitment derivatives . . . . . . . . . . — 290 7 — 297

Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . — 22,590 161 (22,046) 705

Total liabilities at fair value. . . . . . . . . . . . . . . $ — $ 33,502 $ 1,689 $ (22,046) $ 13,145
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-84

Fair Value Measurements as of December 31, 2011

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

Significant

Other

Observable

Inputs (Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Assets:

Cash equivalents(2). . . . . . . . . . . . . . . . . . . . . . $ 600 $ — $ — $ — $ 600

Trading securities:

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . — 5,687 1,737 — 7,424

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . — 2,732 — — 2,732

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . — 278 9 — 287

Alt-A private-label securities. . . . . . . . . . . — 1,004 345 — 1,349

Subprime private-label securities. . . . . . . . — — 1,280 — 1,280

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,411 — — 10,411

Mortgage revenue bonds . . . . . . . . . . . . . . — — 724 — 724

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 143 — 143

Non-mortgage-related securities:

U.S. Treasury securities . . . . . . . . . . . . . . . 47,737 — — — 47,737

Asset-backed securities . . . . . . . . . . . . . . . — 2,111 — — 2,111

Total trading securities. . . . . . . . . . . . . . . . . . . 47,737 22,223 4,238 — 74,198

Available-for-sale securities:

Mortgage-related securities:

Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . — 15,904 946 — 16,850

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . — 12,811 12 — 12,823

Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . — 902 — — 902

Alt-A private-label securities. . . . . . . . . . . — 4,427 7,256 — 11,683

Subprime private-label securities. . . . . . . . — — 7,586 — 7,586

CMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 14,026 — — 14,026

Mortgage revenue bonds . . . . . . . . . . . . . . — 7 10,247 — 10,254

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13 3,445 — 3,458

Total available-for-sale securities . . . . . . . . . . — 48,090 29,492 — 77,582

Mortgage loans of consolidated trusts . . . . . . . — 1,292 2,319 — 3,611

Other assets:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,247 170 — 9,417

Swaptions. . . . . . . . . . . . . . . . . . . . . . . . . . — 6,536 — — 6,536

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 51 — 52

Netting adjustment . . . . . . . . . . . . . . . . . . . — — — (15,829) (15,829)

Mortgage commitment derivatives. . . . . . . . — 368 17 — 385

Total other assets . . . . . . . . . . . . . . . . . . . . . . . — 16,152 238 (15,829) 561

Total assets at fair value . . . . . . . . . . . . . . . $ 48,337 $ 87,757 $ 36,287 $ (15,829) $156,552
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-85

Fair Value Measurements as of December 31, 2011

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Netting 

Adjustment(1)

Estimated

Fair Value

(Dollars in millions)

Liabilities:

Long-term debt:

Of Fannie Mae:

Senior fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 432 $ — $ — $ 432

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 406 — 406

Total of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — 432 406 — 838

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . — 3,174 765 — 3,939

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . — 3,606 1,171 — 4,777

Other liabilities:

Risk management derivatives:

Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,661 167 — 18,828

Swaptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,432 — — 3,432

Netting adjustment . . . . . . . . . . . . . . . . . . . . . . . . — — — (21,898) (21,898)

Mortgage commitment derivatives. . . . . . . . . . . . . — 548 6 — 554

Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . — 22,641 173 (21,898) 916

Total liabilities at fair value . . . . . . . . . . . . . . . . . $ — $ 26,247 $1,344 $(21,898) $ 5,693

__________

(1) Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under 

legally enforceable master netting agreements to settle with the same counterparty on a net basis, including cash collateral posted and 

received.

(2) Cash equivalents are comprised of U.S. Treasuries that are classified as Level 1.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-86

The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using 

significant unobservable inputs (Level 3) for the years ended December 31, 2012, 2011 and 2010. 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 (loss) for Level 3 assets and liabilities for the years ended 

December 31, 2012, 2011 and 2010. When assets and liabilities are transferred between levels, we recognize the transfer as of 

the end of the period.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Year Ended December 31, 2012

Total (Losses) or Gains 

(Realized/Unrealized)

Net Unrealized 

(Losses) Gains 

Included in Net 

Income (Loss) 

Related to Assets 

and Liabilities 

Still Held as of 

December 31, 

2012(5)

Balance,

December 31,

2011

Included

in Net

Income

(Loss)

Included in Other

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3 (4)

Transfers 

into 

Level 3 (4)

Balance,

December 31,

2012

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . . $ 1,737 $ (2) $ — $ — $ (33) $ — $ (118) $ (1,581) $ 65 $ 68 $ (6)

Freddie Mac . . . . . — — — — — — — — 2 2 —

Ginnie Mae . . . . . . 9 — — — — — — (9) 1 1 —

Alt-A private-label

securities . . . . . . 345 165 — — — — (111) (907) 612 104 39

Subprime privatelabel securities. . 1,280 192 — — — — (153) — — 1,319 192

Mortgage revenue

bonds. . . . . . . . . 724 (29) — — — — (20) — — 675 (29)

Other. . . . . . . . . . . 143 (19) — — — — (7) — — 117 (19)

Total trading securities . $ 4,238 $ 307 $ — $ — $ (33) $ — $ (409) $ (2,497) $ 680 $ 2,286 $ 177

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . . $ 946 $ — $ (8) $ 43 $ (43) $ — $ (24) $ (895) $ 10 $ 29 $ —

Freddie Mac . . . . . 12 — — — — — (2) — — 10 —

Alt-A private-label

securities . . . . . . 7,256 (87) 584 — — — (1,072) (3,325) 3,208 6,564 —

Subprime privatelabel securities. . 7,586 (126) 1,280 — — — (1,293) — — 7,447 —

Mortgage revenue

bonds. . . . . . . . . 10,247 9 (23) 29 (76) — (2,349) — — 7,837 —

Other . . . . . . . . . . 3,445 12 59 — — — (369) — — 3,147 —

Total available-for-sale

securities . . . . . . . . . $ 29,492 $ (192) $ 1,892 $ 72 $ (119) $ — $ (5,109) $ (4,220) $ 3,218 $ 25,034 $ —

Mortgage loans of

consolidated trusts . . $ 2,319 $ 235 $ — $ 935 $ — $ — $ (411) $ (562) $ 118 $ 2,634 $ 159

Net derivatives. . . . . . . . 65 (23) — — — (8) (20) — — 14 (9)

Long-term debt:

Of Fannie Mae:

Senior floating . . . . $ (406) $ (21) $ — $ — $ — $ — $ 27 $ — $ — $ (400) $ (21)

Of consolidated trusts. (765) (180) — — — (523) 233 474 (367) (1,128) (158)

Total long-term debt . . . $ (1,171) $ (201) $ — $ — $ — $ (523) $ 260 $ 474 $ (367) $ (1,528) $ (179)
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-87

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Year Ended December 31, 2011

Total Gains or (Losses) 

(Realized/Unrealized)

Net Unrealized 

Gains (Losses) 

Included in Net 

Income (Loss) 

Related to Assets 

and Liabilities 

Still Held as of 

December 31, 

2011

(5)

Balance, 

December 31, 

2010

Included 

in Net 

Income 

(Loss)

Included in Other

Comprehensive 

Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3)

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance,

December 31,

2011

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . . $ 2,202 $ 14 $ — $ 663 $ (161) $ — $ (433) $ (600) $ 52 $ 1,737 $ 36

Ginnie Mae . . . . . . — — — 9 (9) — — (27) 36 9 —

Alt-A private-label 

securities . . . . . . 20 19 — — — — (32) (188) 526 345 (1)

Subprime privatelabel securities. . 1,581 (125) — — — — (176) — — 1,280 (125)

Mortgage revenue

bonds. . . . . . . . . 609 141 — — — — (26) — — 724 144

Other. . . . . . . . . . . 152 1 — — — — (6) (147) 143 143 —

Non-mortgagerelated:

Asset-backed

securities . . . . . . 12 — — — — — (5) (9) 2 — —

Total trading securities . $ 4,576 $ 50 $ — $ 672 $ (170) $ — $ (678) $ (971) $ 759 $ 4,238 $ 54

Available-for-sale

securities:

Mortgage-related:

Fannie Mae . . . . . . $ 114 $ — $ 44 $ 1,756 $ (383) $ — $ (22) $ (1,023) $ 460 $ 946 $ —

Freddie Mac . . . . . 3 — — — — — (1) — 10 12 —

Alt-A private-label

securities . . . . . . 7,049 (100) 119 — — — (974) (1,684) 2,846 7,256 —

Subprime privatelabel securities. . 9,932 (386) (580) — (363) — (1,017) — — 7,586 —

Mortgage revenue

bonds. . . . . . . . . 11,030 (22) 834 — (109) — (1,486) — — 10,247 —

Other. . . . . . . . . . . 3,806 (7) 50 — — — (404) — — 3,445 —

Total available-for-sale

securities . . . . . . . . . $ 31,934 $ (515) $ 467 $ 1,756 $ (855) $ — $ (3,904) $ (2,707) $ 3,316 $ 29,492 $ —

Mortgage loans of

consolidated trusts . . $ 2,207 $ 8 $ — $ 184 $ — $ — $ (339) $ (106) $ 365 $ 2,319 $ 9

Net derivatives. . . . . . . . 104 123 — — — (4) (87) (71) — 65 59

Long-term debt:

Of Fannie Mae:

Senior floating . . . . $ (421) $ (88) $ — $ — $ — $ — $ 103 $ — $ — $ (406) $ (88)

Of consolidated trusts. (627) (35) — — 4 (70) 89 185 (311) (765) (19)

Total long-term debt . . . $ (1,048) $ (123) $ — $ — $ 4 $ (70) $ 192 $ 185 $ (311) $ (1,171) $ (107)
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-88

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

For the Year Ended December 31, 2010

Impact of the

transition to the

Consolidation

Accounting

Guidance

Total (Losses) or Gains 

(Realized/Unrealized)

Net Unrealized 

Gains (Losses) 

Included in Net 

Income (Loss) 

Related to 

Assets and 

Liabilities Still 

Held as of 

December 31, 

2010(5)

Balance, 

December 31, 

2009

Included 

in Net 

Income 

(Loss)

Included in 

Other

Comprehensive 

Income (Loss)(1)

Purchases, 

Sales, 

Issuances, 

and 

Settlements, 

Net 

Transfers 

out of 

Level 3(4)

Transfers 

into 

Level 3(4)

Balance, 

December 31, 

2010

(Dollars in millions)

Trading securities:

Mortgage-related:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,656 $ (2) $ (1) $ — $ (223) $(5,551) $ 2,323 $ 2,202 $ 13

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (1) (3) 4 — —

Alt-A private-label securities . . . . . . . . . . . . . 564 62 226 — (77) (1,069) 314 20 4

Subprime private-label securities . . . . . . . . . . 1,780 — 41 — (240) — — 1,581 41

Mortgage revenue bonds. . . . . . . . . . . . . . . . . 600 — 67 — (58) — — 609 66

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 — 6 — (8) — — 152 5

Non-mortgage-related:

Asset-backed securities. . . . . . . . . . . . . . . . . . 107 — 1 — (62) (47) 13 12 —

Total trading securities. . . . . . . . . . . . . . . . . . . . . . . $ 8,861 $ 60 $ 340 $ — $ (669) $(6,670) $ 2,654 $ 4,576 $129

Available-for-sale securities:

Mortgage-related:

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 596 $ (203) $ (1) $ 2 $ 181 $ (580) $ 119 $ 114 $ —

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . 27 — — (1) (29) — 6 3 —

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 — — 2 (125) — — — —

Alt-A private-label securities . . . . . . . . . . . . . 8,312 471 (54) 1,240 (1,322) (4,951) 3,353 7,049 —

Subprime private-label securities . . . . . . . . . . 10,746 (118) (70) 1,078 (1,704) — — 9,932 —

Mortgage revenue bonds. . . . . . . . . . . . . . . . . 12,820 21 11 82 (1,902) (2) — 11,030 —

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,530 366 (3) 402 (489) — — 3,806 —

Total available-for-sale securities . . . . . . . . . . . . . . $ 36,154 $ 537 $ (117) $ 2,805 $ (5,390) $(5,533) $ 3,478 $ 31,934 $ —

Mortgage loans of consolidated trusts. . . . . . . . . . . $ — $ — $ (29) $ — $ 2,188 $ (11) $ 59 $ 2,207 $(29)

Guaranty assets and buy-ups . . . . . . . . . . . . . . . . . . 2,577 (2,568) 1 1 (11) — — — —

Net derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 — 61 — (74) (1) (5) 104 (33)

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . . . . . . . . . . . . . . . . . $ (601) $ — $ 20 $ — $ 160 $ — $ — $ (421) $ 24

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . — (77) 19 — (631) 92 (30) (627) 2

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . $ (601) $ (77) $ 39 $ — $ (471) $ 92 $ (30) $ (1,048) $ 26

__________

(1) Gains (losses) included in other comprehensive income (loss) are included in “Changes in unrealized gains on available-for-sale 

securities, net of reclassification adjustments and taxes” in the consolidated statements of operations and comprehensive income (loss).

(2) Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts.

(3) Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.

(4) Transfers out of Level 3 consisted primarily of Fannie Mae MBS and private-label mortgage-related securities backed by Alt-A loans. 

Prices for these securities were obtained from multiple third-party vendors supported by market observable inputs. Transfers into Level 

3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans. Prices for these securities are based on inputs 

from a single source or inputs that were not readily observable.

(5) Amount represents temporary changes in fair value. Amortization, accretion and other-than-temporary impairments are not considered 

unrealized and are not included in this amount.

The following tables display realized and unrealized gains and losses included in our consolidated statements of operations 

and comprehensive income (loss) for the years ended December 31, 2012, 2011 and 2010, for our Level 3 assets and 

liabilities measured in our consolidated balance sheets at fair value on a recurring basis. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-89

For the Year Ended December 31, 2012

Interest

Income

Fair Value 

Gains, net Net OTTI Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income 

(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 272 $ 326 $ (484) $ 12 $ 126

Net unrealized gains related to Level 3 assets and liabilities still held 

as of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 148 $ — $ — $ 148

For the Year Ended December 31, 2011

Interest

Income

Fair Value 

Gains, net Net OTTI Other Total

(Dollars in millions)

Total realized and unrealized (losses) gains included in net income 

(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (327) $ 86 $ (229) $ 13 $ (457)

Net unrealized (losses) gains related to Level 3 assets and liabilities 

still held as of December 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . $ (3) $ 18 $ — $ — $ 15

For the Year Ended December 31, 2010

Interest

Income

Fair Value

Gains, net Net OTTI Other Total

(Dollars in millions)

Total realized and unrealized gains (losses) included in net income 

(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 319 $ 416 $ (480) $ 40 $ 295

Net unrealized gains related to Level 3 assets and liabilities still held 

as of December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 93 $ — $ — $ 93

Nonrecurring Changes in Fair Value

The following table displays assets and liabilities measured in our consolidated balance sheets at fair value on a nonrecurring 

basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in 

certain circumstances (for example, when we evaluate for impairment) as of December 31, 2012.

Fair Value Measurements as of December 31, 2012

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Estimated

Fair Value

(Dollars in millions)

Nonrecurring fair value measurements:

Assets:

Mortgage loans held for sale, at lower of cost or fair value . . . . . . . . . . $ — $104 $ 135 $ 239

Single-family mortgage loans held for investment, at amortized cost:(1)

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 23,314 23,314

Of consolidated trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 227 227

Multifamily mortgage loans held for investment, at amortized cost. . . . — — 1,624 1,624

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,692 3,692

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 74 74

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 384 384

Total nonrecurring fair value measurements . . . . . . . . . . . . . . . . . . . $ — $104 $29,450 $29,554

_________

(1) Excludes estimated recoveries from mortgage insurance proceeds.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-90

The following tables display assets and liabilities measured in our consolidated balance sheets at fair value on a nonrecurring 

basis and the gains or losses recognized for these assets and liabilities for the years ended December 31, 2011 and 2010.

For the Year

Ended

December 31,

2011

Fair Value Measurements

For the Year Ended December 31, 2011

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3)

Estimated Fair

Value

Total Gains 

(Losses)

(Dollars in millions)

Assets:

Mortgage loans held for sale, at lower of cost or 

fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 3 $ 197 $ 200 (1) $ 12

Single-family mortgage loans held for investment, 

at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — — 44,592 44,592 (2) (3,077)

Of consolidated trusts. . . . . . . . . . . . . . . . . . . — — 882 882 (2) (142)

Multifamily mortgage loans held for investment, 

at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — — 1,910 1,910 (2) (348)

Acquired property, net:

Single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19,498 19,498 (3) (2,639)

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 363 363 (3) (87)

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,537 1,537 (4) (209)

Total assets at fair value . . . . . . . . . . . . . . . . . . $ — $ 3 $68,979 $ 68,982 $(6,490)
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-91

For the Year

Ended 

December 31, 

2010

Fair Value Measurements

For the Year Ended December 31, 2010

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant 

Unobservable 

Inputs

(Level 3)

Estimated Fair

Value Total Losses

(Dollars in millions)

Assets:

Mortgage loans held for sale, at lower of cost or 

fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 6,776 $ 535 $ 7,311 (1)(5) $ (91)

(5)

Single-family mortgage loans held for 

investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — — 38,150 38,150 (2) (2,244)

Of consolidated trusts . . . . . . . . . . . . . . . . . . — — 1,294 1,294 (2) (235)

Multifamily mortgage loans held for investment, 

at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . — — 1,836 1,836 (2) (481)

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . — — 20,248 20,248 (3) (2,617)

Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 206 206 (3) (65)

Other assets:

Guaranty assets. . . . . . . . . . . . . . . . . . . . . . . . . — — 27 27 (6)

Partnership investments . . . . . . . . . . . . . . . . . . — — 107 107 (145)

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 597 597 (4) (43)

Total assets at fair value . . . . . . . . . . . . . . . . . . $— $6,776 $63,000 $69,776 $(5,927)

_________

(1) Includes $73 million and $7.1 billion of mortgage loans held for sale that were sold, deconsolidated, retained as a mortgage-related 

security or redesignated to mortgage loans held for investment as of December 31, 2011 and 2010, respectively.

(2) Includes $8.1 billion and $3.4 billion of mortgage loans held for investment that were liquidated or transferred to foreclosed properties 

as of December 31, 2011 and 2010, respectively.

(3) Includes $14.5 billion and $10.5 billion of acquired properties that were sold or transferred as of December 31, 2011 and 2010, 

respectively.

(4) Includes $411 million and $22 million of other assets that were sold or transferred as of December 31, 2011 and 2010, respectively.

(5) Includes $7.1 billion of estimated fair value and $68 million in losses due to the adoption of the consolidation accounting guidance.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-92

The following table displays valuation techniques and the range and weighted-average of significant unobservable inputs for 

our Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2012.

Fair Value Measurements as of December 31, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted - 

Average(1)

Fair

Value

(Dollars in millions)

Recurring fair value

measurements:

Trading securities:

Mortgage-related securities:

Agency(2). . . . . . . . . . . . . . . . . . Consensus $ 44

Single Vendor 27

Total Agency . . . . . . . . . . . . . . 71

Alt-A private-label securities. . . Discounted Cash Flow Default Rate (%) 5.7 - 17.6 12.5

Prepayment Speed (%) 0.6 - 4.0 1.7

Severity (%) 65.0 - 70.0 67.6

Spreads (bps) 526.0 - 612.0 567.0 87

Consensus 17

Total Alt-A private-label 

securities. . . . . . . . . . . . . . . 104

Subprime private-label 

securities . . . . . . . . . . . . . . . . Consensus Default Rate (%) 10.9 - 23.0 16.0

Prepayment Speed (%) 0.3 - 7.9 2.6

Severity (%) 80.0 80.0

Spreads (bps) 427.0 - 657.0 488.5 544

Consensus 355

Discounted Cash Flow Default Rate (%) 14.1 - 20.4 18.7

Prepayment Speed (%) 3.4 - 8.3 5.6

Severity (%) 80.0 80.0

Spreads (bps) 422.0 - 637.0 564.8 236

Single Vendor 184

Total subprime private-label 

securities. . . . . . . . . . . . . . . 1,319

Mortgage revenue bonds . . . . . . Discounted Cash Flow Spreads (bps) 260.0 - 375.0 320.4 636

Single Vendor 39

Total mortgage revenue bonds. 675

Other. . . . . . . . . . . . . . . . . . . . . . Other 117

Total trading securities. . . . . . . . . . . $2,286
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-93

Fair Value Measurements as of December 31, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted

Average(1)

Fair

Value

(Dollars in millions)

Available-for-sale securities:

Mortgage-related securities:

Agency(2)

. . . . . . . . . . . . . . . . . Other $ 39

Alt-A private-label securities. . Discounted Cash Flow Default Rate (%) 0.0 - 23.6 6.4

Prepayment Speed (%) 0.0 - 20.8 7.4

Severity (%) 50.0 - 70.0 57.2

Spreads (bps) 288.0 - 643.0 442.8 3,003

Consensus Default Rate (%) 0.0 - 17.7 3.6

Prepayment Speed (%) 0.2 - 41.3 10.0

Severity (%) 50.0 - 70.0 54.9

Spreads (bps) 300.0 - 634.0 429.0 2,285

Consensus 1,231

Single Vendor 45

Total Alt-A private-label 

securities. . . . . . . . . . . . . . 6,564

Subprime private-label 

securities. . . . . . . . . . . . . . . Consensus Default Rate (%) 0.0 - 27.4 15.4

Prepayment Speed (%) 0.0 - 14.4 3.0

Severity (%) 65.0 - 80.0 77.8

Spreads (bps) 325.0 - 660.0 493.7 3,333

Consensus 2,326

Discounted Cash Flow Default Rate (%) 0.0 - 24.3 15.7

Prepayment Speed (%) 0.0 - 10.9 2.9

Severity (%) 65.0 - 80.0 76.7

Spreads (bps) 299.0 - 654.0 527.0 1,710

Other 78

Total subprime private-label 

securities. . . . . . . . . . . . . . 7,447

Mortgage revenue bonds . . . . . Single Vendor 5,721

Discounted Cash Flow Spreads (bps) 77.0 - 375.0 297.7 1,911

Other 205

Total mortgage revenue 

bonds . . . . . . . . . . . . . . . . 7,837

Other . . . . . . . . . . . . . . . . . . . . Consensus 1,009

Discounted Cash Flow Default Rate (%) 4.0 - 10.0 5.0

Prepayment Speed (%) 0.2 - 10.0 3.0

Severity (%) 50.0 - 85.0 84.8

Spreads (bps) 431.0 - 1,154.0 588.6 916

Consensus Default Rate (%) 0.0 - 5.0 4.7

Prepayment Speed (%) 1.0 - 14.1 3.6

Severity (%) 65.0 - 85.0 83.8

Spreads (bps) 450.0 - 729.0 585.8 534

Other 688

Total Other. . . . . . . . . . . . . . . 3,147

Total available-for-sale securities . $25,034
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-94

Fair Value Measurements as of December 31, 2012

Valuation Techniques

Significant Unobservable 

Inputs(1) Range(1)

Weighted

Average(1)

Fair

Value

(Dollars in millions)

Mortgage loans of

consolidated trusts:

Single-family. . . . . . . . . . . . Build-Up Default Rate (%) 0.1 - 99.3 18.4

Prepayment Speed (%) 4.4 - 92.0 19.4

Severity (%) 5.6 - 97.3 33.3 $ 1,698

Consensus 303

Consensus Default Rate (%) 0.0 - 9.0 6.4

Prepayment Speed (%) 1.7 - 14.4 10.4

Severity (%) 65.0 - 70.0 67.1

Spreads (bps) 468.0 - 851.0 567.9 302

Discounted Cash Flow Default Rate (%) 0.0 - 8.5 6.0

Prepayment Speed (%) 1.7 - 14.4 5.3

Severity (%) 65.0 - 70.0 65.0

Spreads (bps) 507.0 - 1,030.0 733.4 106

Single Vendor 50

Total single-family . . . . . . 2,459

Multifamily . . . . . . . . . . . . . Build-Up Spreads (bps) 77.0 - 363.4 154.5 175

Total mortgage loans of 

consolidated trusts . . . . . . . $ 2,634

Net derivatives . . . . . . . . . . . . . Dealer Mark $ 144

Internal Model (130)

Total net derivatives. . . . . . . . . $ 14

Long-term debt:

Of Fannie Mae:

Senior floating . . . . . . . . . Discounted Cash Flow $ (400)

Of consolidated trusts . . . . . Consensus (370)

Discounted Cash Flow Default Rate (%) 0.0 - 10.0 5.8

Prepayment Speed (%) 0.0 - 100.0 36.9

Severity (%) 50.0 - 70.0 63.4

Spreads (bps) 98.0 - 1,030.0 331.4 (330)

Consensus Default Rate (%) 0.0 - 9.0 6.2

Prepayment Speed (%) 1.7 - 14.4 10.9

Severity (%) 65.0 - 70.0 67.5

Spreads (bps) 468.0 - 851.0 584.3 (271)

Single Vendor (157)

Total of consolidated trusts. (1,128)

Total long-term debt. . . . . . . . . $(1,528)

_________

(1) Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services or dealers, 

and the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably estimated. Where we 

have disclosed unobservable inputs for consensus and single vendor techniques, those inputs are based on our validations performed at 

the security level using discounted cash flows.

(2) Includes Fannie Mae, Freddie Mac and Ginnie Mae securities.

The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis as of 

December 31, 2012. The significant unobservable inputs related to these techniques primarily relate to collateral dependent 

valuations. The related ranges and weighted averages are not meaningful when aggregated as they vary significantly from 

property to property.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-95

Fair Value Measurements as of December 31, 2012

Valuation Techniques Fair Value

(Dollars in millions)

Nonrecurring fair value measurements:

Mortgage loans held for sale, at lower of cost or fair value. . . . . . . . . . . . . . . Consensus $ 135

Single-family mortgage loans held for investment, at amortized cost:

Of Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 23,314

Of consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Model 227

Multifamily mortgage loans held for investment, at amortized cost . . . . . . . . Appraisals 194

Broker Price Opinions 395

Asset Manager Estimate 1,001

Other 34

Total multifamily mortgage loans held for investment, at amortized cost . 1,624

Acquired property, net:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 787

Appraisals 467

Walk Forwards 1,348

Internal Model 1,014

Other 76

Total single-family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,692

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted Offers 20

Appraisals 8

Broker Price Opinions 46

Total multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisals 8

Walk Forwards 43

Internal Model 203

Other 130

Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

Total nonrecurring assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,450

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.

Cash Equivalents, Trading Securities and Available-for-Sale Securities

These securities are recorded in our consolidated balance sheets at fair value on a recurring basis. Fair value is measured 

using quoted market prices in active markets for identical assets, when available.

A description of our securities valuation techniques is as follows:

Single Vendor: This valuation technique utilizes one vendor price to estimate fair value. We generally validate these 

observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, 

default rates) are disclosed in the table above.

Consensus: This technique utilizes an average of two or more vendor prices for similar securities. We generally validate these 

observations of fair value through the use of a discounted cash flow technique whose unobservable inputs (for example, 

default rates) are disclosed in the table above.

Discounted Cash Flow: In the absence of prices provided by third-party pricing services supported by observable market 

data, we estimate the fair value of a portion of our securities using a discounted cash flow technique that uses inputs such as 

default rates, prepayment speeds, loss severity and spreads based on market assumptions where available.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-96

We classify securities whose values are based on quoted market prices in active markets for identical assets as Level 1 of the 

valuation hierarchy. We classify securities as Level 2 of the valuation hierarchy if quoted market prices in active markets for 

identical assets are not available. For all valuation techniques used for securities where there is limited activity or less 

transparency around these inputs to the valuation, these securities are classified as Level 3 of the valuation hierarchy.

For agency and private-label securities, an increase in unobservable prepayment speeds in isolation would generally result in 

an increase in fair value, and an increase in unobservable spreads, severity rates or default rates in isolation would generally 

result in a decrease in fair value. For mortgage revenue bonds classified as Level 3 of the valuation hierarchy, an increase in 

unobservable spreads would result in a decrease in fair value. Although the sensitivities of the fair value of our recurring 

Level 3 securities of the valuation hierarchy to various unobservable inputs are discussed above in isolation, 

interrelationships exist among these inputs such that a change in one unobservable input typically results in a change to one 

or more of the other inputs.

Mortgage Loans Held for Investment

The majority of HFI loans are reported in our consolidated balance sheets at the principal amount outstanding, net of cost 

basis adjustments and an allowance for loan losses. We estimate the fair value of HFI loans using the build-up and consensus 

valuation techniques, as discussed below, for periodic disclosure of financial instruments as required by GAAP. For our 

remaining loans, which include those containing embedded derivatives that would otherwise require bifurcation and 

consolidated loans of senior-subordinated trust structures, we elected the fair value option and therefore, we record these 

loans at fair value in our consolidated balance sheets. We measure these loans on a recurring basis using the build-up, 

consensus, discounted cash flow and single vendor price techniques. Certain impaired loans are measured at fair value on a 

nonrecurring basis by using the fair value of their underlying collateral. Specific techniques used include internal models, 

broker price opinions and appraisals.

A description of our loan valuation techniques is as follows:

Build-Up: The fair value of performing loans represents an estimate of the prices we would receive if we were to securitize 

those loans and is determined based on comparisons to Fannie Mae MBS with similar characteristics, either on a pool or loan 

level. We use the observable market values of our Fannie Mae MBS determined primarily from third-party pricing services, 

quoted market prices in active markets for similar securities, and other observable market data as a base value. In the build-up 

valuation technique we start with the base value for our Fannie Mae MBS then we add or subtract the fair value of the 

associated guaranty asset, guaranty obligation (“GO”) and master servicing arrangement. We set the GO equal to the 

estimated fair value we would receive if we were to issue our guaranty to an unrelated party in a stand-alone arm’s length 

transaction at the measurement date. We estimate the fair value of the GO using our internal GO valuation models, which 

calculate the present value of expected cash flows based on management’s best estimate of certain key assumptions such as 

current mark-to-market LTV ratios, future house prices, default rates, severity rates and required rate of return. We may 

further adjust the model values based on our current market pricing when such transactions reflect credit characteristics that 

are similar to our outstanding GO. These loans are generally classified as Level 2 of the valuation hierarchy to the extent that 

significant inputs are observable. To the extent that unobservable inputs are significant, the loans are classified as Level 3 of 

the valuation hierarchy.

Consensus: The fair value of single-family nonperforming loans represents an estimate of the prices we would receive if we 

were to sell these loans in the nonperforming whole-loan market. These nonperforming loans are either two or more months 

delinquent, in an open modification period, or in a closed modification state (both performing and nonperforming in 

accordance with the loan’s modified terms). We calculate the fair value of nonperforming loans based on assumptions about 

key factors, including collateral value and mortgage insurance repayment. Collateral value is derived from the current 

estimated mark-to-market LTV ratio of the individual loan along with a state-level distressed property sales discount. The fair 

value of mortgage insurance is estimated by taking the loan level coverage and adjusting it by the expected claims paying 

ability of the associated mortgage insurer. The expected claims paying abilities used for estimating the fair value of mortgage 

insurance are consistent with our credit loss forecast. Using these assumptions, along with indicative bids for a representative 

sample of nonperforming loans, we estimate the fair value. The bids on sample loans are obtained from multiple active 

market participants. Fair value is estimated from the extrapolation of these indicative sample bids plus an amount for the 

recovery of any associated mortgage insurance estimated through our GO valuation models as described above. These loans 

are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-97

Discounted Cash Flow: We estimate the fair value of a portion of our senior-subordinated trust structures using discounted 

cash flow at the security level as a proxy for estimating loan fair value. This valuation technique uses unobservable inputs 

such as prepayment speeds, default rates, spreads, and loss severities to estimate the fair value of our securities. These inputs 

are weighted in a model that calculates the expected cash flow of the security which is used as the basis of fair value. These 

loans are classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Single Vendor: We estimate the fair value of a portion of our senior-subordinated trust structures using the single vendor 

valuation technique at the security level as a proxy for estimating loan fair value. This valuation technique estimates fair 

value based upon prices received from one specific vendor. These loans are classified as Level 3 of the valuation hierarchy 

because significant inputs are unobservable.

Internal Model: We estimate the fair value of a portion of our single-family nonperforming loans using the value of the 

underlying collateral. The inputs into this internal model include property level data such as prior sales prices, tax assessment 

values, property characteristics, and historical foreclosure sales data. This internal model takes one of two approaches when 

valuing foreclosed properties. The first approach relies on comparable foreclosed property sales, where the value of the target 

property is the weighted average price of comparable foreclosed property sales. The weights in the comparable sales 

approach are determined by various factors such as geographic distance, transaction time, and the value difference. The 

second approach relies on model calibrations that consider the target property’s attributes such as prior sales prices, tax 

assessment values, and property characteristics to derive the foreclosed property values. In the second approach, we build 

separate predictive models for each Metropolitan Statistical Area (“MSA”). Specifically, we use data on prior sales prices, tax 

assessment values, property characteristics, and historical foreclosure sales to calibrate the models in each MSA. We can use 

the available data about that property and our MSA-level model to estimate the fair value for a given property. The majority 

of the internal model valuations come from the comparable sales approach. The determination of whether the internal model 

valuations in a particular geographic area should use the comparable sales approach or model calibration is based on the 

quarterly evaluation of these two approaches for valuation accuracy. The unobservable inputs used in this technique include 

model weights based upon geographic distance, transaction time, and metropolitan statistics. When a physical address is not 

available, we estimate fair value using state-average foreclosed property values. These loans are classified as Level 3 of the 

valuation hierarchy because significant inputs are unobservable.

Appraisals: For a portion of our multifamily loans, we use appraisals to estimate the fair value of the loan. There are three 

approaches used to estimate fair value of a specific property: (1) cost, (2) income capitalization and (3) sales comparison. 

This technique uses an average of the three estimates. The cost approach uses the insurable value as a basis. The 

unobservable inputs used in this model include the estimated cost to construct or replace multifamily properties in the closest 

localities available. The income capitalization approach estimates the fair value using the present value of the future cash 

flow expectations by applying an appropriate overall capitalization rate to the forecasted net operating income. The 

significant unobservable inputs used in this calculation include rental income, fees associated with rental income, expenses 

associated with the property including taxes, payroll, insurance and other items, and capitalization rates, which are 

determined through market extraction and the debt service coverage ratio. The sales comparison approach compares the 

prices paid for similar properties, the prices asked by owners and offers made. The unobservable inputs to this methodology 

include ratios of sales prices to annual gross income, price paid per unit and adjustments made based on financing, conditions 

of sale, and physical characteristics of the property. These loans are classified as Level 3 of the valuation hierarchy because 

significant inputs are unobservable.

Broker Price Opinion (“BPO”): For a portion of our multifamily loans, we use BPO to estimate the fair value of the loan. 

This technique uses both current property value and the property value adjusted for stabilization and market conditions. 

These approaches compute net operating income based on current rents and expenses and use a range of market capitalization 

rates to estimate property value. The unobservable inputs used in this technique are property net operating income and market 

capitalization rates to estimate property value. These loans are classified as Level 3 of the valuation hierarchy because 

significant inputs are unobservable.

Asset Manager Estimate (“AME”): For a portion of our multifamily loans, AME is used to estimate the fair value of the loan. 

This technique uses the net operating income and tax assessments of the specific property as well as MSA-specific market 

capitalization rates and average per unit sales values to estimate property fair value. These loans are classified as Level 3 of 

the valuation hierarchy because significant inputs are unobservable.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-98

An increase in prepayment speeds in isolation would generally result in an increase in the fair value of our mortgage loans 

classified as Level 3 of the valuation hierarchy, and an increase in severity rates, default rates, or spreads in isolation would 

generally result in a decrease in fair value. Although the sensitivities of the fair value of mortgage loans classified as Level 3 

of the valuation hierarchy to various unobservable inputs are discussed above in isolation, interrelationships exist among 

these inputs such that a change in one unobservable input typically results in a change to one or more of the other inputs.

Acquired Property, Net and Other Assets

Acquired property, net represents foreclosed property received in full satisfaction of a loan net of a valuation allowance. 

Acquired property is initially recorded in our consolidated balance sheets at its fair value less its estimated cost to sell. The 

initial fair value of foreclosed properties is determined using a hierarchy based on the reliability of available information. The 

hierarchy for single-family acquired property includes accepted offers, appraisals, broker price opinions and proprietary 

home price model values. The hierarchy for multifamily acquired property includes accepted offers, appraisals, and broker 

price opinions. We consider an accepted offer on a specific foreclosed property to be the best estimate of its fair value. If we 

have not accepted an offer on the property we use the highest available valuation methodology as described in our valuation 

hierarchy to determine fair value. While accepted offers represent an agreement in principle to transact, a significant portion 

of these agreements do not get executed for various reasons, and are therefore classified as Level 3 of the valuation hierarchy.

Third-party valuations can be obtained from either an appraisal or a broker price opinion. These valuations are kept current 

using a monthly walk forward process that updates them for any change in the value of the property. When accepted offers or 

third-party valuations are not available, we generally utilize the home price values determined using an internal model.

Subsequent to initial measurement, the foreclosed properties that we intend to sell are reported at the lower of the carrying 

amount or fair value less estimated costs to sell. Foreclosed properties classified as held for use, included in “Other Assets” in 

our consolidated balance sheets, are depreciated and impaired when circumstances indicate that the carrying amount of the 

property is no longer recoverable. The fair values of our single-family foreclosed properties subsequent to initial 

measurement are determined using the same information hierarchy used for the initial fair value measurement.

The most commonly used techniques in our valuation of acquired property are proprietary home price model and appraisals 

(both current and walk forward). Based on the number of properties measured as of December 31, 2012, these methodologies 

comprised approximately 78% of our valuations, while accepted offers comprised approximately 20% of our valuations.

Acquired property is classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

A description of our acquired property valuation techniques is as follows:

Single-family acquired property valuation techniques

Appraisal: An appraisal is an estimate of the value of a specific property by a certified or licensed appraiser, in accordance 

with the Uniform Standards of Professional Appraisal Practice. Data most commonly used is from the local Multiple Listing 

Service and includes properties currently listed for sale, properties under contract, and closed transactions. The appraiser 

performs an analysis that starts with these data points and then adjusts for differences between the comparable properties and 

the property being appraised, to arrive at an estimated value for the specific property. Adjustments are made for differences 

between comparable properties for unobservable inputs such as square footage, location, and condition of the property. The 

appraiser typically uses recent historical data for the estimate of value.

Broker Price Opinion: This technique provides an estimate of what the property is worth based upon a real estate broker’s 

knowledge. The broker uses research of pertinent data in the appropriate market, and a sales comparison approach that is 

similar to the appraisal process. The broker typically has insight into local market trends, such as the number of and terms of 

offers, lack of offers, increasing supply, shortage of inventory and overall interest in buying a home. This information, all of 

which is unobservable, is used along with recent and pending sales and current listings of similar properties to arrive at an 

estimate of value.

Appraisal and Broker Price Opinion Walk Forwards (“Walk Forwards”): We use these techniques to adjust appraisal and 

broker price opinion valuations for changing market conditions by applying a walk forward factor based on local price 

movements since the time the third-party value was obtained. The majority of third-party values are updated by comparing 

the difference in our internal home price model from the month of the original appraisal/broker price opinion to the current 

period and by applying the resulting percentage change to the original value. If a price is not determinable through our 

internal home price model, we use our zip code level home price index to update the valuations.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-99

Internal Model: We use an internal model to estimate fair value for distressed properties. The valuation methodology and 

inputs used are described under “Mortgage Loans Held for Investment.”

Multifamily acquired property valuation techniques

Appraisals: We use this method to estimate property values for distressed properties. The valuation methodology and inputs 

used are described under “Mortgage Loans Held for Investment.”

Broker Price Opinions: We use this method to estimate property values for distressed properties. The valuation methodology 

and inputs used are described under “Mortgage Loans Held for Investment.”

Derivatives Assets and Liabilities (collectively “Derivatives”)

Derivatives are recorded in our consolidated balance sheets at fair value on a recurring basis. The valuation process for the 

majority of our risk management derivatives uses observable market data provided by third-party sources, resulting in Level 

2 classification of the valuation hierarchy.

A description of our derivatives valuation techniques is as follows:

Internal Model: We use internal models to value interest rate swaps which are valued by referencing yield curves derived 

from observable interest rates and spreads to project and discount swap cash flows to present value. Option-based derivatives 

use an internal model that projects the probability of various levels of interest rates by referencing swaption volatilities 

provided by market makers/dealers. The projected cash flows of the underlying swaps of these option-based derivatives are 

discounted to present value using yield curves derived from observable interest rates and spreads. 

Dealer Mark: Certain highly complex structured swaps primarily use a single dealer mark due to lack of transparency in the 

market and may be modeled using observable interest rates and volatility levels as well as significant unobservable 

assumptions, resulting in Level 3 classification of the valuation hierarchy. Mortgage commitment derivatives that use 

observable market data, quotes and actual transaction price levels adjusted for market movement, are typically classified as 

Level 2 of the valuation hierarchy. To the extent mortgage commitment derivatives include adjustments for market movement 

that cannot be corroborated by observable market data, we classify them as Level 3 of the valuation hierarchy.

Debt

The majority of debt of Fannie Mae is recorded in our consolidated balance sheets at the principal amount outstanding, net of 

cost basis adjustments. We elected the fair value option for certain structured debt instruments, which are recorded in our 

consolidated balance sheets at fair value on a recurring basis.

We use third-party pricing services that reference observable market data such as interest rates and spreads to measure the fair 

value of debt, and thus classify that debt as Level 2 of the valuation hierarchy.

A description of our debt valuation techniques is as follows:

Discounted Cash Flow: For structured debt instruments that are not valued by third-party pricing services, cash flows are 

evaluated taking into consideration any structured derivatives through which we have swapped out of the structured features 

of the notes. The resulting cash flows are discounted to present value using a yield curve derived from market prices observed 

for Fannie Mae Benchmark Notes and adjusted to reflect fair values at the offer side of the market. Market swaption 

volatilities are also referenced for the valuation of callable structured debt instruments. Since the derivatives considered in the 

valuations of these structured debt instruments are classified as Level 3 of the valuation hierarchy, the valuations of the 

structured debt instruments result in a Level 3 classification.

Consensus: Certain consolidated MBS debt with embedded derivatives is recorded in our consolidated balance sheets at fair 

value on a recurring basis. Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we estimate the fair 

value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when traded as 

assets. For a portion of our senior-subordinated trust structures, we estimate the fair value using the average of two or more 

vendor valuation techniques at the security level as a proxy for estimating debt fair value. This valuation technique estimates 

fair value based upon prices received from more than one vendor. These loans are classified as Level 3 of the valuation 

hierarchy because significant inputs are unobservable.

Single Vendor: Certain consolidated MBS debt with embedded derivatives is recorded in our consolidated balance sheets at 

fair value on a recurring basis. Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we estimate the 

fair value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when traded as 

assets. For a portion of our senior-subordinated trust structures, we estimate the fair value using the single vendor valuation 
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technique at the security level as a proxy for estimating debt fair value. This valuation technique estimates fair value based 

upon prices received from one specific vendor. The valuation methodology and inputs used in estimating the fair value of 

MBS assets are described under “Cash Equivalents, Trading Securities and Available-for-Sale Securities.” These loans are 

classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Valuation Control Processes

We have control processes that are designed to ensure that our fair value measurements are appropriate and reliable, that they 

are based on observable inputs wherever possible and that our valuation approaches are consistently applied and the 

assumptions used are reasonable. Our control processes consist of a framework that provides for a segregation of duties and 

oversight of our fair value methodologies and valuations, as well as validation procedures.

The Pricing Group within our Finance Division is responsible for estimating the fair value of the majority of our financial 

assets and financial liabilities. These fair values are verified by our Price Verification Group, which is a control group 

separate from the group responsible for obtaining prices. Our Modeling and Analytics Group develops models that are used 

in estimating the fair value of assets and liabilities for financial reporting purposes. In addition, our Model Oversight 

Committee (“MOC”) facilitates the cross-functional coordination and effectiveness of our modeling efforts in terms of 

research, model use and risk governance. The MOC is comprised of senior representatives from Underwriting and Pricing, 

Capital Markets, Credit Portfolio Management, Enterprise Risk Management, Finance and Modeling & Analytics and is 

chaired by our Chief Risk Officer. Our Model Risk Oversight Group is responsible for establishing risk management controls 

and for reviewing, validating and approving models used in the determination of fair value measurements for financial 

reporting. Fair value measurements for acquired property and collateral dependent loans are determined by other valuation 

groups in the Finance division.

Our Valuation Oversight Committee (“VOC”) includes senior representation from our Capital Markets segment, our 

Enterprise Risk Office and our Finance division, and is responsible for providing overall governance for our valuation 

processes and results. The composition of the VOC is determined by the VOC chair, our Chief Financial Officer, with the 

objective of obtaining appropriate representation from Finance, Enterprise Risk Management and select business units within 

Fannie Mae. Based on its review of valuation methodologies and fair value results for various financial instruments used for 

financial reporting, the VOC is responsible for advising the VOC chair, who has the ultimate responsibility over all valuation 

processes and results. The VOC also reviews trend analysis for various financial assets and liabilities on a quarterly basis.

We use third-party vendor prices and dealer quotes to estimate fair value of some of our financial assets and liabilities. Thirdparty vendor prices are primarily used to estimate fair value for trading securities, available-for-sale securities, debt of Fannie 

Mae, and consolidated MBS debt. Our Pricing Group performs various review and validation procedures prior to utilizing 

these prices in our fair value estimation process. We verify selected prices, using a variety of methods, including 

corroborating the prices by reference to other independent market data, such as non-binding broker or dealer quotations, 

relevant benchmark indices, and prices of similar instruments. We also review prices for reasonableness based on variations 

from prices provided in previous periods, comparing prices to internally estimated prices, using primarily a discounted cash 

flow approach, and conducting relative value comparisons based on specific characteristics of securities.

We have discussions with the pricing services as part of our due diligence process in order to maintain a current 

understanding of the valuation processes and related assumptions and inputs that these vendors use in developing prices. The 

prices provided to us by third-party pricing services reflect the existence of market reliance upon credit enhancements, if any, 

and the current lack of liquidity in the marketplace. If we determine that a price provided to us is outside established 

parameters, we will further examine the price, including having follow-up discussions with the pricing service or dealer. If 

we conclude that a price is not valid, we will adjust the price for various factors, such as liquidity, bid-ask spreads and credit 

considerations. All of these procedures are executed before we use the prices in preparing our financial statements.

Our Price Verification Group is responsible for performing monthly independent price verification, primarily related to 

financial assets and financial liabilities that are priced by our Pricing Group. This is generally accomplished by comparing the 

value that the Price Verification Group obtains through its own sources and methods with values provided by the Pricing 

Group. Alternatively, the Price Verification Group may perform reviews of the assumptions used by the Pricing Group to 

estimate the fair value of products we hold that have material estimation risk because observable market-based inputs do not 

exist. This group provides an update to the VOC on results, relevant market information and pricing trends, and significant 

valuation challenges and resolution of those challenges with the Pricing Group on a quarterly basis.

We have an internal property valuation function that utilizes an internal model to compare the values received on a property 

and assign a risk rating based on several factors including the deviation between the various values. Property valuations with 
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(In conservatorship)

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risk ratings above a specified threshold are reviewed for reasonableness by a team of property valuation experts. The internal 

model that is used to assign a risk rating and the threshold specified is subject to VOC oversight. In addition, our Quality 

Control Group reviews the overall work performed and inspects a portion of the properties in major markets, for which the 

third-party valuations are obtained, in order to assess the quality of the valuations.

We calibrate the performance of our proprietary distressed home price model using actual offers in recently observed 

transactions. The model’s performance is reviewed on a monthly basis by the REO valuation team and compared quarterly to 

specific model performance thresholds. The results of the validation are regularly reviewed with the VOC.

Our Appraisal Review Group reviews appraisals to determine whether they have been performed in accordance with 

appraisal standards and the results are consistent with our observed transactions on similar properties. We and/or third-party 

servicers review broker price opinions to determine whether the values provided are consistent with our observed transactions 

on similar properties. We conduct quarterly portfolio reviews, annual audits and periodic reviews of the counterparties that 

provide services to review broker price opinions. In addition, valuation results and trend analyses are reviewed at least 

monthly by REO management.

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments as of December 31, 2012

and 2011. The fair value of financial instruments we disclose includes commitments to purchase multifamily and singlefamily mortgage loans, which are off-balance sheet financial instruments that we do not record in our consolidated balance 

sheets. The fair values of these commitments are included as “Mortgage loans held for investment, net of allowance for loan 

losses.” The disclosure excludes certain financial instruments, such as plan obligations for pension and postretirement health 

care benefits, employee stock option and stock purchase plans, and also excludes all non-financial instruments. As a result, 

the fair value of our financial assets and liabilities does not represent the underlying fair value of our total consolidated assets 

and liabilities.
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(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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As of

December 31, 2012 December 31, 2011

Carrying

Value

Quoted Price

in Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Netting

AdjustmentEstimated

Fair Value

Carrying

Value

Estimated

Fair Value

(Dollars in millions)

Financial assets:

Cash and cash equivalents and

restricted cash. . . . . . . . . . . . . . $ 89,036 $ 75,786 $ 13,250 $ — $ — $ 89,036 $ 68,336 $ 68,336

Federal funds sold and securities

purchased under agreements to

resell or similar arrangements . 32,500 — 32,500 — — 32,500 46,000 46,000

Trading securities. . . . . . . . . . . . . 40,695 17,950 20,459 2,286 — 40,695 74,198 74,198

Available-for-sale securities. . . . . 63,181 — 38,147 25,034 — 63,181 77,582 77,582

Mortgage loans held for sale . . . . 464 — 267 208 — 475 311 325

Mortgage loans held for

investment, net of allowance

for loan losses:

Of Fannie Mae . . . . . . . . . . . 305,025 — 39,018 232,170 — 271,188 322,825 294,996

Of consolidated trusts . . . . . . 2,643,917 — 2,528,004 234,424 — 2,762,428 2,575,485 2,652,025

Mortgage loans held for

investment . . . . . . . . . . . . . . . . 2,948,942 — 2,567,022 466,594 — 3,033,616 2,898,310 2,947,021

Advances to lenders . . . . . . . . . . . 7,592 — 6,936 572 — 7,508 5,538 5,420

Derivative assets at fair value. . . . 435 — 16,051 175 (15,791) 435 561 561

Guaranty assets and buy-ups . . . . 327 — — 692 — 692 503 901

Total financial assets. . . . . . . . . . . $ 3,183,172 $ 93,736 $ 2,694,632 $ 495,561 $ (15,791) $ 3,268,138 $ 3,171,339 $ 3,220,344

Financial liabilities:

Short-term debt:

Of Fannie Mae . . . . . . . . . . . $ 105,233 $ — $ 105,253 $ — $ — $ 105,253 $ 146,752 $ 146,782

Of consolidated trusts . . . . . . 3,483 — — 3,483 — 3,483 4,973 4,973

Long-term debt:

Of Fannie Mae. . . . . . . . . . . . 510,631 — 534,516 1,056 — 535,572 585,692 613,983

Of consolidated trusts . . . . . . 2,570,170 — 2,685,008 16,171 — 2,701,179 2,452,455 2,596,657

Derivative liabilities at fair value . 705 — 22,590 161 (22,046) 705 916 916

Guaranty obligations . . . . . . . . . . 599 — — 3,113 — 3,113 811 3,944

Total financial liabilities. . . . . . . . $ 3,190,821 $ — $ 3,347,367 $ 23,984 $ (22,046) $ 3,349,305 $ 3,191,599 $ 3,367,255

Financial Instruments for which fair value approximates carrying value—We hold certain financial instruments that are not 

carried at fair value but for which the carrying value approximates fair value due to the short-term nature and negligible 

credit risk inherent in them. These financial instruments include cash and cash equivalents, the majority of advances to 

lenders and federal funds and securities sold/purchased under agreements to repurchase/resell (exclusive of dollar roll 

repurchase transactions).

Federal funds and securities sold/purchased under agreements to repurchase/resell—The carrying value for the majority of 

these specific instruments approximates the fair value due to the short-term nature and the negligible inherent credit risk, as 

they involve the exchange of liquid collateral. Were we to calculate the fair value of these instruments we would use 

observable inputs resulting in Level 2 classification.

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 

described under “Fair Value Measurement—Mortgage Loans Held for Investment” and these loans are classified as Level 2 
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(In conservatorship)

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of the valuation hierarchy to the extent that significant inputs are observable. To the extent that significant inputs are 

unobservable, the loans are classified within Level 3 of the valuation hierarchy.

Advances to Lenders—The carrying value for the majority of our advances to lenders approximates fair value due to the 

short-term nature and the negligible inherent credit risk. Were we to calculate the fair value of these instruments we would 

use discounted cash flow models that use observable inputs such as spreads based on market assumptions, resulting in Level 

2 classification.

Advances to lenders also include loans for which the carrying value does not approximate fair value. These loans do not 

qualify for Fannie Mae MBS securitization and are valued using market-based techniques including credit spreads, severities 

and prepayment speeds for similar loans, through third-party pricing services or through a model approach incorporating both 

interest rate and credit risk simulating a loan sale via a synthetic structure. We classify these valuations as Level 3 given that 

significant inputs are not observable or are determined by extrapolation of observable points.

Guaranty Assets and Buy-ups—Guaranty assets related to our portfolio securitizations are recorded in our consolidated 

balance sheets at fair value on a recurring basis and are classified within Level 3 of the valuation hierarchy. Guaranty assets 

in lender swap transactions are recorded in our consolidated balance sheets at the lower of cost or fair value. These assets, 

which are measured at fair value on a nonrecurring basis, are classified within Level 3 of the fair value hierarchy.

We estimate the fair value of guaranty assets based on the present value of expected future cash flows of the underlying 

mortgage assets using management’s best estimate of certain key assumptions, which include prepayment speeds, forward 

yield curves, and discount rates commensurate with the risks involved. These cash flows are projected using proprietary 

prepayment, interest rate and credit risk models. Because guaranty assets are like an interest-only income stream, the 

projected cash flows from our guaranty assets are discounted using one-month LIBOR plus an option-adjusted spread that is 

calibrated using a representative sample of interest-only swaps that reference Fannie Mae MBS. We believe the remitted fee 

income is less liquid than interest-only swaps and more like an excess servicing strip. We take a further discount of the 

present value for these liquidity considerations. This discount is based on market quotes from dealers.

The fair value of the guaranty assets includes the fair value of any associated buy-ups, which is estimated in the same manner 

as guaranty assets but is recorded separately as a component of “Other assets” in our consolidated balance sheets.

Guaranty Obligations—The fair value of all guaranty obligations, measured subsequent to their initial recognition, is our 

estimate of a hypothetical transaction price we would receive if we were to issue our guaranty to an unrelated party in a 

standalone arm’s-length transaction at the measurement date. These obligations are classified within Level 3. The valuation 

methodology and inputs used in estimating the fair value of the guaranty obligation are described under “Fair Value 

Measurement—Mortgage Loans Held for Investment, Build-up.”

HARP Loans—We measure the fair value of loans that are delivered under the Home Affordable Refinance Program 

(“HARP”) using a modified build-up approach while the loan is performing. Under this modified approach, we set the credit 

component of the consolidated loans (that is, the guaranty obligation) equal to the compensation we would currently receive 

for a loan delivered to us under the program because the total compensation for these loans is equal to their current exit price 

in the GSE securitization market. For a description of the build-up valuation methodology, refer to “Fair Value Measurement

—Mortgage Loans Held for Investment.” We will continue to use this pricing methodology as long as the HARP program is 

available to market participants. If, subsequent to delivery, the refinanced loan becomes past due or is modified as a part of a 

troubled debt restructuring, the fair value of the guaranty obligation is then measured consistent with other loans that have 

these characteristics.

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are willing to offer 

because HARP is a part of a broader government program intended to provide assistance to homeowners and prevent 

foreclosures. If these benefits were not reflected in the pricing for these loans (that is, if the loans were valued using our 

standard build-up approach), the fair value disclosed in the table above would be lower by $7.6 billion as of December 31, 

2012. The total fair value of the loans in our portfolio that have been refinanced under HARP as of December 31, 2012 as 

presented in the table above is $255.2 billion. In the three months ended December 31, 2012, we revised how we categorize 

our loans to reflect all loans with LTV ratios at origination in excess of 80% as HARP loans. Previously we did not categorize 

loans that were backed by second homes or investor properties as HARP loans.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-104

Fair Value Option

We elected the fair value option for loans which contain embedded derivatives that would otherwise require bifurcation. 

Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative 

from the respective loan.

We elected the fair value option for all long-term structured debt instruments that are issued in response to specific investor 

demand and have interest rates that are based on a calculated index or formula and are economically hedged with derivatives 

at the time of issuance. By electing the fair value option for these instruments, we are able to eliminate the volatility in our 

results of operations that would otherwise result from the accounting asymmetry created by recording these structured debt 

instruments at cost while recording the related derivatives at fair value.

We elected the fair value option for the financial assets and liabilities of the consolidated senior-subordinate trust structures. 

By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that 

would otherwise result from different accounting treatment between loans at cost and debt at cost.

Interest income for the mortgage loans is recorded in “Mortgage loans interest income” and interest expense for the debt 

instruments is recorded in “Long-term debt interest expense” in our consolidated statements of operations and comprehensive 

income (loss).

The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made 

fair value elections as of December 31, 2012 and 2011.

As of

December 31, 2012 December 31, 2011

Loans of 

Consolidated 

Trusts(1)

Long-Term

Debt of

Fannie Mae

Long-Term 

Debt of 

Consolidated 

Trusts(2)

Loans of 

Consolidated 

Trusts(1)

Long-Term

Debt of

Fannie Mae

Long-Term 

Debt of 

Consolidated 

Trusts(2)

(Dollars in millions)

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,800 $ 793 $ 11,647 $ 3,611 $ 838 $ 3,939

Unpaid principal balance . . . . . . . . . . . . . 10,657 674 10,803 4,122 712 4,012

__________

(1) Includes nonaccrual loans with a fair value of $273 million and $195 million as of December 31, 2012 and 2011, respectively. The 

difference between unpaid principal balance and the fair value of these nonaccrual loans as of December 31, 2012 and 2011 is $189 

million and $232 million, respectively. Includes loans that are 90 days or more past due with a fair value of $386 million and $310 

million as of December 31, 2012 and 2011, respectively. The difference between unpaid principal balance and the fair value of these 90 

or more days past due loans as of December 31, 2012 and 2011 is $201 million and $262 million, respectively.

(2) Includes interest-only debt instruments with no unpaid principal balance and a fair value of $100 million and $115 million as of 

December 31, 2012 and 2011, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-105

Changes in Fair Value under the Fair Value Option Election

The following table displays fair value gains and losses, net, including changes attributable to instrument-specific credit risk, 

for loans and debt for which the fair value election was made. Amounts are recorded as a component of “Fair value losses, 

net” in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2012, 

2011 and 2010.

For the Year Ended December 31,

2012 2011 2010

Loans

LongTerm DebtTotal 

Losses Loans

LongTerm DebtTotal 

Losses Loans

LongTerm DebtTotal 

Losses

(Dollars in millions)

Changes in instrument-specific

credit risk . . . . . . . . . . . . . . . . . . $ (25) $ (13) $ (38) $ (215) $ 10 $ (205) $ (58) $ (9) $ (67)

Other changes in fair value . . . . . . (124) (76) (200) 79 (92) (13) (73) 14 (59)

Fair value (losses) gains, net. . . $ (149) $ (89) $ (238) $ (136) $ (82) $ (218) $ (131) $ 5 $ (126)

In determining the changes in the instrument-specific credit risk for loans, the changes in the associated credit-related 

components of these loans, primarily the guaranty obligation, were taken into consideration with the overall change in the fair 

value of the loans for which we elected the fair value option for financial instruments. In determining the changes in the 

instrument-specific credit risk for debt, the changes in Fannie Mae debt spreads to LIBOR that occurred during the period 

were taken into consideration with the overall change in the fair value of the debt for which we elected the fair value option 

for financial instruments. Specifically, cash flows are evaluated taking into consideration any derivatives through which 

Fannie Mae has swapped out of the structured features of the notes and thus created a floating-rate LIBOR-based debt 

instrument. The change in value of these LIBOR-based cash flows based on the Fannie Mae yield curve at the beginning and 

end of the period represents the instrument-specific risk.

18. Commitments and Contingencies

We are party to various types of legal actions and proceedings, including actions brought on behalf of various classes of 

claimants. We also are subject to regulatory examinations, inquiries and investigations and other information gathering 

requests. In some of the matters, indeterminate amounts are sought. Modern pleading practice in the U.S. permits 

considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify 

the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the 

jurisdiction of the trial court. This variability in pleadings, together with our and our counsel’s actual experience in litigating 

or settling claims, leads us to conclude that the monetary relief that may be sought by plaintiffs bears little relevance to the 

merits or disposition value of claims. 

On a quarterly and annual basis, we review relevant information about all pending legal actions and proceedings for the 

purpose of evaluating and revising our contingencies, reserves and disclosures. 

Legal actions and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with 

assurance. Accordingly, the outcome of any given matter and the amount or range of potential loss at particular points in time 

is frequently difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the 

credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law. Disposition 

valuations are also subject to the uncertainty of how opposing parties and their counsel view the evidence and applicable law. 

Further, FHFA adopted a regulation in 2011, which provides, in part, that while we are in conservatorship, FHFA will not pay 

claims by our current or former shareholders, unless the Director of FHFA determines it is in the interest of the 

conservatorship. The presence of this regulation and the Director of FHFA’s assertion that FHFA will not pay claims asserted 

in certain cases discussed below while we are in conservatorship creates additional uncertainty in those cases. 

We establish a reserve for those matters when a loss is probable and we can reasonably estimate the amount of such loss. 

Reserves have been established for certain of the matters noted below. These reserves did not have a material adverse effect 

on our financial statements. We note, however, that in light of the uncertainties involved in such actions and proceedings, 

there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves we have currently 

accrued. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-106

For the remaining legal actions or proceedings, including those where there is only a reasonable possibility that a loss may be 

incurred, we are not currently able to estimate the reasonably possible losses or ranges of losses and we have not established 

a reserve with respect to those actions or proceedings. We are often unable to estimate the possible losses or ranges of losses, 

particularly for proceedings that are in their early stages of development, where plaintiffs seek substantial or indeterminate 

damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where settlement negotiations 

have not occurred or progressed. Further, as noted above, FHFA’s regulation and the Director of FHFA’s assertion creates 

additional uncertainty with respect to certain cases. 

Given the uncertainties involved in any action or proceeding, regardless of whether we have established a reserve, the 

ultimate resolution of certain of these matters may be material to our operating results for a particular period, depending on, 

among other factors, the size of the loss or liability imposed and the level of our net income or loss for that period. Based on 

our current knowledge with respect to the matters described below, we believe we have valid defenses to the claims in these 

proceedings and intend to defend these matters vigorously regardless of whether or not we have recorded a loss reserve. 

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that 

arise in the ordinary course of business that we do not expect will have a material impact on our business or financial 

condition. We have advanced fees and expenses of certain current and former officers and directors in connection with 

various legal proceedings pursuant to indemnification agreements. 

In re Fannie Mae Securities Litigation

Fannie Mae is a defendant in a consolidated class action lawsuit initially filed in 2004 and currently pending in the U.S. 

District Court for the District of Columbia. In the consolidated complaint filed in 2005, lead plaintiffs Ohio Public 

Employees Retirement System and State Teachers Retirement System of Ohio allege that we and certain former officers, as 

well as our former outside auditor, made materially false and misleading statements in violation of Sections 10(b) and 20(a) 

of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder. Plaintiffs contend that Fannie Mae’s 

accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of 

premiums and discounts, and seek unspecified compensatory damages, attorneys’ fees, and other fees and costs. On 

January 7, 2008, the court defined the class as all purchasers of Fannie Mae common stock and call options and all sellers of 

publicly traded Fannie Mae put options during the period from April 17, 2001 through December 22, 2004. On October 17, 

2008, FHFA, as conservator for Fannie Mae, intervened in this case. In 2011, the parties filed various motions for summary 

judgment. On September 20, 2012, the court granted summary judgment to defendant Franklin D. Raines, Fannie Mae’s 

former Chief Executive Officer, on all claims against him. On October 16, 2012, the court granted summary judgment to 

defendant J. Timothy Howard, Fannie Mae’s former Chief Financial Officer, on all claims against him. On November 20, 

2012, the court granted summary judgment to defendant Leanne Spencer, Fannie Mae’s former Controller, on all claims 

against her. The other motions for summary judgment remain pending.

As discussed above, FHFA adopted a regulation in 2011, that provides in part that while we are in conservatorship, FHFA will 

not pay claims by our current or former shareholders, unless the Director of FHFA determines it is in the interest of the 

conservatorship. FHFA’s regulation has been challenged by lead plaintiffs in a separate lawsuit also pending in the U.S. 

District Court for the District of Columbia. 

In September and December 2010, plaintiffs served expert reports claiming damages to plaintiffs under various scenarios 

ranging cumulatively from $2.2 billion to $8.6 billion. Given the substantial and novel legal questions that remain, including 

those raised by FHFA’s regulation and the Director of FHFA’s determination, we are currently unable to estimate the 

reasonably possible loss or range of loss arising from this litigation. 

2008 Class Action Lawsuits

Fannie Mae is a defendant in two consolidated class actions filed in 2008 and currently pending in the U.S. District Court for 

the Southern District of New York—In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA

Litigation. On February 11, 2009, the Judicial Panel on Multidistrict Litigation ordered that the cases be coordinated for 

pretrial proceedings. 

In re Fannie Mae 2008 Securities Litigation 

In a consolidated amended complaint filed on June 22, 2009, lead plaintiffs Massachusetts Pension Reserves Investment 

Management Board and Boston Retirement Board (for common shareholders) and Tennessee Consolidated Retirement 

System (for preferred shareholders) allege that we, certain of our former officers, and certain of our underwriters violated 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-107

Sections 12(a)(2) and 15 of the Securities Act of 1933. Lead plaintiffs also allege that we, certain of our former officers, and 

our outside auditor, violated Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange 

Act of 1934. Lead plaintiffs seek various forms of relief, including rescission, damages, interest, costs, attorneys’ and experts’

fees, and other equitable and injunctive relief. On October 13, 2009, the Court entered an order allowing FHFA to intervene. 

In 2009, the Court granted the defendants’ motion to dismiss the Securities Act claims as to all defendants. In 2010, the Court 

granted in part and denied in part the defendants’ motions to dismiss the Securities Exchange Act claims. As a result of the 

partial denial, some of the Securities Exchange Act claims remained pending against us and certain of our former officers. 

Fannie Mae filed its answer to the consolidated complaint on December 31, 2010. In 2011, lead plaintiffs filed motions to 

certify a class of persons who, between November 8, 2006 and September 5, 2008, inclusive, purchased or acquired 

(a) Fannie Mae common stock and options or (b) Fannie Mae preferred stock. 

Plaintiffs filed a second amended joint consolidated class action complaint on March 2, 2012 and added FHFA as a 

defendant. On August 30, 2012, the court denied defendants’ motions to dismiss the second amended complaint, allowing 

plaintiffs’ Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures to proceed along with 

plaintiffs’ claims premised on Fannie Mae’s risk management disclosures. Fannie Mae filed its answer to the second amended 

complaint on October 29, 2012. Discovery is ongoing.

Given the stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the substantial and novel legal 

questions that remain, we are currently unable to estimate the reasonably possible loss or range of loss arising from this 

litigation.

In re 2008 Fannie Mae ERISA Litigation 

In a consolidated complaint filed in 2009, plaintiffs allege that certain of our current and former officers and directors, 

including former members of Fannie Mae’s Benefit Plans Committee and the Compensation Committee of Fannie Mae’s 

Board of Directors, as fiduciaries of Fannie Mae’s Employee Stock Ownership Plan (“ESOP”), breached their duties to ESOP

participants and beneficiaries by investing ESOP funds in Fannie Mae common stock when it was no longer prudent to 

continue to do so. Plaintiffs purport to represent a class of participants and beneficiaries of the ESOP whose accounts 

invested in Fannie Mae common stock beginning April 17, 2007. The plaintiffs seek unspecified damages, attorneys’ fees and 

other fees and costs, and injunctive and other equitable relief. On February 1, 2012, plaintiffs sought leave to amend their 

complaint to add new factual allegations and the court granted plaintiffs’ motion. Plaintiffs filed an amended complaint on 

March 2, 2012 adding two current Board members and then-CEO Michael J. Williams as defendants. On October 22, 2012, 

the court granted in part and denied in part defendants’ motions to dismiss. The court dismissed with prejudice claims against 

seven former and current directors and officers who joined the Board of Directors or Benefit Plans Committee after Fannie 

Mae was placed into conservatorship. The court allowed plaintiffs’ breach of fiduciary duty and failure to monitor claims to 

go forward, but dismissed plaintiffs’ conflict of interest claim. Discovery is ongoing.

Given the stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the substantial and novel legal 

questions that remain, we are currently unable to estimate the reasonably possible loss or range of loss arising from this 

litigation. 

Comprehensive Investment Services v. Mudd, et al.

This individual securities action was originally filed on May 13, 2009, by plaintiff Comprehensive Investment Services, Inc. 

against certain of our former officers and directors, and certain of our underwriters in the U.S. District Court for the Southern 

District of Texas. On July 7, 2009, this case was transferred to the Southern District of New York for coordination with In re 

Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. Plaintiff filed an amended complaint on 

May 11, 2011 against us, certain of our former officers, and certain of our underwriters. The amended complaint alleges 

violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violations of 

Section 20(a) of the Securities Exchange Act of 1934; and violations of the Texas Business and Commerce Code, common 

law fraud, and negligent misrepresentation in connection with Fannie Mae’s May 2008 $2.0 billion offering of 8.25% noncumulative preferred Series T stock. Plaintiff seeks relief in the form of rescission, actual damages, punitive damages, 

interest, costs, attorneys’ and experts’ fees, and other equitable and injunctive relief. Plaintiff filed a second amended 

complaint on March 2, 2012. On August 30, 2012, the court denied defendants’ motions to dismiss the second amended 

complaint, allowing plaintiff’s Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures 

and risk management disclosures to proceed. The court granted defendants’ motions to dismiss the state law claims, as well as 

the federal claims based on alleged violations of GAAP, and also dismissed two of our former officers from the action. On 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-108

October 10, 2012, the court denied plaintiff’s motion for reconsideration of the court’s order dismissing plaintiff’s state law 

claims against certain underwriters of Fannie Mae’s Series T preferred stock. Fannie Mae filed its answer to the amended 

complaint on October 29, 2012. Discovery is ongoing.

Given the stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the substantial and novel legal 

questions that remain, we are currently unable to estimate the reasonably possible loss or range of loss arising from this 

litigation. 

Smith v. Fannie Mae, et al.

This individual securities action was originally filed on February 25, 2010, by plaintiff Edward Smith against Fannie Mae 

and certain of its former officers as well as several underwriters in the U.S. District Court for the Central District of 

California. On April 12, 2010, this case was transferred to the Southern District of New York for coordination with In re 

Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. Plaintiff filed an amended complaint on 

April 19, 2011, which alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated 

thereunder; violations of Section 20(a) of the Securities Exchange Act of 1934; common law fraud and negligence claims; 

and California state law claims for misrepresentation in connection with Fannie Mae’s December 2007 $7.0 billion offering 

of 7.75% fixed-to-floating rate non-cumulative preferred Series S stock. Plaintiff seeks relief in the form of rescission, actual 

damages (including interest), and exemplary and punitive damages. Plaintiff filed a second amended complaint, allowing 

plaintiff’s Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures and risk management 

disclosures to proceed, but granted defendants’ motions to dismiss the state law claims. On October 10, 2012, the court 

denied plaintiff’s motion for reconsideration of the court’s order dismissing plaintiff’s state law claims against certain 

underwriters of Fannie Mae’s Series S preferred stock. Fannie Mae filed its answer to the amended complaint on October 29, 

2012. Discovery is ongoing.

Given the stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the substantial and novel legal 

questions that remain, we are currently unable to estimate the reasonably possible loss or range of loss arising from this 

litigation. 

Transfer Tax Litigation

A number of lawsuits have been filed against us in multiple states challenging our right to claim an exemption under our 

charter from transfer taxes in connection with the recordation of deeds upon transfers of real property by sale or foreclosure. 

The plaintiffs in several of these lawsuits seek to represent a nationwide class of localities. In addition, we have filed a 

lawsuit against the state of Illinois and four counties seeking a judgment that we are exempt from these transfer taxes. If any 

of these lawsuits are decided against us, we may be required to pay past transfer taxes, damages, fees and/or costs. Although 

we believe that our charter provides us with an exemption from these taxes and therefore we have a valid defense in these 

lawsuits, in March 2012 a federal district court in Michigan held in two cases that we are not exempt from Michigan transfer 

taxes under our charter. We, along with FHFA and Freddie Mac, filed a Petition for Permission to Appeal the two Michigan 

decisions with the U.S. Court of Appeals for the Sixth Circuit, which was granted on September 5, 2012. The appeal is fully 

briefed. Since these two adverse rulings in Michigan, a number of courts have agreed with our position that we are exempt 

from these transfer taxes under our charter. We do not expect the outcome of these lawsuits to have a material impact on our 

results of operations or financial condition. 
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-109

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. 

Unfunded lending represents off-balance sheet commitments for the unutilized portion of lending agreements entered into 

with multifamily borrowers. 

We lease certain premises and equipment under agreements that expire at various dates through 2029. 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 $41 million, $40 million and $35 million for the years ended December 31, 2012, 2011 

and 2010, respectively. 

The following table summarizes by remaining maturity, non cancelable future commitments related to loan and mortgage 

purchases, unfunded lending, operating leases, and other agreements as of December 31, 2012.

As of December 31, 2012

Loans and MortgageRelated Securities(1)Unfunded

Lending

Operating 

Leases Other(2)

(Dollars in millions)

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,309 $ 11 $ 35 $ 51

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 34 50

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4 30 22

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 24 21

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 22 1

Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 9 —

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,310 $ 16 $ 154 $ 145

__________

(1) Includes $64.7 billion that has been accounted for as mortgage commitment derivatives.

(2) Includes purchase commitments for certain telecom services, computer software and services, and other agreements.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-110

19. Selected Quarterly Financial Information (Unaudited)

The consolidated statements of operations for the quarterly periods in 2012 and 2011 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. 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 2012 Quarter Ended

March 31 June 30 September 30 December 31

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

Interest income:

Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 449 $ 73 $ 234 $ 233

Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 1,035 789 748

Mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,570 32,023 30,593 29,520

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 40 53 65

Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,784 33,171 31,669 30,566

Interest expense:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 32 38 40

Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,545 27,711 26,314 24,967

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,587 27,743 26,352 25,007

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,197 5,428 5,317 5,559

(Provision) benefit for credit losses(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,000) 3,041 (2,079) 1,890

Net interest income after (provision) benefit for credit losses . . . . . . . . . . . . . . 3,197 8,469 3,238 7,449

Investment gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 131 134 106

Other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80) (196) (17) (18)

Noncredit portion of other-than-temporary impairments recognized in other 

comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16 (403) (21) 6

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) (599) (38) (12)

Fair value gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 (2,449) (1,020) 209

Debt extinguishment losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) (93) (54) (63)

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 395 378 339

Non-interest income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676 (2,615) (600) 579

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 292 294 303

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 179 195 224

Occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 48 48 49

Other administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 48 51 72

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564 567 588 648

Foreclosed property expense (income). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 (70) (48) (475)

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 238 285 285

Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,155 735 825 458

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,718 5,119 1,813 7,570

 Less: Net loss (income) attributable to noncontrolling interest. . . . . . . . . . . 1 (5) 8 —

Net income attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,719 5,114 1,821 7,570

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,817) (2,929) (2,929) (2,928)

Undistributed earnings available for distribution to senior preferred 

stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (4,224)

Net (loss) income attributable to common stockholders (Note 11) . . . . . . . . . . $ (98) $ 2,185 $ (1,108) $ 418

(Loss) earnings per share:

Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.02) $ 0.38 $ (0.19) $ 0.07

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) 0.37 (0.19) 0.07

Weighted-average common shares outstanding:

Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,761 5,762 5,762 5,762

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,761 5,893 5,762 5,893

__________

(1) Includes out-of-period adjustments of $548 million, $503 million, $850 million, and $172 million which increased our provision for 

credit losses for the three months ended March 31, 2012, June 30, 2012, September 30, 2012, and December 31, 2012, respectively.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-111

For the 2011 Quarter Ended

March 31 June 30 September 30 December 31(1)

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

Interest income:

Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 284 $ 264 $ 274 $ 265

Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,213 1,152 1,160 (248)

Mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,590 35,333 34,334 33,205

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 25 26 38

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,115 36,774 35,794 33,260

Interest expense:

Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 81 66 56

Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,048 31,721 30,542 29,041

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,155 31,802 30,608 29,097

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,960 4,972 5,186 4,163

Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,554) (6,537) (4,151) (5,476)

Net interest (loss) income after provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . (5,594) (1,565) 1,035 (1,313)

Investment gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 171 73 187

Other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57) (28) (232) (297)

Noncredit portion of other-than-temporary impairments recognized in other 

comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (28) (30) 351

Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (56) (262) 54

Fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 (1,634) (4,525) (751)

Debt extinguishment gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (43) (119) (83)

Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 265 291 370

Non-interest income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570 (1,297) (4,542) (223)

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 310 323 283

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 169 173 205

Occupancy expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 43 46 48

Other administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 47 49 69

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605 569 591 605

Foreclosed property expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488 (478) 733 37

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 32 254 228

Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445 123 1,578 870

Loss before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,469) (2,985) (5,085) (2,406)

(Provision) benefit for federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 93 — (1)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,471) (2,892) (5,085) (2,407)

Less: Net (income) loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . — (1) — 1

Net loss attributable to Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,471) (2,893) (5,085) (2,406)

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,216) (2,282) (2,494) (2,622)

Net loss attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,687) $ (5,175) $ (7,579) $ (5,028)

Loss per share—Basic and Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.52) $ (0.90) $ (1.32) $ (0.87)

Weighted-average common shares outstanding—Basic and Diluted . . . . . . . . . . . . . . . 5,698 5,730 5,760 5,760

__________

(1) Includes an out-of-period adjustment of $933 million comprised of $1.2 billion to reduce “Interest Income: Available-for-sale 

securities” offset by a $264 million reduction to “Other-than-temporary impairments” in our consolidated statement of operations and 

comprehensive loss for the three months ended December 31, 2011.

20. Subsequent Events

Repurchase Request Resolution Agreement

On January 6, 2013, we entered into an agreement (the “resolution agreement”) with Bank of America, N.A., Countrywide 

Home Loans, Inc., and other parties, each of which is an affiliate of Bank of America Corporation, to resolve certain 

repurchase requests arising from breaches of selling representations and warranties.

The resolution agreement resolved our outstanding and expected future repurchase requests arising from breaches of selling 

representations and warranties on specified single-family loans delivered to us by Bank of America and Countrywide that 

were originated between January 1, 2000 and December 31, 2008. The resolution agreement included the following 

components:
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-112

• Bank of America made a cash payment to us of $3.6 billion related to repurchase requests in January 2013; and

• Bank of America repurchased approximately 29,500 loans from us in January 2013 for an aggregate repurchase 

price of $6.6 billion, subject to a reconciliation process.

The resolution agreement also provided that:

• We released Bank of America from current and future repurchase liability in connection with seller representations 

and warranties on the loans covered by the agreement, except for repurchase obligations arising out of specified 

excluded defects (for example, certain violations of our Charter Act);

• We retained ownership of all of the loans covered by the agreement, other than the loans that Bank of America 

repurchased pursuant to the agreement and any additional loans that will be repurchased by Bank of America in the 

future due to an excluded defect;

• Bank of America continues to be responsible for certain payments and related obligations with respect to mortgage 

insurance rescissions, cancellations and denials on the loans covered by the agreement, which obligations are in 

addition to the cash payment and the repurchase price described above. In January 2013, Bank of America made an 

initial cash payment of $518 million related to mortgage insurance claims; and

• Bank of America continues to be responsible for its servicing, third-party indemnification and recourse obligations 

with respect to the loans covered by the agreement.

The resolution agreement addressed $11.3 billion of unpaid principal balance, or 97%, of our outstanding repurchase requests 

made to Bank of America as of December 31, 2012. Accordingly, the amount of our outstanding repurchase requests will 

decrease substantially in the three months ending March 31, 2013 as outstanding repurchase requests to Bank of America 

represent 73% of our total repurchase requests outstanding as of December 31, 2012.

The following table displays the impact of this agreement that we recognized in our consolidated statement of operations and 

comprehensive income (loss) for the year ended December 31, 2012.

For the Year Ended

December 31, 2012

(Dollars in millions)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181

Benefit for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841

Foreclosed property income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,128

Below we describe the resolution agreement’s impact on our consolidated statement of operations and comprehensive income 

(loss).

As of December 31, 2012, we adjusted our allowance for loan losses to consider the net impact of the resolution agreement as 

it related to both the loans to be repurchased as well as the loans for which we retained ownership. For loans that Bank of 

America repurchased in accordance with the resolution agreement, we eliminated the associated allowance for loan losses as 

we no longer expected to incur any loss on them. For loans that we retained, we adjusted the estimated repurchase benefit in 

the allowance for loan losses to reflect only the compensation we would receive under the terms of the agreement. In 

addition, the loans that Bank of America repurchased that were on nonaccrual status before the settlement of the agreement 

were returned to accrual status as of December 31, 2012 to reflect the change in our assessment of collectibility, which 

resulted in additional net interest income for the year ended December 31, 2012.

For loans that had previously charged off, for the year ended December 31, 2012, we recognized foreclosed property income 

and a benefit for credit losses for cash received under the terms of the resolution agreement for which we had an outstanding 

repurchase request or mortgage insurance receivable as of December 31, 2012. The income recognized for the year ended 

December 31, 2012 relates to cash received for these receivables in excess of the amounts previously charged off.

Upon settlement of the resolution agreement in the three months ending March 31, 2013, the unamortized basis adjustments 

on the loans repurchased by Bank of America will be recognized into net interest income, resulting in additional net interest 

income. In addition, in the three months ending March 31, 2013 we expect to record foreclosed property income and a benefit 

for credit losses for cash received under the terms of the agreement for previously charged off loans for which we had no 

outstanding repurchase request as of December 31, 2012.
FANNIE MAE

(In conservatorship)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F-113

Compensatory Fee Resolution Agreement

On January 6, 2013, we and Bank of America entered into an agreement (the “compensatory fee agreement”) to resolve 

outstanding and certain future compensatory fees owed by Bank of America due to servicing delays. Bank of America made 

an initial payment to us of $1.3 billion in January 2013. Subsequent to the initial payment, we and Bank of America will 

complete a loan review process in 2013 as specified in the compensatory fee agreement to mutually determine the final 

amount of compensatory fees owed. For the year ended December 31, 2012, we recognized income of $203 million in 

“Foreclosed property (income) expense” in our consolidated statement of operations and comprehensive income (loss) as a 

result of the compensatory fee agreement. Any remaining amount will be recognized in 2013 once we have completed a 

sufficient portion of the loan review process to determine the final amount of income that will be received under the terms of 

the agreement.
FR013